Derek Thompson

If you love television, you probably hate the television bundle. And if you hate the television bundle, your favorite person in Washington today is Sen. John McCain. His new legislation, introduced this afternoon, would pressure pay TV operators (i.e.: what you'd call "cable companies") to offer channels on an a la carte basis.

What's not to like about this law? You pay for the channels you want. You don't pay for the channels you don't want. Even the name -- "Television Consumer Freedom Act of 2013" -- is full of utterly unobjectionable words and sounds pretty perfect.

McCain's proposal comes at a rocky time for cable companies. Time Warner Cable and Comcast recently announced shrinking subscriber numbers. Their growing revenue comes mostly from higher cable costs among paying households. Meanwhile, Netflix and Hulu are setting new customer records each quarter. Tensions between media companies (who sell their networks in bundles to cable companies) and cable companies (who sell those network bundles in a megabundle to you, the TV-box owner) are boiling over in a lawsuit between Cablevision and Viacom.

This would appear the perfect occasion for Washington to ride in and slash the Gordian Knot of cable once and for all. But there's a catch -- actually, there are three catches.

First catch: Plausibility. McCain has proposed an a la carte TV plan before, and it was rejected even when he had more friends at the FCC who were vocally supportive of choose-your-own TV in 2006. So temper your optimism.

Second catch: Cost. Most independent studies have found that un-bundling the networks would dramatically raise the price of each individual channel because the networks would have to replace the money lost from being a part of the bundle. "A la carte" is not a synonym here for "vastly cheaper."

Why's that? Your bundle pays each channel in two ways. First, it pays directly. For example, ESPN "costs" about $5 a month; that is, about $5 from every cable bill goes to ESPN. Second, the bundle pays indirectly through advertising. If ESPN is in fewer households (i.e.: only the households that pay directly for ESPN), they'll project less ad revenue. As a result, buying ESPN could cost as much as $20 a month as the company seeks to make up revenue in the interim. Even if you don't watch ESPN, you'll still have to pay more per channel that you do today because of the economics of bundling and the dual-revenue model for networks.

On the bright side for consumers, perhaps you could see the dissolution of the cable bundle squeezing networks and programming costs and show budgets, leading to a deceleration of overall TV costs. But if customers had to pay more than expected for individuals channels, it's hard to know if they would view these savings as a bargain or just a less-for-less exchange.

Third catch: Logistics. Let's talk about something really practical. How many times a year could you switch your channel line-up? Once a year? Four times a year? It's a serious question.

Let's say you don't want A&E on its own. Sounds sensible. Then a show like "Duck Dynasty," one of the biggest hits in cable history, debuts and suddenly you want A&E. 'Easy,' you say, 'I'll just subscribe to A&E for a few months and cancel after Duck Dynasty is over.' But that just won't do. Channels like AMC won't survive if a handful of people only sign up for the few weeks that 'Mad Men' is airing. A la carte sounds like a pain-free option, but 100 million households adding and dropping channels mid-year is a recipe for a logistical and strategic disaster for the industry.

The television business is changing already. But the change is mostly additive. SNL Kagan estimated that pay-TV subs grew through 2012, even as Netflix and Hulu had historic years. TV might get smaller and more customizable sometime in the near future. But in the nearest future, the total TV megabundle -- cable + Netflix + Hulu Plus etc. -- is just getting bigger, and McCain's plan, which would introduce headaches for consumers and providers alike, probably isn't going to have a shot at changing anything.

More »

Elevated and lasting unemployment is an awful thing, anywhere, and for anyone. But it is awful in a special way for young people, cutting them off from networks and starting salaries at the moment they need to forge connections and begin to cobble together a career.

A new study from the International Labor Organization takes a global tour of youth joblessness and finds that what's gone up won't come down in the next five years. The youth unemployment rate* among the richest countries is projected to flat-line, rather than fall, before 2018. As a result, the global Millennial generation could be uniquely scarred by the economic downturn. Research by Lisa Kahn has showed that people graduating into a recession have typically faced a lifetime of lower wages.

As Ritchie King from Quartz shows in the graph to the left, it's now "harder for a teenager or young adult to find a job in developed economies than in Sub-Saharan Africa."

Lurking under the rise of youth unemployment among the richest countries is an even scarier trend -- the rise of long-term youth unemployment. Long-term unemployment isn't just a difference in length; it's a difference in kind, because the more time you spend out of a company, the less likely you are to be hired back into one. In many European countries, particularly Spain, the increase in unemployment has come almost exclusively from people being out of work longer than two-years. In advanced economies, "longterm unemployment has arrived as an unexpected tax on the current generation of youth," ILO writes. About half of Europe's unemployed youth have been out of work for more than six months, according to 2011 data.

