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On newspapers – Time (Inc.) for a shift in strategy

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It’s no secret that the publishing industry is struggling mightily as customers shift from paying for physical newspapers and magazines to reading information online, often for free. The shift has caused ruptures among other places at that bastion of French journalism, Le Monde, with the recent exit of the editor as staff rued the switch to online. So-called ‘lad’s mags’, the FHMs and Loaded magazines of the world, have been hit particularly hard, as the family PC and dial-up internet gave way to personal, portable devices and broadband connections, which provided easier access to more salacious content than the likes of Nuts could ever hope to provide. FHM’s monthly circulation is down almost 90% from a 1998 peak, according to the Financial Times. Condé Nast have pushed bravely into the new digital era, launching a comprehensive list of digital editions of its wares when the iPad launched in 2010. More recently, the company launched a new venture, La Maison. In association with Publicis and Google, the idea is to provide luxury goods companies with customer insights as well as content and technology solutions. We’ve often written about the need for more rigorous customer insights in the world of luxury, so it’s refreshing to see Condé Nast innovating and continuing to look beyond newsstand sales. We’ve written about other ways publishers are monetising their content here and here.

Time Warner is not alone then in its struggles for new ways of making money from previously flourishing revenue streams. According to The New York Times, Time Warner will be spinning off its publishing arm, Time Inc., with 90 magazines, 45 websites and $1.3bn in debt. In 2006, the article reports, Time Inc. produced $1bn in earnings, which has now receded to $370m. Revenue has declined in 22 of the last 24 quarters. This kind of move is not new. Rupert Murdoch acted in similar fashion recently when he split up News Corporation, creating 21st Century Fox. But with the publishing side of the business there were some diamonds in the rough for investors to take interest in; a couple of TV companies, as well as of course Dow Jones’ Wall Street Journal, which has been invested in heavily. Conversely, the feeling of the Time Inc spin-off was more one of being put out to pasture, particularly as the company will not have enough money to make any significant acquisitions. Like the turmoil at Le Monde, there have been managerial controversies, as those seeking to shake things up have tried to overcome historical divisions between the sales and editorial teams – something other large business journalism companies are reportedly struggling with – only to be met with frustration.

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Setting that aside, Time Warner moved swiftly. A day later, the FT reported that the company was “finalising an investment” in Vice Media. We have written extensively about Vice previously, here. The company certainly seems to know how to reach fickle millennials, through a combination of interesting, off-beat journalism, content designed to create its own news, as well as compelling video documentaries that take an unusual look at topical subjects. Such an outlook however does not preclude it from partnering with corporations. As a millennial myself, it seems what people look for from those like Vice is authenticity, rather than the vanilla mediocrity arguably offered by others. We don’t mind commercialism as long as it’s transparent. It does not jar then when Intel is a major investor in its ‘content verticals’, or when last year 21st Century Fox invested $70m in the company. This bore fruit for the movie studio most recently in a tie-up promoting the upcoming Dawn of the Planet of the Apes. The sequel takes place 10 years after the 2011 film, and Fox briefed Vice to create three short films that would fill in the gaps. A great ploy, and the result is some compelling content to keep fans engaged in the run-up to the film’s release, particularly in territories where the film opens after the US market. Such activity is far beyond the purview of the traditional newspaper. But this is not necessarily a bad thing. Publishers must face up to the reality that newspapers alone will not deliver enough revenue to be sustainable. Seeking other content revenue streams while engaging in strategic partnerships with other companies looks, for now, to be a winning formula.

UPDATE 08/07/14: When it comes to engaging with millennials, mobile is most definitely the medium of choice. The FT reported today on Cosmopolitan magazine’s 200% surge in web visitors, year on year in May. Fully 69% of page views were from mobile devices (compared to a 25% average for the rest of the web). The publication has also wised up to the type of content this group likes to consume, as well as create. Troy Young, Hearst’s president of digital media, said the new site is “designed for fast creation of content of all types… Posts aren’t just text and pictures. They’re gifs, Tweets, Instagrams.” Mobile will only get the company so far though. PwC thinks US mobile advertising spending will account for only 4.6% of total media and entertainment advertising outlays this year. Cosmo is looking beyond mobile though to “exclusive events or experiences”, perhaps along the same lines as those other businesses are practicing who are looking for additional revenue streams. The article suggests users might “pay to see the first pictures of an occasion like Kanye West’s and Kim Kardashian’s recent wedding”. Beggars can’t be choosers.

UPDATE 10/07/14: Have all these corporate manoeuvres on the part of Time Warner been in the service of making itself appear an attractive acquisition? As the famous and clandestine Sun Valley conference takes place this week, rumours abounded that Google or 21st Century Fox were both interested in buying TW. This according to entertainment industry trade mag Variety, which commented, “Time Warner could be an attractive target. Moreover, unlike Fox or Liberty Media, it is not controlled by a founder or a founder’s family and with a market cap of $63.9 billion it is a relative bargain compared to the Walt Disney Co. and its $151 billion market cap”.

Luxury still too good for a digital strategy

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Chanel is one of the key culprits when it comes to lack of digital innovation

A recent McKinsey report declared that, for businesses, “The age of experimentation with digital is over“. That may be for most B2B and B2C private sector companies, but not for the luxury goods industry. Bemoaning the woeful development and investment in strategic initiatives for luxury brands online is something this blog has done once or twice before. There are understandable reasons why the industry has been reticent to commit to online retail, based on customer insight (the assumption that HNWIs don’t like to shop for something without being able to see and touch it for themselves) and conflicting priorities (physical store expansion into China and more experiential events has been the name of the game in recent years). But with a China slowdown mooted, particularly in the area of luxury gifting, and no real concrete research to show that HNWIs aren’t just as digitally savvy as their less liquid counterparts, there becomes less and less justification for what are, across the industry, woeful examples of digital strategy and innovation.

It can’t be easy for profitable businesses like LVMH, with an eye on quarterly earnings, to make drastic investments in the online space. Luxury’s brand equity often comes from provenance and tradition; a company’s roots are in its founding stores, the connotations of Milan, Florence, Paris, etc. They also worry about their neighbours; a flash-sale site or, worse, one full of counterfeit knock-offs, is always just a click away. From a logistical point of view, there is also the issue of back-end infrastructure to contend with. For several years, PPR (now Kering) ran much of its e-commerce business through Yoox, as we’ve talked about before. It would be wrong to single out those in luxury. L2 Thinktank recently tweeted with much excitement about Bacardi’s “cocktail discovery site” that worked seamlessly across web, mobile and tablet. Well, forgive us if we don’t leap for joy in an ecstasy of delirium, but this is 2014, that should be the minimum deliverable. Still, luxury is a sector in blatant need of redirection.

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eConsultancy eviscerated many luxury brands’ online presences in a recent article

Burberry is lauded by many as an outlier in this world of luxury goods, a company that has truly embraced digital. For all the talk of such innovation though, the website itself is utterly dominated by a rote e-commerce site, as are its social networks such as Google+. It is the physical stores where technological innovation has been injected. And this is supposedly the company pushing the rest of its peers forward. It comes as little surprise then that eConsultancy published a superb piece at the end of April excoriating the sector, leaving no brand unscathed. Headlines included, “painfully slow load times“, “awful UX” and “not making much effort“. But the worst and most perplexing atrocity had to be the above screengrab on the purposeful hiding away of an e-commerce platform, one that was presumably quite expensive to source and implement in the first place. We can’t overestimate the necessity of having a clear user journey through to purchase, just as it would be difficult to overestimate the amount of luxury good companies that are guilty of this sin for which Dolce & Gabbana have been singled out for here.

On this note, Gucci’s recently relaunched mobile site – replacing among other things a tablet site that had been left to wither since 2010 – was welcome news to us, as it seemed to be also (logically) to those wishing to actually part with their money on Gucci wares. L2 in May reported the news, saying that the new site now accounts for 27% of all traffic, a 150% YoY increase. Sounds good, except that means traffic through the mobile site in 2013 was a miniscule 0.18%, right? Terrible.

There are signs of hope. Gucci’s move to invest in a new mobile site, though monumentally belated, is a welcome one. As more brands cotton on to the importance of online, the Financial Times recently reported on the moves many are making to secure ‘.luxury’ suffixes, in the wake of IPv6, if only to avoid the complications of cybersquatting. And Michael Kors, which seems only to be going from strength to strength every quarter, has praised its own social media presence for “driving international sales”. We’ve almost entirely focused on fashion brands here, but other companies within the luxury sector are getting the message loud and clear. Take the auction house Christie’s, a legacy company if ever there was one, having been founded in 1766. Not only have they dedicated time and energy to investing in major online auctions, they have also recently created a new sector vertical of ‘luxury’ within the house itself. New thinking might well take new talent, it will also take C-suite buy-in, as well an acceptance that digital commerce is an integral part of business now, no matter how exclusive your product is.

