Executive Summary
 

The contents owners are starting to integrate downwards in the value chain towards the end customer. Due to the powerful position of the largest media owners this is mostly done by acquisitions of high-tech companies. The drivers for the media owners to act this way are that the network can be seen as a threat and an opportunity in their eyes. If the media owners do not integrate downwards in the value chain the position of the content and service managers will grow and threaten the profit margin of the media content production business. The efficient utilization of the network is also a great opportunity for the content owners. Due to the fact that the products that the media industry are almost all virtualisable, it can be distributed through the network. This will result in lowered costs but also opens the door for new business possibilities.

The content and service management part in the value chain is of great interest, or should be, for the customer interface is mostly in the possession of these organizations. This means that these organizations have the best possibility to position themselves directly to the end customer. If these organizations control the customer interface, e.g. by offering news and communications services, then these organizations will have the power to buy the contents from the independent contents owners. This means that the contents like news for example will come a bulk product.

What is evident is that the smooth operation of all the organizations in the value chain is needed to deliver the services to the end customer at a high quality level and with a competitive price. So in the eyes of the customer it is insignificant if one organization is in possession of the whole value chain or if it is fragmented into many organizations that have harmonized their operations to deliver the end customer the product in a superior way. What is expected is that organizations now operating in the different roles in the multimedia network value chain will form coalitions, and these coalitions will compete with each other.
 
 
 
 
 

1. Introduction
 

Communication is the key aspect when we talk about the future of networking. People have the need to exchange ideas and knowledge, otherwise the knowledge is of no use to the society and neither to the individuals. It is all about the sharing of information. This is where multimedia steps in. Multimedia is a way to present the knowledge in a powerful way so that the information can be shared in the community in an efficient way. It is a means of communicating by presenting information in the different forms a human can experience information e.g. in the form of readable text and visual animation movies. The intention of this paper is to explore in depth the value chain of the multimedia industry and by doing so to enlight the recent and future development in the multimedia industry.

The multimedia business is without doubt a large business, but how large? To be able to answer that question we first have to define what elements the multimedia business is composed of. We will define the multimedia business structure later on in detail, here we will note that the multimedia industry is composed of different industries. These industries are the IT, telecommunications and the consumer entertainment industry. According to an analysis performed in 1998 the value of these three industries totaled around $3 000 billion [1]. It is a trend in the multimedia industry that the separate industries will start converging and will eventually form a single industry - the multimedia industry. The recent formation of portal services are an evidence of this course of development. For example Disney announced to join forces with Infoseek and Starwave. The aim of the co-operation is to deliver a Internet site that brings together the news of ABCNews.com with one of the most popular search and directory features available on the Internet [2]. This is a clear example of convergence of the consumer entertainment and IT industries

The importance of the multimedia industry has not gone unnoticed. The markets are huge and will continue to grow in the future. Realizing this, in many trade regions countries have initiated national programs to promote the multimedia industry. By doing so trade regions aim to secure their share of the emerging market. Good examples of these type of initiatives are the government driven programs in Malaysia and Singapore to promote multimedia business in the respective countries. The Super Corridor project in Malaysia is a local project where the aim is to establish a high bandwidth network which the business can share. It is hoped that this will develop the services currently available to the firms using the network and also develop the way the firms run their business. The Singapore ONE is a similar type of attempt. The aim is to provide a high bandwidth network on a national level, and bring new multimedia services to work, homes and schools.

In this paper I will define the value chain of the networked multimedia industry from the end user's point of view. This means that I will explore what elements contribute to the value that the end user sees in the networked multimedia services, whatever they may be. After drawing boundaries between different activities that form the overall value chain I will examine some of the key parts of the value chain. The key parts that are discussed in this paper are the contents and communications origin - the owners of the contents, which is discussed in chapter 3, and the growing importance of content and service management, which is discussed in chapter 4. The end customer interface is also an important aspect to the development of the value chain in the future, but this subject is not discussed in this paper, but is a field for future research.
 
