Felix Salmon

Back in November, I grappled with the fact that online display ads in general, and banner ads in particular, are clearly not working very well; my suggested alternative was for brand advertisers to embrace the power of the external link. That was one suggestion; there are many, many more. But what they all have in common is that they’re attempts to go beyond the ad, and to leverage the interactive power of the internet.

Over at Tumblr, David Karp is being characteristically vague about what he’s offering to potential advertisers: all we know for the time being is that he “wants brands and marketers to use Tumblr as a way to tell stories that they can’t otherwise tell on other social networks”. Which sounds great, but doesn’t even come close to answering the obvious first question, which is “how?“. I understand that the idea is to sell space on the right hand side of the screen, and that clicking on one of those units will take Tumblr users to the advertiser’s tumblog. But this seems uncomfortably close to the idea that advertisers buy a banner ad and that clicking on that banner ad will take users to the advertiser’s website. The tumblog itself might well tell a story — but then again, so might the advertiser’s website. The difficult thing is getting users to click on things, especially when those things look like — and are clearly labeled as — ads.

Similarly, Facebook’s revenue problems are based on much the same underlying issue: Facebook itself is highly interactive and immersive, but the ads you find there are not. And while there are one or two companies I will follow on Facebook, they’re invariably companies which are run by my friends. Facebook is a great place to keep up with what your friends are up to, but it still hasn’t cracked the nut of working out how to make itself valuable to brand advertisers.

Now, Gawker Media’s Nick Denton has a new idea:

In an internal memo on Thursday, Denton announced the formation of a new sales unit that will focus on helping advertisers and brands take part in the new commenting system…

According to the memo, Gawker is creating a new content unit within the sales department that will be headed by Ray Wert, formerly editor of the Gawker-owned automotive blog Jalopnik. This new unit will take over responsibility for all of Gawker’s branded content functions, as well as marketing communications and events — and the purpose of the unit will be to promote the new Gawker discussion platform as a way for marketers and brands to engage with customers in an open forum. Says Denton:

We all know the conventional wisdom: the days of the banner advertisement are numbered. In two years, our primary offering to marketers will be our discussion platform.

Last Friday, Denton gave me, along with a few other New York digital-media types, a preview of his new commenting system; yesterday, I had a pretty geeky conversation with Wert about how he intends to turn it into dollars.

At Gawker, as at most other popular sites, the number of people reading the comments is vastly greater than the number of people writing them. But the way they’re presented, they’re not easy to read, there’s far to many of them, and the signal-to-noise ratio tends to be extremely low.

So Gawker’s new commenting system is based around threads, with the default view being the main, most interesting thread. It’s possible to click through to other threads, and every thread — indeed, every comment — has its own unique URL; what’s more, the person who starts a thread has quite a lot of control over which comments in that thread will get featured.

What that means is that if an advertiser buys a sponsored post — and sponsored posts have been part of Gawker’s menu of offerings for some time now — then once the new commenting system is in place, the advertiser will have a reasonably large degree of control of the conversation that most people see in that post.

Denton’s vision for Gawker Media’s editorial product is very much moving towards comments and away from posts, and he reckons that advertisers will follow him in that direction if he blazes the trail. Expect Gawker’s blog posts to get shorter, in future, and sometimes just be a headline, at least in the first instance, so that the conversation can get going before a pretty post can be put together. And if Denton’s scheme goes according to plan, when you follow a link to a Gawker website, it will often — or maybe even usually — be a link to a comment, rather than to an original post. Eventually, it’s possible to envisage a world where the distinction between the two is erased completely.

This is a very ambitious vision. Historically, Gawker has been pretty weak with respect to technological innovations, and so it’s reasonable to take an I’ll-believe-it-when-I-see-it approach any time that Nick Denton claims to have invented a revolutionary new technology. As Wert said to me, forums have been around on the internet since the 90s, and no one’s managed to reinvent them yet. But a few companies like Reddit and Quora have pointed in interesting directions, and Wert was quite open about wanting to ape Reddit’s AMA (“ask me anything”) feature for his new advertorial conversations.

The idea is for these things to be more a PR/marketing product than a brand-advertising product. The idea is to get challenger brands, in particular, to take part: they tend to be very open and transparent about what they’re up to, and they love the idea of engaging with the public as much as possible, if they can do so in a reasonably controlled environment. When that kind of a brand has some kind of news they want to share, doing so through a Gawker Media sponsored post will be a pretty effective way of getting the news out to a large number of people while at the same time sending the message that they’re trying to be as transparent as possible and are happy to answer lots of questions in a friendly and conversational and open manner. The metric for success, says Wert, isn’t going to be the number of pageviews they get; rather, it will be the amount of earned media they get — the degree to which other media outlets pick up on the initial announcement and the rest of the information that the company reveals in the comments section.

The conversation will probably only go on for a day or two, but after that the post — and all its associated comments — will live on in perpetuity, a much more open and accessible record of the announcement than any press release could be.

The problem here, for Denton — and the reason why he got an editorial guy to run this new project — is the old one: how to persuade his websites’ readers to read the sponsored posts and to engage in their comments sections. Wert’s stated ambition — and you can hold him to this — is for his sponsored posts to be so well written and newsworthy and generally high quality that the editors of Gawker’s websites will love to be able to feature them on their home pages. There have been very high-quality sponsored posts in the past, but Wert is going to have to work very hard, I think, to turn boring PR announcements into something of Gawker-level juiciness.

What’s more, this move of Denton’s is to a large degree a reversal of his stated aim back at the end of 2010, when he did his big network-wide redesign. Back then, I explained the departure of sales chief Chris Batty, now at Quartz, as being a function of the fact that Batty was a huge fan of the sponsored post, while Denton’s redesign “essentially sacrifices the idea of having a sponsored post on the home page—something Batty was almost religious about—and replaces it with interstitial videos which aren’t nearly as sharable, aren’t extensible, and quite possibly won’t even have permalinks.” This move of Denton’s, then, is a step backwards, in many ways, towards the Batty vision which he rejected two years ago.

Still, I do like the fact that Denton’s constantly trying new things, constantly trying to reinvent what an online media company can and should be. Really ambitious brands, indeed, won’t need Wert’s help at all: they’ll have the ability to dive straight into existing non-sponsored editorial posts and respond to commenters directly, much as they’re already responding to people who talk about them on Twitter. But I suspect that the brands which do that will actually be more receptive, rather than less receptive, to Wert’s sales pitch — they will already understand the power of conversation.

And in general, I like Denton’s bigger idea of building a comments system designed more for the majority of readers who don’t comment than it is for the minority of commenters themselves. I don’t believe for a minute that the new system will attract the big-name commenters — Dov Charney, Brian Williams — that Denton really wants. But I do think that the new system will make very high-end comments threads much more common. And when those things do appear, they’re wonderful.

I used to help run a site, back in the early days of the blogosphere, called MemeFirst. The posts were short; the comments threads were long, and generally very high quality. We didn’t have much of a signal-to-noise problem, because very few people knew we existed. We were basically just a group of friends using the web as a discussion aid. But the fact is that even though there are many more readers than there are commenters, there are also many more commenters than there are posters. And collectively, those commenters are faster and funnier and more knowledgeable than the staff of any website.

Nick Denton wants to be the first publisher to develop the ability to effectively tap into that collective wisdom. And then, he wants to try to sell his new-found ability to advertisers. If — and only if — Denton can do the former, I suspect that Ray Wert has a decent shot of being able to do the latter.

You might have heard that Facebook’s going public; certainly the editors of Businessweek have, and so they’ve managed to come up with a listicle (“five hacks that have changed Silicon Valley forever”) to put on their cover this week. The Economist, by contrast, not only has a much better cover; it has also gone with the much more important story. (Which doesn’t yet appear to be online.)

Watching the two stories play out in the news media, especially here in the US, has been fascinating. And it’s no coincidence that the London-based publication went with Greece while the New York-based publication went with Facebook. Looked at from New York, the Greece story is a horribly complex mess of players and parties and agendas, with no obvious timetable and no chief protagonist. Plus, while it’s clearly important from a global perspective, it’s perennially impossible to come up with any really good explanation of why a US audience should really care.

On the other side, looked at from across the pond, the Facebook IPO seems like much ado over relatively little: a hot company is managing to raise a large amount of equity at a high valuation. That’s fine — but in this case there’s really no reason why the average European should care: Facebook is not going to visibly change at all for having gone public, and Europeans in general don’t pay nearly as much attention to individual share prices as Americans do.

My guess is that this dynamic is going to stay in place even after Facebook has gone public and the share price has settled down: the European media will cover the Greece story in minute detail, while the US media will largely ignore it, but for the occasional dull-and-worthy piece buried where no one will find it, until such time as it starts causing visible repercussions for US banks or stocks.

For a world which supposedly globalized decades ago, the crucial and central importance of the Greece story to Europe, and its decidedly peripheral status in the US, is telling. If you were launching a new publication aimed at the “global business elite” right now, which of these stories would you consider more important? You’d try to cover them both, of course. But if you spent too much time on Facebook, your non-US audience would consider you frivolous, and if you spent too much time on Greece, your US audience (and, crucially, your US advertisers) would consider you wonky and worthy and boring. Maybe the answer is to just stick with shiny photos of a major global city at night. That always works.

