Too much content, too many channels, too little time?

We all seem to have less time to ourselves these days. But there seems to be more to watch – on more platforms – than ever before. What trends have led to this, and what’s the result? Much editorial ink has been spilled over the years about how our lives seem to be getting busier, with less free time to ourselves. This is somewhat of a painful irony given that many of our more intellectual ancestors thought our evolution as a species would quickly lead to a civilisation mostly consumed by thoughts of how to fill the days of leisure. In last week’s New Yorker, Harvard professor Thales Teixeira noted there are three major “fungible” resources we have as people – money, time and attention. The third, according to Teixeira, is the “least explored”. Interestingly, Teixeira calculated the inherent price of attention and how it fluctuates, by correlating it with rising ad rates for the Super Bowl. Last year, the price of attention jumped more than 20%. The article elaborates,

“The jump had obvious implications: attention—at least, the kind worth selling—is becoming increasingly scarce, as people spend their free time distracted by a growing array of devices. And, just as the increasing scarcity of oil has led to more exotic methods of recovery, the scarcity of attention, combined with a growing economy built around its exchange, has prompted R. & D. in the [retaining of attention].”

It’s such thinking that has persuaded executives to invest in increasingly multi-platform, creative advertising during the Super Bowl, and to media production companies taking their wares to the likes of YouTube and Netflix. But it’s all circular , as demonstrated last week when Amazon announced it would be producing films for cinema release. The plurality of such content over different channels carries important connotations for pricing strategies. At its most fundamental, what is a product worth when it is intangible and potentially only available in digital form? It chimes with an article written earlier this month in The Economist on the customer benefits of e-commerce. Though most knee-jerk reactions would assume price is the biggest benefit to customers, recent research illustrates this is not always the case. Researchers at MIT showed on average people paid an extra 50% for books online versus in-store. This isn’t because that latest David Baldacci is sold for more on Amazon, but rather because of the long tail. Which means more products are able to find the right owner, for a price, whereas in store comparatively they go unsold. More channels have meant more availability for content, which should benefit consumers in that more content destined to be a hit now finds a home, where once it might have been lost if turned down by the major TV or radio network stations. The Economist elaborates,

“Seasoned publishers have only a vague idea what book, film or song will be a hit. A major record label can sign only a fraction of the artists available, knowing full well it will unwittingly reject a future superstar. Thanks to cheap digital recording technology, file sharing, YouTube, streaming music and social media, however, barriers to entry have been dismantled. Artists can now record and distribute a song without signing to a major label. Independent labels have proliferated, and they are taking on the artists passed over by major labels. Hit songs are still a lottery, but the public gets three times as many lottery tickets.”

So while we may have less time to consume it, more content over more channels will allow for greater chances for breakout hits, particularly with avid niche audiences. Amazon Prime video content was until recently confined to a niche audience, and the show Transparent dealt with niche subject matter. But the show has broken out into the zeitgeist and won two awards at the recent Golden Globes ceremony. (Full disclosure, we know a producer on the show and were lucky enough to visit the set on the Paramount lot in Los Angeles last summer). It is likely such a great show – recently made available free for 24 hours as a way to upsell customers to Prime – would not have found a home on traditional TV networks, and thus in people’s homes, were it not for this plurality.

Smartphone consumer and business trends in 2014

 

In this post we’ll be looking at how mobile trends are effecting customers, network operators and handset manufacturers. Last week, Analysys Mason reported “[t]he average amount of time that consumers spend using smartphones per day almost doubled between 2011 and 2013, from 98 minutes to 195 minutes”. The time spent actually communicating with other human beings has increased during this period, but only with overall growth in use. As a relative share of what other things consumers do with their smartphones, communication has actually fallen (see above image), from a 49% to 25% share. Retailers will be very happy to see that the “utilities and commerce” share seems to have grown considerably.

72% of those that Analysys Mason surveyed across the UK, US, France and Germany were said to be using OTT messaging services on their phone. These over the top services are posing a real threat to traditional operators. One particular example that caught Zeitgeist’s attention was that of FreedomPop in the US, a virtual network operator that uses Sprint’s network to piggyback off. According to GigaOm, the company has launched an iOS app, that assigns you a unique telephone number and allows you to run all your communications through a “virtual phone”, circumventing the carrier. The answer for carriers may be in bundling services, and indeed BT and Vodafone seem to leaning toward this as a tactic. But a Lex column article in the Financial Times warns that although bundling services into a quad-play offer can increase retention, it usually means offering those same services at a discount.

