Wednesday, December 27, 2006

How the NFL Blitzes in Business, Part 1

Here’s a surprise, the NFL is not primarily a sports league – it’s just another business with football as the product. Once you realize this, you’ll be prepared to understand the reasons why many of us can’t see Thursday and Saturday night football games and those reasons will shock you. There is much more to it than the greed of the cable company vs. the greed of the NFL. The most important component is the possible change in content from the traditional buffet model, where the cable company gives you a channel package with channels you like and some you don’t, to an a la carte model, where you tell the cable company what channels you want in your package. The probable long term effect of the NFL Network’s position is a challenge to cable’s status quo and content providers asking why can’t the customers pay for just the channels they want? Verizon’s IPTV will allow customers to pick and pay for the channels that interest them and their households. This seems to be the future of subscriber based television.

As the pre-eminent sports league, bringing in big ratings and bigger advertising revenue, the NFL Network now wants placement in everyone’s homes while providing just 20 hours of new programming for an entire year. Those 20 hours consist of 8 late-season football games. That doesn’t sound like a lot of extra programming–especially for a year-round, 24-hour network…and there’s the rub.

The NFL Network wants cable companies such as Charter Communications and Time Warner to carry its programming as part of their basic cable package. The cable companies say such an arrangement would hike the cable rates of all its subscribers, which they contend would be unfair to customers who have no interest in the NFL Network. The NFL Network wants to force its way onto basic cable so it can reach more viewers and charge higher advertising rates. That’s in addition to the hefty fees the NFL Network already charges cable companies to carry its programming.

Originally, the NFL Network charged cable providers $0.20 per subscriber to carry the channel but this was before they added live games to their broadcast schedule. The addition of live games raised that cost to $0.70. That’s a 250% increase – outrageous! When the additional costs are added together, the cost to each subscriber rises from approximately $0.57 to $2.00 per subscriber per month (Note: the per subscriber cost varies among cable providers with the range being anywhere from $1.00 to $2.00, for this blog we took the high end of the range, $2.00). If the NFL Network remained a premium channel, then only the subscribers interested in that content would pay that higher rate. Once they become a basic cable channel then every subscriber would be forced to absorb that cost and add 24.00 dollars annually to those already high cable bills. Thus, if the cable companies were to accept the NFL's terms, the NFL Network would immediately vault to being the third or fourth most expensive channel on the dial.

The first question you might want to ask yourself is: “Why is the NFL adding such expensive fare to their channel?” The easy answer is that since they are the NFL Network, they should probably be showing NFL games. Like I said – that’s the easy answer. Here is what actually led to the additional eight games. The owners of the smallest-revenue NFL teams felt they had fallen far behind those of the biggest money-makers. See, the NFL tries to ensure team economic parity but even though all the teams equally share the league's enormous television and licensing contracts, in addition to being further restrained by a firm cap on player salaries, the disparity between big-market and small market teams was showing itself in other ways. An obvious example is that franchises in bigger markets could generate money from suite sales that smaller-market teams couldn't touch…I’m sure you can think of others.

Continues in How the NFL Blitzes in Business, Part II (01/02/07)

Thursday, December 14, 2006

Euro/ Yen Hedge for a weak Dollar

The monetary pendulum is never-ending. Remember just a few years ago we had to impose steel tariffs to save the U.S. steel companies, who were struggling with record low steel prices. The losers were the auto companies and their suppliers. Now the auto companies and their suppliers are clamoring for a weak dollar and Asian currency appreciation to relieve them from the outrageously record high costs of steel and copper wire. And to top it off, although the broad steel tariffs were repealed, "anti-dumping" duties up to 40% on corrosion-resistant steel remain in force, so steel users are paying up to 40% more on top of already record prices.

Yet with interest rates relatively low in America , relative to Europe, and the American economy slowing (housing and autos – the biggest sectors linked to almost everything else – are both in trouble), global investors are taking their money out of dollars and putting them into euros, British pounds, and Japanese yen. Result? The dollar continues dropping. As a further result, the Chinese (who hold more dollars than almost anyone else) are losing lots of money. Hence, it will make more and more sense for the Chinese to stop buying dollars, start selling them, and allow their currency to rise relative to the dollar.

But if the Chinese start selling their dollars and push the value of the dollar down even more, doesn't that hurt their export industry which they rely on so much? So, you see the conundrum this obviously presents. The dollar traditionally starts the new year with a rally but this current dollar is more unpredictable than those past examples. This is particularly troublesome if you are trading in the U.S. dollar, because you already have an exposure to this current unpredictable dollar. If you are going to hedge with currency, you want to hedge against that unpredictability. The necessity for a currency hedge with little to no exposure to the U.S. dollar makes sense and the strongest currency pair would be a Yen::Euro pair. The Yen::Euro pair trades on a much narrower trough and has minimal exposure to the US dollar.

