Vertical Pulse

Comic Book Culture

I recently read Comic Book Culture - Fanboys and True Believers by Matthew J. Pustz. This book provided a fascinating look into the history, culture and economics of the comic book industry. Among some of the most interesting findings were:

• Comic books are difficult for casual readers to enjoy. The language, diagram flow, and graphics are foreign to uninitiated readers. Each issue of a comic book series presents part of a story that spans many issues. Therefore, unlike baseball where fans can selectively watch games and quickly understand the context of the game, comic book readers operate within impermeable boundaries. Thus, the number of comic book fans is relatively limited but very loyal and enthusiastic. In fact, nearly every reader of comic books is an active participant, not just a consumer.
• Another limiting factor for attracting comic book fans is the subject matter. That, plus the atmosphere of most comic book shops, discourage women. Social attitudes in which comic books are believed to be juvenile is another limitation to the growth in the number of comic book fans.
• Comic book publishers have launched many crossover series which compel readers to buy connecting issues of other series to completely understand the larger story. For instance, during 1997, there were as many as twenty different titles devoted to the X-Men's various permutations and individual members.
• Many comic book speculators buy several copies of the same issue since they do not want to read the issue that they are saving for investment purposes because they believe that reading a comic book even once will depreciate its value.
• Beginning in the 1940s as many as 95% of all American children were reading comics. In 1995, there may have been as many as two million comic book readers in the United States.

These are some of the issues that will be discussed during our panel on the Convergence of Video Games and Comic Books at our Profiting in the Video Game Economy Conference which will take place in NYC on February 16, 2006. More information about this conference is available from Naomi Barazani at 212-952-7400 ext. 126 or naomi@twst.com.

The Underground Economist

I recently read The Underground Economist by Tim Harford. I found the book to provide a very interesting discussion of how microeconomics can explain real world phenomena. Scarcity, marginal costs and marginal revenues, and availability of information where some of the lenses through which modern economic occurrences were reviewed. Among the interesting insights provided in the book were the following:

• Merchants often try to determine customers' price sensitivity and charge the less sensitive customers higher prices for similar services. For example, there are not significant differences in the costs of preparing small or large cups of coffee or in making the coffee with a few additional options. Offering such choices helps the vendor determine which customers are more likely to be willing to pay higher prices. Some vendors have used contributions to politically-correct causes as a means of differentiating customers who are willing to pay higher prices. Such contributions can be very profitable for the retailers as contributions are collected on each product sold but remitted at a lower rate to the selected cause.
• Companies must intentionally offer shoddier service to justify higher prices on premium services. For example, in the airline industry, economy class seats and service must be markedly inferior to business class service or the business travelers will not see enough of a difference to justify paying higher prices to sit in business class. Similarly, IBM put a chip in its LaserWriter to slow it down so as to justify a higher price for its LaserWriter printer which was sold at a premium price to the slower LaserWriter E. The LaserWriter E was actually more expensive to manufacture than the LaserWriter because the former required an additional chip to deactivate some of its functionality.
• Greater price transparency brought about by the Internet and other improvements in communications occasionally has a downside: a company with scarcity power may be discouraged from offering discounted products because they are more likely to leak. For example, pharmaceutical companies may be reluctant to advertise less expensive drug prices in the Canadian market because these drugs may become re-routed to the U.S. market.
• If the government is trying to reduce consumption or utilization of something - such as driving on roads - fees should be set at the incremental units of consumption. If drivers must pay a set amount for unlimited miles, they will be inclined to drive as much as they want. However, if they are charged for each mile, the will give serious contemplation to the value of driving extra miles.
• Businesses often invest in high over-head accouterments to indicate to the market that they have staying power. This is why banks have impressive buildings and why professional services firms engage in image advertising where they make no effort to sell any particular service.
• Corruption and looting is often pervasive in underdeveloped countries because the dictator is not confident of his tenure (and needs to steal as much as possible while still in control), or because he needs to allow others to steal in order to keep their support.
• So-called sweatshops offer their workers much better conditions than they would face if there were no such factory work. Most of these workers would otherwise be scavengering for food, stealing, or simply starving to death. Such factory work is the natural progression of progress for these workers. It is a means to better working conditions for future generations. It is opposed by unions in western countries, not because of any disingenuous utterances of concern for such workers, but because of the threat that they pose to overpaid, underutilized and intransigent unionized workers in developed countries. (Our commentary.)
• One advantage that China had over India in terms of developing was the former's relations with Hong Kong and Taiwan. Both of these outposts were successfully internationally integrated economies when China was isolated from world markets. The close ties of family and friendship between businessmen in these three countries facilitated China's entry onto the world market.

