Growing things in scorched earth might not yield much
18 May 2019

One of Shakespeare’s best-known scenes is at the end of Henry V, where two armies have, with few exceptions, killed each other. Such events might not make sense to civilians, but they have occasionally resulted in the achievement of one side’s objectives. The real Henry V did win the Norman territory he regarded as his birthright—temporarily.
Enter Netflix, a frightening behemoth that levels pay-TV giants all over the world with its cheap subscriptions and compelling programming, some of it original and exclusive. Cord cutters and cord nevers in one country after another either rely on streaming exclusively or in combination with digital terrestrial broadcasting with its near-perfect signal quality. Much of the streaming is Netflix. It is verily scorching the earth, and unlike Henry V, it’s doing so unilaterally.
But all is not alright in the monster’s lair. The company is 22 years old. Shareholders and investors have acquired the silly notion that it’s old enough to meet expectations of a mature company. Instead it continues to have an astounding burn rate and has no obvious means of escape: even if it raised prices and/or increased market share transcending any realistic expectations, it would still take decades to break even. The notional Wall Street is tired of waiting for the adult that still behaves like a child.
Netflix’s actions and statements seem to militate against reality. It is raising new funding which, however, won’t even last it a year. And it predicts its burn rate will peak this year although heretofore it has been growing, and at increasing rates.
In fairness, no-one has tried to do what Netflix is doing: to become a provider of programming and a producer of much original programming to most of the world, all at once, and to do so at affordable prices. An effort such as this is bound to be expensive. And if it could only keep growing at the current pace a few more years it would at least stop losing money. But competition is growing (Hulu’s international expansion is just starting), access to third-party programming is shrinking in the US and will likely do so in the highest-income countries as well, and its ability to raise prices is dampened by competition and local economic reality. It can cut back investment in original programming, but that might be counterproductive (or not) by removing a motive to subscribe or keep subscribing. It can introduce advertising but ditto. So the possibility that Netflix will die having killed many others is no longer hidden behind the horizon.
Particularly relevant to this blog is the audience measurement aspect. Netflix has until recently avoided any external disclosure of its own measurement, save for a very few tidbits dripped onto the press. This has raised the fame of its ratings of its own service to the level of unobtainium: although no-one outside the company knows whether it’s even any good, almost everyone would like to see it. It has recently started sharing limited data on its US viewing as Nielsen started measuring it (Nielsen also has an agreement with Hulu and measures it and Amazon Prime Video). This seems to have been a defensive move as Netflix’s numbers, at least for some of its highest-profile original programming, are higher than Nielsen’s, and thus serve Netflix management’s interest (to show that its investment in this content is rewarded with viewing).
Netflix is apparently breaking with convention in how it reports its numbers. It uses cumulative audience (reach) rather than average audience (the audience at a given moment of the content, across all views in the reported time interval). Nielsen offers cumes too, but carefully deduplicates them; it’s unclear whether Netflix does, and the fact that the numbers it does share are substantially higher suggests it might not (so what it’s actually reporting is gross impressions at one per show, which would be a strange and misleading measure to use here). Beyond such ruminations is the algorithmic and technical design of Netflix’s audience measurement system itself, which remains a black box, probably unseen by anyone qualified who did not create or curate it.
Unless Netflix is brazenly lying about its numbers, the possibility arises that they are nonstandard and thus too high, that management cannot understand this, and is therefore overpaying for its top external content. Another effect is also possible, and would explain why Netflix has historically regarded its audience measurement data as a trade secret: its subscription pricing suggests that, while it might be overpaying for a few high-profile third-party properties, it probably underpays for most. There’s simply not enough revenue for everyone to be paid equally relative to audience—the same problem faced in sports leagues with salary caps, which harms all players except perhaps the stars. So far, Netflix has been able to shut down any third party that tried to measure it, loudly claiming those numbers were wrong, without proof. It tried to do that to Nielsen, as well, but must realize it cannot win in a credibility contest with the leading name in the ratings industry. Had Netflix not been thus undermined, then, rapidly losing its ability to offer its investors an exit strategy, it could be expected to hang on to every perceived advantage as long as it can, including keeping its data away from content providers who would use it to force higher rates. It is still expected to do so in countries where it is not exposed to third-party measurement. As in the case of Uber, another tech company without evident means of escaping eventual fiscal doom, the fact that competition based on profound lossmaking leaves a scorched-earth battleground of dying competitors, doesn’t help the disruptor much in the end.
Content owners are breaking herd immunity
17 May 2019

