The Taste of Others

 

Wikipedia's wide variety of contributors is both a strength and a weakness of the online encyclopedia

Online encyclopedias

 

The idea of an encyclopedia—a compendium of all the best available knowledge—is as tempting as it is flawed. Truth does not always come in bite-sized chunks. And the notion of an infinitely elastic internet encyclopedia, always up to date and distilling the collective wisdom of the wired is even more tempting. When open to all comers, anonymously, the problems are even more glaring.

 

This week a senior Wikipedia editor, who used the pseudonym Essjay, turned out not to be a professor of religious studies as he claimed, but in fact a 24-year-old college drop-out. That has highlighted both the strengths and the failings of the world’s biggest online encyclopedia, which now boasts well over 1.5m articles. The “Encyclopedia Britannica”, by contrast, has a mere 120,000.

Essjay (or Ryan Jordan in real life), got away with his pretence because Wikipedians jealously preserve their anonymity. With most entries, anyone can edit without even logging in; or they can create an entirely fictitious online identity before doing so. The effect is rather like an online role-playing game. Indeed, it is easy to imagine some sad fellow spending the morning pretending to be a polyglot professor on Wikipedia, and then becoming a buxom red-head on “Second Life”, a virtual online world, in the afternoon.

That anonymity creates a phoney equality, which puts cranks and experts on the same footing. The same egalitarian approach starts off by regarding all sources as equal, regardless of merit. If a peer-reviewed journal says one thing and a non-specialist newspaper report another, the Wikipedia entry is likely solemnly to cite them both, saying that the truth is disputed. If the cranky believe the latter and the experts the former, the result will be wearisome online editing wars before something approaching the academic mainstream consensus gains the weight it should.

Wikipedia has strengths too, chiefly the resilient power of collective common sense. It benefits from the volunteer efforts of many thousands of outside contributors and editors. If one drops out, another fills his place. People are vigilant on issues that interest them. When mistakes happen, they are usually resolved quickly. This correspondent’s modest Wikipedia entry was edited this week by an anonymous contributor who posted a series of entertaining but defamatory remarks; a mere four minutes later, another user had removed them.

Constant scrutiny and editing means even the worst articles are gradually getting better, while the best ones are kept nicely polished and up to date. Someone, eventually, will spot even the tiniest error, or tighten a patch of sloppy prose. Mr Jordan, for all his bragging, seems to have been a scrupulous and effective editor.

The most tiresome contributors do get banned eventually, though they can always log in under a new identity. Other shortcomings are the subject of earnest internal debate too, such as Wikipedia’s inherent bias towards trivial recent events rather than important historical ones. That is already changing, slowly, though subjects of interest to northern white computer-literate males are over-covered, while others are laughably neglected.

Wikipedia is the biggest collaborative online encyclopedia, but not the only one. Citizendium, supposedly launching soon, aims to be like Wikipedia but without anonymity, and with more weight given to recognised experts. Conservapedia aims to offer a version of the truth untainted by Wikipedia’s liberal secular bias on issues such as evolution.

So how useful is Wikipedia? Entries on uncontentious issues—logarithms, for example—are often admirable. The quality of writing is often a good guide to an entry’s usefulness: inelegant or ranting prose usually reflects muddled thoughts and incomplete information. A regular user soon gets a feel for what to trust.

Those on contentious issues are useful in a different way. The information may be only roughly balanced. But the furiously contested entries on, say, “Armenian genocide” or “Scientology”, and their attached discussion pages, do give the reader an useful idea about the contours of the arguments, and the conflicting sources and approaches. In short: it would be unwise to rely on Wikipedia as the final word, but it can be an excellent jumping off point.

 

Mar 10th 2007
From Economist.com

The union of television and the internet is spawning a wide variety of offspring

BOSSES in the television industry have been keeping a nervous eye on two Scandinavians with a reputation for causing trouble. In recent years Niklas Zennström, a Swede, and Janus Friis, a Dane, have frightened the music industry by inventing KaZaA, a “peer-to-peer” (P2P) file-sharing program that was widely used to download music without paying for it. Then they horrified the mighty telecoms industry by inventing Skype, another P2P program, which lets internet users make free telephone calls between computers, and very cheap calls to ordinary phones. (The duo sold Skype to eBay, an internet-auction giant, for $2.6 billion in 2005.) Their next move was to found yet another start-up—this time, one that threatened to devastate the television industry.

It may do the opposite, as it turns out. The new service, called Joost and now in advanced testing, is based on P2P software that runs on people's computers, just like Skype and KaZaA. And it does indeed promise to transform the experience of watching television by combining what people like about old-fashioned TV with the exciting possibilities of the internet. But unlike KaZaA and Skype, says Fredrik de Wahl, a Swede whom Messrs Zennström and Friis have hired as Joost's boss, Joost does not “disrupt” the industry that it is entering. Instead, rather than undercutting television networks and producers, he says, Joost might, as it were, give them new juice.

