Title: Competition and Cooperation in a Networked World
1Competition and Cooperation in a Networked World
2Couch Potato Famine Prospering Through an Era of
Disruptive Change in Media
- Part I Three Titanic Forces Converge
- Open Standards cause barriers to entry to fall
lots of new entrants business models - Broadband unleashes video
- Many-to-many networks causes collaborative
distribution
- Part II Network Economics
- The behavior of network goods
- Competition vs Co-opitition
- Who Commoditizes Who?
- Strategies for Content Owners
3I. The Behavior of Network Goods
- We are primarily interested in many-to-many
networks - Characterized by the fact that their usefulness
is determined by the number of members - YouTube, eBay, Skype, Lime Wire, MySpace, AIM,
all P2P networks, fax machines, telephones, etc.
- Just because it is delivered through a network
doesnt mean its a network good. - Most content is delivered today on 1-to-many
(broadcast) networks - These are not network goods even though they are
delivered through a network their usefulness is
not dependent on the number of users - Yahoo, Television networks, most web sites
4II. Competition and Co-opitition Among Networks
- Consumers are compelled to use the biggest
network - First-to-market is an even bigger advantage in
many-to-many networks - In zero-sum networks, the winner enjoys a
positive tipping point, the loser a negative one - The bigger the network the greater the lock-in
5Switching Consumers
Basic switching Benefits price Switching costs
- To switch consumers from the market leader, the
upstart needs to exceed their benefits while
min-imizing price switching costs - Since theres no price or switching costs,
benefits of the upstart network size loss - For some many-to-many networks the market only
wants one
Network Switching Benefits network size
gain/loss price switching costs
6Co-opitition Among Network Competitors
- The leaders size advantage is neutralized and
consumer utility increases when services become
compatible - Incompatibility is more expensive than
compatibility - Maintaining your own compliments
- Price wars
- Marketing costs to tout advantages of proprietary
standards - Lower market share
- Once the market leader has gotten his market
share under incompatibility, they often switch to
compatibility
7Content and Distributors Are Compliments
- Complimentary partners in a network will attempt
to commoditize each other - While content owners strive to commoditize
distributors, large distributors try to do the
same to content owners - Distribution networks only exist (legally) when
the partners business models are aligned
8What It Means for Big Media Who Commoditizes Who?
- We adopt the point of view of media companies
because distributors should know their best
strategy - Leverage means the negotiating power of the two
parties, distributors and content owners - At the top, network distributors range from weak
on the left to strong - Distributors are weak when they are non-zero sum
and there are several - Distributors are strong when they are zero-sum
and stronger still when there is only one
dominant distributor
Leverage Map
Network Distributors Leverage Weak
(Fewer Competitors, Zero-Sum) Strong
Content Owners Leverage Weak (Brand
Strength, Unique Content) Strong
9What It Means for Big Media Who Commoditizes Who?
- On the left are content owners, ranging from
weakest at the bottom to strongest leverage at
the top - Content owners are weak in this negotiation when
they have undifferentiated content or weak brand
identity - Music labels have weak brand identity with their
bands so aggregators are needed - Strong brands with highly differentiated content
like Greys Anatomy and ABC or WSJ have strong
leverage - Strong brands are not so reliant on aggregators
Leverage Map
Network Distributors Leverage Weak
(Fewer Competitors, Zero-Sum) Strong
Content Owners Leverage Weak (Brand
Strength, Unique Content) Strong
10What it Means for Big Media The Grey Zone
- The grey zone is where there is a dominant
distributor(s) and your brand or product is
undifferentiated - In the grey zone, your only choice is to partner,
and your partner will set the terms - Youll still have your own websites, but you
wont get much distribution from them - To get out of the grey zone, you can either
distinguish your product (difficult) or weaken
your distributors (shift to compatiabilty) - Large distributors keep content owners in the
grey zone by remaining strong and zero-sum if
possible
11What it Means for Big Media The Yellow Zone
- Content owners in the yellow zone are not strong,
but neither are the distributors - Their best deal is to co-exist, meaning they will
have their own websites and also have
distribution partners - Weaker brands will get most distribution from
partners, stronger ones (NY Times) from their own
sites - Their strategic goal is to strengthen brand and
content esteem to make it into the green zone - Foster many distributors by imposing reasonable
terms on start-ups
Widgets may allow a distributor bypass
12What it Means for Big Media The Green Zone
- This is the best place for content owners with
strong brands and products and weak distributors - There arent many companies in the green zone
today. Green zone companies will partner on their
terms and distribute themselves - Their goal is to keep distributors weak and
plentiful - A special case is massive multiplayer online
games, which are their own many-to-many networks - Note that with social networking tools a show or
news event becomes a mini many-to-many network
and a destination
13What it Means for Big Media The Embattled Red
Zone
- The red zone is where both content owners and
large distributors are strong - Viacom is suing YouTube, CBS, Fox and NBC form a
consortium, ABC is going it alone - The consortium is really a coexistence strategy.
They are engaging multiple distributors (AOL,
MySpace, Yahoo) thereby commoditizing them and
shifting the consortium into the green zone - They are leaving YouTube with amateur video
- Most are also tepid in their partnership with
iTunes because they dont want to end up in the
grey zone like the music companies - Hot properties with strong brand associations are
different than old shows who need aggregators
14In Summary
- We believe media is only 30 invented
- We are entering an era driven by the economics of
attention - Content owners and new distributors will compete
over the variables in the switching equation - And struggle for leverage to avoid being
commoditized
To Learn More, Contact Us Bruce Benson Senior
Managing Director Entertainment Media FTI
Consulting Bruce.benson_at_fticonsulting.com 203.606.
3854