2012 Interactive online video market of Germany

Author: Lauris Mikals Student number: 45857 Tutor: Karin van Druenen Institution: Hogeschool Zeeland Date: 5/6/2012 i | P a g e

Interactive online video market of Germany

Research on how Zentrick can enter the interactive video market in Germany.

Author: Lauris Mikals Van Goethemstraat 6 9820 Ghent Belgium

Student number: 45857

School Year: 2011-2012

Institution: HZ University of Applied Sciences Edisonweg 4 4382NW Vlissingen The netherlands

Supervisor: Karin van Druenen

Company: Zentrick BVBA Antwerpse Steenweg 19 9080 Lochristi Belgium

Supervisor: Frederik Neus

Graduation Period: 14 February – 5 June 2012

Date: 5 June 2012

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All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the author. © Copyright 2010, HZ University of Applied Sciences Vlissingen.

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Acknowledgements

First of all, I would like to thank Zentrick for accepting me for the internship and providing me with an opportunity to work on this both challenging and rewarding project. The internship has been an unforgettable learning experience and has given me a broad insight into the world of online video distribution and production.

My deep gratitude goes to my company supervisor and mentor Frederik Neus, who provided me with the guidance throughout the project by sharing his knowledge and expertise. Thank you for always making me welcome in the company.

I would also like to thank the rest of the Zentrick team: Pieter Delbeke, Pieter Mees and Nicholas Hendrickx. It has been great working in your companionship and also sharing out of work interests.

My profound appreciation goes to all my teachers in Hogeschool Zeeland for giving me insightful education allowing me to carry tough this project. Special thanks go to my project supervisor Karin van Druenen, who gave me critical advice and the right motivation to finish this project.

Also great thanks to all the people who dedicated their time to share their experience and to provide me with all the necessary information.

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Executive Summary

Zentrick BVBA is an ICT startup that delivers managed services for online video encoding, storage, delivery and monetization to a broad spectrum of customers. This report has been written to describe the German interactive online video market and give Zentrick guidelines for entering this market. The main focus of the report is on answering the research question ‘How can Zentrick enter the interactive video market in Germany?’

The conducted research includes desk research, quantitative research, interviews and internal analyses. The combination of different researches has resulted in a complete and in-depth overview of the German market. Internal analyses of Zentrick will show if the company’s offer fits well to the market.

The chapter 5 “Findings” describes the state of online video market in Germany. It illustrates that the online distribution market is healthy and growing strongly. The market has experienced growth even during the period of the financial crises and it is forecasted that the growth will continue in the coming years. Superior user experience and quality of online video services have been important factors why a large portion of audience is consuming video content on their computers, tablets and smartphones, instead of TVs. Online video advertising in Germany has doubled from the last year 20111. Increasing presence of professional video content online shows that content creators understands the importance of Internet as a medium for their content distribution. Advertising with online video is more challenging than TV advertising, therefore Marketers and video producers are looking for new and innovative ways to advertise.

The recommendation in the last chapter shall encourage Zentrick to enter the German market by focusing on large and medium content creators. These two target segments are capable of adopting and using the technology as they have necessary financial resources and technical knowledge. In later product life cycle stages Zentrick should also make the service available for smaller industry players. In order to accomplish that, the services should be improved. Technical barriers should be solved and the price should be lowered, for service to become more affordable.

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Terms of Reference

Background

Zentrick BVBA is an enterprise video hosting provider. The company offers several services, including interactive video technology. Zentrick has plans to enter the interactive online video market in Germany. Zentrick has made a request for Lauris Mikals, enrolled in International Business and Management Studies at Hogeschool Zeeland, to investigate the online video market in Germany and provide the company with guidelines for entering the market.

Objectives

The objectives of this report are:

1. To describe the state and potential of the online video market in Germany. 2. To identify relevant market segments and to outline the needs of different segments. 3. To give recommendations to Zentrick about entering the market.

Methods & Process

The following methods were used to prepare the report:

• A review of background information provided by Zentrick. • A review of reports, white papers and presentations. • A review of online newsletter articles and expert blogs. • A review of marketing theory books. • Interviews with online video producers in Germany.

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Deliverables

The following outputs/outcomes can be expected from this report:

• Zentrick will gain improved understanding of the German online video market. • Zentrick will understand different marketing segments that exist in this market. • Zentrick will have a concept of forces existing between different stakeholders in the market. • Zentrick will be able to draw an optimal marketing strategy for entering the market.

Remarks of the scope of the thesis

This report evaluates the recent developments and trends in online video market by including quantitative and qualitative research relating online video production, distribution and consumption in Germany. Two key elements of this report will be examination of different market segments of German video producers and how each segment evaluates interactive video technology. This report introduces and analyzes key distribution services in Germany, as well as gives examples of potential competition. Trends in German audience consumption is reviewed and analyzed. Moreover report discovers entry barriers that exist in different market segments.

This report was written with research question in mind ‘How can Zentrick enter the interactive video market in Germany?’. The interactivity in videos can have many different applications, and it can generally be applied to most of the online video formats and types. The findings in this report define online video in general. In order to add the interactivity dimension to this research, online video producers from Germany were interviewed. All the findings were interpreted from the spectrum of these interviews.

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Contents

Acknowledgements ...... iv

Executive Summary ...... v

Terms of Reference ...... vi

Background ...... vi

Objectives ...... vi

Methods & Process ...... vi

Deliverables...... vii

Remarks of the scope of the thesis ...... vii

1 Introduction ...... 1

2 Analysis of Zentrick ...... 2

2.1 Zentrick ...... 2

2.2 Marketing mix ...... 3

2.2.1 Product ...... 3

2.2.2 Price ...... 5

2.2.3 Place ...... 5

2.2.4 Promotion ...... 6

2.3 SWOT...... 7

2.3.1 Strengths ...... 7

2.3.2 Weaknesses...... 8 viii | P a g e

2.3.3 Threats ...... 9

2.3.4 Opportunities ...... 9

3 Research questions and methodology ...... 10

3.1 Problem background and statement ...... 10

3.2 Procedure ...... 10

3.2.1 Work breakdown structure ...... 10

3.2.2 Time constraint ...... 11

3.2.3 Methodology ...... 11

4 Theoretical foundation ...... 13

4.1 Customer driven marketing strategy ...... 13

4.2 Internet marketing ...... 13

4.3 Marketing Mix ...... 14

4.4 SWOT...... 14

4.5 Channel intermediaries ...... 15

4.6 Porter’s five forces ...... 15

5 Findings ...... 16

5.1 Online video distribution ...... 16

5.2 Online video consumption ...... 17

5.3 Online marketing ...... 18

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5.4 Online video content creation ...... 20

