Axios
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How Best Buy succeeds in the age of Amazon

Gerry Broome / AP

Despite Amazon's tightening grip on the retail market, Best Buy has consistently surprised Wall Street with its revenue numbers, and its stock price continues to rise, per the New York Times' Kevin Roose.

Why it matters: Other big electronics chains like Circuit City, Radio Shack and HH Gregg have gone bankrupt or shut down, but Best Buy has managed to stay afloat with some luck and smart, revamped business practices.

1. The price-matching guarantee: Hubert Joly, Best Buy's CEO, told the NYT, "Until I match Amazon's prices, the customers are ours to lose." While the price-matching promise loses Best Buy some money, it also keeps customers.

2. Good customer service: Joly said that since he couldn't beat Amazon's speed, he focuses on customer service that robots can't provide — he reinstated an employee discount, began an extensive retraining program and rolled out in-house, pre-purchase consultations with the "Geek Squad" to help customers decide what to buy.

3. Adapting stores to online ordering: Best Buy brick-and-mortar stores now also serve as small warehouses for online orders in their areas, which has decreased shipping time. Best Buy also allows suppliers to set up their own on-brand showroom kiosks inside the store.

4. Penny pinching: Jolly has let leases on less-successful stores expire, laid off managers, consolidated overseas divisions, reassigned Geek Squad members, and cut prices. More creatively, Best Buy changed the handling process to decrease the number of flat screen TVs that were dropped and broken.

5. Luck: As Roose wrote, "It's lucky that the products it specializes in selling, like big-screen TVs and high-end audio equipment, are big-ticket items that many customers still feel uncomfortable buying sight unseen from a website. It's lucky that several large competitors have gone out of business, shrinking its list of rivals. And it's lucky that the vendors who make the products it sells, like Apple and Samsung, have kept churning out expensive blockbuster gadgets."

Go deeper with the full NYT article here.

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What's missing from the latest ACA repeal bill

Illustration: Rebecca Zisser / Axios

Throughout this summer's effort to repeal and replace the Affordable Care Act, Republican senators outlined a treasury of specific provisions they needed to see tweaked, added or eliminated in order to win their support. The latest effort, from Sens. Lindsey Graham and Bill Cassidy bill addresses almost none of them.

A quick rundown of some one-time must-haves that have gone missing:

  • A soft landing: Republicans went back and forth last time about how to gradually phase out the ACA's Medicaid expansion; which formula to use in setting new caps on the program's spending; and how to make new premium subsidies more generous. Graham-Cassidy comes with a steep cliff after which all funding for both the subsidies and Medicaid expansion would disappear.
  • Opioid funding: A former must-have for moderate Republicans, it's not in the new bill at all.
  • Taxes: Conservatives like Sens. Tom Cotton, Pat Toomey and David Perdue have complained about the ACA's taxes for years. Graham-Cassidy would leave many of the ACA taxes in place (a big reason why Sen. Rand Paul opposes it).
  • Pre-existing conditions: Any number of Republican senators said they wanted to retain the ACA's protections for people with pre-existing conditions. Graham-Cassidy would let states waive parts of those regulations.
  • Coverage estimates: The Congressional Budget Office said yesterday it will be able to determine whether the bill would meet the Senate's budget rules, but could not deliver estimates next week about its effects on premiums, the federal deficit, or the number of uninsured Americans.
  • A clear path through the House: The House has way more Republicans from blue states than the Senate does. Some representatives from New York have already raised concerns, and we're sure to hear more from California, New Jersey, Michigan and other states do the same.
Featured

Category 5 Hurricane Maria devastates Dominica

A satellite image provided by NASA take Monday night shows the eye of Hurricane Maria as it neared Dominica. Photo: NASA via AP

Hurricane Maria ripped through the Caribbean as a Category 5 storm yesterday, making landfall on the island of Dominica with winds reaching 160mph, per The Telegraph. Roosevelt Skerrit, the prime minister of Dominica, wrote in a Facebook post early Tuesday morning that the island has "lost all what money can buy and replace" and initial reports are of "widespread devastation."