Binyamin Appelbaum has delivered a 3,000-word day in the life of Joe Weisenthal for the NYT Magazine, complete with 18-page slideshow. (“7:06 am: Weisenthal catches the 6 train uptown from his apartment at the edge of the Financial district to the Business Insider offices in the Flatiron District.”) Nothing in the piece will come as any surprise to anybody who follows @TheStalwart on Twitter, although I think that Appelbaum doesn’t quite nail the way in which Twitter allows Joe to keep up a running self-deprecating meta-commentary on how crazy the job is that he’s given himself. You’ll never find a CNBC anchor, for instance, tweeting out anything like this, from this morning:

Jeffrey Goldberg nails Joe with a single tweet, saying that he “may have more shpilkes than anyone in America”. Which raises the single biggest issue I have with Appelbaum’s piece, as exemplified in his central thesis:

In the intensely competitive world of financial blogging, dominated by young men who work long hours and comment on every new development, Weisenthal stands apart by starting earlier, writing more, publishing faster.

Appelbaum is absolutely right that Weisenthal stands apart by starting earlier, writing more, publishing faster. That’s who Joe is. But he’s absolutely wrong that there’s an “intensely competitive world of financial blogging, dominated by young men who work long hours and comment on every new development”. Go on — name a single other financial blogger who fits that description. I’m waiting. There’s the anonymous group blog ZeroHedge, perhaps. But the fact is that Henry Blodget, in hiring and promoting Joe, has succeeded in identifying and harnessing and leveraging a nervous energy which has been there all along. He didn’t start with some kind of inhuman job description and then hire Joe to fill it; he found Joe and then basked in the fruits of encouraging him to simply be his natural self.

Yet again, it seems, the NYT Magazine has published a blogger profile which makes bloggers seem weird, immature, and hyperactive — the kind of profile where the subtext is that “it’s OK if you don’t care about the second-to-second noise and the personal revelations, you’re fine ignoring the blogosphere completely and getting a more considered view of things from the NYT instead”.

For instance, Applebaum devotes a large chunk of the profile to the genesis of a single tweet, which reads “DISASTER: MARCH JOBS REPORT MISSES EXPECTATIONS AT 120K (Analysts expected +205K) http://read.bi/HjbyHQ“. Pulling himself up to the full height of The Times, Appelbaum declares that the tweet “looks pretty silly in retrospect”, adding:

The creation of 120,000 new jobs was not a disaster by any reasonable definition. Other media outlets, some working almost as quickly as Weisenthal, chose far more modest words.

As Applebaum says, this was the first tweet about the jobs report that day — ahead of the ones saying simply “120k”. And in that ultra-fast tweet, Joe managed not only to get out the news of what the number was, he also managed to place it in the context of Wall Street expectations, explain that the number fell short of those expectations, convey the importance of the payrolls report, include a link to a live Business Insider story on the report, and do the whole thing with wry humor. Joe’s “DISASTER” was never meant to be taken literally: hyperbole is his stock in trade, he loves it, and his audience loves him for loving it.

Business Insider is a bit like a much more honest, much funnier version of CNBC: while other media outlets still work within a tradition of self-importantly handing down the news on engraved stone tablets, TBI is much less reverent — about the news, about itself, about anything really. At its heart, the part of TBI that Joe runs is basically color commentary on the markets — sometimes fast, sometimes clever, sometimes stupid, sometimes profane. It doesn’t matter, so long as it isn’t boring.

If you care about the markets, this kind of coverage is exactly what you want. Dry reports saying that this went up and that went down are a waste of time: if you wanted to just know what was up and what was down, you could simply look at the numbers yourself much more easily. And quotes from analysts and strategists aren’t much better: their main interest is in looking considered and intelligent, which means that they self-censor and tend to produce boring banalities. TBI, by having no equity in being right, gets to enjoy itself, and reflect the manic energy of a trading floor and the kind of attention span those traders have.

Appelbaum does praise Joe, too: he has nice things to say about this post, from November, for instance. Here’s Appelbaum’s précis of what Joe wrote:

In a post last November titled “Everyone Is Wrong About What Is Driving the Market These Days,” Weisenthal reproduced a Google search showing a slew of articles describing the stock market as “headline-driven,” meaning that prices were responding to the latest news. Then he showed a chart he created illustrating the close relationship between movements in stock prices and a basic economic indicator.

“So it’s a ‘headline-driven market’?” he wrote. “Nah, not really. . . . The market is just moving with the fundamentals, week in and week out. The headlines are mostly a distraction.”

That’s 95 words. The post itself is 62 words long.

A large part of Joe’s genius is that he writes short better than anybody else in the business. The NYT Magazine, of all places, with its one-page magazine feature, should value that. Writing short is what gives Joe’s blog posts punch, that’s what explains how Twitter is such a natural medium for him, and that’s why Blodget values him more highly than any other writer at TBI. I only wish I were better at learning from him myself.

Wired has a big article on A/B testing this month, which makes a good point:

Today, A/B is ubiquitous, and one of the strange consequences of that ubiquity is that the way we think about the web has become increasingly outdated. We talk about the Google homepage or the Amazon checkout screen, but it’s now more accurate to say that you visited a Google homepage, an Amazon checkout screen.

But it’s not just web pages that change with A/B testing, it’s prices, too. And Exhibit A in this regard is the Financial Times. Go to this page, laying out the cost of subscribing to the FT, and you could get any number of different prices. A standard online subscription in the United States, which excludes the Lex column and a handful of other extras, shows up for some people as $4.99 a week. Others see $5.39, $5.75, $5.79, or $6.25. Guan Yang reported this morning, for instance, that on his first attempt at viewing the FT page, he was given a price of $4.99; when he opened the same page in Chrome, the price was $6.25. Chrome for Windows, meanwhile, revealed a price of $5.39.

All of these prices are pre-tax, and are weekly based on an upfront annual commitment: the equivalent of those newspaper ads touting incredibly low airfaires which are “one-way based on round-trip purchase” and exclude hundreds of dollars in taxes. When I subscribed to the FT last year, they charged me an extra 8.88% in sales tax — which means that someone buying a subscription at $6.25 a week will end up seeing their credit card charged a total of $353.86.

What’s more, Rob Grimshaw, the FT managing director who sets all these prices, tells me that in fact that annual price is “heavily discounted because those customers are willing to make a longer term commitment.” That, in turn, implies that the real price of an online subscription, by Grimshaw’s measure, is $35 a month. Which, adding on sales tax, comes to $457.29 per year. And that includes no premium content at all.

By contrast, a basic online subscription to the NYT is $15 every four weeks, tax included: that’s $195 per year. And the WSJ charges $17.29 every four weeks, or $224.77 per year; it’s a bit cheaper, $207.48, if you pay by the year. It’s not the NYT which is the outlier, it’s the FT.

Even if you reload that FT page in multiple browsers on multiple operating systems and eventually get the cheapest possible $4.99 offer and pay a whole year up front, you’re still paying $282.52 for a year’s access, which is 36% more than the WSJ charges. The recommended retail price, or RRP — the default amount that the FT will charge me for renewing my subscription — is $353.86, or a 70% premium over the WSJ rate. And if I want the full FT online package, including Lex, then that’s $486.35 annually, or 2.3 times the cost of a WSJ online subscription. Alternatively, it’s $53.35 per month, which means that you end up paying more in four months than you would for a full year of the WSJ.

I don’t think it’s any coincidence that I run into the FT paywall much more often than I run into any other paywall. Grimshaw says that the problem of hitting the paywall when following links on Twitter or Facebook “was fixed some months ago and seems to be working well”; I’d beg to differ. He also says, more encouragingly, that there will be social login later this year, which will allow non-subscribers to view a (very) limited number of articles by logging in with their Twitter or Facebook accounts, rather than having to set up and remember an FT-specific username and password.

But I fear that so long as the FT keeps up this super-premium pricing strategy, it’s going to wind up chasing local maxima. Here’s how the Wired article puts it:

A/B tests might create the best possible outcome within narrow constraints—instead of pursuing real breakthroughs. Google’s Scott Huffman cites this as one of the greatest dangers of a testing-oriented mentality: “One thing we spend a lot of time talking about is how we can guard against incrementalism when bigger changes are needed.”

If you test lots of prices for your FT subscription, it makes sense that the higher the subscription price, the higher the revenues generated, and the higher the publisher’s profits. Most of the FT’s subscribers have very little price sensitivity: either they’re on expense accounts, or they’re incredibly rich, or their subscriptions are handled by some kind of support staff and they never even know how much they’re paying. In that world, it makes sense to raise the RRP as much as possible, since the RRP is the rate that all renewals get charged at, and most renewals are automatic. Even if the amount stands out on some expense report and eyebrows get raised, the FT, by policy, won’t refund the payment. “We do not provide refunds to customers who wish to cancel their subscription mid-term but the subscription will remain valid until the term of the subscription expires” is how Grimshaw puts it in the official FT email.

