Distribution System Failures

Many years ago I spent two years as a Congressional staffer who, among with my other duties, followed the deliberations of the House Appropriations subcommittee dealing with the U.S. Post Office [yes, that long ago]. I tried to get my boss to push for a change in the way the Post Office calculated costs, because from what I figured then, and what I still figure with the U.S. Postal Service, the cost model they used and continue to use undercharges for bulk and pre-sorted mail because it doesn’t take fully into account the need for extra capacity created by lower rates on huge volumes, but priced the costs of bulk mail on the marginal costs. I never had a problem with magazine rates, but I’ve always had a problem with catalogues and advertising or “junk” mail, which has a far greater volume than do magazines. That Postal Service model doesn’t take into account the additional capital and equipment investment required for all that bulk. Now, as a result of current and projected deficits, the Postal Service is recommending that mail deliveries be reduced to five days a week, yet the bulk advertising mail rate is low enough that all too many mail order operations can still afford to send my household multiple copies of their junk rather than clean up their mailing lists. Anytime it’s cheaper to print and send excess copies than to streamline internal mailing lists, the “distribution costs” are too low.

I may be unusual, but I’m more than willing to pay more for a paper copy of the periodicals I value, and if their prices go up, I still pay for them [so far, at least] because the paper copies allow me more efficient time-allocation in a crowded day.

Now… over the past week, it has come to light that Anderson News unilaterally decreed a seven cent a copy surcharge on magazines and books it distributed. Since Anderson serves as the wholesale distributor for something like half the magazines distributed in the United States, as well as half the paperback books that aren’t sold to the bookstore chains directly by the publishers and book wholesalers such as Ingram, this surcharge represents an enormous additional cost to the publishing industry, and some publishing companies, notably Time, Inc., reportedly refused to pay the surcharge. As a result, Anderson “temporarily suspended” its entire distribution business and informed the bulk of those employees that they were on personal or vacation time… if they had any.

While I confess that I don’t know all the details of the Anderson finances, I do know that some twenty years ago, the wholesale magazine and book distribution business imploded from more than 1,000 local and regional distributors into an increasingly consolidated distribution system that now essentially consists of less than a handful of national distributors and leaves most of the country with no effective choice of distributors. This system has also resulted in an increasing restriction of choice for those accounts serviced by the major distributors, while generating a surfeit of waste paper in terms of magazines and paperback books being pulped, rather than being returned.

So, with Anderson, we have a service that, over the years, has gotten more and more centralized, with less and less competition, offers less and less choice, and creates significant wastage because consumers do have less choice. Yet, I’m told by those in the business that the magazine side, which has even more wastage than pulped paperback books, is the most profitable, and that any attempt to create greater choice on the book side is highly resisted.

In the case of both Anderson and the Postal Service, effectively, those who depend on their services are faced with monopolies. In the case of the Postal Service, first class users, no matter what the economists claim [and having been one, I don’t buy their number crunching], pay more than they should while advertising usage pays too little. In the case of Anderson, there’s effectively no alternative.

Economic history has shown, time and time again, that monopolies have serious drawbacks… as these two cases illustrate. So… why are all the banking bailout plans concentrating so much on reducing the number of banks?

Sand Castles… and the Fascination with Destruction

From the time I was very small, when the opportunity arose, I built sand castles, and always just above the wave line of the ocean. And always, eventually, they succumbed to the tides and the water… as I knew they would, even as I built them to attempt to withstand the oncoming water as well as possible. Occasionally, I just happened to build one at high tide and above the high water mark, yet, invariably, if I came back to look at it the next morning, someone had always stomped it flat. Over all the years… and on all the beaches, those that the water didn’t get, humans did.

Then there are the hunters, and there are essentially two kinds, those who like or need the meat and hides and use most or all of the animal and those who trophy hunt. I understand and respect the first type, but I don’t respect or really understand trophy hunting. It’s a form of destruction to prove that the hunter can do it. To me, that’s a lose-lose game. After a million years of evolution and sophisticated tool-making, if you can’t eventually kill an animal that has no high-powered weapons, no clothing to conceal itself better than natural camouflage, and no concentrated food-stuffs to allow itself to hunt [or evade hunters] continuously, you’ve wasted your evolution. And if you do kill the animal, it’s dead, and you really don’t have any use for it, except to prove that you’re not a failure. Destruction to prove you’re not a failure? But isn’t that failing?

One of the latest aspects of destruction to prove one isn’t a failure seems to be the hackers, or whatever the latest term is for individuals who go to great lengths to invade and destroy other people’s computers and networks. Exactly what’s the point? Destruction is far, far easier than construction. Look at all the effort it takes to develop the hardware and software for computers and networks, and with a bit of skill and cleverness, or theft of codes and ideas, millions of computers get crashed. Again… for what? To prove that you can destroy something? To ruin people’s work and lives? To cost them time and money?

I’ve always wondered why so many human beings have such a fascination with destruction. Is it instinctual on some primal level to want to destroy anything anyone else built? Is it an instinct to prove one is stronger by destroying someone else or their creation?

