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The Media Equation: TV Foresees Its Future. Netflix Is There.

July 21, 2013 by Leave a Comment

But Netflix already has.

Netflix knows a little about transformation. It’s worth remembering that it managed to go from the largest user of the Postal Service to the largest source of download traffic on the Web in the span of months, not years. After a big stumble on pricing in 2011, Netflix recovered and then some, using its expertise in technology and algorithms to accrue over 36 million users worldwide, a number that will probably grow when it announces its earnings on Monday. Its stock has already risen more than 200 percent in the last year.

But few would have guessed that Netflix’s software expertise would extend to entertainment produced by top-flight actors, directors and writers. Beginning this year, Netflix streamed four original series — “House of Cards,” “Hemlock Grove,” “Arrested Development” and “Orange Is the New Black.” The shows earned generally good notices, kicked up a great deal of chatter, and, drum roll here, were nominated for 14 Emmys. It was the first time an Internet-only service earned a seat at the big-boy table in television.

The Emmys were the most prominent marker of change, but hardly the only one, in a week full of headlines about what TV is becoming. It’s not their first foray, but if Apple and Google move further into the television space, they are sure to collide with not only traditional players, but Netflix, Amazon, Sony and Intel. And Aereo, which so far is a small but persistent player backed by Barry Diller, won another court victory for its plan to totally upend broadcast networks, by streaming their content without compensating them.

Meanwhile, what were the traditional television players up to? Squabbling yet again over retransmission fees, with a standoff between CBS and Time Warner Cable that could set off a blackout, driving audiences to other ways of viewing. The only constant was steady price hikes on cable bills.

The future of television — a place where cable is not the only answer for average viewers — just drew a little closer.

Netflix has earned its place in that future. It won some victories on the programming side by financing creators and staying out of their hair, an approach invented and perfected by HBO. Given that HBO pulled in 108 Emmy nominations last week, Netflix has a long way to go. But David Bianculli, a professor at Rowan University in New Jersey who blogs at TV Worth Watching, suggests another view.

“It took HBO 25 years to get its first Emmy nomination; it took Netflix six months,” he said. In that sense, Netflix is more like Pixar than Hulu, showing that a Silicon Valley company could produce creative, successful programming.

Ted Sarandos, Netflix’s chief content officer, told The New York Times last week that the Emmy nominations solidified the idea that “television is television, no matter what pipe brings it to the screen.”

He’s right. Television used to come over the air or through the coaxial cable. Now it seems to come from everywhere on all kinds of devices.

Both Google and Apple continue to hover around the honey pot of television. Apple’s rumored effort at making a TV set has been like Godot — much anticipated, never arriving — but in the meantime it is in talks with distributors like Time Warner Cable and programmers like Walt Disney to explore collaboration on apps.

Google has been in talks with program providers, including cable channels, about distribution over the Internet, a more complicated approach — the cable systems that distribute programming would be left out of the mix — with a higher risk in execution.

In both instances, the companies are taking the same wine and putting it in a new bottle, creating a new interface to replace clunky remotes while hoping to gain a lot of valuable data in the process. Figuring out how to put a new skin on the same database can be lucrative — Weather.com, a huge business, is built on existing government data — but it’s one thing to present better navigation, and another to produce better television.

Apple reinvented the music industry on its terms and in doing so cut the legacy music business in half. The TV business, which is still sitting on healthy earnings, if not ratings, saw that movie already and wants no part of it.

But Apple is nothing if not relentless. One of its reported approaches is to enable ad-skipping while making a payment to ad-supported networks. “In essence they were saying that they would cut them a check while destroying their business model,” said Craig Moffett, a telecommunications analyst. “How long do you think that conversation lasted?”

Meanwhile Google is selling its ability to make content more visible and searchable; that sounds like the favor Google did for the newspaper business, which, like music, is half the size it once was.

E-mail:carr@nytimes.com;

Twitter: @carr2n

Article source: http://www.nytimes.com/2013/07/22/business/media/tv-foresees-its-future-netflix-is-there.html?partner=rss&emc=rss

Filed Under: Media Business Tagged With: , ,

DealBook: Microsoft Takes Write-Down in Failed Digital Ad Foray

July 3, 2012 by Leave a Comment

Microsoft owned up on Monday to the collapse of its biggest push into digital advertising, announcing that it would take a $6.2 billion accounting charge in its online services division for a failed acquisition.

