On-demand Media

Studying the link economy

Jeff Jarvis is launching "an ambitious research project" to study what he has elsewhere called the link economy. He has penned an opening set of questions and hypotheses and issued a call for feedback.

I think this is spot-on. The issues Jeff is exploring have interested me for a long time (see e.g. this and this and this), and I think understanding them will be increasingly important for media strategy. So here are some contributing thoughts.

Jeff posits:

There are two creations of value in media online: the creation of content and the creation of a public – an audience – for that public. Online, content with no links to it has no value because it has no audience. It gains value as it gains links. Thus something of worth is created on each side of a click. […]

What is that value? Well, of course, that is impossible to calculate precisely; there are too many variables.

Let's start by clarifying what we mean by "value" here. In purely economic terms, something is valuable when someone is prepared to pay you for it, and its value is how much you can get paid for it. The "something" here is a user experience: a reader following a link in one site and reading an article in another.

Before I go on, let me narrow the discussion somewhat. Jeff is interested in the general relationship between any two sites connected by a hyperlink. I want to focus on a specific case of this: that of an aggregator linking to a publisher. By "aggregator" I mean a site whose main role is to curate other people's content: this could be the Drudge Report, the Huffington Post (or parts of it), Google News, your Facebook feed or your Twitter feed. And a "publisher" is a site which whose main role, at least for our user, is to provide content. It doesn't matter if the site also curates its own (or other people's) content; for the user experience we are talking about that is irrelevant. 

With that, the beneficiaries of our click-through are:

• The reader, who gets value from being sent to the right content in the right context. The value is the amount that the reader would be willing to pay if there were no alternatives.
• The publisher, who gets to advertise to the reader.
• The aggregator, who also gets to advertise.

Sum up the three things up and you have the value of this user experience – probably in the order of a cent or two.

New business models can use three strategies:

• Growing the pie by making the link-following experience more valuable to one or more of its three beneficiaries
• Re-slicing the pie so that the split in the value received by the parties changes
• Capturing some of the value that today readers get to enjoy, by making them pay (strictly this is a case of re-slicing)

The focus of Jeff's research is new business models involving collaboration between publishers and aggregators. In this, we can expect pure re-slicing strategies to play only a minor part, for two reasons:

• Leaving aside some edge cases like Reuters paying Breitbart for traffic (as has been rumoured), it's culturally hard to imagine a newspaper paying the Huffington Post or Google News, at least without added incentives.
• Quality publishers have more page-views than they can monetize at decent CPMs.
• As to the converse, as I've argued elsewhere, most publishers have next to no negotiating power vis-à-vis aggregators. This is because, for a given click-through, aggregators have many publishers to choose from while publishers are in a take-it-or-leave-it situation (economists call this kind of predicament a "competitive bottleneck", but the theory is dense).

Pie-growing looks more promising. Jeff himself once proposed one such strategy: aggregators would give publishers some data about the audience they are sending their way, so that publishers can sell better-paying advertising targeted at them. Publishers would pay aggregators a kick-back and thus the upside would be split between the two.

Or consider this variant. Upmarket aggregators like the Huff Post could have their sales people sell premium advertising not only against their own sites but also against the sites they link to. After all, the audience is the same and the publishers are mostly reputable. When, say, the Guardian gets the click-through and is not sold out on its own premium inventory, instead of falling back on a low-paying ad network it could display an ad sold by the Huff Po. The Huff Po would have to offer a better CPM than the ad nets, but that shouldn't be too hard.

I think this could fly, but the wheels would need lots of oiling. Although ad-hoc technology seems impractical, ad networks already have the technology and scale and could step into this quickly. They could go to the Huff Post and offer something like this on a white-label basis. There would be lots of things to iron out (e.g. around privacy and accountability) but in principle it should be doable.

I have a lot of other things to throw in Jeff's soup. Time allowing I may add more in the coming weeks.

Towards the publisher's solution

In a widely noted Monday Note post, Frédéric Filloux wonders if the solution to print publishers' new-media woes may be to stop delaying the inevitable and just jump into the abyss:

[...] very few publishers of money-losing dailies can elude the following question:  Wouldn’t it be smarter to accelerate the downward spiral of their print activity in order to feed more oxygen and nutrients to the emerging online business? Each time I’m testing the idea with my fellow European publishers, I’m getting a straight answer: “No f**** way, pal. Print is still where the revenue is!”  I politely refrain from saying “so are your losses, pal “. Beyond this thin-skinned reaction lies a more rational fear: brand dissolution into the digital maelstrom. And there is no successful example of the kind of bold move I recommend.

