rss ads

The Business Week article mentioned RSS feeds as a factor which decreases the number of page views on blogs and other sites. This skews visitor stats and thus ad rates and the like.

However, RSS has also had a couple other impacts on the online advertising world.

Many RSS feeds actually include ads at the end of each entry. This seems like an important detail that the Business Week article neglected altogether. Furthermore, experts have also noted some interesting distinctions about RSS users vs normal site visitors.

RSS feeds can either consist of the full content of articles or just teasers for articles. Some groups even just use RSS to list headlines, neglecting any body text at all. (I would argue that these people are using the technology improperly but that's really outside the scope of this discussion.) Anyway, at least one RSS expert declared use of teaser text as a kind of ad. These "ads" serve to drive readers to the site to read the full article.

Web advertising 2.0

Google showing me advertisements that pertain to my mail is something I don’t think I’ll ever get over. Has it spooked any one else, or am I just paranoid? But apart from getting spooked, I don’t think I ever bothered to click on any advertisement. I guess it’s the same with everyone else because all we look for is the ‘skip’ button when advertisers try to get past passive advertising and fill up your screen with an advertisement. So this doesn’t really say much about online advertisements.

While it can be a bad thing when people look for the ‘skip ad’ button, I guess it is also a good way of marketing because you remember the advertiser for being annoying. Also, advertisers are making new models with online advertising. From the ‘per click’ model to spamming, marketing experts have figured out a way to the bank.

But for all its popularity, online advertising seems to be relatively fickle as compared to advertisements on traditional media because finding target markets is elusive. Google CEO, Eric Schmidt has spoken several times about online advertising, saying that Google is looking for the holy grail of online advertising – a model that will rake in the money.

Like an article in Publishing 2.0, said:
"Search advertising is probably the most scalable advertising platform in the history of advertising and marketing. But ten years into the promise of the web and new media to transform advertising into an ROI-driven marketing engine, the success of keyword-driven pay-per-click text ads is the exception, not the rule.

The problem is scalability."

With online advertisements picking up on tag words, showing the same ad might not work out. Advertisers need to make different advertisements for different tag words. So is it going to be an era where online advertisements will be all about text and no images?

Market indications

The industry has been up in arms about the state of traditional media and the rise of Internet news media. But the changes in demand have pushed these media companies to respond to these shifts in demand. And like Picard pointed out, large-scale demand changes can be caused by the age of the users. So they brought out their own Web sites.

With the number of people going online for their news feeds for the day, it is obvious to foresee where the Internet is taking us. And if this becomes a trend for the next generation, where does this leave power-houses like the New York Times and Washington Post? Maybe with just their online presence?

But I digress. If it is safe to assume that there will be a permanent change in demand, then where does this leave newspapers? They have tried to be a 'constant-cost industry,' where there is no change in price of the product. Apparently, this hasn't worked either (refer the case of the Austin American Statesman).

Advertising online seems like a cheaper option for many advertisers, streamlining the workforce and cost cutting can only be done to a limit. So what next?

Is Google a monopoly?

It's a question worth considering this week as we examine market structures, and consider where media companies and products fit in the context of the theory of the firm. Jeff Jarvis takes this up in a blog post titled "Google: Monopoly or Marketplace?"

... the issue isn't that Google is a monopoly. It’s that Google has become the marketplace. It where we all go for information. It’s where advertisers go for us.

It’s no different from a newspaper. Even when there were two papers in towns, one of them was the marketplace for homes, cars and jobs. That allowed the paper to set rates as high as the market could bear, which was very high. Google would say the difference is that it doesn’t set rates, the market does in auctions for keywords. Except in this case, by punishing Sourcetool, Google did set the rate. And it has the power to do that.

craigslist is also no different, except that Craig Newmark set most rates at zero. He’s the marketplace now and now that he has us by the neck, he could raise rates — as eBay did once it dominated the marketplace it created (though that invited competition from Amazon, Etsy, et al).

In his Guardian column on the subject, Jarvis writes:

But the problem with going after Google is that - unlike typical monopolies - it didn't steal its booty like a pirate in the night. It didn't win by being closed and proprietary. Google won by being open and distributed - which is not the image of the monopolist. The rest of the marketing universe, from media companies to advertising agencies, handed Google its dominance on a silver platter.

