Ebooks will become the dominant form of casual reading for adults at some point in the future1. When this happens, community and public libraries will face a major existential crisis, because a fundamental (perhaps the fundamental) function of community libraries—lending print books—will no longer be a fundamental demand from the community. Libraries that do not adjust will find their services increasingly irrelevant to the populations they serve.
If ebooks will become dominant, and if community libraries have, to date, structured their existence around a dying function (lending print books), then how will libraries remain relevant in the future?
To find an answer to this conundrum, it’s important to try to understand the reason for a library’s existence, rather than focus on the things a library does.
An, er, friend of mine heard an interview on Fresh Air with Scottish director Armando Iannucci about his new film In the Loop (IMDB). He’d never heard of Iannucci, or the movie, or the TV show upon which the movie is based. The audio clips from the movie were so great he then went to Youtube to see if he could find more clips. He could. The clips video looked even funnier than the audio.
The movie — it appears — “comes out” on August 14. In the old days, that meant my friend had two choices:
1. Wait two weeks to watch the movie in a theatre
2. Wait six months (?) to rent the movie and watch it at home
It always annoyed my friend that he had to wait to watch movies he wanted to see, because movie studios liked to release movies at different times in different cities; and then wait months after that to release the DVD for rental.
The studios did (and do) this not because they surveyed their customers, and found they preferred having to wait to watch movies they wanted to see in the way they wanted to see them. The studios did (and do) this for various business reasons, that have proved, over time, an effective way to increase revenues on a movie.
Times Are Changing
But these are not the old days, they are new days. And a few things have happened. My friend watches 95% of the movies he watches on his computer; he rents DVDs using zip.ca (Canada’s Netflix); and occasionally when he wants to watch a certain movie right now, he looks for it online.
The movie studios so far have decided that he should not watch movies online when he wants to watch them.
Which in the old days, meant he just had to wait, despite being more excited about this movie than any other movie he’d heard about in past year or so.
A Parable of the Present
But it turns out that other people (not studios) can get their hands on copies of movies as soon as they are available — often before they are released in theatre — and those people make them available online. This is especially true for movies that lots of people really really want to see, right now.
So my friend now has a third choice:
3. Watch the movie when & where he wants.
It turns out that my friend much prefers option 3. It also turns out that movie studios don’t want to give my friend option 3 – which makes my friend shrug a little when he hears them talking about piracy.
Not because he wants things for free, but because it seems to him that “digital” means studios and moviegoers no longer need be constrained by the two choices of the old days. Option 3 is easy and cheap, and that’s the option he wants.
He often says: If you, as providers of content, give me what I want, when I want it, at a reasonable price, I’ll be happy to pay for it. But if you don’t want to give me what I want, when I want it, I’ll be compelled – when I really want something – to find other ways to get it.
If there is demand, there will be supply.
In the digital world, media is infinitely copiable & distributable at rougly zero cost
Media companies have long built their business around a restricted supply
If demand exceeds restricted supply in the digital world, someone — not necessarily the owner of the good — will meet that demand by making & distributing infinite copies at zero cost
Trying to stop # 4 is like trying to stop water going down hill
If restricting supply is no longer a viable business, then something else must be
When supply is unlimited, other factors drive the choices people make
Those drivers include: ease, quality, curation, attention, service, connection
Media companies – including book publishers – should stop thinking about business based on phony restricted supply
Media companies – including book publishers – should start thinking about how to build business around the actual drivers that will bring their customers to them (see #9 above), instead of sending them to the pirates
It was one of the best movies my friend has seen in a long while; and he has urged me to urge you to watch it. You’ll love it (he says).
“The Big Takeover: The global economic crisis isn’t about money – it’s about power. How Wall Street insiders are using the bailout to stage a revolution,” by Matt Taibbi, in Rolling Stone:
In essence, Paulson and his cronies turned the federal government into one gigantic, half-opaque holding company, one whose balance sheet includes the world’s most appallingly large and risky hedge fund, a controlling stake in a dying insurance giant, huge investments in a group of teetering megabanks, and shares here and there in various auto-finance companies, student loans, and other failing businesses. Like AIG, this new federal holding company is a firm that has no mechanism for auditing itself and is run by leaders who have very little grasp of the daily operations of its disparate subsidiary operations.
