Netflix, the Emmys and the power of a happy narrative

I probably should have been more explicit about this but the Netflix thread* always consisted of two intertwined sub-threads: The first was a discussion of the business model and methods and how they fit in with the larger television industry; the second concerned the media narrative and the way journalists and pundits found ways to justify the story they wanted to tell.

Last night something big happened to both of those threads. For perhaps the first time in recent memory, the Emmys actually mattered.

To understand the impact on the first thread, you have to take a detailed look at the most likely business model for Netflix. Most likely here does not mean most commonly given. That would be that Netflix hoped to bring in enough additional subscribers to justify the hundred million dollars they spent on House of Cards. Even the numbers from Netflix don't seem to support that claim and as certain shrewd observers (such as Mark Rogowsky and Rocco Pendola), some of the numbers we get from Netflix are questionable.

The far more credible model was that the company was as interested in the prestige and PR value associated with the perception of having a critical and commercial hit. Thus if House of Cards brought in an additional $50 million through new subscribers and decreased churn and also provided the indirect benefits from reputation then the deal made financial sense.

At this point it's useful to step back and compare the way Netflix developed original programming to what we might call the HBO model, also practiced by FX, USA, TNT, and AMC. The HBO model normally starts by hiring a collection of respected B-list talents such as David Chase, Timothy Olyphant, or Louis CK and finding promising C-list talents such as James Gandolfini or Jon Hamm. This increases the risk of failure on the individual show level but it produces a good aggregate ROI and it makes you look like a genius when someone people have never heard of becomes the next big thing.

Netflix took largely the opposite approach with H of C, spending lavishly for hot property, an A-list star and and the director of such films as Seven, Fight Club, Zodiac, and The Social Network. As mentioned before, this expense is difficult to justify strictly in terms of subscribers and churn but it could make sense if the show generates sufficient publicity and has a substantial brand effect.

This is where the Emmy's come in. For a network show an Emmy is not that big of a deal. It can give a nudge to an on-the-bubble series but it generally doesn't translate to a big bump in absolute numbers. It is, however, a valuable branding tool and, more importantly, it's an indicator of branding success. Thus, when AMC was trying to rebrand itself a few years ago, that first award for Mad Men really was a big deal.

Under these circumstances, there's no way that Netflix is happy about the results of these weekend's awards. They wrote huge checks to get House of Cards and Arrested Development (without even managing to acquire all the IP rights). They plastered LA with "For Your Consideration" ads. For all that, they had a poor showing in the nominations and a worse showing on Sunday. After all this effort they got a couple of meaningless "Creative Arts" Emmys (casting and cinematography) and the second tier major, directing (which, given David Fincher's reputation, was almost a given).

Ideally, when a company has devoted this kind of resources to a goal and that goal doesn't pan out, the company will at least reexamine its strategy and tactics, but Netflix isn't really in a position to do that and one of the reasons for that inability to react involves the other thread.

Netflix stock is running very high at the moment and Reed Hastings, Theodore Sarandos and other high ranking people at the company have raked in huge amounts of money in large part because of a pervasive and overwhelmingly positive official narrative. The admission that the model needs work could easily end up costing these executives tens of billions of dollars.

More importantly, the journalists covering the story are working very hard to see to it that Hastings never has to make that admission.

Here's the Wall Street Journal:

If Hollywood wasn't already taking Netflix seriously, it is now.

The streaming video service scored a win at the TV industry's Emmy Awards on Sunday night as David Fincher took the best director prize for political drama "House of Cards." It marked the first victory in a major category for an online video distributor.

The Emmy win could boost Netflix's prestige in Hollywood as an outlet for high-quality original series and further encourage writers, producers and actors to consider Netflix projects at a time when competition for talent among TV networks is as fierce as ever.

You can argue that the Emmys don't matter, but you can't argue that Netflix's one win in a category no one cares about constituted a good night. (Unfairly or not, TV is not considered to be a director's medium. Fincher didn't even show up to collect the statue.) However, we have reached the point in the journalistic narrative process where response is not all that dependent on the nature of the stimulus. Anything short of complete disaster will prompt cheerful, bullish stories. That's what the narrative calls for.

p.s. I dictated much of this using my smartphone. I believe I got all of the homonyms but I apologize if some slipped by me.

