Content Business

Igor Iartym
Department of Computer Science
Helsinki University of Technology
iartym@cc.hut.fi

Abstract

As the Internet is growing, millions of new consumers are entering the global on-line market space. This fact raises a question about possible use of the Internet as a medium for content distribution offering a new way of the content business. At the same time emerging software and hardware technologies enable on-line content services giving us an evidence to estimate new opportunities and challenges of the networked multimedia content. This paper is a student work and is an attempt to reveal ecomomic and technological reasons and consequences of the Content Business on the Internet as well as to survey it's current state and to outline it's future. The web page was prepared within the Seminar on Network Security at Helsinki University of Technology.

Table of Contents

Economic Reasons for Content Business on the Internet

1. Why this Question arises
1.1 Growth of the Internet and Web
1.2 Technology Enabling
1.3 Companies Benefiting
1.4 Attraction for Consumers
2. What Content is
2.1 Text and Image
2.2 Audio
2.3 Video
3. Content Sites
3.1 Fee-Based Sites
3.2 Sponsored Sites
3.3 Searchable Database Sites
3.4 Reality
4. Future
5. References

Economic Reasons for Content Business on the Internet

The traditional model of distribution of intellectual property can be represented as following chain [10].
OWNER -> PRODUCER -> DISTRIBUTOR -> RETAILER -> USERS
Where: The business use of the Internet can radically alter this traditional view. According to [5] networked digital content can be defined as digital content delivered across communication networks from storage elements to display and audio systems. The processes for development of the content include production, distribution, hosting, delivery. The production step includes the acquisition of scripts and content rights, filming, development and integration of animation, graphics, audio and video materials and encoding of these materials, such as MPEG encoding. After encoding a content is prepared for destribution and delivery. Thus, the Web reduces length of the traditional chain to three or even two components eliminating the distributer and retailer and offering users a direct access to the producer or even to owner.
In this paper we consider three areas of economic costs and benefits [5]: market transaction costs, production costs, and network externalities. The market transaction costs include search, transport, inventory holding, and communication costs. These costs arise as a finished good reaching consumers. The reduction of these costs can be very profitable since the modern tendency in industrial processing is a growth of accumulating value of products at the last stages of technological channels [1](see figure below).

Figure 1. Accumulated value along industrial processing
According to the diagram above the growth of the accumulated value in products enlarges mostly during distribution and selling to end users. Thus, reducing of market transaction costs can reduce the content final price or enlarge companies profits.
The production costs are costs accumulated at the value chain of developing content and technology for information infrastructure. Brodcasting by air and an open network delivering, such as the Internet can serve as a comparison example. In broadcasting the production cost may remain constant, and relatively low, since the brodcasting is a cheapest way to bring the information. In open network deliverying the production cost depends on structure of interconnected networks, distances between providers and consumers and can alter as networks modernized. Production costs add value to the content, while transaction costs enable a distributer, retailer and user to exchange the content in a market. The network externality is a benefit received by all current customers when an additional customer is added. For example, a telephone system with few subscribers would require extremely high charging for calling since the cost of the maintenance of the entire complex system is distributed among users. Generally the more frequent subscribers use a service the cheaper the service is.
The share of content owner part in the final content price is in the scope of our interest. Since using of the Internet enables reducing production costs by reducing expenses for content carriers, such as books, tapes, stores, etc, the share of content owner part encreases while the final cost of the content decreases. To date, about 7 million potential subscribers have been connected to the Internet giving a basis for high positive network externality. This means that new content-oriented services are waited by potential customers and able to be mass consumed immediately as they appearing.
Traditional mass media model of content distribution such as the conventional television can be described as a one-to-many communications process [4] (see figure below).

Figure 2. Traditional One-To-Many Mass Media Communications Model
In this model, a firm distributes content through a medium to all the subscribers without taking into consideration particular group or individual interests. The absence of the feedback from consumers, and authoring requirements make this model unflexible. Also authoring increases the transaction costs.
The Internet offers a new mass media communications model [4] (see figure below).

Figure 3. Internet Many-To-Many Mass Media Communications Model
The new model enables narrowcasting which means a taking in consideration individual interests, selective advertising according to interests, knowledge of the market needs.