5.4.1 Large companies ...... 20

5.4.2 Medium-sized content creators ...... 22

5.4.3 Small content creators ...... 23

5.4.4 Prosumer level ...... 24

5.5 Overview of creative industries ...... 25

6 Conclusions ...... 27

6.1 Attractiveness of the German market ...... 27

6.2 Evaluation of the competition ...... 27

6.3 Evaluation of the market segments ...... 27

6.3.1 Large content creators ...... 28

6.3.2 Medium content creators ...... 28

6.3.3 Small content creators ...... 29

6.3.4 Prosumer ...... 29

7 Recommendations ...... 30

7.1 Adjust the offer for medium content creators ...... 30

7.2 Adjust the offer for small content creators ...... 30

7.3 Think of ways of treating prosumer segment ...... 31

List of abbreviations ...... xii

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List of figures ...... xii

List of tables ...... xiii

List of appendices ...... xiii

Bibliography ...... xiii

Appendixes ...... xvi

Appendix A – SWOT Analysis Zentrick ...... xvi

Appendix B – Tables ...... xvii

Appendix B1 ...... xvii

Appendix B2 ...... xvii

Appendix C – Figures ...... xviii

Appendix D – Illustrations ...... xix

Appendix D1 ...... xix

Appendix D2 ...... xx

Appendix E – Interview questions...... xxi

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1 Introduction

Progress of the Internet, digital technology and growth of online video, has now been followed by marketers who want to use the potential of this medium to advertise. Zentrick BVBA is an online video platform, which distributes online videos and offers powerful marketing tools to monetize them. One of these tools is called interactive video which allows the user to interact with objects present in a video. Zentrick currently is offering their services in Belgium and their strategic vision is to enter the German market.

This report was requested by the management of Zentrick. The aim of this project is to explore the interactive video market in Germany in order to give a better understanding of market characteristics and ways this market can be approached. The research was carried out to understand how Zentrick can enter the interactive video market in Germany. To realize that, market segments where identified by evaluating statistics and meeting potential partners and clients.

This report presents relevant marketing theory that describes the micro- and macro-environment of the company, the market, and different marketing strategies. This report also presents the research findings, like characteristics of different German market segments, competition and technological developments in the field of video production and distribution. In the end of this report recommendations are given on how Zentrick adjust its strategy to better suit the German market.

This report can be used to gain insights into video production and distribution environments as well as get to know about latest technologies and services in the industry. It provides the reader with knowledge about internet marketing and marketing of online companies.

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2 Analysis of Zentrick

2.1 Zentrick

Zentrick was founded in 2010 by Pieter Mees, Frederik Neus and Pieter Delbeke with a goal to deliver managed services for online video encoding, storage, delivery and monetization to a broad spectrum of customers2. The company is solely active in the Business-To-Business market. In essence the company offers to encode, store and deliver high quality videos across multiple platforms (TVs, PCs, tablets and Smartphones) without video buffering. Zentrick also offers statistical tools that keep track on video performance parameters like view count, drop-off rate, platform preferences and location of viewers.

Recently Zentrick has finished work on interactive video technologies that allow adding interactive overlays on the top of digital videos, which makes it possible for the audience to interact with objects visible in a video. It is a method to create direct actions/responses during the video playtime. Here are some of the possible interactivity applications:

 click on items within the video;  buy articles instantly within the video;  see more information about the objects in the video;  share the video on social networks.

Currently Zentrick is working on additional options, like paywall functionality3, that will allow monetizing the video.

Since 2010, when the company was founded, Zentrick focused all its efforts on the developing and testing phase of the products. As from the end of 2011 Zentrick has entered a new stage where it will bring its products to the market.4

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2.2 Marketing mix

In order to demonstrate the strategic framework in which Zentrick operates, it is important to apply marketing analysis tools. The marketing mix, also known as the 4 Ps – Product, Price, Place, Promotion - , is one of the most used marketing tools and is considered to be an essential part of formulating and implementing marketing strategy.5

2.2.1 Product

The product consists of three levels: the core product, actual product and augmented product6. The core product refers to benefits, which makes it valuable for clients. For them it is the ease and convenience of publishing and managing their videos.

The actual product refers to the tangible, physical product. In this case it is a platform that solves technical challenges like encoding, storing and distribution, provides branding options, and offers interactivity features and analytics. Zentrick employs a bundle of technologies to provide customers with these services: compatibility with HTML5, Flash and Silverlight, adaptive-bitrates, real-time transmuxing, analytics and interactive video.

Compatibility with HTML5, Flash and Silverlight: makes it possible, that the video, once encoded, can be played across different platforms like Windows, Mac OS, Linux, iOS and Android.

Adaptive-bitrates: the video will be streamed in the best possible quality. The streaming server takes into consideration the target device’s screen resolution, the processing power and bandwidth and according to these parameters adjusts the streaming quality. For example a viewer will receive a video content even if the video is played on a smartphone with slow 3G network.

Real-time transmuxing: makes it possible to stream the video without buffering. Normally, video conversion happens on a streaming server, however when using the real-time transmuxing

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technology, the video conversion happens on viewer device. The advantages of this technology are smoother video playback and cost reduction, as the streaming server no longer encodes the video.

Analytics: is an important feature, as it gives information about the audience and their video consumption behavior. Zentrick offers different parameters of how the videos can be measured. For example the amount of time it was viewed, geographic locations of viewers, referring sites (Facebook, Twitter, others), drop-off (when people stop watching) and information about the viewer’s device. By combining these statistics it gives possibility to measure video’s ROI. These statistics allow identifying the audience’s watching habits therefore making it possible to optimize videos and the video strategy.

Interactive video: is an extra service that is offered on top of the streaming and analytics. Interactive video refers to a technique used to blend interaction and video. In most cases this technique is understood as a set of technologies that allow adding interactive overlays on top of the digital video so it becomes clickable. This technology opens up a range of possibilities. In most basic form it can be used to link objects in the video with other websites, however more advanced applications allow buying items within a video, create interactive games or implement alternative plotlines. This technology makes the video a two-way communication tool and improves call-to-action.

To upload and manage videos the user has to register on Zentrick’s panel. In there it is possible to upload videos, create customizable players, define quality levels, follow statistics and create interactivity. The Panel is created in a way that it is easy and intuitive to use. It is important, because the panel is the only contact point between the client and Zentrick.

The augmented product is understood as a non-physical part of the product. Integration of interactive video technology requires specific technical knowledge therefore Zentrick will implement interactive video technology and integrate its services into their clients’ central platform.

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2.2.2 Price

There are three main sources of revenue for Zentrick. The company receives revenue from streaming, interactivity and extra services.

One of the main revenue sources is Streaming. Streaming prices are calculated per minutes streamed. The price for “Standard Definition” streaming starts at €25 per month or as a second option with a time limit up to 2000 min. When 2000 min are exceeded the client pays around €0.01 per streamed minute. For “High Definition” streaming the price is around €0.03 per streamed minute. For “Full High Definition” it is around €0.05 per streamed minute. Overall if streaming exceeds 60000 minutes, a custom pricing is applied7. The pricing model is set in a way to be transparent and easily perceivable. The Client only has to pay for the amount of time streamed, unlike other services, where the client pays for clicks, even if the viewer just clicked play, but newer watched the video.

The other main revenue source is interactivity. Here prices are set according to the cumulative quantity discount model which means that the price decreases as the cumulative quantity increases8. Interactivity starts at €0,50 per interactive view and decreases as there are more interactive views. The price can drop to €0.01 per view9.

Zentrick also charges their clients for extra services like integration, consulting and training services. As implementation of interactivity requires specific technical knowledge, Zentrick offers services to consult and train their clients. At the moment the price is €800 per day but there are plans in the coming years to increase up to €1000,-10.

