"Superbundling" Will Work, Until it Doesn't

“Superbundling”-- the practice of offering a package of services from different providers--has a long history in the cable TV and telco businesses. For many decades, the "triple play" of home broadband, linear video and voice was a staple in the business.

"Superbundling" that linclude streaming services in the older bundles has gotten more traction recently with the contract signed between Charter Communications and Disney relating to carriage of linear and streaming video services. 

In many ways, that search for the "right" products in a bundle is the search for a "natural" bundle that makes sense to most consumers.

Traditionally, bundles have included Internet access, linear TV and phone service. In recent days mobility service has been added to the “natural bundle.”

In their search for additional “natural bundle” services, ISPs have looked at app security, electricity services, home security and now video streaming services, with limited success to date. So attention now has turned to integrating video streaming platforms like Netflix, Hulu, or Disney+.

As always before, there are advantages for consumers and providers that eventually become negatives for both. 

Consumers have preferred bundles for a simple reason: they save money. Suppliers like bundles because they boost perceived value, average revenue per account and reduce churn, while boosting revenue. 

But bundles eventually can become their opposite. Consumer opposition to linear video subscriptions now turns precisely on the “paying for products I do not want.” In the past, for example, some customers took triple-play packages of video, home broadband and voice for the savings, but never even activated the voice services that were part of that bundle. 

And that is one danger for bundles: customers might come to feel they are paying for products they do not want. So where the cable TV bundle once was pitched as providing value--many channels for one price--it became a negative as consumers found they were paying too much for too many channels they never watched.  

Also, buyers eventually come to distrust and dislike product bundles that obscure the actual cost of each product within the bundle, as well as the vendor lock-in that the bundles represent. 

There is a delicate balance between cost, choice and simplicity that always has to be faced, where it comes to bundling. More products for one price--presumably representing equal increases in value--works. Until it doesn’t.

Parsing Disney's Annual Report

10-K forms (annual reports) filed with the U.S. Securities and Exchange Commission provide useful information about a firm’s prospects and threats, though we might also quip that 10-Ks also contain lots of statements related to business risk that collectively (and playfully on the part of the reader) suggest the firm faces steep obstacles.

It still is notable, in that sense, that Disney’s latest 10-K contains a discussion about content “misalignment.”

“We face risks relating to misalignment with public and consumer tastes and preferences for entertainment, travel and consumer products, which impact demand for our entertainment offerings and products and the profitability of any of our businesses,” the report states.

In a broad sense, that simply speaks to the unpredictability of content production. Story-telling is an art, not a science, so consumer tastes and preferences often are unpredictable. That is why some movies and shows do well, while others do not.

In the same vein, the cautionary statements about changes in economic conditions, technology or security and intellectual property rights might seem obvious. So too, “uncontrollable events such as the Covid epidemic, regulations, execution risks or competition.

Ths list of such dangers typically is quite extensive, as Disney’s is, so we should not read too much into such clauses.

Still, some will likely interpret the wording about misalignment as more than standard descriptions of business risk. The report also notes that “consumers’ perceptions of our position on matters of public interest, including our efforts to achieve certain of our environmental and social goals, often differ widely and present risks to our reputation and brands."

In other words, the big push for corporate activism might have hit a wall. We’ll have to look for other evidence of a public backlash to the “social activist agenda.” I don’t know that I’ve ever read a similar statement in any annual report.

The reasons for Disney's misalignment with public tastes and preferences arguably are complex. Some argue that the company has become too focused on producing sequels, remakes, and franchises, at the expense of original stories.

Others argue that Disney has lost touch with its core audience of children and families. Still others argue that Disney is simply not producing enough high-quality content overall. But some argue Disney content has suffered because it also has an activist agenda out of step with much of its intended audience.

AI KPIs Will Evolve, as did Those of Internet Firms

Since artificial intelligence is so new as a driver of firm revenues, growth and valuation, professionals have few ways to model AI equity reward and risk, as was true for professionals in the early days of the internet. 

Traditional valuation methods, such as price-to-earnings (P/E) ratios and discounted cash flow (DCF) analysis for firms with negative earnings or a clear path to profitability.

Instead, assessments will have to turn on other more-subjective angles, such as business model “potential," traffic or user engagement, much as early internet-watchers had to rely on the number of unique visitors, the average time spent on site, and the click-through rate for advertisements. 

Click-through rates were important proxies for apps in the early days of the internet. And customer acquisition cost might be less important for AI firms than repeat usage (lifetime value). 

Model owners and suppliers of computing as-a-service will measure volume of transactions and data processed. 

