There must be a law somewhere, where some business exec comes up with terrible schemes to squeeze more and more blood from a stone:
- let's fire the engineering staff to improve the profit figures
- let's slowly fill up content channels with so much advertising, consumers can't read/watch/listen to the media they're trying to access
- let's sell subscription access with a promise of no ads, then slowly introduce ads until the subscription payers are also earning significant money per ad
- let's reduce the quality of our product so we can improve the profit percentage
- if cars only last 5 years, consumers will have to buy new ones! (planned obsolescence)
- let's see how much we can carve out of this shrinking pie
- etc.
These kind of harebrained schemes seem so obviously stupid from the outside, but they keep showing up over and over again. It's like there's a population of con-artists who've managed to get into positions of influence in lots of companies, and will pitch and sell these ideas and make them happen, then everybody is aghast when the company tanks shortly after...meanwhile the "proven idea guy" goes on to another company and shows "improved profitability by 21% and revenue by $3mil/quarter blah blah" and slithers in to another decision making position where this happens again.
It reminds me of a story I read via Joel on Software:
> In one of Gerald Weinberg's books, probably The Secrets of Consulting, there's the apocryphal story of the giant multinational hamburger chain where some bright MBA figured out that eliminating just three sesame seeds from a sesame-seed bun would be completely unnoticeable by anyone yet would save the company $126,000 per year.
> So they do it, and time passes, and another bushy-tailed MBA comes along, and does another study, and concludes that removing another five sesame seeds wouldn't hurt either, and would save even more money, and so on and so forth, every year or two, the new management trainee looking for ways to save money proposes removing a sesame seed or two, until eventually, they're shipping hamburger buns with exactly three sesame seeds artfully arranged in a triangle, and nobody buys their hamburgers any more.
$40-$80k is basically nothing to an airline like American. This kind of penny pinching is what kills your reputation in the long run and saves effectively nothing.
It works because of the short term nature of modern corporate goals. A lot of stockholders are institutional investors looking to buy low and sell high, rather than long term stakeholders in the company. Neither they, the board and there for the CEO has any reason to see beyond a 1-2 year horizon unless the company is in really good shape.
I think there is quite a lot of related irrationality outside the corporate world. You see it in environments like a committee of volunteers running a club for hobbyists. "Subscription income is down therefore we must raise our subscription fees" seems to be obvious and common sense to many, maybe most people. Pointing out that this is most likely to have the deadly unintended consequence of driving current members away and further reducing income often seems to be fighting against the tide.
The tide you are fighting probably isn't irrationality but limited resources. If you have zero resources to ramp up marketing yet have fixed costs that must be met then its basically raise fees or close the club. Companies can take on debt\sell equity but that door is not open to everyone and doesn't stay open forever. If you have a way out of downward spirals caused by lack of resources please share!
You get the reverse too. Tax revenue is down, so we must help the economy grow by reducing taxes. Tax revenue is up, so clearly we are taxing more than we need to and we can reduce taxes.
Taxation doesn't quite fit the pattern we're talking about here, anyway. If a TV channel increases its ads, the obvious failure mode is that viewers go elsewhere instead (and hence advertisers spend less and revenue falls). But inter-country mobility is small enough that even quite large changes in tax rates aren't likely to make a lot of taxpayers go elsewhere. You occasionally hear rich famous people threatening that if some potentially tax-raising party comes into power they'll leave the country, but they don't generally actually do it.
(That may be different for corporate as opposed to individual taxes. Large multinational companies may be willing and able to move their operations around to minimize the taxes they pay.)
I believe he was thinking of runway economic effects -- e.g. tax revenue is down so 'Let's increase taxes!', while doing so could lead to further economic slowdown and less taxes; this effect is less obvious and doesn't necessarily happen imo.
Which is probably why companies such as Ikea, Maersk and Google are doing so well; They have a founder, or descendant that is in control of the company and can thus make long term decisions.
I always said that, in the small businesses I've been involved with, "shit runs downhill". The nicest places to work with have good guy owners. The worst ones have bad guy owners.
Yes. Perhaps it also works when you decide to cater to the x% of consumers who are quality-insensitive. Many people will endure years of bad service, complaining the entire time while taking no action.
