1. The Future of Media and Advertising with Machine to Machine Payments
December 2016
The Future of Media and Advertising with Machine to Machine Payments
Campbell R. Harvey
Duke University, NBER and Man Group, PLC
Campbell R. Harvey 2016

2. The Newspaper
Newspapers held a monopoly over news for more than two centuries.
Newspaper operations required large fixed cost investments (printing plant), delivery facilities, advertising staff, collection facilities, as well as editorial. Variables costs such as newsprint were also high.
While, at least early on, there was plenty of competition within large urban areas, advertising was priced at a premium ensuring newspapers were very profitable.
Campbell R. Harvey 2016

3. The Newspaper
Newspapers held a monopoly on news for over two centuries.
Given the high fixed costs and the barriers to entry, newspapers catered to the general interests of a broad constituency (mass market) and this is the genesis of the great metropolitan newspaper.
While there was some very broad differentiation (mainly along class or political lines), the newspaper was a “push” product (essentially everyone got the same content – and you chose to read the content you were interested in).
Campbell R. Harvey 2016

4. The Newspaper
Newspapers held a monopoly on news for over two centuries.
The fragmentation of newspapers into niche interests was not possible given the high fixed costs of production and distribution
These fixed costs were an effective barrier to entry
Campbell R. Harvey 2016

5. Competition from Radio and TV
In the 20th century, two competitors emerged to the newspaper monopoly
Radio and TV lured some time away from newspaper readers.
However, Radio and TV never really made much of a dent in the news gathering function. Indeed, Radio and TV would largely rely on news from newspapers to set their broadcast news content.
In addition, much more detail was possible in print than audio or visual.
Importantly, Radio and TV did not disrupt newspapers which were very profitable until about 2001.
Campbell R. Harvey 2016

6. The Internet
In the mid-1990s, the world wide web made the Internet broadly accessible to the general public.
Some of the earliest websites were newspaper websites.
These sites essentially repurposed the print content into a website.
Readers had an option to view content as hard copy or on line.
All content was free.
Campbell R. Harvey 2016

7. The disruption The Internet enabled niche and tailored content
In the past, if you were thinking of starting a newspaper, radio station, or even a television station with highly specialized content, it was too expensive to launch.
The Internet solved the production problem (cheap, just need a web editor), delivery mechanism (free), collection function (everything is free), low variable costs (no newsprint), leaving only a need for editorial, advertising, and technology staff.
The ease of production and distribution are the main disruptive mechanisms. Newspapers, in general, failed to understand the nature and implications of the disruption.
Campbell R. Harvey 2016

8. The implications of the disruption
There were at least five implications of the disruption
1. New competition
Niche publications become competitors.
These specialized publications could be a single person writing a blog.
Extra-metro area content providers such as the New York Times provided direct competition to metropolitan newspapers.
The lines blurred between alternative media outlets because television news sites like CNN, CNBC, were directly competing against traditional newspaper news sites.
In some countries, the fiercest on-line competition was coming from government sponsored entities such as the BBC (UK) and the CBC (Canada).
Campbell R. Harvey 2016

9. The implications of the disruption
There were at least five implications of the disruption
2. Pull vs. Push
In the past, readers would select the pages they would read in the newspaper which meant the newspaper would have to be very general, mass market oriented.
The Internet allowed viewers to easily pull content on topics that they were interested from many different sources.
Given that the great metropolitan newspapers were doing “everything”, they were vulnerable to specialized publications that were doing a better job on specific topics.
Campbell R. Harvey 2016

10. The implications of the disruption
There were at least five implications of the disruption
3. The advertising model fell apart
As readers migrated to different content providers, it became impossible for newspapers to keep up the traditional line rates.
In addition, there was a basic economic reality: the on-line outlets had far lower costs than the print newspapers and they could afford to charge a lower rate.
In 2003, US newspapers had $1.2B in “digital revenue”, Google had $1.2B, and Facebook didn’t exist.  In 2015, US newspapers had $3.5B in digital revenue, Google had $68B and Facebook $17.1B.  Current projections suggest that these two companies will capture 80% of the growth in digital advertising over the next few years.
Campbell R. Harvey 2016

11. The implications of the disruption
There were at least five implications
3. The advertising model fell apart
Google on track for $70b in advertising revenue in 2016
Campbell R. Harvey 2016

12. The implications of the disruption
There were at least five implications of the disruption
4. The paywall attempts failed (generally)
Why pay when you can get the equivalent news for free?
Why pay a monthly fee for a lot of content that you are not really interested in? (On this point, there is a parallel disruption happening with “cord cutters” and “cord nevers” in the cable TV space.)
Campbell R. Harvey 2016

13. The implications of the disruption
There were at least five implications of the disruption
5. Social media
In the last 10 years, the second phase of the Internet kicked in.
Originally, the Internet was about sharing information.
The second phase of the Internet enabled the building of communities.
Newspapers – given their focus on a broad population – were not able to build communities within their readership.
Campbell R. Harvey 2016

