Media and Digital Management

ELI M. NOAM

MEDIA AND DIGITAL

MANAGEMENT

f o u n d a t i o n s

Media and Digital Management

Eli M. Noam

Media and Digital

Management

Eli M. Noam

Columbia Business School

Columbia University

New York, NY

USA

ISBN 978-3-319-71345-8 ISBN 978-3-319-72000-5 (eBook)

https://doi.org/10.1007/978-3-319-72000-5

Library of Congress Control Number: 2017964229

© The Editor(s) (if applicable) and The Author(s) 2019, corrected publication 2019

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V

Contents

I Overview

1 Introduction...................................................................................................................................... 3

1.1 The Need for “Media Management”?.......................................................................................... 4

1.2 Approaches to the Study and Teaching of Media Management...................................... 4

1.3 Outline of the Book............................................................................................................................ 5

1.4 Outlook................................................................................................................................................... 5

2 The Information Environment.............................................................................................. 7

2.1 Drivers of Change............................................................................................................................... 8

2.1.1 The Setting............................................................................................................................................. 8

2.1.2 Technology ............................................................................................................................................ 8

2.1.3 People...................................................................................................................................................... 8

2.2 The Microeconomics of the New Media Economy................................................................. 9

2.2.1 Characteristic #1 of Media and Information: High Fixed Costs,

Low Marginal Costs—Very High Economies of Scale............................................................... 9

2.2.2 Characteristic #2 of Media and Information: Network Effects............................................... 9

2.2.3 Characteristic #3 of Media and Information: Excess Supply .................................................. 10

2.2.4 Characteristic #4 of Media and Information: Price Deflation................................................. 10

2.2.5 Characteristic #5 of Media and Information: Convergence of Technology....................... 11

2.2.6 Characteristic #6 of Media and Information: Importance of Intangible Assets............... 11

2.2.7 Characteristic #7 of Media and Information: The Presence

of Non-Maximizers of Profit.............................................................................................................. 11

2.2.8 Characteristic #8 of Media and Information: High Government Involvement................. 12

2.2.9 Summary of Economic Properties.................................................................................................. 12

2.3 Review Materials................................................................................................................................. 12

2.3.1 Questions for Discussion................................................................................................................... 13

2.3.2 Quiz .......................................................................................................................................................... 13

Quiz Answers......................................................................................................................................... 16

II Production

3 Production Management in Media and Information ............................................ 19

3.1 Media Production............................................................................................................................... 21

3.1.1 Introduction .......................................................................................................................................... 21

3.1.2 Content Production ............................................................................................................................ 21

3.1.3 Special Characteristics in Content Production........................................................................... 21

3.2 Content Industries.............................................................................................................................. 22

3.2.1 Early Content......................................................................................................................................... 22

3.2.2 Types of Production............................................................................................................................ 22

3.2.3 Cost Characteristics: Film Versus Theater..................................................................................... 22

3.2.4 History of the Film Production Industry....................................................................................... 23

3.2.5 Production in Other Media Industries........................................................................................... 24

3.2.6 The Global Success of the Hollywood Production Industry................................................... 26

3.2.7 Case Discussion.................................................................................................................................... 27

3.3 Conventional Arguments for Hollywood’s Success in Production................................... 28

3.3.1 Supposed Advantage: Market Size? Language? ........................................................................ 28

VI

3.3.2 2nd Supposed Advantage: Vertical Integration of Content with Distribution?............... 29

3.4 Organizational Success Factors for Content Production..................................................... 30

3.4.1 Organizational Structure................................................................................................................... 30

3.4.2 Funding and the Reduction of Risk................................................................................................ 32

3.5 Product Development ...................................................................................................................... 34

3.5.1 Concept (Style) ..................................................................................................................................... 34

3.5.2 Product Selection ................................................................................................................................ 35

3.5.3 Product Development........................................................................................................................ 37

3.6 Production Planning ......................................................................................................................... 38

3.6.1 Operational Challenges for Content Production....................................................................... 38

3.6.2 Budgeting............................................................................................................................................... 38

3.6.3 Location and Supply Chain............................................................................................................... 42

3.6.4 Inventory Management..................................................................................................................... 43

3.6.5 Production Scheduling ...................................................................................................................... 43

