Saturday, 26 September 2009
This is a case of the newspaper industry seeking long-term business benefits to solve a short-term crisis caused by poor management decisions and the recession. The leading newspaper firms and their representatives are making concerted efforts to dupe legislators and the public into believing their troubles are part of the general trends in the industry, rather than the result of management decisions and the financial crisis that is diminishing. If the provisions are passed, the public treasury will be diminished for years to come and risks for employee pensions will be increased.
Newspaper executives and other witnesses were sympathetically treated at the hearing this week, but it is unclear whether they will be able to achieve the policies they advocated.
Another proposal that the commercial firms are uninterested in themselves, but expressed sympathy for, would broadening laws regarding charities to include not-for-profit newspapers. Their support was astute because the House Joint Economic Committee’s chair, Rep. Carolyn Maloney (D-NY), has introduced her own bill (H.R. 3602) to allow newspapers to become tax exempt under section 501(C)(3) of the tax code. Her bill somewhat mirror Senate bill 673 by Sen. Benjamin Cardin, D-Md., that was discussed earlier in this blog (Analysis of the Newspaper Revitalization Act, http://themediabusiness.blogspot.com/2009/03/analysis-of-newspaper-revitalization.html). There are some differences in Maloney’s bill that need to be highlighted.
Under Section (b) of H.R. 3602, companies would qualify for tax exempt status through a 3-part test.
First, companies would have to be “publishing on a regular basis a newspaper of general circulation” to qualify. This provision stipulates no periodicity so it does not limit qualification to dailies, which are experiencing the greatest economic and financial difficulties. This language provides the exemption only to established papers and would thus exclude startups until after they were regularly publishing, requiring startups to initially obtain financing through other than tax-deductible donations.
The language in this first test requires that publications be “a newspaper of general circulation” and this will lead to questions whether it applies to newspapers focused on specific audiences in a community—such as African Americans or senior citizens—or papers providing more focused content—such as news and information for a specific neighborhood or devoted solely to politics or crime. This ambiguity could be used by IRS examiners against some papers and could be used by some publishers to take advantage of a policy not intended for them.
The second provision requires that qualifying papers publish “local, national or international stories of interest to the general public and the distribution of such newspaper is necessary or valuable in achieving an educational purpose.” The provision regarding type of coverage is better than the Senate bill because it does not require publication of all 3 types of news—something not done in many local papers.
The third provision requires that content preparation “follows methods generally accepted as educational in character.” This provision is exceedingly vague and its application is unclear because it does not deal with the content of the paper, but with the preparation of the paper. How “the preparation of the material” follows accepted educational methods would seem to require that the papers be part of an educational activity, such as being linked to training in schools or universities. This would highly limit the applicability of the bill to existing newspaper operations.
Like the Senate bill, Section (c) permits papers to carry advertising “to the extent that such newspaper does not exceed the space allotted to fulfilling the educational purposes of such qualified newspaper corporation.” This would require papers to publish no more than an equal amount of editorial and advertising content. This is lower than the limit of postal service limit (75%) and would force most existing papers to drop about 1/3 of their existing advertising or incur damaging costs by printing more news pages than they do now. This would cripple the finances of any daily paper.
Finally, Section (d) of the legislation permits qualified companies to accept tax deductable charitable donations to support their operations.
This bill, like its Senate predecessor, is likely to have limited affects on the newspaper industry because it will not interest newspaper owners because most of their papers are producing profits and it will preclude their abilities to benefit from greater profits when the advertising recovery occurs.
There is a place for not-for-profit media and journalism, but H.R. 3602 S. 673 will not do much to improve coverage or the overall condition newspaper industry. It is likely to continue to gain support from the commercial newspaper industry, however, because it can be used to provide cover for government policies that they really want.
Monday, 21 September 2009
But, in fact, even if one buys at those fair prices, the game is still stacked against the owner who actually wants to make money by owning race horses. Despite the increasing saturation of race track-based slot machines, purses have stagnated and even declined, while the cost of doing business steadily increases.
Let's look at a couple of examples to see how succesful a horse has to be on the track for its owner to break even.
First, let's look at a typical high-end yearling purchase, say for $250,000. That's not the top of the market, but it's a lot more than I tend to carry around in my wallet for impulse purchases.
