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Clash of the Titans: Impact of Convergence and Divergence on Digital Media by William Chee-Leong Lee Bachelor of Science, Computer Engineering and Computer Science Carnegie Mellon University, 1994 Submitted to the Alfred P. Sloan School of Management in Partial Fulfillment of the Requirements for the Degree of Master of Science in the Management of Technology at the Massachusetts Institute of Technology June 2003 © 2003 William Chee-Leong Lee. All rights reserved. The author hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in whole or in part. Signature of Author………………………………………………………………………..... MIT Sloan School of Management May 9, 2003 Certified by…………………………………………………………………………………. Henry Birdseye Weil, Thesis Advisor Senior Lecturer, MIT Sloan School of Management Certified by…………………………………………………………………………………. Walter Bender, Thesis Reader Director, MIT Media Lab Accepted by……………………………………………………………………………….... David A. Weber Director, Management of Technology Program Clash of the Titans: Impact of Convergence and Divergence on Digital Media By William Chee-Leong Lee Submitted to the Alfred P. Sloan School of Management on May 9, 2003 in Partial Fulfillment of the Requirements for the Degree of Master of Science in the Management of Technology ABSTRACT In last decade, the world was bewildered by the dazzling array of choices and offerings of digital technology. While digital convergence has created new possibilities in digital media, it has also created great uncertainty, fragmentation and threats to traditional media. This blossoming of innovations, as I will examine in this thesis, originates not only from the conversion of analog media into the digital domain, but more from a convergence of industries which results in a clash of technologies and cultures. This thesis explores the phenomenon of digital convergence and divergence and examines their impact on digital media. The questions this thesis seeks to answer are: What exactly is digital convergence? Is digital technology a kind of unifying glue as some may claim, or is it turning out to be a catalyst for greater differentiation? What kinds of dynamics will emerge when traditional industries play in each other’s familiar turfs? And what kinds of strategies should digital media producers adopt in response? Observations seem to point towards a trend of initial chaos, greater divergence and severe technological fragmentation in the market. However, in that light, the results of this study suggest that collaboration between industry players to establish common standards, as well as the production of content to fit the locality, context and the consumption experience will be the keys to success in the world of digital convergence. 2 To the loving memory of Dr. Alexandre Chao Kwang Howe 1965 – 2003 My mentor, friend and brother. 3 Acknowledgements Finishing this thesis and the Management of Technology program would not have been possible without the love and support of my wife, Ren Sing, and my daughter, Karis. Their sacrifices for coming to Boston with me, enduring the harsh winter and being away from family and friends are appreciated from the deepest of my heart. I would like to acknowledge the hours spent with my thesis advisor, Professor Henry Birdseye Weil, for his guidance, patience, and kindness and advice, which were instrumental in providing me with the focus needed to complete this work. Appreciation goes to Walter Bender, Director of the MIT Media Lab, for graciously agreeing to be my Thesis Reader and providing his valuable insights. I would want to thank Singapore Press Holdings for sponsoring me to this wonderful program. In particular, Low Huan Ping, Henry Yu, Tay Juay How, Daniel Ong, Uthaman S. and Irene Lee. They gave me unfettered support and the encouragement to take a year off to study at MIT Sloan. Many thanks are due also to my father, mother, sister and grandma, who are so crucial in their support and love back home. Finally, this thesis is dedicated to the loving memory of Dr. Alexandre Chao Kwang Howe. Alex was my mentor, faithful friend and loving brother. My life has been blessed so much during these 20 years of friendship with him. Without his love, I will not be the person I am today. Though he passed away on April 22, 2003, Alex will always live in my heart. 4 Table of Contents Acknowledgements............................................................................................................. 4 Table of Contents................................................................................................................ 5 Table of Figures ................................................................................................................ 10 1 Introduction............................................................................................................... 11 1.1 The Promises and Pitfalls of Convergence ....................................................... 13 1.2 Defining Digital Media..................................................................................... 17 1.3 Scope and Methodologies................................................................................. 18 2 Understanding Digital Convergence......................................................................... 20 2.1 Historical Background ...................................................................................... 20 2.1.1 NEC’s Vision............................................................................................ 21 2.1.2 Sculley’s Vision........................................................................................ 22 2.1.3 Sony’s Vision............................................................................................ 23 2.2 Drivers of Convergence .................................................................................... 24 2.2.1 Moore’s Law............................................................................................. 24 2.2.2 Metcalf’s Law ........................................................................................... 25 2.2.3 Changing Industry Structures ................................................................... 26 2.3 Defining Digital Convergence .......................................................................... 27 2.3.1 Data Convergence..................................................................................... 28 2.3.2 Structural Convergence............................................................................. 29 2.3.3 Application Convergence.......................................................................... 30 2.3.4 Industrial Convergence ............................................................................. 31 2.4 Convergence of Technologies........................................................................... 33 2.4.1 Consumer Electronics and Media ............................................................. 34 2.4.2 Consumer Electronics and Telecoms........................................................ 35 2.4.3 Information Technology and Telecoms.................................................... 35 2.4.4 Information Technology and Media ......................................................... 36 2.4.5 Media and Telecoms................................................................................. 37 2.4.6 Information Technology and Consumer Electronics ................................ 37 2.5 Non-Technological Convergence ..................................................................... 37 2.5.1 Psychological ............................................................................................ 38 5 2.5.2 Economic .................................................................................................. 39 2.5.3 Social/Behavioral...................................................................................... 42 2.5.4 Cultural ..................................................................................................... 42 2.5.5 Regulatory................................................................................................. 43 2.5.6 Global........................................................................................................ 45 2.6 The Clash of the Titans..................................................................................... 46 3 Digital Convergence and the Media Value Chain .................................................... 48 3.1 The Traditional Media Value Chain ................................................................. 48 3.2 The Traditional Source of Revenue .................................................................. 51 3.3 The Media Value System.................................................................................. 53 3.4 The Arrival of Digital Technology ................................................................... 54 3.5 Structural Convergence: The Digital Channels ................................................ 55 3.6 Convergence in Substitutes and Complements................................................. 57 3.7 The Digital Media Value System...................................................................... 58 3.8 Verticalization: The Impact of Interactivity and Collaboration........................ 59 3.9 Horizontalization: The Emergence of Middleware and Media Asset Management.................................................................................................................. 61
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