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Ars Technica’s 2021 Deathwatch—2020 was just the beginning

Ars Technica’s 2021 Deathwatch—2020 was just the beginning
Aurich Lawson

Here at Ars Technica, we would like to formally congratulate you for surviving the year that was 2020. COVID-19 may have changed everything about normal life in the last 12 months, but things are looking up for 2021. A vaccine is currently rolling out, a more science-friendly US administration will take office in January, and maybe we can even look forward to a return to normal public gatherings sometime this year. We’re going to be fine. [Editor’s note: We’re trying to be optimistic here.]

Unfortunately, you probably can’t say the same for some of the companies we write about as we head into 2021. The pandemic year has taken a toll on the tech industry, too, delaying some things we thought were happening in 2020 (like a conclusion to Oracle v. Google) and accelerating other changes we all saw coming (like record streaming numbers). So to walk you through the companies staring down a rough new year, welcome back to the annual Ars Technica Deathwatch, 2021 edition.

If you haven’t previously visited the Deathwatch during Ars Editor Emeritus Sean Gallagher’s tenure, please know: As usual, we’re being a bit dramatic with the name “Deathwatch.” This list is not predicting that the following companies will drop dead precisely within the next calendar year. Bankruptcy laws, acquisitions, and other accounting shenanigans make exact corporate death dates either very unpredictable or agonizingly slow, but we can at least make some educated guesses about the companies, products, and services that are facing down a terrible 2021.

We all helped to make online streaming services a big winner going into 2021, but since this is the Deathwatch, we’re here to talk about the losers. That means our assembled panel of experts will start by lighting a dumpster fire in honor of “the entire movie theater industry,” which is certainly doomed. (Everyone watched Wonder Woman 1984 already, right?) Take it away, Ars Policy Guru, Kate Cox!

-Ron Amadeo

All movie theater companies

The Times Square Regal Cinema begs to be allowed open in October, 2020, but what movies would it even play?
Enlarge / The Times Square Regal Cinema begs to be allowed open in October, 2020, but what movies would it even play?
Roy Rochlin/Getty Images

This one pains me to write, because I love going to movies. I love art houses, I love second-run theaters, I love big stupid splashy IMAX screens, I love all of it. (The best part about getting my film studies master’s was that I had free or heavily discounted passes to half the movie theaters in Boston for the program’s full two years’ duration. I went to see something at least twice a week.)

And so I am deeply saddened to have to write that cinema distribution is completely screwed, but here we are.

US box office receipts came in around $ 11.4 billion in 2019, but movie theater attendance—the butts-in-seats metric—has been dropping for more than a decade. Theater admissions peaked in 2002 at 1.6 billion before entering a period of precipitous decline, crashing to 1.24 billion in 2017—the lowest since 1992. Attendance crawled back up slightly in 2018, to about 1.3 billion, but dropped again in 2019, back to 1.24 billion.

That was before the pandemic, which closed movie theaters altogether for months on end. Although many locations are now open at roughly half capacity, AMC, the largest US cinema chain, reported 10 percent attendance in its third-quarter results. (Read that again—not a 10 percent drop in attendance; 10 percent of possible butts in seats.)

AMC’s revenue has declined by more than 90 percent in 2020, and it shows no signs of bouncing back anytime soon. The company only remains afloat at all thanks to a debt restructuring in July. At the time AMC reported its third-quarter results, it also unveiled a plan to raise some cash by selling more shares, but the company warned it was quite possibly looking at a Chapter 11 bankruptcy filing. It hasn’t gone bankrupt yet, but by mid-December financial analysts had hit the “maybe bankruptcy is great, actually” stage of analysis. Such a fate seems to be more, rather than less, likely with each passing day.

The second-largest US theater chain, Regal, is equally hosed. Its parent company, Cineworld, also restructured its debt in November in a bid to avoid bankruptcy—but things are not going well. At least one Regal location is being sued over $ 1.3 million in unpaid rent dating back to April.

Making matters even worse, the content pipeline for theoretically relaunching the exhibition business in 2021 is also completely toast. Warner Brothers is planning to release all its 2021 films on HBO Max, for home viewing, simultaneously with the theatrical release. Disney (which now also owns Fox) is likewise pushing back several films or releasing them on Disney+ instead of in theaters. And film and TV production worldwide slowed or stopped in 2020 due to the pandemic, making it harder to kick content out the door in 2021 and ’22.

All told, theaters are going to need a major restructuring and cash infusion to get through 2021… and thanks to a Justice Department ruling from earlier this year, the rule that prevented a studio from buying up a major theater chain is gone. On top of everything else, that opens up the possibility that your local cinema could go whole hog and become a true Disneyplex before you know it.

