“I mean, who in the world opens up a cat cafe without knowing what they’re doing?” says Boston resident and Harvard student Kimm Topping. “I mean, you know, that’s just asking to fail.” (personal interview, 2019)

Cat cafes are essentially two businesses in one– one being a restaurant/cafe and the other shelter for live-in cats. Additionally, ongoing expenses for a cat cafe are immense. Outside of rent, utilities, and supplying food, cat cafe’s come with the added cost of taking care of cats. For certain breeds that are prone to illnesses, vet care and health maintenance can reach an average of between $2,000 and $7,000 a month. (Bacher, 2017)

The wellbeing of the cats carries great weight for a cafe’s success. Unlike a grocery store that displays bad grapes in the produce section, any hint of cat mistreatment could immediately shut down a cafe for good. In fact, because the cafe cats typically live in confined space, if one gets sick they all get sick. In 2018, City of San Antonio Animal Care Services intervened and pulled two cats from the San Antonio Cat Cafe. They ordered the remaining 54 cats be quarantined (Galli 2018).

So, one might ask. Who in their right mind would open a cat cafe?
Cat lovers are known to be a quirky variety of pet-owners. From the crazy cat ladies to the beleaguered college student stashing a pussy in their dorm, there’s something that attracts eccentric people to our feline friends. Perhaps that is what prompted Diane Kelley to leave the cardiovascular ultrasound field after thirty years of service, to open up a cat cafe (Crimaldi 2017).

Kelly’s business venture, the PURR Cat Cafe, would go on to be remarkable for the owner’s mismanaged funds and its egregious Facebook posts. Long before it would open, Kelly’s aggressive use of social media coupled with poor management decisions would make the fledgling business a cornucopia of titillating press for local news outlets.

Early 2017, PURR Cat Cafe opened an Indiegogo page– a Kickstarter-esque platform to crowdfund projects– with the goal of raising $40,000. PURR Cat Cafe promised to provide a plethora of perks to donors. These perks, arranged in a tiered format based on donation amount, ranged from custom company pins to hotel vouchers. Though the crowdfunding campaign only attracted 162 donors for a cumulative $720, Indiegogo’s fundraising guidelines allowed for Kelly to receive this money in full (Kelly 2017).

Following this, PURR Cat Cafe partnered with Boston’s Forgotten Felines (BFF). BFF is a charity that provides medical treatment and temporary shelter to stray cats with the goal of adopting them out (Crimaldi 2017). PURR was more than eager for this partnership since PURR Cat Cafe did not have a license to rehome cats on their own. Faced with the obligation to their 162 donors, PURR Cat Cafe had to do all it could to succeed (Kelly 2017).

In mid-August of 2017, an awry Facebook post hinted at trouble to onlookers and those invested in the idea of Boston’s first cat cafe. Kathleen “Kat” Kruczek uploaded a post to PURR Cat Cafe’s Facebook page, which went into detail on numerous claims of abuse by her former employer. Kruczek prompted readers to save and screenshot her post– hinting that it will soon be deleted by Kelly (Kelly [Facebook], N/A). The post goes on to say:

“Most of the core team has distanced themselves from PURR for several reasons. Everything she is being “bullied” for, we have told her over and over again. This team consisted of two feline behaviorists, myself included, and several people who have worked hands-on in rescue for about as long as I have been alive. Despite our combined expertise, Diane chose to continually ignore and insult us. Diane has no animal care background what-so-ever.” (Kelly [Facebook], N/A)

Kruczek went on to divulge that BFF broke their partnership with Kelly and PURR Cat Cafe a few days after a deal was originally agreed upon. In addition to posting images of a barren basement and broken glass littering floor, Kathleen wrote:

“The truth is, she is not equipped to have ANY cats in the building, despite her “Certificate of Occupancy” which has nothing to do with animal welfare. No beds, blankets or pillows, no hiding places, no cages, hardly any toys, no cat trees, no scratchers, nothing…she [Kelly] spent the dwindling money left in PURR accounts on a decorative wall art, coloring books, and things to entertain people, etc, instead of things for the two cats we now had…BFF did not want to place cats until PURR was equipped to do so. Diane told BFF to “fuck off” several times.” (Kelly, N/A)

“Typically,” says Colin Chao, a Los Angeles based cat expert, “Proper cat ownership requires a lot of forethought, despite them being very independent pets. New cats are nervous and likely to hide– so cardboard boxes and shelves tucked away make good places for them to decompress. They also need to be in areas that are well ventilated, since litter boxes are breeding grounds for parasites and bacteria.” (personal interview, 2019)

Kruczek finished her post writing: “If PURR opens its doors, Diane has also told the Agricultural Department to ‘fuck off’ so I suspect it won’t be open long.” (Kelly [Facebook], N/A)

It should be noted that both the Department of Health and the Department of Agriculture work in tandem to certify cat cafes. Logistically, cat cafes are an absolute nightmare for the Departments since they both serve food and keep a dozen or so animals on the premise (Judkis, 2019). Consulting fees are also enormous in making sure the establishments are up to code. For example, San Francisco-based cat cafe KitTea paid fees to the Food Safety Program, the Environmental Health Department, feline vets, behavior specialists and similar independent organizations (Jenny Xie, CityLab 2014).
Kelly responded to this post using the official PURR Cat Cafe Facebook page. She wrote: “Post whatever you want- but the reality and truth about PURR Cat Cafe is going to be alive and well soon… I am a Cat Enthusiast and a very smart business woman.” (Kelly [Facebook], N/A)

Indiegogo donors and local cat enthusiasts looked on this public diatribe with worry. When some onlookers messaged the PURR Facebook page hoping for clarity, Kelly deflected their concerns and assured them PURR would open to no problems (Kelly [Facebook], N/A). Kruczek however, was not done critiquing her employer.

On August 26th of 2017, Kruczek made another post to the PURR Facebook page. She warned donors that Kelly was trying to pull wool over their eyes. The post included a photo of the large, empty basement beneath the cafe, showing dilapidated stairs and what appeared to be a damaged water heater unit. It didn’t take long for donors to reply to the Lruczek’s post with a flurry of concerns (Kelly [Facebook], N/A). Kruczek commented underneath her post: “There were issues like me saying we shouldn’t be feeding animals on styrofoam plates due to the risk of intestinal blockages, where she [Kelly] told me ‘you will not change my mind on this.’”(Kelly [Facebook], N/A)

Joni Nelson, director of BFF, confirmed what Kruczek shared, saying “She [Kelly] was angry that BFF wouldn’t leave 20 cats in that condition…but she refused to furnish the basement up to law codes or even the cats comfort.” (Kelly, N/A)

While these online interactions prompted backlash from both locals and Indiegogo donors, the most damning entity for PURR Cat Cafe would soon be revealed to be Diane Kelly herself.

Kelly quickly turned to use the official PURR Cat Cafe Facebook page as a means to degrade disapproving donors. In response to a donor post criticizing her business practices, Kelly wrote and replied publicly “I do not want you there. Sorry– floodgates are gone– you do not know me at all? Why are you being such a bitch?” (Kelly [Facebook], N/A)

Additionally, in an attempt to save what little reputation PURR had left, Kelly uploaded new photos of cats to the Facebook page. She claimed that she was able to find a new shelter to partner with and provide the cafe with adoptable cats. With a quick Google image search, however, people were quickly able to identify the new photos as stock images. Additionally, Kelly posted a group photo that suggested that PURR had thirteen staff members and was captioned “PURR is a collective team.” (Kelly [Facebook], N/A)

Kruczek quickly refuted this, publicly commenting “Just to clarify: this photo is from First Caturday at Boston Common…half of the individuals in this photo were not part of the PURR team, only people we spoke with and pulled into the photo with us…not sure what the purpose of posting this photo was, but I don’t want to be associated with this business any further. Please remove my photo.”(Kelly [Facebook], N/A)

Now, there is the public relations (PR) phrase ‘all publicity is good publicity’ or ‘there’s no such thing as bad publicity’. This notion often bolsters the popularity and chatter of controversial figures such as Kanye West. However, this may not be the case when the entire identity of a business has become bad press and nothing much else. Kelly’s constant use of inflammatory posts on PURR’s official Facebook page would be valuable if it was the kind of business that relied on website traffic and ad revenue. Though we can’t know the specifics, analytics from Google’s Trend feature suggests that PURR Cat Cafe had a five times increase of Facebook traffic from late September to the end of December 2017 from the last few years. Otherwise, however, directly attacking your fanbase can only negatively impact your business, especially as a small business.

And as all well-mannered CEO’s do, Kruczek’s remarks prompted Kelly, using the official PURR Facebook page, to publicly out Kruczek as a member of the LGBT community and say “I have no interest in working with someone of your alignment.” (Kelly [Facebook], N/A)

In response, many users who were locals, donors, or claimed to be interested in the cafe responded with walls of comments saying they are no longer interested in visiting the cafe when it opened. Kruczek’s only response was “Enjoy not having a team or customer base. ALSO, one of my partners worked on your freakin’ Indiegogo graphics so it looks like you didn’t give a shit when it benefitted you.” (Kelly [Facebook], N/A)
On September 27th 2017, facing an employee exodus and enraged follower base, Kelly made PURR Cat Cafe’s Facebook page private and ceased all online interactions. (Kelly, N/A)

Whether or not Kelly intentionally became aggressive in order to attract attention to her business remains to be verified. Amy’s Baking Company (ABC) of Scottsdale, Arizona, had a similarly aggressive owner that attacked critics and its own fanbase via social media. Unlike PURR, ABC managed to capitalize on their negative identity. ABC churned out merchandise such as shirts with screenshots of Facebook posts where the official ABC page berated and swore at followers (Forbes 2013). Since PURR did not capitalize on this in a similar fashion, it can be assumed that Kelly is might just be as delusional as people may think.

Donors and locals found the page reopened a few weeks later on October 7th 2017, with PURR making a post announcing a surprise open house (Kelly [Facebook], N/A). Even more surprisingly, people chose to attend the open house. Perhaps visitors to the site were fascinated with how PURR became a disaster and wanted the cathartic release of seeing it fail. At this point, PURR Cat Cafe had become less of a business and more of a form of online entertainment, with the punchline being its demise.

