The recession has created new urgency for multiple content industries to find a better way to protect and monetize their property/content in the digital world.  The dotcom bubble ethos that “information wants to be free” is like a gross mold destroying the incentives to create and distribute valuable content digitally. (Be sure not to miss the shocking analysis at the end of this post comparing revenue generation per user in the digital “ecommony” versus the real economy.)

The first point of this post is to connect-the-dots why several content industries are currently in the news actively pushing back against the “ecommony” anti-business model, where content owners are expected to effectively give away their valuable content to the open Internet/digital commons without the requirement of permission or payment.

The first broad and serious counter-movement by business may be in the offing to ensure that valuable content is indeed paid for when distributed digitally. Serious financial and business risk is driving creative thinking about how to better protect and monetize valuable content digitally.

Growing business model innovation:

Leading network owners and cable providers are exploring innovative business models to distribute valuable video content online. These new models would make the content only accessible to paying subscribers in order to ensure that the popular branded shows that consumers most demand, can have a reasonable digital business model. See stories by:

  • WSJ:Cable firms look to offer TV programs online,”
  • NYT: “Don’t count cable out online,” and
  • AP:Cable companies want a way to win with online TV.”

Leading newspaper interests are also exploring innovative business models to distribute their valuable reporting and analysis online. They are exploring alternative business models like micropayments, in order to ensure that the journalism can be monetized profitably in the future. Pieces by:

  • Time: “A bold, old idea for saving journalism” by Walter Issacson
  • NYT: “Battle plans for Newspapers
    • ‘Culture of free’ is suicide” Steven Brill
    • Fewer readers paying more” Joel Kramer
  • Seattle Times:Wake up to Google’s threat to Journalism
  • WSJ: “Quote of the day”
    • op-edInformation wants to be expensive” Gordon Crovitz
  • AdAge:look at… whether journalism should be not for profit.”
  • Blog Herald:Time to hang up the pajammas
  • FreePress: StopBigMedia.com; “What’s so bad about Big Media

Book authors/publishing interests are also struggling to find business models that pay them for their value creation –in all forms like audio-books — when “ecommony” interests want their works available for very little or free.

  • NYT op-ed: “The Kindle Swindle? A new technology to shortchange writers
  • GlobeAndMail: “Googleopoly — Google is poised to become most powerful literary force in the world.”

Atrocious “Ecommony” Revenue Production

The second point of this post is to explain why there is, and should be, a business counter-movement emerging organically that is pushing back on the digital “ecommony” utopian ideal. The severe recession, focuses minds on real economics and real return on investment, and not on Web 2.0 commons pixie dust that  “information wants to be free.” (The estimates below are based on data from Veronis Suhler Stevenson’s Annual Communications Industry forecast 2008.)

  • First, the worst of the “ecommony” models claiming to be successful is eBay’s Skype which generates a beyond pathetic three cents of revenue per user per month. That is hundreds of times less than companies in the real economy generate.
  • Second, the hot web 2.0 business of social networking has a business model in the pathetic range. Facebook is estimated to generate 16 cents in revenue per month per user. MySpace does better but still just about 66 cents per month per user.
  • Third, applying this comparison to the Yahoo and Google “ecommony” advertising business models and one learns that the much-hyped ability to target relevant ads generates an anemically bad $1.16 and $2.60 of revenue per user per month, for Yahoo and Google respectively.
  • Fourth the ultimate irony, is that the subscription business model of AOL, which the “ecommony” utopians have derided and destroyed with the “information wants to be free” ethos, still generates more revenue per user per month than even Google does — about $3.16 per user per month.
  • Finally, how do the business models do in the real economy that produce valuable content that people/advertisers will pay up for?
    • TV/Cable/Satellite/Newspapers all generate roughly $40-$60 of revenue per reached consumer per month which is:
      • ~15 times more than AOL;
      • ~20 times more than Google;
      • ~300 times more than Facebook; and
      • ~1650 times more than eBay’s Skype.

Bottom line:

The revenue line for content in the digital “ecommony” is atrocious. Companies/industries have to explore innovative business models to protect and appropriately monetize the value of the content that they create and distribute.

