2009

Business Strategy
Achal Kaushal F-23, Press Enclave, Saket New Delhi -110 017 Phone : +91-98-103-07184

CONVERGENCE
AND ITS IMPACT ON

INDIAN MEDIA COMPANYS STRATEGY

HUGE CHANGES IN CONSUMER END MEDIA TECHNOLOGY IN RECENT YEARS.RIDING ON INNOVATIONS AT ENTERPRISE LEVEL
Portable Devices

Internet email PPV

Digital Cable Streaming Video

VOD

1950s

1960s

1970s

1980s

1990s

2000-2007

EPGs

Broadband

HDTV Satellite Digital Satellite HDDVD

DVD Sling box Iphone

Blu-ray disc

.. ACCOMPANIED BY CHANGES IN THE MEDIA CONSUMER (SOCIO-ECONOMIC EFFECT)

1950s

Now

Growing similarity of needs across user groups..

THE INDIAN SCENARIO

User market

72 million Cable TV households 80 million (approx.) Internet users (approx. 6 % of population) 4 million Broadband Internet users 242 million people have access to printed newspapers 400 million mobile phone users 21 cities tuned to FM Radio (expected to be approx.91 by 2010)

Infrastructure

Telecom infrastructure booming with Government working hard on Information Super highway and broadband agenda. Target wide availability of broadband and 3G services by 2010. approx. 14 players FM radio infrastructure booming with approx. 7 players (expected to be 40 by 2010) Print infrastructure booming 50 major newspapers (approx.) printed in English including City editions. Total number of newspapers printed in India is in thousands Many Satellite service networks, Digital Cable growing, iptv launched, Big move towards digital all around

Regulations

Moving from Restrictive & Prescriptive towards a more development friendly framework FDI Norms eased for investment in Media and launch of foreign publications rules eased

DRIVERS OF INDUSTRY CONVERGENCE

Technology
Process technology Technological platforms Internet/IP networking Standards

Deregulation
Telecom deregulation Financial deregulation

Business-related
Innovation/new combinations Strategizing/Diversification

(Rosenberg,1963; Katz,1996; Gambardella & Torrisi,1998; Lei, 2000; Stieglitz,2003; Bors et al.,2003; Nystrm & Hacklin,2005)

(Katz, 1996; Lei, 2000; Nystrm & Hacklin,2005, Vong Srivastava and Finger,2006; Boyer and Nyce, 2002)

(Yoffie, 1997; Schumpeter,1934; Choi & Valikangas, 2001; Stieglitz, 2003)

GLOBAL BRANDS RESPOND TO CONVERGENCE CHALLENGEMEDIA SERVICES NEAR FREE

N97 Apps By Indian Media Cos: India Today, NDTV, Rediff, CNBC-TV18; Eterno & Galatta.medianama, June12, 2009 This is a typical response to Demand side convergence involving complementarities in products NOKIA aggregates services India Today: India Today content is available on the N97 via an application developed for them. breaking news, developing stories, live coverage and archival content, apart from a fortune telling feature shall be offered. NDTV Active: Much like its mobile portal Mobile.NDTV.com , the NDTV Active application will offer News, Photo Galleries, Cricket and movies. The NDTV Active application will be preloaded on the N97 in India. GALATTA Cinema, a magazine and movie portal, has developed a widget for Ovi. The app will bring over 100 pages of news and movie reviews about the south Indian film industry, primarily targeting Tamil, Telugu, Malayalam and Kannada movie buffs. Its iPhone application apparently made it to the Top 20 popular applications under the Books category of the Apple apps store. CNBC-TV18: Live stock quotes, news and analysis from Moneycontrol will be offered on this widget. Moneycontrols mobile site. Market indices refresh every 30 seconds. Users can also search stock prices.

AND GLOBALLY.(REGULATION HELPS)

The Times of India, June 12, 2009

CONVERGENCE HYPE CYCLE

The Hype Cycle is an empirical regularity that has been used to illustrate how the business community and trade press embrace a new technology.

CONVERGENCESOME OBSERVATIONS

Convergence, like new technology is an enabling tool offering new superior solutions to established and new technical problems Importantly it is an enabler for business strategists instead of technologists

Early movers from 1994 implementing Convergence strategy missed to consider the impact of the Internet
1997 and after, the internet gradually made Convergence strategies possible with viable business models Around 2001, the concept reached Plateau Of Productivity ??? Has mobile and wireless Convergence been factored yet?

THE CONVERGENCE OPPORTUNITY

NEW AGE MARKETS/USERS & CONSUMPTION DEVICES
ipTV PCs

PDAs

Laptops

<25 =54% population

Mobiles with Cameras, High memory & data functions

Hybrids

New age users

Distribution Platforms Digital Content Categories Media

Video

Digital Interactive fixed

www.

