WHAT IS YOUR MEDIA'S DIGITAL STRATEGY ?

of 20 © ArcInsight Partners LLC

WHAT IS YOUR MEDIA’S

DIGITAL STRATEGY, ANYWAY?

A Whitepaper from ArcInsight Partners

(S A N F R A N C I S C O / L O S A N G E L E S)

May 2013

Tech | Media | Entertainment | | CONVERGENCE |

ArcInsight P A R T N E R S

Strategy Advisory Services to Content-Owners, Distributors and Aggregators on

Monetization Opportunities in the Global Technology, Media & Entertainment markets.


Table Of Contents 1. Background Page 3 of 20 2. What Smart Digital Enterprises Get, And Others Don’t Page 6 of 20 3. The Operational Challenges Of Digital Media Convergence Page 9 of 20 4. A Coherent Digital Media Strategy Creates Market Opportunity Page 13 of 20 5. Seeing Hollywood Through Silicon Valley’s Eyes Page 16 of 20 6. The Digital Media Monetization Pathway Page 17 of 20 7. Five-Steps To A Smart Digital Enterprise Page 18 of 20 8. About The Author - Pras Chaudhuri Page 20 of 20 9. Bibliography


BACKGROUND Early-2011 ArcInsight Partners launched an extensive ongoing research initiative which identified a convergence of Technology-Telecom-Media-&- Entertainment industries. This dynamic defined a whole new consumer & marketplace, and provided insights into (a) key drivers; (b) business-model implications; and (c) opportunities and emerging challenges for both incumbents and new entrants.

SCENE ONE Consider this hypothetical media business. You are a top studio, and have a successful television business. A successful content creator, you scored some of the biggest theatrical hits in recent years. You also have cozy distribution deals with pay television and broadcast television operators enough to keep your best programming in the top of the viewership charts. Advertisers love your audience demographics and pay top dollar for buying ad slots on your prime-time show.

Yet something does not seem right.

A growing proportion of the younger big-spending younger population has lately shying away from theaters that show your most expensive and lavish tent-pole productions. Theaters do not seem keen to keep your films running as long as you would wish, anymore, and they want a larger share of your theatrical revenues and marketing budget to support your new releases. Your studio depends

almost entirely on the success of these few films it produces in-house to maintain its future growth trajectory and perhaps, its very survival as an independent entity. You are tempted to move DVD releases of your films up much earlier than you used to in the past. Yet DVD sales that once went through the roof and drove a chunk of sell-through revenues for each successful production seem now to be hitting a sales plateau.

But you have good distribution deals with cable and satellite operators still willing


to carry and showcase your big productions to a select audience of loyal viewers who willingly pay over a hundred dollars in subscription fees each month to enjoy these films.

Something is changing here too.

A new kind of entity has lately been bidding side by side with cable for the rights to carry these films in their inventory. And their viewers simply pay a small fixed subscription fee to watch any and all of the films in this catalog. And pay television subscribers are taking notice of this change. In the last five years alone, over a million cable and satellite television viewers have discontinued their expensive subscriptions for good and joined this new entity. Well so what. There is always a new generation of college kids poised to join the workforce. They are big-spenders. They like trying new products and services, advertisers love them. They also spend more time enjoying the primetime television programs I produce. Prospects for pay television business never looked better.

But have you noticed something different lately?

These kids are no longer plugged into their televisions in their dorm rooms playing MTV and other standard fare. They are spending more time with a laptop (or a tablet) and a mobile phone wherever they go. They know more about the Internet than they care to know

about cable television. Yet they know all about your hit films and TV shows.

SCENE TWO Cut to another hypothetical business. You are a well-known global brand in consumer electronics selling big-screen televisions, entertainment devices and even mobile phones. Over the years, you have been very successful in positioning your hardware products as the most preferred electronics item within a desirable demographic among young teenagers and college graduates. Seen with these premium-priced mobile phones on the street and entertainment devices used at home made a strong fashion statement and enhanced your image as a quality and image conscious individual even while you outgrew college and transformed into a busy middle-aged executive and a high-end consumer. While not always the best-priced or designed to be easy-to-use, these complex devices nevertheless heightened the mystique that high-technology represented.

But things are not going as well lately as they should.

