Advertising & Marketing

My most recent Forbes column is entitled, “We All Hate Advertising, But We Can’t Live Without It.” It’s my attempt to briefly (a) defend the role advertising has traditionally played in sustaining news, entertainment, and online service, and (b) discuss some possible alternatives to advertising that could be tapped if advertising starts failing us a media cross-subsidy.

What got me thinking about this issue again was the controversy over satellite video operator DISH Network offering its customers a new “Auto Hop” capability for its Hopper whole-home HD DVR system. Auto Hop will give viewers the ability to automatically skip over commercials for most recorded prime time programs shown on ABC, CBS, FOX and NBC when viewed the day after airing. It makes the viewing experience feel like the ultimate free lunch. Alas, something still must pay the bills. As innovative as that technology is, we can be certain that it will not make content consumption cost-free. We’ll just pay the price in some other way. The same is true for online services since it’s never been easier to use technology to block ads.

So, what is going to pay the bills for content as ad-skipping becomes increasingly automated and effortless? Stated differently, what are the other possible methods of picking up the tab for content creation? Here’s a rough taxonomy: Continue reading →

Reason.org has just posted my commentary on the five reasons why Federal Trade Commission’s proposals to regulate the collection and use of consumer information on the Web will do more harm than good.

As I note, the digital economy runs on information. Any regulations that impede the collection and processing of any information will affect its efficiency. Given the overall success of the Web and the popularity of search and social media, there’s every reason to believe that consumers have been able to balance their demand for content, entertainment and information services with the privacy policies these services have.

But there’s more to it than that. Technology simply doesn’t lend itself to the top-down mandates. Notions of privacy are highly subjective. Online, there is an adaptive dynamic constantly at work. Certainly web sites have pushed the boundaries of privacy sometimes. But only when the boundaries are tested do we find out where the consensus lies.

Legislative and regulatory directives pre-empt experimentation. Consumer needs are best addressed when best practices are allowed to bubble up through trial-and-error. When the economic and functional development of European Web media, which labors under the sweeping top-down European Union Privacy Directive, is contrasted with the dynamism of the U.S. Web media sector which has been relatively free of privacy regulation – the difference is profound.

An analysis of the web advertising market undertaken by researchers at the University of Toronto found that after the Privacy Directive was passed, online advertising effectiveness decreased on average by around 65 percent in Europe relative to the rest of the world. Even when the researchers controlled for possible differences in ad responsiveness and between Europeans and Americans, this disparity manifested itself. The authors go on to conclude that these findings will have a “striking impact” on the $8 billion spent each year on digital advertising: namely that European sites will see far less ad revenue than counterparts outside Europe.

Other points I explore in the commentary are:

  • How free services go away and paywalls go up
  • How consumers push back when they perceive that their privacy is being violated
  • How Web advertising lives or dies by the willingness of consumers to participate
  • How greater information availability is a social good

The full commentary can be found here.

 

Six months may not seem a great deal of time in the general business world, but in the Internet space it’s a lifetime as new websites, tools and features are introduced every day that change where and how users get and share information. The rise of Facebook is a great example: the social networking platform that didn’t exist in early 2004 filed paperwork last month to launch what is expected to be one of the largest IPOs in history. To put it in perspective, Ford Motor went public nearly forty years after it was founded.

This incredible pace of innovation is seen throughout the Internet, and since Google’s public disclosure of its Federal Trade Commission antitrust investigation just this past June, there have been many dynamic changes to the landscape of the Internet Search market. And as the needs and expectations of consumers continue to evolve, Internet search must adapt – and quickly – to shifting demand.

One noteworthy development was the release of Siri by Apple, which was introduced to the world in late 2011 on the most recent iPhone. Today, many consider it the best voice recognition application in history, but its potential really lies in its ability revolutionize the way we search the Internet, answer questions and consume information. As Eric Jackson of Forbes noted, in the future it may even be a “Google killer.”

Of this we can be certain: Siri is the latest (though certainly not the last) game changer in Internet search, and it has certainly begun to change people’s expectations about both the process and the results of search. The search box, once needed to connect us with information on the web, is dead or dying. In its place is an application that feels intuitive and personal. Siri has become a near-indispensible entry point, and search engines are merely the back-end. And while a new feature, Siri’s expansion is inevitable. In fact, it is rumored that Apple is diligently working on Siri-enabled televisions – an entirely new market for the company.

The past six months have also brought the convergence of social media and search engines, as first Bing and more recently Google have incorporated information from a social network into their search results. Again we see technology adapting and responding to the once-unimagined way individuals find, analyze and accept information. Instead of relying on traditional, mechanical search results and the opinions of strangers, this new convergence allows users to find data and receive input directly from people in their social world, offering results curated by friends and associates. Continue reading →

Ceci c’est un meme.

On Forbes today, I look at the phenomenon of memes in the legal and economic context, using my now notorious “Best Buy” post as an example. Along the way, I talk antitrust, copyright, trademark, network effects, Robert Metcalfe and Ronald Coase.

It’s now been a month and a half since I wrote that electronics retailer Best Buy was going out of business…gradually.  The post, a preview of an article and future book that I’ve been researching on-and-off for the last year, continues to have a life of its own.

