Free Speech – When You Pray For Rain, You Have To Deal With The Mud Too

The debate on free speech between tech companies, specifically Facebook and Twitter, and politicians such as Elizabeth Warren is heating up and getting hotter than ever. Facebook refused to take down political ads from the right wing that the left consider fake news. Politicians led by Elizabeth Warren vehemently criticized the decision by Facebook arguing that it is helping the President win an election again.

Coming from the background that I have, I appreciate the freedom of speech in America which is enshrined in the Constitution. There is nothing better to ensure that everybody is free to voice his or her own opinion. The right in and of itself is great and good. The problem; however, lies in how people execute the right and how it is perceived by others.

When a right-winged party runs a political ads with controversial information, the party is within its right to do so. Facebook, as it claims to preserve the right to expression on its platform, chooses to honor it. There is nothing inherently wrong with that.

The problem is that when you exercise your right to free speech and spread out false information on others, you rob others of the right to be perceived truthfully. In that sense, is it still acceptable? Also, it then falls onto Facebook to be the guardian of truth, the entity that decides whether a piece of information is right or false. And it’s not an easy task. Whatever Facebook does will please one part of the population and piss off the rest. Whatever is truth to one party of an ideology will be considered fake news by the opposing party.

I fear that there is no definitive answers to this debate. The Internet and Facebook enable friction-less communication of information and, as a consequence, false information around the globe. That’s the byproduct of it. I don’t see how Facebook can do one without harming the other aspect of their operation. And as explained above, I don’t see how it can please anybody in its endeavor to preserve the First Amendment, but also to police the content.

When we pray for rain, we have to deal with the mud too. That’s my mentality in a lot of issues. In this case, I think we pray hard for the rain, but we are not ready to deal with the mud

Mixed Feelings from Netflix’s Earnings Report

Netflix released its earnings yesterday. There are causes for optimism and concern from what I have seen.

Important metrics improved YoY significantly

This quarter, Netflix added 517,000 domestic paid subscribers and more than 6.2 million international paid members, bringing the total subscriber count domestically and internationally to more than 60.6 million and 97.7 million approximately.

Contribution margin for domestic and international streaming is 41% and 20% respectively, resulting in the margin for streaming to be around 30%. Contribution margin of Domestic DVD is around 61%. Contribution margin represents what is left of revenue after all the variable costs to pay for fixed costs and to generate profit.

On a year over year basis, revenue, operating income and paid memberships saw remarkable growth for a company this size

Cause for concerns

Even though domestic paid memberships increased, Netflix missed its own expectation by almost 300,000, making it the second consecutive quarter that it did so. The company blamed the miss on the higher pricing elasticity than expected

That’s really on the back of the price increase. There is a little more sensitivity. We’re starting to see the – a little touch of that. What we have to do is just really focus on the service quality, make us must-have. I mean we’re incredibly low priced compared to cable. We’re winning more and more viewings. And we think we have a lot of room there.

But this year, that’s what’s hit us. And we’ll just stay focused on just providing amazing value to our members in the U.S. And I think that gives us a real shot at continuing to grow net — long-term net adds on an annual basis. But we’re going to be a little cautious on that guidance and feel our way through here.

CEO – Reed Hasting in Earnings Call (Per Seeking Alpha)

I saw a sentiment floating around on Twitter a while back that argued that Apple TV+ and Disney+ aren’t really competitors to Netflix. I mean, to some extent, they may differ a bit from Netflix, but if we want to talk about competing for viewers’ attention, time and disposable income, how can they not be? Sure, boats move different from trains, but if patrons can choose either to go from point A to point B, how can they not compete with each other? Now Reed Hasting admitted the challenge from other streamers, especially Disney+

From when we began in streaming, Hulu and YouTube and Amazon Prime back in 2007, 2008, we’re all in the market. All 4 of us have been competing heavily, including with linear TV for the last 12 years. So fundamentally, there’s not a big change here. It is interesting that we see both Apple and Disney launching basically in the same week after 12 years of not being in the market. And I was being a little playful with a whole new world in the sense of the drama of it coming. But fundamentally, it’s more of the same, and Disney is going to be a great competitor. Apple is just beginning, but they’ll probably have some great shows, too.

