Tracking Benjamin: U.S. dollars around the globe and why cash is here to stay

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I could go a whole week without touching a piece of physical currency once. Apple Pay at Starbucks, credit card at the bookstore, debit card at their favorite food truck, Venmo to split restaurants checks with friends, cash a check on an app, you name it and it can be done from a smartphone.

In today’s digital age, it’s easy to envision a day when grubby green dollars are a relic of a bygone era, like typewriters or pagers, but the evidence points in another direction.

There are two main reasons why the United States will keep printing the Benjamins for many years to come. The first is that most Americans still use cash as a secure way to complete transactions, especially for small payments. Secondly, many developing nations prefer to use American currency instead of their local currency.

In a 2015 study by the Federal Reserve Bank of San Francisco, credit card, debit card, and electronic payment methods were used in 58 percent of transactions. Credit cards accounted for 21 percent, debit cards for 27 percent and electronic for 11 percent of the year’s ways to pay among American consumers. In spite of widespread use of more modern payment methods, cash has maintained its status as the most used payment instrument at 32 percent of all transactions.

American transactions by payment type in 2012 and 2015. Over three years, cash use declined but remains the most used payment method.

While cash remains king for now, it’s popularity declined in the United States from 2012 to 2015 accompanied by in increase in the use of cards and electronic payments. Credit cards, in particular, increased use by 4 percentage points over the three-year period.

Despite declines in cash usage among Americans since 2012, the total Currency in Circulation Value has been rising every year since it was recorded and published by the U.S. Department of Printing and Engraving in 1995. Since then, the value of currency in circulation has increased over 300 percent to $1.38 trillion.

The total value of currency in circulation has grown significantly since 2008.

The U.S. Department of the Treasury decides how much physical currency should be in circulation each year by considering how much currency was destroyed in the past year and the projected demand for currency, in its various denominations, for the upcoming year.

It’s not just a response to inflation that is driving up the amount of dollars in existence. The rate of growth of currency in circulation far exceeded the rate of inflation between 1995 and 2015, as determined by the Consumer Price Index. Adjusted for inflation, the $148 billion in circulated cash in 1995 would be equivalent to $230.17 billion in 2015 dollars, just 16 percent of the actual value in 2015.

Although since 1916 inflation rates have been somewhat erratic, since 1995 inflation has remained relatively steady.

If the supply of cash is ever-increasing at a rate much higher than that of inflation, demand must also be increasing, otherwise inflation would rise because too many dollars would begin to chase too few goods. Between low inflation rates, since 1995 inflation has averaged around 2 percent each year, and a decrease in demand for cash among Americans moving toward credit and debit cards, there must be a missing piece.

To find the missing piece to the puzzle, travel to Cambodia where locals shuffle crisp one dollar bills from hand to hand at a bustling floating market, Zimbabwe where farmers collect U.S. dollars from customers at the market, or Argentina where middle class citizens buy cars with American cash.

This is called dollarization. It describes the use of a foreign currency in a nation either formally, to replace its national currency, or informally, where individuals use a foreign currency alongside their official national one.

Dollarization in countries like Cambodia, Zimbabwe, and Argentina has led to increased demand on an international scale for American currency. For Cambodians, Zimbabweans and Argentinians alike, the dollar was and remains a safe currency that is stable unlike their native monetary system which has struggled and or continues to struggle with hyperinflation and political instability.

Research conducted by the Federal Reserve has consistently shown that overseas demand for American currency has been strong and will continue grow in the coming years. While there is not way to know exactly how much currency is abroad, estimates in 2011 suggested that about 50 percent of all currency in circulation was held outside of the United States, about $500 billion.

Nations that adopt the dollar as their currency formally, and to a lesser degree those that use the dollar informally, also face some disadvantages in exchange for stability, favorable interest rates, and increased trade opportunities. One of the major drawbacks of formal dollarization is the complete lack of control over monetary policy. Dollarized nations with stagnating or shrinking economies are unable to lower interest rates which would encourage consumer spending, investment and create growth.

All of this begs the question: where exactly does the Treasury belong in foreign nations’ economies?

The Treasury Act of 1789, created by the First Federal Congress, established the U.S. Department of the Treasury to manage government revenue collected mainly through taxes. Since its inception, the role and scope of the U.S. Department of the Treasury has expanded and shifted significantly. A part of government that once served almost exclusively as the American public wealth manager now also has major roles in foreign economic policy and even an office specializing in terrorism and finance intelligence.

The United States Department of the Treasury Building in Washington D.C.

Today, it is part of the Treasury’s stated mission to promote “the conditions that enable economic growth and stability at home and abroad” giving a reason for the Department’s support of international economies. Furthermore, providing unstable nations with a stable currency comes at a relatively low cost for the United States while creating some degree of political and economic leverage over the dollarized nation.

In 2015, the cost of printing the year’s currency was $578 million, 0.0001 percent of the year’s federal budget. In exchange for providing dollars, the United States has the ability to strengthen its influence over the nation in question. Additionally, use of the U.S. Dollar abroad facilitates trade by avoiding exchange rates and risks associated with dealing in unstable currencies.

A potential downside to allowing American currency to be used overseas is risking deflation as international demand increases without increases in supply. Luckily for the Treasury, it has the power to print essentially unlimited quantities of dollars in order to maintain the stability of the currency.

There is also no beneficial alternative. If the Treasury only prints what is needed for domestic use, international demand will remain constant with an even smaller supply of currency resulting in an increase in the value of the currency itself. This appreciation might also affect the overall value of the dollar but to a much smaller degree.

Today, the vast majority of money exists virtually in a computer network. The CIA World Factbook estimates that there at $11.78 trillion in virtual and physical U.S. dollars worldwide. This means that physical currency is only 9 percent of all American money in existance. As such, fluctuations in the value of this small portion can only affect the overall value of the dollar by so much.

So, providing currency to the world comes at relatively low cost to the United States and provides some political benefits but dollarization doesn’t entirely explain the increased production of $100 bills.

Currency production by the United States Department of Printing and Engraving separated by denomination. Production has increased overall, however, larger denominations have grown at a higher rate.

Hundred dollar bills in particular have become a larger proportion of the Treasury’s annual currency order. From 2010 to 2015, the amount of $100 bills ordered by the Treasury increased 34 percent from 7 billion to 10.8 billion notes. In the five previous years, from 2005 to 2010, $100 bill orders increased by only 18 percent.

Yes, some people have converted their life savings into dollars and are hiding them in their mattresses as a safeguard against the instability of their own currencies. However, logically, most people who are doing this are in developing nations and won’t have vast amounts of savings to convert into dollars and stash away.

A study conducted by Peter Sands, a Professor at Harvard, suggests that a significant amount of American currency, particularly $100 bills, is preferred by and thus facilitating international crime. The study estimates that global crime finance amounts to over $2 trillion U.S. Dollars per year. Sands argues that most of the illegal transactions that combine to make this astronomical figure use cash due to its anonymity, lack of record, and ease of transportation. Given the large sums of money exchanging hands, large denominations of stable currencies issued in mass quantities are the preferred form of payment.

From this point of view, the Treasury can be seen as an organization that is unintentionally aiding international criminals. Upon further scrutiny, however, the Department can’t really be held accountable for how people use its bills. The Treasury would face opposition to decreasing the discretion and portability of cash because those same characteristics make it attractive for law-abiding citizens.

Perhaps the best it can do is limit the supply of large denominations as proposed by both Sands and former Secretary of the Treasury Lawrence H. Summers in order to limit its facilitation of crime.

Economic Implications of Normalizing Relations Between the U.S. and Cuba

In 1961 the U.S. severed diplomatic ties with Cuba. As of December 2014, the U.S. and Cuba started to restore formal diplomatic relations for the first time in more than half a century. The U.S. moved to relax restrictions on trade, commerce and financial transactions with Cuba, though the comprehensive trade embargo for years is unlikely to be lifted at once.

Since the 1960s, the U.S. administrations have maintained the policy of economic sanctions of Cuba. Cuba depends primarily on three suppliers to meet its import needs. In 2014, Venezuela was the leading supplier of Cuban imports, with 35 percent share. The EU supplied 23 percent of total Cuban imports, while China accounted for 11 percent. Venezuela, the EU, and China together accounted for 69 percent of total Cuban imports in 2014. By contrast, before initiating trade restrictions, the United States alone accounted for 70 percent of Cuba’s total imports in 1958. In 2014, the U.S. share was just 3 percent.

As the political relation normalized in 2014, the trade advancement is still feeble to see. The total amount of Cuba imports from the U.S. in 2015 was $180 million, down 40% ($119 million) from 2014 and down 51% from 2005. The top export categories in 2015 were meat, food waste, grain and chemical products. The agricultural products importing from the U.S. totaled $150 million, which is the leading import category.

Compared to Cuba’s import, there was no goods export to the U.S. in 2015. The EU still remains the leading partner of Cuba’s export destination.

But after the Cuba policy changes announced by the President in December 2014, the U.S. government made some regulatory changes to allow the importation of certain goods and services produced by independent Cuban entrepreneurs. The U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) have made five sets of amendments to their respective Cuba sanctions regulations. OFAC introduced a provision in January 2015 authorizing the importation of certain goods and services produced by independent Cuban entrepreneurs.

Other changes are expected to benefit the economy in both countries. American banks can now do business with Cuban customers without brokering through a third nation. It means Cuban Americans can send money to family members in back in Cuba easier than before. In 2015, Annual funds sent from the U.S. back to Cuba nearly doubled to $1.4 billion.

US citizens are now able to use their credit cards in Cuba. They can also take home up to $100 in alcohol and tobacco from the island. Still, most US travelers to Cuba will continue to be family members, academics, journalists, cultural ambassadors, and medical professionals. But US citizens don’t need to obtain permission from the US government as previous required. About 150 thousand Americans traveled to Cuba in 2015, up from 91 thousand the year before.

Though two countries has made progress toward trade and commerce, the future remains ambiguous. Fidel Castro, Cuba’s communist leader who had been in power for five decades, died on Nov. 25, 2016. Two days later, the U.S. President-elect Donald J. Trump warned that“If Cuba is unwilling to make a better deal for the Cuban people, the Cuban/American people and the U.S. as a whole, I will terminate deal.”

