SITALWeek #440
Welcome to Stuff I Thought About Last Week, a personal collection of topics on tech, innovation, science, the digital economic transition, the finance industry, and whatever else made me think last week.
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In today’s post: instead of social algorithms directly influencing people, there will be a content shift aimed at manipulating our AI agents; LLMs lose weight but still remain effective; a box office bust as movies remain more popular on streaming; Saturday morning cartoons; the big "wink" of the concert industry; shifting vices; a fix for housing turnover; AI is a better investor; the South Park stock index; and, much more below.
Stuff about Innovation and Technology
AI Swings Green
More evidence emerges that AI can emit far less carbon per page of text or image generated than humans doing the same task – upwards of 100 to 2000 times less. I discussed this often overlooked benefit in AI’s Energy Roller Coaster, and I’ve previously overviewed energy sources/demand in Pushing Electrons. Also of note, researchers continue to find that smaller AI models, consuming far less power, can be just as effective as the big LLMs. IEEE reports on 1-bit LLMs, including Microsoft’s work on baby AIs.
Buttering Up the Bots
Today’s algorithms are tailored to influence us directly; soon, however, they will all be designed to influence our AI chatbots (a process that’s likely well underway already). When I see OpenAI signing deals with news outlets for access to content, one thought that crosses my mind is how the reporting of news will change. If news wants to get in front of you, it will need to appeal to your AI agent who will then in turn tell you about it. It’s a gatekeeper handoff from search/social networking to AI discovery engines. And, this transition is hardly limited to news. For example, if a potential romantic suitor wants to get your attention, their AI agent will need to woo your AI agent in your dating app. Likewise, snack companies will be creating ads tailored to your AI companion so they can convince you that you are in the mood for some Cadbury Chocolate. Content, personalities, products, etc. will all evolve to appeal first and foremost to AI agents, who will then whisper in our ears what all our desires should be. I've covered my fascination with the potential for an AI-agent-based economy that would dwarf our current analog economy in Simulacrum, Your Wish is Granted, and Creating a World of Binary Design.
Box Office Bust
Memorial Day weekend usually kicks off the US summer holiday with a box office windfall. However, last weekend's moviegoers posted the worst showing since 1981 (adjusted for inflation). One contributing factor could have been last year’s Hollywood strikes, which pushed tentpole releases out until later this year, dampening early summer momentum. Afterall, it was just last year that we had Barbenheimer, so perhaps a dearth of good movies – and/or viewer fatigue with movies starring adults clad in tights and capes running around going “pew pew pew” – is to blame for the poor theater turnout. That said, we do know the box office faces significant challenges, with streaming being perhaps the most significant. Small-screen movie viewing remains strong, with releases like Road House, which went straight to Amazon Prime, garnering buzz. And, of course, consumers’ entertainment options are structurally shifting to an unending menu. While this Memorial Day weekend could have simply been an anomalous stinker for moviegoing (although all releases received positive reviews from audiences), it still represents yet another example of fragmented culture, with everyone consuming niche content at scale. And, in case you were wondering, 1981’s Memorial Day weekend featured such forgettable titles as Bustin’ Loose, The Four Seasons, Outland, and The Legend of the Lone Ranger. Meanwhile Netflix released its updated global viewing stats, and movies are still dominating. Leave the World Behind garnered 121M views while animated film Leo received 96M.
Cartoon Connection
I know everyone is waiting with bated breath for me to reveal my latest YouTube content obsession. Recently, I’ve been watching full blocks of recorded 1980s Saturday morning cartoons, complete with programming and commercials all as they originally aired. It’s a nostalgic experience similar to what I discussed in Lessons from Vintage Advertising. While there are some shows I had forgotten, there were also a couple I had erroneously included in my childhood Saturday morning lineup. I don’t know when this memory cross-contamination occurred, but that’s the nature of the brain. I also found it interesting that shows I thought I had watched when I was around ten actually only aired when I was four to five years old. It’s surprising how early in life strong memories can form. In its 20th century heyday, watching Saturday morning cartoons may or may not have been a global phenomenon, but it was certainly a ritual in the US. I found a website that logs historical TV lineups, and here is mine from 1986. It’s likely I could find common ground with anyone in my age bracket who grew up in the US, all based on Saturday morning cartoons and their compendium of toys. Forty years from now, however, no one will have that kind of shared cultural connection, except of course for Bluey.
