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11/21/1999 7:00 PM Eastern

The digital transition is moving forward with unprecedented
force. Within 10 years, commerce will have merged its pre-digital and digital business
models into a seamless view of the way business is done. Commerce via electronic means
will not be "e" -- it will just be.

Looking at the trends that will shape the entertainment and
media industries as we head toward 2005 and beyond, we see a series of paradoxical trends
that will shape these industries.

The path to the future has multiple forks. We have
characterized these forks in the road as paradoxes. The resolution of these paradoxes will
define the future environment for entertainment and media companies.

While we cannot predict which paths the masses will take,
we can show you some of the places where the road will branch. The following paradoxes
will determine the future of the entertainment and media industries:

Today's content engines will not have the steam to drive
future growth. Whether you consider entertainment and media
the main event or just a sideshow on the Internet, it is the technology providers that are
scooping up the admission fees. It is not as evident that "pure" content
producers will enjoy the same largesse.

Growth engines of the future will blend content and
technology, rather than relying on one or the other. Content produced must become integral
to experiencing the technology. Few of today's content engines meet this criterion.

Profits will be generated before and during content
creation, not after. It will become impossible to fully
control distribution of intellectual property after its Internet debut. This will be more
obvious as broadband capacity becomes available.

As the ability to mount long-term defenses for copyrighted
material diminishes, the need for speedy exploitation will increase. In the decade ahead,
the first bite of the apple may be the only "byte" content companies get. New
strategies are required to make the most from the initial release of new products.

It's going to be a clicks-and-mortar andbricks-and-modem
world. The demise of physical retailing has been prematurely predicted. Physical sales and
distribution models are being rapidly realigned to co-opt virtual sales and distribution
models. Entertainment and media companies will need legs in both the virtual and physical
worlds for a long time to come. Content providers should avoid alienating either side of
the retail divide to maintain the broadest possible access to markets.

Data-transport capacity will set the boundaries for content
exploitation. The least-respected element of the digital
delivery chain -- data transport -- will remain the bedrock upon which the riches of the
digital universe will be built. However, increases in telecommunications capacity will lag
behind data-transport demand for decades to come.

Even as telecommunications networks become more robust, the
full power of the digital universe will only be realized when every individual on earth is
networked with smart personal devices and data-transmission capabilities. Content
providers cannot afford to play the connectivity game, nor can they afford to ignore it.

Convergence will occur in industry, but not in the home. Technology makers have too much at stake to throw in the towel on
the concept of proprietary consumer devices. Could a multifunction device be made to
handle all digital-content processing in the home? Yes. Will it be made? No.

For content producers, the parade of divisive devices
creates continuing revenue opportunities. It also jeopardizes profitability, as content
producers end up absorbing the research-and-development costs to define what will work.
Content producers need to find ways to share the risk of content creation with those
making consumer contraptions.

The relationship between media and consumers turns
topsy-turvy. The word "consumer" is an antiquated
term from the make-and-sell economy. In the future, there will not be consumers, but
rather "experiencers."

Gone are the days of giving a passive audience what you
want them to consume. Experiencers of the future will participate in the shaping of what
they buy. Who are the makers and who are the consumers? You must know your customers and
facilitate their experiences. If you don't, they will help themselves. Content won't be
king; customers will.

Global companies need to run more locally to win worldwide. If the race to globalize enterprise is a race to create global
markets, then the entertainment and media conglomerates are already behind. Entertainment
and media products are inherently expressions of local culture. "Local"
enterprises have gained important footholds in the developing economies. As these
economies grow, the share of media and entertainment products controlled by major
conglomerates will most likely decline.

The challenge for global entertainment and media companies
is to hold market share in commercially developed markets, while still expanding demand in
the less-developed markets. Don't colonize -- localize.

We believe that in the end, profitable performance, and not
speculation, will matter most. Paradox is intriguing, but how does it relate to real
businesses today?

Most CEOs don't have time to stare into the future. It is a
luxury reserved for those who don't have to deliver bottom-line results. Still, no CEO can
ignore what's to come. Taking a reasonable stake in the future, while continuing to run
your business day-to-day, is the exacting balancing act a successful CEO must achieve.

What to do next is typically harder to determine than what
to do in five years. The road to the future has many twists and possible outcomes.
Companies that understand the decision forks along the way -- and that take the right ones
-- will be players in the rich digital tomorrow.

Saul J. Berman is managing partner, strategic change and
Bennett E. McClellan is director at PricewaterhouseCoopers' Entertainment & Media
Practice.

September