Is it ‘where are the jobs’ or ‘where are the workers’?

The unemployment rate gets a lot of attention in the media and in public discussions as it relates to the labor market and overall economy.  In no way do I mean to discount the unemployment rate as a useful measure but I do think that it paints a limited picture of what might be happening inside of the labor market.

Whereas some might look at the unemployment rate and make automatic assumptions about how it translates into current economic conditions, I find myself asking whether the economic climate is a result of the unemployment rate or if the unemployment rate is borne out of the current economic climate.

Of course, there is much interplay between both that contribute to the overall condition of the economy and unemployment rate.  But I am particularly interested in how a difficult hiring environment for business might be affecting growth, and hence the economy.

Businesses need several key ingredients to support growth.  Some of these ingredients include capital and a means to produce a product or service.  The means to produce a product or service can come in the form of actual labor or in the form of technology like software or machinery.

Capital does not seem to be a problem, as there is an unprecedented amount of cash floating around the economy seeking in earnest a place to call home.  The U.S. Federal Reserve, through it’s QE program, is proceeding with what I consider one of it’s most massive failures in the making.  That leaves labor.  How are businesses faring on finding labor with the skills needed to continue offering increasingly complex and sophisticated products and services?

Recently, I wrote about the JOLTS program at the Bureau of Labor Statistics.  If you have not read this I recommend you do, as it will provide a quick primer on this data.  There is one graph that I used in that post that I want to look at again.

Bureau of Labor Statistics: JOLTS Data (Monthly)

Bureau of Labor Statistics: JOLTS Data (Monthly)

I find this graph quite interesting, as it provides more details into what is going on within the labor market.  Lets start by looking at the trend in hires and openings.  As you can see, the rate of hires has grown 23% since hitting a low of 3.6 million in August of 2009.  The rate of openings has seen a 43% increase since reaching a low of 3.8 million in July of 2009.  As the data shows, the rate of openings has been growing significantly faster than the rate of hires.  Why? And what does this mean if the trend continues?

There has been a good deal of public discussion about whole industries having problems finding the talent they need even in the face of relatively high unemployment.  Robert J. Gordon recently wrote in the New York Times that “even in today’s lackluster labor market, employers still complain that they cannot find workers with the needed skills to operate complex modern computer-driven machinery“.  So while the unemployment rate, currently around 7%, seems to suggest to some that the economy is weak the JOLTS data suggests that companies are seeing openings continue to be unfilled.

So what is going on here?  We have 7% unemployment but openings continue to stay unfilled and increasing quarter over quarter.  There are four factors at play that I think are creating a perfect storm for businesses in the next few decades – inadequate and counterproductive talent search, recruitment and management methods, a lack of training and learning opportunities for today’s young workforce, the upcoming  ‘great crew change’ of Baby Boomers retiring en masse and leaving a large void of experience and wisdom, and lastly a considerable lack of strategy inside of corporate America to acknowledge what is happening and efforts to prepare for it.

Inadequate and counterproductive methods for searching, recruiting and managing talent

One possible explanation for companies finding it difficult to get the workers they need may be that they are imposing unrealistic expectations on themselves.  Chris Farrell with NPR’s Marketplace recently mentioned that he thinks software systems that screen applicants are working against business imperatives.  I think he is right.  HR departments may be relying too much on checking boxes off for different criteria and not spending enough time reviewing a candidate’s qualifications as a whole.  I think that this is partly due to the number of applicants that are received for any one position and the need to use software to filter out the best ones.  But if that is the case, then perhaps those filters need to be reconsidered.

A lack of training and learning opportunities for today’s young workforce

Another possible explanation could include the state of our young workforce in terms of their experience and readiness to ‘take the wheel’.  Take a look at the chart below to get a sense of the big picture view of what has been happening to the younger workforce since the early 80’s.

