Philippa Kaur

Compared with the attention heaped on Bob Iger’s return to the helm of Disney and the stepping back of Reed Hastings at Netflix, news on February 16th that Susan Wojcicki would resign from YouTube after nine years as ceo caused barely a rustle in the media pages. That is a sign of two things. First, how little attention Wall Street analysts and entertainment-industry scribblers pay to the business of YouTube, even though it has become a hub—as well as a byword—for global video. Second, how overshadowed it is by the teetering ramparts of its parent company, Alphabet. Sundar Pichai, the tech giant’s beleaguered boss, is fighting wars on so many fronts, from Microsoft’s ChatGPT-inspired encroachment on Google search to trustbusters and the Supreme Court, that the goings-on at YouTube must seem like a sideshow.Listen to this story. Enjoy more audio and podcasts on More

“It’s free and always will be,” Facebook vowed on its landing page for nearly a decade. The world’s largest social network still is. But from this week its users and those of its sister app, Instagram, will have the option of paying $11.99 a month for a “verified” account, buying them better customer service, more widely distributed posts and a blue badge next to their name.The subscription is the latest example of a growing trend. Last June Snapchat, a messaging app popular among 20-somethings, launched a $3.99 plan called Snapchat+. In December Twitter relaunched Twitter Blue, an $8-per-month service. Like Meta’s offering, both offer an assortment of perks, the most significant being a more prominent place for the user’s posts in the feeds of others.It is hardly surprising that ad-supported networks are looking to diversify their sources of revenue. After years of non-stop growth the online-advertising business has hit a speed bump. The great one-off shift of ad budgets from offline locations, like newspapers, to the web is mostly complete. And since 2021 mobile advertising has been hampered by anti-tracking rules pioneered by Apple, which make it harder for apps like Facebook to target ads and measure their effectiveness.The results have been painful. Meta, Facebook’s parent company, has reported falling revenue in each of the past three quarters. Despite a recent rally its stock is trading at less than half the value at its peak in 2021. Snap, which owns Snapchat, has lost nearly 90% of its market value in the same period. Twitter, which was bought last October by Elon Musk, a mercurial self-styled “technoking”, is “trending to breakeven” having previously faced bankruptcy, its owner tweeted this month.Subscriptions are no substitute for ads. Snap said on February 17th that 2.5m people had signed up to Snapchat+, less than 1% of its app’s 375m daily users. That implies annual subscription sales of no more than $120m, or less than 3% of Snap’s total revenue last year. Though Twitter has not said how many have joined Blue (its entire press office seems to have been sacked), a recent leak put the figure at below 300,000. The product remains a work in progress, with promised features such as fewer ads still billed as “coming soon”. On February 17th Twitter adopted a new approach to driving sign-ups, announcing that two-factor authentication by text message, a security feature, would shortly be turned off for those who don’t cough up.Meta says its offering is aimed at “creators”, who use its platforms for work and might be most willing to pay for verification and extra reach. Whereas “Elon has a plan for everyone to buy Twitter Blue (but has yet to give good reasons why), for Meta it is about a scalable way to prevent impersonation of businesses [and] celebs,” suggests Benedict Evans, a tech analyst. Rob Leathern, a former Facebook executive, rejects the idea that the plan is a copy of Snap’s and Twitter’s efforts: Facebook has been working on verification for years, he says, citing its acquisition in 2018 of Confirm.io, a biometric-ID startup.To the extent that social networks embrace subscription it will mean a windfall for the mobile platforms that host their apps. Google, which runs the Android operating system, and Apple, which runs iOS, make no money from apps’ advertising revenue, but take a cut of consumers’ in-app purchases, including recurring subscriptions. Having whacked the mobile ad business with new privacy rules, Apple and Google stand to profit from the resulting move to subscriptions.There may be a sting in the tail. Whereas Meta’s new service costs $11.99 for those signing up on the web, the price if paying via the app is $14.99. Similarly, Mr Musk, who has called Apple’s fees “a 30% tax on the internet”, charges $8 for Twitter Blue online and $11 in app. Such two-tier pricing has proved controversial, with Apple blocking apps such as Fortnite, a video game which told users they could pay less in a browser. But as more large companies embrace differential pricing, consumers may learn that they can get a big discount by signing up outside Apple and Google’s ecosystems. ■ More

