By Thomas Knapp, on January 11th, 2012
Sigh … here we go again.
Those of us old enough to remember the debut of the VRC also remember that In The Beginning, moviemakers tried to get a hundred bucks or so per tape. Thus was born the video rental industry, which they weren’t able to kill even by bringing the sell price down into the $20 range.
Now we’ve got streaming video — not just Netflix, but Amazon, et. al — and the boneheads still think they can find a way to force us to keep buying pieces of Kevlar at $19.99 a pop. They push the streaming license dates back further and further, they put up barriers to rental services getting the DVDs, etc.
They’ll keep doing this until it starts costing them money and market share — quite possibly when Netflix et. al say “screw you guys — we’re going into the content creation business ourselves in a big way.”
Then the polarity will reverse, and they’ll be bidding the price down to see who can get their blockbuster pictures on Netflix first, because the eyeballs tend to shift toward the newest stuff. With trailers for their upcoming releases attached, because the big screen will always put a certain number of asses in a certain number of seats and that’s still where they hope to make the nut.
I hope Netflix drives a hard bargain with them, too. “Sure, Mr. Sony guy, we’ll stream your little movie thingie, with your ads … if the price is right.”
When Netflix forked their business into separate streaming and DVD plans, we reassessed our watching habits, kept the streaming and dropped the DVD. If we absolutely, positively must have something that isn’t available on Netflix streaming yet, we hit a nearby Redbox or Blockbuster kiosk, or occasionally use iTunes. It’s quicker than waiting on the US Snail. I’m guessing Netflix drops physical media entirely in the next couple of years or so.
Buy a DVD? Only if it’s something we know we’ll watch over and over and we happen across it in the $5 bin. Otherwise, it’s just so … 2001.
By Simon Grey, on January 5th, 2012
You don’t have to shell out hundreds of dollars every year to watch your favorite shows. This year, consider canceling your cable and taking advantage of several free and low-cost entertainment services. The website Hulu, for instance, lets you watch a variety of hit shows for free such as Glee, The Office and Modern Family, plus movies and documentaries. Or for $7.99 a month, you can take advantage of Hulu Plus, which gives you access to all of the selections on regular Hulu, plus more shows and movies.
You can also watch many shows for free on the network’s website, or pay $7.99 for Netflix, which provides access to unlimited movies and TV episodes.
The reason why cable is so expensive is because ad revenue alone is insufficient to cover both production costs and distribution costs. Cable and satellite networks are expensive to build and maintain, and content creation can often be pricey. As such, cable providers have to charge customers in order to be profitable.
The problem internet-based entertainment services face is that they are causing a significant portion of data transfer (i.e. the amount of data transmitted across the various data networks) but aren’t paying for any of the network upkeep and maintenance. Essentially they are paying only for content creation and distribution rights. This, incidentally, is why Hulu+ and Netflix subscriptions are so cheap (that, and Hulu is pretty well-connected to the NBC and Fox family of networks).
More importantly, it is the data service providers who have to pay for the creation and upkeep of data networks, and these networks have data transfer limits known as bandwidth. Essentially, there are limits to how much data can be transferred across a network at any given time. As more and more people begin to use online video content providers, there will be even more at being transferred at any given time, pushing up against physical network limits.
Data service providers will then have two options when this inevitably happens: increase bandwidth or cap data transfers. Most data transfer providers have relatively tight margins, so upgrading a network is not particularly feasible, nor will it be particularly widespread. Thus, the more common choice will be to cap data. Data caps (whether in terms of bandwidth usage or total data downloaded) will significantly curtail entertainment options, and so whatever profitability online video sites may have now will be either significantly reduced or completely eliminated, unless they decide to raise their fees.
Quite simply, the internet is not yet ready to replace cable. The network is not sufficiently built up. More importantly, the producers and aggregators of online content are not paying for the distribution of their content, and those who distribute content (data service providers) don’t have much reason to upgrade their network.
Ultimately, there is a strong chance that the market for online videos will eventually come to resemble the subscription television market. The separation of content providers and content distributors provides a problematic incentive structure that won’t be easily remedies unless content aggregators/producers have a financial stake in distribution, and vice versa.
Note: one thing that complicates this discussion immensely is the role of IP. If there were no IP, there would be many more aggregators of videos, and their subscription costs, if any, would be minimal since it would be considerably easier to find advertisers for pre-existing content, thus leading to an easy method of third-party funding. On the other hand, the amount of original content would diminish, and would probably become more low-brow.
By Simon Grey, on June 1st, 2011
So John Nolte has a post at Big Hollywood that attempts to explain why DVD sales have declined.
