1. E-commerce 2015 Kenneth C. Laudon Carol Guercio Traver business. technology. society. eleventh edition Kenneth C. Laudon Carol Guercio Traver business. technology. society. Copyright © 2015 Pearson Education, Inc.

2. Chapter 10 Online Content and Media Copyright © 2015 Pearson Education, Inc.

3. Class Discussion The Emerging Internet Broadcast System (IBS) What types of online videos have you watched online, and on what devices? What sites have given you the best overall viewing or entertainment experience, and why? What are the advantages of watching traditional television over watching online TV and films? Copyright © 2015 Pearson Education, Inc.Slide 10-3

4. Trends in Online Content, 2014–2015 Vertical integration: Distributors enter content production business Internet video begins to challenge cable TV The mobile platform accelerates the transition to digital content E-book sales growth slows Digital music sales top physical sales Console games stagnate as online, social, casual games soar Copyright © 2015 Pearson Education, Inc.Slide 10-4

5. Trends in Online Content (cont.) Four Internet titans compete for ownership of online content ecosystem: Apple, Google, Amazon, and Facebook YouTube offers 100 entertainment channels Apps become foundation for app economy Netflix and other heavy bandwidth users agree to pay broadband providers for faster delivery Copyright © 2015 Pearson Education, Inc.Slide 10-5

6. Content Audience and Market Average American adult spends 4,100 hrs/yr consuming various media 2014 media revenues: $564 billion More than 77% of the hours spent consuming TV, radio, Internet Desktop and mobile use: 5.75 hrs/day Internet usage doesn’t reduce TV viewing Copyright © 2015 Pearson Education, Inc.Slide 10-6

7. Annual Media Consumption Figure 10.1, Page 635 Copyright © 2015 Pearson Education, Inc. SOURCE: Based on data from eMarketer, Inc., 2014a, authors’ estimates Slide 10-7

8. Internet and Traditional Media Cannibalization vs. complementary  Does time on Internet reduce time spent with other media?  Massive shift of audience to Web, tablets, smartphones Television viewing, music consumption remains strong Impact of Internet:  Increase in total demand for media, including traditional products like books  Physical products replaced by digital Copyright © 2015 Pearson Education, Inc.Slide 10-8

9. Media Revenues by Channel Figure 10.2, Page 637 Copyright © 2015 Pearson Education, Inc. SOURCE: Based on data from industry sources; authors’ estimates. Slide 10-9

10. Digital Content Revenue Models Online content delivery revenue models  Subscription  A la carte  Advertising supported (free/freemium) Free content can drive users to paid content Users increasingly paying for high- quality, unique content Copyright © 2015 Pearson Education, Inc.Slide 10-10

11. Online Content Consumption 2014 Figure 10.3 Page 638 Copyright © 2015 Pearson Education, Inc. SOURCE: Based on data from eMarketer, Inc., 2014d; industry sources; authors’ estimates. Slide 10-11

12. Free or Fee Early years: Internet audience expected free content but willing to accept advertising  Early content was low quality With advent of high-quality content, fee models successful  iTunes  Millions of users buy from legal music sites  YouTube cooperating with Hollywood and New York film production studios Copyright © 2015 Pearson Education, Inc.Slide 10-12

13. Digital Rights Management (DRM) DRM: Technical and legal means to protect digital content from unlimited reproduction and distribution Issue often cast as moral contest Telecommunications and device industries benefit from increased traffic  24% of global Internet traffic is stolen material Copyright © 2015 Pearson Education, Inc.Slide 10-13

14. Media Industry Structure Three separate segments  Print  Movies  Music Each dominated by few key players with little crossover Larger media ecosystem  Millions of individuals, entrepreneurs  Blogs, YouTube, independent music bands, and so on Copyright © 2015 Pearson Education, Inc.Slide 10-14

15. Media Convergence Technological convergence  Hybrid devices Content convergence  Three aspects: Design, production, distribution  New tools for digital editing and processing Industry convergence  Merger of media enterprises into firms that create and cross-market content on different platforms Copyright © 2015 Pearson Education, Inc.Slide 10-15

