Morning, it’s first thing Friday — I’m Simon Andrews and this is Fix . How's WFH working out for you?
This is a good chart from a surprisingly average FT article. I never saw the sense of FANG - Netflix seems unrelated to GAFA other than it’s digital and the stock price has done well. The logic behind GAFA for me was that here were 4 companies that - even in 2011 - were using Mobile to reshape their business and peoples’ lives - and compete with each other. As they were bossing the market, GAFA worked well. It’s no surprise that a subscriber driven content business will diverge from ad driven businesses when the ad market collapses.
The main content of the article is this quote from a Moffett Nathanson report ( can anyone share these with me?) ;
Although Alphabet and Facebook may seem like safe places to hide given their market dominance and strong balance sheets, we believe they are not immune from worsening ad trends, especially given their exposure to the long tail of SMBs. We believe Twitter and Snap are even more at risk from marketers consolidating budgets towards the core ad platforms and away from more experimental/fringe ad buys during this crisis.
Using recent survey data from the IAB, we are projecting ad growth to decelerate by a staggering -2,600 bps to -2,700 bps for Alphabet and Facebook over the next two quarters. This would be a faster and steeper drop than the -2,100 bps decline in digital ad growth during the 2008-09 financial crisis. We do not anticipate ad growth to get back on trend to normalised levels until 2Q 2021 when these platforms begin to lap the 2020 declines.
Importantly, we are not projecting a sharp catch up in ad spending in 2021 to make up for lost revenues in 2020. The 2020 budgets that have been gutted are gone and won’t miraculously return in the future. Accordingly, we are lowering our 2021 revenue estimates by -12.5 per cent for Facebook and -10 per cent for Alphabet. Given the high fixed-cost nature to their business models, we project even steeper 2021 EBITDA declines in the range of -20 per cent.
I do think that Google and Facebook are going to suffer like everyone else ( or maybe everyone except Amazon) but when the market comes back I think they will be as strong or even stronger.
With the demise of Cookies there is lots of action and investment around possible alternatives - this is a vendor point of view on Dynamic IDs and it’s interesting that Telcos are still looking for a place at the Adtech table.
The new Martech map - looking like an aerial view of Venice after the flooding - shows the real problem with this industry. Too many me too companies, created by a flood of VC money and a SAAS model driven by the adtech version of Trail Commissions. One probable outcome of our current crisis is smart brands taking the time to Mario Kondo their Adtech
newTV The Q1 results for Netflix are good - and with the crisis they will be one of the few winners - as the FANG chart above shows. But is this as good as it gets? As they acknowledged in the investor call, when the crisis ends viewing will fall and the market will be full of competitors. Right now they are buying up any content that's finished ( including studio movies) so protecting their depth. All the streaming services have loads of content in development but everything is on pause, so no one knows when this new content will come on stream. And is it any good? A long FT piece asks if we have missed the golden age of TV. One view is that it was 2015/16 and since then quantity has won out over quality.
There is also a question over the business model. For the last 70 years TV has been largely funded by advertising. This changed a little with cable providers (like Sky) and then with HBO and now Netflix. But the idea that a number of players can spend $billions on content and make it all back through subscriptions looks a little fragile, when most major economies are expecting record unemployment levels.
We’ll get into this more on Wednesday in our Fix/newTV newsletter but this twitter thread about Barry Diller is worth thinking about. Remember Diller was hugely successful in the TV business before building Internet companies like Expedia, Match, Tinder and more. It's framed around Quibi but applies generally to streaming.
On Quibi the jury is still out. Latest downloads are said to be 1.7m which isn't bad. The App has a 3.4 rating on the appstore - fairly evenly split between 5* from people who like the content and 1* from people who want to be able to watch on other devices and think it’s too pricy. But hearing one of their three marketing leads (?) is leaving doesn't sound positive.
This feels like a big deal and a clear opportunity for all Merchants to upload their product catalogue
We also covered the problems faced by Department Stores and this good Mary Portas article argues it’s the end for mediocre malls and that, whilst the quantity of retailers will fall, the quality will rise.
Sounds like our thinking on Brand Cathedrals. One of best enablers of this is the team at Appear Here; enabling Merchants to test retail concepts without long leases. This Shopify interview with their founder is a good read - especially about what's next;
Things change so much and keeping aware of culture is so important. It's why we are so interested in MSCHF - have you seen Boomer email yet? What about Mr Beast - gaining 60k new subscribers a day? This is a good break down of how he develops content.
VC Mark Andreessen wrote a call to arms for VCs IT'S TIME TO BUILD. It's a good piece that has been met with some cynicism. But this piece on another VC firm Kleiner Perkins shows how VC can work - a 2006 fund of $200m focused on pandemic preparedness funded a number of companies now at the forefront of the fight against CoronaVirus
Finally...this week would have seen our AdTech Perfect Storm event but obviously we postponed and refunded all the tickets - and started planning what's next. You can get a sense of what we missed with this Podcast with Richard Kramer who was scheduled to talk about the state of the market. Always really insightful and a good turn of phrase. We hope to have him involved in our next event - and he is a participant in our Guild too.
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