fortune--2020-04-22--The Coronavirus Economy: How a master dog trainer to influential Londoners is handling business duri

The Coronavirus Economy: How a master dog trainer to influential Londoners is handling business during the pandemic

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Clear spring skies, warm weather, and blooming fields of daffodils and bluebells would—in any other year—see James Hearle taking packs of London’s poshest pooches to the countryside for their ideal day out. He is after all known as the dog man for London’s elite.
A sequence of personal crises made him reevaluate corporate life with the U.K.’s major retailers, retrain as a master trainer at the U.K.’s Guild of Dog Trainers, and make the lifestyle change that finally led to the founding of his exclusive doggy day care, Dogs and Kisses, in 2009. “It’s a lifestyle I’ve taken on to be able to surround myself with my nine dogs and work from my home and bring as many dogs into my life as I can,” he says.
Over the past 11 years, Dogs and Kisses has developed into an exclusive monthly membership club—famous for its monthslong waiting list of dogs looking to join the best friends of powerful CEOs, heads of financial institutions, and celebrities. And all of whom live in London’s wealthiest Royal Borough of Kensington and Chelsea.
Dogs and Kisses members would usually have a chauffeured pickup in the morning for their run of countryside fields, chasing rabbits, lounging in a hydrotherapy pool and sun-beds in the garden, and curling up to rest in a glamorous country kitchen, before returning home. But this spring has changed everything for the U.K. pet care industry, and businesses like Dogs and Kisses, as man’s best friends enter their second month under coronavirus lockdown.
Over the past 11 years, Dogs and Kisses has developed into an exclusive monthly membership club—famous for its monthslong waiting list of dogs looking to join the best friends of powerful CEOs, heads of financial institutions, and celebrities. James Hearle
Fortune spoke with Hearle for a new series, The Coronavirus Economy, to ask about how COVID-19 has affected his business, his finances, his personal life, as well as his view of the future. The following Q&A has been condensed and lightly edited for clarity.
Fortune: What did normal life look like for you, and Dogs and Kisses, before the March lockdown?
Hearle: I run the business out of my home with my nine dogs, and we always have dogs boarding with us in the house as well. One of my staff lives with me, and she has three dogs, and in total I usually have up to seven staff members who work with me every day. All kinds of people love dogs. We serve CEOs, heads of financial institutions, actors, and pop stars. We also have people who send their dogs to us who don’t necessarily work. They have nannies for their children and housekeepers, but their dog wants a day out, which is great. That’s where we come in and service clientele who are elite but diverse.
Before the lockdown, most of my time was spent liaising with clients. I was also managing schedules, bookings, pickup and drop-offs for the dogs in day care and boarding, staff rosters, administration. I would also try to personally exercise some of our members. And then, I’d take personal time to exercise my two horses as well. On average, I was working around 16 hours; and with a house full of staff, resident dogs, and our day-care members. It’s usually so busy here from the time I wake up, I’ve never had a regular holiday like Christmas or Easter, or even the time to wake up to a lovely cup of coffee and just chill out.
When the pandemic hit, how did your life change?
We didn’t really notice much of a difference at first. We put in social distancing measures, and we were following guidelines from wearing gloves to go to each home for pickups to sanitizers in our vehicles, cleaning the dog beds everyday. When Boris Johnson announced the U.K. lockdown and closed all nonessential businesses, a lot of our clients contacted us minutes after the speech was over, panicked, declaring they were leaving London, and wouldn’t need our services at this time. Our bookings fell, and we had to close our doors for day care immediately. It’s the first time we’ve ever had to do this. I was absolutely petrified. We managed to persuade the owners of three dogs to let them indefinitely board with us in the countryside. They were originally going to put them on private jets and take them to other countries.
We live quite hand to mouth, and our margin isn’t much. Our rent’s astronomical, our overheads are sky-high. I tried to keep as many staff as I could, but I genuinely could not. I furloughed them as soon as the government announced its aid package for furloughed staff so they could keep getting paid. So it turns out I’m busier in this lockdown than I ever was before. Between my remaining staff member and myself, we are now doing the work that was done by seven people. I am doing all the manual labor, taking care of the dogs, maintaining our hygiene standards, business administration, and at the end of the day, I’ve also got to now personally care for the two horses that we have.
You have a high-end client base and a monthly fee model. Has that helped cash flows?
It’s been a mixed bag of people and their response to the crisis. A lot of people, even those running cash-rich businesses, are really scared and clinging to their money, especially with the uncertainty of how long this pandemic and a lockdown is going to last. Since we do a monthly fee, we would have, of course, ensured fees were not taken for no service. We had planned to credit unused days or allocate them to boarding when our day care was allowed to open back up again.
These fees are critical to our cash flows, in order to survive and be able to operate at the end of this. Some clients—including the head of a rather famous fashion company—threatened to pull their dog’s membership completely if the monthly model continued. Others who have fled to their second homes in the countryside, insist on paying us the monthly fee, which I think is so nice.
James Hearle founded his exclusive doggy day care, Dogs and Kisses, in 2009. James Hearle
How are you holding up in the pandemic, personally?
I am so stressed on a daily basis that I am only sleeping about four hours every night and trying to figure out what bills I am going to allocate the tiny amount of money that is coming in to. I have my furloughed staff texting me daily, worrying whether they will have a job when they come back. I keep telling them, of course they are. I am worried because of the uncertainty of everything.
While before, my time was spent in huge part on the administration of the business, and about four or five hours with the dogs, it is now literally all day and night, every day. But this strange situation has also really reminded me about the core of the business, and I am looking at life in a different light. Walking every dog myself has been refreshing. I’m noticing issues in the business that slipped throughout the cracks, like extraordinarily high phone bills or astronomical waste of cleaning products. This is quite the opportunity to get a clear focus, identify unnecessary expenses, and economize.
I’m trying to embrace and make the most of it, because it is probably the only time ever this is going to happen in my lifetime. But social distancing has been the really hard part. While I live and breathe dogs, I work from home, we are boarding dogs all the time, my staff is usually around all day as well, and friends usually don’t appreciate 15 dogs creating havoc on visits. So I would visit friends quite a few times in the week, just to relax. But now, with it being quieter, I am learning to just relax in my own home.
Since the pandemic hit, I even thought about going back to my corporate job in retail. But I always wanted lots of dogs, and now that I have nine of my own, I can’t really get out of this business. Cost-wise, it would be unsustainable to go back to a corporate job, and I cannot get rid of my animals. This job doesn’t make you rich; it’s a lifestyle choice really, rather than a career.
When this is over, what do you think it will mean for a business like yours?
My fear is that a lot of companies with big offices have learnt that they can save money, because it has been proven that their employees can be productive at home. I am worried if we manage to survive and return after the lockdown, our day-care service will drop off as people work from home more permanently. But on the flip side, a lot of people who don’t stay with their dogs every day are probably now finding that their dogs are bouncing off the wall, with all the lockdown restrictions, and spending a serious amount of time with them.
The majority of my clients have reassured me that as soon as everything is back to normal, they’ll be back. Their dogs are bored and restless as there is nowhere for them to run and exercise. A few clients—like ones who own large hotels and restaurants—may be worse hit than most. Some who are my bread-and-butter clients have reduced their salaries to nothing to save their businesses and may take more time to recover. They’ll come back when they can.
I was never interested in multiple branches or franchising, even in the good times, since the standards I provide would be hard to replicate without a personal touch. So I am contemplating a pivot for the business to be centered more around boarding and back to my core skill as a master dog trainer. That’s what made us special when we started off, and it has almost got lost. I would need a rather big marketing push for that, and at this point, there is not enough money in the bank to seriously plan for that pivot. But I unless I can get more dogs to board with us now, as a business, we probably won’t survive past the middle of June.
More coronavirus coverage from Fortune:
—This famed economist doesn’t think we’re headed for another Great Recession
—South Korea has the most comprehensive coronavirus data. What it’s taught us so far
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—6 steps to sustainably flatten the coronavirus curve
—How hackers are exploiting the coronavirus—and how to protect yourself
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—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEOs
—WATCH: The race is on to create a coronavirus antiviral drug and vaccine
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fortune--2020-04-22--These publicly traded companies took millions in PPP loan money

Sanofi CEO : How we can prevent being caught off guard by a pandemic like the coronavirus ever again

As the Paycheck Protection Program (PPP) quickly ran out of cash, a notable amount of that money ended up going to publicly traded companies.
A new study from Morgan Stanley (as reported by CNBC) finds that at least 75 public companies pocketed $243 million from the program. That occurred because of a loophole that let some businesses treat separate locations of the same chain as individual businesses. A separate report from the Associated Press found 75 publicly traded companies received $365 million in small-business loans.
Some companies, such as Shake Shack, have returned all of the loan money. But that group, so far, makes up a small percentage of the public companies that received PPP funds.
The PPP is a $349 billion program meant to help mom-and-pop businesses stay afloat, so recent revelations that public companies dipped into that fund has caused outrage among the small-business community and many “buy local” advocates. A second small-business relief bill, providing another $310 billion, was approved late Tuesday.
The Morgan Stanley report listed several businesses that received PPP funds. Among those, restaurant holding companies J. Alexander’s (whose restaurants include J. Alexander’s, Stoney River, Redlands Grill, and Lyndhurst Grill) and Fiesta Restaurant Group (Pollo Tropical and Taco Cabana); smartphone screen-protector maker ZAGG; and adventure cruise company Lindblad Expeditions.
Here’s a breakdown of some of those businesses by amount received:
$10 million+
J. Alexander’s Holdings – $15.1 million
$10 million–$7 million
Fiesta Restaurant Group – $10 million
Quantum Corp. – $10 million
Potbelly – $10 million
Hallador Energy – $10 million
Broadwind Energy – $9.5 million
ZAGG – $9.4 million
Air T – $8.2 million
Wave Life Sciences – $7.2 million
$7 million–$5 million
DMC Global – $6.7 million
Lindblad Expeditions – $6.6 million
Legacy Housing – $6.5 million
Misonix – $5.2 million
Digimarc – $5 million
New Age Beverages – $6.9 million
Escalade – $5.6 million
Veritone – $6.5 million
Frequency Electronics – $5 million
Kura Sushi – $6 million
Perma-Fix Environmental – $5.7 million
Protech Home Medical – $6 million
SIFCO Industries – $5 million
TSR – $6.7 million
More must-read finance coverage from Fortune:
—5 veteran investors on how to approach the coronavirus-era stock market
—These countries’ stock markets have been hit the hardest by the coronavirus
—China’s next coronavirus crisis: What happens after a country closes its economy
—This time, the banks were ready: How the Big Four prepared to survive the coronavirus
—How the American economy can recover from the coronavirus pandemic
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEOs
—VIDEO: 401(k) withdrawal penalties are waived for anyone hurt by COVID-19
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fortune--2020-04-22--How Home Depot and Lowe’s are preparing for their busy home improvement season during coronavirus un

