Hail Marys and the limits of the hype economy

Events are moving quickly and in a very bad direction for Tesla.

The company reported Wednesday that automotive revenue in the first quarter fell 41% to $3.7 billion from $6.3 billion in the previous quarter, a far steeper drop than expected for sales of all its electric-cars — the Model S, the Model X and the Model 3.

Total sales, including Tesla energy and battery storage products, fell 38% to $4.5 billion from $7.2 billion.

The sales slump in turn slammed the company’s bottom line. The company turned unprofitable again after two rare quarters of positive earnings. The net loss was $702 million, after a $139-million profit in the previous quarter. (The first-quarter loss was close to what the company recorded in the year-earlier period — $709 million — when it was grappling with fundamental manufacturing problems.)
Scarce cash got even scarcer. Cash on hand dropped from $3.69 billion at the end of last quarter to $2.2 billion. That included paying off $920 million in convertible bonds.

Operating cash flow turned negative — a net $640 million going out the door over the three months versus a positive $1.23 billion in the previous period.

Tesla shares, down about 22% for the year through Wednesday’s close, were up slightly in after-hours trading Wednesday, to about $259 a share.
...

Where the money for such projects will come from is unclear. Musk was asked why he doesn’t raise money through a debt or equity sale. Musk said he’d rather focus on efficiency first. “I don’t think raising capital should be a substitute for making the company operate more effectively,” he said. “I think it’s healthy to be on a Spartan diet for a while.”

Without an infusion of equity or debt, major expansion would require healthy cash flow. But cash flow has gone negative. Capital spending, which funds assembly lines and other manufacturing operations, has been declining. It fell from $325 million in 2018’s fourth quarter to $280 million in 2019’s first quarter. The number topped $1 billion in the third quarter of 2017 and has fallen with each quarter.

Not surprisingly for those who have been following his career, rather than tamping down expectations, Elon Musk has responded with even more incredible promises (from a couple of days ago:

Tesla’s aim is to create a fleet of self-driving cars that can be used as robot taxis in what Musk is calling the “Tesla fleet.” The company will manage the apps and software. Tesla owners could let their cars out for robo-taxi use, with the company keeping a percentage of the revenue. Tesla would also operate its own robo-taxi fleet.

“We expect to deploy the first robo-taxis with no one in them next year,” Musk said Monday. “I’m confident we’ll get regulatory approval somewhere.”

Make no mistake. Musk is talking about level 5, fully autonomous vehicles, something that, as far as we can tell, no one is even close to. Most researchers put this functionality at least a decade away, which is why the focus has shifted to finding ways to get the most out of level 4 AVs.

Even by his standards, this is an audacious claim, but the stakes are stunningly high. The valuation of Tesla has always been based on a combination of hype and the "real life Tony Stark" persona and there are still investors who want to believe (as well as those who don't).

The range in target prices for Tesla stock is almost bizarre, reflecting wildly different opinions about Tesla’s growth prospects. The stock closed trading Monday at $262.75 a share, down 3.9%.

The Ark Invest money management group sees Tesla trading at $4,000 as self-drive technology becomes more popular. Ives puts an “outperform” rating on Tesla, with a 12-month price target of $365.

At the other end of the spectrum, Garrett Nelson of CFRA recommends Tesla stockholders sell, with a target price of $225 a share. And short sellers have set a target price as low as zero.

I suspect that a lot of the visionary pronouncements and proposals about giant underground slot car racing sets  and brain-computer interfaces we've been hearing about recently have less to do with the projects themselves and more with maintaining a futuristic aura around Musk, and thus propping up the stock a little bit longer.

It worked for a long time but even in the hype economy, there are limits.

Elon Musk's self-confidence shouldn't inspire much confidence

More good work from Timothy B. Lee on the Tesla beat [emphasis added]:

Tesla is less than two years away from full self-driving, CEO Elon Musk said in an interview with MIT researcher Lex Fridman published on Friday. And he said Tesla was far ahead of other companies working on self-driving technology.

"To me right now, this seems 'game, set, and match,'" Musk said. "I could be wrong, but it appears to be the case that Tesla is vastly ahead of everyone."

Musk told Fridman that Tesla customers would need to keep their hands on the wheel "for at least six months or something like that." But he predicted that soon—"maybe even toward the end of this year, I'd be shocked if it's not next year at the latest"—Tesla's self-driving technology will become so good that "having a human intervene will decrease safety."

