By B.P.T., on August 15th, 2011
At 8:30 AM EDT, the Empire State manufacturing index for August will be released. The consensus is that the index value will be 1.0, which would be 4.76 points higher than the value reported in July.
At 9:00 AM EDT, the Treasury International Capital report for June will be released, showing the flow of capital in and out of the United States economy.
At 10:00 AM EDT, the Housing Market Index for August will be announced. This index is created from a survey of home builders, so it shows the confidence that the sector has in the overall economy and their business.
By The Energy Report, on August 12th, 2011
 The Williston Basin is a hot area of exploration and production that oil and gas analyst Jason Wangler follows from his SunTrust Robinson Humphrey office in Houston. In this exclusive interview with The Energy Report, he shares his thoughts on the near-term prospects for oil and gas demand and prices, and tells us about several attractively priced names with good upside potential from current levels.
The Energy Report: Thanks for joining us today, Mr. Wangler. You and your associate, Neal Dingmann of SunTrust Robinson Humphrey, follow quite a number of energy stocks as well as the oil and gas markets in general. Oil prices have been relatively stable over the last few months with oil in the $90-$100/barrel (bbl.) range, and gas in the $4.20-$4.80/thousand cubic feet (Mcf) range. What are your expectations for the oil and gas markets in the next 6 to 12 months?
Jason Wangler: I think we’re really going to see a lot more of the same trading ranges. In the last couple of years, the economy, especially in the United States, has been building back from the terrible situation of late 2008 and early 2009. In 2009 and 2010, we were growing slowly and getting back to a level that was making more sense. But now that we’ve gotten a little more than halfway through 2011, there are still a lot of issues here in the United States. The debt ceiling and budget crisis and the general concerns with the economy not growing as fast as people expected have all had their effects.
We see the Brent crude prices $15 to $20 ahead of where the West Texas intermediate (WTI) oil prices are here in the States because there is excess supply in the U.S. right now and not as much expected demand for that oil. If you look at gas, it’s very much the same way, not only in the U.S. but worldwide. The other countries around the world would love to have the amount of natural gas that we have. The U.S. is blessed with the riches of natural gas from its shale plays. So you’re probably going to see gas stay in the $4-$5/Mcf range and, I think, probably below $4.50/Mcf for the most part, until we have either a demand or supply change that’s very dramatic. That would probably have to come from the demand side either in exporting natural gas or additional uses, whether it be for vehicles or heating more homes or something of that nature.
TER: It’s interesting how the whole gas situation has turned around because there was all this talk a few years ago about building ports to import liquefied natural gas (LNG) and now we’re talking about exporting LNG.
JW: It is amazing. The “shale revolution” has really changed the dynamic for a fuel that was very hard to come by but can’t be easily transported. You have to build these very large, expensive ship-loading facilities. Some people looked at the market in the U.S at the time and wanted to build import facilities because we would need them and we’ve leaned on Canada and Mexico for quite a few years to supply us with natural gas. Now we have so much at $4/Mcf, we wish those countries would need some of ours. Exporting LNG could start to balance out how much oil we have to import.
TER: Looking at your coverage list, some of the stocks are under $0.50 with market caps under $20 million (M), and others are big institutional favorites that trade above $100 with market caps over $50 billion (B). How do you decide which companies you want to follow?
JW: My colleague Neal Dingmann and I look for names and stories that interest us. We look at the management teams as well as where the assets are located and actually break our coverage down based on specific basins. I cover the Williston Basin in North Dakota and everything west. He covers Eagle Ford in Texas and everything east. And then we try to cover a group of names in each basin in different life cycles of each play. It could be one that’s just a very early entrant, which may have a $100M market cap, such as a Voyager Oil & Gas Inc. (NYSE.A:VOG) in the Williston, up to somebody who’s in the $10B+ range, such as a Continental Resources Inc. (NYSE:CLR) or a Whiting Petroleum Corporation (NYSE:WLL).
TER: You seem to be quite hot on the Williston Basin. Tell us why you like it so much.