Maria's path: The storm is expected to travel along roughly the same route as Irma, including Martinique, Puerto Rico, the U.S. and British Virgin islands, Barbuda, Anguilla, Barbados and the Eastern Dominican Republic, according to the US National Hurricane Center. The storm could make landfall in Puerto Rico as early as Tuesday night.

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Gorka's new gig

Sebastian Gorka at the White House. Photo: Susan Walsh / AP

Sebastian Gorka has found a new home. It's called the "MAGA Coalition" — a new outside group to support political candidates that will "compete against globalist corporatists interests."
Little is known about the group. A source familiar with Gorka's arrangements tells me he's signing on as "chief strategist," the same title his former boss Steve Bannon held when the two worked together in the White House.

Gorka's first outing with the group: He's co-headlining a rally with Sarah Palin in Montgomery, Alabama on Thursday night. The Palin-Gorka rally will promote Roy Moore, the controversial anti-establishment candidate running against incumbent Sen. Luther Strange.

The MAGA Coalition is co-sponsoring the Palin-Gorka rally with Great America Alliance, the Bannon-aligned outside group.
Why this matters: Think about this. A month ago, Gorka and Steve Bannon were working in President Trump's White House. Now they are preparing to go head-to-head against the president to support a candidate who is loathed by the same establishment that originally loathed Trump.
The backdrop: Some of the noisiest elements of Trump's base — including Breitbart — view the Alabama contest as a flashpoint in their war against Mitch McConnell. Luther Strange is McConnell's chosen candidate and Trump has put his weight behind him, first with an endorsement, and now with plans to hold a rally in Alabama on Saturday night to give Strange a last minute boost before next Tuesday's election. Moore currently leads Strange by anywhere between 8 and 13 percentage points, according to independent polls.
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Backing e-commerce startups in the age of Amazon

Photo illustration: Rebecca Zisser / Axios

Venture capitalist Hans Tung knows the conventional wisdom about how Amazon is eating retail, destroying legacy businesses and scaring away new rivals. But he and his firm, GGV Capital, continue to back new e-commerce companies. He tells Axios that while none might become official Amazon rivals, he still believes there is space to build very successful businesses.

Tung's deals include (or have included) GrubMarket, OfferUp, Peloton, Poshmark, Slack, Wish and Xiaomi.

The quick read:

  • Competing with Amazon means being different than Amazon, such as by offering expert-curated content. If your value prop is efficiency, then don't bother.
  • Internationalization is key.
  • Young brands on Amazon run the risk of being private-labeled.
  • E-commerce is not too popular among today's entrepreneurs.
  • He wants Walmart to hold its own vs. Amazon, but doesn't sound optimistic.

Chinese parallel:

Alibaba is by far the dominant e-commerce company in China with 80% market share, but there is still enough vibrancy for other companies like JD.com and VIPshop to also do well. Commerce is not a game where winner takes all… There's a purpose to different sorts of companies and platforms.

Think different:

How can you do something different from Amazon, like having professionally-generated content? Houzz is a perfect example, offering expert-curated products and help for people looking to remodel part of their home. Amazon just isn't geared to build that sort of community. Or a company like Poshmark, where you have lots of users sharing and selling what's in their closet. A lot of them have become influencers because other users like their style. It's what Pinterest should have done with commerce but didn't. Amazon sells clothes, but it sells them like it sells a PC or a phone. Fashion is about having different parts that go well together, which means curation. [Ed note: Both Houzz and Poshmark are GGV portfolio companies]

Won't Amazon still ape the best ones?

Google tried to do Facebook, but learned that social has different DNA than search. Amazon's DNA is about absolute efficiency and speed. Whatever you order, they want to make sure you get it as quickly as possible, and are very focused on Prime users. And they can do that faster and cheaper than anybody else. But most of the products that do well on Amazon are in commoditized product categories. That's why we're interested in something like Houzz, because its product category isn't very commoditized.

