Wednesday 29 May 2002
Rationality Not Dead Yet
The California State Assembly has voted down a bill that would have banned public schools from naming their sports teams after Indian tribles.
Of course, the idiots are going to make another try:
Has it not occurred to these idiots that people don’t name their sports teams after things that they consider ridiculous? And why do these people seem to have no problem with sports teams that are named for groups of white people> The Notre Dame Fighting Irish, the Green Bay Packers, the New England Patriots, the Dallas Cowboys, the Montréal Canadiens, the Vancouver Canucks, the Syracuse Orangemen, and dozens of other less-famous teams are named for groups of people, some of ethnic (or at least cultural) basis.
Nobody suggests that the New England Patriots are named in order to “ridicule” patriots, and you’d be laughed off the stage if you were to seriously suggest that Irish people would feel “embarassment” at a Notre Dame football game because of the team’s name.
Yet it’s automatically assumed that any team with a name inspired by American Indians is a jab at Indians’ culture. In the idiots’ world, any reference at all by a member of the majority to a minority group is a slur, until proven otherwise. What a bleak world those people must live in.
Posted by tino at 23:17 29.05.02
Tuesday 28 May 2002
My Bank Hates Me
Recently, Nicole and I have noticed that there are a number of bank branches going up in Front Royal. Like three. There are three bank branches under construction at the moment in Front Royal; these supplement the two that have been constructed since last fall, which in turn support the eight bank branches (and one credit union) that formerly met the needs of the Front Royalty. All together, that’s thirteen banks (and one credit union) for a town that has, counting everyone living within ten miles, 54,000 souls — or one retail financial institution for about every 3,800 people. There’s not fourteen of anything else in Front Royal. There are not fourteen gas stations; there are fewer than fourteen fast-food restaurants. There are not fourteen motels; and Front Royal is a town with a conspicuous abundance of motels, catering to tourists visiting Shenandoah National Park.
Which leads to our main point: the incomprehensibility of banks’ seeming hatred of their customers.
It’s no secret that banks, generally speaking, don’t treat their customers well. Do a Google search for “bank” and “poor customer service” and you’ll get a couple of thousand results, from all over the world. The general consensus seems to be that banks only want to deal with very wealthy individuals, and that the average person with a few thousand dollars in a checking account just isn’t worth their time.
Which, again, makes me wonder why so many banks are interested in doing business in Front Royal, which is hardly a hideaway for the Rich and Famous. Could it be that charging people large fees for holding on to their money is actually profitable? Is it possible that the banks have been lying when they say that they can’t make money on retail banking? Corporate America less than truthful? Can’t be.
Posted by tino at 22:34 28.05.02
Thursday 23 May 2002
Junk Food and School Lunch
Perhaps uncharactersitically, I think this is not entirely a bad thing.
When I was a wee tot, school was a radically different place from the rest of the world. There was no commerce other than the occasional book fair. The food in the school cafeteria was its own cuisine, rarely found anywhere else. The school lunch — priced at $0.30 when I started elementary school and $1.05 in high school for substantively the same meal — was, aside from pencils sold by the Pep Club, the only thing for sale in the school. The lunches consisted of that strange rectangular pizza, mashed potatoes with incredibly rich gravy, soggy french fries, Jell-O with things like celery embedded in it, and spaghetti that had been carefully cut into 1-1/2-inch segments, so you had to eat it with a spoon.
Some of this food was bad — some of it incredibly bad, and unhealthy — and some of it very good. Anyone who has attended public school in the United States knows what I’m talking about. What’s important is that it was all roughly the same, and that it was all different from what you got outside the school.
Now, I rather get the impression that, in a lot of schools, the cafeteria sells pretty much what you cen get elsewhere; I’ve even heard of some that have subcontracted their foodservice operations to fast-food outfits, turning the cafeteria into a kind of food court.
I’ve got nothing against Coke and McDonald’s and Taco Bell — frankly, a lot of the traditional school-lunch meals aren’t any better on nutritional grounds. But I am concerned that, if kids don’t get exposed to anything but fast food for lunch and their harried mothers’ microwaved masterpieces for dinner, a lot of them are in danger of growing up thinking that that garbage is all there is.
