On the downside, when I make powerpoints they hardly ever have all that cute animation

Frances Woolley has a good post up on piracy in the textbook market but she lost me on this paragraph:

If students cannot be relied upon to cough up the cash, textbook publishers will start looking to raise more money from instructors and universities. Right now textbooks are paid for by students, but marketed to instructors, who choose the required text for their courses. Companies compete by providing instructors with complementary copies of textbooks, powerpoint slides, test banks, study guides, solution manuals, and so on. If the student market collapses, companies may decide to start charging for all of those beautifully prepared powerpoints.

It's been a while since my college teaching days but back in the day, I got a chance to view this issue both from textbook committees and as a producer of some of the supplements Woolley discusses.

I've always held the minority opinion that students can and should actually read math textbooks and that one of the impediments to getting them to read the books is the fact that most of them are virtually unreadable. I lobbied hard for better written texts but I don't believe I ever convinced any other committee members of my point. As far as I can remember, the rest only looked for two things, the homework problems in each section and what order the topics were presented in.  Obviously the committee had to make a decision and when most committees don't consider factors like clarity of explanation and price, that leaves lots of ties.

In this situation, assuming you do not allow kickbacks, very small factors often in up decisive. Case in point, video series as course supplements. Back when I was in the field, most books came with a video supplement, usually consisting of one of the authors working through a few examples for each section.

Back in the late 90s, I produced one of these for a college algebra textbook. I am not going to give you the name because it was one of the most God awful videos you'll ever seen, however since it did look more or less professionally produced and since it was long enough to cover most of the chapters and mainly since I got it in on time, everybody involved was reasonably happy and I got to pay off my car loan.

The sad truth was that most of these videos were pretty much useless. Most of the time they were put in tutoring centers where occasionally a student would try one or two and find they were not at all helpful. The problem was a combination of poor quality and the failure to think through exactly how video instruction should work ( insert MOOC comment here).

The reason these videos kept getting made was that they served as a check mark, a tie breaker. Committee members when faced with 10 or 15 books all of which seems more or less the same would look for some small but clear advantage that they could use to put some books at the top of the pile. These included videos that few students would watch, computer software that few would use and on the other side things like power points and lesson plans and test banks which the committee members probably wouldn't use but which they thought someone else might.

The thing about these tiebreakers is that they only have value when bundled with the product being sold and when the difference between the product and its competitors is very small. They serve much the same function as a $.10 toy in a three dollar box of cereal.

Historically the pay off for having a general ed textbook accepted by a major university has been huge. That was in large part because there was no practical option (legal or otherwise) for students who wanted to get a degree. If they couldn't find a used book, they simply had to pay what the publishers told them to.

There is no such monopoly on supplemental material, at least no effective monopoly. More importantly these supplementals are by nature non-essential. In fact many teachers, myself included, chose not to take advantage of them even when they were given to us for free. I preferred to make my own tests and presentations, and I know many teachers who feel the same way. That combination of monopoly, compelled-purchase, and principal agent problem which made the situation so dangerous with textbooks simply does not apply here.

We don't need to worry about text book publishers gouging instructors for free power points and test banks because these things are easy to do without.

Unfortunately, we still do need to worry about the rest of Wooley's concerns.

More on rank (noun, verb and adjective)

Following up on Joseph's recent posts on corporate incentive plans that use rank to assign nice carrots and spiked sticks, here are a few disorganized thoughts.

1. The law of large numbers tells us that the distributions of random sample will converge on the distribution of the population as the size grows large. If you're assuming small, nonrandom samples will have nice distributions, this theorem is not applicable;

2. Most of these incentive schemes assume a linearity that neither experience or first principles support (I blame Heinlein). These relationships are not monotonic. A sufficiently strong penalty can, by prompting anger or panic or paralysis, produce the very behavior being penalized. A sufficiently large reward can and often does encourage people to game the system;

3. Complex systems can pretty much always be gamed. This is particularly true for systems where all parties are acting solely out of self interest with no emotional investment in the larger goals of the institution;

4. As incentives (positive and negative) increase, people will be more likely to come up with new behaviors that satisfy the letter of the conditions.

