Saturday, September 29, 2012

Changing advertising from the inside vs. breaking down the system

After reading Bettig and Hall's chapter, I found myself wondering what they would think of Jarvis' approach to advertising. What I mean is, in some ways, Jarvis is advocating an overhaul of the current advertising system -- he wants something smaller, more open, more led by the people who are using products than the giant advertising agencies.

Several of those changes would seem to correspond well with the criticisms leveled at the industry by Bettig and Hall: It dictates public values and structures power in the hands of a few, all in the name of making more money.

So would Bettig and Hall see Jarvis' vision of advertising innovation as something that would incorporate the types of changes they're calling for? I don't think so. I think they'd see it as an incremental improvement over the current advertising ideology, but still one that was fatally flawed in its subservience to the basic principles of that ideology.

Jarvis' ends are just as capitalistic as the traditional advertising ideology Bettig and Hall described - his whole purpose is telling people to more money by getting other people to consume more goods. That's exactly what Bettig and Hall found as the problem in their chapter. And even if Jarvis is letting the people lead his advertising campaigns, he's still co-opting them -- he only wants them to help tell others to buy his clients' products, not to actually empower themselves or to operate out of any paradigm that's outside of consumer capitalism.

So Jarvis' philosophy would probably be more effective and more open than the current advertising system, but there's a limit to its innovation -- it still works from within the system, and it's the system itself that Bettig and Hall have a problem with.

Wednesday, September 26, 2012

Media Stock Compeition

Each one of you would get $10,000 (virtual money) to invest in 2-3 publicly-listed media companies. Happy?

Set up your preliminary media stock portfolio on Yahoo. Example:

Preliminary research: Evaluate their products and analyze their competitive advantage against the state of the market.

Track news of these media companies regularly. 

Study the financial info of the media companies you're interested in.

A very nice online tutorial:
Pay attention to industry-level as well as company-level variables (e.g., demand, competition, strategy, etc.

Set up your portfolio and present it in class next Monday (Oct. 1) and justify your pick. Be convincing!

The "Employee Turnover" indicator

One of the indicators of finance and economic health of media firm is “Employee Turnover” which may not be applicable today. Today, people who can write sentences and use a digital camera could be reporters. Some media operators tend to hire young people because they are cheaper and more obedient. The characteristics of an accomplished reporter may be different today. A senior journalist might not be as important to a media firm because readers don’t care or unable to discriminate between good and bad news. Besides, due to the emphasis of the visual effect in new media, many audiences choose a media only by the visual cues, such as a beautiful face. Therefore, young people could be more successful than senior employees. That is why this indicator could be inaccurate for a lot of media operators today.

Tuesday, September 25, 2012

Wish list stalker

I have never read so much about financing in my life. I really don't have anything to respond to the readings by Picard, so I will talk about an article I just read.

Wanderful Media is a response to make sure advertisers don't leave newspapers all together. It brings the circular ads to the digital world. The website list its goal as:

"To help newspapers grab back some of the revenues that were lost as readership shifted from print to the Web. Smith says it is comparable to the way that big media companies teamed up to fund websites that digitized local classified ads that for cars and jobs."

Instead of ripping ads out of the sunday circular, readers will be able to make wish lists, which will connect to your phone and alert you when your close to the store with the special. Sounds to me kind of like Google Wallet's alert system. 

I talked in class about the risk of advertisers leaving newspapers because they can advertise cheaper and in an interactive fashion in different mediums. I think it is good for advertisers, but newspapers are not going to be able to charge them a ridiculous amount of money using a digital circular. 

We shall see.

Everybody's got something to hide (except me and my media firm)

It was simultaneously frustrating and encouraging reading from Picard about indicators of success for media companies -- encouraging to see how many of the indicators of financial and economic health are publicly available, but also frustrating to see how many of them aren't. It's always fun to tell reporting students how much they can find out about companies they're covering from their 10-Q's and 10-K's (if they're publicly traded) -- revenues, profits, debt, major projects, major ongoing lawsuits, percentage of the business that's in various markets or products, and so on.

But there's also so much that's hidden from those balance sheets, so much that could really give us a true sense of how that company is actually operating. I sometimes wonder if the accountants preparing those statements are snickering as they're writing about all the things they're not telling us ("If they only knew...").

For us as researchers, it's tempting to simply avoid asking some questions because we know the data needed to answer them would be so difficult to get our hands on. I read someone on Twitter a few weeks ago saying that we could solve the paywall debate in 2-3 years, tops, if everyone would just open up all their data on it for everyone to study and learn from. That's unrealistic, obviously, and it shouldn't stop us from trying to answer the parts of the question that we can get our hands on, and find more creative ways to get at the rest of it.

