Category Archives: Business and Economy

Housing prices dropping in places where it wasn’t supposed to keep dropping (like Seattle)

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It has been well-documented that the housing crisis has had a strong effect on places like Las Vegas and much of Florida. But this report suggests the drop in housing prices has spread to places once thought to be immune to these drops, such as Seattle:

Now, though the overall economy seems to be mending, housing remains stubbornly weak. That presents a vexing problem for the Obama administration, which has introduced several initiatives intended to help homeowners, with mixed success.

CoreLogic, a data firm, said last week that American home prices fell 5.5 percent in 2010, back to the recession low of March 2009. New home sales are scraping along the bottom. Mortgage applications are near a 15-year low, boding ill for the rest of the winter.

It has been a long, painful slide. At the peak, a downturn in real estate in Seattle was nearly unthinkable.

In September 2006, after prices started falling in many parts of the country but were still increasing here, The Seattle Times noted that the last time prices in the city dropped on a quarterly basis was during the severe recession of 1982.

Two local economists were quoted all but guaranteeing that Seattle was immune “if history is any indication.”

A risk index from PMI Mortgage Insurance gave the odds of Seattle prices dropping at a negligible 11 percent.

These days, the mood here is chastened when not downright fatalistic. If a recovery depends on a belief in better times, that seems a long way off. Those who must sell close their eyes and hope for the best.

It doesn’t sound good for sellers in a lot of places.

It would be interesting to know more about why certain cities were thought to be immune. I can think of a few explanations off the top of my head: certain markets didn’t experience a big boom in prices in the 1990s-2000s so there wasn’t much room for prices to drop; certain areas attract jobs and employees so there will be more people always look for housing; and certain didn’t experience building booms so there isn’t a glut of houses or units to be sold. Does one of these explanations fit Seattle?

Target coming to Carson’s building on State Street

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State Street is a venerated shopping street in Chicago. Prior to the construction of the retail stores on Michigan Avenue north of the Chicago River, State Street was the home to department stores with familiar names like Marshall Fields and Carson’s. And now there is news that Target is planning to open a store in Carson’s iconic building:

Target will lease 124,000 square feet over two floors, but only 54,000-square feet will be selling space, the company said.

The retailer, known for its cheap chic, has been in talks for more than a year to lease space at the landmark Sullivan Center at State and Madison Streets. Carson’s closed its store there 2007…

The city has poured $24.4 million in tax-increment-financing to help restore the Louis Sullivan building, which also houses offices. Chicago-based developer Joseph Freed & Associates, the building’s owner, has invested another $190 million in the national and Chicago historic landmark in the last decade.

“I applaud Target for bringing this urban store concept to Chicago, as well as the new jobs and economic opportunity this store will create,” Daley said. “Target will be an important addition to State Street, one of Chicago’s most important retail centers, and will be located in one of city’s most architecturally significant buildings.”

The State Street store would be in keeping with the discount chain’s recent strategy to push into urban cores with smaller stores. Target recently signed deals to open a 70,000-square-foot store in the heart of Seattle and a 100,000-square foot store in a shuttered Macy’s in downtown Los Angeles. Those stores are slated to open in 2012.

“We look forward to preserving this Chicago treasure and blending in with the building’s aesthetic, said John Griffith, executive vice president, property development at Target. “A hallmark of Target is our flexibility in store design.”

As for Target’s iconic red bull’s eye, the retailer is still working out the details of incorporating its logo while still respecting the building’s historic status.

This announcement comes as both Target and Wal-Mart have announced plans recently to move into more urban markets. A few thoughts about this:

1. It is somewhat ironic that the stores like Carson’s and Macy’s (purchaser of Marshall Field’s) are mainly about sales from suburban malls while stores like Target and Wal-Mart, symbol of big-box suburbia, now want to be part of the city.

2. Is there anyone who is going to complain about Target moving into this iconic building? When Macy’s bought Marshall Field’s several years ago and moved into the flagship store on State Street, a lot of Chicago residents were mad that one of their iconic businesses had been replaced. Will there be similar concern about Target or are people just happy that they can get to the trendy Target in the middle of the city? (Imagine if Wal-Mart was planning to move into this location.)

