The Audit

  1. May 18, 2012 03:00 PM

    A game of telephone fools the Times

    And the newspaper-of-record short-arms the correction

    By Ryan Chittum

    The New York Times posts a nasty correction on its Sunday op-ed by William Deresiewicz, who asserted that a study had found that 10 percent of people on Wall Street were "clinical psychopaths."

    That 10-percent-psycho baloney was the lead anecdote—critical framing for the whole op-ed. The Times has since re-written the lede paragraph almost entirely, disappeared the errors, and attached a correction at the very end of the story:

    An earlier version of this article misstated the findings of a 2010 study on psychopathy in corporations. The study found that 4 percent of a sample of 203 corporate professionals met a clinical threshold for being described as psychopaths, not that 10 percent of people who work on Wall Street are clinical psychopaths. In addition, the study, in the journal Behavioral Sciences and the Law, was not based on a representative sample; the authors of the study say that the 4 percent figure cannot be generalized to the larger population of corporate managers and executives.

    That's not good enough. Here's the original lede, which I snagged via Factiva:

    THERE is an ongoing debate in this country about the rich: who they are, what their social role may be, whether they are good or bad. Well, consider the following. A recent study found that 10 percent of people who work on Wall Street are ''clinical psychopaths,'' exhibiting a lack of interest in and empathy for others and an ''unparalleled capacity for lying, fabrication, and manipulation.'' (The proportion at large is 1 percent.) Another study concluded that the rich are more likely to lie, cheat and break the law.

    Here's the lede, as rewritten:

    THERE is an ongoing debate in this country about the rich: who they are, what their social role may be, whether they are good or bad. Well, consider the following. A 2010 study found that 4 percent of a sample of corporate managers met a clinical threshold for being labeled psychopaths, compared with 1 percent for the population at large. (However, the sample was not representative, as the study’s authors have noted.) Another study concluded that the rich are more likely to lie, cheat and break the law.

    The NYT is effectively saying, "We originally said a study found 10 percent of Wall Streeters were psychopaths. But that was false. It really said 4 percent of executives are psychopaths. But even then, the study was not based on a representative sample, according to its own authors, which means that it's just bullshit, which means that this op-ed is fatally flawed."

    But rather than say something like that, the paper just rewrites the false part—without noting it has done so until and unless you get to the very bottom of the piece. The Gray Lady doesn't do strikethroughs, you know.

    The "study" the original NYT piece linked to was an article in CFA Institute magazine, as Edward Jay Epstein writes at The Daily Beast. Actually, Epstein writes that the Times linked to an aggregated version of CFA's story that ran in The Week, which itself was aggregating the story via other aggregators.

    In other words, the Times's false information was sourced from The Week, which sourced it, via aggregated posts at master aggregators Business Insider and Huffington Post, from CFA Institute magazine which sourced it, erroneously, from "Studies conducted by Canadian forensic psychologist Robert Hare."

    This is telephone, press style. The Times was at least four derivative sources removed from the original source of the information. If anyone along the way messed it up, as the first reporter did, the whole chain was vulnerable. Some editor at the Times should have noticed that the column's most eye-opening claim, one on which it hung its whole thesis, was sourced not to the APA or some academic journal, but to The Week, which in turn was sourcing it on down the line.

    This isn't to say that columnists and bloggers have to re-report everything that has already been reported elsewhere. But editors have to fact check the lede graph of a provocative, edited column in your paper of record that accuses a big chunk of people of being "clinical psychopaths."

    The worst part of this is that the 10-percent-psycho claim spread by CFA and aggregators was debunked more than two months ago by John M. Grohol, the editor of Psych Central, who thought the number sounded fishy and called up the author of the study.

    The viral nature of this error shows why corrections, prominently displayed, are so critical. None of the articles in the telephone chain above have been corrected—even after the Times's fix—and the Times itself has yet to correct its error in print.

    That's how misinformation becomes conventional wisdom.

  2. May 17, 2012 06:11 PM

    Audit notes: Questions for JPMorgan, hindsight journalism, Ticketmaster

    Jesse Eisinger asks what and when Dimon & Co. knew about the bank's big loss

    By Ryan Chittum

    ProPublica's Jesse Eisinger, in his NYT DealBook column, writes about what the press and the authorities should be asking about JPMorgan's $3 billion (and counting) loss:

    The first lesson of the financial crisis is not that the capital markets were poorly regulated or that the banks were too leveraged or that the government needed better processes for taking over failing institutions.

    The first lesson is that when they are in trouble, banks will mislead the world about their financials. And some will lie. Richard S. Fuld Jr. of Lehman Brothers, E. Stanley O’Neal of Merrill Lynch and Charles O. Prince of Citigroup all played down their banks’ exposures before their institutions took vast losses. Were they deliberately misleading? Because of the failures to investigate the financial crisis adequately, we still don’t know...

    Perhaps JPMorgan was a model of probity, but so far these questions have been given only glancing treatment. The news coverage has largely focused on how the bank took the losses, what went wrong with its risk management and what it’s doing now. The commentary has mostly gone straight to discussing the implications for banking reform.

    That’s already a victory for bankers — including Mr. Dimon. The first question on everyone’s mind should be whether any existing laws were broken.

    — Josh Stearns has some good thoughts on what he calls hindsight journalism, the tendency to piece stories together after the fact, when it's way too late:

    Some of the blame for the rise in hindsight journalism can be laid at the feet of journalists who have gotten too cozy with the the powerful, or too embedded within the industries they are supposed to be covering. In these cases, the hard questions aren’t being asked ahead of time because doing so would risk a journalist’s access or imperil some sense of false objectivity.

    In reality though, we should look at the overall culture of newsrooms, not at individual journalists. A key factor in the rise of hindsight journalism is structural, rooted in job cuts and budget cuts. Many news organizations don’t have the resources, or won’t dedicate the resources, to investing in long-term stories that need to be tracked or developed over time (think for example of the Guardian’s dogged coverage of the News of the World hacking scandal over the course of years). It is risky for a newsroom to invest in a story that might go no where. There are no page views in the hypothetical. The FCC Information Needs of Communities report touches on how this has “shifted power away from citizens to government and other powerful institutions, which can more often set the news agenda.” Instead of breaking news, our newsrooms are too often waiting for news to happen and then trying to explain it...

    It is not enough for journalism to simply report and explain where we have been. We are at a moment in history when we need journalism that also forges ahead, scouts the possible paths forward. We need a journalism of exploration and investigation, a journalism not afraid to wander or to fail. For in those forays into the wild, the complex, the unknown, we may find something that we need to know now, not after the fact

    — The New York Times writes about how the String Cheese Incident is taking on monopoly Ticketmaster's fee gouging, but leaves out a critical piece of information: How much telling us how much Ticketmaster is actually charging.

    Consumers seeking tickets to all sorts of events have become increasingly frustrated — and sometimes enraged — by ticket fees, which can add 30 or 40 percent to the cost of an order, as well as by the lack of other options for buying tickets. But while the brunt of that anger is usually directed at Ticketmaster, other players in the business, like theaters and promoters, collect, and depend on, their share of fees.

    We learn that the band's tickets to one show cost $49.95 apiece, that the band bought four hundred of its own tickets at a loss to sell back to fans without Ticketmaster fees, that the band charged $12 to UPS the tickets to fans, and that it was still cheaper for fans than buying from Ticketmaster. But we never learn how much Ticketmaster's service fee actually is.

    I looked on Ticketmaster's site myself. Ticketmaster fees turn a $49.95 ticket into a $67.40 hit—a 35 percent markup.

  3. May 17, 2012 11:00 AM

    The Facebook frenzy

    Retail investors prepare to jump on a richly valued IPO

    By Ryan Chittum

    The Wall Street Journal's page-one Facebook IPO story does a good job of capturing some uncomfortable parallels to the dot.com bubble.

    The Journal profiles three investors to give us a feel for how people are thinking about the most buzzed about IPO since Google.

    The headline on the story tells us that, "In Facebook IPO, Frenzy, Skepticism." But the story shows a lot more frenzy than skepticism.

    Most of the skepticism comes from a very bullish retail investor shaking his head at the hubbub surrounding the IPO.

    That mania is too much for a guy who got the idea to invest in Facebook from his 11 year old back in January and tried to use his kid's college fund, his IRA and his 401k to put $100,000 into Facebook shares on the private market.

