New Netflix price surge. Should Netflix livestream sports?

Yesterday, Netflix announced their new price structure. Per WSJ:

Netflix will increase the price of its most popular plan 18% to $13 a month from $11. That plan allows users to stream from two screens at the same time. The most basic plan, which allows a single stream in standard definition, will go up one dollar, or 13%, to $9 a month. The new rates will go into effect immediately for new customers and be applied to the accounts of existing customers in the next few months, according to a person familiar with the plans.

The increase in price is not really surprising in my opinion. Netflix has been investing heavily in original content. WSJ reported that the investment would amount up to $12 billion this year. Netflix needs to enlarge its war chest and the additional revenue from the new prices will help with that. It doesn’t hurt that Netflix has some wriggle room to up its prices, according to Priceintelligently. Additionally, as some content owners such as Disney or Warner Media plan to launch their own streaming services, Netflix will likely have to pay more to retain popular shows or movies.

But there is only so much room for increase in subscription prices. If Netflix pushes too hard, they may lose viewers. Consumers will have more options with the arrival of Disney, Warner Media and NBC, in addition to major current players such as HBO, Amazon, Hulu and Showtime. A normal user should not be expected to pay so much for subscriptions every month. Netflix may need to find another area to grow its user base and revenue.

Should Netflix go for sports?

Sports is a hugely important part of our life and hence it is important to businesses that want our money and attention. To see how important sports become to social media and streaming services, here are a few headlines:

The last headline is very interesting. Coming from Vietnam, I can tell you that football (as millions of people in the world outside the US call it) is a religion in my country and hugely popular in that region. Premier League, in particular, attracts football fans in Vietnam in a way that few leagues do. We have to or at least, used to pay for cable TVs to be able to see the games. The service is subpar, and the fees are slightly cheaper than a Netflix subscription. Vietnamese users pay around $8-9 a month for a Netflix subscription while a cable subscription costs around $5-7. If the fans can stream games from their laptops/computers or project games onto TV through Netflix, it will be a game changer. Fans will strongly consider the service, especially with hours of shows and movies as well.  

But does it make sense for Netflix to do so from a business and financial standpoint? Let’s run a scenario.

Together, Vietnam and Thailand have 165 million people in population. The total number of Netflix subscribers in the two countries are just 500,000 (300,000 for Vietnam and 200,000 for Thailand). If we just assume that 40% of the two countries’ population are young from 15 to 40 years of age, fitting the target demographic, I presume, for Netflix, the Total Addressable Market (TAM) is around 66 million for Vietnam and Thailand. I don’t have the number of subscribers in Laos and Cambodia, but if we apply the same assumption to those countries, the TAM is 9.2 million potential subscribers. For the four countries, the TAM is around 75 million.

If a subscriber is worth $8/month and Netflix gains around 100,000 subscribers a year each in Vietnam and Thailand, as well as 50,000 each in Laos and Cambodia, the total revenue can be around $230 million in 3 years, $30 million less than what Facebook pays for its exclusive rights. Also, the total number of subscribers should be at least 1.7 million, barely a fraction of the TAM mentioned above (75 million).

If we increase the subscription price by $1 in the original scenario, the revenue will be around $259 million, almost as much as what Facebook paid.

If the number of subscribers in that scenario goes up by 30%, the revenue in 3 years will be around $300 million and the subscriber count in 4 countries for Netflix will be around 2.06 million, still a small fraction of the TAM.

Of course, all of the above are assumptions which can be way off the mark, but to me, it seems that it is an opportunity there for Netflix. Besides the financials, gaining more subscribers can make Netflix more valuable due to network effect and give them more data about the users. Netflix paid $100 million to keep Friends on its network for a year. Given that amount and the potential upside of providing sports to international markets, I believe Netflix should give it a try. Plus, it can’t afford to see competitors add sports to their selection without doing anything.

I admire the consistency and focus of Netflix. They have been very consistent on their long-term view as a video streaming service. Nonetheless, the situation may necessitate some changes in the future.

Book: Black Swan

I’d give this book two stars. The book has some interesting insights, but it is unnecessarily long with a lot of anecdotes, name-dropping and less-known examples. Basically, the idea could have been wrapped up in 20-50 pages. Plus, the flow could have been much easier to follow.

