Joel E Lewis » Business

Not Just A Pay Wall

Joel — Fri, 25 Mar 2011 16:45:34 +0000

The internet has been abuzz about the NYT’s new pay wall. Basically, after reading 20 articles in a month, you need to pay for a subscription to keep on reading. But there is one big exception: You can read 5 articles a day from Google searches and an unlimited number of articles from social media, blog, and news outlet links. This exception seems like a smart loophole to put in so that good content can be widely read, but it may be the lynchpin of the entire strategy.

Say you write an entertainment blog and post 1 original article every day and 3 interesting links. You get a lot of readers who come to you for your interesting writing style and insightful take on events in entertainment, and because you comb through a lot of different news media to find interesting stories/articles other people wrote for your readers to read.

To find 3 really good articles to share every day, you need to read 15 articles a day (this is probably a low estimate). Some of those articles will help come up with a topic for your original article and educate you enough to write about it, but say you need to find 5 older articles for background material. So you need to read ~600 articles a month total.

Where do you find this content? You probably have a daily list of news sites that you check for the latest stories, and you probably follow a couple of other blogs related to entertainment in case they find something you didn’t see, so that you don’t get left out of industry buzz. After seeing a short press report about Lindsay Lohan’s latest trail appearance, you decide to write about the challenges of growing up in Hollywood.

In checking your usual sites you see that the New York Times just did an excellent profile of Miranda Cosgrove that touches on that issue and will give you a lot of background material to use and react to. You see they have a bunch of archived original reporting on Lindsay for you to quickly check your facts with, and a slideshow of her court outfits for you to grab a picture from. In total you click through 5 articles.

If that was a typical day, you would read ~150 articles a month (about 25% of what you need to read in total in a month to publish good blog content and keep your readers coming back).

Those articles save you a lot of time and help you create a great product. So even though your readers might never be willing to pay the New York Times for content, you are, because it is an essential ingredient in your own content creation process.

But that’s just the beginning. Because the pay wall keeps your readers from seeing more than a fraction of the content you see, you create even more value for your readers in a pay wall world when you select articles to link to. In essence, you are using your subscription to skim and filter the New York Times for articles worth reading (like you always have) AND then giving your readers free access to that good content by linking to it.

Therein lays the potential brilliance. The New York Times created a strategy where the heaviest users, the ones who most need or want news pay for it. For everyone else, you only get little bit of news, unless one of the heavy users points you to an article. As a casual reader, you are even more tied to services like bloggers and aggregators to point you to articles so that not only are you only reading the best articles, but you are reading them for free. As a heavy user, that increased reliance on you means you are even more willing to pay. The pay wall only makes the most diehard customers pay, and gives them even more reason to pay. Smart.

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Redefining Success

Joel — Fri, 04 Jun 2010 17:42:49 +0000

From an article about AT&T’s new pricing policy, with a bunch of comments about moving to Verizon for their unlimited data plan:

Verizon, the largest U.S. wireless carrier, declined to comment on whether it will scrap its advertised unlimited plan, which carries extra charges if customers use more than 5 gigabytes of data a month.

via AT&T Sparks User Backlash With End to Unlimited Plans Update1 – Bloomberg.com. [Emphasis added]

Did the definition of unlimited? When did unlimited begin to mean that the limit is 5 gigabytes?

Comcast offers users who rent a cable modem from them a free wireless router – you just have to pay for shipping. Banks routinely lower the interest rate they charge on loans by re-lacing interest with fixed fees, which mathematically earns them the same profit. BP puts out charts like this. When did it become OK for companies to treat people like idiots? When did people start acting the way they are being treated?

AT&T is trying to be transparent – they have decided to stop making everyone pay for the 2% of data-hogs, and people are up in arms. Go online to AT&t’s website and look how much data you use; if it’s less than 2 gigabytes a month, you will save at least 5 dollars a month. That’s money you were paying for someone else’s internet use, that’s now back in your pocket.

It’s sad that we can’t even recognize when a company does the right thing anymore. I don’t know if I’m more upset at the shell games companies play, or my fellow consumers who keep getting sucked in by the PR spin.