The title of Frédéric's post, "The Publisher's Dilemma", is a reference to The Innovator's Dilemma, Clayton Christensen's seminal study of how firms that fail to embrace disruptive change risk being killed by new players who are nimbler and leaner. Frédéric offers some high-level thoughts on what a radical solution might look like here: relying less on advertising, moving towards smaller newsrooms, and abandoning the daily news cycle. But bold as these steps may be, I feel they fall short of the self-cannibalizing poison pill that Christensen might prescribe.

For Christensen, old firms that try to "incrementally" change their ways while fundamentally staying the same are almost always doomed to fail. The reasons are many, but two key ones are that:

• The new businesses lines usually have lower margins ("digital dimes vs print dollars") which, when push comes to shove, forces old-firm executives to prioritize the old products and clients when assigning resources.
• Their culture, values, professional networks, salaries, customer and supplier relationships are all undermined by (and thus bound to reject) a new set-up in which their work and products would be "cheapened". Think of some journalists' contempt for aggregators and "content farms", or some publishers' views of "value-destroying" ad networks.

Even if firms adopt all the right technologies and processes, their organizational fabric is strained to the limit. And, if the technology in question (here, the internet) is truly disruptive, the new industries will slowly but surely improve their products until one day they can compete with the old ones - at lower costs and prices. All the money then quickly flows to the new guys, who get even better, and suddenly the old industry is relegated to a high-end niche.

So what is to be done? The solution, says Christensen, is to set up your own disruptive start-up - i.e. a new business unit with its own P&L - and let it run with it. Let it undercut the older units' products and cannibalize their income. Let it kill them if need be. "A business unit isn’t designed to evolve. But a company can evolve if it has many business units within it" (via Lostremote). What remains may be smaller than what you once had, but then the alternative might be nothing at all.

Of course, media companies have been experimenting with variants of this since the web's beginnings (Christensen's book was first published in 1997, and it drew on older, less well-known work by others). Many magazines' websites have their own journalists and content and carry only part of their print output. Newspapers used to do something similar (although the trend is now towards integration of newsrooms). And of course The Daily is a bold experiment, without an umbrella brand or subsidised content from a print mothership.  

But I think there's room for far more radical experimentation along Christensen's lines. If the prescription is to act like a real startup, then some of the current attitudes feel misplaced. For example:

• Advertising: Many publishers refuse to sell remnant inventory to "value-destroying" ad networks, hoping that their rivals will do the same and keep prices from eroding. But such gentlemanly, almost cartel-like conduct would be unthinkable for a starving startup alone in the world.
• Multi-platform: Almost all publishers and many TV companies have tried to re-invent themselves as platform-agnostic content (or "journalism") operations. But this means treating the internet as just a change in how you do (or distribute) what you do, and not as demanding a deeper transformation. From Christensen's point of view this might be an ostrich-and-sand situation.
• Aggregation: Print publishers' websites almost never promote their rivals' content alongside their own. Of course this is sensibly motivated by profit - you want your own content to generate ad impressions. Yet link-based aggregation is central to many of today's successful web-only journalistic startups. Could the old players be missing a trick here?

The aggregation point may be key. Sending traffic to your rivals' content when your print colleagues have already written articles on the same subjects sounds absurd (the content costs are already sunk). Yet if you are serious about acting like a startup, perhaps you should be less loyal top your print colleagues and care less about their sunk costs. This is not to say that you should be completely separate; surely there should be an advantage from shared ownership. The questions is what is the right level of alignment, and how to implement it.

On that, just a few tentative thoughts. The idea that a web editor should always link to his print colleagues' content is reminiscent of (or a case of?) problems in corporate strategy where a division is getting its inputs from an internal supplier at sub-market prices, which encourages inefficiency. A common solution there is to set up an internal market with prices dictated by external conditions and adjust incentives accordingly. Could something similar work here? Who should be selling what to whom? Should the print people sell content to the web people, or should the web people sell click-throughs to the content people?

I will have a go at discussing this in another post. In the meantime, if you've read this far you might also want to read two old posts by your humble blogger: "The publisher's dilemma" and "Publishing, aggregation and 'The Innovator’s Dilemma'".

Apple power

I've been struck by some of the reactions to Apple's ipad rev-share announcement. Take this from Frédéric Filloux:

A 30% rate could be acceptable for managing complex applications such as games that requires sophisticated development tools and technical approval; but not for contents-based apps such as newspapers. No one says Apple should have left a backdoor for digital subscriptions open, but the Cupertino guys should probably consider a more flexible approach based on real costs.