How Home Depot and Lowe’s are preparing for their busy home improvement season during coronavirus uncertainty

One tiny grace for retailers during the coronavirus outbreak has been that it didn’t strike during a peak selling period like the holiday season. There’s one notable exception: the $900 billion home improvement sector, led by Home Depot and Lowe’s.
Spring for home improvement stores is by far the busiest time of year, generating about 30% of annual sales, as people catch up on things like replacing bathroom tiles, installing new kitchen cabinets, and repaving the driveway after winter. The spring season is to Home Depot and Lowe’s what the Christmas period is to Macy’s or Best Buy.
The home improvement retailers were among the lucky ones deemed essential, enabling them to stay open. And business was brisk in March, helped by millions of people working from home.
“People are home and trying to get projects done around the house,” says Shelley Kohan, a professor of retail management at the Fashion Institute of Technology.
Lowe’s CEO Marvin Ellison told Fortune last month that customers were snapping up appliances like freezers to store food for lengthy periods and buying cleaning supplies. And U.S. Commerce Department figures reflect a surge in March for home improvement stores: Sales of building material and garden equipment rose 7.6% last month.
But, as is the case with other retailers, notably Walmart and Target, the need to prevent the spread of the virus has now led them to take steps that could put the brakes on that surge.
For instance, stores large and small are limiting shopper traffic, from a tiny Sherwin-Williams paint store on Manhattan’s Upper West Side only allowing sidewalk order pickup to Home Depot’s 100,000-square-foot big-box stores keeping the number of customers to 100 at a time. Lowe’s is also monitoring store traffic.
What’s more, Home Depot has left a lot of business on the table by going further than any other major retailer when it said in early April it would not hold “major spring promotions to avoid driving high levels of traffic to stores.” That would be like Walmart saying, no Black Friday doorbusters.
And Home Depot is paying a price for that: Data from Placer.ai, a tech company that tracks store traffic, found that on April 14, for instance, visits to Home Depot were down more than 20% for the equivalent day in 2019.
But the move is consistent with Home Depot’s long-term outlook, which has served it well, analysts say. “That makes customers feel safe and shows empathy for how [the] consumer is feeling,” says Kohan. “That builds tremendous loyalty right now.”
Plus, she adds, it’s good for employee morale.
Lowe’s, whose sales growth has lagged its larger rival Home Depot’s for years, is taking a different tack. While it is pulling back on some of its marketing, it is not dropping sales events altogether, likely sensing a market share opportunity.
“Affordability matters now more than ever,” a Lowe’s spokeswoman says. Placer.ai found Lowe’s traffic has risen.
More pickup options
Both Home Depot, which last year took in $110 billion, and Lowe’s, with sales of $72 billion, have rushed in the past few weeks to provide curbside and drive-up pickup of orders at nearly all their U.S. stores to mitigate lost sales. Home Depot, in particular, is an e-commerce powerhouse, with digital sales up 20% last quarter. Lowe’s has lagged far behind but is overhauling its e-commerce.
“Customers will reward any retailer that makes it really easy for them to buy on their phone and pick up in store, so that’s an advantage,” says Joel Rampoldt, a managing partner at AlixPartners.
Drive-up and curbside pickup give shoppers additional options, but they inevitably harm impulse sales that happen in store, such as that pillow you hadn’t planned on purchasing but tossed into your cart as you walked by.
Home decor is the kind of impulse category Home Depot has waded into more recently to get more revenue per customer visit, something at which it excels. Despite its meteoric sales growth since the last recession, it did not open many new stores. It hasn’t needed to: Sales per square foot rose 63% to $454.82 between 2009 and 2010.
So far, six weeks into the pandemic’s spread in the United States, demand seems to be holding up relatively well for the home improvement retailers, analysts say. Appliances are selling, and people seem focused on renovations, all the more since so many other expenses like travel and restaurants are being cut.
“Big do-it-yourself projects will really prosper at the expense of vacations,” says Rampoldt.
Of course, the lockdown could affect projects that might require professional expertise. Restrictions may limit renovations in apartment buildings, and some may not want to invite others into their home. Some 46% of Home Depot’s business comes from professionals, and 20% or so at Lowe’s.
Still, barring any meltdown in the the housing market, there are tailwinds for these stores. “The massive wave of home refinancing, spurred by historically low rates, may mean increased maintenance and remodeling activity,” Bloomberg Intelligence wrote in a research note this week.
And FIT’s Kohan says, so far, results bear that out: “People are investing in their homes.”
More must-read retail coverage from Fortune:
—Retailers that are smartest about shopping tech will finish on top after the pandemic recedes
—What refunds are due to you? Here’s how industries are handling things
—How Starbucks is getting ready to reopen more U.S. stores
—How T.J. Maxx and Ross will (eventually) come out of the pandemic even stronger
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEOs
—WATCH: The greatest designs of modern times
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fortune--2020-04-22--China’s movie theaters are closed—again. For studios, the anxiety is unbearable

In late March, as the coronavirus pandemic continued to ravage the global film industry, forcing theaters to shutter and grinding movie and television production to a halt, U.S. and Chinese studios and distributors received a surprise bit of good news: More than 500 cinemas in China, where COVID-19 was first detected, would reopen for the first time since January.
The positive news in China, the world’s second-largest box office and a crucial moneymaker for Hollywood movies, was short-lived. Days later, on March 27, the country’s national film bureau ordered all cinemas to close once again. An uptick in coronavirus infections among travelers arriving in China from abroad sparked fears of a second wave.
The swift decision underscores lingering uncertainty around conducting business in China, especially among organizations reliant on large public gatherings, even as the nation on March 19 reported no new local coronavirus cases—a first since the outbreak began in Wuhan. For movie exhibitors and distributors in particular, the flip-flop nature of the order demonstrated the challenges they face in welcoming audiences back to cinemas.
For some, the initial decision to reopen theaters came as a surprise. “We really thought theaters wouldn’t open until May or June,” says Richard Gelfond, CEO of IMAX, which licenses its technology to more than 600 cinemas in China. The move to renege on that decision was just as unexpected. “It was a big surprise to everybody,” says a major Hollywood studio executive who asked not to be named, citing active business relationships. “Unfortunately, the box office was soft. They were doing like $3,000 dollars a day—literally nobody was turning up.”
Sentiments were similar on the other side of the Pacific. Steven Xiang, CEO of Chinese film studio Huanxi Media, tells Fortune that “attendance was very, very weak” during the brief window in March when some cinemas were reopening. The company is now monitoring when schools in China will reopen as a “parallel indication” of life returning to some kind of normal, he adds.
Gelfond, whose IMAX has offices in Shanghai, says early May has been discussed as a possibility for reopening Chinese schools. “I think people on social media pushed back [on the notion] that theaters would open before schools and other vital functions,” he says. “People didn’t like the perception of theaters leading the way. But schools opening indicates a willingness to open the country more aggressively.”
A Hollywood role in China
As Chinese authorities look to coax weary residents out of their homes in the wake of a sweeping global pandemic, the U.S. film industry has its own part to play in boosting attendance at China’s movie theaters.
The China Film Bureau, the state agency that oversees the approval of foreign films screened in the country, approached Hollywood studios about rereleasing a series of blockbusters following a first slate of older Chinese titles. American titles with plans for rerelease include all four of the Avengers movies, James Cameron’s Avatar, and the Christopher Nolan thrillers Inception and Interstellar.
Hollywood’s cooperation with Chinese film regulators is no act of charity. The rights holders of U.S. blockbusters returning to Chinese theaters, according to The Hollywood Reporter, will receive the standard 25% share of sales—a rate established in a 2012 U.S.-China trade deal. As the publication noted, these rereleases can be lucrative: A 2012 3D rerelease of James Cameron’s Titanic earned $145 million.
The next wave of releases would come in the form of Hollywood movies approved by regulators just prior to the closure of theaters in China. These titles include 1917, Dolittle, Jojo Rabbit, Ford v Ferrari, and Sonic the Hedgehog.
But China’s U-turn on theater closures has put Hollywood executives in the dark in terms of when U.S. films will be cleared to screen again in the country. “We haven’t been told when they reopen. We heard rumors it may be the end of May,” a U.S. studio executive says. “There’s nothing the studios can do until we’re told we can submit movies again for censorship. Studios are in latency.”
Should China be able to reopen its theaters in the coming weeks, it could be an early bright spot for studios and distributors as theaters around the world potentially remain closed for much longer. But Hollywood studios almost certainly wouldn’t premiere movies unreleased in the U.S. such as, for example, Disney’s Mulan, which is set for a late-July release in the States.
“It’s a tricky thing,” the studio executive says. “You can’t release new movies when the rest of the world is closed down, just because China is open.”
A local film industry under fire
When the coronavirus forced cinemas across China to close during the Lunar New Year holiday in late January, the Chinese film studio Huanxi had to halt the releases of two scheduled blockbuster films. In the weeks since, as the coronavirus shutdowns intensified and China’s economy ground to a halt, Huanxi postponed five more releases.
The Lunar New Year cancellations alone hit China’s film industry hard—in 2019 the weeklong holiday accounted for 14% of the country’s total annual box office revenues, according to Maoyan Entertainment, a ticketing and entertainment services platform.
By March 15 in China, the theatrical releases of 44 movies had been canceled or postponed, including 16 imported movies. The blow has proved particularly severe for the country’s top theater chain, Wanda Film Holding, which operates more than 500 theaters in more than 180 cities in China, Australia, and New Zealand. The chain’s owner, Wanda Group—which has a controlling stake in AMC Theatres, the largest chain in the U.S.—reported dismal preliminary first-quarter results last week: a loss of 550 million yuan to 650 million yuan (around $92 million), compared with a profit of 400 million yuan a year earlier.
Xiang, Huanxi’s CEO, thinks that “things will get back to more or less a little normal during the summer, but obviously, half the year is gone.” He is hopeful the studio can release six of its seven unreleased films in theaters in the second half of 2020.
The remaining unreleased title, one of Huanxi’s Lunar New Year movies—Lost in Russia—was made available on TikTok parent company ByteDance’s streaming platforms. ByteDance paid Huanxi around $90 million in the deal.
Before COVID-19 hit, Xiang says, streaming was already a growing market in China, helped by easy online payment infrastructure and, when 5G rolls out, super-high-speed connections. In addition to producing movies, Huanxi has its own streaming platform, Huanxi Premium, enlisting directors like Wong Kar-wai and Zhang Yimou to create direct-to-streaming series.
“That trend will continue, and what’s happened during coronavirus and the lockdown and the isolation will probably accelerate that growth,” Xiang says. But he is confident that moviegoers will flock back to cinemas. “Once it’s back to normal I think people would come out, no question.”
The Lunar New Year losses mean China’s box office will “suffer a significant decline” in 2020 compared with the previous year, a Maoyan spokesperson says. “However, an industry recovery is expected in the second half of this year with strong consumer demands when movie theaters reopen, as well as releases of good quality postponed from the Chinese New Year holidays.”
A Maoyan Entertainment survey found that 72% of moviegoers were “eager” to return to cinemas after the pandemic. A third of respondents said they would return to cinemas after an official announcement that COVID-19 was contained; 29% said they would “wait for a while” after such an announcement was made.
Xiang offered his own experience as proof that moviegoing will bounce back—he watched Lost in Russia in a large movie theater after production wrapped up, and then via a streaming platform. “I myself responded to it quite differently, because in a cinema, you’re in a controlled and dark environment,” rather than the more casual experience of online streaming at home, Xiang says.
“Bigger films and films that are made for the cinemas still will go to the cinemas first,” he says. “Because the investment and the way it’s made and the way it’s supposed to be enjoyed are still quite different.”
More must-read stories from Fortune:
—Netflix reveals record subscriptions during the coronavirus pandemic
—Why Sonos launched a radio station
—The verdict on Quibi (so far)
—Why Mrs. America and the 1970s fight over the Equal Rights Amendment are more relevant than ever
—The best streaming services in 2020


