Internet content and consumer digital surplus

It is increasingly being argued that the Internet provides “digital surplus” to consumers and that this surplus is a means of understanding the value of the Internet to users and society. Measuring the surplus presents a host of challenges, however.

First, the Internet does not produce content. Private enterprises, public entities, and individuals create content with different motives and compensation demands. These are offered under varying business strategies that determine how and how often the content is available on the internet.

Secondly, Internet gateways—ISPs, search engines, and aggregators—have a significant influence on consumers’ content choices. Consumers use relatively few gateway services, but they access content from multiple providers. The nature and sources of that content are highly influenced by the gateways, their preferred content providers, and the algorithms they employ in filtering content.

Determining whether consumers obtain value for money in terms of price, service, and quality from their expenditures for the Internet and its content is complex because it involves two separate transactions: 1) access to internet through the Internet Service Providers (ISPs), and 2) access to content.

The term “consumer digital surplus” derives from the concept of consumer surplus that economists use as a measure of satisfaction of consumer demand. It is based on a determination whether the value received—measured by consumer willingness to pay at given prices—is higher than the market price for the service or product and thus indicating the extent to which consumers are getting a better deal (consumer surplus) than they would have accepted.

There are significant challenges in applying the concept of consumer surplus to digital consumption.

The first challenge is determining what people are willing to pay. There are some accepted methods of calculating it, but it is far easier to measure willingness to pay for access than for content.

The second challenge is that most people now pay for multiple Internet access points rather than a single access point. In Europe, for example, 65% of Europeans have internet access in their home, 52% have internet access via mobile phones, and about 20% of smartphone users also own tablets. Calculating surplus must thus account for use and demand across the platforms. The methods and metrics for doing so remain crude and highly imperfect.

The third challenge is that Internet access through ISPs is often bundled with other services including telephone and television cable services.  This masks the actual price for Internet access and makes determining the surplus related to Internet service and content complicated.

A fourth challenge is that there is a huge oversupply of content creating an imperfect market. Although large amounts of content are used by consumers, there is huge under-use of content because of the scale of content available. There are about 1.2 billion websites on the internet providing at least a trillion Web pages, for example. The overprovision challenge also applies to paid content services and iTunes, for example, offers about 37 million songs, but its average customer has acquired fewer than 100 songs. What is not consumed or consumed infrequently must been seen as having lower value to individual consumers and accounted for accordingly in any determination of surplus.

A final challenge is that much digital content consumption does not involve direct purchase. Most is provided free in exchange for attention or engagement that is desired by others for promotional or advertising purposes. Calculating surplus on consumption without a price is complex. Even when payments are made for content—something done by less than 2 in 10 consumers—most paid content is obtained through a subscription. This creates challenges of accounting for sunk costs and diminishing marginal utility of access to additional content before consumer surplus can be established.

We do know that consumers are receiving value from Internet content and that some types of content are more valuable than others.

There is greater willingness to pay for video entertainment than news and information. However, free video remains highly attractive, evidenced by the 1 billion unique visitors that access YouTube monthly. Nevertheless, paid video content is becoming the norm for professionally produced entertainment. Netflix, for example, had $5.5 billion in revenue from 35 million subscribers in 2014.

Video is more attractive to consumers overall than other types of content and today about 90% of all internet traffic and about 55% of all mobile traffic is video.

Like other communication platforms before it, the Internet has great potential for many types of communication, but is clearly becoming a video entertainment-dominated system that is in direct competition with other video entertainment platforms. Nevertheless, it remains is a platform in which multiple consumer preferences can be pursued and in which the consumer surplus for different content at different times varies significantly. The means for fully understanding that variance and measuring it remain elusive.


Comcast and Time Warner just can't control themselves

Comcast and Time Warner are awaiting regulatory responses to their application to merge and become the dominant player in cable television provision in the U.S. If permitted, the combined firm will control about 2/3rd of the broadband cable market and about 40% of the entire broadband market in the U.S. (which is used for both cable and the Internet).

