Notes on cable – Part 2 – The future

I think that it’s likely the following trends will play out in the future:

• On-demand television will become widespread because it is the most compelling delivery mechanism.
• Technologies incapable of on-demand viewing (terrestrial broadcasting, satellite) will become less profitable.
• High-speed Internet providers (cable and telcos) will be able to exercise increasing pricing power over their customers.

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The future of advertising

Summary:

• Online advertisers should be able to monetize their ads more effectively in the future.  This will be a huge tailwind.
• Scale will be a moat.
• Youtube has a bright future ahead of it.
• I suspect that television advertising and ad agencies will face serious headwinds.

Notes on cable – Part 1 – The past

Historically, the cable industry has had two areas that has generated very good returns for shareholders:

1. Distribution companies / cable channels.  They monetize content.
2. Infrastructure companies that own the physical coaxial cables.

Thoughts on oil and gas (Oct 2014)

1. Ethane prices will collapse.  The pricing for natural gas liquids (NGLs) will also probably collapse though I am less sure of that.
2. There is a very high amount of fraud when it comes to exploration and production (E&P) companies.  This creates opportunities on the short side and makes the long side difficult.
3. Going forward, midstream will be an attractive place to be for shareholders.

Contango Ore revisited (October 2014)

Contango Ore recently announced a joint venture with Royal Gold (press release).  Royal Gold will invest $5M initially with an option to increase its ownership in the project.  It looks like I was too optimistic in my assessment of the company.  I thought that the company was ready to advance the deposit to production.  The terms of the joint venture suggest that this isn’t a sure thing.  The partners will likely need some luck to find more ore to make the deposit economic.

Looking back on my analysis of junior miners, I did not do a very good job in spotting deposits that would turn into profitable mines.  Nevertheless I managed to make money by playing the volatility and by being lucky.

What happens when technology is good enough?

There are some areas in technology that have reached maturity and are at the point of being good enough.  Take JPEG image compression for example.  This old technology is used on websites everywhere to compress images.  There is a newer JPEG2000 format which is technically superior.  However, this superior technology has seen very little adoption on websites.  Internet speeds are so fast that the benefits (webpages loading slightly faster) aren’t important enough for webmasters to switch.

For some shareholders, there may be a disappointing future ahead.  Once the demand for more computing power stops, there is no longer room to create value with newer technology.  Often what happens is that mainstream consumer demand goes away first.  This can devastate the business model of companies developing new technology as it can only be sold on a smaller scale to niche markets.