The math’s not pretty on digital advertising’s future revenues? (2017)
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Apple does not have a chance at buying Google because they have the same market cap. Google and Facebook have a massive advantage in scale and precision which is why 2 of the top 10 biggest companies on the planet are ad networks. The valuations come from the sheer profit they generate, not their assets, and how much Disney spends on content is utterly irrelevant. You cannot easily replicate what they do otherwise it would've already been done. Half of the world's population still isn't online so there's plenty of room for growth in the future too.
Everyone loves to talk about waste but skip over how much worse it is with TV and print ads. What matters is getting a positive return. Even if you can't measure anything else, you can see what sales were like before and after doing any advertising, and that's as simple as it gets. Advertising is a key component of marketing, and marketing is how a company grows and creates customers, so unless you change human behavior advertising is not going away.
Take theoretical company (Company A) worth $100MM and with a single shareholder (Shareholder A) who owns 100% of the 10MM shares of stock. They "buy" Company B which is also worth $100MM and has a single shareholder (Shareholder B) who owns 100% of Company B's 10MM shares. Company A executes this by issuing 10MM _new_ shares in Company A that will now be owned by Shareholder B. Company A now has 20MM shares and is worth $200MM because it has added Company B's assets, income, etc.
Of course in practice it frequently goes terribly wrong (ref: Microsoft & Nokia, Verizon & Yahoo, many others) and I don't think Google would actually have much incentive to go along with this. Just saying it COULD be done if both companies truly believed the outcome would be favorable.
The offline half doesn’t have that much money to spend, right? Making some assumptions and approximating, would it be wrong to say that potential gains from bringing new people online ≈ global GDP growth? Currently that’s in the low single digits.
Incumbents ignore low-margin, cost-conscious customers.
Innovators cater to customers the incumbents don't want and build a product that is worse than incumbent's in every area except cost.
Then innovators improve the product to capture the lower tier of incumbent's customer base, then work their way up to more profitable customers.
Incumbent wakes up too late, finds their customers moved to a product the incumbent always thought was worse.
Lesson: don't ignore large, underserved populations or you'll find your lunch has been eaten.
The 1000% growth when you're a startup does not exist when you're worth half a trillion.
Hm? He's talking about the multiples on their earnings, aka their profit. How does anything you just said justify a high multiple?
Original content and physical parks are very hard to invest in and make profitable, and Disney has had plenty of missteps recently. Also Google has Youtube which is replacing TV for many young people and full of original content that required no investment.
b) So what? You're going to value a moat at a 100% premium NPV?
The moat has nothing to do with that and is formed by their scale, which is almost impossible to break at this point. This is valued highly when it defends a multi-billion profit machine that nobody else can match.
That speaks to margins, not moat. Margins are already incorporated in the 'earnings' number. High margins do not factor into your multiple.
In theory yes but not in practice.
Many companies run ads as strict losses, until they stop spending or die, then another company will eventually the spot.
The revenue equilibrium is about where Google is paid all revenues from the customers it brought. The company gets more customer but makes neither a profit nor a loss. It's very close to that in practice.
It's really brutal. Google can effectively capture all profit margin from every web business in the world. That's what is happening.
Lots of companies make a lot of money on the web. Google doesn't have a monopoly of profit.
I don't see what this has to do with Google taking your profit.
Google's revenue today is six times as large as it was a decade ago. And I expect its revenue in a decade to be at least 3 times as large as it is today. The reason is that many of the causes of past growth will continue for the foreseeable future:
1. The people who are connected to the internet will continue to become richer - in particular booming poor countries like India and Indonesia
2. The amount of time people spend on the internet will continue to grow
3. The amount of advertising Google can show people per hour will continue to grow. For example, Google can show many more ads on YouTube and still be less saturated than the old network TV model. Another example: The Economist app currently shows untargeted ads copied from their print magazine - but in 10 years these ads will probably come from Google.
4. Google can continue to improve its algorithm for placing of ads. Google knows so much about me yet I'm amazed how stupidly untargeted its ads sometimes are. Eg. if my photo stream doesn't include pictures of cats, don't show me ads for cat food!
5. Google can continue to collect more personal data. Right now it doesn't know when I last purchased toothpaste, but it might in 10 years from now.
6. The number of people connected to the internet will continue to grow (although of course at a slower rate than in the past)
[Disclaimer: I own shares in Google and Facebook]
1. More users. This is pretty tapped out for Google. Yes, more people will come online in developing countries, but those people will also gain access to say Disney content. So, world GDP growth is already largely priced into the multiple's of other companies too.
2. Higher ad density. I don't see a lot of opportunity for Google to substantially increase it's ad density. Reasonable people might differ here, but I think they're already fairly dense.
3. Higher ad quality / spend efficiency. This cuts both ways for them. Right now advertisers spend a lot of money on AdWords inefficiently. If Google can optimize their spend, they'll pay less in aggregate, but they may be willing to pay more per ad. Which, in turn, will allow the ad density to be more globally efficient, if Google can replace the lost volume with other advertisers who will also pay more. There is probably room here, but it's speculative, and I don't think the growth potential is enormous.