Independently, the two firms both have reputations for poor installation and repair services, poor billing and collection practices, high prices, and price increases above inflation levels. No one seriously believes their claims that the merger will be pro competitive, lead to more consumer choice, better service and lower prices.

The companies have not been helping their case by appearing to be operations out of control when it comes to their customers.
In recent months customers seeking services have been kept on the phone for hours and forced to undergo forms of psychological abuse while they tried to get the changes they wished. 

Customers who have complained about billing practices and service have had their first names on their accounts changed to names such as “asshole,” “cunt”, “whore,” “dummy”, and “super bitch” and subsequent mailings were sent to their homes with those names on the official company correspondence.

If they can’t manage the firms now, imagine what it will be like if the larger combined firm is permitted and has even less incentive for better behavior.

The internal cultures of the companies apparently do not make treating customers badly risky for employees and the cultures may even provoke it through the high pressure placed on customer service representatives to retain customers and processes designed make it difficult for customers to switch services. The fact that there is a continuing litany of poor behavior indicates the their managers are unwilling or unable to control their employees and that they can't even structure their information systems to stop such things from occurring.

The companies' long histories of treating customers poorly obviously rubs off on their workers. It reminds one of comedian Lilly Tomlin’s character Ernestine, a telephone operator, who reacted to customer complaints saying "We don't care. We don't have to. We're the Phone Company."

The fundamental root of the Comcast and Time Warner problems is that there is essentially no discipline in the market for cable services.  Because  both companies tend to have local monopolies in the locations in which they operate, and face limited competition from satellite TV, the market itself is not correcting for bad behavior. This problem is compounded because there is essentially no regulatory oversight for cable services and customer service either. The cable companies have the best of both worlds: no market pressure and no regulatory pressure.

None of that will change if the merger of the two companies is permitted. It will only get worse.

Customers are valuable to companies and the two companies continue to mistreat them at their peril. A significant number of customers are already stopping cable services in favor of video downloads and streams from the Internet. In time, this may increase to the point it forces the companies to treat their customers better. But it will probably be too late.

In the meantime, the only hope is that regulators will try to keep things from getting worse by refusing to allow the two firms to merge.


The critical distinctions among news provision, information provision, and journalism

The explosive growth of digital news and information providers is forcing news organizations to recognize their diminishing significance to users of digital devices, but many remain bewildered about how to respond.

This challenge is difficult because many news personnel do not make distinctions among news provision, information provision, and journalism. Consequently, the strategies of many news organizations approach each as equally valuable. They are not.

News provision involves providing reports about contemporary events and developments locally, nationally, and globally. Information provision involves providing non-news content that meets audience interests and needs. Journalism involves researching and producing news, features, and analytical stories based on professional practices and norms.

In the past, news organizations tended to have strong control over journalism, news provision, and information provision in their markets. However, they began losing that control with the arrival of multichannel terrestrial/cable/satellite television, the growth of magazine titles, and the appearance of the Internet.

It is this loss of traditional market domination over the provision of news and information that most news organizations are struggling with today.

The problem is clearly illustrated by newspapers that typically offered readers non-advertising content that was about 25% news (created through original journalism or provided from news agency stories) and 75% information (either self produced or provided by news agencies and syndication services). It was a cost effective and holistic way to serve readers news and information needs.

That strategic formula doesn’t work today, especially on digital platforms, because there is a plethora of digital information provision about weather, entertainment, food and cooking, sports, automobiles, and hobbies and crafts and because there is a surfeit of news providers about national and international events and developments.

This high level of competition means that newspapers and other legacy news organizations have a much harder time becoming or remaining the digital choice for news and information provision. There is little additional value they can provide by merely being a conduit for flow-of-events news and information available elsewhere.

Value can be created by practicing quality original journalism, however, and by providing context, analysis, and understanding to news and creating better information, provided in better ways, than competitors.

Only by understanding the differences between news provision, information provision, and journalism, by being different from other news and information providers, by having a distinct approach to news and information, by engaging in high quality journalism, and by helping audiences better understand the world and the topics in which they are interested will news organizations become successful in the digital world.