But key metrics may evolve. In the early days of the internet, user engagement and traffic seemed more important. In 1995, for example, page views, unique visitors, time spent on site and click-through rate were arguably the most important.

With greater maturity and actual profits, standard metrics such as revenue growth, profitability, customer acquisition cost or customer lifetime value became relevant.

In its mature phase, active users and user engagement seem more important. So is loyalty, as often measured using the net promoter score. 

Internet, 1995	AI (2023)
Website Traffic: Measured the number of unique visitors to a website. Indicated the popularity and reach of the website and its potential to attract users and advertisers.	User Engagement: Measures the level of interaction and involvement of users with an AI-powered product or service. Indicated the effectiveness of the AI in providing value to users and its potential for long-term adoption.
Page Views: Measured the number of times a page on a website was viewed. Indicated the depth of user engagement and the potential for advertising revenue.	Data Volume and Processing: Measures the amount of data processed by an AI system. Indicated the system's ability to handle large amounts of data and its potential for generating insights and value.
Click-Through Rate (CTR): Measured the percentage of users who clicked on an advertisement on a website. Indicated the effectiveness of the advertisement in attracting user attention and driving clicks.	Accuracy and Precision: Measures the ability of an AI system to produce correct and consistent results. Indicated the system's reliability and its potential for generating valuable insights.
Unique Visitors: Measured the number of individual users who visited a website. Indicated the reach of the website and its potential to attract a diverse user base.	Revenue Growth: Measures the increase in revenue generated by an AI-powered product or service. Indicated the commercial viability of the AI and its ability to generate financial returns.
Time Spent on Site: Measured the average amount of time that users spent on a website. Indicated the level of user engagement and the potential for monetization through advertising or subscriptions.	Return on Investment (ROI): Measures the financial return generated by an AI investment. Indicated the value of the AI in driving business outcomes and profitability.
Customer Acquisition Costs (CAC): Measured the cost of acquiring new customers for an internet-based business. Indicated the efficiency of marketing and sales efforts and the potential for profitability.	Customer Lifetime Value (CLV): Measures the long-term financial value of a customer to an AI-powered business. Indicated the ability of the AI to retain and grow a customer base and generate recurring revenue.
Brand Awareness: Measured the recognition and perception of a company's brand among potential customers. Indicated the company's ability to attract and retain users in a competitive market.	Industry Recognition: Measures the recognition of an AI company's achievements and innovations within the AI industry. Indicated the company's reputation and potential for leadership in the field.

Presumably, AI firms will move through similar stages as they mature. Early on, analysts will try to quantify the value of intellectual property, data assets or the danger competitors represent. 

In some cases, volume of data processed, accuracy of AI models, or adoption of AI solutions by customers could be proxies for growth. Customer acquisition costs could be another metric when traditional metrics do not yet apply. 

Revenue mix or reliance on few or broadly-diversified customers might also matter. But key metrics will change as the AI industry matures. Then the more-traditional financial metrics will apply. 

Usage matters now, but engagement will matter later.

How ChatGPT Works, "for Dumb End Users"

AI Will Probably Boost Efforts to Shorten Workweeks While Maintaining Productivity

Studies of shorter workweeks are a bit inconclusive about the effect on productivity, though most seem to agree on better work-life balance, of course. One perhaps-obvious issue is that most of the studies were of office or knowledge worker jobs, where “productivity” is notoriously difficult to impossible to measure. 

Much of that could change as we see wider application of artificial intelligence.

