Online vs. Offline Media in the U.S

David WatermanDept. of Telecommunications, Indiana University

Visiting Fellow, Oxford Internet Institute, University of Oxfordwith

Sung Wook Ji, Dept. of Telecommunications, Indiana University

Online vs. Offline Media in the U.S.

EuroCPR 2011March 27-29, 2011

Ghent, Belgium

T-2

Professionally produced copyrighted commercial mediaproducts

A long term historical perspective

Part of a broader project on economics of media development in the US and UK

Focus

T-3

How is online media affecting…

Some questions harder than others…..

media industry revenues and employment?

the balance of advertiser vs. direct pay support?

the quality and variety of media products? ….or….is offline + online media a negative or positive sum game?

in theory, could be + or --

Some questions

T-4

Overall, media revenues steadily declining since about 2000

An increasing shift toward direct pay support

Several possible reasons (consumer habits, copyright issues, business models, greater efficiency…)

Some evidence of increasing media production(a positive sum game)

Overview

1

Total Revenue of US Commercial Media as % of GDP 1950-2009. (Internet lower bound*)

2,1%2.2%

2.0%

2.6%

2,0%

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

% G

DP

Multichannel TV

Video

Broadcast TV

Radio

Theater

Internet*

Books

Newspapers

Magazines

Rec Music

* includes: newspaper websites; digital music/movies; television station/network websites; Internet radio; e-booksSources: U.S. Census; trade associations; industry analysts; 10-K reports; author estimationsPreliminary data (Waterman/Ji, March, 2011)

3

Total Revenue of US Commercial Media as % of GDP: 1950-2009 (Internet upper bound*)

2.1%2.2%

2.7%

2.1%

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

% G

DP

Multichannel TV

Video

Broadcast TV

Radio

Theater

Internet*

Books

Newspapers

Magazines

Rec Music

* includes all Internet advertising except search and e-mail + all Internet Publisher revenues exc. adv. (US Census)Sources: U.S. Census; trade associations; industry analysts; 10-K reports; author estimationsPreliminary data (Waterman/Ji, March, 2011)

T-5 ab

Steady fall in media revenues as % of GDP since 2000

Statistical summary

4

Advertising vs. Direct Pay Support as % of GDP: All US Media, 1970-2009

Sources: U.S. Census; trade associations; industry analysts; 10-K reports; author estimationsPreliminary data (Waterman/Ji, March, 2011)

1.1%

1.4%

.8%0.9%

1.2%

1.2%

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

% G

DP

Advertising(% GDP)

Direct pay(% GDP)

5

Advertising vs. direct Pay Support: % Balance All US Media, 1970-2009

56%53%

42%44% 47%

58%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% B

alan

ce

Advertising(% total)

Direct pay(% total)

Sources: Sources: U.S. Census; trade associations; industry analysts; 10-K reports; author estimationsPreliminary data (Waterman/Ji, March, 2011)

T-5 ab


A shift toward direct pay support, especially since 2000

Statistical summary

6

Newspapers: Total Revenue by Categoryas % GDP, 1970-2009

.8%

.6%

.3%

0,0%

0,2%

0,4%

0,6%

0,8%

1,0%

% G

DP Subscription

Internet

National

Classified

Retail


7b

Recorded Music: Total revenue by categoryas % GDP, 1982-2009


Part I

.11%

.17%

.14%

.05%

0,00%

0,05%

0,10%

0,15%

0,20%

% o

f GD

P

Physical

Digital

8

Television: Total Revenue by Category,as % of GDP, 1970-2009

.38%

.93%1.06%

0,0%

0,2%

0,4%

0,6%

0,8%

1,0%

1,2%

1,4%

% G

DP

Broadcasting

Internet

Cable TV

DBS/Telco


9

Movie Theaters/Video: Total Revenue by Category as % of GDP, 1970-2009

.14%

.23%

0,00%

0,05%

0,10%

0,15%

0,20%

0,25%

0,30%

%G

DP

Theater

Video

Internet.27%


12a

Advertising vs. Direct Pay Support as % of GDP:All Internet Media*, 2000-09

.030%

.003%

0%

.034%

0,00%

0,01%

0,02%

0,03%

0,04%

0,05%

% o

f GD

P

Advertising(% GDP)

Direct Payment(% GDP)

•Internet “lower bound”•Sources: U.S. Census; trade associations; industry analysts; 10-K reports; author estimationsPreliminary data (Waterman/Ji, March, 2011)

12b

Advertising vs. Direct Pay Support: % Balance: All Internet Media*, 2000-09

100%

47%

0%

53%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% B

alan

ce

Advertising (% total Internet Rev.)