1. Why this Question arises

1.1 Growth of the Internet and Web

Since 1981, the number of hosts on the Internet has been approximately doubling annually. Surveys of the Internet show that the number of hosts connected to the Internet increased from 1.3 million to 6.6 million between January 1993 and July 1995 (see figure below)[3].

Figure 4. Internet Hosts Growth
The Internet also reached over 150 countries. This rapid growth has caused participating of a considarable share of consumers and firms in the Internet online marketspace. The growth in the use of the Internet is stimulated by inexpensive communications, availability of interesting content, lowering of technology costs, and availability of useful software for Internet publishing such as WWW servers and browsers. The use of WWW is increasing rapidly due to its easy-to-use browser software, hypertext capabilities and access to multimedia information. The number of the Web sites in January 1993 was 50. As of March 1995, there were 30.000 Web sites. Today, the approximate number is 250.000 Web sites. The WWW provides an efficient channel for advertising, marketing, and direct destribution of goods and information.

1.2 Technology enabling

As the Internet has been extending, information technolody has progressed providing interactive multimedia communications. Particularly, following key technologies enable multimedia communications systems development:

1.3 Companies Benefiting

The Web's effect on business practice is associated with the cost reduction of market transactions. A virtual storefront on the Web can serve all the consumers connected to the Internet with only one physical storage room or warehouse. This reduces transportation and inventory holding costs by allowing centralized warehousing for physical goods and virtual storage for digital media. Companies can use the Web for marketing, sales, customer service, and technical support. Marketing can utilize the Web at a low cost. Publishing and information services companies receive their benefits from the posibility to use the WWW as a distribution channel. The Web reduces a destribution costs to zero. For example, digital products can be delivered immediately. Moreover buyers and sellers can access and contact each other directly, elimininating some of the marketing cost.

1.4 Customers Benefiting

One important consumer benefit associated with marketing on the Internet is the easy access to great amount of dynamic information to support queries for consumer decision making. The World Wide Web widens the scope and reduces the cost and time of searches. Currently, there are many search engines available for finding information on the Internet, for example the Yahoo. The existing search engines can be evolved into the personal intelligent agents. These agents will enable comparison shopping and reduce the time involved in searching for the best price.

2. What Content is

While speaking about content business on the Internet, we have to specify what content is. At the user side, the content business can be described as consisting of two parts, a content itself, and provided services to reach and receive the content. While information and search agent sites provide consumers with the information about content sites and their locations, the content sites carry seeking information and provide its distribution. From consumer point of view, the content is a text, images, movies, audio, video, software, or other material contained in and delivered by media such as paper, CDROM, web server, video-on-demand[9].

2.1 Text and Image

A text and image are the basic means for making web pages, giving them visual presence, and the HTML is a basic tool for doing them. The HTML is textual in nature but it does allow inline images for adding visual effects to the pages. Inline images are also used create special font effects for titles since the character styles supported by HTML are limited. There are two image file formats used for publishing images on the Web: GIF and JFIF/JPEG. Most graphical web browsers support GIF images as an inline image format for web pages. While Netscape Navigator supports both inline GIF and inline JFIF/JPEG images, most other graphical web browsers do not. There are a number of methods for importing images to workstation for publishing on a Web server. If the workstation has a built-in video input capability, single frames of video can be snapshoted from the video source. Other way of inserting images onto the Internet is to use PhotoCDs. The PhotoCDs are CDROMs which contain high quality scanned versions of film negatives or slides. The PhotoCD can be inserted into, for example, a Silicon Graphics CDROM drive. Then selected Images can be saved in files for mounting on a WWW site. As to photographs, paper drawings, and other flat media, they can be scanned to create an image using a scanner and special software.

2.2 Audio

Audio is a second digital media content type on the Web. This can be used for publishing music in the form of song samples and whole songs, greetings, web page narratives, and soundbites from speeches. The three audio file formats currently used for publishing audio on the Web. They are listed in decreasing order of popularity: Most connections to the Web are too slow to be able to download high quality audio in a reasonable amount of time. For instance, a second of CD quality stereo audio with no compression requires 172.3KB. A client using a 9600bps modem transfers data at the rate of about 700 bytes per second depending on the line conditions. At this rate 1 second of CD quality stereo audio will take about 5 minutes to download. 1 minute of CD quality stereo audio would require 10MB and would take about 5 hours to download. The example above shows that publishing of CD quality sound and real-time high quality audio is not yet possible on the Web.

