Filing a comment

The FCC site is not the most intuitive site in the world.

• To file a comment, one must first go the FCC’s electronic filing system.
• Once there, click on “Search for Proceedings” and you will end up on a form.
• All you have to know is the proceeding number. In the case of net neutrality, that number is 09-191
• Enter 09-191 in the box that says “Proceeding Number” and click the “Search for Proceedings” button
• You’re now pretty close. As long as “Status” is Open, you can file a comment.
• Towards the top of the page, you will see a link to “Submit a filing for 09-191” (you can skip the earlier steps if you want and just click on the link here) or you can look at what comments have been made already.
• Of note, you can’t file the comment via a web form. You need to upload a document with your comment in it. A bit of an extra hassle but well worth it to protect the net.
• Make sure that you filled all the required fields or your comment could get rejected.
• Once you filed your comment, you’ll get a confirmation number and a page where you can check the status of your filing (mine can be seen here)
• That’s it. Remember that the deadline is Thursday, January 14, 2009  so please do keep this in mind.

What I filed

Looking at the recent talks around the concept of net neutrality, I decided that I would just tackle some of the arguments against it, showing them to be based on nothing more than FUD. So I focused my comment on a small section of the findings.

Here’s what I said:

As mentioned in the introductory paragraphs of your proposed rule-making, the internet openness has not only been key to its success but also provided entrepreneurs like myself with the ability to foster economic growth by creating new companies and new jobs.

To create a multi-tier system, as parties opposing further actions by the commission (as highlighted in III, item 65), has the potential of creating certain financial barriers that would prohibit innovation within the internet space. Let us not forget that, while Skype is often used as an example of how successful broadband access can enable new business models, that company (and a number of similar broadband-based offerings) was born outside of the United States at a time when broadband costs were cheaper in Europe than they were in the United States.

While the assertion that certain types of traffic can impose greater burden on a network, this has unfortunately been the case for much innovation. Web traffic created greater burden on the phone network in the early 1990s. Chat services and instant messaging created a greater burden on the networks in the later 1990s. Voice Over IP, online video, music stores like iTunes and online games like World of Warcraft have created a greater burden on the networks. Yet each of those legal applications has provided not only a new set of benefits in the form of new communications channels or new ways to deliver entertainment but also improved the country’s economy by providing some new engines for economic and job growth. It is not impossible that, in the not so distant future, we would come to see the internet as the carrier of data of voice for any application, whether it is high definition 3D TV channels, or high definition video telephony.

Third, the assertion that higher costs are required in order to foster innovation seems to be counter to the actual data available in the marketplace. While it is clear that investing in new infrastructure spend is expensive, much of the costs currently needed to provide broadband access to large portions of the country are already sunk cost as the telecommunication and cable industry overspent in the 1990s on laying down fiber that, to this day, is often still unlit. Investing in new technology to enhance the performance of networks is generally not the domain of those providers who are advocating a less open system as they generally do not research and invent the tools that allow for better network management. Network improvements, in the final economic analysis, generally happen because the providers see a competitive advantage in improving the network, not because of network discrimination.

As a result, most of the arguments made in favor of network discrimination amount to scare tactics that have little basis in historical facts. I dare hope the commission will see through this subterfuge and provide full support for the principles of net neutrality highlighted in your document.

I’m not generally asking much of my audience but, in this case, I will make an exception and ask you to please go and file a comment before Thursday. The future of the internet is in your hands: whether you want to keep the net open is up to you but you have to act now.

Let’s review: as far as Apple is concerned, as illustrated by the navigation in its homepage, there are three major lines of business: the Mac, the iPod, and the iPhone. And then, there’s the redheaded stepchild, AppleTV, which the company considers “a hobby.”

But while the company claims to not be interested in this market (even though the product was called out as a successful hobby on a recent analyst call), it seems odd that it would be working so hard to attempt to cater to the video-specific crowd: iTunes Extra, the rumored dealings with Disney and CBS, the increased partnerships to release movies on iTunes at the same time as DVDs (a move that Netflix consider too bold) all seem to point to greater ambitions to get some level of control over the third screen.

But what does that third screen really need? If you look at most the news coming out of the Consumer Electronic Show this week, it looks like the rise of web-based video being available either as an embedded option, or through a BluRay player, or a separate box, will soon be a given. NetFlix is one of the early winners in this but where would that leave Apple. It has strong relationship with the studios (its own CEO is the largest single shareholder in Disney) and a product that is about to become almost irrelevant.

“Send to TV”

But the function that most TV screen present still needs some form of remote control. That remote control could (and does) come as an iPhone app but what if there were a different way to experience content from the internet. Something like a “tablet” device that would allow someone to surf the internet on a smallish (maybe 10 inch) screen they could use when it comes to reading text. But, once a video component shows up, they could press a “Send to TV” button that would get the stream started on the big screen.

Attached to the TV would be a “simple” device with either an RF or bluetooth receiver, a network output (or built in Wifi over 802.11n), and an HDMI and power out. Inside that device would be electronics that would have a small internet stack, a web server or a bonjour bridge (for any form of administration), and enough video power to stream movies from a variety of format. The “receiving” end of the software could also be added to existing AppleTV software to ensure that the new tablet could talk to them.

