این فصل را با ذکر تمام تیترهای مربوطه (تاکید میکنم با ذکر تمام تیترها) به انگلیسی ساده و روان خلاصه کن    2	The Strategic Context

The effective organization of industrial resources, even when considered in its rational aspects alone, does not approximate to one ideal type of management system … but alters in important respects in conformity with changes in extrinsic factors. These intrinsic factors are all, in our view, identifiable as different rates of technological or market change. … By change we mean the appearance of novelties: i.e. new scientific discoveries or technical inventions, and requirements for products of a kind not previously available or demanded. (Burns and Stalker, 1961/1994: 96)

This citation comes from a classic book written in the 1960s on the management of innovation – one of the few that draws on the media industry for its examples. It is included here because it neatly underlines the key drivers of environmental change for the media today – changes in technology and changes in consumer behaviour – nd also the enduring nature of these themes. These two elements have always influenced the practice and content of strategy in the media, although for many decades the pace of these developments has typically been relatively measured.
More recently, the pace of change has accelerated and it has also become more far- eaching.

The field of strategy is concerned with how an organisation orchestrates a uccessful response to its environment. Strategy is challenging because that nvironment is never static. Rather, like all complex systems, it is in a constant tate of flux. The nature of this change can vary. At some times it can represent
elatively benign and easy to accommodate alterations to the status quo, at others it an be rife with many different developments, the dimensions of which are far from lear, and the implications of which are hard to predict.

Porter, one of the most influential theorists in the field, views aligning an rganisation with its strategic environment as the essence of competitive strategy (Porter, 1980). As anyone who has studied the strategic situation of any particular rganisation will know, any strategy is always situational and context-dependent, nd the appropriateness of any given approach will depend on the industry context. This chapter explores the strategic environment, the macro environment, urrounding the media industry, and explores some of the central changes taking place in it and their implications for strategic management.
 
Permanent drumbeat of technological change

Viewed longitudinally technological change has been a consistent and long-standing hallenge for the media industry. The long-term erosion of traditional media products by new media ones is inevitable (Picard, 2003), although, as Riepl (1913) nd Fidler (1997) stress, new forms of communications media do not extinguish previous ones, but rather force them to evolve and adapt. This constantly shifting ‘technological carpet’ gives rise to one of the core strategic challenges for strategic
anagement – adapting strategy and organisation in response to these developments. And it is skilled at responding to this challenge – when faced with
ajor shifts, the constituent sectors of the industry have shown a remarkable ability to adjust their products and processes and carry on, albeit with different business
odels and lower revenues.

From a strategic perspective, the changes in the strategic environment until the mid- 1990s represented, in the main, incremental alterations to the status quo. The trategic context of the media sector remained ‘mature’ (Porter, 1980), with slow growth, strong competition between a known group of players, high barriers to ntry, in the main, and knowledgeable customers. The 1990s, which brought the
full-blooded advent of the internet and digitalisation, heralded a new era, one that merged with unprecedented speed and has continued to evolve equally fast, oving content first on to desktops and then on to mobile screens, with social
edia platforms taking an ever larger role in content distribution.
 
Scanning the strategic environment – PEST analysis

PEST is an acronym. It stands for political, economic, social and technological – nd these are the broad categories by which an organisation (or business unit) can can its strategic context to identify key macro environmental factors that need to be fed into the strategic analysis process. The PEST model is practitioner rather than esearcher orientated, and is probably the simplest concept in this book. But if pplied well it can highlight the critical factors in the strategic context that
trategies need to address. The trick is to scan widely but then be highly selective in terms of factors included in the analysis, to pinpoint a smaller number of critical issues, rather than generate an exhaustive list of external changes in the outside
orld. PEST analysis is a valuable first stage in any strategic process or case study nalysis (and is normally introduced early on in MBA and similar management ourses).

PEST analysis involves screening the external environment for factors, developments or changes that affect an organisation’s strategic situation, and then grouping these into four categories:


















 
PEST Analysis of Public Service Broadcasters

The strategic environment surrounding public service broadcasters (PSBs) has become progressively more challenging in recent years. PEST analysis indicates a number of factors which are contributing to this shift:
 
Technological factors

Technological advances (such as cable, satellite, digital and online distribution) mean that the limits to the amount of broadcasting spectrum available have been relieved, and there has been a massive expansion and fragmentation of supply. The scope of public service broadcasters’ operations has expanded in response, and they have progressively added new services and platforms, including online, catch-up services, digital TV, HD TV, and so on. This has added costs and complexity to their operations.
The relief of spectrum scarcity and the increase in supply of broadcasting services has in turn undermined the rationale for public service broadcasting. Limited spectrum was a central argument for the establishment of public service broadcasters: they provided a ‘portmanteau’ programme that offered something for everyone, necessary because they were then the only broadcasting service provider. In return they received assured income in the shape of a universal licence fee. Nowadays, when consumers have a very broad range of options for audio-visual content, a universal charge for a universal service makes less sense. Public service broadcasters find themselves in a position where they need to clarify and demonstrate the value they create for national audiences and audio-visual economies.

Figure 2.1PEST Analysis of public service broadcasters’ strategic context
 
Economic factors

Consumer outgoings for media-related products and services (telephony costs, pay TV and streamed media services, smartphones, tablets, and so on) are increasing. As the supply of competing audio-visual content increases, public service media content consumption is falling, reducing in turn willingness to pay licence fees. This increases pressure on PSBs to offer exclusive and distinctive content that attracts large audiences and therefore justifies the licence fee.
However, new entrants into the broadcasting industry value chain (telecoms providers, streamed and over-the-top (OTT) services) need exclusive ‘killer content’ to drive adoption of their services. This is driving up content bills (as investment in fictional content increases and as competition for the rights to key sporting events intensifies). PSBs must either spend disproportionate amounts of already stretched budgets on these categories, or decide not to invest in these content categories and risk losing market share as a result.

Further, as newspapers come under increasing financial pressure as a result of declining print revenues, their sensitivity towards PSBs and their guaranteed funding grows, and they are exerting pressure on politicians and regulators to rein the scope of PSBs’ operations. In some countries this has led to limitations in their permitted spheres of activity (for example to the amount of advertising they can carry or the extent of their online activities).
 
Social factors

Younger demographic groups (variously titled the Millennials, Gen X, Gen Y, and so on) are deserting classic mass media products (broadcast television and radio, newspapers, etc.) for new digital media services and products (such as BuzzFeed, Vice, Facebook, Snapchat and YouTube). While public service broadcasters have traditionally catered for older audiences, this nonetheless raises questions concerning the long-term viability of the PSB model. If these younger demographic groups, as they age, continue to favour alternative audio-visual products, then a universal fee will become ever harder to justify.
 