I imagine someone there has figured out the inflection point where they can reduce the quality of their service without losing a significant number of customers. But perhaps that's giving them to much credit.
That is one benefit of the modern internet. As a customer that is quality-sensitive about many products, I can 'evangelize' to insensitive customers and attempt to bring them into the fold and start demanding better quality products, thereby increasing the quality I receive from the product myself.
That doesn't really add up, though. The expected future performance of a company is baked into the stock price. When companies do short-term things often the price of their stock falls even as profits rise. Investors aren't stupid.
I considered editing the post to include the caveat "Where that strategy could make sense for an executive is when he's able to hide (or at least obfuscate) what he's doing."
>And I wonder whether the price of current stock market transactions adequately reflects the knowledge of all investors, including the long-term ones.
That's sort of an odd way to put it. By definition the market transactions reflect the knowledge of all investors, unless you're postulating they don't apply knowledge when they trade. Do you mean the stock price is influence by people without knowledge other people do have? That's true.
But professional and institutional investors have the most influence, and they've got a pretty good idea when managers are eating the seed corn. It's an obvious strategy for executives, so professional investors are always on the lookout.
Do some executives get away with padding their bonuses through short term strategies? Sure. But I think it's rare.
In order to sell high after wrecking the long term future of a company, you've got to fool a lot of sophisticated investors. This seems implausible to me.
> In order to sell high after wrecking the long term future of a company, you've got to fool a lot of sophisticated investors. This seems implausible to me.
When you put it that way, it does sound implausible. But it demonstrably happens, so lets consider how that explanation may be wrong.
You don't necessarily have to fool a lot of sophisticated investors, you have to fool people/firms with sufficient funds available to invest, who can be talked into the belief that they are taking advantage of opportunity the rest of the market is missing, perhaps one which is uniquely available to them because of synergies.
Often this can be one person or firm rather than a lot of investors (sophisticated or not) -- its not as if acquisitions where the acquirer pays above market price and ends up a few years later taking a huge charge when its expectations fail to pan out are unheard of.
And this makes sense. If firms can make foolish decisions in running their business which negatively impact the future of the company, one form this can take is buying some other business at an unjustified price where someone else had already made a foolish decisions that negatively impacted the future value of that business.
I'm sure it happens here and there. But generally? No. The people who make the bulk of the trades (i.e. move the markets) have every incentive to not buy at a high price a company that has eaten their seed corn. They employ analysts whose sole job is to investigate those companies.
If you know of specific companies that have destroyed their future for a short term stock gain, you stand to make a fortune by short selling the stock.
It works because modern corporate governance is exclusively concerned with quarterly growth, and the negative effects of these strategies come next quarter when the CEO has moved on. You don't get a bonus for playing the long game; in a public company you have everything to lose and nothing to gain from compromising this quarter in exchange for next.
One of the many reasons (alongside Sarbanes-Oxley) that some large tech companies appear to have chosen not to IPO.
This indeed describes a lot of systems of our times. I think it's simply people not understanding complexity and 'nature', and only caring about growth and profit. I don't know if it's an inevitable fact, a mandatory lack of insight in their own actions that lead them to fail when 'success' stops coming. It's not that worrying when it's TV, but the food industry seems to be very very skilled at that sort of idiocy too.
They keep getting jobs if they can do it, or make the numbers look like they did. It's all a shell game, and in many companies, the numbers are all that matter to the people calling the shots.
Every one of those things gives a business a competitive advantage over its rivals. So when one does it, all the others have to follow or die.
I like to look at it as a natural cycle of things rather than a pandemic of things - though the case can be made for either.
Hopefully, as it all decays and people get sick of it, the other side is reached, and the opposite becomes true... unless the government interferes and keeps bad businesses and industries afloat, or the industry colludes to maintain the status quo.
> It's like there's a population of con-artists who've managed to get into positions of influence in lots of companies, and will pitch and sell these ideas and make them happen
Can you really call them con men when they admit this upfront by saying they have a MBA?
Also, this is what we get when companies only care about quarterly earnings reports. If a company only has a 3 month vision, it has to come up with schemes like this.
Planned obsolescence has its upsides. Products that last much longer than people use them are, in a word, wasteful for everyone. They could have been made with less or cheaper material, or faster, or with less engineering.
