10 Factors Changing Our Media and Our Lives

Gigi JohnsonFaculty Director, EMEP 2008

UCLA Anderson MBA ’88President, Maremel Ventures, Inc.

Lecturer, UCLA Anderson

October 2008

Bets on the Futures

Power in New Hands/Voices

Founded 1994

Mkt Cap: $18 bn (was $37 bn)

Founded 1998

Mkt Cap: $117 bn (was $142 bn)

Launched PC 2003

Founded 2003

Sold for $580MM

Founded 2005

Sold for $1.65 bn

Founded 2/04Microsoft paid $240MM for 1.6% 10/07

Times of Transformation New trusted aggregators of attention/time –

new “Keystone” alliances Opening of closed doors – new

intermediaries/disintermediation, new creators

Uncertainty changing deals, – challenges in planning for an increasingly

uncertain future

More Transformation Commoditization and repackaging of content Generational behavioral and time changes Jolts to advertising models – online and

measurability shifts Big-picture technology partnership and distribution

bets bigger than individual title success Diverging futures of exhibition & creation Creative Class expansion as cost to create and

distribute plummets Connection as Content and Time Use

Maximize Economic Rent by Slicing Time and Space Rights

Location Time Shifting

MultipleUse

Multiple Media

Example

Venue None 1 No Theater, sporting event, concerts

Venue Yes 1 No Theatrical movies

Home None 1 No (Historically) Television

Home None 1 No Radio

Home Yes Some No Rental Home Video/DVD

Home Yes 1 No Digital download services with time limits (Movielink, etc.)

Home Yes Yes No DVD; books, newspapers; DVRs (digital video recorders, like Tivo)Any Yes Yes Yes Downloaded Digital Music and Video

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Pipe Battles, Round One:Cable/Satellite Faceoff

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Resulting Concentration of U.S. Distribution Pipes

Comcast Time Warner

Charter Cox Cablevision

Echostar Dish

DirecTV

24.1 13.3 5.4 5.2 3.1

13.8 17.0

= 81.9 million= 72 % of households

Source: NCTA 12/07; DirecTV and Echostar 3/08

(million subs)More Concentrated Cell Phones:AT&T 71.4 mmVerizon 67.2 mmSprint Nextel 52.8 mmT-Mobile 30.8 mm

End of 2007:•16% of HH only had cell phones•13% had landlines but got nearly all their calls on their cells•1/3 under age 30 only have cell phones

Source: National Health Interview Survey, conducted by the CDC 12/07

10 Value Shifters1. Major Shifts in Consumer Appetites/Reduced Predictability2. Shifts in Discovery vs. Scarcity – Reregulation +

Technology (pipe + storage + creative tools)3. Brands and Extensions: Key Cueing4. Capital as Excess Fuel5. Consumers as Prince-makers (P2P/Web2.0)6. Battle of Open Source and Interoperability7. Data as Power, Value, and Opportunity8. Advertising Shift toward Direct Response9. Global Opportunities Opening and Untapped10. New Battles for the Home and Heart

#1: Time and Predictability Twists Return – Investing for anticipated behavior Advertising

– Based historically on predictable audiences – Selling access to eyeballs, evidenced by historical

consumer behavior and extrapolation– Matching time with needed messaging at that time for

coordination and resulting product sales Mass Media => Mass Behavior

US: 10 Hours Per Day Consuming Media

Source: Veronis Suhler Stevenson, MPAA

Share of Time: Primary Currency

Source: Veronis Suhler Stevenson, MPAA

U.S. Share of Wallet: Almost $850/person/year

Source: Veronis Suhler Stevenson; MPAA

Shifting Seas and Shifting Revenues

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Significant Economics of Time and Money: DVD

Source: MPA

DVD – 2005 – “Suddenly In Transition”“It’s the beginning of the mature phase of the DVD market,”

• Buena Vista Home Entertainment president Robert Chapek, Variety July 20, 2005

“The DVD party isn’t over, but it’s 2 a.m.” • Morgan Stanley analyst Richard Bilotti, Hollywood

Reporter, July 29, 2005

“[We need to] manage the transition [to online distribution] so it is additive.”

• Tom Rothman, Chairman, Fox Filmed Entertainment, November 3, 2006 (UBS Conf Call)

DVDs – Quick Plateau

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DVDs 2007 into 2008 Revenue down 3% ‘07 Sequels: 25% of units (vs. 18% ‘06) Only 10% of DVD sales high def, 2/3 Blu-Ray

before finale of conflict Top selling DVDs used to sell 20MM units;

now selling half that Time Warner has seen avg. DVD price drop

15% 3Q07: 5% decline in revenue on 12% increase in units– ‘08: New release unit prices flat; library <$5

Viewing Instead To… Cable (esp. during Writers Strike)? Broadband?