Technology is there already

Those technologies are mostly there, by the way. Apple has another small component called Airport Express that currently can receive music from iTunes (and can be hacked to received sound from other sources). Adapting it to receive video doesn’t sound too farfetched.

And Apple just released a software update to AppleTV to improve connectivity between iTunes and the device over Bonjour. Could Bonjour be used as the mean of instructing from the tablet to the device?

Clouds

So it’s not totally improbable that the AppleTV would play an important part of the tablet’s future. It could be one of three major features: cloud computer, e-reader, and TV on steroids.

The cloud part would include web-based version of Apple’s iWork suite, along with a new iTunes focused around the offerings of lala.com, and the me.com offering for other basic services. It would also include instant on version of currently available for rent movies, leveraging the new large data center for streaming purpose. This portion of the offering would counter much of the discussion about netbooks and their effect on the device.

The option of sending video straight to the TV would also “simplify” the device in that it may not necessarily need to include enough power itself for processing the video. This, in turn could help the company lower the price-point of the tablet device (shifting the cost of video processing to the “add-on” everyone who doesn’t have an AppleTV will want to purchase).

So what do you think, is this a totally crazy idea? Chime in in the comments…

The dotcom bubble was close to its peak and those of us who were fortunate enough to be part of it felt as it we were on top of the world. A new millennium was on its way and, though many of us felt cautiously optimistic, any sense of reason seemed to have disappeared as our fortunes hit stratospheric highs.

We didn’t know then that the stock market would crash. We didn’t know then that most dotcom companies would crash. We didn’t know then that the towers would crash.

Maybe we were too young, too innocent to really comprehend what would come next. Back then, President Clinton was presiding over a country that had seen an almost unprecedented economic expansion built on the innovation of countless members of my generation, who had worked day and night to turn dreams of a new future into an industry that had come to dominate much of the country’s mindshare.

We didn’t know then that, in the ensuing year, the presidential election would end up with a country deeply divided over its legitimacy. This divide would reign for most of the decade (some would argue it still largely exists today) and force many of us to grow up politically.

We didn’t know about the bruising economic crash that would end up wounding us psychologically, forcing us to realize some of our own failures as promising dotcoms after promising dotcoms were forced to shutter their doors, along with many not so promising ones, because they had the unfortunate mark of being on the internet.

And we didn’t know that the scent of failure that had come with many of those closures would only be erased by something worse, something deeper, and probably even more scaring, as we were faced, for the first time, with the concept of large-scale mortality. For those of us living in New York that tragic day in September, the world did end on that day, only to be rebuilt in a different by every one of us. Some escaped, leaving the city entirely; others escaped, living everything, from job to innocence, they had known previously; few went on and tried to adapt; all were forced to grow up, in some way.

We didn’t know that, against a backdrop of war and destruction, ingenious people were working on a newer set of web technologies that would help realize many of the dreams we had dared to dream in the previous decade. RSS was still the domain of a few geeks, and podcasting (let alone the iPod) didn’t exist. Watching movies on the net was something we hoped for but didn’t get. There were a few pockets of sites where watching videos was possible but this was not a mainstream activity.

Apple was known as an also-ran, having been vanquished by Microsoft, the giant from Redmond, which seemed to be undefeatable, having essentially managed to route Netscape, the single largest threat to its business. We thought that the company with the best chance to beat Microsoft might be the company that had figured out how to give internet access to most of America: AOL. AOL was so big that people were wondering which traditional company it would acquire. Early in January 2000, the response came as it acquired (the polite news intelligentsia said merged with) Time-Warner, leading to one of the most disastrous merger in history (disastrous, that is, for Time-Warner. AOL itself might not be around today, had it not pulled off that feat.), a deal that, in a sense defined the decade in its timing. It was the last hurrah of the dotcom era and, in December 2009, AOL spun back out of Time-Warner, going back to NASDAQ after having sucked a lot of blood out of Time-Warner.

MP3 players were for geeks but they were seen as increasingly cool because of an application called Napster, which allowed people to share their music over the internet, something that was sitting in a very gray area from a legal standpoint (the music industry would call it illegal and win in court; consumers called it sharing and grew embittered with the music industry). Since there were no stores to buy music online, most people felt that it was going to be the route Napster would eventually take. But Steve Jobs, who didn’t like being considered an also-ran, had a different idea and, with his team, was putting the finishing touches on a device that would change the music industry: the iPod.

In an amusing turn, the iPod, over several generations, grew to get a near monopoly on the entertainment device market and Microsoft, itself accustomed to monopolies, didn’t make a dent in its market. The iPod begat the iPhone, which itself was not just a phone but provided enough power (that is, roughly the power of a PC circa 2000) to be a full-fledged portable computer. Along the way, Apple extracted some concession from its telephone company partner, opening up the market for a whole series of changes in the telco world. I would venture that, at this point, Apple, with the iPhone, is just about where Microsoft was with Windows circa 1995.

Back then, social networks were largely physical, and it was sometimes difficult to locate an old acquaintance. Friendster dominated that space at the beginning of the decade, to be replaced by MySpace and later Facebook. Few people kept touch with as many friends and it was actually possible to loose someone’s contact information.

