Copyright © 2002 Pearson Education, Inc.
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CHAPTER 14
Online Content Providers:
Digital Media
Created by, David Zolzer, Northwestern State University—Louisiana
Copyright © 2002 Pearson Education, Inc.
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Learning Objectives

Identify the major trends in the
consumption of media and online content.
 Discuss the concept of media
convergence and challenges it faces.
 Describe five basic content revenue
models.
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Learning Objectives

Discuss the key challenges facing content
producers and owners.
 Understand the key factors affecting the
online newspaper, e-book, and online
magazine industries.
 Understand the key factors affecting the
online entertainment industry.
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Online Content

The Web, by definition, is a source of
online content.
 The average American adult spends over
3,500 hours each year consuming various
media.
 By 2005, this amount is expected to grow
to 10 hours per day or 3,650 hours per
year.
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Media Utilization
Page 790, Figure 14.1
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Internet and Traditional
Media

Time spent on the Internet reduces
consumer time available for other media.
 Internet users view television only 12.3
hours per week, compared to 16.8 hours
per week for non-users.
 Internet users spent 15% to 20% less time
reading books, newspapers, and
magazines.
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Internet and Traditional
Media

Internet users consume more media of all
types than non-Internet users.
 This reflects the demographics of the
Internet user as more literate, wealthier,
more technically savvy, and more media
aware.
 Internet users multitask when using the
Internet, frequently listening to music,
watching television, and using instant
messaging while working on other tasks.
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Media Revenues
Page 791, Figure 14.2
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Media Revenues

Total media revenues were $242 billion in
2000.
 The Internet constitutes only 3% of total
media revenues.
 Paid content and archived content
revenues will increase five to ten times by
2005, making the Internet the fast growing
media for content revenues.
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Direct Consumer Paid
Online Content Forecast
Page 792, Table 14.1
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Media Industry Structure

Media content industry prior to 1990 was
composed of many smaller independent
corporations specializing in content creation and
distribution in separate industries.
 Media industry is still organized largely as
separate vertical stovepipes, with each segment
dominated by a few key players.
 The growing use of digital creation tools and the
growth of the Internet as a delivery vehicle offer
the promise of convergence toward a more
unified creation and distribution platform.
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Media
Titans
Page 795,
Table 14.2
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Technological
Convergence

The development of hybrid devices that
can combine the functionality of two or
more existing media platforms into a
single device.
 PDAs that can be used as cell phones and
book readers is an example.
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Content Convergence

Convergence in the design, production,
and distribution of content.
 Content which is created in an older media
technology migrates to the new
technology largely intact, with little artistic
change.
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Convergence an the
Transformation of Content
Page 797, Figure 14.3
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Industry Convergence

Merger of media enterprises into
synergistic combinations that create and
cross-market content on different
platforms.
 The best-known example of media
industry convergence is the merger of
AOL and Time Warner.
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Challenges and Risks of
Media Convergence
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Consumers still prefer traditional media.
The technology is not yet quite ready to distribute
this content effectively and conveniently.
Content creators (artists, writers, and producers)
do not yet know what features consumers are
willing to pay for and are still creating content for
each of the separate media types.
A profitable business model has not yet emerged.
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Online Content Revenue
Models
Page 801, Table 14.3
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Making a Profit With
Online Content

Online content companies must
continually calculate the revenues they
receive by offering free content versus the
revenue they might receive by charging
for content.
 In general, most content firms have
decided there is more to be gained by
offering free content than charging for it.
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Making a Profit With
Online Content


Four factors required to charge for online
content:
 Focused market
 Specialized content
 Sole source monopoly
 High perceived net value
Net value refers to that portion of perceived
customer value that can be attributed to the fact
that content is available on the Internet
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Revenue and Content
Characteristics
Page 804, Figure 14.4
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Key Challenges Facing
Content Producers

Bandwidth Challenges
 Plenty of long-haul optical fiber
bandwidth available
 Critical bottlenecks in home bandwidth
 Restrict both the ability for pay-for-view
revenue models to develop for films and
videos and the development of
advanced e-books using video and
audio
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Key Challenges Facing
Content Producers

Platform Challenges
 Current unsuitability of PC screen for
viewing DVDs and e-books
 Unsuitability of PDAs for text display
 Non-acceptance of wireless cell phones
as Web devices
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Key Challenges Facing
Content Producers

