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The On-Demand Economy and How We Live: Communication, Information, Media and Entertainment

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How Digital Communication Technology Shapes Markets

Abstract

DCT has provided choices over content and the vehicle for consuming media content. Unbundling enables the authors of content, the sellers, to be separate from the distributors, or buyers, of their creations. This induces both sides to innovate in the creation, curation and dissemination process, as exemplified by user-generated content in social media and product reviews. Consumption of content is a choice between ownership of individual units in the content bundle; renting via streaming or temporary ownership and the traditional format of purchasing the entire bundle via download. The distinction, from a consumption point of view, between a product that is owned and a service that incurs a one-time fee has been dissolved – access is all that matters.

Access to media content can be achieved by temporary ownership or renting, and not purchase, and by consuming fractional portions rather than the entire package. This creates demand for novelty as it shortens the life cycle of any given message.

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Notes

  1. 1.

    Performance rights are from broadcast and personalized streaming services, while synchronization revenues derive from the use of content in film, television and brand partnerships.

  2. 2.

    Apple’s streaming music service will showcase new albums, via iTunes, before they are available on other providers, but unlike Spotify, it will have no free tier. Some artists own their streaming music platform (rapper Jay-Z owns the music platform Tidal), while others temporarily keep new releases off streaming services to maximize more lucrative CD and download sales. In 2014, artist Taylor Swift made her albums available on Tidal but not on Spotify [61].

  3. 3.

    BitTorrent is the peer-to-peer file sharing software, developed in 2001, that enables users to transfer digital music files to one another at practically zero cost. It is based a file format founded by MP3.com in 1997, which was bought by Apple in 2000 as a basis for iPod, the portable mp3 player, and later, iTunes.

  4. 4.

    Adele’s song “Hello” from her new album 25 obtained a record breaking 1.11 million download sales in a week, upon its release on October 23, 2015. [60]

  5. 5.

    The infrastructure I refer to is the backbone network and the content delivery network, comprising four modules: physical layer (copper wires, fiber); the link layer; the network layer and finally the transport layer. The final module, over the top of this stack of four is the application layer, which is our focus. See the discussion in Chap. 3 on Internet Architecture for more detail.

  6. 6.

    Modeling the content consumption stream as a perpetuity, the present discounted value of this stream is given by:

    $${\rm{PV}} = \frac{{{\text{subscription fee}}}}{r}{\rm{where}}\,r{\text{ is the discount rate}}.$$
  7. 7.

    Yahoo sold its search, news, sports, email and Tumble SN to Verizon for $4.8 billion as of July 25, 2016.

  8. 8.

    Hulu.com is an advertising supported Internet portal for streaming video content produced by network television. Television networks themselves took the initiative in creating this platform and it was launched in March 2008 as a joint venture between Fox and NBC Universal. In April 2009, Disney/ABC reached an agreement to take a partial ownership position in Hulu.com and add its content to the site. In a move toward integration, Comcast, the ISP, has also partial ownership in Hulu.

  9. 9.

    MGM or Metro-Goldwyn-Mayer is a legendary movie studio, founded in 1924, and a behemoth in its time.

  10. 10.

    These are the definitions used in the recent statement made by the D.C. Court of Appeals in the net neutrality judgment [67].

  11. 11.

    The convergence of the new and old television worlds is illustrated by the shift in the rivalry between HBO and Netflix. In 2011, some TV executives were skeptical when Reed Hastings, Netflix’s chief executive, pointed to HBO as his company’s main rival, and HBO rejected the comparison [68].

  12. 12.

    More precisely, Hagiu and Wright explain that the critical distinction between the two is the “allocation of non-contractible decisions” such as pricing, marketing, customer service [68]. The reseller retains control over the marketing and distribution process, while the passive marketplace entails zero control.

  13. 13.

    Apple’s App store, Best Buy electronics store, most department stores are examples of the marketplace form of intermediary.

  14. 14.

