Business Strategy

Achal KaushalF-23, Press Enclave, SaketNew Delhi -110 017Phone : +91-98-103-07184

2009

CONVERGENCE

AND ITS IMPACT ON

INDIAN MEDIA COMPANY’S

STRATEGY

HUGE CHANGES IN CONSUMER END “MEDIA TECHNOLOGY” IN RECENT YEARS….RIDING ON

INNOVATIONS AT ENTERPRISE LEVEL

Streaming VideoDigital Cable

2000-2007

VOD

EPGs Broadband

Portable Devices

HDTV

1950’s 1960’s 1970’s

Internet

Digital Satellite

1990’s

DVD

PPV email

1980’s

IphoneSling box

HDDVD

Blu-ray disc

Satellite

.. ACCOMPANIED BY CHANGES IN THE MEDIA CONSUMER (SOCIO-ECONOMIC EFFECT)

Now1950s

Growing similarity of needs across user groups…..

THE INDIAN SCENARIO

User market 72 million Cable TV households 80 million (approx.) Internet users (approx. 6 % of population) 4 million Broadband Internet users 242 million people have access to printed newspapers 400 million mobile phone users 21 cities tuned to FM Radio (expected to be approx.91 by 2010)

Infrastructure Telecom infrastructure booming with Government working hard on Information

Super highway and broadband agenda. Target wide availability of broadband and 3G services by 2010. approx. 14 players

FM radio infrastructure booming with approx. 7 players (expected to be 40 by 2010)

Print infrastructure booming – 50 major newspapers (approx.) printed in English… including City editions. Total number of newspapers printed in India is in thousands

Many Satellite service networks, Digital Cable growing, iptv launched, Big move towards digital all around

Regulations Moving from Restrictive & Prescriptive towards a more development friendly

framework FDI Norms eased for investment in Media and launch of foreign publications rules eased

DRIVERS OF INDUSTRY CONVERGENCE

Technology Deregulation Business-related

Process technology Telecom deregulation Innovation/new combinations

Technological platforms Financial deregulation Strategizing/Diversification

Internet/IP networking  

Standards 

(Rosenberg,1963; Katz,1996; Gambardella & Torrisi,1998; Lei, 2000; Stieglitz,2003; Borés et al.,2003; Nyström & Hacklin,2005)

(Katz, 1996; Lei, 2000; Nyström & Hacklin,2005, Vong Srivastava and Finger,2006; Boyer and Nyce, 2002)

(Yoffie, 1997; Schumpeter,1934; Choi & Valikangas, 2001; Stieglitz, 2003)

GLOBAL BRANDS RESPOND TO CONVERGENCE CHALLENGE…MEDIA SERVICES NEAR ‘FREE’

N97 Apps By Indian Media Co’s: India Today, NDTV, Rediff, CNBC-TV18; Eterno & Galatta….medianama, June12, 2009

This is a typical response to Demand side convergence involving complementarities in products – NOKIA aggregates services…

India Today: India Today content is available on the N97 via an application developed for them. “breaking news”, “developing stories”, “live coverage” and archival content, apart from a fortune telling feature shall be offered.

NDTV Active: Much like its mobile portal Mobile.NDTV.com , the NDTV Active application will offer News, Photo Galleries, Cricket and movies. The NDTV Active application will be pre-loaded on the N97 in India.

GALATTA Cinema, a magazine and movie portal, has developed a widget for Ovi. The app will bring over 100 pages of news and movie reviews about the south Indian film industry, primarily targeting Tamil, Telugu, Malayalam and Kannada movie buffs. Its iPhone application apparently made it to the Top 20 popular applications under the Books category of the Apple apps store.

CNBC-TV18: Live stock quotes, news and analysis from Moneycontrol will be offered on this widget. Moneycontrol’s mobile site. Market indices refresh every 30 seconds. Users can also search stock prices.

AND GLOBALLY….(REGULATION HELPS)

The Times of India, June 12, 2009

CONVERGENCE HYPE CYCLE

The Hype Cycle is an empirical regularity that has been used to illustrate how the business community and trade press embrace a new technology.

CONVERGENCE…SOME OBSERVATIONS

→ Convergence, like new technology is an enabling tool offering new superior solutions to established and new technical problems

→ Importantly it is an enabler for business strategists instead of technologists

→ Early movers from 1994 implementing Convergence strategy missed to consider the impact of the Internet

→ 1997 and after, the internet gradually made Convergence strategies possible with viable business models

→ Around 2001, the concept reached Plateau Of Productivity

→ ??? Has mobile and wireless Convergence been factored yet?

THE CONVERGENCE OPPORTUNITY

NEW AGE MARKETS/USERS & CONSUMPTION DEVICES

ipTV

Music -VideoAudio

Mobile / Wireless

Information AudioViews VideoNews Digital

Comments Publishing (P2P)

www.

