Australia takes on Silicon Valley to redistribute the wealth from news stories

The Australian Government has promised by July a mandatory code to force Silicon Valley to pay Australian media organisations for content used on their platforms.

Led by the Australian Competition and Consumer Commission, the mandatory code, which will be legislated following its introduction, will ensure money flows from the internet giants to the content creators. Companies such as Facebook and Google have greatly profited by being content aggregators, but without sending profits back to the content creators, the traditional media industry is not sustainable for the long-term.

As part of the new code, the internet companies would have to pay the original content providers for embedding content on the platforms. This could be approached in two different ways; a flat rate up-front for the work done on the article or a commission on the value which is realised by the social media giants for embedding the content on their platform.

“The ACCC, led by Rod Sims, produced an outstanding report which made a number of recommendations, recommendations that the Government has accepted,” said Frydenberg, during a press conference this morning.

“One of those key areas of focus for the ACCC was to develop a voluntary code between the digital media businesses and the digital platforms to govern their relationships. And last year, the Government announced that it hoped a voluntary code would be reached by November of this year. Those negotiations were held, and no meaningful progress was made on the most significant component of which the code was to deal with, namely payment for content.

“In the words of the ACCC, they did not believe that progress would be made, and a deal would be done with a voluntary code.”

Frydenberg made it very clear during the press conference that the Government did not want to step in to place regulation on the media industry, but as it nor the ACCC could see “light at the end of the tunnel” through these negotiations, it was forced to. The industry was given the opportunity to self-regulate, but it appears it was not changing its ways fast enough.

Meeting were being held and discussions were taking place, so it isn’t like the social media giants weren’t turning up, but advice from the ACC said it was unlikely there was going to be an end-result in the foreseeable future, certainly not before the November deadline.

While the internet has disrupted many segments of the world, few have been hit as hard as the media industry. Both in terms of the way in which these companies make money, and how the general public consume news, the landscape is incredibly different from a decade ago.

According to research from UK regulator Ofcom, 49% of adults now get their daily news from social media platforms. This is fine of course, but the way in which these platforms are designed means consumers will only get content which they are likely to find appealing. It creates an echo-chamber, which is more likely to create partisan political environments and stubborn individuals who are less accommodating of alternative thinking.

Social media certainly has a place in educating the public, but traditional media which presents news to consumers irrelevant to their ‘likes’, previous behaviour, advertising preferences and friends also plays a very important role. It is just as important for people to see news which they are not comfortable with.

Ultimately, the driver for this review and code is the need and desire to create a sustainable media industry. This is a critical component of a well-functioning and adequately informed democratic society, though as it stands, competition for advertising dollars is not in a healthy position.

With both the internet giants and traditional media competing for the same digital advertising dollars, the issue is the burden of content creation. As a content aggregator, the internet companies are not encumbered with the mission of creating or paying for content; quality and reliable journalism is not free.

But, a dynamic where two segments are competing for the same advertising dollars, but one acquires content from another for no cost is not a healthy dynamic. Traditional media companies have already had subscription revenues ripped off the spreadsheets, and unless they are adequately rewarded for their efforts, it is a struggle to see many of these titles surviving for the long-term. This is a significant problem for a democratic society which relies on the dissemination of information, analysis by experts and critique of claims.

This is of course a very valid mission for the Australian Government to undertake, as one this Silicon Valley has shown over the years is that its residents do not care about what benefits society when it detracts from profits. These are money machines, and if an initiative does not make more money, it is not important. This is perhaps the only reason the internet companies did not embrace the voluntary code when the option was available.

But what is worth noting is the ACCC will have to take into account failures in Europe.

Various European nations attempted to level the playing field, though these efforts would be considered a failure so far. The Australian authorities believe this is because it was attempted by reforming copyright law, which presented a raft of ripples throughout the industry. One consequence in France was a refusal from the internet giants to display domestic media unless it was for free, though French authorities are investigating whether this is a misuse of market power currently.

The Australian authorities believe the challenges can be avoided by taking a competition approach, rather than copyright. Few details of the thinking behind these claims were offered, though only time will tell. The fact it will also be legislated will add weight to the efforts.

What can be guaranteed however is a fight from the likes of Google and Facebook.

The lobbyists for the internet giants are some of the most active in the political capitals, while the lawyers are some of the most practised in the courtrooms. Silicon Valley generally does not react well to challenges to profits, irrelevant as to whether it is for the greater benefit of society.