16. Convergence and the Transformation of Content: Books Figure 10.6, Page 645 Copyright © 2015 Pearson Education, Inc.Slide 10-16

17. Making a Profit with Online Content Online consumers willing to pay for high-quality content Four factors required to charge for online content  Focused market  Specialized content  Sole source monopoly  High perceived net value Copyright © 2015 Pearson Education, Inc.Slide 10-17

18. Online Publishing Industry $102 billion based originally in print, moving rapidly to Internet Three segments  Online newspapers  E-books  Online magazines Copyright © 2015 Pearson Education, Inc.Slide 10-18

19. Online Newspapers Most troubled segment of publishing industry  Revenues shrunk from $60 billion in 2002 to $32 billion in 2013 Four factors in decline  Growth of Web, mobile devices as alternative medium  Alternative digital sources for news  Failure to develop suitable new business models  Rise of social media and role of directing traffic to newspaper content Copyright © 2015 Pearson Education, Inc.Slide 10-19

20. Daily Unique Visitors at Online Newspapers Figure 10.8, Page 648 Copyright © 2015 Pearson Education, Inc. SOURCE: Based on data from Alliance for Audited Media, 20123 Slide 10-20

21. Online Newspaper Models 1995-2014 Figure 10.9, Page 649 Copyright © 2015 Pearson Education, Inc.Slide 10-21

22. Online Newspaper Advantages Online readership growing at over 10%/year Large audience sizes  Wealthy and consumer-intense demographic  Strong brand identification Quality of content Audience increasingly coming from social media sites  Less engaged, link visitors  Avoiding front page Copyright © 2015 Pearson Education, Inc.Slide 10-22

23. Online Newspaper Challenges Finding a revenue model  Paywalls, with free content for casual users Bundled price for print/digital subscriptions  Metered subscription model New York Times Freemium Competition from pure digital news sites  Pure digital sites have lower costs, but lower credibility/trust Copyright © 2015 Pearson Education, Inc.Slide 10-23

24. Insight on Society: Class Discussion Vox: The All-Digital News Site How do you read news online? Which sites do you prefer, and why? Have you visited any Vox sites? How are all digital news sites changing journalism? Are listicles and link bait harming journalism or saving newspapers? Copyright © 2015 Pearson Education, Inc.Slide 10-24

25. Magazines Rebound Magazine circulation plummets 1980–2013  From 22 million in 2001 to 12 million in 2013  Special interest magazine sales remained stable Magazines are making up for loss in print readership  Digital replica magazines  One-third of U.S. Internet users read online magazines 35% of tablet users  Apple’s iPad subscription service  Popular Web sites (Pinterest, Facebook) drive traffic to online magazines  Social reader apps  Magazine aggregators Copyright © 2015 Pearson Education, Inc.Slide 10-25

26. Insight on Business: Class Discussion Digital Newsstands Grow What advantages and disadvantages do digital newsstands offer to publishers? Do you use an app or digital newsstand to read magazines? Which ones? How does the experience of reading a magazine on a tablet or smartphone compare to reading a physical magazine? Copyright © 2015 Pearson Education, Inc.Slide 10-26

27. E-books and Online Publishing E-book sales have exploded in recent years—$6.1 billion in 2014  32% of all consumer book sales New channel for self-publishing authors  Hugh Howey’s Wool (2013) E-book market in US dominated by 3 players  Amazon  Apple  Barnes & Noble Copyright © 2015 Pearson Education, Inc.Slide 10-27

28. New Digital Ecosystems E-book hardware, software, combined with online megastores  Amazon Kindle: Linked to Amazon store and cloud storage  Apple iPad: Multipurpose tablet, linked to Apple stores Authors able to bypass traditional agent, publisher channels DRM more effective for e-books than music industry Copyright © 2015 Pearson Education, Inc.Slide 10-28

