1 00:00:00,840 --> 00:00:04,000 Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside 2 00:00:04,040 --> 00:00:05,240 Speaker 1: my co host Matt Miller. 3 00:00:05,640 --> 00:00:09,600 Speaker 2: Every business day we bring you interviews from CEOs, market pros, 4 00:00:09,720 --> 00:00:13,640 Speaker 2: and Bloomberg experts, along with essential market moving news. 5 00:00:14,160 --> 00:00:17,279 Speaker 1: Find the Bloomberg Markets podcast called Apple Podcasts or wherever 6 00:00:17,360 --> 00:00:20,480 Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast. 7 00:00:21,200 --> 00:00:23,760 Speaker 1: We've had some earnings from the media space. Last night, 8 00:00:23,840 --> 00:00:28,400 Speaker 1: Netflix reported some numbers. The stock is down here today, 9 00:00:28,960 --> 00:00:30,360 Speaker 1: let's break it out and see what's going on in 10 00:00:30,400 --> 00:00:32,160 Speaker 1: the world of media. We do that with the Keitha Raganath, 11 00:00:32,200 --> 00:00:34,560 Speaker 1: and she is the senior Media analyst for Bloomberg Intelligence, 12 00:00:35,520 --> 00:00:38,519 Speaker 1: calling in from Princeton, New Jersey office, which is the 13 00:00:38,680 --> 00:00:42,600 Speaker 1: HQ of Bloomberg Intelligence. So Githa talk to us about 14 00:00:42,720 --> 00:00:46,400 Speaker 1: Netflix here. This is the story. They kind of missed numbers. 15 00:00:46,400 --> 00:00:48,159 Speaker 1: But this is a story that it's not so much 16 00:00:48,159 --> 00:00:50,680 Speaker 1: about subscribers anymore. It's about making money. How are they 17 00:00:50,680 --> 00:00:52,240 Speaker 1: doing on that they. 18 00:00:52,080 --> 00:00:54,800 Speaker 3: Are making money and it shouldn't be about subscribers anymore. 19 00:00:54,800 --> 00:00:57,000 Speaker 3: I mean, this is why they've kind of gone away from, 20 00:00:57,280 --> 00:01:00,319 Speaker 3: you know, giving subscriber guidance in the market. It has 21 00:01:00,400 --> 00:01:03,080 Speaker 3: kind of said, you know, we don't really want you 22 00:01:03,200 --> 00:01:06,120 Speaker 3: companies to be chasing subscriber growth at all costs. We 23 00:01:06,240 --> 00:01:08,600 Speaker 3: really want you to focus on making money. And I 24 00:01:08,600 --> 00:01:11,520 Speaker 3: think on that front, Netflix kind of delivered. They really 25 00:01:11,560 --> 00:01:14,000 Speaker 3: delivered the goods when it came to margins, when it 26 00:01:14,040 --> 00:01:16,600 Speaker 3: came to operating profits, and especially when it came to 27 00:01:16,640 --> 00:01:19,360 Speaker 3: free cash flow. So I think this reaction this morning 28 00:01:19,360 --> 00:01:21,400 Speaker 3: in Netflix is stock. It's almost like the market is 29 00:01:21,440 --> 00:01:22,600 Speaker 3: a little bipolar here. 30 00:01:23,360 --> 00:01:27,440 Speaker 2: What is the story with password sharing? Is this something 31 00:01:27,440 --> 00:01:30,360 Speaker 2: that they're actually going to be able to conquer or 32 00:01:32,560 --> 00:01:35,280 Speaker 2: and is it going to be additive to revenue in 33 00:01:35,280 --> 00:01:36,000 Speaker 2: the next quarter. 34 00:01:36,840 --> 00:01:38,840 Speaker 3: It is going to be additive to revenue, and I 35 00:01:38,840 --> 00:01:42,520 Speaker 3: think potentially you know, subscribers as well over the long term. 36 00:01:42,560 --> 00:01:44,800 Speaker 3: But again, this is going to cause a lot of 37 00:01:44,840 --> 00:01:49,160 Speaker 3: short term volatility because remember when you're forcing you know, 38 00:01:49,200 --> 00:01:51,840 Speaker 3: subscribers to kind of pay up for that extra member, 39 00:01:51,880 --> 00:01:54,040 Speaker 3: for that extra account, there is going to be some 40 00:01:54,080 --> 00:01:56,200 Speaker 3: initial resistance. There is going to be some you know, 41 00:01:56,240 --> 00:01:58,560 Speaker 3: initial backlash. And they've already kind of tested this out 42 00:01:58,560 --> 00:02:01,560 Speaker 3: in a few markets. Was the first area that they 43 00:02:01,600 --> 00:02:03,720 Speaker 3: kind of implemented this, and they did it in