The music giant reaches for the atomic bomb

February 29, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on February 29th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Thousands of videos went silent on TikTok when music giant Universal protested against poor terms. The conflict is now escalating — and the power struggle between tech and music is intensifying sharply.

It is widely accepted that Spotify’s greatest achievement was not its technical innovation. Being able to play all the world’s music at the press of a button was admittedly an impressive feat. But the truly hard part was persuading the record labels to participate.

In an early 2013 interview with The Guardian, CEO Daniel Ek described it this way: “I was literally sleeping outside their offices and coming in week after week, knocking down argument after argument.”

Without the goodwill of the record labels, there would have been no Spotify. A question the music industry is now asking itself is whether the same applies to TikTok.

At the end of January, thousands of videos went silent on TikTok after the licence agreement with the world’s largest music company — Universal Music Group (UMG) — expired. Negotiations broke down after UMG demanded higher payments for its music, which TikTok refused. UMG then simply switched off all its music on the platform. Those who wanted to listen to Taylor Swift or Billie Eilish were met with total silence instead.

The result was somewhat strange: the videos remained but were now completely mute — and therefore considerably less enjoyable to watch.

The situation has become problematic for both TikTok and its content creators. Many of them earn their living through commercial partnerships with brands, being paid to feature them in their content. As many videos fell silent, their popularity dropped sharply, with serious financial consequences for the creators.

Much now points to this dispute becoming substantially larger.

In the music industry, there are, broadly speaking, two kinds of rights. There are the rights attached to the recording of a song — what used to be a physical record, and which is now most often a recorded track on Spotify. These are the rights that UMG has so far removed from TikTok.

The second kind of rights belongs to those who wrote and produced the songs themselves. These are called publishing rights. Every song — as anyone who has watched the Eurovision selection process knows — can also have a long list of songwriters.

On Tuesday, UMG activated what the industry is now calling “the nuclear option.” This means the label is removing music for all songs in which they represent at least one songwriter. Exactly what proportion of all popular music this covers is disputed. Industry experts put the figure at around 80 percent, while TikTok itself claims it is closer to 30 percent.

As more and more music disappears, the pressure on TikTok grows. The dispute challenges the power balance that the music industry has had with TikTok since the platform broke through. Many popular artists — including Lil Nas X, Olivia Rodrigo, and Doja Cat — all broke through significantly with the help of their popularity on TikTok. And the way the service allows users to discover new music is an argument TikTok presses hard.

TikTok wrote in a statement: “It is sad and disappointing that Universal Music Group has put its own greed above the interests of its artists and songwriters. […] They have chosen to walk away from the powerful support of a platform with well over a billion users that serves as a free promotional vehicle for their talent.”

UMG, for its part, said that TikTok accounted for only 1 percent of their revenues, and added: “Ultimately, TikTok is trying to build a music-based business without paying fair value for the music.”

These are strong words — and do not suggest two parties who are anywhere close to an agreement.

Wise from experience with streaming services, music companies like UMG have a clear picture of how they want to be compensated for their music. In Spotify’s case, negotiations ended with the major labels becoming shareholders in the company. For TikTok — already an established multi-billion-dollar business — that is an unlikely solution.

Something must give, however. And as history has shown, record labels follow each other. If Universal Music Group gets paid more, you can be fairly certain that rivals Warner Music Group and Sony Music will demand the same.

The outcome may be costly — but is likely unavoidable — for TikTok.

Jan Stenbeck’s legacy is being dismantled

February 26, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on February 26th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Kinnevik is selling Tele2 for 13 billion kronor, but the investment company’s transformation sits uneasily with its history. The risks of the chosen path are enormous. Will the owners dare to continue?

Sharp pivots and high risk. These have been among Kinnevik’s hallmarks since the days of Jan Stenbeck. At first glance, today’s deal — selling Tele2 for 13 billion kronor — might look like more of the same.

But what is happening now is more than just a large transaction. It is a dismantling of the very foundations on which Kinnevik has historically operated. The question is: why?

That Tele2 would eventually be sold was widely expected. In January this year, Kinnevik’s chairman James Anderson told Affärsvärlden the following about a potential sale: “It would support the strategy that came about the year before I joined — to become a company that fully owns growth companies.”

Kinnevik is selling Tele2 to Freya Investissement — a company partly owned by the largest shareholder in Millicom, another former Kinnevik holding. The total price tag is 13 billion kronor.

