Notes on the content bubble

[If you're new to the thread, check out this, this, and this]

One of the classic recipes for disaster in a market bubble is focusing exclusively on a sharp increase in demand while ignoring an even greater increase in supply. The potential audience for video content has greatly increased. Furthermore, the amount of video each member of that audience can conveniently consume has probably more than doubled. Unfortunately, the supply of content has increased by orders of magnitude. This holds virtually across-the-board: scripted and unscripted; new and old; live and recorded; big-budget and web cam in the basement.

Hype always plays a role in bubbles going all the way back to the 18th century. You could even argue that bubbles are primarily the result of buzz distorting markets. In the 21st century, living in the hype economy, the distortions are greatly amplified. Today, we have companies spending billions of dollars primarily to promote shows that almost no one is watching. Depending on how you calculate the numbers, the reboot of Twin Peaks got something like one fiftieth The audience of the original.

Nonetheless, the funding keeps coming.

Hollywood mogul Jeffrey Katzenberg has secured about $800 million in financing for his video startup NewTV, which the company will use to fund high-end TV series that have YouTube-length episodes, according to people with knowledge of the matter.
...
NewTV will use the money to finance shows that are roughly the duration of a typical YouTube clip, but at a cost more on a par with a Netflix Inc. series. Each NewTV series will cost about $5 million to $6 million per hour, the people said, but individual episodes won’t run much longer than 15 minutes.
...
Katzenberg, who declined to comment for this story, has reached out to some of the biggest directors and producers in the entertainment business, the people said. NewTV has yet to announce any shows.

It's also worth noting that perhaps the most prominent company to try to bring big stars and slick production to short YouTube videos was Funny or Die, and that hasn't proven to be a growth model.

Things don't really get weird till you get "computer dating" in the 60s

Science fiction is a sometimes useful but often misleading indicator of how people in the past thought about progress and technology. In order to establish that some new innovation was really on people's minds, you need to look to the mainstream and you don't get much more mainstream than The Desk Set. A successful 1955 play starring Shirley Booth before becoming a vehicle for Hepburn and Tracy. (Certainly not one of their best efforts, but still better than you'd think from this trailer.





It's not entirely clear from the trailer, but the central conflict is the threat that the introduction of computers will lead to massive lay-offs in the office. People were talking about computers sixty-plus years ago, and the conversation has not evolved all that much.

Crowdsourcing my work

If you have a minute, I would appreciate your help with an essay I'm working on. I'm putting together a list of postwar scientific and technological innovations that meet the following two criteria: first, they need to be major advances that either occurred during or had their greatest impact in the period roughly defined by 1945 to 1970; second, they need to have comparable or greater symbolic value.

For example, the eradication of polio was an impressive medical accomplishment:

In 1947, Salk accepted an appointment to the University of Pittsburgh School of Medicine. In 1948, he undertook a project funded by the National Foundation for Infantile Paralysis to determine the number of different types of polio virus. Salk saw an opportunity to extend this project towards developing a vaccine against polio, and, together with the skilled research team he assembled, devoted himself to this work for the next seven years. The field trial set up to test the Salk vaccine was, according to O'Neill, "the most elaborate program of its kind in history, involving 20,000 physicians and public health officers, 64,000 school personnel, and 220,000 volunteers." Over 1,800,000 school children took part in the trial.

But given the shadow that polio had cast over the public imagination and the suddenness of the development of the vaccine, the symbolic value was arguably even greater.:

Until 1955, when the Salk vaccine was introduced, polio was considered one of the most frightening public health problems in the world. In the postwar United States, annual epidemics were increasingly devastating. The 1952 U.S. epidemic was the worst outbreak in the nation's history. Of nearly 58,000 cases reported that year, 3,145 people died and 21,269 were left with mild to disabling paralysis, with most of its victims being children. The "public reaction was to a plague", said historian William L. O'Neill. "Citizens of urban areas were to be terrified every summer when this frightful visitor returned." According to a 2009 PBS documentary, "Apart from the atomic bomb, America's greatest fear was polio."
...
When news of the vaccine's success was made public on April 12, 1955, Salk was hailed as a "miracle worker" and the day almost became a national holiday. Around the world, an immediate rush to vaccinate began, with countries including Canada, Sweden, Denmark, Norway, West Germany, the Netherlands, Switzerland, and Belgium planning to begin polio immunization campaigns using Salk's vaccine.

