SeanReadsTheNews

WSJ: Vertical Integration is Back

Ben Worthen, Cari Tuna and Justin Scheck of The Wall Street Journal today report on the reintegration of corporate supply chains in a deep cover story on the real-world impact of shifting trends in business strategy.

In another result of the recession, companies such as Oracle, ArcelorMittal, PepsiCo Inc., General Motors Co. and Boeing Co. are buying back units they spun off as separate companies and acquiring former partners (such as Oracle and Sun's merger) to gain more control over their supply chains in a volatile world.

Worthen has been covering San Francisco technology scene for a while and it shows in finding this quote from Oracle's CEO Larry Ellison:

Just two years ago, for example, Mr. Ellison said Oracle would stick to its traditional focus on software. Computer hardware isn't "a business we have any ambitions in," he said then. In a September speech, he called that view "fundamentally wrong." Mr. Ellison declined to comment for this article.

Specialization was a boon to management for a while, helping to force efficiencies on business that couldn't be done inside a wider company - but too much outsourcing led to major problems at big manufacturers.

In the past two years, Boeing bought a factory and a 50% stake in a joint venture that make parts for its troubled 787 Dreamliner jet. The moves partially reversed Boeing's aggressive outsourcing strategy to assemble the Dreamliner from parts made by hundreds of suppliers. Supply and assembly problems have knocked the Dreamliner more than two years behind schedule. Boeing CEO Jim McNerney says the company is still committed to outsourcing.

Likewise, GM in October took a minority stake in Delphi Automotive LLP, its biggest parts supplier, and purchased four factories and Delphi's steering business as the supplier emerged from bankruptcy. GM, which spun off Delphi in 1999, wanted to assure uninterrupted supply, a spokeswoman for the company says.

The writers compare the history and impact of past conglomerates with today's and take the time to explore the market trends that made the strategic shifts necessary.

Communications-wise, for companies making U-turns, this article was a great way to be part of a trend, rather than just saying "we were wrong and now we're going backwards."  This story might not have sounded great to the PR departments when the phone range but they ended-up well served by the result.

Fortune on a Hearst Family Divorce

This Fortune story by Mark Fass on the Hearst media empire written as a detailed look at the divorce of Heart's grandson Bunky, published on Wednesday morning just after SRTN's deadline, so I'm stretching to include it today.  It's another entry in our non-existent entertainment page for its lurid divorce details but also substantive on the issue of corporate governance.

Fass get into how the Hearst Trust runs the company, why Heart's structure functions better than the Bancroft trust did with Dow Jones, how Bunky Hearst's ex-wife out-maneuvered his lawyers for years before settling.

There isn't really a PR lesson here or any deep message about the future of journalism.  The big message is don't get divorced.

NPR on the Fall of the DVD (In Price)

Tess Vigeland interviews entertainment writer Claude Brodesser Akner in this segment from Friday on how DVDs stopped being a cash cow for Hollywood.

She does the things NPR does right on its Marketplace business show - cover a big business strategic issue and make it understandable in a short period of time, getting this quote from Akner that sums up the current economics of the business.

Yes, in fact, not only are people not buying DVDs, because they're renting them, thanks to RedBox, but there's also a change in psychology that's happening here, which is that once people get used to paying a $1 for a movie, it's very hard to get them to pay anything else for one.

Vigeland also falls victim to an NPR weakness, which is to address all changes from the perspective of those who are hurt by change, as we saw last week in a segment on how price wars hurt small retailers.

So now we have not only the death of the DVD, but we also no longer have high profits on what is the very latest technology, which is Blu-ray. So how is Hollywood going to make any money?

AKNER: The problem with your question is that there's not really a good answer.

Actually, we're already seeing the answer.  Top Hollywood talent is having its salaries cut, the studios are reworking costs and ownership agreements, the number of writers on each television show is down, etc.  When Blu-Ray was introduced, there were articles about the greedy studios trying to get fans to buy the same content in different formats for a third or fourth time.  Now that consumers are driving, we're supposed to feel sorry for the studios?  I don't get it.