Digital Q rating and Advertising, Part 2

Continued from Digital Q rating and advertising, Part I

If you are developing a similar viral social networking sites you need to develop a following, but you are an unknown commodity, you have to get your name or brand out there somehow and some way. This is where having a strong digital Q-rating can help. If I have a strong digital Q-rating and refer a particular web site, as the site of choice for a particular topic, then the audience is much more willing to respect my recommendation and visit that site, helping to make that site popular. You can develop your digital Q-rating in a variety of ways, for example: posting your site on topic-related blogs along with your comments, mass email forwards, various search engines, etc... However the real key is the content or service you are providing through these posts, emails, or blogs. If you are a content provider, it is imperative that you provide relevant and unique content to both develop and influence your audience and then hope that your audience goes viral. Giving you the sphere of influence needed to develop a popular social site, with either a subscription or advertising business model behind it. It will also present opportunities in the off-line world as well, therefore increasing your overall Q-rating.

In terms of viral marketing and business, it's important to develop a strong audience with your sphere of influence which you could use to monetize your audience and their potential for making your sphere of influence viral. If people are interested in what you have to say then you can develop an audience and sphere of influence i.e. Q-rating, on the internet that can translate to the off-line world as well.

NielsenBuzzMetrics, has a service that taps into the massive pool of unaided television discussion occurring on blogs, message boards and other social media to rate and rank the “buzz” of TV shows. Another competitor in this new space is Brandimensions, which based its findings on Internet comments recorded between September and November. Brandimensions says its robots, crawlers, and spiders traverse 20 billion Web links to fan sites, blogs and chat rooms in a 30-day cycle to determine buzz rankings for TV programs. The service “gives us a unique measure of viral energy,” says CEO Bradley Silver. I wouldn’t be surprised if this technology is deployed to track and rate the buzz of other media vehicles such as music, magazines, and websites. There is no reason why the owners of the most popular websites and blogs can’t share in the advertising budget for the audiences that they influence. I can see advertisers approaching some of these internet stars to recommend or push their products or services to their audiences. Again this validates the need for a strong digital Q rating and the potential dollars affiliated to your sphere of influence.

The key is developing YOUR audience to strengthen YOUR Q-rating. That’s just part of my theory in viral marketing in today’s web 2.0 environment. For more on this please check out the book Millionaire in the Basement due out in 2007.

Sunday, December 10, 2006

Digital Q rating and Advertising, Part 1

Main Entry: Q rating
Function: noun
Etymology: quotient
: a scale measuring the popularity of a person or thing typically based on dividing an assessment of familiarity or recognition by an assessment of favorable opinion; also : position on such a scale.

This is the definition according to the Merriam-Webster's Online Dictionary. In high school, the popular kids were the ones who had unique attributes (aesthetics, intelligence, athleticism, etc..) giving them greater influence over their peers. Basically they had a higher Q-rating than the geek or goth kids. But within each group there was the most popular kid or leader. With the nerds or geeks there was the smartest one, with the cheerleaders there was the prettiest one, with the jocks the most athletic one, you get my point. Depending on the popularity of the group, compared to the other groups, the greater the influence on the main student body. The group with the highest Q-rating would have the greatest influence and within each group there were also Q ratings as to who has the greatest influence over that particular group.

The relevance is that the higher your Q rating, the greater your following and the sphere of influence you have. Part of the success of web 2.0 sites such as Youtube, Digg, and Myspace is their high digital Q-rating, where they have aggregated a high number of individuals due solely to the viral nature of their sites. They have developed the "coolness" factor, similar to the popular kids from high school that everybody wants to hangout with or be just like. These sites have become the vehicles creating internet stars in both the online and offline world, the best example is the aspiring actress from the lonelygirl_15 phenomenon who has made the cover of Wired, was in and on MSNBC, and in the NY Times twice because her Q-rating was so high from her Youtube posts. The directors behind lonelygirl_15 are also being offered similar director related opportunities in Hollywood.

The majority of user-generated content is nebulous but this is the fairly interesting phenomenon of these social networking sites--the content is completely driven by the users. The conversations and discussions of content is made through the use of comments, posts, blogs and then repeats itself on and on. It’s a fairly interesting direct democratic process and it obviously working since social websites are now considered a viable business model.

Continued in Digital Q rating and Advertising, Part II

Saturday, December 9, 2006

Is Google now an E-media company?

Over the past 13 months, we have watched the behemoth known as Google transform the advertising business with its search algorithm, or should I say its search and destroy approach to business (lookout Yahoo! and Microsoft), becoming a vortex for all things advertised on the web. You can't develop a website without pondering the possible revenue you could earn if you joined the AdSense network and becoming another component in the viral marketing machine that is Google. After analyzing Google's purchase of Youtube and its strategic media partnerships it is safe to assume that at its core Google is an advertising company. They have recently made several offline forays into radio and newspaper for both advertising inventory and advertising metrics bringing their online efficiencies to these offline staples.

Through acquisitions such as dMarc and partnerships with the New York Times,
Google is betting its technology can do for radio and newspaper what it has already done for the Internet by automating the process for selling and distributing ads to an audience where the messages are most likely to pique consumer interest, therefore bring efficiencies to these markets. In the future I wouldn't be surprised if a company's advertising budget started with Google and then went to Madison Avenue.

Currently Google is the largest online company with both the content and advertising expertise to bring a true internet TV platform to the masses. Hence the dawn of E-media. E-media will essentially be content created by both the traditional TV/Movie studios and individual users (Youtube, Veoh) delivered across a variety of mobile and Wifi platforms and devices.