Regulating in the face of digital disruption

April 30, 2014 1 comment

peter-c-vey--these-new-regulations-will-fundamentally-change-the-way-we-get-around-the…-new-yorker-cartoon_i-G-65-6596-IDO2100ZHaving studied policy and regulation at university, Zeitgeist is often compelled to look at many issues facing companies today through a regulatory lens. But even the most dispassionate fan of rules and laws would have to concede that as digital innovation disrupts multiple sectors around the world, the way these new innovations and businesses are governed is an important consideration. In this piece we’ll be looking at regulatory concerns for disruptors like Uber and Netflix, as well as how regulation effects legacy companies like Microsoft and Comcast. As with many of our articles on this blog, we’ll be taking a particular look at the TMT sector. (Bitcoin will have to wait for another article).

Regulators often find themselves caught between a rock and a hard place. Should the emphasis be placed ex-ante, to ensure compliance, or ex-post to apply punitive measures and fix problems once they have become apparent? The former seems wise as it sets initial goals for companies. But it also risks opening loopholes, as well as being overly prescriptive and thus failing to adapt. It can also lead to the development of overly-familiar relations between regulator and industry, leading to what is known as ‘capture’. Currently, the US favours an ex-ante approach, but as Edward Luce detailed recently in the Financial Times, this has led to a “creeping impulse to micro-regulate“. The FDA’s recent announcement that they would regulate e-cigarettes, despite no proof it encourages the take-up of smoking tobacco, is such an example. Ex-post – regulating after an event – seems just as bad, mostly because the damage has already been done at that point. While it means that all problems addressed are real-world and practical, they can also be applied with too much emphasis. Above all, regulation ultimately risks stifling innovation; Edison moved to the West coast because he was fed up of the stringent regulations in the East. A recent lead article in The Economist asserted that, far from too little regulation, the global recession was caused by too much state involvement in the wrong places. Too little oversight though, and companies can be allowed to run wild.

Earlier this month, The New York Times featured an op-ed on regulating the online world. It is written by New York State attorney general Eric Schneiderman. As might be expected, he quickly attacks online start-ups saying it is “amazing” that they think just because their business is online, that “somehow makes them immune from regulation”. This is all well and good, but it masks the fact that clear regulations have not been established. Schneiderman is right to point out that just because a business now has an app instead of a high street store doesn’t mean its responsibilities to the law have changed. It is an apt analogy. But in practice the story is different. As with most innovations, from film to Napster and Airbnb, regulators must constantly be playing catch-up. The complaints of new businesses are not that they should be subject to regulation, rather that those rules are onerous or outdated, applying to a different time. The sharing economy works because it has found cheaper, more efficient ways of offering services that hitherto were more restricted; regulations need to be appropriately dispensed. Sadly, many cities in the US have simply blocked allowing such services to operate. Uber – a car pickup service – is probably not wholly repulsed by the thought of regulation, but they are resistant to rules put in place by entrenched interests and unions. Airbnb might violate the letter of the law, but not the spirit surely. People have always let out their living space to others. The only thing that has changed is scale. Why does scale suddenly make something legally problematic? Schneiderman points out that some lettings are so large, with multiple rooms let at once, that they are essentially hotels. True enough, perhaps, but Zeitgeist has certainly never come across such a property, and they are certainly small in number, and no more represent Airbnb’s ethos than any hotel violating its own (regulated) terms. A recent article in The Economist argued for “adaptation, not prohibition“. Schneiderman’s sentiment is that these start-ups need to work more closely and proactively with regulators, but this fails to recognise that regulators need to also fundamentally change their approach.

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East and West shook up a regulatory framework with the recent release of “300: Rise of an Empire” via China’s Tencent website

Regulation in China has been a hot topic for a while now. This is principally because the region has a low tolerance of free speech. But it extends to cultural concerns as well; the Google Play store, Twitter, and most of Hollywood’s annual product do not make it onto Chinese shores (legally, anyway). What this creates is a secondary tier of companies who take Western business models and run with it. That’s why there are multiple Chinese Android app stores, why Sina Weibo is a fantastically successful service, and why many poor remakes of US films flood the Chinese market. It has been pleasing then to see two recent developments in the way China regulates the TMT sector that should be good news for consumers and Western companies. Today saw the announcement that Microsoft’s Xbox One is to be sold in China. It will be the first foreign games console to go on sale in the country, lifting a fourteen year ban. This would open up the company to the half billion active gamers in China. Additionally, as Michael Pachter, analyst at Wedbush Securities pointed out,

“The middle class in China is pretty large, and positioning the box as an over-the-top TV receiver gives it a lot of appeal to wealthier Chinese.”

Earlier this week, Warner Bros was the latest film studio to partner with Chinese site Tencent. The film 300: Rise of an Empire, is available to rent through the site, while it is still in cinemas in territories like the US. The points of the deal were very interesting. Zeitgeist has for a number of years now advocated an increased flexibility to film platform release windows. Such a rigid structure as the industry has in the US is not as apparent in China. This could help alleviate piracy in the country and separately could pave the way for a relaxing of the quota of US films that are let into the Chinese market every year. Hopefully this will be a precursor to more such moves in Western markets. As someone commented on the news when it was published on the Financial Times website,

“Maybe they can do the same in the rest of the world as well?
Or I could wait 2 months for something to come out on Bluray in the UK compared to the US. Or just pirate it when the US version is available since they won’t let me buy it in my country, but will let other people buy it in other countries.”

While China is taking steps forward, the US seems to be faltering in its regulatory approach. We mentioned the impending restrictions on e-cigarettes earlier, and let’s not even go into then-mayor Michael Bloomberg’s crusade against sugar. We’ve written about net neutrality before. The issue has been of interest to Zeitgeist since university days. It was thrust into the spotlight this year when a US court ruled that the FCC had “overstepped its authority” after a legal challenge from Verizon. Last week, new rules were proposed that will undermine the original purpose of the policy of treating all traffic the same, allowing ISPs to charge companies like Netflix more in order to reach consumer with greater quantity or quality, but only on “commercially reasonable” terms. These terms have yet to be defined. These moves touch on a related matter that has also been greeted with consternation by those who favour fairness. This is Comcast‘s proposed merger with Time Warner Cable. Netflix recently publicly came out against the move. It is easy to see why. As The Economist recently elaborated, such a deal would limit competition and reduce any incentive to innovate. It is also one more example of the assumption companies have that their problems can be solved with size. Comcast have admitted they will raise prices for the end user, while as much as conceding there will no be no discernible benefit to them. One might argue there is little more for such companies to do, but average internet speeds in Tokyo and Singapore are ten times as fast on average as in the US. Even the Financial Times, which can often be counted on to be a bastion of support for capitalists, compared Comcast to the Railway Barons of the past.

The sharing economy is creating difficulty for many sectors, and regulatory agencies have not escaped this. Such forces have been to slow to adapt to fundamental changes in the TMT sector, particularly in print, music and film industries. There certainly seems to be a tendency for over-regulation today, particularly in the US. Returning to an article we mentioned at the beginning of our piece, Edward Luce laments that America “no longer feels unusually free”. Perhaps this is part of a cyclical trend. Like the causes of the recession, perhaps the problem is a stifling caused by over-regulation in the wrong places, coupled with a lack of innovation in areas where sensible rules that do not cater to the established are in dire need. It is good to see rules and regulations around consoles and release windows are being relaxed in China, but the furore around regulating the sharing economy needs a similar dose of innovative thinking.

Adjacencies & Disruptions – Amazon, Armani and identifying corollaries

Zeitgeist likes thinking about adjacencies. We’ve written about it before when looking at the art market, but it’s also prevalent in other industry sectors. Think of the UK übergrocer Tesco. The company has expanded into movie distribution – with Blinkbox – as well into banking and mobile, albeit as an MVNO. Why? To diversify its revenue streams; the grocery market is a cutthroat place of late; Morrisons recent conceding that it would be setting off another price war among its peers was hardly greeted with cheers by shareholders. How? By using the equity of trust they have built up with shoppers over the years, they are able to expand into other, similar territories, where their (claimed) competitive advantage of good value and good customer service can be similarly applied.

Amazon has been nothing if not a company constantly on the hunt for the efficient exploitation of adjacencies. A recent article in The New Yorker detailed how CEO Jeff Bezos got into books because he saw the market was ripe for disruption; he saw the Internet was the perfect platform to sell such a product:

It wasn’t a love of books that led him to start an online bookstore. ‘It was totally based on the property of books as a product’, Shel Kaphan, Bezos’s former deputy, says. Books are easy to ship and hard to break, and there was a major distribution warehouse in Oregon. Crucially, there are far too many books, in and out of print, to sell even a fraction of them at a physical store. The vast selection made possible by the Internet gave Amazon its initial advantage, and a wedge into selling everything else.