That is because Mr de Wahl and his Joost team, working mostly in the Netherlands, have bravely ignored the totems of the internet-video boom. Chief among these fashions is letting users upload anything they want to a video service—which might include clips of themselves doing odd things (“user-generated content”) or, more questionably, videos pirated from other sources. The celebrated example of this approach is YouTube, which is now part of Google, the leader in internet search. Its big problem, however, is that it can be illegal (if copyright is violated) and fiendishly hard to turn into a business.

On February 2nd Viacom, an American media giant, became the latest company to demand that YouTube remove copyright-infringing clips from its website. YouTube has struck deals with some media firms, including NBC and CBS, to allow their material to appear on its site, and had been trying to thrash out a similar agreement with Viacom. Many observers regard Viacom's move as a negotiating tactic. But whether YouTube can make money is unclear. Last month Chad Hurley, YouTube's chief executive, sketched out plans for generating advertising revenues and sharing them with content providers, but so far his firm has none to speak of.

Joost is also ignoring the two business models seen as the most respectable alternatives to advertising. One is to make users pay for each television show or film they download, but then to let them keep it. This is the tack chosen by Apple, an electronics firm that sells videos on iTunes, its popular online store; by Amazon, the largest online retailer; and by Wal-Mart, the largest traditional retailer, which launched a video-download service this week. The other approach is to let users subscribe to what is, in effect, an all-you-can-eat buffet of videos, and then to “stream” video to their computers without leaving a permanent copy. This is the approach taken by, for instance, Netflix, a Californian firm that mostly delivers DVDs to its subscribers by post, but now also streams films.

The reason that Joost is ignoring all of these methods, says Mr de Wahl, is that none has much to do with the experience of simply watching TV, which most people enjoy. Unlike the download or streaming approaches, he says, “TV is not about buying today what you want to watch tomorrow, it's about turning it on and watching.” And in contrast to the “lean-forward” context of “snacking” on a YouTube clip in one's cubicle while the boss has stepped out, TV is a longer and more relaxed “lean-backward” experience.

Hence Joost's most shocking innovation, which is not to change the practices that TV adopted decades ago. It will be free, with advertising breaks—no more than three minutes per hour—either before, during or after a show, depending on the market. Americans, says Mr de Wahl, are more tolerant of interruptions.

Joost has “channels”, like ordinary TV, but these are now playlists of videos that start whenever it is convenient to the viewer. Viewers can import their instant-messaging buddy lists and chat online with friends while watching the same programme. For advertisers, such engagement is worth something, because the activity proves that somebody is watching, rather than being asleep or out of the room. Combined with other information, such as the computer's IP address and hence its location, advertisers will be able to target their spots much more accurately—all “Desperate Housewives” fans in a particular neighbourhood, for example—and thus ought to pay a premium.

The thing that is missing in this new vision of television, however, is the set itself. Beaming video from a computer to a television is possible: Apple and other firms are starting to sell the necessary gadgets. But until it becomes much easier to connect televisions to the internet, big media companies are likely to “wait and see” before committing to Joost, says Jeremy Allaire, the boss of Brightcove, a rival internet-video firm based in Massachusetts. In the meantime, thinks Mr Allaire, media firms are mainly interested in building their own brands, so Brightcove provides content owners with technology to show television on their own websites, syndicate their shows to other websites, track audiences and collect advertising revenue.

There is, in short, no consensus about the best way to combine television with the internet. Instead, there are a variety of experiments, of which Joost is the latest example and YouTube the best-known. But as with telephony, the internet is unpicking service delivery from network ownership. Joost, YouTube, iTunes and Netflix do not need their own networks to supply their video services: they can piggyback on fast internet links provided by others.

According to iSuppli, a market-research firm, internet downloads will claim more than one-third of the market for on-demand video by 2010 (see chart). So just as internet telephony has been bad for traditional phone companies, this “internet bypass” could be bad for the “on demand” video services being offered by cable-TV and telecoms firms over their networks. But by bringing television to more screens in more social contexts, all this could provide new models for programme-makers to finance their productions and offer advertisers new ways to reach consumers. And so Joost and rival services could end up rejuvenating the 75-year-old medium.

 

Feb 8th 2007 | SAN FRANCISCO
From The Economist print edition

BSkyB's sudden pounce on ITV was a triumph of raw power, but what does it mean in the longer term?

 IN THE clubby world of British television, BSkyB, the broadcaster controlled by Rupert Murdoch, has behaved like an angry outsider ever since it sent up its first satellite signal in 1989. Its enormous success—8.3m households now pay for its hundreds of television channels, bringing in over £4 billion ($7.6 billion) of revenues a year—has made it both hated and feared among its competitors. So its sudden purchase on November 17th of 17.9% of ITV, the country's largest commercial broadcaster, for £940m, has caused a huge fuss.

