Sunday, March 28, 2010

We Don’t Know What We Want & We’re Unhappy When We Get It: “The Art of Choosing,” by Professor Sheena Iyengar

I went back to my alma mater, Columbia University’s Graduate School of Business, on March 25, for a presentation by Sheena Iyengar, S. T. Lee Professor of Business, on her new book, “The Art of Choosing.” Her framework about choice and how we choose was thoughtful, insightful and, most importantly, clearly articulated several concepts that I had been grappling with recently.

My notes are below, with the caveats that they are my best rendition of the discussion, with no claim to accuracy; much of the discussion has been paraphrased, rather than being a direct quote of the participants; and I bring my own viewpoint and perspective to this discussion, which influences my perception of the discussion. I am sure that many of these studies and anecdotes are much more compellingly set forth in her book, which I have not yet read, and that I have hardly done them justice in my rendition of her presentation. I look forward to reading her book and attempting to more fully understand the fascinating work she has done.

Professor Iyengar was introduced by Eric J. Johnson, a founding co-director of the Center for Decision Sciences at Columbia Business School.  Professor Johnson hailed Professor Iyengar for having introduced one of the most famous theses of decision research - too much choice.

Professor Iyengar began by discussing the broad general theme of making choices.  She began her remarks by pointing out that if anyone in the audience had never made a choice, then her presentation would not be a relevant session.  As expected, not a soul left the room.

We all have dreams about how our lives will unfold – she used to dream about becoming a pilot.  After all, our schoolteachers said that we could be anything we set our minds to.  Presumably at a fairly young age, she realized that she could not in actuality become pilot without her eyes – Professor Iyengar being blind.

In truth, we spend our lives struggling against our limitations.  Sometimes we succeed, sometimes we don’t.  As she traveled, she found that her lack of eyesight prompted unexpected reactions from local residents: in 
Spain, people gave her money for lottery tickets, while in Japan, people expected her to give them massages. [Caveat: these observations of hers are totally foreign (no pun intended) to me, so I can only hope that I heard them correctly, since they seem quite bizarre to me, culturally conditioned as I am.]

In general, people kept telling her what she couldn’t do due to her blindness, so she was constantly trying to understand her true limitations vs. those that were merely perceived.  In her quest, she attended the
Wharton School at the University of Pennsylvania where she confronted the question of what she could be when she grows up. [Note: the minefield of expectations (see later reference to the “Hurt Locker”) from which we choose is littered with false negatives and false positives – we are neither capable of “being anything we want to be” nor necessarily limited by outmoded stereotypes.]

She took a course on social psychology that changed her life.  No one had ever said that a blind person couldn’t be an experimental psychologist [although I’m sure that it was not on the top of anyone’s suggested career list for blind students, even at Wharton] so she asked to be a lab assistant for the course.  An experiment was created utilizing her somewhat unique situation that compared how subjects regarded feedback received from a blind person vs. that received from a sighted person.  The experiment failed but had the pleasant outcome of launching her on her career path.

For one thing, it was the first time that her blindness was perceived as an asset.  She chose [if you’ll pardon me for using that word] to become a researcher of the role that choice plays in our life.

In her view, choice is the tool we wield when we come up against our limitations.  We want to choose our way to happiness, but in reality, choice isn’t everything.

She feels that she took advantage of the career choice that became available to her because she knew what her true limitations were.  She didn’t have the same career choices as a sighted person, and, in that sense, it made her decision easier.

At the same time, she felt that her physical limitations placed a higher premium on her choice – she couldn’t afford to choose on a whim.  The language of limitations, and presumably the how she coped with it, became second nature for her.

We Don’t Know What We Want:

Her thesis is that we can take the most advantage of our choices by acknowledging the limits of those choices.  We believe that we’re experts in knowing what we want, so more choice is therefore better.

But do we know what we actually like?  Do we even know whom we find attractive, a choice that would seem obvious, ingrained and immutable?  She cited an experiment in which students had to select between two photos of reasonably comparably attractive people, such as:

Subsequently, the subjects were asked to explain their choices.  The experimenters, however, had switched the pictures.  In other words, a subject may have initially selected A over B, but later was told that they had selected B, whereupon they proceeded to explain why they had do so in preference to A, when in fact they had not.  [Note: I think that the mark of an excellent presentation is one that answers lots of questions yet raises many more.  (At least it helps keep me awake and engaged.)  I would love to know what percentage of subjects couldn’t remember or were easily influenced into false memories, something that I am certain would never happen to any regular reader of this blog!]

Net net, we all [well, maybe you.] have trouble remembering and reconstructing our preferences after the fact, even on a very basic level, as in how we would like to continue to propagate our species.

Of course, as Professor Iyengar put it, this phenomenon also happens with “important” choices.  In another experiment, she tracked college students during their graduation year.  They were asked about their job preferences and attributes at several points during that year.  She found that they kept changing their minds to the extent that the correlation of their choice at the beginning of the experiment in September to their choice at the end in May was 0.15.  In other words, next to none.  [Note: it would be interesting to have asked the students whether they recalled their earlier choices and whether they thought that they were being, inaccurately, consistent, or whether they recognized their changes in preference.]

If she is correct that we don’t actually know what we want [or it keeps changing even when we think our preferences are immutable] are we better off getting what we want or wanting what we get?  [Note: perhaps her research points to the answer to that age-old musical lament: I Can’t Get No Satisfaction.  Maybe Mr. Jagger should just be satisfied with what he has, which I’m sure is plenty, in any case.]

Professor’s Iyengar’s initial remarks implied that our choices are somewhat random or not well-grounded, even though we consider them to be the product of careful thought and deliberation.  She next set forth a framework that, in my mind, showcases the human condition in an even less-flattering light. 