“Choiceful, discerning, thoughtful.” That is how Walmart’s boss, Doug McMillon, described consumers on the American retail giant’s quarterly earnings call on February 21st. That may be so. What they are not, at least in aggregate, is careful, thrifty or frugal. Last year consumer spending increased even as real disposable income declined by more than 6%. The splurge continued in January, as America shopped its way through a warm winter, buoyed by 517,000 new jobs and a sizeable inflation-linked bump in social-security payments. Last month retail sales rose by 3% month on month, and consumer sentiment reached its highest level in more than a year. Those looking for evidence of a “soft landing”, where the economy avoids a recession despite tighter monetary policy, found solace in the American consumer.On the surface, Walmart’s fourth-quarter results look like exhibit A for the optimists. The company’s comparable sales in America grew by a faster-than-expected 8.3%, compared with a year earlier. Look closer, though, and the earnings are full of warning signs. A big reason for Walmart’s market-share gains in groceries was cash-strapped consumers, including high-income families, trading down from fancier supermarkets. Its higher-margin discretionary offering, which includes toys, clothes and homeware, did less well. That was despite heavy discounting of wares in order to clear inventories overstocked as a result of post-pandemic miscalculation about shoppers’ appetite for things like garden furniture. Most troubling, Walmart forecast sales growth of 2.5-3% for the current fiscal year, below analysts’ expectations.Other retailers tell a similar story, more poignantly. Home Depot, which also reported its results on February 21st, disclosed its seventh successive year-on-year decline in transaction volumes—and this quarter, for the first time, it was not offset by growth in the average size of transactions. The company’s share price fell by more than 7% on the news. Shoppers’ baskets may get lighter still as jitters hit the housing market: according to Barclays, a bank, the more the asking price for properties fall, the less consumers spend on an average trip to Home Depot.Following a pandemic-era blow-out, investors expect retailers’ margins to narrow. Although the worst labour shortages have subsided, wages remain high. In the case of Walmart and Home Depot, they are rising. In January Walmart announced pay increases which will raise its average hourly wage to more than $17.50. uBS, a bank, estimates that such moves will cost the company around $1bn a year. Home Depot said that it would spend an extra $1bn on higher hourly wages for workers. A bigger worry is the potential drop-off in consumer demand. The tailwind from strong household balance-sheets, fortified by pandemic-induced saving and government handouts, will not blow for ever. According to Goldman Sachs, another bank, households have spent a third of their excess savings and will have spent another third by the end of 2023. Firms that, like Home Depot and Walmart, were quick to flaunt their pricing power last year are now more careful about further price rises, lest this put shoppers off shopping. Last week Kraft Heinz, a food conglomerate, said it was mostly done raising prices this year. Even well-heeled consumers, who disproportionately drove retailers’ sales growth in 2022, are feeling the heat, as Walmart’s success with them shows. It is all too easy to imagine Mr McMillon’s discerning shoppers turning into dispirited ones. ■ More