Banning by statute (or school board policy, or whatever) certain foods and activities in school probably isn’t a good idea, either; it’ll just make them forbidden fruit, and that much more attractive when they are available. Ultimately I believe that it should just be unthinkable that kids should be eating Fritos and drinking Cokes in school as a matter of course. So many of our social regulations these days are regulations of the sort that used to be unspoken, and just understood to be the rule by which society operated. They’re beneficial; but when you need a Bureau of Junk Food to make sure things are up to snuff, well, that’s when you start trying to declare ketchup a vegetable and getting generally silly.
Unless some action is taken, though, a lot of kids might grow up never having learned to use a fork, having eaten everything directly out of a bag or wrapper.
Posted by tino at 15:40 23.05.02
Wednesday 22 May 2002
Company Size and Profits
In this week’s New Yorker, there’s a story in the “Talk of the Town” section called “The Goldilocks Effect”, that points out that, generally, beyond a certain point, the larger a company gets, the more inefficient it gets.
It suggests that inefficiencies inherent in the structure of large corporations result in diminishing economies of scale, as different parts of the company pursue their own goals, communication between units gets more difficult, etc.
However, the story seems to miss an important and fairly obvious point.
But the main difference between the venti latte and United Airlines is that the venti latte, for being larger, delivers more value to the customer. United Airlines does not.
Our coffees have grown because that’s what customers want. Our companies have grown because that’s what corporate executives want.
The purpose of a commercial enterprise is to make money. To do this, the enterprise sells a product or service for more money than it spends to manufacture the product, or to provide the service. The difference between the cost and the selling price is profit, if you’re the seller. If you’re the buyer, the difference between cost and price is (roughly speaking) added value.
You can increase your profit by lowering your costs or raising your prices. A lot of companies in the past few years seem to be doing both.
Profts can be inreased through cost-reduction by simply buying raw materials at lower prices. Better than that, though, is to eliminate entirely things that do not contribute their fair share to the customer’s perceived value. The current jargon for this is decontenting.
In some cases, this can be done with no impact at all on the customer’s value. Imagine that you’re in the business of selling Burpsi Cola from vending machines. Thing is, you only sell it in enromous cans that hold three liters each and that cost $0.50. You’re in a tight place: you’re losing money, and because your machines can only hold a few cans at a time, they’re generally sold out.
By switching to 355ml cans, you can increase your profits enormously, without impacting customer value much. True, the price of Burpsi Cola by volume will increase almost 1000%; but because few people can drink three liters of cola before it goes flat, they’re still getting about the same value they got out of the much larger cans.
In that admittedly extreme example, customer value will actually increase because they’ll be more likely to find a Burpsi machine that’s not actually sold out.
So: Southwest Airlines and JetBlue both did away with the rubber chicken a la king; in exchange, the customers get lower prices. That in itself doesn’t result in greater profits for the companies, but it does make their marketing task easier and cheaper. When you’re selling a roughly comparable product at a lower price, you don’t have to spend a lot of money explaining the advantage to people.
Commerce Bank simply refrains from the usual bank M.O. of customer-abuse. That’s a significant value to the customer right there.
The advantage that these companies have over their rivals is not that they’re small enough to turn on a dime, or that they have greater “efficiencies” or any of that. Their advantage is that they understand that their product is the thing they advertise and sell, that their customers are the people who buy it, and that their success depends on the satisfaction of those customers.
Companies like United Airlines, on the other hand, see their stock as their primary product, and their shareholders as their customers. CEOs tend to say “shareholder value” so often it’s like the quacking of a duck, but how often do you hear them talk about customer value? Very rarely; the customers — that whole messy process involving buying, manufacturing, selling, and customers is nothing but part of the process of churning out stock issues. You can see this change in focus writ large at some companies; they’ve changed their names to their ticker symbols. The company you know as United Airlines is actually called “UAL Corp.” American Airlines is “AMR Corp.” Southwestern Bell Telephone Company is “SBC”. The company formerly known as Detroit Edison is “DTE Energy”. Hospital Corporation of America is just “HCA”. T.J. Maxx is “The TJX Companies, Inc.” And there are more.
