Updated Reprint of CTAM Magazine Article
To compete in the digital broadband marketplace, media and entertainment companies need to move their traditional business models above what authors, Gary Rylander, Mikki Shull and Victor Harrison of IBM call “the e-line.” In the following article, they outline various e-business models designed to help program suppliers and broadband cable operators manage content, enable commerce and build customer communities.
In recent years, news headlines have been dominated by the convergence phenomenon, commonly understood as the melding of television, computers and the Internet. Convergence is driving alliances and mergers throughout the media and entertainment industry, as most recently evidenced by the AOL/Time Warner merger announcement. Fundamentally, the industry is grappling with the opportunities, threats and the coming reality of distributing all forms of digital content through broadband channels whenever, however, and in whatever format the consumer desires. As cited in a recent New York Times article, “America Online wants to change the way people use television.
Without changing the television channel, the [cable] subscriber can participate in chat sessions about a program, check stock quotes, browse Web sites, participate in instant Time magazine polls and maybe shop for Sylvester and Tweetie T-shirts online while listening to streaming audio from the Warner Brothers music catalog.” Other contenders in this arena include AT&T Broadband and Microsoft, given its alliances with MSN, WebTV, and some cable operators.
As the convergence wars heat up, the boundaries between players in the media supply chain will continue to blur or disappear. To compete in the digital broadband marketplace, media and entertainment companies will need to move their traditional business models above what we refer to as the “e-line” at IBM (see Figure A).
For program suppliers and broadband cable operators, moving above the e-line will require adoption of innovative e-business models to manage content, participate in and enable commerce, and build customer communities.
THE FUTURE OF E-CONTENT
In the broadband future, we will no longer view the same cable program en mass, with probably the exception of live events for news, sports and entertainment We will choose entertainment, commerce and information based on our specific interests and convenient to our personal schedules. We will access programming via television, computers, or pervasive computing channels, that may include everything from cell phones and Palm Pilots to automobiles and appliances connected to the Web.
To take advantage of these alternate distribution channels and revenue opportunities, programmers must transform their underlying broadcast content model. In the current analog world, content and information about that content reside in silos across the enterprise. Customization of content is a manual, cumbersome and expensive process. The challenge is to cost effectively produce and maintain multiple versions of content in variant, hybrid formats.
e-Content models link metadata to media objects so that they can be accessed on-demand, embedded with e-commerce transactions, and readily repurposed or mass customized or personalized with minimal human intervention (see Figure B). To move above the e-line, programmers will need to transform and gain efficiencies in the e-content lifecycle from acquisition through production, distribution, archiving and reuse.
The e-Content model must also extend beyond the enterprise and foster industry connectivity. The industry value chain encompasses programmers, broadband cable operators, advertisers, agencies, publishers, record companies, Internet.coms, production houses, marketing data firms and others. For broadband cable operators, moving above the e-line means retooling their delivery infrastructure to handle broadband e-content and transactions in all its variant forms. This infrastructure spans editing, channel integration, permissions, feeds and transmission, trafficking, subscriptions, sales, billing and customer service.
THE E-CONTENT FACTORY MODEL
The broadband cable customer wants e-content (broadcast, audio, print, Internet and commerce) accessible on demand, “pushed” over unidirectional channels and “pulled” down via bi-directional channels, based on profile attributes, in different viewing formats. To meet this demand, all interactive and e-commerce elements must be specified or anticipated in the e-content factory production process. Essentially, broadband cable programming will need to be developed in the same manner that Web sites use today. XML (Extensible Markup Language) tags are used to make e-content “intelligent,” capable of dynamically reconfiguring and minimizing multiple versions of content.
The news program will have a sports and business feature, each with a long and short version. For customers that show high interest in sports and low in business, the program will include the long version of sports feature and short version of the business feature. The advertising agency has developed different versions of the Blue Navy ad for seniors, “casual Friday” adults, urban teens. This targeted ad campaign varies by both customer profile and geography. Customers can opt to switch between main screen versus inset views on demand and the content must morph on demand to meet this viewing preference.
THE FUTURE OF E-COMMERCE
There is an old adage that says about 50% of advertising is wasted, but no one knows which 50%. In the age of broadband interactivity, we will know for the first time which marketing messages are effective. Based on this wisdom, marketing messages can be targeted and versioned for the individual. Linkages between products and programming will be increasingly electronic. With the blend of broadcast, Internet and virtual reality, the viewer can get a rich brand experience, a real look and feel for the product. All of these factors will likely increase the use of broadcast cable television as a viable channel for advertisers to sell product.
This presents new e-commerce revenue opportunities for broadband cable operators. For instance, the cable system can be paid a percentage as product is sold, be compensated based on combined cablecast and Internet marketing impressions, or collect fees for e-commerce site hosting and fulfillment services.
To pursue these revenue opportunities, broadband cable marketing, sales and programming functions will need to focus their efforts on the question of “How can programming and ad content with embedded e-commerce be exploited?” This will require a better understanding of merchandising and consumer behavior.
