Broadcast TV in broadband world

Group 9

Li Shuguo

Song Tanda

Liu Yazhuo

Han Jie
Summary
Question 1:
As a major channel, we propose to work with content providers, distribution channel and
audiences to develop our business. The challenge is to cross the boundary between TV and
broadband; and the purpose of adding new elements is to modify the old value chain into
new value creating networks.

The first partner we choose is AOL; they can facilitate us in three aspects: The first one is
that they act as content provider who can offer reliable news, critical analysis and valuable
information. Secondly, they can play the role as distribution channel which helps us to reach
maximum number of viewers simultaneously and also fulfill user’s interactive demand by
combing with VOD system. Finally, they can be platform for audience-participation which
brings customers much more satisfaction. The way revenue is shared is different according
to the roles they play in different parts.

The second partner is a main telecommunication operator; there are two aspects in which
we intend to develop facilitate partnership with the operator: firstly, we cooperate with
telecommunication companies to deliver big events to mobile subscribers. Secondly, mobile
is an easy method for audiences to participate in our programs. For telecommunication
companies, we provide popular programs and potential audiences. We think Tele operator
and TV channel will share the revenue as 60:40.

Question 2:
Customized and interactive TV: compared with internet TV and video services, customized
and interactive TV should be the suitable strategy. It is a positive way to attract the potential
loss customers rather than retention. According to our research, the technology and
consumer demands are not problem to realize the next generation of TV.

Business Model: The real question for the Cable TV provider is that they still hold the
traditional offer to the customers. We propose three ways for the new business model:
subscribe fee, advertisement and additional services. In the new business model, we also
consider advertisements as the main revenue. While during customized TV strategy, the
advertisements would be more effective. Because of the feedback information of the
customers, we mainly target the advertisement using content, geographic and subscribe fee.
Develop our business through the use of relationships

The entrepreneurial challenge

Norman and Ramirez (1993) state, "One of the chief strategic challenges of the new
economy is to integrate knowledge and relationships – devise a good fit between
competencies and customers and keep that fit current." The secret of value creation is
building a better and better fit between relationships and knowledge.1

As a major TV channel, we have the capabilities of providing high quality programs,

obtaining our advertisers profit, and let audiences free to watch immediately, so we have
done well in traditional value chain as shown in figure 1.

Content Content

Providers Program
Television
Money

Programmers Audiences
Eyeballs and money

Eyeballs
Advertisers
Money
Figure 1

However the television business is in a state of transformation as significant as the emerging

of itself. A lot of new technologies come along and the demand of audiences keeps on
changing, more and more limitation of the traditional business model has appeared. The
problems and limitation of the current business could be elaborated by analyzing the
relationship with three main actors:

Firstly, content providers, no matter they are independent producers or large media
companies’ production arm have increasing bargaining power. As long as that model exists,
2
it’s going to be really difficult for television to continue to have good show. In addition,
considering the success of some companies who have adopted new programming type and
schedule, to find a new way of continuously getting good show and delivering them is
apparently significant.

Secondly, facing alternative media platforms, how can broadcast networks acquire high TV
spot advertising rates and measure the effectiveness of ads accurately? Products placement
or sponsorship seem to be still limited to cope with audiences’ willingness to eliminate all
the ads.

1
Normann, Richard, and Rafael Ramirez (1993). "From Value Chain, to Value Constellation: Designing Interactive Strategy"

2
Suzanne C.Ryan,In merger of UPN,WB networks, Channel 56 finds itself a winner 2006
Thirdly, Customers wish to access needed content anywhere, anytime, on any platform.
They focus on personalization, interactivity and availability of something to watch you
actually like and preference for free.

Value creating networks

Putting together a network to build the set of capabilities is necessary to build a market
offering that delivers high value to the customer. Gaining and sustaining competitive
advantage depended up understand both firm’s value chain and how well the firm fit into
the overall value system.3

Relationship

Create superior
core capabilities
Determine customer value

Figure 2

As a major channel, we propose to work with content providers, distribution channel and
audiences to develop our business. The challenge is to cross the boundary between TV and
broadband; and the purpose of adding new elements is to modify the old value chain into
new value creating networks:

Participation

More satisfaction

Participation

Content
Content Programs
Provider Television
Money Audience Topic More
Programm Eyeballs

ers
Audience
Money
Adver
tisers Program/eye New channels Program/eye
Eyeballs
balls balls
Much more money Personal information
Much more eyeballs
Customized ads

Attention
Figure 3

3
Kothandaramanm P. & Wilson, D.T.: "The Future of Competition: Value-creating Networks", 2001
Decision and implementation
The ideal partner is one who adds significant value to your market offering and at the same
time present to low risk as a partner4.We propose to divide the whole channel into three
sections: (a) VOD, (b) Big Events and (c) Audience-Participated; in addition, we also plan to (d)
add contents based on valuable information from internet media companies who have long
time dependable reputation. Our decision is to cooperate with AOL and a major
telecommunication operator to develop our business.