The result is that the FT’s readership will slowly drift further and further away from the 99% — something which has to affect its journalism at some point. When real people look at the price of an FT subscription, they’ll have much the same reaction as they do when they look at the prices at Cipriani. They won’t just refuse to pay, they’ll take away the understanding that the FT was never written for them in the first place, and that the readership of the FT is a chummy group of of rich people who probably like the exclusivity that a high entrance price provides. It’s like the membership fees at exclusive golf clubs, designed more to keep the middle class out than to actually pay for any particular service.

And while it’s possible to make the case that the global 1% is big enough and rich enough to comfortably support a publication like the FT, it’s dangerous to chase that demographic too assiduously, to the exclusion of everybody else. If you want to be a newspaper rather than a newsletter, you have to aspire to being more than a service vehicle for bankers.

After all, it’s pretty much impossible to make the case that the journalism in the FT — the product being paid for — is so better than the journalism in the WSJ or NYT that it’s worth twice as much money. Especially when much of the best FT journalism is still free, on Alphaville and Martin Wolf’s Economists’ Forum.

What’s more, at least for readers in the US, the FT isn’t remotely comprehensive enough to suffice as a one-stop shop for business news. The FT has some fantastic content, but it needs to be read in addition to, rather than instead of, the NYT / WSJ / Reuters / Bloomberg. As a result, you need to be really price-insensitive to buy it: you can get access to all four of those sources online for less than the price of a single premium FT subscription. When a five-course meal costs twice as much as a four-course meal, you generally go with the four courses.

And as I can attest, because news is social, you don’t end up reading the FT very much even after you’ve paid through the nose for your subscription. I read news which is shared with me, and the people in my social circles don’t share FT stories all that often. In turn, I want to read news I can share, and it’s very hard to share FT stories, since I can’t assume that the people in my social circles, or the people reading Counterparties, have FT subscriptions.

This I think is the real problem with the FT’s pricing strategy. In the old world, the more you charged for a subscription, the more it was valued, and the more your journal was read by its subscribers. In the social world, the more you charge for a subscription, the less it gets read by its subscribers. As a result, the amount I end up paying per story that I read becomes enormous. I kinda wish the FT had a ticker, like the NYT did at one point, telling me how many stories I’ve read this month. It would give me some kind of masochistic thrill, working out what vast sum I was paying per article. Either way, over the long term, the marginal cost of reading an FT article will become so high that even business-news junkies like myself won’t be able to justify it any more.

On the other hand, there could be a silver lining here. The FT’s pricing doesn’t make sense as a long-term strategy: it makes new-customer acquisition extremely difficult, and it only serves to remove the FT ever further from the minds of the global professionals it really wants to reach. As a short-term revenue-maximization strategy, on the other hand, charging people as much as $640 a year for an online-only subscription makes all the sense in the world. And if Pearson intends to sell the FT in the next year or two, it would surely love to be able to point to healthy profits and cashflows as a way of justifying some enormous purchase price.

I’m going to hold out hope, then, that the FT’s prices are a temporary aberration, a way of extracting some huge sum from potential buyers. I don’t really think that the FT will ultimately end up being sold on some multiple of profits or cashflows, but those things can never hurt when you’re deep in negotiations. Once the FT is finally sold, to Thomson Reuters or to somebody else, its subscription price will be able to revert to reality. But it’s not going to come down before then.

Update: My commenters have worked out that if you really want a cheap FT subscription, you can get one for less than $50 if you live in India, and you’re more than welcome to pay with a foreign credit card. This actually works, it seems, for people with VPNs.

Many thanks to everybody who responded to my provocation yesterday, where I suggested that the NYT could sell advance access to its stories. John Gapper summed it up well, in a tweet: “If scoops don’t matter to most readers, as the digerati claim,” he said, it’s logical to sell them to those who do value them. Which, in this case, would be hedge-funds capable of front-running the news and making a profit when the news moves markets.

In a sense, there’s something very economically inefficient about scoops like this one. The NYT story came out in the middle of the weekend, when markets were closed; when they opened on Monday morning, both Walmart and Walmex had billions of dollars shaved off their market capitalizations, but no one was given the opportunity to short those stocks at their prior level. After many months of diligent and valuable work on this story, one would think that a genuinely capitalist economy wouldn’t just leave money on the table like that. After all, buy-side institutions pay millions of dollars to analysts who research companies like Walmart in depth; isn’t that exactly what the NYT was doing?

For years, short-sellers have briefed journalists when they find out something damning about a company: think of Jim Chanos, for instance, putting Bethany McLean on to Enron and other companies. More recently, a group of people ranging from Mark Cuban to John Hempton to Muddy Waters to Anonymous Analytics has merged the shorting and the reporting functions, putting on short positions before releasing their own research on a company in the hope of seeing that company’s shares fall as a result.

But while the world doesn’t seem to have blinked very much at shorts helping reporters, there’s a much more visceral opposition to the idea that reporters might ever help shorts. If the NYT were to give any hedge fund an advance peek at its reporting, goes the argument, well, that would be bad.

The journalism-ethics angle to this hasn’t really been fleshed out, though. Mathew Ingram, for instance, says that if news is being put out in the public service, then it shouldn’t be “just another commodity”; if the NYT were to go down this road, then “that would make it a very different type of entity than it is now”. It’s all very vague and hand-wavey.

The Epicurean Dealmaker, in the comments to my post, is a bit more on point:

Why in God’s name would you want to give the reporters and editors of the New York Times even more of an incentive to break market-moving news. Surely you know there are many sides to any story; emphasis is critical. Why would news consumers trust editors and journalists who could directly profit by making a complicated story just a little more controversial, by shading facts and presentation to put a company in a worse light, by selectively releasing (or suppressing) information? Newspapers like the Times have always relied on a not quite accurate but nevertheless crucial image of impartiality for their authority. This would disappear if they were seen to be tools of Steve Cohen or Ken Griffin.

The fact is that the reporters and editors of the NYT already have an incentive to break market-moving news. Talk to pretty much any business reporter, and they’ll tell you the same thing: the story everybody wants to get is the scoop which moves markets. If you develop a reputation as someone who can get those scoops with any regularity, you’ll rise far and fast. It’s not uncommon for business news services to even put out charts of a stock price, showing when a story came out and what happened to the price after it did. Those charts can mean real money in terms of new subscriptions, and also in terms of pay rises for the journalists in question.

So journalists already indirectly profit from moving markets, and my suggestion was that the relationship should remain indirect: the NYT would sell advance access to its feature stories as a package, ex ante, just like other high-end news services. If a hedge fund wanted to pay a very large amount of money for that package, then it could then do with the information as it wished. But in any case if the hedge fund wanted information to flow the other way, and wanted to influence the NYT’s journalists at all, then it would have to do that the old-fashioned way, just like Chanos did with McLean.

But the real problem with my idea, it turns out, has nothing to do with journalistic ethics at all. Instead, it’s the insider-trading rules of markets around the world.

I wrote about insider-trading rules back in 2008, and came to the conclusion that while I wouldn’t necessarily implement such laws if they didn’t exist, I’m not a huge fan of abolishing them, either. Certainly there are well-formed arguments why insider-trading laws should be abolished, but let’s ignore the philosophical arguments for the time being: they haven’t been abolished, they’ve been in force since the 1960s, and everybody has to abide by them.

And the effect of substantially all insider-trading laws is to, in effect, ban precisely the kind of thing I’m suggesting, where a small group of people can take advantage of information asymmetries to make money. The way that most (but not all) stock markets are set up, the ideal is a level playing field, where all players get exactly the same information at exactly the same time, and then act accordingly; attempts to act on information before it’s public are criminalized.

One thing that both the ethical and the legal approaches have in common, however, is the concept of “public information”: both of them object to my idea because the NYT is in the business of putting out public information, and giving hedge funds advance access to that information — before the rest of the public gets a look — would in some way be fundamentally unfair.

The concept of “public information” is not a well defined one, and probably can’t be well defined. Certainly it’s not a function of price: once a piece of information hits the Bloomberg wire, it’s public, even if you need to pay Bloomberg $20,000 a year to see it. Josh Benton raises the example of Footnoted Pro, which costs $10,000 a year — but that service is explicitly based on the analysis of public information which is released to and by the SEC. Michele Leder’s product simply provides a smarter way of finding the needles in the haystack of EDGAR filings.

Is a tweet public information? Yes. Is a Facebook status update? I don’t know, but I suspect it probably isn’t. But here’s something which definitely isn’t public information: hours of interviews with a former Walmex executive detailing exactly when and where the company paid bribes.

In the comments to my post, Daniel Davies makes an impassioned argument that what I’m suggesting would almost certainly be illegal in many markets, even if it might be allowed, in some circumstances, in the US. He also says that hedge funds would never pay $1 million a year for this service. These two things are related. The value of advance notice of NYT stories, to a hedge fund, is inversely proportional to the number of other hedge funds who are also getting that advance access. And here I think is one of the key ways to distinguish between public and non-public information.

Let’s say the NYT prices the service at $100,000 per year, and you’re a hedge fund wondering whether the service is worth paying for. It’s way more than you normally pay for public information, so you’re inclined to say no. On the other hand, if everybody else makes the same calculation and you end up being the only fund to subscribe, then at that point the $100,000 might well be worth it: you could make many times that on one trade. The problem is that if you’re the only fund to subscribe, then the information can’t be considered public any more. And if it’s non-public information, then you risk putting yourself in legal jeopardy by acting on it.

