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Thursday, May 28, 2009

Interview: Mark Cuban

Published on May 27, 2009
by Peter Kafka


Mark Cuban was lucky enough to make billions on Internet video during the Web 1.0 bubble and smart enough to cash out before it burst. He’s spent a bunch of that money on high-profile purchases like a basketball team and a Gulfstream. But much of his investment and energy since then has been directed… away from Web video and toward conventional video, in the form of movies and television.

Cuban’s portfolio companies make movies and television shows and distribute them to movie theaters and television sets. And he’s been loudly skeptical about the possibilities of Web video outlets like YouTube–around the time that Google plunked down $1.6 billion on the site, he declared that “only a moron” would want to invest in it. Time to see if he still feels the same way.

* Everyone says video on the Internet is great, but we spend 99 percent of our time watching TV, and that’s in large part because of HD TV.
* Walt: 99 percent?
* Mark: Well, I don’t know. But it’s a lot.
* Kara: Talk about Internet video. How do you look at it? Mark: It’s a real disappointment to see how far Internet video has come. We were working on hotspots, advertising standards, multicasting 10 years ago. Nothing happened. You can go on and on and on.
* Walt: Why is that? Mark: I have no idea. If you say one thing, it’s that when Google (GOOG) bought YouTube, they didn’t think about making money right away; the focus was on ubiquity, and because no one paid attention, that’s what happened. Now you can’t fight them; it’s like Microsoft (MSFT). You can’t do anything on video these days unless you work with YouTube.
* There are no hits on the Web. So the only way it works is if you can create a platform like YouTube. Hulu could do that, but they have big pockets to appease.
* Kara: No hits? Mark: There are hits. But they’re one-off hits. On TV, there’re hits, but they’re wrong 95 percent of the time, and there are 300-plus competitors. On the Internet, there are unlimited competitors, and YouTube subsidizes bandwidth. So the real cost is marketing. How do you stand out?

* Mark: Video for the Web has become a testing ground for mediums that actually have revenue.
* Kara: So what would the model have been had you bought YouTube? Mark: Like I said, I wouldn’t have bought it. They hid behind the DMCA, and they have huge copyright problems, and it’s a disaster waiting to happen. We still don’t know what’s going to happen with the Viacom (VIA) suit. And they’re paying for all that bandwidth.
* Mark: And by the way, if anything happens to Google, what happens to the whole video space? Everything gets flipped on its head. If you have to pay for it, maybe your kids stop posting videos of their bands.
* Discussion of bandwidth that I’m not catching entirely. But essentially, Mark is saying that the cable companies will have new bandwidth to play with, but they’re not going to necessarily hand it over to the Internet. So everyone in this room is trying to create all these apps and services to shove through one pipe, and the cable guys aren’t going to give them more room.
* Kara: Where do you see TV going? Mark: Television means different things now. Broadcast is one thing. Cable is another, and that’s healthy, because of that subscription business, and they’re never going to give up those subscription dollars for Internet nickels. We need to remember that the Internet is a staid platform. There has been very little innovation. It’s like the ’80s, when we were fighting between different word processing software. There’s only evolution, not revolution. But TV… you could have real innovation there.
* Kara: We’ve been hearing promises of innovation and interactivity for a long time. Mark: There’s been a problem with standards, and that needs to get fixed.
* Walt still wants to watch “Star Trek” on demand. When will that happen? Mark correctly points out that this is partly a programming issue, partly a technology issue. Tech is “easy.” Programming and windows are another story.
* Kara: OK. What do you think about the Internet? Yahoo?
* Mark: Yahoo (YHOO), Google, MySpace, Facebook, they’re all the same: “One hit and a lot of decent products that are second, third, fourth place, and living off the gravy train.” That’s been the tradition since Microsoft and Windows. They’re all the same.
* Kara: Twitter? Mark: The problem with them isn’t a business model. They have 10,000 ways to make money, and everyone in this room can come up with one. They’re just having fun and teasing you guys. I told Facebook, via Jim Breyer, that all those real names they provide via Facebook Connect and that they should charge for it. I think Twitter has similar possibilities.
* Walt points out that people do pay for some Web video, like baseball. Mark: Yup. I’m not saying you can’t have some number of Web users having a great experience. But there’s a limit to the number of people that can be there because there’s limited space, too congested. It’s like having a nice car on the 405. At a certain point it doesn’t matter how nice the car is, because there’s too much traffic. It’s like what Warren Buffet says: First come the innovators, then the imitators, then the idiots. Also: “There’s always going to be someone trying to rush the fat kid to the buffet.”
* Discussion of tiered pricing. Going to have it on mobile, and we should have the same thing on the Internet. What about content? Yes, we have that already.
* Kara and Walt: Tell us about your fight with the SEC? Mark: No. [Pause] “When someone in the government wants you, it’s not a good place to be. You don’t want to be someone’s skin on the wall.” Kara: “Do you know how it’s going to turn out”? Mark: “Yes.”
* Mark walks through how he inverts/breaks/changes traditional windows when it comes to movies, VOD, etc. Very interesting. Will have to come back to it, unfortunately.
* Walt: Does Internet help you run your basketball team? Mark: Yup: We watch video of prospects on YouTube. I follow free agent prospects on Twitter. I can accumulate information on searches, the real-time net is very helpful for the Mavericks. My Icerocket engine helps me track down info.
* Q&A: What do you think of 3-D? Mark: I think it has a great future. Cost is coming down, it’s a differentiated experience. We can put a huge digital screen in American Airlines Center and do 3-D with glasses. Screens are getting so big and prices are falling so quickly that people are changing the way they consume entertainment, and 3-D is a big part of that.
* Gary Shapiro from CEA has a confusing question. Ah. What should we do with the broadcast TV spectrum since 90 percent of people have cable? Mark: We should sell it.
* Kara wants investment tips. Mark talks about various start-ups he’s in, like some sort of mobile/SMS play. But I tell people who are in college today or 10 years from now that are going to look at the Internet and laugh. I think where it’s at is technology geared toward personal health. Walt: Are you investing? Mark: Looking. The problem is I don’t understand any of this stuff.

