TV’s bloody disruptions

Last night, Zeitgeist eagerly devoured the first episode of the new season of Netflix‘s House of Cards, a series that has received lavish praise  – not least from us – both for its content and its position as vanguard of a new wave of television distribution, production and consumption. The series lead, Frank Underwood, takes on his competition with a ruthless lack of morality that is unlikely to jar with those in the cutthroat television industry. The New York Times recently featured an excellent piece on the series, focusing on the showrunner Beau Willimon, the unique nature of doing such a show with Netflix, which among other things guaranteed 26 shows upfront, and the new mood of “post-hope” politics. Is traditional linear TV entering its own post-hope state?

Such talk of impending doom makes for nice editorial (which Zeitgeist is not averse to), but how true is it? To some extent, such new forms of consumption are being hampered by externalities as the platforms make the switch from early adopters to the everyday consumer. Indeed, Netflix’s sheer popularity is proving to be a thorn in its side. In November last year, Sandvine reported that the content Netflix provides now accounts for almost a third of internet traffic in the US. This staggering figure no doubt accounts for at least part of why internet speeds take such a distinct hit during primetime viewing hours (see chart below). As Quartz has the insight to point out, such issues are less to do with intentional throttling and more to do with peering agreements between ISPs and content providers.

Download speeds happen to take a significant hit right around the time people are looking to kick back with some Netflix

Such issues are likely to be ever more prevalent as the notion of net neutrality continues to come under attack. At the end of last month, a federal appeals court overturned the Federal Communication Commission’s Open Internet Order, which had stipulated that ISPs could not prejudice one type of internet traffic over another. The fear of any such policy being overturned has always been one of the creation of a two-tier internet, where people who can afford faster internet get preferential access, and companies are free to charge distributors differing amounts based on the type or amount of content they are delivering. Such consternation was also felt in government, where five US senators called on the FCC chairman to “act with expediency” to preserve the open internet. The news immediately caused concern for Netflix, as shareholders fretted that ISPs might start to charge the company for the traffic it takes up. CEO Reed Hastings responded categorically,

“Were this draconian scenario to unfold with some ISP, we would vigorously protest and encourage our members to demand the open Internet they are paying their ISP to deliver.”

Consolidation and the narrowing of choice took a further hit on Wednesday this week when Comcast announced it would buy all of Time Warner Cable for $44.2bn. The choice on cable landscape is already limited for the US, so it will be interesting to see what regulators make the deal. Chad Gutstein, former COO of Ovation, an independent arts-focused cable channel, penned an article in Variety saying that any concerns over the deal should be restricted to the possibility of abuse of a dominant position, rather than simply market share.Columbia Law School professor Tim Wu, writing in The New Yorker, rightly points out that the FCC should be approving such mergers only if they serve the public interest. He sees no such possibility in this instance, where the most pressing need for cable customers is lower prices. Last year, he writes, Comcast collected about $156 a month on average, per customer. For cable. Professor Wu contends that the merger would put Comcast in a position that would make it easier to raise prices further. This, despite the fact that conditions created via the merger would technically put the company in a position where it could create savings, both through economies of scale and more advantageous negotiating positions with programmers like ESPN and Viacom. Of course, Comcast is probably keen on preserving if not extending margins as it faces increasing competition from players like Netflix and Amazon. Cord cutting may be in vogue now, but Comcast will try to combat this by creating what is called ‘lock-in’. Craig Aaron, president of Free Press, a consumer advocacy group, is quoted in the New York Times; “Comcast and the new, giant Comcast are going to do as much as they can to stop you from unbundling. In order for you to get content you like, you’re going to be pushed to pay the cable bill, too”. Such tactics will test the limits of customer inertia, but only if they have somewhere else to go as a viable alternative.

The switch to online viewing is also raising issues of policy change in the UK. Public service broadcaster the BBC has long left it unclear as to at what point requiring a TV licence is mandatory, leaving citizens to infer that simply owning a television set is reason enough. Recently though, the broadcaster finally clarified that owners can use their TV, with no fee, to play games, watch DVDs, basically do anything that doesn’t involve watching live television. For the moment, this also includes their IPTV offering, iPlayer. In an article earlier this month, The Economist said the fee was “becoming ever harder to justify”. Antonella Mei-Pochtler of the Boston Consulting Group, quoted in the article, believes the increasing trend of young people to timeshift their viewing is likely to become ingrained. Coupled with the growth of internet-connected TVs, this is bound to accelerate a shift away from traditional linear consumption. The BBC is soon to begin developing premium content for its iPlayer service in order to seek additional revenue streams that may offset a decline in fees paid. But as The Economist points out,

“[T]hat would suggest, dangerously, that the BBC is like any other optional subscription service. Folding on-demand services into the licence fee could also amplify calls for the BBC to share its cash with other broadcasters, not least because such consumption may be precisely measured.”

