Choices UK is finally going into administration. It's had terrible results for the last few years - in fact it's been downhill all the way since 2004 for the share price.
Now we're left with almost no music/entertainment chains on the high street. A number of other chains have gone, as well, and DVD rental stores are closing down everywhere.
While media sales are up, people are choosing to buy them through alternative channels. Mail order, mainly through online stores, has taken over the market, and with a number of ISPs now starting to offer online downloads, the high street has lost its raison d'etre.
Besides, the new business model offers a white label opportunity. LoveFilm, the leader, also supplies services to the Guardian, Tesco and WH Smith - reducing its marketing cost while vastly increasing its addressable market. Next to this, buying a shop and advertising the retail brand is a needlessly wasteful business model.
So it's hardly surprising Choices UK has found the going tough. The question that really needs asking, though, is why Choices couldn't see the writing on the wall - and get into the growth areas.
It seems to have defined itself as a high street retailer first, and a media channel second. Which meant that the internet, for Choices UK, was always a secondary concern - instead of the vital strategic option it should have been.
Entertainment obviously has a particular vulnerability since the product can be digitised. But I wonder whether we will see online sales really putting the squeeze on the high street - particularly if consumer spending slows further - in other product areas too.
LoveFilm / whitelabel
Tuesday 21 August 2007
Wednesday 15 August 2007
The 'investment' that makes no money
Fascinating research from the Money Centre shows that over 40 percent of buy-to-let landlords do not expect their rent to provide any profit once they have covered mortgage costs. This is well up from 19 percent last time the Money Centre ran its survey.
It intrigues me, because property has traditionally been an investment valued primarily on yield and intended to produce a regular, predictable stream of income. However, these landlords will only make money if property prices continue to rise - or if rental levels increase. Property has moved from income investment to growth investment over the course of the last few years.
Now the last investment I remember that did that was BT. Traditionally a stock yielding 4-6 percent, the tech boom saw its rerated as a growth share. Now, it's back in income stock territory.
Will the same happen to property investment?
It intrigues me, because property has traditionally been an investment valued primarily on yield and intended to produce a regular, predictable stream of income. However, these landlords will only make money if property prices continue to rise - or if rental levels increase. Property has moved from income investment to growth investment over the course of the last few years.
Now the last investment I remember that did that was BT. Traditionally a stock yielding 4-6 percent, the tech boom saw its rerated as a growth share. Now, it's back in income stock territory.
Will the same happen to property investment?
Wednesday 8 August 2007
Gradual decline vs free fall
An interesting comment with the Archant results yesterday. (For those who don't know it, Archant is the private group which evolved from Eastern Counties Newspapers into a much larger local newspaper and magazine business.)
John Fry, the chairman, compared the flat to slightly declining circulation of evening papers to much steeper declines in BBC and ITV viewing.
Now that's interesting, because we have the idea of local newspapers (indeed newspapers in general) being in endemic decline. Circulations keep falling and have been doing so for years.
But local newspapers are used to it. Most of them are incredibly stingy operations; costs are tightly controlled. And there are lots of games you can play at the margin - promotions, new points of sale - to get circulation to level off.
Television isn't used to it. Television was growth until, what, five years ago? And the major channels are still trying to cope with the erosion of their viewer share by the multichannel universe.
Besides, local paper groups are finding strategies that enable them to grow. At Archant, investment has been directed to the magazines and the websites, and it seems to be working.
Now this has made me look again at Johnston Press. The shares have collapsed since April - from 490p to 383p - and they're now trading at only ten times earnings. Plus you get a well covered dividend at 2.7% - not huge, but certainly a consideration. I just wonder whether it might be time to reconsider this stock...
John Fry, the chairman, compared the flat to slightly declining circulation of evening papers to much steeper declines in BBC and ITV viewing.
Now that's interesting, because we have the idea of local newspapers (indeed newspapers in general) being in endemic decline. Circulations keep falling and have been doing so for years.
But local newspapers are used to it. Most of them are incredibly stingy operations; costs are tightly controlled. And there are lots of games you can play at the margin - promotions, new points of sale - to get circulation to level off.
Television isn't used to it. Television was growth until, what, five years ago? And the major channels are still trying to cope with the erosion of their viewer share by the multichannel universe.
Besides, local paper groups are finding strategies that enable them to grow. At Archant, investment has been directed to the magazines and the websites, and it seems to be working.
Now this has made me look again at Johnston Press. The shares have collapsed since April - from 490p to 383p - and they're now trading at only ten times earnings. Plus you get a well covered dividend at 2.7% - not huge, but certainly a consideration. I just wonder whether it might be time to reconsider this stock...
Monday 6 August 2007
I-player
Fantastic news! The BBC has just reinvented the wheel!
I was expecting more from iplayer. First of all it would have been nice to have a platform independent player for those of us who have adopted open standards or non-Microsoft media players, or have Macs, or have different versions of Windows from the ones adopted by the Beeb...or Vista, either. So that's a PITA.
