The Orange County Register has an interesting piece about business leaders blasting Obama. Of course. Most Business leaders have given up on Obama. They are poised to discreetly fund a Republican challenger. Oh, not all business people have given up on the Chosen Won. Significant portions of Silicon Valley still love the guy, even if IPOs are close to half a decade away (and thus cash-out points for Venture Capitalists are ever more distant). Hollywood loves Obama too, no one in Hollywood cares if films make money or not, they get paid up front regardless (because they expect cheating on the residual/profit sharing to be so rampant they don't bother or care). But most business leaders have given up on Obama. Because he's made them significantly less wealthy.
"I think I've been in the top 5% of my age cohort all my life in understanding the power of incentives, and all my life I've underestimated it," Warren Buffett's business partner, Charlie Munger, once said. "And never a year passes but I get some surprise that pushes my limit a little farther."
Machiavelli said it more succinctly in the Prince: that a man will sooner forgive the murder of his parents than being made poor. Obama has made the wealthy corporate leaders of America, well most of them, significantly less wealthy. Not poor, but not what they expected.
The first to be affected were property moguls. Guys like Donald Trump. Shopping malls, luxury condos, office towers, were all hit hard by the recession, and Obama piling on investment choking regulations, uncertainties, and costs. Cheap interest costs did not combat people not shopping (and closing of anchor stores like say, Borders) at malls, or not buying luxury condos (at expected prices) or cutbacks in office space. These folks were sunk-cost trapped, they could not just dump and run. So you had considerable push-back from these types, and Trump flirted with running against Obama.
The next to be affected were those CEOs with significant stock in their companies, or compensated with options. Which is most of the big company CEOs. As long as cheap money from "Helicopter Ben" Bernanke and Turbo-Tax Tim Geithner pumped up risky assets like stocks and bonds, all was well. Even if their companies long-term growth prospects in the US were about zero. They didn't care -- they were making money. China was going to grow forever! And reality set in. Even before the stock market turbulence, earnings were sliding, in internal reports these guys were reading, and they knew enough that stock prices would slide too. Making many if not most of their options utterly useless. And reducing their paper wealth in stocks significantly. Often at 30% or more haircuts.
So if you want to know (Brian Calle of the OC Register is correct, this is very unusual) why Steve Wynn of Wynn Resorts, or Bernie Marcus of Home Depot, or Andy Puzder of CKE are blasting Obama, it is because he made them significantly less rich. He lost them money. And they in turn will do their best to fire him.
No, it is not a "done deal." Obama has many cards to play. Republicans could select someone unelectable (Michelle Bachman, who while admirably Tea Party conservative, is hated by most White Professional women who in my view hold the key to victory). Romney could prove weak and McCain like in confronting Obama (a likely bet). Rick Perry could be painted as George Bush Returns. But very likely, Obama will not be raising huge amounts of money from Corporate America. Sure, Hollywood will kick in. So will Silicon Valley. But that's about it.
Meaning, Obama's likely to play big, some Gotterdammerung attempt, to change everything. Failing the usual Chicago method of digging up dirt or phony court challenges, expect lots of riots and race-baiting. It is the Chicago way.
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Both News Corporation and Apple Computer are in the news, with News Corp. sliding downwards in stock price, and Apple share up, based on the phone hacking scandal in Britain, and increased Iphone sales for Apple, respectively. But both organizations face a downward slope to being "ordinary" corporations, like Time-Warner, or GE, or Sony, or Microsoft. Both Apple and News Corp. rely on a single man, exclusively, to focus their organizations towards maximum profitability. By doing things differently than their competitors, and reaping considerable rewards. Neither man, of course, has a replacement and the succession is likely to be a disaster.
News Corp. is a highly leveraged, media company. It must make payments of about $1 billion every year to service its debt, mostly bonds. As long as the company generates that cash, it does quite well. The leverage results in higher returns for equity investors, who are basically taking risks (currently satellite TV expansion in the UK and Asia) with other people's money (the bondholders) while reaping the rewards. But the key is servicing the considerable amount of debt. Which means, basically, Fox News.
Fox News produces on its own, about $1 billion a year in operating profit. Enough to fund the payment on debts year in and out. The Film division last year produced about the same, but the Film division is highly variable. Some years it can produce even a loss, and other years perhaps more. News Corp. MUST make those debt payments, and bondholders watch the cash flow quite carefully, as do shareholders. No other division within News Corp produces anything like the money Fox News produces to service the debt every year.
And this is a problem -- because the successors to Rupert Murdoch are stupid. James Murdoch, Lachlan Murdoch, and Elizabeth Murdoch have been quoted as saying they wish to fire Roger Ailes and turn Fox News into MSNBC. Wendi Deng, Murdoch's current wife, has been quoted as saying the same thing. This will gain them the admiration of "respectable people." The Guardian and BBC will cease to attack them. Jeannine Garofalo, Bill Maher, and Whoopi Goldberg will be happy. So too will Sting, Trudy Styler, and Bono, along with Ashton Kutcher, Demi Moore, and Jamie Foxx.
But no one will watch. Fox News is extremely profitable, a money-making machine, because its costs are low, and advertisers pay through the roof to get its huge audiences, which dwarf the other players, who fight among themselves for the small group of (to be sure wealthy) White people who are liberal. Most non-Whites lack money (little Lexus purchasing among the Black and Latino community) and don't care about news (Latinos if they watch news watch it in Spanish, and Blacks at 12% of the population watch little news anyway). Even as the non-White population grows, their share of disposable consumer income is not growing much anyway. Making the demographic change of America outpacing that of the political/consumer change. Importing millions of dirt-poor illegal alien Mexicans, has not made them rich. Their kids, born in this country, remain poor also.
Therefore, the action is split among Whites, the rich liberal faction, which spends a lot of money on things like TD Ameritrade, or Lexus autos, and the like, and the vast working/middle class White consumer base, which buys Fords, Toyotas, and Budweiser. The market for the White Upper Class Liberals, is already saturated. NBC, CBS, ABC, MSNBC, CNN, CNN Headline News, Oprah Winfrey Network, Lifetime, the New York Times, the Washington Post, the LA Times, NPR, PBS, and more all compete for attention, time, and money. Anyone NOT an Upper Class Liberal (or who does not aspire to be one) has only … Fox News.
Fox News only makes money because no one competes with it. No other Media organization can or will "sully itself" to make money by being slightly less left-wing, slightly more middle/working class, than the upscale, liberal, upper-twenty-percent income folks who watch CNN. As of 2009, according the US Census Bureau, the top twenty percent in income numbered roughly 23 million households, and they make more than $100,000 a year. The number of people in the middle, the 60% center, make from between $20,000 and $100,000 a year, and number about 69 million households. The people at CNN and the NYT and NPR don't care about the middle/working class, the 60% of the income around the median. That group is an alien people, living in places like suburban Dallas or St. Louis, with interests, views, and incomes totally alien to the urban coastal hiperati that makes up the alternatives to Fox News.
Rupert Murdoch understand this. He knows, from a brief experience on a working-class tabloid early in his career, that the middle/working class if catered to on a social level (which is the fundamental basis of Fox News) can make a lot of money. Not so much in newspapers now, but certainly in TV news. And perhaps on the internet, eventually. Fox News has been picking up money left on the table by all the other competitors, by being slightly less hard-left and more middle/working class oriented. [Even so, they've avoided carefully describing the race of the Flash Mobs assaulting/lynching Whites this Summer.]
Regardless of how the phone hacking scandals play out, someone not named Rupert Murdoch will take over News Corp. soon. Murdoch is a man in his eighties, he simply cannot run the organization much longer. If not James, then Lachlan. If not Lachlan, then Elizabeth. If not Elizabeth, then Wendi Deng. One of them will succeed Rupert Murdoch, and do exactly what they have promised interviewers time and again: fire Roger Ailes, and turn Fox News into MSNBC. Very soon after that, the Film division will have a bad year, losses instead of earnings, and News Corp. will struggle or miss debt payments. And so begin a long, slow, NYT-like decline. All because the remarkable attributes of Rupert Murdoch, understanding that there is money to be made catering to middle/working class conservative sensibilities, cannot be duplicated in his family.
The same is true for Apple, regardless of increased Iphone sales for now. Steve Jobs is a very sick man. His company has been terrible without his leadership. Alone among Apple CEOs, Jobs understands that what he sells is a mixture of hip-glitterati envy, and convenience in making things "just work," be it a smartphone offering all sorts of handy and convenient apps (at the expense mind you of privacy and security), or a music player that integrates completely with your computer, or a store to buy music and video and books and applications, that integrates completely with your computer and various devices. In addition, Jobs understands the model of generally well paid engineers to produce high-end software and hardware, and the integration between them, producing mostly high-end results, for which the company charges a high-end price.
Absent Jobs, there is no one with the vision and ability to make Apple competitive down the road as Google/Android gets better and bigger and cheaper in smartphone offerings. Absent Jobs, there is no one to push personal computing into the next space, perhaps recording and classifying and moving around video from Satellite, Cable, and over-the-air broadcasting the way a TIVO or VCR does, only with Itunes capabilities and the ability to synch with a portable player to take wherever and whenever you want. Absent Jobs there is no one with both a design and engineering eye that can produce products that look beautiful and function well enough to inspire gadget lust among Apple's well-heeled buyers.
