When your business model requires minimal competition

There is a point we've made in passing in a couple of threads: the telecom industry relies heavily on models and strategies that only work in markets with limited competition. These include high fees, opaque and complicated pricing schemes, bundling, bad customer service and explicit policies that makes closing accounts as inconvenient as possible.

There's a quote that Joseph and I tried to credit each other with for years before deciding it came from a business analyst we both knew: "sometimes, it's bad for a company not to be able to lose money." In a competitive market, idiots tend to be culled out. It's not a perfect process but it's a healthy one and it helps maintain the competence level of a business.

The corollary to that quote is "Eventually, all companies can lose money." There will come a point where a company will have to perform competently. I think we may be reaching that point with the telecoms and I don't know that they're up to it. Faced with an increasingly unstable business model, they have dug themselves into a brand and PR nightmare. Worse still, they have managed to hand major victories to the very competitors that threaten  that model. Over-the-air television has a much higher profile and is much more viable since TWC's disastrous showdown with CBS. TWC also managed to give a major boost to the municipal internet movement by so mishandling customers in places like Wilson, North Carolina.

From Dominic Rushe writing for the Guardian

USTelecom, which represents telecoms giants Verizon, AT&T and others, wants the FCC to block expansion of two popular municipally owned high-speed internet networks, one in Chattanooga, Tennessee, and the other in Wilson, North Carolina.

“The success of public broadband is a mixed record, with numerous examples of failures,” USTelecom said in a blogpost. “With state taxpayers on the financial hook when a municipal broadband network goes under, it is entirely reasonable for state legislatures to be cautious in limiting or even prohibiting that activity.”

Chattanooga has the largest high-speed internet service in the US, offering customers access to speeds of 1 gigabit per second – about 50 times faster than the US average. The service, provided by municipally owned EPB, has sparked a tech boom in the city and attracted international attention. EPB is now petitioning the FCC to expand its territory. Comcast and other companies have previously sued unsuccessfully to stop EPB’s fibre optic roll out.

Wilson, a town of a little more than 49,000 people, launched Greenlight, its own service offering high-speed internet, after complaints about the cost and quality of Time Warner cable’s service. Time Warner lobbied the North Carolina senate to outlaw the service and similar municipal efforts.

I know I go on about ignoring Canada's education system

But normally I'm talking about pro-reform journalists not covering the country or pro-reform pundits not addressing the counter-example to their proposals.

This is different. This study, which is getting a lot of play among reform advocates, seems to skip the country entirely and give no reason for the omission.

Am I missing something?

Selection effects on steroids

UPDATE: I just put out a collection of our early posts on education (Things I Saw at the Counter-Reformation).  The impact of attrition is one of the big running themes in the book.

______________________________________________

I'm about to have a lot more to say about the various ways high attrition can pump up a school's performance metrics, some directly through removing low performers, some indirectly through peer effects, treatment interactions and accounting tricks. At the risk of spoiling the punchline of those future posts, it is next to impossible to perform meaningful analyses of the academic quality of high-attrition schools. About the only safe conclusion is that those schools are worse than they look.

If charter schools are going to have a future (and I hope that they will, though my reasons will have to wait for another post), they will have to overcome two existential threats, both of which originated not with their critics but with their supporters. It was supporters who pushed a radical deregulation agenda that led to massive looting of the system and it was supporters who advocated for a flawed system where success was defined solely by metrics and those metrics were easily cooked by methods which took a brutal toll on kids.

In a devastating post, Diane Ravitch spells out just how bad the problem has gotten.

Reformers tend to make two very different arguments about charter schools. Argument #1 is that charter schools serve the same students as public schools and manage to put public schools to shame by producing amazingly better results on standardized exams. Therefore, reformers claim, if only public schools did what charter schools do (or better yet, if all public schools were closed and charter schools took over), student learning would dramatically increase and America might even beat South Korea or Finland on international standardized tests. When it is pointed out that, as a whole, charters do no better than public schools on standardized tests [2], reformers will quickly turn their attention to specific charter chains that, they claim, do indeed produce much better standardized test results. So what’s the deal with these chains? Well, in every case that has been subjected to scrutiny their results are extremely suspicious. Here is a short list of examples:

1. Achievement First in New Haven had a freshman class of 64 students (2 students enrolled later), and only 25 graduated- a 38% graduation rate- yet the school claimed a 100% graduation rate by ignoring the 62% attrition rate. [3]

2. Denver School of Science and Technology (DSST) had a freshman class of 144 students and only 89 12th graders- a 62% graduation rate- yet the school (and Arne Duncan) claimed a 100% graduation rate by ignoring the 38% attrition rate. [4] As a 6-12 charter chain, DSST also manages to attrite vast numbers of their middle school students before they even enter the high school.

