Tim Oren's Due Diligence

The Roving Eye: Special Legacy Media July 4th Edition

(Occasionally my little tours of the web seem to develop a narrative thread all on their own. This is one of those days.)

Boob tubers not so nifty over fifty. (Sorry, but it's Variety, I had to try.)  The average TV viewer is now eligible for AARP.  The primo demographics have migrated elsewhere, and a lot of ad revenue will go with them.

Who are those graying gazers? Crooked Timber isn't my usual hangout, but one of its contributors has run a nifty study on blogging and political participation and alignment. Well worth reading the whole thing, but what caught my attention was this graphic of 'ideological scaling' by media outlet. Seems that NBC, ABC, CBS, CNN, MSNBC and PBS are all splitting the audience of aging liberals and lefties, while the sole outlet with the remaining right of center crowd is... guess who? Rupert Murdoch may have joined the AARP crowd long ago, but all of his brain cells are still working.

The inherent biases of the medium, rebuked. The ever valuable Strategy Page list came out with the following, embedded in an article that's otherwise about the progress in Iraq:

"Most people just take what the news gives them, but it’s becoming more popular to pursue other versions of events via the web. Checking the way [past] wars were reported at the time is one of them. But doing this makes you realize that you cannot trust the news to get it right for wars going on right now. That’s because the news has to report exciting “news” events in order to remain competitive (and profitable). Many people in the news business are constantly bitching about this, especially the entertainment techniques that often creep into the presentation of their reporting. But everyone realizes that the audience demands news that excites and entertains. News that simply informs, loses money and cannot survive, except on the web." (Emphasis mine.)

Given that the audience for that entertainment version of news is literally dying off, the survival and reinvention on the web is exactly what really counts for the long haul. I'm reminded of what has been one of my own touchstones for thinking about new media, Jerry Mander's 1970s work Four Arguments for the Elimination of Television. Mander was a McLuhen with actual experience in the medium, and you didn't have to share his politics to agree that it constrained and skewed its content, and was ultimately damaging to democratic discourse. (Reread that bit about news as entertainment.) It's a great pleasure to finally begin to see some of this harm remedied - by competition and not fiat. It's also high irony, considering Mander's leftism, that it's the liberal media that are the first butts of the joke. (Although Rupert might be well advised to sell high.)

The thousand cuts get deeper. Meanwhile, back in the dead tree media, the layoffs and cutbacks continue. Tribune is stripping itself of assets like its Chicago and Los Angeles real estate, Wrigley Field and the Cubs, to service the $13 billion debt it took on to go private. Apparently that's enough liquidation to cover it through 2008, but the scrapping will have to resume to survive in 2009. You've got to wonder: Real estate will bounce back eventually, and even the Cubbies might win the Series again, but it's hard to see how Tribune's core business survives in anything like its current shape and size. Meanwhile, loan covenant default may be approaching for smaller publishers such as Journal Register and MediaNews Group. I coincidentally picked up a copy of the Palo Alto Daily News freebie near my office yesterday, and found that it had eliminated its Monday edition and cut newsroom staff. (The PADN is a MediaNews Group pub.) Out of curiosity, I also grabbed another of the local freebies, and compared their coverage. Nearly every article was identical. No wonder, consider the following from the story above: "The paper's emphasis on local news changed. A recent edition contained only three locally bylined stories but more than two dozen wire service articles." If anyone's paying attention to Jeff Jarvis' ideas about 'hyperlocal' as the salvation of newspapers, they sure don't have influence at MediaNews. The PADN used to drive the big local San Jose Merc batty by stealing local advertisers. It didn't take MediaNews very long to destroy that.

The Blogfaddah - um - blogs. Glenn Reynolds comes out with an uncharacteristically lengthy post on the newspaper implosion, including some pithy reader interaction, wherein he's accused of displaying 'glee' about the industry's troubles. 'Glee' isn't really appropriate when an entire industry gets itself upside down. Anyone who grew up in the Midwest, as I did, has seen what that can do to ordinary people who have little control over the bad decisions and competitive landscape. The management and editorial staff responsible for turning their franchises into debilitated and biased mockeries are another matter. I find it pretty difficult to get worked up over the impending early retirement that awaits people like this. Mr. Saluto is welcome to have a 'humble' 4th of July; he's got a lot to be humble about. Myself, I plan on having one that's happy and free, and hope you do the same.

