Dana Blankenhorn

Speaking of Sports

The most interesting economic story right now, verging on the political, involves sports.

Two business models are colliding.

The European business model is built on the club. Clubs organize into leagues, but government interference or subsidy is prohibited. The result is capitalism red in tooth and claw. There are haves, and there are have-nots. But there is some social mobility. A bad club loses money when it drops down the national pyramid. A good club can make money as it rises.

The American model is based on the franchise. Leagues control franchises, much like McDonald’s controls its franchisees. Government subsidy is actively encouraged. Most college teams are controlled by state governments.

Death of Old Hollywood

Hollywood was born 110 years ago based on the control of distribution channels.

The theaters made the films. The “studio heads” all started as theater owners.

Since then, control over distribution has determined the industry’s direction. When the Supreme Court took away the theaters’ power, it transferred to TV networks. Then it went to cable.

Now it’s in the hands of the Cloud Czars.

I’ve been writing about this since 2019l. Apple, Amazon, Google and (eventually) Meta will control our entertainment options because clouds control distribution. Microsoft may join them, but they were so burned by their efforts at the dawn of the Internet Age that it will take time.

The companies that became heirs to the studios made the previous jumps, to the small screen and then the multi-channel screen. They haven’t made this one. They don’t own clouds. The survivors will be those who can sell out.

Why Clouds Will Win the Streaming Wars

Since long before the streaming crash began, I predicted its Big Three would end up being Apple, Google, and Amazon.Com.

Not Netflix. Not Disney. Not Comcast or Paramount or Warner Brothers.

The Cloud Czars.

As usual, I was early to the story. But it has long been clear that, when push comes to shove in streaming, money talks. The coming result was easy for me to see and the story was easy to do.

Of the three Cloud Czars, Amazon is the best-positioned. They have the front-end technology with the Fire Stick, which has one-third of the U.S. market. They have Prime Video, which becomes a huge value if you use the Amazon store. They can re-sell every other streamer’s stuff and make money. They’re also global, something only Netflix and Disney among their competitors can lay claim to.

The Coming Streaming Shakeout

Streaming is about to learn what the printed web learned 20 years ago.

In a world of unlimited content, the gating factor for your audience is time.

There’s a corollary. Don’t depend on ads to make up for this. There’s just too much inventory.

I have a bad tendency to be early to things. I screamed about the dot-com bubble in 1997. I’ve been yammering about the coming streaming crash since 2019.

But now it’s here. First Netflix (NFLX) fell from grace. Then Disney (DIS) did the same. The Cloud Czars are worth half what they were now that you can get paid for having money. When interest rates were 2%, a price to earnings multiple of 45 looked OK. With money at 5% you need to be below 20 to be competitive.

Retire Dan Garber

Soccer has a huge opportunity to become America’s favorite sport, as it is everywhere else.

But it won’t get there with the minor league business model of Major League Soccer (MLS) Commissioner Dan Garber.

Garber’s business model was crafted in the 1990s, when MLS feared failure. All teams are controlled by the league. The season runs from the spring to the fall, and ends in a series of play-offs, just like baseball.

The league has prospered, thanks to expansion fees. New owners pay hundreds of millions to join MLS, and this gets split among existing teams. This means teams can’t be relegated if they refuse to be competitive. It makes for lazy owners and bad soccer. It means the most important games are played when they don’t draw interest.

The answers are simple, but Garber won’t consider them. He needs to go.

Once he’s out of the way, MLS should buy the minor league United Soccer League. It can do this by selling its own interest in member teams. This will create a windfall that can fund a new structure.

Bottom Rail on Top

It’s a fight as old as the century. (There's a signed copy available at Amazon.Com.) 

Cable operator doesn’t want to pay too much for programming, lest they be forced to raise prices and lose customers. They play hardball with the cable programmer, who tells cable viewers they’re about to “lose access to your treasured programming” should a deal not be made.

Sometimes a deal is not made. Sinclair Broadcasting, now running the regional sports networks it bought from Fox and renamed Bally’s, has lost a lot of these deals. If I want to watch Atlanta United home games, I either take MARTA to the stadium or go to a bar.

It happens a lot with sports. That’s because sports programmers overpay for their rights, then jack up the price they’re charging operators (thus you). If MSG, which has rights to New York teams, can’t get a new deal from Comcast by September 30, for instance, you may miss the New York Red Bulls’ playoff push.  (It’s going nowhere, by the way.)

