Tag: Digital economy

Physical vs. Digital Gold

tukaglobal

I reprint the free portion of this Substack post by Ted Gioia. Emphasis in bold and my comments in red. The reliance on physical products reflects the market economics of controlling the supply and thus the price and profit margins. This is what the branding industry has flourished on. Digital content (music, blogs, books, videos) are given away virtually free in order to build an audience (peer network) that one can then sell higher margin goods and services to.

This makes perfect sense, given the economics of the digital world and how it augments the physical world. This is what Google and Facebook and LinkedIn and Apple and Amazon all do. The question then is how does the individual creator build, own, control, service, and monetize their peer networks? It’s kind of like a very valuable Rolodex file.

tuka is designed exactly for this need for users to create and monetize digital data value. It’s all about the data networks and the value they represent. The online world is slowly moving in tuka‘s direction, but to decentralize value creation will still require a blockchain platform.

……..

 

Half the people buying vinyl albums don’t own record players. They treat their albums like holy relics—too precious to use and merely for display among other true believers. [Yes, but that’s collecting, not listening.]

Readers were shocked when I recently reported that statistic. I was a little stunned myself. But those are the facts.

Of course, there’s a lot about the vinyl revival that defies logic. What other business relies on a 60-year-old storage technology? That would be like running my writing career with a teletype unit and mimeograph machine.

And it’s not just vinyl. Cassette tapes—a cursed format that always unraveled at the worst possible time—are hot again. Even 8-track tapes, a longtime target of ridicule and abuse, are selling for thousands of dollars.

Why are people buying this stuff?

A new research report from Andrew Thompson at Components, released earlier today, helps us understand the bigger picture. Thompson analyzed 47,703,022 Bandcamp sales—involving almost five million items. And what he learned was startling.

Success in the music business is all about selling physical objects.

This is an unexpected situation—and runs counter to everything we’ve been told.

The Internet supposedly killed physical music media more than two decades ago. After iTunes was launched in 2001, there was no looking back. At first the music industry pivoted to digital downloads, and then everybody in the business jumped on the streaming bandwagon.

But it’s now 2023, and streaming platforms still aren’t profitable. [They never will be unless they can find a way to monetize those user networks.] However, Bandcamp is—and now we know why.

It’s all about tangible items.

Consider this chart—which looks at the correlation between revenues on Bandcamp and an artist’s reliance on physical merchandise.

Source: Components

Vinyl helps drive this. But it is only just part of a larger story. Artists can sell everything from clothing to compact discs on Bandcamp. And, of course, they can sell digital tracks too.

But the numbers make clear that physical merchandise is the smart business model.

According to Andrew Thompson:

Why is Bandcamp profitable and Spotify not? The answer we arrived at was that Bandcamp provides a simple platform for complex transactions, while Spotify is a technically complicated platform for facilitating a single transaction in the form of the one-size-fits-all subscription.

The Future Will Soon Be Here

tukaglobal

I repost Ted Gioia’s Substack post here because I couldn’t have said it all better myself. As he outlines it,  this has been tuka‘s approach all along. The one thing he doesn’t address is the winner-take-all aspect of creative markets –  why all these YT revenues end up going to a few mass influencers or curators. Blockchain and tokenization are necessary tools to decentralize and distribute rewards for value created.

A Creator-Driven Culture is Coming—and Nobody Can Stop It

By Ted Gioia

“Victory is assured!”

I’m talking about victory for creative professionals—musicians, writers, visual artists, and others who have been squeezed by the digital economy.

You’re probably surprised. Some people think I’m the Dr. Doom of the music scene. And it’s true, I’ve made a lot of depressing predictions over the last few years, Even more depressing, many of these predictions have already come true.

I’ve told horror stories about musicians who lost their gigs during the pandemic, and also saw their music royalties collapse as the audience shifted to streaming. I’ve talked about journalists fired from downsizing newspapers. And filmmakers who can’t get funded to make a movie unless a Marvel superhero is named in the title .

But now I want to tell you the rest of the story. Because the next phase in the cycle is filled with good news.

Victory is assured.

Let’s start by looking at the music business, where the squeeze has been the worst.

Whenever I do a forecast, my first step is to follow the money. And the adage that money talks has never been truer than right now. Those dollars are telling an amazing and unexpected story. Word on the street is that record labels are offering far more attractive terms to musicians than ever before.

“Here’s my craziest prediction. In the future, single individuals will have more impact in launching new artists than major record labels or streaming platforms.”

In the old days, musicians were lucky to get 15% of revenues, but I’m now hearing increasingly about deals that give artists a 50% cut, and in some instances allow them to regain ownership of their master recordings at a future date. The music moguls are positively generous—and (as we shall see) for structural reasons in the business that aren’t going away.

And it’s not just major labels giving more money to musicians. Take a look at Bandcamp, which lets musicians collect almost 90% of revenues from vinyl sales. And I’m hearing constantly from techies and entrepreneurs who are working on similar artist-centric business models. We are only in the early innings of this new game, but the shift is already enough to force huge concessions from legacy music companies.

Artist-friendly platforms are the future of music. And other creative pursuits as well—my own platform, Substack, is also allowing creators to keep close to 90% of revenues. This has spurred a huge talent migration from old media, and not merely for writers—you can find almost every kind of creative professional on Substack, from cartoonists to photographers.

For 25 long, hard years, creative professionals have been told that you must give things away for free on the Internet. But not anymore. Alternative economic models are not only emerging, but are propelling the fastest-growing platforms in arts and entertainment.

This is not only shaking up highbrow and popular culture, but capturing the attention of the next generation of tech visionaries—which is why, in the last year or so, I’ve been constantly approached by startups asking me to evaluate their business plans. This is unprecedented. It simply didn’t happen before the pandemic. But not only are these entrepreneurs trying to figure out what artists want, but they’re actually relying on creator wealth maximization as the focal point for their businesses.

In general, these young techies are smarter than the folks running the music business right now. (That’s a subject I want to discuss at a later date—I call it my ‘idiot nephew theory’ of the music business. But it has to wait.) Of course, many of these entrepreneurs are dreamers who will never go anywhere. That’s always the case with entrepreneurs. But some will succeed, and in a meaningful way.

In fact, it’s inevitable—and for the simple reason that the old institutions have stopped investing in the future. The new guard will take over because the old guard got weak and lazy.

Why is all this happening? Let’s go back to look at the music situation, because this helps us understand the larger picture.

Record labels are getting more generous because they don’t have a choice. They destroyed their own power base and source of influence. They stopped investing in R&D and new consumer technologies back in the 1980s. Twenty years later, they stopped manufacturing and distributing physical albums—and even when vinyl took off, they were asleep at the wheel. Over the same time period, they lost their marketing skills, trusting more in payola and influence peddling of various sorts.

But that’s just a start. Over a fifty-year period, record labels relentlessly dumbed-down their A&R departments. They shut down their recording studios, and let musicians handle that themselves—often even encouraging artists to record entire albums at home. Then they let huge streaming platforms control the relationship with consumers. At every juncture, they opted to do less and less, until they were left doing almost nothing at all.

The music industry’s unstated dream was to exit every part of the business, except cashing the checks. But reality doesn’t work that way. If you don’t add value, those checks eventually start shrinking.

The simple fact is that the legacy music business is living off the past—and will continue to do so until the copyrights expire. For a few more years, they will collect royalties on old songs, and make money on reissues and archival material. They know themselves that they have lost control of the future of music. That’s why, if they have spare cash, they use it to buy up catalogs and publishing rights of music from back in the day. Their favorite artists are dead artists.

But this is not a long-term game. It’s a death wish.

The major labels would like to own the music stars of the future, but they won’t. They would like to act greedy and put the squeeze on the next generation, but they can’t. They simply don’t have the leverage. And never will again.

And who will win if record labels lose? You think it might be the streaming platforms? Think again—because that’s not going to happen. Spotify and Apple Music are even less interested than the major labels in nurturing talent and building the careers of young artists.

Here’s my craziest prediction. In the future, single individuals will have more impact in launching new artists than major record labels or streaming platforms.

Just consider this: There are now 36 different YouTube channels with 50 million or more subscribers—and they’re often run by a single ambitious person, maybe with a little bit of support help. In fact, there are now seven YouTube channels with more than 100 million subscribers. By comparison, the New York Times only has nine million subscribers.

“How could a Substack column outbid major media outlets for new talent? But not only can it happen, it will inevitably happen.”

Most people don’t stop and think about the implications of this. But just ponder what it means when some dude sitting in a basement has ten times as much reach and influence as the New York Times.

If you run one of these channels and have any skill in identifying talent, you can launch the next generation of stars.

And not just in music. This works for everything—comedy, dance, animation, you name it.

Consider the case of MrBeast. Many of you have no idea what I’m talking about, but you need to find out—because MrBeast (or people like him) are going to change popular culture, whether we like it or not. MrBeast, for a start, runs 18 YouTube channels with more than 200 million total subscribers. He now has his videos translated into four languages: Spanish, Portuguese, Hindi, and Russian.

