Weekend Reading

23 September 2016 | by Paul Perrino, CFA

A summary of this week’s best articles. Follow us on Twitter (@INTRINSICINV) for similar ongoing posts and shares.

Apple in talks on McLaren supercars takeover (Matthew Garrahan and Tim Bradshaw, @MattGarrahan and @Tim, the Financial Times)

It’s rumored that the company that makes the most beautiful devices (Apple) has approached one the most beautiful car manufacturers (McLaren). This acquisition would provide Apple with the talent and experience needed for their secret car project, and all for a fraction of a single quarter’s profit. This is reminiscent of the Beats Electronics purchase for $3 billion in 2014, which allowed Apple to acquire the experience and connections of Jimmy Iovine and Dr. Dre. Apple executives are no stranger to the automotive industry “Phil Schiller, Apple’s marketing chief, is said to own a McLaren, and Eddy Cue, its services head, sits on the board of Ferrari, while top designer Sir Jonathan Ive has expressed his fondness for Bentleys and Aston Martins.”

The rise of the superstars (The Economist)

The entrepreneurship and spin-off’s of the 1980s and ’90s lead to the “demise of size”. Then the Great Recession lowered company valuations and interest rates to historic lows. This paved the way for companies to consolidate. The corporate landscape is looking like the early 1900s when America was dominated by a few powerful players, such as Standard Oil, US Steel, etc. But, today we have companies like Apple, Google and Amazon. According to McKinsey this consolidation has been so great that “10% of the world’s public companies generate 80% of all profits. Firms with more than $1 billion in annual revenue account for nearly 60% of total global revenues and 65% of market capitalisation.”

The Netflix Backlash: Why Hollywood Fears a Content Monopoly (Kim Masters, @kimmasters, Hollywood Reporter)

In an effort to attract more subscribers, Netflix has been bidding up to purchase great content, such as Stranger Things. They’ve done such a fantastic job, they received 54 Emmy nominations this year. The cost of those nominations wasn’t cheap. Netflix spends approximately $6 billion a year on content, while other networks, like HBO spend about $2 billion per year. This is shaking up Hollywood, so much so that “FX Networks chief warned that Netflix could be bucking for a Silicon Valley-style near-monopoly in entertainment, such as that enjoyed by Google in search or Amazon in shopping.” The Netflix culture is also changing Hollywood. From high standards (Netflix HR says: “Adequate performance gets a generous severance package.”) to executives not having their own assistants, “They run their own phone sheets, which may explain why many calls go unreturned. That doesn’t sit well with those who sit at the top of the Hollywood pyramid. ‘I can get Les Moonves, Steve Burke or Bob Iger to call me back,’ exclaims one senior agent. ‘I can’t get [Netflix vp of content] Cindy Holland to call me back. It’s unbelievable!'”

For the Debaters: What Shall We Do About the Tech Careening Our Way? (Farhad Manjoo, @fmanjoo, NYT)

There’s a lot of focus on consumer self-driving cars, but the commercial application of this technology has been just as exciting. At the infancy of many great disruptions, there are great complexities. In this case, we (as a society) need to figure out how this new technology is going to fit in. There may be fatalities as developers work out the kinks of the software, but in the long term it could save thousands of lives annually. Are we OK with this? Goods can continuously move freely without the need of a human who needs breaks and time off. How will these individuals continue to contribute to society?

Ensemble Capital’s clients own shares of Apple (AAPL), Google (GOOGL), and Netflix (NFLX).

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