Back then, we believed in erasing things from a hard drive, in order to make up space as it was possible to actually fill one’s hard drive.

Back then, “the cloud” was only used to talk about the white stuff in the sky and only birds “tweeted;” “Real-time” was a term generally reserved for stock information, and “live feed” was something only TV technicians worried about.

So as we enter a new decade (I know some might quibble that the decade really only starts in 2011), let’s look forward to a joyful and interesting decade, one filled with the accomplishments of many and the dreams of most.

5. MySpace acquired by News Corp

In the age before the rise of Facebook, MySpace was the new behemoth in the social network space. Earlier players (sixdegrees.com, friendster) had appeared and faded but MySpace seemed to be on a never-ending growth trend. When NewsCorp offered US$580 million for the company in 2005, it looked like an outrageous amount of money and a few people claimed that the founders could have received more money if they had held out.

It is possible that MySpace could have grown into something even bigger but, under NewsCorp’s umbrella, the company seems to have had a hard time keeping up with the competition. The rise and multi-billion dollar valuation of Facebook seems to illustrate what could have been, had MySpace remained independent but, on the other hand, the fall of friendster might also have served as a potential scenario.

Either way, the deal established the concept of social network sites as here to stay.

4. YouTube acquired by Google

It was a deal that brought back many fond memories of the bygone dotcom era: a small company with no revenue and no business plan in place getting acquired for US1.65 billion. Google’s acquisition of YouTube in 2006, the largest in its history, ended up being an outlier in terms of outsized deals in the Web 2.0 space.

But it did establish consumer-created content, and online videos as two important trend in the internet space. In one felt swoop, the deal put on a spark to the online video space and, while the company has had to contend with issues around illegal videos being posted to its site, forced video content producers to start thinking about online distribution strategies.

That deal can be seen as the grandfather of Hulu, iTunes and Amazon’s video offering, as well as Netflix on demand.

3. Apple and AT&T partnership

Sometimes, a partnership is more important than an acquisition. In the case of this deal, having AT&T, one of the most traditional telco vendors, agree to major concessions in order to get its hand on a coveted new phone was revolutionary: in a world where carriers traditionally decided what software was running on the phone and what sites could be accessed with it, AT&T let Apple make all the design decisions, open up the deck to external developers, under some levels of control, and provide access to any site on the internet.

From the moment the iPhone was announced, it looked like a winner. It helped move more people to GSM-based networks, allowing for more interesting phones to enter the market. The 2007 partnership heralded a new age of competition and innovation in the mobile space, delivering, for the first time, on some of the promises that had been made around that concept for well over a decade. It also forced carrier to rethink their own business models as the heavy loads of traffic generated by the 3rd and 4th generation of the device defied the predicted usage patterns and forced mobile providers to upgrade their network.

2. Time-Warner acquired by AOL

Whether a deal is good depends on the side of the table one sits on. The January 2000 acquisition of Time-Warner by AOL was great for AOL shareholders and turned disastrous for Time-Warner’s. Playing on the fear instilled in media companies by the success of dotcoms left and right, AOL managed to engineer a deal where most of the shares of a merger would go to its shareholders.

Ultimately, the deal became a disaster for all parties involved as the attempt at finding synergies between the two companies found themselves bumping against the cold reality of political warfare and corporate protectionism. With units fighting against each other for most of the decade, the only way to reclaim the piece was to spin-off AOL, 9 years later, for less than 1 percent of the combined value of the two companies in 2000.

If there is a bigger example of destruction of financial value by a deal, I’m not aware of it. Ultimately, the importance of this deal is two-fold: first, it was the last big deal of the dotcom era and can serve as the marker for the end of that era (some might quibble that the stock market didn’t fall apart until about 6 months later but that’s just a detail). The deal also showed that expertise in online and not online are not necessarily compatible. Both require different business models and experts who understand the particulars of each market.

1. Google acquires Applied Semantics

The number one tech deal of the decade is probably going to be a contentious choice as it is also one of the smallest deal on a financial basis. Google acquired Applied Semantics in 2003 for a bit over US$100 million, most of it in stock. What did Applied Semantics do? Well, to put it quite simply, it did contextual text-based advertising. The company’s work serves as the base for Google’s AdSense program, which delivers roughly half of Google’s ad revenue. I would argue that, without this acquisition, Google’s advertising reach would not have extended as far as it did and that this acquisition serves as one of the largest drivers of revenue to the company and its key differentiator against other online ad offerings.

Because AdSense has been such a substantial engine of revenue Growth for Google; because it was developed by an outside company most people haven’t heard off; because Google is now one of the most important players in the tech space, dictating and directing trends in our industry;  I would say that this is the single most important tech deal of the decade.

10. IBM acquires PwC Consulting

In 2002, IBM acquired the consulting arm of Price-Waterhouse for US$3.5 billion. The move helped solidify IBM’s position in the consulting business and helped it move away from being a hardware and software manufacturer and more into the higher-margins consulting arena. The deal was very favorable to IBM in that it was able to acquire the company for less than 1 time revenue.

10.b PayPal acquired by Ebay

When Ebay acquired Paypal for US$1.5 billion, the move seemed to be a very risky one. Why would an auction house want to get an emerging payment system that really didn’t seem to fit much with its business model.

