Bitcoin News Australia

The Battle for the Internet

You’ve seen this movie before. For years, Netflix chairman and co-CEO Reed Hastings promised repeatedly that the OG streaming platform would never air advertisements or commercials through its internet airwaves.

At least he never asked us to read his lips. Earlier this month, Netflix finally introduced an ad-supported subscription tier, available for a few bucks cheaper than its ad-free options. The controversial decision comes after two consecutive earnings misses to start the year.

By pure coincidence, Netflix added advertisements just as Twitter, under new leader Elon Musk, beefed up subscription options on the historically ad-supported social network.

While Twitter has long been the little brother of the social media world — somewhere between an afterthought and a luxury for ad buyers — it’s far from the only platform struggling to sell ad space ahead of a widely-expected recession. As for Netflix, it’s joining a crowd, too, with Hulu and HBOMax already offering an ad-supported option and Disney+ adding one of its own next month.

Which begs the question: if Twitter wants to charge a monthly subscription fee, and Netflix wants to start selling ads, then just how healthy are the biggest players in the attention economy? And with economic headwinds presumably only getting more blistering in the months to come, which side is set up for greater success: the social networks or the streaming platforms?

That’s what we’re diving deep into today. So stop binge watching, cease doom scrolling, and let’s dive in.

Do I Have Your Attention Now?

The concept of “economies of attention” dates back to at least the early 1970s when psychologist and economist Herbert A. Simon coined the term. “In an information-rich world, the wealth of information means a dearth of something else: a scarcity of whatever it is that information consumes,” Simon wrote in 1971 — a year before the launch of HBO revolutionized and popularized cable TV, and 12 years before the advent of the modern internet. Still, Simon likely couldn’t have fathomed a world where attention-magnets didn’t just exist via the living room television, but also manifested as supercomputers in our pockets, featuring screens that suction eyeballs.

By the late 90s, theoretical physicist Michael Goldhaber took Simon’s paradigm and updated it for the rapid information-technology infrastructure that he foresaw just over the horizon. In a prescient 1997 essay for Wired magazine titled “Attention Shoppers” Goldharber argued that the currency of the internet was not information or entertainment, but rather attention: “By definition, economics is the study of how a society uses its scarce resources. And information is not scarce – especially on the Net, where it is not only abundant, but overflowing.”

Goldhaber’s theory basically predicted which massive tech companies would rank among the biggest corporations in the world a quarter century later. Netflix and Meta’s Instagram and Facebook package time in a bottle, so to speak, and sell it back to consumers for $15.49 a month…or to advertisers at awesome economies of scale.

Network Effects: A significant portion of the economy has been wrapped around stealing seconds, minutes, and hours. And yet, some of the biggest timesuckers on the planet are starting to show cracks in their foundations ahead of a possible recession:

• Meta reported its first ever decline in ad revenue in its Q2 earnings report over the summer, drawing in “just” $28 billion.
• Google parent company Alphabet reported the first ever decline in YouTube advertising revenue since it started publicly disclosing its financial details.

The Effect: highly publicized layoffs across the board in Silicon Valley. It’s little wonder that Meta and YouTube — where over 250 million hours of video are consumed each day — are beginning to pivot into new ventures. For Meta, it’s the metaverse — which comes with a major entry into hardware sales via VR headsets, as well as a whole new virtual world ripe with real estate to sell even more ads. For YouTube, it’s livestream shopping, which already generates hundreds of billions of dollars annually for competitors in China.

And if the attention economy’s two biggest players, whose ad-selling prowess has few if any historical peers, are suffering, you can only imagine the pain the slowdown has inflicted on their smaller peers.

Snapped: In its latest earnings report in October, Snapchat revealed solid fundamentals. Daily active users increased nearly 20% to 363 million daily active users, meaning plenty of young adults, teens, and tweens were happy to give it their attention. And, unlike Meta and YouTube, ad revenue actually increased in the quarter — just not quite enough to stay optimistic.

Its third-quarter 6% revenue growth rate marked the first time Snapchat’s revenue growth fell to single digits since the disappearing messaging app went public in 2017. Worse, the platform warned things are likely to get worse in the months ahead, with the app particularly reliant on the type of brand marketing that’s widely expected to continue to slump.

