When a keynote speaker at an international TV conference is asked about the future of television, the prettiest, nicest, shortest and most riskless answer he can give is this one: [Chart: Wait and see.] Well, I suppose it's not quite what you expected from a speech about the future of the electronic media in the 21st century. Am I right? OK, give me a second chance. This chart might be a little bit better: [Chart: Wait and see. And listen...]
Because this one gives you at least the impression that you will get answers. We all need them. We all know a lot about the Internet, about new devices and new networks. We are familiar with upgraded cables, DSL phone lines, wireless local loops and UMTS mobile phones. But we sometimes react like a new-born child, when we are asked what new media products will look like, which impact they will have and how they will change our lives.
This is, what my speech is about. By the way: When the MIP-people called me and asked, if I would deliver this speech at MIP TV in Cannes, we had a very bad phone connection. I asked them: "What should I speak about?" They answered: "Television". I understood "Tell-A-Vision". And that's what I'm going to do.
Mesdames et Messieurs,
Ladies and Gentlemen,
the keywords of the media in the 21st century are connectivity, communication, creativity, convenience, communities, customization, (e-)commerce and convergence.
Oh, I forgot. They also told me to make it simple. They said, people come from all over the world, they will be tired, some of them will be jet-lagged and most of them will be exhausted - by the registration procedure. OK, I'll make it simple. All the words I just mentioned start with the letter "C". That should be easy to remember.
Connectivity, communication, creativity, convenience, communities, customization, commerce and convergence. From the point of view of the electronic media, this Century will be: "Century C".
And there are two words, that are even more important and will have the most impact on your professional life in tomorrow's media world. They are "content" and "context".
Why Content? Because Content is King. It was, it is, it will always be.
But the Context will change. Publishing environment will change. The appearance of content will change. Usage of content will change. Production of content will change. The end devices bringing content to our homes will change. The locations, where content is used, will change.
And if you are in content business, you should have in mind that you might only survive if you put your content in a new context.
Imagine you were a newspaper publisher. In this case, your creativity is threatened by at least six of our "c-words".
Let's start with Connectivity.In the United States, the Internet covers already more than 50 % of all households. This is approximately the coverage newspapers have in the target group of younger people. 28 Percent of the American and Canadian Internet users reduced their newspaper and television consumption. On a long-term basis, more Internet connectivity will mean less Newspaper usage. Because people find a lot of the information they need in the web. Without waiting until the next morning, when the news appears in printed form. And nearly all of this content is for free.
One of the key messages of successful business is: Never let your product become a commodity. But that is exactly what is happening now to the newspapers. You might say, reading newspapers is convenient. Yes, that's true. Newspapers are delivered to your home every morning; in technology terms it's a push service. Qualified people gather information for you, evaluate their importance and write commentaries. You can read your newspaper while having breakfast. And you can take it with you, in the bus for example - or to the restroom. But newspapers will lose this advantage of convenience. That happens already now.
If you are looking for a job, you might find it more convenient to search for it in the Internet. If you want to get information about products, you might find it more useful to go to a prize comparison service in the web. If you want to buy used goods, it might be more convenient to visit an auctioning site in the net. And while travelling, it might even be more useful to read the latest news in a mobile device rather than yesterday's news on paper.
Small Messages and the Wireless Application Protocol via mobile phones are only the first steps. In three years from now, you will get most of your news on mobile devices, linked to broadband wireless networks like UMTS. Of course, a mobile device does not have the smell of a newspaper. But nostalgia is nothing I would rely upon. Two thirds of the newspaper revenues come from advertising. It's advertising with only indirect commerce. You can't click on the printed ad, get more information about the product and order it.Thus, E-Commerce is the next threat. In 2005, most electronic advertising will have immediate ordering buttons, something newspapers will never have.
What about customization of daily paper printed newspapers? This would be very difficult to do. But already now, thousands of services in the Internet offer customized news. When I visited the MIT in Cambridge recently, a start-up company presented the progress they made by using electronic inc. In five years from now, you will have a device, that you link to your broadband network. You will get your customized newspaper transferred on it. If you want, you get a new edition every two hours. It looks nearly like paper, you can fold it and you can roll it, but it is an electronic device.
Growing Connectivity, the declining advantage of Convenience, the missing possibilities of E-Commerce and the growing need for Customization weaken the newspapers. In addition to that, it's nearly impossible to build communities around a static newspaper or to add communication features to it. What are the consequences for newspaper publishers? There is only one: Move! Use your content in new contexts! Move faster into the electronic world. Think about the possibilities of wireless transportation. Think about hourly updates, news customization, extending your advertising deals to advertising and e-commerce deals. Use the newspaper as your basic medium, but use your content multiple times.
