Felix Salmon

Why Netflix is producing original content

Felix Salmon
Jun 13, 2013 06:02 UTC

Matthew Ball has a long examination of the economics of Netflix’s original content, looking at it on a show-by-show level. He starts with the cost of producing something like Arrested Development, and then works out how many extra subscribers Netflix would need to attract in order to justify that cost. (Or, how many extra months existing subscribers would have to keep their subscriptions for, compared to when they would unsubscribe otherwise.) He writes:

I’d argue that it is unlikely that Arrested Development will convince millions of users to stay an extra month in 2014 and 2015. If this is the case, the show would need to achieve its return in the immediate future. Therefore, if we don’t see Netflix adding four to five million new subscribers during the quarter, one of two things are true. One, the show was a poor investment whose draw was a fraction of those anticipated, or two, the show is instead intended to convince many of the million subscribers currently churning away each month to defer their cancellation. This would be telling.

While Wall Street analysts are assessing the success of original content in terms of new customers, I believe Netflix’s primary goal is on imminent service cancellations.

Ball lists three reasons why Netflix is making original content. There’s the way in which that content keeps people subscribing for longer; the way in which original content will allow Netflix to raise its prices in the future; and then there’s this:

Hedging against rising content licensing costs, which are up 700% over the past two years. While per-show licenses will never surpass the cost of original producing a series, their increases will make ongoing investments in House of Cards less expensive on a differential basis.

The ever-increasing cost of licensing is a huge issue for Netflix, and it’s the reason why its business model is a very tough one: any time that Netflix builds up a profit margin, the studios will simply raise their prices until that margin disappears. Netflix had to pay a whopping $1.355 billion in licensing costs just in the first quarter of this year; that number is only going to increase, unless Netflix can find some other way of finding content. Like producing it in-house. At the margin, the more material that Netflix produces on its own, the less it needs from third parties, and the easier that Netflix finds it to say no to ridiculous demands.

But what Ball misses, I think, is that Netflix is playing a very, very long game here — not one measured in months or quarters, and certainly not one where original content pays for itself within a year. Netflix doesn’t particularly want or need the content it produces in-house to make a profit on a short-term basis. Instead, it wants “to become HBO faster than HBO can become Netflix,” in the words of its chief content officer Ted Sarandos.

Most importantly, the thing that Netflix aspires to, and which HBO already has, is an exclusive library of shows. If everything goes according to plan, then the Netflix of the future will be something people feel that they have to subscribe to, on the grounds that it’s the only place where they can find shows A, B, C, and D. That’s what it means to become HBO — and Netflix is fully cognizant that this is a process which takes many years and billions of dollars.

If Netflix gets there, then it becomes a license to print money, just as HBO is today. Shows like Arrested Development and House of Cards may or may not pay for themselves over the short term — in fact, they almost certainly won’t. But that doesn’t matter. In the long term, they will become part of a library which has massive value on two fronts: the shows can be licensed out in jurisdictions where Netflix doesn’t want to compete, and they will also help make Netflix a service that can guarantee you a great show that you want to watch, whenever you want to watch it.

Ball says that “Arrested Development is an established brand that’s intended to be a one-off event to convince its fanatical (and tech-savvy) followers to give Netflix’s broader streaming service a try.” That’s true — narrowly. But the series is much more than that: it’s also a way for Netflix to signal to all its current and potential subscribers that it is home to high-quality exclusive content, if and when they ever feel like giving it a try. In a weird way, Arrested Development is worth more as the number of people who haven’t seen it goes up.

No one today is likely to subscribe to Netflix just on the grounds that they think they might like to watch Arrested Development at some point. But when there are dozens such shows — none of which are available anywhere else — that begins to add up. At that point, not only does Netflix provide something for everybody; it also becomes the only place to watch certain shows with cultural-touchstone status. And presto, the decision is no longer whether Netflix is worth the subscription price; rather, the question is whether you can afford not to have it.

There’s no guarantee that Netflix is going to succeed at this strategy: many have sailed into the treacherous waters of Hollywood video production, and few have thrived there. And in the first instance the strategy just means that it’s no longer just the content companies managing to extract enormous rents from Netflix; it’s the production industry and the talent as well. The old argument still applies, mutatis mutandis, to the new strategy: as high-quality original content becomes increasingly important to Netflix, Hollywood will find ever more ingenious ways of forcing Netflix to pay through the nose for it.

Still, for viewers, this can only be good. The viewing audience doesn’t care whether Netflix makes money: they just want great shows to be produced. If they like House of Cards and Arrested Development, they should be very heartened: there’s going to be a lot more new shows where those ones came from.


It’s less about building a catalog and more about becoming known for original content as a brand. Is there really a meaningful number of HBO subscribers that are watching The Sopranos or Six Feet Under in 2013? Probably not. Do people think of HBO as a leader in original programming? Yes but it didn’t happen overnight.

That brings the pressure for Netflix to constantly produce top-level shows. It also means they have to continue to grow their sub base in order to fund these programs and make it to that point at which they are known for original programming. I would argue it can happen a lot faster now than when HBO started out.

It will be interesting to watch the effect of allowing people to ‘binge’. Currently it plays as a pop and fade. But as @hypermark points out, once they have enough series, they can stagger them rather than draw out episodes.

