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Thursday’s Themes . . .

CONCERN RISING OVER SPOTIFY’S IPO:  For months I’ve been writing about Spotify’s planned “direct listing” IPO, which is expected to happen around March.  Besides the weirdness of a direct listing, which raises no new capital for the company, there are mounting questions about what the company’s stock will actually trade at once equity holders are allowed to start selling their shares.  Since institutional investors won’t have a chance to pre-price the stock through the usual IPO process the stock price could jump all over the place, taking equity holders and even music labels on a wild ride.  The attached Hypebot article breaks down the various contingencies’ financial arrangements with Spotify.  Fair warning, it reads like a bowl of spaghetti.  The consensus word being used to describe the situation is “frightening”, which is never the adjective you want to hear heading into an IPO.  In the words of sector analyst and Hypebot contributor Chris Castle, “There are some companies that just aren’t supposed to be public, and I think Spotify is one.”  That might be the most straightforward thing being said about Spotify’s eminent IPO right now.

WHICH VERSION OF TV’S FUTURE DO YOU BELIEVE?:  I know I’m a few days late on this, but a couple of interesting things happened in TV land on Monday which are worth dissecting.  First came a series of predictions about the future of traditional and digital TV from executives at NBC and CBS.  The comments were made during a series of fireside chats/panels at an AdExchanger Industry Preview – a summary can be found in the attached link.  The boldest predictions were that subscription OTT services like Netflix couldn’t sustain their growth and will eventually need to offer a free/lower cost ad supported tier, and that the TV Upfronts will shift from buying shows to buying data.  All of this seemed pretty convincing until 5:00p est rolled around.  That’s when Netflix exploded a Q4 earnings bomb that blew away The Street’s expectations, as noted in the attached CNBC link.  The biggest coup for Netflix was the announcement of 8.3M new subscribers in Q4 alone, which is an all-time high for a three month period and 2M more than was forecasted.  So whose “future of TV” predictions should we believe?  The traditional networks who are peddling a coexistence narrative as they cling to their legacy business, or Netflix who keeps putting points on the scoreboard?

BK PULLS A WHOPPER ON NET NEUTRALITY:  I’ve gotta hand it to Burger King and their creative agency DAVID Miami for their latest PR stunt.  In a parody of the FCC’s Net Neutrality repeal, Burger King set up a fictional cash register scene where they told unsuspecting customers their Whopper would take longer to make since they paid for the “Slow MBPS” option.  In their stunt MBPS stands for Making Burgers Per Second, which could be sped up or slowed down depending on how much a customer is willing to pay for a Whopper.  If you think this sounds funny check out the video mid-way through the attached AdWeek link – you’ll be laughing all day.  Besides the clip’s sheer comedic genius, there’s an important lesson in seeing the moment consumers make the connection between the Whopper MBPS delivery system and what’s actually about to occur with internet data delivery in the US.  It’s simply brilliant.  I just hope FCC Chair Ajit Pai isn’t a big BK fan, because he’s officially persona non grata with the King these day!

Have a great Thursday guys!

Wildcard Wednesday . . .

CUMULUS STARTS GNAWING ITS ARM OFF:  The liquidation has quietly started.  In an effort to reduce its debt and improve immediate cash flow Cumulus is attempting to sunset several high-dollar contracts.  Inside Radio is reporting examples of this, including Don Imus’s contract termination, and even the cancellation of station LMA agreements like the one with Merlin Broadcasting’s former FMs in Chicago.  Cumulus is pushing the contract terminations through the bankruptcy courts, which gives them more latitude to make these moves than the normal contract litigation process.  So there’s a high likelihood that these exits will happen.  That’s good news for Cumulus’s long-term survival since they get to jettison their costliest contracts.  The only problem is they’re also killing their content and listenership footprint, which is their whole product.  So how much of your arm can eat to stay alive before the cannibalization kills you?  I think we’ll get radio’s answer to that question sooner than later.