In short, Black Swan talks about the great impact of the outliers, unpredictable events that happen in our life. For instance, if a person somehow were involved in a car accident through no fault of his or her own, the person’s life would be turned upside down. As Black Swans are not predictable, the author urged us not to use the past to predict the future. Yet, it seems that we are prone to doing exactly that, using data from the past to predict the future. I believed he claimed that we humans were victims of asymmetry in understanding random events. He also claimed that there were no experts in a lot of fields.

The thesis of the book seems obvious, but we don’t always have it in mind. As human beings, we love to predict the future and know what is going to happen years from now. I am always astonished by the popularity of fortune-telling. It amazes me how those fortune tellers could see the future. It simply seems impossible to me. Even if they could, why would they agree to earn modest income from that profession? Wouldn’t it be much more lucrative to gamble or pick stocks?

Regarding business, who could have predicted in 2000 that Yahoo would be what it is today? Or Nokia, one of the biggest brands in the world in 2005, would be a shell of its former self today? Or Kodak and more recently Facebook? I agree with him that life is too uncertain to predict. We are terrible at it, yet that’s what we keep doing.

Also, I agree with him that being alive is already extraordinary. I always feel lucky enough to be born without any disabilities or sickness. There is no telling what could happen to a child in a mother’s womb. One DNA misplaced could mean a lot of consequences for the child. In an infinite universe, we are living on a speck of dust millions of years old that has gone through a lot of revolutions and unpredictable events. If we are alive, we are already Black Swans.

Informative newsletter and tech sources

Where we get information matters. As there is so much information/noise floating around, a good curator and/or a great content provider has become increasingly important, at least to me. Here are a few of my go-to sources every day. Keep in mind that these are related to business and technology, two areas I am invested in. 

CBInsights

It offers deep-dive reports into technology and business. There are many free reports that can be downloaded or consumed immediately on site. What I like about CBInsights is that their researchers really roll up their sleeves in their work and offer great insights, sometimes from a surprising angle. Their use of visualizations such as tables, graphs or mind maps is pretty rad as well

The Hustle

It’s a newsletter on business and tech. Apart from offering what news you should know at the beginning of a day, The Hustle has a great team of copywriters. Their witty and funny writing is what hooks me up. The newsletters don’t have the same level of deep investigation as CBInsights does, but if you want a skim of what is going on out there in business and technology, it’s pretty good. Oh, if you want to do some B2B marketing, it can be a promising channel. I have seen Airtable, Microsoft and Salesforce sponsored content by The Hustle

Morning Brew

Same as The Hustle. I consider The Hustle a tad better & funnier. Still it’s worth giving Morning Brew a try

Ben Evans newsletter

His newsletter is on a weekly basis. It’s a collection of articles in technology and business that he thinks are important. 

Ben Thompson’s Stratechery

It’s a highly regarded website on strategy and technology. There is a paywall to his daily content, but his weekly content, I believe, is free. You will learn a lot from Ben as many others, including some famous names in technology, do. 

ARK

A friend suggested this one to me a few weeks back. I am still pretty new to it. But if you are a fan of cryptocurrency, AI, machine learning, industrial innovation…it is worth a read

Book: The Most Important Thing: Uncommon Sense for The Thoughtful Investor

I am in the middle of the book: The Most Important Thing: Uncommon Sense for The Thoughtful Investor by Howard Marks. It looks to be a short book, but 40% in the book, I have been delighted by the concise and thoughtful insights the author shares in his words. If you are a fan of value investing or the investing philosophy made famous by Ben Graham, Warren Buffett or Charlie Munger, this book should not surprise you as many topics touched upon by Howard Marks follow the same philosophy.

One of the best lessons I have learned so far from the book is the difference between first-level thinking and second-level thinking. The goal of investing is to outperform the market and other investors. It’s not easy as information is widely accessible now, making it highly challenging to gain some insights that few others know. Nonetheless, if gained, the contrarian thinking or unpopular but correct insights will enable superior returns compared to the returns of market or other investors.

