Why is Disney the Biggest Studio in Hollywood?

Why is Disney the Biggest Studio in Hollywood?

Yutai Han

11/21/17

 

This post will examine the source of Disney’s success. After the Q4 earnings report came out, commentators said that Disney could still be a stronghold for years to come. That is because Disney’s unique advantage lies in its ability to create iconic animated stories that bring warmth and joy to children and their family throughout the world and the ability to turn the stories into a profitable package, a utopian wonderland of magical calling to children with rich imagination.

 

Disney’s Q4 earnings report show that their profit from studio entertainment dropped 21%, and other revenues such as media networks dropped as well.

The reasons are twofold. First, audiences are abandoning their cable TV subscription. Disney’s affiliate company, ESPN, is going through a turbulent transformation to launch ESPN Plus, part of a $1.2 billion investment of streaming services to compete with Netflix. Second, this year is a relatively small year for Disney’s film business. Last year, Zootopia and Finding Nemo 2 hit the worldwide theater with a craze, but this year Cars 3 wasn’t too successful. On the other hand, big productions such as Thor 3 and Star Wars: The Last Jedi are released in the end of the year and they are not counted in Q4’s earnings report.

 

For a lot of these films, the profit brought by selling merchandise can sometimes trump the box office itself. For example, Frozen has sold 3 million princess dresses, profiting $450 million. Since last year, Shanghai Disneyland has sold over 1 million fluffy animals and among them, the bestseller is the magic wand and the Minnie Mouse hairband.

 

The only increase of revenue came from theme parks by 6%, quarter to quarter. According to the earnings report, this year marks the 25th anniversary for the Disneyland at Paris and revenue from the Disney hotels saw some increase.

 

Therefore, in turbulent times, Disney’s theme parks are still their main stronghold. Although the domestic revenue was impacted by the hurricane season, but overseas revenue saved it. I haven’t been to the Shanghai Disneyland myself but through several positive accounts that I’ve read online, I’m convinced that it’s comparable to any top theme park experiences. It’s somewhere that you can immerse yourself fully into the beautiful fairytales created by Disney and Pixar, and the exciting worlds of Superhero movies created by Marvel Studios. No wonder that the newly-opened Shanghai Disneyland is the top destination for families with kids. The Disneyland at Shanghai opened its door to Chinese about a year and a half ago, and in a recent report (in Chinese) conducted by the Shanghai Information Center, Disneyland has welcomed over 11 million people, bringing a growth of 0.44% GDP to Shanghai as a city, and creating some 62 thousand jobs. In the same time, the opening of Disneyland helped the city boost its overall tourism industry by a growth of 6.9%, as $25 billion. The report concluded in praising Disneyland as a leader of the tourism industry that brings significant economic improvements.

 

I read that Disney’s attention to detail was surprising to Chinese contractors, but at the same time, Chinese contractors wanted to cooperate with Disney because they’re hoping to learn from Disney’s high standards. For example, before the construction of the Disneyland, Disney formed an academy of sculptors and evaluated them on their work. Disney hired them only after they’ve qualified for the examination. This is part of the effort of Disney to recreate the world from their movies that the visitors can immediately immerse themselves into.

 

Go Big or Go Home: Many Too Big to Fail Banks Just Got Bigger

Are U.S. banks too big to fail, or are they simply too big to break up?

The economic crisis in 2008 revealed how financially unstable big banks can hold the entire global economy hostage. The concept of these banks being “Too Big To Fail,” meaning a business has become so large that a government will provide assistance to prevent its failure to avoid a disastrous residual ripple effect throughout the economy, was integral during this time. The U.S. government disbursed over $700 billion to save companies like AIG that were on the verge of financial failure.

 

The tremendous monetary support that was necessary during 2008 increased government regulation of Wall Street significantly and set out to decrease the mammoth of preexisting too big to fail institutions. However, while increased regulation has been realized over the past decade since the crisis, too big to fail banks have not been cut down to size. Rather, the system has gotten even bigger. According to SNL Financial, JPMorgan Chase, the top performing bank in total assets, has seen its base increase to more than $2.5 trillion. Since the end of 2008, JPMorgan’s deposit base alone has grown by over 29 percent. With such promising numbers, JPMorgan is considered to sit atop a list of banks that could threaten global stability.

