August 20, 2019

It’s the Economy: The ‘Mad Men’ Economic Miracle

For AMC, the network that broadcasts “Breaking Bad,” it will be a very profitable one. Cliffhangers may have been around for more than a thousand years — since at least the composition of “One Thousand and One Nights” — but no one has monetized them as brilliantly as cable networks. In order to get paid, Charles Dickens had to sell the next chapter of his serialized novels; in order to sell advertising, ABC had to order more episodes of its hit show “Lost.” But for the next several months, AMC is converting our eagerness into millions of dollars without showing a single new episode.

Cable TV has developed one of the most clever business models in our modern economy. Until recently, AMC was a basic-cable backwater known for “Threes Stooges” marathons. But a few years ago, it tweaked its business and began offering two or three hours of original programming on a few dozen nights a year. Starting with “Mad Men” in 2007, the network landed hit shows that developed small but obsessive followings. Soon after, it began making larger financial demands of the cable and satellite providers, like Comcast and DirectTV, that carry the network. AMC now charges these providers about 40 cents a month for each subscriber, including the millions who will never watch “Mad Men” or “Breaking Bad.” These providers can refuse to pay up, but doing so would infuriate legions of vocal viewers. (Last summer, the Dish Network played chicken with AMC and lost.) AMC collects $30 million a month in fees alone on a base of 80 million subscribers, which is pretty good considering that the last episode of “Breaking Bad” had fewer than three million viewers.

This business model, perhaps as much as artistic creativity, is responsible for TV’s current golden age. Networks have effectively entered into a quality war. Basic-cable channels have to broadcast shows that are so good that audiences will go nuts when denied them. Pay-TV channels, which kick-started this economic model, are compelled to make shows that are even better. And somehow, they all seem to be making insane amounts of money. This year, NBC Universal’s cable operations are expected to bring in around $5 billion, half of which is profit. Viacom’s revenue will be more than $8 billion, with 49 percent profit. Apple had one of its best years ever in 2012, but its profit margin is expected to be only 37 percent, which is still well above its 23 percent average over the past five years. An auto company would be thrilled with something in the high single digits.

At first, the cable industry’s ascendance into arguably America’s single-most-profitable big business makes almost no economic sense. Not long ago, three major networks controlled all of our viewing. Now dozens of channels reach a fraction of that audience. According to the basic rule of supply and demand, the revenue and profits should plummet. But those rules break down when an industry operates as a near monopoly.

In 1992, Congress made it illegal for municipalities to grant a monopoly to local cable providers. But it was already too late. Most companies thinking of beginning a new cable system balked after realizing the significant barriers to entry — the cost of digging up roads and sidewalks and hiring a fleet of technicians to draw wire to new customers’ homes. Worse, a new cable competitor would have to entice customers by entering a price war, erasing any potential profit. Verizon and ATT actually tried this but found that fiber-optic cable was profitable only in the most dense, urban areas. Satellite offers some competition, especially in rural settings, but many people decline a service that fails whenever it’s too cloudy outside.

Article source: http://www.nytimes.com/2012/12/09/magazine/the-mad-men-economic-miracle.html?partner=rss&emc=rss

Disruptions: In Davos, Technology Moves Center Stage

Eric E. Schmidt, executive chairman of Google, at Davos on Friday.Arnd Wiegmann/ReutersEric E. Schmidt, executive chairman of Google, at Davos on Friday.

DAVOS, Switzerland — When I set out to report at the World Economic Forum, I imagined it might be difficult to find technology-related stories. It turns out, I was a tad wrong. I would have had more luck finding a snowless Alpine mountain in the winter than finding people discussing a topic that did not involve technology.

After a year that has included the social media-fueled protests of the Arab Spring and Occupy Wall Street, global Internet privacy legislation and billions of dollars in technology stock offerings, tech and social media have not only entered the building, they are the walls holding it up.

Even the 102-page program guide for the World Economic Forum, where business, political and intellectual leaders gather each year to talk and frolic, has more references to technology and social media than any of the nerdiest Silicon Valley blogs I read daily.

Of course, tech is not a new concept at the forum. Eric E. Schmidt, the executive chairman of Google, told me he had been attending Davos for 15 years, two years before Google was even created.

But what has changed, I was told by dozens of people I spoke with, is technology’s infusion into every topic here.

