Great Idea? Wow!

Off to San Diego

2006-04-08T04:24:00.000-04:00

I am off to San Diego to see where my future lies...here?

Calling Dr. Kuhn

2006-02-28T19:04:00.000-05:00

Is this the start of something new?

Company Earnings Manipulation

2006-01-13T16:20:00.000-05:00

Jeff Matthews, a hedge fund manager who blogs at Jeff Matthews Is Not Making This Up notes in a recent post that IBM dramatically lowered their Q1 earnings per share (EPS) estimate last April to 90 cents from $1.04. In actually, IBM earned 84 cents that quarter, net of 10 cents worth of options and stock-based compensation. Shortly, thereafter the stock fell ten dollars.

Because public company executives are trained to do everything to keep Wall St. happy, which typically means delivering ever higher earnings with no surprises, is it any wonder that the EPS number is ripe for manipulation? Since companies have the power to create and destroy stock pretty much at will through new stock and option issuances and buybacks of existing shares respectively, the PER SHARE earnings number does not necessarily accurately forecast the outlook for a company.

For example, if Company X with 100 million outstanding shares earned $100 million this past quarter, you can figure out that the firm earned $1.00 per share. If the company forecasts its EPS will rise year over year (YoY) to $1.25 it can meet this in two ways. The better way would be to earn an additional $25 million over the existing $100 million of current earnings to get to $125 million for the quarter or $1.25 of earnings per share. The worse way would be to buyback 20 million shares, "retire" them, and off a new 80 million share base report that while gross earnings were unchanged at $100 million, the EPS number still rose to $1.25.

While the two outcomes may be for accounting purposes similar, the second result clearly indicates a worse off situation than the first result. This is because not only did the company report in the latter example that gross earnings were unchanged YoY despite the higher EPS number, the company drained its cash reserves buying back stock to keep the EPS forecast on target. Current stockholders shouldn't shrug off this development just because their current shares now are worth more as a percent of the company (the stock base reduced from 100 million to 80 million) because as Jeff Matthews points out the granting of restricted stock and options is hardly a non-reoccurring expense to a major corporation like IBM. There is every likelihood of future dilution due to new stock being issued and 80 million shares can expand back to 100 million shares so that the EPS is no longer $1.25 but shrinks back to $1.00 EPS. What once was heralded as a sign of growth now becomes a realization of stagnation.

Guy's Let the Good Times Roll

2006-01-05T14:34:00.000-05:00

Former Apple evangelist and current VC at Garage, Guy Kawasaki has a blog, Let the Good Times Roll. I'm looking forward to how he dishes out advice on entrepreneurship and the VC business with the best of the VC bloggers like Fred Wilson and Paul Kedrosky.

Hespos and Jaffe

2005-12-31T16:44:00.000-05:00

Tom Hespos is going to guest host on Across the Sound, a podcast started by Joseph Jaffe and Steve Rubel, who retired from the program due to his recent promotion at Cooper Katz. I'll be looking forward to his commentary as I know Tom is one of the brightest guys in marketing today, advocating new ideas on how to navigate within the interactive digital marketplace.

The online publishing conundrum

2005-11-29T21:16:00.000-05:00

Fred Wilson, a venture capitalist, offers up a familiar complaint to anyone who is a heavy consumer of online content. Publishers too often inconvenience their audience by forcing upon them articles which needlessly span several pages in order to generate additional pageviews. This is done solely to raise the advertising to content ratio as each separate page viewed increases the number of ad impressions per user visit.

Their need to do this online shatters the offline notion that publishers can disregard how much content readers actually consume but still price ad space on the assumption that it will be viewed. Most readers don't read the contents of a publication cover to cover, yet advertisers pay based on the circulation numbers from the publisher. If a reader only reads a few articles, the ads that are not adjacent to those article pages won't be seen, much less inspected. Since online articles that are not clicked on don't generate pageviews, publishers have to come up with a way of creating extra ad impressions. Breaking the content up is one way to do that.

Unless publishers can find a way to raise their CPM rates, readers are stuck for the time being with this annoying practice because online, advertisers only pay for an actual impression, not an extrapolated guess about readership interest.

Fix on Free

2005-11-15T23:17:00.000-05:00

What does AOL Instant Messenger, Google, and The New York Times (pre-TimesSelect) have in common? In order to generate significant early traffic and attention, the people behind these properties decided to offer their products for free to consumers. Even as they found success, the products remained free to use, both to keep their growth rates high as well as to stymie competitors who wanted to charge for their alternative offerings. As a result, they have become among the most prominent and well-trafficked properties online which most hip, technologically savvy consumers cannot do without.

What they have done is to addict consumers to the notion in order to gain their attention, information better be free. Now, for providers of information goods this is a conundrum. The production of the information certainly isn't costless, yet consumers expect it to be free. While the exact prescription may remain elusive, I predict the winners will be firms who keep consumers fixed on free.

Can you solve the Chaos Scenario?

2005-10-20T03:51:00.000-04:00

Bob Garfield's Chaos Scenario portends a period in the near future as we move from a broadcast analog media to narrowcast (i.e, Long Tail) digital media will be fraught with confusion and peril because we have not yet devised a robust method of paying for content in an age where information wants to be free. While media moguls fret about their content being pirated by college students, advertisers worry how their messages will reach consumers in a user directed, on-demand world.

