Reading a Financial Statement.

Here is an excellent resource for getting an understanding how to read a Financial Statement.  It will go a long way in improving your investment pitch.


Lynda.com Reading Financial Statements

Fear and Desire: Do I control my money or does money control me?

In a recent assignment involving my pursuit of a Masters in Business Entertainment from Full Sail University I was asked to respond to a question that fascinated me.  The exercise involved an assessment of a successful recording company considering a substantial expansion.  My task was to identify potential benefits and risks involved in this transaction.  The final question pointed me to Rich Dad, Poor Dad.  What I discovered is the deep rooted relationship that exists between my attachment to money.  It reinforced my concern that I was identifying my self-worth by my cash flow.  I also discovered that my relationship to money in positive and negative moments were both ruled by fear and desire.  In effect, I was trading my sense of self for a monetary value.  I was good or bad according to my bank statements.  To sum up, money was controlling me rather than my controlling my money.  This created numerous bad financial decisions.  It was a disturbing moment and, at the same moment, epiphanic.  I doubt that I will ever look back from this moment and I wanted to share it with you.

What is Rich Dad’s “Rule One”?  Why is it so important?

This rule (lesson) is important because it compels us to check0in on our relationship to and with money.  Do we control money or does money control us?

At its worst, money creates an emotional dynamic.  It creates feelings of desire and fear.  I would amplify this point taken from Rich Dad, Poor Dad by claiming these feelings of desire and fear guide deeper and more dangerous feelings of anger and frustration.   Speaking in general terms, these feelings suggest that choices about how we choose to spend and earn our money are guided subjectivity rather than objectivity.

Witness the young child who imagines what he will be able to buy with $5.00 an hour.  Consider the intense levels of excitement involved.  And yet, this same child, under the tutelage of Rich Dad, comes to recognize the danger of these emotions and their long-term resonance. 

I recall purchasing my first new car.  At the time Hyundai was boasting a $5,000 car that was dependable and cost-affordable.  I talked my parents into co-signing a loan for this purchase.  I entered the dealership with the intentions of purchasing the basic model without any bells and whistles.  The salesman took me out for a spin in one of the better models.   This model had an improved sound system.  He churned on the Beatles while I drove it around the block.  By the time I returned to the lot I had already decided that I ‘needed’ that better sound system.  I had put aside funds for a new guitar that I truly did need in order to improve the overall sound quality of my performance.  In order to get this better sound system I would have to draw from those funds allocated for the guitar.  I did so.  Approximately one month later I ran into a spectacular deal on a vintage model fender Stratocaster.   It was ironically selling for the same amount that I had spent for the better car stereo.  So now I had the luxury of a better auto audio system while suffering with the same issues regarding the much-needed guitar.  The term “opportunity cost” was not yet in my vocabulary.  My desire for the immediate gratification created a situation that might have generated additional monies resulting in increased number of performances, better audio recordings, and the ‘joy’ attached to owning what I considered a piece of guitar history. 

To equate this to our present analysis in assignment 3 I now ask myself the following questions.  Is this new board this company state-of-the art?  Does this equipment have the capability of adjusting to new technology and software that may appear on the horizon?  These sorts of questions translate into potential net income, concerns about devaluation, and risks factors regarding future lump sum value.  I note that in our book, the individual who purchases a new car attaches a certain amount of status and fulfillment in owning a new vehicle at the opportunity cost of investing in a house or investments that might yield better returns. 

I point this out because we cannot as human beings discount our very nature that struggles between short-term goals and long-term objectives.  It is indeed difficult at best to reach a logical compromise between these considerations.  It is also true that future profits generated by most investments has with it a palatable risk factor.  Given today’s complex economy these sorts of struggles are amplified. 

What this rule points out is that the sooner we learn to acknowledge these concerns the more likely we are to achieve financial success and emotional balance in regard to our love/hate relationship with money.  I contemplate the story of multi-millionaires who gather in the same room only to experience financial disaster in their future.  The story about the sports figure unwilling to take his championship ring off while working in the car wash is particularly powerful.  It demonstrates the sort of irrationality that is attached to pride and past that may rule our decisions.

To sum up, this company stands to gain approximately $10,000 per year over a five-year period realizing a potential $50,000 gain through purchase of this facility, new equipment, and the older equipment that is attached to the facility.  The danger in this is reflected in their estimation of salvage value of $0 in the building and older equipment.  Consider for the moment that it is more likely than not going to be seriously outdated and therefore loose potential earning future after the five-year life expectancy.  Perhaps this is not the case.  Perhaps the equipment can be used to generate profits by attracting emerging artists willing to forgo state of the art because of financial limitations.  