* Among others:

Edging away from the genius hypothesis

Netflix can never be the next HBO

Curiously, agressively anti-social

Two quotes about Netflix, presented (almost) without comment

House of Cards -- either already in the black or seriously underperforming

What do the extremely old ultimately die of?

From this article (fascinating throughout):

Professor Coles has done 11 autopsies on supercentenarians and finds that most die of congestive heart failure secondary to “systemic TTR amyloidosis”, a thickening of the blood. The rest tend to inhale food particles and get pneumonia. It is not really clear why women live longer than men; probably something to do with their having a different cocktail of steroid hormones.

It seems that the cardiovascular system is the final point of vulnerability if one makes it past 110 years of age without dying of cancer. 

h/t Tyler Cowen

Of course, tuition is out of control. Just look at what they pay these people

From Yahoo:

That's what some fellow educators in Pittsburgh and around the country are asking, after an 83-year-old adjunct French professor at Duquesne University died earlier this month with no health insurance, no heat in her home and, for the first time in 25 years, no job.

Last spring, Duquesne told Margaret Mary Vojtko that it would not renew her teaching contract that paid her about $10,000 a year. Vojtko, who was battling cancer, had very high medical bills, could not afford to keep heating her home and had been sleeping in her office at the school. 

For epi people, this This American Life is of special interest

If you work in health, you've probably been hearing about the concerns about Tylenol for years now but you'll still want to check out this report from TAL, if only for the larger policy questions it raises.

Counter-example

David Friedman has an interesting counter-example to my claim that the state is essential to enforce claims for damages.  He brings up Icelandic law, which is an area of interest to me due to my passion for European history (my leisure reading right now is Trevor Royle's book on the War of the Roses). 

I am not sure that the Icelandic example would scale to the modern United States of America, nor do I think we necessarily want all of the knock on effects.  But it has the virtue of being a viable approach that lasted for multiple centuries (which is about the most we can say of any modern state). 

If you want to try some leisure reading, he has a book on the topic of alternative legal structures that is in development.

P.S. In the annals of small worlds, I used to be a very involved member of the SCA.  The notion of a self organizing society built around ideals is a lot more rational when you've seen the interesting things that the SCA has managed. 

Weekend blogging -- "The Great Man Votes"

We've been seeing a lot of examples recently of disproportionate voting power, largely as a result of the GOP's decision to compensate for a shrinking base through higher participation (something which raises serious questions about stability but that's a subject for another post). These examples got me to thinking about the 1939 film The Great Man Votes in which the fate of a large city's election comes down to one precinct split so evenly that one last uncommitted registered voter will determine the outcome.

Even without the political science element, the movie is worth checking out. It's a solid picture with another fine late John Barrymore performance. Barrymore should have been reduced to mumbling his lines and dozing off between them but somehow the decay never made it on camera.

And if the basic plot sounds a bit familiar...

Trade reducing labor share of income: paradigm changing if true!

This will be very important if it turns out to be true:

One thing that they find is that the headline decline in this indicator is actually a bit overstated due to technical issues with the treatment of self-employment income. About a third of the total decline, they think, can be attributed to miscalculation. The blockbuster finding, however, is that the remainder is very heavily concentrated in industries that are newly composed to import competition. In other words, the labor share of national income has fallen because many more industries are exposed to foreign competition in a way that's systematically advantaged the owners of capital.

Now go to a rust belt town with this finding, and people are going to say: "That's news?! What the heck is wrong with you economists?!?!"

The reason that this is so important is that the moral basis for things like free trade agreements is the argument that, in aggregate, everybody is better off.  We feel badly for those people who lose their jobs in the process, but it is in everyone's interest to improve the aggregate standard of living of all Americans.  Now there has always been a bit of a paradox between this position and the success of industrial policy in places like Japan.  I have generally accepted the argument that there might be important differences between a nascent economy and a mature economy.  Maybe protectionist policies are good for improving wages when there is a lot of room for "catch-up growth".

