Felix Salmon

Is Amazon bad for publishers?

Felix Salmon
Nov 3, 2013 17:58 UTC

Duff McDonald has a wonderful review of Brad Stone’s new book on Amazon in the NYT; he’s a fantastic nonfiction book reviewer. There is one part of the review, however, which could do with a bit more explanation:

Bezos does appear to revel in outwitting even his best partners. The publishing industry, for example, still doesn’t quite know how it willingly gave him the sword with which he would slice off its head…

Publishers were shocked when he sandbagged them with $9.99 e-book pricing in 2007. Where had they been?*

It’s something of an article of faith, in book-publishing circles, that Amazon has been a Bad Thing for the book publishing industry. And certainly it is an article of faith in this review. (Authors, by contrast seem to have gotten more upset at Google than at Amazon.)

What I can’t ever recall seeing, however, is a clear and concise encapsulation of the publishing industry’s beef with Amazon. How is Bezos supposed to have sliced off their head?

I come at this from what might be an overly naive position. Firstly, and most obviously, Amazon has made it vastly easier to buy and to read books. Anybody with a smartphone, anybody with an internet connection, can now order any book in print, and get it delivered straight to their door, in any moment of enthusiasm. If they’re even more impatient, or prefer e-books to physical books, they can even buy the book and start reading it in seconds. I can’t see how that can possibly be anything but great news for the publishing industry.

McDonald makes it seem — and I think he’s right about this — that the industry’s main problem with Amazon is the fact that it discounts aggressively, and sometimes sells books (both physical and electronic) for less than the amount that it’s charged by the publishers. In other words, it subsidizes book purchases, something any industry ought to embrace with open arms. And this industry thinks it some kind of mortal threat?

When e-books started being a real mass-market phenomenon, I do recall a reasonably recondite debate about consumer expectations. Amazon was selling those books at $9.99 apiece, which meant that it took a loss on every purchase, but which also meant that more people were buying them — and, of course, were buying the devices on which to read them. This might have been nefarious if Amazon were making money on selling kindles, but it wasn’t, it was selling those, too, at a loss. It just wanted to bring e-books to as many people as possible — and was willing to make a substantial investment to do so.

The nay-sayers argued that once the public was conditioned into expecting e-books to be priced at $9.99, they would never pay more than that. The publishers didn’t particularly want the first e-books to be sold at such a low price, but Amazon went ahead and implemented its loss-making policy anyway. Remember that Amazon’s ultimate goal was to sell the maximum number of e-books, and, eventually, make lots of money by doing so. So this was just a dispute about short-term tactics: over the long term, the interests of Amazon and the publishers were aligned. (And frankly, Amazon is likely to always get the benefit of the doubt when it comes to “which company has the better sales tactics” questions.)

So here’s my question: what’s the argument which says that Amazon has proved itself to be a mortal, existential threat to the publishing industry? It’s not like Amazon has disintermediated publishers, allowing readers to buy millions of books directly from authors. There’s a very small business along those lines, but I don’t think that’s what publishers are worried about.

The only argument I can think of is the one surrounding physical bookstores. The small, friendly, neighborhood bookstore lives on, romantically, in the minds of most authors, and indeed publishers as well. But customers didn’t love them as much as book types did: that’s why they ended up going to Barnes & Noble instead. And as a result, the number of booksellers declined significantly. Then, just as B&N stomped on the small booksellers, Amazon ended up stomping on B&N. Customers value convenience more than they do any real-world book-buying experience — and while B&N was more convenient than the small stores, Amazon was more convenient than B&N.

The result is that there are fewer real-world triggers which remind us about how wonderful books can be. In a world with lots of small bookshops, you pass such things regularly, and even if you don’t go in and buy something most of those times, at least you’re reminded of their existence, and you nearly always have a good feeling about the store and its ambience. Just about every book reader thinks that bookstores are wonderful, magical places — and, of course, that their contents are wonderful, magical things. As such, small booksellers were the best marketing devices that the publishing industry had. Not through anything they particularly did, so much as just by dint of their simple existence.

It’s a bit like the secret to the continued success of The Economist: it puts a lot of effort into its covers, and those covers are featured prominently on pretty much every newsstand in the world. Even if you’re a subscriber and never buy the magazine at a newsstand, seeing it so regularly in the real world is a great way of reminding you how much you like it. As a result, the next time you pick up your iPad, you’re more likely to read The Economist, and therefore more likely to renew your subscription, when that time comes around. If the number of newsstands in the world fell substantially, that would hurt The Economist much more than its newsstand sales alone might suggest.

Similarly, a world where you’d see a Barnes & Noble in every shopping mall, where you’d see these monster bookstores by the side of every urban highway, was a world which was constantly reminding you of how many books there are, and of how popular those books are. After all, those bookstores were kept in business by a steady stream of book lovers coming in to buy books. In their own way, B&N stores were just as good an advertisement for books in general as were the small booksellers they replaced.

So while there are just as many media-based book discussions as there always were — book reviews, book excerpts, talk shows, radio interviews, that kind of thing — the real-world reminders of the book industry as a whole have definitely shrunk. There are still lots of ways we can find out about individual books that we might want to read — and, thanks to Amazon, it has never been easier to order and read those books. But Amazon’s size and reach isn’t nearly as obvious as the networks of physical stores were — especially since Amazon sells so many different types of things, the sight of an empty Amazon box doesn’t make you think “books” any more. (Although, for historical reasons, the Amazon bookmark in my web browser still says “Amazon.com Books! Earth’s Biggest Bookstore.”)

Still, I don’t think it’s really fair for publishers to blame Amazon for the fact that people like to do their shopping online, and that easily-digitizable content is going to exist mainly in a virtual world rather than the real world. Indeed, there’s an argument that Amazon has saved the publishing industry from going the way of the record labels — that it’s made buying e-books so easy that the number of free pirated versions out there is still tiny. (Amazon has made it easier to find second-hand books, which publishers don’t directly benefit from, but at the same time it’s at the forefront of pushing e-books, which can’t be resold after you’ve bought them. Net-net, let’s call that one a wash.)

Publishers have always been conservative, and Amazon represents a massive change in their industry. What’s more, the move from small booksellers to B&N to Amazon has been a move where the booksellers have ever-increasing amounts of leverage over the publishers; it’s understandable that the publishers don’t like that. But I just can’t believe that Amazon is, or would ever want to be, an existential threat to the publishing industry.

*Update: The blockquote from McDonald’s review was originally longer, and included a section about Amazon matching the prices of “mysterious third-party sellers” in order to justify its price cuts. But McDonald emails to tell me that that section was not about publishers or booksellers, so I’ve taken it out.


handleym99, Amazon’s system of discovery works well for mainstream published books, which is a few thousand titles a year for most people (in their field of interest).

What happens when there are no mainstream publishers, and now there are a 100,000 to 1,000,000 titles to choose among, none of which have any reviews (I’m talking about discovering new authors – old authors will do just fine until book reading slowly becomes irrelevant).

Use advertising? Not correlated to quality. Use reviews? Ha. Think about the quality of reviews when a book by an unknown gets 0.01 reviews on average. You can be almost certain that any review you read is a sympathetic/paid for/faked review at those levels.

Imagine looking for SF novels published this month and getting 50,000 hits. Now, Amazon may well show you some top 50, quantified by how much they pay Amazon. But how many of them will be readable when willingness to promote doesn’t correlate with need to make money?