What does he do? I’m no expert on MrBeast, but I’m told he’s a good dude, and gives away a lot of money—huge sums, to be blunt. And he can afford to do it, because YouTube channels are low-overhead operations with enormous cash generation potential.

Oh, I forgot to mention that MrBeast is looking to raise capital from financial investors. He claims that his business is worth $1.5 billion, and may sell 10% to get $150 million to fund his future plans.

I’m not even beginning to pretend that MrBeast will use this money to get into the music business. But he might. And if he doesn’t, someone else like him will.

MrBeast has got the cash to shake up the music business—and if he doesn’t, someone like him will
I note that MrBeast only ranks number five in YouTube channel subscriptions. There are other people like him, or will be soon, and they are much better equipped to launch a new music act than any of the major labels.

That’s why musicians can make more money when the distribution model shifts from bloated record labels with huge overhead to alternative web-based platforms. I expect that deals for artists on these web channels will be more like 50/50. MrBeast is known for his generosity, but even if he wasn’t, his business model is much more flexible than anything Sony or Universal Music could ever dream of. These new platforms can afford to offer better terms to creators, and almost certainly will—because if they don’t someone else will.


This didn’t take place during the first wave of YouTube channels, because these influencers (I hate the term, but it’s appropriate in this setting) were focused on making themselves into money-making stars. But the next phase of growth for these people is brand extension, and that’s going to turn them into talent scouts.

I’m focusing on YouTube channels here, but the same story could be told about podcasters—or any other individual with a lock on an audience in the tens of millions. Consider them as the equivalent of the Ed Sullivan Show in the old days. The host of this long-running TV show didn’t have much talent himself, but it hardly mattered—Ed Sullivan was the curator who introduced America to Elvis Presley, the Beatles, and other rising stars. That kind of thing will happen again, but via a web channel or alternative platform.

These individuals can do absolutely everything a record label currently does, and do it better—they can launch new stars, get them instant visibility and gigs, generate millions of views for new songs, attract endorsement deals, etc. The few things they can’t do in-house (for example, press vinyl records) can be easily outsourced.

The same thing will happen in publishing. I’m already seeing a few of the more popular Substack writers using their huge subscriber base to launch the careers of other writers. By my calculations, this can be even more profitable and impactful than a book contract with a New York publisher—benefiting both the sponsoring writer and the new talent.

In fact, I might move in this direction myself. It’s too early, but 2-3 years from now I might start scouting out talented young writers or podcasters and feature them here in The Honest Broker. Everything depends on subscription numbers, but it’s possible that I could pay better than the New York Times or the Wall Street Journal.

At first blush, this seems impossible. How could a Substack column outbid major media outlets for new talent? But not only can it happen, it will inevitably happen. It’s the same story as in music. The old guard has stopped defending its base business, and everything is either up for grabs now—or will be very soon.

Newspapers have lost enormous power over the last twenty years. They have lost subscribers. They have lost ad revenues. They have even, in many instances, lost credibility and respect. Up until now, this has hurt writers—who depended on the newspapers for assignments and pay checks. But we are now arriving at the point where the trend reverses.

And this reversal opens up huge opportunities and income potential for smarter, nimbler operators.

I could give many other examples. What I’m describing is also true for Hollywood movie studios, book publishing, and every other field where the old guard has become arteriosclerotic and inflexible.

Okay, let me summarize the whole thing in a diagram.

[Note: tuka is in the blue circle here.]

There’s an elegant irony here. The very same forces putting the squeeze on creators actually serve to accelerate the happy next phase.

This is one reason why I believe karma is at work in the universe. If you run a business that depends on creativity, you can’t punish the creators without consequences. Sometimes it takes a while for the cycle to play out, but it always plays out the same way.

There are many aspects of this story I haven’t covered here. There are all sorts of Web3 angles, and there’s also a story to be told about how platforms such as Spotify will pay a price for squeezing musicians to subsidize their entry into podcasting and other ancillary businesses. But we can look at those on another occasion.

For the time being, I just want you to keep your eyes on the prize. And remember—Victory is Assured!

The Degeneration of Culture

tukaglobal

I reprint below an excellent substack post by Ted Gioia – a keen cultural observer, especially of music.

He explicates many of the obvious trends in our cultural degeneration. As one who has studied the entertainment industries from the inside and out, I have shown that these trends are primarily driven by technology and economics. Digital tech has minimized the return to risk for publishers and distributors, leading to the depletion of risk capital. Without risk capital on unproven art, there is no investment in the new and innovative. Thus, we get the most risk averse business models that basically regurgitate what worked last time. We see this is movies, music, visual arts, and books.

14 Warning Signs That You Are Living in a Society Without a Counterculture

by Ted Gioia

I’ve occasionally mentioned, in interviews and other settings, that we are living in a society without a counterculture. People ask me what I mean by this.

That’s a a reasonable question, but the new normal defies simple explanation. At some point, I hope to write in-depth on this subject. But today I will simply offer a quick definition, and then share 14 tweets.

These capture the flavor of what I’m trying to express better than any long-winded analysis.

First, here’s a quick definition. These are the key indicators that you might be living in a society without a counterculture:

    • A sense of sameness pervades the creative world
    • The dominant themes feel static and repetitive, not dynamic and impactful
    • Imitation of the conventional is rewarded
    • Movies, music, and other creative pursuits are increasingly evaluated on financial and corporate metrics, with all other considerations having little influence
    • Alternative voices exist—in fact, they are everywhere—but are rarely heard, and their cultural impact is negligible
    • Every year the same stories are retold, and this sameness is considered a plus
    • Creative work is increasingly embedded in genres that feel rigid, not flexible
    • Even avant-garde work often feels like a rehash of 50-60 years ago
    • Etc. etc. etc.

This is a deep matter, and I won’t try to unlock all the nuances here. I will now simply share 14 tweets that capture the stale taste of life without a counterculture. Some of these tweets are my own, others from total strangers—but they all paint the same overall picture.

The Honest Broker is a reader-supported guide to music, books, and culture. Both free and paid subscriptions are available. If you want to support my work, the best way is by taking out a paid subscription.

You might be living in a society without a counterculture if. . . .

(A story told in 14 tweets)

1. Every screen shows the same movie.

Twitter avatar for @tedgioiaTed Gioia @tedgioia

Shared without comment.

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May 5th 2022

12 Retweets

2. Alt Weeklies disappear in every city—along with everything else that’s alternative or outside the norm.

Twitter avatar for @realtofupuppyandy @realtofupuppy

Alone in a room with neatly stacked newspapers. It feels like a vigil for the alt weeklies that are gone, whether bought out by big media & whittled into husks or ended altogether. Everything from The Village Voice to my community paper, gone. I hope the sound they made echoes.

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March 15th 2021

3. The most popular song doesn’t change for three years in a row.

Twitter avatar for @rps_prRock Paper Scissors PR @rps_pr

Are we stuck in a loop? bit.ly/39awdlpvia: @tedgioia

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April 28th 2022

4. The banal word ‘content’ is used to describe every type of creative work, implying that artistry is generic and interchangeable.

Twitter avatar for @DiscussingFilmDiscussingFilm @DiscussingFilm

Martin Scorsese says “the art of cinema is being systematically devalued, sidelined, demeaned, and reduced to its lowest common denominator” due to the naming of films as “content.” (via: bit.ly/3qvlXYI)

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February 16th 2021

4,221 Retweets

5. There are lots of journalists, but they all seem to be working for the same corporations.

Twitter avatar for @NewspaperWorldWAN-IFRA @NewspaperWorld

Consolidation of US news publishers is hitting record levels with many newspapers owned by only a few companies, says Justin Eisenband, a Managing Director in FTI Consulting’s Publishing + Digital Media practice at #WNMC21

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November 29th 2021

3 Retweets

6. The dominant company in the creative culture views everything as a brand extension.

Twitter avatar for @PNPDisNewsPirates & Princesses @PNPDisNews

Disney CFO Forgets the Name of the Star Wars: Galactic Starcruiser Hotel in Walt Disney World Disney CFO Forgets the Name of the Star Wars: Galactic Starcruiser Hotel in Walt Disney WorldThe Star Wars: Galactic Starcruiser luxury hotel is so vital to Walt Disney World, that Disney CFO Christine McCarthy can’t even remember what it’s called. During a recent event at Walt Disney World, McCarthy fumbled around with the name of the Galactic Starcruiser, first calling it the “Starship,”…piratesandprincesses.net

May 19th 2022

8 Retweets

7. Indie music and alt music are marginalized.

Twitter avatar for @tedgioiaTed Gioia @tedgioia

“A Spotify playlist study has found that the Big Three labels (UMG, Warner, Sony) benefit most from curated playlists. In many cases, they practically control them.” Study Confirms That Major Labels Control Spotify PlaylistsA Spotify playlist study has found that major labels (UMG, Warner, Sony) account for most new songs added to curated playlists.digitalmusicnews.com

May 6th 2022

10 Retweets

8. Telling jokes becomes a dangerous profession.

Twitter avatar for @PageSixPage Six @PageSix

Comedy clubs up security after Will Smith slap: Guards, metal detectors trib.al/BJ5U7kl

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March 30th 2022

66 Retweets

9. The experts who ‘explain’ the culture to us all seem to be insiders with identical backgrounds.

Twitter avatar for @tedgioiaTed Gioia @tedgioia

Here’s the second installment of Daniel Stone’s analysis of the clique-ish world of the New York Review of Books—which Russell Jacoby once claimed “withdraws from the cultural bank without making any investments.” danielstone.substack.com/p/new-york-rev…

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May 26th 2022

2 Retweets

10. This year’s movies look a lot like last year’s movies.

Twitter avatar for @RPK_NEWS1RPK @RPK_NEWS1

Biggest films/shows of 2022. What are you looking forward to the most?