    One of the trademarks of the 90s mania was the influx of retail investors (aka dumb money) into get-rich-quick stocks with vaporous business plans. The difference with Facebook is that it actually makes money, and lots of it—but not nearly as much as its $80 billion to $100 billion valuation would imply.

    If the differences are stark, the similarities are clear. Sky-high valuations unsupported by revenue and growth trendlines. Mom and pop investors in a frenzy to dump their savings into dot.com stocks marketed in a quasi-messianic manner. People buying because other people will surely be buying.

    The Journal finds a high school investing club that's trying to buy a few shares of Facebook. Their adviser went to his broker to see if he could get an in:

    At the end of their hour-and-a-half meeting, he told the broker that he had one more question. He said the broker slumped his shoulders and said one word: "Facebook?"

    While you shouldn't draw conclusions from a few anecdotes in a newspaper story, it seems to me that the Journal is on to something here. I'd bet something fairly dramatic will happen when Facebook IPOs tomorrow—a surge that will blow past that eyebrow-raising $100 billion valuation.

    So would The New Yorker's John Cassidy, who calls Facebook the "ultimate dot.com" and says he wouldn't be surprised to see it close at least one-third above its starting price. That's not a compliment coming from someone who wrote Dot.con: How America Lost Its Mind and Money in the Internet Era back in 2002.

    Cassidy:

    In Silicon Valley, many people view Facebook’s Web site, and its trove of user data, as the next key technology platform, something akin to Microsoft Windows and Apple iOS, which the company will leverage to create its own economic ecosystem—one that generates huge monopoly rents. Perhaps this will happen. For now, though, Facebook is basically an online media company, and there are some legitimate questions about its prospects. In purchasing its stock, as with buying the original dot-com stocks, investors will be laying out their cash primarily on the basis of hope and optimism rather than a clearly defined and firmly established business plan.

    To me, at least, that has echoes of the past.

    These enormous numbers are hard to justify based on the company's revenue, income, and growth trendlines. Revenue growth, while still high, is slowing. Earnings growth is slowing. User growth is slowing. The company hasn't proven—at all—that it can monetize its creepy, giant pile of user-supplied data.

    CJR contributing editor Felix Salmon wrote yesterday that "this seems to be the point at which the smart money is getting out of Facebook," though he disagrees that the Journal story is really on to something.

    We'll see.

    But Felix is right that the smart money is getting out of the stock. Another Journal story reports that a huge amount of the float will come from insiders:

    The change means that 57% of the offering will be coming from current holders, rather than from the company, an unusually high percentage for one of the most sought-after IPOs in years.

    In comparison, when Google Inc. went public in 2004, existing holders represented 28% of sales, according to Dealogic. Private holders sold no shares in the public offerings of Yahoo Inc. and Amazon.com Inc. in the 1990s.

    That really doesn't bode well for the folks lining up to buy Facebook on the pop Friday. And it's worth being extra careful about how we cover any huge run-up in the share price.

  4. May 16, 2012 11:00 AM

    What’s the right price for ebooks? (updated)

    It's probably not 99 cents

    By Ryan Chittum

    Author Chuck Windig, GigaOm's Mathew Ingram, and TechDirt's Mike Masnick all took on the question of ebook pricing recently, arguing that production costs (you know, minor details like advances, editors, etc.) don't or shouldn't factor into the end price.

    Ingram writes that "It doesn't matter what e-books cost to make," and Masnick follows with "Nobody Cares About the Fixed Costs Of Your Book."

    But nobody cares about the fixed cost of your car, either. And yet, it matters, in theory as well as in practice.

    Ingram:

    But as author Chuck Wendig notes, what e-books cost to manufacture or distribute is irrelevant to everyone but the publishers themselves. All that matters is what book consumers are willing to pay for an e-book — and the same principle applies for any form of digital content.

    In fact, an ebook’s production cost is directly related to the decision to make it at all. Just as buyers may decide that a $12.99 ebook is too dear, sellers may decide that any price below that level doesn’t justify the cost of writing, editing, and publishing it.

    If demand were all that mattered—reader heaven—ebooks would cost 99 cents and you could impulse-buy them like an iTunes song. In book-business heaven, ebooks could charge some big number, and readers would have no choice but to pay up.

    In reality, as in theory, the market for books is only so big—we only have so much time—so a 99-cent price point might move a lot of units but not enough to justify the cost of production. Obviously, a $50 price point would crush sales and also bring in much less revenue overall.

    With either, the ultimate outcome would be a hollowing out of the books economy. With far less prospect for making back their upfront costs, publishers would only bankroll sure winners, and even those would make less money than before. Writers would have less incentive and less ability to write books. Authors who are capable of producing quality books would do something else.

    The fixed-costs-don’t-matter argument hinges on your conception of the nature of the product.

    Wendig likens a book to fast food:

    An e-book is a digital good. Ephemeral and intangible. Sometimes we don’t even have access to the e-book itself in the form of a file — in the case of Amazon, we’re just “renting” the e-book the same way you rent Taco Bell food. You bought it. It’s inside your device. But if Amazon decides you don’t need it anymore, one snap of the wizard’s fingers and the e-books are poof, gone, siphoned from your reader like gas from a gas-tank. E-books have no supply — if I buy one, it doesn’t reduce how many remain, because theoretically infinite copies remain. No cost to reprint. No cost to remake. It just… sits out there, attempting to be the very embodiment of the Long Tail.

    


    This is what the audience sees and believes.

    It matters little what the e-book actually costs.

    It only matters what the audience thinks they should cost.

    If you want to buy fast food, though, you have many options. If you want to buy The Big Short, there’s only one.

    This is a fundamental disagreement over the value of cultural production, in the end. We think it’s intrinsically valuable and believe cultural consumers do, too.

    Let’s take another example, this time in software:

    If I want to buy a copy of Final Cut Pro X, for instance, Apple will sell it to me digitally through the Mac App Store for $299. The marginal cost of that copy—what Apple pays to shoot the 1s and 0s over the intertubes—is almost nothing. Apple charges $299 because it believes that's the sweet spot in the market and, presumably, because video editors actually buy it at that price. If you don't like it, you can go buy Adobe Premiere or Avid's Media Composer, steal the software and live with the potential consequences (and your conscience), or do without.

    If "the pricing on the individual item is entirely about the marginal costs," as Masnick says, Final Cut would cost 99 cents. But it doesn’t, and it sells.

    The marginal-cost-is-all argument also fails to take into account copyright law, which essentially grants each new work a sort of miniature monopoly. If I write a book about something, you can't republish it unless I give the okay, or unless it's 70 years after I kick the bucket and the copyright expires. You can argue about whether copyrights are too long or too restrictive, but we grant them so creators and investors do the creating and investing they otherwise would do much less of if anyone could profit off their work. Just because a product is digital doesn't mean it's infinitely abundant—as long as the law is enforced.

    That doesn't mean it's right for big publishers to get together with Apple to fix prices in a market, if it turns out that's what happened. But it's worth noting, as I've written, that they were responding to Amazon's distortion of the ebooks market via its willingness to use predatory pricing to preserve its ebooks monopoly. Rather than ham-handedly setting prices at $12.99 and $14.99 (and, importantly, making less money than they did from Amazon's system), the book industry should have used the agency model to individually price books at their own price points and let readers' purchases help them decide where to end up.

    At base, copyright holders have the right to ask what they want to get for their work (which is why they were so concerned about Amazon selling ebooks at a loss). If they set the price too high, nobody will buy the book and they will lose money. If they set the price too low, lots of people might buy it, but they will still lose money.

    Marginal costs in the ebooks industry aren't even really about what it costs to produce a copy. In ebooks and other digital media they're actually about what it costs to produce the next entirely new ebook, not what it costs to send out one more copy of Harry Potter. The marginal cost to an airline, for example, of putting one more person on a plane is almost nothing, but it would go broke (or broker) if it did that. The real marginal cost is what it takes to get the next plane in the air, not the next passenger.

    If readers don't want to pay $12.99 or $14.99 for an ebook, they won't. And the book industry will have to lower its prices. Until then, they can buy all the 99-cent ebooks they want on Amazon.

