“Why then, can one desire too much of a good thing?” – William Shakespeare, As You Like It Act 4, scene 1
“Water is life’s matter and matrix, mother and medium. There is no life without water.” – Albert Szent-Gyorgyi (1893 – 1986), Hungarian biochemist who won the Nobel Prize in Physiology or Medicine in 1937
“Anyway, no drug, not even alcohol, causes the fundamental ills of society. If we’re looking for the source of our troubles, we shouldn’t test people for drugs, we should test them for stupidity, ignorance, greed and love of power.” – P. J. O’Rourke, American political satirist and journalist
According to the World Health Organisation (WHO), at least 2 billion people globally only have access to drinking water from sources contaminated with faeces. Contaminated water is known to transmit diseases such diarrhoea, cholera, dysentery, typhoid, and polio and is estimated to cause 502 000 diarrhoeal deaths each year.
The WHO estimates that by 2025 half of the world’s population will be living in water-stressed areas – that is, areas where the demand for water exceeds the available amount or when poor quality restricts its use.
Water is essential. There is no life on earth without water. All of us have known this from a very young age.
During our first year at university, we had a friend, let’s call him Zed. Zed was an odd fellow, eccentric even. Even his taste in music could be described as being unusual: Tom Waits and Chuck E. Weiss’ Do You Know What I Idi Amin could regularly be heard playing loudly from his room in the wee hours of the night. One evening, as a group of us gathered together for dinner at our dormitory’s dining hall, Zed joined us a little later and mentioned that he had not had anything to drink all day and that he was incredibly thirsty. Instead of a tray full food like the rest of us, Zed came to the dining table with a tray holding eight glasses of cold water. He needed to drink all the water to quench his thirst he claimed.
After quickly chugging down six of the eight glasses of water, Zed stood up, told us he was not feeling well and left. We did not see Zed for the next day and a half. When we did finally see him, he told us that he had been bed ridden ever since he downed all that water. Having so much water, so quickly had made him sick.
In 2007, David Rogers, a fitness instructor from Milton Keynes, died at the tender age of 22 died during the London Marathon. David did not die from exhaustion, nor did he die as a direct consequence of the sweltering temperatures – which reached their highest level in the event’s, at the time, 27-year history – during the race. No, he died from hyponatraemia, or water intoxication.
Water intoxication occurs when the amount of water in the body is so great that it dilutes vital minerals such as sodium down to dangerous levels. It can lead to confusion, headaches and a fatal swelling of the brain.
David Rogers drank too much water during the race without taking in the commensurate amount of minerals.
Do not let anyone ever tell you that “You can never have too much of a good thing”.
Investment Perspective
When AT&T announced its intention to buy Time Warner in late 2016, Netflix was valued at 18 per cent of the combined stock market value of AT&T and Time Warner.
By the time the courts cleared the way for AT&T to acquire Time Warner in June this year, Netflix’s value stood at a much heftier 60 per cent of the combined market capitalisation of AT&T and Time Warner.
The rationale for AT&T acquiring Time Warner was provided by CEO Stephan Randall at the time the intention to acquire the media company was revealed in late 2016:
Premium content always wins. It has been true on the big screen, the TV screen and now it’s proving true on the mobile screen. We’ll have the world’s best premium content with the networks to deliver it to every screen. A big customer pain point is paying for content once but not being able to access it on any device, anywhere. Our goal is to solve that. We intend to give customers unmatched choice, quality, value and experiences that will define the future of media and communications.
With great content, you can build truly differentiated video services, whether it’s traditional TV, OTT or mobile. Our TV, mobile and broadband distribution and direct customer relationships provide unique insights from which we can offer addressable advertising and better tailor content.
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It’s an integrated approach and we believe it’s the model that wins over time.
Time Warner’s leadership, creative talent and content are second to none. Combine that with 100 million plus customers who subscribe to our TV, mobile and broadband services – and you have something really special.
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It’s a great fit, and it creates immediate and long-term value for our shareholders.
What AT&T did not mention, however, is how they intend to treat Time-Warner content on their network post-acquisition. That is, will they give Time-Warner content consumer on AT&T’s network a zero-rating much the way they have done for DirecTV content or not?
According to Wikipedia, zero-rating is the practice of providing Internet access without financial cost under certain conditions, such as by only permitting access to certain websites or by subsidizing the service with advertising.
Simply put, if AT&T gives a zero-rating to all Time Warner content, any of this content consumed by AT&T customers will incur no charge (i.e. it will not count against their allotted data / download quotas).
Also in June this year, Disney received approval from the antitrust courts to acquire 21st Century Fox on the condition that Disney divest Fox’s regional sports networks, as they would create anti-competitive conflicts due to its ownership of ESPN.
Sporting rights aside, the combination of Disney and Fox will create a media behemoth. Disney and Fox’s combined domestic box office intake equalled US dollars 4.5 billion in 2017 – representing approximately 40 per cent market share, a figure no single major studio has ever hit. Even more staggering, however, is that with the acquisition of Fox, Disney will control the rights to two of the biggest back catalogues in entertainment, which includes full ownership of all Marvel Comic characters and the Star Wars, Simpsons, X-Files, Indiana Jones, Pixar, and Alien/Predator franchises.
To complement the huge catalogue of content, Disney plans to launch its proprietary streaming service during the second half of 2019. In preparation for the launch of streaming service, Disney has also announced that it will be pulling all of its content from Netflix in 2019.
Netflix is spending cash hand over fist to produce new content.
The US’s largest telecommunication network may well monetise the huge library of Time Warner content by zero rating it on their network. And just for good measure, it is also spending some of its cash pile on original content creation.
Disney, probably the largest media company in the world after it completes the acquisition of Fox, is likely to put a chunk of its vast amount of content on its proprietary streaming service in 2019.
Let’s not forget that Amazon, Alibaba, and Apple, are all throwing money at original content too.
We may soon reach a stage, if we have not already, where there is just too much content.
The bull and bear cases for and against Netflix are well known and we will not regurgitate them here. We will, however, say that given the tectonic shifts taking place in the online video streaming space, holding Netflix at current valuations does not make sense, to us at least.