Philippa Kaur

CONCERNS ABOUT the health of corporate America are many and varied. Chief executives are chastised for their apparent short-termism. Their companies are berated for fetishising shareholders over everyone and everything else. Elon Musk, boss of Tesla, an electric-car maker, grumbles about a surfeit of business-school graduates who are stifling innovation. President Joe Biden frets as much about American companies losing out to China as Donald Trump did (albeit with less bile). He also worries about the concentration of power among America’s biggest firms.All this paints a picture of America Inc that looks stodgier, more parochial and increasingly monopolistic. If true, that would be bad news for the spiritual home of free-market capitalism. But is it? The Economist set out to test all three hypotheses about American business: that it is less dynamic, less global and more concentrated. The results appear nowhere near as bleak as the doom-sayers would have you believe.Start with dynamism. Scholars have long argued that it isn’t what it used to be. Ten years ago Tyler Cowen, an economist at George Mason University, warned that the American economy was in the midst of a “great stagnation”. The reasons cited by Mr Cowen and others range from more red tape to fewer transformative technologies such as aeroplanes and telephones, because the low-hanging fruit had been plucked. Symptoms of the malaise included fewer employers being created, fewer companies going public and fewer investments made by existing ones. The share of workers employed at firms less than a year old fell from 4% of total employment in the 1980s to around 2% in the 2010s. Around three-quarters of the workforce is employed by a company that is more than 16 years old, up from two-thirds in 1992.Economists are still debating just how great the stagnation really was. One thing is certain, though: since the start of the covid-19 pandemic America Inc has been anything but stagnant. Applications to start new businesses have soared. In the first six months of 2021 around 2.8m new businesses were born, 60% more than in the same period in pre-pandemic 2019 (see chart 1). Many are small enterprises created by people stuck at home during lockdowns. A third of the new applications were in retail, in particular the online variety. Business starts in other e-commerce-related areas, including trucking and warehousing, have surged, too, notes John Haltiwanger of the University of Maryland. The quit rate, which indicates churn in the labour market, is at a record high. Nearly 3% of workers left their job in July, presumably because they believe they can get a better one.Larger contenders are also thriving. Take America’s biggest startups. CB Insights, a data firm, found that in 2019 an average of five unlisted firms became “unicorns” with valuation of over $1bn. Since the start of 2020 that figure has swelled to 12 (see chart 2). Many older unicorns have gone public. Airbnb, a holiday-rental firm, was the biggest American initial public offering (IPO) of 2020. Its valuation surged past $100bn on the first day of trading. Since the start of 2020 the average number of monthly IPOs has climbed three-fold, to around 80 (see chart 3). In that period American firms have raised nearly $350bn, more than they did in the preceding seven years added together. Some of the ferment comes out of necessity. A survey by the Kauffman Foundation, a think-tank, finds that the share of new entrepreneurs who are starting businesses because they spy an opportunity rather than because they lost their jobs dropped from 87% in 2019 to 70% in 2020. But the “physiological shock” of the pandemic may also have led people to re-evaluate their lives, says Kenan Fikri of the Economic Innovation Group, another think-tank. Some of them handed in their notice and struck out on their own.With the Federal Reserve flooding markets with newly created cash, investors had plenty of capital to back businesses of all sizes. According to Jim Tierney of Bernstein, an investment firm, the market is favouring disruptive new entrants such as Robinhood, a broker catering to day-traders. With fewer than one retail trader for every 70 at Charles Schwab, recently listed Robinhood already boasts half the incumbent firm’s market capitalisation. Small wonder American unicorns are eager to list, says Mr Tierney.Cheap capital is also encouraging the established beasts of American business to boost their investment plans. American companies’ spending on equipment, structures and software grew at an annualised rate of 13% in the first half of the year, the fastest since 1984. Apple, the world’s most valuable company, will spend $430bn in America over a five-year period, 20% more than it had previously planned. Intel is splurging some $20bn a year on new microchip factories.Wave mechanicsIf dynamism