Ultimately, the deal has turned out to be quite a good bet as Paypal is now the engine of Ebay’s growth. In fact, most of the value of Ebay now resides in a payment system that has left many financial institution envious of its reach.

9. Lenovo acquires IBM’s computer division

In 2005, the company that had launched the personal computer revolution into the office changed hand as Lenovo, previously a local chinese computer manufacturer with no real global footprint, acquired IBM’s personal computer division for US$1.3 billion. The deal established Lenovo as a global player in the PC market and heralded the arrival of Chinese companies on the global scene.

8. Verizon acquires MCI

In the 1990s, MCI became one of the largest players in the telecommunication business, acquiring and rolling up small regional telephone companies and internet backbone operators. The problem, however, was that most of the growth it demonstrated on paper was based on fraudulent statements and accounting tricks that ended up with the company filing the largest bankruptcy on record at the time (this has since been superceded by other bankruptcies).  Verizon acquired the company in 2005 for $US 6.7 billion, picking up one of the largest internet backbone operator in the process.

The deal, which had come on the heel of SBC’s acquisition of AT&T, was the last one in the landline telecom consolidation that left most of the country’s telephone and internet infrastructure under the control of either AT&T or Verizon.

7. Microsoft / Yahoo partner on Search

Sometimes, the importance of a deal has move to do with the disruptive effect it has on the parties involved than the successful outcome it may represent. Such is the case of the Microsoft/Yahoo partnership which came after years of discussions between the two companies. From 2005 to 2007, Microsoft attempted to quietly acquire Yahoo but the reluctance of Yahoo’s leadership at the time left those calls unanswered. In February 2008, Microsoft decided to take the discussion to a whole new level by making an unsolicited takeover bid of $US44.6 billion in cash and stock in early 2008. The goal was to combine the two companies into a combined one that could compete with Google. Over the next quarter, the two company would battle publicly, with Microsoft eventually giving up on its attempt.

For the next year and a half, Yahoo went through major upheavals due to its refusal to take Microsoft’s offer and the negative impact it ended up having on its market capitalization. With a new CEO installed, Yahoo then went on to agree to outsource its search business to Microsoft, taking it away from the business that had initially served as the foundation of the company. While the link-up has not been completed as of this writing, the disruption that all those negotiations created for the two companies allowed their chief rival, Google, to consolidate its hold on the markets that were at stake. As of this writing, the market share of search held by a combined Yahoo/Microsoft partnership has dropped substantially from where it was when the Microsoft bid was initially made.

6. Weblogs Inc. acquired by AOL

Weblogs Inc. was founded by Jason Calacanis (and Brian Alvey) as a network of blogs, including the popular engadget, which was run by Pete Rojas (also the founder of Gizmodo). When AOL bought the company, in 2005, the price was rumored to be around US$25 to US$30 million. At the time, some felt AOL had overpaid. Today, some feel Weblogs Inc. sold for too cheap.

The reason I would consider this deal significant is that it was the first major deal involving blogs (some would argue that Google’s acquisition of blogger fit the bill but my counter to that was that blogger was a blog tool company while weblogs inc. was a blog content company). Because AOL, an arm of Time-Warner at the time, was a large corporate entity, this acquisition legitimized blogging within the corporate world and made it easier for any subsequent blog-related deal to happen.

In the next entry, we will look at the top 5 on the list. Some of them may surprise you.

Update: Part 2 is up.

Faster access to pages… for Google

DNS servers, for people who don’t know the technical details, are basically the phone books of the internet. On the internet, every computer server is known by a set of digits known as its IP address. For example, when you typed tnl.net, the DNS server looked up the name and discovered that it was at 206.127.35.2 allowing your computer to connect to mine.

I’ve argued, for many years, that Google wanted to find a way to access new web pages at a much faster rate. The challenge the company has had is that it is difficult to find new pages when they appear. While traditional technology to discover what pages are available on the internet has evolved and Google has managed to coerce some site owners in providing it with a quick update when changes are available on their site, the efforts the company has pushed have also been helpful to its competitors, who could build on top of the processes and open standards Google was fostering.

With Microsoft getting some early successes in the search game with their new Bing offering, and new entrants in the real-time search business eating up some of Google’s mindshare in search, the company needs to do something radical, lest the cornerstone of its business, and the source of most of its revenue, be undermined.

Enters the DNS system. Every time a page is called, your browser makes a DNS call (several, in fact, as every web asset can result in a different one). In other words, the DNS system truly serves as the heartbeat of the internet and convincing a large swath of users could allow Google to get an idea as to what’s new on the internet.

If, for example, a user were to access a new page that’s not in the Google index, Google’s own DNS servers could be wired up to alert its search spiders to immediately pick up the page, analyse it, index it, and make it available to its search users within seconds of the page first being accessed. This could give Google a substantial advantage over Microsoft and others in indexing the web in real time.

Some potential risks

There is, however, a huge caveat in all this. For starters, Google needs to convince a large number of people to access their DNS. Providing the product for free may work for some but will not convince everyone. Another issue they may have to deal with is the perception that they might snoop on personal data (something that is already being addressed on their site). The ability to access information about everything you do on the internet, whether it is via a web browser or another application like Skype, online games, or video and music player, is granting Google some brand new capabilities and not everyone may be willing to share such information.

