September 10, 2008

Ambient Awareness - Social scientists explain Facebook & Twitter

Clive Thompson at The New York Times has provided a sociological & psychological analysis of microblogging tools popularized by Facebook and Twitter in his wonderful essay Brave New World of Digital Intimacy.

I'd highly recommend everyone, whether you lead a digital life or not, to read the full article - especially older people (over thirty) who are puzzled by the phenomenal success of microblogging.

Here are my highlights from the article, though it does not capture the storytelling essence that the full article would provide:

Social scientists have a name for this sort of incessant online contact. They call it "ambient awareness." It is, they say, very much like being physically near someone and picking up on his mood through the little things he does — body language, sighs, stray comments — out of the corner of your eye. Facebook is no longer alone in offering this sort of interaction online...

For many people — particularly anyone over the age of 30 — the idea of describing your blow-by-blow activities in such detail is absurd. Why would you subject your friends to your daily minutiae? And conversely, how much of their trivia can you absorb? The growth of ambient intimacy can seem like modern narcissism taken to a new, supermetabolic extreme — the ultimate expression of a generation of celebrity-addled youths who believe their every utterance is fascinating and ought to be shared with the world...

This is the paradox of ambient awareness. Each little update — each individual bit of social information — is insignificant on its own, even supremely mundane. But taken together, over time, the little snippets coalesce into a surprisingly sophisticated portrait of your friends' and family members' lives, like thousands of dots making a pointillist painting. This was never before possible, because in the real world, no friend would bother to call you up and detail the sandwiches she was eating.

Facebook and Twitter may have pushed things into overdrive, but the idea of using communication tools as a form of "co-presence" has been around for a while. The Japanese sociologist Mizuko Ito first noticed it with mobile phones: lovers who were working in different cities would send text messages back and forth all night — tiny updates like "enjoying a glass of wine now" or "watching TV while lying on the couch." They were doing it partly because talking for hours on mobile phones isn't very comfortable (or affordable). But they also discovered that the little Ping-Ponging messages felt even more intimate than a phone call.

"It's an aggregate phenomenon," Marc Davis, a chief scientist at Yahoo! and former professor of information science at the University of California at Berkeley, told me. "No message is the single-most-important message. It's sort of like when you're sitting with someone and you look over and they smile at you. You're sitting here reading the paper, and you're doing your side-by-side thing, and you just sort of let people know you're aware of them." Yet it is also why it can be extremely hard to understand the phenomenon until you've experienced it. Merely looking at a stranger's Twitter or Facebook feed isn't interesting, because it seems like blather. Follow it for a day, though, and it begins to feel like a short story; follow it for a month, and it's a novel.You could also regard the growing popularity of online awareness as a reaction to social isolation, the modern American disconnectedness that Robert Putnam explored in his book "Bowling Alone." The mobile workforce requires people to travel more frequently for work, leaving friends and family behind, and members of the growing army of the self-employed often spend their days in solitude. Ambient intimacy becomes a way to "feel less alone," as more than one Facebook and Twitter user told me.

Online awareness inevitably leads to a curious question: What sort of relationships are these? What does it mean to have hundreds of "friends" on Facebook? What kind of friends are they, anyway?

In 1998, the anthropologist Robin Dunbar argued that each human has a hard-wired upper limit on the number of people he or she can personally know at one time...psychological studies have confirmed that human groupings naturally tail off at around 150 people: the "Dunbar number," as it is known. Are people who use Facebook and Twitter increasing their Dunbar number, because they can so easily keep track of so many more people?

Many maintained that their circle of true intimates, their very close friends and family, had not become bigger. Constant online contact had made those ties immeasurably richer, but it hadn't actually increased the number of them; deep relationships are still predicated on face time, and there are only so many hours in the day for that.

But where their sociality had truly exploded was in their "weak ties" — loose acquaintances, people they knew less well. It might be someone they met at a conference, or someone from high school who recently "friended" them on Facebook, or somebody from last year's holiday party. In their pre-Internet lives, these sorts of acquaintances would have quickly faded from their attention. But when one of these far-flung people suddenly posts a personal note to your feed, it is essentially a reminder that they exist.

This rapid growth of weak ties can be a very good thing. Sociologists have long found that "weak ties" greatly expand your ability to solve problems. For example, if you're looking for a job and ask your friends, they won't be much help; they're too similar to you, and thus probably won't have any leads that you don't already have yourself. Remote acquaintances will be much more useful, because they're farther afield, yet still socially intimate enough to want to help you out. Many avid Twitter users — the ones who fire off witty posts hourly and wind up with thousands of intrigued followers — explicitly milk this dynamic for all it's worth, using their large online followings as a way to quickly answer almost any question.


It is also possible, though, that this profusion of weak ties can become a problem. If you're reading daily updates from hundreds of people about whom they're dating and whether they're happy, it might, some critics worry, spread your emotional energy too thin, leaving less for true intimate relationships. Psychologists have long known that people can engage in "parasocial" relationships with fictional characters, like those on TV shows or in books, or with remote celebrities we read about in magazines. Parasocial relationships can use up some of the emotional space in our Dunbar number, crowding out real-life people.

Psychologists and sociologists spent years wondering how humanity would adjust to the anonymity of life in the city, the wrenching upheavals of mobile immigrant labor — a world of lonely people ripped from their social ties. We now have precisely the opposite problem. Indeed, our modern awareness tools reverse the original conceit of the Internet. When cyberspace came along in the early '90s, it was celebrated as a place where you could reinvent your identity — become someone new.

"If anything, it's identity-constraining now," Tufekci told me. "You can't play with your identity if your audience is always checking up on you.

...Leisa Reichelt, a consultant in London who writes regularly about ambient tools, put it to me: "Can you imagine a Facebook for children in kindergarten, and they never lose touch with those kids for the rest of their lives? What's that going to do to them?" Young people today are already developing an attitude toward their privacy that is simultaneously vigilant and laissez-faire. They curate their online personas as carefully as possible, knowing that everyone is watching — but they have also learned to shrug and accept the limits of what they can control.

It is easy to become unsettled by privacy-eroding aspects of awareness tools. But there is another — quite different — result of all this incessant updating: a culture of people who know much more about themselves... The act of stopping several times a day to observe what you're feeling or thinking can become, after weeks and weeks, a sort of philosophical act. It's like the Greek dictum to "know thyself," or the therapeutic concept of mindfulness.

Laura Fitton, the social-media consultant, argues that her constant status updating has made her "a happier person, a calmer person" because the process of, say, describing a horrid morning at work forces her to look at it objectively. "It drags you out of your own head," she added. In an age of awareness, perhaps the person you see most clearly is yourself.

September 3, 2008

Google Chrome may re-ignite the Web browser war

Google yesterday launched its Web browser called Chrome. Compared to dozens of products that Google now offers in its mission "to organize the world's information and make it universally accessible and useful," Chrome may be one of the company's most significant launches since Google Search, the company's debut product which generated 99% of its total revenue of $16.6Bn last year.

If Internet is the revolutionary land of new opportunity, browser is the "car" everyone needs to explore the "land" and enjoy the journey. The Web browser therefore is the ultimate Trojan horse a company can use to influence users' online experience and introduce new products & services. Chrome will enable Google to tie together its major products into a seamless user-friendly experience (e.g., Search, Gmail, maps, docs, analytics, etc). Some of its products will work more efficiently with Chrome. For example, Google Analytics has relied on server-side information to provide analytics data to clients. Chrome will allow Google to gather and provide much stronger analytics data by grabbing browsing information from the client side.