-Kate Cox

Believe it or not, Zoom

OK, Zoom isn’t actually going to die in 2021, or for quite a long time after. But as a business, it’s probably going to face some challenges.

Everyone started using Zoom in 2020, as the pandemic robbed us of our ability to have meetings and events in person. The platform might not have been quite ready for prime time yet when the pandemic kicked into high gear, but Zoom corrected course fairly quickly with some privacy and functionality issues. It has become the go-to for basically everything.

Work became Zoom. School became Zoom. Happy hour became Zoom. Zoom was so successful this year that the company name became straight-up genericized almost immediately. My older kid attends “Zoom school,” even though our district actually uses Microsoft Teams for remote learning. The other Girl Scout troop leaders and I have “Zoom meetings,” even when we’re using Amazon Chime.

That means Zoom shareholders had a good year: the company’s stock value has quadrupled for each of the past two quarters. It has had absolutely stratospheric, unbeatable growth—growth that cannot, and will not, continue into the next year.

Zoom's stock. This kind of growth is totally sustainable, right?
Zoom’s stock. This kind of growth is totally sustainable, right?

You’ve probably heard that there’s a COVID-19 vaccine out, now, with another one on the near horizon. As terrible as this pandemic has been (and it’s been very, very bad) and continues to be, we can at least see the faint glimmer of something like “normal life” on the far horizon. Remote work may be more widespread going forward, but plenty of folks will be back in the office 12 months from now. Birthday parties, happy hours, weddings, funerals, and holiday celebrations will absolutely be going back offline as soon as it’s safe to do so.

The market, in its current state, is optimized for quarterly growth. Zoom’s not going to have that next year. Already, its stock value drops when there’s good news about vaccines. But its platform, now popular and widespread, will still be a valuable asset. That combination makes it a perfect target for acquisition.

Enterprise firms have tried before: Microsoft reportedly tried repeatedly to acquire Zoom ahead of its 2019 IPO, but Redmond was rebuffed. Microsoft has since developed its own Teams more in-house, and it seems less likely to make a play for Zoom now. Google and Amazon, too, both have in-house video chat platforms up and running that compete with Zoom, and those companies may not want the extra antitrust scrutiny.

If I were a betting person, I’d put a few bucks on Salesforce making the play next year, if it has the cash on hand to do so. Zoom would fit in nicely in a new cloud-based enterprise suite, tucked in on the shelf right next to Slack.

-Kate Cox

Nikola is rolling downhill

A 2018 Nikola video showed the Nikola One prototype rolling down a shallow hill in Utah. Nikola now says it never claimed the truck was driving under its own power.
Enlarge / A 2018 Nikola video showed the Nikola One prototype rolling down a shallow hill in Utah. Nikola now says it never claimed the truck was driving under its own power.

Everyone’s favorite aspiring hydrogen truckmaker has had a roller-coaster year. The company’s stock price soared when it went public in June. The stock price got another boost in September when Nikola announced a deal with GM to produce an electric pickup truck called the Badger.

But things have been all downhill from there.

A few days after the GM deal was announced, a short-selling firm revealed that Nikola had never gotten its first truck, the NIkola One, to drive under its own power. A promotional video of the Nikola One “in motion” actually showed the truck rolling down a shallow hill.

Shortly afterwards, Nikola founder Trevor Milton stepped down as the company’s executive chairman. Nikola’s deal with GM fell through and Nikola canceled the Badger. Nikola has reportedly struggled to find a partner to help it build a network of hydrogen fueling stations for its planned fleet of hydrogen-powered semi trucks.

We’re putting Nikola on this year’s deathwatch list, but we don’t expect the company to literally go out of business in 2021. Nikola has hundreds of millions of dollars in the bank and can probably stagger on for another couple of years. But bringing a new truck to market is an expensive proposition. With its reputation in tatters, it’s not clear if Nikola will be able to raise more cash when it needs it.

More fundamentally, it’s unclear whether Nikola has a viable strategy to build a profitable hydrogen truck business. Nikola may not be engaging in the kind of outright fraud it did in its early years, but it also hasn’t demonstrated any particular aptitude for designing or building hydrogen trucks. To a large extent, Nikola’s strategy has been to hire companies like Iveco and Bosch to design and build trucks on its behalf. But if someone wanted to invest in hydrogen truck technology, why wouldn’t they just invest in one of those companies?

