Media Giants Chase Online Ads With Original Shows

Digital and traditional media companies, including newspapers and magazines, have for years been building a video presence on the Internet. But until now the offerings have largely been low-budget, single-camera affairs featuring talking heads.

Last week, however, major media companies like Condé Nast, The Wall Street Journal and Univision presented ambitious slates of original programming to advertisers for the first time.

Companies that were already producing Web content, like Yahoo and Hulu, also announced greatly expanded offerings.

As a result, viewers are being bombarded with an array of new Internet programs — 11 from Yahoo, 14 from AOL and a whopping 30 from Condé Nast, including one that will let viewers watch a Vogue editor, Hamish Bowles, as he shops around the world.

Hulu’s four new original offerings include one called “Behind the Mask,” a show it describes as a “comedic docu-series,” which looks at the world of sports mascots.

These companies are moving rapidly because they believe viewers are now so accustomed to watching programs on devices like mobile phones and tablets that the lines between traditional television and Internet video will blur.

But the companies are also acting out of desperation because many of them can command higher prices for video ads than traditional online banner ads, which are increasingly being undermined by fast-paced algorithmic buying technologies.

Advertisers are also shifting dollars from traditional display advertising to sites like Facebook that can deliver huge audiences. Media companies were wooing ad executives in New York last week during an advertising event called Digital Content NewFronts that is trying to imitate the success of the network television upfronts, which are being held later this month. At lavish open-bar parties, companies not previously known for programming tried to convince advertisers to sponsor shows, or better still, whole channels.

Yet even with the amount of so-called premium content booming, it is not clear ad dollars are following. According to data from the research company eMarketer, spending on digital video — while growing — is expected to reach only $4.14 billion in 2013, a far cry from the $66.35 billion expected to flow into the television market.

Many advertisers say they worry that with so much new content being thrown at the market on so many different platforms, audiences for individual shows will become even more fragmented and microscopic than they already are.

“I don’t care how good your attention span is,” Rino Scanzoni, chief investment officer of Group M, said of the crush of new offerings, “I think it becomes all a blur.” Group M is one of the world’s biggest media-buying and planning agencies.

Ben Winkler, chief digital officer of the advertising agency OMD, which represents brands including Pepsi and Nissan, called it “cable to the nth degree.”

“We are talking narrow, narrow television, niche television if you will,” he said. “If you are reaching just 100 people, is it worth our time and energy?”

AOL is one of the companies making a big bet on “premium video,” or video it hopes will generate greater ad revenue because of higher production values. Tim Armstrong, the company’s chief executive, said in an interview: “Consumers are adopting video very quickly: big investment in devices and networks, big investments by the most talented creative people to get involved in this medium; and big investment in measurement. So I think this industry is about to explode.”

Many online sites are citing the success of “House of Cards,” the Netflix series that drew critical praise this winter, as proof that the moment for video content has arrived. But “House of Cards,” with top-flight talent and sophisticated production values, was hugely expensive. And Netflix relies on subscriptions, not advertising.

For now, most digital companies are looking to produce programming that, while more expansive than one-camera fare, is still cheaper than TV.

Bill Carter contributed reporting.

Tech Giants, Learning the Ways of Washington, Brace for More Scrutiny

In 2012, among other victories, the industry staved off calls for federal consumer privacy legislation and successfully pushed for a revamp of an obscure law that had placed strict privacy protections on Americans’ video rental records. It also helped achieve a stalemate on a proposed global effort to let Web users limit behavioral tracking online, using Do Not Track browser settings.

But this year is likely to put that issue in the spotlight again, and bring intense negotiations between industry and consumer rights groups over whether and how to allow consumers to limit tracking.

Congress is likely to revisit online security legislation — meant to safeguard critical infrastructure from attack — that failed last year. And a looming question for Web giants will be who takes the reins of the Federal Trade Commission, the industry’s main regulator, this year. David C. Vladeck, the director of the commission’s Bureau of Consumer Protection, has resigned, and there have been suggestions that the chairman of the commission itself, Jon Leibowitz, will step down.

The agency is investigating Google over possible antitrust violations and will subject Facebook to audits of its privacy policy for the next 20 years. Its next steps could serve as a bellwether of how aggressively the commission will take on Web companies in the second Obama administration.

“Now that the election is over, Silicon Valley companies each are thinking through their strategy for the second Obama administration,” said Peter Swire, a law professor at Ohio State University and a former White House privacy official. “The F.T.C. will have a new Democratic chairman. A priority for tech companies will be to discern the new chair’s own priorities.”

In early 2012, an unusual burst of lobbying by tech companies helped defeat antipiracy bills, which had been backed by the entertainment industry. Silicon Valley giants like Facebook and Google feared that the bills would force them to police the Internet.

At the end of the year, Silicon Valley also got its way when the Obama administration stood up against a proposed global treaty that would have given government authorities greater control over the Web.

The key to the industry’s successes in 2012 was simple: it expanded its footprint in Washington just as Washington began to pay closer attention to how technology companies affect consumers. “Privacy and security became top-tier important policy issues in Washington in 2012,” said David A. Hoffman, director of security policy and global privacy officer at Intel.

“Industry has realized it is important to be engaged,” he continued, “to make sure government stakeholders are fully informed and educated about the role that new technology plays and to make sure any action taken doesn’t unnecessarily burden the innovation economy while still protecting individual trust in new technology.”