2.3 Video

Video content can be used for every purpose that analog video is used, namely movie, advertising, news etc. However, video system files (video+audio) have not yet acquired popularity because of a lack of players capable of adequately decoding and synchronizing the video and audio streams. As CPU speeds increase or as more PCs acquire hardware decoders allowing better synchronized playback, video system files like MPEG-1 can grow in popularity. The four video file formats currently used for publishing video on the Web in decreasing order of popularity are: QuickTime has been the most popular format for video files with audio tracks because of it's availability on most platforms. Cinepak compression offers the most efficient storage format for QuickTime. MPEG-1 video files have been used for content not requiring audio tracks because of it's great compression ratios.

3. Content Sites

There are several basic functional types of the commercial sites [3] on the Internet. Only Content sites are inside of the scope of the document. Content sites provide a set of services offering consumers the content in various form. To date, mostly two forms of the content, text and image have been available on the Internet. The offered information carries a variety of meanings. Most frequently, content sites offer customers electronic copies of articles from newspapers. Before consumer starts interaction with a content site, he or she searches for a best offering throughout the Internet. Both, The Search Agent site and Information site offer consumers all the necessary information to reduce searching time and make a choice easier. Search Agent sites identify locations of other Web sites through passed by user keyword, while Information sites provide detailed information about the company and its offering. The Content site can be Fee-based, Sponsored, or Searchable Database. All these three types are described in more details below.

3.1 Fee-Based Content Sites

In Fee-Based content sites, providers buy content from owners or producers and supply it to the Internet. Consumers in turn pay to access and to consume a content. Providers of the content can be also producers of the content as for example, newspapers support their own home pages on the Internet. Consumers can access a content via his entered identification information that includes a login name or/and password. These are given to customers through previous filling form or registration. Newshare can be an example of information-brokering. In NewsPage example customers can access digests of the news at no charge, but pay small fees for the full texts of the articles. Examples of newspapers homepages are Helsingin Sanomat and Kauppalehti. Currently, audio and video publishing are not spread throughout the Internet. Found example of audio/video publishing includes Younite. Nowdays, on-line broker sites are available on the Web. They provide daily stock information and recommendations for their subscribers enabling on-line stock trading. An example of on-line broker includes The Pristine Day Trader.

3.2 Sponsored Content Sites

Sponsored content sites are almost as the same as Fee-based sites. The difference between them is in pricing. Sponsored content sites let other companies to advertise products and services within their Web space. It allows to reduce or eliminate the necessity of charging fees to customers. Examples of news articles publishing includes Washingtonian Online. Examples of stock-brokering and sound publishing include StockMaster and Uima.

3.3 Searchable Database

Searchable Database sites are just opposite to Fee-based sites. Here, producers or owners pay providers for location of their information on sites. Providers organize the information in a listing by subjects. Consumers can order desirable information by filling a form. Some examples include Catalog Mart Home Page, Tables-of-Contents, Inc., and the Virtual Headbook.

3.4 Reality

Opportunities for content sites on the Internet are most favourable since they are most close to traditional media models. At the present time, the content is offered most frequently at no charge. As a rule, information sold in pieces rather than in whole entities, for example, as chapters, articles, images, photos, video clips, single songs rather than as books, journal issues, movies, and complete music CDs. Fee-based content sites might evolve as secure payment mechanisms and copyright protection are implemented. Nowdays, these sites have only limited success. Currently, texts and images are dominant contents on the Web. Delivering of audio, video, and software content may suffer from uncapability of hardware to process great amounts of information in a reasonable amount of time. This can be a reason why these types of publishing are almost absent on the Web. However, new content-oriented companies appearing on the Web continuously. This may indicate that some portion of the industry is moving toward multimedia publishing on the Internet.