14. The current landscape The financial reality
It is nearly impossible for newspapers to generate enough advertising revenue (print plus on line) to support print and on line content.
The Catch-22: If you cut back on the editorial content to save money, the lower quality will result in lower readership.
Many newspapers that were in a weak position went into a death spiral. They were shuttered, consolidated, or are now only a shadow of whom they were.
Campbell R. Harvey 2016

15. The current landscape The Balkanization/specialization of viewership
News and analysis content is now chosen either by an aggregator (that learns the viewer’s preferences), by trusted people (such as Twitter followers), or directly by the reader.
Every viewer has a different portfolios of inputs. This is dramatically different than say readers splitting into two groups: Tribune vs. Sun Times.
This has implications for political discourse. People are drawn to news sources that reinforce their current beliefs.
Campbell R. Harvey 2016

16. The current landscape Quality of News
There are more journalists today than at any point in history.
People read more today than at any point in history.
While the quantity of news has dramatically increased, many believe the quality has decreased.
Essentially, anyone can become a journalist and in a small operation there are few, if any, editorial quality controls.
Campbell R. Harvey 2016

17. The current landscape Fake News
Fake news is not new. It has been around since the beginning of newspapers. For example, stories were planted in newspapers to further political agendas.
Indeed, I think fake news may be less important today than in the past for two reasons:
Given there is so much “noise” in the news and given the explosion of the amount of news content, the fake news is not very likely to have an impact.
Fake news was supposedly an issue during the US election. Given the Balkanization of viewership, this news unlikely changed enough beliefs (fake news catered to those that had already decided who to vote for).
Campbell R. Harvey 2016

18. The outlook
The outlook for traditional newspapers is not as grim as you might think assuming that certain crucial steps are taken in the areas:
Print vs. on-line
Content
Monetization
Campbell R. Harvey 2016

19. The outlook Print vs. on line:
It does not make sense to shutter print operations if they are still providing positive cash flow.
However, it is important to shutter them quickly after the cash flow goes negative. This is a structural not a cyclical change.
In the mean time, it is important to prepare for this eventuality and it is a mistake, for example, to sign long-term print contracts
Campbell R. Harvey 2016

20. The outlook
Content:
The business model of the great metropolitian newspaper has failed. It is time to realize this is permanent and move on. There is no market for a one-stop news site that caters to everyone.
Specialize in what you do best. For most metropolitan newspapers, this is local content. With local content, there is no competition from the extra-metro properties like the New York Times.
Engage the local community as content providers. You provide the quality control.
Create, where possible, social communities around local issues.
Campbell R. Harvey 2016

21. The outlook Monetization:
It is a fact that the on line advertising revenue will not fill the historical gap from the print advertising revenue.
The current paid subscription for print copies will go to zero as the print copy disappears.
Viewers do not want to pay a monthly fee for content.
There is a solution -- but first I need to talk about advertising.
Campbell R. Harvey 2016

22. Advertising Traditional model
Take an ad out in a newspaper. Given that the newspaper was the only source of news, your target audience likely would see the ad.
With emergence of Radio and TV, the advertisers could be more selective and target specific audiences.
Some specialized “trader” publications targeted select audiences (like autos) and started to take away traditional classified advertising.
Campbell R. Harvey 2016

23. Advertising Differentiation and targeting
Modern on line advertising attempts to hone in on the highest probability of purchase customers.
Advertisers have the option of advertising in niche sites where there is a high probability of the “right” viewers.
In addition, modern browsers track general characteristics of viewers.
Some of the on line real estate is auctioned off to the highest advertising bidder and a specialized ad is pushed at you (matching your on-line characteristics).
Campbell R. Harvey 2016

24. Advertising In the future, targeting will be much more precise
The information that browsers collect is coarse (but better than nothing).
In the future, data science and machine learning will be employed to provide a much finer differentiation.
In addition, consumers will opt in by providing detailed demographic information. Why would they do this? Money.
Campbell R. Harvey 2016

25. Machine to Machine Payments
Three stages of the Internet
Initially, a way to gather information (via search or just visiting a website).
Next, social media where new communities were enabled by the Internet.
Over the next few years, the third wave will be machine to machine payments enabled by the Internet.
Campbell R. Harvey 2016

26. Machine to Machine Payments
Current payments on the Internet
Today, it is possible to pay for things on the Internet. However, the technology is clunky. APIs allow you to enter credit card or bank information.
Current payments are only feasible if they are of sufficient size.
Merchants face a 3% credit card fee.
You need to have a credit card or bank account to play in this space.
Campbell R. Harvey 2016