Canada 44 00:02:04,080 --> 00:02:05,960 Speaker 3: and a few other markets where you know, they kind 45 00:02:05,960 --> 00:02:08,960 Speaker 3: of saw the same trajectory, right, So they are going 46 00:02:08,960 --> 00:02:10,400 Speaker 3: to roll it out in the US, which by far 47 00:02:10,480 --> 00:02:14,920 Speaker 3: is their biggest market. Out of thee hundred global households 48 00:02:14,919 --> 00:02:18,640 Speaker 3: who are not paying for Netflix subscription, about thirty percent 49 00:02:18,840 --> 00:02:20,920 Speaker 3: are in the US, so they need to do it. 50 00:02:20,919 --> 00:02:22,920 Speaker 3: It's also their most profitable market, so they need to 51 00:02:22,919 --> 00:02:26,040 Speaker 3: do it carefully. But again, they do expect a lot 52 00:02:26,040 --> 00:02:29,960 Speaker 3: of volatility in the subscriber numbers, at least you know, 53 00:02:30,000 --> 00:02:31,840 Speaker 3: in the second quarter and the third quarter. So they 54 00:02:31,840 --> 00:02:34,360 Speaker 3: have said that, you know, expect the second half to 55 00:02:34,400 --> 00:02:37,320 Speaker 3: be definitely much better than the first half, and then 56 00:02:37,360 --> 00:02:39,600 Speaker 3: I think things definitely will settle down towards the end 57 00:02:39,639 --> 00:02:40,000 Speaker 3: of the year. 58 00:02:40,440 --> 00:02:43,120 Speaker 1: Keeth, what are they saying in terms of programming investments here? 59 00:02:43,280 --> 00:02:46,240 Speaker 1: If the focus is increasing profitability, is this something they 60 00:02:46,240 --> 00:02:51,080 Speaker 1: want to scale back, hold steady or continue to increase this? 61 00:02:51,400 --> 00:02:54,200 Speaker 1: I mean it's you know, you know, fifteen twenty billion 62 00:02:54,240 --> 00:02:55,320 Speaker 1: dollars or something of programming. 63 00:02:55,880 --> 00:02:58,400 Speaker 3: Oh. Absolutely, And so they had said that they were 64 00:02:58,400 --> 00:03:02,040 Speaker 3: going to hold programming expenses in like the seventeen billion 65 00:03:02,120 --> 00:03:05,800 Speaker 3: dollar zip codes from like twenty twenty two to through 66 00:03:05,800 --> 00:03:09,360 Speaker 3: twenty twenty four. What's happening this year is actually that 67 00:03:09,440 --> 00:03:11,480 Speaker 3: number has come down quite a bit, so they said, 68 00:03:11,480 --> 00:03:14,760 Speaker 3: you know about maybe sixteen closer to sixteen sixteen point 69 00:03:14,760 --> 00:03:16,880 Speaker 3: four billion four twenty twenty three, which is why we're 70 00:03:16,919 --> 00:03:18,600 Speaker 3: kind of seeing that uptick in free cash flow. They 71 00:03:18,720 --> 00:03:21,120 Speaker 3: raise their free cash flow guidance, but then they are 72 00:03:21,160 --> 00:03:23,720 Speaker 3: going to go back to the seventeen billion dollars next year. 73 00:03:24,280 --> 00:03:25,960 Speaker 3: And the way that they kind of framed this yes 74 00:03:26,480 --> 00:03:28,519 Speaker 3: last night during the call was that, you know, it's 75 00:03:28,600 --> 00:03:31,120 Speaker 3: not just going to be you know, TV shows, It's 76 00:03:31,200 --> 00:03:33,760 Speaker 3: not just going to be movies. It's just the broader 77 00:03:33,880 --> 00:03:37,119 Speaker 3: entertainment space. So think of you know, gaming going into 78 00:03:37,160 --> 00:03:40,640 Speaker 3: other genres, maybe even sports programming, who knows. So they're 79 00:03:40,720 --> 00:03:42,760 Speaker 3: kind of keeping all their options open at this point. 80 00:03:43,480 --> 00:03:46,200 Speaker 2: Yeah, sports programming has to be huge, right, I mean, 81 00:03:46,240 --> 00:03:48,800 Speaker 2: at least I know that all of the people in 82 00:03:48,840 --> 00:03:52,280 Speaker 2: this radio studio right now would probably take advantage of that. 83 00:03:52,800 --> 00:03:55,280 Speaker 2: But it also seems to be an expensive business. Isn't 84 00:03:55,320 --> 00:03:58,080 Speaker 2: that where you know Disney is losing all the money. 