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December 5th 2021

3,234 Retweets

11. Even elite awards for creativity are dominated by reboots and remakes.

Twitter avatar for @nytimesThe New York Times @nytimes

Four of the Best Picture Oscar nominees this year are remakes or reboots of earlier films. Academy history can offer clues about how “Nightmare Alley,” “West Side Story,” “CODA” and “Dune” might fare on Sunday. Four Best Picture Contenders Are Remakes. Does That Matter to Oscar Voters?Academy history offers clues about how “Nightmare Alley,” “West Side Story,” “CODA” and “Dune” might fare on Sunday.nyti.ms

March 26th 2022

43 Retweets

12. Five companies have almost complete control over the book business—where, in an earlier day, dozens of indie publishers thrived.

Twitter avatar for @WilliamHogelandWilliam Hogeland @WilliamHogeland

Industry consolidation in US commercial book publishing has come down to a “Big Five” (soon to be a “Big Four”) commonly listed as Penguin/Random, HarperCollins, Hachette, Macmillan, and Simon & Schuster. Each of those companies, though, is of course owned by a bigger company.

June 29th 2021

3 Retweets

13. Everybody is encouraged to watch the same TV shows and movies—with niche options gradually removed from the dominant platforms.

Twitter avatar for @loudmouthjuliajulia alexander @loudmouthjulia

This is a great deep dive into Netflix’s film library, including how the quantity of titles has leveled out since a big drop in 2015 and a breakdown of how many films from each decade are available to US subscribers. Via the always brilliant @kasey__moore. whats-on-netflix.com/news/netflixs-…

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May 6th 2022

21 Retweets

14. All those nasty, rebellious songs that defy authorities are now owned by hedge funds.

Twitter avatar for @MotherJonesMother Jones @MotherJones

Your favorite song is probably part of a private equity portfolio Your favorite song is probably part of a private equity portfolioA peak inside the music industry machine.bit.ly

May 18th 2022

6 Retweets

Madmen and the Godless Algorithm

tukaglobal672 Comments

FB-vs-Google

This article from The New Yorker.

Good overview history of the advertising model that has dominated our commercialism for decades. It’s now gone on digital steroids. The disruption of ad technology has interesting implications.

How the Math Men Overthrew the Mad Men

By Ken Auletta

Once, Mad Men ruled advertising. They’ve now been eclipsed by Math Men—the engineers and data scientists whose province is machines, algorithms, pureed data, and artificial intelligence. Yet Math Men are beleaguered, as Mark Zuckerberg demonstrated when he humbled himself before Congress, in April. Math Men’s adoration of data—coupled with their truculence and an arrogant conviction that their “science” is nearly flawless—has aroused government anger, much as Microsoft did two decades ago.

The power of Math Men is awesome. Google and Facebook each has a market value exceeding the combined value of the six largest advertising and marketing holding companies. Together, they claim six out of every ten dollars spent on digital advertising, and nine out of ten new digital ad dollars. They have become more dominant in what is estimated to be an up to two-trillion-dollar annual global advertising and marketing business. Facebook alone generates more ad dollars than all of America’s newspapers, and Google has twice the ad revenues of Facebook.

In the advertising world, Big Data is the Holy Grail, because it enables marketers to target messages to individuals rather than general groups, creating what’s called addressable advertising. And only the digital giants possess state-of-the-art Big Data. “The game is no longer about sending you a mail order catalogue or even about targeting online advertising,” Shoshana Zuboff, a professor of business administration at the Harvard Business School, wrote on faz.net, in 2016. “The game is selling access to the real-time flow of your daily life—your reality—in order to directly influence and modify your behavior for profit.” Success at this “game” flows to those with the “ability to predict the future—specifically the future of behavior,” Zuboff writes. She dubs this “surveillance capitalism.” [I question whether this will really work as anticipated once everybody is hip to the game.]

However, to thrash just Facebook and Google is to miss the larger truth: everyone in advertising strives to eliminate risk by perfecting targeting data.[This is the essence of what we’re doing here – reducing the risk of uncertainty.] Protecting privacy is not foremost among the concerns of marketers; protecting and expanding their business is. The business model adopted by ad agencies and their clients parallels Facebook and Google’s. Each aims to massage data to better identify potential customers. Each aims to influence consumer behavior. To appreciate how alike their aims are, sit in an agency or client marketing meeting and you will hear wails about Facebook and Google’s “walled garden,” their unwillingness to share data on their users. When Facebook or Google counter that they must protect “the privacy” of their users, advertisers cry foul: You’re using the data to target ads we paid for—why won’t you share it, so that we can use it in other ad campaigns? [But who really owns your data? Even if you choose to give it away?]

This preoccupation with Big Data is also revealed by the trend in the advertising-agency business to have the media agency, not the creative Mad Men team, occupy the prime seat in pitches to clients, because it’s the media agency that harvests the data to help advertising clients better aim at potential consumers. Agencies compete to proclaim their own Big Data horde. W.P.P.’s GroupM, the largest media agency, has quietly assembled what it calls its “secret sauce,” a collection of forty thousand personally identifiable attributes it plans to retain on two hundred million adult Americans. Unlike Facebook or Google, GroupM can’t track most of what we do online. To parade their sensitivity to privacy, agencies reassuringly boast that they don’t know the names of people in their data bank. But they do have your I.P. address, which yields abundant information, including where you live. For marketers, the advantage of being able to track online behavior, the former senior GroupM executive Brian Lesser said—a bit hyperbolically, one hopes—is that “we know what you want even before you know you want it.”[That sounds like adman hubris rather than reality.]

Worried that Brian Lesser’s dream will become a nightmare, ProPublica has ferociously chewed on the Big Data privacy menace like a dog with a bone: in its series “Breaking the Black Box,” it wrote, “Facebook has a particularly comprehensive set of dossiers on its more than two billion members. Every time a Facebook member likes a post, tags a photo, updates their favorite movies in their profile, posts a comment about a politician, or changes their relationship status, Facebook logs it . . . When they use Instagram or WhatsApp on their phone, which are both owned by Facebook, they contribute more data to Facebook’s dossier.” Facebook offers advertisers more than thirteen hundred categories for ad targeting, according to ProPublica.

Google, for its part, has merged all the data it collects from its search, YouTube, and other services, and has introduced an About Me page, which includes your date of birth, phone number, where you work, mailing address, education, where you’ve travelled, your nickname, photo, and e-mail address. Amazon knows even more about you. Since it is the world’s largest store and sees what you’ve actually purchased, its data are unrivalled. Amazon reaches beyond what interests you (revealed by a Google search) or what your friends are saying (on Facebook) to what you actually purchase. With Amazon’s Alexa, it has an agent in your home that not only knows what you bought but when you wake up, what you watch, read, listen to, ask for, and eat. And Amazon is aggressively building up its meager ad sales, which gives it an incentive to exploit its data.

Data excite advertisers. Prowling his London office in jeans, Keith Weed, who oversees marketing and communications for Unilever, one of the world’s largest advertisers, described how mobile phones have elevated data as a marketing tool. “When I started in marketing, we were using secondhand data which was three months old,” he said. “Now with the good old mobile, I have individualized data on people. You don’t need to know their names . . . You know their telephone number. You know where they live, because it’s the same location as their PC.” Weed knows what times of the day you usually browse, watch videos, answer e-mail, travel to the office—and what travel routes you take. “From your mobile, I know whether you stay in four-star or two-star hotels, whether you go to train stations or airports. I use these insights along with what you’re browsing on your PC. I know whether you’re interested in horses or holidays in the Caribbean.” By using programmatic computers to buy ads targeting these individuals, he says, Unilever can “create a hundred thousand permutations of the same ad,” as they recently did with a thirty-second TV ad for Axe toiletries aimed at young men in Brazil. The more Keith Weed knows about a consumer, the better he can aim to target a sale.