With only a few people allowed to enter the PURR open house at a time, those who had raised concerns over Kelly’s business practices and aggressive social media usage would be able to visit the cafe in person. One of those people, Marie Billiel, noted that the front door was poorly fixed and that cats could easily escape. Cats Kelly brought up from the basement, Billiel says, were “clearly terrified”. She goes on to describe that the cats growled and hissed, and generally looked uncomfortable when people picked them up. When not being handled by people, the cats reportedly scrambled away to hide. Billiel went on to say “Also, it looks like the cat door [leading to the basement] is taped up so the cats can’t leave the public space.” (Billiel, 2017)

This lackluster first look at PURR Cat Cafe prompted many users to post on the cafe’s Facebook page– either critiques of Kelly’s poor handling of cats or angry demands for refunds. The only retort Kelly made that day was the promise that upon opening, the cafe would have a total of eight cats to play with. However, users were skeptical pointed out that Kelly adopting more cats to fill up the cafe was unethical and unsustainable as a business practice. (Kelly [Facebook], N/A)

Cat care can be shockingly expensive for cafes. Cat Cafe Mad in Wisconsin reported struggling after opening. After crowdfunding $10,000, Cat Cafe Mad reported spending $1,000 a month on litter and cat food. Additionally, while enjoyed three months of free publicity and buzz via Facebook, they have been losing money ever since and are only open 3 days a week. Melly adding more cats would simply push PURR’s redline further into the negative. (Adams & Wisconsin State Journal 2017)

In the backdrop of the open house, local media outlets further damned Kelly and PURR Cat Cafe. Local journalist Edward Beale released the transcript of an interview he conducted with Diane Kelly. Most notably, he asked Kelly about Kruczek’s backpay (roughly around $2,000). In response, Kelly said “Unfortunately, the funding for PURR has run dry and I can only pay her back if I open the doors so I can pay her back with interest. And I will do right by Kathleen [Kruczek] for all the work she put into PURR.” (Knudsen, 2019)

The transcript also revealed that Kelly funneled most of the crowdfunded money into paying rent for the cafe. Despite still being unopened, she had continued to rent the space at a cost of about $4,000 a month. In total, she had spent a minimum of $50,000 for the cafe storefront that had still not officially opened. Despite this negative press, Diane assured backers that PURR Cat Cafe would still see the light of day and open in the near future. (Knudsen, 2019)

Finally, in August of 2018, Kelly posted a silent auction for PURR Cat Cafe on Craigslist. As the PURR Facebook followers expected– no one took the offer. In October 2019, PURR’s landlord posted a sign on the storefront window. It read: “PURR Cat Cafe is permanently closed. No further information is available. A new tenant will be coming soon.” (Knudsen, 2019)

When Facebook users asked Kelly for comment, she posted the nonsensical: “Keep on wagging the dog’s tail. If you can’t save yourself from reading this story, rescue a cat in the meantime. Or perhaps even a dog! I know this is better than Game of Thrones!” (Crimaldi, 2017)

Just like the mental capacity of Kelly, the whereabouts of PURRs feline residents and Boston’s appetite for a new cat cafe remain unknown.

PURR Cat Cafe remains as a cautionary tale of the consequences of business endeavors that take the phrase ‘there’s no such thing as bad press’ too seriously. Between Kelly’s mismanagement of crowdfunded money, to her lack of industry research, and the sheer refusal to take criticism, there was almost no hope of PURR becoming a longstanding feature of Bostonian culture.

All that’s left are some traumatized kitties and Kelly’s upcoming book release titled “PURRFECT Claw: A true story about a woman who gave her soul to save cats and how the media, social media, and rescue groups…ie…individuals who pretend to care about animals don’t really care”.

Good luck to you, Diane Kelly.

Bibliography

Adams, Barry, and Wisconsin State Journal. “Cat Cafe Mad Expanding to Survive.” Madison.com, 28 June 2017, https://madison.com/wsj/business/cat-cafe-mad-expanding-to-survive/article_91ff0d07-f461-5e02-83fa-c062a8c51ff4.html.

Bacher, Renee. “How Much Should You Spend to Save a Sick Pet?” AARP, 28 Feb. 2017, https://www.aarp.org/money/budgeting-saving/info-2017/how-much-should-you-spend-to-save-sick-pet.html.

Crimaldi, Laura. “Boston Has Its First Cat Cafe. Will It Last? – The Boston Globe.” BostonGlobe.com, The Boston Globe, 21 Dec. 2017, https://www.bostonglobe.com/metro/2017/12/20/boston-has-its-first-cat-cafe-will-last/BMvIDVPbneWrHOanR3l9yH/story.html.

Forbes, Paula. “Amy’s Baking Company Is Selling Catch-Phrase T-Shirts.” Eater, Eater, 7 Aug. 2013, https://www.eater.com/2013/8/7/6390037/amys-baking-company-is-selling-catch-phrase-t-shirts.

Galli, Joseph. “Cats Quarantined after Disease Outbreak at San Antonio Cat Cafe.” WOAI, WOAI, 11 Apr. 2018, https://news4sanantonio.com/news/local/cats-quarantined-after-disease-spreads-at-san-antonio-cat-cafe.

Jenny Xie @canonind Feed Jenny Xie, and CityLab. “The Long Regulatory Road to America’s First Cat Cafe.” CityLab, 28 Jan. 2014, https://www.citylab.com/design/2014/01/long-regulatory-road-americas-first-cat-cafe/8200/.

Judkis, Maura. “So, How Would a Cafe Crawling with Adorable Kittens Pass a D.C. Health Inspection?” The Washington Post, WP Company, 27 Apr. 2019, https://www.washingtonpost.com/news/going-out-guide/wp/2014/11/20/so-how-would-a-cafe-crawling-with-adorable-kittens-pass-a-d-c-health-inspection/.

Kelly, Diane. “Purr Cat Cafe.” Facebook, https://www.facebook.com/bostonpurr/.

Kelly, Diane. “PURR Cat Cafe Boston.” Indiegogo, 5 Aug. 2017, https://www.indiegogo.com/projects/purr-cat-cafe-boston#/comments.

Knudsen, Fredrick. “Purr Cat Cafe | Down the Rabbit Hole.” YouTube, Down The Rabbit Hole, https://www.youtube.com/watch?v=wNsqEntHuV8.

@junemarie462. “@IN0XIA was right about the vestibule- it opens onto the street (currently propped open) so does not offer safety for escaping cats :(“ Twitter Oct 7, 2017 https://twitter.com/junemarie426/status/916712300287053824?s=20

@junemarie462. “Diane just brought Gussie up from the basement and hes clearly terrified #bostonpurr” Twitter Oct 7, 2017 https://twitter.com/junemarie426/status/916712538947117056?s=20

@junemarie462. “This little guy is hiding behind cat litter. Also it looks like the cat door is taped up so the cats can’t actually leave public space.” Twitter Oct 7, 2017

Virtual Reality industry has been on the rise since 2016. In 2016, only 28% of the general public was aware of virtual reality devices, demonstrating the industry’s potential for growth. Awareness of virtual reality devices rose to 51% in 2017. (Nielsen). Looking into the future, the global AR and VR market is expected to grow to $209.2 billion by 2022.

However, the rapid growth also shows a disruptive and transformative VR industry. VR companies, like VeeR, are examples of some of the industry-level changes. 

In the beginning, while tech companies focus on developing new tools and improving user experience, some proactive entrepreneurs have been looking into the easy access and mass delivery of VR content. VeeR VR, founded by three Chinese in late 2016, is a global VR content community aiming at a developing cross-platform solution for viewing and streaming 360 or VR media. 

VeeR was originally headquartered in Beijing, China but also established two branches in Silicon Valley, California and Shenzhen, China. It later moved its headquarter to San Francisco. Within one year of its official launch, it has grown into an international enterprise with millions of users from over 180 countries. The three co-founders have been featured by Forbes 30 under 30 Asia 2018 as honourees for the consumer technology sector, become the only founders of virtual reality technology company to make the list last year.

“Our original intention was to make the VR content accessible and bring the best viewing or editing experience to users,” said Denise Wu, the Head of Marketing of VeeR VR. Based on this intention, the company developed two unique features of VeeR – great content accessibility and a community to share the content easily.

Wu mentioned that when the VR industry was at its initial stage, there was an issue of accessibility and standardization of contents. “How do you upload the great work you did to platforms, how do you share them, and how do you watch them on different platforms – these are the issues we wanted to tackle. And this is the purpose of our company: to smooth the process of sharing content so that creators and spend more time on creating,” Wu said.

Although VeeR needs to fight with other giants like Youtube and Facebook, which already provided similar functions, VeeR has its own advantage: first, no platform has ever created such a huge community for VR sharing and editing. More importantly, all other platforms require the downloading of a third-party application to play the 360 video – you can’t just open a VR video in the browser, but it can be achieved with VeeR.

This could mean a lot. Platform-native is important to the audience because no one would love to download another app for the experience. In 2016 and 2017, if you see a VR film online, you have to go to (or download) Facebook or other third-party apps to view it. Platforms like Facebook did not support browser-viewing not because of the technical difficulties but because they want to monopolize the VR experience. Same for other VR apps, which put the app downloads over the quality and accessibility of the content itself. But VeeR broke the pattern. It directly connects viewers with the content, eliminating the frictions in between. 

VeeR also brings a cross-platform experience: it currently works on mobile, mobile VR headsets, web and support for other platforms like Oculus. And they tried to create a seamless experience between the various devices, with the UX being similar on all platform, with only some differences to optimize the UX on every one of them.

The other feature of VeeR was the easy share of its content. Study shows that 77% of virtual reality users want more social engagement (Forbes). With VeeR, people can find a community to create, edit and share 360 videos and photos. Just like Youtube, you can create and share 360 videos and see their analytics. But Veer is different from Youtube on that it builds an ecosystem dedicated to 360 videos, with various features specifically dedicated to them. 

The VR ecosystem includes VeeR Editor, a mobile app for editing 360 videos. So, VeeR VR lets you enjoy, comment share the content; VeeR Editor lets you edit and polish the content; VeeR Heat Map lets you, the content creator, analyze the appealing of your video to the public, highlighting which portions of the videos have been watched the most. There is a complete ecosystem that spans from content creation to customization, sharing, and analysis. None of the other platforms could achieve this specialty.

Nowadays, we’ve seen more and more VR-related products dominating the market, and the general trend for VR is “user-friendly.” Many companies launched high-quality professional 360 cameras, but oftentimes the cheaper 360 cameras with more costumer functions sell better. Instead of taking two hours to figure out how to import and export the video, buyers would be more likely to choose a camera easy to start. This is the same concept for the VeeR platform. It eliminates the gap between professionalism and customer functionality, making VR not exclusive to the public due to its technological barriers, but more accessible to the public.

With the mission of empowering everyone to create and share the next generation of media, VeeR has become one of the largest VR content hubs by both content and creator volume, and a trusted platform for VR professionals, production studios and prestigious brands on a global scale. 

VeeR was founded in China, which is a double-edged sword for the company. Content-wise, VR is accessible behind the Great Firewall in China. A large variety of affordable VR tools in China encouraged countless content creators to experiment with VR technology. Meanwhile, China is leading the way of the growth of VR, and China has become the largest standalone VR headset market in the world. This positioning in the Chinese market has helped VeeR in establishing various partnerships with big companies that want to perform marketing operations in China. However, the VR contents produced in China are still subject to government censorship; therefore, they are somewhat monotonous to the global market, said Wu.

In an interview I had with Wu earlier this year, she said that “because our model is quite special, I don’t think we have a lot of strong competitors.” She thinks that in China, none of the VR companies has the skill and audience base to compete with VeeR. She also referred to Facebook and YouTube as the only two powerful platforms that are experimenting with VR content.  

