Credit Rating Agencies

Top Credit Rating Agencies (CRAs) have never done better. Their revenues and profits are up - way above levels seen before the crisis. This picture from The Economist shows that their market shares haven't moved a notch after the financial crisis when "aggressive" regulation was introduced to curb CRAs powerful influence on markets. What is ironic, is that this increased monopoly power largely originates from the very regulation that was supposed to introduce more competition in the sector, thereby - as was hoped - also providing more discipline in ratings. None of this happened. Why? The detailes can be read here. The bottom line is that regulation made it so hard to comply with the law that would-be competitors decided never to enter the market. Meanwhile the established agencies with established large market shares could easily amortize the additional fixed costs of compliance. A classic case of bad regulation.....

Publishers on Facebook

Facebook has pretty much managed to convince publishers to put their content on its powerful platform. The value proposition is simple: Facebook knows how to sell mobile ads against that content as opposed to helpless publishers whose current revenues from mobile ads are very small. Publishers can keep 70% of the ad revenues sold by the Facebook (they can keep 100% of ad revenues they generate). For publishers, this is a substantial revenue potential, while they have no real alternative. Facebook's mobile display ad revenue share is 35%, by far the largest and still growing fast. Moreover, an overwhelming proportion of the traffic to publishers' sites already comes from Facebook (see WSJ chart), which is mostly accessed by via smartphones. If this trend holds up - as it seems to - publishers have no choice but to upload (some) of their content on Facebook. 

“Mobilegeddon”

This is a cool! Google re-evaluates search rankings based on whether sites are mobile friendly or not. Many will complain but this shows how this general pressure overall benefits consumers. Read more about it at this FT link.

Europe going crazy on Google again

Europe has decided to really go after Google by filing formal charges against the search engine (see FT article). It is quite clear that most of this is driven by politics (a former settlement was objected by finance ministers from France and Germany). The French lead the way, of course, by proposing a law whereby Google would need to hand over its proprietary algorithm to the French government so that it can check whether the search engine is fair to its rivals. This level of intervention is totally crazy. Even if one can argue that damage has been done to rival businesses, the resources dissipated in the legal process, lobbying and politics is by no means beneficial to society. To see the unreasonable lobbying that puts pressure on politicians, consider this other FT article on major music groups' attack on Google. The Internet is a fast evolving space with incredible benefits to consumers. Holding back investment and providing negative incetives for innovators is not a wise policy.

Agenda Chasing by the News

The Reynolds Journalism Institute (RJI) published a short blog on our paper with Zsolt Katona from Berkeley's Haas School of Business. It is about Agenda Setting in the News and it argues that with lower barriers to entry and lower customer switching costs agenda setting is more "Agenda Chasing" by news providers who are in a contest to become the 'go-to-place' for a particular topic.

TV disruption

Maybe the moment has come when enough pressure is built to blow up the traditional TV industry. Today's FT article nicely summarizes the many initiatives that all aim at securing a strong place in the new TV ecosystem. Interestingly, these initiatives no longer come from startups like Netflix and Hulu only. Instead, the new business-model innovatiors are Dish, Apple, Sony and HBO, in other words, traditional large companies. Another important observation is that consumers may not pay less for TV than before. When these fragmented services' fees are added up the check might be very similar to current typical cable bills ($100-$125). Consumers' choice will look very different though, which is a major improvement in terms of the overall quality of TV experience. What will definitely change is the distribution of revenues across players in the ecosystem. Cable networks - especially the small niche ones - might lose revenues. Cable providers will also lose revenues from cord cutters. Some newcomers - e.g. Apple - might win revenues. Profitability might not follow revenues though. Cable companies might actually become more profitable as their margins on Internet services is higher than the margin on the distribution of content.

NYC Media Seminar by Justin Rao

Justin Rao, from Microsoft Research presented a great empirical paper on media bias. Using a variety of techniques from machine learning to crowd-sourcing, they find that while media bias exists it is small: news outlets present news and cover topics more or less identically, except for the coverage of political scandals. However, by far the most interesting finding is that "news organizations express their ideological bias not by directly advocating for a preferred political party, but rather by disproportionately criticizing one side". The media seems disappointed by politics no matter which side they are standing. Really nice research!