Engineers and data scientists vacuum data. They see data as virtuous, yielding clues to the mysteries of human behavior, suggesting efficiencies (including eliminating costly middlemen, like agency Mad Men), offering answers that they believe will better serve consumers, because the marketing message is individualized. The more cool things offered, the more clicks, the more page views, the more user engagement. Data yield facts and advance a quest to be more scientific—free of guesses. As Eric Schmidt, then the executive chairman of Google’s parent company, Alphabet, said at the company’s 2017 shareholder meeting, “We start from the principles of science at Google and Alphabet.”

They believe there is nobility in their quest. By offering individualized marketing messages, they are trading something of value in exchange for a consumer’s attention. They also start from the principle, as the TV networks did, that advertising allows their product to be “free.” But, of course, as their audience swells, so does their data. Sandy Parakilas, who was Facebook’s operations manager on its platform team from 2011 to 2012, put it this way in a scathing Op-Ed for the Times, last November: “The more data it has on offer, the more value it creates for advertisers. That means it has no incentive to police the collection or use of that data—except when negative press or regulators are involved.” For the engineers, the privacy issue—like “fake news” and even fraud—was relegated to the nosebleed bleachers. [This fact should be obvious to all of us.]

With a chorus of marketers and citizens and governments now roaring their concern, the limitations of Math Men loom large. Suddenly, governments in the U.S. are almost as alive to privacy dangers as those in Western Europe, confronting Facebook by asking how the political-data company Cambridge Analytica, employed by Donald Trump’s Presidential campaign, was able to snatch personal data from eighty-seven million individual Facebook profiles. Was Facebook blind—or deliberately mute? Why, they are really asking, should we believe in the infallibility of your machines and your willingness to protect our privacy?

Ad agencies and advertisers have long been uneasy not just with the “walled gardens” of Facebook and Google but with their unwillingness to allow an independent company to monitor their results, as Nielsen does for TV and comScore does online. This mistrust escalated in 2016, when it emerged that Facebook and Google charged advertisers for ads that tricked other machines to believe an ad message was seen by humans when it was not. Advertiser confidence in Facebook was further jolted later in 2016, when it was revealed that the Math Men at Facebook overestimated the average time viewers spent watching video by up to eighty per cent. And in 2017, Math Men took another beating when news broke that Google’s YouTube and Facebook’s machines were inserting friendly ads on unfriendly platforms, including racist sites and porn sites. These were ads targeted by keywords, like “Confederacy” or “race”; placing an ad on a history site might locate it on a Nazi-history site.

The credibility of these digital giants was further subverted when Russian trolls proved how easy it was to disseminate “fake news” on social networks. When told that Facebook’s mechanized defenses had failed to screen out disinformation planted on the social network to sabotage Hillary Clinton’s Presidential campaign, Mark Zuckerberg publicly dismissed the assertion as “pretty crazy,” a position he later conceded was wrong.

By the spring of 2018, Facebook had lost control of its narrative. Their original declared mission—to “connect people” and “build a global community”—had been replaced by an implicit new narrative: we connect advertisers to people.[Indeed, connecting people on a global basis for human interaction really doesn’t make a lot of sense. A global gossip network? Unless, of course, you’re trying to monetize it.] It took Facebook and Google about five years before they figured out how to generate revenue, and today roughly ninety-five percent of Facebook’s dollars and almost ninety percent of Google’s comes from advertising. They enjoy abundant riches because they tantalize advertisers with the promise that they can corral potential customers. This is how Facebook lured developers and app makers by offering them a permissive Graph A.P.I., granting them access to the daily habits and the interchange with friends of its users. This Graph A.P.I. is how Cambridge Analytica got its paws on the data of eighty-seven million Americans.

The humiliating furor this news provoked has not subverted the faith among Math Men that their “science” will prevail. They believe advertising will be further transformed by new scientific advances like artificial intelligence that will allow machines to customize ads, marginalizing human creativity. With algorithms creating profiles of individuals, Airbnb’s then chief marketing officer, Jonathan Mildenhall, told me, “brands can engineer without the need for human creativity.” Machines will craft ads, just as machines will drive cars. But the ad community is increasingly mistrustful of the machines, and of Facebook and Google.[As they should be – the value has been over-hyped.] During a presentation at Advertising Week in New York this past September, Keith Weed offered a report to Facebook and Google. He gave them a mere “C” for policing ad fraud, and a harsher “F” for cross-platform transparency, insisting, “We’ve got to see over the walled gardens.”

That mistrust has gone viral. A powerful case for more government regulation of the digital giants was made by The Economist, a classically conservative publication that also endorsed the government’s antitrust prosecution of Microsoft, in 1999. The magazine editorialized, in May, 2017, that governments must better police the five digital giants—Facebook, Google, Amazon, Apple, and Microsoft—because data were “the oil of the digital era”: “Old ways of thinking about competition, devised in the era of oil, look outdated in what has come to be called the ‘data economy.’ ” Inevitably, an abundance of data alters the nature of competition, allowing companies to benefit from network effects, with users multiplying and companies amassing wealth to swallow potential competitors.

The politics of Silicon Valley is left of center, but its disdain for government regulation has been right of center. This is changing. A Who’s Who of Silicon notables—Tim Berners-Lee, Tim Cook, Ev Williams, Sean Parker, and Tony Fadell, among others—have harshly criticized the social harm imposed by the digital giants. Marc Benioff, the C.E.O. of Salesforce.com—echoing similar sentiments expressed by Berners-Lee—has said, “The government is going to have to be involved. You do it exactly the same way you regulated the cigarette industry.”

Cries for regulating the digital giants are almost as loud today as they were to break up Microsoft in the late nineties. Congress insisted that Facebook’s Zuckerberg, not his minions, testify. The Federal Trade Commission is investigating Facebook’s manipulation of user data. Thirty-seven state attorneys general have joined a demand to learn how Facebook safeguards privacy. The European Union has imposed huge fines on Google and wants to inspect Google’s crown jewels—its search algorithms—claiming that Google’s search results are skewed to favor their own sites. The E.U.’s twenty-eight countries this May imposed a General Data Protection Regulation to protect the privacy of users, requiring that citizens must choose to opt in before companies can horde their data.

Here’s where advertisers and the digital giants lock arms: they speak with one voice in opposing opt-in legislation, which would deny access to data without the permission of users. If consumers wish to deny advertisers access to their cookies—their data—they agree: the consumer must voluntarily opt out, meaning they must endure a cumbersome and confusing series of online steps. Amid the furor about Facebook and Google, remember these twinned and rarely acknowledged truisms: more data probably equals less privacy, while more privacy equals less advertising revenue. Thus, those who rely on advertising have business reasons to remain tone-deaf to privacy concerns.

Those reliant on advertising know: the disruption that earlier slammed the music, newspaper, magazine, taxi, and retail industries now upends advertising. Agencies are being challenged by a host of competitive frenemies: by consulting and public-relations companies that have jumped into their business; by platform customers like Google and Facebook but also the Times, NBC, and Buzzfeed, that now double as ad agencies and talk directly to their clients; by clients that increasingly perform advertising functions in-house.

But the foremost frenemy is the public, which poses an existential threat not just to agencies but to Facebook and the ad revenues on which most media rely. Citizens protest annoying, interruptive advertising, particularly on their mobile phones—a device as personal as a purse or wallet. An estimated twenty per cent of Americans, and one-third of Western Europeans, employ ad-blocker software. More than half of those who record programs on their DVRs choose to skip the ads. Netflix and Amazon, among others, have accustomed viewers to watch what they want when they want, without commercial interruption.

Understandably, those dependent on ad dollars quake. The advertising and marketing world scrambles for new ways to reach consumers. Big Data, they believe, promises ways they might better communicate with annoyed consumers—maybe unlock ways that ads can be embraced as a useful individual service rather than as an interruption. If Big Data’s use is circumscribed to protect privacy, the advertising business will suffer. In this core conviction, at least, Mad Men and Math Men are alike.

This piece is partially adapted from Auletta’s forthcoming book, “Frenemies: The Epic Disruption of the Ad Business (and Everything Else).”

 

I would guess that the ad business will be disrupted further as we find new ways to connect consumers with what they want. This will reduce the power of the Math Men at centralized network servers.

I also suspect search will become a regulated public utility. A free society cannot tolerate one or two private corporations controlling all the information data that flows through its networks.

 

The Death of Culture?

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Designing a Sustainable Creative Ecosystem

Too Much information = The Death of Culture?

The major creative industries of music, photography, print, and video have all been disrupted by digital technology. We know this. As Chris Anderson has argued in his book Free, the cost of digital content has been driven towards zero. How could this be a bad thing? Well, TMI (Too Much Information — in this case, Too Much Content) is the curse of the Digital Age. It means creators make no money and audiences can’t find quality content amidst all the noise.

The end result will be a staleness of content and stagnant creative markets, i.e., the slow death of culture. So, how did this happen and what do we do about it?

View the rest of the story on Medium.

