Facebook F8

Impressive! Mark Zuckerberg, founder of Facebook, announced his new strategy (see the keynote) and launched the Facebook F8 platform, which lets users embed other applications and services inside their page on the social networking site.
The first social network with a open platform!

The Social Networks grow bigger and bigger and get more and more important for the content industry. Myspace is definetely already one of the most important distribution ways for music. Social Networks in the future a new Media Channel of his own? It`s more than a “normal” online website….

Nominal Price Rigidity

Can “nominal price rigidity” perhaps be the problem for more flexibel pricing in the digital content world? Tim Harford wrote for the Slate magazine an very good article about “nominal price rigidity”. He describes it like that:

“My salary is not tweaked each month to reflect the latest inflation figures, and neither is yours. Restaurants do not reprint their menus, nor wholesale firms their catalogs, if the cost of their inputs changes by a penny.”

“Technology makes it ever easier to change prices using bar codes, Web sites, and laser-printed menus. Amazon always seems to be changing book prices. Coke vending machines now take very little effort to reprogram. So, should we conclude that “menu costs” no longer matter?”
“A prize-winning paper from Carlos Carvalho recently showed that it does not even help if many prices adjust quickly, because those that change slowly will distort the rest. Amazon may be able to adjust its prices easily to reflect its costs, but that is of little use if those costs are distorted by slow adjustments from the bookbinders or the freight handlers.”

Of course there are some parties in the digital media value chain that can´t  or don`t want to change there prices fast.

The Problem?

“(…) prices need to be able to change relative to one another to reflect demand and the underlying costs of production. If prices don’t adjust smoothly for any reason, then the economic consequences could be serious. If wages can’t fall in a recession, then people will lose their jobs instead. If the price of a car or a restaurant meal can’t fall when demand does, sales will collapse with much the same effect.”

However, what you do have is Steve Jobs and his insistence on maintaining a 99-cent price for individual song downloads. And even though inflation has been relatively muted in the four years since the launch of the iTunes store in April 2003, it compounds out to nearly 12% — around 2.86% each year.

Which means that in today’s dollar, you paid about $1.11 for an iTunes track when the store first launched. Or, you can turn it around and say that you’re now paying just 88 cents a track in 2003 dollars.

What is IPTV?

What is IPTV? Well, I should know, but who knows too?
I can´t see any good and clear cooperation out there in the market between service and content providers. There´s no communication and marketing out there, at least here in Germany. Why should people change, if nobody knows that a new product is there? If nobody knows any advantages of IPTV?

A lot of people know about Skype, but TV? YouTube? Oh perhaps some guys heard about this Joost. Yes, but that`s it.

The Register is writing about a survey done by Juniper Networks, an IPTV equipment supplier:

(…) “The results also show that while many people already watch video over the web, with the Italians and French being especially enthusiastic consumers, most of it is news and user-generated content.
“That’s not the most demanding, in quality terms,” Gainham said (Juniper’s service provider marketing director for Europe), adding that sports was the least popular for web viewing, presumably because it requires higher quality and is real-time.
The survey revealed that consumer scepticism over the security and reliability of broadband is a big problem for would-be IPTV suppliers, as are fears over the cost and complexity of the extra equipment needed to receive IPTV.
It also shows that the service providers have shot themselves in the foot by creating a market where the main consumer choice factors are simply bandwidth and cost, not quality or video content.” (…)

Sonos and Rhapsody

 

John Heileman writes in Business 2.0 (issue May 1, 2007) about Sonos: “Digital music´s ultimate player” – “(…)  build a new kind of wireless audio system: one that beams music throughout users’ homes at a fraction of the cost (and hassle) of a typical multiroom stereo network.”

Would love to test one here in Germany in connection with Rhapsody.
Definetely that`s the direction home entertainment will go in the world of ubiquitous broadband access. That´s the hardware that can show customers the advantages of subscription services.

In the U.S. Illegal Downloading is Down 24%

Business Software Alliance (BSA), a trade group representing copyright holders, published a new survey, that the number of illegal downloading people in the ages 8-18 has fallen 24% in three years to only 37% in 2007. (via dmwmedia.com)
That´s a surprise … I would be careful with this numbers… I will wait for more surveys.

Value Creation of Media Companies

In the next few months I have to do some research into the basic principles of my field of study and will write some posts here. Probably not for everyone really exciting, so…. I`m sorry for that.

Anyway, did some research into basic literature about media companies over the past days.
Often you can find in the definitions a very value creation oriented perspective of media companies:

Here some authors and their value creation approach of media companies (in German, sorry.):

Albarran: Produktion, Distribution
Albarran, A. B. (1996): Media economics: understanding markets, industries and
concepts, Ames: Iowa State University Press, Ames, IA.

Hass: Produktion, Redaktion/Bündelung, Distribution, Konsumtion
Hass, B. (2002): Geschäftsmodelle von Medienunternehmen, Ökonomische
Grundlagen und Veränderungen durch neue Informations- und
Kommunikationssysteme, Gabler, Wiesbaden.

Owers/ Carveth/ Alexander: Produktion, Distribution, Exhibition
Owers, J./ Carveth, R./ Alexander, A. (1998): An Introduction to Media Economics
Theory and Practice, in: Alexander, A., Owers, J.: Media Economics: Theory
and Practice, Lawrence Erlbaum, Mahwah, NJ, S. 1-43.

