New Looks at Old Dynamics

The world’s markets continue to oscillate as speculation, risk, and policy questions all collide to generate uncertainty.  I don’t think that the fundamentals are at risk, but there’s enough perception of problem to invite attempts to exploit uncertainty for profit.  The nuclear situation in Japan and the aftermath of the earthquake are creating risk, and so is the tension in the Middle East, most notably now in Libya and Bahrain.  There’s not much more to say on these issues other than to acknowledge that we’re likely in for a period of increased market swings, and that I believe the long-term trends will be positive.

In the US, everyone is trying to jump on the hot 2012 issue, which is perceived to be jobs.  One challenge that exists in the job market is that state and local governments are strapped for money owing to falling tax revenues.  That means that some means of balancing budgets is required, and for most that means reducing payrolls.  The net job loss here could make the jobs recovery lag the economic recovery because it offsets private-sector growth.  The problem is that it’s virtually impossible for states or local governments to avoid layoffs.

The much-publicized situation in Wisconsin was a Republican reaction to the state government dilemma, and many now believe it will end up hurting Republican chances in the 2012 elections.  The population at large, according to polls, doesn’t favor the union-busting mindset.  Even if all the move does is mobilize the Democratic base, that would virtually guarantee Republican defeat, and possibly on a large scale.  Other states have tried a different tactic, working to improve the state climate as a home for businesses and thus boost tax revenues.  It will probably take a year to see what works, which puts the results right at the time of the 2012 elections.

Copyright reform is also something that’s gaining traction, with the Administration taking a surprisingly activist role on what one might think would be a pro-business and thus Republican issue.  The Administration wants to reform a number of aspects of copyright law regarding media distribution, including the authorizing of wiretaps for felony infringement and possibly authorizing DPI to look for infringing exchanges.  While these reforms are far from promoting surveillance of everyone to prevent their infringement, they might well trap people who are infringing.  For those who believe that file exchange of copyrighted material is a right, that would be a blow.  But the US is unusually dependent on intellectual property development for its economic health, and with jobs a priority, you know where we’re likely headed.

One example of the infringement trend is the assertion that usage pricing might curtail piracy by making it expensive to host P2P copies of copyrighted material for exchange.  I do think you can make a case that rather than establishing usage caps and pricing increments for downloads, you might want to consider incremental pricing on uploads.  Most responsible studies suggest that as much as 80% of upload traffic is P2P exchange of copyrighted material, and it hardly seems fair to charge users overall to subsidize traffic that’s technically illegal.

Staying with our video theme, we now have some tests starting to determine how in-VoD advertising might be accepted by users.  Cable companies and telcos who support VoD have been interested in ad insertion in their material, mirroring the patterns of normal broadcast television.  There’s no question that users would prefer free programming without ads, but that’s hardly the issue and isn’t likely practical in the long run anyway.  The question is how many ads will they accept, and will users have a negative response if they can’t fast-forward VoD material to skip ads.  Many users are watching VoD for lack of anything interesting on channelized TV or to escape seemingly exploding advertising there, so striking a balance is important.

At the heart of the issue here is whether we’re in a kind of deadly spiral.  Lower appreciation for channelized content causes flight to online streaming, where ad revenues are lower.  The lower ad contribution reduces the available dollars to produce programming, which results in more flight. Over time, the stock of already-produced-and-not-seen content for each viewer is exhausted, and the incoming stream of new content isn’t sufficient to fulfill the needs of the audience.  Do they then go back to living-room charades, play Monopoly, or what?  Interesting question.


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