Vampire Squids?

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likenolike

I would say this essay by Franklin Foer is a bit alarmist, though his book is worth reading and taking to heart. We are gradually becoming aware of the value of our personal data and I expect consumers will soon figure out how to demand a fair share of that value, else they will withdraw.

Technology is most often disrupted by newer technology that better serves the needs of users. For Web 2.0 business models, our free data is their lifeblood and soon we may be able to cut them off. Many hope that’s where Web 3.0 is going.

tuka is a technology model that seeks to do exactly that for creative content providers, their audiences, and promoter/fans.

How Silicon Valley is erasing your individuality

By Franklin Foer
Washington Post, September 8, 2017

 

Franklin Foer is author of “World Without Mind: The Existential Threat of Big Tech,” from which this essay is adapted.

Until recently, it was easy to define our most widely known corporations. Any third-grader could describe their essence. Exxon sells gas; McDonald’s makes hamburgers; Walmart is a place to buy stuff. This is no longer so. Today’s ascendant monopolies aspire to encompass all of existence. Google derives from googol, a number (1 followed by 100 zeros) that mathematicians use as shorthand for unimaginably large quantities. Larry Page and Sergey Brin founded Google with the mission of organizing all knowledge, but that proved too narrow. They now aim to build driverless cars, manufacture phones and conquer death. Amazon, which once called itself “the everything store,” now produces television shows, owns Whole Foods and powers the cloud. The architect of this firm, Jeff Bezos, even owns this newspaper.

Along with Facebook, Microsoft and Apple, these companies are in a race to become our “personal assistant.” They want to wake us in the morning, have their artificial intelligence software guide us through our days and never quite leave our sides. They aspire to become the repository for precious and private items, our calendars and contacts, our photos and documents. They intend for us to turn unthinkingly to them for information and entertainment while they catalogue our intentions and aversions. Google Glass and the Apple Watch prefigure the day when these companies implant their artificial intelligence in our bodies. Brin has mused, “Perhaps in the future, we can attach a little version of Google that you just plug into your brain.”

More than any previous coterie of corporations, the tech monopolies aspire to mold humanity into their desired image of it. They think they have the opportunity to complete the long merger between man and machine — to redirect the trajectory of human evolution. How do I know this? In annual addresses and town hall meetings, the founding fathers of these companies often make big, bold pronouncements about human nature — a view that they intend for the rest of us to adhere to. Page thinks the human body amounts to a basic piece of code: “Your program algorithms aren’t that complicated,” he says. And if humans function like computers, why not hasten the day we become fully cyborg?

To take another grand theory, Facebook chief Mark Zuckerberg has exclaimed his desire to liberate humanity from phoniness, to end the dishonesty of secrets. “The days of you having a different image for your work friends or co-workers and for the other people you know are probably coming to an end pretty quickly,” he has said. “Having two identities for yourself is an example of a lack of integrity.” Of course, that’s both an expression of idealism and an elaborate justification for Facebook’s business model.

There’s an oft-used shorthand for the technologist’s view of the world. It is assumed that libertarianism dominates Silicon Valley, and that isn’t wholly wrong. High-profile devotees of Ayn Rand can be found there. But if you listen hard to the titans of tech, it’s clear that their worldview is something much closer to the opposite of a libertarian’s veneration of the heroic, solitary individual. The big tech companies think we’re fundamentally social beings, born to collective existence. They invest their faith in the network, the wisdom of crowds, collaboration. They harbor a deep desire for the atomistic world to be made whole. (“Facebook stands for bringing us closer together and building a global community,” Zuckerberg wrote in one of his many manifestos.) By stitching the world together, they can cure its ills.

Rhetorically, the tech companies gesture toward individuality — to the empowerment of the “user” — but their worldview rolls over it. Even the ubiquitous invocation of users is telling: a passive, bureaucratic description of us. The big tech companies (the Europeans have lumped them together as GAFA: Google, Apple, Facebook, Amazon) are shredding the principles that protect individuality. Their devices and sites have collapsed privacy; they disrespect the value of authorship, with their hostility toward intellectual property. In the realm of economics, they justify monopoly by suggesting that competition merely distracts from the important problems like erasing language barriers and building artificial brains. Companies should “transcend the daily brute struggle for survival,” as Facebook investor Peter Thiel has put it.

When it comes to the most central tenet of individualism — free will — the tech companies have a different way. They hope to automate the choices, both large and small, we make as we float through the day. It’s their algorithms that suggest the news we read, the goods we buy, the paths we travel, the friends we invite into our circles. [Blogger Note: As computers can’t write music like humans, algorithms cannot really define tastes. Our sensibilities are excited by serendipity, innovation, and surprise.]

It’s hard not to marvel at these companies and their inventions, which often make life infinitely easier. But we’ve spent too long marveling. The time has arrived to consider the consequences of these monopolies, to reassert our role in determining the human path. Once we cross certain thresholds — once we remake institutions such as media and publishing, once we abandon privacy — there’s no turning back, no restoring our lost individuality.

***

Over the generations, we’ve been through revolutions like this before. Many years ago, we delighted in the wonders of TV dinners and the other newfangled foods that suddenly filled our kitchens: slices of cheese encased in plastic, oozing pizzas that emerged from a crust of ice, bags of crunchy tater tots. In the history of man, these seemed like breakthrough innovations. Time-consuming tasks — shopping for ingredients, tediously preparing a recipe and tackling a trail of pots and pans — were suddenly and miraculously consigned to history.

The revolution in cuisine wasn’t just enthralling. It was transformational. New products embedded themselves deeply in everyday life, so much so that it took decades for us to understand the price we paid for their convenience, efficiency and abundance. Processed foods were feats of engineering, all right — but they were engineered to make us fat. Their delectable taste required massive quantities of sodium and sizable stockpiles of sugar, which happened to reset our palates and made it harder to satehunger. It took vast quantities of meat and corn to fabricate these dishes, and a spike in demand remade American agriculture at a terrible environmental cost. A whole new system of industrial farming emerged, with penny-conscious conglomerates cramming chickens into feces-covered pens and stuffing them full of antibiotics. By the time we came to understand the consequences of our revised patterns of consumption, the damage had been done to our waistlines, longevity, souls and planet.

Something like the midcentury food revolution is now reordering the production and consumption of knowledge. Our intellectual habits are being scrambled by the dominant firms. Giant tech companies have become the most powerful gatekeepers the world has ever known. Google helps us sort the Internet, by providing a sense of hierarchy to information; Facebook uses its algorithms and its intricate understanding of our social circles to filter the news we encounter; Amazon bestrides book publishing with its overwhelming hold on that market.

Such dominance endows these companies with the ability to remake the markets they control. As with the food giants, the big tech companies have given rise to a new science that aims to construct products that pander to their consumers. Unlike the market research and television ratings of the past, the tech companies have a bottomless collection of data, acquired as they track our travels across the Web, storing every shard about our habits in the hope that they may prove useful. They have compiled an intimate portrait of the psyche of each user — a portrait that they hope to exploit to seduce us into a compulsive spree of binge clicking and watching. And it works: On average, each Facebook user spends one-sixteenth of their day on the site.

In the realm of knowledge, monopoly and conformism are inseparable perils. The danger is that these firms will inadvertently use their dominance to squash diversity of opinion and taste. Concentration is followed by homogenization. As news media outlets have come to depend heavily on Facebook and Google for traffic — and therefore revenue — they have rushed to produce articles that will flourish on those platforms. This leads to a duplication of the news like never before, with scores of sites across the Internet piling onto the same daily outrage. It’s why a picture of a mysteriously colored dress generated endless articles, why seemingly every site recaps “Game of Thrones.” Each contribution to the genre adds little, except clicks. Old media had a pack mentality, too, but the Internet promised something much different. And the prevalence of so much data makes the temptation to pander even greater.

This is true of politics. Our era is defined by polarization, warring ideological gangs that yield no ground. Division, however, isn’t the root cause of our unworkable system. There are many causes, but a primary problem is conformism. Facebook has nurtured two hive minds, each residing in an informational ecosystem that yields head-nodding agreement and penalizes dissenting views. This is the phenomenon that the entrepreneur and author Eli Pariser famously termed the “Filter Bubble” — how Facebook mines our data to keep giving us the news and information we crave, creating a feedback loop that pushes us deeper and deeper into our own amen corners.

As the 2016 presidential election so graphically illustrated, a hive mind is an intellectually incapacitated one, with diminishing ability to tell fact from fiction, with an unshakable bias toward party line. The Russians understood this, which is why they invested so successfully in spreading dubious agitprop via Facebook. And it’s why a raft of companies sprouted — Occupy Democrats, the Angry Patriot, Being Liberal — to get rich off the Filter Bubble and to exploit our susceptibility to the lowest-quality news, if you can call it that.