In the meantime, Apple has become trapped like most computer makers in China. Manufacturing (contrary to what Steve Wozniak, Apple Co-founder argued) has long been sent to China, decades past, like nearly all computer manufacturers. Making tighter integration with hardware and software, last minute changes, and quality control and supply chain shock insurance much, much harder. The CEO has to be even more on top of things, because the factory is not five minutes or five hours away, able to quickly re-tool and deliver a changed antenna, on an Iphone, for example. Or a different screen on an Imac. This makes getting it right the first time vital, and only Jobs has been able to do this. No other computer exec, including Bill Gates, has been able to make as many design wins on hardware/software integration as Jobs has done. This is the fundamental basis for Apple's success.
And its downfall. Other than Jobs, can any exec on the horizon offer more than Carly Fiorina style cost-cutting and job-shedding? A "me too" attitude towards commoditization, or pie-in-the-sky business consulting (Xerox's Diversity CEO, Ursula Burns is a good example of the futility of this approach). Apple is not going to compete with say, Oracle, SAP, and Sybase for business integration money. The company has no expertise and no ability to execute that strategy. For better or worse, Apple remains consumer-wedded, and that means a strategy of not being the low-cost leader, but easy to use, integration already done, high-margin leader. The only person in the history of personal computing to execute this strategy continually and successfully is Steve Jobs. He simply is not replaceable.
Now, Apple and News Corp won't fall right away. They won't go bankrupt and liquidate like Borders. Or Circuit City. Or Compusa. They can muddle along for a good long while, like Xerox, or Kodak, or GM, or Palm (before it was bought by HP). Zombie companies, subject perhaps to periodic bailouts, eking out a not-dead, not alive existence. But absent their visionary CEOs, neither company has the ability to make the money they used to, by consistently beating the competition through a strategy that is obvious but near-impossible to duplicate. In many ways this speaks to decadence and debauchment of the elites. That both Murdoch and Jobs beat them for so long by doing the clear and obvious. With never a thought to beat them at their own game. ...Read more
James Cameron continues to show that while he's the master of intermittent, hideously expensive movie spectacles, he's completely clueless about the world outside of epic movies made every ten years. Cameron aims to bring 3-D content to TV, Reuters reports. In the article, Reuters notes that despite big bets by Sony and Mitsubishi, 3-D TV has failed to catch on. The Financial Times notes that Best Buy had a disappointing Christmas selling season, largely due to the failure of 3D TVs, as did Wedbush Morgan Securities, an analyst firm. Price, glasses, limited viewing angles, and content are all major factors for consumers saying no. The WSJ reports that Samsung is predicting that glasses-free 3D TVs will not appear in the next 5-10 years because of technical hurdles revolving around price. [Nintendo's 3DS gaming system uses very small screens, with limited viewing angles OK for single users. Many have meanwhile found the 3D effect to be nauseating and have turned it off.]
He's rich. He's not that old. And he has relatively good eyesight.
Let's take the last first. Relatively good eyesight is required, for all 3D TV variants, glasses-based or not, because it works by fooling the brain that each eye gets a shifted image. Much like the old Stereoscopes of the 19th and early 20th century. Particularly as people age, they tend to have better eyesight in one eye than in the other. Extended 3D viewing tends to produce headaches and eyestrain, and for those with fairly limited eyesight in one eye, 3D TV can be viewed for only a short time. Other people find 3D screens, regardless of glasses or passive systems, nausea inducing.
Cameron has good eyesight. He can't understand those who don't, and find 3D image viewing a strain.
Cameron is still relatively young. He has yet to suffer the infirmities of age. Leaving him unable to grasp the reality, that an aging White America (and a very poor Mexican one) will be unwilling to part with money to buy a new TV when their old one works perfectly well, is paid for, and is easier to view to boot!
But the dominant factor in Cameron not understanding that it is not lack of content, but the technology itself, limiting 3D TV adoption, is his wealth. His vast amount of wealth has left him simply unable to comprehend life on a budget. Carefully parsing what is spent and what is not, particularly in a recession, particularly with stagflation, rising gas and energy and clothing and food prices, and stagnant wages. If 3D TVs were $10 in today's money, then yes, people would mostly buy them. Even at $200, replacing a fairly workable TV, with one that only does 3D images, and thus suffers from limited viewing angles, most likely glasses, and is uncomfortable for those with less than robust vision, would be a questionable decision for most consumers.
Probably not even porn will drive adoption of 3D TVs. Sports and movies, are just not that compelling in 3D to drive considerable outlays (it is likely that 3D TVs will be more towards $2,000 than $200) for … what amounts to 3D viewing of say, "Celebrity Apprentice" and the Tonight Show with Jay Leno.
SCTV had it best:
Cameron has no equal in spending ten years to bring a stunning spectacle from conception to screen. His scripts however might as well be written in crayon. Nevertheless the man has amazing visual talent. But his visual talent no more transcends that narrow boundary than programming talent makes one a business genius. For all his ability in one narrow area, Cameron is no Steve Jobs or Bill Gates. His failure in making 3D TV a dominant force in consumer video is assured.
Cameron recently signed an open letter advising against early release by studios of Video on demand.
“I do feel it’s not wise to erode your core business,” said Mr. Cameron. The problem, he said, is not that on-demand offerings will overlap with the theatrical run, since most films are out of most theaters within a month. Rather, he said, many potential viewers might skip the theatrical experience, knowing that a movie would soon be available at home.
Earlier this week, Jim Gianopulos, a co-chairman of Fox Filmed Entertainment, defended the on-demand plan as a tool that would help bring viewers to certain movies that, like his own company’s “127 Hours,” were well reviewed, but didn’t fully connect with an adult audience that is hard to get out of the house. Mr. Gianopulos, in an interview, made clear that Fox had no intention of diminishing the impact of big event films like Mr. Cameron’s “Avatar,” but needed more revenue from movies that were being swept off screens anyway.
“For me, it’s enlightened self-interest,” countered Mr. Cameron, who voiced concern that early video-on-demand would weaken the theater industry, making it harder to release even films as grand as his own. [Emphasis Added]
Well yes of course. Consumers want lower quality but more convenient music. First Cassette Tapes instead of LPs, then CDs, and finally MP3s, which are very convenient but lose quality. Consumers want cheap and easy e-books, instead of finely bound hardbacks. Consumers prefer McDonalds or Taco Bell or KFC, to fine dining experiences.
And movies and serial entertainment will be the same. Amazon has released its cheaper, ad-supported Kindle (on the home page and screen savers) because that is the wave of the future. Eventually the devices will be even cheaper.
The business model that supports Cameron's every ten years epic is slipping away. People would rather watch on even a non-High Def TV through Netflix or some other service, for a very modest fee, than pay expensive prices for movies. And withdrawal from public spaces is part of the fruit, the harvest of diversity. Robert Putnam's Harvard Study confirms, that with more diversity, people go out to public spaces less. Who wants to go to movie theaters over-run by the equivalent of those who kicked in the head of Bryan Stow?
Cameron may make one more spectacle, and that's it. Movies are rapidly moving towards what happened in books and music. Cheap, ad supported content aimed at economically stressed consumers, who avoid public spaces like the free-fire zones (against vulnerable targets like Whites) they have become. ...Read more
Republicans, taking the House, and gaining some (though not as much as they could) in the Senate, have an opportunity. To strike back at Big Media (one of their enemies) and make friends among the people. Will they take it?
Big Media, is increasingly reliant upon cable and satellite carriage fees. Viacom, Time-Warner, now Comcast-NBCU, Disney-ABC, News Corp, all rely on extensive carriage fees, often from cable channels no one watches, for much of their profits. The recent News Corp-Fox/Cablevision spat over carrying Fox and Fox Sports (resulting in blackouts for much of the World Series for Comcast customers) is just one aspect. Media companies want to milk as much money as possible from their cable channels. In practice, this means high fees from cable and satellite companies (excluding of course, their own, such as News Corp owned Direct TV or Comcast-NBCU). Which in turn bundle cable channels together, to customers, because that is how they are charged. Want ESPN? Disney requires cable/satellite companies to carry as well, ABC Family channel, Disney Channel, Disney XD, and a whole lot of "junk" channels that few watch. Particularly those wanting male-skewing sports.
Republicans have an opportunity here. Force both content providers (cable channels) and cable and satellite companies, to offer ala-carte pricing, with hard caps on what consumers are forced to pay. This could in theory offer a consumer a cable bill lowered from say, $65 a month to only $40. That's a big deal for consumers, about $25 a month in hard times. It also punishes the ideological enemies (and class enemies) of the Republican/Tea Party coalition, by taking money away from them. No longer can Bravo, or SyFy, or the myriad Lifetime networks cruise on the popularity of bigger cable networks. No more "edgy" shows designed to get lots of press and annoy cultural conservatives and incrementally push culture left (Big Love, Sister Wives, etc.) coasting on the easy money from bundled services.
Instead we'd get a few winners: ESPN, Fox News, Discovery, USA. With a lot of losers: FX, Bravo, Out, Disney XD, SyFy, A&E, AMC, etc. What is notable is how few networks have any real revenue from advertising, since few people watch their shows. Much of cable network's ecosystem consists of channels averaging 60,000 viewers or so. Mad Men has fewer than 2 million viewers, despite all the hype.
