Wednesday, 22 December 2010
The regulations are designed to keep telephone and cable companies that provide phone services from using their Internet services to limit use of Skype and other online telephone services. It is also intended to halt them from making content provided by audio and video service providers they do not own less desirable by limiting downloads from firms such as Netflix or Hulu or providing faster service only for their own content.
The rules are designed to maintain a level competitive position on the Internet and to restrict the abilities of companies that dominate access to the Internet from using oligopolistic control of the service points to harm content competitors.
The regulations require that services allow their customers equal access to all online content and services, but allow the services some flexibility to management network congestion and spam as long as the rules are clear and not anti-competitive.
The rules apply to fixed line services, but do not apply equally to wireless telephony which is becoming the primary means of Internet access though smart phones and electronic tablets and e-reader. Mobile phone providers are permitted to provide preferential access to their services or selected partners, but the rules forbid mobile providers from blocking access to competing sites and services. Mobile services are given more leeway to manage their networks because capacity is more limited than on the Internet.
The regulations are an important step in ensuring that major service providers such as Comcast and Verizon are not allowed to use their dominance in service provision to harm other companies and the FCC should be applauded for its efforts. Such companies have in the past shown their willingness to take advantage of their monopoloy power and are not widely noted for their consumer friendliness.
Major service providers and Republicans are vowing to fight the move, arguing that the FCC does not have the authority to issue such regulations. If the courts side with them on the issue, Congress should explicitly give it the authority or empower the Federal Trade Commission to ensure competivieneess online.
Thursday, 2 December 2010
These enterprises are providing high quantity, low quality material on topics designed to produce many search hits and driven by the desire to make money from advertising received as high traffic sites. Some are proving quite successful.
Demand Media, for example, uses about 13,000 freelance writers to produce about 4000 articles a day for which it gains about 95 million unique visitors with more than 620 million page views monthly. Its eHow.com site alone gets about 50 million users. Ask.com, Yahoo and AOL are also engaging in the market.
When you make a search and are taken to answer.com, dictionary.com, wikianswers.com or hundreds of other sites providing such information to the public, you encounter this mass produced content. The business strategy is working and many of the sites are among the top 25 sites in the U.S.
These producers and a whole range of similar organizations are producing material in content farms that rely on freelancers who are paid as little as $1 an article or get no payment except for number of page views for their specific work. It is a throwback to the penny-a-word days of journalism in the 19th century. The firms are increasingly seeking video producers, photographers, and graphic artists to provide similar material at similar levels of compensation.
Even established news organizations and other enterprises are starting to use the syndicated material produced by such content farms. Organizations such as Hearst publications and National Football League are relying on them for some content that appears on their sites, for example.
The implications of these developments on the quality of Internet information and the prospects for professional writers are clear and hardly encouraging.
Tuesday, 16 November 2010
Sunday, 7 November 2010
Thursday, 14 October 2010
Print newspaper publishers have traditionally tended to set prices based on production and distribution costs and not on value created. Unfortunately, this has made it impossible to possible to obtain a price premium for factors such as prestige, service, experience, and convenience.
New digital operations, however, provide significant other pricing options because they differ in terms of whether they maintain the existing content bundle, whether non-payers can be excluded from use, the types of experience they deliver and how they are used.
Digital media require significant new thinking because they tend to be joint and complementary products with print. These lend themselves to selling strategies of bundling and versioning that permit uses of bundle pricing, option pricing, multiple purchase pricing, differential access pricing, and inventory based pricing that have not typically been used in the newspaper industry.
Pricing is particularly complex in the digital environment because the number of price choices grow exponentially. In the print product managers price advertising and the circulation, but when they add an online product they have to make 8 choices because they are shifting to a multisided platform operation. If mobile, social media and other print products are added to the portfolio, one must give significant thought to the roles each plays in the portfolio and the interactions of pricing choices among them.
Although digital media use is growing significantly, companies need to be pragmatic in their investments and operations and their hopes for new revenue. Online consumption is still only about 10 percent of all media use and online advertising is still only about 13% of offline advertising. Those numbers are significant and rising so companies needs to seek and exploit opportunities in digital spaces, but managers cannot expect those to immediately replace the contributions of their legacy operations.
Monday, 4 October 2010
- The Gannett Co. has placed senior notes totally $500 million that will be due in 2015 and 2018. The notes financed at 6.375% and 7.125% will give the company some financial breathing space by being used to pay a maturing loan and revolving credits. In addition it negotiated an extension on $2.7 billion in revolving credit with Bank of America from 2012 to 2014.
