Industry Convergence: The New Basic Point of Innovation Development of Media Industry

Shi Zheng

（Beijing Jiaotong University, Beijing, 100044 ）

Abstact：Industry convergence is not only a simple stack of a few industries, but an integration of the new industries and traditional industries. Industry convergence first occurred among the telecommunication, broadcasting and publishing sectors, which was mainly based on the digital technology. As a developing trend in the media industry, the media convergence is stimulated by the fast developing technology, increasingly flexible regulation and the profit chasing. The media value chain has been rebalanced because of the competition, co-operation and digital inter-convergence of broadcasting, print and the Internet. Chinese media has been having various extensions of Internet and the traditional media. With The mutual permeation among the telecom and traditional media, the convergence of each extended business, and the optimization of technology, market and information, the media industry is expecting an innovational break.

Key words: industry convergence, media industry, value chain, innovation

In 1978, Nepuponte from Massachusetts Institute of Technology presents a model with three superposed circles to describe the technical boundaries of the computer, printing and radio. He states that the crossed sections are the fastest growing fields with the most innovations. It is the trend for the industries to be converged to a new industry. In the 21st century, two new terms “Compunctions” and “Telemetriqu” were respectively created by the Harvard scholar 0ettinger and French writer Nora and Mince to present the developing trend of the digital convergence. They generalized the digital exchanges and distributions of picture, music, and files and video as the “digital convergence”.

1. Literature reviewReferring to the industry convergence, scholars have various opinions. The green paper of

European Committee defines the industry convergence as “the triple coincidence of industry alliance and acquisition, technological platform and the market” (European Commission, 1997). Meanwhile “green paper” sates that it will be positively stimulate the employment, economic growth, and cultural prosperity by building the platforms and understanding the developing process of the industry convergence. From the industry changing perspective, American scholar Greenstein and Khanna considered the industry convergence as a contraction and disappearance of the industry boundary, catering to the industry development. (Greenstein and Khanna ,1997)

In recent years, the domestic scholars have also studied this topic. Li Wu wei thought the industry convergence is a gradual process of a new industry in which two different industries are mutually penetrating and crossbreeding(厉无畏，王振，2003)with the new growth point. Zhou Zhen hua suggested that the informatization is the foundation of the industry convergence, so that whole industry convergence should be studied in the information context(周振华， 2003). There are domestic scholars argues for a wider understanding of the industry convergence, rather than the understandings based on the informatization. Industrial convergence is not only a simple stack of

Shi Zheng（1966--），Male，Haining，Zhejiang, director of culture industry management department in Zhe Jiang College of Communication and Media, vice-professor, PhD in Economy in Beijing Jiaotong University, research field: economy theory and policies of cultural industry

industries, but an integration of the new industries and traditional industries. The new industry, which is able to promote the industry innovation and development, is gradually formed through the eternal penetration and integration(厉无畏，王振，2003)。

2. Motivation of the media industry convergence 2.1 Profit maximization is the eternal fundament of the industry convergence.

Innovation in technology and profit pursuit had been tightly connected in the beginning establishment of the Western media industry. The technology innovation forms the mass communication industry, the technology improvement creates the fundament of the scope economic, and therefore develops the profitable business model for the media industry, and further more stimulates the high-pace development of the media business as an industry.

2.2 Increasingly flexible regulation is the external reason of digital convergence [1]. According to the economic management theory, with a great deal of the sunk cost of the natural

monopoly industry, the large-scale repeated investment would cause the consuming or destructive competition. As the consequence, the natural monopoly industry would suffer from the low efficiency of the production and resource allocation. Therefore, it is necessary to have the entering policy to guarantee the effectiveness of the natural monopoly industry. The original intention of governmental regulation is to correct the market failure, but due to the individual interests, information asymmetry and increasing regulation cost, the governmental regulation is losing is original functions. Meanwhile, the technology innovation is improving the flexibility of the regulations. The changing regulation in some foreign countries brought some other related businesses into the media industry which leads to the industry convergence. Multi-media and cross-border are the managerial characteristics of foreign media groups.

2.3 Innovation in technology is the internal motivation of the industry convergence[2]. The impact of technology innovation on the media industry convergence can been seen: first,

technology innovation invented the substitutes in technology and products in which have changed the consuming features of the traditional media products as these substitutes are penetrating into the media production and distribution sectors; second, the changes mentioned above is generating another motivation by at changing the function of media production; furthermore, technology changed the market needs. It stimulates the new needing for media product and offers more space for the converged media industry.

3. Types of the media industry convergenceThere are various ways to achieve the media industry convergence. By looking at the media

products, there are substitute convergence and supplement convergence. The former is sharing commonalities such as the similar products characteristics, functions or some other element; while the later means two or more united products that are better designed then before. In terms of the extent of the industry convergence, there are overall convergence and partial convergence. In the former, it is a whole new industry integrated by two or more industries; latter is just with some sections of the industry getting converged. Therefore, the media industry convergence can be divided in four kinds: penetration convergence, crossing convergence, reorganizing convergence [3]and substitute convergence.

3.1 Penetration convergence. It is often happening between the high technology media and traditional media. With the highly smooth penetration of the new technology, the effectiveness of the traditional media is expected to be improved. In Europe and America, when the satellite entered the broadcasting, it offered subscribers 200 channels while the cable was only able to offer 75 channels, although the cable situation had been significantly changed with 36 times more channels in the 21 st

century.