U.S. Employment Level (% by Age Group)

U.S. Employment Level (% by Age Group)

As you can see from the chart, the 16-24 age group has not fared well in the labor market since the early 80’s.  Over the last 30 years they have collectively lost roughly 10% of their position as a percentage of the labor market.  One has to consider the implications of fewer young workers participating in the labor market when the need for skilled workers is so great and will be more so going forward.

These young workers are not getting the opportunity to gain the valuable experience and knowledge that comes with being part of the workforce.  Tyler Cowen has written on this recently, saying that the “lack of jobs will damage the long-term careers of a big chunk of the next working generation“.  I agree with Mr. Cowen.  Cowen also makes a good point on the lack of training for those young workers that are in the labor market, saying that “employers appear to be more risk-averse, more concerned about overhead costs and less willing to invest in developing young workers’ skills“.  This is a short term strategy that I think will backfire in spades for those companies pursing this tack.  More on that later.

The upcoming  ‘great crew change’ of Baby Boomers retiring en masse and leaving a large void of experience and wisdom

This is something I have written about before and find interesting in it of itself.  Many industries are already experiencing the effect of the Boomers beginning to step out of the labor market.  This generation has accumulated a significant amount of experience and knowledge across a very broad spectrum of the economy and they still account for more than two thirds of the labor market.  What will happen when the pace of retirement really begins to pick up and gets into full swing?

I am going to include this chart again because I think it is quite prescient.  Pay particular attention to the ’55 & Older’ category.  This group has become the fastest growing portion of the labor market, increasing their position by about 10%.  Remember, that the 16-24 age group has lost as much during the same period.

U.S. Employment Level (% by Age Group) With Notes

U.S. Employment Level (% by Age Group) with Notes

What seems to be happening is that businesses are choosing to forego the long term benefits of investing in and developing a young talent pool and going instead for the low hanging fruit of experienced workers.  As Tyler Cowen mentioned in his New York Times article, “employers appear to be looking around for workers but then holding out for the very best candidates, and, if need be, making do with few new hires or none at all“.

What is going to happen when Boomers leave the workforce en mass and businesses have not prepared themselves?

A considerable lack of strategy inside of corporate America to acknowledge what is happening and efforts to prepare for it

Akio Morita, a co-founder of Sony, once said, “those companies that are most successful are those that have managed to create a shared sense of fate among all employees“, and that “the fate of your business is actually in the hands of the youngest recruit on the staff“.

If you have not read Morita’s book, Made in Japan, I highly recommend you do.  I would consider it one of the best management books ever written.  While it may have been written almost 30 years ago, the message is no less relevant and superbly written.  The quote I used above came from this book and while it has been more than 10 years since I first read it, that particular message has found a permanent place in my memory.  I find it that important.

What I am seeing in today’s labor market, with the data I’ve shown above, in the public discussions on this issue, and private conversations I have had with various folks, is a considerable lack of long term strategic thinking among corporate America and across many industries.  They see the problem, they acknowledge the problem, but they cannot seem to discipline themselves to do what is necessary to prepare.

Those young workers who are currently not participating in the workforce are precisely the ones that will be called upon in the coming decades to ‘take the wheel’ and those companies that have not prepared themselves will have done so presumably to their own detriment.  Talent management will become ever more a significant source of competitive advantage.

Posted in Business, Daily News, Economics, Human Resources, Labor, Society, Statistics | Tagged , , , , , | 8 Comments

U.S. Employment Level & Baby Boomers: What Comes After Act IV?

The Baby Boom generation is a topic that can yield volumes of data and discussion.  As a group, they comprise a roughly 76 million strong explosion of the U.S. population that was born between 1946 and 1964.  In the aggregate, the decisions they make, and the consequences thereof, are hugely important and have tremendous impact on our social, political and economic landscape.

I have been very interested in looking at the U.S. labor pool and how the Baby Boomers have left their mark on it.  Using Quandl, I constructed a superset to track U.S. employment levels broken down by age groups.

