prospering in an era of disruptive change in media & entertainment february 6, 2007

Prospering in

An Era of Disruptive Change

In Media & Entertainment

February 6, 2007

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FTI Consulting Overview: Who We Are

$800 mm Publicly Traded Strategy Consulting Firm

One of the fastest growing companies in the US (Fortune)

2,000+ Consultants

Specializing in corporate finance, economics, marketing, litigation support and corporate communications

Business Communications Consulting

Forensic &Litigation Consulting &

Technology

Economics ConsultingCorporate Finance, Transaction

Advisory Services

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Focused on Top-Line Revenue Growth Strategies and Marketing

Strategy Organization Process

Top Line Growth

• Market opportunity assessment

• Segmentation• Brand portfolio• Launch models• ROI optimization• Pricing

• Business Unit• Marketing and Brand• Market research/ Insight

teams• Sales

• Customer knowledge• Innovation/ NPD• Market planning• Brand management• Performance metrics

and benchmarking

Analytic Competencies

• Decision Architecture

• Bayesian Decision Tree

• Econometric Modeling

• Scenario Planning

• Mix Modeling

• Cognitive Decision Sampling

• Real Options Pricing

• Game Theory

• Mathematical Programming

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Our Clients: We’ve Seen Marketing Best Practices Across Industries…

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Our Reputation…Thought Leadership in Marketing

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Our Intellectual Capital – Books, Articles, Workshops

Books

Articles

Workshops & Speeches

– Radical Marketing (Harper, 2001) – The Infinite Asset (Harvard Business School Press, 2001); – 60 Trends in 60 Minutes (J. Wiley & Sons, 2002)– Numerous chapters in books, including: Financial Times Handbook of

Management, HBR on Brands, HBR on CRM, and MBA in a Box

– HBR: “See Your Brand Through Your Customers Eyes” (2001)– Sloan Management Review: “Achieving the Ideal Brand Portfolio”

(2005)– Strategy+business: “How to Brand Sand” (1998), “Bring on the

Super CMO” (2003), 21st Century Launch Models (2007)– CMO Magazine “Come Together” (2005)– Plus: Business 2.0, Journal of Business Strategy, FT, Fortune, Wall

Street Journal, Estrategiay Negocios, LA Times, Ad Age, Brand Week, Straits Times, etc.

– Major organizations: American Marketing Association, Direct Marketing Association, American Bankers Association, etc.

– Leading companies: PwC, Pfizer, P&G, Kraft, Philip Morris, Lego, Gap, Dupont, Cemex, Ford, Kellogg, Bose, Hershey, SAP, Alcoa, etc.

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Three Titanic Forces Converge: 1st in a 4-Part Series on Media

• The goal of this series is to seek underlying causes

• To focus not on what is happening, but why it’s happening

• The series is in four parts:– 3 Titanic Forces Converge– Network Economics– Managing in an Era of Mass-Niche

Duality– Strategies for Adaptation

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Ad skipping threatens ad revenues

Fragmented

Reach

US Ad Spending Out of Whack

0% 5% 10% 15% 20% 25% 30% 35% 40%

TV

Newspapers

Radio

Magazines

Internet

US Ad Spending Time SpentEco

nom

ist,

July

200

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MismatchedSpending

The new marketing reality (affecting all industries)

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It’s Official: Gates Says Web Will Revolutionize TV In 10 Years

Dah…..

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3 Titanic Forces Converge

•The Rise of Openness•Broadband•Many-to-Many Networks•Causing extreme divergence in audience fragmentation and content choice

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1st Force: The Raise of Openness• With the internet came open standards: http, ftp,

html, mp3/4, etc.• Openness means barriers to entry fall because

the tools needed for startups are readily available for free or for small licensing fees

• The really bad news for the majors: No Market Equilibrium

• Creates a seemingly chaotic environment of constant innovations entering the market

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Walled Gardens Collapse

CBSNBC

ABC

TNTDiscover

ESPNOxygen

QVCE! Golf Ch.Disney

FoxWB

HistoryAMC

Heavy.com

Very High Fixed Costs, Spectrum Monopolies, etc.,

Little consumer choice

Cable Infrastructure Develops with excess capacity,

Still high rents for network startups

(Oxygen $400 mm to launch)