The high margins this business enjoyed locking in high-end consumers with these expensive devices, have started to go into a free-fall. Too many new brands have entered the market and have begun to wrestle away the premium


brand and mind-share my consumer business built and enjoyed over the years. The new device brands have adopted a diametrically opposite marketing strategy in the marketplace. Instead of selling high-end premium-priced devices, these new entrants have begun dropping prices. Even more surprising, they are no longer highlighting the complex technical features and functionality that was the foundation of our marketing and branding strategy to build exclusivity. And customers appear to be buying in with great enthusiasm. The massive supply-chain built over the years to ensure a ready supply for electronics components (and lock-out competition by pricing them out of the marketplace) is suddenly beginning to sound like a liability. To make things worse, the global manufacturing facilities meant to ensure access to local markets are being upended by a new breed of specialized manufacturers (based in China) capable of making any device on contract and at a price points much lower than my legacy capabilities can. While fully depreciated, these facilities still manage a huge volume of production that is now struggling to find new consumers and markets.

SCENE THREE Back at the corporate office, designers and product planners are spending sleepless nights trying to make sense of this massive tectonic shift.

Over the years they researched (with good intent) features & functionality that appealed to young and affluent consumers and dutifully built them into new products, while the price premium

took care of itself. Finally they realize they have missed an important trend almost entirely, in the quest to push new and sophisticated consumer entertainment products.

That missing element was the arrival of a DIGITAL REVOLUTION.

Digital changes the paradigms companies and consumers have lived in since the dawn of consumer technology. It makes us rethink what it means to design a product. It forces us to go beyond tangible products, and to think in terms of service and experiences.

The following sections explore what digital can do for a media enterprise with the right framework, organizational capabilities and design strategy.

HOW AMERICANS CONSUME MEDIA Traditional TV Viewing: 144 hours, 54 mins Internet-On-A-Computer: 28 hours, 29 mins. Time-Shifted TV: 11 hours, 33 mins Game Console: 6 hours, 26 mins Video-On-Mobile: 5 hours, 20 mins DVD / Blu-ray: 5 hours, 13 mins Online Video: 0 hours, 51 mins NIELSEN: State Of The Media 2012


What Smart Digital Media Enterprises Get (and Others Don’t) Acknowledge that media consumers are changing…and fast. The new media consumer was born in the age of the internet. They have formed clear opinions about content they like, how they will consume and what value they will assign to it. Macroeconomic trends in the United States and many other countries of the world are driving this consumer to be much less likely to pay for their favorite content, something one expected the previous generation to do faithfully for their favorite brand, and for want of alternate sources to consume content. This new media consumer is also technologically-savvy way beyond any previous generation. And one more thing – this consumer is also now globally connected and has a powerful voice. Leverage viewer experience design as a branding tool A seamless access to a variety of content and the ability to pipe them in through a single consistent user interface is often the first step in realizing a digital media enterprise vision. Constant improvement of this interface without being disruptive to the viewers experience and to align with the users viewing choices and television routines creates a loyalty that is an essential next step for monetization. Consider Apple as a best practice. Curate content and make the “long-tail” discoverable by consumers The vast repository of content assets (owned or otherwise) in the digital media universe results in a bewildering variety of choices that the viewer is challenged with during a few available hours of daily TV watching time. To expect the viewer to locate their favorite programs, ensure they are

available for viewing and know about them beforehand is recipe for a poor television watching experience. It is hardly a surprise that in the absence of intelligent tools to do so, viewers are concentrated around a small selection of heavily promoted content (often mediocre programming) and an expensive means to watch them.

Instead, algorithm-based content-“curation” & recommendation-tools running on a set-top box or a second-screen observe the viewer’s television habits, programming-preferences and feedback, and recommend content they might actually like (even ones they may not be familiar with). This ensures viewer loyalty, and helps to surface old content that would otherwise stay hidden in a deep catalog and remain a wasted digital asset. Consider Netflix & Pandora as best-practices. Make content a shareable activity Watching live and scheduled television programming has been known to be a communal activity. Viewers often choose to express their feelings and reactions to shows which in most cases is a valuable indicator of engagement and a pointer to their future preferences. Giving viewers tools to share and discuss content


enhances the viral quality of content, reaches eyeballs that might lie beyond the typical promotional reach for the content and enhances their monetization potential. Allowing content to be shareable often takes out a substantial need for investments in content promotion, and replace with free word-of-mouth. Consider YouTube as a best-practice. Bridge content packaging between physical & virtual formats According to market analysts, physical media (though declining) still constitutes the largest chunk of consumer-media purchases. However, given its very nature, they require to be consumed using their physical containers. Allowing consumers a choice to store their legitimately purchased content at a remote digital locker where they are accessible in electronic form serves to enhance loyalty to the content, and by extension the content creator. Smart media enterprises brand their content while making content-packaging irrelevant. Consider the UltraViolet platform as an evolving best-practice. While this service appears to have cleared the technology hurdle, UltraViolet is still failing the user-experience test thereby slowing down its ambition to gain currency as an industry standard. Offer TV Everywhere Anywhere -- Transcend time and space constraints Not all content is watched live. And not always at home. Viewers expect an option to save their programs for later consumption or watch them on a device other then their television. While this capability still has complex technology and legal challenges, allowing viewers to enjoy their content anytime and anywhere they choose is rapidly becoming a baseline expectation for loyalty. Having multiple channels available to watch branded content also

allows a smart digital media enterprise to create bargaining leverage with typical pay TV distributors. Consider HBO Go as a best- practice.

