Wednesday, December 9, 2009

Rupert Murdoch Plans a NY Times Killer: is the LA Times Next?

The Observer notes that Rupert Murdoch is planning a NY Times killer, with a "New York" edition of the Wall Street Journal. Planning on spending $15 and using the services of the former New York Sun editor, John Seeley, the paper will compete directly with the New York Times. Money quote:

“You could drive a truck through the space between the wonderfully titillating tabloids and the perceived self-seriousness of The Times,” said Stefan Friedman, a public-relations specialist at KnickerbockerSKD. “There is a need and a want.

“With the elimination of the metro section, space in The Times is extremely competitive,” he continued. “There are maybe eight stories in the metro section each day. Take away breaking news and you’re down to half that. That’s where you can reach lawmakers, and with the area being so crowded, [The Journal has] a real opportunity from the PR side.”

With the submission of two links from "the Awl" by a reader (who I will keep anonymous unless he/she wishes otherwise), I wonder if the LA Times is next?

The first link shows the LAT circulation as an "absolute horror show." The second link shows how badly magazines have declined both in advertising pages and circulation. The Financial Times also has a story citing figures of 383 magazines closing this year. As the accompanying picture from the print version (sorry, unlike the WSJ the FT does not provide graphics with their stories that appear in the print version) shows, revenues are down for each sector of advertising and for each forecasted year, though it would appear that forecasts call for digital to be up a bit, but not enough to cover the declines in overall revenue. The year 2007 had nearly $15 billion in revenue, compared to forecasts for 2010 of closer to $10 billion.

It is clear that the advertising market will not bail out the LA Times anytime soon. So will Murdoch make a move?

It would be consistent with what he knows: newspapers. The WSJ is printed locally in the LA basin. It can easily compete with the LA Times because the LAT has a terrible, politically correct paper that neglects local stories (Mayor Tony's affairs with developers, businesswomen, and reporters, the local ACORN scandals, the scandal involving Mark Ridley-Thomas, the Obama tape of his attendance at the Rashid Khalidi dinner, and more). The LAT does not even bother to cover Hollywood, much less the basic economics of the DVD and TV sales that drive studio profitability. Readers of the LA Times would be astonished to discover that Redbox and piracy threaten the studio business model.

Can Murdoch make an LA Times killer? Yes, easily. The lack of competition, and the potential readers, even with the economy in the dumps and White flight (Mexican origin people read mostly Spanish language newspapers if they read them at all), make this business case fairly positive. There are millions of readers not served by a newspaper rivaling the NY Metro area in size and wealth. Despite the negatives of print, the sheer ease of use of a newspaper, particularly with the breakfast table, or various waiting areas, or so on, make it valuable and desirable. The WSJ alone (see the link above) has done fairly well in making itself a "national" newspaper. Newspapers can be read in almost any situation, and often have handy information, such as sports schedules for local teams on TV and radio, and other things that add value. [One of my pet peeves about the LA Times is the lack of daily radio listings, including station name, format, and frequency, that the LAT used to print but dumped along with stock tables in the 1990's. In LA's fast-changing radio line-up, you'd think this would be a no-brainer, but the Times instead challenges readers to simply surf the frequencies themselves. The little things that add value to the paper went years ago.]

The only question is people. Can Murdoch find the people to create a local, LA version of the WSJ? The NY Sun provided the template and the people for the NY version, and Murdoch has shown he can take a decade of losses (Fox Broadcasting cost around $1 billion in net losses from start-up in 1986 through 1996 in operational losses, yearly) for a property that can make money long-term. But as his MySpace debacle shows, getting the right people to run it can be an issue. [Murdoch bought MySpace for about $580 million or so, and it quickly lost buzz and users to Facebook, which now outnumbers it by 350 million users to about 100 million users.] Unlike NY, there are few people in and around LA used to running a newspaper who can provide something different than the failed, two decade long decline of the LAT.

I am skeptical of the idea that a news-reader as outlined in the Financial Times article will be competitive with the price and ease of use of a newspaper any time soon. Lighting, battery, costs of the device, ruggedness, and so on are all issues, as is paying something like ~$200 or so for a reader and then daily fees for a e-version of the newspaper or magazine. Particularly in this economy. The potential profits of a LA version of the WSJ must be tempting to Murdoch and News Corp.

But there is the question of who will run it? Local bloggers like Mayor Sam's Sister City, or Luke Ford, do excellent reporting, but managing a newspaper with hundreds of employees, and hard print deadlines, is another matter, particularly balancing that with middle class tastes. The latter is probably more prevalent in bloggers than the market-failure newspaper management, but getting a paper out on time and on budget with quality is pretty rare and requires experience. As always, it comes down to people.

The true tragedy of newspapers is that collectively, they have almost no one who has both the skills needed to manage the production of a newspaper with the middle class tone of the content. Call this one of the many casualties of the "SWPL"-ification of the elites. Ladies and Gentlemen, I give you the New York Times Holiday Gift Guide for People of Color. Yes. It really exists.

Somali fashion, do-it-yourself henna kits, children’s books that draw inspiration from the lives of Barack Obama and Sonia Sotomayor: it’s not hard to find gifts created for and by people of color this holiday season. Here are some possibilities.

The sad thing is, this could have easily run in the LAT. Without importing ex-NY Sun editors, who will run a LA version of the WSJ?

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The LA Times and Green Jobs: Stupid, Lazy, or Politically Correct?

The LA Times on its home page had this story, by, with the headline "Job growth in California is going green" and the subhead "From January 2007 to January 2008 green jobs increased 5% while total jobs declined 1%."

The SF Gate version of this story noted that "Green jobs just 1% of total in California" and that furthermore, the report cited does not take into account jobs lost during 2008-2009. [ is the web version of the San Francisco Chronicle.] The only question is, was the LA Times reporting stupid, lazy, or simply terminally politically correct.

The LA Times story itself, read the whole thing, seems essentially a re-write of the Press Release by Reporters are notoriously lazy, never more so than in the present day, and the dirty little secret about most of the content in the major newspapers is that most of it is simply re-written (or not) of press releases from politically correct lobbying groups.

The core of the (brief) LA Times report by Hsu is that "green jobs" (which include things like carpentry and electricians) "grew" an astonishing 5% between January 2007 and January 2008, while the overall California economy lost 1% of jobs during the same period. Money quote from the LAT:

The industry is still too small to drag the state out of its jobs slump but could at least nudge the economy toward recovery.

"Green jobs are not a panacea," said Noel Perry, a venture capitalist and founder of Next 10. "But this is the foundation of the green economy, and all the trend lines are up."

In contrast, the SFGate story is solid. Money quote from the reporting:

But taken together, those jobs represent less than 1 percent of employment in the state, according to the report's authors. Green industries have great promise for employment, but they haven't delivered yet.

Reading the reporting, you can learn that report has implications for California's "Green" mandates in counting the jobs that (were) already there, but notes that they could have been destroyed in layoffs during 2008-2009. [They probably were, note how carefully the Next 10 Report avoids any 2008-9 figures, probably because they told a different story.] The Bay Area has mostly energy-generation jobs (7,003), tied to Bay Area research universities, particularly Stanford and Berkeley. The LA area has 1,072 people working on alternative fuels and vehicles. Nearly every job requires massive and continuous federal subsidies, the SFGate article noting that Bay Area solar panel manufacturer Solyndra Inc opened a Bay Area facility after getting a $535 million federal loan guarantee. A careful reader will note that "Green" requires federal "green" i.e. loan guarantees, grants, money to research universities, and employed less than 1% of the total jobs in the State before the recession really hit.

Indeed, the Next 10 report notes that California jobs "dropped" by 1% total while "green" jobs increased by 5%. What neither the LAT nor SFGate note, is that in actual fact, according the Bureau of Labor Statistics, California's jobs increased during that period for a total of 183,000 jobs, or 1%. [Without seasonal adjustment. With seasonal adjustment the jobs increased about the same amount, or 241,000 jobs]

Its hard to credit the report's accuracy when the basic data about California's jobs show an increase not decrease (for Jan 2007 to Jan 2008), and further that this can be determined by five minutes reading on the BLS website.

