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In a two-sided market, there are two types of customers which interact thanks to a platform. In our case, the platform is the bulletin and the two sides are the advertisers and the customers (the hotels and the readers). A change in one group has effects on the group itself but also on the other group, it is called cross-side network effect. In the case of the Bulletin, the removal of the subscription of Conrad hotel to the magazine affected the number of clients in one group but not only. The editor in chief talked about their financial stability because this event also impacted on the other group, the advertisers. The cross-side network effect means that the more readers there will be, the more valuable will the magazine be for the advertisers and the more they will be ready to pay to get their advertisement in the magazine. The cancellation of 3 hotels’ subscriptions had impact on the value of the Bulletin for advertisers and the magazine probably saw its revenues from them decrease a lot. It is why their financial stability is highly impacted.
Even if there is an increase in press freedom, in my opinion, it will never be completely true. Indeed, no one can force a hotel to keep its subscription to a magazine if it doesn’t want to anymore. And to justify it, the hotel will always find other reasons to it to defend itself. It is why magazine, like other medias, must find a right balance to, on the one hand, write the truth and resist to pressure, and on the other hand, still, survive.
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The paper “Strategies for the two Sided Markets Network” of Eisenmann et. al begins with the following statement:”Case in point: What has been the most important innovation in financial services since World War II? Answer: almost certainly the credit card, which links consumers and merchants.”1 Though, this statement has been counter argued when former Fed president Paul Volcker stated that “the ATM was the only financial innovation he can think of that has improved society”.2 This analogy, of course, is a fallacy. Credit cards work as a platform between clients who receive credit and shops. The ATM machine is a platform that provides an additional service by connecting clients to their accounts but does not work as a two sided network. The two sided network for the case study of the magazine “the bulletin” works as the former case presented for the credit cards.
The minor event, when 3 hotels cancelled the subscription with the magazine, represents only a 5% of its circulation. Nevertheless, when we try to solve the conundrum using the two-sided network magnifying glass we can dig deeper. The “subsidy side” in this case is the hotels. The “money side” is the advertisers of the magazine. And of course, the magazine is the platform connecting these two networks. The magazine receives revenue from the subscriptions of the hotels and from the advertisers. When the magazine gets a bad reputation that results in the withdrawal of three hotels, it can have a multiplier effect on advertisers who could pull out. True, 5% loss in the subscriptions is scant, but this could be the beginning of a spiral of withdrawals from other hotels.
Regarding press freedom and its price, clearly, these platforms respond to “subsidy side” interests and “money side” interests. If the platforms publishes something that goes against the “subsidy side” interests or the “money side” interests the platform will lose revenue- even go bankrupt. Hence, press freedom has a price.
References:
1 Eisenmann et. al. “Strategies for the two Sided Markets Network”, 2006
2http://online.wsj.com/article/SB10001424052748704825504574586330960597134.html
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The two sides in this case are advertisers and customers. Advertisers pay to magazines to get their advertisement published. Customers have two kinds: hotels and general readers. Hotel managers are unwilling to see any negative reports which may affact hotel’s image and popularity. General readers want to read the fact and get themselves as close to truth as possible. So in some cases, the expectations of these two kinds of customers may contradict to each other.
Even three hotels only distribute 5% of circulation, they have big power on the magazine because of the network effect. The more hotels take subscription form magazine, the more advertisers will be interested in putting their advertisements on it. Revenues from advertisers are the biggest part of magazines’ revenue. Hence, it cause the disproportion between the scale of readership loss and the economic consequences for the magazine. The moment when three hotels cancel their subscription to magazine, ‘The Bulletin’ has decresed its value in advertisers’ eyes. It’s not surprising that it meet financial difficulties later.
‘The Bulletin’ is facing a dilemma. It’s difficult for it to reach a balance of press freedom and economics profit. It’s at the risk of losing credibility when unrevealing anything from public. But I think the company should reach a financial stability before freely report whatever they want. Otherwise, it can report nothing when becoming bankrupt.
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A magazine is a perfect example of a two-sided platform case. Indeed, these markets have the particularity to connect two distinct categories of customers. With a magazine, we have on the one hand the readers and on the other hand the advertisers. The central platform, the magazine, is the intermediary between these two different but interdependent categories. The benefit of one group depends from the number of people in the other group. We have a case of indirect network effects.
These two-sided platform markets have specific characteristics.
One of these characteristics is the trend towards concentration. Indeed, if a lot of people join the first group, this will lead people from the second group to join, and that will bring even more people to the first group. In the case of the magazine “the Bulletin”, the fact that some readers are lost, even if it’s only 5%, will make some advertisers find it less interesting to be present in this magazine. With less advertising revenue, the selling price of the magazine will increase and fewer readers will buy the magazine.
This explanation reflects the role of network effects in the two-sided market. Indeed, the network effects can be either positive or negative. “The Bulletin” faces here the negative side in losing a lot of customers.
This can explain the confusion of Derek Blyth.
This phenomenon raises some questions about the press freedom. Press freedom is a fundamental principle of democratic systems but seen from an economic point of view, this liberty could be reduced due to the economic constraints. Indeed, the value of the information is measured with the level of audience. This exposes the risk that the media wouldn’t publish some pluralistic information that isn’t profitable. This also in order to avoid the phenomenon of circulation spiral described above.
http://fr.wikipedia.org/wiki/Marché_biface
http://www.larousse.fr/encyclopedie/divers/liberté_de_la_presse/186001
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We can see with this example a negative effect of the two-sided platforms. Indeed, the magazine has two main sides: the readers and the announcers. These announcers are interested to put an advert in this magazine and to pay for that IF and only IF the magazine has a lot of readers and also a good reputation. When the three hotels decide to cancel its subscription to the magazine, the minor event has repercussion also for the announcers. They decide to stop to publish some adverts in this magazine because of this incident. Normally, the announcers were the principal source of profit for the magazine and so, the magazine has lost a (big) part of its profit!
