Challenges and Opportunities in the Internet for Media Companies

Discusses the contributions and challenges that media enterprises face in the development and
implementation of corporate portals, and presents the Knowledge Management as key factor to
the success of the portal.

!
I. Introduction To date, very few large media
companies have been able to
Media companies have traditionally successfully develop Internet business
provided news, information and models. In the US, in particular, most
entertainment for large audiences with of the largest media companies,
a combination of proprietary (more including Disney/ABC, NBC, Time
often) and third party content (less Warner and Hearst have retreated
often). At the same time that we are from their initial strategies after
seeing the growth of the one-to-one burning a lot of money in ill-thought
marketing utopia, we are also seeing a and/or poorly “portal” executed
strong trend towards major strategies. NBC, for instance, decided
consolidation of the media industry in to fold its separate Internet subsidiary
the search for mass audience and back into the regular operations of
guaranteed distribution in an NBC in the second quarter of 2001.
increasingly fragmented world. This decision came after reports that
showed that this company in the last
There’s a big rush occurring to gain quarter of 2000 had a net loss of US$
scale and to leverage off-line assets 47 million on revenues of US$ 31
(content, brands, customer base, million. If asset write-downs and
distribution etc). The recent wave of restructuring charges are included the
mergers and alliances of large players total net loss reached a staggering
in the media and telecom industries is US$ 245 million1.
representative of the challenges and
trends in this market: Viacom/CBS;
AOL/Time Warner; Vivendi/Seagram; Even the deep pockets of some giant
Tribune/Times Mirror; Terra Networks media companies have not been
/ Lycos, etc. In Canada, major sufficient to ward off attacks from new
mergers are also fresh in the memory: entrants and much larger IT/Telecom
CanWest/Southam; Bell/Globe/CTV; companies. AOL’s purchase of Time
Quebecor/TVA; etc. Warner is testimony of this. In the end,
the more cautious approach of
CBS/Viacom has proven to be a lot

©TerraForum Consultores 1

more successful. Its Internet divisions This means a “commoditization” of the
are now on the path for profitability. value of their branded content and
CBS/Viacom adopted a very focused loyal audience.
strategy based on its core
competencies and TV programming: it In order to examine the Internet
made a few successful investments in revenue opportunities for media
sites, like Marketwatch and Sportsline, companies on the web, it’s necessary
that could be clearly promoted and to understand the developments being
linked through its programming and promoted by the leading portals.
TV advertising inventory. These sites command the bulk of
Internet traffic and ad budgets and are
The demands of integrating an ever- “pushing the envelope” in terms of
increasing suite of technologies, creating winning value propositions
content, e-commerce partnerships and that meet the needs of users and
distribution have proven to be a advertisers. The following numbers
challenge beyond the core highlight the importance of the portals
competencies of traditional media for Internet advertising:
companies. Execution has proved to • 60% of a typical online session
be much harder than the vision. Most includes visiting a portal3.
have realized by now that they will not • Search engines/portals
be able to compete in the same accounted for 37% of all
“game” or mimic the portals’ strategy Internet advertising revenues
across the board. Despite its from January through
incredible fast growth over the last few September, 20004
years, revenue models based strictly
on Internet advertising are proving, in Portals started as a point of entry to
fact, to be very difficult business the Internet and have evolved to
models. Content (and original destinations by providing aggregation
proprietary content specially) of third party content (and more
hardware, software and connectivity recently proprietary content),
can be very expensive. functionality and e-commerce. The
lines between these new entrants, the
Only the very large mass-portals have portals, and traditional media
been able to find a path for profitably companies are becoming increasingly
(or to be close to break-even) based less marked. Portals are starting to
on Internet advertising. In fact, the top create their own content and
ten media properties (including expanding off-line. Some media
portals) command most of the companies have integrated many of
advertising budget and revenues in the traditional functions of a portal
most countries (69% in the US)2. Even such as search, community, email,
so, recent challenges and trends in the calendar, services, etc.
marketplace point to a marked effort
on behalf of large portals to find Per definition, portals offer a point of
alternative sources of revenues. Media entry to the Internet. As such, the
companies had best not try to challenge for portals is to provide a
compete essentially on a CPM basis. good balance between proprietary


content (or content provided through on all of these fronts has separated
alliances with third parties) and link- the leaders from the followers in this
outs to relevant external content. space. More often than not, achieving
Yahoo does this superbly. They offer this success has required superior
relevance, context and the power of skills at striking win-win partnerships
the Internet. This requires the use of with different players along the value-
sophisticated content management chain. In the end, the trusted
systems and editors. Portal leaders relationship developed with the users
understand this: they pay particular and the traffic generated need to be
attention to the process needs and converted into revenues. It’s clear,
technology requirements in order to however, that traffic inventory on the
manage different kinds of content and web exceeds demand. Consequently
meet end-users expectations. business partners (advertisers and e-
commerce) are increasingly insisting
The early movers, such as Yahoo on targeted audiences and result-
became leaders in this space by based relationships. Although banner
moving fast without losing focus on the and sponsorship advertising still
ultimate needs of the end-user. They represents the bulk of revenues (74%
have been able to rapidly integrate of the total revenue pie in 2000)5, it
design, technology, applications and has certainly lost much of its initial
content, while at the same time momentum. Portals are increasingly
leveraging proprietary distribution and developing new formats (interstitials,
pre-existing customer relationships. rich media, email marketing, referral
Successful portals have been deals, etc), paid communication
particularly adept at creating trust- subscriptions (e.g.,IP telephony,
based environments where content is hosting) and a share of transactions
relevant, accurate and timely; started through their sites.
communities thrive; and the users
engage in increasing deeper The provision of a seamless,
relationships with the portal through consistent and personalized
personalization. ISP portals such as experience anywhere and anytime,
AOL and @Home can also leverage along with the integration of different
their direct billing relationship with media assets delivered through a
most of their users. variety of devices represents the most
current battleground for the leading
The competition for brand recognition portals. A graphical illustration of the
and for customer loyalty has been industry landscape that highlights the
fierce. The ability to work successfully points above is depicted below.