What this can do, is cut deeply into the revenue stream that supports the hiperati. Those who produce stuff that moves the culture leftward, and towards break-down. Meanwhile, cable channels that survive can no longer follow the MSNBC model (to get say USA, cable and satellite companies, and their customers, must also get Keith Olberman and Rachel Maddow), relying on other sister-channel popularity to appeal to a tiny minority of the hard left culturally and politically.
It would certainly kill BET, and perhaps some of the Food, Golf, Home Improvement, and other channels. Since under this plan, consumers could cancel a channel at any time, and receive pro-rated refunds, and the cost would therefore be passed on to cable channel owners (they only get paid each month for each subscriber), every incentive would be aligned to produce mass, middle of the road content, and away from niche stuff that finds little appeal outside tiny groups.
Much of America's problems stem from a degradation of culture, pushed not by conspiracies but by alignment of incentives and perverse economic structures, often built by accident or the best intentions. During the Reagan era, it was argued that bundling would increase diverse cable channels, from CSPAN to NASA to RFD to BET. That allowing the bundling would provide incentives for niche content to grow into mass content, that could be funded commercially in no other way. The FCC and Congress allowed the structure of bundling to grow and spread.
With the result that Bravo, OUT, Lifetime, TLC, AMC, FX, and the rest, mostly pollute the culture instead of improve it. Atomize people instead of bringing them together in re-asserted common bonds. Bundling has allowed, indeed encouraged, capture by the hard left cultural elite intent on being as edgy as possible. It is the revenge of the Hipster.
An easy way to bring it all down, is simply to mandate ala-carte choices and pricing. Want OUT? Bravo? TLC? Then pay for it. Most consumers won't, and won't have to subsidize those who do. Meanwhile ESPN, Fox News, USA, and a few other networks will do quite well. The revamped SyFy, mostly Twilight-conceived pseudo science fiction (the revamped Battlestar Galactica series and spin-offs), designed to appeal to a tiny fraction of women, will wither and die. So too, MTV (they are fighting over the same teen girl audience as the CW). Or VH1, there really is not much of an audience for celebrity rehab. And of course, with them the class and culture enemies of ordinary people: the Malibu millionaires espousing hard left ideology. The mini James Camerons.
All this while putting money in consumer pockets. Would Obama veto it? Senate Dems fight it? Of course. So make that an issue. Force them to act to keep cable bills high in a recession. It is time to think about dismantling the economic and cultural centers of the class enemy: the millionaires and billionaires in Malibu and the Upper East Side. There are other measures. But this is so easy and compelling, Republicans should push it. Hard.
The Stuxnet worm is in the news. Was it the Israelis? The CIA? The Chinese? No one knows, or even what the aim was (hindering Iran's nuclear infrastructure, industrial sabotage against Siemens by the Chinese, or simple extortion on a wide scale) but the event was significant in the risk it poses to infrastructure, and more widely to the West's, and America's, commercial payment system. Growing cyber-crime might be the one thing to restore cash to its former glory. As the world discovers the downsides of a cash-less, sci-fi world of debit and credit cards: they are easily hacked.
Hacking or skimming credit and debit cards is nothing new. episodes in Florida, and Utah involving gas stations with skimmers installed, the twist being that they had Bluetooth transmitters, more high powered than consumer devices, allowing criminals parked blocks away to collect the data on credit and debit cards, and use the data to fraudulently skim accounts. The scam was perpetrated, because there are only two major manufacturers of gas pumps in the US, and both have standard master keys that open all pumps built by that manufacturer.
Stuxnet is a problem for US infrastructure, obviously the same weapon used against (perhaps) the Iranians can be used against us. Stuxnet spread by infected USB drives, exploiting previously unknown Windows vulnerabilities, and spread throughout the local networks, looking for Siemens industrial controllers and issuing sabotaging commands. Stuxnet was found in Iran, Indonesia, and India, the source infection being shipments of Chinese manufactured USB flash drives, and using forged digital security certificates from Taiwanese manufacturers. The same attack could be used, of course, against US utilities, nuclear power plants, and the like. But more significantly, against the US electronic payment system.
Most people today rarely use cash in purchases. Shopping at the grocery store, paying for gas, and all sorts of daily life activities generally involve credit or debit cards. Cash is harder to carry around, more vulnerable to street robberies, and by its nature imposes stricter spending limits (if you pay by cash only, you cannot buy more than what cash you carry). Checks are becoming a rarity, something written out to pay bills sent in the mail (and even that is declining as online payments proliferate), and not much else.
But the system is vulnerable. External facing security is fairly robust, since ATMs were introduced, banks have done a reasonably good job at limiting the damage criminals can do on their network, by using dedicated network connections, massive amounts of encryption, and imposing limits on withdrawals. Bank payment systems are also robust, sharing the same, dedicated networks, encryption, automated verification, and auditing and analysis to spot intrusions and fraud. Far less robust, is the internal systems. Or more succinctly, once you are inside various bank internal systems, there is far less security. Most of it is oriented towards preventing employee fraud and theft. Not outside intruders.
Stuxnet was thought to have required about six months full-time, dedicated work by a team of six top-notch programmers. At a nominal wage of $150,000 a year per programmer, that works out to about $450,000 to create Stuxnet, outside of other costs. Such costs are well within organized crime rings, particularly those operating in Russia and Asia. The US financial payment systems must look like a very tempting target. Obviously, help from a former or current employee at one of the major electronic clearing/payment systems banks would be needed, but that is relatively straightforward. Organized crime is good at finding people like that. Current internal systems would need to be carefully studied for weaknesses inherent in system designs and trade-offs in the engineering (security vs. usability). No doubt banks are yanking out USB ports even now from internal systems, but a network is as vulnerable as its most vulnerable connection. Other equipment required for the network is vulnerable in the manner that Iranian, Indonesian,and Indian power plants were vulnerable, to equipment from reputable manufacturers that would not at first blush contain malware or viruses. Cisco routers, or firewall, or other network equipment, would come to mind.
It is shocking, however, to see how widespread the use of Microsoft Windows, really has become in the banking industry. Just see how your local bank uses them. You'd expect with Stuxnet, banks would see the danger, and rip out Windows in favor of something else, with a more robust security model. But human nature is what it is, security is not a profit center, and so little money is spent on it. Overestimation of the efficacy of external security makes institutions complacent, as they've spent considerable sums on it. All of which is useless when it is bypassed by malware hidden in something from a legitimate manufacturer.
Nobody thought to check the USB drives because the idea that they would be infected with malware from the factory, even though that was the case. Network equipment from global manufacturers, and the like would be targets as well. Since most of them use common components sourced and assembled in China, it is a matter of mass-infection, and stealth operation, until some trigger is reached. Once inside, the Stuxnet modeled malware can be used to skim accounts and so on. The amounts could be staggering, and so large that banks would be tempted to pass on the cost in one way or another to retail customers. Even if the cost is simply a government bail-out, that itself will be passed onto customers. Swipe card network components, are another target of course. While security is tight, Organized Crime networks specializing in cyber crime and flush with cash are undoubtedly targeting the whole swipe card network system now, at the time of this writing.
Which brings us to the next issue. Will the cost of Organized Crime networks so compromise the safety and cost of the current electronic banking system that it can no longer function in the way that it does today? And if so, how will people operate? ATMs, and the networks they depend on, including the whole swipe cards, depend on both security and low costs. If the networks are compromised, both security and low costs will be gone. The advantage banks have had is that there were relatively few gifted electronics and computer science people, and those that existed were well compensated and solidly middle class. Since the early 1960's, the advantage of banks and payment companies has been that they had most of the truly gifted people, and criminal organizations did not.
The explosion of learning, and technical knowledge, particularly in a globalized workforce, means there are literally millions of people, often with profoundly non-middle class ideas, beliefs, and backgrounds, who are also technically astute or even gifted, in electronics and computer science. There now exists, globally, available to global Organized Crime networks, people who are at least the equal, of the men who create security networks for banks and electronic payment companies. Not the least of which are the layoffs prevalent in much of the electronics and computer science industry, and the ethos of youth over experience. This resource has already been utilized.
Zeus malware is continually updated and auctioned to lower-tier crime rings at $1,500 a transaction. Of course, for criminal rings operating outside the US or US-friendly jurisdictions (principally Russia and China), the risk of e-mail phishing scams and the like is relatively low, and the payoff fairly unattractive if not lucrative. But the big target is of course, the entire retail payment system itself. A ring that could penetrate and exploit, comprehensively, that system, would not reap millions. At the minimum, such an exploit would net billions, if not trillions, of dollars to any ring audacious and determined enough to get such an advantage. Particularly if measures were taken along the lines of Stuxnet, to cover the tracks of the creators and the recipients of the transfers. Such as massive chaos, erasing transaction records, and the like. Presumably, after the money has been sent abroad. A key component would of course be sending the money out of the country to places where the Organized Crime ring can use it. The money is no good unless they can get at it. Formidable problems to be sure, but not insurmountable given the extraordinary rewards. Indeed, the nexus of political objectives by hostile regimes and Organized Crime speak for themselves. Considerable resources are available to crack this problem, and eventually it will be cracked.
