IBM Business Consulting Services

The 30-hour day: On demand for media and entertainment

An IBM Institute for Business Value executive brief

The IBM Institute for Business Value develops fact-based strategic insights for senior business executives around critical industry-specific and cross-industry issues. Clients in the Institute’s member forums benefit from access to in-depth consulting studies, interaction among a community of peers and dialogue with IBM business consultants. This executive brief is based on an in-depth study created by the IBM Institute for Business Value. This research is a part of an ongoing commitment by IBM Business Consulting Services to provide analysis and viewpoints that help companies realize business value. You may contact the authors or send an e-mail to for more information.

Contents 1 2 6 8 9 Introduction Media and entertainment at a crossroads On demand business capabilities Examples of on demand M&E businesses The on demand roadmap

A recent study by MTV1 revealed that their typical viewer lives a 30-hour day. No, this doesn't mean that America's youths have given up sleep. It means they're living in an on demand world: they surf the net, view DVDs, play MP3s, send instant messages, download movies, and sometimes even watch a little TV – doing enough of this simultaneously to add up to 30 hours of daily, à la carte media consumption. And these multitasking teenagers aren't alone: today audiences of all kinds are revolutionizing how they access media and where and when they consume it. Retirees are downloading rare jazz recordings, working parents are catching CSI: Miami on Tivo at midnight, and executives are whiling away meetings by checking movie reviews on their wireless PDAs. An explosion of new media delivery technologies is allowing us all to participate in a powerful vision: rapidly available information and entertainment, served up on demand. However, most media and entertainment (M&E) businesses have yet to make money pursuing this vision, and some have lost their shirts in doing so. Their travails indicate that for M&E businesses, "on demand" has to mean far more than simply making content quickly accessible to consumers. The media industry's abrupt transformation – from last century's seller's market to this century's turbulent buyer's market – has made it critical for an M&E company to acquire a similarly transformed set of capabilities. These capabilities must include rapid response to customer needs and market changes (not just promotional expertise), and dogged focus on integrating core processes (rather than maintaining unconnected operations) - all delivered at low fixed-investment levels by extensive use of variable cost structures (rather than "build it and they will come" approaches). M&E businesses that achieve these new capabilities will be positioned to be flexible enough to weather today's turbulent markets and enjoy the industry's next growth phase. Those that do not, simply put, risk failure. Unresponsive, fixed-cost business models are likely to lose share at an increasing rate to more responsive competitors, and disjointed portfolios of businesses may be forfeited to companies who will acquire and better integrate them. How can M&E businesses successfully meet the challenges of this on demand era? In this paper, we examine in more detail how the industry got to this point, describe what an on demand M&E business might look like, and provide a roadmap for M&E executives that can help them compete successfully in the on demand world – without having to work 30-hour days of their own.

11 Getting started 13 Conclusion 13 About the authors 13 About IBM Business Consulting Services 13 About IBM Media and Entertainment 14 References


Media and entertainment on demand IBM Business Consulting Services

Media and entertainment at a crossroads
It wasn’t supposed to be like this. Digital convergence was expected to create new revenue streams while driving down the costs of production and distribution. A new golden age for M&E businesses was at hand. Yet the reality turned out differently: while leading M&E firms have indeed experienced strong revenue growth – driven largely by acquisitions – over the past five years, this growth has been offset by a pattern of declining returns that even predates the economic downturn of 2001 (see Figure 1).
Figure 1. Top 10 M&E revenues vs. return on assets, 1998-2002.
Revenues (in US$ millions) Return on assets

$160,000 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0
Revenues Return on assets 1998 1999 2000 2001 2002

8% 6% 4% 2% 0% -2% -4% -6% -8%

Note: (A) Top 10= AOL, Disney, Viacom, News Corp, Clear Channel, Reed Elsevier, Thomson, Pearson, Gannett, Reuters. (B) ROA = Earnings before interest and taxes/assets. Source: Company financials; IBM Institute for Business Value analysis, 2003.

