March 15, 2009
Interview with Ben Bernanke
60 Minutes
PELLEY Mr. Chairman, I'm going to start with a question that everyone wants me to ask: When does this end?
BERNANKE: It depends a lot on the financial system. The lesson of history is that you do not get a sustained economic recovery as long as the financial system is in crisis. We've seen some progress in the financial markets, absolutely. But until we get that stabilized and working normally, we're not going to see recovery. But we do have a plan. We're working on it. And I do think that we will get it stabilized, and we'll see the recession coming to an end probably this year. We'll see recovery beginning next year. And it will pick up steam over time.
PELLEY you think the recession is going to end this year?
BERNANKE In the sense that this decline will begin to moderate and we'll begin to see leveling off. We won't be back to full employment. But we will see, I hope, the end of these declines that have been so-- so strong in a last couple of quarters.
PELLEY: But you wouldn't say at this point that we're out of the woods?
BERNANKE No. I think the key issue is the banking system and the financial system.
PELLEY Unemployment, as we sit here, is about 8.1 percent. I wonder, do you expect double digit unemployment?
BERNANKE Well, it's hard to forecast exactly where we're going. Unemployment is rising. Job losses are still-- still very severe. And no doubt, the unemployment rate's going to go-- go higher than it is. But I think, again, that if we do succeed in stabilizing the financial system, that we'll begin to see a-- a slower pace of decline, and eventually, a stabilization that will set the basis for a-- a recovery.
PELLEY You seem to be saying that we're not heading into a new American depression?
BERNANKE I think we've averted that-- that risk.I think we've gotten past that and now the problem is to get the thing working properly again.
BEN BERNANKE, AGE 55, HAS BEEN CHAIRMAN OF THE FEDERAL RESERVE BOARD SINCE 2006. FOR OUR INTERVIEW, HE OPENED UP THE FED HEADQUARTERS, RARELY SEEN BY THE PUBLIC. IT'S A MONUMENTAL BUILDING ALONG THE NATIONAL MALL. CONSTRUCTION STARTED IN 1935 IN THE DEPTHS OF THE GREAT DEPRESSION.
PELLEY You know Mr Chairman I think the Federal Reserve, for most people, is a mystery.
BERNANKE Well is an institution that people don't hear so much about but it's a very Important one. It manages monetary policy for the country. It's one of the main tools we have for stabilizing our economy and keeping prices stable.
PELLEY when was it founded?
BERNANKE The Fed was created by Congress in 1913. And it's original purpose was to deal with financial panics which is what we're doing right now
BERNANKE'S CRISIS STARTED IN 2007 WITH THE MORTGAGE MELT DOWN. LENDERS BEGAN TO FAIL. BERNANKE CUT INTEREST RATES REPEATEDLY. IN 2008, THE FED STOPPED THE COLLAPSE OF BEAR STEARNS BY ARRANGING A SALE TO ANOTHER FIRM. BUT THEN CAME THE END OF WALL STREET AS WE KNEW IT. MORTGAGE GIANTS FANNY MAE AND FREDDIE MAC WERE SEIZED BY THE GOVERNMENT. ON SEPTEMBER 14TH, MERRILL LYNCH WAS SOLD IN DISTRESS. THE NEXT DAY 158 YEAR OLD LEHMAN BROTHERS FAILED.
PELLEY You didn't rescue Lehman Brothers. It set off a worldwide panic when it went bankrupt. And I wonder, looking back, whether you think that was a mistake.
BERNANKE there were many people who said, "Let them fail." You know, it's not a problem. The markets will take care of it. And I-- I think I knew better than that. And Lehman proved that you cannot let a large internationally active firm fail in the middle of a financial crisis. Now was it a mistake? It wasn't a mistake for the following reason we didn't have the option we didn't have the tools -- the Federal Reserve cannot put capital into an institution. All we can do is make loans against collateral.
THE DAY AFTER LEHMAN, BERNANKE'S FED DID SOMETHING ASTOUNDING. IT LOANED 85 BILLION DOLLARS TO A COMPANY THAT WASN'T A BANK AT ALL-- AMERICAN INTERNATIONAL GROUP, THE GLOBAL INSURANCE GIANT THAT WAS ALSO INVOLVED IN BACKING RISKY MORTGAGE INVESTMENTS. BERNANKE SAYS, UNLIKE LEHMAN, THE FED COULD MAKE THE LOAN BASED ON GOOD COLLATERAL IN AIG'S PORTFOLIO.
PELLEY There have now been four rescues of AIG, for about $160 billion. Why is that necessary?
BERNANKE Let me just first say that-- of all the events and all of the things we've done in the last 18 months, the-- the single one that makes me the angriest, that gives me the most angst, is the intervention with AIG. Here was a company that made all kinds of unconscionable bets. Then, when those bets went wrong, they had a-- we had a situation where the failure of that company would have brought down the financial system.
PELLEY You say it makes you angry? What do you mean by that?
BERNANKE It makes me angry. I slammed the phone more than a few times on discussing AIG. It's-- it's just absolutely-- I understand why the American people are angry. It's absolutely unfair that taxpayer dollars are going to prop up a company that made these terrible bets-- that was operating out of the sight of regulators, but which we have no choice but the stabilize, or else risk enormous impact, not just in the financial system, but on the whole U.S. economy.
BY SEPTEMBER BERNANKE AND FORMER TREASURY SECRETARY HANK PAULSON WENT TO CAPITOL HILL TO URGE A MASSIVE BAILOUT OF THE BANKING SYSTEM.
BERNANKE At that period, I felt we were pretty close to a global financial meltdown.
PELLEY how much danger was there? How close a call?
BERNANKE It was very close. It was very close. The Congress passed the bill that gave Treasury the right to put capital into the banks-- in the first week of October. And it was in the second week of October that the crisis reached its peak.If we had not had those powers, we could have had a much, much worse outcome. So it was a very dangerous situation.
PELLEY Was anyone on Capitol Hill skeptical? Did they push back at all--you know, Mr. Chairman, it's probably not quite that bad?
BERNANKE: Well, I do remember one conversation I had where I was addressing a-- a caucus of-- of congressmen. And a congressman said to me-- he said, "Mr. Chairman, you know, I'm talking to bankers in my town. I'm talking to shopkeepers in my town. And they say things are normal. Nothing's going on. We don't-- we don't see any problem." And I turned to him and I said, "You will.”
THAT SECOND WEEK OF OCTOBER, THE DOW FELL 18 PERCENT. ITS WORST WEEK IN HISTORY.
IN THE MIDST OF THE CRISIS, BERNANKE HAD FREEDOM TO ACT IMMEDIATELY, HE DOESN'T NEED PRIOR PERMISSION FROM CONGRESS OR THE PRESIDENT. WHILE THEY DEBATED ON CAPITOL HILL, BERNANKE CUT INTEREST RATES NEARLY TO ZERO THEN HE USED DEPRESSION ERA EMERGENCY POWERS TO LAUNCH A DOZEN RESCUE PROGRAMS OF HIS OWN. THERE WAS SUPPORT FOR MONEY MARKET FUNDS, MORTGAGES, SHORT TERM LENDING TO SMALL BUSINESS, AND SUPPORT FOR AUTO LOANS, STUDENT LOANS AND SMALL BUSINESS LOANS. --COMMITMENTS OF A TRILLION DOLLARS�"DOUBLING THE SIZE OF THE FED'S BALANCE SHEET.
PELLEY Is that tax money that the Fed is spending?
BERNANKE It's not tax money. the banks have-- accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed. so it's much more akin to printing money than it is to borrowing.
PELLEY You've been printing money?
BERNANKE Well, effectively. And we need to do that, because our economy is very weak and inflation is very low. when the economy begins to recover, that will be the time that we need to unwind those programs, raise interest rates, reduce the money supply, and make sure that we have a recovery that does not involve inflation.
HE'S NOT KIDDING ABOUT PRINTING MONEY. THE FED ISSUES U.S. CURRENCY. THAT'S WHY IT SAYS FEDERAL RESERVE NOTE ON ALL THE BILLS IN YOUR WALLET. THIS IS THE BUREAU OF ENGRAVING AND PRINTING JUST A FEW BLOCKS FROM BERNANKE'S OFFICE. THE FED'S MANDATE FROM CONGRESS IS TO PUT ENOUGH MONEY IN THE SYSTEM FOR MAXIMUM EMPLOYMENT, BUT NOT SO MUCH THAT IT SETS OFF INFLATION. THE FED ACTUALLY PAYS FOR ITSELF AND RETURNS BILLIONS IN PROFITS TO THE TREASURY.
IN A SENSE BERNANKE HAS BEEN PREPARING FOR THIS EMERGENCY HIS WHOLE PROFESSIONAL LIFE. HE GOT A PhD IN ECONOMICS FROM M.I.T. HE CHAIRED THE ECONOMICS DEPARTMENT AT PRINCETON AND HIS SPECIALTY IS THE GREAT DEPRESSION. HE'S AMONG MANY ECONOMISTS WHO NOW BELIEVE IT WAS THE FEDERAL RESERVE ITSELF THAT HELPED TURN A RECESSION IN 1929 INTO A GLOBAL CALAMITY.
BERNANKE: they made two mistakes, basically. One was they let the money supply contract very sharply. Prices fell. Deflation. So monetary policy was, in fact, very contractionary. Very tight-- during that period. And then the second mistake they made was they let the banks fail. They didn't make any strong effort to prevent the failure of thousands of banks.
BERNANKE TOLD US WE WERE CLOSE TO A SECOND DEPRESSION AND HE IS DETERMINED TO NOT LET THE MAJOR BANKS FAIL ON HIS WATCH.
PELLEY: One of the things that I think many people watching this interview don't understand, is why there are multiple bailouts, four bailouts of AIG, three bailouts of Citigroup. There is a sense that this is a band-aid approach, that we're not getting to the root of the problem.
BERNANKE: Well, part of the issue is that-- you know, the economy has gotten a good bit worse. You know, the first part of the crisis was subprime and other assets that were toxic. Now, we're in a second phase, which is that the economy is very weak, So the economy's weakness has meant that some of the initial attempts to stabilize the banks haven't been enough, and we've had to do more.
PELLEY You know, Mr. Chairman, there are so many people outside this building, across this country, who say, "To hell with them. They made bad bets. the wages of failure on Wall Street should be failure."