In some cases, these companies have diversified beyond a single city, or a single chain of stores, and so perhaps a new name was indeed in order. Even those choices, though, are telling. These companies don’t want to be identified with air travel or communications services or retailing or hospitals: they want to be identified with what they see as their primary business, the sale of equities.
This is insane.
The value of a company’s shares is important, and shareholders are important participants in a company’s activities. But the shares are not the product. Let’s repeat that: The. Shares. Are. Not. The. Product. The share price increases, and dividends are paid, on the basis of the company’s profit. Those profits come from selling goods and services for more than the company paid for them. Those profits come from the people who buy the company’s product.
Companies that have forgotten this, and who don’t relearn it, will die. Imagine a mom-and-pop grocery store where Pop comes out on the sidewalk every few days and tells all who will listen that his goal in the management of the store is to maximize his profit. While he makes these speeches, Mom is inside raising all the prices and queering all the scales, to ensure the steady growth of shareholder value.
You wouldn’t continue to patronize such a store for long; but somehow the cadre of CEOs seems to think that such tactics work on a larger scale. Shareholders of UAL, US Airways, Bank of America and many others are learning, the hard way, that they don’t.
Posted by tino at 16:38 22.05.02
Amtrak and Supply and Demand
Amtrak is famous for losing money nearly everywhere it operates except the Northeast Corridor, the largely-electrified main line between Washington and Boston. And, if you’re familiar with Amtrak, you’ll know that almost all their trains are largely empty — except in the Northeast Corridor. In the Northeast Corridor, it’s not uncommon on some trains to have to sit in the aisle for the whole journey.
One of those overcrowded trains is the Clocker. It’s a train aimed at commuters, operated under a very complicated arrangement with New Jersey Transit.
Anyway, today’s New York Times carries a story about a club car that’s attached to the 5:42 p.m. Clocker out of Penn Station in New York (as well as the 7:59 a.m. service from Princeton Junction in the other direction).
These cars are leased by Amtrak to a private club, the 75 members of which pay $1,200 each in annual dues. Both Amtrak and the club are reluctant to specify just how much this lease costs, but the Times estimates it as “as much as” $70,000 annually. Members also have to pay the normal Amtrak ticket price for each journey; their $1,200 just means that they’ll be able to sit down once they’ve paid.
Ordinary commuters — the ones standing in the aisles — are not happy. They say that the seats should be available to all riders.
The 200 Club is not accepting new members at this time, and Amtrak doesn’t have any cars left to lease you, if you try to start your own club. So you’re stuck.
And this is what’s the matter with Amtrak.
Either this arrangement makes money for Amtrak, or it doesn’t. If it doesn’t make money, Amtrak should either get out of the deal or raise its lease rates. If it does make money, Amtrak should order more cars immediately.
There’s obviously demand for the service — and, if $1,200 a year per seat is enough to pay for another car on the train, it’d be easy to provide it. $1,200 a year is a couple of bucks each way for a daily commuter.
Posted by tino at 15:29 22.05.02
Tuesday 21 May 2002
CARPing about Royalties
In a rare bit of heartening news about copyright, it appears that the Library of Congress has rejected the music industry’s recent blatant attempt to kill off Internet ‘radio’.
However, this probably only means that the music industry will come up with something even more idiotic. The thought processes of these people are illustrated well by a comment made on Marketplace (about 21:50 into that stream) by John Simpson, executive director of Sound Exchange — the music industry organization that was set up to collect the crippling royalties the CARP plan would have imposed:
They apparently see radio as something that they are subsidizing, rather than the single most important promotional tool for their product.
Commercial radio in the USA was born on November 2, 1920, when KDKA started broadcasting in Pittsburgh. RCA got into the recorded music business (by purchasing the Victor Talking Machine Company, whose logo was a dog listening to a gramophone, a logo that RCA continues to exploit to this day) in 1928. EMI was formed by a merger of HMV and the Columbia Gramophone Company in 1931.
If anything, it’s radio that made possible large-scale businesses built on recorded music, not the other way round.
