Cable cowboy John Malone, known for his various Liberty Media stocks (which I don't understand), is spinning off the Atlanta Braves $BATRA and is creating a new Liberty Media company tracking $LYV. This new Liberty Media entity will hold a 31% stake in LiveNation.

For those who don't understand the business strategy of Liberty Media creating all of these tracking stocks, here's an excerpt that might help:

"Tracking stocks are designed to let investors track specific businesses that are part of a larger company. Liberty has used such tracking stocks in the past in the hopes of highlighting the performance and value of parts of its wide-ranging portfolio of assets."

In my view, some tracking stocks are useless. The examples are $LBRDK, which tracks $CHTR, and this upcoming tracking stock entity. Better buy the actual shares of the company than the tracking stock.

After creating a tracking stock for Live Nation, Liberty Media wants to create another tracking stock that tracks Liberty's $SIRI stake, Liberty's Formula One stake, and Liberty's LiveNation stake.

The timing of this announcement comes as LiveNation had to cancel their public sale of Taylor Swift tickets due to overwhelming demand. As more people demand the breakup of Big Tech and big payment processors/credit card companies $V and $MA, the public is now seeing unprecedented demand for the breakup of LiveNation.

8 months ago, John Oliver made a fantastic, non-political video on the issue with concert tickets and LiveNation. The issues with concert tickets have been going on for a long time and have intensified with the merger of LiveNation and Ticketmaster. The intensity of having to go to great lengths to secure concert tickets is so bad that many are willing to become American Express $AXP cardholders just to take advantage of AmEx's exclusive concert ticket feature.

As for John Malone, he probably sees LiveNation continuing to defy antitrust regulators (I personally think he's underestimating the regulators like how he's currently underestimating fiber) and thinks that Taylor Swift fans will forget the terrible experience they recently had with securing their Taylor Swift concert tickets (I doubt we'll forget it). As LiveNation saw record revenue this year (yes, LiveNation is doing way better than any other industry impacted hardest by lockdowns), Malone thinks that the momentum will continue.

Maybe there's a message in the bottle that Malone is giving us with his upcoming LiveNation investment (it's a Taylor Swift reference). Or maybe the IPO of the LiveNation tracking stock will inspire antitrust regulators to step up their efforts and launch a major crackdown against LiveNation.

We shall see where the LiveNation saga goes from here. All I can say is that we're at a pivotal moment with this issue and I hope that we Taylor Swift fans (I don't know who else here on this platform is a Taylor Swift fan) can keep up the momentum. If Taylor Swift was willing to leave record labels and re-record her songs so that more of the profits that come from streaming, sales, and licensing go into her own pocket, I wouldn't be surprised if she chooses to work with concert venues to make their own concert ticketing platform so that they can reap more of the profits that come from selling overpriced concert tickets.

There are two investments that I think Warren Buffett will do poorly on: Occidental Petroleum and TSMC.

To sum up my thoughts on $OXY, I think that Buffett is doing the same mistake he did on $COP in 2008 with Occidental Petroleum today.

As for TSMC, I think that Warren Buffett isn't aware that the risk that China's invasion of Taiwan is very high. It's similar to Charlie Munger and his investment in $BABA and how he wasn't aware of the incoming crackdown on tech companies from the CCP in China and Hong Kong.

Buffett and Munger don't have insider information on the upcoming moves of the CCP. Both investors are clearly underestimating the risks that come with doing business with the CCP. Kyle Bass, a hedge fund manager known for criticizing the CCP, sees Chinese equities enduring a similar fate as Russian equities if China does decide to publicly side with Russia in the Ukraine war. And from the looks of the relationship between Xi and Putin, it's obvious that Xi is on Putin's side. So why in the world would Buffett and Munger remain comfortable investing in a region of the world that is most likely to become a war zone in the near future?

