B (2:15)

So Yahoo was a company which was based on a surprisingly simple business model, which was we are going to create lots of page views, and then we're going to put ads on those web pages, and then we're going to make a lot of money by selling those ads to advertisers. And when you have billions and billions of page views, you can make billions and billions of dollars by selling ads on your. Your Web pages. And then the Web kind of changed and people moved on from Yahoo, and they didn't go to Yahoo as much. And more to the point, even though Yahoo's page views might not have gone down very much, everyone else's page views Started going through the roof and they didn't keep pace and suddenly it wasn't that big of a player anymore, actually.

C (3:04)

Do they get paid less over time as well for like, of eyeballs?

A (3:08)

Yeah. I mean, the price per ad fell a lot.

B (3:11)

CPMs have been on a downward trajectory for decades. So what happens is that Yahoo basically at some point becomes. Well, it becomes a lot of different things. And every single company in Silicon Valley has this whole like, are you a media company or are you a technology company thing. And. And no one, no one really managed to work this out. But eventually what happened is it got sold off as a media company to Verizon, which had previously bought AOL, which was the other great big web 1.0 behemoth. And then AOL had basically just become a media company as well. It was like, we have a few web properties, Huffington Post and AOL.com and places like that which get a lot of traffic. And we can sell ads against that. And Verizon looks at this and says, we want to be in that business. And they bought AOL because it has some interesting ad tech and they want to be in the business of having a huge amount of web traffic and selling ads against it. Now that raises an obvious question.

A (4:16)

Why the hell would you want to be in this?

B (4:17)

Why does a telecommunications company want to be in that business?

A (4:20)

So I have a few feelings about this. Part of me just looks at this as a gigantic hedge against the future. Right. You know, they're not quite sure exactly where their mobile businesses go, where their business is going, the future. They don't know where their cable business is actually going to be going in the future. With FiOS, they are, at the same time, they are looking at this and they are saying, okay, we can buy this company. We can create this huge network. We can experiment and see if there are better ways to sell ads and maybe create a bigger business here. We can get all this data. Since we also have the AOL, we have HuffPo, the AOL network, we have HuffPo. We can try to kind of combine that with TV. We can see if there are ways to cross pollinate and just use. What I mean to them is it's a big purchase. But I think if you're.

B (5:12)

I don't think there's any chance that the business they are building here with AOL and Yahoo is ever going to move the needle in terms of their mobile and cable properties. It's not like this is a company worth hundreds of billions of dollars. It has insanely huge mobile phone Revenues and insanely huge cable TV revenues and insanely huge, like providing Internet services to people revenues. And this is a rounding error. And I don't think that you can say that if you, you know, the mobile phone revenues go down, then maybe they can make it up by selling ads on the Internet. I don't see that.

A (5:53)

It's not just on the Internet, though. So here's the thing. I think, like, it's, you're right, it's a, it's a rounding error. That's why it's actually a very good hedge. You're just buying this massive amount of eyeballs and data and property for not that much as far as your company is concerned.

C (6:08)

Let me, let me back that up because here's the thing. And I, I, I've talked to people who are really interested in mobile ads. There are no cookies as such, so people are, it's to track people.

B (6:22)

So this is the key. And this is where the AOL purchase was very important because it had a bunch of mobile ad tech which no one else really had. And this is where the Verizon, I mean, this, this is where the Yahoo purchase is really important because it gives them scale. Is that when you're in the business of selling mobile data to hundreds of millions of people, which Verizon is, you have the ability to deliver ads to those users, Tailored ads, tailored ads to specific individuals.

C (6:58)

And when you do that, by the way, the amount of money you get per ad is much higher if you're targeting your customer better.

B (7:04)

One of the reasons why Facebook is so incredibly successful is because it has managed to create a product which allows advertisers to segment and target really effectively. And one of the reasons why Yahoo was not effective was because it never really managed to come up with that kind of a product. If you went to Yahoo Mail, your ads that you were served were not nearly as segmented and targeted and effective. And now with Verizon, now that everyone is moving from the desktop Internet where Yahoo started to the mobile Web, where Yahoo was really an afterthought and an also ran, Verizon is looking at that, and so is, you know, a bunch of other companies, and they're saying this is a new huge business area. And yeah, right now it's dominated by Facebook and Google. But we feel like maybe given that we have the mobile phones which everyone is looking at all of these products on, maybe we can play in this.