Courtesy: Ultraviolet consortium Have a coherent devices strategy A smart digital media enterprise understands content creation and distribution in a digital world cannot be designed for the television screen alone. There is an exploding plethora of digital devices they expect to be consumed on. These devices also come to market with rapidly expanding combinations of screen-sizes, form-factors, resolutions, operating systems, and other specs.

Each device demands displayed content be customized for its individual design in order to maintain a satisfactory viewer experience. Until recently there were

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clear demarcations between device categories – the television, the tablet and the mobile phone. Future trends indicate this artificial categorization must disappear to be replaced by a continuum of screen-sizes. This is a unique technology challenge. But it is also a unique opportunity to capture consumer loyalty. Consider Samsung as an emerging best-practice. Observe the consumer; Sense-and-respond in real-time Smart digital media enterprises monitor viewer experience throughout the content delivery and consumption cycle, and as they interact with the content. The vast repository of content assets (owned or otherwise) in the digital media universe and its attendant meta-data constitute a data-management challenge. Add to this, the vast quantity of data streaming in real-time from set-top boxes, second screens, Twitter-feeds, Facebook comments and other specialist third-party data-sources that track purchase behaviors, and this rapidly turns into a Big-data problem. Most players pick data they can handle ignoring the rest. Few organizations today have the analytic capabilities and infrastructure to take advantage of this vast goldmine of potential information nuggets that surface when all this disparate data are combined and mined for statistical insights. Consider Google and Netflix as best- practices here. Have a strategic vision for digital media Objectives for going digital may differ from one individual media enterprise to another. Some new entrants and forward thinking incumbents lead with viewer experience as their primary focus from a branding standpoint and allow this insight to evolve the enterprise. These players are quick to adopt a digital strategy and identify new recurring revenue streams.

These enterprises are most successful from a monetization standpoint and lead change in their industry. Other large incumbent enterprises (often with substantial historical analog-content baggage) lead with digitization as an internally focused cost management strategy. These players focus their energy & resources on digitizing legacy assets and streamlining internal processes to bring more consistency around content storage, classification/ identification and managing order-fulfillment through their media supply chains. Such organizations are not entirely focused on extracting the full monetary potential of their library of media assets in a digital world. They often handover a large part of their transformation activity and learning to an army of outsourced resources that manage the grunt-work required to do so. Have a clear monetization path Finally, the smart digital media enterprise understands and applies the fundamental principle governing digital media monetization consistently. Monetization follows experience-design & delivery, which in turn follows viewer-reach Additional discussion of this principle is covered in a later chapter of this white-paper.


The Challenges Of Digital Media Convergence

Managing the new digital media infrastructure – asset management, authentication, delivery and measurement. The media content distribution chain is in the midst of a strong market shift from physical media to online media consumption. IHS Screen Digest projected that in 2012 alone, U.S. online video views and transactions will exceed views and transactions of DVDs and Blu-ray Discs. Gartner research predicts that there will be more than 1 billion network-connected devices capable of consuming media by 2015. Companies must ensure that they are delivering the highest quality video viewing experience across all platforms and devices. Specifically, they must be able to: • Store and Deliver video over varying connection speeds and network quality, and scale instantly to accommodate traffic for large events or occasions • Adapt video streams to multiple devices and formats without sacrificing quality • Protect video content to ensure access by only the desired audience • Connect video globally with audiences or target to a specific segment • Monitor the quality of the video streams and user engagement Since consumers expect the right to access their content everywhere, programmers and operators need to figure out the complex many-to-many programmer to operator connections that are not standardized and lead to increases in cost and time to set up. Repeated consumer login for each portal/destination site, on every device, makes for a bad customer experience. Content providers need a simple cloud-

based solution to handle complex authentications that are seamless for consumers. Additionally, advanced features are essential today: website content management, personalization, and targeting; video publishing; mobile enablement; content delivery; trans-coding; and cloud storage — combined with social media integration and powerful analytics. Complex scaling challenges Single screen delivery is giving way to multi-screen multi-device formats and to multiple rooms in the home. Bringing content to multiple devices and platforms is no longer just about transforming video into the various formats and protocols required by these devices. Such conversions are still at the heart of multi-screen operations, but organizations now need to be able to efficiently perform them at a much larger (and often dynamic) scale.