Maybe it's because the media and the academic think tanks continue to downplay the chances that China will invade Taiwan. While these sources do hold a high degree of credibility, consider the fact that many of them were denying that Russia will invade Ukraine. Al Jazeera noted this:

"A closer examination of Russia’s geopolitical behaviour in the past two decades, however, demonstrates that its officials might not necessarily be trying to deceive the international community. A full-scale war in Ukraine does not really fit into how the Kremlin has used hard power in its geopolitical games. The examples of Georgia, Syria, Libya, and (so far) Ukraine, show that it pursues a cost-efficient policy."

The Atlantic Council, a major think tank, thought that threats of a barrage of sanctions would deter Russia from invading Ukraine. Others thought that the upcoming spring and summer weather would deter Russia from ever starting a war soon as the mud would make it difficult for them to fight the Ukrainian forces.

It's clear that the think tanks, no matter how much time they spent studying Russia, were wrong when they thought Russia won't invade Ukraine. The media, even if the signs were obvious that Russia will invade Ukraine, gaslighted themselves into thinking that the war won't happen.

Now, let's look at China and Taiwan. In previous memos, I noted China's behaviors during the Zero COVID lockdowns (hoarding of resources, tons of development on new hospitals, forcing the public to cut down on consumption, etc.) as obvious signs of war disguised by the behaviors of China's public health department. I also noted the massive military buildup along the Fujian Province, the province that sits directly across mainland Taiwan. Good thing The New Yorker talked about it in their latest piece on Taiwan, but the commentary they wrote afterward shows that they're gaslighting themselves into thinking that China won't invade Taiwan.

Recently, President Tsai Ing-Wen decried rumors about the risks involved with investing in Taiwan's semiconductor industry. In her view, the concerns about China invading Taiwan will hurt her economy.

Hmm, where have I seen this behavior before? In Ukraine, on January 28:

"Ukraine's President Volodymyr Zelensky has called on the West not to create panic amid the build-up of Russian troops on his country's borders.

He told reporters that warnings of an imminent invasion were putting Ukraine's economy at risk."

Shortly before the Russian invasion, on Feburary 21, 2022, only 20% of Ukrainians surveyed thought the war was going to come to their country. Despite the war in Ukraine, the majority of Taiwanese people are doing their part to step up their preparation for a Chinese invasion, but they still think that Beijing is continuing to do the empty threats that they've been doing for a long time.

Regarding the weather issue, though that issue is bigger when factoring in the probability of China invading Taiwan in the future, I do think that the weather will matter less as the Chinese military will decide to invade from the ports rather than the beaches. All the think tanks, politicians, and media personalities think that China will do a D-Day-style amphibious assault on Taiwan, which requires perfect weather conditions only found in the months of April and October. When considering that China will use ferries to transport most of its military equipment and troops for the invasion, they'll have to use the ports to offload them in Taiwan. Year-round, ships dock in ports that are along the Taiwan Strait. The weather wouldn't be a big issue for China when they plan to invade from the ports. And like Russia, China will probably invade during the times when people expect the weather to deter their invasion plans.

Some will point to Biden's good meeting with Xi in Bali recently. While that good meeting makes Biden optimistic that China won't invade Taiwan, consider that last year, Biden made an agreement with Putin that Russia will withdraw troops from the Ukrainian border, and in exchange, the US won't approve the lethal aid package to Ukraine. Like any authoritarian, I wouldn't be surprised if Xi lied to Biden about reconsidering the Taiwan invasion plans.

The parallels between pre-war Ukraine and Taiwan today are stark. Buffett and Munger probably don't pay attention to the things happening in geopolitics. We all know that Munger, along with Ray Dalio and possibly Chamath, all love China and turn a blind eye to the human rights violations that the CCP has been doing for decades. Warren Buffett has a big stake in BYD, which he's been trimming aggressively lately. At least Buffett is doing his part in stepping away from Chinese equities, like what SoftBank is doing.