4. Reducing costs. Google's gross margins are already tremendous (63%), you could cut their costs to zero and you wouldn't even double their profit.
1. Over the past 13 years world GDP per capita has grown about 3% per year. So it's reasonable to think that the people who are currently connected to the internet will on average be 30% richer in 10 years
2. The average amount of time that people spend on the internet could grow 20% in 10 years
3. The amount of advertising Google can show per hour might be 20% higher in 10 years
4. Google might improve its ad algorithm 10% per year - ie. 160% over 10 years.
5. Having more personal data might improve Google's ad algorithm by a further 10% over 10 years
6. Most extra people connected to the internet over the next 10 years will be much poorer than existing users, so let's say that this growth only contributes 10% to revenue over 10 years
Estimated revenue growth is therefore: 1.3 * 1.2 * 1.2 * 2.6 * 1.1 * 1.1 = 5.9
But there is also the chance of significant regulation and other risk factors so let's cut that revenue growth estimate in half to 3.
Google won't need 3 times the number of engineers or data centers to service that growth, so Google might be reasonably expected to quadruple its profit in 10 years.
A bit more from compounding, but ya. However, that's priced into every company's multiple.
> 2. The average amount of time that people spend on the internet could grow 20% in 10 years
And you think Google will capture all of that?
> 3. The amount of advertising Google can show per hour might be 20% higher in 10 years
Why?
> 4. Google might improve its ad algorithm 10% per year - ie. 160% over 10 years.
10% more profitable every year for 10 years? I'm not going to say that can't possibly happen, but you'd have to walk me through the physics of exactly how you think that's possible. Do keep in mind that Google makes money by showing people ads. They can increase their profits by:
1. Showing more ads per user
2. Getting more users
3. Charging more for ads (to do this, they'd have to improve efficacy, which, by the way, they don't capture all of because part of the surplus efficiency the advertisers will want for themselves)
4. Reducing their costs
I don't really see room for 160% growth no matter how you divide it amongst these things, unless, as the author of the original article pointed out, Google captures brand advertisers.
> And you think Google will capture all of that?
No, but it's reasonable to think that Google will capture a share of that growth in proportion to their current share.
>> 3. The amount of advertising Google can show per hour might be 20% higher in 10 years
> Why?
See my earlier comment about Youtube and The Economist. There's also the chance that Twitter decides to outsource their ads to Google.
> > 4. Google might improve its ad algorithm 10% per year - ie. 160% over 10 years.
> 10% more profitable every year for 10 years? I'm not going to say that can't possibly happen, but you'd have to walk me through the physics of exactly how you think that's possible. Do keep in mind that Google makes money by showing people ads. They can increase their profits by:
> 1. Showing more ads per user
> 2. Getting more users
> 3. Charging more for ads (to do this, they'd have to improve efficacy, which, by the way, they don't capture all of because part of the surplus efficiency the advertisers will want for themselves)
> 4. Reducing their costs
When I say "improve its ad algorithm" I'm talking about improving the match between the viewer and the advertiser - and therefore being able to charge more for ads. Based on my personal experience with Google ads I think there's a lot of room for improvement. Here are some examples in addition to the cat food example I gave earlier:
(a) Last year I demonstrated interested in buying a Pixel 2 phone, so Google started showing me Pixel 2 ads. Fair enough. But then it kept showing me the ads even after I had purchased the phone and was viewing the ads on a Pixel 2 phone
(b) Last year I wanted to buy a Macbook Pro, and I went as far as configuring it on the Apple website and putting it in my shopping cart. But then I got cold feet and didn't buy it for 6 months. In that time I never once saw an ad on Facebook or Google for Macbook Pros. Apple were leaving a lot of money on the table by not hooking up with Google.
(c) Google shows me sports betting ads all the time, despite the fact that I've never been in a betting shop or placed an online bet. (Google has 4 years of my location history and 14 years worth of my email history)
(d) Earlier this year I was shown an ad for Audible every single time I opened YouTube. I must have seen 20 ads per day for the same product. It was very annoying and I suspect Google would make more money by showing a variety of ads
(e) When I buy an airline flight Google adds it to my calendar but still shows me ads for that flight.
(f) Browsing the New York Times app just now I'm shown a "Quit Smoking" ad despite the fact that I've never smoked in my life.
(g) I read about a Facebook user who is vegan but saw in her Facebook profile that one of the advertisers specifically targeting her was KFC.
Hint: I haven’t seen a Google ad when browsing on my iPhone since iOS 9.
That makes sense to me for Google. They have played out most of their bag of tricks to get more ad impressions. Everything above the fold is an ad, or a link to a Google owned property for any query you can monetize now. And any video on YouTube with revenue potential has a forced ad view.
