Two months ago, the IBM Institute for Business Value release a superb report called "Navigating the Media Divide: " that talks about the growing number of business models available to Media companies trying to making sense of the proliferating number of channels available to them. A good chunk of the report devotes itself to the emerging portable channel, and its recommendations, though directed towards multiple channels -- online, cable, mobile, etc..., strike several important chords that media executives should pay particular attention to.
1) The vast majority of them, Massive Passives, have always, and continue to enjoy media the traditional way – lean back and see what the broadcaster or cable company currently has on.
2) The Gadgetiers are the population of lead users who are drawn to the latest devices and ways of consuming media – particularly technologies focused on convenience, flexibility and fun. They have no preference on service provider (cable, satellite or telco) as long as service bundle values are attractive.
3) The Kool Kids also engage unconsciously in experimenting with media – they have grown up with the cell phone as central to their lives. They will multi-task, instant messaging on their TV while watching their shows (if technology is there). They rely on recommendations from friends and social network sites for find niche content.
The segments roughly correlate to age: Kool Kids being in their teens to early twenties, Gadgetiers from 25-35 and Massive Passives being older.
The Recommendations
Because the consumer is key to obtaining power in this new market order, understanding their behavior and preferences will be critical. Intimately understanding the nuances of the microsegments will be necessary to gain their loyalty. If CPs and Carriers succeed in their experiments with the Gadgetier and Kool Kids segments, the groundwork for providing these services to the larger audience of Massive Passives should follow.
Content Providers will either have to establish direct customer interactions, or work with the Distributors and Aggregators to start collecting valuable customer data. They will have to strengthen their competency in data mining, profiling, analytics. Carriers, on the other hand, have vast amounts of data on their consumers, but do not currently mine this information to derive insights across channels (I don’t agree with IBM on this -- telecoms have been using their data to constantly figure out how to increase customer loyalty and reduce churn). IBM suggests that new analytics around this data could be an additional revenue stream for information-hungry media companies.
A thorn to this idea is something I read in Streaming Media magazine – that there is growing debate about how much demographic information carriers want to share with advertisers (and probably media companies). Sprint launched a targeted mobile advertising service last fall using their own data, but they don’t share the data with their advertisers. Carriers want to protect their customers’ privacy (even though they use it to offer targeted ad services themeselves) – but what they really should be saying is that they just want to control the use of the information to maintain their position and power.
One of the recommendations from the IBM study is to experiment with new business models, but with caution. New business models in the mobile channel will undoubtedly cause some cannibalization, but incumbents should not fear this – only be in a capacity to understand and track their impact – see the next section for more detail. The experiments should be designed such that they are aligned with articulated and well-thought out goals. Pros and cons should be considered, operating models should be defined and sufficient planning should be done. Though numerous, these ideas could be executed through rapid pilot programs to gather as much insight from consumers in a short amount of time.
Cannibalization
They do recognize that the different business opportunities tend to cannibalize each other if the offers are too similar. As an example, MMORGs like World of Warcraft will serve as a near-perfect substitute activity for playing a console game. I guess the attractiveness of mobility is that it will more likely complement existing leisure time activity rather than replace them, and grow the overall media consumption pie.
We’ve already talked about the vast data collection, reconciliation and analysis that is required to better understand consumer preferences. McKinsey suggests (http://www.mckinseyquarterly.com/article_page.aspx?ar=1718&L2=17) that, armed with all the proper data from all the exploited channels, traditional Operations Research techniques could be applied to this marketing & strategy problem in order to intelligently decide the appropriate channel mix for various content. They advocate using the data to set up the Optimization problem for Revenues.
IBM’s Predictions
On Mobile Adoption: Continual innovation, IBM argues, is necessary to keep lead users interested. Only by keeping lead users engaged will enough word-of-mouth buzz be generated to attract the mass audience to adopt the technology. They stress this about the innovation process: “Continual refreshment of user experience is necessary to maintain steady up-tick in usage.” We truly have turned into a trend-seeking culture.
Stakeholders Power: IBM argues that the commoditization of bandwidth has caused the power to shift away from the owners of the pipes to the companies that control the consumer’s media experience. This is why Carriers have reinforced their role as aggregator in order to reduce churn by reinforcing customer loyalty.
The rising power of the aggregator is particularly pronounced in the mobile entertainment space. The traditional split is 60%-40% between Cable companies and Content Providers, but in the Mobile space, MobiTV splits the value chain accordingly: a third goes to the Content providers, a third to the Distributor and a third to the Aggregator. In scenarios where the Telcos act as the aggregator, the Telcos split 50-50 with the Content Provider.
The Frameworks
IBM categorizes oncoming business models according to two integral and fundamental aspects: the mix of traditional versus user-generated content, and the openness of the distribution model. These categorizations exists in their pure form merely for descriptive purposes, but that business models will likely exist as a mixture that spans across the delineations. The 2x2 matrix consist of the following business model categories:
Traditional Media: These consist of professionally produced content and distributed through closed or controlled channels; it will still dominate, growing at a CAGR of 5% to a US$340B market in 2010. Most programming on V-Cast for instance would fall into this category.
