Media Economics

1. Media Economics

2. What Is Media Economics? • The commercial media consist of enterprises that: • Create or acquire content. • Distribute content (news, information, entertainment, or data) to an audience. • Content ----- Medium ----- Audience (Method of distribution)

3. Business Models Advertising/Subscription Hybrid(Dual Rev. Stream) SubscriptionOnly(Single Rev. Stream) Advertising Only(Single Rev. Stream) Transaction(Single Rev. Stream) Cable Newspapers Magazines TV Radio Google Outdoor HBO Newsletters Mobile Movies DVDs Music Content ownership cost is highest Content access cost is low Content access cost is higher Content access is free Content creation, distribution, access, and advertising-delivery business Content creation, distribution, and advertising-delivery business Content creation, distribution, and access business Content creation, distribution, and retail business

4. Media Content • Content creation includes actually creating it or acquiring it. • There are many types of content: • Entertainment • News • Information • Opinion • Pornography • Games • Data

5. Consumers/Customers • A consumer uses a product: Radio, TV, Web sites • Audience or readers • A customer buys a product: Newsletters, music, HBO, DVDs • Advertisers are customers for radio, TV, magazines, newspapers, Web sites—they buy access to audience/readers/users. • Subscription revenue is minor. • Who is P&G’s customer? • In some businesses the consumer and the customer are the same person • Detergent, razors

6. Media Economics • Media economics is the study of how media enterprises: • Create or acquire content. • Distribute it to targeted audiences. • Generate revenue. • Make a profit.

7. Media Enterprises • Typically incorporated • Limited liability • Types of corporations • Private (LLC, LP, S Corp) – Flow-through entity • Public (C Corp) – Tax-paying entity

8. The 7-S Model of a Business “Structure follows strategy” Strategy Style Structure Shared Values Staff Skills Systems “Get the right people on the bus.”

9. Structure of a Corporation • Board of Directors • President/CEO • Divisions/Functions • Staff and Operating • CFO • CMO • Sales, Advertising, Customer Service, Promotion, Distribution • CTO/Head of Production • Operations, Production • CIO

10. Purpose of a Corporation • To create and keep customers • Can’t make a profit unless you have customers • To serve stakeholders • Consumers/audience • Customers/advertisers • Society • Employees • Stockholders (owners, investors, lenders) • To survive • Need profits • Need to innovate and adapt (innovator’s dilemma—disruptive technologies)

11. Create a Customer • Must satisfy unmet consumer/audience needs and wants—benefits sought (might be unrecognized). • Find an underserved niche (don’t go after McDonalds or Google). • SWOT analysis (strengths, weaknesses, opportunities, and threats). • Create a business concept and strategy (see following Five-Forces slide). • Create a differential, sustainable, promotable competitive advantage that will get customers/audience and keep them. • Best way – high barrier to entry. • Create a business model that monitizes content/audience/traffic.

12. MichaelPorter “The Five Competitive Forces That Shape Strategy,” Michael Porter, Harvard Business Review, January 2008.

13. The Internet Changes Everything • Threat of new entrants: • Barriers to entry and been brought down to virtually zero, especially in the media. • Bargaining power of buyers: • Because of search and easy comparisons, the consumer is in control. • Threat of substitute products or services: • Many potential threats because of low barriers to entry in the media business.

14. Bargaining power of suppliers: • Often high because of proprietary technology (Apple iTunes, Kindle, e.g.). • Rivalry among competitors: • Substantial because of plethora of competitors – fragmentation of the media. • More difficult to get and sustain a competitive advantage.

15. Competitive Advantage • The main source of competitive advantage is barrier to entry.

16. Real Competitive Advantage (Barriers to Entry) • Economies of scale • Fixed costs • Network effects • Customer captivity • Habit • Switching costs • Search costs • Cost • Proprietary technology • Learning • Access to resources • Government protection • Licenses, e.g.

17. Sham Sources of Competitive Advantage * • Deep pockets • Brands • Talent • Creative • Management • First mover The Curse of the Mogul, Knee, Greenwald, and Seave, Portfolio, 2009.

18. Media Industry Structure * Content Packaging Retail Segment * Aggregation * Marketing and promotion * Wholesale distribution * Delivery to final customer * Creative data production Key Function * Artist/production house * Author/imprint * Journalist/title * Cable channel * Book publisher * Newspaper/ magazine publisher * TV/radio network * Cable systems * Book retailer * Newsstands/postal services * Newspaper delivery * Local TV/radio stations * Billboards Examples * The Curse of the Mogul, Knee, Greenwald, and Seave, Portfolio, 2009.

19. Mapping to Assess Competitive Advantage D e c r e a s i n g A d v a n t a g e Increasing Competitive Advantage Retail Content Packaging Continuous Physical Local Mixed Mixed Hybrid Electronic National/Global Discrete *The Curse of the Mogul, Knee, Greenwald, and Seave, Portfolio, 2009.

20. The New Environment Debunks Media Myths • Myth: Growth is good. • Myth: The gospel of going global. • Myth: Content is king. • Myth: The cult of convergence. • For old-line media companies – “The Internet is not your friend.” *The Curse of the Mogul, Knee, Greenwald, and Seave, Portfolio, 2009.