Challenges of InnovationChallenges of Innovationand State Support for and State Support for Media TransformationMedia Transformation

Robert G. PicardMedia Management and Transformation CentreJönköping International Business School, Sweden

Reuters InstituteDepartment of Politics and International RelationsUniversity of Oxford

State Policy and State Policy and InnovationInnovation• Support of cooperate research initiatives

(state-higher education-industry) Part of national science and industrial policies Significant state activities in electronics,

information technology, and biomedical innovation in past 4 decades

Tends to work best in developing new technologies and industries

◦ Support for advanced scholarly research Large scale research funding from state science and

research funding organizations◦ Creation and support for research parks and

industrial development zones◦ Incentives and subsidies for commercial research

and development

State Policy and State Policy and Transformation of Transformation of Established IndustriesEstablished IndustriesTypically designed to support

productivity and competitiveness◦employment and tax base preservation

Some support for technology transfer from electronics and information technology to existing industries

Some support for retraining, facilities reconstruction, and entering new markets

Drivers of Need for Media Innovation

AbundanceAbundanceDramatic rise in media types and units of

mediaGrowth of media supply far exceed growth of

consumption (temporal and monetary)◦ Average number of pages in newspapers tripled in

20th century◦ Number of television channels in Europe tripled in last

10 years◦ 4 times as many magazines available as 25 years ago◦ 1000 new books are published daily◦ 320 million hours of radio broadcasting annually◦ 123 million hours of TV broadcasting annually◦ 1.5 million new web pages every day◦ New information growing at a rate of 30 percent a year

Drivers of Need for Media Innovation

Fragmentation and Fragmentation and PolarizationPolarizationAudiences are spreading their media use

across more channels and titlesFragmentation produces extremes of use and

non-use (polarization)◦ Tendency to individuals to focus use on 1 newspaper,

2-3 magazines, 1-2 radio station, 3-4 TV channels◦ Channels received in household and viewing

If 20 channels received average viewed in HH is 5 If 50 channels received averaged viewed in HH is 12 If 100 channels received average viewed in HH is 16

Advertisers are responding by spreading their expenditures and paying less for smaller audiences

Drivers of Need for Media Innovation

Power Shift in Power Shift in CommunicationsCommunicationsMedia space was previously controlled by media;

today it is increasingly controlled by consumer◦ No longer a supply but a demand market

Financing of all initiatives in cable and satellite TV and Radio, audio and video downloading, digital television, mobile media are based on consumer payment model◦ For every Euro spent on media by advertisers, consumers

spend five EuroAdvertisers are reducing advertising expenditures

(already only about 1/3 of their total marketing expenditures).◦ Money is moving to personal marketing, direct marketing,

sponsorships, cross promotion, etc.These changes fundamentally alter the underlying

business model of media

Drivers of Need for Media Innovation

Power Shift in Power Shift in CommunicationsCommunicationsTechnology facilitates production of consumer

created content◦ Combines with creation software for audio, video,

and web design◦ personal sites, blogging

Technology promotes peer-to-peer file sharing, social networking, and collaborative games

Increasingly shifting to mobile interactivityUse choices are shifting significant time to

alternative interactive media usesThese changes release the public from

dependency on traditional sources of news and information

majority ofmedia firms

Declining Market Share

Increasing Market Share

High Market Growth

Low or Negative Market Growth

growth management

service quality management

innovation

strategic planning

diversification

increased marketing

product development

innovation/new product development

diversification

planning for market exit or capital withdrawal

some mediafirms

Strategic Alternatives and Strategic Alternatives and Choices Facing Media Companies Choices Facing Media Companies TodayToday

Unique Characteristics of Unique Characteristics of Media Affect Innovation Media Affect Innovation ActivitiesActivitiesNon-industrial nature of the industryWell-established firms and

organizational structures and processes

Negligible research and development activities

Limited experience with product change and new product development

Limited links to higher education institutions

Innovation in MediaInnovation in MediaDeclining sustainability of current operations

provides the impetus for innovationTechnology provide innovation opportunities

◦ Internet content provision◦ Mobile content provision◦ E readers and other new devices◦ On demand content services

The real challenges are not need or technology◦ Organizational structures, processes, culture, and

ways of thinking in established firms limit change◦ Many are confused by the opportunities and don’t

know what to do or how to do it

Established firms have Established firms have challenges not faced by new challenges not faced by new firms in media operationsfirms in media operationsProfit growth and opportunities in the

existing business are difficult for established firms in mature markets

Firms must find new opportunities in emerging products and businesses◦ Need to avoid highly risky moves involving high

costs that harm existing businessHave difficulty seeing short- and mid-term

benefits of change◦ Tendency for new types of informational media to

lower distribution costs, but also produce lower advertising and circulation/subscription income