But what then? How will people react? If their payment network is compromised? Indeed if online transactions and swipe-card systems alike are unreliable, insecure, and high cost (because merchants run the substantial risk of non-payment and fraud), people will stop using them. It has happened before. Confederate bank-notes had little value as the war progressed, as prospects for victory grew remote and Union counterfeiting increased. In Britain, during the Dark Ages, usage of coins essentially ceased from the early 400's until the reign of Alfred the Great. Indeed, gold and silver coins, passed from common usage into oblivion, fairly rapidly, in the Twentieth century, except for collecting. Dollar coins themselves, common in the 19th Century, are now considered a bother by many. So too, usage of cash has declined significantly for common payment except for small items. When you are in line at the grocery store checkout, or at the gas station, you will rarely see people paying cash.
Yet before the ATM was introduced widely in the 1970's, and the widespread use of Credit Cards in the mid 1960's, cash was king. As it had been since 700 BC in Lydia, when the first coins came into use. Coins, either precious or made of ordinary base metals (copper, zinc, etc.), have a long history of being used globally as a means of trade. More recently, a few trusted paper currencies have been used, despite frequent counterfeiting, because of the massive amount of money in circulation and the general soundness of the currency. The US paper denominations being the best known but not the only currency in that category.
If electronic payment networks become so compromised that it is far too costly to use them, consumers will simply default to cash. Almost everything that can be done with electronic payment systems, either swipe cards or chips with various encryption (and Blu-Tooth) can be done with cash. Except of course, online payments in particular, Amazon and Itunes. Since a substantial amount of commerce depends on this electronic payment system, work-arounds will have to be rapidly constructed. One such would be partnerships with retail establishments for payment. An order "pending" until payment is made, in cash, at a fulfillment station. At grocery stores, or other places eager to partner with folks like Apple or Amazon.
Electronic payment systems have had a remarkably long run without serious interference from Organized Crime rings intent on extracting their own percentage. Inevitably, as skills spread out around the world, and the small cadre of solid middle class professionals that defends the system faces a massive army of people with matching skills and unbounded ambitions, that is likely to change. Particularly since those who have been most inspired by Stuxnet are not likely to be security professionals but those in the intersection of rogue states, terrorism, and crime. All that money to be stolen just begs for someone to try and steal it. Particularly since the world is now awash in the equivalent of electronic safe-crackers, and much of the safe components (electronic hardware) are manufactured in a few, fairly corruptable, Chinese factories.
So it is probably a matter of when, not if, all things considering. And not one event, but a series of events, propelled by the need to steal a lot of money. When that happens, cash will once again be king. ...Read more
In a series of interviews, Time-Warner's Jeff Bewkes declared TV is entering a new Golden Age, with its influence ever stronger on Western and indeed, global culture. Dismissing threats of cable cord cutting, and technological challenges from Amazon, Netflix, Apple, Google, and others, Bewkes declared that he saw limitless revenue from cable, decrying the "tyranny of free television." In "The Big Short," Michael Lewis portrayed chief executive after chief executive, who knew only vaguely what his company was doing, what risks it took on, for what rewards. This was true of Wall Street giants like Bear Sterns, to legendary insurance firms like AIG, to legendary clueless hedge fund manager Wing Chau, partnering with Merrill Lynch. None had a clue as to the real nature of the business they were dealing with. Jeff Bewkes promises to be Television's most legendary Wing Chau.
Bewkes argued that with TV shows such as Boardwalk Empire, which will come to UK Sky next year, TV is having its 2nd golden age. Partly this is because TV has kept pace with technology, from digital to HD to 3D. “We’re in the midst of a TV renaissance,” Bewkes tub-thumped. Bewkes singled out UK-originated shows such as Shameless, The Office, American Idol and X Factor as examples of quality TV. “The cultural impact of TV is now greater than movies. TV has become the most innovative medium in pop culture today. And it comes from increasing quality. Television is very healthy right now; TV is the only medium which has increased its audience apart from the internet.”
Given that 80% of Time Warner revenue comes from TV, Bewkes said he’d restructured the media giant as mainly a video programming business. “AOL was meant to take over everything,” Bewkes said, referring to AOL’s 2000 merger with Time Warner. “Unfortunately, it only took over us.”
Funny. Recent projections for 3-D TV adoptions have been re-adjusted, given the global consumer cut-back in discretionary purchasing. 3-D TVs promise to be less robust in sales, both in the US and globally, than Blu-Ray. Which itself is languishing as consumer's wallets are pinched. This is another Wing Chau moment, thinking that spending by consumers (or home-buyers) can go on forever. His view of quality TV, crummy reality junk from Britain, or un-funny "comedies" speaks for itself.
In a story from ABC News, Bewkes touted an initiative to allow cable subscribers to view content online, and claimed:
Jeff Bewkes said the number of television viewers was growing, paid-television penetration was increasing and advertising and subscription revenues were up. He urged the industry not to undervalue its content when making deals for digital distribution.
Bewkes of course believes that cable subscriptions are growing when in fact, they are already decreasing, a prospect Comcast acknowledged when they decided to buy NBCU instead of investing in their core business.
In an interview with the Financial Times, Bewkes said:
“We’re in the second or third year of a planetary global readjustment,” he says, yet TV subscription revenues, programming budgets and time spent watching TV rose through the recession. “Why? People love their TV. They love it on their TV screen and they love it on their new screens,” he argues.
TV’s golden age is no accident of history, he continues, but a consequence of a business model dating to the early days of HBO, the Time Warner-owned subscription channels operator where he made his name, and of previous waves of digital upheaval. “People act like it’s new. People say, ‘What’s going to happen when the digital world gets here?’ There’s this inappropriate comparison to the music business, where something happened to them when digital technology arrived on their shores that was akin to the Vikings landing,” he says.
Yet CNN and HBO were conceived about 30 years ago, where digital transmission and compression technologies first enabled multiple channels to be sent to millions of homes across the country for little cost.
Those advances led to the “vitality” of shows such as The Wire, Entourage or Curb Your Enthusiasm, he argues. “Back when you had the tyranny of free TV” – he repeats the phrase for emphasis – “The tyranny of free TV led to a monopoly of expression [and] the lowest common denominator of shows that could appeal to a mass audience.” [Emphasis Added]
As investors debate how many people will pay for video online, Mr Bewkes mocks those “grasping for some hazily conceived idea that somehow free TV on the internet will bring some sort of paradise to the people,” saying: “Well, it didn’t before.”
Bewkes doesn't get it. Indeed, he has no basic understanding, none at all, of his business. He's as clueless as Wing Chau. The Music Business was no more decimated by the advent of Itunes and Ipods than it was of 45 rpm singles, or 8 track tapes, or cassette tapes. The Music business was decimated not by "Vikings landing" but by crummy music no one wanted to buy in any great numbers. As the youth wave ended, and music and its consumers alike, aged out of pop music creation and consumption.
Let us be honest. The Wire, Entourage, and Curb Your Enthusiasm don't make money. HBO does not make money from ratings (it is advertiser free) or from the minor revenues via DVD sales and foreign sales. These shows are not "vital" since hardly anyone watches them. HBO makes money from subscriber fees. HBO is available to about nearly 100% of TV households, yet only 30% pay for it. That means, that 70% of households find HBO ... not worth the money to pay for it.
Bewkes (he started at HBO) does not even understand his own business. He sells snob-appeal, niche shows to upscale consumers, or those with tastes approximating those folks. But he does not charge Tiffany, Rolex, or Ferrari prices. Thus he's extraordinarily vulnerable to a prolonged recession making his cable channels irrelevant. While the Sopranos, Entourage, and the Wire get lots of press coverage, so does Gossip Girl. None of them get much in the way of viewers. He can't sell these things abroad, for premium prices, most nations have local content requirements, and subsidize local TV production even more than local movie production. Heck in emerging markets, simple piracy is always an option. Once a show is released on DVD, piracy is inevitable, particularly in places like China, and Russia, and India, where rule of law is regarded a quaint obsession of the West, and fairly weak and decadent besides.
The Wire, Entourage, Rome, and the rest exist only to entice HBO viewers to not cancel their subscriptions. It is not as if HBO is growing its subscriber base. Indeed, the "growth" in cable subscriptions are basically phantoms, people getting low deals to deal with the over-the-air conversion to digital, and then canceling them as the fees grow upwards. As detailed extensively here, consumers are finding that absent live sports, cable and satellite are entirely optional.
It is interesting how he phrases "the tyranny of free TV" as something harmful, and his own shows as the bastion of SWPL hipness, coolness, and all together with-it-ness. This is what happens when those who protest against the man, become the man. They become lame beyond belief, trapped by reflexive dislike of a mass culture they rebelled against, and became ... part of.
Jeff Bewkes is the head of Time-Warner. And he does not want to head a mass-audience media company. He is so tied in, emotionally, to the idea of being a hip, cutting edge rebel, he can't even see where the money is. If you want to know, in large part, why TV sucks so much, it is precisely because of men like Jeff Bewkes. Who have nothing but contempt for mass market.
Sure, the mass market can be dumb, if you make it that way. But most of what passes for "hip and edgy" on cable TV, particularly HBO, was lame ten years after it was first conceived, by the Romantics in the 1840's seeking to "shock the bourgeois." An artistic movement one hundred and seventy years old, is hardly cutting edge. It is, in fact, the establishment itself, irony of ironies. Shows like Rome, or Boardwark Empire, mostly seek to titillate their largely female audience with "taboo" sex and such. Exhibit A being "Tru Blood" and the scenes of violent, degrading sex popular among the female (and gay) audience for that show. Nothing has been more stupid, over the years, than the stuff Alan Ball has put on Showtime, from "Six Feet Under" to "Tru Blood." You could dub it, the tyranny of the hipster. Ultra-ironic, standing for nothing, except shocking ordinary people by how "transgressive" he is.
