Digital Conversion and Convergence
Chapter 10
Conclusions
Going beyond general management functions in media organizations, this book zooms in on a specific area of media management and eco- nomics studies that tackles the subjects of media strategy and brand- ing in the context of an emerging digital media marketplace. Asserting that media products have certain inherently unique characteristics that necessitate the revision of some generic management concepts de- rived from nonmedia industries, this book reviews relevant business frameworks and concepts for the analysis of media markets and ap- plies these tools in discussions of strategy and competition in electronic media industries such as broadcast television, multichannel media, and broadband communications. Because the process of strategy for- mulation and implementation is fundamentally a firm’s alignment of its internal resources with the changing environment to develop com- petitive advantages, the magnitude of the challenge or opportunity de- pends on the major trends that have shaped and are forming the competitive arena of today’s media markets. In this final chapter, we begin with an overview of the developments expected to continuously mold the competitive landscape in the aforementioned industries, fol- lowed by discussions of the essential theories and paradigms that ground this track of study, critical issues in the methods of investiga- tion, and interesting strategic and brand media management topics waiting to be explored.
TRENDS IN MEDIA INDUSTRIES: OPPORTUNITIES AND CHALLENGES
Driven mostly by technological advances, various trends are fundamen- tally changing how media audiences consume media and how media firms might attain competitive advantages. We begin with a discussion of
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the major shift in media consumer behavior, which basically defines the strategic parameters of all media firms.
Increase of Audience “Control”
The most significant development in audience consumption of media products in the 2000s has been the tip of balance regarding “control.” Gone are the days when broadcast stations enjoyed captive audiences who sat through advertising or planned their schedules around a favor- ite show. Today’s audiences, especially the younger ones, are becoming accustomed to the idea of “control” in what and how they watch, listen, or read. Amid the availability of electronic offerings such as MP3 play- ers, DVDs, PVRs, and VODs, media consumers are increasingly de- manding about issues like the timing, pricing, and even portability of media use. Commercials are skipped with a PVR, individual songs and videos are downloaded from the Internet, and favorite programs are de- livered on demand. The implications of the increase in audience control are staggering. Most significantly, the traditional advertising formats for electronic media need to be reexamined, the business models upon which most media firms have operated are in need of revamping or di- versifying, and conventional program-scheduling strategies are losing relevance. Finally, all media firms have to contemplate how to internal- ize new technology and be responsive to the new media audience and their need for “control” without overextending their resources.
Digital Conversion and Convergence
The arrival of new digital communication technologies have facilitated the delivery of digital signals via various platforms, improved audiovi- sual quality, brought forth more content options, and made interactivity possible and even demanded. The progression to a digital media environment also fuels the convergence of computing, net- works, and media, further enriching consumers’ media experience as well as expectations. The trend toward digital conversion and conver- gence also has significant implications. There is first the challenge of conversion costs in both hardware and software as well as the market- ing of new digital products. There are also the challenges and opportu- nities of developing services that will take advantage of the multicasting, interactivity, and other ETV functions enabled by the new digital environment.
The Internet–Broadband Revolution
The Internet is now a ubiquitous medium that notably expands the va- riety and flexibility of traditional electronic media. The continuous growth of broadband deployment further boosts this new medium’s role in revolutionizing the existing media landscape. The developments of streaming media (i.e., Internet delivery of audio and video content),
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online communities, VoIP networks, and PC-based ETV functions mean that the Internet, with its broadband distribution system, is now an at- tractive sector in which to develop or acquire resources. Although the opportunities presented by the broadband Internet go beyond market- ing and possibly include new revenue potentials, the challenges remain to find a healthy mix of off-line and online ventures that improve the overall strategic position of a media corporation.
