E-commerce 2015

business. technology. society.

eleventh edition

Kenneth C. Laudon
Carol Guercio Traver

Copyright © 2015 Pearson Education, Inc.

Chapter 10
Online Content and Media

Copyright © 2015 Pearson Education, Inc.

 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

 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

 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

 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

 Annual Media Consumption

Figure 10.1, Page 635 SOURCE: Based on data from eMarketer, Inc., 2014a, authors’ estimates

Copyright © 2015 Pearson Education, Inc. Slide 10-7

 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

 Media Revenues by Channel

Figure 10.2, Page 637 SOURCE: Based on data from industry sources; authors’ estimates.

Copyright © 2015 Pearson Education, Inc. Slide 10-9

 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

 Online Content Consumption 2014

Figure 10.3 Page 638 SOURCE: Based on data from eMarketer, Inc., 2014d; industry sources; authors’ estimates.

Copyright © 2015 Pearson Education, Inc. Slide 10-11

 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

 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

 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

 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

 Convergence and the Transformation
of Content: Books

Figure 10.6, Page 645

Copyright © 2015 Pearson Education, Inc. Slide 10-16

 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

 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

 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

 Daily Unique Visitors at Online
Newspapers

Figure 10.8, Page 648 SOURCE: Based on data from Alliance for Audited Media, 20123

Copyright © 2015 Pearson Education, Inc. Slide 10-20

 Online Newspaper Models 1995-2014

Figure 10.9, Page 649

Copyright © 2015 Pearson Education, Inc. Slide 10-21

 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

 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

 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

 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

 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

 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

 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

 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

 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

 E-book Sales

Figure 10.14, Page 667 SOURCE: Based on data from Association of American Publishers, 2014a, 2014b.

Copyright © 2015 Pearson Education, Inc. Slide 10-31

 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

 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

Projected Growth in Online Entertainment

Figure 10.17, Page 676 SOURCES: Based on data from industry sources; authors’ estimates.

Copyright © 2015 Pearson Education, Inc. Slide 10-34

 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

 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

 Major Online Movie Distributors

Figure 10.19, page 681 SOURCES: Based on data from industry sources.

Copyright © 2015 Pearson Education, Inc. Slide 10-37

 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

 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

 U.S. Music Revenues: Digital vs. Physical

Figure 10.20, page 687 SOURCES: Based on data from the Recording Industry Association, 2014, industry sources.

Copyright © 2015 Pearson Education, Inc. Slide 10-40

 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

 Online Gaming Audience

Figure 10.22, page 691 SOURCE: Based on data from eMarketer, Inc., 2014d

Copyright © 2015 Pearson Education, Inc. Slide 10-42

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