From: Blog Maverick - Mark Cuban
So Im on the Mavs latest roadtrip. Im walking through a mall with my Ipod cranking away. I had already decided that I wanted to pick up the soundtrack to KillBill to get the Woohoo song from the 5678s. Then i realized, I didnt have a way to deal with a CD.
My laptop I carry doesnt need a dvd or cd player because i carry everything important on an external hard drive that I just connect to my desktop or laptop. It has movies, tv shows and music, along with my business files and applications I need. Means i can travel very, very light, and if my laptop ever busts, i just connect my 160gb drive to a computer at the hotel and Im set.
So here I was, wanting to buy music to listen to and workout to that day , but I couldnt.
I realize that I could have gone to Itunes and just gotten that 1 song, but it doesnt sit right with me to be limited on how and where I can use music I download. I realize I could go online and download the song for free, but I wont do that. Thats stealing. Its wrong.
Thats not to say I wont ever download for free. If i had already owned the CD and just wanted it to play and it was a matter of availability, I definitely would have downloaded it for free. I will also download music to sample it, but I wont keep it. I will buy the CD or erase the song.
I still like to buy CDs. Or at least I did up until today. I liked the idea of taking a chance and seeing if there is more music I like. I liked having the disc, so i always have a copy , incase i have to clean up a hard drive to make room for more stuff, or to convert to a new file format.
Then it occured to me, that I havent used my CD Player, portable or at home in a long, long time. That I rarely, if ever saw anyone walking around with a portable CD player any more. They have all been replaced by MP3 players. If everyone is switching to MP3 players, whether they are Ipods, in phones, in PDAs, in cars, whatever, then that means that everyone is going to have to go through a multistep process in order to get the music from where or how they buy it, to the place they want it.
Thats not good for the people selling music. Particularly retail stores. Think about it. Apple has done such a great job of selling us on why we should store our musically digitally, that every one is either doing it, or on their way to doing it. Which means that 90 pct or more of music being sold is currently being sold on a physical format that the segment of the music buying public that spends the most amount of money on music doesnt want. THey are being sold CDs. They want to listen to their music from hard drives or flash drives. Thats a problem.
That got me thinking about how music is being sold, and how it might be sold in the future
MP3 players are changing peoples listening habits. We dont carry folders filled with CDs anymore. We carry our library in our MP3 players. We dont listen to CDs. We listen to playlists that we adjust all the time. We dont burn CDs anymore, its too time consuming. We copy all our music to our MP3 players so its all available at our fingertips.
All of our music in a single device. Available to us where ever we are, for whenever we want it. Music how we want it, when we want it. Easy and breezy. Thats how we want to consume music.
Thats not how we are being sold music.
To buy music these days, I have to make all kinds of choices.If i want to buy downloads from the net, its like trying to figure out which mortgate to take out on a house. Now because of the cost, but because of all the rules and regulations. Do I want to limit myself to 5 computers. Do i want to always keep my subscription live. Do I want to store the music in a proprietary format that only a couple devices can use. Those are all tough decisions to make when the only thing I know with certainty is that the device Im using as an MP3 player today, is NOT going to be the device Im going to be using 18 months from now. There will be players that have more features, or i will consolidate multiple products into a single device. I may be using my phone, my PSP or PDA or something other device for my music.
Which brings me back to CDs. At least until the music industry goes to DVD Audio or copy protected CDs, I know that with the CD, I have control over my music. I can make my own personal copies (which I realize was illegal to do, until the RIAA lawyer told the Supreme Court last week it was all Ok with the RIAA now). I can put them in apple format for my IPod, Sony format for my new digital walkman or PSP, MicroSoft format for my PC, or whatever else comes along.
Thats the only good reason to own a CD. To deal with the hassles that you know will come from having to deal with all the different formats that MP3 players will support in coming years.
Thats not a good sign for the music business or the current retail CD business.
It is a great opportunity for someone to start selling music to consumers, where they want it, how they want it.
There is absolutely no reason I shouldnt have been able to buy the song or CD i wanted from the FYE record store I was standing in side of , IPod in hand, ready to buy. If only I could just connect the thing and download the songs.