Sharing your ownership with employees!

I assume that newspaper corporations face an issue with their financial flows largely due to their inventory. Today’s newspaper edition naturally turns into a piece of garbage tomorrow. In addition, the demand for today’s paper fluctuates by the day’s news value. Even though newspapers secure a predictable demand through subscriptions, it is difficult to avoid high amount of inventory. While private firms file their inventories as an asset on their financial statement, I doubt that newspapers can record yesterdays’ papers as an asset on the statement the same way. Therefore, it is becoming more critical for the newspapers to take account of the high amount of inventories when producing news contents. 

In addition to the inventory issues, newspapers are sensitive to the economic cycle, especially since news became much accessible with the help of internet. Economic downturn makes people cut unnecessary expenses, and the news consumption is considered one of them. From this perspective, news consumption can be regarded as a luxury good. Therefore, in order to keep the business afloat, high level of liquidity should be guaranteed.

Nowadays, many newspaper corporations try to get funded by private equity firms. However, it is doubtful that those investments can ensure sustainable growth for the newspapers since the private equity firms are usually under pressure to generate short term profits. Frequent ownership change was seen in the newspapers whose ownership belongs to private equity firms. Those unstable financial sources may affect the performances of editorial departments in negative ways because the high quality of editorial work is not linearly related to the short term investment.

One possible answer to the cash flow problem will be an adaptation of more employee stock ownership plan. In an exchange of ownership, newspaper corporations will have more stabilized cash flow from employees who can be loyal to the company even in an economic downturn. Moreover, newspapers can sell their stocks to local residents at a discounted price through public offering. Since many local newspapers in the U.S. are bound to narrow geographical boundaries, it is important for readers and employees to have a certain level of ownership, in order for newspapers to serve their community in a stable way.

Bits and pieces

1. I struggle with not knowing how to comment on the readings for 9/26...  There is a lot of new information from these chapters for me to learn, but I am afraid I am still at the stage of not knowing how to put the bits and pieces together.  

2. Re: The "Why?" on p. 161 ("A magazine company may find that it obtains the bulk of its advertising revenue in two months during the spring and two months during the fall...")

I can be wrong, but at least for fashion magazines, I believe it has to do with the timing of when the new clothing collections come out (which is typically in the spring and fall). Especially for high-end brands, most of their customers who read those kinds of magazines would probably be more inclined to make purchases while things are 'fresh off the runway' than otherwise... Just a wild guess!

How to measure the productivity of journalists?

In fact, when I worked for a broadcasting company, I would wonder about what was the productivity of my colleagues and me. That is because most of broadcasting companies in South Korea seem to earn much more money compared to the time and efforts that journalists are putting. They tend to deem their productivity different properties from that of other industries and think that it is hard to measure their own productivity. The company for which I’d worked also tried to appraise the productivity of individual journalists, but stopped doing it.

It is evidently clear that the ability of personnel to carry out their tasks is a critical factor in the success of media companies as well. But how can we calculate the productivity of journalists - with how many hours they work?, how many stories they produce? or how many exclusive news they publish? What about a simple measurement; total operating revenue divided by full-time equivalent employees? In addition, what if the news is neither a good nor a service?

Picard (1998) looked at the disadvantages of using productivity measurements for individual journalists and newsroom performance appraisals and suggested the 'measuring journalistic quality through output production by journalists' along with seven categories of time use, saying “but it is possible to indirectly measure journalistic quality and productivity by thinking of them as the result of a variety of activities carried out by journalists.”

Monday, September 24, 2012

How to define news, economically -- Part III

If news doesn't fit perfectly into a market for either goods or services, where does it belong? So far the only thing I've thought of is that it belongs in the same place as government.

Think of the police. What do we expect from them? Do we expect a good, as in a number of arrests or tickets? If so, that's faulty because then we're essentially creating crime by requiring a quota. Do we expect a service, as in protecting us from the bad guys? If so, we're going to be disappointed because it is impossible to predict when a crime will occur, and police cannot be omnipresent. And even when a crime is discovered, and sometimes even when the bad guy is identified, the criminal escapes or is never caught, and he gets away with his crime. And yet, despite not ever completely doing what we might expect them to do, nobody would say that we don't need police. And this is why police services are not bought and sold on the open market. We are charged taxes to pay for having police, and someone we elect makes decisions on how many police to have and how to deploy them. Public safety is a publicly funded, publicly run institution. A similar line of thinking goes for many other aspects of government.