2.2.3 Place

Zentrick uses two types of channel intermediaries – direct marketing and two-level marketing channel. The channel intermediaries Zentrick uses for their service distribution are the Internet, direct sales and resellers (see Appendix D1).

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Potential clients, who want to use Zentrick’s platform, can create a user account on the website and gain access to the panel. In this way the subscriber will be able to use streaming and analytics services. At this point interactivity is in the beta phase and is available only to selected clients. This however will change in near future, when all services will be directly accessible from the online platform. It is expected that users who will become involved with the platform via website will be mainly small video producers or individual prosumers.

To large content creators the service is sold by direct sales. This category of companies mainly consists of networks, broadcasters, magazines and newspapers. These are large companies ready to order large quantities of streaming; therefore they require attention from the dedicated sales force.

Zentrick also use two-level channel intermediary model. In order to get to smaller clients, Zentrick creates partnerships with video producers and marketing agencies. Both produce large parts of the professional online video content. These companies have the right technical expertise available for using the platform and they are in direct contact with the large amount of smaller clients. In this way Zentrick has access to these clients who otherwise would be difficult to reach. Two-level channel intermediary model gives Zentrick’s business a unique scalability aspect. In order to reach many small clients the company doesn’t need a large sales force. Also the interactivity in videos can be developed by video producers themselves, therefore eliminating the need for hiring large amount of programmers.

2.2.4 Promotion

In order to promote its services to potential customers and partners, Zentrick uses various promotion channels. The website11 is the basic promotional tool used to inform potential or existing customers about the services, features and prices. After reviewing the website visitors can further register and apply for 30 day trial of Zentrick’s platform. The website is Search Engine Optimized, therefore it can be found more easily when somebody is looking for services Zentrick’s offers.

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In tandem with the website, Zentrick utilizes different web marketing tools. It regularly updates its pages on Facebook12, Twitter13 and LinkedIn14. These feeds provide followers with information about service updates as well as inform the readers about other interesting activities employees at the company are performing. Zentrick also has a news feed or blog15, which gives broader information about the processes which surrounds the company.

The main promotional activity is networking. Networking can be a very powerful tool in order to reach larger clients. The business development team uses every opportunity to attend different networking events, to connect with people and explain Zentrick’s business activities. By building and expanding their networks, Zentrick can get access to people and companies that are working with online videos and therefore could be interested in Zentrick’s offers.

In order to look for contacts of potential clients and partners, desk research on the Internet is used to get complete information about companies and contact details of key personnel. Afterwards these people are contacted by phone and email with the goal to arrange a meeting for a product demonstration.

2.3 SWOT

2.3.1 Strengths

The SWOT analysis (see Appendix A1) gives an overview of the company’s strengths, weaknesses, opportunities and threats. The main strength and competitive advantage of Zentrick is the unique bundle of online video publishing technologies the company offers. Technologies like adaptive bitrates, interactive video and analytics already existed before Zentrick and are offered by various video streaming services, however not in this combination. In case of Zentrick the streaming technologies ensure that the video can be streamed to major segments of the online video audience, and interactivity is the main competitive differentiator, which makes the service interesting for potential customers.

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Another strength of Zentrick is the scalability of costs and infrastructure. There are several companies offering interactive video however they are facing problems in growing their user base. Development of an interactive video is a time consuming process and requires programming skills. Most of the interactive video providers do the development of the video within their company. This means that they can only serve limited amount of clients. In order to serve more clients, they have to increase their staff and invest in infrastructure. Zentrick has eliminated this problem allowing clients to develop the videos on their side. In this way Zentrick can keep the costs down and have more focus on research and development (R&D).

2.3.2 Weaknesses

The main weakness of the company is uncertainty about their financial sources. Up till now Zentrick has been successful in acquiring venture capital; however these funds may run out leaving the company in a situation where it is no longer able to invest in R&D. Also ability to hire extra staff is limited, therefore the development of new services and features is progressing slowly.

Zentrick is mainly threatened by strong and innovative competition. For example, the largest competitor in the market, Brightcove, is currently mainly focusing on R&D and user base expansion. In their S-1 filling16 for initial public offering in the US can be seen that from 2009 till 2011, the company has worked with net loss. While net income can be an important indicator of the company’s performance it doesn’t necessarily mean that the company’s performance is bad. In this case it’s possible to see that the net loss was acquired largely because the company has extensively invested in R&D and sales and marketing. This is understandable because the competitor was preparing it for becoming a publicly traded company and in this case competitive technology and large user base is the most valuable commodities a company can have. This off course means that the competition in the market is intense and factors like innovative products play a very important role in companies’ success.

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2.3.3 Threats

In the online video distribution industry technology is moving fast, therefore time to market is essential to stay ahead of the competition. Bringing innovations to the market faster than the competitors could mean a lot. Users are most likely to stay with the platform which offers the most features and best user experience. While Zentrick has a strong team in both business and product development, it is currently facing a situation where, in order to continue the growth, it has to hire new staff member. It is not possible due to financial limitations. Business development staff is overworked and the engineering department is mainly working to maintain the stability of the service.

2.3.4 Opportunities

The online video is experiencing strong growth; therefore the market presents a lot of opportunities. For example it might be difficult to address prosumers and small video producer market segments, however due to decreasing video equipment and production costs this market is expanding quickly and in the future may become interesting. Low profit margins are the reason why this segment is not that attractive however represents considerable market share.

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3 Research questions and methodology

3.1 Problem background and statement

For the last two years Zentrick has been working on developing and perfecting their services. As in this year Zentrick is ending the beta or testing phase and fully launching their services. At the moment they have plans to introduce interactive video in Belgium, Netherlands and Germany. During the beta phase, the company has already been in contact with Belgian customers and has received positive feedback from several large and medium video content creators. The company wants to see whether the services would receive the same feedback in Germany and weather the needs of video producers there are similar to video producer needs in Belgium. Furthermore it is planned that this information will be used to draw a marketing strategy for entering the German market. This research was done to answer the main management question: ‘How can Zentrick enter the interactive video market in Germany?’ In order to answer the main question, relevant sub-questions were defined:

 What is the interactive video market potential of the German market?  What are the characteristics of different market segments in Germany?  How should Zentrick address the German market?  What are the needs of potential partners and clients in Germany?  What are the entry barriers in the German market?

3.2 Procedure

3.2.1 Work breakdown structure

In order to answer the research question the research was divided into four main phases. Phase 1 was dedicated to finding and reading literature that could be relevant for the project. To understand the operational framework of Zentrick several reports created by the company were reviewed. This gave introduction into their products and allowed to understand their strategy. To understand online video consumption and its trends, several white papers and presentations were reviewed. To get better understanding of technological developments in the overall video industry, several industry expert blogs were followed daily.

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Phase 2 was for qualitative research. During this phase interviews with German video producers were conducted. The goal of this phase was to identify potential partners in Germany, contact them, and arrange a meeting and finally visit them for an interview. To identify potential partners, desk research was performed. The research was done on internet. To minimize transportation costs the research was mainly focused on North-Rheine Westphalia as this region is closer to Belgium. During this research contact details of 250 German video producers and marketing agencies were found. To get in contact with the companies a VoIP service, Skape, was used. Calling to 69 video production companies resulted in 11 meetings. From calling to 50 marketing agencies the result was 1 meeting. Due to the low success rate with marketing agencies calling was identified as a not effective tool, therefore it was stopped after the first 50 contacts. Due to the failure of reaching marketing agencies, this report will be mainly focusing on video producers. After meeting the video producers the task was to review conducted interviews, identifying patterns and themes.