3.7 Production Control ............................................................................................................................ 46

3.7.1 Budget Control ..................................................................................................................................... 46

3.7.2 Productivity Measurement............................................................................................................... 46

3.8 Revenue Shares of Producers in Media...................................................................................... 48

3.9 Content Production in the Next Generation of Technology .............................................. 48

3.10 Case Discussion................................................................................................................................... 49

3.11 Conclusion: Success Elements for Content Production ....................................................... 53

3.12 Review Materials................................................................................................................................. 55

3.12.1 Questions for Discussion................................................................................................................... 55

3.12.2 Quiz .......................................................................................................................................................... 56

Quiz Answers......................................................................................................................................... 58

4 Technology Management in Media and Information Firms ............................. 59

4.1 Technology Drivers and Trends..................................................................................................... 61

4.1.1 Case Discussion.................................................................................................................................... 62

4.2 Technology Management ............................................................................................................... 62

4.2.1 The Technology Function.................................................................................................................. 62

4.2.2 Chief Technology Officer (CTO) ....................................................................................................... 63

4.2.3 Key Tasks for the CTO: Technology Assessment......................................................................... 63

4.2.4 Integration of Technology with Firm Strategy............................................................................ 68

4.2.5 The Placement of R&D: In-House, Acquired, or Co-developed? ........................................... 72

4.2.6 The Organizational Structure of R&D Activities......................................................................... 73

4.2.7 Open Innovation – Community-Based R&D................................................................................ 75

4.2.8 Budgeting for Innovation.................................................................................................................. 76

4.2.9 Implementing R&D Alliances........................................................................................................... 77

4.2.10 Knowledge Management.................................................................................................................. 77

4.2.11 Standards Strategy .............................................................................................................................. 78

4.3 The Six Stages of Media and Communications Technology

Digital Convergence: “The 6 C’s”................................................................................................... 79

4.3.1 Convergence #1: Computers............................................................................................................ 79

4.3.2 Convergence #2: Computers with Communications Hardware............................................ 82

4.3.3 Convergence #3: Integration with Consumer Electronics...................................................... 84

4.3.4 Convergence #4: Integration with Content................................................................................. 85

4.3.5 Convergence #5: The Media Cloud................................................................................................. 87

4.3.6 The Next Convergence: Bio-electronics and Human Cognition........................................... 88

4.4 The Next Act for Sony ....................................................................................................................... 88

4.4.1 Case Discussion.................................................................................................................................... 88

Contents

VII

4.5 Outlook................................................................................................................................................... 90

4.6 Review Materials................................................................................................................................. 90

4.6.1 Questions for Discussion................................................................................................................... 91

4.6.2 Quiz .......................................................................................................................................................... 92

Quiz Answers......................................................................................................................................... 95

5 Human Resource Management for Media and Information Firms............... 97

5.1 The HRM Function and Its Organization.................................................................................... 98

5.1.1 Introduction .......................................................................................................................................... 98

5.1.2 HRM Characteristics in Media, Information, and Digital Industries? ................................... 100

5.2 HRM By the Numbers: “Hard HRM”.............................................................................................. 100

5.2.1 The Rate of Return on Investment in Human Capital............................................................... 100

5.2.2 The Internal Labor Markets............................................................................................................... 103

5.2.3 The Use of Finance Theory in Analyzing Compensation......................................................... 105

5.2.4 Salary Differentials............................................................................................................................... 107

5.3 HRM by Negotiation: “Tough Labor”........................................................................................... 109

5.3.1 The Industrial Workforce ................................................................................................................... 109

5.3.2 The Crafts (Skilled) Media Workforce............................................................................................. 110

5.3.3 The Creative Workforce...................................................................................................................... 110

5.3.4 Freelancers and Unions in the “New Economy”......................................................................... 111

5.3.5 Building Relationships with Unions............................................................................................... 112

5.4 HRM by Human Touch: “Soft Control” ........................................................................................ 113

5.4.1 Soft Control............................................................................................................................................ 113

5.4.2 Managing and Motivating the Creative Workforce................................................................... 113

5.4.3 Models of Motivation ......................................................................................................................... 113

5.5 Employment in the Digital Economy .......................................................................................... 120

5.6 Conclusion and Outlook .................................................................................................................. 122

5.7 Review Materials................................................................................................................................. 122