Commentary about the post has appeared in online and offline publications, including The Financial Times, The Wall Street Journal, The New York Times, TechCrunch, Slashdot, MetaFilter, Reddit, The Huffington Post, The Motley Fool, and CNN. Some of these articles generated hundreds of user comments, in addition to those that appeared here at Forbes.
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[Cross-posted at Reason.org]

This week Google announced that it is grouping 60 of its Web services, such as Gmail, the Google+ social network, YouTube and Google Calendar, under a single privacy policy that would allow the company to share user data between any of those services. These changes will be effective March 1.

Although we have yet to see it play out in practice, this likely means that if you use Google services, the videos you play on YouTube may automatically be posted to your Google+ page. If you’ve logged an appointment in your Google calendar, Google may correlate the appointment time with your current location and local traffic conditions and send you an email advising you that you risk being late.

At the same time, if you’ve called in sick with the intention of going fishing, that visit to the nearby state park might show up your Google+ page, too.

The policy, however, will not include Google’s search engine, Google’s Chrome web browser, Google Wallet or Google Books.

The decision quickly touched off discussion as to whether Google was pushing the collection and manipulation too far. The Federal Trade Commission is already on its back over data sharing and web tracking. With this latest decision, although it’s not that far from how Facebook, Hotmail and Foursquare work, just more streamlined, Google, some say, is all but flouting user and regulatory concerns.

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[Cross posted from TechFreedom]

Today, the Digital Advertising Alliance, a group of leading digital ad agencies and online ad networks, unveiled a campaign to bring attention to AdChoices, its icon-based system allowing users to opt-out of behavioral advertising. The following statement can be attributed to Berin Szoka, President of TechFreedom:

In the 1990s, Congress tried and failed to regulate Internet content. Instead, the courts have required an approach grounded in user empowerment, education and enforcement of existing laws against fraud and deception. Today, we’re seeing the the advertising industry build on this approach for consumer protection on privacy. The AdChoices campaign launched last summer empowers consumers to make their own choices on privacy. The ad campaign launched today educates consumers on how to use this tool. The Digital Advertising Alliance has promised to enforce industry’s principles. Consumer advocates should hold them to that promise. It’s also fair to insist that empowerment and education improve over time. But today, for once, let’s give the ad industry credit for doing the right thing.

I thought Todd Zywicki, a senior scholar with the Mercatus Center at George Mason University, did a nice job on Judge Napolitano’s “Freedom Watch” show addressing the contentious question of whether government should be regulating food advertising in order to somehow make American kids healthier. Todd pointed out how the advertising guidelines currently being developed are anything but “voluntary” and noted that there are many causes of childhood obesity. Watch the clip here:

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Washington Post columnist Ezra Klein had a terrific column yesterday (Human Knowledge, Brought to You By…) on one of my favorite subjects: how advertising is the great subsidizer of the press, media, content, and online services.  Klein correctly notes that “our informational commons, or what we think of as our informational commons, is, for the most part, built atop a latticework of advertising platforms. In that way,” he continues, “it’s possible that no single industry — not newspapers nor search engines nor anything else — has done as much to advance the storehouse of accessible human knowledge in the 20th century as advertisers. They didn’t do it because they are philanthropists, and they didn’t do it because they love information. But they did it nevertheless.”

Quite right. As I noted in my recent Charleston Law Review article on “Advertising, Commercial Speech & First Amendment Parity,” media economists have found that advertising has traditionally provided about 70% to 80% of support for newspapers and magazines, and advertising / underwriting has entirely paid for broadcast TV and radio media. And it goes without saying that advertising has been an essential growth engine for online sites and services. How is it that we’re not required to pay per search, or pay for most online news services, or shell out $19.95 a month for LinkedIn, Facebook, or other social media services? The answer, of course, is advertising.  Thus, Klein notes, while “we see [] advertising as a distraction… without the advertising, the information wouldn’t exist. So the history of information, in the United States at least, is the history of platforms that could support advertising.”

And the sustaining power of advertising for new media continues to grow. As I noted in my law review article: Continue reading →

[Cross-posted at Reason.org]

One of the more critically praised films this year has been Shame, which has been in limited release around the country since December.  Although it’s an independent production, the film is being distributed by 20th Century Fox, a major studio, and stars Michael Fassbender, an actor who appears to be in the middle of his breakout moment.

The film is also rated NC-17.

Until recently, the Motion Picture Association of America’s NC-17 rating, which restricts admission to theatergoers 18 and older, was the box office kiss of death. Not only did NC-17 carry the notoriety of its predecessor, the X rating, it seriously hampered a film’s marketing. Boys Don’t Cry, The Cooler and Clerks are among the well-known examples of acclaimed films that were cut to win the more commercially acceptable R rating, in spite of protest from their filmmakers and actors that the cuts diminished the power and the point of the scenes in question.

But most newspapers and local TV stations won’t carry ads for NC-17 movies. Some theater chains, such as Cinemark, won’t exhibit them. Major retailers like Wal-Mart nor video rental chains like Blockbuster won’t stock NC-17-rated DVDs.

In Hollywood, art and commerce have always been in tense balance. That balance may shifting as the Web becomes a larger factor in advertising. For example, a newspaper’s policy against advertising NC-17 movies is meaningless if a theater chain no longer uses newspaper advertising at all. AMC, the second biggest chain in the country, has been cutting back on print advertising since 2009. Last June, the company documented its shift from print to Web in a quarterly filing with the SEC. Regal Entertainment Group, another chain, reportedly is following suit.

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I spoke at the MSU/Quello Center’s “Governance of Social Media” workshop on November 11.  My talk runs 21 minutes and starts at 1:16:54 in this video. The Q&A begins at 1:41:00.

My presentation follows below. Continue reading →