A (8:04)

I would also add that, you know, the fact that they're a TV company is important. There is this idea that one day TV ads are going to act. I mean, already starting to, but more so act like Internet ads with they're, you know, just being segmented off with you getting some served something different than the guy who's watching the super bowl down the street. Well, Maya, maybe in the future there was something different. The guy who's watching the super bowl down the street, you know, and the more that TV just becomes another wing of the Internet, the easier that might become. But so this is the future that they're trying to plan for and maybe get ahead of. And I think this is just, like I said, one not too expensive way for them to make a major step into this area and grow their capabilities.

C (8:46)

So in that sense, I think you're right that it's a hedge for the future. I mean, basically, Facebook and Google, this is the way I look at it. Facebook and Google force people to log into their accounts on the phone, and that's the way they know exactly who they are. They have all this data on them from both computer use and mobile use, and they target the ads. And this is the way Verizon has all this data. They can connect the people with their phones to the people that use Yahoo. And they're like, I know who you are and I know what ads you serve you. And this way they keep up a little bit with the big guys.

B (9:17)

And I just want to finish this off by talking about the favorite meme that everyone had about Yahoo for many, many years, which was that the actual business of Yahoo had negative value. What people would do is they would look at Yahoo's market capitalization and they'll say, well, this much of it is the Alibaba stake, that much of it is the Yahoo. Japan stake. And if you add up those two things together, it's more than the market cap of Yahoo, which means that the entire actual business of Yahoo is worth a negative amount of money.

A (9:49)

Untrue.

B (9:49)

Which turns out to be. Untrue. It turns out to be worth $4.8 billion, which is. Which is small but not negative.

C (9:55)

But that's so. But I mean, I think I thought the biggest question about this purchase that you were expecting us to ask was, like, what? Like, how much expectations were higher than this? Like 10 years? Like. Like Yahoo.

B (10:07)

So in 2008, I believe. Was it 2008? No, it was maybe a bit later. Microsoft offered to buy Yahoo for $44 billion. And that was long before Alibaba was this massive thing which was worth, you know, $30 billion on its own. So clearly as you know, that was an offer they probably, with hindsight, should have taken.

C (10:32)

I think.

B (10:33)

So now it's worth $4.8 billion. Maybe if they had sat on it for the next few years, they would have actually been worth a negative amount of money. You never know.

C (10:39)

But, and also Tumblr is part of this deal, like all this other stuff that Yahoo purchased so many toys.

A (10:45)

And I mean that.

B (10:46)

That I think is the number which really puts this into perspective is that Yahoo bought Tumblr for 1.1 billion.

C (10:54)

Exactly.

B (10:55)

And then Yahoo, the entire Yahoo got sold for 4.8 billion after having written down the value of Tumblr to basically zero. But that's just. That was, in hindsight, probably not a great smart acquisition either.

C (11:10)

I agree. I'm personally interested in that because I almost worked for Tumblr and I was just like 1.1 billion. Wow.

B (11:20)

The bit which I'm fascinated by is what's going to happen to the company formerly known as Yahoo, this weird holdco whose job is just to sit on a pile of Alibaba shares and wait for Alibaba to come along and maybe buy them at some point.

A (11:34)

I think that's what they're going to do. Right?

B (11:36)

I feel like. I feel like I want to be the CEO of that company because that's just a lie on the beach job right there.

C (11:43)

What a great segue.

B (11:44)

So talking about CEOs being paid to.

C (11:47)

Lie on the beach.

A (11:47)

We are.

C (11:48)

Yeah. So I don't know about you guys, but I feel like the CEO pay has been rising a little bit too quickly recently. I have some statistics here. And then we're going to talk about a report that came out this week. But the statistics are that between 1980 and 2004, compensation for CEOs grew and 8.5% per year on average. Compare that to the corporate profit growth of 2.9% a year, and of course, the per capita income including very, very rich people of 3%. So in other words, CEOs are getting rich much, much faster.

B (12:22)

Wait, hang on. Did you just give us statistics which ended in 2004?

C (12:25)

Yeah, I know, it's not great.

B (12:28)

I was like, I was like. And then since 2004, it's been going up by 18%. I was waiting for the other shoe to drop.

