The signatories to this Memorandum of Understanding, declaring their common intention to participate in the concerted Action referred to above and described in the Technical Annex to the Memorandum, have reached the following understanding:

1. The Action will be carried out in accordance with the provisions of the document COST 400/94, Rules and Procedures for implementing COST Actions, the contents of which are fully known to the Signatories.
2. The main objective of the Action is to develop knowledge in order to understand the various changes that mass media industries are undergoing now, and will in the future undergo, as a result of the development of the Internet.
3. The overall cost of the activities carried out under the Action has been estimated, on the basis of information available during the planning of the Action, at EUR 3,4 million in 2000 prices.
4. The Memorandum of Understanding will take effect on being signed by at least five Signatories.
5. The Memorandum of Understanding will remain in force for a period of three years, unless the duration of the Action is modified according to the provisions of Chapter 6 of the document referred to in Point 1 above.

Technical Annex

COST Action A20 "THE IMPACT OF THE INTERNET ON THE MASS MEDIA IN EUROPE"

A. Background

The aim of this proposal is to establish a wide European network of researchers investigating the impact of the Internet on mass media industries.

The coming together of telecommunications, computing and the media, usually termed "convergence", is one of the central issues of contemporary society. The range of questions involved in this process is enormous, covering as it does technical issues, business models, social changes, working practices, legal regulation, and a host of other things. The primary focus of this proposed network is upon the micro-economic impact of the Internet on the media. The vast majority of the mass media in Europe today are run as businesses. Even those whose primary source of revenue is from some sort of subsidy, for example the BBC, are obliged both to demonstrate that they operate, as far as possible, according to established business principles, and to take any opportunity that presents itself to develop their commercial activities. We are interested in what effects the development of the Internet has for these business operations.

Taking such a narrow and defined focus on the ways in which the media attempt to ensure their continued viability in a changed technical and economics environment provides a mechanism by which the diverse media we intend to investigate can be held together. It is one important characteristic of the "internet space" that previously separate and distinct areas of activity, in this case different media, are brought into new relationships and forced to engage in the common task of discovering new methods of operation. It is our intention to look at the kinds of business models that are utilised by the existing media, to examine those being developed by the new media based in the Internet, and to see how far these affect each other.

It is in the nature of commercial media that, unless they can find business models that allow an adequate return on capital, they will be unable to fulfil any of the other functions of social integration, democratic empowerment, public education, popular entertainment, or whatever, with which they are associated. All changes to the business model of the press or broadcasting have implications for their ability to function as the main sources of culture and political life in contemporary society. While the starting point of our study is therefore quite specific, we intend to track the implications of the developments we study through in their impact on the range of functions discharged by the media.

Although the Internet has only recently become a widespread phenomenon, it has already had a major impact on the existing media. The music industry, in particular, is concerned that any move to Internet distribution will enhance the already serious problems of piracy, and is investing substantial amounts of time and money in attempting to find means of enforcing copyright in this field. Other media have been very quick to develop a position on the Internet, and to adapt their content for distribution in that medium. One measure of the scope for this research network can be gleaned from Table One, which summarises the number of online media in Europe at the time of writing this proposal.

The European dimension

This network will contribute to European integration and cohesion in a number of significant ways. It is well known that the USA is, overall, most advanced in the use of these technologies, and that European businesses, governments, and the European Union itself, face a major challenge from across the Atlantic. Most of Europe lags some way behind the USA, but the continent is not completely out of the running. Overall, seven out of the ten most densely connected countries are European.

Within Europe, the experience is extremely uneven. Some countries, Finland for example, are world leaders in connectivity. The Nordic countries generally have very high penetration and usage rates for the Internet, while other parts of the continent are only now starting to enter the field. Not all of the societies with high levels of connectivity are in the richest western and northern parts of the continent: Estonia and Slovenia are both highly "wired" societies, ranking high in number of hosts per head of the population. The first priority of the network will be to share the experiences from different countries in order to identify the main drivers and obstacles to the migration of the media online. In doing that, the network will act to disseminate best practice in research, and facilitate cultural exchanges between participants from widely different backgrounds.

European conditions are, in important respects, different from elsewhere, particularly the USA, and it is important to provide a forum in which the different national enquiries can be brought together. There are important common features of the European media landscape that are absent elsewhere. In contrast to the USA, for example, the European press tends to exist in a competitive environment, and broadcasting is often regulated, and sometimes financed, by the state. Media consumption in Europe is mostly organised along national lines. While the continent is a large and relatively rich media market, it is much more internally divided by language, politics, habit and tradition than is that of the USA. It is therefore essential that these specifically European developments be analysed and understood.

