Water Cooler

By Dom Serafini

It is possible that a documentary, or Hollywood in particular, may change the course of American history. In the U.S. today, anyone can “buy” a politician, legally and openly, and political contributions are well documented. The crime is not committed by representing the interests of special groups, but in concealing the payments to politicians’ campaigns. American voters can easy find out which special interest groups “own” the allegiance of their politicians. This is what makes America unique. In many other countries, politicians are similarly bought, but in a non-transparent ways. Plus, in the U.S. it is the contributors who decide who should run for office, not the oligarchs. The problem is that under the protection of the First Amendment (i.e., Freedom of Speech), the political process has been distorted by the large amount of money invested by lobbyists, even though the concerned parties like to make the academic distinction between lobbying (legal) and influence peddling (illegal).

A new case to strain the First Amendment comes in the form of Hillary: The Movie. It’s a 90-minute documentary produced during the most recent presidential campaign that has reignited a debate that actually started in 1904.

The documentary, produced by Citizens United (CU), a conservative political organization based in Washington D.C., presented Hillary Clinton as ruthless and untrustworthy.

The documentary did not find a TV outlet outside the Internet and CU’s DVD mail order release, despite the fact that one of Hillary’s main accusers in the documentary is Hollywood producer Peter Paul (a former convict). Actually, Hillary: The Movie, is based mainly on Hillary Uncensored —Banned By The Media, a 2007 documentary financed by Jim Nesfield and distributed by the Colorado-based Equal Justice Foundation of America. Nesfield is a controversial lawyer and financier who became CEO of Stan Lee Media after Peter Paul founded the company with Stan Lee. Subsequently, Paul sued Bill Clinton claiming that the President had destroyed his company.

Hillary: The Movie had been prevented by the Federal Election Commission from being shown on U.S. television because it was financed with corporate funds, something that has been illegal since 1905 when the Tillman Law was passed to keep corporate money out of political races.

Nevertheless, it triggered the Supreme Court (which has a conservative majority) to review the rights of corporations to contribute to political campaigns under the First Amendment. There are several arguments to be made against corporations attempting to distort the will of the voters by pouring lots of money into political campaigns. As the Supreme Court stated in 1990, corporations are barred from using their “immense aggregations of wealth” to buy ads to oppose or endorse a candidate.

One argument is that, as stated by U.S. Solicitor General Elena Kagan, “Corporations are artificial persons [state-created entities] endowed by the government with significant special advantages that no natural person possesses.” Since they are not actual physical people, they cannot be equated with the people for which the U.S. Constitution was written.

The opposite view is that the First Amendment doesn’t make a distinction among beneficiaries of the freedom of speech. Plus, they say, what’s the difference between banning a video, a book or a newspaper article?

Another argument is that corporations, often multinationals, should not been allowed to manipulate electoral results though massive financial political contributions. For example, should a coal company operating in Wyoming but controlled by Chinalco, a major Chinese coal group be allowed to finance the campaign of a politician who supports higher particle and CO2 emissions in the air? Conversely, should such a corporation be allowed to discredit politicians who are against such pollutants via TV ads and programs?

Political contributions from individuals can come in different ways. Candidates, however, are mostly influenced by a few rich people and corporations as opposed to a multitude of poor people.

“If you have hundreds of millions of corporate dollars flowing into [political] races, it could drown out the speech of ordinary voters,” Trevor Potter, lawyer and advisor to former presidential candidate John McCain told The L.A. Times. If that were the case, the First Amendment would create the paradox of protecting a policy that in fact undermines the protection of the very same First Amendment’s Freedom of Speech. In this case, the First Amendment would not give a de jure protection for all people, but only for the rich.

When president Ronald Reagan pushed to have the Fairness Doctrine lifted in 1987, the change proved a windfall for TV stations, and made the political process more attuned to special interests that made corporate people like Rupert Murdoch kingmakers.

The Fairness Doctrine (introduced in 1949) together with the Equal Time Rule (introduced in 1927) allowed political candidates low-cost access to TV and more televised debates. When these rules were removed, politicians had to spend more time lobbying for political contributions than for legislative activities in order to pay for airtime. In general, $2 million is needed to run for a two-year House seat and $6 million for the six-year Senate seat.