However, the industry has changed a lot over the year. With the mature of the VR technology, mass production of VR content and the lack of industry-standard regulation guidelines, the disparity in quality begins to show up on different VR platforms. 

That is when VeeR decided to switch its focus from easy access and mass production to high quality (or premium, according to its website) content. Months ago, the company’s CEO Jingshu Chen wrote a letter to VeeR users, explaining some big changes to the platform, including the elimination of low-quality content and the gradual transition from mobile to headsets. 

According to the letter, the company is “switching our focus to premium immersive films, including both linear and interactive videos. By doing this, we hope to bring the best immersive experience to the audience (online and offline), while providing a sustainable business model for content creators.”

For creators, VeeR introduced more opportunities for monetization and project funding and added benefits for verified creators. The company also stopped approving videos with a low resolution, content with low perceived entertainment value and mobile-uploaded content. It also removed the 360 photo function, which was introduced to VeeR Editor only last December.

For audiences, VeeR is encouraging (or forcing) them to switch from mobile app to headset. “The focus will be shifted to headsets. The mobile app will now be used to bookmark content for later viewing and purchase content more conveniently,” Chen wrote in the letter. 

This is not only a result of the overflowing of unfiltered content but also a countermove to the expanding power of other video platforms. YouTube, for example, is becoming more skillful on VR content display and meanwhile benefiting from its large audience base from traditional videos. If YouTube wins by multiplying its user quantity, VeeR is trying to gain momentum by polishing its quality. 

As Virtual Reality grows in the market in recent years, people can feel the overflowing supply and a higher demand for high-quality work. When first released, the majority of cutting-edge AR and VR technology cost thousands of dollars to buy. This was something that many people couldn’t afford, which often hindered the growth of the industry. Alongside this, the technology was often of relatively low quality, especially by today’s standards, which meant that many consumers weren’t getting enough value for their money. This is something that has been inverted in recent years. 

With the advancements that have been made in the industry, costs have plummeted while quality has skyrocketed, giving end-users much more value. This is something that is expected to continue in the future.

VeeR is a young company, but it did a great job of pioneering the industry by putting the audiences first. Through VeeR’s struggle to survive in the new trend of VR, we can take a glance at the consequence (both good and bad) of an overheating industry. 

It would be untrue to say that it is only recent that Latin America has gone through political turmoil. Countries like Chile, Colombia and Bolivia have been on the spotlight this year. Much of this discontentment sources from economic failure that has brewed for years. Politicians are very extremists with their economic policies going from promises of extreme capitalism or socialism. More recently, Evo Morales, former president of Bolivia resigned after thirteen years of presidency, but he calls his removal a coup. What lead to this moment?

Morales came to power in 2006 as a member of the left-wing Latin American group that included Venezuela’s Hugo Chávez, Ecuador’s Rafael Correa and Argentina’s Cristina Fernández de Kirchner (Washington Post) He was the last man standing, being the leader of the Movement for Socialism party throughout his whole presidency. Bolivia has changed dramatically since Morales started his presidency.

When Morales took oath, Bolivia was the poorest country in South America in 2006. Currently, Bolivia is still the poorest in some measures such as lowest alphabetization and income. But overall, Bolivians are healthier, wealthier and living longer than before. The GDP grew from $9 billion in 2005 to $36 billion in 2018 (COHA). It seems then, at least on paper, that socialism worked.

However, it was not traditional socialism that was taking place in Bolivia. It was, as Evo explained a different model, “The state as the head of investment, accompanied by the private sector — that is the model of socialism we have.” Morales redistributed income through various government programs, raised minimum wages substantially, and nationalized industries such as telecommunications, oil and electricity (Bloomberg). All while also working with the private industry.

To the outside world, Bolivia was doing great. By 2017, Bolivia was 42 percent richer than when Morales took office and poverty declined by 25 percent since he was elected (Bloomberg). So why there was general discontent? It had to do with his authoritarian tendencies and breaking presidential term limits. The 2009 Bolivian constitution prohibits more than two consecutive terms, and he had been allowed to serve three consecutive terms as President due to a 2013 ruling of the Supreme Tribunal of Justice, where Morales first term did not count towards the term limit because it took place prior to the ratification of the constitution (BBC)

There was a referendum held on 2016 that planned to eliminate term limits, the socialist party narrowly lost and the Supreme Court overruled the constitution, meaning that Morales could run again in 2019 (The Guardian). Bolivia, along with Nicaragua, is the only presidential democracy in the American continent with no limits on re-election. The lower and middle class continuously supported Morales in his quest to get reelected, whereas the upper class demanded for his third term to be the last.

A partial nationalization of Bolivia’s oil and gas helped create a middle class from scratch. Bolivia is Latin America’s fastest-growing economy, where 53% of its legislators are women and a fifth are under 30. However, Morales approval rating was damaged by allegations that he used his political influence to favor a Chinese construction firm in which his former girlfriend, Gabriela Zapata Montaño, held an important position (BBC). Morales denied the allegations and said he had nothing to hide.

As mentioned before, Morales partially nationalized its oil and gas. Previously, corporations paid 18% of their profits to the state, but Morales reversed this, so that 82% of profits went to the state and 18% to the companies. The oil companies threatened to take the case to the international courts or cease operating in Bolivia, but ultimately relented (COHA). Over ten years, Bolivia gained $31.5 billion from the nationalizations, compared to a mere $2.5 billion earned during the previous ten years.

In my first project, I explained how Chavez made certain choices that from a viewer standpoint were beneficial to the people. Same thing with Morales. One of the first things as a president was to relocate state-owned lands, and “expropriate” lands that the Ministry of Agriculture sought to be nonproductive by those who owned it. A consequence of this was the internal production of basic products by individuals and small farms to lower and rely even more on the oil and gas industry of the country.

It is important to mention that Bolivia received a lot of help from Venezuela through monetary aid. With this aid, the country was able to finance betterment projects such as the industrialization of coca by building plants such as the one in Chulumani (Al Jazeera) the project was primarily funded through a $125,000 donation by the Venezuelan government. Coca in Bolivia is considered medicinal, the leaves are harvested and sold as tea. The problem with this is that coca is illegal in most countries, making extremely difficult for Bolivia to sell in the international market. After much lobbying, the UN finally decriminalized coca in 2013. The result was the increase of cocaine seizures (Insight Crime) Between January and mid-August 2016, the police’s antinarcotics unit registered 16.7 metric tons of cocaine, which was already nearly double the total figure for 2015, when 8.6 metric tons were intercepted. For the U.S and other countries, Evo Morales was as an accomplice of drug traffickers and systematic drug rings in South America.

Morales openly talked bad on the upper class, calling them “burgueses” just like Chavez did. This also meant that he presented very anti American sentiments on international conferences and to its people. There was a lot of resentment inculcated to the lower class, where this idea of “those rich kids don’t know our struggle” and that he, Evo Morales, would personally make sure that they wouldn’t struggle. This kind of propaganda was very popular during that time, especially with Chavez being alive. The gap between the lower and middle/upper class became bigger in the social sense more than the monetary.

There was one thing that both classes agreed on this past year, is that another term was starting to feel authoritarian. His party, Movement for Socialism, had been the majority party in all governmental agencies leaving little to no space for other member parties to be able to engage in the conversation. Something that is very important to mention is that most countries in South America have religion at the center of its politics, especially Catholicism. However, there has been an increase of Evangelism in the poorest communities and this was reflected in the most recent congress election. In Bolivia (and in the majority of the world), indigenous groups are often misrepresented and not heard. There are a total of 36 recognized indigenous people (Minority Rights) and even though three indigenous-specific universities had been established, which offered subsidized education there was an increase in racial tensions between indigenous, white and mestizo populations. To make things worse, part of the agrarian reform of relocation of land was in part to redistribute land to traditional communities and not individuals.

While the efforts to integrate the indigenous communities and provide them with education and access to the public system were highly anticipated, some communities did not integrate as well, furthering creating a cycle of poverty in these groups. Though the country operates in mainly extraction of natural gas, more and more indigenous groups felt as this was hypocritical and poor use of the community’s lands. This dissent was also felt when in 2010 Morales announced a 5% increase in minimum wage and The Bolivian Workers’ Central (COB), which was formed by a majority of leftist and indigenous individuals, felt this insufficient given the rising cost of living, calling a general strike. Eventually, the government relented and agreed to the wage rise (Reuters)

Morales changed Bolivia, growing its GDP and lowering the unemployment rate. However, what is the future of Bolivian economics? What would it look like?

In Timothy Kehoe, Carlos Gustavo Machicado, and José Peres-Cajías “The Monetary and Fiscal History of Bolivia, 1960-2017” they explain that Bolivia’s success may not last forever (Bloomberg). The first thing they wrote about is how since 2008, Bolivia’s exchange rate has been effectively pegged against the U.S. dollar. A pegged exchange rate, also known as a fixed exchange rate, is a type of exchange rate in which a currency’s value is fixed against either the value of another country’s currency or another measure of value, such as gold (Investing Answers) So, what does this means for Bolivia? It means that if the country ever runs out of dollar assets, it won’t be able to stop the boliviano from depreciating, resulting in a very rapid crash in the currency’s value.

The other factor that they wrote about was Bolivia’s increasing external debt. The amount that Bolivia’s government owes in foreign currencies has approximately quintupled since 2007. The country’s total external debt has gone up by about 30 percent. What would make the government to run out of foreign exchange reserves? A commodity price drop. Lower global commodity prices are probably the reason that Bolivia has been running down its reserves since 2014, and we know that they rely on commodities for the majority of its exports.

It will be interesting to see what the future holds for Bolivia, hopefully good things will come.

Sources:

https://www.washingtonpost.com/world/the_americas/socialism-doesnt-work-an-emerging-middle-class-of-bolivians-would-beg-to-differ/2019/10/08/3b1cb3ae-e6f6-11e9-b0a6-3d03721b85ef_story.html

https://www.bloomberg.com/opinion/articles/2019-02-22/bolivia-s-problem-is-macroeconomics-not-socialism

https://www.bbc.com/news/world-latin-america-22605030

https://www.bbc.com/news/world-latin-america-35628093

Eleven Years of the “Process of Change” in Evo Morales’ Bolivia

https://en.wikipedia.org/wiki/Evo_Morales#Economic_program

https://www.thenation.com/article/economics-socialism-bolivia-evo/

https://www.aljazeera.com/indepth/features/2015/09/bolivia-stands-coca-control-policy-150930085832276.html

https://www.insightcrime.org/news/analysis/challenging-the-cocaine-figures-part-1-bolivia/

Bolivia

https://www.reuters.com/article/bolivia-strike/bolivian-workers-strike-in-challenge-to-morales-idUSN1023045620100510

By Anushka Joshi

From a young age, my family and I would routinely clean out our closets and take our give-aways to Goodwill. Around high school, I started going back to Goodwill to buy clothes that were cheaper and more unique than the styles carried at the mall. My friends and I would take trips to San Francisco to stop by Buffalo Exchange, Crossroads, Waste Land, and the small second-hand stores in between. Then, we began selling clothes to each other within our high school via a Facebook group as a way for us to make money off of our clothes that were to be given away. Second-hand stores have grown to have a strong presence in the fashion industry for all types of shoppers. Whether it is through occupying the online space through websites like ThreadUp, a brand dedicated to upcycling clothes, or traditional retailers like Macy’s creating spaces for secondhand clothes in their stores, thrifting is pushing the fashion industry towards an environmental and economic change. 