Posted by tino at 13:14 21.05.02
Monday 20 May 2002
Farm Bill Logic
In a story about the new U.S. farm subsidy bill on NPR’s Weekend Edition Sunday this weekend, we came across a stunning display of illogic. The story focuses on the fact that the majority of the subsidies — 70% — go to just 10% of farm owners, and that the primary beneficiaries of the subsidies are not small family farmers, but huge corporations. But all isn’t lost, however:
And this “logic” is being used to justify the continuance and increase of subsidies.
Posted by tino at 19:42 20.05.02
Friday 17 May 2002
AOL Time Warner Conflict of Visions
We pointed out the other day that AOL Time Warner’s merger was failing because of a total failure of the company to actually exploit the much-vaunted synergies inherent in such a merger. Rather, we said, turf wars were the order of the day.
The Wall Street Journal now has a story about royalties to be paid by online ‘broadcasters’ of music, pointing out much of the same stuff. (Paid subscription required: it’s well worth it.)
The question is, will AOLTW make more money by squeezing their customers (and by killing off a nascent industry that publicizes their product), or will they make more money by letting go, and taking advantage of greater revenue streams and greater margins that might be the result of taking advantage of new technologies?
Our view is that they’d make more money by taking advantage of the technology. More to the point, nearly every opinion I’ve seen on the matter — every opinion from someone who doesn’t have some personal vested interest in the continued dominance of the music industry as we know it today — sems to be in agreement.
Now, if you’re Vivendi, or News Corp., or some other large music-industry player without a significant stake in the online world, you would naturally want to kill off online music; you don’t have much to gain from the alternative.
But AOL Time Warner has more to gain from a shift to online music (and TV, and movies, and so on) than they have to lose. Steve Case & Co. know this; that’s why AOL bought Time Warner in the first place.
Unfortunately, Steve Case & Co. are not being allowed to call the shots there any more; instead, people whose reputations are based on the continued success of the old-fashioned media properties are in charge, and they’re sacrificing the company’s future for their own egos. The shareholders are, as they should be, up in arms. We’ll see in the coming weeks and months whether they’re smart enough to see through the idiocy of the management-originated rumors that the company is considering spinning off the AOL online services.
Posted by tino at 12:33 17.05.02
Thursday 16 May 2002
A Point To Chew On
Eugene Volokh recounts a recent experience while eating out.
Posted by tino at 14:51 16.05.02
Wednesday 15 May 2002
Fire a Spitwad, Go to Jail
Posted by tino at 13:05 15.05.02
A Model for Online Media Royalties
There appears to be another proposal afoot to legalize online music-trading:
This isn’t the first time a tax (whether or not the government collects it or not, this kind of charge is a tax) has been proposed to pay royalties to creators of intellectual property, and I’m generally against this sort of thing. My mother, who doesn’t listen to any music at all, would be forced to pay $1 a month to pay for a product she doesn’t consume.
At least this proposal carries something like a reasonable fee, though. To date, all the proposals from the recording industry have involved much greater amounts of money for much less convenience. Their ideas involve charging consumers significantly more than they’re paying now ($0), while at the same time expecting them to give up more control over their purchases to the sellers. It doesn’t give the users an opportunity to legitimize the activity that they have already expressed a clear preference for; it just substitutes a much less-desirable activity that happens to mean a huge potential increase in margin for the recording companies.
Naturally, then, we shouldn’t be surprised to read what they think of the Kazaa proposal:
Record companies are, at their hearts, specialized banks. Let’s imagine that you live in a universe without record companies, but with recorded music as we know it today. Your band wants to put out a CD. You first have to go to a bank (or some other source of capital) to raise money. Once you’ve got your loan, you have to record the album, have it mastered, hire a CD pressing plant to make copies, get record stores to stock it, ship copies of the CD to them, get radio stations to play the song, make a video, get MTV to play that, fund a tour, promote the shows on the tour, etc., etc.