Computers are a great example, especially when Moore was still going strong, and advancement was obsoleting & retiring computers far more quickly than component failure.
Another (slightly less intuitive) example is automobiles particularly in regards to emissions. If old automobiles were not intentionally obsoleted by smog laws, they would have continued to "waste" air quality.
What you are talking about is the idea of sacrificing quality for cost in a sensible manner, so you aren't creating unnecessary cost beyond a needed lifespan. But that's not planned obsolescence.
Planned obsolescence is when you artificially shorten the lifespan of something in order to increase the sales of the product or the next generation of the product in order to generate more revenue.
I have a standard answer to planned obsolescence. It has a salt water economics spin on it, though those guys would hate this argument.
If you have a product with an active resale market. Any product with a noted higher quality will sell for a premium. At first you think that this is a boon to the seller. But the manufacturer can turn around and demand a premium. So what happens is, the manufacture gets to pull forward the secondary sale. If a use car sells for a $2000 premium on the used market, the manufacturer can probably charge $2000 more. And he gets to book that today, not five years from now when the first buy sells it.
There is a dismal reverse of this, if your product goes bad like yesterdays fish, the customer is going to demand and get a discount.
This interacts with the cost value curve for given products, meaning after a while you're just throwing money away trying to make the product 'better'. Similarly, not spending enough money results in an way crappier product than the cost of materials and labor would suggest.
The upshot is car brands like Toyota are on the premium side of the curve and it's not too hard for them to stay there. Chrysler is on the other side of the curve and is economically trapped.
>Planned obsolescence is when you artificially shorten the lifespan of something in order to increase the sales of the product or the next generation of the product in order to generate more revenue.
The strategy, as originally articulated, meant companies should use marketing to move customers to new models for status/styling reasons. It worked, too, in the car industry (which was the subject). For years the Mad Men types were able to convince people to buy a new car every two years, long before the old one was worn out.
Artificially shortening the lifespan of a product isn't profitable because of the hit the manufacturer takes to its reputation.
FWIW cars did have far more reliability problems until electronic control systems became common and engineering practices became sophisticated enough to manage long term quality. Much of the marketing to get a new car at frequent intervals played against the legitimate anxiety of having a car that was rusted out and unreliable after five years.
> Artificially shortening the lifespan of a product isn't profitable because of the hit the manufacturer takes to its reputation.
Isn't this exactly what Apple does with its chargers all the time? They change them in the slightest manner in newer generations, so the older generation charger doesn't work with it. I don't think there is an actual legitimate reason to do this - such as improved design or functionality. It doesn't seem to hurt Apple at all though, their hardware is still top notch and above and beyond its competitors.
> Artificially shortening the lifespan of a product isn't profitable because of the hit the manufacturer takes to its reputation.
Works well for nVidia. Speculations that it's newer drivers destroying older cards' performance seemingly cannot be quelled.
You can get away with that if you can still create a superior product than your sole competitor and can even get away with deliberately lying to customers (See 3.5 GB of good memory instead of 4 GB on GTX970)
It isn't just that they are stuffing more ads in. I have noticed a huge spike in what I call "program guide fraud" - networks indicating in the program guide information they provide to cable systems that an episode of a show is new, when it is in fact a rerun. This causes any DVR programmed to record only new episodes of a show to record the rerun, which fraudulently inflates DVR views, which leads to increased ad rates and ratings.
Some shows have taken a slightly less fraudulent, though equally frustrating, approach. 60 Minutes remixes old segments into "new" shows, but the only thing new about them is the order in which the segments appear, along with a total of maybe a minute in added commentary or updates on the segments. Whenever you hear "as we first reported..." at the beginning of a segment, that's a remixed segment. Nightline has also been remixing old segments into most of their "new" shows over the summer.
TV is dying, and the networks are turning to fraud and annoyance to try to save themselves. I can't imagine that it will work.
I've been wondering if maybe they just switched something in the backend and a whole bunch of shows got confused metadata. They're not at all what would be interpreted as "Recently Added". Charitably, my only guess is the system just doesn't detect that certain shows used to be in the line-up. Cynically, I imagine someone in their management is taking advantage of a bug and calling it a feature.