C (12:34)

Well, I do have another statistic, which is that in 20, the average CEO pay was $9.6 million. And in the recent MSRI report, it. It shows graphs that average CEO pay are just growing and growing and growing, especially since 2012. So in, in other words, it's exorbitant. And the question is, is it worthwhile? Like is there a reason to pay CEOs that much? And by the way, I should say that more than 70% of CEO pay at, at this point, not in 1980, but more recently is tied to equity. Yeah, so, so, and it was, maybe you guys know more about how this sort of philosophy of this. But the idea was you want to align your CEOs with the interest of the company itself. The idea being if the, if, if they were not just an agent of the corporate structure, but an actual participant in this, in the future of the corporate structure, then they would do a better job.

B (13:31)

This is based on the idea that the CEO works for the shareholders and the CEO's job is to maximize shareholder value. And that the best way to do that is to align the CEO's incentives with the shareholders incentives. And the shareholders incentives are very, very simple, which is just I want the share price to go up and that the, you therefore pay CEOs in stock because then they want the share price to go up because they get paid more when it goes up. And then everyone's happy because all of the incentives aligned and the shareholders get the best outcome. The I, there's so much wrong with this model, but that's the basic, very common model.

A (14:12)

So the logic of it kind of came out of, you know, as part of the whole shareholder revolution of the 70s 80s. And you know, they were, you have to remember what they're pushing back against was this idea of sort of the solid oversized fat monopoly. And the thought was that because CEOs didn't really have incentive pay that aligned to shareholders, they just were empire builders. They just wanted to buy as much as they could and have as big and a conglomerate under them as they could. And so the idea was that if you were, if you, if they benefited from unlocking shareholder value, they would provide more of it. Now whether or not that was the theory, whether or not that was true is, you know.

C (14:48)

Yeah, and so we're going to go, we're going to come back to empire building. But let me, let me talk about what the actual report said. This MSCI report which came out this week. They basically did a 10 year study and they took all, they took a bunch of companies from what's called the MSCI USA index and they looked at 626 large and mid cap companies and they looked at, which had enough data to go back 10 years and they split them into the CEOs into two, two groups. One where the CEOs made less than the median CEO pay and one where the CEOs made more the median CEO pay. In other words, they sort of ranked all these companies by CEO pay and looked at the lower half and the upper half and they found that over a 10 year period the ones in the upper half, the more, the more well paid CEOs those companies grew, but they grew 40% less than the companies as an index, the companies with smaller CEO.

B (15:44)

So, so what you're saying is that for stock market investment advice what you do is you rank all of the companies in the stock market by CEO pay and buy the bottom half of that ranking and then you will outperform.

C (16:01)

Okay, so that's, I think that's what they want to say and see, being a data nerd, I have two comments. The first comment is I think we might, we might be able to explain this just by simply by thinking about how large like the, the com. That companies that, that are very large tend to pay their CEOs more.

A (16:21)

I was going to say is this just starting from a low base kind of thing with the, the ones with smaller CEO pay also were just smaller companies.

B (16:27)

I feel like there's a survivorship bias thing going on here.

C (16:30)

That's the second comment. Yeah. That you're, you're, you're anticipating me. So the second comment is when, when they said, oh, we looked at the companies inside this index that have data going back 10 years. That's not the right way to do it. If you want to do this study. Honestly, what you do is you start at a snapshot of 10 years ago and you look at all companies that, and then you say what are the 10 year forward looking returns? And some of them might have failed outright.

B (16:56)

Yeah.

C (16:56)

And those ones that failed outright or are no longer in the USA index, which probably means they did very badly. They are not going to be included in this study, unfortunately.

B (17:06)

Wow. I feel like I get a sort of, you know, a little baby gold star from Kathy frantic survivorship bias thing going on.

C (17:15)

The problem is that, and it goes back to the bigness. Right. Like. So let me just back up and explain a little bit more about what Jordan was saying. How empire building. Right. So there was a, like a phase and it was. And it maybe hasn't stopped entirely where, where CEOs were like hey, let's acquire this other company. We just talked about that what happens when company X acquires company Y is that there's a new CEO of company X +Y and that new CEO doesn't make like the sum of the old CEO salary, but they do often make quite a bit more salary. Okay, so you have this correlation between size of company and size of CEO pay. And the other thing that you should remember is that people tend to, they tend to invest in large companies, not simply because they want a large return, which everybody wants a large return, but because they think they're safe. So really, if we want to understand returns, we want to also understand their safety, their volatility, as well as their returns.