    According to dissenting Circuit Judge Dennis Jacobs, “Although the major publishers believed Amazon’s below-cost pricing was “predatory,” each publisher understood that it was powerless to take on Amazon. Publishers feared that Amazon might “compete with publishers by negotiating directly with authors and literary agents for rights” and might “retaliate” against insubordinate publishers “by removing the ‘buy buttons’ on the Amazon site that allow customers to purchase books…or by eliminating [a publisher’s] products from its site altogether.” Assenting Circuit Judge Lohier argued that “[i]t cannot have been lawful for Apple to respond to a competitor’s dominant market power by helping rival corporations (the publishers) fix prices, as the District Court found happened here. However sympathetic Apple’s plight and the publishers’ predicament may have been, I am persuaded that permitting “marketplace vigilantism” would do far more harm to competition than good, would be disastrous as a policy matter, and is in any event not sanctioned by the Sherman Act.” [69]

  15. 15.

    The industry acronyms are SOVD for subscription-based online video distributor services such as Netflix; AOVD for free, advertisement-supported services such as Crackle and Hulu; and TOVD for transactional services such as Amazon Instant Video.

  16. 16.

    According to the International Telecommunications Union, there are 3.2 billion Internet users globally. If Internet users in China and Russia are excluded, has Facebook, with 1.65 billion monthly active users, reached some glass ceiling in number of Facebook users?

  17. 17.

    He goes on to argue that “there was never a period in human evolution when human beings existed as isolated individuals” [Chap. 3].

  18. 18.

    In the absence of Internet via Wi-Fi or 4G cellular connections offered by the mobile phone company messages will be sent via SMS on the phone carriers network.

  19. 19.

    The Chinese messaging site, WeChat, covers the global Chinese diaspora and comprehensively covers the functions of all popular apps in the US such as Paypal, Facebook, Amazon, Uber, Yelp, Expedia, Spotify, Tinder and others.

  20. 20.

    Search engine marketing has several circularity issues. Lewis et al. [86] argue that there is an identification problem here due to the endogeneity of advertising. “First, many models assume that if you do not click on the ad, then the ad has no effect on your behavior…Online ads can drive offline sales, which are typically not measured in conversion or click rates…Second, many models assume that if you do click on an ad and subsequently purchase, that conversion must have been due to that ad. This assumption seems particularly suspect in cases, such as search advertising, where the advertising is deliberately targeted at those consumers most likely to purchase the advertised product and temporarily targeted to arrive when a consumer is performing a task related to the advertised good.”

  21. 21.

    The profit maximizing condition calls for equating marginal revenue to marginal cost or MR = MC. MR can be shown to equal P + QdP/dQ or P(1 + 1/ϵd). Setting this expression equal to MC yields an expression relating profit margin to price elasticity of demand: (P – MC)/P =  – 1/ϵd. The lower the price elasticity, ϵd, the higher the profit margin.

  22. 22.

    The Apple Macintosh commercial during the 1984 Superbowl is famous and considered one of the best commercials. Mac was incompatible with all other computers so software written for Mac could only work on Mac and therefore needed a critical minimum network of buyers for software to be written. The 1984 commercial did not simply inform each viewer about the Mac – it told each viewer that many other viewers were also being informed about the Mac. This meant that the potential market was huge since the network effects could be dramatic and instantaneous. All who saw the ad were potential customers and part of the network, which was the entire television audience.

  23. 23.

    There are three characteristics that distinguish hotels: (1) size or single versus multi-unit; (2) affiliation – part of a chain or independent and (3) ownership – owner or hotel management company.

  24. 24.

    More recently, the Internet Service Providers (ISPs) are following this strategy of tagging users when they log on. For example, Verizon inserts a distinct and anonymous identifier into a user’s online activity and then groups these identifiers into demographic categories. When a particular ad is to be shown on a website, these categories provide targeted advertising possibilities. Marketing and government agencies “could stitch together someone’s anonymous identifier with web cookies to create a detailed profile that follows the person’s web-browsing activities, even after Verizon generates a new anonymous identifier for the user” [91].

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Authors and Affiliations

  1. Department of Economics, Princeton University, Princeton, New Jersey, USA

    Swati Bhatt

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Bhatt, S. (2017). The On-Demand Economy and How We Live: Communication, Information, Media and Entertainment. In: How Digital Communication Technology Shapes Markets. Palgrave Advances in the Economics of Innovation and Technology. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-47250-8_5

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  • DOI: https://doi.org/10.1007/978-3-319-47250-8_5

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