Political factors

As the public consume less PSB output, and as competitors become more vocal in their demands to limit PSBs’ remit, politicians’ support for the concept of PSB is lessening, especially where those organisations have robust news and current affairs divisions given to challenging politicians and political processes. In recent years, this shift in attitudes has led to public service broadcasters in the UK, Australia, Canada, France and Spain all seeing cuts to their budgets, either directly through reductions in the licence fee, or indirectly via the cessation of subsidies, reductions in advertising quotas or a requirement to carry broadcasting-related costs hitherto carried by governments (for example, the BBC has been required to carry all costs for the World Service, which was previously part-funded by the UK’s Foreign Office).
Thus PEST analysis shows that public service broadcasters no longer occupy the privileged strategic position they once did and highlights a number of strategic challenges. They are growing progressively poorer as their resources are stretched more thinly as they expand their services on an ever-growing range of platforms and as costs increase for certain key content categories that are critical to maintaining a mass market audience. They must maintain their market share if they are to maintain legitimacy for the licence fee payment model, and they must find a way to attract younger demographic groups if they are to secure long-term relevance. At the same time, they have limited options for developing new revenue streams, as their sphere of operations is prescribed by government remit. Criticism from politicians and from competitors is growing, and they will need to devote increasing energies to defending their activities in political and commercial circles.
 
Value chain analysis as a tool for highlighting environmental change

A company can outperform its rivals only if it can establish a difference that it can preserve. It must deliver greater value to customers or create comparable value at lower cost, or do both. The arithmetic of superior profitability then follows: delivering greater value allows a company to charge higher average unit prices; greater efficiency results in lower average unit costs. Ultimately, all differences between companies in cost or price derive from the hundreds of activities required to create, produce, sell, and deliver their products or services. … Cost is generated by performing activities and cost advantage arises from performing particular activities more efficiently than competitors
… activities, then, are the basic units of competitive advantage. Overall advantage or disadvantage results from all a company’s activities, not only a few. (Porter, 1996: 62)

The ‘value chain’ (Porter, 1985) is an analytical construct with roots in industrial rganisation theory and microeconomics (which means this section of the book ould equally well have been included in the review of rational approaches to trategy in Chapter 3). The value chain uses the concept of ‘value’ from an conomic perspective, and assumes that organisations employ a variety of esources to create products and services that are made available in the market. Successful companies manage to combine those resources in a way that creates products and services with more value than the combined value of the resources sed. This surplus value represents profits or earnings.

The value chain disaggregates the activities of a firm into sequential stages tretching from the supply side to the demand side, from inputs to outputs, as shown in Figure 2.2. These stages represent the ‘meta’ tasks involved in the creation and distribution of a firm’s goods and services. Value chain analysis in the original ense involves analysing each activity from the perspective of the ‘value’ it adds to the final product or service (known as ‘margin’). The more competitive the value hain of an organisation, the more the overall product’s value exceeds the sum of it parts, the more overall margin that can be realised as profits. Thus the model implicitly assumes that competitive advantage is created through scale, through ertically integrating as much of the value chain as possible.

Figure 2.2Value chain (Porter, 1985)
Value chain analysis can provide valuable insights when taking many types of trategic decision, for example whether a strategy of vertical integration would ake sense (which confusingly means expanding the extent of horizontal control long the value chain), or whether to leverage resources across many segments to chieve economies of scale and scope, or to focus on one narrow field. Thus, for xample, when Steve Case, then CEO of AOL, decided to acquire Time Warner, he as pursuing a strategy of vertical integration which should theoretically have led
to greater economies of scale and scope. These would be achieved through an increase in the number of media platforms under the company’s control and in the mount of content to put on those platforms (although, as discussed later in this book, this strategy did not play out as planned).

A firm’s value chain is embedded in the value chains of the upstream and downstream businesses in the sector. Thus a newspaper company’s value chain has historically been linked to those of, among others, the newswire companies and press photograph agencies (content supply), newsprint and ink suppliers (production), and organisations delivering newspapers to homes and retail outlets. Today that value chain would probably also be linked to the digital platforms such s Facebook, Google, Apple and Snapchat, as well as to the app stores. An industry’s ‘value system’ links the individual value chains of different players
ithin a sector into a system or ‘chain’ of activities stretching from originator to the onsumer.

Porter (1996) viewed the failure of many firms’ strategies as resulting from difficulties in translating a strategy that has been designed to align an organisation ith its environment into specific action steps. He developed the value chain as a
bridge between the activities of strategy formulation and implementation. Breaking down an organisation’s value creating activities into strategically relevant stages llows each one to be analysed and the behaviour of costs and potential sources of differentiation to be uncovered. This process will show how core processes and ctivities might be altered to increase value for customers and advantage relative to ompetitors, or modified to create new types of business.
 
Value chains in the media

Media companies worldwide are struggling to understand and adjust to wide- ranging external and internal changes that are altering modes of production, rapidly increasing competition, eroding their traditional audience and advertiser bases, altering established market dominance patterns, and changing the potential of firms. (Picard, 2004: 1)

The value chain has long been an almost default tool of preference for analysing industry sectors and this has been the case in the media too, where it has been favoured by practitioners, consultants and, during the first flush of the dotcom era, by academics too (see, for example, Tapscott, 1996; Yoffie, 1997; Downes and Mui, 1998). However, the concept is seldom applied in the ‘pure’ analytic way as Porter developed it – where individual firm activities are disaggregated and nalysed to identify sources of competitive differentiation – but rather at industry level as a shorthand means of depicting graphically the various stages by which
edia products are created and delivered to the end consumer, and visualising the hanges taking place.

Figure 2.3A typical, pre-convergence value chain for the book publishing industry

Before the advent of the internet and digitalisation the mass media industries had elatively straightforward value chains and players had high levels of control over the entire sequence of stages. Normally these were some variant of the following equence: developing content, packaging content, distributing content and
rganising for the reception of content.
Since then, a succession of technological advances has caused significant change to industry value chains. These include:

The ‘broadbanding of networks’, which has created a high-speed transmission infrastructure that allows consumers to access digital media anywhere and anytime.
Wireless ubiquity, which allows fast, two-way communications via mobile networks over wide geographic reach, extending ‘anytime’ and ‘anywhere’ consumption.
An increasing number of consumer devices that are internet-enabled, multifunctional and mobile, such as smartphones, tablets, e-readers.
Social media platforms such as Facebook, YouTube, Snapchat and Twitter that both host and accelerate the distribution of media content.
Storage and processing capabilities that are both increasing and becoming cheaper, making on-demand content feasible on a mass-market basis, and allowing it to be delivered to a range of devices and geographic territories.