 
 
 

2. The Value Chain
 

In this chapter I will look at the multimedia industry in the value chain concept, which was introduced by Michael Porter [3]. In the value chain each activity adds to the customer value of the end product or service. The benefit of looking at the industry by using the value chain approach is that we are able to enlight what activities have the most significance to the end customer value. It is also worth noting that the boundaries in the value chain do not necessarily form at the boundaries of different organizations, but at the boundaries of different activities. The key to understanding how the value chain boundaries are formed is in looking at the end product or service from the customer's point of view, and evaluating what features the customer values.

There are two key criteria that I will apply in the value chain concept. The criteria are positioning and fragmentation. These criteria are mentioned in the doctoral dissertation written by Markus Kajanto in 1997 [4]. Kajanto writes that if the end customer sees different organizations in the respective parts of the value chain then the organizations are able to position themselves, at least in principle, directly to the end customer. In this context the organizations posses the power to price their service or product independent of the other organizations in the value chain.

The other criteria that Kajanto mentions is the possibility of the fragmentation of the value chain. This meaning that given that an organization has a specific part in the value chain structure, then an other organization can supply the previous or the following services. This theory can also be applied to the multimedia business, where different organizations are responsible for different activities, in delivering the final service to the end customer.

As the possibility for fragmentation is a feature of the industry, the ability for a particular organization to position itself directly to the end customer depends on the resources the organization possesses and the activities that the organization performs in the value chain. For example an organization that supplies networking equipment for the Internet Service Providers (ISP) finds it very hard to position itself directly to the end customer, for the ISP charges the customer and not the equipment supplier.
 
 
 

2.1. Value chain of interactive information networks

I will use the value chain framework presented by Kajanto [4]. Kajanto presents a value chain framework for the interactive information networks industry which is valid also in the multimedia industry. We shall now look in detail at the value chain framework and define the boundaries of different activities in the framework. The figure 2 displays the different functions in the value chain. We shall now consider each of the functions separately in more detail.
 
 

2.2. Contents and Communication Origination

Contents can either be published contents or communication contents. Published contents is pre-existing while communications contents is created during the interaction via the information network. An important aspect in the contents is its ability to be virtualised, and thus be able to take advantage of the information network.

It has been argued that the importance of contents will grow in the information networks and due to the transparency of the contents to the network operator, the importance of the network operator will diminish in the value chain. In this paper all forms of contents weather pre-existing or created during the interaction are considered as contents. Examples of contents are video games, music, literature, Internet pages, telephone conversations just to mention.
 

2.3. Content and Service Management

In the content and service management element of the network the content is matched accordingly to the end customers preferences, as well as the content is presented in a way that it can be transferred over the network. The content and service management is a crucial part of the network for much of the customer information is recorded here, meaning preferences and patterns of consumption of contents. Kajanto has split content and service management into three sub elements, I will present them in a similar way. The issue is that clear boundaries can be drawn between the content packaging, information inter mediation, and service access activities.
 

2.3.1 Content Packaging

The organizations in possession of the contents have contents in large varieties. The contents has to be brought to the form in which it will be delivered to the end customer. This is what Kajanto describes as contents packaging. In the contents packaging process the delivery channel has to be taken into account for the content is dependent on the network used and the capabilities of the user terminals.
 

2.3.2 Information Inter mediation

After taking into account the technical restrictions posed by the distribution channel and the packaging of contents the contents is further grouped. Information intermediates act as the middlemen in the network, they have virtual links to the end customer and the contents. They gather information about the preferences of the end customers and customize the contents accordingly to demand.
 

2.3.3. Service Access

The service access is the task of enabling the flow of information between the end customers and the contents providers. The service access is a technical network task of conveying the contents to the end customer by using the physical network. An example of organizations offering service access are the Internet Service Providers.

2.4. Transmission

The transmission is the way the contents is delivered from the contents and service management services to the end customer's access network. The organizations in the transmission business own the transmission infrastructure and switches, or lease this capacity from the infrastructure owners. Infrastructure owners are usually telecommunications operators, who own physical networks, on which is easy to build an information network. Usually the transmission part is invisible to the end customer, which decreases the organizations ability to position itself to the end customer.
 