Blu-Ray sales have cannibalized some DVD sales, as has the rise of RedBox, Netflix, and Hulu. But Nolte posits that this is not enough to explain the decline. He argues that the reason for the decline in sales is because Hollywood makes crappy product. This reason seems shallow and highly limited. For one, Hollywood has always made crappy product. It used to be referred to as “b-movies.” Of course, Hollywood has turned pretentious as of late, so b-movies no longer exist, at least nominally.
Additionally, alternative media has had an impact of DVD sales. Google has pushed YouTube as a platform for feature length movies, which undoubtedly reduces the demand for movies in the theater or on DVD. People’s viewing time is limited, so if they watch things on YouTube, they won’t be able to watch other stuff.
Finally, Nolte fails to account for pirating. This isn’t a major oversight on his part, seeing as how there is not much data on the effect of pirating on DVD sales. Still, the popularity of torrent sharing sites would suggest that people are still watching a decent amount of movies, only now they are not paying for them.
Nolte is right in saying that Hollywood faces a revenue problem, but the issue isn’t necessarily a lack of quality films. It may simply be that Hollywood hasn’t figured out an effective business model for the age of the internet.
By Trace Mayer, on May 5th, 2010
The transition from the Industrial Age to the Information Age is resulting in a sea change between protection and extortion. As the world gets increasingly complex the result is a diminishing ability to extort while at the same time tools of protection are getting cheaper and more powerful. The arbitrary walls are coming down. 
SPECIALIZATION
I was sitting in trial today observing Bill Rounds, co-author with me of How To Vanish.com, as he was questioning a witness. This particular case is an example of complex business litigation that has been up and down the appellate ladder many times. The subject matter is fairly esoteric and even worse the law is unsettled. While unrelated to the case, the plaintiff is a world renown surgeon.
During questioning by Bill’s opposing counsel a funny scene happened. Bill stood up and the judge remarked, “Sustained.” The court reporter stopped and asked, “Was there an objection?” The judge replied, “No, but Mr. Rounds stood up and the coming objection is sustained.”
INCREASING COMPLEXITY
Those 5-8 seconds in the court transcript are but the faintest traces of an incredibly complex thinking process that the two attorneys and judge understood and applied which was backed by hundreds of pages of code and cases. Yet, I am almost sure that neither the surgeon nor the jury even knew there was a virtual ping-pong match being played.
But for the attorneys and judge the surgeon’s work is equally incomprehensible. And the work of engineers, architects, computer scientists, etc. are equally indecipherable to those outside the circle. Such is the modern world that is multiplying in complexity.
Everywhere complexity is increasing from the tadpole in the pond to the manmade computer operating system. But manmade complexity that is beneficial for humanity takes work. Bridges do not design and build themselves. As humanity has progressed so likewise has the economy from hunting and gathering to plows and silos to railroads, satellites and spaceships.
But all this time there have been malefactors and nefarious individuals that seek to destroy and wield violence like a dagger focused on the economy’s heart seeking coercion instead of consent. After all, the power to destroy and inflict pain, while immoral, is power nonetheless. A power wielded by those sadists who enjoy terrorizing innocents.
PROTECTION AND EXTORTION
The irony of government is that it attempts to provide protection through extortion. And like the blackmailer or extortioner the government’s ability to tax depends on the same vulnerabilities as extortion or the Godfather’s offer that can not be refused. As the Industrial Age progressed so likewise the nation-state rose because the assets created were larger and thus the need for protection was greater. After all, the capitalists either paid off those who could leverage violence against them for extortion or paid a military force capable of defending with brute force any attempted shakedown.
But the relentless advance of technology is blunting the sharp edge of violence’s dagger. Protection is being made easier to provide while extortion is being made more difficult to carry out profitably.
Why is this? A basic mathematical law: multiplying is easier than dividing. A simple example is that 3*3*7*11*13 is much easier to solve than reducing 9,009 to its prime components.
Or another example would be encryption. I like the open-source Truecrypt and in June 2003 the US National Security Agency reviewed and analyzed the design and strength of AES-256 encryption finding it sufficient to protect classified information up to the Top Secret level.
In effect, with this free tool I can spend ten seconds encrypting a text file that can take years of focused processing power to decrypt. And just for fun perhaps it only reads “Haha if someone wasted the resources to decrypt this!” But why transmit sensitive personal or business information without such protections? After all, recently 30,000 Hotmail passwords were compromised in a security breach and posted on the Internet. An ounce of prevention using free encryption software can be worth a pound of cure repairing a stolen identity.
PROTECTION IN THE INFORMATION AGE
During the Industrial Age the leverage violence could exert was much greater and is being greatly reduced in the Information Age. Thus the scale is tipping in favor of protection and away from extortion with its attendant allocation of scarce resources through bureaucracy. The digital infrastructure is allowing the previously unseen but highly complex range of systems to be perceived; Facebook is a prime example.