was ever in retreat, then, it no longer appears to be. Even Mr Cowen has all but declared the great stagnation over. What about American companies’ global stature? World trade as a share of planetary GDP peaked in 2008. In America imports and exports as a proportion of output have declined since an all-time high of 31% in 2011 to 26%. Mr Biden’s policies show a preference for jobs at home over free trade. Covid-19 has disrupted some supply chains, prompting some pundits to predict a wave of reshoring. “The era of reflexive offshoring is over,” declared Robert Lighthizer, Mr Trump’s trade representative, in the New York Times in 2020. Before the pandemic some data were indeed hinting that corporate America was becoming less global. Dealogic, a research firm, estimated that cross-border mergers and acquisitions by American firms as a share of domestic M&A activity declined from 16% in 2014 to 9% in 2019. In the past 18 months, however, this figure has jumped back to around a fifth, thanks in part to all that cheap capital. Other indicators of internationalism have barely budged. Kearney, a consultancy, tries to capture the extent of reshoring by looking at the total value of manufactured goods imported from a list of 14 trading partners, including China, Vietnam and Malaysia, relative to American manufacturing output. Between 2018 and 2020 this ratio has stayed stable at around 13%.Some companies are, it is true, adapting their supply chains. They are seriously considering moving manufacturing out of China, says Jan Loeys of JPMorgan Chase, a bank. But those companies are mostly eyeing nearby countries, often in addition to rather than instead of their Chinese suppliers. American imports from from Taiwan rose by 35%, or $11bn, in the first seven months of 2021, compared with the same period in 2019. But those from China increased by nearly as much in dollar terms.American companies also continue to sell a lot to foreigners. The Economist looked at the share of revenue earned abroad for non-financial firms in the Russell 3000, a broad index of American firms. Some industries, such as professional services, have seen their domestic share of sales increase, as lockdowns around the world hampered foreign contracts. Others, such as entertainment, have become more reliant on foreign sales; Netflix now books 54% of its revenue abroad, up from 40% a few years ago. Imax, a cinema chain, has made over two-thirds of its revenue this year from Asia, up from two-fifths in 2017.Overall, the median firm’s foreign sales as a share of its total sales has stayed roughly flat at 15%. So has the revenue-weighted average, which has oscillated around 35%. Two in five firms make more than half of their sales overseas, a proportion that has also remained more or less constant in the past four years. CEOs fall over themselves to signal their international ambition during earnings calls. On July 27th Tim Cook, who runs Apple, named 14 countries where the iPhone-maker’s sales reached a record high for the third quarter. “I could go on…It’s a very long list.” On the same day Kevin Johnson, boss of Starbucks, said he was “very bullish” about the coffee-pedlar’s prospects in China. Power dynamicsThe third area of concern is market concentration. In 2016 we published an analysis that divided the American economy into around 900 sectors covered by the five-yearly economic census. Two-thirds of them became more concentrated between 1997 and 2012. The weighted-average market share of the top four firms in each sector rose from 26% to 32%. The latest census data, which include years up to 2017, show that the trend did not reverse. But did it accelerate? Although concentration edged up in around half of industries between 2012 and 2017, the weighted-average market share across all industries remained at 32%.More recent census data will not be published for years. So in a separate analysis we looked at the market share of the top four firms in in the Russell 3000. In seven of the ten sectors, the revenue-weighted market concentration was a bit higher in the past 12 months than it had been in 2019. Similarly, Bank of America, which has tracked that the Herfindahl-Hirschman index, a gauge of market concentration, for firms in the Russell 3000 since 1986, hit a new high in 2020.This could be because deep downturns like last year’s covid recession tend to favour big firms with healthy balance-sheets. Big tech in particular has benefited from the pandemic shift to all things digital. America’s five technology titans—Apple, Microsoft, Alphabet, Amazon and Facebook—notched up combined revenues of $1.3trn in the past 12 months, 43% higher than in 2019. They are America’s five most valuable firms, accounting for 16% of the country’s entire stockmarket value—considerably higher than the 10% attributable to the five biggest American firms