This story shows that it exist always some problems in the press freedom. We can have a sort of “lobbying” of the announcers to the press because they impose a certain condition: if they don’t have a good magazine with a lot of readers, they stop to publish their adverts. The press and the journalists can so not choose what they want to write in their articles.
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There are four entities participating in the two-sided platform: the readers, the hotel, the magazine and the advertisers. The magazine is the platform which ties together the hotel, the “subsidy side”, and the advertisers, the “money side”. The platform incurs costs in serving both groups and can collect revenue from each of them: it collects subscription fees from the hotel and it receives revenues for advertisements. Moreover, the platform – the advertising-supported media – is an audience maker, i.e. it matches advertisers to audiences. Advertisers value the service more if there are more members of an audience who will react proactively to their messages; audiences value the service more if there are more useful messages. The hotel acts like an intermediary between the readers and the magazine.
The aim of the magazine is to generate cross-side network effects: The magazine creates content and this content is used to attract viewers. If it manages to attract enough readers, advertisers will pay handsomely to reach them. In other words, there have to be enough readers to make it valuable to advertisers to incur the costs of participating in the platform and to return to it in subsequent periods. There are also non-positive indirect network effects between the two sides: readers do not care about advertisers (and may dislike advertising) but come to the platform for the content.
In the case of the Conrad Brussels hotel, the relationship between the two sides is not balanced. The readers have more power than the advertisers and this leads to a vicious circulation spiral. The circulation spiral is describing a process of mutual reinforcement between circulation and advertising. In the case of the Conrad Brussels hotel, this spiral is a vicious one: because circulation – the number of magazines sold – and consequently the number of readers is decreasing, advertisers are less willing to pay for the publishing of their adverts in this magazine. This gives rise to a decrease in their profits.
Press freedom certainly has its price. It is proven that people remember bad publicity more than the good one. (http://www.nytimes.com/2012/03/24/your-money/why-people-remember-negative-events-more-than-positive-ones.html?pagewanted=all&_r=0) In this context, a story like the one about exploitative treatment of servants, can easily be expanded to headline-grabbing news and can rapidly spread to all over the world. In this case, the story casts a damning light on the image and reputation of the Conrad Brussels hotel. Fearing that their image could be at stake, the hotel proceeded in the only comprehensible way: it remained loyal to its clients and cancelled its subscription to the magazine.
A striking point to the article is that The Bulletin “only” picked up a story which had already been published by several other newspapers. If the magazine hadn’t published the story, their credibility would have been affected. Not publishing an article because of a conflict of interest would not be trustworthy at all. Furthermore, it was not The Bulletin which did investigative journalism on its part but the magazine only reported it factually. It is true, that the clientele of the Conrad Brussels hotel consists of “marquee customers”- mainly wealthy and influential people with connections all over the world and that advertisers are seeking to gain this type of readers. By picking up the story, the magazine may have expected that the Conrad Brussels hotel turned away from it but it surely didn’t have foreseen the snowball effect it initiated. By choosing to publish the story, even though the aforementioned facts and the fact that there exist a “mutually supportive relationship” between the magazine and the hotel, the magazine may have prevented the company from even more harmful consequences, meaning loosing much more readers who felt betrayed by the concealment of facts and as a consequence turn to other magazines. (http://www.nytimes.com/2008/08/31/world/europe/31iht-BULLETIN.1.15758954.html)
This case shows that the freedom of the press is not as free as it should be. Everybody agrees on it as long as it fits in to their image and financial interests.
Show lessVery thorough comment!
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In this article, we can observe a perfect case of a two-sided platform. On the one hand, we have the readers/buyers and on the other hand, we have the advertisers. The platform is thus “The Bulletin”. Even if the segment of people who are buying or ordering “The Bulletin” can be high, it’s well known that advertising is very important and is the main source of income for such a magazine. Advertisers want to reach their targeted public through this magazine, so they can pay much money to be in this magazine. In our case, as it is already mentioned, the hotel can be seen as an important intermediary, because the hotel immediately reaches a specific public .
Now we have to find the explanation of the vicious circulation spiral. Indeed, the loss seems to be minimal given that the hotels contribute about 5% of the circulation. These 5 % represent 5% of their sales. But in my opinion, the problem is that, in addition to these 5 %, the Bulletin will lose important advertisers who gave money for their advertising only because the Bulletin was proposed in such hotels. If the Bulletin has less advertisers, the magazine will be more expensive, and so they will loss others clients (hotels or particular readers). AS there is less readers, it will be less advertisers again, … And so we are here in a vicious circulation spiral. Then, with a small loss of sales, The Bulletin would maybe have loss much more than 5% of sales, but they did not expect it.
Furthermore, there is another problematic in this case : the press freedom. I Cached some interesting extract from
http://www.nytimes.com/2008/08/31/world/europe/31iht-BULLETIN.1.15758954.html?_r=2&
” The magazine’s editor in chief, Derek Blyth, said, “I can’t see how we could possibly not cover it. It’s our job to tell people what’s happening in Brussels.””
” Nicola McShane, the communications director for Hilton Hotels in Europe, said, “A hotel doesn’t need to explain why they choose one supplier over another. That would be a local decision””
“”They have perfect liberty to cancel the subscription any time they want for any reason they want,” Blyth said”
From theses extracts, we can analyze this problematic. Nowadays, I think we can say that it exists the press freedom. We can read articles about all subjects in different newspapers or magazines. In my opinion, we can speak about “no freedom for the press” only when an article or a paper is forbidden by the state. In our case, the hotel is a client. As it is said, they can cancel they subscription any time they want, as you as a personal reader if you do not like some articles. Yes, it’s the job of the magazine to inform readers but no, clients are not forced to buy the paper. It’s the price to pay for “sensational” article, which will interest some people, but which will repel others (hotels in our case).
