Tidbits in the News: Fox, Tesla, Patreon and Tidal

I’m trying this new format, where I can write about things on the news that don’t warrant a big piece called Tidbits. It’s a work in progress, so there’s no guarantee it’ll last, so let’s get to it.

Now I know net neutrality was just repealed by the FCC but there are far better minds who are more qualified to talk about the matter than myself. If you’re interested in the matter, you should definitely search online about the matter.

Now let’s get onto the news that’s largely been overshadowed.

Disney and the Fox

The biggest of these stories is Disney and Fox, particularly the fact that the two companies have reached a deal, and are now awaiting the approval of regulators. The deal is for most of the Fox empire, save for the Fox News and Business networks, along with certain sports networks. These assets will be spun off into its own entity prior to the acquisition, with many forecasting a possible merger into the News Corp umbrella.

What’s more interesting, however, is what it does include. The deal includes the takeover of 20th Century Fox, and Hulu, along with stakes in Sky, FX and National Geographic. But, I mainly want to focus on the movie and Hulu aspects of this deal.

20th Century Fox is of particular interest to movie fans worldwide, as it’ll mean the return of Marvel assets, like the Fantastic Four, and the X-Men, meaning they can be used in the wider MCU. Moreover, it means that the only assets of Marvel outside of Disney’s control are those still with Sony.

But, from a business perspective, it means Disney will solidify its lead in the movie, and the entertainment industry at large. This actually ties in with the Hulu deal, which I’ll talk more about in a bit. The big thing here is Disney would be able, upon the deal being passed, consolidate key IPs under their umbrella, and use key copyrights in its ambitions.

Hulu seems to be what the company is mainly after, though. Thanks to competition from online streaming services, (i.e. Netflix), Disney is finding its assets, particularly from its TV assets like ABC and ESPN, under pressure. Hulu was supposed to be the answer to this problem, but the equity structure made it rather difficult to make it a true competitor to its startup rivals.

Currently, the equity is divided up as follows: Disney (30%), Fox (30%), Comcast (30%), Time Warner (10%). No one has a majority stake, and, because of the interests involved, it’s been difficult for Hulu to get exclusive content for its service. If the deal goes through, Disney will attain 60% of the equity in Hulu, effectively controlling the company. Disney is aiming to use this controlling interest, and its new consolidated IP portfolio, to power through the competition, and create a real, viable competitor to Netflix.

But that’s if the deal passes.

There’s a very real chance the deal may fall through, particularly due to its sports component. ESPN already has a virtual monopoly in terms of national sports broadcasting. To extend this reach to regional sports as well may prove too much for regulators, especially in a place like the US, where sports teams are valued in the billions.

Tesla and the Joy of Pepsi

Tesla just received the largest preorder for their semis yet, as PepsiCo just put down an order for a fleet of 100. This is in addition to preorders from Walmart, Loblaws (a grocer chain in Canada), and Anheuser Busch, among others.

This is an interesting move, especially by PepsiCo, as its rival, Coca Cola, have yet to make its move. But what’s more interesting is that this means PepsiCo have, essentially, deposited $2,000,000 in Tesla’s account. But it’s more revealing of the sentiment the markets have right now. They’re willing to bet on Tesla’s claims, despite the risks.

And, bear in mind, this isn’t a small risk, either. Each semi starts from $150K, including the preorder deposit, which is more than what a traditional semi costs. And, with oil prices slow to recover, Tesla estimates each semi will save its owners $250K over 1,000,000 miles of ownership. Despite this, companies like PepsiCo see value in the Tesla project. Perhaps it’s the consumers who are pressuring Pepsi to make such PR moves, or perhaps it’s internal forecasts of  a spike in oil prices upwards. Whatever it is, it’s making Tesla’s future look rather rosy.

It’ll be interesting to see the company fend off competition from Daimler and Cummins, both with plans to sell electric trucks soon.

Patreon the Bad Patron

Patreon changed its monetization scheme back in August, but then decided to switch it back just this week. This marks the end of a 4 month ordeal for creators, and a fundamental flaw with the crowdfunding market at large.

The TL;DR version of this is that Patreon, at first, only charged a 2.9% charge on the total volume of funds raised. This is in addition to any charges made by its payment processor, Stripe. This is the model that crowdfunding sites like Kickstarter use, except they charge 5% instead of 2.9%, on top of any charges laid by Stripe, which also happens to be Kickstarter’s payment  processor.

The trouble is, Patreon seems to have hit a plateau in their growth trajectory, because they introduced yet another fee to its service. They began to charge 35 cents per pledge. Now this may not sound like a lot, but it does build quickly, especially when considering most of Patreon’s patrons donate $1 a piece.

This means that the artist only gets 63 cents for any $1 pledge they receive. Obviously this didn’t go over well with the users, which is the reason they dropped it 4 months later.

But this highlights a problem with this business model. It’s very difficult to find additional revenue sources to grow off of. This makes the entire business rather risky. If, with a downturn of the economy, the number of transactions on the site remains mostly the same, but the average volume decreases, the total revenue for the company, too, decreases. In order to hedge against just such risk, Patreon was looking to find a revenue source that can remain stable even in bad economic times.

This sort of macro economic risk is what plagues crowdfunding sites today. There just isn’t an easy way to hedge against a downturn in the economy, save for a stable revenue stream that’s not affected as much.

Question is, what is this alternative revenue source for crowdfunding sites?

Tidal Ebb

It seems that Tidal is struggling more than it seems. It’s reported that Tidal is losing money at a pace of $44M per year, as of last year. This is worrisome, as they only have 6 months of funding remaining from the Sprint funding from earlier this year.

This isn’t just restricted to Tidal, either. Earlier this year, Spotify reported a loss that doubled year over year.

There’s reason to suspect Apple Music’s aggressive push as the main culprit for these two companies’, but there’s reason to believe that Tidal’s value proposition just might not be that enticing. The exclusives, the live concert streaming, and the lossless music might not, to many people, justify twice what Spotify, and Apple Music, are asking for for their music streaming service.

It just might be that there is no real business here.

This could be an interesting year for the company, seeing as it’ll probably seek another investor to help extend the runway. Perhaps Sprint’s parent company Softbank can step in to help save the day.

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