Weekly readings – 15th August 2020

What I wrote last week

I wrote a bit about Epic Games vs Apple, Goldman Sachs’ inroad further into consumer credit card world and the potential departure from California of the likes of Uber & Lyft

A historic day for America when Kamala Harris was named as Biden’s Vice President Candidate

My thought on Disney’s latest quarter

Business

Horace Dediu wrote a blog post answering some questions on Apple’s cash strategy

A long and informative deep dive into TikTok and what makes it great

Another deep dive by Turner Novak on Pinduoduo

Nick Sleep on Costco

Meet the Woman Who Got Joe Rogan and Michelle Obama to Spotify

Netflix Business Model & Economics 

A thread on why Avalara has real competitive advantages

Technology

Here’s why Apple believes it’s an AI leader—and why it says critics have it all wrong

How the government’s new real-time payments system could transform commerce

Apple wins a Patent for a Possible Dual Display MacBook Supporting a Virtual Keyboard & more

A potentially life-changing technology for visually-impaired folks

What’s going on with Apple Maps

What I find interesting

An inside look at a data analytics firm that Mike Bloomberg is using to help Democrats

The 19th-century entrepreneur who pioneered modern ice cream

A very long and interesting post on the bombing of Hiroshima and what was happening at the time based on recollections of a few survivors

Giant American Cars Don’t Belong on the Streets of the Future

How Taiwan’s Unlikely Digital Minister Hacked the Pandemic

How did Disney do last quarter and why was Mulan picked for the one-off strategy?

In Q3 2020, Disney reported a drop in revenue of more than 8$ billion, down 42% YoY due to the negative impacts from the Coronavirus. Most of the revenue loss came from Parks, which is historically a reliable source of revenue and profit for Disney. In the most recent quarter, Parks brought in a little less than $1 billion in revenue, compared to $6.6 billion in the same quarter last year. As a consequence, Parks recorded a loss of approximately $2 billion, compared to $1.8 billion in profit in Q3 2019. Despite the challenges that Covid-19 brought onto Disney’s operations, the company actually had a small profit from its operations, if you exclude the $5 billion in impairments.

Figure 1 – Operationally Disney had a surprising small profit before the $5 billion restructuring and impairment charges. Source: Disney

Figure 2 – Parks is very important to Disney in terms of revenue and profitability. Source: Disney

Disney reported that as of 27th June 2020, there were more than 100 million paid subscribers on their platforms, including 8.5 million for ESPN+ (up from 2.4 million from a year ago), 35.5 million for Hulu (up from 27.9 million from a year ago) and 57.5 million for Disney+. On the earnings call on 4th August 2020, Disney’s CEO revealed that the subscriber base for Disney+ rose from 57.5 million 5 weeks ago to 60.5 million. The updated figure means that Disney already surpassed its lower target for 2024, a full four years ahead of schedule. While it’s definitely a good sign, it can be argued that Disney is usually conservative in its forecast and that Covid-19 has been an unexpected boost to its streaming service. It’s also worth pointing out that Disney+ Hotstar, launched in India only up to Q3 2020, made up 25% of Disney+ subscriber base at the end of the quarter.

A major announcement regarding content for Disney+ is the upcoming rollout of Mulan. Disney will make the movie available to Disney+ subscribers at an additional price of $30, meaning that you first have to have an active subscription and pay another $30 on top of it as a one-time fee to see the movie.

This one-off strategy is an interesting move in my opinion. Due to the impacts of Covid-19, Mulan’s schedule premiere has been postponed a couple of times. As the US is still struggling to handle this pandemic, folks won’t visit cinemas any time soon. Hence, Disney either would have to keep delaying the movie’s debut or put it on its streaming service. If the latter is the better option, what is the reason for the additional charge?