But if the game has been rigged so that free trade reduces the labor share of income then that is a completely different issue.  Wealth in the US is much more skewed than income, so the goal of an ownership society is actually further away than an affluent middle class society would be. 

This also can have knock on effects as well.  So, for example, creation of charter schools to introduce competition might reduce teacher wages while creating a new source of a return on capital via a private school network.  For the same money you get richer capitalists and poorer teachers.  I am not saying that is the goal of the movement, but it is worth thinking for a moment as to why this form of competition is pushed so vigorously. 

Mark, any follow-up thoughts? 

I know Ron Shaich's heart is in the right place, but...

I'm afraid I'm going to have to take a couple of shots at this:

Panera Bread CEO Ron Shaich is spending a week trying to feed himself on $4.50 a day.
Shaich took the challenge to find out what it's like to live on food stamps. He's blogging about the experience on LinkedIn.

The average person on food stamps receives $4.50 per day in assistance, according to The New York Times.
...
When Shaich went shopping with his weekly budget of $31, he was surprised that he couldn't afford coffee, fruit, yogurt, or milk.

Shaich ended up settling on a daily breakfast of cereal without milk, a lunch of lentils and chickpeas, and a pasta dinner. He bought carrots to snack on in between meals. 

Instead of the intended message that being poor is hard, the takeaway is that rich people aren't very good with money. For starters, a competent shopper with a reasonable range of stores should be able to put together the meals and snacks described here for $3.00, maybe $3.50, certainly leaving enough in the budget for some milk for you cereal and a cup of coffee.

Wondering how he got his numbers I ducked into a Ralph's and checked some prices. (For those of you unfamiliar with the chain, Ralph's is the SoCal division of Krogers, not high end but generally more expensive than Wal-Mart which is generally more expensive than Food-4-Less which is generally more expensive that the 99 cents only stores.) The first thing I noticed was that he appears to have bought considerably more than a week's worth of food in some of his categories. When I looked at comparable boxes of cereal and pasta and bags of beans, I saw servings estimates totaling considerably more than seven. For instance, it appears that he bought 13 servings of lentils and 26 servings of chickpeas. Admittedly, suggested serving sizes can be somewhat unrealistic, but still...

More troubling than the shopping, though, is the meal planning. Shaich seems to know nothing about eating on the cheap. Consider the following from his blog:

I had already understood that coffee, pistachios and granola, staples in my normal diet, would easily blow the weekly budget. ... When I could afford something like cereal, it was of the “off-brand” variety, and won’t require a spoon, as I ended up leaving the milk at the register.

The parts about coffee and milk are particularly strange. House brand coffee costs about a nickel a serving and even many of the nicer brands will come in under ten or fifteen cents. For a quarter you can really go to town. The milk I checked was $1.79 for a half gallon. That's less than a quarter a serving (if you buy a gallon, it's less than twenty cents a serving).  Shaich describes doing without these things as a real hardship but doesn't seem to realize that they're in his budget.

This same lack of knowledge is probably one of the reasons why the menus presented here are so bad -- unappealing, nutritionally uneven, unsatisfying, and completely lacking variety (why eat the same thing every day?). With exception of dried beans and to a degree pasta (prepared foods are always borderline), all of the staples of budget cooking are missing. No potatoes, rice, oatmeal, chicken, eggs or my oft-neglected favorite, popcorn. Alton Brown once pointed out that the use of popcorn as a cold breakfast cereal predates corn flakes. That piece of information alone could have knocked a couple of dollars off of  Shaich's weekly budget.

Shaich's shopping list is filled with questionable to disastrous choices. An example of the latter would be spending more than ten percent of his weekly budget ($3.50) on cheese, a food which, though tasty, is not particularly filling or protein rich. To put this in context, Ralph's was selling name brand chicken for eighty-eight cents a pound and, though I didn't check the price of eggs there, I know that down the street at Trader Joe's a dozen extra large go for a buck eighty (and for two-fifty you can also get a bottle of the surprisingly good wine formerly known as "Two Buck Chuck"). Chicken and eggs are both remarkably versatile and can provide lots of protein for little money. Someone who runs a restaurant chain ought to know this.