Digital Content

Categories

Distribution Platforms

Digital Interactive fixed

Video

New age usersHybridsLaptops Mobiles with Cameras, High memory & data functions

PCsPDAs

Media

Games Digital Publishing-Brands, Products

B2B, B2C, B2GG2B, G2C

TV RADIO ONLINE PRINT

Analog Customers

Traditional Markets

B/W TV Doordarshan

Low end technology

Low end PC

Aakashvani

B/W Mobiles Newspaper reader

<25 =54% population

THE INDIAN CHALLENGE

Only about 40% internet users like to access English content

Major technologies for consumer interface today address english understanding/speaking population

Given the Indian per capita income, PCs and high definition TVs etc. may not get a deeper market penetration

GPRS enabled, superior data functionality mobile phones shall take some time before reaching a critical mass

For a majority of Indian population, a mobile device may be their first experience or gateway to experience of internet and other IP services

THE MAJOR CHALLENGE FOR MEDIA COMPANIES (INHIBITED BY “PATH-

DEPENDENCE)….

“How do we make the transition from our

businesses of today to the future businesses

of tomorrow, without adversely affecting the

businesses of today? Profitability may

suffer? We may not succeed at all?”

---must be resolved through Business

Strategy

CONVERGENCE & MEDIA COMPANY’S STRATEGY

All convergence processes have been seen to

impact the boundaries between industries and

thereby posing strategic challenges to

organisations, causing them to face new

technologies, consumers and needs, which means

that organizational capabilities in face of

Convergence are either rendered obsolete or

degrade significantly. The dichotomy between

Coherence and Convergence must be resolved

through Corporate Strategy.

NEW COMPETITORS HAVE ALSO EMERGED – UK, TV EXAMPLE

Examples Competitive Advantage

ChallengesCategory

Major broadcasters

Internet companies

Device driven players

Telecoms/IPTV

Emerging Web TV/Video companies

Others

NBC Universal, BBC, ITV, Chanel 4, BskyB

Amazon Unbox, Google Video, Yahoo, AOL, MSN

iTunes, Xbox live, Sony PSP, TV manufacturers

BT Vision, Orange, Tiscali

Joost, Babelgum

Vudu

Customer memory, making partnerships work, Licensing

Don’t own content, PC solution

Access to content, installed base, customer experience

Limited content, closed system,critical mass of customers

Premium content, brand, audience, PC solution, Technology

Another set-top box

Own content, customer facing brands, cross-promotion capability, audience shares, catch-up TVOnline audience share, deep pockets, internet experience

Installed base of devices (which drive adoption), partnerships with DTH/IPTV players, TV solutionControl broadband infrastructure, deep pockets, usability

Internet experience, involvement of some major content owners

TV solution, clever technology, content deals

DEFINITION OF CONVERGENCE

Concise Oxford English Dictionary defines the word Convergence as “come together from different directions so as eventually to meet”.

A working definition of Convergence could be something like :

“A confluence and merging of hitherto separated markets, removing entry barriers across the market and industry boundaries.”

FRAMEWORKS FROM ECONOMIC THEORY

Date Scholarly work/ Author

1985 Michael Porter & Victor Millar

1995 Harianto & Pennings

1996 Katz

1997 Greenstein & Khanna

1998 Gambardella & Torrisi, Duysters & Hagedoorn

1999 Mueller

2000 Bohlin et al

2001 Wirtz, Pennings & Puranam

2003 Stieglitz

With the exception of Pennings & Puranam, Stieglitz and Greenstein & Khanna, these articles only use the term without a systematic reflection about its definition.

In the semi-academic business literature there is a significant discussion about the impact of Convergence but few attempts to anchor the term in a theoretical framework (e.g. Yoffie 1997).

CONVERGENCE & ECONOMIC THEORY

Most of the identified theoretical articles about Convergence have taken an industry perspective

“Convergence strategies” are a response to re-definitions of industry boundaries

Company restructuring and strategies during Convergence is a re-action to the outside force of industry restructuring

NOTABLE WORKS ON CONVERGENCE & ECONOMIC THEORY

Greenstein & Khanna – 1997

Pennings & Puranam – 2001

Stieglitz – 2003

Yoffie : 1997 to 2001 Competing in the Age of Digital Convergence Competing on Internet time Judo Strategy

GREENSTEIN & KHANNA,1997 ON IMPACT ON CONVERGENCE ON INDUSTRY BOUNDARIES

Focus on action at the boundaries between industries

Convergence in substitutes and Convergence in complements

When two different product classes starts to share features that will make them interchangeable for customers, we will have a Convergence of substitutes

If two product classes work better together than by themselves we have Convergence of complements

PENNINGS & PURANAM, 2001-- ADD A SECOND DIMENSION TO THE SUBSTITUTE – COMPLEMENT DIMENSION

Introduction of Supply Side Convergence and Demand Side Convergence

Supply Side Convergence in Substitutes occur when different technological capabilities become similar and can satisfy the same set of needs

For example, Convergence between biotechnology and pharmacology – where two different technologies can solve the same medical problem in different ways