5.7.1 Questions for Discussion................................................................................................................... 122

5.7.2 Quiz .......................................................................................................................................................... 123

Quiz Answers......................................................................................................................................... 126

6 Financing Media, Information, and Communications.......................................... 127

6.1 Introduction ......................................................................................................................................... 129

6.1.1 The Finance Function in Companies.............................................................................................. 129

6.1.2 Basic Factors in the Finance of Media and Communications ................................................ 129

6.1.3 Case Discussion.................................................................................................................................... 130

6.1.4 An Overview of Funding Sources................................................................................................... 130

6.2 Internal Funding ................................................................................................................................. 130

6.2.1 Case Discussion.................................................................................................................................... 132

6.3 Debt Financing .................................................................................................................................... 133

6.3.1 Pros and Cons of Debt........................................................................................................................ 133

6.3.2 The Hierarchy of Debt ........................................................................................................................ 133

6.3.3 Case Discussion.................................................................................................................................... 134

6.3.4 Short-Term Debt................................................................................................................................... 134

6.3.5 Long-Term Debt ................................................................................................................................... 134

6.4 Other Types of Debt........................................................................................................................... 135

6.4.1 Vendor and Buyer Financing............................................................................................................ 135

6.4.2 Lease Finance........................................................................................................................................ 137

6.4.3 Government Financing ...................................................................................................................... 137

6.4.4 Private Grant Financing ..................................................................................................................... 138

Contents

VIII

6.4.5 The Impact of Debt Financing on Content.................................................................................. 139

6.5 Risk Reduction Strategies................................................................................................................ 139

6.5.1 Risk Reduction Strategy: Diversification....................................................................................... 139

6.5.2 Risk Reduction Strategy: Hedging.................................................................................................. 140

6.6 Equity Financing................................................................................................................................. 140

6.6.1 Types of Equity Arrangements........................................................................................................ 140

6.7 The Ownership of Media and Communications Companies.............................................. 151

6.7.1 Individual and Family Ownership of Media................................................................................. 151

6.7.2 Institutional Investors......................................................................................................................... 151

6.7.3 Governmental Ownership................................................................................................................. 153

6.8 Capital Structure................................................................................................................................. 153

6.8.1 Optimal Capital Structure ................................................................................................................. 154

6.8.2 The Lifecycle of Capital Structure................................................................................................... 157

6.9 Outlook................................................................................................................................................... 158

6.10 Review Materials................................................................................................................................. 158

6.10.1 Questions for Discussion................................................................................................................... 159

6.10.2 Quiz .......................................................................................................................................................... 160

Quiz Answers......................................................................................................................................... 163

7 Intellectual Asset Management........................................................................................... 165

7.1 Intellectual Assets .............................................................................................................................. 166

7.1.1 What Are Intellectual Assets?........................................................................................................... 166

7.1.2 History ..................................................................................................................................................... 166

7.1.3 How Companies Organize Their Intellectual Property Management................................. 168

7.2 The Different Types of Intellectual Assets................................................................................. 169

7.2.1 Trade Secret Protections.................................................................................................................... 169

7.2.2 Contract-Created Intellectual Assets............................................................................................. 171

7.2.3 Patents..................................................................................................................................................... 172

7.2.4 Trademarks ............................................................................................................................................ 173

7.2.5 Copyrights.............................................................................................................................................. 175

7.3 The Commercialization of Intellectual Assets ......................................................................... 178

7.3.1 How Important Is an Intellectual Asset?....................................................................................... 178

7.3.2 Aligning Intellectual Assets with Strategy: Intellectual Asset Audits.................................. 179

7.3.3 How to Value Intellectual Assets..................................................................................................... 179

7.3.4 Intellectual Asset Management ...................................................................................................... 181

7.4 Challenges to Intellectual Assets ................................................................................................. 189

7.4.1 Piracy ....................................................................................................................................................... 189

7.4.2 Protection Strategies.......................................................................................................................... 190

7.5 Case Conclusion.................................................................................................................................. 194

7.5.1 Case Discussion.................................................................................................................................... 194

7.6 Outlook................................................................................................................................................... 194

7.7 Review Materials................................................................................................................................. 195

7.7.1 Questions for Discussion................................................................................................................... 195