For less than 10k dollars, it would be EASY to put together a multi-terrabyte hard drive based multi-user system that pretty much holds every song ever published. A screen to enter credit card information, swipe a debit card, enter a member number or call for assistance to handle a cash transaction, a couple USB ports, and wireless connection support to transfer the music, and you are in business.
Loss leaders like Walmart and Best Buy can cut their music square footage by 90 pct and sell more music at lower prices. Their inventory carrying costs will go to zero. If someone wants the CD, they can go home and burn it after docking their MP3 player to their PC. Believe or not, the labels will make more money this way because they will make these big boys committ to minimum guarantees at levels they are at now, and all that money after the artist cut, will go to the bottomline.
EVerything about the economics makes absolutely perfect sense for the music labels, the retailer and the customer.
The only question is who will be the first label to crack and offer this and how soon will it be. Of course the cynics will say that this wont ever happen, but Im not buying it. Its too much cash up front for the labels to say no to. It also makes too much business sense.
When it happens, the music industry will EXPLODE and sales and profits will go through the roof.
Why ? Because stores can be smaller, physical inventories minimal to non existent, and an entire segment of middle infrastructure on both the label and retailer side for ordering, delivering, warehousing, duplicating, returning, and forecasting of product can be eliminated.
Most importantly. that money can be spent to develop, market and promote music so that more and more people can experience it, and also, just in case hell freezes over, be used to lower the price of music to consumers
Once that first label, or the first organized group of indies goes purely digital at retail, then the countdown for the extinction of the CD begins. T-minus 5 years from that first day, and your CDs will be sitting right next to the LPs your dad and mom collected when they were kids.
Until then, if im a band selling on my own, im carrying a laptop to every show , and charging 5 bucks to drop a show on an IPod. Call it concertpodding.
If Im an indie record store, Im making sure that all music from the labels you support is available for direct to player. Im offering every song as Ipod or MP3 player ready to anyone who walks in the door with their Ipod and wants to leave listening to the music.
Its money in the bank
m
April 07, 2005 | Permalink | Comments (0)
I wish I was able to read the Annual Letters of Buffett Partnership, Limited, 1957 – 1970. I have read all his letters from BRK and I find them so insightful.
Link: The Buffett Letters.
I landed in Paris today to visit Amy for a week (she’s spending six weeks over here to immerse herself in French). I usually get the sleep thing right on international flights – I screwed up this time because I was tired and crashed on the leg from Denver to Cincinnati. So – I had a nice seven hour flight to listen to music on my Bose QuietComfort 2 Headphones and read.
After my post on Warren Buffett’s Annual Shareholder Letter, one of my blog readers sent me the “Annual Letters of Buffett Partnership, Limited, 1957 – 1970.” Unfortunately (again – maybe it’s Paris) I forgot who sent this to me. I apologize – my mother taught me to always say thank you and acknowledge others. At 39, I have to write certain things down to remember them and – since I’m on a continual holy mission to
April 02, 2005 | Permalink | Comments (0)
From: Kudlow's Money Politic$
I received a fax from a fellow in Wisconsin who did the homework the White House and Republicans should be doing on Social Security reform. He did a side-by-side comparison . . . the benefit under the plan now in existence, compared to the benefit under the Ryan-Sununu proposal.
My Wisconsin friend's scenario assumes a salary of $48,000 and a retirement age of 68. It also assumes interest on personal accounts at 6 percent, which he says is the worst performance to date of any 25 year period on Wall Street.
Under current law, an 18 year old without a personal account would accumulate a retirement benefit of $101,000, amounting to $843 per month. Under Ryan-Sununu, with a personal account, that 18 year old would accumulate $939,000, or $5117 per month. In addition, the personal account can be inherited by family members.
This is what people should understand about personal accounts. And this is what proponents of Social Security reform should be making crystal clear.
Thank you to Robert A. Bartfeld, PhD.
March 31, 2005 | Permalink | Comments (0)
From: A VC in NYC
Ed Sim has a really good post on what to do when your competitor is acquired. If you run a company and are facing this issue, you really should go read Ed's post.
But I have some shorter and simpler advice.
Stand Up and Cheer. Loudly.
Because the vicious competitor you've been facing off with in the market will be no more. They'll be subsumed into some corporate culture. Their driven entrepreneurial leadership will be counting the days until they are free to leave to start another company and thinking about how to intelligently invest the millions they just made. And the best employees will have their resumes on the street, possibly for you to hire. And their customers will be looking around to see if they should be moving on too.