On top of the $250,000 puchase price, we need to add about 5% for a commission to the bloodstock agent; you wouldn't buy a horse at that level without expert advice. That's $12,500. Throw in another $7,500 for sale expenses, including vetting all the horses that you end up not buying. Then there's insurance, which you'd want on an expensive horse. Probably $45,000 to the end of its 4-year0old year, or about 6% of the insured value annually.
Then we send the horse to Florida for breaking and preliminary training, before sending him back north (let's say Saratoga) in the middle of his two-year-old year. That's another $20,000 for training and vet, plus about $4,000 for all the increasingly expensive van rides. So far, we're up to $339,000.
Now, let's add in training the horse at the track from August of its two-year-old year through the end of its four-year-old year. We'll hire a top-level trainer, at say $125 a day, and, even if we try to manage vet costs, they won't be less than $500 a month. So, training and vet costs to the end of the four-year-old season are another $125,000. All together, we've spent about $464,000 to get the horse that far.
So, how much does the horse need to earn on the track to break even? A lot more than $464,000. The trainer gets at least 10%, and, increasingly, more like 12% of earnings; the jockey gets on average another 7%, and, at least if you race in New York, another 3% or so goes for a variety of mandatory deductions. So we have to gross up the required earnings to get back to our net target of $464,000. In fact, we'd need to earn almost $600,000 in purses just to break even.
Sure, there's some possibility of residual stallion or broodmare value at this level, but in the current market, and discounting for the time value of whatever money might come in down the road, that isn't going to be much. If we're looking at making a profit on the race track, we need that $600,000. And how many horses earn that much?
Now let's take a more modest example. Say we buy a decent New York-bred yearling for $35,000. We won't bother with a bloodstock adviser, and we'll skip the insurance. And we'll probably be tougher on the vet expenses, and place the horse with a trainer whose day rate is more like $100 a day. Using those parameters, it'll cost us a total of $80,000, including the purchase price, to get our $35,000 yearling to the end of its two-year-old year, assuming we send it to the track in August, and another $88,000 for two years of training and vet bills. So, by the end of its four-year-old year, we've spent $168,000.
Applying the same formula to gross up the earnings for trainers' and jockeys' percentages, we'd need purse earnings of $215,000 to get even on our $35,000 yearling. I've had a few horses that did that well, but it's not an everyday occurrence. Look at the lifetime earnings for horses running in New York and you won't see that many above $200,000.
And all these projections don't include all the little extra costs that go with being an owner, from lunches for friends at the turf club to, one hopes, lots of win pictures, to stakes nominations, to donations to worthy race track charities.
So, why are we in this business? Because we love horses and have a terrific ability to see the future through the rosiest of rose-colored glasses. It's a great business to be in. Just don't expect to make money.
Wednesday, 16 September 2009
If not for you,
Winter would have no spring,
Couldn't hear the robin sing,
I just wouldn't have a clue,
Anyway it wouldn't ring true,
If not for you.
Bob Dylan, ©1970 Big Sky Music
I'm pretty sure the folks at Keeneland, shaken as they may be by the bottom falling out of the yearling market the past two days, nonetheless harbor thoughts similar to those of Bob Dylan about Dubai's Sheikh Mohammed bin Rashid Al Maktoum and his entourage. Of the 222 horses reported sold on the first two days of the annual Keeneland yearling sale, 50 of them were purchased by the Sheikh's bloodstock adviser, John Ferguson, or by entities associated with Dubai's royal family, including the Shadwell Estate Co., and Rabbah Bloodstock. That's an overwhelming 22.5% of the total number sold, and an even bigger percentage of the money paid over those two days. Gross receipts for the prestigious Book 1 horses sold at Keeneland this year were $58.8 million (a 48% drop from last year). And of that sharply reduced amount, the Dubai forces accounted for $18,305,000, or mre than 31% of the gross sales. If not for you, your Highness....
If we subtract the Dubai-associated purchases from the results, then here's what's left: 172 horses sold (of a total of 418 cataloged) for $40,451,000, an average of just over $235,000. Sure, we can assume that most of the horses purchased by the folks from Dubai would have sold even without their bids, but certainly at lower prices. In fact, it's not unreasonable to assume that the average for the sale would have been a lot closer to that $235,000 than to the actually reported average -- including Dubai -- of $265,000.
