Business ModelsBusiness ModelsBusiness ModelsBusiness Models

In Media IndustriesIn Media Industries

Definitions (1)A business model is an action methodology for the systematic and routine generation of money or equivalent resource

Definitions (2)• “Business models are created and

understood by stepping back from the business activity itself to look at its bases and the underlying characteristics that make commerce in the product or service possible”

• (Picard, 2002, pp. 25-26)

Definitions (3)• “A business model…is the

mechanism by which a business intends to generate revenue and profits

• “It’s what a company does and how it makes money doing it” (Malone, MIT)

Components of a Business Model (1)

• How the business will select customers

• How it defines and differentiates its product offerings

• How it creates utility for its customers

Components (2)• How it acquires and keeps customers• How it goes to the market (promotion

strategy and distribution strategy)• How it defines the tasks to be

performed• How it configures its resources• How it captures profit

MAJOR BUSINESS INCENTIVES

• The attraction of money• The fear of losing money• The attraction of risk-free money• The attraction of continuous risk-

money

Leading to…• A process of constant process of

adaptation and change to protect and to grow business in the face of challenges that are internal to the business or external to it.

Internal Challenges Include

• Insufficient or aging plant• Insufficiency of human resource

relating to numbers, skills, turnover, demographics

• Insufficiency of capital

External Challenges Include

• Changes in regulatory structure• Changes in client demand• Changes in available technologies

of production, distribution or reception

• Changes in industry structure relating to competition, conglomeration etc

Tracking Media Change• Technology• Production• Distribution• Reception• Audience• Regulation

In the Case of Recording

• TechnologyFrom Telephone and Radio, through Vinyl to Cassette and

Compact Disc to Digital DownloadsSymbiotic relationship with (1) Radio technology, from

being a means of promoting the sale of radio sets, through to being a means of attracting audiences to radio stations, to being a means of promotion the sale of music and records, of attracting payola revenue from the industry, and attracting advertising (2) Movies, Music Video, Cable and Satellite Television

Tracking Change in Recording (2)

• ProductionConglomeration of labels down to four

majors (Sony/BMG, EMI, Universal and Warner), accounting for 75% of worldwide sales and 85% of US sales by mid-decade.

Changing relationships between independents and the majors

Tracking Change in Recording (3)

Distribution (from Label to Wholesale and Retail Outlet)Symbiotic relationship with (1) Radio broadcasting first to

promote sale of radio sets, then to attract audiences, to promote sale of sheet music and records, attract payola, and advertising (2) Movies, Music Video, Cable and Satellite Television

Symbiotic relationship with (1) Retailers (owned by labels, independent), and sales tracking methodologies (2) Music clubs, dependent on mail and digital download (3) Peer-to-peer digital file swapping (4) Digital music store, with exclusive relationships to reception technologies (such as iPod)

Tracking Change in Recording (4)

Reception• From gramophone to cassette player,

walkman, computer, iPod and mobile phone

• Symbiotic relationship between changes in hardware of reception technology and physical character of the product, so that each major change of reception technology (e.g. cassette player) required users to repurchase their music portfolios

Tracking Change in Recording (5)

Audience- Audience behavior changes towards:- Great mobility of listening opportunity- Greater access to available music- Greater control over what to listen to, and when to

listen to it- Greater opportunity to produce and distribute as well

as to listen - Greater choice over spending strategies (e.g. reflecting

rise of the vinyl single, displaced by rise of the album, in turn displaced by rise of the digital single)

Tracking Change in Recording (6)

Regulation• Controls over payola• 1996 Telecommunications Act,

and increased concentration in radio

Example: The Changing Business Models of Online

Content Services• (1) The Videotext ModelUsed TV screens to convey text (1970s)Allowed publishers to easily updateUsed existing content, and existing distribution

infrastructureGave added value to high end TV setsContent download fairly slowLimited words per page; limited readabilityCustomers insufficiently impressed

Online Content Services (2)

• (2) Paid Internet Model (1980s)Used pre-existing Internet infrastructure Involved charging a fee for web accessComplicated processes to get accessCustomers didn’t like to pay

Online Content Services (3)

• Free Web Model (1990s)Enabled by widespread distribution of

browsers in standard software packages on new computers

Content generally free, serving as promotional tool or special interest service

Traditional media could re-use existing material

But insufficient revenue possibilities

Online Content Services (4)

• The Internet/Web Ad Push ModelUsed lists of subscribers and subscriber

details to attract advertsOr found adverts related to the contentSimilar to direct mailAudiences did not like intrusiveness of

ads

Online Content Services (5)

• The Portal and Personal Portal ModelUsers of web browsers are brought to an

organizing interface and to adverts Readers are brought into contact with click-

through ads (often only one a page) while making other uses of the page. Lowers reader resistance to ads

Portal organizes content in a way that is attractive/useful for readers; acquires brand image.

Still not producing profits for most portal operators

Online Content Services (6)

• The Digital Portal ModelDevelopment of multipurpose digital

portals, allowing combination of current content portals with streaming video and audio, including pay-per-view services, and chat facilities

Revenue from ads, from pay-per-view, premium service subscriptions