It happens every three months in corporate America: Senior management officials from publicly held companies gather 'round the conference table, fire up the conferencing system, and hold court with analysts and (sometimes) thousands of listeners to discuss the company’s performance and outlook.
But the quarterly earnings call, a ritual of public companies and a wellspring of quotes and information for journalists, wasn’t always so public. Live discussions of corporate performance used to be invitation-only affairs, organized mainly for the benefit of financial analysts who would listen in and later post reports for investment clients. They were clubby, insider events.
That began to change with the imposition of new Securities & Exchange Commission rules in 2000 that demanded more openness for everyday investors. The SEC’s Fair Disclosure rules were designed to combat what the SEC called “information asymmetry,” or the notion that a select group of analysts and institutional investors learned – and could trade on – critical information before the little guys did. As the SEC explained in releasing the new disclosure rules, “investors who see a security's price change dramatically and only later are given access to the information responsible for that move rightly question whether they are on a level playing field with market insiders.”
Like most new regulations, this one had unintended consequences.
And oddly enough, they helped to usher in a new approach to electronic content distribution whose impact can be seen today across a wide expanse of the video landscape. From YouTube to Hulu to Major League Baseball Advanced Media, the biggest players in online video delivery owe their origins in part to an SEC ruling around financial disclosure.
Scrambling to comply, companies began to look for ways to broaden access to earnings calls. Many adopted the most attainable solution of the time: telephone-based, toll-free conferencing platforms that allowed investors and others to “dial in” to hear what was being discussed.
But these conferencing platforms were expensive, with usage-based charges mounting as more investors joined in. The absence of scale economies around the newly proscribed earnings call democratization requirements blew many an Investor Relations department’s annual budget out the roof.
A remedy was brewing, however, around a new electronic media delivery alternative: audio conferencing over the Internet. Its appeal was obvious. By encoding live audio recordings into digital format and distributing them from servers onto the Internet, companies could bypass the toll-free teleconference in favor of a cheaper, more scalable alternative.
Investor calls by themselves didn’t break new ground for media streaming. Audio events over the Internet were already established. A Rolling Stones concert had been streamed on MBone, the experimental Internet network for multimedia content, in 1994. By 1999, Real Networks had racked up more than 100 million installations for its proprietary streaming player that made music and other digital content available to computer users.
Instead, the earnings call category provided a different sort of injection to the streaming media sector: cash. For pioneers in audio streaming, it was pure manna.
For the first time, a ready source of funds was available and eager to flow toward a nascent medium that had struggled to find a working monetization model. Corporate America, prodded by the SEC, was about to inject serious money into a media delivery platform that badly needed funding.
“That fair disclosure law propelled the streaming media marketplace dramatically,” says Bill Wheaton, who is senior vice president and general manager for the Media Division of Akamai, the Internet content delivery network provider. As Wheaton notes, it was sound, not video, that launched the wave. In the early 2000s, video streaming on the Internet was still gestating. Companies like Real Networks were trying to find ways around bandwidth constraints and player imperfections that frequently led to poor quality. But audio was more forgiving even for users consigned to dial-up modems. “So what really started the business was audio,” Wheaton says.
Today the live-streamed earnings call remains a common signature of corporations, and seems destined to live on for some time as a way to broaden exposure to time-critical investment intelligence. Meanwhile, lots of companies that specialized in telephone conferencing have since gone out of business, displaced by the cheaper and more accessible alternative of Internet streaming.
If there’s a lesson from the pairing of investment events and audio streaming, it probably has more to do with economics than technology. The missing element in the early years of media streaming technology was a business model. Out of nowhere, corporate America helped to provide one.