The fight will of course delay the introduction of such as code, but this is a critically important move from the Australian authorities to ensure a fair, reasoned, unbiased media industry has a future in democratic societies.

Should telcos own media companies? periodically invites third wheels to share their views on the industry’s most pressing issues. In this piece Ray Le Maistre, Editor-in-Chief at Light Reading notes that the traditional telecom community needs to look in the mirror and ask itself some pretty tough questions.

Thirty years ago, telcos and their technology suppliers were living a life of relative ease and luxury, milking the early days of cellular/mobile (3G was in pre-launch hype mode!)  and able to take years to make strategic decisions without fear of having the profit rug pulled from under their feet.

Not any more.

Communications service providers and the attendant vendor community are currently in a state of controlled panic, going about their daily business while the foundations of the industry that used to prop up the balance sheet become ever more eroded by competition, regulation and a pace of business model change that has left them in a spin.

Currently, most are clinging to 5G as a potential saviour and the catalyst for major change. But change what? And how? The industry has to answer some very tough questions right now and figure out a new plan of action – doing nothing will only accelerate their demise.

The list of potential questions is ‘super long’ as the youth of today might say, but my close friend, Mr J. Daniels of Tennessee, and I have come up with a few that we think are worth exploring to get the ball rolling, including: Should telcos own media/video/tv companies?; Should telcos be banks?; Is it possible to get a decent cup of coffee at a telecoms trade show? (OK, so that last one got axed from the final list, but I still think it’s a key industry concern…)

We’ve compiled them in the form of a brief survey that I hope you’ll find 2 minutes to complete, so we can get a sense of where you, the people actually going on this journey, might be heading.

The survey is here:

The results will be compiled during early December and we’ll be sharing key findings initially with attendees at Light Reading’s annual 2020 Vision Executive Summit in Vienna and then with the wider world shortly after that: All answers are anonymous, so there’s no comeback or any chance of being hounded by related spam.

I hope you’ll share your view with us and check back in December to see what the broader community thinks.

Verizon unveils mixed bag as media continues downward spiral

Verizon has released its third-quarter financials with the mobile business growing, broadband middling and media dropping.

Total revenues for the three-month period ending September 30 stood at $32.09 billion, a 0.9% increase year-on-year, though it has racked up $97.093 billion across 2019. As with previous quarters, there are positives to take away though the media business is still weighing heavy on the prospects of the group.

“Verizon continued its momentum in the third quarter by driving strong wireless volumes in both our Consumer and Business segments, while delivering solid financial results, highlighted by continued wireless service revenue growth, increased cash flow, and EPS growth,” said CEO Hans Vestberg.

As many would have imagined, little attention was given to the fragile media business. With each financial statement, the $5 billion bet on Yahoo’s media assets looks a little bit more like a waste of funds. Revenues in this business totalled $1.8 billion, down 2% percent year-on-year.

What was supposed to be the pursuit of alternative revenues in the ever-growing digital advertising segment is seemingly turning into nothing more than an Elephant’s Graveyard for assets in the digital economy. Aside from divesting interests in Flickr, Moviefone, MapQuest and Tumblr, Verizon is also reportedly on the search for a buyer for the Huffington Post. Perhaps executives have just had enough and are searching for a way to elegantly backtrack.

The failings of this business unit have been well-documented, so we do not want to invest too much time here, but Verizon was always going to fighting a losing battle. Winning a slice of the digital advertising profits requires out-of-the-box thinking, the ability to make money out of nothing. This is what Google, Amazon, Facebook and other innovative digital players can do.

But Verizon is not that type of business. It is a functional, engineering-focused, traditional beast. From a culture and risk-appetite perspective it was always going to struggle to compete with the lateral thinking Silicon Valley residents, and this is further evidence.

That said, when Verizon focuses on what it does best it can make money. The mobile business unit boasts of 193,000 retail postpaid net additions over the quarter and revenue growth of 2.6% year-on-year. Revenues for the broadband business are down year-on-year, but the number of Fios subscriptions are up 2.3%. It might not be as exciting to talk to investors about the world of connectivity compared to digital advertising, but it is what the company is very good at.

The team should of course attempt to secure new revenues to bolster the bottom line as the business of connectivity becomes increasingly commoditised but taking on the likes of Facebook and Google for digital advertising revenues always looked like too much of an ask.

Although this is a dampener for the Verizon business, there is more than a glimmer of hope around the corner; 5G.

