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I noticed a lot of comments on the suicide of young Aaron Swartz on my last post. It’s a tragedy when anyone takes their own life and I can’t really write about the issues surrounding the legal case he was involved in because I’m tired of dealing with the Mob– the idiots that send me emails saying “Why don’t you shove a nail in your ass” after we released our report on Ad Networks and Piracy. The problem with the copyleft is that they can’t imagine someone actually having to go to jail for stealing intellectual property. That was probably part of Aaron’s problem. It never occurred to him that breaking into a server was the equivalent of breaking into a house. He had a history of depression and wrote romantically about suicide in the comic book movies he loved. He seemed like a very generous soul. But he was clearly not ready to go to jail.

But the fact that I feel constrained to speak my mind about piracy because I am tired of the mob is sad. Last year I wrote about my friend David Fanning having his whole web enterprise destroyed by Lulzsec because his show Frontline reported on the darker side of Julian Assange’s sense of morality. I know for a fact that most musicians are scared to speak out about having their content exploited by criminals like Kim Dotcom, because they are afraid of the cyber mob. I don’t know how the hell we are going to have a civil conversation about IP with those of us who want to defend the artist’s right to get paid for their work, being under the threat of bodily harm (note that most of the most threatening comments have been taken down)?

The New York Times ran an article this morning entitled “Movies Try to Escape Cultural Irrelevance”. I had to smile because I have been thinking for a while about what is going on culturally in our entertainment universe and trying to ponder how the economics of various distribution platforms determine the daringness of what gets produced. It is clear that the cultural conversation today is around TV and not the movies. The movie business has long since surrendered to producing cartoon fantasies (Spider Man, X Men, etc) for teenagers while the TV business seems to thrive on serious dramas that plumb the depths of character in dramatically satisfying ways (Mad Men, The Good Wife, Breaking Bad, etc). The Movie industry thinks they have a PR problem, when they really have a content problem.

Several industry groups, including the Academy of Motion Picture Arts and Sciences, which awards the Oscars, and the nonprofit American Film Institute, which supports cinema, are privately brainstorming about starting public campaigns to convince people that movies still matter.

You wouldn’t have to convince people that movies mattered in 1975, because every week there was a movie that mattered. So what is it about the platform that determines this differential? To begin with, TV still has a business model that works, unlike either the film business or the Broadband Internet distribution business. TV works because it has a limited supply of commercial spots per hour. With increasing demand from advertisers, the price for each spot rises and so production costs can be covered and a profit can be made. Contrast this to the Internet advertising platform. Here you have an infinite number of ad units so that prices never rise even if demand rises.

Google is in essence trying to repeal the laws of supply and demand, which is why their recent financial results disappointed analysts.

Analysts focused on the amount that advertisers pay for clicks on Google ads, a metric called cost-per-click, which dropped 8 percent over both last quarter and last year. Susan Wojcicki, Google’s senior vice president of advertising, told analysts that a drop in average cost-per-click often accompanied an increase in the number of paid clicks on ads, which rose 34 percent over last year.

In contrast, even though TV viewership is down, ad rates have stayed high because of supply constraints. Which leads us to the movie business model.  Unlike TV, movies are a total crapshoot. Each film is a one off product, almost impossible to predict demand. The only possible indicator is sales of a very similar product—thus the sequel. It’s hard to imagine, but the sequel is a relatively new phenomena. No one suggested a Gone with the Wind II or a Casablanca II. But once Star Wars II made more money than the first one, the die was cast and now Hollywood is a crackhead chasing sequels. Of course the agents know this, so the price for talent soars as the number after the title rises. Now a rational business would look for metrics such as return on investment to determine whether spending $200 million on Tron Legacy was a good idea. In that world, Bob Zemekis’ new film Flight, made for $30 million, may seem like the best investment of the year. Whether Hollywood will be able to kick it’s sequel habit is a question, but in the mean time the movies will continue to suffer from a kind of cultural irrelevance and TV will continue to thrive.

The conventional wisdom is that Republican Super Pac money will overwhelm Democrats in the last six weeks of the fall election. This week Bernstein Research put out some data that lead me to believe that the returns to scale on TV advertising may actually be diminishing.

We believe it is not implausible that at some point, consumers will get so annoyed at having seen a commercial over-and-over again that there could actually be a negative impact. The logic being, consumers would attach negative feelings toward the brand (e.g. presidential candidate), instead of positive ones.

Here is how Bernstein charts it.

Bernstein calculates that in the battleground states 95% of the viewing public will see between 75 and 100 ads for Romney per week. Although classic marketing theory suggests that seeing more than three spots per week on a product produces diminishing results, we have never seen such “ultra-high frequency” in advertising.