In other words, Google has become a monopoly of sorts, and remains that way, because consumers and advertisers have made it that way (e.g., newspaper companies spend big money and time optimizing headlines and keywords to win the SEO wars). ... Just something for us to chew on during class.

local newspapers

Reading about product competition inspired me to think about newspaper businesses in South Korea. The United States has only few national newspapers while it has numerous local newspapers. It was my impression that Americans liked to get news from local newspapers as much as national newspapers. However, South Korea has completely different issues. It has many national newspapers and these national newspapers are what most people get the news from. On the other hand, people seem to care much less about local newspapers. I know that many local newspapers are dying because they simply could not compete with national newspapers. The amount of content and quality of the local newspapers are almost incomparable to national newspapers unlike the United States.

I wonder, can there be ways for these local papers to become competitive in the local area at least? Focusing on local issues do not seem to have the strongest asset in Korea unlike the local papers in the United States. Since South Korea is such a small country, the national newspapers cover a wide variety of local news in great details.

I guess what I really want to ask here is “how can these local newspapers differentiate their products from national newspapers other than merely focusing on local news? Is there a way to save these local newspapers from disappering?”

Online product differentiation

After reading about product competition, I was wondering how it really applies to the news market. In my opinion, I have several sources I get my news from and it really does not matter which one its from. But what I’m interested in is: With more media companies establishing an online presence, is it safe to assume that the online entity is another product?

Newspapers, radio stations and television channels are looking for ways to establish a larger online presence – complementary to their traditional medium. But since most of the content online has been ‘shovelled’ from the traditional medium, it is still another product? I prefer following news on CNN’s website more than on the television. So does this mean that I still like the same product? To what extent is the product differentiation?

concentration of online news industry

HMF is making me really really dizzy, so I decided to start with Picard's piece then a little on HMF…

If we wish to measure market concentration or measure the degree of market competitions, both according to HMF and Picard, what we need to do first is to define our industry (market) and identify firms that comprise the industry. For a news Web site, name it MSNBC or nytimes.com, what is the industry and which companies comprise the industry? Can they answer this question or can we answer this question (I cannot……)?

Picard argued there is seldom direct competition among media, such as newspaper versus newspaper, but different media compete with each other for audience time and expenditure (p. 139). Competition among and between media can be understood as: intermedia competition and intramedia competition. These two take place simultaneously, and I guess this is one of the reasons why we find so hard to define the industry of online news.

To define online news industry, we can first start with U.S. based English news Web sites. Then second, in terms of intramedia competition, we include all U.S. traditional news media (TV, print, radio, etc). Third, in terms of intrmedia competition, we include all U.S. based new Web sites, which are countless. Fourth, we cannot ignore portal sites (in PEW's 2008 news audience survey, Yahoo was name the most frequently visited news site, p.22). And fifth, if the competition is for news users' time, how should we account for multitasking?

Here are the top eight most frequently visited news Web sites from Pew's news audience survey
Yahoo—28%
MSN/Microsoft—19%
CNN—17%
Google—11%
MSNBC/NBC—10%
AOL—8%
Fox—7%
NYT—4%
Local news Web site—4%
(other Web sites are 2% or lower)

But if we look at online news only at this point and ignore the traditional media (TV, print, radio) just for a second, using Pew's data, we can roughly see how concentrated online news industry is (even though it is survey data instead of industry data). Adding up the percentage of the second table on p.22 of Pew's report, it is added up to 122% because multiple responses by a user were accepted. Adding up the percentages of the first four (from yahoo to MSNBC), we have 57%. If we manipulate the numbers proportionately, we have CR4=49.72 (122%: 57% = 100%: 49.72%). Using the same method, CR8 would roughly be 65.57%. We have both CR4 and CR8 for online news to be moderately concentrated. They are higher than the CR4 (42%) and CR8 (48%) of print newspapers Albarran and Dommick have in our HMF text p.147. What does this mean is… this moderate (or almost highly concentrated for CR4) concentrated online news industry is consistent with oligopoly I guess?

iTunes and iPods

As I was reading HMF this weekend, I kept thinking of iTunes and iPods and the market dominance that they've had. At the start of the year, iTunes sold about 80% of legally downloaded music according to Wired magazine. iPods, meanwhile, accounted for about 70% of mp3 players sold by units and 84% when measured in dollar volume according to Fortune magazine. Clearly they have huge market shares which are relatively close to being monopolistic. They blow the concentration ratio measures out of the water.