What then, to make of the LAT reporting? Lazy, stupid, or politically correct? Likely, a combination of all three. Reporters are lazy, and will take anything that is perceived as "authoritative" and simply quote it verbatim. You can see reporter Hsu simply quoted the press release, not even bothering to question any assumptions. Because it came from authority, and because the reporter did not bother to think, or even put any effort into the whole thing. SFGate's David R. Baker, at least noted for his readers the obvious (many of the "green" jobs could have been lost during the recession) and that they were in total less than 1% of the total jobs in California during that period. That simply put, "Green Jobs" will NOT employ enough people, ever, to replace the jobs lost during the recession. Indeed, though Baker does not say so (constrained by his own PC-straightjacket), the careful reader can note that the jobs created depend largely on federal funding and consist mostly of White Elephant make-work jobs at research universities out of "Ghostbusters," or unprofitable manufacturing subsidized by taxpayers at enormous expense. Nothing "Green" consists of growth opportunities for high-revenue firms.

Neither Baker nor Hsu ask, moreover, just who is Noel Perry and what does he want from this "report" (which we can see is inaccurate and misleading). A few minutes of Google reveals that Perry is the founder and manager of Baccharis Capital, with interests in various Green Travel and partnerships with REI. A reasonable person might ask, "does Perry have business investments that could gain money by public policy at the Federal and State level directed to Green tax expenditures?" This question was never answered by either Baker nor Hsu.

To be reasonably informed about "green" tax spending (either tax breaks or bonds or grants or all of these in combinations) requires an understanding of how many green jobs there are (answer: 1% of total California jobs, something you would know from the article but NOT the LAT) and what the cause of growth in the "green" job base really is. For the latter, the SFGate article will provide the careful reader with needed information, but only indirectly, so imprisoned are the reporters by PC dogma. Job growth in "green" sectors is almost entirely based on subsidies, and most of it is in various think tanks and universities. Lastly, it is reasonable to enquire just who benefits from the report, particularly the man funding it. Certainly there would be tremendous skepticism from any report issued by the NRA, or Focus on the Family, or Heritage Foundation, by any reporter covering the story. But because the report is politically correct, LAT reporters simply re-run the press release under their byline.

I will note in passing that Baker was not innumerate, quickly grasping that despite the 5% increase in "green jobs" over the period it was a tiny fraction of the overall employment in California. Since neither the report nor the press release itself mention the size of California's jobs during that period, it seems Baker spent a few moments on the BLS site to quickly apprise himself of the number of jobs (about 18 million) in California Jan 2007-Jan 2008. Hsu by contrast seems innumerate, unable to understand that a greater increase in job growth is fairly meaningless with such a tiny fraction of the job market. The "strength" of California's Green economy that she quotes is federal spending to prop up the equivalent of Dr. Venkman in "Ghostbusters." And the LAT wonders why circulation continues to drop like a rock.

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Saturday, November 28, 2009

A Tale of Three Newspapers: The LA Times, Wall Street Journal, and Financial Times

The recent, and sad news that LA Times trans-sexual sports reporter Mike Penner aka "Christine Daniels" was found dead at home at the age of 52 cements the transition of the LA Times from popular, metropolitan daily newspaper to a specialized, "Stuff White People Like" (ala the book and blog by Christian Lander) daily appealing to relatively few while having mainstream costs. What is likely to happen is that the LA Times model of high costs but "select" readership will fail, spectacularly, the transformation of the Wall Street Journal become Rupert Murdoch's costly mistake, and the Financial Times remain the model for daily newspapers: tightly focused on premium content subscribers will pay for (because they cannot get it anywhere else).

As a long-time LA Times reader, it was a difficult decision to cancel the subscription. But, the failure of the paper to deliver, well, news, made the decision easier. Gone were mainstream, middle class, middle of the road columnists such as Jim Murray, Jack Smith, and Scott Ostler, dead, retired, or moved on. Gone too was any desire to even approximate news reporting (instead of propaganda and news suppression), with story after story being broken by local bloggers such as Luke Ford (LA Mayor Tony Villaraigosa's affair with a Telemundo reporter covering him) or Mayor Sam's Sister City (the various goings on in LA council districts). But the deciding factor was the sports page.

Penner's story, and the paper's promotion of it, became a freak-show instead of a refuge from daily life. Sports are supposed to be about entertainment, rather than the Oprah-Jerry Springer circus that infest daytime TV talk shows. With the LA Times being unable to fathom the tradition, customs, and respect of the sports world, the transition was complete. Into a new, politically correct paper that won the approval of gay and women's groups, but left male sports readers cold. Sure Jim Murray could write about Howard Jones (the USC football coach not the 80's pop singer), or Ben Hogan, or Red Sanders, long-dead but not forgotten sportsmen who shaped the modern sports world (but were politically incorrect, being dead straight White males). Though long-dead, they formed the tradition of sports which being mostly a male section of the paper, was important. But the paper had other things on its mind, most principally being a politically correct, three ring circus (frankly, exploiting Penner/Daniels), guaranteed to win the plaudits of people who did not read the paper anyway, and alienate the White middle of the road, middle class that did.

The LAT is planning another 40 layoffs according to Deadline Hollywood Daily's Nikki Finke. The Washington Post will close it's LA bureau entirely by Dec. 31st. The problem is that there is not enough "Stuff White Like" to make a daily newspaper profitable. Particularly when the paper refuses to cover notable stories and retains a high cost structure. Daily Kos and the Huffington Post probably don't make money, but they probably don't lose much either and their backers make their political statements on the cheap. Much of their contributions come in for free, and their only real cost is likely server space and bandwidth charges at their hosting company.

The LA Times is sitting (according to Mayor Sam's Sister City) on the brewing scandal with Mark Ridley-Thomas, with ties to SEIU and perhaps, ACORN (if it is true he is being questioned by Federal Prosecutors). The LA Times has not covered the ACORN story, other than to take at face value the ridiculous claims (proved false by Breitbart's release of damning video) that the duo of James O'Keefe and Hannah Giles (posing as pimp and prostitute) were turned away from LA ACORN offices (they were not, with the spokeswoman herself offering to help with the importation of child prostitutes). The LA Times has still not released the tape of Barack Obama and Michelle Obama attending the Rashid Khalidi going-away banquet (their conduct must therefore be truly appalling). There has been little coverage of the dramatic fall in LA Port traffic, or the business flight from LA under Mayor Tony Villaraigosa's "progressive" agenda. It is no wonder then, that the paper is bankruptcy proceedings (and has consistently failed to make money for years, even before parent Tribune Company's highly leveraged purchase).

The lesson is simple. There just aren't enough SWPL in the LA Basin to make the LA Times profitable, and the reporters and editors are incapable of producing anything approaching a mainstream, middle class appealing newspaper.

The Wall Street Journal, purchased by Rupert Murdoch in 2007, is likely to also fail. For much the same reasons. Murdoch, has long been rumored to be a potential buyer for the New York Times though some predict he will instead buy the New York Daily News. The New York Times, as the "nation's newspaper" (the standard setter for all other newspapers even if the broad public does not read it outside New York), has served as a (failing) model for most other newspapers, and Murdoch seems intent on making the Wall Street Journal into a national competitor for the Times.

To the detriment, I might add, of the Wall Street Journal's reporting and coverage of events.