It is all the rage for fashionable content owners to set up their own streaming services. First came CBS AllAccess with original programming premiered only on it, then Disney announced Disney+ (entertainment focused on children) and a separate service for ESPN, both of which would offer exclusively programming that would be withdrawn from Netflix and other third-party distributors, in January Comcast/NBCUniversal has announced a service with exclusivity on some programming, and now AT&T has announced that Warner Studios series such as Friends, The Office (US version) and ER will be pulled from third parties and offered exclusively on its new three-tiered streaming service, to be launched next year (it already operates three, which will be subjected to some rationalization). Original programming of company’s HBO unit has always been exclusive to its own streaming services.
When the same week as AT&T’s announcement, its Warner Bros. movies were downgraded from 4k to regular HD on iTunes, some thought this was a quiet and immediate imposition of a milder version of exclusivity: one could still use the content but not as well. As the MacRumours story suggests at the end, this seems not to have been intentional. Especially as it affected the entire Harry Potter series of feature films, which does not make sense as an exclusive on an AT&T streaming service because its audience is very far from overlapping. But the withdrawal of so many big turtles into their shells does feed the assumption that the downgrade was intentional.
Exclusivity doesn’t make sense if you can monetize the demand for your content more fully by permitting its distribution by others. Disney can go it alone, at least in the US, because it can be reasonably sure that most customers will follow it to its new platform, for both its sui generis entertainment programming and for ESPN with its exclusive sports rights. Few others can assume they can leverage such loyalty. But brinkmanship in negotiations over money will only increase in the near future, and when talks break down a downgrade might seem temporarily (while regular HD is not seen as tantamount to no service) attractive alternative to a complete outage of that content on the distributor’s platform. It might not suffice, though (the lower resolution might not be enough of an impediment to use, neutralizing the content owner’s main weapon).
I rather expect that AT&T is fooling itself when it assumes its high-profile ex-NBC series give it the market power on which Disney is relying. The proliferation of content-owner streaming services with exclusivity on the owned content—disaggregation—raises the cost and complexity beyond the tolerance of most viewers, and something will give. The lesser content will fail first but almost every player will be hurt. As the antivaccination movement shows, a few ill-advised decisions can spoil it for everyone.
Squeeze play

15 January 2018
Yes, squeezed more, just barely, and probably because around a couple of percent of advertising spend was relocated this year from online to TV by advertisers unhappy with the quality of targeting online.
But it’s the last gasp. The NFL has seen lower ratings because it’s been less interesting lately (in the opinion of those who would know the difference, of whom I’m not one), but it remains a major national sport in the US, and it is headed to SVOD/OTT with the lower-value prescheduled evening fixtures first. The more interesting, dynamically scheduled games currently on Fox and CBS will surely follow.
The league’s thirst for cash has demanded an ever more increasing subsidy from broadcasters and pay-TV operators even as margins permitting them to pay this subsidy have become static or started declining. As Margaret Thatcher warned early on in an argument against tolerance of inflation, it is easy to end up pricing yourself out of the market.
The difference between stopping poachers and sustainable harvesting

15 January 2018
Facebook’s announcement of a change to the newsfeed selection algorithm in favour of personal-network posts at the expense of posts from businesses was greeted with hysterical headlines such as “RIP Facebook News Feed for Publishers”.
Business/brand activity on Facebook will show up less, not be eliminated entirely. It will certainly not RIP; Facebook has jealous shareholders now and is not becoming noncommercial. Currently businesses are enjoying a free marketing ride on Facebook, and in so doing they reduce Facebook’s utility to the owners of the very eyeballs they’re after: a contemporary version of slash-and-burn agriculture that destroys the ecosystem it uses. The algorithm changes will reduce the extent of such poaching. And some portion of businesses’ activity will probably be redirected into paid advertising. This could meaningfully enhance revenues even if only a small portion of current business activity becomes paid.
What we haven’t seen so far is an acknowledgment of the negative effects of the current complex wall/newsfeed content selection algorithm. Since its introduction, the newsfeed has become unpredictable: reload and you’ll see a largely different selection of posts, so you can never be sure you’re fully caught up on those from even the sources most interesting to you. The feed sequence is frequently interrupted by repetitive promotional messages from Facebook itself. And there’s no escape: changing the few available configuration parameters has little effect.
Users’ lack of control also harms the utility of Facebook and the common weal by downranking news organisations, which post extensively to social media in efforts to keep themselves vital and relevant, and in so doing keep us supplied with information despite, for many newspapers in the US, negative margins. They may post news free of charge to readers to promote themselves, drive subscriptions and keep their heads above water, but they’re not able to spend to push news stories as paid advertising; that’s a nonstarter, and a dangerous one for the country at that. If I cannot instruct the Facebook algorithm to maintain the prominence of, say, The Washington Post and Science Alert in my newsfeed, the feed loses much of its utility to me, and this perforce looks like someone has decided that he knows what I want better than I do. That, perhaps unintentionally, propels us right past the point of evil (as in Google’s “don’t be evil”) and into ideological totalitarianism. The end result is likely to be the decline of the social network in favour of another, as has happened many times before (to Compuserve, Delphi, AOL, MySpace).
When the little fish gradually, over time, eat the big fish

