If you have been in business a while or simply lived a long time ( I have done both), you realize that most things be they new products, new companies, new restaurants, new ideas do not succeed. If you study the habits of entrepreneurs you find that successful ones make it on the 3rd or 4th try. They appear to be wired differently than most people and do not see failures as conclusive but merely a learning experience and they move on to the next adventure.
One thing that I have observed and experienced, and often hear a lot from MR readers is that it appears that most people do not want you to succeed. It has always struck me as odd especially in certain circumstances. Over the years, I was involved in hundreds of new business presentations. People would always grill me afterwards and asked how I thought it went and whether or not the firm that I was associated with would get the business. I would always say how I thought the presentation went but, after I left my 20’s, I never said whether we would get the business or not. People would gloat if you were wrong and it was always hard to forecast. Once I was a lead player in a pitch and really nailed it. When I returned to the office, people asked me what I thought and, very uncharacteristically, said “we have it. I am sure.” The most eager person with the questions seemed deflated and said “Cole, you are awfully sure of yourself.” Forty eight hours later they called and assigned us the account. My colleague walked around morosely for a few days. I was confused. Why should he be jealous? He, too, was a partner in the firm and would benefit from the increased billing.
Months later, a third colleague really burned the midnight oils and, against stiff odds, landed a nice account. When I saw him, I thanked him and gave him a big hug. My colleague who was displeased with my win months earlier, chimed in, “Yeah, congratulations.” Later that day, he called me aside and asked “Why did you hug that bastard?” I responded that the firm would be better off with the new business and our associate had worked very hard to bring it in to the shop.
When I asked some panelists about this issue, I expected mild responses. Nope. Here are some verbatim (expletives deleted plus some modest editing) comments:
—“The only one who was ever happy with any success I have had is my spouse. Even people that I made a lot of money for did not seem grateful. I was no threat to them especially when young but they seemed ill at ease when I succeeded.”
—“I am a serial entrepreneur. My losses are far more frequent than my gains. People still dredge up my failures at dinner or cocktail parties and out on the golf course. I am rich now and they are really jealous. None of them ever took a real chance. I try to avoid them but I live in a small city and they pop up at any large gathering. “
—“I can’t stand the armchair dreamers who sit around and tell me what I did wrong. They were not still at the office at 9pm and you never saw them on weekends. When I was young, a few would come to me after a loss and want to do a post mortem telling me what I did wrong. They were high on criticism but never got off their asses and tried to broaden their horizons. You never strike out if you never get in the game!”
—"I have been a salesman for 35 years. When I landed an account that others had tried to crack for years, New York (headquarters) was happy. My boss and fellow foot soldiers rarely had any sincere praise. They were jealous, I suppose. One boss told me that the only reason I was able to get billing was that he had softened them up for years. Maybe so, but it was a rotten thing to say after my first big win.”
We live in an age of envy. If you win when others lose or merely sit on the sidelines, there will be inevitable resentment. May I suggest that you wrap yourself up in entrepreneurial mode and go out and change the world?
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Thursday, August 16, 2018
Friday, August 10, 2018
Should You Fear The Robots?
It is hard to believe but Stanley Kubrick’s “2001: The Space Odyssey” was released in 1968, some 50 years ago. I was a freshman in college and was eager to see it as it was directed by Stanley Kubrick who a decade earlier had led “Paths of Glory”, my favorite film of all time (if you have not seen it, do so. It is remarkable and remains my favorite film). I did not quite understand the film but vividly remember people talking about HAL, the robot who at one point in the film tried to kill all the humans. Today, when I discuss either robots or Artificial Intelligence (AI) with people, HAL often comes up especially since “2001” has been re-released.
Here is my take on Artificial Intelligence(AI). The robot issue is a ruse—the real issue is the AI WITHIN the device. Ask anyone running a business of any size and ask what is most important and they will tell you that containing or cutting costs is issue #1. The great Warren Buffett was once quoted as saying: “There are two rules in business. #1 is cut costs. #2 is don’t forget rule #1.”
Over the years, I have read and heard many comments about using robots or logarithms or algorithms to do many things but most importantly THEY CUT COSTS!. Taking a mix of comments send to me over the years, business owners have told me that robots “never get sick, never require social security or health insurance or 401k contributions, never go on coffee breaks, and are absolutely never clubhouse lawyers.” So, when people tell me that the robot revolution will never happen, I just smile. If you are running a business today, it is not easy. Something that can save you a boatload of money and reduce headaches is an approach that one is going to embrace.
The U.S. Department of Commerce has projected that today some 3.8 million Americans drive taxis, Ubers, trucks, buses and other vehicles. Within 20 years, most of these jobs can be replaced by self drive vehicles. When you tell this to people, an amazing number (over 50%) shake their heads and say that it can never happen. Believe me, it will. I hear arguments including “I like to drive and be in control. I will never give that up.” Well, if your insurance rates drop and you get place to place safely, you will likely embrace it. And, businesses will as they see costs fall and productivity and safety rates rise. I have joked with family members that when I turn 90, I will take my self drive car to the Grand Canyon by myself and perhaps a bottle of scotch (I had a scotch once in 1973, hated it, and have not had one since but I may make an exception in 2040!).