For those looking to invest in growth companies — particularly in tech — the timing is arguably good. Valuations have come down sharply from 2021 onwards, and those with deep pockets can now invest on considerably better terms than they could for years.

Kinnevik already has a large balance sheet, even before the Tele2 deal. The most recent annual report listed cash of 7.9 billion kronor. That goes a long way — particularly given that Kinnevik has said it will focus more on a handful of existing holdings rather than spreading capital across many new ones.

In the press release — which is remarkably sparse with detail about what the new proceeds will actually be used for — there is one key sentence. CEO Georgi Ganev mentions in passing that the board will “review our capital structure in consultation with major shareholders.”

What do the owners actually want the company to do? There are two clear alternatives.

The first is to continue on the current path. Kinnevik invests heavily in digital growth companies and now buys itself a longer runway to do so. If the depressed valuations prove temporary, the position of such a company could be attractive. However, this carries very high risk — even for those who believe tech valuations will return to 2020 levels. Finding the right companies to back is a challenge that is not meaningfully helped by a rising tide lifting all boats. The current strategy has faced growing scrutiny, not least from the stock market, which has consistently traded the shares at a significant discount.

The second alternative is to return a large portion of the proceeds to shareholders. With today’s Tele2 sale, the transformation Kinnevik began in 2018 has been completed. The last piece of Jan Stenbeck’s creation has been dismantled. What remains is a portfolio of investments of uncertain value and an enormous cash pile — over 40 percent of net asset value is now cash. With that composition, it would be reasonable to return some of it to shareholders.

For the controlling shareholders — the Stenbeck and Klingspor families, among others — the risk profile of the new Kinnevik looks nothing like the company the patriarch Jan once built. Their appetite for the company going forward may not be entirely aligned. SvD’s documentary series Dynastin described this dynamic clearly.

Ganev told Dagens industri that “we are doing exactly what Jan Stenbeck did — continuing to redraw the map.” In the old Kinnevik, high-risk ventures were indeed undertaken — but there was always a base layer of stability. Launching satellite television from England was done at the same time as packaging company Korsnäs was delivering predictable profits. Without Tele2, the cash flow is now cut off, making Kinnevik increasingly dependent on divesting companies or borrowing over the longer term.

The new Kinnevik, after today’s Tele2 deal, has nothing resembling that kind of stability. It is a company that is betting one hundred percent on its ability to create value through investments in internet companies. Since spinning out Zalando in 2018, that has been the company’s entire focus — but the results have largely failed to materialise. The share price is now substantially lower than it was when the new direction was adopted.

Even if the owners are satisfied with the strategy, they will likely be asking whether the company really needs all 13 billion kronor — on top of the 7.9 billion already held — to achieve its goals. Much points towards a substantial distribution and a materially smaller Kinnevik going forward.

Today’s deal marks the final transformation of one of Sweden’s most storied investment companies. Kinnevik will not be the same again. It now remains to be seen whether the owners want to try to rebuild it once more.

Caia’s trump card: Bianca Ingrosso

February 20, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on February 20th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

An extremely strong macro trend in beauty and skincare. An extremely well-known entrepreneur. While other companies are fighting for survival, cosmetics brand Caia is swimming against the current. Rumours of a sale are circulating once again.

“Beauty is an experience — and people are obsessed with sharing experiences.”

Emily Weiss, the founder of beauty brand Glossier, is on stage in Las Vegas. The year is 2018, and an attentive audience wants to know how she managed to break into the fiercely competitive beauty industry from what seemed like nowhere — and with a brand that started as a blog.

Weiss goes on to offer an insight that sounds simple, but would go on to define the coming wave in the beauty industry: “People look to other people rather than experts when they are in the discovery phase.”

The years that followed were tough for brands that, like Glossier, sold their products directly to customers. It was called DTC — “direct to consumer” — though a less euphemistically inclined person might simply call it mail order.

Selling direct had long carried low status, but DTC brands turned that perception on its head. Via pastel-coloured ads on social media, you could now buy everything from frying pans to razors straight from a tidy website — and have it delivered to your door. This allowed companies to cut out middlemen and control the customer experience from start to finish.

There was just one problem with the DTC model: it rarely made any money.

Companies like Away (luggage), Warby Parker (glasses), and Allbirds (shoes) raised billions in venture capital to build their positions. But as marketing costs climbed, growth began to slow. The pandemic disrupted the supply of both raw materials and products, and the companies suffered further. Allbirds went public in November 2021; its share price has since fallen more than 96 percent.

