The Big Picture, an excellent blog that looks at macroeconomic issues, is written by Barry L. Ritholtz. Barry is the founder of Ritholtz Wealth Management. The Big Picture breaks down and explains the latest economic news in great detail.
Because price matters. Otherwise everybody would use an iPhone and a Mac, but Netflix is not a premium product, it can’t win appealing to a sliver of the public, it needs all of it.
This is how the publishing industry killed digital books.
Despite the hosannas of boomers boasting that they saved the physical book, it won’t be long until they lose the war. You know change…it looks like it’s never going to happen, you laugh at the predictions, and then overnight, it takes hold. Can you say digital photography? Can you say internet connection?
People had been using digital cameras for years, but they were expensive. Just like people were communicating via bulletin boards utilizing low speed modems with arcane software. But non-traditional consumer camera companies, like Panasonic and Sony and Samsung, put out products while Nikon and other high-end manufacturers sat by, as well as the everyman’s company Kodak, and then in a year, digital eclipsed film, just like that. Kinda like AOL turned everybody into an internet user, they made it easy.
Now we had a similar situation in the music business, with the iTunes Store. At first the labels considered it a joke, being Mac-only. But then when sales far exceeded expectations and distribution included Windows, suddenly this sideshow was throwing off revenue… And what did the labels want to do? RAISE PRICES!
And who said they couldn’t?
The labels are greedy, short-term thinkers, why else would Universal have stored all those masters in an unprotected facility? The music business was always run on intimidation, but finally it came up against someone who wouldn’t play that game, Apple kept prices low until consumers were hooked, then they jumped from 99 cents to $1.29.
99 cents. Ever notice no car is advertised at a round number? How it’s always something 99? Even gas! Our minds trick us into thinking $3.249 is equivalent to $3.24. But the truth is it’s only a tenth of a cent from $3.25.
And going back to books, did you see that Pearson is going digital first on textbooks? Physical was killing them. They got no revenue on resale. And prices were so high, sales were less frequent.
Instead, they went to the subscription model. That’s right, for less than print you get something that can be upgraded on a regular basis, like a streaming music service. Your subscription to Spotify, et al, is not a fixed picture, but a constantly rolling enterprise that adds new titles on a regular basis…and as long as you keep paying ten bucks a month, you can hear them.
Ten bucks. Spotify is a public company under earnings pressure. It could immediately raise prices, but it would start hemorrhaging customers. If it’s under ten bucks, it’s a throwaway. Once it eclipses that number, you start to think about it. I mean there are months when we barely watch Netflix, but we don’t cancel. But if you’re counting your pennies, supporting a family, every little bit counts and you look for alternatives that are good enough, like Android and Windows.
There’s a huge market in good enough. Not everybody needs to buy Nike or 7 jeans or… They’ll settle for the knock-off.
So Netflix is under Wall Street pressure, to pay for all that programming. So it keeps raising prices. Now you think they’re going to keep going up FOREVER! You feel the company no longer cares for you, the bond is broken and you start evaluating cash versus benefit.
As for HBO… On one hand, people are accustomed to the $15 price point. But the dirty little secret is that most people don’t pay that $15, or don’t think they do. The HBO fee is baked into your cable plan, which is a negotiation worse than buying a car. I got so frustrated I told my provider to cancel everything but the internet, and just before the clerk did this, she told me for $9.99 more, I could get essentially all the channels I was getting, including HBO…believe me, I don’t think HBO is costing me $15.
Which is why Disney is so brilliantly starting with a low price for its streaming service.
And what Netflix kept doing was adding loads of product while raising the price.
But the truth is most of this product sucks. And it’s an experiment, if it doesn’t immediately generate an audience, Netflix kills it. That’s right the Northern Californians are so into algorithms and spreadsheets that they miss the essence… One or two great shows make up for a slew of crappy ones. Kinda like the CD business!
And I can’t say there’s been a killer show on Netflix this year. No water cooler moment.
And one thing we’re looking for from Netflix is something DIFFERENT! Not only from network, but HBO too. Come on, HBO never would have aired “Babylon Berlin,” no way, not enough people would watch it. But if you struggled through the first few episodes on Netflix, you got hooked, I haven’t stopped talking about the show and I saw it YEARS AGO!
And it’s not like history is unwritten. “Sex and the City” ended and HBO suffered, they needed more hits.
I scan the sites all the time, looking for what to watch. And when I rarely find new Netflix shows, it frustrates me.
And screw the algorithm, showing me what I should be interested in, I have no idea what’s actually on Netflix, I read about a movie being available on the service, but it never pops up on my screen. Where’s the website where I can scan all the content? Hell, it looks to me like they don’t have that much, even though they keep telling everybody they do!
