Fast 3: Elon’s one step closer to putting a chip in your brain

Sascha: [00:00:02] From Equity Mates Media This is the day of the podcast that says who said business news needs to be all business? I'm your host, Sascha Kelly. Today it's another fast three as promised. What's on the agenda today? Well, Simon has an update about Elon Musk's microchips that were going to have inserted in our brains. Spoiler alert it's going ahead for those of us who discovered audio books in our Spotify feeds on Wednesday. Alec is here to tell us about how that is central to the current gripe between the audio giant and Apple. And a few days after Michelle Bullock's first RBA board meeting as governor. Bryce is going to tell us what's happening with the always talked about and much discussed interest rates. It's Friday, the 6th of October, and today I want to know what are the three stories making waves in the Equity Mates office this week? To kick it off today, I'm joined by Bryce Leske, co-founder and my colleague here at Equity Mates, Bryce. Welcome to the dive. 

Bryce: [00:01:04] Thank you, Sascha. Great to be here.

Sascha: [00:01:06] Excellent. Earlier in the week, the new RBA governor, she had her first RBA board meeting. What happened? 

Bryce: [00:01:13] Well, there was a sigh of relief from mortgage holders, I think, as interest rates were held at 4.1% for the fourth consecutive month. The board noted that economic uncertainty from previous rate rises is the main reason for their decision. 

Audio Clip: [00:01:28] So interest rates are on hold, the cash rate at 4.1%, but it really doesn't live up the pressure that Michelle Bullock and the board are going to have in the near term. 

Sascha: [00:01:37] So it's good news, as you said, for Australians with mortgages, but it does mean that there's warning signs that inflation is ticking up. 

Bryce: [00:01:46] Yes. Yeah. Now we know the RBA like to hold inflation at a rate of between 2 to 3% and so that is their target. However, inflation was higher last month than the month before, which got markets nervous, got the board nervous. Consumer Price Index for July 2023 was 4.9%, the CPI for August was 5.2%. Now the Reserve Bank believes that inflation has passed its peak. However, I'm sure that everyone has been noticing fuel prices have been going up an average of $0.15 higher than they were in September quarter of 2022. And also rent is a big contributor to that number there. So it is pretty painful for consumers at the moment with the price of many services continuing to rise. 

Sascha: [00:02:29] So, Bryce, what was the RBA board's commentary on Australia's inflation and the general state of our economy? 

Bryce: [00:02:36] So the central forecast is for inflation to continue to decline and to be back to within that 2 to 3% range that I spoke about in late 2025. So still it's still a fair way to go. Additionally, growth in the Australian economy was a little stronger than expected over the first half of the year, despite a period of below trend growth. And this is expected to continue for a little while as well. Wages growth has picked up a little over the past year, but people's real incomes are obviously impacted by inflation and Australians are bearing the brunt of what is being referred to as the mortgage cyclone, With more than one in three home owners now fitting the standard criteria for mortgage stress.

Sascha: [00:03:18] One in Three.

Bryce: [00:03:19] Yes. So some homeowners are now being forced to shovel half of their monthly income to cover mortgage costs after successive rate rises. 

Sascha: [00:03:28] Oh, okay. So as we said, fast meaning for Michelle Bullock, what next for the Reserve Bank under her governorship? 

Audio Clip: [00:03:37] Michelle Bullock has been announced as the Reserve Bank governor. She'll be the first woman to hold that role in the bank's 63 year history. Speaking to her old university about a year ago, Michelle said she was very keen to foster more female talent, particularly at the Reserve Bank. 

Bryce: [00:03:54] Well, Sascha, the priority remains the same. They want to return inflation to that target within a reasonable timeframe. So 2 to 3%, inflation within. Well, they've said here by the end of 20 and 25, the board acknowledges the negative long term effects of inflation paying, eroding the value of people's savings and it hurts people's plans to invest budgets and also inequality. But they mentioned that to date, medium term inflation expectations have been consistent with that inflation target. They want more time to assess the effect of the previous rate rises. We know that rates generally take about 12 months to fully kick in and we've seen 12 rises in the last 13 months. So it's really now that we can expect to see the effect of that. But some people in the market are also expecting more rate rises to come. So we're seeing similar commentary coming out of the US, which is higher rates for longer and similar over in the EU as well. 