Why attacks on journalists are inevitable

The attack on the French satirical newspaper Charlie Hebdo that killed at least 12 people today is probably the largest deliberate killing of Western journalists since the bombing of the Los Angeles Times a century ago.  It draws attention to the fact that journalism is becoming an increasingly dangerous profession and reminds us that at least 61 journalists were killed worldwide in 2014 alone.

It may sound indifferent, but such attacks actually signify an important reality: journalism matters.

In an age where so much “journalism” involves coverage of entertainment, celebrities, fashion, food, and lifestyle topics, journalists that question social values and pursue accountability in ways that anger or offend should to be celebrated. Nobody attacks those who write or say insignificant things. Asking questions that some people don’t want asked is journalism at its best and that kind of journalism needs to be revered.

Charlie Hebdo has a history of lampooning politicians and providing irreverent commentary on politics, religion, and popular culture meant to spark public discussion and debate. It has faced backlashes before.  Whether it can survive to do so again is uncertain.  Even if it doesn’t, other voices will continue to raise important questions about society and the world in which we live.

It is regrettable that carrying out journalism can lead to death and injury and we need to denounce such attacks and do all we can to prevent them. But we also need to take pride in journalists whose information and ideas are so consequential it results in their deaths.


The growing newsroom struggle over journalistic narrative and presentation

The majority of newsroom hires in many news organizations today are digitally oriented personnel with titles such as web developer, data scientist, interactive digital designer, social media editor, engagement manager, and digital content editor.

These job titles say a great deal about news organizations' strategies of servicing audiences across platforms. They also reflects the reality that screens are now the primary way most people get information and entertainment and that visual display of information has increasingly become the norm in recent decades. There is now a public expectation that news and information will be conveyed with some visual display of information, such as infographics, slideshows, multimedia presentations, mapping, interactive graphics and data bases, video and interactive video, and calculators.

The growth in digitally oriented personnel in newsrooms is producing a growing struggle about how news stories should be told and what forms they should take. Traditional journalists steeped in third person, inverted pyramid, short-form journalism are uncomfortable with literary and long-form approaches, first person narrative, non-sequential revelation, visual presentations, and data-driven exposition that bring out their numeric anxiety.

The struggle between digital personnel and textually oriented journalists is similar to earlier tensions between typesetters, page compositors and journalists created because printing technology and layout dictated story style, provided great power over the length and presentation of stories to the backshop, and produced conflicts when backshop demands overrode journalists' preferences.

The appearance of phototypesetting removed the role of typesetters and moved production to the newsroom, giving journalists and editors primary control over content. That change produced 3-4 decades of rule of writers over production and journalistic style. Today, however, the new digital personnel are challenging that dominance, developing ways of presenting news and information, and forcing new methods into news production that conflict with the text-based traditions of legacy media and journalism.

The tensions and debates these changes produce are good for journalism because they reminds us that it is not the form of journalistic writing and news provision that is important, but the conveying of accurate and fair information in ways that explain the world. We will undoubtedly see more novel ways of conveying news emerge as the software driving digital communications continues to develop and is integrated further into newsrooms. This will force many to recognize that it is not the form of journalism, but its function that is important.


The growth challenges of cable and satellite companies

Cable and satellite companies are increasingly finding it difficult to get the growth in customers and revenue they would like.

Over the past 4 decades they achieved growth first by introducing services in new markets and by acquiring smaller providers and then, as unserved markets and acquisition opportunities declined, by offering an increasing number of channels, telephone and internet services.  The strategy increased customers and revenue, but inevitably let to a mature market in which only lower growth was possible.

In the past decade cable and satellite overcome that maturity and achieved growth by offering a variety of new services and products to consumers--allowing them to access programming at times it is not offered on their channels or systems or in different forms--and syndicating their original programs and finding new income through merchandising and related activities. The development of connected TV and use of video on laptops, tablets, and smartphones has spurred use of these new products and services.