In section 7.2.1.1 of the HMF reading, we learn that if the sum of the percent market shares of the 4 largest companies are greater than 50% (CR4 >/= 50%) or the sum of the percent market shares of the 8 largest companies are greater than 50% (CR8 >/= 75%), then the market is considered highly concentrated. According to the Wired and Fortune numbers, then, even if iTunes and iPods were divided up between 8 different companies, they would still compose a highly concentrated market. (This is untrue, of course, for the unit sales of iPods, however, the fact that even this number is close to making this statement true in part proves my point.) the Hirschman-Herfindhal Index can't be applied to this case because I don't have the market shares for all competing companies readily available.

There have been some questions, as mentioned in the Wired article, of whether iTunes will lose market share as other services are able to offer more Digital Rights Management free files, songs, music and albums. So far, Apple says that iTunes market share has only gone up since the release of more DRM free songs by other services, but I find it interesting that the New York Times article doesn't include any specifics; Perhaps Apple didn't go into substantive details?

Also, I wonder exactly how these markets would be characterized? Are mp3 players and digital music monopolies or oligarchies? (Or maybe neither?) There is really only one firm to speak much of in each market but in reality there are a relatively large number of not so well known firms as well. Also, there are barriers to entry in that it's hard to break into Apple's market share and well known state. Which is it? (Apologies if the text addressed this question at some point, my eyes started glazing over at the game theory section. I haven't had good experiences with game theory.)

Applying econ to today's (digital) journalism

Something I'm thinking about as we talk economies of scope, economies of scale and the like: I'm having difficulty envisioning these traditional econ concepts within the framework of contemporary journalism? How do we put them in the context of "liquid" journalism? What is the short run, the long run, and the *very* long run ... when everything feels like a hyperactive, rush-rush race to find a business model online? What happens when the supposed "long-run" technological changes feel very short-term, dizzying in their speed and precarity?

These are just random musings, I realize, but I hope we can discuss further in class ...

riaa

Section 5.4.4 Returns to Scale in Media Goods talks about the increase in sharing and downloading files.

"With digital downloading from the Internet available, or becoming available, for all these goods, the marginal cost of additional copies is fast approaching zero. This has resulted in a huge piracy problem for recorded music and is becoming an issue with movies. To counter this, the RIAA has instituted legal action targeting the makers, and very recently users, of share-swapping software."

First, I had some issues with the way the text approached this. When talking about the advent of VCRs, there was little discussion of the legal implications of how people were using them. People were recording TV shows and sharing them with others. Did not this threaten the entertainment industry at the time? Did the industry not try to put a stop to it? Please tell me if I'm inaccurate in this, it was a little bit before my real cultural awareness set it.

Anyway, those issues not withstanding, I did think this was an interesting view of the phenomenon of file sharing. I guess it was kinda implicit or understood but I never really thought of file sharing from quite this economic perspective. The reason it's so easy to share files is because of the very very low marginal cost.

Newspapers n demand

The newspaper industry has been undergoing a(n) (r)evolution, if you will, fighting against the big bad world of the Internet. Not that the newspaper industry did not have a threat from other media like television and radio, but simply because the Internet is free and unlike television or radio, newspapers are in a rut as to how to increase supply.

Various newspaper companies are pumping huge amounts of money into the research and development of new ideas that will revolutionize the print industry. But so far, none of the “theories” seem to be working. Apart from well-established names like the Washington Post, New York Times and local newspapers like the Austin American Statesman, newspapers are struggling to keep their heads above the water. To increase supply, they need to radicalize their approach. They can’t slash prices to increase supply because this would further injure their revenue. And even their marginal increase in subscription (if at all), does not seem to be helping increase revenue. Also, advertisers would rather spend more and get a spot on television or radio and get heard, rather than place an ad in a newspaper and risk minimal exposure. And streamlining the industry and cutting costs in the newsroom is not going to increase profits: it would only bring down productivity and the overall quality of the product. Either way, it seems to be a lose-lose situation for the newspaper industry.

