Hi there!
Another week closer to snow. Or maybe not. Who knows anymore. One thing is for sure - we’re a week closer to those CEBA plague loans coming due. Despite the 18 day extension ‘gifted’ to Small Business, the January deadline is looming heavily. For those with an outstanding balance due, an interest rate of 5% beckons with the joy of unsecured debt on the balance sheet. Of course the private lending sector awaits your business! With a choice range of rates of between 5.75% and 11.91%.
It’s all, rightly, making people nervous. But maybe there is some light at the end of the tunnel. Inflation is cooling both north and south of the border and oil is (apparently) now un-shockable. In short, a moderated 3.8% inflation rate headed downward means stable bank rates, and the chance of future rate relief. Or maybe all this CEBA stuff will just cause a massive Provincial bun fight. The Central Bank stares on hoping for sanity. Chicken prices remain volatile.
Being nervous about the economy, of course, is not great for mental health. And with three years of perma-crisis behind us, and no real end in sight, is it any wonder that Canadian insurance companies paid out $650 million for mental health claims in 2022? Both owners and employees have made mental health diagnoses the number one disability claim on the books of both Manulife and Sun Life Financial this year. Part of this is because running a Small Business is just a lot harder than it was. It takes a toll. But the other part of this is Small Business struggling to respond to the brewing mental health demands on the payroll, and lest we forget, the increasing demands on Small Business owners to take on complex and nuanced HR roles in addition to making sure people get paid.
Being nervous is not limited to Small Business either. RBC, Dejardins, ScotiaBank, BMO, JPMorgan Chase, Wells Fargo, Goldman Sachs, CitiGroup and Morgan Stanley are all lining up to cull staff due to ‘economic context’. What is this economic context? There are likely multiple vectors in play here, which are adding up to a general loss of profits. First is the rising default rates (i.e losses) on credit lines and loans. Second is ‘streamlined operations’, which is basically the universal code for ‘it turns out most of our staff can work from home’. Third is a lack of market investments - why play the markets when the savings return is so good? Fourth is - money is expensive, even for banks. Don’t worry though. Techo-optimism is here to save us all, and it’s definitely not a symptom of an investment market in crisis.
Oh, and don’t forget to get your flu-jab. Otherwise, these may be in your immediate future. Don’t say we’re not solutions orientated.
BTW - did you know you can reply to this email? We always read the responses and welcome feedback. Let us know what you like, what you don’t and what you’d like to see more of in the future!
If you find this report useful, why not share it with the other small business owners in your network? They’ll join hundreds of subscribers in accessing the best Small Business insights in Canada - for free!
The Data Room 🤖
The Data Room is sponsored by Quota, the AI co-pilot for Small Businesses, their Accountants and their Advisors. Get instant compilations, smart budgets, intelligent predictions, personalized benchmarks. For every business, in every industry, in every location.
Join the waitlist now, and access industry reports and exclusive discounts!
Why Are Video Games So Cheap?
This week Jay Dort has been playing games in an effort to embrace his inner techno-optimist. It hasn’t gone well.
A new King Kong game just released and it’s getting shredded worse than an instagram influencer’s two week body transformation diet pill scam. The graphics are just…weird, and looking at it from an outside perspective you might wonder how it could’ve gotten the green light. The video game industry has been erratic over the last couple years, people are no longer convinced by hype and trailers, customers feel like your dad’s pancakes: they’ve come out burnt too many times.
Streaming services, movie theaters, news sites, and X have all been raising their prices. Media is expensive to produce and costly to maintain, but there’s an outlier that’s been growing since the 70s. Video games have got to be one of the best value-per-hour medias around if you think about it.
New Triple-A games (those produced by larger studios with high production budgets) sell for a very standard $79.99 in Canada and $69.99 in the US. This is essentially a flat-rate and doesn’t change depending on how much the game cost to make, or how many hours of play-time it can provide. The shortest triple-A games out there take around 25 hours to complete and the longest can easily rack up 100+ hours. That means that if we’re thinking about things from a dollar-per-hour of entertainment point of view, games cost somewhere from $3 to $0.80/hr, and that’s got to be one of the cheapest hobbies around. Sure, consoles are expensive, but even the PS5 –which goes for $600-$900 depending on the model– doesn’t have high margins. Historically, many companies sold consoles at a loss and used the razors and blades method to bring in the bucks, Sony, Xbox, and Nintendo make the majority of the revenues by selling games, not hardware.
According to Video Game Analyst (cool job title) Sam Naji “between 1977 and 2020 the average relative price of games declined by almost 2% every year,” meaning that when you adjust for inflation the Super Nintendo game you bought in the 90s would've cost the equivalent of ~$140 in today’s money. So why are games relatively so inexpensive these days? Probably because the industry itself is rolling in cash. In case you missed it, gaming earns more revenue than movies and music combined these days. The gaming industry is projected to reach $334 billion USD in revenues this year, while cinema is projected at just $46 billion. The average triple-A game costs between $50-$300 million to make, while the budget for a big movie is ~$100 million, but profit margins in gaming are staggering –usually sitting somewhere between 40-90%.
So, even if you don’t want to sink hours of your life into role-playing a giant ape who crushes crabs harder than a middle-aged dude on an Alaskan cruise, you can still respect the hustle. Dollars-to-donuts –or maybe cheetos– the gaming industry is putting other media to shame.