There are, however, companies going entirely against this trend. One of the strongest examples in Sweden is Caia Cosmetics — the beauty brand with Bianca Ingrosso at its helm, which is now rumoured, according to Breakit, to be up for sale. The company has not commented on the rumour.

Caia Cosmetics is also a DTC company. But unlike many others, it is both fast-growing and profitable. Its operating profit for 2023 is reported by Breakit to be just under 200 million kronor. Since 2020, Caia has been 60 percent owned by private equity firm Verdane.

What has Caia managed that so many others in the industry have not?

The first factor is an extremely strong macro trend in beauty and skincare. Interest is reaching ever younger age groups, with eleven-year-olds now requesting face creams as Christmas presents. The category has expanded to a broader audience while also becoming more sophisticated. On TikTok videos, people discuss multi-step skincare routines — and therefore many different products. More people are buying, and those who buy are buying more.

Cosmetics follow the same trend. The phenomenon of “GRWM” — “get ready with me” — is huge on TikTok. It consists of videos in which young women show how they apply their makeup while talking about their lives. The hashtag #GRWM currently has over 10 million videos. The way cosmetics and skincare are used has become a kind of content that does not primarily aim to sell products — but it takes no great leap of imagination to believe that it does so indirectly. Makeup has become entertainment.

The second factor is harder to replicate. It comes down to Bianca Ingrosso herself — an extraordinarily well-known influencer and now entrepreneur, who entertains audiences both through her own social channels and on a talk show on television.

Caia has four founders, but if you ask who is most associated with the brand, the answer is unambiguous. Bianca Ingrosso is Caia — whatever goes on behind the scenes. Ingrosso’s position in Sweden is formidable, and so Caia’s position is too.

A clear illustration of this was the enormous queue that snaked through central Stockholm when Caia opened a pop-up store at NK. Part of the explanation was that Bianca Ingrosso was there in person. But even afterwards, young women have loyally queued to buy the products.

Attaching a well-known person to products is a familiar and well-proven approach. American Kim Kardashian’s clothing brand Skims was valued at over 40 billion kronor last summer. Products from both Caia and Skims may well be good on their own merits — but it is the association with the individuals that allows them to break through the noise in the first place.

As Caia Cosmetics is now rumoured to be approaching a sale, it is easy to understand why there would be many interested parties. The question is whether a new — likely industrial — owner will take Ingrosso on an international expansion. Or whether Caia is now strong enough to stand on its own feet.

Either way, a new billion-kronor company has been built in Sweden — in a category that is often underreported and misunderstood. Hopefully, this much-talked-about deal will put an end to that.

This is the cruel AI irony for tech workers

February 16, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on February 16th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Tech giants are laying off thousands of employees even as they invest massively in AI. The irony is that the very tools they are building may be what makes those cuts permanent.

In January 2023, Google announced it would lay off approximately 12,000 employees — around six percent of its global workforce. The cuts came despite the fact that the company had grown its headcount by roughly 55,000 people since the start of the pandemic.

The pattern was not unique to Google. Microsoft, Meta, Amazon, and others made similar announcements in the same period. The narrative was straightforward: the pandemic had driven an unusual surge in demand for digital services, the companies had hired aggressively to meet it, and now the correction had arrived. The boom was over.

But something else is happening alongside this correction — something with longer-term consequences. These same companies are simultaneously making enormous investments in artificial intelligence. The capital expenditure required for AI — chips, data centres, infrastructure — is staggering. And it is running in parallel with a period in which the core growth of these businesses has slowed to single digits.

The term “dogfooding” comes from the tech industry. It means using your own product internally before releasing it to the world. The idea is to catch problems early, but also to build genuine conviction in what you are making. If you would not use it yourself, why would anyone else?

The tech giants are now dogfooding AI in a very direct sense: they are deploying it to handle tasks that engineers and analysts previously performed. Code review. Documentation. Internal tooling. Routine data analysis. These are precisely the kinds of tasks that junior and mid-level engineers spend much of their time on.

An average software engineer in Silicon Valley costs around 1.5 million kronor per year in total compensation. At that price, the incentive to replace even a fraction of that work with AI tools is significant — especially when the same companies are under pressure to demonstrate that their massive AI investments will eventually translate into efficiency gains.