So, you have the big, bad cable operator against the poor, beleaguered programmer. Comcast is a meanie, you say.

But what if it were Comcast that was doing the begging? That’s happening right now.

Comcast has owned NBC Universal for a decade. It bought the asset from GE. (This was covered extensively on the documentary series 30 Rock.) It’s a sweet deal. Programmer NBC negotiates with operator Comcast for the best possible deal, then Comcast moves money from one pocket to the other.

It’s All Biden’s Fault

I have a friend who is mad as hell at Joe Biden right now.

There’s a job waiting for him overseas. He’s fully vaccinated. But he can’t prove it to his new employer’s satisfaction. Even if the host country lets him in, he’ll have to be in quarantine for 2 weeks, at great expense, before he can start work.

How can this be, he asks? Why hasn’t the President mandated vaccine passports?

We all overestimate what a President can do. The media treats him as magic, the final authority, the one person responsible for everything.

But the President’s powers are severely circumscribed. Especially in this case.

There is no national medical database. There’s no federal control over health insurance. Under the McCarran-Ferguson Act , passed in 1945, health insurance is a state function. Even the decision upholding the Affordable Care Act held that states didn’t have to take its Medicaid expansion. Many still don’t.

Virtual Staging

Right now, production for films, TV, video games, and Web sales are all done differently.

Five years from now, they will all be done in the same way, using “virtual stages” and virtual reality software.

As with everything else in tech, it’s starting at the top of the cost curve but will head down rapidly. Tools like the Unreal Engine cover the software side. Virtual stages represent the hardware side.

The cost of this gear is very high. But the gear is just the tip of the cost iceberg. You need people who can run it, you need people who can write code around it. You need people to integrate it, people who can tell stories using it, and you need big bandwidth to distribute it.

Political Secrets of Madison Avenue

Next time you see an ad, any ad, look closely.

It’s telling you which way the wind is blowing.

Advertising is a psychological mirror. It offers images of what we think ourselves to be. It must do that to do its job. We see the people in an ad, we identify with them, and through that we identify with the product or service being sold to us. If we don’t identify with those people, we don’t buy the product. Thus, ads can’t make mistakes.

Look at the history of advertising, and you’ll see that clearly. You will see it in cleaning products, in cooking products, in cars and insurance ads. It’s why Aunt Jemima and Uncle Ben were beloved brand names for a century, until we saw the racism inside them. It’s why Toyota ads never change.

In 2021 ads are shouting one word. Diversity. They’re showing mixed-race couples far more often than you see them on the street. They’re showing same sex couples in the same way. Most spokesmen are now spokeswomen. An ad for VMware shows Cyrina Fiallo wearing sneakers and casual clothes  telling viewers to “welcome change.” What’s striking about the new Verizon ad with Kate McKinnon is that she’s wearing heels. Then again, Verizon is a conservative company.

Tech’s Democracy Problem

Somewhere in the Caribbean, there’s a 12-year old kid poised to control the fate of a trillion-dollar company.

Google has what’s called a “dual-share” structure. There are GOOG shares, which supposedly convey ownership. Then there are GOOGL shares, which hold most of the voting rights and convey control. This was put in place by co-founders Sergey Brin and Larry Page. Through GOOGL they control the company in perpetuity.

This is tech’s democracy problem. The democracy in corporate governance is disappearing.

Alibaba came public in New York first, rather than China, because it had this dual-share structure. You can’t buy Alibaba except through Jack Ma. China had to relent on this before Alibaba would list in Hong Kong. Yes, China’s market was (it isn’t now but it was) more democratic than America’s.

In a democracy it’s one man one vote. In a corporation it should be one share one vote. Increasingly it isn’t. The whole thing became a comedy in the mess around WeWork. Softbank’s Masayoshi Son sent billions to WeWork under the mis-named “cult of the founder.” He structured the deal so that founder Adam Neumann couldn’t be ousted. When it became apparent that Neumann was an idiot or perhaps worse, it cost WeWork billions to get rid of him. The same thing happened at Uber with Travis Kalanick.

This idea that founders should control their companies indefinitely arose in tech during the 1980s. Wall Street was able to oust Apple co-founder Steve Jobs, installing “adult supervision” that nearly wrecked the company, before Jobs was asked to return. Even after that, Jobs’ stake in Apple remained a minor one. His estate left nearly as much value from his Walt Disney shares, from Pixar, as from Apple.