Zeitgeist remembers buying his first book from Amazon back in 1999. It wasn’t long before the company expanded into music, and from there into myriad other offerings. Like Tesco, Amazon found its original industry to be a highly competitive one – at least in terms of margins. It has become a fairly ruthless behemoth in the publishing industry, acting as monopoly in its rent-seeking tactics. The Kindle was an extension of its strategy to ‘own’ the territory of books, and as a publishing company itself it has so far had mixed success, according to The New Yorker. The Kindle Fire addresses its new media offerings, principally video. Just as a recent Business Insider article identified the Xbox 360 as Microsoft’s short-term ploy to encourage a customer to funnel all entertainment through their device before the launch of its successor Xbox One, so with Amazon and its Kindle Fire before this week’s release of Fire TV. The Financial Times featured good coverage of the device here, quoting an analyst at Forrester,

It is a slightly faster Roku box combined with voice recognition to make search easier and then they have created a full Android gaming device. This puts the product into a whole class of its own.”

It will be interesting to see how the device competes with the much cheaper Chromecast, from Google, itself an exploiter of adjacencies. Google relies less on an equity of customer trust to move into new industries and more an innate belief that tech can be used to solve pretty much any problem. The search engine provides an affordable smartphone OS platform, connected glasses, globe-trotting balloons and driverless cars.

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In the world of luxury, that essence of trust is treated with far greater reverence. This is principally why fashion brands have been such laggards when it has come to embracing digital communications and ecommerce solutions. tIronically, this approach, which by extension neglects a dedicated approach to holistic Customer Experience Management (or CEM) is arguably beginning to have a negative impact on how people perceive and interact with these companies. It is why adjacencies seem to happen less than temporary collaborations, an impressive recent example of which can be seen in BMW’s recent tie-up with Louis Vuitton.

It was gratifying to see Giorgio Armani, a company that has carefully crafted diffusion lines as well as adjacencies into hotels and homeware over the years, recently buck the trend, sending out communications over its newest line, Armani Fiori. While style can be eternal, fashion can be quite ephemeral – as with flowers. It’s not clear how much of a market there is for this. That being said, the sector is not exactly brimming with ultra-premium florists. And it might provide a certain level of reassurance for the man purchasing flowers, who can rely on the brand’s prestige to assuage any feelings of whether he is picking a good bunch. Where it might prove especially successful though is in the B2B sector; the lobbies of corporate headquarters and luxury hotels could soon be awash with the fragrance of a designer flower or two.

Adjacencies tend to work best then when they start by identifying qualities inherent in the brand as it currently exists. I.e. what is our current competitive advantage? Is that scaleable or transferable to a related field? Often, as with the cases above, such acquisitions and movements arise when traditional margins are being eroded or under threat of such. Prada, a leader in the luxury sector, has as that leader borne the brunt of strong headwinds recently as the sector as a whole experiences a slowdown. Its own adjacent acquisition? Last month it bought an 18th-century Milanese pastry shop.

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Tech’s impact on business and culture in 2014

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It would be impossible to capture the disruptive influence the latest digital technologies are currently having on the world in a single blog post. But what Zeitgeist has collated here are some thoughts and happenings showing the different ways technology is changing our lives – from the way we do business to the way we interact with others.

Last night saw a highly enjoyable occurrence. No, not the Academy Awards in general, which as ever moved at a glacial pace as it ticked off a list of predicted favourites. Rather, it was a specific moment in the ceremony itself, when host Ellen DeGeneres took a (seemingly) impromptu picture of herself with a cornucopia of stars, tweeting it instantly. The host declared she wanted the picture (above) to be the most retweeted post ever. The previous holder was none other than the President of the United States, Barack Obama, whose re-election message saw over 500k retweets. It took Zeitgeist but a few minutes to realise that Ellen’s post would skyrocket past this. Right now it has been retweeted 2.7m times. Corporate tactic on the part of Samsung though it may have been, Zeitgeist felt himself feeling much closer to the action – being able to see on his phone a photo the host had taken moments ago several thousand miles away – and the incident helped inject a brief air of spontaneity into the show’s proceedings. Super fun, and easy to get definitive results in this case on how many people were really engaging with the content. But can we quantify how much Samsung and Twitter really benefited from the move, beyond fuzzy marketing metrics? Talking heads on CNBC saw room for improvement (see below).

Former WSJ.com Managing Editor Kevin Delaney leads discussions on Samsung and Twitter's presence at the Oscars last night

Former WSJ.com Managing Editor Kevin Delaney leads discussions on Samsung and Twitter’s presence at the Oscars last night (click to watch)

The big news of late in tech circles of course has been Facebook’s $19bn acquisition of messaging application Whatsapp. Many, many lines of editorial have been spilled on this deal already. In the mainstream media, many commentators have found the price of the deal staggering. So it’s worth reading more considered views such as Benedict Evans’, whose post on the deal Zeitgeist highly encourages you to read. Despite the seemingly large amount of money the company has been acquired for – especially considering Facebook’s purchase of Instagram for a ‘mere’ $1bn – Evans sagely points out that per user the deal is about the same as Google made in its valuation when it purchased YouTube. So perhaps not that crazy after all. The other key point that Evans makes is on Facebook’s dedicated pursuit to be the ‘next’ Facebook, or conversely to stop anyone else from becoming the next Facebook. With a meteoric rise in members (see image below, as it outstrips growth by both Facebook and Twitter), Whatsapp was certainly looking a little threatening.

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Whatsapp’s number of active users skyrocketed to 450m in no time, outpacing both Facebook and Twitter (Source: The Economist)

The worry for investors is how Facebook will monetise this platform, when the founders have professed an aversion to advertising. Is merely ensuring that Facebook is the ‘next’ Facebook a good enough reason for such acquisitions? Barriers to entry and sustainable advantages will be few and far between going down this route. The Financial Times, in its analysis of the acquisition, points out that innovation is quickly nipping at the heels of Whatsapp. CalPal, for example, is one example of a mobile application that lets users message each other from within an app. In the markets, there has been a relatively sanguine response to the purchase, but only because of broader trends. As the FT points out,

“External forces have also helped to push the headline prices of deals such as WhatsApp into the stratosphere. A global excess of cheap money, along with a scarcity of alternatives for growth-hungry investors, has boosted the stock prices of companies such as Facebook and Google.”

One of the most visibly exciting developments in technology in recent years is the explosion of the wearable tech sector. But it is Google’s flagship product, Glass, that has met with much ire and distress. An excellent piece of analysis appearing in MIT Technology Review last month hit the nail on the head when it identified why Glass was having trouble winning people over. The article rightly identifies the significant shift in external appearance inherent in making the switch from a device that needs to be taken out of a pocket as makes it clear when it is being interacted with (you need to cover half your face with the product to talk to someone, for example). The article also details the savvy approach Google have taken to the distribution of their product. It’s always sensible to try and mobilise the part of your base likely to be evangelists anyway, so as to build advance buzz before a full-blown release. But to get them to pay for the privilege, as Google are doing with their excitable fans, dubbed Explorers, is a stroke of genius for them. However, the key issue, and what the article states is an “insurmountable problem”, is that “Google’s challenge in making the device a successful consumer product will be convincing the people around you to ignore it”. It is this fundamental aspect of social interaction that is worrying many, and now Google is worried too. As detailed in the FT, the company has acknowledged that the product can look “pretty weird”. Recognising it has a “long journey” to mainstream adoption, it published a list of Dos and Don’ts. Highlights include,

“Ask for permission. Standing alone in the corner of a room staring at people while recording them through Glass is not going to win you any friends… If you find yourself staring off into the prism for long periods of time you’re probably looking pretty weird to the people around you.”

It indicates that Google may have a significant ‘Glasshole‘ problem it needs to attend to. The case may be overstated though. One of the problems may just be that potential customers have yet to see any practical uses for it. This is beginning to change. Last week, Virgin Atlantic announced a six-week trial of both Glass and Sony smartwatches. The idea will be for check-in attendants to use the devices to scan limousine number plates so that passengers can be greeted by name and be instantly updated on their flight status.

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In the arts, digital technology has inspired much innovative work, as well as helped broaden its audience. David Hockney, one of England’s greatest living artists, recently exhibited a series of works produced entirely on his iPad at London’s Royal Academy of Arts. He is far from alone. Last week’s anniversary issue of The New Yorker featured work from Jorge Colombo on its front cover, again produced entirely on an iPad. Such digital innovation allows for increased productivity as well as new aesthetics. When done well, art can also involve the viewer, encouraging interaction. Digital technology helps with this too. Earlier in the year The New York Times covered how the New York City Ballet redesigned part of their floor in a new scheme to attract new visitors to the ballet. The result, roughly life-size pictures of dancers arranged on the floor, has seen great success, and an explosion of content on social media platforms like Instagram, where users have taken to posing on the floor as if interacting with the images (see above). It’s a simple tactic that now reaches a far greater audience thanks to new digital technologies.