3. It will be interesting to see how Target blends their image and layout with this historic building.

4. What does this move say about State Street compared to other shopping areas in the city? State Street seems to be an odd mix of suburban stores on a historic street. Couple this move with the ongoing saga of Block 37 and one has to wonder if there is any long-term plan for State Street.

San Fran “coffeehouse and tech incubator” inspired by idea of “third places”

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Starbucks CEO Howard Schultz has said in recent years that the company seeks to become a “third place,” a space between work and home. This term was popularized by sociologist Ray Oldenburg in The Great Good Place. But exactly how a coffee shop should operate in order to be a third place is up for debate. A new San Francisco firm, The Summit Cafe, envisions a coffeeshop plus a center for technological incubation:

With its copious power outlets, Gouda-wrapped meatballs, and a curated magazine rack featuring vintage Steve Jobs covers, the Summit café sits at the intersection of San Francisco’s three most conspicuous tribes: techies, foodies, and yuppies. Yet what separates the Summit from being just another Wi-Fi boîte is the dual-purpose nature of the 5,000-square-foot space. One floor above the Laptop Mafia, the café features a cluster of offices where groups of programmers and developers toil away in an effort to launch the next Twitter—or at least the next OkCupid. Created by i/o Ventures, a Bay Area startup accelerator comprising former executives from MySpace (NWS), Yahoo! (YHOO), and file-sharing site BitTorrent, the Summit is equal parts Bell Labs and Central Perk—and probably the country’s first official coffeehouse tech incubator. Every four months, i/o selects and funds a handful of small tech ventures to the tune of $25,000 each in return for 8 percent of common stock. In addition to the cash, each team gets four months of office space at the Summit, mentoring from Web gurus like Russel Simmons of Yelp, and discounts on all the Pickle & Cheese Plates or White Snow Peony Tea they could possibly need. Since the café opened on Valencia Street last fall, two companies have already been sold, including damntheradio, a Facebook fan management tool. To hedge against any potential risk, i/o also rents half of the Summit’s other desk space to independent contractors and fledgling Web entrepreneurs. It’s even experimenting with an arrangement in which customers can pay $500 for a dedicated desk—on top of a $250 membership fee.

Is this sort of thing only possible in San Francisco (high-tech culture) or perhaps just in major cities?

But this space does seem more like a work space than a true third place. Are there people who come here just to hang out? Do fledgling companies that come here mix with other fledgling companies to form new ideas and firms?

The smell of a bad net neutrality argument

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NOTE:  There are follow-up posts available here and here.

Forget the obvious jokes about broadcast content being an open sewer:  Alan J. Roth over at the Congress Blog actually, literally thinks that Washington, D.C. sewage treatment has a lot to teach Netflix:

I have two jobs. One of them – the full-time job that pays the bills – involves directing government affairs for a trade association of internet service providers (ISPs) and telecom companies. The other – a volunteer position – is my service on the Board of Directors of the District of Columbia Water and Sewer Authority (WASA).

And what is this connection that Mr. Roth has seen betwixt his two modes of employ?

I read Netflix CEO Reed Hastings’ January 26th letter to his shareholders [link here] offering his views on who should bear the costs of transporting and delivering his company’s high- volume, bandwidth-hogging Internet video service to its customers. A light bulb went on in my head: There’s a lesson that Hastings and his customers could take from how the Washington area pays for sewage disposal.

At this point, I’m dubious but curious.  Roth goes on to explain that the District owns a major sewage treatment plant in Blue Plains that serves suburbs beyond D.C.:

The suburbs’ sewage gets to Blue Plains via the same kind of “regional front doors” that Hastings described in his shareholder letter. A series of interconnection points link the suburbs’ sewer lines with the “last mile” that WASA operates through DC on the way to final treatment.

So there’s the analogy:  Roth thinks that sewage line’s “last mile” can be compared with with broadband’s last mile.  What’s his point?

Unlike Netflix’s self-serving suggestion that it should pay only to transport its bits to a regional gateway, after which the costs of delivery to the end point would fall on others, [the regional sewer services in D.C.] approached the costs of last-mile delivery differently. Each wholesale customer – that is, each suburban authority sending sewage to DC – pays a pro-rata share of the capital costs for Blue Plains and related transmission facilities, based on an agreed-upon allocation of the plant’s capacity. Operating and maintenance costs are shared based on each suburban customer’s actual flow of sewage to the plant.

