A few weeks ago I put up a post asking if any streaming service could catch Netflix. Most respondents said no and agreed with me that Netflix had a commanding lead in the streaming space. A few said that Disney’s new service and Amazon Prime Video would chip away at the lead that Netflix has and a few mentioned Apple getting in to the game as well. One topic that I alluded to in the earlier piece was not mentioned by anyone—Netflix is a powerhouse outside of the U.S. Depending on the estimates that you look at, Netflix has somewhere between 140 and 160 million subscribers. Last year, for the first time, Netflix had more non-US subscribers than domestic ones and their growth is largely overseas as move through 2019. Netflix now is available in 190 countries. They are licensing or producing hundreds of programs in many languages and their knowledge of what viewers like in different cultures is getting stronger by the day thanks to their shrewd use of Big Data.
When people tell me that Amazon will soon catch up, I can only smile. Amazon is a superb on line retailer and will be tough competition at some point for sure. Yet, keep this in mind. Netflix does basically one thing—providing programming. Amazon operates globally as well and many perceive Amazon Prime Video as a free service as it is embedded in an Amazon Prime subscription. The rub is that Netflix can deliver their service to virtually anyone, anywhere who has high speed internet. Amazon Prime operates globally but does not deliver to every podunk village in the world. The costs of delivery would be prohibitive at present and many overseas customers cannot afford a prime subscription. They would have to spin off Amazon Prime Video or make it available freestanding to go head to head with Netflix. It would take years to be a viable GLOBAL competitor to Netflix. Disney needs to crawl and then walk with Disney + before traveling abroad with the service. So, the head start that Netflix has appears to give them an advantage that could protect them for several years which is a lifetime in today’s tech world.
So, is Netflix completely safe? I see one little known (in the U.S) but viable player out there who could possibly upset Netflix’ global juggernaut. We have all heard of the BAT’s in China. Baidu is the Google of China, Alibaba is the Amazon of China, and TenCent is the gaming giant of China. A fourth player is iQIYI (pronounced eye-chee-yee) which is rapidly being nicknamed by securities analysts as the Netflix of China. iQIYI is a bit different than Netflix in that it has free content with advertising plus a subscription service that others use. The subscription video service now has 80 million subscribers and is growing. iQIYI has the same cost issue that Netflix has in that it is expensive to produce original programming. Also, Alibaba and TenCent have a minor entry in streaming video at present which could grow.
A few rumors exist that say that iQIYI may move beyond China’s borders. This could put a crimp in Netflix growth especially in many Asian countries. FYI, iQIYI now trades on the New York Stock Exchange under the symbol IQ (not a recommendation but you may want to read their annual report as I did).
This is what I love about the free market. When some company appears set, they find that their competitive advantage is not sustaining for long. So, even mighty Netflix has to stay innovative and run a bit scared. To date, they have done a fine job of it.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Sunday, February 24, 2019
Tuesday, February 19, 2019
Media in the Next Recession
The last recession in the United States has been projected to have occurred from December, 2007 to June, 2009 (Federal Reserve estimate). Some may argue a month or two on either side but most would agree that those dates are very close to real. Now, with a volatile stock market and recent weak retail numbers, some are calling for the next recession to occur late this year. Others say 2020 or even 2021. Economist Paul Samuelson who wrote the textbook that many of you had in Economics 101 was a winner of the Nobel Prize in Economic Sciences. He had a sharp wit and once said, “the stock market has forecast nine of the last five recessions.” So, no one really knows when it will occur but virtually all agree that this recovery is getting quite long in the tooth and that a recession is inevitable. Yet, it could be six months away or several years from now.
Several readers have asked me what will happen to the media world the next time the United States economy plunges into a recession. I stress that I, like most, have no idea when the downturn will hit. Also, I have based my forecast below on the assumption that the next recession will be a “garden variety” recession and not something mirroring the 2008 debacle that was the worst that we had experienced since 1933.
With no more disclaimers, here goes:
1) Newspaper—this once mighty medium has been in decline for two decades. We project that more titles will go under and a handful will successfully make the transition to digital only delivery. The Wall Street Journal, New York Times, and The Washington Post will survive but earnings will be hurt. Also harmful will be the lack of investigative journalism done in mid-sized markets. Crooked mayors and city councils will sometimes escape needed scrutiny.
2) Magazine—many long time titles will disappear but a handful will buck the trend and, a few, such as COSMOPOLITAN and VANITY FAIR may prance through the media bear market smiling.
3) Radio—young people will continue to avoid their once favorite medium of two generations ago. There will be consolidation but revenue growth will be nil. Sports and political talk will have their niches but it will be tough. Small market players will suffer a great deal.
4) Outdoor—the last authentic mass medium is not going anywhere but prices may get more realistic. Watch for boards staying up a long time with the same message or PSA billboards (especially Smokey the Bear). A sure indicator that the market is soft.