Another issue is whether Netflix continues to spend gobs of cash on series but don’t secure the long-term, exclusive rights (e.g. House of Cards). But that may have been a deal done to jump start originals.

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Chart of the day, billionaire edition

Felix Salmon
Jun 3, 2013 20:31 UTC


Many thanks to Peter Rudegeair for pulling this data from Factiva: it shows how often the word “billionaire” has appeared in headlines from 1984 to date. We’re looking, here, only at three publications: the NYT, the WSJ, and Reuters News. (And we’re excluding Bloomberg, which has its own dedicated billionaires section.) For 2013 the dark-blue line is the year-to-date figure; the light-blue line is what happens if you extrapolate what we’ve seen so far to the year as a whole.

There’s a billionaire bubble here: we’re on track to see 158 billionaire headlines this year, or more than three a week. In most of those headlines the term is entirely gratuitous: “Cyprus rescinds citizenship of Assad billionaire cousin”, for instance. In many cases, it’s not even entirely clear that the people being referred to are billionaires.

Back in 2006, 59 appearances of the word “billionaire” in headlines was an all-time high — but that record was obliterated in 2007, when it popped up 103 times. Never again would we see anything near 2006′s relatively modest total, not even in the depths of the Great Recession. And now, it seems, there’s no limit to how high the totals can go. Can anything burst this bubble? Please?


Just wait until “billionaire” is redefined as someone making over $1 billion per year, as the term “millionaire” has been redefined recently. Will there be a billionaire’s tax?

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Promiscuous media

Felix Salmon
May 29, 2013 00:44 UTC

Two years ago, when I wrote about the death of blogging, I contrasted the decline of old-fashioned reverse-chronological blogs with the huge success of Twitter and, especially, Tumblr. Since then, of course, Tumblr has been sold to Yahoo for more than $1 billion, while Twitter is reportedly valued at some ten times that amount. Clearly there’s a lot of value in becoming a successful publishing platform.

One big reason for the success of Twitter and Tumblr is that they have a very clear idea of what their product is, and they focus on making that product great rather than on being all things to all people. Blogging was historically thought of as a one-stop shop: the place where people would post a series of things, and where those things would appear in reverse chronological order. Every so often, a blogger would write something elsewhere, usually for money, and then link to that piece from their blog. But when Twitter came along, something changed: bloggers would write some things on their blogs, and other things on Twitter.

After I realized that Twitter had powers that no individual blog could ever have, I started thinking increasingly about the best platform for any given thing that I wanted to do. Photos of my friends and family of course are easy: they go on Facebook. Less personal photos go on Instagram. And if something could be distilled into 140 characters or less, there’s a good chance that it belonged on Twitter. But Tumblr was great too, for certain things: I’ve now posted to my Tumblr 1,159 times, and have 36,475 followers there. I haven’t spent much time making it pretty or coherent, but short-form content, especially if it’s visual and doesn’t work on Twitter, is often perfect for Tumblr.

There are lots of other platforms too: I’ve seen people like Jerry Saltz get really good at Facebook, although I’ve largely shunned it as a publishing tool. Bloomberg’s Tom Keene is very active on LinkedIn. I had a YouTube channel for a while; that was a lot of fun, and allowed me to do things which don’t necessarily work in print very well. For conversations, podcasts can be wonderful, as can live events. And if I need it, there’s always my own personal blog. Basically, different types of communication require different platforms, and it’s silly to expect everything to fit into one template.

This morning, I posted some thoughts about CitiBike on Medium — which is also the place I chose to publish my big piece on bitcoin. I like how clean Medium is, and it’s quite well suited to content which is longer than a Tumblr post but also maybe not the kind of thing which I’ve started to concentrate on here at my Reuters blog. Don’t ask me to define exactly what I put where: a lot of these decisions are spur-of-the-moment things, and sometimes I change my mind at the last minute. (This post, for instance, was drafted in Medium before I decided to move it over to Reuters.) But I really do love the ability to create and present the stuff I create in the format which puts it in the best possible light.

The new Reuters site is based around the concept of streams, and the Felix Salmon stream on the site, which will appear at some point in the coming months, is by its nature going to be a different animal, on a different platform, than the current Felix Salmon blog on Reuters.com. I don’t know exactly how it’s going to work — there will be a lot of trial and error involved, for sure — but right now the way I’m thinking about it is as a place where the various things I do on various platforms can be brought together in a single place. If I write something on Medium, or if I write an article for Wired, or if I post something on Tumblr, or if I create a video on YouTube, that thing can live in its own natural habitat while still being aggregated on my own Reuters platform. And of course I’ll always be writing a lot of original content right here — content which in turn will end up being linked to from Twitter, or syndicated on Seeking Alpha, or otherwise shared around the social web.

To put it another way: the death of the blog was really just the death of a single template into which all of a certain person’s output had to be able to fit. Now we have a multiplicity of options, and it’s silly not to take advantage of them. Media organizations have generally embraced their journalists publishing ultra-short pieces on Twitter; the future, I think, is going to be ever further in that direction. Certain journalists will be wonderfully active on Pinterest; others will develop huge followings on LinkedIn. As they do, their employers will be gifted with a brand-new way to extend their brand out to people they never reached before, in what feels like a very personal manner.