Cost Challenges
 Internet distribution is far more costly
than was originally anticipated
 Substantial costs are faced by media
companies in migrating, repackaging,
and redesigning content for online
delivery
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Key Challenges Facing
Content Producers

Consumer Attitudes
 Consumers have strongly resisted
paying for Web content
 This may change as media companies
learn how to use the Web to deliver high
value, focused and deep information
and content
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Key Challenges Facing
Content Producers

Cannibalization of existing distribution
channels
 Media companies are often tempted to
strike alliances with successful portals
or redistributors
 Risk is the media firm’s brand name will
become diluted or displaced
 Any revenue generated will have to be
shared with the intermediary
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Key Challenges Facing
Content Producers

Pricing and value when redesigning
content for the Web
 If the price is set too low, higher-priced
and profitable distribution channels
could be choked off
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Key Challenges Facing
Content Producers

Rights Management Challenges
 The ability to protect content from being
stolen, duplicated, and distributed for
free
 The issue of royalties paid to artists and
writers
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Online Newspapers:
Audience size and growth

More than 4,400 online newspapers
 79% of users frequent
 Spend 30 to 45 minutes per week
 Most successful online content
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Online Newspapers:
Content

Premium archived content
 Fine grained searching ability
 Timeliness
 Content with reach and depth
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Web Reach of Online
Newspapers
Page 809, Figure 14.5
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Online Newspapers:
Competition

New online classified firms have
challenged newspapers by developing
deep rich content in specialized areas
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Online Newspapers:
Revenue Models

Predominately rely upon an advertising
model
 Supplement revenues by using a pay-perview model for premium or archival
content
 WSJ has successfully used the
subscription business model
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Online Newspapers:
Convergence

Technical convergence in infancy with
only published text moved to the Web
 Content convergence has occurred in the
areas of production and distribution
 Industry structure has seen no movement
to cross-media convergence
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Online Newspapers:
Challenges
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Developing wireless mobile delivery platforms
and micropayment systems to provide a low-cost
mechanism for selling single articles
Consumer attitudes have remained intransigent
on the issue of paying for content
Some online newspapers have experienced
cannibalization of their main distribution channel
Digital leakage, where paid for and downloaded
content is redistributed via e-mail or posted for
free viewing on a Web site
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E-books

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Web-accessed e-books are stored on a
publisher’s server for consumers to access and
read on the Web
Web-downloadable e-books are downloaded from
the Web, stored as a file on the client PC, and
perhaps even printed – may require special
software
Dedicated e-book reader is a single purpose
device with a proprietary operating system that
can download from the Web and read proprietary
formatted files that can read only on that device
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E-Books
Page 814, Table 14.4
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E-Books: Audience and
Growth

Generated $74 million in sales, 2000
 Reading books online is not a popular
activity
 Buying books online is one of the most
popular activities of Internet users
 Future depends on how rapidly traditional
trade and academic book publishers move
existing and new works to e-book format
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E-Books: Content
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Instant downloading can reduce transaction costs
Text is searchable and can be integrated with new text
Modularize down to sentence or word level for easy update
or change
Lowers production and distribution costs
Require expensive and complex electronic devices to use
Difficult to read on screen with multiple competing
standards
Uncertain business models
Copyright and royalty issues
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E-Books: Revenue Models
and Results
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Industry composed of intermediary retailers, traditional
publishers, technology developers, and vanity presses
Primary revenue is pay-for-download entirely through
online bookstore intermediaries
Traditional revenue model for the commercial book industry
has not been changed much by the introduction of e-books
Second revenue model involve licensing entire e-libraries
Similar to subscription model where users pay monthly or
annual fee for access to hundreds of titles
Neither business model is yet profitable
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The Growth of E-Books
Revenues
Page 817, Figure 14.6
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E-books: Convergence

Technological convergence has been slowed by:
 Poor resolution of computer screens
 Lack of portable reader devices that can
compete with the portability of a published
book
 Absence of digital rights management
technology
 Lack of standards to define cross-platform ebooks so they can be viewed on different
devices
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E-Books: Convergence