 

JPMorgan, Wells Fargo, Citigroup and Bank of America, the so-called “Big Four” institutions, all show this same upward trend since 2008, with over $8.2 trillion in total assets, which is 154 percent more than re rest of the top 50 banks combined.

 

To avoid another round of unfavorable bailouts, financial watchdogs have been calling too big to fail banks to make themselves less risky by dividing up and adding significant capital to safeguard against losses. However, amid demands to break into smaller entities, top Goldman Sachs analyst Richard Ramsden claimed that the government’s call to divide JPMorgan into two or four parts would greatly diminish value for shareholders.

 

According to an S&P Global Market Intelligence report, “if and when another crisis hits, the biggest players will be far larger than they were in the last crash.” Still, approximately 75 percent of the 30 largest too big to fail banks are significantly bigger than a decade ago.

 

Conversely, government experts find the increase in banks’ total assets promising. In her announcement resigning from the U.S. central bank, Janet Yellen wrote, “I am gratified that the financial system is much stronger than a decade ago, better able to withstand future bouts of instability.”

 

This past June, the Treasury Department published several recommended changes to regulation intended to prevent “taxpayer-funded bailouts.” The paper called for “eliminating regulation that fosters the creation… of too big to fail institutions” but offered to suggestions on how to alter those already present.

 

Only time will tell whether the maintained presence of too big to fail institutions will hurt or benefit the U.S. and global economy.

Microtransactions in Video Games

In 2016 consumers spent around $30 billion on video games. Historically, video game consumers spent that money on a single game that unlocked all of its features. However, more recently, video game developers are distributing free-to-play games on the App Store, the internet, Steam, etc. in exchange for introducing microtransactions.

Microtransactions are transactions within a game that allow players to unlock virtual items that help them progress in a game or make their character look better with weapon skins.

With the advent of the App Store, small game developers saw this as an opportunity to sell their games for free but work in transactions so that players could add to the game. Clash of Clans, despite being a free game on the App Store, made $2.3 billion dollars last year. Microtransactions go beyond the App Store, too. League of Legends, a free game made by Riot Games, made $1.6 billion in 2015 off of Microtransactions.

Microtransactions are leeching into full-price video games as well. The new game, Star Wars Battlefront II, was released with a lot of controversy. The $60 dollar game (the deluxe edition costs $80) was going to be released with a microtransaction system. To get loot crates, which can unlock heroes like Darth Vader and Luke Skywalker, and help a player progress through a game, people would have to pay up. Electronic Arts removed that system before the game came out, after public outcry by gamers and a post which earned EA the highest number of downvotes ever on Reddit.

For big box games like Battlefront, the idea is to create a continual revenue stream for a game even if its initial price depreciates. Within a year some games can lose more than half of their value as new games come out and replace the old ones, similar to cars, though at a much faster rate.

Microtransactions employ behavioral economics. There are a whole slew of tactics, but there are two main ideas that trick people. First, they have weird conversion rates from dollars to an in-game currency, so it is hard for players to know how much money they have spent. Second, developers treat microtransactions like gambling. Players can put in money to get that in-game currency in the hopes that when they unlock a loot box they will get a great prize.

Microtransactions are likely going to be around for a while, and as artificial intelligence takes off, they will probably become more specified to a person’s play style, the friends they have online and a whole host of other variables. Gamers have at least staved off microtransactions in Battlefront, for now.

When We Talk About Gun Control, Here is the Business We Are Talking About

In addition to the belief in the Second Amendment Right, economics in the firearm business could also a reason for the difficulty of implementing gun control in the United States.

Firearms industry is a billion-dollar business. According to the IBISWorld, by June 2017, the revenue for guns and ammunition manufacturing industry is $13.3 billion with $1.0 billion profit. According to the latest Annual Firearms Manufacturing and Export Report in 2016, there were 11,069,333 pieces of firearms, including pistols, revolvers,rifles,shotguns, produced in that year with only 3% of them being exported. The rest of them stayed in America. According to Firearms and Ammunition Industry Economic Impact Report 2017 , there are 301,123 jobs related to firearms industry. The industry also had over 51 billion dollars impact and generated over 6.5 billion taxes.