Broadband cable operators will face many competitors. Over-the-air broadcasters with new DTV and back-channel capability (e.g. Geocast), broadband Internet portals delivered over DSL, satellite and fixed wireless will all compete with cable. Each of these competitors brings strengths and weaknesses to the competition. The challenge for broadband cable operators is to determine the core competencies they can bring to bear in this struggle and capitalize on those core competencies.
Broadband cable operators must also gear up to deliver a compelling interactive e-commerce user experience, and address the operational challenges of transaction management and stewardship. e- Commerce execution requires bulletproof integration of e-content, products, subscriber services and transaction data (see Figure C). Every broadband competitor to cable can execute some variation of the business models described here. We believe that broadband cable systems have a unique strength in this competition. Cable operators are the most local of broadband competitors. Whereas broadcasters typically cover a broad geographic area, broadband cable operators can “brand” themselves at a local level. Each of the models can be tweaked to great advantage by a cable operator with a community-based brand presence.
THE SUBSCRIPTION SPONSORSHIP MODEL
E-commerce will grab ever-larger shares of our wealth. In some product categories it will surpass bricks and mortar. For example, during the 1999 holiday shopping season, it appears from recently released analyses, that more books were sold online than from physical bookstores. If things progress as expected, much of this online shopping will be conducted through broadband cable Internet portals. Cable may find a commonality of interest with retailers such as Walmart, to create an affinity program. For example, a customer spends $3,000 through the broadband cable portal at Walmart this year and Walmart pays for the cable subscription. Broadband cable systems can also bring together, through an affinity program, local merchants who could pool the cost of subsidizing customer subscriptions based on online sales through the cable portal.
THE PRODUCT PLACEMENT MODEL
Most content on both broadcast and cable has little relationship to commerce. While ancillary merchandising often influences children’s programming, and home shopping and infomercials have strong ties to commerce, these are the exceptions to the rule. Generally, programmers create content to attract a specific demographic, but there is not direct linkage between the programming content and the advertising. Given the tight integration between content and interactive commerce, there are expanded opportunities for direct sponsorship of content in the age of convergence.
The 1960’s TV series, Route 66, starred a Corvette and two young travelers emulating Jack Kerouac’s existential travels. No one will ever know how many Corvettes were sold as a result of being featured in Route 66, but if it were reincarnated next year, there would be no doubt. Viewers could click on the screen and be hot linked to additional information about the car, (or competing car models). The transactions could take place online with the broadband cable systems aggregating viewer demand for a local dealer. Hot links in the show or in other Corvette spots could download coupons, which can be carried to the local dealership. Audit trail information would track which spot or product placement resulted in demand creation as well as the time between the coupon download and the coupon redemption.
THE FUTURE OF E-COMMUNITY
First of all, it is important to understand that building an e-community portal is quite different from building a subscribing customer base. It is not just about content delivery or technology, but empowering a community and building consumer loyalty using technology. Those are the portals that have AOL-like power.
From a strategic standpoint, cable operators must shift their affiliation, and become recognized as the community voice. Traditionally, in order to protect and grow ad revenues, the broadcaster represented the voice of the advertiser. An e-community centric view will require cable to better understand and demonstrate their understanding of local consumers, retailers and service providers, leisure and entertainment venues, education and public sector interests.
THE ‘PIED Á TERRE’ MODEL
The world of e-commerce is rapidly turning into a competition between the Internet “pure plays” and the so-called “clicks and mortar” sellers. The Internet pure plays are those sellers who exist only in cyberspace, such as Amazon.com. Clicks & mortar sellers are those who have physical outlets as well as cyberspace, e-commerce initiatives, such as Barnes & Noble or The Gap.
The e-commerce statistics over the past few quarters substantiate that there are significant advantages that can be exploited by a company that has both a physical presence in the community and a presence in cyberspace. The ability to have a convenient location for fulfillment, returns and customer service is a boon for creating a value proposition for many classes of customer. For those entities that are currently Internet pure plays, the physical office of the broadband cable system in the community make a potentially attractive partner. The French term, Pied á Terre, (literally meaning “foot on the earth”) came to represent the small, convenient, accessible apartments maintained in the city by wealthy Parisians who maintained their primary residence outside the city, but who often needed a convenient place to stay in the city. In the world of cyber, e-commerce, a conveniently accessible broadband cable outlet in the community can serve the same need.
Goods that have been purchased through the cable system’s e-commerce capabilities can be returned or serviced at the local cable system’s office. Broadband cable operators can also affiliate with other companies to provide this capability to Internet retailers. Affiliation partners include delivery companies, such as Federal Express and UPS; convenience stores, such as 7-11; and logistics companies, such as Ryder. While any of these affiliation partners can compete for the same Pied á Terre business model, cable systems have the branding advantage that comes with being the gateway for these transactions in the new world of broadband convergence.
