Netflix can never be the next HBO*

* given its current model

Certain business models limit you to certain marketing approaches and certain marketing approaches limit your product development. In the case of Netflix, the company is locked into a strategy that effectively prevents it from developing a Sex and the City or Sopranos or Game of Thrones or even a Fraggle Rock.

When HBO introduces and nurtures a major show, it starts with a standard advertising and PR campaign, then gives it a good prime time slot and rebroadcasts it repeatedly through the week. This last part is especially important because, even more than most non-rival goods, television series thrive on familiarity and heavy rotation. By airing Game of Thrones a half dozen times in a week, HBO greatly increases the chances that viewers who are curious or who are just channel surfing will get into the show. This also nicely complements social media. People who see friends talking about an episode have a chance to catch up before the next one airs (and, unlike with Netflix, being into an HBO show guarantees loyalty and regular viewing for at least three months, which gives the network ample opportunity to hook you another show which keeps the cycle going).

Netflix has a far narrower range of marketing options. It can pay directly for advertising and indirectly for PR, but that's about it. For all the talk of neo-programming, Netflix has few ways of getting customers to watch what they want them to watch.

Much has been made of recommendation model and it is a promising area for marketing research, but it occupies a somewhat different niche than lead-ins and surf-driven traffic and, more to the point, it is not a good fit with Netflix. Recommendations are most effective at introducing viewers to the unfamiliar, or, put another way, recommendations add more value to the unfamiliar. Someone who likes the remake of True Grit might be more likely to watch Gunsmoke or Sam Peckinpah's the Westerner. Both were great shows, but CBS Television will charge you serious money to license Gunsmoke; whoever owns the Westerner would probably trade even for what's in your wallet. At the risk of belaboring the obvious, making viewers aware of a show they might like increases its value without increasing its cost.

Netflix has a strategy of maintaining a shallow catalog of familiar titles and focusing on a small number of highly publicized original productions. This is not a business plan that works well with recommendation-based promotion.

Between that and the well-established difficulty of launching a series, Netflix has no choice but to focus on shows that lend themselves to advertising and PR. Those generally breaks down to marketable names, properties or concepts. You can definitely see these groups in the two major and one borderline major launches we've seen from Netflix up until now:

House of Cards -- Kevin Spacey playing a Kevin Spacey character

Hemlock Grove -- Teen vampire/werewolf show from gore king Eli Roth

Arrested Development season 4 -- continuation of cult hit

(I went back and forth about including Lilyhammer, finally deciding not to because it was a co-production that debuted elsewhere and, more importantly, because it does not seem to represent the direction the company has now taken, which is unfortunate since Lilyhammer is, from a business standpoint, the most interesting thing Netflix has done for years.)

What are some of the concerns with limiting yourself high-profile, easily marketed journalist-bait?

Thin margins. You generally pay much more for stars and recognized properties (Spacey knows how much Spacey is worth).

The pool is limited and the process slow. Netflix talks about passing HBO. It took HBO about fifteen years to go from Phillip Marlowe to shows like Sex in the City and the Sopranos, longer still for Showtime to go from earnest efforts like the Paper Chase to hits like Dexter and Homeland. Does anyone think that Netflix can wait that long?

Established properties certainly reduce the chances of failure but there's reason to believe it may limit potential upside as well (see here and here for some thoughts on the relationship between hits and defying expectations). Between the star power, massive marketing blitz, first rate production values and the proven quality of the source material, I expect House of Cards to do reasonably well, but it's a hedged bet when the company needs a big pay-off.

Traditional marketing and, to a slightly lesser extent, automated recommendations, tend to work best on products that customers expect to like. Walk-ins and, to a lesser extent, social media recommendations work best on products that customers like more than they expected to. (Besides if you did want to maximize social media leverage, the Netflix episode dump strategy is probably the last thing you'd want to do.)

HBO has a long history of making hits out of shows with unlikely concepts ("It's about a family of undertakers...") and people you've never heard of ("James Gandol-who?"**). It was able to do this in part because the people who ran the network made good use of all of the good, old-fashioned tricks that programmers have used for decades.

Is it possible to duplicate HBO's success without using those tricks? Probably. Is it possible with the approach Netflix is trying. Almost certainly not. The marketing is badly thought-out, the pieces of the business plan don't fit and when it comes to producing original content, the company has a dearth of new ideas.

That said, I probably will probably check out House of Cards. Kevin Spacey, evil machinations... What's not to like? (other than the $100 million Netflix paid for it -- without even getting the syndication rights)

** No disrespect intended to James Gandolfini, who passed away recently, rather a reminder that David Chase and the executives at HBO were willing to go with a talented unknown who was right for the part.

