Media Convergence- Part 1

CPS 181s Nov 20, 2001

MEDIA CONVERGENCE

 Media convergence and its synergistic benefits are key drivers behind mega-mergers in media companies  America Online (AOL) and Time-Warner  and CBS  The Walt Disney Company and Capital Cities/ABC

 Increased possibility to increase access convenience and new innovative services  Fragmented media usage in households  Changes in federal communication laws  Advances in digital technology

1 MEDIA CONVERGENCECONVERGENCE…..…..

 Media content refers to the content of the communication, not their infrastructure  Media convergence occurs when different types of media content found across types of media form will be accessible in digital form in digital devices  Content includes: text, audio, and video  Devices include: wireless telephones, personal computers, PDAs, and interactive television desktops

This chapter reviews the implications of that convergence for the old and new economy, on various media platforms, and public policy issues

QUESTIONS c What is media convergence? d What conditions make media convergence possible? e How do new media companies leverage off traditions media channels? f What are the reasons for media megamergers? g What public policy issues must be addressed with digital convergence and media convergence?

2 WHAT CONDITIONS MAKE MEDIA CONVERGENCE POSSIBLE?

 The use of a CO-der-DECoder (codec) enabling analog signals and digital signals to be converted  Continued Advances and Decreasing Cost of Digital Technology  Most media content originate sin digital form  Digital is easily manipulated, stored, combined, and transmitted  Low-Cost Digital Network Infrastructure  Use if the non-proprietary network protocol (IP), transfer protocol (HTTO), and hypertext language (HTML) allows an unencumbered environment  The World Wide Web became a low-cost digital network infrastructure that experienced an explosive growth in users and sites  Media Proliferation  From newspapers at the turn of 1900 to cable in the 1980s and satellite reception in the 1990s, the number of media choices continue to grow

WHAT CONDITIONS MAKE MEDIA CONVERGENCE POSSIBLE?...

Media Usage Fragmentation in American Households Increased fragmentation of media shows a decline in traditional television news viewing in America The dwindling television news audience was greatest among younger people who spent more time with their computers Broadcast and entertainment showed a steady decline as well, as basic cable subscriptions increased The percentage of households with alternative forms of media entertainment and information increased

3 A TechnographicTechnographic’s’s View of New Consumer Internet Adoption

Mainstream

Early Adopters Laggards Number of new on-line customers

Time

Source: Mary Modahl, “Now or Never: How Companies Must Change Today to Win the Battle for Internet Customers” Harper Business, 2000

Primetime Viewing Shares of Free and Networks -1985 to 1998

1

Ad-Supported Basic Year Network Affiliates All Other Television Cable

1985 - 1986 69.3% 7.5% 23.2%

1989 - 1990 58.1% 16.4% 25.5%

1990 - 1991 55.1% 19.3% 25.6%

1991 - 1992 54.9% 19.8% 25.3%

1992 - 1993 52.9% 21.1% 26.0%

1993 - 1994 52.4% 21.3% 26.3%

1994 - 1995 48.7% 24.3% 27.0%

1995 - 1996 46.0% 26.7% 27.3%

1996 - 1997 42.1% 29.7% 28.2%

1997 - 1998 39.6% 32.5% 27.9%

Note: For all television viewing Monday-Sunday, 8-11pm EST. Due to multiset use and independent roundings, totals add up to more than 100. 1Includes the FOX network, UPN, WB, other independent stations, pay cable and public television Source: Cable Advertising Bureau, Cable TV Facts (1999)

4 Primetime Viewing Shares of Free and Cable Television Networks

Primetime Viewing Shares of Free and Cable TV Networks 1985-1998

100%

90%

80%

70%

60%

All Other 50% Basic Cable Network Affiliates

40%

30%

20%

10%

0% 1985 1990 1991 1992 1993 1994 1995 1996 1997 1998

Note: For all television viewing Monday-Sunday, 8-11pm EST. Due to multiset use and independent roundings, totals add up to more than 100. All Other includes the FOX network, UPN, WB, other independent stations, pay cable and public television Source: Cable Advertising Bureau, Cable TV Facts (1999)

Children Were Found to be Immersed inin MediaMedia UsageUsage

Television

Music

Reading

Watching videos

Using a computer

5 Statistics From Kaiser Foundation Report Kids and Media Results of a study measuring how much media children are exposed to . Times are in hours and minutes.