Consumer Choice Expands

No Significant barriers to entry except legitimate

content

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Retail Radio MTV

Label

Consumer

Artist

MySpaceiTunes etc. Band SiteBlogsFacebook

From Simple to Complex…Record Companies Risk Losing Their Relevance

Record Label’s Traditional Role

Web creates a Label By-Pass

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Temporary Equilibriums May Re-emerge

• In low barier-to-entry environments, equilibriums can still emerge, but they are short-lived

• After 1st Dot-Com, Yahoo, AOL, and MSN emerged as the major portals sharing a dependable portion of the page views and ad revenue

• With the advent of MySpace, College Facebook, their position begins to erode

• On the web, new models and technological innovation will continue to cause instability

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2nd Force: Broadband

• The emergence of broadband will be as important as the invention of the car vs the horse and buggy

• 60%+ of US households have it

• Some European and Asian countries have higher penetration and faster service

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Some Conservative Predictions – Broadband Enabled

• Video will become far more “immersive” on the web as speed, quality and picture size improves.

• Every TV show and movie will be available on demand somewhere on the web.

• The browser and the TV will merge in the living room, creating a “cable bypass.”

• Conventional TV networks and cable broadcasting will reduce to 1/3 of their current viewership and skew toward seniors, who are slower to adopt new technologies.

• DVD-based video games will disappear and be replaced by web-based distribution.

• Games may begin to seriously rival television audiences as they gain broader appeal.

• Advertising will remain the dominant financial model, but will be individualized, more flexible, more measurable and less intrusive.

• Peer-to-peer distribution will become the dominant legal transfer protocol on the web for video.

1954: Rand Envisions the Personal Computer…

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3rd Force: Many-to-Many Networks

• The world has been living with a broadcast model for the last 60 years.

• Cable and broadcast TV, radio, newspapers, portals and websites are all one-to-many networks

• While the internet is built on a many-to-many network technology, most services don’t use it this way: email, skype, are 1:1 or 1:n

Metcalf’s Law: In a many-to-many network there are N2

connections

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Many-to-Many Networks Are Powerful

• YouTube is now streaming over 100 million streams per day• Hard to dislodge• Accustream predicted their were 31 billion streams of user-generated

content in 2006• P2P traffic now exceeds HTTP traffic on the web• Three Reasons For N:N Power:

– Unbounded Size– Efficient Search– Super Distribution

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Super Distribution

n: 0 1 2

Simple Viral Distribution: 2n

n: 0 1 2

Simple Viral Distribution: 2n n 2n 3n

0 1 1 5 32 243 10 1,024 59,049 15 32,768 14,348,907 20 1,048,576 3,486,784,401 25 33,554,432 847,288,609,443 30 1,073,741,824 205,891,132,094,649 35 34,359,738,368 50,031,545,098,999,700 40 1,099,511,627,776 12,157,665,459,056,900,000 45 35,184,372,088,832 2,954,312,706,550,830,000,000 50 1,125,899,906,842,620 717,897,987,691,853,000,000,000

2n

2 3 4 6 8 100

20,000

40,000

60,000

80,000

100,000

120,000

N

Growth of 1 vs 100 Viral Chains

1 Chain

100 Chains

100*2N 15 mm

“Swarming” Dampens This

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Some Interesting Observations about N:N

• Once large, very stable: YouTube, Ebay, Skype• The market may not need two???• What’s emerging:

– N:N News– N:N TV– N:N Games– Content may be inherently N:N, but has been shoe-horned into 1:N all

these years– Encourages place- and time-shifting– Content far more elastic in terms of format, length and interactivity

than we have been conditioned to believe (same with advertising)

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Next in Our Series on Media…

• Part II - Network Effects: The emerging dominance of “network externalities” and a new concept: The Network Good

• Part III – Managing The Mass-Niche Duality• Part IV – Strategies for Adaptation

• To Get On The Mailing List, Email Bruce Benson at bruce.benson@fticonsulting.com

• Blog: FTIMedia.wordpress.com