- The New York Times Co. has cut its debt by 40 percent in past 2 years and is beginning to look at small investments in digital media that may position it for future growth. It recently provided $4 million in financing for Ongo, a start-up news sharing site that will aggregate stories from a number of newspapers.
- The Washington Post Co. announced it would repurchase 750,000 of its outstanding shares. Such a move will increase future earnings per outstanding share and boost shareholder equity in a tax beneficial way. This type of buyback typically occurs when cash is accumulating in the company and its stock is undervalued.
Friday, 17 September 2010
Thursday, 2 September 2010
Sunday, 22 August 2010
But first, congratulations to New York Racing Association chairman Steve Duncker, who managed to include three really good points in his brief presentation.
First, Duncker ended his Power Point slide show with a sincere, and very prominent, "Thank You" to the owners and trainers who, by sending their best horses to race in New York, help maintain the state's position as the country's pre-eminent racing venue. (As an example, 36% of all the Grade 1 stakes races in the US are run at NYRA tracks.) Even for those who ofrten disagree with NYRA management, it's nice to be appreciated.
More substantively, Duncker pointed out that our product -- betting on horse racing, is grossly overpriced, and has been getting more expensive. From a blended takout rate of 15% a few decades ago, NYRA's takeout is now at a level of 19.8%. That's undoubtedly one of the factors causing the rankings of NYRA tracks by HANA, the Horseplayers' Association of North America, to be well below what would be suggested by the quality of New York racing. In those ratings, Saratoga ranks 16th of 69 rated tracks (Keeneland is rated No. 1), and Aqueduct and Belmont languish at 26th and 27th, respectively.
In contrast to the nearly 20% that NYRA charges the bettor, Duncker pointed out that the price of other forms of gambling is much cheaper. The "takeout" on craps averages 2%, on blackjack 3%, on slot machines, 6%, and on casino poker tournaments, 8%. No surprise that we're losing the business of the numerate younger generation.
Duncker acknowledged the problems with reducing takeout -- how to accommodate rebates for the "whales" who provide a large share of total handle, how to fairly split the pie among purses, track operators and off-track bet takers, etc. But even raising the issue in public represents a huge step forward, especiallly at the same time that California seems to be moving in the wrong direction with a major takeout increase.
Duncker's other really smart point was to analyze race track results by how much in handle is generated by each dollar of purse money. It's a great metric, one that I've used myself in looking at how the Saratoga and Monmouth meets compare, and one that would certainly be expected of a former Goldman Sachs partner, as Duncker is, but it's the first time I've heard this sort of rigorous quantitative analysis from a racetrack official. Just compare this approach to the blatherings of, say, Frank Stronach.
NYRA, unsurprisingly, is way ahead of the rest of US race tracks on this measure. Each dollar of purses at NYRA tracks, according to Duncker, generates $22 in total handle. That's twice as much or more than at any other track, and, with slot machine revenue finally in the foreseeable future in New York, augurs well for the continued viability of racing in New York. (According to data presented by Duncker at the Round Table, a "conservative" estimate of slots revenue from the Aqueduct racino would add $13,000 to the average overnight purse in New York. Who knows, it might even be possible to think about breaking even with a good horse.)
I'm sure there will be lots to disagree about in the future, but for now, Steve Duncker and NYRA seem to have gotten a few things right.
Saturday, 21 August 2010
- Unions of Philadelphia Newspapers LLC (The Inquirer and The Philadelphia Daily News) were forced to accept 12 cents on the dollar for the $12 million the bankrupt company owned to employee pension plans as part the reorganization plan.
- The Chicago Sun-Times off-loaded $49.1 million of its underfunded pension obligations for 2300 retirees and employees to the Pension Benefit Guaranty Corp. The paper and it suburban subsidiaries were purchased out of bankruptcy without the new owners assuming the pension obligations.
- The Dayton News Journal dumped $15.4 million in underfunded pensions payments on the Pension Benefit Guaranty Corp. , which will ensure 1,100 current and former employees receive benefits owed to them. The newspaper and its assets were purchased out of bankruptcy by Halifax Media, but it did not take on the pension liability.