This move to compete with the New York Times in it's own SWPL image, is consistent with Murdoch's inevitably failed strategy to de-list itself from Google Search and ally itself with Microsoft. The Wall Street Journal, as part of that strategy, has tried to remake itself in the New York Times image. With many SWPL sections on fashion, "colorful" doings in Third World hell-holes, and movie and entertainment sections that crowd out serious business news. The "lifestyle" sections and other content are clearly aimed at the terminally politically correct crowd that reads the New York Times and is terrified of being caught out in an politically incorrect thought or word. The coverage of Barack Obama by reporters and editors is nearly indistinguishable from the worshipful, rainbows and unicorns from his ass, tone found in other newspapers. Mark Morford's column from the San Francisco Chronicle about Obama being a "lightworker" and "spiritually enlightened being" would not be out of place in many articles about Obama in the Wall Street Journal. To be fair, the editorial page is still mostly conservative (though appalling on immigration). But the daily tone and content of the Wall Street Journal's reporting crowds out the otherwise excellent business news for fluff and Politically Correct Dogma.

One of the worst offenders is Joe Morgenstern. A frequent movie commentator on NPR (which says something right there), Morgenstern is an admirer of Dogma 95 and has devoted both columns and NPR spots touting it. Basically, Dogma 95 (a set of rules drawn up by Lars Von Trier [Dogville, Breaking the Waves] and others) specifies a lot of joy-draining dictates: no artificial lighting, jump cuts, make up for actors, action, stunts, special effects, sound tracks, or anything else that makes films exciting and fun instead of a misery-inducing bore-fest. In other words, SWPL central, for a film devoid of enjoyment but filled with status (that you've seen it and endured it). SCTV famously parodied this sort of Bergman-esque idiocy in "Whispers of the Wolf":


Here is a sample of Morgenstern's latest reviews.

The problem with Murdoch's hope of creating a pay-wall for content (which the New York Times tried and found created a great loss in traffic) is that it is only successful for specialized content a few customers are willing to pay for. Business News, which used to make the Wall Street Journal's core content, is one such specialized content. The Wall Street Journal's daily circulation is now 2.1 million, only recently surpassing USA Today's circulation (the latter losing free copies in hotels and travel spots). This compares to the New York Times circulation of 928,ooo daily. However, the desire to create a mass market newspaper is doomed. Despite gains in circulation, the Wall Street Journal faces the same problem all newspapers face: the people who create it have a huge chasm in terms of attitudes and beliefs from the mass-market. The film "Up" had according to Box Office Mojo, a box office revenue of $293 million. The animated film "Monsters Vs. Aliens" had $198 million in revenue. Both are miles away from the bleak, unhappy "the Road" with it's SWPL status mongering misery. As commentator Bernard Goldberg noted, the media elite looks down up and hates, really, those people who eat at Red Lobster. But most of America, the potential customers for a mass-market, truly "national" newspaper, would think a meal at Red Lobster a fine affair. Rather than the elite's dream, of eating at Thomas Keller's "French Laundry" or Momufuku, which the Wall Street Journal celebrates, appeals only to the terminally status-mongering trendy.

Murdoch could scour the planet, and not find enough reporters and editors who have even a nodding acquaintance with tastes, morals, values, and desires of the average American. Hollywood also has this problem and outside Pixar and Dreamworks Animation, has not been able to consistently make films that people enjoy and pay money for. Murdoch aims to make money. So far, he's been successful with lots of leverage (debt) in risky ventures like the Fox Network, and Satellite TV, most aimed squarely at the middle class. Murdoch accurately senses the gap between the regional dailies, and the "national" newspapers the New York Times and Washington Post, and the desire for most people still to have a newspaper in the morning at breakfast. However, the Wall Street Journal at best can produce a paper with business news and lifestyle features aimed at the business class and those interested in business news (and willing to pay a premium for it). Unlike Fox Network in the mid 1980's, he faces little growth opportunities, because he has no one to execute a mass-market strategy. Worse, his likely successor as CEO, son Lachlan Murdoch, has no ability whatsoever to understand middle class life. While Murdoch was well-off, his upbringing in traditional Australia in the 1930's and 1940's giving him an entirely different perspective than his son raised from birth in celebrity and massive, modern wealth.

Which leads to the Financial Times. With a of only 432,000 internationally, the paper is much smaller in reach, compared to either the Journal or New York Times. However, it focuses mostly on financial news, and to a much greater extent than the Wall Street Journal, on international finance. While editorially the paper is appalling, signing on to every lunatic idea from global warming to the International Criminal Court, the news content is quite good, focused on business reporting. Unlike the Journal, the coverage of US economic policy has been quite critical, though again the editorial positions of the two respective papers are as reversed, mirror images of each other.

With the Financial Times available online as well as in various major US cities, it stands to pick up potential business customers wanting business news and not another copy of the New York Times SWPL manual. Coverage of the purchase by India's Central Bank of 200 tons of gold (equivalent to $6.7 billion), selling dollars to buy gold, has been excellent, as has the coverage of the US Mint's suspension of gold coin sales. Indeed the "gold section" at the Financial Times is better, more specialized coverage than what you will find in the Journal. The Financial Times has also covered the Dubai shock in more depth than the Wall Street Journal.

The FT will never become of course, a mass-market newspaper. But it is likely to sustain itself in moderate profitability in reporting business news. Because its relatively small global readership will still pay a premium for solid, business reporting and analysis.

The Journal is likely to prove an expensive, and given Murdoch's News Corp. deep pockets, slow-motion failure. In aping the failed New York Times, which has lost money consistently for a good many years, Murdoch can make the SWPL elite happy, but not investors. Because despite the media power and considerable wealth the SWPL crowd enjoy, their numbers are slim, and further thinned by the recession.

The LA Times is the most abject failure, and the easiest to see. Quite likely it will soon be an online only "publication" like the Seattle Post-Intelligencer. Competing for the same page views as Daily Kos and the Huffington Post, at much higher costs.

The new "morning newspaper" is sadly, going to be online only. A new venture by someone like Breitbart, or another entreprenuer, who understands middle class values and desires, and meets them with an informative, fun, and news-filled site. America will miss the feel and pleasure of a printed newspaper, but not the SWPL PC enforcers that turned the sad journey of one individual into a public spectacle, and cheapened the relief of the sports pages from the hectoring tone of the PC enforcers.
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Sunday, November 22, 2009

Twilight vs Call of Duty: The Hidden Story

The Twilight New Moon movie has posted $140.7 million for its opening weekend. The response, which was surprising, of tweens, teens, and their moms lining up, many a week in advance, for the movie, generated a lot of press coverage. Finally, the press and feminists celebrated, a movie that generated fangirl response on the lines of Star Wars and Star Trek enthusiasts. The hidden story, of course, is the phenomenal sales, unheralded, of the video game "Call of Duty: Modern Warfare 2." The game posted $310 million in sales its first day, and 4.7 million copies in its first 24 hours. Beating the "Grand Theft Auto IV" record of 3.6 million copies . The five day figures for "Call of Duty: Modern Warfare 2" were $550 million, again beating "Grand Theft Auto IV" which held the mark at $500 million.

The lesson is that while the attention may go to the fangirls, and the expensive legacy media of theatrical movies, the profits go to male-friendly videogames. Among the reasons: there isn't much competition. Moreover, it is likely movies and video-games will continue to diverge, one becoming a female-gay ghetto, and the other being "males only."

The first "Twilight" movie cost according to was $37 million. No current figures are available for the "New Moon" sequel, but the cost likely spiraled to around $60-75 million, given more effects, characters, rising salaries for actors, and so on. Marketing probably added another $30-40 million, making the film's total up-front cost of around $90 to $115 million or so. As Hollywood business writer and author of the "Big Picture," Edward Jay Epstein estimates, Studios net only about 18% or so of their revenues from theatrical / box office receipts. Fully 82% of revenue comes from Video on Demand, DVD, Pay-TV, and free TV rights (foreign and domestic). Further, studios only get 75% for the first weekend box office receipts, falling to about 50% thereafter. For foreign box office sales, percentages can drop even further while costs for dubbing, promotion/marketing, import fees, and so on can mount. It worth noting that piracy threatens both theatrical and DVD revenues. The LA Times notes that some studios have dropped profitable Korean and Spanish-language divisions, due to piracy. Eli Roth famously found that his loathsome "Hostel" movies were on sale on the street in Mexico City for the equivalent of twenty-five cents, American. Good quality pirated copies, too.

