We all know reporters love to prognosticate, their opinions respecting no temporal boundaries. But now a whole other industry has grown up that lives off their stories, trying to predict future events based on today’s news coverage. Companies like RavenPack have built a business by sifting through news stories in near real-time, looking for the sentiment of coverage related to publicly-traded companies. They claim this information can be profitably used to predict fluctuations in stock prices.
Predicting stock price moves based on current media
sentiment has logic to it – readers are also traders, so if we see a string of
gloomy stories about IBM’s recent product announcement, then some of us will
likely dump the stock. And our likelihood to take action is proportional to our
trust in the news source: If we see negative reporting in the Wall Street Journal
that outweighs positive opinions on iLoveIBM.com.
Now we have social media and the prediction game has got a
good deal more complicated.
at the USC Annenberg School have been working hard to see how social media traffic
can be used to try and predict future events. They started by looking at new
movies and tried to correlate Twitter messages to first weekend receipts. They
managed to get very good at estimating this, often better than industry
experts, and what they found has broad implications for social media marketing.
The Annenberg team discovered that the best predictor of box
office outcomes wasn’t the volume of traffic related to a movie, but the net
sentiment expressed. In other words, quality beats quantity in predicting
outcomes. A new movie might get a lot of buzz, but that wasn’t predictive of
making a lot of money. This confirms what companies like RavenPack have long known:
it’s the tonality, not the totality of coverage that really matter.
The takeaway from this? We need to be very careful how we
measure social media outcomes. Measuring retweets, mentions and the raw volume
of coverage for your brand just isn’t enough. Yet this is what most people do
Annenberg, in co-operation with the LA Times, are now trying
to see if they can use their system to predict the outcome of this
week’s Oscars. If you believe them, we should expect a big upset: The
winner for best movie will be Midnight in Paris. Here I’ll make a prediction of
my own: Much as I liked it, Midnight will lose.
Remember, I said that being able to predict stock
fluctuations worked because readers are also often traders; the same logic does
not apply to Oscar voting. The Oscar outcomes are based on the opinions of a
mere 5,700 members of the Academy. Winning others awards such as BAFTA are a
much better indicator of Oscar success.
The lesson here is that listening to everyone’s opinions is
often a mistake. Instead, we need to target on influential audiences –
potential customers, shareholders, employees – and understand clearly how they impact
our brand and business.