Easternization of Media

Eastern winds of media

I’m traveling the next few weeks in Seoul, South Korea, and it’s always a delight to return here and see the technological ambition of this Asian Tiger’s entrepreneurs. South Korea has transformed into a major crypto innovation hub (arguably second only to the United States), a vanguard in climate tech and increasingly a content powerhouse as well. That’s from a startup ecosystem that was all but nonexistent a decade ago when I first lived here as a researcher.

While there’s lot to talk about, it’s the content side that I am interested in today though. As a former managing editor and foreign correspondent, I try to avoid talking about the media here on “Securities”, if only because media navel-gazing is an affliction that seems to infect every news reporter and industry executive. But after a few weeks of talking about multi-spectrum CT scanning, color revolutions, bioweapons and nuclear fusion, it seems as good a time as any to check in on the state of media in 2022.

And what a time it is, because three major bombshells dropped the past two weeks in American media which together seem to indicate what a linchpin the year 2022 is going to be for the industry and America’s standing in it:

Netflix had the biggest news. With a surprise decline in subscribers (a loss of 200,000 versus an estimated quarterly net gain of 2.5 million), it’s (finally) dawning on investors that the video-streaming juggernaut is not quite as unstoppable as its narrative made it out to be. The stock collapsed, plunging more than 35% the day after the announcement and the company’s market cap dropped almost below the $100 billion line. It’s now down nearly 70% from its 52-week high.
Meanwhile, CNN+, a billion-dollar, multi-year initiative by WarnerMedia to turn the venerable but vulnerable cable news channel into a video-streaming heavyweight, has failed, according to Axios and now confirmed by the Wall Street Journal. The entire initiative is being scrapped just two weeks after launch given low early subscriber data from its Roku launch.
Then there is the whole Elon Musk buying Twitter situation the past two weeks. As I am writing this, Musk has filed a note with the SEC indicating that he has developed a funding framework for the $46.5 billion he needs to take the company private. Banks have committed to underwriting some loans, even though the math seems to be out of the cards for most private equity investors, who see anemic growth and paltry profitability as showstoppers for developing their own takeover strategies.

What connects these stories together is not just their massive financial scale, but also what they say about the future of American media. Consumer tastes are changing, and the incumbents are clearly struggling to adapt. The top American video streamer, a major American cable channel, and a stalwart of American social media are all finding themselves in serious financial trouble. Netflix is struggling to build its content library amidst an onslaught of competition from Disney, Apple, HBO Max and others. CNN wants to pivot to digital streaming at a time when provocative streamers already saturate the news airwaves on YouTube and TikTok. And the latter app, of course, is sucking the life out of Twitter and Facebook. As someone who recently decamped to Lux Capital from TechCrunch parent company Yahoo, all I can say is: even the most powerful and impregnable of internet companies can be wiped away in just a few years.

There was a bright spot for Netflix though, and it’s one that was particularly relevant to me sitting here in Seoul. Netflix lost subscribers in all its measured regions except for Asia-Pacific, where it gained a bit more than 1 million net new subscribers. Part of the reason is the region’s sheer scale — with more than 2 billion people, there’s just more potential customers. But the other part is that Asia-Pacific is increasing its relative influence in global media.

The United States has been unrivaled in global media for decades, driven by Hollywood’s outsized budgets and quality storytelling. That hold is still strong, but looking less durable, particularly in emerging markets. The frenetic innovation happening in Asia today around media makes the massive initiatives like CNN+ and the ill-fated Quibi look like absolute foolishness.

The future of media is increasingly community-driven, interactive, and visual. Video games are dominating here, which got a huge boost during the pandemic as other forms of entertainment like live shows were restricted. Asia is the epicenter of the gaming industry, on both sides of the market. Even China, which has mostly failed to export other forms of media, has found broad success in gaming, triggering growing concerns among geopolitical analysts.