I remember having drinks with one editor-in-chief, a couple of years ago, after a NYT op-ed I had written received wide attention. He said that he would be furious if one of his writers had done such a thing: he had a clear expectation that his own publication would be the only place that his writers published pretty much anything longer than 140 characters. That expectation didn’t make much sense to me in 2011, and it just seems silly now. The same NYT op-ed, published as a Reuters blog post, would have been a very different animal: the medium helps create the message, as well as the audience that it reaches. Media companies should be in the business of curating and publishing what works best on their own platforms, rather than becoming jealous of what appears elsewhere. Indeed, many of them publish too much, and would be well advised to publish much less than they do.

Everybody is a curator, these days: publishers design platforms for certain types of content, editors shape publications by deciding what to leave out; journalists try to make sure that the stuff they’re doing is expressed to its best possible effect on the best possible platform. The result is a more fluid media ecosystem than we’ve been used to, but also a more effective one. Let content live where it works best; that way, the publishers of that content will be able to present something with maximal coherence and a minimum of feeling that they’re trying to do something they’re not particularly good at. The publishers who win are going to be the ones with addictive, compelling, distinctive content. Rather than the ones who are constantly flailing around, trying to copy everything that’s good somewhere else.


Not sure I agree, Felix. A lot of Tumblr posts and Tweets are “matches” in the sense that users are retweeting or reposting content they found somewhere else, sometimes with credit and sometimes without, ultimately creating little. The number of spam/PR accounts on both platforms are also high. These supposedly successful platforms are simply replication machines with fewer scruples about copyright than mainstream news sources. And what are the metrics by which we can measure their success? As far as I can tell, neither Tumblr nor Twitter has turned a profit after absorbing hundreds of millions of dollars in investments. Is that something others should aspire to? If so, why?

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Why Yahoo-Tumblr makes sense

Felix Salmon
May 20, 2013 14:47 UTC

Amidst all the positivity coming out of Yahoo and Tumblr, any self-respecting pundit is going to want to pour cold water on the whole deal. Especially since billion-dollar mergers almost never work out very well. But here’s the weird thing: the more I look at this tie-up, the more it makes sense to me.

Yahoo has more than enough money to pay for Tumblr in cash, which is exactly what it’s doing. Here’s one easy way of seeing why this is a good deal for Yahoo: profitable tech companies (think Google, or Apple) tend to have too much cash and tend not to know what to do with it — with the result that it just sits there, uselessly. For Yahoo, having $4.4 billion in cash plus Tumblr is clearly going to be better in terms of the future than having $5.5 billion in cash, waiting interminably for some kind of Godot to come along and be bought. $1.1 billion is a lot of money, but it’s not so much money that it’s going to change the way that investors look at Yahoo’s balance sheet.

More fundamentally, Yahoo is acquiring 300 million young, mobile users at a stroke — along with invaluable information about what they like to consume online, and how they like to consume it. It’s a four-fer, in fact.

First, there’s the immediate traffic boost.

Second, there’s the ability to use Tumblr’s data to help optimize the rest of Yahoo’s pages. If I’m logged in to Tumblr, as I normally am, then when I go to Yahoo, I should see the kind of material that Tumblr knows I’m interested in, rather than some one-size-fits-all generic home page.

Third, Tumblr is Marissa Mayer’s opportunity for a Flickr do-over. The big portals have been extremely bad at building out genuinely interactive properties in the age of self-expression, and Tumblr knows how to attract a new generation of users who want to create rather than just consume.

And finally, Tumblr is the perfect platform for Yahoo’s brand advertisers to use if they want to start building up relationships with consumers, rather than just bombarding them with banner ads. (My friends at Percolate, an official Tumblr partner which was designed to solve this stock vs flow problem, are incredibly well placed to be huge winners from this deal.)

From Tumblr’s point of view, founder David Karp has extracted many promises from Mayer that she will leave the company alone, in New York City, to do its thing. “We’re not turning purple,” he says. More importantly, Karp can now outsource to Sunnyvale a lot of the gnarly monetization problems which the NY team was only slowly beginning to solve. The plan right now — which might change — is to give Tumbloggers the option to start running ads on their sites, presumably with some kind of revenue-sharing deal. But from day one, Yahoo’s sales team could simply start insisting that any brand wanting to buy ad space on the Tumblr dashboard will also have to buy a bunch of space on the Yahoo network. That’s a great way of leveraging the amount of money that Tumblr brings in.

And then of course there are the itchy VCs: Tumblr raised its first money back in 2007 at a $3 million valuation, resulting in a glorious 365X return for early investors including Fred Wilson and Jacob Lodwick.

Lodwick is on the record saying that acquisitions like this one are always a failure for the company being bought: “Big companies aren’t just big versions of small companies,” he writes. “They’re another class of entity entirely, more concerned with sustaining their own rhythms and control structures than experimenting with strange ideas from acquired ex-founders.” But part of the deal you make, when you accept VC funding, is that there will almost certainly be an exit within 5-10 years, and it will almost certainly not be an IPO where the founder retains control. This kind of exit, where the company is big enough to retain a modicum of independence, is the least bad outcome that Karp could realistically achieve.