BERNANKE Let me give you an analogy, if I might. If you have a neighbor, who smokes in bed. And he's a risk to everybody. If suppose he sets fire to his-- to his house, and you might say to yourself, you know, "I'm not going to call the fire department. Let his house burn down. It's fine with me." But then, of course, but what if your house is made of wood? And it's right next door to his house? What if the whole town is made of wood? Well, I think we'd all agree that the right thing to do is put out that fire first, and then say, "What punishment is appropriate? How should we change the fire code? What needs to be done to make sure this doesn't happen in the future? How can we fire proof our houses?" That's where we are now. We're having-- we have a fire going on.
PELLEY It's still burning.
BERNANKE It's still burning
PELLEY Are all the big banks that you regulate solvent?
BERNANKE I believe they are, yes. But we are doing a-- a-- a stress test right now, where we're looking at what the positions of the banks are under a tougher economic scenario than the one that we currently expect. And what we plan to do is to say how much capital would each bank need to be well capitalized. Not just solvent, but well capitalized, even in these more adverse scenarios.
PELLEY Are you committing in this interview, that you are not going to let any of these banks fail? That no matter what their balance sheet actually looks like, they are not going to fail?
BERNANKE They are not going to fail. But what we can do, should it be necessary, is-- is try to wind it down in a safe way.
IN OTHER WORDS, BERNANKE THINKS GOVERNMENT SHOULD STABILIZE FAILED FINANCIAL COMPANIES AND TAKE THEM APART SLOWLY.
BEN BERNANKE. So, for example, in the case of AIG, we've prevented a bankruptcy, because of the chaos that would create. But we're also demanding that AIG divest itself, sell off its-- subsidiaries, and use the proceeds to pay back the government.
SCOTT PELLEY: What are the dangers now? What keeps you up at night?
BEN BERNANKE the biggest risk is that, you know, we don't have the political will. We don't have the-- the commitment to-- to solve this problem, and that we let it just continue. In which case-- you know, we-- we can't-- we can't count on recovery.
THE FED ESTIMATES THE WEALTH OF AMERICAN FAMILIES FELL 18 PERCENT IN 2008 THE WORST SINCE THE GREAT DEPRESSION. IN A MOMENT BERNANKE TELLS US WHAT THE FIRST SIGNS OF RECOVERY WOULD LOOK LIKE.
BEN BERNANKE IS DOING THINGS WITH THE FEDERAL RESERVE THAT HAVE NEVER BEEN DONE. IT MAY BE BECAUSE HE'S NOT A CREATURE OF WASHINGTON OR WALL STREET. HE GREW UP, MIDDLE CLASS, THE SMARTEST KID IN A TOWN NOW FALLING ON HARD TIMES. HE TOLD US, BECAUSE THE FED IS SO POWERFUL, IT SHOULD BE MORE OPEN.
THE SEAL OF THE FEDERAL RESERVE IS EMBEDDED IN THE FLOOR JUST OUTSIDE THE ROOM THAT CHANGES THE FORTUNES OF THE WORLD.
PELLEY Wow. They don't build them like this any more.
THIS IS WHERE BERNANKE MEETS WITH HIS SIX FELLOW GOVERNORS OF THE FEDERAL RESERVE, ALL OF THEM APPOINTED BY THE PRESIDENT OF THE UNITED STATES. BERNANKE ALSO CHAIRS THE FEDERAL OPEN MARKET COMMITTEE WHICH DECIDES INTEREST RATES.
PELLEY those meetings are secret. Why is that?
BERNANKE if we held those things with a TV camera on us-- it would create lots of volatility and problems in the market. But I should say that, you know, we've come a long way. In 1994, when the Fed made a policy decision to change interest rates, wouldn't even announce that we made a change. But now, after every meeting, we put out a statement, say what we did, explain what we did, why we're doing it. And three weeks later, we put out minutes to describe everything that happened in the meeting. So we're becoming much more transparent.
PELLEY when I called and proposed this interview about a year ago, your representative laughed out loud. And said, "The Fed chairman never does an interview." I wonder why are you doing this?
BERNANKE Well, it's an extraordinary time. It's an extraordinary time. This is a chance for me, I think, to talk to-- to America directly.
AND A CHANCE FOR US TO UNDERSTAND WHERE HE COMES FROM.
BEN SHALOM BERNANKE GREW UP IN ONE OF THE FEW JEWISH FAMILIES IN DILLON, SOUTH CAROLINA, TODAY, A TOWN OF ABOUT SIX THOUSAND PEOPLE. HIS GRANDFATHER, JONAS, IMMIGRATED FROM EASTERN EUROPE, LANDED AT ELLIS ISLAND, AND CAME HERE TO START A DRUG STORE.
BERNANKE Our family came here in 1941. My-- grandfather, Jonas Bernanke bought this building-- made it-- to the JB Drugs, after his initials--
LATER HIS FATHER AND UNCLE TOOK OVER THE STORE WHICH HAS SINCE BECOME A RESTAURANT.
PELLEY We're sitting on this corner where your family's store was. And I see it's Main Street.
BERNANKE Yes.
PELLEY People feel like guys like you are tuned into what happens on Wall Street and you forget places like this.
BERNANKE You know I come from Main Street. That's-- that's-- that's my background. And I've never been on Wall Street. And I care about Wall Street for one reason and one reason only-- because what happens on Wall Street matters to Main Street. And if we don't have stabilization in the financial markets, if we don't take the steps necessary to make sure that credit is flowing again, then my father couldn't get a loan to build his new store.
BERNANKE when I was young we had just a screen porch over here on the left side.
WE WENT TO THE OLD NEIGHBORHOOD. THE BERNANKE'S LEFT HERE YEARS AGO AND A RECENT OWNER COULDN'T QUITE MAKE THE MORTGAGE SO THE ECONOMY LITERALLY HIT HOME.
PELLEY When you first heard that your childhood home had gone into foreclosure, what did you think?
BERNANKE Well, I-- I was sorry to hear it. But, you know, I-- in a way, I wasn't surprised. Dillon is-- has taken, you know, has taken a pretty big hit in the-- in economic downturn. Unemployment rate's about 14 percent. And there have been a good number of foreclosures and plant closings and those things; I think about that.
NUMBERS WERE ALWAYS BERNANKE'S THING. HE TAUGHT HIMSELF CALCULUS AND GOT AN SAT SCORE OF 1590 OUT OF 1600. A FRIEND TALKED HIM INTO AIMING HIGH FOR COLLEGE.
BERNANKE I came home from school one day and there was a phone call for me. And I picked up the phone. They said, "This is the Harvard Admissions Department. We'd like to let you know that you're accepted-- in the freshman class." And I said, "Come on, who is this really?" But my parents had their doubts about my leaving and going too far from home.
PELLEY No! Wait a minute. Your parents weren't thrilled that you were going to Harvard? I mean this is a dream come true.
BERNANKE my mother was definitely against it. First of all, she said, you know, "You don't have the clothes. You won't be able to dress properly for-- for Harvard. And-- it's a long way from here. How you going to come home on holidays and so on. So, my parents ate into their savings to let me go, which I'm always grateful for.
BERNANKE HELPED PAY FOR COLLEGE WORKING CONSTRUCTION AND WORKING HERE. THE FUTURE CHAIRMAN OF THE FED, WORE A PONCHO AND WAITED TABLES AT SOUTH OF THE BORDER.
PELLEY What did you learn about work?
BERNANKE work is hard, that in order to feed your family and to give your kids opportunities you-- it's not an easy thing.
BACK IN THE MARBLE CONFINES OF THE FEDERAL RESERVE BERNANKE TOLD US THAT HE UNDERSTANDS THAT MANY AMERICANS ARE AFRAID.
PELLEY I've been kicking around the country. I spoke to a woman in Ohio, who took her son out of college, because she got laid off. I spoke to a woman in Nevada, who has an advanced stage of cancer. And she was told by her county hospital that they couldn't treat her because a hole had been blown in the State budget. What do you say to those people?
BERNANKE Well, I got into economics, because I wanted to make things better for the average person. When I see a job loss number, 650,000, like we saw last month-- I know that's-- that's not just a number. That's 650,000 lives that have been disrupted. Families that have had to move or take children out of school. Houses that may be in danger of foreclosure. I know something about what people are going through.
AND THAT MAKES IT ALL THE MORE OUTRAGEOUS WHEN HE HEARS OF FINANCIAL FIRMS HANDING OUT PERKS AND BONUSES AFTER THEY'VE TAKEN BAILOUT MONEY.
BERNANKE: the era of this high living, this is over now. And that they need to be responsible and use the money-- constructively.
PELLEY And you would say what to those bankers right now in this interview?
BERNANKE I'd say that-- their job right now is to find a way to make loans to creditworthy borrowers, to get their banks back on the path of making good loans, safe loans, and to-- and to have a reasonable sense of humility based on, you know, what's happened in the last 18 months.
WE ASKED BERNANKE WHAT IT'S BEEN LIKE AT THE OFFICE THE LAST 18 MONTHS, WITH HIS STAFF SOMETIMES WORKING 80 HOUR WEEKS.
PELLEY I noticed when we were in your office. You have a couch in there. You been sleeping on that couch?
BERNANKE: Once in a while.
PELLEY Really?
BERNANKE Once in a while, yes. And sometimes, it goes through the weekend. Sometimes it goes overnight.
THE FEDERAL RESERVE IS THE LIFE BLOOD OF THE BANKING SYSTEM. ITS`12 REGIONAL BANKS ARE CLEARING HOUSES FOR COMMERCIAL BANKS. THIS IS ONE OF THE VAULTS ASSOCIATED WITH THE RESERVE BANK IN NEW YORK. ROBOTS CARRY CASH IN THE VAULT THAT IS AS BIG AS A FOOTBALL FIELD AND FOUR STORIES HIGH. EACH PALLET, LOADED WITH HUNDRED DOLLAR BILLS IS WORTH 64 MILLION. THE FED HAS 22-THOUSAND EMPLOYEES. IT CLEARS YOUR CHECKS AND YOUR ATM WITHDRAWALS. AND PROVIDES ECONOMIC FORECASTS. BUT ONE OF ITS MOST IMPORTANT RESPONSIBILITIES IS REGULATING THE NATION'S BIGGEST BANKS�"TO BE THE WATCHDOG.
PELLEY You're supposed to keep them out of trouble. So, how did all this happen?
BERNANKE Well, a lot of mistakes got made. No question about it. But, you know, this was a much bigger thing than any single firm or any single�"individual over the last-- dozen years or so, enormous amounts of savings has flowed into the United States, and some other industrial countries. That savings has come from China and East Asia. It's come from oil producers. And it has-- and hundreds of billions of dollars, it has come into our financial system. And, you know, that would be great if we took that money and invested it wisely, and got a high return. But instead, our financial system-- didn't-- didn't do a good job. We had a regulatory system that was like a sandcastle on the beach. When you had little small waves just lapping up against the sand castle, everything looked good. But when you had a big breaker come in, suddenly it-- the system wasn't strong enough to deal with it.