A bit of HBO trivia and a couple of take-aways

As background for the ongoing Netflix thread, I've been reading up on HBO. Lots of interesting facts for anyone who follows the business of television, but one detail, though minor, jumped out as an illustration of a couple of points about the network's strategy:

HBO's first scripted series, launched back in 1983, was Jim Henson's Fraggle Rock, beating the detective show Phillip Marlowe, Private Eye out of the gate, albeit only by a few months.



(listen at your own peril, this may have a tendency to stick in your head.)

Fraggle Rock turned out to be a huge, long-running hit, but there's a limit to how much we should read into that (the luck factor is always difficult to account for). What's more interesting in the context of this discussion is that, from the very beginning:

1. HBO understood the value of the preschooler market, something that appears to have eluded Netflix even though that market is arguably more important for an on-demand service;

2. The network went with a new property from established creators, an approach it would return to many times over the next twenty years. Netflix has leaning heavily toward established properties, which almost by definition, reduces the chances of the kind of unexpected breakthrough hits often associated with HBO.

More on the flack-to-hack ratio

Following up on this, Yahoo has another careers-to-avoid post. The second entry caught my eye:

Dying Career #2: Reporter

They say a species must adapt or die, and with the trend of the Internet replacing print journalism (you are reading this on the computer, after all), media folks who don't adjust might not survive too much longer. In short, many reporters could be going the way of their typewriters soon.

Projected Decline: Reporter and correspondent positions are expected to decline by 8 percent from 51,900 jobs in 2010 to 48,000 in 2020, for a total of nearly 4,000 jobs lost, says the U.S. Department of Labor

Why It's Dying: The Department of Labor says that because of the trend of consolidation of media companies and the decline in readership of newspapers, reporters will find there are fewer available jobs.

So, if you have a hankering for writing, you might look into...

Alternative Career: Public Relations Specialist

In the new world of Facebook, Twitter, and all things Web, the public image of a company has never been more important, and so the role of public relations specialist is a vital one. These are the people who evaluate advertising programs, write press releases, and communicate with the media and public to promote a company's public image, according to U.S. Department of Labor.

Projected Growth: The Department projects openings for PR specialists to grow by 23 percent from 2010 to 2020, which equals 58,200 new jobs.

Why It's Growing: Thanks to the fact that both good and bad news spreads quickly in the Internet age, the Department says that companies need PR specialists to respond to these news developments. "With the popularity of social media marketers, specializing in that will be absolutely critical in the future. These people will be sought after by most companies," says Susan Heathfield, a management consultant and writer of About.com's Guide to Human Resources.

Education Options: The Department says public relations specialists normally need a bachelor's degree, with employers usually wanting applicants to have studied public relations, communications, journalism, English, or business.

Putting aside the pros and cons of the career advice, this is troubling for a number of reasons. First, it shows that the previously mentioned flack-to-hack ratio continues to grow. More importantly, it's another indicator of how acclimated we've become to the idea of substituting press releases and selectively edited news stories for impartially gathered information from independent sources.

As mentioned before, this and other trends in journalism are each troubling on their own but it's when you start combining them that they become truly frightening.

Another news story that's bigger for Netflix than Arrested Development -- and this time in a good way

I have to admit, I was starting to wonder if Reed Hastings could do anything right.

DreamWorks Animation, trying to lessen its dependence on the volatile movie business by aggressively expanding into TV programming, has decided to forgo cable television in favor of Netflix.

In a multiyear deal announced early Monday, DreamWorks Animation will supply a flood of new episodic TV programs to the Internet streaming service. The partnership calls for 300 hours of original programming, perhaps the biggest commitment yet to bring Hollywood-caliber content to the Web first.

The new programs will be “inspired” by characters from past DreamWorks Animation franchises, which include “Shrek” and “The Croods,” and its coming feature films. Series will also come from Classic Media, which the studio bought last year. Classic Media’s holdings include characters like Casper the Friendly Ghost, Lassie, She-Ra and Mr. Magoo.

This doesn't solve all of Netflix's problems -- that's a long list -- and we don't know some very important details, but this does address quite a few of the biggest concerns. It gives them a producing partner with a proven track record that can greatly step up the company's current trickle.

Here's how big a bump. According to Wikipedia, these are the future programs currently announced by Netflix (boldface added):

John Hodgman: Ragnarok' Television special Stand-up comedy
Orange Is The New Black Series Comedy-drama July 11, 2013
Turbo: F.A.S.T. (Fast Action Stunt Team) Series Animation December 2013
Narcos Series Drama 2014
Shrek Series Animation 2014
The Croods Series Animation 2014
Kung Fu Panda Series Animation 2014
Sense8 Series Sci-Fi-Drama Late 2014

And, while this does not come close to filling the hole left by Nick, particularly with preschoolers (you do not want to be the one to tell a four-year-old no more Dora... ever), but it moves in the right direction.