Of that $140.7 million that Twilight: New Moon pulled in, the studio will keep $105.5 million or so. That essentially covers its cost up-front and likely assures a tidy profit for the movie, assuming DVD sales track ticket sales and are not impacted by piracy.

Compared with the development costs, which were estimated to be $40-50 million and around $100 million total, the film "Twilight: New Moon" and the video game "Call of Duty: Modern Warfare 2" cost about the same.

But, the video game already pulled in about $310 million, or $210 million of net revenue, compared to a break-even figure for the film, through the first weekend (Fri-Sat-Sun) vs. the first two days (for the game). It is extremely unlikely that the five-day figure for the movie will match $550 million. Even more important, the game is more resistant to piracy than the movie. While pretty much any copy properly written to a DVD will play in most modern DVD players, making piracy technically easier for organized crime pirates, the same is not true for video games which generally have more robust copy protection. The games certainly can be pirated, but the expense generally prevents large-scale organized crime rings from participating, unlike movie DVD piracy. Moreover, online-game play is often a critical component, making purchasing of pirated discs a general non-starter, given that companies can and do require proof-of-purchase to participate in online play. These can be defeated, but again it is costly and most organized pirates do not bother.

Out of these trends several things are likely to emerge. First, that video games are ever-more bifurcated, either hit-driven like "Call of Duty" or cheap, and simple, like many of the IPhone games, which are troubled by piracy or in the case of Android low sales. Because of piracy and low-revenues for the Iphone style games, the barriers to entry into successful game development into "the next level" (profitability beyond a single developer) are likely to be high. Developers can still create simple games widely available (Apple's App Store tends to be better than Google's Android app store or Research in Motion/Blackberry's store) but widely pirated with low price points.

Hard to make enough money to move to the next level in that business. Increasingly, because of the high capital costs required to make a "hit" game, the video game business is resembling Hollywood of the 1920's through the 1940's, only with one big difference: unlike the studios the game companies have few female customers. But clearly, there is an order of magnitude or more, around two to five times as much money, hit film to hit game, available to video game makers. As game companies seek out (inevitably) cheaper labor, their costs will go down for everything but marketing, giving them a tremendous cost-advantage against Hollywood as well as making entertainment that men and boys desire.

Secondly, the success of Twilight and the sequel, are both good and bad for Hollywood. Good, in that they found a way to tap the fan-girl wallets of the folks below waiting in lines (some up to a week) for the premier [Click on images to enlarge]:

Looking at the pictures, a common thread appears for the fans of Twilight. They mostly do not find lots of male attention, let alone that of hunky, semi-gay, Alpha Male "sparkly vampires." They tend to be pre-pubescent, Moms, or overweight. Not all of course, but that accounts for most of them. Of course they want in fantasy what they don't get in real life. The comparison to the Star Wars geeks who lined up for that movie is of course, natural and apt.

For the purposes of fairness, the "Call of Duty: Modern Warfare 2" fans are shown below (fewer photos, because of less media interest).

Not much different, though a few are older. They seem to crave what they do not get in life, action/adventure (from the safe distance of the couch of course). Both the film and the game deliver to their respective audience.

But the danger for Hollywood is that the games can drive them out of business. Unlike the game companies, which can seek cheap programming labor in China or India, Hollywood is "stuck" using expensive actors, special effects, and location shots. The costs for the Call of Duty Franchise will only go down, over time, and sequels. While that of the Twilight series will only go up. Coupled with a tidal wave of predictable "sparkly vampire" bad-boy with superpowers fighting over teen girl projects, movies will become "gay" the way Broadway shows, reading/literature, and pop music (see Adam Lambert) have become. Many of Hollywood's key executives including Disney's Rich Ross are openly gay. While they have a keen eye for female-tween/teen appealing projects, they have failed and predictably will fail to generate much in the way of male-appealing projects. Movie after movie featuring a metrosexual vampire bad-boy that appeals to the fangirls is guaranteed to turn off guys from the theater. In favor of intermittent purchases of expensive video games. Call of Duty is listed at $60 at That works out to about 5 movies, per person, or nearly 3 paired tickets at full prices. Given the pressure the recession has on wallets, sales for video games means less money men have to spend on movies. This is particularly so as movies inevitably, like TV, become a female-gay ghetto.

Hollywood is intent on replaying Detroit's strategy: create a negative view towards your product by much of the potential customer base. Depend on a small portion of the potential customers, on only a few particular profitable models. Create a negative view of your key workers and executives nationwide, and create a high labor cost. Lack any imagination or quality that were hallmarks of your products in the past. Cede key customers to rivals with lower costs and perceived higher quality.

It is likely they will end up the same, bankrupt, bailed out, and still failures.
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Wednesday, November 11, 2009

Gossip Girl's Threesome A Dud and Dollhouse's Cancellation

Monday Night's "Threesome" episode of CW Network's "Gossip Girl" was a dud. Heavily hyped and promoted, the increased viewers only 20%, from 1.95 million viewers to 2.4 million viewers. By contrast, in the same week. NCIS did 20.9 million viewers. [A number of years ago CSI pulled in 22-23 million viewers.] Making NCIS the top-rated scripted show on Television. [American Idol can pull in 35 million viewers during peak showings.] In the same vein, Fox's Dollhouse (the Joss Whedon produced un-Sci-Fi show) has been canceled.

This shows once again, how Hollywood just does not get how quickly the culture has changed, likely permanently. Audiences are voting with remotes and wallets for whatever traditional, entertaining, and uplifting fare there is and ignoring the rest. While "Gossip Girl" did succeed in raising its profile and making a marginal improvement, nearly ten times as many viewers watch the number one scripted show. Moreover, the aging of America implies that there just are not enough potential (White female or male viewers) to make the sort of 1990's "hits" possible, and certainly not the ad revenue from the go-go 1990s (when the internet was still in its infancy).

The US Census Bureau has 2008 Survey Estimates for race/age breakdowns. As you can see from the graph below, there are not that many White tween and young female potential audience members. Gossip Girl gets about 10% of this audience. This is about the level of most network TV, getting between 10-12% of the potential audience (White plus Black viewers, Hispanic/Latino/Mexican viewers preferring Spanish-language TV).

The chart below shows the population estimates for White females ages 10-24 (the target audience for Gossip Girl).

Dollhouse did no better. The ratings for its last outing in October (Dollhouse was pulled for November sweeps) showed about 2.15 million viewers or so. Which given the 25.4 million White males between 15-29 (assuming Dollhouse skews a bit older in the male demo than female) equates to about 8.2% of the male population targeted by Dollhouse. Perhaps even less, if women/girls formed a significant portion of the audience (which is possible, but unlikely given the pseudo-sci-fi themes and lack of romance/relationships in the show, both unattractive to large female audiences). [The graph below, taken from the Census Bureau website 2008 Community Survey shows the make-up of White males ages 15-29]:

"Gossip Girl" of course acts as a loss-leader for CW Network, bringing in attention, hype, buzz, and so on. While not costing that much to make, the cast is of unknowns who don't require much money (tween girls know them, Joe Sixpack could not tell them apart). There are no elaborate sets, or expensive action and stunts. CW can afford "Gossip Girl" while Fox can obviously not afford "Dollhouse." Speculation was that Fox merely wanted to eke out a DVD release on the cheap. Certainly, "Dollhouse" with extensive stunts, some moderately priced actors, and larger expectations has not made the cut.

Moreover, for what it is, "Gossip Girl" is well suited to its audience. Tween and teen girls, plus an assortment of young women, dreaming of a life of riches and privilege and sex and romance in New York City, America's cultural and economic capital. It is "Dallas" without big 1980's hair for girls tired of Hannah Montana. Not to my taste, but well executed for a 15 year old girl dreaming of being a modern day princess.