However, I would like to bring to your notice that there are several new newspapers springing up in all corners of India. There, the newspaper industry is flourishing like never before. Severe competition is forcing newspapers to introduce new sections and more innovative content. And it is not like India does not have Internet. It does. And a lot of people do go online for news. So I guess, what I am trying to say is: Why is it not working here?

ch 5 & 6

I never gave too much thought on the supply side, at least not until now. So, being an ignorant amateur, let me try to articulate what is on my mind now. Do bear with me.

Newspaper companies have fixed costs and variable costs, fixed costs being their printing machine, computer servers; variable costs being the paper and ink, the staff members needed for news production. When newspaper companies are making less profit now, they gain less in terms of total revenue from subscription number (or subscription fee) and advertising revenue. Since from the economics perspective, profit equals total revenue minus total cost, if the newspaper companies are saying they are not making profits, this should mean their total cost is bigger than their revenue.

There are two ways a newspaper company can do to make the total cost to be smaller than total revenue: decrease the total cost or increase the total revenue. I think I see newspaper companies worry about their total revenue more than worry about their total costs. They ask why people (especially young adults) do not read newspapers anymore and worried about their advertising figure decrease year by year.

They do worry about the total cost, but more often I see them cutting off staff members, which is a reduction of a variable cost. The other variable cost is the ink and paper, which the newspaper companies are not yet willing (or willing but not yet ready) to give it up. And indeed, the ad revenue and subscription fee obtained from the print might still be bigger than the total revenue gained form their Web site, but if I remember it right, the total ad revenue for print newspapers in the U.S. is decreasing and the total ad revenue for their Web sites is constantly increasing over the past year. I will look into that and possibly bring the number tomorrow.

However, what I feel is it is not the newspaper companies’ fault. With the new technologies and new platforms, the equilibrium point is not yet reached.

The Internet and the law of diminishing utilities

I would like to pick up on the Law of Diminishing Marginal Utility and put it in context to the world of internet news and newspapers.

While I was in India, I read the newspaper and had breakfast – maybe it was a tradition in my household. But that is what you did in the morning – sipped hot coffee and read a crisp and neatly folded newspaper first thing in the morning. But I have to admit that this was at a time when I did not use the Internet at home apart from checking mail and other sundry networking reasons including Linkedin and Facebook. In the first semester I was here, I subscribed to the Austin American Statesman and the New York Times. But somewhere along the line, I forget when, I didn't see the need to read the newspaper - considering I was perpetually online and had news updates popping up from the various feeds. And I doubt I will subscribe to newspapers henceforth. But like they say, old habits die hard, so might pick up a newspaper once in a while.

I also have to agree with Nan that news consumption is built as a habit, where people have several news sources that they usually get their news from. But in the free-for-all circus that is the Internet, how does diminishing marginal utility hold good in terms of newspapers? People have more sources of news online from blogs to news websites. So why would they subscribe to newspapers?

Thoughts on Chapter 4

What I am about to say is probably a dumb question, but this question kind of popped up when I was reading chapter 4.

After reading sections on “The Law of Diminishing Marginal Utility,” I wondered if there could be any exceptions to the law. The authors gave us examples on service goods like long-distance calls and movie tickets. I certainly agree that utility diminishes as more amount of these items stack. But what about necessities such as paper towels, rice(for Asians who always consume rice basically three times a day), or water? Is the Law of Diminishing Marginal Utility still in effect with these kinds of common goods? If the law still applies to these basic goods, how are they different from service goods such as movie tickets?

Also, reading about "Network Externalities" inspired me to think about how same thing can be perceived as completely different depending on public opinion. For example, football is one of the most famous sports in the United States while it is one of the stupidest sports perceived by many other countries. Same thing works for soccer. It is the most exciting game across the globe except for North America. On the other hand, North Americans seem to perceive soccer as the most boring sports ever. This isn’t because football and soccer rules are different in North America and the rest of the world. It is because majority of people in North America and the rest of the world have different expectations and stereotypes about these sports. This indeed shows how powerful public perception can be especially when we think about how DVD and Facebook grew up from who-cares-thing to way it is now in just less than 10 years.