Update: Eric Raymond, who is blogging again, posts along similar lines. He gives the media's malfeasance on Iraq a more central place in their decline that I did.

The Roving Eye: No Newspaper Trust, Let Our Genomes Go, A Mundane Singularity

A fundamental value problem. Jeff Nolan has a smart post on why creating an online consortium of newspapers won't solve their problems. RTWT. A newspaper is already a bundle of information of various types, a bundle whose value is breaking down. Putting together a bunch of these bundles into a super aggregation of some sort doesn't fix the fundamentally broken premise. Even creating new bundles sliced along topical lines may be problematic unless there's some fundamental rethinking: The Associated Press is such a topical bundle and it's not exactly covering itself in glory. As Jeff points out, some deeper rethinking about both the cost and product side is required.

Chocolate is love. and it's good for you, too. Put it on the healthy diet list right next to red wine. More proof that your favorite deity wants you to be happy.

Bio-nannies on the march. Our betters in the California Department of Health are taking it taking it upon themselves to send out 'cease and desist' notices to companies providing genomic marker scans direct to consumers. It's less than clear that the laws about 'diagnostic' tests apply to results intended for general information, given that there's no immediate therapeutic intent. It is clear that California state government continues to drive the innovation golden goose to other locales.

While we're discouraging investment. Ever time a US oil refinery goes down for maintenance or due to an accident, the price of gasoline and other products spikes. The refining process runs right at the edge of being a choke point in our energy supply, and any glitch affects the end supply and hence the price point. That might have something to do with the fact there have been no new refineries built here since 1976. Perhaps some fresh investment would be in order. But no, the House Democrats think we should nationalize them instead. What a fine move to send any potential expansion capital running the other way. The Democrats are economic illiterates, or just don't care.

Train travel is a luxury. Trying to turn long distance routes into an alternative to air travel is inherently flawed. Charlie Martin runs the numbers. Commuter rail can make money, if not run by politicians. The long haul routes are for those out for adventure, not for business people on a schedule. Repackage and reprice them accordingly.

alt.singularity A nice catalog of potential technology breakthroughs that could lead to a 'singularity', without requiring either human-equivalent AI or de novo molecular scale nano-engineering. While these two seem to be articles of faith for some singularists, they both have the problem of a very low observed learning rate. Regardless of theoretical possibility, capital requirements and technology path dependency suggest that nanotech will emerge from some combination of carbon chemistry and silicon processing. Human replication seems to be going nowhere fast; emphasizing complementary and symbiotic intelligences in the machine phase seems more the ticket. It's good to see so many other break-out possibilities, given my skepticism on these two.

Dubious Distinction: The Associated Press

What is the AP? With even some of its member companies tabbing it as a faceless large news organization, you could easily miss the historic and economic background to this past week's kerfuffle. (I've you've been signed off the nets during that period, the AP attempted a number of DMCA takedown orders against the 'Drudge Retort' website, based upon short excerpts, headlines and occasionally naked links to some its stories. The excerpts, BTW, were shorter than those the above-linked Knoxville News blog post, written by a professional journalist, made of the New York Times article it cited as primary material. Well within fair use, IOW.)

The Associated Press is actually a cooperative, an corporate organization formed by old media companies as far back as 1846. Its main function has always been to collect and sometimes edit stories written by reporters at its member companies, and circulate them for possible publication by other member organizations. Back in the day, it was a way of economizing on costs like wire charges for international coverage. It's also a way for papers to get stories on distant local events that reach national prominence; the chances of your local rag having a reporter in (say) Des Moines when the levee goes down aren't too high - their reportage is almost certainly a locally written story carried by, and perhaps edited by the AP.

Put another way, the AP is an aggregation and distribution business. Of information. It's one of those 'infomediaries' that were supposed to have died a decade ago, with a dagger labeled 'Internet' stuck into the heart. Why is it still alive to annoy the blogosphere?

Part of the reason is that the AP's customers are also its owners. Take a look at the board of directors list. It would be hard to come up with better definition by example of 'vested interest'. These are not people motivated to change the AP's way of business until they are forced. That force has now arrived.