There might be some questions regarding the coverage of its mmWave spectrum, but Verizon is making progress with 5G deployment. Alongside the financial results, the team also hit the go button for 5G in Dallas, Texas and Omaha, Nebraska. All of the launches are very limited from a coverage perspective, but momentum is gathering very quickly.

5G can form the catalyst for growth is the telcos force themselves through their own digital transformation. Let’s be clear, the telcos will not escape the utilitisation trends with 5G alone. The business needs to be transformed to offer new connectivity solutions to enterprise and consumer customers alike. Digital transformation is a more pressing concern for telcos than any other vertical.

But there is hope on the horizon. The lure of 5G contracts are proving to be tempting for consumers, which will help the bottom-line as data tariffs quickly surge towards unlimited as standard, and enterprise customers are enthusiastic about the connectivity euphoria. There are of course companies who want to steal the profits from the telcos, but the opportunity is still there.

Verizon thinking of flogging Huffington Post – report

US operator group Verizon is thinking of offloading the crown jewel in its media portfolio according to a report.

The FT has got the scoop on this one, having spoken to a couple of people who think they know what they’re talking about. They say Verizon has been chatting to potential acquirers in recent weeks, but that the talks are still at an early stage and no formal sale process has been launched, hence the anonymous source channel. The FT couldn’t get a useful comment out of Verizon.

There isn’t much more to the FT leak than that, with the rest of the piece spent on wondering whether shelling out billions of dollars for a bunch of aging internet properties was such a great idea in hindsight. Verizon dropped $4.4 billion on AOL, of which HuffPo was the biggest asset, back in 2015 and then went even further back with its internet time machine to spend a similar amount on Yahoo two years later.

The apparent thinking behind blowing 9 bil on digital media seemed to hinge on doing something clever with advertising and big data. Having a broad portfolio of consumer media would make Verizon a no-brainer for digital advertisers, apparently, but by the start of this year it had significantly written down the value of its media assets and was doing some serious streamlining.

While competitor AT&T also decided to diversify into media, it did so by buying the massive video assets of Time Warner. It’s remains to be seen whether that massive gamble will pay off, but it seems safe to say that Verizon’s decision to go for cheaper digital content hasn’t. There seems to be general consensus across the operator world that diversifying into content is the way forward but there is little evidence to support this hunch.

One of the problems is that they are not media companies and seem to take the media product – audience – for granted. Audiences only stay loyal to media if it keeps giving them differentiated, valuable content, but the tendency of acquirers is to save overhead by getting rid of writers and getting the remaining ones to churn out a higher volume of cheaper content. This is often catastrophic for audience numbers and hence the underlying business model.

Verizon seems to have assumed it could absorb the HuffPo audience into its greater media machine, but its traffic seems to be in decline. Another variable is its ‘progressive’ editorial voice, which risks relying on cheap to produce outrage click-bait. This is a very volatile source of traffic, which is probably quite indifferent about the source. It seems likely that these factors will have significantly contributed to Verizon falling out of love with HuffPo and it’s likely to make a massive loss on any eventual sale.

Verizon buys into alternative realities

Verizon has announced the acquisition of Jaunt XR, adding augmented and virtual reality smarts to its media division.

While few details about the deal have been unveiled, the deal will add an extra element to a division which has been under considerable pressure in recent months. The Verizon diversification efforts have proven to be less than fruitful to date, though this appears to be another example of throwing money at a disastrous situation.

“We are thrilled with Verizon’s acquisition of Jaunt’s technology,” said Mitzi Reaugh, CEO of Jaunt XR. “The Jaunt team has built leading-edge software and we are excited for its next chapter with Verizon.”

Jaunt XR will join the troubled media division of Verizon which has been under strain in recent months. The ambition was to create a competitor to Google and Facebook to secure a slice of the billions of dollars spent on digital advertising. On the surface it is a reasonable strategy, but like so many good ideas, the execution was somewhat wanting.

Since the acquisition of Yahoo, Verizon has had to deal with the after-effects of a monumental data breach, write off $4.6 billion of the money it spent on the transaction, spend big to secure a distribution deal with the NFL and cut 7% of its staff. The first few years of living the digital advertising dream has been nothing short of a nightmare.

Looking at the financials, during the last quarter the media division reported $1.8 billion in revenues. This was down 2.9% from the previous year and accounted for only 2% of the total revenues brought in across the group.