These strategies helped cable/satellite company growth by increasing the time consumers spent with them, creating new advertising opportunities, and new sales and subscription opportunities. Many consumers began making use of these secondary and “over-the-top” services, getting used to the idea of cutting the connection to cable and satellite operators and viewing content in different ways.  This move to internet-based services and non-television viewing initially created growth, but that growth is now being challenged by well-funded new providers from outside the cable/satellite industry. These external competitors contend strongly in the new markets and are taking customers and revenue away from the cable/satellite operators—stripping them of growth.

This change has shaken the cable and satellite industry because its executives have been used to growth since its inception and because the internet has taken away the monopolies they held over the distribution platforms that allowed them to charge high prices—about double that for similar services in Europe—and to offer some of the worst customer service of any industry in the U.S. Because easy growth is no longer foreseeable, they are returning to acquisition and mergers as a way to stabilize revenues, reduce costs, and gain immediate revenue growth.  That strategy is being reviewed by telecommunications and antitrust authorities, but—regardless of the outcomes—is symptomatic of an industry that has lost the reasons for its development and success.


The libertine days are over: How the material world is reining in Internet companies

Early in the rollout of the Internet, leaders of the emerging online companies described it as an immaterial world of virtual objects and virtual activity that was not subject to the economics, financing, laws, or business arrangements of the material world. They portrayed it is as world without structure in which informality and collaboration among users would guide its operation. They described it as global phenomenon beyond the reach of governments. Many expressed highly utopian visions of the internet. Most embraced a highly libertarian philosophy; some an anarchistic one. These leaders primary interacted with each other and deluded themselves into believing what they were doing was unique, hallowed, and beyond worldly oversight.

Internet service providers saw themselves as facilitators without responsibility for who used them or for what purposes. Companies such as Google, Yahoo, and Huffington Post created value extracting models in which they expropriated the work of others as part of their essential operations and made money from its use by creating saleable audiences. Social media, such as Facebook, developed by exploiting the common human need to communicate with others and they profited at the price of users' privacy. These intermediaries allowed the public and enterprises to communicate all manner of content without hindrance.  None of the uses and business models they pursued raised political, business, social, cultural, or ethical concerns among the creators of these services.

The views of internet-based firms and their creators resulted partly out of youthful naivety, but also because of a lack of interdisciplinary perspectives. Some were self-educated; others the products of highly technical educations. Most lacked understanding of society, political economy and economics, and human behavior. It narrowed their understanding to the point they did not perceive or comprehend what the Internet was actually doing and the  social implications of their actions.

Two decades into the modern internet era (earlier eras included private telecommunication data systems and military and academic networks) the perspectives of internet firms are being altered by realism and they are increasingly feeling the control of the world to which they thought they didn’t belong.

We are seeing the internet giants increasingly fall under the regulation of nation states and multinational government. The libertine unrestrained days of internet firms are over. Commerce, capitalism, and state power are all forcing Internet firms to recognize reality.

This change is manifest in number of ways. Governments are requiring the companies to behave because the firms want the benefits of raising capital through stock markets that are regulated and protected by states. Governments are increasingly requiring internet service providers and intermediaries such as search firms to report and block child pornography, remove clear copyright violations, and address trolling and stalking. European courts have recognized a right to be forgotten that is forcing search firms such as Google to remove links. The ability to make billions of dollars through tax avoidance by moving across national borders to tax havens is being challenged by governments everywhere. Police are requiring assistance from the companies for investigations of criminal activity by internet users. Security officials are asking Internet companies to reduce the use of their services for communication and propaganda purposes by terrorists and others in armed conflicts . Countries worldwide are demanding that ICANN, the arbiter of internet structure and names, be placed under multinational governance.

As much as the tech firms would like to ignore the government demands and continue to pretend they operate in a detached virtual work, they do so in peril of millions of dollars in fines or orders to cease operating in countries around the globe. The problem is that they are big businesses. And there is the rub. Although they would like to think they operate in a separate virtual world, they also operate in a material world where users and advertisers reside, where advertising and search placement payments take place, where content is created, and where they locate physical offices. These are within nation states that construct legal and banking systems, enforce contracts, and collect taxes. Consequently, the big Internet firms are now under the jurisdiction of not one, but as many governments as the nations in which they conduct business and in which their services are available.

