Media Futurology By Apollo Mobile

Media FuturologyA European Perspective

Apollo Mobile Ltd

Mark Beilby & Rolfe Swinton

Mark Beilby• Managing Director and Head of the European Media team successively at SG Warburg; Deutsche

Bank; JP Morgan and Dresdner Kleinwort. Was rated as #1 European Media Analyst for 9 years by Institutional Investor magazine and Reuters surveys

• Co‐founder and Chairman of film, TV and new media technology company Apollo Media

• Representative on the Government panel reviewing the BBC license fee

• Representative to the British Government on the media

• Other Board Level Affiliations:– Cavendish International (a leading business publishing group)

– www.bric.com (a B2B online market place connecting BRIC buyers with global suppliers)

– www.Tourdates.co.uk (a fast growing social community company) (Chairman)

– Playlouder MSP (a digital and broadband content delivery company) (Finance Director)

• Visiting Fellow in Film Finance at The Cass Business School in the City University of London

• First Class Honours BA degree in Modern History and M Litt at Oriel College, Oxford University

© Apollo Media Ltd ‐ 2009

SCOPE• This presentation looks at the evolution of the broader media industry and

seeks to chart the future and to raise issues that could impact your media business and its current & future initiatives

• As we have discussed, the long‐term scope of your remit will likely expand to include the other media players as the various media converge ‐ thus this presentation looks across the media

• For structural reasons, we subdivide the presentation into 4 principal industry segments: Broadcasting; Film and Video Content; B2B Publishing and finally B2C Publishing

• These are catch‐all titles designed to encompass all the key issues and trends: social communities, advertising agencies, the relationship between traditional and new, digital media. Music will be discussed in relation to the 4 main categories

• We specifically exclude definitive conclusions; these will be educed from our interactive discussions


BROADCASTING


Permanent Revolution• Structural change in broadcasting is both permanent and far‐reaching

• Linear television built on a schedule is inexorably declining. Although the process is one of steady unstoppable decline rather than rupture

• Digital compression leading to a proliferation of channels sowed the seeds of decline in the early 1990s by promoting audience fragmentation

• It has long been accepted that the viewer watches individual programmes, not channels

• The success of the iPlayer, and in the near future, the legalised broadband delivery of individual archived programmes, exacerbates this trend

• Channels have been able, historically, to build brand value. C4, for instance, had the ability in the 1990s to target and reach an audience, valuable to advertisers, that hardly watched TV ‐ The Big Breakfast, The World, The White Room, and US imports like Frasier and Cheers. ProSieben in Germany ‐much the same

• This brand value is now elusive. The under 25s; the ABC1s, watch ever decreasing amounts of scheduled TV. The social community becomes ever more important


Ubiquitous Time Shift• The move to time shift viewing has been promoted by Sky Plus and the iPlayer. In the US,

the pressure on the scheduled channels has intensified as a consequence of the spread of Tivo.

• Near universal broadband penetration allows viewers to pick the programming that they want when they want it. In the UK, looking forward, companies like MSP (Media Service Provider) are working with the ISPs to pioneer legal peer‐to‐peer download of both audio and visual content

• The analogue switch off makes all UK viewers consumers of digital media. The transformation will then be complete. The difficulty of maintaining linear, scheduled channels will reach crisis point. Time shift viewing will reach critical mass

• In the US, the most recent IMMI data shows that fifty percent of online viewing of programming is already TV replacement. Previously online viewing was thought to be mostly fill‐in or catch‐up viewing for fans who missed episodes. Viewers watch programmes, not channels

• The decline in linear, scheduled television means that the problem of marketing a programme to its target audience grows more complex


The Long‐term Role of Social Community• This is not a myth. The role of the social community and of user‐generated content will

become ever more central in broadcasting

• There will be evolution. The names will change. Friends Reunited is de facto defunct. Last FM and MySpace have lost the cool factor in corporate hands. What is the prognosis for Facebook?

• The next iteration of the social community will be to serve more specific verticals: Swedish‐speaking Finns; live music. C4’s music channel offers the prospect of building a leading UK vertical community, cross‐promoted by the broadcast channel

• News Corporation in part acquired MySpace because it knew that programming would be distributed on an ad hoc basis through the Internet

• Google/YouTube (bought for $1.6bn) are seeking to recast the broadcast model, by building an advertising‐funded platform that enables the user to watch user‐generated and copyright content interchangeably when they want. They are seeking to extend this to mobile devices

• This poses a further threat to the linear channel, but, for the moment reports of its death are exaggerated, if ultimately inevitable