5. Even if we put aside the concerns in item 2, the potential for misalignment of incentives in peer interaction here is huge. When you interview potential co-workers, is it in your best interest to see the strongest candidate get the job? What about when a co-worker asks your advice on a modeling problem?;

6. From the management side this might even be worse. There are certain people managers are inclined to protect, either for personal reasons or because they full an immediate need in team. Sometimes a manager would rather hold onto an adequate SAS programmer even at the cost of losing a gifted financial analyst;

7. "Because that's how Jack Welch did it" has gotten to be a less and less convincing reason over the years.

Marissa Mayer: a continuing saga

The recent unauthorized biography of Marissa ayer was a very clever hatchet job thorough piece that quoted many critics of Ms. Mayer.  David Auerbach has done the hard work of asking tough questions: like why do the traits that people attribute as criticism to Ms. Mayer bear a remarkable resemblance to the strong points of CEO's like Steve Jobs?

The most devastating points of attack:

Mayer is an executive outsider not only as a woman but also as a techie. Her background is not in business or marketing, but in the actual guts of product development and management. This makes her far more of an outsider to business culture than women like Carly Fiorina and Meg Whitman. Creative, technically oriented outsiders are founders, not corporate ladder-climbers: David Packard, Walt Disney, Ted Turner, Jeff Bezos, Steve Jobs, and even Bill Gates. 

and, after discussing the brutal level of corporate politics the piece continues:

These aren’t incidental details. They speak exactly to the sort of people whom Mayer is deposing, and to why they certainly could never have saved Yahoo, just bled it dry while it withered. I suspect one of the final quotes in Carlson’s piece is dead-on: “If [Mayer] hadn’t come in, all the smart people would have left.” 

I don't want to say that Ms. Mayer will succeed in her venture or that she is without flaws (she has a few that would drive me nuts in a manager).  But this sort of radical approach at least holds the possibility of a successful turn around.  If she does this as a techie and not as an MBA then I cannot say that I would see this as a tragedy. 

EDIT: Nicholas Carlson has a different perspective on the Marissa Mayer piece than the one voiced in the first paragraph:

This is Nicholas Carlson.

I reject the idea that my story was a "hatchet job" of any sort.

Here is how it ends:

“If she hadn’t come in, all the smart people would have left.

“And that would have been the end of Yahoo.”

I am not sure that I completely agree, but on sober reflection a better description could likely have been chosen than "hatchet job". 

Stack Ranking Continued

More on the Microsoft ranking system:

This was my problem. I had three reports, A, B, and C, and they neatly fit into three categories: C was good, B was great, and A was fantastic. They were all nice and retiring sorts—they weren’t self-promoters, which put them at a disadvantage at Microsoft—and I did want to do well by them. Based on their position in the stack rank, I thought that this would have been a fair assessment of them relative to the company in general:

My Ideal Distribution

A: Above Average
B: Above Average
C: Average

Above Average would get A and B nice bonuses and raises, while C might get a small raise and a decent bonus with an Average. That didn’t happen. My manager told me baldly that this was how it would go:

The Actual Distribution

A: Above average
B: Average
C: Below average

My desired rankings were out of the question, since my manager would then have had to steal that extra Above Average from some other manager. I thought that B could live with Average (we were all well-compensated, after all), but rating C as Below Average hurt.

So I argued for C, and my manager said there was exactly one alternative:

The Alternative Distribution

A: Average
B: Average
C: Average

But A had been at the very top of the stack! How could A do worse than people we’d all agreed were weaker programmers? I gave up and let C take the Below Average. This is the zero-sum game at work.

I still feel bad about this.

This very much shows how the ranking ended up being all about politics and balance between different managers.  You can immediately see how taking a weak person could be a great idea to protect the rankings of the people actually doing the work.  And how good teams would be the absolute worst place to possibly join. 

I was mistaken about Mark P being a proponent of the system in a previous work situation (it is the only way to make IT workers productive was the gist but I don't recall the details and the other obvious person from that era has drifted out of touch).  But it keeps getting clearer and clearer that this kind of ranking system can lead to perverse incentives.  The actual example however shows something else -- the managers are imposing the distribution of ability on a three person team.  That the whole organization should have a wide distribution of talent is likely (the law of large numbers and all) but that any three person team will happen to follow an ordered distribution balanced around the grand mean of the company is a rather heroic statistical assumption

Now consider education reform and imagine what would happen if you tried the same thing with teachers.  All of a sudden there are new and interesting incentives to keep "poor teachers" because the distribution is fixed by design. 