Demand Side Convergence in Substitutes occur when needs of different consumer segments become similar

For example – Globalisation and homogenisation of market segments

Complementary Convergence on Demand Side is a mirror image of the Supply Side Convergence and arise when different but related consumer needs are met by product bundling

For example – partial merging of consumer and investment banking

STIEGLITZ , 2003 – RE-LABELS THE SUPPLY-DEMAND DIMENSION

Technology Vs Product based Convergence

Complement Convergence in technology is called Technology Integration and occur when two technologies can be combined in a way that creates a new type of product e.g. PDAs

Product Based Substitute Convergence involve increased cross-industry competition, created by increased overlap in capabilities between two industries e.g. growing overlap between mainframe and minicomputer markets

DAVID B. YOFFIE INTRODUCES “NEW COURSE IN HARVARD BUSINESS SCHOOL ”

Convergence examples, suddenly, are plentiful. Computing and entertainment have come together in the TiVo video digital recorder, which allows users to time-shift their TV viewing. According to Yoffie, entertainment and communications are coming together to produce a mobile music revolution—the distribution of digital music over wireless networks. And your cell phone has also become a camera, music and video player, personal organizer, instant messaging device, and any number of other products all rolled into one.

Why convergence now? A primary factor is the ever-onward march of processor technology. By the year 2010, says Yoffie, who sits on the board of chipmaker Intel, a single computer chip will deliver 1 teraflop of processing power, and today's high-end, high-speed chips will migrate down into a wide swath of consumer devices. Another key driver is the arrival of broadband technology on a global scale, which allows bandwidth-intensive applications, such as video, to shoot from device to device in the blink of an eye. Wireless is another enabling technology, allowing the computer and other digital devices to access the Internet and other networks from an ever-increasing number of remote locations.

"The key strategic question is where to play in the value chain; very few firms can be successful along the entire vertical chain in a converging world. In the course(starting 2006), we try to dissect where, and under what conditions, you want to focus on horizontal layers in the value chain versus offering fully integrated solutions," says Yoffie.

The Wireless Mobile Music Revolution, which explores whether wireless carriers can beat Apple's iPod in digital music. (part of Yoffie’s updated course – Strategy and Technology)

SOURCES & REFERENCES

NBC Universal

Medianama.com

Jonas Lind, The Convergence Hype Cycle, article submitted as “extended abstract” to ITS Berlin, 2004

Jonas Lind, Stockholm School of Economics, Convergence: History of Term Usage and Lessons for Firm Strategists, June 2004.

  Interactive Content & Convergence, A Study for the European Commission,By

Screen Digest Ltd, CMS Hasche Sigle,Goldmedia Gmbh, Rightscom Ltd, October 2006

Pennings & Puranam, Market Convergence & Firm Strategy, Paper presented at ECIS Conference, 20-23 Sept.2001.

Siddharta Menon, Policy Impediments to Media Convergence, International Journal of Communications Law & Policy, Issue 12, Winter 2008.

  Benjamin Weaver, The Institute of Economic Research, Industry convergence,

Paper submitted to the 19th NFF conference in Bergen, 9-11 August 2007.

ABSTRACT

Before 1994, the western world witnessed debate on Convergence rather internal to the Infocom industry. Around this time, the potential of information super highways, video-on-demand (VOD), interactive television (iptv), Internet and fixed-mobile Convergence came to the fore.

Ever since India has followed in the footsteps of the western world and starting 2005, the impact of convergence has started to be felt here.

INDUSTRY CONVERGENCE

Definition Types

The merger of two or several hitherto separate industries, whose initial boundaries are defined by firms producing close substitutes. Convergence in substitutes

Different product types share features and provide same function for end users

Convergence in complementsPreviously unrelated products are bundled together to form new, value-added class of products

(Greenstein & Khanna, 1997; Dowlinget al.,1998, Lei,2000; Pennings &Puranam, 2001,Stieglitz, 2003

SUPPLY SIDE OF CONVERGENCE

Convergence on the supply side occurs when new technologies are discovered which map on to needs already being satisfied by existing technologies. This implies that the needs satisfied by different technological capabilities begin to overlap to a greater extent and create a situation where one technology sup-plants another by offering the same benefits eventually perhaps at lower costs.

The example is my current industry of work. Today a traditional television broadcast service is being challenged by ipTV and a step further. As illustrated above the mobile phone is gradually gearing up to encompass all possible media, entertainment and communication needs of the modern world.

DEMAND SIDE OF CONVERGENCE

Demand side Convergence can be inferred from the growing similarity of needs across groups of consumers. This is also known as Convergence of markets.

Specific to the Media industry Convergence, the example we see today is the need for news and information on the move which is cutting across socio-economic classes and then diffusion of communication, media and entertainment as may be termed by ‘product bundling’ wherein the mobile phone is also a FM radio and a device to read and interact on news items. In near term, we will see the ubiquitous mobile phone becoming a mobile TV as well.