Even so, the show is at best barely profitable would be my guess, and serves mostly as a way for CW to gain attention.

Dollhouse was not even good Science Fiction television. It posited no great social changes from technology, not the way Star Trek (the original) or Babylon 5 or even "Stargate" did (the series with Richard Dean Anderson). There was no male-oriented action and adventure, merely more "beautiful victims" with Eliza Dushku prancing around in skimpy clothing playing different characters as her character undergoes brainwashing-programming every week. Dushku herself was too weak to overcome the presence by warmth of performance and charisma, and was ill-served by scripts that did not have character consistency. NO positive male characters existed, and much like "Buffy the Vampire Slayer" the roles for men were: abusive victimizer "Alpha," or sort of gay gofer Omega male, or sexless "Beta" male playing a visibly secondary role as far as social status goes.

Fox bet that Joss Whedon plus Eliza Dushku equaled a substantial amount of young male viewers, and lost that bet. In fact, they got around the same amount of viewers "Gossip Girl" had with much higher costs all around. [Fox costs more to operate as a network than CW.] Even with budgets slashed and a clear mandate to grow viewers "or else" Dollhouse writers and producers could come up with nothing that appealed to younger men.

Joss Whedon had a minor (Buffy never had more than 5.4 million viewers) hit in the late 1990's. Mostly by playing the "doomed/forbidden love" angle with teen/tween girls and young women. At no time has he been able to attract a significant male audience, and his thematic repetition of waify, kick-ass women coupled with "asshole" Alpha males who lack any compelling male qualities (friendship, loyalty, leadership, honor, compassion) and embody women's ideas of masculine behavior (strength equals the ability to physically beat/kill others through pure physical superiority) have been proven losers with men: Firefly/Serenity (the series and movie), Dollhouse, and the web-stuff done during the writer's strike (Dr. Horrible starring Neil Patrick Harris, the openly gay star of "How I Met Your Mother.")

Fox's biggest problem has been the inability to draw in men, in any numbers, for any show not named "House" or not an animated comedy ("Family Guy" and "American Dad.") The rest of its lineup is a female-centric reality juggernaut ("American Idol") that few straight men will watch, and Baseball, Football, and also-rans. Fox as a practical matter cannot run "American Idol" over a full season. Its former signature show "24" has lost ratings luster amidst terminal PC and life overtaking it (weak-willed "Wayne Palmer" might as well have been called "Barack Hussein Obama") and tired pc-driven plots repellent to the White majority audience (it is always the White businessman who is the real villain).

That Fox could not see the obvious (Whedon was not the answer, and Dollhouse, where various women are "programmed" into being hookers or waify assassins was a ratings loser and repellent to both men and women) is troubling. It shows that even a fairly successful network has no idea how to reach men with entertainment. That it cannot sniff out disasters in the making when they are obvious, and cannot find producing talent. The team behind "Life," one the most compelling and male-oriented shows in recent history, Rand Ravich and Far Shariat, should be entertaining offers from Fox, CBS, ABC, and various cable networks. So too, "Burn Notice" writer-producer-creator Matt Nix.

While the cancellation of "Dollhouse" is a good thing, with no more tedious, tired, and cliched 1990's attitudes towards women (waify kick-ass "warriors") and men (hunky assholes who sadistically kill/maim and drive women wild with desire, or gay/beta gofers), what is troubling is how the show was green-lighted in the first place. Clearly Fox like the other networks has not left the 1990's yet, and the threat from USA-Network and ultimately, cheap content on the Web, has not sunk in yet. Fox has an enormous overhead to cover, how long a mega-reality hit like "American Idol" and "House" can continue to produce enough revenue in concert with the NFL and Baseball is an open question.

Certainly there are few signs that anyone in network TV is making an effort to draw in men. Which in the era of collapsed ad spending and a terrible economy, is a must for high-cost legacy broadcasters like Fox. Joss Whedon could afford to put Dougie Howser as the star of his "webcast" show because it was never intended to make money and cost almost nothing to create. Fox has found that model does not scale up to broadcasting.
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Monday, October 19, 2009

The Feminization of Science Fiction (and Fantasy)

The recent article by Pro Male/Anti-Feminist Tech on the “War on Science Fiction” at the Spearhead generated a lot of heat and discussion. Among them, are Science Fiction (and Fantasy) being feminized, and secondarily, if so are these bad things? The answer to both is an emphatic yes.

The reason for both of course, is that majority or near-majority female creators in any literary genre “crowd out” male concerns, themes, and characters, which women find tedious to offensive, and produce essentially a “gay-female ghetto” that men flee quickly. Making said genres alien and irrelevant to nearly half of the population.

Read the rest at my post at the Spearhead. You can comment there or here.

Friday, October 16, 2009

The New Mass Media: Ebooks and the End of the Brandon Tartikoff Strategy

Today's front page Wall Street Journal story details how Wal-Mart and Amazon are in a price battle for best-selling (printed) books. Matching the e-book price for best-sellers. Authors are divided. The best-selling authors Dean Koontz and James Paterson believe they will prosper under mass market discounts. Koontz cites now defunct Crown Books, as "exploding" the market for discount hardcover books.

What is clear is that the marketplace for all sorts of information and entertainment is radically changing. After a post-War period of affluence (and the rising social status of women and their incomes in particular) driving niche and fractured marketplaces of specialized entertainment, the mass culture is returning. Driven by technology that pushes revenues to very low margins, declining personal incomes, and the ability for consumers to get "free" or "near free" news, information, entertainment, and more.

This is changing our culture. Winners will be those, who can write or create for a broad audience, taking a populist tone, and generating the widest possible audience, readership, and following. In particular, nimble execution in reaction to changing circumstances and volatile environments (political, economic, and social) will reward those who can churn out content quickly, appealing to men and women, young and old alike. In many ways this resembles the 19th Century, and the serialization of writers as various as Arthur Conan Doyle, Dickens, and Jules Verne in newspapers and magazines, aimed at the broadest possible audience. At the least, the death of the Brandon Tartikoff strategy is at hand.

Pioneering NBC programmer Brandon Tartikoff was one of the first to see the enormous amounts of wealth accruing to the yuppie elite in law, management, "creative" fields, and the like, and how much advertisers would pay to reach a small but wealthy audience. Hence critically acclaimed but low rated shows like "St. Elsewhere" and "Hill Street Blues." Even later ratings winners "Friends" and "Seinfeld" had initially low ratings and were kept on the schedule by the favorable (rich yuppie) demographics. This was true for magazines (Vanity Fair, the New Yorker), newspapers, movies (premium ticket prices, and premium DVD prices/tv rights/foreign distribution rights), and music (expensive CDs instead of cheap vinyl singles). Technology and tremendous amounts of wealth amassed by middle-men in various fields favored specialized content that consumers would pay for directly, or indirectly (by advertisers paying premiums to reach a wealthy few).

Technology changed the playing field, radically, with the adoption of the internet and alternative content providers. Suddenly those unhappy with the Yuppie Wealthy Liberal viewpoint in newspapers could turn to the internet, and sites as diverse as Drudge Report, Hotair, Ace of Spades, or Daily Kos and the Huffington Post for news and information. Often, bloggers such as Mickey Kaus or Luke Ford broke stories the traditional news media refused to cover. Such as the Edwards affair or the LA Mayor Antonio Villaraigosa affair (with a Spanish language media reporter covering him).

Itunes and Napster changed the music world forever. Consumers could download music for "free" or nearly free, in the former conveniently and cheaply. Music revenues in 2009 are half of what they were in 1999. Sales are dominated by single tracks, not album sales. Newspapers are folding left and right, with the Seattle Post-Intelligencer going online only, and both the Tribune Company (parent of the LA Times) and Freedom Communications (parent of the Orange County Register) filing for Chapter 11 Bankruptcy. Craigslist taking lucrative classified advertising, and advertisers moving to the internet.

