After perusing Blogword to see what everyone is talking about, I find that everyone is talking about the election. This is, of course, no surprise. But being the emotionally evolved person that I am, and having resigned myself to both a Bush victory and Cub defeat, I have moved on. I am now the self-appointed advance scout for Blogworld, exploring the far country in search of The Next Big Thing that we're all going to be talking about after November 2.
Here's what I predict we're going to do:
1. Analyze the crap out of the election. It's a deep rut we're all in, and it's going to take time for us to climb out of it. Our political half-way house is recrimination of the Kerry Campaign and crippling waves of nausea as the TV punditocracy's insider-debrief on the campaign reveals all kind of things they really should have brought to our attention before the election. For example: Karl Rove gets the President pumped-up for campaign appearances by reading to him from The Little Engine That Could, and Laura Bush smokes Swisher Sweets at night on the Truman Balcony.
2. Stare in wonder as President Bush unleashes holy hell on rebel strongholds in Iraq. Lefties will complain that, if amping-up the violence in Iraq is something that needs to be done, Bush should have had the stones to do it before the election. Lefties will make this self-defeating complaint despite the fact that they disagree with the policy, thus making the debate about timing and not the policy itself. The actual policy will never be discussed, because the media will be all ajabber about the plans for the Inaugural balls, which they get invited to but you don't. Righties, on the other hand, will simply stick their tongues out.
3. Watch the rats leave the ship. Secretary of State Colin Powell is, for all practical purposes, already gone. SECDEF Donald Rumsfeld and Attorney General John Ashcroft are the next to go, "seeking other opportunities" after embarrassing and ineffective tenures that have screwed this country up, but good. Homeland Security Director Tom Ridge has already announced he's leaving. His reason: He can't make ends meet on $175,000 a year. Lefty bloggers will make rude noises about Ridge abandoning his country in its time of need, and doing it for money. They will be right, but no one will care. Lefties will camplain about Ridge's departure despite the fact that they don't like Ridge and should be happy to see him go.
4. The Dan Rather Deathwatch. Rumor has it that the almost 700-year-old Rather will decide to "retire" in January. Here's an inside scoop: My parents, who live down the block from Rather's home outside of Austin, report a step-up in landscaping activites at the opulant Rather estate. Regular Autumn gardening, or preparation for the Master's return?
5. Massive Budget cuts. Post-election, Republicans suddenly discover the federal budget deficit. Yikes! Where'd that come from? The first solution to the $450 billion a year shortfall offered by Republican "leadership": Zeroing-out the National Endowment for the Arts' $140 million budget and making it legal for corporations to avoid paying taxes by having their CFOs turn counter-clockwise three times while chanting, "I know better what to do with my money than the government does." While this may be good sorcery, it's bad policy, so the Repubs will go into conference and emerge with a document proposing 10% across-the-board cuts for everything but the stuff they feel the country needs if it's going to continue to elect Republicans. Look for: Cuts in programs for crippled children and increases in golf course subsidies. Metaphorical blood will flow in the streets of Washington, D.C., and the anecdote-oriented media will file fill-in-the-blank stories of telegenic and hard-working single moms whose adorable children are threatened by the government's sudden abandonment of some federal program or another.
6. Hurricane Zelda rips into Miami. The 11th hurricane to make landfall on Florida this year causes President Bush to declare Florida a Triple-Disaster Area. That make residents of the state eligible to be moved, at government expense, to inland areas not prone to hurricanes, like Kansas. In a related development, the EPA issues a report stating that the increased volatility of tropical storms has nothing to do with global warming. "Our best thinking at this time," says the newly appointed head of research for the EPA, former Alabama Supreme Court Judge Roy Moore, "is that the storms are God's retribution for Forida leaving homosexuals uncaged in South Beach and Key West."
There's also the possibility, albeit small, that once the election is over bloggers simply won't have anything to talk about at all. After a few days of linking to each other's links about how little is going on, we'll get bored and seek new hobbies. My prediction: Building models of the Starship Enterprise in empty 1.5 liter wine jugs and throwing rocks at passing freight trains, which don't even notice we were there.
I've spent substantial portions of the last week with Republicans, kind of undercover. I wasn't wearing a disguise or anything, but when I'm spruced up and on my best behavior, in certain contexts people assume I'm Republican. Maybe it's the captoe shoes.
Aynway, here's what impressed me about what Republicans talk about when there's no one around to listen: They really don't like President Bush. I mean, they're not just a little grumpy; they think he's screwed up almost everything and is a disgrace to the party. They complain that he's abandoned conservative principles and allowed inmates like Tom DeLay to take over the asylum.
Oh, and here's something else: They like John Kerry even less.