(I have often wondered if the experience with polio created unrealistic expectations for the war on cancer, but that's a topic for another post.)

Here's the list I came up with.

Space travel/satellites
Nuclear weapons/power
Television
Computers
Jet travel
Miniaturization/transistors
Polio eradication
Green revolution
DNA
Birth control

And possibly lasers

Does anyone see any obvious omissions?

Life in the hype economy – – Moviepass edition

[Continuing the MoviePass thread]

I have no idea whether it is real or apocryphal, but there's an often referred to study with primates where the they earned tokens that could be exchanged for food. According to the standard version, the subjects soon came to value those tokens more than the treats they could be exchanged for.

The hype economy works along similar lines. The ability to get people talking about something (preferably but not always necessarily in a positive way) is tremendously valuable by most traditional standards. For entertainers, it can bring in large audiences. For goods and services, it can drive sales and help maintain customer loyalty. For politicians, it can be votes. For public policy initiatives, it can generate and shore up support.

At some point though (and it's a point we passed quite a while back) the ability to generate buzz becomes disconnected both from the attributes which are supposed to drive it and the objectives it is supposed to serve. It then takes on a life of its own. Hype becomes the primary if not sole metric by which anything is judged. The television show that no one watches, the business with no real prospect of turning a profit, the research claim that collapses under scrutiny are all seen as successful and important as long as you hear enough about them.

This is a big topic for a short post so I won't try to get into the specifics the damage done by the hype economy. We've already spent countless hours talking about how it  distorts markets, wastes resources, undermines our public policy  and corrupts the research needed to drive real innovation.

As he did with the make-it-up-in-volume fallacy, the CEO of MoviePass provides a perfect example of the hype economy.

Emphasis added.

Pogue: OK, but if I’m paying $7 a month, I’m paying less than half of the price of one ticket. You’re paying the theater double that — so I don’t understand how you can stay in business.

Lowe: Well, have you seen Spotify’s financials? They spent $2 billion more on music content licensing than they brought in in revenue. Netflix has to borrow billions of dollars each year to pay for the content that, over time, they hope to make their money back on. We’re investing in building a huge subscriber base.

Pogue: Originally, MoviePass was $50 a month. What did the membership numbers do when the price dropped down to $10 last fall?

Farnsworth: Well there were about 20,000 users at the time, and Mitch’s deal was that we would have 250,000 in 18 months. He had 18 months to get 250,000. We got there in two days.

To be blunt, Netflix is a marginally profitable company in an increasingly competitive market. Spotify is a money-losing company. Neither is likely to justify the investments that have been made in them, but in the hype economy, that doesn't stop them from being held up as examples to justify a business strategy.

"Oh, the things that you'll see."

To get a handle on turn-of-the-century mentality, you have to focus not just on the newness of individual technologies, but of the very idea of being able to do these now ordinary things. At the beginning of the 19th century, the only way to capture an image was to have a highly skilled artist draw or paint it. The process was inexact, expensive and so slow that anything that could not remain still for an extended period of time had to be represented from memory.

For people around 1900, viable photography was still a relatively recent development, very much in living memory. It would not have been difficult to find someone who remember the first time he or she saw a photograph. Furthermore, this fantastic advance kicked off a dizzying flood of ever more impressive innovations. Cameras and film became cheaper, simpler, and more compact. Pictures started to move. Photographs could be transmitted over telegraph. You could see images of the skeleton of a living human being and capture an instant in time.

One of the points we keep coming back to in this thread is that our concept of the future was the product of a generation of explosive and (even more importantly) ubiquitous technological growth which was the culmination of a century of exponentially advancing innovation. Our framework for thinking about the world that's coming was largely formed in a period of technological change unmatched before or since.

