Media Futurology By Apollo Mobile

Media Futurology
A European Perspective

Apollo Mobile Ltd

Mark Beilby & Rolfe Swinton

Mark Beilby
Managing Director and Head of the European Media team successively at SG Warburg; Deutsche
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Bank; JP Morgan and Dresdner Kleinwort. Was rated as #1 European Media Analyst for 9 years by
Institutional Investor magazine and Reuters surveys

Co‐founder and Chairman of film, TV and new media technology company Apollo Media
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Representative on the Government panel reviewing the BBC license fee
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Representative to the British Government on the media
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Other Board Level Affiliations:
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Cavendish International (a leading business publishing group)
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www.bric.com (a B2B online market place connecting BRIC buyers with global suppliers)
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www.Tourdates.co.uk (a fast growing social community company) (Chairman)
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Playlouder MSP (a digital and broadband content delivery company) (Finance Director)
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Visiting Fellow in Film Finance at The Cass Business School in the City University of London
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First Class Honours BA degree in Modern History and M Litt at Oriel College, Oxford University
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© Apollo Media Ltd ‐ 2009

SCOPE
• This presentation looks at the evolution of the broader media industry and
seeks to chart the future and to raise issues that could impact your media
business and its current & future initiatives
• As we have discussed, the long‐term scope of your remit will likely expand
to include the other media players as the various media converge ‐ thus this
presentation looks across the media
• For structural reasons, we subdivide the presentation into 4 principal
industry segments: Broadcasting; Film and Video Content; B2B Publishing
and finally B2C Publishing
• These are catch‐all titles designed to encompass all the key issues and
trends: social communities, advertising agencies, the relationship between
traditional and new, digital media. Music will be discussed in relation to the
4 main categories
• We specifically exclude definitive conclusions; these will be educed from
our interactive discussions


BROADCASTING


Permanent Revolution
• Structural change in broadcasting is both permanent and far‐reaching
• Linear television built on a schedule is inexorably declining. Although the process is
one of steady unstoppable decline rather than rupture
• Digital compression leading to a proliferation of channels sowed the seeds of
decline in the early 1990s by promoting audience fragmentation
• It has long been accepted that the viewer watches individual programmes, not
channels
• The success of the iPlayer, and in the near future, the legalised broadband delivery
of individual archived programmes, exacerbates this trend
• Channels have been able, historically, to build brand value. C4, for instance, had the
ability in the 1990s to target and reach an audience, valuable to advertisers, that
hardly watched TV ‐ The Big Breakfast, The World, The White Room, and US imports
like Frasier and Cheers. ProSieben in Germany ‐ much the same
• This brand value is now elusive. The under 25s; the ABC1s, watch ever decreasing
amounts of scheduled TV. The social community becomes ever more important


Ubiquitous Time Shift
The move to time shift viewing has been promoted by Sky Plus and the iPlayer. In the US,
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the pressure on the scheduled channels has intensified as a consequence of the spread
of Tivo.

Near universal broadband penetration allows viewers to pick the programming that they
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want when they want it. In the UK, looking forward, companies like MSP (Media Service
Provider) are working with the ISPs to pioneer legal peer‐to‐peer download of both audio
and visual content

The analogue switch off makes all UK viewers consumers of digital media. The
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transformation will then be complete. The difficulty of maintaining linear, scheduled
channels will reach crisis point. Time shift viewing will reach critical mass

In the US, the most recent IMMI data shows that fifty percent of online viewing of
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programming is already TV replacement. Previously online viewing was thought to be
mostly fill‐in or catch‐up viewing for fans who missed episodes. Viewers watch
programmes, not channels

The decline in linear, scheduled television means that the problem of marketing a
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programme to its target audience grows more complex


The Long‐term Role of Social Community
This is not a myth. The role of the social community and of user‐generated content will
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become ever more central in broadcasting

There will be evolution. The names will change. Friends Reunited is de facto defunct. Last
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FM and MySpace have lost the cool factor in corporate hands. What is the prognosis for
Facebook?

The next iteration of the social community will be to serve more specific verticals:
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Swedish‐speaking Finns; live music. C4’s music channel offers the prospect of building a
leading UK vertical community, cross‐promoted by the broadcast channel

News Corporation in part acquired MySpace because it knew that programming would
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be distributed on an ad hoc basis through the Internet

Google/YouTube (bought for $1.6bn) are seeking to recast the broadcast model, by
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building an advertising‐funded platform that enables the user to watch user‐generated
and copyright content interchangeably when they want. They are seeking to extend this
to mobile devices

This poses a further threat to the linear channel, but, for the moment reports of its death
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are exaggerated, if ultimately inevitable