TikTok, which is owned by Beijing headquartered ByteDance and is the world’s most valuable private startup company, is the clearest example of how the world’s media ownership is changing, but it isn’t the only one. South Korea has become a media powerhouse across music, TV, and video games, and the country is putting a massive stake into the future of the metaverse to boot.

Kakao Entertainment, which is hardly a household name in the United States, has been particularly buzzy. It crossed $1 billion in revenue last year, the result of a strategy of glueing dozens of media businesses together, from streaming platforms and production companies to talent agencies and analytics businesses.

Meanwhile, Naver, one of the country’s top internet companies, is targeting 1 billion active users by 2026. A major search engine and cloud company, one of Naver’s bright lights is in the “webtoon” business, which as it says on the carton are cartoons designed for easy scrolling on the web. Webtoons, which crossed the billion dollar sales threshold in 2020 for South Korean platforms, have become a key originator of new stories: Netflix’s show Itaewon Class, for example, started off as a webtoon before transitioning to a television series. The company has been on an M&A spree to pull in more stories to flow into this business, such as buying popular fan fiction platform Wattpad for $600 million last year.

That sort of cross-media approach is extremely common here in Seoul. Webtoons are relatively cheap to produce compared to video productions, and are a great experimental media. Because webtoons are serialized, they can develop audiences over time, who regularly pay for new installments. With a built-in audience, the risk to underwrite more expensive media like shows or video games is reduced, and fans can quickly popularize the new production, cutting marketing costs (or enhancing their effectiveness).

Yet, where all this gets interesting is seeing how Asian internet giants are starting to stitch together artificial intelligence, the metaverse, crypto, and media together to rethink what content will look like in the coming decade.

There have been concerns for years around deepfakes, or the ability of AI algorithms to reproduce a person’s appearance or voice in order to create collateral for disinformation campaigns. Yet, synthetic media has a bright side: it can allow for a level of personalization in media that has never before been possible.

Cameo has had major success in the U.S. with its marketplace for consumers to buy short video messages from celebrities, perhaps as a birthday gift to a fan. Korean fan community platforms Weverse and Universe though want to eventually offer that service based on AI. Today, they are mostly communities where K-pop artists can speak directly to fans. But as synthetic voice and video become more compelling, it’s foreseeable that musicians could speak individually to fans one-on-one, with well-crafted but flexible scripts to increase realism and engagement. Indeed, as I included as a recommendation a few weeks ago, South Korea’s government has put $187 million into metaverse platforms to try to take pole position in this nascent market.

All of this is early, and yet, the trajectories from here seem quite clear. For the United States, the challenge is incumbency risk. Facebook, now Meta, is trying to reinvigorate its sapped platform with its forthcoming metaverse. But it’s hard to see how a large, monopolistic bureaucratic incumbent can take on the extensive experimentation happening on the other side of the world. Massive dollars are trying to save Twitter and CNN and Netflix, which would probably be better spent rebuilding media instead of rescuing it.

In short, the winds of change are blowing, and they are blowing in from the East.

“Why the Past 10 Years of American Life Have Been Uniquely Stupid”

This was the headline for a provocative piece in The Atlantic by Jonathan Haidt, who has extensively written on the so-called culture wars and the growing polarization and closed-mindedness of American citizens and American political discourse. Deena Shakir here recommended it, and Josh Wolfe wrote a viral tweet thread summarizing the epic 8,000 word piece.

The introduction of every new form of media inevitably leads to critics concerned that society will collapse given that information is now freer. The printing press would destroy the Church, radio would cause the demise of democracy and encourage the rise of fascism, and now we see concerns that social media is the end of Enlightenment values of debate and reason. There is definitely a critical consensus that social media is uniformly bad — just take a look at the sheer number of books published in the past few years with that theme as the subject.