7.7.2 Quiz .......................................................................................................................................................... 196

Quiz Answers......................................................................................................................................... 199

8 Managing Law and Regulation............................................................................................ 201

8.1 Introduction: Non-Market Competition .................................................................................... 202

8.1.1 Case Discussion.................................................................................................................................... 202

8.1.2 The Relationship of Government and Media.............................................................................. 203

8.2 The Legal and Public Affairs Functions in Media Firms........................................................ 205

8.2.1 General Counsel: Head of Legal Department............................................................................. 205

Contents

IX

8.2.2 Outside Counsel................................................................................................................................... 205

8.2.3 Litigation Management..................................................................................................................... 206

8.3 Influencing Government and the Public ................................................................................... 209

8.3.1 Lobbying................................................................................................................................................. 209

8.3.2 Public Relations Management......................................................................................................... 212

8.4 The Regulatory Process.................................................................................................................... 215

8.4.1 Self-Regulation..................................................................................................................................... 215

8.4.2 Direct Government Regulation ....................................................................................................... 215

8.5 Substantive Media Law .................................................................................................................... 218

8.5.1 Content Restrictions........................................................................................................................... 218

8.5.2 Antitrust and Anti-monopoly Law.................................................................................................. 220

8.6 Outlook................................................................................................................................................... 223

8.6.1 Case Discussion.................................................................................................................................... 223

8.6.2 Looking Ahead ..................................................................................................................................... 223

8.7 Review Materials................................................................................................................................. 225

8.7.1 Questions for Discussion................................................................................................................... 225

8.7.2 Quiz .......................................................................................................................................................... 226

Quiz Answers......................................................................................................................................... 229

III Marketing

9 Demand and Market Research for Media and Information Products......... 233

9.1 Why Demand Analysis ...................................................................................................................... 234

9.1.1 The Importance and Special Problems of Demand Estimation for Media Industries.... 234

9.1.2 Examples for the Problems in Forecasting Media Demand ................................................... 235

9.1.3 Limits to Audience and Market Research..................................................................................... 236

9.1.4 How Media Companies Organize Their Market Research....................................................... 237

9.1.5 Case Discussion.................................................................................................................................... 238

9.2 Data Collection.................................................................................................................................... 238

9.2.1 The Impact of Collection Methodology........................................................................................ 238

9.2.2 Collecting Data from Users............................................................................................................... 239

9.2.3 Measurement at the Provider (Sell-Side) Level .......................................................................... 243

9.3 Analyzing the Data ............................................................................................................................ 247

9.3.1 Transforming Data into Information—Audience Metrics....................................................... 247

9.3.2 Transforming Information into Knowledge: Qualitative Analysis........................................ 249

9.3.3 Quantitative Analysis: “Data Mining” —Overviews of Techniques....................................... 250

9.4 Conclusions and Outlook ................................................................................................................ 259

9.4.1 Case Discussion.................................................................................................................................... 259

9.4.2 Challenges in Audience and Market Research ........................................................................... 260

9.4.3 Conclusion ............................................................................................................................................. 262

9.5 Review Materials................................................................................................................................. 262

9.5.1 Questions for Discussion................................................................................................................... 263

9.5.2 Quiz .......................................................................................................................................................... 263

Quiz Answers......................................................................................................................................... 266

10 Marketing of Media and Information........................................................................... 267

10.1 Marketing: General......................................................................................................................... 270

10.1.1 What Is Marketing?........................................................................................................................... 270

10.1.2 The Marketing Function: Structure and Organization.......................................................... 271

10.1.3 How Does the Marketing of Media Products and Services

Differ from Regular Marketing of Other Products? ................................................................ 271

Contents

X

10.1.4 Limited Attention ............................................................................................................................. 272

10.2 Case Discussion................................................................................................................................ 273

10.3 Product Design................................................................................................................................. 274

10.3.1 Statistical Tools for Product Design............................................................................................. 274

10.4 Product Positioning........................................................................................................................ 275

10.4.1 Case Discussion................................................................................................................................. 276

10.4.2 Demand and Audience Analysis.................................................................................................. 276

10.4.3 Case Discussion................................................................................................................................. 277

10.4.4 Competitor Analysis......................................................................................................................... 277

10.4.5 Branding .............................................................................................................................................. 277