Phase 3 of the project was dedicated to writing and edditing the final report. During this phase all the literature and interview results were combined and explained resulting into this report. In addition to reviewed literature in Phase 1 new literature were found and implemented into the final result.

3.2.2 Time constraint

The time frame in which the project had to be carried out was 16 weeks starting at the 14th of February, 2012 and lasting till the 5th of June, 2012. First 4 weeks of the project were dedicated to Phase 1 - the literature review. The following 6 weeks were reserved for qualitative research. Finally the remaining months were used to compose the report. Due to time constraints it was possible to reach only a limited amount of companies and therefore leaving a room for error.

3.2.3 Methodology

The quantitative research included examination of e-business and marketing books, news articles, white papers, reports, presentations, expert blogs and company websites. Also the analysis of the company has been carried out to evaluate its current state of business. Desk research was conducted to gather knowledge about Zentrick and the industry it operates in. It was used to recognize and understand the developments in online video production, distribution and consumption and the way it connects with

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the company and its strategic framework. Interviews with video producers were held to gather their opinions, find out their needs and collect suggestions.

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4 Theoretical foundation

To classify the findings of the research several literature sources and several theories were used. In this chapter these theories are described and explained in short. Later in the report, in conclusion and recommendation parts, this theoretical part serves the basis on which the surgery is built up on.

4.1 Customer driven marketing strategy

Any marketing strategy has to come from the perspective of customers. To design a successful marketing strategy a company has to understand the marketplace and customer. In order to prepare a successful marketing strategy two points have to be clear: what kind of customers are served and what is the best way to serve them. For understanding which customers to serve it is important to divide the market into segments. After that, the company has to decide which segments to serve. Targeting all segments might not be the best option, because different segments have different needs, which might stand in conflict. In the end the result can be that no segment has been served successfully. The company should select segments it can serve well and profitably17.

Depending on the segment, the company chooses to serve, corresponding customer relationships strategy has to be used. With low margin customers basic relationships would be suitable, while segments with high margin customers, the company can treat customers with more care. To inform low margin customers, mass media could be used, while for high-end customers interaction should be deeper and more meaningful. The value of customers can have a broad range. It might be that a small fraction of all customers account for most of the revenues. Companies can decrease their marketing costs by targeting the group which brings the highest ROI18.

4.2 Internet marketing

Internet can be a very effective medium to retain good relationships on a larger customer base. Internet offers great opportunities in terms of communication, education and real-time feedback. The website of

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a company can be the place where customer gets everything he needs in terms of customer service. Most of the communication and services can be automated, therefore allows serving large amount of customers with no extra costs. Customer experience is the key driver for online business. Through the website a company can educate and inform their customer, provide customer service and distribute their core product. The company has to make sure that the website is logical and it is easy to navigate through it, which will translate in good customer experience19.

4.3 Marketing Mix

After deciding on one or more target groups, the company can begin planning the details of the marketing mix. The Marketing mix is one of the major concepts in marketing. It is a set of tactical marketing tools that a company can deploy to capture the market. There are many things than company can to market their products. These things can be classified in four groups: product, price, place and promotion20.

The Product is goods and services that a company provides to satisfy the need of its target market. Price is the relative value, normally expressed in monetary units, a company asks from their customers. Place consists of all activities that a company is doing to make the product available to the market. Promotion is all the communication a company performs to influence a customer to buy a product. To effectively carry out a marketing program, the company has to combine all marketing mix elements.

4.4 SWOT

The SWOT analyses is a common tool used to evaluate company’s strengths, weaknesses, opportunities and threats. Strengths include capabilities of a company that can help the company to serve their customers. Weaknesses include limitations that limit a company’s performance. Opportunities are positive factors and trends in the external environment that a company can use for its advantage. Threats are negative factors and trends in external environment that can affect the company’s performance negatively. The company can use this analysis to identify interesting opportunities and to

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adjust itself to protect itself from threats. By knowing its capabilities the organization can draw a better strategy for serving the right customer in the right way. By knowing the limitations the company can avoid losing money, time and resources, by making wrong decisions21.

4.5 Channel intermediaries

Channel intermediaries are means through which companies distribute their products and services to the customer or consumer22. There are different types of intermediaries:

 Direct marketing  One-level: (agents)  Two-level: (wholesalers, retailers)  Three-level (distributor + wholesaler)

Depending on the product characteristics, a company can select the most suitable intermediaries. An important factor when deciding which intermediary to use is the buyer behavior; how do buyers prefer to buy the product23. Is the information, installation and service important to the buyer? Another important aspect is the willingness of the channel intermediaries to market the product? Do they have the right expertise to distribute it successfully?

4.6 Porter’s five forces

Porter’s five forces analysis is a framework for analyzing an industry in which an organization operates. It analyzes five forces that define the intensity of competition. By using this analysis, a company can measure attractiveness of a market. The five forces consist of horizontal competition forces and vertical competition forces. Horizontal competition includes threat of substitute products, threat of established competitors and threat of new entrants. Vertical competition includes the bargaining power of suppliers and the bargaining power of customers. Appendix D2 illustrates this model.

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5 Findings

5.1 Online video distribution

Online video sharing was introduced in 199724 and since then has been changing the way an audience consumes audio-visual content. 1.2 Billion people worldwide watched an average of 18 hours each of online video in October 201125. There are around 2 billion people Worldwide who use the Internet26 meaning that over a half of internet’s population watch online video. There are several types of online video hosting services that allow users upload and watch video clips: user generated video sharing websites, video sharing platforms (white label providers, enterprise video hosting providers) and web based video editing.

There are many user generated video sharing websites which offers their services for free. Stable leader in the World as well as in Germany in video distribution is YouTube, which worldwide is watched by 800 million unique users each month27 and in Germany YouTube has 36 million unique users28. The service is free of charge and it allows users to upload their videos easily and watch other peoples’ work. YouTube claims that 72 hours of video is uploaded on their servers every minute29. Most of the videos is user generated content (UGC), meaning that it is created by non-professional video producers. However professionals also chose to use this platform. Most of the interviewed video producers mentioned YouTube as one of the platforms they use for video distribution. YouTube is the easiest way to reach large audience and it is completely for free.

In order to distribute video content professionally, video producers can use several enterprise video hosting providers (also Zentrick falls in this category). Most popular of these include Brightcove, Ooyala and Kaltura. These are payable services; however they offer many advantages over free distribution solutions. In Germany the most popular of these services is Brightcove. Besides providing storage and streaming services if offers several tools for customization, distribution, analytics and monetization. The

24 (Norlin, 2012) 25 (comScore Inc., 2011) 26 (World Bank, 2011) 27 (Google Inc., 2012) 28 (comScore Inc., 2011) 29 (Google Inc., 2012) 16 | P a g e

main market for the company is in US however they have a strong presence also in Europe. They have offices in Hannover, Paris, Barcelona and London meaning that they are focusing on capturing larger market share in these markets. Brightcove is popular company in the US; however none of the interviewed companies knew what Brightcove is. In Germany Brightcove takes 8603rd place in the overall website ranking30. Other competitors are doing even worse. None of the interviewed companies could mention any of the video hosting providers.

