Friday, April 13, 2007

Another Take on Local TV Stations & The Internet

Last June, I wrote a post about consolidation in the local TV station sector. In part, I wrote,

"I can't help but see a parallel to the troubles and solutions of daily newspapers a decade or more ago. Papers began to share printing plants, and, essentially, become differently positioned products freelancing off of the same production assets. It would not surprise me if local television stations, including the major city stations, do the same.

... I'd expect that, over the next few years, competing local broadcast stations will pool their facilities and news gathering, perhaps simply merging into one station per local market. If not the latter, then at least sharing all possible resources, save on-air staff, content selection, and idiosyncratic local programming.

Yet another example of Schumpeterian dynamics at work without any overt organizing entity to guide it, save technological change and consumer behavioral responses."

A recent Wall Street Journal article updated the situation, noting how many TV stations are losing ad revenues faster than they can transit to web-exclusive content.

But this time, what struck me, in addition to my prior observations, is that there is no particular difference between the online presence of a newspaper, and that of a TV station. Once they both go to the internet, how could you tell which is which, if they weren't labeled? I suppose, initially, because one would feature more writing than the other. However, I'm not sure that will last.

Because online is a medium tailored to video, won't both morph in that same direction?

Last year, I foresaw multiple TV stations in a single market combining online. Now, I wonder if we won't see all, or most, print and TV assets/organizations combine online? Essentially, both types of local information media companies are struggling with the web's erosion of all of their exclusively non-local content.

Isn't the obvious solution for them all to simply combine into one new media outlet? Further, if one were starting up a local information content business, wouldn't you just develop a web-based multi-media site? Offer written pieces, news, editorials, video news, ads, and local commercial, community, etc., information? Of course you would.

I can't see much meaningful differentiation in local print or video media, once it moves onto the web. Seems to me the consolidation has at least one more important step to go.

Question is, where would that leave the local affiliation to a broadcast network? Would it even have economic value anymore, in a world in which every entity, whether local media outlet or network, can provide its own content on separate websites?

Thursday, April 12, 2007

Citi's Ongoing Troubles

The big news out of the financial sector this week seems to be Citigroup's latest efforts to resolve its ongoing troubles.

This time, reports have it firing 17,000 people, or about 5% of its staff. Of course, various expense equivalents are presented, and bandied about by analysts, to demonstrate the intended effects on Citi's future performance. One waggish brokerage analyst was so bold as to cry for 80,000 job cuts, to arithmetically bring the firm's revenue/employee in line with Citi's competitors.

Then we have the solemn intonations of every talking head and analyst in sight that,

'this is only half the job.'

Thanks for that. The rest of us would have forgotten that Income Statements begin with the revenue line. God save us from arrogant analysts.

Appearing, from first to last, in this post, are five Yahoo-sourced price charts (click on any chart to view a larger image) for Citigroup, Chase, and the S&P500 Index from 12 months to 30 years. What is clear from the broad array of charts is that, over most timeframes, these two former money center, now universal banks, are typically subject to the same market forces. On occasion, however, one or the other will perform a bit better than the other.

Lately, Chase has done better. So much so that, contrary to my wildest expectation, it has been selected in the high-growth component of my equity strategy's portfolio for April of this year. It's very rare that a large, diversified financial services firm would perform in such a manner as to merit this inclusion.

Citigroup, however, seems to have lost ground most recently at the beginning of this year, for a performance penalty of roughly 10 percentage points over the past year. The five-year view shows the two firms to be roughly equal, while the thirty-year view displays Citi's recent flattening, along with Chase.

So, in a sense, Citigroup does need to address its high-cost operating issues. However, given that, according to my proprietary research, revenue growth is key to long term, consistently superior total return performance, I wonder how capable Citi will be of revenue generation, in the wake of its expense surgeries? If, as many call for, the company cuts further, it almost has to affect the firm's ability to generate revenues at significantly higher rates.

Further, the company has reshuffled senior executives, adding several, and generally given the impression that nobody is in charge.

As I have written in earlier posts about these scale and banking, it may well be that neither firm is capable of long term outperformance of the market, at their current sizes. Prince is an ineffective executive, and has been given, in my opinion, far too long to do his job. However, it is a rather tall order to wring consistently superior performance from these financial concerns. Even Dimon, at Chase, deserves little credit for its current, perhaps temporary, out-performance, since he only took the helm there recently.

Bottom line, as one might say, I would not bet on Citigroup's recent actions to return it to consistently superior total return performance any time soon.

Wednesday, April 11, 2007

Investing: John Bogle's Book & Oppenheimer's Fund Activism

Today's Wall Street Journal carried two interesting pieces on investing.

The first one that caught my eye was a review of John Bogle's The Little Book of Common Sense Investing, by Burton Malkiel. Apparently, there is a series of Little Books, and Bogle's is but one. Malkiel, a financial maven of no small repute, recommends Bogle's volume over those of Joel Greenblatt and Christopher Browne. The former has received good reviews, so it's no minor thing that Malkiel makes this recommendation.

Perhaps the most revealing part of the book, to judge by Malkiel's review, is Bogle's no-nonsense chapter entitled "The Grand Illusion." In it, Bogle provides an analysis of why the average investor earns so much less than the market rate of return. Parenthetically, last week on CNBC, Schwab Chief Market Strategist Liz Sonders noted, based upon Schwab research, that frequently-trading investors earned, on average, as little as 4-6% per annum, versus the S&P index's long-run 10-11% per annum average. That's a stunning differential.

In effect, Bogle, at a stroke, explains why the 'average' investor has no business owning almost any equities directly. For so many reasons involving management and timing, well beyond simply selection issues, s/he typically underperforms the market. Of course, from Bogle's perspective, being the inventor of the passive (sector) index fund concept, this is heartbreaking.

