Verging on a merger surge

The legal stage has been set for an unprecendented consolidation of the newspaper industry, thanks to back-to-back decisions by a federal judge and the U.S. Justice Department.

In a far-reaching case, Justice and the judge each ruled separately that it is not anti-competitive for MediaNews to own all but one significant daily newspaper in the San Francisco Bay Area.

These decisions will clear the way not only for the immediate acquisition of the two Knight Ridder castoffs in San Jose and Contra Costa County, but also, in the fullness of time, for the ambitious clustering of newspaper properites throughout the land, as owners buy, sell and swap properties to build ever-larger and more cost-efficient footprints in the markets they elect to serve.

Six years ago, a major newspaper transaction in San Francisco was seriously blocked by concerns about market consolidation. This time around, the deal barely braked for the speed bumps established by the antitrust laws. Compare what happened then to what is happening now.

In 2000, a local businessman and sometime-political fixer named Clint Reilly managed to halt for some six months the acquisition of the San Francsico Chronicle by Hearst Corp. Clint argued that editorial diversity and competition in ad rates would be imperiled by the sale of the Chron and the likely closing of the Examiner, then owned by Hearst.

In its eagerness to end the suit and consummate the transaction, Hearst paid a local family $66 million to continue publishing the staggering Ex and gave $2.8 million to Clint and his attorneys to compensate them for their trouble.

In an effort to reprise his campaign for editorial and advertising diversity -- and perhaps pick up a few million more -- Clint went to court a few weeks ago to challenge the MediaNews purchase on the same grounds. This time, he was rebuffed promptly by a federal judge.

"There will continue to be other sources that continue to provide consumers with 'news, editorial, entertainment and advertising content' such as the television, radio and the Internet," ruled U.S. District Court Judge Susan Illston.

Ditto, said Justice in bestowing its blessing today to the pending roll-up. ``After a careful investigation of MediaNews' proposed acquisition of the Contra Costa Times and the Mercury News from The McClatchy Company, the Antitrust Division determined that the transaction is not likely to reduce competition substantially,'' said the feds.

Taken togather, the Justice decision and the judge's order appear to reverse the long-held doctrine that multiple newspapers are necessary for a community to enjoy a diversity of editorial voices and true compeition in advertising and circulation rates.

With this long-standing legal barrier now decisively toppled, the way seems to be clear for a surge in mergers as publishers mix and match properites to gain control of the maximum number of titles in the most efficient manner in the markets they serve.

Taken to a logical conclusion, a major metro would publish not only the dominant daily but any number of small- and medium-titles serving individual suburbs or such specialized verticals as car buyers or ethnic audiences. This form of total market coverage, which is known as clustering, would give advertisers great flexibility in targeting their campaigns, while providing publishers with unprecedented efficiency in creating content, producing papers and delivering them.

If pursued constructively, consolidation offers new economic leverage for an industry struggling to maintain market share and profitability. If publishers use this opportunity only to whack costs and consequently degrade the quality of their publications, they will drive the industry to irrelevancy and ruin.

Now that the good times appear to be rolling for publishers, let's hope they roll-up wisely.

Amazon wanna be a producer

Inexplicably, Amazon.Com is venturing well beyond its core expertise to attempt to produce a Hollywood movie.

The e-merchant, whose stock hit a 52-week low of $26.26 this week after reporting a 58% profit plunge, has secured the rights to film Keith Donohue's best-selling novel “The Stolen Child.”

Amazon thinks it can leverage its marketing clout to boost the box office and sell DVDs, books and other collateral, according to Variety. I think not.

This exercise in corporate hubris, however, suggests a new twist to my favorite song from “The Producers”:

Amazon wanna be a producer
With a hit show on Broadway
Amazon wanna be a producer
Lunch at Sardi's every day
Amazon wanna be a producer
Sport a top hat and a cane
Amazon wanna be a producer
And drive those chorus girls insane!

Amazon wanna be a producer
And sleep until half-past two
Amazon wanna be a producer
And say, "You, you, you, not you"
Amazon wanna be a producer
Wear a tux on op'ning nights!
Amazon wanna be a producer
And see Jeff Bezos' name in lights!

‘Long Tail’-grating

In the absence of reliable quantitative data, it’s hard to make heads or tails out of the still-to-be proven theory that the Long Tail will revolutionize the economics of business.

My long-simmering skepticism about the concept rolled toward a boil this week when Lee Gomes of the Wall Street Journal published a compelling challenge to the theory originally propounded by Chris Anderson in his book, “The Long Tail: Why Business Is Selling Less of More.”

Chris’ theory is that a growing percentage of future revenues for companies will come from the sale of old and obscure stuff, as opposed to the popular products of the moment. Because it is enormously cheap online to sell things like klezmer Christmas CDs, Chris reasons, a merchant merely has to stock a few CDs, or better still, MP3s, and sit back and wait for someone to purchase the odd bit of obscuriana.

The problem with this intriguing theory is that there is no empirical evidence to prove it.

“In the book's main sections, Mr. Anderson writes that as things move online, sales of misses will increase -- so much so that they can equal or exceed the sales of hits,” writes Lee. “I was thus a little surprised when Mr. Anderson told me that he didn't have any examples of this actually occurring. At Netflix and Amazon, two of his biggest case studies, misses won't outsell hits for at least another decade, he said. None of these qualifications are in the book.”

By way of rebuttal, Chris blogs that Lee “stumbles over statistics and more, and in the end simply makes a muddle of what might have been an interesting debate.”