Is social media different than all previous media revolutions? The answer is: of course not. The disconnect is that these changes in media often take decades — sometimes even centuries — for society to adapt to their capabilities. There has been acute attention placed on developing “media literacy” skills, but that’s what human civilization has done every time a new technology has changed communications. Unfortunately, it’s a slow process, and often one that requires new generations to be born who are adept at using these new technologies and giving up past ways of conveying information.

Podcast: Chip demand and the future of the climate

The "Securities" podcast. Artwork by Chris Gates

Over on the “Securities” podcast, I chatted with Shahin Farshchi and Lux portco Mythic’s CEO and founder Mike Henry on a major debate in the semiconductor industry: how should the energy-guzzling sector address climate change? We talk about the future of chips, and particularly the high climate costs of cryptocurrency, with Henry offering a blistering take on Bitcoin.

Listen to the episode on Anchor (which also has links to Apple Podcasts and Spotify).

Lux Recommends

Our scientist-in-residence Sam Arbesman has been reading Michael Pollan’s book from last year This is Your Mind on Plants. He found the chapter on caffeine to be particularly interesting, and indeed, Pollan wrote it as part of an Audible original (talk about cross-media promotion!)
Sam also recommends the classic sci-fi novel [Way Station](https://en.wikipedia.org/wiki/Way_Station_(novel)) by Clifford D. Simak, which won the 1964 Hugo Award for Best Novel. Continuing with science fiction (or is it science fact?), he also recommends a YouTube video by Lucas Builds The Future called I gave my microwave a soul with AI and it tried to kill me — a crazy video that’s hard to categorize.
Deena Shakir recommends a Wall Street Journal review on how dystopian novels are dominating American bookshelves. “‘Perhaps what’s changing is that more mainstream publishers seem to be waking up to the fact that these books (both on the highbrow and commercial sides) can make money,’ writes Kaffel Simonoff, ‘and so what’s always been culturally necessary is dovetailing more with the interests of commerce.’” She also recommends this Washington Post piece from Taylor Lorenz on “algospeak.”
A bunch of us read A16Z partner Katherine Boyle’s essay “The Case for American Seriousness.”
I found Christopher Cox’s piece The Productivity Secrets of the Air Force’s Disaster Gurus in Rolling Stone to be a fun read on the flight to Asia.
Lux’s CFO Sego encourages everyone to watch the Golden State Warriors as the firm’s Chief Warrior Fanatic (CWF).

That’s it, folks. Have questions, comments, or ideas? This newsletter is sent from my email, so you can just click reply.

Forcing China’s AI researchers to strive for chip efficiency will ultimately shave America’s lead

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Right now, pathbreaking AI foundation models follow an inverse Moore’s law (sometimes quipped “Eroom’s Law”). Each new generation is becoming more and more expensive to train as researchers exponentially increase the number of parameters used and overall model complexity. Sam Altman of OpenAI said that the cost of training GPT-4 was over $100 million, and some AI computational specialists believe that the first $1 billion model is currently or will shortly be developed.

As semiconductor chips rise in complexity, costs come down because transistors are packed more densely on silicon, cutting the cost per transistor during fabrication as well as lowering operational costs for energy and heat dissipation. That miracle of performance is the inverse with AI today. To increase the complexity (and therefore hopefully quality) of an AI model, researchers have attempted to pack in more and more parameters, each one of which demands more computation both for training and for usage. A 1 million parameter model can be trained for a few bucks and run on a $15 Raspberry Pi Zero 2 W, but Google’s PaLM with 540 billion parameters requires full-scale data centers to operate and is estimated to have cost millions of dollars to train.

Admittedly, simply having more parameters isn’t a magic recipe for better AI end performance. One recalls Steve Jobs’s marketing of the so-called “Megahertz Myth” to attempt to persuade the public that headline megahertz numbers weren't the right way to judge the performance of a personal computer. Performance in most fields is a complicated problem to judge, and just adding more inputs doesn't necessarily translate into a better output.