Sessions on philanthropy, agriculture, social unrest, media and the economy were all full of digital banter. One attendee even told me that social media repeatedly came up during a discussion on religion.

Paulo Coelho, the best-selling Brazilian novelist, said in an interview that business and political leaders were finally accepting the power of social media. “Five years ago Davos was discussing new business models; now that has totally dropped. Now it is all about the Internet,” he told me. “They used to have answers here, and now it seems people are more comfortable with questions; the Internet has a lot of questions.”

Mr. Coelho, by the way, has more than seven million followers on Facebook and three million on Twitter.

Anna Ewing, Nasdaq’s chief information officer, said, “Technology is now framed as a core strategic and business issue.”

“It’s part of every discussion here,” she said, and “not just something that is being talked about by the technoweenies.” Those “technoweenies” are also the new celebrities of Davos. During a philanthropy plenary session I attended, Sean Parker, the Napster entrepreneur and the former president of Facebook, nearly ran out of the room after his session had finished as dozens of people tried to corner him.

Some of the most elite parties — a renowned part of the Davos experience — took place in the Swiss chalets of tech celebrities too, including Mr. Parker and Yuri Milner, the Russian billionaire who has invested in Facebook, Zynga and Groupon.

Though Silicon Valley was top of mind, there was also a growing worry about the loss of jobs that often results from new technologies. The new jobs created don’t usually fit the qualifications of the newly unemployed. When cars drive themselves, for example, what happens to the millions of jobs that will inevitably be lost?

Tech drives the economy, but it doesn’t drive employment. “We are a 100-person company and we serve 50 million people. That kind of leverage has never existed before,” said Drew Houston, co-founder of the start-up Dropbox, a service that stores and shares digital files. Mr. Schmidt of Google said, “At Davos the conversation is really about economic growth and the reality is that technological advancement benefits those who are educated but endangers jobs that are routine and automatable.”

“This has been true for two hundred years with technologies,” he added.

Next year as the wealthy and the powerful gather here again to discuss the same topics, the technoweenies among them will have moved society even further forward.

Article source: http://feeds.nytimes.com/click.phdo?i=8d4af9294ebbb3599456d47733cea486

DealBook: In-Flight Internet Service Gogo Readies to Go Public

Gogo, a provider of in-flight Internet service, filed for its offering on Friday, joining a long line of technology companies hoping to go public in the new year.

The company is seeking to raise up to $100 million in its initial public offering, according to figures used to calculate the registration fee.

Gogo, formerly known as Aircell Holdings, is testing the public markets amid dampened investor enthusiasm for new tech offerings. Earlier this year, investors flocked to Internet start-ups, bidding up prices for companies like LinkedIn and Pandora.

But the I.P.O. market has chilled in recent months, owing to ongoing credit fears in Europe and renewed skepticism about tech’s newfangled business models. For instance, game-maker Zynga — a profitable company with a massive online following — went public last week, but has struggled to break above its offering price of $10. Shares of Zynga opened at $9.43 on Friday morning.

Like many of its technology peers, Gogo has been growing at a rapid clip. The company, which charges consumers fees for in-flight Internet access on major carriers like Delta and Virgin America, is now available in 1,177 commercial planes, compared with 30 planes in 2008. In addition, Gogo has signed contracts with carriers to offer its service on roughly 525 additional planes.

The company doubled revenue for the first nine months of this year to $72.9 million, swinging to a profit of $2.4 million. The company has recorded an annual loss for the last three years.

Still, the company has a long way to go to make its investors whole. Gogo, which is largely owned by the private equity firm Ripplewood Holdings and an early investor Oakleigh Thorne, has raised more than $500 million since 2006. Ripplewood is the largest investor, with a 38.1 percent stake.

The company, which plans to trade under the ticker “GOGO,” has hired Morgan Stanley, JPMorgan Chase and UBS to lead its offering, with Allen Company, Evercore Partners and William Blair Company also participating.

Article source: http://feeds.nytimes.com/click.phdo?i=3424273f4a7218aaaca07ccf22f5c0ed

Unboxed: Steve Jobs and the Rewards of Risk-Taking

All true, but let’s think different, to borrow the Apple marketing slogan of years back. Let’s look at Mr. Jobs as a role model.

