Friday, February 13th, 2009
I was the only person in the cab line at La Guardia Wednesday. The line-minder said they’re now doing 300-400 cabs a day, versus 1000 six months ago.
I was the only person in the cab line at La Guardia Wednesday. The line-minder said they’re now doing 300-400 cabs a day, versus 1000 six months ago.
“Start-ups are failing faster and you’re going to see a major shakeout,” says Martin Pichinson, a managing director of Sherwood Partners, a Mountain View, Calif., firm that specializes in winding down start-ups. Since mid-January, his firm has shut down an average of three start-ups a week, up from just one or two closures a month in September, he says.
And this is what an silicon undertaker looks like.
Nobody does doom and gloom like the Brits. Ambrose Evans-Pritchard writes:
Events in Japan have turned deeply alarming. Exports fell 35pc in December. Industrial output fell 9.6pc. The economy is contracting at an annual rate of 12pc. “Falling exports are triggering a downward spiral of production, incomes and spending. It is important to prepare for swift policy steps, including those usually regarded as unusual,” said the Bank of Japan’s Atsushi Mizuno.
The bank is already targeting equities on the Tokyo bourse. That is not enough for restive politicians. One bloc led by Senator Koutaro Tamura wants to create $330bn in scrip currency for an industrial blitz. “We are facing hyper-deflation, so we need a policy to create hyper-inflation,” he said.
This has echoes of 1932, when the US Congress took charge of monetary policy. We are moving to a stage of this crisis where democracies start to speak – especially in Europe.
The European Central Bank’s refusal to follow the lead of the US, Japan, Britain, Canada, Switzerland and Sweden in slashing rates shows how destructive Europe’s monetary union has become. German orders fells 25pc year-on-year in December. French house prices collapsed 9.9pc in the fourth quarter, the steepest since data began in 1936. “We’re dealing with truly appalling data, the likes of which have never been seen before in post-War Europe,” said Julian Callow, Europe economist at Barclays Capital.
Spain’s unemployment has jumped to 3.3m – or 14.4pc – and will hit 19pc next year, on Brussels data. The labour minister said yesterday that Spain’s economy could not “tolerate” immigrants any longer after suffering “hurricane devastation”. You can see where this is going.
Ireland lost 36,500 jobs in January – equal to a monthly loss of 2.3m in the US. As the budget deficit surges to 12pc of GDP, Dublin is cutting wages, disguised as a pension levy. It has announced “Rooseveltian measures” to rescue the foundering companies.
The ECB’s obduracy has nothing to do with economics. It fears zero rates as a vampire fears daylight, because that brings the purchase of eurozone bonds ever closer into play. Any such action would usher in an EMU “debt union” by the back door, leaving Germany’s taxpayers on the hook for Club Med liabilties. This is Europe’s taboo.
More securitizedgold hoarding reported by the FT:
Investors are buying record amounts of gold bars and coins, shunning risky assets for the relative safety of bullion amid renewed fears about the health of the global financial system.
The US Mint sold 92,000 ounces of its popular American Eagle coin last month, almost four times that which it sold a year ago and more than it shipped during the whole of the first half of 2007.
Other countries’ mints have also reported strong sales. “Large purchases of coins are perhaps the ultimate sign of safe-haven gold buying,” said John Reade, a precious metals strategist at UBS.
Inflows into gold-backed exchange traded funds surged in January, pushing their bullion holdings to an all-time high of 1,317 tonnes. Last month’s flows of 105 tonnes were above September’s previous record of 104 tonnes, and absorbed about half the world’s gold mine output for January, said Barclays Capital.
“We estimate that investment demand [into gold] could double in 2009 compared to 2007,” said Mr Reade. “Purchases of physical gold have jumped over the past six months as investors’ fears about the current financial crisis … have intensified.”
With slim opportunity costs (nearly zero current cost of carry) and no obvious fungible substitutes (unlike XOM for CVX, for example) and no value other than the perception of its value, gold is the ultimate self-fulfilling prophesy. In short, gold is the next bubble.
In New York Magazine, Will Leach visits Twitter’s offices and captures the company’s wonderful dream-state:
The first day I was in the Twitter office, I sat in the corner, playing with my own Twitter page, taking notes (it feels somewhat silly to write in a notebook there), and waiting to talk to Williams. For lunch, executives, including Stone, hosted programmers in the lounge to talk about some sort of open-source mumbo jumbo I didn’t understand. Their HD television was tuned to a still photo of a fireplace. They were wrapped up in the meeting. I attended to my computer.