Although the Internet and the Web have been commercialized for a decade, there has yet to develop a technology or platform that can effectively absorb the billions of dollars spent currently on network and cable TV and in Print. With just over 6 percent of ad dollars spent online, consumers are already bombarded by pop-ups, spam, spyware/adware, and ads that takeover screens and obscure content. Is it any wonder that consumers have installed pop-up blockers, spam filters, and antispyware software in droves. Unless something is done to mediate the interests of advertisers, publishers, and consumers amicably, pouring more dollars into Internet advertising will just frustrate consumers as advertisers try even more intrusive ad tactics to offset falling clickthrough rates.

What the RIAA wants

2005-10-01T04:02:00.000-04:00

Although Apple's iTunes has been a success in creating a market for digital downloads, it has not really popularized it to the masses. More than 500 million tracks have been sold on iTunes since its launch in the Spring of 2003, but that works out to about 25 downloads per iPod. The recording industry's annual revenues are over $10 billion and the bulk of that comes from sales of CDs.

What the RIAA member companies want as I see it from their attempts to shut down p2p file sharing sites, suing college students, and overall look like the heavy is to have their cake and eat it too when it comes to transitioning away from physical analog products like CDs and tapes to virtual digital products like music files. They want to have the capacity of controlling distribution and pricing while reaping the benefits of shipping a product with no marginal costs.

I believe their current strategy of embracing DRM is flawed because it assumes that the value of the content cannot be separated from the transmission vehicle--the music file. I believe it can and there is precedent elsewhere. I won't say more except to state that should a successful division occur it will go a long way to solve the problem of paying for digital media while retaining value of the product.

Why not raise what is considered passing?

2005-09-18T16:25:00.000-04:00

The Los Angeles Times in an editorial today urged Gov. Arnold Schwarzenegger to veto an public education bill that has passed the California Legislature. The bill, backed by Assemblywoman Karen Bass (D-Los Angeles), would allow students who flunked the required high school exit exam to still get their diploma if they cobbled together a substitute in the form of a special project or portfolio of work. As noted in the piece, determining basic subject mastery could lead to abuse by students who may cheat without adequate supervision and by school districts who would look for an easy way to boost their graduation rates. Moreover, the exit exam itself is not that hard to pass.

Criticism of the federal education reform No Child Left Behind Act of 2001 is that it imposes on school districts requirements such as annual testing and adequate yearly progress metrics which lead to teachers and school administrators "teaching to the test" instead of planning assignments to meet the needs of each and every student. Often the complaints center around students who may do poorly on timed tests without taking into account a more complete picture of that student's academic performance in the classroom.

One alternative and simple idea to mandating more end-of-year tests or exit exams is to raise the bar at which a passing grade is accepted as credit for a particular course or in determining eligbility for a diploma. Most schools will deem a course successfully passed if a student receive a letter grade as low as a "D" or numerical grade as low as 65. If schools required students to earn at least a "C" or numerical grade of at least 75, then there would be less pressure on educators and politicians to need year end or exit exams to determine whether students are ready for the next grade, college or the workforce.

What a Gap!

2005-09-12T14:16:00.000-04:00

Gap Inc., the apparel company, shut down its online stores--Gap.com, BananaRepublic.com, and OldNavy.com--this past August in an effort to improve the functionality of the websites. Although praised in a New York Times article, demonstrating how the number of clicks required to navigate around the stores are reduced through innovations such as a "quick look" link popup and opening a smaller separate window for checkout items, Gap left off two features that are SOP for an online merchant.

They did not include a search box and failed to provide a way for customers to filter their purchases globally. Amazon.com, the standard in online retailing, has allowed users to keyword search and filter their choices by price, description, date, etc., for the longest time now. I cannot believe that when Tony Lenk, president of Gap Inc. Direct, who overseas its catalog and online divsions, approved of the redesign he overlooked two of the most important and useful functions that must be included in an online store.

Notice to the PFF

2005-08-15T02:52:00.000-04:00

Just e-mailed this to James DeLong at the Progress & Freedom Foundation:

James,

I enjoy the tussle you and you colleagues at the PFF have with the folks over at the EFF over the issue of IP, and copyright in particular, in the digital age. One aspect of the issue you keep harping at is that both for moral and economic reasons property rights should be defended against those who might use another's property without their permission. You argue that this should apply to intellectual property as well even though it is a non-rivalrous good.

However, as you know, the right to use one's own property can and has been circumscribed by law and statue. Although you may be able to own a gun that does not give you the right to bring it into a school. Although you may own a car, you must obey speed limits. Although a man's house is his castle, he cannot blast loud music all night long.

What I am getting at is the principle that communities have the right and obligation to set up rules on how one can use one's property even if it conflicts with the wishes of the property owner and even if it causes the value of the property to fall or be unrealized. Of course, the laws and regulations set forth can always be influenced by property owners, but property owners do not get a carte blanche say in creating the rules without input from the public or their representatives.

So for instance, I am sure you have heard that the MPAA is laying out to electronics manufacturers what types of DRM and other restrictions need to be in the new HD DVD technologies in order to gain the approval of Hollywood. As you also know, consumer groups or Congress have not been consulted in this process. Now, if you feel that they have no business mettling in what private groups do together, then I guess you'd also have to agree that your local town council has no business restricting what a private developer can do with the property he bought next to your cul de sac should he wish to install a noisy, polluting factory.

But of course developers can't just willy nilly build anything on THEIR land, that is what zoning laws are for. Zoning laws were enacted to give local communities a strong say or even outright veto in shaping what kinds of uses are appropriate for a particular property because it is important to uphold their values in how it impacts their environment and sensibilities. Even if it causes extreme economic hardship, a developer cannot build a fast food joint on land zoned as residential. He must find land elsewhere, possibly in a more isolated part of town that costs more, that is appropriately zoned for the establishment he wants to erect.