One could argue that destruction forces greater achievement by the doers. It does, but so much of that “achievement” is wasteful. How much in resources do societies spend on security? On multiple levels of computer systems? On home-security systems? On guards and police?

To me, willful destruction is the mark of the second-rater, or of the failure. Those who can’t build, or who don’t respect those who do, resort to destruction, character-assassination, back-biting, and all the lesser forms of destruction.

Compared to creation and building, destruction is easy… and, one way or another, all the rest of us pay for it.

Books and Movies… Never the Twain

While movies often are inspired by a book, and once in a great while a book is written based on a movie, they’re very different creatures. Now this is clearly obvious on the surface, but the implications go far beyond the easily apparent.

For one thing, there are far fewer movies released each year than books. I won’t even try to get into all the figures, but some comparisons are indicative. There might be twenty F&SF-related movies released in one year, and less than a handful in an off year, but according to the latest Locus survey, over 1,600 new F&SF titles were released in 2008, and that total was down slightly from 2007. Major studios release somewhere between a hundred and a hundred-fifty “significant” pictures, those with production and marketing budgets over $100 million, and perhaps another three hundred “lesser” films every year, compared to 50,000 new fiction book titles released every year.

Then there’s the complexity. Most movies have a plot line that’s the equivalent of either a short story or a very simple graphic novel. Books range from age-two cardboard picture books to the incredibly complex multi-volume series.

Movies, obviously, are visual, and that means that no visualization or imagination is required of the audience, unlike a book, which requires far more effort on the part of the reader. What’s more interesting is that the growth of CGI and other special effects has further reduced the “imagination quotient” of movies. In turn, this tends to reduce subtlety and/or to replace it with easily recognized visual hooks that tie into easily recognized cultural tropes and references.

One of the greatest differences lies in the marketing. The average major studio picture costs around $110 million, and approximately a third of that is marketing and advertising. In effect the marketing budget for two week’s worth of new film releases is most likely more than the total annual marketing budget for the entire fiction publishing industry. The vast majority of books receive essentially no publicity, except in the publisher’s catalogue and in a few targeted “trade” publications, if that. That’s why so many writers not only do, but must, resort to self-publicizing, going to conventions, blogging, etc.

There is one similarity. Reviews, either of movies or of books, play a minimal role in determining the success of either a film or a book. Movie-makers aren’t interested in the views of 50 year-old critics when most movies are emotionally targeted at the under-25 audience. On the book side, however, I suspect that reviews play a small part because there are so few compared to the number of titles published every year and the diversity of the reading audience, and the number of “official” review outlets is dwindling, although online reviews, by pros, semi-pros, and everyone else are increasing rapidly.

Another interesting comparison is market segmentation. Essentially, cinema marketers see their market in four quadrants plus one: men under 25, women under 25, women over 25, and men over 25… and children. I suspect those quadrants refer more to emotional ages than chronological ages, but that’s still the targeting. Needless to say, in general, males under 25 prefer action and more action, neat gadgets, and sex, while women prefer romance and only hints of sex. A movie needs to appeal to at least two quadrants to be guaranteed of a chance at profitability, but… men over 25 don’t go to nearly as many movies as the viewers in other three quadrants, and women over 25 tend to be much more choosy about what they see. So… guess what audiences most movies are designed to attract? By comparison, books have a wide range of genres, which in turn have great numbers of subgenres.

In summary… we have in books thousands and thousands of titles on every subject for every taste at every level of literacy, but in a form that requires a certain amount of thought, concentration, and imagination and with numbers of individual titles that preclude wide-scale and intensive marketing and result in overall low profit margins, while movies are a high profile, exceedingly heavily advertised and marketed, visually in-your-face medium released in limited numbers and largely marketed to the least sophisticated under-25s.

And people ask, why are movies profitable and books struggling?

Not the Strongest… or Even the Brightest

More than 200 years after the birth of Charles Darwin, most people, even some very intelligent individuals, don’t fully understand “natural selection” or evolution. Now… I’m not about to try to explain all the fallacies inherent in most popularized misconceptions, but there’s one that’s so blatantly misunderstood that I just can’t help myself.

Most people equate the term “survival of the fittest” to survival of the strongest individuals, or occasionally, the survival of the most intelligent. The problem with this equation is that individual survival and success don’t necessarily translate into species survival. One of the most fearsome predators of our time is the tiger, and it’s endangered and may not survive. The equally well-equipped polar bear faces similar problems. Recent studies indicate that Neanderthals had every bit as much brain power as homo sapiens, perhaps more, and they were physically stronger to boot. The most muscular and intelligent human being, stripped down to a loin-cloth, wouldn’t last more than a few minutes against most large predators.

But humans have brains and tools, and we no longer have to face predators bare-handed or with crude tools that one person could make. That’s absolutely true, but that also points out a corollary. What makes us deadly as a species is not that we are stronger, which we are not, nor that we are more intelligent, which we generally are, but that we cooperate. No human, no matter how brilliant, has the ability to make the sophisticated tools and weapons we possess by himself or herself. Even an individual placed in a Robinson Crusoe situation who creates tools and survives does not do that by himself or herself, because the knowledge required to create such tools is a product of the human culture that has facilitated cooperative learning.

