The News Market

Something I've been meaning to comment on for a while is the news market. Fox News gets a lot of criticism for catering to a specific population; MSNBC is criticized for catering to the opposite population. I've often wondered why that is; each side accuses the other of being propagandists, but they are, in the end, businesses. They have to make money.

I think that deregulation, as is the case with many industries, led to this kind of very specific, niche identification within the news industry. When news programs were no longer required to give 'equal time', they were free to program however they wanted, and thus discover their markets.

To be clear, news events are fairly non-partisan. Events occur, and the story must be told. However, how a story is told, and what questions are asked, can vary in tone. Some people prefer stories with one tone or another, or with political views that support their own.

Wo what happens when the news media becomes a market? How does one compete? Timeliness? Done. Quality of coverage? Subjective, but no matter what, something your competitors can do. Find an audience? What do they like to be told? What kinds of stories get the most coverage?

And so, news outlets begin catering to their audiences, telling them the same news stories, but in very different ways.

One might argue that this is how things should work - the marketplace of ideas. However, from a public service perspective, this is a dismal failure. Audiences self-select into their markets and do not pay attention to opposing views. Some people prefer chunky peanut butter over creamy peanut butter, and it's hard to get them to even bother trying what they don't like. The same holds true in a news market.

Of course the most sensible people realize this and sample from multiple outlets. However, most people are not so sensible.

The Road Ahead

I acknowledge that I am copying the title of Bill Gates' book from about ten years ago. I'm halfway through my degree, and considering my own road ahead. Since it's the start of a new calendar year, I'm going to make some wild guesses about the future of two firms I work with quite a bit, Apple and Microsoft.

Both are hardware companies. Microsoft may not manufacture computers, but they do make the Xbox and Zune, as well as a handful of peripherals. Both companies make operating systems, and both companies make application software.

Apple is run like a startup. Steve Jobs is entrepreneurial; after he was ousted from Apple in the 80s, he went on to start NeXT and run Pixar. Microsoft is turning into a growth company; they have their hands in many pies, and have a stable of goods and services that, for the forseeable future, provide steady revenue and growth.

Apple has a reputation as a warm and fuzzy company, while Microsoft has a reputation as an 'evil' company, based largely on their business practices in the 90s. Apple is not your friend; I say this having interacted with the company over many years in my career. They do not share information, they provide limited options to the enterprise space (and education, as well, educators just don't realize that). The company has had its share of failures, and they take their time to acknowledge and resolve them. This doesn't make them worse than Microsoft, or any other company, for that matter.It just means that they are a large corporation, and the notion that they are somehow nicer or cooler or better than other firms is laughable. They are very good at what they do; that is as far as it goes.

Microsoft has made some missteps. They had a huge manufacturing error with the Xbox, resulting in a $1BN charge to pay for defective units. That alone should knock out any profit they might have obtained from the Xbox, yet it is worthwhile to them to stay in the game console space - a space Apple has avoided. Their ties to Netflix, Facebook, LastFM, and licensed products sold via Xbox Live represent a multi-threaded approach to generating revenue from services. The Xbox is the razor; Xbox Live and various games are the blades. I would argue that the Xbox and Xbox Live are Microsoft's iPod and iTunes Store.

So where are these two firms headed in the near future? Everyone is certain Apple will be coming out with a tablet or netbook soon. Apple is known as a media company, and with the iTunes Store, they are establishing a strong presence as an e-tailer. Microsoft seems to be repairing its image and trying to stay warm and fuzzy in the consumer space; this is a departure from their previous attempts to become integrated with new services, ala operating systems for cable boxes. I'm not sure this is the best bet, unless they really have got all of the market they are going to get in their original markets, or are willing to cede it to other operating systems.

MBAs in Space

I went to a screening of the movie Avatar recently. Set 150 years in the future, a corporate firm has ventured light years away (at subluminal speeds), to the distant planet Pandora, where they mine the aptly named 'unobtanium', which sells for (IIRC) $20M per kilogram on Earth.

This MBA candidate had some questions.

1) how did the learn about the unobtanium? How was the research conducted and who owned the original research? These questions lead up to the formation of the firm: was it formed to puruse a known opportunity, or to discover opportunities and then act on them? I can envision a future where observational space exploration is privatized and information is sold off to investors. Imagine, if you will, a ratings agency for extra-solar space exploration. Alpha Centauri could be AAA rated. Epsilon Eridani, not so much.

2) is the corporation the only human agency on Pandora? it seems to me that in real life there would be some small state actors, and possibly competitors. James Cameron always depicts corporations as monolithic entities fueled by greed. He doesn't seem to realize that firms - even monopolistic firms - compete with one another, and typically operate in a regulated environment.

