Personal Cost Cutting in a Recession PLUS taking a quick look into U.S. streaming

Welcome to Newsletter #4! The goal of the High Yield Harry newsletter is to be a contra to typical newsletters: While traditional newsletters highlight several topics with brevity, I’d rather have this monthly newsletter focus more on deep-dives or topical items that interest me and share something new or interesting.

Part I: Personal cost cutting in a recession:

You’re going to see me put on quite a different hat. It may seem kinda off brand…but look I’m not one of those accounts that’s going to tell you that you have to own a Rolex, five Patagonia vests, and two pairs of Gucci loafers to fit in. Look – we’ve known for a bit now that we’re recession bound and inflation has brutalized grocery store items, rent/housing, and gas.

I get occasionally asked by friends for help budgeting – so I think it makes sense to get some techniques out there to help people drive excess cash flow (ECF) during a challenging economic time. I’m not an advocate for cutting expenses to the bone, you gotta live a little - YOLO, but at the same time, this is a good time to be cognizant of rising cost pressures and the potential that layoffs are within the realm of possibility.

This, of course, became superrrrr timely given this Bloomberg piece out Wednesday that 33% of Americans making $250k live paycheck to paycheck. That's just bonkers - another life is possible Brother!

Remember this meme from last month? Let’s go through this, but unironically:

In fact something similar to what I’m writing (and more sophisticated obviously) came out last week in Silicon Valley. Sequoia Capital, a leading venture capital firm, sent out a 52-page deck to portfolio company founders stressing that founders must assume that they won’t be able to access the capital markets for two years. Sequoia stressed it’s a waste of time to think about the return of the “the good ole days” and that founders should focus on raising money and cutting costs. The mood shift in Silicon Valley has been very pronounced, as there’s been several anecdotes out about high growth tech companies slowing down hiring or laying people off – and it feels like just the beginning. 15,000 Tech workers were laid off in the month of May. Remember, slowing hiring becomes hiring freezes, which becomes layoffs. Don’t mean to spook anyone, but let’s get into it: 

First – the easiest way to combat inflation/deal with a recession is by increasing how much you make. There’s only so far you can go with cutting costs, at some point you need a raise, a new job, or find a way to add supplemental outcome. Personally, I’ve found credit to be the perfect spot in finance – relatively reasonable hours & good compensation. I’ve also obviously found a side hustle which I enjoy very much as a creative outlet.

Let’s be clear too - I am not pro FIRE – which stands for “Financial Independence, Retire Early”. Hard core proponents of FIRE believe you can retire in your 30s or 40s by saving and investing aggressively. BUT that comes at an obvious cost – the whole basis of their thesis is driven by frugality. People super into FIRE won’t take nice vacations or won’t go out on a Friday night. Their message is not what I’m trying to convey – I’m trying to identify some potentially low hanging fruit and give some food for thought on some potential personal budget habits.

Life is too short to cut all these costs and YOLO, but look, I don't come from money and I know these are going to be helpful areas to consider depending on how deep this recession gets.

Areas you can cut:

1)      Renting: This is more of an issue for the NYC/metropolitan crowd. We love this city but rent is just absolutely insane for the tiny closets we’re living in. There’s a general rule of thumb that monthly rent should be no more than 30% of your monthly gross income. IMO – I think a better rule of thumb would be a percentage of net income, given taxes, and other recurring costs that come out of a paycheck (401k, transportation, healthcare). Having roommates might be a very achievable way to cut costs, but I will say though if you’re reallllyyyy sick of having a roommate then it’s totally fair to go out on your own. Cost cutting tactics: Roommates, live a bit farther away from the hub of the city, avoid moving as often.

2)      Food – mainly those outrageous delivery apps: If I can succeed in one place, I hope it’s on this - *you don’t need every meal hand delivered to your apartment*. Look to be fair, I splurge $16+ on Sweetgreen salads, but delivery app meals can be an easy $35 for a soggy meal. The only time really I’m using those apps is if they post an insane deal that makes ordering economical. Also, sometimes you can just call the restaurant and avoid the fees (for both you and the small business owner) if you really want the food! This doesn’t mean eating like garbage for the sake of saving money (I’ll never eat McDonald’s), but cooking slightly more at home or reducing the addiction of food delivery apps are easy to execute on. If there’s a place you frequent often too, like Chipotle or something, then I’d recommend getting a rewards program so at least you can get free guac relatively often. Cost cutting tactics: Cook more at home, fade the delivery apps, look for deals.

