1. European Online News and Music Market Structure First results of the Simweb-project market survey

2. 2 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Introduction Macro Environment Business Environment Business Models in Online News and Online Music

3. 3 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Research Approach The market survey has three phases : Phase One - Expert Talks (qualitative approach) Phase Two – Internet-based survey questionnaire (quantitative approach)questionnaire Phase Three – Face-to-Face Interviews (qualitative approach)

4. 4 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Research Approach Major Stakeholders identified through the Expert Talks Major Stakeholders – European Online News and Online Music Market Sectors Online NewsOnline Music JournalistsArtists News AgenciesLabels/Record Companies News PortalsMusic Portals Online media companiesTelco/PTTs Internet Service Providers Payment System Providers Technology Providers

5. 5 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Research Approach Targeted Countries and their Level of Technical Sophistication Survey Targets Level of technical sophisticationCountries High-tech European countriesFinland Germany Belgium France England Medium-tech European countriesSpain Portugal Italy High-tech Accession countrySlovenia Medium-tech Accession countryPoland

6. 6 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Highlights of the Macro Environment  The major Internet-based activities: #1 = sending and receiving emails. #2 = “information search”.  Reading and downloading online newspapers is very popular in Spain with 89% (private Internet use) and Italy with 83% and Portugal with 58%.  Playing and downloading games, music and software is extremely popular in Portugal with 45% (in UK and France with less than 20%).  UK is the EU front-runner in online purchasing – 37% of Internet users and 6.5 billion Euros in 2001.  The price of 40 hours Internet connection at peak times is greatest in Belgium and least in the UK and Finland.

7. 7 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia The Business Environment of the Online Content Market Vivendi Universal RZ- Online Publico.pt Spiegel.de Popfile fnac T-Online Telekom AO L Tiscali AT&T/TCI IBM BT Bertelsman n Mediaset Pearson Reuters Microsoft Telecommunication and Technology Provider Media Industry TV Radio Newspaper Online - Content Magazine Internet access Software Convergence of telecommunication-, media- and technology industries

8. 8 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia The Business Environment of the Online Music Market The music industry value chain and the changes in digital distribution Artist s Record Labels Distrib utors Retail Stores Consu mers The traditional value chain in the music industry Distrib utors Retail Stores Consu mers Digital Players Artist s Record Labels The value chain with digital players

9. 9 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia The Business Environment of the Online Music Market  Online Music Market involving any type of demand and supply of music A highly dynamic market with a significant number of file-sharing groups  Online Music Market providing simply an additional distribution channel for all authorised suppliers – in fact the labels An adolescent market Different Viewpoints of the Online Music Market

10. 10 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia The Traditional News Market Business Environment  The traditional news suppliers (newspaper, magazines, radio and TV) are almost always owned by a big media company.  The traditional Newspaper market: each of the ten European countries has many different dailies (10 national dailies on average, but many more regional dailies) but in general the market is dominated by a small number of publishers  The traditional print media has two foci – news and advertising – which are also the main revenue sources  The traditional print media are in a difficult situation at the moment – in 2001 the global newspaper advertising market  by 4.1 %.  The decline is caused by both economic recession – and is also a structural problem job ads in particular are listed on the Internet

11. 11 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia The Business Environment of the Online News Market  Media companies discovered the Internet as an attractive distribution channel – but online news is a different business from offline news, and has different needs  Not only does it require an adequate technology infrastructure, but also a new way of reporting information The media market value chain Create news Add value to news Distribu te news Consu me news

12. 12 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Why do Newspapers stay Online?  Asked for their motivations and reasons for staying online the answers to our survey show: the importance of the connection with the offline version; and the role of the online presence as a tool for future revenue:  Almost 80 % of online news suppliers think that their online presence is essential or important to increases the reputation of their offline brand.  86.5 % believe that distributing news on the Internet builds the basis for a future position in the online advertising market.  62.2 % think that such an investment in the future is important to ensure a profitable independent role within the online news market.  But most respondent doubt that online advertisements will be as important as TV/Radio or Print advertisements.

13. 13 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia The Role of Technology for Content Markets Reproduction and Distribution Technology  MP3 Player  RealAudio  Microsoft Media Player  Liquid Player  iTunes/iPod  News Stand  InaDaily Payment Systems  Through ISP  Payment System Provider (FirstGate)  Prepaid Cards  Credit Card Value-added services  Many different suppliers  many different products  DRM New Distribution Technology, but also a new Quality of reproduction possibilities and new copyright infringement possibilities Payment System solutions are one of the main challenges for paid content Offers a wide range of problem solutions, already available

14. 14 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Copyright Issues for Digital Content Music  File-sharing News  Clipping The problems of copyright infringement exist for both markets DRM-Technology for managing copyright exists in both markets – but the problem is more urgent in the music industry.

15. 15 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Copyright in the Music Industry  P2P Technology makes file-sharing possible.  The most important P2P network at the moment is Kazaa, with over 2 million users.  According to IFPI, file-sharing (ie. piracy) is the greatest threat to the music industry today. Initial reactions by the music industry Increase the pressure on national governments to establish appropriate laws and apply this laws Working with ISPs to take P2P networks off the Web

16. 16 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Copyright in the Music Industry  Asked for their opinion concerning file-sharing the music industry provided very varying responses:  45 % of our respondents thought that file-sharing was the biggest threat to the music industry  but 25 % disagreed with this view.  35 % thought that file-sharing should be prosecuted  but the same number either disagreed or strongly disagreed.  Only 27 % of SimWeb respondents believed that new laws would limit file- sharing  but 44 % believed that new technologies could solve the problem.  And, almost 70 % thought that the music industry will find successful business models to sell music via the Internet.