Or this from the Nieman Lab's Joshua Benton:

Frankly, I'm a little surprised Google's even taking 10 percent. The transaction costs themselves shouldn't be any higher than what Google Checkout regularly charges, which is 2.9 percent plus 30 cents a transaction (plus volume discounts). Sure, building and maintaining the record-keeping system for subscribers and the tools for distinguishing free/paid content will cost something.

Debates about content monetization tend to focus far too much on questions of entitlement and fairness (it's symptomatic that this is a 'debate' at all). But this is business not ethics, and I'm hard pressed to see why Apple would volunteer to apply cost-plus pricing to something that is far from being a commodity. Presumably, 30% is the price-point that Apple thinks will maximize its profits today. Barring legal or regulatory challenges, the main reason this could change is competitive pressure.

For more on that, consider this bit by Forrester's James McQuivey:

It is on that basis that I declare Apple's 30 percent pricing unfair. How do we know what a fair price is? In an efficient market, fair prices land somewhere close to the cost of delivering services. This happens thanks to competition: As long as there is excess profit in the system, a rational competitor will lower prices to attract more customers until margins are thin enough to survive on but not amply so.

This is slightly confusing. It may be rational for Apple's competitors to push prices down towards marginal costs (thus making things more 'efficient'). But it is less rational for Apple to do so without a competitor forcing it to. The whole point of creating innovative, differentiated products is to avoid getting into this 'efficiency' trap by making the competition irrelevant. You do that by making consumers see you as unique and irreplaceable. Apple has excelled at this.

But this misses the point. The key to Apple's strategy here is not that the iPad is a better product. It is that Apple can avoid competing for publishers' business (and the resulting drop in the rev-share) even if Android is successful and competition for consumers becomes intense. Suppose that in a few years' time Android has a 70% share of the (consumer) tablet market. If a newspaper wants its app to reach the remaining (richer, younger, hipper) segment that uses the iPad (and not Android) it's still Apple's way or the highway. A boycott by newspapers would be unlikely to sway those people away from the iPad.

This is a case of what economists call the "competitive bottlenecks" of "two-sided markets". The abstract to this paper on the subject makes it clear just why newspapers' position is so dire here (my emphasis and adaptation):

When platforms are viewed as [undifferentiated] by [publishers] but [differentiated] by [consumers], we show that "competitive bottlenecks" arise endogenously. In equilibrium, platforms do not compete directly for [publishers], instead choosing to compete indirectly by subsidizing [consumers] to join. [Publishers] are left with none of the gains from trade.

In other words: a platform owner won't go out of its way to be nice to publishers. What it cares about is consumer market share. Vis-à-vis publishers, it is a monopoly gateway to its consumers and can set prices accordingly – no matter how large or small its market share may be.

At least that's the theory. In practice things are more nuanced, but broadly Apple seems to think the theory is right. We'll have to wait and see. Meanwhile, James' McQuivey's words may serve as consolation:

Perhaps it's healthy that the content industries were able to so quickly see that Apple isn't really a savior for their businesses after all. At least now they can make decisions based on market facts rather than market hopes.

A small breakthrough

From Paidcontent:

Commercial public TV broadcasters are about to get a big boost to their web-based VOD services from the BBC.

Nine months after it first announced it, the BBC has finally started including in BBC iPlayer linked VOD listings for counterpart sites.

As expected, partners are channels from ITV (LSE: ITV), Channel Four, Channel Five, S4C and SeeSaw - but a surprise edition is MSN Video Player, the aggregator spearheaded by former iPlayer chief Ashley Highfield at Microsoft.

This is a big deal because iPlayer is the most popular TV catch-up site in the UK, and has virtually become a byword for the whole VOD phenomenon it has helped popularise.

As I wrote when this was first announced, I had something to do with the early thinking behind this a few years ago. So here goes a cheer and a toast to everybody involved.

It wouldn't feel right for me to go into that early work here – and it may not be that relevant today. But what I find much more interesting is this snippet from my mate Chris who was involved in the later stages of the project:

We encourage you to reconsider the role of aggregation. In fact, we've been doing this for a couple of years now in several confidential consulting projects, as well as publicly. We've seen it deliver up to 40% more views to the aggregating party's content.

Take a minute to digest this.

