By Simon Grey, on January 5th, 2012
You don’t have to shell out hundreds of dollars every year to watch your favorite shows. This year, consider canceling your cable and taking advantage of several free and low-cost entertainment services. The website Hulu, for instance, lets you watch a variety of hit shows for free such as Glee, The Office and Modern Family, plus movies and documentaries. Or for $7.99 a month, you can take advantage of Hulu Plus, which gives you access to all of the selections on regular Hulu, plus more shows and movies.
You can also watch many shows for free on the network’s website, or pay $7.99 for Netflix, which provides access to unlimited movies and TV episodes.
The reason why cable is so expensive is because ad revenue alone is insufficient to cover both production costs and distribution costs. Cable and satellite networks are expensive to build and maintain, and content creation can often be pricey. As such, cable providers have to charge customers in order to be profitable.
The problem internet-based entertainment services face is that they are causing a significant portion of data transfer (i.e. the amount of data transmitted across the various data networks) but aren’t paying for any of the network upkeep and maintenance. Essentially they are paying only for content creation and distribution rights. This, incidentally, is why Hulu+ and Netflix subscriptions are so cheap (that, and Hulu is pretty well-connected to the NBC and Fox family of networks).
More importantly, it is the data service providers who have to pay for the creation and upkeep of data networks, and these networks have data transfer limits known as bandwidth. Essentially, there are limits to how much data can be transferred across a network at any given time. As more and more people begin to use online video content providers, there will be even more at being transferred at any given time, pushing up against physical network limits.
Data service providers will then have two options when this inevitably happens: increase bandwidth or cap data transfers. Most data transfer providers have relatively tight margins, so upgrading a network is not particularly feasible, nor will it be particularly widespread. Thus, the more common choice will be to cap data. Data caps (whether in terms of bandwidth usage or total data downloaded) will significantly curtail entertainment options, and so whatever profitability online video sites may have now will be either significantly reduced or completely eliminated, unless they decide to raise their fees.
Quite simply, the internet is not yet ready to replace cable. The network is not sufficiently built up. More importantly, the producers and aggregators of online content are not paying for the distribution of their content, and those who distribute content (data service providers) don’t have much reason to upgrade their network.
Ultimately, there is a strong chance that the market for online videos will eventually come to resemble the subscription television market. The separation of content providers and content distributors provides a problematic incentive structure that won’t be easily remedies unless content aggregators/producers have a financial stake in distribution, and vice versa.
Note: one thing that complicates this discussion immensely is the role of IP. If there were no IP, there would be many more aggregators of videos, and their subscription costs, if any, would be minimal since it would be considerably easier to find advertisers for pre-existing content, thus leading to an easy method of third-party funding. On the other hand, the amount of original content would diminish, and would probably become more low-brow.
By Simon Grey, on December 7th, 2011
Newspapers have been unable to monetise the internet as an income stream. This is in part because the BBC website offers so much content for free (i.e licence fee-payer funded) that it heavily distorts the market and mitigates against charging for content. The BBC itself has been forced to recognise this and plans to scale back its website by 20% to allow ‘room’ for competition. Local radio stations also suffer hugely from crowding-out by BBC local radio. Similarly, local paper circulation and revenues have been damaged by the council ‘freesheets’ that Eric Pickles was meant to dispose of.
Government-funded news organizations are problematic not only because they have a strong tendency to kill off the competition, but because they often function as a propaganda arm of the government itself. Americans, of course, have a tendency to complain about how the fourth estate is in the pocket of Big Government, but it is the British for whom this is perhaps literally true. As such, the British run the (very large) risk of having the BBC be nothing more than a propaganda machine, assuming it isn’t already.
By Christopher Briem, on October 11th, 2011
The Infrastructurist has a list of the most underutilized airports in the world.
Yup.
Though I have to say the ‘reason’ they give is pretty misleading. No mention at all of a few bankruptcies for USAirways and a terminal built to spec for a hub operation they abandoned.
By Christopher Briem, on September 29th, 2011
I read this headline and really couldn’t believe it. ComputerWorld of all places has this story today: Pirates tap BI tools to forecast, boost attendance. Notice there is no mention of improving on field performance as a means to improve attendance. They just want to narrow in on what poor folks are still willing to sit and watch another losing season.
Hey, I’m all for applying wonkery in all the weird corners of the world, but there is something perverse about that story and the Pirates endless losing streak. Moneyball is about how Billy Beane used some fundamentally econometric techniques to actually improve Oakland’s performance on the field. The Pirates’ version of that skips the box score and focuses entirely on squeezing more efficiency from the box office. I think that article says it all.
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By Simon Grey, on June 1st, 2011
So John Nolte has a post at Big Hollywood that attempts to explain why DVD sales have declined.