3. Uncommon Schools in Newark disappears 38% of its general test takers from 6th to 8th grade.[5] Another analysis found that through high school the attrition rate was, alarmingly, much higher “Uncommon loses 62 to 69% of all males and up to 74% of Black males.”[6]

4. BASIS in Arizona- “At…BASIS charter school in Tucson, the class of 2012 had 97 students when they were 6th graders. By the time those students were seniors, their numbers had dwindled to 33, a drop of 66%. At BASIS Scottsdale…its class of 2012 fell from 53 in the 6th grade to 19 in its senior year, a drop of 64%.” [7]

5. The Noble Network in Chicago- “Every year, the graduating class of Noble Charter schools matriculates with around 30 percent fewer students than they started with in their freshman year.” [8]

6. Harmony Charters in Texas- “Strikingly, Harmony lost more than 40% of 6th grade students over a two-year time.” [9]

7. KIPP in San Francisco- “A 2008 study of the (then-existing) Bay Area KIPP schools by SRI International showed a 60% attrition rate…the students who left were overwhelmingly the lower achievers.” [10]

8. KIPP in Tennessee had 18% attrition in a single year! “In fact, the only schools that have net losses of 10 to 33 percent are charter schools.” [11]

In every case these charter chains accepted students that were significantly more advantaged than the typical student in the district, and then the charters attrited a significant chunk of those students.

Success Academy in New York City plays the same game. It accepts many fewer high needs special education students, English Language Learners, and poor students. [12] It attrites up to 1/3 of its students before they even get to testing grades and then loses students at an even faster pace. It selectively attrites those students most likely to get low scores on standardized tests. [13] It is legally permitted to mark its own exams (as are all New York City charter schools) while public schools cannot. It loses 74% of its teachers in a single year at some of its schools. [14] The author of the Daily News editorial that sparked the initial blog commented “even in the aggregate that wouldn’t seem to account for” the results. It is entirely unclear what he means by “in the aggregate.” But it is clear that he has his arithmetic wrong. A charter chain that starts with an entering class that is likely to score well on standardized tests, then selectively prunes 50% or more of the students who don’t score well on standardized tests and refuses to replace the disappeared students with others, can easily show good standardized test results with the remaining students. Any school could do this. It’s really not rocket science.

And here are the footnotes

[1] https://dianeravitch.net/2014/08/22/is-eva-moskowitz-the-lance-armstrong-of-education/
[2] http://www.washingtonpost.com/blogs/answer-sheet/wp/2013/09/24/the-bottom-line-on-charter-school-studies/
[3] http://jonathanpelto.com/2013/05/30/another-big-lie-from-achievement-first-100-percent-college-acceptance-rate/
[4] http://garyrubinstein.wordpress.com/2014/04/16/arne-debunkin/
[5] http://schoolfinance101.wordpress.com/2010/12/02/truly-uncommon-in-newark /
[6] http://danley.rutgers.edu/2014/08/11/guest-post-where-will-all-the-boys-go/
[7] http://blogforarizona.net/basis-charters-education-model-success-by-attrition/
[8] http://jerseyjazzman.blogspot.com/2012/04/no-bull-in-chicago.html
[9] http://fullerlook.wordpress.com/2012/08/23/tx_ms_charter_study/
[10] http://parentsacrossamerica.org/high-kipp-attrition-must-be-part-of-san-francisco-discussion/
[11] http://www.wsmv.com/story/22277105/charter-schools-losing-struggling-students-to-zoned-schools
[12] https://dianeravitch.net/2014/03/12/fact-checking-evas-claims-on-national-television/
[13] https://dianeravitch.net/2014/02/28/a-note-about-success-academys-data/. The high attrition rate before testing in 3rd grade may explain the data pattern noted in this http://shankerblog.org/?p=10346#more-10346 analysis.
[14] http://www.citylimits.org/news/articles/5156/why-charter-schools-have-high-teacher-turnover#.U_gqR__wtMv
[15] http://edexcellence.net/commentary/education-gadfly-daily/flypaper/2013/the-charter-expulsion-flap-who-speaks-for-the-strivers.html
[16] http://schoolfinance101.wordpress.com/2012/12/03/when-dummy-variables-arent-smart-enough-more-comments-on-the-nj-credo-study/

Support your local journalists

As part of a sharp and funny take down of Chris Christie and Rick Perry, Charles P. Pierce makes a point I've been meaning to hit for a while:

There are a couple of lessons to be drawn by looking at this continuing investigation into traffic-related ratfking and at the continuing investigation into the activities of Rick Perry down in Texas. The first, and most obvious one, is that, if you really want to understand these kind of scandals, it is imperative to ignore everything the elite national political press says about them, and get with the local media on the ground in the states. This means the Bergen Record on the bridge thing, and it means Jeff Cohen in Houston, as well as Wayne Slater and Keven Willis in Dallas, on Goodhair's shenanigans. What seems to have baffled Jonathan Chait and a number of other liberal outlanders seems pretty clear to the Dallas Morning News, which is rarely confused with In These Times.