B (18:15)

I want to come in and talk about my theory of CEO pay, which is that, you know, it's all well and good trying to correlate it to stock market return, if you believe that the job of a CEO is to improve the share price. But I want to just put all of that to one side and say CEO pay actually does serves a very different purpose. The, the CEO is the top paid person in the company 99% of the time. That's just the way that companies work. They pay their CEO more than they pay anywhere anyone else. Yeah, and so what it's a, it's a prize basically, that if you have a company with 10,000 employees, all of those employees, well, not all of them, but like a very large proportion of those employees is going to want to earn more money. And the way they earn more money is working up the, the ladder and they have their eye on that CEO job. And they're like, if I get promoted all the way to CEO, then I'll be making, you know, $25 million a year and it'll be amazing. And that gives all of the 10,000 employees a sort of incentive to do the things that get them promoted because they want to move up and have you describing capitalism?

A (19:30)

I think, I mean, I have trouble this theory, especially since so many CEO hires are lateral. I mean, I can sort of see the logic of it. I mean, you know, what does that explain?

C (19:39)

I mean, granted.

B (19:40)

Okay, so basically what I'm saying is that you're paying the CEO a lot of money, not because the CEO is intrinsically worth a lot of money, but just because you, you want to provide incentives not so much for the CEO, but rather for everyone else in the organization to do the kind of things that are likely to get them promoted into that position.

A (20:00)

You want everyone to run the rat race harder. I mean, I, I, again, I don't know if I. So can I do the thing I always do where I'm just talk about a little bit of the, how the academics look at this issue, please. So obviously, CEO pays and stay for a while. And, you know, the two theories, one are essentially that, yes, CEOs add value and that's why they're paid more. Companies are bigger, global market caps have gotten bigger. And if some people say, well, if you look at CEO pay, it's actually match or its expansion has matched the growth of US Global market caps, right? So, you know, it's justified. The other way people look at it is, you know, cap. It's basically board capture. Some version of the CEO has leverage with all the people on the board because it's this very small community of, you know, other CEOs who they know, and there's lots of back scratching. And so there's no real incentive for anyone to clamp down on CEO pay. They all want to get paid more themselves. And then to supplement that, you have this whole industry of what are known as CEO pay consultants, right? And they are hired by management to come in and say, this is what everyone else gets paid. We're either below the median or we're above the median. And if you're above the median, you're considered competitive. And if you're below the median, you're considered not competitive. And so, of course, if you want to get hired by management, you're going to consistently create reports that say, oh, you guys are not quite competitive yet. You need to pay more. And then you have all these boards that are probably a little bit sympathetic to the guys running the company anyway, and so they're happy to say, okay, we'll jack up your salary. So that's, that's the other version of this. And there's one study I personally always come back to when I'm thinking about this issue because it's a real classic. It's by Mary Marianne Bertrand. And I'm blanking on the other economist who's really famous too, but it's from like 2001. And they want to say, okay, if merit pay is. If it's really merit pay, it shouldn't be affected by random fluctuations that the CEO had no control over. And so what they did was they looked at the oil industry because the CEO does not control oil prices. You know, they just don't. That is exogenous. And what they found is, lo and behold, oil executives made a lot more money whenever the oil, whenever the price of oil went up, they were rewarded for that.

B (22:11)

This is a bit of a straw man, right? Does anyone believe that CEO pay is merit pay?

A (22:17)

Well, I mean, yeah, some people have tried to Argue that. Yeah, I mean that is a. There are people who I have literally.

B (22:23)

Never met one of those people.

A (22:25)

You run in a more cynical crowd. You should talk to some right wing think tankers, man.

C (22:31)

Well, okay, so I just want to make a comment though. The fact that I disagree with the way they did the study doesn't mean that the study's conclusion is totally wrong. It means that the evidence that they gave is probably exaggerated. There might be an effect here. I don't know whether it's positive or negative, but it's not clear to me that even if you did the study. Right. That you'd find that people who pay their CEOs more do better on the stock market.

A (22:52)

I mean, the other thing about, you know, you were talking about the promotions, right. And like having CEO pay as sort of the shining, you know, sort of the light. Yeah. The brass ring. I mean, first off, CEO pay is rising faster than the other parts of the C suite.

C (23:06)

Yes. Right.

A (23:07)

Like much faster than, than, you know, CFOs and whatnot.

C (23:09)

So it argues for why they should be high, but not why they should be growing so quickly.