10.5 Pricing.................................................................................................................................................. 278

10.6 Promotion .......................................................................................................................................... 279

10.6.1 Promotion: General.......................................................................................................................... 279

10.6.2 Timing .................................................................................................................................................. 279

10.6.3 Word of Mouth, Buzz, and Viral Marketing............................................................................... 279

10.6.4 Publicity and Public Relations ...................................................................................................... 280

10.6.5 Product Placement........................................................................................................................... 280

10.7 Advertising ........................................................................................................................................ 281

10.7.1 Advertising: General ........................................................................................................................ 281

10.7.2 Advertising Agencies....................................................................................................................... 281

10.7.3 How Much to Spend on Advertising? ........................................................................................ 282

10.7.4 Case Discussion................................................................................................................................. 284

10.7.5 The Optimal Mix of Marketing Activities................................................................................... 284

10.7.6 Case Discussion................................................................................................................................. 285

10.7.7 Allocation Within a Media and Marketing Category ............................................................. 286

10.8 Promotion to Advertisers, Retailers, and Distributors ...................................................... 287

10.8.1 Promotion to Advertisers............................................................................................................... 287

10.9 The Impact of the Internet on Marketing............................................................................... 288

10.9.1 Customization, Targeting, and Individualization.................................................................... 289

10.9.2 New Tools for Creating Marketing Impressions...................................................................... 289

10.9.3 New Types of Reach ......................................................................................................................... 290

10.9.4 Tracking Customers.......................................................................................................................... 290

10.9.5 Location-Based Marketing............................................................................................................. 290

10.9.6 Dynamic Pricing and Auctions..................................................................................................... 290

10.9.7 Social Marketing ............................................................................................................................... 290

10.9.8 Payments and Micropayments..................................................................................................... 291

10.9.9 Data Mining and Online Market Research................................................................................ 291

10.9.10 Relationship Building ...................................................................................................................... 291

10.9.11 Creating a Marketplace for Online Advertising....................................................................... 291

10.10 The Promotion of Media Products ............................................................................................ 291

10.10.1 Film........................................................................................................................................................ 291

10.10.2 TV and Cable Channels................................................................................................................... 292

10.10.3 Music..................................................................................................................................................... 292

10.10.4 Books.................................................................................................................................................... 292

10.10.5 Newspapers........................................................................................................................................ 293

10.10.6 Magazines........................................................................................................................................... 294

10.10.7 Video Games...................................................................................................................................... 294

10.11 The Marketing of Technology..................................................................................................... 294

10.12 The Regulation of Marketing...................................................................................................... 295

10.12.1 Self-Regulation.................................................................................................................................. 295

10.12.2 Government Regulation of Advertising .................................................................................... 296

10.12.3 False Advertising............................................................................................................................... 296

Contents

XI

10.12.4 Privacy Regulation............................................................................................................................ 296

10.13 Analyzing Marketing Performance........................................................................................... 297

10.13.1 Advertising Analysis......................................................................................................................... 297

10.13.2 Sales Analysis..................................................................................................................................... 297

10.13.3 Marketing Cost Analysis................................................................................................................. 298

10.13.4 Marketing Audit Tools..................................................................................................................... 298

10.14 Outlook................................................................................................................................................ 298

10.15 Review Materials.............................................................................................................................. 299

10.15.1 Questions for Discussion................................................................................................................ 300

10.15.2 Quiz ....................................................................................................................................................... 300

Quiz Answers...................................................................................................................................... 303

11 Pricing of Media and Information................................................................................... 305

11.1 Setting a Price................................................................................................................................... 307

11.1.1 Introduction ....................................................................................................................................... 307

11.1.2 Special Problems in the Pricing of Information Products.................................................... 307

11.2 Pricing Strategies ............................................................................................................................ 310

11.2.1 Pricing by Cost................................................................................................................................... 310

11.2.2 Market-Based Pricing....................................................................................................................... 312

11.2.3 Dynamic Pricing and Peak-Load Pricing.................................................................................... 313

11.2.4 Indexed Pricing.................................................................................................................................. 314

11.2.5 Value Pricing....................................................................................................................................... 315

11.3 Measuring Price Sensitivity ......................................................................................................... 317