A recently published book, ‘Now I know who my comrades are: Voices from the Internet Undergound’, by Emily Parker, seeks to demonstrate the ways in which digital technology has made helped to coalesce and support important activism in regions such as China and Latin America. But, as The Economist points out in its review, the disappointing situation in Egypt puts pay to some of the author’s claims; there are limits to how productive and transformative technology can be. In business, these hurdles are plain to see.  A poll taken by McKinsey published last month shows that “45% of companies admit they have limited to no understanding on how their customers interact with them digitally“. This is staggering. For all executives’ talk of the power of Big Data, such technology is useless without the proper structures in place to successfully analyse it. We also perhaps need to think more about repercussions of increased technological advances and how they influence our social interactions. In the recently opened film Her (starring Joaquin Phoenix, pictured below), set in the very near future, a new operating system is so pervasive and seamless that it leads to fraught, thought-provoking questions on the nature and productivity of relationships. When does conversation – and more – with a simulacrum detract from interactions with the physical world? These considerations may seem lofty, but as we illustrated earlier, the germination of such thoughts are being echoed in discussions over Google Glass.

So technology in 2014 heralds some promise for the future. Wearable tech as a trend is merely the initial stage of a journey where our interaction with computing systems becomes seamless. It is on this journey though that we need to make sure that businesses are making the most of every opportunity to streamline costs and enhance customer service, and that individual early adopters do not leave the rest of us behind to deal with a bewildering and alarming new way of living. One of our favourite quotations, from the author William Gibson, is apt to end on: “The future’s already here, it’s just not very evenly distributed“.

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“Lots and lots of files” – Privacy, data and a new currency

December 28, 2013 1 comment

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One of the seminal television shows of the 1990s, The X-Files played on myths, legends and government paranoia to worldwide critical and popular acclaim. One of the key episodes of the series found the lead characters, FBI agents Mulder and Scully, happening upon an abandoned mining facility. Contained inside were row upon row of filing cabinets. Inside, thousands of names spilled forth. The sheer number of file drawers is a visual feast for the viewer. But there is more; one of the agent’s names is in those files. Personal data on her (in the form of a tissue sample) has been taken without consent. Down the rabbit hole we go…

We have always operated under the assumption that governments must surveil in order to protect its citizens. The difference today, as Edward Snowden has so plainly shown, is firstly that you are the one being watched, and secondly that the sheer extent of the surveillance and the pervasive nature of its collection is staggering. The pervasiveness of all this is a key point. Not much in the way of policy has changed really in the past fifty years, it’s just that spying on swathes of the world’s population has become increasingly easier and cheaper. Back in 2006, the UK’s Information Commissioner’s Office warned that the country was moving “towards pervasive surveillance”. Such a prophecy seems to have turned into reality. It creates an uncomfortable feeling that those in charge do not have our best interests at heart, or at least that the ends do not justify the means.

Some of the finest publications in the world have been struggling to make sense of what all this means; Zeitgeist is using this post to highlight some of those key thoughts and issues covered. Back in September, The New York Times reported, paradoxically,

“Even agency programs ostensibly intended to guard American communications are sometimes used to weaken protections. The N.S.A.’s Commercial Solutions Center, for instance, invites the makers of encryption technologies to present their products to the agency with the goal of improving American cybersecurity. But a top-secret N.S.A. document suggests that the agency’s hacking division uses that same program to develop and ‘leverage sensitive, cooperative relationships with specific industry partners’ to insert vulnerabilities into Internet security products.”

Zeitgeist remembers dining alone in New York in September poring over the news. The NSA tried to ask for permission to legally insert a ‘backdoor’ into all digital encryption, but were denied. So they went ahead and did it anyway. They influenced government policy that led to fundamental weaknesses in encryption software. Last week, a federal judge considered the constitutionality of the US’s surveillance programmes. He called the technology used by the NSA “almost Orwellian” and ordered it to stop collecting the telephone records of two plaintiffs. It is one of several cases currently underway.

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Click to see The New Yorker’s infographic on what personal data is made available to social networks and their advertisers

Of course, such spying would have not have been possible without the consent – tacit or otherwise – of companies in the private sector. There is clamor in the US, UK, Brazil and other countries for more restrictive regulation that makes it harder to collect consumer data. Such policy could make data analysis and collection onerous and might have a significant impact for those businesses that make a living out of using such data. As The Economist puts it,

“Should all this make it harder and costlier for companies to gather information, that would hurt the likes of Facebook and Google, which depend on knowing enough about their customers to ping them with ads that match their tastes.”

The New Yorker recently featured a fascinating article complete with unnerving infographic (excerpted image above) showing just how much information we display on our various social networks is then shared with the platform and its advertisers. This month, a new film, Her, arrives in cinemas, from the director of Being John Malkovich. The heroine is a disembodied voice – acted by Scarlett Johansson – who serves as operating system. The line between her servitude and rapid consumption of all her user’s data quickly becomes blurred. As the reviewer Anthony Lane puts it, also for The New Yorker,

“Who would have guessed, after a year of headlines about the N.S.A. and about the porousness of life online, that our worries on that score—not so much the political unease as a basic ontological fear that our inmost self is possibly up for grabs—would be best enshrined in a weird little [film]?”

Unsurprisingly, the results of a recent YouGov poll in the UK showed consumers were now far less willing to part with their own data. Almost half would be less willing to share their personal data with companies in the next five years. A mere 2% said they would be more willing to do so. Part of the problem lies in a lack of transparency: who is using my data, which piece of information exactly, and how does it benefit them? More importantly, what am I getting in return for surrendering my data? Steve Wilkinson of Ernst & Young offered little in the way of cheering news, “Many customers have recognised that businesses are using their personal information to help increase revenues, and are starting to withdraw access to their private data… In spite of this, there is a reluctance to adopt incentives that encourage consumers to part with personal data”.

Writing in the FT yesterday, Evgeny Morozov penned an excellent article claiming the media was spending far too much time on the intricacies of government involvement rather than how the whole cocktail mixes together. The overreach, according to the author, is being treated as an aberration, that will disappear in the face of tighter controls and the harsh light of day. It should instead, Morozov argues, be treated as part of a worrying trend in which “personal information – rather than money – becomes the chief way in which we pay for services – and soon, perhaps, everyday objects”. The article continues,

“Now that every piece of data, no matter how trivial, is also an asset in disguise, they just need to find the right buyer. Or the buyer might find them, offering to create a convenient service paid for by their data – which seems to be Google’s model with Gmail, its email service… [W]e might be living through a transformation in how capitalism works, with personal data emerging as an alternative payment regime. The benefits to consumers are already obvious; the potential costs to citizens are not. As markets in personal information proliferate, so do the externalities – with democracy the main victim. This ongoing transition from money to data is unlikely to weaken the clout of the NSA; on the contrary, it might create more and stronger intermediaries that can indulge its data obsession.”
Morozov also questions the meaning behind such data, as Zeitgeist has done in a previous article. Such information risks becoming seen as an objective answer without providing a solution or insight.
“Should we not be more critical of the rationale, advanced by the NSA and other agencies, that they need this data to engage in pre-emptive problem-solving? We should not allow the falling costs of pre-emption to crowd out more systemic attempts to pinpoint the origins of the problems that we are trying to solve. Just because US intelligence agencies hope to one day rank all Yemeni kids based on their propensity to blow up aircraft does not obviate the need to address the sources of their discontent – one of which might be the excessive use of drones to target their fathers. Unfortunately, these issues are not on today’s agenda, in part because many of us have bought into the simplistic narrative – convenient to both Washington and Silicon Valley – that we just need more laws, more tools, more transparency.”
Touching on similar points and themes, the most enjoyable recent article on the subject was written by famed author Margaret Atwood for The New York Times earlier this month. It had recently emerged that intelligence agencies had been using MMO games like World of Warcraft in an attempt to discover terrorists and other less enjoyable parts of the internet. Atwood has predicted just such a thing in her books, written some twelve years ago. Atwood struggles to make sense of her thoughts coming to life, wondering whether to treat it as comedy or tragedy. She elaborates, crystallising all our fears about the empty truth behind data,

“I hope for the comedy… I suspect the horror. Possibly in the future you’ll no longer be permitted to be who you think you are, or even who you’re pretending to be: You will be who they say you are, based on your data-mined, snooped-upon online presence. You’ll be stuck with that definition of yourself. You won’t be able to take off the mask.”

Such disconcerting thoughts on having your own personality dictated to you might once have been the stuff of science-fiction, apt for an episode of The X-Files. Besides adages of truth being stranger than fiction, the clarion call of these publications appears to be that people should be sitting up and taking notice of what has been going on over the last ten years with extensive policy / data / consumerism creep. It is not just the NSA, but the way society intertwines information for monetisation that must be scrutinised if we are to avoid having to worry about trivial things like playing videogames in peace.