This is the irony at the heart of the current moment. The companies that built the AI are among the first to face the consequences of deploying it. The layoffs of 2023 were framed as a pandemic correction. But the structural pressure that follows — from AI automating the kinds of cognitive work that tech companies pay most handsomely for — may mean that the giants never return to their previous headcounts.

We may, in other words, be at peak tech worker. The largest technology companies in the world may never be larger, in terms of employees, than they are right now.

That is a remarkable thought. These companies have long been among the most sought-after employers in the world. They have shaped the labour market, driven wage inflation across the knowledge economy, and served as benchmarks for how high-skilled work could be compensated. If they begin to shrink — not through failure, but through the success of their own technology — the ripple effects will extend far beyond Silicon Valley.

It would be the ultimate irony if those who built this technology were also among the first to lose their jobs to it.

Carlson and Musk need each other

February 9, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on February 9th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Tucker Carlson and Elon Musk have found each other on platform X. But what is being portrayed as free speech looks a lot more like a new type of advertising.

Tucker Carlson stares straight into the camera. A rumpled red velvet curtain hangs behind him. He was fired from Fox News when it emerged that he was not just playing an angry man with xenophobic views on TV — he had also written text messages suggesting he actually was one.

Now he has his own channel — Tucker Carlson Network — broadcasting on his own site and on Elon Musk’s social network X. He makes a big deal of going to Moscow to interview Vladimir Putin, but the pre-roll video accompanying the programme gives a broader picture of what this venture is really about. He dispenses advice to a 22-year-old losing his hair: “If you’re going to get a wig, go for one that makes you look like a 1970s pimp.”

That Tucker and Musk have found each other is no surprise.

Carlson is not the tenacious, courageous interviewer he likes to present himself as. Rather, he is an entertainer who moves between politics and social commentary — packaged in a way that sounds like he is speaking for the people and the silent majority.

Given this position, the sense of kinship with another man who likes to position himself as a voice of the people — entrepreneur and multi-billionaire Elon Musk — is easy to understand. Several major decisions on X have been put to users to vote on by Musk, often invoking the phrase “vox populi” — the voice of the people.

Musk caused enormous upheaval on the platform formerly known as Twitter by changing rules and overhauling the verified user system. Since then he has both renamed the service and tried to rebrand its associations. X is to be a bastion of free speech.

The success of this depends somewhat on who you ask. The organisation Reporters Without Borders calls X a “safe haven for disinformation.” At the same time, he has been celebrated by the American political right for reinstating previously banned users — including Donald Trump.

There is, however, something suggesting this mutual interest is not solely about amplifying temporarily silenced political voices.

In a blog post from January this year, X declared itself a “video-first platform” — a service where video takes priority. It was a surprising statement, given that X had been one of the few text-based social networks to achieve real success. A bit like Volvo Cars announcing it was going to start making bicycles. Not unthinkable, but perhaps not the most obvious strategic choice.

The sudden interest in video has a simple explanation: more expensive ads.

Earlier in January, American fund giant Fidelity wrote down the value of X by 72 percent compared to what Elon Musk paid for it — around 44 billion dollars. Fidelity is one of Musk’s financial partners. The write-down reflects many advertisers having stopped spending money on X. Rather than trying to win back those who fled — Musk even told them to “go f*** themselves” from a stage in New York — the company changed strategy. New name, new advertising strategy, and hopefully a new type of advertiser: those who buy expensive video ads.

Both want to make money — so they need each other.

X’s CEO is Linda Yaccarino, formerly chief advertising officer at broadcaster NBCUniversal. Video advertising is her home turf.

But to sell video advertising, you need people watching video. And this is where the circle closes with Tucker Carlson.

Carlson’s popular profile fits perfectly into Musk’s rebuilt X. He has the right political profile, is not available on other platforms, and is good at attracting attention. Going to Moscow to interview Putin is the perfect move to achieve exactly that — and that attention spills over onto Musk and X.

Carlson himself says the purpose of the Putin interview is to “inform people.” He believes the American public is paying too much for the war between Ukraine and Russia without understanding what is happening in the region. Given the American debate currently unfolding about precisely this — in the middle of an election year — it is hard not to see the cynicism in the timing.

Here too, Carlson and Musk have something in common. One wants to find his way back to his audience and become an important political commentator again. The other wants to be the platform for free speech. But both want to make money and rebuild the revenues they have lost. For that, they need each other.

The Viaplay fiasco paves the way for a TV4 acquisition

February 7, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on February 7th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

After the disastrous Viaplay investment, Schibsted is looking for a new strategy. There is plenty of capital — but in reality just one company worth buying.

