![\"Sony](\"https:\/\/i0.wp.com\/www.dougsbriefcase.com\/blog\/wp-content\/uploads\/2013\/06\/BluRay-v-DVD-image.jpg\")
<\/a>Sony pre\u00advailed over Toshi\u00adba in the shoot-out over high-def DVDs. [Cred\u00adit: originalprop.com]<\/p><\/div>Why can\u2019t you stream your favorite movie on Net\u00adflix? And what does that have to do with a scle\u00adrot\u00adic economy?\n
Econ\u00ado\u00admist and invest\u00adment strate\u00adgist Jef\u00adfrey Snider<\/a> offers an intrigu\u00ading expla\u00adna\u00adtion. In a recent essay<\/a> Snider recounts the bat\u00adtle between Sony and Toshi\u00adba over stan\u00addards for DVD<\/span> play\u00aders with HD<\/span> capa\u00adbil\u00adi\u00adties to show how the robust com\u00adpe\u00adti\u00adtion that ben\u00ade\u00adfits the econ\u00ado\u00admy nat\u00adu\u00adral\u00adly yields to an anti-com\u00adpet\u00adi\u00adtive impulse that impairs it.<\/p>\n The sto\u00adry began in Japan at a lit\u00adtle com\u00adpa\u00adny called Nichia, which Snider describes as \u201csmall pur\u00advey\u00ador and man\u00adu\u00adfac\u00adtur\u00ader of phos\u00adpho\u00adrs for flu\u00ado\u00adres\u00adcent lamps.\u201d Hard\u00adly excit\u00ading stuff. Until one of its employ\u00adees, Shu\u00adji Naka\u00admu\u00adra, devised a way to use a blue laser to increase the stor\u00adage capac\u00adi\u00adty of a DVD<\/span> disk five\u00adfold. Nakamura\u2019s inno\u00adva\u00adtion would make it pos\u00adsi\u00adble to man\u00adu\u00adfac\u00adture DVDs that could store con\u00adtent in high def\u00adi\u00adn\u00adi\u00adtion. As the research advanced, Sony formed a part\u00adner\u00adship with Nichia begin\u00adning in 2002, and in June 2006, Sony intro\u00adduced its first Blu-Ray DVD<\/span> player.<\/p>\n It was not first to mar\u00adket though. Toshi\u00adba had intro\u00adduced its HD-DVD<\/span> play\u00ader in April 2006, and at a much more attrac\u00adtive price. With mem\u00ado\u00adries of its failed Beta\u00admax VCR<\/span> tech\u00adnol\u00ado\u00adgy of the 1980s, Sony was not eager for com\u00adpe\u00adti\u00adtion. The com\u00adpa\u00adny had worked with oth\u00ader larg\u00ader elec\u00adtron\u00adic man\u00adu\u00adfac\u00adtur\u00aders to cre\u00adate a sin\u00adgle stan\u00addard for the new tech\u00adnol\u00ado\u00adgy to avoid the sort of com\u00adpe\u00adti\u00adtion that had result\u00aded in the Beta\u00admax deba\u00adcle. But Toshi\u00adba would have none of it, stick\u00ading with its own stan\u00addards in the belief that it could best Sony in a direct competition.<\/p>\n So the two tech\u00adnol\u00ado\u00adgy com\u00adpa\u00adnies waged a spir\u00adit\u00aded bat\u00adtle for con\u00adsumers, offer\u00ading them an improved view\u00ading expe\u00adri\u00adence at afford\u00adable prices. In the end, as we all know, Sony won. The turn\u00ading point came, Snider says, when the com\u00adpa\u00adny decid\u00aded to install Blu-Ray tech\u00adnol\u00ado\u00adgy on its Playsta\u00adtion 3 devices. Putting the new tech\u00adnol\u00ado\u00adgy on a gam\u00ading plat\u00adform, rather than sell\u00ading it to con\u00adsumers as a sep\u00ada\u00adrate device, was a big risk for Sony, and one it might nev\u00ader have tak\u00aden if not pushed to do so by its com\u00adpe\u00adti\u00adtion with Toshi\u00adba. Snider reck\u00adons that the com\u00adpa\u00adny absorbed $3 bil\u00adlion in loss\u00ades as a result of the deci\u00adsion. But Sony\u2019s move proved even more cost\u00adly to Toshi\u00adba. With the Blu-Ray tech\u00adnol\u00ado\u00adgy now avail\u00adable on mil\u00adlions of devices, Toshi\u00adba was forced to cede the field. It stopped mak\u00ading HD<\/span> DVDs in ear\u00adly 2008.