Secondly, where's the content? Basically this lets me watch some of last week's television. No archives, no clips. Limited searchability. I get a lot more out of Youtube. No user interactivity, no uploads, no web 2.0 functionality.
This really looks to me like just another media player, only it accesses a limited pool of content and allows the BBC to control its digital rights. In other words, it's been produced to suit a producer agenda - not a consumer agenda.
Imagine if I have to download separate software for each station I want to watch on my PC. So I'll have iplayer, ITVplayer, Skyplayer, Stripping Housewives Player, and FourPlay. :-)
I really think this is not going to catch on... but it may take quite a while to die.
(And yes, I know C4 called their player 4oD.... but the joke was too good to resist)
I was expecting more from iplayer. First of all it would have been nice to have a platform independent player for those of us who have adopted open standards or non-Microsoft media players, or have Macs, or have different versions of Windows from the ones adopted by the Beeb...or Vista, either. So that's a PITA.
Secondly, where's the content? Basically this lets me watch some of last week's television. No archives, no clips. Limited searchability. I get a lot more out of Youtube. No user interactivity, no uploads, no web 2.0 functionality.
This really looks to me like just another media player, only it accesses a limited pool of content and allows the BBC to control its digital rights. In other words, it's been produced to suit a producer agenda - not a consumer agenda.
Imagine if I have to download separate software for each station I want to watch on my PC. So I'll have iplayer, ITVplayer, Skyplayer, Stripping Housewives Player, and FourPlay. :-)
I really think this is not going to catch on... but it may take quite a while to die.
(And yes, I know C4 called their player 4oD.... but the joke was too good to resist)
Worrying trend
According to a Motley Fool survey a third of UK residents plan to use their homes to fund a pension, whether through a sale or equity release.
I find that distinctly worrying, for a number of reasons.
- It shows an obvious mistrust by consumers of the stock market and of pension schemes. That's something that needs addressing if the savings ratio is ever going to improve - and it's at very low levels right now (which I bet will decrease as interest rate hikes bite into disposable income).
- These people seem to be assuming that the housing market will continue to see price inflation at the same levels experienced in the past four or five years. Never a safe assumption.
- It suggests that one third of UK housing stock is now seen as investment property - and at some point will effectively be up for sale to fund a pension.
- And it also suggests that other than their houses, these respondents to the survey don't have any significant savings to support themselves.
I find that distinctly worrying, for a number of reasons.
- It shows an obvious mistrust by consumers of the stock market and of pension schemes. That's something that needs addressing if the savings ratio is ever going to improve - and it's at very low levels right now (which I bet will decrease as interest rate hikes bite into disposable income).
- These people seem to be assuming that the housing market will continue to see price inflation at the same levels experienced in the past four or five years. Never a safe assumption.
- It suggests that one third of UK housing stock is now seen as investment property - and at some point will effectively be up for sale to fund a pension.
- And it also suggests that other than their houses, these respondents to the survey don't have any significant savings to support themselves.
Thursday 2 August 2007
Let's get our terminology right
I just received a message addressed to "all house owners".
Yes, I own a house. So I read on.
"How to reduce your mortgage now that interest rates are going up."
I repeat, I own a house. I actually own it outright. I owe no money on it. It is not rented, equity released, hire purchased, leased, or mortgaged. Owning a house does not mean you have a mortgage.
Now this imprecision annoys me. Okay, we can probably assume that most house owners in the UK do in fact have a mortgage, and that's obviously what the marketers were relying on.
But at a deeper level, there's an equation of ownership with debt which is actually quite worrying. And I notice in a lot of media reporting that higher interest rates are judged to be bad for individuals because they increase mortgage rates.
Hang on; some of us have savings. So interest rates going up should be a cause for celebration. If interest rates double, I'll be getting a reasonable return from my savings accounts - though my equity portfolio might be buggered... But this aspect seems rarely to be reported with much glee - it's the mortgage aspect that hits the headlines.
Which rather reflects, I think, the problem that we currently have; easy borrowing and excess liquidity have driven up asset prices, but left us with a huge backlog of debt and massive gearing against the market. Debt has become normalised (and student loans have a bit to do with that, too; if you start your working life already thirty grand in debt, do you ever see yourself getting more assets than debt, other than by house price inflation?)
So let's have a bit more precision in our use of language, and make sure that we specify 'house owner' as someone who owns a house, and 'mortgagor' as someone who owes money on a mortgage. The two are not and ought not to be synonymous!
Yes, I own a house. So I read on.
"How to reduce your mortgage now that interest rates are going up."
I repeat, I own a house. I actually own it outright. I owe no money on it. It is not rented, equity released, hire purchased, leased, or mortgaged. Owning a house does not mean you have a mortgage.
Now this imprecision annoys me. Okay, we can probably assume that most house owners in the UK do in fact have a mortgage, and that's obviously what the marketers were relying on.
But at a deeper level, there's an equation of ownership with debt which is actually quite worrying. And I notice in a lot of media reporting that higher interest rates are judged to be bad for individuals because they increase mortgage rates.