5) Cable—this one is a stick of dynamite. Some tell me that cable can go thru the next downturn relatively unscathed as TV will be many people’s only meaningful entertainment option. I respectfully disagree. When things get tight next time, many young adults will want to meet their college loan payments. Cutting the cord on cable can save them $100-120 over month in many cases. They can still get their video for less with Netflix, Hulu+, Amazon Prime Video, Freestanding HBO and ESPN, and the new Disney +. A few other players may enter the streaming game before the recession hits. People can cobble together a package of streaming options for a fraction of what they now pay for cable. Also, we see a real sleeper out there that does not get mentioned much. You Tube! It is free but has a tremendous amount of content. People who have an internet connection and are really strapped for cash will gravitate there. When I visit my county library each week, I see dozens of people at the free terminals watching You Tube. Sadly, all appear to be really down on their luck. You Tube is a great comfort to them. Cable will try and hold people with more attractive “Trifecta” packages of Phone, Internet and Cable access but I see a significant loss if unemployment really jumps.
6) TV—some have written to me stating that local TV will have a renaissance if cable gets hit. Maybe a bit in terms of viewing and it is clear that several million folks have purchased antennas to get local station reception in recent years. Yet, advertising will not be vibrant in local TV. Network TV may still have the “upfront” cavalry charge in spring but it will be muted and could be the last one.
7) On line and Social Media—continued growth but at a slower pace than presently.
To stress again, I do not know when the next recession will rear its ugly head. When it does, some long time players will be hurt and a surprising number of time honored media vehicles will go down for the count.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Several readers have asked me what will happen to the media world the next time the United States economy plunges into a recession. I stress that I, like most, have no idea when the downturn will hit. Also, I have based my forecast below on the assumption that the next recession will be a “garden variety” recession and not something mirroring the 2008 debacle that was the worst that we had experienced since 1933.
With no more disclaimers, here goes:
1) Newspaper—this once mighty medium has been in decline for two decades. We project that more titles will go under and a handful will successfully make the transition to digital only delivery. The Wall Street Journal, New York Times, and The Washington Post will survive but earnings will be hurt. Also harmful will be the lack of investigative journalism done in mid-sized markets. Crooked mayors and city councils will sometimes escape needed scrutiny.
2) Magazine—many long time titles will disappear but a handful will buck the trend and, a few, such as COSMOPOLITAN and VANITY FAIR may prance through the media bear market smiling.
3) Radio—young people will continue to avoid their once favorite medium of two generations ago. There will be consolidation but revenue growth will be nil. Sports and political talk will have their niches but it will be tough. Small market players will suffer a great deal.
4) Outdoor—the last authentic mass medium is not going anywhere but prices may get more realistic. Watch for boards staying up a long time with the same message or PSA billboards (especially Smokey the Bear). A sure indicator that the market is soft.
5) Cable—this one is a stick of dynamite. Some tell me that cable can go thru the next downturn relatively unscathed as TV will be many people’s only meaningful entertainment option. I respectfully disagree. When things get tight next time, many young adults will want to meet their college loan payments. Cutting the cord on cable can save them $100-120 over month in many cases. They can still get their video for less with Netflix, Hulu+, Amazon Prime Video, Freestanding HBO and ESPN, and the new Disney +. A few other players may enter the streaming game before the recession hits. People can cobble together a package of streaming options for a fraction of what they now pay for cable. Also, we see a real sleeper out there that does not get mentioned much. You Tube! It is free but has a tremendous amount of content. People who have an internet connection and are really strapped for cash will gravitate there. When I visit my county library each week, I see dozens of people at the free terminals watching You Tube. Sadly, all appear to be really down on their luck. You Tube is a great comfort to them. Cable will try and hold people with more attractive “Trifecta” packages of Phone, Internet and Cable access but I see a significant loss if unemployment really jumps.
6) TV—some have written to me stating that local TV will have a renaissance if cable gets hit. Maybe a bit in terms of viewing and it is clear that several million folks have purchased antennas to get local station reception in recent years. Yet, advertising will not be vibrant in local TV. Network TV may still have the “upfront” cavalry charge in spring but it will be muted and could be the last one.
7) On line and Social Media—continued growth but at a slower pace than presently.
To stress again, I do not know when the next recession will rear its ugly head. When it does, some long time players will be hurt and a surprising number of time honored media vehicles will go down for the count.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Monday, February 11, 2019
Can Any Competitor Catch Netflix?
In recent weeks, we have read and heard a great deal about the coming battle ahead in streaming video. All types of media players seem to be gunning for Netflix with the biggest players being Disney, Comcast, Amazon, and possibly Apple and Facebook. Legacy players are realizing that “direct to consumer” will be the new mantra and a wide number of entities are trying to position themselves for survival . New entrants such as Apple and Facebook see opportunity.