My original intention for compiling this data was to look at how unemployment is affecting different age groups.  Namely, I wanted to demonstrate that the older, more experienced, folks are having no problem finding work whereas the younger and less seasoned are really finding themselves in a difficult job market.  This original endeavor was slated for a different discussion that is currently still in ‘Draft’ mode because after having a ‘Wow, look at that!’ moment I decided to reflect on these graphs a little longer instead.

There is just so much to ponder about these charts that I will jump right into it.

U.S. Employment Level & Baby Boomers: Act I-IV

The chart below clearly demonstrates the impact that the Boomers have had on U.S. employment levels.  76 million people did not just show up one day looking for work, they came in droves – in this case 4 distinct droves.

With the first Boomers being born around 1946, they did not reach working age until around the early sixties.  As you can see from the chart, starting around 1965, there was a surge in employment for folks in the 25-34 year age range.  That group dominated the labor market for about two decades.   Around the mid seventies a new age group started to gain momentum and by the early nineties, the 35-44 year old Boomer was in control.  As Boomers aged, so did the demographic that comprised the largest percentage of the employed population.  By 2008 the 45-54 year old Boomer was the largest portion of the U.S. workforce.

There is a fourth, and presumably final, wave of Boomers that looks set to dominate the labor market for an unknown period.  How early are we in this wave? When could we expect to see a peak? What happens at the peak?  As I mentioned earlier, there is much to ponder over this graph.

U.S. Employment Level (% by Age Group) With Notes

Click on the image to see a full size graph

Lets Go Shopping!
Just think about this graph in terms of who has been the U.S. consumer over the last 50 years.  Starting in 1969, with roughly 60% of the labor force occupied by Boomers, to present, where the percentage is currently around 70%, it is interesting to think about what this group will be inclined to purchase as they progress into their later years.  Will they buy more houses, cars, electronics, beauty products, take more trips, invest in their children’s future?

Who’s Going to Take of Me?
This is something that will most definitely be a hot potato in the coming years.  Just as there was an explosion in population there will be a similar implosion in the number working age people available to work and pay into the social security system to support retiring Boomers.  When social security was started there were roughly 33 workers supporting each recipient.  That number today is less than one.

The chart below shows the population of the 65 and older crowd.  As you can see there has been a more than 30% increase since 1965 and there does not seem to be any sign of slowing.

US Population - 65 and Up

Population ages 65 and above as a percentage of the total population. Population is based on the de facto definition of population, which counts all residents regardless of legal status or citizenship–except for refugees not permanently settled in the country of asylum, who are generally considered part of the population of the country of origin. Population ages 65 and above (% of total)


Naturally, if there are going to be more older folks then we should hope that the stock of younger folks is at least keeping pace if not growing faster.  Take a look at the chart below and you will see that the 15-64 age group population has been stuck around 66% of the total population since 1980.  Why?

Presumably, the Boomers have inflated this age group as a percentage of the population and have held this level for the last 30 years as they begin to age and transition into the 65 and older group.  Why do I think that Boomers have inflated this age group? Because we have not seen the same rate of population growth since the 1960’s and in fact the rate of population growth has been trending down ever since.  See the fourth below chart for a better illustration.

US Population - 15-64

Total population between the ages 15 to 64 is the number of people who could potentially be economically active. Population is based on the de facto definition of population, which counts all residents regardless of legal status or citizenship–except for refugees not permanently settled in the country of asylum, who are generally considered part of the population of the country of origin. Population ages 15-64 (% of total)

Convincing enough? The population of those aged 0-14 years has plummeted to a third of what it was in 1965; and the trend shows no sign of abating.  As I asked before, who’s going to take care of these aging Boomers?  Keep this chart in mind, as the next item to consider is related to what a declining population means for U.S.

