Monday, October 31, 2011

Monday Musings of Musingness

It's Monday. I blog. Let's muse.


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Yesterday, in an anonymously (albeit extensively) sourced piece, Politico shed light on prior allegations, probably sexual harassment allegations, against Herman Cain. All that is really known is two employees of the National Restaurant Association were given five figure settlements and left the associations. To which:

The story dropped on Sunday night, right before Cain was scheduled to have a big press day. Clearly this was coordinated by one of the rival campaigns (likely Romney or Perry's). But was this wise. Until/unless one of the women comes forward with damning testimony, this looks like a baseless allegation. Echoes of Anita Hill only help Cain's candidacy with primary voters.

A payout to avoid legal action is far from an admission of guilt. As hush money goes, five figures is small shakes, and might explain...

...Cain's unscripted reaction to the revelation was indignation, which is understandable, but unbecoming of a candidate. If Cain is the eventual nominee, its good he's getting this out of the way now, but if he thinks Obama and his media lapdogs aren't going to pull every gotcha in the book, he's wildly naive.

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In an effort to co-opt the Occupy Wall Street movement, President Obama announce a plan to restructure and forgive student loans. For regular schmoes like you and I, nothing has changed. The changes apply only to loans taken out after 2008. The biggest change is a provision that caps student loan payments to a low percentage of discretionary income and cancels debt after ten years for students who work for government or in the non-profit sector.

This will have the following effects:

- It will effectively provide free education to government sector employees. Who was asking for this? Why should I pay for it? Can anyone defend this?

- It will drive up tuition costs. While a small percentage of graduates find employment in the cutthroat public and non-profit sectors, many idealistic young people BELIEVE they will. They will borrow in accordance with their belief they will not have to repay the vast majority of their loans. That means more demand, which will drive up college costs for our children.

- Existing public sector employees will be forced to acquire more advanced degrees in an effort to remain competitive against a new crop of hyper-educated idealists.

- The forgiven debts will cost trillions of dollars. Here's how that will go. Because Obama is reassigning student debts to the federal government, and those debts won't be forgiven for another decade, he is able to treat this as a profit generator. As such he doesn't need congressional approval. Mark my words, when the bubble bursts (15-17 years from now), and Congress is forced to pay for the mess, Democrats will blame Republicans for the collapse. Lack of regulation.

- Seriously, what the hell?

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I'm late to the game in commenting on the Netflix brouhaha, but I've got opinions, and I think this is part of a broader phenomenon.

What Netflix is trying to do is get customers to pay more for a lower quality product. Usually, this is the sort of effort one expects from a company in its death throes. They raise prices and slash offerings in an attempt to gain some liquidity before declaring bankruptcy or shuttering. Company's will often raise prices, but usually pair the hike with new offerings or, better yet, craft a new offering and wait for users gravitate to it (see: Apple).

Netflix, in an effort to unseat Blockbuster, started offering streaming movies online for free through its existing mail service. Ordinarily, when companies bolster their offering to knock off a competitor, they gradually increase prices. For whatever reason, Netflix did not do this.

So, faced with the need to substantially increase prices, Netflix already faced a problem. However, they compounded the error by trying to kill two birds with one stone. Netflix has made no secret of its desire to phase out mail service entirely. As such, they applied the price hike directly to that offering. This had the (presumably unintended) impact of also quantifying the cost of the streaming service, which most customers regarded as a freebie.

Frankly, unless you have kids and/or no taste, Netflix streaming service is of very little value. And it's getting worse, with the departure of a couple key partners.

Netflix could have achieved a better result had they landed 2-3 key partnerships (a la Warner Brothers) and launched a Netflix Plus service, for an added premium. Using the increased revenues, they could have fortified their library to attract new customers.

Instead, they lost 800,000 subscribers. Further, and more damaging in the long term, they started a discussion about the value of their streaming service. Right or wrong, people are making up their minds about whether the service is valuable, and it's going to take a lot to change their minds.

The lesson: If you build it they will come. If companies work to produce a quality offering, the price point question settles itself. Such is the virtue of free markets. Trying to shoehorn your existing customer base into the product you would rather be offering never works.

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