Direct Pay(% of total Internet Rev.)

*Internet “lower bound”Sources: U.S. Census; trade associations; industry analysts; 10-K reports; author estimationsPreliminary data (Waterman/Ji, March, 2011)

T-5 ab


A shift toward direct pay support, especially since 2000

Major individual media since about 2000

Statistical summary

Revenues consistently falling (or flattening) especially newspapers and music

A shift toward pay support, including online media as a whole

T-6

Four possible reasons for the recent trends

1) Consumers turning away from professional media Time use studies suggest not a major factor

2) Appropriability I: More difficult IP protection Significant factor at least in music and news

3) Appropriability II: Online business model shortcomings Advertising, but not direct support

4) Internet distribution is cheaper, more efficient Examples: movies, news

T-7

“Brick & mortar” DVD rental (2002) vs. Online “rental” (2010)

Internet cost reductions I: Movies

Rental price Studio share*

2002 $3.25 33%

2010 $4.41 70%

* Before duplications/distribution cost

Sources: author calculations from Kagan Research and Adams Media dataPreliminary data (Waterman/Ji, March, 2011)

T-7

Distribution of printed newspaper costs (33,000 circ. paper, 1994)*

Classified advertising

Internet cost reductions II: Newspapers

News-editorial 16%

Advertising 11

Production/printing 39

Circulation 11

Building/depreciation 32

Total 100%

Decline of print newspaper classified revenues, 2000-2008: $9.6 bil.

Total Internet classified advertiser spending, 2008: $3.3 bil.

Sources: Inland Press Association, NAA, IABPreliminary data (Waterman/Ji, March, 2011)

T-7

The economic bottom line is what happens to media production investment

Evidence in some media of increasing (or stable) production

End result

14a

Media Industry Employment *as % of Total Employment: 1990-2008

1.3% 1.2%1.1%

1.2%1.1 %

.9%

0,0%

0,5%

1,0%

1,5%

2,0%

Tot

al (%

)

All Media except Internet Pub. and Cable distribution

All (10) Media

categories

Sources: U.S. Census; IBRCPreliminary data (Waterman/Ji, March, 2011)

Part I

14c

Employment in Media Production Categories as % of Total Employment; 1990-2008

.11%

.14%.15%

.05%

.064%.062%

.008% .009% .009%

0,00%

0,05%

0,10%

0,15%

Tot

al (%

)

Motion picture and video production

Cable and subscription program production

News syndicates


rt

I

14b

Media Industry Payroll as % of Total Payroll, 1990-2008

1.6%

1.4%1.4%

1.2%

0,0%

0,5%

1,0%

1,5%

2,0%

Tot

al (%

)

All media except Internet Publishing and Cable distribution

All media categories

1.5%

1.4%

* Total includes Newspaper, Periodical, Book, Motion Picture & Video, Sound Recording, Radio, Television, Cable & other subscription, News syndicates, and Internet publishing and broadcasting.


-

extra

14d

Media Production Payroll as % of Total Payroll, 1990-2008

.22%

.26% .26%

.06%

.10% .10%

.014% .017% .020%

0,0%

0,1%

0,2%

0,3%

Tot

al (%

)

Motion picture and video production

Cable and subscription program production

News syndicates


Part I - extra

T-7

The bottom line is what happens to quality and variety of media to consumers, or media production investment

Evidence in some media of increasing (or stable) production

More analysis under way

End result

Part I

Part I END

Part I

17

Broadband and Dial-up Adoption

.

Sources: Pew ResearchPreliminary data (Waterman/Ji, March, 2011)

Part I - extra

13

Leisure Time Use in the U.S., Hours per Person per week, Major Media 1970-2009

.