The Internet is a global technology that does not respect the boundaries of geography and politics. The existing media, on the other hand, are deeply rooted in the historical development of particular societies, and are differently inflected according to the geographical, social, economic, political and cultural traditions in which they have evolved. It is therefore important for all of the participants to be able to compare their own, very specific, national findings with the experiences of other countries. It is only through this kind of comparative analysis that it will be possible to determine what, if any, are the general and common features of these changes, and what are the result of peculiar local conditions.

As European integration develops, there is increasing concern about the competitive position of Europe with regard to other economic actors. One function of the Internet, particularly with regard to the media, is to open European markets to competition previously excluded on grounds of time and distance. It is important to analyse how far European media products are able to compete in this new environment.

The advantages of using the Cost framework for this research

COST provides the best framework for this proposal primarily because of its open and flexible structure. This is an extremely new field of work, and no one individual, or even group of scholars, can claim to have a comprehensive view of the research work being done across the continent. While researchers from a range of countries worked to develop this proposal, there are extremely important absences from the experience that has been drawn upon. Other European programmes lack the necessary flexibility to respond to these conditions of uncertainty. The EU's Fifth Framework, for example, requires a high level of co-ordination between pre-determined participants before a substantial bid can be made. The COST mechanism, uniquely, allows countries to add themselves to the network, provided that they find the subject valuable, and can identify suitable researchers in their own national context. This provides the ideal mechanism to ensure that the widest possible range of participants can be drawn into this project.

A number of other European initiatives address the impact of the Internet, and are concerned with areas that border those defined in this proposal. Two notable initiatives are the EC's Fifth Framework and the ESF's Programme on "Changing Media - Changing Europe". Both of the other initiatives are concerned with large-scale issues and each has a different focus to this proposed network. The Fifth Framework mainly considers the mass media from the point of view of governance: the Key Action on "Improving the socio-economic knowledge base" (IHP-KA1-00-1), for example, has as one of its two objectives "to involve European citizens more actively in shaping their own futures". The results of our research will feed in to this aim, but our network is primarily concerned with the level of discrete businesses rather than these overall socio-political issues. The ESF Programme identifies issues about the impact of the Internet on "the gap between social groups and classes" and asks "how will this influence democracy and the political system?" The extremely broad sweep of the ESF Programme comes closest to our concerns when it speaks of the fact that "the political economy dimension of media research is concerned with the relationship of the media to the operation of power and the distribution of material resources in society". The kinds of more detailed analyses of micro-economic changes we propose are a necessary supplement to their more general considerations. One of the people who worked to develop this proposal, and who is a potential participant, is also convenor of the ESF working group on "Culture and Commerce" whose concerns are closest to those of envisaged network. She writes that: "The COST project has different research objectives to the ESF programme. The latter is concerned with macro-scale issues. All media are involved, traditional as well as new media. The ESF project focuses on a wide range of topics: media policy on a national and EC level, concentration and media competition, the overall impact of information and communication technology, changing patterns of media consumption, reception analysis, cultural identity, media imperialism, as well as issues of media and gender. The ESF researchers include communication scholars but also a large contingent from the humanities, and the project thus gives a great deal of attention to the qualitative, semiotic analysis of media messages and to the field of cultural studies. The COST proposal, on the other hand, focuses much more on the economic role of the Internet". In the opinion of this close and expert observer, the proposed COST network will not overlap with the ESF project. Overall, it will complement and extend the work of both these other programmes.

B. Objectives and benefits

The main objective of the network is to develop knowledge in order to understand the various changes that mass media industries are undergoing now, and will undergo in the future as a result of the development of the Internet. That objective breaks down into several distinct tasks:

• A theoretical dimension, involving understanding the nature of the impact of the Internet on the media and the ways in which it is developing. Among other things, this involves an analysis both of the ways in which existing media content can be re-purposed for exploitation on the Internet and of the new kinds of content that are facilitated by technological developments.
• An analysis of the concrete changes to the business models of different media enterprises because of the shifting competitive environment and their attempts to respond to it. New competitors may enter the market as a result of technical changes and mergers or alliances may be developed in order to respond to such changes. The terms of competition themselves may change in different environments, or because of the possibility of entering multiple markets opened by new technologies.
• Investigation of competition and regulatory issues that arise from changing market structures and from the mergers and alliances formed to respond to the new competitive environment.
• An analysis of successful and failed business models, and an attempt to understand the general features that result in different outcomes.
• A consideration of the changes in the kinds of media content resulting from the changes to the competitive environment. In particular, an analysis will be made of the ways in which the overall nature of the content available to the consumer and citizen differs between the online and offline world.