The accounting charge, called a write-down of good will, was essentially a write-off of the value of aQuantive, a digital advertising company that Microsoft bought in 2007. It will effectively wipe out Microsoft’s fourth-quarter profit.

The company said it took the write-down because “expectations for future growth and profitability are lower than previous estimates” for the online services unit.

The charge will not affect the online services division’s operations or financial performance, Microsoft said.

“It’s disappointing, but it is not a shock at this point,” said Brendan Barnicle, senior research analyst at Pacific Crest Securities. “The industry has evolved beyond where aQuantive was when Microsoft bought it.”

Microsoft does make money in online advertising, but has relied on a number of digital advertising partnerships.

The deal for aQuantive was struck when technology and traditional advertising firms were desperately seeking footholds in the world of Internet display advertising. At the time, aQuantive was the biggest company Microsoft had bought in its history.

A month before the aQuantive acquisition, Google, Microsoft’s big rival in online advertising, purchased a similar firm, DoubleClick, for $3.1 billion. That deal has been highly profitable for Google, analysts say.

The purchase of aQuantive may well have been driven by pressure Microsoft was feeling at the time, not only from the DoubleClick deal, but by similar acquisitions by other companies. Microsoft bought aQuantive one day after the WPP Group bought 24/7 Real Media, another digital advertising company, for $649 million, and a month after Yahoo agreed to pay $680 million for Right Media, an online ad exchange.

All of the acquisitions were in one or another part of the display advertising business across the Web. Once highly profitable by indiscriminately pasting digital ads across the borders of millions of Web pages, the business has become under pressure as companies like Google got better at aiming for individual tastes with search advertising.

With DoubleClick, Google appeared to be using that personalization technology for the placement of banners and other display advertising.

Google used DoubleClick’s huge inventory of Web ads inside AdSense, Google’s self-serve ad placement technology for third-party Web sites.

AQuantive was a well-respected online agency based in Seattle, but its focus was on design and client services. The company did have ad inventory and an ad placement engine similar to DoubleClick’s at the time, but Microsoft did little to update it.

“It could have been another DoubleClick, but they would have had to know a business where publishers and advertisers meet, and then invest heavily,” said Todd Sawicki, chief revenue officer at Cheezburger, a publisher of several popular Web sites.

“Microsoft bought aQuantive in a reactionary move to Google buying DoubleClick, thinking that ad serving was its core strength,” he added. “Then they woke up the next morning and realized what they had.”

Brian McAndrews, the chief executive of aQuantive, was promoted to head Microsoft’s publisher and advertising group in August 2007, but left the company in December 2008. Now a venture partner with the Madrona Venture Group, Mr. McAndrews was recently elected to the board of The New York Times Company.

The poor performance of aQuantive has not hurt other parts of Microsoft’s online ad business. The company’s Bing search engine has grown, as has its revenue per search. Microsoft has struck a number of partnerships, including with Yahoo, WPP and App Nexus, which does real-time ad placement.

In May 2011 Microsoft paid $8.1 billion for the communications company Skype, its biggest purchase, and one that is thought to be going well for Microsoft.

Microsoft still has some innovative ad technology products, said Darren Herman, chief digital media officer at the Media Kitchen, a digital advertising agency. It may be using some of its partnerships to learn more about the online ad business as a prelude to an actual purchase, he said.

“There are a lot of people that think that Microsoft and App Nexus are going to link up,” Mr. Herman said. “It’s just a matter of when, not if.” Nonetheless, the end of possible competitor to Google’s DoubleClick ad placement engine left some even outside Microsoft feeling the sting.

“AOL has a small ad engine, and so does 24/7, but for ad placement it’s really DoubleClick or bust,” said Mr. Sawicki. “It’s a phenomenal failure.”

Tanzina Vega contributed reporting.

