Linked List: April 10, 2022

Sunday, 10 April 2022

Matt Levine, in his Money Stuff column for Bloomberg:

Look this all makes complete sense, obvious, intuitive, simple sense. If you are the richest person in the world, and annoying, and you constantly play a computer game, and you get a lot of enjoyment and a sense of identity from that game and are maybe a little addicted, then at some point you might have some suggestions for improvements in the game. So you might leave comments and email the company that makes the game saying “hey you should try my ideas.” And the company might ignore you (or respond politely but not move fast enough for your liking). It might occur to you: “Look, I am the richest person in the world; how much could this game company possibly cost? I should just buy it and change the game however I want.” Even if your complaints are quite minor, why shouldn’t you get to play exactly the game you want? Even if you have no complaints, why not own the game you love, just to make sure it continues to be exactly what you want? The game is Twitter, the richest person in the world is Elon Musk.

I don’t think anyone in the media gets Elon Musk the way Matt Levine does.

The Case for Netflix to Add an Ad-Based Tier ★

Ben Thompson, last week on Stratechery:

Meanwhile, subscriber growth has stalled, even as the advertising market has proven to be much larger than even Google or Facebook can cover. Moreover, the post-ATT world is freeing up more money for the sort of top-of-funnel advertising that would probably be the norm on a Netflix advertising service. In short, the opportunity is there, the product is right, and the business need is pressing in a way it wasn’t previously.

Thompson and I talked about this on Dithering last week, and I think this is a fascinating question. The first thing to note is that the “Netflix should sell ads” take that Thompson espouses is about adding new lower-priced tiers that are subsidized through commercials — no one is arguing that Netflix should add ads to existing subscription tiers. Basically, what’s being suggested is the Hulu model: pay something to get access but with ads, or pay more to get access without any ads at all.

When you keep that point in mind, as a business case, it makes a lot of sense for Netflix to expand this way. My argument against Netflix doing this is about brand, though. Netflix has built an incredibly valuable brand, and part of that brand’s foundation is that Netflix is a premium service that doesn’t do rinky-dink shit like force you to watch unskippable ads. When you’re a Netflix customer, Netflix is always on your side. Unskippable ads are not on your side. Ergo Netflix should never create a lower-priced-with-ads subscription tier. Yes, they’d add more subscribers that way, and goose revenue growth for a few more years, but I think the revenue they’d gain would be outweighed, significantly, by the brand equity they’d lose in doing so. Netflix isn’t just like Hulu or Peacock or any of the also-ran services with ads. Netflix is fucking Netflix, the leading streaming service.

There’s no way to account for brand value on a balance sheet, but great CEOs know what it’s worth in their guts, and savvy investors should too.