What I am getting at is that I believe there needs to be enacted zoning laws for intellectual property that explicity describe what kinds of restrictions the government--as a proxy for the community--can IMPOSE on intellectual property owners. This would go beyond fair use, which is only a defensive mechanism to a lawsuit, and spell out where the interests of the public lie versus the property owner. Moreover, there would be specific prohibitions, just as in zoning ordinances, on what an owner could do with his property unless it was properly zoned. I am not laying out any specifics on how the law would be shaped, but I'd give consumers a prominent seat at the table whenever issues affecting their downstream use (as opposed to the creators) of intellectual property came up.

Smart Optical Illusion

2005-08-15T01:03:00.000-04:00

via MarginalRevolution

IP Needs Zoning Laws Meme

2005-08-01T02:15:00.000-04:00

I hope to spread the meme of "IP needs zoning laws" to everyone on both sides of the copyfight debate.

You can buy pins and t-shirts here.

Copyfighters are...

2005-08-01T01:03:00.000-04:00

Donna Wentworth over at Copyfight tries to define what "copyfighting" is and who "copyfighters" are and what is their agenda vis a vi intellectual property law. As she puts it: "the 'copyfight' is the battle to keep intellectual property tethered to its purpose, understanding that when IP rights are pushed too far, they can end up doing exactly the opposite of what they're intended to do." She links to Cory Doctorow, who defines copyfighters as those who are "fighting for reforms to intellectual property" because as he sees it global organizations like the World Intellectual Property Organization (WIPO) advocate ever greater IP rights, benefiting developed nations, which have more mature IP industries, over less well developed nations. Unfortunately, neither definition satisfies me.

Wentworth doesn't explain what she means by intellectual property's "purpose" except to caution proponents of tougher IP laws that their efforts can backfire against them if the public feels the laws enacted are too draconian. Note to Hollywood: "be careful of what you wish for." The declining music sales over the past five years in the face of well publicized legal battles over Napster and its successors by the RIAA can be seen as testament of this logic.

Doctorow with the EFF and other groups like Creative Commons do a good job of explaining what IP reforms they'd like to see, but a poor job of putting it in terms that a layman would understand. This leads to confusion and conflict between them and those who take the other side of the debate such as The Progress & Freedom Foundation. The copyfighters blame rights-maximalists for stifling technological progress and hurting the poor in Third World countries due to restrictive licensing of pharmaceutical patents and IP defenders accuse "copylefties" of being anti-capitalist and supporting widescale piracy of IP goods as typified by services like Kazaa.

To rectify this confusion it would be better to think of copyfighters as the "zoning boards" of intellectual property. Zoning boards overseeing real property evaluate and decide whether a particular use of a property by an owner is appropriate for that community in accordance with that jurisdiction's zoning ordinances. Zoning laws and building codes limit what an owner can do with his property and in effect reduce its potential value without restrictions. While an owner might want to build a factory in a residential cul de sac most zoning laws forbid it because it conflicts with the structure and values of the community. The US Supreme Court recognized in Euclid v. Ambler Realty Company (1926) and reaffirmed in Nectow v. Cambridge (1928) that zoning laws must benefit the community if property rights are to be restricted.

If zoning laws can be enacted and be accepted as a part of the bargain of owning real property, then copyfighters theorize: "Why can't IP zoning laws be enacted and be accepted as a part of the bargain of owning intellectual property?" Fair use as it is currently constituted is a vague and weak shield against an infringement claim by IP owners. While there are exceptions that allow unauthorized uses such as criticism and time-shifting, defending one's fair use rights is not cheap. As Larry Lessig, Stanford Law professor and author of "Free Culture," puts it: "fair use is the right to hire a lawyer."

If IP laws going forward are enacted with the same sort of consideration of the community impact versus the property owner's rights as zoning laws are then most copyfighters would feel that their David v. Goliath struggle is worth it.

Educational Investments? Hah!

2005-07-26T05:52:00.000-04:00

Although taxpayer support for public schools is supposedly investing in our children's future, the funds spent on our public educational system go mostly toward staff salaries and current expenditures. Major projects like building additional facilities require bond issuances which are subject to voter approval. There is not a pool of reserve money with which to experiment on new long-term initiatives. School boards would be under political pressure not to accumulate large reserves if it meant taxes could be lowered instead.

What school districts need is the ability to form endowment funds to be used in support of experiments and new ideas whether they be new teaching techniques or charter schools without having to get voter approval to do so each and every time. What separates public schools from top private secondary schools and colleges and universities is the ability many of the latter institutions to raise and support large endowments that are often several times the size of their annual budgets. In fact, one of the selling points that attract talented students and faculty to a school is the size of its endowment. It is no coincidence that the Ivy League schools, lead by Harvard, each have multi-billion dollar endowments and are also among the most prestigious and sought after centers of higher learning in the nation.

Instead of the obligatory coin toss...

2005-06-08T13:44:00.000-04:00

why not use Rock, Paper, Scissors? According to an article in Fortune (via Dvorak Uncensored) RPS is gaining more respect in the West as a way of use in breaking ties. Although in Asia, where it originated, its use is not just a kids' game. Winning RPS, unlike a coin toss, is not just random chance. To break out of the tedium of the coin toss to determine kickoffs and overtime, if the NFL were to ever to implement RPS instead it would be an extraordinary media event that I am sure ESPN would bring in a Mel Kiper-like analyst to break down the various strategies of the game.

The End is Nigh

2005-05-20T01:48:00.000-04:00

If consumers were ever given the ability to reallocate the dollars advertisers spend on newspapers, I would fear for every publisher and short every newspaper stock.