If the First Amendment would sanction the right of corporations to influence the political process, the Congress should make the Fairness Doctrine a law as counterbalance.

Posted by watercooler at 10:28 AM | Permalink | TrackBacks (0)

By Dom Serafini

The industry is crying wolf: The terrible economy, the bad new media, the finicky public, the unfair digital technology. You name it, and it’s got its claws in television’s back. The industry seems to blame everything and everybody, except itself. There is no need to, actually, because the entertainment business has never been so stable, easy going, predictable and rewarding as it is now. If something is in fact missing, it might be what George H. Bush called the “vision thing” when confronted with the accusation of having poor leadership vision by the opposing presidential campaign in 1988.

History buffs can appreciate how much more difficult the business was in the earlier years, particularly in the ’50s, ’70s and ’80s.

The difficulties encountered by Leonard Goldenson when he molded ABC from the 1953 merger of ABC and United Paramount Theaters (UPT) are legendary. ABC was the offspring of two government-ordered divestitures — the breakup of NBC’s two networks and the divorce of Paramount Pictures from UPT — and the network was struggling against its two larger rivals: NBC and CBS (Goldenson was president of UPT when the government ordered its divestment from Paramount Pictures).

And let’s not forget William S. Paley, founder and “monarch” of CBS, who came from the cigar manufacturing business (La Palina) and became a leading pioneer of world television in 1948, when he raided NBC’s stars with a $5 million loan.

And what about RCA’s David Sarnoff, founder of NBC? In order to introduce color television, he had to fight CBS and its non-compatible CBS field-sequential system, and then in 1951, was faced with the Korean War delaying the introduction of color TV entirely. It was only in 1953 that the FCC (the U.S. regulatory agency) approved RCA’s compatible NTSC color-TV standard. Yet, as late as 1965, NBC was still airing the bulk of color programming, with CBS providing only 800 hours a year and ABC just 600. Plus, it wasn’t until 1958 that manufacturers other than RCA started producing color TV receivers.

Life for the broadcast business has never been easy. The initial introduction of television was opposed by radio stations until 1939, when NBC started its regular TV service.

Then there were massive government regulations, three wars, financial crises and the struggles with new technology (at one time comprised of cable, satellite and VCRs). And don’t forget the 1973 oil crisis, stock market crash and political strife. Meanwhile, the ’80s saw stronger competition from cable TV, and Wall Street turned predatory.

Last May, at the 7th annual “All Things Digital or D7 conference in Carlsbad, California, NBC’s Jeff Zucker admitted that “television in the aggregate is actually in very good shape.” In VideoAge’s MIPCOM Issue, Disney-ABC’s Ben Pyne is quoted as saying that “up to 90 percent of American viewers still watch broadcast networks regularly.”

In my view, leaders today get too sidetracked by Wall Street and Silicon Valley, losing sight of Main Street. For example, at the D7, Microsoft’s Steve Ballmer acknowledged that “the mobile area is red hot, and the truth is nobody sells very much.”

Even the Wall Street Journal, which organized the conference, editorialized that “in truth, no one knows where [digital] will lead.”

I also believe that the broadcast model is not inferior to the dual revenue stream of cable and satellite TV, especially now that digital technology has made its role as middleman more valuable then ever (to buffer content owners from the consumers and thus protect their copyrights).

Plus, broadcast television could not only be a dual-revenue stream, but a multiple-revenue stream as well if its leaders embraced broadband transmission in an open IPTV standard, the same way past TV leaders took chances and gambled. As it is, broadcasters already receive retransmission fees from some cable and satellite operators. IPTV would add to that with more options. Imagine if they had a TV signal reach every corner of the country regardless of physical limitations. If they had a TV signal that was monetized even when it’s no longer broadcast and were able to offer VoD and interactivity. In my view, IPTV is one of the few cases in which broadcasters would not be replacing “analog dollars with digital pennies.”

I’m convinced that if television visionaries such as Sarnoff, Paley and Goldenson were alive today, they’d trip all over each other to be the first to migrate to IPTV.