The Big Three’s Foray into Tiered Wages

Troubled Waters

It’s 2007 and The Big Three automakers, Chrysler, General Motors and Ford, all found themselves in big trouble. They were on the verge of collapse, with wage bills spiraling out of control and foreign competition continuing to undercut their former domestic supremacy. GM’s profits were down 90% in the first quarter compared to the previous year, and the automakers looked for any means by which they could save themselves amidst the falling debris of debt, rising gas prices and cars no one wanted to buy anymore.

Most economists argue that globalization is a net positive for economic growth, benefits consumers in a number of ways and should be encouraged. It creates a more competitive environment that in theory increases not only the quality of products available to the average consumer while also decreasing their cost. The American auto market shows us a very clear example of how it works.  The Japanese and Korean automakers entered the US market and essentially took the Detroit giants out at their knees. Companies like Honda and Toyota created cheaper, more efficient and longer lasting cars than their competition and won larges swathes of the market.

In response, American automakers cut costs fast and furiously. For example, in the mid-2000’s Ford downsized significant parts of the company by closing plants in order to reduce excess production and they liquidated thousands of salaried positions. According to it’s 2005 earnings statement, Ford planned to close 14 manufacturing plants by 2012, leaving some 25,000 to 30,000 workers jobless. They did this because they did not have a demand for the vehicles at level needed to operate the facilities at full capacity. In fact, they operated at a mere 75% of capacity as of that earnings release. These initiatives were a direct result of automotive sector of the company losing almost $3.895 billion in 2005.  Eventually, Ford cut over 40,000 jobs between 2005 and 2008.

Ford’s 2005 earnings report shows trend of shrinking market share

This poses a major drawback, for some, of globalization and how it effects workers; it depresses wages. This happens because workers are now faced with a market place flooded with cheaper competition. Logically, that should for the wages for American auto workers to decrease in order to compete with the foreign workers. But in this instance, the wages of the American auto worker have not shrunk to match the other entrants in the field. Author Edward McClelland points out in a Washington Post column that, “because it provides pensions and benefits that GM’s labor costs average $58 an hour, compared with $48 for Toyota and $38 for Volkswagen.” So the Big Three cut jobs, shut down factories and continued to move production into cheaper wage countries like Mexico. These moves cut union membership from 1.5 million in 1979 to 400,000 members as of 2015.

 

 

 

 

 

 

 

 

 

The Big Three and the weakened unions had to confront the wage issue in order to find a workable path moving forward. Faced with the loss of jobs due to reductions and outsourcing, the unions agreed to system in which hourly employees hired before 2007 would have the designation of tier one or “Traditional” employees and their wages would remain frozen, but not cut. Whereas, all new hires from 2007 onward would be deemed tier two employees, and their pay would be capped permanently, with no hope of ever matching the rates of tier-one employees. Basically, they imposed a wage ceiling of $19 an hour on newer hires, no matter how long they worked there, while the longer tenured employees could make up to $28 an hour. The move was justified as a means to save thousands of factory jobs in the U.S. A move that has been since in other companies such as Kroger’s supermarket chain and United Parcel Service. Many point to Ronald Reagan’s use of tiered wages against government employees at USPS in 1984, as the first instance of its use in the US. Now the automakers were betting on its efficacy as well.

 

The Bailout

Initially, the plan did not make a major impact. We know an enormous number of factors played into the demise of the Big Three. After all, if you look at the Ford’s stock over the past 15 years, we see a massive downward trend from 2000, far before the financial collapse, until it scraped the bottom of the barrel in 2008. Foreign competition battered the Big Three, and drastically reduced not only their market share. For a number of years, the Americans could still bank on consistent sales volume to maintain, but after the recession demand dried up producing the crippling blow. Now higher labor costs became an even more significant point of contention in explaining why they couldn’t keep up. Soon Chrysler and GM teetered on insolvency. Ford hung in, but could’ve easily tumbled as well.

Ford Stock Price 2000-2010 Source: Google Finance

In late 2009, both Chrysler and GM filed for chapter 363 bankruptcy. In response, despite some calls to allow the companies to fail, the Obama administration intervened to prevent an, “Industrial Lehman Brothers Effect.” By utilizing TARP, the Troubled Asset Relief Program instituted under President Bush in 2008, the government dispersed $49.5 billion to GM, $17.17 billion to Ally Financial, the former financial arm of General Motors, and $11.96 billion to Chrysler in various loans, bankruptcy payments and share purchases. As a result of this agreement, Chrysler went under the dominion of Fiat, and the two companies merged to become Fiat Chrysler Automobiles US.

Ford, after initially taking part in conversations about a bailout, decided to walk away from the negotiations. It drew on lines of credit that they established in 2006 by mortgaging assets ad setting up long-term borrowing plans for the credit crisis in 2008. This allowed the company to infuse itself with life preserving liquidity to weather the storm of contraction in 2009 and 2010 which included; shrinking sales numbers and, consequently, shrinking production output.

These actions undoubtedly saved a number of jobs, and allowed the American auto industry to continue to exist as we know it. The Center for Automotive Research released a report on the topic in 2013, “Our results show the U.S. government saved or avoided the loss of $105.3 billion in transfer payments and the loss of personal and social insurance tax collections—or 768 percent of the net investment.” The report continues, “Additionally, 2.6 million jobs were saved in the U.S. economy in 2009 alone and $284.4 billion in personal income saved over 2009-2010.” But what did a lot of these “saved” jobs pay? A fair number of them didn’t pay what they used to, and that was the intention. But the results are difficult to argue against. Ford added more than 17,000 hourly jobs in the last five years through in-sourcing, and brought back production of certain pickup truck models from Mexico. Meanwhile FCA brought in around 15,000 new workers since their bankruptcy 2009.

 

Removing the Limiter

The US government attached a number of stringent restructuring requirements to the bailouts of Chrysler and GM. Initially, the tiered wage plan, as agreed to in the labor negotiations of 2007, prevented the Big Three from having any more than 20% of their work-force constituted by tier-two employees. After GM and FCA filed for chapter 363 bankruptcy in 2009, Obama lifted that restriction. The cap was supposed to be reinstituted during labor negotiations in 2011, when the companies became profitable again, but that did not happen and the tiered wage agreement continued. According to the New Labor Forum, FCA’s workforce consisted of up to 45% tier-two employees before the most recent collective bargaining sessions in 2015, while Ford’s number sat at 29% and GM at 20%. As a consequence of having the most tier two workers, FCA saw the greatest benefits to this plan. It saw wages drop to an average of $48 dollars an hour, according to the Center for Automotive Research, as compared to Ford whose costs rested at $57 an hour.

But Ford still pointed to the new agreement as a key factor in their regaining international competitiveness. From its 2011 earnings report, “In 2011 we signed a four-year agreement with the United Auto Workers that will help us improve our global competitiveness. As a result, we will be investing $16 billion in the U.S. and adding new jobs at our U.S. manufacturing facilities.” They also reported an increase of pre-tax operating profit for their North American operations to $6.2 billion. A massive change from the losses they faced back in 2005. Obviously, many factors play into that resurgence, but wage cost reductions were a major talking point for all of American auto makers.

Source: Ford’s 2011 end of year earnings report

 

The Downside of Tiered Wages

While the new wage structures helped retain many jobs, and played a role in the revitalization of auto industry in the US, sometimes things resonate on a deeper level than just spreadsheets. The wage gaps between employees, with no possibility of ever closing, caused a lot of discontent amongst the workforce. A fact acknowledged on both sides of the negotiations. Imagine getting a job and working alongside people doing the same job, and yet you will never receive the same pay. Many of these workers had close relationships with one another as well, which only made the disparity more difficult to bear for some.

In an excellent article for The Nation about the growing trend of tiered wages in the US, Louis Uchitelle talks about a father and son, Gary and Karl Hoeltge, who both work on a GM assembly line in St. Louis. Karl feels disillusioned with the work and has his sights set elsewhere, in part because, “I’ll never catch up to my father’s pay—not if the union allows the present setup to continue.” Uchitelle describes how father and son must refrain from discussing the issue at the dinner table so they don’t upset the rest of the family. The divisiveness of wage tiers seeping into home life is important to note, because one can imagine how those same feelings must render themselves in the workplace.

The Hoeltge’s paint just one example of the discontent that many autoworkers felt in regards to the tiered wage system. Trey Durant, a 20-year factory employee for Chrysler, has strong feelings on the issue, “Working in the same facility, side by side with someone who has a different wage than you was a bad idea, even though I know why they had to do it when times were tough,” He says. “I want my brothers and sisters to be at full wage also.” And even FCA CEO Sergio Marchionne, whose company benefited the most from this arrangement, called the system unsustainable and pushed for it to end.

The UAW worried that the increasing number of tier two employees at the factories would more firmly entrench the system. Whether they worried about younger workers making ends meet as Trey Durant says or worried about being forced out for cheaper labor themselves is anyone’s guess. What we do know is that the unions made ending the two tier system a key point in labor negotiations with the Big Three in 2015. Ultimately, they reached an agreement that instituted a new eight-year track for new hires to eventually reach the same wage rate as tier one employees. So the controversial wage tiers are no more.

 

Conclusion

Ford utilized the advantages of tiered wages when in-sourcing jobs back from Mexican plants, but now they have to rethink their strategies.  “The business case for in-sourcing is more challenged with today’s agreement versus the prior agreement,” said Joe Hinrichs, Ford’s President of the Americas to Automotive news. “…there will be business choices over time that will have to be looked at, given the new cost structure that we have.” These wage structures made it economically beneficial for the big Three to keep jobs in the US, and now that they’re gone it will be interesting to see what actions they take next to try and keep earnings high. The bail-out and tiered wages certainly helped punch up the economic recovery, but how will these companies choose to compete with foreign competition going forward?

For the worker, the ever evolving market place, in the end, is the primary difficulty they have to face. Tiered wages may have cause unrest amongst the employees, but ultimately they allowed many people to attain jobs they otherwise would not have. Faced with the looming threats of increased automation and further outsourcing to Mexico it appears many of these workers have picked a losing fight.