2 January 2018
It’s rather obvious now that nonconventional (nonlinear, non-DVR) television will account for a large share of viewing even in markets in which it doesn’t already. South America is expected to grow to almost 16% VOD/OTT penetration by 2021 (apparently excluding DVR integrated into pay-TV systems), with the other lagging countries and regions, such as Japan and South Asia, exceeding 50% by that time. Some pedestrian thoughts on what this means.
  • Broadband is VOD and OTT’s partner in a virtuous cycle: it both enables them and is made necessary by them.
  • With technologies such as fixed 4GLTE and others in development, broadband could be deployed at infrastructure costs well short of the monumental expense of burying cable, especially under established cities. The same advance—inexpensive deployment, and also driven by a “killer application”, earlier enabled cellular telephony across much of the third world, out of all proportion to local economic strength, usually vaulting entirely over wireline telephony.
  • DBS/DTH (unless integrated into a broadband or mobile offering) has little place in this model and is thus probably moribund or subject to massive contraction. The need for broadband eats into disposable income that also would fund DBS, and the need for DBS is diminished as content becomes available on cable or standalone VOD/OTT. As major sports components in the wealthiest countries fall like dominos to standalone VOD/OTT distribution (such as ESPN in the U.S.), the sole advantages of DBS providers might be the last few exclusives (typically major sports events) and customer service. That is unlikely to suffice for continued economic viability in ten or twenty years.
  • Conversely, cable tied to broadband delivery, in which the extra cost of television service is modest, may prolong its life. It will feed the need for conventional TV use that many viewers still have (an aging cohort, sure, but quite young on average). The questions for many viewers are the availability of major sports events, the extent of the VOD selection, and the extra money spent in addition to the broadband-only price.
  • Television is headed towards a smaller but higher-value selection. This has two motivators:
    • One is subscribers’ interest in paying only for what they use rather than hundreds of channels they don’t want. This is served by either services like Netflix and its local workalikes with very broad selections for a very low price, or more expensive services like Dish Network’s Sling in the U.S. with a limited or subscriber-controllable selection of channels. In the first case, stuffing of low-local-value U.S.-targeted content into services in other countries, currently a large portion of multinationally offered programming in which all U.S. studios engage, is economically insignificant; in the second case, it’s not even there.
    • Then there is both OTT providers’ and pay-TV channels’ need to stand out, generate buzz, differentiate themselves from the competition. They have all gravitated to the the poor (anyway, resource-limited) man’s route to world domination, which can be fairly called the Motown Records approach: pick a few star properties and pump all your production and promotion money into them. That’s what we’ve been seeing from Netflix, Amazon, AMC, even the Travel Channel, and it has worked very well in the U.S., generating more interest in any non-premium-channel content than there’s been in many years.
  • Many or most countries already have incumbent, local OTT services, for whom it is natural to defend from the onslaught of foreigners (Netflix, Amazon Prime Video) by using their strength in local content. The tactic is the same for the other side: criticised broadly for undertaking its international invasion on the strength of little non-English-language programming and insufficient rights to use what it had in its new countries, Netflix is planning to invest in locally targeted and produced content. Previously, Twentieth Century Fox as a feature film distributor has successfully become the first U.S. player to do so on a substantial scale, so the model can work. This would reinforce the potential for the medium to evolve from a steamroller of globalisation and boob tube into a culturally sensitive, appointment-viewing, dare one say, art form.
  • As recently covered here, advertisers have tried to throw much of their money at targeted Web advertising and were largely unsatisfied, because of poor targeting, lack of independent auditing, and possibly other reasons. This means that there are advertising budgets in search of appropriate vehicles. At the same time, as also recently mentioned here, there are no guarantees of profitability for everyone as the supply side of the content market reconfigures, or even when it settles down, because the new model will be subject to different costs and revenues. Can standalone VOD/OTT providers attract advertising by targeting better on the basis of the usage patterns they see from specific user accounts? Will a market more accustomed to conventional demographics accept such indirect indication? Some OTT companies (Netflix) may be as unwilling as HBO to accept advertising, but for others whether, how much and in which format they play ads may depend on the money they stand to earn—and how much they are willing to risk user displeasure.
Is television sustainable beyond its declining conventional variety?