PELLEY: Does the Federal Reserve bear any responsibility for missing what was happening to the banks, as it was happening?
BERNANKE Well-- like other regulators-- we-- we probably could have done more. We've already done a lot of-- put a lot of effort into reviewing our practices. And reviewing the bank's practices. We are trying to strengthen our regulation at every point that we can. So, I don't want to deny that we certainly could have done a better job, and others could have done a better job.
NOW PRESIDENT OBAMA AND THE CONGRESS HAVE FISCAL STIMULUS PLAN OF NEARLY 800 BILLION DOLLARS. THERE'S A SEPARATE BAILOUT FOR FINANCIAL FIRMS-- THAT'S AT LEAST 700 BILLION. NEXT THE GOVERNMENT IS LOOKING FOR A WAY TO CLEAR BAD DEBT OFF THE BOOKS OF CRIPPLED INSTITUTIONS.
PELLEY There was a panic in 1907. So, the Fed was created to prevent that from ever happening again. And then we got the Great Depression. And now we have this. How do we prevent this from occurring another time?
BERNANKE well, tougher regulation of large firms. It includes having a set of laws that allows us to wind down. A large, internationally active firm, without the adverse impacts on the markets that a disorderly bankruptcy would have. It includes possibly having a systemic regulator. A-- regulator that has some responsibility to look at the system as a whole.
PELLEY Your response has been to do what the Fed didn't do in 1929, and that is pour money into the system. But there's an argument made today that that's not what the problem is. The problem isn't that there's too little money in the system. The problem is there's too much fear in the system. That with these companies being propped up by the government, no one on Wall Street can tell who's solvent and who's not. And therefore, business does not move.
BERNANKE Well, I absolutely agree that confidence is key. People don't know what's happening. And they're afraid. And they're not sure what-- you know, whether or not the-- the-- the system is going to recover. So, how do you get confidence, that's the question. And I think the way to get confidence is to show progress.
PELLEY: but are you seeing any progress? What's going well?
BERNANKE I think all of our efforts, so far-- have produced results. We're buying about $500 billion in-- mortgages-- in package and securities by-- the G.S.E.s, Fannie Mae and Freddie Mac. And-- that seems-- to have brought down mortgage rates significantly. It allows people to refinance. To get out of high rate mortgages. we are seeing progress in-- in the money market mutual funds, and in the business lending area.
And I think as those green shoots begin to appear in different markets-- and as some confidence begins to come back-- that will begin the positive dynamic that brings our economy back.
PELLEY: Do you see green shoots?
BERNANKE I do. I do see green shoots. And-- not everywhere, but certainly in some of the markets that we've been-- functioning in. And-- we've seen some improvement in-- in the banks, as well, certainly in some key cases.
PELLEY: What will be the first signs of recovery?
BERNANKE one sign would be that a large bank is successful in raising private equity. Right now, all the private money is sitting on the sidelines saying, "We don't know what these banks are worth. We don't know that they're stable." And they're not willing to put their money into the banks.
PELLEY: If you had a message for the American People in this interview, what would it be?
BERNANKE: Scott, I'd say three things. I'd say, first of all, that the Federal Reserve is here, and is going to do everything possible to support this recovery. The second thing I would say is that recovery is not going to happen until the financial markets and the banks are stabilized. And we do have a plan, we have a program for that. But it's going to take some patience. It's going to take some support, and you know, we're going to have to go forward with that. But the third and final thing I'd just like to say to the American People is that I have every confidence that this economy will recover, and recover in a strong and sustained way. The American people are among the most productive in the world. We have the best technologies. We have-- great universities. We have entrepreneurs. I just have every confidence that as we get through this crisis, that our economy will begin to grow again, and it will remain-- the most powerful and dynamic economy in the world.
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Sunday, March 15, 2009
THE REASONS FOR THE DECLINE OF THE NEWSPAPER?
Cause of Death Determined for Print Media
By Clay Shirky, 5:00 PM on Sat Mar 14 2009, 5,501 views
Heart disease is the leading cause of death among humans. As Clay Shirky points out in his incisive piece Newspapers and Thinking the Unthinkable, an inability to adapt is what killed print. Coroner's report follows.
Back in 1993, the Knight-Ridder newspaper chain began investigating piracy of Dave Barry's popular column, which was published by the Miami Herald and syndicated widely. In the course of tracking down the sources of unlicensed distribution, they found many things, including the copying of his column to alt.fan.dave_barry on usenet; a 2000-person strong mailing list also reading pirated versions; and a teenager in the Midwest who was doing some of the copying himself, because he loved Barry's work so much he wanted everybody to be able to read it.
One of the people I was hanging around with online back then was Gordy Thompson, who managed internet services at the New York Times. I remember Thompson saying something to the effect of "When a 14 year old kid can blow up your business in his spare time, not because he hates you but because he loves you, then you got a problem." I think about that conversation a lot these days.
The problem newspapers face isn't that they didn't see the internet coming. They not only saw it miles off, they figured out early on that they needed a plan to deal with it, and during the early 90s they came up with not just one plan but several. One was to partner with companies like America Online, a fast-growing subscription service that was less chaotic than the open internet. Another plan was to educate the public about the behaviors required of them by copyright law. New payment models such as micropayments were proposed. Alternatively, they could pursue the profit margins enjoyed by radio and TV, if they became purely ad-supported. Still another plan was to convince tech firms to make their hardware and software less capable of sharing, or to partner with the businesses running data networks to achieve the same goal. Then there was the nuclear option: sue copyright infringers directly, making an example of them.
As these ideas were articulated, there was intense debate about the merits of various scenarios. Would DRM or walled gardens work better? Shouldn't we try a carrot-and-stick approach, with education and prosecution? And so on. In all this conversation, there was one scenario that was widely regarded as unthinkable, a scenario that didn't get much discussion in the nation's newsrooms, for the obvious reason.
The unthinkable scenario unfolded something like this: The ability to share content wouldn't shrink, it would grow. Walled gardens would prove unpopular. Digital advertising would reduce inefficiencies, and therefore profits. Dislike of micropayments would prevent widespread use. People would resist being educated to act against their own desires. Old habits of advertisers and readers would not transfer online. Even ferocious litigation would be inadequate to constrain massive, sustained law-breaking. (Prohibition redux.) Hardware and software vendors would not regard copyright holders as allies, nor would they regard customers as enemies. DRM's requirement that the attacker be allowed to decode the content would be an insuperable flaw. And, per Thompson, suing people who love something so much they want to share it would piss them off.
Revolutions create a curious inversion of perception. In ordinary times, people who do no more than describe the world around them are seen as pragmatists, while those who imagine fabulous alternative futures are viewed as radicals. The last couple of decades haven't been ordinary, however. Inside the papers, the pragmatists were the ones simply pointing out that the real world was looking increasingly like the unthinkable scenario. These people were treated as if they were barking mad. Meanwhile the people spinning visions of popular walled gardens and enthusiastic micropayment adoption, visions unsupported by reality, were regarded not as charlatans but saviors.
When reality is labeled unthinkable, it creates a kind of sickness in an industry. Leadership becomes faith-based, while employees who have the temerity to suggest that what seems to be happening is in fact happening are herded into Innovation Departments, where they can be ignored en masse. This shunting aside of the realists in favor of the fabulists has different effects on different industries at different times. One of the effects on the newspapers is that many of its most passionate defenders are unable, even now, to plan for a world in which the industry they knew is visibly going away.
* * *
The curious thing about the various plans hatched in the '90s is that they were, at base, all the same plan: "Here's how we're going to preserve the old forms of organization in a world of cheap perfect copies!" The details differed, but the core assumption behind all imagined outcomes (save the unthinkable one) was that the organizational form of the newspaper, as a general-purpose vehicle for publishing a variety of news and opinion, was basically sound, and only needed a digital facelift. As a result, the conversation has degenerated into the enthusiastic grasping at straws, pursued by skeptical responses.
"The Wall Street Journal has a paywall, so we can too!" (Financial information is one of the few kinds of information whose recipients don't want to share.) "Micropayments work for iTunes, so they will work for us!" (Micropayments only work where the provider can avoid competitive business models.) "The New York Times should charge for content!" (They've tried, with QPass and later TimesSelect.) "Cook's Illustrated and Consumer Reports are doing fine on subscriptions!" (Those publications forgo ad revenues; users are paying not just for content but for unimpeachability.) "We'll form a cartel!" (…and hand a competitive advantage to every ad-supported media firm in the world.)
Round and round this goes, with the people committed to saving newspapers demanding to know "If the old model is broken, what will work in its place?" To which the answer is: Nothing. Nothing will work. There is no general model for newspapers to replace the one the internet just broke.
With the old economics destroyed, organizational forms perfected for industrial production have to be replaced with structures optimized for digital data. It makes increasingly less sense even to talk about a publishing industry, because the core problem publishing solves - the incredible difficulty, complexity, and expense of making something available to the public - has stopped being a problem.
* * *
Elizabeth Eisenstein's magisterial treatment of Gutenberg's invention, The Printing Press as an Agent of Change, opens with a recounting of her research into the early history of the printing press. She was able to find many descriptions of life in the early 1400s, the era before movable type. Literacy was limited, the Catholic Church was the pan-European political force, Mass was in Latin, and the average book was the Bible. She was also able to find endless descriptions of life in the late 1500s, after Gutenberg's invention had started to spread. Literacy was on the rise, as were books written in contemporary languages, Copernicus had published his epochal work on astronomy, and Martin Luther's use of the press to reform the Church was upending both religious and political stability.
What Eisenstein focused on, though, was how many historians ignored the effects of the press circa 1500. To describe life before or after the spread of print was child's play; those dates were safely distanced from upheaval. The hard question Eisenstein's book asks is "How did we get from the world before the printing press to the world after it? What was the revolution itself like?"
Chaotic, as it turns out. The Bible was translated into local languages; was this an educational boon or the work of the devil? Erotic novels appeared, prompting the same set of questions. Copies of Aristotle and Galen circulated widely, but direct encounter with the relevant texts revealed that the two sources clashed, tarnishing faith in the Ancients. As novelty spread, old institutions seemed exhausted while new ones seemed untrustworthy; as a result, people almost literally didn't know what to think. If you can't trust Aristotle, who can you trust?
