The Strategic Role of Communication Standards for Media Companies

Standards setting has gone from being a technical concern for individual companies to being a factor with important strategic implications for cooperation and competition among market players. The strategic issues raised by this development include the formation of competitive advantages by promoting standards or preventing their diffusion. In Sect. 1 of this chapter, we discuss the economic interpretation of standards from a descriptive perspective by drawing on the closely related issue of positive network effects, which induce a self-enhancing cycle and lead to a widespread adoption of the standard. In Sect. 2, we highlight standards setting as a competitive weapon for media companies. Standards act not only as a precondition for compatibility across technologies and systems, but can also be used to generate incompatibility and customer lock-in effects. Thus, we examine standardization strategies and tactics for horizontal competitors in the digital media industry. In Sect. 3, we view standards as a strategic instrument for cost reduction in media companies by describing a normative decision model for the economic selection of standards, referred to as the standardization problem.