3.2 Crossing convergence. It is a function supplement and extension [4]. It creates a converged new industry system by gaining a stronger competitiveness with new technology.. Crossing convergence is usually partial integration with the existing of the original industry. For example, the crossing cases among telecommunication, Internet, broadcasting and publishing, etc.

3.3 Reorganizing convergence. It normally occurs among industries which are very close to each other, such as a converged business with newspaper, magazines and broadcasting, etc. in this case, it improves the competitiveness of the media group by offering various media products and services that are different from the old ones.

3.4 Substitute convergence [4]. Industrial convergence is not only a simple stack of a few industries, but an integration of the new industries and traditional industries. Although telecommunication, broadcasting and publishing are three different media sectors offering different media products and services, they share some functional commonalities and features. Digitalization and internet services provide the standard element and sets for the potential substitute convergence. It is an obvious challenge to the traditional printing and broadcasting.

4． Approaches of media industry convergence and innovation development of media industry

Convergence is now the developing trend in the media industry. Broadcasting, printing and the internet are playing roles on the digital stage, competing as well as co-operating with each other [5]. With the technology innovation, there are mainly four approaches of media industry convergence:

4.1 Extensions of the Internet to the traditional media. With its comparatively cheap cost and high-pace distribution, the Internet is called “the fourth

media” [6]. The Internet includes various portal websites and professional websites in its early stage, but with the development of the technology, especially the wide use of the Web 2.0, there are many new media forms emerged on the Internet, such as “Blog” and “Podcasting”. “Podcasting” was first designed with a software “iPodder” and the media player. Today, Podcasting users are able to download audio programs to their Ipod or MP3 players instead of sitting in front of the computer and following the program schedules. Internet users are allowed to produce the audio programs themselves and stream it up on the Internet for the others to share. Blog subverted the passive way of receiving the text information, while the Podcasting subverted the passive way of listening to the radio and makes the audience the active participants. Podcasting is just like the Blog bringing another mass media innovation.

4.2 Extensions of the traditional media to the Internet. Today, the traditional media players have sensed the powerful competition pressure as well as the

great potential value of the Internet business. Many newspapers and television stations have had their own internet services and online accesses to the offline offerings. The traditional media are taking their recourse advantages to get involved in the Internet business [7]. For instance, news web, electronic newspaper, electronic magazine, and IPTV are all considered as the combination of the traditional television and the new telecom business.

For the traditional television distributors, the emergence and the development of IPTV is creating a big challenge. However, to the telecom players, IPTV strengthens the competitiveness with a brand-new application and the various new potential businesses. On the other hand, to the consumers, IPTV brings a new experience that is different from the traditional television and telecom offered before. Since 2003, two fundamental telecom operators “China Telecom” and “China Netcom” entered the distribution field in the beginning of IPTV business. In 2005, SMG was authorized by the SARFT to take part in the IPTV business. During the end of September in 2005, with the respective cooperation with the China Telecom and China Netcom, SMG IPTV testing service had extended to approximate 43 cities. Generally, our domestic IPTV has entered the introductory period. It brings the participants

benefits as well as the challenges to the traditional media mechanism. However, with the drives from various interest groups and increasingly flexible regulations, the future of IPTV in China is expected to be promising.

4.3 Cross between the telecom and media industry. There are two main kinds of convergence among the media industry and other industries

(especially telecom industry): first, the convergence of broadcasting net, broadband, and the Internet; second, penetration of the mobile communication to the media industry, for example, mobile media; As the extended business of the Internet media, mobile media shares some characteristics of the Internet, including its interaction, its fast acquisition of information, high-pace transaction and up dating, etc. Moreover, mobile business also has many other advantages, such as its convenience, instantaneity, privacy etc. Although the development of the mobile media is uncertain because it ’s highly constrained by many elements like technology standards, policy, and business model, the mobile media is changing the current communication structure. It creates the new communication environment, more complicated media ecology, communication subject diversity, etc. The development of mobile media is weakening the social control.

4.4 Reorganization of traditional media sectors; Reorganization of traditional media sectors is an internal organization cooperation and integration. In order to achieve the recourse, business or strategy convergence, it impels the different media sectors to cooperate, ally, and integrate to optimize the recourse allocation. Most of Chinese Media Group is looking ahead themselves to be a multimedia company [8], it is fundamentally a convergence of different media sectors, including the packaging, distribution, operation sections.

Reference [1] Luo, Wen. Ma, Ru fei. Economy Analysis of Industry Convergence [J] Technology and Industry，2005,6[2] Zhou, Zhen hua. Industry Convergence: historical symbol of industry innovation – analysis on case of convergence of telecom, broadcasting and publishing [J] Industry Economy Research, 2003,1[3] Zan, Ting quan. Jin Xue tao. Dang, Na. Media Industry Convergence and Organization Innovation Trends [M].2006 Chinese Media Annual Report, Beijing: social science literature publishing, 2006：76[4] Yang, Gong pu. Xia, Da wei. Industry Economy [M] Shang Hai：Shang Hai Cai Jing University publishing, 1998:5.[5] Liu, Xu bo. Study on Media Organization [M]. Beijing: Economy Science publishing, 2007:104.[6] Zhang, Lei. Industry Convergence and Internet Management [M] Shang Hai: Shang Hai Cai Jing University publishing, 2001: 157[7] Meng, Tian. Zhang, Heng long. Industry Convergence: New Motivation of Broadcasting Industry development [J]. Economist, 2007: 4[8] Hu, Zheng rong. Strategies of Chinese Broadcasting Developmen,. Beijing: China University of Communication publishing, 2003: 187

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