As compared to their equally visible activity at the boutique Fasig-Tipton Saratoga yearling sale last month, the Dubai forces at Keeneland put less emphasis on supporting their own sires -- Street Cry, Bernardini and Medaglia D'Oro, and more on acquiring superior racing and breeding prospects at what, for them, must have seemed like bargain prices. Only 16 of the 50 horses bought by Ferguson, Shadwell and Rabbah were sired by their own stallions, compared with more than half of their Saratoga purchases.
(Shadwell and Rabbah were still somewhat active early on Wednesday, buying three of the first 50 horses to go through the ring on the first day of Book 2 of the sale, though there was little prospect for any more million-dollar-plus purchases by any of the Dubai buyers.)
With this year's purchases, the Sheikh and his associates are aquiring a lot of stellar American bloodlines. They bought yearlings, for example, by A P Indy, Storm Cat, Distorted Humor, Tapit (a new sire whose yearlings look great and who, I think, will make a name for himself quickly), Dynaformer, Ghostzapper, Kingmambo, Elusive Quality, Forestry, Rahy and Unbridled's Song, in addition to those by their own sires. They've also taken advantage of the price collapse to buy into some of the premier American female familes. With another year or two of such purchases, the Sheikh may have all the bloodstock he needs to breed the very best race horses in the world. If and when that time comes, and he cuts back on the volume of his purchases, the yearling market will be in for an even more serious shock.
If not for you....
Tuesday, 15 September 2009
Wednesday, 2 September 2009
The challenges are being caused by declining demand for radio offerings due to lifestyle changes, the wide availability of substitutable audio platforms, and the primary content currently being offered. Audience behavior toward radio is changing and many U.S. stations now only make money for 4 to 6 hours each day. Overall, audiences are spending less time with radio and exhibiting less station loyalty than they did in the past, and young audiences are particularly difficult to attract and serve.
A major impetus of change is that audiences for music worldwide are progressively replacing radio listening with personalized playlists they have created on their computers, MP3 players, and mobile phones and by CDs on which they burned those favorites. They select music that suits their individual tastes and many have wider repositories of music in their own libraries than are offered on broadcaster playlists. Satellite and Internet radio are compounding the problem by offering hundreds of choices of highly focused music formats. These developments are increasingly making radio a less relevant platform for music entertainment delivery than it has been.
Concurrently, a wide variety of non-music programming is being offered by Satellite and Internet stations and audiences are increasingly using these services, as well as downloading podcasts on a variety of topics of individual interest from both broadcast and non-radio sources.
These problems are compounded in the U.S. because the rise of radio groups after deregulation in the mid 1990s led to national radio programmers making selections, reducing the range of genres of music and other content on radio stations. Overall, programming has become less local and less relevant as content decisions have been made elsewhere.
Advertisers sense the problem with audiences and the share of advertising expenditures going to radio is declining. Worldwide radio advertising expenditures are about 7 percent of total expenditures, down from a height of 9 percent in 1999. In the U.S. they peaked in 2002 at nearly 13 percent and are now down to about 10 percent. This downward trend is seen among most of the traditional leaders in radio advertising expenditures –Mexico, Japan, France, UK, Spain—and only in rapidly developing countries such as Brazil and China is the share spent on radio on a clear upward trajectory.
Another indicator of the problem is seen in the considerable weakening of sales prices for radio stations in recent years.
Radio station owners and managers need to start spending a good deal of time thinking about what is happening to their industry and how they will need to change their place in the media use mix. They need to seriously consider what business they are in and what unique value they produce so they can reposition their functions for audiences and advertisers.
The structure and offerings of the radio industry have been adjusted several times during its 9-decade history, but the last time the industry needed to recreate itself so dramatically occurred with the arrival of television. The arrival of television resulted in radio shifting from a general entertainment and information medium to a music entertainment platform in many nations. In the U.S., broadcasters on A.M. radio later shifted toward a talk and sports platform after F.M. developed and music migrated to that spectrum, creating new opportunities on both bands.
Repositioning radio again will not be a simple task, but it is one the industry needs to begin undertaking now. If radio managers do not start thinking ahead about the negative trends appearing in their industry, they will soon experience the alarm and fear that is pervasive in the newspaper industry. It is better for companies and industries to act before crises develop fully because they can respond to and help direct the course of change rather than merely experience its negative effects. Whether decisive action will emerge in the radio industry before we reach that point remains to be seen.