HMF Chapter 4

Early in the chapter (section 4.1), the book says: "Just as the scale on the thermometer is arbitrary (there are two common scales, Fahrenheit and Celsius), so is the scale for measuring utility." This gave me pause. I get that with both temperature and utils, you just kinda gotta pick unites and stick with them, but the comparison doesn't extend much beyond there for me. For temperature, the 0 point is more random. Yes, Celsius using the freezing point of water but this isn't practical for all applications of temperature measurement. Whereas, with utils a negative/positive distinction would be more critical. You can't really set that randomly. Though, I wonder, can you even have negative utils?

Later in the same section, the authors talk about how diminishing marginal utilities have less of an effect on children watching children's movies. while this makes sense when you spend any time thinking about it, I was left wondering what other examples of this there were. What other groups/activities are less quickly impacted by diminishing marginal utility? Any thoughts?

Section 4.6 talks about demand when there is a access fee but no charge for usage. I am the worst about this. I'm subscribed to Netflix but when I get swept up in grad school work I often go months at a time before cycling fully through my 3 DVD at a time plan. I'll be very interested when we talk about flat-fee pricing further.

Section 3.8 discusses how media and arts are unlike other goods because they can be addicting or habit forming. For example, if you really get into the plot and characters of a show, you're more likely to keep watching and find out what happens. I wonder what effect Tivo, streaming video from network web sites and illegal downloading of programs has had on this. It seems likely that the increased supply (discussed earlier) has led to more people consuming these goods. But it would be interesting to find detailed studies one way or the other.

misc thoughts from week 1 readings

Overdue, but here are some thoughts.

Section 3.3.1 of the HMF reading discusses substitute goods. For example, it mentions different brands of televisions. While not the same product exactly, they perform essentially the same function, almost identically in fact. However, I was wondering in our current world of synchronicity if the ability to distinguish between substitute good was declining. Many cell phones today come with cameras, mp3 players, and advanced web browsing built in. So they are in some ways substitute products for digital cameras, portable mp3 players, and perhaps even computers or laptops on some level. However, cell phones might not take as high quality pictures, play music as well, or display web pages quite properly. So can they be considered substitutes after all? Do people buy cell phones for these features or are they just added bonuses on a product they'd already have bought? I'm not sure about the answers to these questions but I think they're probably worth considering.

Section 3.6.2 touches upon how "the internet is a new information technology that offers many opportunities to increase the supply of information based entertainment or cultural products." It mentions how Amazon has brought "consumers more books at lower prices" and how iTunes is having a similar effect on music distribution. Another site that could be listed in this section in an updated version of the book is Hulu.com. It was founded about a year and a half ago by NBC Universal and News Corp but claims to "operate independently." The site is effecting the distribution of TV shows and movies in a way similar to what Amazon did for books and iTunes did for music. With or without creating an account, users can watch pretty good quality streaming video for free with some commercial breaks, which are shorter and sometimes fewer than if you'd watched the show on TV. In this way, the site is on a different model than the pay-for-content sites previously mentioned. However, it is still a good example of existing media adapting new business models and the change in media supply as a result of technology.

jacie's chapter 4

I have been interested in utilities for a while, but in chapter 4 I found Attribute Theory to be rather interesting. So let me raise several inquiries here regarding Attribute Theory and news media.

I see news consumption to be a combination of habit forming and attributes provided by the product. Of course were this statement to be, my vague and nonscientific assumption would be the content and information offered by different media company to be rather similar, if not identical. By drawing a table of news consumption, I put habit or non-habit in the first column and in the first row I put the utilities consumer obtains from consuming the product is either from the product itself or from the attributes provided by the product. Thus we have four kinds of combination here.

	utilities from the product itself	utilities from attributes provided by the product
habit	A	B
nonhabit	C	D

I do agree with Nan that news consumption is built as a habit, meaning users have one to several news sources that they usually get their news from. In this case, we focus on cell A and B in the table above (of course we can discuss about it if you think accessing news media is not a habit).

What I see news consumption fits Attribute Theory is the utility news consumers get is not from the product (the media itself), but is from the attributes provided by the products, making the demand for the product (i.e.: a print newspaper) a derived demand. I argue the attributes are the information and opinion pieces in the news media. Take a print newspaper again for example, after a reader read the newspaper once, obtained the utility from the information (which is the attribute), the media itself does not have too much value left, as well as a second copy of the day's newspaper does not have much more value than the first copy (unless the paper is wrapping my lunch today).

