The End of Blockbusters and New Start-ups?

Out with the old and in with the new once more. Last month it was Blockbusters, the global giant of video rentals, closing their last few doors for the last time in the USA, as they filed for bankruptcy. Technology has overtaken them, their model of offering films for rent is obsolete.

Many stores are closing

Many stores are closing

Even in the UK where I grew up there seemed to be one on every corner. I used to walk round of an evening and thumb through the Betamax section (my mum had Betamax, much better quality than VHS, not widely used in a domestic setting but still used today for broadcasting).

For youngsters reading this article, the idea was that you take the film home and watch it and then return it the day after. Yes I know it sounds ridiculous, but if you forgot to return it you paid overdue fees, and these alone made $800 million in the year 2000, and that was less than 20% of the company’s operating profits!

And the rise was incredibly fast. In its first 15 years of operation Blockbuster grew from nothing to more than 9000 stores, even today it still boasts 3000, although they have been losing money hand over fist for more than a decade.

Netflix put an end to the party, but how could such a giant in the entertainment industry miss out on an opportunity to move forward. Back in 2002 they could have bought the Netflix operation for next to nothing, but the then CEO never thought it would take off. How wrong could he be?

Well here in Cambridge Massachusetts they have devised a system in order to try and stay on track with such developments, although I am not sure it is a good one. There is a huge culture of start-up funding, with an entire industry revolving around funding such new ventures.

We have the Mass Challenge competition that gives away more than a million dollars a year, loads of networking meetings and funding workshops. But what are these investors looking for? They are looking for the next Netflix or Amazon obviously, and they are prepared to put large sums of money into anything that looks like it might develop into something of the sort.

There are a lot of start-ups here that manage to spend a million a year for several years without ever turning a profit. A few hundred thousand on lawyers each year, nice office space, public presentations, and the investors keep coming in looking to make a fortune on the next new thing.

Just to give an idea of how much money is invested if we take a look at Mass Challenge they have invested $472 million in the last 4 years, and that has made a return income of $194 million. This investment has created 3928 jobs although we don’t know how many of them exist today.

All well intentioned I am sure but that means they have so far lost $278 million in 4 years. But they have created jobs, although at a cost of almost $71000 each. Not a great return, but we are talking about a not for profit organization investing private money so presumably everyone is happy.

I just wonder whether a more efficient model could be found, while not missing out on the next best thing of course. And I wonder how ethical investment choices are made. We are dealing with huge resources, and resources are the key to shaping the development of society. How much of this money could be said to be invested for the good of society? And how long can this type of approach continue whan 3 out of 4 fail?

I should just add that I use Zipcar, a local car sharing start up, so I don’t want to sound too critical. They have taken many cars off the road, which can only be a good thing. Several other food start ups work for social good, but they feel cut out of the funding cycle. See this post I wrote for IX about their positions.

Top 5 reasons for gadget buyer’s remorse

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Electronic gadgets

Typical gadget purchases.

Nothing compares to the excitement of getting a brand new gadget home. But, when you get it out of the box, have you ever regretted buying it?

New research from Debt Advisory Centre shows that the majority of people in the UK (82%) have experienced buyer’s remorse – and 20% of them have regretted buying gadgets (that’s just over 8 million people!).

Gadgets can be a big commitment – so if you regret buying them it can feel awful. That’s why Debt Advisory Centre has looked at the top 5 causes of ‘gadget buyer’s remorse’, and suggested a few ways they could be avoided.

1. I didn’t really need it (38%)

Many of us have been guilty of this at some point or another. It can be so easy to get caught up in the excitement when a new gadget comes out – and we feel like we just have to have one of our own. However, in the end, we realise that we didn’t actually need it at all.

One of the best ways to avoid this is to delay your purchase – by a week, a month or perhaps even longer. It might take some determination, but after the time has passed you might have a better idea of whether you actually wanted the gadget in the first place. Plus, if you wait a month or two, the cost might go down too.

2. I couldn’t really afford it (21%)

21% of people with gadget buyer’s remorse regretted their purchase because of the cost. That’s equivalent to 1.7 million people across the UK! And it’s true: gadgets can be very expensive, especially if they’re brand new.

Buying something that’s a bit too expensive is one thing – but getting into debt because of it is quite another. At Debt Advisory Centre, we’ve found that overspending is one of the main reasons people get in touch with us. We hear situations like this every day, along with the other causes of debt like job loss, divorce and other changes in financial situation. Whatever the reason, if you’re struggling with your debts it’s important to get help as soon as possible. A debt adviser could assess your circumstances and suggest an appropriate solution.

If you’re hankering after a gadget you can’t really afford (and you’re sure you actually need it), well: patience is a virtue. Wait it out, and you might find that the price drops significantly – or you might be able to find it much cheaper second-hand.

3. It was poor quality or broken (17%)

If you get your gadget out of the box and it doesn’t work properly, or it’s visibly broken, you should be entitled to return it and get a full refund. If it’s not quite as good as you were expecting (for example, if it’s a bit shoddy or flimsy) you should be able to return it, citing that it’s not suitable for your needs.

Surprisingly, only 7% of gadget-buyers who regretted their purchase actually returned it. Always check retailers’ returns policy before you buy anything from them.

4. I rarely or never use it (15%)

One day, your gadget can be your favourite possession, and never out of your hand. Then, a few months down the line, it can be in a cupboard – forgotten.