Big mining firms such as Rio Tinto and BHP Billiton are experimenting with self drive trucks in underground mines. Even the struggling and comparatively small Hecla Mining of Idaho has found that self drive trucks are more reliable than staff drivers. Imagine if every traffic cop in the world were relieved of traffic control and freed up to fight crime? Things might get safer and municipalities could save money.
Been to a casual restaurant lately in a major city? Increasingly, ordering is automated from a touch screen eliminating the need for many on the wait staff. We grey-beards my not like it but millennials do. How about health car? Algorithms can spot patterns that your physician may not and diagnoses are getting sharper but there will be less need for specialists as the “robot” may do the screening.
So, here is the issue. I have averaged several studies from a wide variety of sources. Projections are that in the U.S. some 19 million jobs could be eliminated over the next 20-25 years due to all forms of AI. At the same time, the glass is half full crowd say that 21 million new jobs will be created. They talk of “cobots” that are collaborative robots that will work side by side with humans. Great! I just do not see how more jobs can be created out of this AI growth. If you are not well educated or motivated, you may a very uncertain future. To survive, many businesses will have to hop aboard the AI train as it is leaving the station or be noncompetitive moving forward.
Don’t get me wrong. As doors have closed on me due to changes, several more have always opened. I do not see this happening for people across the board in the future. We do not need to fear HAL literally killing us. But young people need to stay flexible and on top of things. The world will change faster than many realize.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Here is my take on Artificial Intelligence(AI). The robot issue is a ruse—the real issue is the AI WITHIN the device. Ask anyone running a business of any size and ask what is most important and they will tell you that containing or cutting costs is issue #1. The great Warren Buffett was once quoted as saying: “There are two rules in business. #1 is cut costs. #2 is don’t forget rule #1.”
Over the years, I have read and heard many comments about using robots or logarithms or algorithms to do many things but most importantly THEY CUT COSTS!. Taking a mix of comments send to me over the years, business owners have told me that robots “never get sick, never require social security or health insurance or 401k contributions, never go on coffee breaks, and are absolutely never clubhouse lawyers.” So, when people tell me that the robot revolution will never happen, I just smile. If you are running a business today, it is not easy. Something that can save you a boatload of money and reduce headaches is an approach that one is going to embrace.
The U.S. Department of Commerce has projected that today some 3.8 million Americans drive taxis, Ubers, trucks, buses and other vehicles. Within 20 years, most of these jobs can be replaced by self drive vehicles. When you tell this to people, an amazing number (over 50%) shake their heads and say that it can never happen. Believe me, it will. I hear arguments including “I like to drive and be in control. I will never give that up.” Well, if your insurance rates drop and you get place to place safely, you will likely embrace it. And, businesses will as they see costs fall and productivity and safety rates rise. I have joked with family members that when I turn 90, I will take my self drive car to the Grand Canyon by myself and perhaps a bottle of scotch (I had a scotch once in 1973, hated it, and have not had one since but I may make an exception in 2040!).
Big mining firms such as Rio Tinto and BHP Billiton are experimenting with self drive trucks in underground mines. Even the struggling and comparatively small Hecla Mining of Idaho has found that self drive trucks are more reliable than staff drivers. Imagine if every traffic cop in the world were relieved of traffic control and freed up to fight crime? Things might get safer and municipalities could save money.
Been to a casual restaurant lately in a major city? Increasingly, ordering is automated from a touch screen eliminating the need for many on the wait staff. We grey-beards my not like it but millennials do. How about health car? Algorithms can spot patterns that your physician may not and diagnoses are getting sharper but there will be less need for specialists as the “robot” may do the screening.
So, here is the issue. I have averaged several studies from a wide variety of sources. Projections are that in the U.S. some 19 million jobs could be eliminated over the next 20-25 years due to all forms of AI. At the same time, the glass is half full crowd say that 21 million new jobs will be created. They talk of “cobots” that are collaborative robots that will work side by side with humans. Great! I just do not see how more jobs can be created out of this AI growth. If you are not well educated or motivated, you may a very uncertain future. To survive, many businesses will have to hop aboard the AI train as it is leaving the station or be noncompetitive moving forward.
Don’t get me wrong. As doors have closed on me due to changes, several more have always opened. I do not see this happening for people across the board in the future. We do not need to fear HAL literally killing us. But young people need to stay flexible and on top of things. The world will change faster than many realize.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Saturday, August 4, 2018
The US Consumer Debt Bomb
Those of you who know me are aware that I am something of a data junkie. I love to crunch numbers and look for trends. For years, I have worried about growing debt levels. Currently, the US government debt stands at approximately $21 trillion dollars. Few want to discuss that and I realize it is not exactly comparable to personal consumer debt. After all, the US dollar is the world’s reserve currency so, at times, we can print money to cover expenses and get away with it for a surprisingly long period of time.