Stuff like "Supertrain," or "Pink Lady and Jeff," or even "BJ and the Bear" and "Sheriff Lobo," legendary bad TV shows, did not drip with contempt for the audience's basic values, and indeed lives. They may have been bad TV, but they were "honest" bad TV, trying at least to entertain the broad audience, not tell them their entire lives and beliefs were worthless. And mass market TV, at its best, far from being a tyranny, was liberating. Shows like the Rockford Files, or the A-Team, or Gunsmoke, or Miami Vice, were of generally high quality, created a common culture, and re-inforced critical cultural values of standing for what is right and good, even at cost, in ways both comic and serious. While never forgetting the main mission, to entertain the audience for an hour or so, never insulting them. Entertainment not by shock, but by well crafted stories with interesting, and likable characters, the audience wanted to see the next week.
Bewkes further touts his view that old content generating companies are still king:
The relative changes in technology and media companies’ market valuations suggest that investors are betting that value will shift from media owners to technology groups, but Mr Bewkes likens this “false premise” to arguments made in the dotcom bubble.
“There’s no reason why their interests and growth should come at the expense of the content industry,” he says, but the trick will be to marry TV’s “very happy business model” with the capabilities of new devices.
Bewkes does not get it. The threat is not 99 cents downloads of TV shows on Itunes. Anymore than the music industry was destroyed by that model. Sure, it erodes margins, on CDs/Albums and DVD boxed sets and the like. But that is just a marginal issue. If Napster, and indeed filesharing and the internet had never been created, the music industry would still be in terrible shape. Perhaps not quite as bad, but still very bad. Because fundamentally, people stopped being willing to pay for crummy music. They weren't 16 anymore. They already had lots of music. They did not need new music, that wasn't any good.
The threat, which investors are starting to see, is that mass media companies don't want to be in the business of mass media, and so make niche content for cable channels that few watch, and collect high carriage fees. All of it vulnerable to consumers canceling cable, and switching to other stuff. That "stuff" might be DVDs they already own. Or downloads and streaming video of new, more popular, broader content on Iphones, or Ipads, or netbooks, or Internet ready TVs, or boxes to connect your TV to the internet. It could even be the Nintendo Wii, or Sony PS3, or Microsoft XBox, and Halo, or what have you.
Anyone with cash can create content. Mass media companies face competition on the content front, because a company like Google can easily throw $3 billion in cash, at creating content, and already has its own distribution network. Called Youtube, and possibly also Android apps in their marketplace. Microsoft, Apple, and Nokia can do the same. Netflix, Redbox, and other players like Amazon also have cash, if less existing infrastructure, but that's a matter of servers in a data center, scaled up.
The traditional barrier to entry, in competing with big media companies, has been scale. You needed lots of cash, both to create content, and distribute it. For TV, it cost News Corp. about $1 billion over ten years to launch Fox Broadcasting. That would be chump change to Google, and they could launch an alternative to say, the CW network easily, online. Creative people are merely workers for hire. Few are locked in to long term exclusive contracts. You could hire, if you had the money, almost any TV actor looking for a new gig. The same is true for writers, directors, producers, and so on. And the scale for distribution of course, is already there. Itunes already acts as a defacto competitor to broadcast TV, along with Hulu.com, partly owned by Fox, ABC/Disney, and NBCU.
And there is money on the table. Lack of broad, mass market serial entertainment leaves a gap in the market. One that can be filled by a Microsoft, or Netflix, or whoever needs to create mass-market appeal to keep folks around their search engine site (Bing?) or provide the next level of entertainment offerings (Netflix). You no longer need to construct an expensive broadcast affiliate network, you can simply put servers in a bunch of data centers. Its far cheaper. Heck, I'm shocked Youtube has not launched its own "channel" of serialized entertainment with creators given fairly favorable terms to put up compelling, original content (i.e. bigger shares of advertising revenue).
Since this is exactly the kind of approach Microsoft used for gaining Windows popularity, and Apple the Iphone. Pushing favorable tools and terms to application developers, that in turn created content available nowhere else but that platform.
The danger Bewkes and the like represent (to their shareholders), is arrogance. It is arrogance that at its heart thinks their creative output, their tragically hip micro-shows, are worth far more than they are. I'd be the first to agree, the stuff Bewkes and the like put out, are not worth nothing. Surely Boardwalk Empires is worth something. But what Bewkes thinks its worth? Not a chance. So ends, in all likelihood, the tyranny of pay TV. It will die when the last hippie punches out the last tragic hipster. ...Read more
Broadcast Executives like to tell themselves a pretty fairy story. "Once upon a time in the magical kingdom of ABC, NBC, and CBS, all was right in the land. Until wicked, wicked, cable came along and destroyed viewership, fracturing it among a myriad of choices. Leaving the wise and good Network executives no choice but to offer Dancing the Stars and American Idol." This is of course, bunk. TVByTheNumbers.com (well worth your time), has excellent ratings data. Using Thursday, Sept. 23, 2010, the "Premier Night" for the broadcast networks, and the overnight ratings data supplied by TVByTheNumbers, I've put together the chart above. Now, its only one night. But it is premiere week, when most people watch, and clearly, cable does not matter. The "missing viewers" are not all strung out along a myriad of cable shows. They just aren't watching.
The relevant data (thanks TVByTheNumbers.com !) are here (for Broadcast Networks) and here (for cable). A few things stand out. MTV's Jersey Shore pulled 5.954 million viewers. College Football on ESPN had 3.52 million viewers (it started at 7:30 Eastern, 4:30 Pacific, I still put it in the 8 pm bucket), but othr than that, few shows pulled even 2 million viewers. "Its Always Sunny in Philadelphia," reputedly FX's big comedy "hit" (I use that term advisedly) did about the same as "the First 48" on AE or "Real Housewives of DC" on Bravo and less than Project Runway (3 million viewers) on Lifetime. Heck American Chopper on TLC had more viewers (2.225 million).
Methodology: shows on cable that ran long, I kept in the original East Coast time bucket (ala College Football on ESPN). I also average numbers, for the hour, in the case of half-hour comedies. So Big Bang Theory and Shit My Dad Says, for 8:00 and 8:30 PM, were averaged to get the hourly number. [Yes, it's called $#*! My Dad Says, CBS should have gone with the original title or another one, the fake-cursing is stupid.]
The biggest show of the night was "the Mentalist" with 15.33 million viewers, more than CSI at 14.57 or Grey's Anatomy at 14.04. After that it was Big Bang Theory and then Shit My Dad Says at 13.95 and 12.48 million viewers respectively. Vampire Diaries got 3.57 million viewers, Nikita only 3.22 million viewers, for the least amount of viewers, on what is supposedly the most watched TV night after Sunday. The Office got 8.4 million viewers, and Outsourced got 7.44 million right after it, nearly a million viewers less.
Again, Thursdays are the reportedly, second most watched night of TV after Sunday, and this was premiere week. The highest amount of viewers, between 9-10 PM, was only 54.381 million, including cable. That is less than the 60 million viewers the Beverly Hillbillies drew at their peak.
The CBS series starring Buddy Ebsen as the patriarch Jed drew up to 60 million viewers at its peak and ran until 1971.
Cable is not the problem. Indeed, the cancellation of Beverly Hillbillies and the "rural purge" conducted by CBS, more mindful of critics than profitability, in the early 1970's, seeking "young, hip, and urban" viewers even if it meant appreciably less of them, is the problem.
Click over on the source links at TVByTheNumbers.com. Hardly anyone really watches cable shows. Much of it, stuff not interesting to anyone. Jersey Shore is about the only show that actually draws any appreciable audience. The story of network Television is that of, really, American coffee roasters, or the Big Three Automakers. The coffee roasters, facing shortages of quality beans, substituted the low-quality robusta beans for high-quality Arabica. Result, generations of Americans ditched coffee, for sodas. Only the Starbucks revolution, using high-quality coffee and snob appeal, could partially reverse that trend. The Big Three, were even worse, offering cars of such poor quality that generations of Americans grew to prefer Toyota, or Honda, even though the quality gap has closed or even reversed (given Japanese over-expansion and poor quality on their own).
Bad TV drove away viewers. Yes, it is that simple.
Or to put it more elaborately, TV with little broad appeal pushed away older viewers, as youth was obsessively courted, in an aging nation with few youth having disposable income like the boom years of the postwar period. The baby boom of 1945-1965 was predicted to last forever. And it didn't. Further, men were pushed away, believing that women make 85% of all consumer purchases. Something that may have been true in 1955, but not today, with high rates of divorce, late forming families, chaotic cohabitation, and extended single-hood.
This was just stupid. There is a story at TVByTheNumbers.com (from the Hollywood Reporter) about an analyst valuing NBC at negative $600 million (-$600 million) and USA Network at $11.7 billion, SyFy at $6.3 billion, CNBC at $3.9 billion, MSNBC at $2.9 billion, Universal Studios at $4 billion, and finally Bravo at $2.6 billion.