The Instagram Generation is made up of Generation Z and Millennials, and according to a ThreadUp Fashion Resale Market and Trend Report in 2019, resale shopping satisfies their two biggest demands: being seen in new styles, and sustainable shopping. To maintain a constant online presence, people feel pressured to have infinite outfits so that they are never seen sporting the same look twice. 56% of 18-29-year-olds prefer retailers that have new arrivals every time they visit to fulfill this need (ThreadUP). There’s an expectation to walk into a room where no one is wearing the same outfit, and then never wear that outfit again. However, this expectation is detrimental to our wallets and the environment.

Nowadays, it’s as important to appear socially conscious as it is fashion-forward. As the stress of climate change increases, 74% of 18-29-year-olds lean towards shopping from sustainably conscious brands (ThreadUP). Today, the fashion industry makes up 10% of carbon emissions globally, and that number could rise to 25% of the global carbon budget by 2050 if consumer behaviors do not respond. In 2013, 57% of consumers prefer to buy from environmentally conscious companies, but as of 2018 that number has risen to 72%, which proves that sustainability is no longer just a perk, but a priority to consumers (ThreadUP). In a generation where consumers value socially conscious shopping as much as being unique, thrifting has found its home. That 70’s disco-Esque shirt is not actually from Urban Outfitters, but it’s an original swooped up at the thrift store for $7. After decades of sitting on a dusty shelf, clothes can now be seen curated on a clothing rack. One man’s trash is another man’s treasure. 

Second-hand shopping is the consumption of used apparel. This concept was once looked down upon by middle-class consumers, and it was the way of shopping for those who could not afford first-hand shopping. Today, consumers turn to the more than 25,000 second-hand stores around the United States, their peers to buy their worn clothes, online rental services, and apps and websites dedicated to second-hand shopping. Second-hand shopping occupies its own market space–a large and growing one at that.

Thrift shopping used to be an experience filled with digging through racks of unorganized clothes to find the right piece. This experience has been described as primal, interesting and exciting. Shoppers never know what they’re going to get–the idea is that you find something unique to your style as opposed to conforming to the silhouettes of fast fashion. Ines Ramirez, a 21-year-old student at the University of Southern California, turned to thrifting as a response to the damage caused by the fast fashion industry, and found the experience of thrifting to be refreshing as “shoppers are exposed to new styles, and the opportunity to expand their tastes at a lower price point that is more sustainable too”. As thrifting has hit the mainstream, it caters to all audiences ranging from the experience of digging through piles to a curated shopping experience with high-end second-hand boutiques. 

The early adopters of Airbnb, Lyft, and DoorDash are the same ones who spearheaded the growth of the resale market. These companies disrupted traditional industries and were built to cater to the needs of the rising generations and created a sharing-economy. The resale market is another space in which individuals can trade their assets. Generation Z and Millennials grew up with digitization, access, and individuality, with companies and industries like second-hand shopping responding to those needs. According to “The State of GEN Z”, a report by Business Insider, “Being unique–and balancing that with saving money–is a defining trait of this generation”. The same study reports that in 2019, 33% of Generation Z consumers will have bought used clothing. Today, companies like ThreadUp exist, which provide thousands of new items a day, sustainable shopping, and a cheaper price tag. It’s a Gen Z’ers dream. 

Though second-hand shopping started niche, now everyone has a place in the second-hand shopping industry. According to a ThreadUp report, 26% of luxury shoppers, 25% of department shoppers, and 22% of value chain shoppers all shop secondhand. Services like Rent the Runway and the RealReal make boutique items more accessible. From Walmart to Gucci, consumers are looking to buy it resold. 

The trend of sustainable shopping comes after the fast-fashion takeover of the 2000s. Fast fashion refers to purchasing replica items of trends for lower quality and lower price. This concept was born out of a desire to fill consumer’s needs immediately, instead of waiting months for a runway style to hit the department stores. Many members of Generation Z and Millennials grew up in the fast-fashion boom. It provided instant gratification while shopping and affordable prices. However, the cheap quality, environmental impact, and the fact that someone always owned what you did were deterring factors. Since 2000, clothing production has doubled and that is no coincidence with the rise of fast fashion. There is a massive turnover of owning clothes due to the constant outpouring of products streaming from the fast fashion industry. Traditional fashion labels used to put out 2 collections a year, but Zara puts out 16. The impacts this has on the environment are unparalleled. Up to 85% of textiles go into landfills each year, which is enough to fill the Sydney Harbor. 

An allure to fast fashion was being able to get high-end styles at a fraction of the cost. But through consignment stores and companies like TheRealReal, consumers can buy used luxury items at a fraction of the cost. For example, a Louis Vuitton bag that would regularly retail for $1,100 is listed for $475 on TheRealReal. Shoppers can also opt to rent clothing through Rent the Runway. Knowing that someone has used the clothing before and the lower price tag caters to consumer’s desire to wear clothes once or just a few times––a result of our desire for individuality–then sell it without feeling guilty about sunk cost or material waste. 

Each year, 108M tons of non-renewable sources are used to produce clothing, and the textile waste crisis is accelerating, according to the Ellen MacArthur Foundation. One garbage truck’s worth of textiles is landfilled or incinerated every second. Goodwill NYNJ alone saved 38 million pounds of clothing from the landfill last year. The collective impact of all of the consignment/second-hand stores and businesses around the country are sure to make an impact on the waste each year. 

Millennials and Gen Z’ers are more socially conscious than the generations that preceded them and they are inclined to shop sustainably. This value-driven economy is changing our consuming experience as a whole. The fashion industry used to be led by top-down influence, coming from fashion designers and runway shows. Today, it is driven by bottom-up forces, meaning influencers and the prominence of social media (Forbes). With Generation Z having a buying power of more than $500 billion already, companies will have to adjust to their needs. With young shoppers swarming to second-hand shopping, the resale economy has already begun to slow down fast fashion. 

Habits have shifted from quality over quantity, to the embrace of fast fashion, but the end of long-term ownership has arrived with the popularization of second-hand shopping. The average number of items in consumers closets is declining and will continue to do so as craze’s like “Kondomania” emerge. When Marie Kondo’s show aired on Netflix, ThreadUP saw an 80% increase in closet cleanout kits (ThreadUP). If 1 in 10 viewers cleaned out their closets, it would create 667M pounds of trash, and resale responsibly generates an endless supply chain. 

As consumers become more environmentally conscious, these numbers will grow and large corporations will begin to notice the shift––and will make changes in their own companies to become more sustainable too. Companies follow the money, and thankfully consumers are leading them to more sustainable ways. 

According to a ThreadUp Fashion Resale Market and Trend Report in 2019, 72% of secondhand shoppers shifted spend away from traditional retailers to buy more used items. The fashion industry adapted to the fast fashion market, and it will confidently accommodate to the new demands–both from consumers and the world at large. According to an article in the Wall Street Journal, mass-market retailers like Macy’s and JC Penney are adding resale boutiques to their store layouts, further expanding the secondhand apparel market. Mass market/fast-fashion brands like Urban Outfitters have added “vintage” sections and their “one of a kind” pieces are promoted on their Urban Renewal line. There are popular brands that are sustainable from the start like Re-Done, and Reformation. According to a report by Colliers International Knowledge Leader blog, “From 2017 to 2019, Millennial and Gen Z secondhand sales increased by 37% and 46%, respectively.” According to Fortune, grown 21 times faster than the retail market in the past three years. As consumers become more environmentally conscious, these numbers will grow and large corporations will begin to notice the shift. 

Business practices are shifting to become more unique and sustainable. Nearly 9 out of 10 senior retail executives are finding ways to get into the resale business. As per the same ThreadUp report, these executives are first motivated by revenue boosts, then sustainability, and finally customer loyalty. Whether or not their first reason is environmental responsibility, these large companies will make a huge impact. This year, if everyone bought one used item instead of a new item, that would save the amount of CO2 as 500,000 cars being taken off the road for a year, enough energy to light up the Eiffel Tower for 141 years, enough water to fill up 1,140 Bellagio fountains, and the weight of 1M polar bears of trash (ThreadUP). The average secondhand shopper replaced 8 new apparel items with used items in the past year. As the number of secondhand shoppers increases, the carbon savings will grow exponentially. 

The future of second-hand shopping will disrupt the fashion industry as we know it today. According to a report by Colliers International Knowledge Leader blog, “From 2017 to 2019, millennial and Gen Z secondhand sales increased by 37% and 46%, respectively.” While the fashion industry at large is worth more than $2 Trillion, the secondhand market is projected to hit $41 billion by 2022. According to Fortune, grown 21 times faster than the retail market in the past three years. As of 2018, the second-hand economy was valued at $24 billion and is projected to grow 1.5 times the size of the fast fashion market within the next 10 years. Second-hand shopping has unlocked an endless supply chain of buying and reselling clothes and continues to benefit all parties involved through the constant exchange of goods. Thrifting is now a tradable asset, which means that there is still value even after the first time it was purchased. 

We’ve moved into a sharing economy, and the popularization of second-hand shopping is an extension of that. However, the sustainability of the resale market is not limited to clothing and it is inspiring new shifts. Companies have begun to design new products that are meant to be shared. Airbnb is looking to build homes that are designed to be shared and not owned. IKEA will start renting furniture instead of just selling it, and companies like Rent the Runway and ThreadUP are exclusively producing lines of clothing that are only for renting or reselling. Just as technology and the internet forced companies to rethink their business models, sustainability efforts will do so as well. 

As 2019 comes to a close, it is safe to say that Netflix has successfully disrupted the entertainment landscape and dominated the TV and film industries. On Monday, the company received 34 Golden Globe nominations, 17 in film categories, and 17 in television categories. Streaming services completely shut out the four major networks—Fox, ABC, NBC, and CBS—for the first time in history.

Netflix has many achievements to flex from the past decade. In the first few years, Netflix became available on mobile devices and launched in countries all over the globe. In 2013, it released its first slate of original shows, including House of Cards, Arrested Development, and Orange Is the New Black. After the success of these shows, the company raced to produce as many pieces of original content as possible.

Netflix’s first feature film, Beasts of No Nation, made its debut in 2016, along with television show Stranger Things that would soon become a critically acclaimed global phenomenon. In 2017, the platform reached 100 million subscribers worldwide, putting the company far ahead of its competitors, Amazon Prime (100 million) and Hulu (25 million). 

