255: Netflix Crackdown, Altimeter's Brad Gerstner, Amazon + MGM, Everbridge, Planes in Russia, MSCI China Index, Cyber-Warfare, RISC-V, and Carl Icahn
"it sucks oxygen away from competitors"
In the middle, it feels slow.
In hindsight, it feels fast.
–James Clear
🦖🦕 I realized I didn’t know why the large species of dinosaurs were so much bigger than most species living today. Had to look it up to know what to tell my kids when they ask, here are various theories if you’re also curious.
⚙️🔩⚙️🔧 Devon Zuegel writes:
The older I get and the more systems I see up close, the more I'm amazed that anything works at all
I thought the first "system" I was part of was just uniquely dysfunctional but as I've participated in more systems throughout my life, the more I realize they're all dysfunctional in their own special way 💕
This is how I feel the more I learn about biology… But the insight applies to all kinds of systems, big and small, natural and human-made.
🏆 As a follow-up to my hug the bearer of bad news anecdote in the intro of edition #254, reader Chetan Rastogi shared something I really love:
We have a saying in hindi penned by a 16th century saint: "Nindak nihare rakhiye, aangan kuti chhaway; Bin pani bin sabun, nirmal kare subhav."
Translation - Keep your critic close, house them and feed them. For they will often clean the clutter in your thinking without soap and water.
💚 🥃 Did you know that “you get what you pay for” goes both ways?
You enjoy *more* what you pay for. It’s a well-known effect…
…which means that when you become a paid supporter, you’ll enjoy this newsletter more!
I’m not the one saying it, it’s science 🔬👩🔬🧪 ¯\_(ツ)_/¯
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Investing & Business
📺 Netflix Begins Test to Crack Down on Password Sharing
Earlier this week, some Netflix subscribers began to notice that it might be a bit harder to “borrow” someone’s password.
In the prompt, customers are told that “If you don’t live with the owner of this account, you need your own account to keep watching.” In order to continue, they need to verify the account with a E-mail or Text Code, or create a new account with a 30-Day Free Trial.
We’ve heard the test right now is only on TV devices.
Using 2-factor authentication to greatly increase friction for the barnacles…
As I wrote in edition #110:
Bazinet said that password sharing costs U.S. streaming companies $25 billion annually in lost revenue, and Netflix owns about 25% of that loss. [...]
Netflix began earlier this month testing a new crackdown, in which it is forcing users of its service outside the account holders IP address to use third-party authentication.
I haven’t seen the napkin used to do the math on this, but it sounds plausible (though I’m not sure why only 25% for Netflix, that seems low..?).
It’s not all downside. As I wrote in edition #108 on the topic of Autodesk’s software piracy:
it sucks oxygen away from competitors. It’s harder for them to sell their product when they’re competing with both the paid and a free pirated version of the dominant OS/app.
That oxygen-sucking one is prob similar to how Netflix thinks about password-sharing. They may not be paying us, but at least they are watching us instead of a competitor, and forming the habit, which increases the chances that they’ll pay later (either because they get tired of being on someone else’s account or because Netflix tightens the screws on the practice).
But there’s a time to sow, and there’s a time to reap… and maybe the reaping is starting 🌾
Interview: Brad Gerstner, Altimeter 🔥
Great interview by friends-of-the-show Ben and David (💚 🥃) of the *excellent* Acquired podcast:
We sit down with founder & CEO Brad Gerstner to dive into the story behind Altimeter’s meteoric rise. [...] a tiny $3m fund in Boston named Altimeter Capital set out simply to invest in a concentrated portfolio of America’s very best technology companies, regardless if they were public or private. Today that tiny firm has grown to nearly $15B under management and become a premier “capital partner” to founders at all but the very earliest stages — companies like Snowflake, Facebook, Roblox, Plaid, Grab and Acquired fan-favorite Modern Treasury.
Not only is his career fascinating, being both a serial founder and an investor, but I also really like his idea of giving every child born (he’s talking about the US, but why not Canada or elsewhere?) a seeded investment account so that they have more ownership in their society’s economic output and have a built-in incentive to learn about saving and wealth-building.
That, plus just a few thousand of dollars at birth can compound to a significant sum by retirement, so it’s a relatively cheap way to create another layer of safety net.
1/ Every child should share in the upside of America. We will be proposing to the Biden-Harris team a Robinhood like mobile savings / investment acct for every child born in America - seeded with $2000 - invested broadly on their behalf in our equity mkts.
2/ A one way acct - you can add but can't subtract until retirement. You own it. Your account on your phone. You watch it grow. Research is overwhelming - those who have savings tend to save and invest more - with positive benefits to mental health and well being.