There is a lot of good local journalism coming out of the local papers, and yes, TV stations of places like Dallas and New Orleans, particularly if you're a fan of the check the facts them shape the narrative to fit what actually happened school of reporting. I think you can even make the case that while the national outlets are getting worse, local is getting better, particularly in those areas where the standard narrative can no longer be reconciled with the facts on the ground.

Education reform is especially rich in stories where the national press is months or even years behnd their local competition.

Two more charter schools close abruptly, sending parents and students scrambling

Opting Out Of Testing Would Come At A Cost For Florida School Districts

And from Chicago

Drop CPS’ reform strategy: CPS neighborhood school growth outpaces charters

I know I pick on Netflix a lot

But the coverage of the company keeps providing such good examples of the way flacks and hacks force real stories into standard narratives.

Some of this can be fairly subtle. For example, using definitions that aren't standard but aren't quite wrong. For example, Check out this statement from Chief Financial Officer David Wells:

"Our intent is to continue to expand the content library," Wells told the investors in attendance. "If we're going to meaningfully address the 60 million to 90 million [potential U.S. subscribers], we'll need to do that by adding more originals, we need to do that by adding more breadth of content. And part of that is making our content more exclusive, so moving it from nonexclusive to exclusive, and offering more curated offerings" 

Check out the phrase "content library." The standard definition of the phrase is a collection of rights to artistic intellectual property. These days, a handful of very big entertainment companies* like AOL Time Warner or Disney own virtually every property created over the past century that could be shown on TV in either new or original form. If you have a retro-channel and you want to show I Dream of Jeannie, you have to get permission from (and send a check to) Sony. If you wanted to make a new Woody Woodpecker movie, you'd have to deal with NBC Universal.

Under the standard definition, Netflix simply does not have a content library.

HBO owns and produces about 95% of the original programming carried on its channels. Netflix has said it doesn’t want to adopt the studio model, preferring to be a licensee of content. The studio model lets HBO recoup the investment in original programming through its 114 million subscribers in 65 countries worldwide, as well as via DVD sales. For example, HBO earns $2.6 million in license fees for a single episode of “Game of Thrones” in international territories, according to HBO.

By contrast, Netflix calls itself a “programmer” not a producer. It licensed streaming rights to “House of Cards” from producer Media Rights Capital. MRC, which owns the content, cut a deal with Sony Pictures Television to sell DVD and international TV rights covering non-Netflix countries.

To put things in perspective, Sex in the City and its sequels probably brought in more than a billion dollars in revenue after the show ended. As far as I can tell, Netflix has no post-run rights of any kind for House of Cards or Orange is the New Black.

When Wells says "content library," he  means "shows that are currently being licensed."  That's one of those statements doesn't tend to strike the knowledgeable as a lie but which is highly misleading to many if not most of the journalists covering the story.

Netflix has done a masterful job framing its own narrative. Most of the press has embraced and internalized

Netflix = HBO 2.0

HBO is known for its content library. When a Netflix executive says "Our intent is to continue to expand the content library," it is remarkably easy for those journalists to miss the fact that 'content library' means something completely different in those two sentences.

* The exception being Dreamworks which is only worth around a couple billion, but that studio occupies a strange spot in the ecosystem.

Job security

Mark posted about a piece by Barry Ritholtz that had some smart things to say about market timing.  However, I think I want to quibble with the end of his piece:

One last thought on this: The demographic group with the longest investing time horizon are the millennials now in their 20s. According to Patrick O’Shaughnessy, author of “Millennial Money: How Young Investors Can Build a Fortune,” despite their long timeline, members of that generation seems to be missing out. They are significantly underinvested relative to how much time they have until retirement.

Given the dramatic financial crisis of 2007-2009, O’Shaughnessy says it is no surprise that millennials as a group “don’t trust Wall Street.” They also rank “all four major banks among most hated brands.”

“The most basic (and important) decision you make as an investor is your allocation between major asset classes — primarily stocks, bonds and cash.” O’Shaughnessy observes that this cohort is wildly underweighted in equities at 28 percent and overweighted in cash at an astounding 52 percent.

Perhaps it is ironic: The group that has the longest potential runway for absorbing market volatility also seems to be the least interested in investing in stocks.

When it’s time to retire, these folks might be surprised that they cannot go back to live in their parents’ basements again.

So I have a couple of basic questions to ask here.  One, people who are honestly at risk of moving back into their parent's basement should have cash investments.  Nothing is worse than having an unexpected cash crisis (car towed, water leak) where you need money fast to prevent a greater disaster.  Isn't this just prudent?

Second, the leading edge of this group is 35 years old.  So they have to presume that the stock market will do well for another 30 years or so, if retirement is the goal.  That might not be a bad gamble, but we are in the era where the baby boomers may switch from net buyers of stock to net sellers.  That could be a long period of sub-optimal returns. 