<\/p>\n Eager to recoup its loss\u00ades after win\u00adning the com\u00adpe\u00adti\u00adtion, Sony then sought to con\u00adsol\u00adi\u00addate its gains. The grow\u00ading pop\u00adu\u00adlar\u00adi\u00adty of stream\u00ading tech\u00adnol\u00ado\u00adgy rep\u00adre\u00adsents a threat. High speed inter\u00adnet is now broad\u00adly avail\u00adable and new and more sophis\u00adti\u00adcat\u00aded smart\u00adphones and tablets give con\u00adsumers the abil\u00adi\u00adty to stream con\u00adtent on mul\u00adti\u00adple devices no mat\u00adter where they are. You no longer need the Blu-Ray play\u00ader in your liv\u00ading room to watch a movie. Now you can access that movie any\u00adwhere on your iPad.<\/p>\n And that\u2019s bad news for Sony. The com\u00adpa\u00adny doesn\u2019t want its plat\u00adform to go the way of Beta\u00admax, with the pub\u00adlic choos\u00ading stream\u00ading over DVDs. Sony, which holds the rights to many movies and tele\u00advi\u00adsion pro\u00adgrams in addi\u00adtion to being a tech\u00adnol\u00ado\u00adgy man\u00adu\u00adfac\u00adtur\u00ader, is lever\u00adag\u00ading those rights with online providers. One result is that com\u00adpa\u00adnies like Net\u00adflix are not licensed to stream many movies. Last month, the com\u00adpa\u00adny dropped near\u00adly 1800 titles<\/a> from its \u201cinstant queue.\u201d There are numer\u00adous rea\u00adsons for this, includ\u00ading com\u00adpe\u00adti\u00adtion from oth\u00ader stream\u00ading providers and the under\u00adstand\u00adable desire of stu\u00addios and cre\u00adators to extract the max\u00adi\u00admum prof\u00adit from their works. But Sony\u2019s pow\u00ader\u00adful incen\u00adtive to sti\u00adfle com\u00adpe\u00adti\u00adtion from a new plat\u00adform is unde\u00adni\u00adably a factor.<\/p>\n Snider draws an impor\u00adtant les\u00adson from the Blu-Ray narrative:<\/p>\n \u201c<\/span>That is the nature and cycle of both cap\u00adi\u00adtal\u00adism and busi\u00adness\u00ades. They inno\u00advate and grow suc\u00adcess\u00adful, then become encap\u00adsu\u00adlat\u00aded by the need and desire to pro\u00adtect what they have made. It is far eas\u00adi\u00ader, as the Blu-Ray saga shows, to sim\u00adply prof\u00adit from exist\u00ading tech\u00adnol\u00ado\u00adgy than to try to win with a new one. Mature com\u00adpa\u00adnies do not always favor new inno\u00adva\u00adtion unless there is true com\u00adpe\u00adti\u00adtion to force it upon them\u2026The one \u201cflaw\u201d in the cap\u00adi\u00adtal\u00adist design, if it can be called that, is that suc\u00adcess\u00adful cap\u00adi\u00adtal\u00adist busi\u00adness\u00ades will always end up as these kinds of mature companies.\u201d<\/p><\/blockquote>\n There is a cor\u00adrec\u00adtive for this flaw, Snider says:<\/p>\n \u201c<\/span>Per\u00adpet\u00adu\u00adal inno\u00adva\u00adtion will either destroy the mature busi\u00adness or force it to adopt com\u00adpet\u00ading inno\u00adva\u00adtion. In either case, the eco\u00adnom\u00adic sys\u00adtem ben\u00ade\u00adfits as new tech\u00adnol\u00ado\u00adgy gains a poten\u00adtial mass audi\u00adence where com\u00adpe\u00adti\u00adtion aims to reduce its cost as far and as fast as prof\u00aditably (in the long-term sense) pos\u00adsi\u00adble. Insta\u00adbil\u00adi\u00adty is progress.