That wasn't true in the past, so they could turn the dial to turn up revenue. That dial is all the way to the right now.
So, revenue growth will now match eyeball growth instead of exceeding it.
The big advantage is that Google and Facebook have monopolies.
Instead it’s about the ads that are currently on TV. The ads that are about broad brand recognition, not about microtargeting the audience. The point is that Google and Facebook already won the battle for their markets but they have no particular advantage over other media companies in competing for the rest of the ad market. In fact they are worse off because they have no existing brand of TV like content and they don’t have the cash reserves to buy their way in.
This article is a couple of years old but in the interim Facebook and Google have both had to back up and re-assess their media production strategies because so far they’ve been failing exactly as this article predicted.
I think your ignorance of their offerings (and I couldn't name anything either!) says what we need to know about their success.
And even in brand advertising I'm skeptical of the idea that detailed knowledge of each viewer is not a significant advantage. When Mercedes advertises its brand, wouldn't it be prepared to pay more to target males older than 30 who last purchased a car more than 3 years ago? When McDonald's does brand advertising, shouldn't it prepared to pay more to show the ad to people who are overweight and pay less to show the ad to people who go to the gym 3 times a week and haven't been in a fast food restaurant in 6 months? And if the sales director of a large company has a wedding anniversary coming up, wouldn't a jeweller be willing to out-bid McDonald's for the right to place an ad in front of that sales director?
Facebooks ads are garbage except in certain circumstances. Everyone knows this, including the big brands, but they continue to do it because it makes the board happy when they see their brand on FB.
AdWords is the only ad platform that works, works well, and is pretty universal.
Disney has a real good chance here though because Disney has actual valuable content. As in, literally valuable. You know, because people pay for Disney content with money.
Are you sure? Why are you sure?
And as a corollary: even if most people won't pay for it, are you sure it won't still obtain a majority in its market? For any given successful product, most people don't buy it.
Most of the content that gets views is click-baity garabage. Not all, just most. People watch it because they are conditioned to, not because they want to or even find it entertaining.
Some people can make it in a paid model—most can’t. Most of those who can graduate out being a “content creator” for a living.
But even if it didn't, Patreon is a glorified busker's tip jar. There are only a small number of individuals on earth who can make a full-time living from it. There's no sign that this model could work at scale for a large corporation. Even if it theoretically could, in practice your second sentence would again come into play.
Why should it? Most of the content people are now enjoying day to day isn't coming from large corporations. What we're witnessing now is the infancy of a shift away from the centralization of entertainment started by the industrial revolution (with access to printing presses, radio broadcasting, etc being relatively limited by economies of scale or similar reasons) back to a more community focused model that provides greater diversity in content. Most are welcoming this change as it brings them access to media of the sort they've never before had access to, as well as closer two-way relationships with the producers of that content.
This isn't limited to youtube/video content either by the way, it's happening in music and other forms of art/entertainment as well. The platforms used to provide the distribution of content and used to collect payment will prove to be interchangeable; they aren't the part of the picture that matters. What matters is the relationships creators and their patrons can now cultivate. Now that people know this model is possible, the cat's not going back into the bag. Even if youtube or patreon were to close up shop, the demand would still be there and new platforms would be adopted or created if necessary because now people have seen a glimpse of what's possible and don't want to go back.
If Google is going to show ads on a content creator's channel because they map to the demographic I want to advertise to, what is stopping me from just cutting out Google and paying the content creator directly? That way I can exercise more fine-grained control over what my ads don't show up next to, the content creator gets more money, and everybody is happy except Google. But what is Youtube's value add other than as a commoditized video-hosting platform?
So every advertiser is incentivized to scale their ad campaigns as much as possible.
And having to find creators yourself and negotiate deals one by one is inefficient in a world where Google and Facebook have build automated products to do so!
Nothing per-se, but if you talk to content creators they'll tell you that they prefer Patreon or youtube monetization or similar systems for at least one simple reason: their per-month income is more predictable, which provides them with a sense of financial stability. For many creators this isn't a full-time job, but rather a time intensive hobby that brings in enough money to pay for itself with maybe a little extra. But feeling confident that their expenses will be covered next month provides them with a necessary sense of security to keep doing what they do. If they were to rely on people mailing them cheques every month, many people would simply forget and creators could never be confident of approximately how much money they'll have next month. Patreon and youtube monetization don't provide any guarantees about future income, but in practice creators find that it typically doesn't change that much month from month.
This doesn't mean that youtube monetization or patreon have a permanent monopoly on the payment system for independent creators. Far from it actually, the fact that Patreon broke into the scene previously dominated by youtube monetization demonstrates that if your system provides relative stability to creators, they will be willing to adopt it.
We are still in the infancy of this social transformation, but already we see a clear picture starting to emerge of what creators and their viewers require to make it work.
Anecdotally a lot of videos I see from creators and influencers are often sponsored either with a segment at the beginning or end, or with product placement. If this trend continues to take off, it’s hard to see long run ad growth on Google and Facebook.
