Monday, September 14, 2015

UK Newspaper News

It's been a while, but there's been a flock of articles recently about the present and future of the newspaper business in the UK that deserves a post.

  • A ZenithOptimedia forecast predicts that mobile advertising expenditures will bypass newspaper advertising revenues in the UK this year.  The study shows a 38% growth in mobile, compared to a 4% decline in newspaper advertising.
  • The same report also shows mobile advertising surpassing newspapers on a global basis, based in part on the continuing decline in print advertising expenditures across most of the world. 
The worst part of the internet advertising boom for newspapers is the fact that not all digital sectors are reaping the benefits.  In particular, display advertising is lagging, and newspapers rely primarily on display advertising for their Internet and mobile sites as well as print editions. With the growth of ad-blocking on mobile devices, one analyst predicts that display ad revenues for mobile "are going to fall through the floor."

With predicted declines in revenues, many news outlets are looking for ways to trim already tight budgets further.  The National Union of Journalists  (UK's trade union for journalists) is warning that it's members are ready to strike if news outlets look to cut costs by shrinking newsrooms.

So the tough times for newspapers and other news outlets look to continue.

Sources - Mobile adspend in UK to overtake newspapers faster than expected, predicts report.  campaign

Tuesday, May 12, 2015

Milestone: For music giant, streaming passes downloads

While discussing their Q1 2015 earnings report, Warner Music's CEO noted that streaming revenues passed digital downloads.  If you combine streaming with other rights/licensing, it suggests that the music giant is making more from music licensing than music sales.

Source:  Warner Music says streaming passed downloads for first time,

Monday, May 11, 2015

A Survey of Research Results - Evolution of Video Marketplace

Finals are over, and there have been several rounds of industry research results to post.

From the Interactive Advertising Bureau, a survey of online video viewers. An earlier study suggested more than 85% of Internet users report having watched online video, and this 2014 study reports 59 million U.S. adults (24%) report watching online videos at least once a month.

  • The means of access is expanding - those reporting access via desktop or laptop remains steady at 72%, but use of connected TVs (56%), smartphones (56%), and tablets (48%) have doubled over the last two years.  ODV users who watch their programming on connected TVs primarily do so during Primetime hours, and half report watching considerably more ODV than they did last year.
  • Original Digital Video (ODV) is seen as having more original content, being more innovative, unique, edgy, and mobile than regular TV content, and the perception gap is increasing.  ODV is tied with Primetime TV as the preferred content type, and is significantly preferred over other regular TV genres (sports, news, daytime)
  • Young cord-cutters and cord-nevers say that having access to Original Digital Video (ODV) is an important factor in choosing not to have Pay TV. Most also report preferring ODV to conventional TV programming - including Primetime shows.
  • Social is increasingly integrated with Online Digital Video - use of social media to discover ODV has nearly doubled in the last 2 years (42% of ODV users), and ODV users are much more likely to have content-related social media interactions than Primetime viewers (55% vs. 39%).
Limelight Networks have released the 2015 edition of The State of Online Video.  Their key conclusion is that online video viewing is booming, and changing the television viewing experience. While there are a variety of demographic differences, younger viewers (Millennials) are driving the shift from traditional broadcast television to online video.
  • While most viewers report watching 4 hours or less of online video a week, the majority of Millennials watch 4 or more hours a week.
  • Cord-cutting is becoming a viable option.  Only 10% of those with a Pay service (Cable, DBS, Telco) say they'll stick with their service no matter what.  More than a third (38%), on the other hand, say that rising subscription prices could motivate them to cord-cut, and 30% indicated an interest in switching if the content they want becomes available online or over-the-air.
  • Variety in both content and viewing options are prime motivators for online video viewers. The increased availability (and use) of long-form video content online is a big factor in the increase in viewers and viewing time for online video.  Many online video users report owning and using multiple devices (beyond TV sets) for watching online videos.
  • Social media is facilitating and encouraging video sharing.  Some 15% of respondents report sharing video content via social media.

Sources -  2015 Original Digital Video Study, IAB (Interactive Advertising Bureau)
The State of Online Video, CDN Limelight report (2015)

Wednesday, April 29, 2015

Pew - State of Local TV News

Pew has just released its State of the News Media 2015 report, and I'll be sharing some results and comments.

2014 saw local TV station revenues increase (mostly from huge rise in political advertising), and some increased viewing for most local news programs.  Overall revenues increased 7% from the previous year, but still remained below 2012 numbers (when even more political advertising and the Presidential race helped spike local TV revenues).
The year also saw a continuation of the rise in the share of revenues coming from news programs, accounting for 84% of over-the-air revenues.  While good news for potential growth of local news programs and coverage, I'm not convinced that such a level of reliance on one programming source for station revenues is good for the long-term financial health of local broadcast TV.

The study also predicted a substantial growth in retransmission consent fees (from SNL Kagan numbers) over the next few years.  This comes with three big caveats, however;

  • Broadcast networks are demanding an increasing share of retransmission consent fees from local broadcasters, so it is unlikely that local stations will benefit that much from projected increases
  • It's starting to look like multichannel rights fees are starting to plateau.  Larger MSOs are starting to resist network demands for licensing fees, as the amounts are approaching audience perceptions of value.  This is contributing to cord-cutting and the push for a shift to "a la carte" pricing.
  • The economics of "a la carte" are likely to be substantially different than the existing business model, and are unlikely to sustain current revenue levels.  Particularly for local TV broadcasters, which must provide their primary service broadcasts free to the public (by FCC regulations)

As for local TV news, Pew notes that the number of hours of local TV news seems to have reached a plateau.  That's one factor contributing to limited growth in news staff salaries.

(I'm trying Pew's embed function for the graphics - my apologies if it's not working right)

Source - The State of the News Media 2015, Pew Research Center report

What's Your Plan for SportsDay (May 2)?

From Nielsen

Tuesday, March 31, 2015

E-books Report

A new survey from Nielsen suggests that ebooks continue to make gains in book markets.  The bad news is that some of that seems to be coming from online sales.