* newspapers, magazines, leisure books** including digital in 2005 and 2009

1970 2000 2005 2009TV 23.5 30.7 33.2 34.0

Radio 16.7 20.4 20.2 19.9

Print media* 8.7 6.2 5.7 5.1

Recorded music** 1.3 6.1 3.8 2.9

Theater/home video 0.2 1.3 1.1 1.1

Video games -- 1.5 1.9 2.9

Cultural/sports events 0.1 0.4 0.4 0.5

Total except Internet 50.5 66.7 66.3 66.4

Internet -- 1.0 1.2 14.5

Total per week 50.5 67.6 67.4 80.8


13a

US Census: Employment/Payroll:Media Industry Categories

.

NAICS code NAISC title (2000)

51111 Newspaper Publishers

51112 Periodical Publishers

51113 Book Publishers

5121 Motion Picture and Video Industries

5122 Sound Recording Industries

5151 Radio and Television Broadcasting (except Internet)

51521 Cable and Other Subscription Programming

5161 Internet Publishing and Broadcasting

5175 Cable and Other Program Distribution

51911 News Syndicates


Part I - extra

3a

Total Revenue of US media as % of GDP, 1970-2009. (Internet upper bound; inc. video games)

2.1%2.2%

2.0%

2.6%2.7%

2.2%

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

% G

DP

Multichannel TV

Video

Broadcast TV

Radio

Theater

Internet*

Books

Newspapers

MagazinesRec Music

Video Game


Part I - extra

10

Books: Total revenue by category as a % of GDP, 1970-2009

.24%.22%

.26%.28%

.17%

0,00%

0,05%

0,10%

0,15%

0,20%

0,25%

0,30%

% G

DP

E-book

Books, print only


Part I - extra

11Advertising vs. direct pay support

as % of GDP:Television, 1970-2009


.35%

.55%

.47%

.03%

.43%

.60%

0,0%

0,2%

0,4%

0,6%

0,8%

1,0%

% G

DP

Advertising (% GDP)

Direct Pay (% GDP)

Part I - extra

12Advertising vs. direct pay support

% balance: Television, 1970-2009


91%

59%

44%

9%

41%

56,0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

% B

alan

ce

Advertising (% of all TV Rev.)

Direct Pay (% of all TV Rev.)

Part I - extra

16

U.S. Music Industry Trends, Available Data

2000 2003 2008 2009

Songwriter royalties ($Mil.) N/A $1.1 $1.6 $1.7

Concert ticket sales –Popular music ($Mil.) $1.7 $2.5 $4.2 $4.6

Attendance –Total live popular music (Mil.) N/A 48.6 48.7 40.4

.

Sources: National Arts Index 2011Preliminary data (Waterman/Ji, March, 2011)

Part I - extra

Online Television Timeline – UPDATED BY SW

• YouTube Launch

• Free broadcast network TV programs posted2005

• Network “takedown” orders to YouTube /lawsuits2006

• Fox, NBC launch hulu.com

• CBS launches tv.com2007

• ABC joins Hulu.com2009

• Comcast/TW launch Everywhere TV

• Hulu.com revenues: $240m + 2010

19Part II-extra

U.S. Broadcast TV case: Reasons for industry optimism

Compared to music, easier control of intellectual property Fairly strong U.S. copyright law Low incentive to steal programs that are already “free”

Basic business model of in-program advertising transfers to Internet CPM ad rates good (though # ads low)

Direct payment potential (hulu, iTunes)

Much lower cost than standard broadcast TV delivery Clumsy system for signal distribution to 200 local stations

Networks have mass audience and advertisers want that!

20Part II-extra

U.S. Cable TV System Case

Very efficient, successful technology and business model

but Internet is a long term threat to cable TV business model Similar to newspapers, cable TV sells packages of program

networks, which can be sold separately on the Internet

21Part II-extra

Figure 9: Trends in Advertising vs. Direct Payment SupportTV services (1965-2007)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Adv

.& D

irec

t Pay

men

t %

Dir

ect P

aym

ent a

s a %

of G

DP

Advertising Revenue %

Source: Motion Picture Investor. Kagan Research, US Census Bureau: The 2008 Statistical Abstract, FCC: Office of Plans and Policy, OPP Working paper series, TVB: Universal McCann, NCTA

Direct Payment %

31Part II-extra

Online vs. Offline Media in the U.S

Documents

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