Globalization, Consolidations, and Alliances
As discussed earlier, media industries today are infused by digital tech- nologies and converging platforms. The changing, complex environ- ment promotes the necessities of being less reliant on traditional business models, developing attractive new-media services, competing multilaterally, and finding ways to spread risk and share resources. Very often, the strategic answer to cultivating these conditions for me- dia firms is to diversify, acquire, collaborate, and internationalize. Though consolidation, alliance formation, and globalization might present an effective approach to gain competitive advantages in a short run, the biggest challenge for today’s media firms contemplating these strategies is to find their optimal level of expansion because excessive in- ternational diversification, partnerships, and mergers and acquisitions might not only dilute their core competencies but also create bureaucra- cies that are less responsive to a changing media environment.
FOUNDATION OF INVESTIGATION: THEORIES AND PARADIGMS
It is our belief that the studies of media strategies would rely on a multi- plicity of theories and paradigms. The brand management constructs such as brand knowledge, brand equity, and brand extension offer a rich tradition for the application of media-branding practices. Both the RBV- and IO-based approaches to strategic management provide solid frame- works for analyses of media firms’ strategic behavior and performances. Notions such as value chains and strategic entrepreneurship present an excellent basis for explaining strategic postures and preferences regarding new-media investments. Diversification and strategic networks theories help elucidate the drivers for many popular media market phenomena and the relationship between such strategies and performance. Because the process of theory construction typically includes stages such as the identification of relevant constructs, the development of hypotheses about relationships, and the profferment of explanations for the relation- ships (Eisenhardt, 1989), a good understanding of relevant marketing and strategic management paradigms and theories provides the basic building blocks of propositions that we can integrate with established mass-communication theories to examine media-specific characteristics. For example, Chan-Olmsted (2006) proposes a theoretical framework for exploring the factors that shape the technology adoption decision and
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process for media firms. The analytical framework addresses the adop- tion of new media technologies through the integration of various theo- retical perspectives such as entrepreneurship, strategic networks, and innovation adoption. Eight sets of antecedent variables in firm character- istics (e.g., size and organizational traits), media technology characteris- tics (e.g., newness and compatibility), perceived strategic value, alternatives available, strategic networks, market conditions, competi- tion, and media regulation and policy are proposed to influence a media firm’s decision of whether, how much, and/or when to invest in the com- mercialization of a new media technology. We believe that a focus on sim- ple descriptions of media firms’ strategic behavior would limit the explanatory and thus the predictive power of the investigations. Ap- proaching media strategy research with both conceptually sound as- sumptions and theory-driven empirical studies would not only offer a more reliable, pragmatic assessment of media firm conduct with mean- ingful managerial implications but also provide a stronger linkage to past observations and thus contribute more substantially to the body of liter- ature in media management and economics. In essence, the fluidity of media industries, due to the continuous changes in communication tech- nology, creative development, and audience preferences, requires media management and economics scholars to constantly introduce, incorpo- rate, and test new paradigms.
METHODS OF INQUIRY
Because of the lack of large data sets concerning media firms and the dif- ficulty of analyzing media conglomerates with their nonstandardized reporting of financial data from different business units, most studies of media strategy have utilized the case study method of inquiry or based their analyses on secondary data sources. Hollifield and Coffey (2006), in their analysis of media management and economics literature, found that single case study was the most frequently adopted qualitative re- search method, followed by comparative case study; interview; histori- cal methods; essays; legal, regulatory, and policy analysis; and field-participant observation, respectively. The adoption of qualitative investigations might be partially explained by the challenging tasks of developing ways to empirically test the resource-based view of a firm because valuable resources, by nature, are less observable (Godfrey & Hill, 1995). In fact, the definition for resources and capabilities that cre- ate sustainable competitive advantages (i.e., valuable, rare, not substitutable, and imperfectly imitable) presents great difficulties in strategy measurement and thus causality examination. Due to such limitations, in-depth case studies that review a firm or a group of firms in their market context and incorporate both archival and interview data present a more reasonable approach of examination. In regard to quantitative research methods, Beam (2006) noted that almost 60% of
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the primarily quantitative articles published in main media manage- ment and economics journals were analyses of data not collected specifi- cally for the research project for which they were being used. Because of the availability of general industry or country data (e.g., total advertis- ing revenues and GDP), use of secondary data to explore the relationship between exogenous determinants and strategic choice is common. However, the RBV approach continues to pose challenges in the mea- surement of intangible resources. The use of many proxy variables such as awards (e.g., Emmys) and salaries (e.g., CEO’s compensation) as measures of intangible resources has been criticized as questionable to validly represent various underlying constructs (Godfrey & Hill, 1995) and should be employed with caution. In fact, many researchers have identified “construct measurement” in strategic management research as a significant problem, suggesting that too little attention is given to the reliability and validity of many indicators (proxies) used in strategy studies (Hitt, Boyd, & Li, 2004).