Taking that at face value, it's still the Google vs Apple argument.
"The content people are enjoying" is not nearly as valuable as "the content people are willing to pay for." It's easy to get someone to watch free stuff.
And in terms of total revenue, I'm skeptical that quantity of free content + ads can beat quality paid content + ads over the long run.
Separately, the democratization of media doesn't mean we've improved the net quality. For every Groklaw PJ, there's 1,000 poorly-informed rants.
It's important we now have more outlets for people to express themselves, but professionalism = talent + dedication. And most people don't have both of those.
Maybe part of the reason you're struggling with this concept is because your focus is too narrow. Look beyond political/legal commentary, where small creators are competing directly against international media corporations that provide content in the same category.
Look beyond that, because most of what's out there doesn't fall into that category. There is a LONG tail of independent content being produced that has no competition at all from corporate media. Name any narrow interest or hobby and you can almost certainly find independent creators online that are collectively producing far more content in that topic every week than the corporate media has produced in the past century. Take for instance woodworking. To be sure, there have been TV shows about woodworking, The New Yankee Workshop (Norm Abram) and The Woodwright's Shop (Roy Underhill), both on PBS (which is probably notable, can we expect Disney to produce and commercialize a woodworking TV show?), are very notable excellent examples. But there is so much more content on youtube, the woodworking content on youtube is more diverse, and those independent online creators typically have a closer relationship with their viewers.
Woodworking is a generous example because it's actually a case where traditional media can marginally compete. But change the topic slightly and traditional media leaves you completely out in the cold. What if instead of cutting and joining wood, you're interested in metal? Where is the PBS show for hobby metal working? Would Disney ever give Adam Booth his own machining show? I don't think so.
This is a small list: https://en.wikipedia.org/wiki/Category:Arts_and_crafts_telev...
I'm not ready to take a position in the markets against them yet (but I dont know when, also there's alot cheaper weaker companies out there now to take positions against), but it would probably be something like buying the stock, selling long dated ITM calls, buying medium dated slightly to deep otm puts.
People still consume that sort of media, but the amount of time they spend consuming media like that is small compared to the amount of time they spend consuming independently produced media. Compare how many hours a month they spend watching Hollywood blockbusters and how many hours a month they spend watching independent creators on youtube or listening to independent creators music on soundcloud.
Some people, mostly older people are still stuck in the past. They avoid specialized independent content and instead consume corporate entertainment (engineered for 'universal appeal' by finding an LCD) with netflix, hulu, or even with cable subscriptions(!). But it's clear that times are changing. There was once a time when corporate media had a near total monopoly on people's attention, but those days are now long gone and will never come back.
Much of the content people consume now comes from random people, but they don’t actually enjoy it. You ever watch someone use Instagram? It’s just conditioning. Scroll, tap tap, scroll, tap tap, scroll, tap tap.
When people enjoy content they pay for it with money. When people mindlessly consume content whose value approaches zero, but isn’t quite zero because zero would be nothing at all, they pay for it with “likes.”
I agree with you regarding services that are entirely technology-based (GDocs, Drive, etc.) but so much of Google is the definition of a monopoly (in the sense of "hard to enter the market"):
- You can't replace Gmail without keeping your Google account open so that any old emails get forwarded to your new address (although this is a problem with any old mail server)
- Google Maps is by far the most dominant maps service, besides Apple Maps (but only on iOS) and I don't see OpenStreetMap implementing turn-by-turn directions.
- Youtube content creators already have dedicated fanbases on Youtube, and the vast majority of those subscribers don't care enough about the content creator to download another app just to watch their content.
Also:
> easily be replaced by paid equivalents
There's a reason Google is so big right now: everything is free. If you had to pay for any of Google's services I can guarantee they would have a small fraction of the usage they do today.
The HTML5 video tag exists - you don't need "another app", though you might need another video host. There's very little inherent difference between YT and any other popular, large site. They host videos? Video is not that much more bulky than other website content anyway. (At least if you avoid gold-plating the service with 720p, 1080p, even 4K video streaming, which is just silly when the "content" is some cats doing whatever.) Websites come and go.
(And of course OSM data can be used to provide turn-by-turn routes, even with on-device processing. What makes you assume that this is not a thing?)
YouTube’s video streaming infra is a masterpiece of engineering and magnitudes of order better than a vanilla streaming setup!
You might not notice because you live in a place with great internet...but most people don’t!
Just travel to a third world country and look at how poorly other video services like Facebook, Vimeo, etc perform in comparison.
There is some good posts from John Harding out there that get into the details
I'm fairly certain an economist would tell you they are paying now. That is, in simple layperson's terms: "Time is money." All that time on FB - contributing and consuming - is being paid for. AND FB gets to serve them ads as well.
It's hard to believe it's legal ;)
I'm so happy now for all the people who made the hundreds of films I've watched for free on the web.