Trust me on this one. I've seen this movie about fifty times. It almost always ends happily.
March 31, 2005 | Permalink | Comments (0)
March 31, 2005 | Permalink | Comments (0)
From: A VC in NYC
There is this concept of "we companies" and "they companies". I don't know where it comes from. If you do, I'd love to know.
Anyway, "We" companies are built by and for a community of users. Everything (including profits) flows from this core value of serving the users. We companies and their profitability are incredibly sustainable.
"They" companies are traditional companies that seek to optimize profitability at the expense of everything else. These businsses are not sustainable and they tend to overreach and ultimately end up in a long and steady decline.
Microsoft is the poster child for a "they" company.
Craigs List is the poster child for a "we" company.
Apple used to be a "we" company. I love Apple as I've blogged about many times. I still do. But Apple is not a "we" company any more.
Apple survived the WinTel dominance in the PC business by becoming a "we" company. It focused on its base of devoted users and gave them better and better products. It created a community of users who are incredibly passionate about the company's products. It became the anti-Microsoft. And it has benefited greatly from that market position in recent years.
But in the past couple months, Apple has made some very "they" company decisions. Here are a couple notable ones.
- Apple is suing bloggers who are "outing" the confidential product plans and release dates for new Apple products. Clearly Apple has the legal right to go after these bloggers who are getting their information from sources inside the company who have almost certainly violated confidentiality agreements. But this makes no sense to me. Apple's most passionate users have always engaged in speculation about new products. It's part of the culture of the Apple user base. It's been going on for years. To crack down on it now, and particularly on bloggers who are part of its community, is a really bad idea. They'll win the battle and lose the war with this one.
- Apple is trying to charge iPod accesory manufacturers a 10% tax in exchange for a "Made for iPod" logo on their product. Probably the coolest thing about iPod is that it's become a platform, a standard, around which a whole industry is blooming. Instead of letting that entrepreneurial energy flow back to iPod, Apple wants cash. My gut tells me its a bad business strategy because it will cause the makers of these accesories to desire to work with Apple's competitors in an attempt to reduce the amount of market dominance that Apple has in the portable music player market. And its a very "they" company move on top of that.
Its an incredible temptation when you are managing a company that's hitting on all cylinders to overreach, to push for more, more, more. But its the wrong temptation. Unfortunately, Apple is making that mistake. There's time to recognize it and change. But somehow, I doubt they will.
March 31, 2005 | Permalink | Comments (0)
From: Blog Maverick - Mark Cuban
I’ve decided to start a new hedge fund. However, this hedge fund won’t invest in stocks or bonds, or any type of business. It’s going to be a fund that only places bets. A gambling hedge fund.
It won’t be me figuring out what bets to place, or what games to play. This is a fund. I will find the best and the brightest, with a confirmable track record and hire them.
It’s an idea whose time has come.
I have bet on stocks long and short for about 15 years now. I’ve done very well. There has already been one hedge fund started based on my trading results. In those 15 years, I have learned that despite all the claims and books written about efficient markets, the trading of individual stocks are not efficient. There are always people trading on better or worse information. There are always people trading on emotion rather than logic. There are always people trading on hopes of the big hit. What Peter Lynch would call the “10 Bagger”. They were gambling. Nothing more. Nothing less.
It’s not unusual to hear people refer to trading stocks as no different than going to Vegas. They are right. Gambling is gambling.
The question really is, which gives the opportunity for a better outcome?
If you play the slots in vegas, you can read what the payout ratios are for each casino. 97 pct. 98 pct. If you play long enough, the casino will end up with 2 or 3 pct of your money. Unless of course you go up to the winning side while you play, and quit while your ahead.
The stockmarket equivalent would be to buy an At The Money Long Term (LEAP) Put for 2 or 3 pct of the stock price. The put would protect your downside for several years, and the stock would only have breakeven or upside potential over that period. It’s a nice thing, except that it’s much, much, much more expensive than 3 pct. As a point of reference, IBM which is trading at about 94 today, has a price of $5.90 for Jan 2006 95 puts. It’s $7.90 for Jan 2007 puts. Just to protect yourself on the downside for less than 2 months, till the 3rd week of Jan 05, will cost you $2.40, or about the same percentage as the hold the house puts on you in playing slots in Vegas.
