Social Networks’ Contradiction: Between a Rock and a Huge Audience

Social Networks such as MySpace are great cases of study as they provide evidence of something that our readings highlight: Great success gathering users and web traffic doesn’t necessarily mean economic revenue and business sustainability in the long run.

Social networks face a contradiction here. In order to be successful and became powerful networks they need to facilitate online access to a vast mass of people. Connecting users and facilitating interpersonal communication is the core of their networks. However, users are not willing to pay for Internet services and take for granted the benefits online networks provide.

As Napoli (2011) points out technology innovators “frequently take advantage of the interactivity inherent in the new media environment to produce audience information systems that move beyond the traditional exposure metrics that have long held the dominant position in the audience market.” (p. 88)

I believe this is the case of social networks. They provide a new audience information system that allows them to dominate public conversation. However, the challenges consist on transforming that network power into a sustainable business model without affecting people’s privacy and independence within the network.

Long Tail Economy

The concern about whether consumers are willing to pay for online content or not has been a hot topic in media economic research. Unlike traditional media, the nature of online media provides another way to make a profit rather than asking readers to pay. Cha mentioned the long tail economy to explain this phenomenon.

Three forces of the long tail economy are “more producers/content”, which extends the tail to the right, “the low cost of distribution”, and “more access to niches.” (Anderson, 2006). Those three characteristics of online media are very different from traditional media, and they provide a way for online media to make a profit.

Social Network Sites (SNS) collect users’ content, and they can monetize this content. That is, syndication is a major source of revenue for SNS.  When more content generated by users brings in more revenue, then the SNS can provide better service. This will attract more users which in turn can the site attract more advertisers. In this sense, users are not using a free service. They produce content that SNS uses to make a profit.

Another way that online media make money is due to low cost of distribution. Users distribute their messages without spending a penny. Compared to traditional media, it probably cost SNS less to reach target customers for advertisers.  The lower the cost, the larger the profit. Once SNS can reach a more precise target market than traditional media, why can SNS not make a more profit than traditional media?

The third force of long tail economy is “more access to niche.”  It is easier for online media to target a niche market than traditional media. What I think interesting is not about how much niche market can online media have. What amazing is no matter how small that market is can support the survival of online media. Like Cha mentioned in the article, Facebook derives more revenue from niche markets than from hit markets. What I am thinking is that can traditional media rely on small market, just like SNS do?

Anderson, C. (2006). The long tail: Why the future of business is selling less of more. New York, NY: Hyperion.

  

Rethinking Social Media

It’s interesting how restating something you essentially already know in a novel form can really reshape your understanding of that original something. That’s how I would qualify my reading of Cha’s article, which covered business models of social media. Case in point, I know that Facebook, LinkedIn, MySpace and Twitter all do different things, for different consumer bases, but I hadn’t really considered the fact that they have to do something different to essentially survive (hence MySpace changes its business plan after Facebook takes over the social network market [something of which newspapers could take note]).

Because they are receptacles of human data, more often than not carelessly volunteered, it is unsurprising that social network sites rely on advertising for a substantial portion of their revenue. Facebook, in fact, has just (re)launched an advertising service, Atlas, that will allow ads to track users across multiple platforms. Ultimately, this will be a test for consumers – whether they mind Facebook’s increasing infringements on privacy more than they love being able to share pictures of cats with their online friends. If the social network’s brief history is any indication, its consumer base will grow, privacy protection will shrink, and pictures of cats will win.

What I anticipate will happen to social media is sort of what happened to the search engine market – it will become an oligopolistic competition (if you can really call Bing vs. Google or Facebook vs. MySpace competition). It also seems likely that these social network giants will increasingly diversify, to secure other revenue streams. While Google builds self-driving (self-crashing?) cars, Facebook shops for apps, but it will likely experiment with expansion into some other area soon enough. 

Media Stock Competition

Each one of you will invest up to $10,000 on 1-3 publicly listed media companies. The goal is to make as much $ as possible.

You decision should be based on research as opposed to guesswork.

Create a portfolio on Yahoo Finance and monitor the performance of your picks over time.