The question that is rarely addressed is has Netflix already won the direct to consumer war? They are truly global and have approximately 140 million subscribers worldwide and they have granular data about what their subscribers want and like and can produce programming accordingly. Even though some of the prospective competition have deep pockets, Netflix has a commanding lead. One that has surprised me in growth or lack of it is Amazon Prime Video. The service, Amazon Prime Video, comes included in an Amazon Prime subscription. Admittedly, this is anecdotal but I have been surprised with the reaction of people in recent weeks re the Amazon streaming service. When I asked people if they watch it, some say, “No, I do not subscribe.” When I follow up with do you use Amazon Prime, I can receive an indignant, “Of course.” It appears that some do not realize that it comes as a part of the Prime subscription. A few young adults have told me that they are so far behind on Netflix, they cannot deal with another service at present even if they have access at no additional cost. It seems as if Amazon has not done a great job of promoting Amazon Prime Video to Amazon Prime members. Also, speaking personally, their content seems stronger than a year ago with many fine original series.
Disney gets the most press about their new entry for 2019, Disney+. They would have to be considered formidable given their great track record, seven movie studios and ownership of ESPN. Also, ESPN+ seems to be off to a successful start. Additionally, all Disney content will be removed from Netflix when the Disney streaming service launches. Bob Iger, Disney Chairman, reiterated his commitment to direct to consumer in a recent investor conference call.
On January 18, 2019 there was an excellent interview on CNBC with Kay Koplovitz, founder of USA Neworks and Tom Rogers, former CEO of TiVo and CNBC founder. Both said Netflix was sitting pretty and had a commanding lead over competition. Tom Rogers also raised the fascinating thought that legacy companies such as NBC, CBS and Disney had to develop a new business (streaming video) as they simultaneously oversaw and managed the decline of their existing media (ad supported) business (Interview is available on You Tube).
Finally, Netflix is near the top of the list on having the most loyal customers according to research firm Second Measure. Some 80% of their subscribers only buy Netflix and no other direct to consumer service.
So, is it all clear for Netflix? Not so fast. Netflix still is not a great money maker. They are spending $18 billion this year on developing new programming which is a staggering amount of money for a one trick pony that is largely reliant on subscriptions for income. Apple, Disney, and Amazon all have very deep pockets and can play a long game losing money for years as they gain share. When I brought this up with someone recently, he called me an “old mossback”, telling me that I did not remember how Amazon lost money for years but Wall Street was happy as long as sales growth continued. I agreed but see Netflix as much smaller and with limited upside relative to Amazon.
What could save Netflix over the long pull from financial problems? My best thinking is that Apple or Microsoft could buy them and both would be decent fits. I would not be surprised if Apple has not wished they purchased them 18-24 months ago.
The fun is about to begin. Does Netflix have a prohibitively large head start? Time will tell.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.
The question that is rarely addressed is has Netflix already won the direct to consumer war? They are truly global and have approximately 140 million subscribers worldwide and they have granular data about what their subscribers want and like and can produce programming accordingly. Even though some of the prospective competition have deep pockets, Netflix has a commanding lead. One that has surprised me in growth or lack of it is Amazon Prime Video. The service, Amazon Prime Video, comes included in an Amazon Prime subscription. Admittedly, this is anecdotal but I have been surprised with the reaction of people in recent weeks re the Amazon streaming service. When I asked people if they watch it, some say, “No, I do not subscribe.” When I follow up with do you use Amazon Prime, I can receive an indignant, “Of course.” It appears that some do not realize that it comes as a part of the Prime subscription. A few young adults have told me that they are so far behind on Netflix, they cannot deal with another service at present even if they have access at no additional cost. It seems as if Amazon has not done a great job of promoting Amazon Prime Video to Amazon Prime members. Also, speaking personally, their content seems stronger than a year ago with many fine original series.
Disney gets the most press about their new entry for 2019, Disney+. They would have to be considered formidable given their great track record, seven movie studios and ownership of ESPN. Also, ESPN+ seems to be off to a successful start. Additionally, all Disney content will be removed from Netflix when the Disney streaming service launches. Bob Iger, Disney Chairman, reiterated his commitment to direct to consumer in a recent investor conference call.
On January 18, 2019 there was an excellent interview on CNBC with Kay Koplovitz, founder of USA Neworks and Tom Rogers, former CEO of TiVo and CNBC founder. Both said Netflix was sitting pretty and had a commanding lead over competition. Tom Rogers also raised the fascinating thought that legacy companies such as NBC, CBS and Disney had to develop a new business (streaming video) as they simultaneously oversaw and managed the decline of their existing media (ad supported) business (Interview is available on You Tube).
Finally, Netflix is near the top of the list on having the most loyal customers according to research firm Second Measure. Some 80% of their subscribers only buy Netflix and no other direct to consumer service.
So, is it all clear for Netflix? Not so fast. Netflix still is not a great money maker. They are spending $18 billion this year on developing new programming which is a staggering amount of money for a one trick pony that is largely reliant on subscriptions for income. Apple, Disney, and Amazon all have very deep pockets and can play a long game losing money for years as they gain share. When I brought this up with someone recently, he called me an “old mossback”, telling me that I did not remember how Amazon lost money for years but Wall Street was happy as long as sales growth continued. I agreed but see Netflix as much smaller and with limited upside relative to Amazon.