American audiences are probably most interested in how our Millennial generation compares to young people around the world. So, from table B1 at the end of the paper, I picked a few OECD countries and graphed the last eight years of youth unemployment.

Three final takeaways:

(1) The lowest youth unemployment rate in ILO's database in 2012 was Switzerland, at 6.2 percent. The highest was Greece, at 54.2 percent.

(2) The worst stat in the report? It might be the youth unemployment rate for Greek women, at an astonishing 62.1 percent. (Given the prevalence of part-time work for women across Europe, the U6-type underemployment rate could be significantly higher.)

(3) The incredibly low unemployment rate in Germany -- just 8.2 percent, half the rate of the United States, and nearly a third the rate of the euro zone (22.6 percent) -- stands as one of any number of statistics that makes a mockery of Europe's economic union project.

______________

* Statistical Wonkery Note: There are different definitions of "youth" and "unemployment" around the world, but the ILO calculates youth unemployment as the share of 15-24-year olds in the labor force (working/looking for work) who do not report to be working at all. 

This is not to be confused with the employment-population ratio, which has fallen around the world since 2007 not only because of higher unemployment, but also because of higher school attendance.

Other ILO categories include NEET (Not Employed, or in Education or Training) and "labor underutilization" (a broader definition of underemployment that includes young people with "irregular, poor-quality, low wage jobs").

More »

If you equate great stocks with great companies, then you probably consider AOL one of the great tech companies of the last two years. Named the hottest tech stock of 2012, AOL has in the last year outperformed Google, Microsoft, and (of course) Apple, as you can see in the chart below ... [AOL is blue; Google in green; Microsoft in yellow; Apple in red]

But as AOL's earnings today show, the company remains the most confounding ostensibly "successful" tech firm of our time.

You probably know AOL as a conglomeration of websites that presumably make money by selling advertising next to their articles. But in fact, AOL as a media company is constant money-loser. It lost $17 million advertising on its fleet of sites -- AOL.com, Huffington Post, Moviefone -- in the first quarter of 2012 and another $5 million in the first three months of this year.

So, as a business proposition, AOL is a media company -- an ad company -- with diminishing losses. But as a profit-making business, AOL isn't a media company, or an advertising company, at all. It's a vestigial subscriptions business gleaning cash from people who haven't graduated from the era of pshhhkkkrrrrkakingkakingkakingtshchch*ding*ding*ding".

Earnings filed under the "membership," which includes $168 million in subscriptions plus revenue associated with services like AIM, accounts for more than 100 percent of the company's profit, just as it has for years. As Peter Kafka notes, this is both mind-boggling and not even close to being news.

The financial press often equates short-term stock performance with the quality of a company and its leadership. Facebook was considered a pretty sensational invention led by a tech visionary, until it went public and its stock sank and the argument over its value could be reduced to a stock price figure and its quarterly decline. AOL is perhaps the opposite: a company treated with derision that has, in the past 18 months, outperformed most of its peers. It's done so by limiting losses in a terribly unattractive business (massive digital advertising paired with expensive original journalism) while holding on to inevitable and demographically determined losses in online subscriptions, its only money-making sector.

Great company? I guess. If you own stock.

More »

Remember the sharing economy? Maybe you don't. Or, maybe you're still living in it.

This was the idea that, in the embers of the Great Recession, people were giving up owning things -- spaces to live, cars to drive, clothes to wear, appliances to use, entertainment to consume -- and building better ways to share fewer resources for a cheaper price. This was bigger than hippie-nomics come to life. It was the idea that the Internet had connected us all, creating a world of inventory that could be shared and discounted with greater ease than ever.

In November 2011, five days after Groupon went public in the largest Internet IPO since Google, I profiled a Washington, D.C., investment firm founded by Steve Case called Revolution. Case, the founder of America Online, told me that when he started the new firm in 2003, he wanted to get back to "attacking" legacy industries. When I profiled the company, I found that most of the "attack" strategies fit snugly in the category of "sharing."

One year after he started Revolution, the firm had acquired a vacation-home sharing company. A few years later, it invested in and helped to build Zipcar, the largest car-sharing company in the U.S. It then backed LivingSocial, an online social commerce company whose explosive growth made it something like "the next Groupon."

That was in 2011.