As the studies of media management and economics progress, we be- lieve that it is essential to utilize larger data sets to test theory and apply multivariate statistical tools in advancing media strategy research. It might even be fruitful to combine quantitative examinations like ques- tionnaires and qualitative investigations like interviews to increase the validity and reliability of their measures (Henderson & Cockburn, 1994). Because of the multiplicity of methods needed to identify, mea- sure, and understand firm characteristics, strategy might be best re- searched as a dynamic or evolutionary phenomenon and empirically approached with a combination of longitudinal, in-depth case studies and other quantitative measures. In terms of the application of statisti- cal techniques, due to the complexity of strategic behavior, it might also be productive to go beyond the typical multivariate statistics like regres- sion and cluster analyses and explore various sophisticated tools such as panel data analysis, multinomial logit analysis, conjoint analysis, structural equation modeling, and multidimensional scaling. Hitt, Gimeno, and Hoskisson (1998) specifically suggested that strategic management scholars should make greater use of longitudinal designs and panel data methodologies, dynamic analytical models, and more sophisticated statistical tools like structural equation modeling.
TOPICS OF EXPLORATION
It is often useful to anticipate the course of an ongoing research agenda by first assessing the answers to the fundamental question of “What highlights the presumptions and boundaries of the field?” (Rumelt, Schendel, & Teece, 1996). A specific list of questions might be “How do a certain group of media firms behave?” “Why are these media firms dif- ferent?” and “What determines media firm success or failure?” Opera- tionally, one might investigate the empirical patterns of media firms, propose theoretical assumptions to explain the observed behavioral pat-
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terns and potential consequences, and empirically examine the implica- tions of these strategic patterns. In essence, the three comprehensive areas of investigation are (a) the effects of the environment on media strategy, (b) the dynamic adaptation of media strategy to environment, and (c) the effects of media strategy on performance. The following list identifies some examples that address various aspects of these topics:
• Application of “value chains” in the context of media industries. This type of study would provide an excellent architecture for systematically understanding the sources of buyer value and even approaches to differentiation strategy.
• Application of media taxonomy. Such a study could help us identify specific business strategies (e.g., sales force management) within each media firm type (e.g., prospectors versus defenders). It can also be used to systematically depict different corporate strategies of media conglomerates.
• Application of strategic entrepreneurship. This strand of study would offer insightful examinations of new online or digital media venture patterns and the drivers and implications of different new-media strategies.
• Investigation of innovation adoption of media firms. Innovation is an integral strategy in today’s technology driven media industry. Be- cause innovations influence the market environment in which me- dia firms operate, studies like this would help firms develop market response models to adapt to the changes brought about by relevant communications innovations.
• Application of brand management concepts. One might study media brand extension practices, both horizontally and vertically, as MVPD channel capacity continues to increase and consumers are faced with a proliferated media environment. One might examine the conditions in which a brand extension such as a new cable net- work is effective (e.g., perception of fit, risk of cannibalization, etc.). One might also investigate ways to measure brand equity in media businesses. As competition heats up among media firms in an increasingly fragmented and converging marketplace, the nourishing of brand equity, sensible extension of successful brands, and thoughtful management of the brand portfolio pres- ent excellent strategic avenues for media firms to create competi- tive advantages and eventually superior financial returns.