It's just nuts. Think about it. What do the cable networks listed above do? How do they bring in cash? By viewers? Nope. The cable networks are in the business of extracting carriage fees, from satellite and cable providers. That's it. Even Jersey Shore is nowhere near say, the Mentalist, in numbers of viewers. The latter even outperformed 18-49 rating/share compared to Jersey Shore, 3.3/10 vs. 3.1/9. And that's the "class" of cable. The rest are eking out numbers in and around the one million viewer mark, or lower.
Making that business terribly vulnerable to people cutting the cord. No carriage fees, no revenue to NBC or now Comcast. Which is not putting more capital into faster cable networks, but rather, buying content and a broadcast network. The deal itself, to buy NBCU, is a massive vote of no confidence by Comcast itself in its core business.
Meanwhile, the business of broadcast networks is far less vulnerable. Viewers can get the signal for free (provided they have a converter box or a newer TV). Broadcast networks sell audiences to advertisers. That's a business model dating back to the 1920's and 1930's, and the old radio networks from which the television networks arose. Its pretty simple, like delivering good quality coffee at reasonable prices, or decent cars, both affordable and reliable. There is not anything mind-blowingly complex at stake.
IF Comcast can re-tool NBC's development system, and take the hits in making broadly appealing, all quadrant (young/old, male/female) oriented entertainment, creating a need for viewers to tune in, again and again and again, week after week, this might be a bet that pays off, not if but when cable fees collapse and people cut the cord. After all, it costs nothing to receive the broadcast signal. Comcast would have to endure several years of losses, though, in moving away from the highly segregated audience (basically younger women) that make up the, at most 54 million viewers at TV's broadcast/cable peak. In trying to attract more men, and older people, a goodly number of the current viewers will probably drift away, in the same way that remaking a restaurant chain known for high-end food into a broad middle market will have a period of losses, before the message is believed by the targets, and during which folks who liked it just fine without "them" hanging around, go elsewhere. Comcast may not have the stomach for it.
But its pretty clear that the valuations put on the cable networks are laughable. On the order of the $6.3 billion Guy Hands and Terra Firma paid for EMI. Like EMI, the business model (getting paid lots of money for being carried by cable/satellite providers) is falling to … consumer habits. In this case cutting the cord, in EMI's case, no longer buying much music (since so much of it was crap anyway). This makes the big bet that execs like Jeff Zucker put on cable as the winning hand, a losing proposition. Not even Comcast believes in cable anymore, otherwise they'd spend their money on it instead of NBCU.
Ironically, broadcast networks like NBC, or CBS, or ABC, or Fox, or even CW could be quite valuable. Why Warners has not simply dumped the Gossip Girl/Vampire Diaries dreck and used the network to run all DC superheroes, aimed at kids through adults, I'll never know. They own the characters. That's whole point of being a vertically integrated media company. Superman, Green Lantern, Power Girl, Hawkman, Dr. Fate, Captain Atom, Captain Marvel, W.I.L.D.C.A.T.S, Stormwatch, (and the rest of the Wildstorm characters), Icon, Static (and the rest of the Milestone universe) can be on TV, in movies, in games, on kids TV, in stores as toys, etc. Why wouldn't you do it? You own the characters! They don't make money for you sitting in moldy old comic books! Some are lame, some are classics, some are remembered still forty years on. Why not use them?
In the same way, with consumers under pressure, broadly appealing shows, creating "hooks" like the old radio and movie serials, can easily beat niche stuff. In terms of profitability. After all, the Superbowl hits 90-100 million viewers. Suppose you had a show that hit say, 75 million viewers per week. And other shows hitting around 40-50 million viewers, each week? How much money could you make? Lots. No, you can't have a Superbowl every week. But you can create emotionally hooking, broad based drama. Its been done before. Within living memory. On TV.
It's not as if cable is pulling in, even in aggregate, monster ratings. At best, cable takes off around 10% of people who might otherwise just watch network TV.
Broadcast TV is tremendously undervalued. Affiliate networks are not cheap, and providing entertainment that men and women, old and young, watch together, in the 40-75 million range is definitely possible, and very, very lucrative.
But, I think it is beyond the capacity of most creative people in Hollywood and definitely in TV. Supposedly, the best minds and most talented TV folks ever, have given us, Outsourced, the Event, and Undercovers. This is not even Supertrain or Pink Lady and Jeff level of bad. In some ways, it is far worse. At least Supertrain and Pink Lady and Jeff, along with Sheriff Lobo and BJ and the Bear, reflected an attempt to connect, however badly, with a broad spectrum of America, and entertain said spectrum. However badly it was done, it was still honest. This junk, and the rest, don't even bother to be broadly appealing. Its both elitist, and crap.
Elitist and crap. Its not cable erosion of audiences, or cheap reality shows, that make TV so bad. It is the writers, producers, and network execs who want both condescending moral lectures combined with niche appeal, all done badly.
The streaming revolution cannot get here soon enough. ...Read more
The Financial Times has covered both the Jeff Zucker firing from NBC (totally expected) and the recent Goldman Sachs TV conference. In both cases, you have undeniable proof that TV execs just don't get it. They believe that their content is so superior, it will put them in the driver's seat, forever. When, the real risk they run is folks like Verizon, or T-Mobile, or Nokia, seeking to compete by offering their own content. Which seems inevitable.
The Goldman Sachs conference was covered here. CBS's Les Moonves called today a "new Golden Age."
Apple and Amazon are renting television shows, Netflix is streaming films, Google is launching a TV product, and millions of people are tuning into the iPad. Suddenly, it seems, technology companies are charting a new course for the media business.
Yet the captains of big television networks are expressing confidence that they still have the upper hand.
At the Goldman Sachs Communacopia conference in New York this week, executives from CBS, NBC Universal, News Corp, Time Warner, Viacom and Walt Disney fired shots across the bows of the technology companies seeking inroads into their territory.
In an unusual display of solidarity among competitors, the unanimous message was that they would be judicious about making their programming available online, and seek to extract full value from their TV shows and films. Content, it seems, is confident again.
“I feel better today than I did probably at any point in the past about the NBC broadcast network’s ability to survive,” said NBCU chief executive Jeff Zucker.
“This is really the golden age,” said CBS chief executive Les Moonves. “All the networks and cable have extraordinary shows, and the numbers are pretty extraordinary.”
Such confidence might seem out of place for an industry that is facing incursions from online video upstarts and saw US cable and satellite subscriber numbers fall in the second quarter of the year for the first time on record.
But the moguls said there was little evidence of widespread “cord-cutting”, the shorthand for consumers choosing to live without cable or satellite services. Bob Iger, chief executive of Disney, said he remained “bullish” on the television channel business “even in the face of aggregators like Apple, Netflix, Hulu, whoever”. … Meanwhile, networks are looking to play the digital platforms off against each other, in part by offering different content to different distributors in different time “windows”. While each of the networks has made salvos online, they seem in no rush to make all their content available on any one platform.
“I don’t think an early entry is necessarily the greatest thing,” said Mr Moonves.
In their measured approach, the networks are seeking to avoid mistakes made by the record labels, which 10 years ago allowed Apple disproportionate influence over music pricing through iTunes.
“Our content is a scarce resource and we need to manage it intelligently,” said Chase Carey, chief operating officer of News Corp, which owns the Fox network.
All the big studios are dabbling in digital. News Corp and ABC have partnered with Apple to offer 99 cent rentals of TV shows, while CBS and NBCU have withheld their content for the time being. But even these positions are provisional. Mr Moonves said CBS would “accept their phone call” if Apple asked again next year, while Mr Carey called Fox’s Apple deal “a short-term test”.
Mr Moonves, who had kept CBS content off Hulu, an advertising-supported site financed by and populated with content from NBC, Fox and Disney’s ABC network, also indicated that its new subscription service, Hulu Plus, “makes a lot more sense to us”.
With no dominant online platform having emerged, content for now is fragmented online, and may remain so for three to five years, executives estimated.
“The digital space isn’t going to get all shaken out and defined by Christmas,” Mr Carey noted.
In the meantime, Disney’s Mr Iger said that no one digital platform seems likely to amass enough power to dictate terms to content owners. “It’s a much more complicated world,” said Mr Zucker.
Scatter pricing fees, last minute spot rates, are up 15-17% from last year. Retransmission/carriage fees (ala cable) are also increasing, reports the Financial Times. But the execs at the conference are dead wrong. Verizon CEO Ivan Seidenberg says cutting the cord is real. He notes that being a dumb pipe is a losing proposition. Cable fees are expensive, even HBO long ago realized that to keep their market share (they are available in nearly 100% of US households, but only 30% of US households pay for the service), the channel had to have compelling content found only on HBO. Me-too copying "television being the sincerest form of imitation" ala Fred Allen, would not cut it with consumers even in the go-go 1990's and early 2000's. Consumers can save considerable amounts of money, by canceling cable or satellite. Only Pro and College football likely keeps the cable or satellite cord from being cut. Audiences for such things as Project Runway, or even Jersey Shore, are niche by definition. Its not such compelling, serialized content that people will pay to consume it. Nothing like say, the power of Dickens stories that had longshoremen shouting at ships tying up at dock for the latest news of his characters. Yes spot ads are up, slightly, from last year's debacle. Organic, sustainable growth that is not.