85 00:03:58,640 --> 00:04:01,320 Speaker 3: Yeah, it is a very very expensive business. Disney spends 86 00:04:01,320 --> 00:04:04,400 Speaker 3: over ten billion dollars every year in sports rights, and 87 00:04:04,440 --> 00:04:06,320 Speaker 3: that has been the huge problem for them and all 88 00:04:06,360 --> 00:04:07,640 Speaker 3: of these media companies. I mean, if you look at 89 00:04:07,680 --> 00:04:09,920 Speaker 3: the major media companies, they're spending upwards of about twenty 90 00:04:10,000 --> 00:04:12,960 Speaker 3: five to twenty six billion dollars every year on just 91 00:04:13,000 --> 00:04:16,000 Speaker 3: sports fees. And if we've looked at some of the 92 00:04:16,040 --> 00:04:19,560 Speaker 3: recent renewals, they've been up over fifty to seventy percent. 93 00:04:19,640 --> 00:04:22,279 Speaker 3: Has been kind of the average increase in some of 94 00:04:22,320 --> 00:04:24,960 Speaker 3: those you know, rights fees. So obviously this is very 95 00:04:25,040 --> 00:04:27,600 Speaker 3: very expensive. Netflix doesn't want to necessarily go into it 96 00:04:27,600 --> 00:04:29,640 Speaker 3: because I don't think they see a return on investment. 97 00:04:30,080 --> 00:04:32,360 Speaker 3: I think sports really makes sense for them if their 98 00:04:32,400 --> 00:04:34,600 Speaker 3: advertising business kind of takes off in a big way, 99 00:04:34,640 --> 00:04:37,640 Speaker 3: because you do need kind of a huge, live, captive 100 00:04:37,680 --> 00:04:41,000 Speaker 3: audience to support you know, viewership, to kind of support 101 00:04:41,000 --> 00:04:44,080 Speaker 3: that spend. So maybe it's down the line. I don't 102 00:04:44,120 --> 00:04:47,839 Speaker 3: I don't see them doing anything quite transformative. Yeah, just yet. 103 00:04:47,880 --> 00:04:49,680 Speaker 3: But again, never say never. 104 00:04:49,920 --> 00:04:52,839 Speaker 1: With with all the court cutting, Githa, I mean we've 105 00:04:52,880 --> 00:04:55,400 Speaker 1: been saying this for decades about the sports rights. They 106 00:04:55,400 --> 00:04:57,440 Speaker 1: can't keep going up at this rate, but they always do. 107 00:04:57,920 --> 00:04:59,919 Speaker 1: But with court cutting, you could make the argument that 108 00:05:00,000 --> 00:05:03,719 Speaker 1: but the business models just not there anymore. So do 109 00:05:03,760 --> 00:05:05,760 Speaker 1: you expect to see some of these big sports rights, 110 00:05:05,760 --> 00:05:08,440 Speaker 1: even like NFL, to go to where the money is 111 00:05:08,640 --> 00:05:11,640 Speaker 1: like a Google, like a Facebook, like an Amazon or 112 00:05:11,640 --> 00:05:12,040 Speaker 1: an Apple. 113 00:05:12,960 --> 00:05:16,000 Speaker 3: It already has partly hasn't at fall because you know, 114 00:05:16,080 --> 00:05:19,760 Speaker 3: Amazon has Thursday Night Football. We saw kind of YouTube 115 00:05:19,800 --> 00:05:23,200 Speaker 3: TV snag the Sunday ticket package, so it's kind of 116 00:05:23,240 --> 00:05:26,479 Speaker 3: going in, you know, trickling down bits and pieces. The 117 00:05:26,600 --> 00:05:29,960 Speaker 3: major packages though, are still on broadcast television and will 118 00:05:30,000 --> 00:05:33,800 Speaker 3: remain there till twenty thirty thirty two, so at least 119 00:05:33,839 --> 00:05:36,560 Speaker 3: for another decade. I think we have the TV rights 120 00:05:36,560 --> 00:05:38,800 Speaker 3: in place. That said, I mean, you know, we do 121 00:05:38,880 --> 00:05:40,599 Speaker 3: have some other big deals kind of coming up. The 122 00:05:40,720 --> 00:05:42,880 Speaker 3: NBA is one that's going to be up after twenty 123 00:05:42,920 --> 00:05:46,040 Speaker 3: twenty four. Again, there's a lot of, you know, speculation, 124 00:05:46,120 --> 00:05:48,080 Speaker 3: a lot of buzz about whether Disney is really going 125 00:05:48,160 --> 00:05:49,839 Speaker 3: to want to pay up for that or whether you know, 126 00:05:50,160 --> 00:05:52,560 Speaker 3: an Amazon or an Apple or somebody else kind of 127 00:05:52,600 --> 00:05:55,279 Speaker 3: swoops in. So it's still pretty you know, it's all 128 00:05:55,279 --> 00:05:58,400 Speaker 3: it's all fair game. But big tech definitely wants to make, 129 00:05:58,880 --> 00:06:00,560 Speaker 3: you know, a big play for sports. There's no doubt 130 00:06:00,560 --> 00:06:00,960 Speaker 3: about that. 131 00:06:01,320 --> 00:06:05,480 Speaker 2: You've been covering this sector for years, KEITHA, But I 132 00:06:05,520 --> 00:06:08,800 Speaker 2: don't know how much content you actually consume. Are there 133 00:06:08,839 --> 00:06:11,159 Speaker 2: any shows, any good shows out there that you like? 134 00:06:12,600 --> 00:06:14,039 Speaker 3: I watch The Love Is Blind? 