Or go back to the Poshmark influencers. How do you work with them to get them to want to stay on your platform to build followings? It's something Amazon's been trying to do but not really proven able to replicate. And it's not surprising, given its DNA. Even look at Alibaba in China. With all of its might, it's never been very good at social, because doing something that requires social networking is a different skillset than doing commerce.

If you just buy something from me, I don't care if we're friends. That's commerce. It helps if you like and trust me, but it's not required. And it definitely doesn't require you to tell me what you need so I'll build it for you. It's just not essential. The transaction is commoditized and doesn't require a lot of social interaction. Whereas if I am trying to sell a piece of clothing and I'm a social influencer, you follow me because you're inspired by my style. That's a very different relationship.

Buying into new brands:

Amazon has done very well in private label. They look at what's selling well on Amazon and then go to suppliers in China and private label it. That makes Amazon a threat, directly or indirectly, to a lot of brands that aren't already well known. So we look at young brands that we think can do a good job of building a following on social media, particularly if the price-point is mass market and we believe we can help them scale it globally... A big key is not just focusing on the U.S., particularly since there are lots of international markets where Amazon hasn't yet focused too much, so it's easier to go toe-to-toe.

Will Amazon make another big acquisition like Whole Foods?

Not for a while. I think they will focus on digesting Whole Foods. Grocery is the hardest one to crack for any e-commerce company. If you go to that Amazon store in Seattle it's an amazing experience, but it will take time to figure out how to scale that and integrate it into Whole Foods stores.

Walmart's future market share:

As a stakeholder in the e-commerce ecosystem, we definitely want Walmart to be a major player. What I worry about is that you have a team at Amazon that will work themselves until eight or ten at night making things better, and a Walmart team that goes home at 5 or 6. So I don't know. History tends to show that the team that's the hungriest and can sustain their drive the longest tend to win out.

E-commerce startup pipeline:

I think commerce is not currently a big problem that most founders in the Bay Area wake up thinking they want to solve. More of them are moving to AI, machine learning and pure tech stuff.

Featured

Live sports audiences are getting older

The median age of people watching live sports on television has increased across every nationally-broadcasted sport, according to Magna Global's latest sports media report.

Why it matters: Advertisers typically rely on live sports to reach a relatively young, engaged audience, particularly for consumer goods. That live TV audience seems to be migrating to digital pretty quickly.

Note: Data reflects regular season viewership where available as opposed to playoffs or finals; Data: MAGNA U.S. Sports Report, Sept. 2017; Chart: Chris Canipe / Axios

Other major findings:

  • Time spent on sports content on social media has increased among younger audiences, as many are turning to social media to catch highlights and reels of games, instead of watching games live.
  • Sports with more multicultural audiences, like basketball and soccer, have had better luck retaining younger audiences, except for the NCAA. (The median age for the NCAA basketball tournament, one of the first major sporting events to be streamed live, crossed the line into the 50's last year.)
  • Live viewing is expected to decline for the 2018 World Cup and Olympic games, but streaming is expected to set records.

The good news: Regional sports networks have had better luck retaining viewers competitor to their national network competitors, reinforcing the importance for fans to see their local teams."

Worthy of your time: Recode took a look at how advertisers are still willing to pay record amounts for NFL ads, despite live TV audience declines.


Featured

The Murdochs' global ambitions

Photo by Dan Steinberg/Invision/AP Images

While controversy around Fox News continues to make headlines in the U.S., the Murdochs have their sights on much larger, international television goals, specifically in India where it reaches 720 million viewers, backs one of the country's most-downloaded Android apps and recently spent $2.6 billion to secure rights to cricket matches.

Why it matters: Across the globe, the Murdoch TV empire is looking to expand on almost every continent, which makes it different from its biggest U.S. entertainment and telecom competitors.