Not many posts after journalism insider Jeff Jarvis' screed against the AP, you will find the latest recital of bad financials from the newspaper biz. Among other discouraging numbers, a 14% quarterly fall in advertising revenue. And the AP both buys from, and sells to, that industry. They are getting it coming and going.

While the AP doesn't publish its financials, you can well imagine that they are pretty grim. And the 'net, a main driver of the newspapers' debacle, is likely even worse for the AP. While analysis suggest that online ad revenue will never fully replace print for the newspapers, the AP generally gets no revenue at all from Internet ads carried on sites that republish its stories. While Eric Schmidt may dubiously think Google has some moral duty to bail out display ad venues, it's hard to see how that would equate to making life better for the AP. After all, it's just redistributing stories written by reporters at its member newspapers. Google might be forgiven for thinking it's doing at least as good a job at that itself.

No matter how insulated the business and board, reality will eventually pay a call. Having been involved with boards full of 'strategic partners' before, I can attest to how much fun they can be when the business model evaporates and the owners' own strategies are all to seek. Rather than spending his time bleating about the imagined impact of 9/11 on the suffering press, the AP CEO and President now gets to work on the more mundane issue of how to stop the walls from coming in. Perhaps leading to certain desperation mode attempts to regain control over a distribution choke point that has long since evaporated, rather than figuring out how his organization could add some value. Links, huh, what a concept!. Maybe they should try it.

Nobody gets their own set of facts, and nobody gets their own set of laws. Having gotten squishy on the former, the AP now seems to be forgetting the latter. For legal overreach and brand destruction in the aid of staying in the buggy whip business, the AP is awarded this blog's Dubious Distinction award for business folly.

Update: Here's another worthy take along similar lines. Update 2: And more.

Further update: Jeff Jarvis makes essentially the same points, with more sympathy and less snark.

The Roving Eye: A Plan for MSFT - or GOOG, NYT Beats Its Sector, Fred And The Future, and More!

NC, anyone? Don Park has an idea for getting Microsoft out of the Vista trap: Put out an 'operating system' that's just a sandboxed browser, and sell backend services and upgrades. Buy just what you need, not have the whole glutinous mass thrust down your throat. Just one problem for the strategy, as exposed by commenter Rob Breidecker: "Google should do this as well". No, Google should be doing that instead - they don't have a current revenue stream to protect, and they are building a suite of apps that are perforce stripped down to work in a browser environment.

You go, Pinch!. The entire newspaper sector posted a 9.4% year-on-year decline in revenue last year, but the Times managed to beat that, with a 10.6% drop in Q1. And its publisher wants to tell other media moguls how to run their companies...

A must read for entrepreneurs. This is already widely linked, but just in case you haven't seen it VC Fred Wilson posts a think piece about the shortcomings of M&A as a liquidity path and provokes a fascinating discussion. There are the usual number of just plain naive comments, but it's held together by a great dialog among thoughtful veterans like Robert Seidman, Jeff Jarvis, Marc Hedlund and Fred himself. I intend a longer post in this direction, but for now just read the whole thing.

Azeroth invites you... to a science conference in virtual reality. That would be Worlds of Warcraft, not Second Life, though. All the meeting swag is virtual, and after the poster session they'll storm a city. I like the way those guys party. (Hat tip to Ann Laurie.)

Friday Eye Candy. Here's some fine photography to take you off to the weekend. I remember the old drive-in theatre out past Coyote Point, but it was already deserted what I arrived.

The Roving Eye: Eqyptian Unrest News Source, Howl's Moving Moonbase, Yahoo's Ad Platform

Unofficial Eqyptian Media. The Egyptian Sand Monkey is blogging up a storm about the revolt and riots there. There don't seem to be any Western journalists on the scene, and the police are trying to shut down the city and strikers, so Internet reports funneled out through blogs are the best information source.

Miyazaki On The Moon? Fans of a certain Japanese animated film might get a bit of déja vu from this NASA proposal for a mobile moon base for astronauts. Miyazaki always loved airships, but this is above and beyond.

Ad Vapor From Yahoo. Yahoo preannounces an ad management platform, that might help to enable the kind of site ad network that I blogged about before. The catch is that the rollout won't start until Q3, which won't have any impact on the current Microsoft takeover attempt. On the other hand, this could enable the type of destination site grand alliance that I mentioned in that post, combining the Microsoft and Yahoo properties and other big exposure ad venues, where the Google approach to ads hasn't worked so well.