You will see: most of this applies to the television world, as well.
But let's have a quick look on the challenges in the book and the music business. The book publishing business will surely not be affected by Internet connectivity as dramatically as the newspaper business. But electronic books like those produced by Nuvomedia / Gemstar - the Rocket e-book - and integrated book readers with improved font display - like the Microsoft Reader, which will be launched in some weeks - will play an important role in an environment, where people get more and more used to mobile devices and download information from the net every day.
Have a look on this screenshot from the website of BarnesAndNoble.com. Normally they sell printed books there. They give you information about the format of the book, for example "paperback". In this case they found no better solution than writing "other format". Well, these "other-format-books" can be very successful. Stephen King's "Riding the bullet", the first major book published exclusively in the Web, was downloaded 500.000 times in the first few days after its release. Although the price was moderate and Stephen King is a bestseller author, this number is astonishing. By the way, last week, two hackers broke the encryption code, that is designed to stop more than one customer from having access to each electronic copy sold. Pirated copies were distributed to six web sites and chat groups. Obviously, security aspects are not yet solved.
From the functional point of view, reading books on a mobile device has a lot of disadvantages compared with "the real feeling". Beside features like quick search in the whole text, the only advantage in terms of convenience is, that if you start your holiday, you might decide to download ten or twenty books in one single device. That reduces the weight of your luggage significantly. But, threats come more from the economic side. Electronic books make it possible to publish much easier than before. They make also customized books for small target groups possible. Just put your content on a website, make it available for download, fix a price and you can reach your customer intantaneously. This is cheap and quick. Do you need a publisher for that? No, you don't. All you need are some traffic deals with book portals, which will appear in the Internet very soon. One of the most important dictionaries of the world, the Oxford English Dictionary, recently announced to be published in the Internet only. They stopped the printed version!
I think the survival of books largely depends on the speed of developing e-commerce for books. Which is, we have to admit that, a threat for the bookstores. If you can get the desired book quickly to your home, then E-books will have limited success. The recent "Print on demand"-efforts show that book publishers think in the right direction. A good strategy might be as well to link buying certain physical books with the permission to download the electronic version and the other way around. Thus, you can combine the feeling and the beauty of the traditional book with the additional advantages of the electronic version.
Now listen to the music. Music business changes dramatically. Go, for example, to "napster.com". There you can download a software that enables you to find - in the web - every modern music title you want. You don't have to pay for it. Just download it in some minutes.The trick is, that Napster does not store the music on its website, but only links to people who are actually online and who have stored the desired title on their local harddisks. Thus, Napster only says: "Hey, look, Frank Miller in San Francisco has stored the titled you looked for. Press this button and you can download the music from his harddisk." At two o'clock in the afternoon, that is eight o'clock in the morning New York time, I started the Napster software and searched for the Backstreet boys song "As long as you love me". I found 79 people online who have this song in their computers in mp3-format. Napster even gives me information about the possible connection speed and recommends by green dots, from which harddisk I should download the song. At that time, at two o'clock in the afternoon, there were already so many users logged in into the Napster server that I could find 414.221 songs and download them immediately! If you log in at Napster, your own harddisk is automatically scanned for mp3-Music. Thus, other users can find you and download your music files. But, I have to make a clear statement here. At the bottom line you see my name with the remark "Sharing one song". This, dear representatives of the music industry in this auditorium, was for testing purpose only!
Maybe that Napster.com can be successfully sued. But there are already similar, less obvious technical solutions. And there are, for example, already 50 websites in China offering those services and more than 1.000 websites linking to them. No, you can't stop that. IFPI, the international recording industry association, says that turnover of illegal CD recordings is already 4,5 Billion dollars a year. Can you imagine how this number will grow by illegal downloads through Internet connections? The mp3-Format has a quality that is very hard to distinguish from real CDs. The German Computer magazine "c't" recently made the test. Even the artists themselves could not answer the question whether they just listened to the CD or to the MP3-compressed version, downloaded from the Internet. From the point of view of the music industry, the possibility to download music without paying one cent for it, is an enormous threat.