Anyone can upload to YouTube, of course most of it sucks!
We know Avengers can bring in X ticket sales + Y movie purchases + etc. But what's a million YouTube view video worth?
The actual content value is important because it tells you what people are willing to do to watch it.
If you over-ad something that people are only watching because it's free and doesn't have ads? I'm guessing that doesn't end well.
Facebook’s ads are “organic” and are viewed mostly on mobile within an app - meaning harder to block.
No, its profit can't be easily cut off. They control the environment in all regards and have the leverage to dictate terms to nearly everyone. That's why they'll do ~$130 billion in sales this year, despite the popularity of ad blockers.
A tiny percentage of users will evade Google's moves to ensure its advertising survival? Sure, and it won't matter in the least.
2. Chrome - doesn’t make any money except for having Google as the home page - see #1
3. Android is the “most popular” but Android users are far less affluent and valuable to advertisers than iOS. On top of that, the largest market in the world is China and Google has no presence.
And according to information that came out during the Oracle lawsuit (that Google didn’t dispute), Android has only made Google $31 billion since its inception.
https://www.reuters.com/article/us-oracle-google-lawsuit-idU...
4. Play Store - even though the Play Store is on more phones. Again, Android users are not as affluent on average and spend much less than iOS users
https://techcrunch.com/2018/07/16/apples-app-store-revenue-n...
5. As far as ad blockers - again since the most affluent users in development countries are using iOS devices where there is a native ad blocking framework, ad blocking is being used by the most coveted demographics.
2017 2018* 2019*
Google revenue $110.86B $136.47B $162.64B
Facebook revenue $40.65B $55.36B $68.87B
Apple revenue $265.60B $277.91B $289.25B
Sources: Google: https://finance.yahoo.com/quote/goog/analysis/ Facebook: https://finance.yahoo.com/quote/fb/analysis/ Apple: https://finance.yahoo.com/quote/aapl/analysis/
TV ad revenue is going to start changing, but the value of video ads is massive. Google has not just YouTube, but the best video advertising platform for others to use.
If 15% of the US$70B on TV ads moves to YouTube, Google's growth should be sustainable. Multiply that by not just by the USA but Europe, Japan and Asia, and Google's growth looks fine.
If Google reaches the point they can buy the NBA TV rights for YouTube, heck, start small and buy the TV rights for a major Australian sporting league as a test run, or perhaps a single college conference like the ACC, and lets see how that article ages.
What do you base that estimate off of? The last anyone heard, there were leaks saying that YouTube was barely break-even as late as 2015 and then the "Adpocalypse" occurred in 2017 that dropped ad spending on YouToube significantly. Articles corroborating both are easily found on Google.
[0] https://academic.oup.com/qje/article-abstract/130/4/1941/191...
[1] https://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID2498290_cod...
In what way would resetting the ad based parts 20 years be catastrophic?
Were RSS and semi-curated news portals like yahoo and google news that much worse for publishers? (I thought they were actually better, economically, than FB...)
I love IRC -- especially being able to connect with open source project maintainers. Mad respect for all of them.
Versus now, when we have websites sponsored by advertising and run by people trying to push their agenda.
Here is another paper worth reading on it [0] (which cites Lewis & Rao), but provides fairly clear evidence of a distribution of outcomes of digital ad campaigns with a lot of probability mass on the side of positive lift.
The place where issues come in via Lewis & Rao is on the side of poor statistical methodology, particularly in the calculation of necessary statistical power.
But those discussions are all stuck in bad frequentist estimation techniques, and in industry there are practitioners using Bayesian methods, for example such as Gelman’s proposed “type sign” and “type magnitude” errors, with well-calibrated priors that treat the possibility of negative lift seriously.
I strongly disagree with the idea that “ads don’t work” is an “open secret” like you say. Rather, “measuring ads is extremely complicated” is the known conclusion, and marketers are just coming around to the fact that you have to invest in extremely advanced statistical methods to even know if ads are working, let alone to optimize them for an audience, especially inclusive of things like audience privacy, opt-out policies, paychological well being and so on.
[0]: https://marketing.wharton.upenn.edu/wp-content/uploads/2017/...
The more interesting work has been showing where a consumer's offline transactions are impacted by online ads.
The observed incremental lift on digital conversion outcomes (particularly account signups and purchases from an online shopping cart) is (median) somewhere around 8% - 17% based on close to 500 different very large field experiments. The distribution is skewed so that the ~30% standard deviation represents mostly outcomes higher and only somewhere between 9% and 22% showed negative lift (which, as the Facebook paper points out, can also be related to the difficulty of observational statistical methods used for post facto causal inference).
8% lift is quite significant. There’s no open secret of “small impact” at all.
https://www.kellogg.northwestern.edu/faculty/gordon_b/files/...
Ok, buy deep OTM put options for tech stocks then?
They say the market can stay irrational longer than you can remain solvent. I’d say the market wasn’t all that rational to begin with. At some level investing is a big game of chicken where you try to get out before everyone realizes how inflated it’s become.