While the stalling economy certainly played a role in this decline, some other factors have been at work – and these won't go away when the recession eases. Technological advances have exploded the range of available content distribution methods, and thus the range of entertainment and information options that are available to consumers. Despite the recent mass successes of the reality show format, average audiences for many media properties remain in slow, long-term decline as media markets continue to fragment – keeping their revenue and profit potential under pressure. Meanwhile, operating costs have continued to grow as more and more channels require production and content, yet most M&E companies are locked into siloed organizational structures with little integration and few shared resources across the enterprise.


Media and entertainment on demand IBM Business Consulting Services

The degree of challenge doesn't look like it will be relenting anytime soon. Over the next few years the M&E industry will be defined by four major forces: accelerating pace of change, increasing levels of competition, sustained financial pressure and higher unpredictability and risk. Together, these forces define the on demand world for Media & Entertainment, and exemplify why acquiring on demand capabilities is so important to survival. Let's explore these forces in more detail. Accelerating pace of change. Increasingly segmented and empowered consumers are proving harder and harder to please with mass offerings, and the hits that do break through are enjoying shorter and shorter success windows (witness the two-year decline of Who Wants to Be A Millionaire? from the highest-rated network show to daytime syndication2). It remains to be seen if the current crop of reality programming will suffer a similar fate. At the same time, the development and release cycle times for new production and delivery technologies are shortening, creating a widening array of distribution formats that is forcing continual change in market environments and business processes (see Figure 2).
Figure 2. The evolution of music and video distribution technology.

Broadband/internet streaming: • Simulcast • Internet-only • Rebroadcast WiFi Digital cable LAN/WAN networks VPNs Bluetooth Broadband/internet download: • Subscription • Peer-to-peer (legal and illegal) PC hard drive playback Harddrive HiFi MP3 players Embedded playbacks in PDAs/phones Microdrives DRAM Digital video Digital satellite radio Digital terrestrial radio DAT MiniDisc CD-R SACD DVD DVD audio CD

3G Wireless Digital satellite Low earth orbit constellations HDTV Digital sideband broadcast PVRs AM and FM radio Terrestrial TV Analog satellite Analog cable Vinyl Cassette CHS/Batamax




Media and entertainment on demand IBM Business Consulting Services

Increasing levels of competition. The fight among media for audiences' attention is now more intense than ever. Deregulation in many markets is adding to the intensity, enabling established giants to take advantage of their ability to cross-subsidize and cross-promote properties. And the centrality of technology to media distribution is enabling a steady stream of new entrants with a digital origin - for example, Apple's move into the music business through their iTunes Web store. This creates a dynamic landscape as new service providers threaten to disintermediate traditional value chain stakeholders. Sustained financial pressure. The baseline outlook is far from rosy: most experts project sluggish aggregate demand growth for the M&E industry. And fragmenting delivery environments will add to the problem. The audiences, and thus the economics, of individual titles and shows are in most cases declining as audiences' options proliferate. At the same time, there is strong upward pressure on costs as the business complexity required to serve the increasingly variegated distribution environments increases. Further compounding the problem is a hesitant investment climate created by investors who remain leery of betting heavily on the M&E sector. The result is an unforgiving economic context in which sustained financial pressure will be the norm, rather than a temporary trough. Greater unpredictability and risk. M&E businesses are entering an era of unprecedented exposure. New delivery technologies risk failing and leaving early adopters with the bill. Hackers see M&E firms as prime targets. The digitization of media and the rapid expansion of consumer-end bandwidth and storage can expose most entertainment segments to piracy on an unprecedented scale if effective security measures are not agreed upon and deployed. Combined, these four trends create an era of unparalleled complexity, competitiveness and volatility – an era in which the winners will exhibit four traits. They will be responsive in order to successfully navigate the accelerating pace of change in their markets, and spend less by revamping inflexible business models that were based upon predicting the future. They will be focused on the differentiating components of their business that matter the most, rather than pursuing a comprehensive strategy dependent upon being best-in-class across all aspects of their value chain. Facing unrelenting financial pressure and capital scarcity, these businesses will evolve their cost structures to variable models which can adapt quickly to changes in demand, moving away from committed investments in fixed assets. And they will run resilient operations that are designed to withstand a wide range of unpredictable threats (see Figure 3).


Media and entertainment on demand IBM Business Consulting Services

Figure 3. Trends and characteristics of the on demand era.