Mistitled Robot Article. New Scientist has an interesting article titled "The Rise of Emotional Robots". The title, however, is pretty much backwards, as the content largely describes humans that get emotional about their bots, including milbots that get blown up in Iraq. For those who've followed the area of human computer interaction, finding humans projecting emotions - often unconsciously - onto machine displaying complex behaviors is not a surprise at all. More interesting is one cited study showing people when questioned about robot interactions don't believe the bots are 'thinking', perhaps due to their skepticism about current technical capabilities. Matching the likely human reaction to the task being accomplished by the robot is a very complex problem.

The Roving Eye: Bad Debt Decoded, Stories From The Front, Is No Media Cow Sacred?

Debt Crunch In Plain English. Many of the indirect consequences of the subprime mortgage meltdown have become so arcane and obscure that investors can be surprised when a bit of not-so-prime toxin turns up in a part of their portfolios they thought was safe. DLA Piper has a nice page with a (fairly) plain English explanation of the auction rate securities market meltdown.

No Editor, No Spin The US Army has put up a fascinating archive of debriefings of personnel returning from Iraq and other combat locations. (Click GWOT Oral History Program on the sidebar). There are hundreds of items from the top generals all the way to front line infantrymen. I've only dabbled in the archive, but there's some fascinating stuff there, like this story of the Thunder Run into Baghdad. This should be incredibly valuable for the historian, or for any pundit who's actually willing to read something from those on the ground before spouting off. Anyone up for correlating these reports against the MSM stories of the time?

Last As It Was First. The book was the first medium to go 'mass', back in the day of Gutenberg. Ironically, the advent of the net and the Long Tail phenomenon typified by Amazon, along with well-entrenched habits for print consumption, may have provided an Indian summer for the medium. But the distribution chain was in trouble, first the independent book shops, and now the big boys are being squeezed. (Update: More at the WaPo.) Along with all the time displaced to reading Web pages, we may finally have a successful electronic book with the Kindle. In common with vested interests from other old media, old style authors have noticed, and are screeching about the end of the world as we know it. Labels Studios Publishers are being squeezed as well, and cutting back on their risk-reducing activities of fronting advances to authors and absorbing returns from the channel, leading author Roger Simon to wonder "what's the point of the publisher?"

Sea-borne Owl. This place needs a Friday animal post occasionally. Aw, isn't that cute?? Every carrier group needs a licensed falconer on board.

The Roving Eye: Bogus Recession?, Bad Voodoo, CA's Favorite Export

Recession Limited to MSM? As opposed to the media atmospherics, the actual growth and inflation numbers are about the same as 2000, the end of the Clinton era. Of course, they are being treated very differently. Wonder why? Just another example to show that those making business and investing judgments based on journalists' writings are likely to get what they deserve. Update: More here.

Bad Voodoo At War. Tonight PBS' Frontline series will premier a documentary of a National Guard platoon caught up in the 'surge' in Iraq. The footage was shot by the soldiers themselves, and the editor seems to be trusted by the milblogs crowd, so perhaps we will get a portrayal free of the usual cant. For you Bay Area folks, it's on at 10PM this evening on KQED. I'll be watching.

A Zin A Day Keeps The Doctor Away. They keep finding out that red wine, or more accurately its antioxidant ingredient resveratrol, is beneficial to your health. First heart disease, now cancer treatment and side effects of diabetes seem to be benefited. Who knows, maybe it's good for healing broken limbs as well. Just in case, I'll have another.

Good On LiveLeak. After initially kowtowing to threats of Islamist violence and removing the controversial Fitna video, LiveLeak has now improved its security arrangements and reinstated the video. LiveLeak took a drubbing from the blogosphere when they caved, so they deserve some credit for manning up.

Newspaper Industry's Altimeter Still Unwinding

Back in November, I suggested that the newspaper biz's revenue graph looked somewhat like a falling aircraft. That post included a graph originated by Henry Blodgett, using estimated total 2007 print revenues. Now the actual 2007 numbers are in at Editor and Publisher, and they are even worse than the forecast, by a half billion dollars at $42b. The 9.4% year-on-year (YOY) decline in print advertising is the biggest since tracking began in 1950, beating the drop in 2001 caused by the combination of the bubble bust and 9/11.