Additionally, by developing its own browser, Google can speed up releases of its own Web software, which have always hinged on working with Internet Explorer and were therefore dependent on Microsoft's development cycles. Now, Google can release new applications that initially run just with Chrome, providing it an alternative product launch platform, and simultaneously driving Chrome's adoption through popular Google applications.

On aggregate, Chrome should increase adoption of other Google products and significantly boost its revenue potential beyond Search. The ultimate mission for Google is to optimize revenue streams by having all of users' data all the time - search data, publisher ad-serving data (thru DoubleClick) and now browser data.

Why now? While above reasons sound quite compelling, some may wonder why did not Google develop a browser sooner. There are new browsers on the market and in development (Microsoft's Internet Explorer 8) which give consumers the option to surf the Web in anonymity. Anonymous browsing, which allows users to have an online experience without leaving any trace/digital footprints, is probably the single biggest threat to Google's monetization model. Its revenue generation is based on its ability to collect information from its users as they search, and serve them targeted ads and search results.

Microsoft IE 8, expected to launch in Q1 09, has developed "InPrivate Browsing," a feature that allows users to surf in private. There has been a long-expected threat that Microsoft (IE) or Apple (Safari) could mess with the Web cookies that are critical to the functioning of online advertising networks/exchanges, such as DoubleClick (now owned by Google). Competitive threat, including recent U.S. government efforts to make a stink about Google's privacy policies, probably pushed Google to make a proactive effort in launching Chrome and including its own "incognito mode" in the browser.

Chrome in all likelihood will be the default browser on Google's soon-to-be-released Android mobile operating system. The launch timing therefore makes perfect sense.

Google apparently had been working on the browser for two years, and the launch over the long weekend was leaked through its comic explaining the product rationale.

Chrome, an open-source Web browser, faces a tough market with three players currently controlling 98%+ of the browser market. Microsoft's Internet Explorer (IE) has a dominating 72%+ share, which has however decreased from over 90% share during the past three-four years due to the success of Mozilla's open-source Firefox browser.


Source: Net Applications, August 2008

I know a bit about the Web browser space. I led the marketing and distribution of AOL's Web browser (one of my several roles at that "constantly transforming" firm).

Yes, AOL did launch a Web browser in late 2004. The goal was to promote AOL.com when AOL opened its content walled garden for free consumption through an open portal. The secondary goal for AOL Browser was to generate search revenue through AOL Search. Microsoft's IE at the time commanded a powerful 90%+ global market share (post Netscape's demise), but had not introduced a major new version after IE 6 for over three years - a lifetime in the Web world. That's what monopoly does. The AOL Browser was built on the IE 6 rendering engine, given IE's ubiquity, and a royalty free license that AOL won from Microsoft. AOL introduced several industry leading features in its browser - a separate search box, tabbed browsing, back/forward preview button, arguably the fastest speed for browser launch and page rendering, separate pull-out side panel for bookmark management & previews, etc. Initially Microsoft openly encouraged AOL to innovate, and later on copied most of the AOL Browser features when it rolled out IE 7 almost a year and half later - a typical Microsoft response.

Power of default: The best way to distribute a new, free, utility software is to make it the default application on the hardware users buy to use that software. Web browser is a classic example of such a software. The majority of users don't actively pick their Web browser - it's an utility application to surf the Internet, and as long as the default browser on their PC does an OK job, users do not actively download and try a new browser. And the default browser on almost 100% of PCs is Microsoft's IE. Even though the U.S. Justice Department has clearly mandated that Microsoft cannot use its monopoly power in one area, say, the Windows Operating System, to bundle new Microsoft products in a manner that limits competition, PC OEMs, who have 100% freedom to choose the software they bundle with new PCs, hesitate to take on Microsoft head-on unless the stakes are very high. Almost all PC OEMs therefore make the Microsoft IE the default browser, not least because its monopoly power is self sustaining - since IE is the dominant browsing platform, all Web sites and third party applications are designed to work on IE, which is not true even for Firefox, the #2 browser. Even if OEMs bundle a new browser, it is added as the second browser to IE, and IE is the default browser, the definition of which is the browser launched by default if the user, say, clicks on a Web link in a Word document. Some PC OEMs let users choose their default browser (if more than one are bundled) during the set-up process of their new PC when it's taken out of the box.

Since browser is a free product (ever since Microsoft started distributing IE for free in order to kill Netscape, the first Web browser), its distribution economics are governed by Web search generated through the browser. We had built a separate search box in the AOL Browser chrome. Revenue share with OEMs for distribution was therefore based on search revenue through the browser. Having a persistent and separate search box right at your finger tips on the browser chrome was a big convenience for users (no need to open another window and go to, say, google.com), and the default search engine in that box ended up being a big winner (again, the power of default). Even though users could change the default search to the search engine of their choice, most never did. Google therefore made a huge fuss when Microsoft made its MSN Search as the default search engine in IE 7 when it was launched in 2006.

It'll therefore be interesting to see how Microsoft responds to Google making its search as the default search on Chrome, which has also merged the browser address and search box into one. We should not expect any complaints from Microsoft until Chrome gets some traction.

While Chrome may seem a threat to Microsoft given IE's 72% market share, I believe Chrome's adoption, at least initially, will come at Firefox's expense. As discussed above, only tech savvy users will experiment with Chrome in the beginning - the kind of users who switched to Firefox from IE at the first place.


On my first use, Chrome provides a very clean experience and appears fast. While Google may offer better features rolled out with faster frequency, better technology does not necessarily guarantee a win in the browser war (remember, Netscape). The power of default as discussed above and the entrenched distribution of IE present a tough hurdle.

While Google has not discussed Chrome in relation to social networking, where Google has been a laggard in the U.S., making a user's "social graph" (network of contacts) as part of the browser, and allowing 3rd party plug-ins and applications can be an easy product extension. Users potentially can access their social graph from a variety of Web services such as Facebook, MySpace, Flickr, Twitter, etc., all hooked into the browser itself. Chrome can shift the battle for the default Web platform from social networks to Web browsers.

Theoretically, a browser is a better platform compared to social networking sites like Facebook to aggregate various Web services. But it still faces all the basic challenges discussed earlier, that have to be overcome in order for browser to become the default platform on the Internet. However, Chrome's attempt to become users' and developers' common platform on which Web applications & services can be aggregated and built on may be another of those futile efforts from companies that have tried their proprietary products to become the common standard on the Internet. As argued earlier, the Web itself is the ultimate Internet platform, that is open and free for anyone and everyone without any potential conflict of interests. Having said that, Chrome may have a better shot than any other product thus far to become the Web operating system.

August 23, 2008

Google and Verizon search partnership - a win-win for all

According to The Wall Street Journal, Google and Verizon are partnering on a comprehensive search deal that will make Google the default search engine for all mobile subscribers of Verizon, the #2 carrier in the U.S. by subscribers (68M subs). This is a win-win deal for all stakeholders - Google, Verizon and its subscribers - and has the potential of supercharging mobile search in the U.S. It should also be a big boost for data revenue, which would be the main revenue driver for wireless carriers, as discussed earlier.

Google created a whole new industry by developing an innovative advertising-based business model around Web search. The Verizon deal may allow Google to do the same with mobile search, which thus far has been sadly lagging its true potential. According to comScore M:Metrics, 93% of mobile subscribers do not use search on their phones today. Carriers have been trying their organic efforts and/or partnerships with smaller technology startups in order to have a lockdown on the economics and the user. The fear of the Web search giants taking a big piece of the lucrative mobile search revenue prevailed. Carriers' own efforts have failed because they haven't got either the product or the user experience right. Using search on a cell phone today requires booting up a mobile Web browser, finding your way to the search site/function, and then entering a search. The Verizon/Google deal envisions placement of a Google search bar on the screens of all Verizon handsets - a smart move. Users will be the winner from the convenience of an integrated search engine and with both the parties focusing on their individual strengths - Verizon striving to provide subscribers the best wireless network/coverage and customer service, and Google providing the best search experience and monetization potential through its vast network of advertisers, especially local advertisers which are more relevant for mobile search.

