Jamie Powell from the Financial Times’ (free to read with registration) Alphaville site is following a trend I find both fascinating and extremely important for investors – cultural transmission. In short, the audience fragmentation caused by new technology means that the products and intellectual property that was valued in the past matter little to new generations.
In Mr. Powell’s column, “Warner Music’s worried about weakening cultural transmission,” he details the music industry’s concern that musical tastes are no longer being handed down from generation to generation. This implies that the copyright value for Warner’s catalogue – it includes Led Zeppelin, Neil Young, REM, Van Halen and ZZ Top – will steadily decline as younger people avoid their parents’ and grandparents’ favourites.
Warner executives are also worried that no new dominant artists are arising because the audience is so fragmented.
The music industry is suffering from a decentralization of power and influence caused by the internet that is likely to affect all major brands and their stock values.
In music, radio stations and print media, like Rolling Stone magazine, were the arbiters of artist success. The rise of iTunes first, then streaming music, left these entities with a fraction of their previous influence. The audience, with limitless musical choices at their fingertips on Spotify, followed their own tastes rather than gather behind a few, dominant artists.
The rise of video streaming creates similar problems for companies, like General Motors, Nestle SA and Proctor & Gamble, who used mammoth broadcast television advertising budgets to build their brand values. Like radio stations, broadcast television has lost its primacy, and the ability of advertising to affect consumer behavior has fallen accordingly.
Warren Buffett’s emphasis on stocks like Coca-Cola, where a strong global brand acted as a competitive moat protecting revenue growth, was famously lucrative. But Berkshire Hathaway’s steep losses (so far) on its acquisition of The Kraft Heinz company are a potential sign that the era of big brands demanding premium stock prices is coming to an end.
-- Scott Barlow, Globe and Mail market strategist
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