The digital challenge for the media industry

The changing media landscape is forcing traditional distributors and content providers to revise their approach or risk losing their grip on the market – and there are lessons for leaders in other sectors too, as GrowthBusiness discovers.

As consumers of media we’ve never had it so good. You name it, you can access it, download it and even carry it around with you to watch when you want. Price reductions and increased bandwidth have accelerated penetration of broadband internet in the UK and worldwide, having an incredible impact on how we view and use media content.

The statistics on consumer use are overwhelming. The Digital Radio Development Bureau shows that more than ten per cent of the population now own a DAB (digital audio broadcasting) set at home. Research house Forrester estimates that broadband is currently in more than 20 per cent of UK households, and forecasts this will be nearer 30 per cent in 2006 and more than 40 per cent by 2010. In March, the Internet Advertising Bureau revealed that UK online advertising spend grew by 66 per cent year-on-year to £1.4 billion and is expected to swell a further 43 per cent to £2 billion for 2006.

Businesses are increasingly appreciating the value of keeping in touch with the digital zeitgeist, and some are using strategic acquisitions of high-tech businesses to add to their traditional business offering. ‘Convergence’ is the watchword among media heavyweights, which essentially means taking disparate information technologies and media platforms and rolling them into one package. Take Sky’s purchase of internet company Easynet for £211 million, for example, and News Corp’s $580 million acquisition of Intermix Media, parent company of blogging site And this was trumped by NTL’s entry into Virgin territory with a £1 billion cash and shares purchase of its mobile telephony arm. Thanks to the acquisition, the marketing and advertising departments at NTL are no doubt delighted to be able to promote ‘fourplay’ to Britain’s households, a phrase coined to describe a four-strong package of fixed and mobile telephony, broadband internet and pay-TV.

Reuters chief executive Tom Glocer said in his recent hortatory speech to the Online Publishers’ Association that he thought News Corp’s latest acquisition would prove to be a major turning point for large media players. He considers that community sites such as MySpace are ‘redefining our world and providing an online forum for kids, music groups, their promoters and, basically, anyone with anything to share’. Via News Corp’s acquisition, Rupert Murdoch has now gained access to 54 million potential customers. ‘It’s the kind of market data that would make consumer industry bosses giddy – information which will prove to be an early warning system of future trends and brand choices for the world’s youth market,’ claims Glocer.

‘It is becoming clear that our media world is fundamentally changing again only a decade after the internet attracted the first wave of online publishers. A Gutenbergian transformation has resulted in wooden and metal letters being replaced by the laptop computer and the internet. It’s only taken five hundred years!’

Content is no longer king – delivery is everything

Britain’s digital landscape is evolving at such a pace that even dyed-in-the-wool, old-media barons are realising that dipping a toe in the digital water is simply not enough. Traditional media and publishing models must be overhauled and revolutionised in the face of new content delivery expectations. While old models saw content pumped one-way to consumers, now it must be searchable and accessible in a way that allows users to interact with what’s available and tailor it to their own needs. Content provision is now a two-way street.

In his well-publicised keynote speech to a City of London audience, Rupert Murdoch seemed converted, heralding, ‘The dawn of a golden age of information – an empire of new knowledge.’

He advised newspapers, and, indeed his words seem germane to providers of any media, to ‘give readers a choice of accessing their content in the pages of the paper or on websites or – and this is important – on any platform that appeals to them: mobile phones, hand-held devices, iPods, whatever.’

In a similar vein, Tom Glocer admits that his declaration last year that the consumer was ‘editor’ already seems archaic, now noting that media companies were only just beginning to catch up with this supply and demand model – ‘but, you guessed it, our audiences have already moved on,’ he says. ‘Now they’re consuming, creating, sharing and publishing.’

Power shifts

In the keynote address of the recent Business XL Live event, Media & Money, active small-company entrepreneur Chris Akers added weight to the argument that consumers are hands-on in shaping content. Akers is chairman of sports consultancy Sports Resource Group as well as two media-focused AIM-listed cash shells and a host of other interests. He quoted the CEO of Yahoo, Terry Semel, saying, ‘Every medium mirrors the things people want to do. The world is moving from mass media to “my media”.’

Consider the habits of American teenagers, for instance. According to a survey by the Pew Internet & American Life Project, about 21 million teens (or 87 per cent of those aged 12 to 17) use the internet, and 57 per cent of them could be considered content creators. They’ve created a blog or webpage, posted original artwork, photography, stories or videos online or remixed online content into their own creations.

‘The my-media concept is really producing a ripple effect right now,’ reflects Akers.

‘Traditionally, above-the-line media were television, newspapers, magazines and radio but, as a consequence of the advent of the internet, iPods and mobiles, people’s media consumption is changing to the point where audiences are fragmented. As a result we’re seeing new communities form. That’s why ITV bought FriendsReunited and why News Corp bought MySpace – everyone has their own friends and contacts who they trust to share their views, including bloggers. People are becoming sophisticated digital consumers. Whether it’s a Ricky Gervais podcast or a “mobi-sode” of a soap opera, advertisers now have to adjust their method of communicating to take into account audiences’ new consumption habits, not the other way around.’

Akers says, ‘It’s like 1995 to 2005 were the warm-up years! Previously, media barons could dictate what people watched and when, but now digital is replacing analogue, people have the power to manipulate. They are becoming their own schedulers, editors and producers. That control shift is something that advertisers and agencies are having to deal with.’

Fragmented market

Simon Cole, chief executive of radio content and digital services supplier UBC Media, the second-largest owner after BT of digital broadcasting spectrum in the UK, has seen that shift in control result in much upheaval in the radio sector. ‘The industry is dealing with a revolution in its model,’ he explains.

