Showing posts from 2010

FCC Moves to Halt Internet Service Provider Content Discrimination and Preferences

The Federal Communications Commission has moved to keep Internet service providers from limiting or unreasonably discriminating against content provided by competing services

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 t…

Content Farms and the Exploitation of Information

A growing number of firms are aggressively pursuing the market for information by providing material that answers online searches and employing strategies so their material appears high in search results.

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 site alone gets about 50 million users., Yahoo and AOL are also engaging in the market.

When you make a search and are taken to,, 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 …

The Ever Less Durable Race Horse

Very comprehensive article by Bill Finley in the Thoroughbred Daily News Magazine today with much detail about what we already know. The modern thoroughbred, at least in the US, runs less often each year, and far less often over a career, than race horses did half a century, or even a generation, ago.
The statistics, many from the Jockey Club Fact Book, are absolutely clear. In 1950, the 22,388 horses that raced averaged 10.9 starts for the year; in 2009, that average was 6.23 starts, a decline of 43%. In the same period, the number of races run has doubled, from 26,932 in 1950 to 54,121 last year, and the number of thoroughbreds that actually started at least one race during the year has increased by 220%, from 22,388 to 71,662.
As I and many others have said before, that's too many horses and too many races. Even with the huge increase in the foal crop over the years (now beginning, at last, to shrink), average field size has actually decreased since 1950, from 9.07 starters per r…

Errors of Omission

In more chivalrous times, or at least so one would like to think, those in positions of power and authority who did wrong would offer their resignations, or, in Japan at least, their lives, as tokens of atonement. If that grand old tradition were still in vogue, here's a list of those who should, as of Monday morning, be without a job:
Churchill Downs CEO Bob Evans and track president Kevin Flannery, for not exercising their authority to bar local favorite Calvin Borel from the premises after his outrageous brawling Friday afternoon.
Chief Steward John Veitch for letting Borel off with a $5,000 slap on the wrist and, more importantly, for failing to protect the bettors' interests in the Ladies Classic by scratching Life at Ten, declaring her a non-starter, or having her run for purse money only.
Track Superintendent Ray Lehr, for letting the BC turf races be run on a course that many jockeys said was less than ideal and that may have led to the death of Rough Sailing, whose feet …

Digital Media Require New Pricing Methods

Newspaper publishers need to explore new methods of pricing content as they expand their digital portfolios because merely transferring the methods used in print can never bring the success publishers desire.

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, multip…

Newspaper Companies Start to Think Beyond Today's Bills

The somewhat improving condition of the newspaper industry is permitting companies to move from merely paying operating expenses to finding ways to improve their balance sheets and looking for new opportunities. In recent weeks:
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…

Keeneland -- The View from the Trenches

For the past few years, I've been lucky enough to work as part of the EQB buying team at the Keeneland September yearling sale. EQB, run by my friends Jeff Seder and Patti Miller, has one of the best records in the business for picking out a high percentage of stakes-quality horses at reasonable (whatever that means in the horse market) prices. Everyone can find the million-dollar horse at a sale. But finding the $150,000 horse that's just as good requires a bit more skill.
EQB certainly has the credentials. Among its recent purchases, are Ahmed Zayat's Eskendereya, Zensational, Mushka and J Be K; George Strawbridge's Eclipse Award winners Forever Together and Informed Decision; Ken Ramsey's General Quarters; Bruce Lunsford's Madcap Escapade; and Bill Heiligbrodt's Lady Tak.
This year, EQB is not buying for Zayat, but has a new client, someone who's been in racing for years but is now looking for his Kentucky Derby horse. He's given us a pretty big ba…

The State of New York Racing

First NYRA, now the Jockey Club. I'm beginning to wonder what's getting intop these pillars of the establishment when they start doing things right.
In NYRA's case, it was the comments by Chairman Steve Duncker and CEO Charlie Hayward on the need to reduce takeout. Now, as announced at the Jockey Club Round table two weeks ago, the Jockey Club has released statistical fact books on each of the major racing jurisdictions. Breaking down the data state-by-state makes it a lot easier to zero in on trends in the business and to make some predictions about where we're going.
Take New York, for instance. The New York Fact Book for 2010 -- data through the end of 2009 -- shows in stark detail how the industry has shrunk, back to a level of perhaps two decades ago.
Take as a starting point the number of New York mares bred each year. From a high of 2,749 in 2003, that number dropped to 1,599 in 2009, the lowest in at least 20 years, and, based on anecdotal evidence, I'm sure…