27. Machine to Machine Payments
With today’s technology, there are severe constraints
Consumers pay for things but they cannot be paid.
It is infeasible to think about forcing customers to pay, say 5 cents to visit your webpage and it is equally infeasible to think about paying someone to visit your website or ad.
Campbell R. Harvey 2016

28. Machine to Machine Payments
It is generally not known that machine to machine payments are possible in HTTP – they just aren’t used.
Look up HTTP 402 code (you all know the frequent 404 error – website not found).
402 Payment Required
Reserved for future use. The original intention was that this code might be used as part of some form of digital cash or micropayment scheme, but that has not happened, and this code is not usually used. 
Campbell R. Harvey 2016

29. Machine to Machine Payments
It is generally not known that machine to machine payments are possible in HTTP – they just aren’t used.
It is feasible to exchange funds (instantly, seamlessly, and securely) in a secure way using a digital cryptocurrency in the background using current blockchain technology.
21.co is the leading company in this space and they are well funded by one of the most highly-respected venture capital firms in the world, A16Z
Campbell R. Harvey 2016

30. Machine to Machine Payments
Tasks and demographic information
Amazon Turk has essentially farmed out tasks. However, they operate in only two countries (U.S. and India) and payments for the tasks are once a month.
Using HTTP, the payments are instant. Further, you do not need a traditional bank account.
Think of getting into an Uber and completing a few surveys during your ride. For each survey, you get $2.50. Enough to pay for the Uber.
Some of these tasks are explicitly learning about your preferences. That is, you are offering up your demographic profile.
Campbell R. Harvey 2016

31. Machine to Machine Payments
A new way to think about
At the top of your inbox are s from your work, friends and family.
However, companies pay you to accept from them.
The highest paying company will have the highest placement in your inbox.
If you open the , you are also paid. If you click on a link in the , you may be paid more.
Campbell R. Harvey 2016

32. Machine to Machine Payments
is no longer free
Everybody pays to send an .
If I am sending to a friend, the fee is very low, say 1/10 of a cent.
Companies will pay far more if my demographic profile is attractive to the company.
As a side benefit, spam is eliminated. Over half of all Internet traffic is spam today.
In terms of the economics, it is never efficient to price something at zero.
Campbell R. Harvey 2016

33. Machine to Machine Payments
The web is no longer free
In this world, almost every site you visit you pay a small fee.
The fee is so small that it does not deter even the poorest user in Africa.
While small, this fee puts the entities that engage in DDoS attacks out of business – freeing up about one third of the current bandwidth.
Campbell R. Harvey 2016

34. Machine to Machine Payments
Revisiting the advertising model
Highly targeted advertising pays people to visit websites.
When people explore the websites, there could be further payments.
Some companies are experimenting with crude versions of this strategy by awarding “points” if you fill out surveys (that reveal demographic information).
There is still some runway for specialized news sites to attract vertical on line advertising
However, in the longer term, advertisers will go directly to the consumer because the consumer will invite them.
Campbell R. Harvey 2016

35. Machine to Machine Payments
Monetizing the news model
This same technology allows news content to be monetized.
Viewers don’t mind paying a few cents in the background to read a quality story as long as it is easy (and machine to machine is seamless)
Content providers have direct control over the price of their content (they can differentially price based upon how stale the news is, the location of the user, the time of the day) and, crucially, they know who their readers are.
Content providers also welcome aggregators like Google News because a click on the story from Google News is no different than a click from their own website (though Google will like take a small piece of the action)
Campbell R. Harvey 2016

36. The future We are currently in a transition state
Currently, the economics look very poor and the outlook seems bleak (mainly because people don’t understand the implications of machine to machine payments).
On line advertising will remain a source of revenue for a number of years but eventually fade as advertisers go directly to consumers.
The future is pay for view. At first, the view fees will be low. However, this will provide a new, important, source of revenue. Even with the New York Times (one of the few successful pay walls), 92% of their page views are from non-subscribers.
Campbell R. Harvey 2016

37. The future Media: Most newspapers will not survive
Given that many newspapers are laden with debt and are not profitable, they are cutting back on quality which provides cash savings in the short term but compromises the chance they can survive in the long run.
The companies that will win are those with established large readerships and very little debt (or they have a sponsor, e.g., the Guardian).
Campbell R. Harvey 2016

38. The future Media: A new model for the future
The remonetizing of the editorial content will allow for continued expenditure on quality control.
The market will set the price: People will only pay for quality and the highest quality commands a premium.
It is also possible to have a different compensation model for reporters: given them a fraction of the price you charge to read their stories.
Campbell R. Harvey 2016

39. The future Advertising and Marketing: A new model for the future
Search will not disappear – but it will become much less prominent
Traditional agencies will be disrupted by firms that specialize in data science as the level of segmentation reaches the individual level
Many companies may not need the traditional agency services – they may need consultants to develop their marketing strategies – not to implement them
Campbell R. Harvey 2016