In other words, if the information is public then it’s worth very little, and if it’s non-public then it might be illegal to trade on.

This also explains why it’s so common for executives to complain that what short-sellers are doing is illegal. Jim Chanos had information about Enron which was damning, and he acted on it before it was made public by Bethany McLean. That looks like material non-public information to me. What he did was legal, if he didn’t have any insider sources within the company. But McLean certainly talked to a lot of people within Enron, and she was also talking to Chanos all the while. Which raises some legal grey-area issues.

My feeling is that it would be astonishing, in practice, to see an insider-trading prosecution based on information which the New York Times Company had sold on a subscription basis. It’s the NYT’s business to sell information; doing so can’t sensibly be considered illegal. And similarly, once someone has legitimately bought that information from the NYT, it’s a bit crazy to say that they can’t act on it.

Similarly, I’d be equally astonished to see Sharesleuth, Mark Cuban’s operation, ever prosecuted for insider trading, even if they quite explicitly had sources inside the company they were reporting on. Sharesleuth’s model is not intrinsically unethical; the problem with it is rather that the model just doesn’t seem to work. Still, I’m sure that if and when it does work, the company being targeted would try extremely hard to get Cuban investigated for insider trading. And that’s almost certainly a risk that potential subscribers to any advance-news NYT product have no interest in taking.

Nick Thompson today asks whether Netflix is doomed, and gives a fantastic potted history of how the company managed to pivot from being a wonderful DVD-by-mail company to being a clumsy digital-platform play.

While I agree with Nick’s conclusion, however, that Netflix is in a very tough spot, I disagree with the way he gets there:

It’s not easy for a startup to build massive warehouses and systems for mailing discs. It is easy, however, to get into the streaming business. Yesterday, for example, we learned of a startup called NimbleTV, which plans to let you watch all the channels you subscribe to through your cable provider on your phone or your tablet…

Netflix fears that just distributing digital content is a mug’s game. Anyone can move bits around, which means that the price for doing so will just keep dropping. So it’s trying to create its own original content. But, so far at least, it’s not very good at doing so. “Lilyhammer,” a mobster show that Netflix introduced in January, has gotten killed by reviewers; I gave up on the first episode after fifteen minutes of mediocre acting and clumsy dialogue. Early next year, Netflix will release a new season of “Arrested Development,” which will surely be better. But the company is in an odd spot, facing the same competition problem it avoided when it spun off Roku. If its shows are bad, it’s embarrassing. If they’re good, they could irritate partners. Netflix needs content from AMC, for example. But will those negotiations get harder once Netflix is creating its own shows to compete with “Breaking Bad” and “Mad Men”? …

It won’t be easy for Netflix to find a way to fend off its new competitors while keeping its old partners happy.

The way I see it, Thompson has this backwards. I think he’s dead wrong about the barriers to entry in the streaming business: they’re high, and if I were Netflix I really wouldn’t be worried about other streaming companies right now. As far as I can tell, Netflix is the only company in the world which is great at persuading millions of people to pay a regularly monthly fee for streaming content online. And while it might have competition on that front in the future, right now that’s the least of its worries.

Rather, Netflix’s problem is with what Thompson calls its “old partners”. There is a stream of money coming from Netflix’s subscribers, and Netflix is competing with its “partners” for that money. The studios have learned that Netflix will pay astonishing sums for streaming rights — orders of magnitude more than it ever paid for DVDs. And while Netflix used to be able to rent out a DVD hundreds of times after buying it once, under the streaming contracts it has to pay the studios every time a movie or TV show is streamed.

This is why I’m fundamentally pessimistic when it comes to Netflix’s prospects: any time that Netflix builds up a profit margin, the studios will simply raise their prices until that margin disappears. Netflix needs the studios more than the studios need Netflix: no one’s going to subscribe to Netflix for Lilyhammer and Arrested Development alone. And while HBO has managed to build up a good business by producing original content, Netflix really doesn’t want to be HBO, it wants to be much bigger than that. It wants to be a one-stop shop for video content, rather than a single channel among hundreds.

The problem is that if you’re a one-stop shop, then you have limited negotiating power to tell any given studio that you won’t pay their price. Netflix’s subscribers are, ultimately, paying for the content, not for the pipe. And so it stands to reason that Netflix’s revenue stream will go the people making the content rather than to Netflix itself.

Perhaps the most surprising thing about the NYT’s Walmart exposé this weekend is that it was such a surprise to the market. Note this, for instance:

In December, after learning of The Times’s reporting in Mexico, Wal-Mart informed the Justice Department that it had begun an internal investigation into possible violations of the Foreign Corrupt Practices Act, a federal law that makes it a crime for American corporations and their subsidiaries to bribe foreign officials. Wal-Mart said the company had learned of possible problems with how it obtained permits, but stressed that the issues were limited to “discrete” cases.

“We do not believe that these matters will have a material adverse effect on our business,” the company said in a filing with the Securities and Exchange Commission.

The filing in question was Walmart’s quarterly report, which was filed with the SEC on December 8. These things take a significant amount of time to put together; it’s reasonable to assume that Walmart has known about this NYT investigation, then, for a full five months at this point. And while the story carries the sole byline of David Barstow, it was reported with the help of James McKinley in Mexico City, as well as the fabulously-named Alejandra Xanic von Bertrab. The newspaper was surely extremely assiduous in its reporting and fact-checking; I’m sure that there was an extremely large number of sources who had some inkling of what was being reported.

And yet the market was taken by surprise, with $12 billion of market capitalization evaporating from Walmart and Walmex in one day.

Which raises the obvious question: shouldn’t the NYT, which can always use a bit of extra revenue, take advantage of the fact that its stories can move markets so much? Not directly: I’m not suggesting that the New York Times Company should start buying out-of-the-money put options on Mexican corporates in advance of its own stories. But how much would hedge funds pay to be able to see the NYT’s big investigative stories during the trading day prior to the appearance of the story? It’s entirely normal, and perfectly ethical, for news organizations, including Reuters, to give faster access to the best-paying customers.

What’s more, good journalism is increasingly being done by people who unabashedly have skin in the game. The Muddy Waters report on Sino Forest, for instance, was explicitly written by someone with a big short position in the company. And today Anonymous Analytics, a forensic-accountancy spin-off of the hacker group, has released a detailed report on Huabao International which is similarly likely to cause a substantial fall in its share price. They write:

Anonymous Analytics holds no direct or indirect interest or position in any of the securities profiled in this report. However, you should assume that certain contributors to this report, as well as their members, partners, affiliates, colleagues, employees, consultants, muppets clients and investors, as well as our clients have a short position in the stock of Huabao International Holdings Limited (HK: 336, “Huabao” or the “Company”) and/or options of the stock, and therefore stand to gain substantially in the event that the price of the stock declines.

It’s a good report, well worth a read for connoisseurs of short-seller research. My favorite bit is where they flew to Botswana to try to find out what on earth the Huabao operation there was up to, tracking down the plant despite the fact that the company had photoshopped its photograph to make it impossible to work out where it was. This is a kind of long-form journalism, and it can be extremely remunerative. If the NYT is working on similar stories, why not take advantage of that fact and allow other people to make money off what you’re doing anyway?

The reporters and even the editors on any given story need never have any connection with any hedge fund or corporate client. All that’s needed is that when a big story is entering the final stages of layout and fact-checking, a version is sent under strict embargo to a client or clients who have paid for that access. They can then act on the story in the markets.

The main potential problem I see here is that if such an arrangement were in place, corporate whistleblowers might be risking prosecution as insider traders. But I’m sure the lawyers could work that one out. The church-lady types would I’m sure faint with horror. But if hedge funds are willing to pay the NYT large sums of money to be able to get a glimpse of stories before they’re made fully public, what fiduciary could simply turn such hedge funds away?

I’m not a huge fan of journalism awards. The Pulitzers, in particular, are a peculiar fish: they tend to award long and worthy work which almost nobody had the time to wade through when it first came out. That’s a type of journalism, to be sure — but is it the very best journalism that the profession produces? And while this year’s journalism winners were very good, the editorial cartoons which got Politico its first Pulitzer were so bad as to make one wonder whether the quality of the jury’s awards was more a matter of luck than judgment.

I’ve never sat on a Pulitzer jury, but I have sat on a Loeb award jury, twice. The Loebs are the Pulitzers of the business press, and perform a necessary function in a world where the Pulitzer jury saw fit to award precisely zero business or finance stories in 2008, 2009, or 2010. Eventually, Jesse Eisinger and Jake Bernstein won for their Magnetar story in 2011 — it was perfectly good, but it was hardly the greatest piece of business journalism that the crisis produced.

The Magnetar story, which was published online rather than in print, didn’t win a Loeb, and similarly it’s very hard to imagine the Huffington Post winning a Loeb award. This is the first area where the Loebs should learn from the Pulitzers: they should stop being obsessed with the medium in which a story appears. The Loebs have awards for large newspapers and for small newspapers, for news services and for magazines — all of them judged according to exactly the same criteria. The result is that some weak stories win Loeb awards because they’re in categories with no strong competition, and others get two or more bites at the cherry, being nominated in multiple categories to maximize their chances.