-Timothy B. Lee

Electric car startups have SPAC madness

Is it just me or has the whole electric vehicle boom started to feel a bit fizzy? I’m not talking about Tesla; whatever you think of its share price, it’s profitable and can easily bankroll future operations now. I’m not too worried about Rivian or Lucid, either—both of which are bringing their production cars to market next year, having brought in billion-dollar investments from the likes of Amazon and Saudi Arabia.

The credible performances of the three companies above—particularly Tesla’s stratospheric stock—have combined with a growing realization that internal combustion engine bans really are going to happen. And the result is a market that appears ready to throw money at anything that’s got four wheels and a lithium-ion battery pack. Startups that a year or two ago were struggling to keep the lights on have merged with shell corporations called special purpose acquisition companies (SPACs), giving them a quick and easy way to the stock market without any of the hassle that comes with an IPO.

Obviously, there’s Nikola, but my colleague Tim Lee has already delved into that one. But Nikola was far from the only EV startup to take the SPAC route to billions of dollars. Fisker is going for a second bite at the cherry with an electric crossover called the Ocean. I’ve not been particularly optimistic about Fisker’s chances, but then in October it merged with a SPAC. At the time of writing, the company is now valued at $ 4.5 billion on the New York Stock Exchange, and it’s just announced a deal with Magna to contract-build its vehicle.

The EV SPAC boom wasn’t here in time to save Workhorse, which planned to build a carbon fiber plug-in hybrid work truck called the W-15. But Workhorse’s former CEO took some of that tech, and the company order book, to form Lordstown Motors. Earlier this summer, the automotive media was treated to an hour-long Mike Pence rally masquerading as a new vehicle reveal. Today, Lordstown is valued at $ 3.1 billion on the NASDAQ exchange after merging with a SPAC in October.

More are on the way, too. Canoo, Arrival, and the Lion Electric Company are each in the process of merging with SPACs with valuations of between $ 1.3 and $ 5.4 billion. The thing is: if these companies were all so obviously worth that much, why not just IPO?

-Jonathan M. Gitlin

Hard realities for HTC’s Vive division

HTC has come up so often in this annual series that I’m using this opportunity to induct them into the Ars Deathwatch Hall of Fame. The device manufacturer has done little to disabuse us of that notion, lumbering on as a tech-errata skeleton of, uh, 5G hub devices and blockchain phones. (In order for those two words to appear at arstechnica.com, I had to initially type them with fake characters, lest our industrial-strength spam filter wipe them instantly.)

This year, I’m singling out an HTC division that was broken out into its own subsidiary in 2016: the VR- and AR-focused HTC Vive.

When consumer-grade VR first arrived, HTC Vive was the product line to beat, thanks largely to its alliance with Valve’s gamer-minded R&D skunkworks lab. It had its share of first-generation foibles, sure, but it was the most convincing way to enter VR “presence” for a couple of years. No longer.

Over the past year, the category has matured well beyond HTC’s reach. Valve has clearly moved on by building a supply chain for its own system, the $ 999 Valve Index, and that hardware continues to land in Steam’s top-10 monthly revenue charts. Windows Mixed Reality systems from Samsung and HP make more sense as affordable, enterprise-grade purchases, particularly HP’s recent, high-res, solid-quality Reverb G2 system. And on the cheaper side of things, there’s truly nobody in spitting distance of Facebook’s $ 299 Oculus Quest 2, which is making sales in-roads in emerging VR markets (aka, the ones HTC has focused on since faltering in the USA years ago).

While I have serious reservations about Quest 2, there’s no getting around how much better it is than HTC’s comparable Cosmos headset line, which costs more, performs worse, requires a connected PC, and uses an abysmal controller-sensing camera system. (This, by the way, makes its handheld controllers so heavy that no reasonable person would want to play hand-waving VR hits like Beat Saber with them for more than a couple of minutes).

HTC also placed a bet on making the base Cosmos headset “expandable” with proprietary covers, which could transform what kind of tracking system the headset might use. The whole thing works like Motorola Mods—there’s your red flag—but that might have been forgivable if Cosmos started super-cheap and added pricier perks to those covers. We didn’t get that from a base $ 699 price at launch.

HTC’s Vive division could certainly point at the pandemic as a momentum-stopper for its efforts, but that doesn’t explain the division’s absolute radio silence about the Vive Proton augmented reality system since its February 2020 announcement. As of right now, that thing is pure vaporware. Cosmos is clear proof that HTC isn’t leading the VR industry on an engineering basis. Why should we expect any different from its AR efforts?