These are all functions that the record companies handle, or subcontract, for bands today: they, in effect, lend themselves money (with the artists on the hook) to finance the deliberately-inefficient system their business rests on. And the problem is that the capital-intensive functions in that process — the manufacturing of the CDs, the promotion of the product to thousands of influential people across the country, the distribution of all those physical artifacts, and payola money to radio companies, etc., all the things that allow the record companies to make a killing — are made totally obsolete by the fact that you can now distribute music electronically, and get it played by truly independent “broadcasters” online.
Someone buy that man a drink. Perhaps this is the dawn of a new era in American business, one where companies focus on the customer again (and thus resulting in profits), instead of the past decade’s strategy of focusing on profits (and thus resulting in disaster).
Posted by tino at 11:22 15.05.02
Tuesday 14 May 2002
So this is how they’re going to do it. Aha. (Warning: PDF)
Posted by tino at 23:51 14.05.02
Gun Control, TV, and the British
Foreigners — and by that I mean people who live outside the United States — often complain that Americans don’t know anything about other cultures, i.e. the cultures of the foreigners.
This is probably true. The chief sources for the knowledge of the average American about the world outside the USA are: grandpa’s stories from his adventures in the War; great-grandpa’s dimly-remembered stories about the Old Country circa 1900; Masterpiece Theatre; Soccer Made in Germany; and Cold-War spy films set in the sooty and slushy streets of Moscow or Berlin.
The more cosmopolitan among us may have spent time living on the Air Force base in Wiesbaden; and the very best of us have spent time completely unqualifiedly teaching English as a foreign language.
But at least we know that we don’t have much real knowledge of other cultures. We just believe that most people are about like us, but with smaller houses, cars, televisions, and waistlines. And for the most part, we’re correct.
Foreigners, on the other hand, believe that they know America. The flow of information and culture is mostly one-way: in America, foreign ‘culture’ shows itself only as a British accent used to indicate that the product being advertised is ‘elegant’, or ungrammatical French being used to imply a slightly different kind of ‘elegance’. Australian accents indicate that the product in question is rugged and carries with it no nonsense.
In the lands of the foreigners, though, America looms large: McDonald’s has restaurants in all the cities; Coca-Cola is available everywhere. Anheuser-Busch somehow manages to sell Budweiser in countries that produce much better beer locally. American movies are in most of the cinemas, and American television shows can be seen every night. And that’s just the beginning. American ‘culture’ is everywhere.
And the mistake foreigners make is thinking that this stuff is actually representative of this country.
McDonald’s is popular here, but nobody in America would actually describe their hamburgers as good. They’re their own thing, and admirable for that, but you get better burgers at a bowling alley.
Coca-Cola is extremely popular, too, but it’s only good in vast quantities and with lots of ice: a way I’ve never seen it served outside the USA, even in Canada (except at McDonald’s, where they get it right).
Budwesier I can’t really explain. It’s better when made without the rice.
And the movies and TV shows — they’re not representative of the culture, any more than Absolutely Fabulous or the romantic fop played by Hugh Grant are representative of Britain.
A lot of American TV shows and movies feature gunfire and explosions as central themes. This leads to silly columns like this one. Ths column, by Matthew Engel in The Guardian — this is the same guy who wrote the piece on American obesity I wrote about recently — about the U.S. Department of Justice’s recent about-face on the meaning of the Second Amendment contains passages like this one:
This guy is on assignment in the United States, and yet he apparently continues to think that the United States is the Wild West — or he wants his readers to continue to think that.
According to the International Crime Victimization Surveys, there is is fact less crime in the United States than in Great Britain, Switzerland, France, Italy, the Netherlands, Canada, and Spain, to name just a few countries. (Northern Ireland has less crime than the USA; the rest of the UK is higher.)
We all know that statistics can be manipulated, and it’s very hard to compare something as loosely defined as ‘crime’ from country to country, and in any case, some of these crime rates differ only by a few tenths of a per cent.
But if American gun control is so ineffective, and if we’re all packing ‘rods’, as Mr Engel so quaintly puts it, why on Earth doesn’t this incredible latent violence show up in the crime rates? Why is it that there is generally less crime in parts of the United States with fewer restrictions on ownership of firearms? Why is it that when you control for factors like the U.S. War on Some Drugs, the United States actually has much less crime than most other Western industrialized countries?