Connectivity makes music available in digital form. It's convenient, because you don't have to go to a store to buy it. It's customized, because you can get exactly the music you want. As a website, you can build communities around music. And you can offer communication between people. Thus, you use somebody else's assets for establishing a business without cost and without risk. If you are in the music business, you have to react immediately. Don't close your eyes. If you think about broadband networks and the possibility of downloading a song in twenty seconds, if you think about small MP3-Players attached to your Palm Pilot or your mobile phone, if you think about the fact, that the Internet is not regulated and that you will never be able to stop piracy, then you have to come to the conclusion, that your business and your career is in danger.
The only answer can be to offer people more than piracy websites can do. Offer them not only content, but context. Give them a home, where they can get everything around their favorite music groups. Build communities, offer easy-to-use E-Commerce, organize the communication between users. Bring content to the web that nowhere else exists. And then: Build loyalty. Make people stay. Make them come back. Create stickiness.
By the way: It's an interesting and astonishing fact, that most companies believe, being present in the Internet with some sort of E-commerce is all what you have to do. No, it is not. 28 % of all shopping trials fail, says the Boston Consulting Group, for example due to slow and complicated websites. Imagine, you had a real shop and in 28 % of all cases, when customers already found, what they want to buy, you could not sell it because your credit card machine does not work or all cashiers are out for lunch or a fire breaks out. In the Internet you seem not to be impressed by such things.
But you have to keep in mind: E-Commerce is the big opportunity of the century. More than half of the Americans already bought something via the Internet. The average US-Online-Shopper used the Internet for private E-Commerce during the last twelve months ten times and spent 460 Dollars, each. In Europe, in three years from now, E-commerce Business-to-Consumer revenues should reach 55 Billion Euro. Every 10th Euro, spent around Christmas 2003, will be spent via the Internet.
Up to now we saw, that this small little c-words are really threatening a lot of established media businesses. And it's not different for the medium "television".
Do you know enough about the digital video recorders, like Tivo in the US? Well, they are not only VCRs without tapes. They are much more than that. They are the first TV portals. Their place is between the viewer and the broadcaster. Those machines are not only able to eliminate interruption advertising, which is a very dangerous feature for all free TV stations. They are also able to direct the customers to specific content, be it broadcasted or be it cached. If you are a broadcaster, access to your TV-station is not longer direct, but mediated. And: New start-ups can push content to the built-in harddisks, bypassing the whole value-chain of the established players in the media world.
But that is only the first step. Have a look on the new network technologies. All over the world, the television cable will be upgraded during the next three years. The copper cable capacity is extended to 862 MHz, the cluster size is reduced and a return channel is added. Sometimes, cable companies even bring fibre optic cable to people's homes, which has nearly unlimited capacity. Also, phone line capacity will be largely extended. The DSL-technology makes it possible to transform a narrowband medium in a broadband highway. Finally, wireless broadband connections, like "wireless local loop", allow broadband two-way-communication with high speed.
These three new networks make it possible to bring full-screen-videos in real time to the PC and the television set. Connectivity. This means that if you are connected to one of these broadband networks, you as a customer have the possibility to choose films, video clips and all other moving images from video servers individually. Convenience. You are your own program director. It's not broadcast, it's point to point. You choose what you want and you get it immediately. Customization. And all this is linked with an Internet connection. This connection is always on. Thus, while watching television or videos, you can become interactive, get additional information, read your mail, order something, use the buddy list and see, if your friend is watching the same program as you. Convergence, E-Commerce, Communities.
You might think, Bertelsmann is ahead of the time. Well, a little bit. Because broadband networks are just being created. But we want to keep the first mover advantage. By the way: Bertelsmann is a privately owned media company with more than 60,000 employees in over 300 profit centers located in 50 countries worldwide. In the last fiscal year ending June 1999 we generated 15 billion Dollars in revenue and 1 billion Dollars in operating result. 50% of our revenue is made through content. We are the most international media company in the world: Today, 72% of our revenue comes from international markets: The US-market has become our most important market where 35% of our revenues are generated, roughly 28% are generated in our homemarket Germany, while another 29 % come from other European markets than Germany.
Since last Friday, we are partner of Europe's largest Television group, which will be named "RTL Group". Now we are, on a European level, number one in Free TV broadcasting and number one in television content production. Every day, more than 120 Million people watch programs of one of our TV stations. We now control RTL and VOX in Germany, Channel 5 in the U.K. and hold major participations in 22 further TV channels, for example M6 in France, RTL 4 and RTL 5 in the Netherlands and RTL Club in Hungary. Turnover of the group is four billion Euro.