Zucker said at the D7, “More businesses are needed to replace the losses of old ones.” Yes, and for that purpose one needs to acquire a retail mentality where if one store loses sales, more stores must be opened to compensate for the losses, since the products sold are the same (i.e., if fewer viewers are reached by terrestrial broadcasts and cable and satellite rebroadcasts, let’s open a new store for IPTV).

To me, it’s incredible how today’s industry leaders are learning to fear technology, when their predecessors were eager to embrace and leverage it.

Posted by watercooler at 08:01 AM | Permalink | TrackBacks (0)

By Dom Serafini

I guess that in the corporate world, there’s no easy way to do things. That it was a bad idea for Time Warner to buy AOL in 2000 was well known by most people, apart from Time Warner’s executives. They may have thought they were smarter than a fifth grader but instead got awful marks for their actions.

The funny part was that it was actually AOL that bought Time Warner, because the market value of the tech company was much higher than that of the venerable studio and publishing group. Time Warner was acquired by AOL for $182 billion, by putting up $166 billion of its overpriced stock for 55 percent of the combined company, (and not a single cent of “real” money). This despite the fact that when the last AOL employees turned the office lights off, the assets of AOL went home with them, and Time Warner boasted real assets such as a studio, HBO, a cable company, CNN, and Time, Inc., that made money while sitting in the library. In addition, AOL had annual sales of $4.8 billion in 2000, while Time Warner reached $14.6 billion.

The other funny part is that once Time Warner got in bed with AOL, the latter started to deteriorate with inferior services and lack of innovations.

When Time Warner “acquired” AOL, there were 20 million subscribers. When it spun it off last March, it had fallen to 6.3 million. In 2000, AOL was valued at $166 billion; nowadays it’s $5.66 billion. I guess there is no need to continue. You get the message.

What I’d like to reinforce, however, is the same message that I’ve been barking about since the year 2000, when I was in fact smarter than a fifth grader and the corporate people were not, despite their MBA degrees and my incomplete undergraduate studies.

An impressive body of academic studies exist that all predicted the merger was doomed from the start. Stealing Time, a book published in 2003 (by Alec Klein from Simon & Schuster), described the AOL-Time Warner merger as two big businesses gone awry through cockiness, lack of principles and poor judgment. The book points out that in this case, MBAs cannot be faulted, since Steve Case, one of the merger’s architects and AOL CEO, wasn’t accepted by several MBA programs after college while working as a pizza taster for Pizza Hut. Some of the studies centered on the so-called “Q ratio,” which calculates the replacement value of a company’s total assets. In addition, this factor assigns a higher Q ratio to more focused companies than more diversified companies engaged in vertical integration.

In my view, when a television company decides to control the whole supply chain, it incurs more than just a low Q ratio, but also risky undertakings that usually drag down the stock value of the whole group. This is why the sum of all parts is always greater than the group. Years ago, the U.S. TV networks picked the best shows from producers, gave back the ones proven to be duds and risked nothing in the process. That’s why they were called “licenses to print money.” Nowadays, a costly, low-rated show produced by the same network has to be “amortized,” which means that the network is losing twice: It can’t monetize the show and is not getting the ratings.

Not that horizontal integrations are any better. The typical example is when Paramount purchased Spelling Entertainment, which owned Worldvision Distribution, for $8.2 billion in 2000. At that time, the New York-based distribution company was generating close to $100 million a year, spending just 10 percent as cost to do business. The accountants at Paramount decided to save those $10 million a year by incorporating the sales within its own distribution system. The result was that the revenues from the Worldvision library went down to an estimated $60 million. So, in order to save $10 million, Paramount lost $30 million.

This because the studios’ priority is to sell new series, not library material. Besides, international television programmers don’t buy in bulk from the same company, but rather tend to spread their acquisition budgets among the various studios, not knowing where the next hit will be coming from.

In conclusion, if these “My 2¢” failed to make a dent in the corporate chieftains’ business practices, let’s simply indulge in imagining how great it would be if owners such as Sumner Redstone (Viacom, Paramount) and Rupert Murdoch (News Corp) would spin off most of their companies, similar to what Time Warner did with AOL. The difference in these cases is that there would not be any losers, only winners, and finally, the end of this senseless business “philosophy” called vertical integration, a.k.a. selling to oneself.