Recently, the Federal Reserve released updated figures on household debt in the United States. The headline was that total household debt in the United States was projected to be $13.15 trillion. That certainly got my attention!
As any media strategist should be, I am something of a part-time demographer. So, I wanted to see how the debt was arrayed against different age groups in America. Results were a bit surprising and as follows:
Demographic Average Household Debt
Under 35 $67,400
35-44 133,100
45-54. 134,600
55-64 108,300
65-74. 66,000
75+. 34,500
Source: Federal Reserve Bank of New York, 2018
A few issues popped out. The under 35 group was burdened by college loans. The average person owed $19,000 but often both husband and wife owe so the household college debt can be much higher. This debt is preventing many millennials from buying their first home nearly as early as their parents did. The 35-64 demos were about what I anticipated. People have mortgages and college bills plus notes on cars at that time of their lives. The surprise was 65-74 year olds and the 75+ demo. I assumed that it was for car loans. Nope. Many still had mortgage payments. Banks cheerfully write long term mortgages for people of any age if they qualify. Admittedly, some upscale 65-74 have mortgage debt on second homes.
Why bother to bring this up? Well, the Great Recession or financial crisis began to take hold in earnest a decade ago. Once we struggled through 2009, many people said something like this to me—“People have learned their lesson. Look ahead 10 years. Millions will have cleaned up their personal balance sheets and will never get themselves in such a bad situation again.” Looking at the above data, I see that my friends were wrong. Household debt continues to grow. A rebounding real estate market did get many out of upside down mortgages (mortgage balance higher than current value of residence) but the overall debt levels continue to churn ahead.
Credit card debt continues to be annoyingly high. Again, the surprises came among those 65+. Here is the average revolving credit card balance by age group:
Under 35 $5,808
34-44 8,235
45-54 9,096
55-64 8,158
65-69 6,876
70-74 6,468
75+ 5,638
I was quite taken by surprise that the average 75+ household with credit card debt owed $5,638!
So, despite our recent very solid growth of GDP of 4.1% for the last quarter, things are not so rosy for many people when you dig a bit. Are people borrowing more to purchase things and keep our 70+% consumer driven economy chugging along? It would appear so. An acquaintance dropped me an e-mail recently and said that he stole this line but uses it in meetings—“If you think the retail apocalypse is exaggerated, wait until the next recession comes along. People will not be able to meet their debt payments and storefronts will close all over America.”
So, what does this mean for the world of media? Even if my gloomy friend quoted is not entirely correct, it would appear that debt service will dig even deeper into discretionary income. So, people will likely watch more video as a result. You may cut the cord on cable but keep your Netflix subscription. Will you do without Amazon Prime? Probably not. So, Amazon Prime Video will take up more and more of your video viewing. HBO could grow stronger depending on what new owner AT&T does with it. And free You Tube will be cost effective for very inexpensive entertainment.
The world is not coming to an end. But when over 40 percent of Americans cannot handle a $400 car repair bill or trip to the emergency room, something has to give at some point.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Recently, the Federal Reserve released updated figures on household debt in the United States. The headline was that total household debt in the United States was projected to be $13.15 trillion. That certainly got my attention!
As any media strategist should be, I am something of a part-time demographer. So, I wanted to see how the debt was arrayed against different age groups in America. Results were a bit surprising and as follows:
Demographic Average Household Debt
Under 35 $67,400
35-44 133,100
45-54. 134,600
55-64 108,300
65-74. 66,000
75+. 34,500
Source: Federal Reserve Bank of New York, 2018
A few issues popped out. The under 35 group was burdened by college loans. The average person owed $19,000 but often both husband and wife owe so the household college debt can be much higher. This debt is preventing many millennials from buying their first home nearly as early as their parents did. The 35-64 demos were about what I anticipated. People have mortgages and college bills plus notes on cars at that time of their lives. The surprise was 65-74 year olds and the 75+ demo. I assumed that it was for car loans. Nope. Many still had mortgage payments. Banks cheerfully write long term mortgages for people of any age if they qualify. Admittedly, some upscale 65-74 have mortgage debt on second homes.
Why bother to bring this up? Well, the Great Recession or financial crisis began to take hold in earnest a decade ago. Once we struggled through 2009, many people said something like this to me—“People have learned their lesson. Look ahead 10 years. Millions will have cleaned up their personal balance sheets and will never get themselves in such a bad situation again.” Looking at the above data, I see that my friends were wrong. Household debt continues to grow. A rebounding real estate market did get many out of upside down mortgages (mortgage balance higher than current value of residence) but the overall debt levels continue to churn ahead.