3)      Streaming: Streaming is starting to get nuts. I watch a decent amount of television and movies (which helps spark some of these meme ideas) and it’s starting to get out of control. I’ll analyze this further during part II of this newsletter. Most of these platforms can be relatively high churn, since they have monthly subscription pricing. Watching what you need, then cancelling after a couple months might be the move. There’s also plenty of accounts you can share with ppl. I’ll dive more into streaming later on. Cost cutting tactics: Share with friends, cancel and sign up again sporadically, weigh which platforms you actually watch weekly.

Additional ideas:

·         Coffee at home: This is classic advice, but I can’t understate how much I save from making coffee at home and at the office. Unless you hate the taste of your office coffee, I def recommend.  

·         Pregame more: If you’re finding yourself with an uncontrollable tab at the bar, you probs need to toss some more back at your apartment before going out. If I said “don’t go out” as a way to save costs that’d be pretty lame, you’re only young once, just suggesting that we’re all well aware that we’re out significantly overpaying for our drinks. $22 Vodka Red Bull? What a steal.

·         Take a hard look at your monthly credit card balance: Everyone’s situation is going to be different so maybe there’s something you look back on and say “ya I overpaid for this” or “I didn’t need that”. It’s probably good to have a monthly # of how much you want to spend on stuff (Excluding rent) so you’re keeping yourself honest. I have a monthly # of how much I want to spend each month and the only time I want to be over it is if I just did a big vacation.

To wrap this up though, again, there is only so far you can go with cost cutting and being insanely frugal like the FIRE folks where you miss out on life and don’t do anything fun is not the way how I’m trying to go about this. While I’ve pointed out some potential low hanging fruit, the best way to endure higher costs/the prospect of a recession is to make more/good money.

Part II: Streaming is pretty horrible now – and Netflix may be about to lose its crown.

Remember the glory days of streaming? When Netflix had everything and you could sit back and watch The Office or Mad Men, or when Game of Thrones was all everyone was talking about? Those days are long over, as there’s now dozens of streaming platforms and companies such as Comcast have pulled popular shows like The Office and Parks and Recreation back in house to their platform, Peacock.

The big show that everyone is talking about seems to vary from platform to platform, vs. how the two big platforms everyone used to talk about were Netflix and HBO. Now, we’re getting stretched pretty thin on which platforms we need to have. I just cut a couple of streaming platforms on my end, so the reality is there’s probably room to cut the cord given how disaggregated things are getting. Things are getting cutthroat, and according to data analytics firm, Antenna, monthly churn as of December 2021 was a whopping 5.2%! Higher quality platforms like the Disney bundle have lower churn, while Paramount’s offerings can see monthly churn estimated north of 8%.

The landscape has changed quite quickly – and we’re quickly nearing a world where on a combined basis, Disney could have more subs than Netflix even as soon as next quarter. As you can see below, Netflix’s lead on Disney’s platforms has become neck and neck.

Meanwhile, this chart compares the pricing of the most popular plans of each streaming provider.

CableTV.com analyzed 381 TV packages and bundles to provide a sense of the average monthly cable bill. They found below an average cable bill of $78.58/month BUT when you bundle that with internet and get a $8.91/month discount, it’s more like $69.67/month. Add together 6-7 of the platforms listed above and next thing you know you’re pretty much paying $69.67/month again (but without the added benefit of internet bundled in).

What happens now?

1)      Consolidation: There’s already been decent consolidation – 21st Century Fox was acquired by Disney in 2019, Viacom and CBS merged in 2019 and now go by “Paramount”, and AT&T merged HBO with Discovery in 2022. There were rumors that Comcast was looking to merge NBC with EA (tf?). Streaming platforms are going to increasingly realize they don’t have enough content to gain enough wallet share and will likely pursue consolidation throughout the 2020s.

2)      At some point we’re going to hit peak content: How many more low-budget rehashed shows is Netflix going to hash out? I’d rather they lower the quantity of the content that they’re coming out with and increase the quality instead.

3)      Hopefully subscription plans stay monthly: Imagine if you had to sign up for an annual contract to have streaming? Honestly, I don’t see this happening, so that’s one positive. This allows us to be nimble in terms of picking and choosing the platforms we’re on.

4)      We’re probably going to have to keep paying more: Whether Netflix cracks down on password sharing, or if Hulu, Amazon, or Apple raises their prices, we’re probably bound to continue to keep having to pay up across different platforms.

That’s all for this month – until next time!