Paul Krugman is not a marketer

A marketer would spend more time discussing the tremendous role that brand has played in Apple's success. Other than that Krugman's analysis is spot on.

From On The Symmetry Between Microsoft And Apple

The Microsoft story is familiar. Back in the 80s, Microsoft and Apple both had operating systems to sell; Apple’s was clearly better. But Apple misunderstood the nature of the market: it said, “We have a better system, so we’re going to make it available only on our own beautiful machines, and charge premium prices.” Meanwhile Microsoft licensed its system to lots of people making cheap machines — and established a commanding position through network externalities. People used Windows because other people used Windows — there was more software available, corporate tech departments were prepared to provide support, etc..
...
But Microsoft missed the boat on mobile devices, while Apple got temporarily ahead of the curve. I say “temporarily”, because as far as I can tell Apple products no longer have a dramatic quality edge. I’ve had an iPhone — which, sad to say, did not survive dunking in water — and now have a Samsung, and the differences don’t seem huge. I have an iPad 2, which I bought for the picture quality; but when I decided I also wanted a small tablet that I could carry around in my jacket pocket, it turned out that the iPad Mini wasn’t significantly better than several Android competitors, and in fact for my purposes worse in some ways.

Now, unlike Microsoft, Apple isn’t selling an inferior product. But it’s selling products that are little if any better than competitors, at premium prices. How can it do that? Again, network externalities: mainly a much deeper bench of apps, or so I’m told (I actually don’t use many).

[App selection is certainly a selling point for Apple, but I'd say that brand and marketing are currently much bigger factors.]

So how do the prospects for Apple’s reign look compared with those of Microsoft? Let’s not forget that Microsoft is actually an incredible success story — it maintained its PC lock for decades, and in fact still retains that lock today; it’s just that the market is changing. My casual impression is that Apple’s lock isn’t nearly as secure, in part because it’s relying on the loyalty of individual customers — in contrast to Microsoft, which was largely relying on the loyalty of corporate IT managers, who are inherently more conservative.
...

So, my problem with Apple. In general, the thing about Apple is that it reflects the spirit of Steve Jobs, who knew what was good for you — and left you no way to do things differently. And if you are an atypical user, you end up putting a lot of effort into fighting iOS in order to do simple things.

Case in point: as regular readers know, I really like watching live performances on YouTube; and I want the best of them available even when I don’t have access to broadband. So I download them onto my PC as MP4s — there are many add-ons that will do this.

But I actually want them on a tablet. To do this in iOS, you first have to import them into iTunes, then synch; not too big a pain, but still a couple of annoying extra steps. The big problem, however, comes when you want to organize your videos: how do I tell iTunes that, say, my 10 favorite Arcade Fire performances are a related set?

Well, the only way I’ve found is to convince iTunes that they are episodes of a nonexistent TV show. It’s doable, but stupid. Whereas on my Nexus 7 I just copy them into a folder named “Arcade Fire”, and there they are.

For more on the appeal of Apple's brand, check out this reflection by Rob Long on the company's near complete dominance of the entertainment industry.

Health Care and Complexity

Aaron Carroll:

That said, if you want to have a discussion on the merits of making the American Health Care system look like Singapore’s, I’m on board. Let’s do it. But what I’ll fight against – and call out – are the people who do that with lots of “buts”. You want Singapore, but you don’t want the mandated savings accounts. You want Singapore, but you don’t like government involved in purchasing decisions. You want Singapore, but you oppose centralized budgets. You want Singapore, but you oppose government subsidies.

This was partially in response to Tyler Cowen:

Now enter Aaron Carroll, who tries to argue Singapore is moving in an ACA-like direction.  His post has been cited numerous times, but it is not insightful nor does it show much curiosity about the new changes in Singapore.  It is mostly a polemic against Republicans.  In any case the new Singaporean emphasis on taking care of the elderly isn’t well understood by a comparison with ACA.

