Scooped Midrange

Here’s a quiz.

  1. Whose nasally voice, rhetorically whined, “Did I do that?”
  2. Who hails from Mypos?
  3. Who was DJ Tanner’s bestie?
  4. Who would refer to Melmac as home?

Bonus: Of all the characters referenced above, which one does not belong with the others and why?

I’m not going to score you (answers at the end) but if you are 35+ and grew up in the U.S., this was a breeze. If it wasn’t, I’m very interested in what you were doing in those days. Very interested. Because those of you who struggled are the counterpoint to my case this week. It is not an illusion that our collective experience was, in fact, more shared 30 years ago. If you can’t remember the theme song to Facts of Life you are a unicorn. But 30 years from now, I’d be shocked if the average person could hum the theme song to Fresh Off the Boat. What happened?

Borrowing a music production idea, we

Scooped the mids

When setting levels on an equalizer, a producer can crank the low end (bass) and high end (treble) while turning down the mid-range frequencies. Describing this recording technique, my friend, local musician Jason Heninger explains “music, among other things, needs a middle ground to sound complete, or balanced. The mids being taken out of a Metallica song makes it sound super aggressive.” This technique is a staple of thrash metal bands, think 80’s Metallica or Pantera, propelling a sound that is heavy and hostile. The way technology has cranked the knobs on society’s tracks has thrown legacy institutions into a mosh pit wearing a Jonas Brothers muscle tee.

Everywhere you look the safe middle is gutted. Let’s survey the landscape.

Retail, Dining, Hospitality

  • You either survive in a niche like (Lululemon) or use scale to serve everyone (Amazon). Paraphrasing Ben Thompson being interviewed on the Knowledge Project, there is a barbell effect where niches can thrive by sharpening their message and targets. On the other side of the spectrum, massive scale benefits the “aggregators”. Using AirBnB as an example, the internet has digitized trust via reviews and subverts the fear premium that accrued to branded hotels by making trust one of several features rather the most only factor. In the era before online reviews and Ebay power sellers, brands were the only way to signal uniform standards of safety and quality.

Investment Management

  • Closer to home. There has been an accelerating trend of investment funds cutting their fees to attract assets. By consolidating, giant firms like Blackrock, Vanguard, Fidelity, and Schwab are managing mutual funds and ETFs with near zero management fees. Meanwhile, robo-advisors like Betterment create similar pressure on incumbent brokerages and advisors by undercutting them so much that they need to justify the spread. Michael Kitces explains how investors’ increasing demands are squeezing financial advisors, who in turn, defend their own fee by cutting the holdings of high expense funds. They now use cheaper, vanilla funds to construct diversified portfolios for clients, effectively disintermediating middle-of-the-road funds. On the other side of the spectrum, boutique hedge funds like DE Shaw are actually raising their fees. Matt Levine of Bloomberg describes their strategy keenly, “[with a] sort of hollowing-out-of-the-middle-class of investment options, in which there is room for very low-cost mechanical approaches and high-cost high-alpha specialized approaches; self-consciously taking yourself out of the middle just feels like sensible marketing.”

Journalism

  • Newspaper’s struggles are old news at this point. The bifurcation of sources is news to me though. Geopolitical strategist, Peter Zeihan, explains, “In the past 25 years, [there’s been] a decline of foreign offices for large media companies. Decline of journalism budgets and the need for large foreign infrastructure to support reporters in the field. That leaves us with less news and more opinions. In the US, Bloomberg is by far the best but worse than they were due to a recent editorial change. Next best is Al-Jazeera but ironically unreliable for Middle East news. Xinhua news is good as long as not reading about China or the US. France One remains strong. The upside of the digitization is a proliferation of good but harder to find decentralized sources that can be aggregated to a feed.” Same trend: a few giants and a large network of wildcat sources. No middle players left.

Education

  • Without drastic changes to mid-tier college value propositions, they are visibly doomed. As this recognition spreads, people are eager and welcoming of alternatives. This article offers interesting and optimistic predictions of what the future of higher education looks like. Why do I think it looks valid? Because the author is aware that the solutions will include no middle. A mix of trade schools (like NexGent), free public education, and a smattering of “old guard” Ivy or research universities. A different model, but just as hollow in the middle, is Naval Ravikant’s version of the future: “The BEST teacher in the world for a given topic will be paid to produce content (like online videos) to teach their subject matter. Anyone who wanted would have access to it. There would then be many certified tutors, for that given field, available to teach people 1 on 1 via something like Skype”

Entertainment

  • Speaking in 2009, media investor Peter Chernin correctly predicts that entertainment will be catered to narrow interests on one hand and large, communal events on the other, such as the Super Bowl or Oscars. “Things that are mediocre in the middle, for the last 15 years have been getting hammered, and they’re only gonna get more hammered. And where it tends to move you towards this sort of peak events, which people desperately want to see and technology enables more and more people to see. And then really passionate niche programming. You see those news channels [like] CNN, which is sort of the blandest, most middle of the news channels getting killed because people choose. They’re either right wing, in which case they wanted to Fox News or the West Wing [and] go to MSNBC… it’s just gonna be more fragmentation and more choice and more control. And, ultimately, you know, that is two buckets.” It should come as no surprise that the Chernin Group owns Barstool Sports when you see the thesis Chernin held a decade ago.

Is that all?

  • Not quite. So far we have seen the scooped midrange sort prescient winners from stagnant losers. Let’s finish with the scooping we should be most concerned with.

Socioeconomic: I encourage you to read Ray Dalio’s research demonstrating how stark and widening the differences are between Americans from the top 40% and bottom 60% of the economic spectrum. The thinning of the middle class is occurring on multiple fronts.

…which leads to…

Political: “the shape of the Democrat and Republican electorate distributions, such that the overall distribution in 2017 is no longer a single-peaked something-akin-to-a-bell-curve as it was in 2004, but is instead a double-peaked or (to use a $10 word) bimodal distribution.” The outstanding Ben Hunt makes the case that the math of polarization is irrevocable and the middle “purple” area where reasonable people operate is nowhere but a place for “political candidates to go die”Essay with my highlights.

It can be sobering to consider how our grasp on common ground is slipping. So I’ll leave this topic with a positive spin. I think you will notice the hollowing if you look for it and perhaps being aware of this dynamic will help you peak around some corners in your own work. In fact, Chernin smartly remarks, “No one can predict what’s going to happen with technology. But I can predict absolutely the effects of technology on this business, because they’ve been the effects with every single piece of technology that took the business, whether it was the remote control, whether it was the VCR, whether it was cable, and that’s two things. One is consumers will have more choice. And secondly, consumers will have more control.”

He redefines the role of his managers by reminding them that you cannot protect your legacy businesses. Sure, you can maximize within them, but your real job is to grow new business faster than the old ones decay. When he frames the role in that way, he encourages them to think abundantly and not constrained to zero-sum frameworks. Something to think about.

 

Quiz Answers:

  1. Steve Urkel
  2. Balki Bartokomous (You probably even knew he was played by Bronson Pinchot)
  3. Kimmy Gibbler
  4. Alf

Bonus: Alf does not belong. Alf was never part of ABC’s TGIF lineup

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