I know: It's no big surprise that there are Americans voting for the lesser-of-two-evils. But it says something -- though I'm not sure what -- that his natural supporters say things things almost as venomous as his detractors.
The Montreal Expos, a franchise so bad it doesn't even have an owner, has been sold and will move to Washington DC. Washington will enjoy this improvement in its culture -- surprise! -- at taxpayer expense.
Plans call for a $440 million package that would include a new ballpark to be built along the Anacostia River about a dozen blocks south of the Capitol. The package also includes a $13 million refurbishment of RFK Stadium, where the team would play for three seasons while the new facility is being built.
CORRECTION: The Expos, it seems, do not yet have an owner. Apparently, we are now subject to a renegade (and very bad) baseball team roaming the countryside looking for its "mommy." I bet someone at Fox has a project-in-development based on this nightmarish scenario within minutes.
I like a good Googling as much as the next guy, unless the next guy is Kevin Drum, who seems to have a Googling thing, if you Google my drift.
Drum proposes a new measure of Inernet fame, the basic unit of which is the "brooksie." It's based on a Googling of "David Brooks," which returned 127,000 hits. To measure someone's Internet fame (IF), you Google their name and divide the number hits returned by 127,000. Drum, by way of example, is a 1.13 brooksie Internet presense.
By Googling "Tom at FunctionalAmbivalent," I discover that I am a .07 brooksie player. Ouch.
For people like me, whose IF can only be measured in deep decimals, Drum proposes the face-saving "millibrooksie." I feel better being a 70 millibrooksie kind of guy. Not much better, but I cling to what I've got.
Once again, we here at Functional Ambivalent are surfing the web and crunching the numbers to give you, our loyal reader, the kind of watercooler-worthy information you've come to expect from better blogs than this one. I call this portion of the program "Math by an English Major" because I'm an English major and I'm doing math.
Today's Question: How much shareholder value was destroyed by CBS's shabby journalism in the reporting of President Bush's shabby service in the Texas Air National Guard?
Because this is a long posting, I'm going to get right to the bottom line: Dan Rather's little boo-boo cost Viacom, CBS's parent company, $85 million. Don't believe me? Here's the math:
First of all, we need to put CBS News in perspective. It seems like a big deal, but in financial terms it is, as Dan Quayle used to say, small potatoe. CBS is owned by Viacom, a media behemoth that owns almost every media outlet in the United States that's not owned by Disney, Gannett or Clear Channel. When you rent a video at Blockbuster, you're renting it from Viacom. When you want your MTV, you're wanting Viacom. Anything produced by Paramount is produced by Viacom, so Star Trek and all its progeny are owned by Viacom. Nickelodeon? Viacom. Buy a book from Simon & Schuster and you're buying a book from Viacom. CMT, BET, Showtime? Viacom, Viacom, Viacom. The list goes on and on.
In the second quarter of this year, according to documents filed with the SEC, Viacom had $6.8 billion in revenue and roughly $90 billion in assets. In 2003, acording to Viacom's annual report, the company had $3.6 billion in operating profit. "Operating profit" is a calculation that helps financiers determine whether money is coming in faster than it's going out, without financial hocus-pocus like imaginary interest payments and invisible payments on equipment bought and paid for years ago, like typewriters that create documents that look like they were produced on word processors.
Buried down somewhere in Viacom is the TV Division. According to Viacom's most recent 10Q, the TV Division consists of:
...the CBS and UPN television networks, the Company's 39 owned broadcast television stations, and its television production and syndication business, including KING WORLD PRODUCTIONS and PARAMOUNT TELEVISION. Television revenues are generated primarily from advertising sales and television license fees.
"Television license fees" are, in case you don't know, the money television stations pay for Viacom-owned programming. For example, Kingworld is the syndicator of Jeopardy! and Wheel of Fortune, which spin off a couple Superbowls of revenue a year without anyone feeling the need to put on a terrifyingly vulgar halftime show.
Viacom's SEC filings and annual report brag a lot about CBS, which is making a bunch more money this year than last. The documents don't brag about CBS News, which contributes only a small amount of profit to Viacom's bottom line. That profit, unimpressive as it may be to accountants, is amazing to TV people. For most of the history of television, news has been a money-sink. In the early days of television, networks accepted news as a loss-leader because news gave the networks a patina of class. It gave executives an excuse to hire guys with English accents and allowed the snobs on the network board of directors to talk about world affairs instead of Milton Berle's new dress.
That started to change in the 1980s, when the Tisch brothers bought CBS and G.E. bought NBC; the new corporate masters didn't understand why news shouldn't make money, and they set about hacking bureaus and corespondents and even -- the bastards! -- previously lavish expense accounts. Here's Dan Rather talking about the business of news on the ironically titled Larry King Live:
KING: It's not a loss leader anymore.