Industry value chains provide an insight into the effect of these developments. The industry now faces a situation where disruptive players can enter the media sector nd provide the same or greater value to customers as that offered by legacy players, but can achieve this by bypassing many elements of the traditional value hain (and the costs associated with them). This then allows them to invest in new alue-creating activities to levels that legacy players may not be able to match, thus reating a barrier to entry. There are numerous examples. Data analysis, for
xample, is a new stage in the value chain for many media companies. New players uch as BuzzFeed, Netflix and Spotify have ‘baked this in’ to their value chains and linked it to the content creation stage (where insights from data analysis inform ontent creation decisions) and to the distribution and sales stages (which are designed to capture specific and detailed categories of data to feed back into
ontent creation). Legacy players need to build this stage and retrofit the set of ctivities it involves into existing systems, which is expensive and can often lead to n inferior solution.

Figure 2.5 shows how this process can play out in the book publishing sector. It is ow possible for an author to use the web and social media to build a digital presence and a fan base (author ofFifty Shades of Grey, E. L. James did exactly this, the book being acquired by a conventional publisher only after it had become elf-published bestseller). The author can use self-publishing services to edit and produce physical and virtual editions of the book he or she has written and egotiate with physical and online book retailers. Alternatively, agents can
integrate forward into the publisher’s role and liaise with publishing intermediaries nd retailers. In this extreme example, traditional book publishers have been bypassed entirely.
 

So is the value chain concept now redundant? This question has been posed often ince the onset of digitalisation and the internet (see, for example, Rayport and Svioka, 1995; Yoffie, 1997; Downes and Mui, 1998), with an argumentation that uns as follows:

Convergence is causing value chains to deconstruct, fragmenting into multiple businesses with separate sources of competitive advantage. Porter’s model bundles all the functions in a value chain together, averaging out the advantage provided at each constituent stage. What matters is competitive advantage over the whole chain – as long as the sum shows competitive advantage, it doesn’t matter specifically where the advantage comes from. However, when value chains are deconstructed, advantage on average no longer matters.
Organizations can’t subsidize poor performance in one activity by combining it with others in which they are advantaged, since competitors will emerge who focus on maximizing performance at just one specific step. Thus to survive, a competitor has to be advantaged in each and every activity. (Evans and Wurster, 2000: 58)
The value-chain concept is still with us, but what appears to be taking place is ‘deconstruction’, that is, the dismantling and reformulation of traditional business tructures (Evans and Wurster, 2000: 39). Under this umbrella term there are a umber of different types of value-chain changes taking place, and these are not
utually exclusive.
 
Disintermediation and unbundling

Disintermediation and/or unbundling occurs because technological advances, particularly those concerning new means to distribute and receive content, coupled
ith the deregulation of markets, make it feasible to de-couple specific stages from hitherto tightly enmeshed value chains. This reduces entry barriers encouraging ne types of business that concentrate on specific stages of the value chain (Bradley and Nolan, 1998). Thus MTV, discussed below, started life by adding a new stage to th alue chain: aggregation, or sourcing external content (music videos) and bundling this into channels. For incumbents, unbundling allows them to split up vertically integrated value chains into multiple businesses, each of which can function as a eparate business with its own sources of competitive advantage. This challenges the concept of averaging value across an entire chain, suggesting that if significant ompetitive advantage cannot be created at a particular stage it should be
utsourced (Evans and Wurster, 2000). This alters firms’ strategic perspective, hich becomes at once narrower and broader: narrower in that they are forced to oncentrate on core competencies; broader in that non-core activities are utsourced and relations need to be maintained with outsourcing partners.

 
MTV – a Product of Value Chain Disintermediation

MTV is a classic example of an organisation created from ‘unbundling’ a stage of the value chain – packaging – that was hitherto part of integrated players’ value chains into a discrete stand-alone business. As such it also represented the emergence of a new stage in the value chain – aggregation, or the sourcing of external content and packaging this into channels. This was to become standard practice for new cable and satellite channels in Europe.
In 1981 MTV was founded as a joint venture between Warner Communications and American Express. The partners saw a business in packaging promotional videos, a marketing tool for pop music, into a music television channel that would appeal to youth audiences and to artists seeking to promote themselves. The music majors and advertisers doubted the appeal of the concept initially (a classic example of a fixed industry mindset limiting innovation), even though record stores saw the potential from the first, and enjoyed a positive impact on sales that resulted from MTV’s launch. The music industry’s attitude changed only in 1985 with the worldwide broadcast of the Live Aid concerts on both sides of the Atlantic which demonstrated the size of the market for pop music and MTV’s ability to promote record sales.

The original MTV product was an idiosyncratic combination of videos and VJ commentaries about musicians. It created a counter-culture image from the start, typified by its graffiti-style logo. In 1984 MTV Networks went public, and in 1985 American Express sold its interest to Warner, who later sold MTV to Viacom. As the popularity of MTV grew, a virtuous circle was created whereby as record companies recognised the potential of the network as a marketing medium, they invested more in the quality of their videos, and the channel gradually shed its alternative, low-budget image. As content improved, viewer numbers rose and MTV became a major force in cable television and in the music industry.

By 1987 interest in continuous music videos was waning and the channel moved towards standard programming fare, such as documentaries, reality television shows such asThe Osbournes, live broadcasts and series such asBeavis and Butthead. It launched MTV Europe 1987 and thereafter it gradually expanded internationally, eventually reaching 90 countries on five continents. In recent years its policy has been to localise content as far as possible. Channels are locally run and free to interpret the MTV brand as they see fit, and presenters use native language and show local artists in addition to international ones. Digital television allows MTV to target even smaller niches, allowing it to attract both international and local advertising.
 
Fragmentation, extension and contraction

A related concept is fragmentation (although the terms unbundling and fragmentatio re very similar and are often used interchangeably). Value chains fragment when tand-alone single stages are unbundled into a number of discrete activities. Thus the content stage can fragment from producing content in-house to be distributed by the company’s own distribution network into different content-related activities: buying-in content from third parties and enhancing external content, as well as producing its own content.

Fragmentation inevitably leads to value-chain extension whereby more stages are dded, elongating chains. This is particularly apparent at distribution stages. So, fragmentation in newspaper value chains means newspapers have many options for distributing their content including print, PDF, web, mobile, app and podcast formats. Fragmentation at the distribution stage of value chains is expensive, for xample the producers of fictional content such as television series ideally need to
ake their content appropriate for consumption on many different types of devices. New players such as Netflix that have grown up with the new platforms are better positioned to handle this complexity than legacy players who must combine perations on these new platforms with their traditional broadcast distribution infrastructures.

