video content economics

Content is glamorous. Stars, drama, action, romance, suspense. But if you want to understand how Internet video distribution will evolve, you’ve gotta get your nose into dull facts and the dismal science.

Video content has little relevance to aggregate patterns of video consumption. Growth in discretionary (leisure) time is closely correlated with time spent watching television. From 1925 to 1995 in the U.S., discretionary time increased by 15 hours per week. Over the same period, television watching time increased from 0 to 16 hours per week.[1] Television viewing time has expanded to fill growth in leisure time.

Television watching generates common patterns of human behavior irrespective of video content choices. Compare the US to the USSR in the mid-1980s:

In the mid-1980s television programming and broadcasting in the USSR was state-owned, state-controlled, and highly centralized. Households had little opportunity to choose between programs: 68% of households received two or fewer program channels. In contrast, television in the US in the mid-1980s was privately owned and commercially driven, and television offered viewers many programming choices; 88% of households received five or more over-the-air television signals, while cable systems, with median capacity of over 30 channels, passed 76% of households.

Despite these and other sharp contrasts between the US and the USSR, the television set, the way television was watched, and time spent watching television were remarkably similar. In both the US and the USSR the average viewer sat on a couch and watched a rectangular colored screen about two meters away. In the US in 1985 television viewing times for employed men and women were 14.6 and 12.1 hours per week respectively. In Pskov, USSR in 1986, television viewing times for employed men and women were 14.5 and 10.7 hours per week respectively.[2]

The sensory form of video, much more than its content, shapes the physical characteristics of viewing and the amount of viewing time.

Channel repertoire data also indicate common behavior across different content circumstances. In Beijing, China, in 2002, households received on average 37 channels of television. Viewers watched for more than ten minutes per week on average 13.5 channels. Viewers similarly watched per day (among days that included television viewing) on average 4.5 channels.[3] For comparison, in the U.S. in 2005, households received on average 96.4 channels, and watched on average 15.4 channels per week.[4] In Mexico in 2000, viewers watched per day (among days that included television viewing) on average 4.4 channels. Whether in China, the U.S., or Mexico, viewers behave similarly in the extent to which they switch channels on the television.

Video content probably has little relevance to substitution between traditional television viewing time and viewing video available through computer screens. Television sets are ubiquitous and part of the architecture of many homes (the “TV room”). Sitting inertly, killing time in front of the television, is a deeply ingrained habit for many adults. More video choices or better quality video is unlikely to greatly affect video watching. Talk of a schism between content creation and content aggregation and distribution seems to me to miss the main point. Video content creators compete among themselves for viewers with common behavioral routines. Common behavioral routines themselves are out of the scope of persons’ boundedly rational behavioral optimization.

Changing common behavioral routines is more an issue of social change than product design. Joost describes itself thus:

Joost™ is a new way of watching TV on the internet, which uses new and established technologies to provide the best of both the internet and TV worlds. We’re in the process of making it as TV-like as we can, with programmes, channels and adverts. You can also see some things that we think will enhance the TV experience: searching for programmes and channels, for example, as well as social features like chat.

To the extent Joost is like TV, how will it motivate persons to get off the couch in front of the television? Is searching for programs and channels valued experience? Recently the web has been abuzz with Joost’s deal with Viacom. Why will users watch Viacom’s content on Joost rather than on television?

A vague report on recent research findings, which I cannot track to the source, indicates that user-generated content is “more popular” on YouTube than professionally funded content. But what makes YouTube different from television is users generating content, not the user-generated content. What makes YouTube different is users sharing content, not the content that users share. It’s about what people are doing, not what specifically they are watching.

Internet video provides a much better platform than television for creating advertising value through serving dynamic, relevant ads. As Martin Geddes insightfully observed on the value of television content:

So whilst the remote lets you adapt the primary content to your personal tastes, you’re stuck with whatever irrelevant junk they choose to insert in the ad breaks. So there’s a large and growing opportunity to fix the broken ad business. And that’s why TiVo is screwed. They fixed the wrong problem. The issue isn’t getting people to see the right programs. It’s getting them to see the right ads. They screwed up so big, they even gave you a feature to skip the ads. On their epitaph is will say “TiVo. Forgot where the money came from”.

Inferior content with high-value advertising will make superior content with low-value advertising not worth producing.