Mobile Holy Grail
In this regard, the Holy Grail will become the safe, interactive delivery of content to the mobile
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phone
As interactive, secure Java‐based mobile content management systems supersede WAP, driven
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by the R&D expenditure of the handset manufacturers, this becomes possible. The problems
of data integrity and security that bedevilled WAP/SMS from a broadcast perspective
disappear
In Sweden and Finland there are already interactive game shows where the audience watching
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at home plays along with the contestants in the studio live and in real time. What the audience
at home do is visible to the producers of the show
This interactivity is a vision of the future. In addition, developments in Java‐based technology
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make it possible for broadcasters and advertisers to have audited data concerning their
viewers’ patterns of usage
This opens up the possibility of building a mobile advertising network backed up by
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authoritative data. Mobile opens up the out of home market to the broadcaster and advertiser
alike
Mobile content will always be bite sized admittedly; but as the technology evolves,
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participatory reality shows such as X Factor, which generate more content than can be used by
the linear channels (the worst 30 contestants etc), will make ever greater use of mobile.
Historically the media buyers have lacked the data to use the mobile as an advertising medium


Film AND video content


Hollywood Still Controls Its Product
The vast majority of desirable mass market video content and the business model for its distribution
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are still firmly under Hollywood’s control

Residential broadband penetration continues to grow, and other important catalysts for a shift
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towards broadband media consumption, from new syndication windows, to broadband‐connected
televisions or their set‐top boxes, to suitable home networking technology, are inexorably
developing

That Internet delivery of video and TV content will eventually become a mainstream standard is a
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given. The question is one of when, not if

Will devices like Apple TV, Netflix the Xbox 360 or Sony’s PS3, accelerate the pace? Does their
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existence imply we are entering an accelerated phase of that evolution? Or is the bridge between the
TV and the PC not yet built?

Sony is an electronics and media company that owns its own studios, a serious ace up the PS3's
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digital‐distribution sleeve where movies are concerned. Microsoft's existing partnerships have filled
its Xbox Live library with downloadable movies and shows. But Sony is its own partnership

So, anything that can be digitised needs to be rolled out around the world in one go, as consumers
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anywhere may hear about it within hours, then want to watch it, listen to it, read it, and won't
hesitate to download pirated versions if you make them wait too long


Direct Digital Distribution
• Can the studios gain a larger share of the economic rent by direct digital
distribution?
• Sooner or later the TV movie channels will disappear; Paramount’s
management acknowledged this at a Wall Street Conference in October
2006
• A specific problem for Warner with HBO and News Corporation with BSkyB
• News Corporation promoting MySpace as content distribution platform‐
initially for Fox TV output
• Studios may lose lucrative TV license fees should linear TV continue to
erode. But the studios can deliver straight to the consumer at home
Just two windows‐ theatrical and at home?
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• The key will be secure anti‐piracy systems


Death of the Movie Window
• In May 2008, in an earnings conference call, Warner Brother’s
announced that the studio was removing the DVD window all new titles

• This meant digital downloads would be offered on the same day as a
DVD debuted. The decision was based on several months of testing

• Warner CEO Jeff Bewkes explained that during the experimentation
phase leading up to the decision, sell through was up on DVD’s slightly
(e.g. no material cannibalisation was caused by digital downloads, for
now). More importantly, however, margins were up dramatically

• The studios will make content available for download when the
consumers want it. The windows have become antedeluvian. They
belong to the analogue world


Lessons From Music
• The historic music distribution model broken by broadband
• 95% of digital music downloads illegal
• Pull rather than Push delivery
• Needs to be DRM free
• Bands release themselves‐ control the economic rent‐ NIN; Simply
Red; Radiohead becomes an independent by leaving EMI and joining
a Beggars Banquet label
• Distinctions between signed and unsigned erode; First MySpace then
more specific verticals (We7; Tourdates.co.uk) as distribution
platforms
• Digital distribution is currently fragmented; needs to be concentrated


A Case Study: NIN
NIN frontman Trent Reznor realized that in order to make money, he needed only to appeal to
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his true fans, his überfans. He gave the first part of his four part album away, and then offered
higher quality downloads, and quot;deluxequot; physical packages for a price ranging from $5 to $300.
the result was that his true fans ate it up and he may have picked up a few new true fans along
the way via the free downloads

The movie studios, some have argued, could learn from Reznor's blue print. Clearly $750,000
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is not enough to recoup the costs of a $100 million movie, but the movie studios don't have to
give anything away for free

What they could do is offer users a low cost, legal alternative to BitTorrent where movies can
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be had cheaply at high quality and DRM free. Then for the überfans ‐‐ fans of the director,
writer, actors, or movie itself ‐‐ sell additional downloadable content, and offer high priced,
physical quot;deluxequot; editions with value added features, as well as all the normal movie
merchandising and promotional tie‐ins