Mobile Holy Grail• In this regard, the Holy Grail will become the safe, interactive delivery of content to the mobile

phone

• As interactive, secure Java‐based mobile content management systems supersede WAP, driven by the R&D expenditure of the handset manufacturers, this becomes possible. The problems of data integrity and security that bedevilled WAP/SMS from a broadcast perspective disappear

• In Sweden and Finland there are already interactive game shows where the audience watching at home plays along with the contestants in the studio live and in real time. What the audience at home do is visible to the producers of the show

• This interactivity is a vision of the future. In addition, developments in Java‐based technology make it possible for broadcasters and advertisers to have audited data concerning their viewers’ patterns of usage

• This opens up the possibility of building a mobile advertising network backed up by authoritative data. Mobile opens up the out of home market to the broadcaster and advertiser alike

• Mobile content will always be bite sized admittedly; but as the technology evolves, participatory reality shows such as X Factor, which generate more content than can be used by the linear channels (the worst 30 contestants etc), will make ever greater use of mobile. Historically the media buyers have lacked the data to use the mobile as an advertising medium


Film AND video content

©Apollo Media Ltd ‐ 2009

Hollywood Still Controls Its Product• The vast majority of desirable mass market video content and the business model for its distribution

are still firmly under Hollywood’s control

• Residential broadband penetration continues to grow, and other important catalysts for a shift towards broadband media consumption, from new syndication windows, to broadband‐connected televisions or their set‐top boxes, to suitable home networking technology, are inexorably developing

• That Internet delivery of video and TV content will eventually become a mainstream standard is a given. The question is one of when, not if

• Will devices like Apple TV, Netflix the Xbox 360 or Sony’s PS3, accelerate the pace? Does their existence imply we are entering an accelerated phase of that evolution? Or is the bridge between the TV and the PC not yet built?

• Sony is an electronics and media company that owns its own studios, a serious ace up the PS3's digital‐distribution sleeve where movies are concerned. Microsoft's existing partnerships have filled its Xbox Live library with downloadable movies and shows. But Sony is its own partnership

• So, anything that can be digitised needs to be rolled out around the world in one go, as consumersanywhere may hear about it within hours, then want to watch it, listen to it, read it, and won't hesitate to download pirated versions if you make them wait too long


Direct Digital Distribution• Can the studios gain a larger share of the economic rent by direct digital

distribution?

• Sooner or later the TV movie channels will disappear; Paramount’s management acknowledged this at a Wall Street Conference in October 2006

• A specific problem for Warner with HBO and News Corporation with BSkyB

• News Corporation promoting MySpace as content distribution platform‐initially for Fox TV output

• Studios may lose lucrative TV license fees should linear TV continue to erode. But the studios can deliver straight to the consumer at home

• Just two windows‐ theatrical and at home?

• The key will be secure anti‐piracy systems


Death of the Movie Window• In May 2008, in an earnings conference call, Warner Brother’s

announced that the studio was removing the DVD window all new titles

• This meant digital downloads would be offered on the same day as a DVD debuted. The decision was based on several months of testing

• Warner CEO Jeff Bewkes explained that during the experimentation phase leading up to the decision, sell through was up on DVD’s slightly (e.g. no material cannibalisation was caused by digital downloads, for now). More importantly, however, margins were up dramatically

• The studios will make content available for download when the consumers want it. The windows have become antedeluvian. They belong to the analogue world


Lessons From Music• The historic music distribution model broken by broadband

• 95% of digital music downloads illegal

• Pull rather than Push delivery

• Needs to be DRM free

• Bands release themselves‐ control the economic rent‐ NIN; Simply Red; Radiohead becomes an independent by leaving EMI and joininga Beggars Banquet label

• Distinctions between signed and unsigned erode; First MySpace then more specific verticals (We7; Tourdates.co.uk) as distribution platforms

• Digital distribution is currently fragmented; needs to be concentrated


A Case Study: NIN• NIN frontman Trent Reznor realized that in order to make money, he needed only to appeal to

his true fans, his überfans. He gave the first part of his four part album away, and then offered higher quality downloads, and "deluxe" physical packages for a price ranging from $5 to $300. the result was that his true fans ate it up and he may have picked up a few new true fans along the way via the free downloads

• The movie studios, some have argued, could learn from Reznor's blue print. Clearly $750,000 is not enough to recoup the costs of a $100 million movie, but the movie studios don't have to give anything away for free

• What they could do is offer users a low cost, legal alternative to BitTorrent where movies can be had cheaply at high quality and DRM free. Then for the überfans ‐‐ fans of the director, writer, actors, or movie itself ‐‐ sell additional downloadable content, and offer high priced, physical "deluxe" editions with value added features, as well as all the normal movie merchandising and promotional tie‐ins

• MSP, UK‐based, partnering with ISPs to facilitate legal DRM‐free distribution of content; using and sanitising peer‐to‐peer networks. First music, then TV and movies


B2B PUBLISHING


B2B Market Defined• The B2B market naturally organises itself into industry specific vertical markets.

