For to every one who has will more be given, and he will have abundance; but from him who has not, even what he has will be taken away. — Matthew 25:29

Most things in life are normally distributed in the shape of the orange bell curve. Test scores, weight, and height. But more and more of the economic distribution of rewards in business, creativity, and technology is distributed according to power laws in the shape of the steep blue waterfall.

Inverse Power Laws

"Inverse Power laws are elegantly simple and deeply mysterious, but more galling than beautiful. Inverse power laws are self-organizing and self-maintaining. For reasons that aren't entirely understood, they emerge spontaneously in a wide range of parallel computations, both social and natural."

— Rudy Rucker, Mathematician & Computer Scientist

George Kingsley Zipf, who formulated an observation now known as Zipf's Law found that in most documents the frequency with which a given word is used is roughly proportional to the reciprocal of the word's popularity rank. Thus, the second most popular word is used half as much as the most popular word, the tenth most popular word is used as a tenth as much as the most popular word, and so on. In other words, this statistical fact, inverse power laws, govern how rewards get distributed in our society.

[ Event Rank x Event Size = Constant ]

A power-law distribution defined over the interval [x min, to infinity] can be written as follows. Where x is the variable, α is the exponent that governs the power law behavior, and C is a normalization constant.

P(x) = C * x^(-α)

The hundredth most popular author sells a 100x fewer books than the author at the top. the #1 author sells 1 million, the #10 ranked author will likely sell around a 100k, the #100 ranked author sells 10k, and so on. The inverse-power laws aspects of income distribution are obviously disturbing. The second wealthiest person in a society might own half as much as the richest, with the tenth richest person possessing only a tenth as much, and the thousandth richest person is making only one-thousandth as much as the person at the top.

The Power Law of Beauty

When Christian Rudder, the Cofounder of OKCupid mapped out new messages received per week, by the recipient's physical attractiveness for his incredible book, Dataclysm, he saw the following:

"Running a dating site, you become aware of a subdivision that on one hand seems frivolous but on the other is as innate as a person's race or sexuality, and like those latter traits, it's often resistant to direct analysis. On OkCupid—as on Match, as on Tinder—a prime divide, perhaps the deepest, is between the beautiful and the rest. There are our haves and have-nots, our rich, our poor, and when it comes to sexual attention, the haves reap the benefit of their inheritance just as surely as any heir, while the have-nots largely go without. Not unlike race, beauty is a card you're dealt, and it has huge repercussions. It obeys the same math seismologists use to measure the energy released by earthquakes: beauty operates on a Richter scale. In terms of its effect, there is little noticeable difference between, say, a 1.0 and 2.0—these cause tremors that vary only in the degree of imperceptibility. But at the high end, a small difference has cataclysmic impact. A 9.0 is intense, but a 10.0 can rupture the world and launch a thousand ships."

For the last 15 years, we've been operating under a new paradigm. A new ideology. A new religion. One in which power laws have become more dominant. Yuval Noah Harari calls it datism in which which "information flow" is the "supreme value."

"This sort of skewed distribution is sometimes referred to as the 80/20 rule: the idea that 80% of the wealth is held by 20 percent of the people, that 80 percent of the people live in 20 percent of the cities, or that 20 percent of all scientific papers earn 80% of the citations. In reality, there is nothing magical about the numbers 80 or 20: it could be that just that 10 percent of people hold 80 percent of the wealth, or perhaps 90 percent of it. But whatever the precise numbers, all these distributions are examples of the power law, so called because the winers advance at an accelerating exponential rate, so that they can explode upward more rapidly than in a linear progression. Once Jeff Bezos achieves great riches, his opportunities for further enrichment multiply; the more scientific paper is cited, the better known it is and the more likely it is to attract further citations. Anytime you have outliers whose success multiplies success, you switch from the normal distribution to the land ruled by the power law—from a world in which things vary slightly to one of extreme contrasts. And once you cross the perilous frontier, you better think differently."