Show lessI appreciate your argument about the freedom of the press… and of the readers.
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The disproportion between the scale of readership loss and the economic consequences for “The Bulletin” came from the circular conundrum caused by the loss of distribution of the magazine from three hotels. On the subsidy-side, it represents the loss of around 700 copies to be distributed to the readers, standing for about 5% of the circulation.
But this cutoff in subscriptions by hotels did not directly weaken the company’s financial statements. Due to the “cross-side” network effects, this loss reverberated on the money-side, which is represented here by the advertisers.They reevaluated downward their willingness to pay to appear in the magazine since the disappearance of “The Bulletin” from hotels Conrad, which typically host wealthy people who are very attractive for advertisers. On the whole, the financial stability of the company can be compromised indeed by this conundrum. Let’s add that this also allowed other newspapers in the sector to gain market shares and to appear in a more favourable light for hotels and advertisers than “The Bulletin”, which is now suffering from uncertain future.
I think problems of press freedom can occur notably when papers are distributed mainly in particular and very specific types of locations; let us mention for example magazines which are distributed in planes, in trains, or in this case, in hotels. There could be some issue when subjects related to the sector companies have to be published, for obvious reasons; the consequences have been shown in the case of “The Bulletin”. For the same reasons the type of advertisers should be varied and large enough, the diversity of distribution platforms should also be observed to ensure that the press gets all the freedom it deserves. Another solution could be to use a neutral distribution platform without any authority nor decision power.
This last solution seems to be the one that “The Bulletin” chose lately. The problem had been solved because the magazine is not printed anymore; nonetheless it keeps on offering its services as an online publication. The Internet distribution can ensure this time a complete freedom for the magazine.
Very clear analysis.
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Regarding this case, we face here a kind of tricky situation. The theory of the two-sided platform set that there are readers having a relationship with a platform (here the Bulletin) which have relationship with advertisers. There is no problem if everyone is happy. This report about mistreating the servants has changed the situation. The hotel, by stopping his subscription to the magazine, is punishing the magazine. The magazine health depends on the number of readers and the number of advertisers. In this case, the advertiser part has a powerful role as they are also a kind of the distributors of the magazine. Indeed, where is it easier to distribute local news to people abroad? In the hotels, obviously. That kind of relationship isn’t healthy because the magazine is too much dependent of its advertisers. They are dependent of the advertiser for investments and to reach the readers. The issue here is the fact that advertisers has also the role of distributors. That leads to a contact between the advertisers and readers that normally shouldn’t exist. This relationship decrease the power of the intermediary-the Bulletin. Money is always a key factor in business relationship. What we see here, is that the magazine has write a negative report one client of a hotel which s also an advertiser of this magazine. This report was made about “special”/valuable clients who put (I’m guessing) some pressure on the management of the hotel to stop their subscription to this magazine (to punish them).
The magazine is facing an issue because it lost several readers and other hotels follows the first one. What could possibly happen is that the price increase for the reader in order to counterbalance the lost of these readers and these advertisers. There isn’t that much solutions for the magazine. Indeed, the main problem here is the fact that in order to reach these specific readers – expatriates- it doesn’t exist a lot of channels and one of those are the hotels. To avoid this problem the magazine might try to expand his on-line magazine. They may also find other advertisers/distributors in order to keep their price unchanged and avoid this kind of threat. I don’t think they need to be scare about future because such situation (writing a bad article over about client) is quite rare.
About the freedom of the press, I think this is a society value that we need to protect. Independent and transparent press is the basement for an educate democracy. Their job is to instruct people about events and facts without judgment of financial purposes. It’s a pity to observe such situation where press is stuck between deliver objective information to the public or keep its advertisers and “thanks to” those, its health. I think they should be more subsidies for information magazines. This situation shows that the price of freedom of press and even the price of the material to deliver the information depends on the advertiser.
To follow up on your last point (about the freedom of the press), here is a question for the following comments: which price are we ready to pay, us readers, to have a free press?
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Firstly, we can see that in this market the platform is ‘The Bulletin’ linking the two sides: one is the advertisers which pay to put their ads on the magazine and the second is the customers/ the readers. Here the customers are different: there are the hotels which are not happy to see that the magazine does bad advertising for them. There are not ‘normal’ customers that don’t care about bad or good news and willing just to be informed. Here, hotels take care to their image, it’s important to them that there is not bad information about them.
The magazine management doesn’t forget that hotels are the intermediate between advertisers and clients. Hotels have big power on the magazine. The network effect play a crucial role: the more people read the magazine (the more hotels take a subscription), the more advertisers will be interested by putting their ads on it. There are a lot of advertisements on the magazine which are the biggest part of the revenues for it.
The disproportion between the scale of readership loss and the economic consequences for the magazine is just there! By cancelling his subscription to the magazine, the Conrad Brussels Hotel sent down the interest of the advertisers to work with ‘The Bulletin’
‘The Bulletin’ has to face of a delicate situation: on the one hand, it wants to inform its readers by telling them the truth but on the other hand, it has to pay attention to what he says in order to not putting his financial situation in danger! It’s really a shame for the press freedom!
I think that it’s better to tell the truth even if it means losing money rather than hide it. One day or another, the truth would come to light and the newspaper could lose much more (its credibility!)
Show lessVery good summary.
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I see two consequences caused by the cancellation of their subscription to the magazine that can explain disproportion between the scale of readership loss and the economic consequences for the magazine.