Of course, as a Deathwatch Hall of Fame member, it’s just as likely that HTC Vive continues bleeding cash through 2021 while, once again, being propped up on hopes, dreams, and fairy dust. But the VR space has enough competent hardware options (including HP’s solid, high-resolution, $ 599 Reverb G2 system) and software ecosystems (SteamVR, Oculus Store, Windows Mixed Reality) for anyone on either the consumer or enterprise side to pick an HTC Vive product out of anything other than a Calgon catalog.

-Sam Machkovech

Huawei’s international hopes

As the Chinese government’s favorite tech company, we’ll probably never see Huawei completely go away, but if the US’s export ban on Huawei continues, the company’s international ambitions outside of China seem pretty doomed. The Trump Administration started blocking exports to Huawei all the way back in May 2019, and in 2020 tighter restrictions kicked in with the goal of crippling the company.  Ever since, Huawei has been doing its best to delay the effects of the ban. In 2020, we saw the company take a tumble, but in 2021, we should start to see Huawei really hit rock bottom in the international market.

The export ban means it can’t use US-origin parts or IP, and additional rules and clarifications since the initial ban have closed loopholes and made life even harder for Huawei. Today, to sell something to the company, it’s not just about being a US company or not—to sell to Huawei, your entire supply chain needs to be clear of US technology, which basically rules out everyone other than entirely-insular Chinese companies. Huawei can’t build ARM chips, it can’t buy RAM or NAND chips, it can’t manufacture its own chips at TSMC, it’s locked out of most of the OLED market, and it can’t buy camera sensors from Sony or Samsung. The software side of things also isn’t looking great. Huawei can’t get new versions of Android, use Google’s apps, or house any apps that have been made in the US in its own app store. Pardon the expression, but Huawei is pretty boned.

These are rookie numbers. There are 3 million apps on Google Play, and 2 million on the App Store.
Enlarge / These are rookie numbers. There are 3 million apps on Google Play, and 2 million on the App Store.

Huawei—and every other Android OEM that does business in China—lives in two worlds. Internationally, Google apps like Gmail, Google Maps, YouTube, the Google Assistant, and Chrome are pretty much mandatory to build a competitive smartphone, and the Play Store and Google Play Services are necessary to tap into Android’s huge app ecosystem. Google doesn’t do business in China, so none of this applies there. Instead, OEMs in China make due with their own app stores. In China, Huawei has more wiggle room to scrounge for spare pieces of hardware to build phones with, since its software package will remain intact. Internationally, we saw the effects of the ban much quicker, since it meant Huawei couldn’t use the Google Play ecosystem.

Huawei’s strategy has been to delay the effects of the export ban as much as possible. New phones from the company now ship without the Google apps, but the company figured out it can repackage last year’s phones, and since the agreements are still in place, they can still ship with Google apps. It also saw the ban coming for a long time and has delayed things a bit by stockpiling various components. We actually hit Peak Huawei in Q2 2020, when Huawei became the No. 1 smartphone manufacturer in the world, according to Canalys. An eye-popping 72 percent of those market-dominating sales numbers came from China. In Q1 2019, Canalys had Huawei at an even 51/49 percent split between China and the rest of the world. As Huawei’s international sales are demolished, Chinese consumers are backing up the home team.

Believe it or not, the ban has only really caught up to Huawei in Q3 2020, when Canalys says Huawei  “saw its volume decline year-on-year in China for the first time since Q1 2014.”

As for the future, China’s manufacturing industry has been working for a while to reduce its reliance on US technology, so Huawei’s betting things will get better. As for software, Huawei is kicking off a crazy, long-shot plan to build its own operating system, hoping to succeed where TizenWindows PhoneBlackberry 10, Web OSSailfish OSUbuntu TouchPlasma Mobile, and Firefox OS have failed. Surely this time, a third mobile OS will work.

The one factor that could offer Huawei a reprieve is that the export ban was the Trump Administration’s idea, and the incoming Biden Administration will be taking over for 2021. Biden hasn’t clearly articulated a plan for Huawei, but most political analysts say Biden is “likely to remain tough” on China. Whether “remain tough” means the all-out export ban will continue is unclear.

-Ron Amadeo

Oracle v. software interoperability

Signage stands at the Oracle Corp. headquarters campus in Redwood City, California, on March 14, 2016.
Enlarge / Signage stands at the Oracle Corp. headquarters campus in Redwood City, California, on March 14, 2016.

In October, Google had a disastrous appearance before the Supreme Court in its high-stakes legal battle with Oracle. The justices’ questions suggested that most of them didn’t understand Google’s case and found Oracle’s arguments more compelling. A Google loss would not only force Google to write a 10-figure check to Oracle. It would also likely create chaos in the broader software industry.

