Tag Archive: media audit

  1. Are ads an inevitability for Netflix?

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    Netflix – a success story

    It’s fair to say that Netflix is one of the huge tech success stories of the 21stcentury. Having started as a DVD sales and rental business, it expanded its business in 2010 with the introduction of streaming media, whilst initially retaining the DVD side of the business. It now has more than 148 million subscribers in over 190 countries. Its earnings to date have reflected its meteoric rise: in Q1 of 2019, for example, the company reported $4.52bn revenue, compared to the $4.5bn anticipated by Wall Street.

    Competitors on the horizon

    So far, so good. However, Netflix has undoubtedly benefited from first-mover advantage, and that may be coming to an end. Many media companies such as Disney, Apple, Amazon, Sky and traditional broadcasters are launching their own streaming services with established and new content; Disney has already removed all its original movies from Netflix, as well as those it owns the rights to, including Marvel and Star Wars. In the aforementioned Q1 report, Netflix stated that it didn’t expect this new competition to negatively affect its subscriber growth; however, that seems inevitable, and Netflix has already taken steps to mitigate the risk.

    Taking the battle to competitors with original content

    The obvious solution to increased competition has been for Netflix to make substantial financial investment into the creation of its own original content, which can’t be withdrawn by a competitor. However, that’s a huge investment and, as CNN points out, ‘the continuous influx of revenue still falls several steps short of what the company is spending each quarter [on original content]’. The cost has to be covered somehow – but how?

    Running ads to cover costs

    In an IAB panel back in April, execs from YouTube, JPMorgan and two agencies concluded that running ads were an inevitability for Netflix – echoing Sir Martin Sorrell in 2015 when he said that Netflix would inevitably have to build digital ads into its marketing strategy. Hulu has done this successfully with a two-tier subscription option – a more expensive ad-free choice, and a cheaper ad-supported service. Analysts believe that Hulu makes more money per subscriber from its subscription plus ads combination than it does from its more expensive ad-free option. Given Netflix’s scale – it is the third most-watched TV ‘channel’ in the UK, for example – it is an extremely attractive proposition for advertisers – and that makes it attractive for investors and Wall Street. However, Netflix subscribers are vocal in their opposition to this suggestion, and a 2018 trial was not a success: 57% of a control group said they would cancel their subscription. It’s worth noting though that Hulu added more subscribers than Netflix in Q1 the US (3.8m versus 1.74m), even with ads.

    There are alternatives to ads

    What are the alternatives? Netflix could of course increase its subscription prices; even after bumping them up in the last quarter of 2017, it increased its subscriber count by 50% more than Wall Street predictions. There is probably an upper limit to this option though. Another would be to look at the other side of the balance sheet: cut investment in original content and focus on the shows that are sure to be smash hits, which aren’t necessarily original. In 2018, just two of the top ten most watched Netflix shows were Netflix originals.

    What does the future hold for Netflix?

    Netflix is comfortably winning the streaming game at the moment, but it needs to re-examine its model in light of the rise of competitors. A digital ad platform is one option, but there is a risk that that move would lead to the loss of many of its subscribers – which competitors would welcome with open arms. There are other options – increasing subscription prices and cutting costs elsewhere – and Netflix will have to look at all of them in depth in the coming months.

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  2. Conflict of interest means WPP won’t participate in Accenture-led pitches

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    Conflict of Interest means WPP won’t participate in Accenture-led pitches

    In a move unsurprising to many industry insiders, it emerged this week that WPP would henceforth refuse to participate in any Accenture-led audits or reviews. It cited as its reason that Accenture could use the data to which it has privileged access as an auditor to undercut WPP’s prices in other pitches for ad budgets.

    Accenture’s digital arm gives it an unfair advantage

    The concern is rooted in the fact that, last year, Accenture’s digital arm, Accenture Interactive, launched a programmatic services practice, offering programmatic consulting and in-housing; media strategy, planning and activation; and ad tech implementation and support. This placed them in direct competition with specialist programmatic companies but also the major media agencies, including WPP’s GroupM.

    WPP is arguing that, from Accenture’s privileged position, it will be able to offer advertisers cheaper, more effective media rates during pitches, giving it a massive and unfair advantage. Accenture maintains that there are internal barriers in place between its audit and programmatic buying business units, but WPP is evidently unconvinced – as are we.

