Cyrillic Partners

There’s some interesting stats here, but the real kicker is the percentage of news Americans consume that comes from a tiny, tiny portion of the media market. Scary.

The Venture Capital Journal is a finalist in the prestigious Maggie Awards for 2008, given out by the Western Publishing Association. Stories by Joanna Glasner and I were finalists in four categories.

The best part of the experience was traveling to Los Angeles to get the awards with Joanna and our editor, Larry Aragon. The presentation ceremony was a blast!

I’m struck again by the profusion of news items surrounding an industry of interest. I’m writing about green vehicles and trying to give some perspective on the market.

The words are flowing out of my Internet connection like endless rain into a paper cup.  Just in this small niche of the world there are dedicated newswire style blogs such as AutoblogGreen, a quarterly journal and online portal called the Green Car Journal and ample coverage in venture-related blogs such as the extensive list of electric vehicle startups listed in VentureBeat.

How can the “Renaissance Journalist” compete with these focused outlets? Is this even the proper role for a journalist or editor? I recently wrote on this, but am starting to wonder about it.

Will news reporters have a job in the future? Professor Steve Boriss, who teaches a class called “The Future of News” at Washington University in St. Louis and writes on the subject at Pajamas Media: “We will continue to have news middlemen, but those that survive must create real value for their audiences. Editors can create value by aggregating, analyzing, adding opinions, and gathering like-minded audiences for advertisers. Bloggers do the same. But, reporters are repeaters. They, not bloggers, are unnecessary recyclers of news.”

Maybe Boriss knows better bloggers than I do. But I think the premise of his argument is flawed: namely that a journalist’s job is to transfer a record of an event to an audience that cares about it.

It assumes that there is too little information in the world and that a journalist’s job is to be the one that witnesses it. That may have been true thirty years ago, but let’s face it. There’s often too much information available today.

Let’s say you wanted to know if batteries were a good place to invest today. Where would you go for information on that? Going to Google is like sitting down in front of a fire hose and blasting yourself in the face. You could spend days and days sorting through all the different types of investment (public, private, mutual funds, etc…) then what type of battery (lithium-ion, nickel-cadmium, led-acid, lithium-polymer, thin-film, kinetic, etc…), or maybe what sort of company (developer, producer, distributor, integrator) then maybe which of the 100+ companies that do some sort of battery-related thing.

Moving from information to action requires throwing things out as you go along, getting from the fire hose to a nice drinking fountain.  This is what journalists may be best at in the future.

Brian Caulfield, a mentor and friend, let me in on a secret to good magazine journalism: stories should be surprising and have a point of view.

There are two ways to come up with a surprising story. One may “break” news by getting a scoop, or unveil some hidden insight. Scoops are pretty straight forward and the providence of the best magazines and newspapers. Insight is a little trickier to grasp, however.

When we worked together at a business magazine, Brian and I came up with several basic flavors of insight that might be applied to any news story:

1.  Forward Spin: Come up with some analysis of what’s going to happen next. If one company buys another, what might be the next corporate pairing in their market? What will a company’s competitors have to do to counter its new measures? What is this news going to mean for investors down the road? Will the company be able to hit its earnings numbers next quarter?
2. Pearl Necklace: Is the piece of news one in a series of similar events? Is it worth pointing out that deal X is the third such deal that’s happened in the past month or that involved the same investors?
3. Bunch of Grapes: Is this piece of news fundamentally demonstrative of a much larger trend? Is it one particularly succulent grape from a much larger bunch?
4. Lessons Learned: Business person X just did amazing thing Y. If you want to do the same sort of amazing thing, you should take note of these key lessons.
5. Reality Inversion: Take what everyone believes to be true, turn it upside down and look for examples or proof. Everyone believes a recession is bad, for example. Invert this commonly accepted maxim to get that “a recession is good,” then find who that’s true for. Recessions are great for people in the repossession business and generally improve sales at liquor stores. Profile these thriving businesses when a recession hits.