Imagine you are a content owner who publishes (i.e. hosts) and aggregates (i.e. curates) his own content online – say, a typical newspaper's website. Suppose that one day you start adding links to your competitors, promoting their content alongside your own and sending people to their sites (where your competitors get the advertising money, not you). Your site becomes more useful, and more people start visiting you. So far, nothing surprising. But then you check how much traffic your own content is getting (your articles, not just your site), and find that it is 40% more popular than before. That is surprising. You give traffic away and are rewarded (by your visitors, not your competitors) with more traffic to your content.

If this can be shown to hold more generally (and not just in the cases that Chris studied), the implications for media companies everywhere could be significant. It would challenge fundamental assumptions about the role of media brands, the relationship between aggregators and publishers, and more.

For years this blog has been harping on about how the changing nature of aggregation is changing the media value chain. I'll try to put together a summary of that in the coming weeks.

Trading on net neutrality

"Net neutrality" is often portrayed as a matter of consumer rights, cyber rights or free speech. But while it may be all that, it is it also "in good part a business negotiation being conducted in a policy arena" (NY Times). Some recent developments on the subject on both sides of the Atlantic prompted me to undust some old work I did in my MBA days.

First, a very condensed introduction to equity market theory:

According to the efficient market hypothesis, a stock price should reflect all the information there is to know about its underlying company's prospects. If the prospects improve, the stock should go up; if they worsen, it should go down. Of course, much of a company's prospects are down to the broader economy and are shared with the stock market, but the extent to which this is so can be determined (this is a stock's beta, as distinct from its alpha). This makes it possible to separate a stock's performance into its "normal" return (which reflects the market's performance) and its "abnormal" return (which is "idiosyncratic" to it).

Now, if something happens that (a) is unexpected by the market and (b) affects a company and not others, its stock may change by more than its beta would suggest. So, say you believe that a company (or industry) is about to be positively affected by such an event. You can take a market-neutral position by simultaneously going long the company and shorting the entire market so that your net beta (i.e. market exposure) is zero. If something happens to the economy you should not be affected (your two positions should move in opposite ways). But if the event you were expecting happens, you win.

Enough theory. You don't need to buy the EMH (I'm not sure that I do), but for the argument's sake please do.

Now consider the advent of "over the top" video – i.e. companies like Apple, Google, Netflix, Microsoft, and Amazon providing TV and films straight to your TV box over the internet, without talking to your ISP. Will a day arrive in the not-too-distant future when these products supplant your cable provider's TV offerings?

That is the multibillion-dollar question. Whatever the answer may be (and nobody knows), it will depend on:

• The infrastructure being there. Among other things, this means that everybody should have at least a 2mbps broadband connection (for a single standard-definition stream)
• The technology, products and business models developing and achieving enough take-up
• Cable operators being unable to prevent this, either because of competitive pressures or regulation – specifically, net neutrality regulation

Now, say that at a given point in time the market thinks that there is a certain chance (say, 30%) that these three things will happen. The stock prices of all relevant companies should reflect this. But suppose that then something new happens – e.g. the FCC signals its support for net neutrality, or Google announces Google TV – that makes the market change its mind, so that now it thinks that the probability is 40%. What should happen? A reasonable guess is that:

• The stocks of cable operators and (to a lesser extent) telcos should go down
• The stocks of over-the-top companies like Apple, Google, Netflix etc should go up

Suppose you took the view that these surprises are likely to happen and wanted to build a portfolio to reflect this. One way to do that would be to have a market-neutral short position on telecoms, and another market-neutral long position in over-the-top companies. Of course there's a myriad of other factors that could affect your investment, but if you mix enough stocks you could expect these effects to cancel each other out through diversification.

If you had done this a year ago, this is how your portfolio should have performed:

This chart is normalized so that today's value = 100. What it says is that your market-neutral long "over-the-top" portfolio would have gained a 28% return over a year, while your M/N short telecom portfolio would have been essentially unchanged.

It seems that while the market has been steadily willing to believe more and more in over-the-top video, it does not think that this will be at the expense of telecom companies (which here means both cable and telcos). This could mean that the latter are expected to be able to make enough money as pure-play ISPs to make up for their losses in pay-TV. Or, perhaps more realistically, the market thinks that over-the-top may compete with cable's video-on-demand offerings (which are marginal) but not with its linear channels.

The fluctuations are also interesting.

• The over-the-top portfolio suffered losses between June and August: this may be a reaction to Comcast's court victory in April and the FCC's subsequent announcement that it would consider Title II reclassification of broadband (which was politically troubled)
• The turnaround in August may have been a reaction to the breakdown in FCC-sponsored industry talks aimed at finding a compromise solution, which some observers interpreted as a preamble to the FCC taking a harder line

But of course, these are just interpretations – there are lots of other possible ones, and mine is good as the next.