Google will also have to contend with large numbers of potential denial of service attacks (or worse), which have become more common of late, against those DNS servers. Such attacks could represent a substantial reputational risk to the company. If, for example, one of Google’s DNS servers could be compromised, the hacker could decide to redirect the traffic of banks or other financial institutions to their own sites. The potential financial impact of such a thing would become a legal nightmare for the company.

The Prize

All this, however, can be counter-balanced by the rich prize the company would get in being able to index every bit of internet content within seconds (or even nanoseconds) of such content being available on the internet. If that were to be achieved, the company’s perch at the top of the search heap would be guaranteed for a long long time and its continued dominance in the advertising world, based on the rich analytical data it could get from snooping on users of its services, would provide it with cashflow that other players on the internet would have a hard time to match.

Furthermore, Google could have control over where people go and could, if they decided to be evil, redirecto such traffic. That would be a tremendous amount of power.

All told, an interesting move and it will be fascinating looking at where they are planning to take this.

Media Bands

For most of media history, the creation of a full media package has had to involve many professional people. Whether it was a book (or other forms of printed content), a recording (or other forms of audio content) or a movie (or other forms of video content), the production of media goods have traditionally involved multiple people, starting with the basic creator, continuing with his or her editors, and ending with the packagers who put finishing ancillary touches to the product.

Over the years, many such structures crystallized, providing gainful employment to all those involved in the content creation chain. This portion of media creation was then followed by a supply chain surrounding the complete packaging, marketing, sales, and distribution (and not always in that order) of media pieces.

In the early 1990s, with the rise of the Internet and development of web based media, many outfits started emulating the traditional models surrounding media creation, focusing only on the fact that distribution costs were lower than they were for traditional media. So people talked about online magazines, online TV shows, etc… attempting to replicate the old business templates on this new world.

In each case, an interesting phenomenon developed: the packaged output became the brands that were known, with the vast majority of the people who created that media brand being largely unknown. For example, a publication like Time magazine or Business Week would be recognized as a popular media brand but few of the people who wrote, edited, and generally packaged it were as well known. With the rise of television and movies, some sub-brands started emerging, with actors and directors getting more recognized and becoming more important as brands that the studios or channels that were carrying their latest offerings. As such, individual talent started getting some level of recognition, and it became possible to build brands around an an individual.

With the rise of the web and the lowering in the cost of media production and distribution, whether it is for printed media (blogs), video (YouTube), or audio (MySpace, LastFM, Pandora), it became possible to establish virtual teams that quickly banded for an individual effort and disbanded once that effort was completed. So individuals started getting more noticed, with certain blogs being single-man or single-woman operations and building new brands around that person (in this context, TNL.net qualifies as my own personal brand but could be considered as a sub-brand of Tristan Louis, which is spread across a wider audience).

Media Brands

Meanwhile, certain forms of media brands emerged organically because of the input of thousands or millions of individuals who contributed their effort for free. Think, for example, of the mostly anonymous contributors that wrote and edited most of wikipedia. I would call this category of people bands. The name on top (Wikipedia) can continue to exist with or without the current contributors as new contributors can come in to replace the ones who have left.

In a way, the people who have not established themselves as individual brands run the risk of being forced in an out from under other brands. A writer for Bloomberg today can easily be a writer for Business Week or Fortune tomorrow (this is precisely why Bloomberg became a content creation powerhouse by surprise as no one paid attention to who was creating the content).

Challenges

Depending on the side you are on, new issues are about to arise. On the media band side, the contest for supply and demand is going to get worth. Non-internet media brands are generally packed with tens or hundreds of people producing a very glossy, very professional package most of the time. By contrast, internet media is produced in an unfinished form, updating stories as they go along with feedback from other sources as well as from the people who read or view the content. In the battle between individual contributors, an equilibrium eventually arises, sorting the truth out thanks to the balance of input from different parties. This means that the process of editing is no longer in the hands of editors but it becomes a collaborative effort from everyone touching the media product at hand.

On the other side of the spectrum, the media brands now have to compete with a larger set of brands. As distribution costs move close to zero and the established structure of media creation can be replaced by a participatory model where the brand is mainly involved in the business of curating input from its consumer/producer, the rise of individual curators as individual brands is reshaping the competitive landscape. When a single individual can reach hundreds of thousands of people on a regular basis merely by writing and sharing in public, the economics of brand stardom start falling apart.

With content creation and content curation now getting so close to each other that they will soon embrace and form a new model of media, created in a much cheaper fashion, in partnership between the media initiator and his/her audience-communicators, traditional media organizations will have to get focused on creating media that is not only to be consumed but that cannot exist without active participation from its consumers/creators.

Shows like “America’s Idol” or “Britain’s Got Talent” are starting to present this media band approach, while wikipedia has already demonstrated it works in new gathering and efforts around user-generated content in journalism, whether it is of an entertainment nature (eg. Gawker) or investigative one (eg. the undoing of George Allen or the Walter Reade Hospital scandals being covered by bloggers until mainstream kicked in).

And now, I will turn it to you, my media band, to help me build on this scaffolding of a concept.

The many faces of subsidized media

Do you buy the media you consume or is the media you consume subsidized in some way?