What could save Netflix over the long pull from financial problems? My best thinking is that Apple or Microsoft could buy them and both would be decent fits. I would not be surprised if Apple has not wished they purchased them 18-24 months ago.
The fun is about to begin. Does Netflix have a prohibitively large head start? Time will tell.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com or leave a message on the blog.
Wednesday, January 30, 2019
NBC Ad Supported Streaming Service
On January 14th, 2019, NBC Universal, a division of Comcast, announced that it had plans to launch an AD SUPPORTED streaming TV service sometime in the first quarter of 2020. They made it clear that it would be free to subscribers of traditional TV services such as Comcast, and had plans to include it for free even to competitors such as Charter, AT&T, Cox and Dish.
There will be over 1500 hours of NBC programming available along with Universal movies and some new and sports as well. If you are a non-subscriber to any of the services mentioned above, there will be a charge of approximately $12 per month for content. Also, they have stated that they have no plans to withdraw existing content from Netflix or other streaming services.
Importantly, they are bullish on the ad revenue that the service can pull in and stress that it will only have up to four minutes per hour of advertising.
When I sent this information out to key members of the Media Realism panel, I received a remarkably consistent response—“why are they bothering with this?” Admittedly, many worked for entities competitive to Comcast.
The streaming space will soon become more crowded with Disney planning a major league launch later this year. Apple and Facebook have more than hinted at it as well. What will NBC streaming have that will differentiate it so much from other horses in the race? The other fly in the ointment that I discreetly put in caps above is that the service will be ad supported. A big part of the appeal of Netflix, Amazon Prime Video, HBO, and Hulu+ is that they are commercial free. Will people really ante up $12 per month for a lighter commercial load just to get NBC fare? I realize that they, as all major media companies, have many smart people on staff, but no one has told me nor can I personally see great potential for this service.
Many young people whom I speak to hate commercial interruptions and have been spoiled by Netflix and Amazon Prime Video. Several have told me that they will never subscribe to an ad supported content provider. Others have told me that they have bought antennas, cancelled basic cable and use a blend of over the air TV via rabbit ears or antenna plus a streaming service or two. Others complain that they have kept cable and have Netflix but are questioning keeping cable as they monitor how much of their viewing is now on advertising free streaming venues. Also, a la carte streaming fees will begin to add up if you have four or five.
If you could explain to me and my panel members why the NBC Ad Supported streaming service is likely to get traction, we would love to hear from you.
Should you wish to contact Don Cole directly, you can reach him at doncolemedia@gmail.com or leave a message on the blog.
There will be over 1500 hours of NBC programming available along with Universal movies and some new and sports as well. If you are a non-subscriber to any of the services mentioned above, there will be a charge of approximately $12 per month for content. Also, they have stated that they have no plans to withdraw existing content from Netflix or other streaming services.
Importantly, they are bullish on the ad revenue that the service can pull in and stress that it will only have up to four minutes per hour of advertising.
When I sent this information out to key members of the Media Realism panel, I received a remarkably consistent response—“why are they bothering with this?” Admittedly, many worked for entities competitive to Comcast.
The streaming space will soon become more crowded with Disney planning a major league launch later this year. Apple and Facebook have more than hinted at it as well. What will NBC streaming have that will differentiate it so much from other horses in the race? The other fly in the ointment that I discreetly put in caps above is that the service will be ad supported. A big part of the appeal of Netflix, Amazon Prime Video, HBO, and Hulu+ is that they are commercial free. Will people really ante up $12 per month for a lighter commercial load just to get NBC fare? I realize that they, as all major media companies, have many smart people on staff, but no one has told me nor can I personally see great potential for this service.
Many young people whom I speak to hate commercial interruptions and have been spoiled by Netflix and Amazon Prime Video. Several have told me that they will never subscribe to an ad supported content provider. Others have told me that they have bought antennas, cancelled basic cable and use a blend of over the air TV via rabbit ears or antenna plus a streaming service or two. Others complain that they have kept cable and have Netflix but are questioning keeping cable as they monitor how much of their viewing is now on advertising free streaming venues. Also, a la carte streaming fees will begin to add up if you have four or five.
If you could explain to me and my panel members why the NBC Ad Supported streaming service is likely to get traction, we would love to hear from you.
Should you wish to contact Don Cole directly, you can reach him at doncolemedia@gmail.com or leave a message on the blog.
Saturday, January 19, 2019
Jack Bogle, RIP
Over my life, I have not had many heroes. As I child in southern New England, Ted Williams of the Red Sox and Bob Cousy of the Boston Celtics certainly made the cut. When I began a golfer at age eight, I read about the history of the game voraciously. I wrote to both Bob Jones and Sam Snead for autographs and both responded within a week. In politics, there were none although I liked parts of what many people said and did very much. In economics, Nobel laureate Friedrich Hayek made the cut and in my personal life, two people who will go nameless will always be my heroes. In the business world, only one man stands out.