  • I can already hear the push back from the “ecommony” utopians… “but look at how much money the consumer saves by getting information for free on the Internet.”

If no one pays what is costs to produce and reward content producers, the quality of content will inevitably plummet. In the end you get what you pay for.

We should not forget that communicatons broadly is the fifth largest economic sector in the U.S. economy per Veronis Suhler, almost one trillion dollars in sales.

Please check out “Why I am against pure net Neutrality” by Adam O’Donnell a R&D engineer for Cloudmark.

Mr. O’Donnell understands that the extreme calls for no bit interference by many net neutrality proponents turns an irresponsible blind eye to the necessity of Internet security. 

The vision for a dumb pipe digital commons ill-serves Internet users because it bans smart network innovation at the core that could enable better internet security for all.

Kudos to Saul Hansell of the NYT Bits blog “Surprise: America is #1 in Broadband” for spotlighting yet another respected source that challenges the political orthodoxy that America is falling behind in broadband/Internet competitiveness.  

  • Of course, GigaOm responded angrily with a “Broadband Damned Lies Edition” post.
  • Why is there such vitriol against reporting that the U.S. is not doing dismally in technology?
    • My explanation is that unless those who favor government intervention to mandate a digital commons (see neutralism white paper) can convince everyone that the current competitive Internet market is a dismal failure, they know it will be harder to get net neutrality legislation/regulation passed.
    • It is a perverse situation indeed when some Americans appear to desperately want America to fail, (so much so as to ridicule legitimate research and reporting) so that they can justify changing public policies. 

There are now four different non-American research efforts that have concluded that the U.S. is not falling behind the rest of the world when it comes to broadband/Internet standing. These findings are in stark contrast to the OECD, which in one of many OECD measures has the U.S. at 15th or 22nd in the world on broadband penetration. 

The new Connectivity Scorecard produced by researchers at the University of Calgary in Canada, in conjuction with Nokia/Seimens, — ranks the U.S. #1 in the world based on the connectivity measures they believe are most important.

Last year in the 2008 World Competiveness Yearbook produced by the Swiss business school IMD, ranked the U.S. #1 in the world for the 14th year in a row.  

In the last World Economic Forum Competitiveness Report for 2008-2009 the U.S. ranked #1 in the world in competitiveness.

Finally, the latest Economist Intelligence Unit report ranked the U.S. tied for second in the world for e-Readiness.

Bottom line:

Four of the world’s leading non-American sources of research on broadband/Internet rankings of countries in the world, all independently conclude that the U.S. is not precipitously falling behind the rest of the world like the OECD rankings claim and the neutralism movement preaches. 

To believe the OECD orthodoxy folks that the U.S. is without question falling behind the rest of the world in Broadband/Internet — one has to believe that all these sources are individually and collectively:

  • incompetent,
  • biased in the same way, or
  • involved in a some weird conspiracy to lie for the U.S.

Any reasonable person would have to admit that the question of whether the U.S. is falling behind in broadband/Internet competitiveness is at a minimum — debatable.

Where did the net neutrality issue come from? And why is it such a persistent issue? In researching answers to these important questions, I came across a key quote by Yale Professor Yochai Benkler in his 2006 book “Wealth of Networks:”   

  • “There was a moment…in 2001, when a range of people who were doing similar things … seemed to cohere into a single intellectual movement, centered on the importance of the commons to information production and creativity in general, and to the digitally networked environment in particular.”

The White Paper released in this post is the culmination of several months of research dedicated to answering these questions — Where did the net neutrality issue come from? and Why is it a persistent issue?

My white paper is also a genuine attempt to summarize, make accessible, and fairly represent the essence of the vision, thinking, and belief system behind the net neutrality movement.

  • Nearly half of the text of this paper is direct quotes from leading neutralist thinkers, so the reader can hear their views in their own words.
  • I trust others will improve upon this initial analysis.

The link to my seven-page white paper is here. The one-page abstract of the white paper is included below in its entirety.