Business Communications

I recently read 10 Simple Secrets of the World's Greatest Business Communicators by Carmine Gallo. I believe that the book did a great job of emphasizing the importance of delivering effective speeches and I found the book to be very practical in helping business leaders refine their speaking abilities. The following are among the most valuable pieces of advice imparted in the book:

• Never start a speech by telling a joke.
• Speakers must be well prepared. The less speakers refer to their notes, the better received they will be by their audiences.
• In preparing speeches, speakers should ensure that their comments cover: a) What audience needs to know? b) Why the audience should care? c) What action does the speaker want the audience to take? d) How can the audience save money? e) How can the audience make money? f) How can the audience boost its productivity? g) How can the listeners boost their visibility in their industry?
• Proper physical training is important as it leads to better posture, enables speakers to exude more energy and prepares people to handle the demands of a busy professional life. Exercise sends oxygen-rich blood to the brain. People who exercise are shown to do better on tests requiring critical thinking. If regular aerobic exercise can make you think better, then it should enable you to speak better.
• Speakers must be passionate about the topic of their speeches. The best speakers incorporate stories into their presentations.
• Words are not the only thing that matters when speaking. 55% of communications is visual (body language, eye contact); 38% is vocal (pitch, speed, volume variation); and only 7% of communication involves the actual words. According to research, the ideal voice must show emotion, be lower pitched, be moderately paced and must be free of distracting qualities.
• According to the International Journal of Instructional Media, the best speakers speak at close to 200 words a minutes. Speakers who speak faster than average are perceived to think faster than average and exude more energy and passion.
• The best speakers dress for success. People are flattered if they feel the speaker considered them important enough to look a little special for them. The best money spent is on things that create the image of success...perception creates reality. In fact, two professors from London Guildhall University found a correlation between attractiveness and career success. In a survey of eleven thousand 33-year olds, the professors found that unattractive men earned 15% less than those perceived as attractive. They even equated good looks with a higher probability of of lawyers receiving early partnership.

Comic Book Superheroes Unmasked

I recently viewed The History Channel's Comic Book Superheroes Unmasked DVD. This DVD is a very informative overview of the history of comic books. Among the interesting points discussed in this DVD are the following:

• When Superman was introduced via comic books in the 1930s, he resonated with the American population. Clark Kent was a normal man that lived in the Smallville, USA, not in some fictional location. Since he was born outside of the US and could not return home, many American immigrants empathized with him.
• During the late 1930s and early 1940s, comic books were very anti-Nazi and anti-Japanese, even before America began fighting in that war. Superman was so anti-Nazi that Joseph Goebels said that Superman was Jewish. Captain America was depicted to beat Hitler up. Other comic books predicted a Japanese attack on American ships in American ports before the attack on Pearl Harbor occurred. For these reasons, comic books became included in the care packages that were sent to American soldiers stationed abroad during World War II.
• During the war years, these superheroes requested that their readers recycle paper (and other materials) for the war effort and buy War Bonds. Inadvertently, the calls to conserve paper reduced the supply of comic books during these years. This created a scarcity of comic books during World War II, which later caused their prices to soar as they were increasingly sought out by collectors.
• In the 1950s, the US Senate learned of some research that indicated that many people that had psychological problems read comic books. In 1954, the US Senate held hearings on comic books and the violence that they were said to induce. As a result of these hearings, the comic book industry was forced to submit all of their comic books to a self-policing Comics Code. From 1954 to 1956, comic book sales fell 50%.
• In the 1960s, surveys indicated that campus radicals believed that Spiderman and The Incredible Hulk were their foremost role-model revolutionaries.
• Comic books have been used by politicians to advance their causes. For example, the Nixon Administration requested that the comic book industry produce some editions with an anti-drug theme. In the 1990s, Virginia's governor used some of DC Comics' characters to get tougher anti-gun laws passed. Also, in 1996, comic books were used to educate children in Bosnia about the dangers of landmines.
• Beginning in the 1990s, writers and artists could own a stake in their creations which enabled some of them to become very wealthy.
• The comic book industry almost became upended by speculation in comic book purchases in the early 1990s. Publishers printed huge volumes to meet demand that really only existed for older, rare comic books. When the speculators tried to sell their comic books, the prices crashed and the comic book industry contracted dramatically.