    UPDATE: I should say that Masnick wrote this about why fixed costs matter: "That's not to say that the fixed costs aren't important -- they are -- but they don't factor into the pricing decision, they factor into the investment decision."

  5. May 15, 2012 11:15 PM

    Audit notes: Commercialization, GM and Facebook, Saverin’s taxes

    By Ryan Chittum

    Conor Friedersdorf makes a nice catch on Tom Friedman's Sunday column bemoaning the commercialization of seemingly all aspects of American life:

    For example, his column is bizarrely titled, "This Column Is Not Sponsored by Anyone," despite the fact that right above it on NYTimes.com there is a banner ad for a Citi/American Airlines credit card.

    But Friedersdorf says Friedman is "analytically sloppy" in connecting the commercialization of the culture with inequality:

    Advertising on school buses may be problematic. Outsourcing war to private military contractors definitely is - but for a very different reason. Shorter security lines for affluent air passengers are problematic for a third reason. Conflating those things makes no sense.

    I'm hardly a Friedman fan and I hate to defend him on anything analytical, but the thread running through these anecdotes is the commercialization of everything—the encroachment of the private sector on the public sphere, as Friedman says.

    Friedersdorf defends advertising, for instance, as a leveler of inequality, citing sports stadiums of all things:

    But if we mean that a sports stadium can charge 15 percent less for tickets because it sold naming rights to the building itself, the scoreboard, the halftime show, and the cheerleaders? That's one of many times when the marketization of public life brings us together. And one day we may miss it.

    I'd guess that naming rights subsidize gargantuan players' salaries and owner profits more than they do ticket prices for fans.

    — General Motors is dropping a bomb on Facebook three days before its giant IPO, The Wall Street Journal reports.

    GM is yanking its ads from the site because it says they don't work. Also, it can advertise for free on Facebook:

    GM will continue to promote its products on Facebook, but without paying the social-media company, the GM official and other people familiar with the matter said. Many companies maintain free Facebook pages.

    GM's decision raises questions about the ability of Facebook to sustain the 88% revenue growth achieved in 2011. Facebook said last month its first-quarter ad revenue was down 7.5% from the previous three months. Facebook blamed "seasonal trends" for the decline, as well as a greater number of users from outside the U.S., where ad rates are lower.

    There was already almost no way Facebook would sustain an 88 percent annual growth rate.

    GM was already skeptical, apparently. It only spent $10 million on Facebook ads last year. But, "GM is the third-biggest advertiser across all media in the U.S. after Procter & Gamble Co. PNG and AT&T, according to Kantar," the WSJ reports.

    — What does Eduardo Saverin, the Facebook co-founder who's renouncing his American citizenship to lower the tax bill on his upcoming $3.8 billion IPO windfall, owe the U.S.?

    "Nearly everything," writes Farhad Manjoo:

    Yet if you study the trajectory of Saverin’s life—the path that took him from being an immigrant kid to a Harvard student to an instant billionaire to the subject of an Oscar-winning motion picture—it emerges as a uniquely American story. At just about every step between his landing in Miami and his becoming a co-founder of Facebook, you find American institutions and inventions playing a significant part in his success.

    Would Eduardo Saverin have been successful anywhere else? Maybe, but not as quickly, and not as spectacularly. It was only thanks to America—thanks to the American government’s direct and indirect investments in science and technology; thanks to the U.S. justice system; the relatively safe and fair investment climate made possible by that justice system; the education system that educated all of Facebook’s workers, and on and on—it was only thanks to all of this that you know anything at all about Eduardo Saverin today...

    Is this fair? No. It’s worse than that, though. It’s ungrateful and it’s indecent. Saverin’s decision to decamp the U.S. suggests he’s got no idea how much America has helped him out.

  6. May 15, 2012 06:50 AM

    For TV, campaigns create big winners, (relative) losers

    Political ads may not be all "gravy" for local stations—but they're still an awfully good deal

    By Erika Fry

    When Republican presidential candidate Rick Santorum suspended his presidential campaign last month, the former Pennsylvania senator all but sealed Mitt Romney’s easy victory in the state’s April 24 primary.

    Santorum also dashed the expectations of his home state’s broadcasters, who were counting on the candidate to keep the race competitive and their ad inventory—much of which had already been reserved by Romney’s campaign—in high demand.

    The day after Santorum dropped out, The New York Times reported that “Romney aides immediately went to work canceling what they expected would be a $2.9 million advertising campaign in Pennsylvania, a huge savings equivalent to roughly 40 percent of the cash Mr. Romney had on hand at the end of February."

    The development led Kathy Kiely of the Sunlight Foundation to claim on the organization’s blog that the “biggest loser” in Pennsylvania primary was not Santorum, but the state’s 46 local broadcasters.

    That got us thinking: we’re sympathetic to the argument that the windfall that local TV outlets gather during the political season ought to be returned, to some degree, to the public in the form of stronger political reporting.

    But, given that there are only so many hours in which to sell ads—and other potential advertisers ready to buy that inventory—just how big is that windfall? And just who are its beneficiaries?

    The answer, as with many things: it depends.

    An 'unprecedented frenzy,' unevenly spread

    Projections vary, but all observers agree that the 2012 campaign is likely to set records for TV ad spending. Citing a “near-perfect political storm,” a Moody’s Investors Service report issued last June predicted an “unprecedented frenzy of political advertising” and 9-18% revenue growth above 2010’s $2.3 billion, the current record. During an event for media buyers in New York last month, Ken Goldstein, president of Kantar Media’s Campaign Media Analysis Group, offered a higher ceiling, estimating $2.5-$3.3 billion will be directed to local spot advertising.

    Those projections are based on the assumption that local television will attract a little less than half of all campaign dollars, as it has in the past. That assumption is likely to hold up, observers say. Even as campaigns diversify their messaging strategies and develop new approaches to the ground game, television remains the dominant way to reach potential customers—and swing voters.

    But the distribution of those dollars is far from even. The bulk of the cash, of course, flows to stations in politically significant markets—presidential battleground states, or those with early primaries, or especially competitive Senate races.

    Even within those markets, though, ad buys are heavily skewed toward top-ranked stations. Moody’s analyst Carl Salas says a market’s top broadcaster will typically draw 40-65% of the political spending, the second-rated draws about 30-40%, and the bottom two stations will split the balance, perhaps 5%. And while strong network programming boosts ratings and attracts ads, the greatest value lies in having the top local newscast, as the station owns that ad inventory and gets to keep 100% of the revenue it generates.

    Just as the ads are concentrated by geography and station, they are also compressed by time. An analysis of 2008 and 2010 by a TV industry trade association found that political ad share builds from roughly 5% of all inventory around Labor Day to 20-25% in the days before the election. The shares are larger in battleground states. In the Harrisburg market, political spending accounted for 32% of spots and 48% of advertising revenue in the week before Election Day; in the Columbus market, political buys made up 50% of spots and 61% of revenue for that week.

    All that concentrated demand puts pressure on prices to rise, but that doesn’t mean campaigns are paying top dollar. By law, candidates for federal office are entitled to rates that are the “lowest unit charge per class of time” within 45 days before a primary, or 60 days before a general election. That means they receive the discounted rates given to loyal, favored advertisers. (While the campaigns get the lowest rates in a given ad class, they do tend not to buy the cheapest class, which is subject to "immediate pre-emption.") In fact, Goldstein and his Kantar colleague Elizabeth Wilner argue that the primary motivation behind broadcasters’ opposition to a new FCC rule mandating that political ad buys be posted online is that the broadcasters don’t want ordinary non-political advertisers to know just how low those rates are.

    Super PACs and issue groups, though, are not entitled to the same low rates. And in a post-Citizens United world, those groups account for an increasing share of political ad buys. In 2002, candidates accounted for about 60% of political ads; in 2010, it was down to about 40%, and it’s expected to fall further this year. And as the campaigns buy up ad time, and drive up costs on the remaining inventory, the rates for super PACs—and other advertisers who just have to have that 30-second spot in that hour on that day—shoot up. The difference between the campaign’s “lowest unit rate” and what a super PAC might pay can be significant, says Goldstein—anywhere from 150 to 5000 percent.

    Put all the right conditions together, and the effect on ad prices can be extraordinary. According to Goldstein, a spot in Des Moines, Iowa, on Dec. 30—in the middle of the Insight Bowl, which pitted the University of Iowa football against Oklahoma; and four days before the Iowa caucus—went for $15,000. The cost normally would have been $500.