Clearly, those who can leverage the internet to create content cheaply, keep fans/followers connected, and appeal to the largest group will "win" when prices are a commodity. Those creating content for rich, mostly liberal/PC Yuppies will lose. TV in particular illustrates this trend, with a number of shows on NBC generating less ratings than USA network's "Burn Notice" and "Monk" and "Psych." A show like "NCIS" can be Number One according to Nielsen with 20 million viewers. Precisely by appealing to a broad audience. The difference is that shows like "Mad Men" with ratings less than 2 million viewers (less than 10% of what "NCIS" generates) can no longer depend on affluent yuppies generating advertising revenue. There simply are not enough rich yuppies with the permanent recession, and cable rates paid to channels like AMC are probably not sustainable.

Brian Roberts built Comcast Corp. into the world's largest cable company by being a visionary who has kept the company on the vanguard of phone, broadband and television technology.

But his strategies indicate he's still worried that the Internet could one day become one of the leading forms of television distribution. That is one reason why he is determined to buy more cable channels and other content -- a strategy that has moved him from his failed effort to take over Walt Disney Co. in 2004 to his current interest in buying a piece of General Electric Co.'s NBC Universal.

Traditional cable-TV subscriptions accounted for more than half of Comcast's $17.7 billion of revenue in the first half of this year. Satellite companies and, more recently, phone companies have chipped away in recent years at its subscriber base, which now totals 24 million households.

But the Internet in some ways poses an even bigger threat: free content. An increasing amount of programs, including shows like "The Office" and "The Daily Show with Jon Stewart," are being offered free of charge on Web sites owned by networks and cable channels.

While most households still pay for TV, the idea of millions of cable subscribers canceling their service, is chilling. Industry executives have described it as "the cable bypass."

Owning the programs and the channels is one way to block this from happening. Either the content can be kept off the Internet, forcing people to buy it if they want to see it, or it can go behind a subscription wall on the web. Cable companies, including Comcast, are experimenting with a plan to put cable programming on the web, but require viewers to prove that they subscribe to a pay-TV service through an online authentication process before they can access it.

Robert's Comcast strategy of course assumes that consumers won't simply substitute "free" content online (probably advertiser supported) in favor of pay-per-access Comcast generated content. Other content creators can compete by "free" access with ads, with more broad-based content. This is particularly true since Hollywood and many of the creative class has spent in some cases sixty years (this is particularly true in publishing) catering to a wealthy elite with vastly different cultural tastes than the average consumer. Hollywood's rush to defend Roman Polanski on child-rape charges are proof of that.

Meanwhile, the hottest country act is Taylor Swift, who the Wall Street Journal notes at the bottom of a story on Tim McGraw has leveraged MySpace, Twitter, and other social networks to generate cross-over attention and following, from both traditional country fans and rock fans. Swift's rise, outside the traditional Country apprenticeship in Nashville, shows how the internet allows creative people to bypass the traditional distribution channels and rewards those with a mass-market sensibility.

The lesson of our new mass-market age is that free or low cost beats expensive, and financial rewards accrue only to those able to make creative or informational content with a broad appeal. This is true even in publishing.

Already e-books are offering fast, and cheaper alternatives to printed books. Project Gutenberg has free, public domain HTML, audio/mp3, and "Plucker" e-books of classics such as Jules Verne's "Twenty Thousand Leagues Under the Sea" and Mark Twain's "Roughing It." Plucker which is software available for both Palm Pilots and Pocket PCs, and runs on Linux, Macintosh OS X, and Windows, can read e-books prepared in that format. [Currently the Plucker site is unavailable, has various project files available. I have personally tried this with a Palm Tungsten, while offering limited readability, the software and content are free. Iphone owners have the option of using free application "Stanza" to read public domain books.

It is very hard to beat free, particularly when classics like "Huckleberry Finn" or "Robinson Crusoe" are still so eminently readable. Clearly prices for publishing are moving downwards, and those who sell the most copies at lower prices win. From the Wall Street Journal article on the Amazon-Wal-Mart pricing fight:

Some big authors, however, are looking on the bright side. Dean Koontz, whose soon-to-be released novel "Breathless" is being discounted to $10 from $28, said that he thinks the discounting may prove a good thing for the authors involved.
"Any time people are fighting over your work it's a good thing, especially when you've worked all those years hoping it would be fought over," he said. "I don't think this is going to be a long-term thing. Rather, it sounds like a promotional strategy designed to call attention to Wal-Mart's decision to enter the digital marketplace more heartily than in the past."

Mr. Koontz said that Crown Books Corp., a now-defunct book chain that grew to 170 stores in only seven years after launching in 1977, paved the way for book discounting. "They're no longer with us, and perhaps that tells us something, but after they started to discount books hardcover sales simply exploded."

Mr. Koontz said he's more worried about the independent bookstores. Although most limit their stock of best-sellers, a price war on the most popular books may hurt.
James Patterson, whose coming novel, "I, Alex Cross," is being discounted from $27.99 to $10, said he was happy to be in Wal-Mart's top 10. However, he warned any industry that sets low price points may later have a difficult time re-establishing those prices. "Obviously e-books have gotten this thing going," said Mr. Patterson. "E-books are terrific and here to stay. But I think that people need to think through the repercussions....But I'm not taking sides....I'm not the endangered species here."

Given the move towards mass culture, what sort of content can we expect on various e-book formats? Popular content of course. Horror, comedy, thrillers, action-adventure books, that generate wide audiences are likely to be the winners. Efforts like Borders Ink, aimed at tween and teen girls with fantasy novels like "Lonely Werewolf Girl" or "Vampire Academy" are likely to be long-term losers. While "chic lit" books offering fantasies of shopping, "fabulous" gay friends, and hunky Alpha males have dominated hype and sales, the NYT Paperback best-seller lists are likely to be the dominant books of the future.

With one caveat. Anyone can write an e-book, potentially. If the story is compelling enough, people will read it. Now, even lone authors un-connected to publishing houses or agents can produce e-books, and use viral marketing on MySpace and other social networks the way Taylor Swift did to promote themselves. Much of this content will resemble fan-fiction: truly awful. But enough will be of high quality (America and the West in general possesses simply astonishing talent among its general populace). As one of my readers points out in a comment, much of the problems Agents and publishing houses have is the readers. Note how the comment link here points out the weak link:

Jim Baen formed Baen Books with the specific mandate to write science fiction books drawing on a more 'traditional' heroic motif.

This is why Baen Books dominates (owns really) the 15-55 year old male audience in SF.

The key is that Baen books has a tiny staff with no bureaucracy to protect value-subtracted idiots.

This is why Baen Books is successful.

Large organizations like Time-Warner, CBS, ABC & NBC all provide niches for value-subtracted idiots to hide in, and the bureaucracies to protect them.

The publishing industry case in point, according to the writers I know, is the following:

"...the vast majority of first readers and acquisition editors can not recognize a story that straight men and boys may like, because those readers and editors are for the most part twenty-something females.

They are female because entry-level editorial jobs at major American publishers pay just a wee bit better than a summer internship -- and the jobs require one to live within commuting distance of some of America's most expensive cities.

The pay sucks so badly because every year, teeming masses of young women graduate from college with degrees in fields that don't lead to any clear, immediate career path. Thousands of them decide to move to New York City and get a job in publishing because, after all, they majored in English Literature. They all apply for the same seven first-reader positions that happen to be open at the time. The delighted publishers then hire the ones who will work for the lowest salaries. When promotional opportunities open up, the publishers hire from within -- i.e., from the pool of people of who have demonstrated an eager desire to work for an unbelievably low salary.

Guys who've graduated from college (with the exception of those who want to work on Broadway or in commercials) don't move to NYC for $25,000 a year jobs. Chicks do. Because NYC is glamorous, as is publishing.