There’s simply nothing we have to filter the tsunami of the not-publishable-quality material that finds its way on to Amazon. Amazon’s current response is to essentially hide the self-published stuff by unknown authors most of the time, so you don’t get swamped (and on occasion when they don’t, Amazon is useless for finding anything useful, as I found to my sorrow).

We have no tools and no discovery mechanism for finding good books among millions instead of thousands that doesn’t involve a gatekeeper who only cares about promoting what customers will buy, and that’s not nearly a profitable enough industry for Amazon. Far more profitable to sell to the would-be writers.

I’m hoping my apocalypse scenario doesn’t come to pass in the next 10-20 years. But neither anything that Amazon is doing now, nor has incentive to do in future, is likely to prevent it.

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Pedantry and numeracy in journalism

Felix Salmon
Oct 31, 2013 06:27 UTC

Anthony DeRosa retweeted this photo on Wednesday morning, which came with the caption “Math is difficult for many journalists”. I was genuinely confused: I couldn’t see any math errors in the screenshot. So I asked DeRosa where the error was. He replied:

Just as I couldn’t see a math error, I couldn’t see anything remotely egregious. Thus began quite a long Twitter conversation, large parts of which DeRosa Storified for me. I proved very bad at getting my point across in tweets, so I promised to explain everything in this post.

The problem that DeRosa had with the stories about the Norwegian man with bitcoin, it turns out, was that they didn’t agree on exactly how many dollars’ worth of bitcoin he bought back in 2009. Some said $22, some said $26, some said $27. That discrepancy, in and of itself, was proof enough, for DeRosa, that many journalists were committing an “egregious error”.

Now the facts of the story were not in dispute at all. The Norwegian man spent 150 Norwegian krone on bitcoin in 2009 while writing a thesis on encryption, forgot about them, and then, in April 2013, during full bitcoin fever, discovered that his digital wallet contained coins worth some 5 million krone. Nice! In dollar terms, his investment went from being worth about $25 to being worth about $900,000.

But DeRosa wanted to know exactly how much the coins were worth at purchase: if one journalist said $22 and another said $26, then at least one of them, and possibly both, were, in his eyes, clearly wrong. You needed to be looking at multiple versions of the story to even see that there was a disparity here — but that’s exactly what DeRosa was doing. And rather than simply ask why there was a disparity, he decided that the individual journalists were doing something very bad.

It turns out that the reason for the disparity is very simple: the dollar-krone exchange rate fluctuated quite a lot in 2009, and it was unclear exactly when the bitcoins were purchased, so no one knows exactly how much the coins were worth, in dollar terms, when purchased. They might have been worth $22, or they might have been worth $27. Really, it doesn’t make any difference: the man made a profit of well over $850,000 whatever his initial investment was.

But there’s a superficial exactness to numbers that doesn’t exist in words, and so people have a tendency to believe that all numbers are much more precise than in fact they are. If the Labor Department releases a report saying that payrolls rose by 148,000 in September, then a reporter who said that payrolls rose by 150,000 would be considered to have her facts wrong — even though the headline number is only accurate to within 100,000 people either way. The actual number of new jobs could easily be anywhere between 44,000 and 252,000 — and indeed there’s a 5% chance that it’s outside even that large range. But because everybody insists on one hard number, one hard number is what they get.

One of the most important skills in financial journalism is numeracy — having a basic feel for numbers. In this case, the reporters covering the story got the numbers right: they should be applauded for that, rather than having brickbats thrown at them. After all, it’s not hard to find examples of reporters getting numbers very wrong. Consider this story, from the New York Post, under the headline “Verizon increases cell bills 7.1% for 95M customers”:

Verizon didn’t sign up as many new cell phone customers in the third quarter as Wall Street expected — but it still earned more than forecast as it managed to increase the average bill of its 95.2 million wireless customers by 7.1 percent.

The average Verizon Wireless bill jumped to $155.75 a month as of Sept. 30 from $154.63 last year, the company said Thursday.

Now that is a math error — and evidence of deep innumeracy on the part of the journalist who wrote it, as well as a whole series of editors. If you want to work out exactly what the increase is, in percentage terms, of going from $154.63 to $155.75, then you might need a calculator. But if you were numerate, you would know intuitively that it’s very small, on the order of 1%, and that it’s nowhere near 7%. If you get a result of 7.1%, then that means you’ve pressed a wrong button somewhere, and you should do your sums again.

The problem is that we naturally associate numbers with mathematics, and mathematics with accuracy — and we therefore assume that whenever we see a number, we’re dealing with something which is either right or wrong — just as it was in elementary-school arithmetic. When numbers describe the real world, however, they always have error bars; they’re basically shorthand for a probability distribution. So long as the number that’s printed is plausibly somewhere reasonably likely to be in the fat bit of the distribution, it doesn’t make sense for critics like DeRosa to call it out for being inaccurate. After all, pretty much all numbers are inaccurate, especially if you’re trying to measure something (like the value of a certain number of bitcoins) in terms of something else (like dollars). Journalists should work on the basis of the identity of indiscernibles: so long as the meaning of the story isn’t changed, the exact number being used really doesn’t matter.

Let’s say that you saw various news reports about an event, and that different words were used to describe the weather: some said it was “cold”, others “brisk”, others “frosty”, others “wintry”, and so on. You wouldn’t raise an eyebrow: you’d see that they were all describing the same thing, in slightly different language, and you wouldn’t demand an explanation for the “discrepancy”. Well, numbers in news articles behave like words: they’re trying to describe the state of the world. That’s why the NYT has banned the use of “record” or “largest” unless inflation is taken into account. What matters is not the mathematical relationship between abstract numbers, but rather the state of the world that is being described.

In the case of the bitcoin, there was never any doubt about what was being described, and so the journalism did exactly what it was meant to do. There are far too many real problems with genuinely flawed news articles for critics to start playing “gotcha” whenever they see a couple of numbers which say exactly the same thing, even if they’re not mathematically identical.


“Let’s say that you saw various news reports about an event, and that different words were used to describe the weather: some said it was “cold”, others “brisk”, others “frosty”, others “wintry”, and so on. You wouldn’t raise an eyebrow: you’d see that they were all describing the same thing, in slightly different language, and you wouldn’t demand an explanation for the “discrepancy”. Well, numbers in news articles behave like words: they’re trying to describe the state of the world.”


As a scientist, I see the same thing in science journalism. Science is actually mixed here: sometimes that third decimal place is very important, and other times it doesn’t matter at all. The key is knowing which is which; when the important details are qualitative and when they’re quantitative.

So what I see in popular arguments over (particular controversial science subjects), I see a lot of people being pedantic over some number that doesn’t matter that much, or *not* being pedantic over a one that does. The truth is, the layperson can’t know the difference, because they don’t have the depth of knowledge in the subject or the experience with science to know what’s important and what’s not.

And there’s another connection with what you’re saying, Felix: Many people have this expectation that science (like math) is all about that 3rd, 5th, or Nth decimal place, and if the scientist gets that decimal place wrong, well, then, their conclusions are also all “wrong”. That’s generally really not the case, but again, it comes from a lack of actual experience with math and science. And the layperson’s tendency is definitely towards pedantry, rather than actually understanding the (generally qualitative) picture of what’s actually happening in a physical system.

Pedantry where it doesn’t belong: it has the side effect of working quite well with one’s confirmation bias, since it allows you considerable flexibility in what kind of data you accept as true, or not.

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Hank Paulson, hero?