Tuesday, 27 July 2010
Saturday, 17 July 2010
Tuesday, 13 July 2010
Wednesday, 7 July 2010
In the first competitive struggles between terrestrial broadcasters and cable operators, broadcasters controlled the highest quality contemporary programming and cable operators primarily competed by offering a wider variety of channels and providing premium movie channels. In many locations broadcasters actively sought regulatory policies to keep their channels from appearing on cable in order to reduce its attractiveness as a competitor.
As cable matured and satellite services emerged, the nature of the struggle shifted as greater subscription and advertising revenues allowed cable networks to offer higher quality contemporary programming. In this competitive phase, terrestrial, cable and satellite operators began struggling for exclusivity of content that would drive audiences to the platforms. Gaining exclusive rights to first broadcast runs of motion pictures, sporting, musical and other events, and high quality original programs became primary goals. In this environment, producers of content and owners of event rights sought to maximize their returns across the platforms. while platform operators sought to maximize their returns by gaining market power through exclusivity. This led to negotiations based not only on transmission rights but exclusivity rights as well, which dramatically pushed up costs of some content—especially sports rights.
As cable garnered a larger audience share, broadcasters that had previously been opposed to carriage of terrestrial signals on cable because asking regulators for ‘must carry’ rules to require cable operators to carry terrestrial channels so they could have additional access to audiences or audiences in places their terrestrial signals had not previously reached. This was especially useful for advertising supported channels, both public service and commercial.
In recent years, the widespread success of cable and satellite platforms and the shift of wealth from terrestrial to other platforms has led broadcasters to demand payments from cable and satellite platform operators for carrying their channels. The newer platforms are resistent and in some nations the struggle over payments remains on-going.
The digitalisation of terrestrial, cable, satellite, and broadband platforms has now created multiple opportunities of distribution of audiovisual materials and is creating a new environment in which additional competitive struggles are taking place among platform operators. At stake are the significant potential gains from advanced paid video-on-demand services and IPTV. Platform operators—DTT, cable, satellite, and telecommunications firms that offer broadband services—are now struggling to ensure that they are not competitively disadvantaged compared to other operators. Operators that control or have high market power over platforms, especially broadband links and systems needed for advanced services or interactive DTT services, will have significant advantages in the next generation of services. Consequently, there is a great deal of effort on the part of major platform operators to acquire access to all platforms and services through ownership, alliances and joint ventures and in many cases there are outright efforts to control those platforms and servcies.
The trajectory and outcome of this competitive struggle is particularly important because it will have significant impact on the range of services and costs for services available to the public. These developments also have significant importance for the relationship between content producers and platform operators because the means of compensation is likely to evolve from current transmission rights and exclusivity rights payments to one involving revenue and profit sharing. This has significant implications to the funding and ways that contemporary terrestrial television programming is created and role of terrestrial broadcasters in the new environment.
Tuesday, 29 June 2010
Friday, 18 June 2010
Saturday, 12 June 2010
The FTC’s staff ignores the fact that most newspapers are profitable (the average operating profit in 2009 was 12%), but that their corporate parents are unprofitable because of high overhead costs and ill-advised debt loads taken on when advertising revenues were peaked at all time highs. It also fails to make adequate distinction between longer term trends affecting newspapers and the effects of the current recession. The staff thus blends the two together to give a skewed picture of the mid- to long-term health of the industry.
Policy alternatives suggested by the staff for consideration include:
- Limiting fair use provisions of copyright and providing new protection for “hot news,” which would give first news organizations to distribute a story a proprietary right to the facts in their article
- Providing a variety of types of subsidies for news providers
- Changing tax exempt status laws to make it easier to obtain not-for-profit status and funds from charitable donors
- Taxing advertising, spectrum, internet service provision, consumer electronics, and cell phones to provide funds for news organizations
- Creating new antitrust exemptions allowing price collusion and market division
If commercial news enterprises can’t effectively manage themselves, compete in markets for their products and services, or find effective business models for themselves, why does anyone think that bureaucrats in the government have any ability to solve those problems for the news industry?
Monday, 24 May 2010
Tuesday, 18 May 2010
Monday, 10 May 2010
Horse racing is full of suspicion. “All trainers are drug-wielding cheats.” “All the races are fixed.” “The trainers and vets get away with murder.” And those are just the versions that are printable in a family blog.
