CS155b E Commerce Lecture 6 Jan 30 2003 Introduction to Online Content Distribution Revolution in ContentRelated Technology Computers and digital documents radically change content creation WWW radically changes content publication Internet radically changes content distribution Revolution in ContentRelated Business Plenty not scarcity Anyone can be a publisher Disintermediation and reintermediation Three Major Enforcers Support a Content Distribution Business Legal Protection Digital Rights Management Business Model Product or ServiceDeveloper s Goal Choose the right ingredients and weave them together into an effective end to end technical protection system TPS Ingredients must be right w r t business model and legal and social content as well as technical context Notoriously Difficult Known Risks Unknown Risks TPS Copyright Law Residual Risks A Rubin M Reiter used with permission Dual Doomsday Scenarios Today s Rights Holders and Distributors TPSs won t work Copying modification and distribution will become uncontrollable Fair Use Advocates and Some Consumers TPSs will work Rights holders will have more control than they do in the analog world Best TPS is a Great Business Model The first line of defense against pirates is a sensible business model that combines pricing ease of use and legal prohibition in a way that minimizes the incentives for consumers to deal with pirates Lacy et al IEEE Symposium on Industrial Electronics 1997 Holy Grail A Great Business Model for Internet Music Distribution Hal Varian quoted in C Mann s Heavenly Jukebox article Maybe Coke will find a way to integrate itself directly into the shows Or they ll release the music free on the Internet except that it will be wrapped in a commercial What s the difference if the Spice Girls are marketed by Coca Cola or by Virgin Records soon to be a subdivision of AOL Time Warner 2000 Sales by RIAA members 15B 2001 Coca Cola Net Operating Income 20 1B Existing Business Models for Information Products Fee models Subscription purchase Singletransaction purchase Single transaction license Serial transaction license Site license Payment per electronic use Advertising models Combined subscription and advertising income Advertising income only Free distribution models Free distribution no hidden motives Free samples e g coming attractions Free first version Free information when you buy something else complementary products bundling Less Traditional Business Models for Information Products Extreme customization Make the product so personal that few people other than the purchaser would want it Provide a large product in small pieces making it easy to browse but difficult to get in its entirety Give away digital content because it complements and increases demand for the traditional product Give away the product sell the service contract Allow free distribution of the product but request payment Shareware Position the product for low priced mass market distribution RealNetworks An Internet Media Delivery Solution Full Name RealNetworks Inc Employees 1 000 2001 report Stock Price NASDAQ RNWK 3 31 at close 1 28 2003 52 week range 2 68 to 9 28 EPS 0 02 qtr 0 24 year Provides client and server software for streaming multimedia content over the Internet RealNetworks Overview Founded by Rob Glaser as Progressive Networks in 2 1994 Acquired Vivo Software in 3 1998 Xing Technology in 8 1999 and Netzip Inc in 1 2000 Went public in 11 1997 reached an all time high adjusted price of 93 share in 2 2000 Over 200 million registered users as of 1 2003 RealPlayer is installed on 90 of home PCs note down from 95 in 2001 RealNetworks Stock Chart source Quicken com market close 1 28 2003 S Stock Split RNWK Quarterly Revenues source SEC Filings Forms 10 Q and 10 K RealNetworks Business Model Roughly 60 of RealNetworks 4Q2002 revenue came from consumers 13 in 2001 The basic RealPlayer software is free Users may pay a small fee 20 for an advanced version with more features Users also pay for subscriptions to premium content Roughly 5 of its 4Q2002 revenue is from services and advertising 35 in 2001 Roughly 35 of its revenue stream is from charging broadcasters of streaming data for the RealServer software 50 in 2001 In summary business model is slightly exaggerated give away the player sell the server and content Competition in the Market Microsoft s Windows Media Player WMP has become a competitor as it now offers functionality similar to RealPlayer Microsoft has been very aggressive in its attempts to gain market share By bundling WMP with Windows users are more likely to use it instead of RealPlayer it s one less program to download By signing Windows only deals with various radio stations including Boston s WGBH and New York s WNYC Microsoft is forcing users to use WMP if they want to access these resources RealNetworks Maintains Dominant Market Share RealNetworks has successfully maintained a dominant market share over 85 of the streams on the Web are RealNetworks encoded This fact has held true since at least 2001 Many independent websites broadcast streams in both RealMedia and Windows Media formats because both are popular with users RealNetworks has like Microsoft formed contracts with companies and sells consumers access to premium content through subscriptions The Importance of Consumer Subscriptions Consumer subscription revenue grew 167 from 2001 to 2002 Examples of premium content Starz on Demand web based movies NBA Inside Ticket PGA Tour SEGA Arcade for web based games RealNetworks has over 900 000 subscribers The more subscribers the more partners that might affiliate with RealNetworks which leads to larger market share and revenue RealNetworks Important Strategies Unlike what Netscape did with its browser RealNetworks gave away the player for free from the beginning This was crucial in establishing such a large user base in the first place RealPlayer is the second most widely used application on the Internet While Microsoft s content distribution is just limited to the Windows and for content receivers only Mac OSs RealServer runs on 11 different OSs Because Windows servers make up only about 20 of the publicly accessible Internet this poses a significant bottleneck for Microsoft Responding to Technology Media delivery companies can take advantage of physical layer developments Broadband as more consumers adopt fast home Internet connections it becomes more feasible to stream and charge for high quality media Wireless