Friday, April 11, 2014
Cortez the Killer (Neil Young interpreted by Warren Haynes/Dave Matthews Band)
The power of virtuosi in live performance. Nothing to discuss, just a nice example of what the Internet is for.
Late night TV replacement hosts were selected to avoid declines in audience ratings
Creating
a network television schedule is similar to assembling a portfolio of financial
investments, according to a
useful paper by the late Barry R. Litman and Seema Shrikhande and Hoekyun
Ann. Like investors who try to balance financial returns from different
investments, network programmers try to balance the audience size for different
programs.
The goal
is to build an audience that attracts local and national advertisers
throughout an entire evening of television programs.
Network
programmers assemble a portfolio of programs that is designed
to minimize risk, the study concludes. Risk can be measured by the variation in audience size from one program to
the next. Programmers try to minimize risk by minimizing the variation in audience size.1
Efforts to minimize risk are particularly apparent
when new programs are created. Programmers try to select new programs that will attract
audiences that are similar in size to the audiences for the network's existing programs, the study says.
This
desire to avoid failure can be seen in the selection of replacements for late night hosts Jay
Leno at NBC and David Letterman at CBS. Leno has been replaced by comedian Jimmy Fallon. Letterman, who will
retire in 2015, will be replaced by comedian and satirist Stephen Colbert.
These
replacements represent the continuation of a decades-long strategy featuring late-night hosts who are white, male, and offer a reliable mix of
stand-up comedy and interviews. This strategy still draws a combined late-night audience for NBC and CBS of more than
6
million viewers.It’s not surprising that neither network wants to experiment with a host who doesn’t fit the established conventions for the 11.30 p.m. timeslot. Programmers at both networks surely recall how audience ratings at NBC declined in 2010 when it briefly replaced Jay Leno with Conan O’Brien.
Audiences
for local television newscasts are influenced by the late night shows that follow those newscasts. So programmers must also try to
avoid changes that could cause declines in the audience for local news, which
is a critical source of advertising revenue at television stations throughout the U.S.
Jimmy Fallon and Stephen Colbert seem like safe choices that will help the
networks avoid a loss of audience. Both replacements combine an appeal to younger
audiences with a sensibility that seems unlikely to alienate older viewers. (Objections
to Colbert made by politically conservative commentators will fade into
irrelevance if, as expected, Colbert drops his persona as a political satirist
when he arrives at CBS.)
But I
wonder how long these safe programming choices will continue to work for late
night television. This has nothing to do
with reaching audiences who would rather watch these programs on the Internet. Both replacement hosts and both networks are
adept at producing material for the Internet.
Meanwhile, the
demographics of the country are rapidly and inevitably changing. States like
California, where the combined
minority population outnumbers the white population, represent the future. Will
Fallon and Colbert have the same long-term audience appeal that their
predecessors enjoyed? Or will changing
audience preferences undermine the safe choices made by network programmers?
1 A portfolio is used to balance risks. A program with large variations in audience size has a large risk. If the programs has an unusually large audience, the risk is rewarded with increased advertising revenue. But if the program has an unusually small audience, ad revenues will also be small. Programmers could use programs that consistently attract larger audiences to balance the risk of adding programs that might result in smaller audiences. But the study found programmers are reluctant to include risky programs in their portfolios. Programmers create portfolios to minimize the variation in audience size, which minimizes any instability in their ability to generate ad revenues.
1 A portfolio is used to balance risks. A program with large variations in audience size has a large risk. If the programs has an unusually large audience, the risk is rewarded with increased advertising revenue. But if the program has an unusually small audience, ad revenues will also be small. Programmers could use programs that consistently attract larger audiences to balance the risk of adding programs that might result in smaller audiences. But the study found programmers are reluctant to include risky programs in their portfolios. Programmers create portfolios to minimize the variation in audience size, which minimizes any instability in their ability to generate ad revenues.
Sunday, April 6, 2014
Coordination costs can make it difficult to create synergies at media firms
Media firms have for years tried to
reduce their costs by centralizing the production and marketing of a variety of
content. But the cost of coordinating centralized activities can be
considerable, large enough in some cases to offset the savings that firms hope
to realize.