A (23:13)

Yeah. Why it's that much faster than every other part of like the C suite. I mean, that's again, that, that's what kind of makes me just, you know, adds credibility to the capture.

B (23:24)

There is one. I mean there's definitely capture. There's definitely a lot of back scratching. There's definitely. Compensation committees all want to be like Lake Wobegon. Everyone at least wants to be above average. All of these things are true. And, but the one thing, if I needed to come up with a kind of, you know. Well, you can kind of maybe see it, which is hard. But if I, if I, if you forced me and twist. Twisted my arm, I'd say that CEO 10 years have been coming down that if you look not at CEO pay on an annual basis, but rather look at CEO pay on a. How much are we totally going to pay you in total over the course of your period as CEO? That might look different because the CEOs get fired all the time.

C (24:08)

So that's actually one of the conclusions that the study had. Even though again, I don't completely trust it. One of the things they mentioned is that the SEC requirements for like saying how much they're paying their CEOs need to be stepped up. And like, in particular they sort of talk about annual pay and sort of current value of future other things. But the other stuff sort of like bonus pay is not required to be disclosed in that section and it's somewhere else that's hard to find. So basically like. And the other thing is that that sort of hard to find undisclosed type of salary components, those kinds of things are growing all the time. And that's related to this two year thing. Like come in for two years as CEO and then if you do this, we're going to give you an extra hundred million dollars.

B (24:53)

And that's related as well to the, to the Yahoo thing where the. There was this huge sort of confusion after Yahoo got sold about how much Marissa Maya was actually going to get paid at the end of this year.

C (25:07)

And how much does she get paid.

B (25:08)

And how much she's paid and like the numbers are all over the place. But it seems that she's going to get paid somewhere north of $50 million this year and possibly north of $100 million, depending on how you count.

C (25:21)

That is insane.

B (25:22)

Which is not. Which is quite impressive for driving your company into the ground. Jordan, I have a way for solving the CEO pay problem.

A (25:31)

All right.

B (25:31)

Which is that you should just be a family owned company.

C (25:37)

What are you getting at?

B (25:38)

No, what I'm saying is that if you're a family owned company, you don't have these principal agent problems anymore. You don't have compensation consultants. You just want to keep the company in your family for perpetuity and look after your family. And you're not much less likely to get fired. And you don't need to get.

C (25:56)

Your incentives are a lot.

B (25:58)

And I feel like the CEOs of family paid companies, because they own the company, they don't need to pay themselves.

C (26:04)

A lot, I guess.

A (26:07)

Although, I mean, we're talking about the New York Times. And the CEO of the New York Times company is not a Salzberger. Sulzbergers are chairs.

B (26:15)

Exactly. But Mark Thompson only gets paid a couple million dollars a year because a family owned company.

A (26:20)

And it's true. Yeah. So that might be.

C (26:22)

Yeah.

A (26:22)

Okay. So I guess that's the. We're back. We've segued officially now.

C (26:27)

A little painful.

A (26:28)

Yeah, a little painful. But here we are talking about the New York Times. Yeah. So we're actually, we're going to be talking a little bit more about digital ads, though. Something interesting happened. New York Times, you know, talked, released its quarterly earnings, posted a net loss. But that's not really the important part. The important part, it's about its advertising revenue. We're used to hearing about the New York Times losing advertising revenue because print ads are declining this quarter. Both print and digital declined. Digital Ads were down about. Revenue from digital ads are down about 7%. They think it's going to rebound next quarter. But still. And so, you know, that's a little scary, I think, for a lot of media to see, because it's a reminder that we're at this moment where no one's quite figured out exactly how to surf the last, the, you know, the waves from the last great change in media where print, where print advertising started to disappear and all, you know, we were supposed to transition to digital ads and that was going to be part of the solution. And already digital advertising is now becoming problematic itself. This has been talked about ad nauseam in media land, but this is a kind of a, I think a little bit of a wake up moment.

B (27:37)

So I, I feel like this is just part of the creative destruction that happens in media. Yeah, we had print, which was this license to print money. And then a lot of those print revenues went away. And as we saw in these earnings, they're continuing to go away. This comes as a surprise to absolutely no one. And what they were being replaced with to a certain degree were revenues from print, like digital products, by which I mean adjacencies, basically print ads. You are reading a story in the print New York Times and then on the opposite page there's an ad for Volvo. And then somehow out of the corner of your eye you see the ad for Volvo. And that at the margin makes you more likely to buy a Volvo. That's basically the adjacency model. It's like you're looking at one thing, but you also see something else.