Sascha: [00:04:48] And as you said, higher interest rates hurt people's plans to invest and the fear of more interest rate rises to come has seen share markets fall around the world in the past month. Australia, the ASX. 400 is down 5% in the past month. The USA, which we look at, the S&P 500 is down 6%. And in europe, the stoxx 600 is down 4% in the past month. So inflation and interest rates continue to be the most important macroeconomic story for investors, for consumers and for home earnings. This is definitely a story we're going to talk about again. 

Bryce: [00:05:23] Absolutely. 

Sascha: [00:05:26] Right. Next up in the hot seat, it's Simon. We've spoken about Neuralink on the podcast before. I'm going to link that episode in the show notes below. But in case you missed it, this is Elon Musk's brain chip company. He successfully implanted a microchip into the skull of a pig and then into a monkey. Now he's finally got approval for humans. 

Audio Clip: [00:05:53] Elon Musk's brain implant company, Neuralink, said on Thursday it had been given a green light from the US FDA to kickstart its first in human clinical study. We're confident that it is possible to restore full body functionality. Musk has said that medical device company would begin human trials for brain implants to treat severe conditions such as paralysis and blindness.

Sascha: [00:06:16] Simon, this is a sci-fi movie come true. Tell me what's going on.

Simon: [00:06:20] Yes, some big news session Neuralink have announced it has received approval from an independent review board to begin recruitment for the first human trial of its brain implant for paralysis. Patients Loads of paralysis due to cervical spinal cord injury or amyotrophic lateral sclerosis may qualify for the six year study, it said. It's not really known how many patients the US Food and Drug Administration or the FDA would approve. Reports are that Neuralink had hoped to receive approval to implant its devices in around ten patients, but are currently negotiating a lower number of patients because the FDA did raise some safety concerns. But the big news is they have begun recruitment for the first human trial.

Sascha: [00:07:05] Oh, my gosh. And remind me, Simon, when did we decide that putting microchips in our brain was a good idea? 

Simon: [00:07:15] Good question, Sascha. Walter Isaacson, he's recently released a new book about Neuralink's founder, Elon Musk. It is that Isaacson reported that Musk was inspired by science fiction authors such as Iain Banks to pursue a human machine interface technology, which was called neural lace. This is implanted into people and can connect all of their thoughts into a computer. So that was the kind of where he's inspired the vision. But the more immediate goal is to actually help quadriplegics so those who cannot move their arms or legs to be able to communicate again and engage with technology. And this seems like it could really improve people's quality of life. You can start to try and imagine how much better quality of life could be if you could use a computer and engage with technology as a quadriplegic, for example, maybe sending messages to loved ones or ordering your food online or selecting content to read, listen or watch, or maybe even the future controlling an electric wheelchair or even your personal care robot, although maybe I'm going too far in the future there, but you can start to see some of the possibilities and how you actually could really improve your quality of life. 

Sascha: [00:08:26] Yes, Simon, at first it sounds like a science experiment or, you know, something out of a sci-fi novel. And then once you start to think about the practical implications, there are some really amazing use cases that you can imagine being utilised for. So how exactly would it be done? 

Simon: [00:08:44] Yeah, so Neuralink said the study, which is a robot to surgically place a brain computer interface or BCI implant into a region of the brain that controls the intention to move, adding that its initial goal is to enable people to control a computer, cursor or keyboard using their thoughts alone. 

Sascha: [00:09:04] But let me guess, Simon, because it's Elon Musk, I imagine he has plans that are far beyond just paraplegics. What else is in his vision? 

Simon: [00:09:15] Yes, you're not wrong. Musk has grand ambitions for Neuralink, saying its chip devices could eventually treat conditions like obesity, autism, depression and schizophrenia. Ultimately, though, we imagine Musk also sees an opportunity to go beyond health applications. Our brains are a supercomputer. Our phones and computers are supercomputers. The biggest point of friction is actually our bodies and the current bandwidth. We have to interact with our devices. So you think how slow typing is what actually gets us thinking? Imagine if you just browse the internet at the speed of your thoughts. Scary. But why? What could happen? And this is ultimately the world that many of these brain computer interface idealists believe is possible. [00:10:01][45.9]

Sascha: [00:10:02] Call me old school, Simon, but I quite like my bloody footing of bandwidth on the speed of my brain. I'm quite comfortable living in my face at the moment. And it's kind of good news for me because that world isn't coming anytime soon, is it? 