Felix Salmon
Sep 12, 2013 22:22 UTC

1338_cov304x4151.jpgHank Paulson had a good crisis. That’s why he’s getting hero-worship on the cover of Bloomberg Businessweek magazine; he is also pretty much the sole interviewee in a hagiographic 90-minute documentary, produced by Bloomberg, which is about to appear on Netflix. The combination is being promoted with the idea that “no one felt the impact” of the financial crisis more than Paulson, which is obviously false, but which also gives a pretty good idea of the whole project’s point of view. (The film never mentions, for instance, that Paulson received more than $500 million, tax free, for his Goldman Sachs stock when he sold it before moving to Treasury.)

Paulson has an interesting take on the various ways in which the crisis could have gone worse. First there was Bear Stearns: if he hadn’t managed to rescue the bank by finding a buyer in JP Morgan, says Paulson, then the chain reaction would have started. “If Bear Stearns had gone, then Lehman would have gone immediately thereafter, and we hadn’t fixed Fannie or Freddie yet. We would have had Armageddon”. The Bear rescue, according to Paulson, bought precious months during which Paulson could deal with Frannie, and during which Ben Bernanke could start setting up the various borrowing windows and liquidity programs which would help to stabilize the financial system.

Paulson also says, in the documentary — and this is a theory I haven’t heard before — that we would have been worse off if Bank of America had bought Lehman Brothers. If that had happened, he says, then there wouldn’t have been any buyer left for Merrill Lynch — and Merrill’s implosion would have been much worse than Lehman’s was.

It would be nice to see these claims — and Paulson’s tenure more generally — interrogated impartially by the Bloomberg Businessweek editorial machine, which is pulling out all the stops in terms of publicizing its Paulson extravaganza. (It’s even roping in Mike Bloomberg himself, something which has never happened before.) But with a documentary director who now considers Paulson to be “a national hero”, and a cover story which bears Paulson’s own byline, the former Treasury secretary was never going to be facing any tough questions.

To their credit, on the other hand, Bloomberg invited me to a promotional lunch with Paulson today, and so I took the opportunity to ask him about the perception that he always thought that he knew best, and that he considered popular opinion, and elected representatives, as annoying obstacles.

Paulson replied by saying that he “could not take greater exception with your comment”. He talked at some length about how he used his Goldman-honed client-schmoozing skills to get what he wanted from Congressional representatives on both sides of the aisle, but I must admit that I didn’t come away from his answer feeling as though he really respected those people’s views, or the importance of public opinion. And I’m perfectly happy to defend the argument that the arrogance of Paulson asking for a $750 billion blank check by presenting a three-page TARP bill was a significant reason why that bill was defeated.

I’m also happy that I got to ask Paulson about the secret meeting he held with the Goldman Sachs board in Moscow in June 2008. Even at the time, Paulson’s advisers thought it unwise; with hindsight, it seems indefensible. What could he have been thinking? But Paulson was unapologetic: “The incident you referred to was totally and completely appropriate,” he told me. “With a board of directors, people I hadn’t seen for years, I went to a social function with them, when we were in the same hotel, and said hi, and saw old friends”.

I don’t blame Paulson for the financial crisis; he was a good crisis manager — certainly better than either of his predecessors would have been — and he worked extremely well with Ben Bernanke and Tim Geithner. Still, everybody made mistakes during those long sleepless weeks, and it would be nice if some of the principals were more willing to admit that. And I also look forward to rather harder-hitting documentaries from Bloomberg in the future. This one feels altogether too promotional — both of Paulson and of Bloomberg Businessweek itself. The film is basically just one long interview with Paulson, intercut with a few words from his wife, and quite a lot of contemporary news footage and headlines. Including, notably, this anachronism:

Screen Shot 2013-09-12 at 4.42.30 PM.png

This story came out in November 2008; Bloomberg didn’t buy Businessweek until October 2009. Both Bloomberg Businessweek and Hank Paulson have a lot of good qualities. But this film does end up feeling as though it’s trying a bit too hard to make them both look good.


Caught that current Bloomberg magazine cover of Paulson trying to look like some kind of beleaguered tough-guy poor heroic Hank under siege but toughing out his super-lucrative Post-Treasury/Post Goldman idle time…

Plus his kissy-face interview with his fully-disclosed good buddy Charlie Rose, along with the very weaselly Bloomberg magazine editor plus the equally in-the-Paulson-tank documentary director.

Seems there’s a Hanky Paulson p.r. clean-up campaign underway, “poor tough Hanky saved the planet” back in 2008 when really he just happened to be the guy who had Congressional members always seeking post-gov’t jobs and lucrative post-Gov’t careers/consultancies trying to stay on Hanky’s good side.

To this day, as the NY Post’s John Crudele reminds and attempts to gain access to the gov’t docs. How Hanky during the crucial days in SEPT/OCT 2008 spent numerous – scores – of yet-undisclosed/undefined phone conversations with his Goldman Sachs CEO successor, Lloyd Blankfein. Gee, wonder what these two apparent connivers were talking about that no one else knew, or likely won’t ever know?

Then there was the disgusting image of Hanky-boy joking about how he literally – literally – knelt at the expensively-shod feet of then-House-Speaker Nancy Pelosi as Hanky-boy desperately sought unimaginably huge sums of taxpayer funds and almost singular control over same.

And ol’ Hanky-boy wasn’t so shameless to seem to seek direct bailouts for Goldman and his other banking buddies (except of course Dickie Fuld, whom evidently Hanky-boy had some sort of snitty disdain for).

No, Hanky didn’t seek direct bailouts for his banking buddies. Instead, he coyly and Pelosi-foot-kissingly sought to bailout the bankers’ COUNTERPARTIES, mainly AIG, and that way, AIG took the heat and Goldman et al and some of Hanky-boy’s other favorites got bailed.

As an ardent FREE-MARKET advocate, it’s increasingly disgusting to see these kinds of oligarchic set-ups whereby you have Wall Street heavyweights revolving into and out of high, super-influential gov’t offices. Robert Rubin, Jacob Lew, Timothy Geithner, Paulson, and a truly cretinous exemplar of the breed: Jon Corzine.

On top of everything else, these “hotshots” like to run around claiming they’re the “smartest guys in the room,” yeah, it’s easy to be “smart,” when you have access to untold sums of that other slimey favorite tactic, “other people’s money” – especially taxpayers. And another Hanky-boy tactic is to come across as some kind of mumbling, down-home aw-shucks humble little me. Like Corzine, Lew, Rubin et al instead he is a relentless practitioner of taking often senseless risks with other peoples’ funds.

These “smart guys,” increasingly put not just the economic health of the nation at risk, they’re inviting the kind of oppressive regulation that risks curtailing the free-market’s highest ideals and benefits.

And let’s not even get started about how a lot of these cats belong in jail for long periods of time. And keep in mind in China, and self-described “Chinese expert” Hanky-boy should realize this. In China, they sometimes SHOOT those convicted of rank corruption. DickSheppard-Jersey City, NJ

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Do online business models matter?

Felix Salmon
Aug 31, 2013 06:24 UTC

Nick Bilton has an odd column up about Business Insider and NSFWCorp — two publications which he has picked to represent the “reliant on ad revenue” and “reliant on subscription revenue” business models, respectively. He’s particularly interested in the way in which Business Insider published Nicholas Carlson’s 22,500-word opus on Marissa Mayer:

When the piece was published on Sunday, many readers asked why Mr. Carlson did not publish it as an e-book, or even as a physical book, and charge people to read it, rather than simply place it online free as a very long blog post.