fortune--2020-04-22--Which companies’ stocks will thrive after the coronavirus crash?

“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.”
—Warren Buffett, Fortune, 1999
The black swan that killed the longest bull market in history arrived in the form of a bug, and it descended with such ferocity that the Dow Jones industrial average had its worst quarter since 1987, more than a generation ago. That crash was caused by technical factors and was largely a one-day event; this crash comes thanks to a global stoppage of much of humankind’s economic activity. For precedent and parallels, we might look to 2000–2002, when we were hit by the double whammy of the dotcom crash and 9/11, and to the financial crisis of 2008–09. But it’s rather futile to search for analogs to the coronavirus crisis. Like any crisis, this one was unexpected, unplanned for, and largely unprecedented. That’s why we call it a crisis.
For investors, the operative question is simple, albeit very broad: In the midst of this crisis, what do we do?
To help you try to answer that, let me ask two slightly more specific questions.
What publicly traded companies can make it “to the other side” of the coronavirus? In other words, which companies’ business models won’t be completely destroyed by the bug-swan? Investors pondering this question should keep a company’s balance sheet in mind: Too much debt will drag a company down during hard times as surely as a swift current drags a weak mule downriver.
What companies will not only survive but also prosper in a post-coronavirus world? These are the businesses I’m currently targeting, and these are the ones I think you should be too.
The above questions are better ones to ask than the current ones being bandied about. “How long is the pandemic going to last?” and “When will the economy recover?” would be good questions if the answers were knowable. But the truth is, nobody knows! In this way it’s no different from past crises like 9/11 and the 2008–09 meltdown. With the benefit of hindsight, it’s obvious that those crises were transient. But as anyone who lived through them, including me, can tell you, they felt anything but. Day by day the bear market ground slowly on—until it didn’t.
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Here’s a good rule of thumb: If a business you are considering for investment depends upon a speedy return to normal, you should look elsewhere. Warren Buffett has often said that you should invest in businesses that you wouldn’t mind owning if the stock market were closed for an extended period. While I don’t think it will come to that, it’s a useful mental construct. Implicit in this are the going-concern questions mentioned earlier: Is the business model durable? And are its debt obligations manageable?
A view of the New York Stock Exchange on April 15, 2020. (Photo by Noam Galai/Getty Images)
In a crisis like this, first-principle questions like these should be at the forefront of every investor’s mind. Yet it’s always amazing how, in times of crisis, people so quickly and utterly forget them. People panic, and they run around like chickens—or swans—with their heads cut off.
The trap of Chicken Little thinking
In this frenzied environment, one cardinal rule of investing is especially pertinent: By definition, the value of a business today is simply the sum of its future profits discounted back to the present at an appropriate interest rate. Forget the technical, mathematical part of discounting back the profits—if you’re interested, you can read more about it in Buffett’s 1992 annual letter. The point is that a business’s value today is made up of a long string of profits extending out into the future. As anyone who’s ever done a discounted cash-flow analysis can tell you, the vast majority of a business’s present value—roughly 70% for many businesses—comes not from this year’s earnings, or next year’s, but from the earnings that should accrue over the decades.
This principle is as unerring as the law of gravity—yet everyone forgets such laws in Chicken Little times like the one that prevails today. Investors dump securities that have long, deep, and growing profit streams because “this quarter’s going to be awful” or “it’s going to take a while for them to get back to a post-corona normal.” At the same time, they embrace businesses that are currently doing well but whose long-term future is bleak.
It’s madness, and it will end poorly for those who engage in it. For example, the pandemic has been a bonanza for Kroger, the nation’s largest stand-alone grocer, whose same-store sales grew 30% in March. In normal times, Kroger is lucky to grow same-store sales 2% to 3%. Longer term, Kroger is fighting for its life against traditional brick-and-mortar retailers like Walmart, Costco, and Target. Then there’s also the matter of a small company out of Seattle named for a big river and run by a dread pirate named Jeff Bezos. However, because crises foreshorten the time horizon of most investors, Kroger’s shares are up more than 10% year to date, beating the market by roughly 25 percentage points. Its price/earnings ratio, according to FactSet, is both trending higher and above its five-year average.
Packages of toilet paper sit on a pallet at a Kroger distribution center in Louisville, Ky. (Photo by Luke Sharrett/Bloomberg via Getty Images)
Normally when a company’s P/E multiple expands, it’s because the market begins to understand that the business is getting better. Its growth prospects are accelerating, or its competitive edge is growing. Neither of these things is true with Kroger. On the contrary, Walmart, Costco, and other traditional retailers will continue to pressure Kroger with lower prices once this crisis has passed, and Amazon will continue to unleash its double-barreled can of whoop-ass—lower prices and greater convenience.
There are dozens of other mediocre companies currently experiencing the same kind of short-term, transient tailwind—Kimberly-Clark (paper towels and toilet paper), Hormel, (canned food) and even Nautilus (home gyms). I put pharmaceutical companies into this category: Sure, one of them will probably hit the jackpot with a coronavirus treatment, but it won’t change the industry’s fundamental business model. Pharmaceutical companies spend billions of dollars trying to develop a new drug, and if they’re lucky one hits, and they get a 20-year exclusive right to earn a return on their investment by selling at monopoly prices. When this period ends, however, they’d better have other drugs in the pipeline to replace that profit stream. In this way they are no different than oil and gas companies, which every year must replace the reserves they’ve pulled out of the ground. And not for nothing: Pharma’s business model of monopoly pricing may make economic sense but is deeply unpopular with Americans and may be upended.
Companies like Zoom (video conferencing) are more difficult to judge. They are doing well in these market conditions, but they also may have long-term tailwinds. I haven’t researched Zoom in any depth, but I will point out that most companies in a free-enterprise system don’t have a long-term competitive edge that allows them to earn high returns for an extended period. Most fail the test that Buffett sets out in the quote atop this column. What usually happens is that someone comes up with a good idea and brings it to market, where for a time it enjoys great success. Then others copy it, improve upon it, and/or sell it for a cheaper price—and the innovator’s once-healthy returns dwindle to merely acceptable ones. Already, Zoom has been exposed for important gaps in its privacy and security measures, and there’s no doubt that competitors are focusing on that gap right now. (Read more about Zoom in this recent Fortune feature.)
Rare advantages
Companies that do pass Buffett’s test and possess a durable competitive advantage are rare, but they do exist. Because they are rare, they should be both sought out and treasured. One of these is Alphabet, which I own for my clients and have written about before favorably for Fortune.
Alphabet has nine platforms with more than 1 billion users, most of which enjoy mail, maps, Chrome, Android, and so on for free. Alphabet’s main subsidiary, Google, dominates its industry to such an extent that “Google it” has become synonymous with Internet search. If your business has any online presence—which means 100% of businesses—you must advertise on Google, giving the company a large, stable and growing cash-flow stream. Many have tried to compete with and co-opt this profit stream; all have failed, leading even Bezos to say, “Treat Google like a mountain. You can climb the mountain, but you can’t move it.”
Alphabet meets other first-principle tests. Net of debt, Alphabet has $115 billion of cash as of its last quarterly filing—it’s unquestionably going to get to the other side of this crisis. Moreover, many of the long-term trends favoring its businesses will not only continue, they will accelerate. Digital advertising is now roughly half of all U.S. advertising, but if you count other marketing services like in-store displays and direct mail, then digital’s share is only 25%. The extended distancing of consumers from retail has further accustomed people to search and purchase goods and services online, so digital’s share is likely to continue to climb. Likewise, shelter in place has made us even more addicted, if such a thing were possible, to our mobile phones. This is bullish for its Android segment. Finally, Alphabet’s cloud-computing division, which was already picking up steam under new leader Thomas Kurian, will benefit from a massive surge in working and learning from home.
Alphabet’s net present value—the value of all its future profits, discounted back at an appropriate rate—is therefore large, and its stock price should grow over time along with its prospects. But investors’ panic-induced, foreshortened time horizon has caused Alphabet’s stock to decline year to date—less than the market’s decline, but not by much. The logic (or at least the line of thinking—it’s not logical) goes like this: Advertising will surely be down in 2020. Advertising is the company’s largest segment. Therefore earnings will be poor. Therefore, sell.
Given Alphabet’s long-term prospects, it is lunacy to sell based on a one- or two-year slowing of the company’s many long-term secular growth trends. Removing one or two years of a company’s near-term earnings stream does almost nothing to a net-present value calculation. A business’s present value is in the certainty that the company will be bigger, better, and more prosperous in the years to come. Alphabet certainly passes this test—and under new and hungry CEO Sundar Pichai, the company is beginning to possess a swagger, a discipline, and a bottom-line focus that might make Bezos smile.
Just as there are dozens of Kroger-like companies enjoying short-term tailwinds that will soon pass, there are dozens of Alphabet- and Amazon-like companies with long-term tailwinds that will emerge better and stronger on the pandemic’s other side. Crises like these present great opportunities to buy them. You just have to ask the right questions to find them.
Adam Seessel is a portfolio manager at Gravity Capital Management LLC, a registered investment adviser. Certain of the securities mentioned in the article may be currently held, have been held, or may be held in the future in a portfolio managed by Gravity. The article represents the views and belief of the author and does not purport to be complete. The information in this article is as of the publication date, and the data and facts presented in the article may change.
More must-read finance coverage from Fortune:
—5 veteran investors on how to approach the coronavirus stock market
—These countries’ stock markets have been hit the hardest by the coronavirus
—China’s next coronavirus crisis: What happens after a country closes its economy
—This time, the banks were ready: How the Big Four prepared to survive the coronavirus
—How the American economy can recover from the coronavirus pandemic
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEO
—VIDEO: 401(k) withdrawal penalties waived for anyone hurt by COVID-19
Subscribe to Fortune’s Bull Sheet for no-nonsense finance news and analysis daily.