The digital formats (ebooks, audiobooks) increased their share of book sales revenues, while traditional print markets saw their share decline to 70%.  The biggest decline was in trade paperbacks, which fell from a third of the market in 2013 to just above a quarter in 2014.  In terms of units sold, ebooks increased their share slightly, to 21% of the market for new books.
 Online retailers (for both print and ebooks) remained the dominant sales channel, although it's share of sales fell slightly, to 35%.  Brick and mortar outlets (bookstore chains, independent bookstores, and other outlets) mostly retained their market shares.  The only big decrease in market share was for bookstore chains.
Diffusion of ebook readers continued apace, with smartphone ownership around 75% of adults, and tablet ownership over 40%.  The graph to the right reports shows the percentage of ebook readers who indicated that they owned a particular device.  Two things are clear from the numbers -- first, that many ebook readers have multiple devices, and second, that market share is variable, and influenced by devices entering and leaving the field.  Last year, for example, saw large increases for Android OS devices (smartphones and tablets). Apple's mobile devices remain the most widely owned, while Amazon's various Kindle devices were the other big branded device.

Source -  E-books Gained, Online Retailers Slipped in 2014, Publishers Weekly

#utsmw15 Infographic: How Digital (& Social) Drive TV Viewing

From Google Insights, How Digital Drives Viewers to New Shows,

Monday, March 30, 2015

#utsmw15 Infographics: Global Penetration & Use

Some slides from

#utsmw15 Infographic: Social Networking Threats

From the folks at Kaspersky Labs

#utsmw15 Infographic: Social vs. Salary

Many Millennial will sacrifice salary for the freedom to use social media and technologies.

From Online - Social Media vs. Salary

#utsmw15 Infographic: Social Media's Going Mobile

From Statistica - Most Social Networks are now Mobile-First

It's Social Media Week #UTSMW15 - Time for Wow

It's Social Media Week here at UTK's College of Communication and Information.  And time for some timely social infographics and reports.

From Leverage and Social Times blog, some quick stats on top outlets' performance in 2014.

Wednesday, March 18, 2015

Apple joins the OTT mini-bundlers

Apple has divulged some details on the new Apple TV service that it will offer next fall.  Like the recently initiated Sling-TV, the plan is to offer a small bundle of streaming channels to consumers with Apple TV OTT boxes (actually, and iOS device).  One big difference from Sling-TV is that the Apple plan will be anchored by live streams of most of the broadcast networks (NBC is not currently listed, allegedly because of a longstanding feud between Apple and Comcast).  Apple's bundle will likely be more expensive than Sling's as a result.  Like Sling-TV, Apple's bundle will include access to a Video-on-Demand library - there's talk that Apple wants to extend VOD access to other iTunes content, if it can get licensing deals in place.

For more on the Web/OTT bundling issue, see this earlier post.

Source: Apple Plans Web TV Service in Fall, Wall Street Journal

Streaming Music Systems Performance (Infographics)

Two interesting pieces recently.  One on the relative performance of top music streaming options, the other on how those services compensate performers and writers.

Researchers at YouGov BrandIndex looked at a variety of metrics for the top 5 music streaming services in the U.S. They found Pandora to be the dominant player in the field, although Spotify has been making inroads recently.  Pandora has dominant leads in most of the metrics, from number of subscribers to awareness (from both ads and word of mouth).  Spotify's numbers were improving, but the researchers concluded that
"Perhaps the brands with the biggest challenge are iHeartRadio and iTunes Radio. They have reasonably high awareness levels, but do not seem to be getting traction with consumers. The conclusion is that these brands may need to try something different to generate excitement with consumers."
Music streaming services largely emerged as a result of major record companies eagerness to open up a second revenue stream to help cope with declining sales of physical recordings.  Initially, they were eager to license their recordings to streaming services, but faced an initial roadblock - the existing royalty systems employed two distinct approaches.  Royalties for sales were based on fixed compensation for each unit sold, while royalties for licensing music to radio stations was based on a percentage of station revenues (and not directly linked to which music was played).  Conceptually, the radio model seemed closest to how streaming services operated, as well as how audiences used them.  Thus, most of the early deals utilized royalty payments as a percentage of revenues.

As sales in the traditional music markets continued to fade, the record industry wanted more from streamers.  They started arguing that the current system (which they had eagerly negotiated) was "unfair" - largely because streaming revenues were slow to develop.  The attack came on three fronts.
First, that not enough money trickled down to artists and songwriters.  The biggest problem with that argument is the fact that the share that trickles down to the artists and composers is determined by the rights organizations (like ASCAP and BMI) and the actual rights holders (predominantly the record labels), who take their cut off the top.  So the industry argues for a larger royalty rate, of which only a small fraction would actually go to the artists and composers.
Second, streaming services differ from radio stations in that they can and do track individual consumer plays.  There's no mechanism to measure how many listeners hear a song on radio.  The current licensing deal with Spotify calls for royalties to be paid according to a formula that includes both a revenue percentage and the number of streams.  Spotify also pays an additional set of royalties to songwriters and composers for what is termed "streaming mechanical royalties".  As a consequence, Spotify pays a much higher total percentage of its revenues than Pandora.  (Pandora is currently classified as an online radio service, and radio stations are currently not required to pay mechanical royalties).
The third argument is that most streaming services offer a free streaming option, which the music industry argues "cheats" the rights holders because revenues from the ads are less than subscription-based revenues.  The fact that the free/paid proportions for Pandora is roughly 75/25, while Spotify's audience is more of a 50-50 split, also contributes to the difference in royalty payments.  As one record label executive summarized,
"Based on the free model, the payouts we're getting on streaming is so small... The problem that we're running into is Spotify is just not converting users to the paid version quick enough."
That perspective contributed to the fact that the music labels pressured Apple to raise its proposed starting subscription price for the new Beats streaming service (much like the book publishers did for iBook pricing - which the courts later ruled was an antitrust violation).  But the underlying issue is that the record companies want more money, and are using artist payments to engender sympathy.  If artist payments are the real problem, the music industry could solve that easily by granting them a bigger share of the payments they get, or changing accounting practices so that the artist share comes from gross payments, and not what's left after music industry costs (and profits) are covered.