I realize I'm being hard on the man but there's a bigger issue at stake. Shaich is the good twin to that jerk on TV insisting there's no hunger in America because you can buy a hamburger for a buck. Their intentions couldn't be more different but still both base their arguments on the same fallacies.

Hunger and food insecurity are not simply the result of a lack of cheap food. For an adult with a car, a decent kitchen, a good refrigerator, lots of time, good organizational skills and no special dietary needs, it is not only possible to eat a filling, nutritional diet on four dollars a day; it can even be fun for a while in much the same way that camping can be fun. (Try Googling "99 cents store gourmet.")

The fun goes away quickly, though, when conditions start deviating from that ideal. As with so many other aspects of poverty, eating on a microbudget is living on a butte -- every misstep can lead to a nasty fall. Shaich does hit on this concern: "When is my next meal? How much food is left in my cabinet? Will it get me through the week? What should I spend my remaining few dollars on? What would I eat if I had no budget at all?" Living on this kind of budget means constantly being one unlucky break away from disaster. A crushed carton of eggs, a gallon of milk gone bad, an unreliable refrigerator, or just a mistake in planning at the wrong time can leave parents going without food so that the kids can eat.

Even if the worst doesn't happen, it's a life of constant stress, the kind of stress we're now learning can have particularly devastating effects on kids and their ability to succeed academically and professionally.

It should be noted that Ron Shaich has done a great deal to address the problem of hunger and food insecurity in this country and he deserves a world of credit, but in this latest effort, he's simply not helping.

The need for a state

Via Bradford DeLong here are some historical perspectives on the need for a state:

Adam Smith: Withering away of the state? Private profit-making rights-enforcement organizations? Have none of you ever taken a trip to the Scottish Highlands? Have none of you ever read about the form of society that used to exist there? In the Scottish Highlands David Friedman's dream of a society without a state, in which justice was administered by private profit-making rights-enforcement organizations, was a reality. And what a reality! The private profit-making rights-enforcement organizations were called "clan lords" and their henchmen. In the Highlands, everyone was seen as either a clan member to be helped, a clan enemy to be killed, or a stranger to be robbed. With such insecurity of life and property, the system of natural liberty could not operate to create prosperity, and life was... what is the phrase?...

Thomas Hobbes: Nasty, brutish, and short.

and

Davey Hume: Exactly. That is the key problem of governance: mighty, but limited. It is only after the state has been established and the memory of what life was like in the Highlands disappears that people can even begin to forget why the state is necessary. Under security of property, people begin to view each other--even total strangers--as possible partners in mutually-beneficial acts of exchange. The oxytocin levels in their bloodstreams rise. They feel mutual sympathy toward each other. They feel bound by the moral law, and no longer kill clan enemies or rob strangers even when they can do so in perfect safety... 

I think that this sort of problem of fading memory is common.  The regulations that make fires less likely (or that establish fire departments) seem less useful in a world in which they are highly effective and so we don't see the day to day need for the intervention. 

A good medical example is vaccination.  At one time people were (correctly) terrified of these diseases and the death, disability, or disfigurement that they could cause.  In a world where there are a lot of measles vaccinations being given (and where we have all forgotten the polio/smallpox/measles epidemics) it can be easy to ask the question: "why do we subject our children to the risks of being vaccinated" (given that these risks may not be zero).  Of course, when vaccination stops, the same diseases may quickly come back.  And, even so, it might not be easy to get all children vaccinated because the consequences are not fully realized until it is way too late. 

In the absence of a state, I don't really see a clear solution to the free rider problem.  Even enforcement of damages presumes somebody (i.e. a state actor) to enforce the claim to damages (or a rather brutal enforcement process at the point of a gun).  Since people may forget just how bad the previous era really was, it can be hard to prevent things from deteriorating.   

But it isn't a problem just limited to the state, itself, but it shows up in many successful areas of human intervention where the intervention is a victim of it's own success. 