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[1] See Galbi, Douglas (2001), “Some Economics of Personal Activity and Implications for the Digital Economy,” Section I.

[2] Ibid.

[3] Yuan, Elaine J. and James G. Webster (2006), “Channel Repertoires: Using Peoplemeter Data in Beijing,” Journal of Broadcasting and Electronic Media 50 (3) p. 532.

[4] Report based on Nielsen Media Reporting data.

organizational diversity in information infrastructure

Providing network infrastructure need not be limited to a choice between the model of public roads and the model of selling soap. The provision of public roads depends on market transactions for a variety of goods (construction worker services, trucks, asphalt, etc). Selling soap depends on a variety of public services (money supply provision, law enforcement, public right-of-ways, etc.). Whether in India, Ireland, or Silicon Valley, initiatives to provide network infrastructure are making interconnections between different organizational forms more complex. Revenue models are expanding from taxes, subscription, and advertising to include a variety of public and private sponsorships, in-kind contributions, and special benefits for anchor users.

Impurity is a traditional human concern. In some circumstances, another name for public-private partnership is bribery and corruption. Failed and wasteful network infrastructure projects that involve governmental entities undoubtedly exist. For-profit network providers, who cannot fail without serious public effects, have made dire business mistakes and squandered huge amounts of money. Government entities’ judgments about the services that users value are not likely to be better than those that for-profit network providers have made.

Table 1
Libraries Founded in the American
Colonies and U.S. Prior to 1876
Organization Founding Library Num. of
Libraries		 % of
Total
non-commercial civic library
organizations (social libraries)		 3296 33%
non-commercial civic non-library org.
(churches, medical societies, etc.)		 2327 23%
mixed form service organizations
(e.g. colleges, hospitals, asylums)		 1081 11%
governmental and quasi-governmental
organizations (public libraries)		 2423 24%
commercial organizations
(inc. commercial circulating libraries)		 663 7%
misc., other hybrid,
and unknown organizations		 242 2%
Source: McMullen (2000), p. 59

The history of libraries in the U.S. suggests that organizational diversity can have enduring value in information infrastructure. In the American colonies and the United States prior to 1876, most organizations that founded libraries were neither government bodies nor commercial organizations. A wide variety of organizations established libraries (see Table 1). The most commonly created form of library was a social library:

a library owned by an association formed to establish and operate a library intended for its members’ use. Usually, the members subscribed for stock in order to purchase the initial collection, which was general in subject matter. Then they were assessed a smaller sum (a “tax”) each year to keep up the collection.[1]

Public libraries, meaning libraries that government bodies owned and made open to all or most citizens without a specific-purpose charge, began to grow only from the mid nineteenth-century. As late as 1900, about as many social libraries existed in the U.S. as did public libraries (see Table 2).

Table 2
Number of Functioning
Social and Public Libraries
Type Year
1850 1875 1900
social libraries 508 1154 944
public libraries 51 404 963
Source: McMullen (1985) p. 215.

Public libraries had different characteristics than social libraries. Smaller populations and more recently settled areas favored social libraries, while larger populations in cities with a longer history favored public libraries. Social libraries had typical lifespans about thirty-five years, with considerable variance.[2] Public libraries tended to be more permanent organizations that endured in organizational form through jurisdictional consolidations. Public libraries had a more secure base of funding and grew in size relatively rapidly. Across the last twenty-five years of the nineteenth century, public libraries came to predominate among the largest libraries (see Table 3). These historical facts are consistent with general comparative organizational characteristics: compared to social organizations, government organizations are more difficult to establish and require more developed government administrative capabilities, government organizations are more enduring, and government organizations are more favorable for organizational growth. Shifts in library organizational forms were in part a response to changing demographic and political circumstances.

Table 3
Top-1% Libraries By Size:
Social and Public Libraries
Type Year
1850 1875 1900
Number of Top-1% Libraries
social libraries 4 10 4
public libraries 0 7 14
Books in Top-1% Libraries (in 1000s)
social libraries 162 783 844
public libraries 0 716 3,229
Source: McMullen (1985) p. 215.