First-level thinking can be done by almost everyone. It’s “simplistic and superficial”. First-level thinkers have an opinion about the future as in “the outlook for the company is favorable, meaning the stock will go up”. Second-level thinking is deep, convoluted and complex. Second-level thinkers arrive at conclusions and forecasts that are both correct and not thought of by the consensus. But it’s hard to do so.

There are many other lessons offered in the book. I highly recommend it if you are interested in investing. After all, we can’t get rich without making money while we are sleeping, can we?

 

Going above and beyond

One of my Capstone project’s requirements is to match an address input by a user with a legislative district in Nebraska on a map visualization. Unfortunately, neither Google Map API or Mapbox API, two of the most popular map APIs out there, has that feature.

I read through their documentation and decided to email them both, hoping that I might have missed something or that their specialists might have some advice. Both came back with a response. The Google customer service agent simply said that there was no such feature from Google Map API and that I might go to a designated link to make a suggestion. Meanwhile, the Mapbox agent confirmed my suspicion that Mapbox didn’t offer that feature. However, he suggested a way to accomplish it by using turf Javascript package.

Even though both don’t have the feature I am looking for, the extra effort by the Mapbox agent delighted me. I like the brand even more now. In the future, if I have to look for a map API service, Mapbox, for sure, will be up there at the top of the list. It goes to show how a going-an-extra-mile customer service can leave a lasting positive impact on users and potential customers.

Potential new features for Mapbox and Google Map

I found two small players that offered legislative district mapping and census data: Cicero and US Geocoder. Surprisingly, Mapbox and Google Map do not offer such features. It shouldn’t be difficult for them to do so, I imagine. So I hope that they will take a suggestion from me and add those features to their already awesome products.

Coworking space + Managed Services?

I have been thinking about the prospect of marrying the two concepts: coworking space and managed services?

Coworking Space

Coworking space shops help individuals, startups and even big corporations operate without worrying about renting office, meeting rooms, equipment, or Internet. Members can also rely on these shops for tasks such as mailing, forwarding or receiving guests at reception desks. The main premise of coworking space is to help businesses focus on what matters by outsourcing low-ROI tasks to the host and to get off the ground with as low a fixed cost as possible. Moreover,  there is another marketed value proposition that coworking space facilitates random interactions and access to like-minded individuals, potential team members or investors. It may be true. Some try to offer added values such as workshops or consulting. Nonetheless, such propositions are commoditized now. There is no differentiation among coworking space providers. If we follow the continuum of resource sustainability by Jeffrey Williams, coworking space seems to fall into fast-cycle bucket. In that bucket, the only way to compete is fast time-to-market

Continuum of Resource Sustainability

Source: How sustainable is your competitive advantage? – Jeffrey Williams

Managed Services

Think about managed service providers as your extended IT department. Their primary premise is the same as coworking space providers. Managed service providers help companies to manage mundane & low-ROI tasks such as patching, updates, monitoring, installing and to start a business with a low CAPEX. Instead of spending a lot of money and time procuring hardware and setting up your own environment, you can go to Managed Serviced Providers and everything can be ready in a matter of hours or a day. Additionally, your developers don’t have much experience in migrating to public cloud? These providers will assist you. You want your developers’ valuable time on real innovation and coding instead of managing public cloud environments? These providers will do so for you. While these public cloud providers have incredible global footprint and a variety of services, they don’t necessarily offer great customer services. Unless you are willing to pay for technical assistance packages that can run up to $15,000/month, there will be little hand-holding. That’s why managed AWS market has a CAGR of 13.9%

Why not combining the two?

The two services share the same primary premise. Most startups and businesses nowadays leverage IT to gain competitive advantages and meet customer needs. Chances are that many startups or small businesses at coworking space leverage Internet and the cloud extensively. If coworking space shops can bundle managed services with their memberships, it will create more value and appeal more to members. If a coworking space can have at the minimum one or two certified Azure or AWS engineers in-house to help guide startups with their infrastructure, wouldn’t that be something of value?

In my mind, it makes sense to offer an infrastructure-level service that every Internet startup will need. Eventually, if enough coworking space providers offer managed services as well, there will still be no differentiation. The keys are time-to-market and the art of bundling and pricing. It’s quite intriguing to not see many coworking space shops do so. Perhaps, I am missing something. Or not.

