Seth Shapiro @ Media Future Week

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Los Angeles | New York | Amsterdam

Media Future Week:The Future of Media Business Models

9 May 2012

seth@sethshapiro.com | @sethrshapiro

... a business model is the method of doing business by which a company can sustain itself... The business model spells out how a company makes money.

– http://digitalenterprise.org

Business Models

seth@sethshapiro.com | @sethrshapiro

Agenda

2010 New Amsterdam Media LLC

Brief History of 20th Century Media

Media Business Models Made Simple

TV and the Beginning of Future Media

The Future of Media: The Content Brand Conversation

Conclusion

2010 New Amsterdam Media LLC

Agenda

2010 New Amsterdam Media LLC

Brief History of 20th Century Media

Media Business Models Made Simple

TV and the Beginning of Future Media

The Future of Media: The Content Brand Conversation

Conclusion

PublishingContent: News, magazines, books, trade pubDistribution: Presses, delivery

FilmContent: Motion Picture ProductionDistribution: Exhibition, regional/platform windows

MusicContent: ProgrammingDistribution: Broadcast, cable, satellite

TelevisionContent: Recordings and performancesDistribution: Replication, delivery

2010 New Amsterdam Media LLC

Publishing

“Many of his writings were originally published serially, in monthly installments or parts, a format of publication which Dickens himself helped popularise at that time.

Unlike other authors who completed entire novels before serialisation, Dickens often created the episodes as they were being serialised. The practice lent his stories a particular rhythm, punctuated by cliffhangers, to keep the public looking forward to the next installment.” – Wikipedia

+ = ?

The Secret Business Model of Early 20th Century Media

The Secret Business Model of Early 20th Century Media

“Dickens fought with his various publishers and, at different points in his career cut a deal with a printer, pushing the printer towards a publishing role and cutting out his publisher altogether; self-published his work by paying for copies of his books to be printed; and self-published his work by setting up and part-owning periodicals whose main attraction was that they carried his work.

He even, towards the end of his life, read his books aloud to paying audiences – an entirely new business model.”– http://nosycrow.com

Film

“In 1893, Thomas Edison patented the first efficient motion picture viewer, the

kinetoscope. A customer could drop a penny into the

kinetoscope... and enjoy a short movie loop. In the 1890s and 1900s, kinetoscope parlors

spread like crazy across the country... ”

Edison misjudges the market

“As he had with the phonograph, Edison misjudged how the market was to develop. He thought the money was in the kinetograph and the kinetoscope; he didn’t think people would want to sit in audiences...– Edward Samuels

Edison misjudges the market

“As he had with the phonograph, Edison misjudged how the market was to develop. He thought the money was in the kinetograph and the kinetoscope; he didn’t think people would want to sit in audiences...– Edward Samuels

The biggest misconception of the transition to sound [is] that it was rapid and completely disrupted the movie making process.  Nothing could be further from the truth. The transition took years to take effect and was a much slower process than many film historians have suggested.”

– Francesca Miller

Music

“These talking machines are going to ruin the artistic development of music in this country.

Today you hear these infernal machines going night and day.

We will not have a vocal cord left. The vocal cord will be eliminated by a process of evolution, as was the tail of man when he came from the ape.”

“These talking machines are going to ruin the artistic development of music in this country.

Today you hear these infernal machines going night and day.

We will not have a vocal cord left. The vocal cord will be eliminated by a process of evolution, as was the tail of man when he came from the ape.”

Over time...

