TV — Sarkozy’s dream of the French BBC

During his Guinness Book press conference last Wednesday – 600 journalists attending -, Nicolas Sarkozy outlined his new dream of a French BBC, by proposingto remove advertising on public television, and replacing this money by a new tax (cheer-up!)on private TV and radio, and also on internet providers and mobile phone carriers. Problem is figures don’t compute. Offsetting €835m of advertising losses will require much more than new taxes. Furthermore, the new taxes will inevitably pass buy ISP and telco onto the user.In other words, the French viewer will pay twice for its public TV : one through the basicTV tax each household ispaying (currently €116 per year) which account for 60% of FranceTelevision’s revenue and through its subscriptions to its mobile and internet service. Great idea, indeed. And as far has having a French BBC, it will require a complete reset in the mind of French politician ; they’ll have to give up their compulsive obsession to control public broadcasting. Plus it will cost a bundle : BBC receives each year €6.3bn, versus a total budget of €1.2bn for France Television.
> in the Financial Times a detailed story on the subject, explaining why the figures don’t add-up.
> and another story in the FT on governance issue at the Beeb

The Tectonic of Advertising

Every year we see the same ritual : forecast, charts, predictions about the growth of the advertising market. For those who like charts and figures, go directly to the table below.
For right-sided brains, let’s have a look at the underlying forces in play. They are quite interesting to watch, and they will have a direct impact on the bottom line…

The possibility of a recession in the United States.
They are not through with the repercussions of the subprime crisis yet. It will still reverberate in many components of the credit system : adjustable mortgages securities which will, well, adjust, obviously upward, putting another squeeze on the consumers ; the looming crisis of the revolving credit card that outstanding is growing an a panicking rate ; the auto loans inventory that might see its default rates going up sharply. Each of theses pieces pilling up on the other. This will create an immense evaporation of wealth, cascading to consumption, trust in the economy… and could affect all media — worldwide.
Not surprisingly, newspaper industry will take the first hit. For two reasons :
1. display ad carried by papers, are always the first to be cut when budget restrictions occur. Always. For a brand, it’s easy to do, without immediate effect on the sales ;
2. papers will suffer not only from the competition with others media, but from the antique way they sell ads : a kind of “mano-a-la-mano” negotiation, at the era of the yield management and pay-per-performance that has emerged with the internet. But for most of the publishing companies, this is the worst time to invest in the massive modernization of their advertising practices.Don’t worry folks, Google will take care of that by foraging right into to your business. Serious. Look at the news, there is not a month without the announcement of a deal between Google and a publishing outlet.
Data will be key. In a era of parsimonious spending, being able to target consumers will prove essential. Data acquisition capabilities and treatment to a grand scale will be in the hand of few. And in this business, size matters. Once again, search engines and related businesses are well positioned. They have the cash, the technology, and the corporate drive. In that respect, the European Union’s position about the acquisition of Double-Click by Google will be a landmark case.
Google might drop it if it doesn’t get EU clearance – and Microsoft could pick up the pieces, decisively reorienting its guns toward advertising. Otherwise, Google will fly further away from the pack.
One of the unintended consequences of this is the upcoming squeeze of the media buying agencies – the kind of middle-man the advertising food-chain has produced with little reason (the value-added of taking a cut for buying TV spots or ad space in papers for a food or car brand is highly questionable). They, of course, will keep their chunk of the big media spending (display ad, mostly), but a growing share of investment will be captured by the search-ads industry able to target precisely the user for medium-size brands and products.
New territories will emerge, like the social networks. Soon enough, they will hold most of the news absorbed by the young generation. Then, ad will flow in. Once again the usual intermediaries who have ruled the market for decades will suffer.
WPP’s tears.
In a conversation with the New Yorker media editor Ken Auletta, Mark Read, WPP’s director of strategy is complaining about the aggressiveness of Google : “[It] makes our people nervous. They tend to talk to our clients directly. Traditional media has been much more respectful of the client-agency relationship”, read : respectful of the regularity of our income. Such a naïveté is really touching.