Then that perception is being harnessed in extremely productive ways through multiplication; as a result the economy is following economic law and moving away from inflexible command and control systems towards spontaneous adaptive mechanisms. But government systems still dragoon resources from higher-value complex uses to lower-value primitive uses. As Frederic Lane wrote on page 383-384 of Venice, A Maritime Republic:
Every economic enterprise needs and pays for protection, protection against the destruction or armed seizure of its capital and the forceful disruption of its labor. In highly organized societies the production of this utility, protection, is one of the functions of a special association or enterprise called government. Indeed, one of the most distinctive characteristics of government is their attempt to create law and order by using force themselves and by controlling through various means the use of force by others.
From machines to microchips, factory to laptop, mass production to small teams or even the lone entrepreneur the gigantic institutions of the Industrial Age are being reduced to smaller and smaller parts. As the Information Age advances the risk of violence decreases because as the scale of an operation declines so likewise does its potential for sabotage or blackmail and the increased location independence afforded by the Internet multiplies the inherent safety an asset or individual enjoys. Despite Sulter’s proclamation at 2:08, “I want this country to realize that we stand on the edge of oblivion. I want everyone to remember *why* they need us!” But we, humanity, do not need them even if they think they can clean up some oil.
CONCLUSION
For those who rely on coercion instead of consent the transition to the Information Age is being particularly harsh to their immoral business models. They are now opposing both natural and economic law. The financial elite and political elite of America and Europe are now beginning to infight. This is resulting in the State losing legitimacy in the eyes of the masses.
While the time frame is likely far into the future, first the European Union will collapse and later the United States. But this is not uncharted territory but instead a trend of the nation-state collapsing under its own weight which started with the Berlin Wall and Russia. To avoid being collateral damage I elucidated several tips in chapter six of The Great Credit Contraction.
My next book, which I have co-authored with Bill Rounds, is currently with the publisher and hopefully will be available within a couple months. It will magnify the suggestions from chapter six and I think many will find it tremendously useful. As an old Chinese proverb says, “Of all the thirty-six ways to get out of trouble, the best way is – leave.”
DISCLOSURES: Long physical gold, silver and platinum with no interest in the problematic SLV, Streettracks Gold ETF Trust Shares or the platinum ETFs.
By Trace Mayer, on March 31st, 2009
ANOTHER ONE BITES THE DUST
There are tremendous changes underway in the journalism industry of epic importance that effect your personal liberty and finances. I do mention some of my competitors so obviously this article is biased. Newspapers are like blogs except expensive, dirty and a less efficient form of information manufacturing. It is difficult for them to ‘go viral’ and annoyingly hard to access while traveling through the backwoods of South America.
The Associated Press reports that the 146-year-old Seattle Post-Intelligencer will end its physical newspaper circulation on Tuesday 17 March 2009 and transition to a web only operation. In February the P-I website had about 1.8M unique visitors and the print circulation was about 117,000. Managing Editor David McCumber thinks the P-I will need to trim down from 181 employees to 40 with 20 in the newsroom and 20 selling ads.
OUT WITH THE OLD
Old media such as magazines, book publishers and especially newspapers are facing tremendous financial headwinds. The New York Times has been borrowing to pay the dividend while gross and net incomes decline resulting in their share price falling 80% in the last year. In the last year stockholder equity has been cut in half and net tangible assets have imploded from $166M to ($209M). The New York Times intend to implement 5% wage cuts for most employees.
Gannett, which offers 85 newspapers including USA Today, has fared worse with both revenue and net income falling for the past three years and the share price evaporating from $30 to about $2.50. They have likewise seen their net tangible assets decline from ($1.75B) to ($2.4B). But their net income performance is even more dire going from $1.1B in 2007 to ($6.6B). The Indianapolis Newspaper Guild reports that Gannett is considering 15% wage cuts.
McGraw-Hill, which adopted digital platforms and products earlier, has fared slightly better with their stock falling only 50%. Nevertheless, they face intense pressure on their revenues and net income. In 2008 the stock of publicly traded newspaper companies declined 83%. At least McGraw-Hill had positive net income but their net tangible assets are declining.
The formerly venerable magazine Newsweek, owned by the Washington Post Co., has a rapidly evaporating subscriber base. As the International Herald Tribune reported, “Thirteen months ago, Newsweek lowered its rate base, the circulation promised to advertisers, to 2.6 million from 3.1 million, and Tom Ascheim, Newsweek CEO, said that would drop to 1.9 million in July, and to 1.5 million in January 2010.” While the Washington Post Co. has been increasing revenues its net income has fallen by 75% since 2006 and the stock has plunged from 800 to 350.
Even book publishing companies like Pearson PLC, which owns the Financial Times and Penguin Books, is facing steadily declining net income. Rupert Murdoch’s venerable media behemoth, News Corporation which owns MySpace and Fox, is down over the last year from $20 to about $7.