US Population - 0-14

Population, age 0-14 (% of total) is the population between the ages of 0 and 14 as a percentage of the total population. Population ages 0-14 (% of total)


Who Wants A Job? Really! I Need Help!

This point touches on a related topic that is still in ‘Draft’ mode but is too important to leave out of this discussion.  Academics, economists, policy leaders and even entire countries are seriously considering the very real threat of declining populations.  This is not a forecast but a trend that is already in motion.

Several advanced economies are facing the immediate threat of or are already experiencing negative population growth.  These economies include those of Germany, Italy, the UK, Japan, China and Russia.  While the U.S. is not at the brink or past it as some of the previously mentioned are, the trend is not looking favorable.  Take a look again at the above chart and you will see what I am talking about.

Again, this is a topic that deserves its own discussion so I only want to focus on one particular aspect – employment.  What is going to happen to the labor market when a group that makes up more than 60% has decided to throw in the towel and retire?

We are still in a recovery from the 2007-08 recession and are currently looking at unemployment averaging around 7%.  In economics, there is something called the natural rate of unemployment – which basically asserts that an economy can never actually have 0% unemployment.  There will always be a certain percentage of folks who just don’t want to or cannot participate in the labor force.  So the natural rate of unemployment is that rate at which there seems to be just enough work for just enough people.  5% has historically seemed to be what is considered the natural rate.

So if the U.S. economy is still in recovery with unemployment barely 2% away from the natural rate and the largest mass exodus of workers in recent history is already underway – what is going to happen to the labor market? Cue inflation – to what extent is outside of my forecasting abilities but inflation could be expected.  If the labor market is unable to provide companies with the workers needed to design, make, sell and support their products then either companies will have to increase wages to attract more workers or make their existing workforce more productive.  I am of the impression that while productivity gains will help, it will not offset the prospect of companies facing higher labor costs to meet their needs – and I do not expect that these higher costs will be easily passed onto consumers.

This could be a silver lining for that small group of young workers that will be left – higher wages.  The same forces that caused a period of what I call wagflation are now poised to end the same.

There is indeed much to ponder over these charts.

Posted in Economics, Labor, Macro, Politics, Society | Tagged , , , | 4 Comments

Economics and Parties

I found these interesting thoughts hidden in one of my notebooks.  I never finished it, but I think the timing was not coincidental – November 2006.  I wish I could say that I can write like this now, but my abilities have been diminishing the last few years on account of writing little.  I expect to reverse that, as putting pen to paper is again becoming a need that I yearn to satisfy.

Imagine going to a big party with a live band, food, and lots of people bustling about.  People are dancing, engaging in various conversations and making sure the great food doesn’t go to waste.  Everything looks good and everyone seems to be having a great time… including yourself… but then some discrepancies start to show their faces.  You notice that most of the smiles are coming from a small corner of the party.  The dance floor is busy, but slowly dissipating.  You overhear a party goer bid his farewell to a friend and say, “I’m running on empty”.

So what is wrong here?  The answer is obvious – the party is winding down, but the explanation is not as easy to discern.  Did everyone just decide at a particular time to take their happy faces off and head for the exit?  Not likely.  A more likely explanation would be that a number of factors, which influence everyone at the party, have begun to exert their aggregate effect. What are some of these factors and how do they operate?

They are things we all possess, but only in limited quantities – things like time and energy. For the most part, we all hold unbalanced positions in these factors. Some of us have more time and others have more energy. The ‘balancing’ happens when we start to commingle and unwittingly join in on an unscripted and hidden dance. The energetic seek out time’s unbridled while another candle waits for that flame to bring it back into existence.

Eventually, one of two outcomes will occur. Either a continual influx of time and energy must be present for the party to continue or the curtains must come down. In the case of the above mentioned party, it is evident that balances have been exhausted. So the question is how could have it continued? Would it have required an equal replenishment of time and energy? Time is limited in an absolute sense so perhaps energy was the critical ingredient. Then again, even with the addition of energy, time is still limited and thus the imbalance is only exaggerated.