PublishingBooks

• A la carte sale of “permanent” printed work

Newspapers and Magazines• A la carte (news stands)• Subscription• Advertising (Brand, Help Wanted, Real Estate et al)

Books• A la carte

Newspapers and Magazines• A la carte• Subscription• Advertising

Publishing Business Models

Ticket sales

Ala carte sales

Intellectual Property

(No subscription or advertising)

Film Business Models

Music Business Models

• A la carte (major focus)

• Ticket sales

• Intellectual Property

• No Subscription • No Advertising

Walt Disney Company Disney Pictures Buena Vista Pictures Touchstone ESPN ABC WDInternet Group Disney Parks

Time Warner HBO Warner Bros Turner Networks Warner Music New Line (formerly) AOL

Viacom CBS Paramount MTV Networks Showtime Nickelodeon BET CMT Comedy Central

News Corporation FOX Companies FX Networks FOX News Foxtel Wall Street Journal NY Post London Times

Comcast/NBC Universal Comcast Cable, NBC, MSNBC, CNBC, Universal Parks Telemundo, USA Networks, Bravo

Sony Columbia Tri Star Sony Pictures Sony Music Sony Computer Sony Electronics

The Big Six

Agenda

2010 New Amsterdam Media LLC

Brief History of 20th Century Media

Media Business Models Made Simple

TV and the Beginning of Future Media

The Future of Media: The Content Brand Conversation

Conclusion

Media Business Models 1 Advertising 2 A la carte purchase 3 Subscription 4 Intellectual Property 5 Enterprise Value 6 Ticket Sales

Media Business Models 1 Advertising (TV Spots, ads, auction) 2 A la carte purchase (DVD, Download to Own) 3 Subscription (magazines/news, cable, Over The Top) 4 Intellectual Property (Licensing Star Wars toys) 5 Enterprise Value (being acquired or going public) 6 Ticket Sales (Movies, concerts)

2010 New Amsterdam Media LLC

Agenda

2010 New Amsterdam Media LLC

Brief History of 20th Century Media

Media Business Models Made Simple

TV and the Beginning of Future Media

The Future of Media: The Content Brand Conversation

Conclusion

What is television?

Terrestrial Cable Satellite

3 Networks 4 Networks 6 Networks

Household Appliance

Telco

100s of Networks

What is television? [1950-1995]

What is television? [1995-2005]

Big screen in your living room

A community experience

Delivered by a big provider (cable etc.)

Professionally produced entertainment

What is Television?

What is Television?

An ecosystem

What is Television?

An ecosystemthat allows for evolving business models

c. 1927: Philo Farnsworth invents his prototype

c. 1941: FCC adopts NTSC

c. 1948: CBS and NBC begin regularly scheduled broadcasts

c. 70s: Satellite (B2B) – Birth of Basic Cable Network Industry

c. 70-80s: Niche High-End satellite (MDS/MMDS/SMATV/TVRO)

c. 94: DBS – Birth of MSO Competition

c. 99: Internet as a platform

c. 00s: Increased bandwidth, iTunes video, IPTV, Torrents

Brief History of Television

• Very limited choice• Very broad audience• Free to User• Primary Business Model: Advertising

TV 1.0: Broadcast Television

Broadcast Business Model

• Massive volume• Ratings driven• Advertisers pay per spot• Ratings point = 1% of HH (1,159,000 HH for 2010–11)

• Share = % of TVs in use that are tuned in

How is success measured?

The Grey Flannel Golden Age

Ratings point = 1% of HH (1,159,000 HH for 2010–11)Share = % of TVs in use that are tuned in

1952-53 I Love Lucy 67.3r1980-81 Dallas: 34.5r2005-06 American Idol : 11r

Arguably, the Broadcast TV Era peaks w ‘83 M*A*S*H Finale: 60r/77s (28 year record)

TV 2.0: The Cable Era

Cable• Greatly expanded choice (100s)• Smaller audiences: Power of Niche• Expensive to user• Primary rev: Subscription fees• Secondary $: Advertising

Broadcast• Very limited choice (4)• Very broad audience• Free to User• Primary rev: Advertising• Secondary $: Device sales

TV 2.0: The Cable Era

• Subscription• Advertising• A la carte• Enterprise Value• Intellectual Property

Cable Creative Models• Broadcasting ---> Narrowcasting• Monthly fees = funding for LOTS of programs• Allows for mass and niche audiences

Cable Business Models

Text

2002 2009

TV Economics

$.13 sub/mx 12x 99,700,000 HH

$155,532,000

Conservatively, a low-price cable network yields over $155 million in subscription revenue per year

15 cable networks x avg $.20 per month = $3.6 billion.Top price network ($5) = $6 billion.