THE COMMUNITY DEMAND AGGREGATOR MODEL
A number of commentators have observed that the Internet is the great equalizer between sellers and buyers. Traditionally, sellers had more information, superior communications, and thus greater power. The wealth of information available to buyers on the Internet, and the ability for communities of buyers to easily and rapidly form on the Internet, has irrevocably altered the balance of power between sellers and buyers.
The growing power of buyers is being harnessed by a variety of dot.coms such as Mercata and Accompany. (The well known Priceline.com is a seller-driven aggregator in which the seller has the final say as to whether or not to accept the buyer’s offer.) While these models are suited to a cyberspace-only model, the community based, physically sited broadband cable system can put a few unique twists on these models.
Using its local presence as an advantage, a broadband cable system could aggregate a group of homebuyers, who purchase a plot of land and jointly contract with a local homebuilder to construct their houses. The local cable system would take a finder’s fee. This type of group transaction would not work well over a widely dispersed area, but is perfectly suited to the community footprint of some broadband cable systems.
Aggregating demand on behalf of buyers is the opposite of the way most media and entertainment content has historically been subsidized. However, in this new age of increased buyer influence, it may be wise for broadband cable operators to re-examine whom their most important and valuable constituents are.
THE COMMUNITY EDUCATOR MODEL
The home schooling movement, school vouchers and the advent of more bandwidth with interactive content may well provide broadband cable systems with the opportunity to collect the $3,000 to $6,000 per year, for each K-12 student, typical in most localities, to deliver educational content. Broadband cable channels could be dedicated during low rated mid-day parts to cablecasting education content. Hot links in the content can be used to link the students to assignments, other education resources, teachers and tutors, as well as their fellow students. Because operators are community based, they have an innate advantage here, but other cyber competitors are already gearing up to compete with public education.
In short, broadband cable operators must understand the dynamics and power of the ecommunity to become the consumer channel of choice in the coming age of convergence.
HOW TO STAY AHEAD OF THE CONVERGENCE CURVE
The battle for the broadband market will be waged and won over the next three to four years. Virtually every observer of the marketplace has opined that enough bandwidth will reach the consumer’s front door by 2003, creating critical mass and high user expectations. As you prepare for the future of broadband cable, think carefully about moving your organization above the e-line and the strategic challenges posed by the C3 of Convergence… Content, Commerce and Community and keep these strategic next steps in mind:
Upgrade the cable plant infrastructure to deliver broadband service offerings. We can talk about how companies like Qwest, Level3, Williams, AT&T Broadband and the like are building the super-infrastructures to enable broadband development and distribution. But it is up to the broadband cable operator and program suppliers to enable their infrastructures to interface and network with the big, fast pipes being built in the ground and in the sky.
Programmers must leverage broadband technology to exploit multiple media types and formats across multiple distribution channels. Broadband cable operators must not only upgrade their plant with fiber optics and digital electronics, they must upgrade their infrastructure with integrated intelligent enterprise systems, operational support systems and business processes.Start thinking about how a cable system can better understand and build community now. Broadcast cable operators must understand how to establish community dialogues, build brand identity and foster brand loyalty in an interactive mode. This is fundamental to future subscription revenue, targeted interactive advertising offerings, and becoming a dominant e-commerce portal to the consumer.
With broadband interactivity, cable system operators could potentially become the definitive source of data on consumer viewing patterns and buying preferences. Becoming a channel for e-commerce will require forging much tighter links between the broadband cable operator, advertisers, agencies and the consumer.
Broadband cable operators will need appropriate tools and skills to gain more customer intelligence, as well as draw meaningful conclusions about individuals and communities. In the e-business transformation process, you may need to add new tools to your arsenal such as Business Intelligence, Customer Relationship Management, Knowledge Management, Supply Chain Management and ‘Distributed Learning’ applications.Educate, communicate and market broadband to employees. Before cable operators market to consumers, they should first educate their front-line employees, whose interaction with customers gives them a critical perspective, as well as opportunities to answer questions and communicate the excitement of broadband’s offerings. Knowledgeable employees, armed with product and service information, are an important link to creating highly satisfied customers.
Organize to meet the challenges and capture the opportunity. Moving above the e-line is really a team effort across the enterprise, requiring integrated execution In the Internet age. Companies must understand what business they are really in and how to protect their customer franchise as they move from traditional to online delivery. They must decide whether to get on the bleeding or leading edge, with its inherent pitfalls, or wait and risk losing the market. They must be able to produce product improvements, as the market continually reinvents itself.
Program suppliers must work in conjunction with broadband cable operators to deliver high quality broadband entertainment, information and services. They need to build an integrated operational model to create content and deliver it to the home in whatever format the user wants. Programmers need to make their content more pliable and adopt digital e-content management practices. Broadband cable operators need to rebuild their infrastructure to support interactivity, e-business and customer service through set top boxes, wireless devices and home appliances.
In response to change, companies must continually assess the operational impact on the organization and determine how to best redeploy, leverage or acquire resources needed to get the job done. Companies must cultivate the right alliances to compete successfully and in non-traditional market segments of the media and entertainment value chain.