By contrast, the “Netflix model” proposes to spread the costs created by Netflix customers to other consumers who derive no benefit from Netflix’s video bits. If WASA operated this way, suburban retail ratepayers would be billed by their own wastewater authorities for the relatively smaller costs of transporting their sewage to the interconnection points at the DC line. After that, DC retail ratepayers would have to pay all the costs of not only transporting suburban sewage to its ultimate destination at Blue Plains, but also for all the costs of processing and treating the suburbs’ waste there.

If I understand Roth’s analogy correctly, he has completely misapplied it.  Consider:

1.  Netflix is the analogue to the Blue Plains treatment plan.  Netflix provides the value (clean water/streamed video) that the consumer ultimately wants.  Local ISP’s are, in contrast, merely the D.C. suburbs with in-home connections but without adequate sewage treatment facilities.

2.  Netflix has built (or rented) its own sewer/data lines right to the point where the suburb/ISP takes over.

3.  Why shouldn’t the ISP only be paid for “the relatively smaller costs of transporting their sewage to the interconnection points”?

Am I missing something here?  Or is this argument really as self-defeating as it seems?

Copyright squared

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There’s a new trend afoot to take the “notice” out of the Digital Millennium Copyright Act’s (DMCA’s) “notice and takedown” procedures:

The company is claiming that the DMCA takedown notice itself is copyrighted and that passing it along will constitute infringement. Of course, this raises some questions.

It does indeed.  For those of you unfamiliar with the DMCA’s notice and takedown procedures, they are a safe harbor that Congress wrote into the DMCA to shield service providers from certain types of copyright infringement suits.  ChillingEffects has this helpful explanation in their FAQ’s:

In order to have an allegedly infringing web site removed from a service provider’s network, or to have access to an allegedly infringing website disabled, the copyright owner must provide notice to the service provider with the following information:

  • The name, address, and electronic signature of the complaining party [512(c)(3)(A)(i)]
  • The infringing materials and their Internet location [512(c)(3)(A)(ii-iii)], or if the service provider is an “information location tool” such as a search engine, the reference or link to the infringing materials [512(d)(3)].
  • Sufficient information to identify the copyrighted works [512(c)(3)(A)(iv)].
  • A statement by the owner that it has a good faith belief that there is no legal basis for the use of the materials complained of [512(c)(3)(A)(v)].
  • A statement of the accuracy of the notice and, under penalty of perjury, that the complaining party is authorized to act on the behalf of the owner [512(c)(3)(A)(vi)].

Once notice is given to the service provider, or in circumstances where the service provider discovers the infringing material itself, it is required to expeditiously remove, or disable access to, the material. The safe harbor provisions do not require the service provider to notify the individual responsible for the allegedly infringing material before it has been removed, but they do require notification after the material is removed.

In his analysis, Mike Masnick notes a few of the problems with claiming copyright protection in DMCA takedown notices, particularly issues of authorship (“who owns the copyright”) and registration (“did whoever write this letter actually register it with the Copyright Office?”).  Of course, there are other problems to consider:

  1. First Amendment.  Do we really live in a world in which individuals can be subjected to legal process but cannot talk about what is happening to them?
  2. Fair use.  Among other things, isn’t the posting of DMCA notices transformative?  Is there any market effect that the law cares about?  Or is this like the proverbial “scathing theater review” that Justice Souter said “kills demand for the original” but “does not produce a harm cognizable under the Copyright Act”?  Campbell v. Acuff-Rose Music, Inc., 510 US 569, 591-92 (1994).

It seems to me that if (1) you’re a copyright owner and (2) you think someone is infringing your rights and (3) you want it to stop but (4) you also want to keep it your little secret and not let anyone else in the world know other than the alleged infringer, then you should maybe reconsider (2), because the fact that you are insisting on (4) may indicate that (2) isn’t actually true.

Just a thought.

How (baseball) statistics can help you earn $2.025 million

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Traditional baseball statistics would say that Pittsburgh Pirates pitcher Ross Ohlendorf didn’t have a great 2010 season: the 27-year old had 1 win against 11 losses with 108 innings pitched in 21 games. Yet, in an arbitration hearing, Ohlendorf just earned a pay raise from $439,000 to $2.025 million. What happened?