    'You can't count on political money until the check arrives'

    The targeted nature of political ad buys sorts broadcasters into groups of big, big winners and (relative) losers. As the targeting becomes ever more fine-tuned, though, even the winners have to accept some unpredictability.

    That instability is driven by polling, which, as it has become finer science and bigger business, is giving campaigns and super PACs more precise and time-sensitive information about which voters to target.

    Bob Prather, the president of Gray Television, an Atlanta-based company which operates 36 stations in 30 small to medium-sized markets, said this effect led Republicans in 2008 to pull $800,000 in ads from his Ohio stations as they focused their efforts elsewhere. Three days later, Democrats cancelled their $500,000 buy.

    “The thing I’ve seen in 20 years is that the spending is a lot more sophisticated and controlled,” said Prather. “They move money around real fast depending on polling. It seems to be more volatile every election cycle.”

    In some cases, spending is also compressed into shorter time periods. That was certainly the situation this year for WIS TV in Columbia, S.C., at the center of a key early primary state. Scott Sanders, the station’s general manager, said just $100,000 had been spent in his market as of Jan. 3; by the Jan. 21 primary, the figure had ballooned to nearly $2 million.

    “Four years ago, candidates started advertising in October of 2007,” said Sanders. “This time, it started two weeks before the primary and was lumped into one big sum. Super PACs came with basically unlimited money and said, ‘We’ve got X amount to spend, where can you put it?’ For a 12-day period in January it was unlike anything I’d ever seen.” (Sanders said he actually exhausted his inventory and had to turn some super PACs down, just the doomsday scenario pondered in a recent Campaigns & Elections article headlined, “Could we run out of airtime?”)

    In other words, it was the flip side of what happened in Pennsylvania this year. But Holly Steuart, vice president and general manager of a CBS and CW affiliate in the Harrisburg market, was philosophical about missing out on that presidential primary spending.

    “You can’t count on political money until the check arrives,” said Steuart. “Romney is a good example of that—this spending is very unpredictable. It could amount to nothing, or it could be beyond your wildest dreams.”

    Political peaks and ‘hammock years’

    Of course, it’s easier to be philosophical when there are other campaigns to keep the cash coming in. CJR has already noted how stations in Scranton and nearby markets benefited from a contested Democratic congressional primary that drew in substantial spending from outside groups. Pennsylvania’s Republican Senate primary was also good to broadcasters, with the victor, Tom Smith, spending $6 million of his own money. (Station heads tend to have a nonpartisan appreciation for the candidacies of the 1%. Gray’s Prather recalled with fondness Bruce Lunsford, who sunk $8 million of his own money into Kentucky’s gubernatorial primary in 2003 only to drop out several days before the vote.) Steuart said her station lost several thousand dollars worth of Romney’s ads, but the cancellation freed up space for “healthy spending” in competitive local and state-wide races, and also for commercial advertisers.

    That brings us back to one of the questions we started with: To what extent are the political ad buys actually producing “new money” for the stations, and how much are they just taking the place of commercial ads?

    Campaign ads are “not all just gravy to the stations,” said Steve Lake, the senior manager of national accounts at SourceMedia, which owns KCRG, the dominant station in the Cedar Rapids, Iowa. “There is lost revenue associated with political advertising. Try as we may, sometimes we cannot make good on all the spots that get displaced because of time-sensitive nature of events. There is an amount where you say we’re just going to have to credit it.”

    In other words, those Pennsylvania broadcasters were probably not a full $2.9 million poorer after the Romney campaign canceled its buy—and likely wouldn’t have been even without other campaigns picking up the slack.

    Still, most of the time, campaign ad dollars are mostly gravy. That’s partly because the concentrated demand drives up prices for all ad buyers. But it’s also because stations often don’t have to turn away commercial ads to accept political buys. Advertisers buy inventory in packages—they may, for example, buy a certain number of ads to run within the month, or within the quarter during a certain “daypart” (industry-speak for time of day). That allows broadcasters a fair amount of flexibility to juggle inventory and make way for time-sensitive ads that need to air during a specific day or hour.

    Then there’s the fact that ad inventory is not exactly finite. Salas, the Moody’s analyst, explained that local broadcasters can accommodate high demand by creating more news programs and thus more high-value advertising spots. More common is for stations to temporarily add or lengthen news programs, or simply to add more spots into existing programming.

    One way to get a handle on just how much stations benefit from political ads is to take a closer look at Gray Television, an industry leader in terms of the share of revenue generated from campaign buys. During the last mid-term elections, political ads accounted for 17% of the company’s total revenue, nearly double the industry average of 9%.

    In 2010, that leading position earned the group a record $57.6 million from political advertising. The following year was also a record for a non-election year, but political revenues still fell by over three-quarters, to $13.5 million. That’s a reduction of $44 million in political revenues—which nearly matches the company’s $41 million overall decline in ad revenues. In other words, as political buys plummeted, revenue from other ads remained mostly stable.

    That’s an imperfect calculation that obscures other areas of growth and loss; in an interview, Prather, the company’s president, said revenue sources vary too much from market to market to come up with a general rule.

    But for those stations that win the campaign ad sweepstakes, election years do offer a reliable boost. Even KCRG’s Lake, who said the ads are not “just gravy” for stations, had an evocative phrase for the cycle: election-year peaks help to cover the less lucrative “hammock years” in between, with the added revenue going toward capital investment (or, for many stations, helping to pay down debt).

    That volatility and unpredictability is something the stations can learn live with, given the money at stake. Prather said Gray has become a favorite for political buyers by fortunate accident—the company’s strategy has been to invest in leading stations in university towns and state capitols, which tend to have stable economies, rather than in battleground states per se.

    But he’s not regretting the result. “We think it’s a good business,” Prather said. And he’s keenly aware of quirks in the calendar that make business even better. “The best thing that is the election is on November 6 this year,” he told me. “Those six days we’ll get a huge amount of political—if it’s on November 1 you miss all those days.”

    In an election year like this one, are there any drawbacks? Maybe only that the other years seem less sweet.

  7. May 14, 2012 11:04 AM

    The business press embarrasses Jamie Dimon

    London Whale, sighted one month ago, knocks billions off JPMorgan's worth

    By Ryan Chittum

    In what FT Alphaville called "the most excruciating bank conference call we’ve ever heard," press favorite Jamie Dimon announced last week that JPMorgan Chase has lost more than $2 billion on bad derivatives bets made by its chief investment office. It could (meaning, it probably will) lose more than that. On Thursday, we were told up to another billion. By today, that was up to $2 billion.

    These are big number, but this story is far more important than a measly two or four billion bucks (isn't it scary how big numbers seem small after the trillions thrown around in the financial crisis?).

    JPMorgan was the last man standing after the crisis, or so it would like you to think. It didn't need bailouts from meddlesome Washington politicians, or so Dimon said. It just took them because it was its patriotic duty. Cue "Stars and Stripes Forever."

    As the only senior banker on Wall Street with half a whit of credibility left, it fell to Dimon to be frontman for its stunningly effective anti-regulation fight. He was particularly fierce about the Volcker Rule. That rule, heavily watered down by the Wall Street lobby and the Congresspeople they fund, is intended to keep taxpayer-insured banks from engaging in proprietary trading—a Wall Street for "betting." Seriously implemented, the Volcker Rule would have prevented the massive losses JPMorgan sustained here.

    Now Dimon's and JPM's credibility is seriously tarnished. The question is whether it's too late to affect the financial reform he has so opposed. We'll see.

    Dimon looks particularly bad because even after the news broke, he called the issue a "complete tempest in a teapot." Less than four weeks later that nothingburger had cost his bank nearly a tenth of its market value—$13 billion—in one day.

    More important, it has shown clearly how flimsy Dimon's anti-regulatory arguments really are.

    And it's a nice win for the business press, which uncovered the story (before Dimon understood its import, at least according to him), explained why it mattered, and kept on it. Dimon himself, when asked what he would have done differently, said that he should have paid more attention to the press reports.

    Those reports kicked off when Bloomberg News broke the story with a brief piece on April 5 and The Wall Street Journal posted its already-in-the-works page-one story shortly thereafter.