For the most part, one could argue that, in the United States, media is subsidized. When mentioning that word, most people will think of government subsidies but, while such subsidies exist in countries like the UK (eg. the BBC) or France (eg. France 24), the subsidies tend to come from more commercial sources.

We will look into that type of subsidies a bit later but let’s first look at one form that people seldom consider as a subsidy: advertising.

In the USA, such subsidies come in the form of advertising, which often represents the largest part of the revenue pie for newspapers, magazines, television, radio, or web media. The cost of a particular item is generally lower than one could find in Europe and consumer behavior treats such media accordingly, as a potentially disposable consumer good to which little value is given. This creates a particularly tricky situation for most media outlet as they are seeing their advertising margin erode, the result of greater efficiencies and return on investment presented by web media.

Genesis of low ad rates

In a way, such wound is self-inflicted. Once upon a time, in the early days of the commercial web (a bit over a decade ago), traditional media looked down on the new media. They treated it as something of little value and many of the larger media outlets decided to toss their online space as a freebie in exchange for richer ad buys in traditional media. Of course, they continued to apply the same ROI metrics to this emergent form of media, forcing many of the online components of larger corporations to figure out way to make their cost structure more efficient while presenting advertisers with a better value than their offline brethens.

I remember finding myself in several meetings, when working either as a full-time employee or consultant to media outlets small and large, in meetings where traditional media salespeople would “toss in online for free.” Eventually, advertisers started demanding online media and continued asking for lower costs on it, creating a prisoner’s dilemma scenario for most media organization as they all knew that the ads could go to their competitors if they didn’t acquiesce to the deal. Online media was now seen as inexpensive and, save for a few publishers who argued based on the merit of delivering a narrow but highly targeted audience, cost remained low while inventory continued to be very high.

Then came Google, which not only showed that online media could stay cheap but could also be offered on a performance basis, leaving advertisers with close to a dollar’s worth of value for every dollar they spend, something that just wasn’t true in the offline space. It was then only natural that the price pressures that had driven online media down be applied to all media.

This is slowly sending media organization into a death spiral as low ad costs force a reduction in costs associated with producing media content, which results in a lowered interest in that content from consumers. Those consumer have eyeballs which the media companies are trying to sell to advertisers and when those go away, it puts even further pressure on media cost. I call this the ad rate death spiral:

Why ad rates keep going down

And that’s the first problem with the current crop of ad-subsidized media: the model is just not sustainable because the cost of production for most media can never go to zero.

So where does that leave most media organization?

Advocacy Media

One option is to go with a different subsidy source. For example, some organizations could get rid of the pretense of impartiality and look to get subsidized to advocate a particular viewpoint or philosophy. In Europe, for example, many publications receive substantial parts of their funding from political parties. They are propaganda tools of those parties used to further the party’s agenda. While they are not fully subsidized by those parties, they are known to present a viewpoint that’s in line with the party’s ideals.

While many would argue that this could not work in the United States, there are substantial precedent to highlight that this, in fact, is an avenue that more media organizations could explore. The federalist papers, for example, were largely embracing a set of ideals from a limited constituency and were largely funded by those who espoused the ideals presented. In fact, one could argue that most newspapers have, at one time or other, been tools of certain political forces. To carry such alliances on their sleeve might actually result in a more diverse and balanced set of stories.

Non-Core Media

A different solution is to look at media as an non-core adjunct to a corporation, there to give the corporation a sheen as a corporate citizen that does good. Where it not for its pre-existing history as media company, one could argue that the Washington Post is now such a corporation, as it derives better margins from the services it offers through its Kaplan test preparation organization than it does from its news and media operation. The issue one could find with such balance is that it works as long as the shareholders are happy with the idea of a non-financially optimal media operation. This situation does not seem like a sustainable model in the long run because it could expose such corporation to the chances of a take-over or change in ownership control through acquisition. No family, no matter how much of the corporation stock they control, is so virtuous that it might not break at a certain price point, as was witnessed with the takeover of Dow Jones.

Paid Media

Another route would be to change the public they serve completely by embracing their consumer as the people they sell to.

The reason I create that distinction is that currently, most media is not looking at their consumers as the customers they are serving. In advertising, the actual customers of media companies are the ad agencies and ad buyers, with the media consumer being the goods sold and the content being there solely as a way to deliver more eyeballs to the advertisers. By moving to consumer-focused media, organizations could radically redefine the relationship they have with the people who consume their content, treating them as customers instead of products.

Of course, the model may not work for everyone as it requires a change in the way the media product is marketed. When shifting to “paid media” where the consumers pays a fair value for the media they consume, the product position has to be one of value to the consumer. Bloomberg can deliver such value to the people who pay thousands of dollars yearly for access to their product because the content is of value to those consumers. NPR tries to position its programming as being a lifestyle choice by its consumers, asking them in pledge drives to join the NPR tribe by paying for some of the programming (but let’s not fool ourselves, NPR is more of a hybrid model as its “supporters” can include large corporations that contribute to show their “social responsibility”).

Consumer Reports is another example of such “paid media” as are smaller publications like Lapham’s Quarterly, for example.

What are the challenges?