 In some ways I think they are both making very good points, albeit very different ones.  In Cowen's defense, health care has become so tightly bound to partisan politics in the United States that a strong pro-ACA line is going to look like an attack on Republicans, even if it is modeled on a Republican plan.  That's rather unfortunate but true. 

On the other hand, one of the ways to argue for a system is to find historical (or, even better, contemporary) examples of a particular approach working.  Innovation is likely to be tried by smaller groups first.  So Democracy works out so-so in Athens and people begin to tweak it.  Eventually you get the UK model and the US model of democracy, neither of which look like the original.

The problem with this approach is that it requires one to be extremely clear about what the effects of these tweaks will be.  The United States appears to be in an equilibrium where, at a population level, it costs a lot and delivers middle of the road outcomes.  Moving further into that space (and away from programs that are cheaper and deliver better results) requires a very clear argument for why we think there is a local (or perhaps even the global) maxima out there. 

So the problem with Singapore is that there seems to be real disagreement over whether specific pieces are essential or not.  You also have a very different economy -- only 5 million people with an unemployment rate running in the 2-3% range.  While they have no minimum wage, the government tends to be the largest shareholder in Singapore companies and thus excessive wage inequality can be handled at the ballot box.  These design features can make a mandated savings program work really well.  But we also have what looks a lot like a command economy (just one that is small enough and distributes decision-making enough that they are not overwhelmed by complexity).  In any case, much of the US problems would be well handled by a 2% unemployment rate where people would be able to reliably save against disaster and have a decent chance to get a new job (and notice that Singapore is a single city, so there are no relocation frictions if you lose your job in a part of it with few opportunities -- you just commute longer as a result). 

So the problem is trying to reduce the number of moving parts.  I suspect that, despite its huge flaws, this is why the Canadian system keeps coming up.  It is based in a nearby country with a similar type of economy, lots of immigrants, lots of regionalism, and delivers equivalent outcomes (overall) for less overall cost.  It also encourages economic risk taking by making the risk of being uninsured negligible which can also be a benefit. 

But trying to import external health care systems is tough -- they are complex and have lots of points where it is unclear if the piece is essential or merely nice to have. 

Revisiting the growth fetish (kind of a relief to be agreeing with Felix Salmon again)

Salmon has an excellent post, based in part on an equally good John Kay post, about the trouble people have with the idea of healthy contraction in business.

Here's Salmon:

I can understand where Mims is coming from. HP is a technology company, and under the unspoken rules of the US stock market, all public companies, and especially all technology companies, should constantly be growing as fast as possible. It’s the inexorable mathematics of discounting: if a company can deliver consistent growth which is faster than the prevailing discount rate used to calculate net present value, then its stock price should, by rights, be infinite. Consequently, given that infinite upside, it’s worth risking quite a lot to achieve growth.

But the facts are pretty plain: (a) HP is very good at producing excellent products in the shrinking markets which make up most of its business right now; (b) HP has in recent years shown no particular ability to produce excellent products in other markets; (c) Meg Whitman is not by nature a visionary innovator. Given those facts, it makes perfect sense for HP to run its existing businesses as efficiently and as profitably as it can, and to extract as much value out of them as possible, in the knowledge that all companies are mortal. In fact, it makes more sense to do that than it does to follow the Tim Armstrong playbook, where AOL’s CEO decided to take his enviable dial-up revenue stream and invest it in doomed content plays like Patch.

Here's Kay providing some historical context:

The marketing guru Theodore Levitt elaborated this theme in an article half a century ago. Levitt denounced marketing myopia. There was always, he suggested, a future for a company; the key was to look for a creative answer to the question: “What business are we in?” Manufacturers of buggy whips might still be around as carmakers if they had only understood that they were not simply encouraging faster horses; they were transport companies.

Much of Levitt’s analysis was devoted to urging oil companies to recognise that they were really in the energy business. Some of these companies found his arguments persuasive.

Yet 50 years later, few of their diversifications into other forms of power have worked out – their flirtation with coal in the 1970s and 1980s was particularly unsuccessful – and the traditional oil majors still make most of their money out of oil.