The way companies express themselves often veers into parody. They talk about “challenges” and “strategic choices,” but everyone knows what they are really trying to say.

Consider this formulation from Schibsted’s latest quarterly report, released on Wednesday: “After a thorough evaluation of the merits of our options, and given the anticipated change in our corporate structure, we have taken the decision to wind down and exit our investment in Viaplay.”

A more direct way of saying the same thing would have been: “We made a very expensive and bad investment in Viaplay, and now we are giving up.” Because that is precisely what happened.

Norwegian media group Schibsted is in the process of being split in two — that is what the sentence about “corporate structure” refers to. One part remains listed — all marketplaces and financial services — and the other takes the news media and retains the Schibsted name. The news part becomes privately owned by the Norwegian Tinius Foundation, which is also the majority owner today.

There were several reasons to be wary of the Viaplay investment. It would not follow into the Tinius buyout — which would have been logical, given that it is a media company. And Schibsted was not part of Viaplay’s rescue plan when it was presented. So the holding would become heavily diluted when the other major shareholders injected new money.

Now we have it in black and white what came of all that. Schibsted invested 380 million kronor; the remaining value is around 13 million kronor. That means they lost approximately 2.5 million kronor — every single day — since the deal was announced last autumn. A remarkably poor investment.

In connection with the report, CEO Kristin Skogen Lund also announces her intention to resign. With the company being split up, she considers this a good moment for new leadership.

A different kind of Schibsted is emerging from the break-up. But the road here has been, to say the least, messy.

To understand it better, we need to look back at the last major Schibsted transformation.

In 2019, the company decided that several of its international marketplaces would be separately listed. Sites resembling Blocket in other countries — including Leboncoin in France and Segundamano in Mexico — were placed in a new company called Adevinta.

Schibsted had more marketplaces than those, however — Blocket and Norwegian Finn, for instance. Price comparison service Prisjakt and loan broker Lendo were also retained. All had more in common with the Adevinta companies than with the news operations. But the idea at the time was that geography would be the unifying factor. Schibsted was to become a Nordic company with many different businesses within it.

Now — with the split of Nordic Schibsted a reality — this creates a rather odd situation. Schibsted still owns part of Adevinta, and will shortly own a company (under a new name) housing all the Nordic marketplaces and services. Apart from geography, these companies do almost exactly the same thing, have partly the same owners, but sit as two separate entities. What exactly is the logic here?

To complicate matters further, a consortium including Permira and Blackstone last autumn bought 60 percent of Schibsted’s shares in Adevinta. In that deal, Schibsted sold shares worth 24 billion Norwegian kronor. It is partly this money that Tinius — as majority owner — will now use to buy out the news operations. But there is also capital left for new acquisitions. Which ones will be interesting to watch.

In the press release announcing the purchase of the Viaplay shares, CEO Kristin Skogen Lund said: “Viaplay’s strong position as a streaming provider in the Nordics is a very good fit for our media operations.”

Well, but if it is not Viaplay, there are not many others to choose from. With a strong cash position and a narrower focus on media, the list of conceivable targets is very short.

To Dagens Media, the incoming head of Schibsted’s media division, Siv Juvik Tveitnes, said: “If we are to remain relevant, particularly among younger audiences, we need to broaden our offering and invest more in both sport and entertainment.”

Streaming. Sport and entertainment. Billions in the account to invest outside the stock market.

Could it be that Viaplay was just the overture to the next major streaming bet? Trying to buy TV4 from Telia.

Note: Norwegian Schibsted owns, among other things, Svenska Dagbladet, Aftonbladet, and Blocket. The group is in the process of being split into two parts — one for media and one for marketplaces.

Meta’s new strategy: become a normal company

February 2, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on February 2nd, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

After spending billions on a name change and peculiar 3D avatars, Meta appears to have found a new strategy: becoming a perfectly ordinary company.

“Mr. Zuckerberg, what the hell were you thinking?”

The clip of Republican senator Ted Cruz berating Meta’s CEO, Mark Zuckerberg, went viral this week. Usually it is stuffy politicians who ask stupid questions, prompting the internet to collectively snicker at them.

Instead, Zuckerberg was dressed down during a congressional hearing on children’s online safety — and by Ted Cruz of all people. The former presidential candidate from Texas who frequently features in American comedians’ routines as the archetype of a generally dreary and useless politician.

