Reflection: Media Economics

28 07 2008

Kathy tasked the class to read several chapters of Media Economics. Two sections of the reading specifically interested me.

Among other topics, chapter 11 reviewed the effects of advertising on media content. I attended the Bellingham Visual Journalism Conference two weeks ago and a panel of journalists and editors there discussed the pressure of advertising on editorial content. A business manager from the AP easily named the top story topics (i.e. finance, health care and energy) that drew the biggest advertising dollars. I was not surprised to read in Media Economics that nearly 90 percent of editors at U.S. daily newspapers had experienced pressure from advertising to change reporting or editorial content and “37 percent reported capitulating to advertiser pressure.”

I thought to myself about how the pressure to sell ads and maintain revenue affects editorial direction. The book does not address the ethical implications of this pressure because ethics is well outside the scope of economics, but if journalists and editors are so pressured by advertisers that it affects their editorial direction, I do not think they are not acting in the best interest of the public welfare. Unfortunately, I expect more and more media will adhere to advertisers’ wishes to keep their physical publications afloat as more people become accustomed to accessing news online for free and subscriptions decline. I understand that without a sustainable business model, news outlets cannot function, but nevertheless this tangent of advertiser pressure built into the editorial process concerns me.

Chapter 13, which covered government intervention, also inspired some thoughts. The book identifies copyrights as externalities enforced by governments to encourage research and development. I immediately thought of Sobel’s article about interoperability. I find it ironic that DRM, instituted to enforce copyright, was so effective that it actually threatened interoperability, forcing the French government to intervene and create Dadvsi’s Law. In this case an externality actually created a more unfair environment for consumers of digital music in the market that it was supposed to regulate. In short, the externalities that entered the digital music marketplace actually polluted it.

According to Sobel, Apple was so effective with building DRM into its business model to protect copyrighted digital content that it threatened to monopolize the market in Scandinavian countries and their governments intervened and sued Apple. It seems to me that “positive” externalities in digital media markets tend to have a domino affect with results that aren’t necessarily beneficial to the affected markets. The book defines this as “government failure.” I think that government intervention is most successful when affecting public goods rather than private goods simply because public goods share the qualities of nonrivalry and nonexculadability, according to the book. These qualities prohibit uncontrolled affects of government intervention because no competitive market exists. In contrast, competitive markets of private goods can evolve government interventions into standards (DRM) that don’t necessarily benefit the marketplace.


Response to Cheverie

27 07 2008

This is in response to Raquel’s post.

Cheverie bases her article on the notion that “Information is, simultaneously, both an economic commodity and a societal resource.” She expresses concern that as “digital fences” are raised to protect the copyrights of digital goods, the transactional costs will be raised resulting in limited access, distribution and societal benefit. She also recognizes the incentive copyrights produce for content creators. The article is well-rounded in these points.

However, Cheverie’s prediction that libraries will be undermined by increased digital access is shaky. She provides little evidence beyond speculation. With piracy of copyrighted materials so rampant, people do have more access, but use of that information in business or education requires legal validity. For this reason, copyrights and libraries are still useful. Further, while competition with libraries for accessing information has increased, there’s no evidence that the use of libraries has decreased, or recognition that library systems have adopted their own online databases to compete.

Response to “DRM: Desirable, inevitable, and almost irrelevant article”

22 07 2008

This is in response to Brian’s post.

Brian identifies Odlyzko’s statement that creators should “maximize the value of intellectual property.” I think the direction for attaining this maximum is guided by the interpretation of “value.” Is it money? If so, perhaps today’s DRM model is suitable. Is it accessibility? If so, today’s DRM model is disruptive.

Levels of protection for intellectual content hinge on what creators think are valuable. Because their interpretations are relative, they cannot be universal. I believe this is why DRM today is so controversial. Odlyzko’s are valid, but seem narrow in scope to considering he assumes maximum value should be accessibility, which may not be the case for all creators of digital intellectual properties.

Class reflection #4

22 07 2008

In class yesterday we discussed Kenneth Himma’s evaluation of freeing information. Terry, Ross and Mark all made thought-provoking arguments about Himma’s article that boiled down to debating the statement: “Information should be free.”