Divesting away from stocks that operate in countries run by authoritarians isn't enough to protect you from the risks that these authoritarians have on the world economy. One must also divest capital from the regions that are going to be under threat from those authoritarians to save one's self. Investment managers were probably divesting their stakes in Ukrainian companies in fear that Russia's invasion will destroy their investments. I'm not surprised if fund managers are doing the same with Taiwanese equities, which can help explain the short-selling ban and the downplay of concern regarding capital outflows happening in the country.

From looking at the location of TSMC's fabs, the majority of them are in Taiwan. There are only 2 fabs in China and 1 fab in Washington, USA. The fabs in Arizona will take a few more years to finish construction and the construction of fabs in Lithuania. TSMC will see its production capacity decline by 90% (or more) if China does decide to invade Taiwan soon. Since his investment in TSMC is small compared to the dividends he receives annually from his other investments, I don't think that the fall of TSMC will destroy Berkshire Hathaway.

To end, I'll say that it's best to use your own judgements and observations when using geopolitics to determine the risk it has on your investments. Think tanks have great analysis but they focus more on history than on finding the unexpected outcomes. We don't want the worst outcome to happen, but we have to prepare for it.

Soon, Nike will unveil NFTs that people can buy and trade virtual shoes on the blockchain. They even let people pre-order shoes by buying certain NFTs on their platform.

Despite the crazy stuff happening in crypto, Nike is showing the potential that NFTs have in the real world. It's great that they are adding real utility to their NFTs (mostly).

In the crypto world, there are two types of finance: CeFi and DeFi

CeFi is centralized finance. Coinbase $COIN is an example of this.

DeFi is decentralized finance. Uniswap, Sushiswap and two popular DeFi platforms

FTX is a CeFi exchange. The entire operation is run by both humans and code. Because humans are involved in the day-to-day operations, FTX isn't considered a DeFi exchange. Also, FTX isn't any different from Robinhood or Charles Schwab except for the fact that it offers users exposure to crypto assets.

In DeFi exchanges, the entire operation is run by code. No humans are involved in the day-to-day operations but in the development of the overall structure. The slim structure of DeFi exchanges allows it to offer lower trading fees than CeFi exchanges.

The thing about CeFi exchanges is that they provide people with fiat currency a way to buy cryptocurrencies. DeFi exchanges don't have that type of capability (yet). Unlike CeFi exchanges, DeFi exchanges never cause people to lose access to their assets.

Sure, assets in DeFi can lose value. But at least you have access to them. Meanwhile, in CeFi exchanges, people experience both portfolio loss and loss of access to their crypto assets.

Going back to CeFi vs DeFi exchanges, CeFi exchanges will lose out from DeFi exchanges because DeFi exchanges have lower transaction fees. This fact alone is why Sam Bankman-Fried (SBF) wanted regulators to impose consumer protections on DeFi exchanges. By having regulators go after DeFi exchanges, this will prevent DeFi from ever overthrowing CeFi firms. I wouldn't be surprised if that fear is why SBF donated so much money to candidates during the 2022 midterm elections.

Regulation isn't an entirely bad thing necessarily for DeFi. One benefit is that it will give institutions more comfort in dabbling with DeFi assets as regulations help establish clarity in the industry. Another benefit is that it helps root out scams and bad actors. As long as these regulations aren't overbearing and aren't made to protect CeFi exchanges, regulations can help DeFi reach mass adoption.

Here's something to keep in mind:

"If there is a silver lining for the FTX fiasco, it is a reminder of the importance of decentralization. While it has taken a sledgehammer to all crypto prices, layer 1 blockchains that de-prioritized decentralization as a design goal has been the hardest hit"

Centralized exchanges take custody of your assets. Decentralized exchanges don't. Many in Web3 know this fact and have chosen to pour more money in DeFi exchanges.

Maybe the blowup of FTX was needed for the entire crypto ecosystem to be healthier. Maybe the blowup of FTX was needed to remind the world of the importance of decentralization.