The Sharing Economy meets the Internet of Things

September 29, 2013 3 comments

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This post has been reblogged by IBM and is reproduced on their Tumblr sites. The original is available below in its entirety.

Noise over what has been called Collaborative Consumption – and elsewhere The Sharing Economy – has been increasing in volume for some months now. Kickstarter, a crowdfunding business that exists to let people from anywhere in the world donate to singular projects, is a great example of this new philosophy. The company has played roles in funding films, games consoles and civic projects like the construction of bridges. Zeitgeist has made use of sites likes AirBnB and Housetrip to stay in lovely, very affordable apartments in places like Paris and New York. These diverse businesses aren’t necessarily united in a single cause to drive the sharing economy, but they are all trying to make use of what some economies, particularly in the West, excel at producing: surplus.

It’s an acknowledgment that there are physical items we own that we don’t actually need, which are eminently transferable – for a certain period of time – to others, with the market more or less dictating price (it’s this last point that removes any assertions or complaints of the idea being some sort of socialist utopia). At its root, the idea has been seen in media consumption for several years now; we’ve written often about the new customer mantra of ‘access trumps ownership’, where people prefer to stream their content rather than have it on a shelf. This is a bit of a sea-change in how we view ourselves. As a very astute article in The New Yorker pointed out earlier this month, we have often defined ourselves by what we own,

“For most of the past century, Americans have been the world’s greatest consumers. And usually consumption has meant ownership: just before the Great Recession, the average American household owned 2.28 cars, and had more television sets than people. But these days a host of new companies are trying to disrupt the paradigm… beneath all the hype is a sensible idea: there are a lot of slack resources in the economy. Assets sit idle—the average car is driven just an hour a day—and workers have time and skills that go unused. If you can connect the people who have the assets to people who are willing to pay to rent them, you reduce waste and end up with a more efficient system.

Zeitgeist believes that the increasing popularity of another evolution in business – that of connected devices – will dovetail nicely with the sharing economy. The widespread use of connected devices, known as the Internet of Things, is broadly based on the idea of having products that are intelligent enough to know what they are being used for, when they are being used, and how to make sure the user gets the most productivity out them. Connecting said product to the Internet is usually a pretty good way of doing this. At its simplest, it is the much-ballyhooed Smart Fridge, that knows when it’s running out of milk and orders more for you online without having to bother asking you. In reality, it is things like the Nest device, a (very) smart and (very) beautiful thermostat device.

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Zeitgeist was at London’s Bloomberg HQ earlier this week for Social Media Week, a series of events usually dominated by a great deal of hot air. Fortunately this was not the case with the Internet of Things event. It quickly became clear that without the Internet of Things, collaborative consumption would plateau very quickly. There were fascinating projects like Pachube, which relied on crowdsourcing data in real-time via Twitter from an aggregation of sensors, allowing them to communicate with one another and at the same time. This information is not only not proprietary, it is meant to be built upon. It was used during Japan’s Fukushima disaster for crowdsourcing radiation data. 2000 feeds were set up after 10 days; Android apps, SMS alerts were built, all by different people, a great example of product and information being shared and being improved by being open to collaboration. On a more humorous level, Zeitgeist was also privy to hearing about Addicted Toasters, where the toaster is not just connected to the owner’s smartphone, or to the Internet, but also to other toaster’s in the network. If it sees that others are toasting more bread, it gets ‘jealous’. By which we mean of course that if it decides it is being under-utilised, it will decide it is time to go to the next person on the waiting list who wants to use a toaster. It does this by dialling into the FedEx API and getting itself shipped to that next person in line. The speakers, Usman Haque, said this was not just about “remote monitoring or control, but participation with others in how people make sense of local environments and how products are shared”. While the Addicted Toaster may be smart, and ostensibly aware of a network of other toasters, many aren’t holistically connected with a wider infrastructure. The driverless car, which companies like Tesla and Google are road-testing as I type, is set to bring about this next evolution, as described last week in an excellent article in the Financial Times. If we do come to a time when – as was suggested at the Bloomberg event – every product has its own IP address, then it means that every product is a lot more easy to track, and necessarily a lot more easy to lend to others. For, if a device is unique and ‘intelligent’, it should hypothetically recognise your own needs when you need it, and another’s when someone else has need of it. A world with fewer items can be pretty cool, too, if pretty small, as entrepreneur Graham Hill demonstrates with his New York apartment that is one room, or eight, depending on how you look at it.

All this sharing undoubtedly has positive implications for sustainability; a lot less produced means a lot less waste. There are potentially huge lifestyle impacts as well, which may not be as comforting. The New Yorker, again:

“It isn’t just companies and regulators who will have to be flexible, though. Workers will, too, since the sharing economy requires people to function as micro-entrepreneurs… They are all independent contractors, working for themselves and giving the companies a cut of the action. This has certain attractions: no boss, the ability to set your own hours, control over working conditions. It also means no benefits, no steady paycheck, and the need to always be hustling; in that sense, it fits all too well with the free-agent nation we’re increasingly becoming. Sharing, it turns out, is often a hell of a lot of work.”

The “Jaws” of death? – Rethinking film industry strategy

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Steven Spielberg on-set for “Jaws”. The Leviathan gave birth to the summer blockbuster

This past week, Zeitgeist had the pleasure of enjoying a new adaptation of Shakespeare’s “Much Ado about Nothing”. This adaptation was not performed at the theatre but at the cinema. It was not directed by Kenneth Branagh or any other luminary of the legitimate stage, but rather by the quiet, modest, nerdy Joss Whedon, who until a few years ago was best known to millions as the brains behind the cult TV series phenomenon “Buffy the Vampire Slayer” (full disclosure: Zeitgeist worked on the show in his days of youth). Whedon was picked to direct a film released last year that can, without much difficulty, be seen as the apotheosis of the Hollywood film industry; “The Avengers”. A mise-en-abyme of a concept, involving disparate characters, some of whom already have their own fully-fledged franchises, coming together to form another vehicle for future iterations. “The Avengers” became the third-highest grossing film of all time, and it is a thoroughly enjoyable romp. Moreover, to go from directing on such a broad canvas to shooting a film mostly with friends in one’s own home – as with “Much Ado…” – displays an impressive range of creative ingenuity.

Sadly for shareholders and studio executives’ career aspirations, not every film is as sure-fire a hit as “The Avengers”, try though as they might (and do) to replicate the same mercurial ingredients that lead to success. Marvel, which originally conceived of the myriad characters surrounding The Avengers mythology, was bought in 2009 by Disney for $4bn. Disney for all intents and purposes have a steady strategic head on their shareholders. They parted ways with the quixotic Weinstein brothers while welcoming Pixar back into the fold. They were one of the first to concede the inevitability of closed platforms release windows – something Zeitgeist has written about in the past – they are debuting a game-changing platform, Infinity, which might revolutionise the way children interact with the plethora of memorable characters the studio have dreamt up over the years. However, such sound business strategy could not save them from the uber-flop that was 2012’s “John Carter”, which lost the studio $200m. This summer, the rationale for their biggest release has been built on what appears to be sound logic; taking the on- and off-screen talent behind their massively successful “Pirates of the Caribbean” franchise, and bringing them together again for another reboot in the form of “The Lone Ranger”. The New York Times said the film “descends into nerve-racking incoherence”; it has severely underperformed at the box office, after a budget of $250m. Sony’s “After Earth” similarly underperformed, suddenly throwing Will Smith’s bullet-proof reputation for producing hits into jeopardy.

These summer films – “tentpoles” to use the terminology bandied about in Los Angeles – are where the money is made (or not) for studios. As an industry over the past ten years, Zeitgeist has watched as these tentpoles have become more concentrated, more risk-averse and therefore less original, more expensive and more likely either to produce either stratospheric results or spectacular failures. Paramount is an interesting example of a studio that has made itself leaner recently, releasing far fewer films, and relying on franchises to keep the ship afloat. Edtorial Director of Variety Peter Bart seems to think there’s a point when avoiding risk leads to courting entropy. It’s an evolution that has escaped few, yet is was still notable when, last month, famed directors Steven Spielberg and George Lucas spoke out publicly against the way the industry seemed to be headed. Indeed, the atmosphere at studios in Hollywood seems to mimic that of a pre-2008 financial sector; leveraging ever more collateral against assets with significant – and unsustainable – levels of risk. The financial sector uses arcane algorithms and has a large number of Wharton grads whose aim should be to preserve stability and profit. Yet even with all this analysis, they failed to see the gigantic readjustment that was imminent. In the film industry, Relativity Media’s reputation for rigorous predictive models on what will make a film successful is rare enough to have earned it a feature in Vanity Fair. So what hope is there the film industry will change its tune before it is too late? Spielberg pontificates,

“There’s eventually going to be a big meltdown. There’s going to be an implosion where three or four or maybe even a half-dozen of these mega-budgeted movies go crashing into the ground and that’s going to change the paradigm again.”