And since this was obviously in the works for a while, it makes Netflix's "What, me worry?" response a little less disturbing.

UPDATE: Netflix continues to add to its preteen/teen listings. That's good news but it still doesn't address the bigger problem.

Four Companies

If you've been following this Netflix thread (and, yes, there's more to come), may be wondering what it is about the company that justifies all the pixels. It provides a pretty good service for its customers (I've always been disappointed with the selection but the price is very reasonable). I don't consider it a good investment, but there are certainly worse run companies with more incompetent management.

What's important here, at least to me, is the way we discuss business. Over the past thirty plus years, we have largely accepted the central role of business in our society-- companies will solve our problems; markets will make our decisions -- but we haven't gotten very good at business journalism (wiht notable exceptions). We let hype drive investment, propping up bad companies while good ones gasp for air. We miss abuses and underprice negative externalities. We waste a lot of money.

When I look at the coverage of Netflix, I see some trends that remind me of the coverage of Groupon, Facebook's IPO, and JC Penneys, particularly:

A symbiotic hype relationship between executives and journalists, where executives would say and do buzz-worthy things and journalists would reciprocate by depicting the executives as bold visionaries even when the statements and decisions didn't really make any sense from a business standpoint.

A ddulite tendency to assume that the greater the association with cool technology (indirect but still significant in the case of JCP), the smarter the move.

A simplistic view of business. Not looking at metrics in context. Assuming that a business model that works one place will work another. Ignoring the history of the industry in general and relevant precedents in particular.

Failure to ask, or at least ask vigorously, basic questions about the company's competence and business practices.

This similarity of coverage does not mean that we're talking about similar companies; we aren't. Netflix is a company that started out with a decent business model but which is facing serious external and internal challenges. JCP was a fixer-upper nearly destroyed by spectacular mismanagement. Facebook was a great idea questionably managed and wildly overpriced. Groupon was a couple of notches away from a Ponzi scheme. What they have in common is that their problems were made worse by the practices mentioned above.

"If that's such a good idea, why hasn't anyone else done it?"

 I have really mixed feelings about that question. It can discourage creativity and kill fresh ideas and it can and generally should make you feel like a bit of an ass when you ask it, but sometimes someone really needs to say it.

Case in point, the decision by Netflix not only to release original programming in a binge-ready format, but to sell this format as a major feature.

Though the basic idea (in the form of programming marathons) goes back for decades, binge viewing as we think of it now became practical around the mid to late Nineties with the widespread availability of DVDs and the rise of the internet (the two technologies that made Netflix viable).

Prerecorded television shows were a very small part of the home video wave of the Eighties, largely due to the bulkiness of the VHS medium and the inconvenience of the short-window rental model. With the introduction of DVDs in the mid-Nineties and the shift to a retail rather than a rental model, the economics shifted and TV shows soon occupied as much shelf space in the big box stores as did movies. The concept of burning through an entire season of a show in two or three sittings caught on almost immediately.

There was, however, one area where series never caught up with movies -- direct-to-video. Though boxed sets of shows like Seinfeld and Star Trek:[fill in the blank] were popular (sometimes to the extent that people would forgo watching a new season of their favorite show till it came out on video) and direct-to-video movies were a large and lucrative market and direct-to-syndication was a proven model, no one, to my knowledge, ever attempted a serious launch of direct-to-DVD series box set.

Why did this one channel remain unexplored? Part of the answer may lie in the way television shows develop their relationships with viewers.

Smart companies look at lifecycles, both of products and of customers and plan marketing and pricing accordingly. With successful TV shows, there seem to be only a few common lifecycles and (this part is important) it has proven extraordinarily difficult to influence those lifecycles through advertising and PR. Up until now, binging has always occurred late in these lifecycles after these products have established themselves.

There are, of course, differences, but Reed Hasting is basically trying the equivalent of using massive advertising and PR to try to sell box sets of new series. What's more, he's doing it after the advent of social media which works better with incremental release schedules (Twitter, in particular, thrives on shared events).

Of course, none of this means that direct-to-binge is a bad idea, but it does give one something to think about.