in the past 50 years, according to calculations by Thomas Philippon of New York University’s Stern School of business.In hard-hit industries, meanwhile, cash-rich survivors have been snapping up struggling rivals and contributing to an M&A bonanza. Between January and August American companies have announced deals worth almost $2trn. The sectors which saw the biggest rise in concentration were those disrupted by the pandemic, such as real estate and consumer goods (where the top four firms’ share has jumped by around four percentage points since 2019). Some big firms are getting a larger slice of a shrinking pie. Among energy-services companies, such as Haliburton, the top four increased their market share from 59% to 75%, even as the industry’s revenues fell by almost a quarter.All this would be worrying—were it not for other concomitant trends. The tech giants, for example, are increasingly stomping on each others’ turf. Nearly two-fifths of the revenues of the big five now come from areas where their businesses overlap, up from a fifth in 2015. Facebook wants to become an e-merchant, Amazon is getting into online advertising, Google and Microsoft are challenging Amazon in the computing cloud, and Apple is reportedly building a search engine.Such oligopolistic competition is not ideal, perhaps, but much better than nothing. And money flowing to newly listed disruptors and to corporate capital budgets implies that companies and investors are spying fresh opportunities for future profits, including at the expense of incumbents, should they become complacent. American business could use some more pep here or there—who couldn’t. But it does not scream sclerosis, either. More

“IN COMPLEX ANTITRUST cases there is rarely a complete win or a complete loss.” That was the prediction of a lead lawyer in the blockbuster antitrust lawsuit pitting Epic Games, the maker of “Fortnite”, a popular video game, against Apple, the world’s most valuable technology company. A few days later, on September 10th, a federal judge in California, Yvonne González Rogers, proved him right. Her much-awaited ruling is a mixed bag for both parties.A skim of the 185-page decision suggests that Apple can claim to be the bigger winner. Broadly speaking, Epic had accused the tech giant of abusing its de facto monopoly over the iPhone and the App Store by, among other things, forcing the games-maker to use Apple’s in-app payment system and to pay excessive commissions of up to 30%. Not so, the judge argued. In her view, the relevant market is not the iPhone or the App Store, but “digital mobile gaming transactions”, where Apple competes with Google’s Android operating system. Although Apple controls more than half of this market, that does not amount to wrongdoing. “Success is not illegal,” Ms González Rogers wrote, adding that no evidence was presented to suggest that Apple erected barriers to entry or engaged in conduct decreasing output or innovation.Tim Sweeney, Epic’s boss, did not hide his disappointment. “Today’s ruling isn’t a win for developers or for consumers,” he tweeted defiantly. He vowed to fight on “for fair competition among in-app payment methods and app stores for a billion consumers”. Apple, for its part, did not hold back its satisfaction. In a statement, Kate Adams, Apple’s general counsel, called it “a resounding victory”. “We’re extremely pleased with this decision.”On closer inspection, though the bag begins to look decidedly more mixed. For one thing, the judge said that the court did not decide that it is impossible to show that Apple is an illegal monopolist—only that Epic had failed to do so. She also found that, contrary to Apple’s protestations, the App Store’s operating margins, which one of Epic’s expert witnesses put at 75%, are “extraordinarily high”. Most importantly, Ms González Rogers ruled that although Apple did not violate federal antitrust law, it had engaged in anticompetitive conduct under California’s competition law. It did so by banning developers from including information in their apps that tells users how they can subscribe or buy digital wares outside the App Store. Such “anti-steering” provisions, the judge ruled, “hide critical information from consumers and illegally stifle consumer choice”.The decision will take effect in 90 days, though both sides are expected to appeal. The case may end up in America’s Supreme Court. Whatever its final outcome, it will pile more pressure onto Apple to loosen its tight control of the App Store. This could dampen its juicy margins and weaken Apple’s services business, which analysts expect to be one of the firm’s main sources of growth and profits. “This is a negative for Apple, it will put pressure on its effective take rate,” observes Pierre Ferragu of New Street Research, a research firm. Apple’s share price fell by more than 3% after the