In the past two years, Netflix has been able to boast statistics such the 64 million Netflix households that watched the third season of Stranger Things in its first month, or the 26 million that have viewed Martin Scorsese’s film, The Irishman during its first week on the platform.

With industry award domination and over 150 million subscribers worldwide, Netflix has become a strong force to compete with in entertainment production and distribution. However, the company has run into a problem in recent years that could shake its core business model: the competition of the streaming wars.

The Business Model

Netflix has grown into the behemoth it is today through the following cycle: gaining subscribers and, therefore, revenue, spending the capital on new content, and in turn attracting new subscribers. Netflix drew in its original subscriber base by licensing content from Hollywood’s film studios and television networks. It was a win/win situation: Netflix received content to attract paying subscribers, and studios and networks gained revenue from films and shows that had passed their lucrative windowing period or were no longer on the air. Shows such as Friends and The Office are highly popular on the platform. 

When it comes to original content, Netflix does not bring in enough revenue to cover its production expenses. So, it has burned cash and turned to the debt market for support; at the end of 2018, the company had $10.4 billion in long-term debt. The company sees that investment in content now will bring profitability in the long run when it saturates the worldwide market. This year alone, Netflix spent about $15 billion on original content. 

However, the recent launches and announcements of new streaming platforms such as Disney+, HBO Max, and Apple TV+ have shaken subscribers’ and investors’ faith in the company. 

The Streaming Wars

When their licensing content to Netflix, legacy media companies had no idea that they were feeding a beast that would end up being a major competitor. When they came to feel the effects of streaming and its impact on cable cutting, many companies stopped in their tracks to put a substantial amount of time and investment into the streaming trend.  

Since early 2018, Disney, NBCUniversal, and Warner Media have launched or announced their own streaming services. On top of that, tech companies such as Apple and Facebook have started their own SVOD services. A new mobile-centric player, Quibi, will also enter the market in spring 2020. The rapid crowding of the SVOD market is termed “The Streaming Wars”; American households are only willing to pay for 3-4 subscription services, and some platforms are bound to become shut out of the market.

The competition of the streaming wars creates three main problems for Netflix: 

1. Licensed content from other media companies is being pulled from the platform, which may drive subscribers to other platforms where their favorite content is available.
2. The must be able to spend and rely on its original content for years to come. This means that Netflix will most likely continue to accumulate more and more debt. 
3. Competitors are undercutting Netflix’s current pricing model of $12.99 per month; Disney+ costs $6.99 per month, while Apple TV+ is on the market for $4.99 per month. This issue may cause subscribers to jump ship if Netflix content becomes less desirable than that of another platform. 

The Stock Market Story

Netflix’s stock reflects the issues that the company has faced and may indicate what is ahead. Investors have already begun to worry about the repercussions of the problems explained above, and since the start of the streaming wars, Netflix has lost a bit of its edge in the stock market. 

As of 1:00 pm EST today, Netflix’s (NFLX) stock is worth $296.21 per share. 

However, about a year and a half ago, in July 2018, the stock closed at an all-time high of $418.97. What happened?

• Falling Short on Projections

Netflix’s stock price took a deep dive in after-hours trading when it reported its Q2 earnings in July 2018. The company had projected a gain of 6.2 million subscribers, but it ended up falling short, drawing 5.15 million instead. Some investors became worried, while others saw it as a single quarter blip. 

• Negative Cash Flow

The stock fell again after Q3 earnings reported a negative cash flow moving in the wrong direction. Free cash flow in the third quarter for 2018 was -$859 million, compared to 2017, which saw -$465 million. CEO Reed Hastings explained that the gap between positive net income and cash flow deficit was necessary to create original content, which is the primary driver of capital. 

• The Content Competition Begins

Another factor that likely hurt Netflix’s stock price in Q3 was the announcement of The Walt Disney Company’s upcoming streaming service. The beginning of the competition signaled that Netflix might, in the near future, lose market share. After closing at $374.13 in September, share prices fell to $301.78 at the end of October—a 19% drop in the stock. 

• Subscriber Losses

The share price made its way back up to the $385 range during the first two quarters of 2019 and took 12% fall after the second-quarter earnings were announced. Netflix reported a loss of 126,000 U.S. subscribers, the first time since it had a negative subscriber gain since 2011. 

In September 2019, several analysts provided negative commentary that spooked investors. Share prices suffered a 5% drop but have slowly made their way back to the $300 mark since. 

Netflix’s stock story shows mixed opinions on whether or not it will see growth and be a relatively safe investment for the future. 

The pros of investing include potential subscriber growth, expanding operating margins, and international expansion and strategy, management team, and strong original content. 

The cons include subscriber deceleration, valuation, increasing competition, losing licensed content, and content costs. 

At the bottom line, Netflix’s substantial growth has driven its valuation to high levels. Its debt to equity ratio of 1.81 would put it in a more vulnerable position if the company were ever to hit a rough financial patch. 

For investors looking to take a safe bet with a pipeline into the streaming space, investing in Disney may be the right choice. But for investors looking to take a chance on a streaming juggernaut may rather bet on Netflix.

Looking Ahead

Many analysts recommend selling a Netflix stock at the moment, in anticipation of subscriber losses. Netflix stock has lost its luster in the equity market as the company’s growth has slowed. How can it take a leadership role once more?

Netflix executives have said that they will not sell advertising on the platform to generate more revenue. However, Wall Street disagrees with this decision. Needham analyst Laura Martin recently downgraded Netflix’s stock to “underperform” but offered a solution including advertising. She claims that an option costing $5-7 per month, featuring six to eight minutes of advertising an hour, will help fend off competition. As other services are undercutting Netflix’s pricing model, a low-cost option may be a smart idea. 

If Netflix sticks to its no-ad policy, it’s going to have to get creative. Perhaps it will begin to create mobile-centric content, following the soon-to-be-launched platform, Quibi. Maybe it will start to offer exclusive experiences, licensed merchandise, or build a theme park to diversify its revenue streams. 

Either way, Netflix started out as the little DVD rental service that could, and if it can ride the waves of industry change as it has in the past decade, Netflix could indeed come out on top. 

To all the painfully expensive Venice Blvd. Dwayne Johnson HOBBES AND SHAW billboards inundating helpless drivers caught in traffic on their way home hopelessly lost in an urban sea of shallow material obsession forcing said drivers to look not up to the sky but down at their cellphones only to result in rear-end collisions driving up insurance rates and adding to the misery of driving in Los Angeles, take notes. 

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Thanks to Netflix and the subsequent endless onslaught and validation of streaming media, the traditional American box office is at a crossroads. On paper as a simple bottom line, both the American and international box offices are more profitable than ever before. However, though 2018 brought in the most ticket sales revenue in film history, there are several factors inflating this figure that hide the dire economic conditions of the theatrical film market. This is due to the number of films and average ticket price having increased, while the individual average film gross has steadily decreased in the past five years. At play is a consumer reluctance to go to theaters, leading to a huge disparity and disconnect between massive budget blockbusters and low-mid budget films now relegated to the indie film circuit. The unavoidable truth for film studios and distributors is that viewers now would rather simply stay home to watch content provided by a few gargantuan media monoliths (cough, Disney). Hope for the independent feature wholly funded and produced for the sake of artistic expression seems slim. And amidst all this chaos and change is one relatively small-but-mighty independent distributor quietly finding their own way to survive. 

A24 began as a bank loan-funded venture of former studio and independent film executives Daniel Katz, David Fenkel, and John Hughes. Each had years of experience seeing film distribution done the traditional way, with lots of micromanagement and compromise to varying results. They set out to make film possible using different methods, with the common mantra of “there’s gotta be a better way” (Baron).  The company sprung up hot on the independent film scene in 2013, as three of their five inaugural releases (Spring Breakers, The Bling Ring, and The Spectacular Now) more than doubled their budgets back at the box office. Before jumping into the A24 model and why they have managed to keep consumer interest in today’s divided media climate where many other independent film distributors have failed to adjust, the context of the industry must be laid out. A24 is the product of a cavern separating the “art” from the “entertainment” in American film, a gap traditional major studios are too tied up in old ways and too caught up with sacred Intellectual Property to mitigate. Decades of changes in the film industry and in media consumption habits serve as the crux of why a company like A24 is necessary. 

The economics of filmmaking have undoubtedly changed by the ever-rising star of the blockbuster. From 1975’s Jaws to 2019’s Avengers: Endgame, the primary sell for studios is creating a piece of Intellectual Property that sticks and can drive several avenues for profit just on name brand alone. What this has led to is a shift away from the musicals and melodramas of the 1950s that drew large crowds for their star-talent and songs, towards behemoth franchises with huge stakes, astronomical budgets, and massive icons leading the cast. There’s more money to be made on a box-office smash than ever before today, proven this year as Avengers: Endgame set the new record for highest box office gross (dethroning the seemingly untouchable ten-year king Avatar).  Unfortunately, average individual film ticket sales have decreased from $15 million in 2015 to $12 million in 2019. Adding the pessimism surrounding this figure is the fact that ticket prices have only increased year over year, incentivizing more critical consumer selection in choosing what film to go see. To dive into the psychology behind this, I talked with my internship supervisor at Creative Artists Agency. 

What he laid out was basically that on both sides of the deal, it’s so much harder for the independent low-mid budget feature to survive in theaters. Studios have far less incentive to release films with unestablished talent or unfamiliar material that may not justify the cost of producing and marketing than if they can release IP based material that markets the concept on its own. The exception to this for studios is Oscar season films, which are released at the end of the year so as to grab the eyes of Academy members before they vote, all in the hopes that the filmmakers and studio will gain further clout and profit from the increased public awareness. This creates a tension between any film that doesn’t fit into an easily packaged box. Adding to the difficulty of getting an indie released and seen in theaters is that the box office faces more competition today than ever before. This brings us to the problem on the consumer side of the deal. There are simply far more options for watching movies, television, short-form videos and social media clips than can be named. Film studios are now not only in competition with their counterparts, but also with every source of media a consumer comes across on a daily basis that keeps eyeballs on a laptop or cell phone instead of a movie screen. The common thought is, why go out to a theater and pay $20 for one movie when you can watch whatever you want whenever you want from the comfort of your couch? Additionally, why take the risk of spending so much  on an indie movie you know little about when you could see something whose entertainment value is assured in the form of a superhero/action franchise sequel?

Not helping the plight of the indie film at theaters is the fact that corporate media giants have entered the bidding space alongside independent film distributors. Indie films are most often produced off of the financing of small production companies and are sold at film festivals to the most ideal bidder in terms of price, brand, and opportunity. Festivals like Sundance, Telluride, and Cannes have become platforms for the independent filmmakers to get their art out to the world. Traditionally, distribution companies like Miramax (now defunct essentially), The Weinstein Company (good riddance), Fox Searchlight (now under Disney), and Focus Features (under NBCUniversal) propose fairly similar prices for films that perform well at these festivals. Today however, massively bankrolled companies like Netflix and Amazon come to the table and offer prices independent film distribution companies cannot compete with, which sends these projects to streaming services and away from theaters. So, is there any love out there for a lonely independent feature trying to survive in theaters?