135 00:06:14,680 --> 00:06:17,320 Speaker 2: Oh my god, I said, good shows. 136 00:06:17,920 --> 00:06:21,960 Speaker 3: That's a great show. What are you talking about, pleasure, hey, Keith. 137 00:06:21,720 --> 00:06:25,640 Speaker 1: It just switching gears real quick. Fox Corporation settled with 138 00:06:25,920 --> 00:06:27,720 Speaker 1: I guess for seven hundred and eighty seven million dollars. 139 00:06:27,760 --> 00:06:31,200 Speaker 1: They settled with dominion voting machines from Fox News. Stocks 140 00:06:31,200 --> 00:06:33,960 Speaker 1: off two point eight percent to investors. Care the Fox 141 00:06:33,960 --> 00:06:35,039 Speaker 1: investors really care about that? 142 00:06:35,760 --> 00:06:37,360 Speaker 3: Not really. I mean at the end of the day, 143 00:06:37,400 --> 00:06:40,760 Speaker 3: they had four billion dollars in cash. You know, they 144 00:06:40,800 --> 00:06:44,560 Speaker 3: have this accelerated share repurchase program going and Fox News, 145 00:06:44,560 --> 00:06:46,600 Speaker 3: I mean, I know why they did this. They kind of, 146 00:06:46,800 --> 00:06:49,479 Speaker 3: I guess, wanted to, you know, prevent embarrassment for. 147 00:06:49,880 --> 00:06:53,160 Speaker 2: Embarrassing, for us to really know what goes on. 148 00:06:53,160 --> 00:06:55,920 Speaker 3: Behind for the murdocks and probably for some of their 149 00:06:55,920 --> 00:06:58,240 Speaker 3: biggest anchors. At the end of the day, it's just 150 00:06:58,360 --> 00:07:01,359 Speaker 3: it's really just a blip. I mean, Fox News is 151 00:07:01,400 --> 00:07:04,000 Speaker 3: really the cash cow, It's the crown jewel of the 152 00:07:04,000 --> 00:07:06,400 Speaker 3: Fox empire. Shows off about two and a half three 153 00:07:06,400 --> 00:07:08,520 Speaker 3: billion dollars in even every year, it's seventy five percent 154 00:07:08,520 --> 00:07:09,800 Speaker 3: of the company's profits. 155 00:07:09,840 --> 00:07:12,520 Speaker 2: So it just shows you how much they care about Tucker, 156 00:07:12,520 --> 00:07:16,400 Speaker 2: Carls and hand Hannedy. Can you imagine, Paul, if you 157 00:07:16,480 --> 00:07:20,480 Speaker 2: and I got sued and Bloomberg paid eight hundred million 158 00:07:21,000 --> 00:07:23,920 Speaker 2: million dollars to I'm not sure I'd see that coming. 159 00:07:23,960 --> 00:07:24,200 Speaker 4: Wow. 160 00:07:24,360 --> 00:07:25,920 Speaker 1: All right, Keitha, thank you so much for joining us. 161 00:07:25,960 --> 00:07:28,360 Speaker 1: Keitha Raganath and she covers media for Bloomberg Intelligence. 162 00:07:30,600 --> 00:07:34,040 Speaker 5: You're listening to the team Ken's are Live program Bloomberg 163 00:07:34,080 --> 00:07:37,440 Speaker 5: Markets weekdays at ten am Eastern on Bloomberg dot com, 164 00:07:37,520 --> 00:07:40,640 Speaker 5: the iHeartRadio app and the Bloomberg Business app, or listen 165 00:07:40,720 --> 00:07:42,840 Speaker 5: on demand wherever you get your podcasts. 166 00:07:44,680 --> 00:07:47,760 Speaker 1: All right, let's get throw next. Let's talk ETFs. David Mann, 167 00:07:47,760 --> 00:07:50,520 Speaker 1: head of Global ETF Market and Capital Markets for Franklin 168 00:07:50,520 --> 00:07:53,400 Speaker 1: Temilton Joints, is David. You know, I've been on Wall 169 00:07:53,400 --> 00:07:56,160 Speaker 1: Street since the mid eighties, and one of the greatest 170 00:07:56,200 --> 00:07:59,960 Speaker 1: and most interesting developments has been the growth of ETA. 171 00:08:00,240 --> 00:08:04,080 Speaker 1: It's just amazing the money that goes into exchange traded funds. 