C (28:31)

But that was essentially the model when you had a print ad too.

B (28:34)

Well, that's fine. That is the model.

C (28:35)

Yeah, okay, okay.

B (28:36)

That is the model of print. And then they tried to move that model over to digital. And when we were, when the Internet was a thing, which you just looked at on a screen in a web browser, what they would do was they would carve out a little bit of that web browser and they would put an IAB approved unit, you know, ad unit in there. And so you're reading the story about, you know, some corporate earnings or something. And then out of the corner of your eye there's a skyscraper or some kind of banner ad and it's an ad for Volvo. And then, you know, you may or may not click on that ad, but you've seen it, it's an impression. And you know, down the road, who knows, you might wind up being marginally more likely to buy a Volvo. And it worked on the Same idea. And no one really knew how well the adjacency model worked in print. But, but for so long as it was the only game in town, it was the only game in town and people kept print, advertisers kept on buying ads online. These things are much more measurable. And people realized that the adjacency model really wasn't working that well. And I think that's, and especially now that we no longer read these things on big desktop browsers, but just on our phones which are much smaller and they don't have space for adjacencies like that. That model of we're just going to try and squeeze a banner ad in next to the story that you're wanting to read. It's a bad user experience on the phone and it's not very effective and it doesn't work. And so those revenues are going down and they are going to get replaced by slightly more sophisticated revenues in terms of like content marketing and native content. And what the CEO was talking about, these like seven digit, seven figure deals for digital buys which weren't happening in the second quarter but are going to come along because that's really where advertising can possibly be effective on the New York Times digitally.

A (30:31)

Well, so there's another story going on here too, which is about some of our favorite subjects, data and kind of commodification of advertising, which is, you know, we're talking about display ads, banner ads, right. And you know, for a while the way that worked is you called up a company like you did with any other kind of advertising and you struck some kind of a deal. But that's not really the most effective, it's not the most efficient way to do things in the digital world. And so there's been this revolution in digital advertising called Programmatic. And this sounds boring, but it's actually kind of, I mean, it's an amazing thing when you step back and think about it.

B (31:04)

And it's what Verizon bought when they bought AOL was a bunch of programmatic ad tech.

A (31:09)

And so what programmatic is, is you go into a market and you can just put down what you want to buy and an algorithm will find you ad space all around the Internet. And so what people realize is that what that's done is it's made display advertising, those random banner ads you see are little ads down the side of the webpage, you know, into a commodity. It's brought down, you have almost perfect competition. And what happens in a market, in a commodity market with perfect competition is that prices Just come down. They're. They're supposed to come as auctions, right? There are auctions. Exactly. There are all these things that happen. They happen algorithmically. They happen instantly. And so it's those. The technology is pressing down the price of this kind of advertising. At the same time, one of the big visions for a lot of these companies is to really do much more of that in the web video space. And it's a little tough right now, because web video, you know, you think of kind of an infinite supply of content on the Internet, right? There's just like this endless. Well, it's actually advertisers will talk about how there's not enough video content. That is something that all these companies, all web publishers, are struggling to produce enough of. But eventually there will be. And when there is, you're going to. You know, the idea is that you will have programmatic and it will become a commodity. And the price of that will come down from the very high costs that now. That the high premiums it now commands. And so it's. As an economics thing, as a market in action, it's fascinating for a nerd to watch. As someone who writes about economics or living for a publication, it's a little scary to watch.

C (32:40)

So, I mean, speaking of someone who, like, hates ads, you know, and pays for the New York Times, like, what. What's going on with their subscriptions?

B (32:49)

So that's a great question. And the subscriptions are the one bright spot in the earnings that they now have 1.4 million people just paying for digital subscriptions. And they have so many people paying for digital subscriptions now that they've actually started putting up quite unpleasant walls for people who don't have subscriptions that you can click on a link on Twitter and get taken to the New York Times. And if you've seen 10 stories on the New York Times that month, you will not be allowed to read that.

C (33:23)

Story unless you go to an incognito window.

B (33:25)

I mean, there are always ways of getting around these paywalls, but this is. This is something which the New York Times very explicitly was not doing when it first launched its paywall. Right. They said, you know, links from Twitter, we will always allow. Now that's not the case anymore.

A (33:40)

It's adding bricks to the paywall.