In order to keep this business running, Center for Responsive Politics said in 2016, gun lobbyist spent over $10 million to protect gun rights. Moreover, gun owners also fear that their guns would be taken away or they would be banned from buying guns. he National Shooting Sports Foundation (NSSF)  said since Obama took office, the gun industry has grown 158%. The CNN has called Obama “the best gun salesman in America.”

Last year, since people were afraid that Hillary Clinton would win the election and take away guns, FBI said the background checks for buyers reached record high during the 2016 Black Friday. Now with Trump in office, according to the National Shooting Sports Foundation, the background checks in July 2017 drop 25% to 907,348, the lowest since 2013 because run owners are more confident about their gun rights. Due to the low demand for guns,  gun companies like Sturm Ruger & Company also experienced drop of their stocks, according to a Fortune article.

Moreover, since people fear a more strict regulation would be put on guns after mass shooting, gun companies tend to see a rise of sales after these tragedies. After Sandy Hook shooting, San Bernardino shooting, and Las Vegas shooting, gun shares all expressed a boost.

 

“Little Girl” and My Morning Coffee

Every Tuesday and Thursday morning I would, without fail, purchase a large cup of iced coffee from the Annenberg cafe before heading to class. Personally, caffeine is not a necessity, but more for comfort as I often need that little push to get through the mornings. However, to many people elsewhere in the world, coffee is something they cannot get out of bed without. And this year, these caffeine addicts have all the reasons to get slightly worried as a “Little Girl” returns for another visit.

(Image of author’s favorite morning drink)

I am of course referring to the La Niña (Spanish for “Little Girl”) weather phenomenon. It is the opposite of the El Niño weather, which turns global climate a bit hotter. La Niña is when unusually cool water surfaces in the Pacific and causes global temperature to change as a result. It would mean that this year, the world would feel a little cooler, which may be a good thing for those who do not like hot weathers. However, it is a devastating news for farmers and manufacturers whose products rely upon a hot weather.

In a Guardian article, Sarah Butler introduces this dilemma global coffee enthusiasts are potentially facing. Coffee beans are a tropical produce, and they do not tend to react that well in face of a cooler climate. La Niña can, for example, bring in “severe droughts in key growing areas including the US midwest devastated crops while excessive rains in Columbia led to the spreading of a deadly coffee fungus”, which was what had happened in its last cycle 5 years ago. When the production of coffee beans is directly and negatively impacted, it is inevitable that the coffee price would surge upwards as a result, since by simple supply-and-demand economics we know that a reduction in supply would cause the market price to go upwards.

Of course, while the simple fact is that our coffee would become more expensive, global climate change can have more devastating effects. Floods and droughts can destroy cities and their economies, all the while taking lives of hundreds of thousands. This year, the United States had suffered from three major tropical storms and hurricanes, and the affected areas are only beginning to recover. With La Niña coming in and making weather patterns more unfavorable, the recovery efforts can be hindered.

Then, the economic damage would not just be a few extra cents on my iced cappucino.

Fed eyeing interest rate hikes as U.S. economy gains more steam

The United States’ economy continues to grow, and the possibility of a recession in the near future looks very slim. That’s a promising forecast for a country that had been rocked by economic collapse about a decade ago.

The question still remains; when the economy is booming, how do you prevent too much inflation that can stir markets for the worse?

The Federal Reserve aims to address this issue, keeping the booming economy in check by enlarging interest rates, as Goldman Sachs projected massive market swells and a strikingly low unemployment rate in 2018. Economists of Goldman Sachs also noted that there could be four Federal Reserve interest rates hikes in the next year, and that the United States unemployment rate, which hit 4.1 percent in October, could reach its lowest point since the 1960’s by the end of 2019.

“With robust growth momentum and no striking imbalances in the economy, near-term recession risk still looks fairly limited,” said Goldman’s chief economist Jan Hatzius, via CNBC. “But the strength is becoming ‘too much of a good thing’ and containing further overheating will become a more urgent priority in 2018 and beyond.”