But really, the first piece is the most important.  We have moved into a era of decreasing employment security: "at will" employment, attacks on tenure, reduction in unions, and so forth.  In aggregate, these factors make it impossible to plan over long time horizons.  And the lesson of 2007 is that major employment dislocations are often paired with stocks plummeting.  Why wouldn't you keep a lot of money in cash?  After all, ending up as a homeless person because you tried to invest for yield seems like a bad outcome. 

I am not sure that I have a solution, except to note that we are in precisely the sort of employment market where a 401(k) or IRA is least likely to make sense.  After all, they are an asset that can be claimed to handle an unexpected disaster. 

So I am not sure that I would make the snarky last comment.  People growing up in economically depressed periods often have a very different view of the world than those who have always had resources. 

The essential distinction between charter schools and charter school chains

Noah Pransky of TV station WTSP adds to the excellent coverage of Florida's charter school corruption scandal. The piece is well worth checking out. It is also a good place to emphasize a point I've made in passing before. The charter school sector is highly diverse. It ranges from literal mom and pop operations to nation-wide corporations. The best of these schools get good results, genuinely care about their students and can fill an important educational niche. The worst aggressively cook data to conceal mediocre results and gouge the taxpayers.

If current trends hold, I think charter schools will be nearly as diverse and I'm not optimistic about who the winners will be.

Charter Schools USA (CUSA) has been operating charter schools in Florida for 20 years, including recently-opened schools in Hillsborough County: Woodmont Charter, Winthrop Charter, and Henderson Hammock Charter. Although charter schools sometimes struggle financially at first, CUSA eventually collects a 5% management fee from each to provide administration and guidance.

But 10 Investigates found a much bigger pot of money CUSA has been able to tap into: rent. When the company helps open a new school, its development arm, Red Apple Development, acquires land and constructs a school. Then, CUSA charges the school high rent.

For example, Winthrop Charter in Riverview may struggle to balance its budget this year thanks to a $2 million rent payment to CUSA/Red Apple Development. The payment will equate to approximately 23% of its budget, even though CUSA CEO Jon Hage has been quoted as saying charter school rent should not exceed 20%.

...

Jurado adds that many new charter schools ultimately fail because they lack the stability or resources that Charter Schools USA provides. The company operates 70 schools in seven states.

But among CUSA's critics is the League of Women Voters, which recently released a study suggesting a troubling lack of separation between a charter school's advisory board and for-profit management companies. It also indicates charter school teachers aren't often paid as well and profits all-too-often play a role in educational decisions.

"That means that children aren't getting what they're owed by the public funding," said Pat Hall, a retired Jefferson High department head and Hillsborough County's education chair for the League of Women Voters.

The study also revealed school choice creates a higher risk of disruption to a child's education, as "statewide closure rate of charters is 20%" and "Charters are 50% of all F-rated schools in 2011." In the last week, last-minute problems displaced a hundreds of charter school students from St. Petersburg to Delray Beach.

Hall acknowledges many charter schools are teaching children in unique and successful ways, but says Charter Schools USA isn't offering students anything that's not available in public schools. She adds that the schools are so focused on FCAT fundamentals, they forego many traditional aspects of the school experience.

While many CUSA schools may not have amenities such as a library or cafeteria, a company spokesperson said moving those amenities to the classroom can improve a student's learning atmosphere.

...

SPENDING (POLITICAL) MONEY TO MAKE MONEY

Charter Schools USA, its executives, and its subsidiaries have also spent millions of dollars to influence how laws are written in Florida.

State records reveal CUSA has donated $468,850 to candidates and committees at the state level since 2010. Most went to the Republican Party of Florida and other candidates/committees who support school choice.

CUSA CEO Jonathan Hage donated $50,000 to Gov. Rick Scott's "Let's Get to Work" committee in 2013, as well as thousands of dollars to other Republican candidates and committees. That includes four donations to various Charlie Crist campaigns between 2000 and 2006.

Other executives, Red Apple Development, and affiliated board members have thousands more.

State records indicate CUSA has also increased its lobbying expenditures every year since 2010, nearing $2 million in Tallahassee lobbying alone.

Executive lobbying expenditures, by year (only ranges provided):

2010 – Between 60,009 and 189,987
2011 – Between 100,007 and 209,989
2012 – Between 120,004 and 219,990
2013 – Between 230,004 and 379,985
2014 (first quarter) - Between 80,000 and 109,997
TOTALS: Between 590,000 and $1.1 million
Legislative lobbying expenditures, by year (state estimates):

2010 – $165,000
2011 – $265,000
2012 – $270,000
2013 – $320,000
2014 (first quarter) - $95,000
TOTALS: Between 590,000 and $1.1 million
The League of Women Voters also identified numerous legislators with connections to Charter Schools (Read Page 13), but none associated with Charter Schools USA, although state Rep. Jamie Grant, R-Tampa, sits on the volunteer Bay Area Charter Foundation board.

Asked about spending money on politics instead of in the classroom, Jurado pointed to the hordes of happy parents and thousands on CUSA waiting lists in Hillsborough County.