AGENCIES GETTING ON THE VOICE BANDWAGON:  We know digital audio ads and audio-based search are becoming more important in the voice-first, screenless world of tomorrow.  Accordingly marketers are itching for expertise in this new frontier.  So it shouldn’t be a surprise to see agencies and their parent holding companies develop thought leadership in this area.  A latest example of this is Publicis partnering with the language researcher Quid to study the usage habits of voice assistant users in the US and UK.  Highlights from the study can be found in the attached Media Village link.  Notable findings include the role of parents as the heaviest users of voice assistants in the shared listening in-home environment (fyi – start marketing to Mom!)  It’s also interesting to see the efficacy of audio ads, with a 2x lead in unaided brand recall vs. visual-based ads.  And perhaps the biggest no-brainer finding of all . . . voice assistants suck at reading long-form stories since they don’t bring human context to their voice inflections.  Maybe one day AI advances will lead to better robot story tellers.  But in the meantime, let’s leave it to Mom to read us our bedtime stories.

APPLE’S HOMEPOD READY FOR ITS DEBUT . . . FINALLY:  After delaying the launch past the critical holiday period, Apple is set to start selling its HomePod smart speakers on February 9thAccording to RAIN in the attached link, it’s priced at $350 which is the very upper end of the spectrum.  By comparison, Amazon Echo and Google Home devices are in the $100 range.  Apple is justifying the premium price based on HomePod’s superior audio quality.  But there are other mid-level competitors like Sonos in the $200-250 range which can give you all the sound quality you’ll ever need.  Besides the price, the other big question mark is HomePod’s brains.  Will Siri’s AI be able to keep up with Alexa and Google?  We won’t know for sure until these things get into market, but tech experts generally say Google has the best voice-recognition AI and Apple lags in this department.  There’s a theory that Apple’s not-ready-for-prime-time AI was what caused the HomePod holiday delay in the first place.  I guess we’ll see if that’s been fixed soon enough.  (And yes, since we’re on the topic I can’t resist reposting my all-time favorite HomePod tweet!)

Have a great Wednesday guys!

Tuesday’s Topics . . .

THE FUTURE OF RETAIL HAS FINALLY ARRIVED . . . SORT OF:  After a year of over-hyped testing the first cashierless Amazon Go store opened to the public yesterday.  The shopping experienced describe in the attached Geek Wire link is pretty straightforward.  First you set up an Amazon Prime or Amazon Go account.  Then as you walk into the store a reader scans a QR code on your mobile device, and you start shopping.  When you’re finished you just walk out of the store with your purchases and Amazon will bill you for what you took.  While that sounds simple enough, the back end tech to make this happen is nuts.  The floor of the Amazon Go store is filled with sensors to follow you around once you’ve checked in, and then there are more weight sensors for each SKU on the shelves.  So when you pick up that bottle of salad dressing Amazon knows what you specifically took from the shelves.  It’s sort of like a way advanced version of those honor bars in Las Vegas hotel rooms which charge you $11 for a Fiji water the minute you lift it from the case.  Obviously this is a game-changer for Retailers who could eliminate 2/3 of the humans needed to run a store.  But I think it will take years (decades) before this much store-level technology becomes mainstream.

FLUIDITY IS THE NEW CREATIVE:  For most of the last century ad agencies won and lost accounts based on the strength of their Creative departments.  Creative Directors were the true game changers who landed accounts with magic ideas, and became the primary profit centers for Madison Avenue.  Wow, how times have changed.  As described in the attached WSJ link, today agencies are winning/losing accounts not because of their creative, but based on their ability to combine all marketing disciplines into a cogent 360 approach.  The McDonald’s AOR change is the clearest example to date.  When the account went into review Publicis tried to run a legacy play of bringing new creative ideas, while Omnicom presented a holistic data/insights/strategy/creative/investment/attribution journey.  You know how the story ended.  Omnicom won the business and became the primary AOR for McDs in 2016.  And that’s just one very high profile example.  For every McDs win there are 20 smaller brands who are choosing agencies which can provide a front-to-back approach.  Not surprisingly, Creative departments are finding this change tough to deal with – imagine going from being the QB of a football team to the punter.  But that’s what it takes for agencies to compete these days.  Quoting Omnicom’s Terri Hickey, today’s approach needs to be “fast, fluid and flexible.”  I think that’s an understatement.