It won’t be easy: as Peter Lauria points out, Yahoo’s decision to ban Kara Swisher and Peter Kafka of All Things D from the press announcement is exactly the kind of heavy-handed corporate meddling that Lodwick is talking about. And Tumblr’s users are predictably unhappy about the whole thing. But Yahoo certainly has the tools to help boost Tumblr’s flattening traffic numbers, while Karp should be able to retain enough control of Tumblr that his users don’t revolt entirely. After all, it’s far from clear where else they could go.

Most mergers fail, and this one could fail as well. But on the spectrum from “obviously doomed” (NewsCorp/MySpace) to “obviously sensible” (Google/YouTube), I’d put Yahoo/Tumblr well within the “sensible” half. Which is rare enough to be noteworthy.


“profitable tech companies (think Google, or Apple) tend to have too much cash and tend not to know what to do with it — with the result that it just sits there, uselessly.”

A nasty consequence of not paying much in taxes, shall we say… Why do you allow us to forget that this money has been stolen from the American (and most likely a few other countries’) public(s)?

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Bloomberg is watching you

Felix Salmon
May 14, 2013 19:05 UTC

All social networks are based on a cognitive con. No one likes to give out valuable personal information to some huge corporate entity, so the trick is to make people feel as though they have some kind of control or ownership, even when they don’t. Most of Facebook’s privacy controversies boil down to much the same thing: people share personal information with their friends, using the convenient Facebook platform, and then are shocked when it turns out that Facebook has access to that information and is making money from it.

The more centralized and controlling a social network is, and the less that it’s run on a peer-to-peer basis, the more likely it is to run into this kind of trouble. So it probably should come as little surprise to learn that Bloomberg, the highly-centralized and highly-controlling social networking company, has now run headfirst into its very own privacy scandal. (Bloomberg is a competitor of Thomson Reuters, which is my employer and owns Reuters News.)

The Bloomberg terminal is a take-it-or-leave-it proposition, as far as its users are concerned: they either sign on the dotted line, pay their $20,000 per year, and get their terminal — or they don’t. Just as with Facebook, the Terms of Use are non-negotiable: unless you agree to them, you don’t get to use the service. And as everybody who’s ever tried to put a naughty word into a Bloomberg message knows, once you’re signed into the Bloomberg system, Bloomberg is watching you.

Zach Seward‘s sources say that Bloomberg logs every keystroke of every customer; Bloomberg declined to comment to Seward and declined to comment to me, so it’s hard to know what the truth is. But it’s well known that Bloomberg accumulates a truly enormous amount of information; right now, for instance, it says it is hiring big data architects in an attempt to manage it all. That dataset is one of Bloomberg’s great competitive advantages.

Indeed, Bloomberg’s clients in many cases may want it to implement Panopticon-style monitoring of everything their employees do. As Seward says, “at Bloomberg, omniscience is a feature not a bug”: even if the individual employees aren’t enthusiastic about losing all their privacy, their employers, institutionally, see a lot of upside, in terms of compliance and risk management, in keeping a record of everything that their workers do online. If Bloomberg will help do that work for them, included in a terminal subscription they’re going to pay anyway, then so much the better.

Besides, both Bloomberg and its clients have an aligned incentive when it comes to making the terminal as excellent as possible in terms of giving subscribers the information they want as quickly and comprehensively as possible. You can’t do that unless you know how clients are using the terminal — what they’re looking up, where they’re getting frustrated, where they spend most of their time. By sharing usage data and trusting Bloomberg to keep it confidential, subscribers can help make the product even better.

But journalists are a special case. As Bloomberg editor in chief Matthew Winkler says, Bloomberg’s “reporters should not have access to any data considered proprietary” — and it is “inexcusable” that they did. The problem derives from Bloomberg’s in-house news organization priding itself, at least at the outset, on being deeply embedded into the broader company, and making the maximum use of the information on the Bloomberg terminal.

Bloomberg News’s Kevin Reynolds, for instance, talking to Brill’s Content in 2001, boasted that “as a reporter here, you have knowledge going into the interview that your competitors don’t even have at the end,” thanks to the information in the terminal. And in case there was any doubt that, as Amy Chozick writes, “the news operation was assembled in the 1990s primarily as a way to sell more terminals,” it was laid to rest by Mike Bloomberg himself, in his autobiography. “Most news organizations never connect reporters and commerce,” he wrote in Bloomberg by Bloomberg. “At Bloomberg, they’re as close to seamless as it can get. That’s our system.”

In that context, it was absolutely natural for journalists to have access to the same data being seen by the sales staff: at Bloomberg, the reporters were deliberately tied as closely as possible into the commercial terminal-sales function. Too closely, it turns out. As times changed, and, in Winkler’s words, “as data privacy has become a central concern to our clients,” it became necessary for Bloomberg’s journalists to be completely removed from client data. They weren’t, and, as Bloomberg CEO Daniel Doctoroff writes, “although we have long made limited customer relationship data available to our journalists, we realize this was a mistake.”