So, IF we believe that timely information about current events is of value (perhaps the subject of debate for another three-part essay), then where does it belong, economically? Considering the ground I've covered so far, I see three options.

1. Leave it as is. The market for news will continue toward adverse selection, quantity over quality, with a few firms making guarantees to signal quality to the buyer. News organizations will continue to be trusted about as much as used car salesmen. But even then, profits aren't dependent on swindling people (as they are in used car sales) but on whether advertisers see any value in the dispersed, highly variable, fickle,  mistrusting, ad hoc audience that news tends to assemble. Prospects: Consumers aren't asked for much, so they're relatively happy, but the situation is not promising for news organizations.

2. Organize stronger public subsidies, but leave the news business in private hands. Similar to agriculture in the U.S. We want our news, so we'll subsidize you through the slow times on the understanding that you'll be a watchdog for us and kick into high gear when something big goes down. News organizations have quite a mixed track record in this regard. Prospects: News producers are much happier, but consumers aren't likely to think they're getting a good deal.

3. Make news public. Elect the editor in chief the way we elect the county sheriff. The news organization is owned by the government, yet expected to report on it, the way Congress appoints a portion of itself to investigate itself when it makes a mistake. Taxes pay journalists' salary, the budget it public just like for the city council or whatever. Prospects: News producers are most secure in this model, though they are likely to feel restrained. Consumers are now taxpayers, who have never quite been satisfied by how their tax dollars are spent, right?

There, finished. Anything I'm missing?

How to define news, economically -- Part II

What is news, in economic terms?

Is it a service?
"Man, it has been a while since I had my news done. Rhonda, I'll be back in an hour."
Maybe the collection of news is a service that is performed for others. You don't have time to go talk to all the lawmakers in the world about the health care bill, so we'll organize a team of specialists to do that for you, then write up an executive summary. The fact that the greatest majority of people are unwilling to pay for this service has until now been handled by selling whatever people use the service to advertisers. This is similar for many other services that are provided for free, like email, search engines, Facebook, Skype, and so on. So that's a fine idea: offer a free service to people, then sell whatever users you have to advertisers.

The problem is, journalists have no idea what services people actually want or, for that matter, who will want them, until the entire range of services has already been provided. I just saw an article that called this asymmetrical information, which seems to apply. (More information here.) In the news industry, this works in two ways. First, consumers have no idea what news will be produced on a given day. They must decide whether to buy access to the day's information without knowing whether they will be interested in it or whether it will be of any value to them. In other words, the choice to buy news is a choice to buy information you don't know you don't know (unless your friend on Facebook already told you that bin Laden was killed). And how can you possibly place a value on that? Second, news producers have little idea what will be interesting to people until after it is published, except in a few obvious cases. Journalists make value judgments all the time based solely on past experience, and the best appropriate analogy is stock traders. Past performance may not be a guarantee of future performance, but it is the only indicator one can use in making decisions for the future.

So economists say that, in markets where there is asymmetrical information (such as used cars - only the seller knows the car's quality; or home loans - only the borrower actually knows his ability and/or desire to repay), one of two things is likely to happen. In the worse case (1), the market may collapse. The agent on the side of the transaction that is lacking in information may decide that it's just not worth it, given the high likelihood that he's going to be swindled (sold a lemon, not repaid, or given a newspaper full of fluffy evergreen stories because news was slow that day). If the market doesn't collapse (2), it contracts into a market of adverse selection. This means that, because one side has such an information advantage in the transaction, the market is flooded with low-quality products. I think it would be easy to argue that this is now happening in the media market.

One way to resist this contraction is through signaling. Those on the side of the transaction with more information may choose to signal to those on the other side, either by volunteering some of that information or via guarantees or by building confidence in their brand. This is where media trust and credibility come in -- unfortunately, media are not doing such a hot job there either.

Coming in part III: The only serviceable analogy I can think of, and what it says about news.

How to define news, economically -- Part I

What is news, in an economic sense?

Is it a good?
"Hey Rhonda, we're out of news, could you pick up some more on your way home from work?"
Maybe news is a good, something that can be consumed and held in your hand. But what is the actual good, the information or the product itself? When someone decides to purchase a newspaper, I don't think they're telling themselves, "You know, I could really use a stack of grey, inky papers." I think it's faulty to consider the delivery platform as the only good being bought and sold. It's true, to some extent, that some people prefer reading news in a newspaper and others prefer reading news via a mobile app on their smartphone, and sales of both items are counted as goods. But the platform itself holds no inherent value. In other words, the newspaper is worthless to the buyer if it contains no news. The reverse relationship is not the same, regarding the news content. The news content holds value even without the newspaper or mobile app and can be delivered in any number of ways. (Although, I suppose you could argue that news content NEVER delivered holds no value -- the most worthless kind of story is one nobody reads. But I think it is safe to assume that news would not be produced simply to sit on a shelf ... that's what dissertations are for.)