fortune--2020-04-22--Facebook jumps back into tech’s fight for India’s consumers

Big tech has quite a bit of cash on hand—giving companies the chance to forge on amid the pandemic.
Late Tuesday, Facebook revealed that it plans to pay $5.7 billion to acquire a near 10% stake in Jio Platforms, an Indian internet services provider that has grown explosively in recent years. The deal comes as pundits say the coronavirus will only make big tech even bigger as more and more consumers have turned to well-known online companies. (Amazon had $36.1 billion in cash and cash equivalents at the end of 2019. Facebook had $19.1 billion; Alphabet had $18.5 billion.)
For Facebook, it’s also a highly competitive growth opportunity. Chasing after a population expected to eclipse that of China’s, tech giants including Google, SoftBank, Alibaba, Amazon, and Tencent have poured billions of dollars into India at a time when roughly 600 million in the country still lack internet access.
PPP: The Senate passed a $484 billion fiscal package Tuesday, including an allocation of $310 billion in additional Paycheck Protection Program funding. But the new stimulus did little to address criticisms that loose regulations around the PPP, aimed at small businesses, have made recipients like large restaurant chains and hedge funds eligible. While the new package set aside $60 billion for small lenders and community-based financial institutions, it still leaves the nuances of who is eligible up to self-policing by banks and businesses.
In non-corona news: After the meteoric rise of stock-trading apps like Robinhood in the U.S., investors see opportunities to build out similar functions outside the States.
SoFi has acquired 8 Securities, a Hong Kong-based stock-trading app, marking the U.S.-based fintech’s first push into global markets (and second acquisition this month following its $1.2 billion purchase of fintech infrastructure provider, Galileo). The acquisition, sources with knowledge of the matter say, was valued at about $20 million and largely paid out in the form of SoFi stock valued at $15.44 apiece.
When asked if another acquisition was in the stars for SoFi, CEO Anthony Noto told Term Sheet no—none are currently under consideration, though the current coronavirus-induced upheaval “presents different opportunities.”
VENTURE DEALS
- Epic Games, the Potomac, Md.-based maker of "Fortnite," is reportedly in talks to raise between $500 million and $1 billion in fresh funding, per Bloomberg. Read more.
- Confluent, a Mountain View, Calif.-based enterprise-ready event streaming platform, raised $250 million in Series E funding. Altimeter Capital and Coatue Management led the round. Franklin Templeton, Index Ventures, and Sequoia Capital also participated. The deal valued Confluent at about $4.5 billion.
- Federated Wireless, an Arlington, Va.-based private wireless networks provider, raised $13.7 million in Series C funding from Allied Minds and Pennant Investors. Read more.
- H1, a New York-based provider of analytics for the healthcare industry, raised $12.9 million in Series A funding. Menlo Ventures led the round, and was joined by investors including Novartis DRX, Y Combinator, Baron Davis Enterprises, ClearPoint Investment Partners, Jeff Hammerbacher, Liquid 2 Ventures, and Underscore VC.
- Remote, a San Francisco-based HR technology startup, raised $11 million in seed funding. Two Sigma Ventures led the round, and was joined by investors including Index Ventures, General Catalyst, Liquid2, INKEF Ventures, Remote First Capital, and angel investors.
- Bodhala, a New York-based data-intelligence and legal technology platform, raised $10 million in funding. Edison Partners led the round.
- Audiens, a Cambridge, U.K.-based customer data platform and audience management tool, raised £6.5 million ($8 million) in funding. NHN Corp. was the investor.
- Biobot Analytics, a Somerville, Mass.-based firm commercializing wastewater and sewage analytics, raised $6.7 million in seed funding. The Engine led the round, and was joined by investors including AmFam Institute Impact Fund, Y Combinator, and DCVC.
- SoapBox Labs, a Dublin, Ireland-based developer of voice technology for kids, raised $6.5 million in Series A funding. Elkstone Capital and Astia were among the investors.
- Vibenomics, an Indianapolis-based location-based audio advertising company, raised $6 million in Series A funding. BIP Capital led the round.
- Trovata.io, a San Diego, Calif.-based provider of cash reporting and forecasting solutions, raised $4.3 million additional funding. JPMorgan led the round, and was joined by Fintop Capital.
- Oyster, a San Francisco-based startup focused on hiring and recruiting, raised $4.2 million in seed funding. Connect Ventures led the round, and was joined by investors including Sorenson Ventures, Kima Ventures, and Transferwise Co-founder Taavet Hinrikus.
- Luxury Promise, a London-based marketplace for the resale of luxury handbags and accessories, raised $3.8 million in Series A funding. Beringea led the round.
- Env0, a San Francisco-based startup focused on self-service cloud environments, raised $3.3 million in seed funding. Boldstart Ventures and Grove Ventures co-led the round, and were joined by investors including Guy Podjarny of Snyk. Read more.
- Hone, a San Francisco-based training platform, raised $2.75 million in additional seed. Firework Ventures and NextGen Venture Partners participated.
- The Dipp, a Brooklyn, N.Y.-based subscription-only entertainment news startup, raised $2.3 million in seed financing. Defy Partners led the round.
- Bateau, a Seattle-based compliance software startup, raised $1.5 million in pre-seed funding. The Founder’s Co-op led the round, and was joined by investors including Alumni Ventures Group, Liquid 2 Ventures, and Ride Ventures. Read more.
PRIVATE EQUITY
- Apollo Global Management and Silver Lake are in talks to invest roughly $1 billion in Expedia, a Seattle-based travel-booking company, The Wall Street Journal reports. Read more.
- Trivest Partners acquired a minority stake in MGT Consulting Group, a Tampa, Fla.-based public sector management consulting and technology services firm. Financial terms weren't disclosed.
- KKR agreed to acquire $500 million in convertible preferred equity in US Foods, a Rosemont, Ill.-based foodservice distributor. The preferred stock investment carries a 7% dividend and will be convertible at $21.50 per share.
- CentriLogic, a portfolio company of TriSpan and Long Point Capital, acquired ObjectSharp, a Toronto-based cloud-native solutions provider. Financial terms weren't disclosed.
OTHERS
- Blue Prism (AIM: PRSM), a London-based digital workforce software provider, raised £100 million ($133 million).
IPOS
- Social Capital Hedosophia Holdings Corp. III, a blank check company formed by Social Capital and Hedosophia, raised $720 million in an offering of 72 million units priced at $10 apiece, above a previously stated raise of around $600 million. It plans to acquire a tech business outside of the U.S.. and plans to list on the NYSE as “IPOC.U.” Read more.
F+FS
- Hamilton Lane raised $875.6 million in new commitments for its Secondary Fund V. Read more.
- BoostVC raised $40 million for its fourth accelerator fund. Read more.
PEOPLE
- Nyca Partners hired Jeremy Solomon as a Principal.