Amount of time kids spend each day on average: Watching TV 2:46 Listening to music 1:27 Reading for fun :44 Watching videos :39 Using a computer for fun :21 Playing video games :20 Online :08 Percent of kids who have a TV in their room: All kids 2-18 53% 2-7 year olds 32% 8 and older 65% Percent of kids who have a computer in the home: All kids 2-18 69% 2-7 year olds 62% 8 and older 73% Lower income 49% Upper income 81% Percent of kids who have a computer in their bedroom: All kids 2-18 16% 2-7 year olds 6% 8 and older 21% Parental oversight - Percent of kids… With no rules about TV 49% In homes where TV is usually on during meals 58% Percent of time parents watch TV with their kids: 2-7 year olds 19% 8-18 year olds 5%

Source: Kaiser Family Foundation

Forecasted Continued Media Proliferation and Media Usage Fragmentation

Experts predict that over the next ten years technological advances in wireless, digital compression, two-way networks, the Internet, and high-definition television (HDTV) will present even more choices

6 Media Fragmentation, 19601960’s’s

TV faces the to 20102010’s’s TV faces the worstworst audienceaudience fragmentationfragmentation ofof all.all. Here,Here, NewsNews Corp.Corp. trackstracks andand forecastsforecasts thethe explosionexplosion ofof TV-TV- viewingviewing choiceschoices availableavailable inin anyany givengiven hour.hour. OnceOnce therethere werewere threethree options;options; soonsoon therethere willwill bebe 1,0001,000

1960s 1970s 1980s 1990s 2000s 2010s Most Americans UHF Stations bring The VCR becomes Direct-broadcast satellites are Digital compression and two-way Broadcasters may use high-definitionTV watch the Big more choices, and the commonplace, letting introduced offering hundreds of networks allow cable companies to offer spectrum to launch more channels. Three Networks fledging cable industry consumers watch channels. Cable systems are even more channels and services. DBS Internet chat evolves into networked virtual every night intoduces a few new recorded shows and slowly upgraded with more services grow more entrenched. As TVs reality games, interactive movies, and channels like HBO and movies whenever they channels are linked to the Internet, new other activities being hatched by MITs media lab and others. News Corp. Turner’s TBS want. Cable explodes, programming delivered via the Internet forecasts 1,000 channels, now called Superstation with new networks like takes hold. Result: 300 choices at any “context windows”. CNN and MTV. moment. 13 Source: Business Week, February 16,1998

How Offline Media Drives Online Media

7 How Do New Media Companies Leverage Off Traditional Media Channels?

The New Economy is quite depend upon the traditional new outlets of the Old economy Online presence is using traditional media to build an audience for the new media In 1999, an estimated 28 percent of all American households were online, a threefold increase from almost 9 percent just four years earlier Build brand awareness among Internet users, dot com companies spent an estimated $3 to $4 billion in advertising in 1999

Media Companies

90 percent of those dollars were on traditional media outlets Online news users say they still read newspapers and listen to radio news about the same or at a higher rate than online The Internet has emerged as a mechanism for supplementing, not replacing traditional media sources

8 Dot-Com Spending in Traditional Media

Dot-com and online services spending in traditional media ($ 1/99 – 6/99 %Chg YoY in thousands)

Network TV 129,218 910%

Cable TV 83,105 323%

Magazine 81,233 206%

Spot TV 63,828 136%

National Newspaper 56,835 180%

Spot Radio 50,149 318%

Local Newspaper 24,066 238%

Network Radio 18,348 71%

Outdoor 5,865 521%

Sunday Magazine 1,662 375%

Syndicated TV 642 22%

Total 514,951 273%

Source: Advertising Age

Top Dot-Com and Online Service Advertisers

Top Dot-com and online services spending in local and 1/99 – 6/99 1/98-6/98 national newspapers 1. Value America 19,778 5,499

2. E*Trade 9,053 4,218

3. Dow Jones (Online OPS) 7,648 6,438

4. Cheaptickets.com 4,147 2,112

5. Priceline.com 3,153 1,006

6. Charles Schwab (online) 2,887 0

7. AltaVista 2,281 0

8. Lowestfare.com 2,261 0

9. BankOne (online) 1,648 0

10. Amazon.com 1,333 0

Total 54,190 19,273

Source: Advertising Age

9 U.S. Advertising Expenditure, All Media Top 100 Daily Newspapers in the United States by Circulation, 1998

Percent of 19982 Percent of Percent 19971 (Millions) Total (Millions) Total Change Daily newspapers total $41,341 22.1 $43,925 21.8 6.3 • National 5,322 2.8 5,721 2.8 7.5 • Retail 19,257 10.3 20,331 10.1 5.6 • Classified 16,762 8.9 17,873 8.9 6.6 Magazines 9,821 5.2 10,518 5.2 7.1 Broadcast television 36,893 19.7 39,173 19.4 6.2 Cable television 7,237 3.9 8,301 4.1 14.7 Radio 13,491 7.2 15,073 7.5 11.7 Direct mail 36,890 19.7 39,620 19.7 7.4 Yellow pages 11,423 6.1 11,990 5.9 5.0 Miscellaneous3 23,940 12.8 25,769 12.8 7.6 Business papers 4,109 2.2 4,232 2.1 3.0 Outdoor 1,455 0.8 1,576 0.8 8.3 Internet 600 0.3 1,050 0.5 15.0 Total – National 110,538 59.00 119,285 59.3 7.9 Total – Local 76,662 41.0 81,942 40.7 6.9 Total – All media $187,200 100.0 $201,227 100.0 7.5