Many of these vertical markets ‐ i.e. medical technology, travel services, mobile telephony, etc. ‐ are by definition global

• B2B revenue streams include print advertising, magazine subscription revenue, web advertising and subscription, data base subscription, sponsorship, trade fair delegate fees, and exhibitor space rental

• The subscription revenue element means that a number of B2B publishers enjoy a degree of negative working capital

• The evolution of digital technology, both web and mobile, affords up the prospect of new, interactive revenue sources, such as eCommerce and, looking forward, mCommerce

• Publishers will prove able to secure transaction commissions. B2B yields can increase. The inevitable challenge for the B2B publishers is to mine new sources of revenue without cannibalising existing income streams


The Role of B2B Digital• Expand beyond print audience base by creating an online audience

• Create new revenue streams/ profits in long term

• Communicate with target audience on a continuous, interactive basis in a manner impossible to achieve via print

• Build communities based around brands (within practical limitations)

• Use website/mobile offerings to attract new readers for the printed product

• Offer targeted digital advertising as added‐value to advertisers in print publications

• Create new revenue streams/profits in short term

• Discourage audience drift to alternative online sources and combat potential attendant erosion of the print brand


Online Ad Growth


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Growth of Social Media Importance


The Vital Role of Audited Data

• Measurability – i.e. audited data ‐ is the key to the future of the B2B market

• Jerry Buhlmann, CEO of Aegis Media, said recently that the growth in B2B online’s ad spending share has “less to do with the growth of use of online media, and more to do with a secular shift within the advertising industry that is driving marketers and agencies toward media that deliver measurable returns on advertising investments”


Cross‐Platform Ad Sell• The eMedia strategist Eric Shanfelt considers there to be very little overlap

between the online audience and the print audience of a given brand. His research shows there is typically 15% overlap between the two … sometimes a bit more, sometimes a bit less

• Nielsen/NetRatings and Mediamark Research looked at 23 large‐circulation US magazines (12 of the sample B2B and 11 B2C) and compared their print and online audiences: an average of 83% of web audiences only viewed the content online.

• This means there is only a 17% cross‐over between online and print audiences

• For ad sales this is gold ‐ it means both a print and an online presence are required for a brand to fully reach all of its potential consumers, and it constitutes powerful ammunition for convincing advertisers to see the wisdom of a cross‐media platform campaign.


Essential Features of B2B Websites

• B2B websites need ultimately to link sellers with buyers

• Buyers and sellers can be drawn together to meet online if B2B website content is sufficiently fresh and appealing. Website content can also be used to drive the creation of B2B communities

• Online brand names carry limited cachet and create limited value to B2B end users, who are looking for specific industry information

• B2B websites are aimed at end users. Accordingly, they should bear names reflecting the print titles of underlying B2B publications

• Existing B2B print publications can drive traffic and provide sustainable brand under‐pinning


Behavioural Targeting• B2B publishers are niche suppliers of premium content to well‐defined audience

segments demanding relevance to their own specific industry agendas

• Behavioural Targeting uses information gathered about users, and infers interest to present them with relevant advertising. It was pioneered in the online consumer market.

• For example, in a social community context, Facebook might note on a user’s profile that they play golf. Facebook is then able to present the user with golf ads when they visit an affiliate sports website. This form of targeted advertising achieves significantly higher click‐through rates (CTRs), allowing Facebook to charge significantly higher ad fees than for standard banner advertising.

• B2B publishing is ‐ by definition ‐ focused on vertical, niche audiences

• B2B behavioural targeting can be used to offer relevant articles, white‐papers, product recommendations (lead generation), as well as relevant ads.

• That means segmenting the already self‐defined niche audience into a set of sub‐segments – i.e. a B2B publication/ website might be focused on an industry niche (i.e. medical technology), and behavioural targeting would allow an even more specific/ granular segmentation within that particular industry’s niche context


Mobile for B2B Communities• Leading online B2B Consultants Corbin Ball Associates, in a recently published

article, ‘Twelve Technology Trends in the Meeting and Events Market’, write that they believe face‐to‐face meetings will remain a vital part of networking, education, and relationship‐building, but that virtual meetings will increasingly play a role.

• Given the uptake of mobile broadband networks, and with the virtually ubiquitous market penetration of the mobile handset, social networking now has the ability to transform how businesses operate, network, and interact with potential or existing customers, partners, and colleagues

• Mobile platforms will prove an important longer term opportunity for B2B publishers, utilising the full capacity of the handset as a portable computing device.