So, Bloomberg says it made a mistake, it has apologized, and it is not going to happen again. End of story? Not entirely. For one thing, the Europeans have pretty strict privacy laws, and are talking to Bloomberg about what happened; no one knows how those talks could conclude. On top of that, for all that Winkler’s apology runs under the headline “Holding Ourselves Accountable,” so far there have been no reports that anyone at Bloomberg is being held accountable. A Bloomberg spokeswoman declined to comment.

Bloomberg’s reporters use the Bloomberg terminal for everything they do: they’re an inextricable and central part of the Bloomberg social network. And while the newsroom has now lost its access to certain functions, the company would not comment on the degree to which the changes are affecting the vast majority of Bloomberg employees who don’t work in the newsroom. For the time being, it seems, thousands of Bloomberg employees around the world have retained their access to key information about employees of Goldman Sachs, the Federal Reserve, the ECB, the US Treasury, and countless other organizations — information which, in many cases, is fiercely protected even within the organizations themselves. (If an employee has been quietly suspended and is no longer actively working for the organization in question, that’s not going to be common internal knowledge, but it’s easy to see if you can see when they last logged in to their Bloomberg.)

Many of Bloomberg’s clients, especially the Europeans, are likely to be unhappy about the fact that such sensitive information could continue to be widely available within the company. But, just like participants in other social networks, they don’t have a lot of choice in the matter. The more time you spend on your Bloomberg, the more value you get out of it — and the more that Bloomberg staffers are going to know about when and how you work. That’s been the bargain from the beginning, whether you liked it or not.


Doesn’t Reuters offer somewhat analogous financial data services? How does it work there? It would seem an obvious point of comparison.

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Mail Online: Big, but not valuable

Felix Salmon
May 10, 2013 14:51 UTC

Back in December 2011, the Daily Mail had 45.3 million unique visitors, according to ComScore. By March 2013, 15 months later, that number had grown to 46.4 million, again according to ComScore. We learn the latter figure — but not the former — from Christine Haughney’s article about the website today:

For now, many analysts consider the Mail Online a growth source for a strait-laced media company. The parent company’s total annual revenue is about $2.7 billion and its net income is $466 million. It depends on newspapers for about 20 percent of its profits, according to Mr. Reynolds.

Alex DeGroote, a media analyst with Panmure, Gordon & Company, said that while Mail Online was still not profitable, its growth had helped its broader company’s stock price grow roughly 80 percent in the last year.

This is crazy. For one thing, as we’ve seen, the Mail Online isn’t really growing: on the internet, 2.4% growth in 15 months is decidedly weak. For another thing, as DeGroote points out, it isn’t making any money. But more to the point, DMGT, the parent company, is so enormous that Mail Online can’t possibly account for the rise in its share price.

DMGT’s market capitalization is $2.84 billion; it has risen some $1.26 billion in the past year. If DeGroote really thinks that Mail Online accounts for a significant chunk of that growth, he would have to think that the rise in the value of Mail Online, just in the past 12 months, has been the best part of a billion dollars. By that logic, given that the site was already extremely popular a year ago, the overall value of Mail Online would probably have to be more than the entire value of its parent company.

In reality, the value of DMGT has almost nothing to do with Mail Online. The site might be a traffic powerhouse, but the internet is full of high-traffic sites which are worth very little. Traffic, in and of itself, is worth very little, and there’s no indication that readers are willing to pay for Mail Online, or that advertisers are willing to pay much for those readers. (The site’s revenue of $7.2 million is about 0.25% of DMGT’s $2.7 billion total revenue.)

DeGroote, here, is falling victim to the visibility fallacy: Mail Online is by far the most visible part of DMGT’s business, and so he thinks that it must account for most of the change in its share price. In reality, however, if DMGT decided to shut down the entire site tomorrow, its value would probably barely be affected. If you want to find a reason for why DMGT’s share price has performed so well of late, you’re going to have to look elsewhere.


Felix , your aftcs are a bit out if kilter. Look at the investor presentation by Martin Clarke. Mail Online is playing its part in DMGTs re-rating especially if the US site can reproduce the £2,5m a month revenues generated in the UK

See http://www.dmgt.co.uk/investorbriefing/p resentations

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Niall Ferguson’s history with Keynes

Felix Salmon
May 7, 2013 15:06 UTC

Brad DeLong has found a 1995 article by Niall Ferguson which pretty much puts the lie to Ferguson’s claim about his take on John Maynard Keynes. Here’s what Ferguson now says:

My disagreements with Keynes’s economic philosophy have never had anything to do with his sexual orientation. It is simply false to suggest, as I did, that his approach to economic policy was inspired by any aspect of his personal life.

And here’s what he wrote in 1995:

Research in German archives shows that Keynes’s critique of the Versailles Treaty was based on anything but dispassionate economic analysis. Few, if any, of its readers can have appreciated how far the ideas contained in The Economic Consequences of the Peace — the book which made him a celebrity — were actually inspired by members of the German peace delegation at the Versailles conference. Still fewer knew that their appeal to him owed as much to his homosexuality as to his Germanophilia.