Musk has maintained an optimistic mood about Tesla's self-driving progress at the same time that other industry CEOs have been tamping down expectations. (Musk is congenitally optimistic on this topic—in 2015, he predicted that fully self-driving cars would be ready within two years, declaring it a "much easier problem than people think it is.")

...

"Tesla Autopilot is not yet even close to where Waymo was 6 years ago," wrote Brad Templeton, a longtime self-driving car evangelist who advised Google during the early years of its self-driving car program.

By 2012, Google had developed highway driver assistance software that had capabilities similar to recent versions of Autopilot. Google considered selling this technology as a standalone product but decided there was too much danger of drivers becoming overly reliant on the technology—and failing to properly monitor it.

So Google pivoted to developing fully self-driving cars that would never need customers to take control. By 2015, Waymo was confident enough in its technology to allow a blind man to ride through residential streets in Austin, Texas. But more than three years later, Google's project—now rechristened Waymo—still hasn't launched a fully driverless taxi service.

At this point, regular viewers should be able to fill in the the missing dialogue without much trouble. Musk is a huckster, and like most of the best of the breed, he has the gift of believing his own line. His natural lack of talent as an engineer (he really is shockingly bad at this) may actually give him an advantage here -- that Dunning–Kruger boost of confidence can make a pitch even more convincing.

You can almost imagine the conversation with the genuinely gifted engineers at Tesla as they tried to explain the many problems with that were almost solved compared to the handful that were still years away from resolution, patiently walking him through the subtle distinctions and spelling out the difficult trade-offs required to get an autonomous vehicle ready for the road.

The real tip-off is "much easier problem than people think it is."  If you've ever had a job that required presenting complex technical or analytic concepts, you've probably had that moment where you realize that your audience missed all of those fine but important point and drew exactly the wrong conclusions.

Of course, your audience probably didn't use those conclusions to justify the viability of a multi-billion dollar company.

It's entirely possible for Netflix to be a fantastic success and a disastrous failure

Not just Netflix, of course. For any of the numerous companies with both huge valuation and sky-high price to earnings ratios, healthy growth and a couple of decades of solid profitability aren't enough to justify the level of investment. These companies have to be unprecedented, spectacular successes that completely dominate their industries.This is one of those facts that everyone knows but few spend much time thinking about, at least few of those in the business press.

Personally, I hope that Netflix has a long and lucrative run -- the more players, the better -- but it's important to remember that the bullish argument for the stock price requires blowing Disney out of the water, and right now, the house of mouse is looking rather substantial.

Check out this graphic courtesy of Barry Ritholtz:

Elon Musk's latest sounds "worse than pointless"

At this point, I don't think that Musk actually expects to get any real money out of the DC to Baltimore tunnel proposal directly, but he has got to shore up his visionary credentials and he has to do it fast.

Demand for Tesla cars appears to have stalled. Stores are being closed. Inventory is piling up. Prices are being cut.

Panasonic, the company’s closest business partner, abandoned plans to expand operations at Tesla’s giant battery factory in Nevada unless car sales pick up.

Although Tesla posted consecutive quarterly profits late last year, Musk has prepared Wall Street for a loss when first-quarter 2019 earnings are announced April 24.

The controversial chief executive also faces contempt charges from the Securities and Exchange Commission. He had agreed to settle SEC stock fraud charges after tweeting falsely last August that he had the funding to take Tesla private. In the settlement, he agreed not to tweet material information about the company without prior vetting. A federal judge said the settlement could be clearer, ordering both sides to put on their “reasonable pants” and revise the agreement.

Amid the bad news, Tesla’s volatile stock has fallen from a year-to-date high of $347.31 a share to 273.26 on Thursday, a 21% decline.

 The valuation of the company was always driven primarily by Musk's carefully cultivated "real life Tony Stark" persona, and that persona is starting to fade just as the company's debts are coming due. He absolutely has to keep the show going.

Aaron Gordon of Jalopnik has an insightful review of the latest act.

Elon Musk's D.C. to Baltimore Tunnel Sounds Worse than Pointless

What if I proposed digging two 35-mile tunnels that would begin and end right next to two train stations that currently have service between one another? And this tunnel would be right underneath an existing highway? But this tunnel would be used to skim cars along tracks at speeds no one has achieved yet? And it would move fewer than two trains’ worth of people per direction per day?

...

This is no small caveat. 35 miles is a really long tunnel, and they’re not just digging one, but two of them. The report claims a digging time of less than two years, which would be an unprecedented achievement orders of magnitude [Not quite, but still a lot -- MP] faster than any other tunneling project to date, as Kevin DeGood, Director for Infrastructure Policy at the Center for American Progress pointed out:

Reuters: “Boring says it would take between 12 and 20 months to dig the [35.3 mile] tunnels.”