JW: It’s one of the most economic and best resources that we have, not only in the U.S., but, really, in the world. There’s lots of running room and we’re very early into the play with lots of acreage still to be drilled. We could be up there for 50 or more years drilling very, very strong wells and putting lots of oil into U.S. tanks. The Eagle Ford and the Utica in Ohio have interesting and up-and-coming plays, but the Williston really has been shown to be as economic as any other, if not the best. It’s always nice to be in an asset that has the best type of results.
TER: A lot of these Williston stocks that you’ve recommended in the last few months have had some respectable moves. Is there still some good upside available there?
JW: I think there still is. The winter was colder than usual in North Dakota and Montana. After the winter season they had floods, which caused a lot of problems throughout the Midwest in general, starting up in North Dakota and Montana.
So, there were a lot of problems with shut-ins. They couldn’t work at the same pace they typically had been able to so production numbers were not as high as expected. Wells were not coming in on the expected timeframe. So, some of these stocks took a significant hit. The weather has been good since the beginning of June. Now we’re really starting to see some very impressive rates. Going through the second quarter earnings season, when we start hearing these names report, I think people are going to understand why they’re going to be a little bit lower than we originally expected entering the year.
Today, a month or two since the weather improved, we are able to say that this is a resource that makes sense. And as long as the weather works, we can really start churning out some very impressive numbers. So, I look for the Williston names to really have some impressive growth rates, not only for the full year, but, mostly based on just the second half of this year, because the weather has finally started to cooperate.
TER: Can you tell us about some small-cap names you particularly like at this point?
JW: One of them is a very early stage play in the Williston called Kodiak Oil & Gas Corp. (NYSE.A:KOG). The company has about 100,000 net acres at this point and is really starting to turn on a lot of wells. It should actually be able to start talking more and more about some very impressive production growth rates, not only for this year but next year. In the next couple of quarters, Kodiak could double production in only one quarter because it is able to bring on three, four or five wells. It currently has a couple of rigs running and will be moving to five rigs by the end of this year. Next year, 2012, we should see explosive growth much as we saw from Brigham Exploration Company (NASDAQ:BEXP) a few years ago. So, I look at Kodiak as an earlier stage play in the Williston with a very nice acreage position and cash on the books. When the additional rigs start running, it’s just a matter of focusing on operations and getting the oil out of the ground.
One other one is GeoResources Inc. (NASDAQ:GEOI). It’s a very interesting small company with a strong management team and a great balance sheet. The company has been around for quite some time and has been able to put together nice positions in both the Williston and the Eagle Ford. It’s just starting to drill now on those positions as the operator. It has a couple of wells in the Bakken that weren’t as great as maybe some other results. But, I think you will see some better results coming out of there as the company comes to understand the resource. Then down in the Eagle Ford, GeoResources just reported some very impressive results a few weeks ago coming out of the Gonzalez County area, a little bit further north than most people thought the Eagle Ford to be. It has some good partners and I think you’ll continue to see it be able to add rigs and really start moving that production level much higher.
TER: What else do you like?
JW: Another one that makes a lot of sense to me is Gulfport Energy Corp. (NASDAQ:GPOR). The company is in the Utica Shale as well as a lot of other places. Utica has become a play that everyone’s really curious about and Chesapeake Energy Corporation (NYSE:CHK) is really the only other one that’s talked about Utica very frequently. According to Chesapeake, Utica has the potential to be better than the Eagle Ford. It will be very interesting to see as we start getting some results out of that Ohio area. Gulfport is also drilling wells in south Louisiana and in the Permian Basin of Texas, and in the Niobrara in the Rockies. It also has some oil sands in Canada. Gulfport has a lot of different very strong assets predominantly focused on oil. And it’s been able to keep the production moving forward. So, I think that the good asset base will continue to turn into better and better cash flows moving forward.
TER: Any other low-priced ones you like?