There’s too much television for mediocre to survive. Not only are there so many other options on TV, there are non-series/movie distractions only a click away, like YouTube, Instagram, Snapchat…
In other words, Netflix has lost touch with its customers.
Just like the publishing business. Who in hell is gonna buy the digital version if the hardcover is cheaper, or only a dollar or two more? It’s a bad value proposition. Kids are down with virtual purchases, as they do in video games, but the oldsters still need to be convinced. Most people who are anti-digital readers never even read that way! But when all books were $9.99 or less… If you bought something and it sucked, no big deal. But when it’s $15?
Yup, the book business is just like Netflix. Not aware their business depends on customers. Amazon was growing their business, adding customers and sales. I used to buy a physical book a year, maybe two or three. It just didn’t make sense, $25? But with digital, I buy a book every other week if not more often. But I must admit, I think twice about my purchases at these inflated prices, and I’m pissed they’re so high when there’s no printing and shipping…
You want your customers to LOVE you, otherwise you’re the record business. Devastated at the advent of this century. Customers had been ripped-off for so long, they didn’t feel bad about stealing, And what did the execs say? Nothing could replace CDs, they were perfect! But the customers didn’t feel this way, and they wanted instant accessibility and portability, qualities that are the essence of digital.
And streaming saved the music business.
But sales don’t equal the pre-internet heyday, so the streaming services are…waiting to raise prices.
Let’s not talk about what something is intrinsically worth… It’s only worth what a buyer is willing to pay.
And one thing’s for sure, I’m not paying for every streaming video service, no way. I’m gonna end up paying as much as cable and getting less! I’m trying to hold off on Hulu. I don’t have the time, and I feel it’s an insult.
But, I did pay for Mhz Choice to watch a foreign series, I thought twice, but it was only $7.99 and opened up a world of proven quality television that otherwise I wouldn’t have access to.
Now is the time for Netflix to ensure that it trumps the competition.
All the news is negative. It’s losing “The Office,” “Friends.”
I don’t watch either, but there’s such blowback that my fealty to Netflix is wavering, I want to be a member of a winning cult. And I know Netflix is countering with all the product it still has, and the press is talking about viewer numbers, but entertainment is not facts, it’s about hearts and minds!
And Netflix is losing them.
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Programming Note: Ritholtz’s Reads has a new home. To receive early morning reads each day in your inbox, sign up here.
My easy like Sunday morning reads:
• The Biggest Investing Bet on Tech Is Cheap—and Controversial (Barron’s)
• Financial Twitter Loses a Source of Humility and Wisdom, but Good Voices Remain (WSJ)
• The Amtrak That Works, and the Amtrak That Doesn’t (Bloomberg)
• The Future of the City Is Childless (City Lab)
• Americans Say They Would Vote For A Woman, But … (FiveThirtyEight) but see Democratic Fund-Raising: In a Packed Field, Five Candidates Stand Out (New York Times)
• Is it okay to laugh at Florida Man? (Washington Post)
• Agriculture Department buries studies showing dangers of climate change (Politico)
• Trump’s Favorite Meme-Maker Adopted A Fake Name To Go On Trump’s Favorite TV Network (Buzzfeed)
• Tour the Apollo 11 landing site, minute by minute, during that one small step! (Syfy Wire)
• Star Wars: The Rise of Skywalker, The Ultimate Preview (Vanity Fair)
Schrager tells how her research led her to write a column on online prostitution which was based on her analysis of a dataset of 1.2 million transactions. That led her to the Bunny Ranch in Nevada as an economist analyzing risk and studying sex pricing. You may be surprised to learn that the Bunny Ranch has a negotiation training program, because all of their employees negotiate each of their transactions with customers, and do not know the market value pf these transactions.
Schrager explains how her Ph.D dissertation on retirement strategies found its way to Nobel laureate Robert Merton, who was working on financial modeling for shifting defined benefit plans into defined contribution plans.
Her favorite books are here; A transcript of our conversation will be available here.
Programming Note: Ritholtz’s Reads has a new home. To receive early morning reads each day in your inbox, sign up here.