During the wrenching transition to print, experiments were only revealed in retrospect to be turning points. Aldus Manutius, the Venetian printer and publisher, invented the smaller octavo volume along with italic type. What seemed like a minor change - take a book and shrink it - was in retrospect a key innovation in the democratization of the printed word, as books became cheaper, more portable, and therefore more desirable, expanding the market for all publishers, which heightened the value of literacy still further.
That is what real revolutions are like. The old stuff gets broken faster than the new stuff is put in its place. The importance of any given experiment isn't apparent at the moment it appears; big changes stall, small changes spread. Even the revolutionaries can't predict what will happen. Agreements on all sides that core institutions must be protected are rendered meaningless by the very people doing the agreeing. (Luther and the Church both insisted, for years, that whatever else happened, no one was talking about a schism.) Ancient social bargains, once disrupted, can neither be mended nor quickly replaced, since any such bargain takes decades to solidify.
And so it is today. When someone demands to know how we are going to replace newspapers, they are really demanding to be told that we are not living through a revolution. They are demanding to be told that old systems won't break before new systems are in place. They are demanding to be told that ancient social bargains aren't in peril, that core institutions will be spared, that new methods of spreading information will improve previous practice rather than upending it. They are demanding to be lied to.
There are fewer and fewer people who can convincingly tell such a lie.
* * *
If you want to know why newspapers are in such trouble, the most salient fact is this: Printing presses are terrifically expensive to set up and to run. This bit of economics, normal since Gutenberg, limits competition while creating positive returns to scale for the press owner, a happy pair of economic effects that feed on each other. In a notional town with two perfectly balanced newspapers, one paper would eventually generate some small advantage - a breaking story, a key interview - at which point both advertisers and readers would come to prefer it, however slightly. That paper would in turn find it easier to capture the next dollar of advertising, at lower expense, than the competition. This would increase its dominance, which would further deepen those preferences, repeat chorus. The end result is either geographic or demographic segmentation among papers, or one paper holding a monopoly on the local mainstream audience.
For a long time, longer than anyone in the newspaper business has been alive in fact, print journalism has been intertwined with these economics. The expense of printing created an environment where Wal-Mart was willing to subsidize the Baghdad bureau. This wasn't because of any deep link between advertising and reporting, nor was it about any real desire on the part of Wal-Mart to have their marketing budget go to international correspondents. It was just an accident. Advertisers had little choice other than to have their money used that way, since they didn't really have any other vehicle for display ads.
The old difficulties and costs of printing forced everyone doing it into a similar set of organizational models; it was this similarity that made us regard Daily Racing Form and L'Osservatore Romano as being in the same business. That the relationship between advertisers, publishers, and journalists has been ratified by a century of cultural practice doesn't make it any less accidental.
The competition-deflecting effects of printing cost got destroyed by the internet, where everyone pays for the infrastructure, and then everyone gets to use it. And when Wal-Mart, and the local Maytag dealer, and the law firm hiring a secretary, and that kid down the block selling his bike, were all able to use that infrastructure to get out of their old relationship with the publisher, they did. They'd never really signed up to fund the Baghdad bureau anyway.
* * *
Print media does much of society's heavy journalistic lifting, from flooding the zone - covering every angle of a huge story - to the daily grind of attending the City Council meeting, just in case. This coverage creates benefits even for people who aren't newspaper readers, because the work of print journalists is used by everyone from politicians to talk radio hosts to bloggers. The newspaper people often note that newspapers benefit society as a whole. This is true, but irrelevant to the problem at hand; "You're gonna miss us when we're gone!" has never been much of a business model. So who covers all that news if some significant fraction of the currently employed newspaper people lose their jobs?
I don't know. Nobody knows. We're collectively living through 1500, when it's easier to see what's broken than what will replace it. The internet turns 40 this fall. Access by the general public is less than half that age. Web use, as a normal part of life for a majority of the developed world, is less than half that age. We just got here. Even the revolutionaries can't predict what will happen.
Imagine, in 1996, asking some net-savvy soul to expound on the potential of craigslist, then a year old and not yet incorporated. The answer you'd almost certainly have gotten would be extrapolation: "Mailing lists can be powerful tools", "Social effects are intertwining with digital networks", "This points to future ways of managing local information", and so on. What no one would have told you, could have told you, was what actually happened: craiglist became a critical piece of infrastructure. Not the idea of craigslist, or the business model, or even the software driving it. Craigslist itself spread to cover hundreds of cities and has become a part of public consciousness about what is now possible. Experiments are only revealed in retrospect to be turning points.
In craigslist's gradual shift from ‘interesting if minor' to ‘essential and transformative', there is one possible answer to the question "If the old model is broken, what will work in its place?" The answer is: Nothing will work, but everything might. Now is the time for experiments, lots and lots of experiments, each of which will seem as minor at launch as craigslist did, as Wikipedia did, as octavo volumes did.
Journalism has always been subsidized. Sometimes it's been Wal-Mart and the kid with the bike. Sometimes it's been Richard Mellon Scaife. Increasingly, it's you and me, donating our time. The list of models that are obviously working today, like Consumer Reports and NPR, like ProPublica and WikiLeaks, can't be expanded to cover any general case, but then nothing is going to cover the general case.
Society doesn't need newspapers. What we need is journalism. For a century, the imperatives to strengthen journalism and to strengthen newspapers have been so tightly wound as to be indistinguishable. That's been a fine accident to have, but when that accident stops, as it is stopping before our eyes, we're going to need lots of other ways to strengthen journalism instead.
When we shift our attention from 'save newspapers' to 'save society', the imperative changes from ‘preserve the current institutions' to ‘do whatever works.' And what works today isn't the same as what used to work.
We don't know who the Aldus Manutius of the current age is. It could be Craig Newmark, or Caterina Fake. It could be Martin Nisenholtz, or Emily Bell. It could be some 19 year old kid few of us have heard of, working on something we won't recognize as vital until a decade hence. Any experiment, though, designed to provide new models for journalism is going to be an improvement over hiding from the real, especially in a year when, for many papers, the unthinkable future is already in the past.
For the next few decades, journalism will be made up of overlapping special cases. Many of these models will rely on amateurs as researchers and writers. Many of these models will rely on sponsorship or grants or endowments instead of revenues. Many of these models will rely on excitable 14 year olds distributing the results. Many of these models will fail. No one experiment is going to replace what we are now losing with the demise of news on paper, but over time, the collection of new experiments that do work might give us the reporting we need.
Clay Shirky is an adjunct professor in NYU's graduate Interactive Telecommunications Program and writes on the social and economic effects of Internet technologies.
By Clay Shirky, 5:00 PM on Sat Mar 14 2009, 5,501 views
Heart disease is the leading cause of death among humans. As Clay Shirky points out in his incisive piece Newspapers and Thinking the Unthinkable, an inability to adapt is what killed print. Coroner's report follows.
Back in 1993, the Knight-Ridder newspaper chain began investigating piracy of Dave Barry's popular column, which was published by the Miami Herald and syndicated widely. In the course of tracking down the sources of unlicensed distribution, they found many things, including the copying of his column to alt.fan.dave_barry on usenet; a 2000-person strong mailing list also reading pirated versions; and a teenager in the Midwest who was doing some of the copying himself, because he loved Barry's work so much he wanted everybody to be able to read it.
One of the people I was hanging around with online back then was Gordy Thompson, who managed internet services at the New York Times. I remember Thompson saying something to the effect of "When a 14 year old kid can blow up your business in his spare time, not because he hates you but because he loves you, then you got a problem." I think about that conversation a lot these days.
The problem newspapers face isn't that they didn't see the internet coming. They not only saw it miles off, they figured out early on that they needed a plan to deal with it, and during the early 90s they came up with not just one plan but several. One was to partner with companies like America Online, a fast-growing subscription service that was less chaotic than the open internet. Another plan was to educate the public about the behaviors required of them by copyright law. New payment models such as micropayments were proposed. Alternatively, they could pursue the profit margins enjoyed by radio and TV, if they became purely ad-supported. Still another plan was to convince tech firms to make their hardware and software less capable of sharing, or to partner with the businesses running data networks to achieve the same goal. Then there was the nuclear option: sue copyright infringers directly, making an example of them.
As these ideas were articulated, there was intense debate about the merits of various scenarios. Would DRM or walled gardens work better? Shouldn't we try a carrot-and-stick approach, with education and prosecution? And so on. In all this conversation, there was one scenario that was widely regarded as unthinkable, a scenario that didn't get much discussion in the nation's newsrooms, for the obvious reason.
The unthinkable scenario unfolded something like this: The ability to share content wouldn't shrink, it would grow. Walled gardens would prove unpopular. Digital advertising would reduce inefficiencies, and therefore profits. Dislike of micropayments would prevent widespread use. People would resist being educated to act against their own desires. Old habits of advertisers and readers would not transfer online. Even ferocious litigation would be inadequate to constrain massive, sustained law-breaking. (Prohibition redux.) Hardware and software vendors would not regard copyright holders as allies, nor would they regard customers as enemies. DRM's requirement that the attacker be allowed to decode the content would be an insuperable flaw. And, per Thompson, suing people who love something so much they want to share it would piss them off.
Revolutions create a curious inversion of perception. In ordinary times, people who do no more than describe the world around them are seen as pragmatists, while those who imagine fabulous alternative futures are viewed as radicals. The last couple of decades haven't been ordinary, however. Inside the papers, the pragmatists were the ones simply pointing out that the real world was looking increasingly like the unthinkable scenario. These people were treated as if they were barking mad. Meanwhile the people spinning visions of popular walled gardens and enthusiastic micropayment adoption, visions unsupported by reality, were regarded not as charlatans but saviors.
When reality is labeled unthinkable, it creates a kind of sickness in an industry. Leadership becomes faith-based, while employees who have the temerity to suggest that what seems to be happening is in fact happening are herded into Innovation Departments, where they can be ignored en masse. This shunting aside of the realists in favor of the fabulists has different effects on different industries at different times. One of the effects on the newspapers is that many of its most passionate defenders are unable, even now, to plan for a world in which the industry they knew is visibly going away.
* * *
The curious thing about the various plans hatched in the '90s is that they were, at base, all the same plan: "Here's how we're going to preserve the old forms of organization in a world of cheap perfect copies!" The details differed, but the core assumption behind all imagined outcomes (save the unthinkable one) was that the organizational form of the newspaper, as a general-purpose vehicle for publishing a variety of news and opinion, was basically sound, and only needed a digital facelift. As a result, the conversation has degenerated into the enthusiastic grasping at straws, pursued by skeptical responses.