When we look at the market for television sets and set top boxes, the news isn’t that superb either. The curved TVs debuted at CES in January are surely little more than a distraction. Last week, Business Insider reported that Sony is to finally spin off its TV operations into a separate unit, amongst news of $1.1bn in losses and 5,000 job cuts. But while we’ve talked of consolidation and narrowing choice, we also need to recognise this is also a period of unprecedented choice for consumers. As a recent article on GigaOm points out, there are millions of channels on YouTube alone. There are growing pains. As consumption of such content moves “to the living room”, the article details various sub rosa negotiationsby retailers like Walmart with their own video market, or players like Netflix willing to pay top dollar to put branded buttons on remote controls. What is clear, with all the issues described in this post, is that consumer choice needs to be preserved in an open market with plenty of competition. Such an environment will always foster innovation. This may breed disruption, but that doesn’t have to mean devastation. The age of linear TV viewing may be at the beginning of its end, but that doesn’t mean there’s still a lot to fight for, even if it’s a scrap. Frank Underwood wouldn’t have it any other way.

Netflix has similar revenues but lower earnings than HBO, for now.

UPDATE (22/02/14): The New York Times published an interesting article comparing Netflix and HBO recently, showing how the two companies are faring financially (see image above), as well as their approaches to developing content, which started off as opposing ideologies but are slowly starting to meet in the middle as they borrow from each other’s playbook. The article quotes Ted Sarandos, Netflix’s chief content officer: “The goal is to become HBO faster than HBO can become us.”

UPDATE (22/02/14): Of course, commercial network television in general is also going through a period of consternation, slowly building since the day TiVo started shipping. At the end of last year, the Financial Times reported that share of advertising spend on television is set to end after three decades. This is partly due to a proliferation of new devices and platforms – not least of which is Netflix – but also partly due to the amount of people time-shifting their viewing and skipping through the ads along the way. Thinkbox, a lobbying arm for the television industry, recently published a blog article with accompanying chart. It illustrated how many people time-shifted a particular programme depending on the genre. For example, fewer people time-shifted the news than drama shows. But one of the key points made in the article is “that there is no significant difference in the amount of commercial TV which is recorded and played back compared with BBC equivalents. To put it another way: TV is not time-shifted in an attempt to avoid ads”. This is specious reasoning at best. While it may be true that, yes, people do not discriminate between whether they time-shift a BBC show or an ITV show, it would be totally wrong to infer that those viewers are not avoiding ads when they do appear. The article’s author is guilty of confirmation bias, not to mention grasping at straws.

How the Obama 2012 campaign harnessed tech to win votes

Last night, at the Royal Automobile Club on London’s Pall Mall, Zeitgeist was fortunate enough to hear Harper Reed, the Chief Technology Officer of the Obama 2012 US presidential campaign speak candidly about how he helped get out the vote and keep the Democrats in the White House. Harper is ex-Threadless, the famous T-shirt company that lets users contribute their own designs, with the most popular becoming actual products sold the world over. It’s a democratic philosophy, one that understandably caught the attention of the campaign committee. It is also the kind of thinking that cities like New York and Chicago are starting to employ; actively gathering, analysing and distributing data to inform policy implications and help citizens. What follows is a brief summary of his thoughts and points that Zeitgeist found interesting.

Harper began the talk with the fundamentals, discussing how, when he arrived, the campaign seemingly already had much of the data gathering resources needed to achieve what he wanted. The trouble was it as all siloed. Putting all the data together was a major step in the right direction, toward cohesive data analysis. He elaborated, saying they went from having fifteen different numbers for doors that needed to be knocked on, to one. On hiring the right people for the task at hand, Harper was explicit in noting that they had hired tech people and taught them about politics, rather than the other way around. He riffed on the state of journalism, saying it was similarly important when hiring journalists that know about tech.