172 00:08:04,080 --> 00:08:07,600 Speaker 1: It's kind of the mutual fund of my youth. Where's 173 00:08:07,640 --> 00:08:10,560 Speaker 1: the money going these days? With this level of uncertainty 174 00:08:10,560 --> 00:08:12,360 Speaker 1: in the marketplace, where's the money in the ETF space 175 00:08:12,400 --> 00:08:13,320 Speaker 1: going these days? 176 00:08:14,480 --> 00:08:14,720 Speaker 2: Yeah? 177 00:08:14,760 --> 00:08:17,720 Speaker 6: Great, thanks for having me. I'm still processing the Chick 178 00:08:17,760 --> 00:08:19,680 Speaker 6: fil A comment, so yeah. 179 00:08:19,640 --> 00:08:22,480 Speaker 1: We're still eating, So don't worry about us. 180 00:08:24,000 --> 00:08:28,040 Speaker 4: Yeah, I mean we've seen a pretty broad amount of 181 00:08:28,040 --> 00:08:30,800 Speaker 4: inflos I think, for the for the industry, I mean, 182 00:08:31,040 --> 00:08:33,400 Speaker 4: more broadly speaking, you're right, every year seems to be 183 00:08:33,559 --> 00:08:35,840 Speaker 4: either another record or close to another record in terms 184 00:08:35,840 --> 00:08:38,800 Speaker 4: of the hundreds of billions. And even when things seem 185 00:08:38,880 --> 00:08:44,000 Speaker 4: slower from a markets perspective, we're still seeing inflows into 186 00:08:44,000 --> 00:08:47,280 Speaker 4: ETFs over one hundred billions so far. You know, when 187 00:08:47,360 --> 00:08:51,040 Speaker 4: when I sort of look at our lineup against the 188 00:08:51,040 --> 00:08:54,000 Speaker 4: broader context of the ETF industry, I see a pretty 189 00:08:54,040 --> 00:08:58,800 Speaker 4: steady flow into you know, market cap passive, those big 190 00:08:58,800 --> 00:09:01,600 Speaker 4: benchmarks are still seeing. But you know, you're also seeing 191 00:09:01,640 --> 00:09:05,320 Speaker 4: flows into active funds. Those are starting to get more 192 00:09:05,559 --> 00:09:09,560 Speaker 4: more more traction, especially in the back of the ETF rule. 193 00:09:10,000 --> 00:09:11,840 Speaker 4: And then somewhere in between. You know, we've called it 194 00:09:11,920 --> 00:09:14,080 Speaker 4: rules base, we've called it smart beta, but you know, 195 00:09:14,120 --> 00:09:19,080 Speaker 4: the the the index structure with some different rules than 196 00:09:19,120 --> 00:09:22,040 Speaker 4: market cap weighted also seemed to be gathering assets. So 197 00:09:22,040 --> 00:09:25,520 Speaker 4: I think the systematic bigger take yes, systematic exactly. So 198 00:09:25,559 --> 00:09:27,600 Speaker 4: I think the bigger takeaway is I think now that 199 00:09:27,679 --> 00:09:30,720 Speaker 4: investors are just very comfortable with the ETF rapper, there's 200 00:09:30,800 --> 00:09:33,120 Speaker 4: now more conversations about, hey, I can get lots of 201 00:09:33,120 --> 00:09:36,680 Speaker 4: different exposures within that vehicle, so let's have a conversation. 202 00:09:37,240 --> 00:09:40,959 Speaker 2: So specifically, I mean, yeah, active is huge, and that's 203 00:09:40,960 --> 00:09:42,480 Speaker 2: what we talk about all the time on the E 204 00:09:42,559 --> 00:09:46,160 Speaker 2: T f IQ show. But we had seen a ton 205 00:09:46,400 --> 00:09:52,920 Speaker 2: of inflows to ultra short treasury ETFs and outside of 206 00:09:52,920 --> 00:09:57,559 Speaker 2: ETFs into money markets as well. Has that calmed down 207 00:09:57,760 --> 00:10:00,000 Speaker 2: or reversed a little bit? I mean, that was all 208 00:10:00,120 --> 00:10:03,120 Speaker 2: due to the banking I don't want to say crisis. 209 00:10:03,120 --> 00:10:08,000 Speaker 2: What were you saying, uhoil turmoil, banking turmoil. Has that 210 00:10:08,080 --> 00:10:10,199 Speaker 2: turned around to a point where we can say that's 211 00:10:10,200 --> 00:10:11,160 Speaker 2: in the rear view mirror? 212 00:10:11,880 --> 00:10:13,440 Speaker 6: I think, I think a little bit in the rear 213 00:10:13,520 --> 00:10:13,920 Speaker 6: view mirror. 