Portal Business Landscape

Partnerships

Exclusive Internet BRAND - EXPERIENCE - RELATIONSHIP - TRUST
Content
Content & Transactions

Content

PORTAL Distribution Device
Applications

• Open or closed • PC
Advertising • Bandwidth ? • TV
• Content • Identity
• Wireless
• Search • Context
E-commerce • PDAs, etc
• Community • Personalization
• Tools • Navigation

“Increasingly
alliance
driven”

On a Global basis, AOL, Yahoo and CTV and now Globe and
MSN are the clear winners in the Mail properties) have
Internet mass media game, followed at strong positions through a
a distance by companies like Excite combination of distribution
and Lycos. All other players need to ownership (dial-up,
find their own niches and vertical broadband and wireless),
markets to compete. In Canada, very cross-media promotions
few traditional large media companies and access to technology
have been successful in turning their provided by Excite.com and
existing off-line assets into on-line Lycos.com. They are both
advantages and the overall market is strong contenders in the
quite fragmented. Under these long run. Sympatico/Lycos
circumstances it is very difficult for any is already a leader. Its main
player to turn a profit. A very brief challenge in the short-run is
overview of the strategy of the key to define a winning
portal and traditional media players is branding strategy
discussed below: (Sympatico? Lycos? Bell?
Globe? Etc)
• Integrated ISP & Portal - AOL Canada has been
players: rather timid in Canada.
Nonetheless, given its
- Excite Canada (backed by alliance with the Royal
Rogers and Shaw) and Bank, the support of its
Sympatico (backed by Bell, parent company, and its


high brand awareness, mostly importantly,
AOL Canada must be seen cross-promote its
as a strong contender. properites.
- Smaller players include: CBC presents a unique
Quebecor (Videotron + Canadian brand, a loyal
Canoe) and Telus customer base
(MyBC.com, (especially in certain
MyAlberta.com, etc.). They areas of country and
are particularly strong, segments of the
respectively, in Quebec population) and depth
and West Canada. of content that can be
leveraged on the
• Pure portal players Internet.
The Globe and Mail has
- Yahoo.ca and MSN.ca are been very effective to
also likely to remain date to leverage its
amongst the leaders in this brand, content and core
space, leveraging the assets to the Internet
brand, technology and (With the merger with
deep pockets of their Bell, its reach is
parent companies in the expected to grow even
US. They have also faster).
developed low cost Rogers Publishing has
operational business many online magazine
models. brand extensions.
Chatelaine is probably
• Traditional media companies the most successful.
None of these initiatives
- The only Canadian media seem to have a
companies with a significant stake in the
significant national reach Canadian Internet
are CanWest, CBC, advertising pie or a
GlobeMedia (e.g CTV and positive impact on the
Globe and Mail) and many magazines
Rogers Publishing (e.g. owned by Rogers
Macleans and Chatelaine). publishing.
CanWest properties, - Torstar properties show
including Canada.com significant traffic levels in
and GlobalTV.com, is Ontario (e.g. Toronto.com;
the largest media TheStar.com) and are
player in the country reasonably well integrated
and will likely try to with the newspaper.
differentiate its content - CityInteractive is still taking
offering, execute a very low-budget
distribution partnerships approach to the Internet.
(e.g. wireless) and, The Internet properties are


small product/brand • Up-to-date technology
extensions of their TV deployment;
channels. It’s well centered, • User interface design;
however, around their core
• Distribution strategy;
audiences (e.g. MuchMusic
– music fans).
Below, we discuss in more depth
- Other large broadcasters
some of the key elements involved in
and media companies such
creating winning Internet strategies for
as CTV (prior to being
media companies. In particular, we
acquired by Bell), Corus,
discuss how traditional media
Alliance Atlantis, YTV, Key
companies could carve out a winning
Media Ltd, TVA and TSN
value proposition to compete in this
have had only a timid
space against the “portal” leaders. The
presence in the Internet
traditional media companies may not
scene to date. TSN,
be able to follow the same strategies
leveraging some of the
as portals for various reasons
learning of ESPN is
(financial constraints, late into the
probably the most
game, lack of skills etc). It’s important,
advanced in terms of
however, for media companies to build
integration between its
on their off-line strengths and to
Internet site and TV
understand the directions that the
programming. All have yet
portals are taking since they are the
to show a clear path to
ones commanding the largest share of
profitability in their Internet
the Internet advertising budget. This is
investments.
not to say that media companies need
to imitate portals’ strategies. They
In order to stake a claim in the should, however, try to learn from
Canadian advertising Internet budget, these businesses and find their own
most Canadian media companies will deep roots and points of leverage in a
need, however, to get up to speed in a very competitive market (which has
number of critical elements: also meant a very unprofitable market
• Development of content for most companies).
that can be leveraged in all
mediums as opposed to II. Branding & Content strategy
simply repurposing content.
This will require a lot of The market has finally recognized that
training. Content creators very creative branding and marketing
will need to consider the initiatives are necessary in order to
interactivity potential of develop a viable business model on
most editorial projects very the Internet. It’s no longer possible to
early on. spend large amounts of money in
• Creative innovative ways to developing mind-share that does not
leverage the Internet to the translate into traffic, trust, registration
benefit of their traditional and transaction. The right set of
advertisers. partnerships with distributors (Telcos,
ISPs and portals) can help media


