The Update Issue: Bad News for Uber, Lyft, and DoorDash, Another Entrant Into the Streaming Wars, Box Office Jitters, and the Amazon Effect

Here we go again: It's the gig economy versus the state of California... Last November, California voters passed Proposition 22, which allows gig economy companies like ride-hailing apps Uber (UBER) and Lyft (LYFT) and food-delivery apps DoorDash (DASH) and Instacart to get an exemption from California's "gig law." The law forces employers to convert their […] Not rendering correctly? View this e-mail as a web page [here](. [Empire Financial Daily] The Update Issue: Bad News for Uber, Lyft, and DoorDash, Another Entrant Into the Streaming Wars, Box Office Jitters, and the Amazon Effect By Berna Barshay Here we go again: It's the gig economy versus the state of California... Last November, California voters passed [Proposition 22]( which allows gig economy companies like ride-hailing apps Uber (UBER) and Lyft (LYFT) and food-delivery apps DoorDash (DASH) and Instacart to get an exemption from California's "gig law." The law forces employers to convert their gig workers to full-time employees. With full-time status comes benefits for workers like paid sick leave and paid vacation. But for companies, these added benefits come with a cost. Given none of the businesses I mentioned above have managed to turn a profit yet, the last thing they want is the extra expense that would come with making their gig workers full-time employees. In order to avoid a permanent bump-up to their cost structure – and a dangerous precedent for other states – the large gig economy players opened their wallets in a big way to lobby the general public to pass Prop 22 to get an exemption from the gig law. So, $200 million later... they got a reprieve from the regulatory onslaught and the costs that would have come with being subject to the law. It was the most expensive ballot initiative in California history. It looked like a done deal and lobbying triumph... until last week, when a California judge said that Prop 22 is unenforceable and unconstitutional. Nothing will change at the gig companies right now, while they await their day in court on an appeal... But something definitely changed for the companies' risk calculus, since the issue seemed to be a done deal in California, but now it's not. After Prop 22 passed, several of the gig companies tried to make amends with drivers... Uber, for example, began offering health insurance to drivers who work at least 15 hours per week. But the California judge believed that Prop 22 clipped the state legislature's authority and ability to pass bills. If the gig companies lose this appeal, Wharton Business School professor Gad Allon thinks bringing gig workers on as employees could raise the cost structure for these companies by as much as 10% to 20% in California. As he commented to Bloomberg... This gig economy model was never sustainable. Companies had a chance to build a new framework that accounts for worker benefits in their cost structures. This ruling shows they lost that opportunity. They're not dictating the terms anymore. Of course, as labor costs rise, so do the prices these companies charge consumers. It has been the summer of [surge pricing]( and [surcharge fees](. So perhaps the biggest loser here could potentially be the consumer, who is already paying much more for the same service. I have no insight on who will win this one in court, but it's worthy to note that this existential risk to the gig economy company has returned. I have been pretty clear that I'm a bear on UBER and LYFT shares... This just adds one more coal to the fire. Just when you thought we had to be done with the streaming app launches... Despite being the sister company to HBO and its HBO Max service, WarnerMedia's CNN news network decided to go in another tried-and-true direction and add a "+" to denote its nascent news streaming service, taking a page out of the Disney (DIS), Apple (AAPL), and ViacomCBS (VIAC) playbooks, which respectively offer Disney+, Apple TV+, and Paramount+. The new CNN+ was announced last month, and the chief digital officer for CNN, Andrew Morse, who will oversee the streamer, asserted that "this is the most important launch for CNN since Ted Turner launched the network in June of 1980." CNN+ plans to offer eight to 12 hours of live programming each day, but it won't just be a direct copy of what you see on the cable network. Due to agreements with cable and satellite carriers, CNN can't livestream its broadcast feed over an app. Instead, it will build something similar... but different, and has been on a hiring spree to support the effort. The new service will also offer original series and a promised "interactive community." If successful, CNN+ will allow the franchise to reach cord cutters and news junkies, while not disrupting the estimated $1 billion or more in profits that Warner's parent company, AT&T (T) makes annually off the news network. CNN+ should launch in the first quarter of next year. So far, executives have been silent on what the service will cost consumers, as well as what the annual budget of the venture will be. From the number of people CNN is reportedly hiring, that cost won't be small. The