5.2 Online video consumption

Germany had 42,7 million of unique Total Unique Minutes Total Property Viewers per minutes online video viewers on September, (000) Viewer streamed 2011 watching on average 20 hours Google Sites 36,473 317.6 11583825 31 facebook.com 8,834 45.6 402830 of online video. Germany is the ProSiebenSat1 Sites 10,180 36.8 374624 leader in Europe in the amount of DAILYMOTION.COM 4,572 52.1 238201 unique viewers. RTL Group Sites 8,218 21 172578 Viacom Digital 8,176 19.7 161067 Statistics show that online video United-Internet Sites 6,439 17.2 110751 audience in Germany is shifting away Microsoft Sites 5,630 15.5 87265 from user generated content (UGC) VEVO 7,727 2.5 19318 ZAOZA.DE 4,321 0.9 3889 to professional content. In 2011 the total videos per viewer rate dropped by Table 1: Performance of largest video distribution platforms in Germany32 6%, while the minutes per video rate increased by 19%.33 This indicates that the audience in Germany is watching smaller number of videos however the average length of video has increased. That tells us that the audience more and more prefers watching professional contents.

The Table 1 illustrates popularity of different online video sites in Germany. Indicated in blue are the sites which offer only professional content. While Google Sites, which mainly distributes UGC, still

30 (AppAppeal, 2012) 31 (comScore Inc., 2011) 32 (comScore Inc., 2011) 33 (comScore Inc., 2011) 17 | P a g e

occupies the leader position, most of the followers are offering professional content made by video producers and broadcasters. This trend is important due to the fact that professional content is more attractive for marketing. The reason behind this is, that it is easier to identify and classify professional content therefore marketing efforts can be targeted with greater precision.

An increasingly important trend in online marketing is the growing number of internet connected mobile devices like Smartphones and tablets. In Germany in December, 2011 there were 21 million Smartphone users which is 37% of mobile phone users34. Since December 2010 this share has grown by 12%. Smartphones are mobile phones capable of displaying different kinds of computing intensive multimedia content. When Smartphones are made internet-enabled it became possible to access a large part of internet services including social networks and video streaming. In EU5 countries, which include UK, Spain, Italy, France and Germany, music and video capabilities are mentioned as an important reason for choosing a phone35. In EU5 countries Smartphones, tablets and other mobile devices account for 6% of all internet traffic36.

5.3 Online marketing

In Germany online marketing in the last four years has grown by 56%. The sector experienced double

Year Spending (000) Growth digit growth from 2008 till 2010 despite financial crisis, however in 38 2008 € 3 667 2011 the growth has slowed down to 7% . Due to the expansion, 2009 € 4 258 16% Internet has now secured its place as the second largest advertising 2010 € 5 357 26% medium in Germany. In the coming years it is expected that 2011 € 5 736 7%

Table 2: Internet ad spending in Germany37 internet will experience strong growth. This growth will be based on innovation in online services, increasing bandwidth speeds and advantages that internet presents in terms of real time information flow39.

34 (comScore Inc., 2011) 35 (comScore Inc., 2011) 36 (comScore Inc., 2011) 37 (Bundesverband Digitale Wirtschaft, 2012) 38 (Bundesverband Digitale Wirtschaft, 2012) 39 (Bundesverband Digitale Wirtschaft, 2011) 18 | P a g e

67 million or 82.45% of German population use internet40 and 42.7 million people watch online video which is 64.17% of internet population.41 As a large portion of the TV audience has migrated to services offered online, marketers have to redefine their marketing strategies and have to find ways to reach this audience. In Germany in 2011 online ad spending summed up to 5,736 million euro42. From this amount conventional online advertising was € 3,286 mil43. Over 95% of this is spent on different format banners. 3% - 3.5% of € 3,286 mil is spent on video meaning that in 2011 video advertisement spending can be estimated between € 98 and € 115 million. There are several tools, which marketers can use to monetize a video with advertisements. These include pre-rolls, mid-rolls, post-rolls, overlays, sponsorships, companions and player skins. Pre-rolls as well as mid-rolls and post-rolls are 10-30s long ad videos placed in the beginning, the middle or at the end of a video viewer intend to watch. In 2011 pre-roll ads ranked in 6th position in terms of gross advertising adding up to € 97.7 mil 44. In comparison with 2010 these spending were € 45.5 mil45 meaning that this category has been the fastest growing experiencing 217% growth rate.

Despite fast growth, online video advertising is still far from TV in terms of the time spent watching advertisement videos online. In UK in 2011 20% of time audiences spent watching TV ads and 80% of the time watching content, while online this ratio was only 0.4% for ads and 99.6% for videos46. The reason for this great gap is that the people don’t want to wait for the content to start playing. If a person has to wait too long on the Internet, he/she will just switch activities and will do something else. With TV it is more difficult. This presents great challenges for online advertisers as they have to find non-intrusive and effective ways for presenting video ads.

40 (World Bank, 2011) 41 (comScore Inc., 2011) 42 (Bundesverband Digitale Wirtschaft, 2012) 43 (Bundesverband Digitale Wirtschaft, 2012) 44 (Bundesverband Digitale Wirtschaft, 2012) 45 (Bundesverband Digitale Wirtschaft, 2011) 46 (comScore Inc., 2011) 19 | P a g e

5.4 Online video content creation

In my research I identified four main segments of Segment Budget per video project content creators starting from large content creators, Large € 30 000 ∞ Medium € 5 000 € 30 000 like broadcaster, up till smallest, like individual Small € 600 € 5 000 prosumers. Each of these segments are analyzed in Prosumer € 0 € 600 detail. To avoid confusion, video production industry Table 3: Video content creator market segments enterprises weren’t divided according to EU enterprise size standards. These standards suggest that all the companies under 10 employees are considered as micro. However, this kind of division wouldn’t be practical in this situation because the largest part of the enterprises can be classified as micro enterprises however there can be a great difference between these micro companies. The budgets of their projects can vary greatly therefore different division has to be applied. I chose to do the division according to project sizes, making it therefore easier to identify needs of each group. Please see Table x:

5.4.1 Large companies

This segment consists of networks, broadcasters, magazines, newspapers, marketing agencies, video producers and large enterprises with their own marketing departments. Traditionally largest advertising mediums in Germany have been broadcasting and print media. While TV broadcasting is still the largest medium with a stable market position, newspapers have lost their market share to Internet. In 2010 newspapers fell behind Internet as a second largest ad medium47. This trend is forcing broadcasters and especially newspapers to increase their presence on the web. This also means that a larger part of the marketing efforts now has to be directed to web, therefore changing marketer’s mind frame.

Two largest broadcaster organizations in Germany are RTL Group and ProSiebenSat.1 Media AG. Both of these organizations are also publishing content online. Table 1 shows their sites ranked high in comparison with other online video distributors. The broadcasters offer professional content which traditionally have attracted audiences. With more professional content online it can be expected that

47 (Bundesverband Digitale Wirtschaft, 2012) 20 | P a g e

the audience will slowly shift to the internet. In order to have larger control over the distribution of content these broadcasters have created their own video distribution platforms.