We Let Others Decide for Us:

She shifted into a discussion about how choices reflect back on the person who made those choices.  Our society, and by extension, each of us, associates choice with freedom – in other words, choosing is perceived as an act of freedom.

We therefore use choice as a means of self-definition: by asking ourselves what we want, we are asking: Who are we?  What should I choose? 

We try to express ourselves through our choices in order to assert our individuality and distinctiveness.  But this self-expression can actually be an obligation rather than a freely selected “choice.”  As an example, Professor Iyengar cited an episode involving her husband.  She had gone to the Apple Store to purchase an iPhone for him.  He was quite emphatic that he wanted a black one, allegedly due to certain characteristics of a black phone, such as being less likely to show dirt and scratches.  While she was in line, he rushed into the store to find her and tell her that he had changed his mind to white.  His rationale apparently was that everyone else is buying black; therefore he needed to purchase an iPhone of a different color. 

She sees a similar phenomenon among patrons who order food and drink in restaurants – they do not want to be seen as copycats.  Therefore, if someone else selects the item they had originally intended to order, they will often either change their original preference or feel the need to justify it on the basis of having made their decision prior to the other patron’s disclosure of their order. [Note: is our self-esteem so delicate that we would be considered feeble-minded to say about a fellow diner’s order, “Gee, that sounds good.  I’ll have the same!”? Apparently so.]

Professor Iyengar characterized this behavior as the Drinker’s Dilemma – in situations where patrons at selected tables secretly wrote down beer orders, overlap often occurred among the orders, as would be expected.  These patrons, however, were generally more satisfied with their beer-guzzling experience than patrons who had given their orders out loud. The exceptions among the publicly-announcing patrons were those who had ordered first.

In other words, if someone who orders before me selects the brand of beer I was planning to quaff, I will deliberately “choose” a sub-optimal outcome of a malt beverage of less preference simply to avoid the appearance of aping my fellow patron. Scary.

Please note the definition of “aping” in Merriam-Webster: “to copy closely but often clumsily and ineptly.”  Well, of course, who would want to be accused of such behavior?  It calls to mind the episode of “Seinfeld” in which our eponymous hero proclaims loudly, “I am not an animal!”  Apparently, according to Professor Iyengar’s research, ordering the same beer as my drunken buddy constitutes disqualification from the Homo sapiens club!

Again, the question of choice seems to be less about what do I want and more about who am I and what do I know.  We think of choice as a way to individuate ourselves.  In this construct, we never choose alone.  Choice is a means of communication, consciously or unconsciously.  They constitute gestures that are interpreted by people around us.

In this process of self-definition and signaling to those around us, we want people to see us as unique individuals, but not as outcasts.  [Note: this was one of the key insights of the evening.  It’s obvious in retrospect, but that simply speaks to its insightfulness.]

Professor Iyengar, in conjunction with Professor Dan Ariely of Duke, had done a study of choices of baby names and neckties.  In general, they fell into three categories: plain, a little unique and bizarre.

Preferences generally seemed to be for unique, with a general avoidance of bizarre.  [Note: is this a tautology?  Generally by definition, very few of us want to be viewed as “bizarre.”  Similarly, behavior with which we would not want to be associated we would characterize as “bizarre.”  Which comes first, the behaviorial chicken or the characterizational egg?]

When asked to characterize themselves and their choices, subjects saw themselves as having more of a preference for unique choices than other people.  [Note: does this mean that we are all “special.”]  But at the same time, they generally liked the same things as everyone else.

In summary, we all aspire to be unique – but we also want our choices to be understood by those around use.  Achieving that societal positioning requires balancing the fine line between unique (“good”) and bizarre (“weird”).

In order to choose, we each have to answer for ourselves questions including: Who am I?  What does that person want?  What should that person choose?  What would other people choose so as to be different, but not too different?

Professor Iyengar seemed to imply that these sorts of calculations often resulted in answers that differed from our “real” and unencumbered choices – presumably the choices we would have made if no one were watching?  [Note: remember her earlier research that indicated we don’t actually know what we want, although we think we do.]  This sort of dissonance can result in our choice of things we didn’t really want and ending up being dissatisfied [Note: but wasn’t that by our choice?  About this time, I feel the need to choose an aspirin!]

[Note: I am reminded here of a characterization of winning in the stock market – the best choice of a stock is not the company that YOU think is the best;
it’s the company that you think EVERYONE ELSE thinks is the best!]

Summarizing the presentation so far: We don’t really know what we want, although we think we do.  We are also willing to make choices that we think will impress or influence those who are aware (or even care!) about our choices.  Could it get any worse?

Let's Add More Choices, Just Because We're So Good at Choosing

Of course, because Professor Iyengar went on to demonstrate that the process of choicing is further complicated by the explosion of choice.  [Remember, since we think we are free-thinking actors and choice is an expression of our individuated special selves, more choice is better as it gives us more opportunity to express ourselves, especially in the purchase of items we didn’t need in the first place!]

She cited the exponential growth of the number of items in a typical grocery store from 3,700 to 45,000 [Note: sorry, I missed the time frame, but even such growth since the emergence of the modern supermarket would be pretty impressive.]

She apparently became interested in the implications of this sort of phenomenon during graduate school at
Stanford University in northern California.  She found herself going into a local grocery store with lots of choices in a variety of product categories, yet she noticed that she often came out empty-handed.  She asked the manager if people were taking advantage of the multiplicity of choices and buying things, such as a selection from among the store’s 348 kinds of jam. 

Professor Iyengar decided to use jam, an innocuous product, to test the impact of choice on consumer purchases.  She and her team set up a tasting station near the entrance to stop customers on their way in to the store and offer them a selection of either 6 or 24 flavors of jam.  They then tracked the proportion of incoming customers who stopped at their station to sample some jam and those who subsequently purchased jam, identified through special coupon designed to track sales.