I see online news to be the same case, even though we do not pay for it. The product itself might be the bit and bytes in our computer's short memory or in our computer's temp storage, but the attributes are still the information and the opinion. Once we read/watch/listened to it all, we got it all. It is not like I just had a piece of cheese cake before I started writing this response and I want another piece now.

Network externalities

One of the concepts brought up in Chapter 4 of the HFM book is the phenomenon known as "network externalities." It's also called the "network effect," and refers to a basic process best illustrated when we think about the telephone: As individual users join the phone network, their subscription enhances the value of that network for everyone else on it, without them necessarily intending to do that. Thus, the "externality" points to something that's out of the end-user's control—in this case, the positive value created by his or her decision to subscribe to the network.

All of this is pretty obvious, of course, but to extend this thought on network externalities I would like to mention two other examples (since the telephone example is the one so often used to explain this concept). First, I remember when I first got an e-mail address, way back around 1993 or '94 (yes, I was one of the early, early adopters!). While it was a fun curiosity, I couldn't e-mail hardly anyone behind my circle of fellow geeks in the high school computer lab because the network was so limited and the difficulty so great in trying to find friends and family online. Even in 1996, when I began as a college freshman, I remember having to pay for a university e-mail account! How things change.

Moving beyond e-mail, consider the more recent example of Facebook. When I first joined the site just a year ago, there weren't too many of my friends and family on the network because, like me, most of them had grown up before the social networking craze. So, at the time, the network didn't have much value to me personally. I hardly looked at it for at least six months or more. Then, as I returned to it one day this summer, I asked Facebook to plumb my address book for contacts already signed on to the site ... and was stunned to see how the number had grown by at least 100 or more. The site clearly had passed the early-adopter stage of 18-25 college students and moved into the early/late majority hump in the Rogers' innovation curve. And now, at this point, the Facebook network had great value to me—value in terms of warranting my time and attention, if not my actual spending. In joining the network, my friends and family had contributed a positive externality that transformed the site's value for me.

Seth's response: New media, information, and the price of "free" (Week 1)

Hi, everyone. I missed the first class last week, so I look forward to being with you all tomorrow.

First, I have to mention how interesting it was to read this book and be confronted with terms and concepts once so familiar to me, as I took a Managerial Economics course in my MBA program some four years ago. (Quite frankly, it's astonishing how much you can forget in that span of time!)

Like Nan, I was interested in the discussion of supply, demand, and price elasticity from Chapter 2. I've been thinking about these things lately as we hear more and more about the "economy of free." Wired editor Chris Anderson, he of the Long Tail phenomenon, had a cover story about this recently; in it he wrote:

You know this freaky land of free as the Web. A decade and a half into the great online experiment, the last debates over free versus pay online are ending. In 2007 The New York Times went free; this year, so will much of The Wall Street Journal. (The remaining fee-based parts, new owner Rupert Murdoch announced, will be "really special ... and, sorry to tell you, probably more expensive." This calls to mind one version of Stewart Brand's original aphorism from 1984: "Information wants to be free. Information also wants to be expensive ... That tension will not go away.")

Indeed, that appears to be the trend in the newspaper industry: no charging for online content (of course), but increased prices for the print version. There's good reason for this. As blogger Jeff Jarvis noted upon news of the tear-down of TimesSelect's paywall:

So much for the idea of charging for content — news content especially — online. Too much of it is commodified. There’s no end of free competition. The value is fleeting in time. The cost of charging is too high.

Whether or not content wants to be free, it is free.

Don’t let anyone tell you that this is bad for the content business. It’s only good sense. Having worked in the magazine business, I saw this even at the dawn of the internet: As I said above, a magazine has to pay up to $30-40 in marketing costs to acquire subscribers; it can pay up to $5-7 to print and distribute a copy of a glossy magazine; it has high editorial costs. Add that up, and a magazine can find itself in the hole $60 or more per subscriber in the first year of a subscription. And they get as little as $1 per issue in subscription revenue. Yet clearly, a magazine can make money because that subscriber’s value to advertisers is much greater.