Actually, the piece was published on Saturday. But Bilton misses two important points here. Firstly, publishing the Mayer piece as an e-book would in no way preclude Business Insider from putting it online for free as a very long blog post. The classic example of ultra-longform blog journalism is the John Siracusa review of OS X which Ars Technica publishes every time a new version comes out. The review can be read online, for free — or it can be bought as an e-book, for $5. Creating and selling the e-book is non-trivial, but it’s worth it, given that thousands of people buy it.

So when people asked why Carlson’s biography wasn’t available as an e-book, they weren’t implying that publishing as an e-book was an alternative to publishing online. It’s just that a lot of people like to read very long pieces in book format, and are willing to pay to do so. As a result, offering such things as an e-book can make good sense, even as most readers will continue to find the piece online, in its free version.

On top of that, it’s telling that Bilton simply picks the longest article that Business Insider has run, and then asks whether that article should be singled out for what you might consider a story-specific paywall. Read anything else on Business Insider you like, for free — hell read everything else on Business Insider, if you can — but for this particular piece, he seems to think, BI might decide that it was going to charge you money. That’s not even the model of NSFWCorp, which charges subscribers, in Bilton’s words, “a hefty $3 per month” — charging for access to the whole site, not on a per-article basis. (The charge to subscribe to the NYT online starts at more than that per week.)

One of the great strengths of Business Insider is that it is extremely good at providing fast, punchy news. It generally keeps its items short, because that’s what its readers want. Working with the speed and attitude of BI is not easy, but it’s what the site specializes in, and it’s where the site’s value lies. Having the demonstrated the real value of short and fast, it would be decidedly weird for BI to then turn around and charge a premium for long and slow — exactly the kind of thing where it doesn’t have comparative advantage.

If BI were to ever think about charging readers for content — beyond its niche analysis product, that is — then the only model which really makes sense is the monthly subscription, rather than Bilton’s pay-per-piece hypothetical. BI’s not going to do that, for many reasons, including the fact that it’s looking for growth and scale, rather than just a model which allows great journalism to pay for itself. (My favorite part of the article comes when Bilton reveals that NSFWCorp’s revenues allow it to employ “several seasoned full-time writers” — something he doesn’t feel the need to mention about BI.)

What’s more, despite the fact that BI is basically just about the quick hits and listicles and pageviews, I wasn’t surprised to see Carlson’s magnum opus. Bilton tries to explain the contradiction, but comes up short:

It seems that Business Insider made the right choice by choosing not to charge people to read the profile on Ms. Mayer, and instead giving it away online. The article was shared more than 13,000 times on Facebook and 5,500 times on Twitter, all of which helped garner nearly 900,000 page views for the article.

Er, no. Henry Blodget’s slideshow of what his crotch looks like on American Airlines economy class has got more pageviews than the Mayer profile, and there are many other posts whose numbers dwarf both of those. If the purpose of sending Carlson out to do months of detailed reporting was just to generate pageviews, then his piece was a clear failure: it would have been much easier, and much cheaper, to just put up a listicle about porn stars.

No: the reasons for encouraging Carlson to write this piece — and for putting it online for free — aren’t really about pageviews, or the ad revenue it generates, at all. Investigative journalism never pays for itself, and this piece is no exception. But there are a lot of good reasons to do it anyway, if you’re Henry Blodget.

Advertisers will think of this article when they think of Business Insider, understand that it’s a serious news outlet, and be that much more willing to pay premium rates to advertise on the site as a result.

Readers who like having fast news during the day like having meatier stuff to read over the weekend.

Writing this article is a fantastic way for Carlson to cultivate sources, and that in turn will mean that his future output is that much better.

Other writers who might be thinking about joining BI will see what Carlson was given the freedom to do, and be more likely to join; conversely, existing talent will be more likely to stay, knowing that such projects are possible and encourged.

And overall, a relatively small number of articles like this can do wonders for the whole brand value of BI itself.

So please, enough of the naive idea that on a wholly ad-supported website, pageviews are the only things which matter. By that measure, Neetzan Zimmerman would be the hottest journalist in the world: he got more than 22 million pageviews last month, and puts up similar numbers every other month as well. But there’s more to ad-supported journalism than reblogging viral videos: that’s why Jonah Peretti hired Ben Smith to run BuzzFeed, rather than, say, Zimmerman.

Ultimately, it’s far too easy to get caught up in the “business model” question, and thereby lose sight of the much more important question of who’s doing the best journalism. NSFWCorp is producing great stuff, as is Business Insider, as is the New York Times. All three of them look as though they’re going to find a way to make that journalism pay, which is fantastic. And here’s something else they all have in common: if one of their writers finds a great story, and needs to spend a lot of time deeply reporting it before it can be published, all of them will make sure that can happen. When it comes to what matters, it turns out that profound differences in business models make much less difference than you might think.


Modern economic thought has been pushing the idea that each and every thing needs to generate a profit. Boeing tried that model with its 787, and got an expensive lesson in business and economics, though it isn’t clear what they’ve actually learned. In the real world, all one really needs is an aggregate profit.

BI seems to have picked up on this. Not every article, or even every reporter, needs to be profitable. It is perfectly reasonable to lose money in certain areas, as long as these losses are helping increasing overall profitability. That’s why we have multi-cellular life.

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Can Rupert Murdoch hold on to Kara Swisher?

Felix Salmon
Aug 28, 2013 00:19 UTC

Who is the best journalist (so far) of the new millennium? Who has best embraced the opportunities afforded by digital media, and used them to deliver breaking news and incisive opinion to the greatest effect? Put like that, it’s hard to wind up with any name other than Kara Swisher.

As David Carr and Jay Rosen will tell you at length, we live in a world of the opinionated scoopmonger — a world where a handful of brand-name journalists, wearing their opinions proudly, create a virtuous cycle of news. Ezra Klein is a good example: he is both very smart and incredibly well-sourced in Washington, which in turn lends a lot of credibility to his opinions. Because policymakers read him and respect him, they reach out to him and talk to him — which in turn gives him insight, for his opinions, and also scoops, which only serve to consolidate his importance.

Klein is in the process of building out his Wonkbook brand at the Washington Post: he’s one of a handful of what Jack Shafer calls the Marquee Brothers. Among the others: Andrew Ross Sorkin, Andrew Sullivan, and Nate Silver. All of them have strong personal brands, but only Klein is a true double threat, on both the opinion and the news-breaking front: Sullivan and Silver are read for their analyses, not for any news value they might have, while Sorkin, for all that he has a high-profile weekly column in the NYT, is still valuable mainly for his sources and the access (and information) those sources will predictably give him over any of his rivals. Indeed, there’s a case to be made that Sorkin’s column is in large part a means of buttering up the sources he’s looking to get scoops and access from in future.

There’s value in all these models, and Sorkin’s in particular is not to be sneered at. But if you can master the dual arts of both analyzing and breaking important news, and if you can do so faster and better than anybody else, then truly the journalistic world is your oyster. Klein is good, when it comes to such skills. But Swisher is better. Her analysis is more interesting, and more pointed; her news scoops are hard, rock-solid items about boards and deals and companies, rather than being softer, more conceptual pieces about things like who’s the front-runner to take over the Fed chairmanship.

On top of that, Swisher, along with her partner Walt Mossberg, has been building the All Things D brand for much longer than Klein’s been building Wonkbook, and they’ve created a true force in Silicon Valley. They’re not some buried section of WSJ.com, in the way that Wonkbook is part of the Washington Post or Five Thirty Eight and Freakonomics were part of the NYT; they’re an editorially independent, non-paywalled force of nature, competing aggressively against any and all journalists in other parts of their parent organization. People want to know what Swisher and Mossberg — and Peter Kafka, and Jason Del Rey, and Liz Gannes, and the rest of the ATD editorial staff — have to say. They love the way the site is designed, and the way in which it’s open to featuring many voices from outside News Corp. They’re reassured by the site’s editorial transparency, its writers’ detailed codes of ethics, and the fact that over many years it has proved itself to be extremely reliable in reporting the news. And, of course, they come back regularly to read the constant stream of scoops that ATD serves up.