Where am I going with this?

I see a striking similarity in our economy. There are discrepancies that have been prevalent for some time now and they only seem to be getting more so.


Posted in Economics, Macro, Ruminations, Society | 2 Comments

The Fed Continues Monetary Policy of ‘Accommodation’

The Federal Reserve has just announced that it will continue its policy of purchasing $85 billion worth of mortgage backed securities and Treasury securities each month.  Perhaps I was too optimistic but I was expecting the Fed to announce the ‘tapering’ that Bernanke had mentioned last June to begin by the end of this year.

I am still shocked and unable to understand how the Fed can believe that maintaining rates so low will help the current economic climate.  The experiment that is Quantitative Easing is very much that – an experiment, that as Bernanke states, is “a different kind of thing”, an  “unconventional policy” that comes “with certain risks and certain uncertainties”.

In my effort to better understand how Bernanke & Co. feels that QE makes sense, I want to ponder some of the effects of such on the economy and the markets.  But before doing that I just want make sure that QE is broken down into it’s most simplest explanation – a program by the Federal Reserve to print money and to use that money to purchase debt securities in order to keep interest rates at near zero.

Saving & Investment

In a normal economy, there are folks who save and invest and there are folks who borrow and spend.  A normal economy needs a healthy balance of both savers and borrowers.  An economy with too many savers would push interest rates down as savers compete to lend their cash to the few who want to borrow.  An economy with too many borrowers would push interest rates up because the smaller pool of savers with capital to lend would have more folks competing to borrow.

The stock of money in the market is not fixed and thus a change in the stock of money has a subsequent effect on the value of each dollar – hence the mechanics of how the Fed affects interest rates.  So when the Fed increases the stock of money by printing more dollars they are essentially making the dollar cheaper.

M2 Money Supply v.s. 1 Year Treasury Rate

M2 Money Supply v.s. 1 Year Treasury Rate

As you can see from the chart above, the M2 Money Supply has been increasing at a rapid pace and has reached just under $11 trillion.  Compare the M2 Money Supply with what has happened to the 1 Year Treasure rate, which was around 2.5% in 2008 and now hovers below 1% or near zero.

In a QE Economy savers are punished.  The 1 Year Treasury Bill is considered the least riskiest asset that one can own.  In fact, modern portfolio theory relies on the 1 Year Treasury, as does the Capital Asset Pricing Model (CAPM), for its ‘risk free rate’.  What this means is that whereas savers once had the ability to put their cash into a very safe investment that would at least cover the cost of inflation now they must venture into riskier assets to make up for the fact that investing in 1 Year T-Bills will essentially provide a negative return after factoring in inflation.  Since 2008 QE has presumably forced a massive shift in asset allocations as investors and savers search for yield.

Consumption & Debt

We all know that the U.S. economy is driven mostly by consumer spending – about 70% of GDP.  My question is how much of that spending is done with extra cash in the average American’s pocket and how much is with that marvelous invention – the credit card?

U.S. GDP, Consumer Spending & Household Debt

U.S. GDP, Consumer Spending & Household Debt

The chart above shows something interesting, but still it is not something many of us did not already know – that since 2000 (the tech bubble) U.S. consumers have increasingly relied on debt to maintain their spending habits.  It seems that not until 2008 (the depth of the last recession) did consumers finally begin to reduce their debts.  The medium term trend for household debt looks promising – as it is finally converging with consumer spending where it seems to have historically been.

So what does this have to do with the Fed printing money and keeping interest rates low? Well, one has to ponder what might happen to consumer spending and household debt if easy money policies persist.  We have seen this show before, do we really want a repeat?

It is interesting to note that while household debt is beginning to trend down, consumer spending growth is still relatively unchanged.  How so? What is fueling this continued spending?

