A sobering reminder of the precarious nature of business models in the entertainment comes today from Bloomberg.
They report a 32% drop in DVD shipments in the 4th quarter. While the Studios multi-billion dollar gravy train is not disappearing, its form is shifting rapidly and it is less clear how the Hollywood-based companies can capture a share of the revenues being generated in other parts of the distribution chain.
For example, the rental market for DVDs remains strong as Netflix revenue surged 19% in the same 4th quarter.
But that means Netflix is doing well it does not mean the studios prosper. What’s good for Netflix is good for Netflix.
There are fears that the overall value of a film project will have to be heavily discounted now to reflect a disappearance of after market distribution.
As the article reports:
Films are valued based on projected sales over 10 to 15 years, from theatrical release through DVD sales, cable television and TV broadcasts outside the U.S., said David A. Davis, managing partner of Arpeggio Partners LLC, a Santa Monica, California-based consultant to movie studios. Studio estimates of these cash flows may prove optimistic if DVD sales continue to deteriorate, according to [Sanford Bernstein analysy Michael] Nathanson.
While the onslaught of new media has struck fear in the hearts of many in the industry, that sector will clearly loom as more and more important in the coming decade.
In light of the new movie about Che Guevara, I am reposting something I originally blogged on in 2004 when Motorcycle Diaries came out:
The hundreds of thousands of people who will see the film version of Che Guevara’s Motorcycle Diaries can be forgiven for thinking that “Che” was the embodiment of compassion for the downtrodden of Latin America.
The movie is without a doubt a strikingly beautiful film and tells a moving story. And if you compare the young Che with his contemporaries in the United States – Jack Kerouac and Neal Cassidy in On the Road, for example – he certainly comes out ahead. But the Diaries have little to do with the real Che Guevara, at least not with Che as an adult.
That movie has yet to be made.
While we wait, it might help to consider Che’s published views of the labor movement. In my Ph.D. dissertation on Nicararagua’s Sandinista revolution, I wrote a chapter which I link here that considered the ideas of Che about the role of workers and trade unions in a revolution and beyond and the influence those ideas had on Nicaragua’s fledgling Sandinista regime.
With the return of Che as an icon and the apparent staying power of the Sandinistas themselves (they recently won a huge victory in local elections in Nicaragua) this is not simply an historical or nostalgic exercise. (Note that the text was written in the early 90s which explains some of the grammar and references.)
Although I have not seen the new del Toro version of Che yet, from all accounts it is no closer to the real Che than Motorcycle Diaries was.
Will The Real Che Guevara Please Stand Up?
It appears that former Goldman Sachs executive John Thain forgot the lessons of teamwork and humility that were a part of the Goldman culture when he moved to Merrill Lynch. With the allegations that he spent $1.2 million on re-furbishing his personal office, he looks more like the felon Dennis Kozlowski of Tyco fame who once spent thousands of shareholders money on a dog-shaped umbrella stand!
With taxpayers spending hundreds of billions to rescue the banking system, outrage is surely justified.
But outrage is not policy….and it is policy that this crisis needs. It is becoming increasingly clear that we need to nationalize the banks to insure that the necessary reforms take place under the scrutiny of the public. In fact, that may be the only way to avoid the collapse of the system: if we try to buy the bad bank assets then it could cause a re-pricing downward of remaining assets. It also means the government gets the lemons while the banks keep the profitable assets.
Nationalization is only the first step – the second has to be a new system of governance including public trustees placed on the boards of our key banks so that we can insure that savings are allocated safely to those areas of the economy that need the money and can invest it wisely to create jobs and develop new useful technologies.
While discussion of nationalization has now surfaced in the pages of the Financial Times and today in the New York Times, one fears that the Geithner/Volker/Summers team will move too slowly to discard failed models.
Brad Setser, partner to the better known Nouriel Roubini, notes that the hot money flow into China, to take advantage of an appreciating renminbi, is now moving into a sharp reversal.
This suggests a slow down in China. And it squares with my own pet hypothesis – that the current global financial meltdown is due to the fact that a bottom was reached in the “China Price” as Chinese workers started over the past few years to push back.
More on this later but here is a useful snippet from Setser:
Hot money is now flowing out of China. Here is one way of thinking of it:
The trade surplus should have produced a $115 billion increase in China’s foreign assets. FDI inflows and interest income should combine to produce another $30-40 billion. The fall in the reserve requirement should have added another $50-55 billion (if not more) to China’s reserves. Sum it up and China’s reserves would have increased by about $200 billion in the absence of hot money flows. Instead they went up by about $50 billion. That implies that money is now flowing out of China as fast as it flowed in during the first part of 2008.
If this trend continues it will not only undermine the claims for the permanency of financial globalization, but will radically alter labor politics in the US where protectionism is on the rise and, of course, could have a politically cataclysmic effect on Chinese politics.
Brad Setser: Follow the Money
Stanford economist and former Fed member John Taylor nails the central dilemma presented by the Fed’s aggressive intervention into the financial crisis: legitimation.
The viability of capitalism, which generates volatility and inequality as a matter of course, depends heavily on the notion of “consent by the governed.” Absent that revolution or chaos fill the vacuum. Taylor notes that the massive buy-in by the Fed has meant, whether intentional or not (certainly not), that the federal government is now making industrial policy choices.
This is really no different than the “pick the winner” policies that are at the heart of the east Asian model. Thus, the Fed begs the question, who does the picking?
Presumably the governed…but where are they in the process?
Fed has abandoned monetary policy, critic says