Month: November 2010

proposals for financial reform

A knowledgeable correspondent sent in two proposals for financial reform:

  1. The ratio of loans to assets that a bank is allowed (that is, their leverage) could be inversely related to the size of the bank. That way, there would be a disincentive for banks to acquire other banks and become “too big to fail”.
  2. The interest rate banks pay the Fed could increase with the size of the bank or the amount they borrow, sort of like progressive income tax rates. This would also be a disincentive for banks to acquire other banks. Banks charge their customers higher interest rates for jumbo loans, so there is already a precedent for this.

These two proposals are hereby submitted for the Internet reading public to consider, deliberate, and, if so decided, endorse.

movies and television shows are equal on Netflix

Netflix CEO Reed Hastings recently stated that Netflix subscribers watch about equal minutes of movies and television shows.[1]  Those movies plausibly average 80 minutes in length, while the TV shows, perhaps 40 minutes.  Hence Netflix subscribers watch roughly twice as many TV shows as movies. The secondary-market TV-show business developed largely as an adjunct to the secondary-market movie business.  In terms of viewers’ secondary-market choices,  TV shows are not, however, of little weight relative to movies.  More significantly, secondary-market developments are  eroding the distinction between movies and TV shows.

A key difference between movies and TV shows is advertising and promotional expenses.  Promotional expenses (advertising and marketing) for movies average roughly 50% of the total cost to produce the movie (“negative cost”).  Direct promotional costs for TV shows are much less.  Network executives’ choices for program placement in the TV programming schedule is a crucial promotional decision for a TV show.  That decision is not a direct monetary transaction.  More generally, movies are sold individually.  TV is sold to viewers through subscriptions to bundles of television channels.

old RCA television

The differences in how movies and TV shows are sold shape their different lengths.  Feasible theater showings per evening, perceived relation between ticket value and movie length, and economies of scale in promotion control movie length.  Regular, easy-to-remember program blocking and time-of-day scheduling economics determine TV show lengths.

Netflix subscriptions do not differentiate between movies and television shows. Netflix’s subscriber acquisition cost has little relation to the difference in promotional expenses for movies and television shows.  Within a Netflix subscription, the factors that determine movie length and TV show length are irrelevant. Netflix’s streaming service is growing rapidly.[2] With streaming video, the economics of physical media capacity and physical mailing costs also do not matter for video content length. How streaming video minutes are grouped into content works is economically irrelevant.

YouTube is incorporating a wide range of video content lengths. Three months ago YouTube increased the maximum length of non-partner videos to 15 minutes. YouTube also now hosts a growing collection of traditional movies and TV shows.  In addition, YouTube also serves independently created video shows with widely varying lengths and live webcasts, including at least one spanning 24 hours.

With its Kindle Singles, Amazon is experimenting with new lengths for textual works.  Amazon’s announcement of its Kindle Singles notes:

Less than 10,000 words or more than 50,000: that is the choice writers have generally faced for more than a century–works either had to be short enough for a magazine article or long enough to deliver the “heft” required for book marketing and distribution. But in many cases, 10,000 to 30,000 words (roughly 30 to 90 pages) might be the perfect, natural length to lay out a single killer idea….

Amazon currently indicates that it will sell Kindle Singles individually. Because of economies of scale in marketing and diversity in user content preferences, subscriptions to content aggregates offer considerable business advantages.

Over coming years, the size distribution of content works is likely to be much different than the size distribution today.[3]

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Notes:

[1] Q3 2010 Netflix Earnings Conference Call, Oct. 20, 2010, Final Transcript, p. 2.

[2] According to Sandvine’s Fall 2010 Global Internet Phenomena Report, p. 14, “20.6% of all peak period [8pm to 10pm] bytes downloaded on fixed access networks in North America are Netflix.”  Netflix introduced streaming video in Canada on Sept. 22, 2010.  Id. p. 15, with a tendentious presentation, describes that business as obtaining “shocking levels of success.”  Netflix projects its Canada business, with large upfront content costs, to turn profitable late next year.  See Netflix Q3 2010 Call, Final Transcript, pp. 4, 8.

[3] According to comScore, the average duration of online videos viewed rose from 2.9 minutes per video in July, 2008, to 4.9 minutes per video in Sept. 2010.  Here are the relevant data and source links.

confidential documents are costly

Confidential documents submitted to government agencies have significant costs.  Confidential documents don’t contribute to public knowledge.  Persons face significant costs and complications to access confidential documents.  Moreover, the receiving agency has to follow special, relatively expensive procedures for storing and archiving confidential documents. Both the cost of confidentiality to the public and to the agency occur in the future and not primarily to the agency group directly working on the proceeding in which a confidential document is filed. Hence requests for confidentiality typically are not evaluated well with respect to their total cost over time to the public and to the agency.  Government agencies often grant documents confidential status when the filing party makes only a pro forma request for confidentiality, a request that lacks substantial, case-specific justification.  The costs of such action should be recognized and properly addressed.

A strong presumption against confidentiality and an expiration of confidentiality within a fixed period could substantially lessen the stock of confidential documents.  As a judgment standard for granting confidential document status, the requesting party could be required to demonstrate with a preponderance of evidence that the document for which confidentiality is requested is essential to evaluating the issues in the proceeding and that filing it publicly would likely cause major harm to the filer.  The expiration of confidentiality within a fixed period, e.g. three years, should not be waivable at the time of granting confidentiality.  Only a few months before the expiration of a document’s confidential status should the filing party be allowed to petition for an extension of confidential status. That petition should also confront a strong presumption against confidentiality.

Attention to intra-organizational behavior is important to limit appropriately confidential filings.  An agency group outside of the group working a proceeding is needed to uphold accountability for confidential requests.  Otherwise, the exigencies of work on a proceeding would tend to trump more general, more diffuse concerns about the volume of confidential documents.  Similarly, not allowing the expiration of confidential status to be waivable at the time of the grant of confidentiality would help to ensure that actual circumstances, not hypothetical arguments about future effects and more pressing immediate concerns, control the actual expiration of confidentiality.

A strong presumption against confidentiality and expiration of confidentiality within a fixed period would probably enhance rather than lessen the factual quality of agency proceedings. Public documents are more amenable to review and criticism by a wide range of outside parties.  Limiting confidential filings broadens possibilities for participation in proceedings and in relevant public discussion that helps to inform proceedings. Limiting confidentiality would limit possibilities for obscuring poor quality data under confidential status.  Moreover, high uncertainty about future industry developments and rapid change characterizes high-tech industries.  For such industries, expiration of confidentiality in a period as short as three years would not likely affect significantly any particular company’s interests. Expiration of confidentiality would, however, contribute to better understanding of a past business, and thus help to promote more informed general judgments about current policy issues and future businesses.

regulations belong in the bathroom

toiletAt a training camp for basketball officials, a senior official emphasized the importance of rule knowledge.  He explained that he keeps a copy of the basketball rulebook in his bathroom.  Every time he spends time on the toilet, he reads the rulebook.

All regulatory officials should adopt this practice. Rule books in some fields are quite lengthy.  But with electronic publications and e-readers, regulatory code books can easily fit into any bathroom. Reading regulations in the bathroom could contribute significantly to improved regulatory practice and greater regularity.