Are web tunes profitable?
Apple Computer has been selling songs for 99 cents apiece through its new iPod technology, Napster is selling music at the same price. But will anyone make money?
The November 19 Wall Street Journal, “With the Web Shaking Up Music, A Free-for-All in Online Songs,” suggests maybe not. It is estimated that for each song, 65 to 79 cents must be paid in wholesale costs to music companies and various intermediaries. Then add credit card processing fees, bandwidth charges, and customer service costs. Not much is left over in terms of profit.
Apple hopes to make back the money by selling iPod players, Steve Jobs admitted as such publicly. But what will happen once competitors copy iPod, pushing down its price? Many of Apple’s rivals hope to make money, not on individual songs, but rather by selling music subscriptions. The subscriptions, however, typically let consumers hear the songs but not own or transfer them, a model which has yet to prove popular. It is hard to ignore that shares of Roxio, the company that owns Napster, have lost half their value in the last month or so.
Wal-Mart plans to enter the business, it will sell songs and hope to draw listeners to its web-site, where they can view and buy offerings of electronic goods.
My conclusion: None of these ideas is a proven winner. I still expect free file-sharing, whether legal or not, to serve as the industry norm.
Addendum: Winterspeak offers some interesting observations on the market.
The forthcoming energy bill
Here is Andrew Sullivan, quoting John McCain and commenting on him:
“I’m not saying that this bill won’t generate some energy. It will certainly fuel the coffers of big oil and gas corporations. It will propel the wealthy special interests. And it will boost the deficit into the stratosphere. Indeed, this legislation can be fairly called the Leave no Lobbyist Behind Act of 2003.
There are also four proposals known as ‘green bonds’ for construction of commercial buildings that will cost taxpayers $227 million to finance approximately $2 billion in private bonds. One of my favorite green bond proposals is a $150 million riverfront area in Shreveport, Louisiana. This river walk has about 50 stores, a movie theater and a bowling alley. One of the new tenants in this Louisiana Riverwalk is a Hooters restaurant. Yes my friends. Here we have an energy bill subsidizing both hooters and polluters.” – Senator John McCain, on the monstrosity otherwise known as the Energy Bill. How any principled, small-government, free-market Republican could vote for this vast waste of public money is beyond me. But we’re beginning to realize that GOP has nothing to do with small government or fiscal sobriety. It’s a vehicle for massive debt and catering to the worst forms of corporate welfare. Thank God for McCain. Bush should veto this bill, until it is de-porked. He won’t, of course. He has yet to veto a single big-spending bill. He doesn’t seem to give a damn about what is happening to the fiscal health of this country.
For a less polemical assessment, but ultimately a similar evaluation of the substance, see the ever-reliable Lynne Kiesling, start at this permalink and scroll downwards for running commentary and links.
Addendum: Senators from both parties criticize the bill as well, read here.
Howard Dean disappoints me
After years of government deregulation of energy markets, telecommunications, the airlines and other major industries, Democratic presidential candidate Howard Dean is proposing a significant reversal: a comprehensive “re-regulation” of U.S. businesses.
And what are the proposed candidates for such a re-regulation?
…utilities, large media companies and any business that offers stock options. Dean did not rule out “re-regulating” the telecommunications industry, too.
He also said a Dean administration would require new workers’ standards, a much broader right to unionize and new “transparency” requirements for corporations that go beyond the recently enacted Sarbanes-Oxley law.
Somehow either Dean or the source article left out mutual funds.
OK, some of these are complex issues, where you might argue that laissez-faire is impossible, and that more regulation could be better than current hybrid structures. But we are not choosing policy today. For the time being, forget the detailed debates, and ponder what this suggests about Dean’s instincts, what kind of campaign he will run, and what kind of voters he will appeal to. Ugh, and the libertarians should have never wondered whether Dean might be a small government guy in disguise.
Blood supply and the FDA
Have you ever heard of Chagas disease? It is rare in the United States but common in Latin America, where 18 million people are infected and 50,000 die of it every year. Some little thingie crawls down your mouth and sucks your blood when you are sleeping (lovely), beware the thatched hut, and next thing you know, maybe about ten or thirty years later, your weakened heart or organs explode. There is no known vaccine, cure, or treatment.
Chagas is now making its way into the United States blood supply. Ideally, all donated blood should be screened for Chagas. But, can you believe this, the FDA needs to approve all blood tests of this kind. They haven’t approved any test for Chagas, nor have they shown much urgency in this regard, here is the full story.
About 30 tests are currently in use in Latin America, but none would appear to meet the FDA’s accuracy guidelines. In the meantime it appears someone would prefer that we have no test at all.