BSkyB's main rival in pay television, NTL, a cable firm, had been trying to buy all of ITV. One of its shareholders, Sir Richard Branson, reacted furiously this week, calling for the government to stand up to Mr Murdoch's empire for the sake of democracy. As well as its 38% stake in BSkyB, Mr Murdoch's company, News Corporation, owns the Sun and other titles which together represent 32% of total weekly newspaper sales. To stop him dominating the media, a law prevents BSkyB from buying more than 20% of ITV. Nonetheless, Ofcom, the communications regulator, said this week that it would examine BSkyB's move to determine if it now effectively controls ITV, and if so, what the effect on programming might be.

     ITV is vulnerable because of the rise of “multichannel” television. Lots of people now have access to dozens or hundreds of channels, not just the old handful. The resulting shift of viewing towards the small and niche has put great strain on established broadcasters. Some kind of restructuring in the television market was likely at some point, and as the hardest hit, ITV is the obvious place to begin. The audience for its main channel, ITV1, has fallen steadily (see chart). Its advertising revenues are falling too. In March ITV fended off a takeover bid from a group of private-equity firms, and four months later its board ousted its chief executive, Charles Allen, who has still not been replaced.

 

  If NTL had carried off ITV, it could have used its programming to bolster its own TV products, and ITV's channels to promote them. Even though NTL is a weak company struggling to digest two big recent acquisitions, BSkyB decided it needed to put a stop to the deal. Because of NTL's particular circumstances, the 17.9% stake should be enough. The cable firm needs to own all of ITV to be able to get its hands on the broadcaster's cashflow to support more debt; and 75% to set its own past tax losses against ITV's profits. In any case, this week ITV rejected NTL's bid as too low.

 

Some people in the City reckon that BSkyB's seeming fear of a strengthened NTL sends a worrying signal to Mr Murdoch's own investors. After all, the market has also become more competitive for BSkyB and it is growing more slowly than it did in the 1990s. However, that interpretation is ridiculous, says Claire Enders of Enders Analysis, an independent research firm. Rather, she says, “this is the brilliant, iconoclastic move of a company to say ‘we're powerful and we're going to decide what happens to ITV'.”

 

Despite Sir Richard's railing against a familiar bogeyman, it is in fact Mr Murdoch's son, James, BSkyB's chief executive, who decided to pounce. His father, who is BSkyB's chairman, approved his action from Australia. “It shows that James is a chip off the old block,” says a News Corporation executive. The elder Mr Murdoch did something similar recently when he bought 7.5% of John Fairfax Holdings, an Australian media group. The purpose, Mr Murdoch said later, was just to make it difficult for anyone else to take it over.

 

His son cannot be so candid. Regulators might suspect anti-competitive behaviour if BSkyB confirmed what most people in the media industry and the City believe—that it bought its stake in ITV chiefly to thwart NTL. BSkyB claims that its purpose is to benefit financially from what it believes will be a turnaround at ITV. It now portrays itself as a white knight for the beleaguered broadcaster—an incongruous position considering its usual rudeness about ITV. For the moment the tactic seems to be working: neither Ofcom nor the Office of Fair Trading (OFT) are likely to force BSkyB to sell its stake, according to a former regulator.

 

Does BSkyB have a purpose beyond blocking NTL? A likelier explanation than any sudden optimism about the broadcaster is that it wants to stay close for its own strategic reasons. BSkyB's ultimate aim is to tempt the vast majority of households into paying for television, as in America, rather than settling for the free kind. It might now be able to nudge ITV towards the pay world, which would make free television less attractive. Both BSkyB and ITV are shareholders in Freeview, a free, digital-terrestrial multichannel platform whose popularity has meant that many people who might have become customers of BSkyB have stayed with free TV. BSkyB would doubtless like more say in how Freeview develops in future.

 

At the least, owning nearly a fifth of ITV could give BSkyB insight into what its free-to-air rivals are up to. In 1997 it joined in a new digital-television venture called British Digital Broadcasting, alongside Carlton and Granada, the two firms that later merged in 2004 to form ITV. That time the Independent Television Commission swiftly forced it out for reasons to do with competition, but the episode showed BSkyB's liking for being on the inside of its rivals' initiatives.

 

For a while after he became chief executive three years ago, it seemed as if the younger Murdoch might strike a friendlier pose towards the television establishment. He has succeeded in broadening BSkyB's appeal well beyond sport-loving men in pubs to family programmes for richer households. The move on ITV suggests, however, that the firm's aggressive instincts have not changed much at all.

 

 

 

Nov 23rd 2006
From The Economist print edition

 

“Convergence” is the telecoms industry's new mantra. Whether customers really want it is another matter, says Tom Standage

WHAT has come over the telecoms industry? The spectacular crash of 2001, with its associated bankruptcies, fraud and the destruction of around $1 trillion of investors' money, has evidently been forgotten. The gloom has given way to a fresh sense of opportunity and a renewed frenzy of dealmaking. The past couple of years have seen a series of huge takeovers and mergers among network operators and makers of telecoms equipment around the world.

