Source Material

Reader Greg K informs me of the following: FYI -- "I wish you luck with a capital 'F'" is from an Elvis Costello song that Lileks was quoting.

Guns and Butter

Political elections are largely determined by the context in which they are understood. If this fall's elections are about economic concerns, Democrats are likely to gain. If this fall's elections are about national security concerns, Republicans are likely to gain. The Wall Street Journal has an excellent piece today (subscription required), that looks at the context of the Colorado Senate race. It is well worth reading.

The Tiffany Network

CBS is bringing back "The Beverly Hillbillies," except this time it's a reality show. They have "talent scouts" in the rural south right now looking for the perfect rubes. Wish them luck, as James Lileks once said, with a capital "F."

Memory Entrepreneurs

Leon Wieseltier, Washington Diarist for The New Republic, has a great piece about remembering September 11th. Which I urge you to read. Thanks to Barry K. for the link. And thanks to Jeff Jarvis for fixing the link.

Netflix Revisited

The DVD rental company Netflix is back in the news, with strong revenue growth and 600,000 customers paying $20 per month. I wrote a piece about the company 18 months ago for Inside Magazine, which follows:

Here's how it used to work for me. Thursday afternoon, after school, my kids would say, 'Let's rent some videos.' I'd say, 'O.K.' We'd walk downtown and pick out two videos for them, one movie for my wife and me. The kids would always find time to watch at least one of their videos, although I was rarely as diligent. Then we'd all get busy with our weekend lives. Friday would become Saturday. The movies would finally get returned on Sunday night or Monday morning (through the door slot). And the process would begin anew, except that now I owed $10.79 in late fees. For some reason, it was always $10.79 or $13.05.

As it turns out, I am a fairly typical in-store video rental customer. Turns out, in fact, that 20 percent of Blockbuster's video and DVD rental revenue comes from late fees. Blockbuster does $4 billion in revenue every year. You do the math. It's a joke, except it's not. It's true.

Here's how it works for me now. I go to the Web and click onto netflix.com. I enter my password and browse through the world's largest collection of DVD movies (over 9,000 titles). Netflix employs intelligent collaborative filtering software, so the site actually makes movie recommendations that are helpful. And the more you use the service, the better the collaborative filtering works. In addition, the site employs a staff of 30 movie writers who provide capsules and reviews of each and every title. I order three movies.
They arrive through the U.S. Postal Service. Because DVDs are lightweight, the cost of mailing them is 34 cents. Each one arrives in a pouch that contains a 'business reply' stamped envelope. After you finish watching the movie, at your convenience, you simply pop it into the return envelope, drop it into any mailbox, and it is returned. No late fees, ever.

If you are like me, you have a list of movies 'in the queue' at Netflix. The moment the company receives a return, it immediately sends you the next movie in your queue. Because I am on the $19.95-a-month plan, I can have three movies out at any one time (customers who pay a higher monthly fee can 'hold' more movies). If I return two at the same time, upon receipt of them Netflix immediately ships me two more.

And that leads to what might be called the Netflix moment: the moment you get hooked. You've just sent two movies back to Netflix after a particularly rainy weekend. You've got a busy week ahead of you. You forget all about movies. You go about your business. And then you come home from work on a Friday night and there, in your mailbox, is the Netflix pouch, with a really good movie inside. And you think to yourself, great.

Netflix junkies are everywhere now. The company has 300,000 members, paying $20 a month, and by the end of this calendar year Netflix ceo Reed Hastings expects that number to reach 500,000, putting the company in the black. By the end of next year, Hastings expects the number of Netflixers to double again. And after that, well, who knows? In 2003, Netflix might no longer be just an Internet rental service. It might be a broadband movie distribution channel as well.

Hastings' confidence is based largely on escalating demand for DVDs. As the cost of DVD players collapses (as it has), the number of households with DVD players multiplies. DVD households doubled last year, will likely double again this year, and then double again next year. This rapid adoption curve is made steeper by the fact that Sony's PlayStation 2 and the Microsoft Xbox (scheduled to be out this fall) are DVD players, as well as game consoles. So, in millions of households, there won't be one DVD player, there will be two (at least).

