Tuesday, March 20, 2001

New Revenue Opportunities Ahead for Content Producers

From Hollywood movie studios to business software publishers, content producers will soon be experiencing the biggest mix of new revenue opportunities to date, according to Business Redefined: Connecting Content, Applications, and Customers, a global study released today by the firms of Ernst & Young and Cap Gemini Ernst & Young. The study, based on 128 in-depth CEO and executive interviews and analysis of secondary source data from more than 100 information sources around the world, discovered an emerging roadmap of these revenue opportunities for content producers.

CEOs interviewed in the study predict that content producers, the creators of entertainment, news, software, and business applications, are positioned to take advantage of several new revenue opportunities. A key reason is an increase in consumer consumption of content due to access to high-speed connectivity, which has resulted in a broader range of opportunities for content producers to sell digital content to businesses and consumers. Study findings show that households connected via broadband consume 22% more than households without high-speed access.

One CEO said, "Broadband is snacking technology. With broadband's convenience you will eat more."

"Business Redefined provides a striking, unified vision of what is ahead for content producers," said Mel Masuda, national director of media and entertainment for Ernst & Young. "The proliferation of new revenue models and distribution alternatives enabled by broadband connections signals nothing less than a complete redefinition of the entertainment, communications, and enabling technology industries."

New Revenue Opportunities Emerge
According to the study, advertising potential, subscription based models, pay-per-use service, time-specific pricing, content through mobile technology, and digitization of existing content libraries all represent new revenue opportunities for today's content producers.

"These opportunities come with a price-change," said Raj Rajgopal, vice president of strategic business consulting for Telecom Media Networks -- Americas at Cap Gemini Ernst & Young. "CEOs must act quickly to identify which among these make up the right set of revenue opportunities for their company, and then make some very challenging distribution and technology decisions. Without both speed and smart choices, a company will be at risk of losing its competitive edge."

Business Redefined indicates that online advertising, despite a recent downturn, remains an important revenue source for content producers. Overall, CEOs surveyed expect the quality and effectiveness of online advertising to improve as customization and personalization technology evolve and marketers become more adept at tailoring ads to individual users. Many CEOs interviewed expressed positive feelings about subscription revenue models, pointing to the fact that subscription models remain a mainstay for cable and satellite television companies, even with the offering of free broadcast alternatives.

With more widespread adoption of broadband technologies, CEOs expect pay-per-use to be a bigger contributor to the revenue mix moving forward. Individual recording artists are already beginning to experiment with subscription models and pay-per-use on their Web sites.

One CEO said, "The future of content will be about having on demand access to it, not ownership of the physical medium."

The revenue potential for content producers in time-specific pricing was evident as CEOs interviewed for the study believe there is a segment of the consumer market that will pay up to US$200 to view a movie in their homes on the first weekend of its release. Mobile content is another revenue model identified in the study that is of interest to entertainment and content companies.

"Wireless will be the most profound difference between how people access content today and how they will access it in five years," said one CEO.

Cellular phone makers are currently bringing products to market that include music download/playing capability. Hollywood studios have their sights on the mobile content market too-not as a way to show movies but as a way to create and strengthen their brand awareness by providing consumers with exposure to their music and movies via mobile devices.

The study also notes that digitizing old video and audio content and making those libraries accessible via broadband lines represents yet another potential revenue model for today's content producers. This could create whole new pockets of wealth among content producers with such libraries who can take advantage of these new distribution models.

One CEO said, "No question that quality entertainment libraries are increasing in value as we get new ways to distribute and get them to customers."

Business Redefined also details the profound challenges facing entertainment and content producers, including the impact and implications of free music download services. The insurgence of such new competitors has generated several lawsuits from the entertainment industry. The industry CEOs surveyed, however, acknowledged that these lawsuits -- even if successful -- cannot squash the emergence of new business models represented by the new competitors -- so changes are inevitable.

Mobile Portals Will Not Drive WAP Site Traffic
Mobile portals searching for sound revenue models will draw few users and disappoint firms looking for them to drive traffic, according to a new report by Forrester Research B.V. Instead of relying on portals for traffic, firms will link up with sites that orbit user activities to form what Forrester calls "mobile activity networks".

"The 40 WAP site owners that we interviewed believe that they know how to drive WAP traffic -- by placing links at mobile portals," said Carsten Schmidt, analyst at Forrester's European headquarters in Amsterdam. "However, the 20 mobile portals we interviewed don't aim to drive traffic to other sites. On the PC-based Web, portals drive traffic because users need them, but in contrast, portals won't play the same role in the mobile Internet because user circumstances differ sharply. Mobile Internet users have no time, interest, or need to spend time surfing from WAP portals."

Driving little traffic, mobile portals will not be able to tap advertising fees or revenue sharing to make money. Instead, they will have to cover their costs either by selling premium content or driving indirect revenue like boosted operator airtime and reduced customer churn. This reality will affect all four categories of mobile portals -- operator portals, Web incumbents, mobile pure plays and white labels. Only the biggest operator portals will survive, Web incumbents will keep costs low, mobile portal pure plays will disappear and white-label players will be swallowed.

Instead of placing links and buying ads on mobile portals, firms will most effectively drive traffic by teaming up with one another to form "mobile activity networks", which Forrester defines as "Mutual links between a group of mobile sites that orbit specific user activities."

One push service -- such as soccer scores -- will sit at the center of users' activities. Other closely related services, such as booking match tickets, will serve as satellites that receive user traffic either from the center or from one another. Also, mobile activity networks will focus on very specific user activities like booking a business flight or checking stock quotes, rather than browsing broad-based travel or financial services sites. Network participants will partner with less than a dozen firms and propose only a link or two at a time. And as mobile Internet technology matures with WAP 1.2 and GPRS, sites will be able to seek users at relevant times instead of the other way around.

Forrester advises firms to proactively build their own mobile activity networks today, as there are no existing ones to join and no intermediaries to set them up. To get started, firms must map user activities, identify when to deliver links, and embrace the Microdesign principals of obvious navigation, concise content and automatic integration.

"As mobile activity networks blossom, operators will emerge to manage partners in return for a fee per click," Schmidt added. "Technology expertise will give eCommerce integrators an early edge, but they will give up or spin off this practice when they feel pressure to move beyond their client list and run the effort like a line of business. Ad networks and affiliate networks will see mobile activity networks as a natural extension of their current Web business. But to succeed, they must cultivate relationships and develop pricing models that don't depend on the massive volumes they're accustomed to on the Web.

"City guides will also realize the opportunity of mobile activity networks as travel, event, and retail firms need good local knowledge to build their own networks. Finally, with their existing partnerships with airlines, hotels, and car rental firms airmile networks will develop mobile activity networks that focus on travel activities. But with limited local knowledge, these players must link up with city guides to fill content gaps."

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