These are some of the issues that will be discussed during our panel on the Convergence of Video Games and Comic Books at our Profiting in the Video Game Economy Conference which will take place in NYC on February 16, 2006. More information about this conference is available from Naomi Barazani at 212-952-7400 ext. 126 or naomi@twst.com.

Predictive Markets

I recently attended a very informative conference sponsored by Knowledge Clusters on the issue of predictive markets. Predictive markets are designed to tap into the wisdom of the crowds by enabling (relatively) large groups of people to wager on issues at hand. Predictive markets run by entities such as The Iowa Electronic Markets at the University of Iowa and those run by Intrade are extremely accurate, especially compared to polling. Predictive markets allow participants to put their (sometimes play) money where their mouths are. They can communicate their conviction for a particular outcome by bidding higher prices for such outcomes.

Predictive markets have been used by companies including Eli Lilly, Siemens, Microsoft, Abbott Labs, Dentsu, Google and many other organizations. These companies believe that they can unlock and collate the collective knowledge of their employees by channeling their scattered knowledge into predictive markets. The most common applications for predictive markets are sales / demand forecasting; price forecasting; project completion timelines; project prioritization; and regulatory issues.

Despite the tremendous accuracy that predictive markets are capable of delivering, there are many concerns associated with predictive markets. These concerns include:

• Lawyers have many concerns about establishing predictive markets. For instance, they want to ensure that such activity does not become gambling. Also, publicly-traded companies must ensure that participation in predictive markets does not run afoul of insider trading regulations.
• Participants in predictive markets could game the markets by low-balling estimates. For instance, betting that products will be shipped later would allow the team members to slack off and still meet the collective predictions.
• Middle managers are often resistant to predictive markets because they believe such markets undermine their authority. Forecasters are also resistant to such markets for fear of being displaced.
• Sometimes there are questions that are better left unanswered. Also, getting a prediction means publicizing a prediction which is not always wise.

If and when such concerns are overcome, there are many challenges of establishing predictive markets such as:

• Participation in such predictions must be fair and non-discriminatory.
• Terms about what is predicted must be tightly defined.
• Awards must be promoted, paid for and distributed, all of which add to the expense and work commitments of running such markets.
• The markets must be liquid and it is hard to motivate (especially busy) people to participate in such markets.

Interesting Facts About Buildings

I recently learned two interesting facts about buildings. First, many of the skyscrapers--such as the Empire State Building, the Chrysler Building, and The World Trade Center--were built with Iroquois Indians, largely from the Mohawk tribe. These Indians were many of the Skywalkers who carried heavy beams hundreds of feat into the sky. These Indians believed that when they were skywalking they became closer to God.
   Secondly, the Petronas Towers in Malaysia were built rapidly because two contractors were hired, one for each tower. One contractor was given a two week head-start. This resulted in the second contractor racing to catch up. The first contractor raced to ensure that they would not be beaten after having received a head start.

Got Game: A Book Review

I recently read Got Game: How the Gamer Generation is Reshaping Business Forever by John C. Beck and Mitchell Wade. The most interesting aspect of the book is how video games are shaping childrens' ideas about life and taking risks. Got Game also discusses how such characteristics will determine the way in which the Video Game generation will be managed when they reach the workforce. Among the interesting assertions discussed in this book include the following:

• The gamer generation, at 90 million people, is larger than the baby boom. Some of these gamers spend enormous amounts of time playing video games. For example, Sony's EverQuest has 650,000 registered players who stay online an average of 22 hours a week.
• Gaming is rapidly becoming a worldwide phenomenon. A single Korean game claims 3.2 million paying subscribers, and the Chinese game market has already surpassed 14 million users despite hurdles of cost, censorship, and technology.
• The following are interesting aspects of the lessons that video games teach children: a) Each player is the center of attention; b) Each player is the boss - the player can choose things about the reality or switch to different experiences; c) Each game is designed for the customer's satisfaction and entertainment - the opponents are tough but not too tough. d) Each player can become very good at playing the games relatively quickly; and, e) Players can easily be led to believe that they are tough - they can experience all sorts of crashes, suffering and death and it doesn't hurt.
• Research has revealed that playing video games improved visual memory in children as young as four years of age.
• Gamers believe that they can always have another go at an objective. They believe they can always either hit the reset button and play again or turn off the machine and pick up normal life where they left off. For gamers, failure is part of the process that leads to success. One reason for gamers' forgiving attitude towards failure is that video gamers usually do not face live competitors; if you lose in most sports, you lose to someone or even to an entire team before large audiences. Video games let you move through those awkward stages, losing only to a digital opponent.
• Many women play video games to forge bonds with their partners.
• Gamers want to become experts in what they have a passion for doing, which is of great benefit to their employers. Gamers believe that winning matters. Gamers typically have high levels of confidence. People experienced with playing video games are passionate about adding value. Gamers expect high rewards for the value they create. Individuals who have the most extensive experience with computer and video games are the same people most likely to choose pay-for-performance.
• Professionals from the video game generation have spent hundreds or thousands of their socialization hours in clearly defined, goal directed tasks. And they chose that kind of environment voluntarily, often in the face of significant parental disapproval. While many people criticize the goals pursued when playing video games, the fact that goals are pursued is favorable to young people simply spending their time "hanging out".
• Many video gamers are migrating from arcade-style games to strategy-oriented games which conveys very positive cognitive elements to young players.
• Playing video games extensively teaches detachment. While the callousness that often results is problematic, some degree of the detachment that results is necessary for leadership.