Hahahahahahahahahahahahah

— Kevin DeGood (@kevin_degood) April 18, 2019

For comparison, a 35-mile twin-bore tunnel through the Swiss Alps took 17 years to build. Yes, digging through the Alps is much harder than the soil beneath Maryland, but not that much harder.

And, for the record, it takes high-speed trains 17 minutes to travel through the tunnel, or only two minutes longer than the proposed travel time in Musk’s DC-Baltimore route.

...

Instead of talking about those things, The US and Maryland DOTs are investing actual resources to study this pointless tunnel and openly advocate for its construction. In a statement accompanying the report’s release, U.S. Secretary of Transportation Elaine L. Chao talked up the potential benefits (heavy emphasis on “potential”):

    The publication of a draft environmental assessment for this unique project demonstrates the Department’s commitment to preparing for the future of transportation across all modes.

All modes?! It’s a car in a tunnel! That mode exists!

It's been an eventful week.

I think we should all take this advice for now and come back refreshed and ready to go Monday morning.

An important message for everyone eager to tweet your thoughts on the Mueller report at 9:30am

pic.twitter.com/jHiMfT0G6x

— Comfortably Smug (@ComfortablySmug) April 18, 2019

“Uber for astrological readings” is still a more rational investment than the actual Uber

I'm afraid there's less to this story than meets the eye. All snark aside, astrology has been a popular and profitable segment of the economy for a long time and an app that delivers horoscopes makes perfect business sense. Unlike, for example, a model based on buying movie tickets than reselling them at a loss.

From the New York Times:

As an Aquarius, David Birnbaum is naturally skeptical of astrology. But as an investor, he has zero doubts about the business potential of the $2.1 billion “mystical services market.” It’s an area that he has been trying, unsuccessfully, to invest in for nearly two decades.

Mr. Birnbaum researched lots of astrology start-ups in the Web 1.0 era but concluded then that they were not good investments. “They were pretty much just marketplaces sending traffic off to random astrologers,” he said. “They were definitely shady.”

This year he finally backed one: Sanctuary, an app that can be described as “Uber for astrological readings.” For $19.99 a month, you can receive a monthly one-on-one chat consultation with an astrologer. (The app also provides free daily horoscopes.)

Mr. Birnbaum’s decision to back a horoscope company through Five Four Ventures, the incubator he runs, “gets a lot of grins” from people in the finance world, he said. But they get it. Astrology is having a cultural moment, and for investors, that translates to dollar signs.

In recent years astrology traded its psychedelic new-wave stigma for modern Instagrammy witch vibes, and those vibes are very popular with millennial women. This means there’s money to be made. Start-ups — professional, non-shady ones with interesting business models — are bubbling up, eagerly raising funding from people like Mr. Birnbaum.

I really should frame this in terms of the hype economy and magical heuristics, but you all have heard it before

Scott Lemieux points us to this from the New York Times

The offering, which could value Uber at around $100 billion, is expected to reverberate through global financial markets and to solidify the company’s position as one of the most consequential technology firms of the past decade. The share sale would be the biggest since the Alibaba Group of China began trading on the New York Stock Exchange in 2014, and would peg Uber’s value at more than four times that of United Airlines’ parent and double that of FedEx.

But the prospectus renewed questions about how sustainable Uber’s business actually is. The company said in the filing that it lost $1.8 billion in 2018, excluding certain transactions, on revenue of $11.3 billion. And the prospectus also showed that its rocket-ship trajectory for revenue growth was beginning to slow.

While I appreciate the dry understatement of describing an annual loss of almost two billion in terms of questions about sustainability, I'll have to go with Lemieux's summary:

I mean, I’m as happy to pocket the subsidies offered by venture capitalists as the next urban dweller. But the fundamental problems of Uber’s business model remain as ineluctable as ever. They haven’t solved the problem of offering prices low enough to get a lot of customers while paying drivers enough that they’ll be quickly available for prospective riders while making money. And the barriers to entry will remain low enough — and the ability of riders to use other modes of transportation if prices get too high present enough — that “drive your competitors out of business and jack up the prices” can’t actually work for the industry either.

South of 92nd St.

For about a dozen years now, I've been saying that one of these days Watts is going to gentrify. Back then, the response I got from residents of the neighborhood was polite disbelief. A few years later, it was "well, maybe someday." 