Instead of correcting course as failures at the box office failed to abate, studios have dug in harder. Said Lucas,

“They’re going for gold, but that isn’t going to work forever. And as a result they’re getting narrower and narrower in their focus. People are going to get tired of it. They’re not going to know how to do anything else.”

Such artistic ennui in audiences is admittedly sclerotic in its visibility at the moment. “Man of Steel”, another attempt at rebooting a franchise – coming only seven years after the last attempt – is performing admirably, with a position still firmly in the top ten at the US box office after four weeks of release, with over $275m taken domestically. It’s interesting to note that audiences have been happy to embrace the new version so quickly after the last franchise launch failed; though actor James Franco finds it contentious, the same has been true with the “Spider-Man” franchise relaunch.

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Is M&A finally out of vogue in the Media and Entertainment sector?

Part of the problem in the industry, some say, is to do with those at the top running the various film studios. In “Curse of the Mogul”, written by lecturers at Columbia University, the authors contend that since 2005 the industry as a whole has underperformed versus the S&P stock index, yet such stocks are still eminently attractive to investors. The reason, the authors say, is that those running the businesses frame the notion of success differently. They argue that it takes a very special type of person (i.e. them) to be able to manage not only different media and the different audiences they reach and the different trends that come out of that, but more importantly (in their eyes) to be able to manage the talent. They asked to be judged on Academy Awards rather than bottom lines. The most striking thing in the book – which Zeitgeist is still reading – is the continual pursuit by said mogul of strategic synergies. This M&A activity excites shareholders but has historically led to minimal returns (think Vivendi or AOL Time Warner), often because what was presented as operational or content-based synergy is actually nothing of the sort. It’s a point Richard Rumelt makes in his excellent book, “Good Strategy / Bad Strategy”. Some companies are beginning to get the idea. Viacom seemed an outlier in 2006 when it divested CBS. Lately, News Corporation has followed a similar tack, albeit under duress after suffering from scandalous revelations about hacking in its news division. A recent article in The Economist states,

“Most shareholders now see that television networks, newspapers, film studios, music labels and other sundry assets add little value by sharing a parent. Their proximity can even hinder performance by distracting management… they have become more assertive and less likely to believe the moguls’ flannel about ‘synergies’.”

So in some ways it was of little surprise that Sony came under the microscope recently as well, part of this larger trend of scrutiny. The company has experienced dark times of late, with shares having plunged 85% over the past 13 years. The departure of Howard Stringer in 2012 coincided with an annual loss of some $6.4bn. Now headed up by Kazuo Hirai, the company has undoubtedly become more focused, with much more being made of their mobile division. Losses have been stemmed, but the company is still floundering, with an annual loss reported in May of $4.6bn. It was only a couple of weeks later that hedge-fun billionaire Dan Loeb – instrumental in getting Marissa Meyer to lead Yahoo – upped his ownership stake in Sony, calling on it to divest its entertainment division in a letter to CEO Hirai. Part of the issue with Sony is a cultural one, where Japan’s ways of working differ strongly from the West’s. This is covered in some detail in a profile with Stringer featured in The New Yorker. In a speech he gave last year, Stringer said, “Japan is a harmonious society which cherishes its social values, including full employment. That leads to conflicts in a world where shareholder value calls for ever greater efficiency”. But Sony’s film division – which includes the James Bond franchise – is performing well; in the year to March 2013 Sony’s film and music businesses produced $905m of operating income, compared with combined losses of $1.9 billion in mobile phones, according to The Economist. It ended 2012 first place among the other film studios in market share. Sony is the last studio to consistently deliver hits across genres, reports The New York Times in an excellent article. The article quotes an anonymous Sony exeuctive, “We may not look like the rest of Hollywood, but that doesn’t mean this isn’t a painstakingly thought-through strategy and a profitable one”. Sadly the strategy behind films like ‘After Earth’ begin to look flimsy when one glances at the box office results. While Hirai and the Sony board concede that have met to discuss the possibility of honouring Mr. Loeb’s suggestion – offering 15-20% of it as an IPO rather than selling it off in full – Mr. Hirai also commented in an interview with CNBC, “We definitely want to make sure we can continue a successful business in the entertainment space. That is for me, first and foremost, the top priority”. In mid-June Loeb sent a second letter, advocating the IPO proposal and saying “Our research has confirmed media reports depicting Entertainment as lacking the discipline an accountability that exist at many of its competitors”. The question is whether selling off its entertainment assets would remove any synergies with other divisions, thus making the divisions left over less profitable, or whether such synergies even existed in the first place. For Loeb, the “most valuable untapped synergies” are still in the studio and music divisions yet after decades as one company they still remain untapped. That point won’t make for pleasant reading at Sony HQ.

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Another problem is the changing nature of media consumption habits. Not only are we watching films in different ways over different platforms, we are also doing much else besides, from playing video games, which have successfully transitioned beyond the nerdy clique of yesteryear, to general mobile use and second screening. This transition – and with it a realisation that competition is not likely to come from across regional boarders but from startup platforms – is largely being ignored by the French as they insist on trade talks with the US that centre on the preservation of l’exception culturelle. Such trends are evident in business dealings. The Financial Times this weekend detailed Google’s significant foray into developing content, setting up YouTube Space LA. The project gives free soundstage space to artists who are likely to guarantee eyeballs on YouTube, and lead to advertising revenue for the platform. From the stellar success of the first season of “House of Cards”, to DreamWorks Animation’s original content partnership announced last month, Netflix has become the bête noire for traditional content producers as it shakes up traditional models. We have written before about the IHS Screen Digest data from earlier this year, showing worrying trends for the industry; as predicted, audiences are beginning to favour access over ownership, preferring to rent rather than own, which means less profit for the studio. As much due to a decline in revenue from other platforms as growth in of itself, cinemas are expected to be the major area of profit going forward to 2016 (see above chart). We’ve written before about the power cinema still has. Spielberg and Lucas pick up on this;

“You’re going to end up with fewer theaters, bigger theaters with a lot of nice things. Going to the movies will cost 50 bucks or 100 or 150 bucks, like what Broadway costs today, or a football game. It’ll be an expensive thing… [Films] will sit in the theaters for a year, like a Broadway show does. That will be called the ‘movie’ business.”

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In a conversation over Twitter, (excerpts of which are featured above), Cameron Saunders, MD of 20th Century Fox UK told Zeitgeist that “major changes were afoot”. Such potential disruption is by no means unique to the film industry, and should come as a surprise to one. Zeitgeist recently went to see Columbia faculty member Rita McGrath speak at a Harvard Business Review event. In her latest book, “The End of Competitive Advantage”, McGrath discounts the old management consultant attempts at providing sustainable competitive advantages to business. Her assertion is that any advantage is transient, that incumbency and success often lead to entropy, unless there is constant innovation to build on that success. Such a verdict of entropy could well be applied to the film industry. The model has worked well for decades, despite predictions of doom at the advent of television, the VCR, the DVD, et cetera ad nauseum. But fundamental behavioural shifts are now at play, and the way we devise strategies for what content people want to see and how they wish to see it need to be readdressed, quickly. Otherwise all this deliberation will eventually become much ado about nothing.

UPDATE (15/4/13): Of course, context is everything. The New York Times published an interesting article today saying investing in Hollywood is less risky than investing in Silicon Valley, though the returns in the latter are likely to be greater. Neither are seen as reliable.

This issue isn’t going away. We write again about it, here.

The New News – Monetising Journalism in 2013

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“What the Internet has done is made a million sources of information available. It’s only a click away… The Internet has disrupted many industries. The newspaper business has been destroyed. It’s beginning to happen, arguably, to television. Consumer behaviour is changing!”

- Henry Blodget, editor-in-chief, Business Insider

Great minds may think alike, but they’re now consuming media on a plethora of different devices. Legacy media companies have been struggling in recent years to protect old revenue streams as the onslaught of digital disruption has rendered previous business models less than adequate. Recently, though, there have been signs of hope.

In television, Hulu and Netflix are increasingly showing themselves to be lifesavers of the long-format viewing, in an era where we are being increasingly distracted with short-term fixes, evinced by the success of social gaming product from companies like King. Hulu added 1 million paying subscribers in Q1 of this year and streamed over a billion videos. Netflix, after bravely investing in producing its own content with House of Cards, recently reported it has already recouped the sizeable $100m investment it made in the first season. It’s interesting, reassuring and quite logical to note the news that when Netflix enters a new market, piracy in the region drops. Let’s hope that legacy media companies are finally recognising the oblique connection here (and ponder less the millions of dollars lost over the years to pirated content at the expense of no legitimate alternatives). Though Borders has disappeared and Barnes & Noble may be in trouble, the book business is doing well, with 2012 being a “record year” for the industry. Digital downloads were up 66%, with physical purchases down only 1%. In music, the industry is slowly embracing a future (now very much a present) that has been staring them in the face since the start of the century with Napster and its myrmidons; digital sales rose 9% last year, helping overall sales to rise for the first time in a decade (see The Economist’s chart below). In South Korea, a region traditionally awash with pirated content, startup KKBox has come up with innovative ways to get people to pay for music again. They emphasise a sense of community – much like the one users felt they belonged to on Napster – bringing subscribers “closer to the regional music scene… Users can listen in real time as music celebrities make playlists of their favourite songs. There is also a KKBox print magazine and an annual awards show and concert, and it sponsors regional music festivals”. In other words, the offering goes beyond simply providing product to be streamed; it creates a cohesive world around the product.