At a Crossroads: The Future of ESPN

The year was 1998. The Entertainment and Sports Programming Network (ESPN) was trying to close a landmark deal with the National Football League. The goal was to finally bring the crown jewel of sports content, professional football, over to ESPN for weekly primetime scheduling. To close this deal, ESPN had to ask its parent company, Disney, and their CEO Michael Eisner for permission to pay the NFL’s exorbitant rights fee. Eisner agreed, on one condition: ESPN would have to divert the cost to cable companies in the form of annually increasing subscription fees. The head of sales, George Bodenheimer who would later become the longest tenured President in company history, had to do the impossible.

Bodenheimer had to convince various cable affiliates to a new seven-year deal with a compounded 20% annual increase in subscription fees. By the stroke of unparalleled salesmanship, and a fair amount of luck, Bodenheimer secured the agreement from the major cable players across the country. Thus, ESPN, only nineteen years old at the time, finally had professional football in primetime. They would soon discover that the landmark seven-year deal, and not football, was the true jet fuel for ESPN’s meteoric rise in revenue and spending power.

This seminal moment in ESPN’s ascent to supremacy in the world of sports television is recounted in deep detail in James Andrew Miller’s oral history of the company, “Those Guys Have All the Fun.” In the book, Miller quotes Hearst CEO Vic Ganzi who estimated “that single stroke of genius sent ESPN’s carriage fees from 40 cents to $3.20.”

The deal reverberated around the entire cable ecosystem because of its shocking potential. To put the deal into perspective, achieving a 20% return annually over seven years would yield a return of 358%. This growth in revenue was so tantalizing and surprising that even Eisner didn’t believe it was possible. Bodenheimer recounts in his memoir the task of relaying the news to his boss. ‘“Impossible!” said Eisner. “Nobody will pay that.”’ Yet they did, and ESPN reaped the rewards.

One of ESPN’s most popular shows with its longtime host Chris Berman

This deal speaks to ESPN’s true competitive advantage as a network. ESPN has the highest subscription fee of any cable network, which is how much cable and satellite TV providers charge per month to users for access to the channel. This tremendous influx of cash flow allows ESPN to outbid other networks with lower subscription fees that are more reliant on advertising as a form of revenue. ESPN also can command exceptionally high advertising rates because they reach the adult male demographic, a prized catch among advertisers.

This potent dual revenue stream is what positioned ESPN as the market leader for rights deals over the last twenty years. As they became the place to find any sort of sporting event, their ratings and popularity exploded further, and their fees and advertising rates climbed even higher. It seemed nothing could stop this blockbuster business in the first decade of the 21st century. However, recently ESPN has found itself in a business quagmire of epic proportions.

The reason: the technological disruption of the cable industry. Over the last five years, television has been turned on its head. The way individuals consume media has shifted dramatically, and spending preferences have followed accordingly. With options like Netflix, Amazon, and Hulu the new generation of content consumers have more mediums to choose from than ever before. Additionally, DVR and Tivo, mechanisms to record shows, have rendered live television obsolete for the most part. Thus, “cord cutters” can pick and choose their favorite shows and avoid cable altogether.

For those loyalists who want a basic cable package, there is now the “skinny bundle,” a slim selection of channels that provides the necessities. Six months from now there will probably be even more options. In turn, ESPN’s revenue from subscriber fees has declined precipitously and it appears that trend is not stopping anytime soon.

According to Business Insider Intelligence, in October of 2016 ESPN “lost 621,000 cable subscribers, the most it has ever lost in a single month.” While that number, provided by Nielsen, has been disputed inside the kingdom of ESPN, the fact remains that the company is contracting. According to Nielsen estimates, ESPN has dropped below 89 million subscribers for the first time in a decade. Even more alarming is the fact that the company will lose close to three million subscribers in this calendar year alone. 60% of ESPN’s revenue comes from subscriber fees alone. 

The dominance of ESPN has always been its robust dual revenue stream. As of now, just ESPN, without the other companion networks like ESPN 2 and ESPNU, commands a staggering $7.04 monthly subscription fee. Losing three million paying customers over the course of the year translates to a decrease in revenue of close to 250 million dollars annually. In the world of ESPN, where double digit growth is the norm, stagnation is unacceptable. One can only imagine what contraction means for the company.

Some experts and executives in the media industry think that ESPN creating a standalone service similar to HBO NOW is the magic antidote to all of their problems. The issue with this is that unlike content on HBO that is watchable at any time, the market has not shown a propensity to watch delayed live sports events. While it is perfectly acceptable and enjoyable to watch Game of Thrones a week late, the same cannot be said of watching a week old showdown between the Lakers and the Thunder. Additionally, this would violate current contracts on their deals and there is no incentive for individual professional leagues to use ESPN as their middleman when they can air direct to consumer. 

Even more than that issue is the fact that to match ESPN’s current revenue with the standalone model, the company would need to charge an exorbitant rate per user of the service. The reason the cable model is failing is precisely why ESPN is succeeding. Millions of cable subscribers pay ESPN’s monthly fee without ever turning on the channel. With the new consumer driven economy, this inefficiency is slowly evaporating, and ESPN’s bottom line is feeling the brunt of that damage.

To compound this problem, ESPN is losing a lot of its signature talent while facing stiff competition as well as stagnant ratings on its two marquee programs: Monday Night Football and Sportscenter.

Over the last two years, ESPN has lost its most popular columnist, one of its most prominent radio hosts, and the most polarizing and talked about morning sports show TV host. The three: Bill Simmons, Colin Cowherd, and Skip Bayless all left because of friction with management and for more money. Fox Sports 1, the well-funded and fairly new competitor, flexed its financial might to pick up both Bayless and Cowherd. While Fox may have overpaid, the signings and other marquee additions like Erin Andrews, have put the TV network on the map. These were the types of moves ESPN would make in the past. As a result of its growing popularity, and a historic Chicago Cubs playoff run, Fox Sports 1 actually topped ESPN in ratings over the course of the October 13th to October 20th week for the first time since FS1 launched in August of 2013.

An FS1 show taking market share away from ESPN

The ratings drop affects ESPN’s other revenue driver: advertising. Since the advent of ESPN, the reason it has always commanded such high rates is because of its hard to reach demographic. For years, adult men have been the white whale and ESPN has been the bait to lure them in. Unfortunately for the company, ratings are down. Sportscenter, which rose to prominence in the 1990’s with transcendent hosts Keith Olbermann and Dan Patrick, has seen its ratings decline 27% since 2010. According to Sports Business Daily, the coveted 18-34 year old demographic has been hit even harder, with a 36% drop.

The two most popular hosts ever

The reasons for this are twofold. First, Sportscenter has failed to groom and create on air personalities that drive viewers the way Olbermann, Patrick, and many others did in the past. Second, highlights are now ubiquitous. One can access every highlight they want from the palm of one’s hand, without turning on Sportscenter. In a sense, the utility of the show is now obsolete. The only reason to tune in is because of the on air talent as well as the packaging. The company has tried to fix this problem by bringing in well liked Scott Van Pelt to host his own hour. This has created a brief resurgence, but there is a problem that still remains.

The new era with Scott Van Pelt

Sportscenter was the wagon that ESPN hitched itself it prior to signing the NFL. It is central to the ESPN ethos, and it represents more than just sagging ratings. In a way, Sportscenter has to work for ESPN to succeed. USC professor and sports media consultant Jeff Fellenzer says that “Sportscenter is so central to the ESPN brand and what they do that the company has to figure out some way to make it work.”

In addition to Sportscenter, Monday Night Football has also been an issue for the company. When ESPN inked the deal for the crown jewel of sports programming last decade, it unfortunately got stuck with the “B” schedule of games. The NFL moved their highest quality games to Sunday Night Football on NBC, and gave ESPN the former Sunday Night schedule. This dramatically diminished the quality of games on Monday night, and has led to less than primetime matchups. In turn, fewer people have tuned in. Since ESPN pays close to two billion dollars a year for Monday Night Football, in addition to the right to broadcast NFL highlights all week, losing viewers is not an optimal situation for the network.

This decrease in revenue puts the network in a precarious position, with rights deals for sports programming growing more expensive each round. According to Business Insider, ESPN literally will not be able to afford their league contracts if the number of subscribers continues to decrease. 

The capital markets have taken notice. ESPN, which was valued by Forbes at 40 billion dollars, only a few years ago, has dragged down the price of Disney’s stock almost single handedly over the last year. In their last earnings report, Disney missed significantly on revenue numbers because of ESPN’s shortcomings. 

Overall investors and spectators are concerned about ESPN’s future, and they wonder if the company can somehow find a new deal that rivals the earning potential of Bodenheimer’s signature achievement. Whether that is feasible remains to be seen. What is clear however is ESPN’s need to innovate in some capacity, to avoid the fate of fallen media giants before them.

The company has an array of options to choose from, and the strategy they take moving forward will be interesting. In terms of rights deals, the company can collaborate with other companies to split the monumental asking price of the various leagues. They have done this already, working with Fox on a deal for the PAC 12 and there will be more of these to come in the future. Fellenzer believes this is an absolute necessity as they won’t be able to afford as many rights deals on their own. “You will definitely start to see more of the PAC 12 deal type collaborations, I think it is the way to structure it moving forward,” Fellenzer said.

On the subscription front, the company may be able to work out deals with individual providers and other streaming services. They have started this process, offering ESPN on sling TV, a skinny bundle provider.

At the end of the day, the company is undoubtedly at a crossroads. However, they have the benefit of practically every league deal for the next decade. Live sports is still the one holdout for the rapidly shifting media landscape, and ESPN can use this decade of practically guaranteed viewers to innovate and figure out its next landmark move for the future. The company has been skilled enough to build one of the biggest media brands ever, so betting against them moving forward should be done with caution. There is a reason they are the worldwide leader in sports.

 

China’s National Love For Live-streaming

“Please don’t send gifts to me anymore! Why not buy some snacks if you have extra money?” said Fu Yuanhui, a Chinese Olympic swimmer, after seeing the barrage of virtual gifts such as yachts and sports cars being sent to her via cyber space. Fu, who became famous for her lovely facial expressions and the buzz she generated from her “mysterious power” during the Rio Olympic Games, was live-streaming herself interacting with her fans on a platform called Sina Weibo, the Chinese version of Twitter. More than 10 million people watched this live show and many of them contributed in filling up Fu’s mobile phone screen with virtual gifts.