EIGHT YEARS (AND A LIFETIME) AGO:  Yesterday I was sent a little Easter egg from one of my cohorts in Detroit.  It’s a New Yorker magazine article about the state of audio streaming from June, 2010.  This thing is fascinating because it looks old (someone literally made a photocopy), and it just feels old – the state of music eight years ago might as well have been from the 1980s.  Streaming services like Pandora and Spotify were just starting to commercialize, MOG (who?!?) seemed like a good alternative to Napster, Apple was just selling iTunes downloads for 99 cents each, and Google was thinking about getting into music and videos.  It’s simply amazing to see how far we’ve come in less than a decade.  If you’ve been in this space for a while you’ll smile along with me as you read this article.  Then take a moment to think about what the next decade of digital audio will hold if we’ve come this far in just the last eight years.  You, The DJ

Have a great Tuesday guys!

Monday’s Musings . . .

ARE YOU READY FOR SOME FOOTBALL TV ADS?:  There’s one thing you can set your watch by in marketing.  The second the confetti stops falling after the NFL’s Conference Championship Game celebrations (congrats Boston and Philly!), the hype around the Super Bowl ads begins.  According to NBC, who’s carrying the big game, this year’s revenue total will be a record.  In-game :30 commercials are going for as high as $5M (what?), and NBC will even throw in a few Winter Olympics ads for that price.  With fewer than 10 unsold ad slots still available we have a pretty good idea of who’s doing what this year.  AdWeek is keeping a running tally of which brands are in and which are staying on the sidelines in the attached link.  The usual car/beer/soda suspects will be there.  Interestingly, Groupon is the only digital publisher who’s bought ad time so far, with Google/YouTube pulling out after last year’s blitz.  A few more CPGs are also coming back, which is a nod to the power of the Super Bowl’s brand-safe, mass-reach platform.  As we get closer to the game expect to see creative “reveals”, as advertisers try to milk every last ounce of PR hype out of their ads.  Hopefully we can actually watch a football game on February 4th, too. 🙂

TV’S FIRST WALLED GARDEN?:  Sure, AT&T is stuck in a dogfight with the FCC over its planned purchase of Timer Warner.  But that doesn’t appear to be slowing down their creation of the first Google/FB-style walled garden for Addressable TV.  The attached AdExchanger link describes the Telco’s plan to merge AT&T’s cellular customer data with its DirectTV customer data to create a proprietary audience platform.  This data could be used to deliver deterministic ads down to the individual level on DirectTV, and also on Time Warner’s massive TV audience (if that deal ever goes through).  This is similar to the strategy Verizon is running to combine cellular data with its Oath properties (Yahoo and AOL), but that data will be used for digital ad delivery.  What sets AT&T apart from Verizon, and Google/FB for that matter, is the ability to project this data onto traditional TV delivery.  If successful, this will set up a have-your-cake-and-eat-it-too benefit for marketers who will get the targeted delivery of digital in the safe harbor of traditional TV.  I’m thinking this will go over well with data-hungry brands who still use TV as their default media.

DIGITAL AUDIO MEASUREMENT GETS REAL:  There was a ton of buzz in the digital audio space on Friday thanks to the MRC’s release of it’s first-ever Digital Audience Measurement Standards.  This is an important step towards standardizing (and legitimizing) digital audio ratings, which up until now have been a patchwork of Triton ratings, comScore data, and publisher self-reporting.  RAIN has a summary of MRC’s release in the attached link.  The most important rulings involve how audio ads are heard – they must be unmuted and listened to for two seconds to count.  There’s also a strong emphasis on what the MRC calls client-side measurement instead of server-side.  This means ratings will be derived from ads received by listeners and not what is sent out by the publishers’ servers.  This will eventually open the door for something called “audibility” (yes, viewability for audio ads), which will be a game changer for the entire industry.  You can imagine how interested brands will be in buying digital audio ads which are proven to be listened to.  This will eventually spell trouble for broadcast radio, since it’s not possible to prove an ad is heard by individual listeners sent over a radio transmitter.  I say bring on the change!

Have a great Monday guys!

Daily Gabe Special Report . . . The State of Audio

For today’s DG I’m going to stray from the usual format.  Instead of a handful of different articles I’d like to focus on one comprehensive Magna Global research study about the State of Audio. (MAGNA State of Audio)  It’s an amazingly in-depth piece which covers all aspects of Audio supply, demand, and new value drivers for the sector.  I’m featuring this on a Friday so you can curl up with it over the weekend. 😉  In all seriousness, if you work in audio-based media this is a must read!