So if news content is the good being bought and sold, the object that holds value both for media producers and consumers, from what is it produced? In the news industry, producers have very little control over inputs. If you have ever worked in a newsroom during the summer, you know this is true. Schools are out, municipal governments take frequent breaks as people go on vacation, there are no major policy meetings, and news is super slow. And yet, people expect a stack of "news" delivered to their doorstep every morning. So we tell them the animal shelter is overrun and give updates on highway construction, ad nauseam. I've tried to think of a comparable industry, where goods are expected to be produced even when there are no inputs, and I can think of one. If you make cars, and there is a shortage of the chemical needed to make catalytic converters, then the cost for that input goes up. But if the chemical is completely unavailable, there's nothing you can do. You stop making cars. Not so with the news industry. You continue selling your product as if it provided the same value as yesterday's news, which is clearly not the case.

So the question is, how much sense does it make to run a "goods" industry when you have no control over the inputs? If on Monday, someone is assassinated, or someone has sex with the wrong person, business is good. If nothing like that happens on Friday, why are we producing the same number of news stories to fill the same number of pages as on Monday? The only reasonable perspective is that the "good" people are buying isn't only the news, it's also the newspaper (this makes far less sense when you consider a free website or a free mobile app -- there's no consumer expense, and so you simply would spend less time on the site or not even open the mobile app at all on the slow day). Which now makes this post circular and completely nonsensical.

In summary, that's what I think of news' business model: it's nonsense. Coming soon in Part II: Is news a service?

EDIT: Just thought of this comparison: the farm industry. That's another case where the production of a good (say, corn) is dependent on inputs that the producer has no control over (the weather, specifically, water). The farmer could buy all the water he needs to produce his crop, but that would drive prices so high that he would not be able to sell it, and people could not afford it. So what happens in this market? The farmer buys insurance, and the government heavily regulates the market with subsidies and other controls. So when a shortage of inputs creates a situation unfavorable for business, the farmer lets his corn die and we buy our corn from some other farmer who is not experiencing a drought. The farmer's insurance and the government pay his bills, so he's happy, and consumers don't experience a dramatic jump in food prices. This works because the nation has an interest in stable food prices, which may not be true for news.

Failure of product differenciation in digital world

Digital components are embedded to any web edition of news media. The convergence led by the digital technology makes appearance of web editions of news media look similar. The text format is not only for newspapers anymore and video format is not any longer for broadcasting companies. At the time of digital convergence, any news content can be delivered in same ways on online sphere, so that the strategy of differentiation on news contents should be more significant than ever.

Traditionally, local newspapers were not considered as a substitute for the nationals or other local newspapers. It is because their publications have been limited to their local markets. And the role of local newspapers is to serve their local community, focusing on stories about the community. Therefore, as the Chapter seven indicated, many local newspapers have a market structure of monopoly. However, online editions of local newspapers are still considered as a non-substitute for the nationals or other local newspapers or vice versa? My answer will be ‘yes, they can be a substitute’, especially in a downturn of news media industry.

Heavy reliance on AP news for many local newspapers rips distinctive power of local newspapers. Even though local newspapers still produce community-oriented stories, they are just a small portion of whole news contents that the local newspapers produce. Readers are not only interested in community news, but also interested in a variety of news items, such as business, economics, art, culture, and food. However, downsized editorial departments in the downturn of the industry cannot afford to cover those topics on their own. Therefore, they use AP news to fill up the pages at an affordable price.

However, this strategy seems to rip the monopolistic power of local newspapers as well as national newspapers, which do share same contents produced by AP news. Since all information are circulated through the internet and filtered through portal news sites, such as Yahoo news, the readers in my local market do not necessarily access to the local newspapers in order to consume the topics which they are interested in. Moreover, the New York Times articles on the local newspapers can be accessed not only by the website of Times but also by the website of local newspapers which contracted with the Times for the use of the articles. Even though the big names, such as AP news, the New York Times, are enjoying their influence on the online sphere, the clear market boundary is becoming blur, leading to more severe competition among news media.

Among many reasons, the intense competition among news media may be partly due to 1) underestimation of internet’s distribution power 2) increasing homogenous news contents.