Bear in mind, however, that these two young boys who agree to work for nothing create a thriving comic book library because they are hungry.  In essence, they are living proof of the age-old adage that necessity is the mother of invention.  Had they taken the $5.00 per hour perhaps they might not have been quite as hungry.  Their acceptance of a $5.00 per hour wage might have satisfied their immediate desire and fuel their fear that they forgo future risks for immediate short-term gain.  Take risks?  Yes!  Assess Risks?  Of course!  Adapt?  Absolutely!  Apologize?  Never!

Sex Pistols

Splendor with the Cash:  Taking Lessons from the past of the Entertainment Industry.

As a child I watched and listened with a sense of wonder to the various artists who seemed to move from stage to stage via large tour busses and limousines.  I witnessed Jimi Hendrix and the Monkees as a sea of young females performed their ritual primal screams towards center stage.   Each time as I closed my basement room and plugged in my guitar I closed my eyes imagining myself sharing the stage of my icons.  I imagined endless amounts of cash flowing towards them with a sense of greed and jealousy that would also flow in my direction if I could simply get a few more years under my belt.

As a young artist I then settled into the predictable routine of the starving artist constantly struggling for the sake of his art.   Later I discovered that I would have to be very careful about what I ask for because I just might get it.  The ‘starving artist’ bit got old real fast.  I found myself drowning in a sea of temporary jobs that rarely paid me my true worth.  I discovered that the precious cash I did manage to retain soon flowed out to the hands of engineers and agents.  It was a difficult and jading experience.  And so here I sit sharing with you with the same sort of joy the wonders and privilege of being a fully realized artist wanting to write my songs from a comfy sofa.  Go figure.

I was thinking long and hard about what to write about in this blog.  In a world of so much information disbursed over the cable and Internet which particular phenomena I recall and what its true impact on me truly was and is.

And so, I dig back into my memory of my most significant recollections involving the world of music that to this day still resonate for me.    Here are some of them.  I’ve tried to make them relevant to modern times as much as possible.

Rocky Horror.     This movie has turned into a cult classic that continues to generate significant profits despite the fact that little of these monies have reached the original participants of this movie.  It is a lesson in creative and artistic success measured against a financial mess that to this day remains unresolved. 

As a high school student I worked for a movie theatre that had special midnight shows of this sci-fi musical classic.  I watched with sheer joy as costumed audiences sang and responded to the silver screen.  It was so much more than a mere movie with quirky audience and delivery.  It was an event, an escape from the ordinary in the wee hours of the empty midnight small town main street.   And so you will understand that when I discovered that none of the original actors, musicians, producers, or managers ever received a nickel in royalties.  I found this out through Susan Sarandon (Janet) who—while recalls her early experiences fondly—has publically chastised those marketing and distributing to movie for failing to pay up. 

And yet I still watch this wonderfully absurd movie, sing along, and yell out responses like that high school kid.  I sometimes think that its shock value was what sold it.  I see this desire to achieve shock value still in the media.  I recall interviews from movies in this class where it is noted that it has become increasingly difficult to achieve this shock value.  The recent Charlie Sheen debacle seems to be close to achieving this sense of morbid wonder.   But is it really the same thing?  Rocky Horror was fantasy and escapism at its most profound.  There is nothing real about this movie.  It was and is otherworldly and somehow more innocent—if I may still use that word with any integrity

Sex Pistols.  Here is a group of four self-contained misanthrope ‘musicians’ on the fringe managed by a virtually Machiavellian exploitive manager that on the books had nothing going for them.  They could barely tune their instruments without getting into a brawl.  Their shows were chronically violent.  They played in the most ridiculous venues.  They cursed and swore on the media that was at the time totally opposed to such occurrences.  When they did finally get a song on the charts it was blacked out mostly because they just didn’t play well with the powers that be.  In effect, they did everything wrong and somehow managed to carve out a career that to this day still draws attention in some markets.

They fascinated me.  I watched with morbid interest and still watch their videos and audios through the Internet.  They practically invented pogo dancing as a dance trend.  The number of groups that attempted to copy them cannot be counted.  And in today’s world I ask myself how is it that I as an artist and manager can recapture the excitement of this time in my own peculiar way without hitting the destruct switch.  I argue that it is becoming increasingly hard to realize this sort of exposure.  I am not claiming that their self-destructive antics should be repeated with the same sort of visceral anarchy.  Nor am I suggesting that vulgarity is the only way to reach the audience.  But there is something in the sheer power of this group to reach out to their audience.   I think the success of such moments lies in realizing the power of grassroots movements that somehow get inside the head of the culture. 