• The innate potential of the mobile can only be unleashed by B2B publishersprepared to adopt multi‐platform systems, rather than WAP (Wireless Application Protocol) or Mobile Web‐based applications

• There is now a tremendous opportunity for those B2B publishers prepared to adopt cross‐platform mobile systems (i.e. that work on most any handset, including Java, Blackberry, Android, Symbian, Windows Mobile, and iPhone) – platforms like Apollo Mobile’s RE4CTOR


B2C PUBLISHING


A Matter of Mind Set• Those B2C publishers that have made a success of their digital

businesses to date have often not had legacy print interests. This need not necessarily be the case. It is principally a matter of mind set

• A number of publishers (both B2B and B2C) until recently simply used the website to protect the print brand rather than to generate incremental revenue

• In the UK, in the B2C arena, for instance, for years the Time Out web site wasted its brand potential by acting as a protective digital carapace; it was all about cheap subscriptions for the print title

• It has since been remodeled as a separate, daily updated web guide, with the potential to generate its own revenue


Newspaper‐Life After Death?• The travails of the local newspaper industry in developed economies are well attested

• Classified advertising revenue —which makes up the bulk of most newspapers' income — has been shifting for 15 years from print to the new media, resulting in an inexorable, unstaunchablehaemorrhage in profits

• Paid circulation has declined continuously since the mid 1990s, while advertising as a percentage of US local newspapers' revenue will decline to 26 per cent in 2009 from 36 per cent in 2006

• Meanwhile, newspapers' share of total U.S. advertising expenditure will have declined to 10 per cent in 2009, according to analysts at Barclays Capital, from 20 per cent in 1999

• Many newspapers launched online editions in an attempt to protect the core brand, rather than generate incremental digital revenue. Few of these online ventures have been unequivocally successful in creating and sustaining a community or have evolved into separate, fully‐costedprofit centres

• Those publishers that have made a success of their Internet businesses have tended not to have legacy print interests. This need not necessarily be the case. It is principally a matter of mind set

• The newspaper companies have not had a digital mind set. They have viewed digital media as a threat rather than an opportunity. Now they are moving rapidly to change their models.


Deloitte Marks the Bottom?• A Deloitte report was issued in the first week of December 2008, addressing the decline

of both the national and regional newspaper industries in developed economies, and providing a compendium of the latest information concerning the pace of industry decline

• All the Deloitte report does in reality , is echo this statement from Warren Buffett, pointing out why he no longer had no newspaper investments: "There's no rule that says a newspaper's revenues can't fall below its expenses, and that losses can't mushroom…. Fixed costs are high in the newspaper business, and that's bad news when unit volume heads south"

• One in ten newspapers (that is national and regional titles) and magazines in the developed economies will be forced to cut their output in half, move online or close completely next year, according to the report from Deloitte

• The report also asserts that conditions for print publications will go from difficult to "impossible" in 2009, as a result of a continuing decline in circulations and plummeting advertising revenues


Businesses Reaching Communities Directly• Local businesses simply don't need newspapers, or indeed any local media

source, to get their messages to prospects

• Sometimes, they can buy advertisements cheaper on general sites and networks that will show them to people in certain ZIP or postal codes. Moreover, businesses can reach many prospects free, especially in the US, posting their sale prices on their own Web sites and their classified advertisements on Craigslist

• So, advertisers can use different channels to reach their audience and equally their audience can use different channels to get the data

• Consumers don't need the local newspaper as the unique source for their local information

• Can the two be brought back together again?


Mobile: The Next IterationMobile will be the next iteration for media in the local community:•Assuming the correct technology to facilitate content uploading and in particular to allow comprehensive and reliable user metric collation and analysis is available, then mobile can provide what local advertisers want•Effective targeted advertising, and more reliable user data than anything ever provided by the Audit Bureau of Circulation or its equivalents for print‐based local newspapers•This can be attached to user‐generated content. This opens up the prospect of web/mobile local networks; where the staple is user‐generated content, rather than expensive journalist‐produced local news•GPS technology will afford ever greater opportunities for location‐based targeted advertising.•This is not the same as existing mobile newspaper offerings, which are merely web‐browser‐based iterations of the web site, with all its limitations•A web/mobile community leveraging the local expertise of the newspaper groups, but specifically utilising the advantages offered by interactive, digital social media can offer a last‐ditch lifeline for the fast expiring local newspaper industry


Media FuturologyA European Perspective

Apollo Mobile Ltd

www.apollomedia.net

Media Futurology By Apollo Mobile

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