And indeed, there is an efficiency curve underway in AI outside of the leading-edge foundation models from OpenAI and Google. Researchers over the past two years have discovered better training techniques (as well as recipes to bundle these techniques together), developed best practices for spending on reinforcement learning from human feedback (RLHF), and curated better training data to improve model quality even while shaving parameter counts. Far from surpassing $1 billion, training new models that are equally performant might well cost only tens or hundreds of thousands of dollars.

This AI performance envelope between dollars invested and quality of model trained is a huge area of debate for the trajectory of the field (and was the most important theme to emanate from our AI Summit). And it’s absolutely vital to understand, since where the efficiency story ends up will determine the sustained market structure of the AI industry.

If foundation models cost billions of dollars to train, all the value and leverage of AI will accrue and centralize to the big tech companies like Microsoft (through OpenAI), Google and others who have the means and teams to lavish. But if the performance envelope reaches a significantly better dollar-to-quality ratio in the future, that means the whole field opens up to startups and novel experiments, while the leverage of the big tech companies would be much reduced.

The U.S. right now is parallelizing both approaches toward AI. Big tech is hurling billions of dollars on the field, while startups are exploring and developing more efficient models given their relatively meagre resources and limited access to Nvidia’s flagship chip, the H100. Talent — on balance — is heading as it typically does to big tech. Why work on efficiency when a big tech behemoth has money to burn on theoretical ideas emanating from university AI labs?

Turn to China now, and the story is in a very different place. The Biden administration has placed a series of export controls on advanced computation and semiconductor fabrication to China, including blocking the export of Nvidia’s H100 and A100 chips. Nvidia responded in March by offering tweaked versions that comply with U.S. export controls (with what it dubs the H800 chip), but the general policy remains in force: prevent China from acquiring the best chips that Earth produces.

Without access to the highest-performance chips, China is limited in the work it can do on the cutting-edge frontiers of AI development. Without more chips (and in the future, the next generations of GPUs), it won’t have the competitive compute power to push the AI field to its limits like American companies. That leaves China with the only other path available, which is to follow the parallel course for improving AI through efficiency.

For those looking to prevent the decline of American economic power, this is an alarming development. Model efficiency is what will ultimately allow foundation models to be preloaded onto our devices and open up the consumer market to cheap and rapid AI interactions. Whoever builds an advantage in model efficiency will open up a range of applications that remain impractical or too expensive for the most complex AI models.

Given U.S. export controls, China is now (by assumption, and yes, it’s a big assumption) putting its entire weight behind building the AI models it can, which are focused on efficiency. Which means that its resources are arrayed for building the platforms to capture end-user applications — the exact opposite goal of American policymakers. It’s a classic result: restricting access to technology forces engineers to be more creative in building their products, the exact intensified creativity that typically leads to the next great startup or scientific breakthrough.

If America was serious about slowing the growth of China’s still-nascent semiconductor market, it really should have taken a page from the Chinese industrial policy handbook and just dumped chips on the market, just as China has done for years from solar panel manufacturing to electronics. Cheaper chips, faster chips, chips so competitive that no domestic manufacturer — even under Beijing direction — could have effectively competed. Instead we are attempting to decouple from the second largest chips market in the world, turning a competitive field where America is the clear leader into a bountiful green field of opportunity for domestic national champions to usurp market share and profits.

There were of course other goals outside of economic growth for restricting China’s access to chips. America is deeply concerned about the country’s AI integration into its military, and it wants to slow the evolution of its autonomous weaponry and intelligence gathering. Export controls do that, but they are likely to come at an extremely exorbitant long-term cost: the loss of leadership in the most important technological development so far this decade. It’s not a trade off I would have built trade policy on.

The life and death of air conditioning

Across six years of working at TechCrunch, no article triggered an avalanche of readership or inbox vitriol quite like Air conditioning is one of the greatest inventions of the 20th Century. It’s also killing the 21st. It was an interview with Eric Dean Wilson, the author of After Cooling, about the complex feedback loops between global climate disruption and the increasing need for air conditioning to sustain life on Earth. The article was read by millions and millions of people, and hundreds of people wrote in with hot air about the importance of their cold air.