    The threat from the ‘vanguard of advertising’

    This decision is not out of the blue: there has been growing disquiet amongst the more traditional media agencies who feel, according to an article in the New York Times, “threatened by the ‘vanguard of advertising today’ – consulting firms like Accenture which offer technical wizardry in an age of cord-cutting and ad-blocking.” The fact that Accenture will now potentially be able to take market share from these agencies in an ‘underhand’ way only serves to entrench the tension – the battle has become war.

    WPP needs to persuade clients to follow its lead

    The issue with WPP’s move is that it will need to persuade clients – both current and future – to not work with Accenture as well. That could be extremely difficult: when clients own their data (as opposed to their agency), it is often inextricably entwined with a number of parties, an arrangement that is difficult to move away from; a Digiday article points out that clients will judge whether it’s worth it based on how satisfied they are with their auditor, and not on any gripes the advertiser has with said auditor.

    ECI Media Management: independent and impartial

    At ECI Media Management we fully back WPP’s decision. Impartiality is at the heart of effective auditing and no company which offers media services to a market where it has highly privileged access to the data and financial information of both advertisers and agencies can claim to be impartial. As Paul Bansfair, the Director General of the IPA (the UK ad industry’s trade body) said when Accenture Interactive announced the launch of its programmatic buying branch, “In an era where transparency is under the spotlight, this self-evident conflict of interest is unacceptable.”

    At ECI Media Management, we are 100% director-owned and have no affiliations with any media agencies or owners, so our advice and actions are always based on what is best for the client. We believe that should be the norm across the auditing and media management sector.

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  3. Apple is retiring its iconic iTunes in a move reflective of a changing industry

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    Apple is retiring its iconic iTunes in a move reflective of a change in industry

    Back at the beginning of the millennium, the music industry was in a serious state. CDs were in decline as consumers digitised the way they consumed music: but they were doing it for free via Napster and other pirate websites.

    And then, in 2001, the industry’s knight in shining armour appeared, in the shape of Steve Jobs. He announced the birth of iTunes at the Macworld Expo, heralding a music revolution. The era of MP3 music was here, and over the next six years Apple would sell more than 100 million units of the iconic iPod with which to listen to those MP3s. Apple was at the pinnacle of its success, having redefined what music ownership looked like: no longer physical records, tapes or CDs, but a world of songs in your pocket.

    In the 18 years since its launch, iTunes has become a media behemoth, a one-stop shop for users to consume not just music, but movies and TV and, latterly, podcasts too. But over the last few years, downloading has been eclipsed by a new kind of access: digital streaming.

    A new contender in the market

    In 2008, just a year after the launch of the first iPhone and when iTunes was at the height of its powers, a small Swedish start-up called Spotify launched its music streaming service across eight European markets. Its two-tier model – free to the consumer ad-funded, and a premium subscription option – gave users on-demand access to stream millions of tracks. Music streaming was still in its infancy, accounting for just 1% of global music revenues in 2007, and Spotify’s initial growth was good but unremarkable. By 2013, they had 30 million active users and 8 million premium subscribers.

    It is the six years since 2013 that have seen a seismic shift in how music is consumed. By March of this year, Spotify’s user base had skyrocketed, with 217 million active users and 100 million premium subscribers around the world, a number which looks set to continue growing. By opening up the streaming market and persuading users to give up ownership of their music, Spotify has arguably redefined the music industry, just as Apple did when it persuaded users to give up physical ownership.

    The consolidation of Apple

    iTunes’ download model was starting to look clunky and old-fashioned. In 2015, Apple launched Apple Music, its streaming service which it hoped would compete with Spotify and other broadcasters with its three distinct components – on-demand streaming, radio and Apple Connect, which allows artists to upload songs, videos and photos for followers. Since then, as streaming has increasingly become the norm, there have been rumours that iTunes would be wound down.

    That finally came to pass this week, as Apple announced at its annual Worldwide Developers Conference in San Jose that it would replace iTunes with standalone music, television and podcast apps. This will align Apple’s media strategy across the board: iPhones and iPads already offer separate apps for Music, TV and Podcast, and Mac/Macbook users can expect the same.

    However, the move is symbolic as well as practical. As Amy X Wang says in Rolling Stone, “by portioning out its music, television and podcast offerings into three separate platforms, Apple will pointedly draw attention to itself as a multifaceted entertainment services provider, no longer as a hardware company that happens to sell entertainment through one of its many apps” – and that’s increasingly important as iPhone sales have started to slow.