I didn’t realize those four words could be so dissected! We broke down the definitions and potential definitions for “information,” “should,” and “free” individually. The latter two words caused significant debate. I disagreed with Mark’s original thought that “should” was an ambigious term in the statement. To Ross’ point, I think the use of “should” was purposeful — to allow people to choose to free information, rather than free information by force.

We then moved onto discussing the definition of “free,” and this went several different directions as well. I concluded that information can be free, but its physical form may not be. That is, a theory may be free as it stands as someone’s thought, but it may have an associated cost when it is printed.

But how does free information affect content creators who would otherwise benefit financially from copywritten materials?

Benkler identifies “romantic” content creation as when people labor for the pure desire to create. However, Benkler also points out how much creation today is due to government and private funding and also identifies the “romantic maximizer” — the producer labors creatively “but in expectation of royalties, rather than immortality, beauty, or truth.”

My tangent to the discussion was how money really changes the frequency of creation. People who create in a romantic sense do so at their leisure and as they are inspired or motivated. However, when people are paid (i.e. medical researchers) to create then the inspiration and motivation is expedited by that payment and pressure to justify the compensation.

I do think information wants to be free. As Terry points out, we, as human beings, desire to share and gain knowledge, so we are naturally inclined to share information. However, we are also inclined to compete, and where these conflicting interests intersect is where we weigh-in philosophy and differ.

Class reflection #3

16 07 2008

On July 14, our guest speaker, T.A. McCann, spoke about Internet entrepreneurship and The Long Tail. He mentioned, but didn’t expand upon, “mashups.” These seem to be totally relevant to the Long Tail because they take advantage of Long Tail economy. The tools of production and distribution of APIs (Application Program Interfaces) have been democratized so that companies and even individuals can create and share new “mashup” programs with relative ease. Mashup programs aren’t typically mainstream because they are created to serve niche audiences (@answerme helps track questions you ask on Twitter; QuikMap allows you to draw on Google Maps.) so they also contribute to extending the Long Tail. Mashups are one of the only examples of goods I can think of that exclusively feed from and contribute to the Tail without disrupting the overall market shape.

Later in class, Kathy broke us up into small groups to discuss questions based on The Long Tail. My group addressed a question related to the scarcity of time: “Moving down the Tail takes time and time is the one thing that can’t be changed. In to find value in the Tail, the time it takes to navigate through the Tail must be close to zero… What can be done to minimize the time barrier of the Tail?” The group identified filters as the solution to minimizing time. Our conversation evolved into talking about types of filters – program-based (algorithms) and social (recommendations). We talked about how social filters can be beneficial because people’s recommendations are based on emotional responses, but how they also have limits because people’s opinions are imperfect and their emotional responses may differ greatly from your own. We identified program-based filters as safe, but not necessarily as effective because they are based on a finite set of qualifications.

Long Tail Questions

13 07 2008
  1. With the democratization of tools for production and distribution and the cost of storing digital data reducing, more and more e-businesses will be able to compete in Long Tail economies.  How do today’s dominant online players need to differentiate themselves as competitors are able to close in on their business models?
  2. Anderson mentions hybrid business models are growing (Best Buy, Wal-Mart) to compete in Long Tail economies, but he doesn’t provide data for how successful these business models have been. When traditional brick-and-mortar stores open their businesses online, does this negatively impact their physical stores because people are shopping online instead, or do physical stores actually have more success with online exposure?
  3. Google has proven the value of filters to help consumers navigate the endless products and services on the Internet. However, could a conflict against the interest of consumers arise with a private company having so much control over what consumers access, and would government intervene to undermine the monopolization of the filtering market?

Review: The Long Tail

13 07 2008

The Long Tail: Why the Future of Business Is Selling Less of More. Chris Anderson. New York: Hyperion, 2006. 226 pp.

A local journalist recently interviewed my indie rock band. “What are your aspirations for success?” she asked. “We don’t expect radio play because we don’t sound like what’s on the radio right now,” our drummer replied. “We just want to get our music out there because a lot of people don’t want to hear what’s on the radio,” I added.

Using online tools like MySpace, Pandora and, my band is hoping to capture what Wired editor Chris Anderson defines as the Long Tail – the niche market.