Posted by watercooler at 08:47 AM | Permalink | TrackBacks (0)

By Dom Serafini

After 45 years in existence as an organic market, it’s time for the L.A. Screenings to become organized just for the independents. Now, before you light the fireworks, start imprecations for a “crazy Italian,” and load your shotguns, please follow the argument outlined below.

This proposal is presented bearing in mind both the interests of the studios and those of the independents. It is my belief that with the administration of U.S. President Barack Obama, the studios are in danger of becoming, once again, strictly regulated, because of their sheer size and dominance.

The cries for more stringent regulations for the studios are heard from many quarters and not just from the independents. The U.S. independent industry is a sector that is comprised of some 500 production and distribution companies. Of these, the 50 largest companies account for 80 percent of the industry’s annual revenue of $13 billion, with the six studios getting over 70 percent. This means that 450 companies have to share $2.6 billion a year, or an average of $5.8 million each.

It’s now in the studios’ interest to throw the independents a few “bones.” Not objecting to and not contesting the indies getting some form of organization at the L.A. Screenings would be one of such “bones” that might keep the regulatory FCC agency, the Federal Trade Commission and the Justice Department off the studios’ backs.

Now, in VideoAge’s typical open and fair assessment of industry needs, we presented the idea of an organized L.A. Screenings to NATPE in the U.S., Converge in Brazil and the Achilles Media organization in Canada. The former organizes the long running TV market and conference in Las Vegas; Converge stages its annual Forum Brasil in São Paulo, and Achilles Media runs the Banff TV Festival. All three organizations would benefit both from the presence of many major international TV buyers attending the L.A. Screenings, and from the close association with independent distribution companies exhibiting there.

The involvement of any one of such organizations with the L.A. Screenings could never have happened when studios ruled the convention corridors. Nowadays, these organizations can no longer depend on studios’ support, and rely mainly on the indie business, thereby relegating studio considerations to the back seat. Groups such as Reed-Midem, which organizes MIPCOM, could not be involved with the L.A. Screenings since it is still heavily dependent on what they call the “900-pound gorillas” (i.e., the studios’) support and studios would be upset if a big organization such as Reed-Midem entered the picture, for fear that it would affect the “organic” nature of their market.

Of the three organizations we contacted, only Achilles Media showed a strong interest in the L.A. Screenings. More than review the important points of our proposal, NATPE was concerned with a ridiculous rumor circulated in May by a Miami-based consultant that VideoAge was planning to organize its own Latin market in Miami in January. Explaining that we at VideoAge cannot even organize a playdate for our kids did not fully reassure NATPE’s folks.

For the Brazilians, the thought of organizing something in Los Angeles was daunting. For these two organizations, the L.A. Screenings could have offered great synergy with their events since both are very focused on the Latin market, and the L.A. Screenings has become the premier market for Latin America, followed by NATPE, MIPCOM and Forum Brasil.

The Banff TV Festival can also benefit from a L.A. association. The Canadian conference and award ceremony lost the luster it had in the ’80s and ’90s and since it is held about two weeks after the L.A. Screenings, organizers could surely come up with a way to connect the two events.

So what should the goals be for an organized indie L.A. Screenings? Our wish would be to make it the premier market for Latin American TV buyers to benefit both the studios and the indies. To expand it as one of the major TV markets for Europeans and Australasians to fully benefit the indies.

As far as considerations are concerned, our main recommendations were not to interfere with the studios activities, conserve the informal environment, encourage the indies to continue exhibiting at their favorite hotels, arrange for a mere two-day overlap with the studios’ screenings, organize conferences during the indies’ time (before studios’ screenings) at the same hotel as most of the indie exhibitors, organize breakfast and lunch meetings with major keynote speakers, organize a major party for indies (sponsored by a group of them) and, most importantly, organize general screenings. Seminars have to attract buyers. Best if they’re invited to talk about problems with program acquisition, what they want out of a market and what distributors should be offering. The seminars should be gatherings of German, French, Portuguese, Italian and Arabic-speaking territories, plus the U.S. broadcasters who are likely looking to buy programs from overseas for their digital mux.

Posted by watercooler at 11:43 AM | Permalink | TrackBacks (0)