214 00:10:13,960 --> 00:10:16,960 Speaker 4: I mean when the when the I guess if turmoil 215 00:10:17,000 --> 00:10:20,959 Speaker 4: is the term, when the turmoil, UH banking turmoil hit. 216 00:10:21,040 --> 00:10:22,640 Speaker 4: You know, a lot of the questions we were getting 217 00:10:23,320 --> 00:10:25,240 Speaker 4: here in Franklin was sort of, Hey, tell us about 218 00:10:25,240 --> 00:10:28,520 Speaker 4: our exposure to these you know, Silicon Valley Bank or 219 00:10:28,720 --> 00:10:30,200 Speaker 4: or First Republic, et cetera. 220 00:10:30,760 --> 00:10:32,800 Speaker 6: And uh, you. 221 00:10:32,760 --> 00:10:36,439 Speaker 4: Know specifically, Hey, how much of the weights are those stocks. 222 00:10:36,040 --> 00:10:37,199 Speaker 6: In these in these indices? 223 00:10:37,200 --> 00:10:39,240 Speaker 4: And you know, back to my uh, you know, sort 224 00:10:39,280 --> 00:10:44,240 Speaker 4: of my market cab versus uh, systematical rules bases. You know, 225 00:10:44,240 --> 00:10:46,320 Speaker 4: a lot of a lot of the a lot of 226 00:10:46,640 --> 00:10:49,120 Speaker 4: US equities have didn't hold those names for a variety 227 00:10:49,160 --> 00:10:52,520 Speaker 4: of screening reasons, you know, when when whether factor methodologies 228 00:10:52,760 --> 00:10:57,400 Speaker 4: or or other types of you know, income or other screens. 229 00:10:57,440 --> 00:10:59,800 Speaker 4: So those are the questions we were getting. But yeah, 230 00:10:59,800 --> 00:11:01,720 Speaker 4: I think I think you you you touched on a 231 00:11:01,720 --> 00:11:07,040 Speaker 4: broader point, which is, if ETFs are tactical vehicles, and 232 00:11:07,559 --> 00:11:11,079 Speaker 4: whether it's an opinion on what the tech sector will 233 00:11:11,080 --> 00:11:13,920 Speaker 4: do or the US equity market's going to do or 234 00:11:14,120 --> 00:11:16,000 Speaker 4: where rates are going to go, there's going to be 235 00:11:16,040 --> 00:11:19,160 Speaker 4: a vehicle that will give you that option and then 236 00:11:19,200 --> 00:11:21,400 Speaker 4: you and then the flows usually bear. 237 00:11:21,200 --> 00:11:22,839 Speaker 7: That out for sure. 238 00:11:22,880 --> 00:11:26,240 Speaker 2: I mean we're talking about yeah, ten trillion dollars worth 239 00:11:26,280 --> 00:11:29,840 Speaker 2: of assets globally and growing as you as you pointed out, 240 00:11:29,880 --> 00:11:33,480 Speaker 2: at a tremendous clip by the way, you come to 241 00:11:33,559 --> 00:11:39,400 Speaker 2: Franklin Templeton from one of the you know, ETF doopolies. 242 00:11:40,679 --> 00:11:43,440 Speaker 2: How do you see that structure? Is it a problem 243 00:11:43,520 --> 00:11:47,560 Speaker 2: that you know, Vanguard and Blackrock and State Street as well, 244 00:11:47,600 --> 00:11:51,520 Speaker 2: you know, kind of dominate this market. Is it changing? 245 00:11:51,600 --> 00:11:53,360 Speaker 2: Is there a point when we're going to see more 246 00:11:56,280 --> 00:11:59,000 Speaker 2: uh more players with a with a bigger role. 247 00:12:02,520 --> 00:12:07,040 Speaker 6: So a couple thoughts come to mind. The first, the 248 00:12:07,080 --> 00:12:09,080 Speaker 6: first conversation, which. 249 00:12:09,160 --> 00:12:13,440 Speaker 4: Is maybe not even specific to the names of the 250 00:12:13,760 --> 00:12:17,560 Speaker 4: of those of those issuers, but there's just a general 251 00:12:20,320 --> 00:12:23,800 Speaker 4: A lot of investors use counting stats when keeping scores, 252 00:12:23,920 --> 00:12:26,200 Speaker 4: and what that ends up meaning is big funds tend 253 00:12:26,200 --> 00:12:26,800 Speaker 4: to get bigger. 