Though seemingly useless, virtual gifts have more value than is initially apparent. The virtual yachts, sports cars and diamonds are not real ones, but they are paid for with real money by fans, which the live-streamer is then able to cash out proportionally. The prices of gifts range from several cents to thousands of dollars on Inke, a one-year-old live-streaming mobile app that has occupied the No. 1 spot on China’s app store multiple times in the past few months.

Believe it or not, at any given hour, millions of Chinese are live-streaming on their smartphones. Not only celebrities, but netizens from all walks of life are joining the army of live-streamers to showcase themselves performing all kinds of activities. “You can live-stream whatever you want,” said Ge Wang, a student live-streamer studying Communication Management at the University of Southern California. Her graduation capstone project is about how to be an Internet celebrity. Before she started live-streaming this summer, she had already several short videos online. “My friends told me that if I want to get famous, live-streaming would be a good way,” Ge explained.

Welcome to China’s new national reality show industry! Live-streaming is gaining huge popularity among youngsters who are willing to show their personal lives online for fun or fame. Accordingly, the past year witnessed hundreds of new live-streaming social accounts, especially on apps such as Inke and Huajiao, spring up in the country as millions of young internet users became engaged in this activity. No wonder 2016 has been called the national live-streaming year of China.

While China did not invent live video-streaming, it has taken these reality shows to a completely new level. “Dozens of Chinese live-streaming apps almost copy exactly the same format as Twitter’s Periscope and Younow,” Ge explained. Live-streaming is a growing mobile-video market that is hungry for content reflecting young people’s tastes and lifestyles.

 

Platforms, Live-streamers and Content

Live-streaming has been around in the U.S. for years on social media platforms such as Facebook Live, Flipagram, Instagram Stories, Snapchat, Twitch, Periscope and YouNow, but it is not a mainstream activity in the States. However, China is turning it to a national fever.

Video game live-streaming is the most common type of content initially, which is the same case for both China and America. Live-streamed video-gaming targets hard-core gamers and the shows are usually hosted by professionals. For example, Douyu, a competitive live-streaming platform, which is operated by Wuhan Douyu Internet Technology with investments by Tencent Holdings and Sequoia Capital China, debuted as a live video website for gamers in 2014, but then moved to lifestyle live-streaming last year. It is now claiming 600,000 users who have streamed at least once and 120 million active monthly users.

Lifestyle live-streaming then prospered. A lifestyle live-streaming bellwether is Inke mentioned above, which says over 50 million users have downloaded its app since its establishment. Moreover, China’s biggest social media platform Sina Weibo launched its live-streaming platform in May. Since then, Weibo celebrities and influencers have brought a number of live-streaming shows for fans, for fun and even for charity. Video streaming site iQIYI also launched its live-streaming app Qixiu in the following July.

“Everyone can be a live-streamer,” said Ge, “no matter if you are a celebrity, an entrepreneur or ordinary person.” That’s the truth. Approximately 46 percent of China’s internet population used a live-streaming app in June 2016, according to Hua Chuang Securities.

With popularity largely driven by celebrities and key opinion leaders, live-streaming can be especially useful when famous brand ambassadors serve as hosts to the online events. Alibaba’s Tmall seizes this business opportunity as usual. A total of 49 percent of beauty brands have live streamed on Tmall between April and October 2016, The e-commerce giant, Taobao, follows with 35 percent of beauty brands having live-streamed on the site, according to Jing Daily. This September, prominent make-up brand Guerlain partnered with Yangyang, a Chinese celebrity via Tmall Live. The live-streaming show garnered 2.43 million views, 4.55 million likes and most importantly, more than 10,000 of lipsticks sales.

(Guerlain’s partnership with Yangyang)

Papi Jiang, a Chinese cyber celebrity, drew 20 million viewers for her first live-streaming show in July 2016. During her 90-minute unscripted live-streaming show, which was available on eight leading live-streaming platforms in China, including Youku, Meipai and Douyu, Papi Jiang told jokes and shared with her fans details of her daily life and romances. According to the New York Times, there were more than 74 million views in one day, which exceeded what Taylor Swift’s latest music video, “New Romantics,” received on YouTube in four months.

(Papi Jiang’s first live-streaming show)

Renowned entrepreneurs also seek to take advantage of the platforms to boost their brands among young consumers. Wang Jianlin, the chairman of Dalian Wanda Group and China’s richest man, once live broadcasted himself visiting a company theme park and playing cards on his private jet.

(Wang Jianlin’s first live-streaming show)

“I don’t think Chinese live-streaming has good content,” Ge complained. Ge indicated that current live streaming fever is lacking qualified production. A lot of people are live-streaming their lives all day from squeezing in the metro to eating a bowl of ramen. Moreover, Chinese live streaming apps breed soft porn in a society where such content is tightly controlled. Understandably, Americans don’t need Periscope to watch pretty young women, but Chinese need live streaming platforms to help satisfy their sexual cravings.

(A pretty young woman live streams herself.)

Where is the money going?

It is not uncommon to read such an eye-catching title as “China’s Internet ‘Stream Queens’ Are Being Showered With Cash” if you search for live-streaming related content via Google. Is live-streaming that profitable?

“I made 20 yuan ($3) to 30 yuan ($6) every live-streaming show that lasted for an hour,” said Ge. Ge admitted that she was new to live streaming but professional live streamers are able to earn as much as one million yuan ($0.2 million) in a month. Someone even quits his or her full-time job to pursue a live-streaming career because it pays so much more.

How does live-streaming monetize? Through the collaboration of the app, the live streamer and the viewer.

Admittedly, live-streaming is well known for its interaction. However, many Chinese live-streaming apps have integrated an original tipping feature that motivates people to stream more and generate profit for the apps. Other than leaving comments, viewers can also interact with the hosts by buying them virtual gifts, such as flowers, toys and cars through the streaming platforms. Not only the apps are making a profit, the streamers can also trade the token value of the presents for cash.

For example, one yuan (20 cents) on Inke can buy 10 tokens, which users can in turn use to purchase virtual presents, such as a bunch of cherry flowers (one token), a hug (five tokens), a fleet of virtual Ferraris (3,000 tokens each) or a yacht (13,140 tokens). In other words, if you want to tip your favorable host with a yacht, you have to spend 1314 yuan ($190) for Inke’s tokens. Moreover, Live streamers and Inke split the income from token sales. Different companies set different rules for splitting the income. Inke gets 70 percent of the revenue while Douyu says it splits token income with streamers halfway.

Through digital tipping, live-streamers are incented to live stream more frequently. “If you want to build your loyal fans group, you have to post regularly say every Monday evening at 8 pm,” Ge stressed.

Besides live-streamers and live-streaming apps, adding to the monetization of streams are also e-commerce and games sales. E-commerce platforms such as Alibaba also share a huge slice of the profit in this market as viewers might be tempted to buy the same clothes their hosts wear and gamers are more likely to play the games that the host recommends during live-streaming.

Live-streaming directly gives rise to new forms of advertising for different brands. Brands start to advertise on the apps and users pay to watch their favorite personal reality shows.

Investors are thinking highly of this flourishing live-streaming market as it is generating a huge amount of capital. Investment funds and tech giants, including Baidu, Alibaba and Tencent, have invested heavily in the fast-growing industry. According to Hua Chuang Securities, the live-streaming market reached 12 billion yuan ($1.8 billion) last year. It is estimated to grow to 106 billion yuan ($16 billion) by 2020. Credit Suisse stated in its September research report that it believes the Chinese personal live streaming market will be $5 billion next year — already just $2 billion less than China’s movie box office total ($7 billion) and half the size of its mobile gaming market. In addition, 108 out of 116 live-streaming apps have successfully secured financing.

Furthermore, investors are swooping in. Inke, which now has more than 2 million users, raised 68 million yuan ($10.3 million) in January from Beijing-based web game developer Kunlun Tech. In March 2016, Douyu raised $100 million in a round led by Chinese web giant Tencent Holdings. Enlight Media, a Shenzhen-listed entertainment company chaired by billionaire Wang Changtian, invested 131 million yuan ($20 million) for a controlling stake in live-streaming platform Guagua this May.

 

Where is the future? Tighter government supervision and better content

Earlier this year, some of the most viral content on these live streaming apps reflected pornography such as topless women in front of the camera and suggested erotic behavior. Those streams were deleted quickly. However, the Ministry of Culture, the national anti-pornography office and other regulators have investigated 19 live-streaming platforms for potentially criminal, pornographic or violent content, according to state media reports. Almost all bigger Chinese streaming apps were named or fined, including Inke and Douyu.

In front of the grey areas that exist on the streaming apps, government is trying to tighten its supervision and the sites are also trying to rein in what users post. Nonetheless, pornographic content is more lucrative as users are more willing to pay the live streamers.

Another future challenge is a tension between the quantity of the production and the quality of the production. Although the streaming industry provides a steady supply of content, the market has a low entry barrier. During the interview with Ge, she mentioned that live-streaming is a good way to pass time as a lot of people can live-stream for a whole day. “Maybe it’s ridiculous but I think people are live-streaming because they get bored,” Ge answered with laughter. One of the most astounding statistics of the live-streaming trend in China is that the most active hours are between 10pm and 4am, with peak usage at midnight. Live-streaming may be an answer to loneliness. Moreover, to drive more short-term profit, live-streaming apps are likely to hire beautiful female hosts to attract users and drive sales of virtual gifts.

China’s web has become increasingly mobile-driven, with more than 92 percent of the country’s 710 million internet users now accessing the web via their mobile phones, according to a report published this month by the official China Internet Network Information Center. Undoubtedly, live streaming dramatically changes and broadens people’s social life as everyone is under the spotlight. Everyone can watch each other.

When asked about her future plans to build her brand, Ge said she gave up starting with live-streaming to get fame. She plans to continue and prioritize making funny short videos regularly to increase her viewership and build her loyal fans group, just like how Papi Jiang accumulated her fans before. She highlighted that only short-form videos are considered good content now. Ge has already gained more than 30,000 views for one of her short videos uploaded to YouTube. “If you want to build your brand, live-streaming might not be a good way as no one will pay attention to you until you become someone,” said Ge.