4. Future

Today, the use of the Internet for content business is limited to publishing of printable information and advertising. Currently exploited mass transmission and processing technologies do not yet meet multimedia communications systems requirements, and in addition, no secure payment mechanism has been provided. In general the Internet remains unrelaible. However, development is accelerating. During following years, remarkable changes can happen that transform distribution of multimedia. As we can see from figure below, telecommunication services penetration is trending toward accelerating growth of multimedia services[1].
Figure 5. Telecommunication services development tendency
Every day more people connect to the Internet and soon having a network connection will be as common as having a telephone. While this access becomes more widely available, the tools for accessing networks and for using the information located there will change dramatically. The Internet is under continuous reconstruction and is being powered by new generation high-speed networks. For instance, Tele has launched the world's first full-scale commercial ATM service already in 1994. High-speed networks may serve as backbones of close future telecommunications. Simultaneously, research and development continues at the subscriber interface end. As an example, in 1996 Nokia introduced multimedia network terminal, namely Mediamaster 9500 S/C that lets a range of services: Network operators, such as HPY and Tele conduct projects to provide a platform for future multimedia communications. In particular, Tele has announced the start of a development project with Tampere University of Technology and Digital Media Institute to develop multimedia-on-demand services which are delivered via television. These services will include news-on-demand, home shopping, and movies. The television set is planned to be connected to a high-speed network offering subscriber an access to the Internet.
As communications technologies will enable required processing speeds, privacy, copyright protection, and network access and payment security there will be potential for larger, richer and more varied content presentations.
Video-on-Demand may become a common service providing high quality video within countries.
Various on-line inquiry "offices" will offer a range of valuable and useful information from forecast to current rates on stock market. The time sensitive information as hotest news will be delivered first through the Internet to subscribers.
Shops sales advertising will occupy its proper position on the Internet entirely eliminating consumption of paper and other resources for distribution in conventional way.
Consumers will be able to order and receive newspapers, magazines, books, audio, video, and software products through the Internet, though I doubt a success of newspapers, magazines, and books publishing on the Web. Consumers may not get accustomed to read newspapers sitting in front of their monitors. Perhaps, new ways of presentation of printable materials will be developed to allow voice, short movie fragments, and animation enabling users to follow articles independently on a distance to a monitor.
Searching for a content on the Internet will be powered by special search software agents. These agents will efficiently find the best offering throughout the world assisting consumers in their selecting.
While thinking about the future of the digital content distribution, we should take the social consequences of it in concern. The Content Business on the Internet will release considerable amounts of human resources in traditional distributing chains. This will cause a new growth of unemployment and demand for financing new social programs taxing Internet services.

5. References

References listed in arbitrary order

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[2] Hoffman, Donna L. and Thomas P. Novak (1994), "Commercializing the Information Superhighway: Are we in for a smooth ride?" The Owen Manager, Spring, 2-7. [http://www2000.ogsm.vanderbilt.edu/smooth.ride.html]

[3] Donna L. Hoffman , Thomas P. Novak , and Patrali Chatterjee, "Commercial Scenarios for the Web: Opportunities and Challenges" [http://www2000.ogsm.vanderbilt.edu/patrali/jcmc.commercial.scenarios.html]

[4] Hoffman, Donna L. and Thomas P. Novak (1995), Marketing in Hypermedia Computer-Mediated Environments: Conceptual Foundations [http://www2000.ogsm.vanderbilt.edu/cmepaper.revision.july11.1995/cmepaper.html#2]

[5] J. Bailey, L. McKnight, and P. Bosco (1995), The Economics of Advanced Services in an Open Communications Infrastructure: Transaction Costs, Production Costs, and Network Externalities [http://far.mit.edu/~bailey/econ_adv.html]

[6] Stefan Klein, "The Strategic Potential of Electronic Commerce - An Introduction for Beginners" [http://www-iwi.unisg.ch/iwi4/cc/genpubs/ecintro.html]

[7] "Electronic Commerce COG (ELECOM) Consultations - Phase 1 Paper - Overview" [http://www.open.gov.uk/cogs/jimp1.htm#5]

[8] World Telecommunication Development Report [http://www.itu.ch/WTDR95/]

[9] WebFORCE Software Tutorial, [http://iris.rhu.bham.ac.uk/sgi/docs/tutorial/index.html]

[10] Paul Hoffert 1994, Accounting for Content on the Infoway. Revolution or Evolution? [http://www.cultech.yorku.ca/intercom/MMARE.html]