25 December 2017
“In 2015 worldwide TV sales fell by 11%, young people watched 10 minutes less television a day and in the US research showed that 62% of adults watched online video every day.” But viewing on other screens more than compensated.
The TV sales drop speaks loudly: the continuing increase in population and much faster increase in sufficiently wealthy population, the change from analogue SD CRTs to digital HD flat panels, and the dampening of demand cyclicality by the desynchronization of the economic cycles of various countries from each other should all have caused a substantial increase in sales. Eventually the diminution of conventional TV will reach even parts of the world where it is relatively minor today.
It is facile to say that viewing will shift to different sources or screens. The more interesting question is the economics. How many independent OTT services from channel operators can be sustained separately from each other or in substantially à la carte models like Dish Network’s Sling? And if they cannot, and must rely on aggregators like Netflix and Amazon Prime Video, will the low pricing deplete revenue until the more popular programming cannot be paid for? So far, both traditional broadcasters and the OTT aggregators have adapted, but this does not mean that they always will. At some point there might be a shakeout just as macroeconomics predicts (easy market entry leads to minimal profits).
Is it smart to use data from smart TVs?

10 September 2017
Multichannel News has an article (“It’s Time to Get the Return-Path Data Together”) by Jane Clarke of CIMM on the complementary nature of audience data from STBs (set-top boxes) and smart TVs piped through ACR (automated content recognition). Generally, it’s a good idea, but some significant qualifiers come to mind:
  • VOD can be measured through STB data collection, and more than one data collection platform already supports this, if implemented correctly. However, it is unclear what any measurement on the playback device might add to proper design of the VOD system (such that all play and trickplay, and not just the original order for the programme, is reported to the server farm) and measuring from there. A smart TV, though, is going to capture some OTT traffic from devices connected using the likes of Google Chormecast, Amazon Fire TV and Roku, but unless measurement on the playback device or at the server farm is available, this will be a partial accounting—without any means of determining how partial; the proverbial little knowledge that is dangerous.
  • Likewise, the power state of the monitor, not currently available from an STB, would pertain to an unknown percentage of viewing (unless matched to same-STB data) and not be very usable for capping viewing reported by STBs. It would be far better if the STB-based data collection systems were enhanced to poll the monitor power state over HDMI, which will now be the default connection to UHD/4k as well as HD monitors. Then, as SD diminishes to zero over the coming years (faster in some countries than others), we would have real data in most cases in which currently we must use statistical approximation.
  • All smart TV ACR can reliably provide is the programme identity, and quite likely not in a format relatable to pay-TV operations (as there is little chance of a common reliable identifier; such an animal could exist but licensing policies are a big obstacle). Programmes alone are not sufficient in the present environment, in which media use is still largely organised around channels and rights flow through them as well.
  • Following Vizio’s comeuppance in court in the U.S. for undisclosed snooping, this practice has gained potential to become a slow meme, with even Consumer Reports explaining how to get rid of it. Especially with help from data-protection-sensitive Europe, this might become a common concern a little like the falsehood, often repeated in a certain genre of fiction, that a powered-off cellphone with a charged battery in place can be used to determine the location of its user. How much opt-out from measurement would render smart TVs not worth the trouble?
Internet advertising is being questioned, and some questions have no clear answers

10 September 2017
Just as Internet advertising reached spending parity with television, large advertisers started doubting its effectiveness and cutting back, writes Nicole Sinclair in Yahoo Finance (“Digital ads aren’t working for big consumer brands”). She lists two developments last year: a study that claimed the existence of rebates undisclosed to advertisers (kickbacks under another name) from media operators to advertising and media buying agencies (although not specific to Internet media), and Facebook’s admission that it included video views of under three seconds, exaggerating the overall viewing it reported by potentially as much as 80% (whatever that means). The article cites reductions in Internet spending by large consumer goods advertisers of, at most, 1.3% this year. Not much, perhaps, but the direction, after years of unremitting growth, should give pause.
Individual advertising delivery cannot be measured by sample, but only by a census. This currently can only be self-administered by the carrier, and that has a credibility problem inherently, not just because of abuses. When chief executives of the half-dozen remaining global ad and media buying agencies, like Martin Sorrell of WPP, say that “the player and referee cannot be the same person” and the media operators should not “mark their own homework” (a phrase heard a lot lately), their companies presumably cannot then initiate the spending of large portions of clients’ budgets on such media. Can targeted digital advertising survive the lack of objective verification, never mind transparency of targeting decisions?
Furthermore, even objective reporting and realistic standards (unlike Facebook’s deeming of a video view any exposure longer than three seconds) might not rescue targeted advertising on the Internet. The current crop of targeting algorithms is rather obviously useless, with much irrelevance and ad nauseum repetitiveness of ads (often from an inappropriate competitor) for purchases already made. This is so despite cookies and tracking by the likes of Facebook. On Facebook itself, the problem is different—the complete irrelevance of most advertising messages—but it still means inappropriate expenditure in which advertisers pay high CPMs for targeting but get, at best, scattershot outdoor billboard delivery. Can targeting be seriously improved in a short time?
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