In America SBC paid $16 billion for AT&T, took its name, and then swallowed BellSouth for a further $67 billion. Its rival Verizon, meanwhile, bought MCI for $8.4 billion. In Europe Telefónica, Spain's national incumbent operator, bought O₂, a wireless firm with networks in several European countries, for £17.7 billion ($31.3 billion). NTL, Britain's cable operator, bought Virgin Mobile, a mobile operator, for £962m. Vodafone, the world's biggest mobile operator by revenue, signalled a retreat from its global ambitions and sold its Japanese arm to Softbank, a local wireline broadband operator, for $15.4 billion. 

In addition to these and many other deals, operators around the world began building “next-generation networks” at vast expense. Verizon is spending over $18 billion on its new network, and Britain's BT is spending £10 billion. These networks allow telecoms operators to offer television service in addition to voice calls and broadband internet access.

Meanwhile, large internet companies including Google, Yahoo! and Microsoft's MSN marched into the telecoms business by launching new services offering free calls over the internet. Skype, the leader in this market, was acquired by eBay for $2.6 billion. And equipment-makers began teaming up too: Cisco, the world's largest network-equipment firm, bought Scientific-Atlanta, which makes television set-top boxes, for $6.9 billion; Alcatel and Lucent agreed to merge in an $11 billion deal; and Nokia and Siemens combined their network-equipment divisions.

At first sight these deals might not appear to have much to do with each other. But all of these transactions were prompted by a single underlying trend that has become the industry's new mantra: convergence.

All together now

What this means, roughly, is the coming together of previously separate communications and entertainment services: fixed and mobile telephony, broadband internet access and television. But more often the word is used in a quasi-mystical way to evoke information heaven. “Convergence really means the freedom for consumers to use any service under any circumstances they choose to,” says Ben Verwaayen, the boss of BT. “It is a question of convenience, enriching people's lives, because we can provide communications, information and entertainment the way they want it,” says Mark Wegleitner, chief technologist at Verizon. “We want to bring simplicity to our customers, the first step towards digital paradise!” exclaims Didier Lombard, the chairman of France Telecom.

In fact, although the industry likes to depict convergence as a great boon for customers, it actually involves a technological shift that, in the first instance at least, will primarily benefit network operators. At its heart, convergence is the result of the telecoms industry's embrace of internet technology, which provides a cheaper, more efficient way to move data around on networks. On the internet everything travels in the form of “packets” of data, encoded using internet protocol, or IP. The same system can also be used to encode phone conversations, text and photo messages, video calls and television channels—and indeed anything else.

It is only relatively recently that IP technology has matured to the point that it can carry these other services reliably and efficiently, says Basil Alwan, the president of IP activities at Alcatel. But now that it has happened, operators can replace a jumble of different networks for services such as voice, data and video—each with its own order-entry, billing and fault-reporting systems—with a single network on which everything travels as interleaved streams of IP packets. “The ultimate goal is to have one IP infrastructure, and services running on that infrastructure,” says Mr Alwan.

This convergence affects not only wireline networks, but wireless ones too. Today, operators run separate but interconnected networks for fixed and mobile phones. But the new converged networks are “access agnostic”. In short, a single core network may have a variety of devices connected to its edges via different technologies. Traditional fixed-line phones might be connected via wires; mobile phones via base-stations; and televisions or computers via broadband telephone lines or Wi-Fi links.

Access agnosticism should enable a mobile phone, say, to connect to the core network via Wi-Fi in the home and then switch seamlessly to a traditional cellular connection outdoors. The core network remains untouched as new access technologies (such as fibre-optic links or new kinds of high-speed wireless data technology) are added to its edges. In an industry that loves obscure acronyms, the framework for linking everything up in this way is known as IMS, TISPAN or NGN.

“IP in a converged world enables one network, many services, any access,” says Robert Lloyd of Cisco. A converged, all-IP network of this kind has two immediate technical advantages for network operators, he says. The first is that it costs less to run, thanks to its far simpler architecture and the economies of scale associated with internet standards. BT, a firm widely regarded as a pioneer in the switch to next-generation networks, expects its operating expenses to fall by 30% once its new “21st Century Network” (21CN) is completed in 2009. “By 2010 you will have to look very hard to find a fixed or mobile operator that is not running its traffic over an IP core,” says Mr Lloyd.

The second advantage is that in theory, new services can be added far more quickly and easily, without the need to add any new network infrastructure. Adding a new service amounts to little more than adding software to the core of the network and perhaps some new access technologies around the edges.

The rise of the quadruple play

Because of the convergence on IP networks, companies that used to be in separate industries—telephone operators, internet-service providers and cable-TV firms—suddenly find themselves in the same business. Cable companies now offer broadband internet and voice services over networks that used to carry just television, and telecoms firms have upgraded their networks to carry television signals. In the new converged world any firm that can deliver an IP stream to customers over its network can offer any or all of these services. And offering several of them together, many operators believe, is a winning strategy.