One can look at this situation from the "level playing field" metaphor.  Spotify wants a level playing field by getting the same deal Pandora has, Pandora wants a level playing field with broadcast radio (straight percentage of revenues, and lower percentage), and the music industry wants to raise the height of the field several feet because they cut the grass (i.e. royalties to artists and composers) too short, and aren't making enough profits from their traditional business models.

The current copyright and royalty system is a mess, largely because it was designed to deal with selling physical copies of intellectual property.  The current model has never really worked well with digital reproduction, or with the growing need to replace shrinking sales revenues with licensing arrangements for emerging digital streaming channels.  Add the fact that digital markets are global and have the potential to scale much higher than physical copy sales (tens of millions for hit albums in digital, while in the physical medium heyday, hits sold hundreds of thousands).  Plus, they're now having to deal with younger audiences who care more about access to music than owning copies of music.  In addition, artists need to recognize that the scale differences should be reflected in the setting of royalty fees - and that because digital access to their recordings remain available long after labels drop them, that they'll benefit from their work much longer under digital deals.

The debate and fights over music royalties is likely to continue for a long time, in part because the music industry is trying to hold on to an increasingly problematic business model, and is hoping to find a way to maintain their control over revenues derived from their historic role as the choke point between artists and their audiences.  However, the growth of the digital economy is showing that it doesn't require multiple layers of distributors (and their growing costs) to provide access to products for potential purchasers.  There are already content creators (including musicians) who have discovered that going independent can provide them much higher levels of return, as well as more control over use of their work.  For the big labels, this is a fight for survival; but for society, it's a fight for who gets to control access to content (and who gets to benefit from that).  As for the question of whether streaming will leave artists unhappy - the answer is yes, if the big labels remain in control, and no, if we can shift focus from preserving a declining music industry to how to develop a rights and licensing regime that promotes and protects creation of, and access to, intellectual property.
It's time we shifted our concern from protecting the old ways to think about how to develop copyright and licensing systems that benefits the creators and users of intellectual property rather than those who merely reproduce and distribute it.

(For more background, see this post about a digital music licensing panel at the 2014 CES).

Sources: Infographic: Which Streaming Services Are Winning the Battle for Millenial Eardrums,  Adweek
Is the Music Streaming Industry Destined to Leave Artists Unhappy?, Adweek

Monday, March 16, 2015

Primetime ratings continue decline

The February C3 ratings averages (live + 3 days), the current advertising standard, showed a 12% decline for broadcast networks, and a 11% decline for cable networks.  In fact, only 3 of the networks measured showed an increase over their ratings for February 2014 - HGTV, Discovery, and TBS.

While the article indicated that Primetime TV ratings have seen "double digit" declines in each of the last five months, the situation isn't quite as bad as that suggests.  Looking deeper shows that the ratings since last September have been consistently down - that percentage decline is based on a comparison with the ratings for the same month the year before.  So in terms of the actual ratings, those aren't down by a third or more. It's still not good news for TV networks.

What is a more troubling indicator, following up on previous posts (here and here), is the fact that the decline over the previous year has been consistent, and its been so for both broadcast and cable networks.  That's indicative of a systemic structural change - one more likely based on audience behaviors than network programming efforts.  In the long term, that means trouble for an industry that is so heavily reliant on getting viewers for advertising.

In looking at the pattern of consistent declines, media analyst Michael Nathanson commented:
“It’s clear the downward spiral in TV ratings continues with no end in sight..." and that while changes in the ratings process might account for some overall change, “we believe these terrible ratings trends are also indicative of changing viewership habits.”
Source: TV ratings see double-digit declines for fifth straight month, New York Post

Tuesday, March 10, 2015

The end of big bundles? Going "a la carte" via OTT

OK, first let me take care of clarifying the terminology.

Assembling big (often 50+ channels) bundles of cable networks has been the primary strategy of multichannel video service providers (cable, DBS, telco cable, etc.) for the last couple of decades. Keeping bundles big helps minimize transaction costs for the bundler, while offering maximal potential audience reach for advertisers, and maximizing the viewer's ability to browse and discover the value of channels and their content.  On the other hand, critics complain that it "forces consumers to purchase channels they aren't interested in."  That's not necessarily true, as purchase decisions are based on the aggregate perceived value of the bundle, not the "costs" of undesired channels (see here for more detailed analysis).

Still, as the networks and local stations seek to increase licensing fees from multichannel providers, those costs are passed on to the consumer in the form of higher bundle prices.  Bundle subscription costs are rising rapidly, and may be nearing a threshold point for many subscribers - the point where their perceived value of the bundle is less than the subscription price.  We're seeing the beginning of this in the rise of cord-cutters - those replacing paid multichannel access with a combination of online and free over-the-air TV sources.

However irrelevant, the claim of paying for unwanted channels is a major theme for those who would prefer to force multichannel services to unbundle channels and offer them to consumers in small focused bundles (like the various Discovery channels), or individually (i.e. "a la carte").  This may seem to be a good deal for consumers - until you realize that going a la carte will, in most cases, reduce audience reach numbers significantly.  One study (discussed here) forecast that forced unbundling could result in a loss of 60% of advertising revenues for cable networks, and result in more than 100 channels going out of business.  And since cable networks would need to significantly increase their a la carte prices to recapture some of those losses, going a la carte would also likely result in higher total costs for cable network access for most consumers.

Meanwhile, some multichannel video providers are finding that the increased licensing demands made by some networks are crossing that value threshold, and are dropping channels, or in one case offering to provide the channel - but only as an a la carte service.  The networks have so far been smart enough to realize that either option is a net loss for them, but the gleam of a licensing El Dorado of unlimited wealth keeps them trying to push licensing fees ever higher.  Viacom, and its package of networks, is the latest battleground, with their channels being dropped by a number of mid-range and smaller cable systems unwilling to cave into their licensing demands.  As one analyst noted,
“The stage is set... As consumers are less interested in large bundles, somebody is going to get hurt in the process by asking for too much.”
If multichannel service providers remained the only option for access, the impact on the industry would be bad enough.  However, they're facing rapid growth in the ability of broadband internet connections to provide access to high-quality TV streams to mobile devices and wired connected devices.  The term OTT (over-the-top) refers to these alternative sources of video and TV content. Both the diffusion and use of these technologies for TV viewing are growing rapidly (see here and here).  Combined with increased time-shifting of programs and place-shifting, audience TV viewing habits are clearly changing.  For cable networks, going online for their content distribution - either as single channels or as a part of a more limited (and much less expensive) bundle offered online - is an increasingly viable supplement, and potential substitute, for traditional delivery media.