The results were that more people stopped at the table if there was a higher selection - 60% of incoming customers decided to check out a sampling of 24 flavor, while only 40% of customers paused to inspect a selection of 6 flavors. [Note: obviously, customers were presented with one selection or the other as the contrasting sample sets were never presented simultaneously.]

The plethora of choices, while encouraging customers to stop, had the reverse effect on their propensity to purchase.  When there were 24 choices – only 3% of customers subsequently bought jam while 30% of thosre presented with the relatively meager selection of 6 flavors ended up making a purchase.

In summary, while having more options is viewed by consumers as being initially more attractive, they are conversely more likely to choose from among a few selections than from a lot of options.

Professor Iyengar has hypothesized that our cognitive capabilities are overwhelmed when we have to do the math of comparing and contrasting numerous options.  How many choices can we handle?  According to a gentleman named George Miller (whose bona fides I did not catch), we are limited to what he calls The Magical Number: Seven plus or minus two.  We are restricted by our limited capacity to store information in the DRAM active memory of our brain.  As a result, when confronted with too many choices to easily process and from which to make a selection, we default to the “no choice” option and decline to choose at all.

She cited the example of declining participation in corporate 401(k) plans that directly correlate to the increased number of  fund options – bonds, stocks, emerging markets, oil & gas industries, pharmaceuticals, junk bonds, etc., back in the day when people actually harbored a hope that they could provide for their retirement through prudent investing. 

Regardless of domain, as the number of options increases, people delay or choose things that are worse for them.  [Note: I suppose that, as the number of choices increases, the opportunity for sub-optimal selection increases even faster.  If I have two choices, assume one is better than the other.  If I now have 10 choices, I’ve increased my pool of options by 400%, but the number of sub-optimal choices has increased by 800% from one bad choice to nine potentially bad choices.]

Even when we make the “correct” choice, we are often less satisfied, presumably because we are fretting about whether a different choice would have been preferable.

So how do we deal with a situation in which we have to know ourselves and what we want, compounded with multiplicity of choices?   Professor Iyengar posits that people get better at choosing with practice.  For example, we can acclimate ourselves to choosing from a wide selection of options.

She cited the example of German car buyers who, on the plus side, are able to custom-design their own automobiles.  On the negative side, that means making 67 separate decisions across the range of trim, engine, body paint, etc., with each decision having between 4 and 56 options each – such as a selection of audio options including satellite radio, in-dash CD player, 8-track tape player [OK, maybe not that one.], etc.

Her team did not change the substantive options themselves, but tested the impact of how the choices were structured.  Their first approach was to “Start Deep” – begin with decisions requiring choosing from among many options (let’s say 56) and proceeding to decisions with fewer options, such as 4.

They also tested the reverse “Start Shallow” approach – start with a smaller number of choices and progress to decisions involving larger numbers of  choices.

In each case, the number of total decisions and choices remained the same – they simply changed the order of presentation.  Yet they found that the differing frameworks of choices had profoundly different impacts on ability of consumers to wend their way through the labyrinth of self-definition through personalized expression on the Autobahn.

Starting shallow seems to enable consumers to become acclimated to the process of sorting through choices and making decisions.  By easing them into the process, the auto retailer was in effect teaching the consumers to get comfortable with forming preferences.  As Professor Iyengar phrased it, “learning to figure out what I want.”  [Note: how many of us will voluntarily admit in mixed company that, not only do we not know what we want, but that we don’t know how to figure out what we want?]

In other words, they experienced less decision fatigue than if they started deep with multiple choice decisions, in which case, decision fatigue kicked in sooner.

Not only that, but those who started shallow scored higher on every measure of satisfaction with the outcome.  Net net, a more pleasant process and a perceived higher quality outcome.

Conclusions of this sort are not of interest only to pointed-headed academics (I’m just checking to see who’s reading this!).  Armed with this knowledge, we can re-orient our behavior to conform with our heretofore unknown cognitive limitations and preferences.  For example, Professor Iyengar felt that, when shopping, we tend to start with the stores that have the most options.  We are probably better off starting with stores that have fewer options and working our way up to the more complicated stores – a tall Cinnamon Dolce Frappuccino Light Blended Coffee, anyone?

Another terrific coping mechanism she discussed was that of “categories” that enable our minds to differentiate sets of choices, presumably by grouping choices so that we are not necessarily making a multitude of individual choices but are filtering groups of choices instead.

She cited a wine store called Best Cellars.  While it addresses the excess choice issue by only having 100 selections of wine, its true innovation seems to be in having created 8 categories of wine from which patrons can make their selections - fizzy, fresh, soft, etc.  Once a category has been selected, one presumably then chooses a wine from among those that fit that category.

In broad terms, categorization enables you to learn more about yourself and what you want – in other words, it helps you to choose. [Note: an interesting circle – you choose in order to define yourself; knowing yourself helps you to choose.]

Meaningful Decisions (or, Maybe Hobson Was Right):

Professor Iyengar then switched gears entirely to a much more profound discussion about the concept of choice.  She argued that we can’t or shouldn’t always want to choose, that there are some choices that we’re not prepared to make or would want to prepare ourselves to make.  She felt that we may be confronted by what she called “choosing domains” – that an obligation to choose requires that we choose as often as possible.  This issue was encapsulated by her question: if you had to make a life-altering choice where no options were desirable, would you want to have to make a choice?

She gave the example of a baby born with a cerebral hemorrhage.  The choice to be made was to remove life-support from the infant, leading to death, or to wait.  The outcome of the latter would range somewhere between death and life in a vegetative state.