It’s the relationship that is valuable. It’s the relationship that is profitable, not the control of the content or the distribution. That is the essential media moral of the internet story. It has taken 13 years of internet history for media companies to learn that, to give up the idea that they control something scarce they can charge consumers for, but they’ve finally learned it. That is the lesson of the death of TimesSelect.

OK, so back to the main point here: As we go forward examining media economics in the digital age, it's important to consider the emerging economies of "free" — or, better yet, recognizing how free offerings of services or information create value and profits in more subtle, behind-the-scenes sort of ways. (Ask Google how this is done.)

Of course, "free" is nothing new to the media industry: It's how radio, TV, and newspapers have long made their money, providing content for free (or at very low cost) and selling the mass audiences to advertisers to pay for their efforts. But as the Web extends this media business model to a wide range of industries — see Anderson's piece on this — it's a good time to step back and reconsider what these trends mean for the future of media (and media economics). How do these notions fit into previous conceptions of supply, demand, price elasticity, and so on? In what ways do they reinforce traditional economics ... and in what other ways might today's currents cause us to rethink old assumptions? What happens when the Internet is simply a copy machine? (As Kevin Kelly writes: "The digital economy is thus run on a river of copies. Unlike the mass-produced reproductions of the machine age, these copies are not just cheap, they are free.") If scarcity is connected with value, then what is of worth in a sea of free-and-easy copies?

Food for thought. See you tomorrow.

... Oh, and as for useful sites to follow the new media biz, I like some of those mentioned already (especially Wired), but here are a few others of interest:
-- The New York Times' sections on media/advertising, tech, and its Bits blog.
-- IWantMedia.com covers the latest headlines on the business of new media.
-- Jeff Jarvis of BuzzMachine fame is well worth reading. He's a media biz veteran who really understands Webenomics today.

jacie's short response (week 1)

When something gets cheaper, we often take it for granted that the people will buy more or more will be sold. Often times it seems to be the case, but the three chapters illustrate that there are indeed more economic principles behind such a general statement. Even though demand and supply interact with each other in a market and the combination of the two determine the market price, here I find demand to be really interesting since I am interested in audience/users more than media firms.

From the chapters we learned that there is “change in quantity demand” and “change in demand.” Change in quantity demand is affected by the own price of the product while change in demand is affected by other external factors other than the product’s own price (such as change in income per capita). When the authors explain Law of Demand, they also use empirical examples of how often firms ignore Law of Demand, purposefully or not (p.20).

One thing that came to mind was iPhone (bear with me if you hear this word often enough already). iPhone came out in the summer of 2007 and the latest iPhone 3G was launched on July 11th this summer. One significant difference, in term of economics, is there was a significant decrease in the product’s own price: it dropped from $399 to $199 (for 8G storage space model). After the “better and cheaper” 3G iPhone was launched on July 11th, Apple’s press release on July 14th quoted the CEO Steve Jobs saying, “iPhone 3G had a stunning opening weekend. It took 74 days to sell the first one million original iPhones [in 2006], so the new iPhone 3G is clearly off to a great start around the world.” The comparison here is: a million iPhones, 74 days v.s. 3 days.

Demand of iPhone 3G seems to be much higher, but in what way? Is it merely because it is $200 cheaper? In addition to change in quantity demand (affected by the product’s own price), five factors might cause change in demand: price of a demand-related product, income per capita, number of potential buyers, expectations regarding future price, and tastes. The factor that stands out here in the iPhone case is the number of potential buyers. As the original iPhone was only sold in the United States, the new 3G iPhone is available in 21 countries in the world. As in chapter 3 it says that “the population served by a market is a good indicator of the number of potential buyers,” the greater the population in a market, the greater the demand. When Apple made iPhone available in 21 countries, the market is expanded and the demand is higher, other things being equal. It is not the new iPhone is more popular or merely because it is cheaper, but also because the market is now bigger thus the demand is higher.

I think having an understanding in media economics gives us a great tool to explain and predict social phenomena, as well as seeing through the basic principles of these phenomena. I also think the principles of demand and supply can be applied to users’ news demand, but it is still very vague for me at this point since I feel news products are close substitutes to each other.



As for the three tech sites, I do visit the tech section of major news sites often, including NY Times, Washington Post, CNET, etc. Let me include these three here: digg.com's tech section, Search Engine Watch (cause I like google), and Techdirt.