As Taleb says, don’t tell me what you think, show me your portfolio.
"I'm confident in the advice im dispensing" and "I have no idea what I'm talking about".
No, it's not at all. Buying options is actively betting on both price and time targets, and carries a much different risk profile compared to simply avoiding a specific investment.
It has negative payoff after inflation, which is worse than other low to zero risk options (like savings accounts and govt bonds).
In one view, and with long return horizons, an index-based etf is a “will be around forever bet”, in that it bets there will be economic growth on average for as long as the dollar is worth anything. The main way it can go wrong is with hyper inflation.
Maybe going long, with 100% govt bonds is a decent fall eventually bet, but again, that’s targeting a very specific scenario where all of the economy crashes for a long time, but bonds still pay out (better than real estate or other physical goods).
Eg. suppose I want to bet Oracle will go under in 20 years, how do I do that?
Although it lists Google market cap at $690 billion. It's currently $728 billion and that's after a bit of a haircut recently with the overall market.
Think about it - how was TV delivered to you before? There are over the air broadcast, satellite, cable/settop, and what’s been called OTT. Except, more and more settop boxes are Rokus, Android TV-based and even some Apple TVs (Verizon 5G was offering those in test markets). So now you have a convergence of what was OTT/cord-cutter audience with the settop box. And who owns these platforms? Hint, it’s not the cable company.
So now the battle ground for those as dollars looks very different - why bother produce content when you can own the entire ecosystem where that content is delivered?
Amazon doing an amazing job with this - their FireTVs include ability to target based on your purchases and search/other activity within Amazon. That’s insanely powerful for brands and where brand dollars will definitely be spent. Not all of the dollars, but enough to matter.
The problem, for Google, is they lose market share in the platform market:
https://i2.wp.com/www.cordcuttersnews.com/wp-content/uploads...
And my guess is that Amazon will win this, because like you say, it's better.
But also - Since Amazon controls all the buyer's journey, it can make more money per each ad. Which equals better content.
And in any case, FireTv is a loss leader for Amazon. Hard to compete against those.
Sony - is this PS4 or Sony smart TV (which is android as well)?
I’m purposefully discounting TiVo from the future list, as I have not seen them to be a strong OTT platform player in the last few years.
I was following but til this point. Unfortunately, it is false assumption, fatally false.
I'm going to over-simplify a bit but...The tech companies know what you watched, how much you watched, at what point you stopped, what you shared (or didn't), etc. If Spotify can guess / predict what you might want to hear, the same can be done for other content.
Furthermore, the traditional media companies spent a fair amount on marketing hoping to get the message out to the appropriate target markets. FB and Google already know who is where, when, why, etc.
Correct me, but didn't Netflix use viewing data / analysis to understand which film's and even scenes "worked" and which did not in order to grow their own content.
Just take a look at YouTube creators. Some guy in Australia who ignores data and makes things with mud and plants produces content more popular than almost anything else.
Sure, Google owns the platform, but they remain reliant on the creative, anti-data processes of others.
Netflix's success story entirely contradicts this. Netflix's whole strategy with their originals is to create lowish cost things that appeal to market segments that they know exist but currently don't have shows anywhere (one of their big bets here is international/non english audiences).
I get what you’re saying, but I think you miss the point, which is that currently - contrary to superficial thought - data offers little creative power.
Identifying underserved domains through data or a lack thereof is not the same as “using data to create art.”
I'm not sure what argument you're trying to make this into, or what you're talking about when you say data. But it seems like you're on such a completely different wavelength from either me or anyone else in this conversation that your arguments just don't make sense. You're having a totally different discussion where the words you use mean different things. I think it's because you're trying to defend the human creativity of the artists and creators who make the media, but that's wholly irrelevant to the discussion.
The creatives can all be creative, data is used to choose which creatives to promote or use. On youtube, this is "the algorithm" that promotes different people. For netflix, the data is used to choose which projects to fund. The funded ones are created, the unfunded ones aren't. Or maybe its "we need a screenplay that includes these 3 themes". Either way, data is guiding the creativity.
But all of that is irrelevant. No one ever claimed anything about “using data to create art.” The claim, you objected to was that companies like Google and Facebook have an advantage over Disney because they can use data to create content people will like. There's nothing necessarily creative about that, but its still an advantage over a traditional company like Disney.
Your objection was that
>it currently has almost no value for creating new shows.
Which is demonstrably wrong. Netflix does use data to pick themes, topics, and demographics to target with new material. I don't work there, so I don't know exactly how it works, but it doesn't particularly matter. Data does have value when choosing what new shows to create. This could be entirely independent of art or creativity.
As an aside,
>Some guy in Australia who ignores data
I'm not clear why you think he ignores data. The Primitive Technology guy is a computer scientist by trade, his channel appears to do many things that are what conventional good channels do (varying Youtube SEO things), and his content is a strong fit for the current youtube algorithm. He's likely "data driven" in the same way that many top 250-1000 youtube channels are: he does some things to increase subscribers, has a patreon, etc.