She illustrated the perils of the implications of choosing by comparing parents in Paris and Chicago.  In all cases, life support was removed and babies died.  The difference in the framework of choice was that, in
Paris, the doctors decided, while in the U.S., the parents made the choice.  [Note: again, I found her presentation compelling because it raised additional questions: haven’t the doctors essentially done the choosing in each case by the way they framed the question and making the choices so stark?  If I give you the choice of bad option A or bad option B, which includes A with some worse stuff thrown in, I’ve basically guided you towards option A.]

The parents were the subject of a follow-up study six months later, and significantly different outcomes were found among the parents centered on the issue of who had made the life-or-death decision.  The findings were that the American parents were more depressed than the French parents, who were more likely to have moved on with their lives, perhaps even to the extent of planning for other children.

In looking back at this experience, the study found that the French parents focused primarily on the experience of the baby and the place it held in their memories.  The American parents’ memories were focused on the choice that they had been required to make.  Under those circumstances, the French parents could understandably have taken some solace from the introduction of a new life into the world, albeit briefly, while there seems to have been little upside to American parents endlessly revisiting their choice of horrendous option A and even worse option B.

Interestingly, the parents were also asked their opinion of the framework of choice that they had experienced.  When asked if they would have preferred about reversal of choosers, each set of parents felt that the appropriate parties had been given the responsibility of making the choice.  The French parents felt that the doctors were in a better position to choose.  They did not, however, seem eager to make the choice in any case.  The American parents, on the other hand, felt that it was their duty to choose, but felt trapped by this choice.

If choosing is supposed to set us free, why do we allow ourselves to become slaves of choice?

As a society, we reject the language of limitations – we want to be able to choose, or at least, so we think.  In viewing our lives as objectively as possible, we sometimes might be better off to say that we CAN’T choose.  After all, not every opportunity to choose is an opportunity to improve our lives. [Note: that’s true, but everything is relative.  Choosing between two negative outcomes is still an opportunity to improve the net quality of our lives.  Living with the burden of having made that choice, however, can understandably outweigh the perceived benefit of choice and control.]

Choice is a powerful tool – it enables us to go from who we are to who we want to be.  All the same, however, it doesn’t solve all of our problems or fulfill all of our needs.  Sometimes it’s too much.

Another wonderful insight from Professor Iyengar: To get the most of out of choice, we have to get choosy about when we choose.  [Note: the concept of meta-choice – choosing when we want to choose – therefore becomes a fundamental guiding principle of our lives.]

She played a brief clip from the Oscar-winning move “Hurt Locker” showing the protagonist dealing with a situation where he has to make lots of decisions and there are a multitude of choices among which to decide.  The contrast she was illustrating was that the hero makes decision after decision with calm in
Iraq when he is confronted with life-and-death situations.  But upon his return to the U.S., he is paralyzed by the choice of cereal in a grocery store.  As a result, he apparently returns to Iraq to resume his earlier mission of defusing and destroying hidden bombs, in other words, to restore meaning to his choices.

We begin to believe that all of our choices are important to us.  We must focus on the choices that really matter.  In that way, we can balance our hopes and desires with clear eye on our limitations.

Questions from the audience: 

Q: how do we let others choose?  For example, Obama’s health-care insurance bill received Congressional approval this week.  An issue seemed to be that of choosing between the government or insurance companies making decisions regarding our health.

A: In the West, we value our freedom.  Under the status quo, we had the perceived freedom to choose our insurance company, who would then make choices about our health.

Q from me: her earlier example of students and career preferences indicated that students convinced themselves that they were happy with their choices, while the beer drinkers were less than happy because another tippler had ordered the brew which they actually preferred.  When do we rationalize our choices and when do we grouse about them?

A: Her study indicated that students were happiest when they believed that what they got was what they wanted.  She differentiated between maximizers, who seek more choices, and satisficers, who are more willing to be less thorough.  Apparently, the students who were maximizers got more offers, as would be expected.  The outcome, however, was that they were less happy with their ultimate choice, presumably due to concerns that a different choice would have been preferable.

Furthermore, even if one had such tendencies, it’s not practical to attempt to maximize on every decision with which we are confronted – there are simply too many decisions and choices.  In many situations, we’re just going to have to be satisfied to be a satisficer.

Q: people own what they choose.  People don’t resist change, they resist being changed.

A Going from zero choice to some choice is enormously powerful.  Therefore, we don’t want to get rid of choice, we just need to manage it.

Author’s Summary: The act of choosing has a myriad of implications.  It connotes freedom.  It gives us an opportunity to define ourselves.  At the same time, it is fraught with negative implications.  I can’t choose because it’s too complicated.  I can’t choose because the consequences are too severe?  What if we make the wrong choice and I’m unhappy?  Or people think we’re bizarre? 

The good news is that we can train ourselves to both recognize the choice frameworks we are given and decide how, or even whether, we choose to choose.  A trivial example: if I can’t decide between the ribs and the fish & chips, I might as well choose at random.  It’s not likely that I’m going to get any additional information that will help me decide.  And, what’s the worse than can happen?  To the contrary, what’s the best that can happen – making the right choice is likely to only have minimal impact on my long-term well-being, so why expend what few neurons I have left agonizing.  Furthermore, I am trying to train myself to live with that decision – even if the choice turns out poorly, let’s not have a nervous breakdown over it. It doesn’t really matter, and besides, the other choice could have been worse.

When I chatted with Professor Iyengar about this issue during the reception, she said that she allows her husband to make menu selections for her because, for whatever reason, it’s more important to him than it is to her. 

Now, that’s a woman who knows how to choose!

Sunday, March 14, 2010

Media Summit 2010: Interview with Arthur Sulzberger, Jr., and Janet Robinson, of the New York Times

Paul Bascobart, the president of Bloomberg BusinessWeek, started off the second day of the 2010 Media Summit, Thursday, March 11, by indicating that today’s sessions were going to be more print-oriented, as opposed to yesterday, which had been more television and video-centric. He introduced James Ellis (henceforth to be referred to as E), the assistant managing editor of Bloomberg BusinessWeek, who was going to be interviewing Arthur O. Sulzberger, Jr. (referred to below as A), Chairman, The New York Times Company & Publisher, The New York Times, and Janet L. Robinson (noted below as J), President and Chief Executive Officer, The New York Times Company.