It’s a fairly complex piece, so here are a few notables:

FROM AM TO AMAZON:  For starters check out the timeline of the history of Audio below.  From the invention of Amplitude Modulation (AM Radio) around 1900 to Amazon’s first AI-driven Echo connected speakers in 2014, we’ve come a long way.  It’s interesting to see how the rate of technological change is starting to accelerate in what had been a mature industry for decades.  It would be fascinating to jump in a time machine and check out this updated timeline 50 years from now.  I’m guessing Audio will be as ubiquitous as the air we breathe by then.

SHARES GETTING SQUEEZED:  The next graph shows the different media types’ percent of ad revenue over the years.  Not surprisingly the legacy medias (TV/Print/Radio) are in a period of decline as ad dollars migrate to digital.  Of the three traditional media types Radio has held its share the best over the last 10 years, but that’s beginning to change.  Broadcast Radio’s slice of the ad pie, which once stood in the low teens, is now at 7%, and is projected to decrease to 5% within the next five years.

AD REVENUE ALWAYS FOLLOWS USAGE:  So where’s the Audio revenue going?  For the answer check out the next graph.  Audio streaming dollars from pureplay publishers (Pandora, Spotify, etc.) are beginning to cannibalize Radio’s revenue base.  According to Magna’s forecast, by 2022 streamed audio ads will generate over $3.3B of ad revenue in the US, which will comprise 30% of the total Audio spend.

SO WHAT’S NEXT?:  Towards the end of Magna’s report they highlight the key growth drivers for the future of Audio.  It comes down to three things . . . Connected Home, Connected Car, and Voice-based Search.  Each of these platforms have two things in common.  They increase overall Audio consumption and allow for digital ad delivery.  The perfect combination to grow an industry!  There are too many charts in this section to highlight, so check out pages 21-22 of the report for details.

I know this is a big read, but it’s important stuff.  Hopefully you found it as enlightening as I did.

Have a great Friday (and weekend) guys!

Thursday’s Themes . . .

SOMETIMES THE CURE IS WORSE THAN THE ILLNESS:  That headline might be appropriate for Snapchat right now, who according to Tech Crunch, is getting mauled by users in online reviews of its newly redesigned interface.  According to the research group Sensor Tower, 83% percent of user reviews have been negative since the redesign.  The biggest cause of complaints is that Snapchat’s Stories content is now auto-populating user inboxes in between personal messages.  Snapchat is probably doing this to bring brands’ sponsored content to the forefront, but it appears to be annoying the hell out of their core users.  This pivot seems to be the reverse of other publishers’ strategies, like Facebook who recently announced it would deliver less branded content in the Newsfeed, and Pandora who’s rewarding listeners with enhanced functionality when they voluntarily engage with brands.  These latter examples seem to be the way forward in digital media – on the thinking that if you make the experience good for users first, brands will also benefit.  That feels like a better play than Snapchat’s new kitchen sink approach.

“WATCH” OUT FOR THOSE UNINTENDED CONSEQUENCES:  Speaking of Facebook’s Newsfeed pivot, there’s some industry speculation about what could happen to their Watch video platform, as reported in the attached Digiday link.  Since FB relaunched Watch in Aug’17 with original show content they’ve heavily relied on Newsfeed posts to drive views.  So with the decision to trim back the amount of promoted content on Newsfeed users will be less likely to see Watch video content.  While this won’t completely kill Watch, traffic is expected to decrease.  This might force FB to transform Watch into a truly separate site users could go to for video content, like Google has with YouTube, instead of just a content section within FB proper.  Regardless of how this plays out, it’s an example of how one strategic change could have down-the-line consequences on another part of their biz.

APPLE’S ABOUT TO GO ON A SPENDING SPREE:  One of the most touted features of the newly passed Federal tax legislation is the ability for companies to repatriate profits which are currently parked in foreign subsidiaries.  In the case of Apple they’ve amassed $256B (with a B!) in profits in a wholly-owned subsidiary in Ireland (is Tim Cook really Irish?!?), as a way to avoid paying US corporate taxes.  But now, thanks to a one-time reduction in the corporate tax rate designed to encourage companies to onshore their profits, Apple and others are bringing the cash home.  Apple still expects to pay taxes – an estimated $38B, which is an effective corporate tax rate of 15%.  So what will they do with their newly-liquid cash?  According to the attached Tech Crunch link, quite a bit.  The centerpiece of Apple’s ambitious growth plan is to build a second corporate campus and data center – I guess all the cool kids are doing HQ2s these days.  There’s also speculation that Apple will start manufacturing hardware in the US, which could help solve their mounting Asian production issues.  All in Apple expects to invest $350B in US-based buildouts and create 20,000 tech jobs over the next decade.  Obviously they have to actually walk the walk, but at least the talk sounds pretty good right now.

