Study Sees Digital Divide | Adweek
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Study Sees Digital Divide

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NEW YORK In the fast-evolving digital world, there is an increasing likelihood of conflicts between traditional content owners and distributors as they explore new business models, according to a new IBM study released Monday.

"Navigating the Media Divide: Innovating and Enabling New Business Models," the study from the Institute for Business Value, IBM's Global Business Services think tank, concludes that "four divergent business models will co-exist at least through 2010." Each will provide a different growth opportunity.

The "traditional media" model is based on professionally produced content delivered through dedicated devices.

"Walled communities" focus on distribution of niche and user-generated content through dedicated devices. "Typically, these are traditional businesses that have expanded their walls to include nontraditional features and experiences," the study notes.

"Content hyper-syndication" makes professional content available in open channels without access walls or dedicated services.

"New platform aggregation" relies on user-generated content and open distribution platforms. "It is arguably the most disruptive model, as neither incumbent content owners nor distributors have legacy advantages here," the IBM study says.

It concludes that media companies will experiment with all of these business models and blur them over time.

Through 2010, the traditional media business will remain dominant, growing at a compound annual rate of 5 percent to $340 billion, IBM forecasts, based on various projections. However, it warns that most such estimates do not include the expectation of cannibalization from developing business models, concluding that they "should be tempered by the realization that spending on new channels will eliminate some of the revenue forecasted for traditional media."

Walled communities will be a $240 billion business in 2010, making for a 10 percent compound annual growth rate, the study predicts. New platform aggregation will be a $50 billion business in 2010, growing at a 16 percent CAGR. Content hyper-syndication would be smallest at $25 billion but showing the biggest growth rate at 33 percent, according to IBM.

"The lion's share of revenue will still be from traditional business," Steve Abraham, global media and entertainment leader for IBM Global Business Services, said in an interview. "But companies will want to be better at running that business than others and manage costs to invest in new initiatives and business models."

The IBM study encourages media firms to experiment with new approaches now to get to a point where they can determine the most balanced and financially best approach.

However, that could lead to conflicts with old partners, which may lead to the remodeling of existing business relations and revenue splits, the firm says.

"As incumbents move further away from business as usual, we believe that media distributors and content owners will primarily head in opposing directions: distributors toward walled communities and content owners toward content hyper-syndication," the study concludes.

Overall, the study signals that distributors will feel more pressure, but content owners must be careful not to alienate them too much. "As distribution platforms proliferate and new players drive access prices down, power is moving further away from those who own the pipes and toward the companies that control the consumer's media experience," it argues.

The study encourages companies to weigh short-term benefits and potential long-term damage from various strategies. "Content owners and media distributors need a strategy for turning conflict into opportunity and grow as they navigate this media divide," it concludes.

The study analyzed digital media trends and includes interviews with media industry leaders.