Total Consumer Credit Owned and Securitized, Outstanding

Total Consumer Credit Owned and Securitized, Outstanding

Well look at that! I thought household debt was trending down??? If you strip out the credit card debt from household debt what you have left is mostly mortgage debt.   Looking only at credit card debt one can see that Americans have nearly doubled their credit card balances since 2000!  I am not arguing that QE created this but I am confident that QE will only exacerbate it.  QE is not only making it difficult to save but it is also creating a strong incentive for consumption based on debt.  This sounds like a deck of cards that is waiting for its impending fall.

In Short

In short, I think QE is an experiment that could be one of the most massive Fed failures of all time.  I think QE is distorting the global markets by artificially keeping the dollar cheap relative to foreign currencies, forcing large amounts of cash into emerging markets that may otherwise have stayed in the U.S., and driving values of alternative investments to levels that deserve ‘bubble’ discussions.

In short, I think that when the American consumer runs out of credit (I will let you ponder the ‘how’ on that) and all else has remained the same – flat wages and unemployment around 7% – U.S. GDP could take a major hit.  That means that stocks (on the prospect of declining earnings) could take a major hit.  That means that prices, which have been risen mercilessly for the average American consumer, could see a decline (read deflation).  That means that the global economy, to the extent that it relies on the American consumer, could take a significant hit – something the E.U. really does not need right now.

So if you are one of those folks who has been ‘chasing returns’ for the last few years then I might reconsider if gold has much more value at its current price, or if the record prices many collector cars are bringing at recent auctions are warranted or if your emerging market holdings make sense when U.S. rates come back to normal territory.

If you don’t believe me, just take a look at what happened when Bernanke merely whispered the idea of an eventual slowdown (not termination) of QE last June.  Emerging markets went into a frenzy.

Posted in Business, Corporate Finance, Daily News, Economics, Finance, Global Interest Rates, Macro, Monetary Policy, Politics, Taxes | Tagged , , , | 5 Comments

JOLTS Data: Openings & Hires with Stock-Vacancy Ratios

The BLS has a program called the Job Openings & Labor Turnover Survey (JOLTS) that tracks and publishes data on job openings, hires and separations.

I find this data interesting and one that can elaborate more on what is going on in the labor market than what only looking at the official unemployment rate will.  I will be maintaining a spreadsheet to track and graph data from the JOLTS Program as it relates to openings, hires and an interesting ratio called the Stock-Vacancy Ratio.

I found this ratio in a report from the BLS titled “Job Openings continue to grow in 2012, hires and separations less so”.  The report can be found here.

My interpretation of this ratio is that deviations from 1, either above or below, signify a labor market that is not efficient or unable to match employers and workers.

While a ratio below 1 seems to be unrealistic, as it would indicate a very tight labor market where employers are unable to find workers and openings stay unfilled, I think it is interesting to contemplate such a scenario.

If the Stock-Vacancy Ratio where to fall below 1, this would indicate that the labor market is unable to fill currently open positions. The ratio itself would indicate the severity, as a smaller and smaller number would represent an increasing supply of jobs with a decreasing number of hires for those open positions.

Openings & Hires with Stock-Vacancy Ratio - Quarterly

Openings & Hires with Stock-Vacancy Ratio – Quarterly

Openings & Hires with Stock-Vacancy Ratio - Monthly

Openings & Hires with Stock-Vacancy Ratio – Monthly

Note that during the peak of the Tech and Housing Bubble (2000 & 2008) that the Stock-Vacancy Ratio was close to 1.  I would not consider this as much a causal relationship between either but I do find it interesting to see that a heated (or overheated) economy seems to show signs of a tight labor market.

What I find interesting now is that while unemployment is still relatively high, but still down about 30% from the October 2009 high, the Stock-Vacancy Ratio has been steadily declining towards a value of 1 since the 3rd Quarter of 2009.  Looking at both the number of openings and hires for each month I find it interesting to see that while the number of hires has stayed relatively flat the last four years, the number of openings has continued to increase.