Neil Gaiman was close -- it's actually two out of four

Talk of the Nation had a good interview recently with author Neil Gaiman. If you're a Gaiman fan, the whole thing is worth checking out, but I found this particular insight especially interesting:

GAIMAN: But what I tried to make clear is something I actually learned from the world of comics that, talking to people seems to apply outside of the world of comics as well, which is how you keep work as a freelancer. What I was saying to people is - what I'd learned is that you can be - there are three things you can be. You can get the work in on time; you can be good, really good; and you can be easy to get along with. And as long you get two out of three of these right, you will continue to work.

CONAN: Oh, so people will put up with your unbearable personality if you get your work in on time and you're very good.

GAIMAN: Absolutely. And by the same token, if you're really nice and you're really good, they'll probably forgive you for being late.

(LAUGHTER)

GAIMAN: But, you know, the problem is when you drop down to one out of three, that's the point when they're going, I don't really want to - yes, his work is good, but he's not very nice; he's always late - why should I bother. So it's that two out of three thing.

The only thing I'd add to that is the idea of niches, certain relatively specific roles that come readily to mind and are perceived as useful. People who fit these niches are amazingly employable, though they can have a great deal of difficulty advancing or changing careers.

I suspect there are niche-fillers in all professions but they are particularly easy to spot in entertainment. Certain actors and, to a lesser extent, writers, directors and producers happen to mesh with what the industry thinks the public wants or a project needs. The allure of matching elements to these preconceptions is remarkably strong.

Here's my favorite example. A few years ago, I mentioned to a friend that I was following a new show and my friend recommended not getting too caught up in it because it starred an actress named Paula Marshall and shows that starred Marshall didn't stick around very long.

I had seen Marshall in other shows but given the high mortality rate of television series I'd never noticed anything special about those featuring her. After that though, I started to pay attention and I noticed not only that shows starring her tended to do very badly but that there were a surprisingly many of them.

In the past twenty years, Wikipedia lists Paula Marshall as having had a main role in seven different TV shows:

Wild Oats Main role (6 episodes);

Chicago Sons Main role (13 episodes);

Cupid Main role (15 episodes);

Snoops Main role (10 episodes);

Hidden Hills Main role (17 episodes);

Out of Practice Main role (21 episodes);

Gary Unmarried Main role (37 episodes).

For an actor with little name recognition and no-well known roles, snagging seven leads is remarkable (and that doesn't count pilots that weren't picked up). Add to that recurring roles on other shows and numerous guest shots and you have an extraordinarily active career.

I don't want to pick on Marshall. She's a competent actor with a smart career sense and she may yet have a big break-out role, but that's really beside the point. There are certain character types that show up frequently in TV shows and Paula Marshall almost perfectly matches one of those types. There are actors working in television who could have done something more surprising with the roles Marshall got (Melanie Lynskey, Missi Pyle, and Gina Bellman to name just a few) but surprise would defeat the purpose.

The point of filling a niche is to be something people expect, to fit in well with an existing framework. The appeal of this meshing is often, somewhat counter-intuitively, much stronger for the people making the shows than for the people watching them. Audiences generally like to be surprised (fans, on the other hand, usually don't, but that's a topic for another post). That's why breakout characters tend to deviate from type in one or more significant ways.

[be advised, working from memory in this paragraph] Perhaps the best known breakout character, Fonzie from Happy Days, was originally written as tall and physically imposing. When she met the diminutive Henry Winkler, Marion Ross asked creator Gary Marshall if he was right for the part. Marshall replied that Winkler "acts tall."

You can make the case, both commercially and critically, for the expected returns of casting someone who doesn't neatly fit a type, such as a Mayim Bialik, rather than one who personifies it the way a Paula Marshall often does, but that sort of rational decision making doesn't come easy for executives facing the insane stress of trying to sell a TV show.

On top of that, unconventional casting calls attention to itself. If you make an unconventional casting choice and a show fails, people will zero in on that choice to explain the failure; if you make a conventional choice and the show fails, people will be much more likely to dismiss the failure as 'one of those things.:

Ken Levine on big stars and TV pilots

Levine has an excellent post about what really drives pilot season. If you have any interest you should take a look, but this bit, with its disparity between projects that are easy to get greenlit and projects that have the best rate of return is very relevant to some upcoming posts.

Pilots are incredibly hard to do well. You have to establish the premise, introduce the characters, tell a story, set the tone, and be funny – all in 22 minutes. Now imagine trying to accomplish all that when you only have :30 seconds. This is one of the big reasons why networks like to stack their new shows with established stars. You may not know what the show is about but Michael J. Fox is in it.

God forbid you don’t have an established name at the forefront of your series. Although the breakout hit shows generally feature new discoveries, networks prefer the safety of Will Arnett and Brad Garrett. So the star-driven shows will get more promos and hype. You may have a better show without stars but you’ll have a tougher go of things.