Now, it's a nod followed by "look at Inglewood."

From The Root:

Similarly, in neighboring Inglewood, the same type of thing is happening. A new NFL stadium and plans for a new basketball arena for the Los Angeles Clippers have made Inglewood the new target for developers who are swooping in, buying up properties, and pushing out older residents who have lived there for years.

In some instance, as Angel Jennings reports for the Los Angeles Times, tenants have been given notice that their rents will more than doubled—although no new improvements have been made to the units they are living in. In cases where the rent is not being raised, tenants are simply being given 60-day notices to vacate the premises as new owners take over.

In a city with no rent-control or rent-stabilization laws, there is little that anyone can do to stop this from happening to residents—about 25 percent of whom are black and over the age of 55, according to the Times.

In one instance, Tomisha Pinson—who lives next door to site where the new stadium is being built for the Los Angeles Rams and Chargers—told the Times that she received notice that her $1,145 monthly rent would be increasing to $2,725 for the two-bedroom apartment she currently lives in.

...

Currently, blacks and Latinos make up 42 percent and 51 percent of Inglewood’s population, respectively. Gentrification could change all of that. Two-thirds of the city’s residents are renters, and with no rent-control laws in place to prevent what is currently happening, the city is an attractive investment to those looking to cash in on all the new entertainment construction.

Back on the TV beat

I'll probably be coming back to connect some more dots -- it's a complicated story -- but there's been an interesting development in the streaming television industry which doesn't quite jibe with the some of the assumptions that are essential to the standard narrative.

Specifically, the future of television is the Netflix, single-tier, all-you-can-eat model. No ala carte, no ad-based approaches. The services that survive will bell the ones that create the most compelling (i.e. buzzworthy) original content. There is a reasonable chance that this will end with Netflix holding very close to a monopoly over the world market for movies andd television.

Both investors and journalists have embraced these assumptions, and their support have propped up the whole enterprise, but other than that, there has never been much evidence in support and more than a little that seems to go against them.

We've already discussed the rise of the terrestrial superstations starting with Weigel's MeTV. This model, based on ad revenue, older established programming, and minimal spending on original programming, has proven extraordinarily profitable.

With that in mind, the advent of Pluto TV (joining services like Amazon's Freedive and the evil but generally competent Sinclair's Stirr) is worth noting.

From the Hollywood Reporter:

As its competitors rush to launch Netflix-style subscription streaming services, Viacom is making a bet on free programming.

The company is paying $340 million in cash to acquire free streaming service Pluto TV, which it plans to use as a distribution outlet for digital programming from brands like Awesomeness and as a marketing tool for its portfolio of media brands. The deal is expected to close during the first quarter of the year.

"As the video marketplace continues to segment, we see an opportunity to support the ecosystem in creating products at a broad range of price points, including free," CEO Bob Bakish said Tuesday in a statement announcing the purchase. "To that end, we see significant white space in the ad-supported streaming market and are excited to work with the talented Pluto TV team, and a broad range of Viacom partners, to accelerate its growth in the U.S. and all over the world." 

Misc

I've always been fascinated with cross-pollination






The music started in the hearts and drums, from another land
Played for everyone, by sons, of the motherland
Sendin out a message of peace, to everybody and
Came across the oceans in chains and shame
Easing the pain, and it was without name
Until some men in New Orleans on Rampart Street
Put out the sounds, and then they gave it a beat
I`m talkin' 'bout Jelly Roll, King, and Satch
I`m talkin' 'bout the music that had no match
Yes the music, and it was born down there
We`re gonna use it, so make the horn sound clear
It`s jazz music...jazz music
Yo, the music that Pops, and other cats made
It stayed, cause people love when they played
To the North, it took a riverboat shuffle
To the big cities, with lots of hustle and bustle
To Chicago, and to the Apple too
This was a scene, that our forefathers knew
Go get your crew, I know they`ll get into
The jazz music... jazz music
The music called jazz had the razzamatazz
It had the flavor, and a lot of pizazz
The big band beat was very neat and unique
The swing was king, it made you tap your feet
There was Benny and Duke and of course the Count Basie
The melody was smooth and yes, very taste
There was Hap, The Prez, and Lady Day and
Dizzy Bird and Miles, they were all playin'
They brought it to the people of the foreign lands
Back across the oceans and the desert sands
Where it echoes in the distant sounds of drums
And it rises with the sun on days begun
This is the music, that we give tribute to
They gave it to us, that`s why we give it to you
The jazz music, the jazz music
The jazz music, uh, uh, uh



This is cool.