verdict was handed down, shaving $85bn off its market capitalisation, three times unlisted Epic’s private valuation.Perhaps in anticipation of the verdict, Apple has recently made some concessions. On August 26th, in a settlement with app developers, it agreed to allow them to email users about payment methods outside of the App Store. On September 2nd, in another settlement, this time with Japan’s Fair Trade Commission, it consented to letting apps that provide access to digital content, such as books and music, direct users to other ways to pay. Apple will also have to comply with a new South Korean law banning app stores, including its own and Google’s, from requiring users to pay using the stores’ payment systems. The European Union and even America’s polarised Senate have similar laws in the works. Apple may, just about, be able to claim a victory in the courtroom battle against Epic. But the drawn-out regulatory world war is far from over. More

THE STOCKMARKET index of Germany’s bluest chips is getting a makeover. Any week now the DAX will gain ten new members, bringing the total to 40. The newcomers will be the most valuable German firms not already in the index (so long as they can show two years of positive earnings before interest, taxes, depreciation and amortisation). The new DAX could reach €2trn ($2.4trn) in market value, from €1.6trn today. A few faster-growing members may boost the index’s mediocre returns. But probably not by much.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

FEW FIRMS have spawned an industry. Warby Parker, a millennial-chic spectacles firm, has a decent claim to be one of them. A decade ago the startup pioneered selling products directly to shoppers online, using the internet to avoid the costs of bricks-and-mortar shops and chip away at clunky consumer-goods incumbents that relied on distributors and retailers. Thousands of direct-to-consumer (DTC) companies followed in its footsteps. Venture-capital (VC) firms threw money at them; Warby Parker’s latest funding round gave it a valuation of $3bn. On August 24th, in the biggest test yet of market appetite for the business model, it opted to go public—appropriately, selling shares directly to investors rather than through intermediaries as in a conventional initial public offering (IPO). A week later Allbirds, an online trainers-seller, said that it, too, will float its shares.Listen to this storyYour browser does not support the element.Enjoy more audio and podcasts on More

BEING AN OIL-INDUSTRY boss is an exercise in displeasing all sides. Pumping hydrocarbons out of the ground is lucrative, but angers environmentalists—including those sitting in boardrooms and governments. Renewables and other green projects are more palatable, but often fail to woo investors. TotalEnergies this week showed one way to straddle the divide.On September 5th the French oil major signed an agreement with the government of Iraq to invest $27bn there over 25 years. The money will go to projects from the virtuous (a big solar farm) to the carbon-spewing (expanding an existing oilfield). One scheme will capture natural gas burned off as a by-product of oil extraction and use it to make less grubby electricity.The deal is a boon for Iraq. It has struggled to lure investors to its energy sector. Corruption and political instability have pushed many of Total’s rivals, such as BP, Shell and ExxonMobil, to exit Iraqi projects or consider doing so. The solar plant and rescued gas will reduce reliance on gas imports and electricity from Iran, an old foe, which has cut Iraq off before owing to unpaid bills. Regular blackouts in an oil-soaked country look awkward for politicians ahead of elections next month.Total, for its part, has buttressed its reputation, tinging its carbon-belching operations with a green touch. A rebrand to TotalEnergies earlier this year is part of a push away from the black stuff and a commitment to “net zero” carbon emissions by 2050. The plan is backed by lots of climate-friendlier spending pledges.In seeking greener pastures the firm has waded into places others avoid. Patrick Pouyanné, Total’s pugnacious boss, has made clear that only old-fashioned oil profits can fund a shift to clean energy. He is avidly chasing the world’s most cheaply extractable hydrocarbons, often in the Middle East and Africa. While rivals have poured money into American shale, Total is investing in countries that grace the bottom rungs of ease-of-doing-business rankings (think Libya and Venezuela). If things go well, Total can expect a gusher of rewards—profits of $95bn may flow to it over the life of the Iraqi contract.Often they do not. Total’s big gas projects in Mozambique and Yemen have been disrupted by war and terrorism. This summer it lost $1.4bn as it wrote off some assets in Venezuela. In Iraq, too, Total has its work cut out. It will have to sink perhaps $5bn before seeing returns. It can at least expect help from high places as it seeks to manage political risk. The deal was signed in the wake of President Emmanuel Macron’s visit to the country in late August—his second in less than a year. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Baghdad pay dirt” More