Have a great Thursday guys!

Wildcard Wednesday . . .

SUBSCRIPTION VS. ADDRESSABLE LISTENING:  The competitive landscape for streaming audio has basically settled into two camps.  One business model is subscription-based, with listeners going behind a paywall in return for an ad-free experience and other product enhancements.  The other model is advertiser-supported streaming, which is free for listeners and makes them Addressable to marketers.  With those definitions in mind, which type of streaming are most listeners choosing?  There’s not a ton of research on that question, which makes the attached Business Wire link worth the read.  It features research from a third party called MusiComms.  According to their study the biggest chunk of listening is Totally Free at 52% – meaning listeners who don’t buy subscriptions, downloads, CDs, etc..  This includes broadcast radio listening at 29%, internet-based audio streaming (mostly Pandora) at 15%, and internet-based video sites (aka YouTube) at 7%.  In a separate question 40% of all respondents said they would never pay more than they currently do for music.  Interestingly, another 40% said they would be open to paying for a music subscription – which is considerably higher than the current industry estimates of 20-25%.  This research frames out an interesting tug of war between two very different ways to consume streaming music.  So who will win?  My educated guess is that Addressable free listening will always be the preferred way to listen, but Subscriptions will continue to rise.

THE (LITERAL) DOWNSIZING OF PHYSICAL MUSIC SALES:  With the continuing surge in streaming music consumption at the expense of physical album sales (remember CDs?), you have to assume that music industry orgs must also change with the times.  It looks like that’s starting to happen at one of the major Labels according to the attached RAIN link.  Warner Music Group has begun offering buyout packages to 130 employees who work on physical music production and distribution.  WMG’s plan is to use the savings from this workforce reduction to “realign resources” towards the digital side of the house.  While nobody ever wants to see anyone lose their jobs, this one feels like a fair and orderly way to move WMG’s workforce from a legacy physical business to a digital model.  I predict Sony and Universal will do the same thing sooner than later, since all of the Labels are going through the same streaming transformation.

THE NEW RETAIL WORLD ORDER:  Full finders credit on this last article to Pandora’s Retail Head of Industry John Gregory.  It’s about the state of Retail in 2018 as predicted by Steve Dennis, a well-known Retail consultant and category blogger.  Mr. Dennis has highlighted 13 insights to keep an eye on in 2018, as described in the attached Forbes link.  I particularly love the following points; #1 retail isn’t dead, boring retail is, #6 the rise of private labels thanks to digital price shopping, #7 digital first retail, and #8 the death of the middle as the market gravitates towards both luxury and economy.  Right now it’s so easy for worn out retailers and skeptical investors to just blame Amazon and give in to the idea that traditional Retail is dying.  But as this article proves, there are tangible ways to change the game and actually thrive in this new Retail world order.

Have a great Wednesday guys!

CES Recovery Tuesday . . .

CES IN THE REAR VIEW MIRROR:  Here we are again. It’s mid-January and the Vegas glitter is finally starting to settle after another whirlwind CES.  If you’ve never attended think of CES as an ultra-concentrated combination of top-to-top business meetings and over-the-top late nights.  I think Digiday has the best summary of CES’18 in the attached link.  As noted Google had the biggest presence – they were literally everywhere promoting their voice-activated AI as a counterpunch against Amazon.  The most notable absence was Snapchat who took the year off (insert “hmmm” here).  In between those two extremes were countless new tech advances in autonomous cars, IoT connected devices, Bitcoin ATMs, medical robots, and even a new smart toilet from Kohler.  All we needed was an ironic power blackout to complete the week of madness – oh wait, we had two hours of that on Wednesday.  The best quote of the week . . . “CES is good for business but bad for your soul”, which is perfectly visualized in the following tweet.  Enjoy!

