Slate Money – "The Size Matters Edition"

Date: July 30, 2016
Host: Felix Salmon
Co-hosts: Cathy O’Neil, Jordan Weissman

Overview

This episode of Slate Money, titled “The Size Matters Edition,” covers a week of business and finance news with sharp insights, humor, and critical analysis. The hosts discuss the sale of Yahoo to Verizon, the ongoing debate over CEO pay, and the challenges businesses like The New York Times face with digital advertising revenue. The conversation ranges from the mechanics of the online ad industry to the economic dynamics behind executive compensation, touching on shifting trends in media and homeownership statistics, and offering brief detours into beer and data nerd territory.

Major Topics & Key Insights

1. Yahoo Sold to Verizon — What’s the Strategy?

(00:52–11:36)

• Core Story: Verizon buys Yahoo for $4.8 billion, aiming to merge its media properties (like AOL) and expand its reach in online ads/data.
• Strategic Rationale:
  • Felix: Notes the traditional Yahoo model (billions of pageviews, ad sales) was eclipsed by Facebook/Google, leading to its diminished value.
  • Cathy: Asks why Verizon wants Yahoo, pondering if it’s just a “play for data.”
  • Jordan: Argues it’s a hedge against the uncertain future for Verizon’s core businesses, not just about the data:

    “Part of me just looks at this as a gigantic hedge against the future.” (04:20)

  • On mobile ad tech: AOL purchase brought mobile ad technology; Yahoo brings scale for targeted, cross-platform advertising.
  • Comparison: In 2008, Microsoft offered $44 billion for Yahoo; now, the company (excluding key equity stakes) goes for $4.8 billion, highlighting its decline.
• Memorable Quote:

  “Yahoo, that venerable Internet company ... just got sold off for parts to Verizon, of all people. For $4.8 billion. Wow.” – Felix (01:52)

2. CEO Pay: Outsize Compensation & Flawed Incentives

(11:43–26:27)

• Trends & Stats:

  • CEO compensation rose 8.5% annually (1980-2004), outpacing corporate profit growth (2.9%) and per capita income (3%).
  • The average CEO pay in 2015 was $9.6 million; over 70% now tied to equity for “alignment.”

• The Incentive Argument:

  • Jordan: Explains theory—the “shareholder revolution”—linking pay to stock for alignment.

    “The idea was ... if they benefited from unlocking shareholder value, they would provide more of it.” (14:12)

  • Felix: Sums up the alignment logic but calls out flaws.

• MSCI Study (10-year window):

  • Compared companies above/below median CEO pay—found that high-CEO-pay companies grew “40% less” than low-CEO-pay ones.
    • Cathy: Cautions about survivorship bias and statistical limitations.

• Theories Behind Compensation:

  • Felix: Argues “CEO pay is a prize”—incentive for “everyone else in the organization to do things that are likely to get them promoted.” (19:39)
  • Jordan: Raises the “board capture” problem; compensation committees/consultants drive an upward spiral:

    “There’s lots of back scratching ... there’s no real incentive for anyone to clamp down on CEO pay.” (20:34)

  • Points to evidence CEOs are rewarded for exogenous factors (eg. oil prices).
  • Cathy: Notes lack of transparency, with much CEO compensation hidden in “hard to find undisclosed” types of salary components (24:08).

• Marissa Mayer Example: After Yahoo sale, her total payout is debated, possibly “north of $50 million this year and possibly north of $100 million.” (25:08)

• Family-Owned Companies: CEO incentives differ:

  “If you’re a family owned company, you don’t have these principal agent problems ... you’re much less likely to get fired.” – Felix (25:38)

3. The New York Times & the Crisis in Digital Advertising

(26:27–37:03)

