Streaming Wars Have Begun!
I finally saw one yesterday. And I pay pretty close attention because I care. I'm also curious about how they look because — and this is going to sound weird — I really love a good television ad.
I love the "Mayhem" guy: "I'm snow. And like you, I've been laying around getting heavier all winter." Right before the garage roof falls in.
I love the "hump day" camel: "What day is it?" And I love that young lady donning a British accent to chastise her man to "use the cocktail stick!"
One of the first lessons I learned in this business is that it's all about marketing. Great products, great services — those things are a given. I mean, if you come to market with an inferior product, well, that's just dumb...
Sure, it still happens. Inferior offerings come up all the time, really. And I theorize that it's because they think they have a marketing edge that will get them some sales and they just don't care about long-term success (like the recent WeWork debacle)...
Because if you're at all interested in long-term success, it's very easy to see what your competition is doing. So it should be very easy to establish a standard for yourself and also find a small edge — something you can do differently that makes what you do better.
It's funny, I get a lot of resistance when I tell people that it's all about marketing. People like to think a great product or service will sell itself, that as consumers we are decisive and will not be swayed by the young lady in the bikini or the handsome young doctor...
First Impressions Matter
They say you never get a second chance to make a first impression. That's what marketing is all about. It's how you position your product. The messaging. Is there a reason Apple's iPhones take +95% of all smartphone profits, even though Samsung sells way more Android phones?
My IT guys (why is it always guys in IT?) will tell you Samsung phones are way better: better cameras, way more functions, and completely waterproof. And it doesn't amount to a hill of beans for revenue. Because Apple sold the smartphone dream better. In fact, Apple sold it so well that they barely advertise on TV anymore. It's to the point that people look at you funny if you don't have an iPhone.
You know why you see so many insurance commercials on TV? Warren Buffett once said that GEICO was the best investment he ever made (yeah, Berkshire owns it) because the cost of capital is zero.
Think about that. You pay auto insurance every month, and what do you get in return? A promise that may or may not be fulfilled at some unspecified time in the future. It's genius!
Sure, there's a liability that goes on GEICO's balance sheet. And that liability could sit there for decades. In the meantime, GEICO's got a mountain of cash just sitting there. Well, it's not just sitting there. Any insurance company has to invest that cash, because the liability grows in dollar terms over time (not necessarily in value terms).
Buffett's got a lot of genius, but having GEICO as the cash cow of his Berkshire empire is amazing. Buy companies, grow, and he can always pay that GEICO liability through a line of credit. You ever wonder why Berkshire doesn't pay a dividend? Because Buffett values cash very highly, and he knows debt-ridden American investors don't.
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Berkshire is the 10th biggest company in the world by revenue, and it all starts with GEICO ads. So easy a caveman could do it, right?
A fair amount of people don't like ads. They'll tell you ads are a waste of money and time. Personally, I find a measure of comfort in companies that have to pay for airtime to attract customers. It's the companies that make a ton of money that don't have to advertise that I worry about. Facebook and Google, I'm looking you. They don't sell a product to you because YOU are their product...
Astronauts and Star Wars
So anyway, like I was saying, I saw an ad for a movie about the space program in the '60s, called For All Mankind. Looked really good. And I realized it wasn't a movie ad I was seeing — it was an ad for Apple TV streaming service.
I've been a little negative on Apple entering the streaming wars. They're kinda late to the game, and they have zero original content of their own. And I gotta think there is a limited amount of people in this world capable of creating really good content. Just look at the amount of trash on Netflix...
But then I remembered Samsung. Apple's got a ton of cash, and they can market. Don't count them out. But also realize they are playing the long game. Apple likely considers Apple TV like Amazon considers Prime Video. Prime Video isn't really supposed to be a viable competitor to Netflix. Rather, it's supposed to be value-added support for the Prime membership. (Speaking of which, I originally typed that as "membeership" — what a great idea, a subscription beer service: Get your mem-beer-ship!)
So then during the Ravens game, over a big bowl of queso, I see an ad for the Boba Fett movie (he's the bounty hunter that captured Lando Calrissian). I say, "Whoa, that looks good, must be a Christmas release." And my son says, "Dad, it's Disney Plus," and it all comes streaming back to me...
Disney is taking individual Star Wars characters and creating whole series' for them for Disney+. And based on that ad, it looked pretty good.
Disney+ launches on November 12. We're in the home stretch.
Earnings estimates have come down for Disney. And that's kept the stock around $130. I think that's attractive if you think the launch will go well.
Pro Tip: This is Disney and Robert Iger we're talking about. Iger's ROI is among the best I've ever seen for a mature company. The smart money should be on him again.
Until next time,
A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.
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