AT THE INTERSECTION OF IoT AND SI:  One of the most prominent trends at this year’s CES is the growing importance of Audio as a marketing platform in the Age of Voice.  The logic trail goes something like this.  Most of the new IoT devices coming out these days don’t have screens.  So the more we interact with these devices the higher our percentage of non-screen time goes up.  With this as a backdrop, brands which traditionally rely on visual-based ad products (aka Video and Display) need to figure out how to reach consumers in an auditory environment.  The solution is something called a Sonic Identity (SI), and its importance is articulated by Pandora CMO Aimee’ Lapic in the attached AdWeek article/video.  Yes, audio ads have been around for the past 100 years.  But there’s never been a more important time for brands to figure out how to harness the audio medium than right now.

ZUCK GIVES US HIS BEST “ONE LAST THING”:  Remember when Steve Jobs used to close Apple’s Developer Conferences with the understated “one last thing” comment, and then drop an industry-changing bomb shell?  That’s sort of what Mark Zuckerberg did at the end of CES last week, with Facebook’s announcement that it would change the algorithm of its Newsfeed.  As described in the attached AdWeek link, FB will begin reweighting it’s Newsfeed to give individuals more postings from friends/family and less news and sponsor-driven content.  This is part of a New Year’s resolution Mr. Zuckerberg made to “fix Facebook”, by encouraging users to spend more time interacting with one another and less time with sponsors . . . even if that means spending less overall time on the sight.  This pivot came as a shock to third party publishers who rely on FB for most of their traffic, and even spooked investors who see this as a revenue limiting move.  As a result FB’s stock dropped 4% on Friday.  It’ll be interesting to see if Zuck’s newfound social conscience really does significantly change FB’s user experience for the better, or if it’s window dressing meant to make the industry feel better about the social Goliath.

Have a great Tuesday guys!

Friday Not So Funday . . .

*** Editor’s Note:  I know it feels like we just got revved back up, but I need to put the DG on hold next week while I’m at CES.  Trust me when I say you don’t want me posting when I’m in Vegas!  But rest easy knowing the DG team will resume the blogging on Tuesday, January 16th. ***

THE LOGAN PAUL INCIDENT:  Fair warning – this first story is really tragic.  However, it’s an important cautionary tale about the content pitfalls of paid Social marketing.  The attached AdWeek link explains an incident that occurred earlier this week involving a social influencer named Logan Paul.  Mr. Paul is a professional influencer with about 15M YouTube followers.  So when he decided to video a trip to Japan Walmart and Dunkin Donuts signed on as sponsors.  The problem occurred when Logan Paul posted video of a visit to Japan’s Aokigahara forest, which is known as a place where people come to take their own lives.  Unfortunately Logan Paul came across a body, made a light comment, and then posted the video.  Obviously this was a bad move for both Mr. Paul and his sponsors.  To make matters worse YouTube initially acknowledged that this video was vetted by a “human moderator”, who is supposed to review and approve content before it goes live.  Since then Logan Paul and YouTube have taken down the video and issued apologies.  But sadly this incident shows that Social media can never be truly brand safe.

FCC CHAIR + DEATH THREATS = NO CES:  Staying on dark topics for a minute, yesterday the FCC announced that its Chairman Ajit Pai was cancelling a scheduled fireside chat appearance at next week’s CES in Vegas.  While the Secret Service never elaborates on security issues, as reported in the attached Recode link, the cancellation is due to death threats made against Mr. Pai, which are related to his move to eliminate Net Neutrality last month.  Since CES attendees have the most to gain/lose from the NN changes emotions (and tempers) are running high with this group.  Unfortunately if a death threat caused Pai to cancel his appearance the whole industry has lost a chance for meaningful dialogue around this important topic.  Crazy times!

THE BEST BAD YEAR:  If you work in or call on any part of the US Auto Industry you know 2017 was a grind.  After seven straight years of unit sales growth sales declined this past year.  But as noted in the attached Auto News link, there was actually a silver lining in those stormy numbers.  For a level set in 2016 automakers sold 17.55M vehicles in the US.  During the early part of 2017 industry forecasts called for 16.5-17M annual unit sales, which would have been a huge buzz cut for the EOMs.  But thanks to a late year recovery (probably from replacement vehicle purchases related to Hurricanes Harvey and Irma), total annual sales clawed back to 17.25 units – so only a 2% annual decline.  Industry forecasts are for another mild decrease next year (another 2-3% drop), so maybe we’re just seeing a soft landing for an auto industry which had been on a seven year hot streak.  Glass half full, anyone?