"I don't think the parents are going to look at this as, 'that's too much money to spend,' when they see the results from the child," Jurado said.

Context is important.

As you probably know, the Detroit Free Press recently ran a multipart expose on corruption in Michigan's charter schools. (You can find my summary of the series in this Monkey Cage post). The reporting can stand by itself but you get a deeper appreciation if you consider how these revelations look to the people there. To do so, it helps to look at the other government and education stories that are currently in the news in Michigan.

From The Detroit News:

State education officials have approved a plan by Detroit Public Schools to slash pay 10 percent districtwide to help erase the district’s $127 million deficit.

...

The pay cut, which will impact all teachers and administrators starting Oct. 1, came after the district was forced to make budget cuts to offset expected revenue from a failed countywide tax millage. The wage concession for teachers would generate $13.3 million in savings. Districtwide, the savings will be $21.1 million.

...

Parents, educators and community stakeholders met Wednesday morning in front of Ludington Middle School to denounce the cuts, as well as the district’s previously announced plans to increase class sizes.

Brian Kindle has two children beginning Head Start in the fall, and a 15-year-old at Cody High School. He said he’s worried about how pay cuts will impact his kids.

“I say hands off first responders, kids and teachers,” he said. “I’m here to support parents and their children, and to ask Gov. Snyder not to vote for the proposal.”

Kindle said he fears additional cuts will result in further neglect of students in the classroom.

“We should have classrooms on every corner, instead of liquor stores,” he said. “That would be great, but we don’t have a society that encourages it. But I will remain on the forefront supporting our children.”

...

“This is going to affect my whole financial situation, and it’s going to have a huge impact on my family,” she said. “It’s also going to impact the way we teach, because all teachers go into their own pockets to spend for classroom supplies, and now that can’t happen.”

Cherri Calhoun, a secretary at Ludington, said if she did not have her mom living with her, she’d be homeless.

“As it is now, I’m already struggling to pay my mortgage and my mom helps me pay my bills,” she said. “I’m pretty sure I’m going to have to find a part-time job now.”

Calhoun said to make matters worse, she is in a financial bind from the recent flooding in Metro Detroit.

“I just bought a new furnace and the water heater was relatively new and I’m going to have to replace the water heater,” she said. “This is horrible. I’ve got all these bills and I can’t afford to do anything.”

Netflix and the big swinging check syndrome

Another post in what what was supposed be a fairly brief Netflix thread. I want to move on to other topics, but this latest news item was just too good an example of certain bad trends in journalism to pass up.

You may have seen the following news story earlier:

Netflix Acquires ‘The Blacklist’ For $2 Million An Episode

EXCLUSIVE: In what is believed to be the biggest subscription video-on-demand deal for a TV series, I’ve learned that Netflix has acquired the rights to hit NBC drama The Blacklist from Sony Pictures TV in a deal that will net $2 million per episode. I hear Season 1 of the series starring James Spader will debut on the streaming service next weekend. As for future seasons, Netflix usually makes them available shortly after the season finales.

Sony TV first tested the off-network market waters for The Blacklist in March. While other streaming services, like Amazon and Hulu, do joint syndication deals with cable networks, Netflix, which largely pioneered the series SVOD business, insists on getting first dibs. Twentieth Television just recently sold New Girl to TBS and MTV, more than an year after prior seasons of the Fox series landed at Netflix in a rich deal, said to be worth $900,000 an episode. Like was the case with New Girl, I hear Sony TV has the right to also sell The Blacklist in cable and broadcast syndication, with Netflix getting an exclusive first window. The $2 million per-episode fee is said to be the biggest for an off-network series paid by Netflix (or any others streaming company), eclipsing previous record holder, AMC’s The Walking Dead, whose sale price to Netflix is believed to be $1.35 million per episode.

For starters, you will notice that the headline is somewhat misleading. Netflix did not "acquire" the Black List in the sense that, say ABC would have. The show will still be running on NBC next year. Nor did it acquire the rights to stream the episodes during the regular season; those will presumably stay with Hulu. What Netflix did acquire was the right to stream the previous year's episodes.

Furthermore, if you hit a few relevant Wikipedia pages and do some quick back-of-the-envelope calculations, you will see it is difficult to see how Netflix can justify this price-per-episode to its shareholders or how Sony could have negotiated it.

It is the nature of television, whether broadcast or streamed, that while the quality has a way of tapering off after a few years, the commercial value tends to increased sharply once a show has established itself. As a rule of thumb, it is not until programs approach 100 episodes that you start talking real money.

Just to put things in perspective, while a long running, syndication friendly, proven hit like NCIS can bring in over $2 million a year. That is very much an upper bound. The Blacklist is years away from having a viable syndication package. Even when it gets there, its serialized elements will probably keep it from making the really big bucks. A forty-four million dollar deal one year into a series run is extraordinary. It is almost inconceivable that Sony would not have settled for much less.

