Mid-term Prognosis

A good friend from Michigan weighs in on the mid-term election outlook:

"You didn't ask, but -- my view as of now:

In general it seems that the Republicans have a pretty
good chance of holding the House. To summarize:

The three things nominally going AGAINST the GOP are:
(a) history, (b) the economy, and (c) Social Security-health care.

History. The President's party normally loses seats in
elections comparable to the one this year, but that assumes there was at
least some coattail impact on the House in the Presidential election --
ergo, providing space for the pendulum to swing back. Not so in 2000,
except in the sense that the Republicans didn't lose as many seats as they
might have.

Economy. Unless the current situation turns into a
double-dip recession and begins to really impact the middle class (the kind
of folks who actually vote in House elections), the effect should be
muted. (The type of people whom a mild recession effects directly tend to be
both non-voters and residents of CDs which are not contestable.)
There could be some real danger should weakness show up in the general public
perception numbers -- "consumer confidence", for example.

Social Security, Medicare (especially prescription drugs), HMOs.
This still gives the Democrats some leverage (the poll reported
by Roll Call notwithstanding); how much depends on what happens in the
next few months.


The Republicans have some (other) things going FOR them:
(a) off-year demographics, (b) re-apportionment, and (c) (maybe) a
very popular President.

Demographics. The electorate is always more Republican
in off-year elections and I don't see anything about the hotly-contests
gubernatorial & Senate elections that is likely to change that significantly re
the House contests.

Re-Apportionment. With the notable exception of CA, my sense is
the GOP is getting a bit of an edge from the re-districting.

Presidential Popularity. Normally not a big deal in
marginal House seats, but as of now it's so strong a force that
we are in uncharted territory. Of course, I need not tell anyone old
enough to remember "41", that sky-high Presidential poll numbers can turn south in
a big hurry.

As far as I know, there is no marginal House district in Michigan.
Republican Candice Miller (currently Secretary of State) and Democrat Carl
Marlinga (currently Macomb County Prosecutor) will tear each other's hearts
out, throw them on the gound and stomp on them, while all the time
screaming wildly, but at the end of the day Miller should win."

Pataki

New York Governor George Pataki (R) is, by almost every measure, well positioned to win re-election this year. He has no primary opposition (which is a key incumbent killer). He's been given relatively high marks for his performance following the 11th of September. His overall job approval rating is reasonably good. He's raised a ton of dough. Best of all, he has two challengers, State Comptroller Carl McCall and former HUD Secretary Andrew Cuomo, who are already at each other's throats.

The primary will be held on September 10, which leaves the eventual Democratic nominee not much time to put together a good general election campaign. Generally speaking, what happens in situations like this is that both challengers raise a lot of money but end up spending it all in the primary. And much, if not most, of those expenditures go to negative advertisements. Cuomo says McCall is an incompetent fool. McCall says Cuomo is arrogant and unqualified. All of it works to the benefit of Governor Pataki.

And yet. I suspect that Governor Pataki will win in November, but with the barest of majorities (he barely got a majority of the vote in 1998, when he had virtually no opposition). Pataki's problem is that conservatives are disenchanted with him. They think he's become Mario-lite. Conservatives will never vote for either McCall or Cuomo. But they might not vote at all (there's no Senate race this year and the contested House races are few).

Mid-term elections are largely determined by small increases/decreases at the margins of turnout. If base Republican voter turnout declines 4% and base Democratic voter turnout increases 3%, Pataki's margin of comfort dwindles. One can't yet rank the New York gubernatorial race a toss-up. But it's a lot closer than you think. Over to you, Charlie Cook.

King of the Cats

When I get the new web-site put together, it will provide links to the two best tech columnists in the business, Walter Mossberg of the Wall Street Journal and Hiawatha Bray of The Boston Globe. I used to work with Bray and remain a devoted reader of his work. His most recent column concerns the Napsterization of the television business. SnapStream Media's PVC (personal video recorder), which allows you to burn copies of your favorite TV shows on your PC, spells bad news for the television syndication business. Combine it with Tivo and SonicBlue's Replay TV and you have what Bray calls a digital acid bath for the TV industry.

CITI and Morgan and Enron

Citigroup hedged its Enron exposure through the use of a derivative instrument called credit-linked notes, according to a story in today's New York Times. The story raises a lot more questions than it answers, to say the least. Kausfiles explains.

Meanwhile, the buzz in New York is that JPMorganChase is reeling from the Enron debacle. John Crudele wrote about the bank's derivative exposure in yesterday's New York Post. Today, the Economist gives a good overview of the bigger, uglier picture. Expect the New York Times to waddle in here any day now.

Late Adapters

Yesterday, Adam Cohen wrote a good "Editorial Observer" piece (registration required) in the NYT about the PayPal IPO. [Update: The PayPal IPO has been delayed.] PayPal is basically E-Z Pass for purchase payment on the Internet and if you're not a subscriber, you probably should be. It makes on-line purchasing a lot easier.