IN WITH THE NEW
News is a good or service and those both consuming and producing it must derive utility or it will cease. The Internet is full; not the hard drives but people’s attention. Information has two costs for the consumer: time and money. I take no-one’s time or attention for granted. RunToGold occupies at least thousands of hours per day of people’s attention. The articles are written with precision, conciseness, and produced when there is actionable information instead of a deadline. Unlike television with commercials that interrupt, annoy and disrespectful of the consumer’s time and attention the advertising on RunToGold does not interrupt your ability to consume the valuable free information and most importantly is done with your permission.
Blogs such as Seeking Alpha or Citizen Economists are more economical than either magazines or newspapers. Creative destruction is taking place in the journalism industry at a rapid pace. It baffles me that people are no longer willing to pay money to learn about Anna Nicole Smith only to have it interrupted by some totally irrelevant and often times inappropriate commercial about treating certain bodily functions with a pill when they could read for free about the problematic ETFs GLD and SLV or Silver In Backwardation for Five Weeks (now nine weeks but climbed out for the first time on March 27). I guess people are passionate about different topics.
As Minyanville recalled, “One thing we’ve learned while trying to build a financial media platform at Minyanville: Advertisers don’t like it when you say negative things about them. Several months ago, Washington Mutual pulled an advertising campaign from us after we published a story saying the former banking giant was dangerously close to tipping over the edge and collapsing. Then, they tipped over the edge and collapsed.”
Tom Ascheim said, “If you can’t get people to pay for what they love, we’re all out of business.” I and millions of other bloggers disagree. Many, if not most, bloggers generate news and content in unlimited niches as a hobby or for fun. Generally blog enterprises operate at a loss or are barely profitable. Without an editor to silence or at least muffle the criticisms when one launches repeated volleys, like the Single Digit Midgets, Problems with the GLD and SLV ETFs, Financial Professionals Infected With Financial Insanity Virus, etc. at potential mainstream advertisers it does not bode well for gross revenue.
While many blogs lack formal editors it may be only grammar and not content that is found lacking as editors censor material issues along with dangling participles. Why has GATA been almost completely ignored for over a decade by the financial press, newspapers and other heavily censored media? Consequently, why believe or trust them?
I think a significant portion of the rise in gold’s price over the last decade has been a direct consequence of the rise in the amount of truth in the public zeitgeist. With real gold there is no way to lie; gold is either in physical possession or not. Consequently, gold loves truth and fiat currency loves lies.
FREEDOM OF SPEECH
In Kazakhstan Currency Goes Poof I reported even Putin’s amazement with the degree of censorship. ”I was in Beijing at the time. I looked through the world electronic media. Complete silence. As if absolutely nothing is going on. It was as if somebody ordered everyone to keep their mouth shut. To those who organized all this; I can only say congratulations. Congratulations. You did an excellent job. The only problem: your results were poor and this will always be the case because the work you do is unfair and immoral. In the long run immoral policies always lose.”
But this type of censorship behavior is not new. Decades ago President John F. Kennedy expressed outrage regarding this topic. Now the truth is coming to light at a rapid pace causing the evaporation of the derivative illusion and everyone seems to be either upset or completely stunned.
The press is one of the few businesses given specific absolute protection under the First Amendment of the United States Constitution. ”Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof, or abridging the freedom of speech, or of the press; or of the right of people peaceable to assemble, and to petition the Government for the redress of grievances.”
When those petitions for redress of grievances are met with further violations then another business given specific absolute protection becomes important. ”A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear arms shall not be infringed.”
It is common for government officials to perpetuate lies. For example, Section 132 of the Emergency Economic Stabilization Act of 2008 is titled “Authority to Suspend Mark-To-Market Accounting” and restates the SEC’s authority to suspend the application of FAS 157. But make no mistake about it: Both gold and truth will cleave their own way with indivisible justice.
CONCLUSION
The Great Credit Contraction is grinding down the top lines of almost all businesses. There is no bottom line without a top line. While the costs with operating a website are generally lower than manufacturing a newspaper I think the Intelligencer will have a difficult time operating profitably with 40 employees. I wonder if these rapidly evaporating state organs will likewise receive bailout funds?
Do not be like the Intelligencer employees and wait for either a pink slip or bailout. The newspapers need a more profitable business model or risk complete evaporation.
You can hasten this transition and support the vitally important free press. For example, begin ignoring the old media with its disrespectful advertising by canceling your newspaper subscriptions and redirecting those funds to your trusted friendly neighborhood bloggers or by purchasing some firearms and lots of ammunition. After all, if you do not know what The Great Credit Contraction is and how it will affect your lifestyle or wealth then you may want to find out as the institutions and organizations, including governments, continue evaporating.
Disclosures: Long physical gold and silver with no position in the old media companies and is a direct competitor of NYT, WPO, PSO, GCI, MHP, NWS, for advertising dollars.
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