(Courtesy of The New York Times, photo of A24 Founders)

Enter A24. Seemingly the only independent film distributor with its head above water as 2019 comes to a close. And they are doing so without any franchises or high profile historical Oscar-bait pictures to their name. Forgive my simplifications, but instead of going familiar and often unintelligent, A24 bets on the complex and unique. So what separates A24 from the major risk-averse studios and big-betting streamers? What gives you the right to say they’re superior to Dwayne Johnson and his beautiful billboards? 

Yes, it would be pretentious and foolish to assume that independent film is objectively superior to major studio produced content. However, what A24 in particular does offer is a diverse set of films made by a diverse set of talented individuals, utilizing the attention economy to hit their target demographic better than any of the studios would with the same films. They don’t even buy low to sell high. They buy low, and sell…different. Instead of playing to indie film’s pretentious reputation, they listen and understand their audience, mostly consisting of 18-35 year olds in major cities. And most importantly, they’ve bet on good taste and creative vision (box office results below courtesy of the-numbers.com)

There’s no clean way to categorize what an A24 film in terms of content beyond that it will be something you most likely haven’t seen before. Several profile pieces in GQ, The New York Times, The Economist, and many other publications have detailed how this studio went from virtually unknown at the beginning of 2013 to indie film royalty in 2019. As mentioned at the top of this piece, the founders of A24 saw the way film distributors took away from the end result of a film by meddling too much. They seek out strong and talented creative voices, buys the distribution rights for often less than $5 million, and in an exercise of trust allows the creators to make and keep the film how they deem best. At the same time, A24 uses data analytics softwares like Operam and “web-focused marketing agencies” to better determine who they should be marketing the movie towards. 

A24’s aesthetic quality and distinct designs have built their brand recognition up considerably. They are known for strikingly artistic and subdued posters and color schemes, while they maintain freedom as a genreless studio.  They use social media, trailers projected during music festivals, and guerilla campaigns to market their films instead of 50 massive eyesore billboards and ridiculously expensive ads during primetime football. They know their target audience isn’t paying attention to those traditional sources, and they trust that there are smarter and more effective ways to reach them utilizing social media and phones in everyone’s pockets (examples of which below). An example of this would be for their film Ex Machina, A24 started a rogue Tinder profile at the SXSW festival in Austin for one of the film’s characters that slyly drove matches towards the film’s instagram page (Barnes). 

(Courtesy of Breakfast at Cinemark’s Blog)

A24’s strength and advantage over other independent film studios is in not trying to play the studio game. They give their audience what no other studio is willing to with individualized content and a direct line to the artists uninterrupted by meddling corporate hands (A24 started their own podcast series where their filmmakers talk craft with each other). In terms of competition, A24’s closest rival was Annapurna Pictures. However, Annapurna played less smart financially and tried to nab prestige by spending large amounts of money on film budgets upwards of $20 million and on releasing films on weekends directly competing with huge blockbusters to show they can compete. Unsurprisingly, Annapurna recently announced that they face bankruptcy or bailout (Sharf). 

A24 takes risks creatively, but not so much so financially. Their budgets range from $1-12 million, and they cut down on unnecessary and inefficient marketing costs (especially for indie films) by using social media and guerilla campaigns like the Tinder page rather than billboards and primetime TV advertisements. They know their target demographic likely isn’t watching traditional TV and is more likely to be found on the web. It remains to be seen whether A24 will stay successful in the coming years, as more and more independent films flock to Netflix to survive the thinning of theater audiences. However, they’ve built a solid track record of quality films while allowing the rare opportunity for filmmakers to make what they want how they want (Barnes). 

Despite the fact that the company did not exist seven years ago, they already have 25 Academy Award nominations, 6 Academy Award wins (including Best Picture for 2016’s Moonlight), and release nearly as many films a year as each major studio. They have cornered the indie film market, and sneakily found other avenues of profit without appearing as more a corporation than film financier. Their website also functions as a considerable merchandising operation, as they make indie cassette tapes, candles, trinkets, and various other hipster products based off their films (as seen below). 

 A24 has branched out into comedy specials and television in the past three years to strong results. They remain incredibly tight lipped on their internal workings and financial breakdown apart from box office, so the future of this truly unique brand in the theatrical film market seems entirely in their hands. To deal with consumer desire for streaming media access, A24 struck a profitable deal with Showtime Networks to put their films on Showtime’s streaming service. It seems at each angle, as long as they keep trusting that consumers want unique content, they can continue their model and quietly rewrite the rules of film marketing and what it means to get the incredibly distracted consumer of 2019 into a theater for two hours to experience something new. 

Sources:

https://www.indiewire.com/2019/08/annapurna-faces-bankruptcy-bailout-larry-ellison-1202164196/

The Social Media Marketing Power Behind A24

https://www.economist.com/prospero/2016/08/02/the-surreal-dreamlike-films-of-a24

https://www.highsnobiety.com/p/a24-studio/

https://www.gq.com/story/a24-studio-oral-history

https://www.boxofficemojo.com/year/

http://www.makeindependentfilms.com/history.htm

https://www.the-numbers.com/movies/distributor/A24#tab=year

https://shop.a24films.com/

http://www.hoovers.com/company-information/cs/company-profile.a24_films_llc.e0e669311fa0de36.html?aka_re=1

On Nov. 4th, 2019, Apple announced a $2.5 billion plan aimed at ameliorating the Bay Area’s housing availability and affordability crisis. Amidst the economic and cultural renaissance that has occurred following the tech boom in the San Francisco Bay Area, a myriad of devastating issues have spiraled out of control. Some of these issues, which the big names in tech like Google and Apple have publicly pledged to fight, have become a popular topic amongst both the media and the general public. 

While many professionals and Bay Area residents are in a constant debate regarding whether tech companies should be vilified as the sole root cause of the Bay Area’s housing crisis, one thing is resolute: their presence has exacerbated the crisis to a devastating degree. Their presence has bled into and negatively impacted other regions of the Bay Area’s economy beyond simply the housing market, such as the small retail sector. Moreover, the debate regarding the negative influence of tech companies in regards to the housing crisis has highlighted that it’s up to far more than large tech donations to authentically and successfully absolve the region of this crisis. 

The housing crisis

Before examining the outshoots of the housing crisis and the solutions that institutions and organizations outside of the tech industry can help instill, it’s imperative to understand the current landscape of the housing crisis itself. 

According to cnbc, the Bay Area’s population increased 8.4% between 2010 and 2018, however the number of housing units rose by less than 5%. Even more shocking, between the same time frame, rents jumped 21% when adjusted for inflation, according to cnbc. Marketplace notes that currently, a homeless population of 7,000 exists in San Francisco while in San Jose, the average home value is over $1 million. As a result of the influx of high-paid tech workers into San Francisco and the surrounding regions like Silicon Valley and the East Bay, rents have increased, pushing out middle and low-income workers. In fact, five Bay Area counties have been named five out of the six most expensive places to live in the country. In response, Oakland will produce 50% more housing units this year and San Francisco plans to complete 4,700 units, according the City Journal. While the private development in the East Bay is up 15 times from 2018, MarketPlace notes that surrounding cities like San Jose have issued only 134 permits for affordable housing. 

While the supply of affordable housing continuously fails to meet the demand, the issue of homeless in the region continues to worsen. The Bay Area now houses the third largest population of people experiencing homelessness in the U.S, ranking just behind New York and Los Angeles, according to cnbc. 

Impact on local retail

The demand for expensive housing fueled by the influx of tech employees earning high wages has done far more than perpetuate the issue of homelessness and the dire need for affordable housing. The soaring rent costs have left small businesses extremely vulnerable to the presence of large tech companies. 

Consequently, as the tech industry is booming, the small retail industry is struggling. The Bay Area, known for its cultural and social diversity, is home to a plethora of mom-and-pop shops. The neighborhoods that together amalgamate to make the Bay Area are each individually inspired by the unique populations, architecture and geographical locations that define their purpose and culture. However, with property and housing rents increasing at such fast rates, the smaller, local businesses in the Bay Area are finding themselves unfit to prosper and persist. 

According to a study done by the state Economic Development Department, the number of retail businesses in the Bay Area has dropped significantly in the last 10 years. Moreover, the study reports that the average rent per square foot for retail properties has risen approximately 9% between 2015 and 2017. Specifically, 9% in Oakland and 5% in San Francisco. For the small shops and businesses that function on thin profit margins, these large incremental rent hikes are quite threatening. 

The primary manner in which these rent hikes impact these small, local businesses is that they make employees unable to dwell in close proximity to their jobs. As a result, employees are forced to commute, in some cases, multiple hours to get to their low-wage jobs. These long commutes cause them to reevaluate and assess whether or not it’s economically sustainable for them to live so far for a job that overtime, will pay less and less. In most cases, employees find that it’s not. Dennis King, executive director of Small Business Development Center in Silicon Valley, reports that this no longer cost-effective equation amounts to an unreliable workforce that is diminishing, according to Mercury News. 

Microbusinesses, businesses with 9 or fewer employees, have declined 8.1% in San Jose between 2007 and 2017, according to data from the Economic Development Department. The same data indicates that the drop was even more sharp in the San Jose metro area, where microbusinesses declined 12.7%. In both the San Francisco and Oakland metro areas, the number decreased by 6.1%. Statewide, the total decrease in microbusinesses marks at 4.2%. 

Monisha Murray, owner of a small vintage clothing store in San Jose, was forced to move her store’s location to a new part of the city as a result of a sharp rise in rent. Originally, Murray paid around $9,000 a month for 5,500 square feet that housed her store Black and Brown, which sold clothing and accessories. However, in an interview with Mercury News, Murray revealed that her landlord raised the rent to almost $20,000 a month. While she was able to talk it down to $13,000, the cost was still far too pricey for her business that operated with only nine employees. 

As a result, Murray moved her business to a 4,500 square foot space on West San Carlos Ave, where she now pays $7,000 a month. While Murray was able to avoid these rent hikes, when her 10 month lease ends, she faces the possibility of yet another rent hike. Murray stated that, should this be the case, she may be forced to close her store’s doors and instead, move it online. 

A similar story is seen with Talbot Cyclery, a famous bicycle shop in San Mateo. Although quite famous and popular, the bicycle store permanently closed this past June. Former Owner Gary Moore originally wanted to sell the building, however he had no one to pass the building down to. Moore told Mercury News that had circumstances been easier for small businesses, he would’ve retired already, seeing as he was 66 prior to the stores termination. 

Before he closed his business’ doors, Moore reported that over preceding years, he lost many employees in their 20’s and 30’s because they simply couldn’t afford to live in the San Francisco Peninsula. He also noted that people would come into his shop, find a bike, then look it up on their smartphones and buy it for a cheaper price. This trend, while indicative of shifts impacting the retail industry on a national level, is another force that is disruptive to the survival of mom-and-pop shops in the Bay Area. 