MEDIA ECONOMICS

By far, the most valuable assets in media are cable networks.

US MSO Subscriber Revenues = app. $135 billion per year.

(GOOG 2010 = $28B)

Agenda

2010 New Amsterdam Media LLC

Brief History of 20th Century Media

Media Business Models Made Simple

TV and the Beginning of Future Media

The Future of Media: The Content Brand Conversation

Conclusion

The Future of Media: The Content Brand Conversation

Case Study 1: Harnessing Business Models for Art

Case Study 2: How Old Media Morphs Online

Case Study 3: New Platforms Change the World

Case Study 4: New Art Creates New Models

2010 New Amsterdam Media LLC

American Movie ClassicsAMC is a cable television channel that primarily airs movies, along with a limited amount of original programming. The letters originally stood for American Movie Classics; however since 2002, the full name has been deemphasized as a result of a major shift in programming. AMC is owned by Rainbow Media Holdings ... AMC was originally a premium cable channel that aired classic movies...It was not uncommon for the channel to host a Marx Brothers marathon, or show such classics such as the original Phantom of the Opera.

-­‐-­‐  Wikipedia

Source: Kagan

$.23 sub/mx 12x 88,000,000 HH

app. $155 million

AMC is in app 88 million US households

1. Pro Producer X has $30 million show idea.

1. Pro Producer X has $30 million show idea.

2. He goes to HBO, SHO, NBC, CBS... all the big guys

1. Pro Producer X has $30 million show idea.

2. He goes to HBO, SHO, NBC, CBS... all the big guys

3. “I need $30 to make a great show”

1. Pro Producer X has $30 million show idea.

2. He goes to HBO, SHO, NBC, CBS... all the big guys

3. “I need $30 to make a great show” [US$2.3M x13 episodes = $30M]

1. Pro Producer X has $30 million show idea.

2. He goes to HBO, SHO, NBC, CBS... all the big guys

3. “I need $30 to make a great show” [US$2.3M x13 episodes = $30M]

4. Network: “Who are the stars?Is there sex? Does it appeal to 18-24?”

1. Pro Producer X has $30 million show idea.

2. He goes to HBO, SHO, NBC, CBS... all the big guys

3. “I need $30 to make a great show” [US$2.3M x13 episodes = $30M]

4. Network: “Who are the stars?Is there sex? Does it appeal to 18-24?”

5. Producer: “Not really - it’s a period drama.”

1. Pro Producer X has $30 million show idea.

2. He goes to HBO, SHO, NBC, CBS... all the big guys

3. “I need $30 to make a great show” [US$2.3M x13 episodes = $30M]

4. Network: “Who are the stars?Is there sex? Does it appeal to 18-24?”

5. Producer: “Not really - it’s a period drama.”

6. Network: “Get out of my office.”

1. Pro Producer X has $30 million show idea.

2. He goes to HBO, SHO, NBC, CBS... all the big guys

3. “I need $30 to make a great show” [US$2.3M x13 episodes = $30M]

4. Network: “Who are the stars?Is there sex? Does it appeal to 18-24?”

5. Producer: “Not really - it’s a period drama.”

6. Network: “Get out of my office.”

1. Pro Producer X has $30 million show idea.

2. He goes to HBO, SHO, NBC, CBS... all the big guys

3. “I need $30 to make a great show” [US$2.3M x13 episodes = $30M]

4. Network: “Who are the stars?Is there sex? Does it appeal to 18-24?”

5. Producer: “Not really - it’s a period drama.”

6. Network: “Get out of my office.”

1. Pro Producer X has $30 million show idea.

2. He goes to HBO, SHO, NBC, CBS... all the big guys

3. “I need $30 to make a great show” [US$2.3M x13 episodes = $30M]

