Dana Blankenhorn

Media Business Model Dying

Given what I wrote recently about the problems of media, and the differences between H-P and GE, I reckoned it would be prudent to comment on the NBC lay-offs. NBC is owned by GE.

Most comments on this have come from media insiders, who have an auitomatic bias for, and affection for, the operation of the business. They don't see it through the gimlet eye of the accountant. For that reason, ignore what anyone in the media tells you about this. They want NBC to succeed. They want to work there. Real businessmen don't care.

For generations GE has had a rule that guides its actions toward subsidiaries.  You grow earnings by 15% per year, or you're gone. There are two ways to do this. If you grow revenues, and keep operations lean, your earnings will grow. If you can't grow revenues, you better cut expenses.

What GE is saying here is that media revenues can't grow 15% per year, so it's going to cut. The media business model is broken.

Note that I'm not just talking about TV here. NBC Universal is more than TV. I'm talking about all media -- music, movies, the lot.  General Electric has decided these are no longer growth businesses.

What might it do instead? A lot of things. Jack Walsh liked finance. Jeff Immelt calls his strategy "ecomagination," by which he means green energy and energy-saving technologies.  I think the key word here is technology. Technology is still a fast-growing business. Media is not.

Monica's Revenge

One of the more hilarious sub-texts of this election season is what I call Monica's Revenge.

As in Lewinsky.

Ms. Lewinsky herself is 32 now, old enough (maybe) to have a chuckle herself about it. She blew the President, and with it the Presidency. I still can't forgive Bill for that. But most Americans eventually concluded that getting a hummer from a 22-year old intern was not an impeachable offense, even if he lied about it.

And the parade of sanctimony that followed! "You can't lie in the jury,” is the way one Florida Congressman put it. The Senate has "been able to take the partisanship out of this issue, and I think that frightens the White House” intoned a Senator from Idaho. Voting for impeachment would be "one of the saddest moments in our nation's history” said the gentleman from Arizona, just before voting aye. The gentleman from Illinois solemnly voted for impeachment despite the fact his district had voted for Clinton.

Those weren't the highlights then. But they are now.

 

What the Apple Earnings Mean

I took a call yesterday from CBS Radio News, my first in some time.

They wanted to know about the Apple earnings, which blew by analyst estimates. Can this continue, I was asked.

Yes, I answered. And (upon further review) I know why.

For years PC prices have been falling, and the software component of that price has been rising. If you can't find a laptop for under $500 right now, you're not looking. In this environment the premium always charged by Apple becomes irrelevant. People have internalized the idea that Macs are not as prone to breakdowns and viruses as PCs (the "Bill and Steve" ads have been brilliant) so if you can get a Porsche instead of a VW for $100 more it's a no-brainer.

The iPod, meanwhile, is riding up the demand "s" curve all by itself. While everyone else fought DRM as a violation of their rights, Apple embraced a light DRM scheme as a differentiator. As a result Apple dominates the channel for digital downloads, and record labels have lost their pricing power.

Sure, the iPod ride is going to end. But that's not where the big money is. The big money is in corporate accounts, which are now starting to come around, starting with the smaller ones. Every movie or TV show you see which has a scene featuring a computer in it these days has a Mac in it -- Apple pays big bucks for that and it's a wise investment. It doesn't have to compete in that area because the other side is split -- should Microsoft be paying that money, or Dell, or both? Maybe Intel?

Real Patent Reform

One of the major challenges facing the next Congress will be patent reform. (To the right is the original patent for the laser, given to Bell Labs.)

The present system is a mess. We're still running a 19th century patent system.

A 21st century patent system will be based on the Internet. It will be a tremendous victory for Internet politics and its prime goals of connectivity, transparency, and openness.

Reform starts with understanding the goals of the system:

1. Speeding patented technologies to market.
2. Examining claims so they're valid when granted.
3. Limiting claims so they don't veto the creation of better mousetraps.
4. Eliminating patents for what, as in math, the obvious, and business process, and allowing patents only for how.

At the heart of patent reform must be the publication of patents. Patent applicants must disclose what they're patenting, and this should be public information. Existing patents also need wide publicity, so they can find their market.

Real Copyright Reform

The PFF (pronounced "pffft") has been conferencing the last week, calling for copyright reform in the next Congress.

Reform is needed. But not the type the PFF wants. Their interest remains protecting the content control of major corporations. Nothing wrong with corporations per se, but the public interest is different.

The Constitution states that it's  "To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries."

If the Netroots are to secure a lasting re-alignment, Democrats need to get this issue right, and put the reality of our copyright laws in line with their intent.

In terms of the Internet, this means two things:

1. Allow fair use, including the use of copyrighted material to create new material.
2. Prevent copyright from vetoing the creation of new technology.

Technology can, if we let it, create new products from old, endlessly recycling and building value for all. Technology can also give us the power to consume more copyrighted material, which benefits copyright holders. The only limit here is our time, which is becoming increasingly valuable.

The problems for the copyright industries, then, are not legal problems, but business model problems.  What's needed are new ways to shake money out of the limited time and attention we have available for consumption, which is no longer a passive but an active process.

There are some hints that the copyright industries are starting to get this. Music labels are looking to eliminate DRM, at the same time they engage in spamigation. Common ground can be found, if the copyright industries are willing to seek it.

Pre-Mortem

In a one-word election (Iraq) the post-mortems can begin early.

Most of them are too complex. Other Democratic talking points (Foley, corruption, deficits) merely buttress the main charge. The Republican talking points (terrorism, the economy, immigration) are simply drowned-out.