Mobile advertising in the U.S. is expected to explode by 28x over the next four years - from $244M in 2008 (per eMarketer) to $7 billion in 2012. As Web search has played a big role in online advertising, mobile search, an untapped potential today, is expected to be a major component of mobile advertising revenue.

No wonder Web search companies have been locking in carriers with exclusive deals during early days of mobile search when users are likely to use the default search engine on their phones. Google has a similar partnership with Sprint, and Yahoo has locked in AT&T. Google is also the default search engine on Apple's iPhone. Yahoo! is working with OEMs too, signing up Nokia to put the Yahoo! oneSearch shortcut on the home screen of Nokia series 60 phones. As user behavior evolves and phones open up over time, users are expected to pick up their search engine of choice as they do today on their PCs.

Google, the dominant Web search engine on the PCs, has also managed to take an early lead in mobile Web search. According to comScore M:Metrics, around 16.7M people in the U.S. use mobile search today. Of these, 63% use Google, 34% use Yahoo, and only 25% use carriers' search product. This does not add to 100% because some users are using multiple products. Google's early lead, without help from carriers, indicates that most users (me included) are simply typing google.com into their mobile Web browser to get to the search engine. The above carrier partnerships should help Google to further extend its lead.

The Google/Verizon partnership seems more extensive compared to other similar deals. Google would be able to distribute other products through its search bar on the phone screens (Google Maps, Gmail, etc), as well as extend its search product on Verizon's Web portal and its FiOS TV service.

August 1, 2008

On-demand is the future for content distribution

As I've long argued, the ultimate power of the Internet lies in the fundamental & differentiating ability of this new medium to provide social, interactive and non-linear experiences. A non-linear experience, unlike a linear experience that distributes content one after another in a time & date sequence based on a programming schedule dictated by the content provider, makes all offered content available to users at all times. Users pick what they want to consume and when. Unlike appointment-viewing (e.g., The Office will air at 9PM on Thursdays), a non-linear approach delivers content on-demand and therefore transfers the control from content provider to content consumer. Why should I rush back from the party to be home by 10PM to watch my favorite show, when I can get it on-demand an hour later or next day.

In 2006, most major U.S. television broadcast networks started putting their popular primetime content online to allow free, ad-supported, on-demand video streaming following programming's on-air broadcast. Content owners at the time were hailed for their open-mindedness in making this radical move, which essentially was an experiment to test user demand and the new channel's monetization potential. The premise was that by increasing choice for users and making more content available through more distribution channels, content owners would increase the total revenue pie as opposed to cannibalizing any existing, more lucrative, distribution channels & business models. Distribution partners (cable and satellite firms) flinched with some discomfort because online streaming could potentially dis-intermediate them if users cancel their cable/satellite subscriptions in favor of free online streaming. In the absence of online video's proven business model, content owners at the time clearly considered their online experiment as an additive opportunity that would not adversely impact their more lucrative TV viewership.

Over the past two years, online video streaming on networks' web-sites has been constantly increasing at a rapid rate, with now millions of full-length episodes streamed every month. Hulu, a joint venture between News Corp. and NBC Universal, publicly launched earlier this year as an largest online aggregator of premium entertainment content developed by major content owners, quickly jumped to one of the Top 10 U.S. online video properties within a few months.

This coincides with the growth of personal digital video recorders (DVR) that allow users to record live TV programming and watch it at a later time that is more convenient to them. The ability to fast forward commercials on DVRs is an added bonus, not the primary reason for device's adoption. DVR penetration in the U.S. has now grown to almost one in every four households.

I'd argue that users view the availability of long-form television content online as a proxy for personal DVR. Why would you otherwise watch a one-hour episode of Heroes with ~$2-3M worth of special effects on your small PC screen as opposed to your 50" plasma TV in your surround-sound home theater. Imagine if all programming (that is not live) on the television was available on-demand for free (ad-supported). It is safe to assume that online video consumption on networks' sites will drop significantly.

The above trends clearly point to the unstoppable power of on-demand content distribution, driven by control and convenience offered to users. Live events and sports, obviously, would be an exception to this.

A new report from Integrated Media Measurement Inc. this week dis-proves the widely held assumption that online streaming of TV programming is not affecting live TV viewership. It points to the shift in the way some users are consuming long-form video online. IMMI reports that about 20% of all traditional television content is viewed online
- not a revelation, in light of observed consistent growth of video usage on networks' sites. The real news was about how users are viewing that content. The IMMI report shows that for the first time, a substantial number of viewers are turning to the Internet as a replacement for TV viewing.

According to the report, 50% of online viewers classified their online video watching as a "TV replacement," with 31.3% classifying online video watching as "catch-up viewing," and the other 18.7% saying they watched long-form video online as "fill-in viewing" (fill-in their free time, say, between meetings).


Other major findings of the IMMI report are:

- Comparing online viewers to live TV viewers, the two largest groups are 25 to 44 years old, making up 58.4% of the audience streaming primetime shows online. Surprisingly, as opposed to the popular view that young viewers are the primary consumers of online TV programming, IMMI shows only 19.1% of 13 to 24 years old watch primetime shows on the Internet.

- Women (55%) are slightly more inclined to watch primetime TV programs online than men (45%).

- Online viewers would be more sought after by advertisers because they've higher education levels and earn more money compared to that of live TV viewers.

The IMMI report was based on the media consumption pattern of 3,000 teens and adults who made up a single panel across six major U.S. markets of New York, Chicago, Los Angeles, Miami, Houston and Denver. Panel members were given a cell phone that tracked their media use during the month of May 2008.

The above findings, coupled with the fact that the primary reason for the growth of long-form content consumption online is content's on-demand delivery method, point to the fact that media companies need to respond to the tidal wave of the upcoming future of on-demand video. Content owners and distributors need to develop new business models more pro-actively than what has been done thus far. Distributors are primarily to be blamed for their lack of innovation in this regard. In fact, one of the reasons content owners were pro-active in putting their content online was to increase pressure on distributors. The IMMI report should provide distributors a good proof point that the tide is turning against them (distributors don't get a share of online advertising revenue from networks). They'll have to go beyond being a dumb pipe owner to becoming an innovative service provider which can offer, for example, a rich and wide slate of on-demand offerings, multiple-room DVRs, user-friendly video search & recommendation features integrated with their interactive programming guides, etc.

For content owners, the dilemma is clearly captured by the actions of The CW Network, which has gone back and forth on its decision to put its biggest show and the
highly popular teenage series, Gossip Girl, on the Internet. The show was initially offered for free streaming online. However, mediocre on-air ratings consistently lagged the show's tremendous success online, where it consistently ranked as the #1 downloaded show on iTunes and hundreds & thousands of users streamed it on the CW website. Instead of figuring out how to cash in on this new way of watching television - 24-hour conversation with the young & tech-savvy audience instead of appointment television- CW made the unfortunate decision of shutting down the online streaming with the hope of pushing online fans to television. When on-air ratings still did not improve, and CW witnessed an instant outrage from Gossip Girl's fans following its experience online, the network decided to bring the show back online when the new season starts in September.

July 24, 2008

Data services will drive the future of mobile business

AT&T, the largest wireless carrier in the U.S. measured by number of subscribers, announced its second quarter earnings yesterday. The results include some key pointers to the future of wireless consumer services.