So why care? The decline of these mom and pop shops is both salient and pressing, considering microbusinesses account for 62.3% of all retail businesses and 12.4% of retail employees, according to the Economic Development Department. This decline is spreading into the larger retail industry of the Bay Area as well. Between the years of 2007 and 2017, the recorded number of retail businesses in the San Jose metro area declined by 4.4%. 

Similar to the issue of the housing crisis as a whole, the mere geographical presence of tech companies can not be deemed the sole scapegoat for the decline in Bay Area’s microbusinesses. That being said, the technological inventions of these tech companies are surely impacting the success of Bay Area microbusinesses, in addition to those nationwide. Apps like Instacart, Amazon Prime, Caviar, UberEats and Tinder are, in general, creating less foot traffic in cities all around the U.S. and the globe. With less people on the streets comes less window shopping and cross-population for local shops, like Murray’s vintage clothing store and Moore’s bike shop. While these apps exist nationwide and are not only impacting the Bay Area, perhaps the wealthier, tech-oriented demographic that the Bay Area now houses means that the employment and popularity of these apps is drastically higher in the San Francisco Bay Area. 

How California can help

Following the announcement of Apple’s multi-billion dollar pledge, professionals and government officials alike voiced their doubts regarding how sustainable and impactful these hefty donations would truly be in fighting the Bay Area’s housing crisis. 

Many believe that these large donations are not independently capable of resolving the housing crisis. Current legislation and city regulations in the Bay Area are hindering the capability of both large donations and housing plans from actually spouting change. As a result, both residential voters and local governments play an integral role in ensuring that the Bay Area makes the appropriate strides that adequately resolve the housing crisis. 

In recent years, California has made some rather paramount strides in fighting the housing crisis. For example, in 2018, Bay Area voters helped pass both statewide propositions 1 and 2, which helped make billions in funding available to the region for more housing. Similarly, electing Gavin Newsom to Governor of California has pushed the Bay Area in the right direction. Prior to winning the election, Newsom pledged to add $3.5 million in housing to California by 2025. In fact, Apples recent pledge was created in conjunction with Gavin Newsom. 

Additionally, in Berkeley, CA, voters helped pass Measure O, a $135 million bond measure allocated for funding affordable housing units for both low-income and working households made up of teachers, seniors and those with disabilities. Continuing the progress that these bills and legislations have brought to the table will only strengthen the fight against the housing crisis.

This past September, California State Legislature successfully passed AB 1487, which, in the near future, will hopefully transform the manner in which local Bay Area governments finance affordable housing projects, according to The Daily Californian. AB 1487 certifies the creation of the Bay Area Housing Financial Authority, which is intentioned to raise and grant funds for affordable housing. Moreover, the bill marks the first regional approach to combating the issue of housing availability and affordability in the Bay Area. The approach that AB 1487 presents is far more coordinated, targeted and strategic, in accordance to its ability to distribute funds on a regional basis, The Daily Californian notes. Now, it is up to Gavin Newsom to decide whether or not to sign the bill. Should he sign, the Bay Area Housing Authority pledges to work alongside surrounding Bay Area government agencies and institutions to help gather needed funds and reestablish flawed affordable housing measures. It’s a great feat that this bill passed, however if Newsom does not sign off on it, these progressive efforts will be reversed.

Moreover, there is still quite a lot of lobbying and reform that needs to take place. First and foremost, Council of Community Housing Organization Peter Cohen states that local officials and voters need to support ballot measures that will bring in money towards housing efforts, according to ABC7. Similarly, voters who neighbor the prospective plans for affordable housing construction ought to stop legally challenging proposed developments in order to lessen the vast responsibility that the city of San Francisco has in relation to the housing crisis. 

It is also imperative that local policymakers address the zoning and building regulations that have previously impeded developer’s success in actually constructing new homes, according to MarketPlace. 

Former San Jose Mayor Chuck Reed emphasizes that the structures and equations pertaining to the housing crisis ought to change as well. Reed told the California Globe that during his time in office, existing state structures made it rather difficult for the local governments to actually get projects approved. He argues that if the state added a fiscal incentive for local governments, this would motivate them to get more involved and at least potentially be able to break even on expensive housing projects. One of the most important things Reed emphasizes is that he urges all Bay Area residents to vote. By voting on and staying educated on bills, legislation and the actions of policymakers, Bay Area voters will be able to truly push forward the necessary progress that the Bay Area needs in this decade.  

We should all care

In conclusion, the Bay Area’s housing crisis is quite multifaceted and at its core, the crisis faces many roadblocks that are and may continue to prevent the issue from truly being resolved. Beyond the economic shifts that the housing crisis is feeding, such as the housing and retail markets, the crisis is additionally homogenizing a region that is founded on and known for its diversity. Should living in the Bay Area continue to come at a pretty hefty price tag, one of the most unique and foundational aspects of the Bay Area will irreversibly be compromised. That is, its socially and culturally diverse collection of people. The ethnically diverse pockets of the region may unfortunately disappear if policymakers, local governments and voters don’t take necessary action towards preserving the people and communities that form the Bay Area’s backbone. This phenomenon is not only impacting the Bay Area, but also is harming the nation as a whole. Going forward, preventing the homogenization of urban populations nationwide presents itself as an issue we should all collectively care about and work towards fighting.

Sources 

1. https://www.cnbc.com/2019/12/01/amazon-google-apple-seek-fix-for-housing-crisis-they-helped-create.html
2. https://www.mercurynews.com/2019/06/09/in-bay-area-small-retail-struggles-while-tech-booms/
3. https://abc7news.com/society/how-to-solve-san-franciscos-housing-crisis/5642051/
4. https://www.mercurynews.com/2018/11/08/editorial-housing/
5. https://www.marketwatch.com/story/apple-facebook-google-and-amazon-are-putting-billions-of-dollars-toward-affordable-housing-but-that-money-may-be-too-little-too-late-2019-11-08
6. https://www.dailycal.org/2019/09/25/bill-aimed-at-tackling-bay-area-housing-crisis-passes-ca-state-legislature/
7. https://californiaglobe.com/section-2/state-government-in-the-way-of-california-cities-and-new-housing-goals/

In 1894, the Lumière brothers created a device called the Cinématographe which was used to photograph and project film. The Lumière brothers would shoot footage of everyday life in France and began opening theaters in London, Brussels, Belgium, and New York after hosting numerous private screenings at the Grand Cafe in Paris. The Lumière brothers have pioneered the way for how we view films. Now you can find a movie theater in almost every town across the United States and many throughout the world. With technology evolving, the film industry is continuing to stay lucrative but the distribution methods are now continually changing. Movie theaters are no longer the sole method of distribution for films which means that their business model needs to change to stay competitive in the current market. For movie theaters to thrive in the future they are going to need the change the customer experience as well as figure a way to create a pricing model that can retain continual customer loyalty.

The film experience was changed forever in 1905 when the Nickelodeon opened in Pittsburg, Pennsylvania. Films went from being a middle act in vaudeville shows to a novelty that brought out the masses. Movie theaters have become an experience where all age groups could come and enjoy a theater experience at a reasonable price while getting to enjoy concessions with the film. As film studios grew larger and movie theaters began to expand, the number of movies that hit the theaters continued to grow. Studios began creating deals with movie chains such as AMC, Regal Entertainment Group and Cinemark, where they agreed to take a percentage of ticket sales depending on the film that was being screened. But since the great depression, theaters were able to notice early on that popcorn and concessions are where the real revenue could be generated. According to the Smithsonian, during the days of the depression popcorn was a relatively cheap investment for purveyors and $10 bags would be able to last for years. Many theaters were unable to accommodate for having popcorn machines in their lobbies because of the lack of proper ventilation. Vendors quickly jumped on this opportunity and were able to gain “lobby privileges” which allowed them to sell popcorn in front of the theaters. Eventually, theaters realized that they could cut out the middleman and profits rose significantly once they began selling their popcorn. This helped many theaters stay around through the depression. Any theater that failed to start selling varieties of snacks through the 30s struggled significantly and eventually went out of business. In 1945, more than half of the popcorn consumed in the United States of America was consumed in movie theaters.

According to Time Magazine, movie theaters make around 85% of their profit from the concession stands. In 2015, AMC announced that they say a drop from ticket sales from $1.85 billion in 2013 drop to $1.77 billion in 2014. But as for concessions, revenue went up to $11 million from 2013 to 2014. Now that films are becoming more accessible within your own home, theaters are going to need more than just provide tasty snacks to draw in more customers.

When Netflix was created in 1997, the internet was in its early stages and people didn’t realize that this website would be able to compete with a rental movie chain as large as Blockbuster at the time. The film industry did not see that this website would become the behemoth of a streaming service that it is at a market capitalization of $130.29B. This has completely changed the distribution method of films by not only beating out film rental services but also now taking out movie theaters as the middleman. Now Disney, Warner Brothers, and even Apple have created their own streaming platforms. These large studios are deciding to even put certain films straight to streaming. Ted Mundorff, President and CEO of Landmark Theaters, spoke with IndieWire about the future of theaters in the streaming era and he states that the money is still there, “We have gone through theatrical slumps forever and we always recover. Some bloggers love to talk about attendance going down every year. Well, attendance goes down at baseball games and football games. You want to name a place where attendance is going up? It’s not. Our $10.5 billion-$11-billion-a-year business is very strong.” People are still coming out to the theaters but are only there to see the blockbuster of the season. According to Variety, this past year Avengers: Endgame earned $853 million in the domestic box office which makes it the second-highest-grossing film behind “Star Wars: The Force Awakens” ($936 million). In an interview with the New York Times, the director Kumail Nanjiani spoke about how it’s only the large budget films that are getting people out of the house, “I read a stat somewhere that the average person goes to the movie theater around four times a year, and these huge movies come out and kind of suck up all the air. You look at comedy especially, and it’s been pretty tough going at the box office for the last couple of years. I think it’s because there’s this sense that only certain movies are worthy of watching at the movie theater.” In 2011, a San Francisco based company named Movie Pass began a monthly subscription service that allows you to see one movie a day in a theater at a monthly rate. This service quickly faltered after being unable to generate profits and certain theaters stopped accepting the subscription. In 2018, AMC decided to create their own subscription service that charges $19.95-per-month subscription. The service has earned more than 860,000 subscribers. The theater chain Regal, a competitor of AMC, saw this success and created its own service as well titled Regal unlimited. Having a subscription service for the handful of movie buffs may work temporarily but other companies are seeing that theater chains are going to need to do more to improve the overall experience for consumers.

According to The Wall Street Journal, AMC renovated 247 of its 640 locations to add recliner seats into all of its auditoriums. A Mississippi based company named VIP Cinema seating created a large business out of this and now controls 80% of the market for luxury seating. AMC has been tracking the data of moviegoers and they noticed that consumers are not looking at what movies are playing but rather which theaters were playing around them. AMC’s executive vice president of global development stated to The Wall Street Journal “A traditional movie theater sees attendance decline 1% or 2% a year as the facility ages. Attendance overall at Lakewood ( an AMC theater location) doubled within 18 months of all auditoriums getting the recliners.” China’s Dalian Wanda Group Corp. is the majority shareholder in AMC and they plan to invest $600 million in re-modeling their auditoriums. AMC compared to other chains are pushing innovations in the traditional movie theater model and are even embracing technological advancements as well.