And then I noticed something on Twitter Search. The first person was “manolantern,” who, at 12:33 local time, posted, “I just watched a plane crash into the hudson rive (sic) in manhattan.” After that, the updates were unceasing. Some fifteen minutes before the New York Times had a story on its website (and some fifteen hours before it had one in print), Twitter users who witnessed the crash of US Airways Flight 1549 were giving me updates in real time. One of them was a man named Janis Krums. Krums lives in Sarasota, Florida, and happened to be on a ferry navigating the Hudson when the plane hit the water. He immediately took a photo and posted it to TwitPic and sent a “tweet” with a link to the picture and “There’s a plane in the Hudson. I’m on the ferry going to pick up the people. Crazy.” He then, perhaps coming to his senses, began to help passengers off the plane. (He ended up giving his phone to one of them and didn’t get it back until that night.)
Now think about that for a second. In the midst of chaos—a plane just crashed right in front of him!—Krums’s first instinct was to take a picture and load it to the web. There was nothing capitalistic or altruistic about it. Something amazing happened, and without thinking, he sent it out to the world. And let’s say he hadn’t. Let’s say he took this incredible photo—a photo any journalist would send to the Pulitzer board—and decided to sell it, said he was hanging onto it for the highest bidder. He would have been vilified by bloggers and Twitterers alike. His is a culture of sharing information. This is the culture Twitter is counting on. Whatever your thoughts on its ability to exist outside the collapsing economy or its inability (so far) to put a price tag on its services, that’s a real thing. That’s the instinct Stone was talking about. If the nation has tens of millions of people like Krums, that’s a phenomenon. That’s what Twitter is waiting for.
Of course, no one at Twitter noticed any of this going on. This is the New Communication. There was no screaming and running through a newsroom, dispatching any reporter in the vicinity to the scene. For an hour, the boring open-source meeting droned on. No one in the room knew a plane had crashed. The next day, Stone would tell me that the site didn’t even get a traffic spike. “That’s only for huge shared experiences, like the inauguration, or Mumbai.” Twitter had unleashed something … and its executives were completely unaware, as its system worked on its own, without them. That might be what the future holds for Twitter. Or it might not be. It all depends on whether you’re willing to wait for something that might not come. It all depends on whether you’re willing to believe.
Steve Brill has a way to save NYTimes. Just charge people!
The New York Times newspaper website currently has 20 million unique visitors a month. It is a great editorial product and has done an amazing job building an audience. Now, its time to go to Step Two and make that work to usher in a bright new age for the world’s greatest newspaper.
Getting an average of just $1.00 a month (3.3 cents a day) from each visitor would yield $240m in new annual revenue. This is approximately equal to (it seems, from the Times’ financial statements) two thirds to three fourths of all of the company’s annual advertising revenue for all of its internet properties combined. And, of course, this online ad revenue would not disappear or even necessarily diminish if readers paid a small amount for online content.
At an average of $2.00 a month per unique viewer, the resulting nearly half billion dollars in added revenue would equal 50% of the entire company’s circulation revenue and create profits unseen for years at the Times.
An average of $3.00 a month in five years with 30 million visitors ($1.08 billion in additional revenue for what is currently a $3b total revenue company with year-to-year declines) would completely reverse the fortunes and invigorate the margins of the paper.
Oh the fun you can have with a calculator. Brill didn’t go the obvious next step in playing this game. Translate the Times into Chinese. Let’s see, 1 billion Chinese readers. If ONLY 1% of them will read the paper, that’s an extra 10 million readers. Presto, ANOTHER $120 million!
The problem with all this prestidigitation, of course, is that the minute you make people click more than twice to get to an article, half those readers will turn and run. Make people get out a credit card and another 90% will go away NO matter how cheap the price tag. Note to budding media economists and pundits: the slope of the price curve between 0 and one penny is infinite. You can’t do any safe extrapolating about how consumers behave as you oscillate prices between those two levels.
Six years after the first “bloggers can make money” stories, the press appears primed to serve up a slew of “the death of blogging” stories. At last! Writes Dan Lyons, aka Fake Steve Jobs:
I walked away feeling burned out and weighing 20 pounds more than when I started. I also came away with a sneaking suspicion that while blogs can do many wonderful things, generating huge amounts of money isn’t one of them.
Now others seem to be riding the same downward curve, with euphoria giving way to exhaustion. Michael Arrington, whose TechCrunch blog empire attracts 6 million readers each month, has gone on a monthlong hiatus after three years of nonstop blogging. His break was prompted, he says, by burnout and by the craziness of the blogosphere (he says he’s been stalked, threatened and spat on) and not by the fact that he’s been trying to sell his company for a year and hasn’t been able to find a buyer who’ll pay his price, which is rumored to be $100 million. Gawker Media, a leading network of blogs, recently laid off all but one of its writers for Valleywag, its tech blog, which has struggled for three years. In January Pajamas Media, a collective of right-wing political bloggers, shut down its ad network, which CEO Roger Simon says “was a money loser for three years.”