Walled Communities: These mix professional and user-generated content, and distribute it through closed or controlled channels; it will be a significant force as well, according to IBM, growing at a CAGR of 10% to a US$240B market by 2010. NTT DoCoMo in Japan has implemented such a business plan, organizing its vast array of content with the help of its 95,000 user-led communities.
Content Hyper-syndication: These consist of professionally produced content distributed through open channels; it will grow at a CAGR of 16% to a 2010 market of US$25B. Content through this channel will address the growing youth desire for handset personalization, which has led the growth of the ringtone, ringback and wallpaper market, and the burgeoning video and music remix startups that are forming in Europe.
Finally, New Platform Aggregations: these purely user-generated content distributed openly, will grow at a CAGR of 16% to a US$50B market by 2010. Though currently not open, we perhaps see the seeds of this space with Amp’d’s current agreement with MySpace, which allows users to access their MySpace content through a special application on Amp’d phones.
IBM believes that the dynamics caused by:
a) the disruption caused by the new dimensions of user-generated content and/or openly distribution, as well as
b) the stakeholders' existing strengths and assets
will push the established media players and the media distributors (Cable MSOs and Carriers) in divergent directions.
In order to grow, media players will push for open distribution channels for their professionally produced content and attempt to dis-intermediate their distributors. Cable MSOs and Carriers on the other hand, will increasingly build strong user communities and leverage the subscriber loyalty to drive down content acquisition costs and shield themselves from entrants who are trying to carve out larger and larger pieces of the pie for themselves by expanding beyond their disruptive user-generated, open-distribution business models.
This conflict is what IBM terms as the growing media divide, and is illustrated as arrows (2a) and (2b) in the diagram. Though the incumbents are too slow-moving for significant alliance reshuffling by 2010, IBM argues that the wedge is in place. Actions by the Telcos to chase after “the long tail”, trusting the wisdom of crowds and allowing users to personalize and self-organize can undermine the Content providers, whose influence is held on the premise that quality content will always dominate, and to control that content is power. Likewise with the CPs: if the CPs push for more open distribution, price-sensitive consumers will start dis-intermediating content providers by offering content through substitute channels outside the carriers control.
Incidentally, arrow (1) in the diagram above is another scenario where the CPs move to the “big-open white space” of user-generated aggregators – i.e. NewsCorp buying MySpace – but it cannot be a sole focus to gain incremental revenue because it may dilute the value of their traditional media assets, so IBM recommends to proceed with caution.
The Segmentations
IBM segments the media-consuming customer base into three main groups:
On Mobile Adoption: Continual innovation, IBM argues, is necessary to keep lead users interested. Only by keeping lead users engaged will enough word-of-mouth buzz be generated to attract the mass audience to adopt the technology. They stress this about the innovation process: “Continual refreshment of user experience is necessary to maintain steady up-tick in usage.” We truly have turned into a trend-seeking culture.
Stakeholders Power: IBM argues that the commoditization of bandwidth has caused the power to shift away from the owners of the pipes to the companies that control the consumer’s media experience. This is why Carriers have reinforced their role as aggregator in order to reduce churn by reinforcing customer loyalty.
The rising power of the aggregator is particularly pronounced in the mobile entertainment space. The traditional split is 60%-40% between Cable companies and Content Providers, but in the Mobile space, MobiTV splits the value chain accordingly: a third goes to the Content providers, a third to the Distributor and a third to the Aggregator. In scenarios where the Telcos act as the aggregator, the Telcos split 50-50 with the Content Provider.
The Frameworks
IBM categorizes oncoming business models according to two integral and fundamental aspects: the mix of traditional versus user-generated content, and the openness of the distribution model. These categorizations exists in their pure form merely for descriptive purposes, but that business models will likely exist as a mixture that spans across the delineations. The 2x2 matrix consist of the following business model categories:
Traditional Media: These consist of professionally produced content and distributed through closed or controlled channels; it will still dominate, growing at a CAGR of 5% to a US$340B market in 2010. Most programming on V-Cast for instance would fall into this category.
Walled Communities: These mix professional and user-generated content, and distribute it through closed or controlled channels; it will be a significant force as well, according to IBM, growing at a CAGR of 10% to a US$240B market by 2010. NTT DoCoMo in Japan has implemented such a business plan, organizing its vast array of content with the help of its 95,000 user-led communities.
Content Hyper-syndication: These consist of professionally produced content distributed through open channels; it will grow at a CAGR of 16% to a 2010 market of US$25B. Content through this channel will address the growing youth desire for handset personalization, which has led the growth of the ringtone, ringback and wallpaper market, and the burgeoning video and music remix startups that are forming in Europe.
Finally, New Platform Aggregations: these purely user-generated content distributed openly, will grow at a CAGR of 16% to a US$50B market by 2010. Though currently not open, we perhaps see the seeds of this space with Amp’d’s current agreement with MySpace, which allows users to access their MySpace content through a special application on Amp’d phones.