Value chains can contract also. Record companies can discover new artists and distribute and promote their works online, bypassing conventional production,
arketing and distribution activities. As we have seen, an author can self-publish a book and sell it as an e-book and a physical one on Amazon. TV series producers an develop concepts and sell them direct to streaming services such as Netflix or Amazon Prime. Personalities can distribute content directly over digital channels, like YouTube, sometimes even achieving mass-market audiences, but bypassing traditional industry value chains entirely.

In these examples of value chain contraction, the media organisations’ role has bee educed or even eliminated. To avoid this they can adopt a number of measures designed to demonstrate their value to content creators including using their
arketing expertise and media contacts to build their public profile, and demonstrating their expertise in professional content production.

 
Endemol – Born of Value Chain Fragmentation

Endemol, at the time of writing the largest independent television and digital production company in the world, belongs to a relatively recent category of media organisations – television format providers working on a global basis. This group emerged as a result of fragmentation in television value chains, specifically the trend towards the outsourcing of programming that occurred partly in response to an increase in the number of channels needing content (a detailed discussion of their strategy and core competencies can be found in Chapter 7).
Founded in 1994 and based in Amsterdam, Endemol focuses on a sub-segment of broadcast content – unscripted reality television formats, such asBig Brotherand Deal or No Deal, scripted dramas and soap operas. These formats are designed as multi-episodic, locally replicable content concepts with strong brands that can be exploited simultaneously across multiple media platforms in many different national markets and are attractive to audiences, advertisers and sponsors.

Since creation, Endemol has invested heavily in international expansion, creating a global network of over 90 production companies in over 30 countries, mainly through acquisition (which brings the additional benefit of acquiring new formats) and joint ventures. In addition to the sale of licences to produce the programmes (it owns over 2,000 formats and exports to over 25 countries), Endemol places equivalent emphasis on revenue streams that have hitherto been seen as ancillary – advertising, sponsorship and transaction fees from e-commerce, voting and text messaging.

Adiagram of Endemol’s central value creation processes would resemble not a chain but a vertically integrated transnational hub focused on the content stage of the value chain, with spokes radiating out across different delivery platforms and linking with the value chains of joint venture and outsourcing partners. This constellation is based on the opportunities created by convergence, fragmentation and globalisation and would have been unimaginable 20 years ago.
The innovative approach of companies such as Endemol (or of its peers such as Freemantle or Shine), especially concerning the active exploitation of new distribution platforms to build traction for their series, has forced traditional players to rethink their value chains. For example, mobile and social media are integral to Endemol’s content formats, online channels linked to television programmes run live video streams to attract internet audiences and social media networks are used to build involvement. Many broadcasters have adopted such approaches. Recently, the organisation has consolidated its digital operations to create a multi-channel network called ‘Endemol Beyond’.
 
Non-linear chains

The traditional [entertainment and media] value chain is changing, particularly in distribution and at the points where traditional sub-sectors meet. … A seemingly unending stream of new formats and devices has complicated distribution. … This growing complexity means that the traditional … value chain is not linear any more, but fluid and multi-directional. Not a chain at all, in fact, but something much more complex. (PWC, 2013)

So far in this chapter value chains have been assumed to be linear constructions – that is, sequential strings of activities. However, as stages fragment and distributio platforms and devices proliferate, non-sequential, interactive alignments, such as fluid cross-sectoral business networks, are emerging. Endemol could also be described as having a non-linear value chain in that it combines vertical integration
ith high levels of alliance activity and distribution over many different platforms.
 
Changing business models

Ultimately, business model innovation is about creating value, for customers, and for society. It is about replacing outdated models. With its iPod digital media player and iTunes online store, Apple created an innovative new business model that transformed the company into a dominant force in online music. (Osterwalder and Pigneur, 2010: xvii)

The value chain is closely linked to another term that has been equally ubiquitous i industry strategic discussions in recent years, the ‘business model’. The term ‘business model’ is widely used, but seldom defined. Indeed, there is no single definition, and usage varies widely by sector and professional specialisation.
Information technologists use the term to map the product, service or process rchitectures. Strategists use it to describe the configuration of resources in esponse to a particular strategic orientation, for example, firms could experiment ith new business models that represented different permutations of reducing costs
(cost leadership strategy), engaging in acquisitions to scale the business, and nhancing services, often through personalisation (differentiation strategy).

Business people tend to keep usage simple; it essentially means the product(s) ffered, the value proposition they represent for customers and the revenue streams that will flow from them. Thus Osterwalder and Pigneur (2010: 14), in their best- elling handbook, describe it as ‘the rationale of how an organization creates, delivers and captures value’. For example, the business model of MTV when it launched was to bundle promotional music videos into TV channels aimed at teenagers and financed by advertising. The elegance of this model was that content osts were low (although the quality of content was generally high), and because ontent costs were low MTV’s advertising rates could undercut competitors and
till generate healthy cash flows, because teenagers were a demographic group dvertisers want to reach.

Like the value chain, the business model concept can also illuminate industry transformation level. Thus the traditional newspaper industry business model was a portmanteau product that had a broad range of different types of content that would ppeal to an equally broad range of users. This would allow the volume sales that
ould bring unit costs down to mass-market levels, which was necessary because fixed costs (typesetting and layout, printing, paper, storage, distribution and alaries) were high. Revenues came from per copy sales, and also from
dvertising, with advertising revenues depending on the circulation (number of opies distributed), readership (not the same as circulation because copies can be ead by more than one person) and those readers’ socio-economic profile. As digital media gained hold, both per copy revenues and advertising revenues declined, and newspapers altered their business models in response, expanding on to digital channels (websites, apps and social media platforms), developing new forms of content (podcasts, video, infographics, listicles, etc.), and experimenting
ith new sources of revenue (native advertising, e-commerce, live events, for xample) and new forms of marketing and distribution (for example, via Facebook, Apple, Google and Snapchat).

 
Vice Media – An Old Media-New Media Hybrid

Vice Media, founded and run by the larger than life Shane Smith, is a twenty-first- century version of a media conglomerate, and its business model neatly encapsulates the transformation taking place in the media industry. Vice’s core business is digital video with a distinctive and gritty counter-cultural feel (described by Vice as ‘bad boy’ content) for Gen Yaudiences (i.e. young consumers). Designed to be platform agnostic, Vice content is distributed on online platforms (over 60 channels on the
web and YouTube) and via terrestrial and cable TV channels in over 24 countries, including the renowned HBO. It also has partnerships with Snapchat and Verizon to distribute video and editorial news content, and deals with Facebook to produce customised campaigns for advertisers. In addition to its core digital video activities, it has a marketing agency, a film production company, and magazine and book publishing activities.
Vice is privately-held and reputedly valued at time of writing at over $4 billion. Much of its investment has come from legacy media companies (A&E invested $250 million, Disney $200 million and 21st Century Fox $70 million) which are keen not only to share in Vice’s success but also to decode and learn from Vice’s appeal to 18– 24 year olds, particularly male ones, a demographic group important to advertisers and which appears to be deserting traditional television.