– Expansion or substitute?– Esp. for Millennials

Mobile TV?– Not yet in US to the degree ‘expected’

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Cable Channel Expansion

60 72 78 91113 130

155 168202

227 235 250267

390

531

0

100

200

300

400

500

600

Num

ber o

f Cha

nnel

s

Year

Source: Screen Digest, FCC, NCTA

1994: Launch of

Digital Satellite

1997: Launch of

Digital Cable

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…but we’re watching 15-16?

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..and in few pockets…fewer hands facing advertisers…

Turner ABC/ESPN MTV Networks

Discovery Fox NBC Scripps

10 10 19 13 30 6 5

• Cartoon• TBS• TNN• TNT• CNN• TCM• Boomerang

• Disney• ESPN• Toon

Disney• SoapNet• ABC

Family• Jetix

• VH1• Comedy• MTV• Nick• TV Land• Spike• Noggin• CMT• Logo

• Animal Planet

• En Español• TLC• Science• Military• Discovery

• 19 regional• Fox Movie• FX• Fox News• Fox Sports• Nat Geo• Fuel• SPEED• Fox Reality

• CNBC

• CNBC world

• MSNBC

• Bravo

• Mun2

• SciFi

• USA

• Food

• HGTV

• DIY

• Fine Living

• GAC

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SOURCE: NIELSEN MEDIA RESEARCH, FEB. EACH YEAR

Timeshifting Gaining

TV Embedded Messaging to Keep Viewer Attention

#2: Scarcity & Discovery Challenges1. Changes in Scarcity vs. Discovery

Minimal limits to distribution pipelines Barbell affect – really big or niche Realities of the “Long Tail”

US Regulation: Opening Choice; Transferring Wealth

Consent Decree of 1948– "Paramount Case“ – separation of film production and

exhibition -- breakup of the US “studio system” Financial Interest and Syndication (1970)

– Federal Communications Commission ruling separated production and distribution rights in TV (aka “FinSyn”), split company, allowed small production firms to grow

– Repealed over time, finally eliminated in 1995 “Betamax Case” (1984)

– United States Supreme Court ruling -- Universal City Studios et al. (including Disney) vs. Sony Corp.

– Allowed that copying content to “timeshift” is legal for home use

– Established liability shield to manufacturers

Recent Regulatory Drivers 1996 US Telecommunications Act

– results in billions of dollars of broadcast properties changing hands

Digital Millennium Copyright Act (1998)– Secured IP for another 20 years (most content Jan.

1, 1923 onward), for a total of 95 years– Established rules for copyright infringement

processes on Internet– Limits liability for copyright infringement for

“common carriers” Grokster Case (2005)

– US Supreme Court unanimously agreed that Internet peer-to-peer systems are not protected from liability by Betamax case

“Wired” 2004 Concept – The Long Tail

Explosion of Consumer Options

Result? – Propagation of New Distribution

Channels– Big “Discovery” problems, especially

with new content– “Scarcity” no longer a benefit for

channels or content– Not more time nor advertiser pie

• Increased fragmentation of viewing audience and advertising dollars

One example: migration from traditional broadcast radio

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Another Example: Business “News” vs Instant Data Business magazines – significant drop in 2007

and YTD 2008 revenue & ad pages Business sections in newspapers – being dropped

almost weekly in 2008 YET, Yahoo! Finance continues one of most

profitable areas and Dow Jones is bought by News Corp. and customizing CNBC.com has exploded during this financial meltdown

Issues down the Tail

Discovery – WOM? Social networks’ roles?– Businesses of Aggregation of slivers?

Customer Acquisition Cost must be less than Lifetime Value of the Customer, right?

Other Long-Tail Models? Ebay?

– Now with Bid4Spots to sell radio ads Peer-to-Peer

•4 million songs on legal services•10 million plus on global hard drives

Brightcove? YouTube? Joost? Akimbo?