So we wind up with a situation in which a huge portion of America's literary output is being filtered by young women who don't have a clue as to what straight boys and men like to read. Not surprising that what comes out of the filters is stuff that straight girls and women like to read."

Author John Ringo is now Baen's primary profit generator.

Baen being so small was the key to their recognizing Ringo & pulling him out of the first rejection slush piles.

Ringo's first novel was rejected by a young woman who had followed that exact career path listed above.

Jim Baen overrode that decision (and fired said first reader) because he read Ringo's stuff on the Baen fan board. They had a fan fiction section there and the fanboys there were all talking about how good Ringo's stuff was.

Baen went there, read it, found out what happened and the rest, as they say, is history.

Baen used his bulletin board fans as his unpaid for first readers and simply followed those with the best track record to promising new talent.

I just don't see any of the major media incumbents being able to "Do a Baen" and get back into the male market.

Someone will offer first-time authors the ability to produce e-books and publish them on a marketplace, with the "winners" those with good content and social network promotion skills. This offers an end-around the first reader roadblock of publishers and agents, that filter out male-oriented (or really, broadly appealing content) in favor of what 22-23 year old single, English lit majors find appealing. Which is not likely to reflect the older, more conservative socially and culturally male and female audience.

Price points will keep dropping, "free" or nearly free content will guarantee that. Content creation, particularly for authors, will be far easier, as will distribution through e-books. Sooner or later, our mass culture will return, after being slowly phased out during the post-War boom. It will look different, not the least of which will be the democratization of content creation, and a lot of truly bad fiction and non-fiction no longer filtered out by gatekeepers. But overall, this change in culture is a good thing.

Mass middle brow culture creates a series of ties that bind ordinary people in shared values, something particularly important as religious belief and attendance declines. Society cannot operate without most people most of the time having values and moral behavior pounded into them. Like it or not, that means popular culture these days, as religion has faded into irrelevance across the West (save the neo-Calvinist "Global Warming" / Gaia / Green elect-damned elites and masses). The Polanski debacle clearly points out how the elites have become decadent and debased, and are no longer fit to be instructors of proper moral behavior, so society can function without a police officer on every corner and in every home.

While much of technology has been socially isolating and atomizing, the good news is that low prices for entertainment and news equals the return of the mass culture, particularly with new creators entering into the marketplace.

It's about time.
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Thursday, October 8, 2009

Hollywood's Financial Collapse

Hollywood's finances are collapsing, along with other parts of "legacy media" including newspapers, magazines, television (particularly network television) in addition to the falling revenues at movie studios. Part of this financial collapse among all legacy media is the influence of the internet, offering alternatives from piracy to original content, part of it due to the recession with tapped consumers closing stressed wallets, but much of the collapse is due to legacy media's content being pretty miserable. Magazines are nothing but elitist propaganda with little to say to huge segments of the potential readership, newspapers have done their best to alienate their core readers (older White men), television long ago chased away males and older viewers, and movies consist of a few, highly profitable, but hugely expensive action-adventure tales, with myriad unprofitable "art" movies aimed at winning Academy Awards or hit-or-miss "chick flicks."

Hollywood for decades assumed the good times would roll, and the speed in which it is collapsing is catching everyone by surprise. None of their moves seem to indicate any indication of the central problem: their content is not very attractive beyond a thin elite, and the failure of the "Brandon Tartikoff Strategy" has not penetrated Hollywood's or legacy media's management. Leaving ample opportunities for new players outside Hollywood, Los Angeles, and New York, to create broadly appealing content for relatively few dollars and sell it at a profit. In the process, changing American culture the way deeply assimilated Jews who founded Hollywood did from Charlie Chaplin movies to Casablanca and It's a Wonderful Life.

As the Australian notes, Walt Disney and Universal changed studio heads, with Universal being shopped to Comcast by parent GE. The LA Times notes that DVD sales have collapsed as much as 25% for some studios.

For years, DVD sales, coupled with the growth in international markets, compensated for box office losers. On a typical movie, DVD revenue accounts for about half of a film's income, with the remainder split evenly between theatrical receipts, both domestic and international, and television, both pay and free channels.

But as the global economy tanked, so did DVD income. According to Digital Entertainment Group, DVD sales fell 9% in 2008 and were off 13.5% in the first half of 2009. The DVD ledgers are equally bleak overseas; owing to widespread piracy, some studios essentially have closed DVD operations in the once-profitable Spanish and South Korean territories.

Though new businesses such as digital downloads and video-on-demand are growing fast, they have come nowhere close to making up for the decline in disc sales. At the same time, foreign monopolies in paid television have driven down the formerly generous license fees paid to American studios for cable and satellite reruns, while increasingly popular local language productions (movies in Japanese made for Japan, in other words) have cut into the international box-office returns for U.S. productions.

Paramount Pictures, the only movie studio to report its finances separately, has seen its profits fall consistently. While revenue was growing until this year, Paramount's operating income has fallen like a boulder, down 22% in 2007 and 75% in 2008 until it swung to a loss of $148 million in the first half of 2009.

Without cash flows from DVD sales or foreign TV sales, Hollywood loses its main revenue model. Note how the influence of piracy killed Spanish language and South Korean DVD sales, in line with Eli Roth's observation that his movies were on sale in Mexico City for the equivalent of 25 cents. Hollywood for years simply assumed that DVD sales would continue, with at worst slower growth in revenue. Piracy, and simple disinterest in buying DVDs for such films as "Land of the Lost" or "Funny People" put that assumption to the test, where it failed.

Meanwhile, new capital has been almost unobtainable. Wall Street is not pouring billions into movies anymore, nor are the Germans (it was the closing of tax loopholes in Germany that helped kill "V.I.P." the syndicated Pamela Anderson television show) or Japanese. Hollywood had traditionally raised capital from outside sources, and now with rising production budgets faces severely reduced cash flows to finance their own continuing operations. Thus, built-in "sales hooks" of movies based on Baby Boomer to Generation X games and toys and comic books, from Viewmaster, Battleship, Monopoly, Transformers, to Spider-Man and Iron Man, with a smattering of tween girl and mother vampire movies and TV series (New Moon, Vampire Diaries), Harry Potter movies, and Da Vinci Code movies.

This comes as the Wall Street Journal reports that Wal Mart, the world's largest retailer, is scaling back DVD displays and inventory, in anticipation of a dismal Christmas retailing season. DVDs are not selling, according to Wal Mart execs (who have among the best inventory management software and reporting in the business) and are not driving traffic or sales. The article further states that:

As for DVDs, the Digital Entertainment Group estimates that overall U.S. retail sales fell 13.5% to $5.4 billion during the first half of 2009. At the same time, DVD rentals rose by 8.3% to $3.4 billion. Digital sales and rentals from services like Inc. and Apple Inc.'s iTunes rose 21% to $968 million.

Video on-demand revenue from pay-TV service providers, like Comcast Corp., is also rising. Comcast spokeswoman Jennifer Khoury says the company served 368 million total views on its VOD platform in July, up 11% from last year.

Meanwhile, studios have cut deals with services like Netflix Inc., the mail-order DVD rental service.

Meanwhile, Wal-Mart and other major retailers, along with several fast-food chains, have been adding low-cost DVD rental kiosks near store entrances provided by Redbox Automated Retail LLC, a division of Coinstar Inc.

Redbox's prominent placement and its overnight rental price of $1 are viewed by film studio chiefs as a threat to sales. Three major studios -- News Corp.'s 20th Century Fox, Time Warner Inc.'s Warner Brothers and General Electric Co.'s Universal Pictures -- are locked in a legal battle with the company and refuse to make their new titles available to Redbox until 28 days after their release. News Corp. owns The Wall Street Journal.

Starting with just 12 kiosks in 2004, Redbox is now expected to have 22,000 machines across the country by year-end.