Sources:

I find the timing of this whole crypto debacle to be weird. 3 days ago, the Fed talked less about crypto as a potential risk to the US and world economy. 2 days ago, I notice that everyone was paying attention to $FTT.X. Probably because that's when news started to surface that something is wrong with Alameda Research. Yesterday, FTX is in the news looking to collapse in a similar fashion as Lehman Brothers due to its heavy exposure to Alameda Research. Yesterday, it was assumed that Binance will bail out FTX.

Today, Binance steps back from its plans to bail out FTX and $BTC.X is trading at around $16,000.

While I'll let everyone else on Twitter and Commonstock talk about the issues that are going on and how they'll affect crypto, what I want to talk about here is the timing of this sudden collapse of Sam Bankman-Fried's empire. Though Alameda Research and FTX seem to be separate entities (please let me know if this is an incorrect detail), it's like the issues that happened in a colony of SBF's empire (aka Alameda Research) then affects his empire's capital, FTX, severely.

In my head, I can envision the whole thing like the Black Plague in Europe, where Alameda Research plays Kaffa (a city in Crimea where the Black Plague first enters Europe), and a ship from Kaffa brings the Black Plague to Italy, where the Black Plague then spreads to the entire European continent (and that would be FTX in this context).

Examples like this sound crazy, but I hope it helps you understand my perspective on the bizarreness of SBF's business empire's collapse.

I wouldn't be surprised if all of these problems happening in FTX first started when FTX decided to acquire the bankrupt crypto exchange firm Voyager Digital. During that time, Voyager lost huge sums of money as they used the reserves that their customers put on their Voyager accounts to make loans to 3AC (and we know what happened to 3AC). FTX's purchase of Voyager was seen as SBF"s way of stopping the feared "domino effect" that 3AC and Voyager's collapse would bring to the crypto world. Others see it as FTX's way of acquiring assets at dirt-cheap prices. If SBF had those two thoughts, SBF's logic can be attributed to Jamie Dimon's decision to purchase Bear Sterns during the Great Financial Crisis or when Bank of America decided to buy out Merrill Lynch.

There are rumors that Voyager did lend money to FTX, but as I kept searching the internet for evidence of it, I have been inconclusive. I don't know what loans FTX got from acquiring Voyager, but if they were loans to FTX, then FTX was able to pay down their debts at a very cheap price. However, it was confirmed by CNBC that Voyager lent hundreds of millions of dollars to Alameda Research (and we all know who owns it).

I understand why SBF would want to use FTX to bail out Voyager and save Alameda Research. Both Alameda Research and FTX have a strong connection to each other. Alameda Research had nearly 40% of its balance sheet filled with $FTT.X. If Alameda Research couldn't pay its debts to Voyager, Alameda would have to sell a bunch of $FTT.X, which would've hurt FTX directly. Having the public learn about it at the beginning of this month was what led to a massive bank run on $FTT.X.

FTX and Alameda would often transfer $FTT.X tokens to each other. Alameda would buy more $FTT.X tokens every time FTX would want to raise capital to buy out another crypto firm. FTX would buy $FTT.X from Alameda as a way to give Alameda liquidity. This huge reliance that SBF's empire had on this relationship was the Achille's heel of SBF's business empire. And the fear that spread throughout the crypto community exposed it.

In a way, Binance knew about it long before everyone else and that's probably why they sold $2.1 billion worth of $FTT.X. At the time, people saw it as a sign that CZ and SBF are parting ways. Now that I think of it, it's weird that those same people were hopeful that Binance would bail out FTX. If they truly had a bitter rivalry, in a way, CZ got revenge by playing SBF's hopes up and then later backing out.

At least SBF has a 7.6% stake in $HOOD, which has a better chance of surviving crypto winter and becoming profitable in the future. But it's possible that SBF could sell his Robinhood shares in order to add liquidity to his personal balance sheet. SBF has already donated huge sums of money to candidates and super PACs for the recent midterm elections (personally, I'm not fond of the super wealthy donating huge sums of money in elections), and honestly, I think he should've saved that money to save his business.