Aggregation Gatekeepers Wal*Mart Comcast Regal/AMC Yahoo, Google Echostar, DirecTV Radio – 7 major program decision makers Books – 7 key purchasers Set Top Boxes – Best Buy, Circuit City, Cable Cos

Aggregation Relationships Skype 276 million registered users worldwide Comcast 24 million basic cable subs Time Warner 13 million basic cable subs Dish/Echostar 14 million HH DirecTV 17 million HH Google 135 million unique users/month US Yahoo 138 million unique users/month US AT&T 64 million local lines; 14MM

broadband subs; 71MM mobile subscribers Verizon

Wireless 67 million subscribers (Verizon + Vodaphone JV) iTunes 36 million users

Sources: Companies’ Info as of 12/07 or 3/08

Winter 2008

Alliances Around Aggregators

#3: Brands: Major Cues for Consumers; Risk Mitigators

Brand Gardens – Using Brands to expand flank and defend turfs?

Disney Mobile – all-Disney Mobile Virtual Network Operator --- with ESPN Mobile, not a success

MTVN – extensive brand extensions Sequels, sequels, sequels

Brands => Increasing Importance In A Fragmented World

Who are the Brands?• Bands/singers, athletes/teams, actors, few

studios, niche networks Signaling of values and product attributes? Discovery through Brand Extensions? Risk to or borne by Brands? Return from use of

brand? Emotional Relationships?

• Ringtones as “who we are” Trust?

#4: Capital > Opportunities?

2007 -- Excess fuel in the system Private equity Pumped up stock prices Digital exuberance

2008 – Asset buying opportunities as tap gets muddy ? Tap not closed – VCs still funding 2nd rounds

Changing Risk Profiles Lower risk – media conglomerates –

diversified public companies Increased uncertainty of future business

models Impacts of Past Abundance of private

equity and hedge funds= Transaction Opportunities to Transfer Risk

through Financings and Partnerships

Gartner’s Hype Cycle1. "Technology Trigger” Breakthrough or other event Generates significant press and

interest2. "Peak of Inflated

Expectations“ Frenzy of publicity Over-enthusiasm & unrealistic

expectations3. "Trough of Disillusionment” Fail to meet expectations Press abandons topic

4. "Slope of Enlightenment“ Businesses experimenting Press stops covering5. "Plateau of Productivity“ 2nd & 3rd version tech/stable Benefits accepted &

demonstrated Height: niche or broad

www.gartner.com

Gartner’s Hype Cycles

Gartner’s Technology Life Cycle Models

What about Old businesses…Flow to Films…What Do They Know?

Source: HLHZ 5/07

Other “Shoes” to Drop Liquidity Morass – “Credit Crunch”

– Credit Cards, Retail Commercial Real Estate, Insurance…pain not over

– VCs stopping new funding in many cases – Potential rethinking by advertisers of spending– Consumer frugality in discretionary spending

Commodity squeeze – oil prices up and now down, global food protests

Political change from both – social, religious, attitude repercussions

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#5: Consumers as Prince-makers P2P – Peer to Peer content creation and

appreciation, aka Web2.0

Web 2.0: Connecting Consumers to Each Other Video & Photos & Webcams Blogging & Podcasts Message Boards – building community Fanfiction/Self-publishing E-mail Evites Mapping Fan Sites MMOG Tagging Documenting Lives

Massively Multiplayer Games

MUSH’sMUD’s

• Lineage I & II (Korea) – 3MM max, 1.5MM est now• Ultima Online – US – 250,000 max• Everquest – max 250,000, 170,000 est now• Asheron’s Call – Europe – 120,000 max• Star Wars Galaxies – 170,000 subs• World of Warcraft – 8.5MM

• RuneScape (UK based) – over 700,000 subs• City of Heroes – 170,000 subs

Avatars for Kids?

Stardoll1.1MM uniques

Club Penguin – 6mm monthly uniques

Doppelganger’s The Lounge

Gaia Online2MM uniques/month1MM posts/day

Habbo Hotel – 200K U/MWebkinz -- 6mm uniques/month

Digital Evangelism into Old Media

UGC – Open Source for Content Like what? http://www.youtube.com/watch?v=jjXyqcx-mYY – yes we can!

Politics of 2008 An introduction to Facebook:

http://www.youtube.com/watch?v=2b-fJxzpK7s Where is Matt? http://www.youtube.com/watch?v=bNF_P281Uu4 Inspiration for my 10 year old’s science project:

http://www.youtube.com/watch?v=hKoB0MHVBvM Red vs. Blue that started it all

http://www.machinima.com/film/view&id=275 Free Hugs – top YouTube 2006

http://www.youtube.com/watch?v=vr3x_RRJdd4

Blogs, RSS, Podcasting -- “Journalism”?8% of American’s Blog? 2% in 2004. 28% of teens have blogs

(Pew)Revenue models?Always-on News?Business Model Impacts?