In 2016 a company titled Dreamscape opened up its flagship location in Los Angeles that provided an immersive virtual reality storytelling experience. In the early stages of the company Bruce Vaughn, former head of Disney Imagineering, was appointed CEO and helped build the company into what it is today. This immersive storytelling experience could best be described as a Disneyworld dark ride that is at the cost of a movie and located in the middle of your mall. AMC saw this as an investment opportunity to continue to change the movie-going experience by partnering with Dreamscape and allowing them to set up the VR experiences inside their theaters. They are currently testing out the first AMC location in Dallas Texas with plans to develop in more locations by the end of 2020. What has been a noticeable trend since the great depression is that movie theaters are forced to innovate or else their existence will fade. For chains like AMC, it is easier to invest in innovation and completely remodeling because they have the capital for it. But as for local theaters, it is very hard to stay competitive as well as save enough money to stay around. As Eric Handler, an exhibition industry analyst at MKM has pointed out, “Your revenues are inconsistent. Your rent keeps going up. Unless you have some deep-pocketed investor, you don’t have the capital to do what they’re doing in theater chains by investing in high-end food items and fancier seating.” The failure to innovate is a common theme across all industries but in an era where entertainment is more accessible than ever, old practices can become stale very quickly. Large theater chains will be able to thrive if they continue to invest in new customer experiences but only if they continue to innovate and adapt to current market trends with technology. But once again we are seeing that technology is making our lives more convenient but at the cost of the local mom-and-pop shop.

ADDITIONAL SOURCES:

https://www.history.com/news/the-lumiere-brothers-pioneers-of-cinema

https://fortune.com/2015/02/18/movie-theaters-concessions/

https://www.indiewire.com/2019/06/movie-exhibition-distribution-future-1202152832/

https://www.theverge.com/2019/1/15/18156854/dreamscape-immersive-virtual-reality-los-angeles-walter-parkes-bruce-vaughn

By Bonnie Wong

Two years ago New Jersey-born, start up entrepreneur and college dropout Billy McFarland created the most “ill-planned music event that never was.” But to label it as just that is an understatement. The music festival, which was scheduled to take place over two weeks in late April 2017 on a private Bahamian island called the Great Exuma, turned into a nightmare for over 8,000 people who had paid anywhere between $1,000 to $100,000 to attend only for it to fall grossly short of expectations.

In October 2018, McFarland pleaded guilty to fraud and was sentenced to six years in prison and ordered to forfeit $26 million, pleading guilty to wire-fraud charges. Fyre Festival co-founder and rapper Ja Rule was dismissed last month from the $100 million class action lawsuit, according to an article by the New York Times. 

But the real question is how did Fyre Festival, like other promises made by grifters, continue to operate even when others both the inside and outside suspected they were destined to fail? Furthermore, what are the implications of large-scale fraud on the overall economy?

Instead of the private, custom Boeing 737 flight, luxurious accommodations and promised VIP experience, Fyre Festival guests were left waiting in the airport, given bread and cheese in Styrofoam containers to eat and left to sleep in makeshift tents scattered around the island with no cellular service or plumbing. Major A-list artists who were scheduled to perform dropped out in the weeks prior to the music festival (there turned out to be no musical acts), businesses who were contracted to provide their services for the event were never paid and guests live-tweeted their nightmare experience for the rest of the world to see.

The 2019 Hulu documentary titled “Fyre Fraud” produced by Jenner Furst and Julia Willoughby Nason opens with a quote by Calvin Wells, venture capitalist who originally exposed the Fyre Festival scam on Twitter. 

“You see these wonderful, beautiful people in places that you’re not, doing things you can’t afford to do, it really didn’t matter that these guys may be waifs, trustafarians, and this guy hosting this party was an obvious fraud, because many of these influencers are people you follow, that you aspire to be and also this rapper, his music you listen to,” Wells said in the documentary. “So when an opportunity presents itself to get out of your parents’ basement and go be part of something that’s culturally relevant, you’re going to absolutely jump at that.”

In America alone, the music festival industry has become a lucrative market. Nielsen Music estimates about 23 percent of the U.S. population has attended a live music festival in 2018. The majority of attendees are millennials, 57 percent of which now say they prioritize traveling and seeing the world over ever owning a home, according to a study by Deloitte.

Music festivals are attractive for artists and attendees alike. The business model is more profitable than ever before. Instead of conducting large scale production tours that take days and require setting up and tearing down at each location, artists simply get paid to fly to the venue, perform and then fly back home all while earning a considerable amount for their performance. Since 1999, 50 percent of U.S. recorded music sales have dropped, according to Vox. To make up for the loss in revenue, live concerts, shows and merchandise compensated for 40 percent of the loss between 1999 and 2009, originally grossing $1.5 billion and then peaking at $4.6 billion. In recent years, streaming services have deflated album sales further, Vox states.

On the consumer end, attendees can enjoy day or weekend-long events with their favorite artists in one place and have something to post on Instagram from the ordeal. For attendees, it’s all about the experience a music festival can provide, fueled by aggressive social media marketing that helps the consumer envision what their life could look like and playing into overall fears of FOMO—fear of missing out. 

Jerry Media, who was charged with promoting the festival spoke of their original strategy of marketing Fyre in the Hulu documentary.
“My whole idea was like stop the internet and so to do that you kind of have to figure out a way, in this time of advertising, to stop somebody’s who’s scrolling at speeds that are less than, like, a second,” Oren Aks, ex-Jerry Media employee said.

Their social media strategy did stop consumers in their tracks. Through their heavy promotion, Fyre Festival easily became a shareable experience through both online and word-of-mouth advertising.

And it’s not just major cities such as Los Angeles and New York that host music festivals anymore. Smaller towns, looking to benefit from the influx of travelers attempt to contract with the hottest artists who hold the promise of bringing in economic revenue. In 2012, the Firefly Music festival hosted in Dover, Delaware saw approximately 30,000 attendees daily and made upwards of $9 million in ticket sales and contributed over $12 million overall into the city’s local economy, in a report by LA Weekly. 

“We’re living in an era in which you can convince millions of people to do anything just on marketing alone,” Wells said.

But to host a music festival, especially one of that scale, takes a lot of planning and effort, two things McFarland did not forsee. According to an article by Vox, instead of planning out the insurance, predicting weather forecasts or even creating a budget sheet, McFarland focused on advertising his idea through paying celebrities like Kylie Jenner and Bella Hadid and then shooting a promotional video centered around his life (and then refusing to pay the company he hired). 

“McFarland induced investors to entrust him with tens of millions of dollars by fraudulently inflating key operational, financial metrics and successes of his companies, as well as his own personal success – including by giving investors a doctored brokerage account statement purporting to show personal stock holdings of over $2.5 million when, in reality, the account held shares worth under $1,500,” read a press release by the U.S. Securities and Exchange Commission.

Using his companies Fyre Media, Inc., Fyre Festival LLC and Magnises, Inc., McFarland conned over 100 investors into lending him $27.4 million, according to the press release. The now defunct Fyre Media and its partner companies have little information on their financial reports other that what was reported by the news outlets in their investigations. 

In a leaked Fyre Festival investor pitch deck, slides show the festival being promoted as one that would “ignite energy and power” among its attendees and even had a five year plan to host its future festivals on different islands McFarland planned to purchase. While the pitch claimed to Fyre Media owned $8.4 million worth of land and had partnerships with companies such as Snapchat, in reality none of their claims were true. Perhaps most telling, their slide titled “Financials” simply read “Please see appendix.” 

Music festivals, in all their glory and splendor, have also had a notorious history for being grand failures. Woodstock, TomorrowWorld, Governors Ball, Karoondinha Festival and Panorama Festival all faced similar endings with false promises that couldn’t deliver due to poor planning. 

Even more telling, beyond the attendees who were conned into giving up big bucks, those who were contracted to do business with Fyre ended up scorched as well. Local islanders who built infrastructure for the festival were not paid for their time and labor. In particular, one business owner MaryAnn Rolles spoke out in the Netflix documentary that was made about the fraudulent festival saying that she spent $50,000 of her own savings and was owed $134,000 by festival organizers for her restaurant catering services. Many other locals have not been paid for their services either and are unsure if and when they will receive compensation.

“The owners/operators/agents of this festival represented they would perform a service that would require the services of local persona and businesses. As with any economic opportunity, locals … simply expected to be paid based on the representations made,” Pedro Rolle, Exuma Chamber of Commerce president, said in an interview with Thrillist. 

Traditionally, music festivals have the ability to create temporary jobs for the host communities. The 2012 Coachella and Stagecoach music festivals generated over 3,000 temporary jobs alone in Indio, California. The original Fyre Festival promotional video to investors even outlined “the creation of hundreds of jobs for Bahamians” (perhaps they left out the payment part). In the Netflix documentary “Fyre: The Greatest Party That Never Was” cites that about a quarter of a million dollars are still owed to laborers. 

When dreams are built on empty promises, money stolen from investors and hopeful kids, and jobs created by plans that never actually succeed, the results can be extremely detrimental. Currently while serving his 6 year sentence, McFarland apparently has plans of publishing a memoir titled “Promythus: The God of Fyre,” handwriting it on over 800 pieces of paper and mailing it to his girlfriend to type up, according to New York magazine. He says he plans to use the profits from his book to pay off the $26 million in restitution. It is also reported that he and Ja Rule plan to have another Fyre Festival in the future. For con artists alike with immense egos, the legacy these grifters leave is also a key component in their minds. It doesn’t matter who they hurt in the process, in their minds they can do no wrong. McFarland has likened his novel to that of Jordan Belfort’s, who was sentenced to jail for manipulation of stocks and wrote a memoir that became the movie “The Wolf of Wall Street.” 

As if he doesn’t believe enough damage has been done already, the gifted grifter has made it clear he’ll be back and better than ever. 

Sources:

The New York Times: In Wreckage of the Fyre Festival, Fury, Lawsuits and an Inquiry
Nielsen 2018 U.S. Music 360 Report
Deloitte 2019 Global Millennial Survey
Vox: “Why are so many music festivals total disasters?”
LA Weekly: The economics of music festivals: who’s getting rich, who’s going broke?
U.S. Securities and Exchange Commission: SEC Charges Failed Fyre Festival Founder and Others With $27.4 Million Offering Fraud
Business Insider: This leaked Fyre Festival pitch deck shows how Billy McFarland was able to secure millions for the most overhyped festival in history
Thrillist: How Great Exuma’s Locals Are Managing After Fyre Fest, ‘The Greatest Party That Never Happened’
New York Magazine: This Is Billy McFarland’s Fyre Festival Comeback Plan