Levitt did not recognise that competitive advantage, rather than a fertile imagination, is the key to success. The whip manufacturers had neither production capabilities nor marketing channels relevant to the automobile industry. The skillset needed to manage coal mines is very different from that required to run an integrated oil company.

Recent history has provided a textbook illustration of the limitations of the Levitt hypothesis – the disastrous remodelling of JC Penney’s dowdy stores by Ron Johnson, brilliant designer of Apple’s retail chain. The outlets of both JC Penney and Apple are shops but the age group and disposable incomes of their customers – and their reasons for visiting the stores – were entirely different: JC Penney and Apple were not really in the same business.

Along with ddulites, the growth fetish has been a hobbyhorse here at West Coast Stat Views since before we were West Coast Stat Views.

Think of it this way, if we ignore all those questions about stakeholders and the larger impact of a company, you can boil the value of a business down to a single scalar: just take the profits over the lifetime of a company and apply an appropriate discount function (not trivial but certainly doable). The goal of a company's management is to maximize this number and the goal of the market is to assign a price to the company that accurately reflects that number.

The first part of the hypothesis is that there are different possible growth curves associated with a business and, ignoring the unlikely possibility of a tie, there is a particular curve that optimizes profits for a particular business. In other words, some companies are better off growing rapidly; some are better off with slow or deferred growth; some are better off simply staying at the same level; and some are better off being allowed to slowly contract.

We also managed to tie a similar take on JCP to another favorite hobbyhorse, fitness landscapes.

Employee ranking

I have actually worked under this system of employee review.  It is really as bad as it sounds as it forces political decisions about who will be on the bottom of the ranking system.  The focus on the short term is nasty as is the generalized fear that you could be let go despite good performance if you came out on the wrong side of a struggle.  So the explicit link between job security and office politics (because no matter how objective people try to be, there will always be a political element to a rank ordering process) really does a lot to refocus people on politics.  In the long run I worry that is a corrosive approach because the only time it works out well is when there is enough growth that the risk of a bad ranking is balanced by generous rewards with good rankings.  But in a stagnant period, the benefit of a small bonus is not equal and opposite to the risk of being let loose into a weak job market. 

If I recall correctly, Mark P had a more positive attitude about the process although I don't think he was a fan, either.

The Great Non-Blackout of 2013

From Variety:

The current CBS blackout on Time Warner Cable systems in New York, L.A. and Dallas, now in its 21st day, is only the latest and highest-profile spat that illustrates a chronic problem with the current retransmission-consent system, American Cable Assn. prexy Matt Polka wrote in a letter Thursday to the Federal Communications Commission. 

“Without action by policymakers to change the laws governing these negotiations there will undoubtedly be many more blackouts,” Polka said in the letter to FCC interim chairman Mignon Clyburn. 

As a remedy, the ACA proposed that the FCC adopt a rule mandating that broadcasters and pay TV operators continue to offer a broadcast station’s signal to consumers after an existing retrans-consent agreement expires, while the terms of a new agreement are worked out. A cable or satellite operator would pay rates under the previous contract, with a retroactive “true-up” once a new deal is signed.

I don't know about New York and Dallas, but pretty much everybody in L.A. can still get CBS for free just like they always could. Channel 2 is one of the region's strongest signals. I know this from personal experience (with my TV and my laptop) and from visiting family and acquaintances who have switched to OTA. From Whittier to Santa Monica, from North Hollywood to Watts and Torrance and points in between, it's one of the easiest channels to pick up. Pretty much everybody in L.A. can not only get CBS, often using plain forty-year-old non-amplified rabbit ears; they can get a better picture than the one they're paying Time Warner for.

Details Matter

I'm fascinated by business but between buzz words and reporters who are willing to publish press releases almost verbatim, I'm definitely out of sync with most business journalism. I like to think about how to solve the problems (or at least what the problems are) and about the strategies and sometimes I just like to go picking through the details and see if they tell a story.

With some companies, the story is the percentage. For a company like Weigel Broadcasting, it's about getting all the details right. For NBC's COZI it's about getting almost everything wrong. Most of the time though, it's about what the company gets right and what it gets wrong.