"The Wall Street Journal has a paywall, so we can too!" (Financial information is one of the few kinds of information whose recipients don't want to share.) "Micropayments work for iTunes, so they will work for us!" (Micropayments only work where the provider can avoid competitive business models.) "The New York Times should charge for content!" (They've tried, with QPass and later TimesSelect.) "Cook's Illustrated and Consumer Reports are doing fine on subscriptions!" (Those publications forgo ad revenues; users are paying not just for content but for unimpeachability.) "We'll form a cartel!" (…and hand a competitive advantage to every ad-supported media firm in the world.)
Round and round this goes, with the people committed to saving newspapers demanding to know "If the old model is broken, what will work in its place?" To which the answer is: Nothing. Nothing will work. There is no general model for newspapers to replace the one the internet just broke.
With the old economics destroyed, organizational forms perfected for industrial production have to be replaced with structures optimized for digital data. It makes increasingly less sense even to talk about a publishing industry, because the core problem publishing solves - the incredible difficulty, complexity, and expense of making something available to the public - has stopped being a problem.
* * *
Elizabeth Eisenstein's magisterial treatment of Gutenberg's invention, The Printing Press as an Agent of Change, opens with a recounting of her research into the early history of the printing press. She was able to find many descriptions of life in the early 1400s, the era before movable type. Literacy was limited, the Catholic Church was the pan-European political force, Mass was in Latin, and the average book was the Bible. She was also able to find endless descriptions of life in the late 1500s, after Gutenberg's invention had started to spread. Literacy was on the rise, as were books written in contemporary languages, Copernicus had published his epochal work on astronomy, and Martin Luther's use of the press to reform the Church was upending both religious and political stability.
What Eisenstein focused on, though, was how many historians ignored the effects of the press circa 1500. To describe life before or after the spread of print was child's play; those dates were safely distanced from upheaval. The hard question Eisenstein's book asks is "How did we get from the world before the printing press to the world after it? What was the revolution itself like?"
Chaotic, as it turns out. The Bible was translated into local languages; was this an educational boon or the work of the devil? Erotic novels appeared, prompting the same set of questions. Copies of Aristotle and Galen circulated widely, but direct encounter with the relevant texts revealed that the two sources clashed, tarnishing faith in the Ancients. As novelty spread, old institutions seemed exhausted while new ones seemed untrustworthy; as a result, people almost literally didn't know what to think. If you can't trust Aristotle, who can you trust?
During the wrenching transition to print, experiments were only revealed in retrospect to be turning points. Aldus Manutius, the Venetian printer and publisher, invented the smaller octavo volume along with italic type. What seemed like a minor change - take a book and shrink it - was in retrospect a key innovation in the democratization of the printed word, as books became cheaper, more portable, and therefore more desirable, expanding the market for all publishers, which heightened the value of literacy still further.
That is what real revolutions are like. The old stuff gets broken faster than the new stuff is put in its place. The importance of any given experiment isn't apparent at the moment it appears; big changes stall, small changes spread. Even the revolutionaries can't predict what will happen. Agreements on all sides that core institutions must be protected are rendered meaningless by the very people doing the agreeing. (Luther and the Church both insisted, for years, that whatever else happened, no one was talking about a schism.) Ancient social bargains, once disrupted, can neither be mended nor quickly replaced, since any such bargain takes decades to solidify.
And so it is today. When someone demands to know how we are going to replace newspapers, they are really demanding to be told that we are not living through a revolution. They are demanding to be told that old systems won't break before new systems are in place. They are demanding to be told that ancient social bargains aren't in peril, that core institutions will be spared, that new methods of spreading information will improve previous practice rather than upending it. They are demanding to be lied to.
There are fewer and fewer people who can convincingly tell such a lie.
* * *
If you want to know why newspapers are in such trouble, the most salient fact is this: Printing presses are terrifically expensive to set up and to run. This bit of economics, normal since Gutenberg, limits competition while creating positive returns to scale for the press owner, a happy pair of economic effects that feed on each other. In a notional town with two perfectly balanced newspapers, one paper would eventually generate some small advantage - a breaking story, a key interview - at which point both advertisers and readers would come to prefer it, however slightly. That paper would in turn find it easier to capture the next dollar of advertising, at lower expense, than the competition. This would increase its dominance, which would further deepen those preferences, repeat chorus. The end result is either geographic or demographic segmentation among papers, or one paper holding a monopoly on the local mainstream audience.
For a long time, longer than anyone in the newspaper business has been alive in fact, print journalism has been intertwined with these economics. The expense of printing created an environment where Wal-Mart was willing to subsidize the Baghdad bureau. This wasn't because of any deep link between advertising and reporting, nor was it about any real desire on the part of Wal-Mart to have their marketing budget go to international correspondents. It was just an accident. Advertisers had little choice other than to have their money used that way, since they didn't really have any other vehicle for display ads.
The old difficulties and costs of printing forced everyone doing it into a similar set of organizational models; it was this similarity that made us regard Daily Racing Form and L'Osservatore Romano as being in the same business. That the relationship between advertisers, publishers, and journalists has been ratified by a century of cultural practice doesn't make it any less accidental.
The competition-deflecting effects of printing cost got destroyed by the internet, where everyone pays for the infrastructure, and then everyone gets to use it. And when Wal-Mart, and the local Maytag dealer, and the law firm hiring a secretary, and that kid down the block selling his bike, were all able to use that infrastructure to get out of their old relationship with the publisher, they did. They'd never really signed up to fund the Baghdad bureau anyway.
* * *
Print media does much of society's heavy journalistic lifting, from flooding the zone - covering every angle of a huge story - to the daily grind of attending the City Council meeting, just in case. This coverage creates benefits even for people who aren't newspaper readers, because the work of print journalists is used by everyone from politicians to talk radio hosts to bloggers. The newspaper people often note that newspapers benefit society as a whole. This is true, but irrelevant to the problem at hand; "You're gonna miss us when we're gone!" has never been much of a business model. So who covers all that news if some significant fraction of the currently employed newspaper people lose their jobs?
I don't know. Nobody knows. We're collectively living through 1500, when it's easier to see what's broken than what will replace it. The internet turns 40 this fall. Access by the general public is less than half that age. Web use, as a normal part of life for a majority of the developed world, is less than half that age. We just got here. Even the revolutionaries can't predict what will happen.
Imagine, in 1996, asking some net-savvy soul to expound on the potential of craigslist, then a year old and not yet incorporated. The answer you'd almost certainly have gotten would be extrapolation: "Mailing lists can be powerful tools", "Social effects are intertwining with digital networks", "This points to future ways of managing local information", and so on. What no one would have told you, could have told you, was what actually happened: craiglist became a critical piece of infrastructure. Not the idea of craigslist, or the business model, or even the software driving it. Craigslist itself spread to cover hundreds of cities and has become a part of public consciousness about what is now possible. Experiments are only revealed in retrospect to be turning points.
In craigslist's gradual shift from ‘interesting if minor' to ‘essential and transformative', there is one possible answer to the question "If the old model is broken, what will work in its place?" The answer is: Nothing will work, but everything might. Now is the time for experiments, lots and lots of experiments, each of which will seem as minor at launch as craigslist did, as Wikipedia did, as octavo volumes did.
Journalism has always been subsidized. Sometimes it's been Wal-Mart and the kid with the bike. Sometimes it's been Richard Mellon Scaife. Increasingly, it's you and me, donating our time. The list of models that are obviously working today, like Consumer Reports and NPR, like ProPublica and WikiLeaks, can't be expanded to cover any general case, but then nothing is going to cover the general case.
Society doesn't need newspapers. What we need is journalism. For a century, the imperatives to strengthen journalism and to strengthen newspapers have been so tightly wound as to be indistinguishable. That's been a fine accident to have, but when that accident stops, as it is stopping before our eyes, we're going to need lots of other ways to strengthen journalism instead.
When we shift our attention from 'save newspapers' to 'save society', the imperative changes from ‘preserve the current institutions' to ‘do whatever works.' And what works today isn't the same as what used to work.
We don't know who the Aldus Manutius of the current age is. It could be Craig Newmark, or Caterina Fake. It could be Martin Nisenholtz, or Emily Bell. It could be some 19 year old kid few of us have heard of, working on something we won't recognize as vital until a decade hence. Any experiment, though, designed to provide new models for journalism is going to be an improvement over hiding from the real, especially in a year when, for many papers, the unthinkable future is already in the past.
For the next few decades, journalism will be made up of overlapping special cases. Many of these models will rely on amateurs as researchers and writers. Many of these models will rely on sponsorship or grants or endowments instead of revenues. Many of these models will rely on excitable 14 year olds distributing the results. Many of these models will fail. No one experiment is going to replace what we are now losing with the demise of news on paper, but over time, the collection of new experiments that do work might give us the reporting we need.
Clay Shirky is an adjunct professor in NYU's graduate Interactive Telecommunications Program and writes on the social and economic effects of Internet technologies.
Is this a fad or the future of social networking? Hard to tell. However, it is absolutely perfect in a world with NO attention span whatsoever.
If you are interested in Twitter, you may enjoy this article about how to get more followers on the platform:
http://www.doshdosh.com/how-to-get-more-twitter-followers/
If you are interested in Twitter, you may enjoy this article about how to get more followers on the platform:
http://www.doshdosh.com/how-to-get-more-twitter-followers/
Wednesday, January 16, 2008
Everyone wants to be the “YouTube of China,” but they’re not
Everyone wants to be the “YouTube of China,” but they’re not
BY MATT MARSHALL 01.9.08
Every time we hear from one of the numerous Chinese video sites, they compare themselves to YouTube in its early days. But a closer look at the data suggests the video phenom in China just isn’t comparable.
For example, Youku reports today that the number videos viewed daily on its site has reached the levels YouTube enjoyed in Oct. 2006 when it was acquired by Google. This follows a similar statement by another Chinese competitor 56.com.
Youku says it has 100 million daily views, citing Nielsen/Netrating, which is indeed the level of views that YouTube had back in the day. That’s a whopping 30 million more views per day in November, when we first wrote about the company. However, Youku has far fewer unique visitors than YouTube did back in 2006, according to Comscore’s global data. And while no slouch, Youku doesn’t appear to be growing in the same upward right manner YouTube did, almost without exception — and continues to grow today. Unless Comscore’s data is dreadfully wrong, which is a possibility. However, Youku also has several competitors who say they are growing just as quickly. For example, Tudou and 56.com are just as large, if not larger, in terms of traffic.
Youku has raised US $40 million in three rounds of of funding from Brookside Capital, an affiliate of Bain Capital, Sutter Hill Ventures, Farallon Capital and Chengwei Ventures.