E: The New York Times is engaged in looking at new methods of delivery and involved in a search for a new business model. Among the media properties of the New York Times Company, the focus of the morning’s discussion would be on the challenges faced by the New York Times (NYT) - America’s premier media brand. In its160-year history, it has shown a tremendous ability to change, creating hope that it can do so again.

What does the NYT brand mean and how much of an advantage does it provide in dealing with the necessary changes?

A: He doesn’t believe that everything is changing, i.e., that up is down and vice versa. The challenge is converting what the NYT does so well to a whole new way of operating. This challenge goes beyond adapting to the new formats.

Instead, the real challenge is that of keeping the brand promise for all of its brands as they accelerate through the digital transition. Brand is critical as long as you don’t allow it to handcuff you. It’s not how people get info, but the quality of the news & info, and the integration of reporting into the social web.

E: The NYT brand is so closely associated with print – does that handcuff the brand?

J: It is an advantage to have the strength of the brand name. We can continue to endear ourselves to those who are loyal to the print product while developing loyalty with new users in the new formats.

The key to the NYT’s brand differentiation is its strong commitment to quality. People understand and applaud what they have done as we transition into a web format.

E: When people think about older brands on the web, they get tripped up on the distinction between journalism and content. Is it a more difficult challenge for a brand based on quality journalism to move into the content arena?

J: If we looked at the transition as simply to digital, as with a generic “,” then it would be a problem. The entire experience has to be extremely rich; it’s not just about transferring articles to a web format. The NYT invested early in the web, as far back as 1994-95; we embraced it as an opportunity, not a threat. There is no denying that it’s part of our future. Thanks to those efforts, we became the #1 newspaper website and the #5 overall news & info site early.

A: We recognized early that there was a lot that we didn’t know. J spearheaded the creation of a research & development department to provide a little more direction for the future.

E: When media companies refer to themselves as being platform-agnostic, it raises the ire of journalists.

A: That approach is positive because we can’t define ourselves by method of distribution. Otherwise, we would still be using pigeons. The New York Herald foresaw the death of newspapers in 1850 due to the advent of the telegraph.

We are platform-agnostic because we care about journalism, which creates a valued audience, which we sell to advertisers.

The iPad and the Kindle are critical parts of our future

E: How is the condition of the economy changing the need for the transition – is it making it faster?

J: The need for change is faster due to the economy, consumer trending and changing habits. As a result, the advertiser has become very careful in spending money. Lots of dollars were held back recently. More recently, people are recognizing an opportunity to capture market share, so there is an increased interest in getting their message out and choosing methods that work for them.

E: Is there a long-term decline in trend for ad spending?

J: There has to be a commercial marketplace. People have to get their messages out in order to sell goods and services. The speed of the ad recovery, however, is still to be determined, although we are starting to see people have strong interest in gaining share.

The history of recessions is that people who come out early can steal market share.

E: Historically, they have been investing during tough periods. Was this recession different?

J: We have continued to invest. We have done some cost restructuring also. We have invested in journalism, technology and our digital future.

The cost cutting was in the newspaper distribution and production side of the business. We needed to be a more productive and efficient operation. One could ask: Why not do that earlier? A crisis should not be wasted.

We also looked at our portfolio carefully and divested non-core properties.

E: Managers presumably understand cost cutting, but how about journalists? How do you communicate that message to the editorial side?

A: It wasn’t hard to communicate that because Bill Keller and the newsroom saw the painful work being done on the business side where the numbers shrank dramatically. Also, we are being selective in hiring but bringing in new people on the editorial side.

J: Newsrooms understand that there has to be a constant re-evaluation of resources. At the same time, quality journalism can’t be created without a healthy business operation.

Over all, the understanding between the editorial and the business sides is the best it’s ever been.

E: Did you think that digital would change the business this much and this quickly?

A: Everyone recognized the opportunity – get news and information out regardless of the location of the printing presses – we can now serve people at enormous distances.

The speed of the challenge, however, has moved faster than expected.

We are now moving into the secondary and tertiary phases – the social media phase. We are becoming parts of conversations happening all around us, not through us. This will require us to have a new mindset.

E: Is this a net plus?

A: It’s a net plus if you get it right

What are the best ways to keep a quality audience growing and keep them engaged with what we do? If it requires being on Facebook, then we have to be on Facebook.

E: The media is used to one-way conversations. The ability to have two-way conversations is exciting, but how do we preserve what is worthwhile to us and our advertisers?

A: The challenge is what to do about a two-way conversation that doesn’t include you. How do you make your information part of the conversation?

E: Let’s look at the old-media, traditional part of the business. Newspapers are challenged. Advertisers are looking at how they want to play the recovery. Will the end of the year look better for newspapers in general?

J: Everyone in our newspaper business has embraced the internet as a wonderful opportunity [Note: seems a little late.]

E: Who is your guide for managing through a bad economy?

J: Industries that restructured their traditional businesses in order to invest in new technology. Our peer group is still committed to quality – Washington Post, Financial Times, Conde Nast.

New companies like Facebook and Twitter are good at reading consumer trends.

E: Do we need to stop thinking about media so much as being ad-supported?

J: Yes. Our circulation revenue base has grown to 40% of total revenue.

Diversified revenue streams are good for the company in the long term. We put a lot of deliberation to our decision to go into a pay model for the website in 2011. We looked at lots of pay models in terms of their impact on our audience and our advertisers, and the willingness of consumers to pay for content.