Accelerating pace of change Increasing levels of competition Sustained financial pressure Higher unpredictability and risk





Source: IBM Business Consulting Services, 2003.

The section that follows details what these characteristics could mean for media and entertainment companies. Responsive. An on demand M&E business responds rapidly to shifts in aggregate patterns of audience behavior, customer needs, partner relationships, competitor strategy, labor conditions, new technological developments and regulations. It understands its customers and market conditions better than its competitors and has fewer barriers to acting on this understanding. This requires not only accurate, realtime information aggregated across the business and its partners, but also the intelligence to analyze the data and make realtime product and pricing decisions. These capabilities can apply to virtually any external interface, such as selling advertising, promoting new launches or customizing content offerings to individual consumers. However, since a majority of M&E revenues are generated by business-to-business transactions (IBM analysis suggests as much as 75%) an on demand enterprise should start by achieving responsiveness to its business customers – whether advertisers, retailers or licensees – aggregating account information across the enterprise, integrating as much as possible with their processes and helping to ensure rapid reaction to changes in their requirements. Focused. On demand M&E businesses concentrate on differentiating the competencies that matter most to their success, relying on a tightly-integrated network of business partners to manage non-differentiated activities. Focus requires a vision of how the M&E market is likely to evolve and what the business’s long-term role will be in the M&E value chain. It requires a value proposition that is clearly defined for customers and other stakeholders, along with an understanding of where the business may gain meaningful and sustained competitive advantage. It also means externalizing


Media and entertainment on demand IBM Business Consulting Services

non-differentiating elements by creating shared services structures or by using outsourcing partners who allow access to better scale efficiencies. The obvious place to start using this approach is the back-office, where many of the processes handled by finance, human resources (HR), IT and procurement departments can benefit hugely from consolidation or outsourcing. Variable. On demand M&E businesses are able to adapt their cost structures and business processes flexibly to respond to market changes and reduce financial and business volatility. Variability requires a new level of flexibility across the value chain as companies match operations to demand fluctuations. Variability means having the ability to cost-effectively target new audiences and platforms rapidly as market requirements dictate. And variability is about having external partners in place that support the business through variable pricing and supply. This approach could be readily applied to any new media venture in which technology partners can assume the fixed investment and then charge for it according to success. This capability allows M&E businesses to manage risk by reducing investments in inefficient assets, reducing debt burdens by decreasing the financing requirement for new ventures and driving greater financial predictability. Resilient. On demand M&E businesses are resilient in their ability to withstand business shocks in a global market. They are prepared for changes and threats – technological, economic or political – helping them to reach their customers, partners and audiences with continuous availability, enhanced security and privacy features. One of the most pressing resilience issues for M&E players is boosting resistance to piracy, since piracy concerns are hampering the deployment of potentially lucrative new business offerings while eroding the profitability of existing ones. Resilience is not limited to piracy protection, however; on demand M&E business must also have plans in place to protect their content assets and foster continuity of business operations.

On demand business capabilities
How can an M&E company acquire these traits? Sadly, there is no simple Hollywood ending: the on demand vision needs to be approached over time through a process of ongoing transformation. In practical terms, this transformation means progressively acting on five key on demand imperatives: 1) Consolidate overhead 2) Integrate operations 3) Optimize business customer and partner offerings 4) Drive direct-to-consumer relationships 5) Enable integrated media