Above all, he is an innovator. His creative force is seen in products like the iPod, iPhone and iPad, and in new business models for pricing and distributing music and mobile software online. Studies of innovation come to the same conclusion: you can’t engineer innovation, but you can increase the odds of it occurring. And Mr. Jobs’s career can be viewed as a consistent pursuit of improving those odds, both for himself and the companies he has led.Mr. Jobs, of course, has enjoyed singular success. But innovation, broadly defined, is the crucial ingredient in all economic progress — higher growth for nations, more competitive products for companies, and more prosperous careers for individuals. And Mr. Jobs, experts say, personifies what works in the innovation game.

“We can look at and learn from Steve Jobs what the essence of American innovation is,” says John Kao, an innovation consultant to corporations and governments.

Many other nations, Mr. Kao notes, are now ahead of the United States in producing what are considered the raw materials of innovation. These include government financing for scientific research, national policies to support emerging industries, educational achievement, engineers and scientists graduated, even the speeds of Internet broadband service.

Yet what other nations typically lack, Mr. Kao adds, is a social environment that encourages diversity, experimentation, risk-taking, and combining skills from many fields into products that he calls “recombinant mash-ups,” like the iPhone, which redefined the smartphone category.

“The culture of other countries doesn’t support the kind of innovation that Steve Jobs exemplifies, as America does,” Mr. Kao says.

Workers of every rank are told these days that wide-ranging curiosity and continuous learning are vital to thriving in the modern economy. Formal education matters, career counselors say, but real-life experience is often even more valuable.

An adopted child, growing up in Silicon Valley, Mr. Jobs displayed those traits early on. He was fascinated by electronics as a child, building Heathkit do-it-yourself projects, like radios.

Mr. Jobs dropped out of Reed College after a semester and trekked around India in search of spiritual enlightenment, before returning to Silicon Valley to found Apple with his friend, Stephen Wozniak, an engineering wizard. Mr. Jobs was forced out of Apple in 1985, went off and founded two other companies, Next and Pixar, before returning to Apple in 1996 and becoming chief executive in 1997.

His path was unique, but innovation experts say the pattern of exploration is not unusual. “It’s often people like Steve Jobs who can draw from a deep reservoir of diverse experience that generate breakthrough ideas and insights,” says Hal B. Gregersen, a professor at the European Institute of Business Administration, or Insead.

Mr. Gregersen is a co-author of a new book, “The Innovator’s DNA” (Harvard Business School Press), based on an eight-year study of 5,000 entrepreneurs and executives worldwide. His two collaborators and co-authors are Jeff Dyer, a professor at Brigham Young University, and Clayton M. Christensen, a professor at the Harvard Business School, whose 1997 book “The Innovator’s Dilemma” popularized the concept of “disruptive innovation.”

The academics identify five traits that are common to the disruptive innovators: questioning, experimenting, observing, associating and networking. Their bundle of characteristics echoes the ceaseless curiosity and willingness to take risks noted by other experts. Networking, Mr. Gregersen explains, is less about career-building relationships than a search for new ideas. Associating, he adds, is the ability to make idea-producing connections by linking concepts from different disciplines — intellectual mash-ups.

“Innovators engage in these mental activities regularly,” Mr. Gregersen says. “It’s a habit.”

Article source: http://feeds.nytimes.com/click.phdo?i=6e9d6a62d4969069f5ed511273b46f52

Bucks: The Right Model for Lower Cost Investment Management

In this weekend’s Your Money column, I take a look at Betterment and Flat Fee Portfolios. These are the latest efforts to bring investment management to the merely six-figured — the people who many fancier wealth managers no longer want to help.

Many of you, I know, prefer to manage your investments yourself. And for those with a steely discipline and a commitment to low-cost funds, this can work. But the majority — maybe even the vast majority — of people ought not to be running their own money. They simply don’t have the right combination of knowledge or emotional resolve to do it well.

So for those inclined to pay for advice and investment management, I ask you this: Do the fees for Betterment and Flat Fee Portfolios seem fair to you?

And for people in the business of selling advice (and thus compete with potentially lower-cost offerings like Betterment and Flat Fee’s), how would you poke holes in their business models?

Article source: http://feeds.nytimes.com/click.phdo?i=a0c179b126c27e4ce34cd8ef98ed7993