Courtesy: IDC Directions 2013 Making a consistent and seamless multi-screen viewing experience work Fueled by the explosion of smart-phones, tablet computers, internet-connected TVs, and streaming services for on-demand programming, the trend toward multi-screen content delivery is having a profound influence on the way people access, view, and use information. Advent of new viewing devices— smart-phones, tablets, connected TVs, DVD players, and game consoles—for content delivery. Viewers on these platforms


expect consistently acceptable image and sound quality despite often uncertain and fluctuating bandwidth. But making content decisions for the main television screen and other device varieties is a user-experience design challenge more than it is a complex technology challenge. Rising costs for content-protection, managing piracy and revenue leakage; Design conflict between content-safeguards & user-experience Video-on-demand traffic is projected to triple by 2015, reaching the equivalent of 3 billion DVDs per month crossing the Internet. Having a complete end-to-end, multi-level security service for content protection—including media encryption, player verification, token authorization, and content targeting—that supports PC/Mac, iOS, Android, and the Xbox gaming console is key.

Rising costs for digital content delivery The cable industry is moving toward a new and revolutionary form of video delivery: content delivery networks (CDNs). Cable CDNs represent the most significant change in television distribution in more than 35 years. The flood of over-the-top (OTT) video coursing through cable's pipes and the industry's migration to eventual all-IP service delivery is spurring interest in CDNs. CDN architecture, along with adaptive streaming and other supporting technology, will help MSOs to manage

bandwidth costs while enabling them to extend services across multiple video platforms. Layers of complicated content-rights and regulations Given the tradition content distribution model of content (especially live content) and their associated rights, there’s not a lot of common ground between digital media and television. However, huge live events have become important for both media because they guarantee vast numbers of live viewers. Consider this interesting example. At the last Super Bowl XLVII, CBS secured rights to run separate ad on the Super Bowl live stream on desktops, while the rights for smart-phones were shared between the NFL and Verizon. In order to access mobile viewers (and to work around this rights restriction), CBS created its second-screen app tied to Super Bowl XLVII as an effort to milk the huge audience opportunity. According to their rights deals, the NFL’s cable network has to stop broadcasting an hour before the game—during the match, the screen just has stats with no commentary or video. On the other hand, in effort to get a share of the action (and to work around this rights restriction), NFL joined forces with Verizon to stream the game to smart-phones for a $5 pay-per-view fee. Choice of available monetization models and trade-offs Purchase of consumer media content is rapidly migrating from ownership of physical media (DVD/Blu-ray) to virtual media (files on disk/cloud storage, streaming media). This migration creates the opportunity for new business models which leverage technology innovations for centralized, cloud-based content packaging, storage, and distribution to provide significant benefits to content owners, distributors, retailers, and consumers.

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New audience measurement methodologies and standards. Moving beyond the Nielsen currency A big concern of programmers remains the limited ability to measure TV Everywhere viewing on tablets, smart-phones and other connected devices. According to Jeremy Helfand (VP of Video Monetization at Adobe), “With the mainstream adoption of video consumption on personal devices, we are now witnessing the greatest change in broadcast TV since the arrival of color. Content is increasingly being consumed on connected devices, and this is causing programmers and operators to rethink how they monetize and deliver content”. The media planning and buying process is increasingly failing to keep abreast of technology developments and consumer behavior, still relying on the traditional metrics of reach and frequency and focused on broad demographics when it should be focusing more on outcomes and harnessing rich data to target consumers more precisely. Traditional viewership-tracking methods pioneered by companies such as Nielsen and others have been the de facto currency for monetizing content. Big-data and predictive analytics capability. 90% of all television-related chatter takes place on Twitter. A smart digital media enterprise must have the ability not only to monitor and respond to Twitter chatter in real-time, it also must have a strong storage & analytics platform to manage this huge volume of data flowing in through the Twitter-hose, Facebook and other social platforms. Twitter recently acquired BlueFin Labs giving it in-house capability to mine tweets for behavioral and segmentation cues. This information is extremely valuable not only from a targeted advertising standpoint. BlueFin can also provide product-affinity

information that content-producers and distributors can use for product placement and sponsorship decisions. Understanding the good-ole’ sales-funnel. Monitoring viewing behavior and video consumption often paints an incomplete picture from a programming and monetization standpoint. Linking viewing-behavior to additional data-sources such as geo-location, past-purchases and other offline behaviors build a more accurate predictive model to identify real monetization opportunities New end devices for content consumption; Emergence of a “devices continuum” from 3-inch to 100-inch screens Its no longer enough to look at a simplistic set of device categories to package content for – television screen, smart-phone, STB, tablet. The emerging devices scenario will challenge content-distributors to address an entire range of screen sizes, and the attendant video processing & packaging infrastructure. Adding to this challenge is the need to manage vast complexities for backend digital asset management.