Simon: [00:10:18] You've got a bit of time to prepare, Sascha. Probably not going to be very soon. So even though the BCI device, if it does prove to. Be safe for human use. It would still potentially take more than a decade, possibly for Neuralink to secure commercial use clearance for it, according to experts close to the situation. So still got plenty of time, but I'm sure they're going to be speaking about this story plenty more and start getting prepared. Sascha.

Sascha: [00:10:44] Okay, I'll get into training to speed up my processes. Simon, thanks so much. We've already done an episode on this. I'm sure we'll be revisiting this in the future. 

Simon: [00:10:52] Thank you.

Sascha: [00:10:53] We're going to take a quick break, and then when I come back, I'm going to be talking to my colleague Alec about how audiobooks are at the centre of a stoush between Apple and Spotify. Welcome back to the dive. I'm joined by my colleague, Alec. And Alec, you've got a story for us about Spotify and Apple and audiobooks of all things.

Alec: [00:11:18] That's right, Sascha. I would say 90% of our listeners right now are listening on either Spotify or Apple and these two audio and tech giants, they've been butting heads for a while, but that fight has now spilled into a very public arena. 

Sascha: [00:11:36] Because audio books have become a $5 billion industry over the well. However long I've been on, I don't know how long it is. 

Alec: [00:11:44] First audio book was created by, I think, Thomas Edison or like his company back in like the early 1900s. Really? Yeah, I've read that somewhere. Fact checked me because that's just going from memory. But yeah, they've been around for a while. 

Sascha: [00:11:57] Okay, well, we'll fact check by the end of the episode, but let's kick in to what's going on today.

Alec: [00:12:02] Yeah. So audiobooks just crossed the $5 billion mark globally. The revenue from audiobooks last year was $5.3 billion. So it is a massive part of the publishing industry. For context, the book publishing industry as a whole brought in 99.9 billion USD in 2022, so about 5% of the industry is audiobooks. By 2030, the book publishing industry is expected to be 108.8 billion, but audiobooks are expected to bring in 35 billion by 2030. So right now about 5% of the industry by 2030, more than 30% of the industry. So it's a big industry and it's a growing industry. That's really the starting point for this conversation. If we think about audiobooks today, there's one company that dominates Audible. Yeah, which is owned by Amazon. For people unfamiliar with Audible, it's a monthly subscription product. Apple and Google are both players in the market as well. They sell audio books as one off rather than Audible subscription model. Right now, Audible has 65% market share. So as we said, it's a dominant player, but there is another audio subscription giant that is looking to get into the audio book space. Spotify. 

Audio Clip: [00:13:26] Today is a big step in the evolution of Spotify starting today in UK and Australia. As a Spotify premium member, you will get access to listen to 15 hours of audiobooks listening from a library of more than 150,000 titles from all the major publishers. 

Alec: [00:13:46] And that's where this story really kicks off, because Spotify launched its audiobooks business in 2022, but has clashed with Apple in particular over Apple's insistence of taking a 30% cut of any audiobooks Spotify was selling. 

Sascha: [00:14:01] Yeah, we're going to get into that in a second. But for Spotify users in the UK and Australia and you might be one, you would have opened your app on Wednesday and noticed their recent update on audiobooks. You get 15 hours free if you're a premium subscriber and they have a dedicated spot at the top of the app now for audiobooks. But while Spotify build out these audio features, they also decided to go public with this graph you're talking about, Alec, the 30% fee for in-app purchases.

Alec: [00:14:30] Yeah, that's right. So last year, Spotify publicly accused Apple of, quote, choking competition with its App Store rules for audiobook purchasing. And it's worth noting as we set up this conversation that Apple is both Spotify biggest competitor, Apple Music and Spotify, the two biggest audio streaming apps. But then it is also the platform on which Spotify exists for, you know, every iPhone user. So it's both a partner in one sense and a massive competitor. And that's an dynamic that's really colouring this whole interaction. Because when Spotify launched its audiobooks feature last year, users couldn't buy titles directly on the app. They would hit a button that would then email them a link to purchase the book on the website. Once you then purchased the book on the website, then the book would be available in the app. 

Sascha: [00:15:27] Lots of friction.

Alec: [00:15:28] Lots of friction. And the reason for all that friction is if you bought it directly in the app on an iPhone, Apple would take a 30% cut. 