PayPal itself is one of those companies that survived the dot.com crash and lived to fight another day. Despite all the gloomy coverage of the last 21 months, the dot.com sector has rebounded smartly. McKinsey published a useful report on the dot.com revival last year. I wrote a column about it in the November issue of Fast Company.

The reason that companies like PayPal are now thought to be solid business propositions is fairly simple. A majority of Americans, according to a Commerce Department survey released this week, are up on the Net. The growth of Internet usage by Americans continues to astonish. Dot.com and not dot.com companies that make the experience faster, better, cheaper, more statisfying are adding real value and thus are likely to succeed as businesses.

What amazes many people, including me, is the continuing Internet-phobia of American business executives. I recently met with a small (10-person) New York-based outfit called Allcast. Allcast provides peer-to-peer (P2P) video streaming technology that works just fine. Today, if you want to stream video/audio clips to 1000 people, you have to buy 1000 streams. Allcast technology enables you to "peer" one stream to a 1000 person network (in roughly the same way that Napster "peers" music files from one person to the next). Instead of buying 1000 streams, which can get pricey, companies that use Allcast's peer technology can buy an Allcast lisence, stream one stream and then by "peering" that stream, cut their costs by as much as 85 percent.

There are hundreds, perhaps thousands of companies that buy video streams every day. They include financial service corporations, professional sports teams, media companies,....the list goes on and on. So far, not one (that I know of) has availed itself of Allcast's technology.

Why not? There are any number of reasons. One is that Allcast is largely unknown and has no sales force. Another is that because Allcast has no big customers, it can't land a big customer. Another reason is that many American companies have simply stopped making new technology capital expenditures. It's like they're waiting to see what happens.

What's happening is that the web is winning. Peer-to-peer is coming and it's a powerful force. The dot.com crash is over. The killer dot.com comapnies are on the march. Even the New York Times, which has been notably reactionary regarding all things Internet, feels the change in the weather. One hopes corporate America will snap out of it and get back in the game.

Torrey Pines

Tiger's changed his mind. The redesigned Torrey Pines is a US Open course. A while back, Woods had dismissed it as a venue for the 2008 Open. But having played it in the Buick Invitational practice rounds this week, he now finds it worthy. This will come as welcome news to Rees Jones, who oversaw the course's redesign. Friends of mine who have seen it say that Jones has transformed the course. I've got an e-mail into my friend George Peper, editor of Golf magazine, to get his take. I'll report in when I hear from him.

Polling the Mid-term Elections

The general rule in mid-term elections is that the party "out of power" in the White House gains between 10-20 seats in the House and one or two in the US Senate elections. The simplest way to predict the outcome of any midterm election used to be to read the Gallup Poll . Gallup regularly asks a question that tracks "Congressional preference" by asking registered voters (and a subset of likely voters) whether they intend to vote for the Republican or Democratic candidate for Congress in the upcoming election.

For the moment, voters are telling Gallup (and other polling organizations) that they are more likely to vote for Republican Congressional candidates than Democratic candidates. Not surprisingly, many political pundits are now saying that the Republicans stand a fairly good chance of retaining control of the House and have a shot at regaining control of the Senate.

I think the outcome of this year's Senate elections is impossible to predict. But the growing consensus that the GOP will retain control of the House strikes me as misguided. Why? Because computer technology and software have dramatically altered the terrain of Congressional elections. I'm not sure the Gallup Congressional preference question is even relevant anymore, except in the most general sense.

When I first starting covering Congressional elections back in 1978 as a researcher at the NBC News Election Unit, there were roughly 85 Congressional races that year that were seriously "contested." Since then, there have been three redistrictings (1980, 1990 and 2000) that have redrawn the maps of each Congressional district in every state. And the last two redistrictings were powered by mapping software and computer-modeling technology that rendered just under 400 districts safely Republican or safely Democratic. There are barely 40 Congressional districts left that can be fairly described as "contested."

Forty Congressional districts is not that many. If one assumes that both parties will be able to raise at least $100 million each for the express purpose of helping their nominees in those 40 districts, then the math tells us that both nominees will begin their general election campaigns with $2.5 million of financial support. By the 1st of October, ten "contested" districts will probably be defunded by the GOP and ten districts will probably be written off by the Democrats. So control of the Congress will boil down to the outcomes in 20 districts. And the nominees in those districts will get yet more money to help their campaigns.

We don't know (yet) which districts will be the "final 20." Until we know, it's probably impossible to predict whether Dennis Hastert or Richard Gephardt is the next Speaker of the House.

ENRON AND THE TIMES

Now that the initial hysteria about Enron has abated (somewhat), one question that sort of hangs over the press coverage is this: To what degree is The New York Times coverage of Enron influenced by the advertising downturn? If you read The Times coverage, you are all but berated into believing that Enron is a major political scandal. If you look at the balance sheet of the facts (so far), there's not much there. Like every other company that ever ranked in the top ten of the Fortune 500, Enron had access and entry to important policy makers and key decision makers. But when the company's schemes came undone and it needed a multi-billion dollar favor (in the form of a bailout), it was turned down flat.