Bertelsmann knows that content is the most valuable asset you can have. The same is true in the Internet world. BOL, BarnesAndNoble.com, Lycos, Evenbetter, Andsold as well as RTL World are examples for the expansion strategy Bertelsmann focusses on. And even leaving AOL is expansion, because the deal with AOL gives us access to millions of customers in the whole world - not only Europe -. By the way, with the AOL deal, we changed Cybercash in real money, which is, believe me, an unexpected, but ultimate experience in the Internet world.
With all these Television channels and production companies on the one hand and all and all our online activities on the other hand, we are - quite naturally - the number one convergence factory in Europe. And we have to be. Nearly all Bertelsmann products can be distributed via broadband connections. No, we start with interactive services, now. And we invite everybody to join us: We are open for content partnerships and alliances. The London-based research company Data Monitor predicts, that in three years from now every fifth household in Europe will use such interactive television services.
However: Broadband is the keyword of the beginning century. In eight years from now, 74 Million households in the US will have broadband access. They will spend 112 Billion Dollars for e-commerce via broadband networks.
The business world reacts with big mergers - like AOL / Time Warner - and high valuations. Broadband is the buzzword for analysts. The broadband internet portal Excite@Home has a market cap of 12 Billion Dollars. Roadrunner's value is estimated between 7 and 12 Billion Dollars. And even companies at the edges of broadband like Akamai and Infospace are valuated between 17 and 19 billion dollars. Should I mention that all of these companies make losses from several million to nearly two billion dollars a year?
But, be careful. Not everything carrying the label "broadband" is real broadband. There are, for example, hundreds of start-ups that try to send moving images via the internet to your home. But the Internet will not be quick during the next five to ten years. We have to keep in mind that the internet is nothing but a jungle of paved and unpaved ways. Therefore it will take a very long time until a screen filling video in television quality can be transported over the internet in real time. It does not matter if from Boston to Sydney or from Cannes to Nice. Trying to get a video in full-screen-quality over the internet will lead to nothing but disappointment. And people will not accept that.
Other companies try to link the Internet to the TV screen via web boxes. But, try these boxes! First, you should move your sofa three metres forward. Then you should check the distance between your telephone plug-in and the television. I can help: In Germany, on average you face seven metres - plus two walls. After having closed your insurance for cable caused broken legs you and your partner should agree, that from now on, there will be no inbound and outbound phone calls in the evenings because the line will always be busy. The next thing you should do is go to the bank in order to get a credit for your tremendous telephone charges. And finally you can start with acrobatic scrolling in websites automatically torn into pieces. And people will not accept that.
Both solutions are workarounds. You have to use the last mile. Only the last mile becomes fast. Some other companies think, it might be sufficient to put videos on the last mile, together with a list and some information about the film. They believe in pure "movies on demand"-services. But the killer application is not "Movies on Demand". No, the killer application is the combination of Information, Communication, Education, Entertainment and Commerce in the same medium. This is "The Broadband Application Pentagon".
This includes movies, but it is much more than that: The computer video when you are interested in computers. The travel video when you want to travel. The fitness video when you want fitness. The erotic video, when..., well you know. In each of these sectors, the combination of videos and service will be decisive. Interactive Television means moving images in a convenient service context.
The Service of the Internet will be combined with the Entertainment of the Television towards a new medium. A medium that looks like Television but works like the Internet. A medium, where users and viewers merge. We could name them "viewsers".
This is convergence, and nothing else.Convergence is NOT having one end-device for everything. And: Convergence is NOT having one network for everything. No, we will use several end devices in parallel: Cell phones, organizers, notebooks, desktops, home servers, PCs and the TV set. And we will use several networks to access services, for example GSM, UMTS, Phonelines, DSL and Cable.
But "Interoperability" will be decisive. I want to read my mail wherever I am, regardless of the end device I use - this is called "unified messaging". I want to have my buddy list anywhere and not only on the PC in my office. I do not need one end device for that, I only need end devices that share common data and communicate with each other, for example via Bluetooth wireless data transmission.
Thus, the TV screen will not replace the PC. But some functions of the PC will be copied to the TV screen and some functions of the TV screen will be copied to the PC.
Well, everybody who thinks now, it might be an interesting new business idea to link some movies to some interaction, should be very careful. Don't try to make a little bit of multimedia. Only a complete service, comparable to AOL in the narrowband world, will work.