 

Disclosure and disclaimer: in the past I have held small derivative positions designed to profit from variants of this trade. Although I currently no not, I may do so again in the future. This post is not intended as a recommendation for this or any other investment strategy.

A postscript for financial types: the chart above reflects cumulative abnormal returns against a full Fama-French regression, using synthetic SML/SMB portfolios based on combinations of Russell indices as per this paper. Accuracy may suffer for distant dates, and my calculations may be wrong. The long stocks are AAPL, AKAM, AMZN, GOOG, LLNW and NFLX, all equal-weighted. The short stocks are CMSA, CVC, T and VZ equal-weighted, plus Q and S half-weighted on account of their more limited exposure to pay-TV.

About that net neutrality thing

If all that net neutrality anxiety is messing with your head and you need the low-down from a business perspective… you might want to check out my old primer on the thing. It's a bit old but still relevant.

Yet another post about the Times’ paywall

Yesterday the Times of London released some numbers about its first few months with a pay-wall, prompting a frenzy of coverage in the media and the blogsphere. If you are reading this you've probably already read some of that, so I won't bother with the links. But although lots of interesting things have been said, on the key question of whether this means an improvement or worsening for revenues all the articles I've read seem to miss some key points. So here's my stab.

Most pundits are focusing on what the pay-wall meant in terms of audience – which is largely irrelevant here. The key number, the drop in page views, was not released by News Int. Using two different third-party sources, both Seeking Alpha and Tech Crunch reckon a drop of 90%. So, a 90% loss in ad revenues you might say? Not quite as bad, for two reasons:

• First, the remaining readers probably command a premium in advertising, because their demographics are known. Assume a 10% premium.

• Second, and more complicated, not all inventory is created equal. Before the pay-wall the Times had so many page-views that its sales team would have struggled to sell them all at a decent CPM. Assume they were selling 50% properly, and the rest via ad networks at a 90% discount. Assume also that post-paywall they can sell all their advertising directly. Put this in a calculator and you get that today they are getting 18% of their original revenues.

Mix the two effects and you have that ad revenues today should be 20% of before, or a loss of 80%.

How much is that worth? Very hard to tell without public numbers. Assume a CPM of £20; 4m impressions per month post-paywall (Comscore via Techcrunch – likely overestimated); and 2 ads per page. That means that ad revenues today would be £160,000 per month. If that's 20% of the original, the loss would be £640,000 per month.

What's the gain? News Int claim 52,250 monthly digital-only subscribers (including digital editions), at monthly rates of around £8.7. This means around £454,000 per month.

Net result: a loss of around £185,000 per month, or around one-quarter of original digital revenues.

But:

• It is early days, and presumably more people will sign up. With the assumptions above, break-even would happen at around 75,000 subscriptions.

• If you assume their initial sell-through was only 30% instead of 50%, ad revenues lost would be only £378,000, for a net gain of £76,000 per month.

• If you assume their average CPM is £14 and not £20 as above (and keep the 50% sell-through) then you almost have break-even at a £7,000 gain per month.

• The value of retaining print subscribers may be considerable.

All in all an inconclusive picture, but quite possibly financially neutral or even positive.

Findability and public-service broadcasting (wonkish)

Buried at the end of a recent speech by UK culture minister Jeremy Hunt there was something that grabbed my attention. At some point I would like to write something proper about this, but right now I only have time for a brief sketch. But then that's what blogs are for.

In his speech, Hunt said (my emphasis):

I intend to bring forward new legislation to clarify which [Public Service Broadcasters'] channels should get guaranteed positioning on page one of the Electronic Programme Guide and its future online equivalents.

As we move into a multi-channel, multi-platform era, this is likely to become the principal intervention through which we repay broadcasters who invest in content with a social or cultural benefit. I want to make sure we have absolute clarity on how that will work.

This may be a significant statement. To see why, a bit of context is needed.

The Public Service Publisher (PSP)

Until now, European governments and regulators have had three main tools to ensure that quality, "worthy" public-service content reaches TV audiences:

• Directly funding broadcasters from taxation or licence fees – e.g. the BBC
• Assigning spectrum to advertising-funded broadcasters (public and private) who commit to certain public-service obligations
• Requiring pay-TV operators (mainly satellite and cable) to carry PSBs' channels and to feature them prominently in their Electronic Programme Guides (EPG)

These tools worked relatively well in a world in which linear television was the main way that people consumed public service content. But as media moves to an on-demand world, their suitability becomes less clear. So, starting about seven years ago, some people in the UK policy community began asking how these tools should be updated for the internet era.