The overall upswing of the United States economy is accompanied by a similar trend in overall global economic health, when viewed in terms of GDP growth. Germany, for example, displayed GDP growth of 3.3 percent in the third quarter, while the UK’s GDP grew 1.6 percent. Germany’s stock market index, Dax, is up 13 percent, per Express.

Marking the beginning of the United States’ recovery from the major 21st century recession at June 2009, the graph below details that the economy has been growing at a very similar rate for some time now.

But if this rate accelerates too much, over inflation is very possible, and therefore, like Hatzius said, the economy becomes ‘too much of a good thing.’ We witnessed the economy swell to unimaginable highs with risky subprime mortgages, a perfect example of an entity falsely fueling the economy while risk was wrongly assumed to be low.

Actually, a disinflationary trend—that is, a reduction in the rate of inflation—seemed to exist earlier in the year and was worrisome until the U.S. consumer prices, through the lens of core consumer price index (CPI), increased in October. Disinflationary trends lingering over longer periods of time concern Fed officials due to the potential to disrupt interest rate anticipations.

“The Fed has struggled this year in determining if the slowdown in core inflation has been due to a confluence of one-offs or more persistent disinflationary forces,” said Sarah House, an economist at Wells Fargo Securities, courtesy of Reuters. “The pickup clears the way for a December rate hike and supports the case for continued tightening in the year ahead.”

It seems to me like the Fed wants to appear more cautious than it has in the past, considering the financial struggles from ten years ago displayed a lack of governmental regulation as one of many undoings of the economy.

Are video game loot boxes gambling? China and Belgium seem to think so.

It’s no new, news that video games and their accompanying systems are cheaper than ever. A case study by IGN found that when accounting for inflation, video games in the modern era are certainly more cheaper than in the past. A $50 PS2 game in 2005 is worth $60 today and more drastically a $70 Nintendo 64 cartridge is worth approximately $100. However, while games can be seen as significantly cheaper in today’s era, the expenses for creating video games has certainly gone up.

A leaked development contract for 2014’s Destiny outlined budgetary payments of $140 million dollars.

The above represents just one game of dozens that are released throughout the year. When looking at the 2017 release calendar, at least two AAA games were released between January and December, all of them carrying comparable budgets.

While games have become undeniably cheaper when accounting for inflation, publishers still find themselves in need of money past the initial $60 entry fee.

Several years ago publishers began to offer content post-launch to increase longevity. Much of the content amounted to scrapped ideas for maps, weapons, and characters. Simply not purchasing the content carried no negative results.

In the years following publisher tactics have become more aggressive. Season passes as they are titled simply aren’t profitable given the nature of multiple releases a month. Console games have since taken on an approach seen in mobile gaming in which in-game purchases are encouraged to receive immediate benefits.

Much of these micro-transactions involve in-game currency which can be used to purchase items such as collectibles or cosmetics. Scaling from as low as a few bucks to as much as over $100 real dollars, these transactions aren’t necessary and can be completely ignored. For publishers, they are a lucrative opportunity to generate serious cash-flow. For example, Take-Two Interactive which is responsible for the Grand Theft Auto series reported in August nearly $500 million in profits from their in-game currency in just three months time.

Electronic Arts which became the exclusive publisher for Star Wars video games after Disney acquired the Star Wars IP for the paltry sum of just over $4 billion has released two titles in the years since.

In 2015 to coincide with the release of The Force Awakens, EA released Star Wars: Battlefront, a reimagining of the popular series on the Playstation 2 era of consoles. The game was reviewed well, however, sorely lacked content. Many maps and characters were held from release and were bundled part of the Season Pass which retailed at a whopping $50, nearly 90% of the cost of the base game.

Many fans at the onset of the release felt slighted. Eventually, EA discounted the base game within weeks of release to bring up the total cost to around what the base game originally was selling for. The game was reported to have sold-through 14 million copies in one year’s time.

Two year’s later and EA has released its sequel. It has more maps, more modes, and more characters. Downloadable content was even revealed to be free.

In place of a customary season pass, the game instead launched rife with mobile-esque micro-transactions transactions, however, unlike other games that offer pure cosmetics, these micro-transactions offered actual statistical advantages for players who chose to put down real money.