It’s Not What You Think
I’ve been an investor long enough to have watched firsthand the concert industry’s transformation over the past three decades. Until the mid-to-late 1990s, concerts in the US were booked through regional promoters, many of whom were (and still are) legends in the industry. Businessman Bob Sillerman rolled up most of the promoters, as well as many of the large amphitheaters and small clubs, and IPO’d the concert promotion business as SFX Entertainment in 1998. At the time, I was a young analyst covering the stock, tracking daily concert attendance around the US. Ticketmaster (the creation of Fred Rosen) was also garnering an increasing number of exclusive contracts to sell tickets at many venues, including those booked by SFX. Fast forward a couple years, and SFX became part of radio-giant Clear Channel Communications (now known as iHeartMedia), was spun out as Live Nation in 2005, and then merged with Ticketmaster in 2010. Recently, the Justice Department reversed course and sued to break up Live Nation and Ticketmaster. The idea is that concert ticket prices are way up, so obviously a monopoly is to blame. But, there’s a giant wink in the industry that is being overlooked here: Live Nation+Ticketmaster exist as a single dominant company because it’s in the best interest of artists’ pocketbooks. Those big fees you pay on top of a concert ticket largely go to venues, which also have direct booking relationships with artists, and those fees can impact how much money an artist can pocket. In some sense, it’s a complicated shell game so that artists can claim lower ticket face values while they are benefiting from up front deals and various guarantees on the backend. As I’ve noted in the past, a large part of the music industry operates as a specialized bank for artists (see Beat It Mr. Tambourine Man), paying them now in return for future song plays or concerts. One of Sillerman’s great “innovations” was guaranteeing large per-show minimums to major acts, effectively taking the risk out of touring and shifting it to the promoters. It’s not exactly lucrative to be a concert promoter; Live Nation itself makes a net operating profit of 1.7% on concert revenues. It frankly used to be a better business for promoters when it was fragmented and they were getting paid to take more risk. Now, however, the incremental economics have largely flowed to performers, as perhaps they should, given that risk has declined for selling out most shows (social media has helped increase the number of seats sold for most performances). And, it’s the performers that set ticket prices. It’s the performers who have deals with the promoters and venues to make a percentage on ticketing fees and other deals (merchandise, concessions, etc.). Last year, Live Nation and Ticketmaster pulled in a little under $23B in revenue and made just $563M in net income. It doesn’t exactly scream monopoly rent-seeking. At the end of the day, what fans pay for tickets of any kind is a free market exchange of supply and demand. My point here is not to defend Live Nation, Ticketmaster, or their merger, surely there are some examples where the company’s vertical integration has pushed concert inflation to the benefit of performers and detriment of consumers, but rather to demonstrate that things aren’t always what they seem. Most of the music industry is a specialized lending business, and it doesn’t seem to earn an outrageous rate of return. If the government is upset about high ticket fees, their only path is to kindly ask the performers to lower them. Good luck.
Advanced Medical Warning
Renowned professor Eric Topol writes about the potential for AI to forecast disease risk, much the way AI has improved weather forecasting. “Take the example of risk for Alzheimer’s disease, where there has been progress for blood biomarkers, but that’s just one layer of data. The risk of an individual could be assessed more accurately with orthogonal genomic data that include the apolipoprotein ε4 (APOε4) allele present in about 20% of the population, and a polygenic risk score, which provides complementary, independent predictive value. So can retinal imaging. Add to that electronic health records with both structured and unstructured text, imaging, and lab test results. Ideally, details of sleep history and physical activity would also be included but could otherwise be available from an individual’s wearable biosensor. A recent study using machine learning was able to predict Alzheimer’s disease up to 7 years before diagnosis by integrating electronic health record data for cholesterol, blood pressure, vitamin D, and sex-specific features such as osteoporosis in women or erectile dysfunction and prostatic hypertrophy in men.” However, given the fragmented nature of medical records and barriers to sharing patient information, it could be a long wait before such systems can tangibly improve health outcomes.