For a while, this discussion centred on an idea floated by Ofcom (the UK broadcasting regulator) called the "Public Service Publisher" (PSP). To summarize years of work by lots of clever people, the thinking was roughly this: As audiences get more and more of their content outside traditional platforms, it becomes less sensible to focus policy only around traditional broadcasting or broadcasters. And since in the on-demand world it is audiences who decide what to watch, when and how, perhaps a more sensible strategy would be to focus on Public Service Content (PSC) and not in how it is delivered (Public Service Broadcasting). Therefore, the key is to identify areas of potential "market failure" where not enough content is being produced (e.g. autochthonous childrens' programmes), and to use public funds to ensure that it is produced and made available to audiences (i.e. "published").

Although the PSP idea was eventually shelved, the thinking that it generated remains relevant. Indeed, when it announced the shelving, Ofcom said that generating the discussion had been the main reason to float the idea in the first place.

Pushing broccoli

Around three years ago, some people in the policy community (yours truly included) took issue with some of this thinking. It is all very well and good to "publish" good public-service content, they said, but if it sits buried in a web server waiting for people to find it, the exercise will have been pointless. Public value is released when public-service content is consumed, not when it's created. If content is not consumed, all you have is a job-creation scheme for the creative industries.

To be fair, Ofcom was not blind to this. In a key document it said (my emphasis):

…this abundance of provision, and extreme fragmentation, also leads to an important new barrier to public service content achieving reach and impact: how will people become aware of, or discover, interactive public service content which meets their needs as citizens? […] In future, ensuring that people know about, and can find, a wide range of high-quality interactive public service content seems likely to be a greater challenge than ensuring its availability […] One question is therefore whether intervention might be possible to enhance the reach and impact of existing public service content, and ensure it is easy for audiences to find and access.

This went in the right direction but, in my opinion, not far enough. To suggest that it's enough for public service content to be easy to find is like saying that it's enough for supermarkets not to make vegetables too hard to find. From a public health perspective you would like supermarkets to "push" vegetables aggressively, and you might also use public money to promote their consumption ("social marketing").

Now, at this point you could very reasonably object that in a free society the state has no business telling you what you should eat – and, by the same token, that it should not try to get you to watch any particular type of TV programme. I think that's an important debate that should be had. But whatever your position in it, to suggest that public-service content can work without proactive promotion is at least a radical break from the traditions of broadcasting where getting people to watch things they don't choose (think of hammocking, or even advertising) have been central. 

Without a push, broccoli content just won't get eaten very much, no matter how "high-quality" it may be. If society is prepared to live with that then fine, but if it isn't (and I don't think that it is, at least in Europe) then you have a problem.

Pushing pull

Even if you agree with all this, you might still object. "The internet is a 'pull' medium" you might say, "and all the 'push' that broadcasters used to do simply won't work here, however high-minded." But here I disagree. Consider two things:

• The web's "economy of ideas" is often a black economy and the "wisdom of crowds" is often the herding of sheep. Read this fascinating post by internet investor Mark Suster on his shock as he realized that many of the main social aggregators are "systematically rigged by powerful trading networks of people who are paid to help propagate (and kill) stories".
• What keeps the web turning is advertising, which is nothing but a way of pushing content to people who are not looking for it. Without "push" the web would go broke

I'm not suggesting that the web is "bad" and broadcasting "good", or that the web's free choice should be limited in any way. What I am saying is in the web "push" lives side by side with "pull", and that manipulation is as commonplace and potentially undesirable as it is in broadcasting.

If you agree with that, then the notion of a democratically-supported public intervention to provide a trusted anchor amid the self-interested shouting should make sense – for the same reasons that it does in broadcasting. The question is how. In broadcasting, this was understood as a matter of producing content that was balanced and told both sides of a story. But in an era when of content promiscuity and extreme statements, telling a balanced story is not enough. People seek ways of hearing things from the horse's mouth. The challenge is to help people hear all horses, and the tool for that is curation. That is, be a good curator, use your brand to draw people to you, and link out to other people who have something so say, making sure you do this in a balanced and intelligent way. The BBC is on the right track here. But I digress.