The problem runs much deeper than that. These in-game advantages are tied behind loot boxes. These boxes are entirely random and purchasing one does not have any guarantees. While they do carry the possibility of obtaining an in-game advantage item, it is entirely possible that a player receives purely cosmetic bonuses such as emotes.

Granted, these boxes also vary in cost with the most expensive of the bunch all but ensuring some sort of advantage. Those who wish not to participate in such practices are essentially left behind. More so, those do participate can come up empty handed much like real-life gambling.

The ensuing backlash from fans over their predatory nature and construction of an uneven playing ground forced EA to remove them for the time being, however, since then many have wondered whether such boxes should be made available at all.

In the time since then the Belgium Gaming Commission announced that it has opened a case in regards to these boxes and their slot machine like nature. Because players are unaware of what is inside, many are linking it to gambling. When spinning a slot machine, it is unknown what you’ll win if anything. In Belgium, companies involved with gambling are required to have a license in order to operate. More so, minors and those suffering from addiction are forbidden to play.

In China steps have already been taken in response to these practices. In March, developers of games featuring random loot boxes are required to reveal the odds of players receiving specific items. In one instance a rare item in free-to-play title Dota 2 has a mere 2% chance of appearing when players pay for one such box.

It has been reported, however, that it is only required for the Chinese version of the game to release such odds and it’s entirely possible that developers could boost drop rates in China in order to save face. Still, it is the first actual step in an effort to make consumers aware of what lies inside these boxes and potentially put these practices away for good.

In the time since this fiasco, EA’s stock has dropped 2,5% as of Friday, the release date of Battlefront II. In the entire month of November, it has seen its stock dip by 7% overall.

It remains to be seen where the company goes from here. They are stuck in a terrible predicament. The development of Battlefront II required three entirely different studios to complete the game which certainly wasn’t cheap. Throw in an aggressive marketing campaign and other costs and the game rivals the financial commitment of its movie brethren.

Star Wars itself is a large IP and while it would be easy to offer pure cosmetic bonuses in place of in-game advantages, that simply cannot be allowed. Each cosmetic variation would have to be approved by Disney and Lucasfilm and because Darth Vader has already been established to look a certain way, it is almost impossible to imagine some variation being allowed. As with such to help recoup costs from such an expensive development, this is almost the only logical way to do so, however, at the expense of players.

With the game releasing so close to another mainline Star Wars film, these boxes will have to be on hold for the time being. Disney won’t allow negative press to impact the release of The Last Jedi. In the time following the release, players will move past the game and the money that could have been made will be for naught. At that point the studio finds themselves at a loss, and potentially losing a huge IP.

Not only does this tale have future implications on the Star Wars video game franchise, but on gaming as a whole. If said boxes are considered gambling, than other huge franchises such as Call of Duty will find themselves in a similar predicament. At that point will games leave behind their cheap nature in favor of a higher upfront cost? All of this will be seen in the coming months and years.

References:

http://www.gameinformer.com/b/news/archive/2016/10/10/2017-video-game-release-schedule.aspx

https://kotaku.com/how-much-does-it-cost-to-make-a-big-video-game-1501413649

http://www.ign.com/articles/2013/10/15/the-real-cost-of-gaming-inflation-time-and-purchasing-power

http://www.ign.com/articles/2016/05/10/star-wars-battlefront-sales-top-14-million

https://www.theverge.com/2015/10/12/9512397/star-wars-battlefront-dlc-season-pass

https://www.gamespot.com/articles/gta-5s-online-mode-has-generated-half-a-billion-do/1100-6438765/

https://www.engadget.com/2017/08/03/gta-online-take-two-earnings/

https://www.theverge.com/2017/5/2/15517962/china-new-law-dota-league-of-legends-odds-loot-box-random

https://www.pcgamesn.com/dota-2/dota-2-treasures-china

http://money.cnn.com/2017/11/16/technology/battlefront-ii-star-wars-game-ea-costs/index.html

https://www.gamespot.com/articles/ea-stock-price-drops-after-star-wars-battlefront-2/1100-6455080/

America’s Most Powerful Economic Position

President Donald Trump has nominated Republican businessman Jerome H. Powell to replace current chair of the U.S. Federal Reserve System, Democrat Janet Yellen. Powell has served on the Federal Reserve Board since 2012, and Yellen’s term expires February 2018.