Even though this might seem like a minor matter (the average MLB salary in 2010 was $3.3 million), there is plenty of talk already that Ohlendorf benefited from statistics (and a field known as sabermetrics) that have become fairly normal in the last 20 years in baseball. Ohlendorf’s WHIP ((walks + hits)/innings pitched) was decent at 1.384. His ERA+ (comparing his ERA to the league average and adjusting for the ballpark) was 100, right at the league average.

Ultimately, these statistics suggest that Ohlendorf’s performance was decent, at least average. His main problem was that he was pitching for a terrible team that finished with 57 wins and 105 losses. With a little more data beyond what typically goes on a baseball card or is flashed on a television graphic, Ohlendorf got a sizable raise.

There could be some alternative takes on this outcome:

1. Wow, even an average MLB pitcher can make big money.

2. It would be interesting to know whether Ohlendorf’s representative in the arbitration hearing used all of these advanced statistics to make his case.

3. How quickly can workers in other careers develop advanced statistics to further their pitches for raises?

Nobody’s a hero here

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The thrill is gone:  today we find out that there will not be another Guitar Hero release anytime in the foreseeable future:

Activision Blizzard will close its music-game business division, laying off hundreds of employees, and cancel the Guitar Hero game that was in development for 2011, the publisher said in a conference call Wednesday.

The drastic move comes after significant industrywide declines in the music game business. In 2007, Activision sold 1.5 million copies of Guitar Hero III in its first month of sales. Last year, Activision only sold 86,000 copies of the latest game in the series, Guitar Hero: Warriors of Rock. Slowing sales of chief competitor Rock Band led Viacom to sell maker Harmonix and close the MTV Games publishing division.

Activision said that the decline of the genre, plus the high cost of licensing music and producing the games, led it to close the business. [emphasis added]

Arguably, Guitar Hero and Rock Band were fads (at least, at their white-hot sales peaks) whose time had passed.  Nevertheless, these games were probably some of the cheapest console games (from a technical/development standpoint) made in the last few years.  The real cost driver here had to be the music licensing fees.  At the right (i.e., low enough) price, these games probably could have been made indefinitely, but it appears that monopoly-imposed costs have outstripped demand and the dreaded deadweight loss triangle has destroyed the market.

Which begs the question:  why does the music industry continually insist on killing geese that lay it golden eggs? In my view, there’s a difference between profiting from risk taking (i.e., capitalism generally) and expecting other people to pay you an ever-increasing cut of the revenue stream based on the risks they took in finding and exploiting a new market which literally did not exist before.  As for the music industry’s attempt to parlay other people’s risk taking into ever bigger royalty streams for themselves, they can’t really complain when the market softens and no one can afford to pay their exorbitant fees.

(On a final, parenthetical note:  no-doubt-soon-to-be-former music industry execs should perhaps consider a career move into lottery management.  In addition to being the ultimate something-for-nothing industry, the lottery is bigger than porn, movies, and music combined. It’s also a regressive tax on the poor, a perfect money-laundering machine for organized crime, and easily rigged.)

WSJ: more regulations for law schools?

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When the Wall Street Journal starts countenancing additional regulations for law schools, you know that the world really has changed:

Regulation? all you free-marketeers are asking. Really? Won’t regulation further drive up the cost of education, which is already stunningly high?

However, rather than dismissing the suggestion of greater regulation out of hand, WSJ blogger Ashby Jones finds Tung Yin’s argument for Sarbanes-Oxley-like regulation over at PrawfsBlawg “compelling”.  As Yin puts it:

If anything, it seems to me there’s arguably a stronger call for enforcing these sorts of disclosure and accuracy provisions on law schools (and universities in general) than on corporations. After all, the cost of corporate malfeasance with regard to balance sheets and the like is diffused across a huge number of investors, who are presumably not taking out huge loans with which to invest in said corporate stock.  (I guess there are margin traders, but really, they seem a less sympathetic group for concern than poor students with huge education debt.)  The cost of law school malfeasance in terms of misleading or false employment data is visited upon a (relatively) small number of students who are saddled with $50,000 or more in student debt.  Shouldn’t they be entitled to at least the same level of informational protection that stock investors now get?