Blu-Ray sales have cannibalized some DVD sales, as has the rise of RedBox, Netflix, and Hulu. But Nolte posits that this is not enough to explain the decline. He argues that the reason for the decline in sales is because Hollywood makes crappy product. This reason seems shallow and highly limited. For one, Hollywood has always made crappy product. It used to be referred to as “b-movies.” Of course, Hollywood has turned pretentious as of late, so b-movies no longer exist, at least nominally.
Additionally, alternative media has had an impact of DVD sales. Google has pushed YouTube as a platform for feature length movies, which undoubtedly reduces the demand for movies in the theater or on DVD. People’s viewing time is limited, so if they watch things on YouTube, they won’t be able to watch other stuff.
Finally, Nolte fails to account for pirating. This isn’t a major oversight on his part, seeing as how there is not much data on the effect of pirating on DVD sales. Still, the popularity of torrent sharing sites would suggest that people are still watching a decent amount of movies, only now they are not paying for them.
Nolte is right in saying that Hollywood faces a revenue problem, but the issue isn’t necessarily a lack of quality films. It may simply be that Hollywood hasn’t figured out an effective business model for the age of the internet.
By Simon Grey, on May 9th, 2011
The U.S. plant will employ 100 people, and more than a year ago the company bought a former liquor warehouse outside of Baltimore, thinking they would be open in nine months. But it’s 13 months and counting. Xu and Wang have already spent $1 million more than planned and they don’t yet have an occupancy permit.
The storage room Wang and Xu budgeted to cost $25,000, would have cost $250,000 to comply with the city’s requirements, so the company will not store as many fragrance oils on site, making it more difficult to meet orders.
The building has to be equipped with fire sprinklers and handicapped restrooms. In total, code compliance is estimated to be 30% of the $3.5 million the company has spent on the plant.
One oft-overlooked tax is that of compliance costs. Quite simply, compliance costs refer to the costs of meeting regulations set forth by the government. As this story indicates, compliance costs can be quite expensive, and in many cases prohibitively so. I suspect the main reason why compliance costs are overlooked when discussing tax policy is because compliance costs are largely invisible.
In the first place, the government does not directly receive money from compliance costs. In fact, ensuring that businesses and individuals have complied with government regulations usually costs the government a decent amount of money. Plus, the only ones who profit from regulatory compliance are those who sell products that ensure compliance. It is probable that there is a significant amount of corruption associated with this, but it does not necessarily follow that the government profits from this, either directly or indirectly. (Certain government officials may profit from regulatory corruption, but it seems highly unlikely that said officials use their illicit gains to, say, reinvest in the government. It seems more likely that they simply pocket the money for themselves.)
In the second place, compliance costs aren’t always recorded by businesses and individuals because there are times when it is impossible to tell how large a role regulatory compliance plays in a purchasing decision. For example, a fast food restaurant may decide to replace its ice machine. The restaurant will pay for the ice machine, and will thus bear some of the cost of the machine. However, since it is impossible to tell what sort of machine, specifically, the restaurant would have purchased were there no regulations with which to comply, we cannot be certain how much regulations cost the restaurant, if at all.
Finally, compliance costs remain invisible because they are hard to measure, in total. The sale of gasoline provides a perfect example of this, for it is impossible to say how oil refinement regulation compliance impacts the final cost of gas, how pump safety standard compliance impacts the price of gas, and so on. Compliance with these different regulations and standards occur at different points in the supply chain and, as such, the costs are assessed at different points in the supply chain. They have a cumulative effect, to be sure, but determining the extent of these costs is a fool’s errand, particularly if one tries to do so on a per-unit basis.
At any rate, the lesson to take away from this is that the cost of regulatory compliance should be part of the debate on taxation. That the costs are hard to see and difficult to measure doesn’t mean that the costs don’t exist. Nor does it mean that the costs should be ignored. Thus, when it comes to tax policy, regulations should be fair game.
By B.P.T., on March 8th, 2011
By B.P.T., on February 17th, 2011
By Ajay Shah, on February 14th, 2011
I have long marveled about how quickly the world of mobile phones has rapidly moved through four paradigms. My first mobile phone was a Nokia and they seemed to rule. But then Blackberry won because Nokia did not get the importance of email. And then Apple won because Blackberry did not look beyond email. And then Google Android seems to have won because Apple did not understand the problems of a closed system. At each stage, it looked like there was a dominant solution, but the pace of change was brutal and the king of the heap was rapidly unseated. What an amazing pace of creative destruction.
So when I heard that Nokia was now going to be quite wedded to operating system from Microsoft [press release], I thought to myself “That can’t be so bright”. Then I looked at the stock price and it said:
So the market seems to have knocked Nokia down by 18% for wanting to run with a loser like Microsoft. And what’s more funny, the market seems to have knocked Microsoft down 4% for this contract too (which I don’t understand – compared with being wasteland, it seems that it is good news for Microsoft to have the support of Nokia).  
By B.P.T., on January 27th, 2011
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