Cool EV for commuting from @shareyourbicar #ev #evs #tryev #ElectricVehicles #eMobility #AirPollution pic.twitter.com/e44IJfPtNx

— Try EV (@tryevs) April 10, 2019

And this is scary.

“All the technology we need to do this already exists,” and other red flags

Perhaps the 21st Century is making me cynical, but this does feel familiar.

There's a genre that we've seen a lot recently. Someone (frequently with a Silicon Valley connection) will announce that we're finally on the verge of the development and/or the the widespread implementation of some innovation we've been promised for decades. Maglev vactrains, Martian colonies, and yes, even flying cars.  These long awaited advances are always just around the corner, surprisingly cheap and almost ready because they depend on "existing technology."

I might be missing some obvious cases but it's difficult to think of an example where people spent years waiting for a breakthrough like this only to realize that, like Dorothy, they had the power all along.  This one could well be different, but from what I'm seeing here, this seems to have less to do with advances in enabling technology and more to do with telling a story that people want to believe.

Even if you missed out on the Concorde, you may soon get a chance to fly in a supersonic airliner
By Eric Adams April 3, 2019

...

The J85 is GE’s workhorse military turbojet. Three of them will power Boom’s XB-1, a one-third-scale demonstration model of the $200 million, 55-seat carbon-fiber airliner the company hopes to see streaking across the sky at twice the speed of sound by 2025. It would be difficult to overstate the challenges Boom faces as it chases this goal and all the ways its plan could go wrong. Seventy-one years after Chuck Yeager punched through the sound barrier in the Bell X-1, the Concorde and the Soviet Union’s Tupolev Tu-144 remain the only airliners to achieve Mach speed. Neither worked out. The Tupolev mostly carried cargo, making just 102 flights with passengers. British Airways and Air France lost money on most Concorde trips despite exorbitant ticket prices and hefty government subsidies. They grounded the airplanes in 2003 after 27 years of glamorous—if fiscally strained—service.

The business case doesn’t appear much better today. Even as Blue Origin and Virgin Galactic make steady progress toward the day tourists will glimpse space through the porthole of a rocket ship, no one’s figured out how to make supersonic transport economically feasible. The problem lies in maximizing fuel efficiency while reducing engine noise and mitigating the sonic boom that inevitably accompanies anything moving faster than the speed of sound. When you throw in the requirement that this tech turn a profit, the puzzle is so fiendishly difficult to solve that Boeing and Airbus all but quit trying, launching precisely zero efforts since the Concorde’s last flight. Why bother, when airlines show little interest in jets that carry fewer people, burn more fuel, and can fly only over oceans because of the awful racket they make?

Given all this, the idea that a guy who’s best known for Amazon’s ad-buying tech could make supersonic work seems unlikely. [Blake] Scholl’s plan sounds absurd when you realize his aviation experience is limited to flying small planes. Yet he exudes the ebullient confidence typical of startup founders. “All the technology we need to do this already exists,” he says. “It’s safe, reliable, and efficient. So let’s take that same proven technology and make passenger’s lives more efficient too.”

For Scholl, the path to that vision is clear. Boom’s success hinges on developing a jet engine capable of achieving supersonic speeds without that fuel-guzzling afterburner. And he believes the boom problem won’t be a problem for his company. His business plan relies on convincing airlines that with new, more-efficient technology, they’ll make plenty of money shuttling business-class passengers across the Atlantic in three hours or the Pacific in six. The Virgin Group and Japan Airlines are among five carriers so intrigued by the idea that they’ve lined up to buy Boom’s airplanes, should they make it to production.

...

Boom is definitely going for glamorous. With its ­needle-​like fuselage, pinpoint-sharp nose, and triangular delta wing, the Overture is one cool-looking craft. The planned interior is no less impressive. A ­virtual-​­reality demo offers a glimpse of what crossing the sky at 1,400 mph could be like. No one gets stuck in the middle because there’s just one passenger on either side of the aisle. There’s lots of leather, gleaming surfaces, and polished wood. Every one if its 55 seats [about half the capacity of the Concorde -- MP] faces a giant screen, and customers watch the scenery through large round windows. Scholl says the cabin will be so insulated that you won’t hear the engines. “Our goal is to exude tranquility,” he says.

It's so nice to not be debunking a tech story for a change

 We've been making the point for a while now that the vanity aerospace industry's role in the hype economy has a way of obscuring and perhaps even diverting resources from real innovation. Eventually though, the real thing has a way of rising to the top.