    I noted on April 6, Bloomberg was miffed then that the Journal didn't credit it with the scoop. I don't like scoop squabbles, much less adjudicating them, but the market-moving nature of this one makes it something of a different beast, and the fact that Bloomberg and the Journal are still tussling over credit shows just how big the story is.

    The Journal implied in the second paragraph of a page-one story on Friday that the scoop was its own. The Journal didn't find out about the London Whale from Bloomberg—its story was already reported, I'm told. The Journal was the first to report that Bruno Iksil was called the London Whale and that his trading made JPMorgan some $100 million a year. Its story contained the critical detail, absent in Bloomberg's initial report, that Iskil was in the bank's chief investment office. But in the high-stakes market-news game, first is first. The Journal scooped critical details of the story, but Bloomberg gets the credit for first reporting Iksil's massive bets.

    For the purposes of the public interest, however, which is what The Audit ultimately cares about, Bloomberg and the WSJ both win here. They were both on an important story at the same time and both have done fine work on it since (as have the Financial Times and others).

    Now shake hands and play ball. It's good work all around.

  8. May 11, 2012 07:34 PM

    Audit notes: Chesapeake woes, the Untaxable, Reuters on HSBC

    By Ryan Chittum

    The hits keep coming at Chesapeake Energy.

    Today, it's The Wall Street Journal's turn. It reports on page one that the company has put $1.4 billion in unreported liabilities off its balance sheet, far more than analysts had estimated.

    Most of these costs will hit this year and next, at a time when the company needs to raise substantial cash to cover operating expenses and its move into the more lucrative oil business...

    Asset sales, VPPs and other off-balance-sheet debts have helped cover those gaps for several years, but their size, complexity and cost are raising concerns. On Wednesday, Moody's Investors Service lowered to "negative" the outlook on Chesapeake's $12 billion in rated, on-the-books debt, in part because it said the VPPs and other deals have raised total debt to $23.6 billion. Chesapeake disagrees that the VPPs are debt.

    Chesapeake shares plunged today after it said it would delay a big asset sale because of tumbling gas prices. Forbes's Christopher Helman:

    Chesapeake Energy shares closed down 14% today on wording in an SEC filing that the company might have to write down the value of its assets because of record low gas prices and might have trouble meeting its obligations under bond covenants. As a result, it suggested that it may have to delay much needed asset sales. Simply put, when prices become too low, it is no longer economic for drillers to go after certain gas reservoirs, making those reserves worth less than before.

    This story looks like it's just going to keep getting uglier.

    — When you just can't bear to be taxed relatively lightly on your impending $3.84 billion windfall, go post-national.

    Bloomberg News reports that Facebook co-founder Eduardo Saverin is giving up his American citizenship and implies heavily, with reason, that it's for tax purposes.

    Saverin, 30, joins a growing number of people giving up U.S. citizenship ahead of a possible increase in tax rates for top earners. The Brazilian-born resident of Singapore is one of several people who helped Mark Zuckerberg start Facebook in a Harvard University dormitory and stand to reap billions of dollars after the world’s largest social network holds its IPO.

    “Eduardo recently found it more practical to become a resident of Singapore since he plans to live there for an indefinite period of time,” said Tom Goodman, a spokesman for Saverin, in an e-mailed statement.

    Besides helping cut tax bills stemming from the Facebook, the move may also help him avoid capital gains taxes on future investments since Singapore doesn’t have a capital gains tax.

    Does this guy sound like Quartz's target demographic or what? The Untaxable.

    I'll digress for this odd Bloomberg digression:

    In the film, written by Aaron Sorkin, Saverin was portrayed by Andrew Garfield, who will play Spider-Man in “The Amazing Spider- Man,” due to be released in July.

    Thanks for that.

    — Make sure to read this Reuters report from last week on allegations by a U.S. Attorney in West Virginia that HSBC "violated the Bank Secrecy Act and other anti-money laundering laws on a massive scale."

    HSBC did so, they say, by not adequately reviewing hundreds of billions of dollars in transactions for any that might have links to drug trafficking, terrorist financing and other criminal activity.

    In some of the documents, prosecutors allege that HSBC intentionally flouted the law. The bank created an operation that was a "systemically flawed sham paper-product designed solely to make it appear that the Bank has complied" with the Bank Secrecy Act and is able to detect money laundering, wrote William J. Ihlenfeld II, U.S. Attorney for the Northern District of West Virginia, in a draft of a 2010 letter addressed to Justice Department officials.

    In that letter, Ihlenfeld compared HSBC unfavorably to Riggs Bank. In 2004 and 2005, that scandal-plagued Washington bank was fined a total of $41 million after it was found to have violated anti-money laundering laws, and it was acquired by PNC Financial Services.

    "HSBC is to Riggs, as a nuclear waste dump is to a municipal land fill," Ihlenfeld wrote.

  9. May 11, 2012 06:10 AM

    The Washington Post Co.’s Self-Destructive Course

    Dividends, share buybacks, and an anti-paywall stance help bleed the paper dry

    By Ryan Chittum

    The Washington Post Company‘s dismal quarterly earnings release last week was received with something of a shrug—more of the same. But the report is worse than the reaction suggests and raises fundamental questions about the Post's strategy, not just for the newspaper, but for the whole company.

    If you hadn’t heard, the Washington Post Company is basically a for-profit college/SAT-prep firm that sidelines as a cable-TV provider and newspaper publisher. The august Washington Post (I'll italicize Post here when referring to the newspaper and won't when referring to its parent) contributed just 15 percent to its namesake company's revenue in the first quarter but was a $23 million drag on the bottom line.

    Kaplan, the Post's education division, is the company's cash cow, and a few years ago looked like the newspaper's savior. But its revenue has fallen sharply over the last year and a half since for-profit schools, very much including Kaplan's, came under pressure for predatory practices. Its sales tumbled 14 percent from 2010 to 2011 and dropped another 11 percent in the first quarter.

    Its deteriorating prospects spells more trouble for the Post's newspaper division, whose very bad first quarter included not only that $23 million loss but also a 7 percent decline in revenue. Crucially, its digital ad revenue—the paper's main hope for the future—went into reverse and hit negative 8 percent. It's just the latest in a long line of bad results.

    The Post's newspaper division (which includes Slate) has posted losses in thirteen of the last fifteen quarters, a trail of red ink that has led to cumulative losses of $412 million over the period. Its revenue has declined in twenty of the last twenty-two quarters and last year it brought in fully one-third less—$314 million—than it did at its peak in 2006. Layoffs have reduced the Post's newsroom to a little more than half its peak size.

    Despite this, the company continues to fork over hundreds of millions of dollars to shareholders in the form of dividends and share repurchases. The Post is disgorging the cash, as JW Mason calls it, to investors and depriving its businesses of resources.

    The company as a whole is still profitable and has earned a total of $546 million since the start of 2008, when the financial crisis began in earnest. But in that same time it has spent more than twice that—$1.1 billion—on buybacks and dividends that have helped put a floor under its share price (and its earnings per share).

    Much of that money is being squandered to appease the short-term interests and cash needs of shareholders, who very much include the Graham family, which controls the voting shares of the Post.

    While the company has been bleeding revenue and income in the last year-plus, it has actually been increasing the amount of cash it pays out in dividends. Last year, it paid a $9.40 dividend for each share—a total cash payout of $75.5 million to shareholders. It has raised its dividend in nine of the last ten years for a total increase of 69 percent. The stock now yields a healthy 2.9 percent, a richer dividend payout than shareholders get from giant, cash-flush firms like Exxon Mobil, Apple, Microsoft, and Walmart.

    This is like some kind of recurring nightmare for iconic American newspaper brands. It was only five years ago that Audit Chief Dean Starkman wrote this about Dow Jones, The Wall Street Journal’s publisher, which was bled dry by decades of dividend demands from the feckless Bancroft family.

    A dividend is a cut of the profits earned by the business during the year. It is not guaranteed, and, in fact, must be set every quarter by a company’s board of directors. The idea is, you might need the money for something else at any time.

    A dividend is capital that you are returning to shareholders because the business has no better use for it. No one believes DJ didn’t need to grow to remain independent. And does anyone believe the newspaper business isn’t in transition and that lots of capital might be needed to help with that shift?

    Now of course, Dow Jones is stuffed and mounted in Rupert Murdoch’s man cave. Perhaps he can pick up the Post at some point.