big investment that's about to go into CNN+ was probably just one more factor that led [AT&T to give up on the former Time Warner and strike a deal with Discovery (DISCA)]( to take the media assets off its hands. Given [AT&T's extremely high debt levels]( the company bit off a little more than it can afford to chew when it entered the streaming wars by buying Time Warner. --------------------------------------------------------------- Recommended Links: [Joel Litman's L.O.C.K. System Called RNG at $20]( Now, the system that called the rise of 2020's biggest tech stocks has a new prediction – and its creator says Americans are woefully unprepared. [Click here to learn more](. --------------------------------------------------------------- [The largest FREE crypto giveaway in history is coming]( Jeff Brown was one of the first venture capitalists to back Coinbase, America's largest crypto exchange. Tonight, at 8 p.m. Eastern time, he's holding his first-ever crypto livestream... where he'll pull back the curtain on the largest FREE crypto giveaway in history. [Save your seat here](. --------------------------------------------------------------- After a brief reprieve at the box office thanks to the latest entry in Comcast's (CMCSA) Fast and the Furious series and Disney's Black Widow, entertainment executives are getting the jitters again... The box office disappointment of Warner Brothers' The Suicide Squad ushered in the return of much hand-wringing. Despite great reviews, a big budget, recognizable stars, and a superhero theme, the film opened to $27 million in North American box offices versus expectations of $30 million. Things went from bad to worse when the movie's box office haul dropped a staggering 71% in its second weekend. It's the biggest second-weekend drop for a big-budget superhero movie on record. The Suicide Squad had the misfortune of arriving right around when the COVID-19 delta variant started blowing up, which might have dampened appetite for going to the movies. And being a Warner film means that [it was available on the day of its theatrical release for free to all HBO Max streaming subscribers](. Gauging the success of a film is no longer as straightforward as counting up the box office take because if the movie pulled in new subscribers to the service it streams on, that is an equally valid way of the film generating revenues. It's hard to make a call on the future of movie theaters based on the rise or fall of any given movie... We've certainly had a lot of mixed signals this year. But one thing that is clear is that aggregate demand for movie theater tickets is down... Source: Twitter/@RichLightShed A 51% decline versus 2019 levels is certainly an improvement from where we started the year, which was down about 90% versus 2019 levels. But it isn't healthy, and there aren't nearly enough "butts in seats" to make theater operators turn a profit. However, no one told that to theater chain AMC Entertainment (AMC), whose shares are up more than 2,000% this year, including a 20% move yesterday. The company will bleed cash at these attendance levels, but that hasn't seemed to stop the "meme stock" crowd from piling in... I recommend blackjack or roulette instead of buying AMC shares... Over the long term, both games offer better odds. Tech giant Amazon (AMZN) has famously been a killer of many competitor businesses, but this time it killed a noun... And that noun is "Alexa," which also happens to be the name of Amazon's voice assistant, which was launched in 2014. After briefly attracting new parents to the name, Alexa soon crashed as a popular choice for naming baby girls... Source: The Atlantic News magazine The Atlantic speculates that new parents are shunning the name because it is "at best, a nuisance and, at worst, associated with subservience." Adults unfortunate to have their names commandeered by Big Tech lamented to The Atlantic... Sharing a name with a robot can be tiresome. "'OMG, Siri like the iPhone,' should be engraved on my tombstone," complained Siri Bulusu, a journalist, in a 2016 piece about her name. And name overlaps have led to sitcom-style misunderstandings, like when, as the Wall Street Journal reported, one dad asked his daughter Alexa for some water, and their robot Alexa responded by offering to order a case of Fiji water for $27. A nuisance becomes something much more serious when it involves childhood bullying. As The Atlantic explains... Amazon's choice of name has had much darker effects on the lives of some Alexas, particularly the younger ones who get teased at school with an onslaught of commands. [Naming trends website Namerology founder Laura] Wattenberg observed that the only Alexa that many of today's children know is the virtual one that their family bosses around, so it's not surprising that some of them go on to belittle classmates with the same name. "Many parents [of Alexas] are changing their kids' names or using their middle names because it leads to just horrendous bullying," she told me. It's no wonder that parents are abandoning the name. In the mailbag, readers share thoughts on Disney and L Brands, and another offers opinions on how to fix the tax code... Do you think companies that have people working