Courtesy: IDC Directions 2013 Organizational readiness for digital media. Siloed organizational configurations that evolved out of traditional business unit structures. Diffused digital media accountability, and thinking of digital media as an “add-on” rather than core to the business model.


Unclear revenue goals; lack of bigger thinking beyond creating media-apps. Leveraging the cloud Content demands strains in-home device storage. Expensive service costs are often required to provision/enhance services. And the current media service delivery architectures (STBs, devices, etc) is very fragmented. The complexity of content formats, multiplied by an exploding variety of devices, compounded by bandwidth constraints, create a significant technology challenge for experience-delivery. Capex requirements rule out a mass-scale swap-out of older set-top boxes at customer premises running software with low video-processing capabilities. Smart digital enterprises have learnt to leverage the power of cloud to manage a big part of this processing challenge. Additionally, leveraging remote cloud-based capabilities allow service providers to upgrade software, launch new viewers features and new services almost transparently to the viewer. Doing so allows service providers a way to differentiate themselves from competition and at a time when pressures on time-to-market usually weigh in heavily.

Courtesy: Cisco VideoScape Fragmentation is an issue which affects monetization, not just reach According to Jeff Heinz, Managing Partner and U.S. Digital Director at MediaCom “50% of consumers are already watching video on their tablets

and 30% on their phones. About 10% of all households have an Internet-connected TV, but a vast majority are accessing connected apps through devices like a Blu-Ray player or a gaming console, and 60% of all people who have this connectivity are going through these apps to watch video and that is going to continue to explode. This has implications and questions from a monetization standpoint. − Maintaining ad-serving and

campaign coherence across multiple devices.

− Why target devices if you can’t monetize them

− Even if you can address them with advertising, campaigns should have coherence across multiple devices?

− Lack of a common advertising currency is a concern for online video viewing across devices:

− How do you value a mobile view vs. a tablet view?

− Is a connected TV view more valuable as more people might be watching it?

− Theoretically, this could be addressed by the development of joint-ventures for providing multi-broadcaster content portals.

− Pooling development resources may also be a cost-effective strategy for addressing content to multiple devices.


A Coherent Digital Media Strategy Creates New Market Opportunities New smart connected devices In the coming years hardware, software and services companies will create media products that interact seamlessly across devices, operating systems and ecosystems. These products will align intuitively with your individual lifestyle and content consumption choices, while at the same time talk to other devices. These companies will drive smart apps development and will embrace opportunities that arise with each device update lifecycle. It will therefore be essential for these companies to move away from conventional wisdom and see the overall market as a whole.

Courtesy: BI Intelligence 2012 Better viewer-experience creates competitive advantage; manages subscriber-churn; creates new revenue opportunities More personalized a la carte services for viewers; more precise viewer targeting achieves higher advertising fees; additional ad revenues and mobility-convenience fees from multi-screen distribution; up-sell opportunities for premium services; higher overall subscription fees for whole-packages. The proliferation of devices has created to mobilize and motivate audiences with data. By striking the right balance between content and advertising, and between delivering personalized experiences and adverts.

Lower customer acquisition & retention costs Increased subscriber loyalty; lower churn-rates; increased share of wallet from existing customers, lesser pressure to pursue new potential subs. Addressable advertising Targeting the right message at the right time to the right viewer. Managing this capability across linear TV, catch-up TV, VOD, PVRs and IPTV/OTT platforms. Premiums of up to 400% on spot-advertising rates have been achieved in geographically-targeted local ads. Premiums of over 100% have been achieved on ad-rates for targeting well-profiled viewers.

Google has filed patents recently on ideas for how to link mobile ad campaigns to data about people’s real-world purchases, and one Google alumnus founded startup Drawbridge (recently raised $6.5 million in funding) is developing technology that allows marketers to follow consumers from one device to another. Once the technology gaps close, mobile advertising will


probably eclipse desktop advertising, as has already happened in some countries, like Japan, where Internet-capable mobile phones have been in use longest. Interactive Programming Ability to insert banner ads, overlays and other visual formats via program guide, menu, program pop-ups and other means to engage the viewer. The ability to offer value-add services and information through the subscriber information interface to enhance customer relationships. Over 70% of subscribers that responded to an engaging interactive ad on cable went on to complete a purchase transaction. Over 50% of viewers that watched a TV show episode with an interactive element were likely to watch future episodes of the show. Data Acquisition & Analytics Understanding and profiling viewer behavior. Statistics gathered by content creators and distributors include tune-in/tune-out, ad-viewing, channel-surfing, etc. This data can be acquired from set-top box/viewing device click-streams, and is a powerful input to programming, advertising and system operational performance. The data is more complete, accurate and fresh compared to traditional sampling tools such as surveys.