WSJ on Latest AOL Comeback Strategy: Charging Sources to be in the News

Emily Steel explores the latest AOL comeback strategy in today's edition of The Wall Street Journal, writing about how AOL wants to be a content company.  This story stood out because it is about embracing journalism rather than trying to figure out how to make it stop losing money.

The pioneer of home Internet access is embracing a third way between advertising and journalism.

Instead of waiting to sell ads until an article or Web video is produced, AOL—which has scores of niche sites, such as beauty and fashion site Stylelist, in addition to its AOL brand—says it plans to offer marketers the chance to work with its editorial team to create custom content.

AOL says that its ad model would allow advertisers to be affiliated with the content but not control what was written or created. Media experts and others say that disclosing when articles or videos have been shaped by advertisers will be crucial to AOL's credibility.

Steel produces a professional, detailed report on the strategy that covers its contradictions and opportunities without overpowering it with her own opinion, as a professional should.

Let me ad that AOL has taken the shortest route to undermining its brand and becoming irrelevant.  There is no third way.  We all know that advertisers have more influence over news content than they should.  I once saw the New York Times cover an art exhibit at JFK Airport to save a weekly one-page ad from a tiny airline.  I've been asked about advertising revenue from so many trade magazine editors it doesn't even make an impression.  Worth magazine's latest incarnation auctions off its columnist slots.

However, setting off at the beginning to charge for content makes the reporting inauthentic and less valuable to the audience.  It won't work and six-12 months from now, I'm sure Steel will give us the details on what went wrong.

Thanksgiving Break

SeanReadsTheNews will be closed November 26-29 in observance of the Thanksgiving Holiday.  Blogging should resume November 30, December 1 at the latest.  Please read your Wall Street Journals on Friday and Saturday as they will need the love.

Enjoy the holiday and its bounty.

Forbes' Gomes is Thankful for Freeware

Lee Gomes' job at Forbes seems to be digging around in the dark corners of Silicon Valley for oddball companies and entrepreneurs that aren't getting shouts elsewhere.  Today he delivers an interesting piece on software writers who produce freeware and why they deliver software that could be worth millions for free.

[David] Bryant, 49, and [Josh] Coalson, 39, are both experienced computer programmers living in Silicon Valley. They pay the rent by laboring during the day in the tech world's digital salt mines. Their nights and weekends are also spent hunched over computer keyboards but working on software they developed themselves and give away for free.

They programmed Flac, a lossless compression program used by music fans to create clear-sounding digital music, which is widely used in the music industry.

Their answer is that they do it for love, and art, two things not normally associated with software coding.  

I'm not sure exactly what it is that makes it pleasurable, but there is certainly something fun about building a program from scratch that does something useful," says Bryant. "It feels like a form of artistic expression." Coalson says, "I've gotten to play with a lot of great music equipment, and I've met a lot of interesting people."

The result is an off-beat story about interesting people doing important work.  I love stories that show there is no one right way to live your life.  As we get ready for Thanksgiving it's important to give thanks for an economy that both produces and supports people's infinitely varied creative urges, even in this case when that support is non-traditional.

Money: Emerging Markets are the Next Bubble

We'll move outside the usual national business media today to note this article on market bubbles from Money Magazine, the latest in our ongoing series of bubble watching by the business/financial press.

Senior Editor Walter Updegrave takes a look at the hot money flowing into emerging markets, high yield bonds and (yes!) gold, and cautions his readers to tread lightly when the party seems to be going a little too well.

And indeed, given how we've careened from one bubble to another over the past decade -- technology shares to Internet IPOs to residential and commercial real estate to mortgage-backed securities -- you can't help but wonder which investment we'll next infuse with unrealistic expectations that will eventually give way to bitter disappointment and big losses.

However, what makes this article stand out is that it is not just about pointing to the most successful investments of the year and calling them out.  He also acknowledges that these frothy investments need to be part of balanced portfolio and goes on to suggest how to protect a portfolio from the worst impact of a bubble bursting.