Bob Chapek, the CEO of Disney, labeled this move as a test and I tend to agree with him. There are three likely reasons behind Disney’s decision:

  • The company wants to see how much a movie like Mulan can attract new subscribers or entice existing ones to pay more. Making it free on Disney+ is an easy and straightforward decision. Why not using this as a test and getting more revenue, given the situation that we’re in right now?
  • A subscription can be shared with 5-6 people and as we still stay at home most of the time, it’s likely that a movie that charges $30 will be watched by more than one person. Disney is probably testing to see how the $30 price point is accepted by consumers. I mean, if 4 people watch the movie with a new subscription, that’s roughly $10 for each person, almost a movie ticket and they can still have access to Disney’s library for a month. Another point is that consumers are likely to react more positively to a price drop than to a price hike. If $30 is too high and Disney wants to repeat this test in the future at $20, it will likely be better than increasing the test price from $20 to $30.
  • One can argue that Disney is angling for a future permanent one-off strategy as in the one-time charge will give subscribers exclusive early access to blockbusters. However, there are a couple of challenges with that. The first is that Disney has to convince subscribers to pay extra for every blockbuster. A movie such as Endgame may have the drawing appeal, but not every movie will be like that. The second challenge is how Disney would work with theaters once Covid-19 blows over. If Disney’s finest could only be found exclusively on Disney+, what would draw in moviegoers? Movie distribution brings in a significant sum of revenue for Disney. Hence, the company may likely have to deal with this question mark if it decides to pursue a one-off strategy.

In the near future, Disney will be one of the companies wishing for things to go back to normal as quickly as possible. Their streaming service should be fine. They have a lot of geographical footprint to grow into, boosted by a formidable library content, legendary marketing prowess and a household brand name. What they really want to add is feet inside theaters and the walls of their branded parks, hotels or resorts. That’s why they opened up parks in the US to some extent despite the Covid-19 warnings; which I fervently disagreed with. Given how the situation has progressed for the past few weeks, I won’t be surprised that it will take them at least a couple of quarters to regain the Parks business. Nonetheless, the business has shown resilience and I think the bull case for them is stronger than a bear case.

Disclaimer: I own Disney stocks in my portfolio.

Weekly readings – 13th June 2020

America’s Safety Net Is Failing Its Workers. A chilling read on some of the major social issues in the US.

How Lindsey Graham Lost His Way

Dutch Cooperation Made an ‘Intelligent Lockdown’ a Success

American Racism: We’ve Got So Very Far to Go

Amazon’s New Competitive Advantage: Putting Its Own Products First

Forced Social Isolation Causes Neural Craving Similar to Hunger

DuckDuckGo, the privacy-centric browser, is an alternative to Google, which gets rich off of your data

Apple’s success in China

Disney’s Jungle Cruise – High-emission vacations lead to trouble in a rainforest far, far away.

26 ways to launch a clean energy future out of the pandemic recovery

Why You Can’t Help But Act Your Age

A Rainforest, Maya Ruins and the Fight Over a Tourist Train

How London Transport Is Preparing for Life After Lockdown

Visa saw 13 million cardholders in Latin make their first e-commerce transaction in the second quarter

Barriers to entry become liabilities during Covid-19 & remote working

Barriers to entry become liabilities

For the past few weeks, I have seen people claim that Disney is doomed because it reported millions of loss due to the closure of its parks and resorts which, in normal times, bring a lot of revenue and margin to the table. In the same vein, airlines are called a horrible business since there are a lot of costs involved and it’s capital intensive, making it extraordinarily vulnerable in the face of a pandemic like the one we are going through.

They have a point.

However, it’s also important to remember that the current liabilities are what make barriers to entry in their industries so high. Restaurants have low barriers to entry, so it’s not unusual to see a new restaurant in town every day. How often do you see a new airline come up? Because the barriers to entry are so high, airlines at least don’t have to worry too much about a new competitor enter the fray often. Similarly, operating a park like Disneyland is no joke. It requires employing hundreds of employees and a tremendous fixed cost as well as maintenance expenses. How many parks at the same scale as Disneyland enter the market every week/month?

This crisis will blow over. It has to. It’s unfathomable to think that we will be in this self-quarantine forever. Once we get back to normal, whatever it may be, people will fly and go to Disneyland again. Although I don’t deny that what reduces new competition for those businesses now becomes sort of liabilities, it’s worth remembering that nothing good comes easy. The same logic applies to business

Remote working

Plenty of discussion online has been about how people will adjust their working style post-Covid19. Even in my company, talk has been going around on how folks will continue to work remotely for a while and how preparation should be looked into to accommodate that need. Personally, I think there will be a mixed working style moving forward. Indeed, working remotely saves everyone time from having to dress up and driving to work. Nonetheless, there is also value in face-to-face and human interaction. There is a reason why companies design common areas, hoping that folks will randomly bump into each other and creativity will spark. Plus, speaking from personal experience, I am sick of sitting at my desk, staring at the screen for hours and putting more time into work. I miss my workplace, my coworkers and casual conversations at work. So, even though folks will prefer working remotely 100% in the short term, in the long run, I expect it to be a mix.