With such an ace up his sleeve, perhaps he could afford to be put in his place for an hour or two.

Zuckerberg, however, did not look particularly shaken.

He knew what he would be talking about the day after the congressional hearing.

On Thursday evening, Meta’s quarterly report arrived — and it looked extraordinarily good. So good that the share price shot to an all-time high in after-hours trading.

Revenue rose 25 percent and net profit a full 201 percent. The number of users across Meta’s services increased. Advertising prices increased. In almost every direction, the arrows pointed up.

Meta now has so much money that it intends to buy back its own shares for 50 billion dollars — almost 520 billion kronor. It will also — for the first time in the company’s history — pay a quarterly dividend. Something that neither Amazon nor Alphabet, Google’s parent company, has ever done.

Looking back, Meta was once called “The Facebook Company,” a legacy from the first successful blue website. This was followed by acquisitions of Instagram, WhatsApp, and Oculus’s VR products. The old name no longer suited the new company that had grown out of it. And more specifically — it did not suit the vision that Mark Zuckerberg now believed was the future: the metaverse. In the future, we would all have graphical avatars meeting digitally to work and socialise. The company was renamed “Meta” in the autumn of 2021.

The company name is ultimately somewhat unimportant in the grand scheme of things, but a rebrand is typical of a leader who believes in their idea. It signals clearly — both internally and externally — that this is the new goal we are heading towards.

It is also a sign of a company starting to run out of its own ideas.

Fast forward to today, and billions of dollars have been invested without anyone caring much about the metaverse any more.

Meta continues to spend money on the division internally called “Reality Labs,” but the letter to the market also states that new AI investments will cost big money this year. We have heard that before.

What happened to the grand new idea? Where did the metaverse go?

A company that buys back its own shares and regularly pays dividends may be popular with many shareholders. But it is also a sign of a company starting to run out of its own ideas.

In a market where regulatory obstacles stand in the way of large acquisitions, Meta has had to look inward for innovation. It will almost certainly not be allowed — even if it would dearly love to — buy up competitors without regulators from both the EU and the US rushing in to block it.

The metaverse idea has not taken off — at least not yet. Instead came a wave of AI in which Meta has become a significant player. One of several, but certainly a noteworthy one. Being a tech company betting on AI in 2024 is not particularly unique, however. The headquarters of OpenAI and Google are within 45 minutes’ drive of Meta, and there is fierce competition for the best AI researchers. There is a future vision here — but Meta is far from alone in identifying it.

Zuckerberg appears, instead, to have found a new idea to build his Meta around. For now, at least. After a major comeback from when the share price collapsed in autumn 2022, it has now returned to all-time highs.

What better, then, than to do what other profitable companies do with their excess cash? Take care of shareholders. Buy back shares. Pay dividends. Become — to simplify slightly — just like any other well-run listed company.

It is an idea, good as any. But it is a long way from the visionary Meta that Zuckerberg wanted to create a few years ago.

The stock market’s dependence on tech giants is at a record high

January 30, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on January 30th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Ten trillion dollars in market cap is reporting its quarterly results this week — and just five tech companies account for all of it. The stock market’s dependence on the tech giants has never been greater.

In 2011, venture capitalist Marc Andreessen wrote the now-famous words “software is eating the world.” But not even he could likely have imagined that we would find ourselves in the position we are in today, less than fifteen years later.

That technology has had a profound effect on society is uncontroversial.

But that investors around the world would be watching Silicon Valley so closely for the sake of their own savings — that is new.

When five of the seven largest tech companies all report their quarterly results in the same week, the effects for both funds and individual investors are enormous — even for those who have no interest in the sector, or do not follow the current tech gospel.

They are called “the Magnificent Seven” — seven tech companies that make up just 1.4 percent of the S&P 500 index by number, but represent more than 29 percent of its total value. The companies in question are Apple, Meta, Amazon, Alphabet (Google), Microsoft, Tesla, and Nvidia. The first five all report between Tuesday and Thursday this week, together representing over ten trillion dollars in market capitalisation.

Given their enormous influence on the market, the whole world is now watching carefully for signs that the record levels for the S&P 500 reached earlier in January could be surpassed.

As SvD has previously reported, Swedish investors’ exposure to these stocks is also very high. Many popular Swedish global index funds, or funds focused on the US, have these stocks among their largest holdings. Even the so-called “sofa fund,” AP7 Såfa — owned by more than 5 million Swedes — has nine of its ten largest positions in international tech giants. All seven major American companies are represented.