    Even worse than raising dividends in a time of distress and disinvestment, the Post has binged on buying its own shares back from investors, spending $912 million since the program began six years ago and paying an average price of $424 a share. Those shares are worth $337 as I type, which means the Post has taken a $187 million bath on them—a 21 percent loss.

    Particularly cringeworthy is the $198 million it spent buying its own shares from 2006 to 2008 at an average price of $661 each, or roughly double what they're worth today.

    As its share price has continued to fall, the Post has doubled down on its buybacks. In the last two years alone, the company has spent $653 million on share repurchases, buying in at an average $383 a share, 12 percent above their current price (a $79 million loss as of today).

    This is financialization at work. Instead of investing in its business operations, the Post is investing in its stock, which is a very different thing. The only way this bet pans out is if the Post's shares rebound significantly in coming years. Would you put money on that? I sure wouldn't (moreover, the company effectively levered up to buy them. The Post rolled over $395 million in debt in early 2009 to mature in 2019—at a 1.75 percent premium to its old bonds).

    Where would the Post be if its parent company had invested even one-quarter of that nearly one billion dollars in its newspaper, or in some other profit-making, preferably non-predatory venture? That's unknowable, of course, but it's worth thinking about when you ponder why newspapers haven't better adapted to the digital age.

    While the company has been throwing cash at shareholders, it has been gutting the Post's legendary—and critically important—newsroom, which, after the current round of buyouts and/or layoffs, will be a bit more than half what it used to be. This latest round of buyouts could reduce the investigative staff from seven to four.

    By handing all that cash back to shareholders while disinvesting in its newspaper, the company is effectively saying that spending money on the hallowed Post is like throwing it down the rathole—it sees no possibility of making a return on any net investment there. That may actually be true, but it's bad for the country, and it's not very Swashbuckling Capitalist of them. The Post won't take risks betting its cash on its namesake news organization's future. It will unload nearly a billion dollars into its own pitiful stock. The "disgorge the cash" philosophy, which masquerades as flinty shareholder capitalism, is actually insecurity and weakness—an inability or unwillingness to invest that buyback/dividend money to come up with new products or to shore up old ones.

    The Post would like you to think that it's doing more with less, but that's hamsterized nonsense. Then-managing editor Raju Narisetti's assertion last summer, under a grinning mugshot and speaker-circuitese that "news brands need to get creative and make their content easier, more engaging and useful," that he had slashed the newsroom by 25 percent "without overtly impacting quality" was as bogus as it was offensive. Ask anybody who read the paper before and after.

    Narisetti wrote that those cuts helped the paper save $9.1 million a year on payroll and $14 million a year overall. Fabulous! But in 2010 and 2011, the Post handed $405 million a year back to shareholders through share buybacks and dividends. The losses on its share buybacks in 2010 and 2011 could have funded the savings from newsroom cuts in those years—three times over.

    It's not Narisetti's fault, of course, that the folks in the C-suite told him to slash newsroom costs while they spent squandered hundreds of millions elsewhere. But when senior editors argue that you can lose hundreds of journalists without impacting the quality of the product ("overtly," anyway; whatever that means), they make those short-sighted moves much easier for bean counters to make—and they demoralize what remains of their staff.

    Narisetti's comments were made in a Forbes column arguing that the Post shouldn't charge online. The Post has maintained its anti-paywall stance even as its circulation continues to collapse and the paper's digital ad revenue, a relatively puny stream on which it has hung its future, goes backward. FONtastic.

    In the first quarter, the Post's newspaper division (which includes Slate) brought in $24 million in digital ads, down $2 million from the year before, and less than what it made in the same period five years ago (the company doesn't break out Slate's numbers from the Post's, so we can't tell from its filings whether one or the other was responsible for the decline, but I’d estimate very roughly based on Narisetti’s numbers that Slate accounts for about a quarter of the digital ads).

    Last year, the Post brought in $106 million in online ads, less than the $114 million it collected in 2007. Here's your “growth” story:

    It's even worse than that if you account for inflation. That $114 million in 2007 is $126 million in today's money.

    Print ads are, of course, in freefall at the Post like they are everywhere else. They totaled $265 million last year at the Post, 53 percent below the $573 million it had in 2006.

    But the Post newspaper division's total revenue has only declined 33 percent in that same time, while its one-time print gusher dries up much faster. What gives?

    It's almost certainly circulation. The Post for some reason doesn't break out circulation revenue in its SEC filings, but we can back into those numbers by subtracting print and digital ad numbers from total revenue. This isn't perfect—there are presumably some relatively minor "other" income streams caught in here, but it's the best we've got (this is where I write that the Post declined to comment on its buybacks and dividends strategies and also declined to comment on my numbers).

    Here's a chart:

    Circulation—people paying for newspapers—has been the ballast for the anti-paywall Post during the crisis.

    How has the Post kept circulation revenue relatively flat while circulation numbers have collapsed? It has jacked up prices. From 2007 to 2012 the paper raised home delivery rates 76 percent.

    The Post has diluted the quality of the newspaper, shrunk it, and asked readers to pay three-quarters more for it—all while leaving the barn door wide open online. And so, its daily circulation continues to plunge, falling 10 percent in the first quarter (29 percent from 2006), while Sunday circ—where the money is made—dropped 5 percent (25 percent since 2006).

    Jacking up print prices while giving the same stuff away for free online might make a bit of sense if the paper's digital ads were growing 20 percent a year. At minus 8 percent, as in the first quarter, it's a death wish.

    It's particularly frustrating since The New York Times has done most of the hard work in showing how to have a successful paywall that brings in tens of millions of dollars, helps shore up print circulation, and doesn't hurt online ads.

    At Times Media Group (which is roughly two-thirds to three-quarters NYT), digital ad revenues increased 10 percent last year despite having the paywall in place for nine months. The Post's digital ads declined 8 percent without one. Overall revenue at the NYT, primarily as a result of the paywall, stayed flat last year, despite tumbling print ads. The Post's were down 5 percent.

    This despite the much (self) touted success of its annoying and ethically dicey Social Reader app on Facebook, which has been installed some 21 million times, according to CEO Donald Graham. That's great and all, and it helps Graham pal Mark Zuckerberg's company get more free content to make billions off of. But it's apparently not doing much for the Post's digital revenue.

    Last month traffic on social-news apps like the Post's collapsed after Facebook decided to tweak some settings, showing vividly the perils of relying on somebody else's platform for your future prospects:

    Now AdWeek reports that the Post’s president says the paper needs to think less about journalism awards and more about slideshows.

    As we’ve seen just yesterday, the Post still puts out a good deal of top-level journalism in its weakened state. But that's under continual threat, and the business side needs a serious change in philosophy to keep the Post from withering away.

  10. May 10, 2012 07:58 PM

    Audit notes: WSJ dings austerity, Weisenthal, The Global Mail

    By Ryan Chittum

    If you're looking to get up to speed on what happened with the euro and Greece, you could do a lot worse than Marcus Walker's excellent page-one story in The Wall Street Journal today.

    The Journal recounts how Angela Merkel and the Germans' disastrous insistence on punitive austerity has led Greece to the point of collapse—and threatens the entire European project.

    Here's the nut graph:

    Greece's growing turmoil is the culmination of a radical austerity experiment and botched economic overhaul that have pushed the nation to the brink of social and political breakdown. The story of the ill-fated bailout suggests that forcing deep austerity on individual member states won't save the euro and may worsen its crisis.

    Above all, Greece's example illustrates the conflict between Germany's tough terms for aiding other euro members and the amount of pain other societies can bear. Greece's fate shows that what it takes to sell bailouts to a skeptical German public can be politically calamitous in Europe's indebted south.

    Commence WSJ editorial page return fire in 3...2...1...

    — Binyamin Appelbaum writes a must-read profile of Business Insider's half man/half machine Joe Weisenthal for this week's New York Times Magazine:

    During the course of an average 16-hour day, Weisenthal writes 15 posts, ranging from charts with a few lines of explanatory text to several hundred words of closely reasoned analysis. He manages nearly a dozen reporters, demanding and redirecting story ideas. He fiddles incessantly with the look and contents of the site. And all the while he holds a running conversation with the roughly 19,000 people who follow his Twitter alter ego, the Stalwart. He spars, jokes, asks and answers questions, advertises his work and, in the spirit of our time, reports on his meals, his whereabouts and whatever else is on his mind.