Hence the current scramble to offer the “quadruple play”—the name given to the combination of fixed and mobile telephony, broadband internet access and multichannel television. This explains many of the deals that have taken place in recent months. AT&T, which is already rolling out a fast new network to carry TV signals, bought BellSouth in order to win full control of Cingular, its wireless joint venture, and complete the quadruple-play package. Softbank, which already offers television, voice calling and internet access over fixed broadband links under the Yahoo! BB brand, bought Vodafone Japan to add mobile to the mix. Similarly, NTL bought Virgin Mobile, and America's big cable operators last year struck a deal with Sprint Nextel, a wireless operator.

The desire to offer a one-stop shop for quadruple-play services has also prompted several national incumbent operators to reabsorb their previously separate wireless operations. And it has hastened consolidation among telecoms-equipment vendors, such as the Alcatel-Lucent and Nokia-Siemens deals. Large operators have concluded that buying as much as possible from a single equipment-maker increases their bargaining power and avoids problems with integrating equipment from different suppliers.

Operators claim that selling all four services together as a bundle makes life easier and more convenient for customers. “Customers in our experience really want that,” says Ed Whitacre, the swashbuckling Texan boss of AT&T and one of the most vocal proponents of the merits of bundling, “and we can give them a better price.” The average American household spends $176 a month on telephone, broadband and television services, according to figures from Parks Associates, a consultancy. Mr Whitacre's stated aim is to reduce costs by building a converged network, and to offer the quadruple play for as little as $100 a month.

There is indeed evidence that customers like the discounts associated with bundles and the convenience of a single bill. “Customers are much more open to purchasing via the bundle,” says Mikal Harn, vice-president of consumer marketing at AT&T. For the incumbent telecoms operators, however, the quadruple play is all about protecting their core business of fixed-line voice calls, which still accounts for the bulk of their revenues.

Their problem is that fixed-line subscribers are being lured away by cable operators and voice-over-internet firms, or are getting rid of their fixed lines in favour of mobile phones. During 2005, for example, the number of fixed telephone lines operated by Verizon, America's second-largest telecoms firm, declined by 8%. Its losses were greatest in the New York metropolitan area, where it faces the most competition from cable operators offering voice services, says Stephan Beckert of TeleGeography, a market-research firm.

As cable operators offer customers the “triple play” of voice, broadband and television, telecoms operators have concluded that their best defence is to respond in kind and also to throw in wireless, which many cable operators are not yet able to offer. Customers who sign up for a bundle of services and its associated discount cannot defect to a rival provider of any one of the services without losing the discount. “We make the product more sticky—customers don't seem to leave,” says Mr Whitacre. Similarly, cable operators are using bundles to protect their core business, which is not voice but television, as it, too, comes under attack from satellite-TV providers and now telecoms operators.

Another benefit of bundling everything together is that it reduces advertising, customer-acquisition and other marketing costs, because all the services can be advertised together under a single brand. That is why France Telecom recently rebranded its Wanadoo broadband division and Equant corporate-networks division to align them with Orange, its far stronger mobile-phone brand. This will allow the company to sell bundles of services to both consumers and businesses under a single brand. “It cost a lot to support all those brands, so it's very rational to choose the most popular brand in the collection to support all our products,” says Mr Lombard. Similarly, doing away with the old SBC, BellSouth and Cingular brands in favour of the much stronger AT&T brand is “a huge opportunity for us”, says Mr Harn.

Shades of 3G?

Convergence and bundling, in short, are two sides of the same coin. The convergence of multiple networks makes bundles of services cheaper to provide; and the business logic of bundling makes the cost of building new, converged networks easier to justify. But anyone familiar with the telecoms industry may be experiencing a sense of déjà vu. This is the same industry that spent tens of billions of dollars building new fibre-optic networks in the late 1990s, in anticipation of a surge in traffic that never materialised. The result was a spectacular crash.

Meanwhile, European operators paid around €100 billion for licences to build new high-speed “third-generation” (3G) mobile networks. They hoped that as revenue from voice calls levelled off, the new networks would open up a lucrative new data-services market. But take-up of data services fell far short of expectations, and 3G's real value proved to be much less exciting: an ability to cut operating costs and provide lots of cheap voice capacity. This caused huge write-downs in the value of the licences. Both of these episodes are now regarded as embarrassing collective hallucinations over which the industry prefers to draw a veil. But might the same thing happen again with convergence?

“What problem is convergence solving?” asks Andrew Odlyzko, an expert in the economic history of telecoms at the University of Minnesota. “It is solving complexity issues for service providers, but it is not actually solving much for consumers.” Guy Zibi, an analyst at Pyramid Research, a telecoms consultancy, is equally sceptical: “It's the technology department driving the marketing department.” As with 3G, he says, operators are rushing to provide new services even though consumer demand is unclear and the technology is still immature.