I realize that the following point should be too obvious to bother with, but the object of business is to bring in as much money as possible while sending out as little as possible. If Netflix just paid $44 million for something which they could've gotten for 20 or even 10, this would indicate a fundamental lack of confidence by the management of the company.

Here though, we get into one of the great paradoxes of modern business journalism. From a strictly logical standpoint, the best run businesses are, almost by definition, those which do the most with the least. From an emotional standpoint, journalists are most impressed by those executives who spend extravagantly without apparent hesitation.

For lack of a better word, the willingness to sign large checks is seen as a sign of virility. The bigger the check, the more positive the impression it makes on the reporters covering the story. The soundness of the purchase does not matter, nor does its positive or negative impact on the executive's company.

Netflix has long been something of a joke within the entertainment industry for its tendency to pay more than top dollar for properties that have already been turned down by everybody else and yet Reed Hastings' reputation as a visionary business genius simply grows stronger.

Along similar lines, when Mark Zuckerberg paid an exorbitant amount of money for a company the New York Times simply gushed with enthusiasm, even though it was later revealed that the primary selling point of the company was the fact that the founder threw awesome parties.

Hastings and Zuckerberg may stand out but that doesn't mean they aren't representative. Executives, particularly tech executives, are routinely lauded for big, bold deals, even when those deals make no sense from a traditional business standpoint. Like so much business coverage we see these days, what is presented as rational analysis is a series emotional reactions to charismatic personalities, catchy narratives and the reflected glow of great wealth.

Netflix and the ethics of modern journalism

I had meant to drop this topic after the recent Emmys post, but one more issue got stuck between my teeth and I think it would be easier to write it away then to try to ignore it.



I recently heard an interview on public radio that bothered me quite a bit but before I get into the specifics I should probably lay some groundwork about the Netflix business model.

When Netflix first started as a DVD-by-mail service, perhaps its greatest selling point was selection. It couldn't offer every movie and TV show that had ever been released on DVD, but it could come surprisingly close. By contrast, selection was probably the worst thing about the streaming service. If you randomly pick a movie or TV show that you would like to see, the chances of finding it on Netflix are vanishingly small. (To get an idea just how limited, try comparing the classic movie section in Netflix with the Criterion Collection on Hulu).

Of course, retailers have been dealing with the problem of making small selections look big for decades, perhaps even centuries. Some stores get around this by putting mirrors on the wall. Others arrange their stock so that a few items will take a great deal of space and seem to fill the showroom. And of course, the tricks used by advertisers to achieve this effect are endless.

Netflix has come up with a number of online alternatives to the mirrors on the wall. They have found excuses for double, triple, and quadruple listing various titles. They have split single series into multiple listings. They leave titles in the new arrival category for a very long time. For a while , they were even offering the same public domain episodes of shows like Bonanza which you can find and download for free at the Internet Archive (the tip off is the title music).




Just to be clear, there is absolutely nothing wrong with a company doing this. If I were running Netflix, I'd be pursuing the same strategy (actually, I'd hire Neal Sabin and tell him to do it but that's another story). You always present the product in the best possible way then you present the presentation in the best possible way. When your merchandise is ugly, you dim the lights; when people ask why the lights are dim, you say it's artistic.

Where I do see a potential ethical problem is in the way journalists present these presentations, particularly when the journalists have a symbiotic relationship with the companies they cover.

The other day, I heard CBC's Jian Ghomeshi interviewing Atlantic writer/editor Alexis Madrigal and Netflix executive Todd Yellin. I in part way through and only heard some of the segment and I would have listened to even less if I hadn't been waiting to find out who was talking (I tuned in in the middle). The two of them were very much working as a team to the extent that, if not for the occasional pronoun ('our' vs. 'their, for example), I would not have been able to tell who was the journalist and who was the company spokesman.

Perhaps it got better, but what I heard was simply an uncritical recitation of the official company spin with the journalist stepping into the role of second company representative. This is doubly troubling because Madrigal appears to have benefited greatly from this partnership. Reporting on big companies is remarkably easy if you're telling the story the executives want people to hear (obviously the case here), so Madrigal appears to have gotten a major feature with minimum effort. What's more, he is milking this piece for all it's worth, getting interviews and being featured in other stories and building his media profile in general. He may even get a book out of this.

I realize there have always been symbiotic relationships between journalists and subjects, just as companies have always tried to shape their narratives, but if nothing else, I think it used to bother us more.

Barry Ritholtz on Market Timing, Wolf Richter on rigging the IPO market

I don't have the time to do anything more than pass these along (and Joseph has even less), but these are worth your time.

First, Barry Ritholtz  looks at the upper and lower bounds for returns on market timing strategies and comes up with some interesting conclusions.

Second, Wolf Richter shows how a carefully placed (and even more carefully leaked) investment of $20 million has caused the valuation of a company with no revenue and virtually no business plan to go from an unjustifiable $2 billion to a surreal $10 billion (and, more importantly, caused a ripple effect through the entire IPO market).