NYRA Gets It Right

Spent the morning at the annual Jockey Club Round Table on Matters Pertaining to Racing, the annual get-together of the rich and famous organized by Dinny Phipps and Co. at the famed Gideon Putnam Hotel in Saratoga. Was definitely underdressed for the occasion -- Steve Crist and I seemed to be the only males not wearing ties -- but nonetheless picked up all sorts of interesting info, which will be grist for a series of upcoming blog posts.

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…

Bankrupt Newspapers Leave Employee Unions and Government Corporation Holding the Pension Bills

It has not been a good month for newspaper unions at bankrupt newspaper companies or the government corporation that insures pension funds. As part of their reorganizations, a number of bankrupt newspaper firms are not paying money owed union pensions or are quietly letting the guaranty pick up the tab for retiree costs.

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 form…

Saratoga v. Monmouth: weekend 1

Well, Monmouth had Rachel Alexandra, and Saratoga had so much rain that it flooded out Danny Meyer's hot new Shake Shack restaurant. But, no surprise, guess which track had the better performance on July 23-25, Saratoga's opening weekend?
For the three days, Saratoga had paid attendance of 62,243, versus Monmouth's 28,365. Even on Saturday, with Rachel Alexandra at the shore, Monmouth drew only 12,859. The same day, with the highlight at saratoga the Coaching Club American Oaks, won by Devil May Care, Saratoga drew 20,352.
On-track handle for the three days at Monmouth was $1,975,627. At Saratoga, where there were 6 fewer races, on-track handle was more than four times as much, at $8,638,566. Similarly, all-sources handle for the weekend at Monmouth was $24,130,504, while at Saratoga it was $43,431,852. Monmouth did much better, comparatively, on its simulcast, OTB and ADW betting, but even with Rachel Alexandra running Saturday, it didn't equal Saratoga's handle on …

Monmouth vs. Belmont: the Numbers

Much has been made of this year's big increases in attendance, handle, field size and purses registered by Monmouth Park in its innovative three-day-a-week race meet. Halfway through the summer meet, attendance is up 13% over last year, at 10,500 a day; all-sources handle has more than doubled, from $3.5 million a day last year to $7.7 million; and on-track handle is up 43%, much more than the corresponding increase in on-track attendance. So, it seems, Monmouth's ballyhooed "million dollars a day" in purses for a shorter meet appears to be the wave of the future.
Meanwhile, the New York Racing Association's Belmont spring-summer meet seems to have been lost in the financial mess that is New York racing, with the performance of the horses and the track buried by news of the state government's continuing ineptitude over putting slot machines at Aqueduct, a mere nine years after they were authorized, and of the continuing failure of New York City Off-Track Betti…

The NYRA Audit - No Good Deed Goes Unpunished

Earlier this year, displaying the political sense that has so often eluded it, the New York Racing Association (NYRA) agreed to turn over its financial records to State Comptroller Thomas DiNapoli so the latter could conduct an audit of NYRA's shaky finances. NYRA had previously unleashed its stable of pit-bull lawyers in an effort to block the Comptroller's request, a position that drew widespread criticism, and the turnaround in February seemed a smart move. Perhaps it even helped NYRA convince the otherwise clueless politicians in Albany that they had to make good on their contractual promises to advance NYRA the money it was losing as a result of the state's endless dithering on awarding a contract for slot machines at Aqueduct.
But yesterday, the other shoe dropped. Comptroller DiNapoli released his audit of NYRA, complete with a scare-laden press release. DiNapoli concluded that NYRA should somehow scale back the level of its operations to what would be sustainable w…

Competitive Struggles Among Television Platforms

Since the emergence of cable and satellite television services there has been struggles among platforms to increase their attractiveness to audiences and to draw market share from terrestrial television in developed nations. These struggles have had affected content producers, broadcasters, platform operators and regulators attempting to fashion socially optimal broadcasting systems.

