Imagine if you are huge media conglomerate, say the one based in Australia, New Corp. You can see you revenue sources drying up from some of your media outlets due to the internet and you are at your wits end to change the trend. Lucky for you, you purchased the most respected business media outlet in the world and It’s fairly easy for you to weaponize that advantage so long a s you don’t really care about your outlet’s credibility. Apparently New Corp. is willing to sacrifice the Wall St Journal’s credibility on the altar of having to keep a dying business model on life support.
The stories started to break in late February with an article on the YouTube star PewDiePie and claiming that he was an anti-Semite because, in pointing out the downsides of a contract hire site’s business model Pewdiepie used the most offensive thing that he could think of. this was a mistake, but it would not have had the consequence it did if people at the WSJ hadn’t been deliberately looking for something like that.
Many YouTubers came to the support of PewDiePie or criticized him on the legitimate grounds that when you get big you have to watch where you step.
The WSJ is moving beyond PewDiePie and it’s becoming clear that the target is not the YouTube creators individually, but the platform itself. The WSJ and much of the old media has gone to war with the new media for the revenues and audience that the old media has lost. This article from the WSJ shows that the stakes in this one are huge.
YOUTUBE SURGE: Facebook and Netflix recently said their users watch 100 million and 116 million hours of video daily. Pretty huge numbers, right? Well, YouTube remains the 800-pound gorilla: its worldwide viewership has surpassed 1 billion hours a day, according to The Wall Street Journal. To give a little perspective: that’s not far off the 1.25 billion hours people spend watching live and recorded TV in the U.S. Of course, TV still generates far more in ad revenue than YouTube and online video as a whole. And it isn’t clear if YouTube is making money — growth is the priority. But the new usage milestone might get the attention of some big advertisers that haven’t treated YouTube as a must-buy thus far. Meanwhile, YouTube is making itself more accessible to TV viewers. As WSJ reports, Google reached a deal with Comcast that will enable the cable giant’s customers to search for YouTube videos through their X1 cable boxes, alongside live and on-demand programming. Comcast said that nearly half of its subscribers currently use X1 boxes, which makes the integration possible. The deal, which follows a similar partnership between Netflix and Comcast, might help the cable operator attract more consumers to its broadband products. For YouTube, the deal could allow the web-video company to attract new subscribers to its YouTube Red service, which has struggled to gain traction.
HIGH DRAMA, LOW RATINGS: The Oscars had off-the-charts buzz thanks to the Great Envelope Malfunction of 2017 but its ratings didn’t sizzle. ABC’s awards show telecast recorded about 33 million viewers, making it the least-watched edition since 2008, CMO Today reports. What was PwC’s envelope-guarding executive, Brian Cullinan, doing backstage right before the flub that resulted in “La La Land” mistakenly being announced as best picture? He was tweeting a photo of Best Actress winner Emma Stone, apparently, WSJ reports. Mr. Cullinan later deleted the tweet. PwC claimed responsibility and apologized for handing presenters the wrong envelope. But it could take a lot more than an apology for the company, whose role as ballot-counter for the Academy is meant to promote its reputation for accuracy, to bounce back from this kind of error, Ad Age reports. “It is a potentially a significant dent to their brand,” one branding expert said. If anyone is enjoying the drama it’s President Donald Trump, who told the conservative news site Breitbart that the Oscars were so focused on politics that “they didn’t get the act together at the end.”