For content people like most of you are, interactive Television and Last-Mile-PC-Services, which put the focus on moving images, will bring many opportunities. First of all, you will have more customers than before. Most production companies now sell their content to Television broadcasters. Now, new players come into the market. Program aggregators, syndicators, online services and even the owners of the networks are looking for television program. This means, that if you are a television producer, you can build your own value chain. You can sell your rights several times, provided you did not accept total buy-outs by broadcasters.
The second impact is, that you can now have direct customer relationships. You can sell your content on a per-view-basis and add community, merchandising and e-commerce-features around it. In the same medium, not parallel in the Internet.
Third impact: If you produce special interest content, finally platforms come up that make such content available. Because most of the possible special interest channels, from health to computer, from fashion to travel, would have been too expensive to produce for Free TV. Now, you can put content in a virtual channel.
Finally: What about new formats? Well, yes, new formats will make sense as well. But as everybody here knows, production is very expensive. And we should consider this: The driver for new developments in technology and media has always been the functionality.
Let's take the example of the mobile phone. It was a new functionality that brought the success. You could make and receive phone calls whenever and wherever you wanted. At the beginning, the content remained nearly the same. New services, like small messages or Internet content using the Wireless Application Protocoll emerged later. Take the example of E-Mail. First - all of us used it instead of sending a letter or a fax. Later, special E-Mail services came up, bringing customized news to your desktop. Another example is the DVD. The content is the same you get on video tapes. But the functionality around is decisive: Better image quality, bookmarks, menus. Or take the bookstores in the Internet. You buy the same books that you can buy in a bookshop. But the convenience, the functionality make these electronic shops successful. Thus, the driver in all these cases was not new content, but new context.
And listen to the following: One of the decisive advantages of interactive television is, that you don't block a time slot for broadcasting. This makes libraries more valuable than they already are. Let's assume you have 25 Edgar Wallace-films in your library. It takes you a long time to convince your favourite broadcaster to broadcast them every year in Free TV. But in interactive Television, you can just put them on the server, build service around it, for example some storyboards or links to the real locations in Scotland, and you build your own virtual channel.
By doing this you can accumulate viewers. When I was co-chairman of a television production company and we produced feature films, we were always waiting for the ratings, because we then learnt, if our work reached as many people as we wanted. Now, there is a second chance, a third chance, there are hundreds of chances to make the product accessible.
Thus, use the first opportunity in the broadband age. Many of you think about using the Internet as a second distribution channel. Well, you can do that, but you will have limited success. First of all because low Internet bandwidth means low quality and high last-mile-bandwidth means high quality. I'm not only speaking about technical restriction. I speak about the perception of ideas, atmospheres, feelings and impressions. When Tom Cruise kisses Sharon Stone, you produce emotions. You can't produce those emotions on a 4 times 3 inches picture on a PC screen.
Recently I was asked what consequences these combined TV- and Internet-Services will have for Pay TV broadcasters. I answered, it's an alternative. This was not a very complete answer. Because: If you have a service, that allows you to choose movies, erotic program, sports, music and special interest content whenever you want and - in addition to that - allows you to get information, e-commerce, community features and things like chat and mail in parallel and that allows you to decide yourself, how much you want to spend, then pay channels with fixed programs and fixed prices look rather old. Thus, my recommendation is: If you are a pay TV broadcaster, you should, in two years from now, either be before the point of no return or after the return of investment.
Well, this is the message: Add Connectivity, communication, convenience, communities, customization, and e-commerce to your content! Use the possibilities of convergence! And you will get another "c", the most important one: new Customers.
And my last message is the following: Content needs alliances. You - as publishers - need access to broadband networks. You need affordable and comprehensive end-devices. And you need to know a lot - about the environment of publishing: What are the opportunities? What are the restrictions?
But, in this new world, you have good reasons to be self-confident. People need you. It's a wonderful thing that there are new broadband networks with high bandwidth and high speed. And, it's a great effort to develop them and connect people's homes. And: It's always a miracle how new end-devices emerge. It's a great job to invent them, to make them work, and to bring them to the market. Thus, dear network operators, dear manufacturers: You all do a great job. But, dear network operators, dear manufacturers: You would be nothing without content.
Et c'est pourqoi, à la fin de ce discours, je m'incline devant la créativité de vous tous.
And, that's why, at the end of this speech, I pay tribute to the creativity of everybody here.
Mesdames et Messieurs,
Ladies and Gentlemen,
that is my view of this beginning 21st century. It's the century "C". A century, in which all of us should think not only in terms of content, but also of context. Remember the c-words! Connectivity, communication, creativity, convenience, communities, customization, commerce, convergence - and, of course, Cannes.
I wish you a successful stay!