Credit card debt continues to be annoyingly high. Again, the surprises came among those 65+. Here is the average revolving credit card balance by age group:
Under 35 $5,808
34-44 8,235
45-54 9,096
55-64 8,158
65-69 6,876
70-74 6,468
75+ 5,638
I was quite taken by surprise that the average 75+ household with credit card debt owed $5,638!
So, despite our recent very solid growth of GDP of 4.1% for the last quarter, things are not so rosy for many people when you dig a bit. Are people borrowing more to purchase things and keep our 70+% consumer driven economy chugging along? It would appear so. An acquaintance dropped me an e-mail recently and said that he stole this line but uses it in meetings—“If you think the retail apocalypse is exaggerated, wait until the next recession comes along. People will not be able to meet their debt payments and storefronts will close all over America.”
So, what does this mean for the world of media? Even if my gloomy friend quoted is not entirely correct, it would appear that debt service will dig even deeper into discretionary income. So, people will likely watch more video as a result. You may cut the cord on cable but keep your Netflix subscription. Will you do without Amazon Prime? Probably not. So, Amazon Prime Video will take up more and more of your video viewing. HBO could grow stronger depending on what new owner AT&T does with it. And free You Tube will be cost effective for very inexpensive entertainment.
The world is not coming to an end. But when over 40 percent of Americans cannot handle a $400 car repair bill or trip to the emergency room, something has to give at some point.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Wednesday, July 25, 2018
The Coming Two Americas?
On July 12th, THE WASHINGTON POST published an article by Phillip Bump in their political section that, in many ways, was right in my wheelhouse. It discussed demographics 20 years from now. The point was that by 2040, eight states will have nearly half (49.5%) of the U.S. population. Add the next eight most populous states and that will be home to nearly 70% of Americans. So what, you may say. Well, clearly, young people want to go where the jobs are and where the action is. Living in rural areas has little appeal especially in those areas that are getting grayer and actually losing population. The author then talks about how this seismic shift, which strikes me as a demographic tidal wave, will put us in an odd situation. His thesis is that the U.S. House of Representatives will likely get far more progressive in nature as today’s millennials pile in to the 16 most populous states. Conversely, the U.S. Senate may get far more conservative as, even states that are losing members of the House and may join the handful now that only have one at-large House member will still have two U.S. Senators. His projection, and I have seen others that are similar, is that 30% of the population will control some 68% of the U.S. Senate seats. (A link to the article is https://www.washingtonpost.com/news/politics/wp/2018/07/12/in-about-20-years-half-the-population-will-live-in-eight-states/?utm_term=.c24c1ad51732).
Growing up in Rhode Island, I had a sense of this type of issue by studying Little Rhody’s history. When the Constitution was being drafted, people in smaller states felt that the larger ones (New York, Virginia and Massachusetts) would dominate things.So, the idea of an upper chamber, the U.S. Senate, was put forward. The two smallest states, Rhode Island and Delaware, might not have many members of the House but each would get two Senators just as the big states would. Delaware seemed to like the compromise and became the first state to ratify the Constitution. Stubborn Rhode Islanders held out but finally gave in and became state #13.
When I first read the article, I wondered if the author was going to call for an end to the electoral college. Many progressives are still smarting over George W. Bush losing the popular vote in 2000 by gaining the White House. There is an even larger discussion of the issue with Donald J Trump’s electoral college victory in 2016. Yet, no, the author does not go there. He does, say, however, with some merit, that the House and Senate may well represent two different Americas.
Right now, the divide between urban and rural in America, to me, is largely cultural. It seems if these population shifts come to fruition (they do seem likely), things will get even more polarized than they are now. By the way, this is not true only in America. On May 22, 2012, I put up an MR post entitled “Urbanization, Globalization and Media” that discussed how DAILY across the globe some 180,000 were leaving rural areas to move to a city. Soon we will be facing issues that aging nations in Europe deal with daily. Hospitals in some Scandinavian countries are being closed due to declining populations. Countries with a deeply entrenched provider state are trying to see how they can maintain services in areas will declining economic prospects and aging populations. We are seeing cracks now in places such as Northern Maine, Western Kansas and Nebraska. Local schools have become regional and rescue squads are manned by folks in their seventies.
I thought about these data and forecasts and ran them by my hero—a no-nonsense, feet on the ground type who shares with me a tendency to look ahead. She immediately grasped the details and said “One caveat. Climate change.” If things do heat up, people will move back to certain places. Minnesota and Wisconsin will grow and Buffalo, Syracuse and Rochester will have a comeback. These places have lakes and upscale people like to live near the water. If the winters moderate somewhat, some will relocate to formerly forbiddingly cold areas that have good medical care and universities. Far fetched? Maybe. Yet, I have learned to take her forecasts seriously.
So the Post raised some interesting political questions. Will the Senate be dominated in two decades by people, who, if a mirror image of their small state constituencies, be out of touch with the population as a whole? I hope to live to see the outcome!