In other words, it’s AIG’s rip-roaringly shitty business model writ almost inconceivably massive — to echo Geithner, a huge, complex global company attached to a very complicated investment bank/hedge fund that’s been allowed to build up without adult supervision. How much of what kinds of crap is actually on our balance sheet, and what did we pay for it? When exactly will the rent come due, when will the money run out? Does anyone know what the hell is going on? And on the linear spectrum of capitalism to socialism, where exactly are we now? Is there a dictionary word that even describes what we are now? It would be funny, if it weren’t such a nightmare. [more…]
The oddest thing about the Geithner program is its failure to act as though the financial crisis is a true crisis—an integrated, long-term economic threat—rather than merely a couple of related but temporary problems, one in banking and the other in jobs. In banking, the dominant metaphor is of plumbing: there is a blockage to be cleared. Take a plunger to the toxic assets, it is said, and credit conditions will return to normal. This, then, will make the recession essentially normal, validating the stimulus package. Solve these two problems, and the crisis will end. That’s the thinking.
But the plumbing metaphor is misleading. Credit is not a flow. It is not something that can be forced downstream by clearing a pipe. Credit is a contract. It requires a borrower as well as a lender, a customer as well as a bank. And the borrower must meet two conditions. One is creditworthiness, meaning a secure income and, usually, a house with equity in it. Asset prices therefore matter. With a chronic oversupply of houses, prices fall, collateral disappears, and even if borrowers are willing they can’t qualify for loans. The other requirement is a willingness to borrow, motivated by what Keynes called the “animal spirits” of entrepreneurial enthusiasm. In a slump, such optimism is scarce. Even if people have collateral, they want the security of cash. And it is precisely because they want cash that they will not deplete their reserves by plunking down a payment on a new car.
The credit flow metaphor implies that people came flocking to the new-car showrooms last November and were turned away because there were no loans to be had. This is not true—what happened was that people stopped coming in. And they stopped coming in because, suddenly, they felt poor.
Strapped and afraid, people want to be in cash. This is what economists call the liquidity trap. And it gets worse: in these conditions, the normal estimates for multipliers—the bang for the buck—may be too high. Government spending on goods and services always increases total spending directly; a dollar of public spending is a dollar of GDP. But if the workers simply save their extra income, or use it to pay debt, that’s the end of the line: there is no further effect. For tax cuts (especially for the middle class and up), the new funds are mostly saved or used to pay down debt. Debt reduction may help lay a foundation for better times later on, but it doesn’t help now. With smaller multipliers, the public spending package would need to be even larger, in order to fill in all the holes in total demand. Thus financial crisis makes the real crisis worse, and the failure of the bank plan practically assures that the stimulus also will be too small. [more…]
Earlier today, we highlighted some excerpts from a 2004 deposition given by Joseph Cassano, who was then the head of AIG’s financial products unit — the division whose massive losses on credit default swaps would later bring the company to its knees. But the story of the underlying case, as summarized at the time by a trade publication, is just as revealing as Cassano’s testimony.
AIG was being sued for breach of contract by a former employee, Rob Feilbogen. Feilbogen claimed that when the unit he worked for, AIG Trading, was put under the control of Cassano’s AIG Financial Products, he was informed in writing by an AIGFP executive that the company’s previous guarantee to pay him a bonus of $1.3 million would no longer be operative. Feilbogen said he was told he would still be eligible for a bonus, but the $1.3 million figure would not be guaranteed.
In a letter to Cassano, Feilbogen insisted on receiving his $1.3 million bonus. In response, Cassano played hardball, telling Feilbogen he could agree to the new deal, or resign. Feilbogen continued to resist, and was soon informed by an AIGFP lawyer that his employment had been terminated “as a result of his decision to resign.” [more…]
March 10 (Bloomberg) — Citigroup Inc. Chief Executive Officer Vikram Pandit said his bank is having the best quarter since 2007, when it last posted a profit. The shares rose as much as 27 percent and helped spur gains for finance company stocks.