11.3.1 Econometric Estimation of Price Elasticities and Hedonic Prices...................................... 317

11.4 Strategies to Keep Prices Above Cost...................................................................................... 318

11.4.1 Integrate Information with Hardware........................................................................................ 318

11.4.2 Create a “Lock-in” of Customers.................................................................................................... 318

11.4.3 Bundling .............................................................................................................................................. 318

11.4.4 Establish Market Power Through Monopoly............................................................................ 318

11.4.5 Participate in an Oligopoly ............................................................................................................ 319

11.5 Price Discrimination ....................................................................................................................... 319

11.5.1 Optimal Price Discrimination........................................................................................................ 320

11.5.2 Versioning ........................................................................................................................................... 321

11.5.3 Second Degree Price Discrimination.......................................................................................... 322

11.5.4 Third Degree Price Discrimination: Differentiation by User Category ............................. 323

11.6 Strategic Pricing............................................................................................................................... 323

11.6.1 Skim (“Premium”) Pricing ............................................................................................................... 323

11.6.2 Penetration (“Value”) Pricing......................................................................................................... 324

11.7 Other Types of Pricing ................................................................................................................... 325

11.7.1 Flat Rate vs Usage-Based Pricing................................................................................................. 325

11.7.2 Regulated Pricing ............................................................................................................................. 326

11.7.3 Transfer Pricing.................................................................................................................................. 326

11.7.4 Protection from Price Variations: Hedging ............................................................................... 327

11.8 Legal Aspects of Pricing................................................................................................................ 327

11.8.1 Ethics of Pricing................................................................................................................................. 327

11.8.2 Legal Constraints.............................................................................................................................. 328

11.9 The Futures of Pricing.................................................................................................................... 330

11.9.1 “Free”?................................................................................................................................................... 330

11.9.2 Micro- and Nano-pricing................................................................................................................ 331

Contents

XII

11.10 How Firms Organize Their Pricing Function.......................................................................... 332

11.10.1 Setting Pricing Policy....................................................................................................................... 332

11.11 Conclusions........................................................................................................................................ 333

11.11.1 Case Discussion................................................................................................................................. 333

11.11.2 Conclusions on Pricing.................................................................................................................... 335

11.12 Review Materials.............................................................................................................................. 336

11.12.1 Questions for Discussion................................................................................................................ 337

11.12.2 Quiz ....................................................................................................................................................... 337

Quiz Answers...................................................................................................................................... 340

12 Distribution of Media and Information....................................................................... 341

12.1 Introduction ...................................................................................................................................... 344

12.1.1 The Definition of “Distribution”.................................................................................................... 344

12.1.2 The Myths of Media Distribution................................................................................................. 344

12.1.3 Distribution Networks..................................................................................................................... 345

12.2 The Economic Characteristics of Distribution Networks.................................................. 347

12.2.1 Economies of Scale........................................................................................................................... 347

12.2.2 Network Effects................................................................................................................................. 349

12.2.3 The Role of Government ................................................................................................................ 350

12.2.4 Price Deflation ................................................................................................................................... 350

12.2.5 The Vertical Integration of Distribution with Production .................................................... 350

12.3 Network Models............................................................................................................................... 351

12.3.1 Distribution Architecture #1: The Non-sharing Network ..................................................... 351

12.3.2 Distribution Architecture #2: The Bus and the Ring .............................................................. 352

12.3.3 Distribution Architecture #3: Tree-and-Branch....................................................................... 352

12.3.4 Distribution Architecture #4: The Star........................................................................................ 353

12.3.5 Distribution Architecture #5: The Mesh..................................................................................... 354

12.4 Analytical Tools for Distribution Management.................................................................... 354

12.4.1 The Network Analysis Tools of Sociologists.............................................................................. 355

12.4.2 The Network Analysis Tools of Lawyers: Essential Facilities................................................ 355

12.4.3 Network Analysis Tools of Electrical Engineering................................................................... 355

12.4.4 Network Analysis Tools of Statisticians: Operations Research............................................ 356

12.4.5 Network Analysis Tool of Operations Research: Queuing Theory ..................................... 356

12.4.6 Network Management.................................................................................................................... 357

12.5 Wholesale Distribution ................................................................................................................. 358

12.5.1 Film Wholesale Distributors........................................................................................................... 358