‘We’ve gone from a single platform to one where you and I could start up a radio station tomorrow and broadcast on Sky. Previously, a few licensees had access to a walled-in audience and now the industry is facing up to the fact they have many competitors who have a variety of different platforms on which to compete. Technology accelerates the evolution of new business models, and the pressure of competition is going to force the creation of more and more. The barriers to access have fallen and the number of competitors has increased, but the amount spent by advertisers has not risen. So, media owners need to adapt if they’re going to keep advertising revenues up.’

In order to adapt, Cole explains that radio, as with all those challenged by the digital revolution, has had to (and will continue to have to) come up with new forms of revenue generation. ‘It’s what we once had to do with e-commerce,’ he explains. UBC is running a trial with BT Movio, Carphone Warehouse and Chrysalis Radio for digital radio listeners to be able to download songs as they listen to them.

UBC has also devised another service to capitalise on fragmentation of radio audiences and create opportunities for its advertising sales arm, called Network Drive. Cole explains that it gives advertisers access to national coverage through local stations. More than 170 stations broadcast traffic and travel bulletins supplied by UBC, which then ‘collects’ all the advertising time that all these broadcasts add up to and offers it to advertisers as a large chunk of national advertising.

Changing tack

Although competitive pressures may well expedite the formation of a digital strategy in this environment, business owners must reconcile this need to compete with having to waver from their original business plan. Many challenges arise from the blurring of roles between different businesses in the media space and Julian Turner, chief executive of specialist publisher Electric Word, points an exemplary finger at a well-known search engine.

‘Google used to be a search engine, but now it feels like a publisher or an ad sales agent. And look at Manchester United – its matches used to provide engaging entertainment, “content” if you like, which they sold through the Premier League. Now it has its own television channel and a broadband internet service.

‘This illustrates what happens in a world where the number of outlets or platforms continues to proliferate – the people who used to be content providers are now channel owners,’ he observes. ‘The old definitions for media companies are becoming less relevant – traditional ideas of what constitutes, say, a publisher or production company are falling away. The challenge for businesses is to stop thinking so narrowly and start thinking about meeting customers’ information needs in whatever way is required.’

Global competition

Because of the intrinsic worldwide nature of the web, the battleground for customers is now much broader than ever before. ‘Anyone with an online operation is part of a global market and if the information is relevant all over the world then there are no territorial boundaries to competition,’ proclaims Turner. ‘You need to decide exactly how you deal with the communities you serve, how you keep in touch, how you add value and how you sell to them.

Our database used to be terrestrial but now the internet has become overwhelmingly important as the means of dealing with our customers.’

Much of Electric Word’s business used to be paper-based but now the company makes as much money from selling access to its customers, with around a million visitors to its website proving an attractive draw for advertisers. ‘Your website becomes the way you build your database. Online businesses use the affiliate marketing model to bring traffic onto sites in a way that creates a new model for information and content providers.

If you’ve got large online communities of people, you’ll be selling access or information, but at some point you’ll want to think about developing some transaction revenues. This provides an opportunity for web publishers to take a slice of someone else’s revenue – like affiliate marketing or selling third-party products – our customers buying your products. It becomes another way of leveraging the database.’

Many non-media businesses are now looking to paint themselves into the digital landscape because it clearly is a dynamic, fast-moving area. Evidently the changing ways consumers gulp down their media is an example that has wide-reaching effects. If your business is not already involved in meeting this digital hunger, you need to work out how it can be – and fast. And those already involved must constantly evaluate if they’re using the most effective tactics or methods.

‘Any business that doesn’t have a digital strategy, or hasn’t at least thought about it, is going to get burned,’ contends Jeremy Middleton, chief executive of acquisitive marketing services and communications agency Media Square, which has a definite digital strategy and significant revenues from digital channels. ‘Look at the music industry, for instance,’ he continues. ‘They didn’t want to acknowledge digital downloads but they got forced into it eventually because they couldn’t afford to ignore the consumer demand. Digital is a fast-moving technology so it’s an area we have to be in. The media sector changes very quickly and is a consumer-led sphere, so media owners must have more than one club in their golfbag.’

See also: When print and online collide: Inside The Economist’s digital strategy

One niche that the forward-looking Middleton is particularly excited by is IPTV (internet protocol television), where scheduled TV programs or video on demand are streamed over internet cables to a TV set-top decoder or computer. ‘Customers are going to increasingly be watching more channels showing unregulated television content. So, all types of companies will have to work out how to elbow content in there.’

Middleton hints that Media Square has developed a technology that allows it to ‘drop’ advertising into IPTV streams. ‘Previously, if you wanted to get a big audience you would put an advert in the middle of the News at Ten. Now people are watching their News at Ten at 5.30am,’ he points out.

With Media Square pulling in a significant proportion of its revenues from the digital space, Middleton and his staff examine every area of their current business and see if there’s a ‘digital equivalent’. Take the very simple example of the company’s direct marketing business, which was traditionally paper-based. ‘Now we send emails as part of the mix without thinking twice about it,’ he says.

‘Consumers are changing their consumption habits of all forms of content and that has consequences, not just for the media, but for all businesses communicating with their customers,’ he says. ‘You have to adjust for that or risk being left behind in the race for market position, whatever your industry.’

See also: Media companies making an impact – Five innovative companies intent on dramatically transforming – and dominating – their particular niche of the media sector

Leslie Copeland

Leslie Copeland

Leslie was made Editor for Growth Company Investor magazine in 2000, then headed up the launch of Business XL magazine, and then became Editorial Director in 2007 for the online and print publication portfolio...

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