As a result, Netflix is sitting right on the crest of a wave. It's the undisputed leader in the Internet DVD rental 'space' at exactly the moment that DVD technology is taking off. And it's causing in-store video/DVD rental businesses to change tactics. Blockbuster, for instance, recently introduced a plan that allows you unlimited DVD rentals for $20 a month, but still imposes late fees. The $4-billion behemoth is running ads about this offer everywhere. Blockbuster even took out billboard space on buses in Los Gatos, California (where Netflix is based), to send a message, as George Wallace used to say. The Netflix boys got the message, but took it the wrong way. They were thrilled. It told them they were doing everything right. And they chuckled about all those parents paying all those late fees on all those Blockbuster DVDs. By the end of this year, there will be a number of Internet service companies making money on the Web. Netflix will likely be one of them. The question is this: what makes Netflix so unusual? What did they do right that so many others did wrong?

For starters, it raised a ton of money ($109 million from institutional venture partners and other funds). It entered into smart strategic partnerships with almost everyone in the movie and consumer-electronic business. And it built a first-rate management team. But there are six other, less obvious, reasons why the company flourished as virtually everything around it crashed and burned.

1. It understood its customers. The key factor in American life today is time or, rather, the lack of it. Time is what baby boomers, especially, value most. Companies that save time, that deliver the goods, that simplify things, that eliminate annoyances like late fees, add value to their customers' lives.

2. It understood the technological context in which most of its customers live. There's a theory, especially among out-of-work dot-com types, that the reason the dot-com sector crashed is because the bandwidth wasn't there. That's one way to look at it. Another way to look at it is: what in the world made them think it would get here quickly? Netflix understood, as Yahoo and aol and Amazon understand, that most of us live in a 56K-modem world. It didn't offer to stream videos to your disk drive. It built its service to match the capabilities of the existing technology.

3. It did one thing, and it did it well. Amazon would be profitable today if it just sold books, movies and music. Priceline would be profitable today if it just sold airline tickets. Companies based on digital technology get in trouble when they get ahead of what they can realistically do for their customers. Netflix rents DVDs over the Internet, period.

4. It appreciated that back-end technology is more important than the front end. There's nothing particularly special about the Netflix Web site. It's not at all 'cutting-edge' on the screen. What is cutting-edge is the back end: the collaborative software that personalizes every screen, the digital 'assembly line' that processes shipments and returns, the e-mail system that tracks your order and informs you of its progress in brief messages.

5. It recognized the difference between word of mouth and buzz. Buzz is the equivalent of push technology. Media tell you what's cool, what's happening. Word of mouth is the equivalent of peer-to-peer technology. People you know tell you what works. Vast amounts of money were spent creating buzz and the net result was, you couldn't discern the signals from the noise. Netflix didn't spend anything on buzz. It only recently hired a public relations firm. It grew by word of mouth.

6. In an interactive environment, it understood that branding is interactive. Did anyone ever go to Go.com? I saw a hundred advertisements and a thousand banners for it, and I never went there, ever. Go to Netflix or Amazon, and you want to go back, often. That's what branding is about on the Internet, coming back for more.

These days, no one writes stories about successful Internet companies. The manic-depressive media have proclaimed them doomed. Many of them, including many owned by the manic-depressive media, are just that. But companies like Netflix that understand their customers and technology, aren't doomed at all. They're just getting started. Ask Blockbuster.

Kudlow and Cramer

My old friend Jim Cramer had me on his CNBC show to talk about my most recent column for Fast Company. You can read the column by clicking here.

Cheney Makes The Case

Here is a link to a partial transcript of Vice President Dick Cheney's speech to the VFW meeting in Nashville. And following is the text of that transcript:

To this day, historians continue to analyze the war, speculating on how we might have prevented Pearl Harbor and asking what actions might have averted the tragedies that rate among the worst in human history.