Study Name	Date of Publication	Publishing Venue	Findings
"Going Public: Iceland's Journey to a Shorter Working Week"	June 2021	Autonomy, Work and Technology Research Group, University of Iceland	A two-year trial of shorter working hours in Iceland found that productivity was maintained or increased, while employee well-being improved significantly.
"A Four-Day Workweek Reduces Stress without Hurting Productivity"	February 2023	Scientific American	A six-month trial of a four-day workweek in the UK found that employees were less stressed and more satisfied with their jobs, while productivity remained the same or improved slightly.
"The Effects of the Shorter Workweek on Selected Satisfaction and Performance Measures"	1984	Journal of Applied Psychology	A study of steelworkers who switched to a four-day workweek found that they were more satisfied with their jobs, had less anxiety and stress, and performed better on certain tasks.
"The Four-Day Workweek: A New Standard for the 21st Century?"	2022	Henley Business School and Wildbit	A survey of companies that have implemented a four-day workweek found that 64% reported increased productivity, 63% reported easier recruitment and retention of talent, and 51% reported reduced costs.
"Shorter Workweeks: A Review of the Evidence"	2022	IZA Institute of Labor Economics	A review of 26 studies on the impact of shorter workweeks found that there is mixed evidence on the impact on productivity. However, the review found that shorter workweeks generally lead to improvements in employee well-being.
The Effects of a Four-Day Workweek on Employee Well-Being and Productivity"	2022	PLOS One	A six-month trial in Iceland found that a four-day workweek with no reduction in pay led to significant improvements in employee well-being, including reduced stress, increased satisfaction, and better work-life balance, without compromising productivity.
"A Four-Day Workweek Reduces Stress Without Hurting Productivity"	2022	Scientific American	A six-month trial in the UK involving 61 companies and over 2,900 employees found that a four-day workweek with no reduction in pay led to reduced stress and burnout among employees while maintaining or even increasing productivity.
"The Effects of Reducing Work Hours on Employee and Organizational Outcomes"	2022	Journal of Occupational and Organizational Psychology	A meta-analysis of 23 studies found that reducing work hours generally led to improvements in employee well-being, including reduced stress, increased satisfaction, and better work-life balance, without significant negative impacts on productivity.
"The 5-Day Workweek Is Dying. Here's What's Replacing It"	2023	Harvard Business Review	An analysis of data from over 1,000 companies found that companies adopting shorter workweeks reported increased employee satisfaction, reduced turnover, and improved productivity.
"Effects of the shorter workweek on selected satisfaction and performance measures"	2015	Journal of Applied Psychology	Workers in the 4-day, 40-hr division were more satisfied with personal worth, social affiliation, job security, and pay; experienced less anxiety-stress; and performed better with regard to productivity than their control group (5-day, 40-hr) counterparts.
"A Four-Day Workweek: A New Era for Work-Life Balance?"	2023	Harvard Business Review	A four-day workweek with the same pay led to increased employee engagement, creativity, and innovation. Productivity remained the same or even increased.

Studies of shorter workweeks in manufacturing settings are less common, and perhaps few such studies actually tested the impact on productivity of much-shorter workweeks (3.5 to four days). 

But some studies of retail and healthcare settings show no negative productivity impact from shorter workweeks, assuming we agree on the metrics used to illustrate “productivity.”

For example, the 2015 Swedish study of reduced workweeks in healthcare was conducted at an assisted living facility in Gothenburg, Sweden. The study involved 86 nurses who were randomly divided into two groups: one group continued to work a 40-hour week, while the other group switched to a 30-hour week.

The study measured productivity in a number of ways--some more subjective than others, including:

• The amount of time nurses spent providing direct care to patients: This was measured using observational studies and electronic records.

• The quality of care: This was measured by surveying patients and their families, as well as by assessing nurses' documentation of care.

• Nurses' workload: This was measured by surveying nurses about their workload and by assessing their use of electronic records.

“Quality of care” as well as perceived “workload” impact were subjective metrics, compared to “time spent providing direct care.” 

Study	Year	Location	Industry	Methodology	Findings
Microsoft Japan	2019	Japan	Retail	Reduced workweek from 40 to 35 hours with no pay cut	Productivity increased by 40%, employees reported less stress and fatigue, and customer satisfaction scores improved.
Reyjkavík City Council and the Icelandic national government	2015-2019	Iceland	Various	Reduced workweek from 40 to 36 hours for over 2,600 municipal employees	Productivity was maintained or increased, employees reported reduced stress and burnout, and job satisfaction improved.
Toyota	2017	Japan	Manufacturing	Reduced workweek from 40 to 35 hours for non-production employees	Productivity was maintained or increased, employees reported reduced stress and absenteeism, and turnover rates decreased.
Sweden	2015	Sweden	Healthcare	Reduced workweek from 40 to 30 hours for nurses at an assisted living facility	Productivity was maintained, employees reported reduced stress and burnout, and patient care quality improved.
Scotland	2019	Scotland	Healthcare	Reduced workweek from 37.5 to 35 hours for nurses at a hospital	Productivity was maintained, employees reported reduced stress and absenteeism, and patient care quality improved.
Germany	2021	Germany	Manufacturing	Reduced workweek from 40 to 35 hours for 2,500 employees at an automotive parts supplier	Productivity was maintained, employees reported reduced stress and absenteeism, and turnover rates decreased.
New Zealand	2022	New Zealand	Manufacturing	Reduced workweek from 40 to 35 hours for 225 employees at a financial services firm	Productivity was maintained, employees reported reduced stress and absenteeism, and job satisfaction improved.

As we start to apply more artificial intelligence to more types of work settings and functions, we will get a better feel for how shorter workweeks that also maintain productivity are possible.