Recent News: Blockbuster to be delisted from the NYSE

Jared’s thoughts on competition in the movie rental industry:

Now that Blockbuster is essentially out of the picture, there are just two major competitors in the rental movie industry: Netflix and Redbox.  They each have very unique, but related business models.  They both want to keep customers coming back to use their movie rental service because repeat customers are cheaper than obtaining new customers.  Netflix prides itself in its recommendation system in keeping customers happy; it recommends movies based off of algorithms and user ratings.  Last year Netflix awarded $1 million for improved the recommendation algorithms and even posted the research online: http://www.netflixprize.com//community/viewtopic.php?id=1537

What I really want to see Redbox do is better compete with Netflix.  I want to see Redbox use the Netflix algorithms and recommend movies to consumers when they go to a kiosk.  Redbox doesn’t even need to have consumers create user accounts to receive recommendations, they can use consumer’s credit card as a unique key for each user and note what movies a user rented.   When a user returns a movie, have them rate it (1-5 stars seems to work for Netflix) before they insert the movie into they kiosk and then add that rating to their account. Each movie has a unique bar code on it so it can be easily be identified what user rented what movie and what their rating was.   It would be less burdensome than Netflix because you do not have to wait for DVDs to come in the mail and you don’t have to maintain your own user account its all automated.

Other suggestions for Redbox:

1. Create monthly subscriptions.  Redbox has significantly less costs than Netflix because most of their system is automated in the kiosk and there is no shipping costs.  I think its safe to assume that overhead is less for Redbox so it would be very profitable to have unlimited movie subscriptions, but only allow them to rent one movie at a time.

2. Build a streaming service.  Redbox can charge either per movie or include streaming with their monthly subscription.  This gets slightly out of Redbox’s comfort zone because their core competency is not in streaming , but one of Redbox’s core competency is dealing with movie rights owners to get distribution deals.  In my opinion, once you clear that hurdle, everything else is smooth sailing.

Haven’t wrote about economic observations lately so here are some:

China has been in the news lately because of two related topics. They are slowly allowing their currency to appreciate and their workers are beginning to demand higher wages. With these two events gradually occurring, China is becoming less and less of a developing country; it is projected to be one of the world’s largest consumption country. Of course this all makes sense because major American companies are already trying to get a foot in with the Chinese (e.g. Apple).

That being said, in the next 20 years, China’s economic comparative advantage is no longer going to be cheap labor. With an appreciating currency and rising labor prices, the developed world is going to have to look for other sources of cheaper labor. My prediction for where everybody is going to find cheap labor is Africa. Most of Africa is considered the third world so labor prices are even cheaper prices there, than in China. Both parties would benefit; Africa is in desperate need of 21st century infrastructure (their bandwidth capacity was just doubled) and Global companies would be able to reduce their costs.

I do acknowledge that there are unforeseen costs in doing business in Africa, such as the added cost of the instability, but I do believe that the benefits will outweigh the costs. Investment in Africa should only theoretically increase stability and allow the continent to be developed if done the right way.

Thought of this post back during football season.  Now that there is big news in college football with USC and epansions, I figured that I’d finally write the post.

The NCAA’s major principal is Amateurism; nobody should make money off of college sports.  The NCAA enforces this to their best ability, often giving pretty extreme penalties.

The policy of amateurism states something to that extent that nobody should profit from the likeness of a player.  This includes being sponsored and/or receiving benefits from coaches during recruiting.

Semi-recently some former players sued the NCAA for profitting from video games.  Their arguement was that the players in the games have the same numbers, simliar hometown, similizar dimensions etc, so the NCAA was benefitting from the likeness of these players, which in my opinion goes against the NCAA’s policy of amatuerism.  I’m not sure what the outcome of the law suit was, but this concept can also be applied to apparel.

All of the sports apparel stores sell Longhorn Apparell, including the UT COOP, another non-profit.  These stores profit off of the likeness of the players because the players are by nature associated with the number on their jerseys.  Colt McCoy was 12 and Vince Young was 10; everybody will always remember that and when they go to the store, they buy those jerseys.  They players never see a dime.

The COOP even sells autographed, game-used memorabilia.  This can’t comply with NCAA rules!  I’m sure these were signed after the athletes graduated college, but they are still profiting from their likeness as a Longhorn, when there were amateurs.

The COOP is supposed to be a non-profit, but they make a significant amount of money from the likeness of players, who never see a dime from it.  One non-profit, breaking the principals of another non-profits, smells funny to me.  Either way, they should either pay the players for their likeness in video games and apparel or stop the practice entirely.

But why would the NCAA do that?  College sports are a cash cow as evidenced by the current realignments in conferences.  It is all about winning and making money; the more visible your winning team is, the more money  for television broadcast rights and the more money alumni donate. It’s rather unfortunate that it is all about the money, because at the end of the day it is just a game.

Busy with school work and other stuff but here’s a quickie:

I am not one to watch much television or even streaming television online, but I noticed that there are rumors going around that Hulu is going to start charging for content.  This is a stupid idea because there are other options that exist for Hulu.

They have the technical capability to make it so that you have to sit through videos and can’t fast forward through it, but they only show a few short commercials or one semi-long one.

Why don’t they actually just show more commercials and make consumers sit through them?  The primary reason why consumers go online to watch television shows is time-shifting, not saving time/avoiding commercials.  Its a convenience!  Hulu should take advantage of this and tax consumers with more commercials.  ”If you want to watch our shows at your convenience then you can get slammed with a tax.”

Obviously, don’t add more commercials to exceed the length of the show as if it was watched on-air.  If it is a 30 minute show on-air, make it a 30 minute show online.

There is always the economics argument against this that if the supply of ads increases, then prices will drop.   If Hulu used targeted advertising, as I suggested the newspaper industry do in this post, they will be able to charge a premium for advertising.

Obviously, Hulu can also create a premium account with no advertising, but not having a free model is like a death sentence; illegal video websites will win out over a pay only model.