From Scientific American 1909/12/18

Yes, we're losing money on every transaction, but we have a plan to increase volume

[Apologies for letting this one sit in the queue for so long. I plan to do a fairly long post on the various absurdities of this business plan, but I realized that the company may not be able to wait for detailed analysis. Therefore, I'm just going to hit a couple of high points in this and an upcoming post.]

I suspect that most people (maybe especially those who read this blog) have become thoroughly jaded to bad business plans running on new economy hype and Silicon Valley money. Many of you probably feel that you seen it all before, that you have lost the capacity to be shocked by how stupid an idea can be or by how many millions it can raise.

I more than sympathize. In a world where Tesla is valued higher than General Motors and Bitcoin is... well, Bitcoin, it is difficult to come up with the topper. That said, sometimes a piece of business logic, while perhaps not the stupidest or the most overvalued, nonetheless manages to stand out through a blinding lack of self-awareness.

Many companies have used the losing-money-but-making-it-up-in-volume argument over the past few years, but I don't know that I've ever seen it stated in quite such naked terms.

From an interview with Mitch Lowe, CEO of Moviepass.

[David Pogue] The math doesn’t really work out, does it? Let’s say you go to the movies twice a month. In New York, that’s $360 of movie tickets a year — but you’re paying MoviePass only $120 a year. MoviePass is losing $240 a year, just on you. Multiply that by MoviePass’s 2 million subscribers, who are currently buying 6% of the nation’s movie tickets. How is that sustainable?

...

Pogue: You must go through your life explaining how MoviePass works. And everybody says exactly the same thing back to you…

Lowe: Which is, “how can you possibly afford such an amazing deal?”

Pogue: Yeah. How do you make money?

Lowe: There’s two groups of people that go to the movies. There’s 11% that go 18 times a year, and they buy half of all the movie tickets in the country. 5.5 billion tickets.

There’s another 200 million people (89% of moviegoers) that only see the blockbuster hits. They go to four maybe five films a year. They see “Star Wars” and the Marvel films. Our product is priced to reactivate those casual moviegoers, to get them to go see the great independent films that now they say, “I’m just going to wait and stream at a later date.”

...

Lowe: People have told us they’re starting movie clubs, and now they’re going with a bunch of friends, going to the movies every week together and then going out afterwards. We have a guy who said, “I’m going to turn 40. I’m going to go to a movie for 40 days in a row leading up to my 40th birthday.” But what’s even cooler is people are seeing films they never would have seen without a MoviePass card.

Pogue: But I’m confused about that, because every time someone goes to a movie, you’re losing more money. Don’t you secretly prefer people who don’t use the card as often?

Lowe: They [the people who see a lot of movies] become more valuable to us. They evangelize the service. They become more valuable to our partners, the studios, exhibitors.

"Those thrilling days of yesteryear"

I keep getting the feeling that there is some bigger, more profound lesson I should be drawing from these examples of the turn-of-the-century fascination with stunts and daredevils. Surely, the desire to see men and women (there was a surprising degree of gender balance) risk their lives in these elaborate contraptions tells us something about the mentality of the time, but damned if I know what it is.

I do know, however, that these pictures from Scientific American (1903/07/18 and 1905/10/14) were  simply too cool not to post.

And for those of you who caught the title reference...

Abstracts as pitches – – how a Wansink paper is like Will Ferrell's Land of the Lost reboot

Picking up from Andrew Gelman's recent post on why so much of what we hear about the replication crisis seems to center on social psychology, My take is that we should talk more about our old friend hype and the way it distorts discussions and corrupts important processes.

When I started to write out a reply in the comment section, it struck me that there was a pretty good analogy here with movie pitches (and obviously, if I come up with a pretty good analogy, I'm going to save it for a blog post). Researchers in today's environment have a strong incentive to generate buzz around their work.