“I am most encouraged with the strength of our business so far in 2009,” Pandit wrote in an internal memorandum obtained today by Bloomberg. “In fact, we are profitable through the first two months of 2009 and are having our best quarter-to-date performance since the third quarter of 2007.”
“I am, like you, disappointed with our current stock price and the broad-based misperceptions about our company and its financial position,” Pandit, 52, said in the memo, adding that the price doesn’t reflect the New York-based bank’s capital strength and earnings potential. The company had $19 billion of revenue in January and February excluding writedowns that have already been disclosed, Pandit said. [more…]
The Wall Street Journal reports that Citibank (C) has become the latest recipient of a government bailout – this one to the tune of $300 billion, or thereabouts, depending upon how you do the math which, in this case, appears to be quite complicated. [more…]
In my post about the the stock market bubble(s) of the past 15 years, I asked what kind of policy shift happened in the 1990s to allow such a significant change in stock asset valuation. The answer comes from Niall Ferguson, in this fabulous (and scary) interview in the Globe:
“Monetary policy evolved in a peculiar way in the 1990s towards de facto or de jure targeting of inflation, an increasingly narrow concept of inflation – core CPI. I thought it was a mistake at the time because it seemed to me crazy to ignore asset prices. Why differentiate? What’s the difference between pricing a loaf and pricing a house? Why do we care about one and not the other? In fact, we should probably care more about the price of a house than the price of a loaf, certainly in developed societies. I think there was a flaw in the theory there, that essentially you could call the Jackson Hole consensus. When the central bankers got together at Jackson Hole, the view that emerged from the debate in the late 90s was, we shouldn’t really pay attention to asset prices in the setting of monetary policy.” [more…]
The Taiwanese firms, Shih argues, now have enormous clout in the PC industry. In the US, we regard branding and
marketing—convincing people what to buy—as core business functions. What Asustek proved is that the companies with real leverage are the ones that actually make desirable products. The Taiwanese laptop builders possess the atom-hacking smarts that once defined America but which have atrophied here along with our industrial base. As far as laptop manufacturing goes, Taiwan essentially now owns the market; the devices aren’t produced in significant volumes anywhere else.
If you had asked Taiwanese hardware CEOs a few years ago about their relationship with Dell, HP, and Apple, they’d have told you that the American companies did the branding and sales while outsourcing their design and production to Taiwan. Today the view from Asia is increasingly the reverse. “When I talk to them now,” Shih laughs, “they say, ‘We outsource our branding and sales to them.'” [more…]
Wealth ought to come from the creation of value. That is, by designing and selling a better shovel, you make it easier for farmers to dig irrigation trenches which increases their yield. With your shovel, their output goes from 100 to 200 units a year, and so you, as shovel-maker get to benefit from a proportion of that 100 increase. It’s “worth” giving you a cut, since your shovel added the value to their output. That, more or less, is the basis of capitalism. As time goes by, technology and methods improve, adding value, meaning we get more widget output per unit of resource input, and wealth increases.
There’s another way to make wealth though, which is easier: by cutting costs, or essentially extracting value. Cutting staff, for instance. That means you spend less money per shovel, meaning profits increase, for a while anyway.
The third way to make wealth is to borrow lots of money. The problem is, eventually you have to pay it back.
Value creation should be a long-term and sustainable wealth-generation technique; value extraction is a short-term, unsustainable wealth-generation technique. Borrowing to make wealth is probably the worst way, since it creates bubbles that burst.
I’ve been thinking about value vs wealth in the context of the global economic meltdown. I don’t have any answers at all but I am struck by the shape of the stock market curves for the past 40 years. Below is the S&P 500, between 1970 and 2009, a good proxy for the value of the economy.