In this case, you may not be able to return it to the retailer (as you may have had the item for too long). So you could take an example from our respondents, who sold their item on (21%) or gave it away (6%). Have a look on eBay or similar sites to see how much other people are selling your item for. It’s worth at least getting some of the money you paid back.

5. I didn’t like it (10%)

It’s reassuring to see that ‘didn’t like it’ is the least popular reason for regretting gadget purchases. Gadget-buyers clearly do their research to see whether a gadget is right for them before they buy it.

However, if it does turn out that you don’t like it – don’t just keep it (like a whopping 66% of our respondents did). Act quickly and you can return it.

Bridging the digital divide

In this day and age, people have come to expect at least a modest speed for their internet connection. In many urban parts of the UK, speeds of around 10MB per second are commonplace, with some homes experiencing five times that amount. Home internet access has become a prerequisite for many school pupils in their learning, but not all of them are so lucky.

For many children based in rural areas or internet blackspots or for those whose families cannot afford to pay a premium for access, getting the information they need in order to complete their homework or simply boost their knowledge is extremely challenging. This is something that was raised by Estyn, the Welsh education watchdog, and they’re not alone.

Call for more investment

Those in rural areas, even if they’re just on the edge of major conurbations such as Greater Manchester and Leeds/Bradford, will find getting even basic broadband a pain, which has seen people in high-powered positions call for investment in improving connectivity where there is none. David Nuttall, the MP for Bury North in Greater Manchester, is one such voice.

Of the £990,000 allocated to the region, Mr Nuttall is calling for a large chunk of that to go towards people in his constituency who are experiencing problems with their speeds and, in extreme cases, access.

Those who live in areas which have very slow broadband access speeds are seriously disadvantaged in this digital age”, he said in an interview with the Bury Times.

Although in recent months we have seen some progress — for example in Nangreaves thanks to the hard work of local residents — there is still much to be done”, he added.

Solution from above

An optical fibre broadband cable

Whilst fibre optic broadband the fastest form of broadband, satellite broadband offers much faster speeds for those in rural communities, without optical fibre cables.

Until something is done about access to fast broadband nationwide, those affected are left to ponder what, if any, alternatives are open to them. One could come in the form of satellite broadband, which can work as more than just a stopgap solution.

Many people don’t realise the role satellite broadband has in filling in rural not-spots and connecting the last 5% of homes and businesses that will never get fast broadband over wires”, said Andrew Walwyn, CEO of EuropaSat.

The latest generation Ka band satellite broadband services offer defined, predictable service levels at reasonable cost, with no geographical discrimination. Using a small set-top box and an outside mini dish it’s now possible to deliver up to 20 Mb fast broadband to any property in the UK or indeed Europe.

Music Royalties and Spotify

The BBC World website is reporting that Thom Yorke, the singer from Radiohead, has pulled some of his music off Spotify and Rdio because he says that their royalty payments are too low.

To be exact he tweets:

%CODETWEETTB7%

Radiohead are not new to this type of provocation however. In 2007 they released an album “In Rainbow” that could be downloaded only from their website. The interesting line was that the listener could pay whatever they wanted for the download, there was no fixed price.

They came in for a lot of criticism as this article in the NME shows, with some people claiming they were making it more difficult for new bands to make any money from their releases.

Well Thom does not agree. The album was “bought’ 3 million times in its first year of release and Yorke himself says that the band made more money from this one album than all of the others put together.

So this leads to the obvious question about Spotify, how much do they pay?

Busking pays more than Spotify

Busking pays more than Spotify

As a musician myself I have a good knowledge of how the payment systems worked in the days before digital downloads. When my band released albums or singles and we received radio play we were paid. In the UK about 15 years ago an artist was paid about $30 a minute for a play on national radio. This means about $90 to $100 for a song, minus the 20% that the PRS take for collecting it and distribution. It’s good money. One single that gets 10 plays on John Peel or other fringe shows could make $1000, enough to make another.

Now Spotify is different of course because a play is personal, not to an entire country. This article on the Music Think Tank blog explains how royalties are worked out, but I will try to explain here as simply as I can.

Spotify make money from advertising and subscriptions. They pay 70% of their income out in royalties for the music they play. They pay out pro-rata, so if 1% of all streams happen to be your music, you get 1% of that total payment. Simple enough (maybe).

So lets look at the numbers.

In 2011 Spotify generated $20,333,333 per month.

They distributed 70% which is $14,233,333.

They had 1,083,333,333.333333 streams per month.

Let’s say I got 20 streams a month, about 0.00000184615% of the total royalties payout.

I make $0.26 a month, that is 26 cents. $0.01 per stream, minus the 15% that the digital distribution company takes for putting the tracks up and the 10.2% publishing fee.

About a quarter of a cent per play, in round terms, anyway not a lot of money by anyone’s standards.

Of course the more people use Spotify, the less an individual stream is worth.

In the US Pandora, another streaming site is pushing Congress into passing legislation that will cut this rate further, by 85%.

Even Pink Floyd have been complaining that artists are being duped.

I for one keep making music and releasing it to the world, I don’t expect to get rich though!

UPDATE: This week the BBC has a follow up article about Thom and Spotify. Check it out here.

UPDATE: Spotify has now revealed it pays artists $0.007 per stream. That’s a lot less that previously thought.