Vice’s valuation also reflects its prowess in making commercial revenues from online video. It has a track record of making substantial deals with brand partners that underwrite content concepts. For example, an early deal with YouTube provided Vice with $100 million to create premium channels. This both allowed it to scale up production and boosted Vice’s visibility. ‘The Creators Project’ in partnership with Intel involves video content and live events with artists and musicians around the world. Recently it launched a women’s content channel, Broadly, in partnership with Unilever.

This ‘native’ approach to advertising (that is, using branded content) is rooted in a Vice credo that typical mass media advertising approaches do not resonate well with millennials and younger audiences. This demographic group, Vice believes, is resistant to traditional commercial messages and as a result responds positively to ‘the joy of not being sold anything’. Advertisers therefore need to change their strategy and switch from producing commercial messages to creating content that markets their products more subtly. If they do this right they can turn Gen Y-ers into fans. Branded content is, however, just one of several revenue sources. In addition, Vice retains the intellectual property rights in most of its content and generates additional revenues by licensing this internationally.
 
Strategic development of business models – th search for adjacencies

As traditional revenue streams decline, media organisations are searching for new ources of income, often outside their traditional sphere of activities. A relevant oncept in this regard is ‘adjacencies’, that is, a strategy of pursuing growth in djacent markets (Zook and Allen, 2010), in sectors that have some overlap with xisting capabilities, resources and know-how. This can be achieved through internal corporate venturing (the creation of new businesses internally) or by cquisition (of stakes in start-ups or of entire companies).

The new business areas are therefore outside the traditional firm boundaries but till represent a logical extension of existing activities. Thus Apple’s launch of iTunes and the iPod moved the organisation from computing into the distribution of
edia content, and into the small hand-held device sector, a move which paved the ay for the iPad and the iPhone. Received wisdom concerning best practice in an djacencies approach is to focus either on new adjacent markets (for the company’s xisting products) or on new adjacent products (for the company’s existing
arkets), but to avoid launching new products for new markets, since the rganisation will be unable to leverage its existing capabilities, assets and know- how – the elements it is distinctively good at – and will need to acquire entirely ew competencies, thus increasing the risk of failure.


Adjacencies at Amazon – ‘Start Small and Monopolise’

To be Amazoned means ‘to watch helplessly as the online upstart from Seattle vacuums up the customers and profits of your bricks and mortar business. (Stone, 2013: 17)

Amazon’s strategy for growth has been summarised by venture capitalist Peter Thiel as ‘start small and monopolise’, that is, start with a small market that can be dominated and then expand deliberately into adjacent fields (Thiel and Masters, 2014).
Amazon started off supplying books. This category was chosen because there was a huge range of products which were similar in shape and therefore easy to ship.
Further, because of that huge product range, physical retailers could only offer a fraction of the millions on offer. Because it didn’t need to physically store any inventory but simply requested the book from its supplier, Amazon could offer from the onset a greater number of books than any physical bookshop. From there it progressively expanded its e-commerce categories, selling its customers more media products, such as CDs, videos, software, and then an ever wider group of product types – toys, clothes, sports equipment to name but a few. It later added services and the infrastructure to support e-commerce (warehouses, private postal services, drone delivery, and the Amazon Dash Button), devices to consume content (e-readers and smartphones) and streamed media content, first through LoveFilm and later via Amazon Prime. Amazon Prime then expanded from selling TV series and movies into producing original programming itself. Later it moved into selling the infrastructure it developed internally to speed up the deployment of its new applications and services (including Amazon Web Services, at time of writing the largest hosting company in the world).
 
Impact of the digital platforms – Apple, Facebook et al.

These platforms are inescapable; you may opt out of one or two of them, but together, they form a gilded mesh blanketing the entire economy. (Manjoo, 2016)

These enormous, yet still relatively new, companies are collectively reshaping the edia industry’s ecosystem. They have expanded at speed from their original core businesses and are now active in a range of sectors simultaneously, disrupting not nly the fields of media and entertainment, but a range of other industries including utomobiles, tourism, hospitality, healthcare, finance and retail. Companies such as Facebook, Google and Apple are extremely challenging to respond to strategically
n many grounds, not least because they don’t ‘conform’ with existing industry lassifications and are active across many sectors, often dismantling existing boundaries between industries through the introduction of new platforms or devices that redefine existing categorisations. This boundary-spanning behaviour is ndermining the utility of many classic strategy models (as discussed in Chapter 3).

Apple, for example, is primarily a manufacturer and retailer of devices (these include the iPhone, the iPad, the Mac, the Apple Watch, Beats headphones, and Apple TV), but also has a growing services business (including the iTunes Store, App Store, Mac App store, Apple Music, AppleCare and Apple Pay), and these two categories are bundled, making analysis of the performance of any particular product category difficult. (The iPod and iTunes, for example, represent a ombination of consumer device and services providing media content.)

Collectively, these digital platforms have weakened traditional media’s market power and influence, not least by constraining revenues (as exemplified by the shift f advertising revenues from newspapers to Google and Facebook). They pose a ignificant strategic challenge: they are some of the best capitalised companies in the world, they have not only mastered the development of key technologies but in
any cases are architects of that development, and they are powerful gatekeepers at the final stage of the media industry’s value chains; iTunes and Apple music deliver
usic; Amazon delivers all kinds of media products and services, physical and irtual; Facebook, Apple and Google deliver an increasing proportion of online ews (faster, and to audiences that are simultaneously both larger and more precisely targetable). The power relationship is asymmetrical. The media ompanies’ control over what and how content is distributed is diminished as the
platforms’ algorithms calculate an optimum fit between content and consumer. More profoundly, while media companies are dependent on these platforms for access to arkets, products from the classic media industry represent a fraction of these
giants’ total business, as described by book publishing industry expert Mike Shatzkin:

Amazon’s arrival began an era which is now in full flower, where the environment for book publishers is largely influenced by major tech companiesfor which publishing is a hardly-noticed activity. [Author’s emphasis] (Shatzkin, 2016)

Facebook is dominant in social media where its global user base continues to increase and where video traffic is growing. It is playing an increasing role in ontent delivery. Facebook’s Instant Articles delivers an individually curated feed f news stories supplied by leading news providers. Through its acquisition of WhatsApp, it is moving into payment systems (a threat to the telecoms sector).
Virtual reality (via its acquisition of Oculus Rift) is a new and growing business field.