Newspapers, like “The Bulletin”, use the concept of “two-sided market”. Indeed, the newspaper is the platform putting in relation advertisers on one side and readers on the other side. The demands of the two operators in a “two-sided market” are interdependent. So, the platform brings value to the second operator if it is used by the first and vice-versa. This interdependence is influenced by network effect. If more people read, for example, “The Bulletin” then more advertisers will try to put theirs advertisings in it. Expectations are very important in a case of network effect. In our case, the expectations that the newspaper could lose way more than 5 percent of its circulation could affect the decision of advertisers to put money in it. These expectations are real because the newspaper has affected its relationship with the group whom represents more than 3 hotels.
The second consequence is caused by the niche in which the newspaper “The Bulletin” is evolving. If the group decides to use another newspaper, their customers could adopt it and push other hotels to buy the new one.
Readers must be aware that the press will never be able to be totally free. Indeed, money, politics will no matter what influence the press. That’s why people must be pro-active and make the effort to multiply their sources. In our case, the newspaper “The Bulletin” knew they were working in a small business and had decided to put one of their main clients under the spotlight. Were they right? Probably. Was it worth it? That’s another question.
Show lessYou’re perfectly right to stress the role of expectations.
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This two-sided market is a bit particular because the first part, the advertisers, targets readers but the second part, the readers, acts through an intermediary: the hotels. The platform in this market is the newspaper “The Bulletin”. Its role, as a newspaper is to make money by connecting advertisers and readers and by selling the newspaper.
What is different for “The Bulletin” is that their real customers are hotels and the hotels are not interested in having bad news about them. With the article about the Sheik, “The Bulletin” made its good job to inform customers so that their newspaper is attractive for readers and for advertisers. The problem is that the customers (hotels) were not interested in that news.
The solutions for “The bulletin” are either to be interesting for the real customers (hotels) by censuring bad news about them or to sell directly to customers, skipping the intermediaries (hotels).
You’re right to point that there are two intermediaries here and that their objectives are not necessarily in line.
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“The Bulletin”, as any media release, is apparently a two-sided platform. It connects readers and advertisers. Advertisers are paying side of the platform. Moreover, in this case, the hotels pay a magazine subscription and distribute the magazine for free to their customers. So, hotels represent a kind of subset of the readers’ side of the platform.
The target audience of the magazine is rich visitors staying for a shorter or longer period. However, these customers of luxury hotels are the principal target for advertisers. By publishing this article that represents bad publicity for Conrad, The Bulletin has undervalued the negative impact of the loss of few copies distributed within the three hotels. While this seems low in terms of reduced circulation of the magazine (platform), negative effects on readers’ side (side A of the platform) have a significant negative impact in terms of loss of advertising revenues to advertisers (side B of the platform). If the magazine looses many readers, advertisers have less interest to invest in. The Bulletin has underestimated the role of the hotels, that also provide a broad distribution of the magazine through the many visitors in the hotel rooms, and have not anticipated the consequences of this publication on the other side of the platform. Moreover, as the advertisers are paying side of the platform, then it is logical that jeopardizes the financial stability of The Bulletin. So, the theory of two-sided platform can explain this conundrum of destructive spiral.
In addition, an article giving bad publicity to Conrad, one of the magazine’s clients, proves a certain independence of the newspaper. For cons, financial constraints or economic consequences of the article’s publication show the difficulty for a magazine or newspaper to publish freely the news it wants. If The Bulletin was able to anticipate the negative economic consequences of the publication of this article, it would undoubtedly choose to publish another news… That is challenging real freedom of the press given the negative financial impact that publication may have for magazine.
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In a two-sided market consumers are divided into two groups. For example OS or video game consoles manufacturers, have two groups of consumers: end-users and developers.
Sometimes considering developers as consumers comes as an evolution, it was not in the primary plans. It was the case for Adobe and the PDF format. (1)
But sometimes it is taken into account from the beginning. There was the genius of Apple. When they released their iOS, it came with a couple of Apple developed apps. But it came also with a toolbox for developers so that soon their came a hole ecosystem of apps. This growth phenomenon is a virtuous spiral: more apps leading to more consumers, increasing developers’s incentive to innovate and enlarge the app supply…
A parallel could be drown here with the Bulletin. Hotels acting as developers, end-users staying end-users. For Apple, strictly talking about numbers, developers are not really relevant, this community represents about 43.185 people (2), compared to the 370.900 iPhones sold every day (3). Same for Conrad hotels, representing -talking strictly numerically- 5% of the sales.
Take now an hypothetic scenario: If Apple ever come to deny or hurt developers in any way, the consequences would be rather small at first glance: iPhone sales would remain unchanged. But it would be a huge message sent to the developers community. They would start to develop on SDK (for android devices) and progressively leave the iOS platform the same way they came in but in a reverse Reed’s law model. This would lead to an impoverishment of the iOS app ecosystem on the profit of the Android ecosystem, and progressively people will buy Android devices and not iPhones.
Continuing the parallel between Bulletin and Apple, let’s consider hotels as developers. They enlarge the network of Bulletin. But if Bulletin sent a negative message to Conrad, it is fairly assumed that Conrad would stop distributing Bulletin, and replace it by any other magazine; the same way developers would leave iOS for Android. And as in the Apple hypothetic scenario, it would trigger a vicious spiral: people would start reading the Bulletin’s concurrents in hotels, than would shift for concurrents back home and finally ask for the concurrent when they go to hotels.
This is precisely why the Conrad story is so important for the Bulletin: even if numerically it does not represent a real loss, it can trigger a vicious spiral.
The implications on press freedom might look obvious but are for me far more complex as most press publications are held by holdings which lead to conflicts of interests. Another consequence would be Conrad’s concurrents promoting the Bulletin, or the Bulletin being more critic and independent; adopting a satirical position.
1: The case of Adobe with PDF: https://en.wikipedia.org/wiki/Two-sided_market
2: http://mashable.com/2010/07/02/ios-android-developer-stats/
3: http://thenextweb.com/apple/2012/01/25/there-are-now-more-iphones-sold-than-babies-born-in-the-world-every-day/
Nice parallel!
