Tuesday, February 15, 2011

Making Money on Line


When Rand Paul made his highly controversial proposal to flatly end foreign aid spending across the board he raised a lot of eyebrows. But his plan might not have caused nearly as much of a ruckus had the media not immediately changed the conversation from one of fiscal probity to a hot button topic by asking, “Even to Israel?” For the record, Senator Paul obviously didn’t start out to launch an attack on all the Jews of world, but that’s the cliff which the conversation leaped off when he admitted that Israel would be included in that list.


On Friday, Rabbi Steve Gutow took to the pages of Politico seeking to lead Paul to the woodshed.


U.S. foreign aid is not a line to be cut — as though it were excessive spending on paper clips. This money is as much a part of our national security toolbox as our Foreign Service corps or military relationships — both of which would be sacrificed at the altar of cuts-for-cuts-sake as well, should Paul (R-Ky.) have his way.


So far, so good, at least in terms of general theory. Nearly every dime spent by the government will find supporters somewhere, and few honest analysts would argue that there is zero value gained from investing in foreign relationships, assuming we can afford it. But the Rabbi goes on from there to essentially ignore every other country on the lengthy list of those feeding at the US trough and focuses exclusively on the importance of funding Israel.


Israel receives just $3 billion in military aid — a paltry 5 percent of the foreign aid budget, which is, itself, only 1 percent of our overall spending. To think such a cut will move our economy forward is like suggesting that ordering a diet soda with your double bacon cheeseburger will help you lose weight.


That makes for a great sound bite, but it’s the paragraph which really deserves a closer look on two fronts. First, if you’re going to talk about any cuts to foreign aid at all it’s pretty difficult not to cast your eyes on Israel and Egypt. Looking at the rather eclectic list of countries cashing our checks, these are the only two which traditionally receive amounts in the billions rather than the hundreds of millions. Making cuts in foreign aid without touching those two would be akin to trying to meaningfully reduce the federal government’s budget without touching entitlement programs. (And who on Earth would ever consider that?)


And what of the other countries on the list? Would Rabbi Gutow be willing to lop off support for Jordan? (Roughly 1/2 billion, presumably for, well… not attacking Israel.) Shall we clip payments to Columbia? (Another 1/2 billion – I assume for not producing cocaine, which has clearly been a huge success.) Ethiopia? Kenya? Pakistan? Who should face the ax?


But it’s the second part of Gutow’s quote which requires the most attention, specifically the “diet soda and double bacon cheeseburger” line. He is correct. Just ordering the diet soda won’t make any difference. But if you make it a single burger instead of two, use only one slice of cheese, remove half of the bacon strips and put it on a smaller bun, suddenly you’re ingesting a lot less calories.


The point is, completely eliminating all foreign aid is probably a non-starter in Washington. But rushing to defend your own ricebowl while ignoring the rest isn’t going to solve anything. If we are going to make cuts to foreign aid (along with the myriad other areas where we must reduce spending) then everyone is going to have to share the burden and feel some of the pinch or there is no sense starting the process. And that would have to include Israel and Egypt.


The Rabbi seems to be presenting us with a false choice. Aid to Israel – and many of these other countries – doesn’t have to be entirely eliminated if we trim a proportional bit from each. It’s the same as the rest of the federal bureaucracy. Taking a nice bite out of each one may not seem like much, but if you take that chunk out of all of them, pretty soon you’re talking about real money.


For a different perspective, though, Doug Mataconis tells us that the gravy train is over and it’s time to cut off welfare for the rest of the world.






Long California’s digital also-ran, Los Angeles may have its first bona fide new media hit brewing. It’s called Machinima, it did 2.3 billion video views last year, 350 million in December alone, has 45 million uniques, and is still growing.


These numbers slaughter more well known video companies, but if you haven’t heard of Machinima– don’t feel bad. I hadn’t either before a week ago, when I found myself camped out in Redpoint Ventures office and told partner Geoff Yang I wouldn’t leave without a good story tip. Finally he whispered, “Machinima’s December numbers” and I had to ask him to pronounce Machinima a few times, and spell it before I even knew what he was saying. I was impressed we even had a CrunchBase widget for it.


The word is mash-up of “machine” and “cinema” and refers to an underground trend of gamers recording their own videogame play and posting the videos online. It used to be limited to bragging– a hard core gamer showing off his skills. But increasingly, machinima has taken a more creative turn. Players have learned to manipulate story line and character within the video game worlds, with gamers playing characters, and one acting as the camera man. The company was started by Allen DeBevoise and has raised $15 million in two rounds of funding from MK Capital and Redpoint Ventures.


DeBevoise was drawn to the underground movement more from the animation side than the gamer side. He’s been in animation so long, he even worked on the first Tron movie. He was blown away that gamers were able to use these real time game engines to render the imagines in real time– a process that used to be expensive and slow. “Real time rendering was the hold grail in the traditional computer animation business,” he says.


He went to see a gamer who owned the URL in 2004 and bought it from him, although he didn’t focus much on the business until YouTube started to take off in 2007. He tried to raise money back then but the audience was seen as too niche, maybe 5 million people if Machinima was lucky. Clearly everyone underestimated what was brewing here.


There are a lot of fascinating cultural aspects to Machinima that helped make the audience so much bigger than anyone expected. It’s smack in the middle of the expansion of the geek-chic Comicon-culture. It’s never been a better time to be a geek, as seen with the rise of comic themed mega-movies, the explosion of digital movie making innovation in movies like Avatar and Tron that blur the line between actor and animation, everything JJ Abrams and even the mainstream popularity of shows like “The Big Bang Theory.”


While Machinima’s audience is more hardcore than your average Farmville user, platforms like Facebook and the iPad have certainly made the concept of being a “gamer” more mainstream than ever. Already Machinima is doing roughly 70 million views a month through mobile phones, and expects more off-computer as digital living room devices like GoogleTV and Apple TV take off. “Gamification” is even an overused Silicon Valley buzzword these days. And Machinima’s young users have grown up in a world of digital animation, from Pixar as a kid to Halo as a young adult to developing crushes on blue aliens as a 20-something. They’re the natural generation to create a new art form merging the two.


What I love about this company is how well it plays to LA’s endemic strengths, and doesn’t try to do what the Valley does well. Rather than be a tech-centric company, Machinima runs entirely on a YouTube channel. But that doesn’t mean it’s a lean, user-generated-content company. Machinima has 90 employees most of which produce 24 regular shows in house, that augment the ones from community “directors.” Given the creative talent in LA, you could argue this is a company that couldn’t have been built in the Valley. DeBevoise says he regularly meets with agents who see Machinima as a potential digital outlet for creative talent like animators, directors and writers, and since it’s a very new form of filmmaking there aren’t a lot of sacred cows it’s threatening.


DeBevoise isn’t into Machinima being the next, say, Facebook. He wants it to be the next iteration of Rolling Stone magazine or MTV–the touch-point for the pop culture zeitgeist for young people broadly, not just hardcore gamers. It’s a very LA-vision.


In 2010, Machinima’s advertisers were not surprisingly mostly gaming publishers, but given the numbers, this year the company is expanding into non-endemic mainstream consumer goods like Coke and Unilever. Any company with this large of an audience can build a decent ad business, but particularly attractive about Machinima is the idea of unleashing gamers to make their own videos to promote certain brands, DeBevoise says. He expects the company to become profitable this year.


In the cold-war between Silicon Valley and LA, LA may finally have a big winner.


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