IN 1987 PANASONIC made an adventurous bet on China. At the time the electronics giant’s home country, Japan, was a global manufacturing powerhouse and the Chinese economy was no larger than Canada’s. So when the company entered a Chinese joint venture to make cathode-ray tubes for its televisions in Beijing, eyebrows were raised. Before long other titans of consumer electronics, from Japan and elsewhere, were also piling into China to take advantage of its abundant and cheap labour. Three-and-a-half decades on, China is the linchpin of the multitrillion-dollar consumer-electronics industry. Its exports of electronic goods and components amounted to $1trn in 2021, out of a global total of $3.3trn. These days, it takes a brave firm to avoid China. Increasingly, however, under a weighty combination of commercial and political pressure, foreign companies are beginning to pluck up the courage if not to leave China entirely, then at least to look beyond it for growth. Chinese labour is no longer that cheap: between 2013 and 2022 manufacturing wages doubled, to an average of $8.27 per hour. More important, the deepening techno-decoupling between Beijing and Washington is forcing manufacturers of high-tech products, especially those involving advanced semiconductors, to reconsider their reliance on China.Between 2020 and 2022 the number of Japanese companies operating in China fell from around 13,600 to 12,700, according to Teikoku Databank, a research firm. On January 29th it was reported that Sony plans to move production of cameras sold in Japan and the West from China to Thailand. Samsung, a South Korean firm, has slashed its Chinese workforce by more than two-thirds since a peak in 2013. Dell, an American computer-maker, is reportedly aiming to stop using Chinese-made chips by 2024. The question for Dell, Samsung, Sony and their peers is: where to make stuff instead? No single country offers China’s vast manufacturing base. Yet taken together, a patchwork of economies across Asia presents a formidable alternative. It stretches in a crescent from Hokkaido, in northern Japan, through South Korea, Taiwan, the Philippines, Indonesia, Singapore, Malaysia, Thailand, Vietnam, Cambodia and Bangladesh, all the way to Gujarat, in north-western India. Its members have distinct strengths, from Japan’s high skills and deep pockets to India’s low wages. On paper, this is an opportunity for a useful division of labour, with some countries making sophisticated components and others assembling them into finished gadgets. Whether it can work in practice is a big test of the nascent geopolitical order.This alternative Asian supply chain—call it Altasia—looks evenly matched with China in heft, or better (see chart). Its collective working-age population of 1.4bn dwarfs even China’s 980m. Altasia is home to 154m people aged between 25 and 54 with a tertiary education, compared with 145m in China—and, in contrast to ageing China, their ranks look poised to expand. In many parts of Altasia wages are considerably lower than in China: hourly manufacturing wages in India, Malaysia, the Philippines, Thailand and Vietnam are below $3, around one-third of what Chinese workers now demand. And the region is already an exporting power: its members sold $634bn-worth of merchandise to America in the 12 months to September 2022, edging out China’s $614bn. Altasia has also become more economically integrated. All of it bar India, Bangladesh and Taiwan has, helpfully, signed on to the Regional Comprehensive Economic Partnership (RCEP, which also includes China). By harmonising the rules of origin across the region’s sundry existing trade deals, the pact has created a single market in intermediate products. That in turn has eased regulatory barriers to complex supply chains that run through multiple countries. Most Altasian countries are members of the Indo-Pacific Economic Framework, a newish American initiative. Brunei, Japan, Malaysia, Singapore and Vietnam belong to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which also includes Canada, Mexico and several South American countries.A model for the Altasian economy already exists, courtesy of Japanese companies, which have been building supply chains in South-East Asia for decades. More recently Japan’s rich Altasian neighbour, South Korea, has followed its example. In 2020 South Korean firms’ total stock of direct investments in Brunei, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam—which together with unstable Myanmar make up the Association of South-East-Asian Nations (ASEAN)—and Bangladesh reached $96bn, narrowly outstripping Korean investments in China. As recently as a decade ago the stock of Korean companies’ investments in China was nearly twice as large as in Altasia. Samsung is the biggest foreign investor in Vietnam. Last year Hyundai, a South Korean carmaker, opened its first ASEAN factory, making electric vehicles in Indonesia. Now more non-Altasian firms are eyeing the region, often via their Taiwanese contract manufacturers. Taiwan’s Foxconn, Pegatron and Wistron, which assemble gadgets for Apple, among others, are investing heavily in Indian factories. The share of iPhones made in India is expected to rise from around one in 20 last year to perhaps one in four by 2025. Two Taiwanese universities have teamed up with Tata, an Indian conglomerate with ambitious plans in high-tech manufacturing, to offer courses in electronics to Indian workers. Google is shifting the outsourced production of its newest Pixel smartphones from China to Vietnam. More sophisticated manufacturing, especially of geopolitically fraught semiconductors, is also moving to Altasia. Malaysia already exports around 10% of the world’s chips by value, more than America. ASEAN countries account for more than a quarter of global exports of integrated circuits, easily surpassing China’s 18%. And that gap is growing. Qualcomm, an American “fabless” chipmaker, which sells microprocessor designs for others to manufacture, opened its first research-and-development centre in Vietnam in 2020. Qualcomm’s revenues from Vietnamese chip factories, many of which belong to global giants like Samsung, tripled between 2020 and 2022. Earlier this month the local government of Ho Chi Minh City announced that it was courting a $3.3bn investment from Intel (though it later struck the American chip giant’s name from the statement online). China’s huge advantage has historically been its vast single market, knit together with decent infrastructure, where value could be added without suppliers, workers and capital crossing national borders. For Altasia to truly rival China, therefore, its supply chain will need to become far more integrated and efficient. Although RCEP has greased the wheels of intra-Altasian commerce somewhat, the flow of goods faces more obstacles than it does within China. Its member countries will need to play to their comparative advantage. For now the infrastructure that connects them is shabby, at best. Finicky regulations and national ambitions can easily gum up the alternative supply chain. Altasia’s poorer countries are also not necessarily keen on the logical division of labour, which would see them with a bigger role in the more menial parts of the electronics supply chain. And forgoing all Chinese-made parts is next to impossible. Thamlev, an American electric-bike startup, moved production from China to Malaysia in 2022 in order to avoid a 25% American tariff, but still needed to import Chinese components. As a result, it took a month longer for its e-bikes to reach American riders. Prospects for deeper integration are hazy, both within Altasia and with big consumer markets in the rich world. India, on whose 1.4bn people Altasia’s future may depend, seems in no rush to become part of RCEP. Although the country has, with other Altasian neighbours, signed up to America’s Indo-Pacific framework, it has opted out of the initiative’s trade provisions. And these anyway lack bite: America is in a protectionist mood and has offered no tariff cuts or better access to its vast market. One ASEAN policymaker likens it to a doughnut, lacking substance in the middle. Altasia will certainly not replace China soon, let alone overnight. In January, for example, Panasonic announced a big expansion of its Chinese operations. But in time China is likely to become less attractive to foreign manufacturers. Chinese labour is not getting any cheaper and its graduates are not getting much more numerous. America may yet realise that reducing its reliance on China in practice requires closer ties with friendly countries, including membership of the CPTPP, the precursor of which collapsed after America pulled out in 2017. And as a budding alternative to China, Altasia has no equal. ■ More