Different organizational forms, however, interacted significantly. Social libraries and public libraries coexisted as important forms of library organization for more than half a century. Through at least 1875 and possibly into the beginning of the twentieth century, social libraries were widely regarded as a valuable form of library organization.[3] Some public libraries evolved from the buildings and collections that social libraries established. In the 1930s, more than a sixth of all “public” libraries in cities with population 30,000 or greater were libraries for which “the library society and the town government shared control in a manner that makes it difficult to know how power was divided between the two bodies.”[4]

selling books in public library

In a long-run international historical perspective, the U.S. has had a relatively highly developed information economy. New organizational forms for book sharing, network infrastructure, and telephone service are not just necessary entrepreneurial experiments in rapidly changing technological circumstances. Diversity in the organizational forms of its information infrastructure has been an enduring characteristic of the U.S. information economy. Organizational diversity may be a key to growth of the information economy.

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Read more:

Notes:

[1] From “Definition of Types,” American Libraries Before 1876, Davies Project.

[2] McMullen (1985) p. 214.

[3] Id. pp. 218-20.

[4] Id. p. 223.

References:

McMullen, Haynes (1985), “The Very Slow Decline of the American Social Library,” Library Quarterly, vol. 55, no. 2, pp. 207-225.

McMullen, Haynes (2000), American Libraries Before 1876 (Westport, Conn.: Greenwood Press).

science in action: the trireme Olympias

A great way to study the ancient Greek trireme is to build one. Frank Welsh, a trireme enthusiast and funder, John Morrison, an ancient historian, and John Coates, a former British naval architect, established in 1982 the Trireme Trust with the following objectives:

  1. To resolve a long-standing controversy about the design of this historically important type of ship
  2. To discover its true performance at sea
  3. To enable the realities of sea power at that time to be understood
  4. To draw attention to the maritime and technical skills which were the keys to the cultural achievements and lasting influence of ancient Athens.

The Trireme Trust and Greek shipbuilders worked together to build an ancient Greek trireme. In 1987, the full-scale, fully functionally trireme Olympias was ready to be commissioned into the Greek navy and taken out for its first sea trials around the island of Poros.

trireme Olympias under sail

I was part of the crew that rowed the Olympias in its first sea trial in the summer of 1987. The crew was collected mainly from British universities. We stayed for a couple of weeks in the Greek naval officers school on Poros. Being on the crew of an ancient Greek warship undoubtedly included great hardships and suffering. But by 1987, that job made for a very good time.

The trireme has 170 rowers arranged in three tiers: thranites (top tier), zygians (middle), and thalamians (bottom). I was a thalamian. Because the seats were fixed wooden benches, the effort of rowing was shifted towards the arms and back compared to boats with slides (rolling seats). From where I sat I couldn’t see the water nor feel any breezes coming across the boat. The rowing section leaders and master would shout out instructions, and I could see and feel the rhythm of rowers both in front of me and above me.

crew rowing trireme Olympias -- first sea trial

Being down in the boat has advantages and disadvantages. It was hot. I drank a lot of water and sweated it out. Arranging fresh water supplies must have been a major challenge. Being a thalamian wouldn’t be a good position for being rammed by another trireme. But it would be a great position in winter, or in battle with projectiles flying.

The boat itself is an engineering marvel. John Coates, the architect, would climb around the boat, fixing various broken parts, and talking with rowers. You can find more pictures of the boat here. That the Greeks could build hundreds of these boats 2500 years ago is amazing. That the Greeks and the Brits could together rebuild one based on scraps of archaeological and textual evidence is astonishing. I remember Mr. Coates saying that the design constraints implied much of the design.

bow view of trireme Olympias under sail

We rowed the boat through a variety of test maneuvers. One was was to accelerate to full speed and hold that speed for a short period. Another was to reverse direction quickly and turn sharply. Given that no one had any experience, and given the difficulties of coordinating 170 rowers, the boat performed amazingly well.

A recent study has analyzed the power output of trireme crews. The study found:

rowers of ancient Athens – around 500BC – would had to have been highly elite athletes, even by modern day standards.

Says Dr Rossiter: “Ancient Athens had up to 200 triremes at any one time, and with 170 rowers in each ship, the rowers were clearly not a small elite. Yet this large group, it seems, would match up well with the best of modern athletes. Either ancient Athenians had a more efficient way of rowing the trireme or they would have to be an extremely fit group. Our data raise the interesting notion that these ancient athletes were genetically better adapted to endurance exercise than we are today.”[1]

This is an interesting finding. The historical record seems diverse enough and clear enough to rule out performance exaggeration or misreporting, an issue that always should be considered carefully. Perhaps some subtle difference in ship design made a huge difference in performance. That seems highly unlikely.