The digital platforms are born out of the Silicon Valley, and belong to the technology sector rather than the media industry. Their strategic priorities are fast growth (in search for scale) and often ‘disruption’ – that is, displacing established technologies and product categories, and in the process unseating incumbents in a ange of sectors (thus the smartphone displaced not only cell phones, but also pocket cameras, pocket calculators, GPS devices, MP3 players and more). Not nly does technology lie at the heart of these organisations, but they are committed to heavy investment in R&D, permanent innovation and improving customer
xperience, and they prioritise experimentation and intelligent risk taking. They can se the data generated by their platform businesses to inform the development of ew products and services and the reach of their platforms to achieve fast uptake of these new businesses. Their internal management processes, organisational culture nd human resource practices are highly tuned (often having more in common with lite management consultancies and investment banks than the media sector) and this increases their agility and competitiveness. Finally, they can afford to invest ot only in R&D but in their workers and work environments (think Cordon Bleu hefs and on-site massage). The pay and perks they offer mean that even pedigreed blue chip traditional media organisations experience difficulties attracting the digital specialists they need.
 
Streamed media – rent don’t buy

We now have more technology than ever before to ensure that if you’re the smallest, strangest musician in the world, doing something that only 20 people in the world will dig, we can now find those 20 people and connect the dots between artist and listeners. (Matthew Ogle, Spotify, cited in Pasick, 2015)

A new and growing segment of the media industry comprises streamed media ontent (music, movies, television and gaming) and has emerged in response to a ombination of technological advances, including new devices, better storage, faster, cheaper internet connections, and improvements in graphic chips. The basic oncept is that customers request content from a streaming service via smartphone, tablet, TV or PC. The main server of the streaming provider (say, Netflix, Hulu or Amazon Prime for TV, Spotify or Pandora for music, Sony Playstation for games) then sends the content in data packets over wireless or cable to the consumer’s internet-connected device where packets are assembled (and deleted after onsumption).

Streamed services are an alternative to consumption from linear service offers (broadcast television or radio), downloading and saving (iTunes) or purchasing (CDs or games). Customers benefit from straightforward access to massive libraries of content that can be consumed as wished. Producers/distributers benefit from savings in logistics and retail costs.

Business models for streamed media are still evolving, but most feature monthly ubscription deals (that are easy to cancel and restart, unlike cable TV packages). Video providers such as Netflix, YouTube and Hulu have acquired libraries of xisting content and are increasingly generating their own product using insights from data analytics. They are moving into content origination because as more ompanies enter the sector, original content is becoming an important differentiator in customers’ eyes. The biggest providers are investing heavily in original shows. (These internet-delivered television/video programming services are known in the industry as over-the-top – or OTT – offers.) Legacy companies are also active in the field. HBO launched HBO Now, a paid streaming service that allows onsumers to watch programmes both live and on-demand without a pay-TV ubscription.

This is a competitive field because streaming businesses need scale: additional ustomers don’t add costs but do add revenues (thus Netflix has made international xpansion a strategic priority). However, achieving scale is a challenge – free-to- ir provision is extensive in many markets and many customers have become ccustomed to not paying for content accessed online.

In the streamed music sector, Spotify is a streaming service that launched in 2008. Each song has a link that allows users to purchase the track from partner retailers. Users can create playlists and share them on social media, and insights from this sage data are fed into the recommendation engine, which can generate individual
eekly playlists. Pandora is an automated discovery service that selects tracks for sers from its library based on individual user’s consumption habits. Customers an purchase songs from online retailers. Apple launched Apple Music in 2015 in esponse to a decline in music downloads in its iTunes service and the parallel
increase in users for streamed music services such as Spotify and Pandora.

The ability to make individualised recommendations is a key element to the success f these services. Pandora, Netflix and Spotify all have (different) advanced apabilities in this area, which are crudely based on combining analysis of how ustomers consume and curate content with detailed classifications (micro-genres) f content attributes or types. This description belies the complexity of the
processes involved. Spotify’s Discover Weekly playlists draw on ‘deep learning’, technique for recognising patterns in huge quantities of data with computers that have been ‘trained’ by humans. Pandora emerged from the Music Genome Project in which a million pieces of music were coded according to 450 attributes and this
data can create predictions on other pieces of music a customer may like. Netflix has a content attribute database with over 77,000 categories. These systems can
ake highly personalised recommendations to users, which in turn boosts the ttraction of services to customers and stickiness for those customers. Both Amazo (via Amazon Studios) and Netflix have used insights from these systems to guide their move into content creation. Such investments in personalised ecommendations create differentiation to services from Google and Apple which ffer enormous catalogues of music but have placed less emphasis on ecommendation and curation services.
 
Digital pure plays

To put it in one bleak sentence, no medium has ever survived the indifference of 25-year olds. (Clay Shirky, cited in Aitkenhead, 2010)

As the markets for mass media products such as television channels and national ewspapers are splintering, or ‘demassifying’ as it is sometimes put, at the same time substantial audiences are aggregating around the so-called ‘pure plays’ or ‘clean sheet’ digital media organisations, a category that includes companies like BuzzFeed, Quartz, Medium, Politico and Vox Media. These are digital natives
hose content is designed to be consumed online, in a mobile context, and distributed via social media. These organisations are staffed by digital natives, produce content for digital natives and are accustomed to ‘pivoting’ (changing trategic direction) as the strategic environment requires. They pose a substantial threat to legacy players. Often generously funded by venture capital, they have a ingular focus on scaling their businesses as fast as possible, and that focus is not diluted by a need to devote resources to traditional media businesses as well as to nes focused on new digital markets. Advanced technology competencies are integral to their content creation and to its commercialisation, and their business
odels are not only multi-platform but also (sometimes exclusively) orientated round social and mobile platforms.
 
Fragmentation of consumption

The trigger is technological, but the impact is behavioral. (Newspaper Next: Blueprint for Transformation, American Press Institute, 2006: 6)

As digital start-ups compete with legacy companies, as streamed and on-demand onsumption grow, as social media deliver algorithmically curated selections of ews articles direct to mobile devices, as launches by global artists are ever more intensively marketed, and as content is available anytime, anywhere, anyhow, the lamour of media products demanding consumer attention grows and grows. Thus, ompetition is increasing not only between players but also for audience attention. It is unlikely that available hours for media consumption will increase as dramatically as the number of products and channels available and organisations providing them. Welcome to the battle for consumer ‘eyeballs’.

None of these developments – increased competition, fragmentation of provision nd new patterns of consumption – bode well for the established mass media.
Time-shifting and ‘space-shifting’ are having a particularly significant impact. In the analogue era, different types of content were linked to specific appliances or distribution media and distributed according to fixed schedules. Television programmes were broadcast on a television set at set times, newspapers printed on paper were delivered in the morning, etc. Now consumers can consume content on
range of devices when and where they choose. While a segment of the market still onsume content traditionally, according to set mass market delivery schedules, a growing number follow the Martini principle – ‘anytime, anywhere, anyhow’.