NOTHING TO SEE HERE: Federal Communications Commission Chairman Ajit Pai said Monday that he doesn’t expect the agency to review AT&T Inc.’s $85 billion takeover of Time Warner Inc., since the deal was designed to keep airwave licenses from being transferred, reports WSJ. Shares of Time Warner had been trading at a discount to AT&T’s original offer of $107.50 per share, but the gap has narrowed in recent weeks and the chairman’s remarks certainly won’t hurt the trend. Mr. Pai said that any decision would depend on the specifics of a deal. His predecessor Tom Wheeler, who pushed against Sprint Corp.’s attempted merger with rival T-Mobile US Inc., wanted to maintain four major national wireless providers. Mr. Pai doesn’t share that view. “There is no specific number I can throw out there as definitive,” he said. “I’ve long said that I can’t opine on the optimal market structure.” In the interview with Breitbart on Monday, President Trump, who was critical of the deal in the final stretch of the campaign, said he wouldn’t comment on a specific transaction but noted: “You have to have competition in the marketplace and you have to have competition among the media.”
TRANSPARENCY ABROAD: A French law that bans media agencies and buyers from collecting rebates and serving as both the buyer and seller of media was recently revised to more explicitly encompass digital media buying, reports Business Insider. A new version of the law, dubbed Loi Sapin, will cover, “any medium connected to the internet, such as computers, tablets, mobile phones, televisions, and digital panels.” As part of the update, media owners will need to send invoices and information about their work with the agency directly to the advertiser. The update comes amid a raging debate over transparency in the U.S. ad business, and reminds ad buyers and sellers that client concerns surrounding conflicts of interest and agencies’ bad behavior also exist overseas. A report from the Association of National Advertisers last year shed light on the ways in which agencies had been collecting rebates from media vendors without their clients’ knowledge. A number of clients have since launched audits of their media agencies.
One tactic that the WSJ has been using with a great deal of success is claiming that Google is placing ads combined with inappropriate content. What the WSJ people do not say in the articles on the topics or on the phone calls that they make to those advertisers about the ads is that the people place the ads next to the bad content is the WSJ reporters themselves.
The reason that the ads are showing up next to the inappropriate content is that the reporters have watched ads for those brands and that means that they will continue to see ads for certain brands no matter what YouTube videos they watch. The reason for that is that Google uses algorithms to determine what ads a user is more likely to respond to. If you have infants you see baby related brands and products even if you are watching ISIS beheading videos. Likewise for products for kids or car ads. It’s YOUR response that drive the ad content that shows up on a video, not any connection to the video itself. That’s a huge part of what Google is selling, advertising that is targeted to toward the user and more likely to generate positive responses. The platform Google uses is customer driven and not media driven.
So when the reporter gets a screenshot of a Pepsi ad on a neo Nazi video, it’s because the reporter had responded to or watched Pepsi ads in the past, not because Google deliberately put Pepsi ads with neo Nazi videos. The reporters may actually have set it up deliberately and then sandbagged the various brands, who probably don’t really understand how Google’s algorithms work. Just looking at the brands involved, they all seem to be the kinds of things that upper middle class people in my neighborhood would use, more Audi and not Chevy.
As this great video points out this is economic as well as cultural war and the stakes are huge. Without the revenue streams that come from the cable and other outlets of the old media, they can no longer create the content required to support the old media and the blue model narrative. If that revenue goes to other content creators that the old media doesn’t control the whole blue model narrative could fall apart and the establishment loses almost all it’s ability to shape society and policy. It’s no wonder that they are going to war for the revenue.
The numbers are not pocket change even in the opening moves. Already the old media has managed to convince brands to pull significant ad money from YouTube. It’s gotten to the point that governments are involved in Europe.
Still nothing can save a failing business model and the old style cable television is probably doomed as Rush points out here.
RUSH: ESPN is in trouble economically, financially. ESPN just announced that they’re gonna have to cut a minimum of 350 jobs. And the reason why is subscribers are abandoning cable. Many people do not understand how all of this works, the cable bundle. I mean, you understand that you have to pay a minimum amount per month to get a bunch of channels, the vast majority of which you never watch, but the channels you want are in that bundle, and you have to pay for the bundle.