Cheap smartphones are nothing new in of themselves; competitors to Samsung and Apple have been scrounging away at the bottom of the market for some years now, and it was way back in 2012 at the Mobile World Congress that Mozilla announced it would make a cheap handset for developing economies. What has changed recently is the explosive growth at this end of the market. By 2018, more handsets will have been shipped that sell for under $200 than those that sell above that amount (see chart below), according to IDC and The Economist, who wrote about it recently. As the paper pointed out,

People buying their first smartphones today, perhaps to replace a basic handset, care less about the brand and more about price than the richer, keener types of a few years ago. They are likely to pay less for a nice new smartphone than they did for their shabby old device, because the cost of making smartphones has tumbled.

Part of the problem for incumbents is that they have had to do all the R&D, which new entrants can learn from and improve on without worrying about such fixed costs. For consumers though, with fragmentation at both ends of the market, the choice and price of smartphones has never been better.

Cost-cutting consoles

Zeitgeist finally got around to seeing “Elysium” last night. Typical of the current climate in film distribution, it was disappearing from all of Zeitgeist’s local screens in central London, after a mere 3-4 weeks of release. The above trailer screened before the film. Videogames have been trying to sell themselves as films for years, since the likes of “Metal Gear” and “Max Payne”. (The picture becomes even more blurred as more videogames attempt to make the transition to feature franchises). This tactic was nothing new, moreover it was somewhat underwhelming. The graphics looked pixellated, the movement clunky, and any sense of verisimilitude was lacking. It is difficult to put a finger on what exactly the problem was, but patching polygons together is not the same as making all the parts interact with one another. It was surprising, given that the game is to be made available on the as-yet unreleased Playstation 4, a console which, going from the launch event months ago, is capable of some stunning graphic simulation. The market has gone for longer than usual without a new stream of console launches, so it seemed puzzling that not all that much seems to have changed.

It was somewhat reassuring then to read today The Economist’s Technology Quarterly supplement, which featured as its lead article an overview of the videogames industry, and how high costs have produced diminishing technical returns in the latest bout of releases from Sony, Microsoft and Nintendo. The article states the newest consoles look “surprisingly underpowered”:

“At previous console launches, executives have boasted about their boxes’ whizzy technological innards. Sony in particular was a dab hand at this sort of thing, coming up with names like “Emotion Engine” and “Reality Synthesiser” for the chips that powered its previous consoles. But this time neither Microsoft nor Sony seems very keen to talk up the technical prowess of their new boxes… new consoles will be merely catching up with the current state of the art, rather than defining it. Both consoles… are, for all intents and purposes, ordinary PCs in fancy boxes.”

The market hasn’t found a way to substantially raise prices on games, while at the same time the cost of developing them has “ballooned”. Moreover, due to rising costs of customised chips and increasing competition from those with lower fixed costs (think videogame mobile app developers, and Ouya), Sony and Microsoft are now using standardised chips in their consoles.  The article was also keen to note that graphics are no longer the be-all-and-end-all of a console’s power and reputation (as it was in the days of 32 and 64-bit machines). Indeed gaming itself is argubaly no longer front and centre of console strategy, as manufacturers seek to diversify into other areas of entertainment. Just in time as well, as a recent report from Accenture predicts the end of single-use devices.

UPDATE (15/9/13): The New York Times points out that often the best games take a while to appear on new consoles, with Nintendo devices tending to be the exception.

On Piracy

The terribly dry yet fascinating Harper’s Magazine recently featured in its ‘Readings’ section an excerpted essay taken from a book, out this month, entitled Stealth of Nations: The Global Rise of the Informal Economy. The following is a summary and rebuttal of some of the key points made.