JW: One other one I like is Abraxas Petroleum Corp. (NASDAQ:AXAS). It’s a smaller name with a position in almost every interesting play that’s not only already being produced in the U.S, but also a few others that are emerging as well. The company is in the Bakken area, the Eagle Ford and the Niobrara. It’s also in a couple of other plays including a small one called the Alberta Basin in Montana that’s becoming more and more exciting as Newfield Exploration Company (NYSE:NFX) and Rosetta Resources Inc. (NASDAQ:ROSE) start to do a little more work there. Abraxas is really a very good company getting out there early and picking up some acreage. Now it’s focusing on drilling that acreage, getting the production to the market and then growing its cash flows. But it’s one that I think is very interesting from an asset standpoint. With a stock price under $5, this is one you could really look at as a nice entry point into quite a few different interesting plays.
TER: You also cover Venoco Inc. (NYSE:VQ). Do you have any thoughts on it?
JW: Venoco is an interesting story but the company has had a tough year so far. It’s in the Monterey Shale in California. It and Occidental Petroleum Corp. (NYSE:OXY), are really the only two companies that are in that play in size, at least that we hear about on a regular basis. It’s taken the company a little bit longer than I think it would have hoped for. Tim Marquez is a smart guy and he’s been the CEO for quite some time. But the play has just really not come along quite as quickly as it had expected. Venoco has got some solid assets and solid production but the stock’s really gotten hit pretty hard over the past six months or so.
A lot of people are banking on this Monterey Shale becoming a very interesting and substantial shale play, and it just hasn’t done that yet. I think ultimately it will work, whether it’s Venoco or somebody else out there. I think Venoco has a great position. But, like a lot of other things, it just takes a little bit more time than we or even the company would like to see and so we’ve seen the stock come down. But it’s starting to get a lot more interesting down here in the sub-$12 range. I think it’ll start looking a little better as production ramps up and Venoco gets a little further up the learning curve on the Monterey Shale.
TER: So, generally, what are your expectations for the coming months that people ought to be aware of, concerned about or hopeful for, as far as investing in oil and gas stocks?
JW: The last few quarters really have all been very strong for the entire industry. Oil prices have been very healthy but gas prices not necessarily as much. The biggest questions have really been the macro situation. Is the economy going to grow? Is there going to be a situation like we had a few years ago where oil just absolutely fell off of a cliff? If it can stay in a range bound area, it will be much easier to make smart decisions on a company-to-company basis regarding who you really like and why you like them, as opposed to the whole industry having to come down.
I think that the industry right now is still severely undervalued, probably closer to the $70–$75/bbl. range for these stock prices versus oil trading in the $80-95/bbl. range. That’s because there’s a fear that the economy is going to pull down the market and oil and the stocks are just going to have to come down because higher oil prices have taken a toll on potential growth.
But the $90/bbl.+ range is a fair range. I think it makes sense as far as the world economy and I think that there’s still enough room for the country to grow, in terms of GDP and everything else, to keep these stocks moving and to keep oil prices where they should be. So, I think there’s a lot of room for these stocks to move. I would just continue to watch what the economy and oil prices do because those are going to be your two big drivers as, right now, these companies are making a lot of money at this $90-$95/bbl. range.
TER: So, to sum up, as far as you’re concerned, there’s more upside at this point than there is downside.
JW: Yes, I think so. For the companies, there’s a lot of upside and not as much downside. The assets they should be able to find with these shale plays are very repeatable. They are capital intensive but as long as the companies can maintain a good balance sheet, you’re safe there. At this point you’re in a price area where you really need to pick one or two that you want to get into and get comfortable with their management teams. The biggest overriding factor at this point is going to be what oil prices do. And what drives that is what the economies, not only here but across the world, are going to do. That’s the thing I think is going to be the most important factor.
And, like you said about the upside, I think one other thing that’s interesting and that could be one of those big upside drivers is that there’s going to be a lot more consolidation. Many of these smaller names will get picked up by larger names that have a lot of cash and want to find a way to grow their production and cash flows further. They need to go out to these new emerging plays in order to do that. So, I think you’re going to see continued consolidation in the market, which I think again, would be very positive for investors who go into these smaller to mid-cap names that may be taken out by the larger names at a nice premium.