You will present your portfolio a week from today. Assume you are an experienced market analyst. Your 12-15 minute presentation should include the following:

1. A general introduction to the media market you decide to invest in (e.g., newspapers, TV, or any traditional or new media industry), including major players, audience/user size, the state of the industry, recent development, future outlook, etc.

2. Which company would you recommend the most? Why?

3. Which company would you not recommend at all? Why?

4. Your portfolio (share price, number of shares, etc.)

At the end of semester we'll revisit your stock portfolio and determine the winner!

Recommended materials: Online tutorial on "Reading Financial Reports," "Making Investment Decisions," and many more are available on lynda.com (free access for all UT students) in case you are interested in learning more about finance and investment. But you should be able to complete the exercise without these.

Paywall

          To overcome financial crisis, newspaper companies established paid system, named as ‘the paywall.’ The revenue from advertising can be the main financial sources for the companies, but the main strategy of advertising is so clear; the more consumers read the newspaper or websites, the more chance to be exposed to the public. This means that ultimately, grasping audiences’ attention should be the main goal. Thus, even though newspaper companies earn financial sources from advertising, their main interests should be audiences.

            I want to talk about paywall. I mentioned about hierarchical ecology of the market a lot. I think most prestigious newspapers are using paywall system. This means that their financial status was not so good, so they needed to charge readers. However, such prestigious newspapers already got reputation, so people might be willing to pay for their services. The higher position on newspaper market is still impregnable.

Elephant in quicksand

An elephant is an incredible strong animal but in some situations its strength could be futile to survive in difficult environments.

 At the end of the XX Century, newspapers believed that by accumulating assets, growing stronger, they would create better condition for their future, and they would have a better change to survive in the difficult forthcoming digital environment.

Newspapers had learned a great deal about the implementation of technologies thanks to years of experience in the information business. Investing on technologies and growing stronger had always brought some compensation for them in long run.

They believed somehow new competitors would not have the financial muscle to survive in the information business as they continue to dominate properties and markets.

However, new competitors proved to be lighter and more resilient. Incomers were able to gather information around, structure their newsrooms in nontraditional ways, and distribute the content faster through different platforms and outlets using the power of the former audience.

Suddenly newspapers were caught in the middle of the economic crisis with a heavy structure without the capability to maneuver towards any specific direction, like an elephant stuck in quicksand.

Circle of Life

The circle of life is something that we have all become more aware of since the birth of Simba in 1994.  However, there are a lot of people that seem to be fighting the natural order of things when it comes to specific forms of journalism and/or their individual lifestyles and traditions. The fact is that change is the only constant in life and adaptation and evolution are the things that allow us to survive. Journalism is no different. The article from David Carr talks about the fact that print newspapers have been left to fend for themselves, kind of like a week and dying animal being left behind by the rest of the pack. It does seem like there has been a divergence from convergence in newsrooms across the country. What had been thought to be the future of newspapers has been left behind and is no longer being emphasized. However, as we've discussed the last few classes I really do feel as though journalism does have a future and a specific place in our society. It just comes down to how journalism is going to adapt to the technological and cultural changes that our society is experiencing.

In Soloski's article he talks about the ability we had to predict the bankruptcy filings of different newspapers in the mid-2000's. However, he does make an interesting claim that understanding why those situations even came up in the first place is based on a complex situation. Whenever you are dealing with motivations and/or decisions of individual people it is going to be difficult to account for everything. There are too many variables and contributing factors. One of the most intriguing adaptations that journalism producers are going to have to deal with is the potential of ownership transferring from corporations to investors who are less interested in quality work and more interested in immediate profits.

Do people care about the absence of newspapers?

Carr’s article surprised me because I thought the statement that newspapers are dying was a fallacy. However Carr pointed out that the revenue of print newspapers is declining, so newspaper companies tend to discard print newspapers and turn to digital sites.

My question here is that are digital sites really that lucrative? If they are, why aren’t paid online newspapers common these days? If digital sites are lucrative, why did the article we read last week indicate that the most revenue still comes from print newspapers rather than online newspapers? 