254 00:12:27,520 --> 00:12:30,520 Speaker 6: And so you know comment one and I and I. 255 00:12:30,520 --> 00:12:32,520 Speaker 4: Don't know if this is going to be ever explicit 256 00:12:32,679 --> 00:12:38,120 Speaker 4: regulations changing or different mindset, but you know, I can 257 00:12:38,160 --> 00:12:40,960 Speaker 4: tell you that we have conversations where the only reason 258 00:12:40,960 --> 00:12:43,120 Speaker 4: that an investor is not using is because they have 259 00:12:43,160 --> 00:12:45,679 Speaker 4: some percent ownership limit on the size of the fund 260 00:12:45,679 --> 00:12:48,400 Speaker 4: and they would love to use ours, except they want 261 00:12:48,400 --> 00:12:50,319 Speaker 4: to do X, and X would be too big given 262 00:12:50,360 --> 00:12:52,520 Speaker 4: the size of the fund. So I think that's you know, 263 00:12:52,520 --> 00:12:56,520 Speaker 4: from account markets lens, we will always have the uh, 264 00:12:56,559 --> 00:13:00,880 Speaker 4: you know, the liquidity conversation, but certainly I think investors 265 00:13:00,920 --> 00:13:01,280 Speaker 4: get that. 266 00:13:01,320 --> 00:13:04,319 Speaker 6: I think investors like having options. 267 00:13:04,559 --> 00:13:04,679 Speaker 1: Uh. 268 00:13:04,720 --> 00:13:06,480 Speaker 4: You know, if I look at our inflows to year, 269 00:13:06,520 --> 00:13:10,559 Speaker 4: we're batting above our you know, percent of assets. 270 00:13:12,080 --> 00:13:12,880 Speaker 6: Of the total PI. 271 00:13:13,080 --> 00:13:15,800 Speaker 4: So I think we just you know, keep highlighting our 272 00:13:15,920 --> 00:13:19,160 Speaker 4: our our lineup, but the you know, the the the 273 00:13:19,200 --> 00:13:23,240 Speaker 4: size as a way to keep score is sometimes challenging. 274 00:13:23,240 --> 00:13:24,880 Speaker 2: All right, so let's talk about your lineup. What do 275 00:13:24,920 --> 00:13:26,079 Speaker 2: you have to offer investors? 276 00:13:27,720 --> 00:13:28,040 Speaker 6: Sures. 277 00:13:28,120 --> 00:13:28,320 Speaker 8: Yeah. 278 00:13:28,360 --> 00:13:30,760 Speaker 4: So so you know, as I touched on at the 279 00:13:30,880 --> 00:13:34,560 Speaker 4: very beginning, uh, you know, we have passive funds, we 280 00:13:34,640 --> 00:13:36,720 Speaker 4: have the smart data funds, we have active funds. 281 00:13:37,440 --> 00:13:39,079 Speaker 6: I'll start actually in the middle of this year, I 282 00:13:39,080 --> 00:13:39,920 Speaker 6: would say there. 283 00:13:39,960 --> 00:13:45,960 Speaker 4: The the rules based approaches have been quite popular. 284 00:13:46,080 --> 00:13:49,200 Speaker 6: Our low vall high div uh duo. 285 00:13:49,360 --> 00:13:52,679 Speaker 4: That's LVHD and l v H I uh your to 286 00:13:52,720 --> 00:13:55,560 Speaker 4: day they've combined for over three hundred million. Those are 287 00:13:55,640 --> 00:14:00,000 Speaker 4: low vall high div strategies, you know, in the income space. 288 00:14:00,160 --> 00:14:03,720 Speaker 4: Because that's something that we we've heard over and over again, 289 00:14:04,480 --> 00:14:09,520 Speaker 4: we launched a core dividend suite which you know call 290 00:14:09,559 --> 00:14:14,439 Speaker 4: it you know, aware of the benchmarks, but with a 291 00:14:14,559 --> 00:14:19,720 Speaker 4: tilt towards income. And you know, given this particular market 292 00:14:19,760 --> 00:14:22,760 Speaker 4: cycle where growth stocks and tech stocks have really shown 293 00:14:23,640 --> 00:14:26,520 Speaker 4: a lot of dividend strategies have really been underperforming, and 294 00:14:26,720 --> 00:14:29,760 Speaker 4: ours have been, you know, because of that awareness to 295 00:14:29,800 --> 00:14:30,280 Speaker 4: the benchmark. 296 00:14:30,320 --> 00:14:31,240 Speaker 6: Those have been doing great. 297 00:14:31,280 --> 00:14:34,360 Speaker 4: So that ticker is U d I v I Divvy 298 00:14:34,640 --> 00:14:38,480 Speaker 4: for our international core dividend suite. And you know, lastly, 299 00:14:39,920 --> 00:14:42,840 Speaker 4: you know, we launched a whole suite of single country 300 00:14:42,880 --> 00:14:48,240 Speaker 4: passive ETFs benchmark to footsie. Those are meant to be 301 00:14:48,800 --> 00:14:54,360 Speaker 4: very very low cost options to get exposure to UH 302 00:14:54,520 --> 00:14:58,880 Speaker 4: South Korea, to UK, to Japan, et cetera. And and 303 00:14:58,880 --> 00:15:00,400 Speaker 4: those have been really doing great. I mean, a lot 304 00:15:00,400 --> 00:15:02,640 Speaker 4: of international markets are really strong so far this year, 305 00:15:02,680 --> 00:15:05,240 Speaker 4: and so