Facebook represents a dangerous deviation in media history. Once upon a time, elites proudly viewed themselves as gatekeepers. They could be sycophantic to power and snobbish, but they also felt duty-bound to elevate the standards of society and readers. Executives of Silicon Valley regard gatekeeping as the stodgy enemy of innovation — they see themselves as more neutral, scientific and responsive to the market than the elites they replaced — a perspective that obscures their own power and responsibilities. So instead of shaping public opinion, they exploit the public’s worst tendencies, its tribalism and paranoia.

***

During this century, we largely have treated Silicon Valley as a force beyond our control. A broad consensus held that lead-footed government could never keep pace with the dynamism of technology. By the time government acted against a tech monopoly, a kid in a garage would have already concocted some innovation to upend the market. Or, as Google’s Eric Schmidt, put it, “Competition is one click away.” A nostrum that suggested that the very structure of the Internet defied our historic concern for monopoly.

As individuals, we have similarly accepted the omnipresence of the big tech companies as a fait accompli. We’ve enjoyed their free products and next-day delivery with only a nagging sense that we may be surrendering something important. Such blitheness can no longer be sustained. Privacy won’t survive the present trajectory of technology — and with the sense of being perpetually watched, humans will behave more cautiously, less subversively. Our ideas about the competitive marketplace are at risk. With a decreasing prospect of toppling the giants, entrepreneurs won’t bother to risk starting new firms, a primary source of jobs and innovation. And the proliferation of falsehoods and conspiracies through social media, the dissipation of our common basis for fact, is creating conditions ripe for authoritarianism. Over time, the long merger of man and machine has worked out pretty well for man. But we’re drifting into a new era, when that merger threatens the individual. We’re drifting toward monopoly, conformism, their machines. Perhaps it’s time we steer our course.

The Thing That Devoured the World

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Interesting take on Amazon’s dominance reprinted from PJ Media.

The ‘Amazon Washington Post,’ and Why It Needs to Be Destroyed

By Michael Walsh 2017-07-22

As readers of PJ Media’s daily feature, Hot Mic, are aware, I’m not a big fan of Amazon. In the guise of ease, efficiency and allegedly low prices, it’s crushing the life out of the retail sector in the United States, demolishing bookstores, big-box stores, department stores, grocery stores, record stores, and even smaller retail outlets, putting small businessmen, struggling authors and garage bands out of business. In so doing, it’s also killing job prospects for entry-level workers who might actually not want to work at McDonald’s.

In their place, it offers you Alexa, your very own electronic monitor and spy, sleeping right next to you on the nightstand in the innocuous guise of your smart phone or your tablet, monitoring your porn searches while it pretends to buy you Doris Kearns Goodwin’s latest book or a tin of Acai berry powder.

In publishing, where I earn part of my living, it forces authors to compete with themselves, offering marked-down used versions of works still in print, thus depriving us of royalty payments. At a time when advances — except to celebrities famous for something other than their literary skills — are a tenth of what they used to be, working writers must now depend on quickly earning out the initial advance (based on — you guessed it — royalties) and then getting subsequent paychecks at six-month intervals for as long as the book continues to sell new copies.

Don’t even get me started on Hollywood.

Well, you say, that’s my — and Roger’s and Richard’s and Drew Klavan’s and Roger Kimball’s and David Goldman’s and VDH’s and Andy’s, among other PJ colleagues — tough luck. True enough. But, wait — you’re next.

Shares of  Home Depot and  Lowe’s were slammed Thursday, along with  Whirlpool, after  Amazon threatened to take on the appliance market in a much bigger way in a deal with  Sears Holdings.

The market cap loss in Home Depot, Lowe’s, Whirlpool and Best Buy was about $12.5 billion by the end of the day, after falling to more than $13 billion. Amazon stock was up slightly, and Sears closed up about 10 percent.

But the early read from some analysts was that the sell-off has created a buying opportunity for home improvement retailers Home Depot and Lowe’s, which have proven themselves to be somewhat “Amazon-proof” and among the best performers in the sector. Best Buy, already battling Amazon in electronics, ended the day about 4 percent lower.

Sears, which has been losing share in appliance for years, saw its stock rally as much as 25 percent early Thursday, soon after it announced it would sell its Kenmore-branded appliances on Amazon.com. The products will be compatible with Amazon’s Alexa platform.

God knows, Sears can use the help, as the pictures at the link show. Even if it comes via the Trojan Horse of Alexa. Having been beaten nearly to death by its own ineptitude and electronic retailing, Sears has finally decided that if you can’t beat ’em, join ’em.

The department store chain announced plans on Thursday to sell Kenmore-branded appliances on Amazon.com. Sears also said its Kenmore Smart appliances will be integrated with Amazon’s Alexa platform. Shares of Sears’ stock were climbing more than 25 percent at one point in trading before the market’s open following this news.

“The launch of Kenmore products on Amazon.com will significantly expand the distribution and availability of the Kenmore brand in the U.S.,” Sears CEO Eddie Lampert said in a statement. “At the same time, Sears Home Services and our Innovel Solutions unit will benefit from the relationship as more customers experience their quality services for Kenmore products purchased on Amazon.com.”

Sears said a new “Kenmore Smart” skill for Amazon Alexa will allow customers to control their appliances — changing the temperature on an air conditioner without leaving the sofa, for example.

Now there’s progress for you — progress toward the further coach-potatoing of America, perhaps, but progress. Naturally, there’s a downside for Sears:

In partnering with Amazon, Sears is looking to expand its reach and grow the Kenmore nameplate. However, the move is a double-edged sword, because it also gives shoppers another reason to avoid heading to a Sears store.

But hey — in the brave new Amazonian jungle, there’s even an upside to the downside!

Appliances are one of the categories that have helped draw customers. Just last month, Sears opened a store — the first of its kind for the company — that only sells mattresses and appliances. Plans are also underway to open additional freestanding Sears stores dedicated to these two categories — what Sears has called “two of its strongest.”

“This is consistent with Sears’ aim of becoming more of a remote seller of strong brands without the encumbrance of expensive real estate,” GlobalData Retail Managing Director Neil Saunders told CNBC. “The move makes sense as it puts Sears’ brand products where customers are shopping and gives them a better chance of selling.”

“That said, in the short term it may create even fewer reasons to visit Sears’ shops, which could put further pressure on that side of the business,” Saunders added. “It also puts Sears into a marketplace which is very price competitive and where fulfillment costs are high; this is something that may be challenging for margins.”

Translation: Sears is doomed, but this will prolong the death throes for a while longer, while the last generation of Sears execs can pull the cords on their golden parachutes.

Now, in many ways, Amazon is the logical successor to Sears, which invented the concept of the department store and, through its mail-order catalog, delivered goods and goodies across a rapidly expanding America; you could even buy your house out of a Sears catalog.  On the other hand, there’s an important difference: with Sears you could pay C.O.D.; with Amazon, you either use a credit card (at 18% interest) or you’re out of luck. Do business in cash? Tough. Like to avoid finance charges? Too bad, unless you pay off your balances every month. Don’t want to go into debt over that irresistible offer Alexa just chirped to you? Fuhgeddaboutitt.

Meanwhile, the FTC is sniffing around Amazon’s business practices:

As part of its review of Amazon’s agreement to buy Whole Foods, the Federal Trade Commission is looking into allegations that Amazon misleads customers about its pricing discounts, according to a source close to the probe.

The FTC is probing a complaint brought by the advocacy group Consumer Watchdog, which looked at some 1,000 products on Amazon’s website in June and found that Amazon put reference prices, or list prices, on about 46 percent of them.

An analysis found that in 61 percent of products with reference prices, Amazon’s reference prices were higher than it had sold the same product in the previous 90 days, Consumer Watchdog said in a letter to the FTC dated July 6. Following receipt of the letter, the agency made informal inquiries about the allegations, according to a source who spoke on background to preserve business relationships.

This can’t be good. Enough alarms have been set off by Amazon’s tender for the Leftist sacred cow of Whole Foods, its new partnership with Sears, and its entry to the meal-kit market to finally get the attention of federal authorities.

The review of Amazon’s discount pricing is an indication the FTC is taking a serious look at the e-commerce company’s agreement to buy Whole Foods, a deal that critics say could give Amazon an unfair advantage. Consumer Watchdog argued that the deceptive list prices make Amazon prices look like a bargain, and asked the FTC to stop Amazon from buying Whole Foods while the deceptive discounting is occurring.

The FTC plays a dual role of probing charges of deceptive advertising and assessing mergers to ensure they comply with antitrust law. Amazon said in June that it would buy the premium grocer for $13.7 billion. The FTC’s “Guide Against Deceptive Pricing” warns against using a “fictitious” or “inflated” list price for the purpose of making the price charged look like a bargain.

Amazon settled similar allegations with Canada’s Competition Bureau in January. It paid a fine of C$1 million ($756,658.60) as part of the settlement.