2.5. End Customer Access

The end customer access is the part of the network that provides the network access to the end customer. This last mile connection can be done with a wireless connection or with a wired connection. It has proved that the wireless connection is a considerable value add factor to the end user, and the organizations providing wireless access to the network have been able to position themselves to the end customer, and had the ability to price their service quite independent of the other organizations in the value chain. Other organizations that provide end customer access apart from cellular operators are local telephone operators and cable television companies.
 

2.6. End Customer Interface

The end customer interface is the terminal equipment that the end customer uses to consume contents. The software used is also an important aspect as is the usability and mobility features of the terminal equipment. Currently personal computers rule the market but smart phones, that have e-mail and Internet browsing capabilities, are still to make their breakthrough to the consumer market.
 

2.7. Infrastructure Equipment and Supply

This part of the value chain consists of the organizations that supply the systems and equipment for the operation and management of the information networks. In this paper I will not focus on this element of the value chain as it is the most invisible part to the end customer. Our focus is on how the ed customer sees the value chain.
 
 
 
 
 

3. The new role of contents owners
 

The aim of this chapter is to explore what are the key drivers in the contents and communications part of the value chain and what are the consequences of these drivers. I will explore how the organizations that own the contents will position themselves to the end customer and what roles the media owners wish to aquire in the value chain.

I will highlight one media company and I will examine this company's strategy in the media industry in the past and into the near future. By doing so I will give a picture of how one of the key players is restructuring its operations to meet the future, where multimedia, Internet and e-commerce have significant importance to this industry.

As a reference I will use Bertlemann, which is a German based media company with annual revenues of $15.2 billion. Bertlemann is the third largest media company after Time Warner and Disney. At Bertlemann it was realized that major growth in the media market will be in the U.S.. The company acquired entertainment companies like RCA records and Arista to form BMG, the Bertlemann music group. Latest acquisitions include Random House, with which Bertlemann became U.S.'s largest trade-book publisher. Now the owner of Bantam, Doubleday, Dell, Knopf imprints and Random House the company is the largest trade-book publisher with a 15% market share [5]. Bertlemann also aims to expand its operations in the music and magazine business and might even move to the TV business in the U.S. market. The TV business is interesting in the sense that Disney has already formed a partnership with ABC, and NBC and CBS might be possible option for Bertlemann to move into the TV business.

Although Bertlemann is very strongly involved in the printing business the company, headed by the newly appointed CEO Thomas Meddelhoff, is moving fast into the e-commerce business. Earlier on the company has aquired shares of AOL and America Online. Latest acts are the partnership with Barnes & Noble, which is hoped to get Bertlemann into e-commerce, despite well behind Amazon.com. Other interesting ventures include stakes in the NuvoMedia, a Palo alto startup that launched its line of electronic books in October.

I have identified that the company, like others, is moving into the e-commerce, but rather contradictory to its competition Bertlemann is strengthening its market share on printed media with new acquisitions. By moving into e-commerce has several advantages: increased revenues, decreased costs and the better use of assets.

It is important to note that the trade book market in the U.S. is not growing at the moment, inf act the total sales of trade books have declined slightly since 1992, but publishers have still been able to protect revenues by increased price [5]. One answer to why Bertlemann has continued to aquire traditional publishing business is that the company believes that the Internet and the adoption of e-commerce will open new markets for book retails. This conclusion has been drawn based on the fact that the company is currently focusing on venture projects like NuvoMedia and partnerships with organizations operating in the high-tech sector.
 
 
 
 
 

4. The new role of Content and Service Management
 

In this chapter I will examine what technical developments are making the role of the content and service management organizations more and more interesting. For the reason that there is much research work being done today in the fields of data presentation languages, agents and software for intelligent networks, I will use this material in this paper. Much of the ideas presented here originate from the Massachusetts Institute of technology Media Laboratory.
 