This equates to a loss of $840 million of DVD sales for the first six months of 2009, as opposed to whatever fraction of revenues studios can obtain from DVD rental outfits. Business Week reports that studios receive around $16 for every DVD a retailer sells and only $12 for one Netflix buys, with 30-40% of each rental transaction (rental fees) from Netflix shared with certain studios, but only within the first six weeks of release. Older movies such as the Die Hard movies produce only the (lesser) DVD sale to Netflix. Redbox, offering DVD rentals for $1, is engaged in lawsuits with various studios over proposed terms, including blackouts and higher prices. Best Buy and Borders, decimated by DVD sales declines are clearing them off retail space.

At Borders Group, stores in the second quarter that had been open at least a year saw DVD sales plunge 48% compared with the same period in 2008, the company disclosed in an earnings call with analysts last month. Music CDs were also down dramatically, continuing a long trend, and Borders Chief Financial Officer Mark Bierley proudly told analysts last month that both categories will be a less important part of the company's business in the years ahead.

"The good news is that we've made the right strategic moves in this category...and multimedia now represents just 8% of our sales compared to 2002 when the category was at its peak of over 23% of sales," Bierley said during a conference call.

Owned by Coinstar Inc. (CSTR), Redbox kiosks charge $1 a day for movie rentals at supermarkets, drugstores and other retail outlets with significant foot traffic. The company has 15,000 of the kiosks in place and plans to have 20,000 in operation by the end of 2009.

According to Nathanson, Redbox presents "the most extreme risk" to the studio business model. Bernstein estimates that Redbox generates about 15 rental transactions, or turns per disk, compared with nine to 10 turns for Netflix and 6.5 turns for Blockbuster Inc (BBI).

"It is impossible to measure the potential loss of sell-through from each Redbox rental," he wrote. "But, by any simple math, Redbox is the worst cannibalization outcome of the three rental options given its higher turns per disc."

This has spurred the studios to go after Redbox. So far, Time Warner Inc.'s (TWX) Warner Bros., News Corp.'s (NWSA) Twentieth Century Fox and General Electric Co.'s (GE) NBC Universal have gone on record as demanding that Redbox wait about 30 days after a DVD is released to the public before offering it for rental. (News Corp. also owns Dow Jones, publisher of this newswire.)

While the Belmont Club at Pajamas Media has noted this financial collapse, and cited a PriceWaterhouseCoopers report on new media as evidence that the studios and legacy media face challenges primarily through the challenge of alternative content created and distributed cheaply through the internet, there is more than ample evidence to suggest an entirely different reason: value.

Or more specifically, loss of value to consumers by Hollywood and legacy media. Because consumers in hard times will not shell out $20 or more for "Land of the Lost" or "Funny People." They will rent the DVDs, for about $1, if it is convenient. Or buy pirated copies for about the same. None of this involves the internet, excepting the convenience of managing Netflix queues, or piracy, or video on demand, or downloads from Itunes or Amazon, or and its enormous library of old TV shows and movies. Hollywood's worst enemy is itself, and the mostly superior run of movies and television shows produced from say, 1939 through 1992 or so. Available cheaply, sometimes free, in a more convenient way than expensive purchases through retailers. People like to watch movies, together, on screens ranging from theaters to living room televisions. It took sustained, concerted effort by Hollywood to produce movies and television shows to wean people of this habit, but Hollywood's creative and executive ranks were fully equal to that task.

This is similar to the LA Times drop in circulation, from 1.1 million in 1989 to 739,000 in October 2008. As I noted in my post Failure of the Media Part Two: The Lingering Death of the LA Times this was due to the same factors that is hurting Hollywood now. Consumers were not willing to pay the price for a product they did not feel gave them value. The LAT changed from a middle of the road newspaper dedicated to serving its mostly White, Older, and Male readership to one dedicated to serving a thin veneer of wealthy, politically correct yuppies, the "Brandon Tartikoff strategy" that was also employed by NBC with the same trap. Which is the inability to create broadly appealing content to a mass audience.

Hollywood, newspapers, magazines, television, all fell into the same trap. Pursuing a highly educated, upscale demographic with lots of disposable income. Magazines such as Gourmet, Cookie, Modern Bride, and Elegant Bride are being closed by Conde Nast due to falling ad sales. The graphic below from the article shows the failure of targeting high income people when a recession hits.

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NBC has been unable to generate any audience for its shows, and is reduced to running low cost Jay Leno comedy-talk at the 10 pm hour. This is a problem shared, to varying degrees, by other networks.

What is clear is that the overall strategic advantages of legacy media, including Hollywood, has changed. Due to the recession and the difficulty of obtaining capital. Legacy media can no longer count on size being an advantage to raise capital from outside sources and "crush" through attrition various competitors. Low cost internet distribution and the personal computer revolution allowing content to be created cheaply means the legacy media, all of them, have huge cost structures that are disadvantages, while having cumbersome corporate and cultural layers that prevent agile and timely responses to economic and cultural conditions. Obama's approval ratings are at 50%, for example, meaning that there is little benefit from praising him as a living God, yet Magazines at the checkout counter and news channels and broadcasts (with the exception of ratings leader Fox News) present Obama as "bigger than Jesus." Complete with hagiographic coverage, and "debunking" of SNL skits that gingerly criticize the "savior." At least half their potential readership and audience does not approve of "the One" making this a dumb business move appropriate to a forced monopoly not a business scrapping for customers.

This sort of thing happens, not because the people in the legacy media, or Hollywood, are inherently bad, but because their system has rewarded orthodoxy and not had any immediate connection or feedback mechanisms for audience/readership responses. Newspaper and magazine writers and reporters don't get paid extra if their articles generate more reader responses, purchases of the newspaper or magazine on the newstand, and the like. Chris Matthews of "Hardball" does not get less money when his ratings go down and more money when they go up, from week to week. Instead, in a nepotistic, and often rife with casting couches, such as David Letterman's, getting ahead meant not performance related to the bottom line but adherence to group PC orthodoxy of the often inbred, second or third generation elites who comprised management of the legacy media. From the Harvard Mafia in the Simpsons and Conan O'Brien writing staff to the preponderance of the Ivy Leagues and second/third generation Hollywood among writer/producers, relationships not production has dominated legacy media, and left the media unable to adapt to the recession and permanent lower prices consumers will pay for information and entertainment.

With these permanent lower prices, be it Redbox rentals for $1 at convenient supermarkets, or piracy on the internet or street corners, or ad supported free views of say, "LA Dragnet" or "Married With Children" the ability to wring billions out of consumers wallets for specialized content is over. High prices for content means specialization, the upscale market pioneered by Brandon Tartikoff and spread throughout the media world, including magazines, newspapers, and Hollywood. The ability to supplement theatrical revenue for movies with foreign TV sales, DVD sales, and so on is simply gone. As is other people's money from Wall Street or foreign tax shelters.

Instead, new content creators, based outside of Hollywood, will have to create broadly appealing content because the amount of money they get from each sale or view will be small. The way to get rich in media is no longer being highly specialized, serving only segments of the market, like tween girls and moms, or upscale yuppies wanting an extra dose of PC from say, "Crash." It is by serving everyone, tween girls, their moms, young men, boys, adult men and women, married, single, divorced, middle aged or senior. Everyone. And in this case the future of media resembles the past: highly entrepreneurial men like Sam Goldwyn or Louis B. Mayer, who have a deep love for America and its people, and make entertainment aimed at getting the broadest possible audience. Since margins on each view or sale will be low. Probably, much of the content will be integrated, with content available on websites for free (ad supported) viewing, downloaded for free with embedded ads, downloaded for a modest cost with no ads but extras, and available for rent or purchase in DVD or Blu-Ray format for modest costs in mass retailers like supermarkets or online ala Amazon.

This is critical, because the sneering yuppie-ism, which at its worst contributes to an elitist, fractured culture that produces elitist, fractured politics, is no longer sustainable. The internet has accelerated this change, but fundamentally, the audience has simply concluded that paying $11 per ticket at the theater, or $22 for the DVD of "Land of the Lost" is simply not worth their money.
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