Censorship!

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.

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.

Net-neutrality ruling

Last Tuesday, Verizon won a case against the Federal Communications Commission (FCC) in a US court, where the judge ruled that "the FCC had over-reached its powers in imposing 'net neutrality' rules on internet service providers" (see FT article here). While the battle for (or against) net neutrality is far from over - e.g. the FCC considers an appeal among other possible measures - it is definitely a decisive step towards differential pricing for speed / transmission quality of internet content. Advocates of net neutrality argue that this may favor large internet companies with deep pockets (e.g. Google) and lock out cash-poor start-ups, thereby stifling innovation. But does this argument really hold?

For one, perfect net neutrality cannot really exist. Bandwidth is a limited resource and, being free, congestion is impossible to avoid. Service providers have always had to manage bandwidth to makes sure that one provider is not overusing the system to the detriment of others. So far, they had to do this in an ad hoc manner. It seems to me that creating a market for bandwidth is not necessarily a bad idea: maybe running an auction in real time? For one, this may actually increase overall bandwidth because companies investing in infrastructure can recoup their investments better by charging more efficiently their users (the assumption being that consumers' willingness to pay for content will be reflected in content providers' willingness to pay for bandwidth, i.e. access to these consumers). What might happen is that free content maybe more scarce on the internet. But again, while this is bad for consumers in the short-run, it may actually help innovation (content providers can charge for their material), thereby making consumers better off in the long run. Wouldn't it be great, for instance, if sites providing pirated content would be 'penalized' for using excessive amounts of bandwidth? Funnily, Google, which counts as an "incumbent with deep pockets" is a big supporter of net neutrality. Doesn't this suggest that it benefits disproportionately from it? Given the bandwidth used to upload and stream YouTube videos, it wouldn't be surprising.

More generally, it is not clear that such "heavy" regulation (net neutrality is pretty heavy in my mind) is needed in this case. The FCC could impose a "minimum access" rule for instance in the spirit of "free speech" but let the market figure out how to price scarce resources beyond that.

Multi-homing on social networks

As last post of the year I'd like to cite this FT article, which talks about a recent Pew survey confirming that about 40% of adults divide their time between Facebook and another social networking platform. Professionals tend to spend a significant amount of time on LinkedIn besides Facebook (not a surprise) and a large proportion of women tend to use Pinterest besides Facebook. This is totally consistent with economic theory applied to platform competition in the presence of local (as opposed to global) network effects. Our paper with Kaifu Zhang, currently at CKGSB, describes exactly this phenomenon and analyzes how it may manifest itself in the presence of a 'dominant site' such as Facebook. If time spent on a platform relative to that spent on others is the relevant measure of market power, then worrying about Facebook's dominance has always been misplaced. Can Facebook really be anything to anyone over the Internet? Not really... Similarly, I find silly the recent arguments that Facebook is becoming increasingly irrelevant because young people spend more time on chatting sites and less time liking each others' posts. People seem to look for another big thing to which everyone is likely to migrate. But the dynamics of the Web are strongly influenced by local network effects meaning that it is an ecosystem of strong platforms rather than one big site that is likely to dominate social networking. Facebook, with its billion plus active members is certainly a strong candidate to be part of this ecosystem. However, worries about adequate revenue models for the firms in the ecosystem are well justified: it is still not clear how such a fragmented attention base can be efficiently monetized.

Will the cable bundle survive?

A recent article in The Economist about Comcast, nicely describes the challenges faced by the cable giant at a time when a hoard of start-ups challenge the traditional cable subscription model. People talk of "cord-cutters" (and increasingly of "cord-nevers") and there is a general sense that the traditional model needs to change somehow even if there is little consensus on what model(s) will emerge eventually. In all discussions however, the idea that the cable bundle has to break apart seems to come up and people quickly point to the experience of the music industry. Unbundled services over the Internet exist already (e.g. AppleTV) but it is too early to say if they will take over the cable bundle. Cord-cutting is still slow and the prices of cable subscriptions have kept increasing at 4-5% over the last years despite the slow recovery from the recession, which indicates that coach potatoes still see value in it. With the purchase of NBCUniversal, Comcast clearly bet on the future of the cable bundle. In fact, it tries to increase the value of the bundle by packing in even more services in it and making them more convenient in terms of search and access. It is a big bet but one should never under-estimate how lazy coach potatoes are.

Just today a great article in the FT complements the picture. It analyzes the cable operator market and how it is likely to consolidate.

Recent Evidence on 'Forecasting'

Forecasting is important in every aspect of life and in business in particular. Grossly simplifying, the last two decades' academic research came to the general conclusion that crowds do better than individuals, the so-called "wisdom of crowds (WOC)" hypothesis. One of the resulting 'innovations' is the idea of prediction markets where people trade securities whose payoffs are tied to specific outcomes/events. Market prices provide 'superior' forecasts for the likelihood of the events in question. With social media broadly available to large and distributed populations, prediction markets are thriving...
    Recent research conducted by IARPA seems to indicate that the WOC insight might be challenged - at least to some degree. Clearly, prediction markets do much better than the average expert participating in them. But it also seems to be the case that the top 2% of forecasters can beat the market by a relatively large margin. First, it seems that the elite forecasters do seem to do better systematically over time, so their performance is not just luck. Moreover, if you team them up, then together, they can beat prediction markets by 20-35%.
    Prediction markets are cool forecasting tools but their weakness is that they give away the forecast, so in business where one wants to generate superior insights it is hard to discover proprietary information this way. But what if firms ran forecasting tournaments to discover the few experts that can provide sustainable advantage for them? Of course, the question then becomes: at what price will these experts share their views with the firm!