Development partnership with AOL

AOL is a leader in the field of Internet service, global e-commerce service and interactive
media. Considering the categorization of partner relationship in figure 3, firm could select a
partner who is able to add value to its market offering and then help them improve their
ability to be a low-risk operating partner5. We decide to cooperate with AOL for the reason
that AOL not only can add value to our market offering and also we could maximize our
mutual current and future opportunities. There are four aspects in which we intend to
facilitate our strength by collaborating with AOL:

low
Facilitative Integrative

Operating
risk
Loser Development

high

Low Value added high

Figure 4

The first one is that they act as content provider who can offer both reliable and immediate
news, critical analysis and valuable information. As a result of powerful convenience and
interactivity, internet companies have incomparable strength in acquiring information. This
is also the weakness of broadcast TV and maybe the reason why their audiences share
6
declined. Taking AOL Local for example, it brings together like the popular AOL CityGuide,

4
Kothandaramanm P. & Wilson, D.T.: "The Future of Competition: Value-creating Networks", 2001

5
Kothandaramanm P. & Wilson, D.T.: "The Future of Competition: Value-creating Networks", 2001

6
Exhibit 5, Broadcast Television in the Broadband World
AOL Yellow Pages and AOL Local Search7. Programs based on this will be useful and
attractive. In another hand, by recording the way users surf, the data can be exploited to
help delivering customized ads in the VOD section which will be discussed later. On the
other hand, our TV channel helps AOL to gain more users.

Secondly, they can play the role as distribution channel. As distributer, VOD section can
enable audiences to choose whatever they want anytime, meanwhile, content-related and
customized ads will be delivered. In this way, besides the viewers’ demands of
personalization, interactivity and availability are fulfilled; the accurateness and effectiveness
of ads are also increased. Furthermore, by combining with our VOD system, local B2B and
B2C communication demand can be fulfilled; that is to say, users can find and provide local
information like restaurants, local events, and directory listings. In these two parts, the role
of AOL is significant and AOL can take 70% of the revenue.

Consequently, Big Events section have fixed timetable, they are possible to be accessed in
any video end such as mobile handsets and internet TV. The goal is to reach maximum
number of viewers simultaneously. As a result of the immense base of audience it can reach,
ads of this kind of spots will bring much more profit than normal ones and advertisers’
reward will also be greatly increased. AOL's free video service is AOL Video, which features
professional content and allows users to upload videos as well. It could be a way to help to
increased customer share. Our TV channel provides interesting information and popular
programs to AOL. In this part, the revenue could be divided by half.

Finally, they can be platform for audience-participation. According to the relationship

between customer value and customer satisfaction put forth by Woodruff, overall
satisfaction is the customer’s feelings in response to evaluations of one or more use
experiences with a product.8 The deeper audiences participate in the content generating
process, the more satisfaction they will get. The object of this section is mobilizing viewers’
motion and design various way for them to participate. AOL Chat room can exemplify it
sufficiently; the proposal that get the most support will be adopted to change the
consequence of certain shows. And in this way, AOL Chat room will gain more users and get
more popular to attract more advertisement sponsors. Since AOL Chat room dose not cost
much, in this part AOL can take 30% of the revenue.

In addition, it is required to keep continuous communication in order to minimize risk. A

better way is to build the communications infrastructure to transfer best practices between
the once-separate pre-merger entities.9

7
http://en.wikipedia.org/wiki/AOL

8
Robert B. Woodruff: Customer Value: the next source for competitive advantage

9
Kalmbach, Charles, Jr., and Charles Roussel (1999). "Outlook by Issue: 1999, Special Edition: Dispelling the Myths of Alliances"
Facilitate partnership with Teleco
We decide to develop deeply involved working partnerships with a major
telecommunication operator. Facilitative relationships involve important, but not usually
core parts of the market offering or technologies to keep the firm operating.10.There are two
aspects in which we intend to develop facilitate partnership with the operator.