Weekend Kael blogging -- Was Citizen Kane ahead of its time?

We've spent a lot of time complaining about the tendency to confuse the independent with the contrarian even though in some ways they represent opposite approaches. Independent thinkers resist the urge to fall in line with predetermined narratives and conclusions. Contrarians are strongly predisposed to certain predetermined narratives and conclusions as long as those positions happen to be opposite in some way to what is perceived as the 'conventional' view.

Pauline Kael was a thoroughly independent thinker and much of the pleasure in reading Kael comes from the way she finds flaws in and counterexamples to so many standard stories. One of the more enduring of these stories is the tale of the unrecognized genius, the artists or innovators so far ahead of their time that they initially are only met with derision. ("They laughed at _____ too.")

Here's Kael's response to attempts to apply that narrative to Citizen Kane:

The picture got a thunderous reception, even in the Hollywood press. In recent years, the rumor has spread that Citizen Kane opened to bad reviews—presumably on the theory that it was so far ahead of its time that it wasn’t understood—and this is now recorded in many film histories. But it was very well understood by the press (who would understand a newspaper picture better?), and it got smashing reviews. It isn’t, after all, a difficult picture. In some ways, it was probably better understood then than it is now, and, as far as I can determine, it was more highly praised by the American press than any other movie in history.

...

Several of the magazines responded to [Welles'] plea for the pressure of publicity by reviewing the picture before it opened, obviously with the intention of helping to get it released. A review in Time on March 17, 1941, began:

            As in some grotesque fable, it appeared last week that Hollywood was about to turn upon and destroy its greatest creation.

It continued:

            To most of the several hundred people who have seen the film at private showings, Citizen Kane is the most sensational product of the U.S. movie industry. It has found important new techniques in picture-making and story telling…. It is as psychiatrically sound as a fine novel…. It is a work of art created by grown people for grown people.

In Newsweek, also on March 17, 1941, John O’Hara began his review with

            It is with exceeding regret that your faithful bystander reports that he has just seen a picture which he thinks must be the best picture he ever saw.

            With no less regret he reports that he has just seen the best actor in the history of acting.

            Name of picture: Citizen Kane.

            Name of actor: Orson Welles.

            Reason for regret: you, my dear, may never see the picture.

            I saw Citizen Kane the other night. I am told that my name was crossed off a list of persons who were invited to look at the picture, my name being crossed off because some big shot remembered I had been a newspaperman. So, for the first time in my life, I indignantly denied I was a newspaperman. Nevertheless, I had to be snuck into the showing of Citizen Kane under a phony name. That’s what’s going on about this wonderful picture. Intrigue.

            Why intrigue? Well, because. A few obsequious and/or bulbous middle-aged ladies think the picture ought not to be shown, owing to the fact that the picture is rumored to have something to do with a certain publisher, who, for the first time in his life, or maybe the second, shall be nameless. That the nameless publisher might be astute enough to realize that for the first time in his rowdy life he had been made a human being did not worry the loyal ladies. Sycophancy of that kind, like curtseying, is deliberate. The ladies merely wait for a chance to show they can still do it, even if it means cracking a femur. This time I think they may have cracked off more than they can chew. I hope.

Along the way, O’Hara said such things as

            My intention is to make you want to see the picture; if possible, to make you wonder why you are not seeing what I think is as good a picture as was ever made…. And aside from what it does not lack, Citizen Kane has Orson Welles. It is traditional that if you are a great artist, no one gives a damn about you while you’re still alive. Welles has had plenty of that. He got a tag put to his name through the Mars thing, just as Scott Fitzgerald, who wrote better than any man in our time, got a Jazz Age tag put to his name. I say, if you plan to have any grandchildren to see and to bore, see Orson Welles so that you can bore your grandchildren with some honesty. There never has been a better actor than Orson Welles. I just got finished saying there never has been a better actor than Orson Welles, and I don’t want any of your lip.

            Do yourself a favor. Go to your neighborhood exhibitor and ask him why he isn’t showing Citizen Kane.

The same day—March 17, 1941—Life, which was to run several more features on the movie in the following months, came out with four pages of pictures and a review:

            Few movies have ever come from Hollywood with such powerful narrative, such original technique, such exciting photography. Director Welles and Cameraman Gregg Toland do brilliantly with a camera everything Hollywood has always said you couldn’t do. They shoot into bright lights, they shoot into the dark and against low ceilings, till every scene comes with the impact of something never seen before. Even the sound track is new. And for narrative Welles has tapped a segment of life fearfully skirted by the U.S. cinema: the swift and brutal biography of a power-mad newspaper tycoon, a man of twisted greatness who buys or bullies his way into everything but friends’ love and his nation’s respect. To a film industry floundering in a rut, Citizen Kane offers enough new channels to explore for five years to come.