C (33:43)

I mean, another comment. I mean, maybe you guys can explain this to me, but why are video ads so expensive and so valuable if they're just so annoying to actually be, you know?

B (33:56)

Yeah, I feel like this is a targeted. I mean, I think part of it is. What Jordan was talking about is that the. It's a supply and demand thing because there isn't so much inventory, the supply is relatively small, the demand is quite high because a bunch of advertisers have put a huge amount of money into creating television ads, and they want to be able to repurpose those television ads online. And they're like, we want to reach a million people online. And it's actually very hard to reach a million people online with a television ad which people don't want to watch. And so they're willing to pay a lot of money to do that. So is this the kind of thing.

C (34:32)

Where you're like, you do not get your story or your video till you have to watch this?

B (34:36)

That's the. It's known as a pre roll. And everyone hates pre rolls.

C (34:40)

Everyone hates.

A (34:40)

But they're very, very valuable for. For publications.

C (34:46)

Yeah, that makes more sense.

B (34:47)

But again, that's probably going to go away. And when Jordan says that everyone wants to create video, this is because right now pre rolls are valuable, and so you want to be able to sell that thing. But from a user experience point of view, as you say, it's horrible. And I think that, you know, while everyone is. Loves to talk about how video is the future of how we're going to receive content, it is a inefficient. It's an incredibly inefficient way of conveying information, that you can convey much more information, much more subtly, much more sophisticatedly in much less time by just text than you can with video. So I feel that there's always going to be a large number of people who genuinely prefer to get their information from text and from video.

A (35:36)

There's all. I mean, you know, they're called old people.

C (35:39)

Yeah.

A (35:40)

Well, also, just to piggyback on that, I mean, the obsession with video to this weird genre innovation right now where you see videos all across the web with subtitles. Right. And why is that? It's because no one listens to video sound. They typically watch it at their office. And often.

B (35:54)

This is a Facebook thing. Yeah, this is just a Facebook thing that when you're scrolling down your Facebook feed, the audio isn't playing unless you click the audio button.

A (36:02)

Yeah.

B (36:02)

So you need. So the way you get people to watch the video is to get them to watch it. You know, so do we have to.

C (36:07)

Worry about New York Times? I mean, if we have to worry about the New York Times, by the way, we have to worry about everyone. Right?

B (36:12)

Well, we should certainly be Worried about the Guardian because the Guardian losses just every, every single year. They're like, we've made a huge loss this year, but next year will be fine. And then next year it's even bigger.

A (36:22)

The Guardian. The Guardian. So actually this is, this is important. The New York Times again hedged, right? They started this digital subscription model when it wasn't clear that a paywall was absolutely the way to go to also make sure that they didn't have everything riding on a growth in digital advertising. The Guardian just went huge on scale. They were like, we're going to just build a big friggin audience and sell ads against it. And they didn't do it in the most efficient way, just in terms of resources. But also it just turns out that the winds of business and the economy and technology were working against them at the same time. So they're now just bleeding money and they're trying to stop it.

C (37:03)

So they, they. We do need to worry about the Guardian.

B (37:05)

So I mean we don't need to worry too much about the Guardian because they still have $1 billion in the bank because they sold their 50% stake in auto Trader. So that was, that was okay. We don't need to worry too much about the New York Times because the New York Times is the New York Times. I think, you know, we do need to worry about major print publications which are not called the New York Times because if the New York Times are struggling, then everyone else is exactly trunk. Deep problem.

A (37:30)

Poor trunk.

B (37:31)

Poor trunk. Okay, so we're going to move on to the numbers round.

C (37:34)

I'm going to jump in because I'm going to talk about the $2 billion quarterly profit that Facebook just announced. So they are living in the same ecostruck of shitty media sales, but they're winning big time.

A (37:48)

Well, for them it's not so shitty because they just have. I mean Facebook is part of the reason why it's so shitty for everyone because they just create this massive infinite inventory of display ads that they can target at people with, you know, great precision compared to what it.

C (38:04)

They have way more data on people, but also they get people when they're actually looking to waste time, plus they.

A (38:09)

Don'T have to make content.

B (38:10)

And, and you know, if I'm an advertiser and I want to reach a certain audience, why do I want to reach the New York Times audience in particular? I want to be very specific about the audience that I want to reach. And I can be very specific on Facebook. It makes all the sense in the world to me $2 billion of profit in one quarter. And it's only going up, by the way.