*

America Online Welcome Screen

10 Case Example: America Online

Founded by Steve Case in Northern Virginia, America Online (AOL) first sought partnerships with established media brands (Apple, MTV, San Jose Mercury News, and NBC) Newspapers had retreated from electronic media back to print and allowed third-party online services to emerge as an uncontested market By 1995, America Online would surpass Prodigy and CompuServe as the largest online service company in the United States America Online achieved a market value of over $138 billion and would also acquire CompuServe, Netscape, and Time- Warner

Monster.com Home Page

11 Case Example: Monster.com

Founded by Jeff Taylor in Massachusetts, Monster.com was reaching 3.5 million unique users as of January 2000 By January 2000, Monster.com build brand awareness largely through the combined use of broadcast television commercials Monster.com created a pre-emptive lead against its competitors and an effective barrier to entry

Monster.com User Statistics

Monster.com Key Metrics — December 1998 to January 2000

December March June September January 1998 1999 1999 1999 2000 U.S. Internet Users 1.4% 3.4% 4.2% 4.1% 5.3% visiting Monster.com Direct Traffic 81.0% 90.0% 94.0% 95.0% NA (non-alliance)

Page Views 48 Million 82 Million 122 Million 146 Million 158 Million

Paid Job Listings 186,000 204,000 252,000 255,000 315,000*

Resume Database 1.0 Million 1.3 Million 1.6 Million 2.0 Million 3.0 Million

Registered Members NA 2.5 Million 3.6 Million 4.2 Million 6 Million

Note: *As of December 1999 Source: Bean Murray Institutional Research, Monster.com, Media Metrix

12 CBS MarketwatchMarketwatch HomeHome Page

Driving Traffic

CBS Evening News

Driving Traffic

CBS Marketwatch Weekend

Case Example: CBS Marketwatch

Founded by Larry Kramer, the San Francisco-based financial news vertical, utilizes the resources of CBDS, its minority equity owner and broadcast partner to build brand awareness nationwide As of March 2000, the site had become the fortieth most visited site n the web with 5.5 million unique users By utilizing its content on broadcast news, there is reference to the site daily Rather than using the Web to enhance their core business, CBS Marketwatch has as it focused purpose to build a great website

13 What are the Reasons for Media Megamergers?

Media companies have been using mergers to develop vertical integration for content and distribution across all media: print, video, and audio Media merges have increased with the increase of broadband

List of Recent Mega-Mergers 1995 Disney and Capital Cities / ABC 1995 Time-Warner and Turner 1995 Westinghouse and CBS Inc. 1996 SBC and Pacific Telesis 1996 NYNEX and Bell Atlantic 1996 US West and Continental Cable 1996 Thomson and West Publishing 1998 America Online and Netscape 1999 AT&T and Comcast 1999 Viacom and CBS Inc. 2000 America Online and Time-Warner 2000 Tribune Company and Times Mirror Company

14 Top Multiple Systems Operators

Top 10 Multiple System Operators, Data in Millions, 1997 Number of Pay-cable Homes passed Rank System operator Subscribers units by cable 1 Tele-Communications Inc. 14.4 14.3 23.8 2 Time Warner Cable 12.3 8.2 19.0 3 US West Media Group 4.9 3.8 8.3 4 Comcast Cable Communications Inc. 4.3 3.7 6.9 5 Cox Communications Inc. 3.3 2.0 5.1 6 Systems Corp. 2.9 4.8 4.4 7 Adelphia Communications Corp. 1.8 0.8 2.6 8 Jones Intercable Inc. 1.5 1.2 2.3 9 Century Communications Corp. 1.3 0.5 2.1 10 Marcus Cable 1.2 0.7 1.9

Source: TV Digest, May 12, 1997 by permission from Warren Publishing

Point - Counterpoint on Cross Media Ownership

Relax/EliminateRelax/Eliminate MediaMedia OwnershipOwnership RulesRules MaintainMaintain MediaMedia OwnershipOwnership RulesRules

zzExistingExisting FederalFederal lawslaws prohibitingprohibiting cross-cross- zzExistingExisting FederalFederal LawsLaws needneed toto bebe maintainmaintain ownershipownership ofof aa televisiontelevision stationstation andand aa toto ensureensure thethe public’spublic’s interestinterest andand toto keepkeep newspapernewspaper inin thethe samesame marketmarket oror limitinglimiting competitioncompetition thethe numbernumber ofof televisiontelevision oror radioradio stationsstations thatthat aa singlesingle mediamedia companycompany cancan areare outdated.outdated.

zzWithWith thethe individualsindividuals havinghaving increasedincreased accessaccess toto otherother sourcessources ofof media,media, suchsuch asas zzLocalLocal newspapersnewspapers andand televisiontelevision stationsstations cablecable channelschannels andand InternetInternet sites,sites, continuecontinue toto dominatedominate thethe mediamedia inin locallocal concentrationconcentration ofof mediamedia inin singlesingle marketmarket markets.markets. AllowingAllowing cross-ownershipcross-ownership willwill cannotcannot bebe achieved.achieved. MediaMedia usageusage isis muchmuch reducereduce thethe numbernumber ofof choiceschoices forfor viewers,viewers, moremore fragmentedfragmented todaytoday thanthan everever beforebefore readersreaders andand advertisers.advertisers.

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