In a sense, you can think of a paper's abstract as a pitch directed at reporters. Though the scale is very different, the basic dynamic is similar to that of a producer approaching a studio. Both Disney and the New York Times are looking for story ideas that will bring in large audiences, both have limited time and attention, and both are going to make the initial decision to proceed based on a quick summary of the story.

That intermediate step is very important. It means that the primary focus of both producer and researcher needs to be on the pitch more than on the quality or appeal of the larger story. Something that is easily pitched has an enormous advantage.

It is almost certainly not a coincidence that, when you see a big, underperforming movie come out, it's generally easy to imagine how the initial presentation went. "Look at those numbers for Night at the Museum. big-budget action comedy with lots of special effects and dinosaurs. We'll do the same thing with that 70s kids show, Land of the Lost . Old TV shows are big. Will Ferrell is big. We'll just put them all together." .

If you were a researcher trying to get a reporter to write up your study, what areas would "pitch well"? Three that come to mind are broad statements about human nature, dietary findings, and most of all "news you can use"/self-help. You'll notice that studies that fall into one or more of these categories tend to do very well in the hype market. As a consequence, there's also more of an incentive to push these through despite low-quality,
.
Of course, along with the hype comes increased scrutiny and a greater chance that someone will try to replicate the findings.

While I don't want to push the analogy too far or over into size one aspect of a complicated process, this might be a useful way of thinking about at least part of the problem.

When you have to go from a world of sycophancy, story stocks, and magical heuristics to a world of reality, that first step can be a doozy.

As you may have heard, Tesla is hitting a bit of a rough patch. Elon Musk probably represents Silicon Valley culture and its dysfunctions better than anyone else and, in a lot of ways, even more than Space X, Tesla is the definitive Elon Musk company.

In aeronautics, Musk has always been somewhat grounded by both his engineers and his customers. You can't simply wave away problems with rockets, and the payloads that they carry are so obscenely expensive that you can't take unnecessary risks either. And the fact that it was privately held meant that the company had to do more than simply tell a good story.

With Tesla, Elon Musk could convert fanboys and a cult of personality into tremendous share price. He could get more bounce for unlikely promises than most businesses could get out of solid earnings reports. The only problem was that at some point you have got to transition out of that world and into one based on product and profits. Musk is now stepping into that new world and it is not going well.

From the indispensable Michael Hiltzik: 

But Tesla Chief Executive Elon Musk's performance on his conference call with analysts Wednesday, following the release of the company's first-quarter financial results, was in a class by itself. To mention the bottom line here at the top: It was enough to make people wary of buying his stock, and could even make people wary of buying his cars.
...

Aficionados of weird CEO behavior will treasure the hour-and-15-minute call for years. He insulted analysts who asked pertinent (or perhaps, from his standpoint, impertinent) questions. He made unsupported claims about the safety of his cars' autonomous driving systems. He attacked the news media for reporting on accidents involving those systems. At times he seemed distracted, even confused.

Musk displayed particular contempt for analysts who dared to ask about his company's capital spending plans and the state of reservations for the mass-market Model 3 sedan. These issues aren't trivial for Tesla investors. Whether the company will need to raise capital this year has been oft-debated; it became a more critical issue after Tesla revealed that it burned through about $1 billion in cash in the first quarter. And the company's very survival depends on the Model 3, which has been plagued by production delays and quality control issues.

Yet when analyst Toni Sacconaghi of Sanford C. Bernstein & Co. asked about capital requirements, Musk cut him off. "Excuse me. Next," he said. "Boring bonehead questions are not cool." The next questioner was Joseph Spak of RBC Capital Markets, who asked about Model 3 orders. Musk gave him the cold shoulder too.

"These questions are so dry," he said. "They're killing me." Musk then cued up Galileo Russell, a Tesla fanboy who issues his sycophantic opinions on Tesla via a YouTube channel. Musk spent about 20 minutes conversing companionably with Russell — who pronounced Musk's answers "awesome" — on issues tangential, at best, to the hard quarterly numbers the company disclosed a few minutes before.

...