The Pulitzers, by contrast, just talk about things like feature writing and international reporting and commentary. Medium is unimportant, which probably goes to explain why outlets like ProPublica and HuffPo and Politico are finding it significantly easier to win Pulitzers than to win Loebs. Meanwhile, the Loebs respond to new media by creating a “blogs” award and then turning around and giving it to the NYT.

While the Loebs are learning from what the Pulitzers are doing right, they should learn from the Pulitzers’ mistakes, too. This year, the big controversy at the Pulitzers is over the fiction award, or rather the lack thereof. Three jurors read 300 books each over the course of six months before finally whittling the finalists down to three books — a huge effort and achievement. And all of them thought that the finalists were more than worthy of a Pulitzer. Yet for reasons which remain extremely murky, the final jury, after reading all three books, declined to give any of them the award.

There are two possible things going on here. The first is that the final jurors thought less of the finalists than the fiction jurors did, and decided that none of them was worthy of a Pulitzer. The second is that there was a deadlocked jury with each of the three books having its own partisans, and none of the three books being able to win over the absolute majority of the votes needed. Or it could be some combination of the two.

Either way, it’s abundantly clear that the fiction jurors are now looking at the final jurors with disgust, and wondering why they put so much effort into reading so many books, if the outcome was going to be so incredibly disappointing for all concerned.

Now as a Loeb juror myself, I have to start treading carefully here: everything that happens in those meeting rooms is confidential. But I can say that after my last appearance on a Loeb jury, my feelings weren’t all that far away from those of the fiction jurors for the Pulitzers.

The problem, in both cases, is the same: a panel of senior jurors picks winners without really understanding how and why the shortlist was chosen. And, at least at the Loebs, the final jury not only has the ability to award no prize at all; they even have the ability to award the prize to a piece which the junior jury deliberately left off the list of finalists.

The final jury is filled with important worthies: there’s no point in them just being a rubber stamp. But at the same time, the lower juries tend to be much more familiar with the pieces in question, and tend to have put a huge amount of thought into determining who should be on the list and who shouldn’t be.

To take a not-entirely-hypothetical example: what if someone won a Loeb award for a piece which rehashed a much more original work in the same publication, dated a couple of months earlier? That would be bad. But this would be worse: if the rehashed piece was deliberately excluded from the list of finalists for obvious reasons, and then reinstated by the final judges, just because they had no idea why it wasn’t included.

The problem, in general, is a lack of communication between the first-round and second-round judges. The final-round judges should be much closer to the initial-round judges, going back and forth, asking them why this made it through and that didn’t. The final decision can remain where it is, but it should be much more informed by the people who picked the finalists than it is right now. Because if the second-round judges don’t talk to the first-round judges, the first-round judges are likely to feel rather disgruntled. Especially if the winner was never on the original list of finalists, or if there’s no winner at all.

Bloomberg, yesterday, and the NYT, today, have come out with big news articles about the dangers and complications inherent in the JOBS Act. The NYT has found a Davis Polk note to clients saying that the JOBS Act represents “the most significant legislative loosening in memory of restrictions around the IPO process and public company reporting obligations”. As Ben Walsh documents, this is something which was well known to the opinion side of most news organizations weeks ago, but only seems to be dawning on the news side right now, after it’s too late.

The obvious conclusion to draw here is that lobbyists are better at influencing journalists than journalists are. When a bill is contested by powerful lobbyists, you can be quite sure that there will be a lot of coverage, in the press, of what the bill does and who opposes it and why. On the other hand, when a bill like the JOBS Act is opposed merely by regulators and op-ed journalists and a handful of politicians, its inherent problems can end up being ignored by the “straight” side of the news media until it’s already comfortably passed both houses of Congress.

Ben makes a geographical point, too, about the divide between New York journalists, who cover financial issues, and Washington journalists, who cover legislative issues; the former were probably more qualified to cover the JOBS Act than the latter, but they seem to have let Washington take care of things until now. I’d add that a lot of the impetus for the act actually came from Silicon Valley rather than anywhere on the east coast at all, and that journalists in San Francisco generally have very little experience of covering legislative issues, and even less ability to effectively insert themselves into such coverage. And that’s assuming that they would have the cynicism necessary to cover the act skeptically.

More generally, I think that there are certain stories which are simply easier to tell if the journalist writing them is allowed to have an opinion. Today’s NYT story is quite hard on the JOBS Act, if you read the whole thing, but you first need to get past five paragraphs of introductory scene-setting and a headline (“Wall Street Examines Fine Print in a Bill for Start-Ups”) which betrays nothing about how generous the act is or the degree to which it dismantles longstanding investor protections.

And of course, being impartial journalism, it has to be larded with on-the-other-hand quotes from people like the former head of the NASD, including this classic:

One Wall Street executive familiar with the JOBS Act but who declined to be named said the law would give firms “more flexibility” in covering emerging companies.

Is it now NYT policy to grant anonymity to sources who are simply asserting what seems to be a simple checkable fact?

Opinion journalists don’t need to worry about this kind of thing, and can come out and say what they mean, without having to ensure that any opinions in the piece are attributed to named or anonymous sources. And I fear that when opinion journalists are covering a story quite closely, as they did in this case, the news side sometimes feels that they don’t need to duplicate what the opinion side has already done. Until they can find some kind of new angle, even if it’s just the fact that Wall Street banks get lawyers to read a new law before they change their ways.

Today’s story from Gretchen Morgenson, about Goldman Sachs and short selling, is notable for two things. One one front, it fails to deliver: Morgenson seems to be trying to make a case that Goldman might be guilty of naked shorting, but she doesn’t really come close. On a second front, however, it’s a great leap forwards for Morgenson.

The whole article is based on the transcript of a deposition given by a hedge-fund manager turned chicken farmer named Marc Cohodes. “His testimony, which has not been made public, was obtained by The New York Times,” writes Morgenson — and indeed “Mr. Cohodes declined to comment beyond his deposition”, which means that the deposition is the sole source for Morgenson’s story. Wonderfully, for the first time that I can remember when Morgenson was working off a non-public primary source document, she has actually posted it online.

As a result, it’s possible to read the full testimony of Cohodes, which turns out to be a very long way from a damning indictment of naked shorting on the part of Goldman Sachs. Here’s how the subject is initially broached:

Q. And did you ever come to believe that Goldman Sachs had not been borrowing stock when you were short selling stock?

MR. FLOREN: Objection, vague and ambiguous.

MR. SHAPIRO: Objection, lack of foundation.

THE WITNESS: That’s just speculation on my part at this point in time.

BY MR. SOMMER: Q. Well, I’m asking for your belief, so just tell me what your belief is one way or the other.

MR. FLOREN: Same objection.

MR. SHAPIRO: Don’t speculate; just say what you — answer the question about what you know. You’re here to testify, as a fact witness, what you know from seeing, hearing –

THE WITNESS: I don’t know. I just don’t know. I mean, I just — I don’t know.

This sets a pattern. Questioners representing Overstock — a company extremely hostile to short-sellers of any stripe — will try to ask Cohodes whether there was naked shorting going on; Cohodes will say, at best, that he talked about the possibility, but that he had no evidence of such activity at all. Or, to put it another way: Cohodes is angry at Goldman, and Overstock is trying to use that anger to get him to accuse Goldman of naked shorting. But he never actually does so.

Indeed, it turns out that the allegation that Goldman Sachs might have been engaging in naked shorting doesn’t really originate from Cohodes, or his deposition, at all. Instead, it’s contained on page 300 of a book by a former colleague of Cohodes, Richard Sauer, which was published in April 2010. Here’s the excerpt:

This is actually a vastly better explanation of the highly-circumstantial “evidence” of naked shorting than that provided by Morgenson. Here’s her attempt:

Failing to borrow shares on behalf of customers is illegal because of concerns about market manipulation. But it can also leave a brokerage firm’s client who is short a stock dangerously exposed to an escalating price in the shares. If a stock shorted by an investor began to trade higher and the shares were not borrowed, closing out the transaction would require the fund to buy them in the open market. That could propel the already rising price of the shares even higher, adding to the costs of the trade.

This doesn’t really make any sense. If a fund which is short a certain stock needs to cover that short, then it needs to buy those shares in the open market. That’s true whether the short is naked or not. And yes, when shorts are forced to cover, that can force the price up even further. That’s known as a short squeeze, and it’s exactly what caused the downfall of Cohodes’s fund. And again, you absolutely don’t need naked shorting to have a short squeeze.

Reading the deposition, it’s clear that while Cohodes is furious at Goldman Sachs, his fury has essentially nothing to do with naked shorting. This is absolutely not clear from Morgenson’s characterization of the deposition, which is why it’s so great that she uploaded the deposition so that we can see for ourselves. Cohodes is furious at Goldman for one main reason: that after Lehman Brothers went bust, there was some very crazy price action in the market. Most stocks were plunging, but a handful of stocks — the ones he was short — were going up, rather than down. It was a classic short squeeze.

In a short squeeze, the fight is simple. The fund which is short tries to stay solvent, while the market drives up the price of the stocks in question so much that the shorts are forced to sell at the top of the market. Once they capitulate in that way, the stock tends to plunge. A fund like that being run by Cohodes, which was massively short going into Lehman’s bankruptcy, should by rights have made a lot of money: Cohodes calculates it at a cool billion dollars. All he needed to do was wait for his stocks to plunge, and then cover his short positions.