  • India:
    • Star India, 21st Century Fox's TV unit, which reaches 720 million viewers in eight different Indian languages across 40+ broadcast and cable channels, continues to grow in record numbers largely thanks to its digital streaming app, HotStar.
    • Hotstar continues to be one of the most-downloaded Android apps in the country, beating out Facebook Lite for the second year in a row, with more than 100 million active users – more than double the watch time of all its competitors combined. Engagement with the app has also more than doubled over the past two years, according to SimilarWeb. The priority there is to create as many hours of local programming as possible to drive engagement. 21st Century Fox CFO John Nallen says the company produces 17,000 hours per year of its local Indian product.
    • Cricket: The network scored a major win over Facebook two weeks ago by securing the global digital and broadcast rights to stream Indian Premier League (IPL) cricket for the next five years for a whopping $2.6 billion. Their mega-investment beat out a reported $600 million digital-only India subcontinent bid from Facebook, likely the largest sports distribution bid Facebook has made to date.
  • Europe: 21st Century Fox is awaiting final approval from regulators to buy full stake in Sky, Europe's leading entertainment company serving 22 million network and satellite TV customers across the UK, Ireland, Germany, Austria and Italy. If the takeover is approved, which Fox executives tell Axios they anticipate it will, it would be an enormous market share win for the Murdochs, who dropped Fox News from the air in the UK last month. The acquisition would also include Sky News, Sky Deutschland and Sky Italia, as well as the entire Sky communications brand, which includes broadband and digital content.
  • Latin America: Fox Network Group, which controls Fox's TV and cable channels, has also been expanding its presence in Latin America and Asia. Fox Sports was granted broadcast rights to air Argentinian soccer this year. Fox Sports Latin America renewed its exclusive distribution deal with Concacaf, the group that controls soccer in North America, Central America and the Caribbean.
  • Australia: The main video programming distributor in Australia, Foxtel, is controlled by Mudoch-owned NewsCorp, the only entertainment asset NewsCorp owns.

Why it matters: The future growth potential in entertainment and media is huge outside of the US market, which is why new entrants like Netflix and Facebook are so focused on international content and distribution deals. According Chip Smith, Executive VP of Public Affairs at 21st Century Fox, "Building global brands through deep localized investment is a cornerstone of our growth strategy, and we think the experience we've gained operating over decades in international markets will prove to be a unique differentiator for our business." Of note, James and Lachlan Murdoch, who now run the media empire, have lived and led media businesses on four different continents – something its tech competitors, like Mark Zuckerberg of Facebook, and Reid Hastings of Netflix, can't claim.

The localized attention to markets is what the Murdochs are most-focused on when building their International brand:

  • In India specifically, the push into free ad-supported streaming as opposed to a subscription-supported skinny bundle (something they are considering in the U.S. and Canada) stemmed from James Murdoch's personal experience running the company's Asia arm earlier in his career.
  • In the U.K., the family's familiarity with the media market through years of cross-channel ownerships has reinforced their confidence in its Sky acquisition, despite regulatory delays.

Media as a family business

Family-owned media businesses operate much differently than standard businesses and need to make different generational considerations for major decisions, generally pushing them to think more long-term about investments. Other media executives are paid out with quarterly or yearly bonus incentives, so they tend to think more short-term.

"If you look at the Fox Broadcast Network and Fox News, these were investments that shareholders at the time thought were crazy, and they ended up both leading to phenomenal value creation," says Rich Greenfield, media analyst at BTIG. "That was certainly enabled by family ownership, which allowed them to feel confident in sacrificing short-term revenues to make investments that would build long-term value. regardless of shareholders' opinions."