TER: That sounds like a pretty optimistic picture for people who are willing to take a shot at some of these promising deals.
JW: Absolutely.
TER: We appreciate your taking the time to talk to us this afternoon and all the good information you’ve given us, Jason.
JW: Thank you.
Jason Wangler has over five years of equity research experience focused on the exploration and production (E&P) and oilfield services (OFS) sectors of the energy space. Jason previously worked at Wunderlich Securities Inc. and Dahlman Rose & Company before moving to SunTrust Robinson Humphrey. He also previously worked at Netherland, Sewell & Associates, Inc. as a Petroleum Analyst. He received his master’s in business administration from the University of Houston, where he was also named the 2007 Finance Student of the Year. He received his bachelor of science degree in business administration with a focus on finance from the University of Nevada, where he was named the 2003 Silver Scholar award winner for the College of Business Administration. In 2010, he was highlighted as a “Best on the Street” analyst by the Wall Street Journal and has been a guest on CNBC.
By Bron Suchecki, on August 12th, 2011
The Vietnam Government saga against its people’s preference for gold continues. Commodity Online reports that after the gold price “skyrocketed” the State Bank of Vietnam allowed private companies to import “5 tons of gold to help stabilise domestic markets and supplement local supply. … ‘Taking advantage of the situation, speculators in the domestic market had speculated, and manipulated, causing unstable psychology among people even though the amount of Gold in the market is still high’ [State Bank of Vietnam] said. The State Bank of Vietnam also said its consistent policy is to stabilize the dong’s value, and it is risky for people to buy and hold gold at the moment…”
I’d say its risky to buy and hold the dong whereas holding gold would indicate a very stable “psychology”!
By Claus Vistesen, on August 12th, 2011
I am handing the mike to my good friend and colleague Edward Hugh who has penned what I consider to be the most accurate analyses to date of the issues facing the European continent.
With fiscal union off the table, there are basically three possibilities. The first is to stay more or less where we are, expanding the ECB’s bond-purchasing program and simply trying to hang in there. The stability fund could be increased, but the more numbers start being accounted for in detail, the further away the various parties get from being able to agree. If this continues, the ECB is likely to reach a ceiling beyond which it will be more than reluctant to continue buying, because the bank takes the view that the resolution has to come from the politicians.
But with Italy and Spain’s combined sovereign refinancing needs between now and the end of 2012 totaling about 660 billion euros, and given the financing needs of the banks on top of this figure, reaching agreement to expand the bailout mechanism looks pretty improbable, especially when one considers that there’s no turning back once it starts. So, at some point, the spreads will start to widen again as markets force the issue, with the inevitable outcome that the monetary union is pushed toward the brink of breakdown.
The second possibility would be to disband the union entirely, leaving each member to go back to its national currency. This would be a disastrous outcome for all concerned and for the global financial system. Coordinating the unwinding of cross-country counterliabilities would be a nightmare given the level of interlocking corporate and sovereign bond markets. The sudden disappearance of one of the major global currencies of reference would also cause havoc in financial markets. The dollar would most likely be pushed to unsustainably high levels in the rush for safety, and it is only necessary to look at what is happening to gold, the Swiss franc, and the Japanese yen to catch a glimpse of what would be in store. Of course, this kind of violent unwinding would never be undertaken voluntarily, but that doesn’t mean that it is impossible — particularly if solutions are not found and the force of market pressure continues.
Fortunately there is a third alternative: The eurozone could be split in two, creating two separate (and unequal) euro currencies. Naturally, the composition of the groups would be a matter of negotiation because some countries do not easily belong in either one group or the other. The broad outline is, however, clear enough. Germany would form the heart of one group, along with Finland, the Netherlands, and Austria. It might even take Estonia, which has been making it pretty clear that it would also be up for the ride. Spain, Italy, and Portugal would naturally form the nucleus of the second group, with Slovenia and Slovakia being possible candidates. Some countries, Ireland and Greece for example, might simply choose to opt out.