I disagree with Yin’s analysis somewhat.  While it is true that there are “a (relatively) small number of students” with extreme educational debt, malfeasance by academic institutions has the same sorts of diffuse, wide-ranging implications that malfeasance by corporations has.  The federal government subsidizes or provides outright the bulk of law student loans.  Were it not for this subsidy, it is highly doubtful that law schools would attain their currently high enrollment numbers since no rational (i.e., unsubsidized) lender would loan six figures each to tens-of-thousands of 22-year-olds (at least, not on terms that would result in tens-of-thousands of new law students each year).

Like it or not, the U.S. government is heavily subsidizing legal education by providing students with access to virtually unlimited capital.  One can argue whether or not this represents a prudent investment in the nation’s future or an impending boondoggle on the scale of Fannie Mae and Freddie Mac, but it seems clear to me that somebody should be requiring law schools to reveal the cold, hard facts on the value they are providing to their graduates.

The tired free-market-vs.-regulation arguments don’t really work here.  Law schools are not a free market; they’re a heavily subsidized one.  Unless and until that changes, I for one think the government is perfectly (and prudently) within its rights as the subsidizer to require fair, full, and accurate employment disclosure from law schools.

Seizing the spotlight

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One of the items highlighted in Monday’s Intellectual Property Enforcement Coordinator (IPEC) report (92 page PDF–see here for my previous post) was government seizures of various domain names allegedly associated with infringing comment.  Bruce Lidi over at ZeroPaid makes a compelling argument that the publicity associated with such tactics is counter-productive at best:

As nearly every analysis of the recent ICE action has noted, by seizing the US registered domain names of foreign-owned and operated sites, the authorities have propelled the sites to set up on domains not under US control, and to do so within days, if not hours, of the seizures….It would appear that aside from a very momentary interruption, the practical effect of the seizures will be negligible, except to make any future actions by rights holders that much more difficult, since the targeted sites will be farther from US jurisdiction.

Additionally, and even more importantly, the recent ICE domain seizures that focused on sports streaming sites has had, and will continue to have, the effect of generating more publicity for this kind of infringing.  Consistent with the concept of the “Streisand Effect,” attempts to suppress troublesome information online result invariably in that information becoming even more widely distributed.  While impossible to quantify with any certainty, the seizures by ICE surely increased awareness of the existence of rojadirecta and atdhe, and even more, of the ease in which viewers can access live streaming of sporting events online.  As we so often see in articles about “cord-cutting,” or dropping cable in favor of purely internet video delivery, many people are stymied by the lack of live sports online, yet now, because of the actions of ICE, millions more viewers have just been instructed that it is actually quite simple to get live footage of every soccer match or football game.

Lidi’s analysis reminded me of countless debates I’ve read about U.S. military policy.  Some people favor a “shock and awe” approach while others think that “winning over hearts and minds” is the way to go.  Unfortunately for the content industry, I’m not sure that they’re ever going to win people over completely to their way of thinking.  Anyone who claims that, as a practical matter, people don’t have the right to rip their owned CD into Mp3’s (article from 2008 but still true–see the RIAA’s current website) has completely lost touch with reality.

Let’s hope the “new normal” in housing doesn’t look like Merced County, CA

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A USA Today article about the “new normal” in US housing uses Merced County, California as its main example. The situation there is not good:

The median home price, $116,000, is down 68% from its peak in 2006. Three of five homeowners with a mortgage here owe more on their loans than their houses are worth, compared with about one in five nationally.

While the situation is particularly dire in Merced County, it is also not great in a number of other places:

Nationwide, home prices are down 30% from their 2006 peak. Moody’s Analytics economist Celia Chen says national home prices will regain that ground by 2021.

Some areas will take far longer. In 22 U.S. metropolitan regions, most in California and Florida, home prices won’t return to their 2006 peaks before 2030, Chen estimates. That includes such cities as Miami, Detroit, Phoenix, Las Vegas and Riverside, Calif.

And a USA Today chart shows the counties with the most mortgages underwater: Clark County, Nevada (where Las Vegas is located) is at the top with 71.1% of mortgages underwater. Overall, there are 17 counties over 50% and the top 30 on the chart are all over 46%.

This is a long-term issue for these places, particularly if housing values for the whole country aren’t expected to reach the 2006 peak until at least 2021.