Only time will tell if we have hit a wall on political TV advertising and Karl Rove’s grand scheme for buying the election fails.

I watched Paul Ryan’s speech last night in amazement as it seemed so untethered to reality and then I thought about a book I’ve been reading, the second volume of Richard Evans stunning trilogy about the rise and fall of the Nazi Party. It’s called The Third Reich in Power and it covers the period from 1933 when Hitler became the Chancellor, to 1939 when he began his war of conquest. What is most stunning about the book is the role of Joseph Goebbels and the awesome propaganda machine that he built that was able to convince a German public of racial, scientific, economic and military theories that had no basis in reality. Goebbels’ main insight was, “If you tell a lie big enough and keep repeating it, people will eventually come to believe it.” But to do this you need what Goebbels called an organ–a medium of propaganda diffusion that constantly repeats the party line. For the Nazis the two main channels of communication were the Newsreel and the radio. Here is Evans on the newsreel.

The Weekly Review had to be shown at the beginning of every commercial film program. Stylized, cliche-ridden, couched in a thoroughly Nazified language of combat and struggle, delivered in a tone of unrelenting aggressiveness, …the newsreel’s relation to reality was at best only intermediate.

As to the power of radio, Goebbels was very clear

There is nothing at all that is without political bias. The discovery of the principle of absolute objectivity is the privilege of German university professors–and I do not believe that university professors make history. We make no bones about the fact that the radio belongs to us and to no one else. And we will place the radio in the service of our ideology, and no other ideology will find expression here.

Now in drawing contemporary parallels to the Republican capture of Talk Radio “in the service of their ideology” I am not trying to make any claims that their ideology is fascist. I am simply stating that Paul Ryan could not get up on a huge national stage and make such outrageous claims that the Associated Press notes are patently false, without a propaganda machine like Right Wing Talk Radio to assure his partisans that Black is White. When Romney and Ryan trot out the racist dog whistle that Obama is cutting the “work requirement for the welfare queens”, Fox News and Rush Limbaugh repeat the lie endlessly until it becomes a “truth” to their audience.

Ryan is a good looking messenger who can say he will protect Medicare, while he plans to turn it into a voucher program that every one knows will leave seniors holding the bag. He and Romney claims they will cut the deficit while in the same breath promising to increase military spending and cut taxes on the wealthy (for guys like Romney who make all of their money in capital gains their tax rate would be zero). It is a huge lie and yet you could read the Fox News report and never have an inkling of the massive prevarication.

Someday we will look back at the epic balkanization of our information economy brought on by the digital revolution and wonder how we arrived at a place where 45% of the populace could live in an alternative reality with their own set of facts about evolution, rape, marriage, contraception, climate change, war, economics and faith. They could live in a world of atomized content, where real science and economics never entered their minds. If Mitt Romney and Paul Ryan are successful, it will be because they understood that they could create their own reality.

We have been talking here for a while about the perils of automation. Yesterday a “rogue computer algorithm” almost crashed the whole stock market.

“The machines have taken over, right?” said Patrick Healy, the chief executive of the Issuer Advisory Group, a capital markets consulting firm. “When events like this happen they just reaffirm that these aren’t investors, these are traders.”

The errant trades began hitting exchanges almost as soon as the opening bell rang and came from a single New Jersey broker that specializes in computer-driven trading, the Knight Capital Group. Shares of more than 100 companies, including big names like Alcoa, Citigroup and Ford suddenly spiked up or down.

One has to ask the question of whether these “robots gone wild” are distorting the whole purpose of the capital markets to such an extent that we have to re-imagine the stock market. The first and most obvious move is to treat short term capital gains (stocks held less than one year) as ordinary income for tax purposes. I believe this would slow down the High Frequency trading, which has turned Wall Street into a casino that is unfriendly for long term investors.

Obviously the implications of “lights out algorithms” in many other fields are equally troubling. I have mentioned how ad networks are using algorithms to place ads on Pirate Networks in a way the advertiser never intended. Of course all of this bad conduct could be stopped. We just need to wake up before the computers start really causing havoc.

Kim Dotcom is the alias of a modern day digital mafioso, who made more than half a billion dollars in the last few years by selling advertising on a site filled with stolen movies and music. Like any mafia lord, Kim hangs out with various low talent artists hoping that a little blow might be left on the coffee table. So today Kim and his lame ass disco music friends have released a song that is on a par with Triumph of The Will for those who study propaganda. The master of the field was Joe Goebbels who wrote “It would not be impossible to prove with sufficient repetition and a psychological understanding of the people concerned that a square is in fact a circle. They are mere words, and words can be molded until they clothe ideas and disguise.”