Go read!
By B.P.T., on August 12th, 2011
At 8:30 AM EDT, the Retail Sales report for July will be released. The consensus is that retail sales were 0.6% higher last month, after a 0.1% increase in the previous month.
At 9:55 AM EDT, Consumer Sentiment for the first half of August will be announced. The consensus is that the index will be at 63.0, which would be a decrease of 0.7 points from the level reported in the second half of last month.
At 10:00 AM EDT, the Business Inventories report for June will be released. The consensus is that inventories increased 0.6% from the previous month.
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By The Gold Report, on August 11th, 2011
 “Buy the TSXV” was the advice Michael Ballanger, investment advisor for Union Securities Ltd., sent to his clients the morning after the Dow Jones Industrial Average lost 698 points, the worst loss since 2008. In this exclusive Market Conditions Update for The Gold Report, he explains why he sees the current climate as “extremely gold-and-silver friendly.”
As of this morning, I restated my “Buy the TSXV” recommendation based (largely) on the same reasons that I stated back in May. Until U.S. real estate turns, the U.S. economy is growing at structural stall speed. Until we see consecutive monthly rises in the Case-Schiller Home Price Index, policymakers—led by the Federal Reserve Board, the U.S. Congress, the European Central Bank, the People’s Bank of China and every other individual who has never met a payroll in their lives—are going to embark on policies that are extremely gold-and-silver friendly. The Fed announcement Tuesday afternoon turned markets sharply higher, thus reinforcing my comments back in May that we will see as many periods of quantitative easing as necessary until the real estate market in the U.S. (and Europe) improves.
Now—as for the gold stocks—NEVER in my 35 years in this industry have I ever seen them so incredibly disconnected from the underlying commodity that they produce. In the past 72 hours, the fundamentals for this industry group absolutely soared and yet the shares declined. The “pundits” would suggest that “the gold stocks are telling you that gold prices are about to decline!” and I might agree with that except the historical lag effect between gold and gold shares is about four to six weeks and this has been going on since January! What I see in here is that the gold price might decline in the shorter term but the shares are going to absolutely explode based on the projected earnings and price-earnings ratio multiple escalation brought about by the very simple fact that they are extracting and selling gold at $1,700 per ounce.
I am advising clients to buy senior gold stocks as a proxy for not only this undervaluation, but also because they have less than 1% of professional managers of pension and mutual funds involved in this space. If a mere 20% of the money now trading Apple, Cisco and IBM decide to move to the precious metals space, it would inhale the entire market cap of this sector.
As for the junior mining space, avoid the penny stocks with poor treasuries that are purely exploration plays. Buy the issues that have adequate working capital and definitely accumulate the “discovery stocks” like Kaminak Gold Corporation (TSX.V:KAM) in the gold space and Tinka Resources Ltd. (TSX.V:TK; Fkft:TLD; Pksheets:TKRFF) in the silver space. These companies are extremely well-funded and their results are indicative of large gold and silver reserves in the development stage.
Without getting too animated here, I am pounding the table in my bullishness for the gold/silver sector. I am reminded of 1978 when the major markets were locked in a stagflation death spiral with fund managers holding a mere 0.7% of assets in gold, silver or precious-metals-related securities. They all moved in tandem over the next 18 months to north of 22% exposure. Well, given that the market cap of Apple Computer is basically larger than the entire TSX Venture Exchange, I would suggest that this massive asset allocation shift is, indeed, coming.
We just survived the Fear cycle; now it is time to benefit from the Greed cycle. Assess your risk-tolerance levels; look deeply into the mirror and if you pass your own internal acid test, you should get down to business and recall the famous old adage from the pits of the Chicago Mercantile Exchange: “When they’re yellin’, you should be sellin’ and when they’re cryin’, we should be buyin’!” The sobs I have been hearing in the past week have been wails from the highest yardarm.
