DRIVERS OF CHANGE IN THE MEDIA ENVIRONMENT

Five decisive trends are driving changes in the media environment and forcing media companies to change their thinking and operations: media abundance, audience fragmentation and polarization, product portfolio development, the eroding strength of media companies, and a overall power shift in the communications process.

Abundance is seen in the dramatic rise in media types and units of media. The growth of media supply is far exceeding the growth of consumption in both temporal and monetary terms. The average number of pages in newspapers tripled in the twentieth century; the number of over-the-air television channels quadrupled since 1960s--supplemented by an average of about fifty-six cable channels in the average home; there are four times as many magazines available as in 1970s; 1.5 million new web pages are created daily, and created and stored knowledge (as measured by information scientists) is growing at a rate of 30 percent a year. We used to think of competition among newspapers or competition among television channels, but this media abundance has created competition not only among media but also competition between media and other leisure time activities such as sports, concerts, and socializing at cafes and bars.

The abundance has created fragmentation and polarization of the audience because people are spreading their media use across more channels, books, magazines, and websites. This produces extremes of use and nonuse among available channels and titles. In television, for example, there is a tendency for individuals to focus most use on three or four channels. Increasing channel availability does not create an equal amount of increased use. For example, if twenty channels are received in a household, the average viewed is five. When fifty channels are received, the average rises to twelve, and if one hundred channels are received, the average viewed by all members of the household is only sixteen. Advertisers understand this development and have responded by spreading their expenditures and paying less for smaller audiences. The audience-use changes mean that competition is no longer institutionally and structurally defined but is being defined by the time and money audiences/consumers spend with media, and the competitive focus is now on the attention economy and the experience economy.

The difficulties faced by individual units of media have led media companies to create and operate portfolios of media products. This response occurs because declining average return per unit makes owning a single media product problematic. The portfolios are efforts to reduce risk and obtain economies of scale and scope. These portfolios can increase return if they involve efficient operations and joint cost savings.

Despite the growth of portfolios and large media companies, the strength of the companies is eroding. Today no basic media content companies are in the top one hundred companies in the United States or in the top five hundred worldwide. Moreover, the reach of media companies is declining, even though they have grown bigger. Each has less of the viewers’, readers’, and listeners’ attention than in the past, and their difficult strategic position concerns many investors. As a result, media companies are struggling with their major investors, and all major media companies fear they may become takeover targets.

Underscoring all of this is a fundamental power shift in communications. The media space was previously controlled by media companies; today, however, consumers are gaining control of what has now become a demand rather than supply market. And media consumers are not merely content to be passive receivers any longer, many are now participating in production through the variety of forms of interactive and user generated content. This shift is apparent in the financing of contemporary initiatives in cable and satellite, TV and radio, audio and video downloading, digital television, and mobile media, which is based on a consumer payment model. Today, for every dollar spent on media worldwide by advertisers, consumers spend three. In the U.S., that ratio is 1 to 7.

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 the firms. The need for media managers to perceive, understand, and adjust to the new conditions increases daily because such changes can lead to failure of both existing and new products and, ultimately, lead to the loss of value or collapse of firms.