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Wednesday, 16 April 2014

Net neutrality

A number of academic papers have explored the issue of net neutrality in the last few years, many of the most state-of-the-art work being published as we speak. There are two particular papers that are noteworthy in this space. One is by Economides and Hermalin, which has appeared in RAND recently (2012) and the other is by Njoroge forthcoming in Management Science. Both of these papers look at a fairly complex world with competing network providers, multiple regimes and heterogeneous consumers and content providers. The results are complicated and it is hard to provide clear cut recommendations. In a nutshell, a non-neutral regime allows network providers to extract more surplus from users and content providers, which also increases their incentives to invest in a higher quality network. Higher quality networks may also provide investment incentives to some content providers but may actually deter some others from participating altogether. So when the content providers are very heterogeneous, net neutrality might provide more overall welfare. It is also important to see that a key driver of the results is the amount of surplus that network providers can keep from the ecosystem. This may not only depend on the pricing regime but also on how much external competition they face. In other words, competition at the network level coupled with a liberal (i.e. not neutral) regulatory regime might actually provide a flexible and robust industry. What is clear from the academic research is that a regulator faces an extremely complex problem if it has to decide on net neutrality or even a restricted framework allowing some discrimination.

Thursday, 10 April 2014

News on News

One can read a lot nowadays about the News industry and, after a long time, the tone is rather optimistic. There is a lot of investment in news from various sources including philanthropists trying to save historical icons - e.g. The Washington Post, earlier entrants who disrupted the industry - e.g. Buzzfeed, well-established online platforms like Yahoo! or Facebook who want to keep their members on the platform and surprisingly also, from venture capitalists. The type of investment is very diverse too. Online outlets discover the value that journalists used to bring to the table and they tend to hire more people. "Curation" is all the talk nowadays, at least on this corner of the business. There is also a fair bit of investment going the other direction, into tools that analyze data (cutting out - if possible - human intervention). Given the easy access to various data sources, the idea is that there is always a niche audience for small bits of analyses / insights. A recent FT article describes in more detail this trend, rightfully wondering about the business viability of the model. Clearly, the disruption is far from over but at least there seems to be some money available for broad experimentation.

Friday, 14 March 2014

Comcast - TWC: Should they be allowed to merge?

Since the announcement of Comcast's planned acquisition of Time Warner Cable (TWC) most observers argue that the union will lead to increased monopoly power and (so goes the logical argument) even higher cable subscription fees for consumers. The most recent "authority" weighing in the debate is The Economist, which devoted an article to the topic in its prestigious Leaders section. While I agree with much of what is said in the article (and in general) about the market power of cable operators in the U.S., I disagree with the statement that acquiring TWC will increase Comcast's market power over consumers in particular, and thus leading to higher subscription fees. First, the two cable operators do not have overlapping networks so they are de facto monopolies as it is. In the case of TWC, I even believe that prices might come down. Why? Because TWC is a pure operator so when it buys content (generally provided by another monopolist), there is double marginalization that leads to higher prices than what a cartel would provide (yes, there is no mistake: a cartel providing complementary products prices lower than two independent complement providers). Comcast owning a lot of content may prevent this. Another concern is precisely Comcast's vast content assets. Given Comcast's increased clout due to the acquisition, it can now extract more surplus from other content providers or lock them out of its offering altogether, substituting its own content in the bundle. This may happen but neither of these strategies is likely to lead to higher subscription fees for consumers. It would simply mean less profit to other content providers. While in some cases one tends to we feel sorry, in others (think ESPN) less so.

Now, are high subscription fees a problem? The answer is a resounding YES! But they are not caused by mergers between cable operators. Rather, the issue is that there is not enough competition across network types. This may change if Telecom companies, DBS operators and Google develop alternative infrastructure. An enlightened regulator may not like this however, as this may lead to excess infrastructure investment. Another approach would be to regulate part of the offering. This is the case to some extent, but the approach needs an update. A good solution could be to regulate broadband access fees over cable. This could keep video prices in check and force cable companies to provide reasonably priced content bundles to consumers.

Thursday, 20 February 2014


It is hard to resist writing something about Facebook's most spectacular acquisition. It is even harder to say anything new, given how much coverage the event got in only a day. Clearly, this young company is not worth $19 billion on its own. But as a piece of technology, it might be just what Facebook needs to preserve its dominance in the social media landscape. It proved to be the most attractive choice from a hoard of copycats and this is by a global population that happens to cover just the right demographic segments. Also, it would have been really horrible if Yahoo!, Microsoft, Twitter or Google would have snapped up WhatsApp in order to fast forward their social networking efforts. The big question is, how will Facebook leverage this new crown jewel? The easy solutions (like putting ads in the messaging service or rising the subscription fee) are out. Can Facebook successfully connect the two platforms to entice WhatsApp users to spend more time on Facebook? Or is it enough to just analyze the huge traffic on WhatsApp to become more efficient in advertising? It is far from obvious how to execute on this acquisition even if strategically it seems to make sense.

Wednesday, 12 February 2014


This is a great picture capturing media freedom in the world. It is sad that most of Europe and the US are not making it to the top. Still look at Hungary and most East European countries!

Developments in media measurement

The need for better measurement of advertising impact - especially for digital advertising - is unquestionable. The challenge, of course, is that most digital ad campaigns are multi-platform campaigns so even if any particular ad's CMP, CPC (or today CPE) is well-measured, with multiple screens this data needs to get integrated to be able to gauge the overall impact of the campaign. Google's DoubleClick and comScore have teamed up to come up to do just that, proposing a standardized measure similar to GRP for traditional media. This is a great development for the industry.

Thursday, 6 February 2014

CNN and the future of news

Jeff Zucker, appointed a year ago to lead CNN did not quite turn around the company yet. A recent article in The Economist describes how the international news provider is trying to turn itself into more of an entertainment outlet. The rational is simple. CNN has an unbiased stance (see earlier article) and this does not go well with increasingly polarized audiences. It is well-documented that biased viewers want to see biased news rather than impartial reporting as they really look for 'entertainment' instead of information. One option would be to become biased but competition is harsh in either corner of biased news providers with Fox and MSNBC firmly dominating Right and Left respectively. Also, CNN has the highest quality infrastructure for generating news - wouldn't it be a waste not to build on this strength? Mr. Zucker seems to have chosen another way to entertain: showing people non-news content, essentially turning CNN into a 'movie channel'. But this doesn't leverage the unique assets either and it is hard to argue that there is no competition among movie channels. Is there a way to compete with the truth at all?

I always argued that there is. What people need is debates! Contests! A good fight is always entertaining as long as one's side is represented. Why not organize debates to inform and interpret the news? Think of presidential debates - they are always very popular. Other examples abound, prominent among them being the very successful Munk Debates venture. Note also, that this approach is hard to copy for a biased provider who cannot deliver a consistent biased outcome for lack of serious opponents willing to debate on the opposite side. Would a team play in a game that is rigged from the start against it? Providing neutral ground and good information to back-up arguments (e.g. acting as a referee) is a unique capability that only CNN could provide. It would build on its assets and would be hard to replicate by competitors.