The viability of online TV delivery has been a significant component of the "TV Everywhere" marketing push.  The initial conceptualization, though, saw "TV Everywhere" as a way of achieving multichannel services beyond the household's TV sets - and not as a substitute or replacement for those services.  That was one reason for the rapid reaction to the Aereo service.  One would think that local stations and networks would be eager to extend their range of service via mobile as a way of enhancing (or at least maintaining) audience reach.  However, it seemed that the industry hated the notion of a video service that paid no licensing fees; and the courts bought that argument.

More recently, the industry has seen several TV networks pursue the option of offering their programs and content online. The WWE initiated a very successful online subscription service last year, and many of the Pay TV networks have announced plans for providing online access channels separate from multichannel provider subscriptions.  HBO, in particular, is scheduled to provide a separate online channel called HBO Now starting April 12, 2015.  A research report released in January by Park Associates suggested that HBO Now could generate an additional 15 million subscribers.  More critically for multichannel providers, half of those interested in HBO Now said they'd not only be likely to drop HBO pay channels, they'd drop the whole multichannel pay service (about 7 million subscribers).  That's still a big win for HBO, who not only would likely net an added 8 million subscribers, but would not have to split the subscription fee with the multichannel provider.

In addition, CBS has been offering an online video service since last fall, and it is thought that ABC, NBC, and ESPN are considering taking their online video channels public (currently access is limited to subscribers of some of the largest multichannel providers).  Most cable networks provide some access to their content, but not to live streams of the channel.

Still, it's likely that the new DishTV service, Sling-TV, may unleash the deluge.  Sling-TV is an OTT service that bundles a number of the most popular cable networks as a minibundle at a very low subscription price ($20/mo. for about 20 channels), and supplements that with targeted minibundles (sports, movies, children, etc.) at $5 a pop.  The service combines live streams of the network, as well as on-demand access to the previous week's programs. Sling-TV has managed to sign up some 100,000 subscribers in its first month, despite being initially limited to those with a Roku OTT box.

The Sling-TV service could well force the big multichannel services to start unbundling.  It offers an intriguing alternative for those who would be satisfied with a lesser selection of channels.  And even for those viewers who place high value on channels not included in the Sling TV packages, the price contrast between the "big bundle" options ($50-$150+ on new subscriber deals) and Sling-TV will prompt consumers to reconsider if their demand for favorite channels will justify the price differential (and to wonder how the costs of channels they don't want inflate bundle prices).

The big multichannel providers have been shedding TV subscribers slowly, but consistently, for years.  Now that viable and less costly OTT and online video options are coming available, expect the decline in pay TV subscribers to increase, particularly for major MSOs and multichannel providers.

Sources - Updating: HBO Now The Big Test for Cord Cutters?, Online Video Daily VidBlog
Sling TV notches 100,000 users in a month, TechHive
Seventeen percent of U.S. broadband households are likely to subscribe to an OTT HBO service, Parks Associates report.
Provider's Dispute with Viacom Highlights Skirmish Over the Cable Bundle, New York Times

Pew - Demographics and Local News Habits

From Pew, some nice graphics on demographic differences in local news use.

Infographic shows rise of online video viewing

From the fine folks at ComScore:

Some highlights:

-- Broadcast network live viewing down 30% over last 5-6 years
-- 87% of US Internet users report regular online video viewing
-- 40% of online video viewing is done on mobile devices
-- 15% of internet users report watching video on smartphones daily
-- viewing on tablets and OTT are leading a shift to online video viewing

Tuesday, March 3, 2015

TV on the verge of transformation

Is the television industry on the threshold of a major transformation?  A number of recent industry research and reports are suggesting that major changes in how people access and view television is coming, and that will severely impact advertising revenues for local TV stations, broadcast networks, and multichannel video distributors (cable, DBS, etc.)

The changes have been going on for a decade or more, as video shifted to digital, as Internet connection speeds increased, and as new viewing platforms (PCs, smartphones, mobile tablets) emerged, and huge new collections of video content have been made available to viewers (YouTube, Netflix, etc.)  These have opened new options for viewing, and have shifted control over viewing from the media outlet to the audience.  Online video (from online rather than traditional TV sources) is booming, audiences are increasingly using options for time-shifting. The last few years have also seen audiences becoming increasingly multi-platform - watching TV on a wider range of devices.  Use of mobile devices for watching video has risen rapidly in the last few years, particularly among younger audiences and ethnic audiences.