In each of these countries Internet firms face issues of commercial and social legitimacy. Numerous countries are considering taxes on ISPs, search firms, and aggregators to compensate the content creators whose products make the internet businesses functional. Domestic businesses argue they are being exploited by these foreign giants and citizens realize that their personal information is making social media and search firms rich. This creates a backlash in which the operations of the internet firms are seen as—at best—exploitive and shameless; at worst they are seen as nefarious and outrageous. No wonder there are increasing political demands to constrain the companies in countries worldwide.

Many of the internet companies are now arguing that if they are regulated, authoritarian governments will do so inappropriately. They are not wrong in that view. History has shown that authoritarian states have controlled the previous communication systems such as the post, telegraphy, telephone, and broadcasting to their advantage and that even liberal democratic states have done so on occasion.

That, however, is no reasons to provide internet firms license that no other firms or individuals have. We are all part of society, whether we want to be or not. With the benefits of society come responsibilities. Those responsibilities can only be truly be avoided by dropping out of society and giving up its benefits---something none of the internet companies really want to do. There is just too much money to be made.


4 lessons in managing creativity in media enterprises

Most media companies claim they are creative, believing that merely producing
 content makes them inventive and artistic. Most media firms are not particularly creative, however, and we recognize it daily as we are confronted with formulaic and derivative content of limited quality.

But some companies are consistently notable for unique and ground-breaking content that meet higher standards. What makes them successful is their ability to manage creativity.

The concept of managing creativity may at first seem like an oxymoron. Anyone who has worked with talented writers, designers, directors, actors, or musicians knows that the muse of creativity is capricious and does not present itself on a predictable schedule.

This does not mean it is impossible for an enterprise to manage creativity, however. Organizations that consistently produce highly creative content spend a great deal of effort managing the environment and processes in which creativity takes place. They do so to make certain that creativity can blossom and be nurtured within their operations.

Four important lessons emerge from enterprises that are regularly creative:

1)    Hire the right people The first organizational challenge is to identify and attract creative people who can work within an organizational setting. There are many highly creative individuals who are unable to contribute cooperatively and serially to the development creative content. Such people often work well outside organizations, and can even contribute to organizational activities as outsiders, but they can harm creativity if employed within the enterprise. Working successfully inside organizations require more than mere creative capacities. It requires people with the abilities to align their individual creative activity with the goals, culture, brand, and deadlines of the media organization and abilities to collaborate with others in doing so.

2)    Structure to facilitate creativity Successful creative enterprises understand the needs for creative collaboration and the importance of teams in pursuing creativity. Consequently, they tend to create working groups that cut across functions and reduce the stifling influences of rigid organizational structures and unnecessary hierarchy.

3)    Get the processes right The most creative organizations focus on improving processes that facilitate creativity. They ensure that work systems and practices provide incentives and support for the idea creation, risk taking, and failures that are inevitable when high levels of creativity are involved. This sometimes involves hiring writers on contracts that are not limited to a particular television productions, regularly replacing portions of creative teams with new individuals to keep ideas fresh, and giving adequate time for creative processes to work.
4)    Provide the right leadership Creative people require leaders who value and understand creativity and are able to balance the demands of organization and the individuals, keep engagement and energy high, and ensure an ongoing flow of creative content. Unfortunately, such leaders are few and far between and most tend to be charismatic leaders with unique attributes. These film and television producers, magazine editors, audio producers and other leaders are able to convey their vision, sensitivity, and motivational attitudes in ways that induce others to produce and contribute peak creativity. Most of the desirable qualities of these individuals are innate, however, which means managers must spend significant time finding, developing, and retaining such creative leaders.

Enterprises that want to be leaders in content must pay attention to how that content is produced. Creativity must be supported within the firms or claims of being part of a creative industry quickly become fallacious.