The challenge presented by the paid media model is one of how much? How much can one charge and how much can one cover. And this comes back to the question of content value to the consumer. Certain tribes can exist but how does one cover the “important” stories? Is that something that can only be done via advocacy type media? Or is there a different model that mixes parts of subsidies with higher paid models?

How it started

When I first started classifying media as entertainment vs. information, I was looking for a basic answer as to how to resolve the contradiction of having organizations like CNN, MSNBC, and FoxNews, classified in the same category as Bloomberg News, the Wall Street Journal, or the Financial Times. Each seemed to appeal to a certain audience and each of the audiences seem to be very distinct and thus interested in very different things.

For example, the sexual behavior of many politicians may serve as great meat for the 24-hour-newscycle of cable TV channels but financial newspapers would pay scant attention to them. On the other hand, in-depth analysis of the decision making process around changes of 5 basis point in an interest rate might garner an audience in the financial world but may only merit a 15 second mention on some cable news channels. That disconnect seemed to only get sharper over the last year, as the world economy teetered on the brink of total financial collapse but most of the TV channels seemed more interested in attacking or praising a particular political point of view.

Why this axis?

Answering a question about where on the entertainment vs. information axis a particular media organization can fall gives us insights into some of their potential business strategy.

The production or discovery of facts or information is generally a more time-consuming and/or costly production than the production of opinion or entertainment. For a simple measure, think of the cost of a reporter doing an investigate piece either in a war theater or about a financial institution; Having thought of that reporter, now think of a different reporter interviewing a TV or movie star who is promoting the latest vehicle he/she is in. Because the motivations are different and the amount of work to feed those motivations is different, the business model needs to be different.

Entertainment

As I mentioned earlier, I consider organizations like Fox News, MSNBC, and CNN to be more deeply ingrained in the entertainment side of the house.

This, by the way, is no accident: Rupert Murdoch is a savvy media man first and a politician second. He was the first in his industry to realize that it would be cheaper to put opinion on the air and focused on delivering such opinions to what was then an under-served customer  niche: people who are of more conservative leanings. This is why Fox News can exist under the same roof as the definitely racier and more left of center fares delivered on the Fox TV network. The network appeals to a different audience but, by serving both, a near-full coverage is achieved in terms of advertising reach.

The recent success of MSNBC in reproducing the FoxNews model but for the more liberal audience seems to validate the model: Keith Olbermann is the Bill O’Reilly of the left.

But one must realize that the value of entertainment as a business model is driven by the idea of maximum return on investment: the production costs are cheap, the consumers are aplenty and while they may not be willing to pay, someone is generally ready to subsidize the lower costs in exchange for access to that audience. For example, book publisher love giving their authors away for free interviews if they can get them because it helps promote their books; movie and TV producers push their stars to give interviews for free too so the movies and TV shows they are in get an audience (a form of virtuous circle of entertainment); and political parties or organizations pushing a particular political agenda are happy to deliver “research” and “experts” that can be used to produce news-like segment.

Because most media organizations in the United States are profit-driven corporations, the appeal of those lower production cost is hard to resist.

The challenge to that segment of the axis is that entertainment is based on the available mind share one can capture. Every time an audience member is moved from one TV channel to another, or from an internet site to another, the place where he/she was loses some value. And, in recent year, the mind share and attention share traditional media used to get has been diminishing because new form of entertainment have arisen. The sheer volume of videos posted on YouTube alone means that, even if 99% of them are awful, 1% will find an audience and drive it away for whatever period of time the end consumer is engaged with that one percent.

So the margins on entertainment media are bound to become a little tighter in the future which will push that end of the media spectrum to move further and further into the sensational and traffic-generating space. This, in turn, could mean more of a focus on formulaic type of content that is known to appeal to a broad segment and hoped to appeal to a wider one.

Information

But information driven media is different. Information tends to be something that is actionable and therefore something that is more valuable. When people speak of information media, they generally focus on the business-focused content category. But why do so?

A lot of information is usable to someone. For example, I am sure that politicians enjoy sentiment-related information (poll numbers, data on how the population feels about an issue); gamblers find use for sports-related information; medical professionals and other scientists keep up with research in their field to come up with more breakthroughs; companies, of course, need industry-specific information to better position themselves.

But professionally created and vetted information is expensive to produce. In the past, such information was produced and vetted by a cadre of professionals with deep knowledge and some level of recognition within the arena they would cover. On the more extreme end, the producers were the subject of the news themselves (for example, most of the scientific journals are written by the scientists who have done the research in the first place).

And the other interesting thing about information is that it can have some stickiness.

But the tricky part is that most information is of no interest to most people. And some information may be of value in terms of public good but not necessarily of actionable value for most people. That, unfortunately, is the case for most of what is presented as “news” in newspapers. Town councils, officials corruption, issues surrounding policy making are things that need to be covered in order to create a proper functioning democracy but have little value outside of having a properly functioning democracy. And few people are willing to pay to keep democracy working.

Enter two new phenomenons: the wisdom of crowds, and the self-correction of personal interest. Let’s assume for a moment that crowds can actually be led one way or another. But, as we all know, for every action, there is an equivalent reaction. So we could extend on the idea that any system is bound to eventually become self-adjusting when all interests start fighting for its own share of whatever is at stake. On most policy issue, there will be two sides, with each side arguing passionately that its position is the correct one.