In the world of publicly traded tech companies, growth is the name of the game. And even with a third of a billion users logging on every day to surrender their time, Snapchat’s struggling to keep up with the bigs. Its share price is down over 75% year to date.

Wake Up, Tweeple: There are numerous — okay, perhaps countless — reasons to critique the Act of Elon that his All-Thumbs Twitter Takeover has become.  But it is providing an interesting case study in internet-era attention economics.

(Image credit: WordStream)

With just a fraction of the users of Facebook, Instagram, TikTok, or Google, the blue bird has long been considered a sub-scale digital advertising platform. Thus, Musk has stumbled his way to something of a half-truth: Twitter can’t run, let alone grow, on ads alone. “We need to pay the bills somehow! Twitter cannot rely entirely on advertisers. How about $8?,” the world’s richest man infamously posed to horror author Stephen King, proposing a monthly subscription model that offers perks and benefits to users.

Whether or not enough users agree to pay to waste time, crack jokes, and stumble upon news stories is another question.

Swimming Upstream

It’s not like Musk doesn’t have a point. Monthly recurring revenue streams, after all, have proven to be a popular business model in the other largest sector of the attention economy: streaming. Whether purposefully or not, Netflix’s leap into streaming prompted virtually all of Hollywood to ask the question — Why settle for seizing audiences’ attention span a few times a year in a movie theater, or a couple times a week when their favorite show happens to be on TV? Why not have the ability to lure them anytime, anyplace, anywhere?

Surely squeezing out monthly, recurring payments of $9.99 from each customer is more valuable than selling the occasional movie ticket, collecting fees from bundled cable channels, and selling primetime advertising slots, right?

Cable cord cutting and the pandemic’s effects on movie theater-going prompted four of Hollywood’s five major film studios — Disney, Universal, Paramount, and Warner Bros — to go all in on streaming, via Disney+ and Hulu, Peacock, Paramount+, and HBOMax, respectively. Columbia-Sony Motion Pictures is the sole major Hollywood studio without an affiliated streaming arm. MGM, one of the industry’s remaining big players, sold this year to Amazon, home of Prime Video.

Each of the major streaming services have flirted with day-and-date availability with theatrical releases, or in some cases shelving theatrical releases entirely to reach viewers glued to their living room couch. TV shows that may have played on basic or premium cable networks are now immediately assigned to affiliated streamers. In effect, content studios are reshaping consumer habits to drive subscriptions, intentionally sacrificing what had previously been core channels of their businesses.

(Image credit: UCLA)

But what was once a safe-haven from commercials is beginning to look more and more like regular old TV — and costing about as much as the old days of cable bundles.

In Addition: As your monthly credit card statements have likely noticed, all these subscriptions are beginning to add up:

• When Netflix first launched its streaming service in April 2013, its lowest tier cost $7.99 a month. Now, its highest tier runs $19.99 a month, and the trendline says it’ll likely increase a buck or two every couple years. At the lower end of the spectrum, Netflix now offers a “basic with ads” option at $6.99 per month, whose users have to subject themselves not just to the horrors of commercials, but lo-fi 720p streaming picture quality.
• Disney launched Disney+ in November 2019 for $6.99 a month — a small price to pay for a reliable attention sap for any small kids in the house. That same subscription now runs $10.99 per month as of August, with an ad-supported tier at $7.99 per month coming in December. (Through its Marvel superheroes, Disney also still owns one of the few reliable box office draws).

To the Max? Still, Warner Bros. Discovery’s infamously cost-conscious CEO David Zaslav isn’t sold yet on the streaming service business model, recently bemoaning the high costs associated with building a desirable platform for its nearly 95 million subscribers — and how little it paid off. In a recent interview with Deadline, Zazlov said the company spent almost $7 billion on content last year and lost $3 billion.

“Our whole library went on HBO Max. We weren’t selling any of it. But it was all on there. We looked, and we said, most of that is not being watched, or we don’t think anyone is subscribing because of this. We could sell it non-exclusively to someone else.”

He also claimed that sending movies to streamers instead of theaters is akin to industry malpractice, with theatrical releases almost five-times as profitable than streaming ones.

In other words, for all the energy that goes into being able to snap up attention around the clock, the old model has its advantages.

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