A few weeks ago, Bloomberg had a great piece about the rising toll of air conditioning under the similarly scary headline, “A Billion New Air Conditioners Will Save Lives But Cook the Planet.” The numbers, as always, are staggering:

Demand for air conditioners is surging in markets where both incomes and temperatures are rising, populous places like India, China, Indonesia and the Philippines. By one estimate, the world will add 1 billion ACs before the end of the decade. The market is projected to
before 2040. That’s good for measures of public health and economic productivity; it’s unquestionably bad for the climate, and a global agreement to phase out the most harmful coolants could keep the appliances out of reach of many of the people who need them most.

This is a classic feedback loop, where the increasing temperatures of the planet, particularly in South Asia, lead to increased demand for climate resilience tools like air conditioning and climate-adapted housing, leading to further climate change ad infinitum.

And there doesn’t appear to be a way out. Scientists have determined that there is a zone of comfort for humans where we can function at peak performance. Much of the industrialized world happens to sit in these temperate zones, which is one argument for their long-term economic success compared to the tropics. But as climate change intensifies, the world’s temperate zones are expected to narrow dramatically, and some countries like India may have next to no temperate zones left to protect its people. Air conditioning is a necessity (with some even calling it a human right), but greener coolant alternatives are still in their infancy. In other words, cooling innovation needs to heat up in a big way.

Lux on the Farm

Josh Wolfe speaking at Nvidia Auditorium at Stanford. Photo by Chris Gates.

Josh Wolfe gave a talk at Stanford this week as part of the school’s long-running Entrepreneurial Thought Leaders series, talking all things Lux, defense tech and scientific innovation. The
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Lux Recommends

As Henry Kissinger turns 100, Grace Isford recommends “Henry Kissinger explains how to avoid world war three.” “In his view, the fate of humanity depends on whether America and China can get along. He believes the rapid progress of AI, in particular, leaves them only five-to-ten years to find a way.”
Our scientist-in-residence Sam Arbesman recommends Blindsight by Peter Watts, a first contact, hard science fiction novel that made quite a splash when it was published back in 2006.
Mohammed bin Rashid Al Maktoum, and just how far he has been willing to go to keep his daughter tranquilized and imprisoned. “When the yacht was located, off the Goa coast, Sheikh Mohammed spoke with the Indian Prime Minister, Narendra Modi, and agreed to extradite a Dubai-based arms dealer in exchange for his daughter’s capture. The Indian government deployed boats, helicopters, and a team of armed commandos to storm Nostromo and carry Latifa away.”
In the happier news department of science, Ina Deljkic recommends “’Quite science fiction’: Brain-spine interface system helps man with paralysis walk again.”
Sam recommends Ada Palmer’s article for Microsoft’s AI Anthology, “We are an information revolution species.” “If we pour a precious new elixir into a leaky cup and it leaks, we need to fix the cup, not fear the elixir.”
I love complex international security stories, and few areas are as complex or wild as the international trade in exotic animals. Tad Friend, who generally covers Silicon Valley for The New Yorker, has a great story about an NGO focused on infiltrating and exposing the networks that allow the trade to continue in “Earth League International Hunts the Hunters.” "At times, rhino horn has been worth more than gold—so South African rhinos are often killed with Czech-made rifles sold by Portuguese arms dealers to poachers from Mozambique, who send the horns by courier to Qatar or Vietnam, or have them bundled with elephant ivory in Maputo or Mombasa or Lagos or Luanda and delivered to China via Malaysia or Hong Kong.”
Finally, Sam recommends Brick Technology’s video of “Making A Billion-Year Lego Clock.”

That’s it, folks. Have questions, comments, or ideas? This newsletter is sent from my email, so you can just click reply.

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April 16, 2022

The Future of CT Scanning

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April 30, 2022

Software Ephemerality

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