fortune--2020-04-22--Creditors’ nightmare: Late payments soar, revealing extent of coronavirus pain on European companies

Businesses throughout Europe are struggling to collect an unprecedented mountain of unpaid invoices as customers withhold payments in order to conserve cash in the face of coronavirus-related lockdowns that have sent the world economy into a sudden deep freeze.
The amount of money that is more than 10 days overdue has grown 56% in France, 52% in Spain, and a whopping 82% in Italy since the World Health Organization declared a pandemic on March 11. The U.K. and the Netherlands have each seen about a 25% increase, while Belgium has seen a 44% spike.
The picture is even more grim when looking at the total number of invoices that are now 10 days or more past due. That figure has soared 70% across the continent, with the largest increase—a near doubling of the number of unpaid bills—happening in the U.K., followed closely by France, which has seen an 87% increase in late payments.
That’s according to data released today by Sidetrade, a Paris-based software company that helps businesses with customer engagement, cash management, and invoice collection. The firm looked at data for some 28.5 million business-to-business invoices, adding up to more than 50 billion euros ($54 billion) and involving about 4 million companies. It has created a tracker to follow invoice payment data for the six European countries.
Mark Sheldon, Sidetrade’s chief technology officer, said the sudden leap in unpaid invoices is “unprecedented” and can’t be easily compared to other previous recessions.
Businesses are acting in their own interests to conserve cash by delaying or withholding payments. But by not making payments in a timely manner for products already received or services rendered, these companies are simply passing pain on to their suppliers and other vendors. Combined with the fact that little new business is being generated during the lockdown, the invoice collection problems present a double whammy for many businesses.
Spluttering cash flow can have a domino effect throughout the economy, with smaller companies often the first to collapse. In the U.K., as many as one out of every five small businesses were in danger of failing by May and were struggling to access emergency cash from the government in time to stave off that fate, according to a report from the Corporate Finance Network, a trade body for accounting firms and consultants who service small and medium-size enterprises (SMEs).
Even in normal times, smaller businesses often have trouble collecting invoices from larger corporations, as the bigger company often uses its market power to extract concessions from the smaller firm. “B2B payment has always been a pain point from SMEs, and it is being made significantly worse by this crisis,” Sheldon said.
He said that many companies are having to be “innovative” about the way they try to collect payments. More have begun offering discounts to encourage on-time payment, for instance.
Other tactics to successfully collect payment can include changing the methods a company uses to pursue unpaid invoices, Sheldon said, as well as altering the payment channels it will accept. For instance, email and other digital forms of communication are likely to be more effective than phone calls when most employees are working from home, and switching to a subscription model for services may result in more reliable payment.
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fortune--2020-04-22--Is Netflix’s giant quarter a temporary win?

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It is no surprise that oil prices are plummeting when no one is driving or flying. Banks raising bad debt provisions in a once-in-a-lifetime economic downturn is a classic dog-bites-man story. And yet, Netflix adding nearly 16 million subscribers in one quarter is shocking, even if it was to be expected.
For context, the streaming leader had told investors to anticipate seven million added subscribers. It ended up adding more subscribers in the U.S., its most mature market, than it did a year ago. And worldwide first-quarter additions were quadruple the similar tally in the last fourth quarter.
Netflix management was suitably monotoned about its performance. It knows its surge is a result of so many people around the world sheltering in place. It suggested the situation is short-term—and empathetically said it hopes that’s the case. It heaped praise on Disney for its streaming successes, akin to Salesforce applauding Oracle’s cloud efforts. (Not gonna happen.)
“Temporary” is how Gene Munster, a longtime equity analyst now with the investment firm Loup Ventures, summarized Netflix’s quarter. “Netflix proved in [the first quarter] that it is effective medication for shelter-in-place boredom,” Muster told clients. “While the momentum will likely continue for the balance of this year, next year gets measurably more difficult.”
Maybe. Netflix said its 2020 slate is done and that it is well into 2021. Any production slowdowns it faces won’t be any worse than the competition. Perhaps the biggest problem Netflix ultimately will face is churn from customers who need to economize.
***
Tune in
Please be sure to tune in at 10:00 a.m. Pacific/ 1:00 p.m. Eastern today for the 40-minute video conversation I’m hosting with Fortune’s Erika Fry about her story in the April issue on how the Seattle business community worked together to help fight the pandemic. Plus, we’ll discuss how and why San Francisco also has done well, especially in light of the city’s well-documented (including by me) political dysfunction. The call is open to the public, and we will take your questions via chat. To participate, register here.
Adam Lashinsky
@adamlashinsky
adam.lashinsky@fortune.com
This edition of Data Sheet was curated by Aaron Pressman.
NEWSWORTHY
If at first you don't succeed. Mark Zuckerberg is making another big bet on India. Facebook will invest almost $6 billion for a 10% stake in Jio Platforms, which combines Reliance Industries’ popular e-commerce ecosystem, apps, and wireless service. The deal also connects Facebook’s WhatsApp with Jio’s JioMart offering. In another part of the Facebook empire, the company agreed to censor posts in Vietnam after the government there took its local servers offline.
Where have all the flowers gone, long time passing. While the streaming wars rage on with Netflix charging ahead, AT&T is getting ready to bring its newest weapon onto the battlefield. The carrier’s HBO Max service will debut on May 27 with a heavy emphasis on older TV shows including The West Wing, Friends, and South Park.
What’s good for the goose. Epic Games pays the Apple tax to have its popular Fortnite game included in the iPhone’s App Store. Now it will also pay Google for inclusion in the Android Play Store (while complaining that Google made life too hard to avoid the expensive listing).
Freedom's just another word for nothin' left to lose. Months after Barry Diller ousted the CEO and CFO of Expedia Group, the media magnate is contemplating selling a $1 billion stake in his online travel company to private equity firms Silver Lake and Apollo Global Management. Crushed by the pandemic-induced slowdown in travel, Expedia has already borrowed most of its $2 billion credit facility.
Chit chat. Elsewhere on Wall Street, Snap reported 229 million daily active users in the first quarter, up 20% from a year ago, and revenue of $462 million, up 44%, impressing investors. Its shares, down 24% in 2020 so far, jumped 20% in pre-market trading on Wednesday. AT&T missed expectations for first quarter revenue and profit and pulled its guidance for the year. Its shares, also previously down 24%, gained about 1%.
FOOD FOR THOUGHT
There's a juicy sub-genre of science fiction known as steampunk that imagines what the 19th century might have been like with a little more technological gadgetry. Now some scientists who study quantum mechanics are trying to apply the theory to 19th century laws of thermodynamics. The result, as physicist Nicole Yunger Halpern writes for Scientific American, is "quantum steampunk."
Just as traditional thermodynamics helped to describe the physics of steam engines, our efforts in quantum thermodynamics can help us invent quantum engines. Experimentalists have now created quantum engines with photons (particles of light), electronic systems and superconducting qubits (quantum circuits in which current can flow forever without dissipating).
Recently I designed a new quantum engine with Christopher D. White, now at the University of Maryland, Sarang Gopalakrishnan, now at the City University of New York, and Gil Refael of the California Institute of Technology. Being theorists, we initially devised the engine as a thought experiment that existed in our minds. But we are also envisioning how scientists could build a real version of the engine using the quantum tools found in laboratories today. For instance, by cooling atoms, then trapping and manipulating them with lasers, one could bring our design to life.
IN CASE YOU MISSED IT
SBA website leaks personal data of 8,000 small-business loan applicants By Jonathan Vanian
Behind the B Corp movement and its fight against corporate ‘greenwashing’ By Katie Sehl
Venmo bumps up sending limits By Chris Morris
YouTube sued by crypto firm Ripple over scam videos, in major challenge to tech giant By Jeff John Roberts
Is A.I. better at diagnosing illnesses than doctors? Don’t believe all the hype By Jonathan Vanian
How a pharmacy delivery startup has capitalized on the coronavirus pandemic By Jeremy Kahn
Sonos enters the content business with a new radio streaming service By Aric Jenkins
(Some of these stories require a subscription to access. There is a 50% discount for our loyal readers if you use this link to sign up. Thank you for supporting our journalism.)
BEFORE YOU GO
The baby hadrosaur dinosaur died in what is now China about 70 million years ago. A recently discovered piece of fossilized cartilage from its skull may contain the most elusive and sought-after remnant of that long ago age: dinosaur DNA. But don't plan your visit to Jurassic Park quite yet. The degraded genome sequences probably can't be recovered. Probably.
In a similar vein, this tweet made me laugh:
Aaron Pressman
@ampressman
aaron.pressman@fortune.com


fortune--2020-04-22--‘A month of Sundays:’ Electricity use data reveals secrets of coronavirus lockdown lifestyle