But that’s not what happened. Instead, Goldman presented him with a huge and unprecedented margin call — not the kind of margin call required by federal regulations, mind, but rather a “house call” declared unilaterally by Goldman Sachs over and above what the regulations require. As a result of that call, his fund went bust, just days before it would have made a fortune. Here’s Cohodes’s deposition:

A. I can remember Goldman closing us out of American Capital Strategies at $33 on that Monday, and when they stopped doing whatever they had to do, when the smoke cleared, we finished covering the thing four weeks later at 2, something like that. We finished covering it at 2 but they took us out of eighty percent of our position in the thirties, and when they were done, we covered at 2. They took us out of Tempur-Pedic at 16, covered that, the rest of it four weeks later, at 3. I mean, it was insane.

So it’s kind of like I played the entire thing for a complete collapse, got the collapse and was closed out, closed out right before and during.

Q. If Goldman Sachs & Co. had not made these house calls and had extended you more credit during this time period –

A. We didn’t need more credit. All they had to do was not make the house calls.

Cohodes feels, then, with some reason, that Goldman Sachs did him in by foisting huge house calls on him during a point at which the stock market in general was going down rather than up. To make matters worse, when he tried to get out of the calls by moving his entire account to a different prime broker, UBS, Goldman wouldn’t let him do that. And when he tried to move his positions to a hedge fund with deeper pockets, Farallon Capital, he says that the CFO at Farallon got a phone call from Goldman warning him off.

So it’s easy to understand why Cohodes is very ill-disposed towards Goldman Sachs, and even suspects that Goldman’s prop desk might have been orchestrating the short squeeze. But there’s really nothing here at all to indicate that Goldman was engaging in any kind of naked shorting.

This testimony is mildly embarrassing for Goldman: no one likes seeing their former head of prime brokerage being described as “just a motherfucker”, as Cohodes describes Ravi Singh in this deposition. But Goldman’s argument for keeping the testimony sealed — “that their release would disclose trade secrets about the business” — is extremely weak. And Morgenson’s case that the deposition somehow indicates that Goldman might have been involved in naked shorting is even weaker.

Naked shorting is likely to become something of an issue in the news again soon, now that a documentary on the subject, called The Wall Street Consipracy, is being screened quite widely in finance and media circles. The documentary, like the deposition, is all part of a campaign by Overstock CEO Patrick Byrne against what he’s convinced is a massive conspiracy to bring down his company through illegal means.*

And that’s the main reason why I’m uncomfortable with Morgenson’s story: it seems to play far too neatly into the hands of Byrne, who’s really completely bonkers. But at least she posted the primary document, which is great, because it means that the rest of us can see much more clearly what the truth of the matter is.

*Update: Lewis Goldberg, the PR guy for The Wall Street Conspiracy, tells me that Patrick Byrne did not fund the movie, he just appears in it.

Bloomberg and Fortune had weirdly competing stories Wednesday on the subject of Warren Buffett’s “million-dollar bet“. The bet’s duration is ten years from January 1, 2008; Buffett is betting a million dollars that the S&P 500 will outperform a fund of hedge funds.

Fortune’s Carol Loomis has unrivalled access to Buffett — she counts herself among his friends, and always helps him write his annual shareholder’s letter. So her report on the status of the bet, time stamped 8:30am, can be taken as definitive. Loomis doesn’t reveal the components of the fund-of-funds that Buffett is betting against, but she does reveal (“you are reading it here first”, she writes) the standings at the end of Year Four — that is, at the end of calendar 2011. The fund-of-funds has not done well over those four years: it’s down 5.89%. But Buffett’s index fund is doing even worse: it’s down 6.27%.

Loomis will always get these scoops, for as long as she’s close to Buffett. That’s fine. But then why did Bloomberg’s Katherine Burton decide to run a story on the exact same bet on the very same morning as Loomis’s scoop, under the headline “Buffett Seizes Lead in Bet on Stocks Beating Hedge Funds”?

The first effect of Burton’s story is simply to confuse everything. Fortune is saying that Buffett is behind; Bloomberg is saying that Buffett is ahead. If you read Fortune or the outlets which picked up Fortune, like the AP, then you’ll believe one thing; if you read Bloomberg or the outlets which picked up Bloomberg, like MSNBC, you’ll believe another thing. And if you read them both, you could be forgiven for thinking that someone is playing with your head.

A close reading of Burton’s story helps to reveal what’s going on here. For one thing, she’s reporting the status of the bet through February 29, rather than the status of the bet after four years. That is peculiar, not least because the fund-of-funds only reports annual results: Loomis was waiting to see what its 2011 returns were before she wrote her story. Burton, by contrast, despite being 25 minutes behind Loomis with her story, only knows what the fund-of-funds returned through the end of 2010. Here’s her explanation for how she calculates the performance of the fund-of-funds:

The hedge funds fell about 4.5 percent, based on Protégé’s index returns for the first three years and results since then for the Dow Jones Credit Suisse Hedge Fund Index, which has roughly tracked the group of unidentified funds when adjustments are made for extra fees.

In other words, when Burton’s story hit the web at 8:55am, it was already out of date: she extrapolated 14 months forwards from Loomis’s 2010 figures, rather than waiting for Loomis’s story to arrive and then extrapolating a mere 2 months forwards from the 2011 figures.

But in any event, Loomis was reporting the facts of the bet; Burton is just taking an educated guess. Hedge funds are by their nature unpredictable things. The fund-of-funds in this bet might have “roughly tracked” some hedge fund index for its first three years, but it can veer far off-index at any time, depending on how it’s put together. Which means that an unambiguous “Buffett Seizes Lead” headline is quite misleading.

That said, Buffett might well have seized the lead at the end of February, if Burton is right about the fund-of-funds tracking the Dow Jones Credit Suisse Hedge Fund Index. That index rose from 92.6 at end-2011 to 95.93 at end-Feb, a rise of 3.6%. We know from Loomis that at end-2011, the fund-of-funds was down 5.89%, which means that it stood at 94.11% of its initial value. If it grew from there by 3.6% in two months, it would have ended February at 97.5% of its initial value, for a loss of 2.5% overall.

The S&P 500, by contrast, rose from 1,257.6 at the end of 2011 to 1,365.7 at the end of February. That’s an increase of 8.6%, fully five percentage points greater than the rise in the hedge-fund index. We know from Loomis that Buffett was down 6.27% at the end of 2011; if his fund rose 8.6% from that level, it would have ended February at 101.8% of its initial level, for an overall gain of 1.8%.

It turns out, however, that even the Buffett side of the bet isn’t particularly easy to calculate: Burton reckons he was up 2.2% as of end-Feb, not 1.8%. But the 40bp difference there pales in comparison to what she’s estimating for the fund-of-funds: she says that it’s down 4.5%, rather than being down 2.5%. That difference, of 200bp, is really substantial.

Ultimately, the only thing we know for sure is that for four years in a row, the fund-of-funds has been in the lead, thanks to substantially outperforming the S&P 500 in 2008, the first year of the bet. At the end of five years, that might have changed: Buffett could well be back in the lead. And it’s even possible that someone with detailed knowledge of how the fund-of-funds is made up could trace the point at which Buffett took the lead back to February 2012. But no one has that information right now, or if they do have it, they’re not telling. The exact make-up of the fund-of-funds is a closely guarded secret.

In any case, the whole point of long bets is that they’re long-dated. This one has a ten-year maturity, and what happens even from year to year is not particularly important, let alone what happens from month to month. Yes, the S&P 500 had a very healthy run in January and February of 2012, and probably outperformed many hedge funds. But there are always going to be two-month periods where hedge funds underperform the index, and obviously the S&P 500 can’t rise by 4.3% a month for any sustained length of time.

So I’m a fan of the way that Loomis is reporting this, deliberately, using hard year-end numbers from the fund-of-funds, even if she has to wait 11 weeks from the end of the year before she gets them. Burton’s piece is significantly less informative even if it’s a couple months more up to date, and it’s also much less in sync with the underlying philosophy of the bet.

As for the decision to release Burton’s story on the exact same day that Loomis’s semi-official report came out, that just looks childish. It’s no secret that Loomis is very close to Buffett; let her have her scoop. It’s a perfectly good story, which in no way requires a Bloomberg spoiler.

Happy sixth birthday, Twitter! You’re the service which started off as a way for groups of friends to keep in touch with each other via text messages, and you’ve grown into a revolutionary platform for connecting and sharing with millions of people around the world.

And you’ve become more annoying, too.

For most of its history, Twitter was disliked overwhelmingly by people who weren’t on it, rather than people who were. It wasn’t enough not to join; if you weren’t on it, you had to kvetch incessantly about how you weren’t interested in what other people were eating for breakfast.

I’ve noticed a change, though, in the past year. The people who used to complain the most about Twitter have either capitulated and joined, or else they’ve quietened down — at least they know, now, how infrequently anybody tweets about what they are eating for breakfast. And now the primary source of complaints about Twitter is coming from people on Twitter, rather than off it.

