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. Four Media Business Models Advertising Only(Single Revenue Stream) Advertising/Subscription Hybrid(Dual Revenue Stream) SubscriptionOnly(Single Revenue Stream) Transaction(Single Revenue 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, websites • Audience or readers • A customer buys a product: Newsletters, music, HBO, DVDs • Advertisers are customers for radio, TV, magazines, newspapers, websites—they buy access to audience/readers/users. • Subscription revenue is relatively 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. • Package it. • 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 entities • 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 (Chief Financial Officer) • CMO (Chief Marketing Officer) • Sales, Advertising, Customer Service, Promotion, Distribution • CTO (Chief Technical Officer)/Head of Production • Operations, Production • CIO (Chief Information Officer)

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. • Not in telecommunications, broadband. • 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. • Hard to achieve except by mergers and consolidation, which create huge companies that are near monopolies. • Bad for consumers.

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 (Microsoft, e.g.) • Brands (JC Penny, e.g.) • Talent (but lack of execution) • Creative • Management • First mover (My Space, e.g.) * 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 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. 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.