Mark added as a private comment that this can be extend to a lot of different areas.  He gave the examples of bedbugs and economic insecurity, both of which are on the rise because we don't have the urgency of prevention that we used to have. 

Excellent comment alert

There is a new conservative plan to replace the Affordable care Act. One piece of this plan is to:

For example, allowing insurers to sell policies across state lines would invite a “race to the bottom.” In time, all insurance would originate from states with the least regulation. The policies will be cheaper. But they’ll also be skimpier. They’ll be great if you’re young, healthy, or wealthy enough to afford to fill in the coverage gaps. They’ll be terrible if you are older, have a chronic condition, or, again, if you’re low income.

These are all legitimate problems.  But the one that actually seems the most salient is in the comments:

I cannot understand why conservatives support turning health insurance into interstate commerce, which would then be subject to federal regulation. You would think they would prefer to leave it in the hands of state insurance regulators. 

This is actually a really good point.   If you put health insurance into the national market (and not a state by state individual market) then it is, by definition, interstate commerce and the role of the federal government as a regulator is clearly derived. 

This seems to be the opposite of a small government solution. 

Ways of Measuring Wealth

A recent exchange between Matthew Yglesias and Andrew Gelman got me thinking. Here's Yglesias' original comment:

I think rich businessmen would be happier if we could go back to 1950s-style, more egalitarian distribution of pre-tax income. The richest people around would still be the richest people around, and as the richest people around they would live in the nicest houses and drive the nicest cars and send their kids to the best schools and in other respects capture the vast majority of the concrete gains of being rich. But they’d also have a much better chance of gaining the kind of respect as civic and national leaders that they crave. They want to be seen as the “job creators” and the heroes of the economy, not the greedy exploiters of the masses. But in order to have heroes of the economy, you need a broadly happy story about the economy—one where living standards are rising across the board and prosperity is broadly shared.

And here's Gelman's response:

This is an appealing argument but I’m skeptical. My impression is that, back in the 1950s, the culture heroes included sports starts, authors, broadcast and movie stars, etc. Some politicians and union leaders too, and various others. But nowadays, lots of rich people are heroes of one sort or another: Steve Jobs, those guys at Google, various gossip about tech billionaires, Donald Trump. Even the supervillians at Goldman Sachs get some respect—it’s kinda cool to be a supervillian. There’s the Forbes list of billionaires. Not to mention Michael Bloomberg and Mitt Romney. And it’s not just cos these rich guys have done cool things like Google maps. Warren Buffett is a hero too, mostly from doing a very good job at accumulating money.

If you’re superrich and your goal is to be viewed as a hero, I’d say that the current era from the mid-90s through now has been a good time to do it. They call this the New Gilded Age for a reason. In contrast, I have the sense that the 1950s was a great time to get respect for local rich guys: the owner of the local factory, the proprietor of the local newspaper, etc. Back then, if you were running a moderate-sized business, you could be a real big shot.

I’m not quite sure how this could be studied more systematically but maybe it’s worth looking in to.

This is very much a first draft, but just to get things started, let's think about money in the following ways: traditional; relative; impact (Really need to come up with an adjective for this); ordinal; 'disposable'; perceived and perceived value (not crazy about these terms, but we can always come up with something better later).

I have to be careful with the word relative here (most of these are, in some sense, relative). In this case, I mean relative to some cost of living measure for that person for household. For example, this might entail normalizing or otherwise adjusting for region and might also take into account factors such as what your stage of life is, what your health and healthcare needs are, and what your family situation is.

In a distinction that is sure to piss certain people off, I think of impact as a libertarian metric. It measures the increase in choices that additional money creates. This is, as I believe we have discussed before, a function of both where you start and where you end up. The impact of going from 5,000 to 10,000 a year is unimaginable to anyone who has never been destitute; going from 10,000 to 20,000 while huge is not as big; going from 20,000 to 40,000 while big is still less than the former jump, and so on.

Ordinal is also a somewhat relative measure since where you rank depends on the group to which you're being compared. As Gelman alluded to earlier, being the richest person in town can have special significance even if it doesn't require that much absolute wealth.

