Making sense of media M&A-s

Today's FT pays tribute to The Curse of the Mogul by summarizing global M&A activity in Media since 2009, a particularly disastrous year for the industry. The general point of the article is that - maybe - media firms have learnt a lesson as they seem to be more worried about the efficiency of their core businesses rather than pursuing diversification to build media empires. Is it just the crisis that forced down mogul instincts or will the learning last?

Aereo and Regulation

Usually, I am for the least possible regulation. It is indeed very hard to have good judgment on all trade-offs and, as a result, regulation may do more harm than good. Aereo's new business of streaming free broadcast TV channels to (mobile) Internet devices for a fee is definitely a good illustration of how complex a problem regulation needs to address. Re-transmitting free broadcast TV for a fee is illegal. Cable companies pay a fee to the TV channels. However, Aereo argues that, legally, it does not re-transmit free broadcast TV because it rents an individual antenna to each individual customer. This argument doesn't really make sense and circumvents the regulation with a small technical argument. Will regulators consider the law to the letter or its spirit? They need to come up with a strong decision, which will likely influence in a major way the evolution of the industry. As Aereo expands to over 20 counties (it already covers NYC) there is some urgency.

Music streaming

A few weeks ago The Economist has reported the most recent data about the music industry. The news is good: the bleeding has stopped and digital revenues are finally making up for lost CD sales. What is interesting though is what makes up the mix of digital revenues. The FT reports that while "iTunes-style" downloading still constitutes most of the $5.8 billion digital revenues, the share of streamed services revenues has grown to 20% from about 13% last year. The number of subscribers to these services grew to 20 million, a three-fold increase from two years ago. This is a substantial shift in consumer behavior and great news for Spotify and YouTube who were the fastest growing music streaming services last year. Interestingly they have wildly different business models: subscription-based vs. advertising supported, free service, respectively. If those YouTube videos manage to make it to the Google glasses, the world will definitely change. Quite exciting!

Generation C

"Generation C" is the new online marketing buzzword introduced by Google. It refers to people adopting a specific online behavior rather than a proper generation in terms of a demographic group. In fact, Generation C is quite dispersed in terms of age: 18-35. Their behavior is characterized by the 4C-s: connection, creation, community and curation. They are heavy users of YouTube, generally on multiple devices. They are not just consumers of the site but also contributors and "sharers/editors". No wonder Google wants to understand who they are and how to identify them online. Not only do they represent a sizable chunk of the -by now - more than a billion daily views on YouTube but they contribute a disproportionate chunk of the activity in and around content creation.

Browser wars

This chart that appeared last week in The Economist is very telling. Similar data and implied trends about browser shares worldwide have been published elsewhere. Chrome's dominance is dramatic.

The trend certainly has to do with the decline of PC use, which is somewhat responsible for Explorer's decreasing share. However, if this were the only thing at play then Safari's share should grow since tablets (and Apple's iPad in particular) have rapidly gained share in recent years. It seems that Chrome's success is based on a more fundamental thing. My guess is that it is 'quality'. Chrome is much more stable than other browsers that often crash on certain pages.

It is ironic that Microsoft has just been fined over a neglected promise in Europe concerning the (un)bundling of its browser. In the future it is likely that Google will have to worry about these things.

Video on demand: some news

Video on demand is the hottest topic in media nowadays. Many see it as the next technology ready to disrupt further an otherwise already disrupted traditional media landscape.

One question is: how should traditional channels react to the appearance of this new offer? Traditional channels still have the quality content. Sure, Netflix financed "The house of cards" but this is a drop in the sea of quality content offered by CBS, Time Warner, Disney and others. It is going to take a long time before video streaming sites will be able to provide the quality and the variety that traditional channels offer. Unless the channels sell the content to them, of course, which is what seems to be going on. According to the WSJ (March 15-17), CBS, for example, earns 10% of its operating income from subscription video on demand. Other channels are closer to 5%. Is this a good idea? I am not sure. It reminds me of the 1980's FMCG industry when national brands helped major retailers introducing their private label brands. In the short run, this meant extra revenues and the good use of capacity. In the long-run however, retail brands became much stronger than national brands reducing the latter's profitability. Providing good content to streaming sites definitely cannibalizes traditional TV viewing. The better the online content offering the faster will consumers learn that online is just as good but cheaper than cable (and there are no ads...).

Another pressing question is who will be the winners of online video streaming? The online channels who provide traditional content (Netflix, Hulu, etc.) or the likes of YouTube, Vimeo, or even Facebook, who rely heavily on user-generated content (although some started investing heavily in original content too). The latter group bets on a fundamental change in consumer behavior and taste. They seem to have a point: even traditional content is viewed differently in today's environment with second screens and a preference for seeing anything in the consumer's preferred time slot (think of binge viewing of series for instance).

It is also interesting to ask: how will this play out in other parts of the world, especially in Asia where growth is faster. Recent data shows that Asia is far from being a homogeneous market. A Bloomberg Businessweek article (March 4-10) reports data showing that Japan is much larger - with about a 120 million unique viewers per months - than any other country, although there is no data on China (India is at about 70 million unique viewers. Japan also has some local large sites besides YouTube (Dwango and FC2) and has few unique viewers for Facebook, that generally appears to be the second largest site in other Asian countries. Google sites in general are far ahead in every country surveyed with about 30-35% of the unique viewers. The global battle is raging on every front.

Bookstores

The Economist has a really nice article on the future of bookstores. Nothing new (they will mostly disappear or become coffee shops or theaters) but the picture below is quite cute!