On February 14th Adani Enterprises reported robust earnings. Its ports-to-power parent conglomerate had a solid 2022. Not solid enough to reassure investors: the Indian group’s market value is down by $130bn since a short-seller accused it of fraud last month (which the group denies). Its rebuttal of the charges has slowed but not arrested the slide. To preserve cash, Adani will reportedly halt some capital spending. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

Much of the Western military hardware used in Ukraine sounds familiar to any student of 20th-century warfare: surface-to-air missiles, anti-tank weapons, rocket launchers and howitzers. But Ukraine’s use of Western information technology, including artificial intelligence (ai) and autonomous surveillance systems, has also had a powerful, if less visible, impact on Russian forces. Commercial vendors supply Ukrainian troops with satellites, sensors, unmanned drones and software. The products provide reams of battlefield data which are condensed into apps to help soldiers on the ground target the enemy. One American defence official calls them, appreciatively, “Uber for artillery”. Listen to this story. Enjoy more audio and podcasts on More

Fans of South Korea’s wildly successful pop industry are used to the intrigue surrounding new groups, band members’ romances and their misbehaviour. Now a new source of K-pop drama has emerged from an unexpected quarter. On February 10th HYBE, an entertainment house which represents the genre’s biggest name, BTS, agreed to buy a 14.8% stake in SM Entertainment, a rival, from its founder and former chief producer, Lee Soo-man. Mr Lee, who is no longer involved in his firm’s day-to-day business, would be left with roughly 4%, making HYBE its largest shareholder. In pursuit of an even closer tie-up, HYBE simultaneously launched a tender offer to buy another 25% at a similar premium to the shares’ market price that it is paying Mr Lee. SM Entertainment says it will resist any attempt at a hostile takeover. The stage is set for a corporate showdown worthy of any pop feud. Listen to this story. Enjoy more audio and podcasts on More

NELSON PELTZ is a man accustomed to winning. So when his hedge fund, Trian Partners, called off a proxy fight for a seat on Disney’s board on February 9th, it was no surrender. A day earlier Bob Iger, Disney’s newly returned CEO, announced sweeping changes to the entertainment powerhouse of the sort Trian had sought. A new organisational structure will shift power from bean-counters back to creative teams. That reverses the changes under Bob Chapek, whom Mr Iger hand-picked as successor in early 2020 and then replaced in November. Operating costs will be slashed by $2.5bn, with a further $3bn to be cut from content spending, together equivalent to 8% of expenses; 7,000 staff will go. To stanch financial losses at its Disney+ streaming service, in December Mr Iger raised subscription prices in America by 38%. Disney will sit out the “global arms race for subscribers”, he says. Instead, he hinted that it may license more of its catalogue to competing platforms to juice profits. To top it off, Disney will restart paying out dividends by the end of 2023.For all that, Mr Iger left several key questions unanswered. The first concerns Disney’s long-term plan for streaming, which he has yet to articulate. Mr Iger has said he wants to focus on “core brands and franchises”. Their online home is Disney+. He also wants to avoid “undifferentiated” general entertainment. That is the preserve of Hulu, a streamer two-thirds-owned by Disney. Disney’s arrangement with Comcast, a cable giant that owns the remaining third, is set to expire in 2024. Hulu’s slowing growth and deteriorating margins suggest that the status quo is no longer working. Comcast’s boss indicated in September he would be open to buying Disney’s stake “if it was up for sale”. Mr Iger must decide whether to let go of Hulu’s shows, which according to Parrot Analytics, a data firm, do better than those of Disney+ with older viewers and women, or to fork over around $9bn for Comcast’s stake. The second unresolved question for Disney relates to another part of its media empire, ESPN. The sports network has always been an uneasy fit with Disney’s strategy, first laid out in 1957 by its founder, Walt Disney, of monetising creative franchises across several formats and distribution channels. Mr Iger’s decision to split ESPN out as a separate business unit is a tacit recognition of its awkward position. For now, Mr Iger says Disney has no intention of spinning out ESPN. That may change if the firm decides to make another big acquisition, either of Hulu or, say, in the rapidly growing market for video games. Given Disney’s hefty $40bn of net debt, proceeds from the sale of ESPN may be needed to help bankroll any deal.That is a lot for Mr Iger to sort out in the 22 months he has left on his contract, during which he must also find an abler successor than Mr Chapek. Disney’s market value of $200bn or so is up by 19% since his return, suggesting that investors have more faith in him than they did in the other Bob (see chart). But they may trust him less than they did his younger self: the firm is still worth $60bn less than when he retired in early 2020. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More