In this article, Matthew Ball, known for his deep dives on the intersection of media and technology, explains why technology shifts in the audio industry haven't significantly grown the sector's revenue pie as they did in mediums such as video and gaming. He remarks: "Although music offers many examples of how changes in media technology lead to changed business models and content, the category is nevertheless considered a tragic outlier in the media industry because of its economic non-responsiveness to technology." Ball strikes an optimistic note on the industry's future, however, given newer developments such as podcasts and digital concerts. His discussion around digital concerts is especially interesting, as a broad spectrum of companies (Spotify, Fortnite, Twitch, YouTube, TikTok, etc.) can attack this opportunity from different angles.
ABOUT Beach Reads
Welcome to Beach Reads, a collection of interesting links that we at WCM have come across and want to share. The goal of this publication is to engage with a broader audience in order to better ourselves and others. Feel free to email us at firstname.lastname@example.org with any thoughts or feedback, and click here to subscribe!
01. The Future of Audio
Audio's long-term potential in terms of functionality, interactivity, and integration with other media is the focus of this a16z podcast with Chief R&D Officer of Spotify, Gustav Söderström. Söderström makes a compelling case that audio as a platform is a fertile ground to enhance value for all stakeholders (listeners, creators, corporates). He juxtaposes video and audio as form factors and frames both the opportunities and challenges in integrating music and podcasts. The discussion will surely make you notice and appreciate what you do on your audio streaming app whether at home or in your car. Take a listen.
Much investment debate about the future of the audio industry has centered on negotiating power. Who has the leverage in negotiations between distributors and labels? Between labels and artists? More importantly, how will that relative power evolve over time? The recent IPO of Korean label Big Hit Entertainment, most known for K-Pop sensation BTS, adds a wrinkle to this debate. BTS members were granted equity ownership, giving them an IPO windfall. Rolling Stone asks the question: "Could BTS's much-talked-about ownership in its parent company change this industry paradigm, pressuring the majors to hand stock in their companies to blockbuster artists during negotiations and re-negotiations?" Is this a watershed moment, or a one-off due to the unusual revenue concentration at play (BTS accounts for more 85% of Big Hit's revenue)?
02. Retail & DTC
Omni-channel is the inevitable end state of retail and a future that was pulled forward many years because of COVID, says Gavin Baker, whose work has been previously highlighted in Beach Reads. New consumer habits such as BOPIS (buy online pickup in store) will prove sticky, so that the biggest winners in this new world will be the leading bricks-and-mortar companies that invested early into e-commerce, says Baker, who argues that most retailers blundered by not building out their e-commerce presence, "[ceding] the future to Amazon because of objectively incorrect beliefs about e-commerce profitability and internal cultural issues." An interesting debate is which group is better positioned as the physical and digital worlds converge: those with bricks-and-mortar roots, as they can leverage distribution and other scale efficiencies afforded by their physical footprint, or the new wave of DTC e-commerce companies, which accumulate lots of consumer data and can design infrastructure with a clean slate (e.g., smaller footprint, showroom concept)?
Speaking of DTC, this article from Digiday delves into how brands are wrestling with advertising strategies heading into an unusual holiday season. Uncertainties abound with respect to Facebook and Google advertising costs, demand trends, and shipping times/availability. Many upstart brands wrap themselves in buzzwords such as "agile" and "nimble," and these holidays are likely to prove an acid test for which truly have those qualities.
03. Technology Trends: Grappling with the Implications
The internet and venture capital industry were born in the United States and, as a result, Americans have grown accustomed to "Made in America" websites, software, and tech companies over the years. In this post, Benedict Evans details how quickly this has changed, with 80-90% of internet users and nearly 50% of venture capital investment dollars now outside the U.S. Evans argues that the recent frenzy around TikTok was a crossroads: "This is the first time that Americans have really had to deal with their teenagers using a form of mass media that isn't created in their country by people who mostly share their values. It's from somewhere else. That's compounded by the fact that the 'somewhere else' is China, with all of the political and geopolitical issues that come with that, but I'd suggest that the core, structural issue is that it's foreign." Evans sees a number of potentially far-reaching implications from the trend, such as how regulators around the world will react (more complexity seems inevitable) and whether Silicon Valley's relevance will start to wane.
Emmanulle Charpentier and Jennifer Doudna jointly won the 2020 Nobel Prize in Chemistry for their contribution in advancing the CRISPR technology. The potential therapeutic applications and benefits of gene therapy, in this case in-vivo gene editing using CRISPR, are nothing short of remarkable. But as the Peter Parker Principle (sorry, had to work in that reference) states, with great power comes great responsibility. If you're wondering where the scientific and ethical debate currently stands as we inch closer to Gattaca, this investigative long-form article provides a fascinating behind-the-scenes look into the "CRISPR Babies Scandal." Also below are links to five articles that provide a truncated timeline on how the CRISPR debate has evolved. Enjoy!
04. Investment Philosophy
In one of the more interesting recent investor interviews, Henry Ellenbogen and Anouk Dey of Durable Capital dig into the importance of manager attributes such as flexibility, adaptability, and the ability to recognize patterns on the "Value Investing with Legends" podcast. Piggybacking on the theme that "investors are [often] very good for periods of time but very few are good for extended periods of time," Henry and Anouk also discuss the merits of crossover investing and the relevance of "second acts" when it comes to individual investment ideas.
Psychologist Steven Pinker breaks down why news skews so negative and argues that this significantly misrepresents the objective long-term trajectory of the world. "News that unfolds quickly is more likely to be bad than good," Pinker says on this Hidden Brain podcast episode titled "Doomscrolling." "It's easy for something to go wrong very quickly… [whereas] a lot of things that go right consist of nothing happening. If a country is at peace, if a city has not had a school shooting, if there is not a famine happening, there is no headline." Given all the events of 2020, the conversation is worth a listen.
Why humans make the same mistakes over and over is the topic of this post by Collaborative Fund Partner Morgan Housel. He decomposes common causes of poor decision making by highlighting, for instance, the risk of allowing little errors to compound into something much larger. "It's easy to ignore small mistakes, and even easier to miss how they morph into huge ones," Housel says. "So huge ones are what we get." He examines how we can quickly forget what game we're playing: "Taking your cues and advice from people with different goals, abilities, and desires than you is an easy road to misery," and how we tend to mispredict how we'll react to stress. On that point, the market volatility in March and April provided ample opportunity for candid reflection. How did you react (temperament, time allocation, etc.) relative to how you expected to react had you been provided the hypothetical beforehand?
We find creativity and serendipity to be two of the most interesting yet underexplored areas of investing. Christian Busch, author of a new book The Serendipity Mindset, argues that serendipity isn't "just something that happens to us" but rather a mindset that can be cultivated. To Busch, serendipity boils down to an ability to notice the unexpected - connecting seemingly unrelated facts or events - and the tenacity and risk tolerance to follow through on that connection. Some best practices he suggests for developing an environment conducive to serendipity include conducting "project funerals" (or postmortems), reframing both capabilities and problems, placing diverse bets, and creating psychological safety within the group.
Disclaimer: To the extent that Beach Reads discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. The companies and or securities referenced and discussed do not constitute an offer nor recommendation to buy, sell or hold such security, and the information may not be current. The companies identified and described do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in the companies identified was or will be profitable. Beach Reads does not constitute a recommendation or a statement of opinion, or a report of either of those things and does not, and is not intended, to take into account the particular investment objectives, financial conditions, or needs of individual clients.