TV is already mostly unwatchable. As people channel-surf more to avoid ads or boring TV, the TV shows try and adapt by regularly recapping what has happened before the last ad break. So they spend less time on the content and more time on ads and then recapping after the ads.
The results are poor quality shows which are even less desirable to watch.
It's hard to view it as anything other than a death spiral.
I live in France where I wonder whether there's a law against abusive ad sequences, because they're much less intrusive:
Movies/programs start at 9pm. The ad breaks are at 9.45pm and 10.30pm. It means most movies (1.30) have only 1 ad break, series such as X-Files and 24 hours are displayed with uninterrupted episodes. Football games match this format.
At high school, those who went to Spain or UK discovered the poor state of TV in the rest of the world. We're lucky.
Must have been strange watching 24 in France, then. In the US, the time in the story was set up to align with ad breaks, so when it was XX:47 (for example) in the story, it was always 21:47 in reality.
Living in the UK with the ad-free BBC, you could always tell US import TV series because they had 45 minute slots rather than the 30 or 60 minute slots of the local content.
The first (and only) time I saw an episode of Star Trek on US television I was shocked when I realised there was a commercial break immediately after the credits. (I turned it off in the disgust.)
Indeed, times didn't match. And worse: In most movies/series we can clearly see that a sequence is supposed to be a summary for people who come back from a break. Very similar experience to series you "buy on bittorrent".
I can watch a recorded episode 24 in ca 35 min. Poor Americans, watching series like these on broadcast TV makes you sit through 25 minutes of advertising (and watching US advertising makes me angry, though Americans probably think it's normal). No wonder subscription services have taken off there first.
There used to be government restrictions in the US regarding how many minutes per hour broadcasters could show commercials, since TV stations were using "the public airwaves", and in most places you only had three or four channels.
But with the advent of 150+ channel cable services they decided the rationale for that kind of regulation had been undermined.
and its the worst when you buy a season of a show that does the recaps. "WE'll be right back", "Before the break..." so you get about 10 minutes of real content per show.
This happens on the BBC (which is ad-free) & it drives me mad! E.g. Dragons' Den is clearly pre-formatted to be sold to commercial channels with ad breaks - there is about 20 mins of content in a 1 hour show w/ 40 mins of recaps and dramatic panning around the 'Den'.
Martha Stewarts cooking (show on ad free PBS) has a tacked on "Bonus Feature" at the end that seems to be just the right amount of time that it wouldn't be needed if they were showing ads.
I'd never clocked that, but all the BBC's nature programs have a 15 minute "making of" documentary at the end as well, which now you mention it must get cut for commercial networks.
Nova, Discovery, History Channel, Airline Disasters, etc. All of them (I view via YouTube / YT Download).
For Airline Disasters, skipping forward to 20 minutes skips most of the useless pre-accident crap with 5x replays of all critical moments. Annoying as fuck.
Cable television was once touted as an ad free medium. Then they started creeping in until nobody questioned why they were paying so much to subscribe to ads.
This tactic is desperation. Short-term profits for a long-term loss. People will migrate to a more tolerable alternative.
Alternatively, they're just squeezing as much juice as they can from the last fruit. They know the end is nigh for network TV so they might as well burn it all the way down.
I think that Steve Jobs nailed it. People are willing to pay a lot for the experience. Right now bittorrent gives the best TV viewing experience at all. You click, you download, you watch. No logins, no DRM, no bullshit.
Until TV can beat the quality of that experience - they are doomed.
I'd argue usenet + sonarr/sickbeard (+sabnzbd/nzbget) + plex is even better but I agree overall. I pay for TV, Netflix, Amazon Prime, etc but I rarely watch content on those platforms. Plex is just so many times better and I'm not dependant on my crappy ISP.
Would it be safe to deduce that the decision to counter-intuitively add more of what people dislike is due to executive remuneration being tied to share performance i.e. they don't give a shit if the whole things tanks as long as they vest and get out while they're seemingly profitable?
I say this under the assumption, perhaps naively, that the people in charge are aware that the decision, long-term, is not a very good one and they're playing strategically for their own ends (rather than simply being pants-on-head stupid).
Is it really a bad idea? Will people actually get off Facebook and watch more TV if the ads were shorter? I suspect ads aren't the reason TV viewing is declining and aren't going to accelerate it much.