IN 2013 MEREDITH HALKS MILLER, a laboratory director at Illumina, the world’s biggest gene-sequencing firm, spotted something odd as she examined the blood of expectant mothers, looking for abnormalities in the fetuses they carried. In some cases, the DNA of the unborn children was normal, but that of the mothers was not. Suspecting the women had cancer, she went to her superiors, only to be met with scepticism. She pushed nonetheless. “I was determined to bring this to light. As a doctor, I really wanted to help these women,” she says. Her intuition proved right. “Sure enough, every person I predicted had cancer had cancer.”Her hunch led to the foundation of GRAIL, a pioneering company focused on detecting cancers using blood tests even before any symptoms have emerged. Illumina spun it out in 2016 (tech tycoons such as Jeff Bezos and Bill Gates were early backers), only to repurchase it again in a $7bn deal last month, shortly after GRAIL released a test in America that screens for up to 50 cancers from a sample of blood. And yet until a recent blog post by her daughter, noting how infrequently female scientists get credit for their work, Dr Halks Miller’s role was mostly airbrushed out of GRAIL’s story. When contacted by your columnist, she says she received no extra bonus or promotion for her efforts. Even today, Francis deSouza, Illumina’s CEO, refers to her simply as Meredith, and when asked about her says only that she has retired.Nonetheless, her brainchild is now firmly in the spotlight. GRAIL’s return to Illumina is intriguing for three reasons. First, in acquiring it, Illumina, described by its biggest investor, Baillie Gifford, a Scottish asset manager, as the “Google of genomics”, hopes to become a colossus of cancer care. In short, it wants to make screening the new search. Second, like Google, Illumina faces a showdown with trustbusters in America and Europe, irked by how similar early-stage acquisitions gave rise to today’s tech giants. Third, Illumina has defiantly gone ahead with the transaction before regulators have given it the green light. The battle pits an acquisitive company on the technological frontier against trustbusters keen to rewrite the rules of tech competition.There is no question that Illumina, worth $73bn, rules the world of gene-sequencing. Its machines control 90% of the market in America. Its vast global share is reflected in the fact that Chinese scientists used it for the first sequencing of the SARS-CoV-2 genome at the start of the covid-19 pandemic. Using technology acquired with the purchase in 2007 of Solexa, a British company, it provides gene-sequencing tools to genomics companies, including those developing liquid biopsies or blood tests for cancer. Mr deSouza reckons that the global market for cancer gene-sequencing could be worth $75bn by 2035. That looks promising for a gene-sequencing provider. Even more so if GRAIL can change the efficacy and economics of cancer care. Mr deSouza argues that Illumina’s global heft and ability to convince insurers to cover the cost of genomic testing will help GRAIL do that. Far from stifling competition, the takeover will stimulate it, he says. Money is pouring into startups trying to catch up with GRAIL.The trustbusters see things differently. Last year the Federal Trade Commission (FTC), America’s antitrust agency, blocked Illumina’s acquisition of another sequencer, Pacific Biosciences, on the grounds that it would be anticompetitive. Now the FTC says that Illumina’s takeover of GRAIL will harm innovation in the nascent market for early detection of cancer. The European Commission (EC) has launched a parallel investigation, alleging Illumina could restrict GRAIL’s rivals from accessing its gene-sequencing technology. On August 18th Illumina defied the Europeans, saying that because an EC decision was not expected until after the deal expires, it would complete the transaction anyway—albeit holding GRAIL separately. It is challenging the EC in a Luxembourg court, claiming that the EU’s executive arm does not have jurisdiction over the merger. Moreover, the commission has contested the deal using an untested and controversial mechanism called Article 22. Illumina’s strategy is a bold one—some would say reckless. Its share price has slumped since the closing of the deal partly because investors fear it may stir up a regulatory hornets’ nest.The antitrust concerns can be viewed narrowly or broadly. From a narrow perspective, customers of Illumina who hope to