We settled on a metered model – we think that we have found a balance for the appropriate amount of free and paid content. We feel there is an opportunity to gain a good deal of revenue from this pay model.

It takes this period of time to get everything right, so we had to announce this way before our launch date.

E: Lessons from Times Select?

A: People were willing to pay for content. Later, since digital advertising was skyrocketing, we took down the pay wall in order to take advantage of ad revenue opportunities.

The new pay wall is due to recent changes – it shows the power of testing and adapting. Will a pay wall be the right thing 10 years from now? Don’t know.

E: Murdoch and others are trying to deal with content aggregators. How do you feel about aggregators?

A: We can’t put all content aggregators in the same box. There’s a contrast between fair use and theft. Google is a powerful part of our ecosystem and we work with them well. Other sites lift content and don’t even link back to us – that’s theft.

E: How about new devices – are they trying to figure out the ad model so that ads work as well as on existing formats?

J: It’s early to predict the ad experience on the new devices. Ads will have an important role – it may be similar to web format or it may be comparatively different.

Media companies are working on making the content experience enjoyable – there is an opportunity for marketers to do the same for ad experiences. Advertisers have taken advantage of video and larger ad formats online.

The NYT R&D lab has been a useful place to bring advertising agencies and clients to show them future advertising opportunities. We had created the lab in order to be in the forefront of technology changes.

Furthermore, the NYT was the first company to integrate our print and digital efforts in both content and advertising.

E: Carlos Slim has a 6.5% ownership of the NYT Company. What about others who want to participate in ownership in this family-controlled company?

A: People who want to participate with the NYT can be shareholders [albeit of non-voting stock]. We are delighted to have Carlos as a major investor in the NYT Company. He believes in our mission and the quality of what we do [Note: sounds good, but who really believes this?]

E: Are you recruiting long-term investors?

A: Investors who don’t share our vision sell their shares. The Company is not going to be sold or split apart.

Audience Q: What is the most challenging aspect in serving a traditional base of customers and advertisers who are not as digitally connected?

J: Part of the rationale of the R&D lab is to show the effectiveness of the web to advertisers. Some advertisers very advanced, others are coming along. We also show advertisers what others are doing in their own space via the R&D lab.

The lab is a differentiating factor as is our journalism.

A: Print is not going away. We recently opened another print site – we have more print sites than we could have imagined.

The number of print subscribers who have been with us more than 2 years – who are generally considered lifetime customers – increased in the last several years from 650,000 up to 820,000.

Q: If the paid model doesn’t work, what are your options?

J: We would look at alternative models to adjust or diversify our revenue streams or create new revenue streams. For now, the metered model seemed best from a research perspective.

Q: How can we get ourselves and our clients to see the lab?

J: Call her.

Q: You are accustomed to a direct relationship with your customers – what happens in a device world where there are intermediaries between you and your customer?

A: The relationship with our customers is critical to our success – we will maintain that relationship.

J: A critical part of the analysis to understand how consumers use the paper and digital products – what’s the consumer behavior?

Q: It’s important for consumers to pay for content. But it is hard to change consumer behavior. How can you change the consumer propensity to get them to pay?

A: Focus on the ease of the consumer experience. It is not necessarily as hard as assumed to change consumer behavior. We expect that our core loyal audience will move over to the pay model.

J: We should give more credit to the consumer with regard to their judgment regarding quality. Consumers understand what is and is not quality. Also, consumers understand that quality journalism is expensive and has to be paid for. We will continue to invest in the experience – we will improve our product and add more goods and services.

Q: How much of your revenue is from digital?

J: 14% and expected to increase. A large group of advertisers buy both print and online, and that is why we integrated the newsrooms, sales and marketing.

Notes from 2010 Media Summit: Interview with Jonathan Klein, President, CNN/US

The 2010 Media Summit opened on March 10, 2010 at the McGraw-Hill Building in Manhattan. My notes are below, with the caveats that they are my best rendition of the discussion, with no claim to accuracy; much of the discussion has been paraphrased, rather than being a direct quote of the participants; and I bring my own viewpoint and perspective to this discussion, which influences my perception of the discussion.

Introductory remarks were from Paul Bascobart, the president of Bloomberg BusinessWeek. He started out by saying that this was a particularly interesting year to review business models [Note: aren’t they all lately, and for the foreseeable future as well?] and predicted that the Summit’s sessions would include some “old-fashioned Italian fistfights.” He pointed out, as everyone in the audience presumably knew, that last year’s summit had been held in the midst of the financial crisis. The stock and ad markets were down, and iconic media brands were going out of business.

It was now three months since the acquisition of BusinessWeek magazine by Bloomberg. He proclaimed that they are on the cusp of the relaunch of an exciting new magazine. He said that it was going against the trends of the magazine business – there would be more stories with increased frequency of publication on thicker paper, an integrated newsroom with 2300 reporters, and on April 23, a

He then introduced Josh Tyrangiel, who had joined Bloomberg BusinessWeek as Editor in November from Time, where he had been deputy managing editor at Time magazine and managing editor at Josh (T) was to interview Jonathan Klein (K), the president of CNN/US since 2005 as the first event of the Summit.

T offered up a self-proclaimed softball question regarding the speed of change of the cable news business model. Is it feasible to have a non-partisan 24-hour cable news network?

K responded by pointing out that CNN had its most profitable year ever in 2009, concluding six years of double-digit growth. He attributed some of that growth to having about 20 different properties, including international, headline, online, airport, and a dozen or more countries. As for the benefits of this far-flung organization, he said that some of the first reporting on the Chile earthquake had been from CNN Chile.

T: Where’s the growth?

K: Online and mobile have enormous growth potential. The U.S. cable network is a growth area, since it has two fully-distributed networks – CNN & HLN.

T: There are very few independent media companies. What is an example of synergy from being part of Time Warner?