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Shooting Ourselves in the Foot

Joel — Sat, 29 May 2010 19:06:21 +0000

Matt Taibbi has another entertaining and informative article on financial reform:

The Sanders amendment, if it survives in conference, will lead to some delicious disclosures. Almost exactly a year ago, Sanders questioned Bernanke at a Senate-budget hearing, asking him to NAME the banks that had been bailed out by the Fed. Will you tell the American people to whom you lent 2.2 trillion of their dollars? Sanders demanded. After a little hemming and hawing, a bored-looking Bernanke – Time magazine s 2009 Person of the Year, by the way – bluntly said, No. It would be counterproductive, he explained, if clients and investors learned that these poor banks were broke enough to need a public handout. Bernanke s performance that day so rankled Sanders that he wrote up his amendment specifically to bring the Fed s goblin-in-chief to heel. The new law will force Bernanke to post the identity of loan recipients on the Fed s website for all to see.

via Politics – Latest News – Wall Street s War – RollingStone.com. [Emphasis added]

This isn’t the language of someone trying to make things better, it’s the language of an internet troll looking for cheap thrills. The only problem is, as satisfying as it would be to see all those “crooks”, “goblins”, and “vampire squids” squirm, it’ll hurt us more than it hurts them; the executives responsible already have years of paychecks, vacation homes, yachts, and whatever else tickled their fancy.

Seeking vengeance doesn’t change the facts: “It would be counterproductive, [Bernanke] explained, if clients and investors learned that these poor banks were broke enough to need a public handout.” Matt is very entertaining, but also idiotic. It’s not the poor banks Bernanke’s worried about, it’s the government money he just gave them. At the time, people would have shorted those “poor companies” if they were identified as most in need of bail out. If, like Matt, we just wanted to watch the industry burn down, it would have been cheaper not to hand them our money we poured gasoline over them.

You may not like the bailout, but the fact is that it happened, and that the people running the show at the time made the very defensible judgment call that it was necessary. Let’s stop trying for juicy “reform” meant to unearth more entertaining fodder for edutainment authors, and actually focus on boring-looking, fixing things for the better reform.

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Financial Innovation in a Sentence

Joel — Mon, 10 May 2010 17:15:51 +0000

Article on the good and the bad of financial innovation – the cliffs notes version is the one sentence below:

Some of these ideas [CDS's, CDO,s, SIV's, etc], as it happens, were reasonable ones, within limits. But limits aren’t something that Wall Street knows much about: in recent years, it has shown an uncanny knack for taking reasonable ideas to unreasonable extremes.

via The pros and cons of financial innovation : The New Yorker.

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Michael Lewis & Andrew Ross Sorkin on SEC v. Goldman

Joel — Mon, 26 Apr 2010 20:38:47 +0000

You don’t have to take just my word on it. Charlie Rose interviews Michael Lewis, David Boies, and Andrew Ross Sorkin about the SEC’s case against Goldman. They all agree that what Goldman did probably should be illegal, but that it might not be right now.

SEC Case Related Highlights:

See Boies @ 4:15
See Sorkin take on the case @ 7:30
Sorkin again at 11:55 with a thought experiment of a slight variation on what Goldman did.
On the politics of the SEC vs Goldman @ 14:40

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Goldman’s Gonna Get Off

Joel — Tue, 20 Apr 2010 14:36:42 +0000

The government’s argument is that Goldman co-created a pool of investments designed to fail with a notable investor (John Paulson), and then misled their investors as to the quality of the pool. This argument sounds great in the court of public opinion, but in a real court it will fall flat.

Goldman disclosed all of the characteristics of the underlying instruments to their investors
The investors they sold this instrument to were professionals – people who could (and should) have done the same due diligence Goldman and Paulson did. Maybe they didn’t look closely enough, or maybe they just made assumptions that were proved wrong later, but they should have been able to see what Paulson did with the information they were given
The structure of a CDO, is that two sides take opposite and mutually exclusive bets on a security they each have the same information about (though their analysis may differ). One side must win and the other side must lose.

Put that all together and you have a whole lot of nothing wrong. So why does the government bother spending time and money making this case? Months of political pressure and backlash against Goldman has made them an easy target, and the SEC is taking a cheap shot. The case is a ploy to make it look like the government is doing something, and will make Goldman look bad in the public eye either way.

Related Material:

Below is a a NYtimes analysis of why the Goldman Sachs case will be difficult for the government to prove.

A Difficult Path in Goldman Case – NYTimes.com

Next is a column asking whether CDO’s (the type of financial investment used) has any legitimate role in finance. I think that they do have a role in finance, but they have been over-used and greatly abused. for example, you could use them much like a covered call or protective put, to reduce the risk on a position. However anything that can be used for cheap risk management can also be used to make highly leveraged bets.