Equifax fined by UK and GDPR

A couple of days ago, Equifax was fined by the UK’s authority for its data breach last year. The fine is the maximum possible penalty that could be issued, but it is still only half a million pounds, an amount that I think is trivial to a company of Equifax’s size.

John Oliver did a great piece on Equifax here. For a quick summary, I’ll let the FTC explain it:

If you have a credit report, there’s a good chance that you’re one of the 143 million American consumers whose sensitive personal information was exposed in a data breach at Equifax, one of the nation’s three major credit reporting agencies.

Here are the facts, according to Equifax. The breach lasted from mid-May through July. The hackers accessed people’s names, Social Security numbers, birth dates, addresses and, in some instances, driver’s license numbers. They also stole credit card numbers for about 209,000 people and dispute documents with personal identifying information for about 182,000 people. And they grabbed personal information of people in the UK and Canada too.

Almost half of the American population had their sensitive data breached by the negligence of the credit agency. If you think that a breach of that size might have resulted in dire punishments and financial damages for the company, you are sorely mistaken. Per Quartz:

The credit agency kept news of the hack quiet for a month after its internal discovery, giving executives time to sell almost $2 million in shares. Once the news went public, Equifax first insisted that customers waive their right to a class-action lawsuit before accepting any credit protection; after an outcry, it backed down. A typo in a tweet from Equifax’s account directed customers to a phishing site instead of the actual website the company set up to tell customers if they’d been affected, which didn’t really work anyway.

A year after the hack, the lack of penalties for the company’s failures is equally laughable. Stock prices bounced back. Former CEO Richard Smith retired with his full $90 million package. No US federal agency has made any move to punish the company.

In Vietnam, we don’t have such a concept. In Europe, there isn’t an equally concept either, as far as I am concerned. I never encountered anything like that while in Finland. My European friends are baffled by the concept as well. Having been in the US for two years, I don’t pay much attention to the score nor can I understand how it works. I set up all payments automatically to make sure I am not late ever on credit payments. Yet, my scores have fluctuated significantly for absolutely no reasons that I could understand. All they could give me is that my credit profile has only been one year old!? I don’t think that the credit agencies don’t add any value to the society and yet, they are extremely profitable entities. They have access to consumers’ sensitive data and look what they did with the data.

Regarding the small fine due to the fact that the breach took place before GDPR was enforced, I have heard criticisms of the data privacy regulation from EU. Although the regulation isn’t perfect (the same goes for almost any regulation), it is a good start. The primary criticism is that the regulation is too expensive and difficult for SMEs to comply with, meaning that the big corporations can increase their competitive advantage further. My argument is that regardless of the size, any company can have consumers’ sensitive data leaked, easily in the hundreds or thousands of records. GDPR gives the users many rights and much needed power in the conversation. It is true that smaller firms may see their costs rise due to compliance with the regulation, but innovation should start from having higher standards, not lower ones. Would we have more environmentally-friendly cars by raising emission standards or lowering them?

Had the Equifax breach taken place after the enforcement of GDPR, the company would likely have faced a fine worth 4% of their global revenue. Since Equifax generated $3.362 billion in revenue in 2017, it would have amounted to a fine of $134.5 million. Wouldn’t it be worth having such a law to protect users/consumers?

 

Peter Thiel’s interview

I was listening to this interview with Peter Thiel while in the gym yesterday (Yes, I like to listen to podcasts, interviews and John Oliver while sweating it out! Weirdo me). There are two points that stood out for me.

A bit of context, Peter Thiel was the founder of Paypal and recruited what would be known as the Paypal Mafia, a group of individuals who would found successful startups. Peter is known for being a wildly successful entrepreneur, investor and contrarian thinker who challenges assumptions and established thinking.

He didn’t think Facebook would be that big

Peter was one of the first investors in Facebook when the company was at $5 million valuation. He said in the interview (around minute 7:20) that he didn’t think it would be as big as it eventually became. It would be worth his investment if Facebook just dominated the college student market. We all know how it turned out.