During SXSW, for instance, there was a steady drumbeat of people on my timeline complaining about all the tweets from SXSW. (I was there, and even I got annoyed by the endless banal SXSW tweets; I’m sympathetic to their plight.)

We’re going to have to live with many more annoying tweets going forwards, if things like Amex’s “tweet your way to savings” campaign take off. The VentureBeat headline is “American Express transforms Twitter hashtags into savings for cardholders,” but another way to put it is that American Express is trying to make money by getting people to spam their friends with hashtags like #AmexWholeFoods which have no value to the reader whatsoever.

And then there are people like Porter Versfelt III, who will get annoyed if I dare to express a personal opinion on Twitter. For Mr Versfelt, I have a “core purpose” on Twitter, which is to provide him with financial news, and anything I do outside that purpose is annoying.

Going forwards, all of us are going to find Twitter increasingly annoying. The company has been in hyper-growth mode up until now, getting to its current astonishing scale. But it’s now getting serious about making money, which means selling us, the users, to people willing to pay lots of money to work their way into our timelines one way or another.

On top of that, Twitter is increasingly going to be a medium for following people you don’t know, rather than people you do. When that happens, it’s much easier to get annoyed at what they’re tweeting, especially when those tweets are somewhat personal in nature (check-ins, photographs, that kind of thing). We neither can nor should try to stop people from tweeting whatever they want — the way that Twitter works, if you don’t want to read someone’s tweets, that’s easy, just stop following them. But at the same time, nearly everybody’s follower count is rising steadily, and as one’s follower count goes up, the more that Twitter becomes a broadcast medium rather than a medium of conversation. And when you become a broadcaster, you have to be more careful about what you say, or risk annoying a large number of people.

Twitter’s still in its honeymoon period, but that won’t last forever. At some point, it’s going to be less of a wunderkammer, and more of a regrettable necessity. Which is probably the point at which it’s going to finally start making some real money.

Super Freakonomics came out in 2009, and Ezra Klein was not impressed:

The problem with Super Freakonomics is it prefers an interesting story to an accurate one. This is evident from the very first story on the very first page of the book.

Under the heading “putting the freak in economics,” the book lays out its premise: Decisions that appear easy are actually hard. Take, for example, a night of drinking at a friend’s house. At the end of the night, you decide against driving home. This decision, the book says, seems “really, really easy.” As you might have guessed, we’re about to learn that it’s not so easy. At least if you mangle your statistics.

Klein then does a very good job of explaining where and how Super Freakonomics mangles its statistics.

So far so normal: Klein is far from alone in his bashing of the book. Indeed, American Scientist recently ran a column by Andrew Gelman and Kaiser Fung attacking the book’s m.o. And the book’s co-author, Stephen Dubner, has now responded to that column at astonishing and mind-numbing length (7,500 words).

Dubner says at the top of his post that he tends “to not reply to critiques”. But buried further down you’ll find this:

Gelman-Fung write that our argument was “picked apart by bloggers.” Their American Scientist article includes only a cursory bibliography and no footnotes or endnotes, nor do Gelman-Fung cite any specific sources in this case, so it’s unclear who those bloggers were and what they picked apart. From what I can tell, this is the main critique; its author is reputable but he has also written things like this (NSFW!), so he too seems to be in the business of attacking at any cost.

To be clear: Gelman and Fung accused Dubner of some slightly intellectually-dishonest practices. And in his self-defense, Dubner engages in some of the most egregious and blatant intellectual dishonesty I’ve ever seen on a blog.

There are lots of ways that Dubner might have responded to Klein; most of them involve mentioning him by name. Only one of them involves exhuming a drunken and deleted tweet from January 2008. If you look at the URL of the tweet (which is actually a screengrab of the tweet, since, you know, the original was deleted), you can tell that Dubner got there from this post. But Dubner doesn’t link to the post, just to the image of the tweet. Maybe because he knows that if he linked to the post, his readers would find this comment from Ezra Klein:

You’re absolutely correct that this was patently offensive. It was a private text message to friends, an inside joke we have because it’s so over-the-top obscene. It was never, ever meant to be public, and I’m deeply apologetic that it crossed that barrier. It’s not the sort of work I publish as a writer, and not what I seek to contribute to the discourse. The other examples of my writing, those that appear on my site, were meant to be in the sphere, to be argued with, even mocked. But the Twitter was ripped from my private life, and it was never meant to be brought out of the bar-like context in which it was born. Guess those privacy settings are more important than I realized.

In January 2008, Twitter was not the broadcasting platform it is today: it still felt much closer to its roots as a way for groups of friends to communicate with each other via text message. Today, we live in a world where the Freakonomics twitter account has 415,000 followers despite following nobody at all. But when Klein put out the tweet that Dubner’s linking to, the Freakonomics twitter account hadn’t even been created. In no sense at all was Klein “writing” something for public consumption and thereby demonstrating that he is “in the business of attacking at any cost”.

Now it’s possible that Dubner is unaware of Wonkblog, or of Klein’s Bloomberg View column, and therefore is unfamiliar with his actual mode of writing. Possible, but unlikely. What’s impossible is that Dubner believes that Klein’s rapidly-deleted tweet is in any way representative of his work as a whole.

It baffles me why Dubner would engage in a low and dirty and deeply dishonest ad hominem attack on Ezra Klein at all — let alone in the middle of a post in which he’s trying to defend his reputation. The only reason I can possibly think of is that, to coin a phrase, he seems to be in the business of attacking at any cost. Even when the cost paid is that people are sure to take him even less seriously now than they did before.

Update, 3/24: Dubner emails to say that he agrees the link was “unnecessary”, and that he has removed it from the post. In fact, he’s removed not only the link to the screengrab of the tweet, but also the link to Klein’s blog post, with the result that he now pretends to have no idea what the criticisms of his drunk-driving chapter are, even though he linked to them in an earlier version of the post.

Blaine Harden’s astonishing account of the life of Shin In Geun — a man born into a North Korean prison camp, who has lived pretty much the worst life imaginable — has received significantly less attention than the fact that This American Life has retracted its story about working conditions at Foxconn, which was based on Mike Daisey’s monologue. (If you don’t want to listen to the hour-long retraction, which is a masterpiece of the form, the transcript is available here.)

Daisey has attempted to defend his actions, using an end-justifies-the-means argument:

What I do is not journalism. The tools of the theater are not the same as the tools of journalism. For this reason, I regret that I allowed THIS AMERICAN LIFE to air an excerpt from my monologue. THIS AMERICAN LIFE is essentially a journalistic ­- not a theatrical ­- enterprise, and as such it operates under a different set of rules and expectations. But this is my only regret. I am proud that my work seems to have sparked a growing storm of attention and concern over the often appalling conditions under which many of the high-tech products we love so much are assembled in China.

Kevin Slavin has defended Daisey, too:

His skill in telling the story he told is responsible for the phenomenal amount of media around Chinese factory labor practices. Not the New York Times’ China bureau. Not Bloomberg Businessweek. Show me some reporters who were able to generate the same cultural engagement with the issue, will you?

Stories aren’t made out of facts. Storytellers use facts to reveal truth but they use a lot of other things too. And if ever I have to choose between facts and truth, I’ll take truth. It’s always a great story, and stories are the life inside the human mind.

It’s a lot easier to tell a great story if you don’t also need to be factual about things. Romeo and Juliet and Hamlet are fiction; Richard III and Henry V are mostly fiction, albeit based on historical events. And it’s precisely because they’re fictional — because Shakespeare was always storyteller first and foremost — that they’re still performed so regularly, all over the world, and that they have had such powerful emotional resonance with billions of people over the centuries since they were written.

But here’s the thing: Shakespeare never lied. He never sat down in front of thousands of people to tell a first-person story, over and over again, about events which he had simply invented. He never ended that story with an exhortation which would carry no weight if his audience thought the story was fiction:

When Apple would call journalists who had spoken to me, and tell them, “You know, I don’t know if you want to be associated with him. He’s kind of unstable. You know, he does work in the theater.”

I would keep my head down. And I would tell my story.

And tonight—we know the truth.

At the end of Daisey’s show, every member of the audience is given a sheet of paper with the heading “CHANGE IS POSSIBLE”. It includes Tim Cook’s email address, and urges the audience to, among other things, “think different about upgrading”. And one of the reasons why Daisey’s show has proved so popular — his This American Life episode was the most downloaded in the show’s history, even more than the squirrel cop — is that it combined great storytelling with a feeling that this is happening now and we should do something about it. It’s exactly the same formula used by Kony 2012, a project which is equally problematic.

My friend and Reuters colleague Rebecca Hamilton has written a great book, Fighting for Darfur, which should be required reading for anybody who has been drawn in by the Kony 2012 campaign. Or, for that matter, by Daisey’s monologue. Here’s what she wrote to me:

To build a mass movement quickly, it helps to have an over-simplified, emotive narrative with a single demand. It also helps to tells people that by doing easy tasks – sharing a link on Facebook, buying a bracelet — they can save lives. Central to the formula is that the agency of local actors gets downplayed to hype up the importance of action by outsiders. But all those ingredients inevitably lead to eventual failure when the simple solutions can’t fix the complex reality. The movement walks away, disillusioned. And in the meantime untold resources have been expended on solutions that have been out of step with what local activists need.