3) The firm behind Pandora's exploration is clearly incorporated; reference is made to answer to shareholders. What is their capital structure? Colonizing a planet that takes several years to get to, let alone return from, is a capital-intensive project that will not generate returns for many years. Real-life examples that come to mind would be telecommunications and power companies. Perhaps warrants, convertibles, and other special instruments were used to fund the company.

4) Clearly the humans have been involved on Pandora for quite some time. They have had time to study the native biology, build schools, teach them English, and (presumably) develop mining operations outside of the scope of the film.

OK, so that last one isn't a question, it's just an observation.

Halfway Point

I am officially halfway through my degree. I don't know my grades yet, but the end of this semester marks 30 credits. Next spring, I start taking electives. I am really looking forward to that.

So, what have I learned to date?

I learned about accounting. I like accounting, it's pretty straightforward. I got a little lost managing my contra-asset and contra-liability accounts (but fell in love with the wording), and how to manage an allowance for bad credit, or for theft, but still, the high level discussions of Enron and and Worldcom shenanigans were very interesting.

I learned about management. I learned how to organize teams, whether hierarchically or vertically, by function or geography, as well as a lattice structure. This was very applicable to my current environment. I work for a ginormous international conglomerate.

I took two strategy classes, back to back; I wish I hadn't, but I really wanted to take Strategy II. Here, I learned of a field I might be particularly interested in. After apocryphal stories of Coke kicking Pepsi out of Venezuela, and learning that Google is not in as strong a spot as it is widely considered to be, I decided to make strategy one of my specializations.

Statistics was nearly the end of me, but I grew tremendously. Firms and Markets was alternately easy and baffling - we had a new prof who would sometimes skip steps.

Operations was more difficult than I expected; Global Economy was easier. Here, again, I found a topic of long-term interest - macroeconomics - to consider as a specializations. Foundations of Finance began as a very interesting class but devolved into a forced march through options pricing.

So now that I've finished up Corporate Finance and Marketing, I have the basic skills of a proto-MBA, right? I at least know the questions to ask, and can follow developments in the news.

Financial Analysis

I have been flooded lately with a new revelation. I cannot pinpoint the source; I can only say that I'm having one of those extended moment where months of education come into a broader epiphany.

After struggling through Foundations of Finance, I seem to be able to dog-paddle through Corporate Finance. Here, am finally applying Betas and CAPM and all that other fun stuff. I learned recently that Google Finance (and others, I am sure) provide Beta values, so now, calculating the valuation of firms is almost fun.

Actually, it is fun, I just don't have time for it as I've got a lot of reading to catch up on.

Another light came on today, when I attended an hourlong CapitalIQ presentation. I actually work for the company that owns it, so I've heard of it and am vaguely aware of what it is used for, but I never had an account. Now, in two weeks, I will. It is frankly amazing, the depth to which the data goes, and I honestly can't wait to use it - again, for fun.

Contrasting Quotes

I came across this for an internal newsletter I send out:

"You can never plan the future by the past." - Edmund Burke.

"The best of prophets of the future is the past." - Lord Byron


Note the distinction between planning and predicting.  It's easy to contrast these quotes, but I'm not sure they're in opposition. I would argue that both can be correct, in that Burke says, you can't define your future goal state in terms of the past state, while Byron is stating the a future state, left untouched by our own hands, will be best defined by the past; that is, if we do nothing, nothing will be changed.

In fact this is my own synthesis, and knowing what I know about these two figures, they probably would disagree. It's a philosophical question that everyone deals with, whether they put it in these terms or not: can we create our own future, or not? Do things stay the same no matter what we do?

Even businesspeople are conflicted. They stereotypical B-school grad says, yes, I can change the world, past performance is not indicator of present or future performance. On the other hand, the more conservative voices use all kinds of mathematical models to take historical data - even recent history - to predict a likely outcome of events. So which is it? A synthesis: here is what I believe will happen, and here is what I will do in order to affect that outcome.

An Exclamation

OK, it was not exactly a "J'accuse" moment, but I did get a reaction when I described this week's Corporate Finance case as a "European colonial" model.

Basically, the company we were studying develops property, then sells off part of the asset while maintaining enough of a stake to require them to manage it. So, they borrow some seed money, build, then get others to buy the risk (giving them back some of their seed money) and they make money running the place. It keeps their risk exposure low as they continue to expand. I thought it was a pretty straightforward case, with some intricate Beta and CAPM calculations.

Some of my friends in that class are European. I think they must have been shocked. Even better, the professor is Dutch (she took it with humor).

The thing is, I didn't mean to imply any negative connotation. I didn't say "A European colonial model wherein the firm gives pox-laden blankets to the locals in order to obtain resources", or "the firm enslaves the local population to strip the land bare of its mineral wealth." You borrow some money, build some ships, build a fort, then sell some other firm a stake in the fort while you continue to run the trading post. There is nothing wrong with that. Easy peasy lemon squeezy.

It does remind me though, I need to keep my trap shut.