News, media & communications

Social Intelligence

One of the unwritten rules of technological innovation is the fact that sometimes things don’t go quite according to plan. This law of unintended consequences may be applicable to social networking, although we might have to wait a few years to find out. Social networks have been touted as the next big thing for years now and fortunes are certainly being made, although not necessarily in the ways that were expected.For example, AOL has just bought Bebo, but almost nobody has yet found a way to develop a successful revenue-generating business model. Facebook tried. The company developed Beacon, which was a way of telling users whenever a friend bought something online (‘Steve B has just bought some bacon’), but this new algorithmic attention economy always looked better on paper than online and privacy concerns and user rebellion soon killed this idea off. So will social networks ever make any real money? Well, they might, but perhaps not in quite the ways that people expect or want. One of the problems with social networks is that, like early email services, most destinations are walled gardens (the site owners want to retain a firm grip on users’ information so that they keep coming back to the site and thus ‘eyeballs’ can be sold to advertisers). However, having to log on to send or collect information is not convenient and it is also difficult for the sites to work out who is a real friend and who isn’t. But, ironically, for companies like AOL and Microsoft (who bought Hotmail back in the early days) it could be email services in the broadest sense that become the most useful social networking tools. This is because email in-boxes, out-boxes and address lists contain extremely valuable information about how people are connected and what they send to each other. Hence you can tell quite easily whether someone is a real friend or just a passing digital acquaintance.This information also tends to be easier to access and is also more likely to be kept up-to-date on a daily basis (for older users at least).

The Future of Music

2007 was a bad year for the recorded music industry and 2008 looks even worse.In 2006 the bosses of the world’s fourth-largest record company (EMI) asked a bunch of teens to come in to its headquarters to talk in person about their music likes and dislikes. As a thankyou present the teens were asked if they’d like to help themselves to a pile of free pre-recorded CDs sitting on a large table. None of them were interested. What this rather wonderful tale confirms is that the recorded music-industry’s main product is either dead or slowly dying. In 2006, 80% of pre-recorded global music sales were CDs but digital downloads are changing this fast. In the US the volume of physical music products fell by 19% in 2007 over 2006 and in the first two quarters of 2007 they fell by 6% in the UK, 9% in Japan, 21% in Canada and 14% in Australia. The song remains the same in much of the rest of the world.The problems facing the music industry are varied but connected. First, big retailers of physical music are cutting the space allocated to recorded music because the market is declining, but this action only accentuates the decline. Second, because the market is falling, record companies are cutting costs, which in turn impacts on marketing and promotions (including R&D). This lack of support is leading artists to seek alternative arrangements. For example, last year Madonna did not renew her contract with Warner Music, choosing instead to sign with a live concert promoter called Live Nation. Similarly, the Eagles managed to successfully launch a new album without any assistance from a music label and Radiohead allowed fans to download their new album off the Internet and to name their own price – which included ‘nothing’. But it’s not all doom and gloom. First there is a very big difference between the music industry and record companies (a point well made by music futurist Gerd Leonhard in his book The Future of Music (see below).Live music is healthy and so too is merchandising. The deal that Universal (the world’s largest music company) recently struck with Nokia also points to a future where music is thriving. The deal allows Nokia to sell handsets that ‘Come with music’. In other words the buyer of a phone gets ‘free’ access to music and can even move digital music from one device to another or to a new phone when their subscription expires. In exchange, the music company takes a slice of revenue from every ‘Comes with Music’ phone sold. More evidence, then, of the rise of the experience (live) economy and the factor that digital products are increasingly free or very close to it.