A recent Morgan Stanley analysis noted that shifting viewing patterns have contributed to a 50% drop in broadcast network average "live" ratings over the last decade - the measure of audience that watched the initial live broadcast. While some of that decline has resulted from cable networks capturing various niche segments, more recent declines have resulted from the rise of time-shifting options. This has led the TV industry to push for a shift to other ratings measures that include delayed viewing - Live+3 (any viewing within three days of initial broadcast) and Live+7 (any viewing within a week).
Underlying this has been a major shift in what ratings represent - from audience at a certain time, to audience for a specific program/episode.  And created a problem for advertisers, as the delayed viewing options do not necessarily include the advertisements aired during the initial live broadcast.
The figure above shows that the decline hasn't been fully reflected in TV advertising rates and revenues.
The broadcast networks have been able to remain the access points for the very large, mass, audiences, and have used that status that to push advertising rates higher (on a CPM, or per-viewer, basis).  But the advertising industry is starting to push back, as some cable networks are reaching broadcast network viewing levels (for certain programs, at least) and mass advertisers are less willing to buy ads at inflated CPMs for programs with large proportions of delayed viewing.  Analysts suggest that the broadcast networks will be unable to maintain all of the current premium CPM pricing in the long term.
The shift in audience viewing patterns is holding true for cable networks as well.  While the decline in live viewing for cable networks has not been as precipitous as that of networks, they are subject to the same change in audience viewing behaviors.  The impact on cable networks, however, is mitigated by the fact that many get the majority of their revenues from licensing/subscription fees.  Those rates and prices are based on audience demand for access, rather than the number of viewers.  Thus, while cable networks may take a hit on advertising revenues, the overall impact on revenues is lessened.
The relative stability of licensing/subscription revenues is encouraging broadcast networks and stations to explore, and try to exploit, that additional source of potential revenue.  Licensing and subscription revenue levels have been increasing rapidly over the last decade or so, and are rapidly nearing the cross-over point - where the TV industry will earn more revenues from licensing than it will from advertising.
 The last year has seen a number of retransmission consent battles between the broadcast networks and major MSOs - with the networks arguing that their licensing fees should reflect their audience levels.  However, as noted earlier, licensing/subscription prices and revenues are based on audience demand for content, not on advertiser demand for audiences.  And general-interest mass channels have relatively low overall values for their content, more competition, and more close substitutes, than the targeted niche cable networks.  Licensing network access is not likely to generate the audience demand required to replace advertising losses - although the networks might find better success licensing specific programs rather than the network overall.  (Particularly if the broadcast networks continue to distribute their content through free, over-the-air TV stations.  Audiences are not likely to pay for network content when it's available over-the-air for free).
Increased licensing and subscription fees is already driving some viewers out of the traditional pay TV market.  These "cord-cutters" are finding that online video sources and free over-the-air TV can provide the video content they desire at much lower cost that multichannel bundles.  While the phenomenon is fairly new, studies suggest some 8% of the TV consumers have dropped all traditional pay sources (cable, DBS, etc.), another 15-20% have cut back on pay TV, going for smaller bundles of channels, and/or dropping Pay-TV services (like HBO) in favor of streaming video services (like Netflix).
The newest challenge for traditional multichannel systems is Dish's new SlingTV streaming video service, which bundles live streaming of 15 of the high-value cable networks and Video-On-Demand for just $20 month.  (See earlier post on the subject).  The SlingTV basic bundle is likely to prove to be a close substitute for basic multichannel bundles that cost 3-5 times as much, feeding the flurry of cord-cutting.
One analyst argued that the shift in audience TV viewing behaviors reflects a structural transition from ad-supported networks to streaming video services. It's certainly in progress, particularly among younger viewers. How long the transition will take, or how complete it will be, is still unknown.  But the change is structural. The bad news for traditional TV services is that with a structural change, it is unlikely that viewers will return to old habits.

Sources -   Broadcasters fear falling revenues as viewers switch to on-demand TV, (Financial Times)
BRUTAL: 50% Decline In TV Viewership Shows Why Your Cable Bill Is So High, Business Insider
CHARTS: Why Audience Ratings Have Collapsed For Cable TV Shows, Business Insider
The Evolution of TV: 7 dynamics transforming TV, ThinkWithGoogle white paper.
Evolution of TV: Reaching Audiences Across Screens, ThinkWithGoogle white paper.

Tuesday, February 24, 2015

Is FCC violating process again with Net Neutrality action? Or just being Shortsighted and Stupid?

The first two FCC attempts to impose some "network neutrality" rules were vacated by the Federal Courts because the rulemaking was based, in large part, on imputed authority that the FCC did not statutorily have (see earlier post here), further supported by evidence that the FCC had violated its own procedures for rulemaking.  At the time of the second Court decision, many policy folks (myself included), commented that if the FCC wanted to move forward with Net governance and regulation, the best approach was to base a claim for regulatory authority under Title II of the Communication Act - which does cover telecommunication networks.
With the FCC deciding that it will issue a rulemaking addressing Network Neutrality this Thursday, without publicly releasing the actual rules being considered, the FCC would again be clearly violating the spirit, if not the letter of its own (statutory) rules on due process.
The FCC, when considering new rules and regulations, is supposed to undertake a multistage process that starts with a public Notice of Inquiry, a period to allow public (and industry comment), then a Notice of Proposed Rulemaking that outlines the proposals, followed by more opportunity for public comment.  Normally, if the FCC wants to consider substantive changes to proposed rules and regulations, it posts a Further Notice outlining the changes, and offers an additional period for public comment.
Tom Wheeler, the current head of the FCC, argues that the FCC has already gone through several NOIs, NPMs, and public comment periods.  However, the proposed regulatory framework for those appears to be totally different from what is to be acted on this week.  While the FCC doesn't have to refile Further Notices for every little change in the rules, because the proposals that had been discussed are substantially different from those to be voted on, this case clearly violates the both the spirit of the rulemaking process in that it hasn't allowed any time for public review and comment on what seems to be a wholly different set of rules and arguments than what had been previously proposed and discussed.  In addition to tossing claims of being "transparent" onto the growing dustheap of broken promises of transparency by this administration.  (In fact, as a Senator in 2007, Obama called the FCC's attempt to pass rules without full public disclosure and opportunity for public comment "irresponsible.")  Furthermore, the FCC is supposed to be an independent regulatory authority, not one that would toss aside several years of proposed rulemaking and public discussion to (allegedly) adopt - in full and without review, discussion, or amendment - a plan written by political operatives in the White House.

Regardless of the ethics of the current Chairman's behavior, and the potential authority Title II provides for regulating telecommunication networks, bringing the Internet under Title II is not necessarily reasonable or appropriate - in large part because of the statutory language in the 1934 Communication Act and the 1996 Telecommunication Act.
The 1934 Communication Act gave the FCC regulatory authority in two areas: Title I dealt with radio transmissions (including broadcasting), and Title II dealt with, basically, telephone networks.  More specifically, it was designed to deal with the existing local monopoly wired, switched, telephone system.  (The FCC was granted oversight of cable systems - redefined as multichannel video delivery services - by the 1984 Cable Act).
With the rise of the first use of wired telecommunications for computer communications in the late 1950s and 1960s, the FCC examined the question of whether computer networks should be regulated under Title II.  They reached a conclusion that it would not fall under Title II for several reasons: the computer network (later expanded to information) services typically did not own and run the actual wired networks they employed, but rather leased lines from telephone companies (the separation of service from network is explicit in FCC definitions of those terms.
There is a hard and fast statutory line separating the information services that utilize telecomm networks, and the telecomm-based distribution networks that deliver those services.  The current language would seem to explicitly exclude Information Services from falling under Title II. Also, on the technological side, the developing computer networks and information services used quite different technologies than telephony, and so the part of Title II that deals with technical standards would be largely irrelevant (if not applied) and inappropriate (if applied).  But most importantly, the FCC felt that trying to set standards and apply Title II regulation to computer networks and information services would restrict developments and innovations by imposing a governance structure that favored certain uses over others.