I particularly like the “Reality Inversion” principle for coming up with interesting stories and like to use it to test out various theories and try to use it as frequently as possible.  In a recent conversation with one of my coworkers, I started off by saying: “Well known investor X isn’t really that good.” Which lead to a very interesting discussion of what makes a good investor based on a very different point of view. Even if you end up throwing out the inversion, it forces you to think in creative and different ways.

My team met with Chris Ahearn, a manager at Reuters, who put us wise to Reuters Labs. The site highlights some of the new, experimental tools and services the media giant is playing with.

There’s a lot of pie-in-the-sky technology on the site. I haven’t had a chance to plumb each different technology, but my initial take is that maybe a third of it will catch on with early adopters. Maybe 1/12th of it will ever get into the hands of journalists or consumers.

I’ll be looking at it in depth in the coming weeks.

Howell Raines, former managing editor of the New York Times, opines on the newspaper’s dubious business future unconvincingly in a column in Portfolio Magazine.

He lays out a thin case against being bought out by Rupert Murdoch citing the “jolly pirate’s” use of newspapers and broadcasting “…in a broadly unprofessional way—as political muscle to advance his commercial interest.” There’s no mention of any examples of such behavior, of course, Raines assumes that everyone following the debate feels the same way he does.

I submit this counter argument: If Murdoch is so bad for journalism, why do people still read the papers his company put out? Does he really have the time to throw his weight around by strong arming journalists and editors?

At least one may still trust stories in the Wall Street Journal to be accurate. Raines, as readers may remember, was fired from the NYT for his inadequate oversight of the Jayson Blair fact fabrication and cheating scandal. His “argument” against a Murdoch buyout demonstrates the same loose attitude toward facts that got him fired.

But maybe I’m being to harsh on the guy. It’s obvious he’s living in an outdated paradigm where the New York Times still anchors information trafficking. He writes: “There is no more important question in American journalism than the future of the Times…”

I offer five other, more important questions for American journalism.

Ignoring the fact that ethics and accuracy should have been a more important issue for him during his tenure at the NYT, it’s worth pointing out that the NYT ($2.93B) is smaller than The Washington Post ($6.28B), USA Today publisher Gannett ($6.99B), or Reuters ($7.42B). To be sure, lots of people read it, but fewer than USA Today or The Wall Street Journal. It’s important to journalism like Ford Motor Company is important to the auto industry.

It’s barely worth eviscerating each of his suggestions for an anti-Murdoch NYT future: sell to Google, sell to Bloomberg, focus on just the New York Metro area, replace the board, or go private.

• Google isn’t buying the world’s information, it’s organizing it.
• Why would Bloomberg want the NYT? His company has been focused on data and real-time news: not stuff the NYT has a real lock on. Better bet for Bloomberg would be spinning out some of the financial data assets from McGraw Hill, such as its CapitalIQ product.
• Focusing the Washington Post on Beltway politics makes sense for D.C. but what would a New York-focused publication focus on? New York is too diverse for such a parochial scope. Still, focus is good and the NYT might profit from doing it.
• Replacing the board with pro-journalism people might be an interesting short-term strategy for preventing a takeover, but it doesn’t seem to be a long-term tenable strategy.
• Raines is right when he says going private would have been more likely two years ago. It’s no secret that the buyout business is taking a hit thanks to the credit crisis. But the buyout business isn’t just about leveraging businesses anymore, or streamlining by selling off unnecessary assets. There’s got to be some operational opportunity for growth that somehow can’t be realized under the scrutiny of quarterly earnings. I’m not sure what that would look like for the NYT, but I can’t imagine a PE firm giving the company more free reign than the Sulzberger family…

Raines needs to get off his soap box and exit his echo chamber.