One of the more interesting insights Harper talked about involved the target demographics. Those most likely to vote are male or female 18-28, and women perhaps in her 50s. The younger group is adept and comfortable with all digital platforms, but still uses paper a fair amount. Paper, by contrast, is an essential medium for that middle-aged female voter. So the insight was about making paper use more efficient, given these groups’ use of it. Understandably this was a hard decision for a group of very tech-minded people to arrive at, but the acknowledgement showed they were willing to park their own pre-conceptions on how things ought to be done.

Like many startups, they were constantly trying to fail in order to create redundancies. This involved hosting hackathons where code was obsessively broken and then reconstructed, “ensuring things would break in ways we understood”, as Harper put it. They had the same approach with the content they published, aggressively testing every piece to make sure it was relevant and engaging for the intended audiences. What they failed to foresee was the Internet activist group Anonymous launching a DDOS attack the day before the election to coincide with Guy Fawkes day, which helped trigger a meltdown over at Amazon’s cloud servers, AWS. Harper made it sound like not too much trouble to switch the servers from the East Coast where they had been affected, to the West Coast, but the experience must have been a stressful one.

Lastly, he offered an opinion increasingly shared by many in the industry, which was a reluctance to talk of mobile device use as “second-screening”. Mobile devices, Harper pointed out quite rightly and obviously, are the first thing you look at when you wake up, the last thing you look at when you go to bed, and the thing you’re actually looking at when you’re supposed to be watching TV. Mobile first should always be the initial mindset.

In questions, Ruth Porter asked whether there were any pearls of wisdom that could be applied to those in UK politics and how they go about with their own strategy of getting out the vote. Harper conceded he had met that day with a party “whose name starts with ‘L'”, and believed that what was key was investment, commitment and belief from the very top in what social and data could do for the campaign. Without that, such efforts would amount to nothing. The lessons of the Obama 2012 campaign – and the pitfalls of Romney’s campaign – offer valuable lessons for political parties, but it seems any efforts at cherrypicking ideas or going in half-hearted would doom any prospect of leveraging what the Obama team were able to do.

Any success in Harper’s tech strategy must be qualified against the sheer unpopularity of Obama’s rival candidate

Switching Costs and promising the impossible

“Many consumers remain loyal due simply to the absence of a negative because it is often easier to put up with something that is less than perfect than go to the trouble, and potential expense, of switching”

PricewaterhouseCoopers summed up their findings above in July regarding cell phone and pay TV customer loyalty. In the midst of swirling hysteria over cable TV “cord-cutting”, their survey restated the power of inertia and loss aversion.

In the hysteria that is the US presidential elections, Jon Stewart showcased the FDR video clip recently on The Daily Show. It was used to underline the current predilection Governor Romney has for stating he can not only improve the financial and military strength of the country, but do so at no extra cost to the taxpayer. This has met with puzzlement in the press. Romney has yet to fully describe how he plans to do both these things at once. It smacks of promising the impossible (not that Obama has been much more candid in his own policy details).

In politics, as with brands. If you are asking someone to change their allegiance from one thing to another, said person must consider whether the pros of changing affiliation outweigh the cons. If a brand or political party wants to be that change, they must convince the buyer – or voter – that the switching costs are low enough for it to be worth their while.

This can lead to overpromising, which in marketing can lead to a disappointed buyer and post-purchase dissonance. (Sadly it is less easy to return your ballot and ask to vote again). The ebullience of the sell can ultimately damage the brand. That is why marketers must strive to be honest with the consumer. If long-term commitment to a product or service is what is being sought, hyperbole or a disengenuous call to action can permanently damage a brand’s equity. You just have to think about what makes your product or service truly stand apart from its peers. If this is too much to ask, then its to time to rethink your offering.

Can great creative work save the finance sector?

“Marketing has always combined facts and judgement: after all, there’s no analytic approach than can single-handedly tell you when you have a great piece of creative work.”

– McKinsey & Co., Measuring Marketing’s Worth

Capitalism has come in for a bit of a knocking of late. Recently, the Futures Company found that 86% thought “big business” maximised profits at the expense of customers and communities (not helped by another recent poll stating 51% of top financial services executives think businesses should just be about making money). The antipathy is not a recent phenomenon and hardly one confined to the fringe. John Maynard Keynes, whose ideas framed modern macroeconomics, said capitalism is “not virtuous [and] doesn’t deliver the goods”. And while there was a short period when such sentiment was only to be found in places like Pyongyang, these feelings are now more pervasive, particularly against the driving force of capitalism, the finance sector. Can marketing help shift perceptions?