Take out Iraq and it's likely Democrats still win, albeit more narrowly. But you can't take out Iraq. Iraq is the elephant in the room. How could this happen? What do we do now? What happens next? These are the question Americans want answered. They are looking to Democrats for answers because Republicans haven't dealt with it.

Ironically, this is just what happened 40 years ago, at the previous generational turn. Then the one word was Vietnam. It was a Democratic problem. Republicans won. It was the same in 1930, the word being Depression. And the same in 1894, the word being Money. And the same in 1858, the word being slavery.

A generational crisis is always highlighted by a blow-out election. Sometimes, as in 1930, it presages another blowout, which is what happened in 1932. Sometimes, as in 1894 and 1966, it means there's a re-alignment coming, progressivism-populism in the first case, the Southern Strategy in the second.

Sometimes it means the whole temple is about to fall. That's what happened in 1858. The fear of it happening this time is still very real. And it's this kind of fear which drives the generational re-alignment. Without such fear there can be no political transformation, inside people, where it counts.

The Problems of All Media

All media today share the same problem, a business model problem.

• Writers are pushed to books because they have a business model. Nothing else works.
• Musicians produce CDs because they have a business model.
• TV exists only because it has a business model.
• Producers like movie theaters because they have a business model. Note that the move to DVDs cuts their potential returns dramatically.

The advertising business model has limited utility. The value you get is limited by the amount of intrusion readers (listeners, viewers) are willing to put up with. And advertising revenue must be shared, with the agency delivering the ad.

That's the truth behind Steve Ballmer's latest nonsense. In a traditional advertising model, this premium is taken by the TV network or the publisher, what Ballmer calls the "rights holder." This company puts up the front-end money needed to produce a complex good, it generally holds the copyright, and it expects compensation in all media, forever, as the cost of taking this risk.

Again, this is a business model problem. There's no threat that artists will disappear. The threat is that the intermediaries will lose their control, that new companies will emerge to front the cash, take the risk, and expect the reward.

The opportunity here is to get the artists involved a better deal. For the last century writers, musicians, actors and other artists have usually gotten a pittance, compared to the capitalists. Movie studios fake the books, music producers write one-sided contracts, and as for writers -- well if you don't have a book contract you don't exist, and the value of the contract is determined entirely by the advance.

Bone, or Boon?

Last Thursday the FCC finally threw WiFi a bone. (Picture from the blog of Dakota Feinstein.)

The agency voted to allow low power, unlicensed devices to use the spaces between TV signals, once the TV stations abandon them under the 2009 digital switchover.

Under the order tests of interference will be completed in the middle of next year, and technical requirements would be set by October. Marketing the new gear would only begin after the switchover, now scheduled for February 2009.

The question is, will this be a boon or just a bone?

Why The South May Turn Rightward

In all the bloviating over this weekend's "Liberty Sunday" event in Boston, one fact that was not noted enough was that nearly half the featured speakers were black.

This was not accidental. Tony Perkins, whose "Family Research Council" puts on these shows, is a savvy pol. He knows his market.

And the one fact liberals have yet to grasp hold of is the rise of the Black Megachurch.

Atlanta has a number of these. Bishop Eddie Long runs one. Creflo Dollar runs another. They are run much like any white mega-church. That is, they provide social services designed to keep parishioners occupied, to keep them out of the hands of the government.

These churches provide an important service for the black middle class, which is growing across the South. They validate. They also segregate. They separate congregants from the pathologies of poverty. They preach a gospel of wealth, based on self-discipline. With half of all black kids born without fathers present, with a third either in jail or on probation, with the odds so stacked against those born in poverty, this is a powerful message.

To empower these people, everything becomes a choice. Graduating from school is a choice. Avoiding drugs is a choice. Avoiding sex out of wedlock is a choice. And thus, inevitably, being gay is a choice. If you have money, a big house and a fine car, you have made the right choices. If you don't have these things, it's your own fault.

It's a conservative message.

Building the Internet Party

After the coming elections there will still be three parties in America.

They will be, in order of power, the Republican Party, the Washington Democratic party, and the Netroots Democratic Party.

While Democrats are currently united and Republicans seem fractured, the opposite is going to happen once Democrats seize Congress. The Democratic party has been papering over its differences. Power will unmask them.

Many of these differences occur on issue relating to the Internet. The Washington party is in bed with the copyright industries. I've seen a large number of Washington-approved ads this year, by Democrats, attacking the Internet as a haven for child predators and terrorists, demanding “protection from” it.

Those of us who have been on the Internet for a time know this is ridiculous. Hiding from the bad actors on the Net does not cause them to go away. It actually makes them stronger. Imagine how much worse the problems of spam and adware would be if we didn't confront those people.

In addition to basic Internet ignorance we still face the problem of over-reaching copyright and patents. Both are antithetical to the way the Internet works. The Internet is a great Commons that allows people to create new works from old. Deny them access to the old works, or allow those who created them a veto, and you don't get the new ones. Other people, who are given this freedom to create, will deliver them to the market.

Then there's broadband. The current duopoly must be challenged in the market, but market conditions must be set allowing that challenge.

In all these cases Washington Democrats are looking for big money handouts from the industries impacted. And they're getting them. The vaunted K Street project is coming apart, becoming once again bipartisan.

And it is this move that the Internet Party must oppose most forcefully. Issues like campaign finance reform, even state financing of elections (the only true reform allowed under Buckley vs. Vallejo) are in the Internet Party's interests.