John C. “Jack” Bogle was the founder of the Vanguard group of mutual funds. Although he did not invent the index fund per se, he certainly popularized it. Jack preached the gospel of low cost investments. It is not exaggeration to say that people who invested in low cost index funds with Vanguard directly, often paid 1/20 of what others did with financial planners or some mutual funds. Over the years, as index funds flourished the industry was forced to lower their fees to stay competitive with Vanguard.
Jack lived to be 89 years old, the last 33 as a heart transplant recipient. He never lost his edge, his candor or sense of humor. The author of 10 books, he was busy until the end. I have read nine of his publications and would highly recommend his THE LITTLE BOOK OF COMMON SENSE INVESTING (John Wiley & Sons). It explains his philosophy with great clarity. Essentially, you are told to buy the entire market with an index fund, get low fees, and stay the course. Over the years, you will do very well as the economy grows. Channeling Miquel Cervantes of Don Quixote fame, he said, “Don’t look for the needle—buy the haystack.” Most of us rely on hot tips or waste our lives trying to find the next Google, Amazon, or Microsoft. Jack seemed to be saying buy an index fund, add to it through thick and thin and get on with your life.
To me, his best book was an amazing tome entitled, THE BATTLE FOR THE SOUL OF CAPITALISM (Yale University Press, 2005). It is a tour de force as it explains how small investors are often duped by financial salespeople and how many companies, especially multi-nationals, often “cook the books” with sophisticated accounting tricks. If you are serious about making money and keeping it, this is a must read.
Vanguard became so popular and index investing so prevalent that many modest investors were surprised to find themselves millionaires. They formed clubs locally and called themselves “Bogleheads”. Guess whom they would invite to be their guest speaker at their annual soirees? Even Warren Buffett conceded that Jack Bogle helped more people achieve financial independence than anyone in the U.S. Buffett recommends that almost all people should use index funds.
Someone once told me that they admired Bogle but that index funds were not really investing. I saw his point in the sense that there was not careful analysis of balance sheets, demographic or societal trends that many of us wonks go through when evaluating places to park our money. Yet, the success over the decades has been amazing with Bogle admitting that much of it is due to the low cost that his (and now other) index funds charge for their services. One might also say that with an index fund you do not “overthink” it. My only beef with Bogle was that he was not a fan of international investing. It is a big world out there and much future growth will come from non-U.S. companies (admittedly, many large US companies have a huge international presence).
Jack was consistent year after year. He stayed the course and never wavered. His approach required consistency, courage and patience. He once was quoted as saying “Time makes more converts than reason.”
There was only one Jack Bogle. The world needs a handful of men and women like him very badly.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
John C. “Jack” Bogle was the founder of the Vanguard group of mutual funds. Although he did not invent the index fund per se, he certainly popularized it. Jack preached the gospel of low cost investments. It is not exaggeration to say that people who invested in low cost index funds with Vanguard directly, often paid 1/20 of what others did with financial planners or some mutual funds. Over the years, as index funds flourished the industry was forced to lower their fees to stay competitive with Vanguard.
Jack lived to be 89 years old, the last 33 as a heart transplant recipient. He never lost his edge, his candor or sense of humor. The author of 10 books, he was busy until the end. I have read nine of his publications and would highly recommend his THE LITTLE BOOK OF COMMON SENSE INVESTING (John Wiley & Sons). It explains his philosophy with great clarity. Essentially, you are told to buy the entire market with an index fund, get low fees, and stay the course. Over the years, you will do very well as the economy grows. Channeling Miquel Cervantes of Don Quixote fame, he said, “Don’t look for the needle—buy the haystack.” Most of us rely on hot tips or waste our lives trying to find the next Google, Amazon, or Microsoft. Jack seemed to be saying buy an index fund, add to it through thick and thin and get on with your life.
To me, his best book was an amazing tome entitled, THE BATTLE FOR THE SOUL OF CAPITALISM (Yale University Press, 2005). It is a tour de force as it explains how small investors are often duped by financial salespeople and how many companies, especially multi-nationals, often “cook the books” with sophisticated accounting tricks. If you are serious about making money and keeping it, this is a must read.
Vanguard became so popular and index investing so prevalent that many modest investors were surprised to find themselves millionaires. They formed clubs locally and called themselves “Bogleheads”. Guess whom they would invite to be their guest speaker at their annual soirees? Even Warren Buffett conceded that Jack Bogle helped more people achieve financial independence than anyone in the U.S. Buffett recommends that almost all people should use index funds.