The New York Times put it as follows:
The failure of the blood industry and its regulators to develop a test since it was endorsed by a Blood Products Advisory Committee in 1989 seems to be a combination of bureaucratic inertia and divided responsibility for such a decision. Blood banks cannot use a test that the F.D.A. has not approved. The agency usually defers to its advisory committees, which have many experts from blood banks as members.
“It’s a political process that is not always fully engaged,” said Dr. Stuart J. Kahn of the Infectious Disease Research Institute, a Seattle group hunting cures for tropical diseases.
Whatever you think of the FDA as a regulator of drugs, this kind of bureaucratic control is hard to understand. Now it is longer enough for you to beware the thatched hut, you have to worry about the blood supply as well.
Glenn Hubbard’s consistency test
Glenn Hubbard (registration required), in a Financial Times review of Robert Rubin’s new book, throws down the gauntlet. You might recall that Hubbard was one of the architects of Bush’s dividend tax cut plan.
Hubbard argues that deficit-cutting is motivated by the view that lower real interest rates will stimulate private investment. But then private investment must be sensitive to price incentives, and a tax cut on investment returns should stimulate investment as well. He describes Rubin (and others) as believing in an asymmetric response, whereby investment is interest-sensitive but not tax-sensitive. Either investment is price-sensitive or it is not, and we should hold a consistent attitude for either lower interest rates and lower tax rates.
My take: Hubbard is right. We should not hastily conclude, however, that a tax cut on dividends was the best way to go. Dividends transfer money from one pot to another, and this is distinct from constituting a real net rate of return. I would sooner have cut and reformed the corporate income tax. In the meantime, however, let us all apply this consistency test to ourselves, are you listening deficit hawks?
When is the rematch?
The fourth and final game between Fritz and Kasparov is drawn. Both sides played well, and rapid simplifications drew all the tension out of the position. You can find the game here.
The bottom line: The machine didn’t outplay Kasparov once. K must still be kicking himself for his stupid blunder in game two.
The new Beatles album
OK, so I took off from work today to go buy Let It Be…Naked. How often do we get truly new material from these guys as a group? Working under the supervision of Paul McCartney, they’ve cut out Phil Spector’s overproduction and remastered everything. The bottom line: you’ve never heard the album before. “The Long and Winding Road,” a song I used to find unlistenable, is now a gem. Nothing is made worse. This will never be the Beatles’s best album, but buy it if you have any interest at all.
Then buy Laibach’s take on Let It Be, direct from Slovenia, the Beatles’s songs set to mock martial, heavy metal techno stomp-rock, one of the least recognized great albums I know, and no that is not a joke.
While we are on the topic of culture, Chris Mooney has an excellent post defending the commercialization of The Lord of the Rings.
People hate flexible prices
They really do. Consider L. Chester Carter, who raised the prices of his ice and gasoline after Hurricane Isabel, only ten cents more a gallon for gasoline. He also took on the added burdens of running generators, bringing in ice, and cooking for emergency workers. He nonetheless claims to have experienced a public outrage against his pricing behavior, here is the full story.
His description of what happened is perhaps more to the point:
“What I did was what the state and federal governments couldn’t do: Stay open and deliver services to the general public,”
Here are links to my earlier postings on price-gouging. We now hear that more than 40 price-gouging complaints were levied in Virginia, after this year’s storms. Virginia officials are considering writing the state’s first anti-gouging law, comparable to a law already on the books in Florida.
No doubt, this is voter-driven. This example, if nothing else, should tip us off about what kind of economic policy you can get in a democracy.
Addendum: Kevin Brancato discusses other anti-gouging laws.
Being a bigot is exhausting, and makes you stupider
People with implicit racial prejudices are left mentally exhausted after interacting with someone from a different race, perhaps because they are trying to quell their feelings.
The new study, the first of its kind, shows that areas in the brain associated with self-control light up in white people with implicit racial biases when they are shown images of black people.
Furthermore, the study showed that the level of this brain activity correlated very closely with poor performance in a test of thinking ability given right after a face-to-face interview with a black person. The researchers believe this indicates that the subject’s mental resources have been temporarily drained by their efforts to suppress their prejudices.
Here is the full story.
Terrorism futures are back
Yes, those terrorism futures, here is a story from cnn.com. The old group, Net Exchange, is behind the current revival, but this time without a Pentagon connection.
The idea is being marketed as a research tool:
In response to the highly charged criticisms that ended the Pentagon’s association with the project, Polk [a Net Exchange spokesman] noted the market is designed mainly as a research tool, not unlike the Iowa Electronics Markets, which have done a pretty good job of predicting the outcomes of presidential elections.
“It is potentially an interesting alternative to Gallup polls or to specialists reporting from the region,” Polk said. “It’s a way of going directly to individuals in the region or outside who have knowledge or interest in the political and economic events in the area.”
Polk said Net Exchange would initially limit the amount of money traders could invest in the market, so that people won’t be profiting from violence or upheaval in the region.