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Growing up in Rhode Island, I had a sense of this type of issue by studying Little Rhody’s history. When the Constitution was being drafted, people in smaller states felt that the larger ones (New York, Virginia and Massachusetts) would dominate things.So, the idea of an upper chamber, the U.S. Senate, was put forward. The two smallest states, Rhode Island and Delaware, might not have many members of the House but each would get two Senators just as the big states would. Delaware seemed to like the compromise and became the first state to ratify the Constitution. Stubborn Rhode Islanders held out but finally gave in and became state #13.
When I first read the article, I wondered if the author was going to call for an end to the electoral college. Many progressives are still smarting over George W. Bush losing the popular vote in 2000 by gaining the White House. There is an even larger discussion of the issue with Donald J Trump’s electoral college victory in 2016. Yet, no, the author does not go there. He does, say, however, with some merit, that the House and Senate may well represent two different Americas.
Right now, the divide between urban and rural in America, to me, is largely cultural. It seems if these population shifts come to fruition (they do seem likely), things will get even more polarized than they are now. By the way, this is not true only in America. On May 22, 2012, I put up an MR post entitled “Urbanization, Globalization and Media” that discussed how DAILY across the globe some 180,000 were leaving rural areas to move to a city. Soon we will be facing issues that aging nations in Europe deal with daily. Hospitals in some Scandinavian countries are being closed due to declining populations. Countries with a deeply entrenched provider state are trying to see how they can maintain services in areas will declining economic prospects and aging populations. We are seeing cracks now in places such as Northern Maine, Western Kansas and Nebraska. Local schools have become regional and rescue squads are manned by folks in their seventies.
I thought about these data and forecasts and ran them by my hero—a no-nonsense, feet on the ground type who shares with me a tendency to look ahead. She immediately grasped the details and said “One caveat. Climate change.” If things do heat up, people will move back to certain places. Minnesota and Wisconsin will grow and Buffalo, Syracuse and Rochester will have a comeback. These places have lakes and upscale people like to live near the water. If the winters moderate somewhat, some will relocate to formerly forbiddingly cold areas that have good medical care and universities. Far fetched? Maybe. Yet, I have learned to take her forecasts seriously.
So the Post raised some interesting political questions. Will the Senate be dominated in two decades by people, who, if a mirror image of their small state constituencies, be out of touch with the population as a whole? I hope to live to see the outcome!
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Friday, July 13, 2018
Streaming Scenarios
The business news is full of reports about deals going on in the media business. Will Comcast be able to best Disney’s latest offer to Fox’s film and broadcast assets? If Disney gets it will Comcast be satisfied to enlarge their global footprint by purchasing Sky in the United Kingdom? Will Comcast leverage up and try and purchase both Fox and Sky? If shut out of the Fox assets will Comcast make a run at Discovery as a consolation prize and, at the same time, enhance their global reach as Discovery has some fine overseas assets? I admit that I watch the financial soap opera daily and find it amusing. To me, however, it is not the really big issue out there although it is a part of it.
The real issue, to me, is the coming war for consumers in the streaming video space. As you know, Netflix, Amazon Prime, and Disney are active in this space. Two other tech giants, Apple and Facebook have talked about entering the fray. And, of course, there is Alphabet (Google), an absolute behemoth which has owned YouTube since 2006 but has yet to fully monetize its possibilities as an video and advertising platform.
Sumner Redstone, decades ago as CEO of CBS, popularized the term “Content is King.” The statement has proven to be true as distribution is now taking a backseat to content and the streaming bidding wars are beginning in earnest.
I have generally hesitated to make definitive forecasts but in this case I make an exception. We, in and of the media world, are going to see fireworks in mergers, acquisitions and new services in the next few years that will dwarf anything that we have experienced to date. Why? From my viewpoint, it is very simple. The companies involved are the greatest companies (by many yardsticks) in measured economic history. They have the deepest pockets of any publicly held companies since (adjusted for inflation) John D. Rockefeller’s Standard Oil was broken up by the federal government early in the 20th century.
Consider the players:
1) Apple—this company has nearly 200 billion dollars in cash. They are generating an additional several billion a month in free cash flow. Now, they want to get in to streaming content. They can lose several billion a year for a while and can play the long game. A year ago, I, along with other media observers, thought that Apple would be wise to purchase Netflix. Perhaps they are sorry that they did not. Since the beginning of 2018, Netflix shares have increased by 115% so the acquisition now would be far more costly and more risky.
2) Alphabet—for nearly 12 years, they have done little with their amazing YouTube platform. If they decide to go all in with streaming by creating content, they will be a formidable competitor very quickly.
3) Amazon—Jeff Bezos has a lot of irons in the fire but his 100 million plus Amazon Prime members gives Amazon a nice start in streaming. And, if you watch it, you will see that Amazon Prime video original content is getting better. Bezos is patient. Remember that Amazon was not consistently profitable for many years. As was true of Apple, Amazon can play the long game in streaming content if they choose to do so.