MSP, UK‐based, partnering with ISPs to facilitate legal DRM‐free distribution of content; using
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and sanitising peer‐to‐peer networks. First music, then TV and movies


B2B PUBLISHING


B2B Market Defined
• The B2B market naturally organises itself into industry specific vertical markets.
Many of these vertical markets ‐ i.e. medical technology, travel services, mobile
telephony, etc. ‐ are by definition global

B2B revenue streams include print advertising, magazine subscription revenue,
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web advertising and subscription, data base subscription, sponsorship, trade fair
delegate fees, and exhibitor space rental

The subscription revenue element means that a number of B2B publishers enjoy a
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degree of negative working capital

The evolution of digital technology, both web and mobile, affords up the prospect
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of new, interactive revenue sources, such as eCommerce and, looking forward,
mCommerce

• Publishers will prove able to secure transaction commissions. B2B yields can
increase. The inevitable challenge for the B2B publishers is to mine new sources of
revenue without cannibalising existing income streams


The Role of B2B Digital
• Expand beyond print audience base by creating an online audience
• Create new revenue streams/ profits in long term
• Communicate with target audience on a continuous, interactive basis in
a manner impossible to achieve via print
• Build communities based around brands (within practical limitations)
• Use website/mobile offerings to attract new readers for the printed
product
• Offer targeted digital advertising as added‐value to advertisers in print
publications
• Create new revenue streams/profits in short term
• Discourage audience drift to alternative online sources and combat
potential attendant erosion of the print brand


Online Ad Growth


Growth of Social Media Importance

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The Vital Role of Audited Data
• Measurability – i.e. audited data ‐ is the key to the future of
the B2B market

• Jerry Buhlmann, CEO of Aegis Media, said recently that the
growth in B2B online’s ad spending share has “less to do with
the growth of use of online media, and more to do with a
secular shift within the advertising industry that is driving
marketers and agencies toward media that deliver measurable
returns on advertising investments”


Cross‐Platform Ad Sell
• The eMedia strategist Eric Shanfelt considers there to be very little overlap
between the online audience and the print audience of a given brand. His
research shows there is typically 15% overlap between the two … sometimes a
bit more, sometimes a bit less

• Nielsen/NetRatings and Mediamark Research looked at 23 large‐circulation US
magazines (12 of the sample B2B and 11 B2C) and compared their print and
online audiences: an average of 83% of web audiences only viewed the content
online.

• This means there is only a 17% cross‐over between online and print audiences

• For ad sales this is gold ‐ it means both a print and an online presence are
required for a brand to fully reach all of its potential consumers, and it
constitutes powerful ammunition for convincing advertisers to see the wisdom
of a cross‐media platform campaign.


Essential Features of B2B Websites

• B2B websites need ultimately to link sellers with buyers

• Buyers and sellers can be drawn together to meet online if B2B
website content is sufficiently fresh and appealing. Website content
can also be used to drive the creation of B2B communities

• Online brand names carry limited cachet and create limited value to
B2B end users, who are looking for specific industry information

• B2B websites are aimed at end users. Accordingly, they should bear
names reflecting the print titles of underlying B2B publications

• Existing B2B print publications can drive traffic and provide
sustainable brand under‐pinning


Behavioural Targeting
B2B publishers are niche suppliers of premium content to well‐defined audience
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segments demanding relevance to their own specific industry agendas

Behavioural Targeting uses information gathered about users, and infers interest to
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present them with relevant advertising. It was pioneered in the online consumer market.

For example, in a social community context, Facebook might note on a user’s profile that
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they play golf. Facebook is then able to present the user with golf ads when they visit an
affiliate sports website. This form of targeted advertising achieves significantly higher
click‐through rates (CTRs), allowing Facebook to charge significantly higher ad fees than
for standard banner advertising.

B2B publishing is ‐ by definition ‐ focused on vertical, niche audiences
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B2B behavioural targeting can be used to offer relevant articles, white‐papers, product
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recommendations (lead generation), as well as relevant ads.

That means segmenting the already self‐defined niche audience into a set of sub‐
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segments – i.e. a B2B publication/ website might be focused on an industry niche (i.e.
medical technology), and behavioural targeting would allow an even more specific/
granular segmentation within that particular industry’s niche context


Mobile for B2B Communities
• Leading online B2B Consultants Corbin Ball Associates, in a recently published
article, ‘Twelve Technology Trends in the Meeting and Events Market’, write that
they believe face‐to‐face meetings will remain a vital part of networking, education,
and relationship‐building, but that virtual meetings will increasingly play a role.
• Given the uptake of mobile broadband networks, and with the virtually ubiquitous
market penetration of the mobile handset, social networking now has the ability to
transform how businesses operate, network, and interact with potential or existing
customers, partners, and colleagues
• Mobile platforms will prove an important longer term opportunity for B2B
publishers, utilising the full capacity of the handset as a portable computing device.
• The innate potential of the mobile can only be unleashed by B2B publishers
prepared to adopt multi‐platform systems, rather than WAP (Wireless Application
Protocol) or Mobile Web‐based applications
• There is now a tremendous opportunity for those B2B publishers prepared to adopt
cross‐platform mobile systems (i.e. that work on most any handset, including Java,
Blackberry, Android, Symbian, Windows Mobile, and iPhone) – platforms like
Apollo Mobile’s RE4CTOR