America in the year 2002 must ask careful questions, not merely about our past, but also about our future. The elected leaders of this country have a responsibility to consider all of the available options, and we are doing so.

What we must not do in the face of a mortal threat is to give in to wishful thinking or willful blindness. We will not simply look away, hope for the best and leave the matter for some future administration to resolve.

As President Bush has said, time is not on our side. Deliverable weapons of mass destruction in the hands of a terror network, or a murderous dictator, or the two working together, constitutes as grave a threat as can be imagined. The risk (sic) of inaction are far greater than the risk of action.

Now and in the future, the United States will work closely with a global coalition to deny terrorists and their state sponsors the materials, technology and expertise to make and deliver weapons of mass destruction. We will develop and deploy effective missile defenses to protect America and our allies from sudden attack. And the entire world must know that we will take whatever action is necessary to defend our freedom and our security.

As former Secretary of State Kissinger recently stated, the imminence of proliferation of weapons of mass destruction, the huge dangers it involves, the rejection of a viable inspection system and the demonstrated hostility of Saddam Hussein combine to produce an imperative for preemptive action.

If the United States could have preempted 9/11, we would have; no question. Should we be able to prevent another, much more devastating attack, we will; no question. This nation will not live at the mercy of terrorists or terror regimes.

I am familiar with the arguments against taking action in the case of Saddam Hussein. Some concede that Saddam is evil, power hungry and a menace, but that until he crosses the threshold of actually possessing nuclear weapons we should rule out any preemptive action.

That logic seems to me to be deeply flawed. The argument comes down to this: Yes, Saddam is as dangerous as we say he is, we just need to let him get stronger before we do anything about it.

Yet if we did wait until that moment, Saddam would simply be emboldened and it would become even harder for us to gather friends and allies to oppose him. As one of those who worked to assemble the Gulf War coalition, I can tell you that our job then would have been infinitely more difficult in the face of a nuclear-armed Saddam Hussein. And many of those who now argue that we should act only if he gets a nuclear weapon would then turn around and say that, ``We cannot because he has a nuclear weapon.

At bottom, that argument counsels a course of inaction that itself could have devastating consequences for many countries, including our own.

Another argument holds that opposing Saddam Hussein would cause even greater troubles in that part of the world and interfere with the larger war against terror. I believe the opposite is true.

Regime change in Iraq would bring about a number of benefits to the region. When the gravest of threats are eliminated, the freedom-loving peoples of the region will have a chance to promote the values that can bring lasting peace.

As for the reaction of the Arab street, the Middle East expert, Professor Fouad Ajami, predicts that after liberation the streets in Basra and Baghdad are sure to erupt in joy in the same way throngs in Kabul greeted the Americans.

Extremists in the region would have to rethink their strategy of jihad, moderates throughout the region would take heart and our ability to advance the Israeli-Palestinian peace process would be enhanced just as it was following the liberation of Kuwait in 1991.

The reality is that these times bring not only dangers, but also opportunities. In the Middle East, where so many have known only poverty and oppression, terror and tyranny, we look to the day when people can live in freedom and dignity, and the young can grow up free of the conditions that breed despair, hatred and violence.

In other times the world saw how the United States defeated fierce enemies, then helped rebuild their countries, forming strong bonds between our peoples and our governments.

Today in Afghanistan, the world has seen that America acts not to conquer, but to liberate. It remains in friendship to help the people build a future of stability, self-determination and peace.

We would act in that same spirit after a regime change in Iraq. With our help, a liberated Iraq can be a great nation once again. Iraq is rich in natural resources and human talent and has unlimited potential for a peaceful, prosperous future.

Our goal would be an Iraq that has territorial integrity, a government that is democratic and pluralistic, a nation where the human rights of every ethnic and religious group are recognized and protected. In that troubled land, all who seek justice and dignity and the chance to live their own lives to know they have a friend and ally in the United States of America.