The dispute illustrates the main problem with the Long Tail theory: It’s impressionistic, anecdotal and the proffered evidence, such as it is, is vulnerable to highly subjective interpretation. In the absence of hard numbers, we are left with questions, not answers:

:: How is the potential profitability of selling misses offset by the costs of owning, financing and warehousing such things as klezmer Christmas CDs?

:: The Tail depends on customers being motivated and clever enough to seek out things like Christmas klezmer music. Is the marketplace efficient enough to guide buyers to sellers? I stumbled upon the klezmer verson of “The Nutcracker” on the way to something else. Are we to believe that efficient and profitable markets can be built on random consumer activity?

:: How much can be sold without hype? With all due respect to the independent taste and judgment of consumers, most things are bought because, thanks to the modern miracle of advertising, it suddenly becomes fashionable to do so. From Hula Hoops to hip-huggers to Hummers, it was marketing, not intrinsic consumer demand, that established the products as hits.

As a guy at ground zero who saw the several dot-bomb fuses lit in Silicon Valley, I heard many preposterous theories about how technology, the Internet and frictionless e-commerce were going to rewrite the laws of economics.

It didn’t happen then and, absent hard evidence, there is no reason to believe it is going to happen now.

Until further notice, count on the hits, not the misses, to keep happening.

Landfilled to the brim

Maybe it’s because I have gone ga-ga for Al Gore, the new environmental spokeshunk, but I am mad as hell at the high-priced junk peddlers otherwise known as the consumer electronics industry.

I’d like to say that I’m mad as hell and not going to take it anymore. But it’s not that simple. Unless I elect to live the next half of my life off the grid, which is looking increasingly appealing, I will be forced, like everyone else, to keep buying high-priced, toxic gadgets in the never-ending quest to remain suitably wired.

Through clever engineering or plain dumb luck, nearly every item requiring a power supply seems to break within two to three years after you pry it out of the Styrofoam, toss aside the owner’s manual, plug it in and fire it up. This timely obsolescence creates a bounty of shopping ops beloved by manufacturers and retailers.

Yesterday, the hard drive in my daughter’s 2½-year old iPod croaked its last. Apple kindly offers to fix it for about $250, which – surprise! – happens to be $50 less than the cost of a new, “improved” one. Now, I have a choice between shelling out 300 bucks for another machine or facing two months of summer vacation with a teenager consigned to permanent radio silence.

Earlier this year, a Maxxtor external drive stopped cold less than six months after purchase but, conveniently for the company, three months after the 90-day warranty expired. To Maxxtor’s credit, the company sent me a free replacement (after I repeatedly called the president’s office for a few weeks), though I fear the useless returned product was chucked summarily into a nearby dump.

As though on cue, cell phones begin to disintegrate six months before the two-year contract expires, enabling the carrier to “upgrade” you to a new phone at a higher-priced, more restrictive service plan for another two years. Mighty AT&T-Cingular-AT&T couldn’t sell me a replacement phone to work with my current, reasonably favorable service plan, but a friendly clerk furtively told me I could acquire a black-market phone from a nearby shop. So, that’s what I did.

Don’t even get me started on computers, printers and fax machines. I am sure you have your own stories, anyway.

The point is this: The accelerating hyper-disposability of electronic products is not only costly and inconvenient for consumers, but also represents a large and growing environmental crisis.

Between 1997 and 2007, nearly 500 million personal computers – two for every one citizen – will be discarded in the United States, predicts the National Recycling Coalition, a not-for-profit conservation group.

With high-definition and larger-than-life plasma TVs invading living rooms, the group predicts the imminent disposition of tons of often perfectly-good tubes, not to mention all the dead iPods, Walkmen, cell phones, PDAs and other digital detritus.

These products, of course, don’t decompose the way organic matter will. But they are not merely inert and bulky dump fodder.

They are toxic, with a capital T.

“Electronic products often contain hazardous and toxic materials that pose environmental risks if they are landfilled or incinerated,” reports the NRC, continuing:

Televisions and video and computer monitors use cathode ray tubes (CRTs), which have significant amounts of lead. Printed circuit boards contain primarily plastic and copper, and most have small amounts of chromium, lead solder, nickel and zinc. In addition, many electronic products have batteries that often contain nickel, cadmium and other heavy metals. Relays and switches in electronics, especially older ones, may contain mercury. Also, capacitors in some types of older and larger equipment that is now entering the waste stream may contain polychlorinated biphenyls (PCBs).

One solution to the problem, as noted above, might be to eschew electronic widgets. But that’s not practical for most of us.

Another would be to create biodegradable gizmos, which for the most part seems beyond the grasp of current technology. (Short of that, there are a growing number of programs that will repurpose functioning devices and safely recycle dead ones. If you are disposed to dispose of something, please dump responsibly.)

But I am particularly fond of a third option: Making products that last. And yes, Mr. Jobs, it can be done. Consider two examples:

:: When AT&T controlled the telephone business as a lawfully sanctioned monopoly, all telephones were made by its subsidiary, Western Electric. Because Ma Bell wisely wanted to maximize the investment it put into building and installing every phone, its phones were made to last. Our two Western Electric phones, which we schlepped to San Francisco from Chicago in 1984, are 30 to 40 years old. They have outlasted three of four generations of latter-day digital wannabes.

:: We have a black-and-white, portable Panasonic TV given to us by a friend who was moving out of Chicago in the 1970s. The lipstick-red set, which still works perfectly today, happens to look so cool that it is listed in several catalogues of 20th Century industrial design.

The lesson is that there is no reason for functionality or design to compromise durability.

In light of the growing environmental crisis posed by the proliferation of unreliable and forcibly obsolescent toxic electronic junk, the industry should responsibly address the problem by making longer-lasting products out of safer materials.

If the manufacturers don’t do it on their own, then government ought to make them.