Swisher, then, has created not just an amazing personal brand, but also a highly enviable corporate one. ATD is in many ways the most glittering digital jewel that News Corp owns — much more than its 5% stake in Vice, or the also-ran nypost.com website, or any of the stuff that gets hidden behind various paywalls. But according to Fortune, there’s now a real possibility that News Corp is going to allow Swisher and Mossberg to slip out of its grasp:

Reuters reported in February that AllThingsD co-executive editors Kara Swisher and Walt Mossberg had begun discussions with owner Dow Jones, a subsidiary of News Corp, about either ending or extending their partnership, which is set to expire on December 31.

Since then, Fortune has learned that AllThingsD is working with investment bank Code Advisors to find outside investors at an enterprise value that could exceed the $25 million that AOL reportedly paid in 2010 for rival site TechCrunch. One source says that the asking price is between $10 million and $15 million for a 25% or 30% stake in the company…

Dow Jones officially owns the AllThingsD brand, website and content. It also manages the site’s ad sales, but only Mossberg is an actual Dow Jones employee. Swisher and the rest of her AllThingsD editorial colleagues are contractors paid via an independent limited liability company. One scenario could involve the AllThingsD team leaving to start an independent venture with a new name, while Dow Jones retains the AllthingsD brand (and possibly the archived editorial content).

What’s happened here is that Swisher and Mossberg have created something with substantial value — as much as $50 million. And since the value lies with them, rather than in the ATD brand, they can walk away and find a strategic partner willing to invest an eight-figure sum in creating a new, entirely independent brand. That’s got to be attractive to them, for two reasons: firstly, they would become truly independent, and in control of their own destiny. No more begging their New York paymasters for extra investment: if they own the company, they can make all those decisions themselves. And then, of course, there’s the money: if they each own say 25% of a $50 million company, that’s a lot of paper wealth which they’re never going to accumulate working for News Corp, and which — in the way of Silicon Valley — could become worth much more still if their expansion plans work out the way they hope they will.

Meanwhile, Rupert Murdoch stands firmly on the other side of the Great Paywall Divide, and feels as a matter of principle that all of his properties (except, perhaps, nypost.com) should charge readers for their content. He’s also human, which means that, like all other humans, he’s deeply reluctant to pay a large amount of money to buy something he already owns.

Murdoch, by rights, should be able to retain control of ATD, complete with Swisher and Mossberg. They’re offering very little to his rivals: a minority stake, no editorial control whatsoever, and probably very little cashflow, at least for the first few years, since as a startup they’re going to want to reinvest all of their revenues back into their company. Meanwhile, News Corp has the opportunity to own ATD 100% (indeed, it already does), and can offer Swisher and Mossberg the ability to invest in the site without having to go through the hassles of rebranding and relaunching. Given the economics of control premiums, Murdoch should easily be able to promise significantly more resources than his rivals can come up with.

But after years of writing the entrepreneurial gospel, it’s understandable that Swisher and Mossberg might want to live it for themselves. And they’re both wealthy enough to afford a few years of startup wages: Mossberg has been one of Murdoch’s highest-paid print journalists for years, while Swisher, who’s well paid herself, is also married to long-time Google executive Megan Smith.

Swisher and Mossberg built the ATD franchise as far away from New York and Murdoch’s interference as they could — they based it in California, and refused even to share back-end technology with Dow Jones. That decision was smart: one look at The Daily shows what happens if you’re too close to the man himself. They don’t need News Corp — but if News Corp aspires to be a real force in digital media, it really does need them. The digital world is closer to TV than print, in terms of the importance of talent management and talent retention. If Murdoch and his dealmakers can’t hold on to Swisher and Mossberg, News Corp’s digital future looks pretty bleak.


This is an excellent post. The analysis of Sorkin is apt.

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Content economics, part 3: costs

Felix Salmon
Aug 19, 2013 16:23 UTC

When I wrote last week about Jeff Bezos and his journalists, I said that “the Boston Globe was sold for essentially a negative sum, once pension obligations are taken into account, while the Washington Post was sold for the price of a nice Cézanne.” It turns out that I was comparing apples with oranges: the Washington Post, just as much as the Boston Globe, was sold for less than the value of its pension obligations. Bezos might have paid $250 million for the paper, but he was also given $333 million to help him meet its pension obligations.

Make no mistake: this does mean that the Washington Post is worth substantially less than zero; you can’t just separate out the pension obligations and declare that somehow they don’t matter. What Bezos paid for the Post was not $250 million, it was negative $88 million.

To be sure, Bezos is $250 million out of pocket: the $333 million in the pension fund is ring-fenced for the Post‘s pensioners. But think about it this way: what Bezos bought was the institution of the Washington Post, the brand which the Graham family spent decades investing in and building up. Bezos bought an established property, because it was an established property. If he didn’t want an established property, he could have invested $250 million to create a brand-new journalistic outlet. To put that sum in context, the total amount of money raised by Business Insider, since inception, is $21.6 million; Vox Media has raised $23.5 million; BuzzFeed is on $46.3 million; and Huffington Post raised $37 million before it was acquired by AOL. Throw in Gawker Media, Mashable, Politico, Pando Daily, Breaking Media, Weblogs Inc, and just about any other new journalism company you can think of, up to and including Bustle; you’re still nowhere near $250 million.

Why does it makes sense to buy the Washington Post for $250 million, rather than spending $250 million creating an awesome journalistic product from scratch? Because the Washington Post is already established — and while it’s easy to buy journalism, and even traffic, for $250 million, it’s harder to guarantee yourself the kind of name recognition and national reputation enjoyed by the Washington Post. That reputation is built on hard-won promises: promises to readers that they can trust what they’re reading, and promises to writers too. The deal that the Washington Post made with its writers — the deal which helped to cement its reputation — involved not only paying them a present salary, but also promising them a decent pension. That promise helped to build the brand, and it was attached to a fully-funded and very well managed pension fund. The pension fund is, in all senses of the word, an important part of the value of the Washington Post. And Bezos just managed to acquire a $333 million pension fund, which only has about $283 million of liabilities, for $250 million. Which says to me that the value of the newspaper itself is clearly negative.

When any institution has a negative value, that’s because it’s likely to lose money over the long term. And there’s a good reason why the Washington Post is likely to lose money over the long term: it’s a large journalistic organization. And the internet has turned the economics of journalism on its head: once upon a time, profits and size went hand in hand, with the biggest outfits making the most money. Today, it’s the other way around: small, lean companies make modest profits, while bigger outfits generally see ever-increasing losses.

Part of the reason is related to revenues. I argued in part 2 of this series that if you want your readers to pay you, it often helps to be small and personal rather than big and corporate. And I argued in part 1 that the economics of advertising were not favorable to news sites — while advertisers, once upon a time, might have felt as though they had no choice but to appear in a big publication like Time or the Washington Post, nowadays the sites with the biggest traffic aren’t journalistic at all.