For example, firms that own multiple
newspapers have for decades tried to reduce costs by centralizing the
production of news or centralizing administrative tasks. Efforts to centralize news
production have also been extended to newspaper websites and mobile editions.
However, centralization
can be difficult to coordinate if individual newspapers use different computer systems
or software to manage and publish their digital editions.
Technically, these companies are
trying to create economies of scope, colloquially known as “synergies.”
Economies of scope exist when the joint production of two or more products is
cheaper than producing the products separately.
Technically, it’s also much easier
to say you are creating economies of scope than it is to actually reduce costs
this way. The successful creation of economies of scope often requires that a firm
re-arrange
details of the production process.
If, for example, a multi-media news
story is distributed to multiple papers with different publishing software, the
story might have to be re-formatted for compatibility with each individual
paper’s software.
Media firms are also trying to
collect and analyze data about how audiences interact with the firms' web sites
and mobile applications. This kind of analysis might also be expensive to
coordinate if different websites use different measurements or data collection
techniques. Trying to reconcile differences in the ways that numbers are collected
can be a lengthy, frustrating and sometimes impossible task.
Firms might have to make
significant capital expenditures to eliminate inconsistent software
or other internal barriers to coordination. Some newspaper companies are buying or
creating new software platforms for distributing digital news and advertising. Some of these initiatives may be intended to resolve coordination issues, if so that is a hopeful sign.
Problems coordinating activities
inside a media firm are not likely to draw much attention outside these firms. But there is a
reason multiple economists have won Nobel Prizes for examining coordination
costs (here,
here
and here).
Media firms that centralize internal activities to save time and money will find it worthwhile to include coordination
costs in their analysis of what it takes to make those efforts work.
Thursday, April 3, 2014
Shifting production to the Internet creates new problems that newspapers must solve
As newspapers shift from print to
the Internet, they are hoping to significantly reduce production costs. These
companies are trying to offset declines in advertising revenue by reducing the
amount they spend on printing presses, newsprint and delivery trucks.
But the benefits of this change are not guaranteed. Reducing offline production costs is a complex problem to solve.
Most of the industry’s advertising revenue
– about
$21.8 billion in 2012 – still comes from print publications. So newspapers
must maintain that revenue source at the same time they are moving to the
Internet.
Production costs might be lower on
the Internet, but they are not zero. Newspapers must pay for websites
and mobile applications. But Internet advertising and other digital sources accounted
for just 11 percent of the industry’s total revenue in 2012.[1]
Newspapers also face significant competition from digital firms for online revenue.
To make the transition succeed, newspaper
companies must keep digital production costs low enough to be competitive and
attract enough online revenue to cover those costs. Meanwhile, the companies
must continue to produce the print products that generate the bulk of their
revenue for as long as those products remain profitable.
And economic survival isn’t likely
to get easier for newspaper companies that do leave print behind. Those firms
will have to manage new kinds of competition.
There was an important reminder this
week of just how difficult the transition can be. Digital First Media, which owns 75
newspapers, has a strategy of moving quickly away from print to digital
distribution on the Internet.
One high-profile piece of the
Digital First strategy has now failed. The company is closing a centralized
newsroom that used digital production to provide national stories for its
newspapers across the U.S. Rick Edmonds notes the failure is a valuable
reminder that even digital news production is expensive:
It is myth, embraced by digital future-of-news
enthusiasts, that Web publishing is close to free. [Digital First CEO John] Paton seemed of that view early in his tenure when he
asked newsrooms to use mainly free tools to put out their reports for a week.
But in his most recent manifesto/speech to the Online
Publishers Association in January, he said he was looking for another $100
million to invest in the company’s digital activities on top of an earlier $100
million.
Digital First is a private company,
so it's hard to tell what the implications are for
other newspaper companies. There is reason
to be cautious because Digital First has complex finances – it was created by
merging two other companies that had both been gone through bankruptcy. A hedge
fund is a major investor, and that fund may be looking for a quick return on its
investment.
Other companies with stronger
finances or different investors might have more flexibility in managing the
transition from print to digital. But it won’t be easy for any company to do.
[1] An estimated $4.2 billion of
$38.6 billion in total industry revenue according to the Newspaper
Association of America.