Firstly, as mobile is now emerging as a big mass media, many sponsors are willing to
promote their products in this mobile channel. We cooperate with telecommunication
company to deliver big events to mobile subscribers. Also, five to ten minute’s short
programs are suitable to be seen on mobile devices. In this way, we can increase our
audience share and expand our digital offerings. Letting our audience experience in another
platform could give them higher satisfaction. What is more important, advertisement
sponsor can gain more effective promotion channels. For telecommunication companies, we
provide popular programs and potential audiences.

Secondly, mobile is an easy method for audiences to participate in our programs. Taking idol
selection program for example, audiences can vote for their favorite players and call-in
shows can evoke audiences’ passion to participate which will give them higher satisfaction.
Not only we gain revenue share but also our audiences share increase which is attractive to
advertisement sponsors. For telecommunication companies, we provide large amount of
users.

We consider two kinds of share: subscription fee from subscribers and advertisement and
11
promotion share. Taking a reference from Revenue Share Model over Content Business
Value Chain by Svo 2007, we modify with some special assumption in our cases and come to
the following figures.

Assuming the subscriber is charged 100 Bangladeshi currencies.

(0) Charged Amount = 100 BDT

(a) Initial Amount to Telco: (0) = 100 BDT
(b) Initial Amount to TV channel: 40% of (a) = 40% of 100BDT =40 BDT
(c) Final Amount to Telco= 60% of (a) = 60% of 100BDT= 60 BDT
The end revenue share percentage is as follows:

Tele operator = 42 BDT = 60%

TV channel= 40BDT=40%

10
Kothandaramanm P. & Wilson, D.T.: "The Future of Competition: Value-creating Networks", 2001

11
Svo "Revenue Share Model over Content Business Value Chain by", 2007
Talking about the advertisement and promotion share, it depends a lot on the popularity of
the big events. Revenue will increase as big events getting popular. In our group discussion,
we think Tele operator and TV channel will share this as 60:40.

Reposition the offering in order to safeguard against the

Internet TV and video services

Whom we loss?
12
The “MySpace and Facebook” generation increasingly tend to spent more time online to
watch their favorite programs on Joost or interesting videos on YouTube rather than just
sitting in front of TV sets and being controlled by the set schedule. Less and less time is for
the whole traditional TV industry let alone only the Cable TV category. We consider this
group of people as our research objectives.

Why did this happen?

Target group’s needs

To figure out what lead to the loss, we have to know the advantages and weaknesses in their
respective fields. The young generation within 18 to 34 or what’s mentioned above: the
“MySpace and Facebook generation” as our mainly target group. Taking their positive life
style and behavior trends into consideration, they not only demand for more information
and communication but also get involved in the media they are in with control and
customized. So it is likely that they would slide to the internet side due to the fit to the
target group’s demands such as Internet TV and video’s more tailored, self-controlled and
interactive service.

SWOT of Cable TV
In this part, the SWOT analysis is based on the comparison with Internet TV and video
service.

Strengths:

 The professional Cable TV providers can be a kind of filter of materials and information
so as to guarantee the quality of the content to some extent.

 With the help of Cable, high speed of digital signals transmission ensures the higher
quality of images and sounds.

12
How to watch the future TV SPECIAL REPORT –development trends China Anchor Net, 2006
 Cable TV has better protection of copy right and intellectual property than what
internet TV and video service.

 Cable TV’s instant characteristic enables it to deliver the content immediately so as to

save the searching time for customers.

 Based on the cumulated experiences, Cable TV has better structured organization and
more critical relationships such as content providers (FIFA, NBA etc.) and devices
manufacturers which are built up in the past years.

 Due to the long period of traditional watching habits, Cable TV still has a huge customer
base which can be change into sort of bargain power to the other relative actors such as
advertisers.

Weaknesses:

 Compared with the internet TV and video service, Cable TV seems to have less quantity
of content. However, the Cable TV’s content providers do not lack of the information
and material at all, it is more likely due to the speed of updating the content online is
faster than by Cable TV as well as the filter process.

 Cable TV cannot provide many personalized choices. The set schedule let customers
lose their control of the living room and also the freedom to some extend. There is also
lack of content choice which means that customers have to passively receive what
Cable TV provided to them rather than actively ordering what they’d like to watch.

 Even though Cable TV has made some progress in terms of personalized service with
the help of some devices such as Tivo, the interactive is still the one of the weakest
parts of Cable TV.