B2C PUBLISHING


A Matter of Mind Set
• Those B2C publishers that have made a success of their digital
businesses to date have often not had legacy print interests. This need
not necessarily be the case. It is principally a matter of mind set

• A number of publishers (both B2B and B2C) until recently simply used
the website to protect the print brand rather than to generate
incremental revenue

• In the UK, in the B2C arena, for instance, for years the Time Out web
site wasted its brand potential by acting as a protective digital carapace;
it was all about cheap subscriptions for the print title

It has since been remodeled as a separate, daily updated web guide,
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with the potential to generate its own revenue


Newspaper‐Life After Death?
The travails of the local newspaper industry in developed economies are well attested
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Classified advertising revenue — which makes up the bulk of most newspapers' income — has
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been shifting for 15 years from print to the new media, resulting in an inexorable, unstaunchable
haemorrhage in profits
Paid circulation has declined continuously since the mid 1990s, while advertising as a percentage
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of US local newspapers' revenue will decline to 26 per cent in 2009 from 36 per cent in 2006
Meanwhile, newspapers' share of total U.S. advertising expenditure will have declined to 10 per
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cent in 2009, according to analysts at Barclays Capital, from 20 per cent in 1999
Many newspapers launched online editions in an attempt to protect the core brand, rather than
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generate incremental digital revenue. Few of these online ventures have been unequivocally
successful in creating and sustaining a community or have evolved into separate, fully‐costed
profit centres
Those publishers that have made a success of their Internet businesses have tended not to have
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legacy print interests. This need not necessarily be the case. It is principally a matter of mind set

The newspaper companies have not had a digital mind set. They have viewed digital media as
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a threat rather than an opportunity. Now they are moving rapidly to change their models.


Deloitte Marks the Bottom?
A Deloitte report was issued in the first week of December 2008, addressing the decline
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of both the national and regional newspaper industries in developed economies, and
providing a compendium of the latest information concerning the pace of industry
decline

All the Deloitte report does in reality , is echo this statement from Warren Buffett,
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pointing out why he no longer had no newspaper investments: quot;There's no rule that says
a newspaper's revenues can't fall below its expenses, and that losses can't mushroom….
Fixed costs are high in the newspaper business, and that's bad news when unit volume
heads southquot;

One in ten newspapers (that is national and regional titles) and magazines in the
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developed economies will be forced to cut their output in half, move online or close
completely next year, according to the report from Deloitte

The report also asserts that conditions for print publications will go from difficult to
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quot;impossiblequot; in 2009, as a result of a continuing decline in circulations and plummeting
advertising revenues


Businesses Reaching Communities Directly
• Local businesses simply don't need newspapers, or indeed any local media
source, to get their messages to prospects

• Sometimes, they can buy advertisements cheaper on general sites and
networks that will show them to people in certain ZIP or postal codes.
Moreover, businesses can reach many prospects free, especially in the US,
posting their sale prices on their own Web sites and their classified
advertisements on Craigslist

• So,  advertisers can use different channels to reach their audience and
equally their  audience can use different channels to get the data

• Consumers don't need the local newspaper as the unique source for their
local information

• Can the two be brought back together again?


Mobile: The Next Iteration
Mobile will be the next iteration for media in the local community:
•Assuming the correct technology to facilitate content uploading and in particular to
allow comprehensive and reliable user metric collation and analysis is available, then
mobile can provide what local advertisers want
•Effective targeted advertising, and more reliable user data than anything ever
provided by the Audit Bureau of Circulation or its equivalents for print‐based local
newspapers
•This can be attached to user‐generated content. This opens up the prospect of
web/mobile local networks; where the staple is user‐generated content, rather than
expensive journalist‐produced local news
•GPS technology will afford ever greater opportunities for location‐based targeted
advertising.
•This is not the same as existing mobile newspaper offerings, which are merely web‐
browser‐based iterations of the web site, with all its limitations
•A web/mobile community leveraging the local expertise of the newspaper groups, but
specifically utilising the advantages offered by interactive, digital social media can offer
a last‐ditch lifeline for the fast expiring local newspaper industry


Media Futurology
A European Perspective

Apollo Mobile Ltd

www.apollomedia.net

Media Futurology By Apollo Mobile

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