Tech stocks have become a kind of people’s share — hidden in plain sight. Without Swedes having actively chosen it.

First to report is Microsoft, which has recently taken over the position of the world’s most highly valued company. After a share price rise of more than 66 percent over the past year, it has just crossed the almost incomprehensible threshold of three trillion dollars in market capitalisation.

The optimism surrounding the company is enormous. Its AI investments through the partnership with OpenAI in San Francisco have placed it among the very heaviest hitters in the tech world — again. And it continues to make large, transformative bets. The acquisition of gaming company Activision Blizzard was the largest in gaming history. Now that the deal has finally gone through, the door is open for further acquisitions, even if likely of a smaller nature. Microsoft has momentum, and CEO Satya Nadella shows no sign of holding back.

Next is Alphabet, the name of Google’s parent company — changed to encompass more businesses in its portfolio. But in all material respects, it is only Google and its wholly owned YouTube that move the needle. In 2016, incoming CEO Sundar Pichai announced that Google would become an “AI first company.” That may have been the ambition, but executing on it has proven harder. In the enormous AI wave, Google has been a participant rather than a leader — at least so far.

It has, however, impressed by continuing to grow its enormously profitable advertising business and new cloud initiatives in parallel with the surging AI development. The battle for AI has only just begun, and Google has a long history of innovation in this area. The “T” in ChatGPT — transformer — is a technology first developed by Google. Expect many major announcements from their side in the year to come.

Last — but far from least — comes the event that will arguably have the greatest effect on the market of all.

On Wednesday, US Federal Reserve chair Jerome Powell will announce whether the Fed intends to cut interest rates for the first time since 2020. And you remember what happened to tech stocks the last time we had low interest rates? Microsoft’s market cap has more than doubled since then. Even the slightest hint that we are heading that way again could put fresh wind in the sails of tech stocks — and many more than just the biggest seven.

Hold on — the market’s week of reckoning has just begun.

Beats expectations with old tricks

January 24, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on January 24th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

Growth was in focus as Netflix crushed market expectations. The key to success spells advertising — and a bet on a well-proven idea: good old-fashioned TV.

In 1998, a radical idea was launched: films delivered to your door, to watch whenever you want.

Today the concept is familiar. But in the 1990s, consumers had to be more patient. The company with the idea was Netflix, and the concept involved mailing DVD discs in red envelopes to viewers. Compared to renting them at a video store, however, it was a marked improvement for many.

Until last autumn, Netflix was still sending DVDs in the post to the remaining customers who wanted them. But in parallel, one of the great media and entertainment companies of our time has grown through streaming.

Netflix is, in other words, used to change. And now it is time again.

The streaming market has for many years been driven by what looked like endless growth. People could not get enough of video — especially during the pandemic years, when the range of other activities was limited. But in 2022, the market appeared to stall. Competition became increasingly fierce as major players like Disney+ and HBO Max took market share. That was the starting gun for a new period of change, in which old certainties had to be revised and strategies rewritten.

Away from flagship drama productions, inspiration came from another direction — something you could straightforwardly call traditional TV. Shorter and cheaper programmes to produce, lighter concepts, and a type of entertainment that can run in the background while you do something else.

And, of course, the most significant difference that commercial TV has from ordinary streaming services: adverts. Netflix has had them too, for just over a year now.

When Netflix reported its quarterly results on Tuesday evening, its new advertising model was in focus. Showing adverts allows it to offer cheaper subscriptions — those who want to avoid them pay more. Through this, the market hoped growth would pick up again. It did — and then some.

Over the past quarter, Netflix gained 13.1 million new subscribers — substantially more than the approximately 8.7 million it added in the previous quarter. The streaming giant also beat market expectations on revenue and took the opportunity to raise its profitability outlook. The share price rose more than 8 percent in after-hours trading.

Particular attention was paid to the impact of advertising. Of its total 260.8 million subscribers, more than 23 million have chosen the ad-supported tier. In just over a year, it accounts for nearly 10 percent of the total. Making TV via the internet seems to be working extremely well.

Several competitors are also looking to the TV model. Next week, Amazon’s Prime Video will begin showing adverts among its programmes. Existing customers have the option to upgrade their subscriptions to avoid them, but adverts will become the new default for Prime Video. Amazon also already has a larger ad-supported video push through its Freevee service — “free” because it carries adverts.

