Saturday, June 30, 2012

In The Age of Social Media, Quality Prevails Over Marketing

In the pre-Internet entertainment business, access to the public was everything.  There were a handful of gatekeepers who decided what songs people would hear and which movies they would see.  If you couldn't get your project through one of those doors, it was unlikely anyone beyond your friends and family would ever experience your art.

Today, not only is it possible to get your music and films in front of millions of people, but the public is actually determining which artistic endeavors succeed.  As a result, quality is beginning to prevail over marketing clout.

It used to be that a mass marketing campaign could keep a bad film in theaters for weeks, and millions of uninformed viewers would continue to show up.  Critics were mostly perceived as arrogant semi-insiders and no one really paid much attention to their opinions, if they read them at all. Even if Roger Ebert hated a movie, you would probably still go see it if the trailer looked good.  (In fact, you might go out of your way to see it if you generally disagreed with Roger Ebert's opinions.)

Today, there is instant feedback from thousands - even millions - of people within hours of a film's release.  These are people like you, including your friends.  Their opinions are freely given and presumably unbiased.  They have inherent credibility and if they don't like the film, you probably won't either.  As a result, the public response can now kill a film within hours, so film makers are more pressed than ever to make films that people will actually like.

It's not that film makers never cared about quality before, but "good enough" used to be a workable standard.  Now, more often than not, it actually has to be "good" in order to be successful.  And "good" is determined by the actual audience rather than a handful of elite insiders.

Does this mean that marketing is no longer important?  Hardly.  It is more important than ever.  In an environment where the choices are essentially infinite, good marketing is the only way to rise above the din.  But once your marketing gets the attention of an audience, your product better deliver or it will a die a swift commercial death.

THX has a famous slogan, "The Audience Is Listening."  Well now the audience isn't only listening; they're talking too.  To each other.  And if they decide they don't like your movie, everyone they know is going to find out really fast.

I think that's a good thing.  It makes all of us in the industry pay more attention to what our audience really wants, and that's good business.

Friday, June 15, 2012

Antitrust and the Cable Industry

I was recently contacted for an article for TechNewsWorld on the Justice Department's apparent antitrust investigation of the cable industry.  Below is the full text of the comments I sent to the reporter,  Erika Morphy.

It's a really good article and an interesting issue.  Take a couple minutes and give it a read.

My comments to Erika on the DOJ investigation:

This arises primarily as a result of the dual role played by cable companies in many households.  Not only does the cable company provide access to televised programming, but in many households, the cable company also provides the high-speed internet service.  In fact, I believe many cable companies provide financial incentives to encourage consumers to “bundle” those services together.  Technically, the programming and the Internet access are carried over separate networks within the cable company, but both services come into the home over the same cable and are billed on the same bill.

 In general, the U.S. legal system attempts to protect consumers from price-gouging by creating competitive markets (as opposed to imposing price controls).  The basic goal of antitrust law is to assure that there is legitimate business competition in every market which creates choices for consumers and thus (theoretically) keeps prices in check as a result of economic pressure (i.e., competing companies must keep their prices competitive or consumers will choose a cheaper alternative).  The Department of Justice is charged with the task of enforcing federal antitrust statutes and maintaining these competitive market environments.  This means that they investigate situations where competition is being artificially suppressed by a company’s ability to dominate a particular market sector.

In the case of the cable companies, consumers are increasingly seeing Internet-based streaming as an alternative to cable and television programming.  Consumers use Netflix, Hulu, Amazon and other streaming services as a means of viewing films and previously-aired television programs.  Presumably, this takes viewers away from the cable programming, including the cable companies’ own pay-per-view services and premium channels.

At the same time that this is occurring, cable companies are seeing massive increases in the amount of data that their Internet networks are being required to carry (with the increased use of the streaming services being a substantial part of this increased data traffic).  This results in increased costs for the cable company as it must provide additional bandwidth in order to maintain acceptable levels of performance for its customers.  In order to control this burden and/or shift the cost of this increased traffic to the responsible parties, cable companies have implemented caps on the amount of Internet data that consumers can transfer in any given month.  If a household goes over this amount, then there is either an extra charge or the speed of service to that household is reduced for the remainder of that period.  This reduced level of service causes delays in video streaming, making it difficult or impossible to watch programming from any of the Internet based providers (Netflix, Hulu, etc.). 

It is important to note that these data caps do not apply to the cable company’s own private network which carries the cable programming, cable company pay-per-view and other proprietary programming from which the cable company makes additional revenue (e.g., Comcast’s Xfinity).  Thus, the data caps on the Internet side of the cable companies’ business could have the effect of making the cable companies’ own programming a more attractive alternative, or in some cases, perhaps even the only alternative.  If consumers know that watching too much Netflix or Hulu could cause them to lose their Internet service at some point in the month, they will naturally limit their use of those services.  This makes those services less attractive and/or valuable to the consumers, and it pushes the consumers toward the cable companies’ own programming as the only practical alternative.  While the cable companies, of course, claim that there is no anti-competitive intent in their actions, there would appear to be a significant chance of an anti-competitive effect.  If that is the case, then the policy of capping Internet data capacity could very well be a violation of federal antitrust law. 

This can be summed up as cable companies using their unilateral control of digital data access in many households to create circumstances which give the cable companies’ own programming an unfair technical advantage over Internet-based competitors.  This technical advantage is being converted to an economic advantage as it creates a disincentive for consumers to use the alternative programming sources.  It also could allow cable companies to charge higher prices and still maintain their market share.  That is bad for consumers, who generally rely on market factors to assure that they are paying the best prices for their goods and services.