 Last but not least, no matter how low the Cable TV providers charge, the price is still
more than free, which is also one of the advantages of Internet TV and video service.

Opportunities:

 Customers have new demands for the traditional TV, which means that there might be
new market space emerging.

 With the rapid development of network and hardware’s technology, apparently Cable
TV providers should strive for leveraging it as their own resource and capabilities to
deliver superior value to customers.

 Other actors such as device manufactures, content providers, network and advertisers
are all looking for the cooperation to strengthen themselves, which is also a great
opportunity for Cable TV provider to gain growth by cooperation.
Threats:

 With the high speed of internet’s exploration, more and more traditional TV customers
are sliding to the internet. People gradually change their entertainment habit.

 The fix and sunk cost of online TV and video service are not so high as Cable TV, so it is
easier and less costly for those online ones to change their strategy to defend their
position. Internet TV is more flexible than Cable TV.

Reposition
According to the analysis above, Cable TV should provide more personalized and interactive
service which enables the customers, especially that potential loss target group to order
their favorite programs and watch them at anytime in any ways. Cable TV providers have to
develop good relationships with content providers. It’s essential in media industry to deliver
value. Cable TV provider should make the customers flexible to personalize their programs
and channels. Moreover, Cable TV providers also should add interactive factors such as
increasing feed back, to satisfy the customer’s communication needs. After that every time
of ordering favorite programs, making own schedule for watching, searching for local
information or communicate with friends (For example, some friends watch the same
program and discuss about it in their own house, by the camera.) could be a kind of
memorable personalized and unique experience. 13 So what Cable TV is going to offer
ultimately is not just the same as what has been done by Internet TV and video service, but
to ship a new way of watching TV and an innovative experiences better than Internet TV and
video service.

Cable TV provider has the broadband cables which provide the channel for digital streaming
and also internet resources. They also have had the relationships with the content provider,
devices providers and security providers. It seems like that the Cable TV provider has had
enough capability ready in hand. They have neither the demand confusion nor the
technology limitation, but the real problems constrain them is Business Model.

New problem: the real need is a proper business model

The reason for holding up this transition to networked TV is that any company is unwilling to
jeopardize its power and revenues until it becomes clear. Every time you hear about some
product that sounds great but just has one strange limitation, follow the money to
understand why.14 Focusing more on the business model and aiming at revenue growth, we
decided to make several changes and propose some innovative ways for the original
business model. What we are going to talk is based on the repositioned offerings and the

13
Pine &Gilmore "Welcome to the experience economy

14
I want my iTV, SPECIAL REPORT -- PERSONAL TV, Business week, 2007
whole customer base including the traditional loyal ones, potential loss ones and even some
already loss ones.

Subscribe fee:
Cable TV providers should increase the subscribe fee due to the innovative customized
experiences they provided to the customers. We think this amount of additional fee should
be reasonable. It also should connect the fee and the services together, for example, if user
charge the lowest fee, we provide the content with a little longer advertise, while the user
pay a little higher, we could provide High Definition picture and less advertise to the
receiver.

Advertising:
Used to be, being and, we believe, still will be the main source of TV industry’s revenue.
With advantage of broadband Cable’s return feature and its unique network protocol
address, Cable TV can gather the customer’s information, which will definitely help Cable TV
perform better in advertising. The money spent on advertising is nothing but to achieve
broader coverage with largest effectiveness. And it is obvious that effectiveness is more
important to the advertisers, because as long as the advertisement can build up kind of
communication to the target audience, it might motivate the purchasing, which can not be
achieved merely by exposure to the advertisement.

To increase the effectiveness, we proposed Customized advertisement. And there could be

three ways to implement it.

1. According to subscribed content, Cable TV providers can know what the customers
might be fond of or interested in and play relative advertisements to these target
audiences. This could be implemented simply by tied up some advertisement to some
certain programs. For example, the basketball shoes’ advertisements could be delivered
together with the basketball events or matches, or some women commodity’s
advertisements are played with some series popular with women.

2. According to the geographic information, Cable TV providers can also acquire where the
customers live, which naturally finished a kind segmentation for the advertisers. Some
products particular suitable for these areas can be advertised respectively. For example,
the people in area A and area B are watching the same program while the
advertisements inserted between are different according to the different areas they live.
People in area A might receive the umbrella’s advertisement because of the rainy day
there, while people in area B get the sun care product’s advertisement due to the hot
weather.
3. According to the subscribed fee, Cable TV could make a brave guess of the customers’
income situation. Because the subscribed fee charged has hierarchies, so might be the
income relevant to the customer.