What perhaps was most disturbing in Musk's performance Wednesday was his discussion of the safety of Tesla's cars and the company's Autopilot semiautonomous driving system. In March, the occupant of a top-of-the-line Tesla Model X with the system engaged died after the vehicle hit a highway barrier in Northern California, was hit by two other cars and caught fire. The incidents revived memories of a 2016 crash when the occupant of a Tesla running on Autopilot in Florida was killed in a collision with a truck the system apparently had not spotted.
...

Let's be clear about this: Musk has no statistical grounds to state categorically that autonomous systems are safer than human-driven vehicles. That conclusion might stand to reason, since human error is blamed for most vehicular deaths and injuries, but autonomous systems might create dangerous situations we can't yet anticipate. His apparent assumption that the debate is over — "Vehicles that we're producing are capable of full autonomy," he said — is a little scary, considering how much still needs to be learned about the functioning of fully autonomous cars, and about the interaction of autonomous systems with humans in the cockpit.

A few points on the Pennington airship

1. Let's be honest I'm posting this because it's a cool picture.
2. I'm certainly not posting it because it was a major advance in air travel. As you can see from the excerpt below, it appears never to have gotten past the model stage.

3. That text raises a couple of additional interesting points as well. First, we haven't spent nearly enough time talking about the role of private investment in the technology boom of the period or on the role of terrible ideas and outright scams in the investment culture of the time. (Pennington was a bit of a... character.)

4. And finally this is a good time to note that the Scientific American of the time did a pretty good job staying open to new developments while being reasonably skeptical.


Scientific American 1891/03/07

Betting they wish they would have taken the check from Facebook

This piece on the fall of Snap Inc. by the indispensable Michael Hiltzik plays like a greatest hits of badly run tech businesses, but as much as I'd like to go over every juicy embarrassment, like an ownership structure that theoretically allows the none-too-competent founders to control the company from beyond the grave (assuming it outlives them), I can't reprint Hiltzik's whole article, so I'm going to have to narrow my focus to our ongoing thread about the Ponzi threshold and the way that hype and next-big-thingism distorts markets and drives bad decision-making.

Just to review, he basic idea [of a Ponzi threshold] is that sometimes overhyped companies that start out with viable business plans see their valuation become so inflated that, in order to meet and sustain investor expectations, they have to come up with new and increasingly fantastic longshot schemes, anything that sounds like it might possibly pay off with lottery ticket odds.

With Snap, we have a slightly different version. Instead of focusing on the fantastic longshots, the company is damaging its growth potential and alienating their users in order to get a quick boost in revenue, but the underlying dynamic is the same. You start out with a good product that could be the basis of a profitable medium-sized business, but the sky-high valuation creates equally inflated expectations. In order to justify the price tag, good business plans are pushed aside for bad ones.


Snap Inc. again shows why it should not have become a public company

To recap, Snap fell short of virtually every expectation Wall Street had set for the first-quarter report. The Venice-based app developer reported revenue of $231 million, below consensus expectations of $244.5 million. Its daily active users — the essential metric for online services — came in at 191 million, short of expectations of 194 million. The company lost nearly $386 million in the quarter.

...

Pressed by the analysts to explain how he plans to reverse Snap's dismal results, Spiegel kept referring to the company's "mission" — seven times in the half-hour call, by my count. Sounding like a bargain-basement knock-off of Mark Zuckerberg, he described that mission as helping to "empower people to express themselves, live in the moment, learn about the world and have fun together." This is a high-faluting way of saying that Snap distributes a smartphone app, Snapchat, aimed at young users who use it to communicate with friends via messaging and short videos of themselves, and sells advertisers space on the screen.

...

Spiegel, 27, and his co-founder Bobby Murphy, 29, traded that in for a big payday at the IPO, which ludicrously valued the company at $33 billion and raised nearly $2.5 billion, making them each multimillionaires and, on paper, billionaires.

...
This would be marginally acceptable if it were indisputable that Spiegel and Murphy know what they're doing. On this, the jury is still out, but the evidence isn't encouraging. Early this year, the company rolled out a redesigned app that has met with near universal condemnation by users, scads of whom have taken to YouTube and other venues to vent their displeasure, often with verbiage not acceptable on this website.