At the beginning of this memo, I noted that the timing of the whole FTX/Alameda Research collapse was intriguing. Days ago, crypto influencers were glad that the Fed didn't cite crypto as a risk to the financial system as often as other issues like China-Taiwan, Russia-Ukraine, inflation, etc. With bad news coming shortly after it, I'm glad that crypto Twitter handled the $FTT.X and FTX collapse better than how stock Twitter reacted to bad news in the stock market.

If the Fed did cite crypto as a risk to the financial system more often in their recent report, then I bet the FTX debacle would be causing people to scream "recession"

Sources:

An underrated ingredient of economic growth and innovation is accounting. Not many people think about that when analyzing periods of economic growth and innovation.

During the 16th and 17th centuries, every social class of Dutch society practiced accounting. And it wasn't just merchants that practiced accounting; prostitutes in Holland also practiced accounting, particularly double-entry bookkeeping.

And what do many know about the Dutch during this period of time? They built one of the largest businesses in the world: the Dutch East India Company. And others know that the Dutch created the first-ever stock exchange during this period of time too. Compared to other empires, the Dutch empire was the richest during that time.

The Reformation movement in Europe wouldn't have happened if it weren't for accountants. Schools have taught us that Martin Luther fueled the Reformation movement, except he only provided the spark with his words. Accountants were the ones that fueled the movement as they were both engaging in the corruption of the Church as well as holding evidence of the Church's corrupt practices.

During the Renaissance, thousands of students in Florence would learn accounting and bankers like the Medici family saw their wealth surge as they maintained perfect accounting records.

It's the public confidence in the financial information of businesses that led to the rise of the Dutch East India Company, the creation of the first ever stock market, the success of Martin Luther's movement, and why the Medici family became one of the wealthiest people of the Renaissance time.

The pattern in history goes: good accounting creates good times and bad accounting leads to bad times.

So far, all I've talked about are how good accounting practices led to greater times throughout Europe before the Industrial Age. Before the Industrial Age, bad accounting practices did lead to bad times in Europe. Spain in the 15th century went bankrupt because bad accounting practices influenced bad decisions. France saw its monarchy rule be officially gone as King Louis XIV stopped recording his transactions in his accounting book after his finance minister, Jean-Baptiste Colbert, died.

And in modern times, some of the biggest shocks in financial markets and the economy were caused by bad accounting practices. Lehman Brothers and Enron are major examples of this.

The accounting shortage is something that investors should be worried about. According to Bloomberg Tax, the number of employed accountants and auditors fell by 17% between 2019 and 2021. Meanwhile, demand for accountants has surged as more companies went public, regulators are now looking to track carbon emissions, etc.

Looking at university enrollment numbers in accounting courses, from 2016 to 2019, there was a 4% decline in the number of students taking accounting courses. Meanwhile, the number of CPA candidates decreased by 7% between 2017 and 2018. In that same time, the number of candidates who passed the CPA exam fell by 6%. From the supply side, it's looking like universities are churning out fewer accountants annually.

Furthermore, employee turnover at accounting firms has been high. Low morale as well as many employees choosing to retire early are reasons for this high turnover. Other reasons are that many accounting employees are choosing to use their experiences in accounting firms to land better jobs that happen to be unrelated to accounting. For example, people attend an MBA program after a few years in Big 4 accounting and then use their time at the MBA program to transition into private equity, investment banking, management consulting, etc. Those careers come with better pay and more prestige.

Accountants do get paid well and that too has helped many retire earlier than expected.

As accounting becomes more sophisticated, some accountants in firms use their cleverness to improve their firm's financials. And that in of itself increases the need for more accountants. An accounting professor once told me that it takes two accountants to figure out how one accountant hid the ugly details of the business. Maybe we need more than two accountants investigating the possible fraud that one accountant has committed.