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Sources:

http://www.wsj.com/articles/live-streaming-apps-flourish-in-china-1462995001

http://www.forbes.com/sites/ywang/2016/06/02/in-china-millions-are-broadcasting-their-personal-lives-online-including-the-countrys-richest-man/#63a0a0e57cb4

http://www.cnn.com/videos/world/2016/08/15/china-live-streaming-matt-rivers-pkg.cnn

16 Observations on Livestreaming in China

http://www.economist.com/news/china/21707070-authorities-wish-they-wouldnt-chinas-netizens-love-sharing-live-video-themselves

http://www.voanews.com/a/china-live-streaming-apps-surging-in-popularity/3356667.html

https://www.techinasia.com/weibo-live-streaming-china

https://www.bloomberg.com/news/articles/2016-11-01/chinese-live-streaming-apps-employing-censorship-against-rivals

Live-streaming in China

http://www.bbc.com/news/world-asia-china-37127904

https://www.bloomberg.com/news/articles/2016-07-04/millions-of-chinese-stream-reality-shows-starring-themselves

The Mobile Ticket

“Life in the palm of your hands”; the common expression that comes with our lives today. Yes, I am talking about phones. Smartphones have changed the way we live our lives each day in a way that many think is for the better. With that, smartphones have transformed the way businesses and consumers interact with one another through digital and strategic methods to make their lives easier. The airline, sport, and hospitality industries have taken notice of this change in consumer behavior and have revolutionized the idea of digital ticketing.

Mobile ticketing conveniently provides customers with ticket options by utilizing the power of their smartphone. In my opinion, easy, quick, and convenient are all values that consumers take into account when having the option of using their smartphones over hard copies. Let’s begin with the actual convenience of having a mobile ticket on one’s phone. As technology progresses and mobile devices become “smarter”, this feature is going to take over the consumer dynamic. As per a study done by Juniper Research, “Mobile tickets are expected to account for more than one in two (>50%) ticket transactions on digital platforms by 2019”.

One of the major advantages of having a ticket on your phone is that it cuts costs for ticket providers as well as the customers. No shipping, no paper, no ink; these factors alone make mobile ticket more appealing than the traditional style. Airlines have increasingly promoted the use of mobile tickets through their mobile apps. American Airlines, JetBlue, and Southwest list the step-by-step instructions on how to download and access boarding passes from your smartphone. Apple, Inc. has made the downloading process simpler through an application called “Passbook”, which has now been simplified into “Wallet” (See right). Apple has formed partnerships with airlines, sports teams and credit card companies to create an all-in-one format for their clients in a development towards eliminating wallets. Additionally, industries of all kinds are adopting these mobile ticketing features as a way to increase customer experience in a variety of aspects.

Who is using the technology?

Sports stadiums and arenas have understood the niche when it comes to mobile ticketing and are constantly looking to find ways to enhance the consumer experience. According to the Ticketing Technology Forum, “with stadium owners looking to increasingly [utilize] the latest technology to improve their grounds and enhance the user experience, mobile ticketing looks set to take off”. Owners around the National Football League see availability within their stadiums that can increase the overall fan experience, surpassing just the mobile ticket. Also mentioned in the article, “No longer will the mobile [phone] just be another object in your pocket, it will now be a gateway device to stadium garages, the grounds, food and drink services, a security pass and an interactive device throughout the day”. There are endless possibilities for this technology and business leaders hope to acquire a rewarding service just like the airline industry does with its rewarding miles programs.

Inevitably, there is a promising future for the mobile ticket, and stadiums hope to use e-tickets as the entry point to many possibilities as previously mentioned. Making purchases within the stadium, finding seats more clearly by using an interactive map, ordering food directly to the seats so that fans will not miss any action, and locating the nearest toilets are all part of the expansion plans that have been spoken about.

Mobile ticketing goes much further than just being able to print your ticket and increase user experience. Through the capabilities of mobile ticketing, consumers amongst all industries are able to look at prices on a recurring basis and purchase a ticket up until the beginning of the event or trip. Pricing plays a tremendous role in ticket purchases, especially now that consumers can see these price changes instantly, all with a touch of a button. This technology enables customers to locate the best seats at the best value of any event they wish to attend.

The impacts of pricing strategies are detrimental. To start, there are two types of strategies: variable pricing and dynamic pricing.

Variable Pricing

Defined by the Houston Chronicle, variable pricing as a pricing strategy where a business offers varying price points at different locations or points-of-sale. For instance, let’s consider sports. This whole dynamic is based upon the price of tickets set in advance of the season, but understanding that prices can change depending on the game. The value and match up of the game impacts the pricing of the ticket.

The graphic above shows the ticket prices for the 2017 Los Angeles Rams’ home schedule. Putting the variable pricing strategy into action, the average cost to see the Rams play the Seattle Seahawks will cost you a lot more than when Miami Dolphins come to town. The ownership of the Rams anticipates that there will be much higher demand for a divisional matchup than an out-of-conference one.

Airline and hotel industries also play a role in using variable pricing methods. Airlines set their “Economy Plus” or “Economy Comfort” and standard economy seats at different prices due to the level of comfortability and on-board experience in the cabin. Consumers will additionally see a change in price based on the final destination city. As another example example, there will be a large difference in hotel price between booking in New York and Illinois. A post on Travelandleisure.com states a night in New York City will go for $244 on average as compared to $199 in Chicago.

Dynamic Pricing

On the other hand, is the concept of dynamic pricing. When it comes to this pricing strategy, there becomes a notion set as to the price of items determined by a customer’s perceived ability to pay. Again, let’s use sports to create a better understanding. If the forecast is projecting rain for next Sunday at an outdoor stadium, less fans will be expected to show up; therefore, teams must lower prices to draw a larger crowd for support. Rutgers’ NCAA Football Senior Associate Athletic Director and Chief Marketing Officer, Geoff Brown went into further explanation about his team and how the organization uses dynamic pricing. Mr. Brown states, “there’s a need to maximize ticket revenue and at the same time not penalize longtime, true Rutgers fans”. Schools that have college football teams adjust single-game prices upward or downward based on the marketing conditions of fan demand and ticket scarcity.

Aside from college football, consumers are aware that airlines also use this pricing strategy and have made note that they may be spending more when it comes to flying back home during the holidays. The graph below shows the change in prices of airline tickets as the date becomes closer to December 25th. According to the graph, it is recommended to book flights 90 days, or three months, before Christmas rather than dealing with a 27% increase of the original price ten days out (See left). Customers should understand this pricing inflation and make the necessary arrangements.

This idea also comes into play when booking a hotel in Houston during the Superbowl. Because of a national event like Super Bowl LI, consumers will have no choice but to agree to paying a higher price for their stay. The public is able to see all of the price changes, by exploring dates and locations through the power of their mobile devices. Mobile ticketing has allowed consumers to compare rates, track pricing changes, and locate the best deals available. The mobile ticketing platform operates through the use of dynamic pricing strategies. At any moment, applications like Google Flights can survey demand and change the prices of tickets accordingly by monitoring your search history.

Having the ability to track your favorite sports teams, or see if you will

be able to stay at your dream hotel all goes back to pricing and the power of technology. These pricing strategies impact the way customers interact on a mobile platform. Believe it or not, mobile device
s are transforming the way consumers travel. According to eMarketer, customer purchases on a desktop have continued to decline. In 2017, 59.2% of airline travelers are projected to book their travel itineraries through their small screens (see chart below).

Though technology is great in many aspects, it is crucial to look at the other end of the spectrum and discuss the downsides of the growing world of mobile advancement. Smartphones do not have unlimited battery. Questions arise as to “What happens if my phone runs out of battery?” and “Will my ticket still be retrievable?” This is major concern for users as they are hesitant to rely solely on mobile technology. While security and boarding lines are intended to decrease through the use of mobile boarding, the issue of pulling up your ticket and not being able to locate it becomes a problem that can hold up a line and infuriate others.

Fans Disagree with Mobile Ticketing

Jeff Gilbert, a San Francisco 49ers fan, expressed his concerns over abandoning physical tickets and introducing mobile ticketing. In the past, Mr. Gilbert could mail his friend one of his season tickets or exchange it in person. The only option now is to hope that Gilbert’s friend also has a smartphone and accept the ticket transfer. However, through the adoption of this new digital platform, the 49ers have implemented a 72-hour transfer process before the start of the game. This has resulted in widespread confusion amongst season ticket holders and has caused them to become fed up with the overall dynamic as per the article. This allows fans to print their tickets only when there are 72 hours or less before kickoff. The 72-hour window has proven to be an issue when fans want to donate their tickets to charity and other situations involving giving them away to random people.

Controlling Supply, Taking Advantage of Demand

In another case, the advancement of technology has caused an issue between supply and demand, leading to lives being lost. Industries across the board have unfortunately taken advantage of this concept. Martin Shkreli, an entrepreneur and pharmaceutical executive, acquired the manufacturing license for a pharmaceutical drug which allowed him to control the power of supply for society’s demand. Mr. Shkreli understood the need in the market and the people’s dependency on this drug in order to live. According to Dan Mangan’s article on CNBC, demand was extremely high and supply could not keep up with the market demand allowing Shkreli to have the authority to raise prices by 5,455%. A drug that once costed $13.50 at the time, soon became $750 per pill and consumers were forced to pay because they had no other options.

Technology Advancement and the Future

In retrospect, technology has taken our society to a whole new level. Its effects on supply and demand becomes more prevalent every day. While security and privacy issues arise from the growing use of mobile technology globally, consumers are able to look at mobile ticketing as a way to help understand the market and undergo an enhanced consumer experience.

The introduction of mobile ticketing has helped advance developing industries like hotels, airlines, and sports and their relevancy amongst the consumer demographics today. Through the innovation of technology, users will change the way they interact on a daily basis. We must sacrifice person-to-person contact in our transition toward a technological society. As a result, many people will lose jobs and payments will happen through fingerprint recognition. We have already seen this today through a variety of mobile applications, but really, we all know people are glued to their phones more and more each year. The advancements have both positive and negative effects on our lives, while it may not all be safe, consumers are drawn to the endless possibilities of technology, an industry controlled through the power of their mobile devices.