With Jaunt XR brought into the media family, new elements could be introduced to the portfolio. Details have not been offered just yet, though with VR, and more recently, AR expertise, there is an opportunity to create immersive, engaging content for the mobile-orientated aspects of the business.

This transaction will certainly add variety and depth to the services and products in the media portfolio, but soon enough you have to question whether Verizon is throwing good money after bad. This has not been a fruitful venture for the team thus far.

Elliot set to challenge AT&T leadership over media strategy – report

The apparent anointing of John Stankey as the next AT&T CEO is reportedly what prompted Elliott to announce its activist intentions.

Right now this insight comes courtesy of the WSJ alone, which has chatted to some people who think they know what they’re talking about. The report says AT&T Randall Stephenson plans to call it a day soon and has been grooming his mate John Stankey to take over. Stankey was recently promoted the specially-created role of COO, which would be easy to view as a stepping stone to CEO, especially since most of the company now seems to report directly to the COO.

Shortly after activist investor firm Elliott Management announced it had acquired a significant shareholding in AT&T and intended to use that position to pressure the AT&T management into making changes that it reckons will significantly boost the share price. That is the ultimate aim of activist investors like Elliott, which are sometimes referred to as vulture funds.

The WSJ piece mainly seeks to flesh out Elliot’s objectives. It claims the closed, cronyish succession plan is what provoked Elliott into breaking cover and going public with its concerns. The continued promotion of Stankey is considered to be symptomatic of a botched approach to AT&T’s strategy of diversifying towards media, as he has been put in charge of it all, rather than leaving it to the media experts already in place at the acquired companies.

Elliott has rich form in messing with the grand plans or corporate execs, having recently succeeded in preventing Vivendi from controlling Italian operator group TIM while only owning a quarter of it. AT&T is an order of magnitude larger but the same principles apply. If Elliott can convince other AT&T shareholders that its plans for the company will give them a better return than those of Stephenson and Stankey then it could initiate a proxy battle for control of the company.

The handling of the DirecTV acquisition seems to be especially derided by Elliott, which seems to think AT&T should cut its losses and flog it. But its complaints don’t seem to stop there, with Stankey’s control of WarnerMedia apparently a source of grievance too. A lot rests on AT&T’s imminent SVOD service, HBO Max, which will have to succeed in a very competitive market to reassure its investors.

Verizon correcting the mistakes of yesteryear with Tumblr sale

There are good acquisitions and bad acquisitions, and then there was the prolonged saga with Verizon acquiring Yahoo’s media assets.

In 2017, Verizon decided it wanted to scrap with Google and Facebook to secure a slice of the lucrative online advertising bonanza. Its route to these riches was acquiring Yahoo’s media assets, an on-going saga was has led to little more than headaches for the telco. Now Verizon has announced it will get rid of one of the adopted problem children.

Financials of the deal have not been announced, though WordPress owner Automattic will acquire Tumblr.

“Tumblr is one of the Web’s most iconic brands,” said Automattic CEO Matt Mullenweg. “It is an essential venue to share new ideas, cultures and experiences, helping millions create and build communities around their shared interests. We are excited to add it to our lineup, which already includes, WooCommerce, Jetpack, Simplenote, Longreads, and more.”

Perhaps one of the biggest problems with Tumblr is figuring out what to do with it. In its own right, Tumblr is a very successful platform, home to 475 million blogs, though translating such potential is often a difficult task, requiring forward- and out-of-the-box thinking. Automattic looks to be a much more suited business to realise this ambition than the traditional telco.

“Tumblr is a marquee brand that has started movements, allowed for true identities to blossom and become home to many creative communities and fandoms,” said Verizon Media CEO Guru Gowrappan.

“We are proud of what the team has accomplished and are happy to have found the perfect partner in Automattic, whose expertise and track record will unlock new and exciting possibilities for Tumblr and its users.”

For Verizon, this is another chapter is a pretty miserable story so far. The entry into the media world started on shaky grounds with huge data leaks and hasn’t got much better. It does still own some very attractive titles, TechCrunch and Huffington Post for example, though in laying off 7% of staff last October as well as 15% of UK staff in January demonstrates the pain.

The telco has to make the media business work for it, it did make a $5 billion bet after all, but it has not been a simple quest to date.

Vivendi media mission continues rolling through Europe

Vivendi-subsidiary Canal Plus has announced the €1 billion acquisition of pay-TV operator M7, expanding the business into seven new European markets.