The main philosophy of Title II's network regulatory approach is that networks should act as common carriers (a regulatory philosophy borrowed from railroads and freight services). The essence of common carrier status is that the network should not discriminate among its users - that they shouldn't give favored treatment to one user over another. 

 One of the widespread fallacies in Network Neutrality discussions is that common carriers can't treat users differentially (thus everyone should have the same rate for internet connectivity). Actually, there's a long history of permissible differential treatment, as well as a long history pointing out the social benefits that can be acheived through appropriate cross-subsidies. Telecomms can treat users in different localities differently, and more critically, can differentiate on the basis of level of service. All they need to do is show that the costs of providing a particular type of network connection are different (a content-neutral rationale). The FCC has even allowed differential treatment for certain general classes of services (911, toll-free numbers, added-charge numbers). Furthermore, the 1996 Telecommunications Act removed many aspects of telecomm regulation from FCC oversight.
 In addressing the Title II approach, policymakers and pundits need to recognize that i) Title II is largely limited to telecommunication network operators, and the existing statutory language is not readily, or easily, extendable to Information Services and most ISP operations; ii) many of the aspects of the 1934 Act that regulators want to rely on for the new Internet rules have been superseded by the 1996 Act; and some issues are addressed by other laws and statutes (for example, copyright and privacy laws that expressly address ISPs, Information Services, and digital network operators). Many of the areas and concerns that Network Neutrality proponents are primarily concerned with may not be covered by a simple extension of Title II regulatory authority to the Internet.

While Title II can be a better foundation for asserting regulatory authority, just claiming that "We've changed our minds, information services and ISPs fall under Title II" is not likely to pass judicial review - because what they do doesn't fit the existing statutory language. Doing a sweeping assertion of authority is what got the FCC in trouble in previous attempts, and going the Title II route without serious review - if the action isn't quickly overturned - is going to create a virtual minefield of implementation problems and legal challenges - with the FCC and the Courts having to then decide which of the 100+ pages of telephone regulations should apply to the Internet, its backbone network providers (who already effectively act as common carriers anyway), ISPs (many of which are a mix of network operators and information services), and the Information Services that provide the content and services to users.  Should Universal Service apply to ISPs? Should ISPs be subject to the specific taxes applied to telephony (including one designed to help retire the Spanish-American War debt - which was paid off about 100 years ago - but still shows up on your telephone bill). Should the FCC's authority over pricing in the Internet apply only to interstate and international connections (the only price authority the FCC has over telephone rates under Title II in the 1934 Act, and which was sunseted out in the 1996  Act - leaving the FCC without statutory authority to regulate telecomm (ISP) rates and services)?

In other words - going the Title II route really needs extensive discussion of the proposed rules and policies to work out the problems and kinks that would be associated with that approach.  But the current FCC Chair and Democratic Commissioners seems determined to take the easy and quick approach of simple proclamation and promulgation of a massive set of new regulations, rather than doing the smart thing of working out the details and gaining some consensus from the various stakeholders that would be impacted by the new rules.  Or even considering if there is really any need for a massive overhaul and imposition of governmental (possibly politicized) oversight and control of a significant, and efficient major sector of the economy, and an increasingly vital source of information by both private and public sectors.

As I said with the last two FCC attempts at grabbing Internet oversight - this is too important, and too critical, to take short cuts.  If the FCC is going to do this, they need to do it the right way - with true transparency and plenty of opportunity for the public to point out the problems and pitfalls that always comes with trying to set uniform rules for very complex systems.  And first asking the most important question - do we really need to impose any kind of regulatory structure on the an efficient, innovative, and highly flexible Internet and Information Services sectors?

Thursday, February 12, 2015

A bad week for US News Industry

It's been a tough news week for U.S. news outlets and journalists.  Of course, by now most of us have heard the main headline-grabbers - Brian Williams being called out for "elaborating" his account of being under fire in Iraq and his subsequent suspension from his position as Managing Editor and anchor of the NBC Nightly News, and Jon Stewart announcing that he will be leaving Comedy Central's The Daily Show.
As NBC now formally investigates a growing number of allegations that Williams had sensationalized and/or exaggerated his personal involvement in other news stories (Katrina, etc.), most journalists and pundits feel that he has so damaged his credibility that he's unlikely to return in a senior news position.  And while one anchor is being punished for sensationalizing and manipulating "the truth" in his news coverage, Jon Stewart, who made his career from sensationalizing and manipulating his coverage of news stories, said he'd had enough.
Stewart was increasingly being challenged over whether he slanted stories and left important elements out in his efforts to sensationalize stories and to challenge guests on his program.  Stewart has long held that his show was satire and thus should not be held to the same standard as traditional news, although he also wanted the imprimatur of news for his program.
One consequence of the two announcements has been a level of self-examination within the news business over just how important credibility and straight factual coverage is, or should be, for both reporters and news outlets.  (And the somewhat facetious suggestion making the rounds that Brian Williams should just take over for Jon Stewart - where he wouldn't be expected to be objective and honest)
A less controversial, and more disheartening, story was last night's announcement that CBSNews' Bob Simon had been killed in a car crash in New York City.  Simon was a passenger in a limo whose driver apparently lost control, and was hit by another car.
On a slightly lighter note, a local TV news crew from San Francisco were assaulted and robbed of their equipment as they were wrapping up after a live remote.  And that robbery and attack was only the latest in a growing number of attacks on TV news crews in the San Francisco area.  The situation was so bad that for a while some news stations hired security for their remote crews.

Added: This week has also seen the release of the latest World Press Freedom Report, which states that 2014 saw a "drastic decline" in press freedoms - and that respect for journalists and press freedom saw declines in two-thirds of the countries in the world.