What has been mentioned above obviously can not guarantee the sale of relevant product,
while they do can increase the effectiveness of the advertisement, which is definitely a kind
of superior value than any other TV especially the broadcast ones can provide.

To increase the time exposure, we proposed the pop-out advertisement. Time is forever
the essential factor regarding to the coverage. Considering the traditional ways, even 300
seconds’ advertisements between the programs has been the limit to customer’s patients,
let alone those longer ones. In addition, 300 seconds is far to enough for the advertisers.
However, there is no possibility that cut the programs into more pieces. So it is necessary to
think about a new way in which we could both increase the time of advertisement and
decrease the bothering to the customers. Inspired by the pop-out advertisements online, we
suggest taking the similar measure. According to the content of program, popping out some
advertisement with a little translucent box timely at the bottom corner would be a nice
move both for the advertisers and customers. Less attention of the audience would be a
problem. However, it can be made up by the frequency of popping and the relevant feature
of the advertisements.

To increase the information and interactive, Cable TV providers could attempt to provide
linkage between advertisements. In the traditional way, sponsor can only get several lines
after or mentioned a little during the programs. However, if a customer is really interested in
some products, he or she has no more further information, which will destroy the
communication well-built up with the customer. To meliorate this situation, we decided to
use the relevant linkages to all the sponsor’s products. For instance, if you like the host’s suit,
you can search from the menu to get the relevant information about this suit, which
improves the service provided both to the sponsors and customers.

Compared with the traditional ways of advertisement, Cable TV providers will have more
service categories for the advertisers, which will be a potential revenue growth.
Furthermore, if the revenue can reach to a certain degree, Cable TV even can give the
customers relative devices for free to deliver superior value and improve Cable TV’s service
so as to establish a better brand image among the customers and offset these “loss” of
money by the revenue from advertisements .

Additional services:
Looking across the substitute15, we find another critical value owned by internet TV and
Video service while either did the Cable TV yet. That is the multi-actions which can be taken

15
W.Chan kim and Renee Mauborgne , "Creating New Market Space"
at same time on computer. So we conclude that it is necessary for Cable TV providers to
offer some additional services to achieve the similar effect, which will both enforce the
interactive features and increase the revenue simultaneously. Moreover, this is also a kind
of Spatial Expansion by Cable TV providers, because broadband not only make the TV an
perfect platform for other embedded service but also the one who can “rent” and leverage
the existing customer base and interface16 Cable TV providers can realize this by building up
various kinds of relationships with different actors within their respective industries. For
example, it can cooperate with hotels, ticket agencies or banks. By providing platforms for
them to increase their opportunity and enlarge their deal scale, Cable TV providers can gain
more revenue and also better reputation.

A good model is not enough

According to Joan Magretta17, The story we’ve made dose makes sense while the numbers
test should be checked more seriously because it might become a major limitation for Cable
TV’s success. And When it comes to the limitation, it is always about the how big the cake is
and how to “share” it among the gourmands at the table. If the cake is assigned properly, it
would be a pleasure meal; otherwise, it will become a disaster of battle. So how to balance
the interests of each partner and control the scale of relationships would be the decisive
factor to success. In addition, with the increasingly fiercely competition in the Cable TV
industry ， product differentiation tend to be more and more important. Brand
management should be more professional aiming at building up a unique brand image so as
to strive for more market share and grab it more tightly.

Conclusion
As a system, how the pieces of a business fit together18 while the strategy is mainly built
upon the activities and aiming at creating ever growing fit between the various
relationships19, which is hard to be duplicated by others. And this is exactly what Porter
elaborated about the sustainable completive advantages. Based on target group’s demands,
considering core competencies of Cable TV providers and leveraging all the relationships it
had, it is highly likely for Cable TV providers to win out the competition with internet TV and
video service by its own value-creating networks20 and the innovative experiences21as the
superior value provided to the customer.

16
Mohanbir Sawhney, Sridhar Balasubramanian and Vish V.Krishnan , "Creating Growth with Service"

17
Joan Magretta , "Why Business Models Matter"

18
Joan Magretta , "Why Business Models Matter"

19
Porter, M, "What is strategy"

20
Prabakar Kothandaraman David T.Wilson "the Future of Competition"

21
Pine &Gilmore "Welcome to the experience economy"