RATHER: No, it is not a loss leader. It is not as good a business as morning television news, mostly because the morning has more time. They have two hours, maybe three hours. But it's a very good business.
How good? I'm glad you asked. According to this article in the New York Times:
The national news division, whose evening news program remains stuck in third place in the ratings behind NBC and ABC, generated no more than $100 million to $300 million in operating profit, according to one person close to the company.
Let's take the high-end estimate and assume that CBS News is way more profitable than it really is. It's banking $300 million a year, a whopping 8% of the $3.6 billion Viacom operating profit.
Keep in mind, that's for all of CBS News' shows, about 21 hours a week of programing, of which The Evening News with Dan Rather is only 2.5 hours and 60 Minutes Wednesday is an hour more. Chalk both of those up to Dan and we find that he's materially involved in only 17% of the CBS News Division's programs, albeit a high-visibility 17%.
Let's recap: Rather is involved in 17% of CBS News' programs, which account for 8% of Viacom's operating profits, which means that the most visible man in TV news...the man who has been Topic A for the last two weeks...amounts to about 1.4% of Viacom's enormous profits.
Dan Rather a big-deal guy? Hah!
Going even farther, it's unfair to assume that Rather is 100% responsible for the profits of the shows he's involved with, but what the hell. We'll give the old guy a break. That means that, depending on how many decimal places you set your calculator to, Dan brings beween $49 million and $51 million in profits into CBS every year. I'll split the difference and call it $50 million. In exchange for this, Rather is paid $7 million.
Last week, the ratings of the CBS Evening News with Dan Rather were down 10% over the same week the year before. A significant portion of that, according to this article in the Chicago Tribune, is due to the long, slow slide-into-death network news has experienced over the last 20 years. To control for that, let's look at the other network newscasts. ABC and NBC's ratings were also down, by 8% and 4% respectively. I'll average their drop out to 6% and subtract that from CBS' 10% drop and conclude that Danscam has cost The Evening News 4% of its audience. I'll assume the same 4% of people have stopped watching 60 Minutes Wednesday, too.
The easiest thing to do would be to assume that a 4% drop in ratings converts perfectly to a 4% drop in top-line commercial revenue and a 4% drop in bottom-line news division profits. This assumption would be, in a word, bullshit. Depending on how a particular business works, the hit to the bottom line could be a lot more or a lot less than the hit to the top line. News is a high-fixed-cost business, which means that a change in audience size does not appreciably affect the expenses incurred in producing the product -- in this case, highly suspect news programs. When the audience decides it's more accurate get its news from, say, a Ouija Board, CBS's ratings go down and advertisers pay less for commercials. Revenue drops, but the News Division still has to pay all those cameramen and reporters to sit around fancy hotel bars and drink.
So let's assume that a 4% drop in revenue at the shows affected by Danscam translates to a 10% drop in operating profit. That's not unrealistic. Let's also assume that the audience is gone for good. That means Danscam will cost Viacom $5 million in operating profits in the next year, and an inflation-adjusted, similar amount in the years beyond.
Sophisticated shareholders don't really care that much about profits, except as they affect stock prices. Viacom shares closed today at $33.10, which I am going to round-down to $33.
The assumption among capitalists is that the stock market is not stupid. This assumption took a beating during the dot-com days, when the market invested billions in companies predicated on, for example, the assumption that that people would buy 50-pound bags of dogfood over the Internet and pay to have those bags shipped FedEx to their homes. The market appears to be back on its medication, however, and is behaving normally.
Market watchers talk about the market "factoring in" all kinds of minutiae to come up with a fair price. In their perfectly rational world, if the temperature drops in Florida, companies that squeeze orange juice take a hit on the assumption that there will be fewer oranges to squeeze.
There are approximately 1.8 billion shares of Viacom stock. If we multiply the number of shares by the price per share, we arrive at the "market capitalization" of the company. That's the dollar figure that would be on the pricetag if Viacom were for sale down at WalMart. The market cap of Viacom is $60 billion, give or take a few-hundred million.
The ratio of capitalization ($60 billion) to operating profits ($3.6 billion) for Viacom is roughly 17. That is, for every $1 of operating profit, the shareholders hold $17 of stock. Assuming that ratio stays the same, when the operating profits go up, the share price goes up; shareholders are joyful. When operating profits go down, so does the share price; shareholders are angry and bitter.
The Danscam fiasco, remember, caused ratings to drop, which will lower revenue and cut News Division operating profits by about $5 million. Multiplying $5 million by the 17, we discover that, if the market works as efficiently as market believers believe, Danscam will cost Viacom shareholders $85 million in equity value. Divide that $85 million by 1.8 billion shares, and it comes out to about a nickel per share.
That's how much Danscam cost Viacom's shareholders. I think it's time Rather sat down and started writing some checks.