Hearst must have known he would be in for a bad time if the picture should be withheld; the Luce magazines—Time and Life—had always been eager to embarrass him, and certainly wouldn’t let the subject drop. (The financial backing that Welles said he had to buy the picture was probably from Henry Luce.) One surmises that Hearst decided not to try to block its release—though the petty harassment of R.K.O. and others involved went on, like a reflex to a blow.

        Here is a representative selection from the reviews:

            Variety: A film possessing the sure dollar mark.

            Times (Bosley Crowther): Suppression of this film would have been a crime…. Citizen Kane is far and away the most surprising and cinematically exciting motion picture to be seen here in many a moon…. It comes close to being the most sensational film ever made in Hollywood.

            Herald Tribune (Howard Barnes): A young man named Orson Welles has shaken the medium wide-awake with his magnificent film, Citizen Kane. His biography of an American dynast is not only a great picture; it is something of a revolutionary screen achievement…. From any standpoint Citizen Kane is truly a great motion picture.

            Post (Archer Winsten): It goes without saying this is the picture that wins the majority of 1941’s movie prizes in a walk, for it is inconceivable that another will come along to challenge it…. Orson Welles with this one film establishes himself as the most exciting director now working…. Technically the result marks a new epoch.

            PM (Cecelia Ager): Before Citizen Kane, it’s as if the motion picture was a slumbering monster, a mighty force stupidly sleeping, lying there a sleek, torpid, complacent—awaiting a fierce young man to come kick it to life, to rouse it, shake it, awaken it to its potentialities, to show it what it’s got. Seeing it, it’s as if you never really saw a movie before: no movie has ever grabbed you, pummeled you, socked you on the button with the vitality, the accuracy, the impact, the professional aim, that this one does.

            Esquire (Gilbert Seldes): Welles has shown Hollywood how to make movies…. He has made the movies young again, by filling them with life.

            Cue (Jesse Zunser): It is an astounding experience to watch Orson Welles, 25-year-old Boy Genius of the Western World, in the process of creating on the screen one of the awesome products of his fertile imagination. You come away limp, much as if you had turned into Broadway and suddenly beheld Niagara Falls towering behind the Paramount Building, the Matterhorn looming over Bryant Park, and the Grand Canyon yawning down the middle of Times Square.

            Hollywood Reporter: A great motion picture…. A few steps ahead of anything that has been made in pictures before.

            Chicago Journal of Commerce (Claudia Cassidy): Anyone who has eyes in his eyes in his head and ears to hear with will enjoy Citizen Kane for the unleashed power of its stature on the screen.

Even Kate Cameron, in the Daily News, gave it four stars, and on Sunday, May 4th, Bosley Crowther (though he had some second thoughts of his own) wrote in the Times, “The returns are in from most of the local journalistic precincts and Orson Welles’ Citizen Kane has been overwhelmingly selected as one of the great (if not the greatest) motion pictures of all time….” The Film Daily said, “Welles can prepare his mantel for a couple of Oscars.”

Marvel and Motown

I saw Iron Man 3 not long ago. The short verdict is: middle of the trilogy, closer to the first (which I liked a lot) than to the second (which I disliked a lot for story reasons I might go into later).

But the thing that really caught my eye about this and the other Avenger adjacent films is how carefully they've cultivated a house style. This really struck me with Thor and the Avengers. Both those films seemed like hybrids, halfway between Branaugh or Whedon and Favreau. It wasn't necessarily a bad thing (I greatly enjoyed both movies), but it was clear that the studio was making sure that the components of the megafranchise were compatible (perhaps even interchangable).

(I've spent a lot of time in marketing meetings and it has clearly warped the way I look at the world)

I mentioned the idea of house styles and cross promotion to Ultra Sonic Remote's Brian Phillips and he immediately came back with the perfect example. Motown was a company built by Berry Gordy on a house style that covered every aspect of the music from the recording to the finishing school that artists were required to attend. While the label was packed with creative people -- musicians, writers, producers -- the major decisions tended to be top-down and were designed to produce a consistent, coherent and marketable stream of quality pop music.

Like Marvel, Motown's house style was set up to promote cross promotion, whether on the radio, in the record store or on tour. This allowed them (also like Marvel), to hothouse promising acts, building them up by associating them with more established names.

There were artists who chafed at these restrictions. The most notable was probably Marvin Gaye who openly complained about both the music he was told to perform and the style he was forced to adopt (Gaye preferred to perform either standards or his own compositions, something he finally managed with great success with What's Goin' On).