At $30.9 billion, AT&Ts total consolidated revenue for the second quarter ending June 20, 2008 grew by 3.6% compared with revenue for the second quarter of 2007. Comparatively, its wireless division revenue grew by 15.8% over the same period to $12.0 billion, spurred mainly by data services.

I believe data will be the main driver for wireless carriers' profits in the future. Increase in competition to gain subscribers will make voice a commodity business with limited margins. This is true for most global markets, including China and India, soon projected to be the top two mobile markets in the world. U.S. has been behind on advanced data services compared to more evolved markets in the Orient and Europe, but with the launch of iPhone (exclusively on AT&T in the U.S.), American consumers are getting a taste of the data-driven wireless future. And their initial response indicates bright prospects for these services, as a killer gadget influences mass changes in the behavior of American users who thus far have primarily used their cell phones for calls.

Mobility, broadband connectivity and integrated services that encompass voice, data and video are driving a new world of communications," said Randall Stephenson, AT&T Chairman and CEO, during the company's earnings announcement.

Let us take a closer look at the performance of AT&T's wireless data services:

- Wireless data revenues grew 52.0% versus the year-earlier quarter to $2.5 billion, reflecting continued strong adoption of services such as Internet and data access, e-mail and messaging.

- Wireless Internet access revenues more than doubled versus results for the year-earlier second quarter, while revenues from e-mail, messaging and data access all delivered greater than 50% growth.

- Text messaging volumes tripled versus totals for the year-earlier quarter, and multimedia message volumes increased more than 170%.

- At the end of the second quarter, approximately 18% of AT&Ts postpaid wireless subscribers had an integrated device, up from 8% one year earlier. On average, these subscribers have ARPUs roughly double the company average. AT&T customers have 13 million 3G devices between them.

- AT&T expects continued strong growth in wireless data services as more customers choose data plans and advanced wireless devices such as the new iPhone 3G, which was launched as an AT&T U.S. exclusive on July 11. In the first 12 days following launch, sales of the iPhone 3G were nearly double levels achieved in AT&Ts 2007 iPhone launch.

These are pretty impressive results, especially in the current U.S. market that lacks many mobile applications or services due to carriers' stronghold on the mobile ecosystem with few incentives for content owners and technology companies to innovate. This should change going forward because the recent auction of the new wireless spectrum in the U.S. binds winning carriers to keep devices and services open. Additionally, industry's efforts like Android, the open source software development platform, should ensure that the world's second largest mobile market by subscribers can match services offered by its smaller rivals like Japan and South Korea.

July 8, 2008

Digital media will be too disruptive for the traditional media industry: Lehman analyst downgrades the sector

The television and the video business is heading for a nasty downturn within the next couple of years, says a Lehman Brothers analyst. Anthony DiClemente at Lehman downgraded the entire entertainment industry on Monday and cut down the forecasts of its five major player in an alarmingly bearish report on the sector.

The stocks of all major public media firms, Walt Disney, News Corp., CBS, Time Warner and Viacom, fell slightly more than the broader market by the close of the day.

The takeaway from his report: digital media is proving too disruptive to the film and TV industries. He blamed the Internet for the broken video business models, specifically citing digital distribution, audience fragmentation and widespread file-sharing as the primary technology-enable culprits that are eating into television network and studios' profits, which may evaporate forever. The big winners will be technology companies enabling digital distribution, such as Apple (iTunes) and Google (YouTube), as the power shifts from content owners to distributors.

"We believe the feature film and TV content businesses are on the verge of structural changes that appear to impact the core revenue and profits of entertainment business models," wrote DiClemente. He compared the scenario to that faced by the music industry earlier in the decade.

While most of the findings in the report are consistent with my views on what traditional media firms need to do to succeed in the digital world, DiClemente's analogy with the music industry is not entirely true. While the technology shift came as a surprise to the music industry, which was too slow to react to the changing reality and held on to its traditional business model for too long, the video industry has the advantange of learning from the music industry and not repeating the same mistakes. How fast will the video industry move in terms of experimenting with new business models and adopting new technologies remains to be seen.

paidContent has a good coverage of the Lehman report.

July 3, 2008

Television in India needs quality content

I'm currently in India due to a family emergency. My dad was hospitalized after a heart attack, so I came over to spend some time with him and am staying over for his bypass surgery. On the brighter side, I've been able to use the free time while staying in his hospital room to catch up on my reading. I've also been watching a lot of TV (or trying to) in order to evaluate the much talked about Indian television promise first-hand.

While the exponential growth in the number of TV channels is amazing (couple of hundreds from just a few when I left India in '95), the vast majority of the content is pathetic, so say mildly. There is lack of quality programming in all the three major content categories: news & information, sports, and entertainment.

The state of the News programming on Indian television is particularly shocking. We make fun of 24-hour cable news channels in the U.S. and their coverage of un-important matters in order to fill their programming, but their Indian counterparts have pushed the boundaries to insane levels. In order to attract viewers, almost every news story is labeled as "breaking news." There is unnecessary, and sometimes distasteful sensationalism. Ethical standards of journalism are pitiful. A maniacal focus on economics seems to be driving the news coverage in India. E.g., while covering tragedies involving deaths, instead of showing dignity for the dead or for the family & loved ones who are suffering from the pain of the loss, the pursuit by TV channels to get that exclusive interview/footage at whatever price is appalling. Investigative journalism needed to expose the truth has apparently become secondary.

I've always held the belief that News should not be treated as a profit center by media companies. The age-old practice of keeping a Chinese wall between the business and editorial parts of a news organization has fallen apart in today's bottom-line focused approach of media companies. Even in the U.S., it's not uncommon to learn that a news organization has more staff in the Hollywood than in Washington DC.

For the next content category, sports, it's all about cricket in India, by every stretch of imagination. There is coverage of soccer and tennis that coincides with major global sporting events (European Cup, Wimbledon, etc), but the inability of India to produce world class sports persons in any mass sports except cricket will continue to restrict wider advertiser interest & therefore media focus in developing Indian sports programming beyond cricket.

Entertainment, or the General Entertainment Channel (GEC) space, as it is known in India, has seen a lot of activity with almost a dozen major players operating GEC channels in the country. Zee, Sony and Star (News Corps) are the dominant players. The #1 GEC channel, STAR Plus, has more viewers than the combined viewership of the next two in the category.

However, the GEC programming is still dominated by Bollywood (the Indian film industry), soaps, and reality shows based on imported formats. The ability of GEC operators to develop original entertainment programming of quality that can sustain the content and audience in the long run is still questionable. For example, India is yet to see TV drama franchises of the quality of Lost, 24, Heroes, that attract record audiences in the U.S. season after season. Granted that it can cost up to $3M to produce a single episode of these programs, I believe the economics will work out in India given the growth in its television industry and a deep demand amongst audience who are thirsty for quality entertainment options on the television. The GEC category already gets the largest share of the TV advertising dollars in India. The state of the GEC space in India seems to be where the industry was in the U.S. in late 80s.

The GEC also needs to invest in quality programming to compete with cricket. As expected, the Indian Premier League, a recently launched domestic cricket tournament, made a massive dent on the ratings of prime-time entertainment programming while the tournament was on. Almost all GEC channels lost audience to IPL, which purposely scheduled games during the prime-time evening slots. Some channels maintained their ratings by shifting programming to daytime slots. Clearly a more sustainable strategy that involves disruptive content with clear differentiation is required by GEC operators in India.

June 20, 2008

BRIC countries to drive the future growth of the global media industry

This week PricewaterhouseCoopers came out with a comprehensive report on the five-year outlook of the global media industry. The growth in the booming BRIC nations (Brazi, Russia, India and China) will outpace the growth in mature U.S. and Western European markets by more than 2x. PwC forecasts that media sector in the BRIC countries will grow at an average annual rate of 13.5% from 2008 through 2012, compared to just 4.8% in the U.S. and 5.5% in Western Europe.