Now, I’ve been around the race track for a while, and I know it’s true that some trainers are probably using illegal chemical help, though that’s far more difficult to do these days, with super-sensitive testing devices, than it was a decade or two ago. But this is a story about state racing officials more concerned with their public image than with fair dealing, and about an honest trainer, trying to play be the rules, who’s getting a very raw deal all because he did exactly what he was told by people who should know.
Like most racing jurisdictions,
Case in point: This past Monday, May 5th, the New York State Racing and Wagering Board suspended trainer Bruce Brown for 30 days, and fined him $1,000, for two drug positives. [Disclosure: Bruce trains two horses for my Castle Village Farm partnership. I’ve watched him in his barn at
The drug in question was hydroxine, sometimes referred to as hydroxyzine. It’s an antihistamine that’s been around for more than 50 years, and is used to treat hives and other allergies in humans as well as horses. Here’s how and why Bruce used the drug:
Back in early March, two of his horses were suffering from hives. He attempted to deal with the problem by changing their stall bedding from straw to wood shavings, since the allergy (hives) was probably caused or aggravated by the straw. When NYRA refused to allow the use of wood shavings (something about a track-wide contract that requires straw, which is sold for use in the mushroom industry), Bruce went to Plan B, calling the vet. His vet prescribed the hydroxine, and told Bruce what the safe time would be to stop using the drug before each horse’s race. Bruce did stop the treatment as directed, and the horses, their allergic reactions under control, went on to finish first and second in their respective races. But apparently the vet’s instructions weren’t cautious enough. Post-race testing found traces of the drug in each horse’s system. Not enough to have any effect on their performance, but enough to cause a positive test.
Racing has an astonishingly long list of prohibited drugs. (Of course, two of the most egregious drugs, Lasix and, in
And when the regulatory agency has the attitude that all trainers cheat, as is the case in New York, the chances of getting a fair hearing are, to say the least, minimal.
So, Bruce Brown gets a 30-day suspension, two owners, through no fault of their own, have to repay purses that they thought they’d won, and the whole episode does nothing to clean up racing. It does, however, lend some urgency to the ongoing efforts to at least have uniform drug rules in all 37 states where there is horse racing. I don’t know if a uniform rule with a reasonable threshold level for hydroxine would have helped Bruce Brown in this case, but it couldn’t have hurt.
Some owners say they’ll drop a trainer the minute he or she has a drug violation, as Team Valor did with Ralph Nicks back in 2004. But it’s just not the right thing to do to a trainer who’s done well for you and who tried, to the best of his ability, to follow the rules. So, Castle Village Farm will be waiting for Bruce Brown to be back in the barn at
2-sided and multi-sided markets are ones in which more than one set of consumers must be addressed and there is an interaction between strategies and choices for each set of customers. Prices for one group of consumers affects their consumption quantity and this, in turn, affects the prices for and consumption by the other groups. Optimal revenues can only be achieved by dealing with all groups of consumers simultaneously.
Newspapers are a classic example of 2-sided platforms. The first product is the content sold to audiences and the second is access to audiences that is sold to advertisers. This has been the basis of the mass media business model since late 19th century and the strategy has been to keep circulation prices low to attract a mass audience and then to make the majority of revenue from advertiser purchases.
In this model, success in selling the newspaper product affects ability to sell advertising access because more readers makes a paper more attractive to advertisers; conversely, success in selling advertising affects ability to sell the newspaper to readers because it provides resources that improves content and make the paper more attractive.
Getting prices right in this model is crucial, but most media have traditionally been relatively unsophisticated in setting prices. Few have used demand-oriented pricing, based on what the market will bear, or target return pricing based on achieving a specific rate of return. Instead most have set prices based on what the closest competitors are doing or on industry average price. They were historically able to get away with it because elasticity and price resistance were relatively low because of the near monopolies of past in many markets.
Today, however, product and price choices are getting much more complex because of rising competition and because media are shifting from 2-sided to multi-sided platforms in which relationships among consumers are compounded. This complexity is evident in the difficulties newspapers and magazines are having figuring out effective ways to provide and sell content online.
The problem occurs because there are paying audiences and advertisers for the print edition; free audiences and paying advertisers for the online edition; and some joint audience and advertisers who use both the print and online offerings. If one alters the free price online to create a paying audience, it not only affects the willingness of online advertisers to pay, but affects the willingness of joint audiences and advertisers to pay and thus effects performance of the print sales as well.
