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Friday, 5 September 2014

Chinese media landscape

The Chinese media landscape is quite fascinating. Far from being copycats of western media companies (that once they definitely were) today's Chinese media companies have introduced a lot of innovations tailored to the local market. Alibaba (to be listed on the NYSE next week) is a hybrid of Amazon and eBay but also owns part of a social network (Weibo), similar to Twitter that is meant to facilitate communication between buyers and sellers. It owns a bunch of other related businesses: media content, retail and navigation - see a list of recent acquisitions here. Interestingly, its revenue model is also different from its western counterparts (mostly based on advertising rather than transactions fees). Similarly, Tencent, China's largest social media site was originally shaped after Facebook but is a very different social network today. It's WeChat mobile messaging system is a full blown social network, very different from Facebook's recently acquired WhatsApp. WeChat dominates China (is also successful in other countries) and has successfully integrated mobile payment, e-commerce and hosts a lot of content that members are paying for (e.g. games). China has a bunch of successful online video streaming companies (the largest is Youku Tudou parly owned by Alibaba) that produce their own content rivaling the established state-run TV and movie industries. The decade-long evolution of the industry has been strongly influenced by the government's industrial policy. On the one hand, the government has always exerted strong censorship making companies' lives harder. Yet, it has also been careful to protect Chinese media companies from their western rivals. A recent rule limiting introduced to limit western content on Chinese sites to 30% of airtime is a good illustration. While it creates disruption for distributors, it greatly helps local content developers that often reside under the same corporate roof.

Friday, 11 July 2014

Global Advertising Market in 2014

Last year I compiled two charts on global ad spending and they ended up getting a lot of attention. The data is broadly available but somehow it is hard to find good charts that summarize well this information. The planet hasn't changed that much from 2013 - the US still dominates the roughly 550 billion dollar global market by size (far ahead of Europe) while growth is in the developing world.

More interesting is the division in terms of the type of advertising. Digital has surged ahead faster than expected and the real division between digital ad types manifests itself in terms of whether the ads are served on a mobile device or on desktops. Last year, people were much more concerned about the contrast between search and social media spending. In this sense, this year will probably mark the big transition to mobile advertising. It is also important to note how well TV is hanging on to its share of advertising budget. Print, as expected, continues to decline (although not as fast as some thought).

Thursday, 26 June 2014

Aereo ruling

Well, the courts have spoken and - in my mind - were reasonable: Aereo is obliged to pay retransmission fees to the boradcasters. A summary of the case can be read in today's FT article. Some more clarifications can be read here.

Why reasonable? Because Aereo's capacity to charge such a low price to consumers is really only based on a specific interpretation of the current law concerning retransmission fees. It would have been unreasonable to allow Aereo freeride on the broadcasters content when cable networks have to pay billions for it.

Whether the existing law makes sense is another matter... If the broadcasters' model is based on free content for advertising why have the retransmission fees in the first place? With time, all content will move to the internet, which will be available anywhere (it is almost the case already). It is not clear then that we need broadcasters at all (in the sense of using radio waves to deliver content). In fact, many of them are part of large media conglomerates wondering about the future of the TV ecosystem. Broadcasters in their original form are likely to be the past...

Wednesday, 14 May 2014

AT&T and DirectTV merger

I am puzzled by the recent news about the possible merger of AT&T and DirectTV. My conversations with colleagues didn't quite erase my doubts that this, roughly $50 billion deal doesn't make sense. There are no obvious technological synergies. While AT&T will gain some 20 million satellite subscribers, it will not be able to integrate this customer base with its own (roughly 5 million) video customers. So no real gain in terms of scale either. On the operations side, again, not clear whether costs can be taken out of the combined system. Five times more customers will make it easier to negotiate content deals but does this marginal impact justify the huge financial transaction and associated management challenges? It is not clear. VOD is a big and growing business. It is also clear that consolidation is needed as the landscape is quite fragmented. But this particular combination doesn't strike me as the right one.

Thursday, 8 May 2014

Rating agencies

Here is an update on the state of the ratings industry. Phenomenally different and, yet, phenomenally the same as three years ago (this blog had plenty of entries about CRAs during the crisis)! It is different because the CRAs are doing well - really well actually.... It is the same because the industry still consists of a select trio of firms who have all the market share together with the 'well-documented' bad incentives in creating biased ratings on pretty much all the economy. The real difference is that we are not in a crisis but in a boom so no-one cares. Yet the flawed structure and framework of the ratings industry has been left in place and will produce the same controversies in the next downturn as it did in the last.

Monday, 28 April 2014

TV and social media advertising

Strong words used by Alan Wurtzel, head of research at NBCUniversal will no doubt put a dent in social media ad budgets, already under pressure. As reported by a recent FT article, based on the results of analysis conducted on Comcast's airing of the Sochi  Winter Olympics, Mr Wurtzel claims that social media had little impact in augmenting the effect of TV ratings. "The emperor wears no cloths" were the words he used to summarize his verdict. Comcast's own data seem to be at odds with this diagnosis, however: 19% of viewers did some social media activity and overall 150 million 'additional' people were exposed to posts via social media overall. This compared to about 21 million TV viewers per day. While there is no doubt that TV's impact is much higher, social media's impact seems far from being insignificant! And this only after about a year of experimentation with the whole concept of connecting the two entertainment platforms. One should also speculate - to be checked - that the 19% posting on social media were younger people. No doubt, this group's size will grow larger and their social media activity become more intense over time. Just this effect appears to be significant. Bottom line: I wouldn't short social media stocks (further) just yet.... at least not based on this analysis!

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 in Review of Network Economics. 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.