    He is like the host of a daylong radio show, except no one speaks out loud. He rarely makes phone calls. His phone almost never rings.

    Some of what he writes is air and sugar. Some of it is wrong or incomplete or misleading. But he delivers jolts of sharp, original insight often enough to hold the attention of a high-powered audience that includes economists like The Times columnist Paul Krugman and Wall Street heavies like the hedge-fund manager Douglas Kass and the bond investor Jeff Gundlach.

    — I happened across a website called The Global Mail (a sort of Aussie ProPublica) today and it has one of the best reading interfaces I've seen:

    Instead of scrolling up and down, you click your left and right arrow keys to flip through the story. It just feels better.

    Having no ads makes it easier to design a spare, readable site, but I can imagine half page ads inserted in a format like this might actually work—and work better than typical news-site ads.


  11. May 10, 2012 02:12 AM

    Audit notes: Blodget’s anonymous Zuck fans, Ongo no-go, social news apps

    New York cover story dispenses with named sources

    By Ryan Chittum

    Here's the sourcing in Business Insider CEO Henry Blodget's New York cover story on Facebook CEO Mark Zuckerberg: "a colleague of Zuckerberg," "another early colleague of Zuckerberg," "one Silicon Valley veteran," "one Valley veteran," "A Zuckerberg confidant," "one insider," "a former Facebook employee," "a former Facebook executive fired by Zuckerberg," "A longtime Facebook exec," "some Zuckerberg skeptics," "One former Facebook executive," "a colleague," "a ­Facebook source."

    They're not slagging the Zuck, mind you. Almost all of their comments are positive, even gushingly so.

    Now here's the umber of on-the-record sources: zero. Unless you count a conference quote from Business Insider investor Marc Andreeson, which I don't.

    I get that Facebook is in a quiet period because of their IPO, but you can't anybody to go on the record?

    — Poynter's Steve Myers notes the closing of a subscription newspaper-aggregation cite and asks "What killed Ongo?"

    My guess is: How many people ever heard of Ongo (I myself just learned that CJR was on it)? It's hard to sell something if people don't know about it, and I heard very little about the venture.

    But there were other big problems from the get-go, as Nieman Journalism Lab's Adrienne LaFrance reports:

    From the start, Ongo was hurt by a confusing pricing model. A basic Ongo subscription gave you access to content from The Washington Post and USA Today — but only “Top Stories” from Reuters, “Selected Content” from the Financial Times, and “Picks” from The New York Times. If you wanted to add more publications beyond the core offerings, those came at significantly varied prices — 99 cents a month for Slate, Salon, or Engadget; $3.99 for the Christian Science Monitor; $9.99 for the Chicago Tribune or The Miami Herald; either 99 cents or $14.99 a month for The Worcester Telegram & Gazette, depending on how much of it you wanted; and so on.

    Add to that the fact that most of Ongo’s content was available for free on the web — and the fact that many of its news orgs have chosen to focus on building their own paywalls — and Ongo was an uphill struggle from the start.

    — I wrote a while back about the ethical implications of news organizations' Facebook apps, which tell friends what you've been reading.

    These "frictionless" apps tell your friends what you're reading, and very often users don't know that their reading habits are being shared.e

    Which is how we get headlines like this, from Consumerist:

    Oh Look, My Friend Is Reading About Vibrators. Thanks Facebook!

    And thanks, Yahoo. Maybe Kali really wanted to let all her friends and family know that she was reading that article. If so, more power to her. But here's betting she didn't.

    Seriously, people. Turn off those social reader apps.

  12. May 10, 2012 12:58 AM

    Clearly, Quartz wants to help elites go optimize themselves

    The Atlantic’s new business site enters a crowded field catering to the 0.1 percent

    By Ryan Chittum

    The Atlantic's big new business-journalism project is off to an inauspicious start.

    First there's the name: Quartz, which is different, and that doesn’t mean worse, necessarily, but…whatever. It's a name.

    Here's the press release explaining why the venture will be called Quartz instead of The Atlantic Business, Bizlantic, Blantic or, say, Topaz or Borax:

    “We’re making great progress in our efforts to build a new kind of business news venture,” said Delaney. “We named it Quartz after the mineral that’s a key component of tectonic shifts. We see the present world of business undergoing a seminal shift — and Quartz will be there, providing the leaders of this new global economy with the information they need.”

    Atlantic Media chose the Quartz name because it embodies the new brand’s essential character: global, disruptive, and digital. Quartz, the mineral, is found all over the world, and plays an important role in tectonic activity. Quartz, the word, is bookended by two of the rarest letters in the English language, Q and Z, an easy-to-remember contraction that will get readers to the site—qz.com—fast.

    It sounds a little like Tom Friedman elevator-pitching a site to James Murdoch, or maybe Klaus Schwab (and if you don’t know he’s Mr. Davos, chances are Quartz is not for you). Again, not necessarily a biggie. Marketing is usually icky, and this effort especially so, but good luck getting somebody to give you millions of dollars—much less millions for a journalism project—without it.

    But it's the "providing the leaders of this new global economy with the information they need" that's really worth a second look.

    I'm all for anybody throwing cash into journalism, of course. But it's getting awfully crowded at the top, what with your Financial Times, Economist, Barron's, Fortune, Forbes, Bloomberg, Reuters, Bloomberg Markets, How to Spend It, Forbes Life, WSJ., Bloomberg Pursuits, Robb Report, Worth, Chief Executive, CFO, Executive Travel, Multifamily Executive, Construction Executive, Diversity Executive, Maritime Executive, Trade Show Executive, Hispanic Executive, and of course, Supply and Demand Chain Executive, all scrambling for scraps tossed by those global elites who have been doing such a fabulous job running things lately.

    While Forbes is the self-proclaimed "Capitalist Tool," Fortune is business journalism on Prozac, a comforting mirror for the 500 CEOs and a guide for climbers who hope someday to topple them. The FT has excellent finance news in addition to its yachting special sections, which provide helpful tips on the logistics of oceangoing chefs, which countersurveillance camera you should buy, and what you can pay ($128,000) for a Lasy Solar lounger that promises to "to take the effort out of sunbathing."

    The very rich and very powerful need journalism (and shopping guides) too, of course, but the truly great figure in business journalism in the last century was Barney Kilgore, who understood that by broadening and deepening The Wall Street Journal's coverage, he could reach a mass audience while simultaneously being required reading for the relatively tiny business elite. Kilgore democratized business news by telling reporters that, for instance, "they should no longer write stories about banking with an audience of bankers in mind—better to aim for the almost infinitely more numerous bank depositors," as Richard J. Tofel wrote in his Kilgore biography.

    What did he know? He only increased the paper's circulation 30-fold and turned a dreary stock sheet into a global powerhouse.

    I thought at first that I was reading too much into Quartz's "providing the leaders of this new global economy" line—that perhaps "leaders" is just marketing-speak for "readers."

    In case its raison d'etre (that's me gettin' all global) wasn't clear, Quartz reiterates it (emphasis mine):

    Quartz’s mission is to serve today’s new class of global business leaders — digitally-savvy, post-national executives who seek information that will help them better navigate the new global economy and optimize their businesses and their lives.

    If there's anything obscenely rich globalist types need, it's more people serving them. But hey, that's where the money is these days:

    If there's something to say for it so far, it's that Quartz has some smart people on board: Zach Seward formerly of Nieman Journalism Lab and The Wall Street Journal, and Kevin Delaney, former WSJ reporter in Silicon Valley who later ran wsj.com before taking over The Atlantic's floundering business project.

    And it's good that Quartz is a New Thing, unencumbered by legacy print strictures and freer to take risks. The website looks sharp, certainly, and journalism needs all the experimentation it can get.

    But it's disheartening to say the least that to find a business model for business journalism, The Atlantic believes it has to follow the reportorial mob already serving the elite's elite, the "new class of global business executives who have more in common with each other than they do with their countrymen" (emphasis mine) and who want help "optimizing their businesses and their lives." I mean, isn't that what McKinsey and personal trainers are for?

    What the post-national elite who run the world really need to read is aggressive, forthright business coverage that pops their gilded bubble, shows them the external costs of their actions, and holds them to account when they betray the public trust, which seems to happen a lot these days.