Beyond monitoring viewer activity, data from social activity around specific content is fast turning into an emerging big-data science.

Such insights distilled from social TV data analysis proves invaluable to an advertiser that wants to try second-screen synchronized advertising. Content creators and other stakeholders could use this for their production & programming activities especially to choose highlights that should be used for the program promos. Broadcasters and advertisers can use the social TV data from sources such as SecondSync to segment the Twitter audience according to device. SecondSync uses ‘adaptive search’, which is where it monitors particular hash tags and looks for micro-trends within the Twitter conversations, then responds by expanding the search terms being monitored. Social data is mostly designed to augment existing audience measurement, like BARB data. Monetize Ratings, Viewership & Engagement data As the number of devices increase exponentially, so are the points of consumption of digital content. Consumers are also becoming screen and device agnostic and insensitive to time and date when it comes to media consumption. As consumers fragment their attention across many devices, media businesses will need to deliver more effective mobile advertising to monetize their content. Viewership data is therefore, a resource that must draw one multiple sources and used to capture value from all platforms. In addition to acquisition of viewer-engagement data, it is possible to combine data from other third party sources to asses the value of a certain viewer-set and their purchase propensities. There is now so much data available, from so many sources, about our consumer behavior and purchasing decisions that advertisers could dramatically improve the relevance and therefore impact of monetization. Verizon recently launched Precision Mobile Insights, which collects


information on millions of subscribers to help advertisers identify information like which iOS and Android apps are in use in which geographic regions. The service uses information from Verizon's mobile network that is gathered and combined with demographic data. It is then aggregated to provide insight into consumer behavior. Bluefin Labs, the MIT Media Lab startup (now part of Twitter) studies the collective mood of the Twittersphere. It closely measures people’s reaction to specific airings of TV shows and ads, enabling the company to tease out the differences in how people reacted to and amplified a message depending on what time they saw it and what TV show surrounded it. Bluefin uses keyword cues to determine the age, gender, and other demographic characteristics of the tweeter; gleans the sentiment of the tweets; and also tracks what other topics those users tweet about. The company thereby maps what it calls “affinity relationships” across various topics, interests, and groups of people. Addresses the “channel-bundling” conundrum The bundled-pricing model for pay television often means viewers have little choice but to pay what amounts to a mandatory tax by buying channels they don’t watch along with their preferred ones. A smart digital strategy could allow many of these underperforming network channels (within pay TV bundles) to migrate over time and start a new life as viable media channels with OTT distribution. This paves the way for cable operators to begin offering smaller, more personalized packages of channels. According to a study of the UK television market by IHS Screen Digest – “Although it’s currently not cost effective for television channels with large numbers of viewers to move to OTT-only video delivery, for many individual channels that have small- or medium-

sized audiences, a switch to OTT streaming as their sole means of video delivery could become an option over the long term.” “Channels for which the cost of unicast OTT streaming would be 1.5 times or less than the cost of satellite broadcast are all candidates to make the transition.“ Clearly this is a viable future option for smaller channels over the medium and long term but with careful analysis of content delivery costs.


Seeing Hollywood Through Silicon Valley’s Eyes Media faces fundamental challenges to its business model − New ways of connecting with the

consumer, and leveraging consumer behavior analytics.

− Alternate sources of content, including user generated content

− New alternate channels for content distribution

− Multiple channels and screens − Alternate revenue models (ad

sponsored, subscription, pay-per-view)

− New ways to aggregate & package content

− Emergence of eTailers and “infinite inventory” players take away viewer interest from pursuing only the most heavily-promoted mainstream content owned by bigger media players.

− Variety of devices for consuming content: theatre, TV, laptop, phone, gaming devices

Media operating-models face transformation through digitization of content supply chain − New entrants are building end-to-end

digital supply chains − Content creators are moving towards

software driven non-linear processes − Standards for open information

exchange are becoming more mainstream

− Tools and technologies to simplify back-end process management are being embraced by content creators

− New technologies & an architectural rethink of the entire media organization and its processes

− Less vertically integrated and more componentized technologies (SOA, File-based workflow)

− Shared-resource technologies (Cloud computing and cloud

platform) taking complexity out delivering and upgrading services.