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First, I will compare the theory of the two-sided platforms with this case. Here, we can see that the platform is the Bulletin. It is a link between advertisers and readers. This is a special type of readers: expatriated people who are rich and can go to the Conrad Brussels Hotel. But we will make a big mistake if we forget the power of the Hotel. Indeed, Conrad Brussels Hotel has a big power because it makes possible the contact between this magazine and clients. If the group “Conrad Hotel” stops to buy and distribute The Bulletin, it will be more difficult for this magazine to reach his target and the network effect will stop. The network effect is the fact that when the number of members of one group in the platform increases, it attracts the other group. In our case, when the number of readers increases, there are more advertisers who want to put advertising in the magazine. It is what happened with this case, as Conrad stops the delivery of magazines, it is now less interesting for advertisers and the revenue of The Business is in danger. Indeed, the larger part of the revenue for The Business comes from advertising and not from the sale of the publication.
I think that the magazine made a mistake but I also think that the reaction of the Conrad Brussels Hotel was too excessive because this news was already in other international newspapers, radios and televisions. I agree that it gave a bad image of the hotel but it was a reality. This hotel has to show the respect he has for his consumers but also his ethics. I think that if they show this side of the hotel, and the fact they don’t accept such behaviours, it could make good advertising for them. This hotel could attract new clients who are interested in hotels which have ethics and attach importance to human rights.
Furthermore, I think that today the website of The Bulletin can change this situation. Now, with http://www.xpats.com/, The Bulletin has more freedom to write news even if it is not always pleasant for the hotels. I think that press has to stay free but not to become gutter press. The solution for The Bulletin is to publish news about Brussels and the Belgium on the paper version and the other news (more sensitive) on his website.
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To explain that conundrum , it’s interesting to use to model of the two-sided market. This is a platform where there are two distinct groups of customers that provide each other with network benefits. As stated in the slides there are three conditions for a two-sided market:
• The presence of distinct customers groups
• The benefits for a customer of one group to have his demand coordinated with one or more members from the other group of customers
• The possible presence of an intermediary that can favors the coordination between the groups.
In this case, the Bulletin acts like the intermediary between the readers and the advertisers. Both groups can take benefits from the presence of the intermediary: the readers can have access to ads with the help of the magazine that they might not have seen elsewhere. On the other side, the advertisers can use the magazine to reach the readers easier or to reach new potential customers. By denouncing a part of the customers, the Bulletin exposed themselves to the retraction of customers. That will also involve a withdrawal of some advertisers (which represent one of the main source of finance for the magazine) because of the lack of possible targets reading the magazine. Outwardly, we see that the magazine lost the subscription fee from some the readers and hotels but beyond that, they have much more to lose with the withdrawal of advertisers because of the loss of readers or because they don’t agree with the content of the magazine.
It’s also possible to see it from a different angle, with the hotel being the intermediary between the readers and the magazine. In this case, it’s the withdrawal of the hotel that breaks the relationship between the two groups. Indeed, the main customers of the Bulletin are rich expatriates who are moving to Belgium. The hotels are thus a very good way to inform those people of the magazine, some of them would maybe never knew the existence of this magazine without reading it in the reception room of the hotel or during breakfast.
About the press freedom, I think we have to be careful. The freedom of speech is a right that everybody should have but sometimes, people use the excuse of freedom to cause harm to other people. However, in this case, the Bulletin is just reporting a story that has already been told in the Belgian and even international press. The aim of the magazine is also to inform people. The real mistake of the Bulletin was not to publish the story but to do it in a magazine mostly redden by the people possibly involved in the story. The fact concerns a minority of the readers and the other ones who are not responsible might also want to know the truth. The concerned people can also put some financial pressure on the hotel to force them to boycott the magazine and by this way, shut down it or maybe the hotel doesn’t want to bother a part of their customers and decided to cut ties with the magazine.
The content of an article can never please everyone and we can say that somehow the freedom of speech has a price whether it’s minimal (an insignificant number of withdrawals) or important like shown in this case.
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“A two-sided platform or a multiple sided platform is an organization that creates value primarily by enabling direct interactions between two (or more) distinct types of affiliated customers.”
(http://www.hbs.edu/faculty/Publication%20Files/12-024.pdf)
“With two-sided network effects, the platform’s value to any given user largely depends on the number of users on the network’s other side. Value grows as the platform matches demand from both sides
“Because of network effects, successful platforms enjoy increasing returns to scale. Users will pay more for access to a bigger network, so margins improve as user bases grow.”
(http://hbr.org/2006/10/strategies-for-two-sided-markets/)
According to the quotation above, this conundrum seems to be easier to understand. Regarding to what they said, The Bulletin magazine was under trouble because of network effect. Indeed when they lost their first client in response to their lawsuit, customers become more attracted by other magazine with a bigger number of clients and thus a bigger network. That’s why there is a disproportion between the scale of readership loss and the economic consequences for the magazine.
This conclusion about the reasons of the financial trouble of the magazine tells us that the press is not very free. Indeed it seems that the press can only be assumed by people who have a large network of clients. People who don’t, won’t be able to develop their business and will be drowning in debt.
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On this comment I’ll firstly explain this conundrum with the theory of two-sided platforms and I’ll then give my opinion about press freedom (and its consequences).
I won’t make another long description of Bulletin but in short, it’s an international magazine relating what’s happening in Belgium. There are quite a lot of advertisements on this magazine and it’s why Bulletin found itself in a wobbly situation : ads is the biggest part of the revenues for Bulletin. Theoretically, we are clearly here in a case of a two-sided market. On one side there are the advertisers, paying money to have their ad on this magazine, and on the other side there are the consumers (buyers and readers of the magazine). They are both linked by a platform : the Bulletin magazine.