One of the most important aspects of Common Core gets relatively little attention

“No one ever went out to lunch with Mushari. He took nourishment alone in cheap cafeterias, and plotted the violent overthrow of the Rosewater Foundation. He knew no Rosewaters. What engaged his emotions was the fact that the Rosewater fortune was the largest single money package represented by McAllister, Robjent, Reed and McGee. He recalled what his favorite professor, Leonard Leech, once told him about getting ahead in law. Leech said that, just as a good airplane pilot should always be looking for places to land, so should a lawyer be looking for situations where large amounts of money were about to change hands.

”In every big transaction,” said Leech, “there is a magic moment during which a man has surrendered a treasure, and during which the man who is due to receive it has not yet done so. An alert lawyer will make that moment his own, possessing the treasure for a magic microsecond, taking a little of it, passing it on. If the man who is to receive the treasure is unused to wealth, has an inferiority complex and shapeless feelings of guilt, as most people do, the lawyer can often take as much as half the bundle, and still receive the recipient’s blubbering thanks.”
— Kurt Vonnegut, God Bless You, Mr. Rosewater

Between textbooks and testing and training and all the other things that will need to be replaced or revamped, the introduction of Common Core is going to cause billions upon billions to change hands. That doesn't make it a bad idea, nor does it make the people behind corrupt, but it is not something that can be ignored.

The billion-dollar LA iPad plan was primarily intended as support for Common Core. It has become more of a cautionary tale. From Steve Lopez of the LA Times:

And the emails really make you want to hold your nose.

"I believe we would have to make sure that your bid is the lowest one," now-departed Deasy deputy Jaime Aquino wrote to Pearson in May 2012, two years before the contract was approved.

Aquino, if you have forgotten, had been an executive with a Pearson affiliate prior to heading up Deasy's tech implementation plan.

Deasy — who graciously appeared in a promotional video for iPads before the contracts were awarded — later jumped in on that same email conversation.

"Understand your points and we need to work together on this quickly," wrote Deasy, later adding he did not want to lose "an amazing opportunity."

Deasy maintains that the emails were not about the larger, $1-billion tech plan but about "a pilot program we did at several schools months before we decided to do a large-scale implementation."

[The 'pilot program' is, by the way, a time honored work around. It is an excellent way of easing a preferred vendor into a position -- MP]

Even if you believe that, along with Deasy's claim that "nothing was done in any inappropriate way whatsoever," his contact with Apple and Pearson raises countless questions about whether a legitimate bidding process was ever an objective.

"You should make every bidder think they have a slim chance of getting the job," said Stuart Magruder, the school bond oversight committee member who briefly lost his post for asking too many questions about all of this. Deasy "didn't do that. He created an environment where Apple and Pearson probably didn't have to be as creative as they could have been."

Or as thrifty. As Magruder noted, the district agreed to a far higher cost per device than what other districts were paying. Magruder also argued that he believes the main objective with digital devices has always been to facilitate more test-taking rather than better teaching and deeper, more meaningful learning experiences for students.

Accountability at the LAUSD

“If we transform human capital by ensuring there are effective employees at every level of the organization focused on improving student outcomes, give our students and parents a portfolio of high quality school choice, and hold ourselves accountable through strong performance management, then every student in our schools will graduate college-prepared and career-ready.”

Dr. John E. Deasy, superintendent of the Los Angeles Unified School District

There is a heated debate going on over the role of the 0.1% in education reform (you can see my take in this Monkey Cage piece). It is also a fairly new one. For years, the reform movement portrayed itself in grassroots terms despite being fundamentally a top-down movement. This was possible for a while because virtually all major media players were openly supportive of the movement and almost never questioned the narrative.

These days, many journalists such as  Valerie Strauss have become much more critical of the movement and are much less inclined to ignore ubiquitous billionaires such as Bill Gates, Eli Broad and Alice Walton. The response from movement supporters has been to ask what's the problem with successful people being generous?

This is another case of short question/long answer, but part of the answer is that when a very small group of people have this much influence over something like education, winning the approval of these people becomes more important than competence or being responsive to the remaining 99.9% of the population.

For all the talk of tenure, connections are the ultimate form of job security. John Deasy is extraordinarily good at winning over the support of the rich and powerful (add Antonio Villaraigosa to all of the names mentioned earlier). He is also extraordinarily bad at running the LAUSD. The iPad fiasco is the best known example (and it keeps getting better) but that same kind of mismanagement is more or less the norm under Deasy.

Hundreds of students walked out of class at Jefferson High School on Monday morning, holding a sit-in to protest a host of issues at the South Los Angeles campus -- among them a scheduling snafu that has extended into the third week of school.

Students gathered in the quad after first period, sitting in a grassy area in a silent protest of what they contend has been weeks of mismanagement by administrators that has wasted their time and severely interrupted their education.

For the first weeks of school, many students were left without class schedules, others were given courses they did not need and some were without those required for graduation, students and teachers said.