EPGs after EPGs

So, back to Hunt's speech. His emphasis on the "future online equivalents" of Electronic Programme Guides is spot on. Of course a key reference here is Youview (aka Canvas), but the issue goes much further. Nobody knows what shape on-demand media will take in the next five or ten years. But we can tell already that although people will be able to view almost whatever they want, in practice what they want will be "to a large extent the result of external decisions which we can call, in a broad sense, advertising-led" (Houellebecq). Given this, the key space for intervention will be where things get promoted – where we decide to watch this rather than that. In television, today that means EPGs. Their future online equivalents are anyone's guess.

One reason why paid content may be the only way forward

A few days ago I wrote a post about the economics of online advertising. To summarize, the argument went like this:

• Increasingly, publishers' ability to differentiate themselves in the advertising market is being undermined by the web
• This is mainly because of (i) audiences' promiscuity thanks to the hyperlink, and (ii) ad networks
• This drives advertising costs down towards publishers' marginal costs of inventory

Granted, this picture may not be the full story; among other things it doesn't apply to all advertising categories. But to the extent that it does describe the future, it has an interesting strategic implication, at least for general news:

If editorially targeting a niche audience (local, ideological, etc) no longer leads to a price premium on the advertising side, then profits can only come from (i) a cost advantage or (ii) capturing some of the surplus that audiences get from differentiation. As legacy businesses either die or reconfigure for the new reality, cost disparities will not be as gross as today (e.g. NY Times vs Huffington Post) and (i) will be less of an option. If this happens, and to the extent that it does, then profits could only come from getting audiences to pay for unique stuff.

Sorry for the abbreviated nature of this post. If there are reactions I might write a more expanded version.

Ruminations on the concept of value

Value is a concept that keeps coming up in debates about the future of news. In the eyes of many publishers, their industry made a mistake by letting audiences get used to reading news online without paying. But, channelling Marx, they insist that their content 'has value' if only because creating it is not free. They hope that if enough publishers start charging then readers will pay. 

In this blog I have tried to challenge some of the thinking involved here. I have argued that it is not news content itself that is valuable to audiences, but rather the everyday experience of reading the news - what I have called coverage. And while content is important in this, it is only part of the story. For example, reading a (print) Sunday paper is as much about having a nice breakfast - perhaps while discussing some of the news with your partner, as s/he reads another section - as it is about the writing. Yes, you do make an active choice to read this paper rather than that one because you like its writers and you identify with their views. But that is secondary; just think of the times when you've bought a newspaper in a foreign country, even if you barely understand the language. To paraphrase marketing guru Patrick Barwise, the category comes first, the brand second. To exaggerate a bit, I've quipped that newspapers are in the breakfast business.

My objections to the value of content are not only related to the 'physical' aspects of reading, but also to the 'mental' aspects (these words are not ideal but will do for now). In the web, how valuable a piece of content is to a given reader is closely related to how that person came across the content. If I receive an email from a colleague with a link to an article that I really must read, then I have a clear interest in reading the article itself. But if I go to a newspaper's website as part of my morning routine and then follow a link to an article, my interest is not so much in the article itself as in being able to get on with my reading routine. And if I find a link to the same article in my Facebook group I may want to click on it so as to know what my friends are talking about, but I won't be very upset if I can't do so. As marketing practitioners will recognize, distinctions like these have implications for whether, how, when and how much online newspapers can charge their readers.  

Over the last year I've been doing lots of practical work around turning this thinking into value for publishers, but this post is not about that. What I want to explore here is some of my own emerging ideas behind this line of thinking. Please be warned, this is a rather philosophical post, with a bit of marketing theory thrown in. If that's not your kind of thing, look away now.

 

Heidegger

In his main opus Being and Time, Martin Heidegger said we have various ways of relating to things. Here I'll focus on two of these:

In the first way, things can appear to us as available or unavailable for something we are doing. To use an example given by Heidegger, consider a hammer that a man uses to build his house. For him, the hammer is not something to be contemplated but rather to be used in connection to something else: the house and the life he will live in it. The idea is not so much that the hammer is a means to an end, but rather that for a builder a hammer only comes into the picture when it is relevant to a meaningful activity (similarly, a violin is relevant to the meaningful activity of playing music, even if this is not a 'utilitarian' means to an end). Note two important things here: first, what has value is the activity (building the house and living in it) and not the thing (the hammer or the house). Second, the activity links the hammer with many other objects - e.g. nails, slabs of wood - in a network that only makes sense in terms of the activity and what drives it.