Ferguson writes that “the attraction Keynes felt” for the German representative Carl Melchior “strongly influenced his judgment”, and adds for good measure that “those familiar with Bloomsbury will appreciate why Keynes fell so hard for the representative of an enemy power”. Here’s the whole thing:

This is a slightly different argument, of course, to the idiotic remarks Ferguson made at a conference in California last week, where he said that Keynes didn’t care about future generations because he was gay and didn’t have children. If those remarks were, in Ferguson’s own words, “doubly stupid”, then maybe his Spectator article is maybe only singly stupid. Except it was carefully written, edited, and committed to print: Ferguson can’t claim that his article was merely a regrettable “off-the-cuff” error.

At first blush, Ferguson’s apology is full and unqualified. But in light of this and other information, it seems that Ferguson has rather more to apologize for than a single verbal response to a question from Paul McCulley. Either Ferguson still believes today what he wrote in 1995, or else he has changed his mind and now believes that what he wrote back then is “simply false”. It’s about time he clears this up.

Update: It seems we can’t take Ferguson’s apology at face value after all. In an ill-tempered letter written to the Harvard Crimson, Ferguson says that he can’t be prejudiced because he has a Somalian wife and a gay friend; says that “the strong attraction Keynes felt for the German banker Carl Melchior undoubtedly played a part in shaping Keynes’ views on the Treaty of Versailles and its aftermath”; and adds that Keynes and the other members of the Bloomsbury Group “had no doubt at all that sexual orientation had a significance beyond the narrow confines of the bedroom, and that intellectual life and emotional life were intertwined”. I guess it’s not “simply false” after all to suggest that Keynes’s approach to economic policy was inspired by any aspect of his personal life.


Is the author gay? I don’t see the reason for attacking ferguson. Not that I like/dislike ferguson, but he just says a faggot mixes between his feelings and his thoughts, what’s wrong with that unless u r gay and ur feelings got hurt.

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Aereo and the death of broadcast TV

Felix Salmon
Apr 22, 2013 17:05 UTC

One of the funnier subplots in the media universe these days is the one about Aereo. Aereo is the kind of company which sounds like a thought experiment, but it’s very real: it takes free broadcast signals, uploads them to the cloud, and rents them out — at a fee — to people who want to watch broadcast TV on their computers. It’s a way of showing the broadcast networks how silly it is that they don’t put their programming online, and it’s also an argument for why cable companies shouldn’t have to pay through the nose for the right to retransmit content which has always been free-to-air.

Real-world companies are largely immune to thought experiments, however, and so it was only when Aereo started operating in the real world that the court cases and ultimatums started being thrown around. If Aereo isn’t shut down, say the broadcasters, they might have no choice but to take their networks off the air entirely. This of course would effectively kill Aereo, whose CEO is rather desperately drawing an analogy between the right to receive broadcast TV and the right to vote.

“The real question is a consumer question: Can you rightfully disenfranchise 50 million consumers?” he asked. “Is that what the preferred policy is?”

In the event that the networks did go through with it, he speculated that other programmers would be quick to replace them in the role of public broadcasters. “That spectrum is incredibly valuable. Somebody’s going to take advantage of that,” he said.

The 50 million number, by the way, should not be considered particularly reliable: it’s Aereo’s guess as to the number of people who ever watch free-to-air TV, even if they mainly watch cable or satellite. (Maybe they have a hut somewhere with an old rabbit-ear TV in it.)

But Aereo is absolutely right that America’s broadcast spectrum is incredibly valuable. The problem is that it’s much more valuable to cellphone companies than it is to broadcasters. The government has a plan to start a series of cleverly-designed auctions, whereby broadcast spectrum would end up being bought from broadcasters and consolidated in the hands of wireless-data companies who value it more highly. That plan can’t be put in place too quickly: the fact is that we’re living in a world where TV broadcasts create much less value than wireless companies could realize with a fraction of the bandwidth.

At the same time, broadcasters are realizing that their retransmission revenues are significantly more valuable than the marginal advertising revenues they get from households which are still reliant on rabbit ears. That trend is only going to strengthen going forwards, especially given that most new TV sets can’t even receive broadcast signals in the first place. What’s more, broadcasters can give themselves a little extra leverage if they shut down their free-to-air service (and Aereo). Once that happens, then if they refuse to provide retransmission rights during negotiations over retransmission rights, the cable companies’ customers will be cut off from their content entirely.

None of this is going to happen quickly, or cleanly. But broadcast TV is rapidly becoming an obsolete technology, and the distinction between cable channels and broadcast channels is a distinction which has outlived its usefulness. Aereo’s very existence is testimony to the silliness of the status quo, and the logical end point is for all the current broadcast spectrum to end up in the hands of institutions which can use it much more effectively as digital bandwidth.

The losers in this process will be Aereo, of course, and also the households which still rely on broadcast TV — somewhere between 10% and 15% of the total. I suspect, however, that those households are precisely the ones with the least amount of political clout. Which means that sooner or later, they’re going to lose their access to free-to-air broadcast TV. They won’t like it, but there’s pretty much nothing they can do to prevent it.

*Update: I’m informed that it’s actually illegal to sell a TV which can’t receive over-the-air broadcast signals. That said, it’s legal to sell a “monitor” which only has HDMI inputs, and which is designed to be used mainly as a TV.