And while the debate of how honest and credible news should be continued, the reputation of major news outlets was taking flack from other recent events. First, a continuing litany of complaints from the Washington press corps of a lack of access and transparency from the Executive Branch (and most notably from the White House), to allegations of blatant efforts to manipulate pool coverage reporting and spy on reporters.  Add to that the President's recent habit of ignoring major news outlets in favor of politicized web outlets and talk shows in the granting of interviews, and you have major news outlets questioning their role and importance.
Then came a story in the New York Observer about an activist who outlined how he intentionally manipulated media coverage.
The unspoken conspiracy... that exists between journalists and those seeking publicity is very real. If you have a story that provokes—real or not—they have the time. Give them the promise of traffic and a little plausible denial and you’re in.
In the story, the activist provides a blueprint for how to plant and hype a story, essentially through astroturfing controversy and building "growing concern" through social media.

Such a revelation would normally be dismissed, especially by self-proclaimed "elite" news outlets, which would claim that while such activities might catch their attention, the stories would still be subjected to rigourous fact-checking and reviews to ensure that the resulting stories complied with their normal standards of objective reporting.  The much-vaunted "layers and layers" of review position, however, took a big hit with the recent UVA rape story - which very quickly and publicly unraveled, but only after the initial (now thoroughly discredited) story had been unquestioningly reprinted by a large number of news outlets.  Meanwhile, the argument that journalistic norms are applied consistently is now taking a hit as stories about potential GOP presidential candidates' history in high school and college are actively being investigated and challenged by major newspapers - newspapers who uniformly argued that it was improper to look at the backgrounds of Democratic Presidential candidates in recent election cycles.
And NBC's current concern with credibility and objectivity seems somewhat hypocritical, given the behavior of its cable news channel (MSNBC) - identified as the most blatantly partisan news source by Pew Research.

All of this is feeding the American news-consuming public's increasingly critical opinion of traditional news outlets, and may be part of their increasing reliance on online sources for news.

Sources - Bob Simon of '60 Minutes' Bob Simon killed in car crash, New York Post
KTVU news crew attacked, robbed in Hayward, SFGate
EXCLUSIVE: How This Left-Wing Activist Manipulates the Media to Spread His Message, New York Observer

Freedom Of Press Witnesses 'Drastic Decline' Globally Amid Emerging Threats To Journalists, International Business Times

Edit track: Added brief paragraph on World Press Freedom report, along with source link.

Tuesday, February 10, 2015

New challengers for Cable, Multichannel

Cable really started having trouble as it transitioned into its third stage - Cable as broadband (see Bates & Chambers, 2004).  A large consequence of this transition was the opportunities digital content and media provided for competition - first through DBS (satellite), then through telco-based broadband/video providers.  The last couple of years has continued the onslaught, with the spread of mobile devices and video streaming that's led to the growth of "cord-cutting", particularly among younger TV content consumers.

In addition to the explosion of competition, the cable/multichannel provider market (which includes DBS and telco-cable services) is having to deal with the growing demand for carriage rights for channels and content - leading to substantial increases in the cost of channels which are inevitably passed through to increased costs for multichannel customers (see Bates, 2014).  While the multichannels consider breaking their bundles, or going "a la carte" (offering single channels to viewers), the online streaming markets have been booming, offering a wealth of content choices for a fraction of the price.  Until recently, though, that has not included live carriage of major networks.

Carriage of major network content actually started a couple of years ago, when the major broadcast networks started making some of their primetime series to audiences through their own websites, multichannel on-demand services, and even some streaming video services.  Then CBS upped the ante, announcing their own subscription streaming service that would greatly expand access to network content, and both HBO and Sony have announced plans that would offer access to their channels and content online, and independent of having a multichannel subscription.  (TV Everywhere also boasts streamed access to cable channels, but require that consumers subscribe to those channels through a multichannel provider).

The degree to which these streaming efforts are impacting the TV marketplace is reflected in the FCC's recent announcement that it's considering revising its definition of multichannel service to include online sites that offer multiple channels or streams.

Still, DishTV's announcement that it will offer US consumers a SlingTV bundle of basic cable channels (without requiring a Dish subscription) for an initial price of $20/mo. is a significant new competitive challenge.  The basic package includes top channels in many niche categories (ESPN, ESPN2, TNT, TBS, Food Network, HGTV, Travel Channel, Adult Swim, AMC, Cartoon Network, Disney Channel, ABC Family, CNN, El Rey and Galavision, as well as access to Sling TV’s video-on-demand library), with three add-on bundles at $5/mo (Kids Extra, News/Info Extra, Sports Extra). And there seems to be a buzz growing about Apple assembling something similar to the SlingTV bundles for its own entry into the OTT market.

The initial problem for the big multichannels is that the basic service plus an add-on or two, provides access to much of the channels desired by a big segment of current multichannel subscribers, but at a fraction of the cost of the bigger bundles of channels that multichannels now offer.  Multichannels will have to respond with similar mini-bundles at competitive prices, or significant loss in customers to cord-shaving or cord-cutting.

Sources - Sling TV Debuts With Major Cable Channels, MediaDailyNews
Cable-TV Desperately Searches for Ways to Stop the Cord-Cutting, The Street

Editted - added pics.

Infographic: Top Mistakes on Mobile

From Formstack:

Friday, February 6, 2015

Infographic - The changing face of mobile

From the 2014 U.S. edition of Deloitte's Global Mobile Consumer Survey.

Mobile finally hitting TV, desktop usage

Research on smartphone penetration shows that there is a clear generational gap in smartphone penetration.  The gap shows clearly in a Nielsen report from last fall, and in recent Pew Research Center findings.

Penetration is one thing, and actual usage is another.  A number of recent reports show distinct generational differences in both frequency of use, and in the types of applications and uses.  Most of these reports, however, have yet to really establish that smartphone ownership and usage have had a serious impact on either TV viewing or Internet use on laptops or desktops.