Mobile / Wireless

Music Video Audio

Information Audio Views Video News Digital Comments Publishing (P2P)

Games

Digital PublishingBrands, Products B2B, B2C, B2G G2B, G2C

TV

RADIO

ONLINE

PRINT

B/W TV

Aakashvani

Analog Customers

Doordarshan

Low end technology

Low end PC

Traditional

B/W Mobiles

Markets

Newspaper reader

THE INDIAN CHALLENGE

Only about 40% internet users like to access English

content
Major

technologies for consumer interface today address english understanding/speaking population

Given the Indian per capita income, PCs and high

definition TVs etc. may not get a deeper market penetration

GPRS

enabled, superior data functionality mobile phones shall take some time before reaching a critical mass be their first experience or gateway to experience of internet and other IP services

For a majority of Indian population, a mobile device may

THE MAJOR CHALLENGE FOR MEDIA COMPANIES (INHIBITED BY PATH-DEPENDENCE).

How do we make the transition from our businesses of today to the future businesses of tomorrow, without adversely affecting the

businesses of today? Profitability may suffer? We

may not succeed at all?

---must be resolved through Business Strategy

CONVERGENCE & MEDIA COMPANYS

STRATEGY All convergence processes have been seen to impact the boundaries between industries and thereby posing strategic challenges to organisations, causing them to face new technologies, consumers and needs, which means that organizational capabilities in face of Convergence are either rendered obsolete or degrade significantly. The dichotomy between must be resolved Coherence and Convergence through Corporate Strategy.

NEW COMPETITORS HAVE ALSO EMERGED UK, TV EXAMPLE

Competitive Advantage
Own content, customer facing brands, crosspromotion capability, audience shares, catch-up TV Online audience share, deep pockets, internet experience Installed base of devices (which drive adoption), partnerships with DTH/IPTV players, TV solution Control broadband infrastructure, deep pockets, usability Internet experience, involvement of some major content owners TV solution, clever technology, content deals Others Vudu

Category
Major broadcasters

Examples
NBC Universal, BBC, ITV, Chanel 4, BskyB

Challenges
Customer memory, making partnerships work, Licensing

Internet companies

Amazon Unbox, Google Video, Yahoo, AOL, MSN

Dont own content, PC solution

Device driven players

iTunes, Xbox live, Sony PSP, TV manufacturers

Access to content, installed base, customer experience

Telecoms/IPTV

BT Vision, Orange, Tiscali

Limited content, closed system, critical mass of customers

Emerging Web TV/Video companies

Joost, Babelgum

Premium content, brand, audience, PC solution, Technology Another set-top box

DEFINITION OF CONVERGENCE
Concise Oxford English Dictionary defines the word Convergence as come together from different directions so as eventually to meet. A working definition of Convergence could be something like : A confluence and merging of hitherto separated markets, removing entry barriers across the market and industry boundaries.

FRAMEWORKS FROM ECONOMIC THEORY

Date
1985 1995 1996 1997 1998 1999 2000 2001 2003

Scholarly work/ Author

Michael Porter & Victor Millar Harianto & Pennings Katz Greenstein & Khanna Gambardella & Torrisi, Duysters & Hagedoorn Mueller Bohlin et al Wirtz, Pennings & Puranam Stieglitz

With the exception of Pennings & Puranam, Stieglitz and Greenstein & Khanna, these articles only use the term without a systematic reflection about its definition. In the semi-academic business literature there is a significant discussion about the impact of Convergence but few attempts to anchor the term in a theoretical framework (e.g. Yoffie 1997).

CONVERGENCE & ECONOMIC THEORY

Most

of the identified theoretical articles about Convergence have taken an industry perspective strategies are a response to redefinitions of industry boundaries restructuring and strategies during Convergence is a re-action to the outside force of industry restructuring

Convergence

Company

NOTABLE WORKS ON CONVERGENCE & ECONOMIC

THEORY

Greenstein & Khanna 1997 Pennings & Puranam 2001

Stieglitz 2003
Yoffie : 1997 to 2001
Competing in the Age of Digital Convergence Competing on Internet time Judo Strategy

GREENSTEIN & KHANNA,1997 ON IMPACT ON CONVERGENCE ON INDUSTRY BOUNDARIES

Focus on action at the boundaries between industries Convergence

in

substitutes

and

Convergence

in

complements
When two different product classes starts to share

features that will make them interchangeable for customers, we will have a Convergence of substitutes
If two product classes work better together than by

themselves we have Convergence of complements

PENNINGS & PURANAM, 2001-- ADD A SECOND DIMENSION TO THE SUBSTITUTE COMPLEMENT DIMENSION
Introduction of Supply Side Convergence and Demand Side Convergence Supply Side Convergence in Substitutes occur when different technological

capabilities become similar and can satisfy the same set of needs
For example, Convergence between biotechnology and pharmacology

where two different technologies can solve the same medical problem in different ways
Demand Side Convergence in Substitutes occur when needs of different

consumer segments become similar

For example Globalisation and homogenisation of market segments Complementary Convergence on Demand Side is a mirror image of the