Global Ad Spending Growth in %, by Region

                         2006   2007f      2008f
-------------------------------------------------
World                     6.5     6.0      6.8
USA                       4.9     2.8      3.7
Lat America              18.8    15.3     16.3
Western Europe            4.8     4.8      4.3
Emerging Europe          22.5    20.2     17.8
Asia Pac (all)            6.0     7.0     10.0
North Asia               12.3    13.0     18.7
ASEAN                     7.9     9.0      9.4
MidEast/Africa           14.8    14.0     13.1
-------------------------------------------------

Source : GroupM “This year, next year” report, 2007

> see the story in The New Yorker
on how Google might eat the lunch of the advertising industry, with unconvincing denials by Larry and Sergey (G founders).
> in the Financial Times, on how the subprime is impacting newspapers ; figures shows a complete crash on classified for companies like Tribune Co, Gannett, McClatchy.
> and at McGraw-Hill, the big US magazine publisher, a massive 600 jobs cut (10% of the staff) is linked directly to the effects of the subprime crisis.
Story in Folio Magazine

Often, this is about scrapping

Many websties owe their success to their ability to suck data from others, combine and reorganize them in a more efficient way. This leads to many questions. Some are legal – to which extent can you built a business on other’s material ? – and economical – what can be the value of such a venture ? This article explores the issue by taking interesting examples.
> story in Wired

Free press — The success of New York free papers

amNewYork and the local edition of Metro have found their niche in the Big Apple.
The first one is profitable, with a revenue estimated to $18m-$20m and undisclosed profit. amNY is helped by its shareholder, Tribune Inc., which allows the free paper to reprint stories from Newsday and to benefit from its printing plan. Amazingly enough, the revenue is half the one generated by each of the two big free papers in Paris, 20 Minutes and Metro. Metro NY is not yet profitable, and its revenue is even smaller than amNY’s, at $14m. Both survive in the context of a rather depressed New York daily press.
> story in Crain’s

Google — Indexing the physical world

The US Patent Office is a gold mine for journalists and industry watchers. From sketches on a possible new Macintosh (the first one being a small notebook sliding inside a vertical docking station) to hints on future Google plans, there is always something to eat. The website Search Engine Land has found three new patents filed by Google engineers. They have to do with finding and indexing new layers of search : the text in images (for instance the words visible in any urban area). The patents cover recognition, enhancements, and extraction of this information.
> see story on Search Engine Land site
> directly connected to the patents, have a look at the fantastic Google Street View application available on selected US neigborhood. Go here to see the demo (don’t pay attention to the host who looks like the perfect moron).