The beautiful thing about data is that 10 people can look at a data set and come up with at least as many conclusions from it.  What I see from this data is that there seems to be an accumulation of job openings that have yet to be filled.  Is there perhaps a labor shortage?

I’m working on a follow up to this and will have more soon.

Posted in Economics, Human Resources, Labor, Sociology | Tagged , | 1 Comment

If You Are A Data Junkie, Then You Will Love Quandl.

Anyone who has spent even a hint of time scouring the internet for numerical data sets will acknowledge the challenges and costs (in terms of time) required to search for, download, verify, and clean data before being able to use it.

A new site called Quandl has emerged as a solution to this and it will have any data junkie foaming at the mouth.  While Quandl seems to still be in beta, it boasts free access to millions of economic, social and financial data sets from a wide range of sources.

One very handy feature of creating an account to use Quandl is the ability to create your own ‘supersets’.  A superset is essentially any data set you combine from multiple data sets available on Quandl.  For example, I created a page dedicated to monitoring population growth rates for major regions of the world.  To do this, I simply added each individual county’s population growth rate data set to a new ‘superset’ that I created for each region I am interested in.

In addition to being incredibly easy to find data sets for a variety of interests such as economy, demography, health, education and energy – Quandl has made it just as easy to download the data.  Quandl also sports a very nice API for pulling data directly from Quandl into your favorite mathematical or statistical software package.  My package of choice is R and I will be writing some posts in the near future introducing both R and Quandl.

I have only just begun to play with Quandl and expect to spend more time with it going forward.  There is a tremendous amount of potential for both Quandl and it’s users.

Posted in Big Data, Mathematics, Statistics | 6 Comments

Intransigent Business Models: Cable TV Bundling & You Get What (Someone Else) Pays For

Over the last few years the concept of cord-cutting has transformed from what some may have discounted as a phase to a full-on trend that is having, and will continue to have, profound impacts on the established pay TV industry.  The idea is simple and the outcome is one that can easily be understood and expected.

Increasing numbers of consumers, myself included, have chosen to ‘cut the cord’ and stop paying for television programming.  While there may be a number of reasons for making the decision, the predominant one, and the one that drove my own decision, has been the increasing cost of pay TV subscriptions with no ability to manage the cost by toggling what one pays for.

I still remember the numerous calls I made to my provider explaining to them that I only had interest in 2 or 3 channels – and more specifically 2 or 3 shows.  I did not want, and had no intention, to pay for all of the other channels they tried selling me on.  In the end I chose to cut the cord and I have absolutely no regrets.

What I find interesting about this is the intransigence that comes from the TV network industry regarding a trend that is easy to spot and impossible to fight.  The industry has been spoiled with easy money by bundling shows and forcing consumers to pay for more than what they might want.  Forbes recently reported that cable companies are artificially lowering cable subscriber losses by using bundling.

ESPN, for example, has forced itself into so many bundling packages that while roughly 100 million consumers are paying for it only about 1.5% actually watch or want the programming.  For ESPN fans, this is great – you get to watch your favorite program at the expense of 75-90 million consumers who don’t want it but have to pay for it anyway.  The New York Times reports that ESPN fees are $5.54 per bundled subscriber.  That is more than four times what the nearest network, TNT, charges.

This is a losing battle for the TV networks and their enthusiastic attempts to extract profits with monopolistic behavior will only hasten what would otherwise be a long but inevitable change in how consumers access and pay for programming as well as how programming is distributed.

Consumers are making it abundantly clear that they want access to content on their terms.  That means that content must be available on demand, without restriction and decoupled from bundles.  Just as the idea of buying a music CD just to have one song has no chance in today’s market, so is that of expecting consumers to pay for 100 channels when they only really want 1 or 2.

Posted in Business, Daily News, Economics | Tagged | Leave a comment