4) Facebook—The social media titan is losing a bit of luster with millennials but they have a huge global base and deep pockets to boot.
5) Disney—the “Mouse House” has a great deal of their own content and may indeed snare the Fox Studio and film library from Comcast’s clutches. They are planning their own streaming service and have great franchises such as Lucas Films (Star Wars), Marvel Entertainment and classic children’s fare. Perhaps they can shoehorn ESPN in to the package as well. Disney is a leader in global entertainment and has made few missteps over the years. If they price their streaming service well and package it up properly, they will be a force for sure.
6) Netflix—let me begin by saying that I love the service. I use it several times a week for their Netflix originals and, given my affection for classic films, I also re-watch a number of my favorites. One issue that I have with Netflix is that they are not spinning off much cash. Yes, they have tremendous loyalty and have become one of the world’s most valuable brands. But, they are spending a fortune on content. I have seen estimates of $8 billion dollars for calendar 2018 alone. When asked about it, talking heads on CNBC and Bloomberg have rationalized it by saying that they can easily issue more shares if they need more money. Okay, that is fine when a bull market is in progress but this one is getting long in the tooth. When will they get profitable and start delivering a boatload of free cash flow? Right now, their logarithm seems to have found a sweet spot for consumer likes and their original programming has surprised many of us with success after success. And, their global footprint is expanding much faster than the traditional media companies. Still, I think they are vulnerable and a sale last year to Apple might have been their ticket to immortality.
So, where does all this leave us? In the 40 plus years that I have been analyzing media properties, I have found that it has generally been a bad move to bet against Disney. Yet they do not have the borrowing power of an Apple, Alphabet, Amazon, or Facebook or the recent success of Netflix. Were this a simple fight with Netflix pitted against Disney, I would bet that once Disney made a complete commitment to streaming they would eventually win a very hard fought victory. But with all the FAANG’s involved, it is a whole new ballgame.
One good thing. As competition heats up, it will be great to be a consumer. We will get some really nice pricing on streaming venues over the next few years.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
The real issue, to me, is the coming war for consumers in the streaming video space. As you know, Netflix, Amazon Prime, and Disney are active in this space. Two other tech giants, Apple and Facebook have talked about entering the fray. And, of course, there is Alphabet (Google), an absolute behemoth which has owned YouTube since 2006 but has yet to fully monetize its possibilities as an video and advertising platform.
Sumner Redstone, decades ago as CEO of CBS, popularized the term “Content is King.” The statement has proven to be true as distribution is now taking a backseat to content and the streaming bidding wars are beginning in earnest.
I have generally hesitated to make definitive forecasts but in this case I make an exception. We, in and of the media world, are going to see fireworks in mergers, acquisitions and new services in the next few years that will dwarf anything that we have experienced to date. Why? From my viewpoint, it is very simple. The companies involved are the greatest companies (by many yardsticks) in measured economic history. They have the deepest pockets of any publicly held companies since (adjusted for inflation) John D. Rockefeller’s Standard Oil was broken up by the federal government early in the 20th century.
Consider the players:
1) Apple—this company has nearly 200 billion dollars in cash. They are generating an additional several billion a month in free cash flow. Now, they want to get in to streaming content. They can lose several billion a year for a while and can play the long game. A year ago, I, along with other media observers, thought that Apple would be wise to purchase Netflix. Perhaps they are sorry that they did not. Since the beginning of 2018, Netflix shares have increased by 115% so the acquisition now would be far more costly and more risky.
2) Alphabet—for nearly 12 years, they have done little with their amazing YouTube platform. If they decide to go all in with streaming by creating content, they will be a formidable competitor very quickly.
3) Amazon—Jeff Bezos has a lot of irons in the fire but his 100 million plus Amazon Prime members gives Amazon a nice start in streaming. And, if you watch it, you will see that Amazon Prime video original content is getting better. Bezos is patient. Remember that Amazon was not consistently profitable for many years. As was true of Apple, Amazon can play the long game in streaming content if they choose to do so.
4) Facebook—The social media titan is losing a bit of luster with millennials but they have a huge global base and deep pockets to boot.
5) Disney—the “Mouse House” has a great deal of their own content and may indeed snare the Fox Studio and film library from Comcast’s clutches. They are planning their own streaming service and have great franchises such as Lucas Films (Star Wars), Marvel Entertainment and classic children’s fare. Perhaps they can shoehorn ESPN in to the package as well. Disney is a leader in global entertainment and has made few missteps over the years. If they price their streaming service well and package it up properly, they will be a force for sure.