This proposal concerns a network designed primarily for social scientific research. However, it is possible to identify a range of more general social and economic benefits that can be developed out of that scholarly intention:

1. Detailed scientific knowledge of the European dimensions of an important social phenomenon will have been generated, which will provide the basis for further research, teaching and exploitation.
2. Members of the network with educational duties will be assisted in the development of teaching materials for a new generation of businessmen and media workers, of who will work in the further development of the media industries under investigation.
3. The results of the research will feed back into the practices of the media industries themselves through written dissemination and consultancy work undertaken by those of the participants who have such opportunities.
4. The results of the research will act to inform national and European legislators as they continue to develop a regulatory environment appropriate to the developing "new economy".

C. Scientific programme

The scientific work of the network will be to investigate in each participating country how media companies respond to the business challenges thrown up by the Internet. Despite the relative novelty of the phenomenon, it is clear that the Internet alters the existing processes of production and distribution, and thus impacts on the business models of the established media, in at least the following ways:

• Delivery through the Internet entails a common technology. Existing media have sharply differentiated delivery technologies. All content on the Internet is in digital form and it is, to date, mostly transmitted by wired means, although it will increasingly use wireless technologies for some functions. Reception today is usually through the personal computer, although the television set, the mobile telephone and the games console are likely increasingly to be used for some functions.
• Production and distribution on the Internet lowers entry barriers for some media. On the Internet, while the costs of producing the symbolic content remain, and perhaps even increase, the distribution costs are much smaller, since there are no printing, licensing or transport or transmission expenses. While it is necessary to have space on a server for the content, the customers generally pay for the connection charges, and purchase the reception equipment themselves.
• Delivery through the Internet erodes established patterns of media consumption. Existing media are consumed according to patterns of social behaviour that are embedded in daily routines. The main form of consumption of the Internet, at least at present, is integrated into patterns of computer usage, at home, at work, or at both. These are primary activities, and usually solitary. Consumption is not bound by time. It is thus a much less patterned activity and can thus encroach on the time budgets devoted to other media.
• The Internet also erodes advantages based on physical space. Most existing media circulate within strictly defined areas. The Internet is, by design, a technology indifferent to geography, either physical or political. Publishing on the Internet is thus not constrained to a particular physical place: output is available anywhere in the world where there is a telephone line and a suitable computer.
• The Internet erodes advantages based on time of production and distribution. The offline media are all geared to particular windows of distribution. For Internet based productions, there is no "time of publication" that must be the same for all parts of the product. News services on the Internet, for example, are thus able to continuously update their offerings in ways that were previously available to broadcasters but not to newspapers.
• The Internet is a competitor for revenue streams. The traditional mass media have three sources of income. The first is subsidies, usually in the form of licence fees for broadcasters but also in some countries in the form of payments or allowances to the press, or specially selected sections of it. The second is subscription, whether in the form of payment for a newspaper or a restricted television outlet. The third is advertising, which to date is the dominant form of revenue for both broadcasters and the press. At least in this stage of its development, the Internet is not a serious competitor for subscription-based services, outside of very specialised areas like financial news and pornography. The main area where the Internet competes directly with the established media is as an outlet for advertising revenues. Not only do online media products compete with offline media for advertising, but also there are Internet-specific operations that are designed as vehicles for various kinds of advertising. While the total amount of online advertising expenditure is small at present, it is growing rapidly, and in some areas, notably classified advertising, already poses a threat to the local press, which has traditionally relied very heavily on this for revenues.
• The Internet allows the disaggregation of editorial and advertising material. The Internet, with its searchable nature, allows the separation of these two different aspects of media content. It is no longer necessary for the reader to be exposed to the advertising message in order to gain access to editorial material, nor is it necessary to be exposed to editorial material in order to gain access to advertising.
• The Internet provides channels whereby both news sources and advertisers can develop direct relations with readers and customers. The pressing needs that brought together a mass public and the mass media in the offline world no longer apply online.
• The Internet erodes the boundaries between editorial, advertising and transactional activities. In the offline media, there has developed a range of conventions that distinguish editorial content from advertising material. These conventions do not yet exist within the online world, and there are strong grounds for believing that the direction of development for online media is such that they may never evolve. Not only will the distinction between editorial and advertising material probably be less visible than in the offline world, but also there will be a tendency to link both of these with directly transactional material encouraging, for example, the purchase of goods.

It is therefore possible to say, even at this very early stage, that most, if not all, of the foundations of the existing offline business models in the media have been brought into question by these developments. In exploring the consequences, the network will attempt to answer the following main research questions:

What are the business models of the current media?

How do these influence the kinds of content available?

What business models are available for online media?

What kinds of content are appropriate to these models?

What business models are available for hybrid media with both offline and online operations?