Higher demand for accountants and lower supply of accountants has created a labor shortage in America. It's amazing that people take comfort with investing in American companies as the "entire financial system thus increasingly rests on the shoulders of overworked and frazzled twenty-something Atlases."

Some will say that accounting's public image is a reason why the number of people pursuing the accounting career isn't growing. Another is that there are other business-like careers that pay similar, if not more for work that is cooler and that in some ways provides a bigger impact on the world.

Consider this:

"The obvious result of the talent shortage is an erosion in the quality of audits. Public companies are finding it harder to get accountants to audit their books and, when they do find them, must often work them harder. Important checks are skipped, and errors (or dodges) go unnoticed. If companies are late filing, then they risk running afoul of the SEC; if they include errors, then they risk fines and adverse market reaction. Even small errors can lead to a plunge in stock prices."

But at the same time:

"The chances that US regulators will catch errors, or worse, are arguably also being reduced by the shortage of accountants: The SEC faces an attrition rate of more than 6%, with a growing proportion of the work done by temps. Poorer oversight increases the likelihood of another Enron out there: a big company that is playing fast and loose with its finances and will eventually collapse, bringing economic havoc in its wake."

In a way, the accounting shortage has created an environment of blissful ignorance. Also, it has allowed the economy to be riddled with financial landmines. You never know if you're about to step on a financial landmine or not. Since short sellers seem to catch frauds before regulators, I hope that the stocks you hold won't be targeted by short sellers. And I hope that the management teams of the stocks you own are doing their part in providing accurate financial information to the public. If they're doing that already, then there's no need to fear the short sellers.

I understand that with the economy transitioning from physical goods to digital goods, measuring the intangibles can be difficult. And without an adequate number of accountants, that task becomes even harder to manage.

And like any problem, we'd like to think that technology will save the day. Unfortunately, the innovation with the accounting field is less than ideal. $INTU might be making it easier for people to manage the books of their business and Trullion is making machine learning tools to help accountants with tasks that relate to sampling, and $BL has been helping businesses automate accounting processes, but that isn't enough. The Big 4 accounting firms can't even create tools fast enough for their auditors and tax accountants because they themselves have been struggling to attract tech talent. Without adequate tech talent, they can't make the tools that their auditors and tax accountants need.

I hope that this accounting shortage doesn't give American businesses the reputation that Chinese businesses have built for themselves after the Great Recession: businesses with unreliable financial statements and highly prone to fraud. The trust in the financials that businesses provide to the public is how they're able to attract capital and make better decisions. If fraud flourishes, the economy becomes less productive as capital flows more into places that are less productive and areas that are more productive will see their productivity decline as a result. Accountants play a major role in how capital flows throughout society. We want our economy to be efficient. We want our economy to grow.

One solution that I think that policymakers should consider implementing is to reduce the unit requirements for one to be able to sit for the CPA exam. The number of accounting units one needs to fulfill the CPA eligibility requirement is high and some go on to get a Master's degree in order to fulfill it. That in itself is why those looking to get a Master's degree wouldn't consider accounting as their main career option as other careers, that require a Master's degree, pay more than accounting.

Higher pay can help attract people to the accounting profession. When considering how stingy businesses can be, I doubt many would be open to that idea.

Sources:

https://commonstock.com/post/e8617caf-b038-4e6e-bbe8-7720bce41323 by @dissectmarkets

As Uber starts seeing profits from both food delivery and ridesharing (adjusted EBITDA-wise), investors will start becoming more comfortable with investing in the business.

And the firm is disrupting the trucking industry with its Uber Freight platform.

It doesn't matter if the debt is fixed rate or floating rate, bonds were trading at a premium during the era of lower interest rates.

Thanks to the surge in interest rates, those bonds are trading below face value.

This allows firms to spend less money to pay down a higher amount of debt (ex. spending $7 billion cash to pay down $8 billion worth of debt because those bonds are trading at a discount).

I definitely see telecom companies doing something like this.

What do Youtube and some of the streaming services (with ads) have in common?