The deal, which is still subject to approval from the European Commission, will take Vivendi across the borders of the Netherlands, Belgium, Austria, Czech Republic, Slovakia, Hungary and Romania. M7’s subscriptions currently total more than three million across its European footprint and revenues of just over €400 million.

“We are particularly pleased with this acquisition project made possible by Vivendi. The operation would allow Canal Plus Group to approach 20 million subscribers worldwide,” said Maxime Saada, Chairman Canal Plus’ Board of Directors.

“Our global subscriber base will have almost doubled in five years, with a clear acceleration starting in 2015. This major operation will allow us to strengthen our distribution capacity in order to leverage content originating from our library and our numerous production operations in Europe.”

The Vivendi media mission is not a secret in the industry. Acquisitions have been somewhat of a guilty pleasure for the business, and this move is intended to further increase the influence of Canal Plus over the European continent, and worldwide. With M7 in the armoury, Canal Plus will have 20 million subscribers worldwide, including 12 million in Europe.

M7 is currently an aggregator of various local and international content, though the acquisition would create additional avenues for Canal Plus to distribute its own content. Canal Plus claims it currently spends €3 billion a year creating content, putting it in the same league as Netflix when you factor in the scale of the subscription bases (Netflix spent $8 billion in 2018 with a subscriber base of roughly 140 million).

Of the many challenges Facebook faces its intrinsic parasitism is the biggest

Facebook has recently bemoaned the decline in US local news sources, but a major reason for this has been the collapse in media advertising revenues.

Two companies are largely responsible for this decline: Google and Facebook. As digital replaced analogue as the primary way of consuming media, advertising moved to the main online content aggregators, specifically its dominant search engine and its dominant social media service. Not only did this suck revenue away from traditional media, it forced many media to resort to low-quality ‘clickbait’ journalism in order to drive the volumes of traffic its remaining advertisers increasingly demanded.

By definition aggregators don’t produce their own content and are entirely reliant on a steady flow of third party to keep its users active and the revenues it makes on the back of their searching and sharing flowing. This model is, therefore, intrinsically parasitic and comes with the major problem that parasites eventually kill their hosts.

Facebook has belatedly recognised this dilemma and launched a new initiative called ‘Today In’ late last year, that was designed to bring greater attention to local stuff on the site. On top of that it also said it would throw millions of dollars at local news earlier this year. Despite this, however, Facebook yesterday was moved to lament the existence of ‘news deserts’ in the US and is contributing to research to find out what is the cause of them. Some people seem to think that’s somewhat redundant.

facebook locust tweet

There are, of course, plenty of other threats to Facebook’s business model. The Cambridge Analytica scandal raised profound concerns around the use of all this personal data we’re sharing with Facebook. Meanwhile its role in a wide range of high-profile events ranging from elections to terrorist atrocities have put it under enormous pressure to curate and censor its content much more quickly and thoroughly than it currently does.

The parasitic business model is also at the core of a lot of this. In many ways Facebook operates like a very large media organisation, as it makes money by serving ads against traffic to content on its side. But since it doesn’t produce that content it is currently treated as a platform rather than a publisher, with a consequent freedom from direct responsibility for what it presents to its users.

It’s becoming increasingly clear that websites designed to host user-generated content are neither platforms nor publishers, but something in between. Politicians and regulators are increasingly calling for new rules and laws to address this paradox and it seems highly probable that these will both threaten revenues and significantly increase overheads for these companies.

So great are these challenges to Facebook that the company is already publicly contemplating a fundamental shift in its business model, with more controlled, private sharing as its new focus. This coincides with a its core revenues base, US Facebook users, clearly peaking, as you can see in the following slides from Facebook’s recent quarterly earnings presentation.

Facebook DAUs

Facebook ARPU

While user engagement has peaked in the US, Facebook still derives a disproportionate amount of revenue from that market thanks to its much higher ARPU there. But there is growing evidence that this may be increasingly coming from Instagram rather than the core Facebook product and mobile now accounts for nearly all of its revenues. All this points to the distinct possibility of Facebook, as we know it, being unrecognisable a decade from now as the legacy platform undergoes a managed decline.

Which brings us back to the parasitism issue. Facebook’s long term strategy seems to be to completely exhaust its current host while at the same time cultivating a new one. It’s hard to view all this hand-wringing about traditional media as anything more than a pretence at seeking a symbiotic relationship with it while it bleeds it dry. Independent journalist Tim Pool, as ever, has an instructive take on the broader situation.