3/ A national savings / investment program will dramatically level the playing field. It will educate, excite and inspire those who would never have access to the stock market. And @ $2000 per child would cost only $8 B per year - a tiny investment with massive returns...
🎥 🎬 Amazon closes $8.5bn MGM acquisition 🎞 🍿
Looks like Prime Video is about to get a crapload more content (though how fast will depend on existing licensing deals)…
Amazon and MGM announced that MGM has joined Prime Video and Amazon Studios. The storied, nearly century-old studio—with more than 4,000 film titles, 17,000 TV episodes (Source)
📨 Ancora goes activist on Everbridge 🗡
Not too surprisingly after the SNAFUs of recent times, a fund went activist on EVBG. I knew things had gone off the rails, but I had no idea things were that bad at the company:
We believe this underperformance is the result of ineffective leadership and a shocking amount of turnover among senior executives. When reviewing the list of leaders presenting at the Company’s 2018 Analyst Day, a surprising six of 13 employees are no longer with the management team only a few years later. When evaluating the named executive officers identified in the Company’s 2018 proxy statement, more than 80% of these officers have left the management team. This does not account for the departure of the most recent Chief Executive Officer, David Meredith, after only a few short years at the Company.
Very tiny inside ownership too (and large sales, rather than buying as the price went down):
As of the Company’s most recent proxy statement, the Company’s officers and directors collectively own less than 1% of the Company’s shares. This is a shockingly low level of alignment with shareholders and ranks among the lowest insider ownership percentages of the Company’s own proxy peers.
Spitting some 🔥 at the former CEO and now chairman:
We believe this glaring lack of accountability to shareholders is further illustrated by the questionable actions of Chairman Jaime Ellertson. After successfully dumping more than 95% of his initial stake in the Company at the time of the Company’s IPO, Mr. Ellertson has subsequently established a venture capital firm called Akmazo Capital. Despite his duty to shareholders as Chairman of Everbridge, Mr. Ellertson appears to have siphoned away top talent of Everbridge, such as former Chief Technology Officer Imad Mouline and former SVP of Engineering Yuan Cheng, both of whom now work for Akmazo Capital. This strikes us as a glaring conflict of interest and potentially a breach of fiduciary duty to the shareholders of Everbridge.
You can read the whole letter here.
✈️ 500+ leased Western planes worth $10bn stuck in Russia ✈️✈️✈️✈️✈️✈️✈️✈️✈️✈️✈️✈️✈️✈️✈️✈️✈️✈️✈️
Foreign aircraft lessors seeking to recover some $10 billion worth of planes from Russia were dealt a new blow Monday when President Vladimir Putin signed a law clearing the country’s airlines to fly the planes domestically.
This law is basically a way to de facto seize and nationalize the planes, if I’m understanding things correctly.
According to Cirium's data, of the 861 passenger and cargo aircraft currently in service in Russia, 332 of them were manufactured by Boeing, and 304 were made by Airbus. Dozens of the rest are from Bombardier and other western manufacturers, while only 136 are Russian-made Sukhoi planes (Sukhoi merged with MiG last year to create a joint airplane manufacturing venture called UAC).
Boeing, Airbus and other western companies that manufacture planes and aircraft components, such as engine makers GE and Pratt and Whitney, have suspended supplying spare parts and no longer provide maintenance and technical support services, and that could soon make it difficult for Russian airlines to keep their airplanes flying.
"There's been talk again of what they call cannibalizing other aircraft to support the flying active ones," said Eddy Pieniazek, head of advisory for the London-based aviation analytics firm Ishka. "They might start robbing parts of some aircraft, maybe the leased aircraft, to keep their own aircraft flying."
Good luck getting parts and software for the planes longer term, and ever convincing anyone to lease airplanes in Russia until Putin is out and Russia becomes a more lawful country…
I guess the trans-Siberian railway’s passenger business is going to boom 🚂
🇨🇳 MSCI China Index total return 1992-2022 📉📈📉
There’s been a big rebound since this tweet, but it’s still a striking 30-year chart:
Science & Technology
👾 Cyber-Warfare 👾
When they picture cyber-warfare, I think most people picture states trying to hack each other and defend against the same.
It turns out that there’s also a bunch of large, decentralized, self-organizing, non-state players lurking around and ready to take arms if they decide to declare “war” on someone or support a cause.
In this case, it looks like ‘Anonymous’ has been going after Putin’s Russia:
[Anonymous] has claimed responsibility for disabling prominent Russian government, news and corporate websites and leaking data from entities such as Roskomnadzor, the federal agency responsible for censoring Russian media.
