EA Weak Quarter

EA turned in a weak quarter, which caused their stock to slide 15% & also hit Activision / Blizzard for a 10% decline while the Nintendo ADR was off 6%.

I traded in and out of both EA & ATVI for quick small gains & am holding a bit of Nintendo + Activision / Blizzard. ATVI is now below the December 24 lows.

There was a recent Business Insider article which talked about how big of a struggle Nintendo has with their reliance on first-party titles. 

“Microsoft and Sony rely on major third-party games like “Grand Theft Auto” and “Call of Duty” to bolster sales of the Xbox One and PlayStation 4 consoles, and only produce a handful of major first-party games themselves. … Just about 85% of Nintendo Switch software sales are first-party games — games made and/or published by Nintendo.”

I believe their analysis is exactly backward. Nintendo’s revenue stream being highly differentiated is a point of strength.

On the most recent earnings call Google’s Sundar Pichai answered a question about the Google Play store 30% rake as though the question was specifically about distributing games.

On Google Play, obviously, we do this at scale, thousands of developers rely on it to safely and seamlessly distribute their games to billions of Android users worldwide. And we invest a lot in our infrastructure to continuously make sure their overall experience is safe and results in high engagement and for the developer’s back. So I think there’s a value exchange there and it’s been the industry standard. And so, I think we will continue down that path but obviously always adapt to where the market is.

If tech companies are displacing the roll of publishers by eating into the longtail of games & taking a fat rake off the top, then whoever has the most differentiated revenue stream has the strongest revenue stream.

If a single strong game can be leveraged into an online  game distribution platform, there’s no reason the company with the best gaming IP wouldn’t be able to  the same, or to be able to demand a higher revenue share from any third party platforms their content is distributed on.

There are a limited number of broad-based verticals the big tech companies can charge recurring subscription fees for: TV & movie, music, productivity software, hosting & file backups, games…and not a lot else. There are subscription services for books or audiobooks, but they are tiny.

Tech, telecom & other media companies have invested heavily in video streaming services, ultimately creating a bubble where they have doubled content costs for scripted animation & some highly demanded animators are turning down hundreds of millions of dollars worth of demand.

Spotify acquired podcasting company Gimlet Media for $230 million & they also acquired Anchor.

Consumers spend roughly the same amount of time on video as they do on audio. Video is about a trillion dollar market. And the music and radio industry is worth around a hundred billion dollars. I always come back to the same question: Are our eyes really worth 10 times more than our ears?

Spotify Founder Daniel Ek

What will drive Spotify’s growth? Unique, differentiated content.

Our podcast users spend almost twice the time on the platform, and spend even more time listening to music. We have also seen that by having unique programming, people who previously thought Spotify was not right for them will give it a try.

The New York Times hit fresh 52-week highs (13-year highs) after beating revenue & earnings expectations, growing their digital subscriptions quicker than anticipated & raising their dividend 25%.

They have differentiated content & drive the news agenda.  

So long as Trump is dominating Twitter & private equity firms are eating newspaper chains to do round after round of layoffs the New York Times has a highly differentiated offering & paying a subscription fee is a way of supporting the party. The decline of NUmedia also makes the New York Times relatively more differentiated

The media industry has already shed more than 1,000 jobs this year, but the Times said Wednesday that it added 120 employees to its newsroom last year to bring the total number of journalists to 1,600, the largest staff in the paper’s history.

NYT might be a great short if Democrats win the presidency in 2020 & their base has less to be outraged by (as their own party is in power). If Democrats are in control there is almost no chance the New York Times will reach their 2025 subscriber goal of 10 million active subscribers.

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