12.5.2 Book Distributors.............................................................................................................................. 359

12.5.3 Magazine Wholesale Distribution ............................................................................................... 361

12.5.4 Music Distributors ............................................................................................................................ 361

12.5.5 Consumer Electronics Distribution............................................................................................. 362

12.5.6 Wholesale Distribution: Trends.................................................................................................... 362

12.6 Retail Distribution: Physical Distribution............................................................................... 363

12.6.1 Film........................................................................................................................................................ 363

12.6.2 Book Retailing.................................................................................................................................... 364

12.6.3 Magazine and Newspaper Retailing........................................................................................... 366

12.6.4 Music Retailing .................................................................................................................................. 366

12.7 Online Retail Distribution of Electronic Media .................................................................... 366

12.7.1 Business Models for Online Media Retailing............................................................................ 367

12.7.2 Online Distribution of Film and Video........................................................................................ 369

12.7.3 Online Periodicals Distribution .................................................................................................... 370

12.7.4 Books Online Retail Distribution.................................................................................................. 370

Contents

XIII

12.7.5 Direct Electronic Distribution to Users: Streaming Music.................................................... 370

12.7.6 Online Videogame Retail Distribution ....................................................................................... 371

12.8 Distribution Channel Strategies ................................................................................................ 371

12.8.1 Self-Distribution: Customer-Direct Distribution by Producers........................................... 371

12.8.2 The Selection of Distributors........................................................................................................ 372

12.8.3 The Timing and Sequencing of Distribution Over Various Platforms .............................. 372

12.8.4 Retail Distribution: Conclusions on Trends............................................................................... 373

12.9 The Revenue Shares in the Distribution Chain .................................................................... 375

12.10 The Impact of Distribution on Content................................................................................... 377

12.11 Conclusions........................................................................................................................................ 378

12.11.1 Case Discussion................................................................................................................................. 378

12.11.2 Overall Conclusions on Distribution........................................................................................... 378

12.12 Review Materials.............................................................................................................................. 379

12.12.1 Questions for Discussion................................................................................................................ 380

12.12.2 Quiz ....................................................................................................................................................... 381

Quiz Answers...................................................................................................................................... 383

IV Feedback Loop

13 Accounting in Media and Information Firms........................................................... 387

13.1 Accounting and Media Accounting.......................................................................................... 389

13.1.1 The Function of Accounting in Business................................................................................... 389

13.1.2 Is Accounting for Media and Technology Special?................................................................. 391

13.1.3 Case Discussion................................................................................................................................. 392

13.1.4 The Five Sets of Books..................................................................................................................... 392

13.2 Profit Accounting............................................................................................................................. 393

13.2.1 How to Depress Accounting Profits............................................................................................ 393

13.2.2 Royalties for Books and Music ...................................................................................................... 393

13.2.3 Profit Accounting in Limited Partnerships................................................................................ 394

13.2.4 How Profit Participants Can Protect Themselves.................................................................... 395

13.3 Public Financial Accounting........................................................................................................ 396

13.3.1 Major Financial Documents for Investors................................................................................. 396

13.3.2 Auditing............................................................................................................................................... 397

13.3.3 Regulation of Accounting.............................................................................................................. 397

13.4 Analyzing Financial Statements and Valuation of Media Firms .................................... 398

13.4.1 Ratios and Metrics............................................................................................................................ 398

13.5 The Valuation of Media Properties ........................................................................................... 403

13.5.1 Cost Approaches............................................................................................................................... 403

13.5.2 Income Approaches......................................................................................................................... 403

13.5.3 Multiples Approach.......................................................................................................................... 404

13.6 The Balance Sheet........................................................................................................................... 405

13.6.1 Assets.................................................................................................................................................... 406

13.6.2 Depreciation and Amortization of Assets................................................................................. 406

13.7 Liabilities ............................................................................................................................................ 408

13.7.1 Stock Options..................................................................................................................................... 408

13.7.2 Case Discussion................................................................................................................................. 409

13.8 Income and Profit Statements.................................................................................................... 409

13.8.1 EBITDA and Other Profit Definitions........................................................................................... 410

13.8.2 Case Discussion................................................................................................................................. 410

13.8.3 The Cash Flow Statement............................................................................................................... 411

13.8.4 Cost and Expenses............................................................................................................................ 411