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In 2012, music industry sales held steady for the first time in years. Digital sales continued to grow.

This cohesive world is in vogue at the moment; it represents most business justifications for investment in social media, and on a granular level again for investing in multiple networks, be they Facebook, Twitter, Pinterest, etc. This cohesiveness also allows for the exploitation of new revenue streams, something we’ve written about before. It’s a point that’s recognised by those in the newspaper industry. David Carey, head of the Hearst Magazines empire, has stated unequivocally that today “you need five or six revenue streams to make the business really successful”. It’s why companies like Monocle, which produces a high-end cultural magazine, has started a radio service that has been “profitable from the start, since normal commercial radio stations never deliver the kinds of listeners its high-end advertisers want”. And as advertising revenue dips below subscriber revenue, as it did recently at The New York Times and will do if it has not done so already at the Financial Times (FT), these new business models need to be set up and utilised, fast.

These discussions and others were up for debate at an event two weeks ago, hosted by the Media Society at the offices of the FT, examining the effects and implications of digital disruption. On a macro level, the problem has been with trying to get people to value content that is no longer physical. From the looks of it – not least from the evidence above -this is broadly starting to be achieved in the music, book and television industries. The problem, according to Laurie Benson, formerly of Bloomberg, was that the newspaper and magazine publishers took the genie out of the bottle, and “panicked”. For, unlike television content producers that seemingly buried their hand in the sand, those in the newspaper business immediately shoved all their content online, for free, in an effort / vain hope that advertising would continue to provide. Nic Newman, who spearheaded the BBC iPlayer initiative, said companies were still fundamentally struggling with mobile, which is especially important now it is considered “the first screen”. Moreover, social media, as well as providing an opportunity to construct a cohesive environment for the product being sold, has also, said Nic, hugely changed the way we find and discover news. The irony of his statement, given at the headquarters of the Financial Times, a paper with arguably the most opaque paywall in the industry – and with a zero-sum Facebook strategy – was not lost on Zeitgeist. On that note, Rob Grimshaw, managing director of FT.com, spoke up, saying he was “very comfortable” with the paywall as it currently was. He admitted he was “worried” about what Twitter would do to their model (the tense should perhaps be what it is doing). Rob mentioned Forbes, which is now allowing direct outside contribution. This obviously makes the platform somewhat more exciting, and certainly more accessible. But what does Forbes mean now as a publication; what is their editorial position, asked Rob. Though many interesting questions were posed, answers were few and far between at the conference, and few initiatives were proposed.

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On a more granular level, what are businesses doing now to try and maximise revenue in print? We’ve discussed recommendations for print media before. Unsurprisingly, some of the more innovative – and perhaps controversial – models are coming from those publications outside the mainstream. Business Insider, and Vice, are two such examples. Insights into both publications (although defining these companies as only publications perhaps limits the perception of their offering) were covered in the same issue of The New Yorker last month.

Ken Auletta’s article about Business Insider, and its “disgraced Wall Street analyst”-turned editor, Henry Blodget, states that the blog “draws twenty-four million unique monthly users, more than CNBC”. Overhead is one clearly one of the main areas that such companies have over their legacy rivals, whose roots are in ink and paper; Business Insider could never hope to, nor would they wish to have 1,700 full-time staff, as the WSJ does. One of the innovative, intriguing and controversial things about the editorial of BI is it’s blending of hard news – “7 signs household finances are getting stronger” – with more off-the-wall, attention-grabbing, low-brow content – “3 teeth-whitening products that actually work”, “Here’s what NBA players looked like before they had stylists” and “The porn industry has already dreamed up some awesome ideas for Google Glass“. Blodget, who continues to write many stories himself, is seemingly as comfortable writing about budget-cliff negotiations with an accompanying eighteen charts, as he is writing about the experience of flying home economy class from Davos. Andrew Leonard, on Salon, called the latter “the stupidest article to be posted to the Internet in the year 2013 – and possibly the entire century”. The content may have indeed been questionable, but it’s part of an interesting strategy to cater to multiple mindsets of the same audience; Blodget says he wants to “put the fun back into business“. The New Yorker article describes how BI produces original content through research, including how Goldman Sachs lost the chance to be the lead under-writer in Facebook’s IPO, and questioning whether previously undisclosed emails showed that Zuckerberg really had stolen the idea for Facebook from the Winklevoss twins. A lot of the time though, BI links to reported news “and then adds its own commentary, as well as reactions from others”, what Blodget calls “halfways between broadcast and print… it’s conversational”. It’s also unquestionably lazy, but provocative, which is what – along with many slideshows, with each slide on a different page – earn the blog so many clicks. 85% of BI revenue comes from advertising, a dangerous ploy in a time when rates and interest in online platforms are either slipping or more generally failing to account for costs. Most of the rest of the pie comes from paid conferences, something that other publications – incumbent or otherwise – should take note of. People pay with their time, and sometimes money, for your expertise and opinion, so expanding this engagement into other adjacent opportunities is a wise move. To this point, the company has also hired analysts to create research reports on telco trends. The New Yorker comments, “The result is something like a private magazine that several thousand individuals and businesses receive, for $299 a year”. Other companies are experimenting with various monetisation methods. Andrew Sullivan’s publication The Dish is soon to be made subscriber-only, with no ads, as $20 a year. The good news is that people are starting to willingly pay for other digital content, such as books, music and film. But aside from BI’s small subscriber-based research section of the site – an exception on blogs – the greater worry is what the type of engagement we have with content online means for the type of content that is produced in order to cater for those tastes. Are we reaching the end of an era of nuance? The New Yorker again,

“Lengthy investigative pieces are rare on all-digital platforms. They are expensive to produce and, given a readership that has an average of four minutes to spare, not likely to attract a large audience. As economically beleaguered newspapers invest less in long-form reporting, digital publications are unlikely to invest more.”

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Journalism for Vice means creating content to be reported on, rather than simply reacting to developing news

Lizzie Widdicombe’s article on Vice magazine shows there is far more innovation to be developed in the publishing industry, as long as one is willing to stop thinking of oneself as publisher. Vice is by no-means an upstart, at least in the magazine world, but recently found itself on the global stage after having the sheer tenacity to organise Dennis Rodman to go to North Korea for an exhibition basketball game, sitting alongside the Dear Leader himself Kim Jong Un. The story ran with the headline, “North Korea has a friend in Dennis Rodman and Vice”. Immediately we see the lines between reportage and editorial, between analysing events and creating them, begin to blur considerably. The headline looked particularly careless when shortly after the ‘basketball diplomacy’, North Korea “scrapped its 1953 armistice with South Korea and threatened preemptive nuclear attack on the United States”. The Vice article detailed the “epic feast” they were treated to, which again seemed callous given the generational malnutrition that has led to stunted growth in the North Korean population. Journalism stalwart Dan Rather called the whole episode “more Jackass than journalism”. This is a very different type of journalism indeed. The company has 35 offices in 18 countries, with websites, book and film divisions as well as an in-house ad agency. Since 2002 it has operated a record label with albums from the likes of Bloc Party. The New Yorker article says “these ventures are united by Vice’s ambitions to becomes a kind of global MTV on steroids, [but] unlike MTV – which broadcasts a monolithic American vision of youth culture – [the international aim is] to ‘localise’ their sensibility”. According to Shane Smith, Vice’s CEO, ‘The overall aim, the overall goal is to be the largest network for young people in the world… to make content that young people actually give a shit about'”. Vice employees sometimes refer to the brand as “the Time Warner of the streets”.