Simply put, the app originally displayed a user's chat messages with friends with one swipe of the screen. An opposite swipe brought up video "stories" from friends and others, interspersed with paid advertising that was relatively unobtrusive and easy to ignore.

In the redesign, the chat and "stories" are displayed together, and advertising and paid messages get their own space. Users complain that this is confusing, makes it difficult to find their friends' most recent messages and most relevant stories, and gives advertisers too much unavoidable presence. "A lot of people are going to flee the platform, much like myself," a video performance artists named Davison posted on YouTube. "Now it's this bloated, complicated mess." Anecdotally, it seems that many Snapchat users are heading to Facebook's Instagram app.

When he introduced the Snapchat redesign late last year, Spiegel told users the goal was to make it "more personal" for its users, including by providing advertising "personalized just for you." But what really drove the redesign, plainly, was giving advertisers more access. "We listened to our advertisers very closely," Khan told the investment analysts.

It's been a long week. Let's just kick back and relax.

Aaron Copland - Corral Nocturne





Claude Debussy ‒ Images




Saint-Saëns - The Carnival of the Animals - VII. Aquarium




And since I was chastised for overlooking them earlier...

Here are Carol and Marilyn

These two tweets by Robin Hanson prompted a bit of a flashback recalling a thread from the early days of the blog.

The first was a reaction to this recent Slate piece ("George Mason University's Robin Hanson might be America’s creepiest economist.").

Done right, economics SHOULD be at least a bit creepy. We should explore concepts, & consider policies, that violate common norms separating official & personal worlds. These violations, + our quirks, make us into ambiguous threats = "creepy".  https://t.co/hm0Nx84E9c

— Robin Hanson (@robinhanson) May 2, 2018

You'll notice that Hanson's take on the problem here in no way lies with him but rather with the overly emotional non-economists in the audience who let their biases prevent them from thinking logically and clearly.

He later followed with this.

Two claims, in tension: 1) It is crazy to compare sex to income inequality, as sex is vastly less important. 2) One should know to step extra careful when talking sex, as it is our most sensitive subject, far more so than income. But why is it so sensitive if its so unimportant?

— Robin Hanson (@robinhanson) May 3, 2018

Putting aside the misrepresentation of the criticism (and that's a pretty big concession), these ideas aren't really in tension. It's entirely possible for one topic to be more important and another more sensitive, or for one topic being more sensitive under certain circumstances or (and this is the major one) for an issue to have more than one component. In this case, the sexual aspect is clearly secondary to the question of consent and self-determination (meaning that Hanson is abandoning his own libertarian principles in order to argue these points).




All of which got me to thinking about this.

Freakonomics: disagreeing about why we disagree

On today's Marketplace, Steve Levitt explains why he thinks many people see the world differently than he does:

One of the easiest ways to differentiate an economist from almost anyone else in society is to test them with repugnant ideas. Because economists, either by birth or by training, have their mind open, or skewed in just such a way that instead of thinking about whether something is right or wrong, they think about it in terms of whether it's efficient, whether it makes sense. And many of the things that are most repugnant are the things which are indeed quite efficient, but for other reasons -- subtle reasons, sometimes, reasons that are hard for people to understand -- are completely and utterly unacceptable.

There are few thoughts more comforting than the idea that the people who disagree with you are overly emotional and are not thinking things through. We've all told ourselves something along these lines from time to time.

But can economists really make special claim to "whether [ideas] makes sense"? Particularly a Chicago School economist who has shown a strong inclination toward the kind of idealized models that have great aesthetic appeal but mixed track records? (This is the same intellectual movement that gave us rational addiction.)

When I disagree with Dr. Levitt, it's for one of the following reasons:

I question his analyses;

I question his assumptions;

I question the validity of his models.

Steve Levitt is a smart guy who has interesting ideas, but a number of intelligent, clear-headed individuals often disagree with him. Some of them are even economists.