Sub-pixel display technologies help
enhance resolution of e-book reader
display screens
 Digital rights management software helps
prevent illegal distribution of paid content
over the Web
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E-Book Industry Firms
Page 820,
Table 14.5
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Standards for E-Books
Page 822, Table 14.6
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E-books: Convergence

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Content production and distribution convergence
 XML and large-scale online text/graphic
storage systems has transformed the book
production and made it more efficient
 Web has opened up new distribution channel
Internet has created new opportunities for
authors, publishers, and distributors.
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The Effects of Internet
Publishing
Insert table 14.7 here
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Magazines: Audience Size
and Growth

All of the top 50 offline printed magazines
have developed Web sites
 Online magazines have become an online
consumer success story
 Few online magazines have turned a profit
 Challenge for online magazines is to
become profitable revenue centers
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Growth of Online
Magazine Reading
Page 826, Figure 14.7
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Magazines: Content
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Same content advantages as newspapers
Users can search archives and breaking news
stories can be covered
Provide access to exclusive content not available
elsewhere
Allow readers to share ideas with one another
through chat groups and bulletin boards
Magazine articles are generally short and can be
printed for free
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Readership of Online
Magazines
Page 827, Figure 14.8
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Magazines: Revenue
Models and Results
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Advertising model was used unsuccessfully
Advertising model may be revived as online
advertising expenditures are expected to triple by
2005 and readership is expected to keep
increasing rapidly
Coupled with excellent demographics, online
magazines are expect to boost ad space
revenues and allow online magazines to relay on
advertising just as their offline counterparts
Subscription revenue model is also being used to
provide readers with premium content
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Magazines: Convergence
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Very little convergence with other media
No readability problems and no need for special
readers or software
Have not had sufficient investment capital to
merge text with audio and video clips
Movement of branded offline magazines onto the
Web has created the opportunity to leverage
content developed for print onto the new Internet
channel
Single staff develops content that is produced for
both print and Web editions
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Magazines: Convergence

Industry has not changed significantly
because of the Internet
 Without old legacy magazines moving
online, readership would not have
accelerated as it has in 2001
 Offline world of national brand magazines
is driving online traffic
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Online Entertainment

Traditional Entertainment such as films,
music, sports, and games

Feature films and television shows are
expected to generate a very small amount
of Internet revenue, given the current
technical limitations of the Web
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Projected Growth in Traditional
Online Entertainment
Page 833, Figure 14.9
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Sites With Highest Internet
Usage
Page 834, Figure 14.10
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Entertainment: Audience
and Growth
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Music downloads lead the list of traditional
entertainment, followed by online games, adult
content, sports, and film
Music sites do not have high usage
Highest usage level sites are those that allow
high level of user control and participation
Users are defining new forms of entertainment
that do not involve the traditional media titans
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User Role in Entertainment
Insert figure 14.11 here
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Entertainment: Content

Hugh online digital searchable music
archives exist from which users can mix
and match to create their own
personalized content
 Enables users to become their own music
packagers and distributors
 Offers users high levels of control both
program content and program focus
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Entertainment: Revenue
Models and Results

Television and movie sites typically use a
marketing model, attempting to extend
their brand influence and the audience of
their offline product
 Early online music sites used an
advertising revenue model
 Most entertainment sites are now moving
toward subscription models
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Entertainment:
Convergence

Technology platform for music has
converged PCs and handheld devices
 The PC has become a game station with
capabilities rivaling dedicated game
stations
 Technology convergence for movies and
television has stalled due to lack of
standards and the slow acceptance of
high bandwidth connections
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Entertainment:
Convergence
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Film and television have yet to experience loss of
control over digital distribution
By 2006 many homes will have multi-megabit
connects to the Internet
Digital rights management issues will be an
industry concern
Content creation and production convergence is
occurring with filmmakers and television studios
increasingly using digital cameras and film
editing is done on digital computer workstations
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Entertainment:
Convergence
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The entertainment industry has many players and
forces
In the existing industry model, creators of
entertainment sell to distributors, who in turn sell
to retail stores, who then sell or rent to
consumers
The Internet offers entertainment content
providers the opportunity to dominate the
industry value chain by eliminating the
distributors and retailers and selling direct to the
consumer.
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Entertainment Industry
Value Chain
Page 839, Figure 14.12
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