Even some people in the industry, such as Arun Sarin, the chief executive of Vodafone, have their doubts. As a wireless-only operator, Vodafone could find itself high and dry if convergence does indeed prove to be the next big thing. But so far Mr Sarin has taken a cautious view of convergence, prompting much criticism of his strategy. Despite some recent convergence-friendly tweaks to its business model, including moves into the fixed-line broadband market in Britain, Germany and Italy, Vodafone's main focus is still on mobile. “It's very early days,” says Mr Sarin. “We are dubious that customers really want all the things that people are imagining that they want.” In particular, it is wrong to assume that everyone wants quadruple play, he thinks: “We're not saying that there are no customers who demand this—we're saying it's a very small fraction of customers.”

So far, the evidence seems to prove him right. Only 1% of consumers in Italy, 8% in France and 10% in Britain have signed up for triple-play bundles of fixed-line voice, broadband internet and television, according to figures from Forrester, a consultancy. In a survey it carried out, 44% of European consumers said they were not interested in such service bundles, though 49% said they might be interested if there was a discount. But if operators have to offer steep discounts to get people to sign up for their bundles, it will be harder for them to justify the expense of building new converged networks.

Ready or not, here it comes

True believers in convergence insist that it is about more than simply bundling existing services together: it will make new services possible, too. Many operators are already getting excited about “fixed-mobile convergence”, in which a single handset can be used both as a mobile phone outdoors and to make cheap calls via a fixed line at home or in the office. Another oft-cited example of a new service made possible by convergence is to enable customers to programme their digital-video recorders remotely, either via the web or from a mobile phone.

Mr Verwaayen, a passionate football fan, talks enthusiastically about the idea of combining television with audioconferencing, so that a group of friends can watch a match “together” from different locations. Many operators are experimenting with security cameras that sit in your home, or perhaps your holiday home, and allow you to keep an eye on the place from your mobile phone or over the web. And there is the prospect of integrating your telephone with your television, so that when you are watching a film and someone calls you, the caller's name appears on the screen and the film pauses automatically if you pick up the phone.

Convergence, then, promises operators both the means to defend themselves against competitors today and the prospect of new revenues tomorrow. According to a survey published last year by IBM, a computer giant, and the Economist Intelligence Unit, a sister company of this newspaper, 80% of telecoms executives surveyed agreed that it was essential to embrace convergence within the next three years as a source of long-term revenue growth. The same survey also asked respondents which converged services and markets they thought were likely to prove most important (see chart 2). The clear leader was voice-data convergence, followed by fixed-mobile convergence and telecoms-media convergence. And these are, indeed, the three areas where convergence is most visible.

This survey will examine the prospects for convergence by looking at each of these areas in turn. Of the three, voice-data convergence is clearly the most mature (think of the popularity of Skype, an internet-calling service that is now practically a household name) and provides the strongest evidence of the power of convergence to reshape the industry. Fixed-mobile convergence is less advanced, though the first commercial services are now available in some countries. Telecoms operators' move into the television market is also at an early stage, though there have already been some notable successes.

Whether or not convergence turns out to merit the hype, the industry has convinced itself that it is worth pursuing, and anyone who disagrees risks being left behind. “As soon as one operator adopts convergence, all the others have to follow,” says Mr Lombard. Quite how far and how fast the process will go remains to be seen. But like it or not, convergence is coming.

Big media firms and investors are cosying up to social-networking websites

WEBSITES for social networking have never had so many friends. The best known, MySpace, recently became the most visited website in America. Its acquisition last year by News Corporation, a media giant headed by Rupert Murdoch, for $580m now looks like a masterstroke. Other media groups and investors are crowding around other such websites, which allow people to create their own pages with photos and blogs and make connections with other people. Takeover rumours have been swirling around two smaller sites, Facebook and Bebo. And a group of investors recently put $10m into Friendster, an early example of the genre that is trying to make a comeback. Even Wal-Mart, an American retailing giant, has started a social-networking site, called The Hub—to widespread derision, because it forbids the racy content that users enjoy.

After plenty of initial scepticism, investors now accept that MySpace and its rivals can make a lot of money by selling advertising space. Advertisers were wary of putting ads on individual home pages, which often feature lewd and unpredictable content. But they cannot ignore the fact that millions of young people spend hours on these websites. Last month MySpace made a deal allowing Google, an internet-search giant, to sell a big chunk of ad space on MySpace and on News Corp's other websites over the next three years. Google has guaranteed a minimum of $900m in revenue in return.

The more attractive social networking becomes as a business, of course, the more competition there will be. The very biggest internet firms—Google, Yahoo! and AOL—have all launched services, but so far independent ones have been the most popular: MySpace, the biggest, has over 108m users. So potential buyers are circling and MySpace's rivals are jockeying for position.