Finally, in 2009 I included a chart of the parabolic plunge of the TSXV as measured against the (then) rising price of gold. It was what turned me so bullish at the time. I urge you all to observe the same chart from yesterday:
Now, go out and buy ‘em!
Michael Ballanger completed his undergraduate studies at Saint Louis University, where he earned a BSc in finance and a BA in marketing. He joined the investment industry in 1977 with McLeod Young Weir Ltd., and currently serves as an investment advisor at Union Securities Ltd. His substantial background in corporate financing is further informed by his 30 years of experience as a junior mining and exploration specialist.
By Christopher Briem, on August 11th, 2011
Beaten to the metric I am. Hard to blog at 36K feet. I note the news out of the BEA is that personal income growth in the Pittsburgh ranks pretty well. It all begs an interesting question where all this (relative) good economic news for the region is coming from.
To answer that, first read this: Pittsburgh’s Big Rank Jump
Then look at the date.
Go back and reread that every time you read some newly written story about how the economic story of Pittsburgh is something new or recent. I just am not a big believer in simple stories or ‘tipping points’ in most economic stories for the region. As Jim R. will point out, the mesofacts are closer to the real facts, but they don’t make such easy stories to tell.
But going back to the news today. The PG version compares Pittsburgh’s income growth to some of the smaller metro areas in Pennsylvania. Might be worth noting just now much smaller some of the noted metro areas are in comparsion to Pittsburgh. They note we have not grown as much as the Williamsport metro area. Is Williamsport half the size of the Pittsburgh region? A quarter? Looking at the income data of note today, Williamsport had $3.9 billion in annual personal income. The Pittsburgh region has over $103 billion. So you are talking about a region less than 1/25th the size of Pittsburgh. Statistically, the entire gain in income in Williamsport would not even be a blip if diluted across the larger Pittsburgh region.
Williamsport is itself an economic giant compared to some of the smaller areas of Pennsylvania that really are at the heart of the Marcellus Shale development that is said to be the cause of some of the the income growth in the state. You have to keep the scale of these numbers in mind when thinking about that. It goes back to a basic point that the Marcellus Shale story appears so outsized because in the places where the development is happening the economies are so small that new economic activity is inevitably very large in comparison to the status quo.
By Simon Grey, on August 11th, 2011
What caused the 1992 L.A. riot? While this question has no definitive answer, the evidence presented in this paper does suggest that South Central L.A. had some characteristics that made it more likely than other cities to explode into a large scale riot. Our empirical results suggest that the ethnic diversity of South Central L.A., the high unemployment rates of young black men in that area, and the sheer size of Los Angeles all help explain the 1992 riot. [Emphasis added. HT: Chuck.]
One of the effects of free trade has been to increase unemployment in manufacturing industries. Jobs in these industries are generally low-skill, and the proper domain of younger males, at least given the labor market value of young males (hint: it’s really low since young males tend to lack intellectual capital, i.e. skills). So, since there are fewer jobs available to young men as a result of free trade, and since young men without jobs are more prone to rioting, it would appear that free trade has a probable role in setting the stage for future riots.
Of course, it is entirely possible to avoid this possibility. The government can either impose wage parity tariffs on all imports, which would have the effect of ensuring that any imported product would have the cost of minimum wage labor factored in, or the government can stop making illegal for young males to compete with foreign labor and production on price, which means eliminating minimum wage laws. It is absolutely ludicrous for the government to have policies that hamstring domestic labor and favor foreign labor. Something has to give eventually, and let’s hope it doesn’t take a large number of unemployed males rioting in the streets to convince the government to set a pro-domestic labor policy.*
* While I’m on the subject, I’d just like to note just how completely horrible it is that the government’s current economic policy is in the worst possible interest of the citizens it claims to represent. Free trade only benefits domestic consumers because it enables them to buy goods at lower prices than they normally would. Of course, the general price of goods wouldn’t otherwise be high in the first place if the stupid government hadn’t set policies that drove up the price of goods in the first place. Between inflation, minimum wage, asinine “corporate” taxation, and incredibly cumbersome regulation, the government has managed to concoct a perfect storm of skyrocketing prices.