Media and entertainment on demand IBM Business Consulting Services

1) Consolidate overhead Consolidating functions such as Finance and HR is an essential step if an M&E business is to become an integrated, sense-and-respond enterprise. This means far more than simple rationalization and cost reduction, however. It involves establishing efficient and flexible platforms that allow rapid change in business structure and strategy, that provide integrated and current views of business performance, and that allow managers to concentrate on strategic issues rather than reporting and reconciliation. These capabilities can be facilitated by scalable shared services or outsourced business processes, IT and infrastructure components. 2) Integrate operations Moving on from overhead to the core content creation and distribution functions of an M&E business, integrating operations can dramatically reduce cost and increase responsiveness at each stage of the value chain. For example, integrated rights management, content management and supply chain operations can serve new demand rapidly and enable realtime decision-making on issues such as promotions or production volumes. Integrated content production operations can create video, game and Internet content simultaneously with integrated teams – at lower cost and with enhanced consistency of look and feel. 3) Optimize business customer and partner offerings Optimized offerings to, and relationships with, key business customers and partners extends the philosophy of integrated operations into an M&E business's most important external interfaces. It can take many forms. It could mean vendor-managed approaches to the physical supply chain for recorded media or licensed goods. It could mean making divisional ad salesforces able to sell any piece of an enterprise’s advertising inventory – without excessive discounting. It could allow licensees to obtain a realtime supply of archival content on a self-service basis. 4) Drive direct-to-consumer relationships Moving on to the end consumer, driving direct-to-consumer relationships means the implementation of mature and more cost-effective digital distribution, data handling and mass customization techniques by players at all points in the content value chain, whether or not they have ambitions to service consumers directly. Already, music and video distributors are working with partners to allow audiences to program their own music and video channels, or to provide automatic programming based on their past preferences. Media networks such as ISPs or cable operators are boosting their data gathering and mining capabilities to understand individual subscriber’s preferences. Since audiences continue to fragment, and consumers will have more and more entertainment and information options each year, safeguarding the strategic high ground of consumer understanding will become more and more critical.


Media and entertainment on demand IBM Business Consulting Services

5) Enable integrated media Moving on to the technical environment, enabling integrated media involves collaborative support for transaction, distribution and metadata standards across the whole supply chain. It also involves utility purchase or shared services approaches to key components of the business information, content production and distribution infrastructure such as storage, rendering and hosting. While M&E businesses have been aggressively deploying a wide range of technologies for years, we are moving into a period in which a new generation of middleware and a better understanding of the importance of "content-agnostic" platforms can offer significant improvements in cost and performance, as well as new business models. The gap between backoffice IT and content production systems is closing as IT hardware and software have become capable of handling unstructured content data in addition to their traditional role of handling structured business data. As IT follows this path, it provides new ways of collaborating, eases business integration and reconfiguration and helps firms better manage the rising complexity of managing IT itself. To achieve this state of flexibility, an M&E business’s IT infrastructure should have several attributes: • Based on open standards – To simplify systems integration, reduce costs, and adapt to technology changes rapidly • Integrated – To facilitate transaction and process integration across the enterprise; allow realtime connectivity among partners, suppliers and customers; and permit active data mining and decision support • Virtualized – To increase the utilization of existing assets and lower IT costs via distributed computing resources that are shared and managed as a single, virtual data center • Autonomic – To develop systems that can be managed remotely, have embedded privacy protection and security features and are capable of self-optimization, selfdiagnosis and self-healing.

Examples of on demand M&E businesses
What would an M&E business with these capabilities actually look like? It depends partly on the vertical industry or value chain segment in which a particular firm competes. For example, an on demand movie studio would transform the effectiveness of its marketing investments by sensing consumer reaction to new properties on a realtime basis, then adjusting its media spending accordingly. Its DVD division could improve service to retail customers by seamlessly integrating its sales and service processes with those of key customers through just-in-time and vendor-managed inventory approaches. At the same time, it would reduce production costs by buying digital content production infrastructure on a utility-like basis.


Media and entertainment on demand IBM Business Consulting Services

An on demand cable company could increase ad rates by enabling advertisers to target and track more precise audiences. It would help reduce its advertising fulfillment costs by automating the ad trafficking and distribution process in realtime. It might also optimize call center cost and service quality by varying the transfer rate of service queries to lower-cost options (for example, Web or interactive voice response) according to volume, or by outsourcing this capability entirely. An on demand book publisher could increase revenues and customer loyalty by delivering customized content to individual readers across platforms. At the same time, it could decrease printing costs by printing slow-moving titles on demand instore and increase revenue by automating content transcoding to support a wide range of distribution platforms at low incremental cost. Lastly, an on demand M&E conglomerate could reduce operating costs and improve management information by merging overhead functions such as Finance into lean, shared services structures. It could further reduce costs by outsourcing any noncore functions that could be managed better by a third party – for example, HR. It could increase responsiveness to major advertisers by integrating customer information across its divisional advertising sales forces. And it could enhance revenues by integrating and coordinating the management and sales of its most important assets – content rights and brands – across the whole enterprise.