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XIV

13.9 Managerial Accounting................................................................................................................. 412

13.9.1 Responsibility Center and Profit Centers .................................................................................. 413

13.9.2 Overhead and Indirect Cost .......................................................................................................... 413

13.9.3 Transfer Pricing.................................................................................................................................. 413

13.9.4 Tracking Costs.................................................................................................................................... 414

13.10 Capital Accounting and Budgeting .......................................................................................... 415

13.11 Information Technology in Accounting .................................................................................. 415

13.11.1 Management Information Systems ............................................................................................ 415

13.11.2 Enterprise Resource Planning Systems...................................................................................... 415

13.12 Conclusion.......................................................................................................................................... 417

13.12.1 Case Discussion................................................................................................................................. 417

13.12.2 Conclusions on Accounting in Media......................................................................................... 417

13.13 Review Materials.............................................................................................................................. 418

13.13.1 Questions for Discussion................................................................................................................ 419

13.13.2 Quiz ....................................................................................................................................................... 419

Quiz Answers...................................................................................................................................... 422

14 Strategy Planning in Media and Information Firms............................................ 423

14.1 Introduction ...................................................................................................................................... 425

14.1.1 What Is Different About Strategy Setting in Information Sector Industries?................. 425

14.2 Theories and Tools of Business Strategy ................................................................................ 427

14.2.1 Basic Strategy Perspectives........................................................................................................... 427

14.2.2 The Emergence of the Guru Industry......................................................................................... 432

14.3 The Strategy Process ...................................................................................................................... 433

14.3.1 Organization of the Strategy Process......................................................................................... 433

14.3.2 Who Engages in Strategic Planning?.......................................................................................... 434

14.4 The Strategic Plan............................................................................................................................ 436

14.4.1 The Vision and Mission Statement.............................................................................................. 436

14.4.2 The External Assessment................................................................................................................ 436

14.4.3 Internal Assessment......................................................................................................................... 440

14.5 Strategy Options.............................................................................................................................. 444

14.5.1 Generic Options................................................................................................................................ 444

14.5.2 How to Select Among Strategies................................................................................................. 446

14.6 Implementation of Strategy........................................................................................................ 450

14.6.1 Internal Communication ................................................................................................................ 450

14.6.2 Budgeting ........................................................................................................................................... 451

14.6.3 Monitoring, Control, and Feedback ............................................................................................ 451

14.6.4 Implementation of Strategy: Government Relations............................................................ 453

14.7 Outlook................................................................................................................................................ 453

14.7.1 Constraints on Strategy .................................................................................................................. 453

14.7.2 Conclusion: Strategic Priorities..................................................................................................... 455

14.8 Review Materials.............................................................................................................................. 455

14.8.1 Questions for Discussion................................................................................................................ 455

14.8.2 Quiz ....................................................................................................................................................... 456

Quiz Answers...................................................................................................................................... 459

15 Concluding Observations..................................................................................................... 461

15.1 The Matrix of Media Management............................................................................................ 462

15.2 Is Management in the Media and Information Sector Different? ................................. 462

15.2.1 Fundamental Factors....................................................................................................................... 462

15.2.2 Personal Motivation......................................................................................................................... 463

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XV

15.3 Challenges for Media Managers ................................................................................................ 463

15.3.1 The Search for a New Media Business Model .......................................................................... 463

15.3.2 The Search for a Media Industry Structure............................................................................... 464

15.3.3 The Search for a New Content Model......................................................................................... 464

15.3.4 The Search for New Government Policy and Regulation..................................................... 464

15.3.5 Understanding the Future and Understanding the Past...................................................... 465

15.3.6 Dealing with People......................................................................................................................... 465

15.3.7 Being Good with Numbers............................................................................................................ 465

15.3.8 Globalization of Media and Information................................................................................... 465

15.4 Managing in the Media and Information Sector................................................................. 466

15.4.1 How Organizations Succeed ......................................................................................................... 466

15.4.2 Organizational and Personal Responsibility ............................................................................ 466

Correction to: Media and Digital Management..................................................... C1

Supplementary Information

Index ..................................................................................................................................................... 469

The copyright year of this book has been revised: The correction is available at

https://doi.org/10.1007/978-3-319-72000-5_16

Contents