Netflix is, on the whole, a reasonably competent company, but, as I've mentioned before, they don't really seem to be that interested in movies and TV. This might not have been that much of a problem when they were primarily in the DVD market and they could just keep every major title in stock, but once they got into streaming and commissioning shows (both of which require being selective), indications that they didn't understand their viewers' taste became more troubling.

Here's the sort of thing I'm talking about. (after a quick and nerdy digression)

Back in 1980, Donald Bellisario (NCIS) hit on his highly successful formula for action-adventure shows: quirk-heavy characters; military culture; and an established thespian with a knack for chewing scenery. One of the earliest examples of the formula was Airwolf which featured a Stradivarius-playing fighter pilot named Stringfellow supported by a cheerfully overacting Ernest Borgnine. Though never a hit, it had a respectable three season run on CBS followed by a considerably less respectable run on cable.

These days, basic cable produces some of the best shows on television and USA is one of the industry leaders but back in the Eighties only a handful of invariably low-budget shows were being produced for cable by anyone other than HBO (unlike first run syndication which had something of a renaissance in the late Eighties). Given all this, the following wasn't surprising:

The USA Network funded a new fourth season in 1987, to be produced in Canada ... This was intended to increase the number of episodes to make the show eligible for broadcast syndication. The original cast was written out of the fourth season: Jan-Michael Vincent appears in a first transitional episode; a body double for Ernest Borgnine seen only from the back represented Santini, who was killed off in an explosion; Archangel was said to have suddenly been assigned overseas...  Production moved to Vancouver, British Columbia, Canada, with a reduced budget, less than one-third of the original CBS budget. The production crew no longer had access to the original Airwolf helicopter, and all in-flight shots were recycled from earlier seasons; the original full-size studio mockup was re-dressed and used for all interior shots

While you can still find people with fond memories of the CBS run of Airwolf, you'd be hard-pressed to do the same with the USA run, which is why (and I apologize for taking so long to get to this point) this suggests that Netflix didn't understand the fan base for this show.

In case you're wondering, that's the cast of the fourth season.

It is, of course, a small point, but it's something that will tend to confuse or annoy fans (many if not most of the comments say something brutal about season four) and, more importantly, it's the kind of sloppiness that shouldn't happen given the extremely small selection Netflix offers for streaming.

Using the cast of the final season seems to be a standard practice with the company even though most people will start watching an unfamiliar show from the first season and, more importantly, early seasons are often preferred by fans.

For example, if you ask fans what their favorite Mission Impossible cast was, I bet you'd get Peter Graves, Martin Landau, etc. first, then either Steven Hill, Landau... or Graves, Leonard Nimoy second and the final cast last.

Martin Landau and Leonard Nimoy are both still well-remembered, as was the original M:I even before the Tom Cruise franchise came out. At the risk of belaboring the obvious, effective marketing highlights features that appeal to customers.

What worries me about all this (beyond the fact that I want to see Netflix do well) is that the question how well a business is run doesn't seem to worry anyone else. If Netflix fixed these problems I doubt Forbes or BusinessWeek would notice, but if Reed Hastings makes some big, questionable move like possibly overpaying for a show or talking about  going into a field the company's infrastructure can't handle, he gets called bold and visionary, his face is on the cover and Motley Fool starts pumping his stock. This is not how we like the incentives to line up.

More Motley Foolishness

Just to pound the stake in a bit deeper, here's another reminder that, if you're getting you stock-picking advice from Motley Fool, you really need to stick with index funds. MF specializes in overexcited, often under-informed posts usually focusing on hot topics that have strong emotional associations of success or (more rarely) failure. All of which is designed to get readers anxious and eager enough to shell out $199 a piece for various newsletters.

Recent case in point, comic book movies are big now as is AMC and the TV show (and comic book adaptation)  the Walking Dead. Both very much have that  strong emotional association of success so it's not surprising that MF would do a story on comic book publisher Image:

Just as AMC Networks (NASDAQ: AMCX  ) profited when Matthew Weiner and Vince Gilligan brought the network Mad Men and Breaking Bad, Image today has several of the comics industry's big names making strong books such as The Walking Dead, Saga, and Thief of Thieves, among others, many of which have cross-media potential.

Should Disney or Warner make a bid for Image? Would you? Or, alternatively, would you invest in Image were it a public company? Leave a comment to let us know what you think of the indie comics opportunity and what, if any, indie series you're reading right now.