But there’s a key part of the economics of journalism which I haven’t covered yet — and that’s the question of costs, specifically the costs of producing the stuff. On its face, journalism is a classic scalable commodity: once I’ve written this post, for instance, it can be read by a million people as easily as it can be read by ten. And so if it’s published by a big journalistic organization with wide reach, ideally one where a substantial and talented business team can help build lots of pageviews which they then sell to deep-pocketed advertisers, then a fixed cost (me) should be able to support lots more revenue than I could at a smaller site.

Certainly this is true narrowly, at the margin: the economics of online publishing involve fixed costs and variable revenues, with the result that all things being equal, any given site will make more money as it gets more pageviews. But all things are not equal. And if you start looking up the spectrum from smaller sites to larger, more established organizations, instead of simply looking at what happens to any given site over a relatively short time frame, you find a very different pattern.

If you look at the media world as a snapshot, instead of a single site over time, it turns out that editorial costs rise steadily as sites get bigger and more professional. They rise in absolute terms, of course. But they also rise in per-editorial-employee terms, and they tend to rise even in terms of editorial costs per pageview. The lowest costs come where everything is written and published by individual bloggers — think any number of unpaid blogs, or, perhaps, think of the blog network that is Glam Media. The highest costs, meanwhile, come at the large outfits which employ hundreds or even, in some cases, more than a thousand journalists.

Back in Henry Luce’s glory days, big publishers could easily absorb spiraling editorial costs because there was so much money at the end of the rainbow: once you achieved a certain level of circulation, you basically became a license to print money. The online world, by contrast, has no magical rainbows: no matter how big a news site becomes, it will never be so big that advertisers will clamor to appear on it, whatever the cost.

The result is that the journalistic outlets seeing the biggest profits are the ones where costs are kept incredibly low. At one extreme lies the Bleacher Report, which was sold for a reported $180 million; it consists primarily of stories written by unpaid contributors, expertly optimized to maximize pageviews at the expense of accuracy or quality. Or look at Summly, which Yahoo bought for $30 million: it produces news summaries entirely by algorithm, with no editorial costs at all.

And if you look at most new journalistic websites, you’ll see they have a few things in common, many of them very admirable. They move fast, they publish in very high quantity, their staff journalists are extremely prolific, there’s relatively little editing, and they’re happy to rely in large part on reporting done elsewhere. That’s the kind of thing the web does very well — and it’s cheap to produce. Most online journalistic organizations were founded after blogging tools became available online for free around 2002; the few which predate that, like Salon, Slate, and The Street, have tended to struggle with their costs and profitability.

This is not to say that the web doesn’t have wonderful expensive content. Investigative work, longform narrative journalism, beautiful immersive multimedia experiences — we’re seeing it all. But that kind of stuff costs real money: ProPublica, for instance, spends about $10 million per year to support 19 reporters, plus roughly the same number of editors, executives, developers, and support staff. That’s over half a million dollars per working reporter per year, in a place where stars like Jesse Eisinger make more than $200,000 just in salary. That’s not the kind of thing you’ll ever see at, say, Gothamist, where the editor of DCist, who was recently fired for writing a freelance piece for BuzzFeed, was being paid $40,000 per year.

There’s a good reason why Eisinger is being paid so much money at ProPublica: it’s easily what he’s worth, on the open market. His skills and expertise are in high demand among ambitious, high-quality news organizations — and not because he drives millions of pageviews. At the same time, those skills also require diligent editors with many years of experience: investigative reports are, always, an expensive, time-consuming team effort, and an effort which sometimes needs to be aborted after many months and enormous investment.

Here’s a statistic worth dwelling on: “A senior editor at The Washington Post recently told me that he killed an average of three advanced investigations a year, usually over the protests of the reporters, who couldn’t see that they didn’t have the goods.” Outside ProPublica — and even inside it — how many online-only organizations can say the same?

The stat comes from the enormous meta-investigation by NPR’s ombudsman into an investigative piece about Native American adoptions. The amount of time, effort and money that NPR invested both into the original report and then into the ombudsman’s report is a good indication of just how expensive journalism becomes, when it takes itself seriously and has the highest ambitions. When Jeff Bezos bought the Washington Post, he bought an organization which spikes three advanced investigations per year. That’s not efficient, or cost-effective, but, whether he knows it or not, it’s part of the reason why he liked the Post enough to buy it.

When I say that “greatness emerges mysteriously from the slack in the system”, this part of what I’m talking about — a system where expensive projects regularly get the green light, even if they’re not shoot-the-moon ambitious. The lower you set the bar, the more failures you get — but also, the more serendipitous successes you find.

Last month, for instance, the New York Times published Kate Taylor’s story about sex on campus — an article which was met with much derision in the blogosphere, and which seemed to add little to what the NYT had already published on the subject. This article, like its predecessor, appeared in the Styles section of the newspaper, and the “Fashion & Style” section of the website. These are sections which exist only because of advertiser demand, and are not taken particularly seriously within the newsroom. And yet, it turns out, Taylor worked on the piece exclusively for five full months from September through January — and then “on and off” between February and July. At the NYT, even the Styles section is willing to invest what must have been close to an entire person-year, once you include the time of the other people who worked on the piece, into a single 4,800-word article. Whatever you think about Taylor’s piece, that speaks volumes about the internal culture of the NYT, and the costs involved in producing it.

In her open letter to Jeff Bezos, Kara Swisher applauds the fact that the Post‘s new owner has “the gazillions of dollars needed to pull the Post through to the other side and allow it to maintain its top-notch standards in a world still unwilling to pay for some of those standards and the fine journalism that results.” The alternative can be seen at Forbes, where Lewis DVorkin, who revels in the title of “Chief Product Officer, Forbes Media”, recently announced that he had reached a big milestone — 50 million unique visitors in one month. This was reached by using a small number of editors to oversee a network of 1,100 contributors, only 25 of whom (2.3%) made more than $35,000, and only two of whom (0.2%) made more than $100,000. That model, he said, needs to “evolve”:

The digital space continues to move fast. Programmatic buying of ads continues to put downward pressure on ad rates. Soaring mobile usage creates its own challenges. Nearly 35% of our audience accessed Forbes.com through smartphones and tablets last month, up from 25% a year earlier and 10% a year before that. Mobile screens don’t produce the same revenue as desktop screens, nor does international traffic. We’ll continue to work with contributors as our partners to adjust the payment model to meet the economics of the marketplace.

Translation: We were paying very little before, and we’ll be paying even less going forwards.

The Forbes model is what happens when you take a legacy media brand and try to make it work in the context of the pitiless economics of the web. That’s clearly not what Bezos is going to want for the Washington Post — if it was, I doubt very much that the Graham family would ever have sold him the newspaper at all. But the alternative, given the size and journalistic importance of the franchise he just bought, is going to be much, much more expensive.


Felix, in the spirit of not comparing apples and oranges, it should be noted:

1) FORBES has 45 full-time staff reporters.
2) Being a FORBES contributor is a freelance job. The amounts you cite — $35,000 and $100,000 — were earned as freelance income. Our contributors are free to work for other media organizations.
3) As I mentioned in one of my posts, the Bureau of Labor Statistics puts the average full-time reporter or correspondent’s salary at $45,270.

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Jeff Bezos and his journalists

Felix Salmon
Aug 6, 2013 16:49 UTC

I’m a huge admirer of Jeff Bezos, and the way in which he has managed to dodge the biggest pitfall facing the managers of public companies: rather than maximize short-term profits, he instead has concentrated — with enormous success — on building long-term value. Amazon is now worth about $140 billion, or more than 500 Washington Posts — more, indeed, than the combined valuation of every single newspaper in the world, put together.