Sascha: [00:15:36] That's why a lot of subscription services make you update stuff on a web browser. 

Alec: [00:15:41] Exactly. And for Spotify, who is competing with Apple? They don't want Apple to take 30% of their sales. But Apple wasn't even about this. Hit a button, get an email, buy it off, and then it will appear in your app. Workaround Apple forced Spotify to get rid of that feature and they stopped allowing Spotify updates to flow through the app store until they removed that feature. That's the power that. As Apple said, all digital purchases, including audiobooks, need to run through its payment system, and Apple needs to take a 30% cut so Spotify could pay the fee. They could raise prices to cover the fee, but they couldn't do this work around of Apple's payment system. And that was really the context for this fight.

Sascha: [00:16:30] Yeah. So there's been lots of writing about this particular issue for years, but this is kind of the first time that one of the big players was like, This is a problem. We're going to call it out publicly. 

Alec: [00:16:41] Yeah, Spotify launched a website. Time to play fair dot com and you can go to that website and you can read all of Spotify's gripes with Apple. But it's really developed into something which may threaten Apple's App Store dominance. A number of other companies have sort of spoken up behind Spotify. They've used Spotify as cover to launch their own gripes and lawmakers are listening. So in the European Union, Spotify is a European company worth noting and has also been the hardest against the American tech giants. The EU passed the Digital Markets Act became law late last year and it makes it mandatory for Apple and Google with the Google Play Store, although they're looser at the moment. It makes it mandatory for these operating system providers to allow sideloading in apps in Europe. That's meant to begin in March 2024, so a few months to go. Japan is also looking at similar laws for sideloading. And basically what Sideloading is, is downloading an app not from the official app store, you know, being able to go on to a web browser and download an app and having it appear on your phone rather than going through the Apple App store. That isn't payments per se, but these are all steps in loosening Apple's and Google's dominance over phone operating systems. 

Sascha: [00:18:05] Yeah. 

Alec: [00:18:06] But Sascha, the important thing to note is that Apple aren't going to give their dominance away easily. And there's a case study that we can look at dating apps in the Netherlands in 2022. The Dutch government basically said Apple had to allow third party payments. So, you know, not every payment had to be processed by Apple with the 30% cut. And Apple said fine will allow third party payments, but we'll take a 27% commission on any third party payment processed on our operating system. 

Sascha: [00:18:35] When you think about the fact that credit card payments are like 3%, usually that's a massive, massive. Now, while Apple and Spotify a publicly fighting one to close it, two thoughts. One haven't been able to fact check here it's come up with some other stuff about Dylan Thomas and that's a whole Robert Lauren for another day. So if you know why the first audio book was get in touch with us contact that equity rates dot com. And also I need to remind everyone there's another way to get audiobooks and it's often for free. 

Alec: [00:19:04] Well, Sascha, Thomas Edison invented the phonograph in 1877. Okay. He tested the new device by having it recite the nursery rhyme. Mary had a little lamb.

Audio Clip: [00:19:15] First words. I spoke in the original phonograph. A little piece of writing poetry. Mary had a little lamb spring for quite a snow. And everyone had this Mary when the man was pure gold.

Alec: [00:19:30] He wrote in the North American Review Literary Journal that the advantages of such books, audio books over those printed, are too readily S.A. mentioned. So Thomas Edison dreamed of audiobooks. 

Sascha: [00:19:43] Oh, there you go. And where can we get no audiobooks for free? 

Alec: [00:19:49] Check your local library. A lot of libraries. Now. Let you check out audiobooks for free. If you're a member, there's also an app. Libby, L-I-B-B-Y, which I haven't used, but apparently a lot of libraries use that app. So if you don't want to try and figure out how to buy audiobooks on Spotify these days and you don't want to buy them from Apple because they're dominating this market and you don't want to sign up to Audible because it's just Amazon. Check your local library.

Sascha: [00:20:15] Excellent. Well, we love finishing the week with a tip. A reminder, if you want to find out a way to support the dive, then just jump in your podcast player right now. Give us a five star review and write some lovely words. We love reading them. Alec, thanks for joining me today and closing out the week. 

Alec: [00:20:32] Thanks, Sascha. 

Sascha: [00:20:32] I'll be back in your feeds on Monday. Until next time.