The fact is that the chief beneficiary of the success of Daisey’s monologue has been Mike Daisey, much more than any group of factory workers or underground trades unionists in China. Similarly, the chief beneficiary of the success of Kony 2012 has been Invisible Children, a US non-profit which spends its money mostly on making movies.

And this is where the justifications coming from Daisey and Slavin really fall down — in the idea that if you get a lot of westerners riled up about what’s going on in some far-flung part of the world, then that is in and of itself a Good Thing. Daisey has managed to convince himself that his interests are perfectly aligned with those of the workers at Foxconn. Even when he presents himself as some kind of savior in a Hawaiian shirt, bringing wisdom to the workers just by asking the right questions:

I’m just ad-hoc-ing questions, I’m asking the questions you would expect: “What village in China are you from? How long have you been working at Foxconn? What do you do at the plant? How do you find your job? What would you change at Foxconn if you could change anything?”

That last question always gets them. They always react like a bee has flown into their faces and then they say something to Cathy and Cathy says, “He says he never thought of that before.” Every time. Every time.

Of course it’s ludicrous to believe that someone working 12-hour shifts at a Foxconn plant wouldn’t start thinking about how the plant might be better run. But that’s the power of theater: its conventions are designed to encourage us to suspend such disbelief. And so we walk away thinking that Mike Daisey is bold and wonderful, and really did ask that question of Foxconn workers under the glare of gun-toting Chinese guards. (We now know that no Foxconn guards are armed: that bit, too, was made up.) And we think that the Chinese workers are so beaten-down and resigned to their miserable fate that they never even stop to think about how things might be improved.

And this is why I believe the story of Shin In Geun, despite the fact that its format is inherently treacherous. Both Shin and Harden have every incentive to exaggerate and to make things seem worse than they are; what’s more, there’s absolutely no way of fact-checking the vast majority of what’s in the story. But what’s missing from their tale is the white man’s burden: the idea that a white American like Mike Daisey or Jason Russell (or Jeff Sachs, for that matter) is a selfless hero, doing good for the poor and exploited in other continents.

What Daisey should have done is what Dave Eggers did when he wrote What is the What: make no pretense that everything is true, and trust in the power of his storytelling to carry the audience along. Instead, he lied — both to This American Life and to his audience.

I am telling you that I do not speak Mandarin, I do not speak Cantonese, I have only a passing familiarity with Chinese culture and to call what I have a passing familiarity is an insult to Chinese culture—I don’t know fuck-all about Chinese culture.

But I do know that in my first two hours of my first day at that gate, I met workers who were fourteen years old,

I met workers who were thirteen years old,

I met workers who were twelve.

Do you really think Apple doesn’t know?

This had a lot of resonance for me, when I first heard it, not least because I understand statistics. In order to meet underage workers who are happy to talk about how old they are within two hours of turning up at a factory gate, there need to be a lot of those workers. Many more than the official numbers suggest. But in fact Daisey did not meet underage workers outside the factory gates. (He still claims that he did, but his translator, who’s a much more reliable source, says that he didn’t. And as Evan Osnos says, that whole episode defies credulity in the first place.)

Daisey’s m.o., it’s now clear, was to go to China, talk to some people, and then write a monologue in which he felt free to incorporate anything he’d read about the plight of workers anywhere in the country, presented as a direct piece of first-person reportage. And there’s a good reason why that’s an underhanded and unethical thing to do, which is that even if Apple did everything Daisey’s asking of them, he could still go to China and return with the exact same monologue. With hindsight, Apple was absolutely right not to engage with Daisey directly, because he created a game they could never win. The only winning move, for them, was not to play.

Jack Shafer, then, is right to come down hard on Daisey. He concludes with this, about fabulists generally:

I have my theory: 1) They lie because they don’t have the time or talent to tell the truth, 2) they lie because they think they can get away with it, and 3) they lie because they have no respect for the audience they claim to want to enlighten. That would be an ideal subject for a one-man theatrical performance.

The irony is that this subject has already been explored in a one-man theatrical performance — one by Mike Daisey, no less. Daisey, you won’t be surprised to hear, is gentler on James Frey and JT Leroy than Shafer is on Daisey, blaming in significant part “the demands of personal storytelling” for their sins.

In any case, it’s clear that theatrical events are bad places to look for unvarnished truth. And in the set of “theatrical events” I absolutely include things like TED talks. Many people have asked, of the hilarious TED 2012 autotune remix, whether it’s parody or not. The answer is that it’s not parody at all. Rather, it’s the work of someone who has been entranced by TED’s theater, and who hasn’t yet woken up to realize that statements like “we can change the world if we defy the impossible” are less stirring than they are just plain stupid.

Real life is messy. And as a general rule, the more theatrical the story you hear, and the more it divides the world into goodies vs baddies, the less reliable that story is going to be. I’ll be very interested to read Harden’s book about Shin In Geun, to see how the guards and teachers in the prison camp are portrayed — to see whether they’re monsters or whether they themselves are victims of the North Korean regime. As we know from Primo Levi, prison camps will twist and subvert the ethics of all concerned. And even in this excerpt we can see real moral problems: Shin himself behaves with astonishing heartlessness towards his own parents and brother.

One of the central problems with narrative nonfiction is that the best narratives aren’t messy and complicated, while nonfiction nearly always is. Daisey stepped way too far over the line when he started outright lying to his audience and to the producers of This American Life. But all of us in the narrative-nonfiction business (I’ve written such stuff myself) are faced at some point with a choice between telling the story and telling the whole truth, or the whole truth as best we understand it. Someone like Michael Lewis will concentrate with a laser focus on the story: what he writes is the truth, but it isn’t the whole truth. And when you have a storyteller like Mike Daisey who considers himself a monologist rather than a journalist, even outright lies can find their way in to the story very easily.

Ira Glass says that This American Life should have scrapped the idea of doing a Mike Daisey show the minute he told their fact-checkers that he had no way of contacting his translator. But maybe the mistake was made even earlier, when This American Life decided that a theatrical monologue could ever be held to standards of journalistic accuracy. This one certainly couldn’t, and in that I think it’s more the rule than the exception.

Like many people, I’m fascinated by lottery tickets. In many ways they’re the purest speculative investment in the world: a piece of paper which is all but worthless today might be worth $200 million tomorrow. Literally. Lottery tickets are a bit like SWAG assets (silver, wine, art gold) in that you can only make money on them by giving them up and exchanging them for cash. They pay no dividends, and they have an asymmetrical payout: the most you can lose on any one ticket is a modest dollar, but the most you can gain is enormous.

On top of that, lotteries can be gamed, as Jonah Lehrer spelled out in a fantastic Wired story last year. And casinos can be gamed too, as Mark Bowden explains in the the latest issue of the Atlantic. Beating the odds is a staple of great narrative journalism for good reason, and of movies, too. Which is why it’s so incredibly depressing to see this being hosted at CNN Money, under the headline “Boost your odds of winning the lottery”.

Richard Lustig is a get-rich-quick hack with no idea at all of how to beat any lottery. Yes, he’s won an impressive number of jackpots. But he also advises that one third of all your winnings should be “reinvested” into lottery tickets — which means that he’s betting an enormous amount of money every week. He never gives any indication of what his ROI is; indeed, he never actually comes out and says that he’s a net winner. Neither can I see any indication that all the money he’s gambling is his own. Certainly Lustig’s bare-bones website, which seems like it was designed in 1997 and which features an ad for 995SunGlasses.com, gives the impression of someone who’s on a very tight budget. And the less said about his all-caps twitter feed, the better.

Lustig’s advice is simply bizarre: he reckons that you should buy lottery numbers in sequence, and that you should never buy “quick-pick” (randomly-generated) tickets. In fact, if you’re going to play the lottery, the rational way to play the lottery is to do the exact opposite of Lustig’s advice. Never pick your own numbers; always accept random numbers. The reason is that when lotteries have big prizes, those prizes are parcelled out between everybody who had the winning numbers. For instance, in August 2010, Lustig had a winning ticket in a draw where the jackpot was $197,985.84. But so did someone else — so he ended up winning only half that amount. And if you want to minimize your chances of overlapping with someone else, you’re much better off accepting a set of random numbers than you are using some kind of human-generated method. Remember when 110 people all had the winning numbers 22, 28, 32, 33, and 39, just because those numbers were printed in fortune cookies?

I have no problem with people spending small amounts of money on the lottery — in fact, sometimes it’s a positively good idea. But I do have a problem with anybody who’s shilling the idea that you can make money this way. And I have a huge problem with respected websites like CNN Money giving that person extremely positive publicity, without any hint of skepticism about the claims involved.

Let’s be clear about this: if you buy a lottery ticket, you should expect to lose all of your money. If you still want to buy a ticket knowing that you’re not going to get your money back, then go right ahead. But spending $40 on Richard Lustig’s book is a very, very, very bad idea, not least because you’ll probably end up spending many times that much money on tickets. And it’s downright unethical for CNN Money to implicitly encourage people to do so, by running dreck like this.

Update: CNN has taken the video down. “The CNNMoney newsroom takes great pride in its journalism, with consistently high standards for reporting,” says a CNN Money spokesperson. “This video fell short of that mark and we’ve chosen to remove it from our site.”