Creating the correct combination of content available in print and online, getting the content prices right, generating audiences in both places that are right for advertisers, and properly prices advertising is no mean feat. The situation is made even more difficult as publishers add eReaders and mobile services to the mix.
Those who think they can easily monetize newspapers, magazines, or other information products online ignore the significant challenges posed by multi-sided platforms and need to carefully consider the impact that these factors have on product and price choices.
Thursday, 29 April 2010
With the Kentucky Derby coming up and with the overpaid and largely unrepentant thieves from Goldman Sachs in the Congressional hot seat, it seems an appropriate time to renew a question that I initially raised some 15 years ago, in an article in that well-known handicapping publication, The Tax Lawyer. Namely, why does the Internal Revenue Code treat the ordinary schlub’s horse racing and casino gambling winnings and losses so much less favorably than it does the much more dubious gains and losses that those Wall Street’s masters of the universe receive from trading in billion dollar derivative bets?
[For those who want to explore the legal arguments, the full text is at 49 Tax Lawyer 1 (1995), available on Lexis and Westlaw or in your favorite law library.]
That tax treatment is hugely different. Just for a start:
● Gambling losses cannot be deducted against any other income, only against gambling winnings. In contrast, net losses from Wall Street trading are deductible against the trader’s other income.
● Any excess gambling losses that are not deductible in one year cannot be carried forward to the next tax year, even to offset gambling winnings in that later year. Non-deductible derivatives trading losses in one year, in contrast, can be carried forward or backward and used to offset income in other years.
● Racing and poker tournament payoffs in excess of $5,000 are subject to withholding, at 28%, when the bet reflected odds of 300-1 or greater. And the Internal Revenue Service considers each combination a separate bet. So a Pick Six ticket that contains, say, 1,500 separate combinations and that returns $5,000 is treated as paying off at 2,500-1 (on a $2 bet), even though the bettor actually put up $3,000 and so got net odds of only 2-3. With 28% withholding, the bettor actually gets back only $3,600 for his $3,000. No such rules apply to bettors in that big casino on Wall Street.
● Even if they hold the contracts for only a day, Wall Street speculators are allowed to treat 60% of their gains from many kinds of derivative contracts as long term capital gains, which qualify for lower tax rates. Racing and casino winnings, in contrast, are all just ordinary income, taxable at higher marginal rates.
● There’s a 2% federal excise tax on gambling transactions, but none at all on financial market transactions. The mere mention of one – even a proposal for a tax as tiny as 0.1% or less -- causes the Wall Street propaganda machine to spew out dire predictions of the end of the world as we know it (not that that would necessarily be a bad thing).
“Gambling” and “wagering” are not defined, for income tax purposes, anywhere in the Internal Revenue Code or the Treasury Regulations. I guess it’s like Justice Stewart’s definition of pornography: we know it when we see it. Merriam-Webster, though, says that gambling is to stake something on a contingency or to bet on an uncertain outcome. Isn’t that just what the hedge funds guys and Wall Street traders were doing when they bought and sold credit default swaps and other opaque instruments of mass destruction?
To my surprise, there’s very little in the tax law literature or in the case law that addresses these definitional problems, except for a couple of recent articles arguing that bets on “prediction exchanges” (“I’ll give you 10-1 that Sarah Palin won’t be the next President of the US”) are more like tax-favored futures contracts than they are like sports bets (“I’ll give you 10-1 that Todd Pletcher’s Derby jinx continues”). A serious search of the law and literature (one has to do something when there are four dark days between Aqueduct and Belmont) shows not a single article or judicial decision in the past 15 years – since my piece way back in 1995 – arguing for better treatment for sports and casino bettors.
Perhaps we could get Mitch McConnell, in his role as the Senator from horse racing, to introduce a few amendments to the pending “financial reform” bill. Oh, I forgot, McConnell, majority leader of the party whose motto is “just say no,” is also the Senator from Wall Street. Guess that little conflict of interest isn’t going to get us very far.
But, seriously, wouldn’t it be some sort of victory for Main Street over Wall Street to amend the tax code so that bets placed on Wall Street get the same (unfavorable) tax treatment that I get for betting the Pick Four at Belmont? Who knows, if they had to think about the tax consequences of their misbegotten bets, perhaps those masters of the universe wouldn’t be risking quite so much of our money.
And on another topic: for the Triple Crown season, I’m also blogging on the New York Times site, The Rail. Here’s a link to my first piece, which was on Zayat Stables and Eskendereya.