From the outside looking in, it would be difficult to say that some of the wounds are not self-inflicted. Multiple fiascos have led to much head-shaking and hand-wringing within the industry. The furore has ceased to abate as politicians score cheap points for fingering the blame on bankers, and lionised institutions like Goldman Sachs suffer massive public relations disasters (including a part ownership stake in a prostitution ring). The manipulation of the LIBOR scheme and subsequent reforms reveal no quick end in sight to a period of immense negative exposure that began with the global recession four years ago.

So the image of finance is indisputably tarnished right now. Marketers are trying to change this, in different ways. Many Western financial institutions have been around for a while; the symbolism of such longevity can serve as a valuable asset for brands. Coincidentally, this year sees Citigroup – while dealing with its turbulent present – celebrate its 200^th anniversary. They’ve had a broad above-the-line campaign celebrating their place in history, putting their relative achievements – helping fund the building of the Panama Canal – alongside other important moments in time. Citi also have their eye on the future too, making a concerted push in areas of sustainability, recently managing to become the first bank to achieve LEED (Leadership in Energy and Environmental Design) certification for 200 projects from the U.S. Green Building Council. The question is whether leveraging history and sustainability – both of which arguably convey a sense of trusted consistency, rather than reckless risk-taking – with advertising can help address a serious deficit in consumer affinity for the finance sector. Does it even matter? If we assume banker-bashing is an irrational emotion, and the whole sector is tarnished with the same brush, how much sway does it have over the rational part of our brain that must decide where and how to invest our money?

Several banking brands rely on the prestige of their historical affiliations, and have found themselves no safer from customer ire. It can be hard to seek engaging differentiation in a commoditised industry where the power of switching costs can a play a strong role. A PwC report from July summarises, “Many consumers remain loyal due simply to the absence of a negative because it is often easier to put up with something that is less than perfect than go to the trouble, and potential expense, of switching”. So what else can be done to wake potential customers from this inertia?

It’s interesting to see Morgan Stanley take a decidedly more personal tack, with a new campaign, “What If?”. Shifting focus away from the company as a faceless monolith, the WSJ said the aim is to make the company seem “like your neighborly [sic] stock picker”. The creative itself is beautiful, showcasing professional types with aspects of business and social responsibility framing their translucent faces. It attempts to convey a personalised and considerate attitude that includes but also goes beyond profit-making. It broadly taps into themes in a new book. “Positive Linking”, by Paul Ormerod, sets out to dismiss the outdated notion that people are driven by personal, “rational utility maximisation” and instead claims they are more interested in aiding the network to which they belong, realising this will help them too. This in essence is a slightly less selfish form of capitalism.

“I owe the public nothing”, J.P. Morgan was once quoted as saying. Have times changed much since? The problems with the world of finance are too numerous for this article. The crisis of confidence has begun to have an effect on recruiting, as MBA graduates turn their learned eyes to more reputable sectors. Although it may not seem like it now, customer perceptions of brands within this sector are malleable. Any one that can position itself as an outlier in what is currently seen as a pernicious industry will have much to gain. The tail cannot wag the dog though. If these businesses are to change, they must back up their ambitions with operational changes that reduce risk and ensure profits sit alongside dedication to the broader lifestyle their advertising evinces.

Technology & Geopolitics

You may have recently read news that Iran is quitening down a bit, hampered as it is with stringent economic sanctions. Or you have noticed things seemed to have quitened down merely by the absence of bombastic headlines foretelling a nuclear Iran.

Nukes are just one of myriad subjects that the power centre of Iran – namely, Mahmoud Ahmedinejad – seeks provocation over. Another is a dispute over three small islands that the UAE also lay claim to.

Mashable picked up the story from where this week’s The Economist left off, saying that Iran is taking umbrage to Google’s proclomation of said area as the Arabian, rather than the Persian, Gulf. The Deputy Minister of Culture and Islamic Guidance Bahman Dorri said such “lies” would cause Google’s users to lose faith in the company.

Maps have always been an intensely political construct. And this isn’t the first time the maps service has run into trouble. Google probably wasn’t intending to step on any toes here, or stir any controversies in an area of the world where there is already enough ire to go around. What is curious is that until a few days ago the map apparently did indeed note the area as the Persian Gulf. Rather than dithering, Google should commit to one as soon as possible and give a good reason for doing so.