Today, however, something like "the next Groupon" is a curse, not a blessing. A years after being anointed the "fastest growing company of all time," Groupon's stock had fallen 90 percent by the end of 2012, the press regarded the business model like something between an un-scalable proposition and a Ponzi scheme. LivingSocial has followed the daily deals market down the mountain, as well: In February this year, its market cap had reportedly fallen 75 percent from its all-time high.

But not all hallmarks of the sharing economy have collapsed. This year Zipcar reported before it was acquired by Avis. Legacy car companies are publicly spooked by Zipcar, and Airbnb stands to pose a legitimate threat in the travel business.

Today I spoke with Ted Leonsis, the co-CEO of Groupon and a partner at Revolution Growth, and Steve Griffith, the former CEO of Zipcar, at New York Ideas, a conference hosted by The Atlantic and the Aspen Institute. I said that I saw the sharing economy as powered by two engines. The first, mobile access that encourages peer-to-peer sharing, will keep growing. The second, a weak economy that encourages cheap consumer behavior, will (hopefully) keep abating. Caught between both forces, would the sharing economy stall?

Both Leonsis and Griffith expressed optimism for their businesses (predictably), but Griffith had better reasons to be optimistic. Groupon and LivingSocial aren't struggling because they have poor management. They're struggling because the profit margin from the daily discount business appears to be significantly smaller than everybody thought two years ago. There are many possible reasons why: consumers are making more money; the daily deluge of discount emails is annoying; stores have discovered that their miniscule cut of the deal wasn't worth the extra traffic; they're losing old markets faster than they're building markets.

Meanwhile, businesses that share cars and space are playing with a tailwind. Even after Millennials begin to recover, they are still more likely than their parents to live in dense cities. That means that, even if they do buy a housing unit and a car, they're likely to buy a smaller unit and fewer cars. The ideal Zipcar customer isn't just a poor college kid, but rather something far more common: a young urban professional who likes exercising and values flexibility and savings over a vehicle.

Companies that burst into the mainstream together sometimes get lumped together, and I certainly considered the Zipcar and LivingSocial part of the same Web 3.0 revolution. But with time and perspective, the sharing economy hasn't taken over quite the way we thought it would. Instead, its resilience has been spiky.

More »

How is this recovery different from all other recoveries?

After every other recession since the early 1970s, government employment grew. In the four years following the end of the Great Recession, government jobs got the guillotine.

You can see the specialness of our recovery in this compelling graph produced by the Hamilton Project, comparing government employment changes in the four years of recovery after the last six recessions. Since 1970, government employment increased by an average of 1.7 million following a recession. After the Great Recession, government employment has fallen by more than 500,000. 

"The policy differences have led to 2.2 million fewer jobs today," Michael Greenstone and Adam Looney write. With 2.2 million more government workers now, assuming the same labor force size, the unemployment rate wouldn't be 7.7 percent. It would be 6.3 percent.

That doesn't mean the "real" unemployment rate is 6.3 percent. It doesn't mean state and local governments should be 2.2 million workers flusher. But it highlights the fact that, in terms of U.S. government responses to recessions, this time is different.

Whatever you think of Rogart, Reinhart, and the art of highlighting Excel boxes, it's intuitive that expansionary public spending (including on people) following a private sector meltdown are useful to help the economy catch up to trend-line growth. But rather than Washington leading the still-weak economy, the cart has led the horse, with the private sector adding roughly 2.2 million jobs over the past year while state, local, and federal governments have shed more than 90,000 jobs.

And that's before the full effects of sequester, which will cut jobs, total spending, and growth from a recovery that needs more jobs, more total spending, and more growth.

The government pull-back is even more striking placed in historical context. The ratio of government jobs to total population has fallen to a 50-year low and will continue to fall throughout the year under current law.

And that's not the only measure of government that is wilting to half-century lows. Consider our non-defense discretionary budget, which is something like our domestic investment budget. NNDS is a catch-all for infrastructure, education, training, disaster relief, environmental protections, international affairs, scientific research, and employee salaries. And under both Obama and Ryan's budgets, it is projected to fall to its lowest share of GDP on record.

So we are slashing public employment's share of the population at the very time that the economy would benefit the most from direct government hiring to counter the effects of long-term unemployment. And we are squeezing the federal investment budget at the very time that we can borrow at shockingly low rates from the rest of the world to buff up our research, infrastructure, and public education.

When liberals become apoplectic over deficit hawks debating Medicare's share of spending in 2023, this is very much what they are yelling about.

More »