K: Synergy is driven by people. Some of CNN’s best joint efforts have been with HBO, for example, sharing talent, as with Fareed Zakaria on the Mumbai massacres. These efforts are driven by CNN’s relationship with HBO senior executives and can’t be simply mandated by Time Warner senior management. CNN Money is a successful joint effort with Time Inc.

T: Are these relationships a priority driven through the organization?

K: The business lunch should not be under-estimated. These relationships are best created in a non-pressured environment without reference to specific projects.

CNN also has 1000 affiliates, where they are fostering a climate of cooperation. CNN doubled its profit over the last 4 years due to working together with those affiliates. A premium is placed by Jim Walton, head of CNN Worldwide, to create such collaboration.

T: Does CNN employ people as access points between divisions?

K: CNN hadn’t done so previously. Now, however, CNN doing more in online video. There are two people pushing content from CNN into, content that is not necessarily suited for TV.

T: CNN benefits from having two sources of revenue – subscribers and advertising. What about competitors who only have one stream?

K: Everyone in media is looking for multiple revenue streams. The model was created by Ted Turner and fostered by Phil Kent, head of Turner Broadcasting.

CNN is in the happy position of being indispensable at times, not always. That has
created a brand association desired by advertisers as well as cable & satellite providers.
CNN therefore has a focus on over-delivering in those situations because there are few
indispensable global brands.

T: With regard to competition, 24-hour cable news is like an umbrella. One can make a great umbrella or simply tell people it’s always raining. CNN ranks only 3rd in the 25-54 demographic, despite its profit in 2009. Is it a flaw to stick with quality?

K: Ratings are only one metric. CNN doesn’t sell any one show or daypart. Instead, it sells the overall reach of the network. The ways it gets ratings are more important than the ratings themselves. It over-delivers on real journalism.

As a result, CNN is number one in cumulative audience – the total number of people watching. In February 2010, CNN US had 100 million viewers, Fox had 91 million. Fox viewers stay longer, so that boosts their ratings. Also, ratings don’t count out-of-home, online, and mobile, further handicapping CNN.

T: Does it bother you to be in 3rd?

K: CNN thinks of itself as being in 1st place with more and higher quality viewers. It is number 1 in digital, both web and mobile, it is the #1 recognized name in international. Competitors, however, try to define cable news as primetime.

The real competition for CNN is actually social networking, especially at night, a phenomenon that has shifted from daytime as being primetime for the web. People on Facebook and Twitter are also sources of news. He wants CNN to be the most trusted source [Note: any recent studies seem to indicate that social networks are losing some credibility as sources of information. He is more worried about Facebook than about Fox.

T: Does he have a social media director?

K: CNN has a social media group, which is not segregated out as separate function. Instead, social media is integrated into everything.

He likened CNN’s move into social networking to the controversy he created as the first person at CBS News to put his email address on his business card. He feels that CNN similarly needs to be accessible and be part of the conversation. People crave information. Because it is easier to get, it creates its own demand. If CNN can solve the complexity, it can make information easier to access.

At the same time, he needs to keep an eye on expenses and quality/

T: What do people want on social networks?

K: People are looking for reliability – is the information true? They will spread nuggets of truth to their friends. Truth is the essential function among social networks. He doesn’t want to cloud CNN’s reliability with suspect partisanship. CNN is the number 1 source in digital due to its reliability.

CNN is the most dependable source of news.

T: Klein says that CNN is non-partisan. The Pew Research Foundation says that CNN’s audience skews Democratic while Fox skews Republican.

K: When you get a large audience, you get all kinds. [Note: this was a particularly non-responsive answer. T was asking about composition, not size, of the audience. Since this issue arises often with regard to CNN and Fox, Klein’s failure to have a more responsive, even if stock, answer, contributed to the sense that much of the discussion was based on the “party line.”]

Profitable businesses can be built around niches. CNN’s niche is people who crave reliable information about world. That niche is underserved due to the proliferation of partisan sources of information. Competitors get fringe audiences, and CNN gets the vast audience who wants dependable news.

T: What is the future of America if sources of news harden along ideological lines?

K: Changes prevent such hardening. Five years ago, there was no Facebook or Twitter. The constant is that people will want reliable sources of information, despite the growth of long tail interests. There needs to be at least some source seen as a non-partisan and straightforward source of information.

CNN has gained 50% more viewers than in the mid-1990s even with more competition. Competition forces you to be better as the audiences demand improvement. Then, the audience spreads the word about what’s good, as with the movie Paranormal Activity. He acknowledged that CNN had gotten criticism about its Iran election protest coverage and asserted that it had improved as a result.

T: CNN has to transition from being a logistics organization to being a reporting organization.

K: In the past, if there was no competition, just getting there to report the news is sufficient. CNN also benefited by airing news when no one else did.

Now, other news organizations can also provide the effect of being there. Depth of analysis is harder since more brainpower and creativity is required. That’s why they put Fareed Zakaria on the air. He would not have had a place on cable news 10 years ago since he’s not just about being there. Similarly, the rise of Ali Velshi is based on providing synthesis of information.

T: Isn’t synthesis similar to opinion?

K: There is a difference between someone who’s actually been somewhere vs. sitting in a cloistered environment and throwing bombs.

Many opinion leaders are informed but do not have the additional credibility of actual experience.

CNN anchors don’t advocate policy. Guests will advocate. He acknowledged that CNN is not perfect.

The best journalistic organizations rarely miss a step, citing 60 Minutes, the Wall St. Journal and Vanity Fair. They provide consistent, in-depth reporting and analysis.

T: Is such journalism possible?

K: The WSJ does it every day. CNN cancelled Crossfire because it had degenerated into mud-throwing. Anything that is around too long eventually becomes a caricature of itself, a circus [Note: Quite a generalization. What about 60 Minutes?]. The creation of the Situation Room program as an island of intelligent discussion resulted from CNN’s assessment of Crossfire.