Were the ancient Greeks genetically better adapted to endurance exercise than persons around the world today? Note that “persons around the world” is the relevant comparator, because the market for athletic performance today is globalized. No negative selection for endurance seems plausible for all human beings around the globe over the past 2500 years. Genetic differences, it seems to me, isn’t a plausible explanation.

Trireme crew performance is puzzling. I personally believe in the potential of modern athletes.

Update: The trireme crew’s t-shirt shows the different oar shapes for the rowers at different levels in the boat.

Update 2: Freely available on the web: John Morrison, “British sea trials of the reconstructed trireme, 1–15 August 1987,” Antiquity 61 (1987): 455-9.

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[1] Quote from Leeds University Press Release. These findings are also reported in Stephanie Pain, “When men were gods,” New Scientist, Feb. 10, 2007, pp. 46-7. That article provides a few additional details. It notes that ancient writers consistently indicate that triremes crews could row at 13-15 kilometers per hour for 16 hours or long. Modern measurements indicate that 30% of the crew’s power output is lost. But even with 100% power efficiency, the crew could not achieve ancient performance. The New Scientist article is not scholarly documentation of the study. Such documentation apparently is not yet available.

new frontiers in advertising business models

Microsoft’s Steve Ballmer, recently honored as Bureaucrat of the Month, has identified advertising-funded business models as Microsoft’s top concern:

Today, the big phenomenon that we can embrace – the big fat thing for us to think about, embrace, endorse, compete with – is what does ad-funding mean? Whether it is for search, or whether it is for business-services, or whether it’s for other online services, what does that funding mean as a competitive business model and do we embrace it as is? Do we modify it? Do we just compete with it, with more of a transaction or subscription model? But how we deal with that is a Job One issue.

Advertising spending as a share of GDP has been relatively constant across large changes in media. This past constancy provides useful background for thinking about innovations in advertising business models.

Google targets textual ads to moment-specific user desires indicated by user search queries. Demographic and interest segmentation and targeting has long been a central concern in the advertising business. Targeting advertising based on search queries effectively segments individual persons. Ads depend on what you want right now.

Less noticed has been innovation in another direction of advertising. Brand advertising typically has depended on expensive, mass-media ad campaigns. Online marketing campaigns, in contrast, depend on more diffuse patterns of example and influence. New sorts of online advertising relationships, such as pay per post, sponsorship of bloggers, or endorsements by bloggers, require working out norms of integrity, respect for personal relationships, and fair disclosure. But the challenge of working out online advertising norms shouldn’t be exaggerated. Logo-branded clothing typical requires users to pay extra to advertise fashions in their daily interactions with others. That’s not even controversial. Ethical online brand advertising is likely to be a major advertising growth area.

Consider, for example, Life of a Farm blog. As Jonathon Trenn notes, the blog offers the authentic voice of Joel Combs, a small farmer, describing details of his life. Joel uses a Mahindra tractor. Mahindra Tractors clearly sponsors the blog, which is hosted on a Mahindra domain and includes a Mahindra logo on the right. Mahindra Tractors’ connection with Joel through this blog speaks to how they understand who they are as a company and contributes to the meaning of their brand. At the same time, each post seems to include at least one link to Mahindra Tractors. Those links don’t detract at all from the personal quality of the posts. But it seems to me that the brand value of the Life of a Farm blog is not in its explicit links, but in bringing Mahindra’s brand into the real life of a particular person.

This is the sort of guy who uses a Mahindra tractor:

Unfortunately my Chevy truck is on the fritz. The stupid thing will just die on you for no reason. It may go a mile or 30 miles then usually starts right back. I suspect it is the PMD (Pump Mounted Driver) on the injector pump. $389 new, wow that hurts! I’m seriously considering changing brands when I get it fixed. I have always been a GM guy, but I don’t think I will ever own another GM diesel truck. That kind of puts me in a bind though because I absolutely worship Trans Ams and I can’t see driving a Ford or Dodge truck and a completely opposite brand car. I’m sure Mustangs are fun to drive like TAs, but I like the T-tops and 6 speed tranny in the TA. Not to mention that thing still runs great at 187,000 miles.

This guy also loves a Mahindra tractor. That’s an impressive endorsement of Mahindra Tractors.