I sometimes beat myself up a little bit for not seeing far ahead in terms of companies that I analyzed or missed. But if the great Warren Buffett missed Amazon, Google and for many years, Apple (he is now one of the biggest shareholders of Apple) and if Peter Thiel couldn’t figure out Facebook’s eventual great future, then I guess it’s OK for any of us to be…human.

First meeting with Mark Zuckerberg

Peter Thiel talked about the first meeting with Mark around minute 4:20. He recalled that Mark went to the meeting with Sean Parker and Sean did most of the talking. Having watched a few of Mark’s interviews and speeches, he doesn’t appear to me as an exceptional salesman. Yet, people often claim that if you don’t have sales skill, you can’t be an entrepreneur. While it may be true in most cases, it’s not definitive. Mark and Facebook still getting the money without doing most of the talking was the proof of that.

Point is that I increasingly believe that every advice is contextual. Most of the time, there is barely one-size-fits-all or hard-and-fast advice. What works for one person may not work for others. One piece of advice is like a tool in your arsenal. One tool cannot do everything. It serves only a specific purpose in a certain set of scenarios. Constant learning gathers many tools at your disposal and learning what tool to use in a scenario is probably what makes a person succeed.

Sinemia and MoviePass

If you live in the US and are a fan of watching movies at cinemas, chances are that you have heard of a company called MoviePass. It is famous for its unprecedented business – $10/month for one ticket every day. The company has suffered a great deal financially and operationally for its business model, including an urgent financing round to keep its servers running, downtimes, unimpressive customer services and frequent changes to its pricing.

In the subscription world, the mandate is that once a user subscribes, the more the subscriber consumes services/content, the better and marginal cost is trivial. Take Netflix for example. After a successful subscription, a user can watch as many movies and for as many times as possible. Netflix takes in minimal marginal costs (probably for servers, storage and networking) for every time a movie is watched. In the case of MoviePass, it’s not the case. Every time a ticket is dispensed, MoviePass pays the cinemas either the full amount of the ticket or the majority of it. Slap on it the cost of marketing, financing and operations and the business loses money.

How does MoviePass make money in that case? I suspect that MoviePass prioritizes growing its user base to the point that it is big enough for the company to convince cinemas to cut its a much better deal. Advertising can be another avenue.

The failure of MoviePass is also from the customer segmentation perspective. We moviegoers differ from one another in our consumer behavior. Some go to cinemas every week, some go for only blockbusters and some only do so once in a while. The difference in behavior requires multiple offerings from MoviePass. The less frequent users don’t feel motivated to keep a subscription every month. Movie junkies who go as many times as possible will bleed the company dry. There are some users who look at the release schedule, subscribe for only one month in which I can watch movies I like and then unsubscribe, myself included. Such users don’t offer much value to MoviePass as they don’t, ironically, consume enough to contribute to MoviePass’s value as a company.

The “one-size-fits-all” model that MoviePass is famous for doesn’t take into account any user behavior. Unsurprisingly, it failed.

Sinemia today announced an unlimited plan. For $30 bucks, users can get a ticket every day and advanced bookings are allowed (not possible with MoviePass). The difference obviously is a higher price tag that comes with the plan. I suspect that even at $30/month, it is still a money-losing deal for Sinemia but it is less damaging than a $10/month plan. Moreover, Sinemia has 5 different plans now. Each appeals to a different segment of users.

Sinemia

To discourage users from unsubscribing early, Sinemia enforces an initiation fee for monthly-based plans. That way, users care more about the subscription and are motivated to stay longer. If users unsubscribe, Sinemia gets more revenue in return. If users want to avoid the initiation fees, the only way is to be locked in for a yearly bill.

Even though Sinemia has multiple plans and higher pricing points, Sinemia will try to enlarge its user base and leverage it for a better deal with cinemas. What I think will be appealing to cinemas is that Sinemia can prove that it attracts moviegoers in unpopular times during a day. Movie slots are perishable. Once it goes by, there is no way to recover it. Hence, cinemas would be interested in putting butts on their seats during low-traffic hours. If Sinemia can prove that it is able to deliver that, its position will be stronger. Anyway, its business model is saner than MoviePass’.