Further on, Malkiel chides Bogle for resisting ETFs. But it's my sense that, whereas Malkiel gives the instrument a pass on tax efficiency bases, Bogle objects to them simply on principle. Anything that facilitates more frequent trading and, thus, opportunities to mis-micro-manage their investments, is a bad thing, in his opinion, for the average retail investor.

The other piece of interest to me is the article on Oppenheimer's mutual fund's involvement in the management shake-up at Take-Two Interactive Software. As I wrote here recently, and here, over a year ago, I see essentially two polar positions.

The first is that of minority shareholders who are simply price- and management-takers. I'm one of those. I buy shares of companies for their existing performance prospects. If those change, I sell. I don't really care to have any truck with affecting their operations.

The second is that of shareholders who, even if technically a minority, hold, like Oppenheimer's fund does, a very large chunk of some company. In Take-Two's case, it's up to 25! I would hazard to guess that, combined with the hedge funds, with whom they are collaborating, Oppenheimer's shares are part of a majority of shareholders.

Thus, I say, bully for Oppenheimer & friends! Really. If you're going to own a quarter or more of a company, you are responsible for oversight. You'd better have a board seat. You are, in effect, a shadow management. I think this is one instance in which mutual fund activism is warranted. Once you get past the dubious wisdom of a publicly-traded fund owning 25% of a smallish, illiquid company.

Tuesday, April 10, 2007

New Competition for Apple's iPod

Yesterday's Wall Street Journal featured an article describing the latest attempt to dethrone Apple's iPod franchise.

The device in question, the "Sansa Connect," is an MP3 player from Zing, a startup founded by an ex-Apple senior developer, combined with SanDisk and Yahoo.

According to the article, the leading 'wow' feature of the Sansa Connect is its wireless connectivity. Apparently, though, the main method of using the Sansa Connect is to rent music from Yahoo for $11.99/month. Music is downloaded in pre-packaged mixes from Yahoo, rather than on a song-by-song basis, as with iTunes.

According to Ian Rogers, general manager of Yahoo Music,

"We want to be the music dial tone for connected devices."

OK. Sounds puzzling to me, but perhaps I'm not a member of their target market.

What strikes me about the Sansa Connect, however, is how it seems to demonstrate an innovation-related idea I first conceived back in 1984 or thereabouts, when I was with AT&T. At the time, it occurred to me that one of the very major advantages of a first-moving innovator was that s/he faces an unploughed field of opportunity. Given some sort of technological or feature/function innovation, the first entrant can pretty much move in any direction.

However, second and later entrants are restricted by existing market positions and strengths of earlier innovators in the product market. The image I had was of a farmer allowed to plough new furrows in the field of opportunity, but none of which could cut across existing furrows of other farmers/earlier entrants.

As such, Sansa Connect seems to be grasping at a few technological frills, such as wireless downloads, while omitting the powerful, simple and useful features of iTunes. It can't apparently offer owned music, nor individually-selected artists, songs, etc. But you can download wirelessly. Yessir.

It's a curious approach to taking on the juggernaut that is now Apple's iPod franchise. Somehow, for me, it befits Yahoo's perennial 'day late and a dollar short' style in most of what it does. I suppose Zing will sell some hardware, as will SanDisk. But, once again, I expect Yahoo to come up short in yet another product/market. Not to mention that it seems to stretch the company pretty thin, to be competing with Google on one hand, and Apple on the other. Even savvy, deep, talented managements would, I think, have their hands full pulling this off. How Yahoo expects to do so is beyond my understanding.

Monday, April 09, 2007

Diebold and Jim Collins

Carol Hymowitz wrote a piece in today's Wall Street Journal reviewing CEO reading lists.

Leaving aside her assessment of the new trend in these reading lists, away from celebrity authors and CEOs, and back to basic business operations, I did observe one oddity.

Hymowitz, whose work I generally like, spotlighted Diebold CEO Tom Swidarski. He allegedly returns frequently to his dog-eared copy of Jim Collins' "Good to Great."

Maybe Tom should toss the book and try another author, because, juding by Diebold's performance over the past five years, and longer, whatever he's doing isn't working.

According to the Yahoo-sourced charts above, for both five years and going back nearly twenty years, Diebold has failed to outperform the S&P500. I suppose with dividends, Diebold may have eked out a slight edge. However, it's recent performance has clearly been inconsistently mediocre.
If Swidarski is using Collins' ideas, this doesn't speak well for them. As I noted in this post, Collins' work has some very serious problems. It does not seem to translate well to a multi-period, total return-oriented world.
I wonder if Diebold's performance is indicative of what happens when CEOs try to apply Collins' insights and 'findings' in a real company, ex ante?

CNBC's Confusion On The NYSE Floor

This morning, one of CNBC's anchors (Liz Claman, I believe), promised that their floor reporter from the NYSE would have 'the scoop on all the hot trading buzz,' or some such verbiage, while waiting to speak with Diana Olick.

There's just one problem. The camera was panning over the mostly-empty trading floor at mid-morning. As has been reported for months now, the place is fast becoming a ghost town.

Many of the old floor-handled trades are migrating to the electronic Archipelago system.

Ooooops! Claman demonstrated her typical on-air headed confusion by forgetting the reality of what is happening to equity markets around the globe.

By insisting that the floor is a font of wisdom and knowledge for viewers, Claman once again provided evidence that most of CNBC's air time is spent entertaining viewers, not informing them.

This is why I pay attention to CNBC for just two things: actual 'news;' and the occasional interview with a well-known, respected and savvy pundit. Otherwise, it's just background noise.

Still, I wish these people would get their stories straight and at least be up to date on the changes in the exchanges they cover so meticulously. Is that too much to ask?