The on demand roadmap
What's the route forward? As noted above, successfully achieving on demand capabilities isn’t a "one-off" process; it requires adopting new approaches to both business processes and technology infrastructure over time. Each step will represent a new level of business process and IT sophistication (see Figure 4).
Figure 4. Fusion of business process and IT transformation.

On demand business model

Business process sophistication

Value-net optimized

Enterprise optimized

Integrated enterprise model

Traditional business model
Process optimized


e nd






IT sophistication

Source: IBM Business Consulting Services, 2003.


Media and entertainment on demand IBM Business Consulting Services

Since most M&E companies primarily operate traditional business models with heavily siloed processes, the present goal is to create an integrated enterprise model. The good news about this journey is that it can be carried out in a sequence of pragmatic steps, applying on demand approaches to individual processes and prioritizing these projects according to potential business value. Many M&E companies have started some part of this journey already, often finding that the most fruitful places to start are the overhead and back-office functions: tried-and-tested approaches to integrating these functions already exist and there is usually considerably less organizational resistance to change in such non-core areas. Moving closer to core operations, the integration of customer-facing operations (sales, rights management, service and contact centers) and supplier-facing operations (such as procurement) are the next logical candidates. Last, the core production processes can be addressed – for example, by integrating shareable components, such as parts of the digital media workflow (storage, approval or rendering). Achieving the next step – integrating the business externally into customer and partner business processes to form "value nets" – requires more thorough transformation. It will probably involve rewriting business rules and transforming the economics of established operations. For example, an independent record label, after integrating its internal operations into on demand models, could decide to stop producing physical media and shift to an automated, all-digital, on demand supply model. Such a transformation would require tremendous organizational commitment at a level that can only be attained by progressing through a specific lifecycle: first, building the foundations for change, next defining the business value and then creating a clear vision of the new business rules (see Figure 5). It's important to stress that successful transformation on this scale requires prior execution of simplified and integrated internal business processes to succeed.
Figure 5. On demand transformation lifecycle. Phase 1: Sustain Enhance current processes and build foundation for change Business value chasm Phase 2: Disrupt Invest in new technologies and business processes Business rules chasm Phase 3: Reinvent Deploy new business models

Crossing the business value chasm • Financial justification • Pivot from product focus to customer focus • Commit to more extensive infrastructure strategy • Leverage business partners (such as systems integrators)

Crossing the business rules chasm • Rethinking of the organization and its boundaries • Pre-defined business rules around customers and business partners • Adoption of new enterprise logic

Source: IBM Institute for Business Value, 2003.


Media and entertainment on demand IBM Business Consulting Services

Getting started
So, how can M&E businesses begin? There are three keys to a successful start: focus efforts on specific on demand components, start to build platforms that can support an on demand operating environment and, most important of all, start with existing initiatives (see Figure 6).
Figure 6. Key steps to getting started with on demand.

Focus efforts

Define the on demand business components

Manage Design Buy Make Sell

Build platforms

Create an adaptive operating environment





Leverage existing initiatives

Start with what you’re already doing

• Relate existing initiatives to on demand • Screen planned initiatives against the on demand roadmap

Source: IBM Business Consulting Services, 2003.

Focus efforts It is essential not to define on demand too broadly. Since only specifically targeted efforts can be executed with the right speed and quality, picking your battles is essential. This involves a few key steps: • Think big – M&E business managers need to have a shared vision of where their part of the industry is going, where on demand plays in that vision, what the business's role will be, and, perhaps more crucial, what it won't be. Without this big vision, it will be hard to prioritize and coordinate efforts across the organization, and harder still to marshal the organizational energy required to drive change. • Carve out some bite-sized components – Define the areas from the vision that offer the most achievable value and start there. These starting components could be individual processes, customer groups, organizational layers or particular business capabilities. Success with these can demonstrate the value that’s possible from the on demand journey and generate savings that can then be invested in broader, bolder moves. Look in particular at shared services or outsourced approaches to overhead as possible starting points that can rapidly deliver valuable productivity increases.