Creating media franchises

2005-04-25T17:24:00.000-04:00

Before investing in the next media franchise creation, you should consider how its licensing opportunities will fare. If the property does not demonstrate its attractiveness against a checklist of potential license suitors, then you should reevaluate whether to invest. Well-run franchises have multiple and diverse income streams that extend their brands into several complimentary markets, enriching the consumer experience. This allows franchise owners to maximize revenues while the property is still hot and of interest to the market. Sometimes properties become so well known that they can perpetuate their value indefinitely, such as Disney's Mickey Mouse and Sanio's Hello Kitty.

The checklist of potential license extensions include:

1) film/tv/video (live-action or animation)
2) video games
3) books/magazines
4) comics/graphic novels
5) action figures and other toys
6) trading cards
7) apparel
8) promotions and tie-ins
9) snacks
10) tchotchkes

Most successful franchises can license their creations to at least four of the above outlets. George Lucas can say he licenses Star Wars to all of them and more.

Oops..there goes the neighborhood

2005-04-22T13:47:00.000-04:00

Both Jeff Jarvis and Alan Mutter link to an article in AdAge that forecasts newspapers could lose $4 billion of classified revenues by 2007, 9 percent of the $46.6 billion of total newspaper ad revenue, because of internet sites like eBay, Monster.com and craigslist are providing greater value than traditional newspaper classifieds. What newspaper companies need to do, both to help themselves and listers, is to fund a rival to eBay.

I know that every attempt to crack eBay's monopoly has met with failure, but that is because the competition did not have the money or expertise like newspaper industry does. The venture could allow buyers and sellers to locate the site either from its own web address or through the newspapers' own sites. eBay has gross margins upwards of 60 percent and I think that another competitior can steal some business away from it and give listers another venue to place ads.

Pounding a cube into a circular hole

2005-04-14T15:42:00.000-04:00

The NY Times Magazine has a fascinating article this week about how rating companies are trying to find out what people are watching on TV by using ever more sophisticated technologies. Instead of just measuring a person's recollection of what he watched on TV during the week through the use of diaries, technology has allowed companies like Nielsen and Arbitron to record what shows are being watched or heard as they happen. They then use this data to assign ratings which are the currency used to set advertising rates that underwrite the programs. Advertisers then know what programs attract which audiences in how large a number.

Jon Gertner, the writer of the piece, explains how even newer technologies are being developed to track individuals outside the home and respond to any audible broadcast of programming and advertising. As we are bombarded with marketing pitches 24/7 these devices will be able to precisely know when, where, and how frequently a message is received by that person. I fear that instead of reducing the amount of advertising in our lives, these technologies will encourage companies to inundate us with pitches that we cannot easily retreat from.

I do not think that the Holy Grail rests in marketers finding the right audience for their product, but rather the Holy Grail allows technology to help consumers find the best marketer selling right product.

Why merit pay for teachers is flawed

2005-04-12T04:13:00.000-04:00

Proposing merit pay in secondary education will get you in trouble with the teachers unions. Reformers say that the public school system needs to look to the private sector as a model for educator compensation. Paying for performance it is said gives teachers and administrators incentives to improve student performance and reward teaching excellence.

However, reformers overlook a fatal flaw in comparing schools to businesses. Firms choose who is hired and can readily fire mediocre performers, replacing them with better motivated workers. Public schools have to take all comers and cannot easily rid themselves of students who are lazy or disruptive. Moreover, as long as students receive marginal grades they are permitted to hang around to graduate even if some of them drag down the overall class grade.

Instead of incentivizing teachers to improve their students' grades, why not go directly to students and figure out a way to reward them for high achievement beyond the ubiquitous gold star stickers?

We need cheap IP

2005-04-10T02:37:00.000-04:00

What developers need is a cheap source of IP that originates from a medium which is consumed by a significant proportion of the target market. Also, the cheap IP should come from a lower cost base than the developed project unless it is an extension to an already successful line of products. George Lucas can license his Star Wars property for toys and games, but a maker of toys or games should license IP from an animated blockbuster movie at their own peril because Disney will extract a significant license fee for the privilege.

UPDATE: Hollywood gets this model right. There is a fierce competition by screenwriters and authors of successful books to get their ideas translated into film. Sometimes studios pay a large amount for a script but it usually represents no more than a small fraction of the overall production budget. However, there is enough cache attached to the project to get big name stars on board who then lure their fan base to see the movie.

Video game production lacks this essential aspect of creativity. Publishers rarely look for lower forms of IP, but instead attach themselves to high-profile licenses which cost them an arm and a leg. If they looked beneath themselves, instead of up, more ideas could be developed and greater profits achieved.

Nashing for money

2005-04-10T02:19:00.000-04:00

Greg Costikan, a respect veteran game maker, delivered an incredible rant at the Game Developer Conference in which he complained of how the game industry is killing itself, despite record revenues since the home game console was introduced more than a quarter century years ago. He vents that publishers have become too cautious and risk-averse to seek out new ideas that are the engine of any creative process. With rising costs associated with new platforms and technology, publishers seek out only the safest and most secure projects, which often means licensing deals from Hollywood or major professional sports leagues and associations. What the industry needs, says Costikan, are a few courageous publishers or other investors to fund independent developers that will try out new kinds of game projects.