Another factor driving Netflix’s growth was the crackdown on password sharing. When times were good, then-CEO Reed Hastings described this as a problem “you have to learn to live with.” That attitude has changed. Netflix has actively worked to prevent subscriptions from being shared improperly, including by offering paid add-ons that allow account sharing for an extra fee.

Netflix’s strong results run counter to a somewhat battered entertainment industry. Large parts of Hollywood have had a tough time lately, hit hard by a long strike among actors and screenwriters. Competitor Disney is occupied partly with fending off activist investors demanding change, and several services are discussing mergers and acquisitions.

Netflix — substantially more international than its closest competitors — was less affected by the American strikes. Programmes from different parts of the world have been able to keep flowing into its service. On top of that, dependence on individual big-budget series is lower now than before.

With strong results and renewed growth, the TV model looks set for a bright period ahead — particularly in the new, changed Netflix.

Apple’s plan: work around the court ruling

January 17, 2024
by Björn Jeffery
SvD Näringsliv

This analysis was first published in SvD Näringsliv, in Swedish, on January 17th, 2024. This piece was translated from Swedish by Claude. Some phrasing may differ from a human translation.

A court ruling on the so-called “Apple tax” looked set to cost the American tech giant billions. But a similar case reveals how the company plans to circumvent the court’s intent.

Critics have called it a tax — but one levied by one of the world’s largest companies.

Every time an iPhone user buys something digitally in an app, the developer must pay Apple a share of the revenue.

Think of it as a kind of commission. Or a tax, if you prefer. To simplify somewhat: it costs 15 percent on all revenue below ten million kronor per year, and 30 percent on everything above that.

The opposition — driven all the way through the legal system — concerns two things: the level of the commission, and the ability to sell apps through other outlets. If you want to sell to iPhone users through an app, there are no alternatives — you must use the App Store and Apple’s payment system.

When the US Supreme Court on Tuesday declined to take up the prominent case between Apple and Epic Games, the ruling from April last year stood. Apple won on nine of ten counts. Both parties had appealed, but this legal process is now over.

A fairly safe prediction is that it will shortly be replaced by a new one.

At first glance, the tenth point — which Epic Games did win — looked like a significant victory for the world’s app developers. It meant that developers could link to their own payment system from within an app, and thus bypass Apple’s payment system and its fees. Had that been the case, many major developers would be celebrating today — including Spotify, which has long been a loud critic of the current system.

But looking at a similar case from the Netherlands in 2022, it becomes clear that Apple will not accept defeat here. In a dispute over dating apps, the Dutch competition authority forced Apple to change its rules. Dating apps were allowed to process payments independently. But if they did, Apple introduced a new fee of 27 percent instead. On top of that came the costs of running one’s own payment system. In total, what was meant to improve app developers’ margins could instead become a loss-making exercise.

Updated guidelines from Apple, published on Tuesday directly after the ruling, show that the same approach will apply outside the Netherlands. Epic Games CEO Tim Sweeney immediately wrote on X that they would launch a new legal challenge in protest.

Apple’s reluctance to concede on these issues is easy to understand. Billions of dollars in revenue flow through these systems every year. That revenue falls within what Apple classifies as “services” — which is of particular strategic importance, given that iPhone sales have stagnated somewhat in recent years. Services have been the highest-growth segment.

The path to maintaining this strong position, however, is looking increasingly complicated.

From March 7th this year, Apple must start complying with the EU’s Digital Markets Act, DMA. This covers alternative payment methods, but also requires Apple to make it possible to install apps on their phones without going through the App Store. Apple has loudly protested the law, arguing that it creates security risks for users.

To comply, Apple is preparing — according to Bloomberg — to split the App Store in two: one for the EU and one for the rest of the world. This ensures that changes for European users do not spill over to customers elsewhere.

What we are witnessing is a billion-dollar legal cat-and-mouse game. Apple removes one fee and replaces it with another. It allows linking to outside payment systems, but in a way that is extremely cumbersome. It works — technically — but so awkwardly that no developer will want to use it.

But the laws are closing in. So are the calls over what constitutes monopolistic behaviour. Apple’s market position has made it one of the world’s largest companies by market capitalisation. It is easy to understand why they so consistently push back against all external demands for change.

The winds are clearly blowing against them, however, and Apple is running out of cards to play. But for every month they can delay the changes, billions more roll into their accounts. They are in no hurry to enter a more regulated future.