4. Network: “Who are the stars?Is there sex? Does it appeal to 18-24?”

5. Producer: “Not really - it’s a period drama.”

6. Network: “Get out of my office.”

1. Pro Producer X has $30 million show idea.

2. He goes to HBO, SHO, NBC, CBS... all the big guys

3. “I need $30 to make a great show” [US$2.3M x13 episodes = $30M]

4. Network: “Who are the stars?Is there sex? Does it appeal to 18-24?”

5. Producer: “Not really - it’s a period drama.”

6. Network: “Get out of my office.”

1. Pro Producer X has $30 million show idea.

2. He goes to HBO, SHO, NBC, CBS... all the big guys

3. “I need $30 to make a great show” [US$2.3M x13 episodes = $30M]

4. Network: “Who are the stars?Is there sex? Does it appeal to 18-24?”

5. Producer: “Not really - it’s a period drama.”

6. Network: “Get out of my office.”

I will build you:- Higher Subscription Fees- Higher Advertising Fees- Intellectual Property...

Broadcast model re narrowcast model

"Small rating.... but will build you a brand!"

Goes to AMC: "You get .23 cents a house...""... what if we can double that?"

US $2.3 millionx 13 episodesUS$30,000,000 (est.)

1.9 rating = No Way

"period drama"

Broadcast model re narrowcast model

US $2.3 millionx 13 episodesUS$30,000,000 (est.)

Build brand to increase license fee = "OK"

"period drama"

Broadcast model re narrowcast model

US $2.3 millionx 13 episodesUS$30,000,000

1.9 rating = “No Way”

Build You a Content Brand = “OK”

Playing Old Game vs. harnessing New

Rainbow's Sapan: Streaming Cable Shows 'Devalues' Product

... "We don't think it's wise for the industry to Napster-ize itself," said Rainbow CEO Josh Sapan, referring to the site that famously became a popular hub of free music.

Sapan said Rainbow is angling for AMC to receive 50 cents a subscriber per month from distributors in its next round of negotiations.

Rainbow's Sapan: Streaming Cable Shows 'Devalues' Product

... "We don't think it's wise for the industry to Napster-ize itself," said Rainbow CEO Josh Sapan, referring to the site that famously became a popular hub of free music.

Sapan said Rainbow is angling for AMC to receive 50 cents a subscriber per month from distributors in its next round of negotiations.

On $3M business model change:

$.23 to $.50$155M to $310M

Matthew Weiner is the creator, executive producer, head writer, and show runner of the AMC television series Mad Men. Weiner has received eight Emmy Awards and three Golden Globe Awards for Mad Men. Mad Men has won the Emmy Award for Outstanding Drama Series three consecutive years (2008, 2009, 2010). Weiner was named one of the 2011 Time 100 Most Influential People In The World. -- Wikipedia

Mad Men

The Future of Media: The Content Brand Conversation

Case Study 1: Harnessing Business Models for Art

Case Study 2: How Old Media Morphs Online

Case Study 3: New Platforms Change the World

Case Study 4: New Art Creates New Models

2010 New Amsterdam Media LLC

Subscription 3.0

Website and subscription service offering ad-supported on-demand streaming video of TV shows, movies, etc. 

Competitors:

Advertising Subscription

Owned By:

The Future of Advertising = Data

• Are you buying diapers in the morning, or your third BMW?• Advertising moves from Broadcast to Narrowcast • Advertising metric changes from audience size to a measure of customer value

• Know your customer like never before• Target your customer like never before

Hulu

• Advertising • Subscription • Intellectual Property • Enterprise Value• Precise Customer Data• Intellectual Property (originals)• Economics of Community

Media Business Models 1 Advertising 2 A la carte purchase 3 Subscription 4 Intellectual Property 5 Enterprise Value 6 Ticket Sales

The Future of Media: The Content Brand Conversation

2010 New Amsterdam Media LLC

Case Study 1: Harnessing Business Models for Art

Case Study 2: How Old Media Morphs Online

Case Study 3: New Platforms Change the World

Case Study 4: New Art Creates New Models

… viewership on [tablets, mobile and CTV] doubled from Q3 '11 to Q4 '11.