6) Netflix—let me begin by saying that I love the service. I use it several times a week for their Netflix originals and, given my affection for classic films, I also re-watch a number of my favorites. One issue that I have with Netflix is that they are not spinning off much cash. Yes, they have tremendous loyalty and have become one of the world’s most valuable brands. But, they are spending a fortune on content. I have seen estimates of $8 billion dollars for calendar 2018 alone. When asked about it, talking heads on CNBC and Bloomberg have rationalized it by saying that they can easily issue more shares if they need more money. Okay, that is fine when a bull market is in progress but this one is getting long in the tooth. When will they get profitable and start delivering a boatload of free cash flow? Right now, their logarithm seems to have found a sweet spot for consumer likes and their original programming has surprised many of us with success after success. And, their global footprint is expanding much faster than the traditional media companies. Still, I think they are vulnerable and a sale last year to Apple might have been their ticket to immortality.
So, where does all this leave us? In the 40 plus years that I have been analyzing media properties, I have found that it has generally been a bad move to bet against Disney. Yet they do not have the borrowing power of an Apple, Alphabet, Amazon, or Facebook or the recent success of Netflix. Were this a simple fight with Netflix pitted against Disney, I would bet that once Disney made a complete commitment to streaming they would eventually win a very hard fought victory. But with all the FAANG’s involved, it is a whole new ballgame.
One good thing. As competition heats up, it will be great to be a consumer. We will get some really nice pricing on streaming venues over the next few years.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Wednesday, July 4, 2018
Is Legacy Media Really Tuscany in Disquise?
On September 8, 2001, I was reading the New York Times. Columnist Anthony Lewis wrote a wonderfully descriptive piece on his love of Italy’s Tuscany and Umbria regions. It reads in part—“The silvery olive groves, the fields of sunflowers, the vineyards, the stone houses and barns……….Italy is evidence that there is more to life—a civilized life—than the unregulated competition of the market. There are values of humanity, culture, beauty, community that may require deviations from the cold logic of market theory.” He went on to lament the growth of corporate farms and waxed poetic over the small agricultural units he saw in the those two beautiful Italian provinces. I got his point—there is more to life than turning a buck and sometimes we need a reminder about what is important and quality of life should generally outweigh scheming for income.
I remember actually clipping the article out (no convenient online folders for me then) and vowing to visit Italy soon. Three days later, the 9/11 tragedy struck and the article and its message was submerged by glaring headlines. Some years later, I found the hard copy of the article as I was preparing to move. A few years later, my wife and I and other family members visited both Tuscany and Umbria and loved them. Also, friends put us on to the beautiful walled city of Lucca where we spent some wonderful days. A return visit is definitely on our bucket list. One thing that I notice as a demographer was how old the areas were getting. Young people have gravitated to the bigger cities for job opportunities and those remaining tend to be quite old in many instances. So, the memorable lifestyle afforded in many of the villages that we visited was threatened as the low Italian birthrate was well below zero population growth (children needed to maintain a level population).
I bring this story up not to defend the free market system although I am normally happy to do it. Rather, as conventional media is dying in the U.S. and other Western nations, a part of our lifestyle is fading as well. I am especially referring to metropolitan newspapers and selected magazines. Today, some 40+% of Americans get their news from Facebook. Call me old fashioned but I like the New York Times, Wall Street Journal, and The Washington Post which require two or more sources on their fact-finding. Investigative journalism is still important in a free society but as legacy media withers it is largely disappearing unless the story is huge. I also like to ponder a TIME magazine essay now and then even though the news in the publication (now sadly very thin) is not a few hours old.
The immediacy that the internet and contemporary news sources provide has its place and will only get stronger. I, for one, still savor, however, the nuance and distance that the printed reports in some old line media still provide.
To all of my American readers who make up nearly 45% of the Media Realism audience, may I wish you a happy Independence Day!
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
I remember actually clipping the article out (no convenient online folders for me then) and vowing to visit Italy soon. Three days later, the 9/11 tragedy struck and the article and its message was submerged by glaring headlines. Some years later, I found the hard copy of the article as I was preparing to move. A few years later, my wife and I and other family members visited both Tuscany and Umbria and loved them. Also, friends put us on to the beautiful walled city of Lucca where we spent some wonderful days. A return visit is definitely on our bucket list. One thing that I notice as a demographer was how old the areas were getting. Young people have gravitated to the bigger cities for job opportunities and those remaining tend to be quite old in many instances. So, the memorable lifestyle afforded in many of the villages that we visited was threatened as the low Italian birthrate was well below zero population growth (children needed to maintain a level population).
I bring this story up not to defend the free market system although I am normally happy to do it. Rather, as conventional media is dying in the U.S. and other Western nations, a part of our lifestyle is fading as well. I am especially referring to metropolitan newspapers and selected magazines. Today, some 40+% of Americans get their news from Facebook. Call me old fashioned but I like the New York Times, Wall Street Journal, and The Washington Post which require two or more sources on their fact-finding. Investigative journalism is still important in a free society but as legacy media withers it is largely disappearing unless the story is huge. I also like to ponder a TIME magazine essay now and then even though the news in the publication (now sadly very thin) is not a few hours old.
The immediacy that the internet and contemporary news sources provide has its place and will only get stronger. I, for one, still savor, however, the nuance and distance that the printed reports in some old line media still provide.