− Collaborative business models (Analytics, Digital supply chain management, Metadata management, Agile methodology)

− Capabilities to support new business-models

− On-demand video delivery supported entirely using subscription and ad-sponsored delivery

New media entrants leveraging disruptive capabilities Digital media technical knowledge and skills reduce barriers for new entrants and compete with traditional media companies. Particularly in content aggregation, packaging and distribution pieces of value chain. Yet, these changes follow market principles that Silicon Valley has envisioned & exploited numerous times in the past − Opened up consumer’s access to

new choices (Amazon pioneered content discovery & recommendation engines)

− Leveled prior asymmetry of information & empowering buyers over the seller using transparent transactions (e-marketplaces)

− New analytical capabilities that allow deeper understanding of consumption behavior and at point of consumption real-time (web analytics, data mining).

− Forced fundamental business model changes on many industry verticals prior to it (collaborative supply-chain planning in high. tech; disintermediation and new services in banking, finance, and retailing; real-time bidding exchanges for online advertising).


Follow The Digital Media Monetization Pathway Monetization follows Experience-Design & Delivery, which in turn follows Viewer-Reach Assess Viewer-Reach. While traditional methods of viewer sampling and characterizations provide initial inputs such as households and demographics for the most immediate viewer-base, the bigger strategic goal for a smart digital media enterprise is sizing up its real addressable market. The market for digital content is larger than its immediate live viewership-base. It takes into account additional audiences participating through catch-up and time-shifted viewing (often across expanded geo-fences), and social sharing. It also considers potential new viewers identified from past viewing-behaviors and purchase propensities. Why is this assessment critical for the smart digital enterprise? Traditional measures often ignore the hidden whitespace of viewers, as they tend to complicate the accepted monetization currency in use within the media supply chain today. However, the strategic enterprise must consider the reality of its shifting viewership base (and fragility of this existing viewership currency), and build a funnel of emerging viewers ahead of its competition. Social marketing tools make it easier to identify their interests and affinities allowing the enterprise to build relationships with this new viewer – a rich source for monetization. Experience Design & Delivery Product design has reached maturity in industries outside of the media-verticals. Makers of consumer-facing products (especially smart-phone makers, car-manufacturers, toasters) test many prototypes prior to final product-launch

as part of their routine development process. Experience design, still a novelty, can use similar design principles. One school of thought in particular – Design Thinking, is fast gaining currency among progressive consumer focused product and service providers. Experience designers that incorporate design thinking often spend a disproportionate amount of their prototype development time, energy & resources to study the actual context of the end-user very closely. Both from a standpoint of understanding the most common behavioral use-cases (“middle of the bell-curve”) as well as extreme use-cases (“the long-tail”). For smart media players, design thinking-based experience-design efforts lend themselves to approaches that can be applied to re-designing the most common legacy interfaces such as the TV remote & the electronic program guide, while providing inputs for emerging interfaces such as second-screen applications and social-sharing tools from the ground-up. Why is experience delivery important for the monetization pathway? Experience delivery drives engagement with the content. It triggers additional activity in social media and content sharing. It creates loyalty to the brand and generates ideas for new content, related products & services, as well as brand extensions. Monetization Armed with these insights, digital enterprises are better positioned to plan content production for local markets, future syndication opportunities for international markets, cultivate a base of social-media followers, targeted advertising sales, product placement opportunities, demographic targeting, licensing and merchandising opportunities, content-extensions and even make primary casting decisions.


5-Stages To A Smart Digital Media Enterprise Organizational Readiness Assessment Moving to a digital mindset is tricky business. It is not business-as-usual. For some enterprises it is a leap into the unknown. The vision to become a digital media enterprise, therefore, must be preceded by a deep assessment of how the business is currently organized. Too often business units operate deeply in silos and are focused on their own revenues, costs and profitability goals. Not to mention their target markets. This worked well in a traditional manner of doing business. The first reality that a smart enterprise wakes up to is the fact that many of these revenue streams are now integrated, costs can be shared and market dynamics are new & often unknown. Markets Assessment Smart digital enterprises have a new way of looking at their markets. The traditional target-audience driven mindset must be replaced by a focus on addressable markets and total monetization value. This is an elaborate exercise involving key business unit leaders and the finance function. The assessment takes a multi-pronged approach looking beyond consumers & markets, at the exploding devices universe, proliferating content formats, bandwidth-constrained environments, content delivery strategies, video-compression standards, and the user interaction with their devices and content. The outcome of this exercise is a clear direction on strategic-goals, the real opportunities & challenges ahead, and aspirations for the short-medium-long term. Other questions to be addressed include:

