Lessons from News Corp. - Center for Digital Strategies

Lessons from News Corp.'s past failures in
adventures into digital media
Qiong Shu (Joan)
Bo Qin (Danny)
1
Agenda
• Background – Intro to News Corp.
• Current attitude towards new media / digital media
• Case analysis - MySpace v.s. Facebook
• Another way that traditional media company like News Corp. may
benefit from digital media platform
2
Intro to News Corp
• News Corp. is a global media conglomerate which has a
considerable market share in just about every type of media
imaginable
• World's second-largest media conglomerate as of 2011 in terms of
revenue, next to Disney
• Fast expansion into various sectors through tremendous M&A
activities
• Considered digital media as a small part of the business
3
Products and Services
News Corp
Publishing
Direct
Broadcast
Satellite
Television
Television
Filmed
Entertainment
Cable
Network
Programming
Other
Digital
media
Wireless
Generation
Education
technology
News
Outdoor
Outdoor
advertising
4
Revenue break-up (FY2011)
Cable Network Programing
production and licensing of programming distributed through cable
television systems and direct broadcast satellite operators primarily in
the United States, Latin America, Europe and Asia
Other
3%
Filmed Entertainment
Cable
Network
Program
ming
24%
Publishin
g
27%
production and acquisition of live-action and animated motion pictures
for distribution and licensing in all formats in all entertainment media
worldwide, and the production and licensing of television programming
worldwide
Television
broadcasting of network programming in the United States and the
operation of 27 full power broadcast television stations
Direct
Broadcast
Satellite
Television
11%
Television
14%
Filmed
Entertain
ment
21%
Direct Broadcast Satellite Tel.
distribution of basic and premium programming services via satellite and
broadband directly to subscribers in Italy
Publishing
newspapers and information services, book publishing and integrated
marketing services businesses.
Other
digital media properties, Wireless Generation, education technology
business, and News Outdoor (throughout Russia and Eastern Europe)
5
Buy
Major M&A Activities in digital media (2005 – Now)
2005
MySpace
IGN
AskMen.co
m
2006
kSolo
Milkround
Property Look Pty
Sell
Cases Ladder
•
•
2007
Fox Mobile Distribution GmbH
LibreDigital
Moshtix Pty
Synapse
2008
Mahalo.com
Wego.com
Globrix
Tributes.com
Beliefnet
Palestra.net
2009
LibreDigital
What They like
BibleGateway.com
Gospel.com
The City
CareerOne Pty
StarAsiaTravel.com
Propertyfinder
FOXSPORTS.com.au BreakingNews Beliefnet
IncFusion
D&J online
Fox Interactive
Globrix
Media
FOXSPORTS.com.au
Total M&A Transactions: 215
M&A in Digital Area:
–
–
2010
Making Fun
2012
Yardbarker
bestrecipes.c
YoBrand,
om.au
Get Price Pty
2011
Irata Labs
Bossa Studios
SmartMoney
Kidspot Pty
Beyond Oblivion
UGO Entertainment
Journalism Online
Beyond Oblivion
Casa.it S.R.L.
LibreDigital
MySpace
The City
Honk
Journalism Online
Fox Mobile Group
M&A in Digital Advertisement: 15
M&A in Digital Media, including software/tools for digital
media: 53
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Case analysis – MySpace failure
News Corp.’s nearly six-year-old marriage has become the latest example of what can happen
when a traditional media company imposes its will – and business plan – on a start-up that
has not et reached its potential
Aug, 2003
Foundation of
MySpace
- By De Wolfe
and Tom
Anderson
- Social
network,
especially in
music
2005
2007
Acquisition
of
MySpace
Internal &
External
challenges
- MySpace was
in the leading
position
- Won the deal
from Viacom
- Acquired
MySpace for
$70MM
- Emerging of
Facebook
- Missed the
target again
and again
2009
Lost ground
in the social
network area
- Fired the
founding
team
- Defined itself
as social
network for
band and
their fans
2010
2011
Sell MySpace
Relaunched
To
Specific Media
- Defined itself
as social
network for
band and
their fans
- Sold
MySpace for
$35MM
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Why MySpace failed? – Corporate strategy level
• Murdoch treated Web as a distribution platform
• Fast-growing business v.s. low-growing traditional business
• Murdoch’s management style – De Wolfe bypassed his direct supervisor and
talked to Murdoch directly, causing tension among management team
• Over optimistic about the revenue prediction of MySpace in 2007, i.e. $1
billion, causing tension inside the firm and over raising the expectation of
investors
• Underestimated Facebook
• Continuous missed deadlines of opening platform to developers, losing
advantages in innovation and technology
• Too concerned with revenue and meeting traffic targets of its Google deal,
which required a certain number of Myspace user visits on a regular basis for
Google to pay Myspace its guaranteed $300 million a year for three years.