However, where Costikan fails is that he asks the wrong question. Not, why aren't risky projects funded more often, but rather where is there a source of cheap, market proven ideas to test out new games? Here is where most companies go astray and do not follow the independent film model. Most publishers pay through the nose for a license whether that be a Harry Potter or the NFL. This is akin to a studio paying Bruce Willis to star in another Die Hard movie, rather than recruiting him to star in the independent Pulp Fiction. Yet, the producers of Pulp fiction did not have to pay Willis millions of dollars to land him for there picture. Rather for stars like him they might negotiate a percentage of the gross, making the film affordable to produce for the type of movie it is.

Video games are rarely able to negotiate such an agreement because most of their costs are tied up in developing the game itself, not paying an exorbitant amount to any one person. Therefore publishers and developers have to find sources of cheap IP to exploit. Unfortunately modern American culture has few sources of ideas that can be had for a song and yet attract a dedicated following of fans who are in the market for games. When something does become popular like Harry Potter the license often becomes too expensive for an independent game company to make a bid. What is left is a hodgepodge of ideas which have an itinerant fan base and that often have no angle to be developed into games.

Should we look to the land of the rising sun for inspiration? Perhaps.

The future of TV

2005-04-03T18:09:00.000-04:00

Is there one competent, implementable vision of the future of digital TV?

A publisher's business model in the digital age?

2005-03-24T14:53:00.000-05:00

Consumers will patronize advertisers if they are given control of the process of content utilization from pay to play.

About ad perception

2005-03-14T06:42:00.000-05:00

People will do almost anything to avoid advertising, except when it pays for something they really like, unless of course they are in the market for the product or service advertised and then they think of the subsidized stuff as a welcome bonus.

The Wal-Mart of Information

2005-03-09T18:53:00.000-05:00

Newspapers still have valuable brands in their markets to leverage additional revenue opportunities. However, unlike others who argue the way to attract and keep readers is by improving and investing in journalism, I think that newspapers must broaden their content offerings outside of traditional features. Expand to include reference works and serialize fiction, non-fiction, and comic books and put the content online if it cannot accomodate print. Give readers a reason to frequent the site beyond today's headlines which are being co-oped by portals and aggregators like Yahoo and Google. In short, make newspaper sites the local Wal-Mart of information.

Why sports leagues are a productivity blackhole

2005-03-09T04:16:00.000-05:00

Just as technology firms employing Moore's Law and Wal-Mart boosted US productivity and lowered prices for consumers throughout the 1990s and early 2000s, professional and certain college sports leagues hiked the price of being a fan far above the rate of inflation while not moving the needle on productivity (why this is so, I will get to later). As consumers improved their wages and saved a bit of money on their purchases, the Big Four (NFL, MLB, NBA, and NHL) professional leagues plus college football and basketball absorbed that surplus by demanding and getting from fans ever higher prices for their tickets, premium seating, licensed merchandise, and media rights fees.

Although the research firm, Team Marketing Report, documents in its Fan Cost Index that for a typical family experiencing a game is increasingly becoming a luxury outing, defenders of the price increases counter that the sports teams are just matching demand with supply. Even if true, the higher expense does not lead to greater output, the hallmark of productive resource allocation.

Sports teams, unlike normal business enterprises, can only deliver to their customers a chance at winning more games than they lose. However, because leagues are formed such that all the teams are intertwined in competition, the expected outcome across the league can only be a .500 record. Therefore, no matter how much money is poured into the league, the aggregate result will always have equal wins and loses. While modern athletes are bigger, stronger, and faster than ever before and coaching and conditioning techniques are state-of-the-art, the records of teams from the 1960s are just as valid as those of today, despite leagues being tens of billions of dollars richer. In essence leagues suck in more and more money but deliver the same product and equal results. Is there any greater example of unproductive work this side of the Atlantic?

If players' salaries were reduced by a factor of 10, do you think that kids who otherwise might have to work at McDonalds would still not compete as hard? Though players may be able to do things no mere mortal could do they are no entrepreneurs or other true risk-takers who earn their outsized pay. Others may pay these mavericks because they create and deliver a better idea, product or service or realize savings where no one else could. In short, productivity gets enhanced or else their customers look elsewhere and eventually everyone improves. This is not true of sports leagues; there is no pareto optimal condition that affect all fans which justifies ever climbing prices for the product delivered.

The king is dead?

2005-03-08T23:01:00.000-05:00

In this digital age, should consumers be able to choose their advertisements like they already choose content? By choose I mean deliberately thought of not foisted upon. If so, will this lead to the next revolution in media?

Why subscription pricing sucks

2005-03-08T16:51:00.000-05:00

Shelly Palmer, Chair of the NY chapter of Nation Academy of Television Arts & Sciences, grouses on why XM Satellite Radio recently increased its price for its subscription service to match its rival, Sirius. XM justifies the price hike by pointing to all the new content they just acquired, which doesn't come cheap. Palmer complains that as a Manhattan resident he has little use for the new features and programming that XM added to its lineup including ACC, PAC-10, Big Ten college football and basketball and traffic and weather channels. Moreover, as a subscriber he was never asked if he wanted all of this new content and its accompaning fee increase. Satellite radio does not subscribers the option to choose a la carte instead of all-inclusive pricing.

Instead of apeing cable TV's model of "more stuff, higher fees," satellite radio might want to take a cue from the Interent and other web-based services where the consumer is in ultimate control. The consumer dictates when, where, and for how much he will consume and pay for content online. Web 1.0 was all about replicating the top-down thinking of mainstream media (MSM), while Web 2.0 is all about empowering consumer choice.

2005-03-08T16:50:00.000-05:00

Haloscan commenting and trackback have been added to this blog.

Can Americans learn something from the Japanese about entertaining kids?