I’ll now try to give my opinion about this dual situation. It is not easy to describe because both sides have something to lose and/or to win.
On one side we have the Bulletin magazine. It’s a weekly international magazine in English, so we can say that it’s a serious magazine that is not looking for “choc news” but for serious and pertinent news. Despite the fact that Bulletin delivers serious information, the magazine is valued by its readers. In other words, if Bulletin targets more wealthy readers, advertisers will give more money for their ads.
By choosing to publish this whistle-blower article or not, Bulletin was exposed to a dilemma.
Either they publish it and certainly lose their “partnership” with Conrad. This loss is not only the 5% of the magazine circulation like said in the post, it’s bigger. Indeed, a magazine in a hotel is read by several consumers and the readers on this hotel are rich people ; advertisers won’t pay as much as before to publish their ads. An advantage if they publish the truth is that they will be able to attract more readers. Indeed, when people will see that Bulletin takes risks to publish the truth, they will realize how they can be confident to this magazine and that the content of the magazine is relevant. But the new readers will probably be less wealthy.
Or either they don’t publish it, they keep Conrad readers and the situation remains the same. But then Bulletin behaves unethically and, if this information is known in the future and that people hear that Bulletin was aware of the situation, we can say that it will be the end for Bulletin : nobody will read this magazine again.
On the other side we have the consumers, and here more precisely the Conrad Hotel and the linked readers. People who read this magazine on hotels such as Conrad Hotel are wealthy people, with a high purchase level and so are ideal targets for advertisers.
I understand Conrad behaviour, cancelling their subscription was logical because it gave a really bad image of this famous hotel. But the fact that they regarded the publication of these reports as “unethical” is shameful and scandalous. Conrad Hotel certainly knew what was happening on their rooms but they also certainly were very well paid by the Nahyan royal family of the United Arab Emirates. They don’t respect the press freedom and, in a country where the Human Rights are predominant, hiding those information is outrageous.
There is something interesting to note : Conrad Hotel doesn’t lose a lot if they don’t purchase the Bulletin anymore, there are enough other magazines.
So, did Bulletin take the right decision ? In the Conrad point of view, it’s simple : they would have preferred that the information was not published, hoping that what happened will never be known. So it is not really interesting to analyse their point of view. But if we take the Bulletin magazine point of view, we can understand their choice with deduction. To discuss this, I think we have to take two different points of view.
If we take a financial point of view, we can easily see that the turnover of the Bulletin magazine is decreasing since 2007. I took some statistics on the site of the Belgian National Bank (you can find annual accounts here, including Bulletin one : http://www.nbb.be/pub/03_00_00_00_00/03_02_00_00_00/03_02_01_00_00.htm?l=en). We can see that Bulletin had a loss of 47 840€ in 2007, of 48 165€ in 2008, 48 424€ in 2009, 48 681€ in 2010 and 48 889€ in 2011. But it is interesting to see that Bulletin was already in loss ! Indeed, they had a loss of 47 232€ in 2005 and 47 584€ in 2006. So, there is certainly a loss by the fact that Conrad doesn’t purchase the magazine anymore but smaller than I thought. In conclusion of this point of view, the loss of the hotels readers didn’t have a big impact, but was maybe counterbalanced by the attraction of new readers looking for a serious magazine publishing the truth. We can say that in a financial point of view, Bulletin didn’t make a mistake.
Now, if we look at the situation with an ethical point of view, I can affirm that Bulletin made the best choice. Telling the truth is one of the main aim of newspapers or magazines, and it’s one of the main points of the Munich Charter (http://fr.wikipedia.org/wiki/Charte_de_Munich) which is an European reference about the ethics of journalism. For example, the first obligation is ” the respect of the truth, whatever the consequences maybe for himself or herself, within what is allowed to be known by the public following the law ” and the last obligation is “to refuse whatever pressure and to only accept editorial directives from the persons in charge of the editing”. In my opinion, Bulletin had an ethical behaviour by telling the truth without taking account the external pressure. And like I said before, it was risky for Bulletin to hide the truth to people.
To end my post, I hope that they have attracted new readers by acting like that because and that their financial situation will be fixed soon because, in those crisis times, it’s infrequent to see companies preferring ethics to money…
Show lessExcellent research!
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The Bulletin gets his revenue from two sides: on the one hand from hotels’ subscriptions and independent readers’ subscriptions and on the other hand from advertisers. As advertisers value more readers than readers value advertisers I think we can assume that The Bulletin obtains more revenue from advertisers than from subscriptions. Indeed, advertisers are willing to participate only if readers participate so The Bulletin must be cheap to achieve a critical mass of users and encourage advertisers to put ads in the magazine.
So, when three hotels cancelled their subscription to the magazine, The Bulletin lost first of all the three subscription fees but also revenues from advertisers who were not willing to pay as much as before due to the cut in readers exposed to the ads. All the more since expatriates moving to or living in Belgium at the Conrad Brussels hotel and the two hotels from the same group are people with a high purchase potential due to their high revenue. Consequently, they are certainly the main target of advertisers. This can explain why The Bulletin is reeling from the impact.
This story tells us that press freedom is a beautiful theory but in practice it’s not so easy. There are some consequences at your acts especially if you don’t have various revenue sources. The Bulletin could have more serious consequences if it had not independent readers who value that the magazine tells the truth.
When it begins, the press support must have a clear vision of his strategy: always please his readership or always tell the truth and maybe displease his readership and have serious consequences. If it’s the case, the magazine will know what to do in case of what it wants to say may have an impact on his readership. Note that in any case there is a risk to lose a part of his readership; either those who value the truth or those who value don’t be displease.
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In a two-sided market, two distinct groups of economic agents interact through an intermediary: the platform which is in this case “the bulletin” that manages the network effects between them. The two groups are respectively the content consumers (hotel chain that make the link with the final readers: the clients from the hotel) and the advertisers.