MySpace invaders

This week Facebook, with around 9m registered users, made a move to take on MySpace. Facebook was founded by Mark Zuckerberg, a student who put Harvard's yearbook on the internet in 2004. His creation then spread to Yale and beyond. It now covers most American colleges and many high schools. In contrast to MySpace, which accepts everyone, Facebook is based on separate, closed networks for each college or school; members can link to someone in another network only with his permission. This allows Facebook to provide a more exclusive, secure and trusting environment than MySpace—and to earn more from advertisers, who want to sell to college students. Chris DeWolfe, the chief executive of MySpace, says Facebook has done a brilliant job at colleges, “but it's limited to that, and it will be easy [for rivals] to copy outside America.”

But on September 12th Facebook announced plans to fling open its doors and introduce regional networks for the whole world, open to everyone. “We want to be a universal utility,” says Mr Zuckerberg, who wants to move beyond Facebook's academic niche. Meddling with the formula could prove controversial: last week the firm provoked angry protests when it introduced, and then had to disable, a new feature that issued automatic alerts to users about their friends' activities on the site. The personal nature of the information posted on social-networking sites means users are sensitive to any changes—and wield unusual power as a result.

Other networks are not sitting still, either. MySpace is expanding overseas, though it has been overtaken in Britain by Bebo, a rival site popular with teenagers, according to Hitwise, a firm that tracks internet usage. Bebo trails behind MySpace and Facebook in America, but wants to be first or second in English-speaking countries, says Jim Scheinman, its head of business development. Cyworld, the biggest social-networking site in South Korea, recently moved into America and Taiwan and is already available in China and Japan. And Mixi, the dominant site in Japan, went public this week in a spectacular debut on the Tokyo Stock Exchange.

The newly revived Friendster is aiming at urban professionals in their 20s and 30s. Kent Lindstrom, its new president, says that whereas MySpace is “for people when they want to express their party, fun self, Friendster is more solid—it's where you keep your real friends for life.” But Friendster's greatest strength may be the patent on social-networking it was awarded this year in America. Mr Lindstrom says Friendster is considering its options, which could include sending out “cease and desist” orders to other social networks, or demanding that they pay licence fees. “Friendster probably has a greater opportunity to generate revenue from its patents than from building up its business,” says Kevin Werbach, an expert in technology law at the Wharton School of the University of Pennsylvania.

Catching up with MySpace will be difficult, because as well as being the largest social network, it is also the most advanced in offering traditional media content. From the beginning, Mr DeWolfe saw it as a new kind of internet portal centred around culture. To that end, MySpace is far more active offline than its rivals. It is running a series of concerts, for instance, in which bands such as The Killers and Primal Scream play to tiny audiences of MySpace users in small venues. (The site's emergence as the MTV of its generation helps to explain why Tom Freston was sacked last week as the boss of Viacom, the media giant that owns MTV. Having fallen behind in this new area, Viacom is said to have considered buying Bebo, but balked at the asking price.)

The question for MySpace, says Mr Werbach, is whether it can grow into a business on the scale of Yahoo!, eBay or Amazon. Pali Research, an independent research firm in New York, estimates that MySpace had revenues of $150m and made a loss of $50m in the year to June 2006, after making payments to its founders. Pali predicts $300m in revenues and profits of $200m in the year to June 2007, excluding revenue from its deal with Google. Like other social-networking sites, MySpace has not had to advertise itself, and its users provide most of its content, which should produce profit margins.

Investors used to worry that social networks were just a fad—though such concerns are fading, since MySpace and Facebook seem to be keeping their appeal. A new worry, however, is what could happen if there are cutbacks in advertising spending. Advertisers tend to get out of the newest, least-proven forms of media first, so social networking is vulnerable, says Geoffrey Sands, head of global media and entertainment at McKinsey, a consulting firm. He expects a shakeout among social-networking sites if advertising spending falters, though the strongest will survive.

One defence for social networks is to develop other revenue streams. Last week MySpace announced that it would launch a music-download service later this year. Mr Zuckerberg points to Facebook's self-service marketing business, which charges under $50 for “flyers” on the site—to advertise a local restaurant or a club night—as a kind of advertising that should be immune to trends among big corporate advertisers. As far as their business models go, social-networking sites are still in their teen years, with bags of potential.

Sep 14th 2006
From The Economist print edition

 

“A GOOD newspaper, I suppose, is a nation talking to itself,” mused Arthur Miller in 1961. A decade later, two reporters from the Washington Post wrote a series of articles that brought down President Nixon and the status of print journalism soared. At their best, newspapers hold governments and companies to account. They usually set the news agenda for the rest of the media. But in the rich world newspapers are now an endangered species. The business of selling words to readers and selling readers to advertisers, which has sustained their role in society, is falling apart (see article).

 

Of all the “old” media, newspapers have the most to lose from the internet. Circulation has been falling in America, western Europe, Latin America, Australia and New Zealand for decades (elsewhere, sales are rising). But in the past few years the web has hastened the decline. In his book “The Vanishing Newspaper”, Philip Meyer calculates that the first quarter of 2043 will be the moment when newsprint dies in America as the last exhausted reader tosses aside the last crumpled edition. That sort of extrapolation would have produced a harrumph from a Beaverbrook or a Hearst, but even the most cynical news baron could not dismiss the way that ever more young people are getting their news online. Britons aged between 15 and 24 say they spend almost 30% less time reading national newspapers once they start using the web.