Life in lockdown means getting up late, staying up till midnight and slacking off in the afternoons.
That’s what power market data show in Europe in the places where restrictions on activity have led to a widespread shift in daily routines of hundreds of millions of people.
It’s a similar story wherever lockdowns bite. In New York, electricity use has fallen as much as 18% from normal times at 8 a.m. Tokyo and three nearby prefectures had a 5% drop in power use during weekdays after Japan declared a state of emergency on April 7, according to Tesla Asia Pacific, an energy forecaster.
Italy’s experience shows the trend most clearly since the curbs started there on March 5, before any other European country. Data from the grid operator Terna SpA gives a taste of what other places are also now starting to report.
1. People are sleeping later
With no commute to the office people can sleep longer. Normally, electricity demand began to pick up between 6 a.m. and 8 a.m. Now in Germany, it’s clear coffee machines don’t go on until between 8 a.m. and 9 a.m., said Simon Rathjen, founder of the trading company MFT Energy A/S.
Germany, France and Italy — which between them make up almost two thirds of the euro-zone economy — all have furlough measures that allow workers to receive a salary while temporarily suspended from their jobs. The U.K. also has a support package. Many of these workers will be getting up later.
“Now I have quite a relaxed start to the morning,” said David Freeman, an analyst in financial services from London. “I don’t get up until about half an hour before I need to start work.”
2. Less productive afternoons
There is a deeper dip in electricity use in the afternoons. Previously, power use rose between 2 p.m. and 5 p.m. Now it dips as people head out for a walk or some air. This chart from U.K. grid operator National Grid Plc shows that afternoon drop off.
It’s “as though we are living through a month of Sundays,” said Iain Staffell, senior lecturer in sustainable energy at Imperial College London.
3. Evenings in
From 6 p.m. electricity use begins to rise steeply as people finish work and start chores. Restrictions like work and home schooling that prevent much daytime TV watching lifts in the early evening. This following chart for Germany shows the evening peak for power use coming during later hours.
The evening is when electricity use is highest, with most people confined to their homes. Netflix Inc. reported a record 15.8 million paid subscribers — almost double the figure forecast by Wall Street analysts. Video-streaming services like Netflix and YouTube have found a captive audience. The new Disney+ service surpassed 50 million subscribers in just five months, a faster pace than predicted.
Internet traffic is skyrocketing, with a surge in bandwidth-intensive applications like streaming services and Zoom. This may mean that monthly broadband consumption of as much as 600 gigabytes, about 35% higher than before, according to Bloomberg Intelligence.
In Singapore, electricity use has dropped off significantly since the country’s “circuit-breaker” efforts to keep people at home began April 7. Electricity use has fallen and stayed low during the day. But late at night is a different story, as power demand fell sharply immediately after the lockdown began, it has steadily crept back in the past two weeks, perhaps a sign that “Tiger King” and “The Last Dance” have been finding late-night fans in the city state.
4. Staying up late
We’re going to bed later too. Demand doesn’t start to drop off until 10 p.m. to 12 a.m., at least an hour later than before.
“My children are definitely going to bed later,” said Liz Stevens, a teaching assistant from London. “Our whole routine is out the window.”
It’s challenging for those that need to predict behavior — power grids and electricity traders. Forecasting is based on historical data, and there isn’t anything to go into the models gauging use now.
The closest we can get is looking at big events like football World Championships when people are all sitting down at the same time, according to Rathjen at MFT.
“Forecasting demand right now is very tricky,” said Chris Kimmett, director of power grids at Reactive Technologies Ltd. “A global pandemic is uncharted territory.”
What normal looks like when the crisis passes is also an open question. Different countries are set to unravel their measures in their own ways, with Germany and Austria loosening restrictions first and Italy remaining under tight control. Some changes may be permanent, with both workers and employers becoming more comfortable with working from home.
5. Different sectors consume more
In China, which is further along recovering from the pandemic than Europe or the U.S., the sharp contraction in overall power output masks a shift in daily routines.
Eating habits have changed. Restaurants are expanding delivery and even offering grocery services as the preference for dining at home persists. Household electricity consumption in China probably increased from activities such as cooking and heating, according to IHS Markit, which said that residential demand rose by 2.4% in the first two months as people stayed in.
The increase in technology use also drove China’s power demand from the telecom and web-service sectors to rise by 27%, the consultancy said.
Overall, power consumption in the first quarter of the year fell 6.5% from the same period in 2019 to 1.57 trillion kilowatt-hours, China’s National Energy Administration said last week. Industry uses about 70% of the country’s electricity, while the commercial sector and households account for 14% each.
More coronavirus coverage from Fortune:
—The trillion-dollar question: How far will GDP fall?
—After stocks, the housing market could be next to plunge
—Google, Andrew Yang, and Ariana Grande back a new effort to send an extra $1,000 to 100,000 U.S. families in need
—How live-event companies pivoted to building temporary hospitals and testing sites
—5 veteran investors on how to approach the coronavirus stock market
—How Hong Kong squashed its second coronavirus wave
—The comfort economy gains momentum during the coronavirus pandemic
—PODCAST: COVID-19 might have upended the concept of the best companies of the year
—VIDEO: 401(k) withdrawal penalties waived for anyone hurt by COVID-19
Subscribe to Outbreak, a daily newsletter roundup of stories on the coronavirus pandemic and its impact on global business. It’s free to get it in your inbox.


fortune--2020-04-22--The business case for maintaining diversity in a recession

Good morning, Broadsheet readers! Jennifer Morgan is out as co-CEO of SAP, Symone Sanders runs the Biden campaign from home, and don’t let this downturn ‘drain’ your diversity. Have a good Wednesday.
– Diversity in a downturn. The current economic crisis in the U.S. that’s seen some 22 million lose their jobs in a four-week span has been especially brutal to women.
According to March data, the unemployment rate for women rose 0.9% while that of men ticked up 0.7%. Sixty percent of the 700,000 jobs eliminated last month belonged to women. One factor here is that women are overrepresented in the types of jobs being slashed—service industry positions in hospitality, travel, and retail, for instance. Another factor is women’s seniority. As Elise Gould of the Economic Policy Institute told NPR last week, “labor market discrimination” has “led disproportionate shares of women in jobs that may be more subject to job loss.” They are less likely to be managers, who are more likely to keep their jobs in rounds of layoffs, she said.
Writing for HBR, Alexandra Kalev, an associate sociology professor at Tel Aviv University, says that based on her research, executives have determined who’s getting laid off based on either position or tenure and “drained diversity”—in terms of race and gender—from their teams as a result.
Executives argue that their layoff criteria is about job function and is “color blind,” Kavel writes. But as she puts it: “[J]ob titles are not color blind, and so layoffs aren’t, either.”
Kavel has tips for how leaders can avoid slashing diversity as they try to cut costs. “Redeploy talent to areas that need strengthening” is one piece of advice.
And 2019 research from Fortune and partner Great Place to Work explains why the stakes for such consideration are so high—beyond individual livelihoods. Examining publicly-traded companies during the Great Recession, the research found that the experience of certain key employee groups—women, people of color, front-line workers, hourly male workers, and long-tenured employees—”predicted whether organizations flatlined, merely survived, or thrived during the [downturn].”
The S&P 500, for instance, saw a 35.5% drop in stock performance in the period between 2007 and 2009, while companies whose key employee groups had very positive experiences reported a 14.4% gain.
This downturn, of course, is different than previous ones, but that data point—that the treatment of marginalized workers can be a bellwether—is one to keep top of mind.
Claire Zillman
claire.zillman@fortune.com
@clairezillman
Today’s Broadsheet was produced by Emma Hinchliffe.
ALSO IN THE HEADLINES
- Teamwork doesn't make the dream work. Less than six months ago, SAP veteran Jennifer Morgan became co-CEO of the German business-software company. Now, Morgan is out as co-CEO and leaving the company entirely as the firm transitions to the leadership of a sole CEO to take "swift, determined action" during the coronavirus pandemic. Wall Street Journal
- Invest from the best. In the May issue of Fortune, five veteran investors give their best advice on how to approach the stock market right now. Learn from Cartica CEO Teresa Barger, Parnassus portfolio manager Lori Keith, Charles Schwab chief investment strategist Liz Ann Sonders, and ARK Invest CEO Catherine Wood. Fortune
- 💯. Stacey Abrams, Ariana Grande, and more public figures are backing Project 100, a fundraising effort to distribute $100 million to 100,000 low-income families hardest hit by the coronavirus crisis. The drive has so far raised $55 million. Fortune
- Home stretch. Joe Biden campaign strategist Symone Sanders gets the Vogue treatment. She's grounded in D.C. for the longest stretch she's spent at home in a long while, running a virtual campaign and finally getting around to hanging her framed photos of Thurgood Marshall and Shirley Chisholm. Vogue
MOVERS AND SHAKERS: Drift promoted Dena Upton to chief people officer.
IN CASE YOU MISSED IT
- Fair working conditions. Nurses and teachers—two professions dominated by women—are fighting for better working conditions during the coronavirus pandemic. New York's nurses union filed three lawsuits against the state health department and two hospitals alleging that inadequate protective equipment compromised the health and safety of nurses; a health department spokeswoman said she cannot comment on pending litigation. Teachers' unions, meanwhile, are fighting for restrictions on the number of hours and days spent conducting virtual lessons and against the requirement that all lessons be conducted live.
- Unpausing protests? During the coronavirus pandemic, the protests that took over Hong Kong last year have slowed. But the government, led by Carrie Lam, has recently arrested pro-democracy protesters, while officials in Beijing have pushed for new national security laws—moves that could spur protests to pick back up again. New York Times
- Good night's sleep. Arianna Huffington and Audible founder Don Katz write in Fortune that helping people get more sleep—the mission of Huffington's Thrive Global—will help underserved communities. The "sleep gap" is another health disparity, among the many health inequities that contribute to higher rates of COVID-19 spread in minority communities. Fortune
ON MY RADAR
Michelle Obama launches weekly reading series for children NBC News
I’m working 14-hour days to develop the coronavirus vaccine Refinery29
GM shuts down car-sharing service Maven The Verge
'Some days I feel like I'm melting:' How single mothers are coping with quarantine New Yorker
PARTING WORDS
"The truth is, we’re always cooking with some constraints. We just don’t realize that often constraints are a gift."
-Chef Samin Nosrat on how quarantine can help people become better cooks


fortune--2020-04-22--Forget ‘wet markets’ and bats: For scientists, failing environmental policies have created a boom ti

Forget ‘wet markets’ and bats: For scientists, failing environmental policies have created a boom time for outbreaks