companies reach large audiences at It requires no crystal ball to predict
minimal marginal costs. These should that, in a couple of years, the Internet
be done, however, with extreme care: will power every single medium and
proper quality of service, integrity of electronic device. In this context, the
customer experience and branding user will determine the kind of specific
should be enforced at all times! experience he or she is seeking at
anytime: passive or active; audio,
Branding on the Internet is very much video or text; anonymous or not, etc.
related to the user experience over Multi-media companies have an
multiple touch points and interactions. undisputed advantage in terms of
The Internet is also a fabulous cross-promotion. This advantage can
medium where “word of mouth” or “ only grow in importance over time. In
world of click” can play a significant the future, however, the user will have
role in extending the brand (ebay and access to all sorts content and
hotmail are great examples). Every functionality regardless of medium of
user’s email, invitation for a chat or access.
sending of a link to a friend can play
the role of a testimony and/or of an
Media companies should also, at all
invitation. Chat and forums can also
times, make sure that their content is
rapidly spread messages or rumours
not “commoditized” to ensure that
about companies. This, of course, can
“Content is still the King”. That means
be good or bad depending on the spin
ensuring that their content is always
that the story takes. It’s clear,
branded, properly valued and
therefore, that the Internet reduces the
judiciously distributed. This is,
control that companies have over their
particularly, important for smaller
messages to the public.
media companies (e.g. magazine
publishers): they cannot compete,
It is important, therefore, that the
exclusively, on a CPM basis.
design of the user experience
Advertising selling requires art &
supports the brand identity and value
science. The old maxim: start by
proposition that is articulated in the
understanding “advertisers’ needs and
market place be it offline or online.
goals should not be forgotten in the
With respect to the development of
Internet just because it’s much easier
brand identity along with design
to get into the numbers game. A good
efforts, particular attention should be
creative strategy still has a lot of value
given to the fact that the brand and
for advertisers.
user experience should be consistent
regardless of the means of access
Few companies, even large
(speed of connection and device of
multimedia companies, can play a true
choice). A negative experience in one
portal game as defined by Yahoo
point of control can certainly affect the
(organized port of entry to the Internet,
overall brand experience and is hard
aggregation of all sorts of content,
to modify afterwards. This is, of
multitude of communication services,
course, of particular importance to
ecommerce, etc). Therefore, defining
traditional media companies.
what kind of content to focus on is also
a highly strategic decision. It is well


known that in most mass-market content. TV broadcasters more often
portals: than not have worked with
• A few channels account for a independent producers and
very large proportion of traffic syndicated programming. The print
and revenues; media has also developed many types
of working relationships with
• The channels with most traffic
freelancers and special contributors
(e.g. chat, email) are not
(writers photographers, designers,
necessarily the ones
etc). The Internet takes this
generating most of the
experience to an even higher level:
revenues;
hyperlinking makes content
• Some areas of content are outsourcing much easier to implement.
much more expensive to Moreover, the Internet allows
maintain than others (e.g main seamless integration of content and
content costs: hosting, services. The implications for content
bandwidth, production, etc); providers and media companies are
• The most profitable user base very important and should not be
has the following attributes: it taken lighlightly. The decision to
has a low cost of acquisition, produce content internally should be
and is targeted, loyal and taken only after careful cost-benefit
highly demanded by business analysis:
partners (advertisers and e- • Does it provide a unique
commerce players). perspective and value to the
Besides defining content topics or end-user?
areas, there are many other aspects • Is it cheaper to outsource?
that any media company should • Can it be repurposed or
consider when developing an Internet provide value to other
content strategy. The following key six mediums and non-competing
overlapping aspects will be considered players?
here:
II. 2. Users’ Participation in Content
1. Strategy for content production Creation
2. Users’ Participation in Content
Creation Media companies have always played
3. Personalization a role in establishing links or
4. Syndication & Subscription representing specific communities.
5. Multi-channel Integration The media companies that continue to
6. The Wireless and Interactive develop programming, now aided by
TV opportunities the Internet tools, that supports the
7. Broadband growth and loyalty of specific
communities will have a strong
II.1. Strategy for content production competitive edge. With the much-
anticipated convergence of the
Many media companies have mediums starting to happen,
traditionally used a combination of in- interactive programming is likely to
house production and outsourced


benefit from highly participatory while at the same time developing
audiences. ways to convert traffic and loyalty into
revenues. Careful thinking of the
If media companies clearly focus on business model and the integration of
their existing communities and areas content, tools, and highly intuitive
of strength in content, their value design is required. The most
proposition will also make sense for successful portals have clearly relied
advertisers. Therefore, it’s important to on strong community support.
create communities that are relevant
to advertisers by farming The Internet allows very different
psychographic clusters. The levels of users’ participation (see
communities strategy should, figure below). Users’ participation may
therefore, bring in all mediums the reduce costs of content production,
message, design and advertising provide higher degrees of loyalty and
opportunities catering to these lots of ideas for both online and offline
segments. product development and. Traditional
media companies, however, have
Communities (and especially targeted usually operated in a broadcast model.
communities) can become a source of Furthermore, many of their employees
very interesting and low-cost targeted in charge of content creation do not
content. This is important since follow the fast-paced technology
content development is a very change. Therefore, it’s quite realistic to
expensive proposition that very few think that, in the next few years, we
companies can afford. The beauty of will be seeing a number of many
community-based traffic is that it’s a media companies being left behind in
highly scalable business proposition. the competitive race to develop new
Again, the challenge for portals or ways to think and implement about
media properties lies in their ability to content.
foster the development of communities

Levels of users’ participation in content creation

n
io
at Customer-driven: chats & forums
ip
tic Real-time interaction with program ming
p ar
r
se Real-time polls
o fu
l Surveys, letters, feedback, etc
ve
Le None


II. 3. Personalization users to customize their experience,
and then learn from their behavior.
Personalization, or tailoring content Ultimately, the most sophisticated
and/or individual customer sites have a “pull” and “push”
experiences based on implicit and approach to personalization (see
explicit data, is a critical component of figure below). They make intelligent
customer intimacy. Accessible predictions about users’ preferences
personalization features should and display content (or advertising)
appear transparent to users by based on individuals’ stated
incorporating them into regular preferences, demographic information
browsing paths that minimize effort. and behavior (based on real time or
Successful sites go beyond mere cumulative data) during visits to the
utility: they achieve an emotional site.
connection with customers by allowing

Personalization strategies

User Control

Yes No

PULL PUSH
Based on set of
preferences
Based on site Based on
behavior demographic
- Accumulated data information
- Real-time data

As users invest more time and divulge requires, however, overcoming a few
more information, personalized service hurdles:
makes them less likely to click to • The implementation of
another site where they must build a high-levels of
new relationship. This is traditionally personalization is not a
known in Economics as “switching trivial technical challenge
costs”. The result is increased value, and may require deep
utility and satisfaction each time the pockets. It can include the
site is accessed and an increase in ability to dynamically
loyalty over time. There’s no doubt change content from
that personalization represents a different sources, layout,
deeper level of relationship with users design elements and
and, therefore, is highly valued by frequency of
advertisers and business partners. communications;
Achieving the goals of personalization

