1. Shopify And Amazon Join Forces Through “Buy With Prime”
Last week, Shopify and Amazon agreed[1] to allow Shopify merchants to offer “Buy with Prime” for payment processing and fulfillment. Previously, as the two companies were battling for market share, Shopify warned[2] its merchants that offering Amazon’s Buy with Prime violated its terms of service. Now, having sold[3] Shopify Logistics to Flexport, Shopify no longer competes with Amazon in fulfillment, which has paved the way for compromise. Although Shopify now owns 6% of Flexport, the lower priced logistics service, the introduction of Amazon’s fulfillment services does erode its moat as Shopify’s official[4] logistics provider.
Thanks to this agreement, Amazon should benefit from a new customer acquisition channel and higher fulfillment revenue, while Shopify merchants will be able to access Amazon’s fulfillment network as Shopify processes the underlying payments. New Amazon Prime subscribers will benefit from the value of Prime’s 1–2-day delivery, order tracking, returns, and easier checkout. Importantly, Shopify merchants will continue to control 100% of their customer and transaction data, quelling fears that Amazon might take competitive advantage of this new agreement.
2. The Dispute Between Disney And Charter Communications Highlights The Demise Of Linear TV
After failing to reach a new carriage[5] agreement last week, Disney pulled its ABC and ESPN from Charter’s Spectrum TV cable offering. While rumors suggest that the two companies could be working on a transformative deal,[6] Charter’s CEO Chris Winfrey has stated[7] that he might scrap Charter’s ~15 million-subscriber video business altogether.
While carriage disputes are common in the TV industry, this tussle could signal a pivotal moment for linear TV. Last year, with 38.7% of total TV viewing time, streaming TV surpassed both cable and broadcast, as shown below.
The rise of streaming TV is likely to impact Charter and Disney differently. Charter’s linear video operations are at risk now that Smart TV operating systems like Roku and Amazon Prime Video are taking share from cable distribution. In contrast, Disney has created successful streaming assets like Disney+, ESPN+, and Hulu but will have to reposition its linear assets in the streaming space, a daunting task. In Disney’s fiscal third quarter of 2023, Linear Networks[8] accounted for ~30% of Disney’s total revenue and ~53% of its operating income.
In our view, linear TV’s days are numbered. The best positioned streaming companies should take share and usurp the vast majority of the $68 billion in advertising dollars spent on US linear TV.[9]
3. The Government Has Begun To Negotiate Drug Prices With Pharmaceutical Companies
Last week, the U.S. Department of Health and Human Services (HHS) announced[10] the first ten drugs that will face price negotiations under the Inflation Reduction Act (IRA) in 2023 and 2024. The United States spends ~$4.3 trillion[11] on healthcare annually, but the ten drugs HHS selected accounted for only $3.4 billion[12] in out-of-pocket costs in 2022.
The drugs selected include:
Source: Wingrove and Erman 2023 (Wingrove, P. and Erman, M. 2023. “Blood thinners, diabetes meds among first 10 drugs for US price negotiations.” Reuters. https://www.reuters.com/business/healthcare-pharmaceuticals/us-name-first-10-drugs-medicare-price-negotiation-2023-08-29/). For informational purposes only and should not be considered investment advice or a recommendation to buy, sell, or hold any particular security.
Interestingly, most of the drugs selected for price negotiations are facing patent expirations within the next five years. As a result, the price cuts slated to go into effect in 2026 should have little impact on the revenue projections of pharmaceutical companies in the near term. Beyond that time, the impact probably will depend on which political party prevails in the next few elections.
[1] Perez, S. 2023. “In a surprise tie-up, Shopify Merchants will be able to offer Amazon’s ‘Buy with Prime’ Option.” TechCrunch.
[2] Palmer, A. 2022. “Shopify warns merchants against using Amazon’s ‘Buy With Prime’ service.” CNBC.
[3] Shopify. 2023. “Shopify Completes Sale of Shopify Logistics to Flexport.”
[4] Palmer, A. 2023. “Shopify offloads logistics business to Flexport.” CNBC.
[5] Weprin, A. 2023. “Charter Wants to Blow Up the Pay TV Bundle in Disney Fight: ‘This Is Not a Typical Carriage Dispute.’” The Hollywood Reporter.
[6] Weprin, A. 2023. “Charter Wants to Blow Up the Pay TV Bundle in Disney Fight: ‘This Is Not a Typical Carriage Dispute.’” The Hollywood Reporter.
[7] Weprin, A. 2023. “Charter Wants to Blow Up the Pay TV Bundle in Disney Fight: ‘This Is Not a Typical Carriage Dispute.’” The Hollywood Reporter.
[8] The Walt Disney Company. 2023. “The Walt Disney Company Reports Third Quarter and Nine Months Earnings for Fiscal 2023.”
[9] Dixon, C. 2023. “CTV ad revenue growth coming from non-TV sources.” nScreenMedia.
[10] U.S. Department of Health and Human Services. 2023. “HHS Selects the First Drugs for Medicare Drug Price Negotiation.”
[11] Peter G. Peterson Foundation. 2023. “Why Are Americans Paying More For Healthcare?”
[12] U.S. Department of Health and Human Services. 2023. “HHS Selects the First Drugs for Medicare Drug Price Negotiation.”