Old Disks...

My parents are moving, and so I'm in Indiana cleaning out all the old stuff. I found this disk, from an old OEM bundle.

HSC was "Harvard Systems Corporation", later known as MetaTools, later known as MetaCreations, who I worked for from about 1997-2000. 

Better stock options

Lorna and I were just talking about ways to incentivize corporate execs to choose good long-term outcomes for their companies, rather than short-term ones. This conversation was an offshoot of one about GM's recent sales stall and layoffs, after their "Employee Discounts" program was so successful at scaring off long-term revenue.

Her suggestion was to scale vesting rate by stock price--in other words, to include area under the curve in the reward structure of the company. Now that option grants are mostly counted against earnings, it seems like (as a bonus) this would give companies some benefits in tough times.

On the negative side, often a lot of "work" (e.g., growing a smaller business to a position to generate revenue on the scale with a company's main business) is done at times when the stock price is low, and so the standard scheme may provide an appropriate reward as well, if people are already striving for the long term.

But for garden-variety short-term-focused CEOs, maybe it would make a dent in the approach taken to American business.

Oil Company Execs Defend Profits to Senate

Ok, this was just the headline on Drudge, so I know you're not reading this here first:

http://www.breitbart.com/news/2005/11/09/D8DPB2900.html


BUT.

This is absolute nonsense. Let's look:
ExxonMobil
BP/Arco
ConocoPhilips

Notice that the US DOJ has approved a whole lot of huge mergers in the past few years? Notice how the antitrust laws were used famously to breakup Standard Oil in the early 1900s?

"Your sacrifice appears to be nothing," Sen. Barbara Boxer, D-Calif., told the executives, citing multimillion-dollar bonuses the officials are receiving amid soaring prices at gasoline pumps and predictions of more of the same for winter heating bills.

But I respectfully disagree. You see, given a monopoly, or a relative one, prices for things like gasoline rise. They rise to a price that maximizes profits for the companies involved.

If your government on one hand allows companies to merge into many fewer companies, reducing all competition for prices in the marketplace, and then is confused by why there is price-gouging, then you can only say they are not thinking well. This is a natural outcome, and any other one is a government-regulated market. We have a tradition in this country of (a) ensuring competition in the market and (b) letting the market do its job.

So please, make changes to your own DOJ and its enforcement of the Sherman Antitrust Act, instead of complaining to executives at companies that are simply competing lamely in a market without enough competition.

Blockbuster Business Model

Since the new "late fees" at Blockbuster amount to "Whoops, you bought the movie," I thought I'd do a little model in an attempt to explain why they make it so difficult to get your money back. My results? There's not much reason for them to make it difficult, but it was fun to think through anyway.

So here I am, eagerly boring you with the details.

The new "late fees" scheme seems to be a normal rental period, a week grace period, after which they bill your credit card for the purchase price of the movie less rental fees. The trick is that if you return the movie, you're given a refund.

The details of this refund are a hassle: you must present your credit card at the store where you returned the videos, and otherwise the fees are applied as "store credit". While they seem eminently capable of automatically billing your credit card, they seem incapable of automatically refunding your money. You can't get a refund at a different store, either.

The only way I know how to make money off such an inconvenience is an investment approach. If you're familiar with how Paypal makes money, I think this will make some sense. Paypal holds money during a transaction, typically with a minimum holding period of 2 days. Since they handle a lot of transactions, they have a large amount of "float" that they can invest, at a profit.

So here's my back-of-the-envelope math:

Blockbuster's annual revenues are about $6B, mostly from rentals -- let's say average rental fees are $4, resulting in about 100M (rounded down to account for purchases and other merchandise) rentals annually.

Let's also say that 20% of rentals have this "purchase" system applied to them. So in our back-of-the-envelope world, about 20M videos a year are "purchased" and maybe later returned. Let's say the average video costs $10 when purchased, and the average "holding time" (during which they have your money but you haven't gone back to the store for a refund) for such a movie is a week.

This means Blockbuster is handling about $2B of these transactions annually (sounds nice, huh?) Since each transaction lasts a week, they have about $40M of investable "float" to use for whatever they want. Presuming they can invest this at 4%, they make an additional $1.5M annually on this scheme.

Not a big dent in their earnings, but annoying for their customers.

Maybe a better reason for their approach is to discourage late returns.

I've discovered a solution to this problem by accident. Change your credit card number often, and only tell the people you want billing it. Then Blockbuster will not bill your credit card when you have late movies, and when you return the movies, everything's even.