©TerraForum Consultores
10

• Management of the undifferentiated or unbranded content
operation: a committed will likely have its value reduced. High
technical and editorial team quality proprietary content, however,
needs to work hand-in- will probably have its value increased.
hand to keep the site; The emerging platforms (wireless,
• Convincing the user to interactive TV, etc) will provide new
invest the time: even sources of revenues to owners of
leading mass-market “hard to get” content. All of sudden,
portals that have overcome owners of large archives of content
the technical and may also find hidden values in their
operational challenges, still “idle libraries”. The digitization of
face the hurdle that only a content and the Internet have
minority of the users increased the value of archives by
personalize their allowing much more efficient seaches,
experiences (between 10% organization and distribution of large
and 40% in the leading volumes of content.
mass-market portals.
Yahoo says 55 million of its One important caveat is that
166 million users have broadband and digitization of content
revealed their identities and does increase the risk of piracy. This,
personal preferences6. however, will be technically and
economically solved. As during the
introduction of cassette and VHS
These high costs and operational
tapes and more recently of music
challenges mean that media
downloads and peer-to-peer, the
companies should embark on
personalization efforts only after reaction of content owners seem to be
highly exagerated. In the end,
detailed cost-benefit analysis. Also, as
however, technological evolution is
they leverage their existing knowledge
of their core audiences offline to unstoppable. If it has value for users,
companies will likely deploy the
develop their online offerings, the path
resources and economic models to
for true one-to-one personalization
make it work. The recent moves of
may not be necessary at all or be
large music companies to offer
reserved for specific promotional or
sponsored applications developed with Napster-like services are a testimony
to this. Hollywood studios after much
partners or advertisers’ budgets.
fear of piracy found very profitable
Location and demographics based
ways to live with VHS tapes. This is
personalization opportunities that are
not to say that fighting piracy will not
straightforward should be definitely
taken into account. continue to be a priority for content
and software providers. Security and
encryption can always be broken: the
II. 4. Syndication & Subscription
question is how attractive the risks and
rewards of forgery will be. Low pricing
The Internet can increase or decrease
the value of content. It is making for end-users, for instance, is always a
information and content more widely powerful deterrent.
available for free. Therefore,

11

The Internet has changed the cost the Internet syndication
structure of the media industry. business: it collects articles
Companies will increasingly have from various sources (400
higher fixed costs and lower variable plus) and categorizes them
costs (distribution costs are usually using sophisticated filtering
reduced with the Internet). That means software for further
that media companies will need to find distribution (500 plus other
new ways to increase distribution and sites in the first semester of
“monetise” their proprietary content. 2000)7.
Generally speaking the following • IBlast has recently
options are available: partnered with more than
• their own marketing efforts; 200 TV broadcasters in the
• distribution partnerships; US to provide them with
• syndication (private-label or movies, games and other
co-branded business content. This company has
models); developed a technology
• pay-per-view business that will make use of the
models. additional digital spectrum
that all stations in the US
Examples of syndication: were granted in order to
The Internet increases the prepare for HDTV. Since
opportunities for syndication by HDTV is still very
making it a lot more economical to uneconomical (for a
deploy the same content over and number of reasons beyond
over again. A few interesting examples this paper), most of these
are listed below: stations, however, prefer to
• Reuters is a great example use the additional spectrum
of a media company that to provide other digital
has clearly leveraged the services.
Internet to improve its
bottom line through Examples of subscription models:
additional syndication; Although subscription-based business
• A good Canadian example models for large audiences are still a
is Canadian Press: the big challenge, a number of publishers
Internet has reinvigorated are testing different models or have
its commercial/content found specific business niches on the
syndication strategy; Internet for subscription (pay-per-view,
• Looksmart is a new upstart pay-per-download, pay-per-byte, pay-
that is powering the per-time):
directories of many large- • On the b-to-b side many
scale portals and media examples are available
companies such as Excite, (EIU, Forrester, Thomson
MSN and CNN; Corp., Yankee Group,
Jupiter, etc);
• Screaming Media is also an
interesting new player in • On the consumers side the
most notorious case is the

12

porno industry with annual partnership with
revenues of US$ 1.5 Newstand.com;
billion8. • Microsoft has recently
• The networked video announced that it will start
games industry is another offering “premium”
example that people will subscription services. It will
pay for online include elements of the
entertainment. Individuals portal MSN and of content
pay $40 to $50 to buy the and products such as
package software in the Encarta encyclopedia
sotre and subscription fee program and Money, a
of $ 10/month to play personal-finance
online. Amongst the most program11.
popular multiplayer games • Marketwatch.com (owned
are Ultima (with 230,000 by CBS) plans to grow its
online accounts from 114 licensing and subscription
countries) and EverQuest revenues to about 50% of
(with 360,000 subscribers revenues in 2001. One
and close to 90,000 example of such deals
concurrent users online at includes the one with the
peak hours)9. Learning Network to offer --
• Intertainer streams more via paid subscriptions --
than 500 hours of interactive, online personal-
Hollywood hits, classics, finance courses.
TV shows, music, videos • MTV is starting to test a
and charges $3.99/film. subscription model for
The users can watch it as music downloads. Users
often as they want over a will pay either monthly fees
24-hour period10. or per music downloaded.
• Hollywood Media, however, The proposed system will
with its deep archive of protect the rights of artists
entertainment news, is and label companies.
another interesting Microsoft, Real Networks
example and and Yahoo in partnership
Britannica.com has recently with Sony and Universal
started charging for are also working on similar
content; business models;
• The Wall Street Journal is a • MLB Advanced Media LP,
good example of premium the online arm of Major
content being sold to League Baseball, has
relative large audiences. launched an Internet
The New York Times has subscription service for
started to offer the baseball fans: users will be
complete paper for able to subscribe to both
subscription through a video and radio services.
The video service allows

13

users to assemble server product aimed
customized video albums that enables publishers,
and the radio service will online content
allow users to receive live distributors and
broadcasts of all major resellers to secure and
league baseball games. sell Adobe Portable
Real Networks is paying Document Format
Advanced Media $ 20 (PDF) based eBooks.
million for a three-year deal - Amazon.com is already
for the radio subscriptions. offering more than
It’s likely that both the 2,000 titles for ebooks
National Football League (in partnership with
and the National Hockey Amazon).