The excerpt begins in China, where intellectual property theft is, as most of us know, already rampant, and has been for several years. There are contributing factors for this. One is a market that allows around only 20 Hollywood films to be released every year. Another is the premium placed on legitimate DVDs sold in emerging economies like China. As The Economist reported in August, DVDs of The Dark Knight sell for $663 a copy in India. In China, the LA Times reports, counterfeit DVDs may have more special features than the genuine article. This last point taps into what most advocates of piracy usually tubthump; piracy gives people what they want. Not necessarily just regarding price – Zeitgeist would be hard pushed to fork out $663 for The Dark Knight – but also with regard to access and to functionality of the product. At The Future Laboratory‘s Spring/Summer trends briefing earlier this year, the emphasis was on loosening control over proprietary technology, collaborating with others in order to enhance innovation and ultimately help make the product better.

The product in question in this bazaar, however, is not DVDs; “There’s essentially just one product sold here: mobile phones.” The handsets are all knock-off, counterfeit items, playing on and abusing the brand equity of established companies with names like “Sansung”, “Motorloa” and “Sany Erickson”. It brings to mind the episode of the The Simpsons when Homer is duped by brands like “Panaphonics” and “Sorny”.

The competitive advantage for these products over their authentic brethren is the price. With no need for an R&D budget, the price of a “pirated Nokia N73 [is] $85, a fifth the cost of a real N73”. The author predicts sellers get an “extraordinary” 100% return on the initial investment. This, then, is big business. Big in the terms of holistic number of customers, returning multiple times, and big in the sense of the amount of profit it turns, and the number of people employed in such activities.

“The International AntiCounterfeiting Coalition… predicts that, with hundreds of thousands of industrial workers still facing unemployment and dislocation from the global recession, China will allow more piracy in order to prop up employment and avoid potential civil unrest.”

The author contends that this kind of behaviour is entrenched in society, and owes its debt to Bernard Mandeville, who argued for liberalising the market to the extent that things like tax-dodging, piracy and overcharging were “good for society”. The pamphlet in which he extolled his virtues became extremely well-known because pirates quickly got a hold of his six penny publication and distributed it in half penny sheets. This obviously made Mandeville no profit, but it raised his profile no end and, according to the author, “gave him the opportunity to publish a new edition”. Keeping as many people employed as possible, no matter the scrupulousness of their work, he argued, would lead to a better society than one dominated with excessive rules and regulations. And it seems, prima facie, that selling pirated goods allows access to consumers who can’t afford to pay full price. The difficulty, however, lies in whether the consumer can’t afford to or whether they just don’t want to. Whether someone whom a company would initially attempt to covet and convert to a prominent customer at a later age is instead lost to a world of pirated goods, which, not being subject to the same standards as the genuine article, ultimately disappoints the buyer and pushes them away from the brand entirely.

In a tale similar to that of Mandeville, the author Neuwirth suggests similarly that were it not for piracy, Shakespeare himself would also be confined to the realms of anonymity. During production of his plays, piracy allowed for other productions to run different versions – “King Lear was remade with a happy ending”, for example. In 1709, publisher Jacob Tonson bought the rights to the complete works, publishing them at a premium every fourteen years,  “enough to secure his perpetual copyright”. When one upstart pamphleteer threatened to sell the plays in sets for a fraction of the price, the argument that ensued resulted finally in Tonson flooding the market with plays sold at a penny.

“Shakespeare’s plays were suddenly available all over London at rock-bottom prices – something that had never been true even in the playwright’s lifetime. A century after his death, piracy helped make William Shakespeare a household name across social classes.”

Without deep research it is hard to dispute this intriguing interpretation, except to say that some of the adaptations of the plays may well have fallen under today’s terms of ‘fair use’, and that perhaps what this example really demonstrates is the need for a regulatory environment, one that stipulates that culture be accessible to all, rather than leaving it to excessive price gouging. Similar stories occur in the present-day as Neuwirth moves on to illustrate the situation in Peru, where “more books are sold in pirated editions than official versions”. The price for a legitimate copy of a book is too steep for most people to afford; thus the piraters are the ones that undertake market research, attend book fairs, etc. This is a dramatic fault with the publishing industry in Peru, which clearly has missed business opportunities here by not aliging prices sufficiently with customer demand. This again, then, is an example where regulators should be stepping in to correct market deficiencies. It is not necessarily an excuse for piracy to be celebrated. An absence of morality is not an imprimatur for immorality.