I can understand the logic of the gun-control advocates, even if I find it a bit simplistic: guns can be used in harmful ways; the danger of this harmful use is greater than the benefit of wide possession of guns; therefore guns ownership should not be permitted.
The problem comes with the second premise of that argument. The gun-control advocates accept as a given that guns are a net danger, while the facts and statistics seem to indicate otherwise.
As long as smug Europeans base their understanding of the United States on Baywatch and Kojak reruns, rather than on reality, I don’t think we’re going to see an end to their moralizing on gun control. At least not until all of them have been shot dead by armed European criminals preying on an unarmed populace.
Posted by tino at 23:16 14.05.02
Wal-Mart, Reston Town Center, and ‘upscale’ housing
In today’s Washington Post, there’s a story about people living in a fancy neighborhood who are upset that Wal-Mart plans to build a store near them. The story reads:
While I feel sympathy for the people involved — I wouldn’t want a Wal-Mart too close to my $700,000 house, either — I think this is a strange comparison.
I live about a mile from Reston Town Center, and while it’s picturesque, it leaves something to be desired.
It’s impossible to buy nearly anything in Reston, VA after 10:00 or 11:00 at night. All that’s open in a Taco Bell and a few convenience stores. And there are a lot of things that are just plain unobtainable in Reston, at any hour. Reston is more picturesque than a lot of suburbs, but also less convenient.
Having to drive a few miles (and you must drive, of course) to buy certain things is not the worst affliction in the world, but having made too many late-night trips to the nearest all-night drug store (8 miles away: actually an improvement, as the nearest one used to be about 15 miles away), I can personally attest that, for all of Wal-Mart’s tackiness, there’s something to be said for a store nearby that sells nearly everything and that’s open all the time.
Posted by tino at 15:30 14.05.02
Mergers and ‘Synergy’ in the Media Business
A story on the front page of today’s Washington Post discusses the merits of a number of recent mergers of large media companies. Headlined ‘Big Media Mergers Raise Big Doubts’, its tone is generally negative.
It points out that Viacom, Vivendi, and AOL Time Warner are all bleeding money following mergers that were meant to introduce a new golden age of ROI, and it suggests that, even if the elusive ‘synergy’ that was the alleged motivation for these mergers were attainable (which it doesn’t appear to be, at least for these players), that this might not be a good thing. Wall Street doesn’t know how to value large conglomerates, the story says.
However, the very anecdotes in the story don’t seem to support these conclusions, and the Post seems to miss the point entirely.
Well, there’s an example of synergy right there, albeit synergy of a negative and dubiously profitable kind.
The happiness and profitability of its affiliates are of some value to CBS; and presumably, the happiness of CBS affiliates is more important to Viacom than is the happiness of UPN affiliates (who have, after all, got less money invested in their businesses). By being able to shrink the market for “Amazing Race 2” reruns, Viacom can make more money by showing them on CBS stations, where the ad revenues are higher. This isn’t corporate squabbling; this is sound corporate decision-making, favoring a higher-profit activity instead of a lower-profit activity. ‘Squabbling’ would be if both UPN and CBS stations were showing the same stuff, with Viacom competing with itself with identical products for ad revenues. Instead of that, though, UPN has been directed to sacrifice some potential earnings so that the corporation as a whole can realize even greater revenue via the CBS channel.
If you want to see real corporate squabbling, on the other hand, you need look no further than AOL Time Warner. The Post article says:
Never mind that Parsons’ statement —‘We’re … the No. 1 online company’ — does not support the Post characterization of him saying that the AOL division is not performing well. That’s another topic entirely.
The problem is that he sees all of these as separate companies.
AOL Time Warner owns cable TV systems (Time Warner Cable), a cable-modem ISP (Roadrunner), an online service (AOL), a broadcast TV network of sorts (WB), software companies (Netscape, Winamp, others), an online music system (Spinner), NHL, NBA, and Major League Baseball teams, TV and movie production companies, record companies, book publishing houses, CNN, and scores of magazines and comic book titles. The company is almost absurdly well-equipped with ‘content’, and reasonably provided with mechanisms for delivery of that content to consumers.
