If you throw all the products we buy and the services we use in one basket, then add up the price tag, that's the Gross Domestic Product, which is the primary metric economists use to assess the economic health of a country or region.

The easy part of calculating GDP is the calculation itself: C+I+G+(X-M)=GDP. Got it? No? Well, add Consumption, Investment by companies, Government purchases, and then take the product of eXports (calling it 'E' would lack sexiness) minus iMports ('I' was taken). Viola! GDP.

Still don't get it? Well, knowing the components helps. Consumption is the biggest component, and it's a tally of the cost of all the goods and services we buy. Investment is what companies spend on the real assets they own, plus the value of the inventory that we haven't gobbled up through consumption. Government purchases are what the Feds pay money for (whether it be highways or fighter jets, though big social programs, like welfare, aren't counted). And then we calculate the difference between the goods and services we¿re sending to other countries and the stuff we're bringing in.

Good. That explains it, except there's a catch. Inflation has a habit of distorting the numbers, so economists talk about either Nominal GDP or Real GDP. In fact, Real GDP isn't necessarily "real" for most folks, since it takes any inflation out. Nominal GDP includes the effects of inflation. (There's something called the implicit price deflator which is a calculation using the two, but we'll spare you the details.)

So, now that we know GDP, why do we want to? Well, it's good to compare different markets. And watching the trend shows whether a given economy is growing (good), stagnating (not so good), or shrinking (very not so good). When GDP goes down two quarters in a row, we're officially in a recession.

For the record, GDP is released at the end of each month, with most reporting ¿preliminary¿ data for the previous month. But you won't get final GDP numbers for the fourth quarter of a year until the very end of the first quarter of the next year. After all, it's not an easy number to calculate.

Home / Markets / Industries / Media

Monday, October 06, 2008

How To Correct Media Missteps

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Jon Friedman

MarketWatch

NEW YORK -- When Paul Carroll, the co-author of "Billion-Dollar Lessons," offers the media suggestions, editors and publishers should listen to him.

Carroll, 51, was an editor and a reporter for The Wall Street Journal for 17 years and the author of "Big Blues" a revealing book about IBM (IBM) . When he left the journalism world, he became a partner with consulting firm Diamond Management & Technology Consultants and edited Diamond's business magazine, Context.

In his new business book, which he co-wrote with his fellow consultant Chunka Mui, Carroll discusses the mistakes that all sorts of companies have made because of miscalculations, exhibitions of hubris or outright ignorance. Media businesses certainly qualify in those categories. Read Wall Street Journal review of the book.

I asked Carroll to expound on some of the media and technology industry's highest-profile companies -- and most vexing challenges.

The Internet

When it comes to the Internet, the media industry has often run into problems because "people tend to see the future as a variant of the present and aren't well prepared to deal with radical change," Carroll said. "Newspapers and magazines had warnings for many years now about how ads would migrate online."

Carroll added: That was especially true of classifieds, which work much better online than they do in print, because it's so much easier to search electronically for that old pirate's cap, or whatever it is you want. Yet newspapers and magazines continued to see print as the primary means for delivering information. After all, we think of ourselves as ink-stained wretches, right? We're not bit-stained wretches."

Evening-news blues

Media pundits have speculated for years that the evening news programs presented by NBC (GE) , ABC (DIS) and CBS (CBS) have been losing viewers to video games, cable shows and the Web. Carroll traces the networks' woes to business miscalculations, but not necessarily a decline in the quality of the broadcasts.

"One of the biggest problems we found is that companies overestimate their hold on customers," he said. "Some 80% of executives will tell you that their company's product is the best in the market. Roughly 8% of customers agree. Evening newscasts seem to be making a version of this mistake. At some level, they think people will always watch the evening news. But evening newscasts don't seem to be part of how younger people consume news. They rely on searching the Internet, texting and emailing friends, instant messaging, interacting on Facebook and MySpace, checking out YouTube--and, of course, Jon Stewart. There's not a lot of room in there for plopping down on a couch and watching the evening news."

Satellite radio

Satellite radio used to look like THE next big thing in media.

XM and Sirius recently agreed to combine forces creating Sirius XM Radio Inc. (SIRI) , proof, to some pundits, that the industry's business model had been flawed from the start.

"I blame Howard Stern," he quipped.

"Actually," Carroll said, "I happen to like satellite radio. My kids love it. But it just isn't that much better than conventional radio. It's hard to compete with free. The satellite radio folks are also being hurt by the slide in new-car sales. People aren't going to rip out their old radios and replace them with satellite radios, so the only way for XM and Sirius to add subscribers is through new cars, and that's not going so well at the moment."

Yahoo and Microsoft

What the heck is going on with much-maligned Yahoo Inc. (YHOO) and Microsoft Corp. (MSFT) , anyway?

Carroll said Yahoo has "made a classic mistake with a consolidation strategy. They can't get past the idea that the Yahoo brand that the Yahooligans built would be subsumed into another brand, so they've decided they need to be the buyer, not the seller. If I were Jerry Yang, I'd have grabbed (Microsoft head) Steve Ballmer's money as fast as I could."

Meanwhile, Carroll observed that Microsoft "seems to be trying to learn from companies that had a huge advantage in technology but then got leapfrogged. The problem is that, at least with Yahoo, Microsoft seemed to be flailing rather than thinking through the risks of such a big deal. I think Yahoo would have been a disaster for Microsoft."

'Albatross Online'

Now, the billion-dollar question: Why can't Time Warner (TWX) finally unload Albatross Online, my pet name for its ever-ailing America Online unit?

"Potential buyers seem to realize that Albatross Online is a declining asset. They can buy it for less tomorrow than they'd have to spend today. So why hurry? In addition, prospective buyers may be learning from history. If AOL is bought, there will likely be a burst of defections to other dial-up companies or to broadband. That's just the way it works."

He added: "While some consulting firms promise to minimize defections, an acquisition is a big enough event that competitors pounce, and customers who had never thought about leaving are willing to hear them out. Even Alcatel (ALU) and Lucent, which should have had a lock on customers because of the complexity of switching to new telecommunications equipment, had to get into a price war to protect their customer base.

"Once the skirmishing over customers ended, the consolidation of the market would maybe take some of the pressure off pricing. Well, why spend billions of dollars to buy AOL and wrestle with all the integration issues? Why not let someone else spend the money and deal with the headaches while you pick off as many customers as you can and enjoy the more profitable pricing?"

MEDIA WEB QUESTION OF THE DAY: How would you propose solving some of the media's challenges outlined above?

THE READERS RESPOND to my column about how the media struck out while covering the end of Yankee Stadium:

"Jon: To the orgy of sentimentality by the media, you can add the total fleecing of the taxpayers by the New York Yankees, New York Mets, New York Islanders and NY Nets organizations. These organizations add nothing new to the tax base, yet they consume millions of tax dollars for what is essentially a profit-making enterprise. The net result is a loss to the state and city taxpayers. Just think about how much more money for schools, school lunches and health care could be had, were it not for these subsidies of a profit-making enterprise. Maybe the taxpayer should get a cut of the proceeds? Now there's an idea whose time is now. Now there's something that the media has totally overlooked."

-- Darryl Dowers

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