The future role of digital media

Table of content

1 Introduction

2 The future role of digital media
2.1 A brief history of the digital media bubble
2.2 Current digital media models
2.3 IP-TV/digital-TV
2.4 Combined ISPs/portals
2.5 Content players struggling to make content pay
2.6 Search engines highly attractive
2.7 The future is broadband
2.7.1 Broadband Uptake
2.8 New Business Models
2.9 Rebalancing the broadband value chain

3 Case Study: Arcor Online – Video in demand
3.1 Arcors´s history
3.2 Arcors´s business segments
3.3 Arcor´s business model
3.4 Arcor-Online
3.5 Arcor Video on Demand
3.6 Recommendation for action - Arcor Video in Demand

4 Case Study: genios – paid content
4.1 genios´s history
4.2 genios´s business segments
4.3 genios´s business model
4.4 Recommendation for action

5 General Learnings
5.1 Do´s
5.2 Don’t´s

6 Bibliography

Table of figures

Figure 1: Companies, built up in front of the breakdown of the internet-bubble

Figure 2: European internet-usage

Figure 3: Destination site vs. Companion site

Figure 4: Bootm at DSL-accesses

Figure 5: Broadband penetration

Figure 6: Four basic business modells

Figure 7: Rebalancing the broadband value chain

Figure 8: Arcor-product overview

Figure 9: Arcor-Online

Figure 10: Genios references

1 Introduction

The previous chapters of the book „Managing Media Companies: harnessing creative Value“ by Annet Aris and Jaques Bughin will show, that the digitization of media “(…) will fundamentally influence the way ´traditional´ media are managed”^[1]. The chapter summed up in this work will describe digital media and its influences.

2 The future role of digital media

After a short introduction acout the history of digital media or „New Media“ and the reasons for the genesis of the internet-bubble and its explosion, this assignment will show the development of “New Media” after the explosion. Then a short overview about the beginning of broadband-technology and promising business models is subject of this work. After that I will provide two case-studies to show the practical relevance of the chapter.^[2]

2.1 A brief history of the digital media bubble

The new media experienced its first hype in the 1990s. The dial-up internet, a key innovation, made it possible to change the internet to a mass medium. Many existing media companies but also a lot of start-ups discerned the possibilities of this key innovation. Low entry barriers, high expectations and faith into the advertising market made it possible that within only a few years a big new industry came into being. This was mostly financed by venture capital.

And actually the internet was received so well as a new medium, that there were 600 milion users by the year 2002.

A situation of excess supply developed in the new media market. In trust of a further rise investors invested more and more in stocks and shares of this companies. Within one and a half year, beginning in the middle of 1999, this brought a multiplication of rates to a few companies, and therefore an uncontrolled overvaluation of the rates appeared. This effect was intensified by a lot of companies and their mostly blind urge of expansion. The liquidity received by IPOs was invested into further purchases of companies but without any regard to their balances – they quite often were in the red. Furthermore the rising values were not covered by actual equivalents, because the capital of IT companies is mostly not material goods but lies much more in the intellectual work of their employees. Often the book value of companies consisted in not more than a few buildings and a mediocre IT infrastructure. The companies bought on top mostly made loss^[3]. Healthy companies were either prohibitively expensive or were buyers at the market themself. That is why the prices of takeover candidates were so high.

The business cases of the companies were mostly far away from realistic. The real incomes of advertising were far away from expectations and plannings. The value of internet advertising noticeably got worse and it needed much more time to shift marketing budgets to a new way of advertising. Reasons for this were the internet-users lack of tolerance accepting breaks, ignoring advertising and that only a fracture of time was spent with the internet in relation to TV. The consequences were that only $200m advertising income of the $650m planned was realized.

When the rates began to decrease in march 2000 and sales increased, the stock market collapsed. This effect was strengthend by a multitude of inexperienced small investors who only saw the big profits on the stock exchange lasting for years and invested their money more and more in these stocks in expectation of further profits on the stock exchange. The breakdown of the going rate was foreseeable and experienced brokers and speculators retreated their capital out of the stock market when the first symptoms appeared. Because of the break-down of the going rate the small investors panicked and sold „for every price“ to keep the loss in certain limits.

The internet-bubble finally exploded in the years 2001/2002. Since then most internet activities have the reputation of “money-burning-machines“. But not all companies were victims of this breakdown. For example 5% of the portal players had a positive cash-flow (e.G. Yahoo).

So the industry consolidated and the business models of new media were recreated. But in all segments a few players were still alive.

illustration not visible in this excerpt

Figure 1: Companies, built up in front of the breakdown of the internet-bubble

2.2 Current digital media models

This phase of consolidation built up the new media for the future. Realistic business models developed. Combined with the growing use of the internet the future is ready for successful business models.

Abbildung in dieser Leseprobe nicht enthalten

Figure 2: European internet-usage

(BITKOM, 2005a, [www.dokument])

2.3 IP-TV/digital-TV

Digital-TV was forced in the middle of the 1990s mainly by the satellite-TV supplier like BSkyB in the UK and CanalSatellite in France. The strategy was to offer as many channels as possible and not to develop interactive services. But during the boom of the new market and the digital media the digital TV fell behind. Reasons for this were the way too high streaming-costs and the high entry-prices for set-top boxes. They cost € 300-500 and were much too expensive to open a mass-market.

Today different digital-TV platforms are already up and running: DVB-C (digital video broadcasting via cable), DVB-T (digital video broadcasting via terrestric)^[4], DVB-S (digital video broadcasting via satellite) and IP-TV. In contrast to the 1990s the viewers demand interactivity on TV and the suppliers focus on profitable key-applications. So it seems to be economically reasonable to offer a combination of „All-you-can-eat“-broadcast channels and on demand services. In this connection the different suppliers distinguished by putting different emphasises. So satellite pay-tv suppliers put on more and more channels with additional premium content, electronic program guides (EPG) and betting-services.

On the other hand cable suppliers put on video on demand (VoD) and personal video recorders (PVR). But only very few offer the for the viewer highly attractive VoD services, without erotic services in Europe today. One of the reasons for this are the difficult negotiations with the major movie studios. The value chain in the movie industry has to change to find an attractive place for VoD between DVD and broadcasting in pay-TV. But Arcor Online and T-Vision the VoD first-movers in Germany, might change all this.

2.4 Combined ISPs/portals

In Europe the strongest and most profitable suppliers are internet service provider (ISPs) with portals like T-Online of Deutsche Telekom or Wanadoo of France Telecom. They have a huge range, mostly , like the Deutsche Telekom, because of the former monopoly. So the brand and the trust in the brand and therefore the trust in the supplier correspond nearly to the whole target-group. They have a very good customer relationship management and make a lot of profit through the dial-up access. An ISP supplier typically configures his portal as the access-point for the internet, so he can generate extremely high traffic on his website. Most of the users do not change such preliminary attitudes.

Also independent portals and ISPs started at the European market. But in opposite to the market development in the USA independent suppliers in Europe entered the market very late,so they were not able to establish as dominant and profitable suppliers immediately. Some of the successful independent US suppliers like Yahoo! and AOL therefore took the chance to replicate their success on the European market.

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^[1] Aris & Burghin, 2005, p. 307

^[2] The hole chapter refers to Aris & Bughin, 2005, p.307 ff.

^[3] Wikipedia, 2006, [www.dokument.de]

^[4] Bischoff, 2004, p. 2