Media and entertainment on demand IBM Business Consulting Services

Build platforms Few enterprises are in a position to contemplate creating new platforms from scratch, but successful execution of on demand business capabilities often requires some components of an integrated, on demand operating environment to be in place. The journey to an on demand platform has to start somewhere. We recommend a phased progression through three steps: • Define standards – Cross-enterprise standards are the essential starting point for an integrated operating environment. Gain agreement on common standards for management information, content rights, transactions and connection to partners, suppliers and customers. Examples of these include Web services, open metadata standards and application integration middleware. Defined standards support the gradual development of modular systems that can interoperate across the enterprise. • Consolidate operations – Look for current opportunities to collapse infrastructure or applications into simpler, shared models. This could involve integrating hardware, applications, data and processes within and across organizations. It could also involve exploiting demand- or usage-based IT costing. • Cut the cord on legacy resources – Continuing to run parallel networks, processes and systems as services move to standards-based operations may simply compound complexity, fragmentation and cost. For each part of the operating environment that cannot play a role in the integrated platform, an aggressive sunset strategy is vital. Leverage existing initiatives Most important, start from where you are. On demand does not entail discarding all existing approaches and projects. On the contrary, in most cases on demand can provide a clearer picture of current capabilities and their associated value. Therefore, we recommend that companies start the on demand journey by examining their existing portfolio of projects and identifying which can be used as on demand vehicles. For example, an existing shared services implementation in finance could be expanded to deliver enhanced realtime management information, or it could be pushed toward a more aggressive, outsourced structure. Or, the installation of a new content management system could be extended to include a pay-per-usage utility model for digital media storage. Leveraging existing initiatives means leapfrogging the often lengthy process of gaining approval and funding and supports prompt action toward an on demand future.


Media and entertainment on demand IBM Business Consulting Services

Audiences want content delivered instantly to their specifications, business customers require customized attention and shareholders are hungry for short-term value growth. On demand offers M&E businesses a direct approach to addressing these various demands. It describes how business models can evolve to create new levels of operational flexibility and how operating environments can evolve to serve these models. And over the longer term, on demand approaches can allow M&E businesses to profitably deliver new and compelling experiences that are designed to capture the imaginations of new generations of audiences. Though the vision may be grand, becoming an on demand business need not be a daunting challenge. There are proven, incremental approaches to managing risk and change, as well as some simple and pragmatic starting points for the journey. The IBM on demand vision provides both a roadmap and toolkit for achieving the transformation, to arrive at an on demand level of operations that can continue to delight audiences - 30 hours a day, ten days a week and 500 days a year.

About the author
Neil Parker is a Partner in the Media and Entertainment Practice of IBM Business Consulting Services. You can contact Neil at

About IBM Business Consulting Services
With consultants and professional staff in more than 160 countries globally, IBM Business Consulting Services is the world’s largest consulting services organization. IBM Business Consulting Services provides clients with business process and industry expertise, a deep understanding of technology solutions that address specific industry issues, and the ability to design, build and run those solutions in a way that delivers bottom-line business value.

About IBM Media and Entertainment
IBM is the world’s largest information technology company, with 80 years of leadership in helping businesses innovate. IBM is helping media and entertainment companies worldwide take advantage of the business opportunities made possible by digital technology. IBM offers a comprehensive portfolio of solutions, networking and service offerings that is transforming the traditional creative and business processes of Media and Entertainment companies and positioning them to leverage their intellectual assets into new commercial opportunities. Additional information on IBM’s strategy for the media and entertainment industry can be found at


Media and entertainment on demand IBM Business Consulting Services


© Copyright IBM Corporation 2003 IBM Global Services Route 100 Somers, NY 10589 U.S.A. Produced in the United States of America 08-03 All Rights Reserved IBM and the IBM logo are registered trademarks of International Business Machines Corporation in the United States, other countries, or both. Other company, product and service names may be trademarks or service marks of others. References in this publication to IBM products and services do not imply that IBM intends to make them available in all countries in which IBM operates.

Fifth Annual MTV Networks/Viacom Study of Media, Entertainment, and Leisure Time, July 2002. Brioux, Bill. “Millionaire won TV ratings lottery, and then lost it just as fast." Toronto Sun, June 27 2002. ,



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