\u201d<\/p><\/blockquote>\n If insta\u00adbil\u00adi\u00adty is progress, then sta\u00adbil\u00adi\u00adty is not. Snider sees signs of sta\u00adbil\u00adi\u00adty every\u00adwhere and that, he believes, helps explain both eco\u00adnom\u00adic stag\u00adna\u00adtion and income inequality.<\/p>\n He notes that in the quar\u00adter cen\u00adtu\u00adry between 1955 and 1980, there was a rather remark\u00adable turnover in the com\u00adpo\u00adsi\u00adtion of the 100 largest com\u00adpa\u00adnies. Since 1980, that churn\u00ading has sub\u00adsided, a sure sign that the cre\u00adative destruc\u00adtion of cap\u00adi\u00adtal\u00adist insta\u00adbil\u00adi\u00adty has been grad\u00adu\u00adal\u00adly yield\u00ading to the sta\u00adbil\u00adi\u00adty that is the bane of progress.<\/p>\n \u201c<\/span>In 1955, IBM<\/span> was ranked #61 on For\u00adtune\u2019s 500 list, just behind such com\u00adpa\u00adnies as Nation\u00adal Inter\u00adgroup, Olin, Asar\u00adco and Allis-Chalmers. By 1965, IBM<\/span> was #9. Of those oth\u00aders, only Olin remained in the top 95\u2026The turnover of tra\u00addi\u00adtion\u00adal pro\u00adduc\u00adtive com\u00adpa\u00adnies near the top was reg\u00adu\u00adlar between 1955 and 1980, but less so after. Big com\u00adpa\u00adnies have tend\u00aded to remain the big com\u00adpa\u00adnies in the past few decades.\u201d<\/p><\/blockquote>\n Snider observes that one big excep\u00adtion to this sta\u00adbil\u00adi\u00adty has been the rise of com\u00adpa\u00adnies in the finan\u00adcial sec\u00adtor, some\u00adthing that pro\u00advides him scant com\u00adfort. He sees last decade\u2019s ascent to Fortune\u2019s Top 20 of such bank\u00ading behe\u00admoths as Cit\u00adi\u00adgroup, Bank of Amer\u00adi\u00adca and JP<\/span> Mor\u00adgan Chase as symp\u00adtoms of what he calls \u201cthe unyield\u00ading finan\u00adcial\u00adiza\u00adtion of the domes\u00adtic econ\u00ado\u00admy.\u201d And that, he argues, is not good news.<\/p>\n \u201c<\/span>Where pro\u00adduc\u00adtive, indus\u00adtri\u00adal busi\u00adness\u00ades once ruled in tem\u00adpo\u00adrary sit\u00adu\u00ada\u00adtion, inter\u00adchang\u00ading as liv\u00ading stan\u00addards con\u00adtin\u00adu\u00adal\u00adly grew through the vital insta\u00adbil\u00adi\u00adty of inno\u00adva\u00adtion, the finan\u00adcial firms have since forced their way into the top spots. In the first quar\u00adter of 1951, finan\u00adcial busi\u00adness\u00ades earned about $3.2 bil\u00adlion in prof\u00adits (annu\u00adal rate) out of $40.2 bil\u00adlion (8%) for total US<\/span> cor\u00adpo\u00adrate busi\u00adness\u00ades. By 1981, it was $29.9 bil\u00adlion (13.5%) out of $221 bil\u00adlion total. By 2005, the finan\u00adcial econ\u00ado\u00admy had \u201cearned\u201d $425 bil\u00adlion (30.2%) out of $1.4 tril\u00adlion. Where total prof\u00adits grew 537% between 1981 and 2005, finan\u00adcial prof\u00adits grew by 1,323%. And as the num\u00adber of banks, bro\u00adkers and insur\u00adance com\u00adpa\u00adnies gen\u00ader\u00adat\u00ading those prof\u00adits shrank, they became more and more con\u00adcen\u00adtrat\u00aded at the top of not only the indus\u00adtry, but the entire cor\u00adpo\u00adrate landscape.