A recent study by Millward Brown Digital (MBD) finds that 77% of Millennials (those aged 18-34) report using a smartphone on a daily basis compared to 60% of Gen Xers (aged 35-50).  While this fits in with previous research, the MBD survey also reports generational differences in other media habits. They report smaller, but still consistent, reports of daily TV viewing (77% for Millennials, 86% for Gen Xers, and 91% of Boomers), and daily use of laptops or desktops (58% for Millennials, 67% for Gen Xers, and 71% for Boomers).
The difference is enough that MBD's research director, Joline McGoldrick, indicated that online marketers are not only finding mobile as a growing segment of the advertising marketplace, but that marketers should take into account the emerging generational differences as well. Advertising placement on mobile is one of the fastest growing ad segments, with a 60% growth rate this year, and predictions that mobile will account for more than 20% of all ad revenues by 2018.

Source -  Millennials Spend More Time With Mobile, Impacts TV Time, Mobile Marketing Daily

Infographic - History of Phone System Development

From Compare Business Products, a review of the history of telephone system development as an infographic.

Tuesday, February 3, 2015

Tidbits from Superbowl viewers

eMarketer released some recent poll stats on Superbowl viewers.

Almost half (46%) of smartphone and tablet owners reported they were likely to use a second screen while watching the Superbowl this year.  About a third said they'd likely be on social media, while one in five thought they'd be on sports cites or apps.  Grouping at just under 20% were the following uses: playing games, watching videos, checking news, and getting weather updates.

Another study looked at how people thought about Superbowl ads. It was no surprise that people overwhelmingly thought of them as primarily entertainment. About one in five thought the ads contributed to brand awareness.  Other than that, people didn't like the ads as advertising.  16.6% saw them as a waste of money that could better be used to keep product prices low; just under 10% thought they made the game too long; and about 7% saw them as unnecessary interruptions.  Only about 10% thought that the ads might encourage them to seek more information about products, or influence they buying habits.

Boom in online ad dollars - for some

Analyst Gordon Borrell puts the growth rate for online advertising dollars at 40% for 2014, and 42% for 2015.  Some firms could see online ad gains of 30% or more.  But for others, online dollars aren't going to be able to offset traditional advertising losses.

In particular, Borrell noted that newspaper print advertising is looking at continued advertising revenue declines of 10% annually.  Even when adding in the weak growth in online ad revenues for newspapers, total newspaper advertising revenues are predicted to fall 4.8 % in 2015.
Furthermore, the report notes that even in markets where newspapers have strong digital news content, advertisers are shifting to more targeted sites for directed and targeted advertising efforts.

With targeted ads remaining the fastest growing sector, having an audience is not enough - you need to be able to demonstrate having the right targeted audience.  Newspapers have had trouble doing that for their online editions.  In fact, Borrell predicts that online "Internet pure play" sites will grab about three-quarters of local online advertising revenues - mostly at the expense of traditional media outlets.
The report suggests that traditional media strategies towards online advertising tend to fall into one of three basic approaches:
Traditional media companies stuck in the analog world, selling a little digital stuff because it’s easy, but not really believing there’s good money in it; traditional media companies that are more excited about the prospects but still reticent (or unable) to invest more in order to grow quickly; and traditional media companies that have seen the light and are determined to grow again, investing heavily in digital by hiring people or acquiring companies.
Borrell estimates that about half of traditional media outlets fall in the first group - which explains why they're losing out in local advertising markets - which is increasingly focused on highly targeted content and audiences.

Source: Analyst Gordon Borrell sees local digital ads soaring in 2015, but not for newspapers,

Friday, January 30, 2015

FCC sets new "Broadband" standard at 25 Mbps

Yesterday the FCC formally approved a long-awaited increase in its definition of what counts as "Broadband" Internet connectivity.  The Commission, in giving formal approval to release its annual report on the status of broadband, gave implicit approval to that reports change in what it considers to be broadband service.  The old standard was 4 Mbps downstream and 1 Mbps upstream - while the new standard is 25 Mbs downstream and 3 Mbps upstream.
Critics have long argued that the FCC's 4 Mbps standard was outdated - it was established well before video streaming usage exploded, and 4 Mbps isn't sufficient bandwidth to stream a TV signal uninterrupted by delays.  The industry itself established an informal standard of 20 Mbps as needed for broadband connectivity to homes years ago.  That level of bandwidth was based on the ability to live stream 2-3 separate video streams to multiple devices, while leaving enough capacity for second screen data and other Internet usage.  The EU is using the 20 Mbps standard for its policy goal of achieving universal broadband access.
The definition of minimum broadband standards is critical to determination of access and availability of broadband to consumers, as well as determining whether there is effective competition in broadband markets.  Its been thought that the FCC continued to use its 4 Mbps standard to inflate national availability numbers to seem more on a par with availability numbers in other countries.  While that may have been a minor concern, its more likely that they stuck with 4 Mbps because that was the data capabilities of 3G cellular services and the small satellite-based data services.  Inclusion of 3G cellular and satellite data coverage provided both near-universal accessibility, and competition to wired (land-based) cable and telecomm providers for about 90% of Americans.
 The new 25 Mbps standard basically excludes those (but is within 4G cellular standards), and reflects the reality that 17% of the U.S. population doesn't have access to data services meeting the new standard.  More critically, from a policy perspective, is that exclusion of satellite data services (which currently don't provide services at that speed yet) leaves large swaths of rural America without "broadband" access.  The new report determines that 53% of rural population (63% of those living on tribal lands) won't have access to data services meeting the new standard for broadband.  Similarly, applying the new standard in considering whether there is effective competition for broadband service providers means that only 37% of Americans have access to two or more broadband services.  Excluding 3G service providers is the primary cause for the drop in "competition." Also, not all of the "4G" services being offered in the U.S. meet the formal international standards - some peak out at 21 Mbps downstream, which qualifies as broadband under EU standards (20 Mbps) but not the new US standard (25 Mbps).
 While the standard for "broadband" in the U.S. certainly needed changing, whether it should be at 20 or 25 Mbps is somewhat debatable in the short term.  In the long term, there's already discussion of what the next standard should be (mostly centered for now at 50-100 Mbps).  Give it a few years, and we'll need to redefine "broadband" again anyway.

Sources -  FCC Says Broadband Now Means Speeds Of 25 Mbps,  OnlineMediaDaily