Mark Cuban is back at D7.Mark Cuban is back at D7.
Walt and Kara know that Mark Cuban is not a man of few words.Walt and Kara know that Mark Cuban is not a man of few words.

Friday, May 22, 2009

Malls: R.I.P.

This same spasm in American society that's killing tract homes and reduced car consumption is hollowing out another infamous eyesore of the land: the shopping mall.

It has profound consequences both on a cultural level and an economic level

WSJ has the grim story:

On the low-income east side of Charlotte, N.C., the 1.1-million-square-foot Eastland Mall recently lost a slew of key tenants, including a Dillard's and, next month, a Sears. Sales per square foot at the venue fell to $210 in 2008 from $288 in 2001.


But the long recession is helping to empty out the promenades. Some analysts estimate that the number of so-called "dead malls" -- centers debilitated by anemic sales and high vacancy rates -- will swell to more than 100 by the end of this year.

In the 12 months ended March 31, U.S. malls collectively posted a 6.5% decline in tenants' same-store sales, according to Green Street Advisors Inc., a real-estate consulting firm. The recent slump was led by an average 7.3% sales drop at Simon Property Group Inc., the operator with the largest number of mall locations.

At the moment, most malls are healthy. As it says, only 100 malls are really considered to be dead (sales per square foot of $250 is the cutoff). But the trends are against malls, even if the economy stabilizes, due to the internet, higher gas prices, social networking (a substitute for the malls food court, which means goodbye mall movies), and the permanent reduction in household credit.

Thursday, May 21, 2009

Authors@Google: Peter Schiff

The Authors@Google program welcomed Peter Schiff to Google's NY office to discuss his book, "Crash Proof: How to Profit from the Coming Economic Collapse".

"Peter Schiff is an American economic commentator, author and licensed stock broker who currently serves as president of Euro Pacific Capital Inc., a fully accredited brokerage firm based in Darien, Connecticut."

This event took place on April 2, 2009.

Ray Anderson on the business logic of sustainability At his carpet company, Ray Anderson has increased sales and doubled profits while turning the traditional "take / make / waste" industrial system on its head. In a gentle, understated way, he shares a powerful vision for sustainable commerce.

Monday, May 18, 2009

Buffett Restructures Derivatives Bet To Take On More Risk


May 17, 2009

WHEN Berkshire Hathaway shareholders descended on Omaha earlier this month for their annual meeting -- the value investor's equivalent of a pilgrimage to Mecca -- one of the hottest topics of conversation was the $37.1 billion bet that the company had made on options tied to global stock prices two years ago.

Although Warren Buffett is famous for his portrayal of derivatives as "weapons of mass destruction," that didn't stop him from selling one type of derivative -- "put" options on the S&P 500 and other major indices -- an investment that is now heavily underwater after the dramatic downturn in the stock market since mid-2007.

During the conference, Berkshire executives let it be known that the firm had recently restructured its option positions, making new bets that would, in essence, pay off if stocks rebounded about 15 percent over the next decade -- instead of the original contracts, which would have required the S&P to climb over 70 percent in the next 18 years to break even.

In recent weeks the chatter along the derivatives "rat line" has been full of rumors about the new Berkshire trades. According to traders active in the options pit, when Berkshire sought to restructure its bets (essentially buying back the multi-decade options it was short and selling new, shorter-duration options that are closer to current stock price levels) it could do so only by paying a heavy cost, since the original positions were so deep in the red.

According to these sources, this restructuring was accomplished on a "dollar neutral" basis, meaning that Berkshire didn't have to pony up cash to do the trade.

Like a gambler doubling down on credit, Berkshire instead purportedly sold a significantly larger number of short-dated contracts than the original transaction -- meaning that the potential risk of loss to Buffet and his shareholders over the next 10 years has actually increased, but only if the markets were to decline from current levels and remain there.

Sources also say that Berkshire was squeezed more on the pricing this time around since the company's credit is not quite as pristine as it was two years ago.

Berkshire Hathaway didn't respond to two e-mails seeking comment.

If the rumors are true, the trades will be detailed in the company's next SEC filing -- but we will have to wait until 2020 to see if the bets pay off.