I want to pick up on something a previous commenter said:
“I only watch broadcast TV anymore for live events (sports, awards, breaking news). Would these content owners, e.g. MLB and NHL, continue to license their streams to networks if they lack the built-in broadcast potential of millions of free, local viewers? Or will they go subscription-only too?”

Live content is the last thing that broadcasters have that the internet doesn’t – but even that’s changing. Just look at the fact that the US Open tennis was all live streamed, for example. As soon as I can get live sport and local news online instead of on my television, I don’t need broadcasters anymore, and the valuable spectrum they’re using can be freed up for other uses (i.e. mobile internet, cell phones).

Our company (www.telestream.com.au) does live streaming, and we’re getting a LOT of interest from sporting bodies – my prediction would be that in 15 years, there won’t be any more broadcast TV (I suspect radio will be slower to die, particularly because of its use in emergencies, but it too will go the way of the telegraph).

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The social media tail mustn’t wag the MSM dog

Felix Salmon
Apr 21, 2013 22:58 UTC

The Boston bombing and subsequent manhunt was in many ways the first big interactive news story. It wasn’t the first big event to be covered obsessively on social media, but it was the first big event where millions of people became part of the story themselves. Some did so through choice, combing through photographs on Reddit or 4chan; others simply happened to be in Boston and saw their public lives, as broadcast to the world on social media, become part of the story just by dint of where they were.

The result was a veritable deluge of streams, in a world where the news has become a hard-to-navigate rapids at the best of times. For anybody who wanted to stay on top of what was happening without drowning in noise, experience and level-headedness were invaluable, and were displayed most prominently by Pete Williams of NBC.

But while Williams was the most visible of the people who got it right, there were many others, mostly unsung, working at places like the NYT. The paper’s public editor, Margaret Sullivan, rightly praises its editors for “staying away from unconfirmed reports” and treating with suspicion anything coming from “unnamed law enforcement sources”.

In the tradition of journalistic oxpeckers everywhere, Sullivan concludes that the NYT’s “reporting from Boston all week was fast, deep and accurate”. Which is the truth, but it’s not the whole truth: I’m quite sure that a very large part of the credit should go to the editors in New York, rather than the reporters in Boston. In a story this sprawling, no one reporter, and no one law-enforcement source, can possibly see anything approaching the big picture; it falls to the editors to take the various streams of information coming into the newsroom, many of which outright contradicted each other, and to weave them into a coherent and accurate whole.

Anybody who was on Twitter over the past week knows how hard that job was. It’s an exercise in massively multivariate real-time Bayesian analysis: as the news streams in from multiple sources over the course of the day and night, every new piece of information has to be analyzed in light of everything else that’s already known, or thought to be known. A clear on-the-record statement from the governor can be assumed to be perfectly reliable, but just about nothing else can be — not even the reporting of your own employees, who can easily make good-faith errors during such an extended and chaotic story. Sleep deprivation alone can account for that.

An experienced editor will use her hard-earned judgment to weigh the relative reliability of all the different sources of information. Some people added enormous value on Twitter — Seth Mnookin, for instance, had fewer than 7,000 followers on Sunday, and more than 40,000 by the end of the week, for good reason. Others, like Williams, proved their reliability on television, even as their rivals at other channels were reporting things which turned out to be false.

There’s an art to working out where to find fast and reliable information, and to judging new information in light of old information, and to judging old information in light of new information. And there’s an art to synthesizing everything you know, from hundreds of different sources, into a single coherent narrative. It’s not easy, it’s not a skill that most people have, and it’s precisely where news organizations add value.

But in this particular case, as Noah Brier points out in a post headlined “Being Part of the Story”, it’s something that millions of people ended up attempting to do, on the fly, anyway:

Everyone wanted to be involved in “the hunt,” whether it was on Twitter and Google for information about the suspected bomber, on the TV where reporters were literally chasing these guys around, or the police who were battling these two young men on a suburban street. Watching the new tweets pop up I got a sense that the content didn’t matter as much as the feeling of being involved, the thrill of the hunt if you will. As Wasik notes, we’ve entered an age where how things spread through culture is more interesting than the content itself.

The crowdsourced hunt was, in the end, unambiguously counterproductive: it hurt much more than it helped. But it wasn’t just Redditors and hive minds which got caught up in this particular mindset. If you look at the missteps of outlets like the New York Post and CNN, it’s easy to see them in this light — breathlessly passing on every new tidbit of information, rather than taking their function as editors and filters as seriously as they should have done.

Which brings me to an important and quite wrong essay from Ben Smith, the editor of BuzzFeed, and his colleague John Herrman.

Under the old rules, a responsible citizen passed any potential bit of news he could find on to the professionals. The professionals collected tips, corroborated them, published the ones that panned out. Reporters could protect their readers from bad information — indeed, for reporters, the story was defined largely by what was kept from the public…

Now we should assume our readers and viewers see virtually everything that we see. We can no longer decide which rumors and scraps of information should be dignified with publication — a sufficiently compelling scrap of information, be it a picture of a man with a black backpack or an anonymous, single-sentence Reddit post from the scene of the crime, will become news on that merit alone…

The media’s new and unfamiliar job is to provide a framework for understanding the wild, unvetted, and incredibly intoxicating information that its audience will inevitably see — not to ignore it. A Reddit post seen by millions without context is worse for the story, and the public, and to the mission of reporting than the same post in a helpful and informed context seen by many more. Reporting is no longer a question of whether or not to dignify new and questionable information with attention — it’s about predicting which of it will influence the story, and explaining, debunking, or contextualizing it the best we can. That is, incidentally, what our readers want.