Tuesday, April 1, 2014
Some reasons digital media probably won't offset the decline in traditional journalism jobs
The
long-term decline in journalism jobs appears quite serious because Internet-based
firms don’t have a business model that can generate enough new jobs
to replace the jobs that are being lost.
The report also examined large digital organizations, some with national and international audiences, and the findings were striking. Only five of 29 large organizations[1] employ more than 100 journalists. Another six organizations employ 70 or 50 staffers, and the remaining 18 organizations employ fewer than 50 journalists.
The second table shows the number of reporters working at newspapers, periodicals and other publishers. There was a 26.8 percent decline in the number of reporters in this category from 2008 to 2013. Nominal wages also declined by $320 a year. After adjusting for inflation, real wages declined by 8.3 percent.
This third table shows reporters working in radio and television broadcasting. There was a 7.2% increase in the number of reporters employed. However, the absolute increase was small – just 700 new jobs in six years – and did not result in an increased wages. Instead, real wages declined by 13.5%.
The fourth table shows reporters working for “Other Information Services.” This broad
category with 242 occupations includes computer programmers and web developers.
So this may include reporters working for digital firms.
I think this illustration shows three important results. First, almost all of the overall decline in reporting jobs is accounted for by one category - newspapers and other publishers.[2] Second, there is downward pressure on wages even in categories with minimal or strong job growth. Third, growth in the other information category still falls far short of replacing the jobs that are being lost.
The
Pew Research Center's Journalism Project recently weighed
in on this issue, providing new information about the number of
journalists employed at Internet firms. The data in the Pew report are limited,
but they are in line with what we know about Internet business models.
Internet business models are not
designed to support many jobs
The
largest Internet firms – search engines and social media – use a
micropayment system to generate small amounts of advertising revenue for
each unit of production. Google makes pennies on each search result it delivers.
Facebook and Twitter make a few dollars per year from each of their millions of
members (these firms produce information about members that is used to target ads).
So Internet
firms must keep their production costs low if they want to remain in business. These firms rely on automation – high speed
computers and Internet connections – to deliver ads and information to their users. The firms also
keep costs low with free access to the content that they index or display. Internet firms could not afford to pay
for the content they need even if they wanted to.
Journalism firms that rely on Internet advertising revenue will have to charge
the going rate, which means those firms must also rely on micropayments. So
Internet-only journalism firms will probably only hire small numbers
of journalists.
The
Pew findings are in line with this expected outcome. Pew surveyed what it
called 438 small digital news outlets focused on local coverage and found “an average of
4.4 jobs per outlet.”
The report also examined large digital organizations, some with national and international audiences, and the findings were striking. Only five of 29 large organizations[1] employ more than 100 journalists. Another six organizations employ 70 or 50 staffers, and the remaining 18 organizations employ fewer than 50 journalists.
Unfortunately,
the Pew report did not include information about wages or the markets where the digital organizations operate. The report did not attempt even
simple comparisons between digital and traditional media firms such as the
number of journalists for a given audience size.
Comparisons
would have been helpful because traditional media such as newspapers and
television stations still employ the bulk of journalists in the U.S. Traditional firms don’t (yet)
operate on a micropayment model. These firms still have substantial advertising
or circulation revenue from their print and broadcast editions.
Some trends in markets for journalism
jobs
So
what are the current trends in jobs at traditional and digital media organizations? A complete answer is beyond the scope of this
post. However, I’ve examined trends for one important category of journalism jobs to
illustrate how we might begin to answer these questions.
The
category is employment of reporters and correspondents in the U.S. Reporters play
a vital role by gathering raw information that is used to produce news
stories. These statistics are from the
Bureau of Labor Statistics, here and here, and don’t include
editors, photographers, or newsroom managers.
Bureau
of Labor Statistics Reporters and Correspondents in the U.S.
|
|||||
2008
|
2013
|
Difference
|
Pct. Difference
|
||
Total
employment
|
50,960
|
43,630
|
−7,330
|
−14.3%
|
|
Nominal
avg. wage
|
$44,030
|
$44,360
|
$330
|
0.7%
|
|
Inflation
adjusted (2008)
|
$44,030
|
$40,998
|
−$3,032
|
−6.8%
|
The
illustration begins in 2008, the year after the recession hit and advertising
revenue at traditional media organizations went into a steep decline. The illustration ends six years later in 2013, when a sluggish recovery from the recession was well underway.
