“Pan, who and what art thou?” he cried huskily.

“I’m youth, I’m joy,” Peter answered at a venture, “I’m a little bird that has broken out of the egg.”

This, of course, was nonsense; but it was proof to the unhappy Hook that Peter did not know in the least who or what he was, which is the very pinnacle of good form.

Peter Pan; or, the Boy Who Wouldn’t Grow Up, by J.M. Barrie (1911)

I have good stories from work. My wife’s stories are better.

The asset allocator’s seat gives you access to brilliant, interesting and occasionally unseemly characters. Being a cast member at Disney World, on the other hand, gives you access to creepy Disney Dads. In case you have ever wondered, no, you would not be the first dad to ask Alice that while taking a picture with your 8-year old daughter. Yes, that polite giggle is her way of telling you you’re a moron and that you should rethink your life choices.

The best stories, however, are less scandalous. They are also usually stories about what it is like to be – as they say there – a friend of Wendy, the precocious young woman at the center of the Peter Pan stories. Why? Because most cast member roles at Disney World are exactly what you would expect. Scheduled meal appearances. Character meetings and photo ops. Peter and Wendy do all that, too, sure. But most of what they do at Disney is whatever the hell they want. Try to catch their shadows in the brutally long lines for Peter Pan’s Flight. Jump the line for the Mad Tea Party, hop in a teacup with strangers and spin it until they turn green. Play pranks on other cast members.

Peter Pan and Wendy run free at Disney because no one would believe in them if they did anything else.

Disney has been doing some running free of its own – the stock had a big week last week when the company announced the launch details of Disney+, its dedicated streaming service. It popped by a little over 10% after the announcement – more than $20 billion in equity value – and hasn’t looked back since.


It certainly wasn’t because people didn’t know about Disney’s streaming plans. Disney has been extremely transparent about almost all the details throughout its development. We have known the service was in planning for years. We knew its name in November.  We knew about the massive investment in proprietary platform content, the new VP heading up the group, and the details of some of the individual programming planned in January. In LexisNexis Newsdesk’s database, between March 31, 2018 and March 31, 2019, there were more than 48,400 news articles, major blogs, press releases mentioning Disney and streaming.

Below is the full network of that last year of articles, dominated by comparisons of the services, speculation about the impact of Disney’s streaming service on other vendors and discussions of content.

Source: Quid, Epsilon Theory

What are the most interconnected articles, which share the most language across topics about Disney and streaming?

Big tech stocks were crushed in December. Now they’re back [CNN, March 2019]

How Disney’s Investment in Streaming Will Affect Its Bottom Line [Motley Fool, Sep 2018]

Disney is set to dominate Netflix in the battle to be ‘the world’s leading content company’ [Business Insider, March 2018]

Audience demand for Netflix originals will soon pass demand for licensed TV shows and movies, and that’s great news for the streaming giant as competition heats up [Business Insider, December 2018]

Disney to Forgo $150 Million in Fiscal 2019 as it Prepares to Launch Disney Plus [Variety, February 2019]

In short, investors have been talking about Disney and streaming for a long time. They have been evaluating, comparing and thinking about the impact. They’ve been modeling the relative loss of high-margin licensing revenue against incremental costs of running a dedicated service. They’ve been speculating about all sorts of things, because there was a lot of detail out there to permit that speculation.

Except for one detail: the price. The only bombshell in the April announcement from Disney was that the service will launch at $6.99, right in the face of price hikes from its biggest competitor.

Now, I don’t think I (or anyone else) have a perfect sense of the price elasticity of demand on a Disney streaming service. But I will tell you what I think. I don’t think $6.99 is an earnings-maximizing price. I don’t think Disney thinks $6.99 is an earnings-maximizing price. I don’t even think $6.99 is an NPV-maximizing price, not even if we use the Amazing Amazon Algorithm to daydream about price hikes someday that will make it all worth it.

And I don’t think anyone else does, either. You don’t buy Disney on the announcement of a bargain basement streaming price because you plugged the number into your model and came out with a gorgeous new price target. If you did, you probably need to check your math. No, you do it because Disney is creating a powerful narrative that it will take market share. Because Disney is creating Common Knowledge that it will dominate streaming. Because Disney wants you to know that everyone else knows that it is now a Growth Stock – not in the constituent-of-the-Russell-1000-Growth-Index sense, but in the put-us-in-your-basket-with Netflix, Nvidia and Amazon sense. In the sense of the growth! meme.

And the growth! meme is Neverland, where all you need is a little faith, trust and pixie dust.

It is the land of Uber and the other unicorns, where the act of actually making money means that you have lost sight of the real goal: to utterly dominate an emerging market. I use the term emerging market intentionally, because that is exactly what ridesharing, streaming services, brute force protein folding and coin mining hardware, and buying-literally-everything-online-with-one-day-shipping are. Mature as some of them now are, they ARE still the new emerging markets, not only literally, but in the same way that we once allocated to “Emerging Markets”, not as a value or mean-reversion play, but as our speculative instrument. As our way to bet on the explosive potential of ideas and innovation and capital finding both, rather than tweaking some variable in a financial model. And with any such speculative instrument, they only work when we do not know in the least who or what they are (which is the very pinnacle of good form).

In other words, by saying ‘we don’t care about how much money we make on this right now’, Disney is reframing the discussion about the potential of this business to be limitless. To be whatever we can possibly imagine, because it could end up being anything, really. This is obviously just a variant of the don’t-change-the-growth-narrative-and-monetize-too-early game, of course, which obviously isn’t new. Companies have been at this for a long time.

