Google vs. The Telcos

Great article by Holman Jenkins in today’s Wall Street Journal regarding the emerging contours of battle between Google and Ma Bell’s progeny, whose strategy of upgrading the broadband pipes leading into homes might pay immense dividends in a streaming content world of movies-on-demand.

Red Light Blues

It had to happen sooner or later, but the ease of content distribution has impacted the pornography industry.

Pornographic movies are presumably easy to produce and write, so the porno industry is now being hit from both ends – battling a growing army of free content providers while simultaneously fending off the standard piracy threat so pervasive with other forms of online content.  Presumably, consumers of smut will want to pay for “quality” branding as a means of wading through unappealing amateur content.  If porn actors are like rock stars, the branding could include live appearances or, more likely, increased emphasis on endorsements for the stars.  In this case (as is the case in music labels and newspapers), it is the middle-man in the content production chain who faces the most pressure from internet market forces.

(Hat Tip: Drudge)

All Press is Local

Walter Hussman, Publisher of the Arkansas Democrat-Gazette and scourge of free content, appeared at a luncheon on Thursday at Columbia Journalism School to push his argument that newspapers should not be in the business of giving away free content. Hussman contended that the decline in newspaper circulation has in large part been due to the media strategy of newspapers giving away their content for free. Consumers, being rational, got their news without needing to spend additional money.

Buttressing his argument with statistics from his experience of charging for content with the Democrat-Gazette, Hussman compares the success of newspapers who charge for content versus those who do not. The numbers are compelling. Expounding on his earlier column in The Wall Street Journal, Hussman made a strong case that newspapers would fail to offset revenue lost in declining print circulation with revenue generated from online visitors. Citing the Inland Cost and Revenue Study, Hussman claimed that newspapers generate between $500 and $900 in revenue per subscriber per year, versus $5 to $10 per unique visitor per year.

These numbers tell only part of the story. Hussman then compared circulation figures for the Democrat-Gazette with the Columbus Dispatch. The Columbus Dispatch and Arkansas Democrat-Gazette are the sole mainstream dailies in their respective markets, both of which are similarly-sized state capitals. The difference between the two newspapers? The Dispatch switched to a free content model on Jan. 1, 2006. In its first six months of offering free content, the Columbus Dispatch’s daily circulation declined 5.8%, compared with a loss of 0.4% daily for the Democrat-Gazette. This comparison reflects national trends for newspapers that have decided to offer their content for free. Under Hussman’s analysis, it is difficult to see why any newspaper would offer its content for free.

However, there are real world problems with Hussman’s analysis. Most notably, Hussman’s strategy seems to require either establishing a dominant market position on local news gathering (i.e., the Democrat-Gazette in Little Rock), or serving a compelling product to a niche with disposable income (i.e., The Wall Street Journal to financiers). No less a robust content provider than The New York Times felt compelled to abandon its subscription model, hemmed in by the reality that it is neither a commanding local voice nor a provider of exquisite niche content. The evidence cited by Hussman suggests two possible strategies for newspapers going forward: first, to leverage local market power on news by charging for local content, which is difficult for larger publications with a national focus to replicate successfully. Under this model, national news offered on web sites would be posted for free, as such news is easily found elsewhere. Second, if local market power is not lucrative or too difficult to attain (such as in New York City), then obtaining a special niche or specialty would be the preferred strategy, perhaps with a component of local news. If local news is niche content that people will pay for, then large city dailies without dominant market positions might consider purchasing the smaller neighborhood newspapers, establishing neighborhood dominance to leverage for paid readership. Without establishing some kind of dominant market power, a newspaper in a multi-daily metropolis would find itself compelled to offer free online content, as any price charged would be immediately undercut by its competition. And web content does earn some money for the newspaper. Just not nearly enough.

Hussman’s arguments harken back to the early days of the dotcom boom, when the conventional wisdom was to spend money to obtain dominant online market positions. Once obtained and with hard-earned goodwill, the dotcom would finally be able to earn a return on all of the capital initially invested. The logic worked out well for some (ebay and Amazon), but failed more often than not (AllAdvantage.com, anyone?). With control of the local Little Rock market and comparatively strong circulation, Hussman has found that it is good to be the last man standing.

Microsoft Buys Stake in Facebook

Besting Google in the process.

Critics of the leviathans Microsoft and Google might have a difficult time in determining who they should have rooted for in the battle to win a stake in Facebook: the semi-monopolistic Microsoft, so long considered the bane of smaller and more innovative companies, or Google, the dominant and innovative search engine giant that has been cited as having an “entrenched hostility to privacy” by Privacy International?