Reality Television.  The public just seems to eat this stuff up.  Think about this for a moment.  A recent project decided to follow mob wives around recording their various antics.   Ill-tempered brides terrorizing their family and party planners have become entertainment.  A group of fishermen chasing king crab in the cold waters has become something of an obsession.  In one of the most odd phenomena one of the characters suffering from terminal cancer continued to have his death put on to film.  And yes I will admit it.  I felt it deep inside when he finally went, like an old friend never to be seen.   Donald Trump leads a group of neurotic entrepreneurs through a circus-like series of challenges weekly.  We watch with glee while these guys backstab and manipulate each other to the finals. 

So much for examples.  The point is we seem to have this compulsive and eternally insatiable need to look in on other people’s lives and have found yet new territories via the media.  It has become natural and somehow innate.  What happened?  Where did this all begin and where will it go?  As marketers, these are questions we need to ask ourselves. 

I Love Lucy:  I am reminded of a young and semi-successful Cuban bandleader who came up with an idea for a then innovative television sit-com.  The studio executives doubted whether the audience was ready for a show that featured a young redheaded Comedienne and a Cuban bandleader.  In fact, they made multiple attempts to replace him with a more ‘acceptable’ actor who conformed to audience expectations obviously guided by culture bias.  The Comedienne refused to do the show without her then husband.  The studio reluctantly went ahead.  This young Cuban and Comedienne accepted a contract for less money in exchange for retaining all rights to the show.  Even this was a new concept for the entertainment business at the time. 

The show was called “I Love Lucy” and continues to be a staple in the television universe.   This show seeded an entire studio known as Desilu Studios that generated multiple financially successful hits in its wake.  In short, they built a media empire because they understood if in concept only the lessons of Rich Dad, Poor Dad, risks, and opportunity cost.  In reality, there is nothing new under the sun.  Want to make serious money?  Want to get your talents to your audience?  Measure the risks while carefully monitoring your fears and desires.  Accept the consequences of the risks and learn to adapt.  This is the challenge faced by this studio considering Studio C.

These are just some thoughts on this.  I admit that I ask many more questions than I answer.  This was intentional.  It is my firm belief that as artists and entrepreneurs we must always be looking into the hearts and minds of our potential audience.  The real trick is how we capitalize on history’s lessons with an eye towards the future.

I hope you enjoyed this posting and provided you with some food for thought.  I hope that the next time you are in an absurd moment of your life that some of these words might come to mind. 

Charlie Rose talks to Reed Hastings

The following interview with Reed Hastings, CEO of Netflix, is a fascinating glimpse into the present and future world of entertainment.  Interestingly, Hastings’ business model for Netflix resulted from a very common experience of the past:  late fees.  He was presented with a $40.00 late fee from a local video store.  He paid up.  But the implications of the event did not leave him.  He realized that he could not have been the only person who has experienced the annoyance of late fees. 

Netflix was not always a success although Hastings adds that Netflix was always on solid trajectory (Charlie Rose).  Hasting points out that successful companies use a scale model.  He talks about Southwest Airline who—according to him—simply cannot afford to run a business at their prices.

US consumers have taken to Netflix.  And with this phenomena there is the inevitable competition.  He talks about a high definition DVD.  “Once you see high definition DVD, you never go back (Charlie Rose).  It is interesting that he mentions that consumers still want DVDs despite the availability of downloadable movies.  He says that the name of his company represents his vision.  In essence, Netflix was created with a future vision of downloadable movies.  What he says next is even more interesting.  He says that consumers want DVDs and so—at least for the moment—he will continue to focus on that immediate consumer demand.

In the full interview aired last Thursday, Hastings told the story of Costa Rica where cable lines capable of delivering bandwidth are being placed on dirt roads before they pave them.  He predicts by 2021—using Moore’s law of increasing bandwidth—we will have one gigabyte streamlining capabilities.  My point is the ways in which we communicate are rapidly changing.  While I caution the reader of reading utopian visions into these words I feel that I can safely say that the modern cultural landscape is and will continue to change. 

What does this mean to the entertainer and the entrepreneur?  It means that there is a great potential to develop unique businesses offering new services that will be understood of significant value to the customer.  It also means that—as entrepreneurs and artists—we will have to carefully consider how we structure our business strategies.  Not only will we have to demonstrate to investors our ability to understand the rapid development of technology, we will also have to convince investors that we understand the opportunities and risks involved in applying this technology. 

As an entertainer from a different generation, my world was about cassettes, four-track recording systems, and cassettes.  Cell phones were typically large, bulky, and had limited areas of use.  I made due with what was in front of me, and created great music.  In today’s world that will no longer be enough.  It will not be long until the DVD will go the way of the four-track.  It is inevitable.  As such, we need to create the product and then find innovative ways of delivering it to the public for profit. 

This interview with Hastings is significant because it presents an eloquent message to the public.  He demonstrates a sound business model founded on providing a product in the present that the public is willing to pay for.  He also demonstrates the fundamental principal that an entrepreneur and artist can never truly rest from the search for multiple streams of marketing and income.