− Changing consumer media consumption across your world

− Impact on traditional media spend from digital media spend growth

− Key success factors for a multi-screen digital media strategy

Goals Assessment: What Is Your Corporate Digital-Media Objective? − Reach new audiences − Better target my existing audience − Scale content delivery efficiently − Raise viewer engagement − Reduce subscriber churn − Create new revenue for content − Identify revenue for new content − Strengthen brand awareness − Launch a customer-data analytics

strategy successfully − Create bargaining leverage to reduce

reseller fees (à la HBO Go) − Reduce traditional channel marketing

costs

Digital Capabilities Assessment This must be followed by a digital capabilities assessment covering skill-sets, asset-management capabilities and information technology infrastructure. This is a specialized assessment and forms the core of how an enterprise manages its own itself. - Managing digital assets - Costs of audience development - Analytics challenges for managing

audience big-data - Skills for a smart social media

marketing campaign - Designing the viewer experience - Harnessing big metadata across

your digital media ecosystem - Impact of the cloud on your media

value chain

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Digital Leadership & Accountability Upon insights gained from the previous steps, the enterprise must consider a unified role that brings together the new capabilities designed for a new business environment and set clear accountabilities for achieving those new goals. - Goals and objective setting process - Strategy map; Integration to

enterprise goals - Performance metrics - Leadership skill-sets - Team structure

The Digital Roadmap The key outcome from this assessment exercise is a roadmap that details out activities and changes and the timeline to achieve them in. The roadmap is an integrated output that connects all key functional areas – strategic planning, marketing, finance, distribution, technology and key partners for managing outsourced process-activities.

ArcInsight Partners provide research-driven strategic advice grounded in expertise & experience gained from Silicon Valley’s business-model disruptions. ArcInsight Partners was born out of knowledge and experiences garnered in Silicon Valley. It believes 1. Instead of content assets adapting to

the constraints of silos in a media organization, there is opportunity to transform media organizations for the future around the structure of digital content.

2. In a “winner-takes-all” digital media

marketplace, the first-movers lead in the new world.

The challenges are significant, the payoffs are astronomical, but the risks are manageable.


About the author

Pras Chaudhuri is a co-founder and consulting principal at ArcInsight Partners located in San

Francisco & Los Angeles. He is focused on management advisory and research on strategy & monetization aspects of digital media, and its evolutionary path. His prior experiences in strategy & organizational transformation were shaped by new possibilities that technology brings to a range of industries. As principal consultant at KPMG’s Silicon Valley office and at a Monitor group firm , Pras studied & commented on ever-changing trends in technology and their influence on strategic thinking around the world. Some trends are now mature and part of mainstream business, while others remain in evolution. Some of the trends studied include - Customer Analytics & Loyalty Assessment | Content Management | Dynamics of Social Media | Evolutionary Models in Content, Community & eCommerce | User-experience Design | Online/TV Monetization Strategies | Business Model Convergence of Technology with Media & Entertainment | At Hewlett-Packard, Pras marketed technology that managed information backbone for media businesses: data-centers, high-speed networking, storage, workstations to support high-speed render-farms, media asset management and security. He identified new media-vertical consulting opportunities that built on this infrastructure, as well as new research at HP Labs (its research arm) with serious potential for media companies. He believes fundamental shifts taking place in media business inevitably track

a predictable path that technology industry and the Internet introduced more than a decade ago. Technology innovators have digitized media’s traditional supply chain thereby creating standards for open information exchange, alternate distribution channels, simplified back-end process management, new ways of connecting with the consumer, and managing analytics. This has also forced an architectural rethink of the entire media organization and its processes. Instead of content assets having to adapt itself to constraints of a siloed media organization, there is now an opportunity for this organization to reinvent itself around digital content and its structure. For media businesses to exploit this new opportunity ahead, they need to better understand how the internet opened up consumer’s access to choices, leveled the previously dominant asymmetry of information favoring sellers over the buyer, and forced fundamental business model changes on many industry verticals prior to it (high. tech, banking & finance, retailing, advertising). The challenges are significant, the risks are manageable, and the payoffs are astronomical. In a winner-takes-all marketplace, the first-movers will lead in this new world. ArcInsight Partners USA (San Francisco / Los Angeles) Pras Chaudhuri on Linkedin: www.linkedin.com/in/praschaudhuri/

Phone: 1-510-364-8536

Email: [email protected] [email protected]

http://www.linkedin.com/in/praschaudhuri/�

WHAT IS YOUR MEDIA'S DIGITAL STRATEGY ?

Leadership & Management

Transcript of WHAT IS YOUR MEDIA'S DIGITAL STRATEGY ?