"
# $
%
League will be launching
paid services in the near II. 5. Multi-channel Integration
future12;
• Yahoo has recently Mass media properties already start
announced another the Internet game with one of the most
significant subscription- precious assets: a loyal audience that
based content: real-time trusts its brand and content. More
stock quotes; often than not, media companies will
• Last, but not least, The ITV benefit from integrating their online
and ebooks will also put and offline content. The Internet
tremendous pressures on provides extended reach and
media companies to functionality for media companies. It
develop new business allows for the enrichment of traditional
models based on pay-per- content. No other medium can
view or pay-per-download. compete with the Internet when it
- The powerful Gemstar, comes to interactivity, participation
for instance, has and development of data based
recently launched a content (e.g. instant sports’ statistics).
reading device that Technology convergence will certainly
allows publishers to change the way that people receive
easily deliver any book, and interact with digital content. Media
magazine or companies will need to follow
newspaper over a technology and behavior changes very
standard telephone closely, leverage their offline credibility
line. and develop creative ways to integrate
all mediums. Integration could be as
- Adobe, on the other
simple as repurposing offline libraries
hand, has partnered
or as complex as providing real-time,
announced a new

14

two-way interaction between online corporation will need to have
and offline content (see figure below): interactive elements13:
“The days of commissioning
United Kingdom’s BBC, for
programs are over; we are going to
instance, provides some clues to
be commissioning projects.
the kind of demand we will be
Programs without interactive TV
seeing in the in the near future.
rights just won’t get acquired.”
Ashley Highfield said in a recent
show that any future programming
funded or acquired by the

Levels of Content Integration

There are many interesting examples - research that showed that
of high levels of content integration, a large portion of MTV
including real-time integration: audience already watched
TV and surfed the Internet
• MTV provides a good example simultaneously;
of significant integration - advertisers’ request for
between online and broadcast. multi-channel packages
The stated goal of the
company is to create “a • The Game Show Network, on
multimedia version of the MTV the other hand, provides a
brand”. The project called good example real time
MTV360, which is expected to integration between TV and the
be fully implemented by July Internet. Viewers of the
2001, will allow users of the network’s “Hollywood
MTV site to watch the two Showdown” are able to play
broadcast channels owned by along with the contestants in
the company directly in the real time15.
site. The main drivers of the
projects include14: • MTV Brazil is another example
where real time integration

15

depended a lot more on interactive television (ITV), broadband
creativity than on technology access will also become mainstream
power: As early as 1997, the (in the next main section of this paper,
broadcaster was including a we discuss in the detail the broadband
live moderated chat to some of opportunity).
its shows. The lines of the chat
appeared at the bottom of the For media companies and content
screen while the show was providers in general, these two trends
being broadcast. CNN has represent major challenges. These
started doing the same thing companies will need to develop
since the merger between competencies not only in the
TimeWarner and AOL. production of new rich media
applications (animation tools, audio
• CBC in Canada has used its and video streaming), but also in the
web site in many instances to identification of new content areas that
provide in-depth coverage of stand to benefit from wireless and
news and stories covered in interactive television.
TV and radio broadcasts.
Both on the wireless and ITV, media
• 41,4% of FOLIO 500 companies and content providers will
magazines in the US already need to navigate through a myriad of
provide e-newsletters. More different technological platforms and
impressive, however, is the solutions. Some are proprietary,
fact that of the clickthrough others rely on open platform concepts.
rates for these e-newsletters Different choices in terms of
are over 20% for 42% of partnerships will require very different
publications. levels of technological skills, financial
commitments and control over the
user experience. Media companies will
II. 6. The Wireless and Interactive TV also need to decide between short-
opportunities term rewards and long-term bets.

The first five years of the world-wide- ITV
web were clearly developed around
the PC. The first few years of the new Interactive television (ITV) is exploding
Millennium will see an even greater in Europe and will be complete
speed of growth of the Internet. This mainstream in the next few years.
time, TV and wireless access (cell Murdoch’s BSKyB launched of ITV
phones, PDAs, etc) will be responsible was a major success in the UK: in less
for most of the growth in the number of than a year, more than 50% of its
users of the Internet. In the developing subscribers signed-up for the service.
world, in particular, these two Despite a slow start, ITV will also
platforms or devices are a lot more become mainstream in North America.
prevalent than computers. In the Various research companies point to a
developed world, besides the tremendous growth in the next few
tremendous growth in wireless and years. The number of ITV households

16

is expected to reach 17 million16 by broadcasts. Vendors include
2002, close to 40 million households ACTV and OpenTV.
by 200417 and 50 million by 2005. • Eletronic Program Guides
(EPGs): it provides interactive
In North America, NBC seems to be access to TV schedules and
the TV Network that is most tuned with information about programs.
the future of ITV. It has created a This is already a big
separated division: The ValueVision business.Gemstar, the leading
Enhanced Broadcast Technologies player in this market, already
Group. This division will produce counts with more than 10
interactive services for all of NBC' s million subscribers and is
enhanced TV broadcasts, including: expected to be taking in more
CNBC, the DirecTV Virtual Channel, than US$ 8.5 billion in ad
The Tonight Show With Jay Leno, revenues by 200521.
Saturday Night Live, TNBC, USGA
Events, The French Open, American • Video on Demand (VOD) and
Century Golf Championship, LPGA Digital Video Recorders: VOD
Events, Notre Dame Football and the will take a while to become a
PGA on the Wink platform and TNBC mass-market phenomenon due
on WebTV and UltimateTV18. DirectTV to bandwidth limitations.
is also very active in the interactive Vendors providing digital video
programming broadcast race. In a servers include Concurrent,
partnership with Wink, the company is DIVA, Intertainer, nCUBE and
providing more than 2,000 hours/week SeaChange. A similar concept
of interactive programs and or pseudo VOD is already
advertising19. gaining wide acceptance:
digital video recorders as
ITV, however, comprises a number of supplied by Tivo or ReplayTV.
different applications20: These vendors provide a very
powerful hard disk that enables
• Enhanced TV: it means the
users to program the recording
enhancement of broadcast
of many TV programs. This
signals (analog or audio)
application is likely to provide
through an overlay of text and
pay-per-view solutions in the
graphics. It may or may not
near future.
include a return-path. Key
vendors of solutions include • Synchronized TV: it pushed
Liberate, Microsoft TV, Wink, data to Internet applications in
OpenTV, AOLTV and sync with TV programming. It
Worldgate. leveraged the fact that the TV
and PC are in the same room
• Individualized TV: this solution
in more than 50 million
allows viewers to customize
households in the US. The Key
their viewing experience by
vendor here is ACTV.
choosing different cameras.
This is a very likely application, • Internet TV: it includes
for instance, for sports solutions that provide full
access to the web (at a dial-up