The Future of Movies

In the 1940s the Hollywood studios were fearful that a new-fangled device called television was about to wreck their industry. It didn’t. Similarly, in 1997 Paramount Studios, Disney and Twentieth Century Fox were all against another new invention – this time the DVD – because they could foresee disaster with people paying $18 each for a movie on DVD rather than $65 each for a movie on VHS. In the event this wasn’t a problem either. DVD sales hit $23.6 billion in the US in 2007 versus $9.6 billion for cinema releases. So is the Internet another non-threat? Things certainly don’t look good on the surface. Cinema revenues are flat while production and marketing costs are spiralling out of control. Sure Hollywood is involved with the Internet but this is almost exclusively to promote new movies. You can’t generally buy movies from movie websites. Why is this? The first explanation is theft. Hollywood is terrified about online piracy and illegal downloading. But this is something that Hollywood just has to live with because the Internet is where Hollywood’s core audience (teens) now lives. This may mean that pricing needs to be adjusted because people expect downloaded content to be free – or almost free – but there are ways to make this work. In other words, Hollywood has to create ways of allowing people to access movies legally much as Apple and Nokia and others have done with music (iTunes for movies anyone?). Alliances with companies such as Microsoft or Apple could do this, although the industry will first have to deal with retaliation from retailers such as Wal-Mart (responsible for 40% of DVD sales in the US). The second explanation for Hollywood’s reticence to embrace the Internet is that Hollywood is risk-averse. But this is unfair. Hollywood already embraces major risks by making expensive movies that it has next to no idea whether people will want to see until they are made and released. There is the hope that ‘fancy’ versions of DVD like HD-TV or Blu-ray will save the industry but this looks very unlikely. Furthermore, while the internet looks like a risk on paper, it might not be so. Digital distribution removes a number of significant costs such as manufacturing, packaging and transport and could pave the way for greater profits. It also allows lower costs entry to aspiring filmmakers but that is another story. Moreover, virtual distribution will allow studios to open up their old film vaults and the longtail effect will allow studios to aggregate demand for obscure movies from around the world. This, of course, is contingent on speeding up download times. In the US it currently takes 30-40 minutes to download a full-length movie compared to just 5-10 minutes in South Korea and Japan. One way of solving this problem is to download movies onto a plug-in device from kiosks in places such as gas stations or shopping malls. The ‘key’ is then simply inserted into a computer back home, which is in turn connected to a television (for the time being at least, we still prefer to watch movies on TV rather than on a PC).

Facebook Fatigue

Facebook suffered a 5% decline (that’s 400,000 people) in the number of users in the UK between December and January this year and MySpace and Bebo registered similar falls according to Nielsen Online (a research company). Time on site is also declining as people are becoming aware of issues relating to online privacy and piracy. Could it be that people are getting bored of social networks? Maybe we are just getting bored of each other? Year on year the figures are even worse. MySpace was down by 24% in 2007 compared to 2006 although the number of users is still very large. We’ve seen this before, of course. Friends Reunited in the UK suffered a similar fate as people joined, collected lots of semi-friends, played games, got bored and then left. Once the novelty falls away so too do the big audience numbers.To some people this all seemed obvious without hindsight. Twitter will probably suffer a similar fate for similar reasons. Of course this doesn’t mean that social networking sites are dead or even dying. Keeping in touch with family, friends or work colleagues is here to stay. What is going to die is the hype that is unrealistic and the high valuations that are being placed on these sites. After all, how can Facebook possibly be worth US $15 billion when this is the same valuation Wall Street puts on Ford (you know, the company that makes cars, has physical assets and has been around for almost 100 years).

Last Page for Books?

Is the book an endangered species? According to a National Endowment for the Arts (NEA) study in the US, 43% of American’s didn’t read a book during 2004. A similar study came up with a figure of 27% in 2007. There are always problems with statistics and the NEA’s figures are no different. For example, in the NEA study ‘literature’ does not include non-fiction, so The Decline and Fall of the Roman Empire or a biography of Charlotte Bronte don’t count as books. But is reading really declining? Looking back a hundred years the answer is almost certainly yes.The golden age of reading – in the US at least – was from around 1850-1950 (ie, pre-television) but for much of human history the book has been out of reach for ordinary people. This was partly for technological reasons (printing hadn’t been invented) but it was also because it was in the interests of the rich and powerful (eg, the Church) to keep information from the masses. Gutenberg changed this and free public libraries had a similar effect. As a result the literary knowledge of the average reader pre-1950 could be quite extraordinary compared to today’s reader. Books have been historically important not only in terms of economic advancement but social advancement too. So how did we get to where we are now, where a good book is simply defined as one that sells? How did books, writers and readers become commodities that are bought and sold? The answer, possibly, is that once the small publishers struggled to sell books they sold out to larger publishers who use every trick in the sales book to turn needs into wants and demand into unreasonable demands (artificial needs). And even using these tricks selling real books is still an uphill struggle. Books take time and effort to read and produce. They are not merely digital information or entertainment that can be created before you can say cut and paste. Another problem is that books (like television, newspapers and radio) have lowered their standards and ethics to sell more ‘product’ and the result is ‘content’ that is brain-numbingly stupid or actively nasty. Interestingly, digital media content also offers virtually no aesthetic pleasure compared to physical media and this might just be the saving grace for the book industry. Put another way, books are very efficient in terms of usability but perhaps the ultimate accolade for books is that they are physically here. They are not ephemeral. They last for decades, sometimes even hundreds of years, whereas digital media such as what you are reading right now is as evanescent as writing on water. Better print this out!