The industry's online revenues also give cause for concern. Growth continued, at $3.2b and 18.8% YOY growth, but that was significantly slower than the 31.4% growth in 2006 and 2005. What's going on there? Depending on the cause, it could be a temporary setback, or an indicator that the newspapers are nowhere near finished with their downward spin.

In the most forgiving interpretation, online ads on newspaper sites turn out to be a leading indicator of economic softness. It may be possible to draw a line between incipient chaos in the mortgage-backed securities market and a drop in real estate ad revenues. That seems a stretch to explain a 40% falloff in growth, and anyway the newspapers have already lost a good deal of presence in that market.

A second possibility is an impact from diminishing effectiveness of ads. Newspaper sites have less potential for the known effective and well developed search based advertising. They are largely display venues, and this type of ad has suffered in spite of attempts to make it more intrusive with video, sound, interstitials, and so on. There may be a limited appetite for this type of inventory, until some means of increasing effectiveness comes on the scene. Newspapers have had minimal impact in the still-experimental social networking space, that may offer a third type of user behavior and inventory.

The third and worst possibility - not entirely independent from the second - is that the market for newspapers online is becoming saturated. Rather than a temporary pause, this could represent movement past the mid-way inflection point in the S-curve of adoption of a particular product or service. If that were the case, it might suggest an eventual, somewhat stable revenue flow of $6b or so for newspapers online. Compared with the $42b in already reduced print ad revenues, it would suggest the industry's tail spin will not be halted by online alternatives any time soon.

Further: See Jeff Jarvis' post including interesting comments from industry insiders and disgruntled or former readers.

The Roving Eye: Trusting Wikipedia, Airportectomy, More Bad Debt

Wikipedia and Trust. When should you take Wikipedia's word on something? My own rule of thumb is that either the matter should be objectively checkable or the person or event in question should be long past and noncontroversial. Anything politically sensitive, either currently or as a plot point backstopping a current political narrative, should be regarded with deep suspicion. In spite of process changes at Wikipedia, you still get things like this, where a biased critic of an organization ends up editing its Wikipedia page. Community sourcing has its place, but this points out one of its hard limits: It cannot cope with politically charged matters. It either turns into yet another debating venue, or an echo chamber dominated by whichever side has the most time to kill. Update: another case in point.

LISP-head! So it turns out that Brad Feld is an old time parenthesis junky. I never got into the life-as-a-linked-list style. Back in the day a lot of my work was instrumentation, control and low level graphics, all necessarily real-time, so assembler and C were the weapons of choice. I still have this residual tic whenever I read about something that I know will be real-time implemented in an interpreted language: "What'll happen when the GC runs!!?" Oh yeah, incremental collection, twenty years of Moore's Law - guess it'll be OK. (Via Ole Eichhorn.)

A Successful Airportectomy. Or maybe I should say transplant. Over the weekend, I replaced my slowly dying Apple 'Snow' Airport with an Airport Extreme base station, and the wireless network situation has improved tremendously. Installation was mostly straightforward, but with a few security related glitches that invoked the cussing reflex. Just in case Google brings others performing the same operation here: As of 3/25/08, the interface and help documentation of the Airport Utility don't correspond in at least a couple of places. If you want to do MAC filtering, the doco say there's a separate menu entry. But it doesn't exist - instead use the Timed Access mode and set the times to Unlimited. When setting up a wireless distribution system (WDS), the doco says to use the 'add' button to authorize more wireless nodes, but that's actually on a separate tab in the interface. Also, if you reasonably decide to give the new network the same name as the old, and also decide to conscientiously change the network password at the same time, it will work great on your admin machine. But it will cause all the other client machines to be kicked off the network without any diagnostic, necessitating a bunch of spelunking in the obscure keychain interface. So don't do that. Once through these hazards, everything worked great, and I rounded off the install by hooking up my surround system and an old USB printer to the network via an Airport Express. Worked first time, and I've now got a stable 'four bars' throughout the house.

