One Step Up #49
This week, we look at F1 & their strategy in the USA, the idea of buying shares in your favourite musician, the secondhand opp. in hard luxury, Tencent, The Impact of Intangibles on Base Rates + more
One big idea this week: Growth Without Goals
Success is about building a set of daily practices, it is about growth without goals. Continuous, habitual practice(s) trumps achievement-based success.
I think “accomplishments” are traps. Accomplishments, by their very definition, exist only in the past or future—which are not even real things. Pride is the worst of the seven sins and it is closely related to past and future accomplishments.
Exploration is continuous, there is no end point. Focusing on exploration is very rewarding all the time. It may produce things that look like end points, like achievements, but those things are just by-products.
Discover essence in your surroundings and in yourself, free from external conditioning (stories) and expectations. Build from the inside out and bottom up. Great habits and practices make a great and successful life. Cultivate those and the rest will take care of itself.
Formula One & America: On Brands, Ads & Netflix
Read this to understand the impact a TV series (or movie) can have on a sport (or in the case of Top Gun, the Navy).
From the start of the new administration (Malone’s acquisition), media penetration was at the center of the strategy. The deal was meant to position F1 as more of a content company than a racing body. It worked. In March of 2018, just two years after Malone’s acquisition, the Netflix agreement was announced for 2019. The season would be 10 episodes culminating in the coverage of the 2018 FIA World Championship.
Fast forward and Netflix’s impact has been palpable. McLaren Racing CEO Zak Brown cited its “huge” impact. He went on to say, “It’s got to be the single most important impact in North America.” “Almost every comment you get out of someone out of the US, they reference Drive to Survive.”
Name a better marketing platform than a land rocket zooming past at 160 miles per hour, with one of the world’s 25 best drivers calmly narrating as he tests his wits.
Would You Buy Shares in Your Favorite Musician?
…artists have been selling ownership stakes in their works for ages, and many of these deals represent almost total subservience to the highest bidder. It’s worth recalling that Haydn was forced to sign away all intellectual property rights for every composition to his patron.
A band could sell shares in its music, with potential for spinning off ownership of individual musicians as separate tokens in the case of a breakup. One day you own shares in the Beatles, and after the band dissolves, you still control those tokens, but now receive (in a tax-free spinoff) rights to John, Paul, George and Ringo.
Artists could do mergers. So Beyoncé and Jay Z decide one day to issue a combined token. They both enjoy some diversification benefits, and help cement their relationship at the same time.
Artists would be free to issue new shares, provided the cash or benefits received are shared equably among current owners. The end result would be like different stages in venture capital financing. I can already imagine the conversations on Sand Hill Road: “Hey, our firm got into Olivia Rodrigo in the first round, for ten cents a token—and we’re now issuing new tokens at two bucks.”
When artists run into career problems, they could turn to their powerful billionaire owners for help in resolving them. Consider it as the digital age equivalent of Johnny Fontaine in The Godfather, who gets Don Corleone to make an “offer that can’t be refused” to a stubborn movie mogul. In fact, the whole relationship between Frank Sinatra and the Mafia might be considered as a prototype for the artist tokenization business.
Fans would have endless opportunities for demonstrating their loyalty. In the old days, they could buy every album by a favored artist, but in a tokenized world the bar is raised considerably. Even accumulating, say, a 1% stake in second-tier musician might take years of scrimping and saving.
Artists would face the complex financial trade-offs all corporations need to address. Do they give away earnings as dividends to token holders, or invest the money in future projects? The older the musician, the greater the pressure to distribute the profits.
The Secondhand Opportunity in Hard Luxury
The financial uncertainty prompted by the crisis is spurring more buyers across all age groups to consider second-hand hard luxury as a promising investment vehicle. Prices are more attractive for second-hand products (with no immediate drop in value as occurs following the purchase of new items). In addition, a more robust secondhand market boosts liquidity for these types of investments.
These new channels (social media and digitization) make heritage storytelling more relevant in shaping a brand’s identity. And brands and retailers increasingly rely on social media to promote luxury experiences and events as well as geographically specific product offerings.
70% of luxury consumers said they would like to purchase secondhand products directly from luxury brands (think Lamborghini - who partnered with authorized dealers to certify and sell preowned cars, increasing the resale value of their cars while recruiting new customers with a relatively small investment and low risk for the brand). And a slightly higher percentage, 74%, indicated they would like brands to certify secondhand products that are sold through resellers. These consumers have clear expectations regarding the security, convenience, and service of a purchase, offering a promising opportunity for forward-looking companies.
Monopolies with Growth: Tencent
If there was ever a company who you can truly say is a proxy for global consumer internet - this would be it.
The Impact of Intangibles on Base Rates
One of the keys to using base rates effectively is finding an appropriate reference class. In many instances, the distribution of outcomes is straightforward. In these cases, the outcomes don’t fall too far from the average, and outliers are rare. Measures of corporate results, such as sales growth rates, generally fit into this camp. Base rates are very effective for assessing outcomes that follow, or resemble, a bell-shaped distribution.
In other instances, the distribution of outcomes has a variance that is large, the concept of an average is meaningless, and outliers skew the results. For example, most books, songs, and movies have very modest sales while only a handful are blockbusters. Base rates are more difficult to apply, but knowledge of the distribution itself is very useful. In our experience, underutilization of base rates is a bigger problem than overutilization of them.
Podcast of the week: Ho Nam from Altos Ventures — A Different Approach to VC
Interview of the week: Inner Game with Steven Cohen
Till next time.