T: What about stories regarding the balloon boy?

K: CNN always has to cover breaking news. After all, if the boy had been in the balloon, it would have been a disservice to not have covered the story. On the other hand, CNN moves off of a story when it veers into a speculative mode.

While CNN’s coverage included having the parents of balloon boy on Larry King with Wolf Blitzer that night, there was also no other major story competing for CNN’s attention.

In CNN’s defense, it dropped the story in general afterwards even though not everyone else did. Generally, cable news takes a story and speculates about it endlessly.

His experience from launching and running the FeedRoom is that Day 2 of almost any story drops off sharply with regard to audience interest. He is trying to bring that learning to cable news, that the audience tires of a story before the cable news networks do.

As an example, the Congressman Massa story is viewed as generally dead; the audience is already over it. Of course, an errant producer may cover the story anyway.

CNN’s tries to avoid speculative stories. Regarding Tiger Woods, CNN covered the automobile crash. “Once you get the picture, dial back.” CNN purposely did not get into the speculative phase with psychologists, sex addiction counselor, mistresses, etc. CNN tries not to feed that angle. It may be legitimate for other news outlets. CNN would interview Tiger Woods but not anyone who has anything to say about Tiger Woods.

TL: What is more important: good producers or good on-air talent?

K: Both. Producers tend to be deferential to talent. The key is having talent who understands news and producers who can help them achieve the desired quality. Examples include Jeff Zucker and Katie Couric at the Today Show. That symbiosis is why CNN hired Tom Bettag for Candy Crowley. At the same time, he wants viewers to have fun – he doesn’t want CNN to become CSPAN.

Too many producers and talent have been corrupted by the direction the business has gone toward less intelligent discussion and more fireworks. It was exciting when it started, but now everyone does it. There is an oversaturation of the meaningless and trivial. CNN has to deliver something more substantive and serious. By delivering that, CNN will build its audience as it did in 2009.

T: how’s the relationship between CNN and the White House?

K: It’s the way it was before. Some reporters [Note: presumably not at CNN] expected a golden age in White House – journalist relations. CNN pointed out to the news community that the White House is populated by hard-bitten politicians who will use journalists to accomplish their own ends.

Strangely, the White House is fixated on traditional journalistic outlets such mainstream broadcast, e.g. Sunday morning shows. The White House reverted to an old-fashioned media approach despite having won the presidency based on its facility with new media.

The White House mishandled its approach to Fox Networks by criticizing Fox but not attacking MSNBC, which supported them. It didn’t seem statesmanlike.

People are skeptical of authority, and reporters are supposed to do the same – hold the powerful accountable. For that reason, the Millenial generation and other like-minded skeptical audiences should love CNN.

T: How was CNN on the coverage of the financial crisis?

K: Ali Velshi is good at explaining the terminology. CNN could have done more on the issue of accountability for the crisis. The public is not clear on whose fault this is: Why did this happen? Who should we be angry at? CNN, however, doesn’t want to simply fan the flames to public resentment. It doesn’t want to just tap into public anger; it has to enlighten the audience.

TL: Do journalists understand the root causes of the financial crisis? Is that journalists don’t get it or that they can’t explain it?

K: Perhaps no one understands the root causes. The news media should at least set out theories about the causes and dissect and explain them in an intelligent way.

T: At the time of the crisis, should CNN have educated everyone?

K: CNN did launch summits to leverage the assets of Fortune and Money magazines. It had primetime discussions about the economy. But there needs to be significant frequency of programming before people realize you’re even making these sorts of efforts. Therefore, CNN’s new approach is in trying to do fewer things better, e.g., its new show with Ali Velshi.

T: Is there a ceiling on the ability of TV to explain complexity?

K: New technology allows more detailed explanations, such as John King’s electronic board during the 2008 election.

CNN did a study about consumer viewing habits. Consumers were asked about their favorite shows and how often they were viewed. On average, 15% of the episodes of their favorite shows were watched. The Sopranos has the highest score – 36.7% of the episodes were viewed

Therefore, networks have to be consistent due to lack of viewer frequency, and NPR is an example of a consistent news provider.

T: Was Lou Dobbs over the line with his commentaries on public policy?

K: CNN concluded that this is not what it wants to be about. It should let others engage in opinion to that extent.

Lou understood the difference of opinion with his approach. He wants to pursue advocacy journalism so he and CNN parted ways.

T: How does he feel about the depth of competition?

K: Fox fostered a culture of an Alamo-like environment: us against the world. CNN is more focused on all of the things that are changing in the competition for eyeballs. It prefers to engage in competition for quality of journalism, and on that score, feels that it is like the way the Yankees viewed the competition during their years of dominance.

T: What news asset do you most covet?

K: 60 minutes, due to its consistency over time. Executive Producer Jeff Fager updated a classic and took it up in quality, so he watches it all the time.

T: Would CNN do a magazine show?

K: Audiences may not want that format anymore. The preparation time can put you out of sync with the news cycle, even thought CNN does not want to just tell you what happened today.

In 2 years, there has been a 30% increase in the number of people getting their news digitally. To meet that growing demand, CNN will definitely provide additional news formats, such as investigative, long-form and documentaries.

T: Will there be a loss if evening network news shows go away?

K: No. We can’t cling to the forms and formats of the past. We have to question everything. CNN could decide to stay the course or evolve. It shouldn’t be like the ad agency depicted on MadMen, oblivious to the changes that are coming.

There would be no loss because there are so many sources of information. More sources mean that serious journalism is easier to do than before. Of course, journalists may not make the same amount of money as before. He doesn’t know anyone who gets into and stays in journalism for the money - it’s an obsession, not a profession.