Of course tha’ts for slots. If you play blackjack. The odds are better and every now and then in your favor. If you play poker, you are playing against the other players, and the house only takes its commission. Just like your broker takes its commission.
Unlike the stockmarket, you know the rules exactly. You know without question, the house is going to play by the rules. The gaming commission appears to actually enforce rules of play, unlike the SEC.
And then there are sports bets. Like any other investment or bet, the question always come down to whether there is good information available, who knows how to use it better, and who is the competition and are they smart or not.
Honestly, I don’t know if the best and brightest go to Wall Street or Vegas. I don’t know the number of gamblers via sports books in vegas vs the the number of gamblers, I mean investors, in the stockmarket.
I do know this. Most casual gamblers, who are the majority of the money spent, go to vegas expecting to lose money. It’s part of the entertainment experience. People put money in mutual funds and in their brokerage accounts and pick stocks expecting to make money. They don’t find any value in losing money on a stock, fund or other traditional investment. That changes the opportunity completely.
How efficient can a market be when the majority of investor expect to lose money? The sportsbooks know this. They know the difference between smart and stupid money.
They set odds in order to attract as much emotional, stupid money as it possibly can. It also knows that this emotional money will skew the odds and bring in the “smart money”. As a result, they have learned to lay off their investments so that they are just taking their cut off the dollars invested rather than trying to outsmart the smart.To me, this suggests the smart money is better than just good. It’s very good.
Which raises the question of “How did the smart money get smart ”, and do they get better returns on their bets than investors can buying the S&P500? Can it significantly outperform the S&P as this new fund would be expected to do?
The smart money doesn’t brag about their results, but in the minimal reading and conversations I have had, it’s the same people coming back over and over again. The smart money people are doing something right on a repetitive basis.
When you think about betting on sports, there really is far better information about your local sports team than there is about any local business in your market. The local papers cover the team every day. The local TV station gives a report about every game. There are radio stations who cover them for hours at a time. That’s far more information than you get about Tyco or Computer Associates or NFI.
In sports, when someone does something wrong, they pretty much tell you the next day or two. Someone suspended — You know it. Someone hurt — They report it, and do a better job of policing that than any industry watchgroup.
And stats? my goodness. There is no comparison. You can tape everything and create your own stats, which I’m sure every “smart money” gambler does. There are public play-by-plays of every game. There are websites that analyze every which way from sunday every action and inaction of every player in the game.
There also is no such thing as insider information either. Player and team reps can’t talk to known gamblers, but do they really need to?
Reporters are there after every practice to interview the players and coaches. They ask the same questions that every gambler wants to know, if only so they know who to pick for their fantasy teams. They also get to see and report on who is there and who isn’t and who is limping and who isn’t.
That’s far better than we get from public companies. Not only can they not disclose material information on a daily basis, they try their very best to hide their actual performance when they are required to supposedly disclose all information.
Public companies play so many games with their numbers it’s ridiculous. Should they expense options or not? Per forma vs GAAP? One time write offs? Buying company after company? Writing down inventories then reselling them?
My favorite is beating the estimates by a penny quarter after quarter. Could you imagine a team that beat its competition by 1 point every game? Business, like sports, is not that predictable.
That’s not to say that the information is so good that this is a slamdunk investment. Sales don’t get closed, product cycles get pushed back, drugs don’t work as expected and players drop passes, miss shots and get hurt.
The argument can be made that this is much riskier than a bond, where unless the company goes out of business, you get paid the interest rate. Pick a strong company or the government and you are relatively safe. All true. That’s why i love bonds .
You could also make the argument that when you buy a stock, you own part of a company. Legally it’s true. In practice it’s not. For non-dividend paying companies, you have nothing but a piece of paper. The only hope you have if that company starts to decline is to find someone who will buy it from you.
A sports or blackjack or poker bet doesn’t have value beyond that game or hand. In that respect it’s just like the hundreds of millions, if not billions ,of options that are traded, but never converted, on stocks, commodities and other assets around the world every day.
Just what hedge funds do on a daily basis, and just what I plan on doing.
March 31, 2005 | Permalink | Comments (0)
