Archive | April 2015

I just found $6 billion more media dollars!

Media spend

I just found an additional $6 billion in annual legal media spending by North American millennials 18-34! When I first tried to estimate content spending, I was able to find good data on spending patterns by age for the eight categories above, which was $750 per year, or $62 billion across the over 80 million millennials in the US and Canada. But I couldn’t find reliable demographic information on theme parks, live theatre, ballet and dance, magazines, comic books, and so on. Those categories are not likely to be that large: lots of young people go to rock concerts or buy books, and relatively few go to live theatre. Live music and books is over $15 billion per year for 18-34 year olds, and plays are probably around $500-750 million.

Based on a conversation I had this weekend, I realised that all those markets we failed to count…still count! They don’t change our forecast much: we’re likely only talking about another 1% of spending, or $6 billion per year. That is small compared to the other figures, but for the imperilled media sector, finding another $6 billion in annual audience is a definite win, and worth talking about.

The generation of young people aged 18-34 will pay for legal media content: about $750 per year per millennial in North America. I stand by that research, but I had an interesting conversation this weekend that shows that millennials are much more complex than we think.

Some of the key data points from my research were: 1) millennials were spending about $750 per year on legal content; 2) not on recorded music, but on live music such as music festivals; 3) although they don’t pirate everything, they are willing to do so pretty cavalierly; 4) and in the chart above, we gave the idea that we were capturing all the important categories of millennial media spending.

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I popped into my local Roots store, and spotted what looked like a cute top for Barbara – see above. The Nice Young Lady (NYL – about 25?) in the store was very helpful, but said that they didn’t have Barbara’s size. I made a joke that the top would be perfect at the Coachella music festival, which is this weekend. Here is the abbreviated conversation:

NYL: Yes, it would look nice at Coachella. I don’t go to that sort of thing, but my friends do.

Duncan: Oh, but you go to other live music concerts?

NYL: Not really. I do love music, but almost all of it is from iTunes. Some of my friends do the illegal download thing, but to me that is just stealing from the musicians, and I would rather pay.

Duncan: So you don’t go to concerts because you spend all your money on iTunes?

NYL: No, not at all. I am a theatre major, so while I spend a bit on music, I really spend the most on live theatre. Tickets for student productions are pretty cheap – only $15-20 per show.

Duncan: Cool. So how much would you say you spend per year?

NYL: I hadn’t thought about it that way, but I would guess I’ve been to about 20 shows in the last year. But I was at Queens, and now that I am in Toronto I think I am seeing fewer shows.

Lesson #1 – Our category list is not comprehensive: Our eight media spending categories were an honest attempt to capture what seemed likely to be the biggest factors in the average millennial’s content budget. First, they were not meant to suggest that EVERY millennial spent that amount on each category: they are only averages across 83 million 18-34 year olds in the US and Canada. Second, these were categories for which I could find annual spending information, AND demographic data. But not every form of media has published data the way TV or movies do!

As an example, I know that about 50 million Americans have seen live theatre in the last 12 months, and US spending is over $3 billion. But I have no idea how millennials are represented in that figure. Same for ballet, opera, or comedy clubs. Or what about theme parks/amusement parks? I know that many Toronto millennials buy season’s passes to Canada’s Wonderland: that’s $90 right there, and the Disney parks are even more! But there is no public data. 😦

Therefore our $750 annual millennial media spend estimate is almost certainly the floor, not the ceiling.

Lesson #2 – Not all Millennials are at SXSW and playing computer games: I am not suggesting that my Roots sales person is typical. But it is worth remembering that millennials are almost certainly as diverse in their interests as older generations. It doesn’t take a lot of 25 year olds spending $400 a year on live theatre to ‘move the needle’ and add up to a significant market.

Lesson #3 – Even though many millennials are prone to stealing content, not all of them are: Even more importantly, the reason they don’t steal is the right one, in my view. They aren’t afraid of being caught, or technically incapable of figuring out how to download. They refuse to do it because they believe it is theft, it is morally wrong, and it harms the artists who create the content they love. I honestly believe the current prevalence of illegal music and video downloading/streaming is a temporary thing. In the future, digital piracy will be less common than it is today, and much less socially acceptable.

Lesson #4 – Media spend across categories is often not constant over time, but total spend may be: Demographic categorisation of generations is weird. We are lumping together 18 year olds with those nearly twice their age. University or college spending habits are almost certainly different from where media dollars go once millennials enter the workforce and it likely shifts again in the 28-34 year old group, with many getting married and even having kids.

My acquaintance from Roots has already seen her spending patterns shift. Queens University is in Kingston, Ontario: about 120,000 people. Going to affordable student productions was a great choice over a particularly snowy winter…but I am not surprised she is exploring other options in the Toronto metro area of 5 million.

I am not a millennial, but I look at my own history. When I was at UBC and 21, I loved the Vancouver live theatre scene: I saw some fantastic plays at the Arts Club on Granville Island and at the “Cultch” in East Vancouver. After I married and moved to Toronto at 24, we spent almost all our media budget on cable TV, and going to the Toronto Symphony Orchestra. Within a year, the Blue Jays were having great success, and we moved almost all of our money to live sports, first at the Old Exhibition stadium, then the new SkyDome.

