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Business-to-Business Marketing Media Markets

Business-to-Business Marketing Media Markets. Haas School of Business UC Berkeley Fall 2008 Week 12 Zsolt Katona. 1. Overview. Week 12 Media Markets (Two-sided markets) Second Life Week 13 B2B E-Marketplaces Industrat Decision 9 Week 14 Online Marketing and B2B

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Business-to-Business Marketing Media Markets

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  1. Business-to-Business MarketingMedia Markets Haas School of Business UC Berkeley Fall 2008 Week 12 Zsolt Katona 1

  2. Overview • Week 12 • Media Markets (Two-sided markets) • Second Life • Week 13 • B2B E-Marketplaces • Industrat Decision 9 • Week 14 • Online Marketing and B2B • Industrat Decision 10 • Week 15 • Pricing in Industrial Markets 2

  3. XM Satellite Radio – What Happened? • Launched in September 2001– first operational satellite service (beat Sirius) • Hugh Panero: “I am proud to announce that after being fully national for only 56 days, XM has over 30k subscribers… will people pay for radio? The answer is a resounding ‘YES’.” • 2001: “Product of the Year” (Fortune), “Invention of the Year” (Time) • XM fastest-selling audio product in 20 years (based on first 3 months)

  4. XM Satellite Radio– What Happened(cont.) • XM launched with a $10 subscription price (combination of competitive pressure + advertising analysis) • XM aired with ads: 4-6 minutes on about half of music channels (35 channels with ads) 7-9 minutes on talk and third-party programming, like CNN (XM believed other value propositions were far more important than completely ad free, consumers won’t mind limited ads, will be possible to change)– initial research 3 months after launch:

  5. XM vs. SIRIUS • Sirius launched in February of 2002 • 100% commercial free on all music channels • Service price: $12.95 a month ($3 more than XM! More consistent with market research analysis…) • XM secured GM, Sirius secured Ford and DaimlerChrysler • Sirius puts emphasis on retailers – particularly Best Buy and Circuit City

  6. XM vs. SIRIUS At retail the sales rep had no easy way to communicate the difference between XM and Sirius other than: -- “XM is cheaper on subscription but you have the ads while Sirius is ad free and costs you 3 bucks more” -- didn’t always mention that advertising was limited, didn’t always remember the nuanced details, no real incentive to differentiate -- both had 100 channels (and impossible for the salesperson to articulate a specific difference) -- XM couldn’t afford the discussion to be framed that way • In February of 2004 XM announces: “Commercial free on all music channels!” • In April of 2005 XM announces that it is raising the price of its subscription to $12.95 a month – at that point, no difference in revenue model…

  7. XM Financials Sirius Financials

  8. Advertising Revenue on Non-Music Channels In 2006 • XM $35.3m • Sirius $31m • In 2007 • XM $39.2m • Sirius $39.95m • (corresponds to roughly 40cents per month per subscriber)

  9. Satellite Radio Diffusion Pattern

  10. XM and Sirius Merger • Announced February 19th 2007; needs government + FCC approval • When gave licenses in 1997 stipulated: “ One licensee will not be permitted to acquire control of the other remaining one” • Merger approved in July, 2008. New name: Sirius XM Radio • Regulators require: price freeze for three years; 24 channels turned over to noncommercial and minority programming; a la carte channel subscriptions and cross-offering of packages • “Best of both” subscription for $16.99 • Working on a dual-receiver

  11. Media Markets Media firms buy consumers’ attention by offering free content Low content prices attract more eyeballs, which can be sold to advertisers Too many commercials may annoy viewers Attention Attention Broadcast TV Advertisers Consumers Payment (free content) Payment Subsidy Attention Attention XM Radio Advertisers Consumers Content Payment Payment (less then w/o advertising)

  12. Two-Sided Markets Side 2 Side 1 Platform • Platform: the product or service that brings together two markets • More demand on one side stimulates (sometimes hurts) demand on the other side • XM Radio • Side 1: Subscribers • Side 2: Advertisers • Typical scenario: One side is B2C, other is B2B

  13. Examples

  14. Key Challanges • How to price? Which side to subsidize? • Winner-takes-all dynamics • Envelopment

  15. Pricing Take into account cross-side network effects Subsidize one side Which one? Price sensitivity Quality sensitivity Variable cost Brand value

  16. Pricing Side 1 Side 2 Demand Demand Price Price

  17. Winner-Takes-All Dynamics How many platforms can the market support? User switching costs Network effects No strong preference for special features

  18. Envelopment Multiplatform bundles as threats (convergence) Sell or Change business model or Sue

  19. Summary Two-sided markets are common in high-tech industries Usually one side is B2B, but Cannot be treated separately from B2C side

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