In terms of the total size, the worldwide media industry will reach $2.2 trillion by 2012. The size of the industry in BRIC countries will grow to about $250 billion, while it’ll be $760B in the U.S., $630B in Western Europe, and $165B in Japan.

Digital media will be the fastest growing segment within the media industry. Worldwide consumer spending on online and mobile is expected to reach $234 billion by 2012, growing at a huge rate of 21.8% annually. In the U.S., digital media spending will grow at an impressive 16.1% annual rate, reaching $75 billion by 2012. India and China will provide the best opportunities for Internet and mobile growth because people in these countries would use phones as a primary source of entertainment. Media companies will benefit from the proliferation of smartphones (iPhone, BlackBerry, etc.), which are essentially mini-computers. Already, a big portion of current traffic on most major digital properties (Facebook, Google, Yahoo, etc.) comes from emerging markets. As business models developed in mature U.S. and Western European markets get implemented in emerging markets, and new local models emerge, dollars in emerging markets will follow the eyeballs.

I believe traditional media firms stand a good chance of winning the digital media led future world too, but there will be pain during the transition phase. And they will need to do three things right:

1. First, as discussed before, traditional media firms need to accept the reality that their total revenue will decline during the transition phase, because online and mobile advertising will not fully compensate for declines in traditional advertising (broadcast, print, etc). Numbers over the past couple of years already reflect this harsh reality.

2. Second, they will need to continue their investment in the future, and experiment with new technologies and business models during the transition phase. This is not easy for most traditional media firms, as being public enterprises, they are under constant pressure from Wall Street to perform quarter after quarter, and have to keep their costs in check to protect margins as their revenue flattens/declines.

3. And third, their attitude towards technology, arguably the most important component of the digital future of the media industry, will need to change drastically. Building more bridges between Hollywood and Silicon Valley on an equal footing, and greater appreciation by each party for the value the other brings to the table will be paramount. Both come from very different cultures, but despite their traditional differences, they need each other more than ever before. Some early partnerships that I’ve seen between Hollywood and Silicon Valley bode well for the future, but the pace of change is still slow in my opinion.

Now a word about the BRIC nations in general. The term was coined in 2003 by Jim O'Neill, the global economist at Goldman Sachs, when he laid out his future world view. He believed that BRIC countries possessed the potential to become the world's four most dominant economies by 2050, and together could be larger than the combined economy of the U.S. and Western Europe. Considered until recently as the developing countries of the Third World, Brazil, Russia, India and China have quickly become the most dominant emerging economies of the next world. These are four markets with unique characteristics. They are tied together by their inherent economic potential resulting from positive changes in their political systems which unleashed the untapped demand from their huge domestic consumer market, constituting 43% of the world's population.

An interesting yardstick would be to check out the growing wealth in these countries. Last year, India and China showed the highest global growth rate in their population of millionaires. The number of millionaires in India rose by 22.7% to 123,000 people, the fastest growth in the world. Meanwhile, China grew at 20.7% in 2007 to end with 415,000 millionaires - it displaced France as the home of the fifth largest millionaire population in the world. Already, five of the world’s top ten cities, which can be classified as the centers of wealth generation for consumers climbing the economic ladder, are located in the burgeoning BRIC countries.

Finally, let’s evaluate BRIC from a leading marketer’s perspective, given that growth in demand for new products & services and resulting expenditure on advertising is a key indicator for an economy's growth. Sir Martin Sorrell, the CEO of the WPP Group, one of the largest media agencies in the world, identified the potential of BRIC markets even before the term BRIC was coined. WPP agencies are now at the top of the agency food chain in the BRIC countries. They command the lion's share of media buying in populous giants India and China. Today, continental Europe, U.K. and U.S. generate 82% of WPP's total global revenue, and rest of the world contributes the remaining 18%. The company believes that by 2015, 40% of its global revenue will come from Asia alone .

BRIC countries to drive global growth of the media industry

This week PricewaterhouseCoopers came out with a comprehensive report on the five-year outlook of the global media industry. The growth in the booming BRIC nations (Brazi, Russia, India and China) will outpace the growth in mature U.S. and Western European markets by more than 2x. PwC forecasts that media sector in the BRIC countries will grow at an average annual rate of 13.5% from 2008 through 2012, compared to just 4.8% in the U.S. and 5.5% in Western Europe.

In terms of the total size, the worldwide media industry will reach $2.2 trillion by 2012. The size of the industry in BRIC countries will grow to about $250 billion, while it’ll be $760 billion in the U.S., $630 billion in Western Europe, and $165 billion in Japan.

Digital media will be the fastest growing segment within the media industry. Consumer spending on both online and by mobile phones worldwide is expected to grow to $234 billion by 2012, at an monumental rate of 21.8% annually. In the U.S., digital media spending will grow at an impressive 16.1% annual rate, reaching $75 billion by 2012. India and China will provide the best opportunities for Internet and mobile entertainment growth because people in these countries would use phones as a primary source of entertainment. Media companies will benefit from the proliferation of smartphones (iPhone, BlackBerry, etc.), which are essentially mini-computers. Already, a big portion of today’s traffic at most leading digital media firms (Facebook, Google, Yahoo, etc.) comes from emerging markets. As business models evolved in the relatively more mature U.S. and Western Europe markets reach emerging markets, and new local models emerge, dollars in emerging markets will follow the eyeballs.

I believe traditional media firms stand a good chance of winning the digital media led future world too, but there will be pain during the transition phase, and they will need to do three things right:

  1. First, as discussed before, traditional media firms need to accept the reality that their total revenue will decline during the transition phase, because online and mobile advertising would not fully compensate for declines in traditional advertising (broadcast, print, etc). Numbers over the past couple of years already reflect this trend.

  2. Second, they will need to continually invest in the future and experiment with new technologies and business models during the transition phase. This is not easy for most traditional media firms which are public enterprises, and hence face Wall Street's pressure quarter after quarter to keep their costs in check to protect margins as their revenue flattens/declines.

  3. And third, their attitude towards technology, arguably the most important component of the digital future of the media industry, will need to change drastically. Building more bridges between Hollywood and Silicon Valley on an equal footing and with an appreciation for the value each brings to the table will be paramount. Both come from very different cultures, but despite their traditional differences, they need each other more than anytime before in the history of the media industry. Some early partnerships that I’ve seen bode well for the future, but the pace of change is still slow in my opinion.

Now a word about the BRIC nations in general. The term was coined in 2003 by Jim O'Neill, the global economist at Goldman Sachs, when he laid out his future world view. He believed that BRIC possessed the potential to become the world's four most dominant economies by 2050, which could be larger than the combined economy of the U.S. and Western Europe. Considered until recently as the developing countries of the Third World, Brazil, Russia, India and China are quickly becoming the emerging economies of the next world. These are four markets with unique characteristics, and are tied together by the potential created after changes in their political systems unleashed the consumer demand of 43% of the world's population.

A relevant and interesting yardstick would be to check out the growing wealth in these countries. Last year, India and China showed the highest global growth rate in their population of millionaires. The number of millionaires in India rose by 22.7% to 123,000 people, the fastest growth in the world. Meanwhile, China grew at 20.7% in 2007 to end with 415,000 millionaires - it displaced France as the home of the fifth largest millionaire population in the world. Already, five of the world’s top ten cities, which can be classified as the centers of wealth generation for consumers climbing the economic ladder, are located in the burgeoning BRIC.