When non-profit empowers good journalism

Later this month a new website, based in New York, and devoted to investigative journalism will hit the net. It bears something special : ProPublica will be the first news organization entirely and generously funded by a private foundation.
Three things will make this experience interesting to watch.
- First is the scope of the venture.
Even though ProPublica is not unique of its kind, there will be no parallel in terms of journalistic ways and means compared to other non- profit media outlet (see links below). The site will be funded with $10m each year. It will be sufficient to accommodate no less than 24 reporters, plus a dozen of various staffers. Such team, entirely devoted to in-depth reporting, will be among the biggest in its kind. A 2005 survey by Arizona State University of the 100 largest U.S. daily newspapers showed that 37% had no full-time investigative reporters, a majority had two or fewer such reporters, and only 10% had four or more. By that metric, ProPublica will be have a considerable firepower.
- Second is the journalistic ambition.
ProPublica will be lead by Paul Steiger, former editor of the Wall Street Journal during the last sixteen years. The guy knows quite a bit about the genre. Under his editorship, the Journal won 16 Pulitzer Prizes. According to Steiger, the site will target any “abuses of power by anyone with power: government, business, unions, universities, school systems, doctors, hospitals, lawyers, courts, nonprofits, media”. Well. “Vaste programme” would have said the General de Gaulle.
- The third item to watch will be the media reverberation the site will get.
In theory, ProPublica will publish on its own site, but it will also make its material available to any publication for free, on the basis of its audience, mostly. Once its reporters will nail something interesting, Steiger will negotiate with several news organizations – print, but also TV or radio – to publish it. In some case, it will hand over unfinished material, if it fits better the selected distributor. Several issue remains fuzzy. If the story looks appealing, a certain competition could ensue ; there will also be some risk to have good stuff stolen, borrowed, or stealthy recuperated. Somewhat tricky. (Imagine such setup in some Latin countries like France where the journalistic standards are rather loose ! ).
The real assessment of ProPublica’s performance will be its ability to find good stories and to have them published or broadcasted with a maximum resonance. Some news outlets will jump on the opportunity, others will be reluctant. Even the New York Times does not rule out using Steiger’s material (such revenge will be tempting for the Times). Some precautions stated by its editor Bill Keller : “We’ll always have a preference for work we can vouch for ourselves.” (It better be, with an editorial staff of 1400!)
It will also be measured on the long run by the difference this rich, highly focused, and professionally managed news organization will be able to make in terms of journalistic output. We’ll see to which extent the intrinsic independence provided by a philanthropic funding could be the ultimate competitive edge to unearth great stuff.
Who are the funding fathers (so-to-speak) by the way ? Herbert Sandler founded a saving and loan institution in 1963, in Oakland, California. The business prospered gently and was later sold to the big financial service firm Wachovia for a nice $26bn — that left an cool $2.4bn for the Sandler family. In that context, even a multi-year commitment of $10m is pocket change. (Another set of non profit organizations will also contribute for lesser amounts).
One thing remains hard to admit.
In 2008, one of the most respected editor in the United States felt that the only refuge to perform the kind of journalism he (and us) like was a private foundation. Under normal circumstances, someone with the stature of Paul Steiger would have been able to raise money through classic channels, hire good people and be able to find a decent business model. This no longer apply to investigative journalism, which should remain – at least in theory – one of the safety net of modern democracies.
> see a presentation of ProPublica
> two philanthropy funded news sites : the Center for Investigative reporting and the Pulizter Center
> Listen to Paul Steiger’s description of Pro Publica on National Public Radio
> Paul Steiger, reflects on its years at the Wall Street Journal and exposes his views on the evolution or the job, here in the WSJ .
> In his WSJ piece, Paul Steiger mentioned the possibility of merger between Bloomberg and the New York Times after the election. The verdict on analysts : it doesn’t have much of a “high probability. But at some point, all these newspaper companies will go private or be acquired. It’s just a matter of when.” story in Condé Nast Portfolio

Predictions — 14 things to expect for 2008

What to expect next year in the media & tech sector and other things…

1. Social Network will divide themselves like organic cells when they mature.
Tell me : who is interested in being part of a 100+million social network ? Really. Who want to confront his address book to Facebook and finding a horde of friends of friends who wants to be yours ? In 2008, segmentation will be the keyword for social network. At some point, it will re-create social classes, castes, etc.

2. News, information, will find new channels of distribution.
Like the social networks for instance. That will contribute to their value by increasing the “qualification” of a large part of the public, as the advertising world puts it. We (journalists) will be red quite often of Facebook and MySpace. The problem will be to cash-on this audience.

3. Mobile phone applications will thrive.
Boosted by the iPhone and the Android Platform (see Monday Note#14), 2008 will see the explosion or reliable applications that will change our use of the cellphone. The divide will appear between the basic applications (talk and sms) and broadband uses like in western countries. Research in Motion’s Blackberry will remain ahead of the pack for a pure productivity oriented uses. Their software is great, and it is reliable as a Land Rover (but a Land has some look, I’m just begging them : please hire a good designer, yours look like refugees of the soviet era ; on the same stroke I’m begging Steve Jobs : buy this company, even at a market cap at $ 66bn and a P/E at 63, it’s a bargain).

4. Rupert Murdoch will reinvent the Wall Street Journal.
In the past, he has shown he is not he kind of passive investor. He’s driven, and he has an agenda. Part of it is to make the Journal more accessible. Right or wrong, WSJ.com will be free. The paper will become more tabloidish in the pursuit of news. White collar law-breaker, beware, you’ll be exposed.

5. Business news will become more mainstream.
Thanks to new players, learning lessons from the large audience media, thanks to the convergence between pop culture and finance culture, thanks to the 30′s generation for which economy (but not greed) is key.