So let’s say you want your local stations, you want ESPN, maybe HBO. Fine. You’ve gotta buy 25 or 30 or maybe other channels that you never watch. Now, here’s the thing about that. In a free market, these networks with no audience wouldn’t survive. If you have network programming that nobody watches, then there won’t be any ratings and you won’t be able to sell any advertising and you won’t be able to operate. If, however, the cable companies collect X-amount per subscriber as though they are viewers and then pay that to the network, then the network can stay alive and viable even though nobody may be watching it.
ESPN gets six dollars per cable subscriber every month. That is ESPN’s gravy train. And when cord cutting begins, when people eliminate cable from their lives, then the number of people paying for the bundle, out of which ESPN gets six bucks per customer, that starts dwindling away, and ESPN’s income dwindles away, and it doesn’t matter how many viewers they have or not. This is the point, with the cable bundle it doesn’t matter how many viewers a network has. In ESPN’s case, it doesn’t matter, because they’re gonna get six dollars for every household that has ESPN in its cable package.
The interesting thing is 3.2 million people have cut the cord so far, 3.2 million people have cut their cable subscription, and that means that a good percentage of that 3.2 million people are no longer funding ESPN at six dollars a month. They are leaving cable for a bunch of market reasons. Many of them are Millennials, and they just simply don’t want to pay for channels. They don’t have the money. Young people can’t get jobs; they don’t have the money. They don’t want to pay for things they don’t watch.
They’d rather take the money they have and a la carte their way via streaming or whatever and watch it on their device. And maybe if they have AirPlay, project it onto a TV or something, but they don’t want to pay cable. Well, 3.2 million people, many of them probably not even sports fans, that’s gonna add up to a serious chunk of change. That’s $250 million a year for ESPN. ESPN’s in close to a hundred million homes. But if they lose 3.2 million subscribers, that’s a loss of $250 million a year, and that’s why they are cutting 350 jobs.
But here is the piece de resistance. This is what everyone needs to know. Bundled cable subscriptions serve as the foundation for Hollywood to own pop culture. John Nolte at Breitbart makes this point extremely well today. Hollywood does not have to generate audience in order to generate income. All they have to do is secure networks being carried by cable in a basic tier, or maybe next tier up, and they get funded by customers who never watch the network, or very few do, because they’re not buying for these obscure channels that are all left left-wing rubbish, many of them are.
That’s how they remain viable, that’s how they remain in operation, without anybody watching them, people paying the cable channels, the cable companies. Every network gets a certain amount of money per subscriber. ESPN’s the top at six bucks. Not every channel gets that. Some get 50 cents, 75 cents, what have you. But the scam of bundled cable is the foundation of Hollywood’s money and cultural power.
Look at it this way. If Hollywood was not able to force people to pay for networks and programming they never watch — MSNBC has no audience. MSNBC could not stay on the air if it weren’t for cable bundles. CNN, ditto, folks. They don’t have enough audience to be viable with just their audience. They couldn’t survive without cable and these subscriber percentages that they collect.
The same thing with Comedy Central. Nobody watches Comedy Central. Not enough people watch Comedy Central to support it via advertising. Ditto MTV. But they all get a percentage of everything you pay monthly to cable to sustain them. And Millennials are leading the way, unknowing about this impact, in taking away some of that staying power.
In the long I suspect that the brands that pulled away from Google and YouTube will be back. After all Google is providing something that the old media has been unable to recreate itself to provide, high value eyeballs. Using the data mining and ability to track what users respond to, Google can provide value to the advertisers in much finer grained, higher impact advertising and the ability to provide the possibility to create sales responses inside the media platform. That’s too powerful an advantage to throw away lightly and the only reason that I think that the various brands did was the fear that the WSJ would run smear campaigns against them as well as all of the News Corps media and who knows who else.
In the end though, that would be biting the hand that feeds the old media. Because if YouTube likes having the big ad buyers, the old media needs them. It’s the big ad buyers that sustain the old media as more people cut the cable. So, in the end the old media has nothing more than a self defeating strategy and an economic and culture war that they cannot win.
Update: Sargon weighs in.