Carr pointed out that he doubts whether readers care about newspapers disappearing, and I am also asking myself this question. However, the important question is how can newspaper companies continue to make money from print newspapers? Two points of view are illustrated as follows.

First, consumers’ reading habits will determine the future of print newspapers.

If most revenue of newspapers comes from print newspapers, it means that there are a significant number of readers who are used to reading newspapers. However, even if readers’ habit change to reading online version, I cannot see why newspapers companies cannot charge for online newspapers as they charge for print newspapers.

Secondly, putting reading habits aside, according to inter-media agenda setting, newspapers are indispensable for television news. Newspaper companies are news providers, so the value of newspapers is not only for readers but for other media. Newspaper companies can charge television stations for using newspapers in the news. For example, television news stations read newspapers headlines to their audience in the morning.

 In conclusion, for newspaper companies, the revenue should not come from the “format” of the news but from the “content.”

And Goodwill Toward Newspaper Debt

This week’s readings explore the deeper economic context of the newspaper industry crisis, including operations, finances and debt. Soloski (2013), in particular, frames his study of the industry crisis around the non-liquid goodwill value of several large newspaper companies. Because they were acquired at high cost, their goodwill value was high. However, when the advertising revenue fell, the goodwill was written off to cover increasing debt, and consequently the book value of these companies fell.

Soloski argues that this contributed to the problem: when the book value dropped the companies came to be risky borrowers for the lending institutions keeping them afloat. Ultimately, this resulted in higher interest rates, which resulted in deeper financial problems, which resulted in even higher interest rates. And this resulted in bankruptcy filings. The Washington Post seemingly came up on top in this deal, which acquired the least goodwill and took on the least debt. That is, it was recently acquired by Jeff Brazos for $250mil, which is a relatively minor sum compared to some of the prices paid for the acquisitions Soloski cites.

Jack Shafer explores the goodwill liquidation in more detail in an article for Reuters. He points out that newspapers traditionally had a high goodwill-to-physical-assets ratio, suggesting that goodwill became a problem when it had to be written off because of losses that increased newspaper debt. What’s interesting is how emphatically he downplays the digital media” influence, tracing the brewing (now boiling) troubles to the early 20^th century, and emergent tech like radio. It seems like newspapers were always a fragile enterprise. In this context, he also nicely qualifies the Buffett purchases referenced in the Soloski piece. Buffett did not indiscriminately splurge on newspapers. He bought local ones that were not facing bankruptcy and were not likely to have many close substitutes. 

Week 4 Reflections

My initial reaction to Ghosh's article was "wow, the Internet has changed so little in 16 years."We continue to see the sharing of free, intrinsic assets between citizens of different digital communities. Ghosh makes a case that people can develop social capital and reputation through online engagement however that doesn't translate to real money.

I argue however there is evidence that money can be made in the knowledge economy. Within digital communities is a wealth of free knowledge about peoples' purchases, questions about products, consumption patterns, etc. Within the last 10 years the cost of producing hardware as a result of cheaper microchips, the adoption of rapid, small scale fabrication using laser cutters and 3-D printers has greatly reduced the cost of bringing a product to market.

Within the online film communities I frequent, people not only are presenting knowledge or tutorials, but they've begun developing their own products/solutions which lead to companies. Some examples include, Jag35, HondoGarage, or VideoCopilot (software example). These small entities can fabricate new ideas quickly and also bring the ideas of their clients to fruition. A lot of these companies aren't large scale manufacturers and in many cases already the necessary equipment to produce. This allows them to be more agile as they don't have to mass produce to recoup costs.

Additionally, companies like Google and Amazon offer affiliate programs that allow opinion leaders or people with digital reputations, the ability to make a small fee from their blog postings.

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While reading Gladwell, Ghosh, and Anderson, I couldn't help but think about the environmental effects of our transition to a digital media model. What is the environmental cost of having on-demand access to produce and consume media/content? We've replaced printing presses with data centers that require a lot of energy. People are also upgrading their televisions, tablets, and phones at a pretty rabid rate that creates a huge amount of waste, much of which gets shipped to the developing world. There isn't a lot of literature I could find about this, though I think it could be an interesting space for inquiry.