6. Blog will decline.
Too much uninterested stuff, too much sterile prattling. A Darwinian selection will operate between blogs written by pros or half-pros, and the rest of the “noise”.

7. Apple will come up with new new-things.
Definitely an Iphone2, and some kind of ultra-portable notebook. How it will look like ? Well, there is more than 200 new patents in the iPhone to capitalize on. Let’s take a guess then : a expanded touch sensitive screen that will replace the mouse by the finger, with an iPhone like keyboard ; a 3G standard connection comparable to the Amazon Kindle for background download of numerous new stuff, flash memory allowing 8 hours battery life and no boot-up delay. All in a 20 x 15 x 1cm sleek aluminum and unscratchable plastic box that will synchronize with my main Mac once its just close to it, without hand, Ma !

8. The green frenzy will catch on the computer industry. In 2008, it will cost more in electricity to operate servers than to buy them. Green, opportunistic, ayatollahs won’t ignore this. Pressure will intensify, business opportunities as well.

9. Google will continue its revolution of the computer industry.
With its $2bn a year investment in datacenters, it will own the “cloud”, i.e. the hundreds of thousands of computers we are taping into, on a day to day basis. No one will be able to match
this power.

10. Corollary, Microsoft will take the role of the major opponent to Google.
Funnily enough, the memo it produced to counter the acquisition of DoubleClick, on the grounds of…antitrust provisions say a lot on its fair to fall behind.

11. Advertising will look for (and find) new sneaky ways, and will invent new metrics.
One of them in the product placement. In a country like France, thanks to the poor heath of the press, it has been a bonanza. The best (and worst) is yet to come. Indirect, stealthy ads will be quantified, measured, yielded, and monetized. Ethics will dilute.

12. Subprime tremors will still be heard.
2008 will be the year for the so-called sovereign funds, helping banks, investment outlets, avoiding bankruptcies. They have their agendas, their flaws (see Monday Note #15). They’ll be everywhere.

13. Another bubble is likely.
Giant investment funds (pension funds, hedge funds, endowments funds, sovereign funds) are under tremendous pressure to invest. They are inducing distortion in economics, and inflating prices in the tech area. Wiser, due-diligence based venture funds will have the last world — after all, they survived many crisis.

14. Barack Hussein Obama will be elected the 44th President of the
United Sates of America on November 4, 2008. Why ? Because he’s smart, he’s new, he’s clean, he’s authentic and because he is, by any measure, the antidote to the Bush era. And he will be 47 at the time of the election. And because Sept 11th legitimate post-traumatic disorder will be over. (Bear with me : this is the riskiest assumption of this note!)

Further readings about theses predictions :
> About the Cloud Computing and the advance of Google in that field, see this story in Business Week.
> About the upcoming clash between Google and Microsoft, read this features in the New York Times
> About Google acquisition of DoubleClick, see how Microsoft will unleash his lawyer to fight the deal. Read in Bits, the tech blog of the New York Times. And Europe is delaying the agreement of Doubleclick deal, story in the NY Times
> About the upcoming bubble. The view of Tom Perkins, founder of the most successful venture capital firm in the world, Kleiner Perkins Caufield & Byers. See this chat with Financial Times readers.
> And about disruptive vision : Andy Grove’s two emails. The cofounder of Intel remains an active thinker . This autumn, he wrote two emails. One to Jeff Immelt, CEO of General Electric, the other to Lee Scott, CEO of Wal-Mart. Grove urged the first one to build an electric car, and the second to rework the US healthcare system. Grove and his Stanford pal call it cross-boundary disruption, XBD for short. Refreshing thoughts from a bright mind.
> story in Condé Nast Portfolio

Murdoch is at the office

Last Thursday, Rupert Murdoch officially became the new owner of the Wall Street Journal. But the remaking of the paper had begun way before. From his new office set up in the World Financial Center where the WSJ is headquartered, he has worked on staff as well as content issues.

> story in the New York Times

The acquisition of Dow Jones won’t be a quick return-on-investment operation.

And the pressure on DJ execs will be hard : NewsCorp is producing a 15% margin on sales, while Dow Jones had a an operating margin of 8% last year, excluding restructuring costs.

>
story in Bloomberg