Tablets led with 22% growth in quarter-over-quarter growth in time watched per play.

CONNECTED TV AND CONSUMERS – HILVERSUM, NETHERLANDS – FEBRUARY 7, 2012

Seventy percent of tablet owners and 68 percent of smartphone owners said they use their devices while watching

television.

The Future of Data:

• Since  last  year:• Sharing  via  mobile  was  up  500%• Overall  sharing  up  143%• Shares  to  and  from  TwiAer  up  116%

The Future of Data: Audiences Talks Back

The Future of Data: Audiences Talks Back

“Turner  is  looking  to  establish  itself  as  a  leader  in  adopEng  smart  TV  technology”  –  Ad  Age

“We  are  trying  to  understand  the  consumer  marketplace  “People  react  to  adver8sing  differently  on  different  screens,  and  we’re  trying  to  figure  out,  ‘What  is  the  next  evolu8on  of  TV?’  David  Levy,  TBS  President  Sales,  DistribuEon  and  Sports

Turner Embraces Social TV, Interactive Ads via 'Conan' AppBy Mike Shields on February 8, 2012

... As part of a major push by Turner’s entertainment networks to embrace second-screen viewing...... users of the new Conan app (which is being sponsored byAT&T) will be periodically greeted with pop-ups within the app featuring information relevant to the show, such as facts about a guest’s movie career. And soon enough, viewers will be able to buy tickets to those guests’ movies via the app.

CONAN

102

The Second Screen...

103

The Second Screenpoints to the future of media business

• Hypertargeted advertising• New subscription products• More items for purchase• Intellectual Property• Enterprise Value• Customer Data and Preferences

The Future of Media: The Content Brand Conversation

Case Study 1: Harnessing Business Models for Art

Case Study 2: How Old Media Morphs Online

Case Study 3: New Platforms Change the World

Case Study 4: New Art Creates New Models

2010 New Amsterdam Media LLC

Jenna Marbles

Jenna Marbles

Epic Meal Time is a YouTube cooking show known for creating extremely high-calorie meals from meat (with emphasis on bacon) and alcohol (especially Jack Daniel's). It is... represented by Brillstein-Grey Entertainment, and... Internet television network Revision3.

Jenna Marbles

2010 New Amsterdam Media LLC

Agenda

2010 New Amsterdam Media LLC

Brief History of 20th Century Media

Media Business Models Made Simple

TV and the Beginning of Future Media

The Future of Media: The Content Brand Conversation

Conclusion

Conclusions: Future of Media Business

• Community is the new network• Customer data is the new currency• “If you’re not paying, you are the product being sold.”• Media moves from a monologue to a dialogue

Current Future

1 Ticket Sales 2 Advertising 2 Customer Preference Data 3 A la carte purchase 3 Always On: Power of the Cloud 4 Subscription 4 Digital Delivery, cross device 5 Intellectual Property 5 Economics of Community 6 Enterprise Value 6 Self-sustainable small businesses

Media Business Models

Current Future

1 Ticket Sales 1 “Live” Digital Events 2 Advertising 2 Hypertargeted 3 A la carte purchase 3 The Cloud = Always On 4 Subscription 4 Digital Delivery, cross device 5 Intellectual Property 5 Economics of Community 6 Enterprise Value 6 Self-sustainable small businesses

Media Business Models

“Nobody knows anything.”

- William Goldman

2010 New Amsterdam Media LLC

"Anything new, anything worth doing, can't be recognized."

- Picasso

2010 New Amsterdam Media LLC

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Los Angeles | New York | Amsterdam

Thank You

seth@sethshapiro.com | @sethrshapiro