In the background, but very much part of the conversation, is Amazon’s engorgement on the The Washington Post company, a once-honored (Watergate!) news organization that Amazon boss Jeff Bezos essentially bought for parts — the main part being the still-influential newspaper in the Imperial City of Washington, D.C. This isn’t so much of a financial investment as a form of protection money — although Bezos had the chutzpah recently to whine about the deleterious effect of Google and Facebook on print’s advertising base, and to make a pitch to the U.S. government for anti-trust protection:

Four years ago, Amazon founder Jeff Bezos was asked if his company’s “ruthless” pursuit of market share was driving book stores out of business. “The Internet is disrupting every media industry,” Bezos said. “People can complain about that, but complaining is not a strategy. And Amazon is not happening to book selling, the future is happening to book selling.”

The future is also happening to newspaper publishers, and their latest effort to stave off change — a bid for an antitrust exemption — is unlikely to succeed, according to legal experts and Silicon Valley insiders who spoke with CNNMoney.

Earlier this week, the News Media Alliance — which says it represents over 2,000 newspapers in the U.S., including The New York Times, The Washington Post and The Wall Street Journal — said it would begin seeking an antitrust exemption from Congress in order to negotiate collectively with Google and Facebook, which together receive an estimated 60% of all U.S. digital advertising revenue.

Good luck with that — because here comes the Big Dog:

The president here puts his finger on Bezos’ long game in buying the Post — with its long-burnished connections to the deepest of the Deep State swamp creatures, the always-wrong CIA — and its past journalistic credibility. Owning the Post gives him leverage over not only Trump, but the federal government as well; it’s worth almost any amount of money that Bezos wants to spend in order for his to be the public voice of the most important city in the world, a city made of money, dedicated to the pursuit of power, and determined to keep the good times rolling without grubby outside interference from the likes of the nouveau-riche Trump family.

The outer-borough Trump, whose never-lost Queens accent set him apart from his tony mid-Atlantic Manhattan counterparts, may have made his new money in the low-rent residential real estate business, but the D.C. elite came by theirs the old fashioned-ways: through the Old-Ivy higher education networks (Hotchkiss and Andover to Yale and Harvard) and generations of familial political connection and, often, corruption.

Bezos, like Trump, is an outsider. But rather than run for president — that piddling office — he busted up American retailing and grabbed the Post to ensure that trouble from 1600 Pennsylvania Avenue and Capitol Hill would be kept to an absolute minimum. With the example of Bill Gates and Microsoft still fresh in everyone’s memory, why wouldn’t he?

… In a much-­anticipated decision, Judge Thomas Penfield Jackson declared that, by exploiting its monopoly power to try to crush its competitors, Microsoft had violated federal anti-trust laws. Judge Jackson didn’t just buy some of what Boies, representing the United States government, was selling in the case: that Microsoft had illegally used its stranglehold over computer operating systems to intimidate or eliminate its rivals; he bought it almost verbatim.

Was United States v. Microsoft a tough case? a New York Times reporter asked him before the trial. “Not really,” he replied. And Microsoft—having produced reams of self-­incriminating documents and a parade of witnesses who came to court overconfident or inept or deceitful or ill-­prepared—made it easier for him than he ever imagined.

And the best part about Amazon’s climb to monopolistic supremacy? You’re subsidizing it:

Like many close observers of the shipping business, I know a secret about the federal government’s relationship with Amazon: The U.S. Postal Service delivers the company’s boxes well below its own costs. Like an accelerant added to a fire, this subsidy is speeding up the collapse of traditional retailers in the U.S. and providing an unfair advantage for Amazon.

In 2007 the Postal Service and its regulator determined that, at a minimum,  5.5% of the agency’s fixed costs must be allocated to packages and similar products. A decade later, around 25% of its revenue comes from packages, but their share of fixed costs has not kept pace. First-class mail effectively subsidizes the national network, and the packages get a free ride. An April analysis from  Citigroup estimates that if costs were fairly allocated, on average parcels would cost $1.46 more to deliver. It is as if every Amazon box comes with a dollar or two stapled to the packing slip—a gift card from Uncle Sam.
Amazon is big enough to take full advantage of “postal injection,” and that has tipped the scales in the internet giant’s favor. Select high-volume shippers are able to drop off presorted packages at the local Postal Service depot for “last mile” delivery at cut-rate prices. With high volumes and warehouses near the local depots, Amazon enjoys low rates unavailable to its competitors. My analysis of available data suggests that around two-thirds of Amazon’s domestic deliveries are made by the Postal Service. It’s as if Amazon gets a subsidized space on every mail truck.
Enjoy your “savings” and “convenience,” folks. After all, you’re paying for it — boy, are you ever.

Why musicians are so angry…

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…at the world’s most popular music streaming service

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Washington Post
By Todd C. Frankel July 14
With the money from CDs and digital downloads disappearing, the music industry has pinned its hope for the future on online song streaming, which now accounts for the majority of the $7.7 billion U.S. music market.

But the biggest player in this future isn’t one of the names most associated with streaming — Spotify, Amazon, Pandora or Apple. It’s YouTube, the site best known for viral videos, which accounts for 25 percent of all music streamed worldwide, far more than any other site.

Now, YouTube is locked in an increasingly bitter battle with music labels over how much it pays to stream their songs — and at stake is not just the finances of the music industry but also the way that millions of people around the world have grown accustomed to listening to music: free of cost.

Music labels accuse YouTube of using a legal loophole to pay less for songs than traditional music-streaming sites, calling YouTube the biggest threat since song piracy crippled the industry in the early 2000s. The industry has pressed its case to regulators around the world in hopes of forcing a change.

“I do think YouTube is starting to panic a little bit,” said Mitch Glazier, president of the Recording Industry Association of America.

But YouTube is not backing down, stressing the benefits to musicians of promotion on one of the Web’s most popular sites — which allows ordinary users to integrate music into their uploads. YouTube also warns against attacks that could reduce competition among streaming services.

“The industry should be really, really careful because they could close their eyes and wake up with their revenue really concentrated in two, three sources,” said Lyor Cohen, YouTube’s global head of music, referring to Spotify, Apple Music and Amazon Prime Music. (Amazon founder Jeffrey P. Bezos owns The Washington Post.)

The music industry counters they are backed into a corner when negotiating with YouTube — a unit of Google-parent Alphabet — which is mostly shielded by federal law from being responsible for what users post on the site.

“It isn’t a level playing field,” said one executive at a major music label who spoke on the condition of anonymity because he wasn’t authorized to talk, “because ultimately you’re negotiating with a party who is going to have your content no matter what.”

Now, the battle is heating up as the European Union is expected to release new rules later this year for how services such as YouTube handle music, potentially upending some of the copyright protections that undergird the Internet.

Online streaming works like a digital jukebox, with fractions of a penny paid each time a song is played. The money comes from ads and subscriptions.

The E.U. has formally recognized that there is a “value gap” between song royalties and what user-upload services such as YouTube earn from selling ads while playing music. YouTube is by far the largest user-upload site.

How such a law would address the gap is still being decided, but the E.U. has indicated it plans to focus on ensuring copyright holders are “properly remunerated.”

Even the value gap’s existence is disputed.

A recent economic study commissioned by YouTube found no value gap — in fact, the report said YouTube promotes the music industry, and if YouTube stopped playing music, 85 percent of users would flock to services that offered lower or no royalties.

A different study by an independent consulting group pegged the YouTube value gap at more than $650 million in the United States alone.

“YouTube is viewed as a giant obstacle in the path to success for the streaming marketplace,” Glazier said.

The dispute boils down to what YouTube pays for songs.

Musicians from Arcade Fire to Garth Brooks to Pharrell Williams say they earn significantly less when their songs are played on YouTube than on a site such as Spotify — even though many listeners use these services in the same way. Both YouTube and Spotify allow users to search for music and find song recommendations. On YouTube, users can find music alongside cat videos and toy reviews in what is generally a free-for-all of content, while people go to Spotify and the like for a more refined experience. Some audiophiles argue the sound quality on music streaming sites is superior.

YouTube pays an estimated $1 per 1,000 plays on average, while Spotify and Apple music pay a rate closer to $7.

Irving Azoff, the legendary manager for acts such as the Eagles and Christina Aguilera, said he has one artist — whom he declined to name — who gets 33 percent of her online streams from YouTube but only 10 percent of her streaming revenue.

Smaller acts see it, too. Zoe Keating, an instrumental cello player, showed The Washington Post a statement from YouTube showing that she earned $261 from 1.42 million views on YouTube. In comparison, she earned $940 from 230,000 streams on Spotify.

“YouTube revenue is so negligible that I stopped paying attention to it,” Keating said.

YouTube admits that it pays less for songs.

But the reason for this disparity is where the two sides split.

The music industry claims YouTube has avoided paying a fair-market rate by hiding behind broad legal protections. In the United States, that’s the “safe harbor” provision, which essentially says YouTube is not to blame if someone uploads a copy-protected song —unless the copyright holder complains.