compete with GRAIL in testing may worry that Illumina will charge them higher prices for sequencers. That could give GRAIL, if it has lower sequencing costs, an edge. Illumina counters that it has no incentive to harm its clients, because it makes much more money selling sequencers than it does selling tests. It has also pledged to supply sequencers to them on the same terms as it does to GRAIL. More broadly, even if Illumina continues to lower the cost of gene-sequencing, the regulators’ focus on non-cost factors such as innovation may reflect a new approach to antitrust that goes beyond the duty to protect consumers’ pocketbooks. In a case of bad timing, or bad luck, Illumina has thrown down the gauntlet to the trustbusters just as they are determined to show they will not be doormats. It will be up to the courts to decide the outcome.Stick to your gunsRegulators are not the only concerned parties. According to Doug Schenkel of Cowen, an investment bank, some Illumina shareholders say that uncertainty about the outlook for the GRAIL acquisition and the implication that there could be increased risk to the company’s position as an “arms dealer” to the genomics industry are weighing on shares. So are concerns about whether Illumina is the best option for bringing GRAIL’s blood-based diagnostics to market. Some fear it could be the latest example of a hardware firm that bungles the move into software and services. That said, it is a long-term bet and Dr Halks Miller, for one, is excited. She says GRAIL’s new test is “incredibly powerful”. She relishes its success and has no regrets—even if she reaps few of the rewards. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Illumina and the holy GRAIL” More

IN AN INTERNAL memo to staff in 2016 JPMorgan Chase relaxed its dress code. The American bank’s 240,000 employees could hang up their suits and don business-casual attire—once reserved for casual Fridays—all working week. Some garments remained beyond the pale (T-shirts, flip-flops, tank tops, yoga pants). But many—polo shirts, skirts (of appropriate length), dress sandals—became fair game.JPMorgan was, sartorially speaking, ahead of its time among stuffy corporate giants (turtlenecks and hoodies have long been the fashion choice of Silicon Valley titans). Others followed suit, as it were. Men’s corporate uniform—and the female power suit designed to mirror it—increasingly came to be seen as a vestige of the male-dominated offices of yore and no longer fit for purpose in a world of greater (though still imperfect) workplace equality. As more and more people ran or cycled to work, they found that changing into a full suit was impractical, since jackets folded into rucksacks tend to lose their crispness.These days ties are no longer de rigueur in client meetings even for pinstriped investment bankers at Goldman Sachs. Purveyors of formal wear have fallen on hard times. Last year Brooks Brothers, which had been sewing button-down shirts since 1818, filed for bankruptcy. Last month Marks & Spencer, a British retailer, announced it would no longer sell men’s suits in more than half of its bigger stores.As the pandemic completely decoupled work and presence in the office, employees at many companies switched into something even less starchy. Unlike JPMorgan, however, most have not put any guidelines in place as to what is and isn’t appropriate. Although the Delta variant is forcing companies to delay a return to the office, that day will come. When workers are back at their desks, at least some of the time, new sartorial rules may be required.Much has been written about what people wore on Zoom calls during lockdowns (and what they did not wear: some retailers report that tops significantly outsold trousers in the past year and a half). Fashion designers like Giles Deacon in Britain have launched “work from anywhere” fashion collections, aiming for slightly looser-cut clothing that nevertheless looks smart. Two Japanese companies, Aoki and Whatever Inc, created pyjama suits—a hybrid of a suit and soft, comfy loungewear—perfect for the video conference attended from home. Aoki uses the same fabric as pyjamas but with a suit-like cut. Whatever Inc’s WFH Jammies are “business on the top, loungewear on the bottom”.That is not to say that business-casual Fridays have given way to athleisure work weeks. Indeed, some workplaces are already experiencing a backlash against informality. In 2017 Britain’s House of Commons decided that male MPs were no longer required to wear ties when attending debates; previously they could go tieless only on hot summer days. But at the beginning of September this year Sir Lindsay Hoyle, the Speaker, announced that he expected all parliamentarians to smarten up. Jeans, chinos and sleeveless tops are out.Looked at in the aggregate, individuals’ clothes speak to more than just