Some of the biggest family-owned U.S. media businesses, per the Global Family Business index:

  • 21st Century Fox and News Corp. (The Murdoch family.)
  • Cox Enterprises Inc. (The Cox family)
  • Advance Publications Inc. (The Newhouse family)
Other major outlets, like The Washington Post (Jeff Bezos), Bloomberg L.P. (Michael Bloomberg) and the Boston Globe (John Henry), are privately-owned, and thus too have different incentives for long-term and short-term strategy.
Featured

The rush — and risks — to regulating online political ads

Illustration: Lazaro Gamio / Axios

Lawmakers on both sides are arguing that something needs to be done in order to better track spending on digital political ads in light of recent revelations that Russian groups purchased Facebook ads during the 2016 election. Their efforts are being reinforced by the Federal Election Commission, which unanimously decided to re-open the written comment period on what sort of disclaimers internet advertising should have. It's the first time the FEC has taken action on this issue in over ten years.

Why it matters: Axios spoke with nearly a dozen political ad buyers, most of whom agree that something needs to be done, but many of whom worry that lawmakers and regulators are rushing to fix a complicated, 21st Century problem with 20th Century tactics.

  • "No government regulator, and very few members of the media, understand how these mediums are being leveraged by campaigns," says Zac Moffatt, CEO of Targeted Victory, the advertising agency that managed the Romney campaign in 2012 and the Cruz campaign in 2016. "It seems like we're taking a knee jerk reaction that folks will feel better about in the short run and be totally inadequate for the complexities of the formats and targeting capabilities."
  • "The problem with the FEC and potential regulation talk from members of Congress is that they aren't going far enough and it seems like they're taking a TV filter and applying it to ad spends on digital," says Chris Nolan, a veteran Democratic political ad executive and CEO of Spot-On agency, which places political ads for candidates across the country.
  • "There's a wide disparity between digital FEC disclosures and traditional media. The digital side is nearly impossible to enforce, which is concerning," says Jordan Leiberman, Politics & Public Affairs Lead of Audience Partners, which manages dozens of political ad campaigns at the local and national levels.

Executives Axios spoke with say the industry needs to step up in order to ensure transparency, with some suggesting that publishers shouldn't be allow to accept digital programmatic (automated) ads — the types of ads big tech platforms almost exclusively sell. Some of the biggest news publishers, like The Washington Post, opt not to allow political ads to be sold programmatically, to avoid problems with ad acceptability and disclosures.

An optimistic note: "I personally am in favor of more transparency around targeting but think the first priority right now must be disclosing the source of political advertising," says Keegan Goudiss, a partner at Revolution Messaging, the political advertising firm that managed ad buying for the Bernie Sanders presidential campaign. "Tech companies have an opportunity to build a better version of the TV advertising political file on the FCC website."

By the numbers: Roughly $450 million was spent on Facebook during the 2016 general election and roughly $350 million on Google, according to data from Borrell Associates Inc. That number is only expected to increase as audiences migrate their attention to digital and mobile, specifically.

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Toys 'R Us files for bankruptcy

In December 2015, Toys 'R Us closed its flagship store in Times Square, New York. (RW/MediaPunch/IPX / AP)

Toys 'R Us said it filed for bankruptcy late last night, the latest victim of a debacle suffered by brick-and-mortar retailers in the age of Amazon. The company did not immediately address the fate of its 65,000 employees at its 1,700 stores, but the Wall Street Journal reported that at least some of the outlets would be closed and the format changed in others.

What's next: The company said it will remain open during the Christmas holidays, when it does most of its business, and had received $3 billion in banking support to restructure itself. The company said only its U.S. and Canadian stores will be involved in the bankruptcy, and that the remainder will not be affected.

First it drove others out of business: Over the years, Toys 'R Us became the largest toy store in the United States with low prices that killed stylish independents like FAO Schwartz and Kay Bee Toys, both of which themselves filed for bankruptcy. But online competition from Amazon, in addition to discount pricing at stores like Walmart and Target, undercut the retailer. It also was severely hampered by more than $5 billion in debt on its balance sheet, related to the company's acquisition by private equity firms Bain Capital and KKR in 2005.

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Maria now a category 5 hurricane

Illustration: National Hurricane Center

Latest National Hurricane Center advisory upgrades Maria to category 5, with estimated winds of 165 mph. It's forecast to make a direct hit on Puerto Rico later this week.