Here is where I think we disagree: I don’t believe that Netflix’s ability (or Google’s, for that matter) to predict new markets is substantively improved by their data set. I understand that that might be a radical perspective among data-driven decision-makers, but I stand by it. Yes, the data set is extremely useful for scaling/marketing an asset (as we have both highlighted), but frankly datasets don’t yet know what the next hot thing will be, and there is a lack of statistical evidence to suggest otherwise (ie Netflix has produced, what, 1-10k shows? That doesn’t necessarily provide much statistical reliability, even if they have a high rate of success, which they don’t).
Furthermore, Netflix picking themes, topics, etc as you suggest to drive successful production runs contrary to their most successful strategy so far, which is to cast a wide net by producing highly diverse content at low costs then scaling what works. While they use data to deduce which shows are successful, the production of those shows occurred with little to no data-driven direction beyond the obvious understanding that a wide net catches more fish.
When a company has a combination of access to scale and quality data, they quickly outpace and overwhelm their competitors. Netflix hasn’t quite accomplished this, suggesting that their dataset isn’t as magical as you imply.
Lastly, their dataset isn’t as private as you might believe, either. To view it as a golden egg that will exclusively produce quality content just for them is naive.
I'm not sure how you're managing to miss this so completely, but no its explicitly not this. Are you familiar with how recommender systems work? Id suggest reading this article[1], which discusses how Netflix uses data to identify the fanbases for shows that they haven't yet launched. Yes, they use data to post-validate successful shows, but everyone does that, it's what Nielson has done for decades. Netflix is doing more: they're able to (with decent accuracy) predict what market a show will be popular with before launch, and they do this to market niche shows that would otherwise never be launched at all with a strong certainty that they'll find success.
Your second paragraph invents evidence and certainty and data that you don't have. Frankly, it makes you look like you are unfamiliar with statistics and data analytics, which is fine, but then you shouldn't share strong opinions about how things you don't fully understand can't work. How do you know that they can't have statistical reliability? Thousands of data points is absolutely enough to have statistical certainty. Yes you can absolutely predict the popularity of a genre with a high degree of certainty before filming a single scene. How do you know that they don't have a high rate of success? (I refer you back to [1]:
>She notes the mixed reviews for Lost in Space. “Do we care?” Not that much, it turns out.
>Furthermore, Netflix picking themes, topics, etc as you suggest to drive successful production runs contrary to their most successful strategy so far, which is to cast a wide net by producing highly diverse content at low costs then scaling what works.
I'd just like to make this really, exceptionally clear: they don't pick what content to produce by throwing darts. They pick the diverse ("niche") content in a very data driven way. Again, quoting [1]:
> It [...] predicat[es] programming decisions on immense amounts of data about true viewing habits, not estimated ones. It has discovered ways to bundle enough niche viewers to make good business out of fare that used to play only to tiny markets.
But I suggest reading the entire article, because it thoroughly dismantles the presumptions your making about how netflix does production. (Especially the part about "Money Heist").
>When a company has a combination of access to scale and quality data, they quickly outpace and overwhelm their competitors. Netflix hasn’t quite accomplished this, suggesting that their dataset isn’t as magical as you imply.
Wait, who are their competitors that they aren't outpacing? Netflix absolutely dominates their market (streaming media), they defined it. Everyone else is playing catch up. If you are considering Netflix to be a competitor to WB or Disney, netflix had more revenue than Universal Pictures, Columbia (Sony) or Paramount, and WB, Fox, and Disney are all part of huge conglomerates that make it hard to tell, but it's possible that in terms of movies and TV, Netflix is second only to Disney. If not, it's certainly close.
Of course I'd also like you to justify your original statement, I don't think it's generally true, there's more to a business than just data, and I can't think of any business except maybe Google where scale and quality data was the defining factor. In almost every other case it was something else: network effects (FB, Twitter, Insta, WhatsApp), logistics (Amazon), or a different business model, normally freemium (Spotify, Slack, etc.). All of those companies use data for all sorts of different things, but they didn't take over/find success because of their data.
>Lastly, their dataset isn’t as private as you might believe, either.
Yes, their data is absolutely private, unless you think that the netflix prize from 2009, before they started streaming and 4-5 years before their first original, is at all relevant.
[1]:https://www.vulture.com/2018/06/how-netflix-swallowed-tv-ind...
As a great screenwriter once said: In Hollywood, nobody knows anything.
But in Hollywood, they're used to that reality. Disney really does know how to actually create media content that billions want to consume. They know how to play this game.
Tech companies are trying to learn too, and they've noticed something, as the article points out: it costs a shit ton of cash.
Because nobody knows anything.
Data / analysis.
That can be used as part of the creative process. It can be used to understand the market. It can be used to identify and target your target markets.