If the still daunting technological challenges can be resolved, air-breathing rockets dwarf the potential of anything currently being proposed by any bored Silicon Valley billionaire.

The test took place at Reaction Engines’ facility at the United States’ Colorado Air and Space Port. They were the first phase of an extensive trial program, which will eventually see the precooler exposed to temperatures hotter than 1,000 degrees Celsius – the conditions expected during Mach 5 hypersonic flight.

In space rocket mode, the engines are being designed to speed a craft up to Mach 25.

Over the last four years, Reaction Engines has secured more than £100 million ($130 million) in investment from backers including BAE Systems, Rolls-Royce, and Boeing’s venture capital arm. The firm has also received a £60 million ($78 million) funding commitment from the U.K. Government.

Mark Thomas, Reaction Engines CEO, said in a press release Monday that the results were unparalleled and a “hugely significant milestone.”

“This provides an important validation of our heat exchanger and thermal management technology portfolio, which has application across emerging areas such as very high-speed flight, hybrid electric aviation and integrated vehicle thermal management,” he said.

 (Now if the Russians come through with nuclear rockets and NASA finally decides to have some fun with railguns, things will really start interesting.)

Tweet of the Week

made me lol. "Is Your Startup Idea Already Taken?" via @buzzfeed pic.twitter.com/4lzM8JYR94

— Andrew Chen (@andrewchen) April 4, 2019

Magical Heuristics -- the magic of destiny

You should check out this essay by Adam Morris. I'm not going to comment on his larger thesis, but his observations about Silicon Valley and VC culture are extremely interesting and nicely complement our magical heuristics thread. In case you missed our original post, check it out (particularly the part about destiny). Then see if any of Morris's observations seem to resonate.

In August 2017, I jumped security and made it into the Singularity University Global Summit at the San Francisco Hilton. It was no easy task: The convention is very well staffed, and black-suited convention employees kept an eye out for convention registration badges at the doorway to every ballroom lecture hall and breakout-session dining room. The enormous badges, proudly emblazoned with the name of each attendee and that of his or her employer, were to be worn from a lanyard printed with the phrase “Be Exponential.” The absence of one around my neck was noted in glances directed at my midsection. I’d already been bounced from the expo hall once, and my ploy to acquire a press pass, recommended by a friend who’d crashed the party the year before, had failed. The Global Summit isn’t a secret, invitation-only convention. But admission is priced north of $2,000, so I couldn’t afford to be exponential. As indicated by the badges I studied as I wandered between sessions, large multinational corporations like Deloitte and Procter & Gamble send mid-level executives to the summit to do reconnaissance on technological innovations in established and emerging markets.

The steep entry fee is is part of the high-gloss veneer of selectivity favored by the organization. Most attendees believe their presence at the summit confers a special stature on their intellect and an illustrious destiny on whatever entrepreneurial endeavor has brought them there. Alumni of Singularity University receive “enhanced” clearance, which provides access to private lunches and sessions where the most elite futurists gather to discuss questions related to the future of human civilization. Attendees were overwhelmingly young, male, and poorly shaven.

I spent the afternoon in Hilton Grand Ballrooms A and B, where plenary talks were held. There I listened as innovators and “disruptors” were invited one after the next to take the stage and share with those assembled whatever TED-talk platitudes they’d rehearsed in hotel bathroom mirrors the night before. As a resident of San Francisco, I was accustomed to their techno-futurist cheerleading and unaffected by the customary flattery of libertarian entrepreneurialism steeped in Objectivist self-regard: a “small group of people,” one speaker informed the audience, was now capable of doing things that no nation-state can do. The obvious inference was that some of those people were in the building.

Netflix's Popcorn Problem

This segment of Rob Long's essential show business commentary Martini Shots recently addressed on of the biggest but least discussed points in the discussion of the Netflix business plan.

Most pop culture IP is based on multiple revenue stream models. Toys, syndication rights, physical media (now making something of a comeback with serious fans), and assorted licensing. Netflix appears to have limited itself to locked itself down to one revenue stream.

Keep in mind, investors who are still buying Netflix are betting that it will become the largest and most profitable media company in the world and will do so in the fairly near future, a goal that is even more difficult when you start taking money off the table.

What's more, Netflix appears to have cut deals that allow its partners to cash in on these alternate revenue streams while Netflix bears the bulk of the production and marketing costs. In a sense, it seems like the company is borrowing immense amounts of money to produce elaborate commercials for its competitors' products.