When Australia’s Prime Minister Scott Morrison was asked last week what he thought of the World Health Organization’s support for reopening “wet markets” in Wuhan, the Chinese city at the epicenter of the coronavirus pandemic, he stuttered in disbelief.
“I think…I think that’s unfathomable, frankly,” Morrison said.
Morrison wasn’t the only one. As a suspected primary source for the spread of COVID-19 in late 2019, China’s wet markets—in which butchers sell meat from domesticated and wild animals—are, for many, a clear target for permanent closure.
“We need to protect the world against potential sources of outbreaks of these types of viruses,” Morrison said. “It’s happened too many times.”
But according to scientists who’ve been studying coronavirus-type outbreaks for years, the fuss over wet markets or the role of a single country in triggering the outbreak distracts from the larger reality of modern-day pandemics.
This is a crisis we have inflicted upon ourselves, they say. It’s both a bug and a feature of our modern, urbanized, and hyper-connected world. Billions are on the move in this global melting pot, creating rich new opportunities for business and cultural exchanges, but also introducing new health risks.
At the same time, our modern cities are getting larger and larger, gobbling up wild spaces, and putting us in greater contact with wildlife: from brown bears in the suburbs to packs of wild boars rummaging through trash bins for a snack. Throw in climate change, globalization, and a boom in global travel, and you get the conditions for a great comingling of species—people, animals…and contagions.
“Significantly” altered
In a report last year, the United Nations said three-quarters of the world’s land, and 66% of its marine environment, had been “significantly” altered by human actions. Native species in most of the major land habitats are in decline, while invasive species are on the rise. Meanwhile, urban areas have more than doubled since 1992, contributing to this loss in biodiversity.
As the United Nations Environment Program noted in an Earth Day blog post today, environmental protection means human protection. “Had we been further advanced in meeting the Sustainable Development Goals and the Paris Agreement on climate change, we could better face this challenge,” United Nations Secretary-General António Guterres said of the COVID-19 pandemic.
For tiny, invisible viruses, this truly is a boom time.
“There are more and more people on the planet, and with more demographic pressure we have to expand into new areas, places where, up until now, human beings hadn’t lived in a massive way,” said Jordi Serra-Cobo, an eco-epidemiology specialist at the University of Barcelona’s Biodiversity Research Institute and one of the world’s foremost experts on zoonotic diseases, or those that animals transmit to humans. “And when we destroy natural habitats, many species that have viruses that could infect us are in closer contact with the human race.”
Since COVID-19 exploded into a global crisis, an avalanche of questions have been lodged about what happened in Wuhan late last year that caused the outbreak to take root. Still more questions swirl around China’s ubiquitous wet markets and even the local taste for exotic animals such as the scaly anteater known as the pangolin, which at one point was a suspected vector of disease.
The COVID-19 virus probably circulated in animals for years—perhaps up to half a century—before it made the jump to humans in Wuhan, Serra-Cobo says. What we should be focusing on instead of wet markets, he adds, is how the COVID-19 epicenter resembles a lot of cities and towns everywhere on the planet.
“Why Wuhan? Because it’s a large business center, and there are a lot of students,” said Serra-Cobo. “If a virus passes to man in the middle of the Amazon, it has a much smaller effect because it is less connected.”
On the rise
Viruses like COVID-19, a beta coronavirus of the type normally carried by bats, pose a serious threat because they evolve very quickly, by mutating or by combining with others.
Such animal-borne contagions are on the rise, says Joaquim Segalés Coma, director of the Barcelona-based Centre de Recerca en Sanitat Animal. Virologists estimate that about 70% of emerging diseases in humans are zoonotic—spread from animals to humans—and almost three-quarters of those come from wildlife.
Including the 1918 Spanish flu outbreak, “most of the major pandemics have happened in the past 100 years,” said Segalés Coma, who is part of a consortium of scientists conducting basic research to help find a vaccine for zoonotic coronaviruses, a project he’s participated in since 2014.
Researchers have zeroed in on the bat as the likely origin of the virus, but that reveals only a small part of the infection journey: They still need to uncover the intermediary between the bat and us. In the process, scientists have already considered, then ruled out, a long list of species—from the exotic (snakes and pangolins) to the kinds of animals you’d find at any butcher stand: (chickens and pigs).
“That intermediate has not yet been found,” Segalés Coma told Fortune.
Domino effect
What is clear is which species turned the spark into a fire.
“It’s very clear that COVID-19 originated in bats,” Serra-Cobo said. “Why did it now pass to humans? The fault does not lie with the bats. It’s that humans began to massively invade the habitats of bats.”
In the past 20 years, the world has seen the greatest explosion in human mobility in our history. That same period has also seen a boom in zoonotic epidemic outbreaks, including SARS, MERS, Zika, and Ebola.
“People are moving around more—they’re traveling by plane, by ship, by car,” Segalés Coma said.
The number of airline passengers, for example, has more than doubled since 2000, to 4.23 billion in 2018, according to the World Bank. This global travel, matched by mass urbanization and the rapid deforestation it’s unleashed, has created ideal conditions for zoonotic diseases to make the jump from the wild to humans.
“It’s become clear that the human being has modified the ecosystem in different ways, and that has increased the likelihood for potential spillover events,” said Segalés Coma.
Those spillover events will likely expand—with increasingly pernicious effects on human beings—unless mankind turns its focus on itself.
“We know very well what we have to do,” said Florian Liegeois, a virologist at the French National Research Institute for Sustainable Development. “The world looks surprised by the COVID outbreak, but scientists are not.”
Legislative fixes such as banning the global trade of bushmeat would be an obvious step toward mitigating the problem, he says, but so too are greater cultural changes necessary. Rethinking our relationship with nature—from the food we grow and consume to the waste we produce—would be the best measure for preventing another pandemic.
“We are trying to help [COVID-19] patients, which is important, and we are concentrating on finding a cure and a vaccine, which is also very important,” said Serra-Cobo. “But no one asks why this is happening.”
More coronavirus coverage from Fortune:
—The trillion-dollar question: How far will GDP fall?
—How Fortune 500 companies are utilizing their resources and expertise during the pandemic
—Thermal-imaging tech is on the rise. Can it help fight the coronavirus?
—Privacy concerns split Europe’s push to build COVID-19 contact-tracing apps
—5 veteran investors on how to approach the coronavirus stock market
—More surveillance and less privacy will be the new normal after the coronavirus has been contained
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Subscribe to Outbreak, a daily roundup of stories on the coronavirus pandemic and its impact on global business, delivered free to your inbox.


fortune--2020-04-22--Is A.I. better at diagnosing illnesses than doctors? Don’t believe all the hype

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Artificial intelligence is better at analyzing medical images for illnesses like pneumonia and skin cancer than doctors are, according to a number of academic papers. But that conclusion is being called into question by recent research.
A paper published in March in medical journal The BMJ found that many of those studies exaggerated their conclusions, making A.I. technologies seem more effective than they were in reality. The finding is significant because it undermines a huge ongoing shift in the health care industry, which is looking to use technology to more quickly diagnose ailments.
It also calls into question a tech industry that is scrambling to develop and sell A.I. technology for analyzing medical imagery. The paper’s authors are worried that overzealous companies and their investors may push to sell the technology before it has been thoroughly vetted.
“With no disrespect to venture capitalists—obviously they’re an important part of the funding process for a lot of this innovation—but obviously their enthusiasm is always to try and get things to market as quickly as possible,” says Myura Nagendran, a coauthor of the BMJ paper. “While we share that enthusiasm, we’re also acutely aware of how important it is to make sure these things are safe and work effectively if we institute them en masse.”
The finding also touches on the current coronavirus pandemic, which has claimed over 30,000 lives in the U.S. Some researchers maintain that they’ve developed A.I. systems that are faster than humans at examining chest CT scans for COVID-19 infections.
The recent BMJ review looked at nearly 100 studies of a type of artificial intelligence called deep learning that had been used on medical scans of various disorders including macular degeneration, tuberculosis, and several types of cancers.
The review found that 77 studies that lacked randomized testing included specific comments in their abstracts, or summaries, comparing their A.I. system’s performance to that of human doctors. Of those, 23 said that their A.I. was “superior” to clinical physicians at diagnosing certain illnesses.
One of the main problems with these papers is that there’s “an artificial, contrived nature of a lot of these studies” in which researchers basically claim that their technology “outperformed a doctor,” says Eric Topol, one of the BMJ paper’s authors and the founder and director of the nonprofit Scripps Research Translational Institute. It’s absurd to compare an A.I.’s performance to that of human doctors, he explains, because in the real world, choosing between an A.I. system or a human doctor is not an either-or situation. Doctors will always review the findings.
“There’s this kind of nutty inclination to pit machines versus doctors, and that’s really a consistent flaw because it’s not only going to be machines that do readings of medical images,” Topol says. “You’re still going to have oversight if there’s anything reported that’s life-threatening or serious.”
Topol adds, “The point I’m just getting at, is if you look at all these papers, the vast majority—90%—do the man-versus-machine comparison, and it really isn’t necessary to do that.”
Nagendran, an academic clinical fellow for the U.K.’s National Institute for Health Research, says that studies describing A.I.’s superiority to human doctors can mislead people.
“There’s been a lot of hype out there, and that can very quickly translate through the media into stories that patients hear, saying things like, ‘It’s just around the corner, the A.I. will be seeing you rather than your doctor,’” says Nagendran.
Besides the core fallacy of pitting A.I. versus humans, one of the big problems is that these papers typically fail to follow more robust reporting standards that health care professionals have been trying to make standard over the past decade, Nagendran says. One sore point, for instance, is that the papers generally fail to measure the accuracy of their deep-learning models on multiple data sets, which could include different populations of people, as opposed to just a limited number.
Luke Oakden-Rayner, a director of medical imaging research at the Royal Adelaide Hospital in Australia, noticed a similar problem when he examined a handful of recently published papers on using deep learning to diagnose COVID-19 via chest CT scans. Like the faulty medical imaging studies that the BMJ paper described, the coronavirus-related papers based their conclusions on a limited amount of data that was not representative of the entire population, a problem that’s known as selection bias.
Read: Thermal-imaging tech is on the rise. Can it help fight the coronavirus?
In one paper Oakden-Rayner noted that the researchers developed a deep-learning system to recognize the coronavirus from data taken from 1,014 patients at Tongji University in Shanghai. These patients were diagnosed as having COVID-19 via the conventional swab tests used to detect the illness; they also had chest CT scans to see if there was any of the infection in their lungs.
But that deep-learning system was likely trained on skewed data. Doctors probably suspected those patients were having lung problems related to COVID-19, which is why they ordered CT scans of the patients’ chests. The same technology would be unlikely to work well with people who have COVID-19, but don’t have any symptoms in their lungs.
“As a general rule more accurate and complete data sets are more useful,” Oakden-Rayner says in an email to Fortune.
Oakden-Rayner questioned the need for A.I. researchers to even publish papers about using deep learning to diagnose the coronavirus, explaining that current testing is already effective and that there are more important jobs that A.I. can help with.
“Simply detecting COVID-19 on CT scans is unlikely to be very helpful,” Oakden-Rayner says in the email. “If there is a bottleneck that A.I. can solve in the medical workflow, then data for that task specifically will need to be collected.”
Topol agrees with Oakden-Rayner, saying, “It can be useful to have an algorithm review of a CT scan of lungs as to whether they are potentially related to COVID, but you don’t really need a CT scan.”
More conventional testing tools are increasingly being distributed worldwide, making them more available than CT scans, which are more expensive, Topol explains.
The takeaway from all these recent A.I. medical imaging studies is that people should use some skepticism in considering their findings, says Topol. These are essentially preliminary research papers that highlight potential uses of A.I. in the current health care system, but researchers still need deeper clinical trials to verify the technology’s effectiveness.
“You can’t just go right ahead to a prospective study,” Topol says regarding a more formal type of academic study that typically follows preliminary research. “You just don’t want to overstate the conclusions.”
More must-read tech coverage from Fortune:
—How the coronavirus stimulus package would change gig worker benefits
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—Why China’s tech-based fight against the coronavirus may be unpalatable in the U.S.
—Hospitals are running low on the most critical supply of all: oxygen
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fortune--2020-04-23--14% of women considered quitting their jobs because of the coronavirus pandemic