 

Sources:

http://www.cnbc.com/2016/06/03/martin-shkreli-hit-with-additional-charge-in-fraud-case.html

https://www.emarketer.com/Article/By-2016-Most-Digital-Travel-Bookers-Will-Use-Mobile-Devices/1013248

http://www.mercurynews.com/2016/01/15/super-bowl-ticket-prices-on-record-smashing-pace/

https://www.cleverism.com/complete-guide-dynamic-pricing/

http://www.strategicbusinessinsights.com/about/featured/2015/2015-03-variable-pricing-models.shtml#.WEnsV3eZMXp

http://www.ticketingtechnologyforum.com/mobile-ticketing-set-to-revolutionise-user-experience-at-sporting-fixtures/

https://www.juniperresearch.com/press/press-releases/1-in-5-mobile-wearable-ticketing-users-to-shift

http://smallbusiness.chron.com/definition-smoothing-variable-pricing-67031.html

http://www.travelandleisure.com/blogs/update-average-hotel-rates-across-the-us

Airbnb: the future and challenge of experience sharing

Airbnb and its hosts are broadening their business. During the company’s annual conference in November, Airbnb’s CEO Brian Chesky announced “experience” and “places” will be the two new features joining “homes” on its app. Besides booking a spare room rental, travelers can now use Airbnb to reserve tours and activities.

These two new features are design to help travelers to make more in-depth planning and to have a fuller travel experience. The launch marks Airbnb’s start of transitioning from a home rental site to an integrated travel-planning platform.

“Places” are the travel guides curated by local hosts or experienced traveller. They are essentially lists of places to go. Hidden artistic corners, must-try restaurants, unlikely music venues, etc. Travelers do not have to pay to read these recommendations. This feature has potential to help Airbnb attract more travelers to view its content. Most travelers like to look for places to go before they take off. Some ask on Facebook, some turn to TripAdvisor. But this new “places” feature offers organized personal recommendations that people can eyebrow base on their own preference.

Some curators may recommend places or activities that they have special access to, and that leads into the “experience” feature. “Experience” allow travelers to purchase travel packages on Airbnb. Currently, about 500 activities are available on Airbnb’s app. They are generally more personal and sometimes more creative than the tours from travel agency. For example, travelers can connect to a film producer who can put up a set for them to try out acting. Or they might stay with ranch owner for a few days to ride horses and harvest fruit. Most of these experience packages have activities on multiple days, cost anywhere from $200 to $1000 and provide amenities such as food, drink and tickets. Like home rental, the experience service providers are also individual hosts; Airbnb remains a platform for people to share and meet.

The expansion didn’t come from sudden. Airbnb has been planning and testing on this launching since a while ago. A “journey” feature was tested in the bay area last year, which encourages hosts to plan a whole trip for travelers. In August this year, an app called Airbnb Trip was available briefly on Google Play Store. Similar to “experience”, Airbnb Trip allowed users to reserve activities in their destination, such as booking a restaurant or connecting with a tour guide. In September, Airbnb acquired a travel site called Trip4Real, which also emphasize on unique local experience. The fact that Airbnb raised $850 million in capital this August at its $30 billion valuation also signals a big move.

It is quite an ambitious transition for a company that has only be in the competitive market for a few years. But Airbnb isn’t afraid of trying, because it has the strongest supporters. The annual conference held three days in Los Angeles’s Orpheum Theatre. Although the admission was between $275 and $345 — and Airbnb does not pay for that fee, over 7000 excited hosts from all over the world still rushed to L.A. Many applied to be hosts of “experience”, but the company decided it was going to be more selective at the beginning. Depending on the market needs, there should be more “experience” hosts joining the party.

Hosts are supportive of Airbnb’s new attempt because they are benefited by Airbnb’s operation. Chinese e-commerce giant Alibaba created Taobao and became the most popular online trading site; one of its keys to success is that it provided individuals the opportunity to become business owner. Similarly, Airbnb offers a chance for individual homeowner to become a host. As of July 2016, listings on Airbnb has exceeded 2.3 million. Some people even make enough that they decide to run b&b full time. Gabrielle Catania for example, owns a house in Oregon that has four guest rooms. Her place is always reserved as she keeps getting fantastic complement on the breakfast she made. Gabrielle spends at least an hour preparing breakfast for her guests. Apple rose is her favorite desert to serve. She enjoys being an Airbnb host, because it gives her a chance to meet guests from different background while making enough money.

 

Airbnb’s influence over the hospitality industry has been rising drastically since 2013. According to Forbes, Airbnb over 100 million travelers have used Airbnb’s home rental service. The average number of nightly stays is about 500,000. And the valuation of the company has exceeded hotel giant Hilton; about five times of Hyatt.

   

It succeeded for a reason; Airbnb came in at a perfect timing with extensive understanding of the market and consumers. There are always people with extra space in their homes; many even have extra houses. While renting in long term can be troublesome, many welcoming homeowners are willing to rent short term to travelers. There is supply, and there is demand. Internet has encouraged a culture of sharing. Travelers nowadays are often not satisfied with traditional hotel experience. They want a sense of excitement and belonging for their journey. More importantly, they are usually on different budgets. This is when Airbnb kicks in. It partners with homeowners to offers unique accommodations that feel like home at various prices. Travelers can choose to pay $40 a day to live in a tiny tidy single room in Monterey Park, or they can reserve a beautifully designed luxury villa in Malibu that costs $1500 a night. The prices are very flexible, because the market demand is generally high, and it isn’t too difficult to enter the competition and become a host. So even on a relatively low budget, travelers can still compare and choose from different home styles. They like to be able to choose, so they keep coming back.

The home rental is already making great success. But Airbnb still decides to expand its business, because finding a place to “live” is just the start of a great journey. They are aware of this long before they launch these new features. For a long time, Airbnb has been using slogan “Live there, even if it’s just for a night,” to encourage travelers to value their “living experience.”

But there might be other reasons why Airbnb is expanding to promote travel experience. As a platform, sometimes it is hard for Airbnb to background check every host. Many authorities are worried about some of the listings fall foul of laws, so they try to make policy to implement stricter regulations. The state of New York passed law in October to curtail Airbnb and other short term rentals. To ease the worry, Airbnb has been “compromising” by being transparent to the public and releasing users data. Although the enforcement has been postponed, the future of short term home rental in New York cannot be guaranteed. Airbnb needs an alternative, a new area of business to support its operation if any unpredictable happens.

While Airbnb is making a reasonable business expansion, there might be other problems to consider. Airbnb’s selling point is that its activities are provided by local experts, but many local travel agencies have already been in the business for a long time and know the area very well. Although localization is always on the top of Airbnb’s mind, it cannot guarantee its experience packages to be better than what travel agencies offer. Some hotels may find it hard  to keep up with Airbnb because they have established environment, but travel agencies can easily adjust their travel plans and make them more exciting to compete with Airbnb and its proud hosts. At the same time, these local agencies have better relationship and understanding to the government.

Airbnb also needs to be smart on communicating with its hosts if it wants to remain outstanding in the competitive local market. Afterall, Airbnb relies on the hosts to provide great experiences to the customers. It does not interact with the travelers directly. So how can I insure the uniqueness and quality of the service? In a long term, that can be a challenge.

 

 

Reference:

https://www.theguardian.com/travel/2014/jul/08/airbnb-legal-troubles-what-are-the-issues

http://www.wsj.com/articles/the-enforcement-of-airbnb-law-postponed-again-1478305423

Airbnb releases first transparency report on government requests for user data

http://www.forbes.com/sites/briansolomon/2016/07/13/airbnb-confronts-racism-as-it-hits-100-million-guest-arrivals/#4fab57e41c3c

Airbnb Now Has 100 Million Users and More Grown-Up Problems

Using the Past to Pave the Future – The Toy Industry

These days, it seems that everyone from factory workers to United States president-elect Donald Trump cannot help but reminisce about the ever-vague “good old days.” Many say these were simpler, more predictable times, and it was easy to repeatedly use the same strategy to find success. This is no longer the case, and people and industries as a whole have had to shift their mindsets and continuously innovate in order to stay afloat. This is perhaps most evident in the toy industry and Toys “R” Us specifically as both have been through a roller coaster of progress throughout the last few decades as technology has gotten better and toy preferences have changed.

The modern toy industry was born at the end of World War II. The Great Depression and the World Wars did not leave people with much spending money, but the return of prosperity and the introduction of television and plastic propelled modern American consumption. This was perfect timing for Toys R Us founder Charles Lazarus, who believed that “toys are a great kind of thing to sell, because they don’t last that long.” Lazarus’ strategy was to offer name-brand merchandise at less than list price, and toy manufacturers were willing to compromise because Toys R Us was one of the only retailers that offered year-round sales. Traditionally, toy stores did 70% of its sales during the 6 weeks leading up to Christmas. This meant that the carefully selected stocks of toys were cut dramatically from January to August, which made the toy year short and unsustainable. Toys R Us was unique in that its stocks were maintained throughout the year with toys from manufacturers’ entire catalogues.

Toys R Us stores revolutionized the toy industry. Whereas toy stores used to be small with much of their merchandise stashed in the back room, Toys R Us introduced the warehouse shopping experience. Toy packaging design was now centered on how it would look on the shelf, and from 1975 to 1985, annual revenues at Toys R Us grew from just over $200 million to over $2 billion. The emphasis on the shopping experience worked, and it brought in great success for that time.

Ironically, the toy’s short lifecycle that attracted Lazarus in the first place needed to be adjusted in order for the industry to have consistent sales. Toys that only get played with once or twice is a waste of money in the parents’ eyes, so for a line to stay popular over time, children must want to continue playing with it. The emphasis on sustainable toy lines also keeps prices down by allowing manufacturers more time to get their return on investment while keeping quality up. Children only return to a toy if it has a deeper meaning than just being a plastic object. This could be in the form of a story that is supplemented by a television short or a movie. In the 1980s, the Cabbage Patch dolls and the Transformers took exactly this route, which allowed children to better relate to their toys. Unfortunately, the 90s brought the Internet and technology that offered instant gratification, and static toys no longer held the same appeal.