But is any of that true?It appears it is, says Jeremiah Fowler, a co-founder of the cybersecurity company Security Discovery, who worked with researchers at the web company Website Planet to attempt to verify the group’s claims. [...]
Of 100 Russian databases that were analyzed, 92 had been compromised, said Fowler.
They belonged to retailers, Russian internet providers and intergovernmental websites, including the Commonwealth of Independent States, or CIS, an organization made up of Russia and other former Soviet nations that was created in 1991 following the fall of the Soviet Union.
Many CIS files were erased, hundreds of folders were renamed to “putin_stop_this_war” and email addresses and administrative credentials were exposed [...]
The Twitter account, named @YourAnonNews, has also claimed to have hacked into Russian state TV stations. [...]
Fowler said he didn’t find any instances where Anonymous had overstated its claims.
In related news, Ukraine has raised a volunteer global IT army on Telegram that is about 300,000 strong:
about 300,000 people who have signed up to a group on the chat app Telegram called “IT Army of Ukraine”, through which participants are assigned tasks designed to take the fight to Vladimir Putin. [...]
The sprawling hacker army has been successful in disrupting Russian web services, according to NetBlocks, a company that monitors global internet connectivity. It says the availability of the websites of the Kremlin and the Duma – Russia’s lower house of parliament – has been “intermittent” since the invasion started. The sites for state-owned media services, several banks and the energy giant Gazprom have also been targeted.
Makes me think of a really bad dad joke I came up with recently (it may already exist):
Q: What’s the favorite Stephen King book of computer geeks?
A: IT 🤡⚡️ Ukraine connected to European power grid 🔌
How is that even possible?
Engineers have linked Ukraine to an electricity grid spanning much of continental Europe, allowing the country to decouple its power system from hostile Russia, officials said Wednesday.
Belgium-based ENTSO-E, which represents dozens of transmission system operators in Europe, said the electricity grids of Ukraine and its smaller neighbor Moldova were successfully synchronized with the Continental European Power System on a trial basis.
Around here, the power goes out when there’s heavy winds and branches fall on electrical lines, or some squirrel goes where it isn’t supposed to, or there’s too much freezing rain…
How is power even still on at all in Ukraine with so much destruction? How could they do major surgery on the whole grid while keeping the grid in balance during a war? So many questions…
Grid operators had been preparing such a move after Russia's annexation of Crimea in 2014, but the large-scale Russian military assault on Ukraine last month prompted an emergency request by Kyiv to speed up a process that was expected to take years more to complete. [...]
[Ukraine was] previously part of the Integrated Power System that also includes Russia and Belarus. This made Ukraine dependent on Russia's grid operator despite there having been no electricity trade between the two countries for years. (Source)
I guess this is part of it. It was already underway. But still! Ukrainian grid operators and technicians are doing a heroic job 🎖
RISC-V chip designer SiFive raised $175m at $2.5bn valuation
Coatue Management led the round [...]
SiFive has more than 300 design wins with more than 100 customers including eight of the top 10 semiconductor companies, in applications ranging from automotive, client computing, data center, and hyper-scale servers. SiFive designed RISC-V-based chips that are built by other companies. [...]
To date, the company has raised over $350 million (Source)
I’m happy for their success.
It’s a cliché but it’s true: Competition is good, users get better products, and competitors are forced to up their game and innovate more.
The Arts & History
‘Icahn: The Restless Billionaire’ (HBO Documentary)
Have you seen ‘Inside Bill’s Brain’ (2019), the Bill Gates documentary? Or ‘Becoming Warren Buffett’ (2017)?
‘Icahn’ is kind of like that, but for Carl Icahn.
It goes back and forth between current-day interviews with Icahn and people around him, showing his work and family life, and more historical segments that highlight some of the big milestones in his career (Tappan, Texaco, TWA, Netflix, Apple, Herbalife).
It’s well-made, I liked it.
I didn’t know Icahn that well going in, and I learned a fair amount and now better understand the man. What more can you ask for?
Bill Browder’s ‘Red Notice’ to be made into TV series
Doug Liman, who directed the excellent ‘Edge of Tomorrow’, is running this project.
Liman will direct the eight-part series, which has been adapted by Florence Foster Jenkins writer Nicholas Martin. Michael Kuhn, who produced the Meryl Streep feature, is attached to produce.
The series, which is described as part financial caper and part crime thriller, is currently being shopped to streamers and independent studios with the hope of a spring 2023 launch.Looking forward to it. The book was a real page-turner and I highly recommend it.
The 30 year chart for MSCI China is a little better if you add dividends.