The only thing that obfuscates this fact is the presence of foreign trade, which the government welcomes because it helps keep consumers from knowing the true cost of government interference. Of course, this charade can’t be kept up forever because foreign labor will eventually become more productive, leading to increased demand, leading further to increased prices (wages). As this happens, the buying power of foreign labor will increase, relatively speaking, and drive up the price of goods on a broad, international level, meaning that Americans will eventually pay more for goods anyway. By the time this happens, though, the American economy will have been so hamstrung as to become permanently crippled.
And that’s why I hate the American government and the politicians and bureaucrats that run it. They are fools, every last one of them. They, and I mean this literally, deserve to rot in the bowels of hell for all eternity for the fraud, deceit, and destruction that they have practiced against the American people.
By B.P.T., on August 11th, 2011
At 8:30 AM EDT, the International Trade report for June will be released. The consensus is a deficit of $48.0 billion, which would be $2.2 billion less than the previous month.
Also at 8:30 AM EDT, the U.S. government will release its weekly Jobless Claims report. The consensus is that there were 405,000 new jobless claims last week, which would would be 5,000 more than the previous week.
Also at 9:45 AM EDT, the weekly Bloomberg Consumer Comfort Index will be released, providing an update on Americans’ views of the U.S. economy, their personal finances and the buying climate.
At 10:30 AM EDT, the weekly Energy Information Administration Natural Gas Report will be released, giving an update on natural gas inventories in the United States.
At 4:30 PM EDT, the Federal Reserve will release its Money Supply report, showing the amount of liquidity available in the U.S. economy.
Also at 4:30 PM EDT, the Federal Reserve will release its Balance Sheet report, showing the amount of liquidity the Fed has injected into the economy by adding or removing reserves.
By Simon Grey, on August 10th, 2011
Consumers are watching as many – if not more – films than ever for less money and time than ever, for a third of the cost. The money that had been spent on (now unneeded) overheads can go on other things. Be sure to avoid the broken window fallacy – the saved money will go into other productive things that people want. As Blockbuster falls, something else people want will rise. And, at the margin, lower costs mean that there should be more movies made per dollar spent.
I think this pattern might hold elsewhere, too. Since getting a Kindle e-reader in June, I’ve read more books than I did in the entire year up to that point.
Although costs aren’t falling yet – it’s a proprietary Amazon device, and they’re keeping the costs high while subsidising the cost of the device itself – the shift to e-readers means that authors will eventually be able to bypass publishers and significantly increase their profit-per-purchase. Like the rise of Netflix, this will probably mean less money spent on overheads and more spent on actual content.
Recall that those who defend copyright laws on utilitarian grounds argue essentially that the purpose of granting creators a temporary monopoly license is to ensure that people have an incentive to create. This being the case, one reasonable proposal to be offered to the utilitarian sect of copyright defenders is to decrease creators’ state-granted monopoly powers as technological innovation increases.*
Technological growth reduces publication and distribution costs for creators, enabling them to not only sell directly, but to increase their profit margins while decreasing prices. As such, monopoly protections are less necessary (if not altogether unnecessary) in the face of technological growth because technology makes it easier for creators to turn a profit, which, it should be remembered, is the whole point of having copyright laws in the first place. Thus, if creators can make a profit without doing much to protect their product, then it seems obvious to conclude that copyright is largely unnecessary, and certainly does not draconian enforcement.
Note: Software is a nebulous entity that is somewhere between copyrightable and patentable in terms of classification. As such, it is not covered under this proposal because it would drive this proposal. If it absolutely must be given IP status, it should be considered its own entity with longer terms than patents but shorter terms than copyright. Furthermore, it should also have the novelty prerequisite of patents. Given the complexity of this subject, though, this discussion is best reserved for another post.
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