29. E-book Business Models E-book industry composition  Intermediary retailers (booksellers), traditional publishers, technology developers, device makers (e- readers), vanity presses Wholesale model  Retailers pay wholesale price and establish retail price  Traditional publishers – 5 large companies who produce 80% new book titles Agency model  Distributor as agent must charge publisher’s retail price  Amazon Copyright © 2015 Pearson Education, Inc.Slide 10-29

30. Challenges of E-book Platform Control over pricing  Amazon controls largest market share for e-books  Amazon vs. Hachette Further evolution of digital distribution platform  Kindle unlimited subscription service  Digital marketplace exchanges for peer sharing of digital files Converging technologies  Interactive books, iBook Author, iBook Textbooks Copyright © 2015 Pearson Education, Inc.Slide 10-30

31. E-book Sales Figure 10.14, Page 667 Copyright © 2015 Pearson Education, Inc. SOURCE: Based on data from Association of American Publishers, 2014a, 2014b. Slide 10-31

32. Online Entertainment Industry Four traditional players, one newcomer  Television  Radio broadcasting  Hollywood films  Music  Games (new arrival) Copyright © 2015 Pearson Education, Inc.Slide 10-32

33. Online Entertainment Industry Internet is transforming industry:  Platform development: Smartphones, tablets, music platform Online streaming and cloud storage Social networks as distributors  Viable business models Music subscription services Closed platforms that eliminate need for DRM  Widespread growth of broadband Copyright © 2015 Pearson Education, Inc.Slide 10-33

34. Projected Growth in Online Entertainment Figure 10.17, Page 676 Copyright © 2015 Pearson Education, Inc. SOURCES: Based on data from industry sources; authors’ estimates. Slide 10-34

35. Television and Premium Video TV: Largest provider of high-demand content TV industry transitioning to new Internet delivery platforms  Expansion of broadband networks, new mobile platforms and cloud servers  Social TV  OTT: Over-the-top (Internet) delivery Impact on cable TV industry Impact of tablets and smartphone viewing Social network influences Copyright © 2015 Pearson Education, Inc.Slide 10-35

36. Movies Difficult transition from DVD-reliance to streaming distribution to PCs and mobile devices More Americans bought online movies than DVDs in 2014 Many alliances and competing interests between distributors and creators Piracy, cyberlockers Two types of online movie sales Internet video on demand (iVOD) Electronic sell-through Copyright © 2015 Pearson Education, Inc.Slide 10-36

37. Major Online Movie Distributors Figure 10.19, page 681 Copyright © 2015 Pearson Education, Inc. SOURCES: Based on data from industry sources. Slide 10-37

38. Insight on Technology: Class Discussion Hollywood and the Internet: Let’s Cut a Deal What challenges has the Internet posed to traditional Hollywood movie distribution? What is the biggest challenge? Can Internet distribution work with the “release window” strategy? Do you think Hollywood is doing a better job of protecting its content than the music industry? What is the most realistic and profitable path forward for the Hollywood film industry? Copyright © 2015 Pearson Education, Inc.Slide 10-38

39. Music Most disrupted of content industries Move from physical to digital product Unbundling of single songs Distributor market dominated by Apple’s iTunes Digital revenues account for 64% of all revenues Two types of digital music services Digital download—90% of digital music revenue Streaming subscription services—fastest growing Copyright © 2015 Pearson Education, Inc.Slide 10-39

40. U.S. Music Revenues: Digital vs. Physical Figure 10.20, page 687 Copyright © 2015 Pearson Education, Inc. SOURCES: Based on data from the Recording Industry Association, 2014, industry sources. Slide 10-40

41. Games Online gaming has had explosive growth Types of online gamers Casual Social Mobile—fastest growing market Console Business models in flux Most online/mobile games offered for free, difficult to monetize Copyright © 2015 Pearson Education, Inc.Slide 10-41

42. Online Gaming Audience Figure 10.22, page 691 Copyright © 2015 Pearson Education, Inc. SOURCE: Based on data from eMarketer, Inc., 2014d Slide 10-42

43. Copyright © 2015 Pearson Education, Inc.Slide 10-43