Several Advanced Placement courses were scheduled at the same time, leaving students unable to enroll in all the college-level courses they desired. Students still learning English were unable to enroll in courses at their level, as they were scheduled during the same periods.

Problems were apparently intensified by a new computer database, known as the My Integrated Student Information System, which caused a litany of scheduling problems around the district in the first weeks of school.

Teachers have described over-enrolled classes, missing or inaccurate rosters, students without schedules and an inability to take attendance in the system.

Last week, district officials overhauled Jefferson's master schedule and removed the principal. The district then installed another principal, Jack Foote, whom the district described as an "experienced administrator who brings to his role a track record of success."

But the issues have persisted, students say.

Foote did not return requests for comment. Students returned to class Monday afternoon.

Buying a reputation

It is almost always a mistake to make too much of the Emmys. All awards are overrated but Oscars and Tonys do still bring a critical and commercial boost. The Emmys are little more than an expensive pissing contest between network executives.

 It is, however, a very expensive pissing contest. Lots of money goes into ads and PR accounts so some executives can feel better about themselves on Monday (or in this case, Tuesday) morning. West of the 110, those "For Your Emmy Consideration" billboards are pretty much inescapable.

Many of those billboards, perhaps a plurality, were from Netflix. Which makes it telling (though not important) that the company was completely shut out of anything bigger than outstanding guest actress. The company has spent a lot of money trying to snag these awards of questionable value and so far their return on investment has not been good.

Yes, this is another one of those Netflix-bashing posts, but I want to be clear about which Netflix I'm bashing.

I don't have a big problem with the service. Having a Netflix subscription is a bit like having a Kmart on the road you take to work. The quality can be iffy and the selection is bad but it's convenient and you can't beat the price.

As a business, it strikes me as very shaky but it is possible to imagine someone making a go of this. It's not a Groupon-style Ponzi scheme.

What bothers me is Netflix the narrative. More than perhaps any other company, the public face of Netflix is a PR creation. All of the recognized attributes of the company are either puffed-up or invented out of whole cloth. Other than one good, crowd-sourced model,  the company appears to be running on some really crude algorithms and doing little with its admittedly massive data set. Rather than creating an HBO-style content library in-house, it is simply paying exorbitant sums for exclusive first airing, after which the producers can do whatever they please. Reports of various successes all fade on closer examination: Netflix is overtaking competitors (but only if you ignore international markets or compare Netflix's revenues to other industries' profits); Netflix is solidly in the black (but only if you use just the right kind of accounting); Those exclusive shows are huge hits (but only according to vague statements about numbers the company refuses to release*).

The vast majority of the press, up to and including David Carr of the New York Times, is willing to believe an appealing narrative even when it is improbable, unsubstantiated, even contradicted by the facts. That's the part that bothers me.

* There is some external evidence that Orange may be doing quite well.

A joke but not a hoax

From Valerie Strauss

April 25, 2014

Dear Kindergarten Parents and Guardians,

We hope this letter serves to help you better understand how the demands of the 21st century are changing schools, and, more specifically, to clarify, misperceptions about the Kindergarten show. It is most important to keep in mind is [sic] that this issue is not unique to Elwood. Although the movement toward more rigorous learning standards has been in the national news for more than a decade, the changing face of education is beginning to feel unsettling for some people. What and how we teach is changing to meet the demands of a changing world.

The reason for eliminating the Kindergarten show is simple. We are responsible for preparing children for college and career with valuable lifelong skills and know that we can best do that by having them become strong readers, writers, coworkers and problem solvers. Please do not fault us for making professional decisions that we know will never be able to please everyone. But know that we are making these decisions with the interests of all children in mind.



Sincerely,

Ellen Best-Laimit

Angela Casano

Keri Colmone

Stefanie Gallagher

Martha DeMartini

Your first thought on reading this might be Daily Currant, but no...

All but one of the people who signed the letter were unavailable for comment. One asked me to call back but then didn’t answer the phone. District Superintendent Peter Scordo declined to discuss it. Michael Conte, a spokesman for Scordo, said in an e-mail on Saturday:

Yes, the letter is authentic. As it states, the Harley Avenue Primary School educators believe that this decision is in the best interest of students.

I don’t have anything more to add for your consideration. Thank you for reaching out.

This didn’t come out of the blue. Kindergarten (and even preschool) has increasingly become academic — at the expense of things such as recess and the arts — in this era of standardized test-based school reform. In most states, educators are evaluated in large part on test scores of students (sometimes students they don’t have) and on showing that their students are “college and career ready,” the mantra of the Obama administration’s education initiatives. Earlier this year, Rob Saxton, Oregon’s deputy superintendent of public instruction, and Jada Rupley, the early learning system director in the state’s Education Department,  wrote an op-ed in the Oregonian that was published online with this headline: Kindergarten test results a ‘sobering snapshot’. What was it about? Kids hadn’t done well on a standardized reading-readiness test.