 

Up to a podcast, Lord Copper?

 

Advertising is following readers out of the door. The rush is almost unseemly, largely because the internet is a seductive medium that supposedly matches buyers with sellers and proves to advertisers that their money is well spent. Classified ads, in particular, are quickly shifting online. Rupert Murdoch, the Beaverbrook of our age, once described them as the industry's rivers of gold—but, as he said last year, “Sometimes rivers dry up.” In Switzerland and the Netherlands newspapers have lost half their classified advertising to the internet.

 

Newspapers have not yet started to shut down in large numbers, but it is only a matter of time. Over the next few decades half the rich world's general papers may fold. Jobs are already disappearing. According to the Newspaper Association of America, the number of people employed in the industry fell by 18% between 1990 and 2004. Tumbling shares of listed newspaper firms have prompted fury from investors. In 2005 a group of shareholders in Knight Ridder, the owner of several big American dailies, got the firm to sell its papers and thus end a 114-year history. This year Morgan Stanley, an investment bank, attacked the New York Times Company, the most august journalistic institution of all, because its share price had fallen by nearly half in four years.

 

Having ignored reality for years, newspapers are at last doing something. In order to cut costs, they are already spending less on journalism. Many are also trying to attract younger readers by shifting the mix of their stories towards entertainment, lifestyle and subjects that may seem more relevant to people's daily lives than international affairs and politics are. They are trying to create new businesses on- and offline. And they are investing in free daily papers, which do not use up any of their meagre editorial resources on uncovering political corruption or corporate fraud. So far, this fit of activity looks unlikely to save many of them. Even if it does, it bodes ill for the public role of the Fourth Estate.

 

Getting away with murder

 

In future, as newspapers fade and change, will politicians therefore burgle their opponents' offices with impunity, and corporate villains whoop as they trample over their victims? Journalism schools and think-tanks, especially in America, are worried about the effect of a crumbling Fourth Estate. Are today's news organisations “up to the task of sustaining the informed citizenry on which democracy depends?” asked a recent report about newspapers from the Carnegie Corporation of New York, a charitable research foundation.

 

Nobody should relish the demise of once-great titles. But the decline of newspapers will not be as harmful to society as some fear. Democracy, remember, has already survived the huge television-led decline in circulation since the 1950s. It has survived as readers have shunned papers and papers have shunned what was in stuffier times thought of as serious news. And it will surely survive the decline to come.

 

That is partly because a few titles that invest in the kind of investigative stories which often benefit society the most are in a good position to survive, as long as their owners do a competent job of adjusting to changing circumstances. Publications like the New York Times and the Wall Street Journal should be able to put up the price of their journalism to compensate for advertising revenues lost to the internet—especially as they cater to a more global readership. As with many industries, it is those in the middle—neither highbrow, nor entertainingly populist—that are likeliest to fall by the wayside.

 

The usefulness of the press goes much wider than investigating abuses or even spreading general news; it lies in holding governments to account—trying them in the court of public opinion. The internet has expanded this court. Anyone looking for information has never been better equipped. People no longer have to trust a handful of national papers or, worse, their local city paper. News-aggregation sites such as Google News draw together sources from around the world. The website of Britain's Guardian now has nearly half as many readers in America as it does at home.

 

In addition, a new force of “citizen” journalists and bloggers is itching to hold politicians to account. The web has opened the closed world of professional editors and reporters to anyone with a keyboard and an internet connection. Several companies have been chastened by amateur postings—of flames erupting from Dell's laptops or of cable-TV repairmen asleep on the sofa. Each blogger is capable of bias and slander, but, taken as a group, bloggers offer the searcher after truth boundless material to chew over. Of course, the internet panders to closed minds; but so has much of the press.

 

For hard-news reporting—as opposed to comment—the results of net journalism have admittedly been limited. Most bloggers operate from their armchairs, not the frontline, and citizen journalists tend to stick to local matters. But it is still early days. New online models will spring up as papers retreat. One non-profit group, NewAssignment.Net, plans to combine the work of amateurs and professionals to produce investigative stories on the internet. Aptly, $10,000 of cash for the project has come from Craig Newmark, of Craigslist, a group of free classified-advertisement websites that has probably done more than anything to destroy newspapers' income.

 

In future, argues Carnegie, some high-quality journalism will also be backed by non-profit organisations. Already, a few respected news organisations sustain themselves that way—including the Guardian, the Christian Science Monitor and National Public Radio. An elite group of serious newspapers available everywhere online, independent journalism backed by charities, thousands of fired-up bloggers and well-informed citizen journalists: there is every sign that Arthur Miller's national conversation will be louder than ever

Aug 24th 2006
From The Economist print edition