Hang on; some of us have savings. So interest rates going up should be a cause for celebration. If interest rates double, I'll be getting a reasonable return from my savings accounts - though my equity portfolio might be buggered... But this aspect seems rarely to be reported with much glee - it's the mortgage aspect that hits the headlines.
Which rather reflects, I think, the problem that we currently have; easy borrowing and excess liquidity have driven up asset prices, but left us with a huge backlog of debt and massive gearing against the market. Debt has become normalised (and student loans have a bit to do with that, too; if you start your working life already thirty grand in debt, do you ever see yourself getting more assets than debt, other than by house price inflation?)
So let's have a bit more precision in our use of language, and make sure that we specify 'house owner' as someone who owns a house, and 'mortgagor' as someone who owes money on a mortgage. The two are not and ought not to be synonymous!
Excreta and extractors - the beginning
Sub prime and hedge fund chaos has now hit the "real world". And in the UK, too - not the US where the canker started. My betting is that this means the beginning of a market decline. We've already been through the 'nervous' stage earlier this year - and managed to avoid a permanent market decline; but this time I suspect it's for real.
* Mitchells & Butler has decided not to split off its properties. So the corporate strategy of a major pub company is now being affected by market movements... In fact they appear to have found it impossible to secure debt funding for the deal. Now M&B is not some fly by night asset stripper or dodgy start-up; it's pretty blue chip. That suggests a sudden and very marked increase in lenders' risk aversion.
* UK commercial property funds are hitting real trouble. It was obvious as much as six months ago that with commercial property yields lower than interest rates on the best savings accounts, something was going to have to give. The question was when, and how. Imposing penalties on withdrawal of funds is a drastic move. (Meanwhile the quoted property sector has fallen pretty consistently over the past six months, and yet still the majors are offering yields of only 2 or 3 percent. If there's no room for capital appreciation, then the yields ought to equate to cash yields - or even above, given the risk of falls in the price of the underlying assets; but that's still not happened. So I'm not getting suckered into any dead cat bounce.)
* One blessing is that the high rate of corporate activity has reflated the cash position of my portfolio and I imagine leaves many fund managers also relatively cashed up. But whether that cash is headed back into the market I don't know. Right now, I suspect not.
So what to do about it? Holding cash has become more attractive now that interest rates have risen. Oil stocks and to a lesser extent mining stocks still appear attractive particularly with oil prices at USD 78 or thereabouts. And tech and pharmaceuticals might be worth investigating; there are some low valuations and good growth stories, though there has also been an increasing number of profit warnings. As for property, I'm almost completely out of it - though Pactolus (Hungary) and Trinity Capital (India) might be interesting, and trade on good yields with in Trinity's case a massive discount to asset value - and certainly, I'm out of property and out of asset plays in the US and Europe.
The real conundrum is what on earth is going on in the UK residential market, with successive interest rate rises surely putting the squeeze on many mortgaged owners, and yet the Halifax reporting house price inflation rising. The sums don't work. And I would never have thought that it would be commercial property that would crack first....
* Mitchells & Butler has decided not to split off its properties. So the corporate strategy of a major pub company is now being affected by market movements... In fact they appear to have found it impossible to secure debt funding for the deal. Now M&B is not some fly by night asset stripper or dodgy start-up; it's pretty blue chip. That suggests a sudden and very marked increase in lenders' risk aversion.
* UK commercial property funds are hitting real trouble. It was obvious as much as six months ago that with commercial property yields lower than interest rates on the best savings accounts, something was going to have to give. The question was when, and how. Imposing penalties on withdrawal of funds is a drastic move. (Meanwhile the quoted property sector has fallen pretty consistently over the past six months, and yet still the majors are offering yields of only 2 or 3 percent. If there's no room for capital appreciation, then the yields ought to equate to cash yields - or even above, given the risk of falls in the price of the underlying assets; but that's still not happened. So I'm not getting suckered into any dead cat bounce.)
* One blessing is that the high rate of corporate activity has reflated the cash position of my portfolio and I imagine leaves many fund managers also relatively cashed up. But whether that cash is headed back into the market I don't know. Right now, I suspect not.
So what to do about it? Holding cash has become more attractive now that interest rates have risen. Oil stocks and to a lesser extent mining stocks still appear attractive particularly with oil prices at USD 78 or thereabouts. And tech and pharmaceuticals might be worth investigating; there are some low valuations and good growth stories, though there has also been an increasing number of profit warnings. As for property, I'm almost completely out of it - though Pactolus (Hungary) and Trinity Capital (India) might be interesting, and trade on good yields with in Trinity's case a massive discount to asset value - and certainly, I'm out of property and out of asset plays in the US and Europe.
The real conundrum is what on earth is going on in the UK residential market, with successive interest rate rises surely putting the squeeze on many mortgaged owners, and yet the Halifax reporting house price inflation rising. The sums don't work. And I would never have thought that it would be commercial property that would crack first....
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