Many of those newspapers, including the Washington Post, were once public companies, with stock-market listings and quarterly profit reports and the like; historically they had very fat margins, and as a result of those fat margins they had substantial stock-market valuations. When those margins imploded, taking the newspapers’ profits with them, the papers were left with almost no value: the Boston Globe was sold for essentially a negative sum, once pension obligations are taken into account, while the Washington Post was sold for the price of a nice Cézanne. Meanwhile, if Amazon were to start losing money for a few quarters, few people would blink an eye; the value of the company certainly wouldn’t plunge to less than a billion dollars.

On the face of it, then, the acquisition of the Washington Post by Jeff Bezos is very good news. If newspapers were ever suited to public stock-market listings, they’re not any more; private ownership, especially ownership by an individual benign billionaire, is a much better model for all concerned. Bezos is not the kind of man who worries about losing a few million dollars here or there: he has his eye on building long-term value and relevance, which is exactly how the best newspaper owners behave. After the Graham family bought the Washington Post in 1933, for instance, it took 20 years before the paper started making real money. Jeff Bezos, who has spent some $42 million building a clock designed to last 10,000 years, has exactly the amount of patience, and money, that a modern newspaper owner needs.

What Bezos lacks, I fear, is the kind of personal talent-management skills common to most great publishers. There’s a virtuous cycle to successful publishers: as you grow in size and prestige, both advertisers and readers flock to you, you start making lots of money, which in turn allows you to hire the best writers and editors and art directors, and to spend big money on fast, effective distribution. Those people, in turn, put out a first-rate product which is very difficult to compete with.

Until, of course, the internet comes along, and everything fragments into a million tiny pieces.

If Bezos were to look at the most successful large-scale publishing operations of the past few decades, he would see a lot of waste. Some publishers, like Condé Nast or the Time Inc of old, turned lavish profligacy into something of an artform; newer entrants into the scene, such as Bloomberg, are no slouches on that front either. Meanwhile, as journalists of all stripes find themselves converging on the same digital platforms, print journalists are increasingly direct peers and competitors of their TV counterparts, where money has always been much more abundant.

Online, it’s all too easy for such operations to be disrupted by lean and efficient upstarts. Bezos’s previous investment in the journalism space was in Business Insider, one such operation: the journalists there work very hard, in a no-slack, no-waste environment, putting out vastly more content per person than any print or TV operation would ever dream of. At places like the Huffington Post, or Gawker, or Business Insider, the goals are clearly articulated, and usually revolve around pageviews or unique visitors or some such metric. And while such outfits certainly can and do spend a lot of time working on projects which might not pay off in a narrow traffic sense, they generally do so consciously, deliberately, as a tactical departure from the hyper-efficient default mode.

At a large newspaper, the default mode cannot be hyper-efficient; the papers which have tried, which have modeled themselves on digital startups, have generally failed. A large and valuable franchise like the Washington Post generally improves the more slack there is in the system. If you have enough money that you can hire stars, treat them generously, and then leave them alone to do their thing, then they will ultimately reward you with first-rate (and very expensive) content. Your job, then, is to find a way to monetize that content.

Amazon, by contrast, is all about efficiency. It has a relatively small number of executives at its headquarters, who are paid overwhelmingly in stock; if the stock does well, they do well. It also employs, mostly indirectly, thousands of workers in warehouses around the world, picking and packaging the goods it sells; those workers are treated badly, and enjoy effectively zero slack in their working lives. What Amazon doesn’t have is paternalism, or a culture which in any way tolerates any unnecessary increase in labor costs. Its employees are cogs in the corporate machine, and they are expected to work as efficiently as possible.

The Grahams (or the Sulzbergers, or the Newhouses, or the Chandlers, or the Bancrofts) never thought of their journalists and editors that way. And the fact is that while you can achieve better profits by cutting here and maximizing there, you can never achieve long-term greatness that way. Greatness emerges mysteriously from the slack in the system, from source lunches and newsroom cross-pollination and expensive editorial whims. It emerges, ultimately, from the ability to give people time and space and money, in the certain knowledge that most of that time and space and money will end up being wasted, and embracing that waste as a good and ultimately necessary thing.

The Washington Post has not had the luxury of being able to waste time and space and money, not in many years — and as a result it is no longer a great newspaper. Maybe no newspaper can ever be great again, in that sense: the economics just don’t support it any more. But the fact is that Jeff Bezos is now an employer of journalists, and as such he is in charge of hiring and firing and paying a group of employees quite unlike any he has hired in the past. They’re not always rational, they’re not always efficient, and as a group they tend towards the skeptical and cantankerous. On top of that, they’re not entirely motivated by money.

Happy proprietors tend to like journalists — they admire what they do, and how they think. (Exhibit A: David Bradley, at Atlantic Media.) Jeff Bezos, I fear, is not going to be a happy proprietor. He’s going to keep himself occupied thousands of miles away from where his journalists will be working; he’s not going to get to know them on a personal level; he’s certainly not going to enjoy gossip-fueled lunches at the Four Seasons with Tina Brown or Arianna Huffington. If Ezra Klein is ever tempted to take Wonkblog to richer shores, or just to quit altogether to concentrate on a television career, it’s hard to imagine Bezos offering him a glass of whisky and promising to make whatever changes would be necessary to get him to stay.

To put it another way: the best proprietors are only happy when their journalists are happy. They throw resources at those journalists, and then the journalists smile, in their grumbly way, and waste a bunch of what they’ve been given, and ultimately produce wonderful content, which the proprietor can then turn around and monetize in one way or another. Bezos isn’t going to be like that, or at least I don’t think he will be. Still, I hope I’m wrong. Because if he does take an avuncular interest in whatever makes his journalists happy, then a man with his skills, and his resources, could yet turn out to be one of the most interesting and successful newspaper proprietors of all time.


Bezos successfully employs many software engineers and web designers. They are as easy to manage as herding cats. Schedules in software are regularly broken. Journalists, by and large, speak English (at least at the Washington Post). Software engineers, not so much: mostly techno-babble…

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The optics of selling financial information

Felix Salmon
Jul 8, 2013 18:00 UTC

Thomson Reuters (my employer, but I’m not speaking on their behalf here) pays the University of Michigan a seven-figure sum every year. In return, it gets the distribution rights for the university’s closely-followed bi-monthly consumer confidence survey. It’s an arm’s-length commercial transaction: free enterprise in action. But it’s also controversial.

Up until now, Thomson Reuters has orchestrated the distribution of the data using a three-tiered system. The top level of high-frequency traders pay a reported $6,000 per month to get the information at 9:54:58am. The next level of Thomson Reuters subscribers, paying substantially less, get the data two seconds later, from a conference call which takes place at 9:55am. Finally, at 10:00am, the report is made freely available on the web.

As of this Friday, however, the first tier will be eradicated. You can still pay to get the data five minutes early, but you won’t be able to get the data five minutes and two seconds early. Thomson Reuters didn’t want to make this move — it has said repeatedly, and accurately, that it’s entirely kosher for news and information companies to distribute non-governmental data to fee-paying subscribers. And as Henry Blodget says, Thomson Reuters is hardly alone in this: there’s a massive marketplace out there of information providers charging hedge funds enormous sums for timely access to various datasets.

So what’s going on here? The first thing to note is that the only official investigation, here, is being led by Eric Schneiderman, the New York attorney general. His office is important, because it means he can wield the Martin Act; the SEC can’t do that, and the investigation is not, legally, centered on Reg FD or any kind of insider-trading statute. The Martin Act is an incredibly broadly-written statute dating back to 1921, and allows New York’s attorney general to prosecute just about anybody on Wall Street for just about anything, so long as the behavior in question can be construed to be “contrary to the plain rules of common honesty”. (Quoting the appeals court decision in People v. Federated Radio Corporation, 1926.)

