Possibilities Podcast Episode: 4
Digitization isn’t coming to media companies. It’s already here. Just ask the music industry about the Napster panic.
How does a media company survive, much less thrive, in an era of digitization?
Craig Besnoy knows all about digitization, and how quickly it can change an industry. He was working in the music industry in the early 2000s when Napster sent the music industry into a panic.
On this episode of the podcast, Craig joined us to illustrate how media companies can not only exist, but succeed, in the digital market. Here’s how it all went down.
The Music Industry Was First With Digitization
All was well in the music industry. Until Napster came in 2000. Then, everything changed.
Napster brought about a significant change in how consumers valued music. Before, consumers would spend around 15 dollars on a CD with 10 songs. They’d skip eight or nine of them to listen to the two they really liked.
That all changed with Napster. After Napster, consumers were able to share music files across the internet and download only those songs they wanted.
What was the music industry’s first response? Lawsuits. They hoped they’d be able to lawyer up and stop the way consumers listened to music. But the more lawsuits the music industry brought, the more consumers turned to piracy to listen to music.
The days of $15 CDs were over, and if you can’t beat them, join them.
Access Over Value
After Napster, the value of an individual song was set at, or just above, zero. However, the access and the services attached to media held great value to consumers.
The music industry reworked its model, and eventually responded with various subscription services like iTunes and Spotify.
Craig noted how the music industry’s first response was miscalculated. If instead of lawsuits, the music industry had realized the game was already changed, the music industry may have had a say in the valuation of individual songs. Instead, they found themselves following rather than leading.
Music Isn’t the Only Media Being Digitized
Digitization isn’t unique to music. As access to greater bandwidth has increased, video has followed suit, and consumers feel similarly about other media content: They don’t want to purchase a 100-channel cable or satellite TV package to only receive the two channels they really want.
In the old days, HGTV provided their services to 130 million customers by selling to four or five major cable and satellite TV providers. Now, thanks to smartphones, they can deliver content directly to individual customers.
This provides a unique opportunity. Before, media outlets had no idea how their content was being consumed. Now, they have access to mounds of customer data.
Media companies have to shift their thinking -- they aren’t just providing media anymore. They are using data to create a variety of tailored content straight to their customers.
“Going from a Media Company to a data-driven media company is really important. And it’s going to be one of the key factors in the successes of a media company going forward,” Craig Said
Subscription + Ads + Commerce = Average Revenue Per User
The way media companies are thriving now, is by employing a variety of methods to drive revenue.
Three main categories of revenue exists: subscription fees, advertisements, and commerce.
Using a variety of methods for different users, a company can add all these revenue streams together. Then, by dividing the total revenue by the total number of users, you reach a number called Average Revenue Per User or ARPU.
Using Mixed Models to Drive ARPU
One individual may be satisfied paying $15 month subscription for the ESPN app to have access to content. Someone in a different income bracket may want access to the same content without the subscription fee. So to generate the same revenue from that customer, a company could show them additional advertisement, thus driving the same ARPU from both.
3 Phases of Customer Data Analytics
How does a company strategize and employ these various methods? They need to use their data to empower their mixed model methods using three steps:
1. Unified Customer View: Media companies must synthesize and integrate their data from consumers across different platforms to create a single-view of the customer.
Example: A company whose asset is Bruno Mars. Alex is a fan who listens to Bruno Mars and goes to concerts, and is in a Facebook fan group.
The company needs to bring all these touchpoints together so they can synthesize how their product is being consumed. What tickets did Alex buy, front-row or nosebleed seats? Did Alex post pics across social media? How often does Alex stream the music?
2. Increase Business Intelligence: In Phase 2, companies can define user profiles, test analytics, and generate algorithms that will establish their KPI metrics (Key Performance Indicator). Ultimately these answers will help a company determine their ARPU.
3. Test Mixed Revenue Models: In phase 3, companies can test their mixed revenue models against the analytics they’ve established. What offers work with which customer profiles?
4. Decision Science: Companies can apply the knowledge they’ve received into making decisions. Using Artificial Intelligence they can determine which mixed models drive the highest ARPU.
Media companies can survive in today’s market. In fact, they can thrive. To do so will require an entire rethinking of how they deploy their content, and how they drive revenue.
By collecting and analyzing their customer data, they can provide highly individualized content to consumers and drive ARPU.
By transforming into a data-driven media company versus a media company, they can lead instead of follow the market. We can all learn a lesson from the music industry.
To listen to this episode, click here.