THE MORNING RANT: Apple and the NFL Are Diverging on the “Financialize Everything” Business Fad

A subject I frequently return to is the destructive business trend that some critics refer to as “The Financialization of Everything,” which seeks maximum short-term profit through whatever means, irrespective of the long-term damage it causes.

MGM Resorts and Panera Bread are two vivid examples of companies who did immense damage to their brands by pursuing a strategy of slashing headcount, reducing quality, and gouging customers. As I wrote in a piece last November about their greedy self-harm, “A corporation can target its loyal customers for revenue mining and temporarily increase its profits. It can also slash employee headcount and customer service, thereby reducing labor expense to produce a short-term increase in profits. It can even reduce its product size and cheapen the product’s quality to reduce cost of goods sold, also giving a short-term boost to gross profit. But in every case, these actions tell customers that rather than being valued, the corporation sees customers as marks to be exploited. A great many customers may get hoodwinked once, providing the short-term profit boost that was being sought, but then never come back, thus destroying the company’s long-term prospects. A downward spiral of alienated customers, declining revenue, deteriorating facilities, and degraded reputation ensues.”

Related to this, there are two recent business stories that have caught my attention. On the positive side, Apple may have re-discovered the value of having a loyalty-building “loss leader.” On the negative side, the NFL has reached the “eating its seed corn” level of revenue mining, by forsaking long-time customers and future fans to gain a short-term increase in streaming revenue. Here’s a quick look at both of them:

1) APPLE

An individual named Aakash Gupta explained on X/Twitter how Apple TV+ loses over a billion dollars per year, but rather than being a money-losing problem, Apple TV+ is instead a strategic “loss leader” which draws in users and revenue for its other products. Mr. Gupta wrote:

Apple deliberately built the only money-losing service in its entire company, and it might be the smartest line item they have. Apple TV+ loses over a billion dollars a year.

Music, the App Store, iCloud all print money. TV+ bleeds. And this was the plan: the projections written before launch budgeted $15 to $20 billion in losses across the first decade. Here's the math that makes it rational. Apple cleared $93.7 billion in profit last year. A billion-dollar TV loss runs about 1% of that. For that 1%, Apple gets Severance, Ted Lasso, a wall of Emmys, and a legendary game designer telling his millions of followers he couldn't stop watching their new horror show until 2am.

Netflix spends $18 billion a year on content to own that cultural slot. Apple spends $4.5 billion, eats a $1 billion loss, and buys a version of the same prestige for a fraction of the price. The show is the marketing. Every awards sweep quietly answers the only question that matters to someone choosing between a $1,200 iPhone and a cheaper Android: which company makes things worth your time. TV+ has under 1% of US streaming viewership. By streaming math, that's a flop. By Apple math, it's a rounding error that makes a $3 trillion hardware company feel like culture. Cheapest marketing budget in the building.

Matthew J. Peterson of the Claremont Institute reposted Mr. Gupta’s tweet about Apple TV+ with the advice to “Internalize this.” Good advice. More businesses need to do so.

In fact, that was pretty much the thesis of a piece I wrote for The Blaze which discussed how Buc-ees provides gas at loss-leader pricing and has famously clean restrooms that are free to all. In return, patrons flock in and spend their money on other goods. Buc-ees is also well staffed and pays its employees very well, ensuring that customers receive excellent service and that the store is immaculately maintained. Everything Buc-ees does is contrary to the business school practices that caused so much damage to Panera and MGM Resorts.

2) The NFL

The NFL, which is a monopoly without competition, has shown that it is fully committed to this familiar strategy of short-term revenue-maxing, irrespective of how it affects long-term customer retention.

Clay Travis testified before Congress a few days ago (the transcript is here) about the NFL divvying up its product among numerous subscriber-only streaming services, and how this is a betrayal of the Sports Broadcasting Act of 1961. That congressional act from 65 years ago provided professional sports leagues with anti-trust protection and other special privileges. In exchange, the sports leagues were required to sell viewing rights to their product to over-the-air television networks.

What should we expect from a reasonable fan and what should Congress do to ensure he's not being taken advantage of by sports leagues who are exploiting laws put on the books back in 1961, when television was a new technology and its implications were just being tested, to extract more money from the reasonable fan while giving him less in return for his money? I would submit that the absolute bare minimum a reasonable fan should expect is a fair price for a fair product. That bargain no longer exists. I would submit that reasonable fans have been taken advantage of over the past generation, that at some point we all started getting charged way more and getting way less, and I would submit that this is the exact opposite direction that a successful marketplace should move in a capitalistic society. Our sports fan viewing experience is broken when it comes both to affordability and access.

Mr. Travis points out in his testimony that to watch the full slate of NFL games and his favorite MLB baseball team, he must have 12 different subscription services beyond the ever-shrinking number of games that are shown on over-the-air television.

This sparked an interesting online discussion among some friends of this blog:

Hampton Prescott: “Sports leagues used to recognize the set up they had – benefiting from monopoly under the implicit knowledge that they maintained at least a resemblance of accessibility. Now nosebleeds going for $10K & spreading coverage behind multiple paywalls risks blowing the whole thing up.”

George MF Washington: “I can’t believe the number of smart people who don’t see the problem here. I think I watched two, maybe three NFL games last season. Ten years ago I would’ve laughed if you told me that.”

Hampton Prescott: “As you know very well being in the entertainment industry, eventually the reservoir of goodwill dries up if neglected.”

Buck Throckmorton: “’Goodwill’ is an actual Balance Sheet asset that has value. The short-term spike in revenue that comes from degrading a sports league’s customer goodwill is no different than removing equity from a business, running it through the Income Statement & then announcing record Revenue.”

Hampton Prescott: “This is a vital point that the financial engineers frequently miss.”

It’s time to revoke the anti-trust protections of these monopoly sports leagues. Ace himself advocated this point in a recent piece about MLB forcing players to wear uniforms advocating for the LGBT agenda while prohibiting those same players from displaying their Christian faith.

[buck.throckmorton at protonmail dot com]

posted by Buck Throckmorton at 11:00 AM

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