US and the Internet

Today's FT article provides a striking tale on the reasons behind the US' dismal rank in Internet broadband service quality within the OECD. In less than twenty years, the US has moved from #1 to #16, advanced by most European countries, including Hungary and Estonia. The article argues that regulation is the root cause of this slide: the Obama administration systematically protects the Cable industry from competing technologies. Cable is now dominated by a duopoly, Comcast and Time Warner, who between them, basically share the entire US market, keeping prices high for mediocre quality. They have little incentive to invest as have competitors with insufficient scale to justify large capital expenditures needed for laying fibreoptic cable. The choice of the new FCC chief can be decisive in changing the status quo. But don't hold your breadth. Given the huge lobbying efforts of Comcast and its support for the current administration, it is unlikely that things will change.

Measurement challenges

With new media consumption patterns emerging, measuring media audiences has become a challenge. Yet, solving the problem is critical because without sound understanding of media consumption it is hard to justify advertising budgets, which in the U.S. today, stand at around half a trillion dollars (all media confounded). Just TV advertising, which is traditionally driven by media ratings, represents some $75 billion. The industry faces three broad problems related to measurement. First. little is known about consumers' behavior on new media. Take online video that seems to take off fast, yet there are huge differences in the estimates on how much time consumers spend watching it (for 2012, comScore estimated 4.2 billion hours while Nielsen's guess was a little more than 1 billion hours). The second problem concerns traditional media (mostly Television) and relates to time-shifted viewing. Consumers save shows for later viewing and devices often screen out the advertising. It is difficult to estimate the proportion of consumers affected but if time-shifted viewing becomes general, the implications are dramatic for the advertising industry. The final problem relates to the trend that, increasingly, consumers are connected to multiple devices (e.g., while they watch TV, they do other things on their tablets or smartphones). The industry talks about the "second screens" phenomenon. Here, it is not even clear how to measure the impact. Consumers watch the show, but are they turning to their i-Pads during the ads?

S&P sued by the government

Last week, news emerged that Standard & Poor, one of the three major credit rating agencies (CRAs) has been sued by the US government for misleading investors. A summary of the case by The Economist can be found here. The multi-billion dollar suit caused S&P's shares to drop some 25% while other ratings agencies' shares suffered similar losses. I have criticized CRAs many times in this blog and elsewhere, and the loosely surfaced evidence from the filing does support the broad criticism concerning CRAs in general. Yet, this heavy handed approach is quite unsettling. First, it seems that the government really went out of its way to punish S&P. The Economist's article highlights that the charges filed in California concern civil fraud, which is important because it is outside the protection of the First amendment that has effectively protected CRAs in the past. More worrying is that among the three main CRAs only S&P has been sued, the only one that has downgraded the US government. When I asked a friend about the case, his reaction was immediate: "the message is: 'Down't dare downgrading the US!'".

Online-video

On February 1st, Netflix launched a new series, "House of Cards" featuring Kevin Spacey. The serie's production costs are estimated at over $100 million. Similar series are launched every month and in every possible genre (Downton Abbey is the latest craze in NYC, which - for those who have seen it - questions anything one has ever learnt about segmentation and targeting). Anyway, why is Netflix' launch news? It is so because this is the first major series launched online. Yet, Netflix is not alone. Hulu, Amazon and YouTube have also commissioned original content with the goal to provide high quality programming. Is this the beginning of a new era, similar to the rise of Cable? Every sign seems to indicate so. Today, Americans watch seven hours of online video per week, up 37% compared to last year. The advantage is, of course that the content can be watched whenever the customer desires!

Big Data vs. Quality Information

"Big Data" is a fashionable term nowadays and of course it boosts the demand for (among others) B2B media companies who often sell the data or setup ways to collect it. Yet, one should remember that the ultimate goal is to get good information to generate more value than competitors. My short article in The European Business Review describes some of the opportunities.

Google rocks

Yesterday Google's stock went up some 8% after the earnings call for the fourth quarter of last year. The media talk about Google's progress in mobile advertising (see, for example, a Reuters report here). This explanation is a bit ambitious as it is not clear how much of the spectacular growth in revenues compared to last year came from mobile. What is true is that it vastly compensated for the (slowing) decline in advertising rates. This could be a sign that mobile rates are stabilizing but not a sure thing. Clearly though, Google rocks.

Evolution of Video Game Industry

This is a really cool chart that appeared in Bloomberg Businessweek (Dec. 10-16, 2012). It shows the share of new game releases for the different game platforms (PC, XBox, Playstation, iPad and their various sequels) for every year between 1975-2012. The chart is complex but closer examination reveals a few fascinating facts.

It is important to realize that the number of new releases per year has massively grown over the years. In 1975 there were only 24 video games on a single available platform, Arcade. By 1987, just 12 years later, this number grew to 1,225 new games/year. Not surprising given the explosion of new platforms (see the blue, yellow and purple 'hills' on the left side of the figure). What is surprising though is that the number of new releases doesn't really change till 2007, that is, for 20 years! In this period, the industry is dominated by two developments. First, platform consolidation. By 1998, 60-65% of games are developed for Microsoft's Windows and DOS platforms and for the newly emerging Playstation. Even in the mid-2000's Microsoft and Sony platforms own  70% of the new releases. Second, in this 20-year period, games become much more sophisticated, with the average development budget increasing from less than $0.1 million to $18 million.

Today, we are experiencing another revolution. It is largely due to the Internet and the associated explosion of a whole new generation of mobile hardware platforms (iPhone, iPad, etc.). In 2011, more than 730 games were released on the iPhone alone, which is only responsible for 15-18% of new releases. This means that the total number of releases in 2012 is around 4,000 games, four times more than the historical peak in the last 20 years! In other words, the Internet almost quadrupled the number of new games and we are just at the beginning of the life cycle of mobile devices.

Finally, it is interesting to see who the winners and losers are among the platforms. Playstation, the inventor of high-end games in the 90's has lost most of its share. Wii, who emerged as a revolution in the mid-2,000s is not doing well. Apple, who dominates the new mobile platforms is a big winner of course. But as is Microsoft, whose Windows platform is still strong (not surprising, given the huge installed base) and who still owns the successful XBox platform.

The interesting questions are (i) how far will the growth go? (ii) who will capture it? (iii) in particular, will the (by now) dominant Android mobile platform be able to get a large share of the gaming apps in the near future? Stay tuned!