Someone once told me that they admired Bogle but that index funds were not really investing. I saw his point in the sense that there was not careful analysis of balance sheets, demographic or societal trends that many of us wonks go through when evaluating places to park our money. Yet, the success over the decades has been amazing with Bogle admitting that much of it is due to the low cost that his (and now other) index funds charge for their services. One might also say that with an index fund you do not “overthink” it. My only beef with Bogle was that he was not a fan of international investing. It is a big world out there and much future growth will come from non-U.S. companies (admittedly, many large US companies have a huge international presence).
Jack was consistent year after year. He stayed the course and never wavered. His approach required consistency, courage and patience. He once was quoted as saying “Time makes more converts than reason.”
There was only one Jack Bogle. The world needs a handful of men and women like him very badly.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Monday, January 14, 2019
The Upside of Inequality
Last October 25th, I put up a post entitled “Income Inequality”. It generated pretty good readership as well as quite a few comments to me. There was little disagreement with my post. One long time MR reader surprised me, however. He dared me to read a book entitled THE UPSIDE OF INEQUALITY, How good intentions undermine the middle class, by Edward Conrad (Penguin, 2016). It author, Edward Conrad, was an original partner at Bain Capital (of Mitt Romney fame) and now is a visiting scholar at the American Enterprise Institute. His e-mail to me was not strident but he challenged me as I have said more than once in MR that I make a regular practice of reading material that I generally disagree with simply to question and test my currently held beliefs. His approach was a brilliant piece of mind-manipulating gamesmanship. How could I not read the book as I said reading opposing opinions had been my method of operation for decades?
Hence this post.
The book is not an emotional diatribe at all. If any, to use Federal Reserve speak, it is almost entirely data-driven. What I did like about it was that he mouthed the same top line statistics that one sees and hears across all major media but then he dug deeper with a special emphasis on the demographics. He truly proved that one can drown in a river with an average depth of six inches. In the introduction, he states: “If you take nothing else away from this book, I want you to remember this: Higher payoffs for success increase the supply of properly trained talent, and these higher payoffs motivate innovators, entrepreneurs, and investors to take risks. These two effects loosen the current constraints on growth, which frees the economy to grow faster.”
He then goes on to make a spirited defense of the 1% in American society. The argument is not new but he argues that the super wealthy, even after taxes, do not spend a large part of their incomes. After taxes and charity (which can be substantial among the 1% and especially the .1 of 1%), they reinvest a great deal of their income. This stimulates growth and creates jobs. Those who are fans of income distribution do not seem to grasp that basic truth according to Conrad. He is kind to immigrants and is especially fond of the approach that Canada has taken in recent years of recruiting ultra-high-skilled young people as a way to accelerate economic growth.
Do I buy the whole story? His arguments are well reasoned but he makes one big error in my view. Conrad states that if we raise taxes on the 1% they will not be incentivized nearly as much as now. Observing some very wealthy people over my fairly long life, I beg to differ. Serious financial players tend to love “the game.” Yes, if taxes became confiscatory (60-70%) as a few are now touting, some may slow down or vote with their feet and leave America. I feel it would take a lot to really kill incentives among the Uber-rich. Even modest private investors including myself, enjoy the action and would not walk away from it unless the tax bite and regulations became extremely draconian.
He also makes no mention of possible class warfare or civil unrest if income inequality continues to grow. Again, most of his comments are interpretations of real data that is carefully researched so sociological prognostication does not find its way in to the text.
His admiration for entrepreneurs is sincere. What I really like is that he did not sugar coat the process. Most will fail and, especially in tech, the payoff to those who succeed will often generate a lottery sized windfall. These innovators will trigger significant growth. So, in essence, he is saying that by leaving the 1% alone, we can lift many up in our society as their investments in innovative ideas and technologies will create new jobs, new industries and wealth. Also, to his credit, he admits that crony capitalism does exist in our society but those with connections are hurting growth by using their political influence to keep the playing field anything but level.
Most of us would agree that in a free market society there will always be income inequality. As I have written before in MR, some people work harder, some are smarter, some are luckier than most of us and some are unknowingly well positioned just as their industry is leaving the station. He clearly agrees with this and also takes on current French economic icon Thomas Piketty whose CAPITAL IN THE TWENTY-FIRST CENTURY a few years back was a clarion call for aggressive income distribution. Piketty attacked the wealthy saying much of their income came from passive income (dividends, bond interest, rents). Well, where did the money come from to generate the income? From savings. We all know a number of well off mature people who live largely on dividend income. They are not the idle rich a la the British aristocracy in the 19th century. They worked hard, saved, and invested.
As I mentioned, I do not buy his entire thesis. Inequality is growing which concerns me. Yet Conrad states his case with careful statistics and inarguable demographic data. Do I blame the media for not reporting on this topic in detail? Not really. We live in a world of 30 second sound bites, and, sadly, tweets. How do you cover a topic as involved as this for mass consumption?
I thank my reader for challenging me to read THE UPSIDE OF INEQUALITY. The book did not sway me completely but it made me think. You cannot ask for more.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Hence this post.