— Sebastian Mallaby, the Power Law:

" The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund. "

— Peter Thiel, Founders Fund

" Venture capital is not even home-run business. It's a grand slam business. "

— Bill Burley, Benchmark Capital

VC's have to invest in power laws or their business models collapse, but it's worth stepping back to observe how the logic of power laws have also overtaken other parts of our global economy. Particularly in art, media, design, finance, retail, entertainment, and advertising.

"Network theory is a whole branch of science, but it's relatively new in terms of the last 20 or 30 years. We haven't had a chance to take all that theory out of the universities and apply it to ask: "What kind of networks should we build, and for what purposes?"

— Anne-Marie Slaughter, Former United States Director of Policy Planning

Our global, networked economy speeds up winner-takes-all dynamics, often sacrificing the stability and resiliance found in the middle. The center balances the opposite extremes on both sides.

While network effects can be positive, networks are the least egalitarian. By it's nature it has uneven distribution of connections, influence, or resources in a networked structure or system. A few nodes, whether they be people or companies, amass most connections, creating a skewed distribution of influence and resources - a perfect manifestation of the Merton's Matthew effect: more begets more. The high-connectivity nodes often gain more influence, resources, or power at the expense of the less-connected ones. This can lead to issues such as monopolies in economics, echo chambers in social media, or a concentration of influence in social networks, making them less egalitarian.

This power-law distribution underpins our world, from corporate dominance, city growth, and income inequality to cultural trends, exponential influencer growth, box office sales, and chart topping music. However, when everything in our cultural economy is geared towards blockbuster grand slams, it begs the question: How do we ensure longevity and resilience in this high speed race of turning media, data, and cash into these new forms of quantum social, cultural, and financial capital?

Is it sustainable for businesses and livelihoods to be at the mercy of power-law distributions? Even an entire species of wooly mammoths can be led to extinction if they keep falling off a cliff.

The Mass Extinction of Big Media

It looks like Mattel's Marketing Team received my memo on why a new Media Mix is important to a IP/Franchise marketing strategy.

While I'm personally not worried about Barbie's box office numbers, major studios, and media outlets are collapsing in real-time because they have yet to replace the economics that came from the cable bundle.

In 2003 NBC was bringing in $800 million in profit. By 2010, just 7 years later, the network that brought us Seinfeld, Friends, and the Tonight Show was expected to lose more than $100 million.

"In November of 2016, NBC Universal invested $200 million in Buzzfeed at a valuation of $1.7 billion. This was an addition to a prior $200 million investment in NBCU. Buzzfeed went public via a special purpose acquisition company, SPAC, in December of 2021 and today it has a market cap of $78 million. A 95% decline in seven years. Over the years Buzzfeed bought or absorbed HuffPost, a company worth $315 million in 2011 when it was bought by AOL, and probably more when AOL was bought by Verizon Communications for $4.4 billion four years layer. Buzzfeed also bought Complex Media for $300 million in 2021. So Buzzfeed's de minimus valuation includes residual values of Complex and Huffpost as well."

— Andy Serwer

Paramount is down 45% over the past year.

Disney invested in $400 million in Vice Media, at a peak valuation of $5.7 billion. It is now being shopped around for less than a billion as they file for bankruptcy.

Disney itself lost $900 million dollars on their last eight studio releases. The eight films cost roughly $2.75 billion to produce, but brought in only $1.85 billion. Which doesn't include any marketing, trademarking, or merchandise costs.

The films contributing to the losses:

— Lightyear

— Thor: Love and Thunder

— Strange World

— Black Panther: Wakanda Forever

— Ant-Man and the Wasp: Quatumania

— Little Mermaid

— Elemental

Elemental production cost was $200 million dollars and $100 million dollars on marketing. It's the worst opening in Pixar's history. Which is a shame since it was directed by a Korean-American brother Peter Sohn. I think he was in his feels a bit too much on this one, but it looks like the film will become profitable by year end thanks to global sales and wider audience resonance.

Disney's stock is down over 50% from its all time highs. The company is valued around $160 billion. It has $14 billion in cash, but $45 billion in debt. Their revenue is about $87 billion and their net income is about $4.1 billion. So Disney's stock is trading about 2x revenue, and 40x net earnings. It's undervalued revenue wise, but overvalued net income wise.