Group M, the parent company to some of the world’s largest advertising agencies, is proposing new terms for online advertising deals that could triple the time publishers have to wait to get paid for ads they’ve run.
While the industry norm, at least on paper, is payment within 60 days of a campaign’s launch, under Group M’s new terms, a publishers would have to wait fully 180 days before even complaining to the end advertiser that it hasn’t received payment. Here’s the relevant clause in M’s new terms:
Payments will be made in accordance with the payment schedule set forth in the IO or, if no payment schedule is specified, payment will be made pro rata in arrears on a monthly basis (not in a lump sum) based on advertising actually delivered. No invoice shall be sent by Media Company until on or after 30 days from the media start date, and payment shall be effected 60 days from receipt of the applicable Media Company’s invoice. … Media Company may notify Agency that it has not received payment in accordance with the foregoing provisions and whether it intends to seek payment directly from Advertiser pursuant to Section III(c), and may do so no sooner than 90 days after providing such notice to Agency.
In contrast, here are the IAB standard terms used by 90% of advertisers and their agencies today: a) invoice must be sent within 30 days of first month’s delivery or completion of the IO, b) agency will make payment 30 days from receipt of invoice and c) media company may contact advertiser (end client) for payment after this 30 day period is up.
Group M’s daughter agencies include MAXUS, MediaCom, Beyond Interaction, Mediaedge:cia and Mindshare. Their clients include Diageo, Volkswagon, Deutsche Bank, Puma, Mitsubishi, Sony, Ericsson, Bayer, Beiersdorf, Unilever, Motorola, IBM, Land Rover, American Express, Lufthansa, Nike, Kelloggs, Ford, Castrol, HSBC, BP, SAP, Kodak, Volvo, Kraft, Nestle, Kimberly Clark, Diesel, Rolex, Jaguar, Heineken, Warner Brothers… and many others.
The ramifacations are obvious. First, high overhead publishers who are already cash-flow thin will be stretched beyond the breaking point. Second Group M wants a license to sit on cash owed to publishers for 90 days before paying it out. (Group M, which calls itself “the leading global investment management operation,” seems also to be managing its own cash flow very aggressively.)
Other portions of the new terms have been getting some press, but as far as I can tell, nobody is squawking about this egregious cash grab.
Update: We got the terms along with an RFP on January 26. This pleasant note accompanied them: “Also attached are the new GroupM terms we will be using for all campaigns moving forward. Please take a moment to look through them. By submitting your proposal you are accepting to these terms for any IO for this campaign. If there are any objections, we need to know at the time of submission, as it may affect consideration for this campaign.”
Did Pajamas’ CEO Roger Simon really say the following?
Actually that part of our business [ad sales] has been losing money from the beginning, so the people getting their quarterly checks from PJM were getting a form of stipend from us in the hopes that advertisers would start to cotton to blogs and we could possibly make a profit. Didn’t happen. No wonder those people are kicking and screaming now that they are off the dole.
And he then removed the post? Which is worst?
(Simon quoted in the The Village Voice.)
Roger’s post is live again with a kinda apology. “I’m sorry if people found the word ]dole’ insulting. I didn’t intend it that way.”
Back in November, I suggested that online ad sales might fall 40% in 2009 as a deep recession carved into online ad budgets. Looks like the market is headed that… or worse, at least according to this Ad Age article:
Cost-per-thousand ad impressions for online publishers are generally off about 20%, according to several people on both the buying and selling side, and sell-through rates are dropping. And where publishers used to unload 60% of their inventory, some are now able to sell only 30%.
But perhaps indicating more trouble ahead is just how cheap the low end of the market has gotten. An August study from the Interactive Advertising Bureau and Bain & Co.* found the average CPMs on ad networks ranged from 60 cents to $1.10, only 6% to 11% of the prices publishers could command when they sold inventory directly. And the pricing for networks appears to be getting worse not better. CPMs for ad-network-sold ads are dropping, some by 50% year-over-year, according to a recent study of pricing by Pubmatic, which tracks pricing among many Long Tail ad networks.
Put those percentages together and you’ll discover that some publishers have seen revenues collapse 60% or more.
Compounding the recession-driven collapse in revenues is the fact that the volume of online content is still doubling yearly, thanks to all the blog posts, comments, photos, videos, ratings, interactions and e-phemera that we all create singly and socially.
With supply doubling and demand stagnant or down, advertising prices are headed to zero for any property that doesn’t deliver VERY compelling value to advertisers.
What a lot of publishers don’t get is that “selling” is only a tiny portion of the formula for survival in the short run, and success longer term. The real keys are innovating, keeping overheads low, improving processes and talking relentlessly to your customers about what they want.