Print media has been losing its market share due to advantages Internet offers in terms of finding and presenting information. Newspapers and magazines from 2006 till 2011 have lost 11% of gross advertising share while in the same period of time Internet has gained 10%48. Decreasing print quantities has forced print media diversify their distribution channels and also publish news online. Besides traditional news articles, Internet also gives an opportunity to enrich news content with videos. 8 out of 10 largest German newspapers have dedicated video section on their sites. Videos help attract audience by making news visual and engaging.

Overall the large company segment is experiencing strong growth. The audience is migrating from offline to online therefore leaving content creators with no choice but to follow. Watching videos online is especially popular among the young audience where new technology adoption rate is faster.

Statistics demonstrate that in the US 33% of audience watch TV shows online only or on cross platforms opposed to 67% of TV only viewers49. Among young audiences this proportion is even more in favor of online where 48% of 18-34 year olds are watching TV shows on Internet50. While there is no data to confirm it, it can be expected that similar trends are also common in Germany.

During the research three German freelance video producers were interviewed: Laterna Magica Filmproduktion, Crysquare Pisctures and Filmkompanie (Appendix B2). All of them have more than 10 years experience in the video production industry. They didn’t disclose their project sizes; however they mentioned that normally they produce videos for large companies with large budgets. After introducing them with the services Zentrick offers, all of the three companies expressed high interest in the product (one of them became a partner few weeks after the interview). Two of the companies were astonished by the price of interactivity, mentioning that similar products normally have higher costs. None of the companies would have problems with implementing the technology in their workflow. They would have access to programmers and extra two days in post-production would be a reasonable amount of time.

48 (Bundesverband Digitale Wirtschaft, 2012) 49 (comScore Inc., 2011) 50 (comScore Inc., 2011) 21 | P a g e

Overall German companies in this segment had positive attitude towards the technology and they couldn’t identify any barriers that could keep them from using the service. They could clearly see the ways they could use the service and the benefits the technology would bring to them and their clients. From the conversations it could be noted that offering new creative solutions for their clients is important for them.

5.4.2 Medium-sized content creators

This segment consists of video producers and marketing/communication agencies. The size of video projects in this segment can vary between € 5000 and € 30000. Normally these companies work on projects like commercials and corporate videos.

The digital revolution has also revolutionized the video producer business. In the past most of their projects were created for distribution on TV or through VHS. Since the wide adoption of Internet, most of their work is now distributed online. Popularity of online video platforms like YouTube or Vimeo created an opportunity to easily reach large audiences. Since its beginnings, internet has grown from a medium for mainly distributing text, to a medium which is capable for displaying high quality images and videos. Web pages are no longer places where users just read the information, but it has become a place where the user can find visual representations, as wells as can have interactive experiences. In 2011 Google launched a new search engine algorithm called Panda51. The principle behind this algorithm is that whenever a user enters a search word Google gives priority to pages which contain pictures and videos. So in order for a page to be successfully looked up by Google’s search engine it has to contain visuals.

The goal of video producers and advertisers is to fill this need for visual, easily perceivable content which is used to inform and advertise. At the present internet users are used to find information on Internet instantly. After entering a word in the search engine information is available within seconds. This created more challenges for video producers as they have to manage to decrease the length of the video in order to get the information and the message across. As it was discovered from interviews in

51 (McCullagh, 2011) 22 | P a g e

the past it was normal that a corporate video for example is 20min in length. In digital age this length has decreased to 5min on average as people are no longer willing to invest their time in long videos.

During my research four interviews were conducted with German companies in this segment. All of them had more than 10 years experience in the video production industry. When asked about their normal budgets they explained, that budgets can vary greatly, but the amounts mentioned varied from € 5000 till € 30000. After introducing them with the services Zentrick offers, I was trying to find out how they see different aspects of the technology.

The interest expressed by interviewees can be described as moderate-high. All of them could clearly see the benefit of the technology and ways how this could apply it in their own projects; however it was possible to notice some hesitation. It is difficult to find reason behind this hesitation, as it can differ from company to company. The companies normally answered that they are ready to introduce this service to their clients; however the decision to use the technology completely depends on the client. This could mean that the decision due to the cost involved is not an easy decision.

5.4.3 Small content creators

This segment consists of video producers. Usually companies working in this segment are no larger than two people, but in most cases they are freelancers. The size of the video projects can vary from €600 to €5000, created in a timeframe from few days to few weeks. Usually projects in this segment are corporate videos and event films.

Democratization of video production equipment and distribution channels has made creation of cheap but qualitative video projects possible. Due to that there has evolved a new category of video producers serving smaller clients. Usually, the goal of the video projects in this segment is, to create visual and engaging representation of the clients conducted business. For small businesses it is crucial to have a website as it is the cheapest marketing option. A video can serve as a great additive to the website’s content.

During the meetings in Germany I met with five video producers in this segment. They had experience between five and fifteen years. When asked about their normal budgets they explained that budgets can

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vary, but the amounts mentioned varied from €600 till €5000. After introducing them with the services Zentrick offers, I was trying to find out how they see different aspects of the technology.

All of the companies were excited about the technology and could easily see the benefits it brings, however all of them were careful about a possibility to use the technology. When asked about amount of money per project they would be ready to pay in order to use the service, the answer usually was 10% of total project cost. When looking at their usual budgets, that would be from €60 till €500. Considering that the development of the video alone costs €800 this wouldn’t be something they are ready to use.

Other feedback I received from small producers was that they would be happy to see an affordable package of streaming and interactivity, with fixed price. The reasoning behind this was that their clients usually are small companies and it wouldn’t be convenient for them to have variable costs because it is important to have the costs predictable. Furthermore it would be more confusing for a client to understand the system where they pay per amount streamed.

5.4.4 Prosumer level

This segment mostly consists of individuals who produce videos in their free time. Popularity of video platforms like YouTube and Vimeo show that that there is a strong category of professional hobbyists who are ready to invest their time and financial resources to produce professionally looking content.

Increasing availability of video capturing and editing equipment has democratized video production, making it available for general public. The Introduction of Photo/Video camera Canon 5D Mark II in 200852, gave people an opportunity to have broadcast video camera qualities for a price of €2500. Even further, most of the high-end cell phones are now equipped with powerful image capturing sensors and software. It has become possible to edit footage and produce computer generated imagery (CGI) on consumer desktops or laptops. Together with content distribution possibilities online, these factors have created strong web video enthusiast movement.

52 (LaForet, 2008) 24 | P a g e

At the moment camera producers have reached a point where image sensors have achieved its optimal physical capacity. Image and monitor resolutions are also experiencing their limits where a further increase is no longer practical. There are still image quality factors that differ prosumer cameras from high-end professional cameras, however this difference has a tendency to decrease due to faster and more efficient processors and cheaper and faster data storage solutions. This trend has lead the industry to a point where it has become difficult to distinct videos, produced by professional high-end video cameras, and videos produced with cameras under €2500,-.