What kinds of content would such hybrid models require?

What will be the outcomes in a competitive marketplace that contains pure offline, pure public?

In order to take account of the different impact that the Internet has on different media, the work of the network can be subdivided into three distinguishable areas:

1. The newspaper and magazine press
2. The television, cinema and video industries
3. The radio and music industries

The division into these three main groupings is based partly on the predominant type of content in different media and partly on the consequent demands placed on the available delivery technologies. The television, cinema and video industries normally trade in audio-visual content and this kind of material requires either high bandwidth or a powerful compression technology to make its online marketing viable. The music industry and radio broadcasting have predominantly audio content, most often of a musical nature. They require either medium bandwidth or reasonably powerful compression technologies. Newspapers and magazines deal with textual and visual material, albeit in various different ways. They make relatively light demands on either bandwidth or compression.

D. Organisation and timetable

The network will be established for 3 years. The Internet is a rapidly developing phenomenon, and there will have been many important changes in the object of study by then. It is extremely unlikely that the issues considered by this network will by that time have reached a stable state. The changes in the object of study, however, will be so great that it will be necessary to refocus any research effort to take account of them.

The network will begin with a general conference of participating researchers. The aim is to review the existing state of knowledge with regard to the range of problems we wish to investigate. Participants in the network will bring to that meeting the results of any prior research in the field that they have completed, reports of ongoing work, and plans and proposals for the future. The conference will help to establish a common research climate for the network and assist participants in familiarising themselves with their co-workers.

The ongoing work of the network will be organised in work groups, each of which should meet twice per year, and maintain frequent contact through E-mail. There will be three work groups established, but their success is conditional on finding a range of interested participants. As explained above, it is envisaged that there will be the following groups

1. The newspaper press and magazine press
2. The television, cinema and video industries
3. The radio and music industries

The work groups will have the task circulating the findings of their members' own research and of keeping abreast of the published material, both scholarly and professional, on developments in their field. At their meetings they will:

1. Report on important national developments in the online and offline provision of news and entertainment in different countries and compare the different developments.
2. Examine how far there are viable business models emerging for the online media, particularly through an examination of the success or otherwise of these media in attracting advertising revenue and commanding subscription income.
3. Examine the impact of the development of online media on the offline media. In particular, there will be a comparison of the extent to which the pairing of online and offline offerings of the same media product constituted an alternative to the pure online/pure offline businesses.
4. Analyse the impact of these developments on the provision of different kinds of media content, both in terms of subject matter and in terms of diversity of ownership and viewpoint.

The entire network will meet at the end of each year's work in order to bring together the specific studies undertaken by the work groups and attempt to generalise from their detailed findings in order to understand the overall picture in Europe. The final conference will be planned as an open public event to assist in the dissemination of the findings. The overall outline of the programme is presented in Figure One (appended).

E. Economic dimension

Researcher from the following COST countries have actively participated in the preparation of the Action or otherwise indicated their interest in membership of this Action:

Austria
Belgium
Czech Republic
Estonia
Finland
France
Greece
Hungary
Ireland
Netherlands
Norway
Slovenia
Spain
Switzerland
United Kingdom (proposing country)

On the basis of national estimates provided by the representatives of those countries, and taking into account the co-ordination costs to be covered by the COST budget of the European Commission, the overall cost of the activities carried out under the Action has been very provisionally estimated, at EUR 3,4 million, in 2000 prices.

F. Dissemination plan

The intention is to make the findings of the network available as widely as possible, both to the scholarly community and to the various branches of industry to which they apply. Since many of the participants already have quite close links with the industries in question, often in the role of consultant, it is envisaged that dissemination will be concerned both with the academic and the commercial aspects of the findings. The following dissemination activities will be undertaken:

1. Establishing a public web site upon which materials produced by the network can be easily accessed, and where debates over their content can be conducted.
2. Producing working papers on all of these issues, and their publication online.
3. Producing scholarly articles on the results of research and their placement in learned journals, for example the new journal devoted to issues of new technology and society published by Sage.
4. Organising a special issue of the scholarly journal Javnost/The Public , which has published extensive material on related issues in the past, dedicated to the first substantial findings of the research.
5. Inviting interested parties from academic institutions and the industry to attend meetings of the working groups and conference, and to make the final conference of the network a public forum for the discussion of the findings.
6. In the long term, the aim would be to produce a volume of essays bringing together the overall results.

It is likely that this body of international expertise will also be useful outside of the purely academic arena, in the field of consulting and professional advice. It is in the nature of rapidly changing fields, in which the established norms of business life are constantly changing, that they need, and usually welcome, the kinds of inputs that can be provided by researchers who are engaged in comparative studies.