In his brilliant attempt to square the circle of his fortune built on stealing from artists, Kim equates his struggle with that of Martin Luther King. He attempts to hijack the whole Occupy movement to aid in his redemption. But in deciding that he could make $ million by selling advertising on Megaupload–with an inventory of quantities of stolen digital content–it’s easy to think that Kim Dotcom believed he was above the law. And the sad thing is that huge corporations like Google and Yahoo—some of Kim Dotcom’s early advertising partners–support this kind of conduct by enabling an underground advertising market that funds both piracy and pornography (usually on the same site) in the huge “remnant ad business” on the web. Read more…

I was struck this morning while reading the New York Times story on the billionaires who are funding the Republican efforts to remove Barack Obama from the White House, just what a distance we have traveled in the nearly fifty years since JFK was assassinated. And then I thought, “but nothing has really changed”. Fifty years ago Right Wing Texas Billionaires like H.L.Hunt and Clint Murchison Sr. were scheming how to remove John F. Kennedy from the White House. No one has ever proved that these men, who were so close to J Edgar Hoover and Lyndon Johnson, actually staged a coup d’etat, but the very fact that we have moved from the thought of real assassination by gun to character assassination by money is at least some sign of progress.

Last night my wife and I watched the wonderful four hour American Experience film on Bill Clinton. What is so striking was that within weeks of his inaugural, the Right Wing, with full acquiescence from the Republican leadership, set out to delegitimize Clinton through character assassination. Of course Clinton was stupid enough to hand the assassins some ammunition by playing around with an intern, but other than lying about a blow job, there was absolutely nothing to Kenneth Starr’s four year $40 million Whitewater investigation. The same characters (Koch, Adelson, Simmons, Perry, Crow) have now set out to spend what ever is necessary to assassinate the character of President Obama. Adelson says he is will to spend $100 million to get rid of Obama.

What scares me is the continuation of the socialist-style economywe’ve been experiencing for almost four years. That scares me because the redistribution of wealth is the path to more socialism, and to more of the government controlling people’s lives.

Part of this character assassination is the continuing “Obama is not a Christian” bullshit that we hear from Santorum, Gingrich and even the Reverend Franklin Graham.  And this is where I get pretty sad, because in some ways we have regressed culturally since 1961. In 1962 Major General Edwin Walker, who had been forced to resign from the Army after writing that Harry Truman and Eleanor Roosevelt were communists, organized a counter demonstration by local armed Klansmen against the integration of the University of Mississippi.

After a violent, 15-hour riot broke out on the campus, on September 30, in which two people were killed and six federal marshals were shot, Walker was arrested on four federal charges, including sedition and insurrection against the United States. He was temporarily held in a mental institution on orders from President Kennedy’s brother, Attorney General Robert Kennedy.

So in 1962 a crackpot like Walker was sent to a mental institution. Today, he would probably have a right wing talk radio show with millions of listeners. In 1962, fringe organizations like the Klan or the John Birch Society were forced to the margins of society and had no access to the mass media. That is not the case today. The crazy anti-science screeds financed by the Koch Brothers or the “Obama is a socialist” rants backed by Adelson are proof that, with enough money, the truth can be obliterated and that Joseph Goebbels was right—“If you tell a lie big enough and keep repeating it, people will eventually come to believe it.”

Obama and Google's Eric Schmidt

The White House has weighed in on the Online Piracy Act. They are clearly walking a tightrope between two competing powers, both of which have traditionally supported Democrats. On one side there is Hollywood and the music industry and on the other is Google. There has been an incredible amount of misinformation floating around about piracy for years and of course there are also some real bully boys who will threaten anyone who opposes their right to “free culture.” We have had these battles for two years on this blog. So here is my thoughts about all of this.

Google- The world’s largest search engine has made hundreds of millions allowing makers of pirated or counterfeit goods to advertise using Google Ad Words. It signed a non-prosecution agreement with the Federal Government and agreed to forgo $500,000,000 worth of counterfeit drug advertising. Google does not want to stop the worldwide revenue it gets from pirated content advertising. Google and it’s competitors could eliminate the need for Piracy legislation by immediately adopting the following rules:

1. We won’t sell advertising on pirate websites.
2. We won’t have our search engine link to pirate websites that can’t prove they have legitimate licenses to the content they host.
3. We will stop pretending we can’t control what gets posted on You Tube.