1. Is it worth fighting content commodification? Most local papers feed on content pulled from the Associated Press newswire and offer little in the way of context or local significance. Do people still need a local spin or a verticalization of the content to reflect its impact on their interests?
2. How do you make investigative journalism work now? It’s harder to allocate resources to do the work of investigation with staffs shrinking and budgets tightening. Investigative digging takes time and lots of effort. There’s another factor at work here too. The journalists that remain in the business are often viewed with trepidation instead of trust by would-be sources. The profession regularly ranks just above used-car-salesman on trust polls. A journalist’s best scoops typically come from someone whom she or he already knows and trusts. Maybe this is a sub-point to number one of this list, since it might be considered a side effect of commoditization.
3. What’s the best way to separate signal from noise? Traditional advertising has been, for many companies, supplanted by spending on “public relations.” A large corporation may have more PR executives on staff than any one of the business magazines that cover it. How do you pick out the real news from the processed and packaged crap that’s pushed out to already over-extended journalists? Citizen journalists, bloggers, pundits and others now weigh in on everything, often without adding any new details or context.
4. What’s the best way to monetize online content? Every news publication struggles with this. People don’t want to pay for things online. Online advertising is growing, to be sure, but many small publications are left out when the cost of securing advertising outstretches the benefit. Studies show that most people don’t even see the advertisements served online.
5. What community does a news organization target and how does it interact with that community? The internet has radically changed the way many people classify themselves into communities. Left-handed lovers of Dungeons and Dragons may find others online with whom they have more in common than the person who they live next to. The comment thread underneath stories and social networks aren’t adequate for one major reason: they don’t make money.

Michael Lewis, an awesomely interesting writer, offered readers of March’s Portfolio Magazine an overly bearish appraisal of the Black-Scholes options pricing model.

This may not, of course, be Lewis’ fault. Portfolio is published by Conde Nast, notorious for yellowing-up its journalism to maximize the shock/sex/scandal factor. How Conde Nast sexed up Wired Magazine to the point of near-unreadability is a sore spot with many readers to this day who say the magazine was “Conde Nastified.”

The story, titled “Inside Wall Street’s Black Hole,” (natch) posits this: The credit crunch ousted bank executives and average Joe Homeowner alike because everybody was mis-pricing their downside protections. Wall Street broker/dealers used Black-Scholes, which provides a framework for pricing options, to justify extending credit to would-be homeowners. But the famous formula doesn’t take into account the possibility of cataclysmic downturns. When the downturn happened, the predictive model didn’t hold up. Therefore, Black-Scholes screwed everybody.

Lewis then goes on to “prove” the point by including quotes from one interview and by paraphrasing much of Nassim Nicholas Taleb’s work (for this feat of journalism he gets paid an ungodly amount per word).

The thesis belies a surprising amount of naivitae. It’s like getting lost on the island of la Grande Jatte and blaming Georges-Pierre Seurat for not giving you an accurate map.

Lewis would do well to remember that a financial theory is just that. It is not a universal law. Newton’s theories of motion start to fall apart when you approach the speed of light, so should anyone be surprised when Black-Scholes starts to break down as the economy fluctuates wildly?

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When the Portfolio cover-line promised me “The Formula that Wrecked Wall Street,” a very different formula immediately jumped to mind: 2 and 20.

That’s the compensation formula used by most hedge funds. It works like this: A hedge fund raises $100 million from private investors, university endowments, large banks and the like. The managers get 2% of that a year, regardless of performance. If they make a profit on their investing operations, say the portfolio gains 10% to $110 million, they get 20% of the profit, or $2 million.

It’s not a bad deal if you can get it: The hedge fund manager walks away with $4 million in income for getting about the market rate of return.

But what’s really deleterious to Wall Street, and general macroeconomic stability, is what happens in year two.

Let’s say the hedge fund manager has a bad year and the portfolio loses 10% of its value (It’s now worth $99 million). The manager still gets $2 million for his “management fee,” but doesn’t take home any bonus pay.

It doesn’t sound like that would have a negative effect, but it does. That compensation structure creates the incentive for the hedge fund manager to take wild risks, literally gamble it all for a shot at a bigger management fee because there’s no downside to poor performance.