The book is not an emotional diatribe at all. If any, to use Federal Reserve speak, it is almost entirely data-driven. What I did like about it was that he mouthed the same top line statistics that one sees and hears across all major media but then he dug deeper with a special emphasis on the demographics. He truly proved that one can drown in a river with an average depth of six inches. In the introduction, he states: “If you take nothing else away from this book, I want you to remember this: Higher payoffs for success increase the supply of properly trained talent, and these higher payoffs motivate innovators, entrepreneurs, and investors to take risks. These two effects loosen the current constraints on growth, which frees the economy to grow faster.”
He then goes on to make a spirited defense of the 1% in American society. The argument is not new but he argues that the super wealthy, even after taxes, do not spend a large part of their incomes. After taxes and charity (which can be substantial among the 1% and especially the .1 of 1%), they reinvest a great deal of their income. This stimulates growth and creates jobs. Those who are fans of income distribution do not seem to grasp that basic truth according to Conrad. He is kind to immigrants and is especially fond of the approach that Canada has taken in recent years of recruiting ultra-high-skilled young people as a way to accelerate economic growth.
Do I buy the whole story? His arguments are well reasoned but he makes one big error in my view. Conrad states that if we raise taxes on the 1% they will not be incentivized nearly as much as now. Observing some very wealthy people over my fairly long life, I beg to differ. Serious financial players tend to love “the game.” Yes, if taxes became confiscatory (60-70%) as a few are now touting, some may slow down or vote with their feet and leave America. I feel it would take a lot to really kill incentives among the Uber-rich. Even modest private investors including myself, enjoy the action and would not walk away from it unless the tax bite and regulations became extremely draconian.
He also makes no mention of possible class warfare or civil unrest if income inequality continues to grow. Again, most of his comments are interpretations of real data that is carefully researched so sociological prognostication does not find its way in to the text.
His admiration for entrepreneurs is sincere. What I really like is that he did not sugar coat the process. Most will fail and, especially in tech, the payoff to those who succeed will often generate a lottery sized windfall. These innovators will trigger significant growth. So, in essence, he is saying that by leaving the 1% alone, we can lift many up in our society as their investments in innovative ideas and technologies will create new jobs, new industries and wealth. Also, to his credit, he admits that crony capitalism does exist in our society but those with connections are hurting growth by using their political influence to keep the playing field anything but level.
Most of us would agree that in a free market society there will always be income inequality. As I have written before in MR, some people work harder, some are smarter, some are luckier than most of us and some are unknowingly well positioned just as their industry is leaving the station. He clearly agrees with this and also takes on current French economic icon Thomas Piketty whose CAPITAL IN THE TWENTY-FIRST CENTURY a few years back was a clarion call for aggressive income distribution. Piketty attacked the wealthy saying much of their income came from passive income (dividends, bond interest, rents). Well, where did the money come from to generate the income? From savings. We all know a number of well off mature people who live largely on dividend income. They are not the idle rich a la the British aristocracy in the 19th century. They worked hard, saved, and invested.
As I mentioned, I do not buy his entire thesis. Inequality is growing which concerns me. Yet Conrad states his case with careful statistics and inarguable demographic data. Do I blame the media for not reporting on this topic in detail? Not really. We live in a world of 30 second sound bites, and, sadly, tweets. How do you cover a topic as involved as this for mass consumption?
I thank my reader for challenging me to read THE UPSIDE OF INEQUALITY. The book did not sway me completely but it made me think. You cannot ask for more.
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
Wednesday, January 2, 2019
Advanced TV and Reach & Frequency
Over the last several weeks a few readers and two members of the Media Realism (MR) panel, have asked me to weigh in on Advanced TV and OTT (Over the Top) TV. There is not much that I could add to the current discussion but then, like the Disneyesque bolt out of the blue, came a request from an enthusiastic and erudite MR reader to discuss these growing “TV” options in terms of performance estimates (Reach & Frequency) and frequency distribution patterns. Those questions were centered directly in my wheelhouse—hence this post.
To refresh you memory, or if you are no longer active in the broadcast/advertising game, let us define terms for a moment. Advanced TV is really an umbrella term. It encompasses all forms of TV not included through a broadcast, cable or satellite connection. Over the Top (Ott) is placed by many under the same large umbrella and is video provided over the internet.
Okay, what does this mean? Well, several readers have e-mailed or called me saying how Advanced TV advertising has helped them. Great! You can reach cord-cutters or cord-nevers not reached by cable or satellite and the handful that have no conventional TV of any kind. There is a basic problem to me with this. Clearly, you pick up more viewers to your advertising by going this route. BUT, do the same rules apply as with conventional TV, cable, and satellite? What is the level of viewer attentiveness? I have struggled with this for more than 40 years and felt like some sort of pariah for telling the absolute truth. Way back in the 1970’s, we told people that we REACHED 90+ % of the target with our TV campaigns. Did we really? The issue to me was always that even the best models at the time only provided EXPOSURE OPPORTUNITIES not verifiable delivery. By the late 80’s, unless you were speaking at an annual sales meeting to rally the troops, you avoided saying that reach was in the stratosphere (Reach is the percentage of your target audience exposed to the message and frequency is, of those “reached”, how many times were they able to see the message).
