When Smart People Talk, We Listen

We don’t know how long ago we met Frederick “Shad” Rowe, but we are glad we did, because our conversations with him have been net worth changing. Recall that Shad is the founder, and portfolio manager, of the Dallas-based Greenbrier Partners Capital Management and one of the smartest guys on Wall Street. We first heard of him while reading Forbes Magazine in the 1970s where he was a regular contributor. We still have many of the articles from back then and have often used quotes from those articles in these missives. Last week, we read his monthly letter, which we think is consistently brilliant; indeed, when smart people talk (write) we listen. In this month’s letter Shad wrote:

It strikes me that the once passionate investment debate of content versus distribution has now become irrelevant. The creation of content has exploded (and shows no sign of slowing), the number of distribution channels continues to grow, and the costs to create and distribute content have decreased dramatically. As a result, the balance of power has completely flipped. The new king is the consumer – long live the king. Previously consumers had little choice; now options are unlimited as their expectations continue to rise. Thanks to technology, people can consume whatever content they want, whenever they want, wherever they want, and however they want. In addition, the very definition of content has changed – consumers themselves are now the world's most prolific content creators thanks to YouTube, Facebook, Instagram, Twitter, Snapchat, etc.

As a result, the lines between content creators and distributors continue to blur. A number of today's most successful companies have the ability to create, purchase, and distribute content themselves. Moreover, these companies have built platforms that billions of consumers love and use every day – this is what matters and is why we believe in the concept of “digital real estate”, a key tenet of Greenbrier’s investment philosophy. As a reminder, here is the theory: The applications on the home screen of your smartphone have become the most valuable real estate in the world. The value of these platforms is based on unprecedented scale, customer loyalty, and profitability. [Note: eight out of the top ten most popular iPhone applications are properties of Greenbrier companies, which does not include Apple’s own preinstalled applications.]

These developments have clearly democratized the creation and distribution of content for billions of people, which is positive (for the most part). But, the unlimited choice is overwhelming for most people – there are not enough eyeballs or hours in the day to discover even a fraction of what is currently available. Consumers may look for new things, but typically spend most of their time on the few dominant platforms, which is why it will be so difficult to displace them. As a result, we expect these platforms will continue to capture the majority of user time and attention, which makes this ‘real estate’ so desirable.