Oracle filed its lawsuit in 2010, arguing that Google had violated copyright law by re-implementing the Java language for use on its new Android mobile platform. In 2014, an appeals court surprised the software industry by ruling that Google infringed Oracle’s Java copyrights by copying Java’s function names and class hierarchy. A subsequent ruling in 2018 rejected Google’s argument that this copying was permitted under fair use.

Most previous rulings had reached the opposite conclusion—that software interfaces were not protected by copyright. That meant software companies didn’t have to ask competitors for permission before making compatible software. This was good for consumers because it made it harder for incumbent software vendors to lock in their users. It also helped IT professionals take their skills and knowledge—like expertise with the Java programming language—from one job to the next

If the Supreme Court rules against Google, it could create legal headaches any time one company implements another’s software interfaces. It could lead to a dystopian future where companies are forced to create software that’s deliberately incompatible with existing industry standards to avoid copyright lawsuits.

The Supreme Court was supposed to decide the case in 2020, but the pandemic delayed oral arguments from March to October. Now that the justices have heard the case, a decision is likely just a few months away.

-Timothy B. Lee

GameStop is barely hanging on

No need to use hand sanitizer after handling a download
Enlarge / No need to use hand sanitizer after handling a download
Aurich Lawson / Getty

GameStop could have easily earned a spot on 2020’s Deathwatch list. A year ago around this time, we were writing about massive sales declines and planned shutdowns for hundreds of storefronts. While GameStop blamed the usual end-of-console-cycle doldrums for these bad times, the likelier culprit was the gaming market’s continued transition away from boxed, physical games and towards downloadable games, streaming gaming services, and Netflix-style gaming subscriptions. With the idea of leaving the house to buy a game on a disc looking increasingly antiquated, GameStop has long looked a bit like Tower Records at the dawn of the iPod era.

Then 2020 came, with a global pandemic that forced the closure of most GameStop storefronts across the US and Europe (though that actually might not have been as bad for the retailer as you might expect). Then came confirmation that both Sony and Microsoft would offer cheaper next-generation console options without a disc drive at all, meaning a significant chunk of console gamers won’t be buying the new or used game discs that GameStop relies on for the bulk of its revenue.

These days, though, holiday season sales of new consoles have seemingly boosted GameStop’s revenues (and its stock price), at least temporarily. The company continues to envision an ambitious turnaround plan that would make its stores into “a social and cultural hub of gaming” in addition to a place to buy Funko Pops. GameStop has also apparently signed a deal to share in the “downstream” digital revenues for every Xbox Series S/X console it sells, though the bottom-line impact of that move is up for serious debate.

That, combined with the remaining slice of the market that doesn’t have the means or desire to download or stream games directly, should let GameStop coast on its own momentum for a little while longer. But just as Tower Records couldn’t survive in a world where most people weren’t buying CDs anymore, GameStop seems unlikely to last much longer as buying games on physical media quickly becomes a niche market. And as much as people like to complain about GameStop, you might actually miss it when it’s gone.

-Kyle Orland

DirecTV is plummeting

Poor piggy.
Enlarge / Poor piggy.

DirecTV appeared in our previous Deathwatch, and 2020 was not kind to the AT&T-owned satellite provider. DirecTV has been in freefall for years, with AT&T losing nearly 8 million customers across DirecTV and its other premium TV services since early 2017. The heavy customer losses continued throughout 2020 and don’t seem likely to slow down in 2021.

AT&T is just about ready to give up on DirecTV despite spending $ 49 billion to purchase the company in 2015. AT&T has been seeking a buyer for the troubled satellite division the past few months, and the company received bids from investment firms valuing DirecTV at about $ 15 billion, less than a third of what AT&T paid.

AT&T could retain a minority stake in DirecTV or even maintain majority ownership while a buyer assumes control of the pay-TV distribution operations, news reports on the deal talks have said. Either way, a sale that would change DirecTV’s ownership and operational structure could be announced early in 2021.

DirecTV likely would have lost many customers even if AT&T had never bought it, as streaming services have lured millions of customers away from traditional cable and satellite TV. But AT&T has driven many of its customers away by repeatedly raising prices and cutting down on the use of promotional deals. That pricing strategy won’t change soon, as AT&T has already announced another round of DirecTV and U-verse TV price increases for January. If DirecTV is sold in 2021, the new owner will have to wring value out of a declining brand and rapidly shrinking customer base.

-Jon Brodkin

That’s it for the 2021 Deathwatch. What other companies do you think are going to have a terrible time in 2021? Let us know in the comments.

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