Picard: Beschaffung, Produzenten, Distribution, Käufer
Picard, R. G. (2002): The Economics and Financing of Media Companies, Fordham
University Press, New York, NY.
Picard, R. G. (2004): Environmental and Market Changes Driving Strategic Planning
in Media Firms, in: Picard, R. G.: Strategic Responses to Media Market
Changes, Jönköping, S. 1-17.

Schumann/ Hess: Produktion, Bündelung, Distribution
Schumann, M./ Hess, T. (2005): Grundfragen der Medienwirtschaft, Berlin et al.

Siegert: Produktion, Distribution, Konsumtion / Rezeption
Siegert, G. (2003): Medienökonomie, in: Bentele, G., et al.: Öffentliche
Kommunikation – Handbuch Kommunikations- und Medienwissenschaft,
Westdeutscher Verlag, Wiesbaden, S. 228-244.

Wirtz: Beschaffung, Produktion / Aggregation, Packaging, technische
Produktion, Distribution
Wirtz, B. W. (2005): Medien- und Internetmanagement, Gabler, Wiesbaden.

Low Prices = More Customers? Not Always

Found this Harvard Business School Press article on pricing in the media business. It`s an excerpt from the book “Manage for Profit, Not for Market Share” from Hermann Simon, Frank F. Bilstein and Frank Luby.
The authors argue to avoid proactive price cuts: ” They make you poorer, unless you have the evidence, the data, and the math to prove otherwise. You run a company, not a charity.”
In the article they have a short case study about Universal Music and their price cuts in September 2003.

Interesting is the unusual point of argumentation cause everywhere in the press your are reading “CD prices are to high…” So the authors make some good points why UMG was wrong to cut prices.
But there were two things in their argumentation I disagree with.

“If nearly half of all music buyers in the United States haven’t seen a high school classroom in almost twenty years, these are probably not people who have abandoned retail stores. Instead, these are the same people who pay hundreds of dollars for Bruce Springsteen or Rolling Stones tickets. . . . They have a proven willingness to pay for music.”

I agree, that older customer have a higher price point for CDs, but to argue they will pay this prices because they pay this high prices for concert tickets is wrong. The market for recorded music has changed and the consumer behavior is changing .
The older people pay the higher CD price cause of convienience, the habit of buying and loving analog products, missing know how or interest in the digital music world. That has nothing to do with the entertainment pricing. If the money get short, they would soon change their price point and go to the concert anyway.
There is definetely a willingness to pay for music under young and old consumers alike. The young ones just spend their money more for tickets at the moment (The live entertainment industry has a big market growth in the last years. Ticket prices still growing.)
The second point I disagree was the suggestion to an indirect price increase this way:

“(…) reduced the number of tracks on some discs. On a per-­song basis, this amounts to a price increase. Howard Stringer, at that time the chairman and CEO of Sony Corporation of America, said that consumers actually prefer fewer tracks on each CD, and added that putting fewer tracks on a CD could speed up the next release by the artist.19 Although this reflects a price increase—customers get less for their money and spend more often—it does not hurt them as long as the artist remains popular. This move reflects a return to the way record companies released albums decades ago.”

The decision how frequent you can do releases with an artist is much to complex and its often not the problem that there are no new songs of an artist.
The production of an album are fixed costs and I don`t think you can really save songs for the next album… Music is not a FMCG product where you make smaller packages, and save a lot of money.
Music is a creative product with fast moving trends. Is a potential “hit song” written today also a hit next year? Perhaps is it works for a few artists, but not for the whole industry.

The Billboard Reports About a New Coke – iTunes Deal

2 billion songs as free giveaway. News like this and that show more and more the new position of recorded music. The value of recorded music has changed, so the “utilization” of music changes.
The cooperation makes perfect sense, for both parties. (via Billboard)

When Do People Watch Online Video ?

Mark Cuban and Comscore analysis the viewing habits of online video users.
About 50pct of all online video viewing during weekdays happens from 7am to 5 pm.
During some part of the prime time TV hours during the week just 12 pct watch video on the internet. On the weekends, that falls to 6pct.

I am sure this behavior will change soon, when there is some convergence between TV and “online”.  At the moment video online is no alternative to TV for most of the people. The cannibalization seems low. In the US the big networks are streaming full TV shows. And that makes perfect sense. Most people watch them at work or at home during the weekday. That has minimal impact on their viewership and so on ad sales.

In the short time view this could be an new “releasing” window for the content industry:

Mark Cuban: “I think some smart videohosting company is going to create a licensing agreement that allows the content owner not only to share revenues, but to determine what time videos can or can not be watched. Some smart advertising sales force is going to price their advertising around video based on the day part as well.”

Digital NARM Discusses DRM

Another post on digital audio insider from the Digital NARM.
DRM or not DRM. Still big discussions between the majors.
I don´t understand the arguments of the three majors that still hold on DRM.
To stop DRM means not give up your copyrights or to give your music for free to everyone. EMI or ITunes don´t want that either.
DRM just makes no sense. (See also my old post here)
Why?
It`s simply the “smart cow principle”. You need just one smart cow to open the “gatter” and all cows are free. The same for DRM. One guy hacks the code, and the song is free in the internet. And it doesn`t really matter if there is at the beginning just one song (DRM), or five thousand (no DRM). That´s just a questions of hours or days and the penetration in the community is high enough. If you release the DRM thing the piracy will not increase strongly, but the product quality will increase for all the people who pay for music. The only place where these DRM thing perhaps makes sense (and you can discuss this controvers) is for the music online shops like iTunes to lock the customers in special hardware systems.
So funny enough that Steve Jobs is the guy who says first “no to DRM”.

I don´t know if I’m missing here anything… Do I?