17

speed). To date the existing scheduled to start by the
solutions do not support many end of the first semester of
of the more advanced Internet 2001. If the experience with
features such as java I-mode is a good reference,
applications or streaming. It broadband wireless
does provide, however, basic Internet will explode there.
web browsing and email. Key It took NTT-DoCoMo only
players are WebTV, Worldgate two year to acquire 20
and Liberate. million users of I-mode,
• Digital set-top boxes: this is the which provides always-on
ultimate full feature ITV that will Internet access and is
provide high-speed data and mainly used for email.
video interactivity and will • The Walt Disney Group is
support all the applications already offering content in
above based on complex partnership with DoCoMo
operating systems, middleware and it expects this venture
and hardware. to be profitable by the end
of 2002.
Wireless • Wireless advertsing is
expected to start growing
The opportunities for media very fast as of 2003 after it
companies are certainly very exciting overcomes initial
as well in the wireless space. In the technological hurdles.
next few years, the most valued Some estimates put the
content for wireless devices will likely global wireless advertising
include location specific, time-sensitive marketing at around US$
or group-based applications. Carriers 15 billion by 200522. Most
will need compelling content to keep wireless advertising is
users engaged in a broadband expected to be “pull and
environment. The stakes for the phone opt-in based ” as it is
companies are really high and they will unlikely that people will
put a lot of energy to recoup the costs accept being disturbed
of their investments in the networks, without asking for a specific
new product developments (e.g., new service or content.
devices) and especially licenses:
II. 7. The Broadband opportunity
• In the UK, carriers paid
circa US$ 34 billion for
Users
wireless 3G licenses (that
allow broadband
Today the great majority of users have
transmissions). These
dial-up connections and about 5
services are scheduled to
million households have high-speed
start in 2002.
connections in North America. This is
• In Japan, where companies
changing quickly. By 2003, it is
did not have to pay for
estimated that 33% of home users will
those licenses, broadband
have broadband access23. By 2005
3G wireless services are

18

this number will be 50 percent and access their connections many
(Forrester). That translates in almost times during the day. The Internet is
40 million subscribers and a market part of their daily routines. They
that will be more important than the certainly represent a better opportunity
dial-up access. Worldwide estimates for advertisers and ecommerce
put the number of subscribers players: they feel more secure
between 88.5 and 93.6 million24. Most shopping online and are more likely to
online home users already have do impulse buying. Because of speed
multimedia PCs. Multicasting of surfing they may, however, be more
technology is becoming more widely likely to engage in comparison-
used. There is, therefore, a revolution shopping.
in the making that will likely benefit the
owners of proprietary and premium New applications
broadband content. Large media
companies (especially broadcasters) These are definitely huge changes
that were not successful in that will take the Internet experience to
establishing successful mass-market a very different level. Those who
sites in the past have a renewed better understand the coming changes
chance now. and act first will be better positioned to
secure a strong future. Media
It is also worth noting that broadband companies are likely to be highly
is widely available in corporate affected by these changes. Media
America. Currently more than 17 companies have deep experience in
million office workers and 12 million creating and producing content that is
college students have fast engaging and a lot more complex than
connections. It’s estimated that by what the traditional text-based Internet
has produced to date. New entrants,
2003, 71 percent of all businesses will however, are looming everywhere and
have broadband connections in North the most successful ones are bound to
America. On the other hand, in a pose a direct attack on traditional
couple of year interactive television media players in their own turf beyond
will truly make the Internet part of the PC constrained Internet.
everyone’s life. The number of TV sets
is much larger than telephones and Defining broadband can be a
PCs combined. This is true in the challenge since different people have
developed world and even more different points of view about what it
important in the developing world. really means. It’s better, therefore, to
Broadband wireless applications will focus on the applications and the kind
also be a reality in a number of years. of bandwidth that is necessary to
support them. The table below helps
Broadband users are wealthier, tend to understand what kind of bandwidth
to be more experienced users, surf for is required for developing various
longer periods of time, use it more services.
often, are more loyal to specific sites
Broadband Service and Required
Bandwidth