Article source: http://dealbook.nytimes.com/2012/07/02/microsoft-to-take-6-2-billion-charge-tied-largely-to-deal/?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Op-Ed Columnist: An Inconvenient Truth

December 20, 2011 by Leave a Comment

In their heyday, these strange hybrids — part corporation, part government agency — were the biggest bullies in Washington, quick to bludgeon critics who dared suggest that their dual missions of maximizing profits while making homeownership affordable for low- and moderate-income Americans were incompatible. They steamrolled their regulator and pushed back at any suggestion that their capital was inadequate.

For years, they essentially wrote most of the legislation that affected them, which they larded with loopholes. In the mid-2000s, they had giant accounting scandals. Eventually, their quest for profits led them to make a belated, disastrous foray into subprime mortgages, which ended with their collapse, and which has cost taxpayers about $150 billion. Tragically, Fannie and Freddie could have led a housing recovery — if they hadn’t become crippled wards of the state instead.

Yet these real sins have been largely overlooked in favor of imagined ones. Over at the conservative American Enterprise Institute, two resident scholars, Peter Wallison and Edward Pinto, have concocted what has since become a Republican meme: namely, that Fannie Mae and Freddie Mac were ground zero for the entire crisis, leading the private sector off the cliff with their affordable housing mandates and massive subprime holdings.

The truth is the opposite: Fannie and Freddie got into subprime mortgages, with great trepidation, only in 2005 and 2006, and only because they were losing so much market share to Wall Street. Among other things, the Wallison-Pinto case relies on inflated data — Pinto classifies just about anything that is not a 30-year-fixed mortgage as “subprime.” The reality is that Fannie and Freddie followed the private sector off the cliff instead of the other way around.

Nevertheless, Wallison, who was a member of the Financial Crisis Inquiry Commission — charged with investigating the root causes of the crisis — wrote a 99-page dissent when the F.C.I.C. issued its final report, claiming it was all Fannie and Freddie’s fault. In a column I wrote at the time, I described Wallison’s dissent as a “lonely, loony cri de coeur.” He’s been trying to get me to take it back ever since.

On Friday, the Securities and Exchange Commission waded into the Fannie/Freddie wars by filing a lawsuit against three executives from each company. The complaint charges them with making “materially false” disclosures about the size of the companies’ subprime portfolios.

In unveiling the lawsuit, Robert Khuzami, the agency’s enforcement chief, said that the S.E.C.’s action showed that “all individuals, regardless of their rank or position, will be held accountable.” Not really. What it shows is how desperate the S.E.C. has become to bring a crowd-pleasing case.

The complaint is extraordinarily weak. Taking its cues from the Wallison/Pinto school of inflated data, it claims that Fannie and Freddie failed to reveal to investors the true extent of their subprime portfolios. To make this claim, however, the S.E.C. has included categories of loans, such as so-called Alt-A loans, that may have had a subprime characteristic, such as low documentation, but which were often made to borrowers with high credit scores.

There are no damning internal e-mails in the complaint, with executives contradicting their public statements, and no examples of sleazy insider stock sales. A quick look at Fannie and Freddie financial disclosure statements shows that they clearly laid out the credit characteristics of their mortgage portfolios, even if they didn’t label every non-30-year-fixed loan as subprime. More than a year ago, a federal judge presiding over a shareholder lawsuit against Fannie Mae threw out the allegations surrounding lack of disclosure. Why? Because, he said, the company’s disclosure of its subprime portfolio had been adequate.

There is something else missing from the S.E.C. complaint, which Wallison and Pinto also conveniently ignore: default data. The truth is, for all their mistakes, Fannie and Freddie had some scruples about the nonprime loans they did make — and they have the default numbers to prove it.

For instance, according to David Min, a leading Wallison critic at the Center for American Progress, as of the second quarter of 2010, the delinquency rate on all Fannie and Freddie guaranteed loans was 5.9 percent. By contrast, the national average was 9.11 percent. The Fannie and Freddie Alt-A default rate is similarly much lower than the national default rate. The only possible explanation for this is that many of the loans being characterized by the S.E.C. and Wallison/Pinto as “subprime” are not, in fact, true subprime mortgages.

After the S.E.C. filed its charges on Friday, I received an e-mail from Wallison, suggesting that the complaint proved that he had been right and that I had wronged him. I now concede that he is half-right. Loony though his theory may be, he’s sure not lonely anymore.