Abstract. The premise behind this white paper is that few understand that there is a surprisingly well-developed ideology and school of economic thought behind the net neutrality issue, regardless of whether one agrees of disagrees with it. Thus, the purpose of this white paper is to educate by briefly defining, explaining, and tracing the origins of the ideology and economic thought behind net neutrality. The value of this paper is that it connects-the-dots and fills-in-gaps for those seeking to more fully understand the issue. Simply, neutralism is the commons ideology behind the net neutrality movement. Neutralists believe that digital information and communications networks should be a public commons, not private property requiring permission or payment to use. Neutralists believe that: 1) Digital technology, if unshackled from ownership restrictions and payment requirements, is a powerful means for creating a more egalitarian society; 2) The end-to-end design of the Internet creates a digital commons that is open to decentralized innovation; and 3) The Internet should not be controlled by market players because it is necessary for democratic discourse. Neutralists generally oppose Big Business incumbents (broadband, media and software) and the expansion of intellectual property as opponents of Internet users, because they enable the owning and controlling of information, communication, and ultimately culture — for the benefit of the propertied-few at the expense of the potential of the many. Neutralists believe technology and innovation, in concert with public commons for information and communication, can transform the traditional capitalistic economics of scarcity — into the more egalitarian economics of abundance — i.e. ‘neutralnomics.’ An underlying premise of neutralnomics is that when faced with resource abundance, capitalism naturally will try to create artificial scarcity or face economic collapse. The white paper also traces the origins of neutralism. First, the de facto father of neutralism is Richard M. Stallman who founded the free software movement with the belief that users should not have to ask for permission or pay for software. Second, Eben Moglen is profiled for his key ideological grounding for neutralism. Third, Lawence Lessig is credited with the mainstream popularization of neutralism and melding free software commons thinking with end-to-end Internet commons thinking. Fourth, Yochai Benkler is profiled as the one who formalized the economic theory behind neutralism. Fifth, David Bollier is credited with creating the initial and formative public policy agenda of Neutralism in “Saving the Information Commons.” This white paper’s core conclusion is: the ideological tension will only increase between the competing visions: calling for a new mandated digital commons vs. defending the existing free market based on property rights. That is because the underlying trends creating the pre-conditions for neutralism are likely to persist and accelerate — i.e. the declining cost economics of digital abundance, and the increased adoption of Internet social “Web 2.0” applications.

Markets and competition work!

  • Comcast and Verizon separately announced major investment/deployment plans for broadband within days of Congress’ rejection of calls for open access/net neutrality regulation and dictated broadband speeds in the just-passed $800b stimulus package.

Congress wisely appreciated that encouraging and respecting private investment and inter-modal broadband competition is critical to:

  • Spurring economic growth and job creation,
  • Keeping the communications sector a healthy engine of the economy; and
  • Getting the fastest broadband service to the most Americans soonest.

Even in a severe recession, Comcast and Verizon are proof that companies will make private investments to expand broadband speeds and access, if their capital is welcome, and the government does not discourage investment and deployment by forcing open access network sharing and mandated net neutrality in the absence of any definable or measurable problem.

Comcast announced today that it “plans to reach more than 30 million homes with faster speeds,” and is “doubling speeds for most existing customers for no additional charge” in 2009.

  • Comcast is continuing to offer tiered pricing so users have the choice of how fast a high speed connection they want.
  • This is in contrast to the mandated “one-size-fits-all” vision of net neutrality proponents, which would force most users to pay for more speed than they need and force most average users to heavily subsidize a small percent of bandwidth hogs.

Verizon announced yesterday “detailed plans to build America’s first next generation Long Term Evolution (LTE) network” to meet demand for higher bandwidth, low latency service, mobile applications, and to provide 4G technology competition to WiMax.

  • In respecting market forces in all but the narrow segment for unserved or under-served users, Congress continues to encourage private investment in inter-modal technology competition and innovation, policies which have made the U.S. broadband market the most competitive in the world.

Bottom line:

Congress was wise to respect the Internet’s Golden Goose — encouraging private broadband investment capital.

  • Congress appreciates that there is roughly $20 of private broadband investment needed for every $1 of public broadband investment in the economic stimulus package.

The single most important thing the FCC and the relevant Internet congressional committees can do now — is to do no harm — i.e. not chill private investment or undermine competition by promoting unnecessary and inappropriate monopoly-era regulation on a vibrantly competitive marketplace.