Media Economics

What Is Media Economics? The commercial media consist of enterprises that: 1. Create or acquire content. 2. Distribute content (news, information, entertainment, or data) to an audience. Content Medium Audience (Method of distribution)

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

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

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, websitesthey buy access to audience/readers/users. – Subscription revenue is relatively minor. – Who is P&Gs customer? In some businesses the consumer and the customer are the same person – Detergent, razors

Media Economics Media economics is the study of how media enterprises: 1. Create or acquire content. 2. Package it. 3. Distribute it to targeted audiences. 4. Generate revenue. 5. Make a profit.

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

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

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)

Purpose of a Corporation To create and keep customers – Cant 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 (innovators dilemmadisruptive technologies)

Create a Customer Must satisfy unmet consumer/audience needs and wantsbenefits sought (might be unrecognized). – Find an underserved niche (dont 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.

The Five Competitive Forces That Shape Strategy, Michael Porter, Harvard Business Review, January Michael Porter

The Internet Changes Everything 1. Threat of new entrants: – Barriers to entry and been brought down to virtually zero, especially in the media. Not in telecommunications, broadband. 2. Bargaining power of buyers: – Because of search and easy comparisons, the consumer is in control. 3. Threat of substitute products or services: – Many potential threats because of low barriers to entry in the media business.

4.Bargaining power of suppliers: – Often high because of proprietary technology (Apple iTunes, Kindle, e.g.). 5.Rivalry among competitors: – Substantial because of plethora of competitors – fragmentation of the media. – More difficult to get and sustain a competitive advantage.

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.

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.

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.

Media Industry Structure * ContentPackagingRetail Segment Key Function Examples * Creative production * Aggregation * Marketing and promotion * Wholesale distribution * Delivery to final customer * 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 * The Curse of the Mogul, Knee, Greenwald, and Seave, Portfolio, 2009.

Competitive Advantage *The Curse of the Mogul, Knee, Greenwald, and Seave, Portfolio, ContentPackaging Retail ContinuousPhysicalLocal Increasing Competitive Advantage Mixed Discrete Hybrid Electronic Mixed National/Global DecreasingAdvantageDecreasingAdvantage