At the end of 2012, tech companies were on track to have spent record amounts on lobbying for the year. In the first three quarters, they spent close to $100 million, which meant that they were likely to surpass the $127 million they spent on lobbying in 2011, according to an analysis by the Center for Responsive Politics, a Washington-based nonpartisan group that tracks corporate spending. Even the venture capital firm Andreessen Horowitz hired a lobbyist in Washington: Adrian Fenty, a former mayor of the city.

Technology executives and investors also made generous contributions in the 2012 presidential race, luring both President Obama and Mitt Romney to Northern California for fund-raisers and nudging them to speak out on issues like immigration overhaul and lower tax rates.

In a blog post in November, the center said Silicon Valley’s lobbying expenditures have ballooned in recent years, even as spending by other industries has fallen.

This article has been revised to reflect the following correction:

Correction: January 2, 2013

An earlier version of this article referred imprecisely to the federal agency headed by Jon Leibowitz. He is chairman of the Federal Trade Commission, not of its Bureau of Consumer Protection.

The Trade: After Bailout, Giants Allowed to Dominate the Mortgage Business

Chip East/ReutersWilliam C. Dudley, the New York Fed’s president, recently criticized the concentration of mortgage originations at a few big banks.

Mortgage rates are so low that it may seem like a great time to get a mortgage. For banks, however, it probably is the greatest time ever.

The profit margin on the rates that they can charge customers and the price they can earn for selling those mortgages to investors is at a record. This is measured as the “spread,” or difference, between mortgage securities yields and mortgage rates.

Given that housing prices are beaten up and borrowers must put down bigger cushions than in recent years, it is “the most profitable, safest time ever to be a mortgage bank,” says Scott Simon, who is the head of mortgage investing at Pimco.

In the old days, there used to be a word for this kind of thing: price gouging.

And who is doing the gouging? Mainly, Wells Fargo and JPMorgan Chase. In the third quarter, reported in the last several weeks, both banks earned robust profits from the mortgage business.

The president of the Federal Reserve Bank of New York, William C. Dudley, vented this frustration in a recent speech, blaming the concentration of mortgage-making power at a few big banks.

Chip Somodevilla/Getty ImagesSheila Bair, former chairwoman of the Federal Deposit Insurance Corporation.

Mr. Dudley is right. But what he didn’t say was that his own institution (the Fed), his former boss (Treasury Secretary Timothy F. Geithner) and the Bush and Obama administrations delivered us this mess.

The broken mortgage market is the unintended consequence of the flawed banking bailout and the flaccid regulatory response in the aftermath of the financial crisis.

The government and the regulators have had two broad approaches to banking oversight during the crisis and its aftermath. First, regulators coddled the troubled big banks. The two weak behemoths, Citigroup and Bank of America, were granted time to work off their bad loans. Regulators practiced forbearance, overlooking the self-inflicted debacles — mostly housing related — on their balance sheets.

Regulators, meanwhile, encouraged the healthy giants to get even bigger by gobbling up the small and weak. So Wells Fargo bought Wachovia, and JPMorgan snapped up Washington Mutual.

It would be foolish to blame Wells Fargo and JPMorgan for this situation. Restaurants with 100 customers waiting in line outside the door wouldn’t, and shouldn’t, be expected to lower their prices; why should banks?

Yet allowing takeovers without forcing weak competitors to get healthy quickly leads to an oligopoly. Exhibit A: Wells Fargo and JPMorgan dominate the mortgage business. They should face some competition. Instead, their biggest threats, Citigroup and Bank of America, are, astonishingly, pulling out.

Citigroup and Bank of America appear to have made a profound mistake. It’s one of the many strategic errors that ultimately got Vikram S. Pandit ousted as Citi’s chief executive. Mr. Pandit viewed mortgages as a “noncore” business for Citigroup. Whoops.

But it’s not a surprising one. These are traumatized institutions, limping along, preoccupied by the past and unable to look forward, says Sheila Bair, the former chairwoman of the Federal Deposit Insurance Corporation and author of the new crisis account, “Bull by the Horns.” She rightly calls it “another downside of the bailouts. We simply propped up weak institutions instead of making them restructure.”

The odd twist is that the Federal Reserve is a victim here, too. Despite its move to buy mortgage-backed securities in its latest round of extraordinary measures to lower interest rates, it can nudge them only so far because of the dysfunctional, noncompetitive market.

Regulators could have broken up Citigroup and Bank of America, spinning off their mortgage operations into well-capitalized, nimble competitors. Perhaps they could have forced those banks to take big write-downs on their mortgage assets, settled their lawsuits and moved on, putting the past where it belongs.

Bankers, of course, don’t like this analysis. It’s common for them and others to argue that what’s really ailing the mortgage market are delays in putting new Dodd-Frank mortgage rules in place, like the ones that define the standards for mortgages that can be bundled into securities.

And, yes, that is probably hindering new competition from entering the market, though it certainly can’t fully, or even mostly, explain Citigroup and Bank of America abandoning the field. And, of course, the banks themselves bear much of the blame because they went all out to obstruct the rollout of new regulations. But, ultimately, the Dodd Frank delay is yet another example of how the government’s inefficient postcrisis process has hurt the marketplace.

There has been plenty of talk about how the government saved the financial system after the crisis. And it did. Now the question is: Is this what we saved it for?