Mclowd Community Newsletter June 2019

Welcome to the Mclowd Community Newsletter

The golden goose turned problem child, Rupert Murdoch’s Australian pay-TV operator Foxtel, is in the fight of its life in a world that has rapidly shifted from under its feet.
Foxtel caught in high-stakes act amid its newspaper moment, AFR May 27th

Introduction

I remember the days not so long ago when it seemed everyone had a Foxtel set-top box next to their TV, and most of them were paying $125 per month for the privilege.

Today Foxtel charges between $49 – $139 for its traditional broadcast service, but of course fewer and fewer consumers are actually paying those sort of prices because they are all watching Netflix or Stan, which charge $10 – $17 per month.

As a consequence Rupert and Andy Penn are now having to offer new streaming services (under the Foxtel Now and Kayo brands), but at a fraction of the price they were charging previously.

What is important to understand is that all of this deflation is happening even though the new market entrants do not actually provide an identical service – since (for now) Foxtel controls the key sports properties (AFL, etc).

The fact that control of this content is not preventing rampant deflation in its core product market is important, because it reflects a simple microeconomic reality:

It is not actual value that determines a consumer’s willingness to pay – it is perceived value.

What is happening is that the price points on offer from Netflix and Stan are having a devastating impact on the perceived value of Foxtel’s content (exclusive and otherwise).

Implications for the SMSF Sector

The success of the Mclowd Community is now having precisely the same impact, and for precisely the same reasons.

A growing body of active SMSF Professional users have realised that they simply don’t want to pay what the incumbents are charging.

Commenting on his experience with Mclowd, Practitioner George Fiorentino had this to say:

“The first thing that I appreciated about Mclowd was not having to purchase a licence for a specific number of Funds, regardless of whether that many were actually required.

This flexibility has allowed me to:

  • Steadily grow my confidence with the software
  • Engage with the Mclowd Team regarding ongoing improvements

From this foundation I am now engaging with the Marketplace, and have realised that this model:

  • Is not available through any of the incumbents
  • Offers even greater cost savings than in relation to the accounting software

I can now envision a future where I leverage crowdsourced resources via the Marketplace to craft a workflow for my funds which costs just a few hundred dollars per annum, including:

  • Technology licensing ($30 per annum)
  • Audit (available from $275)
  • Day-to-day admin resources (available from $20 per hour)

This is less than any of the volume-based models available through wholesale providers, and will allow me to focus my time on:

  • Higher value engagement
  • With a larger number of clients than would otherwise be the case

Based on my experience I have no doubt Mclowd will deliver structural change across the SMSF value chain, to the benefit of both Practitioners and Trustees.”

GST Upgrade

We have been conscious of the limitations of the original GST logic for some time, and the impact this has had on active users.

As a consequence the following improvements are now available in production:

  • Fund-level GST setting
  • Automatic GST calculations for income, expense, acquisition and disposal transactions

This release now makes Mclowd a more practical solution for funds:

  • Holding commercial property, or
  • Otherwise registered for GST

The next phase of this project will be to enable BAS reporting / lodgement.

Year End Simplification

By definition year end processing should be correlated to the complexity of a given fund, with a complex fund taking more time, but simpler funds being quick to finalise.

With financial year end fast approaching the Mclowd Team have been working on a central portal which will permit users to accept default values based on fund profile.

This short video highlights the functionality that will be released in early July, as well as the further improvements under development.

Conclusion

Foxtel has an eye-watering $2 billion in debt.

That Rupert’s bankers are getting nervous is illustrated by the fact that the company has been unable to refinance that debt load, and as a consequence Rupert has just pumped in $300 million of his own dosh to keep the whole House of Cards intact.

Unfortunately for the stakeholders involved, the Foxtel governance structure is just too capital-intensive to survive in its current form.

The weighted average cost of all those Billions – which forms part of marginal cost, and hence must be reflected in price – is now colliding with deflation.

As was always going to be the case, it is the deflation that is prevailing.

Similarly, incumbent SMSF software vendors have spent some $50 million building their products (and in one case have shareholders who have bought equity at valuations as high as $450 million).

The Mclowd Community by comparison has a balance sheet of just $1.5 million.

Try as I might I cannot reconcile that microeconomic reality with any future that does not include – like Foxtel – the wholesale destruction of that incumbent capital.

But only time will tell…

Regards

Ashley Porter

Managing Director
Mclowd Pty Ltd

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