The broad trends that result include the fact that consumers are spending more time ith digital media at the expense of traditional products. Video content is growing
t the expense of text-based content. And while consumption has increased in some ases – on-demand catch-up TV services increase overall audience numbers, as do podcasts of radio shows – overall, first-showing mass-market audiences seldom have the dimension they had a decade ago.

The ‘packaging’ function of the media firm, be it TV scheduling or assembling the first edition of a newspaper, once central to value chains and to competitive performance especially in national broadcast systems, has become far less critical. Increasingly, consumers are scheduling for themselves. Brands and their advertising gencies are having to alter their strategies too, embracing adjacent fields such as ponsorship and native advertising (as discussed in the Vice case), as new distribution options increasingly allow consumers to block or blend out
dvertising, and as consumers increasingly choose to exercise this option.
 
Acceleration of the hit model

In the creative industries success always begets more success, but in an era of globalisation the success can be very big indeed. (Hutton, 2007: 24)

An eternal strategic challenge in the media industry is that content is supremely npredictable. Despite decades of research and increasingly sophisticated arketing techniques, customer tastes are fickle and it is still more or less impossible to predict which products will succeed, and by extension to reliably produce a stream of popular products (although, as discussed in this book,
ompanies like Amazon, Netflix and BuzzFeed are using sophisticated data capture nd analysis techniques to reverse engineer customer content preferences and are sing these insights to drive content creation). But for players whose organisations re not built around data science, content creation remains a game of chance, specially in the book, movie and music sectors.

Content involves alchemy – informational, creative and entertaining elements are ombined in a way that may or may not strike a chord with public taste. It is not possible to fully explain whyTitanicwas a worldwide hit andWaterworld, eleased at a similar point with a similar theme and a similar budget, flopped. The
ule of thumb in the music industry is that 80 per cent of its new releases will fail to over their costs, despite the experience of the executives who signed up the artists oncerned. During Jeffrey Katzenberg’s decade at Disney, of the thousand plus projects he oversaw, just 10 per cent accounted for 91 per cent of the studio’s perating income (Stewart, 2005: 2).

In response to these existential uncertainties, the media industry traditionally mployed two strategic responses. The first, which was followed for decades and is still used in mature sectors with low margins that do not have the resources or infrastructure to play the blockbuster game, is known as the ‘mud against the wall’ formula. This seeks to increase the odds of success by increasing the number of ttempts. In product terms, it means generating high volumes of unique products in the hope that a number of these will spark random interest. Thus publisher Bloomsbury had no idea that the first Harry Potter book would be a bestseller, and its initial print-run was around 500 copies – a standard quantity in book publishing for a first novel by an unknown author.

The primary impulse to create content under this system is creative or artistic, and the underlying assumption is that ‘cream rises to the top’. The market, prompted by ritical acclaim and word-of-mouth recommendation, will find good products and ales will follow as positive word-of-mouth publicity spreads. From an rganisational perspective, this is alaissez-faireapproach: all products receive a ertain amount of time and investment until clear winners appear, at which point arketing attention scales up rapidly. The disadvantage is that resources are spread thinly over a wide range of diverse products and revenues and profitability overall re generally low. The advantage is that such systems allow a wide range of mployees to work creatively, meaning levels of intrinsic motivation tend to be
high. Historical accounts of ‘the golden age’ of book or magazine publishing often describe media organisations operating under this product strategy.

In recent years this model has been replaced by the ‘hit’ or ‘blockbuster’ model. This is a risk reduction strategy that is becoming both more entrenched and more xtreme in the broadcasting and entertainment fields, where blockbusters increasingly dominate the revenues of the largest media firms (Aris and Bughin, 2005). In a blockbuster or hit environment a few media products – bestselling books, blockbuster films, television shows or sports fixtures – generate the bulk of evenues for media organisations, which become disproportionately reliant on these products, and it makes strategic sense to pay high advances and royalties to top content creators and then spur demand by spending aggressively on promotion (Vogel, 1999). Media organisations’ product strategy, then, involves identifying in dvance a handful of products that offer the greatest market potential and then devoting the lion’s share of investment and attention to these.

The primary content-origination impulse under this approach is economic rather than artistic, and the creative and marketing strategies are closely intertwined.
There are two underlying assumptions. First, that larger budgets – for talent, production and marketing – mean larger audiences, and, second, that those udiences choose products according to how heavily they are marketed, that udiences can be ‘herded to the cinema’ (De Vany and Walls, 1999).

A blockbuster strategy imposes a template on content creation. A new concept hould appeal to the largest number of audience groups and eliminate the risk that particular market groups might reject the project. Blockbuster movies illustrate this oncept neatly (Schatz, in Collins et al., 1993). Ideas for new film must have the potential to be reincarnated in different media forms and become a franchise. This dictates the creative components: narratives and characters are simple, plots xplore broad universal themes, and special effects are extremely sophisticated –
to compensate for the simplicity of other elements (cynics have suggested blockbusters are designed to work for sub-literate audiences with short attention pans). There must be soundtracks strong enough to support linked music
downloads and music videos. The term ‘blockbuster’ is inextricably linked with the ‘high concept’, a term attributed to Steven Spielberg. High concept movies appeal to wide audiences and have plots that can be described in a couple of sentences that instantly convey the gist of the movie (thus ‘Bus with a bomb’ is the high concept for the movieSpeed).

Why is the hit model proving so pernicious in the era of user-generated content and iral media? Why is the dynamic becoming more attractive to large media rganisations in the current environment? There are a number of underlying factors. First, audiences have become more fickle as the range of entertainment and leisure ptions has increased. Against this backdrop, the appeal of stars like Adele, who
an guarantee audience attention, grows. Second, technological advances in ecording, processing and transmission have increased the number of multimedia eincarnations that are possible, meaning more outlets to recoup investments and therefore greater leverage for successful products – that is, the potential for conomies of scale. Third, globalisation and the borderless nature of media products mean that the potential market for media products has grown and that the potential for economies of scope has increased. Fourth, consolidation means orporate purses are larger: the media majors have more to invest in content and tronger distribution architectures to support their products. Fifth, what is known as ‘killer content’ has proved to be one of the most powerful means of persuading onsumers to abandon existing patterns of consumption and adopt new technologies
nd products. This has intensified the bidding for certain categories of content, such s key sporting fixtures or movies, to a point where some traditional legacy
players, such as public service broadcasters, can no longer compete. Finally, there is a growing recognition among creative talent of their power in the marketplace nd a desire on their part to negotiate the best deals they can. This is related to the increasing prominence of agents and attorneys in the media and entertainment industries.
 