Yet it refuses to combine the two. I suspect that the original intent of the merger — on the AOL side — was to acquire the incredibly vast range of information controlled by Time Warner, and to distribute it electronically. I further suspect that since the merger, Time Warner people have been in control (Parsons is a Time-Warner person, not an AOL person), and have refused to let this happen.
If AOLTW made its full range of content available over its online service, sales of DVDs, CDs, and HBO subscriptions would certainly fall. But nearly everyone in the country would subscribe to this new and improved AOL service, pumping money into the corporation’s bottom line every month. To a certain extent, this is possible today: to offer every cartoon in their archive for viewing, on demand, at any time, would be a piece of cake. Certain other activities, like streaming full-motion, full-length motion pictures, would probably require some sort of multicasting arrangement that would require a bit more thought.
But the point is that they don’t seem to be even moving toward any of this. On the one hand, AOLTW, with its Spinner service and its cable-modem systems, is one of the major enablers of music online today. On the other hand, with its participation in the RIAA’s war on online music, it’s one of the chief foes of the same thing. There is no corporate strategy; rather, there are turf wars between divisions likely to benefit from new distribution mechanisms and channels, and divisions whose distribution mechanisms have become obsolete and whose businesses would be harmed if the market were allowed to take advantage of new technologies and opportunities.
This, and not some immutable law of the media business, is why the expected synergies of these mergers have not been seen. These synergies will produce more corporate profits, but some individual units will suffer. Since the division honchos seem to be calling the shots, the media companies will not try anything that hurts an existing market, regardless of the upside.
The pinnacle of this idiotic reasoning by division-managers was seen recently in comments by Jamie Kellner, CEO of Turner Networks, a division of AOL Time Warner. (These comments are quoted in an article here, but it costs $2.95 to read the article. A critique of Kellner’s comments, with quotes, is available here for free.) The comment that got the most press was this:
Which is pretty idiotic in itself, and clearly illustrative of the fact that these people are out of ideas, and panicking. More illustrative of this, and of the fact that Kellner is an idiot and a loose cannon is this:
He’s talking about Sony v. Universal, which basically established that VCRs were legal for home use, over the objections of the movie industry. The studios maintained then, much as they and the RIAA do today, that this new technology would mean rampant piracy and the end of their entire industry.
The movie companies lost the case, and gained literally billions of dollars in additional revenue through sales and rental of videotaped movies.
And this man — who works for the largest movie company in the world — is talking about challenging that precedent. “We didn’t succeed in shooting ourselves in the foot in the 1970s, so we’re going to have another go at it,” he might have said.
No matter what you merge, no matter what strengths a company has, if you’ve got people with no brains at all and with an utter aversion to any risk running the show, you’re not going to see increased profits.
Posted by tino at 15:18 14.05.02
Thursday 02 May 2002
In an article in USA Today about tightening state finances chipping away at “anti-sprawl” funds, an Illinois state senator is quoted:
Yahhh. Never mind that ‘sprawl’ is a product of government meddling in the first place. I love that this guy sees “human services” and “things that enhance the quality of life” as completely separate categories.
Posted by tino at 12:02 2.05.02
Causes of American Obesity
The Guardian runs a column today that looks at the causes behind Americans’ tendency to be, well, fatter than people from almost everywhere else on Earth.
Because of its British perspective, it hits upon what I think is a major cause, one usually neglected in American assessments:
It appears to get the cause of this wrong, though. The column goes on to say “American developers, meanwhile, can put up houses however and wherever they want, and communities are becoming ever more car-oriented.”
This is patently untrue. American developers — developers outside rural areas, that is — are actually under quite complex controls as to what they can build. Left to its own devices, I think the market wants mostly dense mixed-use buildings, of the sort that make up very large parts of Manhattan, London, Paris, and other cities built when market forces still determined what would get built.
The population at large seems to like this kind of arrangement: nearly all urban environments — save those built in the USA after WWII — follow this pattern. Developers like this too, because it maximizes their profits. Pity then that it’s actually illegal in most places in the United States to build to this pattern.