We tend to pride ourselves on our species’ accomplishments, but we’re newcomers to the world. The world has been around some four billion years, and human beings are lucky to be pushing a million years as a species. Cockroaches aren’t particularly strong on an absolute scale, nor are they particularly bright as individuals, but they’ve been around for over 200 million years. Virtually all other species on the planet have been around longer than humans, and dinosaurs lasted for hundreds of millions of years.

Yet, day after day, in forum after forum, people extol the “survival of the fittest” to justify oppression of those weaker, less intelligent, or less fortunate by individuals who are stronger, brighter, and more fortunate. This overlooks the fact that the fittest aren’t those who are the best predators; they’re the ones who are best at dealing with the predators… and that’s another reason why we developed customs, rules and laws, because not all predators are from other species.

That brings up another corollary. In all times in human history, the most successful cultures have been those who have been most successful in dealing with both external and internal predators. Over time, there’s close to a direct negative correlation between the percentage of a culture that dies violently and its degree of “civilization” and success. That is, the percentage of violent deaths always goes down, again, measured over time, as the culture is more successful. Some anthropologists suggest that prosperity reduces violence. I doubt it strongly. Reducing violence increases prosperity, but only by the application of cooperation and social and sometimes physical force, but with minimal violence. One doesn’t reduce violence by relying strictly on violence to do so.

So… let’s have a little less rhetoric and indirect glorification of the abuse of power disguised as “survival of the fittest.”

The Image Culture

Over the years I’ve been bothered by the fact that, in so many areas, from job interviews to popular entertainment, western culture, particularly in the United States, has moved more and more to making judgments and decisions based essentially on image. This trend, unfortunately, despite more and more “popular,” as well as detailed and statistical evidence that illustrates the faults of such an approach, seems to be accelerating, in large part, I suspect, because of the excessive intrusiveness of the media in all aspects of our lives.

The complement to “image” is “ego-stroking” or flattery. We all like to feel good about ourselves, and most of us respond positively to those who seem to go out of their way to bolster our self-images.

The financial crisis that has besieged the United States and threatened to swamp the entire world financial system was generated primarily by the interplay of image and ego-stroking. “Everyone deserves a home of their own” — whether they can afford to pay for it or not. “You can have it all” — with a home-equity line of credit to use inflated real estate as a personal piggy bank… at least until the bottom drops out. “Of course, you can trust the derivatives of Lehman [or Merrill Lynch, AIG, CITI Group, or any other well-known investment bank of insurance conglomerate]” — even though we can’t even explain them accurately to our own CEO. “We’ve figured out the stock market, and there’s no way the Dow won’t hit 36,000” — just ignore the fact that such a gain would require either tripling the US GDP or 400% inflation. “Bernard Madoff has an impeccable reputation, and pays incredibly good returns” — with new investors’ money, just like every other Ponzi scheme.

Even the McDonald’s commercials get into the act with “you deserve a break today.” Perhaps you do, but that doesn’t have much to do with whether you really should, given the state of your finances. More to the point, it creates an atmosphere and attitude that what you “deserve” is far more important than what you can afford. It’s blatant ego-stroking, and it’s so obvious and prevalent that very few people even consider the society-wide implications.

But… as is often the case, there’s an even darker side to image and ego-stroking, and that’s a societal turn away from the recognition of and appreciation for ability and competence — unless those qualities also come with a great image. Unfortunately, and in real life, they usually don’t. The accountant or product analyst who tells the CEO that the product isn’t that good, despite the image, is more likely to be fired than praised. The critic who suggests that the singers on American Idol are less than fifth rate will be pilloried or ignored. The job-seeker who’s shy or tongue-tied under interrogation, but who’s brilliant in analyzing or writing or developing new products, usually loses out to the candidate who’s better-looking and glib, even if the substantive skills of the good-looker are weaker or non-existent — which is another cause of the financial meltdown, because the CEOs of the big brokerages and investment banks all had great images and lousy understanding of what they approved…or a lack of ethics, if they did understand.

Put another way, as a culture we’ve come more and more to reward flash over substance, to demand ego-stroking over honest evaluation, and to value the shallowness of quick rewards over long-term substantive accomplishments.

And now we’re paying for it… and most people still don’t understand why. American Idol and all the ego-stroking wish-fulfillment shows still top the popularity charts, and Toyota just became the biggest car manufacturer in the world by spending years building better cars, even as the well-groomed Detroit auto executives in their ego-stroking private jets beg for more federal handouts while trying to keep producing gas-guzzling behemoths that most users buy for their own-ego-stroking reasons. How many drivers really need 400 plus horsepower — except to make themselves feel better?

A hundred years ago, the popular fable was Horatio Alger and how hard work led to success. Today, the most popular books are Harry Potter, and how magic.. and wishing… can make things better.

Doesn’t that say something?