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 highe…

Suppose They Gave a Party ...

Tom Precious of the Blood-Horse is reporting that Delaware North, one of the six registered bidders for the long-delayed Aqueduct slot machine contract, is pulling out of the bidding. Bids are due at 4 pm today in the latest attempt to name a racino operator.
Delaware North is one of the more experienced slot-machine operators among the six potential bidders, with some 10,000 slot machines scattered across the US, including the racino at the upstate New York Finger Lakes track. Presumably, the company knows how to do its sums before making a bid, so its last-minute decision to pull out is, well, troubling.
Although no one at Delaware North was speaking publicly, Precious cites unnamed sources as saying that the reasons for the pullout included the 1% cut in operator fees included in the latest version of the New York state budget, the requirement that the winning bidder pony up $300 million BEFORE negotiating a final agreement with the state, and doubts as to whether New York State can …

Churchill's Ongoing Makeover

Now that Churchill Downs Inc.'s annual meeting is over, it's an opportune time to take a close look at the leading US race track operator's financials. As we've pointed out here in prior years, Churchill has a long-term strategy of increasing the profits from its online betting operations (Twin Spires and the newly merged YouBet) and casino gambling (in Louisiana, and now at Calder in Florida), while managing the ongoing decline of revenue from live racing. That trend continues to be evident in Churchill's numbers the calendar year 2009 and for the first quarter of 2010.
In fact, it appears that the trend is accelerating. In comments at yesterday's annual meeting, and in an interview with the Lexington KY Courier-Journal, Churchill CEO Bob Evans (definitely not a racing guy) said that the future of live racing at Arlington Park in Chicago -- without slot machines and without access to loans from the Illinois state government -- was in serious doubt, ands, eve…

Getting It Wrong: The FTC and Policies for the Future of Journalism

Following hearings on the state of newspapers this past year, the U.S. Federal Trade Commission staff has now prepared a discussion paper of potential policy recommendations to support the reinvention of journalism.

It is a classic example of policy-making folly that starts from the premise that the government can solve any problem—even one created by consumer choices and an inefficient, poorly managed industry. Most of the proposals are based in the idea of using government mechanisms to protect newspapers against competitors and to create markets for newspapers offline and online.
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 curre…

NYRA Rescue Passes State Senate

I've been advised that the New York State Senate has approved the $25 million loan (not bailout) that will tide the New York Racing Association over until either NYC OTB starts paying what they owe or the state finally approves a slot machine operator for Aqueduct. The loan was tacked onto the weekly bill extending the state budget, since the legislature failed to meet the April 1 deadline for a new fiscal year budget. The measure now heads to the Assembly, where it should pass.

There He Goes Again

Frank Stronach just can't help himself. Fresh from his bankruptcy court success at the end of April reneging on his promise to sell the Maryland Jockey Club, he's now managed to throw the Santa Anita fall meet in doubt, to bring in a partner in Maryland that's not exactly known for its commitment to racing, and to have waved goodbye to yet another experienced industry executive passing through the Magna revolving door.
Beginning with the latest news, Santa Anita track president Ron Charles abruptly resigned, announcing his departure on Tuesday and clearing out his desk on Wednesday. As Brad Free pointed out in The Daily Racing Form, Charles is the sixth chief executive at Santa Anita in the 12 years that Stronach has owned the track. He was preceded through the revolving door by Bill Baker, Cliff Goodrich, Lonny Powell, Jack Liebau and Jim McAlpine.
After four years on the job, Charles had probably had more than enough of trying to deal with the Stronach ego, not to mentio…

Honest Trainers Get Drug Positives, Too

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, New York makes the trainer the insurer of a horse’s condition. Whether an illegal substance was given to a horse by a vet, a groom, or some guy in a trenchcoat who sneaks into the stall, it’s the trainer who’s held responsible…

Challenges of Product Choices and Prices in Multi-Sided Media Markets

Commercial media have faced product and price challenges in 2-sided markets for more than a century, but are encountering greater difficulties in getting it right as they try to effectively monetize multi-sided markets.

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 mak…

Tax Code Favors the Wall Street Gamblers, Not the Race Track Kind

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 tr…