It looks to me like there was a historically stable amount of value creation, reflected in the indexes, that for some reason in 1993/94 started to go a bit nuts. Two things drive it, I believe: low interest rates, meaning cheap debt flooding the market with money – corporate, personal, housing, financial; and increased global trade, namely with China, which kept prices and inflation low.
But it looks to me, based on this graph, that the wealth of the past 10-15 years was illusory, and that in fact the markets have dropped back to where they “should” be.
Does anyone have a better analysis of what happened in 1993/1994 when the whole thing started to go a bit nutso, in historical terms? I have a pretty surface understanding of financial policies, but this graph looks pretty telling to me.
As a start-up, I’ve complained about how conservative the Canadian business culture is, especially banking and finance. But boring has it’s benefits, when things get shaky. From Newsweek:
In 2008, the World Economic Forum ranked Canada’s banking system the healthiest in the world. America’s ranked 40th, Britain’s 44th.
Canada has done more than survive this financial crisis. The country is positively thriving in it. Canadian banks are well capitalized and poised to take advantage of opportunities that American and European banks cannot seize. The Toronto Dominion Bank, for example, was the 15th-largest bank in North America one year ago. Now it is the fifth-largest. It hasn’t grown in size; the others have all shrunk.
So what accounts for the genius of the Canadians? Common sense. Over the past 15 years, as the United States and Europe loosened regulations on their financial industries, the Canadians refused to follow suit, seeing the old rules as useful shock absorbers. Canadian banks are typically leveraged at 18 to 1—compared with U.S. banks at 26 to 1 and European banks at a frightening 61 to 1. Partly this reflects Canada’s more risk-averse business culture, but it is also a product of old-fashioned rules on banking. [more…]
Given that we lost 129,000 jobs in January alone, I don’t think it’s fair to say our economy is thriving. But certainly our banking sector appears to be in decent shape.
Speaking of which: 60:1 leverage in European banks? God help us.
When I worked at Prebon in 2000 (on financial/insurance products that would financing greenhouse gas reductions while hedging against the risk of greenhouse gas legislation), I remember trying to figure out the credit default swap market. At the time, it was a relatively new product, and it was where Prebon – a broker, not a trader – was making a killing. Generally in the financial business, new products are where all the profits are. Once your clients and competitors figure out what they’re buying, transparency comes into the market, efficiency, and prices/margins drop. But in the early days of a financial product, the margins are huge – because if you are offering something people want, and no one else is offering it, and no one else understands it, you can strip out enormous profits.
Anway, at the time the CDS market was pretty new and pretty hot. A credit default swap, nominally, is an insurance policy against the issuer of a financial product (say, a bond) defaulting. What it became was something else altogether, a massive commodity trading scheme where the underlying commodity (the CDS) had come completely uncoupled from the underlying assets. By the time things started collapsing last year, the CDS market was $30 trillion dollars. It’s a massive liability that no one’s really owned up to yet. NYTimes has a good article explaining things and asking when the next shoe will drop:
Any honest assessment must include the role that credit-default swaps have played in this mess: it’s the elephant in the room, the $30 trillion market that people do not want to talk about.
Credit-default swaps are insurancelike contracts that Wall Street created in the early 1990s. They allow bondholders to protect themselves against losses if a company or a debt issuer defaults….
Sellers of C.D.S.’s spent years raking in premiums while underestimating or simply ignoring the possibility of rising defaults. Regulators let the market grow unchecked.
In the end, far too much of this insurance was written at way too cheap a cost. Now, with Wall Street and the economy in tatters, the fear that already-hobbled financial companies may have to pay off huge amounts on C.D.S. arrangements hangs like a cloud over the markets.
C.D.S.’s have already figured prominently in taxpayer bailouts. The $150 billion rescue of the American International Group, for example, came about because of swaps the insurer had written on mortgage securities. And the $100 billion taxpayer backstop handed to Bank of America on Jan. 16 had a good bit to do with soured credit-default swaps that the bank inherited when it acquired Merrill Lynch. [more…]