Before I was in an economics class, not only did I not know who Janet Yellen was, but what territory came with being the chair of the Federal Reserve, A.K.A., the nation’s most powerful economic position. In fact, 70% of the U.S. population has never heard of Yellen, according to a 2015 NBC/Wall Street Journal poll, which was conducted over a year after Yellen had been appointed chairman. Yellen is basically the leader of America’s central bank.

So why does her position hold so much power?

First and foremost, she “is the public face of the Fed, testifying twice a year before Congress and explaining – albeit often in dense Fed-speak – what the Fed thinks about the economy, and why it’s doing what it’s doing,” as explained by USA Today, such as hiking interest rates. USA Today adds—which is key to note—that the “chairman doesn’t set [the] rates, but rather steers the Fed toward a consensus” which “is harder than it sounds.” In other words, what Yellen says has the potential to impact millions of Americans and their finances, as well as the global financial market as a whole—she essentially has the power to both freak them out and put their minds to rest.

And by Americans, we aren’t just talking economists, analysts or businessmen, but any American citizen with a bank account—when interest rates change, “ [it’s also] going to change how much it costs you to borrow from a bank, and how much it costs banks to borrow from each other,” as well as “how much it costs countries to borrow from each other” (Huffington Post). So again, it affects almost everyone.

“Yellen has immense influence over global financial markets and the U.S. economy. Trillions of dollars can be lost of gained based on how investors interpret each word that comes out of Yellen’s mouth,” stated CNN Money. For example, f she sounds confident in the direction of where our economy is headed and if what comes out of her mouth reinforces our expectations, than it can prompt the U.S. stocks to soar, reassuring investors.

So now that we have a better taste of how important the Fed chair is, could Powell do the job?

While (most, if not all of) Trump’s past decisions during his reign so far have been questionable, Powell is a safe pick. Despite not having a degree in economics, Powell, like Yellen, is “someone who supported the cautious approach to interest rate hikes,” as well as “amassed a fortune as an investment manager and, as a pick, would likely please Wall Street” (Independent).

And as a member of the central bank already, he is well-liked. Yellen herself said that she was “confident in [Powell’s] deep commitment to carrying out the vital public mission of the Federal Reserve” (qtd. in New York Times). This is a good thing not only because even our current President has praised Yellen for doing “a terrific job,” but her “leadership has sharply reduced unemployment while maintaining control of inflation,” explained the New York Times.

Powell will hopefully continue a stable economy that Yellen has, and carry on her legacy. More importantly, I hope that a change in the Fed chair will put this position in the spotlight via the media, thus, educating more citizens on the significance of such a valuable role in our economy.

Rising inequality in the U.S.

As Italian, when I first moved to Los Angeles, it was not difficult to realize how much this city was driven on one hand by a great innovation, on the other hand by a very huge inequality. After living here for few days, it was easy for me to having a better sense of the social status of the people living in LA. Basically, you might trace a horizontal line that divides the city between north and south: norther you go, richer the people and neighborhoods you encounter, while southern you go the poorer are the people you encounter. Maybe this could sound a very approximate and stereotyped frame, but nobody can deny that, for someone you just move in LA, the impact with inequality is very strong: too many homeless people living alone in terrible situations along the streets, under the bridges, or in the tents – when they happen to be “lucky”. When I experienced this situation for the first time, honestly my first question was: how is a situation like this be possible in a rich and forward-thinking country as the United States? Yet, after few months living here I realized that, according to the current U.S. economy, unfortunately, it is totally possible. The United States is one of the most unequal country in the world (OECD Income Distribution Database).

According to an article published last week by the New York Times, U.S. elite professionals earn 3.5 times more than the typical (median) worker in all occupations. Its income inequality is testified by the Gini coefficient that, according to the United States Census Bureau, for the 2016 was 0.481. Such a huge different is overcame only by other two countries in the world: Israel and Mexico.