    Consolidation moves reflecting the wider market

    This move towards entertainment services is being seen across the technology and communications sector: we’ve seen the tech giants buy up rights to live sport, while AT&T acquired Time Warner for $85bn and Disney bought most of the 21st Century Fox empire, fending off an offer from Comcast. This trend is of course being driven by changing consumer behaviour as internet connections over 4G and now 5G accelerate – allowing for uninterrupted streaming of music, TV and films. We’re seeing the effects of technology on the media and communications industries, and lines between these sectors will continue to blur. This blurring of boundaries will then pose another issue on how they can all be monitored & assessed both separately and in totality.

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  4. Changing the rules of the internet: can Zuckerberg turn around Facebook’s fortunes?

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    After a difficult year, Facebook is looking for solutions

    Facebook is facing heavy scrutiny from people and governments across the world after a range of transgressions: the Cambridge Analytica scandal, the hiring of a PR firm to attack George Soros, the departure of 10 top executives and the livestreaming of the Christchurch terrorist attack among them. These and other issues have forced Zuckerberg and his senior management team to appear before governmental committees and the press to explain exactly how they are going to change. This was all reflected in Facebook’s share price, which peaked in July 2018 but had plummeted by 40% by the end of the year.

    The conclusion? Facebook must focus on real, meaningful evolution in order to ensure a prosperous future – and that’s just what they appear to be doing.

    More cooperation between governments and tech companies

    After months of appearing before government committees and journalists around the world, in March this year Mark Zuckerberg seemed to finally kick off the evolution that his organisation so urgently needs. Having rejected demands for increased regulatory oversight of Facebook for years, in an editorial in the Washington Post Zuckerberg called for more cooperation with governments to deal with the problems posed by internet platforms and emergent internet technologies: “By updating the rules for the internet, we can preserve what’s best about it – the freedom for people to express themselves and for entrepreneurs to build new things – while also protecting society from broader harms”.

    Changing the rules of the internet

    Zuckerberg argued that there were four areas that would require deeper cooperation between tech companies, governments and regulators: harmful content, election integrity, privacy and data portability. Measures he suggested included the creation of an independent body to review Facebook’s content moderation decisions and the formation of a set of standardised rules for harmful content; regulation for common standards for verifying political actors; a focus on creating laws that address advertising for divisive political issues; and GDPR-type regulations across the world. Nick Clegg, the head of Facebook’s global affairs and communications team, spoke about how “the way that the rules are drawn – or not drawn – will be quite different to how they are drawn in ten years’ time… and I think big tech companies have a choice: either they play ball and they try to play a responsible role in that debate, or they try to duck it all together.”

    Practical changes for the Facebook platform

    Facebook hasn’t stopped at promoting cooperation between tech firms and governments: the evolution strategy has also extended to a series of changes, announced in April, that ‘put privacy first’ because ‘the future is private’. These changes include encrypting Messenger messages and fully integrating the Messenger platform with WhatsApp; trialling a ‘private like counts’ feature; and ways of sharing content without a permanent record. Furthermore, the company is rolling out ‘FB5’, an aspirational redesign of the platform that puts the spotlight on what Facebook would like to be – thoughtful, meaningful and calm. The Groups functionality will be central, and there will be an increased focus on Marketplace as well.

    Other ideas for how to control Facebook

    The challenge facing those governments and regulators with whom Zuckerberg wants to work to create a new, brighter internet is massive. Siva Vaidhyanthan notes that “regulators are trying to address Facebook as if it’s like companies they have encountered before. But Facebook presents radically new challenges. It is unlike anything else in human history – with the possible exception of Google.” Governments are trying: the UK, for example, proposed a duty of care standard for platforms to ensure they filter harmful content, and the US government is expected to issue a $5bn fine for the violation of a 2011 order preventing the distribution of user data to companies such as Cambridge Analytica. But Vaidhyanthan compares this approach to dealing individual weather events rather than tackling climate change. Others have suggested more radical approaches: Facebook’s co-founder Chris Hughes called for Facebook to be broken up because “Mark’s influence is staggering, far beyond that of anyone else in the private sector or government. He controls three core communications platforms – Facebook. Instagram and WhatsApp – that billions of people use every day… The government must hold Mark accountable.” Meanwhile, US senator and presidential hopeful Elizabeth Warren proposed dramatic antitrust regulations, and a Bloomburg article suggested that, as social media has been proven to be addictive, it should be regulated in the same way as the tobacco, alcohol and gambling industries – and not the communications industry.