Usually video enthusiasts have learned to work with small budgets, by practicing do it yourself (DIY) philosophy and building their own equipment. Normally for video distribution they chose free video platforms like Vimeo and YouTube. An Interesting example on how to treat this segment is set by video hardware and software developer Blackmagic Design Pty. Ltd.. One of their products, color grading software DaVinci Resolve53, is widely used by the industry professionals. They sell the full version of the software for US $995, however they also offer a lite version for free with minor limitations. In this way the company makes the software available to a large amount of people which wouldn’t be able to afford it anyway; however it can be expected that some fraction form these people will upgrade to the full version therefore creating a profit for Blackmagic Design.

Overall this segment can be characterized as very noisy where the content quality can vary greatly. This means that from large amounts of video contents only a fraction of videos has the necessary qualities to attract audiences larger then few hundred. However the videos that have audience can contain qualities that are unique only to this segment. Those can be artistic or creative videos that wouldn’t be suitable for prime time networks, but can find an audience online. Also educational or instructional video series which are targeted for certain niche audience can very well attract viewers online.

5.5 Overview of creative industries

Film, marketing, press and broadcasting industries are part of the creative industries sector. In terms of gross value-added in 2009 this sector was the second largest sector in Germany behind mechanical

53 (Blackmagic Design Pty. Ltd., 2012) 25 | P a g e

engineering with produced goods and services worth over €60 billion which is 2.6% of the GDP54 and turnover of €131 billion. In recent years politicians have begun to realize the importance of this sector. For example on EU level, support programs are being prepared to stimulate the growth of the sector55. Over the last decade the sector has experienced stable 2% growth and it is forecasted that till 2020 the size of the sector will grow till €175 billion56.

German Federal Ministry of Economics and Technology has characterized 97.1% of all companies, working in the industry, as micro companies57. Overall this sector has 240 000 enterprises which is 7.4% in overall economy while they are responsible for only 2.7% of the turnover58. 23% of the people working in this sector are self-employed while in total economy it is 10%59. Unlike industries which are producing standardized products for masses; companies in creative industries normally work on project basis. In order to maintain the flexibility people in this sector chose to be self-employed and larger projects are realized through collaboration between different self-employed people.

54 (Deutsche Bank AG, 2011) 55 (Europe Commision, 2012) 56 (Deutsche Bank AG, 2011) 57 (Federal Ministry of Economics and Technology, 2009) 58 (BMWi (Ed.), 2009) 59 (Deutsche Bank AG, 2011) 26 | P a g e

6 Conclusions

In this chapter, all the findings described in the previous chapters, will be interpreted and discussed.

6.1 Attractiveness of the German market

The Interactive online video market in Germany is an attractive market. It has experienced strong growth in the last five years and it is forecasted that the growth will continue. The Consumption of qualitative online video content is increasing. This leads to online video advertising which distinguishes professional content as being friendlier for displaying ads. Situation with competition is still favorable - while being strong in R&D, is still unknown, however it may change in the near future.

6.2 Evaluation of the competition

The Competition in the market is strong as there are many solutions for video streaming. Customers have a wide choice from free but simple services like YouTube and Dailymotion to payable services which offer enterprise level options.

The Competition is strong among enterprise video hosting providers. Companies like Brightcove, Ooyala and Kaltura are innovative companies that have potential to come up with interesting and very useful services. While the mentioned companies are larger than Zentrick, a favorable factor for Zentrick is that most of the interviewed companies couldn’t name any of the Zentrick’s competitors. This means that the largest part of the market in Germany is still free. This leaves great opportunity for Zentrick as it could try to beat its competitors in being first to offer enterprise video hosting services.

6.3 Evaluation of the market segments

In previous chapters characteristics of different online video market segments where described. Each of the segments have their own unique characteristics and needs, therefore they require to be treated differently. At the moment Zentrick’s offer suits only two of the segments: large and medium companies. Zentrick’s offer doesn’t fit for the small companies and prosumers.

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6.3.1 Large content creators

This segment is experiencing strong growth as audiences are shifting from traditional media to the Internet. Marketing campaigns are following its audience to online, therefore creating demand for competitive video distribution and advertising solutions. Due to the differences between TV advertising and online video advertising, video producers have to find new ways how to implement ads in the content distributed online. Till some extent, possibilities offered by interactivity could solve the problem. In this way ads wouldn’t be as intrusive therefore allowing viewers to enjoy content undisturbed. Large content creators are always looking for creative and innovative solutions that would allow them to capture the attention of the audience. Interactivity would very well fit in their projects

For Zentrick this is a very attractive segment, because with little marketing efforts it would be possible to generate high returns. With relative small marketing investments it would be possible to reach large clients who are ready to buy large quantities and pay the asked price.

For companies in this sector technical challenges, like programming the interactivity, wouldn’t be a large problem. Large companies often have personnel available to program the interactivity or such a person is always with in a reach and can be hired on project basis. Companies in this sector are ready to pay for extra services like integration, consulting and training.

6.3.2 Medium content creators

This is a stable segment. All of the companies have already adopted their business model for the Internet. Considering the characteristics of the projects internet is the perfect medium for distributing the content. Normally, companies in this segment work on videos which purpose is to inform, educate and advertise. All of the interviewed companies where interested in the interactivity and could think of useful ways how to apply interactivity in their projects.

While the interactivity would be a useful tool for companies in this segment, they weren’t as excited as the larger companies. They are willing to pay the price, however with some hesitation. It can only be speculated where the hesitation lies. There could be various explanations that could vary from company to company. Further investigation would be necessary to fully understand the needs of this segment.

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For Zentrick this would be an attracting segment. Partnering with video producer would give access to a large amount of clients, what otherwise would be very difficult.

There is a demand for new technologies that could improve viewer experience. Companies are looking for ways to increase their production value. Differentiation from the competition is also an important factor since the competition is strong and there are many companies that offer very similar products.

6.3.3 Small content creators

This is a new segment which has arisen due to the possibilities offered by Internet. Distribution and creation of videos has become easy and cheap, therefore it has created new opportunity for video producers to serve smaller clients.

Companies in this segment were interested in the technology and would find application in their projects; however for this segment it is very important to keep the costs down. At the moment Zentrick’s offer wouldn’t be fitting here. The companies would be ready to pay 10% of the project costs. This however is not enough to pay for the streaming and to cover the costs for making the video interactive.

6.3.4 Prosumer

This is a growing segment. Due to the cheap and available video production technology this segment is experiencing high growth as many people are finding video production interesting and engaging.

At the moment Zentrick’s offer wouldn’t be suitable for this level. Individuals in this segment are ready to invest in video equipment and software, however their budgets are tight and they chose to save on everything that is not essential for their videos.

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7 Recommendations

7.1 Adjust the offer for medium content creators

This is an important segment. By arranging partnerships with these companies Zentrick would have access to a larger amount of smaller clients. Overall the feedback from this segment was positive; however there might be some ways how to improve the service to fit the needs of the segment’s companies. Perhaps solving the technical challenges would make it easier for video producers to adopt the service. Currently development of interactive video requires programming knowledge. Since most of the video producers don’t know how to program, they have to hire professionals, who can. This of course increases costs as well as makes the workflow slower and more difficult. While most of the producers would be able to overcome these obstacles, it is reasonable to assume that eliminating them would make the service more accessible. Video producers asked for intuitive interface. Such interface would eliminate the need for programming knowledge as well as decreasing the time for developing the video. In this way the decision to use the platform, and therefore the service, would become an easy one.

