The Internet and the Value Chains of the Media Industry

Abstract

The Internet has had a significant influence on value creation processes of companies. This applies not only to the electronic communication with suppliers and sales partners, but also to the Internet as a new channel to directly address consumers. While this development has led to more efficient forms of business processes, it has also had an impact on companies’ business models. This is particularly true for the media industry, in which these technology-driven changes have, on the one hand, sometimes led to declining revenues that have threatened the existence of many traditional players. Also the Internet has led to a convergence of media, since in the digital format all media types can be distributed and consumed over the Internet. Conversely, this has also enabled a long list of new ventures and business models. In addition, this development has caused changed market conditions and power proportions between certain players, which have an impact on competition as well as on potential collaborations between different firms. Overall, all of these recent changes fall into three categories that differ in the underlying drivers as well as in their potential impact. For the time being, none of these developments seems to have fully developed its potential yet, so media markets are likely to undergo further changes.

Appendices

Exercises

• 1. Describe the different stages of the value chain in the media industry and mention some examples of concrete functions at each stage.

• 2. How can vertical and horizontal integration be distinguished and what are their underlying motivations? Mention different examples of such integration in different media industries.

• 3. What is an indirect network effect and why is this of relevance to the media industry?

• 4. What are the main characteristics and differences between the two “generations” of the Internet—Web 1.0 and Web 2.0?

• 5. How can media companies integrate consumers into their value chains and what is the impact of consumer integration on media companies?

• 6. Identify the differences between user and professionally generated content, and mention consumers’ motives for and objections to creating user-generated content.

• 7. What kind of new gatekeepers have arisen on the Internet and at which stages in the value chain do they operate?

• 8. Mention examples of each type of gatekeeper and explain which stakeholders are involved in the respective transactions.

• 9. Explain what intermediaries are and what their potential benefit is for certain media markets.

Reflexive Questions

• 1. Envision the consequences for media companies if a further increase in the production of user-generated content occurs. How should media companies deal with this—is it an opportunity for them or a threat to their business model? Is the suitability of user-generated content and its potential acceptance by consumers dependent on specific media (music, books, movies)?

• 2. Assuming that user-generated content will grow, will the value of brands in the media industry further increase or decrease? What is the value of media brands today? Also consider current content aggregation platforms such as Google news.

• 3. How can producers of content cope with the increased market power of certain gatekeepers on the Internet (such as iTunes)? Should they focus on maintaining good relations with these gatekeepers, or rather invest in their own online shops to sell more products and services directly?

• 4. At what stages of the value chain should media companies focus in the future? Should they try to cover a large number of value chain stages or/and media types, or rather become a specialist in certain areas?