Hollywood and the Music Business- What I can’t figure out is how did movies and music get to a position that the public feels they are entitled to these works for free? So you never feel you are entitled to a meal at a restaurant for free, do you? What is it about digital entertainment: movies, music, TV and very soon, books that makes them special? Why should the worker in these business not get paid? We built a knowledge society, and the best products we export are all digital objects of desire. But no one seems to care about the notions of intellectual property. It’s so self destructive.

So the President has to thread the needle. That’s why the statement yesterday from the White House was important.

We expect and encourage all private parties, including both content creators and Internet platform providers working together, to adopt voluntary measures and best practices to reduce online piracy.

Google could begin these voluntary measures listed above and reduce the pressure to push a flawed act through Congress. Without some middle ground this whole discussion is going in a very stupid direction.

The first post of this blog was exactly four years ago. It’s been a long strange journey and yet I’m struck by how much I feel the same mixture of hope and foreboding. As to hope, I am still struck by the creativity of my family and close colleagues. I am still in awe of a few artists who seem to be able to make music or films with a passionate commitment to truth and beauty. And despite the disappointments, I still have an essential faith in the humanity and intelligence of Barack Obama. And the foreboding that I felt four years ago, before the Great Recession had struck, still is in place.

And then you ask–so where does the aforementioned dread come from? It comes from a sense of profound economic peril. We have lived as a country off the rich inheritance of past generations and now the party may be coming to a close.

This has been a revolutionary year. Some would compare it to 1848, 1917 or 1968. Look at the Pictures of the year as organized by the New York Times and you can’t ignore the interregnum upheaval we are experiencing. I chose the photo of the young Egyptian revolutionaries at their computers as the quintessential image of “the old is dying and the new is struggling to be borne” that defines the Interregnum. These kids give me hope and I was struck by the words of their young Russian counterpart, Aleksei Navalny at the massive anti-Putin rally in Moscow yesterday.

“Where is this man?” Mr. Navalny asked. “Can you see him? Is he here?”

He added: “These days, with the help of the zombie-box, they are trying to prove to us that they are big and scary beasts. But we know who they are. Little sneaky jackals! Is that right?” The crowd roared. “Is that true or not?” Another roar.

Of course we have our own battles with the forces that control “the zombie-box” in America. For all our idealistic belief in the liberating power of the Internet, most of our citizens still get their information from television–Fox News, CBS, ABC and NBC. And of course there is the large minority that gets no news at all, but rather sits like Mr. Navalny’s zombies zoned out on the fake spectacle of Wrestling or the lives of the Kardashians. Near the end of a presidential campaign all the advertising goes to reach these zombies–people who for some reason in late October of a Presidential race have been paying so little attention that they are still “undecided”. WTF! These cretins get to decide a close political race?

And you can bank on it that Karl Rove’s $500 Million Super Pac will have some killer ads to wake these moron’s out of their stupor just long enough to get them outraged enough to drag their sorry asses to the polls on the first Tuesday in November. Somehow, I can guarantee you that Obama will be painted as “un-American” and the Know-Nothings will drink a couple of Red Bulls and be driven to the polls to pull the lever of Democracy.

So let’s hope we can be inspired by the young activists in Cairo, Moscow, Damascus, New York, Oakland and all the points around the globe where citizens are trying to make the word “democracy” have some meaning. For me, that means going back to Localism. Trying to make Los Angeles the most livable, just, optimistic and creative city on the planet.

Merry Christmas and Happy Holidays,

JT

Bernard Marcus

Our some time correspondent, Tennessee William Shakespeare sent me a link and I wrote a friend who used to work for Bloomberg News to ask if this story, written by one Max Abelson for Bloomberg Business Week was tongue in cheek. He replied no, it was totally serious.

Dimon, 55, whose 2010 compensation was $23 million, joined billionaires including hedge-fund manager John Paulson and Home Depot Inc. co-founder Bernard Marcus in using speeches, open letters and television appearances to defend themselves and the richest 1 percent of the population targeted by Occupy Wall Street demonstrators.

If successful businesspeople don’t go public to share their stories and talk about their troubles, “they deserve what they’re going to get,” said Marcus, 82, a founding member of Job Creators Alliance, a Dallas-based nonprofit that develops talking points and op-ed pieces aimed at “shaping the national agenda,” according to the group’s website. He said he isn’t worried that speaking out might make him a target of protesters.

“Who gives a crap about some imbecile?” Marcus said. “Are you kidding me?”

I want a reality show where the Billionaires come on every day and talk about their troubles. It could be like the old TV show “Queen for a Day”. The 1 Percenter with the biggest sob story wins a brand new dishwasher.