Being a dumb pipe, like say Amazon or Apple are now, is fine if your core expertise and revenue lie elsewhere. For Amazon, it is being the number one retailer on the web, building on both its recommendation system and its "stores" (basically providing e-Bay like service for mini-sellers) to offer the most convenient, and "safe" web retailing service. For Apple, most of their revenues still come from hardware, mostly the Iphone and Ipods, then laptop computers. Itunes is a growing revenue stream, but relatively small compared to other parts of Apple's revenues. For both of these companies, being a winning aggregator is fine, they are not lean and hungry enough to venture into content creation, though their considerable cash reserves allow them to do so if they wish.
It is other companies, sitting on a lot of cash or struggling to break out of "dump pipe" status, that are threats to TV studios and networks. Netflix has already started exploring creating its own content, as HBO did years ago. Verizon could do the same, so could T-Mobile, or AT&T. All three mobile networks offer mere service (AT&T's monopoly on the Iphone is likely to be broken soon) that is at its core, a commodity. Having the exclusive content, available only on their network, is a way to make people keep re-subscribing, and tolerate higher fees.
Microsoft is hungry too, failing to find much success out of its core Windows and Office monopolies. Making Bing into more than just search, offering exclusive, subscriber only content, is one way for them to grab market share away from Google. Which in turn has struggled to find profitability from YouTube. YouTube under Google has experimented with the Tribeca Film Festival on pay-per view movies of films in the festival. Offering original serialized content is one way to make the huge bet Google has invested in YouTube pay off. Since user-supplied video of guys crashing into a wall on skateboards has not been very profitable. As mentioned in the prior post, Nokia is lean and hungry. The company will never beat Apple's lead in apps, nor even approach Google's Android operating system and its own app store. Original Content available only on Nokia's phones and partner service providers is one way to win.
And really, what's the barrier to creating content? Cash. Nokia, Verizon, T-Mobile, Google, Microsoft, they all have a lot of it, still. HBO was able to commission its own content, and its just a smallish cable operation (admittedly part of Time-Warner, but that can hurt as much as help given the Byzantine politics inside Time-Warner). Soundstages in LA, and globally, are for rent. So too, casting directors, writers, agents, producers, cinematographers, skilled crew members, actors, and so on. The infrastructure to make serialized, TV-style entertainment is global. Anyone with the cash can make it, pretty much anywhere.
The comments from fired NBC head Jeff Zucker are pretty telling.
Mr Zucker began his career at NBC 25 years ago, quickly rising from researcher to produce the Today Show at the age of 26. As chief executive, however, he has faced criticism for his management of NBC’s entertainment properties, notably after a failed attempt to shake up its core broadcast network’s prime-time schedule.
He was mocked, sometimes by comedians on his own payroll, for the reshuffling of Jay Leno and Conan O’Brien, and the jury is still out on the scripted programming that now fills the evening schedule.
By contrast, cable properties such as USA Network and Bravo grew strongly and Mr Immelt sang Mr Zucker’s praises. “He has always stepped up when the company needed him. He never blinked when it came to tough decisions.”
Mr Zucker said: “I think I was creative and innovative. I think I took a lot of risk, I put diversity on the agenda and I created a culture of co-operation and collaboration I’m incredibly proud of. I do wish this had been a simpler time.”
He added: “I turned this into a hell of a cable network company and expanded internationally and digitally and dealt with a cost stucture in an economically challenging time.”
The man started at Ground Zero for female-oriented PC: the Today Show. He brought the same, female-oriented perspective (Average White guys suck!) to his NBC job, and drove the network into last place. His legacy is more, female-oriented, Average White Guys suck! content including "Undercovers" and "Outsourced" (i.e. isn't it funny Americans lost their jobs to Indians in India!). While the latter has held on (in the premiere) to most of the Office's lead in, so too did 30 Rock and Parks and Recreation, comedies in the mode of NBC's Thursday night line-up (i.e. not very funny, or popular). NBC still dominates the night, but gets fractions of what it got in the late 1990's with Friends and Seinfeld.
Zucker's legacy is lack of any compelling content. NBC has nothing really, that tens of millions of people, or more, will tune in week after week just to see. The characters and situations are as boring a self-consciously "hip" Malibu lecture on the need to save the Whales or polar bears delivered from a beach side, $10 million mansion. Nothing Zucker created really stands out, as compelling, can't-miss TV.
Leaving his network (and the rest as well) hideously vulnerable to whoever can provide a sports and entertainment package that beats the current offerings, on price, and emotional content. Very little on either cable or broadcast network is so compelling people even care to see it live or on tape.
Someday very soon, a "dumb pipe" will transform itself to a place for exclusive content, seen only on that pipe. It won't be broadcast TV or cable, neither have a clue. And the change will wipe them out just as the lack of compelling content wiped out the music business. ...Read more
While there can be no question as to the female-orientation of today's broadcast TV, just examine the Emmy Nominations for "Glee,", the question arises, when did TV get so girly? The answer is, 1978.
Wikipedia has a fascinating set of pages detailing the television schedules for the broadcast networks going back to 1946! It can be seen here. In time for the new fall television season, it was time for a pro-forma approach to determine the number of hours devoted each broadcast day in prime-time to shows appealing to men and women. While a real analysis would require a different approach, detailing the actual hours, of male and female skewing programming, a pro-forma approach, using the published Fall schedules of the broadcast networks (excluding mid-season replacements and the Spring schedules) at least gives a sense of what the broadcast networks believed would be popular. Even if they did not in fact turn out to be popular.
This was how I constructed the chart above. Taking each Fall Season, I created a spreadsheet that broke down each season by Day, Male Hours, Female Hours, and total hours, and then summed up the pro-forma (what the season would have looked like had there been no cancellations or mid-season replacements) Fall Hours for that Season. Taking the years 1975-2009, produced the pro-forma chart. Comedies, unless they were uniquely male-skewing (such as "Married With Children" were put in the female bin). Shows that had no real data on how they skewed, were rated as male or female skewing according to IMDB.com or Wikipedia descriptions. Dramas that featured lone male protagonists, in competition with other men, or trying to achieve a goal, were rated as male-skewing. Those with extended families, more female characters, were rated female-skewing, in accordance with Ed Bernero's dramatic formula for male and female orientation. Thus, the "A-Team," "Miami Vice," "the Six Million Dollar Man," "the Rockford Files," the 1977 Patrick McGoohan series "Rafferty" (a fore-runner of "House M.D.") were all classified as male-skewing. While "Little House on the Prairie," "Medical Center," "Beacon Hill," "the Life and Times of Grizzly Adams," and "the Waltons" were all put in the female-skewing box.
A few oddities stand out. Monday Night Football, on ABC, kept Monday Nights more male-skewing, for years, as other networks sought to counter-program with shows such as "the Invisible Man" (1975, not the recent Sci-Fi series), "NBC Monday Night at the Movies" (I classified movies as male-skewing), and "the White Shadow." Counter-programming efforts on Mondays (to retain male viewers) seems to have ceased around 1994. Sundays remained the most male skewing night on TV, at, near, or slightly above parity with female skewing hours, until the 1998-1999 Television season, when the hours went from 7, and 11, for male and female skewing hours, in the prior season (1997-1998) to 5 and 13, respectively (no doubt influenced by WB adding three more female-skewing broadcasts that year). Even in 2009-2010, when the WB (and UPN, which did not broadcast as a network on Sundays) ceased operations, and the replacement CW broadcast ended, the near parity between male and female skewing shows on Sundays did not return. Fridays and Wednesdays, also competitive to male-dominated, remained fairly male-skewing through the late 1980's, when each day began to fluctuate between male and female skewing hours, settling in the early 2000's to near total domination of broadcast hours by female-skewing shows.
Beyond gender, looking at the schedules, its amazing to see considerable efforts put into Fridays and Saturdays, now considered dead zones (with only Fox showing first-run content, and at that, cheap reality shows like "America's Most Wanted" and "COPS" on Saturdays). Shows like "the Rockford Files," "the X-Files," "Early Edition," "Nash Bridges," "Miami Vice," "the Pretender," "Mary Tyler Moore Show," "the Bob Newhart Show," "Walker, Texas Ranger," "L.A. Law," and "Spenser: For Hire" ran on Fridays and Saturdays. Days now considered dumping grounds or places where no new content (only re-runs) are shown at all.
The state of Network TV is fragile. Much of the revenue the networks receive is from part-ownership or full ownership of Cable TV channels. Even channels not getting much viewership (AMC's "Mad Men" receives less than 2 million viewers for most of its episodes), get lucrative payments from cable and satellite operators, just for carrying the channel. Now that is under pressure, as the Financial Times reports.
The cash-strapped young are leading those shunning cable subscription. The sector lost more than 700,000 subscribers in the US in the second quarter of the year – its worst loss ever, according to SNL Kagan, a research company. This was partly because of competition from satellite operators and telecommunications groups such as Verizon. But new streaming or “over the top” services such as Hulu were also a factor, says Mariam Rondeli of SNL Kagan. “There’s definitely some substitution taking place.”
In a lasting, deep recession, as now seems inevitable, TV networks offering, free, over the air content, with no monthly payments needed, and convenience, simply turn on the TV, and set the VCR or DVD recorder or DVR to record the show, with a minimum of fuss and hassle, SHOULD be the winner over cable. But increasingly, the consumers TV wants the most (cash strapped, early adopter technology-friendly 18-34 consumers) are opting to watch on Hulu or Netflix or other streaming content websites:
Maddy Cross likes to watch television but like many American teenagers she does not bother to use a television set. The 18-year-old drama student will shortly leave her home in Santa Monica, California, to study at the Tisch School of the Arts at New York University. There was a time when a TV was an essential fixture in any student’s room but Maddy has no plans to take one with her
“I’m moving into a dorm and we decided there wasn’t any point in getting one,” she explains. “We can watch everything we want on our laptops using Netflix and Hulu, which means we don’t have to buy a TV or pay for cable.”