• Studies of media consumption behavior. As discussed earlier, techno- logical forces, along with other exogenous factors, are changing consumers’ consumption and expectations of media products. Re- search of media consumption, especially from a brand manage- ment perspective, provides critical insight for understanding media firms’ marketing strategy. For example, one might apply the concept of brand consideration sets to explain how heteroge-
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neous audiences with different programming tastes choose new programs, considering programming as products with uncertain attributes. Studies in the consumer goods industry have shown that a multiproduct firm’s portfolio of products affects consumer purchase decisions about each of the firm’s products due to con- sumer loyalty from the information set consumers use to evaluate the profile of multiproduct firms (Anand & Shachar, 2004). An- other area of media consumer studies might be the investigation of the effects of corporate ownership on consumption choices.
• Reexamination of programming strategy. Various management the- ories might be applied to explain an important business strategy of electronic media organizations—programming selection and scheduling. For example, a finance portfolio selection theory was used to explain network program selection behavior (Litman, Shrikhande, & Ahn, 2000).
• Analyses of mergers, acquisitions, and divestiture. As the trend of media conglomeration continues, one might examine the patterns of M&A, divestitures, and their implications. Various issues have been pointed out as potential problems for the strategies of merg- ers and acquisitions. Hitt, Ireland, and Hoskisson (2001) specifi- cally identified seven pitfalls to watch for: integration difficulties, inadequate evaluation of target firms, large or extraordinary debt, inability to achieve synergy, overdiversification, excessive focus on acquisitions by management, and oversize corporations. It would be interesting to empirically investigate not only the patterns of media M&A but also the challenges and consequences of different M&A scenarios.
FINAL THOUGHTS
From the oldest incumbent broadcasters to the newest Internet en- trants, the electronic media industries today are fluid, dynamic, and filled with firms of different resources, capabilities, and thus strategic preferences. Because of the embedded nature of media in our daily lives, their pervasive influence on a society, and the largely intangible con- sumption of these products, we often fail to regard the media suppliers as institutions that still need to develop competitive advantages and de- liver healthy financial returns. Subsequently, the emphasis on media strategy studies has been somewhat limited amid the substantial envi- ronmental changes in media industries during the past decade. It is our assertion that with the growing multiplicity of product offerings, pro- gramming sources, and distribution platforms, the media industries present an ideal arena for strategic competition and thus a fertile setting for media strategy studies. Vertical integration, international diversifi- cation, joint-venture alliances, brand extensions, innovation manage- ment, corporate entrepreneurship, and many more market behaviors
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are ripe for the empirical testing of strategic and brand management and other economics theories in a media context. Finally, as digital tech- nologies continue to converge the presentations of media contents and induce the conglomeration of media firms, a multifaceted approach to strategy research (i.e., multiple time periods, methods, and units) might offer the most productive outcome for this journey. It is my hope that this book will serve as a springboard for an exciting new area of scholar- ship and for the pragmatic applications of examining media institutions as dynamic market competitors in a fascinating economic sector.
REFERENCES
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Chan-Olmsted, S. M. (2006). Issues in media management and technology. In S. M. Chan-Olmsted, A. Albarran, & M. Wirth (Eds.), Handbook of media management and economics (pp. 251–274). Mahwah, NJ: Lawrence Erlbaum Associates.
Eisenhardt, K. M. (1989). Agency theory: An assessment and review. Academy of Management Review, 14(1), 57–74.
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Hollifield, C. A., & Coffey, A. J. (2006). Qualitative research in media manage- ment and economics. In S. M. Chan-Olmsted, A. Albarran, & M. Wirth (Eds.), Handbook of media management and economics (pp. 571–598). Mahwah, NJ: Lawrence Erlbaum Associates.
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Rumelt, R. P., Schendel, D. E., & Teece, D. T. (1996). Fundamental issues in strat- egy. In R. P. Rumelt, D. E. Schendel, & D. T. Teece (Eds.), Fundamental issues in strategy: A research agenda (pp. 9–47). Cambridge, MA: Harvard Business School Press.
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