Great decisions and challenges lie ahead of us, yet we can and we will build a safer and better world beyond the war on terror. Over the past year, millions here and abroad have been inspired once again by the bravery and the selflessness of America's armed forces.

For my part, I have been reminded on a daily basis, as I was during my years at the Pentagon, of what a privilege it is to work with the people of our military.

In whatever branch, at whatever rank, these are men and women who live by a code, who give America the best years of their lives and they show the world the finest qualities in this country.

As veterans, each of you has a place in the long, unbroken line of Americans who came to the defense of freedom. Having served in foreign wars, you bore that duty in some of our nation's most difficult hours. And I know that when you come together, your thoughts inevitably turn to those who never had the opportunity to live to be called veterans.

In a book about his army years, Andy Rooney tells the story of his childhood friend, O.B. Slingerland (ph), a decent, good-hearted, promising boy who was captain of the high school football team. O.B. (ph) later went on to be quarterback at Amherst before entering the Navy and becoming a pilot. Still a young man in his early 20s, he was killed while flying a combat mission off the carrier Saratoga.

Andy Rooney writes: ``I have wakened in the middle of the night a thousand times and thought about the life I had that O.B. (ph) never got to have.''

Many of you have known that experience. The entire nation joins you in honoring the memories of your friends, and all of who have died for our freedom. And the American people will always respect each one of you for your standing ready to make that same sacrifice.

On the nation's behalf and for myself, and President Bush, I thank you for the service you gave to your fellow citizens, for the loyalty you have shown to each other, and for the great honor you've brought to your uniform, to our flag and to our country. Thank you very much.

(APPLAUSE)

CNN, Lies and Videotape, Part 2

Walter Isaacson has written a letter to CNN employees which is posted on the Media News site (look down the left hand column). In the letter, Isaacson addresses the issue of whether or not CNN lied about how it "obtained" the so-called "terror tapes." Says Isaacson:

In an attempt to ensure that our journalists in the field are not the subject of attack we did not want it well known that they may be carrying large sums of money. Therefore, we made the decision to tell all press only that we had "obtained" the tapes. Unfortunately, there was some miscommunication between CNN and the New York Times, resulting in the story erroneously stating that we had not paid for the tapes.

The following points should be noted: First, the moment we learned that the story misreported the payment issue we notified the writer. Eason Jordan, in fact, read the story from Baghdad and fired off an email to the Times reporter before most of us had even awakened. Secondly, Nic Robertson was not responsible for the misunderstanding and should only be congratulated for his journalistic instincts and personal bravery in pursuing this story. Third, we acted in good faith at every moment and we made sure in the wake of the Times story to set the record straight, and thus every other story written on Monday had the facts correct. We paid no money to Al-Qaeda or anyone acting on behalf of Al-Qaeda; the money was a reasonable amount, $30,000, paid to those individuals who recovered the tapes, which we all know to be a standard practice in this business.

You can read CNN, Lies and Videotape, Part One by clicking here.

A Story No One Wants To Read

I don't know when your 9/11 overload will begin, but mine kicked in this morning. This story, about brave and daring media, pushed me over the edge. I'm in boycott mode now. Because I know these two things are true:

1) The 9/11 anniversary coverage has little to do with 9/11 and everything to do with ratings and newstand sales.

2) The 9/11 anniversary coverage will reach new levels of victim exploitation.

I suspect that many people feel exactly as I do. I haven't met a single person who wants to read the Time Magazine 9/11 anniversary special issue (and I've asked). I haven't met a single person who is looking forward to ABC News' all-day coverage. And surely no one looks forward to the 24-hour cable news menu of 9/11 exploitation. It will be hideous.

Recover, Rebuild, Revenge. That was the bumper strip downtown, after the airplane bomb attacks. We've recovered. We're rebuilding. We will have our revenge. The media are stuck on "recovery" (their own, mostly). The rest of us have moved on. Long ago.