But again, all of us are competing with linear TV. We’re all relatively small to linear TV. So just like in the letter we put about the multiple cable networks over the last 30 years not really competing with each other fundamentally but competing with broadcast, I think it’s the same kind of dynamic here.

Source: Seeking Alpha

Chief Product Officer Gregory Peters made an important point below

I would say our job and then what we think our pricing for a long-term perspective is continue to take the revenue that we have that our subscribers give us every month, judiciously and smartly invest it into increasing variety and diversity of content where we really want to be best-in-class across every single genre.

And if we do that and we’re successful in making those investments smartly, we’ll be able to continue to deliver more value to our members. And that really will enable us to, from time to time, ask for more revenues so that we can continue that virtuous cycle going

Source: Seeking Alpha

Quite an important “if” condition there. In short, Netflix borrows capital to invest in content to the tune of billions of dollars every year and hopes that their subscriber base growth and revenue will keep enabling them to do so. In essence, every streamer will do that. Every single one of them needs to churn out quality content to convince viewers to choose their service. Failure to produce quality content to justify expensive investments will be costly for these streamers.

For Netflix, the stakes seem to higher. Other competitors have additional revenue streams apart from their streaming service. Netflix essentially relies on their subscription revenue. As this quarter shows, the price elasticity already has some negative effect, and it’s BEFORE other heavy-marketed competitors such as Apple TV+ and Disney+ debut in 2-4 weeks. The new challengers price their services at much lower points than Netflix. The room to increase price to recoup their investments faster is getting smaller. I do think a price hike will negatively affect Netflix.

Some may say: oh Amazon kept investing heavily in their early days as well and Netflix can be the same. They are not, as I wrote here. Their free cash flow continues to be in the red while Amazon was in the black for years.

The expensive bidding war for content may play into Netflix’s favor. Their huge subscriber base enables them to spread the cost much better than competitors, especially new ones that have to acquire subscribers from scratch. Hence, it can be argued that Netflix will be one of the only few standing after the dust settles. It does make sense to think about the streaming war’s future that way. As does it make sense to think that there is a possibility that the game Netflix is playing may not work out for them, given the intense competition, the decreased price inelasticity, the huge debt they have incurred and the continuous negative free cash flow.

I think that we will have more clues around the next earning call or two as we’ll see how Netflix will fare after the arrival of Apple TV+ and Disney+. Even then, we won’t know definitively who will win in the end. Fascinating times ahead.

Weekly readings – 19th October 2019

Amazon published their official position on a few social issues

Global electric car sales and market share, 2013-18

Source: IEA

The poor in America pay a higher tax rate than the rich. I guess the tax cut is doing what it is supposed to? (I am being sarcastic)

TurboTax’s decade-long war to prevent Americans from filing taxes online for free. I was angry when I read this article. Billions of hours and dollars are wasted every year on filing taxes and only a handful of people benefit at the expense of millions

To buy a phone in China, a face scan will be required as of 1st December 2019

Bob Iger’s massive bet on Disney’s future.

Sleep Deprivation Shuts Down Production of Essential Brain Proteins. The sleep deprivation pandemic is real in our society and there doesn’t seem to be signs of its abating.

How Amazon is redefining the expensive and wasteful process of returns

Boeing lead pilot warned about flight-control system tied to 737 Max crashes, then told regulators to delete it from manuals. Frankly, this is just disgusting. Boeing is one of the two plane manufacturers that dominate the sky and it still has this kind of behavior

Update your Mac OS to Catalina, if you want major disruptions to your computer

I have been on Catalina for almost a week and the experience has been nothing short of a disaster. I am using a Macbook Pro 2012 with 8GB RAM and a 2.9 i7 chip. It was running smoothly with Catalina’s predecessor: Mojave.

However, since I upgraded to Catalina, not only is my computer running more slowly, but I also have issues with a variety of apps. Even though I paid for my CleanMyMac, here is it asking me to upgrade because of Catalina

I am supposed to work remotely today and it requires using a VPN, which in my case is Citrix. Here is what my colleague in IT department told me this morning

My Snagit keeps freezing and crashing, prompting me to download another screenshot application.