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In the space of four years I shifted nearly all of my media spending from category to category to category…but spent about the same ‘media budget’ on an annual basis. I lack the data to prove it, but I suspect today’s 18-34 years are likely to follow a similar pattern over the next few years.

Conclusion: Those in the media industry may want to use our chart of millennial media spending as a guide. But it isn’t perfect: lots of 18-34 year olds also go to live theatre, or other categories not captured on our chart. When Barbara and I went to the ballet in Stockholm, the average attendee may have been about our age…but there were also dozens of much younger people too.

The clichéd millennial…rocking out at Coachella, then going home and stealing the songs they just heard while watching Netflix or playing computer games isn’t inaccurate. But it can be misleading: just because some (or even most) fall into those spending patterns doesn’t mean that all of them do!

Moore’s Curse: not everything is exponential

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Moore’s Law (that transistor densities double every 18-24 months at minimal cost) has transformed our world, and continues to do so. But an unintended consequence, according to Vaclav Smil writing for IEEE Spectrum magazine, is that people have unrealistic expectations for technical progress of all kinds. To pick examples from transportation, energy and health care: buses, batteries and biology are only getting better non-exponentially, and that frustrates billions.

“Energy, material, and transportation fundamentals that enable the functioning of modern civilization and that circumscribe its scope of action are improving steadily but slowly. Gains in performance range mostly from 1.5 to 3 percent a year, as do the declines in cost. Outside the microchip-dominated world, innovation simply does not obey Moore’s Law, proceeding at rates that are lower by an order of magnitude.”

Dr. Smil (a Czech-Canadian and Distinguished Professor Emeritus at the University of Manitoba) doesn’t address the issue of why Moore’s Law is so misleading, so I thought I would offer a few suggestions of my own.

First, almost everyone alive in 2015 has spent more than half their life in a world where Moore’s law applied: the first integrated circuit was 1965! After 50 years, we have all been immersed in a world of high and sustained growth in transistor densities, and it has begun to seem normal.

But it isn’t. Most things don’t double every couple of years…and most technologies that do achieve that kind of growth manage it for only 3-4 doublings. Even Gordon Moore only thought it would last into the 1980s at first. For that doubling to have occurred 25 times (and counting!) is almost unique [see below for comments on DNA sequencing and Hard Disk Drive technologies]  in any field of technological improvement. And that uniqueness has likely exacerbated our unrealistic expectations.

Next, doubling transistor density has been weirdly useful. It doesn’t just let us make faster chips for computers; it allowed us to make better memories and storage, better screens or displays, better lasers, and better lighting. In the 1950s, each one of those technological functions would have utilised a different core technology. Memories were on tapes, displays were cathode ray tubes, lasers were crystals, and lighting came from filaments or glowing gases. It is nearly magical that semiconductor chips are capable of performing all those functions, and doing so exponentially.

Finally, the ongoing doubling of transistor density isn’t just about faster or more powerful chips. Increased density also allows cheaper ($50 smartphones, anyone?), smaller and more power efficient devices.

In other words, Moore’s Law has driven exponential improvements across multiple axes: over time, across functions, and across many meanings of the word “better.” No wonder that 21st century citizens expect miracles! But we shouldn’t, and we need to ratchet our expectations down. 1-3% annual improvement is likely the rule for almost all technologies. That doesn’t mean that new technologies (such as 3D printing) cannot be incredibly important and transformative…but we still need to not assume they will progress the same way transistor technology did.

(Hat tip to my friend Brian Piccioni, who drew my attention to this article in his weekly blog reading list.)


[Edited to add] My friend, former colleague, sometime Paris drinking buddy, and professional nitpicker John La Bouff commented that I am misusing the word ‘exponential.’ He is correct: ANY technology that improves continuously over time is exponential, whether that annual growth rate is 100%, 42% or 1%.

The problem is that many people use the word exponential to mean “doubles in a short period of time.” If chip density improves by 42% annually, then it will double in 2 years. If batteries improve capacity at 1% annually, they will double in 70 years. And that latter example is NOT what most people think of when they use or hear the term exponential, whereas the former is.

John suggested the word “geometric” instead of exponential. That occurred to me too, but the headline “not everything is geometric” won’t be understood by most readers!

[Further edited to add] Brian Piccioni and Paul Barter at MaRS  noted that there are other technologies that have been growing at Moore’s Law kind of growth rates. Brian mentioned Hard Disk Drive technology which really started with the IBM 1301 in 1961. Although the rate of improvement has been similar to integrated circuits, I would counter that HDD technology is amazing, but only good for memory storage…it doesn’t have the transistor’s breadth of applications.

Both Paul and Brian also said that DNA sequencing has become faster at a rate even greater than Moore’s Law: sequencing a human genome took 13 years in 2003 and cost $3.8 billion, and as of 2012 it could be done in a day and for $1,000. That is indeed “better than Moore’s” but 1) it hasn’t been 50 years of doubling; and 2) while I think DNA sequencing will one day be more transformative than the PC or the internet or LCD screens, that hasn’t happened yet. I have been following and investing in the space since 1996 (I was a VC and on the board of a genomics company in 1998) and the tangible benefits from faster sequencing are lower than most have been hoping for.

But thanks to all those who are actually reading my blog posts and taking the time to try to make them more accurate!