The Long Tail is an extension of an article Anderson wrote for Wired in late 2004 and explains the economics of abundance. “The theory of the Long Tail can be boiled down to this: Our culture and economy are increasingly shifting away from a focus on a relatively small number of hits (mainstream products and markets) at the head of the demand curve, and moving toward a huge number of niches in the tail,” Anderson says.

Long Tails, according to Anderson, are enabled by digital markets democratizing the tools of production, cutting the costs of consumption by democratizing distribution, and connecting supply and demand via increasingly intelligent filters. In the case of my indie band, the costs of recording and producing technologies are so low that we can create an album for just a few hundred dollars and make the music available for free via MySpace. People can find our music using search engines like Google. We’re riding the Long Tail economy.

Anderson supports his thesis by analyzing data from Amazon, Rhapsody and Netflix among others. He shows that their demand curves are similar. A few blockbuster titles are in high demand, and the rest are in low demand – but those low demand titles are the majority of the total market, and their sales add up to a significant proportion of total demand. Anderson justifies that these low demand, niche markets are growing due to digital efficiencies and people’s innate desires, supported by culture, for increasing choice. Anderson credits Sears, Roebuck and Co. for its 1897 “Wish Book” mail order catalog – 786 pages containing 200,000 items for sale – for hooking America on abundant choice and paving the way for digital models today.

The Long Tail works because Anderson speaks to the economic plebeian. The only prerequisites for reading the book are understanding basic supply and demand curves and familiarity with the major Internet consumer retailers. Even when he delves into identifying the Long Tail as a “powerlaw,” he avoids treading formulas and graphs and simplifies the definition of a powerlaw to the lowest denominator: “…Powerlaw distributions occur where things are different, some are better than others, and effects such as reputation can work to promote the good and suppress the bad.”

The Long Tail excels where Anderson provides interesting examples of Long Tail elements. He provides especially colorful examples of “new producers” – amateur astrologists help to identify a supernova; small-time comedians landing roles on Saturday Night Live based upon low budget, viral videos. He makes a compelling argument for how Wikipedia is the most comprehensive encyclopedia ever created and, equally impressive, built by volunteers.

However, not all of Anderson’s case studies of Long Tails economies succeed. In his example of how blogs and mainstream media comprise the Long Tail for online media, he provides a Technorati chart measuring popularity by incoming links. Four blogs – Boing Boing, Engadget, PostSecret and Daily Kos – are present in the chart’s top 48 Web sites. Thus, these blogs are actually part of the “short head” of the curve, and likely even more blogs have entered this list in the two years since The Long Tail was published. The chart is a better argument for the success of blogs than for how blogs extend the Long Tail of online media. Anderson could have improved his argument by providing evidence for the number of new media blogs Technorati records daily.

The Long Tail also falls short where Anderson asserts the Long Tail extends beyond the economics of online businesses and into culture. His example of the rise of house music in Chicago is ineffective because he focuses on a music genre that has no mainstream and therefore does not have a Long Tail demand curve.

Though Anderson provides unsteady evidence to identify the Long Tail in culture, his assertion can be supported with alternate examples: People can choose from the thousands of niche groups on Facebook or recreate themselves as avatars in Second Life and become part of niche online communities within that virtual world. Chris Anderson himself participated in Second Life for a discussion with a niche audience – those interested in The Long Tail.

Looking back, I can see Long Tails in social environments, too. A small number of students in my high school were popular, “the cool kids.” The rest of us didn’t command the same attention but still made the majority.  Niche interests and activities defined us. Four of us that wanted to make rock music formed a band. Today, the same four of us have access, via Internet distribution channels and aggregates, to a broader audience that shares our niche taste for music. Vying for acceptance with “the cool kids” – the mainstream – is less important than ever.

The Long Tail is profound because it articulates what we can easily see in digital markets and increasingly in culture. The theory of abundance isn’t revolutionary – Sears, Roebuck and Co. recognized it more than 100 years ago – but it has never been presented in such a digestible form. Anderson’s book is a valuable addition to the public discourse about digital marketplaces and the impact of the Internet on consumers and culture.