17. 17 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia The Consumer of Online Content Consumers of online news in our survey :  70% are between 18 and 39 years old  27% hold a high school degree and 42% have a university degree  71% are middle income earners and 27% have a high income  90% are male  and experienced Internet users (78%) Consumers of online music in our survey:  82% are between 18 and 39 years old  28% hold a high school degree and 53% have a university degree  73% are middle income earners and 14% have a high income  92% are male  and experienced Internet users (92%)

18. 18 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Business Models in Online Music and Online News SimWeb Project definition of the business model for each stakeholder Company Business strategy Product Selling Network Customers Company The structure of the online questionnaires

19. 19 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Business Models in Online Music and Online News  Internet business models for musicbusiness models for music  Some important issues There is the possibility of disintermediation of the music industry New or old suppliers (labels) of online music have to re- negotiate existing contracts with artists or the organisations providing copyright protection Most labels do not have the infrastructure to distribute music online, so they need to find technology partners for cooperation. These intermediaries are therefore the “real” distributors (e.g. Od2, Tiscali Music, Apple).

20. 20 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Business Models in Online Music and Online News (Limited) implementation of the four C’s on www.popfile.dewww.popfile.de Customer needsCustomer costsConvenienceCommunication Popfile.de (UMG)  Music files  Compilation CD  Personal CD  Burn CD’s  Music DVD  Ringing tones  Pay per phone bill  Prepaid code  One price for all tracks  Free tracks  Tell a friend  Pre-listening  Reminder  Free tracks  Theme specials  Download charts  Newsflash  Tell a friend Shortcomings in customer convenience – catalogue is restricted to the music of the labels in the background (Universal and Sony) Other examples have similar short-comings

21. 21 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Business Models in Online Music and Online News Label Content sales 21.5% Merchandise sale 17,7% Newsletters 12,7% Online advertising 11,4% Revenue sharing 5,1% Music Portal Online advertising 21,1% Content sales 15,8% Newsletters 15,8% Sponsorship 10,5% Subscription 10,4% Main income sources How do you generate revenue with the online business ?

22. 22 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Business Models in Online Music and Online News  Asked for their policy concerning the offer of digital content, most labels (40%) will continue to offer digital content for free as a service for their customer, 46 % plan to offer some digital content for money in the near future, and only 12% already charge for digital content.  The most used charging mechanism of music portals is subscription (29%) and pay per download (29%); for labels it is pay per download (28%) and pay per product (33%).

23. 23 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Business Models in Online Music and Online News  Internet business models for newsbusiness models for news  Some important issues Today online news is partly a substitute for other news media, but with an increasing trend towards online news use – in particular for the younger generation. The traditional offline business model does not work online, neither the editing of news nor the advertising / subscription model. As with the online music industry most news-suppliers (in particular newspapers) do not have the infrastructure to distribute news online, but need to find technology partners.

24. 24 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Business Models in Online Music and Online News Loc al Regional National International Core competence of newspapers: local, regional, national, international Advertisement attractiveness depends on core competence

25. 25 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Business Models in Online Music and Online News The facsimile version of RZ-Online, source: www.rz-online.dewww.rz-online.de

26. 26 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Business Models in Online Music and Online News NewsStand technology (Source: http://www.newsstand.com / )http://www.newsstand.com /

27. 27 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Business Models in Online Music and Online News inadaily.com offering (Source : http://www.inadaily.com )http://www.inadaily.com

28. 28 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Business Models in Online Music and Online News pressetext.demusikwoche.denetzeitung.de News agencies heise.de End consumers Business Consumers MOMAG.NET Re-intermediation in the German online news market

29. 29 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia An Alternative Approach to P2P Networks Peer XPeer Y (Song for 10 cent) Service Provider Copyright owner Song Download Song 5 cent 4 cent Distribution and revenue model (following Gehrke/Anding, 2003)

30. 30 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Business Models in Online Music and Online News  Offered Services - Which services do you offer and which do you charge for? Current news96% offer for free Access to Archives52% offer for free, but 37% charge for Personalised news57% do not offer, but 25% charge for  Main income sources - How do you generate revenue with the online business? Online advertising 28% Content sales 12% Subscription 12% Sponsorship 13% Newsletter 8% Online Media Company/Portal

31. 31 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Business Models in Online Music and Online News  Asked for their policy concerning the offer of digital content, most online media companies (42%) will continue to offer digital content for free as a service for their customer, 40 % plan to offer some digital content for money in the near future and almost 20% already charge for digital content.  The most used charging mechanism of online news suppliers is subscription (47%) and pay per view (18%) and pay per product (13%).

32. 32 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Business Models in Online Music and Online News Effects of technology extension Advantages for the content provider Advantages for the customer Independency of Internet providersCustomer can be mobile Customer Data of high qualityCustomer doesn’t have to be online Customized/personalized offersCustomer only needs one software for different content providers Network => greater potential customer base Customer chooses his/her own offer Technological platform can become a portal

33. 33 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Business Models in Online Music and Online News Basic Product (could be for free) Premium ProductHigh Price Low Price Adding Services and Product Features Versioning can enhance the “standard” product

34. 34 European Online News and Music Market Structure SimWeb www.simdigital.com 11.06.03 – Bled/Slovenia Success Factors in Online Music and Online News Success factors for online music:  Focus on selling as a core competency  “Coopetition” and business partner networking  View the customer as a partner  Use Internet technology to make customised offers ( Success factors for online news:  Focus on content as a core competency  Business partner networking  Multiple income sources Subscribers pay per view Advertising revenue sharing Etc.