First look at Disney Plus

Disney+, the biggest initiative and priority in the near future of the iconic company, went live today in the US and Canada. I have been using it for 2-3 hours and below is the summary of my experience so far.

The sign-up is pretty standard and smooth. Nothing major. Even though there was some reported difficulty in finding the app on Apple Store

Fairly expectedly, the app encountered some technical issues which users widely reported here. I have had my fair share as well

That led to Disney+ Help twitter page issued the statement below

In addition to the technical mishaps, I was a bit frustrated by the User Interface. While you can download episodes from the mobile app, I couldn’t find the feature on the browser version. I am not sure if that was intended to limit the downloads, but I was under impression that it was possible.

At the end of a movie, you are presented with a suggestion like the screenshot below, but there is no way to get back to the homepage or the category page

There is an “Extras” tab under the main banner of a movie/episode. They can be never-seen-before clips that viewers will appreciate. However, they could have made the tab more visible or added it to the end, in my opinion

There are some Extras clips on the mobile app that are not available on disneyplus.com.

At the bottom of the website, there is a tab called “Interest-based ads”. On that page, you can choose to opt out of behavioral targeting by ads companies on disneyplus.com

In terms of content, I am excited about National Geographic and Marvel. But to succeed, I do think Disney Plus has quite a long way to go and much to improve if they want to augment user experience

Disclaimer: I own Disney stocks in my personal portfolio

Weekly readings – 9th November 2019

Three Big Things: The Most Important Forces Shaping the World

Venture Capital Pioneer Kept Entrepreneurs’ Egos in Check

Microsoft Japan’s experiment with 3-day weekend boosts worker productivity by 40 percent

The father of the modern frozen food industry

Nokia’s collapse turned a sleepy town in Finland into an internet wonderland

Apple TV, Apple TV, Apple TV, and Apple TV+. I have to say Apple could and should have done better with all these silly names

Apple Watch Forced Fitbit to Sell Itself

Remember the Uber self-driving car that killed a woman crossing the street? The AI had no clue about jaywalkers

How Google Edged Out Rivals and Built the World’s Dominant Ad Machine: A Visual Guide

AirPods Pro review – within earshot of perfection

Less than Half of Google Searches Now Result in a Click

A deep dive into Internet censorship in Russia

Bob Iger Takes the Gloves Off for Disney’s Streaming Debut

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

Notable notes from Disney’s earning call

Today, Disney released their 2019 Q3 result. Below are a few points that stood out for me

  • Hulu got 28 million paid subscribers while the figure for ESPN+ stood at 2.4 million
  • The integration of 21 Century Fox had negative impact on Disney’s earning, including the subpar performance of movies such as Dark Phoenix
  • Direct-to-Consumer & International segment expected to make $900 million loss in the next quarter, due to investment in the launch of Disney + and support for Hulu, ESPN+
  • Fantastic results for the studio as per Bob Iger

The studio has generated $8 billion in global Box Office in 2019, a new industry record. And we still have five months left in the calendar year with movies like Maleficent: Mistress of Evil, Frozen 2 and Star Wars: The Rise of Skywalker still to come. So far this year, we’ve released 5 of the top 6 movies including four that have generated more than $1 billion in global Box Office. Avengers: Endgame is now the highest grossing film in history with almost $2.8 billion worldwide. Captain Marvel, Aladdin and The Lion King have each surpassed $1 billion. And with more than $960 million in Box Office to date, Toy Story 4 will likely cross that threshold in the coming weeks. And all of these movies will be on Disney+ in the first year of launch.