THE DARK SIDE OF THE “AMAZON ECONOMY”:  Finally this week, I’d like to give you something to chew on over the weekend.  According to CNBC in the attached link, Amazon garnered 4% of all US Retail sales in 2017, and an astounding 44% of all e-commerce sales.  The primary driver of their growth is the ever-increasing percentage of e-commerce searches which begin on Amazon.  As you can see by the graphic below in 2016 over half purchase-based searches started on Amazon, and the 2017 # (which isn’t out yet) is sure to be even higher.  The cause-and-effect here is simple – if you start looking for things to buy on Amazon you’re way more likely to make the purchase on their platform.  While this is terrific for Jeff Bezos and the gang, what does this mean for the rest of the commerce-sphere?  We know competing retailers are getting killed, with over 6,000 B&M store closings in 2017 and another 4,000 closures expected in 2018.  But what’s even more worrisome is the impact this the trend is having on product manufacturers.  With more and more purchases concentrated on Amazon, manufacturers are basically forced into participating in their Marketplace platform.  This is creating a phenomenon Seeking Alpha has deemed the Amazon Economy in the attached link.  It’s a pretty scary picture of total Retail dominance by one company who gets to set the rules to benefit them while blocking would be competitors.  This is a fairly long article, so maybe save it for when you have 20 extra minutes.  Then maybe you’ll think twice before telling Alexa to add that next item to your Amazon shopping list.

Have a great Friday guys.  Be back the Tuesday after MLK Day!

Thursday’s Themes . . .

SIGNS OF A SPOTIFY IPO:  Spotify was in the news on two fronts yesterday.  First word broke that the streamer started the filing process with the FCC for an IPO which could happen by late Q1.  It still appears they’ll try to execute the largest ever “direct listing”, which means existing investors will sell their pre-public equity – but that won’t raise any new capital for Spotify.  This is so unusual that no modern tech company has ever direct listed.  Assuming this goes through the market will finally get a look under the hood at Spotify’s financials, including their cash burn rate (estimated between $300-400M annually), and the percent of listeners who are subscribers compared to addressable ad-supported listeners.  This will also give the Street a chance to price Spotify’s valuation correctly.  Recent private pre-IPO trade deals have been pegged as high as $19B (which seems crazy high).  I guess we’ll all know their true market cap soon enough.  RAIN has the details in the attached link.

AND ANOTHER LAWSUIT:  Staying on Spotify for the second story – RAIN is also reporting a new $1.6B lawsuit filed against Spotify by a publishing group called Wixen.  According to the attached link, Wixen’s lawsuit alleges that Spotify used a third party called the Harry Fox Agency for publishing rights to Wixens’ artists’ music, but that Harry Fox didn’t have the legal authority to offer those rights.  While it’s highly unlikely that Spotify will have to cough up $1.6B in this case it’s another example of the downside of Spotify playing fast and loose with the content it uses, and the resulting consequences.  It’s also possible that this lawsuit, and the handful of other unresolved suits, are the reason they’re considering a direct list IPO.  Because many institutional investors would be squeamish about having a stake in a business with mounting legal exposure.

BEATING YOUR RISK BIAS:  If you’re a regular reader of the DG you know Elon Musk is one of my business idols.  I love the guy because he’s one of the few dreamers who’s audacious enough to turn big ideas into reality.  This begs the question how does he do it?  The answer, it turns out, isn’t what Mr. Musk does, but what the rest of us don’t do.  The attached Inc.com link describes a 2012 Wired interview with Elon Musk in which he explained the motivation to launch (literally) Space-X.  According to Musk most of us have a “tremendous bias against taking risks”, and instead default to “optimizing our ass covering”.  In the aerospace industry the default mode was to build upon the rocket systems that were designed in the 50s and 60s.  Can you imagine how outdated that tech must have been by 2010?  But nobody was willing to stick their necks out to scrap the rockets of yesteryear and start over with a new approach . . . until Elon Musk.  So Space-X went about breaking every space rule in the books.  They bought used rockets from the Soviet Union to keeps costs down, they recycled parts on flight after flight until they had a reliable space transport, and they floated launch/landing pads in the ocean to have moveable touch down sites.  Fast forward just six years and you have a proven space company who’s more nimble and cost efficient than the rest of the industry, and will eventually beat out NASA as the first to send a human to Mars.  Pretty impressive stuff for a guy who was just trying to defy his bias against risk!

Have a great Thursday guys!