Web 3.0 – Presence and Connecting as Content Social Networking as content

– Twitter – what are you doing?– Del.icio.us – what are you looking at?– Last.fm and Pandora –what are you listening

to?– NowThen – recording your life on your phone

Connections as Content Presence, Lifecasting, and Crowd Sourcing Power of Social Networks as

recommenders/influencers– 25% of Metacafe’s visitors via home page– Twittering KPCC? Barak Obama?

Self-Actualization and Marginalized Connectivity– Creativity unleashed – 10%?– Gathering of the marginalized – pro-ani, pro-mia, gang

recruiting

Universal McCann 4/08 Findings 73% of global Internet users have read a

blog 184 million bloggers world-wide #1 Topic: personal life and family China has 42 million bloggers, more than

the US and Western Europe combined

Source of this and next pages: Universal McCann Next Thing Now Study, 4/08

Global Blogging Readership

Global Blogging Writers

Social Network Environment 4/07 U.S.

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Global Connectors

Global Differences in Influence

UGC Video differences

Yet We Aren’t All in the Pool

Source: Pew Internet Study May 2007

Video: March ‘08 ComScore Snapshot 73.7% of US Internet audience viewed

online video, 235 minutes, 2.8 min avg/video– 84.8 million viewers watched 4.3 billion videos

on YouTube.com (50.4 videos per viewer)– 47.7 million viewers watched 400 million

videos on MySpace.com (8.4 videos per viewer)

And from Networks, Traffic

And Selling (To) Different Users

#6: Data = $$ Behavioral Targeting, SEO, Search

Data as power, competitive advantage, and salable asset– Advertising shift toward Direct Response– Search as ad driver

One-way Media – Broadcast

One-way Media – Cable 1980s-1990s

Satellite

HeadendTV(s) & analog cable box

Viewer(s)

Project Canoe

Amazon – Knowing You

2000 -- subject of a lawsuit and an inquiry by the Federal Trade Commission over the use of personal data collected by its Alexa Internet unit

Hello, G. Johnson. We have recommendations for you. (If you're not G. Johnson, click here.)

Portals – Knowing You Even Better

Customize screen for your needs Keep track of your searches and activities -- cookies Targets ads to your demographic/psychographic

Buying Your Interests24/7 Real Media, Inc. Adteractive, Inc. (intellisrv.net)Advertising.com, Inc. Alena/PMG Atlas DMT (atdmt.com, avenuea.com)Autotrader LLC BidClix, Inc. Bluestreak, Inc. Centrport Cossette Media/Fjord Interactive (adcentriconline.com, fjordinteractive.com)Claria Corporation Commission Junction, Inc. DoubleClick, Inc. Dynamic Logic (questionmarket.com)eBoz, Inc. (linkbuddies.com)EyeBlaster, Inc. (serving-sys.com)eyeReturn EyeWonder, Inc. (xlontech.net)FastClick.com, Inc. (adserver.com)FactorTG, Inc. (factortg.com, suitesmart.com)

Interpolls Network, Inc. Insight Express Klipmart Corporation (kliptracker.com)Mediaplex, Inc. NexTag, Inc. Pennyweb, Inc./Ad Dynamix Performance Marketing Group (partner2profit.com)Planning Group International (bridgetrack.com)Poindexter Systems (ru4.com)PointRoll, Inc. QuickFlicks, Inc. (streamexchange.com, rn11.com)Right Media (ad.yieldmanager.com, adserving.cpxinteractive.com)TruEffect, LLC (adlegend.com)UniCast Communications (dmpi.net)United Virtualities ValueClick, Inc. Video Banner Zedo, Inc.

Currently, Yahoo! has relationships with the following ad networks (click to visit their site):

Buying Your Information Acxiom’s InfoBase

• Offers coverage of 111 million households and 176 million individuals, nationwide

• Acquired Claritas Europe and Consodata, 2 of the largest European data companies

Experian• Experian maintains credit information on approximately 215

million U.S. consumers and more than 15 million U.S. businesses.

• Experian maintains demographic information on approximately 215 million consumers in 110 million living units across the United States.

• Experian provides address information for more than 20 billion promotional mail pieces to more than 100 million households every year.

