Showing posts with label network. Show all posts
Showing posts with label network. Show all posts

Sunday, March 7, 2010

ABC and Viacom Provide Illustrations of the Shape of Things to Come

The proliferation of channels for delivering entertainment, news, and dog pictures is now a defining characteristic of the markets where media firms compete.  Competition is increasingly about who controls popular channels where content must appear to reach large audiences.

This creates a potential for conflict when one company owns a channel and another company produces content for the channel.  Each company needs the other's product to succeed.  But the balance of power in these relationships will often be uneven.

Two news stories this week illustrate how this new reality works.  ABC just carried out its threat to pull the station with the Oscars from Cablevision, a major cable television company in Connecticut, New York and New Jersey.  Viacom, meanwhile, is removing its popular Comedy Central programs from Hulu, a web site offering free full-length television programs and movies.

Both disputes are about how much the distribution channels will pay the content providers.  But there appear to be significant differences in the balance of economic power.

ABC vs. Cablevision

ABC is negotiating to increase the amount that Cablevision pays to distribute ABC's programs.  The network receives payments from Cablevision subscribers for all of its programming, including ESPN and ABC Family. So the threat to black out ABC's New York television station before the Oscars begin was intended to put public pressure on Cablevision.

Right now, ABC's New York station is reminding viewers its programs are "Always Free Over the Air!"

But more than 3 million subscribers receive ABC's programs via Cablevision.  The network cannot afford to lose that many potential viewers for any length of time.  ABC's advertising revenues are based on the number of people watching its programs.  Large numbers of Cablevision subscribers are not likely to return to watching broadcast television.

Meanwhile, Verizon is advertising a deal aimed at Cablevision subscribers, hoping they will switch to Verizon's fiber optic service that bundles internet access with cable television.  But ABC's problem won't be solved if a significant number of people switch to Verizon. The network will just have to negotiate with a different company for access to a distribution channel.

Viacom vs. Hulu

Viacom is removing some of the most popular programs on Hulu, such as "The Daily Show with Jon Stewart" and "The Colbert Report."  This dispute is over advertising revenue that Hulu divides with content providers like Viacom.  Viacom wants a larger share of that revenue.

Hulu is growing rapidly, but that growth depends on popular programs like the ones Viacom is about to remove. And Hulu cannot control access to viewers the way that Cablevision does.

Fans of the Viacom shows can easily switch to Viacom's own web sites to watch their favorite programs.  The report that Hulu "will direct users to those (Viacom) sites" points to the balance of economic power in this dispute.

Hulu has not yet earned a profit. If Hulu loses a significant share of its audience after the split, Hulu will be forced to reconsider its deal with Viacom.

Still, both companies describe the split as amicable because both companies know they might not be breaking up for good.

Hulu was developed to find a profitable model for the internet distribution of television programs.  Hulu's owners include NBC, Fox and, it's worth noting, ABC.  Viacom owns multiple cable television networks.  So all of the companies have a shared interest in finding ways to make Hulu work.

Monday, February 15, 2010

Google Buzz Privacy Complaints and the Economics of Social Networks

The economics of social networking favor whoever attracts the most users first, so it's no surprise Google used its vast trove of user data to create millions of instant members when it launched a social networking site.

Social networks become more valuable as more people join them, and Google's new site still has fewer users than Facebook. But coverage of Google's new social network -- Buzz -- focused instead on vehement user complaints that forced Google to make multiple changes in the privacy settings.

An estimated 176 million people have Gmail accounts, and Google made all of them automatic members of Buzz. The problem is that Google used information from each user's account to automatically make public a list of their frequent correspondents, along with information from photo albums and other tools that come free with a Gmail account.

It's the "free" part that really caused all the problems.

Google --like its rivals Facebook, Yahoo, and Microsoft -- routinely trolls through e-mail and other user data so it can make money that pays for "free" email and other services. Sophisticated data about who users communicate with and what they communicate about is used to target advertisements that provide the bulk of Google's revenue.

So Google's engineers might not have thought much about revealing to users some of what the company knows about each person's network of personal connections. Google probably was just trying to convince users that Buzz might be an attractive alternative to other social networking sites.

Facebook, for example, claims it has more than 400 million users. Facebook uses a business model that is similar to Google because Facebook collects information on users to sell targeted advertising. So Google cannot be happy about having just 176 million Gmail users.

Social networks become more attractive as they add members because that increases opportunities for each person to, well, network with other members. Nonmembers know that larger networks offer more chances to find interesting people. This cycle can rapidly become self-reinforcing -- increasing size makes the network more attractive, so more people join and make the network even larger.

Google appears to lag far behind Facebook in this competition. Revealing each Gmail user's network of correspondents was just an ill-advised attempt to begin catching up.