They are linked with indirect network effect. More they are readers; more advertisers will want to invest in “the bulletin”. The problem is that if advertisers (who are a big part of income) target specific segments from the Conrad hotel, they have no more interest to invest in it. So that can become dangerous for the future of the magazine, of its profitability.
From what I know, “the bulletin” is a magazine for international community in Belgium where the first purpose is to inform people about what is happening in Belgium about political, economic and cultural matters. So the information was legitimate. I cannot see why it is unethical. On the contrary, the goal of the press is to tell the truth and to be able to say it. The hotel is not responsible for the suspicion on the family but the family is. The lesson I keep from this example is that it is better not to write anything on real facts when the magazine is distributed in the hotel chain in question which is in my sense against the freedom of the press!
Show lessI fully agree with your last point but, as Xavier wrote, this is a principle that a magazine can hold to only if it can free itself from financial constraints…
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“The Bulletin” seems being a two sided platform connecting wealthy readers and advertisers. Selling 700 copies less than usual is not the hardest part of this conundrum. The point is that being edited twice a month, a single Bulletin’s exemplar available in a Conrad room was reaching lots more of wealthy readers with higher propension to pay for products advertised than traditionnal travellers or readers.
As explained in the paper by Eisenmann, Parker and Vanalstyne: “Platform providers normally welcome growth in the user base on either side, because it encourages growth on the other side”. In particular, the more The Bulletin has readers, the more The Bulletin is valued as platform by advertisers because of network effects [paying more for access to a bigger network] and promises of increasing returns on advertisments.
In The Bulletin’s case, such a decrease strongly impacted The Bulletin’s profits, affecting its financial stability. It is probable that advertisers lowered their willigness to pay to advertise seeing the lowering in the total number of effective readers.
However, by denouncing such unethical behaviors, The Bulletin may even have gain more readers while this story has been covered worldwide, positionning The Bulletin acting has an independent magazine, no matter financial stakes.
Reporting everyday news as journalist seems to be a challenge as you have to report the bad news as well. Are journalist completely free to cover events they think are worth value for readers? In regard to what has just been said, I’d say never completely unless you are acting independently of any possible financial stakes.
Show lessYou are right to stress that Conrad visitors are more valuable readers in the eyes of the advertisers, the paying side of the platform. Please remind me to discuss this when we cover the theory of two-sided platforms in class.
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Newspapers indeed play the role of two sided platforms, since they link advertisers to readers. This is not an exception in case of Bulletin, which is a well known weekly magazine published in English since 1962. It does not only provide European and Belgian news digest, but also arts agenda highlighting concerts and exhibitions held across Belgium. Nowadays, it also operates a platform targeting expatriates (www.Xpats.com) providing restaurant reviews, enabling users to place small ads, view current events in the city and even search for jobs, etc.
On one side of the platform are advertisers, who target the segment with the same characteristics as the Bulletin readers. Although, Bulletin is mostly read by the expatriates living in Belgium for 1-3 years, it’s cultural agenda and language accessibility makes it also interesting for the tourists. They are reached by advertisers through the hotels’ subscriptions to Bulletin. The fact that Bulletin felt financial difficulties after the Hotels have cancelled their subscription due the news digest, originates from money side of the platform, since advertisers values the platform less because it didn’t allow them to reach their valuable segment: short staying rich visitors.
The Bulletin is not a daily newsletter, thus does not try to deliver the breaking news as fast as possible. However, the readers expect to read the digest of the most important news. The fact that Bulletin published the news in the digest should not be questioned, since it should respect the independence of media since this is what readers are demanding. Hotels pay the subscription fees and enable the visitors get the Bulletin for free. Therefore, hotels act as extension of the platform where advertisers reach the visitors. In this case, Bulletin has undervalued the effect of distributing the issue with negative news about Comrade to Comrade.. The fact that people were mistreated and the management did not know about it is shameful, however, they are not in favor of their customers being confronted with the fact once again inside the hotel. Moreover, Bulletin would not publish negative news about its own operations either. To summarize, it has undervalued the fact that hotels were the extension of the platform. It could have made a special edition for Comrade subscriptions by focusing the special issue on arts agenda and no scandalous news.
Expatriate staying for a longer period value the content of the local news more that the tourists who are interested in the arts agenda and restaurant reviews. Therefore, the Bulletin should find the balance to satisfy two different groups. The efforts of launching http://www.Xpats.com shows that Bulletin wants to retain the expatriates working and living in Brussels (it does provide real time news digest in english) while targeting short stay visitors at the same time.
Show lessExcellent reading of the case. Thanks for the extra research.
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The Bulletin is a platform between advertisers and readers, but in this case, it could reach a part of its targeted readers via the Conrad Brussels Hotel. Moreover, we can assert without too much risk that ads in the Bulletin are intended to those same people, knowing that ads is a big part of the revenues for the Newspaper. And here is the key point for me, but we will see later why.
First of all, I think that the Bulletin took the best decision because it is the role of the press to denounce, to show up all big issues, serious problems, etc. in our society, and the exploiting and the mistreating of servants is a part of. Furthermore, if it had not denounced it, as reader, I would not trust the Bulletin anymore, knowing its agreement with the Conrad Brussels Hotel. Although, I would like to underline the irony of the situation: the Conrad management reported the ‘unethical’ behaviour of the magazine but turned a blind eye on the clearly unethical aspects in its own hotel!
So, we have seen earlier that the Bulletin had to satisfy the two parts of its ‘two-sided business’ to can keep its business running. But for me, today the Bulletin maybe has the chance of targeting its readers again and why not extending its coverage. How? By not more targeting the wealthy people but by targeting the people who want to be sure to read an independent magazine that is not afraid to report what happens ‘behind the scenes’ in our society. In this way, the Bulletin could not lose its advertisers and even gain more supporters.