Here is what my friend sent me this morning as well

I can’t remember the last time I was this upset with a Mac OS update. I hope that Apple will pull it together and release a new version that fixes all the issues

Disclaimer: I own Apple stocks in my personal portfolio

The right to speak and not to

There has been quite a story about the issue between China and the NBA. An executive from Houston Rockets tweeted his support for Hong Kong and it resulted in backlash from China. Steve Kerr, the head coach of Golden State Warriors and a regular critic of the current President and Administration, didn’t have much to say about China. Critics blast him for his selective speaking out.

I find it bizarre to see Kerr criticized. Freedom of Speech is sacred in America. As far as I am concerned, it involves the right to voice your opinion freely. Not saying anything is also a form of voicing one’s opinion. Kerr has every right to publicly talk about any issue he wants and to not say anything at all as he is well pleased.

I understand that celebrities have a platform and following that can and should be used to affect social changes. But at the end of the day, celebrities are only humans and as humans, they have rights. They reserve the right to their opinion and how they voice it, as stated in the Constitution. There is no guarantee that anything material would have happened if Kerr had spoke out. And I am not sure that basing your own opinion on that of others, especially strangers, is a good idea.

If the right to say something is sacred in America, as enshrined in the Constitution, then so is the right to not have to say anything against your will. If you were in Kerr’s place, would you appreciate being blasted for only exercising your right?

Do host countries really benefit from F1 races?

Vietnam is going to hose our first ever F1 race in April 2020. It will be a historic moment for my home country since as far as I can remember, we never have an international sporting event. As an F1 fanatic, I am excited about my fellow Vietnamese getting to know the sport I love. However, do host countries usually benefit from hosting an F1 event? Let’s take a look at a few cases

The bull case

In 2017, Singapore Tourism Board announced its plan to retain the race through 2021. STB outlined its rational below:

The announcement comes against the background of a year-to-date 19% increase in ticket sales, with the weekend sales still to be included. In its first decade, the race has yielded significant economic benefits, attracting over 450,000 international visitors to Singapore and about S$1.4 billion in tourism receipts[1]. With more than 90% of the race organisation sub-contracted annually to Singapore-based companies, the race also contributes to the local economy, over and above the tourism outcomes. This event has also showcased Singapore as a beautiful, vibrant and attractive destination to over 780 million international broadcast viewers.

Source: Singapore Tourism Board

If you watch F1 often enough like I do, drivers love to come to Singapore and it’s one of the most anticipated races on the calendar. In 2018, the race attracted the second biggest crowd, only behind the inaugural race in 2008. Hence, it is safe to say that Singapore benefits from having an F1 race.

Bahrain became the first country in the Middle East to host an F1 race in 2004. Since then, it has become one of the favorite tracks of drivers and fans. According to an E&Y audit report in 2015, the race generated a net gain of $95 million for the country and added multiple jobs directly. It was also reported that the race ignited some aspects of the country’s economy. As a result, Bahrain is a beneficiary of F1’s draw.

I didn’t know much about Azerbaijan or its capital Baku until 2016 when it first joined the F1 calendar. Since then, Baku has been responsible for some of the most exciting races. In 2018, a PwC report claimed that “more than $270 million has been added to the local economy as a result of the race, $164 million of which is “direct spend” or money spent by visitors and participants”. the 2018 race attracted 94,000 attendees and was watched by millions of viewers around the world.

The bear case

  • Indian GP ran only for three years and was discontinued after 2013 due to the lack of attendance
  • Korean GP was cancelled after three years as well after failing to generate interest and money
  • Malaysian GP was stopped after almost 20 years of hosting a race since the “numbers don’t add up any more”

It is telling that two new Asian races were discontinued after 3 years due to financial infeasibility. Whether Vietnam will follow the footsteps of Singapore or become another example of the bear case category above remains to be seen. A lot will depend on the execution and whether the races will be good. For the sake of my country, I hope that we will strive to emulate the success that Singapore has had.