2005-02-23T18:51:00.000-05:00

It amazes me how entertainment businesses are constantly bemoaning how tough it is to get American kids interested in their products and as a result disappoint investors looking for growth. A major complaint is that kids are getting older, younger--known in the trade as "kagoy," meaning kids are moving up the age scale in their consumption of entertainment. Moreover, new ideas have a tougher time of breaking through because of the recalcitrance of companies to take risks in the face of competition from big box retailers and the internet. What products that are made can be categorized as either licensed collaborations or retro goods dusted off for a new generation. Is it no wonder that kids find what is being sold as boring and mediocre? The NY Times illustrates how toy manufacturers have fallen into this trap.

Now take a look at the strategies of Japanese companies. Despite being in a depressed economy for over a decade, Japan successfully exports its entertainment goods into the hands of American consumers, especially kids and young adults. Whether the products are manga, anime, video games, toys, or trading cards Americans have sought out Japanese companies for new and interesting products over American companies despite vast cultural differences between the two nations. To be fair, the amount of revenue Japanese companies and US importers earn is still a small share of overall entertainment expenditures, but it is growing at a faster clip than most American firms in the industry.

Why are consumers buying Japaneses goods over American goods? Two possibilities come to mind.

First, for the most part Japanese companies are constantly putting out new products and retiring old products, while refining along the way. What I mean by this is that creators often decide to retire older products despite being still viable in the marketplace because they feel it has run its course and to make room for new products. Particularly this is evident in manga and anime which often the authors and directors have a specific story to tell and after that just ends. American companies in contrast often push the product until it completely exhaust consumers. How many different iterations of Barbie does there need to be? However, companies like Pixar do invest in new ideas and has been well received by consumers. Even those Japanese companies that do reuse their older properties like Bandai with Gundam put in an effort introducing new angles and concepts into the basic formula.

Second, Japanese companies use a multi-prong strategy in marketing their products. They develop a brand that can be sold as comic books, animation, video games, and toys that complement each channel. However, the ideas of the creator is always the selling point, not a team of marketers. Typically a company teams up with a popular manga artist to roll out new products from that property: an animation series, a toy line, and a video game. But a hot property in the form of an anime series or video game can be the originating point for outgrowth. While some large companies, notably Disney, have been able to leverage their brands into many entertainment venues, others like Mattel and Time-Warner have been at most been able to penetrate only one or two venues and often at great marketing expense.

Just like American auto executives had to visit Japanese companies to learn just-in-time manufacturing, American executives might want to visit Japanese entertainment firms to find out how they make and market products that attract and retain young customers.

Do news sites need a little fiction to boost readership?

2005-02-20T18:45:00.000-05:00

While newspaper executives wring their hands about declining circulation of their paper product, their companion web sites hardly attract enough visitors to make up the difference in revenue losses. The average reader interacts with newspaper web sites only two to four times per month, logging less than 35 minutes per month there. Most efforts have gone into making the website splashier and more apace with breaking news. Also, the addition of online video and audio are thought to make the sites more competitive with TV sites like MTV.com and CNN.com. While these features are useful additions I do not think they alone will keep readers, especially casual visitors, coming back to the website.

It is my opinion that newspaper should carve out a section of their websites devoted to fiction and graphic novels. Short stories, novellas, and serials along with graphic novels would be syndicated to newspaper websites which would mutually benefit both parties. The syndicated authors and artists would get wide distribution and exposure of their works and the newspapers would have products that would have readers coming back regularly. Whereas before this deal was not possible because of the cost of print, the marginal expense of hosting longer and more graphically intensive works online is minimal. Moreover, with the greater use of flat screen monitors, people become more accustomed to read online.

This proposition recognizes that consumers want of their leisure time to be entertained rather than just informed. Just as the viewership of TV news programs has been declined while viewership of entertainment programs have risen, I think that if newspaper sites incorporate more non-traditional content there is a good chance of increasing retention rates among readers. Younger readers would gravitate to this form of content especially if newspapers syndicate authors and artists who appeal to their interests. To be relevant in an increasingly fragmented media world, newspaper publishers must deliver non-traditional content to readers who may look elsewhere to be informed and entertained.

MPAA + RIAA = the anti-cool industry?

2005-02-13T22:08:00.000-05:00

The defect in the movie and music company associations attempts to stamp out online file-sharing--aka digital piracy--through lawsuits is they set themselves against a group of consumers that marketers in other circumstances covet. The Shawn Fannings and Brad Cohens of this world are not just rebel technologists, but influence millions of young consumers to use (abuse?) their creations (Napster and bittorrent, respectively). While the MPAA and RIAA may see them as outlaws, kids who have grown up on the Internet do not. These users of p2p software are the early adopters of what is new and cool and if you antagonize these trendsetters by suing them and fostering DRM technologies on them unbidden they will tell their friends to stay far away from the entertainment bullies.

Kids are known to hold grudges, especially when they think they have done no harm, a common response to questions asked about if they think filesharing is wrong. So, if an entertainment conglomerate thinks it can hoodwink consumers into embracing its products after they were sued or had their favorite website shut down, think again. Why do you think that MPAA-backed sites like Movielink are afterthoughts while bittorrent has taken the broadband world by storm?

What about Apple's iTunes? Although it is an undeniable hit, it is due more to the popularity of the iPod and the player's compatibility with the MP3 file format (along with its DRM'd AAC files), than the service itself. Sony's attempt at challenging iTunes with its Connect service that allowed for only Sony's proprietary file format was a spectacular failure. A Sony executive recently acknowledged that fact, a rarity for a company who product, the Walkman, created the portable music industry.

