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 ...
Showing posts with label week 2. Show all posts
Showing posts with label week 2. Show all posts
Wednesday, September 10, 2008
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.
"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.
print vs. online newspaper
After reading the textbook and classmates’ posts, I’ve come to realize that newspaper business is having one of the most severe transitional times of its history. Due to the fast development of various technologies including internet and mobile access to the news, newspaper businesses are probably busier than ever to analyze consumer behavior and the market to produce the most revenue at the lowest production cost possible.
However, as some of us have already mentioned, it is extremely hard to figure out the equilibrium point or the most efficient production cost when value of every variable costs are changing so fast. Since it is so hard to predict the future of print newspaper and online newspaper, would it be better to focus short run rather than long run for the production cost?
Also, it may be too early to tell, but I think there is a possibility that print newspaper could disappear in future if it keeps diminishing just like it has for the last 10 years. I remember reading an article that says newspapers in general are making more money from advertisements on online than ads on print newspaper. (I am talking about same newspaper, say, NYT online ads vs. NYT print ads). I could be wrong about this since I don’t remember the specifics about the article. But, let's assume for now that my memory serves me right. This could suggest that online newspapers are becoming more valuable for reaching maximum revenue, considering that about 70~80% of newspaper income is coming from advertisements, not subscribers.
This means online newspaper has lower production cost and higher income from advertisements than print newspaper. If this was true, would it be wise for newspaper businesses to focus more on online newspaper? Or should they keep trying to bring the popularity of print newspaper back to way it used to be about 20 years ago?
However, as some of us have already mentioned, it is extremely hard to figure out the equilibrium point or the most efficient production cost when value of every variable costs are changing so fast. Since it is so hard to predict the future of print newspaper and online newspaper, would it be better to focus short run rather than long run for the production cost?
Also, it may be too early to tell, but I think there is a possibility that print newspaper could disappear in future if it keeps diminishing just like it has for the last 10 years. I remember reading an article that says newspapers in general are making more money from advertisements on online than ads on print newspaper. (I am talking about same newspaper, say, NYT online ads vs. NYT print ads). I could be wrong about this since I don’t remember the specifics about the article. But, let's assume for now that my memory serves me right. This could suggest that online newspapers are becoming more valuable for reaching maximum revenue, considering that about 70~80% of newspaper income is coming from advertisements, not subscribers.
This means online newspaper has lower production cost and higher income from advertisements than print newspaper. If this was true, would it be wise for newspaper businesses to focus more on online newspaper? Or should they keep trying to bring the popularity of print newspaper back to way it used to be about 20 years ago?
Tuesday, September 9, 2008
Production and Revenue
Two recent news of New York Times have illustrated how the newspaper industry tends to reduce its fixed cost in order to survive the financial hardness. To reduce the sections printed in the NYC metro area, NYT executives promised that “Given the business challenges we face, we are constantly looking for ways to reduce costs that do not affect the quality or quantity of the journalism we provide to our readers”. Also, the reduction to four section is only used to ease the cost of printing paper, but it does not affect the online version. Another recent incident of reducing production cost from NYT involves the cut on distribution cost, which shut down a subsidiary that distributes in the NYC area. In the long run, when the equimarginal principal applied, what kind of input mix should the media firm like NYT choose to maximize its output? Would the choices inevitably harm the quality of production?
The economies of scale can explain why many traditional media moves online. By reproducing the same content on the Internet, media companies can achieve a larger scale. Especially, as the example given on page 97, the television program can benefit a lot from selling additional copies. As the TV station posted their news videos online, the news may be consumed by a larger population, which includes those who can not watch it when the program is broadcasted on TV. However, the problem may occur as Picard (yes, the one who wrote the other text book used in this class) wrote in his blog post “how to obtain revenue for content distributed by digital media and how to share revenue from those downloads.”
The economies of scale can explain why many traditional media moves online. By reproducing the same content on the Internet, media companies can achieve a larger scale. Especially, as the example given on page 97, the television program can benefit a lot from selling additional copies. As the TV station posted their news videos online, the news may be consumed by a larger population, which includes those who can not watch it when the program is broadcasted on TV. However, the problem may occur as Picard (yes, the one who wrote the other text book used in this class) wrote in his blog post “how to obtain revenue for content distributed by digital media and how to share revenue from those downloads.”
Monday, September 8, 2008
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.
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.
Sunday, September 7, 2008
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.
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.
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.
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.
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.
News habit forming
On the consumer behavior, I found the habit forming argument is particularly relevant to the news consumption. Consumers’ appetites for news are built over time. If we imagine a demand curve for news, which is determined by the price of the news product and the quantity of news being consumed, as time goes by, the curve may move to the right for people who always follow the news. Because the marginal utility of the news increases with continuity of consumption (However, another assumption is that the overall news consumption shrinks even within the news habit group.). The opposite trend may be observed in the group that does not have a news consuming habit. Therefore, the media firms may be able to sell the news product with a higher price to groups with increasing news appetite than the group without a consumption habit. Also, if the gap between the two demand curves (group with/without news habits) becomes larger during a longer period of time, it may eventually change the shape of news media market.
As Seth pointed out in last week’s post, when the media content eventually become “free” online, the price of the product will no longer be a factor that affects the quantity of consumption. In that case, what will the demand curve look like? One possible way is to plot the demand curve for the market of advertising. Using the price of online ads and the quantity of the ads purchased, such demand curve will resemble the demand curve of media consumption. Another way to plot the demand curve for free online media product would be replacing the price with people’s time constraint for media consumption. Therefore, the less time people can NOT spending online, the more media products they consume online. This curve also mirrors the demand curve.
Dumb question: how can one measure the utility of a media product? Using Likert scale to assess satisfaction? Or as we know the amount of the products people purchase and the price for the product, the utility can be calculated.
As Seth pointed out in last week’s post, when the media content eventually become “free” online, the price of the product will no longer be a factor that affects the quantity of consumption. In that case, what will the demand curve look like? One possible way is to plot the demand curve for the market of advertising. Using the price of online ads and the quantity of the ads purchased, such demand curve will resemble the demand curve of media consumption. Another way to plot the demand curve for free online media product would be replacing the price with people’s time constraint for media consumption. Therefore, the less time people can NOT spending online, the more media products they consume online. This curve also mirrors the demand curve.
Dumb question: how can one measure the utility of a media product? Using Likert scale to assess satisfaction? Or as we know the amount of the products people purchase and the price for the product, the utility can be calculated.
Saturday, September 6, 2008
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.
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.
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