Finally, let’s evaluate BRIC from a leading marketer’s perspective, given that growth in demand for new products & services and resulting advertising spend is a key indicator for an economy's growth. Sir Martin Sorrell, the CEO of the WPP Group, one of the largest media agencies in the world, identified the potential of BRIC markets even before the term BRIC was coined. WPP agencies are now at the top of the agency food chain in the BRIC countries. They command the lion's share of media buying in populous giants India and China. Today, continental Europe, U.K. an
d U.S. generate 82% of WPP's total global revenue, and rest of the world contributes the remaining 18%. The company believes that by 2015, 40% of its global revenue will come from Asia alone - a strong vote of confidence for the region from a global leader.

May 23, 2008

Future trends for social platforms

I spoke at a panel on the future of social platforms during the TiEcon conference in Silicon Valley last week. Social networks constitute the biggest share of the audience in the exploding social media category, the fastest growing segment on the Internet in terms of traffic. However, the future of social networks as profitable ventures and their ability to garner advertising dollars commensurate with their traffic is still uncertain.

I covered monetization challenges of social networks in an earlier post. While those with heavy traffic struggle to figure out how to monetize their audience, others, in my opinion, will not even get the threshold traffic needed to justify keeping the lights on while the industry tries to crack its business model. eMarketer last week reduced its 2008 estimate of advertising spend on social networks in the U.S. from $1.6B to $1.4B. MySpace and Facebook will take in over $1.0B of that, leaving just $400M for everyone else.

I'd categorize social networks into two categories: large, general purpose communities and niche networks based on specific interests and purpose (e.g., pets, sports, mothers, car enthusiasts, etc.).

Social networks, like instant messaging (IM) platforms, are a scale business - you want to join the network on which most of your friends hang out. As in IM, where four companies (AOL, Yahoo, Microsoft and ICQ) cover majority of the global chat users, there is room for only a handful of general purpose social networks, which are essentially highly effective social communication platforms. I put Facebook, MySpace, Hi5, Bebo, etc, in this category. These networks will continue to explore their sustainable business model as discussed earlier. As these large communities mature, interoperability will however become critical for their continued traffic growth and engagement. IM platforms resisted interoperability for the longest time, but they're now opening up and allowing users from one network to chat with those from other networks without having to open a new account on those other networks.

In contrast, niche social networks should find it relatively easier to monetize their audience. These are essentially self-selected, contextual communities which can be targeted as a whole by relevant advertisers. But there is very little user patience for creating and maintaining multiple profiles on multiple networks. Open standards and data portability will therefore be key for niche communities if they have to attract a large enough user base that will provide scale for advertisers.

Users, ultimately, will want to control where they can and cannot take their data which they invest a lot of effort entering into and maintaining within social networks. Communities which do not provide users this choice will not survive. We have therefore seen a race amongst big players to prove that they are more open than their competitors. Over the last two weeks, MySpace (Data Availability), Facebook (Facebook Connect) and Google (Friend Connect) have announced their new products to enable data portability. The fight is to become the preferred "data destination" for users where they can store and maintain all of their data, and take some of it to additional sites where users may also want to spend time on.

When Facebook opened their platform for 3rd party developers last May, its goal was to create an incentive for developers to build engaging applications on its platform, thus making Facebook the single default destination for most, if not all, user activity. While it did unleash tremendous creativity and developer enthusiasm, 26 thousand applications and twelve months later, the myth of the Facebook economy has been broken. Unless you've an existing property with a vertical expertise and require additional inventory, or you're a student trying to build up your resume, you 're advised not to waste time on developing Facebook applications. Facebook Connect is also an admission on behalf of Facebook that users are not going to spend majority of their time on one single platform. The company is now promoting enterprise application development.

In the meantime, some social networks have started failing. Earlier this year Conde Nast shut down Flip, its social network for teen girls. It realized that all those teen girls were already hanging out at Facebook, so it converted Flip into a Facebook application. Monster.com recently reported trouble with its personal networking community site Tickle, for which it paid $94M in May 2004. This is just the beginning of the clearing out process that should remove the past couple of years of excess within this space.

May 17, 2008

TiEcon 2008

I'm currently attending TiEcon 2008. TiEcon, the annual conference of the TiE's founding chapter in Silicon Valley, has become the world's largest conference for entrepreneurs. In its 16th edition this year, the conference was attended by over 4,000 attendees. TiE, as an organization, has also grown exponentially, boasting of 49 chapters in 11 countries.

I spoke at a panel this afternoon on the future of social platforms. More on that in a later post.

Between my meetings, I was able to attend a few keynote speeches. The two that I sat through till the end, and hence found interesting were:

Elon Musk, CEO of SpaceX, Chairman of Tesla Motors and SolarCity, co-founder of PayPal

Elon, 37, is an exciting serial entrepreneur. The diversity of his achievements in such a small period of time is truly amazing. Internet, space travel and
clean energy were the three areas that Elon, as a teenager, felt needed special attention. Internet was his first focus. He co-founded PayPal, and sold it to eBay for $1.5B. Elon was the largest shareholder of PayPal at the time of its sale.

His second major venture involves making space rockets. The goal of
SpaceX is to significantly reduce the cost of space travel through re-usable rockets. Its Falcon 9 rocket is currently under development. In a major endorsement of SpaceX, NASA awarded it a $278M contract in 2006 for its International Space station project. Finally, Tesla, Elon's third venture, recently launched its all-electric stylish roadster to rave reviews in Los Angeles. For his TiEcon interview entry, he drove in his Tesla to the stage. Elon feels hybrid vehicles are merely an industry red herring, and the true solution for eliminating dependence on fossil fuel and reducing global warming is going 100% electric.

That is three on three for Elon, an entrepreneur who's not afraid to think big, really big.


Chirs Anderson. Editor-In-Chief, Wired Magazine


Under Chris' tenure, Wired has retained its edge and editorial supremacy amongst all technology magazines in an environment where the print business otherwise has struggled against the onslaught of digital media. He coined the phrase The Long Tail in a Wired article, and later on wrote a seminal book on the same subject - why the future of business is selling less of more.

Chris is at it again. He's writing a book on the economics of free - expanding on his Wired article in the March '08 edition of the magazine. "Free" may mean either $0.00 or too cheap to bother measuring. The concept has existed since early 1900, when Gillette first introduced it - give away free razors (useless by itself), and make money during its lifetime through replaceable blades. Many other industries have since emulated it successfully - subsidized/free cell phones, and earn profit with air-time charged during the life of the plan; subsidized/free media (newspapers, magazines, broadcast television), and make money through advertising.

In today's age of technology, where computer processing power, bandwidth and storage have almost become free, the notion of free has taken a new meaning. Instead of cross subsidizing the free product by charging extra for the companion product, the cost of the product itself is falling sharply to almost zero. Economics 101 says that in a perfectly competitive market, the marginal cost of a product (incremental cost of producing one new unit) equals its market price. What happens when the marginal cost becomes zero? As is the case with the three main factors of production in the digital economy: processing power, bandwidth and storage.

This gives rise to new business models like "freemium" - basic service is free, but there is a charge for the premium service. In an environment of almost zero cost, the 99/1 principal applies to most Web businesses - 99% of total customers opting for the free basic service will be supported by 1% customers who pay for the premium version. With the scale of Web, distributing fixed costs amongst a lot of users makes the 99/1 model work.

Chris highlights two other concepts: the "waste economy" and the "gift economy."

The concept of "waste economy" explores the process to unleash innovation. Chris argues that engineers are brilliant in coming up with revolutionary scientific breakthroughs, but are usually horrible in judging their day-to-day applications by common users. The main goal of engineers should therefore be to drive down the cost of new technologies to a level where it can be "wasted" by entrepreneurs and consumers, who, uninhibited by any cost pressure, will find innovative products and services made possible by the underlying technology.