Go State! My wife and I are both alums of Michigan State University, and have been rooting for their men's basketball team in the NCAA tournament. They are through two rounds and into the Sweet Sixteen. If both State and Stanford win their next game, they will end up head-to-head, making for a real case of divided loyalty. Gotta go with the old school tie there.

More On Bad Debt. I'm not the only one taking notice of the unfunded pension liabilities at the state and municipal level. The Weekly Standard features California public employee pensions follies, starting with the recent near-bankruptcy of Bay Area suburb Vallejo. A lot of this material is from the California Foundation for Fiscal Responsibility, which is backing a public pensions reform ballot initiative for the state. The politician's handouts to the public employees' unions are starting to come due, just as the boomers head into retirement. It's not going to be pretty.

The Roving Eye: Why Web 2.0?, Bad Startup PR, Bad Debt Overhang

LOLcats, isn't that obvious? Notes on Ethan Zuckerman's talk at ETech, by himself. In one sentence: People will do what they want with new media, and trying to fight them is just pain. Or in three borrowed points: If there's no porn, it doesn't work. If there are no activists, it doesn't work well. Try to block the cats and other silliness, and you're providing an excuse and learning ground for the activists. RTHT, it's worth your time. (Sorry I couldn't make it to ETech this year, but I've still got this gimp thing going on.)

Can you say 'fiduciary duty'? Speaking of fighting the crowd, here's startup MobiTV's lawyers threatening a website that revealed the company was putting its (for pay) video streams out unencrypted, on a publicly available URL. That worked real well, as the company was forced to back down in less than 24 hours from the story hitting the net. MobiTV has a lot of big names associated with it. Maybe someone should have a chat with management re why the data was out there in the clear to begin with? Personally, I'm pretty skeptical that there's a lot of revenue to be had from mobile TV. It reeks of the usual wireless carrier ARPU fantasies, and feels over-invested at any rate.

Iterate, Iterate, Iterate. Here are some good words for entrepreneurs from Paul Buchheit. One of the big advantages of today compared to the bad old days when we had to put software in boxes is that you can test early and continuously with real users, and refresh the product without worrying about obsolete stock in the distribution chain. So why do so many startups charge ahead building their 'vision' without testing against the market that's as near as their net connection? Hubris. And Paul's got the right antidote: Humility. The market knows things you don't, go learn them fast. The more engineers on the founding team, the more you need his advice.

Speaking of Entrepreneurs. Here's a shout-out to blogger Ole Eichhorn, whose day job is CTO at digital pathology company Aperio. This week's VentureWire feed mentions that Aperio has just closed a $20 million C round led by HLM Ventures. Well done, sir! Don't spend it all in one place. (I've been pleased, if that's the right word, to see that the XRay images resulting from my little misadventure are being zapped digitally between the relevant offices, rather then hand carried on film. Glad that part of the healthcare world has caught up with the gaming sector.)

No, Not Bad Home Loans I spent part of a quiet two weeks here finishing off a small consulting project that I could do from my arm chair. Then a few more days on one of those "I'll get around to it" projects that really only happens when there are few alternatives. In this case, doing some serious research on locations for buying vacation/retirement property. The venerable Placed Rated Almanac is a good place to start, but there's a lot of information on the net these days, right down to dinky vacation towns with 10,000 population.

Having the long term, but paranoid thought habits of a VC now well impressed on me, I also did a bit of digging into the financial health of the various locales. No fun buying in and then finding your property or income taxes going through the roof in 10 years because the politicians have spent the funds in advance. S&P ratings on general obligation debt at the state level are a good starting place. Presumably their analysts have some experience at judging domestic political risk. From this I learn that California is one of the three lowest rated states in the country. Joy!

And since - as current debacles show - the professional analysts may not be paranoid enough, I went a little bit further looking for unexploded debt bombs. And found them. Here's a three year old study of unfunded public pension liabilities (big PDF) from the Reason Foundation. Check the tables at the end to see how much your local pols may have promised the teachers or civil servants without having bothered to deal with the eventual costs. Hmmm, says here my current home county of San Mateo, PRC has an unfunded debt overhang of a half billion dollars, give or take. Could be worse - San Francisco carries a billion dollar plus debt. This kind of things has already pushed one city, San Diego, into bankruptcy, so do your research before making long term commitments. Here's a database of public retirement funds and their health (reg. req'd.) for your enjoyment.