Additionally, when I looked at the NTY chart that refers to the analysis extracted from the World Income Database, I realized that even Italy (my home country) is much less unequal than the United States, where over the last year only the 1 percent’s share of national income has experienced a sharp growth: this information has really blown my mind, because before moving to the U.S. I believed that Italy was one of the worse country for what concerns inequality, because its rate has been rising without control. Actually, it is not.

What it’s really going on in the U.S.? Mr. Trump is taking advantage of the argument on increasing inequality spreading along the country, stating that the main causes of the rising poverty rate have to be referred to: the evil nations oversea, like China, that are responsible for unfair trade negotiations and stealing jobs to U.S. workers, or to the immigrants, who also steal jobs from U.S. workers. Conversely, others believe that the cause of this situation relies on the switch of the type of experts needed in the work place. The number of people employed in the information technology industry is still too tiny, and it has not been contributing to the rise of the average incomes.

Yet, one of the main reason, as the NYT states correctly, is connected to the fact that since 1980 all the norms, both legal or economical, have been shaped by the upper middle class. This factor has led the richer people increasing their influence in the political life so that they could execute their power on the economy, reforming and reshaping the norms according to their interests.

This issue inevitably refers to the recent, and debated, tax plan overhaul, that it does not seem helping to decrease inequality in the country.

As a result, as is shown in this interesting visualization, between 1980 and 2014 the largest income growth has been registered only by the 99.999th percentile, a growth that will keep rising making richer people even more rich.

From The New York Times

A Redesign? Oh, Snap!

Prior to Snap’s IPO in March, it had been evident that Snapchat was on its way to revolutionize the virtual communication process. However, this vision has been a concern for Wall Street. Ever since they went public, the company has lost over $3 billion and has not traded above its IPO price of $17 a share since July, despite the 44% surge during their first day of trade (Yahoo Finance).

On Tuesday, November 7, the California-based company released an earnings report, which included revenue and user growth for the third quarter, that was well below Wall Street expectations. This report was followed by a statement from their billionaire CEO, Evan Spiegel. He startled investors with news that Snapchat will undergo some major changes, indirectly justifying that the mobile app is struggling to compete with its archenemy, Facebook.

Snapchat has never had a strong revenue model. The company has always relied on tailor-made, custom advertising, which has been their primary source of revenue. However, Spiegel announced that they will be implementing a more programmatic method, using automated auctions to bid on a slot. Sounds familiar, right? Yes, Snapchat advertisements may start to feel a lot more like what you see on Facebook and Instagram. This is expected to result in less human involvement and much cheaper ads.

Snap also plans to completely redesign the Snapchat app, which is expected to launch on December 4, 2017. According to Spiegel, the redesign will be focused on responding to the feedback that the app is “difficult to understand or hard to use.” Most Snapchat users, including myself, would agree that the platform can get a bit confusing, especially for the older crowd. Its IPO filings even included a step-by-step tutorial on how to use the application.

Spiegel agreed that the redesign could be disruptive to their businesses in the short term and that is it unclear how their community will respond to the changes. However, he went on to explain that this is a risk they are willing to take because they believe in the long-term benefits. Ironically, Snapchat needs to do what Facebook did years ago and cater towards different age groups, not just teenagers.

This may be the reason behind Tencent’s decision to acquire a 12% stake in Snap Inc. just hours after Spiegel’s announcements. According to Bloomberg, Tencent, the Chinese company behind WeChat, has developed very successful chat apps through engaging content, integrated services, and advertising (Bloomberg). It is apparent that they are trying to do the same with Snapchat, which has a larger U.S. audience than Tencent.

Will these serious changes help Snap Inc. climb out of its deep hole? As of right now, it is still unclear. Although investors might not be convinced, Spiegel and his team are confident that the long-term benefits will be worth it. I guess we will just have to wait and see.

 

finance.yahoo.com/quote/SNAP

https://www.bloomberg.com/news/articles/2017-11-08/tencent-buys-10-percent-stake-in-social-media-company-snap

https://investor.snap.com/~/media/Files/S/Snap-IR/reports-and-presentations/snap-inc-q3-2017-prepared-remarks.pdf