Following the Great Depression of the 1930s, and World War II in the 1940s — during which time little housing was built in the United States — the conventional wisdom was that density == slum. Returning veterans were desperately in need of housing, and the quickest, easiest, and, at the time, most appealing option was to build the American postwar suburb.
The first of these were at least functional; Greenbelt, MD (actually built by the WPA before the war), Levittowns in NY and PA, Park Forest, IL, and dozens of other early post-war suburbs were, for all the derision they attract now, semi-autonomous towns. The residents were meant to work in the city (which tye got to, usually, on a commuter train), but they could shop and be entertained in their own little suburb. These early suburbs didn’t have a lot of real estate that you could call mixed-use — the shops and movie theater were in the middle of town, and apartments and houses in neighborhoods surrounding them — but the residential and commercial areas were within walking distance of one another, and it was possible to walk between them because the shops were at the center, meant to serve the local residents, rather than to serve people flying past on the highway.
Over time, though, our happy little suburb changed. The first change was in zoning laws and building codes. After the little suburb had filled with people, shoppers would often find that they had no place to park their cars while visiting the town center. Rather than accept this as a reality of life (and thus encourage customers to walk to the shops, and retailers to spread shops around the town), well-meaning planning boards began to require more and more parking spaces for a shop or shopping center of a given size.
This made it difficult or impossible — and certainly uneconomical — to build small shopping centers that catered to just the people in the immediate vicinity. If you assume that most people are going to drive to your shopping center, and if you are required by law to build a large parking lot, it’s in your interest to assume that everyone will drive to your shopping center, and to build it on the edge of town with a huge parking lot.
This gave birth to the mall as we know it in America.
And the mall as we know it — I include here both enclosed malls and large strip-malls of the kind where you find large supermakets — because of its size and cost, gave rise to the dominance of national retailers whose entire business model depends on scale, on selling millions of items to thousands of people, every day. Unless the entire population of our little post-war suburb buys something from them every day, they do out of business; so they have to locate on the highway not just because the land is cheap enough to build their giant parking lot there, but because they have to draw from a very large pool of customers just to stay afloat.
Now, I like malls. I don’t have anything against them. In my utopian dense suburb, there’s no Macy’s, no Best Buy, and no giant furniture store, and that’s a problem. The dense suburbanites pay more for clothes, electronics, and furniture on Main Street because the small shops there can’t operate on the same slim margins as the bigger companies; and this is a problem.
And I like cars; I have six of them myself. In my little dense suburb, though, car use is discouraged because it’s inconvenient. Driving from point A to point B takes less time that trying to find a place to park in convenient proximity to B. You’re better off walking; and maybe the money you save on a car can offset some of the higher prices on Main Street.
So I don’t propose that people stop shopping in malls, or that they stop driving their cars. My objections are not the usual huge-corporate-malls-are-soulless rants, or the cars-destroy-the-environment bleats you usually get from the tree-huggers. I am interested in human happiness and productivity, and it seems to me that our current system does not maximize either. We have cars, but we spend our time stuck in traffic because everyone has to use a car for every trip, every transaction of their daily lives. We have giant malls with ample parking, but even those giant parking lots are often full because everyone has to shop in the same place; we’d be able to park closer to our destination on Main Street.
The problem is that there’s very little choice in the American suburban experience. And the reason there’s very little choice is not because the market has decided that it won’t bear the cost of diversity and choice, but because well-meaning but horribly misguided regulators long ago equated density and mixed-use environments with undesirability, incredibly copious evidence to the contrary notwithstanding.
The “anti-sprawl” movement in the United States would seem to have the right idea. Unfortunately, their answer is more regulation, and protection of “open space” that will in the end probably wind up fostering more sprawl. It seems pretty clear that the government’s role in this should be to quietly step aside — at all levels — and let developers build what the community wants. In the United States we believe that the market will always find the best solution (even if we don’t always practice what we preach) to any given problem. Yet when we’ve got a problem, the proposed solutions usually involve taking matters every further out of the hands of the market.
Posted by tino at 11:58 2.05.02