The weekend is here! Pour yourself a mug of Danish Blend coffee, grab a seat on the beach, and get ready for our longer form, 50th anniversary of the Apollo 11 mission, weekend reads:
• Sun, Sand, and the $1.5 Trillion Offshore Economy (Bloomberg Businessweek)
• Ray Dalio: Paradigm Shifts (LinkedIn)
• How Minneapolis Freed Itself From the Stranglehold of Single-Family Homes (Politico)
• The Economist Who Would Fix the American Dream: No one has done more to dispel the myth of social mobility than Raj Chetty. But he has a plan to make equality of opportunity a reality. (The Atlantic)
• After two decades of research and development, WA 38 lands this fall. It could disrupt an entire industry. It’s an apple. (California Sunday Magazine) But see If We All Ate Enough Fruits And Vegetables, There’d Be Big Shortages (NPR)
• The extraordinary trek of George Takei: On a mission to make sure America doesn’t forget a shameful legacy (Washington Post)
• The Promise and Price of Cellular Therapies (New Yorker)
• “I Flew Too Close to the Sun”: Inside the Epic Fall of Michael Avenatti (Vanity Fair)
• Security reports reveal how Assange turned an embassy into a command post for election meddling (CNN)
• Three Ways to Make Streaming Music More User-Friendly (Pitchfork)
Succinct Summations for the week ending July 19th, 2019
1. Housing market index came in at 65 for June, above the previous reading of 64.
2. Jobless claims rose 8k w/o/w from 208k to 216k, meeting expectations.
3. Empire State Mfg Survey came in at 4.3 for July above the previous reading of -8.6.
4. Retail sales rose 0.4% m/o/m, greater than the expected increase of 0.1%.
5. Business inventories rose 0.3% m/o/m, meeting expectations.
6. Philly Fed Business Outlook Survey rose from 0.3 to 21.8 in July.
1. Markets lose >1% after increased political pressure on the Federal Reserve and a manic week in racial politics;
2. Job openings came in at 7.323M in May, below the expected 7.400M.
3. Home mortgage apps fell 4.0% w/o/w, after previous increase of 2.0%.
4. Housing starts fell 0.9% m/o/m from 1.265M to 1.253M.
5. Import prices fell 0.9% m/o/m, greater than the expected decrease of 0.6%.; Export prices fell 0.7% m/o/m, greater than expected decrease of 0.2%.
6. Same store sales rose 4.7% w/o/w, decelerating from previous increase of 6.2%.
7. Industrial production came in unchanged m/o/m after an expected 0.1% increase.
Programming Note: Ritholtz’s Reads will have a new home. To receive early morning reads each day in your inbox, sign up here.
My end of week morning train reads:
• Amazon’s Most Ambitious Research Project Is a Convenience Store (Bloomberg Businessweek)
• How Frank Abagnale Can Help You Avoid the Romance Scam and Other Cons (Worth)
• When Big Funds Lawyer Up (Institutional Investor)
• The Next Neil Armstrong May Be Chinese as Moon Race Intensifies (Bloomberg)
• Reduce, reuse, rescoot? A look at e-scooters’ long-term sustainability. Scooters are touted as a low-cost, clean form of transportation, yet their life span is far from sustainable — and their parts could pose a danger to recycling facilities. (Smart Cities Dive)
• Why History Get Stuff Wrong All the Time (A Wealth of Common Sense)
• Isaac Asimov Asks, “How Do People Get New Ideas?” (MIT Tech Review)
• The New Ways Your Boss Is Spying on You (Wall Street Journal)
• Apple Plans to Bankroll Original Podcasts to Fend Off Rivals (Bloomberg) but see Have We Hit Peak Podcast? (New York Times)
• All 104 James Bond Villains, Ranked (Esquire)
The Lotus Evija is a new electric super car. The horsepower is nearly 2000 HP, and the overall design is quite aggressive. The stats here are pretty wild:
• 1972-hp output – World’s most powerful hyper-car;
• 0-62 miles per hour in less than 3 seconds;
• 4 motors (1 at each corner) crank 493 horsepower apiece, with aggressive, almost instant torque vectoring.
• Total torque output = 1254 lb-ft;
• Below 9-second zero-to-186-mph time; Top speed over 200 mph.
• Ultrafast charging: 80% charge in 12 minutes and 100% in 18 minutes;
• 250 miles of range (European WLTP testing methodology);
• One-piece carbon fiber monocoque chassis;
• 3,703 pounds—lighter than a Ferrari California.
Why are all of these new electric super cars so important? They imply that E is the direction of the auto industry; the innovations created at this level eventually find their way down market to ordinary cars.
And, its not too bad looking either. Put down your deposit, pick yours up for $2.1 million dollars . . .
“Republican reluctance to embrace health care, despite the president’s best efforts, is understandable. On the one hand, America’s health-care system is woefully dysfunctional: the country spends about twice as much on health care as other rich countries but has the highest infant-mortality rate and the lowest life expectancy (see chart). Some 30m people, including 6m non-citizens, remain uninsured. And yet, though costs remain a major concern—out-of-pocket spending on insurance continues to rise—Americans say they are generally satisfied with their own health care. Eight in ten rate the quality of their care as “good” or “excellent”. Few are in favour of dramatic reform.”