What IS new and interesting to me is that a grown up, blue chip brand company with investors who care about about return on capital looks like they’re trying to find their way back to Neverland. I’m no prophet. I don’t know a damn thing about the streaming or media businesses that you don’t. I don’t have an edge here. But IF they manage it, I DO know this: Disney will be far from the last company looking to pull out a bit of pixie dust, to journey from the boring land of economic fundamentals to the land of growth! memes.

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  1. Avatar for Trey Trey says:

    I don’t disagree and I thought the price was an attempt to get us all on the teat. Then raise the price by a dollar every year because once my kid has Disney+ there’s no going back.

  2. Avatar for nick nick says:

    “Here ya go, kid. First one’s (basically) free.”

  3. Something valuable I learned from ET over the years is to not smirk at this,

    “I don’t even think $6.99 is an NPV-maximizing price, not even if we use the Amazing Amazon Algorithm to daydream about price hikes someday that will make it all worth it[,]”

    as something that will come crashing down, but as a narrative to be understood, respected and assessed for weaknesses and strengths.

    Since Ben launch it all in 2013 with ET’s “Manifesto,” (lucky my bond-trader girlfriend pointed it out to me so that I got into ET when it started - choosing a smart girlfriend is one of the best decisions I’ve ever made, that she somehow chose me is one of the luckiest things that’s ever happened to me), I’ve traded and invested the following six years much better than I would have without it.

    Now, I try to keep a meta perspective for when a narrative will break, but will trade/invest in it as well; before, I was all about the “when” of the break - i.e., staying away and waiting for the “foolish” to be proven wrong - but if a narrative can go on for a decade or more, I can’t stay away. Or, to explain it better, let me quote ET again, this time from the ET note “American Bandstand,”

    “I can sleep well at night if you get nothing else out of Epsilon Theory beyond the recognition that a) you are being played, and b) there are rules and logic to how you are being played. But I’d also like to demonstrate that c) it’s entirely rational to play along (to a point), and d) you can be a player, too.”

    All that’s ⇧ good and well and smart (on ET’s part), but heck, you still gotta love a well-crafted snarky phrase like this:

    “…the Amazing Amazon Algorithm to daydream about price hikes someday that will make it all worth it”

    Thank you Ben and Rusty - the consistency of your theories and the joy of your writing make ET a wonderful pack to be part of.

  4. Avatar for jz1 jz1 says:

    “Narrative can go a decade long and you have to respect it”.
    You know, Mark, I am NOT a trader. I never gamble more than 300$ in casino per trip, and I have only joined friends in casinos 3 or 4 times in my life. I was NOT born to transfer other people’s money. I was born to respect and earn W2 income. I thought if I could just earn, spend half and save half, I will raise and retire okay.
    How wrong I was proven for the past decade.
    I know I have NO edge against flash boys, NO edge against macro rate of change quants on inflation, growth and rates, no edge against IPO insiders. My value gene told me there are only about 3 weeks in 2009 that S&P was “fairly valued”, and I missed the entire 10 year S&P bull market waiting for it to be “fairly valued” some day,
    and mean while I can just save my W2 in zero rate accounts. Then I see house prices got bid up, insurance and tuition gets expensive. What’s funny is that the average house around me gain exactly the same amount of saving I put in every year.
    I am NOT looking for frame works to trade better. I am looking for ways to protect my savings so that I am NOT on a treadmill. ET made me understand how I was played, or how my savings were transferred, how I was fucked, how “value” is a story too and until the story breaks, man will wear hats for decades for NO reasons.
    It is sad that w2 earned money can NO longer get you a living. Everybody is forced to sit on the same table with Ray Dalio and gets money transferred to him. I would rather NOT stay on the same table with Ray and play poker. But here I am, Central Banks pointing a gun at my head to force me to sit with Ray and I need help from Ben and Rusty to play against him.

  5. I feel your pain. I don’t like the Central Bank game, but since I don’t have a choice, I want to play it as best that I can from my perch, which, in many cases, means I don’t play many parts of the game because - as you note - I can’t beat those with advantages that I don’t have.

    It’s too long, too self indulgent and too boring to others to go into here, but a big part of how I trade and invest is all about not being the sucker at the table, not doing things I will only lose at, while trying to identify methodologies and niches that I can do well in. ET has been incredibly helpful for me in trying to do all that.

    And whatever the game - whatever the time period, whatever the era, whatever the society - it will always be hard because the future is always unknown. We can look back and say, oh, that generation was able to save, invest conservatively and retire modestly but comfortably - but that was probably just a blip in history when those behaviors happened to align with the meta models and narratives then prevailing. It was an aha (and un-fun) moment for me when I discovered that making money (w2 income, as you say) was only a part - and a small part - of achieving some measure of financial independence and security.

    Now, I know that the harder game is investing and trading to maintain / grow the purchasing power of that hard-earned w2 income. We - every single person - has this challenge. Some choose to ignore it or believe in “the answer” (target-date funds, passive investing, indexing, “my advisor,” annuities, 60/40, bond ladders, etc.), but - and I mean this with no condescension - they are only kidding themselves as the future is always unknown as the value of every asset (fiat money very much included) is always changing as are the narratives around them.

    Hence, IMO, we simply have to play some version of “the game -” we have no choice. All I try to do is play the game as best that I can for myself and that is not easy at all.

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