• Key Story: NYT posts quarterly net loss and sees both print and digital ad revenue decline.
  • Jordan: “Both print and digital declined ... digital ads were down about 7%. They think it's going to rebound next quarter. But still.” (26:28)
• Ad Model Shifts:
  • Traditional “adjacency” model (placing print-like ads beside articles) doesn’t translate well online, especially on mobile.
  • Felix: “It’s a bad user experience on the phone and it’s not very effective and it doesn’t work.” (30:31)
  • Sophisticated Ad Revenue: Native advertising, content marketing, and big seven-figure digital ad deals are the new hope.
• Rise of Programmatic/Commodity Ad Markets:
  • Jordan: Explains “programmatic” ads, where algorithms match supply and demand, driving down price & value of display ads.
  • Video ads are expensive primarily due to high demand and scarce inventory (i.e., not enough video content yet).
    • Cathy: Why so valuable if they’re so hated?
    • Felix: Because advertisers want to repurpose TV ads online and will pay for it, despite bad user experience.
    • Jordan: “They’re called pre-rolls. Everyone hates pre-rolls.”
• Subscription Bright Spot:
  • NYT has 1.4 million digital subscribers; tightening paywalls to build this revenue stream.

    “They have so many people paying ... that they’ve actually started putting up quite unpleasant walls ... you will not be allowed to read unless you go to an incognito window.” – Cathy & Felix (33:23)

• Comparisons:
  • The Guardian’s failed “scale-only” strategy—massive audience, ad-dependent, now struggling financially.
  • Felix: Warns that if the NYT is struggling, the rest of print is in greater trouble.

4. Numbers Round & Closing Tidbits

(37:34–end)

a. Facebook’s Explosive Profits

• Cathy: “$2 billion quarterly profit announced.” (37:34)
• Facebook’s dominance is driving down ad prices and hurting publishers.

b. US Home Ownership Hits Historic Low

• Felix: “62.9% is the US home ownership rate ... the lowest it has ever been.” (39:24)
• Down from 69% in 2004— sparks speculation on economic and social effects.

c. The US: Largest Hops Producer

• Jordan: “Number one, baby … The United States became the top hops producer by volume in 2015.” (40:21)
• Craft beer boom drives hop production; brief, lighthearted chatter about the economics and culture of brewing.

d. Memorable, Funny Moments

• Felix jokes about wanting to be CEO of “the company formerly known as Yahoo” — “That’s just a lie on the beach job right there.” (11:36)
• Cathy, on beer episode: “At least four or five of the listeners today request by email a craft beer episode ...” (42:01)

Notable Quotes & Where to Find Them

• Felix (Yahoo Sale): “Yahoo ... just got sold off for parts to Verizon, of all people. For $4.8 billion. Wow.” (01:52)
• Jordan (On Verizon's hedge): “It’s a gigantic hedge against the future.” (04:20)
• Cathy (CEO Pay Stats): “Between 1980 and 2004, compensation for CEOs grew 8.5% per year ... compare that to the corporate profit growth of 2.9% ... So, in other words, CEOs are getting rich much, much faster.” (11:48)
• Felix (CEO Pay as incentive): “CEO pay is a prize ... incentive for everyone else in the organization.” (19:39)
• Jordan (On board capture): “There’s lots of back scratching ... there’s no real incentive for anyone to clamp down on CEO pay.” (20:34)
• Cathy (On annoying ads): “As someone who, like, hates ads, you know, and pays for the New York Times, like, what. What's going on with their subscriptions?” (32:40)
• Felix (On ad model shift): “It’s a bad user experience on the phone and it’s not very effective and it doesn’t work.” (30:31)
• Felix (Homeownership rate): “62.9% of homes in the United States are owned by the people in them. That is the lowest it has ever been…” (39:24)

Final Thoughts

This episode offers a fast-paced, sharp, and critically informed tour through major shifts in media, advertising, executive compensation, and wider economic trends. With their trademark blend of data-driven discussion, anecdote, and dry wit, Felix, Cathy, and Jordan tackle big questions: Why do giant companies like Verizon chase troubled internet brands? Is skyrocketing CEO pay ever justified? Can big-name newspapers survive the digital transition? And do hops equal hope for America’s high-value manufacturing? The episode shows how, in business—whether it’s media empires, pay packages, or craft beer—size truly matters.

Useful For:
Anyone who wants an accessible, often witty breakdown of current trends in business, media, and finance, seasoned with sharp skepticism, memorable statistics, and moments of humor.
Skip to:

• Yahoo and Verizon discussion: 00:52–11:36
• CEO pay (stats, theory, critique): 11:43–26:27
• NYT and digital media economics: 26:27–37:03
• Numbers round (media, housing, beer): 37:34–end

For more episodes or to request a beer-tasting feature, email the hosts at slatemoneylate.com!