Demassification and the emergence of the iche

While the largest entertainment organisations continue to seek to perfect ‘one-size- fits-all products’ – blockbusters like Rihanna’s songs, films in theStar Wars franchise,The Game of ThronesTV series or the computer gameGrand Theft
Auto, which will appeal to the largest audience possible – a parallel trend can be bserved, the growth of the niche.

Mass media products are designed to reach large cross-sectional audiences and are based on technologies that allow massive duplication at low cost for huge
udiences (newspaper or printing presses, radio or television networks). Advertisers tend to prefer products that are moderately popular with many and ctively disliked by none – expressed in the television industry as the concept of the ‘least objectionable programming’ (LOP). However, this can only work when the choice of viewing options is limited. Technological advances have reduced the barriers to entry in content creation, made professional-level production tools
idely available, and provided global distribution and promotion architectures. The result is that across all segments, the mass media products – the television hannel, the daily national newspaper, the general-interest magazine – which owed their success to catering to many different groups of consumers simultaneously, have declined in favour of specialised products aimed at specific segments – a development first picked up by broadcasting analysts, who termed it a shift from broadcasting to narrowcasting. The stages in this development are shown in Figure 2.7.

From the 1980s onwards, technological advance increasingly allowed specialised ontent to be matched with specialist audience niches, and audiences embraced this possibility, showing that in many genres of content they prefer targeted products ver generalised ones. Thus, in the UK between 1993 and 2003 the viewing share
f non-terrestrial channels (i.e. niche or specialist ones) increased from 6 per cent to 33 per cent, at the expense of the dominant mass-market networks, BBC 1 and ITV1.

Of course, mass media products still hold appeal. When audiences across all platforms are consolidated, viewership can still be substantial. The global appetite for video content continues to grow, and television is still the dominant advertising
edium (the BBC’s weekly global news and entertainment audience in 2015 was ver 308 million). Some TV series are garnering higher audiences and bigger budgets than movies:Borgen, a Danish drama on the unlikely theme of coalition politics, has been seen in over 70 countries.Mad Menhas reputedly earned over
$100 million in video and iTunes sales, and a further $100 million from Netflix.
Figure 2.7Evolution of media content models
Yet mass media audiences are splintering, driven by new offers based on new technologies. ‘Over the top’ (OTT), video on demand (VoD) and streamed internet TV services are eroding broadcast networks’ monopoly of distributing video ontent to the home. VoD is now present in well over half of US households. These hanges in consumption habits will be mirrored in the advertising market. As Mary Meeker pointed out in her 2016 internet trends report, both TV and print receive a higher percentage of ad spend than time spent on those platforms merits, with a particularly sharp disconnect between time spent on print and the ad spend it
eceives. For mobile media, the misalignment runs in the opposite direction.2
 
Emergent strategic environments

About fifteen years into the digital wave, tectonic plates seems [sic] to drift more apart that ever. On one side, most media brands — the surviving ones — are still struggling with an endless transition. On the other, digital native companies, all with deeply embedded technology, expand at an incredible pace. Hence the central question: can legacy media catch up? What are the most critical levers to pull in order to accelerate change? (Frédéric Filloux, 2014)

The media industry finds itself in a new context, an extremely challenging strategic ituation where long-established revenue streams are diminishing (say, classified ewspaper advertising and sales of print copies, or music CDs), new delivery and onsumption patterns have emerged (including streamed content, time-shifted television viewing and news stories distributed via the Facebook feed). Audiences display very different consumption preferences (for example television watched ccording to traditional linear schedules, on-demand, or all episodes at once via binge viewing) and new demographic groups like Gen Y, Millennials, Silver Surfers, and so on. This has brought media organisations into the strategic force field of giant new players from the tech industry, including Google, Facebook, Apple and Amazon.

The industry is being transformed as a result. Legacy organisations, or legacy lements of media organisations, are shrinking, digital technologies are permeating ver further into companies’ central nervous systems, tech industry innovation principles (agile methodologies, releasing products in beta versions, and reframing failure as learning) are becoming standard practice.

From a management perspective, these changes mean a very different strategic nvironment, an ‘emergent’ one. Emergent environments are highly uncertain: industry boundaries are unclear, business models are evolving and consumer preferences along with them, and competition can come from hitherto unknown players (Eisenhardt and Brown, 1999; Robins and Wiersema, 2000).

Emergent contexts present a complex management challenge, particularly for incumbents encumbered by their legacy systems and processes. They will need to mbrace new strategic directions that will lead to corporate renewal. They will equire new domain-relevant skills, or new fields of expertise. They will need to
aster new product areas that involve different types of content and different ontent competencies. They will need to be able to strategise more rapidly (even if decisions regarding strategic priorities, technological choices and capital investments must be made with imperfect information) and make their organisations ore agile.

But at the same time as they are damaging existing business models, technological dvances are also creating opportunities. They have lowered barriers to ompetition and allowed new players into the industry. Entirely new categories of products and services have emerged – the iPhone, Snapchat and Twitter would have been inconceivable 20 years ago. ‘Fundamental’ and ‘radical’ are over-used djectives, but they do accurately describe the changes taking place in the media – the development of an entirely different set of technologies for producing, distributing and consuming media.

Figure 2.8Transformations in technology and consumer behaviour put pressure on legacy media organisations
Burgelman and Grove (2012), who have studied such shifts in the IT industry, describe them as ‘strategic inflection points’. They are extremely dangerous for incumbents because they change industry dynamics so irrevocably that business as sual will ultimately mean no business at all. The basis of industry competition has hanged, strategic assets (production and distribution systems, competencies and xpertise) have lost relevance, or even become liabilities. Organisations find themselves in the ‘valley of death’ (see Figure 2.9).

Ideally, they need to make early radical strategic change which involves acquiring ew competencies and a strategy designed for the new environment. This needs areful calibration – if the changes are too radical they may undermine the existing business and revenues or be rejected by some senior managers. If, however, leaders try to navigate the valley by making adjustments but avoiding fundamental hange, there is a significant risk that demand or financial resources may collapse before the company makes it across, or inertia prevents change when it gets there. The art, therefore, is to transform the organisation, to make it across the valley of death before the legacy revenues collapse. An early start, made while legacy evenues are holding up, and fundamental change are critical.

Figure 2.9Crossing the valley of death (based on Burgelman and Grove, 2012)
As this chapter has shown, the traditional media industries are operating in mature ectors with rising costs, declining revenues, increasing competition for audience ttention and evolving technological platforms. To ensure future survival and growth they must adjust to this strategic environment and this will require rganisational transformation – the second part of this book explores various trategic and organisational levers and tools which can help achieve this.