These are some of the issues that will be discussed at our Profiting in the Video Game Economy Conference which will take place in NYC on February 16, 2006. More information about this conference is available from Naomi Barazani at 212-952-7400 ext. 126 or naomi@twst.com.

Patent Quality

I recently had the pleasure of moderating an interview of Bruce Lehman, former Commissioner of Patents and Trademarks under the Clinton Administration, by Bruce Berman, President of Brody Berman Associates. Among the insights that hailed from that interview are the following:

• Patent quality may be perceived to be deteriorating because the importance of patents has risen over the past 20 years or so.
• During the past 20 years, patent quality has risen due to the greater degree of professionalism to come out of the Court of Appeals for the Federal Circuit; a better staff at the PTO; more automation at the PTO; and, less diversion of fees from the PTO.
• There has not been a noticeable increase in patents found to be invalid in litigation. However, in many of the instances when patents are found to be invalid, the invalidity arises from something that the applicant failed to do such as provide the right information. Many well-heeled companies want to manage their patent application costs and are not prepared to pay their outside lawyers to write higher quality patent applications.
• Many patent applicants refuse to file their applications electronically which would save the PTO a lot of time and money.
• There is nothing to stop the US PTO from coordinating with its counterparts in Japan and Europe to review patent applications jointly. Such collaboration would speed up the issuance of patents throughout the world.
• Almost all of the examiners have the technical expertise needed to evaluate patents. However, it takes about three years for patent examiners to learn the nuances of the patent system. It is at this point that many patent examiners are recruited away from the PTO.

Our next IP Conference, Intellectual Property - Maximizing Returns on Your Intellectual Property Portfolio Conference, will be held in San Francisco on January 16-17, 2007. More information about this conference is available from Neomi Barazani at 609-919-1895 x100 or neomi@incrementaladvantage.com. This interview can also be obtained in audio version for a limited time or in print version for $25.

To find out more on IncreMental Advantage's Intellectual Property Conference Series, visit www.incrementaladvantage.com/conferences.

Interview with Pat Choate

I recently had the pleasure of interviewing Pat Choate, former Vice-Presidential candidate for the United States and author of Hot Property: The Stealing of Ideas in An Age of Globalization. Pat Choate spent more than four years researching the history of intellectual property throughout the world. Hot Property provides an unparalleled review of the history of intellectual property and the impact that IP has had on the spirit of ingenuity. Hot Property also provides insight into the current state of affairs of intellectual property within the U.S. and between the U.S. and its trading partners.

Among the insights that emanated from this interview are the following:

• One problem with the patent system in the U.S.today is pendancy. Pendancy is the time that it takes from when an inventor submits an application to the patent office to the time that they receive a decision on whether they will be granted a patent. When Alexander Graham Bell filed for his patent, it took the patent office three weeks to make a decision. Three weeks after he filed, Alexander Graham Bell had his patent. Many people complained that if you rushed things out in that way, the patents wouldn’t hold up. But the patent Alexander Graham received withstood 600 lawsuits, five of which went to the Supreme Court. Today, the pendancy rate is about two and a half years. It takes two and a half years from the time you file your application until you get a decision. But in the high-tech world that we are in, speed is important. Innovation changes quickly. We need basically to reduce that pendancy rate to something like six or eight months.
• One problem with pre-mature publication, is that under the 18-month rule, all participating countries in the World Trade Organization must put the patent applications up, make them public at 18 months from the time they’ve been filed. The U.S.puts those up in the form of the Internet; so does Europe and Japan. The Japanese patent office recently did an examination, and one of the things they found was that out of China they’re getting 17,000 hits a day on the patent publications. In other words, you have the Chinese and others going in and taking a look before an application has a patent and pulling down the technology. It is a great boon for counterfeiters.
  