– “We were incentivized to keep page views very high and ended up having too many ads plus
too many pages, making the site less easy to use than a site like Facebook.”
– On the other hand, Facebook had a better and flexible deal with Microsoft based on revenue
sharing agreement rather than revenue guarantees.
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Two-sided market model (By Thomas Eisenmann, HBR)
1. Platforms which tie two distinct groups of users together in a network, e.g. Newspaper,
operating systems, credit card, etc.
2. Platforms provide infrastructure and rules that facilitate the two groups’ transactions
and can take many guises.
3. Value chain: cost and revenue are both to the left and the right, because the platform
has a distinct group of users on each side. The platform incurs costs in serving both
groups and can collect revenue from each, although one side is often subsidized
Customers
Upstream
•
Revenue
PLATFORM
Value Chain
Cost
Cost
Revenue
Customers
Downstream
Marginal Revenue and Profit contribution is always increasing as user base grows, Network effect
leads to infinite economies of scale (for information goods only)
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MySpace v.s. Facebook – Applies Two-Sided model to Facebook
MySpace Failure – Old Media Model
•
•
•
•
Applied Old Media Model in a two-sided Market
Locked in Advertisers (via Google Search) on Upstream Side, and let the Customers Create Content
(Primarily blogs). Didn’t let/opened Upstream Side to other Customers
Networks effects on Downstream side are not leveraged on Upstream side – leading deterioration in
asset and momentum shifting towards other platform (Facebook)
Took over 18 months to open its platform to 3rd party application developers
Revenue
Revenue
1 customer:
Advertisers
Content
Downstream
PLATFORM
Distribution
Cost
Cost
Upstream
Customers:
Subsidized
10
MySpace v.s. Facebook – Applies Two-Sided model to Facebook
Facebook Success – New Media Model
•
•
•
Applied new media model in a two-sided Market
Opened platform to various upstream customers – content from various sources, advertisers, 3rd party
application developers, etc., an effective way of being innovative and attractive to customers at the
other end
Opened platform to various downstream customers – market research companies or database
companies
Revenue
Revenue
Content
PLATFORM
Distribution
Customers
Paid data
research
Revenue
Various
customer
Downstream
Cost
Revenue
Cost
Upstream
“Even when you have a massive user base, you
still need to offer something new to keep people
engaged.”
-- Richard Greenfield, BTIG Analyst
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Can MySpace use new media model?
Pricing the Platform:
•
•
•
•
For two-sided networks, pricing is a more complicated affair. Platform providers have to choose a
price for each side, factoring in the impact on the other side’s growth and willingness to pay.
Typically, two-sided networks have a “subsidy side,” that is, a group of users who, when attracted
in volume, are highly valued by the “money side,” the other user group.
Coping with user sensitivity to price
The content providers price the platform – conflict of interest
Winner-Take-All Dynamics in two-sided market model:
•
•
The prospect of increasing returns to scale in network industries can lead to winner-take-all battles,
so an aspiring platform provider must consider whether to share its platform with rivals or fight to
the death.
A networked market is likely to be served by a single platform when the following three conditions
apply (e.g. DVD):
–
–
–
Multi-homing costs are high for at least one user side. “Homing” costs comprise all the expenses network
users incur – including adoption, operation, and the opportunity cost of time–in order to establish and
maintain platform affiliation.
Network effects are positive and strong–at least for the users on the side of the network with high multihoming costs. A small-scale platform will be of little interest to users unless it is the only way to reach
certain users on the other side.
Neither side’s users have a strong preference for special features. If certain users have unique needs, then
smaller, differentiated platforms can focus on those needs and carve out niches in a larger rival’s shadow
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Another way that News Corp. may benefit from digital media platforms
Focus on engaging consumers when using digital media platform, rather than simply
treat it as distribution channels
• Access & Enroll
• Humanize the company by making
human connections with customers to
build trust
• Provide sufficient information be
become authorized
• Motivate the customers by providing
opportunities to participate and make
impact
• Make this process fun
• Engage
• Provide extra services / products to
add value in ways that means
something to customers
• Bring in partners to broaden the range
of such services if necessary
• Apps on either mobile devices or
social platforms would work
• Cultivate loyalty
• Bring true value to members
• Enable communication among users
• Changes on corporate structure
and/or culture
• Change the nature of relationship
between customer and company
• Change the process how company
makes business decisions
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