7.2 Adjust the offer for small content creators

At the moment Zentrick isn’t focusing on this segment. The offer is currently suited for large and medium companies; however ignoring the small companies in long run might hurt the company. This segment is constantly growing and in the future may represent large market share. Without proper offer Zentrick risks losing a good opportunity for growing user base. At the moment profit margins in this segment are not as interesting as in the large and medium segments, however many users who bring in little profit are still better than no users and no revenue.

Currently companies in this segment are not happy with the price for streaming and interactivity and neither with the technical challenges of developing interactive video. Solving the technical challenges would make the service more accessible; however the price of streaming and interactivity would still remain as a barrier. In order to reach customers in this segment Zentrick may create a package with a fixed price, which would include all the services, however with some limits. For example these limits could be set on streaming, by limiting the time; on interactivity, by limiting the interactive views; on

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resolution, by limiting it to “High Definition”. Also companies in this segment expressed the need for a package with a fixed price. Their clients usually are small companies which prefer predictable costs.

7.3 Think of ways of treating prosumer segment

The Prosumer segment is the last segment Zentrick should focus on as it will not bring any substantial revenue. The players at this segment are too small and too random in their creative expressions therefore making it difficult to target the segment. However in a long run it wouldn’t be right to ignore this segment completely.

A Good example of how to treat this segment is set by Blackmagic Design. By giving away their DaVinci resolve software for free they are able to grow their user base. They can expect that over time some of these users will become payable customers. Zentrick could use a similar strategy by offering a package of their services with some limits, which would allow users to get familiar with it and use it for their small projects. This would increase the amount of users and would allow capturing larger market share, leaving no space for competition. When some of these users transition into professionals it will result in some revenue stream.

In order to make Zentrick’s service attractive to this segment, Zentrick firstly should eliminate the technical barrier by improving their user platform to make it simple to use and intuitive. Secondly, the price should be set very low or the service should be completely for free. The offer should contain some limits like time limit, limit on minutes streamed etc., however it has to be able to introduce the users with all of the features so they can fully understand the capabilities of the service. In order to gain success in this segment Zentrick should be able to compete with free streaming services.

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List of abbreviations

CGI - Computer Generated Imagery

DIY – Do It Yourself

EU – European Union

R&D – Research and Development

HTML5 - HyperText Markup Language 5th edition

OS – Operating System

PC – Personal Computer

ROI – Return on Investment

TV – Television

UGC - user generated content

US – United States

List of figures

Top 10 advertising formats in terms of gross advertising in 2010, Germany

Top 10 advertising formats in terms of gross advertising in 2011, Germany

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List of tables

Appendix B1 - Change in the smartphone video consumption by age group, 3-month average ending in March 2011 vs. 3-month average ending in March 201260

Appendix B2 – Summary of the conducted interviews with German video producers.

List of appendices

Appendix A – SWOT analyses of Zentrick BVBA

Appendix E – Interview questions

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Appendixes

Appendix A – SWOT Analysis Zentrick

Strengths Weaknesses  Combination of best video publishing  Uncertain financial sources technologies in the market (Adaptive bitrates +  Lack of experience in the media market interactive video + advanced analytics)  No existing path to the television screen  Scalability  Non-intrusive online video advertising is more powerful  Local market expertise  Competitive pricing  Talented team Opportunities Threats  Small video producer market segment  Strong and innovative competition  Strong online video market growth  Reluctant content providers  Increasing illegal content on the internet  Time-to-market forces content owners to react  Increasing bandwidth consumption lowers distribution costs  Video quality becomes more important than quantity  Decreasing video production cost

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Appendix B – Tables

Appendix B1

3-month 3-month average average e Unique Users (000) ending in nding in % Change March March 2011 2012 Smartphone video users 1,895 3,222 70% (total) 13-17 years 173 347 101% 18-24 years 444 818 84% 25-34 years 634 853 35% 35-44 years 352 618 76% 45-54 years 188 409 117% 55 years and older 104 177 71% Change in the smartphone video consumption by age group, 3-month average ending in March 2011 vs. 3-month average ending in March 201261

Appendix B2

Name Organization Segment Experience Level of interest Fits in their projects Price villing to pay Extra 2 days Explanation Fixed or variable Competition Laterna Magica Filmproduktion Large 10< High o It is cheap o Easy Strong Crysquare Pisctures Large 10< Already a partner o It is cheap o Easy Strong Filmkompanie Large 15 High o 10% o Easy Strong KaufFix GmbH & Co.KG Medium High o 10% o Easy Strong backpack films Medium 15 Moderate - High o o Easy Strong Blinkenlichten Produktionen Medium Moderate o o Easy Strong Blanko Medium Moderate - High o o Easy Strong i-motion.tv Small 13 Low o 10% o Easy Fixed Strong Silk-Film Small Moderate o 10% o Easy Fixed Strong Filmerei Sinzenich Small 5 Moderate o 10% o Easy Fixed Strong Morgen Gestaltung Small 8 Moderate o 10% o Easy Fixed Strong Summary of the conducted interviews with German video producers

61 (comScore Inc., 2012) xvii | P a g e

Appendix C – Figures

Figure C1 – Top 10 advertising formats in terms of gross advertising in 2010, Germany62

Figure C2 – Top 10 advertising formats in terms of gross advertising in 2011, Germany63

62 (Bundesverband Digitale Wirtschaft, 2011) 63 (Bundesverband Digitale Wirtschaft, 2012) xviii | P a g e

Appendix D – Illustrations

Appendix D1

Zentrick distribution channels

Internet Resellers Direct sales  Small video  Video  Marketers producers producers  Networks  Prosumers  Marketing and  Broadcasters communication  Magazines agencies  Newspapers 

Different enterprises

Audience

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Appendix D2

Threat of new enterants

Bargaining Power Bargaining Power Industry competitors of Supliers of Buyers

Threat of substitute products

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Appendix E – Interview questions

Introduction

1. Could you please tell your name and work position? 2. How long have you worked in the industry? 3. What are the projects you usually work on? What are your typical clients? How do you tell the stories? 4. Where your videos are normally displayed? Do you have any experience with online video? What do you use to distribute videos online? 5. Do you use Computer Generated Images (CGI) in your projects? What type?

Interactivity

6. Let’s imagine that you are using interactive video technology. Can you now think of already finished project of yours where interactivity could fit very well? 7. Do you see how this technology could complement your productions?

Workflow

8. Would this technology fit in your present workflow? If no, what has to be changed in order to successfully implement the technology in the workflow? Tool, basic internet technology skills. 9. This product presents extra possibilities for creativity and audience engagement, but of course it also means extra work. What would 2 days of extra work in post-production mean for your projects?

Competition

10. How would you describe competition in your market? 11. How do you differentiate your company from the competition? 12. Who are your biggest competitors?

Partnership

13. What do you think about interactive video? Is it something customers want? 14. Is this something customers would want to pay more for? How much? 15. Is this something you would like to have and sell? 16. Have you seen any kind of this interactivity yet? 17. Do you want to be one of the first in your market? 18. Would this technology bring value to your business?

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