Valuations

Founder and CEO Masayoshi Son has already pledged to tighten investing criteria and preserve cash to ride out the downturn and signaled cuts to headcount at the Vision Fund, saying there were no “sacred areas.” “The world is in great confusion,” Son told a briefing after the release of the results, remarking on the tech sell-off, acknowledging also they had invested in more startups than they should have and that valuations had been “in a bubble.”

(https://edition.cnn.com/2022/08/08/tech/softbank-record-loss-vision-fund/index.html)

Masayoshi San is a businessman and hence his admission (of what went wrong) is important. Let me add to this a prescient observation by Franco Modigliani, who won the Nobel Prize for Economics in 1985, in an interview in 2000 about the US stock market (just before the stock market bubble): “I think the overvaluation of stocks is of the order of 25%. In my view, there will be a collapse, because if there is a marked overvaluation, as I hold, it cannot disappear slowly”. (Inside the economists’ mind – interviews with economists by Paul Samuelson and William R Barnett). Robert Schiller, who became famous with his ‘Irrational Exuberance’, said once in an interview (same book as above): the view that every movement in the stock market must have a rational foundation is one of the greatest errors in the history of economic thought’. The next time you hear or read about valuations or about how the market is ‘correcting itself’, remember these words.

If you went back to ‘experts’ opinions’ or economists’ observations then, you will (not) be surprised at their well-orchestrated singing. After all, birds of a feather flock together but let me quote Robert Schiller’s sharp observation on economists: “Economists are themselves are herd-like in their research directions, and so there is a lot to be gained by staying away from these common topics”. It takes a lot of courage, rarely found, to take a view different from those reigning, unless, of course, there is money to be made such as in short selling.

Paywalls – increasing

One of the most striking developments of the last few years is the embrace of paywalls by an increasing number of online newspapers, magazines and journals, including many mainstream newspapers with print editions. And this is happening all over the world and across all subjects. This is simply primary producers fighting back for what is their due refusing to be a mute witness to secondary players making money off their work. In a sense, this is a welcome trend as people realise that you need to pay if you want to read something.

The rise of paywalls also signifies the beginning of the (partial) end to the era of free content on the internet, except when supported by advertising. This is a significant turnaround compared to the time when nearly everyone offered their content free because building traffic (eyeballs) was everything. Unfortunately, advertising ceased to flow in proportion to traffic, causing a severe dent in finances. Incidentally, many print editions reduced their circulation significantly because a higher circulation did not lead to higher advertising revenues as it once did, developing alternative revenue streams. Meanwhile, search engines made money in routing content among users which led to a battle between media owners and internet companies.

The erection of paywalls was going to happen some time or the other and will take some time to get accepted. What will be impact of this? Will this give rise to the more focused and loyal reader rather than a random, careless reader? Are you willing to lose stray readers? There are some magazines, journals and even newspapers (with or without a print edition) who have put up absolutely hard paywalls, restricting any content (beyond a para or two) unless paid for. Some offer a limited number of articles in the hope of converting them to full-fledged readers. There are newspapers like The Guardian who have not erected paywalls and depend on, in addition to subscribers, contributors. They seem to have been quite successful in gathering a large number of contributors. This also demonstrates that there are people willing to pay for good reading.

The rise of the internet altered users’ behavior to such an extent that expectations of free reading became the norm, even though they pay for everything else that they buy. The next few years will reveal the success or failure of paywalls and a reorientation of businesses away from floating traffic to building a loyal, clustered clientele.