Ownership transparency is not enough to solve media performance gaps

Media ownership transparency has become a goal of media reform advocates on both sides of the Atlantic, but is often simplistically presented as a solution to problems in media performance.

As I have shown in my research over time, it is not the form of ownership that matters, but the owners themselves. There are good and bad corporate owners, good and bad private owners, good and bad family owners, and good and bad foundation owners. And many owners whose media perform badly on issues of social service and public interest don’t care if the public knows who they are.
This is not to oppose making it easier for the public to know who the owners are—in some cases (especially in southeast Europe) owners sometimes hide behind shell companies, investment firms holding their shares, and even individuals fronting for them. Gaining transparency may help identify consolidation and concentration for antitrust and pluralism analyses, but lifting those veils alone is not going to solve the issue that some media owners operate media for political or personal financial gain in ways that harm the public.
The continued focus on ownership also masks the fact that many other factors create influences on media and their content. A company doesn’t have to be owned to be controlled.
Those who provide media revenue and lend media companies money matter.
The desires of advertisers skew content so that media serve more desirable demographic groups and produce a content environment that best suits their messages. It leads the media to exercise care, or ignore, news that will offend major advertisers. In some countries advertising from state enterprises and private firms is dependent upon a paper or broadcaster supporting or not challenging political figures or ruling parties. Unfortunately, in many cases, media companies and journalists comply.
Banks and other lenders that holds the debt of a media company are also in powerful positions to influence media managers, choices of the company, and content. The larger the debt, the greater the influence because it is harder to replace the firm lending the money.
Media firms owned by industrial conglomerates matter.
Government contracts given to firms that own media can influence the news content published or broadcast. In many countries defense contractors, construction companies, banks, and service firms own media. These firms receive large public contracts to supply equipment, construct buildings and roads, handle government finance, and support government operations. In these cases, the media keep the companies in the minds of politicians and the governments and the lucrative contracts keep the media from being too troublesome to the politicians and the government.
Creating media independent of economic influences is impossible. While ownership does matter, and transparency may have virtue, a host of control issues come into play that will never be addressed by merely being transparent about who owns a media firm.


Here’s why people won’t pay for news: No one does journalism anymore

I opened my Yahoo home page today and read the news headline “Outgunned Kurds Beg US for Weapons to Battle ISIS” and its lead paragraph.  “Interesting,” I thought, so I clicked on the item, expecting an expanded story from a news agency. What I got was the Huffington Post. 
“OK, they are becoming a decent news source,” I reacted. So I began reading, only to realize they gave me two paragraphs before redirecting me to Newsmax for the entire story. 
Newsmax is a news site established with the aid of politically conservative political figures and journalists. That doesn’t preclude them from reporting news accurately, but can influence their news choice, analysis and opinion. Nevertheless, I read the 14-paragraph story written by Drew MacKenzie. It was a sound story. However, it only paraphrased a story by Washington Post reporter Terrance McCoy, “The strongest military left in Iraq has not stopped the Islamic State.” So I decided to read the original Post story.
When I got there I discovered that McCoy relied entirely on secondary sources: quotes from other journalists, a statement by President Obama and a quote the president attributed to an Iraqi parliamentarian, some previous Washington Post stories, online photographs, a New York Times interview, and an essay by a foreign policy specialist.
4 news organizations. 4 stories. No original sources. And no fact checking, I suspect.
Setting aside the problems this illustrates about journalism practices today, this example of news linking underscores why news organizations are having trouble getting people to pay for news.  As this case shows, they are doing nothing new, adding nothing or little, and essentially copying each other and themselves. This gives readers nothing they cannot get elsewhere, so how can they expect people to see it as valuable. 
This value creation deficit is especially a challenge if news organizations want readers to pay for journalism, but it is increasingly a problem even in asking them to spend time reading free content.
This kind of cheap news of dubious value will cause the death of many news providers in the coming years. If news organizations don't change their behavior, it will be death at their own hands.