• The litigation crisis surrounding intellectual property is overblown. Each year we’ll have about 2,000 patent lawsuits filed in the U.S.; of those, only 97 a year, less than 100, will actually go to trial — and 97 lawsuits is not a patent crisis!

Our next IP conference, Intellectual Property - Maximizing Returns on Your Intellectual Property Portfolio Conference, will take place in San Francisco on January 16-17, 2007 . More information about this conference is available from Naomi Barazani at 609-919-1895 x100 or neomi@incrementaladvantage.com. This interview can also be obtained for $50.

To find out more on IncreMental Advantage's Intellectual Property Conference Series, visit www.incrementaladvantage.com/conferences.

Water Conference Highlights

The following are some of the highlights from our Profiting in the Water Industry Conference that was held in San Francisco on December 1, 2005.

According to David Schanzer from Janney Montgomery:

• The entire market capitalization of publicly-traded water utilities is $6.5 billion. The total trading volume of the sector is between 600,000 and 700,000 shares per day, about the same level of volume that Cisco trades during the first half hour of trading.
• This year two Unit Investment Trusts were formed and the American Stock Exchange formed an exchange traded fund - all of which were formed to invest in the Water stocks.
• Despite a great deal of consolidation among the publicly-traded water utilities, there remains a tremendous potential for further acquisitions by these companies. There are an estimated 55,000 potential acquisition opportunities for these companies. In Pennsylvania alone, there are roughly 450 potential acquisition opportunities for water utilities.
• The management teams of water utilities should be saluted for not making tempting mistakes such as diversifying by going into the bottled water business and not going into the heating and ventilation business.

According to Zane O. Gresham of Morrison Foerster LLP and Francesca McCann of Stanford Washington Research Group:

• One of the drivers for growing demand for water will simply be population growth. According to the U.S. Census Bureau, the American population is expected to grow 29.2% from 2000 to 2030. The Southwestern U.S., were water is particularly scarce, is expected to experience population growth of nearly 50% during the same period of time.
• Regulators in states such as California are requiring real estate developers to demonstrate that there will be sufficient water availability to service the communities that they wish to develop as a condition for receiving necessary zoning approvals.
• There is tremendous potential for desalinization. Estimates hold that desalinization will be a $95 billion market by 2015. In California, there are 19 proposed desalinization plants on the docket which would yield a projected 240,000 acre-feet per year. However, regulators in California do not want any new desalinization plants to be established along California's coasts.
• Water re-use is the most cost-effective method of generating new water since it is water that has already been extracted and collected and therefore transportation costs are not borne. However, water re-use has been ill-marketed under the banner of "Toilet to Tap" to promote water re-use. Also, health authorities often impose highly stringent requirements on the quality of recycled water.
• Water transfers are becoming a growing issue. For instance, there is expected to be 36% increase in urban water use in California by 2020 and a 7% drop in agriculture water use during the same period of time. Also, environmental regulations, such as those under the federal and California Endangered Species Acts, have resulted in the set aside of water for environmental protection purposes.
• According to the EPA, $151 billion in investment in infrastructure is required to meet legal environmental standards. Also, California public water systems are required to meet standards for 59 organic contaminants; 17 inorganic contaminants; 6 radionuclide contaminants; and, 8 disinfection byproduct contaminants. Further, new EPA drinking water regulations will be released on December 15.
• There are several problems in connection with upgrading or replacing water infrastructure. First, local water services will be responsible for such replacements. However, the projects are so large that state-wide or regional coordination is recommended since they are beyond the ability of local municipalities to finance. In California there is a $40 billion backlog of such upgrades. There is often community opposition and union opposition to such projects. This combination makes getting approval for municipal financing very difficult.
• Water systems are vulnerable to earthquakes and flooding. For example, during the Loma Prieta earthquake, 20 million gallons of raw sewage was dumped into the Oakland Estuary. Also, a flood in that breaks the levees around Sacramento could cause $47 billion in damage, partly because salt water could infiltrate the delta area.

Our next Profiting in the Water Industry Conference will take place in New York City on June 6, 2007. For further information, please visit www.incrementaladvantage.com/conferences or contact Neomi Barazani at neomi@incrementaladvantage.com.