You'll notice I keep talking about "associations of success." Mad Men is a perfect example. As mentioned before, Mad Men appears to have lost AMC a significant amount of money, enough to force them to make risky budget cuts to their hit, Walking Dead. You could argue that when PR and reputational capital are figured in, the Mad Men deal was worth it, but from an objective standpoint it's difficult to argue that it was much more that a break even deal for AMC. From an emotional standpoint, however, Mad Men certainly has the association of success, what Colbert might call 'successiness.' It's the coolest of TV's cool kids, by some standards the most lauded basic cable show ever.

While the first paragraph drives home the role these emotional associations play in MF posts, the second illustrates just how uninformed these posts can be. Normally, when a big player buys a publisher, the primary asset being acquired is the catalog. In this case, it's not entirely clear what Disney or Warner would be buying:

Image's organizing charter had two key provisions:
Image would not own any creator's work; the creator would.
No Image partner would interfere – creatively or financially – with any other partner's work. Image itself would own no intellectual property except the company trademarks: its name and its logo, which was designed by writer Hank Kanalz.

I've been reading quite a few MF posts recently and I see red flags frequently, indications that the writers are leaving out important details either because those details undercut the narrative or because the writers don't know what they're talking about. Either way, given the difficultly and risks of playing the market, is this a source of advice you'd want to bet the farm on (perhaps literally)?

Paging Mark P

I remain deeply unsure of why people see Federal taxes as somehow being worse than other forms of tax:

The position of the libertarian Republican [inaudible] Right, coming from a principle of non-violence, which is the libertarian American position, that produces interesting results . . . Non-violence: don’t extort taxes from people to the federal government with the policemen.

I mean I get that people don't like to pay taxes.  But let me assure you, there is no state or local tax that I am aware of where you can fail to pay and not become familiar with the legal system.   Why is it violent for the federal government to collect taxes but not for the state government? 

I am paging my local expert on US culture to solve this quandary for us  . . . 

The Pleygo Proposal

One of my jobs back when I worked in the financial services industry was to give analytic support to teams that came up with new products. I always enjoyed those meetings. It was fun listening to smart people dig their teeth into an interesting problem.

The recent gush of PR for Pleygo, the well-connected, well-funded company that claims to be able to extend the Netflix DVD-by-mail model to Legos got me thinking about those conversations. More than a dozen blogs and news sites, including heavy hitters like Time and Businessweek, ran what appeared to be lightly paraphrased versions of the same press release. They were depressingly similar both in what they said and in what they left out. What you didn't see were the kind of questions you would normally associate with product development brainstorming meetings and we're talking some fairly obvious questions.

Though this isn't my field and I don't bring any special expertise beyond a few years in marketing, here are some of the topics I'd expect to hear raised when people first heard about this model.


The Way Kids Play

One of the many great features of Lego is the way the interchangeability of the pieces allows children to recombine them in new and imaginative ways. Give kids a little time and pieces from that rented X-Wing will be thoroughly mixed with the permanent collection. The guns will be protecting the medieval castle, the radar dish will be helping Batman track the Joker and the engines will be making the train set look really cool.

Imagine trying to separate out the X-Wing pieces from all those other sets, keeping in mind that many of the components that look similar (say the windshield from the fighter and the windshield from the Batmobile) may be different enough not to be interchangeable. Now imagine going through this process every time you want to return a set to Pleygo.

Of course, even if users can keep the rented sets segregated, the model still run into a still bigger challenge, what you might call the duration of play problem. It generally takes about two to four hours to watch a DVD (possibly spread over two or three days). After viewing, the value of that DVD to the renter drops sharply; there no incentive to keep it around. This is one of the reasons why the rental model has worked so well for home video.  With toys, some are played with once while others are played with almost daily for months. If you're paying $25 dollars a month and your child keeps a $40 set for six weeks, you're not coming out ahead. (Actually, some kind of rent-to-own model might work better.)


A Niche of a Niche

So who's the target market here? With Netflix, it was pretty much everyone with a DVD player. With Pleygo, it's certainly much smaller. For the reasons mentioned above, it's probably not children who play with Legos in the conventional sense (play is problematic for this model). Instead I think we're mainly looking at the subset of non-collecting model builders. These people are certainly out there but are there enough of them to justify millions in start-up costs?