Perceived wealth could be perceived by the holder or we could be talking about the perception of some group which the holder is either a member of or which affects him or her.

Perceived value would basically be the thing Gelman is talking about, how much we value a given level of wealth. There's an obvious compared-to-what problem here that, I think, would be best suited to a multivariate approach. We would look at the relationship between perceived wealth and things like how attractive/likeable/respected a person is, how much people would like to meet that person, how much they'd like to trade places, etc. Given the desire not to appear shallow, it might be a good idea to supplement traditional methods like surveys with something like implicit association tests.

Obviously all of these metrics are correlated and in some situations one can undoubtedly be substituted for another, but that does not mean that they are interchangeable. That leaves us with two big questions: one which metric or metrics are most appropriate for a given problem; and what are the best way of measuring these different concepts of wealth, but there are some data gathering steps we can start while we're grappling with those questions.

Health Care Costs

I recommend this video (warning: eight minutes long) that talks about health care costs in the United States.  In particular, that we spend more government money per capita than Canada does (Canada ensures basically everyone) and only manage to insure 28% of the population is staggering. 

Also of great note is how this complex problem really does not have a simple solution and/or explanation. 

They also mention the incidental economist, which is always a sign of good taste.

The General Grant quote I was looking for earlier

I've got a post coming up on price discrimination and the role information plays in the process. One of the things that came to mind was this anecdote from the Memoirs of Ulysses S. Grant, which describes his experiences as an eight-year-old horse trader and illustrates what happens when the seller knows too much.

As he told the story, there was a Mr. Ralston living within a few miles of the village, who owned a colt which I very much wanted. My father had offered twenty dollars for it, but Ralston wanted twenty-five. I was so anxious to have the colt, that after the owner left, I begged to be allowed to take him at the price demanded. My father yielded, but said twenty dollars was all the horse was worth, and told me to offer that price; if it was not accepted I was to offer twenty-two and a half, and if that would not get him, to give the twenty-five. I at once mounted a horse and went for the colt. When I got to Mr. Ralston's house, I said to him: "Papa says I may offer you twenty dollars for the colt, but if you won't take that, I am to offer twenty-two and a half, and if you won't take that, to give you twenty-five." It would not require a Connecticut man to guess the price finally agreed upon. This story is nearly true.

D&D Monsters

This list is a pretty representative list of the most unique and popular Dungeons and Dragons monsters.  I am a little surprised none of the creepy monsters made the list (green slime, ear seekers, rot grubs) but these are the ones you'd see in the novels. 

Not sure that Bacharach shouldn't have split this into to two but both halves are worth reading anyway

Via Thoreau, Jacob Bacharach has has an excellent albeit somewhat disjointed post that hits on a few of our ongoing threads. It starts out as a beautifully cynical insider's view of MBA programs then jumps (a bit abruptly) to a blistering take down of Joel Klein's efforts, working with the Rupert Murdoch family of companies, to sell tablet computers to school districts.

Here's a taste:

And in any case, when you look at the sales pitch, you see the same old clichés about the workplace of tomorrow peddled as the great social inflection point whose crisis-borne arrival necessitates the adoption of these critical tools that just happen to cost $199 a pop. The simple fact of that traditional dollar-short-of-an-even-hundred commercial pricing model ought to tip you that something may be slightly crooked here, the transformative promise more marketing than prophecy. “Robin Britt, the Personalized Learning Environment Facilitator (PLEF)”—no, really—leaps Ballmer-like to the front of the room and engages in a little future-is-nowism for the crowd:

I've been meaning to write about the tablets-in-the-classroom movement for awhile, particularly since the recent blow-up in here in LA. It represents one of the most notable of the many cases where ddulites and movement reformers intersect with predictably disastrous results.

For the record, disadvantaged students would much better off if we gave them laptops running Ubuntu rather than the latest tablet. It's worth noting that the latest snag in L.A. schools Supt. John Deasy's iPad initiative came because no one thought to budget money for keyboards. (Deasy isn't really a think-things-through kinda guy. Unfortunately, he's in a think-things-through kinda job.)