Let's not be naive. The truth is there is little true originality. One creative effort stands on the shoulders of those that came before it. Just because you use data does __not__ belittle the need for creativity.
W
Video hosting is, by surprise, a very technology driven business, not as simple as upload a file then waiting for the profit. And as regulations tightens up, Google's advantage is only going to grow.
But this isn't the only reason someone like Google can have such a large multiple. I think there is the possibility of transformation into a new market, not just dominance of its existing market. You could call Google an AI company instead of an advertising company. There might be some big economic potential for AI and that is what the large multiple can capture. The same applies for Amazon in that they could become a strong player in everything that is purchased, not just in online shopping. And they seem to have a real chance of moving in this direction. And, to underscore the fact that they are trying to do this, they are taking a very small profit right not to try to build their presence, and then they will start pulling profit later when they have a more dominant position.
1) High end (HBO, Disney, ...) 2) Medium end (TV, Netlix, ...) 3) Low end (Youtube, Facebook, Instagram)
The supply of (1) and (2) are limited. There's only so many shows that can be produced at the quality of Sopranos, and only so many sports people are willing to sit though commercials to watch (in the US it's NFL, NBA, MLB, NHL, UFC).
The supply of (3) (mostly user generated content) is nearly infinite because the curation is low touch and automated with software.
Ultimately the big constraint for media is the amount of time people are willing to spend watching either high end content with no ads, or low end content with ads. Time is precious.
In the long term there will probably be a backlash against tech addiction and people will spend less time on low end user generated content. But even that is hard to predict.
totally agree. and, in November, we had this crazy agreement between Google and Disney for online digital ads: https://variety.com/2018/digital/news/disney-google-digital-...
I gotta wonder what kind of terms Disney squeezed out of Google for this.
They need to build from scratch with a focused approach as seen with The Trade Desk, but their corporate politics won't let that happen.
$170 billion in long-term debt with only $8 billion in cash. Negative $128 billion in net tangible assets. And a very rich dividend to maintain. Eerily similar to GE's doomed setup. ~80% of their income is going to the debt and the dividend, which is a foreshadowing of the debt vs investor value battle that is looming. When they're forced to slash that dividend, the stock tanks, the rest of the process unspools quickly.
Once debt of that magnitude grows larger than their market cap - as a signal of inbound distress, it's pretty much a point of no return for mega cap companies. They'll cross that line with the next recession (or sooner) and will never fully recover thereafter, ending in bankruptcy or piecemeal liquidation. I'd bet on their debt interest costs nearly catching up to their net income in the next six or seven years.
He sells a crapload of stuff with fantastic advertising campaigns with no paid spots at all.
It's true that for certain kinds of people and circumstances you can sell your own brand. But generally people cannot be Musk or Trump (least of all want to take any risks) so they have to pay for eyeballs.
Rather than a politician. try "Wendy's" burger joint twiter feed and it is largely the same point. Advertising works a hell of a lot better when you're not paying for the slots. I can't see a meaningful discussion of digital without addressing it. Musk hires talent from "the onion" - we can assume it isn't to design rockets and cars, right? Flamethrowers, awesome, right. Can't make money selling them obviously. How much did that campaign cost him? Nothing in placement slots right but there it was in a better slot than can be bought from facebrick all over facebrick. In a better slot than can be bought from google in newspapers with google ads being ignored somewhere on the same page.
Remember when google were hiring engineers like they meant it and had all that nonsense about secret codes and quizzes all around the web? Remember when they hired 17 year olds in a fanfare of publicity? Remember when they placed an ad-sense ad saying they were hiring? Well that last never happened as far as I'm aware and the cost to google would have been next to nothing, so maybe it wasn't worth even that. They hired a lot of direct marketers to ring us and tell us we should apply though, right?
Pick your successful ad campaign. It doesn't involve paying google, or facebrick, or does it? Do go ahead and list any examples that have escaped my notice. I can't think of a business that got on ad-sense or facebrick early and took a huge market share out of their competition as a result, can you? Do you even have to think to come up with a list for TV early adopters?
I can't see how digital advertising discussions can be fruitful without addressing these things.
Calling revenues earnings is an immediate stop, do not continue flag.
Is this eight or seven or eighty seven? First line and the author is already confusing.
Here we almost are in 2019. The authors premise seems sound, but it hasn’t happened (yet).
If the P/E moves from the 39.37 I just Googled towards 12, the profit needs to triple to maintain share value. Heck, it was over 60 to start the year: https://ycharts.com/companies/GOOG/pe_ratio, and that seems a little insane to me.
Assuming that there's some special r&d, and hard to replicate in their moonshot division(IDK?), or at least the image of one, Some successful moonshots could do wonders to their P/E.
really? there’s a single person reading this that won’t know what market cap is? i stopped reading.
edit: also, TFA is dated material and could use a 2017 tag. also important because its predictions have failed to come true.
can’t understand the downvotes but that’s HN i guess. have to spell everything out here