Anthony J. Pennings, PhD


Online Media Business Models: The Intercontinental Interview

Posted on | June 25, 2011 | No Comments

Recently I was contacted by Stanislav Serdyukov, a second year Master’s program “Media Management” student in Moscow, Russia at the School of Business and Political Journalism at National Research University – Higher School of Economics. He is working on the master’s project with the theme “The Online Media Business Models and their Transformations” and wanted to ask me some questions about online media business models.

Q. What factors cause the origin of new online media business models?

I think the simple answers are technology and customer expectations. Media consumers are busy and they want their content where and when they want it. Digital technology has disrupted traditional media models and the empowered the media consumer – so far. One way to start thinking about this topic is by reflecting on Nielsen’s 3 screen strategy. The venerable ratings agency is now tracking attentive eyeballs on PCs and mobile phones as well as televisions. These viewing options expanded the time and place of viewing media and challenge the traditional media models and in the process they have created a more demanding media customer. Having said that though I think innovation is driving these services, creating new services customers didn’t even know they wanted, creating a “cool” factor when unanticipated new apps, technology and services are released, literally “blowing people’s minds”.

Q. How can online media firms renew their business model in the dynamic media industry?

From the business perspective it’s all about competitive advantage, something that has been hard to obtain in the web world. How can a company create or utilize barriers to entry to keep other companies from competing with them?

It is unfortunate in many ways, but the “app” is a vehicle to reduce competition on the Internet. How many apps do you have on your Droid X? On your iPad? When you are mobile you generally look to reduce your options so the apps are convenient. How many apps do you actually use? Compare that to the links you interact with when you get on your PC or MacBook at home.

Mobile devices are quite small for the web model – physically. How much space do you have smartphone? How small do you want the icons to be? How long is your thumb? The app will capture customers by limiting their options like the web never could. I’m sorry to say.

3. What are the future challenges for the online media business models?

I think money, people making payments, is a real issue. As is a related issue, security. Companies that tie in customers with comfortable payment systems like Amazon and Netflix have real advantages. People love the advantages of e-commerce and the social media aspects of the web, but are extremely wary of identity theft, fraud, malware and other problems that come with giving up personal information and making purchases over the Internet.

All this discussion about “free” is useful too. Free has always been an important model for the broadcast industry in that advertisers picked up the costs of production and distribution. Interesting that Netflix has challenged that model with a subscription model – remember that cable television started off in the US promising an ad-free environment. Now you have pay the subscription fee and suffer the ads. Cable has managed to maintain some key sources of competitive advantage: government protection, customer captivity, and fixed costs such as their huge investments in the network infrastructure. Media industries will have to continue to figure that calculus between ads and subscription prices. The higher the subscription costs, the lower the customer base, and the less interested advertisers will be. Its interesting to the see the New York Times has had some success with their new subscription model but other newspapers may not have the base of high income readers that don’t know how (or care) to clear their cookie cache. Media firms, particularly, news organizations need to come to grips with ads and economics of the Internet.

The “freemium” model is popular now and it makes a lot of sense. Sites build up a large customer base by offering a free service and then offer a premium service at a price. Picture sites are good at this, Flickr provides free storage services to the general public and makes money by offering advanced services to more serious photographers for a price. I noticed Skype is aggressively trying to move people into the premium paid services after their purchase by Microsoft last month as is Linkedin, after its recent IPO. Another strategy is to offer something free and then sell other products to produce a revenue stream., another picture site, makes money by selling products like coffee cups, mousepads, and refrigerator magnets customized with user images along with traditional images used for framing.

4. What online media business models will be efficient during next five years?

Content continues to be overrated. Anytime you can get someone else to produce your content you are ahead of the game. Content is expensive and extremely interchangeable. Digital cameras, mobile camcorders are providing a lot of useful “user-generated” content and of course anytime you do a search you are producing statistical content that companies like Google are increasingly able to monetize. Just because you are not paying for something, it doesn’t mean someone is not making money from your online activities.

Syndication is also an important dynamic to consider. The process has been around for awhile. Think cartoons in your local paper. But it is particularly effective in an online environment. Think RSS feeds. Syndication is basically selling the same thing again and again. Hard to do with a car and hamburgers but possible with digital processes and products where the costs of reproduction and distribution are nil.

It’s hard to think 5 years into the future, but it’s clear one trend is that consumers are putting the ‘commune” back into communication. I’m talking about social media here. This is working itself out in three ways. One is that they want to interact with content, question it, explore it further, and add to it. Shopping is a much richer experience now due to all the information and reviews you can access online. Much better in many cases than dealing with a pushy salesperson, if you can track one down. Second, consumers want to share the media content with others. By sharing they express themselves and construct an identity. Facebook as been great for this. People are sharing their intimate photos, revealing their links with other people, and attaching media content that they find interesting. Mimetic desire is an important factor here. That is a theory of desire that recognizes that people develop interests based on the interests of people they are interested in. Third, they want to connect with people who share the same interest and interact with them. Whether it is organized around a football team, a pop singer, or a political cause, people are interested in being part of a community that shares the same meanings, goals, and values.


Anthony J. Pennings, PhD has been on the NYU faculty since 2001 teaching digital media, information systems management, and global communications. © ALL RIGHTS RESERVED


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