Of course, lots of labels (and movie studios for that matter) have had a house style. Having one that succeeds seems to be the challenge.

High Frequency Trading

An exchange between Kevin Drum, Felix Salmon, and Karl Smith illuminates how it is possible for a group to extract rents by making the costs so diffuse that there is no clearly identifiable victim.  Karl Smith says it best:

Each time pro traders with proprietary information load up on one side of a trade they nick ever-so-slightly the return to the average Joe. Year-after-year it adds up to an environment where the average retail return is going to be lower than the average pro return. And, since the stock market is likely the best long term investment available to the average Joe, the average Joe’s best chance at financial success is diminished.

I think this conversation is a great example of how something marketed as providing a service (i.e. liquidity) can actually also be a way to extract rents from the market. 

Edging away from the genius hypothesis

There have long been two extremes in the possible views of Reed Hastings' tenure as co-founder and CEO of Netflix. The first is visionary media genius in the mode of Ted Turner; the second is someone who lucked into a couple of good ideas then started believing his own press. The Ted Turner hypothesis took another hit recently and it has nothing to do with Arrested Development not being as good as you remembered.

General interest original scripted programming may get most of the press, but, from a business standpoint the picture is quite mixed. Only a handful of cable channels have clearly turned a profit with that strategy and then only under a fairly special set of conditions and synergies. The real money in television is usually in less glamorous places like shows for kids.

Children's programming has always been one of, if not the main drivers of home theater dating back to the earliest days of television as a mass medium. Children tended to be voracious viewers and excellent (albeit indirect) targets for advertising. With the advent of cable and home video, television became even more heavily used as a quiet, unsupervised activity for small children.

Which is why this story from the Wall Street Journal is a much bigger deal than another season of House of Cards.

One day late last month, Kristin Johnson turned on Netflix Inc. NFLX -3.18% and was upset to find that programming from the Nick Jr. kids channel had disappeared from the streaming video outlet, including some of the favorite shows of her two young children.

Netflix and the channel's owner, Viacom Inc., VIAB -2.19% had failed to renew their licensing agreement covering a broad range of TV content. But on Tuesday, Viacom announced an agreement with Netflix's biggest online rival, Amazon.com Inc., AMZN -1.13% granting that company the streaming rights to hundreds of its shows, including exclusive rights to Nick Jr. programming.

I know we've hit this point a lot at Stat Views (particularly back when we were talking about Groupon and the Facebook IPO), but I think the topic's good for at least one more whack: press coverage drives stock prices but what drives press coverage is often weakly, and sometimes inversely, correlated with what makes a good investment. Buzz-heavy original programming would definitely seem to qualify.

If it loses its synergies with the DVD market (something it's been eager to do), Netflix will be facing an ugly competitive landscape. Hulu's a child of the big content providers. Amazon has the ecosystem and very deep pockets. All Netflix has is a big but unhappy customer base and a high profile but overrated corporate image. It can't afford to make mistakes.

A losing Nick Jr. is a doozy.

p.s. I just read Felix Salmon's recent piece on Netflix. I strongly disagree with where he ends up but it's an interesting argument. More later.

Anatomy of a spiral

While we're on the subject of costs spiraling out of control, here's a relevant post from Ken Levine (who knows a bit about television and movie production):

I once wrote an independent feature set in Bakersfield. I hired a line producer to come up with a budget. I almost passed out when I saw the final number. $10 million dollars. I was hoping for something like $40 thousand.

So I went through it line-by-line and saw that he approached this as if it were AVATAR. There were thousands allotted for plane flights… between Los Angeles and Bakersfield. First class yet. It’s an eleven-minute flight! Thousands were set aside for gifts. Towncars on stand-by, separate hair, make-up, and wardrobe people for each star.

And this was my favorite: There’s a half-page scene where a character comes out of a club at night following someone and discovers it’s so foggy he can’t see his hand in front of his face, and of course he loses the person. (Thick Tulie Fog is a Central California staple in the spring.) Again, a half page scene. The producer had it budgeted for $1 million. This was the conversation (almost verbatim):

Me: Why?

Producer: Are you kidding? Do you know the amount of fog machines I would have to rent to make fog that thick in an open area… and sustain it? Not to mention renting them from LA and hauling them up here and hiring extra personnel to man them. This is a huge undertaking. I hope I can do it for just a million.

Me: Uh huh. Okay, fine. But let me ask you, is there possibly any other way? Can you think of any other options for doing this scene?

Producer: No. Not really.