    Maybe Quartz will do some of that too, but there is zero indication in the press release of any such intention—or that the business universe might be somewhat off-kilter.

    The proof will be in the pudding, obviously, but Quartz is already limited by its own conception of itself.

  13. May 9, 2012 06:10 AM

    Audit Notes: Murdoch’s Influence, Reuters’s Chesapeake drumbeat

    A sweeping indictment of the corruption of British politics by News Corp.

    By Ryan Chittum

    The News Corp. scandal is so massive and so sprawling that it's just about impossible to bring all the pieces together to see a relatively complete picture.

    So find some time to read this remarkable 8,000-word essay by openDemocracy founder Anthony Barnett on News Corp. and its corruption of the British government.

    Barnett does a tremendous job of showing how all the pieces of corruption fit together, and shows how they implicate David Cameron and his government. I'll excerpt the top at length:

    First: Was there an across-the-board deal or understanding, or what in a grave and thoughtful column Peter Oborne calls a “Grand Bargain”, between the two teams of the Conservative leadership of Cameron and Osborne and the Murdochs, Rupert and James?

    Second: We know in detail that there was widespread criminal intrusion and the corruption of police and public officials (and maybe worse) by Murdoch staff and their agents, in News International’s News of the World, across the early years of this century. This was followed by a systematic cover-up by both News International and Scotland Yard after the Royal Editor of the News of the World, Clive Goodman, was sentenced to jail in January 2007. Did Rupert and James Murdoch know about or connive in these illegal activities? Were they holding the reins when they were happening and/or during the cover up?

    Third: The cover up originally scapegoated Goodman. His editor, Andy Coulson, claimed Goodman was a "rogue reporter" acting alone and falsely claimed ignorance of hacking. But he resigned as it had taken place "on my watch". He was then hired by David Cameron and George Osborne to handle the Conservative party’s messaging in the run up to the 2010 election. Did Cameron and Osborne also participate in the cover up through ‘willful ignorance’ and by turning a blind eye to the evidence of the Murdochs’ acting illegally, as they developed their media strategy with Coulson and in many meetings with the Murdochs and their people?...

    The questions are linked. If ‘no’ is the answer to all of them there is only a minor problem, one that Leveson can deal with easily...

    But if the answer to all three questions is “yes” then there was an extensive agreement between the heads of our government and a criminal network, made significantly worse by Cameron and Osborne being complicit in the illegality because they were aware of it (or wilfully unaware). Which means the government needs to fall.

    And the answer to all three questions is “yes”.

    Here is how we know.

    Read it all.

    — The New York Times looks at Joel Klein, the former Clinton antitrust lawyer and New York schools chancellor who is now Rupert Murdoch's $4.5 million a year consigliere/education guy at News Corp.

    This is a good catch on how Klein advised Murdoch on the PR effort after last week's devastating report from Parliament deemed him "unfit" to run a major company:

    More recently, there has been criticism of Mr. Klein’s seemingly contradictory roles within News Corporation, both investigating wrongdoing inside the company and advising Mr. Murdoch on handling public relations and his appearances before the British Parliament.

    How does that work? You're investigating the guy who's paying you $4.5 million a year after earning government wages for years and advising him on how to respond to other investigations of his corrupt company?

    Klein's is the same internal investigation that Murdoch says “found no evidence of illegal conduct other than a single incident reported months ago, which led to the discipline of the relevant employee.” Sure.

    I don't think we've paid enough attention to what Murdoch and News Corp. are trying to do in education, so it's good that the Times does here:

    While Mr. Klein still worked for Mayor Michael R. Bloomberg, Mr. Murdoch and Mr. Klein became close friends. They talked frequently about the state of public schools and Mr. Klein was lured to News Corporation with the promise that he could use the company’s deep coffers to put in place his vision of revolutionizing K-12 education. Mr. Murdoch has said he would be “thrilled” if education were to account for 10 percent of News Corporation’s $34 billion in annual revenue in the next five years.

    That's worth keeping a close eye on.

    — Reuters has another good scoop on Chesapeake CEO Aubrey McClendon's billion-dollar loans.

    Just a few weeks ago, McClendon borrowed another $450 million from a private equity firm called EIG Global Energy Partners that was doing business with Chesapeake. That brought his borrowings since 2009 to $1.6 billion—most of it from EIG.

    The deal was initially intended to be significantly larger, up to $750 million, said the person familiar with the transaction. It was scaled back last week after the Chesapeake board announced the early end to the well-stake perk, which is now slated to conclude in June 2014.

    The newest financing for McClendon closed shortly before EIG joined with other investment firms and hedge funds, such as TPG Capital and Magnetar Capital, in purchasing preferred shares in a newly formed Chesapeake subsidiary that has an interest in some of the company's wells. EIG invested $100 million in that deal, called CHK Cleveland Tonkawa, which raised $1.25 billion for Chesapeake...

    In his April 23 letter to clients, (CEO R. Blair) Thomas of EIG defended the two prior loans to McClendon, writing: "The crux of the story as it relates to EIG seems to be that we got too good a deal for our investors."

  14. May 8, 2012 12:55 AM

    Audit notes: News Corp.’s board, Lehman’s hubris, Awards and Slideshows

    David Carr eyes Rupert Murdoch's crony-filled board of directors

    By Ryan Chittum

    David Carr takes a look at the News Corporation board of directors, which is as stacked with the CEO's cronies as any board out there—and that's saying something:

    Like many media companies (including the one I work for), News Corporation has a two-tiered stock setup that gives the family control of the voting shares. The current board includes family members and several senior executives; the independent slots are filled by a host of familiars.

    Viet Dinh, a former Bush administration official, is godfather to Lachlan K. Murdoch’s son. Roderick Eddington was deputy chairman of a division of the company in the late 1990s. Andrew S. B. Knight and Arthur M. Siskind are both former senior executives, and John L. Thornton, the former Goldman Sachs president, served as an adviser to News Corporation on several major deals.

    The board also includes Natalie Bancroft, a trained opera singer who made a great deal of money when her family sold Dow Jones, which included The Wall Street Journal, to Mr. Murdoch in 2007, and José Maria Aznar, a former prime minister of Spain, who is a friend of Mr. Murdoch’s.

    — Bloomberg View's William D. Cohan writes that the Lehman emails disclosed recently show that CEO Dick Fuld and his lieutenants were well aware of the many problems forming in the markets, but were "blinded by their hubris":

    The records confirm, yet again, that the “forces-out-of- our-control” argument we hear from Wall Street leaders is bunk. It is the ill-advised behavior of one banker after another, day in and day out, that leads to the sort of devastating financial crisis we are only now emerging from.

    For instance, at a Lehman board meeting in September 2007, according to a copy of the presentation in the data cache, Lehman executives presented a clear summary of the brewing crisis. “The initial tremors were felt at the end of 2006,” the board was told, “when the poor loan performance of sub- prime borrowers began to be a cause for concern in the marketplace. This was evidenced by a gradual spread widening in the asset backed index.” The presentation continued: “The market continued to widen as it became apparent that the performance problems in mortgage loans was not going to abate and was no longer limited to the sub-prime market but also affecting the Alt-A product.”

    — The Atlantic's Alexis Madrigal takes on the idea that slideshows drive traffic, which most recently popped up when Ad Age reported that the president of the Washington Post told some of his top reporters to think less about awards and more about slideshows.

    Madrigal:

    Instead, they are seen as a cheap and fast way to produce "traffic." The problem is that they are not producing "traffic" -- which in any other context would mean the number of people in a space -- they are producing page views. This is not a simply academic distinction. The company's president is calling on his workers to juke the stats, effectively. These companies want you to think that more pageviews equal a larger, more engaged audience, but that's a quantitatively and qualitatively shaky proposition.

    Quantitatively, sites vary widely in their page views to visitor ratios, and I can tell you from experience that it is much, much easier to drive up the former than the latter. So, when companies are in trouble, what do you think they try to do?

    If you're trying to juice page views, your staff will ineluctably be forced to make galleries. Where else can they get a 10x or 20x multiplier on their work? I can guarantee you that will not help you break the kinds of stories or do the kinds of analysis that will keep people coming back. Not only that, but it's demoralizing to your best people, the ones who want to be out there producing their best work.

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