Lastly, "gift economy" is the engine behind Wikipedia, Craig's List, open source software, etc. Money is not the sole motivator in this economy. Altruism, making a difference, sharing are the human values which have always existed. The "free" global distribution through the Internet and Web 2.0 technologies have now allowed the contribution of a few to benefit thousands and millions of consumers - totally free of cost.

Just to make sure, these trends do not imply that digital businesses cannot make make profit in this age of "free." The product/service may be free to consumers, but some one else in the whole value chain will pay for it. E.g., Google's products (Search, Gmail, etc.) are free to users, but Google still makes a ton of money from advertisers.

April 23, 2008

Digital will force efficiency into the traditional media cost structure

While technology advancements generally create efficiencies in traditional business structures and processes, the digital media revolution will challenge traditional content creation, marketing and distribution in new ways. The impact in the short term however will be more subtle.

The flight of advertising dollars from traditional media channels (TV, print, radio) to digital platforms has been clearly established. But it won't be a dollar for dollar shift during the short term because new digital business models have not fully evolved and user behaviors are still changing. The long-run story is expected to be very different, when digital may not only become a significant portion of the total advertising market, but may also encourage increase in the total advertising pie itself.

During this ongoing transition period, digital revenue at most media firms, while growing impressively, will not fully compensate for the loss in their traditional media revenue. We've noticed that several big advertisers today have reduced their total media spend, while shifting a greater portion of that smaller budget to more accountable digital channels that can be effectively tracked and provide a better ROI. Changing/emerging user behaviors can be blamed for declining TV watching amongst younger demos; stagnating Hollywood box office revenue and DVD sales; extremely high engagement but limited realized monetization of social media, among other similar unfavorable trends contributing to shrinkage in the the total pie as the industry transitions.

This decline in revenue is already putting severe pressure on media firms' traditional cost structure as they struggle to maintain margins. This is a good thing. Transformation in an industry provides it an opportunity to re-evaluate its cost structure, among other things. Media industry today is at that juncture. Most people, for example, agree that Hollywood's bloated cost structure provides plenty of room for efficiencies. The folding of New Line Cinema (The Lord of the Rings fame) into Warner Bros is a sign of things to come. Other areas of savings for Hollywood include digital distribution, digital marketing thru blogs, social networks and other bottoms-up digital channels (marketing, at ~25% of a typical film's total cost, is one of its single biggest cost items), etc. Recent writer's strike forced television studios to take a fresh look at how they've done business for a long time. Some innovative cost cutting measures have already been announced by the television networks. Newspaper industry is also implementing new methods - The Capital Times recently announced its decision to stop printing newspapers after a run of over 90 years and move to an online-only edition.

An exciting, but still under-utilized area in my opinion is the leverage of digital platforms for original content/IP creation at a fraction of the current cost, and exploitation of that IP across the entire value chain (television, films, video games, merchandise). Examples: creation of new characters thru online virtual worlds and digital episodic comics; immersive story-telling with episodic video series within social networks where communities contribute to unfolding of the stories as much as the actual characters do; "open source" approach to content creation with reward incentives, etc. In addition to being highly cost-efficient, incubating content through digital platforms can be more effective than traditional approaches. Virgin Comics is trying to prove that storyboarding through comics (both print and digital) with pictures and graphics could do a far better job than a text script in creating characters and plots, communicating the story to the production crew, and facilitating story-telling in the final product (TV show/movie/game).

April 14, 2008

Primetime bonanza for the Indian television market

The Indian Premier League (IPL), the world's richest domestic cricket tournament, begins this Friday in India. Launched along the lines of soccer leagues in Europe and professional sports leagues in the U.S. (NFL, NBA, MLB), IPL is a franchise model wherein corporates and sponsors are allowed to buy and run teams. Players are bought through an open auction. This is a first for cricket - the sport has never before been played in this franchise format anywhere in the world. For the inaugural tournament starting on Friday, eight franchises in India were sold off by the governing body for Indian cricket, the Board 0f Control for Cricket in India (BCCI).

IPL is expected to change the face of the global cricket. "Seismic," is how Telegraph UK characterized the effect of IPL on cricket in England, the game's birth place. Before even a ball has been bowled, IPL has already raised more than $1.8bn for its first 10 years through TV rights , franchise auction ($724M) and sponsorship ($108M). This amount is more than what the International Cricket Council (ICC), the official global governing body of cricket, will generate from all of its tournaments over the same period. Pundits are still in a state of shock.

Franchise owners include Mukesh Ambani, head of Reliance Industries and India's richest man, who paid $112MM for the Mumbai franchise. 78 of the world’s leading players were sold in February to the highest IPL bidders for ~$42 million. Earning up to There are obvious concerns for the wider game of cricket - IPL's astronomical salaries and scheduling demands in a busy international cricket calendar (managed by ICC) threaten the fragile balance of international cricket, and ultimately the autonomy of the ICC. BCCI has often been blamed for arm-twisting ICC, given that India's one billion plus cricket-crazy fans drive over two-third of the global cricket revenue. Then, tAndrew Wildblood, a senior vice-president at the leading sports agency IMG who has been involved in establishing the IPL: "There has never been anything like this in the history of sports. No competition has come from a standing start to where we are today in such a short space of time, or with more financial success."

What's driving this phenomenon? Several factors are contributing to this perfect storm in India.

While ticket sales will contribute to the revenue, the single biggest factor determining IPL's success will be television. India, one of the fastest growing economies in the world, has a huge untapped domestic market for new products & services. Its advertising market therefore is exploding. Indian TV advertising grew by over 20% per year on average for the 10-year period 1995 to 2005. Double-digit growths are forecasted for years going forward. Compare that to flat to declining television advertising in the mature U.S. and western European markets. The New York Times covered India's television potential in its aptly titled piece, In India, the Golden Age of Television is Now.

Cricket, a religion for Indians across its diverse national fabric, aggregates audiences like no other TV programming in the country. Cricket therefore provides the best platform for advertisers to get their message across all demographics. A nationwide, prime-time, cricket bonanza on the Indian TV every evening is a feast for hungry advertisers that will go on for over six weeks. This is bad news for the Indian media companies, who'll find it very hard to compete with cricket for TV ratings.

"India is a rapidly growing economy with an emerging middle class, but if you want to go out here you go to a movie and that's about it. There's a huge demand for entertainment, and we are providing the perfect product model," says IMG's Wildblood.

The IPL tournament is structured in the new Tewnty20 format, the shortest version of cricket that lasts for only three hours compared to One-Day Internationals (8 hrs) and Test matches (five days). Twenty20 is designed to attract the widest section of cricket fans - people can go to the game on weekday evenings after work; women with family responsibilities can easily take a three-hour break. In India, the Twenty20 format has proved successful in drawing in the young, socially mobile demographic that is fueling the country's economic growth. On top of that, India's win in the inaugural Twenty20 World Cup last Fall (organized by ICC) has driven the version's popularity and public expectation sky-high. BCCI wants to cash on it as best and as fast as it can.

Let the show begin!

March 30, 2008

Was the Viacom split a mistake?

When Sumner Redstone, the founder and controlling shareholder of Viacom, announced the split of the Viacom empire at the start of 2006 into two narrowly focussed firms, he declared that the age of the diversified media conglomerate is over. Viacom was broken up into two separately traded pubic companies. One was CBS Corp, which mainly included the CBS broadcast television network, a group of affiliate stations, and a major radio broadcasting and outdoor advertising group. The other entity retained the Viacom name, and included a large array of cable networks including MTV, VH1, Nickelodeon, Comedy Central, BET as well as the Paramount movie studio.

The move to break up the company essentially undid Viacom's acquisition of CBS Corp. in 1999.