19

SERVICE DOWNSTREAM - Finally it is also clear that satellite
UPSTREAM
BANDWIDTH BANDWIDTH providers have been working with
Broadcast TV 6-8 Mbps 64 Kbps digital TV for a long time, while
Home shopping 1.5 Mbps 64-384 Kbps cable is just entering this arena
Distance learning 1.5-3 Mbps 64 Kbps with very recent roll outs of digital
Video on demand 1.5 Mbps 64 Kbps set top boxes.
Computer gaming 1.5 Mbps 64 Kbps
Video conferencing 384 Kbps – 1.5 Mbps 384 Kbps –•1.5 In comparison with the other
Mbps
Source: Red Herring, November 13, 2000 technological solutions for
delivering broadband content, it is
Satellite Internet reasonable to say that satellites
are well positioned to:
It’s clear that cable companies and - Deliver point-to-multi point
Telcos have the lead in North applications at a very low cost.
America. Satellite Internet providers, - Compete in rural areas and certain
however, are also well positioned to urban areas where multi-dwelling
reap significant rewards as interests in is prevalent and provides good
broadband soars. reception topography.
- Provide download applications.
• Important technological advances
are improving the • The satellite business is a capital
price/performance ratio of satellite intensive, high-fixed business that
communications. can be very competitive if capacity
- Satellite providers are certainly in a is maximized through caching
very strong position in Europe with techniques.
more than 30 million customers. - IP multicasting and Package
- In North America, the competition delivery are important ways to
from cable and DSL is certainly optimize bandwidth. They provide
much stronger. Yet, there is the idea of interactive but are in
enough scale to sustain viable fact “pseudo-broadcast”. Instead of
business models. There are more transmitting individually, this
than 15 million subscribers in technical solution collects most
North America (around 1 million in common requests and broadcast
Canada). to everyone. That puts a lot of
- Two-way systems are already value in the development of
being deployed in North America. technical solutions, services and
StarBand is already offering this incentives (price tiers, for instance)
service. It is anticipated that in the to have everyone see the same
next few years, we will see much content.
lower transponder costs (next • Satellite players will be able to
generation: Ka band – 18 to 31 integrate their TV and Internet
GHz) and smaller antennas (VSAT offerings and leverage their strong
– very small aperture terminals) position in the distribution value
that will allow much more chain.
widespeard two-way satellite - The gains can be seen in
Internet access. programming, usage of bandwidth,
savings in users’ receiver

20

equipment and, finally, advanced negotiating position when dealing
advertising & ecommerce with the existing providers of TV
applications. programming.
- Satellite networks offer the most - Single receivers for both the TV
extensive menu of TV channels in and PC that cache high-bandwidth
the current market. Consumers of content is already a reality. This
these systems are getting more provides two very important cost
and more comfortable with a huge savings opportunities: transponder
array of options and sophisticated costs and users’ terminal costs
program guides. This is an (equipment and installation
important current advantage that savings). Self-provisioning or
can be capitalized. install yourself is an important way
- It is clear that Internet satellite to reduce ISP costs.
players will have a strong
Indeed, the fast increase in cable- great deal of value on online
modem, xDSL and satellite (especially communities and will gravitate
in Europe) connections is already to sites and services that
fostering a growing list of popular facilitate video/multimedia
applications: connections and offer
• Search engines dedicated to templates to create, edit, store,
multimedia content. publish and share multimedia
• Software and music content.
downloading and swapping • Remote multi-player games
(already the most popular that are highly graphical and
service). interactive will be enhanced by
• Audio streaming (It’s possible broadband. Playstation2 points
to have very large number of to the convergence of the
digital radio stations), internet and gaming stations.
information services – • High-quality voice & video chat
broadcast news. and video email are just
• On-line gaming (the sites with around the corner.
the longest duration/visit), • Some interactive TV
distance learning, on-line applications are already
gambling and travel services becoming mainstream. Good
are also growing very fast. examples include eletronic
• Applications that provide deep program guides (e.g Gemstar
integration and synchronization EPGs) and recordable digital
of video streaming, text, flash video hard disk drives (e.g.
animation and commerce TiVO). Both applications are
(Yahoo’s FinanceVision is a becoming widely available on
great example). digital cable and satellite
systems.
• Consumer applications that
encourage the creation and • MPEG 4 format that allows
sharing of rich media. The high-quality videos and movies
younger generation places a to keep their standards on the
net by use of sophisticated

21

compressing algorithms. millions logons) and the
Recent releases of Microsoft recent launch of her latest
(Media player 8) and Real video clip, What it means to
Networks (Real Player 8) claim be a girl, exclusively
to have reached DVD level through AOL.
quality if enough bandwidth is • Victoria Secret logged over
provided (~1 MBps x traditional 10 million visitors and 500
~ 6 MBps for tradtional TV million hits in 10 weeks in
broadcast). 1999 with its first live
• Content Delivery Netwroks are streaming video of a
making it easier to deliver fashion show25;
streaming content. They use a • MSNBC coverage of
technique called “edge election night: about 20%
network” that creates a of the site visitors, i.e.,
“parallel Internet” through the more than one million
use of dedicated backbones people, chose to watch
and distributed servers close to video broadcast through
the users. Leading companies the Internet instead of
in this space include AKAMAI, watching it through the TV.
Speedera and Digital Island. On the same night, PBS' s
NewsHour teamed up with
The existing chain of distribution – WebTV and offered
cinema, videocassette, television – is election coverage on an
under attack and will have to be re- interactive platform.
evaluated. Examples of compelling Viewers in any state could
sites dedicated to short-length movies drill down for more detailed
for the Internet are not hard to find: information by making
SS, Ifilm, ON2, MediaTrip, Sightsound, choices to see election
Intertainer(pay per view is happening returns by state or city,
already!). There is already a great deal candidates' positions on
of rich media content (animation, video the issues, acceptance and
& music) produced exclusively for concession speeches and
Internet distribution. There are many the like. Viewers could also
examples of successful, high profile interact by sending e-mail
media streaming cases. A few to others and taking instant
examples come very easily to mind: polls.
• The Blair Witch Project,
Episode 1; Some traditional broadcasters are
• The Phantom Menace; already placing a lot of energy and
money into broadband and streaming
• The Paul McCartney
concert at the Cavern video applications. MSNBC is
(which was seen by more probably leading the pack. CNN, ABC,
CBS MarketWatch ,
than 3 million people);
Washingtonpost.com and Yahoo
• Madonna’s London concert Finance are also making interesting
(which had more than 9 strides in the broadband news front.

22

Michael Silberman, executive editor of
MSNBC, has recently shared the "The power of pictures and the
following perspective on the emerging interactivity of the Internet to create
role of broadband for a news depth, context and perspective will
company: create a new form of journalism that
we haven' yet begun to appreciate.
t
Ultimately, you want to provide
"At MSNBC we think about users with more depth on every
broadband in two ways: as rich story — unedited interviews with
content, as video, as the CEO, locker room interviews
animation, about how we can with sports stars. You' be d
combine those elements into a surprised how many people will
single experience. And we want to watch."
think about it as an always-on
connection, making it much The barriers of entry and the financial
more of an Internet appliance, stakes are, of course, much higher in
letting you have the option of the broadband environment.
having a kick-back, more Production costs can easily escalate.
passive entertainment Streaming media is still highly
experience."26 dependent on scale. Someone will
have to pay for these services.