Ordinarily, one would expect a mighty journalistic enterprise like The Times to turn at least some of its attention to other enablers of the Enron scam. An obvious target would be the financial supermarket companies, like JPMorganChase and Citi, that made windfall profits underwriting Enron projects in the United States and around the world. Surely the due diligence of these financial powerhouses must have made them aware of Enron's precarious financial state. Why did their analysts tout Enron stock as a "strong buy?" Why didn't these firms advise their private banking clients to dump Enron's stock when it lost half its value in six months? Didn't these firms have some obligation to inform their investors of the problems at Enron. After all, JPMorgan Chase is on the hook for $2.3 billion in the Enron fiasco, according to the Wall Street Journal. Citi is on the hook for $800 million (at least). That's real money. And yet nothing was said. No disclosure was made.

That is, by itself and by any definition, a huge story. But The Times has all but ignored it. Mickey Kaus, who writes for Slate and the website known as kausfiles argues that the Times' coverage of Enron is influenced by the new managing editor's zeal for campaign finance reform. Enron = political corruption = increased demand for campaign finace reform = eventual passage of some awful legislation = NYT wins Pulitzer Prize. And this is almost certainly true. The managing editor in question, Howell Raines, is a zealot on the issue and he probably does truly believe that Enron's political activism is emblematic of everything that is wrong with the way the "system" works.

But there's another explanation for why the Times has shied away from what might be called the "financial community scandal." Simply put: The paper can't afford to offend some of its best advertisers.

As everyone knows, media (in general) are suffering through the worst advertising recession in decades. Revenues, earnings, margins and profits are down sharply. Given this environment, it's not surprising that companies that continue to advertise regularly and reliably are much appreciated in the executive suites. Two companies that continue to advertise regularly and reliably in The New York Times are JPMorganChase (mostly for retail banking services) and CITI (for a variety of financial services, including retail brokerage, retail banking and business-to-business banking and insurance).

Turning loose a team of investigative reporters on either one of these institutions would be a risky gambit, since both could pull all of their future advertising at a moment's notice. If profits at the Times fell 46% last quarter with JPMorganChase and CITI as regular and reliable advertisers, how much would profits have fallen without them? It's a question that no one at the Times really wants to answer.

The great thing about kicking around politicians in Washington is that they can't retaliate. JPMorganChase and CITI can retaliate. I don't think that: JPMC/CITI cuts in advertising spend = lower profits at NYT = ergo, NYT devotes bulk of available resources to DC coverage (as opposed to Wall Street coverage). It's not that simple. Organizations like the Times are pushed along by a hundred different factors and actors.

But the influence of the ad budgets of the major financial services companies is important and significant; as important and significant as Enron's influence was in Washington.

TIVO and the Superbowl
The digital television recording device known as TIVO is one of the great inventions of the last decade. If you don't have one, get one. It allows you to watch television programming at your convenience and fast forward through commercials.

Tivo, the company, did a survey of 10,000 of its customers to find out what they re-played during last Sunday's broadcast of the Superbowl. Turns out, the Tivolians watched replays of the commercials. Most "replayed" was the Britney Spears Pepsi spot. The rest of the story is here.

Don't get an Mlife just yet.

Ogilvey and Mather has done a magnificent job branding IBM as the leader in "e-business" solutions. The IBM "e-services" marketing and advertising campaign continues to this day and it continues to be effective.

But what works in one space does not necessarily work in another. Ogilvey and Mather's campaign for AT&T Wireless is the IBM campaign reconfigured. It's called "Mlife" and the big idea is that we should cut the cord and embrace the mobile era. There's one small problem. AT&T Wireless doesn't work in service areas all over the United States. So the idea that we can all live an "Mlife" is ludicrous on its face. It's even more ludicrous when one considers that G2.5 service has not yet been introduced to most of the country and that G3 service is many months, if not years, away.

The biggest mistake you can make in the advertising business is to overpromise and under-deliver. That is exactly what the Mlife ads do.

GREAT GAME
My sister is a huge Patriots fan, so I was glad they won. Kudos to Pats' Coach Bill Belichick for bringing a truly moribund franchise back from the dead.

THE LIFE SCIENCE OF WARFARE
Digital technology has transformed warfare, as the Taliban found out the hard way. The next generation of warfare will be genomics-based and the prospect of that is chilling. My column on this subject can be found here.

HALFTIME PORNO AND A GOOD MONSTER
Bad taste is part of the DNA of the Super Bowl Half Time show. But this year's effort was obscene. Fox, the NFL, E*Trade and U2 desecrated hallowed ground, in sharp contrast to an advertisement that ran just before the opening kick-off. That ad featured Rudy Giuliani thanking the country for its support of New York City in the wake of the 11 September terrorist attacks. The ad was made possible by a grant from Monster.com.

PAT PEREZ
Loser. His behavior at the AT&T Pro-Am at Pebble Beach was disgraceful. None of the boys in the booth could bring themselves to say this, so shame on them as well.

ELLIS ON ENRON
You can read my column about the Enron mess here. The column was written in late December (we have long lead times at Fast Company). It holds up pretty well, although had I known then what I know now, I would have focused much more closely on the role of Enron's bankers.