Instead of producing a toy and creating a story to go with it, toymakers began seeing the benefit of making the two a more streamlined experience through videogames or interactive toys. Videogames tell the story over time, and children can play by themselves in a way that keeps them engaged. In the early 90s, toy spending peaked for four-year-olds, but by the end of the decade, the peak for spending was for three-year-olds. Children were simply outgrowing their toys earlier and finding more interest in electronic games at a younger age.

This shift forced Toys R Us to revamp their stores, and in 1998, it greatly expanded its electronic section. While this was new for Toys R Us, its competition already offered that and more. Wal-Mart, Target, and other discount stores put pressure on Toys R Us as they captured more and more of the toy business. In the mid-90s, Toys R Us held 20% of the market, and Wal-Mart and Target were insignificant. By 2004, Wal-Mart had 20% of the market, Target had 18%, and Toys R Us was down to 17%.

In the 90s, many moms including Kathy Klatman used to regularly shop at Toys R Us, buying dolls and play sets from the toy giant. By the mid-2000s, all of the toys she bought fell into two categories: the more expensive toys, such as American Girl Dolls, were bought through catalog, and the cheap toys, like Matchbox cars, were purchased during her weekly shopping trips to Target. Unfortunately, this did not leave much space for Toys R Us. Klatman says that her kids “already have so many things to play with that [she has] a tendency to look for quality and whether they will play with it for a long time.” When the kids need to be pacified with a simple toy, she can easily pick them up at Target cheaper than she could at Toys R Us.

This was a troubled time for Toys R Us; however, the retailer came up with a plan to stay competitive. In 2000, Amazon and Toys R Us signed a ten-year agreement in which Amazon would devote part of its website to products chosen specifically by Toys R Us. This allowed Toys R Us to select the most popular products and get them to customers more easily. This alliance was widely applauded as a seamless connection between traditional brick-and-mortar stores and new-age Internet companies, but it eventually became entangled in allegations that both sides were not doing as they promised. Toys R Us accused Amazon of allowing other companies to sell toys through their website, and Amazon claimed that Toys R Us was not maintaining a high quality selection of toys. The biggest problem was that online toy sales just were not at the level that both parties anticipated, so they were not making the profits they hoped. By 2004, lawsuits from both sides effectively ended their contract, and Toys R Us was left on its own again.

Toys R Us was at a crossroads. It seemed on the verge of collapse as its market share decreased and the falling out with Amazon worsened. Toys R Us had actually given up rights to its own website in its partnership, so there was not much hope for a quick rebound in online sales. However, Toys R Us was more motivated than ever to take back their place at the top of the toy industry, and they did so by acquiring three pertinent brands: FAO Schwartz, eToys.com, and KB Toys. As much as Toys R Us suffered during this period, its smaller rivals were on the verge of bankruptcy, which meant that Toys R Us could acquire them at a relatively low cost. The acquisitions allowed Toys R Us access to the companies’ established websites, trademarks, and some of their stores. All three of these companies already had well-known brand names, which gave Toys R Us the opportunity to sell a wider variety of products.

To give a greater push during the holidays, Toys R Us began opening temporary pop-up stores that were smaller but require less staff and stock. They were located in malls and shopping centers that could not hold the traditionally massive warehouses of Toys R Us. The widespread and obvious presence of the retailer garnered high sales and happy customers. This was so successful that the company ended up keeping a third of its locations after the holidays in 2010.

Toys R Us also benefitted as the industry as a whole made its comeback. From 2014 to 2015, annual toy sales rose over 6% to $19.9 billion, which was the largest increase in ten years. Popular Hollywood films fueled the popularity of collectibles, which boosted sales like it had in the 80s and 90s. This not only appealed to children, but it also helped toy manufacturers capture the preteen and adult crowds with paraphernalia from movies like Star Wars. Even Frozen, a movie targeted for children, was able to become a top toy brand with $531 million in sales in 2014.

There were also huge developments in technology, which gave toys the ability to interact with children in a more animated and stimulating way. Toys are able to interpret speech and react in the appropriate way using chip technology, which has become cheaper and more powerful. Dolls can have conversations with users and toy cars can be controlled by smartphones. The new Barbie Dreamhouse by Mattel is voice activated, and the music, appliances, and even the elevator can be controlled by simple commands. In this modern era of touch screens and applications, toy manufacturers have to put in extra effort to make sure that physical toys can compete with the seemingly limitless iPads and smartphones.

As for its competition, Toys R Us can be proud to report strong sales, especially during the holiday season. Sales went up 3.7% in the holiday season of 2015 compared to that of 2014 for stores open at least a year. The demand was high for toys, learning products, and seasonal goods, and low for electronics, video game consoles, and videogames. The advantage that Toys R Us has over Wal-Mart and Amazon is that Toys R Us is in the toy business for the entire year, whereas its competition only pushes toy sales during the end of the year. Vendors know this, and they can give Toys R Us more favorable margins.

Toys R Us also has had great success internationally, especially in Canada and Japan. Sales went up 13% in Canada in 2015, and Toys R Us became the largest retailer of children’s products in Japan. The retailer used partnerships to cater to the Japanese market specifically, and there was a strong cultural fit. Japanese families often allow children to choose their own gifts, so the store layout and experience was well-matched with their culture.

Looking to the future, Toys R Us CEO Dave Brandon wants to revamp its stores by turning them into an experiential destination. By creating an interactive space, he hopes that children will begin dragging their parents down to the stores to play at Toys R Us on weekends. Children already love the store, and by giving it this new dimension, they will want to continue going back. The company is now testing sound effects and colorful lights, and they are unboxing more toys in play areas. They are also hosting events including card trading and birthday parties.

Toys R Us is already moving towards their goals, and by mid-2017, the company projects 14% inventory growth. This will make their inventories at the highest amount in almost a decade, and it is proof that they are serious about putting money back into operations. Toys R Us seems to be moving in the right direction, and now it is a waiting game whether the company will go for an initial public offering. The retailer needs to have a successful 2016 holiday period in order to lay the groundwork for a potential second run at an IPO. Toys R Us was a public company until 2005, when it was taken private by investors for $6.6 billion. With strong sales and measureable improvements, 2017 may be the right time for private equity backers to strike. The toy industry will continue to be volatile as technology changes and competition gets tighter; however, Toys R Us has been in the game for quite a while now, and it has gained knowledge and experienced that will help it navigate the whirlwind of its market. Toymakers have every reason to root for Toys R Us, and hopefully, the children of today and the future will make Toys R Us great again.

The Future of Universal Music Group

 

Introduction

            Throughout the past fifteen years, the shifts in technology that have consumed our society have been dramatic, changing the way we conduct every day simple tasks and have altered business models in all different sectors of industry.  Although this can easily be attributed to modification in transportation (Uber), or hotel accommodations (Airbnb), this technological shift and advancement is very evident in the entertainment and music industries as well.

Over the past fifteen years, the music industry, and label conglomerates in particular, has dramatically shifted from a business model focused and reliant on physical album sales to a full service firm offering record production and distribution (that is mostly digital) and other ancillary services of the music industry, such as touring, brand partnerships, and merchandise.  With a reported loss of over 60 percent of revenue over the past fifteen years annually, it has been very clear to these huge, multi-national conglomerates that changes are needed in order to survive in this ever-altering industry.

The three major record labels, Sony Music Entertainment, Warner Music Group, and Universal Music Group, to be discussed in further detail, have taken years to catch up to the evolving technology and consumer demand of our current world, but are working to monetize and turn a strong profit on the world’s biggest artists and names in music once again. Although the days of selling just physical album sales are now over, the music industry is far from dying.

 

History

Universal Music Group, also known by many as UMG, is one of the current global leaders in music.  With over a 30% market share, UMG is considered to be the leader in the industry with a majority share in the global music market.  With this leadership and majority comes with responsibility, as many other companies in the industry, like other label conglomerates, indie labels, management companies, and live ticketing companies look towards the labels and their sales revenues as economic indicators, using them as a clear way of determining the health and vitality of the global music industry. 

The current music industry as we know it, with the three key players – UMG, Warner Music Group and Sony Music Entertainment, was born and created in 2011 with the acquisition and consolidation of EMI and Universal Music Group.

UMG has the largest market share, with a 36.2% share in 2015, followed by Sony with a 28.3% share, and lastly Warner with a 23.1% share.  Independent labels, in 2015, had about a 12% share in the global music industry as well.

2011 was a pivotal time for the music industry, as many lasting changes occurred, shifting the climate of music to today’s current state.  In January 2011, Lucian Grainge was appointed to CEO and then quickly chairman of UMG.  In November of that year, it was announced that EMI, a then big player in the industry would be splitting and merging, selling their recording business assets to UMG for $1.9 billion, and selling their music publishing to Sony for $2.2 billion.

The merger, which quickly changed the landscape of the music industry, was approved by the European Commission and the Federal Trade Commission in Europe and the US, respectively.  This merger changed the music industry landscape overnight, as UMG quickly became the world leader in recorded music and dominated the industry setting.

However, during this time period, the landscape of music purchasing was also changing, with the introduction of digital sales and iTunes, and soon after streaming. iTunes was revealed in 2001 by Steve Jobs at the 2001 MacWorld Expo, and quickly gained traction throughout the world.

In their first press release published in 2001 releasing iTunes 1.0, Apple stated, “iTunes is miles ahead of every other jukebox application, and we hope its dramatically simpler user interface will bring even more people into the digital music revolution.”  As this all became true over the next ten years, it is almost impossible to believe that the instigators of iTunes believed that it would transform the entire music as it eventually did.

It is estimated that iTunes sold over one million songs their first week, with only 200,000 songs available for purchase and download.  By working with the major labels themselves to make sure that their catalogues were available to be purchased, iTunes quickly became a massive music seller.  By 2007, with the release of the first iPhone, Apple became the largest technology company in the world, owning all aspects of our technology-filled lives from the hardware to the content we were consuming on our devices.  And, by the end of the 2000s, iTunes accounted for 26.7% of US sellers, serving as the number one seller of music in the US, either physical or digital.

With the iTunes revenue models, labels quickly began to work with Apple to ensure that their artist and their firms would be receiving adequate compensation, as they realized that the current trends of consumers would quickly begin to shift from physical album sales to singles sold online and downloaded digitally, a la iTunes.

