Disenfranchised
Ben Thompson on the ongoing turbulence at Netflix:
What I found concerning on this call were three things. First, there was the fact that management didn't even try and dispute the engagement questions. Second, Netflix's advertising growth fell short of its goal... at the end of the day, advertising is a function of engagement, far more than subscriptions... Third was Netflix's plan to improve...Netflix's plan is, in so many words, to do better.
Thompson returns to Warren Buffett's 1991 shareholder letter and the distinction between a business and an economic franchise:
An economic franchise arises from a product or service that: (1) is needed or desired; (2) is thought by its customers to have no close substitute and; (3) is not subject to price regulation... Moreover, franchises can tolerate mis-management. Inept managers may diminish a franchise's profitability, but they cannot inflict mortal damage....a business, unlike a franchise, can be killed by poor management.
"No close substitute" is the interesting part. Especially alongside Stratechery's other announcement: it is now presented by Stripe.
Thompson calls it a business. Buffett wouldn't.
There is plenty of technology analysis. But readers come for Thompson's judgement, and judgement isn't interchangeable. Stripe is paying for an introduction through the trust he's earned.
That's the sovereign creator's power. Own the work, own the relationship, and have enough demand to set the terms. Subscriptions and sponsorship are just two ways of getting paid for the same trust.
Thompson says he could call for the firing of Stripe CEO Patrick Collison and still get paid. Acquired says it turns down 95% of inbound sponsors. That's bargaining power you can see.
The prices give it scale. Thompson's speaking fees range from $400K to $1M. Daring Fireball's published rate is $12K a week, about $0.6M a year if every week sells. Acquired is asking $5.6M to present its four-episode spring 2029 season, and $4.1M for mid-roll.
The franchise is the relationship.
Buffett saw where it was leaking in 1991:
Unfortunately, demand can't expand in response to this new supply: 500 million American eyeballs and a 24-hour day are all that's available. The result is that competition has intensified, markets have fragmented, and the media industry has lost some — though far from all — of its franchise strength.
That strength didn't disappear. It moved to the sovereign creators readers can't substitute.
Netflix's plan is to do better.
Ben Thompson's is to keep being Ben Thompson.