Today, the issue has become far more extreme with advertising avoidance at an all time high. When people watch TV today or any video format for that matter, many have another device going. If you are young, the odds are overwhelming that a Smartphone or Laptop or Tablet is in use and gets special attention during commercial breaks. So, providing performance estimates (i.e, reach & frequency) was always a dicey game at best but now wildly overstates real world delivery. So while Advanced TV does help an advertiser pick up new prospects, never forget that viewing via streaming options still has commercial attentiveness issues that are very real.
The second topic brought to me was the integration of the delivery between conventional TV and Advanced TV. My honest answer is that I am clueless regarding how to integrate the two to come up with a reasonably reliable reach projection. Additionally, it seems anecdotally that there is a greater chance for advertising wear out with Advanced TV as it is not monitored as closely as is over the air or cable rotations. That leads to the last issue which is the integration of the frequency distributions of conventional and Advanced TV campaign delivery. To date, I have asked quite a bit but no one seems to have captured this with much precision. Where you can, response is always a nice indicator. Reach & frequency projections to me were always overstated and, in recent years, often wildly exaggerated, but trying to blend the frequency distributions of the two types of TV in today’s world seems way above every analyst’s pay grade at this point (A frequency distribution is how many people were exposed to the message 1+, 2+, 3+, 12+ times, etc).
Is this an arcane discussion? Absolutely. Yet, how are most people determining the right mix of conventional and Advanced? Right now, it seems to be trial and error and far more art than science.
Welcome to 2019! I hope the year is prosperous for all of us. Also, I want to thank the MR readers from all over the world. At present, some 54% of readers are based outside of the United States with particularly strong growth in Western Europe during 2018. Welcome!
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
To refresh you memory, or if you are no longer active in the broadcast/advertising game, let us define terms for a moment. Advanced TV is really an umbrella term. It encompasses all forms of TV not included through a broadcast, cable or satellite connection. Over the Top (Ott) is placed by many under the same large umbrella and is video provided over the internet.
Okay, what does this mean? Well, several readers have e-mailed or called me saying how Advanced TV advertising has helped them. Great! You can reach cord-cutters or cord-nevers not reached by cable or satellite and the handful that have no conventional TV of any kind. There is a basic problem to me with this. Clearly, you pick up more viewers to your advertising by going this route. BUT, do the same rules apply as with conventional TV, cable, and satellite? What is the level of viewer attentiveness? I have struggled with this for more than 40 years and felt like some sort of pariah for telling the absolute truth. Way back in the 1970’s, we told people that we REACHED 90+ % of the target with our TV campaigns. Did we really? The issue to me was always that even the best models at the time only provided EXPOSURE OPPORTUNITIES not verifiable delivery. By the late 80’s, unless you were speaking at an annual sales meeting to rally the troops, you avoided saying that reach was in the stratosphere (Reach is the percentage of your target audience exposed to the message and frequency is, of those “reached”, how many times were they able to see the message).
Today, the issue has become far more extreme with advertising avoidance at an all time high. When people watch TV today or any video format for that matter, many have another device going. If you are young, the odds are overwhelming that a Smartphone or Laptop or Tablet is in use and gets special attention during commercial breaks. So, providing performance estimates (i.e, reach & frequency) was always a dicey game at best but now wildly overstates real world delivery. So while Advanced TV does help an advertiser pick up new prospects, never forget that viewing via streaming options still has commercial attentiveness issues that are very real.
The second topic brought to me was the integration of the delivery between conventional TV and Advanced TV. My honest answer is that I am clueless regarding how to integrate the two to come up with a reasonably reliable reach projection. Additionally, it seems anecdotally that there is a greater chance for advertising wear out with Advanced TV as it is not monitored as closely as is over the air or cable rotations. That leads to the last issue which is the integration of the frequency distributions of conventional and Advanced TV campaign delivery. To date, I have asked quite a bit but no one seems to have captured this with much precision. Where you can, response is always a nice indicator. Reach & frequency projections to me were always overstated and, in recent years, often wildly exaggerated, but trying to blend the frequency distributions of the two types of TV in today’s world seems way above every analyst’s pay grade at this point (A frequency distribution is how many people were exposed to the message 1+, 2+, 3+, 12+ times, etc).
Is this an arcane discussion? Absolutely. Yet, how are most people determining the right mix of conventional and Advanced? Right now, it seems to be trial and error and far more art than science.
Welcome to 2019! I hope the year is prosperous for all of us. Also, I want to thank the MR readers from all over the world. At present, some 54% of readers are based outside of the United States with particularly strong growth in Western Europe during 2018. Welcome!
If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com
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