The justification was to unclock the shareholder value and give investors a chance to invest in two narrowly focussed stocks: the Viacom unit would attract investors seeking fast-growing cable businesses, while those seeking dividends and higher cash-generating businesses can buy shares in the new CBS Corp.

It's funny how investment bankers can use the argument of "synergy" vs "focus & unclocking shareholder value" respectively to convince management into mergers and breakups, over and over again, while collecting their fees either way.

Well, within two years of the split, both businesses have openly indicated their desire to move into each other's territories. With TV & radio showing little or no growth, CBS has created a new entity called CBS Films to make movies, while Paramount has indicated it may get into the television business.

While I definitely don't think we need another film studio, CBS Films is trying to play in a niche space. Instead of mega-budget productions like "Indiana Jones" (Paramount's staple), they're starting with a focus on the under-served, mid-size movies, with a plan to release four to six movies a year. CBS also hopes to get efficiency in marketing cost (a significant portion of the total cost of film making) through its other media assets (spare ad inventory on TV, outdoor & radio).

Only time will tell how CBS Films performs. But don't be surprised if in another two years, Redstone, who's still the Chairman of the board that oversees both CBS & Viacom, merges the two businesses. Bankers can always make a case for synergy, with one studio making both big budget and mid size films.

March 7, 2008

Monetizing social media

This week I spoke at a panel in Silicon Valley organized by TiE's special interest group focusing on Consumer Internet. The subject was how to monetize social media properties on the Internet (social networks, blogs, start pages, etc).

Social media properties are the fastest growing sites on the Web. All of the top-ten websites in the U.S., measured by traffic growth rate, are social media properties. Walled-garden destinations are rapidly giving way to social media sites both in terms of traffic and time-spent by users. Additionally, social media is driving increase in users' total daily media consumption online by bringing new users to the Web and encouraging more time spent online by the current Web users.

Reason for the above trend is simple: users want to control their online media consumption. The explosion in online content is creating chaos and confusion. Personalization is the buzz word. Widgets and social networking applications are users' tools to personalize their online experience. More than 30% of global Internet users and almost 50% of those in North America are already using widgets. Programmable Web - a Web where the majority online media consumption is individually programmed by each user, has arrived. I believe this trend, though first started on the Internet, will continue to all the other platforms (wireless, TV, possibly print).

There is no doubt that the Internet is the future of advertising. It's the fastest growing channel for advertising dollar spend in the U.S. (compared to TV, mail, print, radio and outdoor). The monetization potential of social media properties, where most of the eyeballs are shifting on the Web, therefore becomes an extremely important subject to evaluate.

Unfortunately, nobody has yet figured out the winning formula for monetizing social media.

Let's look into social networking - the most popular category within social media. While Facebook and MySpace dominate this category in terms of traffic and engagement, both are still searching for the best approach to make money from their massive user bases.

Brand advertisers have all along been concerned about associating their brand identity with potentially damaging user generated content found on social networks. Even as users get smarter and brand advertisers become more comfortable with these unpredictable environments, other challenges still remain.

Banner and search advertising have shown to perform poorly within social networks. By some accounts, both Google and Microsoft are loosing money, given their minimum revenue guarantees, with their exclusive ad deals with MySpace and Facebook respectively. Facebook continues to try new ad models (ads in user's News Feeds, e-commerce), after its failure with Beacon. The problem is, users invest a lot of time & effort in their online identity in the communities they choose to participate in, and as a result, they consider these environment too personal to tolerate any advertising. Any successful commercialization of users' activity within a community will only happen with their explicit approval taken in a totally transparent manner (main lesson from Beacon's failure).

User's privacy concern is a monetization challenge that social networks definitely need to overcome. Such concerns are heightened in the online environment, given the ease with which private data can be shared and exploited on the Web. In the offline world, users have been willingly granting potentially much more damaging rights to their data (while filling credit card applications, signing up for coupons/promotions, etc.). Educating users and building trust with them is therefore going to be critical for social networks in order to devise a successful business model that will leverage users' data.

Despite these challenges, the business euphoria around popular social networks remains intact. No other online property has as much rich demographic and psychographic data about their users as that possessed by social networks (Facebook provides application developers feeds with over a dozen attributes about users using these applications). Users in online communities are not only willing to provide a lot of useful information about themselves in the identity they create, they are also willing to invest their valuable time on a regular basis in order to promote that identity. The theoretical promise of social networks leveraging users' rich profile for targeted advertising at ultra high CPMs has always existed. It is this promise that has driven a ridiculously rich $15Bn valuation for Facebook. That is a 100x multiple on Facebook's $150MM revenue in 2007. Even Google, with its proven business model & leadership in the lucrative online search advertising market, trades at a ~10x revenue multiple.

An alternate monetization approach for social networks may be to make money outside of their communities. Facebook already has the scale to potentially leverage the data on its 67MM active users in providing behavioral targeting to 3rd party publishers whose sites Facebook users visit. E.g., a Facebook user with a stated interest in "running" can be shown an ad for Nike's latest running shoes when he/she visits a site whose publisher is using Facebook's behavioral targeting service. I bet Nike will pay top CPM to reach this audience. Such targeted segmentations by products/categories are possible within Facebook due to the richness of its data. Behavioral targeting that leverages explicit, user-provided data will be more accurate compared to the current behavioral targeting approach in which user preferences are interpreted using their general Web surfing activity as a proxy. This assumes users always represent themselves honestly on their community profiles, but that is a topic for discussion on another day. Additionally, registration data (from Facebook) is far less volatile compared to the cookie-based approach currently used (almost a third of online users regularly clean their cookies).

Lastly, I'd like to comment on the future of companies which are building businesses on top of social networks. Widget firms like Slide and RockYou have build massive user bases by leveraging their ability to build viral applications for social media properties. These firms will find even more difficult to monetize their traffic. As discussed earlier, it's a very risky strategy to build a business that is 100% reliant on other firms which are still trying to figure out their business model. Facebook's Terms of Services provides it too much power to copy and/or create an advantageous situation for itself should Slide or RockYou come up with a killer monetization idea.

That has not stopped investors from valuing Slide at north of half a billion dollars. I believe that would translate into Slide's current revenue multiple that may be even higher than Facebook's 100x. Maybe these investors know some tricks about monetizing social media that most of us do not.

February 9, 2008

NY Fashion Week - Project Runway Finale

Yesterday we attended the New York Fashion Week at Bryant Park in Manhattan. It was the finale of Project Runway, Bravo's seven-time, Emmy-nominated reality TV series. The competition show provides budding designers with an opportunity to launch their careers in fashion. The finale is taped during the NY Fashion Week and provides finalists an opportunity to show their lines in front of fashion industry's top movers and shakers.

My wife is in the fashion industry (works at Donna Karan), so I was under the gun to use my influence (NBCU owns Bravo) and get us the invitation to the
Project Runway finale, which apparently was one of the hottest tickets during the entire week. Understandably so, given none of the regular showcases during Fashion Week blend the worlds of couture, entertainment and TV. The star power at Project Runway included the former Spice Girl Victoria Beckham (guest judge for the finale), Meryl Streep, Heidi Klum (show host, executive producer and judge), Nina Garcia ( Elle's fashion director and judge), Michael Kors (well known American designer and judge), Tim Gunn ( Chief Creative Officer at Liz Claiborne and mentor to the show's budding designers), among several other stars from the world of fashion and Hollywood. Apart from the chaos at the entrance, I found the overall experience quite fun.

"It's fun, it's sexy, it's exciting, and it sells clothes," executive producer Harvey Weinstein said before the show. It's a live version of
People and Us Weekly.

Below are some pictures we took at the event.