THE EFFECT OF INVENTIONS ON THE PEOPLE'S LIFE. (as viewed from 1896)

If you want to get a sense of how people in the late 19th century, the peak (or at least the beginning of the plateau) of arguably the most dramatic run of technological progress before or sense, thought about the state of that technology, I'd recommend take a look at the 50th anniversary issue of Scientific American. In particular, this essay is essential.

The material world has advanced so rapidly during the last half century, and with a pace so accelerated, that mankind has almost lost one of its most important faculties, and one essential to happiness-that of surprise. The nil admirari faculty is attaining a wide spread. The most marvelous developments are taken as a matter of course-the condition of things fifty years ago is seldom pictured to the mind-and all the material blessings which we now enjoy are used as conveniences of daily life, and no more. Formerly there was an idea prevalent that surprise and astonishment were emotions of the ignorant. To-day they are rather emotions of the scientist. The educated engineer cannot without such emotions contemplate the insignificant feed wire of a trolley road carrying silently hundreds of horse power to points all along the line-he cannot without these feelings contemplate the electric motors, drawing power in proportion to the work they have to do, all regulated by the automatic government of counter-electromotive force-he cannot see the unstable though gigantic ocean liner filled with every refinement of electrical and mechanical art, all working perfectly on their never quiet, never level platforms-he cannot follow the construction of a cantilever bridge with the ensuing changes from compressive to tensile stress and the reverse, as the span is completed-these things all excite in him such emotions that he cannot observe them and know them without a feeling of true astonishment at the achievements of mankind.

Full text below.

Salmon on Amazon: apparently "demonstrably false" is not a fatal flaw in a popular narrative

Very sharp piece by Felix Salmon (one that's also extremely relevant to our technology and hype megathread) on how the Amazon narrative drives the stock price and vice versa. Among other things, Salmon effectively proves that the Amazon-as-disruptor effect -- where business journalists invariably attribute every development to Amazon -- is almost always bullshit.

The sad part is (and I in no way mean this as a knock against Salmon) there's no reporting here. Felix is simply pointing out facts that are and have been widely known for a long time. The reporters who have kept this narrative going knew (or should have known) that the numbers completely undercut it but they chose the good story over good journalism.

Amazon is a perfect case in point. For one thing, its market capitalization of $814 billion compares to net income, over the past 12 months, of $3.9 billion. That means it’s trading at a price-earnings ratio somewhere north of 200. Compare that to a ratio of about 24 for the stock market as a whole. If Amazon traded on the same multiple of earnings as everybody else, its stock would fall by roughly 90 percent.

The stock is supporting a narrative, which in turn is supporting the stock. And the narrative is, frankly, looking a bit shaky these days.

...


Amazon similarly never fails to appear in just about any story about the so-called retail apocalypse—a phenomenon that is much, much bigger and more complicated than “people used to shop at stores, but now they just order from Amazon.” After all, Amazon still accounts for only 4 percent of American retail sales. Indeed, with its Whole Foods acquisition, Amazon clearly considers in-person shopping to be entirely aligned with its mission of customer service and convenience. The retail apocalypse is, at heart, a real estate story (too many malls built in areas where no one wants to shop), much more than it is an Amazon story.

Here’s a game you can play along at home: Pick a story, more or less at random, about any company that sells consumer goods and that is doing badly or worse than expected. Then count the paragraphs before the word Amazon appears. Take this story about Procter & Gamble, Unilever, and Nestlé, for instance; the fourth paragraph has the requisite clause about “Amazon.com Inc.’s rising prowess in selling more household staples.” But there are no numbers attached to that claim, maybe because Amazon, even if it’s growing, still has less than 1 percent of household-staples sales.

And while Amazon’s entry into the fashion business is certainly noteworthy, that doesn’t automatically mean it’s “disrupting fashion retail,” as the Financial Times would have you believe. That would be hard, with just $25 billion or so in revenues—just 2.5 percent of a $1 trillion market.

Michael Hiltzik also has some worthwhile thoughts on the subject, and he even works in a Dr. No reference.