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Ereading Services Business Models and Concepts in Media Industry eReading Services Business Models and Concepts in Media Industry Deliverable number D 1.1.2.2 and D 1.1.2.3 eReading Services Business Models and Concepts in Media Industry Editor(s): Seppo Leminen Industry Author(s): Seppo Leminen, Merja Helle, Juho-Petteri Huhtala, Markus Kivikangas, Esko Penttinen, Mervi Rajahonka, Jari Salo, Riikka eliverableSiuruainen, name Miikka Tölö Confidentiality: {Public, Consortium} Date and status: 14th of February, 2011 – Final Version This work was supported by TEKES as part of the next Media programme of TIVIT (Finnish Strategic Centre for Science, Technology and Innovation in the field of ICT) Next Media - a Tivit Programme Phase 1 (1.2-31.12.2010) Participants Name Organisation Seppo Leminen Aalto University School of Economics, Laurea University of Applied Sciences Merja Helle Aalto University, School of Art and Design Juho-Petteri Huhtala Aalto University School of Economics Markus Kivikangas Helsinki University Esko Penttinen Aalto University School of Economics Jari Salo Aalto University School of Economics Mervi Rajahonka Laurea University of Applied Sciences Riikka Siuruainen Laurea University of Applied Sciences Miikka Tölö Aalto University School of Economics next Media www.nextmedia.fi www.tivit.fi eReading Services Business Models and Concepts in Media Industry 1 (145) Next Media - a Tivit Programme Phase 1 (1.2-31.12.2010) Executive Summary eReading devices and content (books, magazines and newspaper) markets have mushroomed in recent years but they are still at an embryonic stage in Finland. The main objective of this study is to propose viable approaches to developing eReading business models for distributing chargeable newspaper, magazine and book content in the Finnish context. After conceptualizing the business model framework, defining existing challenges and benchmarking international business models through the lens of challenges faced by Finnish companies, suggestions for eReading business model development will be made. Business model in digital landscape The study describes the general meanings of business model and business models in both the media business and e-business. The literature on business models is ever growing. Business models have always existed, but have been of increased interest to practitioners and academics alike in recent years. However, there is much confusion about what business models are and how they can be used. A business model can be defined for instance as the logic and the activities that create and appropriate economic value, and the link between them. The study presents the traditional business model of the media industry and different ways in which advertising can be displayed and revenue generated. In addition to that the study discusses the concepts and definitions related to modularity and the applicability of the modularity thinking in the media industry. Flexibility in production and cost-efficient mass-customization of offerings have been seen as benefits of modularity thinking in manufacturing industries. In the media industry context, offerings can consist of non-modular products (a book or a magazine etc.), or modular products built of modules that are combined (or ―mixed and matched‖) into a package that is actually mass-customized for a particular customer (personalized media content). Correspondingly, the production process can be split into process modules that can be combined in different ways, for example the core process can be shared for content production for all distribution channels or devices, but in addition, different channels may demand some process modules that are specific for the particular channel. These may include for example process steps for editing of the content or for transforming the content into suitable file formats for different devices. Finally, if the media offerings and their production processes are built of well-defined modules, the implementation can easily be done by multiple actors in a modular organizational network. This study also suggests that it is possible to sketch relatively stable business model platforms, and add flexibility to business models by adding interchangeable business model modules to the platforms. For a single media company a modular business model makes it possible to have multiple business models simultaneously. For example Amazon has multiplied its business model after its success with books to many other products. In the following business model platform thinking is exploited in the development of a business model framework for media industry (see chapter 3.6). Further, the study discusses two-sided markets and alternative payment methods in electronic reading platforms. Electronic reading platforms can be analyzed as two-sided networks joining consumers and content providers. Critical strategic issues to be considered in platform mediated two sided networks are determining the money side and subsidy side, and deciding on the openness of the platform, either a shared platform or a proprietary platform. To decide on these, managers need to analyze network effects (both on the same side and cross side), eReading Services Business Models and Concepts in Media Industry 2 (145) Next Media - a Tivit Programme Phase 1 (1.2-31.12.2010) and consider whether electronic reading platforms will converge towards one single platform. The notion of the long tail and the unbundling of information goods give rise to new payment systems with lower transaction costs than the current dominant payment methods. In order to succeed, these new payment systems enabling small micropayments and nanopayments must overcome three hurdles: transaction costs, usability issues, and reach. The media business model has traditionally been a two-tear model: selling content to the audiences and selling the audiences to advertisers. This model is changing with digital media and web publishing as audiences become more fragmented, autonomous and interactive. This phenomenon is apparent in book publishing, magazines and especially in digital news and journalism. It is not only a threat to publishers but also a possibility to create innovations in value proposals based on understanding meanings of media usage. Value proposition for customers is inherent in all business models, but in practice the focus is often more on the production processes or delivery platforms and not on the why and how of people‘s media use and its meaning in their everyday life. Interactivity is a major emerging trend in media practices. In e-reading devices readers can annotate their favorite passages for others to see and see what their friends are reading at the same moment, people can form social online book clubs, loan, review and recommend books online. In online newspapers personalization, sharing, recommending, saving stories for later reading and navigating options are increasingly important elements of interactivity. Understanding audience behavior as everyday practice and building innovative, useful and interesting content and service packages to help the everyday life of readers and users are the key to financial revenue and survival of media companies. This kind of thinking needs collaboration and innovation between research, technology experts, the marketing and content department and pooling their collective expertise. Highlights of eReading business model cases Three types of eReading business model cases, eReading store business models, digital publishing around the globe and digital collaborative platforms are depicted. eReading store business models for books Global eReading stores, such as Amazon.com or Apple‘s iBookstore, have many similarities in their business model design. They have taken the platform provider role in digital content services, as they provide a viable channel for digital content publishers to reach a large number of customers. To attract customers, they offer a wide selection of eBooks for eReading devices at fairly low prices. Pricing for Kindle books currently starts at 9.99 USD. Additionally, an informal random audit of books indicated an average digital book price of 65% of the cost of paper books. Between eBook and hardback book prices the Barnes & Noble eBooks store sells eBooks at approximately 55% of the hardback cost. This is competitive relative to comparable sites. Additionally many free classics are available as well as newer books for $5.00 or less. Products on the Sony Reader Store website are, on average, a bit higher than comparable eBook sites like Amazon.com and Barnes & Noble. eBooks are eReading Services Business Models and Concepts in Media Industry 3 (145) Next Media - a Tivit Programme Phase 1 (1.2-31.12.2010) priced at approximately 70% of the cost of their paperback versions. Apple's eBook application for the iPad is called iBooks. Apple sells only digital versions of books. After large iPad sales in 2010 in the U.S., some eReading stores changed their policy to offer the content only for certain hardware. Today, these stores compete more and more with the book selection: For example Amazon.com and Barnes & Noble developed applications to Apple store that provides the same digital content for Apple iPad users. Digital publishing around the globe Four cases of digital publishing around the globe, Les Echos, The New York Times, Bonnier and Financial Times, are presented. Les Echos‘s service includes dynamic and deeper content, videos, timely information and a knowledge store that also includes content from others. Their offering is targeted at people in management
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