IBM believes that the dynamics caused by:
a) the disruption caused by the new dimensions of user-generated content and/or openly distribution, as well as
b) the stakeholders' existing strengths and assets
will push the established media players and the media distributors (Cable MSOs and Carriers) in divergent directions.
In order to grow, media players will push for open distribution channels for their professionally produced content and attempt to dis-intermediate their distributors. Cable MSOs and Carriers on the other hand, will increasingly build strong user communities and leverage the subscriber loyalty to drive down content acquisition costs and shield themselves from entrants who are trying to carve out larger and larger pieces of the pie for themselves by expanding beyond their disruptive user-generated, open-distribution business models.
This conflict is what IBM terms as the growing media divide, and is illustrated as arrows (2a) and (2b) in the diagram. Though the incumbents are too slow-moving for significant alliance reshuffling by 2010, IBM argues that the wedge is in place. Actions by the Telcos to chase after “the long tail”, trusting the wisdom of crowds and allowing users to personalize and self-organize can undermine the Content providers, whose influence is held on the premise that quality content will always dominate, and to control that content is power. Likewise with the CPs: if the CPs push for more open distribution, price-sensitive consumers will start dis-intermediating content providers by offering content through substitute channels outside the carriers control.
Incidentally, arrow (1) in the diagram above is another scenario where the CPs move to the “big-open white space” of user-generated aggregators – i.e. NewsCorp buying MySpace – but it cannot be a sole focus to gain incremental revenue because it may dilute the value of their traditional media assets, so IBM recommends to proceed with caution.
The Segmentations
IBM segments the media-consuming customer base into three main groups:
1) The vast majority of them, Massive Passives, have always, and continue to enjoy media the traditional way – lean back and see what the broadcaster or cable company currently has on.
2) The Gadgetiers are the population of lead users who are drawn to the latest devices and ways of consuming media – particularly technologies focused on convenience, flexibility and fun. They have no preference on service provider (cable, satellite or telco) as long as service bundle values are attractive.
3) The Kool Kids also engage unconsciously in experimenting with media – they have grown up with the cell phone as central to their lives. They will multi-task, instant messaging on their TV while watching their shows (if technology is there). They rely on recommendations from friends and social network sites for find niche content.
The segments roughly correlate to age: Kool Kids being in their teens to early twenties, Gadgetiers from 25-35 and Massive Passives being older.
The Recommendations
Because the consumer is key to obtaining power in this new market order, understanding their behavior and preferences will be critical. Intimately understanding the nuances of the microsegments will be necessary to gain their loyalty. If CPs and Carriers succeed in their experiments with the Gadgetier and Kool Kids segments, the groundwork for providing these services to the larger audience of Massive Passives should follow.
Content Providers will either have to establish direct customer interactions, or work with the Distributors and Aggregators to start collecting valuable customer data. They will have to strengthen their competency in data mining, profiling, analytics. Carriers, on the other hand, have vast amounts of data on their consumers, but do not currently mine this information to derive insights across channels (I don’t agree with IBM on this -- telecoms have been using their data to constantly figure out how to increase customer loyalty and reduce churn). IBM suggests that new analytics around this data could be an additional revenue stream for information-hungry media companies.
A thorn to this idea is something I read in Streaming Media magazine – that there is growing debate about how much demographic information carriers want to share with advertisers (and probably media companies). Sprint launched a targeted mobile advertising service last fall using their own data, but they don’t share the data with their advertisers. Carriers want to protect their customers’ privacy (even though they use it to offer targeted ad services themeselves) – but what they really should be saying is that they just want to control the use of the information to maintain their position and power.
One of the recommendations from the IBM study is to experiment with new business models, but with caution. New business models in the mobile channel will undoubtedly cause some cannibalization, but incumbents should not fear this – only be in a capacity to understand and track their impact – see the next section for more detail. The experiments should be designed such that they are aligned with articulated and well-thought out goals. Pros and cons should be considered, operating models should be defined and sufficient planning should be done. Though numerous, these ideas could be executed through rapid pilot programs to gather as much insight from consumers in a short amount of time.
Cannibalization
They do recognize that the different business opportunities tend to cannibalize each other if the offers are too similar. As an example, MMORGs like World of Warcraft will serve as a near-perfect substitute activity for playing a console game. I guess the attractiveness of mobility is that it will more likely complement existing leisure time activity rather than replace them, and grow the overall media consumption pie.
We’ve already talked about the vast data collection, reconciliation and analysis that is required to better understand consumer preferences. McKinsey suggests (http://www.mckinseyquarterly.com/article_page.aspx?ar=1718&L2=17) that, armed with all the proper data from all the exploited channels, traditional Operations Research techniques could be applied to this marketing & strategy problem in order to intelligently decide the appropriate channel mix for various content. They advocate using the data to set up the Optimization problem for Revenues.
You can find the IBM report at http://www-03.ibm.com/industries/media/doc/content/resource/business/354180111.html