The Business Software Alliance affirms that in 2008, piracy cost software companies $53bn. The author rightly challenges this, writing that the BSA “assumes that every pirated program represents a lost sale at full retail price”. With relatively high prices for products like Adobe InDesign and Photoshop, this thinking by the BSA is indeed questionable. In some cases, initial access to a pirated copy, much in the same way a legitimate trial version works, might well help incentivise the consumer to purchase the full, legal product. Interestingly, the author quotes a note, hidden away in the BSA’s results,

“‘Business, schools and government entities tend to use more pirated software on new computers than ordinary consumers do’. The government – the same entity that the industry calls upon to police piracy – is actually one of piracy’s largest patrons.”

This revelation is startling as it turns the notion that it is consumers who are the wrongdoers, consumers who need the educating, on its head.

The notion of piracy contributing positively to business turnover is a tough one though. The author contends that in the world of fashion, going from a world of ‘planned obsolescence’ (a term used for things like when BMW will decide to release their new version of the 7 series), to “induced obsolscence”, where piracy “spurs demand for new styles”. This may be so in some sort of roundabout way, but the presence of piracy can surely be said to do little for the customer trying to differentiate between the legal and the illegal product, and little for the brand. Louis Vuitton et al. have surely suffered considerable losses over recent years, and invested significant amounts of time and money on combatting piracy. Though an anonymous executive of a “major sneaker manufacturer” might concede piracy doesn’t really impact the bottom line, it is debatable as to whether this is the case for those in the high-fashion world.

Ultimately, while the rise of pirated goods allows consumers more options, it also requires them to be increasingly savvy about the products they are purchasing. An over-regulated environment may stifle innovation; collaboration among multiple entities has been proven to sometimes enhance the development of a product. Quality of craftsmanship is necessarily going to be harder to discern when purchasing a pirated good, though. The trick is to create a legal framework that allows businesses to thrive, to provide their customers with a product at the right price, and to employ people who are protected under laws that they would otherwise not be granted under illegal outfits.

Futurology, DARPA-style

From the Winter 2009 Zeitgeist…

Zeitgeist face such an alarming amount of numbers, facts, figures and statistics every day that sifting through it all to find the relevant information has become something of a fine art. Did you know mobile advertising is up almost as much as newspaper is down (18.1% and 18.7%, respectively)? Wikipedia currently features over 13 million articles, (though as reported recently in Le Monde, the rate of growth is slowing). Did you know the average US teen sends 2,272 texts a month, that Nokia manufactures thirteen cell phones every second, that 93% of Americans own a mobile, but a third donʼt yet feel comfortable paying for items with it?

These sorts of facts can help prognosticators look to the near future with a vague certainty toward upcoming trends. However, Zeitgeist is not satisfied with merely peering into the near future. We are always looking beyond the horizon, into the depths of futurology.

Who would have predicted that space exploration would have precipitated the creation of digital hearing aids and cancer detection devices? Who would have predicted that a little-known DoD agency created in a knee-jerk reaction to the launch of Sputnik, would stumble across a way of communicating between computers that would develop into the Internet we know and love today? DARPA lists many of the projects it is currently working on, which aside from their military uses might also have intriguing applications for consumers in the future. Chemical robots that are able to change size and shape in order to fit into different areas and perform different functions and nano air vehicles “less than 7.5cm in size” are some of the more fascinating things in development.  Programmable matter could see brand comms with manipulative particles that ʻrememberʼ their position. Paint on your walls could change to a Guinness hue at happy hour. Micro power sources would give client Duracell new avenues of energy storage to explore, and tiny micro air vehicles could be sent anywhere to project video imagery or augmented reality functionality for a product.

Yet, as The Economist points out, despite manifest amounts of consumer products that are military derivatives, “lately some kinds of technology have been moving in the other direction, too”. Drones plaguing neʼer do wells in Pakistan are piloted using modified X-box controllers (it helps if the video feed is protected, however). Moreover, “soldiers in Iraq and Afghanistan are using Apple iPods and iPhones to run translation software and calculate bullet trajectories”. While the military has an enormous budget for R&D, little is invested in electronics, hence why the USAF recently bought 2,200 PS3s to form a super-computer. Zeitgeist has already placed an order for a nano air vehicle from GE.