Needless to say, many 18-34 year old consumers dumping broadcast and cable TV viewing for online substitution, which is cheaper versus the monthly cable or satellite bill, means far fewer viewers for ads, creating a vicious circle for broadcast TV, which is already far older than executives would like. Older, more affluent consumers being of less interest to advertisers, who are convinced that brand preference and buying patterns are set in the ages of 12-30 or so.
In a study released by analyst Steve Sternberg, ABC's median viewership aged one year last season -- to 51. CBS also grew a year, to 55. NBC gained two years, to 49. And Fox stayed the same, a relatively nubile 44.
Compare this to a decade ago. ABC was 43, CBS was 52, NBC was 45 and Fox was only 35. Only young-female targeted relative newcomer The CW has as median age under 40 -- 33 -- a figure its more or less maintained the past few years. "Ten years ago, there was still a relatively wide age disparity among the then six broadcast networks," Sternberg noted.
Other points of interest:
-- Comedies tend to be the youngest-skewing shows. In the fall of 1999, there were 45 broadcast sitcoms. Last fall there were just 20.
-- Conversely, procedural dramas are among the oldest-skewing genres. A decade ago, there were only five. Last fall there were 20.
-- The oldest-skewing broadcast shows include: ABC's "Dancing With the Stars" (57), CBS' "The Good Wife" (58) and "NCIS" franchise (57).
-- Among the youngest: Fox's animated comedy block (30-32) and "Glee" (38), NBC's Thursday night comedy block (35-40).
Even with a price of "free," broadcast TV cannot woo viewers versus online, which has replaced cable as an opportunity and threat. Note that Hulu is part-owned by Fox, NBC-Universal, and of course, ABC. Will Comcast, once it takes control of NBC, pull the plug on its participation of Hulu? Will this simply shift viewers into more "guerrilla" forms of viewing TV content online (equivalent to the late 1990's Napster explosion before Itunes made MP3 downloads safe, legal, convenient, and cheap?)
Nevertheless, it is clear that since the late 1970's, TV has become dependent on female viewers. Outside of sports, mostly college and professional football, TV has nothing to offer male viewers.
HBO, and other premium channels, face a challenge. Netflix is offering streaming options, far more convenient, and cheaper, than HBO. Which according to the Financial Times story above, has approximately 30 million subscribers, Netflix rapidly challenging them (see accompanying chart from the FT story above). Indeed it is likely only a matter of time before Netflix, Apple, and other streaming content services start creating their own content, both to get it more cheaply, and to create more popular content. While people have proven they will pay for stuff like "the Sopranos," or even "Tru Blood," the entry of lean and hungry competitors like Comcast with NBC, or Netflix, or Apple, or any other number of competitors, seeking to maximize revenues, demands logically, more broadly appealing content. One aimed at men as much as women.
“Cable will go the way of the landline phone industry,” predicts Michael Pachter, an analyst with Wedbush Securities. “It is nothing more than an empty pipe which the internet will replace.”
Moreover, since Hollywood is basically integrated, with most studios supplying content to networks they own and operate, all money tends to flow and ebb together:
Netflix, by contrast, costs $9 a month and subscribers have access to thousands of hours of on-demand film and TV programmes. Mr Sarandos says he is prepared to “write big cheques” to strike fresh content deals with studios, producers and pay-TV companies, using the money saved on postage as customers shift from its DVD subscription service to streaming. This is music to the ears of Hollywood studio executives worried about the decline of DVD sales, once the most profitable revenue stream but now in steep decline, falling from $14bn at its peak in the US in 2004 to $10.87bn in 2009 [emphasis added], according to Screen Digest, a research company.
With DVD revenue down, Blu-Ray no real replacement, cable service down, and pay/cable TV revenues down Hollywood has serious challenges:
In the second quarter of 2010 paid TV subscriptions fell for the first time ever, with cable taking the biggest hit, according to the research firm SNL Kagan.
A weak U.S. economy is the main reason the firm cited for the dip in subscriptions, as more consumers look for ways to cut down on monthly expenses. Last year's digital TV conversion may have also played a role in lower growth rates with some people canceling service after promotions on new digital TV packages ran out, the firm said.
The entire paid TV industry, which includes cable, satellite, and phone companies, lost 216,000 customers in the second quarter. A year ago, the industry gained 378,000 new customers, according to SNL Kagan. Six of the eight largest U.S. cable operators reported their worst quarterly video subscriber losses. In total, cable lost 711,000 subscribers in the quarter, the firm reported. Meanwhile, satellite providers DirecTV and Dish networks added about 81,000 new paid TV subscribers. And phone companies, Verizon Communications and AT&T also gained 414,000 new subscribers
Google’s YouTube video site is in negotiations with Hollywood’s leading movie studios to launch a global pay-per-view video service by the end of 2010, putting it head-to-head with Apple in the race to dominate the digital distribution of film and television content.
Google has been pitching to the studios on the international appeal of a streaming, on-demand movie service pegged to the world’s most popular search engine and YouTube, according to several people with knowledge of the situation.
Google will use its search technology and YouTube to direct viewers to the new service, which is likely to launch first in the US, with other countries added over time, the people added.
“Google and YouTube are a global phenomenon with a hell of a lot of eyeballs – more than any cable or satellite service,” said one executive with knowledge of the plans. “They’ve talked about how many people they could steer to this . . . it’s a huge number.”
Meanwhile, Hulu plans a $2 billion IPO, and Netflix, Amazon, and Apple are all offering or about to, streaming video showing movies at reduced rates (all around or about $5 for newer titles) at the same time as DVD release and cable pay-per-view. [Watch, clever hackers will battle studios and streaming content providers over copy protection and "ripping" streaming content to hard drives for viewing later, over and over again.] Obviously, TV series will be in the mix. It would not be hard, indeed, to envisage a landscape where serial entertainment is entirely streamed, and TV is merely the province for live sports events, American Idol, and the like.
Creating broadly popular, balanced programming appealing to both sexes, with dramatic elements that hook men (lone heroes overcoming obstacles to "do the right thing" and in competition with other guys) and women (families, relationships, etc.) ought to be the no-brainer. It is certainly a way to avoid cannibalizing existing revenue, in pay/cable TV, and over-the-air viewing. Over-the-air TV is free. Cost to consumers: zero, excluding a TV set which almost everyone has. This is so obvious a response to cash-strapped consumers, that Hollywood's integrated response: 3-D movies that mostly flop, betting everything on new technology (Blu-Ray, now streaming), can only be explained by a consistent failure by nearly all executives in understanding their customers and marketplace.
Since the late 1970's, advertisers, the people who pay TV networks for their content (it is not the audience) have abandoned men in search of ever more focused content towards women, believing that women make 80% of all consumer purchasing decisions. TV networks (really just divisions of integrated, massive media companies such as NBC-Universal, or ABC-Disney) responded by purchasing cable networks and reaping carrier fees by cable operators once cable and satellite TV offered competitive threats. Hulu and other streaming content operations (CBS has its own streaming content on its website) are merely a continuation of the cable strategy.
Yet it is likely that the wallet of consumers will finally bring a halt to the madness, decades long, of ignoring and abandoning the male viewer in TV and depending on advertisers paying a premium to reach young women 18-34.
At best, streaming operators such as Hulu are offering $9 a month charges. That's a fraction of the revenues accruing to cable channels owned by networks, for example ABC Family Channel, for subscriber access. The money generated by streaming content won't replace lower advertising money (as the prized 18-34 demographic downsizes) nor will it replace lost cable channel carriage fees. Meanwhile large fixed costs of maintaining both broadcast and cable channel networks remain.
A Republican led Congress, meanwhile, determined to punish a left-leaning Hollywood and make consumer friends, could mandate ala-carte pricing for cable channels. Pay only for what you need, which would kill many of the channels. Including LOGO, the various Lifetime channels, Oprah's new channel, BET, Bravo, TLC, and many others that very few watch. Perhaps Obama would veto it, but he might also sign it. It is a definite risk, and even a veto might draw a bipartisan over-ride on a "safe" issue designed to respond to consumer wallets being stressed by the recession.
Eventually what we will be seeing is broadcast/cable network combinations file for Chapter 11 bankruptcy, as parent companies run out of cash to operate them. Even mega media companies cannot run huge operating deficits forever. Comcast-NBC is probably the most likely one, given the parent vulnerability to cancellation of cable service and "guerrilla" TV watching on the internet. Viacom/CBS is another, given the extraordinary dependence on the business acumen of Sumner Redstone, and the inevitable fall-out in the battle for corporate control when he is no longer active as the CEO and largest voting-rights shareholder. While Fox was able to run a deficit of over $1 billion for the first ten years of its existence, neither the WB nor UPN could exist on their own for longer than that, even in the relatively better economic climate of the late 1990's and early 2000's.
It is not inconceivable that neither NBC nor CBS would exist five years from now. In that case, the reason would be, what happened in 1978. When the broadcast networks decided they could get along without men. Its been a long run. But that bet seems to have run its course. ...Read more
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