How can the entertainment business compete against free? Now, if only there was a business plan that revolved around giving away free content, then consumers would have no incentive to frequent illegitimate sites. Hmm...

Well are not two pillars that built the content industry in broadcast TV and radio "free" for consumers? Are not they multibillion dollar businesses that made record companies and studios the cultural force they are today? If they are so "free" how can executives afford to hand out million dollar contracts to musicians and actors as well has enrich company shareholders and themselves? If executives would stop their whining by instructing their lawyers to sue another batch of 12-year olds and acting like brats who go to their mommies every time they shoved into the mud puddle, then perhaps they would have the time to come up with a business model that gives consumers what they want and not the other way around.

UPDATE: the news publishing industry would love to give away its product (see the flap over fraudulent circulation numbers at Newsday, the Sun-Times, and Forbes) if only they could convince their advertisers to go along.

We're just getting started

2005-02-13T16:13:00.000-05:00

Seth Godin, author of "Purple Cow" and a first class new media/marketing guru, says here and here that the internet is just getting started as a business, technological and cultural phenomena. Meaning we haven't seen anything yet. More to the point because of the expansion of broadband and falling storage costs plus access to standardized programming tools allows someone who has an idea to build it cheap and fast.

However, Godin cautions that precisely because of these trends more people than ever are doing it. For you, that means fierce competition. To become a Purple Cow the criteria must include relentless execution, knowing what not to do, being three steps ahead, and ignoring the pundits, including himself!!

Andy Kessler: were all artists now

2005-01-25T22:46:00.000-05:00

Andy Kessler is a bright guy, who self-published his book, "Wall Street Meat" about his ventures of the 90s Wall Street and VCs. Writing in the Dec. 23, 2004 Wall Street Journal, he posits in the article "Andy Kessler: WSJ: We Think, They Sweat" that while economists and politicians may be fretting over our record trade deficit--now over $550 billion--and falling dollar, we should view these events neutrally if not even positive for the American economy and jobs. While China and other third-world countries are gaining jobs in manufacturing goods for companies like Apple Computer the jobs left for Americans, Kessler says, are often high-paying design and engineering work that is the source of intellectual capital. We have merely shifted the production work to them while keeping the more intellectually stimulating work for ourselves.

While that may be true for some sectors of industry, it can not be the basis for a wholesale rollback of domestic manufacturing. First, many people do not have the skills or capabilities to be designers or engineers, no matter how much training they get, just as some people are not cut out to be much more than shower singers. Second, as noted in the book, "The Winner-Take-All Society: Why the Few at the Top Get So Much More Than the Rest of Us," most of the riches of success are won by a very few number of persons or firms. Meaning the distribution of rewards does not trick down to all who aspire to be in a certain profession. If you had a job as a tool maker you could be reasonably assured that if you were competent you could have a decent salary. However, just being a competent designer or artist is no longer the metric of whether or not you are rewarded. You must be among the elite or invent a breakthrough product or idea. But by definition everyone can't be above average.

For a company like Nike which outsources its shoe manufacturing the rewards for consumers spending $100 sneakers go to the top management of Nike and its contractors as well as a few select designers and endorsers. What is left pays for the salaries of minimum wage jobs at Footlocker. So, as Robert Frank and Philip Cook document the gap between the super rich and everyone else widens and may continue to do so should Kessler's observations come to pass.

Why not require the display of pricing?

2004-12-04T17:13:00.000-05:00

A major reason why health care prices outpace general inflation critics charge is that consumers are ignorant of medical care's real costs. If consumers knew how much medical care costs they would demand better value. There may be a way to do this without excessive complexity.

Although this proposal may work for some medical products and procedures, it seem optimal for prescription drugs, among the fastest growing costs in health care. In advertisements, issue a regulation that requires the advertiser to explicitly say what the either average cost is or the retail price of the product. That way when for example consumers are reading a magazine advertisement for one particular drug to treat high blood pressure he can compare the price of the product to competing product. This forces the advertiser to also compete on price even though the consumer of the product may not be the purchaser of the product (the insurer).

Is the next X-Prize the "E"-Prize?

2004-11-17T11:48:00.000-05:00

Alex Tabarrok over at Marginal Revolution is intrigued by the way that Ronald Fryer, a junior fellow at Harvard, has employed a reward system of paying students for performance in a study he has undertaken to help improve the grades of inner city school youth in New York City. The students can earn $20 if they show improvement on tests given every three weeks.

While this approach seems to be working, I think the methodology is flawed. Because of the nominal amount given to each student, the reward is more akin to giving out shiny star stickers than any attempt at long-term improvement. What most likely will happen over time is a conditioning effect upon the students where ever greater rewards are needed for each marginal improvement. The next time $20 won't be enough, but $40, $75, $100, etc. will be needed to extract the same level of improvement. Not only will schools not have the resources to finance this, but it will set students up to become addicted to these rewards. Meaning if the cash is taken away, you can expect student performance to fall below the initial achievement level.

One question that Tabarrok fails to ask of Fryer is why the mostly Black and Hispanic students do not feel the need to compete for educational attainment, yet they are fiercely competitive when it comes to extra-curricular activities, especially organized sports? Even though most kids know they have no shot at stardom, athletic competition is anything but a passive activity. One could even say that sports go overboard in their attempt get their athletes to win at all costs. Perhaps it is because the reward system in sports is organized to a particular goal with a sizable reward rather than incremental payouts. Therefore, student-athletes channel their energy into achieving that goal whether it is winning the state championship or medaling at an event. In academics, there is no parallel system of long-term rewards for many kids who cannot envision themselves as Ivy-League material.

