Cheap technology is improving our lives

As bargains go, it sounds unbeatable. MoviePass, an American web-ticketing company, has just announced a deal that will allow customers to see any film in the cinema for a $10 per month flat fee. The offer has already been hugely popular, with an estimated 150,000 people signing up in the first month. It may well end up costing the firm a ton of cash, of course – but never mind. Its investors will happily stump up for the cost of your night out at the movies.

 This is only one example of an over-ambitious business model – similar things are happening all over the place. From music, to television, cabs, and home-delivered food, and perhaps very soon groceries as well, the booming technology industry is subsidising all kinds of consumption.

Consider a few other examples. Spotify provides you with all the music you could ever possibly want for only £9.99 a month, but it can only do that because it has raised a pile of cash to pay all the record labels for the rights. Last year, the firm racked up €539m in losses, even as overall sales doubled. It raised $1bn in debt finance last year, and has had a series of funding rounds since it was launched in 2008. In effect, all that money has gone to allow users to listen to all that music so cheaply.

Or take TV. Netflix is pouring billions into creating some of the most expensive shows ever made. Series one of The Crown burned through £100m, and the second season is reported to cost double that. You can watch it all for just £7.99 a month. Does that make a lot of money for the company? It doesn’t look like it. Netflix lost $114m in the last quarter.

Next, think about your cab home. As well as having some of the most chaotic management in the world, Uber is also losing a ton of money – $708m in the first quarter of 2017. In the last three years alone it has raised more than $13bn in fresh funds. It can throw all that money at undercutting traditional taxi firms to gain market share.

Much the same is true of some of the food delivery businesses that have been launched. Even groceries may well get cheaper – Amazon, a company that has never shown any interest in making profits, has already indicated that it will slash prices at the up-market Whole Foods chain it acquired this year. Again, those organic avocados will be subsidised by its shareholders.

Not every one of these firms is happy to lose money: Airbnb has turned a profit. Yet vast sums of money are being poured into loss-making businesses by venture capital firms, stockmarket investors, sovereign wealth funds and anyone else with cash to spare. Of course, those investors are making a bet that they will be rewarded over time. A few years down the road, you will be locked into Spotify or Uber, and once that happens the company can raise its prices, squeeze the record labels or the drivers, and start making big profits. Perhaps it will work out like that. But who knows? There is a lively debate about whether Spotify can ever make any money, and the proliferation of taxi apps competing with Uber has created a suspicion that many customers just switch from one special deal to another.

We will see over time whether these investors are right. At the moment, all we know is that there is a huge transfer of wealth from them to ordinary consumers, which is driving innovation in entertainment, transport, financial technology and perhaps soon robotics and artificial intelligence. That is worth celebrating. Markets take a lot of flak – but in their own way, they are already raising everyone’s living standards. 

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