Article source: http://feeds.nytimes.com/click.phdo?i=75eea2faafe8c3a47e80d9337ebc5414

Filed Under: Business News Tagged With: , ,

A New Google Venture, and Another Web Boundary Line Is Nudged

December 2, 2011 by Leave a Comment

SAN FRANCISCO — In another foray into commerce, Google is working on a delivery service that would let people order items from local stores on the Web and receive them at their homes or offices within a day.

The service is in an early testing phase, and it was described by three people briefed on the project who were not authorized to speak about it publicly before it was announced. It is part of a bigger, strategic effort by Google to move beyond its core search business by helping people buy things, not just find them.

Other parts of this strategy include Google Wallet to make payments by cellphone, Google Offers for daily deals, apps that show location-based mobile ads and product search for local stores.

The idea behind the new delivery service is that people searching for products online or on their phones could buy something from a local retailer or the local branches of nationwide chains, and could then take the next step — delivery — through Google.

Google does not intend to build stores or warehouses or become a retailer itself, two of the people briefed on the delivery service said. Instead, it is talking with potential partners, including retailers and possibly couriers.

The service is the latest example of how the biggest tech companies — including Google, Apple and Amazon — are trying to branch out and, in the process, blurring the lines between their core businesses.

For example, Apple’s iTunes business is formidable, and much of its success in selling phones and tablets, which compete with Google’s Android and Chrome devices, comes from its retail stores. And shoppers increasingly search Amazon directly, instead of looking first for products on Google, in part because of Amazon’s Prime program, which offers free two-day shipping for a $79 annual fee. Amazon also operates AmazonFresh, a local delivery service focused on groceries, in Seattle.

“Google is arguably at a competitive disadvantage because consumers view Amazon and maybe eBay as guaranteeing over all a higher-quality shopping experience, and retail ads are almost half of Google’s business,” said Eric Best, chief executive of Mercent, which does online advertising and e-commerce on Google, Amazon and other sites for 400 brands.

Google wants to use mobile phones and the Web to connect shoppers with merchants, both online and offline, and benefit by selling ads to merchants, one of the people briefed on the project said. Eventually, Google hopes, the delivery service would be integrated into Android mobile devices and Google Plus, another person said.

If Google decides to move forward with it, the service would start in a few cities, including San Francisco and New York, one person said.

It is unclear whether Google would take a cut of the revenue from sales or make money only on merchant ads. Google does not take a portion of payments with the Google Wallet mobile app, but it does earn money from sales of Google Offers.

Local online and mobile ads are a growing revenue source for many companies, including Google, Amazon, Groupon and Yelp.

Local digital advertising revenue will be $23 billion this year, just 17 percent of total local ad revenue, but the portion will grow to 25 percent by 2015, according to BIA/Kelsey, a local media research firm. Local advertising contributes heavily to Google’s biggest businesses; local search ad revenue, now $6 billion annually, is growing 10 percent year over year, and more than half of mobile ads are local.

The new delivery service, which was first reported by The Wall Street Journal, fits squarely into Google’s broader efforts to use its search engine to connect merchants and shoppers.

In the last year, it has enhanced its product search and introduced new ad formats for retailers. It now shows sites that carry an item and compares prices and shipping fees, and connects with stores’ inventory feeds to show where the item is in stock nearby. The new service would be an extension of that.

With Google Offers, the company sells daily deals for local businesses. In October, it began testing Google Trusted Stores, which verifies e-commerce sites as trusted retailers, based on shipping and customer service. Google promises to refund the purchase price or replace items for shoppers dissatisfied with a trusted store’s service. And with Google Wallet, people can pay for items online or offline with their phones.

Perhaps Google’s biggest hurdle in competing with companies like Amazon and Apple in becoming a commerce business is collecting credit card numbers, which enables quick purchases of things as diverse as digital music and offline goods. Apple has said in the past that it has more than 225 million credit card numbers, and Amazon has the credit card information of tens of millions of customers.

“Privacy concerns notwithstanding, the best way to target a consumer with relevant offers is based on their buying behavior and purchase history,” Mr. Best said. “That’s another huge strategic advantage for Google to participate in the transaction.”

Article source: http://feeds.nytimes.com/click.phdo?i=a4b0e53f36892e263a3b374fd274f869

Filed Under: Business News Tagged With: , ,