What’s more, the futures contracts would be based on general questions, such as the likelihood that the King of Jordan will be overthrown at some point during the second quarter of 2004, for example, rather than on specific acts or events, which could lend themselves to manipulation by terrorists.
My prediction: These markets require legal tolerance, given that they otherwise violate anti-gambling rules or fall under regulatory jurisdiction. I’ll bet that this revival is shut down pretty quickly.
My view: Most of the movements in asset prices are noise, rather than based on fundamentals. The main problem with the idea is that the price movements, even if “unbiased” in the mathematical sense, feed us a steady stream of misinformation about world affairs. I also could imagine public panic resulting, or bad events being accelerated into greater likelihood, imagine how Jordanese politics is altered if the betting market says the King of Jordan is a goner.
Looking for a new job?
Mexicans in Tijuana will pay you up to $1500 a piece to drive them across the border. If you are caught you receive no more than a slap on the wrist, the first time you are caught that is.
At the most, 1 in 50 vehicles is searched. Today’s Wall Street Journal describes smuggling as “a mini employment boom” for single mothers, military personnel, and especially teenagers.
My prediction: This can’t last forever.
Or, if you are looking for another job, you can drink pesticides, for $200 a day. I’d rather drive across the border.
What is the real mutual fund scandal?
It’s not market timing, not according to Mark Hulbert. He writes:
Market timing, as the phrase has traditionally been used in the stock market, refers to shifting a portfolio from equities to cash in the hope of sidestepping a market decline, then moving back into the market in anticipation of a rally. There are many approaches to market timing; they vary according to the techniques used to forecast rallies and declines and in the frequency of the switching. Market timers’ track records also vary widely.
Strictly defined, market timing has little to do with the fund industry’s current troubles.
In part, late trading allows some shareholders to trade after the market close. But much of the real problem is — stale pricing:
Some mutual funds have been accused of allowing certain investors to take advantage of out-of-date securities prices used by funds in calculating their net asset values. Because those stale prices were sometimes too low or too high, investors who frequently switched into and out of these funds could realize substantial profits at the expense of other shareholders.
This stale-price arbitrage, as the practice is sometimes called, happens most often in international stock funds. When funds calculate their net asset values at 4 p.m., they generally use the prices at which their portfolio stocks traded most recently. For international funds, those prices can be several hours out of date.
Here is a related New York Times article, on Eric Zitzewitz, who is developing means of measuring asset values more correctly, to prevent stale pricing. The problem: fund managers themselves engage in the practice, and so they are reluctant to adopt these innovations. The solution?: Enforce current laws, already on the books.
See also my earlier post, on how much the mutual fund scandals cost investors.
Everything you always wanted to know about currency boards…
Here is an extensive web site on currency boards and dollarization, maintained by Kurt Schuler (conflict of interest notification: he is a former student of mine).
If you doubt Kurt’s thoroughness, follow the link to a piece on currency boards in St. Helena, yes that’s right the place where Napoleon went. The site also offers an extensive discussion of what went wrong in Argentina, again all links run through the main page. Thanks to the Mises blog for the pointer.
Score one for humanity
Yes, Kasparov comes back to take the third game from Fritz. Here is the link.
The computer played weakly and aimlessly throughout, showing that the machines are still often inept at positional play and strategic thinking. Kasparov, after a horrid blunder in game two, was masterful. The machines have not yet taken over!
The bottom line so far: In the first two games the machine pulled out a draw and a win, largely because Kasparov committed uncharacteristic outright blunders. It is clear that the machine is not capable of outplaying Kasparov from scratch. The deciding game is this Tuesday, and it is up to Kasparov, who will have black, whether he should play for a win, and thus risk losing, or settle for a draw.
Who are the top Marxists?
Here is the result of one survey, thanks to www.crookedtimber.org. First place goes to Rosa Luxembourg, I suppose that Marx himself is out of the running by definition.
Why is she number one? Could it be because of her violent murder in 1919, which both martyred her, and likely prevented her from later endorsing totalitarian regimes?
You will note that numbers three (Lenin) and seven (Mao) on the list are mass murderers, don’t neglect to follow this link to Bryan Caplan’s award-winning site on the communist slaughter of innocents.
I don’t want to go on record as, well, “pushing” for Stalin, but I can’t help noticing that he doesn’t even make the top thirty. There is, after all, a book called The Essential Stalin, on his theoretical contributions. Nor can it be said that mass murder is an immediate disqualification from doing well on the list. Note that the creator of this poll, who calls himself anti-communist, is both highly intelligent and honest in his writing. He questions whether a poll of “top Nazis” would be no less legitimate, remarking that “greatness” and “goodness” are not the same thing.
My question: Would they have let me vote for David Horowitz?