4.1. Data presentation and query processing

The trend in the future will be to store news and information into large databases, from which it can be retrieved by the end user for his or her particular requirements. What I see as the crucial element in creating value in the content and service management organizations' part is the information inter mediation. This is the part of the value chain where the query processing and the filtering of  the information takes place according to the customer's preferences. The fact is that there is a surplus amount of information available in today's community and people are ready to pay for information that suites their preferences.

Research is being conducted in improving the query and filter procedures but also in defining more powerful knowledge presentation languages. In the MIT Media Lab there is an attempt to define a new powerful knowledge presentation language, that they call FRAMER/Dtypes [6]. The intention of these languages is also to provide a transportation mechanism for message transportation between the information providers, the database, and the end user. We will look at this kind of process in closer detail when we examine the Canard project.
 

4.2. News communities

I see that there are two ways of providing information or news in the future. The options are fully personalized contents according to individual consumer's preferences or the delivery of news that is personalized for different "communities of interest", not for individuals. The first option is more costly for the query processing on the data is done individually for each customer. As in the second case people are divided into different communities according to their preferences. E.g. consumers that have a major interest into football may belong to an other news community than those that are interested in daily politics and the economy. News is then gathered for the individual news communities and delivered to the consumers. The major advantage in defining these communities of interest is price. The cost for query processing and the filtering of the data is divided among many users instead of one.
 

4.3. Fishwrap - an example of personalized news

MIT has started a project that explores the use of personalized news called Fishwrap. Fishwrap is named according to the journalist's proverb: "Yesterday's news wraps today's fish." Fishwrap is an experimental newspaper that provides an egocentric view to the world outside. The user is able to define, through a web browser, his or her individual preferences of which kind of news is interested of. News that are received by the system are first examined for topical or geographical relevancy, meaning that the contents is packaged into certain categories. The user can then define from which categories they wish to receive news from.
 
 

The basic infrastructure of Fishwrap is presented in the picture above (figure 4.1). Glue is what is called the architecture for gathering the news and the dissemination of the news. The open system incorporates the individual user profiles, groups the news into different categories and takes charge of the bookkeeping by keeping information on user statistics. [7]
 
 

4.4. Canard - an example of intelligent multimedia distribution

In this chapter I will consider a continuous project conducted at MIT called Canard. This project highlights in a nice way the development of the use of the information network by embedding intelligent software into the network and the advantages of the use of personal databases. An other reason for presenting this particular project in this paper is that Canard project demonstrates the value creation in the whole multimedia value chain, although the focus of this chapter lies in the contents and service management part of the value chain.

The Canard project's intention is to to help communication of people inside a community. The project is carried out with some forty students at MIT, who all have a full-duplex pager for individual communications. The pager is so small that it is hoped to be carried with the students at most of the time. The pager is used to experiment how the wearable computers will be used and how often in the future. On top of the pager the students have fixed line telephones and e-mail for communication purposes.

The Canard system is a three layer model and the heart of the system is the Canard server where the personal databases are stored. The personal databases store information on the behavior of individual users. We shall now look at the figure below (figure 4.2). On the top of the figure the different sources of information are displayed. This level is considered as the contents origin. Contents can take the form of communications as in the case of telephone calls. What also should be considered by the reader is that, although not implemented in the Canard model, it would be easy for the system also to receive news from media owners in which case the model would act like the Fishwrap model.
 
 

The phone calls, the e-mail and other communication contents that are directed to individuals in the Canard project are passed to the Canard server. The idea is that at the source transcoding level the system exploits to bring the messages e.g. e-mail to a standard form. It message sender, message receiver and the data part are extracted for further processing in the system. In the message evaluation layer the system starts to evaluate the message. It determines how important the message referring to the personal database of the receiving person. So the system checks in the personal database if the receiver has defined any preferences on how and in what time he wishes to receive the message. After the system has evaluated the message the system starts judging on what distribution channel should be used to get the message to the recipient in time. In the personal database the Canard server has stored information on where the recipient of the message is most probably to be reached. E.g. if the latest message or phone call the recipient made was through his mobile phone or the pager, the system judges that the recipient is not reachable by fixed phone, otherwise the recipient would have used the cheaper option. The system decides to send the message to the recipient as an e-mail in the case the message is less important and as a message to the pager if the message is defined as important. The message is now passed to the message transport layer, where the system makes the message compatible with the user interface. E.g. if an e-mail as been received by the system and the system has decided to pass the e-mail to the recipient as a message to his pager, a conversion to the appropriate format has to be conducted.