Zoom backlash intensifies as companies from Daimler to BofA institute bans and curbs over security concerns

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Less than two weeks into Seattle’s coronavirus lockdown, Angela sat down with her husband. Juggling childcare and job responsibilities was becoming unmanageable—would it make more sense for her to stop working as long as their two children were home from school?
Angela, who requested that Fortune use only her first name, as her employer doesn’t know she has thought about leaving, is one of 14% of women who are considering quitting their jobs because of the family demands created by the coronavirus crisis, according to a survey conducted by Syndio. Eleven percent of men told the pay-equity software company that they have considered doing the same. Another 10% of men reported that their partner or spouse is considering quitting, while 6% of women had the same answer.
The data reveal yet another way inequities in employment are playing out during the crisis. Women work two-thirds of minimum wage jobs, putting them at increased risk of unemployment (in the case of all-but-closed retail and hospitality industries) and illness (in the case of essential jobs like grocery cashiers).
“It’s concerning to see more women than men contemplating leaving the workforce, even for a short time,” says Syndio CEO Maria Colacurcio. Syndio, with SurveyMonkey, surveyed 1,500 people on March 30 and 31.
Breaking down the data by race, 26% of Hispanic women who responded to the survey said they were considering quitting their jobs, compared with 15% of both black and Asian women and 12% of white women.
“Latinas are more likely to be in jobs in sectors with little to no flexibility around scheduling—lower-wage jobs that require you to show up and are now considered essential,” says Nicole Mason, president and CEO of the Institute for Women’s Policy Research. “You have to make hard choices, and quitting becomes a consideration when there’s nobody to provide childcare.”
Women leaving the workforce under the pressures of a global crisis could have long-term consequences. The 80-cents-on-the-dollar gender pay gap increases for working mothers, and lost earnings during a limited period compound over time. Annual earnings for women who took one year out of the workforce between 2001 and 2015 were 39% lower than earnings for women who worked straight through those 15 years, according to a 2018 IWPR report.
Mothers who stop working face challenges returning where they left off. “[Leaving the workforce] does stall their careers, and it takes them longer to achieve career success,” Mason says.
Seventy-one percent of mothers with children under 18 work outside the home, while 41% of women with children are the sole or primary breadwinner for their families.
For Angela, the idea that she should be the one to consider quitting was primarily based on the couple’s finances: Her job in the outdoor industry brings in less money than her husband’s as an engineer. Like many women making these calculations right now, Angela wasn’t considering leaving the workforce before the pandemic hit. “The biggest part of my decision is how to best take care of my kids,” she says. “If the global situation weren’t happening, they’d be in school right now.”
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Subscribe to Outbreak, a daily newsletter roundup of stories on the coronavirus pandemic and its impact on global business. It’s free to get it in your inbox.


fortune--2020-04-23--Digital art banks on breakout moment with blockchain’s help

14 % of women considered quitting their jobs because of the coronavirus pandemic

Lyle Owerko is a celebrated photographer known for an iconic 9/11 photo, and for an art series called the Boombox Project, whose patrons include Madonna and Jay-Z. In mid-March, on a day much of the country went into lockdown because of the coronavirus, Owerko opened a new exhibition—online.
The exhibition was an extension of the Boombox Project, featuring several dozen unique digital prints in a variety of colors, costing $20 to $2,500. To Owerko’s pleasant surprise, most of them sold out, including the one pictured below:
The exhibition took place on Nifty Gateway, one of a growing number of websites that use blockchain technology to offer collectors a unique work of art. The use of blockchain, which creates a tamperproof and indestructible transaction record, means that a given digital image can be designated as distinct and authentic—even if a version of it can be easily reproduced in screenshots like the one above.
“Enforcing scarcity in digital art couldn’t happen before. The digital art movement has existed for decades, but until recently you couldn’t box it up and create an asset out of it,” says Tyler Winklevoss, who, along with his twin brother, Cameron, owns Nifty Gateway, which was founded in 2018.
For the Winklevoss twins, Bitcoin billionaires who gained fame for their legal battle with Mark Zuckerberg over Facebook’s founding, blockchain technology promises to create a major new art and collectibles market. They hope that collectors will come to see that digital art can be unique in the same way as original prints or portraits—which can fetch enormous sums even if they are widely reproduced as gift shop collectibles.
Nifty Gateway, which is operated by a second pair of twins, Duncan and Griffin Cock Foster, says it has so far sold thousands of digital collectibles, though it has not disclosed a specific number nor the site’s overall revenue.
For Owerko, the Boombox artist, blockchain also promises a way to combat the blatant counterfeiting and illicit reproduction that has long frustrated artists in the Internet age. He likens blockchain’s tracing system to a vehicle identification number (VIN), which provides a way to register and identify every car bought and sold.
And according to the Winklevoss twins, digital art portals like Nifty Gateway provide a way for artists—unlike in the world of physical art—to collect royalties when one of their works is resold. They also claim that in the case of original sales, the percentage they take as a commission is much lower than the 50% physical galleries typically collect.
The company declined to disclose the specific commission it collects on sales or the royalties that artists can earn for those resales.
But while digital art, which typically consists of photos and illustrations sold on websites, may be receiving new attention during the pandemic, it’s still a tiny fraction of the broader art market, and one that’s unfamiliar to many art lovers.
The traditional gallery world has taken a battering during the pandemic. A survey by the Los Angeles Times suggested that a number of galleries in that city expect to close, and that dozens had applied for the Paycheck Protection Program. Some owners are also mulling future exhibits that admit only a handful of people to respect social distancing, while others are offering “online viewing rooms” (a.k.a. websites) where art fans can view and purchase works. The idea of selling purely digital art did not come up, however, in the Times’ detailed overview.
Katy Arrington, an Australia-based illustrator, is nonetheless optimistic the market will grow. She has been exhibiting unique digital works on MakersPlace, another blockchain art portal, created by former employees of online pin board Pinterest.
“It connected me to a community that really valued digital art; it was pretty awesome,” says Arrington, who added that using the blockchain software required to exhibit her illustrations proved difficult at first, but has since become more intuitive.
In the case of Nifty Gateway, the company opted to conceal the blockchain software altogether, meaning customers wishing to buy digital art don’t have to do anything more than enter a credit card number. (Buyers who want to look under the hood at the blockchain registry are still able to do so.)
But while the technology may have arrived to facilitate a new market in digital art, it’s an open question whether such art will appeal to more than a small niche of collectors. After all, the appeal of owning art for many people is the pleasure and status that can come with displaying it—a difficult proposition if the art is locked in a screen.
Owerko, however, is optimistic that a growing number of people will embrace digital art, in part because of new monitors and digital paper that will enhance the ability to display it.
Says Owerko, “We’ve moved through so many creative environments in the last three decades, that this is the next evolutionary step.”
More must-read tech coverage from Fortune:
—How the coronavirus stimulus package would change gig worker benefits
—Zoom meetings keep getting hacked. How to prevent “Zoom bombing”
—Why China’s tech-based fight against the coronavirus may be unpalatable in the U.S.
—Hospitals are running low on the most critical supply of all: oxygen
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEO
—WATCH: Best earbuds in 2020: Apple AirPods Pro Vs. Sony WF-1000XM3
Catch up with Data Sheet, Fortune’s daily digest on the business of tech.