If the manager loses all the fund’s money after five years, he or she still walks away with $10 million in fees. And since there’s so little visibility into the performance of hedge funds, there’s little accountability. An unscrupulous hedge fund manager might easily be able to raise another fund. (Which is why public disclosure is important and why journalists serve a role in the new economy.)

So why not risk it all? Go for the one in a hundred chance you’ll get a 100x payoff. It’ll always be preferable to the one in two chance of a x/2 gain.

That’s a formula that’s wrecking Wall Street and probably scares the heck out of Ben Bernanke.

CyrillicPartners sister site 9Choirs has a great slide show of spiritual movies to see. Maybe it’ll be a good starting place for your Christmas shopping this year.

I can’t help feeling that the site missed several obvious choices though. Where’s It’s a Wonderful Life, for example? Or Field of Dreams? Maybe each is a little too obvious and mainstream for the 9Choirs list.

It’s worth a visit: Perfect gifts for Christmas: Our top 9 spiritual movies

The Writer’s Guild strike, already more than two weeks in progress, could be costing the Los Angeles economy more than $21 million each day, according to the non-profit group FilmL.A. The Los Angeles Times has a breakdown of the various costs associated with the estimate:

The estimate is based on the average number of employees on these shows, and their typical budgets and shooting cycles.

For example, a single episode of a drama costs about $3 million to produce, employs 300 people and takes eight days to shoot. An episode of a half-hour sitcom costs $1.5 million, employs an average of 88 employees and has a five-day shooting cycle.

Sitcoms were the first to take a hit because of the shorter lead times in writing them. During the first two weeks of the strike, filming for sitcoms outside of studio soundstages dropped nearly 50% compared with the same period a year earlier, according to FilmL.A. Activity for TV dramas has been virtually flat, while on-location reality TV shoots jumped 23% recently.

FilmL.A.’s estimate is conservative because it only takes into account jobs in the industry, not the scores of jobs at restaurants, hotels and other businesses that service Hollywood. The entertainment industry accounts for almost 7% of Los Angeles County’s $442-billion economy.

Nor does it factor in job losses from the feature film sector. Studios already have scripts in hand for their 2008 slates, so only a few feature films have delayed production, including Ron Howard’s “Angels & Demons” and Oliver Stone’s “Pinkville.”

It’s easy to poke holes in any cost-assessment, and the L.A. Times brings up a few good ones.

James “the genius” Surowiecki has a good piece in The New Yorker about strikes and why it is difficult to resolve them (read it here).

[Image from thepointmedia.com]

I’m teaching a class on how to write an effective executive summary Saturday at Monte Vista High School, in Danville, Calif., and felt totally unprepared until I turned to the Internet for help. Guy Kawasaki has republished some interesting advice from Bill Reichert. I’ll summarize: The job of the executive summary is to sell, not to describe.

So here’s my sales pitch: I’ve talked to hundreds of entrepreneurs, executives and venture capitalists through my years as a journalist and have specialized in conveying their big ideas in a concise, compelling manner.

Write Your Pony Statement

I’ve always felt the same way about news stories and blog posts. If you don’t get a person’s attention, he or she will never make it to the end of your story and won’t ever appreciate your brilliance. You’ve got to go with the good stuff and give it to people fast.

That may be the hardest thing entrepreneurs have to do. Figure out what they have that’s really impressive. As one repeat entrepreneur told me: “You’ve got to find the pony.” A lot of schools teach students how to write a thesis statement and finding the pony can be a little like that, but it comes in a slightly different flavor. It tells people what to expect from the rest of the executive summary. Think of it as movie trailer. It doesn’t tell everything, it teases you, makes you want to find out more.

Here’s an example. Suppose you were pitching Google to a Kleiner Perkins back in 1999. Here’s what you might have said: “We’ve come up with an algorithm to find online information more effectively than Yahoo, a multi-billion dollar company.” It’s not perfect, but it says two things: (1) We have a technical innovation that beats Yahoo and (2) That could make us a multi-billion dollar company. It’s nice because it tells what it is that you have that’s special and hints at what that could be worth. Continue Reading »