g., the fax machine example), it is in the user’s best interest to be part of the network with the largest installed base. S ince it is difficult to coordinate a collective switch to a new platform, it is risky for an individual user to give up the positive externalities associated with the current network. T hus, in the presence of strong network effects, most users will not change platforms. P latform Differentiation Differences in consumer preferences also influence how the market will evolve.
I f most users have homogenous needs and there is minimal variation between different platforms, then the majority of consumers will choose the dominant product. T his outcome can be seen with online search engines. M ost users in that particular market have similar goals: to find the most relevant information in the least amount of time. S
ince each search engine platform attempts to deliver a similar «good,» the one with the most accurate results will prevail. Thus, when the value of standardization is greater than the value of variety, a winner-take-all market becomes more likely.
III.
It was evident to everyone that the online video market was going to keep growing but that the market dynamics were rapidly changing. YouTube was quickly going from friend to foe for many of the content providers yet continuing to attract much of the online video users. With ail of the recent industry changes, CBS knew that it had to reassess its online video strategy in order to stay competitive in this challenging environment. CBS’s options could be simplified to three broad choices:
1. A clear option for CES was to continue with its current online video strategy. W hile their broadcast competitors were busy signing exclusive deals or working with a few big-name partners, CBS was choosing to distribute its content as widely as possible. T heir current tactic focused on the CBS Interactive-a collection of four internet sites (CBS.com which included innertube, CBSNews.com, CBSSportsLine.com, and TheShowBizz.com), which collectively received approximately 22 million unique visitors per month. T hese sites generated revenue via advertising and sponsorships as well as from subscriptions and e-commerce. S
ome CBS programming content was made available through non-CBS internet sites, e.g. AOL News Channel, YouTube (since October 2006), and sorne programming was available for purchase via Apple’s iTunes store (since June 2006) and the Google Video Store. Clips and programming had also been made available through Comcast’s on-demand cable service and through various mobile phone services."
2. Another option that CBS had was to join the NBC and Fox joint venture. The joint venture would provide CBS the potential to distribute content on the main JV website as well as on four major web portals. It would also allow CBS to enjoy a potentially greater share of the advertising revenue than offered by YouTube, high-quality video display. and greater copyright protection.
3. Another viable option for CBS was to push for a deal with YouTube. Even subsequent to the Viacom lawsuit and complaints regarding the legality and quality of its content, YouTube was still drawing a huge volume of traffic. According to analysts at Hitwise, a leading online competitive intelligence service, YouTube’s market share in US. visits remained over 55% in March of 2007;the month following both the lawsuit and the joint venture announcement. In fact, YouTube observed a 14% spike in traffic when Viacom released take-down orders. Instead of weakening YouTube, recent events seemed to confirm the strength and attractiveness of YouTube’s network.
Due to the decrease in TV viewing over the past years and the emergence of the new web videos which increased the demand in online viewing, CBS felt pressure to perform on both their TV and web-based networks to keep up with the market competition.
General E1ectric Company, Form 10-K, February 27, 2007 (for previous year) and GE Fact Sheet for NBC Universal.
Walt Disney Company Fact Book 2006.
News Corporation Annual Report 2006
