The internet and the value chains of the media industry Session 4 Course : Convergence Media Effective Period : March 2017 The internet and the value chains of the media industry Session 4

value chain Michael Porter describes a firm as “a collection of discrete, but interrelated economic activities such as products being assembled, salespeople making sales visits, and orders being processed” These interrelated activities are common to a wide number of companies and are further referred to as the value chain.

Porter originally concentrated on internal organizational processes, but currently a value chain analysis often takes all production and logistic activities into consideration, i.e., from the first sub-suppliers of the product to the distribution to consumers. Value chains are usually specific to the industry in which the firm operates.

Distribution of Content Table of Traditional value chain in the media industry At the creation stage, actual content is produced, The bundling stage involves the grouping of different content modules, leading to a final product that can be found on the market, The distribution phase includes everything related to the distribution of content to consumers Creation of Content Bundling of Content content Distribution of Content Media

The progressive improvement of Internet technologies has had a significant influence on media companies’ value chains. this can be categorized into three trends: Trend 1: The Integration of Consumers in the Value Creation owing to Web 2.0 technologies, media companies have the chance to integrate consumers into their value creation processes. Instead of the passive beneficiaries who previously had little to say, consumers can now create and distribute their own content without major technical efforts.

Trend 2—Four new types of gatekeepers on the Internet Gatekeeper Type A: Interface to Consumers Technology-driven interdependencies between complementary products or services are the main cause for the appearance of this gatekeeper type. For example, Internet users need application software, system software, and hardware to access content on the Internet

Gatekeeper Type B: Transmission Networks Content is transmitted from the producer to the recipient via different forms of media. By their position in the communication process, the operators of transmission networks are natural candidates for taking a role as a gatekeeper.

Gatekeeper Type C: Industry Platforms Industry platforms serve as a basis to aggregate complementary goods (not necessarily created by the provider of the platform) and in order to match supply and demand. With two-sided platforms, the platform provider connects two different parties (here, usually content providers and consumers), whereas each of the two groups benefits from the increased participation of the other group Since industry platforms usually incorporate different kinds of market subjects, which are involved in the production and distribution of products or services that are dependent on each other, they build the basis of a so-called business ecosystem In some cases the platform provider may define certain standards and restrictions for products to be listed on the platform.

Gatekeeper Type D: Navigation Hubs Besides the dependencies due to rather technical circumstances, actual gatekeepers have also emerged due to a natural bundling of user interests-internet search engines play a major role in this respect. Google and other search engine providers primarily utilize their market position to earn advertising revenue. Together, they receive approximately half of the total advertisement expenditure on the Internet and are often responsible for 50–70 % of the traffic on many websites due to the large number of page hits occurring via search engines

Trend 3: The Changing Role of Intermediaries new market constellations and sales opportunities have had an influence on the position of intermediaries. Although media companies now have the possibility to directly deliver their products and services to consumers via their own online shop, intermediaries have captured a leading position in many media markets. For example, in the music market the function used to be performed by music labels, which bundled different music tracks on a sampler. However, currently, many online intermediaries (such as the Apple iTunes Store) now possess the right and the technological know-how to offer consumers individual bundles of songs that are not available from music labels directly.

Overview of the changes of value chains in the media industry Trend 1: Integration of consumers in the value creation Different starting points: - Content creation - Bundling of content - Distribution of content Trend 2: Four new types of gatekeepers on the Internet Different business activities: - Interface to consumers - Platforms - Navigation hubs Trend 3: The changing role of intermediaries Different valuation approaches: - Market-based - Functional - Consumer-centric

what will media companies’ position in future value chains be? In the future, it appears conceivable that, primarily driven by a further increase in user-generated content, media companies will increasingly specialize in the bundling of content offerings and will deliver this directly to customers. Media companies could therefore increasingly separate themselves from traditional content production and act as content intermediaries, thus mediating between producers and consumers.

Reference Joseph Turrow, 2014, media today: mass communication in converging world, Routledge Sandra Diehl and Matthias Karmasin editors, 2013, Media and Convergence management, Springer,