This, the music industry argues, leads to a costly game of “Whac-A-Mole”: hunting for illicit song uploads and filing notices with YouTube.

“You can’t prevent something from going up on YouTube. All you can do is ask them to take it down,” said Stephen Carlisle, who runs the copyright office at Nova Southeastern University. “At some point, it’s not worth it to do this.”

YouTube says it has the solution: Its Content ID system automatically checks for violations by comparing songs detected in new uploads against a database of claimed songs, capturing 99.5 percent of complaints. The company says it averages fewer than 1,500 traditional copyright claims from the music industry a week.

YouTube also pointed out that it has licensing deals with music labels large and small.

Earlier this year, Warner Music Group — one of the “big three” music labels — signed a new licensing deal with YouTube, and a memo from Warner chief executive Steve Cooper leaked out, saying the deal was signed “under very difficult circumstances.”

“There’s no getting around the fact that, even if YouTube doesn’t have licenses, our music will still be available but not monetized at all,” the memo continued.

Warner confirmed the memo’s authenticity, but, like the other major labels, declined to comment for this article.

Cooper’s complaints surprised Cohen, who worked at Warner until leaving for YouTube last year.

“I never heard that from his mouth during the entire negotiation,” Cohen said.

Cohen’s move to YouTube created waves in the industry. After all, Cohen was famous for taking one of the hardest stands against YouTube when, in 2008, he pulled Warner’s entire song catalogue from the video service to protest low song royalties. It was the nuclear option.

And it failed. After nine months and spending $2 million trying to keep its music off YouTube, Warner capitulated.

Cohen said he was sympathetic to his former colleague’s complaints. But YouTube pays $1 billion in song royalties worldwide each year. Cohen said his company has been hindered by its global reach — ad rates are lower outside the United States — and its slower rollout of a subscription option, YouTube Red. Song royalties are higher with monthly subscriptions than ads.

“What I’m trying to do with YouTube is be a cheerleader to build a subscription business that the industry can be proud of,” Cohen said.

Nabila Hisham, 22, is a music fan on YouTube. Recently, the college student in Kuala Lumpur, Malaysia, has been playing one song repeatedly: “Despacito,” a chart-topping Latin pop remix featuring Justin Bieber. The YouTube video — which has a total of 412 million plays — is a photo of Bieber’s tattooed neck. The video is beside the point. For, Hisham, it’s about the music.

“I’m glad that YouTube exists,” she said.

Correction: A previous version of this story stated YouTube’s ContentID system automatically handles 98 percent of copyright management for songs. The system handles 99.5 percent.

FAANGs = Public Utilities?

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Slide12*

This article (reprinted from the NY Times – read the comments to get an idea of public opinion), highlights the basic problem of the digital information economy with its economies of scale and network effects. (This is the dilemma we are trying to solve with tuka.)

I suspect eventually Google will end up as a public utility or heavily regulated, and Facebook will be disrupted by technology. Amazon will face competitive pressures, especially in digital, but at this point it’s unclear how long it can maintain a monopoly over physical goods through its distribution system. (Odd that this writer would think a libertarian would favor monopolies. Thiel just seems to accept that this is the state of the world today, but maybe not tomorrow.)

Is It Time to Break Up Google?

By JONATHAN TAPLIN

In just 10 years, the world’s five largest companies by market capitalization have all changed, save for one: Microsoft. Exxon Mobil, General Electric, Citigroup and Shell Oil are out and Apple, Alphabet (the parent company of Google), Amazon and Facebook have taken their place.

They’re all tech companies, and each dominates its corner of the industry: Google has an 88 percent market share in search advertising, Facebook (and its subsidiaries Instagram, WhatsApp and Messenger) owns 77 percent of mobile social traffic and Amazon has a 74 percent share in the e-book market. In classic economic terms, all three are monopolies.

We have been transported back to the early 20th century, when arguments about “the curse of bigness” were advanced by President Woodrow Wilson’s counselor, Louis Brandeis, before Wilson appointed him to the Supreme Court. Brandeis wanted to eliminate monopolies, because (in the words of his biographer Melvin Urofsky) “in a democratic society the existence of large centers of private power is dangerous to the continuing vitality of a free people.” We need look no further than the conduct of the largest banks in the 2008 financial crisis or the role that Facebook and Google play in the “fake news” business to know that Brandeis was right.

While Brandeis generally opposed regulation — which, he worried, inevitably led to the corruption of the regulator — and instead advocated breaking up “bigness,” he made an exception for “natural” monopolies, like telephone, water and power companies and railroads, where it made sense to have one or a few companies in control of an industry.

Could it be that these companies — and Google in particular — have become natural monopolies by supplying an entire market’s demand for a service, at a price lower than what would be offered by two competing firms? And if so, is it time to regulate them like public utilities?

Consider a historical analogy: the early days of telecommunications.

In 1895 a photograph of the business district of a large city might have shown 20 phone wires attached to most buildings. Each wire was owned by a different phone company, and none of them worked with the others. Without network effects, the networks themselves were almost useless.

The solution was for a single company, American Telephone and Telegraph, to consolidate the industry by buying up all the small operators and creating a single network — a natural monopoly. The government permitted it, but then regulated this monopoly through the Federal Communications Commission.

AT&T (also known as the Bell System) had its rates regulated, and was required to spend a fixed percentage of its profits on research and development. In 1925 AT&T set up Bell Labs as a separate subsidiary with the mandate to develop the next generation of communications technology, but also to do basic research in physics and other sciences. Over the next 50 years, the basics of the digital age — the transistor, the microchip, the solar cell, the microwave, the laser, cellular telephony — all came out of Bell Labs, along with eight Nobel Prizes.

In a 1956 consent decree in which the Justice Department allowed AT&T to maintain its phone monopoly, the government extracted a huge concession: All past patents were licensed (to any American company) royalty-free, and all future patents were to be licensed for a small fee. These licenses led to the creation of Texas Instruments, Motorola, Fairchild Semiconductor and many other start-ups.

True, the internet never had the same problems of interoperability. And Google’s route to dominance is different from the Bell System’s. Nevertheless it still has all of the characteristics of a public utility.

We are going to have to decide fairly soon whether Google, Facebook and Amazon are the kinds of natural monopolies that need to be regulated, or whether we allow the status quo to continue, pretending that unfettered monoliths don’t inflict damage on our privacy and democracy.

It is impossible to deny that Facebook, Google and Amazon have stymied innovation on a broad scale. To begin with, the platforms of Google and Facebook are the point of access to all media for the majority of Americans. While profits at Google, Facebook and Amazon have soared, revenues in media businesses like newspaper publishing or the music business have, since 2001, fallen by 70 percent.

According to the Bureau of Labor Statistics, newspaper publishers lost over half their employees between 2001 and 2016. Billions of dollars have been reallocated from creators of content to owners of monopoly platforms. All content creators dependent on advertising must negotiate with Google or Facebook as aggregator, the sole lifeline between themselves and the vast internet cloud.

It’s not just newspapers that are hurting. In 2015 two Obama economic advisers, Peter Orszag and Jason Furman, published a paper arguing that the rise in “supernormal returns on capital” at firms with limited competition is leading to a rise in economic inequality. The M.I.T. economists Scott Stern and Jorge Guzman explained that in the presence of these giant firms, “it has become increasingly advantageous to be an incumbent, and less advantageous to be a new entrant.”

There are a few obvious regulations to start with. Monopoly is made by acquisition — Google buying AdMob and DoubleClick, Facebook buying Instagram and WhatsApp, Amazon buying, to name just a few, Audible, Twitch, Zappos and Alexa. At a minimum, these companies should not be allowed to acquire other major firms, like Spotify or Snapchat.

The second alternative is to regulate a company like Google as a public utility, requiring it to license out patents, for a nominal fee, for its search algorithms, advertising exchanges and other key innovations.

The third alternative is to remove the “safe harbor” clause in the 1998 Digital Millennium Copyright Act, which allows companies like Facebook and Google’s YouTube to free ride on the content produced by others. The reason there are 40,000 Islamic State videos on YouTube, many with ads that yield revenue for those who posted them, is that YouTube does not have to take responsibility for the content on its network. Facebook, Google and Twitter claim that policing their networks would be too onerous. But that’s preposterous: They already police their networks for pornography, and quite well.

Removing the safe harbor provision would also force social networks to pay for the content posted on their sites. A simple example: One million downloads of a song on iTunes would yield the performer and his record label about $900,000. One million streams of that same song on YouTube would earn them about $900.

I’m under no delusion that, with libertarian tech moguls like Peter Thiel in President Trump’s inner circle, antitrust regulation of the internet monopolies will be a priority. Ultimately we may have to wait four years, at which time the monopolies will be so dominant that the only remedy will be to break them up. Force Google to sell DoubleClick. Force Facebook to sell WhatsApp and Instagram.

Woodrow Wilson was right when he said in 1913, “If monopoly persists, monopoly will always sit at the helm of the government.” We ignore his words at our peril.