Stupidity is contagious. It gets us all from time to time. Even respectable companies can catch it. As I do every week, let's take a look at five head-spinningly dumb financial events from the past seven days.
1. Why call for a Hail Mary when a flea flicker will do?
DirecTV is already paying a steep $700 million a year to the NFL. When the next contract kicks in, DirecTV will have to pay an annual ransom of $1 billion. A 43% spike in football programming costs is steep, especially since consumers are already beginning to wean themselves off of costly television subscriptions. True, football fans can be rabid, but this assumes that DirecTV will have amazing pricing flexibility with its gridiron-loving faithful, or that it expects a healthy bump in subscribers in a few years.
Sorry, but I think it's going to drop the ball on both plays. Butterfingers!
2. The Apple doesn't fall far from the free
If a 43% spike in NFL rights doesn't hit too close to home, how about a 30% hike in what you're paying for music on iTunes? Record label executives are telling the Los Angeles Times that Apple
Apple has stuck with a flat $0.99-per-track price since the iTunes Store's inception six years ago. But the labels -- never happy with that price point -- finally persuaded Apple to implement variable pricing, in exchange for removing iTunes tracks' anti-piracy restrictions. Unfortunately, there is no inflation for the pirated equivalent of a legal download. Apple had gone public with its intentions to offer variable pricing -- at $0.69, $0.99, and $1.29 price points -- earlier this year, but the timing now just seems terrible.
The economy is smarting, and Apple decides to grant the labels their pricing increase now? It doesn't have to offer up recessionary specials like 50 Cent for $0.50, but at least it could hold the line.
The $0.69 price point is certainly appealing, though, and I'm sure the labels that are laughing now will be crying when consumers flock to the cheaper tracks instead.
3. Hitting the "pause" button on video game retailing
So what's eating GameStop? Maybe it's this week's unveiling of OnLive, a cloud computing solution for diehard gaming that threatens both bricks-and-mortar retail and the console makers themselves.
OnLive already has most of the major video game developers on board, won over by the merits of inventory-free digital distribution and the lack of resales that have eaten into their profits. Since OnLive stores the high-end games on own its fleet of servers, gamers need only a healthy Internet connection, and either their own computers or an OnLive "mini-console."
Like most upstarts, OnLive has a long uphill climb ahead if it seriously wants to contend. However, any kind of disruptive uncertainty doesn't sit well with investors in companies like GameStop, even if those businesses are growing nicely in this wicked economy.
4. Back in Focus
Investors have been warming up to Focus Media
So why did GameStop drop on a win, while Focus Media soared on a miss? Perhaps the market is realizing the true value of SINA's
Mr. Market is valuing Focus Media for less than the SINA stake that the company will be distributing to its shareholders, making the market the dummy here. However, investors need to be nimble at this point. The shell that Focus Media will become after the SINA purchase is complete isn't very appealing, with Focus Media expecting a 36% sequential decline in revenue from its continuing operations this quarter.
In short, you have to know when to buy, but also when to sell.
5. Built to last, but not to Last.fm
Online radio site Last.fm, owned by CBS
This sort of arrangement rarely ends well. CBS is competing against companies such as Pandora, Slacker, and Time Warner's
So is it OK to say that charging for Internet radio is a Last.fm resort?
Let's beat the dumb drum:
Focus Media is a Motley Fool Global Gains pick and a former Motley Fool Rule Breakers recommendation. Apple, GameStop, and SINA are Motley Fool Stock Advisor recommendations. Try any of our Foolish newsletter services free for 30 days.
Longtime Fool contributor Rick Munarriz is a fan of dumb and smart business moves. Investors can learn plenty from both. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.