C (38:29)

Yeah, not only is it only going up, they only reached $1 billion of profit six months ago. So they've doubled in the last six months. It's scary. And by the way, political money all goes to Facebook too.

B (38:41)

My number is 62.9%, which is a very important number. And I kind of want to do like a whole episode about this or at least a segment, but this is the US home ownership rate. 62.9% of homes in the United States are owned by the people in them. That is the lowest it has ever been. We've been following the series for over 50 years, since 1965, and this is the lowest it has ever been in over 50 years. This is not necessarily a bad thing, but it's a big, big change. We reached the all time high around 2004, so it's basically taken 10 years to go from the all time high to the all time low.

C (39:24)

What was the all time high?

B (39:25)

It was about 69%.

A (39:26)

Okay.

C (39:27)

So it's always in the 60s, essentially.

A (39:28)

A lot of it has to do with the kids, millennials, and student loans. You know, it's actually. There really is enough for a whole episode on this, but there's a raging debate going on about what role student loans and everything else actually play in.

C (39:41)

Just being, like, homeownership. It's not such a great deal either.

A (39:43)

Lots of different things.

C (39:44)

I think we agree too much for it. We need to bring somebody who's like a staunch real estate agent. Bring them in.

A (39:49)

Do you really want to spend anyway?

B (39:51)

No. I've already got so ideas in my head because we should talk about, like, what will happen to the economy if this trend reverses? What will happen to the economy if it doesn't reverse. Why it's a good trend, why it's a bad trend, whether student loans are part of it, whether you're more likely to be able to buy a house if you do have a student loan. All of these things.

A (40:09)

There are monetary policy angles on this man. I can get. We can get heady with it.

C (40:13)

This is what the government does.

B (40:15)

We can talk about the correlation between house prices and interest rates. There's so much to talk about. Okay, what's your number? Joke.

A (40:21)

Okay, so my number is number one, baby.

B (40:24)

Number one, baby. Is that a number?

A (40:26)

My number is one. The United States became the top hops producer by volume in 2015, beating Hops.

B (40:35)

We're number one.

A (40:35)

We're number one. USA USA. Sorry, all the political conventions have clearly got into my head. But we passed Germany. Apparently, according to the Financial Times, this is per capita. We are the number one hot.

C (40:48)

Well, I should hope we should pass Germany. We're much bigger than Germany.

A (40:51)

Well, yeah, but Germany was like beer is. I mean that is, you know, just associated with. But anyway, so I'll be proud of.

C (40:58)

It a little bit later, you know.

A (41:00)

United States hop Production was up 12% from the previous year in the United States in 2015. In Germany it fell 26%. And a lot of this is just about the craft beer boom, which is in some ways leveling off now. The growth rate for craft brewing is apparently slowing a bit.

B (41:15)

But the point, the point being that craft beers use a lot more hops than the fizzy lagers.

A (41:21)

It is, it's a much more hop intensive product. And on top of that also they look for variety. So you need more kind of different.

C (41:28)

I'm so thirsty right now.

A (41:29)

Yeah. And you know, I also, you know, just to kind of, you know, just get a little bit 10,000 foot with this. You can think of craft beer as like a higher value added product. Right. There's more that goes into it. And so, you know, when you're doing a high value ad manufacturing in the US there are all sorts of downstream effects and other products that go into it that can be made here. It's a, it's a really wonderful virtual.

B (41:53)

I feel like the downstream. There's downstream effects of craft beer generally found in toilets. But.

C (42:01)

And I also wanted to suggest that at least four or five of the listeners today request by email a craft beer episode where we taste test.

B (42:11)

Sure, we can do that. Send us an email. The address is slatemoneylate.com and if enough of you ask for a beer episode, we will have a beer episode. I know nothing about beer, but I will. I'm willing to.

C (42:23)

I didn't know anything about.

B (42:26)

And for the time being, if you want the beer episode and we haven't managed to come up with it yet, then scroll back in the Sleep Money archives and find the episode. Because people really like the episode.

C (42:38)

That was about a year ago. Some people say it was their favorite.

B (42:40)

Episode this time last year. That was back when we were. I don't even remember who was producing us back then. Now we are being produced by the one and only Virilen Williams and also by the executive producers Steve Lichti and Andy Bowers. We are part of the Panoply network. Check all of them out@itunes.com panoply and we will talk to you next week on Sleep Money.