Sunday, September 23, 2012

The illusion of the telecommunication industry

The firm theory and the industrial organization model seem unfitting in explaining the media and telecommunication industries. For instance, in telecommunication industry, even the HHI shows low concentration among several companies, it does not mean the telecommunication market is highly competitive. Because of the limited and precious resource of spectrum, most governments release few mobile licenses to avoid the interference problem. The product differences between telecommunication operators are minimal because these operators access the same telecommunication infrastructure in the same country. Moreover, these operators often have some unspoken consensus with each other because they will try to provide similar products and price to avoid a price war. Consumers seem to have many choices with mobile services but, in reality, all of these different brands provide the same service.

Because of the fast development of communication technology, a telecommunication company must often update its governmental licenses in order to keep up with other companies. Companies claim to need these licenses from the government to ensure protection of the customer’s consumer right. Newcomers to the market find it difficult to acquire these licenses and thus struggle in this fast-moving industry. This unhealthy trend will reduce the competition in telecommunication industries and hurt the rights of consumers. 

Barriers to entry vs. Diversity of views

In most countries, there may be structural barriers to entry in the media industry, especially broadcasting, for some reasons. As mentioned by Hoskins et al., many countries tend to impose regulation and regal controls on broadcasting business. That is because “governments consider intervention necessary in cultural industries to further cultural goals.” In addition to that reason, governments tend to have control over the media through policies on license to broadcasting.
At the same time, however, “diversity of views,” which can be attained by being exposed to a wide range of sources and opinions, is also deemed as a desirable objective for media industries in democratic society. If so, from the viewpoint of Industrial Organization Framework, I’m wondering how the “barriers to entry (structure)” determines the “diversity of views (performance)" and h0w the latter reacts to the former.

What is to gain at the price of zero?

The definition the book gives for product differentiation made me wonder if this is precisely why news companies are fine with online news' becoming commodified -- because most of them are working for the price of zero, yet product differentiation is only worthwhile when the value added by differentiation is greater than the cost for a company to supply the differentiating characteristics. 

I wonder, though, how are they going to start making people pay if they continue to commodify?  It seems a little shortsighted for them to equate "value" with only revenue and not other things like audience engagement that may indirectly bring the company profit in the long run (i.e., more engaged audience -> more likely to click on things on the site -> more likely to see ads on the site -> more likely to make advertisers happy -> more ad revenue for newspapers). 

Dan Ariely has a very interesting chapter on the cost of zero cost in Predictably Irrational, and I think the newspaper industry may benefit from reading it. Long story short -- When things are "free" we act differently. We forgo rational "cost-and-benefit analysis because, well, there is no literal 'cost' when it's at the price of zero! I don't know the answer to "so what can newspapers get out of offering the news for free (other than traffic, which they clearly lose when compared to Google...)?" But newspaper folks are smart people (right?) -- I'm sure, and hope they will figure something out that is equivalent to CNN's making the audiences watch a 30-second commercial (that feels like forever) before each of their free online news story to satisfy the advertisers but also meet the needs of news audiences that want news "for free."

Local news isn't newspapers' only good -- and that's been bad

The question in Hoskins et al. Chapter 7 about how to determine whether local newspapers would be considered monopolies helped provide a good framework for understanding the nature of newspapers' current problems. The authors said the key to that question lies in whether there are other firms producing close substitutes in that local market.

The answer to that question varies depending on the type of good being produced by the newspaper, and it's also changed over the past decade or so. Newspapers bundle a variety of goods -- local news, national and world news, lifestyle features, display and classified ads, comics, the crossword puzzle, etc. In most markets, almost all of those goods now have competing substitutes, thanks to the Internet, which operates across every local market.

Take, for example, circular ad inserts. In the pre-Internet days, the local newspaper held a near-monopoly over this type of good -- the only alternative was going into each store and picking up their circular on site. But now, there are local substitutes in the form of sites that list each store's circulars for the week, and stores often list their own weekly deals online. It's not as though a "local" substitute has emerged, but the Internet functions as a local substitute in each market because of its penetration across local markets.

There's one big exception to this -- local news. In most markets, the Internet hasn't yet enabled local news to  create a substitute good for newspapers' local news coverage. That's something newspapers like to remind us of often, and it's the reason why many small newspapers continue to do well despite the Internet's disruption of the rest of their industry. But newspapers also need to recognize that though they still hold something of a monopoly over local news, consumers often bought their products for all the other goods bundled with it, and they've found substitutes for those goods elsewhere. Newspapers often view local news as their only good, but they have (or had) many others, and that's where their local monopoly has fallen apart.