In conclusion, Hastings envisions a day not long in coming when laptops will sell for $100, a world where the consumer is connected at will with each other through new technology.  Imagine this sort of world, it’s strengths, its weakness, its opportunities, and its threats.  As Betty Davis once said in a wonderful movie called All About Eve, “Buckle in, it’s going to be a bumpy ride.”   And I just love a good roller coaster.  Don’t you?”

Hastings predicts that the next wave will be in the form of HD DVDs. 

Source:  Charlie Rose Speaks to CEO of Netflix:  Reed Hastings

Video of this interview is available at Reed Hastings Interview Video

Partial transcript of interview follows:

Charlie Rose Talks to Netflix's Reed Hastings

The CEO discusses his company's startling growth, its foray into original programming, and his belief in the future of streaming video

Did you cannibalize your DVD business when you started to stream content to customers? 
DVD has continued to grow for us. It's grown every quarter. It's been phenomenal. Eventually—in fact, maybe even this quarter—it will start to decline slightly for us. But it's been such a steady grower, it's been fantastic, and on top of that we've grown the streaming, and when you add the two of them together, that's what's helped make us so successful.

You've now got more subscribers than Comcast (CMCSA). How big is Netflix (NFLX)? 
Well, we're about 24 million subscribers today, and that's up from about 15 million a year ago, so it's a very high rate of growth, and that's what's exciting about the business—more and more people are getting smart TVs, they're watching Netflix on their iPads. It's really on all of the devices. And it's not just Netflix, it's also Hulu, YouTube, all of the online video is experiencing an explosion in viewing because it's so convenient, the click-and-watch.

The idea used to be that you had mostly older movies. Are you part of the move toward premium-priced early releases? 
We have a very wide range of content, but the brand-newest movies, what's happening with those is a $30 pay-per-view option—not from Netflix but from DirecTV (DTV) and others—of movies that are in the theater.

So what do you see happening to movie theaters? 
It's unclear. That's why the studios are moving slowly. They're moving with DirecTV and others to try that $30 premium window, and I'm sure they'll watch what happens with the theaters. And I'm sure they very much want the theaters to stay highly relevant. So much of the downstream revenue is linked to that initial excitement, to how much revenue is produced in the domestic box office. For example, what we pay for a film three years later is highly correlated to how well it did in the box office.

Tell me about Netflix's move into original content. 
When HBO (TWX) does original content, they're real creative. They do scripts, they cast people, they own it on a global basis. What we did is we licensed the premiere from another studio, Media Rights Capital, that's creating a show called House of Cards. David Fincher is directing it, Kevin Spacey's starring in it, and like The Office, it's a remake of a British success. And that's what is characterized as original content, because it's going to be exclusive on Netflix. It's coming out next fall.

Should HBO be worried? 
In some ways. We're like baseball, and they're like football. We have no overlap in content, but we sell to the same person, the same aficionados are passionate about our products. But I don't think the NFL worries about baseball encroaching on their territory.

With this platform, aren't you going to be inclined to want to create content, not just license it? 
Well, we're inclined to do things that are profitable for us. [HBO has] an incredible competence that we don't have in creative, and in figuring out what's going to be popular. We can be a licensor of prior seasons from Showtime, HBO, and others and be very successful, so that's our current ambition.

You learned about the power of streaming video from YouTube? 
That's right. YouTube was our clarion call—and then we raced and it took us a year and a half, to the beginning of '07, to launch our first streaming.

Where will streaming be in five years? 
In plastic media, you have to standardize it. So DVD lasts for 10 years. Then Blu-ray. You get a chance once every 10 years to make change. On the Internet you get continuous innovation, so every year the streams are a little better. Now it's got 3D, now it's got 1080p, you know, it'll be 4K in a couple of years, which is ultra-ultra-high-def. With the Internet, the decoders are very flexible, so you can just keep making it better and better and better. ... Just 10 years ago, AOL (AOL) was the king of the world, right? And 56K was the typical speed people connected to the Internet with in the year 2000. Then you just do Moore's Law, doubling every 18 months ... it would predict that this year the average speed would be 14 megabits in the U.S., which is just about right with a cable modem. And if you drag that out to 2021, the typical American home will have one-gigabit connectivity. And that sounds shocking, and then you realize, wait, that's what Google (GOOG) is rolling out this year in Kansas with their Google Access project.

Resources:  

Bloomberg.  Charlie Rose Talks to Netflix's Reed Hastings..  Retrieved May 7, 2011, from http://www.businessweek.com/magazine/content/11_20/b4228026487218.htm

Charlie Rose.  A conversation with CEO Reed Hastings of Netflix.  (Video)  Retrieved May 7, 2011, from http://www.charlierose.com/view/interview/606