It has made significant forays into video, with a channel on YouTube that attracts more than a million subscribers. Like Business Insider, Vice also blends the highbrow with the lowbrow in terms of content. On YouTube, the New Yorker reports, videos range from ‘In Saddam’s Shadow: 10 Years After the Invasion’, to ‘Donkey Sex: The Most Bizarre Tradition’. The company’s revenues are estimated at $175m for 2012. In 2011, Vice was valued at $200m, “and last year Forbes speculated that the company might someday be worth as much as a billion dollars“. Its newest venture is a show on HBO (owned by Time Warner), with the tagline ‘News from the edge’. The show “takes on subjects from political assassinations in the Philippines to India’s nuclear standoff with Pakistan”. It engages in what it calls ‘immersionism’, where Vice employees are sent out to these locations and more or less told to engage in practices of varying degrees of danger. The New Yorker says this type of reporting harkens back to that of Hunter S. Thompson, who pioneered “participatory journalism… Vice claims to have a similar objective. Introductions to the HBO series announce that it’s out to examine ‘the absurdity of the human condition'”. One of the reasons companies like Time Warner, News Corp (see image below) and Conde Nast have all made the pilgrimage to Vice’s offices in Brooklyn is that they are all terribly envious of the way the company has managed to engage and monetise their audience. As well as the HBO show, Vice also create supplementary material fro HBO.com that shows how the show was made. Its Internet presence is diverse, and this is where the multiple revenue streams and advertising opportunities come in, as The New Yorker elaborates,

“Web sites, including Vice.com; an ad network; and its YouTube channel… Vice makes more than 85% of its revenue online, much of it through sponsored content… Besides selling banner displays and short ads that play before its videos, Vice offers it advertisers the option of funding an entire project in exchange for being listed as co-creator and having editorial input. Advertisers can pay for a single video, or, for a higher price – $1-5m for twelve episodes… – they can pay for an entire series, on a topic that dovetails with the company’s image… At the highest end of the sponsorship spectrum are [content] verticals, in which companies can sponsor entire websites.”

North Face, for example, partnered with Vice to sponsor ‘Far Out’, where Vice employees visited “the most remote places on Earth”. CNN is attempting similar feats, in an effort to legitimise the partnership – for example with Jaeger Le Coultre – by producing content that has a connection with company’s brand values. Some of Vice’s content verticals are softer than others, so that they can be more advertiser-friendly. It is seen by some at Vice of returning to the original soap opera days, when P&G would sponsor a serial show. This has led to some longtime fans declaring the publication has become too safe – gone are the early magazine covers featuring lines of cocaine, for example. The New Yorker comments the result “can feel like a strange beast, neither advertising nor regular content but something in between”. Vice also have a Creators Project, “devoted to the intersection of art and technology”. They partnered with Intel, and content has included an article on a cinema hackathon, as well as an event where a non-profit and VFX company partnered with techies to develop new forms of “interactive storytelling”. Intel sponsored the event, the video of the event, the blog post and the entire Creators Project website. Over three years, the company has paid Vice “tens of millions of dollars annually… to fund and publicise similar projects”. It is part of Intel’s attempt to have itself perceived as more of an experience brand, a la Disney and Apple. Said the CMO, “We want to see Intel coverage in Vanity Fair and Rolling Stone“. The video of the event is also put in YouTube, a company that is “crucial to Vice’s ability to expand” and which two years ago began paying Vice to make shows as part of a broader strategy to upend traditional TV – seen elsewhere in their recent Comedy Week. Such efforts from Vice form a feedback loop of good news that encourages investment from other individuals (such as former media mogul Tom Freston) and companies (such as Raine Group and advertising conglomerate WPP, a former employer of Zeitgeist). Vice is also planning a global, 24-hour news channel. Smith told The New Yorker, “Let’s say, hypothetically, you become the default source for news on YouTube. You get billions of video views, WPP monetises it. Then you are the next CNN“. This would be a dramatic shift in the way it makes its money now, from those sponsorships mentioned earlier. Quixotic efforts such as the North Korea trip, as well a recent bungling of a story on John McAfee, on the run from police, where Vice inadvertently gave his location away, would have to be curtailed. “If Vice does become a global news network, it might have to rethink some aspects of its prankster approach to reporting”.

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Murdoch and other CEOs have much to learn from Vice’s business model

It’s becoming abundantly clear then that what news publishers need to do to survive is embrace a diversity of platforms. This will be a long road for legacy incumbents. The FT now produces a great deal of video content, but it is still largely lost on the app and on the website. There is no hub where videos are categorised in any way. Few if any publications allow someone, upon purchasing a hard copy of the newspaper / magazine, to have access to that same content online, if only temporarily. These are simple but fundamental things that companies like this must do if they want to present their audience with a cohesive experience. That’s about operations and user experience. From a content perspective, journalism also faces new challenges. Fareed Zakaria, who Zeitgeist has been an avid reader of since the reporter’s days writing for Newsweek International, says Vice’s TV show for HBO has “loosened the format” of television reporting, as it tries “to get a news audience interested in the world”.

What are the implications of such a loosening? Vice CEO Shane Smith defended the company’s North Korea trip to The New Yorker, going on to say, “Is it journalism? It depends on what the definition of journalism is”. Um, well, yes, quite. If we’re to maintain any distinction between content that is supported and promoted by advertising, editorial that has a particular bent, and unbiased news rather than sensationalist reportage, we need to start having a serious conversation about what journalism is. In particular we need to discuss what the balance is between the desire to entertain and the task of informing the populace. If the onus is truly on the latter, then it becomes a genuine public good that must, at worst, be subsidised by public money. The issue The New Yorker raises in its article on Business Insider crystallises the dilemma; the medium in which people consume news has changed, thus so have their habits. They are now less likely to dedicate time to reading long articles; so writing these kind of articles is increasingly an unprofitable exercise. An end to thorough investigative journalism would surely have dire consequences. While fears over the death of journalism have been greatly exaggerated, a dramatic shift is underway, and perhaps for the worse. And that’s true no matter what your definition of journalism is.

The Big Data Fallacy

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The latest issue of Foreign Affairs features the cover article “The Rise of Big Data” by Kenneth Cukier and Viktor Mayer-Schoenburger, which mostly details some of the incredible ways companies like UPS, Google and Apple have come to rely on vast arrays of numbers in order to run their businesses better. But data has always provided a problem in that it gives a substantive assurance of certainty that has a propensity to foster overconfidence in those relying on it. The article attempts to address this:

“[K]nowing the causes behind things is desirable. The problem is that causes are often extremely hard to figure out… Behavioural economics has shown that humans are conditioned to see causes even where none exist. So we need to be particularly on guard to prevent our cognitive biases from deluding us; sometimes, we just have to let the data speak.”

The sentiment here is admirable, and the context perceptive. But the final part of the quotation (my emphasis) assumes wrongly that data can speak objectively, that there is a fundamental ‘truth’ in a number. All too often though the wrong things are measured, or not all variables are measured. What data does not record, or worse, cannot record, can often be overlooked. While ostensibly data is there to provide assistance with building models and predicting future trends and movements, it sometimes leads to a very narrow view of one particular future, and fails to account for possibilities, that, though while unlikely, could potentially be devastating. This is what Nicholas Taleb writes about in his by turns unreadable but seminal work, Black Swan. The fictional, paranoid loner Fox Mulder of the hit series The X-Files had it right fifteen years ago when he lamented “in a universe of infinite possibilities, we may find ourselves at the mercy of anyone or anything that cannot be programmed, categorised or easily referenced”. The financial system before 2008 was a victim of such narrow thinking. 

Hendrik Hertzberg, in his Talk of the Town column “Preventive Measures” in this week’s The New Yorker, made the adroit analogy with the 2002 film Minority Report in our quest to categorise and predict acts of crime. Hertzberg points out that in reality this “turns out to be a good deal more difficult than investigating such an act once it occurs”. Indeed, such prediction methods are being implemented, just with somewhat less efficacy than in the Tom Cruise movie. The stop-and-frisk procedure currently employed by the New York Police Department points to a sustained effort to engage in preventative measures to reduce crime, effectively what Cruise and his myrmidons were doing, albeit without the help of psychic imagery as in the film. While the psychic “Pre-Cogs” turned out to occasionally disagree, the success rate with stop-and-frisk is even less attractive. “In the final months of 2012″, writes the New York Times, only 4% of stops resulted in an arrest. But what is this low figure telling us…?

Hertzberg also alludes to the dilemma of mountains of data, produced without concern for oversight or management; producing more just because it’s possible to produce it, rather than thinking about the implications:

“This fall, the National Security Agency, the largest and most opaque component of the counter-terrorism behemoth, will [open] a billion-dollar facility [analysing] intercepted telecommunications… each of the Utah Data Center’s two hundred (at most) professionals will be responsible for reviewing five hundred billion terabytes of information each year, the equivalent of twenty-three million years’ worth of Blu-ray DVDs… that’s a lot of overtime.”

The other problem this data poses – and increasingly this goes for many industries that are jumping on the Big Data bandwagon – is that intelligence departments and businesses alike are now technically able to put quantifiable targets and figures to what they want to achieve, without considering whether such targets are actually applicable. Police claim the low stop-to-arrest ratio implies that they are preventing crimes by stopping someone before they act. There is nothing to argue otherwise. The New York Times article alludes to the debate over what ratio or percentage the Supreme Court would be comfortable with under the tenet of “reasonable suspicion”. This leads down a dangerous path where we treat data as an answer to a question, rather than as supporting evidence to an answer.

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