#7: AdvertisingIncreasing Audience Segmentation

Ability to slice and dice audience need and perceived psychographics

•Audience and consumer data•Advertiser desire for more “direct

response” relationship•Digital “fingerprints”•“The Long Tail” – low cost of incremental

inventory•Branding and attachment to audience

“fashion”

Search as Major Ad Tool Sponsored Search – only 38% of US

Google users know it is paid 17 bn US Searches 8/08 (vs. 10bn

2/08; . 7.2 Billion 1/06; 5.1 billion 12/05; 3.3 Bn 12/04)– 8bn Google; 3bn YouTube– 63% of core searches at Google, 20% Yahoo

43% of searchers use search box instead of address bars

Sources: Pew 12/05; Nielsen Net Ratings, 2/06, 3/07, 4/08; Comscore 8/08

Video Search – Meta Problem Blinx – search for Google, Yahoo! and

MSN Live Search, Ask, AOL, MSN, Lycos and Infospace – metadata creation

AOL – Singing Fish/Truveo Alta Vista video search

Re-Aggregating Eyeballs Audience does not equal revenue movement:

VOD, mobile video– CPMs depend on measurability and targeting –

evidence and aggregation– Large value created in short period of time by Ad

Networks – being swallowed up CPM to CPC to CPA to branded environments

– Carrying through to ad sales for planned fall season

Massive Value Transfers

Buyer Seller Type PriceYahoo Blue Lithium Ad Network $300mmMicrosoft aQuantive Ad serving $6 bnGoogle DoubleClick Ad Network $3.1 bnYahoo Right Media Ad Network $680mm for 80%WPP 24/7 Real Media Ad technology $649mmGoogle Postini Security Tech $625mmOmniture Visual Sciences Web analytics $394mmEchostar Sling Placeshift cons prod $380mmYahoo Zimbra email $350mmDisney Club Penguin social network $350MM

Platform A/AOL FamilyQuigo 11/07Tacoda 7/07Third Screen Media 5/07Advertising.com 6/04Lightningcast 5/06AdTech 5/07Relegence 11/06Userplane 8/06Truveo 12/05Weblogs 10/05Xdrive 8/05Wildseed, Ltd 8/05

CRM & BT Customer Relationship Management Behavioral Targeting

– Connecting the data dots between web sites and other media

– Custom delivered message– Custom environment– Affecting your decision-making; affecting your

environment– Conversion Attribution vs. CPC

#8: Format and Gear Wars Interoperability vs. Open Source Blu-Ray/HD settled – at what cost? New technologies for production – open source

– No more powerhouses of exclusive abilities a la Grass Valley

– Integration of digital workflow Apple iTunes vs. everyone else on music DRM (and

now on removing DRM) Format wars on game platforms – major profits to

winners; major problems to those who predict wrong

Past Successful Format Adoptions

Technology Introduction

Take off (20%)

Saturation (80%)

B&W TV 1928 1950 1959Color TV 1951 1964 1981HDTV 1993 2008??? ???AM Radio 1912 1920 1943FM Radio 1934 1940 1979VCR 1964 1980 2000DVD 1997 1998 2006

Sources: Rogers (1995), Steinberg (1980)

The DVD is the fastest adopted consumer technology in the history of mankind. Faster than TV’s, cell phones, VCR’s, and even the internet!

With Each Birth, Standards Battles: Control vs Open Source

DVD – industry standard• DVD – HD – challenges (+ China)

Digital Cinema? Sound? Production gear – open standard (largely) Cable Boxes – don’t interconnect iTunes vs. Real/Rhapsody battle Linux-based company networks, educational platforms –

rebellion from paying for licenses each year and dependence on creaky platforms

Digital Momentum from Standards Digital Editing, Transmission, Storage –

accelerates or decelerate from standards• PVRs, • VOD, • DVD recording, • HDTV, • diversity of devices, • digital rights management

Who is Impacted?

The Gear Wars – Selling New Gear to Do What?

#8: Growing Internet Family

Source: Universal McCann NextThingNow 4/08

Global Shift in Participation

Source: Universal McCann NextThingNow 4/08

UK Media: How to Monetize This?

Medium for Social Change

Source: NYT, 5/29/07

And China. Period. 1.3 billion people >450 million wireless subs 3G spending: estimates range from $35-37 billion

over 5 years Major players:

•China Mobile•China United Telecom Corp. (China Unicom)•China Telecommunication (China Telecom)•China Netcom

Media world all its own – AdAge China, Billboard China, now Rolling Stone China

2008 Beijing Olympics

#10: Battle for the Digital Home Barriers to entry – breaking down “The Box On Your TV” – Holy Grail Telecom/Wireless/Cable/Satellite/

Broadband Net Neutrality – Comcast/BitTorrent/FCC

Now “Quadruple Play”?Pipes, Gardens?

Video Voice

Mobile Data/Web