A second way in which things exist is occurrentness. Suppose that in the process of building his house our man breaks his hammer and, giving up on it, leaves it on the floor. When he looks at it again it is no longer a tool for him - it is neither available nor unavailable - but is just a piece of metal that lies there, occurrent, as an object of a certain shape, weight, color etc but essentially worthless because it is irrelevant. He may then wish to buy a new hammer, which until then is unavailable and valuable, but these words do not apply to the broken hammer. Or imagine that on his way home our man drops his hammer, in perfect condition, and someone else who has no plan to build anything finds it on the floor. For this person the hammer does not appear as a tool (even if he knows that it is a tool) but rather as an irrelevance. Again the hammer is worthless (unless we know of a place where we can sell it, in which case the hammer is an asset - but I'll ignore that here).

Marketing

Now connect this to the world of marketing - i.e. to the tasks of designing and selling products at a price and at a place. People don't pay for occurrent objects but do for available things - or rather, to make unavailable things available. For us, these things are always part of a network of other things, a network that makes sense in terms of our activities, our lives and our social world. I don't buy a washing machine because it is a good piece of engineering. I buy it because it lets me wash my clothes so I can live and work in a society where wearing clean clothes is the norm; and I choose a white model so that it fits in my kitchen with its white furniture, which in turn reflects my style; and I care about this because I like to express myself through my style. 

Marketing's role here is twofold. First, it aims to understand my world so as to design a machine that fits in it well. Second, it aims to place it in my world. It shows me that this brand and design is approved by my social milieu (if necessary, through advertising and 'positioning'), by selling it near my work or home, by offering to take care of the installation, and by helping me chose by asking me intelligent questions about the rest of my kitchen.

 

Content and value

Heidegger says that nothing 'is' anything on its own, without a 'referential whole' that is meaningful to someone - e.g. the washing machine vs the rest of the kitchen and my life. In the specific realm of content (text, video, etc), these references have always been explicit: if an admired author references an unknown author repeatedly - whether positively or negatively - the second author and his work becomes relevant to all those who care about the first. 

Note, importantly, that this account of referencing has nothing to do with 'filtering', 'recommending' or helping people 'discover' new content that they might 'like'. I may find it worthwhile to read the referenced content even if it I don't expect it to be 'good'. For example, Mein Kampf may be a repulsive and uninspired piece of writing, but reading it as part of a course in modern history which refers to it is a valuable enterprise (yes, value). Conversely, an otherwise brilliant piece of writing may be relatively worthless to me, even if I stumble on it, read it and 'enjoy' it, if it is outside my network of relevance. And an otherwise boring statement can become funny in the light of something else that reveals its pretentiousness.

 

Note how this contradicts traditional thinking about content according to which products have certain attributes, consumers have certain needs (real or perceived, 'hedonic' or 'utilitarian'), and the challenge is to facilitate the 'search' so that the right people can be paired with the right content with minimal pain. The better the match, the higher the value delivered. By contrast, I am saying that the value also depends on the path taken to get to content, because the path is part of what the content is.

The web

Now back to the web. Above I noted how different contexts - checking the news in the morning vs following a link in an email from your boss - lead to different valuations of a given piece of content, for the same person. At a technological level, the web embodies this through the hyperlink. But at a deeper level, what the hyperlink allows is an unprecedented richness in the art of reference. Of course referencing is not a new art; footnotes and library cards have existed for centuries. But with the hypelink the space between referring and referenced text has been brought to zero. 

It matters that something was linked off the Drudge Report precisely because it was Matt Drudge who placed that link. This is not because the Drudge links to good content, but because (for certain people) something is a must-read by virtue of being mentioned in the Drudge. If micropayments ever become easy and widespread, it may make sense to increase an article's price when it is linked from the Drudge report - but only for people following that link - and it may make sense to give Matt Drudge a cut. By contrast, a link found by accident on Google is relatively worthless, even if the content it leads to is exceptional. This suggests that the Wall Street Journal's decision to allow Google readers to by-pass its pay-wall may be sensible.

 

Note the role that Matt Drudge as a curator plays in this example. I give value to following his links because what he says (through his linking) matters to me, and this is only possible if he is already part of my world. Of course, Matt Drudge could just as well be the BBC, Reuters, Fox News, my friends or whoever it is that I have somehow allowed to decide what should matter to me (decide, not judge - but the distinction is a subject for another post). 

 

This says at least two things about the role of brands online, and specifically about the role of curator brands. First, editorially they are as powerful than any old-media editor may have been before the hyperlink was invented – if not more. Second, commercially curators and aggregators are the kingmakers, not only because they drive traffic but also, and crucially, because they 'charge' that traffic with a layer of value. One day they may find a way to turn that to their financial advantage more aggressively than they do today.