FeedRoom is an interesting new Media companies will have to develop
entrant worth noting too. It is a not only creative content, but also
broadband-only site that aggregates creative risk and revenue sharing
video content from a network of agreements with all other players that
stations. The company has many high- make it happen: software and
profile investors including: NBC, hardware providers, the “owners” of
Warburg Pincus, Intel, Tribune the distribution and consumer
Ventures, etc. The company collects relationships (MSOs, ISPs, portals,
the latest news, business, sports, etc) and ecommerce players.
weather and traffic video from
networks, local TV stations and IV. Understanding the needs of
independent news providers and advertisers
combines them in a rich-media format
that melds television with Internet From the perspective of a media
technology. It includes feeds from seller, the audience is the product and
NBC, Tribune Broadcasting, Reuters, the advertiser is the customer. Like
Fox and many other local stations. any business proposition, the onus is
The ultimate goal of the company is to on the seller to demonstrate the value
start offering personalized, interactive of their product to the potential buyer.
newscasts combine with in-depth links Understanding the needs of the buyer
to information on the top stories of the is the key to maximizing the value of
day. Its West Coast VP also offers the product. However, maximizing
interesting perspectives on the product value will not increase
changing landscape of Internet news: revenue if there is not any site traffic.

23

Additional content and functionality will Pepsi recent hyped deal with Yahoo is
result in increased inventory only if it a good example. Pepsi paid about
serves an audience need. Audiences US$ 8 million to run a promotion on
and advertisers reward media sellers Yahoo. This promotion resulted in the
who achieve this equilibrium with collection of more than 2 million
eyeballs and advertising dollars. personal profiles of Pepsi products
drinkers who went to the site to
The measurability of online media receive prizes. It was indeed very
results allows for a very high level of successful for Pepsi: it costed one-fifth
accountability that, in turn, makes of the price of traditional direct mail
online advertisers especially ROI- promotions and was completed in one
focused. ROI is the measure of media third of the time28.
efficiency, which is a function of the
effectiveness of media in achieving The high level of accountability is the
objectives relative to the price of most distinctive aspect of Internet
placement. Effectiveness of media advertising. Pay for performance
depends on how well the ad contracts are on the rise (offline as
placement generates response and well). The accountability is, however, a
qualifies an audience. Extensive double-edged sword. While the
testing of creative, format and media Internet allows advertisers to develop
opportunities allows for rapid very sophisticated tracking
optimization of Internet based mechanisms to measure the business
campaigns. These are the impact of the advertising dollars spent,
fundamental drivers of Internet media it also holds Internet companies to a
value. level of measurability that was never
imposed on traditional media. It’s well
Advertisers value the ability to identify known that many traditional
and target the appropriate audience. advertising budgets have been wasted
This requires sophisticated ad serving on ineffective media campaigns (due
systems that skew ads to customers to wrong creative, audience, product
that are most likely to buy or get features, etc). In the Internet world,
information about the service or these wasteful campaigns are rapidly
product. Plain banners placed on a uncovered.
random rotation basis cost about $5
CPM while highly targeted banner ads In order to avoid being evaluated only
can draw as much as $150 CPM or on the merits of clickthroughs, the
$300 CPM for a permission based front-runners in this space are
email campaign on Yahoo27. developing more creative ways to
work with advertisers and ecommerce
The Internet also provides unique partners. They are creating
opportunities for advertising partners opportunities for differentiation and
to profile and better understand branding beyond the banner. The lines
specific segments of a target market. between content and advertising are
This, of course, is value-added for becoming very blurred in most leading
advertisers that can, therefore, be portals. Media companies, however,
profitably priced by media companies. are held to much higher degrees of

24

editorial standards and may not have how innovation can help bring
as much leeway in this respect. Multi- traditional advertisers to the Internet:
channel and cross-media opportunities • Volvo launched its S60 sedan
that leverage the advantages of each exclusively through Excite
specific medium seem to be the Canada in Canada and
differentiating point for traditional through CBS-Sportsline and
media companies competing for WebTV in the US. In both
Internet advertising budgets. In fact, cases, the sites created special
integrated approaches that combine sweepstakes to drive users to
television with online media or that learn about the car. The last
incorporate media partners are point in the differentiated
expected to grow dramatically. The campaign for VOLVO included
growth of divisions specialized in a full-color promotional video
multi-media buying and plans (e.g. available on wireless
McCann-Erickson, Unilever) is a PocketPC PDAs.
strong sign of the increasing
• Yahoo worked with Pepsi in a
importance of this.
multi-million exclusive
campaign to create special
A good example of this multi-channel
web-casting sponsored events
approach is AOL Time Warner’s
that the preceded the Oscar
recent announcements of large
party in 2001.
advertising deals with leading brands
including: Continental Airlines, Kinko’s • CBSMarketwatch worked in a
and Princess Cruises. The packages very innovative campaign with
with these advertisers include Internet, Kmart (bluelight.com): besides
print and TV. In the worlds of AOL traditional online placements,
Time Warner COO, Robert Pittman: Marketwatch has turned its
page “blue” to highlight the
"Our businesses are working launch of the BlueLight Special
together to develop ground- at Kmart stores nationwide and
breaking integrated programs online at BlueLight.com
that not only create more
benefits for partners, but also It’s becoming clearer that the next
transform the way they interact phase will be about interactive
with consumers. New and advertising (as opposed to Internet
existing partners are clearly advertsing). Indeed, advertising and e-
interested participating in on commerce stand to benefit hugely
these programs and we will from broadband regardless of the
continue to work with them to medium of distribution (wired Internet,
develop additional Interactive TV, wireless etc):
breakthrough cross-brand
initiatives."29 • Broadband will allow for live
interactions that create
Volvo, Pepsi and Kmart emotional bonds with the users
(bluelight.com) campaigns, on the and strengthen relationships
other hand, provide good examples of between business and

25

Challenges and Opportunities in the Internet for Media Companies

Challenges and Opportunities in the Internet for Media Companies

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