Supply Side Convergence and arise when different but related consumer needs are met by product bundling
For example partial merging of consumer and investment banking

STIEGLITZ , 2003 RE-LABELS THE SUPPLYDEMAND DIMENSION

Technology Vs Product based Convergence Complement Convergence in technology is called

Technology Integration and occur when two technologies can be combined in a way that creates a new type of product e.g. PDAs
Product Based Substitute Convergence involve

increased cross-industry competition, created by increased overlap in capabilities between two industries e.g. growing overlap between mainframe and minicomputer markets

DAVID B. YOFFIE INTRODUCES NEW COURSE IN HARVARD BUSINESS SCHOOL

Convergence examples, suddenly, are plentiful. Computing and entertainment have come

together in the TiVo video digital recorder, which allows users to time-shift their TV viewing. According to Yoffie, entertainment and communications are coming together to produce a mobile music revolutionthe distribution of digital music over wireless networks. And your cell phone has also become a camera, music and video player, personal organizer, instant messaging device, and any number of other products all rolled into one.
Why convergence now? A primary factor is the ever-onward march of processor

technology. By the year 2010, says Yoffie, who sits on the board of chipmaker Intel, a single computer chip will deliver 1 teraflop of processing power, and today's high-end, highspeed chips will migrate down into a wide swath of consumer devices. Another key driver is the arrival of broadband technology on a global scale, which allows bandwidth-intensive applications, such as video, to shoot from device to device in the blink of an eye. Wireless is another enabling technology, allowing the computer and other digital devices to access the Internet and other networks from an ever-increasing number of remote locations.
"The key strategic question is where to play in the value chain; very few firms can be

successful along the entire vertical chain in a converging world. In the course(starting 2006), we try to dissect where, and under what conditions, you want to focus on horizontal layers in the value chain versus offering fully integrated solutions," says Yoffie.
The Wireless Mobile Music Revolution, which explores whether wireless carriers can beat

Apple's iPod in digital music. (part of Yoffies updated course Strategy and Technology)

SOURCES & REFERENCES

NBC Universal Medianama.com Jonas Lind, The Convergence Hype Cycle, article submitted as extended abstract to ITS Berlin, 2004 Jonas Lind, Stockholm School of Economics, Convergence: History of Term Usage and Lessons for Firm Strategists, June 2004. Interactive Content & Convergence, A Study for the European Commission,By Screen Digest Ltd, CMS Hasche Sigle,Goldmedia Gmbh, Rightscom Ltd, October 2006 Pennings & Puranam, Market Convergence & Firm Strategy, Paper presented at ECIS Conference, 20-23 Sept.2001.

Siddharta Menon, Policy Impediments to Media Convergence, International Journal of Communications Law & Policy, Issue 12, Winter 2008.
Benjamin Weaver, The Institute of Economic Research, Industry convergence, Paper submitted to the 19th NFF conference in Bergen, 9-11 August 2007.

ABSTRACT
Before 1994, the western world witnessed debate on Convergence rather internal to the Infocom industry. Around this time, the potential of information super highways, video-on-demand (VOD), interactive television (iptv), Internet and fixed-mobile Convergence came to the fore. Ever since India has followed in the footsteps of the western world and starting 2005, the impact of convergence has started to be felt here.

INDUSTRY CONVERGENCE
Definition Types

The merger of two or several hitherto separate industries, whose initial boundaries are defined by firms producing close substitutes. Convergence in substitutes Different product types share features and provide same function for end users

Convergence in complements Previously unrelated products are bundled together to form new, value-added class of products
(Greenstein & Khanna, 1997; Dowlinget al.,1998, Lei,2000; Pennings &Puranam, 2001,Stieglitz, 2003

SUPPLY SIDE OF CONVERGENCE

Convergence on the supply side occurs when new technologies are discovered which map on to needs already being satisfied by existing technologies. This implies that the needs satisfied by different technological capabilities begin to overlap to a greater extent and create a situation where one technology sup-plants another by offering the same benefits eventually perhaps at lower costs. The example is my current industry of work. Today a traditional television broadcast service is being challenged by ipTV and a step further. As illustrated above the mobile phone is gradually gearing up to encompass all possible media, entertainment and communication needs of the modern world.

DEMAND SIDE OF CONVERGENCE

Demand side Convergence can be inferred from the growing similarity of needs across groups of consumers. This is also known as Convergence of markets. Specific to the Media industry Convergence, the example we see today is the need for news and information on the move which is cutting across socio-economic classes and then diffusion of communication, media and entertainment as may be termed by product bundling wherein the mobile phone is also a FM radio and a device to read and interact on news items. In near term, we will see the ubiquitous mobile phone becoming a mobile TV as well.