Aside from the question about Comscore’s reliability, there’s a story brewing about the statistics game that is going on in China right now, at least according to what we’re hearing. We’ll try to follow up shortly.
BY MATT MARSHALL 01.9.08
Every time we hear from one of the numerous Chinese video sites, they compare themselves to YouTube in its early days. But a closer look at the data suggests the video phenom in China just isn’t comparable.
For example, Youku reports today that the number videos viewed daily on its site has reached the levels YouTube enjoyed in Oct. 2006 when it was acquired by Google. This follows a similar statement by another Chinese competitor 56.com.
Youku says it has 100 million daily views, citing Nielsen/Netrating, which is indeed the level of views that YouTube had back in the day. That’s a whopping 30 million more views per day in November, when we first wrote about the company. However, Youku has far fewer unique visitors than YouTube did back in 2006, according to Comscore’s global data. And while no slouch, Youku doesn’t appear to be growing in the same upward right manner YouTube did, almost without exception — and continues to grow today. Unless Comscore’s data is dreadfully wrong, which is a possibility. However, Youku also has several competitors who say they are growing just as quickly. For example, Tudou and 56.com are just as large, if not larger, in terms of traffic.
Youku has raised US $40 million in three rounds of of funding from Brookside Capital, an affiliate of Bain Capital, Sutter Hill Ventures, Farallon Capital and Chengwei Ventures.
Aside from the question about Comscore’s reliability, there’s a story brewing about the statistics game that is going on in China right now, at least according to what we’re hearing. We’ll try to follow up shortly.
Sunday, November 11, 2007
The WGA Strike- A Perspective
I find it hard to understand the rationale in striking against the studios and television networks at this point in time. With the proliferation of cheaper to produce reality television programs, newscasts and game show/competitions, it defies all logic why the WGA thought this was the right approach. The studios and networks will have a very profitable Q4 and Q1 in '08, while the hard-working and underpaid writers teeter on financial ruin. It's obvious that the writers have historically gotten the short end of the stick, however, there had to have been better ways to obtain more money for their work. What adds insult to injury is that the money that they are fighting over (royalties for the web, new media, DVD's, etc) are in as yet to be defined areas of profitability for the networks and studios. The only company that is making money selling video content on the web is Apple and I-Tunes. Everyone else in the space is simply fumbling around trying to stake a claim on quicksand.
My first job out of college was at the ICM talent agency in the literary department for one of the top lit agents in Hollywood. I saw first hand that the role of the writer in a film or television show is the least appreciated and most important.
My advice to all of my former colleagues is to use this work stoppage opportunity to create compelling new content for the web. Channel your efforts into building online serials, youtube broadcasts and independent web films. The one thing that the web lacks is really well done professional content. Hollywood writers are the people with the talent to pull real human emotions out of entertainment. They need to bring this type of magic to the web. Sites like funnyordie are a good start, however, if the real creative forces in Hollywood (i.e. the talent) got behind the web as an independent medium, the studios could have a real run for their money. The web is an open platform for entertainment, and despite the power that large Internet companies may appear to have over the platform, there is always room for a new upstart to rock the system to its core.
My first job out of college was at the ICM talent agency in the literary department for one of the top lit agents in Hollywood. I saw first hand that the role of the writer in a film or television show is the least appreciated and most important.
My advice to all of my former colleagues is to use this work stoppage opportunity to create compelling new content for the web. Channel your efforts into building online serials, youtube broadcasts and independent web films. The one thing that the web lacks is really well done professional content. Hollywood writers are the people with the talent to pull real human emotions out of entertainment. They need to bring this type of magic to the web. Sites like funnyordie are a good start, however, if the real creative forces in Hollywood (i.e. the talent) got behind the web as an independent medium, the studios could have a real run for their money. The web is an open platform for entertainment, and despite the power that large Internet companies may appear to have over the platform, there is always room for a new upstart to rock the system to its core.
Hollywood Digital Divide- Repost From the Silicon Alley Insider
Hollywood Digital Divide: $124 M in 2011
Silicon Alley Insider
by Michael Learmonth
Yesterday we gave our best-guess estimate on the chasm between the Hollywood writers and the studios on digital media. Given the tiny size of the digital pot in 2007, it's a pittance -- about $7.8 million.
But the writers aren't worried about today's dollars. They're worried about missing out on an Internet boom, much as they missed out on the DVD boom of the last 10 years. Four years from now, for instance, we estimate about the gap between what the writers want and what the studios are offering could grow to $124 million.
We got those numbers based on projections from Adams Research, which estimates that downloads of TV and film will grow to $4.1 billion by 2011*, and Hollywood's share of the online video advertising market will grow to $1.7 billion.
Again, the estimates do not include many pieces of the digital pie for which the writers would like to be paid, including banner ads, subscription fees, or any digital revenue derived from guild-produced TV and film -- that is, video created solely for the Web, and not related to existing TV shows or movies. If the writers get their way on all of those streams as well, the gap would grow even further.
The math:
Studio proposal:
Downloads: $8.1m (0.03% of 2011 est. download wholesale market of $ 2.7 million, using DVD residuals formula.)
+
Streaming video advertising: $20.4 million (1.2% of Hollywood-related streaming ad revenue est $1.7 billion for 2007)
-----------
$21.4 million
Writer's Proposal:
Downloads: $102.5 million (2.5% of digital download wholesale)
+
Streaming video advertising: $42.5 million (2.5$ of Hollywood-related streaming ad revenue est $1.7 billion for 2007)
------------
$145 million
Total gap: $123.6 million
* Adams says it will revise its projections for the video download market, knocking them down somewhat to account for the boom in ad-supported business models. We'll update accordingly.
Silicon Alley Insider
by Michael Learmonth
Yesterday we gave our best-guess estimate on the chasm between the Hollywood writers and the studios on digital media. Given the tiny size of the digital pot in 2007, it's a pittance -- about $7.8 million.
But the writers aren't worried about today's dollars. They're worried about missing out on an Internet boom, much as they missed out on the DVD boom of the last 10 years. Four years from now, for instance, we estimate about the gap between what the writers want and what the studios are offering could grow to $124 million.
We got those numbers based on projections from Adams Research, which estimates that downloads of TV and film will grow to $4.1 billion by 2011*, and Hollywood's share of the online video advertising market will grow to $1.7 billion.
Again, the estimates do not include many pieces of the digital pie for which the writers would like to be paid, including banner ads, subscription fees, or any digital revenue derived from guild-produced TV and film -- that is, video created solely for the Web, and not related to existing TV shows or movies. If the writers get their way on all of those streams as well, the gap would grow even further.
The math:
Studio proposal:
Downloads: $8.1m (0.03% of 2011 est. download wholesale market of $ 2.7 million, using DVD residuals formula.)
+
Streaming video advertising: $20.4 million (1.2% of Hollywood-related streaming ad revenue est $1.7 billion for 2007)
-----------
$21.4 million
Writer's Proposal:
Downloads: $102.5 million (2.5% of digital download wholesale)
+
Streaming video advertising: $42.5 million (2.5$ of Hollywood-related streaming ad revenue est $1.7 billion for 2007)
------------
$145 million
Total gap: $123.6 million
* Adams says it will revise its projections for the video download market, knocking them down somewhat to account for the boom in ad-supported business models. We'll update accordingly.
ITV- The Businessweek Article
This week's issue of Businessweek has a profile on ITV. It is a fairly insightful analysis on the state of interactive television. Here is a link to the article: http://www.businessweek.com/print/magazine/content/07_47/b4059401.htm?chan=gl
BUSINESSWEEK
NOVEMBER 19, 2007
SPECIAL REPORT -- PERSONAL TV
I Want My iTV
But I won't be getting it soon. While the technology is mostly in place, the players—from cable companies to film studios—can't agree on how to make it happen
It all started when my TiVo let me down. For years this little device has been like an old friend. It sat next to my big-screen TV to record shows and movies when I wanted, without a lot of questions, and with no judgments on what I wanted to see. But on a lazy late summer day, I came to view TiVo in a whole new light.
There's a collision, you see, between the boob tube and the Internet. TV is all about instant gratification. The Net is about me having control. Put the two together, and the result should be personalized TV, or iTV, which lets me watch what I want, when I want it. That sounds a lot like TiVo. The recorders, which the company claims deliver "television your way," also allow you to connect to the Net and do things like check freeway traffic before your daily commute, buy movie tickets from your couch, and listen to Web radio, all on your TV. In July, TiVo even became the first device that lets you search easily for programs from cable outfits along with movies and other content delivered off the Web from Amazon's (AMZN ) Unbox video service.
So when my editors asked me to explain how TV and the Internet were intersecting, my first thought was to grab TiVo's peanut-shaped remote control. I had a hankering to see 1949's White Heat, the Jimmy Cagney flick where he plays gangster Cody Jarrett. Cornered by cops on top of a burning oil tank, he laughs maniacally and shouts: "Made it, Ma! Top of the world!" just before being obliterated. Calling up a neat bit of TiVo search software, I typed in the movie's name.
No luck. It offered me White Men Can't Jump on cable, or Single White Female off the Web. I tried typing in "gangster" to let TiVo troll program descriptions that might fit. There was the Gangsta Girls documentary or 1944's Gangsters of the Frontier to rent at Amazon. No... White... Heat.
IN SEARCH OF TV NIRVANA
Experiences like this just make it painfully clear how far we still are from having truly personal TV. All the technology to do this is basically in place: fast broadband connections, personal media recorders, instant Web-searching software, high-definition sets. So why can't I press a button or two and see whether the tribe has spoken, root for the next top chef, pull up a YouTube (GOOG ) clip of Ellen DeGeneres breaking down in tears over a dog—or even watch Cagney rise from small-time hood to the top of the world? I want to listen to music, have a box pop up on my screen telling me who's phoning my home, or watch a vacation-themed slide show before forwarding it on to bore my friends on Facebook—all while sitting in front of the set in my living room. No one has yet put this wish list together in one nice, easy-to-use package.
To find out why so many have tried and failed to deliver my TV nirvana, I got up off the couch and hit the road to talk to technology wizards and top industry executives. I discovered that Hollywood, cable, satellite, phone, and consumer-electronics companies are all screaming "Go! Go! Go!" as they lay out ambitious plans to conquer the market.
But what's holding up the transition from network TV to networked TV is that any company with a little piece of control in the way things work today is unwilling to jeopardize its power and revenues until it becomes clear how the new model will pay. Every time you hear about some product that sounds great but just has one strange limitation, follow the money to understand why. Hollywood worries digital downloads could lead consumers to stop buying $24 billion of DVDs annually, and broadcasters are nervous about the fate of the $185 billion-per-year TV advertising kitty. So studios and networks alike limit how long programs are available on Web sites or restrict the shows that play on various devices.