Miscellaneous Stuff
Bud Buzz
The arrival of instant coffee in 1938 caused a big increase in overall coffee consumption in the US, which peaked in 1946. Since then, it’s been a mostly downhill slide, with coffee consumption decreasing 50%. Meanwhile, for the first time ever in the US, the number of daily marijuana consumers has surpassed that of daily alcohol drinkers. And, marijuana isn’t the only substance taking share from liquid vices. Nicotine pouches are experiencing breakout growth, with brands such as Zyn up over 60% compared to last year.
Stuff About Demographics, the Economy, and Investing
Denmark’s Housing Fix
With the US housing market frozen – in large part due to people locked into low-interest-rate mortgages – BI reports on a novel mechanism in Denmark to increase housing market velocity. Mortgage pay off amounts (the principal) can effectively move with changes in rates, much like the value of any bond would. So, if rates increase, you would owe less. Borrowers have the option of paying off their original amount owed or a lower amount if rates increase. It’s an interesting concept, but it would be nearly impossible to enact in the US owing to the political climate and complexity of implementation inside the massive home-lending industry.
Vulcan AI Investors?
A new study from researchers at Chicago Booth demonstrated that GPT4 outperforms investors in predicting earnings and stock market performance. Lauding an LLM for predicting earnings better than a human is perhaps damning with faint praise given that, in their tests, human analysts fared only a few points above a random walk (which is, of course, not surprising since accurately and precisely predicting the future is impossible owing to the dynamics of complex adaptive systems, and humans are especially bad at it thanks to cognitive bias). Putting aside that criticism, I have no doubt that AI investors will best their fleshy counterparts in a variety of performance objectives and outcomes, and investors who embrace and use AI agents intelligently will likely improve their odds of outperforming. But, personally, I’ve yet to encounter an investing tool that doesn’t worsen performance. Things like proprietary data sources, modeling tools, and expert networks all serve to increase investors’ pre-existing biases. If two intelligent investors speak to the same expert, it’s highly likely that one will walk away wanting to buy a stock while the other will want to short it. Why? It all comes down to cognitive bias – it’s the enemy of good investment performance and why the importance of the team structure matters more than anything (see How to Have Meetings that Don’t Suck for more on that topic). We humans generally hear what we want to hear and never want to admit when we’re wrong. It seems entirely possible to build AI investing tools that could either moderate or exacerbate human bias, and it will be up to the investor to distinguish between them. At NZS, we’re not overly focused on AI investors, but rather what we might call AI psychologists. In particular, we’re most interested in figuring out how to use AI to help identify bias and improve decision making, e.g., by using LLMs to query our prior decision making processes in the hopes of discovering where mistakes were made so we can avoid them in the future. It is possible, if models continue to improve, that LLMs trained on your investing process will know which stocks you want to buy before you do. And, perhaps it will be easier to take criticism from an AI therapist than a coworker, and we can actually make some headway in learning from our mistakes.
South Park's S&P (Satirical & Prophetic) Index
The long-running satirical cartoon South Park, which takes place in NZS Capital’s home territory, is apparently good at picking stock market losers. According to data from Spectra Markets, companies mentioned (aka skewered) on the show underperformed 7%, on average, vs. the S&P 500 over the subsequent 12 months. One theory is that appearing in Matt and Trey’s crosshairs indicates that a company has reached its peak cultural awareness. The most recent special, “The End of Obesity”, ridiculed the disgusting US healthcare system designed to make people sicker rather than cure or prevent illness. The GLP-1 makers were targeted, and the show accurately detailed how compounding pharmacies can offer the same semaglutide benefits at a fraction of the cost. While it’s unlikely that South Park is going to fix the US healthcare system, their assessment of the problem in “The End of Obesity” was spot on.
✌️-Brad
Disclaimers:
The content of this newsletter is my personal opinion as of the date published and is subject to change without notice and may not reflect the opinion of NZS Capital, LLC. This newsletter is an informal gathering of topics I’ve recently read and thought about. I will sometimes state things in the newsletter that contradict my own views in order to provoke debate. Often I try to make jokes, and they aren’t very funny – sorry.
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