When I was very young, and broadcast television was still in its infancy, a 60 minute network show contained about 50-52 minutes of content.
Today, you can feel _very_ lucky to see as much as 44 minutes of content per show.
Personally, I don't care if they stuff 54 minutes of commercials into each 60 minute show. I'm not going to watch the show as it's broadcast. I'll watch it on netflix, stream it, or download it. In any event, as far as I'm concerned, the commercials never happened :-)
That's the same logic as "ratings are down, let's create more channels, cuz people like variety". They ended up diluting their captive audience even more resulting in even worse ratings. Time to turn off the TV, and that includes internet TV. You really won't miss it.
I think the relationship between falling ratings and increased ads may be different than the title communicates.
In fact, it has to be for the specific numbers cited, since they are simultaneous rather than the action occurring before the response, but even though the reported numbers are simultaneous, its likely one occurred first and there is some kind of cause-and-effect relationship, but even assuming that the decline trend leads the ad increase rather than the two being lockstep or the order being reversed, it may not be that the ads are strictly to "combat" the falling rating so much as being a response to the perceived market characteristics of the remaining audience -- if networks believe that the remaining audience is less sensitive to the quantity of advertising, increasing advertising makes sense (just as if a product has a smaller but less price-sensitive market because of a new competitor stealing the most price sensitive part of the market, increasing prices and focussing on other differentiating features may be a more successful strategy to maximize profits in the new market reality than price competition -- this is a fairly exact analogy, since ads are essentially a price consumers pay for TV content.
As someone who lives in the US in a competitive senate race (and has a nearby state that are politically important, competetive and share tv markets).
If more states had competitive elections in the US, including splitting electoral college votes, they could solve their stations revenue shortfall and get a cut of that sweet sweet PAC money.
Plus I'd like everyone in the country to feel the pain of non-stop election advertising. Maybe then campaign finance reform might show up.
No surprise TV ratings are falling. The graphical user interface for my cable has to be over a decade old and zero updates have ever been done to it. DVR is an alright option, but I always pass right into the show, and on some networks it disables! fast-forward.
As ESPN continues down the road of being unwatchable, I honestly think the only thing carrying cable television in America is football. This year the NFL will broadcast one game over the internet. If, or rather when, that becomes the norm, cable subscriptions are going to drop at a faster rate than they are now. I enjoy being able to put something on really fast, but cable television reminds of the music industry as CD's died.
If they were paying any attention at all, they would see what happened to radio when they jacked up the ADS. More ADS per hour did improve revenue, but that improved revenue came at a loss of audience.
There is a curve function, and it's complex. No ADS will deliver a nice audience, assuming the program is compelling enough, but no revenue. A few ADS will do just about the same thing, but deliver revenue.
From there, as the AD rates ramp up, audience will drop off and at some pivot point there the value of the AD, due to insufficient audience impressions, drops off impacting both revenue and audience.
If you ask me, TV is already well into the pivot point.
I do believe the AD / content axis is dominant. Quality can do some damage on the problem, but the move to lighter AD loads is clear. We are close to 50/50 and worse at times now. Completely unacceptable to growing numbers of us.
The thing is almost nothing can't wait. So I will, if nothing else. Buy it straight up AD free. Worth it.
I've got one four letter word that really helps counter this trend:
TiVo
But they get very little love. People would rather watch 10 hours a month of commercials than pay $10/month to bypass them.
And there's also laziness. I've seen so many people with cable company DVRs, but they don't FF thru commercials. Huh? Not only are the commercials mind-numbing when viewed for the 50th time, but there's also the matter of 20 minutes lost per hour of viewing.
For me, it's not about the value of my time (calculating like that is a huge can of worms, and realistically, most of us don't work in the time we save by not seeing ads, but watch an additional episode instead).
I just loathe ads. I gladly pay 9€/month for the ad-free experience on Netflix. (Plus, in Germany, everything on TV is dubbed, and it's hard to enjoy that if you know the original. Netflix offers the original soundtrack.)
This is like stuffing more ad units on a page. It might help your revenue in the short term, but it turns off viewers, and it turns off advertisers; so next quarter you're in the same spot, but with less room to put in ads.