Dozens of Choices

Another factor to consider when thinking about the viability of a mail-order business, either rental or retail, is catalog depth. Going all of the way back to Montgomery Ward and the Sears Wish Book, one of the historic advantages of mail order is the ability to offer huge selections. No video store could ever offer the choices that Netflix could (By mail. Streaming is another story). This isn't the case with Pleygo which offers a selection not much better than Target and probably no better than the Lego store at the mall. (The Lego store also has bins of different sized bricks so you can mix and match exactly what you need -- a huge plus for Lego enthusiasts).


A Logistical Nightmare

One of the great insights of the original Netflix model was that shipping DVDs was surprisingly cheap, fast and convenient. Shipping packages is none of those things. Remember, the value for renters here comes from getting access to many more sets than you could get on a monthly budget of $15, $25 or $39 (the last making sense only if you're regularly ordering sets with more than 500 pieces). Even if we assume that most of the sets mailed to the $15 and $25 members fit in the smaller boxes, it's still difficult to see how Pleygo plans to break even on shipping costs if these customers if they order three or more sets a month.

And then there's handling. Once again, the Netflix comparison is instructive. To process an incoming DVD, you make sure the bar code matches the title then feed it into a machine that checks to see if it's still playable. With a box of Lego pieces, the process would entail sorting and checking hundreds of components, making sure that nothing was broken, that pieces from other sets hadn't been mixed in, and that moving parts (motors, gearboxes, switches) still worked. And this process would have to be flexible enough to work with dozens of different sets.


"Wait! There's More!"

There is a partial exception to the claim I made about these points not being raised in other coverage about Pleygo, but it's a depressing example because in this BusinessWeek article by Susan Berfield, the questions feel more like the patter of an infomercial than any kind of actual journalistic inquiry.

That’s great, but most customers have a more mundane concern: How does Pleygo keep track of all those pieces? [founder Elina] Furman says that actually hasn’t been much of a problem, though each set does arrive with a bag of spare parts. The bigger issue has been figuring out how to offer free and fast shipping. For now, the company uses priority shipping from the U.S. Postal Service. Pleygo needed its version of the red Netflix envelope, too. That turned out to be a custom-designed cardboard box that comes in two sizes: small and large.

Throughout the BW piece, I got the feeling that the writer was being fed the questions with the (implicit?) understanding that there would be no follow-ups. Furman has a huge incentive to keep the good news flowing until the IPO and this piece gave her the chance to issue a reassuring if not credible "we're on top of it" about logistic concerns without having to lay out specifics or release supporting data.

Weekend Kael Blogging

If I blogged this before, I apologize, but given the recent careers of Brian McGreevy and "Pittacus Lore," I thought this passage was worth revisiting.

Part of what has deranged American life in this past decade is the change in book publishing and in magazines and newspapers and in the movies as they have passed out of the control of those whose lives were bound up in them and into the control of conglomerates, financiers, and managers who treat them as ordinary commodities. This isn’t a reversible process; even if there were Supreme Court rulings that split some of these holdings from the conglomerates, the traditions that developed inside many of those businesses have been ruptured. And the continuity is gone. In earlier eras, when a writer made a book agreement with a publisher, he expected to be working with the people he signed up with; now those people may be replaced the next day, or the whole firm may be bought up and turned into a subdivision of a textbook-publishing house or a leisure-activities company. The new people in the job aren’t going to worry about guiding a writer slowly; they’re not going to think about the book after this one. They want best-sellers. Their job is to find them or manufacture them. And just as the studios have been hiring writers to work on novels, which the publishers, with the help of studio money, will then attempt to promote to best-sellerdom at the same time that they are being made into movies. The writer Avery Corman has suggested “the horrifying prospect of a novelist being fired from his own book.” It won’t horrify the people who are commissioning these new books—pre-novelizations.

"Why Are Movies So Bad? Or, The Numbers"
Pauline Kael  1980

New site

Notstatschat, added because of this contribution.  I should do the equivalent for Epidemiology conferences some day . . .