\u201d<\/p><\/blockquote>\n Snider finds that change in the cor\u00adpo\u00adrate land\u00adscape to be espe\u00adcial\u00adly trou\u00adble\u00adsome because \u201cinno\u00adva\u00adtion in finance is not about increas\u00ading the liv\u00ading stan\u00addards of the eco\u00adnom\u00adic sys\u00adtem, it is the all-encom\u00adpass\u00ading pur\u00adsuit of size.\u201d<\/p>\n The sub\u00adprime mort\u00adgage deba\u00adcle is the direct result of this pur\u00adsuit. Seek\u00ading to grow by expand\u00ading cred\u00adit and run\u00adning short of cred\u00adit\u00adwor\u00adthy bor\u00adrow\u00aders, banks sought out cus\u00adtomers who weren\u2019t so cred\u00adit\u00adwor\u00adthy. When those loans began to sour, many banks were pushed to the brink of ruin. Gov\u00adern\u00adments around the world, spooked by the con\u00adse\u00adquences of bank\u00ading giants fail\u00ading, gen\u00ader\u00adal\u00adly spared them from the con\u00adse\u00adquences of their bad behavior.<\/p>\n Since then, cen\u00adtral banks have con\u00adtin\u00adued to favor the biggest banks, ply\u00ading them with cheap mon\u00adey through minis\u00adcule inter\u00adest rates and quan\u00adti\u00adta\u00adtive eas\u00ading on the the\u00ado\u00adry that what\u2019s good for the banks is good for the econ\u00ado\u00admy. Quan\u00adti\u00adta\u00adtive easing\u2019s one \u201csuc\u00adcess\u201d is the stock mar\u00adket boom. But that does lit\u00adtle for tens of mil\u00adlions of Amer\u00adi\u00adcans whose stan\u00addard of liv\u00ading depends more on their wages than on their stock port\u00adfo\u00adlios. The \u201cwealth effect\u201d of the Fed\u00ader\u00adal Reserve\u2019s inter\u00adven\u00adtions hasn\u2019t reached most work\u00aders or job-seekers.<\/p>\n The per\u00adverse rela\u00adtion\u00adship between job\u00adless\u00adness and equi\u00adty prices was on dis\u00adplay again Fri\u00adday when a drea\u00adry employ\u00adment report helped spur a stock mar\u00adket ral\u00adly. The uptick in unem\u00adploy\u00adment and lack\u00adlus\u00adter job growth con\u00advinced big investors that the Fed would con\u00adtin\u00adue its bond-buy\u00ading pro\u00adgram. Con\u00adtin\u00adued high unem\u00adploy\u00adment = con\u00adtin\u00adued Fed\u00ader\u00adal Reserve bond pur\u00adchas\u00ades = high\u00ader stock prices = more income inequality.<\/p>\n Snider, unlike cen\u00adtral bankers, isn\u2019t at all sur\u00adprised by this result. He believes that eco\u00adnom\u00adic growth and broad improve\u00adments in liv\u00ading stan\u00addards result from com\u00adpe\u00adti\u00adtion among \u201cpro\u00adduc\u00adtive, indus\u00adtri\u00adal busi\u00adness\u00ades\u201d in a per\u00adma\u00adnent state of com\u00adpe\u00adti\u00adtion, not from large finan\u00adcial insti\u00adtu\u00adtions in a per\u00adma\u00adnent state of reliance on gov\u00adern\u00adment mon\u00ade\u00adtary interventions.<\/p>\n Maybe it\u2019s time for pol\u00adi\u00adcy\u00admak\u00aders to con\u00adsid\u00ader the pos\u00adsi\u00adbil\u00adi\u00adty that Snider just might have a point.<\/p>\n","protected":false},"excerpt":{"rendered":" Why can\u2019t you stream your favorite movie on Net\u00adflix? And what does that have to do with a scle\u00adrot\u00adic econ\u00ado\u00admy?
\nEcon\u00ado\u00admist and invest\u00adment strate\u00adgist Jef\u00adfrey Snider offers an intrigu\u00ading expla\u00adna\u00adtion. Con\u00adtin\u00adue read\u00ading