Me: (exploding) It’s FOG! We can’t SEE anything! Shoot it in the corner of a sound stage with one fog machine! Do it optically and don’t film anything! It’s FOG. At NIGHT.

Needless to say, I did not use his budget.

Required Reading

Alex Tabarrok. 

For the record, I partially disagree with this approach as I think we can go a long way under the assumption of homogeneous response and looking at average causal effects of medication treatment.  In a lot of ways this simplifies what could be a confusing nightmare to regulate.  It's a classic balance of harms: omitting some medications (false negatives) to reduce the number of drugs that are actually harmful (false positives).  Without infinite power you need to draw a line somewhere.

But if you are a defender of the traditional FDA it is actually imperative that you become familiar with the argument from personalized medication.  After all, it is the approach that is going to find all of your errors and may well lead to the updating of the current consensus. 

The looting phase of (higher) education reform -- the opposite of cost disease

The tuition spiral is a horrendously complex story involving organizational theory and economics and politics and culture, but there are some fairly simple conclusions we can draw with a fair amount of certainty. One of those is that the standard cost disease explanation -- that a lack of technology-driven productivity gains are driving the increase -- fails to meet the facts in at least two respects: first, the compensation of those who do nothing but teach has not gone up that much; and second, the compensation of administrators, whose productivity should have increased many fold due to advances in IT and telecommunication, has exploded.

From Paul Campos:

One thing that rarely gets asked in the context of all this getting and spending is, What exactly is that money supposed to be for? In theory, of course, it’s for “education.” In practice, a whole lot of it goes directly into the pockets of a metastasizing cadre of university administrators, whose jobs, as nearly as I’ve been able to determine after being on a research university’s faculty for nearly a quarter-century, consist of inventing justifications for their own existence while harassing faculty to fill out evaluations of various kinds. (In a particularly Kafkaesque twist, many of these evaluations are supposed to be of the administrators’ own job performance.)

In [ex-president of Ohio State University E. Gordon] Gee’s case, the sums of money involved are disgusting. At the time he was apparently forced out after having made a few tactless jokes in a private meeting, Gee was getting paid about $2 million per year. This does not include the $7.7 million that the university paid for Gee’s travel, housing and entertainment from 2007 to 2012 — a sum that included at least $895,000 for soirees at Gee’s university-provided mansion, more than a half-million dollars for private jet travel and “$64,000 on his trademark bow ties, bow-tie cookies, O-H lapel pins and bow-tie pins for university marketing.”

Ah, yes, “marketing.”

Gee also increased the size of the university’s senior staff by 30% and raised their average salaries by 63%, to $539,390 in 2011. To get a sense of how out of control university-administrator compensation has become, consider that a year before Gee began his first tenure as Ohio State’s president, the president of Harvard was paid $138,044 ($256,000 in 2012 dollars), and only eight university presidents in the entire nation made more than $200,000. Now, thanks to Gee and his ilk, there are dozens of administrators at Ohio State University alone who would consider that sum an insult.

And for more from the OSU campus, here's Deborah J. Merritt:

We also have a problem with the salaries we pay administrators and tenured faculty. Ohio State’s Vice President for Talent, Culture, and Human Resources is earning $425,000 this year–yet she’s underpaid compared to other senior administrators. Back in 2011, they were already averaging $539,390 per year. My salary, as a senior professor in one of the best paid departments on campus, pales in comparison to these amounts–yet I know that even my salary is too high to support the goals of a public university. Ohio State’s motto is “education for citizenship.” But how much of the citizenry, and from what socioeconomic strata, are we educating at today’s prices?

(though outside of the scope of this post, Merritt also has some interesting insights into the shifting mission of schools like OSU. You should read the whole thing when you get a chance.)

And just so our readers in NYC don't feel left out, here's Pam Martens:

According to documents unearthed in a month-long search of public records, NYU Law School has created an array of nonprofits to funnel money into lavish perks for its professors. The money has been used by professors to buy multi-million dollar brownstones and condos in Manhattan and Brooklyn with portions of some loans forgiven over time. In some cases, even the interest charged on the loans has been reimbursed.

The decision to use nonprofit funds to enhance the lifestyles of a select handful of professors and administrators rather than assisting students is under investigation by Senator Chuck Grassley at the Senate’s Judiciary Committee. A referral has also been made by the NYU chapter of the American Association of University Professors to the New York State Attorney General’s Charities Bureau which oversees nonprofit organizations.

From the hundreds of records examined, NYU, under the leadership of President John Sexton, looks like a real estate developer in drag as a university. According to its federal tax returns from 2006 through 2010 – just a five year period, its five highest paid independent contractors received over $568 million for construction work and an eye-popping $173 million to clean its buildings.