Their earnings correlate with the amount of watch time happening on the platform.

$NFLX is the pioneer of streaming. For years, they've tried to make it work by relying solely on subscription revenues and nothing more. People can watch as much content as they want and Netflix still generated the same amount of revenue. With a business model like that, learning about the number of hours an average subscriber spends on the platform doesn't matter. After years of trying, they've only reached profitability for a few quarters and then return to producing negative free cash flow.

Other streaming platforms like Hulu, Peacock, and soon, Disney+, are dabbling into ads on-top of subscriptions as a way to enhance the chances of profitability with their streaming efforts. $PARA $WBD and other entertainment studios choose to make movies and release them in theaters first and then release them in their streaming service a month or two after being in theaters.

Without those movie theater profits, these entertainment companies would be burning cash because of the unprofitability aspects of streaming.

Netflix investors theorized that if Netflix reached a certain number of subscribers, then it would reach profitability. That's why, as the market saturated, Netflix became more focused on cracking down on password sharing than on expanding internationally. The firm is unprofitable, management blamed the cash burn on password-sharing people and knew that its best way of getting more subscribers with less spending on marketing and other things is to crack down on those types of people.

Interestingly, as Netflix gained more subscribers, Netflix thought that it needed to spend more on content creation to keep those subscribers and possibly get more subscribers. Sure, some of that expansion in content creation is because, in certain countries, the streaming platform needs to have at least a certain percentage of their library be of content that was produced in that country. But after expanding to so many countries and seeing a massive slowdown in entrances into new countries (I mean, Netflix is nearly in every country except Iran, North Korea, Cuba, Venezuela, and other nations that are either unfriendly to the US or that aren't great streaming markets), Netflix's content creation spending kept growing.

If Netflix was barely able to achieve profitability in some instances from relying on subscriptions, what are the chances that other entertainment studios can make money from subscriptions? How can other streaming companies achieve the same number of subscribers as Netflix when subscription fatigue is becoming a major theme of consumer sentiment?

Disney is best able to overcome those odds, but Disney+ isn't profitable (yet).

With that, streaming companies are looking to implement ads on their platform while charging monthly from their subscribers. That way, streaming companies get some sort of recurring revenue while pursuing streaming efforts and consumers pay less for entertainment every month. Once these streaming companies know how consistent their revenues will be from ads, they'll start becoming comfortable with dropping the subscription payments and making their platforms free for anyone to access and the entertainment companies bank on the ad revenue that comes with viewership. Warner Bros Discovery seems to be the first to consider it and if they succeed, more will follow.

By skewing the incentives for streaming companies on prioritizing quality content over quantity of content, entertainment companies will cut down on overall content spending and choose to work with fewer higher quality projects over numerous projects where the majority of them will barely get over 10,000 views (I'm exaggerating, but you understand what I mean by these projects being low quality). People rewatch Friends, The Office, various Star Wars shows, and Euphoria many times. Their budgets are higher than your average TV show, but the huge number of viewers and the repeat viewership of these shows make it more worthwhile to produce those high-quality shows over an average boring show.

Example: The Walking Dead (boring, people normally watch once and move on) cost $2.75 million per episode. Euphoria, cost $11 million per episode but people continue to rewatch the episodes from time to time and continue to talk about it even if it has been months since a season finale was released.

The lower-budget shows are great for generating quick bucks as long as viewership remains stable. Meanwhile, the more expensive shows are great for generating consistent ad revenue. They're fantastic to have especially in times when movie production is restricted (pandemic, lack of funds, etc.). Lower-budget shows, in my view, have a bigger risk of becoming unprofitable because it's difficult to inspire someone to watch a new show. If they're hooked and enjoyed the first season of the show, then it's guaranteed that they'll watch the second season of the show. If they didn't like the first season of the show, it'll be harder to convince them to consider watching the second season of the show. At the same time, we don't know how the dynamics of content creation and streaming will be in the future.