An alternate method that rewards long-term achievement over short-term gains is modeled after the Ansari X-Prize, recently won by the Paul Allen backed SpaceShipOne team of Scaled Composites. Like the X-Prize, the "E-Prize," would incentivize students to excel beyond normative achievement because of the prospect of a large reward instead of nominal, reoccuring sums. However, unlike the X-Prize, the E-Prize would give each student who improved their grades a chance to win the ultimate prize given either each semester or at the end of the year.

A way for it to work may be similar to this:

*At the beginning of the semester, in each class, students are told that they may be eligible to win a sizable prize of their choice if they achieve certain measurable goals or test well on the final exam.

*Students are allowed to tell the teacher what kind of reward they would like to get if they win. Some may choose a particular gift, others may just want cash, and a few may request a non-monetary prize--like free class time.

*Arranged in lottery fashion, the chance that a student will win is based upon how well a student performed, with high achieving students getting more chances. For instance, if a student improved only marginally, he would get 1 chance, while a student who improved considerably would receive 5 chances. The weighting would dependent on overall achievement.

*Once the chance receipts are allocated, a lottery will determine the winner of the raffle. The winners will be publicly announced and celebrated.

I think the above system would be an improvement over just paying students a few bucks each month to get their grades up. Moreover, it would clearly motivate the entire class to improve, rather than just the kids with the lowest expectations.

If John Kerry loses...

2004-11-01T12:04:00.000-05:00

...then he can blame it on two gratuitous and unnecessary comments he made in the debates that has given the Bush campaign ammunition to attack Kerry. And more importantly they sucked up critical airtime which has muted Kerry's attempt to get out his message of change (nee Fresh Start).

First Kerry comes out with the "global test" mantra, which although he did state it was not meant to give the international community a veto over American security, it allowed the Bush team to portray it that way. The effect of this has lasted throughout the final month of the campaign, though its effect has lessened a bit recently.

Second, Kerry, in trying answer a question by CBS' Bob Schieffer in the third debate about whether being gay was a choice or not, inserted a reference to Mary Cheney, the Veep's openly gay daughter, and created an unnecessary kerfuffle. Kerry's operatives had to respond to the accusation by the Bush team that Kerry was exploiting Mary Cheney's lesbianism for political purposes. Regardless of whether the Mary Cheney reference was an appropriate point to make (see Andrew Sullivan's comments) it created a political smokescreen that took away from Kerry's impressive showing in the debates, again.

What this underscores is that Kerry has a habit of giving his opponents a way to attack him not because they came up with something good but because Kerry keeps putting his foot in his mouth (see also the "nuisance" comment).

Why Pres. Bush is immune from internal criticism

2004-10-28T07:29:00.000-04:00

Much has been made of why the Pres. Bush has been able to brush off the criticisms of his administration policies about the war in Iraq. Polls show that Bush is perceived as the stronger leader in the fight against terrorism and as commander in chief despite the attacks from his critics in the media and elsewhere. One reason for this is because Presidents are largely shielded from internal dissent. White House, cabinet members, and the civilian officials of the Pentagon serve at the pleasure of the President. So if you want to keep your job, you'd better not voice your criticisms of administration decision-making in the press. Also it is a punishable offense if military personnel publicly disagree with the decisions of the Commander in Chief. Presidents are rarely challenged by their politically-minded advisors and can make decisions in an atmosphere where it is more important to be loved than be right.

What John Kerry failed to do

2004-10-26T10:49:00.000-04:00

Sen. John Kerry could have used a straightforward message to take to President Bush, but he dithered while trying to explain what he was in contrast to the President and the Administration's policies. Kerry should have and still might be able to say this as his reason to vote FOR him, not just against Bush: "I am the people's Mr. Fixit. I will bring a fresh approach for America and its policies foreign and domestic. I will turnaround the policies that have left America in shambles by this administration who weakened our economy and left Americans more vulnerable to global terrorism."

Cablevision is losing its way?

2004-10-13T12:41:00.000-04:00

According to the New York Times article, "Mets Decide the Time Is Right for a Cable Network of Their Own," Cablevision may be left without a baseball team affiliated with its sports networks MSG and FSNY. Without baseball after 2005, which has the largest amount of games available of live programming, Cablevision will have to cut its fees again.

Instead of taking it on the chin, what Cablevision should do is buy a team like the Kansas City Royals for ~$90 million and move them into the NY region. Although local team owners George Steinbrenner and Fred Wilpon may protest, I do not think it would be too much of a problem with the commissioner Bud Selig as it rescues a moribund franchise from a too small local market.

What John Kerry must do

2004-09-24T02:48:00.000-04:00

While reading Andrew Sullivan's column on why Sen. John Kerry is still trailing President George W. Bush in the polls, I came to the conclusion that if it is not too late, for Kerry to salvage his campaign and regain momentum he lost after the Democratic Convention he must state the case for his candidacy and against the President's as follows:

1) that the current administration, led by President Bush, has undermined America's economic future with fiscally reckless tax cuts and botched a war with Iraq, which risks our national security by imprudently diverting resources and manpower from securing the homeland and combating the real war on terrorism against al-Qaeda

2) while he, John Kerry, who from years of experience dealing with economic and foreign policy matters, can build consensus positions with members of Congress and our allies around the globe to re-energize our economy and root out and defeat terrorism wherever the likes of Osama Bin Laden and his ilk hide.

Or to put it more simply, who would be better leading the country tested by a fragile economy and historic threats from global terrorism, a well intentioned if stubborn, Kool-aid drinking dreamer or a pragmatic realist?