Cable and satellite providers worry that they will lose customer loyalty to the Web, so they impose tight controls on what content you see and have moved painfully slowly to offer advanced TV services. The people who make electronics gear fret that if they don't lock up agreements for exclusive music or videos, consumers won't pay top price. "You've got device manufacturers, content providers, service providers, networks, software makers, security providers all trying to sort out how big their piece of the pie should be," says former Comcast (CMCSA ) executive Kip Compton. He is now senior director and general manager of video and content networking at Cisco Systems (CSCO ), which is trying to merge TV and the Web.
Granted, I'm far more obsessed with this topic than the average couch potato. I've been testing electronics gear for nearly 10 years and have enough boxes and wires in my place to open a store. Comcast cables connect one room, Dish Network's wires snake through another, and DirecTV's are in two more. There are six digital videorecorders, four stereo receivers, an HD DVD player, a Blu-ray player, a half-dozen PCs and just as many Macs. So many high-definition TVs arrive during the peak holiday testing period that at one point a few years ago I had to shove one under a bed.
Most regular people still haven't viewed their first TV clip on a computer screen. But a survey by the Conference Board-TNS shows that 16% of American households with Web access now watch full TV broadcasts online, double the number from a year ago. And visitors to parts of Europe and Asia can see how far behind we are in personalizing our TV experience. Speedy, reliable broadband access in those regions can deliver richer video service, and because providers face real competition, they have to add Webby services to television as a selling point. Today, some 60% of all households in Hong Kong watch programming delivered over the Internet to the TV, says researcher Parks Associates. From a hotel in Seoul, I can click to do my banking on TV. A couple of friends I know live on the frozen tundra of Canada; even there, I can play games or get onscreen score alerts of favorite sports teams.
The electronics industry has churned out dozens of clever workarounds to bridge the Web-TV divide: A device called Slingbox lets you take recorded or live TV shows off a box at home and "sling" them miles away on a laptop, smartphone, or other mobile devices. Apple TV indirectly feeds (we'll come back to this) a show you bought on the iTunes Web store into your TV. Kids are rigging their Xbox video game consoles to do a similar trick. Or, you can schlep the shows by hand with TakeTV, a pocket-sized memory stick from SanDisk. (SNDK )
Each of these solves one or two pieces of the puzzle, while never quite completing the picture. It's like we're at that junction in the early 20th century when you had your pick of electric, steam, or gasoline-powered cars, and the steering wheel might be on the right or left side.
PATRON SAINT OF GEARHEADS
The first stop on my journey was just a short drive down the road from my San Francisco home to the offices of SRI International, the former Stanford University tech shop that helped create the precursor to Wi-Fi networks and high-definition TV. There, CEO Curt Carlson, the co-author of Innovation: The Five Disciplines for Creating What Customers Want, assured me that the trick for companies facing tough choices in this period of transition is to look beyond the customer they have today and anticipate the needs of an even larger audience a few years down the road. In short, focus on what's truly important to people and be the first to deliver that. Simple in concept, but extremely difficult if you're constantly thinking of short-term profits, he says. "I'm a big fan of [Apple CEO] Steve Jobs," Carlson says. "The people who connect needs and ideas the best and fastest win, and that's where he stands out."
Ah, Steve Jobs, the patron saint of gearheads. He is everyone's first (and often only) example of someone who's managed to make sense of a fractious market like this and turn it into a money machine. Jobs and Apple reinvigorated consumer interest in music with the elegant combination of a device (the iPod) and experience (the iTunes Web store). He put the pieces together so that you don't have to.
But Jobs is also the bogeyman that has forced fearful media bosses to change their approach to Webified TV. In music, Apple turned the traditional model upside down by charging a premium for gear while setting a flat, low price of 99 cents per song download. Now Apple has amassed a cash horde of $15.4 billion, while the music industry is awash in red ink. No wonder Hollywood studios and broadcasters are hell-bent not to hand similar power to anyone else—and particularly not Jobs. "We know that Apple has destroyed the music business, in terms of pricing, and if we don't take control they'll do the same thing on the video side," NBC Universal (GE ) chief Jeff Zucker told an audience at Syracuse University's S.I. Newhouse School of Public Communications on Oct. 29.
Jobs actually did try the same thing with Apple TV. Amid all the hoopla over Apple's iPod, iPhone, and Mac, Apple TV is the one product that even Jobs concedes isn't a smash hit. It's a neat idea, a box that lets you buy videos off the Web and play them on a TV. But the business model is flawed: You can only buy what's on iTunes, 1,050 titles in all, vs. the 85,000 offered by Netflix. My whizzy $299 white, gray, and silver Apple TV box sits largely unused next to a big-screen television in my bedroom. The process is like running a Rube Goldberg contraption. Start with a Mac, where you download videos; wait for them to be transferred by wire or Wi-Fi to the somewhat limited storage on the Apple TV box. By then, you might as well have just watched the stuff on the computer screen.
As I visited technology workshops in Germany and Silicon Valley, I was struck by how many of these program-shifting products suffer from a simple but fatal flaw: set-top box fatigue. No one wants to take a science test in their living room, crawling into tight spaces behind the media center to run wires and spending hours on the phone with tech support pressing "1 for new customers, 2 for current customers." That's why cable and satellite companies typically roll a truck to the curb for installations, despite a cost estimated at $50 to $100 a home. Small companies have no such luxury. Many device makers are forced to partner with cable and satellite providers, incorporating their technology into the boxes those companies already have in customers' homes.
Box fatigue basically led Sling Media to sell out to satellite company EchoStar (DISH ) in September. The plan is eventually to build Sling's technology into Echostar's Dish Network boxes. The Slingbox has gained modest traction with professionals who are constantly on the go, for whom there's a certain attraction to a device that forwards TV programs to their laptop or smartphone via the Web. But here again you have that extra box to worry about, and one that's devilishly complex to set up—at one point you have to deal with opening ports on a wireless router to let the shows travel out. Company founder Blake Krikorian acknowledges most folks may be confused by the concept of shifting the time and place of media consumption. "People didn't understand where we were going when we started out as a standalone company. I'm doubly sure they have no idea where we're going to go with Echostar," he says.
Similar concerns led TiVo to explore how it can embed its features on Comcast and other cable boxes. My best guess is this fate awaits many products that offer halfway solutions—and this could be a turning point in resolving the TV-Web stalemate. Because cable companies are wired into nearly every home, they have a good chance over the next couple of years to incorporate innovative Webby technologies in their equipment, speed up broadband connections, and set standards that force others to line up behind them. They'll need to sign content deal with various partners and overcome a reluctance to spend more money to upgrade equipment. And they'll have to cede some control to the TiVos of the world.
OLD MEDIA GAMBLE
That leaves the challenge of getting media companies comfortable about setting programming free. Google's (GOOG ) YouTube terrified them by showing how an independent site could usurp their gatekeeper role and siphon ad revenues. But it's possible that as Google methodically extends its Web-search expertise to all manner of screens—computer, TV, phones—it could help media companies adjust to the new world.
The media giants recently took a step in that direction with Hulu, a Web site launched by NBC Universal and News Corp. (NWS ) Hulu is the networks' attempt to monetize their shows on the Internet. It offers TV shows and movies for free, with commercials online. The companies get their money, and I, the consumer, get control, or some of it. Much of Hulu's programs ultimately will wind up on sites such as Yahoo! (YHOO ) and MySpace. But to protect their DVD income, the networks have placed a big limitation on the service: You can't watch it on TV, only a computer.And you can't record the shows. They are streamed off Hulu servers each time you watch and can't be stripped of ads unless you buy a copy. Prime-time hits disappear from that season's selection after five weeks.
Will it work? I completed my journey fittingly, testing Hulu on my home computer screen. I was skeptical. Techies like me assume that anything put together by a committee of desperate Old Media dinosaurs is doomed (Hulu is derided on tech blogs as "Clown Co."). I'll admit, though, that after spending some time on the beta site I was impressed. The morning after the latest episode of The Office was broadcast on NBC TV, it was on Hulu, with a quarter of the ads. The site offers the biggest collection of premium content on the Web so far and is adding older titles daily. You can e-mail a clip to a friend or upload it to a Facebook or MySpace page. After watching one Office episode from a previous season, I clicked on a link that took me to Amazon to buy it for $1.99—a download that I could even send to my TiVo to watch on the big screen. "What works for consumers is that which removes the most friction," says Hulu CEO Jason Kilar. "The technology needs to be so good that it blends into the background, and nobody notices it."
All well and good, but let's cut to the chase: Can I get White Heat? Alas, there is no happy ending. Only few movies are available on Hulu, and you probably can guess why: The Cagney flick is distributed by Warner Bros., one of the studios that has not struck a content deal with Hulu. Of course, even if it did, I would have to watch Jimmy's big exit on my laptop.
Foiled again. Looks like my search for iTV continues.
BUSINESSWEEK
NOVEMBER 19, 2007
SPECIAL REPORT -- PERSONAL TV
I Want My iTV
But I won't be getting it soon. While the technology is mostly in place, the players—from cable companies to film studios—can't agree on how to make it happen
It all started when my TiVo let me down. For years this little device has been like an old friend. It sat next to my big-screen TV to record shows and movies when I wanted, without a lot of questions, and with no judgments on what I wanted to see. But on a lazy late summer day, I came to view TiVo in a whole new light.
There's a collision, you see, between the boob tube and the Internet. TV is all about instant gratification. The Net is about me having control. Put the two together, and the result should be personalized TV, or iTV, which lets me watch what I want, when I want it. That sounds a lot like TiVo. The recorders, which the company claims deliver "television your way," also allow you to connect to the Net and do things like check freeway traffic before your daily commute, buy movie tickets from your couch, and listen to Web radio, all on your TV. In July, TiVo even became the first device that lets you search easily for programs from cable outfits along with movies and other content delivered off the Web from Amazon's (AMZN ) Unbox video service.
So when my editors asked me to explain how TV and the Internet were intersecting, my first thought was to grab TiVo's peanut-shaped remote control. I had a hankering to see 1949's White Heat, the Jimmy Cagney flick where he plays gangster Cody Jarrett. Cornered by cops on top of a burning oil tank, he laughs maniacally and shouts: "Made it, Ma! Top of the world!" just before being obliterated. Calling up a neat bit of TiVo search software, I typed in the movie's name.