    Radical solutions for a brighter future

    The issues that Facebook faces are dramatically different to, and more important than, those faced by any other company, and they require dramatically different solutions. The varied approaches announced by Facebook in recent months are collaborative, radical and positive, and we at ECI Media Management look forward to seeing them come to fruition.

    With increased transparency in the Facebook marketplace, response from consumers is likely to be varied. Users, Governments and Corporations alike should clearly understand how their data is being used by Facebook to target Ads.  Changes to transparency and the required investment into security, will no doubt impact the firm’s profits. As customers and co-operations learn more about the result of their time and investment into the platform, initially it is likely demand for the Ad space will see a minor drop, before companies become educated on how to utilise on this newfound transparency. At ECI Media Management, we recognise the value and immense scale of Facebook, which will be crucial to monitor as it moves into this new era.

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  5. US senator and presidential hopeful Elizabeth Warren takes on Big Tech

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    Embattled tech firms face a new challenge

    There’s no denying that the tech giants are having a hard time of it at the moment. There have been the scandals that we’re all so familiar with: Facebook is still dealing with the fall-out from the Cambridge Analytica affair as well as accusations that it allows interference in national elections, while earlier this year Google once again had to face the wrath of angry advertisers whose ads had been run alongside inappropriate content on YouTube. They’re also facing numerous legal challenges from national and EU lawmakers in Europe over issues such as privacy, fake news, tax and competition – and of course there is GDPR to contend with.

    Into this rather bleak landscape strode Elizabeth Warren, a Democratic candidate for the US presidential election in 2020. In a blog post Warren laid out a plan to break up the tech giants, namely Amazon, Facebook and Google, by forcing them to divest some of their biggest acquisitions and money-spinners.

    Why is Warren proposing such radical antitrust measures?

    So what are the reasons that Warren gives? There are two key ones: in her view, the big tech companies damage small businesses and innovation which stifle healthy competition. In effect, she believes that Facebook, Google and Amazon in particular have too much power over the economy, society and democracy. Facebook scored an own goal by promptly removing her ads around this issue from the platform. It later restored them, but they had neatly illustrated Warren’s point for her (!).

    What would these antitrust regulations mean?

    The implications of Warren’s proposals are huge. She would pass legislation designating platforms with more than $25bn in revenue as ‘platform utilities’, which would be banned from owning both the platform and the participants at the same time. This would mean that, for example, Google would need to spin off Search, with Amazon doing the same with Marketplace. Perhaps even more dramatically, Warren also claimed that she would appoint regulators to reverse mergers that had already been completed – including Facebook’s purchase of Instagram and WhatsApp, and Amazon’s acquisition of Whole Foods. This would lead to a world where Facebook would be competing with Instagram and Amazon’s power over sellers – and buyers – would be curbed significantly.

    Warren wants to implement these measures to “restore the balance of power in our democracy, to promote competition, and to ensure that the next generation of technology innovation is as vibrant as the last”. She points to the antitrust case involving Microsoft in the 1990s which forced the ‘original’ tech giant to behave with increased restraint into the new millennium and, argues Warren, paved the way for the growth of the very giants she now wants to shrink.

    Are there alternative ways to promote competition?

    Warren is not alone in wanting to address the huge power held by the tech giants, particularly as the public feels increasingly uncomfortable about the amount of power they wield, but she is the first to have crossed the threshold to an antitrust solution. Of course, the chances are that Warren will not be the next President of the United States (she’s up against many other Democratic candidates, not to mention the incumbent) and, even if she is, many believe that her measures will be extremely difficult to implement. However, what is undeniable is that the tech firms must evaluate how they operate in order to regain trust from users and from governments. A middle ground could be, as suggested by the Report of the Digital Competition Expert Panel, which was commissioned by the British Government and led by Barack Obama’s economic adviser Jason Furman. The report recommends a new regulator to force firms to ‘rewire’ themselves so that users have more control of their data and can switch between providers; it also suggests modernising antitrust rules.

    As ever, Google, Facebook and Amazon have an uphill struggle on their hands, and they must examine their business models hard if they are to continue their success and deflect the scrutiny of governments across the world.

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