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  • The leadership behind the studio will manage the film strategy for 21 CF as well
  • Deadpool, Fantastic 4 and X-Men will be part of Marvel Studios
  • Come this November, users can have access to Disney+, Hulu (ads-supported) and ESPN+ as a bundle for $12.99 a month, well below the total sum of all threes, if subscribed separately
  • “Hotstar had more than 300 million average monthly users, served an unprecedented 100 million daily users and delivered a high-quality streaming experience to 25.3 million simultaneous users, which is a new world record”
  • Disney is discussing deals with Apple, Amazon and Google as distribution partners, deals that are expected to close
  • Focus on marketing for Disney+, per Bob Iger

Disney+ marketing is going to start to hit in later this month, later in August. We’re actually going to allow members of D23 to be the first to subscribe. I’m actually going through a comprehensive marketing plan with the team next week. Comprehensive probably is an understatement. It is going to be treated as the most important product that the company has launched in, I don’t know, certainly during my tenure in the job, which is quite a long time. And you will see marketing both in traditional and nontraditional directions basically digital and analog also significant amount of support within the company on basically company platforms. And then of course all of the touch points that the company has, whether it’s people staying in our hotels, people that have our co-branded credit card, people who are members of D23, annual passholders, I could go on and on. But the opportunities are tremendous to market this. And I feel good about some of the creative that I’ve already seen. But you won’t start to see it until later this month.

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Quick Thoughts

I cannot wait to see the battle of the streamers and how well Disney+ will fare. As a student of business, I am fascinated to see the strategies and execution of Disney+ vs Netflix. Netflix has a huge subscriber base as advantage over Disney+, in addition to a household name (ever heard of “Netflix and chill”?) and some great original content. But Disney has its own strengths as well, including marketing expertise, household name, a great content library and additional revenue streams.

I am thrilled to see how fast Disney+ will be able to sign up folks. The emphasis on marketing, the aggressive pricing of the streaming service, the bundle and the focus on exclusive content in spite of loss from licensed deals show that Disney is dead serious. It will be interesting to see how viewers will react and whether there will be some market share loss by Netflix at the hands of Disney+ and other upcoming streamers.

I honestly don’t know how it will go. As a fan and a consumer, I cannot wait to see.

Disclaimer: I own Disney stocks in my portfolio.

Weekly Readings – 3rd August 2019

The Streaming Wars: Its Models, Surprises, and Remaining Opportunities

Disney’s remakes have made more than $7 billion globally since 2010

Waste Only. How The Plastics Industry Is Fighting To Keep Polluting The World

Canada’s forgotten rainforest. Whenever I read something about deforestation, my heart sinks. We should be advanced enough as a race to stop deforestation.

Netflix Splurges on Big-Budget Movies. Some important details to note regarding Netflix offered in this article

How the state runs business in China

Netflix and software

How Digital Advertising Markets Really Work

Avengers: End Game and The Acquisition of Marvel

I went to see the Avengers: End Game on Friday with a few friends. The movie is indeed worth the wait and the hype, in my opinion. Rest easy. I won’t give out any spoilers. I was floored by the attention to details and the extraordinary cinematography put in the film. The plot was as good as you could get. Of course, there is no plot that can satisfy all the fans out there, but it would be a tall order to beat what the writers put together. So kudos to them. If you haven’t watched it yet, do it before any spoilers come out. There are moments in the movie that I believe should only be watched in real time. If you can, watch the Marvel movies you haven’t beforehand. There are some details in the End Game that require some context to be understood.

The End Game is a great culmination of a tapestry of 21 or 22 movies in the Marvel Universe. Marvel has left quite a bit of cultural influence in our societies such as Black Panthers or Captain Marvel and become an established household name. It is now a great asset for Disney. This brought me back to the acquisition. The studio was bought by Disney for $4 billion back in 2009. Since then, the studio has churned out one blockbuster after another. Below is what Marvel movies have generated in revenue after 2009

Source: Boxofficemojo

It’s necessary to point out that The End Game has been out for only 5 days and the figure above is not updated yet. In a few months, the chart above will look different and you will likely have to look to the left hand side for The End Game

In terms of financials, the $4 billion outlay back in 2009 looks like a tremendous bargain now. In total, the studio has brought around $19-20 billion in revenue. I imagine it will be more profitable for Disney if it keeps the quality of the movies like it has been for the last 10 years. No one can know for sure, but a good sign is Star Wars and Disney movies which have been still popular even after many years.