His three-step strategy is simple, watch for hot investments to revert to the mean, diversify your holdings and rebalance to keep the hottest performers from overwhelming the portfolio.

Addressing a specific question about emerging markets, he delivers the clarity you expect from Money, whose mantra is to help its readers make money.

So to answer your question, I think investing in emerging markets funds can be a good idea if you're doing it for the right reason (more diversification) and the right way (small portions that are part of a long-term asset allocation and rebalancing strategy). That said, I don't think anyone should feel compelled to add emerging markets funds to his or her portfolio. You can do perfectly well without them.

BusinessWeek - Is the Stock Market Melting Up?

Roben Farzad and Tara Kalwarski of BusinessWeek look for reasons the stock market can appreciate so rapidly in the face of weak fundamentals and finds a herd mentality that is leading to the opposite of a meltdown, what they call a melt up.  They get a good quote from an investment pro on where the buying is coming from along with informed speculation on why.

"We've spent a considerable time of late assessing the conditions for a melt up," admits Bernie Schaeffer, chief executive of Schaeffer's Investment Research. He says he is baffled at how the market's rally this year has essentially been devoid of improved investor sentiment and big inflows into domestic equity funds. While bond funds have taken in nearly $330 billion so far this year, U.S. stock funds have lost almost $28 billion. A handful of big institutional investors and hedge funds, rather than retail investors, have been responsible for the lion's share of buying this year.

The article goes on to note that conditions that lead to melt ups are easy to spot in hindsight but harder in the moment but notes that social pressure on money managers right now is the biggest momentum driver behind stocks.  That's an observation that seems to simple to be true but they argue it well in the piece.

What I'm expecting is people being forced to get in," says Peter Grandich, a veteran investor newsletter editor. "The vast majority of money is managed by professionals who are gauged and measured on performance, a lot of which is judged by the quarter," he adds. "In 2008 people yelled at them for not getting them out; in 2009, people are getting yelled at for not getting in. The pressure to finally commit will be on, whether managers like it not."

Shouldn't a Show Called Marketplace Understand Competition By Now?

This segment from NPR's Marketplace program is so slight it almost isn't worth mentioning but the contradiction of a show called marketplace expressing shock that price wars put weaker competitors out of business is too good to resist.

Joel Rose interviews WSL Strategic Retail consultant Wendy Liebman, who reliably delivers this gem when addressing the current Wal-Mart/Amazon online price war:

Wendy Liebman is CEO of WSL Strategic Retail. She says Wal-Mart and Amazon both want a bigger share of the growing e-commerce market. Liebman says the price war could help both companies gain market share -- at the expense of everyone else.

That is the point of being in business isn't it?

I'm still looking for quotes from retail consultants, who seem to hibernate until this time of year, that aren't similarly obvious.  I'll try to highlight them as the season progresses.

Washington Post: Unemployment Hits Young Black Men Hardest

Remember the old joke about The New York Times ultimate headline?  World Ends, Women and Minorities Suffer Most?  V. Dione Hayes of The Washington Post ran that story today only it was about unemployment among young black people.

I don't deny the news value of a 34.5% unemployment rate among black men ages 16-24 (it's 15.4% among women), which is much higher than the 10.2% we face nationally and of course relevant to Washington's demographics.

The result, however, is a rehash of bad things that can happen to you if you lack education and a job to help develop a work ethic or have a criminal record.  None of this is news.  In addition, Haynes points out that these problems are experienced to some degree by everyone in those situations, white or black, which undercuts the point of the story.

Unemployment among young people is particularly troubling, economists say, because the consequences can be long-lasting. This might be the first generation that does not keep up with its parents' standard of living. Jobless teens are more likely to be jobless twenty-somethings. Once forced onto the sidelines, they likely will not catch up financially for many years. That is the case even for young people of all ethnic groups who graduate from college.

News stories of this length should tell us something we don't already know, otherwise they are just sensationalizing the problem.