So one could assume that the self-interest of individual sides could lead to the rise of advocacy media or at least politically-aligned media. In such a model, “information” may be gathered and presented by self-interested parties. The consumer is then left to evaluate the pieces of information aimed at him/her and see if it confirms his/her own biases or is or isn’t more factual. This, by the way, is a model that exists in a lot of democracies around the world (France, where I originally lived, still has newspapers that are clearly aligned with political parties) and I would argue that the penny press was probably more akin to this model than what we know today as newspapers.

This brings another qualifier on the information slide, which would allow us to analyze the level of bias in a piece of information. Some may argue that doing so would be abandoning the concept of objective reporting but I would argue that such concept has been largely a chimera: whenever a reporter chooses one quote over another, or frames a questions in a particular way, he/she imbues the reporting with some form of bias.

What’s the take-away?

Entertainment and Information are important dividers in assessing media property. Understanding that divide can help us better under the potential risks or reward associated with such. Entertainment media is cheap to produce but does not necessarily create real value; Information media (which may have differential level of biases) is not only valuable in both short and potentially longer run but could be dependent on a self-interest effect.

In the next entry, I will examine how the media is paid for and what that may mean for some segments of the industry.

Media as a Mode of Delivery

In most of the conversations about media, the discussions centers on modes of delivery. People talk about television, radio, newspapers, magazines, or the Internet as media. Under that definition, the way a piece of content is transported appears to define what that piece of content is. It’s an odd approach that seems to put more emphasis on the how than on the what, that really believes that the envelope is more important that the message it carries and this offering seems like a flawed assumption in many ways.

It would seem foolish to consider the telephone a media form so why do we treat the television or paper as components? They are channels and nothing more and the hand-wringing around delivery to those channels seems based on the flawed assumption that the mode of transport is more important than what is transported.

There is an inherent danger in that flawed assumption as previous industries which failed to recognize the business they were in found themselves displaced and ultimately delivering value into the hands of a single player that concentrated its power by offering itself as the primary toll-gate on another form of distribution. The music industry circa 2001, for example, believed that it was in the business of moving plastic goods known as CDs and let Apple take what was written on those plastic goods, the music that is ultimately the value created, and delivered it over the internet. To this day, many in the music industry still believe that CDs are how music ought to be distributed, leading to such high performance act as Danger Mouse’s decision to just release a blank CD-R when the labels wouldn’t let him release the CD otherwise.

Today, newspapers are focused on finding better ways to move paper; magazines are focused on increasing profit margins against physical goods; TV channels are still arguing over number of viewers in a single sitting and radio is partly organized around two competing models: one where people and corporations pay in a coop form to get some form of programming created and distributed and another where advertisers count numbers of earlobes they are reaching. Even on the internet, some people still believe that the passage of masses by a web site has some level of importance.

In each case, the players are focused on the distribution and not the product and yet, the distribution medium is only one end of a relationship that needs too.

In the Middle

Because if you look at the core definition of a medium, it’s something that’s in the middle.

But in the middle of what? Trying to assess this becomes a little more difficult. Obviously, a good is produced and it is consumed. Focusing on that equation may get us closer to establishing the right model for media in the future because it forces us to admit that what we know today as media is not a single thing but a variety of things:

• On one dimension, it could be listed as going from entertaining to informative
• On another, it could go from being considered as purchased or subsidized
• On a third axis, it could be treated as mass generated or professionalized

In three simple dimension, we can break down most of the known media industry.

For example, take newspapers: They strive to be middle of the road between entertaining and informative, with a bias towards the front section of the newspaper being informative and the back section being entertaining; They also range from the completely subsidized approach (free advertising sponsored newspaper) to the heavily subsidized model (most newspapers). And most tend to be more professionalized, with professional editors and reporters building most of the content.

Magazines run the gamut, but largely focus on entertainment (the delivery of information is generally left to a much narrower portion of the market knows as newsletters); they are, for the most part heavily subsidized goods and mostly professionalized.

In the TV space, the news channels tend to be moving further and further into the entertainment arena (I would group opinion as a form of entertainment); They are 90+ percent subsidized as their main goal is to serve the advertisers and only a portion of their revenue is coming directly from consumers through some of the cable system carriage fees.

In radio, NPR is balancing between entertaining and informative; the interesting thing is that it is the closest thing to a purchased good as the group tends to attempt to get its consumers to ante up for their consumption; and it mixes mostly professionalized goods with mass-generated content (call-in shows, for example). Other “news” station tend to focus on the entertainment part of the equation (talk radio is focused on keeping its audience as engaged as possible) and fully subsidized (advertising based) and mostly mass generated (talk show host merely serve as the forum administrator ensure that like minds confirm their own bias or vent to each other).

On the Internet, diverse sites can run from pure forms of entertainment (celebrity or gossip blogs, for example) to heavy information delivery (generally more niche focused publication); they are also all over the place in terms of models, ranging from the fully subsidized model to the fully purchased one; and one could argue that they tend to also run the gamut in terms of mass-generated vs. professional production.

While I have given you a short preview of each of the dimensions, I would like to focus the discussion around particulars so I will delve further into each of the three dimensions in the next few entries.