It’s possible that Smith and Herrman are right that their readers are clamoring for BuzzFeed to explain, debunk, and contextualize the constant stream of noise and misinformation coming from Reddit and Twitter. But I suspect that if there is such a clamor, it’s coming from a vocal minority. For one thing, only a minority of BuzzFeed’s visitors come for hard news at all. And of those who do, only a minority of them care very much what BuzzFeed’s interpretation is of the material they’re reading on Reddit and Twitter. Finally, by their nature, Reddit and Twitter are going to be presenting a different narrative to each of their millions of users: what BuzzFeed’s editors are seeing on those platforms is not going to be the same thing that BuzzFeed’s readers are seeing.

It’s undoubtedly true that in the age of social media, it’s become very easy for anybody to peer behind the news curtain and see the chaotic raw material from which it is produced. But that in no way weakens the onus on responsible and experienced news editors to filter that material and form it into a fast, deep and accurate report. Indeed, the value added by those editors has never been more obvious than it is in situations like this one.

Smith and Herrman are absolutely wrong that a compelling yet false factoid, being shared willy-nilly across various social-media platforms, “will become news on that merit alone”. News is something true and important and relevant; it is not, and should never be, misinformation. Neither is it “whatever our readers happen to be finding on the internet”. Smith and Herrman are essentially taking a hugely important story, here, and reducing it to the status of covering a viral meme: the Gangnamization of terror. I have no problem with news stories covering viral sensations, but they’re what you do after you cover the important stuff. They’re not the important stuff themselves.

Which is not to say that BuzzFeed did a bad job last week. Debunking corrosive memes is a genuine public service, and it’s great that outlets like BuzzFeed and Gawker are doing it. Where I part with Smith and Herrman, however, is in their implication that everybody else — the NYT, the WSJ, the Boston Globe, Reuters, Bloomberg, CNN — should be doing it as well. That’s silly, and I can’t believe that many people would want to live in a world where a relatively small number of Redditors could effectively set the news agenda for the entire country.

On Monday, I received an email from someone calling herself Sarah Hanson, in which she claimed that she had successfully auctioned off 10% of her post-tax future income for the next ten years, raising $125,000 in the process. I wasn’t the only journalist to hear from Hanson: she had already, at that point, managed to score an interview with VentureBeat, which in turn begat lots of other coverage around the internet. But various aspects of the story didn’t smell right, to me, so I sent an email to VentureBeat, asking if they were sure this girl was for real. It turns out that she almost certainly isn’t. I was perfectly happy for VentureBeat to write the debunking; in fact, that was the perfect place for it to happen: there was very little point in me writing a story saying “some person you probably haven’t heard of is very unlikely to actually exist”.

Given the amount of information pouring onto the internet every minute, it’s statistically inevitable that a substantial amount of that information is going to be erroneous — especially when the source is something as unedited as Reddit or Twitter. No mainstream journalism outlet should allow its coverage of a major story to be hijacked by backchannel noise — especially when a large part of the value such outlets provide is that they filter out the noise and transmit only a reliable signal. Just because your readers can peer behind the curtain, doesn’t mean you have any responsibility to yank it open yourself.


Dear Felix,

I enjoy your e-mails and look forward to your “Counterparties” digest each day. Thanks.

Although I’m computer savvy and I’ve been on the internet since before there were browsers I don’t follow anyone on Twitter and up until the bombing I’d heard of but never been to Reddit’s site. However, during the manhunt I did read the Reddit threads which summarized in near-real time the police scanner chatter and I did read Seth Mnookin’s Twitter feed–the experience was a revelation. (I also kept track of CNN on TV and the NYT, CNN, CBS, and Fox web pages).

My observations?

–CNN and the major news web pages were an hour or two behind the Reddit thread except at the very end when the suspect was apprehended.
–CNN and the major news web pages were *greatly* lacking in detail.
–CNN, at least, was embarrassing to watch. To use one prominent example, they had video of “Naked Guy”–by the time CNN started broadcasting the video Reddit already was saying the guy was not a suspect. CNN replayed that footage for an hour at least (maybe more, I gave up on CNN at that point) and breathlessly interviewed and reinterviewed their own camera man as their only eyewitness to the detention of the Naked Guy. They repeatedly called him a suspect in the bombings, often calling him “Suspect #2.” Meanwhile on Reddit the real story, far ahead of CNN, was rapidly unfolding.
–CNN (and maybe the other media outlets) had trouble following the moving action. They got stuck broadcasting from a given physical location and didn’t seem able to move locations easily.

The only great *reporting* (vs. summarizing scanner chatter) that I observed was an excellent piece in the NYT that described the shootout with the brothers that appeared early in the manhunt.

I wish I had seen Pete Williams because my confidence in the TV and print media to convey a rapidly moving story is greatly diminished.


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