Tend to be hampered by existing thinking and current strategies and product

These create tensions in These create tensions in efforts for organizational efforts for organizational innovation and changeinnovation and change

Resistance to change

Push for innovation

and change

Media innovation requires Media innovation requires not merely employing new not merely employing new technologiestechnologies It is not mere modernizing but fundamentally

reestablishing media functions and forms It requires a complete rethinking of the media

activities◦ What content is provided◦ Where when and how it is provided◦ What new products and services should be provided; what

existing ones dropped◦ What value the content provide to audiences and consumers◦ How content differs and is superior to that of other providers◦ How to establish new and better relationships with

consumers◦ How the activities are organized and the processes employed◦ Relationships with partners and intermediaries◦ How activities are funded

Organizational Persistencies Organizational Persistencies Direct Strategies and Direct Strategies and Managerial ChoicesManagerial ChoicesOrganizational evolution and cultures influence

how companies operate and make decisionStructural inertia develops from the common

outlook, norms, and routines that stabilize organizational structures and practices◦ It is an unintentional consequences of organizational evolution

and history

Structural inertia creates persistencies in how an organization response to changes in the environment

Engagement in R&D, responses to new technologies and products, changes in consumer demand

The inertia produces a good deal efficiency and reliability, but it can inhibit flexibility, change, and innovation

Strong Persistencies Can Strong Persistencies Can Create Organizational Create Organizational Path DependenciesPath DependenciesPath dependencies narrow the ability to

take alternative actionsOrganizations embark on a strategic and

organizational path in search of success◦ When success is achieved, managers make

choices to stay on that path to continue the success and increase returns

Self reinforcing mechanisms come into play that narrow the range of alternative actions that can be considered

Creates long-term or permanent lock-in that can make innovation and change impossible

Path Dependency in a Path Dependency in a NewspaperNewspaper

printing posters

operating bookstores

printing books

printing magazines

creating and

printing anewspape

r

printing other

papers

Creating and

printing a newspaper

Creating and

printing newspape

rs

printing other papers

printing ad sheets

Radio

Television

Cable

Internet

Mobile

Persistencies and Path Persistencies and Path Dependencies Make it Difficult Dependencies Make it Difficult to See Opportunitiesto See Opportunities

TelegraphLong distance communication primarily for companies and

governments

Leading Company: Western Union

Fixed TelephonyLocal communication primarily

for individuals

Mobile Telephony

Communication for travelling employees

Leading Company is Created: AT&T

“This devise is inherently of no value to us.”

Western Union internal memo, 1876

Company rejected offer to buy Bell Telephone from Alexander Graham Bell for $100,000

Not seen as an opportunity for fixed telephone firms

McKinsey Consulting advised AT&T not to enter the market in the 1980s;

AT&T accepted the advice

Hollywood’s Innovation Hollywood’s Innovation TroublesTroublesIn mid 1920s sound recording for film

was invented. Studios didn’t like sound because it limited mobility on sets, created new costs, and they were successful without it.

“Who the hell wants to hear actors talk.” -- Harry M. Warner, Warner Brothers, 1927

Development of television in late 1940s was seen as insignificant and studios didn’t move into television production—allowing many new firms to enter and later become competitors

“[TV] won’t be able to hold on to any market it captures after the first six months. People will soon get tired of staring at a plywood box every night.” -- Darryl F. Zanuck, Twentieth Century-Fox, 1949

Recording Industry Change Recording Industry Change ProblemsProblemsOpposed radio development

(1920s-30s)◦Refused to allow recordings to be

played Attempted to block home audio

tape recorders (1980s)Attempted to block digital audio

tape records (1990s)Attempted to halt digital

distribution of music (2000s)

Many Media Companies are Many Media Companies are Guided by Strong Process Guided by Strong Process OrientationsOrientationsComplexity of production, number of elements, and

time constraints lead to strong structured and coordinated processes◦ Set work order, procedures, and schedules controlled by

policies and handbooks◦ Especially in continual production media: newspapers,

magazines, television channels, program producersDepends on knowledge and skills resident in the

organization itself and performance is measured by effectiveness of processes

Adding new product and activities or changing structures increases complexity; threatens effectiveness of the

processesthreatens the employment and career paths of personnel

The state’s ability to The state’s ability to influence media innovation influence media innovation is constrainedis constrainedLimited ability to affect organizational

structures, processes, culture, and thinking

States can provide◦ research to identify threats, opportunities

and best practices◦ education and training to promote

innovation and help implement change◦ incentives or subsidies for transformation

costs◦ incentives or subsidies for new initiatives◦ coordination of activities across industries

robert.picard@robertpicard.netwww.themediabusiness. blogspot.com