However, by Spring 2011, just as UMG and EMI announced the acquisition, Spotify, a Swedish startup announce that they had just reached over one million subscribers globally and quickly launched in the United States by Summer 2011.  Over the next few years, Spotify and other streaming services would quickly change the entire landscape of the music industry, forcing the major label conglomerates, artists, and other key players to make key adjustments in order to survive in this changing market.

 

Current State of Affairs

            Although many people, especially consumers, today, believe that the music industry is dying and label conglomerates are no longer relevant or prominent in the world, quite the opposite was just recognized, as a new study revealed that the music industry is currently thriving. Even though streaming has easily passed physical album sales as the top way that consumers listen to their music, over the past few years, major conglomerates like UMG have developed new revenue models in order to sustain their businesses.

On November 10, 2016, Universal Music Group revealed their quarterly earnings for Q3 of 2016 and many
people were shocked.  In the first nine months of 2016, UMG reported earnings of over 3.6 billion euros.  This was a 3.8% growth compared to last year’s numbers.  UMG is currently more profitable than Spotify ever has been and is currently on track to have their best year since they were acquired by Vivendi over ten years ago.

Music streaming, in its current state, is expected to bring in close to $6 billion in revenue this year, and is expected to have an annual projected growth rate of 14.3%. (Statistica) With this massive growth in streaming, revenues for the major labels, like UMG are expected to rise in the streaming category as well, with revenue of over $1 billion for UMG alone already reported for 2016.

Streaming is expected to only grow immensely in popularity, as there is projected to be over 1.2 billion users of streaming services by 2021 with a steady increase from now until then.

Diversity of Services

One of the ways in which labels have begun to combat the changing tides of the music industry is to seek out and obtain alternative revenue sources for their artists.  In order to combat the lack of revenue that came from the change to streaming and digital downloads, labels like UMG had to look for alternative ways to make money.  So, they began to sign their new artists to a new type of deal called a “360 deal.”

The deals demand a portion of the artist’s income from record sales, streaming, touring, merchandise, publishing, brand partnerships, and any other type of revenue you might think an artist can receive.  Deals are estimated to range from handing over 5-50% of revenue to the label and can vary on the types of services and revenue streams included depending on the size and career strength of an artist.

Labels, like UMG, have begun to use this model, as they believe that they are investing in the careers of these artists and deserve to be compensated as such.  Because the lack of revenue coming from album sales has hindered their profits, many label heads believe that 360 models will allow them to remain profitable in this ever changing industry and support the artists that they have worked to develop and chosen to put their resources behind.

Artist Perspective

            Today, in 2016, many artists no longer believe that a major label conglomerate is necessary for success and profitability in the music industry.  Just a few days ago, the 2017 Grammy nominations were released.  Many believed that 2017 would serve as the Grammys that changed the music industry, as the Recording Academy was believed to focus on highlighting artists who were not signed under a major label and changed the landscape of the music industry based on their individual decisions.

Although many of the artists (including all of the Artist of the Year nominees) are still representing major labels, one of the most notable non-major label artists nominated is Chance the Rapper.

Chance the Rapper received seven Grammy nominations this year, only following major label artists Drake, Beyoncé, Rihanna, and Kanye West.  Chance received more nominations that Justin Bieber, Sia and David Bowie, all major label artists as well.

Chance, who is not signed to a major label, is known for releasing his music for free and only on streaming sites. His latest album, Coloring Book, was only released on streaming and is the first digital-only album to be nominated for a Grammy.  The album charted on the Billboard Top 200 with over 57 million streams (equivalent to 38,000 units) and his latest single reached the Top 40 charts as well. 

He explains his mentality on not signing to a major label and believes that he can better his career in a way that is in a superior way than any one of the major labels could. “I’m just trying to be an example for all the young artists that are becoming artists everyday and working on their craft and trying to help them avoid the pitfalls of the upper management in music and the non music side of music.  When it’s in your hands you’re just self motivated and have all the tools that are there. I just want people to avoid the convo.”

Although Chance the Rapper is not ever artist, and certainly not every well-known artist currently touring on the charts, he is a strong example of a type of business model that clearly works and is defying the traditional label/artist relationship that major labels like UMG have worked for years to grow and develop.

Conclusion

            UMG, and the record industry as a whole, is at a current crossroads.  From what originally began as conglomerates of music labels working to record and publish music, it seems as if labels are vying to take the control away from artists and other industry entities, like management and agencies, in order to still serve as the gatekeepers of the industry.  From a revenue perspective, major labels like UMG are still vital for many musicians to “make it” in the music industry in order to reach the massive audiences needed to tour or chart.

However, with artists, like Chance the Rapper succeeding without a label and making all of the business decisions with an a la carte team pieced together himself being nominated for multiple Grammys, the current landscape may change even more.  As Chance the Rapper gains notoriety, up and coming, and more developed artists, might begin to forgo the major labels even more and create and build their own teams and revenue models.  Regardless of what occurs in the next few years, it is very evident that the music industry is thriving, due to new technology inserted everyday into the climate.

 

Works Cited

 

360 Deals and What They Indicate About the Future of the … (n.d.). Retrieved December 8, 2016, from http://www.kentlaw.edu/perritt/courses/seminar/Basofin-360%20Deals-FINAL.pdf&p=DevEx,5045.1

 

Buyer Beware: Why Artists Should Do A 180 On “360” Deals. (n.d.). Retrieved December 08, 2016, from http://www.billboard.com/biz/articles/news/1209534/buyer-beware-why-artists-should-do-a-180-on-360-deals

 

Caught In Time: The Music Industry’s Struggle To Adapt. (n.d.). Retrieved December 08, 2016, from http://www.hypebot.com/hypebot/2013/02/caught-in-time-the-music-industrys-struggle-to-adapt.html

 

@. (n.d.). Chance the Rapper, Lil Wayne, and 2 Chainz Trash a Label Office on ‘Ellen’ Retrieved December 08, 2016, from http://www.ew.com/article/2016/09/15/chance-rapper-ellen

 

@. (2016). Chicago’s Chance The Rapper Of ‘No Problem’ Makes Grammy History; Gets 7 Nods Without Label Help; Even Exceeds Adele’s Number Of Nominations. Retrieved December 08, 2016, from http://www.newseveryday.com/articles/58262/20161207/chicago-s-chance-the-rapper-of-no-problem-makes-grammy-history-gets7-nods-without-label-help-even-exceeds-adele-s-number-of-nominations.htm

 

Crook, J., & Tepper, F. (n.d.). A Brief History Of Spotify. Retrieved December 06, 2016, from https://techcrunch.com/gallery/a-brief-history-of-spotify/

 

McElhearn, K. (2016). 15 years of iTunes: A look at Apple’s media app and its influence on an industry. Retrieved December 01, 2016, from http://www.macworld.com/article/3019878/software/15-years-of-itunes-a-look-at-apples-media-app-and-its-influence-on-an-industry.html

 

The New Pioneers: Chance the Rapper Is One of the Hottest Acts in Music, Has a Top 10 Album and His Own Festival — All Without a Label or Physical Release. (n.d.). Retrieved December 06, 2016, from http://www.billboard.com/articles/news/magazine-feature/7468570/chance-the-rapper-coloring-book-labels-grammy

 

Black Friday 2016 Fall’s Short with Consumer Spending

After smothered in gravy and filled with, Americans across the nation begin to plot their plans of attack for the Black Friday sales. Since 1952 Americans have kicked off their Christmas shopping season at major retailers on the Friday following Thanksgiving.

The fact that Black Friday also takes place on a Friday – duh – every year is perfect for retailers looking to drive long weekend sale deals because Americans traditionally have not had to return to work the Friday after Thanksgiving. The commercial holiday is a long way from becoming outdated.   In 2015, 90% of all Americans reported that they intended to shop on the commercial holiday.  However, with the increasingly popularity and convenience of e-commerce as well as the advent of “Cyber Monday”, which made its debut back in 2005, has possibly had a negative impact on companies’ sales revenues.

Reports from 2016’s Black Friday have rolled in and while more Americans went shopping this year in stores and online than in any other year in the Black Friday weekend’s 64-year-old history, American consumers spent considerably less.

Special offers! 10 percent off! Mega Deals! Are all familiar gimmicks that attempt to grab the attention of unsuspecting bargain-loving buyers. Price discrimination is a tactic frequently used by stores around the holidays. It involves the selling of the exact same product at various prices based on different buyers willingness to pay.

There are three degrees of price discrimination. The first, which is alternatively known as perfect price discrimination, occurs when firms charge different rates for every unit consumed enabling them to capture all available consumer surplus. The second-degree involves charging different prices for different quantities, including quantity discounts for bulk purchases. An example of second-degree is when a movie theater offers discounts or deals on snack bundles as a way of getting moviegoers to spend more at the snack bar. The third-degree means charging a different price to different consumer groups like cheaper bus tickets for children and seniors or negotiated gym memberships.

According to this year’s National Retail Federation survey – released the Sunday after Black Friday – approximately 154 million Americans went shopping over the Thanksgiving weekend. An estimated 108.5 million consumers shopped online alone. The numbers indicate a considerable increase, up from the 151 million shoppers that contributed to sales revenue in 2015. Average spending per person dipped slightly from the previous year’s $299.60 to $289.19. The fall in spending is somewhat surprising when taking into consideration wage gains, continued employment growth and a rise in consumer confidence as 2016 comes to its close.

The Friday deals are not necessarily the best offered throughout the year. The day is not geared towards the benefit of the consumers, but rather a device utilized by retailers to clear end of year inventories with artificial deals and storewide discounts.   Professional shopper and Black Friday Veteran Dan de Grandpre explained it best in an interview with the New York Times: “Black Friday is about cheap stuff at cheap prices, and I mean cheap in every connotation of the word.”

 

 

Sources:

http://www.economist.com/blogs/economist-explains/2015/12/economist-explains

http://www.forbes.com/sites/tompopomaronis/2016/12/01/black-friday-and-cyber-monday-2016-lets-just-say-there-were-scary-moments/#a89dfa157517

http://www.theatlantic.com/business/archive/2014/11/11-economic-lessons-to-make-you-a-smarter-shopper-for-black-friday/383236/

http://fortune.com/2016/11/27/black-friday-nrf-shopping/

http://www.economicsonline.co.uk/Business_economics/Price_discrimination.html