This chapter's intention was to make the reader aware that the organizations operating in the content and service management have interesting possibilities of positioning themselves to the end customer by using personalisation of information and by embedding intelligent functions in the network for making communication easier for the individual, as in the case of the Canard project. There has been much discussion if it is the contents owners or the network operators that will be able to price their services independently of each other. The general belief is that the contents owners will be the winners in the end as the content becomes very transparent to the network operator, it just runs through their network. But I argue that the organizations that will be in position of the content and service management functions in the value chain will have an extremely strong position. They control the end customer contact after all for the end customer uses the content and service management organization's interface, probably web interface, to define preferences and what services for communication he or she wishes to buy.
 
 
 
 
 

5. Conclusions

The contents owners, such as Bertelsmann, are starting to integrate downwards in the value chain towards the end customer. Due to the powerful position of the largest media owners this is mostly done by acquisitions of high-tech companies. The drivers for the media owners to act this way are that the network can be seen as a threat and an opportunity in the eyes of the media owner. If the media owners do not integrate downwards in the value chain the position of the content and service managers will grow to threaten the profit margin of the media content production business. The efficient utilization of the network is also a great opportunity for the content owners. Due to the fact that the products of the media industry is mostly entirely virtualisable, it can be distributed through the network. This will result in lowered costs but also opens the door for new business possibilities.

The content and service management part in the value chain is of great interest, or should be, for the customer interface is mostly in the possession of these organizations. This means that these organizations have the best possibility to position themselves directly to the end customer. If these organizations control the customer interface, e.g. by offering news and communications services as explained in the Fishwrap and Canard project, then these organizations will have the power to buy the contents from the independent contents owners. This means that the contents like news for example will come a bulk product, it does not matter from which content owner the company buys the news from, it can be ABC, NBC, BBC or CNN.

What is evident is that the smooth operation of all the organizations in the value chain is needed to deliver the services to the end customer at a high quality level and with a competitive price. So in the eyes of the customer it is insignificant if one organization is in possession of the whole value chain or if it is fragmented into many  organizations that have harmonized their operations to deliver the end customer the product in a superior way. What is expected is that organizations now operating in the different roles in the multimedia network value chain will form coalitions, and these coalitions will compete with each other.
 
 
 
 
 

6. References
 

[1] Anon, Executive Summary for UMTS Market Forecast Study, 12.08.1997. < http://www.analysys.co.uk/news/umts/sec0.htm >

[2] Disney, Disney and Infoseek Combine Forces on the Internet, 18.06.1998. <http://www.disney.com/DOL_press_info/Disneycom/All_releases/releases/980618.html>

[3] Porter Michael, The Competitive Advantage, 1990.

[4] Kajanto Markus, Strategic Framework for the Interactive Networks Industry, Acta Polytechnica Scandinavica - series. Ma 81, Helsinki, 1997.

[5] Fortune, Bertlesmann's New Media Man, No. 22, November 23, 1998.

[6] Bender Walter, News in the Future Research, 05.1997.
< http://nif.www.media.mit.edu/research.html >

[7] Chesnais Pascal, Mucklo Matthew, and Sheena Jonathan, The Fishwrap Personalized News System, 01.06.1995.
<http://fishwrap-docs.www.media.mit.edu/docs/dev/CNGlue/cnglue.html>

[8] MIT Media Laboratory, Canard Project, 18.06.1998.
< http://canard.media.mit.edu/Doc/index.html >
 
 
 
 

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