To all of my American readers who make up nearly 45% of the Media Realism audience, may I wish you a happy Independence Day!
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Wednesday, June 27, 2018
Stranded Assets in Media?
Very recently, I had a conversation with a small market broadcaster. In a moment, you will see why I will not identify him nor his markets or whether he operates in TV or Radio.
He called me and said that his media company was struggling. He said essentially that his net worth was suffering from a case of STRANDED ASSETS. “Don, you probably do not know what that means”, he told me. “No, I know exactly what it means.” That was not good enough for him. He said that I needed to define it. I was not thrilled but rattled off a definition that any MBA would be proud to call his/her own. For you non-wonks, a stranded asset is “an asset that is worth less on the market than it is on a balance sheet due to the fact that it has effectively become obsolete in advance of complete depreciation."
In other words, my acquaintance has broadcast assets with a listed value but he knows they may never see the light of day in the real world if he wants to sell. And he does. He is getting older as we all are and thought that selling his properties would provide him with a platinum parachute in his golden years. This is somewhat analogous to several million people in 2008-2010 who were “underwater” on their mortgages. They owed more on their mortgages than they could sell their homes for. Some walked away, others went bankrupt, but many simply stayed put and dug themselves out of a huge hole over several years. The broadcaster appreciated the analogy but was clear that his small market properties would never bounce back as the real estate market has done to a certain degree.
We then went in to a lengthy and at times amusing conversation about how his bailout position may be a “greater fool”. The Greater Fool Theory is a an equity market term that is, in essence, a crazy idea. It is the opposite of the Graham/Dodd/Buffett/Munger approach of investing in the fundamentals of a company. When the greater fool theory is in evidence be if for a stock, a house or a business, the buyer knows that the price one is paying is unjustifiably high but the buyer does not care as he/she is convinced that the price of the asset is going up and fast. The speculator, I cannot stomach calling him an investor, sells when the asset pops up to another bozo whom we shall dub the greater fool. There have been greater fool purchases throughout my life and even in recent history particularly in the tech bubble and highly leveraged real estate.
The broadcaster talked at length and his candor was refreshing. He doubted he could rustle up a “greater fool” to buy his properties. I countered that just as everyone and his brother think that they can run a restaurant and most fail miserably, there has to be a small but passionate group who think that they could run a TV or Radio station profitably even in today’s environment. He thanked me for my time. Really, I think that all he wanted was someone to listen.
My caller is a survivor. I am confident that he will work his way through things somehow. Yet, what gnaws at me is how many others are out there in a similar boat in the media and advertising worlds? Are stranded assets a silent burden that many are carrying?
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.
He called me and said that his media company was struggling. He said essentially that his net worth was suffering from a case of STRANDED ASSETS. “Don, you probably do not know what that means”, he told me. “No, I know exactly what it means.” That was not good enough for him. He said that I needed to define it. I was not thrilled but rattled off a definition that any MBA would be proud to call his/her own. For you non-wonks, a stranded asset is “an asset that is worth less on the market than it is on a balance sheet due to the fact that it has effectively become obsolete in advance of complete depreciation."
In other words, my acquaintance has broadcast assets with a listed value but he knows they may never see the light of day in the real world if he wants to sell. And he does. He is getting older as we all are and thought that selling his properties would provide him with a platinum parachute in his golden years. This is somewhat analogous to several million people in 2008-2010 who were “underwater” on their mortgages. They owed more on their mortgages than they could sell their homes for. Some walked away, others went bankrupt, but many simply stayed put and dug themselves out of a huge hole over several years. The broadcaster appreciated the analogy but was clear that his small market properties would never bounce back as the real estate market has done to a certain degree.
We then went in to a lengthy and at times amusing conversation about how his bailout position may be a “greater fool”. The Greater Fool Theory is a an equity market term that is, in essence, a crazy idea. It is the opposite of the Graham/Dodd/Buffett/Munger approach of investing in the fundamentals of a company. When the greater fool theory is in evidence be if for a stock, a house or a business, the buyer knows that the price one is paying is unjustifiably high but the buyer does not care as he/she is convinced that the price of the asset is going up and fast. The speculator, I cannot stomach calling him an investor, sells when the asset pops up to another bozo whom we shall dub the greater fool. There have been greater fool purchases throughout my life and even in recent history particularly in the tech bubble and highly leveraged real estate.
The broadcaster talked at length and his candor was refreshing. He doubted he could rustle up a “greater fool” to buy his properties. I countered that just as everyone and his brother think that they can run a restaurant and most fail miserably, there has to be a small but passionate group who think that they could run a TV or Radio station profitably even in today’s environment. He thanked me for my time. Really, I think that all he wanted was someone to listen.
My caller is a survivor. I am confident that he will work his way through things somehow. Yet, what gnaws at me is how many others are out there in a similar boat in the media and advertising worlds? Are stranded assets a silent burden that many are carrying?
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.
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