The second thing to note is the way that Schneiderman’s investigation is being linked to high-frequency trading: after all, the ability to make money in the space of two seconds is pretty much by definition limited to high-frequency traders. The hedge funds who paid for that two-second head start never bothered to filter the information through a human being: they just got their computers to receive the information directly, and set them loose on the market. Again, that’s entirely legal, although there is something rather dystopian about it as well.

Of course if your main target is high-frequency traders, then going after the pre-release of a consumer confidence index is silly: it’s like attacking the use of guns by banning the sale of paper targets. But it makes sense to me that Schneiderman is concentrating just on the two-second window, rather than the five-minute window: while charging human beings for information is a normal and established part of the U.S. economy, there’s something qualitatively different about HFT algobots.

What’s more, there’s one big difference between the University of Michigan consumer confidence data, on the one hand, and the valuable proprietary information which is bought and sold every day, on the other: the UMich data is valuable precisely because it is made public, and the act of making it public moves the markets. (Sometimes.) The people who buy early access to the data don’t particularly care about the data itself, and wouldn’t pay nearly as much money for it if it wasn’t about to be made public. What they care about is the market reaction to the data: they want to be able to position themselves, in the market, so as to be able to profit from that reaction.

The UMich consumer confidence data in no way qualifies as “inside information” under the SEC definition of the term. But it is market-moving information. And the distinction between the two seems to be slowly being erased. As I wrote last year, there seems to be a general feeling, somewhere in the air, that if a medium-sized group of financial professionals get simultaneous access to potentially market-moving information (the people who subscribe to the 9:55am conference call, for instance, or the people who dial in to Lehman Brothers squawk-box calls), then that’s fine. But if an even smaller group of financial professionals gets the information even earlier, then a line has been crossed.

None of this makes much logical sense. But you don’t need a tightly-argued jurisprudential philosophy to bring a Martin Act prosecution; all you need is to convince a court that something is not fair. Call it principle-based regulation, if you must. Under the letter of America’s insider-trading laws, no one did anything wrong here. But put the law to one side; look at the way that the public reacted to the news of what Thomson Reuters was doing. To my eyes, it looked like a diluted version of the reaction to the news of what Henry Blodget was doing at Merrill Lynch, when Eliot Spitzer went on the warpath against him. Grizzled and cynical Wall Street types said, basically, “everybody knew this was happening, what’s the big deal” — but the broader public and news media was genuinely shocked, and that shock was all that Spitzer needed to extract a big settlement.

So I think that Thomson Reuters is smart to suspend the top tier of access to the UMich data, at least until Schneiderman finishes his investigation. The two-second window is entirely justifiable on legal grounds — but when you start talking about algobots paying large sums to get a eye-blink head start on market-moving information, potentially making millions of dollars while doing so, then an aggressive New York AG has all he needs to start making lots of hay. It’s probably best to sacrifice the two-second window, at least temporarily, lest Schneiderman start drawing a bead on the five-minute window, next. No one wants him to start getting ideas about the multi-billion-dollar market in financial information more broadly.


Erratum – “selective disclosure” above should be “selective dissemination” of course.

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The spread of link rot

Felix Salmon
Jun 28, 2013 14:04 UTC

When Anil Dash lamented, last December, about the web we lost, he wasn’t speaking literally — he was talking about a culture which got swept away by a tidal wave of Silicon Valley money. But with today’s news that Google seems to be about to vaporize a significant number of the blogs on its Blogger platform, it’s becoming increasingly clear that the problem of link rot isn’t going away — if anything, it’s getting worse.

I’m a great believer that once something is placed on the internet for free, it should continue to stay there, for free, unless there’s an extremely good reason to delete it. Back when hosting websites was difficult and expensive, that was easier said than done. But now web hosting is effectively free, there’s really no excuse — and one might hope that, as a result, we’d see less link rot.

But that’s not what’s happening. For one thing, the institution of the permalink is dying away as we move away from the open web; if you’re not even on the web (if, for instance, your content comes in the form of a show on Netflix), then the very concept makes no sense. What’s more, we’ve moved into a world of streams, where flow is more important than stock, and where the half-life of any given piece of content has never been shorter; that’s not a world which particularly values preserving that content for perpetuity. And of course it has never been easier to simply delete vast amounts of content at a stroke. (For instance: the Kanye West and Alec Baldwin twitter feeds.)

The Wikipedia page on link rot says (at the time of writing) that “permalinking stops broken links by guaranteeing that the content will never move” — but in the real world that’s not much of a protection at all. Content management systems change, and when they do, many publishers don’t bother to ensure that the old links still work. (Which is why, for instance, old links to Gawker tend to die, even though the website is still going strong.) And of course permalinking can’t prevent an entire blog from getting deleted — as Google is now threatening to do with certain adult sites.

Small personal blogs die every day, of course, but it’s no protection being owned by a huge media company, either. My boss, Jim Ledbetter, used to edit a site called The Big Money, which was unceremoniously killed off by the Slate Group, its archives lost to history; more recently, Thomson Reuters did the same thing to one of their sites, News and Insight. (The press release announcing the move was one of its victims; a shadow of it lives on here.) When these decisions are made, the fate of the archives never seems to matter; the result is thousands more dead links scattered across the internet every day, pointing to once-valuable resources which no longer exist.

These mass deletions are huge; they make me feel almost sheepish about the anger with which I greeted, say, Greg Mankiw’s decision, back in 2007, not only to close his blog to comments, but at the same time to delete all the previous comments which had been made, with no warning. All the conversations which had taken place in his comments section, all the smart rebuttals which had been made — all of them just disappeared, overnight. Today, I’d barely blink at such a thing: after all, it happened to me, a couple of years later, when all the comments on my Portfolio blog got deleted.

What I fear is that the entire web is basically becoming a slow-motion Snapchat, where content lives for some unknowable amount of time before it dies, lost forever. Sites like archive.org can’t possibly keep up; and the moguls who own most of the content online are simply not invested in the ideals of the link economy. When even Google is giving bloggers just three days to save their sites or see their content disappeared — three days when many of them are on summer vacations, no less — it’s pretty obvious that there’s no such thing as a truly benign online organization any more. There may or may not be one or two, at the edges; I have a decent amount of faith, for instance, that the BBC is going to honor its permalinks for many years to come*. At the other end of the spectrum, Anil will, as well. But for those of us who make our livings linking to other things on the internet, it’s simply a fact of life that most of our links will die. If, that is, our own permalinks aren’t killed off first.

*Update: Or, maybe not!


The communistic cloud cannot be avoided. You see that blogger blogs aren’t “safe,” in that they can be deleted any time. It happened to my first blog. Many wonderful years of posts vanished overnight. I did manage to save the first two years using software called HTTracker. Those two years of chronicles now exist only on the harddrive of an old Windows 95 computer. With thousands of posts on my current blogspot blog, which I have kept since 2006, I no longer fear deletion. I just accept the fact that it could happen anytime. I started a new wordpress blog, and I will admit my whole approach to and awareness of blogging has changed dramatically since (1) my blog was deleted (2) all this ‘cloud’ stuff arrived on the scene and (3) I realized and now understand just how powerful entities like Facebook and Google are.

We netizens are like ants. When one of us “dies” there is always a replacement nearby, left to carry on.

Posted by DaveLucas | Report as abusive