for them 30 hours or more should have to classify them as full-time employees? Do companies owe benefits to gig workers? Would you pay for a streaming service that only offered news and documentary programming (not necessarily CNN+)? Do you think the box office isn't rebounding as some might have hoped because of a lack of new movies, the availability of many new movies on streaming, COVID-19 delta variant fears, or just because people got comfortable in their own homes over the past year and a half? Share your thoughts in an e-mail to feedback@empirefinancialresearch.com. "Hi Berna: Regarding Disney and streaming. One thing I've noticed lately is when an animated Disney movie is watched on Freeform (a cable channel), a small ad is displayed that you can watch this movie again on Disney+. Disney is subtly advertising for Disney+ during their movie without adding a commercial break. Since Disney also owns Freeform (I think) this makes it is a heck of a way to keep Disney+ on the minds of those who are watching the movie. A couple of times my wife and I have noticed this early enough in the movie to jump over to Disney+ and watch it commercial free without having the movie cut and the movie still finishes before the one we were watching on Freeform. "Just thought I'd add this to your Disney data in case you were not aware of it." – John B. Berna comment: Thanks for writing in, John. Disney does indeed own Freeform... And it's interesting but not surprising that the company is willing to offer it up like a sacrificial lamb in the service of growing Disney+. "I was an L Brands shareholder for a decade. Was up 600% at one point and didn't want to pay the taxes on the gains, somehow sold too late and now apparently too early! Victoria's Secret (VSCO) used to be the crown jewel of the business and Bath & Body Works (BBWI) was the meh business. How times change! Thanks for driving me to check out Bath & Body Works again. They crushed earnings today and my short puts are looking good. Happy investing." – Nick C. Berna comment: Glad you made money selling the BBWI puts, Nick. I've written about LB and its successor companies at least three times in Empire Financial Daily since that [first piece in May 2020](. Shares were $15 at the time of the first essay. The two successor companies are trading at the equivalent of $91 per share. Six-baggers in 15 months are rare... I hope some other readers profited. Anyone reading, let me know if you did! "As a private real estate investor for over 50 years, I have personally bought and sold real estate investments. I'm not entirely opposed to capital gains tax. The current capital gains tax along with other surtaxes and expenses total close to 30%. Fortunately, since the capital gains tax is so high there are the 1031 exchanges allowing you to defer that 30% tax expense. "Rather than all of this cat and mouse game; I feel simplification of the whole thing would not only be less costly to the investor and the government but would actually be more stimulating to the economy. "For example: By instituting a 10% capital gains tax with no 1031 exchange; the investor would not be burdened by a hefty penalty for liquidating their real estate holdings, which would most likely be reinvested anyway in another piece of real estate, other form of taxable investment, or possibly both, which are also taxable investments which benefit the investor, the government and the economy. The Investor would not have to deal with the time or expense involved in completing a 1031 exchange. The government would get 10% tax benefit immediately rather than deal with the expense and time-consuming process of the 1031 exchange, which causes them to wait who knows how many years for the 30% capital gains tax to come to fruition. "The primary problem with our system is as time goes on things become more intricate and complicated which is not necessarily better. Besides that, once the government tastes the fruit of a particular tax rate, it rarely reduces or eliminates it. A perfect example of that is the NYC Verrazano bridge which was supposed to be tolled only for the first two years after it was built and then was supposed to be free after that. By the time the first two years passed, the plan for toll elimination was not only scrubbed but the government taste for the toll income savored an increase which has to this day never stopped. "Many times in life, simple is better. Simplify the tax system and you not only simplify people's lives, you also stimulate the economy. This way everyone, both the government and investor, can benefit and be happy. "That's my view on the capital gains tax." – James H. Regards, Berna Barshay August 25, 2021 If someone forwarded you this e-mail and you would like to be added to my e-mail list to receive e-mails like this every weekday, simply [sign up here](. © 2021 Empire Financial Research. All rights reserved. Any reproduction, copying, or redistribution, in whole or in part, is prohibited without written permission from Empire Financial Research, 601 Lexington Ave., 20th Floor, New York, NY 10022 [www.empirefinancialresearch.com.]( You received this e-mail because you are subscribed to Empire Financial Daily. [Unsubscribe from all future e-mails](