If I were running a tv network, I would be doing whatever it takes to get ad rates up now, since next year is an election, and there's some rule about charging all political ads the same price, fixed based on earlier rates.
I saw an interesting stat recently: the average hour of broadcast TV has traditionally had between 12 and 18 minutes of advertising, whereas on the web the most people seem to put up with is about 6 minutes per hour. That means that even in a best case where ads transition over to web along with all tv viewership (and people don't favor ad free, subscription services), 2/3rds of that advertising medium is gone.
I'm sure it will eventually meet TV in # of commericals, just most potential advertisers haven't made the full leap into online video ads yet and content publishers are probably reluctant on increasing video ad quantities until they're certain they have an audience that will accept them.
People once said the same thing about satellite and cable being great because they didn't have as many commercials as traditional broadcast TV. Once cable channels had broadcasting quality on par with traditional TV and audiences committed to watching their shows, commercials increased until they were on par.
In practice, the experience of six minutes of ads when watching television on the web is watching the same two advertisements six times each, so I would not be surprised if people had much less ability to tolerate them for very long.
What I do hope is that things like Prime and HBO Go succeed. TV is already going down the shitter, and I don't know any millennial peer that actually still watches it (it's so backwards, why would we want to tell us what we can watch and at what time?).
What I do hope is that Netflix doesn't become a complete monopoly, else they'll stagnate.
seems a bit like they are punishing the loyal. id think that you could drop commercial percentage in an effort to lure viewers back and make up for the loss of revenue by time with an increase in viewership? or perhaps the commercial boat has already sailed and a new revenue model is needed.
This is hilarious. I would never pay for cable anyway because advertisements are just repulsive, even when the volume of them (in both senses) was slightly lower a decade or two ago. But whenever I happen to be in a hotel room and happen to turn the TV on I am just amazed that it is actually possible to click through nearly 100 channels in sequence and see nothing but commercial after commercial on. And if I do find something to watch it seems like every two minutes or so I have to mute the TV because it starts yelling at me to buy pharmaceuticals. Definitely not sad to hear that this medium of communication is in trouble because the internet alternatives are amazingly and obviously much better.
I really find it amazing that even to this day there is not a dynamic process for inserting adds into tv programming. Cable box should simply see that this tv watches NOVA, Star Trek, and Saturday morning cartoons. Because of this, I am a nerdy guy who may have kids. Reduce if from 3 minutes of 6 ads to a single minute long add. Something really specific like Disney Vacations, science kits for the kids and their parents, whatever. It isn't even a privacy thing necessarily. Cable box could be the only one that actually "watches" what you watch; streams in all possible adds and decides which adds to display to you based on its private (and un-shared) knowledge.
So, that would mean, the audience hates the program but if you show them more ads instead, they will not switch channels because the same ad is so much better on your channel than on any other?
If anyone's interested, I know Telestream's Tempo (http://www.telestream.net/tempo/overview.htm), is super popular as it can actually cut and/or interpolate frames from content, to allow content producers to run more ads, without any perceptible difference from the viewer perspective.
For some reason I can't access the article at the moment but, when I was in radio and TV, years ago, the FCC restricted how many advertising minutes you could run in an hour or per show. I want to say that, in radio, you couldn't go over 13 minutes in any hour but few dared to approach that limit except the kiddie rock-n-roll stations lest they turn away listeners.
- let's fire the engineering staff to improve the profit figures
- let's slowly fill up content channels with so much advertising, consumers can't read/watch/listen to the media they're trying to access
- let's sell subscription access with a promise of no ads, then slowly introduce ads until the subscription payers are also earning significant money per ad
- let's reduce the quality of our product so we can improve the profit percentage
- if cars only last 5 years, consumers will have to buy new ones! (planned obsolescence)
- let's see how much we can carve out of this shrinking pie
- etc.
These kind of harebrained schemes seem so obviously stupid from the outside, but they keep showing up over and over again. It's like there's a population of con-artists who've managed to get into positions of influence in lots of companies, and will pitch and sell these ideas and make them happen, then everybody is aghast when the company tanks shortly after...meanwhile the "proven idea guy" goes on to another company and shows "improved profitability by 21% and revenue by $3mil/quarter blah blah" and slithers in to another decision making position where this happens again.