When Wall Street Deals Resemble Casino Wagers - NYTimes.com

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High Time For A Change

Joel — Fri, 26 Mar 2010 16:55:41 +0000

Some ideas make you wonder what the creator was smoking when they came up with it. With this one, we pretty much know:

On Wednesday, the California secretary of state certified a November vote on a ballot measure that would legalize, tax and regulate marijuana, a plan that advocates say could raise $1.4 billion and save precious law enforcement and prison resources.

via Legal-Marijuana Advocates Focus on a New Green – NYTimes.com.

It’s not often an idea comes about that will give the state a new revenue source, make many consumers/voters happier, make many consumers safer, and cut the states costs (through law enforcement and prison spending) all at once.

The only people who really lose from legalizing marijuana, are drug cartels, and parents in fictional small towns in the west – the kind of people who came up with the following argument:

Opponents, however, scoff at the notion that legalizing marijuana could somehow help with the state’s woes. They tick off a list of social ills — including tardiness and absenteeism in the workplace — that such an act would contribute to.

As opposed to alcohol, which has never made anyone late to work, and championship sports, which has never led anyone to skip work.

Regardless of what you personally think of pot, the objective fact is that our current laws don’t prevent anyone from getting it, cost a lot to implement, and put money in the hands of really bad, violent people. Legalization acknowledges the ineffectiveness, cuts the violent criminals out, encourages business growth and employment, and brings a percent of the resulting economic growth into desperately shrinking government coffers.

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Estate Tax and Meritocracy

Joel — Sat, 27 Feb 2010 15:06:16 +0000

From a research paper on international management practices and their effect on firm success:

One interesting group are the family firms, defined in our research as firms owned by the descendants of the founder… Those that are family owned and family managed (“Family, Family CEO”) have a large tail of badly managed firms, while the family owned but externally managed (“Family, External CEO”) look very similar to dispersed shareholders [are managed better]. The reason appears to be that… the eldest son becomes chief executive officer, regardless of talent considerations. Many governments around the world also provide strong tax subsidies for family firms; for example, the United Kingdom has many more family-run and -owned firms than the United States and Germany, which is likely to be related to the estate tax exemption for inherited business assets in the United Kingdom. [Emphasis added]

Via “Why Do Management Practices Differ Across Firms and Countries?”

I am a supporter of the estate tax from a meritocracy standpoint (it acts as a partial reset – you can’t have generations of a family sit back and enjoy the success of one generation). Bill Gates and Warren Buffet are also outspoken fans of estate taxes for the same reason; they have willed the bulk of their wealth to charity. This paper suggests beyond the meritocracy benefits, the estate tax actually makes business better/stronger, by encouraging the rise of talented management, whether from inside or outside of the firm.

The paper is full of examples and insights like above, showing how government policy shapes the economic efficiency of corporations. The next most interesting section compared the rigidity of labor laws in a country to the effectiveness of its managers. It’s well worth a skim at the least.

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Throw Out Your Management Textbook

Corporate Con Men?

Joel — Fri, 19 Feb 2010 15:34:57 +0000

Rolling stone has a really (really) long, but interesting comparison of recent wall street moves to real world cons and schemes pulled in movies like Goodfellas and The Sting. Some of the connections are a stretch, but most range between clear cut copies and eerily similar set-ups.

I definitely agree that Flash Trading is inherently unfair. The article also makes me doubt about the AIG bailout, the quick conversions to bank holding companies for Goldman and JP Morgan, and wall street’s involvement in advising policy decisions (especially the ones that resulted in JP Morgan’s two sweetheart acquisitions, heavily financed by the government). If I was handicapping future scandals, I’d bet on something fishy coming from the JP Morgan acquisitions.

My question is that if these firms are ripping off institutional investors so badly, and in such illicit ways, why don’t they take action? They should have no incentive to play a fixed game, and should be smart enough to know when they are getting played.

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College Football Means Business

Joel — Wed, 17 Feb 2010 22:02:40 +0000

Great article about possible expansion of college conferences, largely led by football markets. It lays bare a lot of the underlying money issues that separate the best from the rest.

Orlando Sentinel – College Gridiron 365 Blog- Orlando Sentinel – College Gridiron 365 Blog.

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