(Hat tip: Matthias).

The Hits Keep Coming?

This NY Times article details the enduring controversy regarding the number of online visitors to various websites.  Naturally, the providers of online content count more visitors than the advertisers.

Would wonder whether a more effective metric would be to statistically isolate the effects of online advertising and pay for that?  Could it be done?

YouTube Enhances Copyright Filters

YouTube is working to perfect technology to allow for automatic filtering of copyrighted clips on its website.  Interesting allegation mentioned in the article that YouTube purposefully turned a blind eye to copyright infringement in order to build its audience and enhance its acquisition price.  That strategy may have worked.  Google paid $1.76 billion to acquire YouTube 11 months ago.

Facebook Reaches Accord with New York Attorney General

Press release here.  Facebook is widely used by my classmates at Columbia Journalism School for social networking and information sharing.  I expect this will lead to new restrictions on the under-18 set, which could drive the fickle youth to the next hot killer app.

As far as I know, I have not been the victim of any online stalking, solicitations, identity theft, or threats of violence so concerning to Andrew Cuomo and his staff.  Of course, I don’t look like a teenage girl, either.

Blacklisted Russian Security Firm May Sue for Libel

From Wired.com, a story about a blacklisted Russian hosting firm with alleged criminal ties threatening a lawsuit to be removed from the blacklist. In the past, organizations like Spamhaus would place companies who spammed and engaged in other disagreeable activity on a blacklist. Online service providers rely on these blacklists to help configure their spam filters, which then weed out e-mails that contain IP addresses of blacklisted companies. Unfortunately, these companies would then quickly find another IP address and begin their activities anew. Blacklist organizations quickly tired of this “whack-a-mole” game. Now, blacklist organizations will collect the IP addresses of hosting firms who don’t do enough to police their networks from spammers, and blacklist the entire hosting firm, which could hurt the innocent. With marketing e-mails caught in spam filters rather than proceeding to inboxes, placement on any blacklist is thus a big deal to both the marketers and their hosts. MAPS, a predecessor of Spamhaus, got into trouble for allegedly abusing this power. Russia apparently has a different way of dealing with spam.

Change of Philosophy at Columbia Journalism School?

On Forbes.com, some more bad news for journalists and those who aspire to the profession. The relevant quotes:

Another endangered species: journalists. Despite the proliferation of media outlets, newspapers, where the bulk of U.S. reporters work, will cut costs and jobs as the Internet replaces print. While current events will always need to be covered (we hope), the number of reporting positions is expected to grow by just 5% in the coming decade, the Labor Department says. Most jobs will be in small (read: low-paying) markets.

And broadcast journalists aren’t immune to this trend, either:

Radio announcers will have a tough time, too. Station consolidation, advances in technology and a barren landscape for new radio stations will contribute to a 5% reduction in employment for announcers by the middle of the next decade.

The writing is on the wall at Columbia Journalism School, where, according to one professor, even senior print faculty are stressing the need for all students to learn web skills. Ironically, some print students are more resistant to this emphasis than the professors, apparently fearing the technological learning curve or perhaps clinging to obsolete romanticisms of the profession.

The internet has changed the journalism economic model, with bloggers supplying content that journalists had previously charged for in print publication. At work here is the tragedy of the commons – bloggers and citizen journalists typically use news unearthed by professional journalists without compensation, republishing and repackaging the original news items with opinion. Each republishing and repackaging of the original reported content reduces the demand for the actual original form of the content – much like the case in the music industry and file-shared songs. With most news organizations losing money, the issue is whether an economic model can be developed to encourage reporting despite the lack of financial incentives to report. For even if intellectual property law developed in a way in which reported facts are protected by copyright, journalists would then only stand with musicians, trying to establish the fame necessary to generate ancillary income from (reporting) gigs that generate so little revenue of its own. By emphasizing New Media, Columbia Journalism School is trying to give its students the skills necessary to be one-man bands – to report and produce content in a variety of mediums for distribution over the internet. Each journalist would then be a hybrid – a reporter/publisher/producer/writer/techie – to varying degrees. To bring the analogy one step further, Columbia Journalism School is one step closer to making the logical yet startling concession – that traditional newspapers will wither like record companies, increasingly irrelevant distributors of content in the online world.

(Hat Tip: Instapundit).

Western Standard, R.I.P.

The Western Standard is out of business (or at least, the print business).