personal preferences. People’s sartorial choices add up to a zeitgeist. It is no accident that the cheerful glitz of the 1920s came right after the despondency of the first world war and the Spanish flu. Today’s tailoring brands hope that when the pandemic recedes at last male and female professionals will feel a renewed desire to dress up.So does Bartleby. Like Sir Lindsay, she would recommend that employees maintain a degree of formal presentation. Yes, some people can pull off a dishevelled look—but not everyone. Dressing with taste and elegance does not have to involve designer clothes or expensive watches. It signals commitment and seriousness. A freshly laundered, crisp shirt announces to the world that you have made an effort; a tracksuit does not.And if going to the office is a ritual, styling an outfit can be a pleasure, not a chore. The way one dresses is part of his or her self-expression. It also separates the public and the private. Peeling off formal office clothes and slipping into something cosy marks a daily transition from work to non-work. That line was blurred during lockdowns and could do with some sharpening. A man in a suit and tie is a man loosening his tie at the end of the day.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Suits v sweatpants” More

THE BIGGEST television drama of the past decade has been the story of how people watch it. Ten years ago nearly nine out of ten American households subscribed to cable or satellite. Today little more than half do. The collapse of pay-TV, amid the advance of online streaming, has upended the television industry and forced Hollywood giants like Disney to rethink their business model. And the pace at which consumers are “cutting the cord” from cable providers is only increasing.But not everywhere. On the other side of the Atlantic, cord-cutters are outnumbered by cord-knotters. As Americans tear up their contracts, Europeans are signing up for cable and satellite in greater numbers than ever. Pay-TV penetration in Britain will overtake that in America this year, according to Ampere Analysis, a research firm. In France and Germany it already has (see chart).Why has American media’s mega-trend missed Europe? One reason is price. America’s cable industry may look competitive: the largest player, Comcast, has only a quarter of the market. But it is highly regionalised, so most homes have few options, says Richard Broughton of Ampere. The result is an average monthly cable bill of nearly $100. British homes pay less than half as much. Tax loopholes have made pay-TV an even better deal in parts of Europe. Take-up in France rocketed from 30% to 90% between 2004 and 2014, after the government imposed a lower rate of VAT on television services than on telecoms, unintentionally giving phone firms an incentive to throw in a cheap TV package and pay the lower rate of tax. The loophole has been closed, but subscriptions remain high.A second factor is content. American cable TV is running out of shows as studios move their best ones to their own streaming platforms. In Europe, where some streamers have yet to launch, pay-TV firms retain the rights to many of the most popular titles. Britons seeking the third season of WarnerMedia’s “Succession”, for instance, must go to Sky, a Comcast-owned satellite firm, since Warner’s HBO Max has yet to stream outside the Americas.The last reason Europe still favours cable is that American streamers have forged partnerships with European pay-TV firms rather than competing with them. In the race for subscribers, the quickest way for streamers to bulk up in Europe has been to join forces with satellite and cable incumbents. They are the ones with access to consumers and the ability to handle local marketing and ad sales. In Spain, Vodafone offers bundled subscriptions to Netflix, Disney+ and others. Next year ViacomCBS’s Paramount+ will launch in six European countries on Sky’s platform.Will cord-cutting eventually cross the Atlantic? As long as Hollywood studios continue to license their programming to local players, consumers will have every reason to stick with pay-TV. For the studios themselves those deals are lucrative, points out Mr Broughton: “Doing a Disney and cancelling all those contracts, then replacing them with your direct-to-consumer service, leaves you with a bit of a gap in your financials.”In the long run, though, studios would rather bring viewers onto their own platforms, as in America. In that scenario, pay-TV firms may be left with little to offer but sport, alongside streaming bundles of the sort offered by France’s Orange or Britain’s Virgin Media. Warner plans a gradual European roll-out of HBO Max over the next few years. By the time the fourth season of “Succession” is out, audiences may be watching it online. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Cable ties” More