From the Conrad point of view, I can understand that they protect their clients but I think that some limits have to be put. Indeed, we are in Europe, the Human Rights exist and everybody who comes has to respect them.
Show lessVery good, thanks.
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According to the theory, a market is two-sided if there are externalities between the two groups of users of a platform. There is a relation of dependence between the two sides because the behavior of one group influences the decisions of the other. In this case, The Bulletin represents the platform; the two groups are firstly the advertisers and secondly the subscribed hotels, which distribute the magazine to the target readers. Advertisers have more interest to invest if the magazine is largely distributed; their benefit comes from the numbers of readers.
I think that advertisers are more dependent on the number of readers (and therefore on the hotels) than the reverse. That could explain the decision of the three hotels to cancel immediately their subscription because of their bigger power in this relation. At this sense, this market is not completely two-sided.
The fact that the compromising story was already reported in previous presses without any debates raises effectively the question of the freedom of this magazine. The challenge the magazine faces is the following: to manage its closed link and its dependence on the hotels while keeping its role, which is informing international people about what’s happening in Brussels. This conundrum could effectively impact the politic of the magazine. Knowing the risk of losing its members is high, the magazine will be careful about the reported stories because its viability depends on the number of readers. The Bulletin is locked in this relation and its content could be less neutral in the future.
Show lessVery good start to the discussion, thanks.
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Sadly, this is a perfect example to illustrate how press is never really free. Even when the publication itself tries to be impartial and objective and do right by its readers, who are the ones most concerned with the actual content and credibility of the magazine, something like this can creep up on them and some stakeholder with actual financial power comes along to cut off vital funds from the editors.
This case is also a good example of a real conundrum, where the ethical thing to do is not the correct option from a business point of view, and where the different sides of the platform have conflicting objects.
Since Conrad Hotel was a stakeholder in this case, the normal two-sided platform could actually be considered a three-sided platform. The readers receive access to the Bulletin at no extra charge. Since the readers staying at the Conrad are high-profile people, they are high-income and supposedly have refined tastes, creating a unique segment for the advertisers to reach. Even if this is only 5% of the magazine’s readership, it is of high interest to the second side of the market, the ones who are really paying, the advertisers.
In the article by Gabszewicz, Garella and Sonnac the circulation spiral is explained – in brief, a cut in the readership can lead to a direct cut in advertising, which may actually reduce the utility that the remaining readership might get out of the publication, which may in turn lead to a further reduction in readership and therefore advertising, etc
In the case of the Bulletin, that 5% was a severe blow, since it accounted for a disproportionate amount of funding. In practice, this can affect not only the advertising, but also the quality of the overall content, leading to a much larger readership drop.
Was it the right move for the Bulletin? Sacrificing a large source of income to stay “free”? In hindsight, probably yes, since the damage it eventually ended up taking was probably much greater than the damage caused by not publishing the article. Furthermore, it could have been written with a more positive spin on it for the Conrad hotel (such as “the hotel valued the privacy of its guests highly, of which they took advantage”) and clearly stating that hotel management had nothing to do with the whole affair (but based on the hotel management’s reaction to the coverage, that seems less likely now, doesn’t it?). However, after the fact, the magazine can only report the conflict with the Conrad, and hope that the remaining readership respect the magazine for its dedication to fair coverage.
The hotel’s decision is a peculiar one, since it is a defensive and, arguably, a vengeful one. The Bulletin did nothing but report the story after dozens of other press publications did in Brussels, and they had no investigative role in it. It is possible they wanted to show the Bulletin “who’s boss”, in other words, make it clear that the hotel accepts no negative reporting of any of its high-paying customers. Worst case scenario, this suggests the hotel might have known about the scandal before it was investigated by the police, or just caved in to pressure from one of the UAW royal families, or was simply afraid of losing them as customers. There are many ways one could speculate, but the most likely scenario is that the hotels wanted to send a message that they will accept no ill speak of any of their customers, be it right or wrong.
I like how Marielle recognized the irony of the situation, how the hotel rushed to point out the Bulletin’s “unethical” actions much more strongly than it reacted to the scandal itself.
Even though it’s not relevant to this discussion, I think it’s interesting to point out that a talk about this subject on Wikipedia seems to have been attempted, though not having enough information, it’s unknown if this was really lacking volume or it was suppressed by someone. Also, wikipedia articles on businesses commonly feature a “controversies and scandals” chapter, but the page for Conrad Hotels is lacking one entirely.
If we’re talking about freedom of the press and two-sided markets, my best example (or rather, worst) is Fox News in the US. For anyone unfamiliar with it, it is a propaganda machine for the conservative and Republican political agents in the country. The news are so ridiculously biased, but since the majority of money comes in from large corporations, basically the richest in the country, and support politicians who support the richest in the country, Fox News is now stuck in the unfortunate position of choosing between staying the course or suddenly starting to report the news in a fair manner, which would spell instant death for the network due to lack of any funds whatsoever.
In the case of the Bulletin, they have shown that they are committed to fair reporting, but the other sides of the market severed their connection to the magazine. I think in this case it boils down to how the editors can capitalize on this. If they manage to take advantage of the extra utility provided by this event to the readers, the hit in readership loss can be mitigated. While the bargaining power of the Conrad hotel and the advertisers are the highest in this platform, I think it is important to realize that the Bulletin might have the least bargaining power, but being the node of the network, it does have the most power in managing any changes. I think this stands as a general rule: while multi-sided platform providers might have low bargaining power directly with the groups, by managing the connection between market sides they actually hold the most power.
References: http://en.wikipedia.org/wiki/Conrad_Hotels
Show lesshttp://en.wikipedia.org/wiki/Talk%3AConrad_Hotels
Very interesting. A nice closure to the debate!