This
first table shows the 2008 total of 50,960 reporters declined by 14.3 percent in
those six years. The average annual wage
of $44,030 in 2008 increased by just $330 in those six years. I converted the 2013 wage to
inflation-adjusted 2008 dollars, and the result shows that real wages actually declined by 6.8
percent.
Declining
real wages are exactly what you would expect in a profession where employment
is declining.
Reporters
and Correspondents at Newspapers, Periodical, Book and Directory Publishers
|
|||||
2008
|
2013
|
Difference
|
Pct. Difference
|
||
Total
employment
|
37,500
|
27,420
|
−10,080
|
−26.8%
|
|
Nominal
avg. wage
|
$40,560
|
$40,240
|
−$320
|
−0.8%
|
|
Inflation
adjusted (2008)
|
$40,560
|
$37,190
|
−3,370$
|
−8.3%
|
The second table shows the number of reporters working at newspapers, periodicals and other publishers. There was a 26.8 percent decline in the number of reporters in this category from 2008 to 2013. Nominal wages also declined by $320 a year. After adjusting for inflation, real wages declined by 8.3 percent.
Here
again, a decline in real wages is expected because of the significant decline
in the number of jobs. The decrease in jobs probably resulted from declines
in newspaper and periodical circulation and advertising revenues.
Reporters
and Correspondents in Radio & Television Broadcasting
|
|||||
2008
|
2013
|
Difference
|
Pct. Difference
|
||
Total
employment
|
9,670
|
10,370
|
700
|
7.2%
|
|
Nominal
avg. wage
|
$51,410
|
$48,110
|
−$3,300
|
−6.4%
|
|
Inflation
adjusted (2008)
|
$51,410
|
$44,464
|
−$6,946
|
−13.5%
|
This third table shows reporters working in radio and television broadcasting. There was a 7.2% increase in the number of reporters employed. However, the absolute increase was small – just 700 new jobs in six years – and did not result in an increased wages. Instead, real wages declined by 13.5%.
Why
did wages for radio and television decline when the number of jobs increased?
One
possibility is supply and demand. We
know, for example, that the supply of journalism graduates seeking television
jobs far exceeds the demand. Another
possibility is that broadcasters adjusted to declines in ad revenue by laying
off expensive older workers and hiring inexpensive younger workers to replace
them.
However,
there is not enough information in the table to be sure what the cause might
be.
Reporters
and Correspondents Other Information Services. |
|||||
2008
|
2013
|
Difference
|
Pct. Difference
|
||
Total
employment
|
1,830
|
3,910
|
2,080
|
113%
|
|
Nominal
avg. wage
|
$71,200
|
$57,830
|
$−13,370
|
−18.7%
|
|
Inflation
adjusted (2008)
|
$71,200
|
$53,447
|
−$17,753
|
−24.9%
|
Jobs
in this category increased by 113% in six years. The percentage is high because
the 2008 base of 1,830 jobs was small, and the actual increase is just 2,080 jobs.
Despite
the rapid job growth, both nominal and real wages decreased dramatically from 2008
to 2012. Real wages declined from $71,200 a year to just $53,447 a year, a
decrease of 24.9 percent.
The
decrease in wages might be due to the small number of jobs in 2008. Perhaps these
jobs were concentrated in high wage areas, and new jobs were added in less
expensive areas.
Another
possibility is that demand for these jobs is growing so fast it outstripped
supply. The Pew report has anecdotal accounts of hundreds or thousands of
applications for a single job at a digital firm. If this is typical, it would drive wages
down.
Again,
the table doesn’t offer enough information to figure out the cause.
Meanwhile,
the Bureau of Labor Statistics projects
continued declines in the number of reporters and correspondents, stating
there will be 14 percent fewer jobs by 2022.
[1] I did not include
one firm on the Pew list, Vice, because its staffing includes journalists and
non-journalists. Vice has the largest staffing number, 1,100, which means job totals
in the Pew report may have an upward bias.
[2] Two small reporter categories, each with fewer than 700 jobs, were not included this analysis.
[2] Two small reporter categories, each with fewer than 700 jobs, were not included this analysis.
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