No luck. It offered me White Men Can't Jump on cable, or Single White Female off the Web. I tried typing in "gangster" to let TiVo troll program descriptions that might fit. There was the Gangsta Girls documentary or 1944's Gangsters of the Frontier to rent at Amazon. No... White... Heat.
IN SEARCH OF TV NIRVANA
Experiences like this just make it painfully clear how far we still are from having truly personal TV. All the technology to do this is basically in place: fast broadband connections, personal media recorders, instant Web-searching software, high-definition sets. So why can't I press a button or two and see whether the tribe has spoken, root for the next top chef, pull up a YouTube (GOOG ) clip of Ellen DeGeneres breaking down in tears over a dog—or even watch Cagney rise from small-time hood to the top of the world? I want to listen to music, have a box pop up on my screen telling me who's phoning my home, or watch a vacation-themed slide show before forwarding it on to bore my friends on Facebook—all while sitting in front of the set in my living room. No one has yet put this wish list together in one nice, easy-to-use package.
To find out why so many have tried and failed to deliver my TV nirvana, I got up off the couch and hit the road to talk to technology wizards and top industry executives. I discovered that Hollywood, cable, satellite, phone, and consumer-electronics companies are all screaming "Go! Go! Go!" as they lay out ambitious plans to conquer the market.
But what's holding up the transition from network TV to networked TV is that any company with a little piece of control in the way things work today is unwilling to jeopardize its power and revenues until it becomes clear how the new model will pay. Every time you hear about some product that sounds great but just has one strange limitation, follow the money to understand why. Hollywood worries digital downloads could lead consumers to stop buying $24 billion of DVDs annually, and broadcasters are nervous about the fate of the $185 billion-per-year TV advertising kitty. So studios and networks alike limit how long programs are available on Web sites or restrict the shows that play on various devices.
Cable and satellite providers worry that they will lose customer loyalty to the Web, so they impose tight controls on what content you see and have moved painfully slowly to offer advanced TV services. The people who make electronics gear fret that if they don't lock up agreements for exclusive music or videos, consumers won't pay top price. "You've got device manufacturers, content providers, service providers, networks, software makers, security providers all trying to sort out how big their piece of the pie should be," says former Comcast (CMCSA ) executive Kip Compton. He is now senior director and general manager of video and content networking at Cisco Systems (CSCO ), which is trying to merge TV and the Web.
Granted, I'm far more obsessed with this topic than the average couch potato. I've been testing electronics gear for nearly 10 years and have enough boxes and wires in my place to open a store. Comcast cables connect one room, Dish Network's wires snake through another, and DirecTV's are in two more. There are six digital videorecorders, four stereo receivers, an HD DVD player, a Blu-ray player, a half-dozen PCs and just as many Macs. So many high-definition TVs arrive during the peak holiday testing period that at one point a few years ago I had to shove one under a bed.
Most regular people still haven't viewed their first TV clip on a computer screen. But a survey by the Conference Board-TNS shows that 16% of American households with Web access now watch full TV broadcasts online, double the number from a year ago. And visitors to parts of Europe and Asia can see how far behind we are in personalizing our TV experience. Speedy, reliable broadband access in those regions can deliver richer video service, and because providers face real competition, they have to add Webby services to television as a selling point. Today, some 60% of all households in Hong Kong watch programming delivered over the Internet to the TV, says researcher Parks Associates. From a hotel in Seoul, I can click to do my banking on TV. A couple of friends I know live on the frozen tundra of Canada; even there, I can play games or get onscreen score alerts of favorite sports teams.
The electronics industry has churned out dozens of clever workarounds to bridge the Web-TV divide: A device called Slingbox lets you take recorded or live TV shows off a box at home and "sling" them miles away on a laptop, smartphone, or other mobile devices. Apple TV indirectly feeds (we'll come back to this) a show you bought on the iTunes Web store into your TV. Kids are rigging their Xbox video game consoles to do a similar trick. Or, you can schlep the shows by hand with TakeTV, a pocket-sized memory stick from SanDisk. (SNDK )
Each of these solves one or two pieces of the puzzle, while never quite completing the picture. It's like we're at that junction in the early 20th century when you had your pick of electric, steam, or gasoline-powered cars, and the steering wheel might be on the right or left side.
PATRON SAINT OF GEARHEADS
The first stop on my journey was just a short drive down the road from my San Francisco home to the offices of SRI International, the former Stanford University tech shop that helped create the precursor to Wi-Fi networks and high-definition TV. There, CEO Curt Carlson, the co-author of Innovation: The Five Disciplines for Creating What Customers Want, assured me that the trick for companies facing tough choices in this period of transition is to look beyond the customer they have today and anticipate the needs of an even larger audience a few years down the road. In short, focus on what's truly important to people and be the first to deliver that. Simple in concept, but extremely difficult if you're constantly thinking of short-term profits, he says. "I'm a big fan of [Apple CEO] Steve Jobs," Carlson says. "The people who connect needs and ideas the best and fastest win, and that's where he stands out."
Ah, Steve Jobs, the patron saint of gearheads. He is everyone's first (and often only) example of someone who's managed to make sense of a fractious market like this and turn it into a money machine. Jobs and Apple reinvigorated consumer interest in music with the elegant combination of a device (the iPod) and experience (the iTunes Web store). He put the pieces together so that you don't have to.
But Jobs is also the bogeyman that has forced fearful media bosses to change their approach to Webified TV. In music, Apple turned the traditional model upside down by charging a premium for gear while setting a flat, low price of 99 cents per song download. Now Apple has amassed a cash horde of $15.4 billion, while the music industry is awash in red ink. No wonder Hollywood studios and broadcasters are hell-bent not to hand similar power to anyone else—and particularly not Jobs. "We know that Apple has destroyed the music business, in terms of pricing, and if we don't take control they'll do the same thing on the video side," NBC Universal (GE ) chief Jeff Zucker told an audience at Syracuse University's S.I. Newhouse School of Public Communications on Oct. 29.
Jobs actually did try the same thing with Apple TV. Amid all the hoopla over Apple's iPod, iPhone, and Mac, Apple TV is the one product that even Jobs concedes isn't a smash hit. It's a neat idea, a box that lets you buy videos off the Web and play them on a TV. But the business model is flawed: You can only buy what's on iTunes, 1,050 titles in all, vs. the 85,000 offered by Netflix. My whizzy $299 white, gray, and silver Apple TV box sits largely unused next to a big-screen television in my bedroom. The process is like running a Rube Goldberg contraption. Start with a Mac, where you download videos; wait for them to be transferred by wire or Wi-Fi to the somewhat limited storage on the Apple TV box. By then, you might as well have just watched the stuff on the computer screen.
As I visited technology workshops in Germany and Silicon Valley, I was struck by how many of these program-shifting products suffer from a simple but fatal flaw: set-top box fatigue. No one wants to take a science test in their living room, crawling into tight spaces behind the media center to run wires and spending hours on the phone with tech support pressing "1 for new customers, 2 for current customers." That's why cable and satellite companies typically roll a truck to the curb for installations, despite a cost estimated at $50 to $100 a home. Small companies have no such luxury. Many device makers are forced to partner with cable and satellite providers, incorporating their technology into the boxes those companies already have in customers' homes.
Box fatigue basically led Sling Media to sell out to satellite company EchoStar (DISH ) in September. The plan is eventually to build Sling's technology into Echostar's Dish Network boxes. The Slingbox has gained modest traction with professionals who are constantly on the go, for whom there's a certain attraction to a device that forwards TV programs to their laptop or smartphone via the Web. But here again you have that extra box to worry about, and one that's devilishly complex to set up—at one point you have to deal with opening ports on a wireless router to let the shows travel out. Company founder Blake Krikorian acknowledges most folks may be confused by the concept of shifting the time and place of media consumption. "People didn't understand where we were going when we started out as a standalone company. I'm doubly sure they have no idea where we're going to go with Echostar," he says.
Similar concerns led TiVo to explore how it can embed its features on Comcast and other cable boxes. My best guess is this fate awaits many products that offer halfway solutions—and this could be a turning point in resolving the TV-Web stalemate. Because cable companies are wired into nearly every home, they have a good chance over the next couple of years to incorporate innovative Webby technologies in their equipment, speed up broadband connections, and set standards that force others to line up behind them. They'll need to sign content deal with various partners and overcome a reluctance to spend more money to upgrade equipment. And they'll have to cede some control to the TiVos of the world.
OLD MEDIA GAMBLE
That leaves the challenge of getting media companies comfortable about setting programming free. Google's (GOOG ) YouTube terrified them by showing how an independent site could usurp their gatekeeper role and siphon ad revenues. But it's possible that as Google methodically extends its Web-search expertise to all manner of screens—computer, TV, phones—it could help media companies adjust to the new world.
The media giants recently took a step in that direction with Hulu, a Web site launched by NBC Universal and News Corp. (NWS ) Hulu is the networks' attempt to monetize their shows on the Internet. It offers TV shows and movies for free, with commercials online. The companies get their money, and I, the consumer, get control, or some of it. Much of Hulu's programs ultimately will wind up on sites such as Yahoo! (YHOO ) and MySpace. But to protect their DVD income, the networks have placed a big limitation on the service: You can't watch it on TV, only a computer.And you can't record the shows. They are streamed off Hulu servers each time you watch and can't be stripped of ads unless you buy a copy. Prime-time hits disappear from that season's selection after five weeks.
Will it work? I completed my journey fittingly, testing Hulu on my home computer screen. I was skeptical. Techies like me assume that anything put together by a committee of desperate Old Media dinosaurs is doomed (Hulu is derided on tech blogs as "Clown Co."). I'll admit, though, that after spending some time on the beta site I was impressed. The morning after the latest episode of The Office was broadcast on NBC TV, it was on Hulu, with a quarter of the ads. The site offers the biggest collection of premium content on the Web so far and is adding older titles daily. You can e-mail a clip to a friend or upload it to a Facebook or MySpace page. After watching one Office episode from a previous season, I clicked on a link that took me to Amazon to buy it for $1.99—a download that I could even send to my TiVo to watch on the big screen. "What works for consumers is that which removes the most friction," says Hulu CEO Jason Kilar. "The technology needs to be so good that it blends into the background, and nobody notices it."
All well and good, but let's cut to the chase: Can I get White Heat? Alas, there is no happy ending. Only few movies are available on Hulu, and you probably can guess why: The Cagney flick is distributed by Warner Bros., one of the studios that has not struck a content deal with Hulu. Of course, even if it did, I would have to watch Jimmy's big exit on my laptop.
Foiled again. Looks like my search for iTV continues.
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