While Disney's top-line revenue has grown over the years, their net income has fallen 67% because Disney's costs have almost doubled because of Disney+. Most of their cashflows had to go into content creation for their new streaming platform. Most of these studios are bankrupting themselves trying to fund their own streaming platforms.

 

The most successful movie of 2023 in terms of net profit so far is Makato Shinkai's Suzame. Mario grossed $1.3 billion dollars with a production budget of $100 million and a marketing budget of $50 million. Guardians of the Galaxy 3 grossed $820 million with a production budget of $250 million, and a marketing budget of $90 million. Suzume grossed over $320 million with a $11 million production budget and a marketing budget of $5 million. Bringing the total cost of production to $16 million. Disney and Paramount spent more on catering for the cast and crew than the entire production cost of the most successful movie of 2023.

I'll skip the mess at WB for now.

We are now crashing back down into a reality where the actual business metrics and mechanics of the operations determine the value assigned to their stocks and startups.

In the Ruins of the Present

"Silence is worse; all truths that are kept silent become poisonous."

— Nietzsche

The internet was meant to be a powerful tool for creators, corporations, and independents alike. It has revolutionized the way we distribute entertainment and information, becoming a vital part of our lives. And for the most part, I relish the fact that creative individuals have new ways to topple the foundations of sclerotic institutions. It's never been easier to distribute creative work, but it's never been this hard to sustain a thriving creative ecosystem. While people debate about threads vs twitter, the real problem is the enshitification of platforms.

— 90% of streaming royalties on Spotify go to 1.4% of musician

— 1% of podcasters claim the majority of ad revenues.

— The top 1% of streams earn more than half of all revenues on twitch.

It's time to admit that something is seriously off. Both the corporate leaders of the old media world and the new leaders of tech have the same agenda. To lobby against each other without any meaningful regulation to pass. It's clear that the consolidation of power in media and technology is having profound effects on all of us. While entertaining us to death so that we don't understand its salient effects. Networks make it easier for infinite accumulation. And the problem with infinite accumulation is that they can easily come to own everything that can be owned.

A New Social Contract

We cannot have a business of culture, a thriving creative industry if we do not have the infrastructure to invest in a sustainable economic model that takes everyone into account. Not just the people that benefit from power laws. CEOs, platforms, and the most famous of creators.

As much as I love Mr. Beast as a person and as a case study, you can't just incubate the next Mr. Beast. He is not an investment thesis that can be generalized for the creator economy.

"Most investors see the financial success of a Mr. Beast and work backwards, looking for the next vessel. But when I am served videos by someone who has been anointed with this stardom I don’t feel like I am inhabiting someone else’s taste but, rather, the taste of the algorithm."

— Daisy Alioto

In the past the choice about our online future was about control and creativity. But it's really about commerce or chaos.

A completely closed system would indeed defeat the purpose of the Internet; it would limit both commerce and creativity. But so would an absolutely open one, where selling digital media—or anything that can be reduced to zeros and ones—would be almost impossible in the long run. We'd have a twenty-first century communications infrastructure supporting a seventeenth-century economy, where artists need patrons and only physical items have value. That doesn't sound like progress.

— Robert Levine

The bottom line is that we all should have been pivoting from a ubiquitous ad-funded approach that ruthlessly degraded content quality, favoring quantity over quality as gaining more eyeballs became the ultimate objective. Reducing, what my friend would say, "creative content as ‘shit we throw at a the algorithm to see what sticks."

Whether we like it or not, inverse power laws are as inevitable as gravity. The basic structures of inverse-power-law curves will never go away. But we can start to bend the harsh laws toward a new balance. There are many negative forces converging on media and technology, but more so on labor. It's not just the writers and actors that are striking, Kaiser, UPS, Starbucks, Amazon and more will look to fully unionize. A new social contract is so obviously needed. One that advocates for people and balance, not just grand slams and box office numbers.

In the coming months and years, as creators and workers realize their collective power, these movements will grow in number. And as demonstrated throughout history — from the French Revolution to the growth of Wikipedia — the power of the distributed many can greatly outperform the power of the hierarchical few.

— Lee Jin