for investors to be able to get that 306 00:15:05,280 --> 00:15:09,080 Speaker 4: specific exposure to a single country at a very low, 307 00:15:09,360 --> 00:15:13,120 Speaker 4: little cost point has been great. So tickers like FLKR, 308 00:15:13,360 --> 00:15:16,720 Speaker 4: fl jp FLTWFC close to one hundred million or more 309 00:15:16,720 --> 00:15:17,600 Speaker 4: of inflows this year. 310 00:15:18,400 --> 00:15:20,680 Speaker 1: David, one of the areas that's been fascinating to me 311 00:15:20,800 --> 00:15:24,360 Speaker 1: is mutual funds converting to ETFs. Could you just give 312 00:15:24,440 --> 00:15:27,400 Speaker 1: us your commentary on that part of the market. 313 00:15:29,880 --> 00:15:33,560 Speaker 4: Yeah, sure, I mean the the you know Franklin we 314 00:15:33,800 --> 00:15:36,880 Speaker 4: converted to towards the end of last year. That was 315 00:15:36,960 --> 00:15:42,760 Speaker 4: a a Brandywine Dynamic Value d v A L and 316 00:15:42,840 --> 00:15:47,520 Speaker 4: Martin Curry mc s E are those two tickers. And yeah, 317 00:15:47,560 --> 00:15:51,320 Speaker 4: I mean we have obviously hundreds of billions trillions of 318 00:15:51,360 --> 00:15:54,400 Speaker 4: dollars of active mutual funds. We're looking to see what 319 00:15:54,560 --> 00:15:57,200 Speaker 4: makes the most sense to move into an ETF vehicle. 320 00:15:57,320 --> 00:15:59,880 Speaker 4: A lot will depend on the track record, the size, 321 00:16:00,800 --> 00:16:03,320 Speaker 4: does it fit nicely into the ETF vehicle in terms 322 00:16:03,400 --> 00:16:08,240 Speaker 4: of transparency and and those are conversations we're we're repeatedly 323 00:16:08,280 --> 00:16:11,440 Speaker 4: having we scheduled one more for. 324 00:16:11,400 --> 00:16:12,120 Speaker 6: Later this year. 325 00:16:12,160 --> 00:16:15,920 Speaker 4: That's that's been filed and and we'll continue to explore 326 00:16:16,240 --> 00:16:17,280 Speaker 4: where it makes sense. 327 00:16:18,680 --> 00:16:25,120 Speaker 2: In terms of the best returns. I see, Uh, there 328 00:16:25,200 --> 00:16:29,400 Speaker 2: are funds here that have just uh gotten into this 329 00:16:29,520 --> 00:16:33,480 Speaker 2: sort of tech innovation side. Is that a blip you 330 00:16:33,520 --> 00:16:35,320 Speaker 2: think of Q one or will that continue? 331 00:16:39,840 --> 00:16:40,080 Speaker 5: Yeah? 332 00:16:40,320 --> 00:16:43,320 Speaker 4: I wish I wish I had that type of foresight 333 00:16:43,400 --> 00:16:45,640 Speaker 4: to know which which are going to be the the 334 00:16:45,720 --> 00:16:48,040 Speaker 4: highest performers or what's not. You know, it's funny, I 335 00:16:48,040 --> 00:16:52,760 Speaker 4: was actually reviewing our league table and I think the uh, 336 00:16:52,800 --> 00:16:55,840 Speaker 4: you know, uh Intelligent Machines, which was one of our 337 00:16:55,960 --> 00:16:59,360 Speaker 4: active factor funds, was right around twenty percent, but so 338 00:16:59,720 --> 00:17:02,760 Speaker 4: was single country Mexico and single country France. 339 00:17:03,920 --> 00:17:07,359 Speaker 6: So I wish I knew which way that was going 340 00:17:07,400 --> 00:17:12,359 Speaker 6: to go, But I mean for the tech sentor. 341 00:17:12,520 --> 00:17:14,240 Speaker 1: All right, David, thank you so much for taking the 342 00:17:14,280 --> 00:17:16,800 Speaker 1: time and joining us. David Mann, head of Global ETF 343 00:17:16,840 --> 00:17:20,000 Speaker 1: Market and Capital Markets for Franklin Templeton. 344 00:17:20,400 --> 00:17:23,520 Speaker 5: You're listening to the tape cans Are Live program Bloomberg 345 00:17:23,560 --> 00:17:27,159 Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the 346 00:17:27,200 --> 00:17:30,440 Speaker 5: tune in app, Bloomberg dot Com, and the Bloomberg Business App. 347 00:17:30,480 --> 00:17:33,280 Speaker 5: You can also listen live on Amazon Alexa from our 348 00:17:33,320 --> 00:17:38,520 Speaker 5: flagship New York station just say Alexa playing Bloomberg eleven thirty. 349 00:17:39,680 --> 00:17:43,880 Speaker 1: We've got central banks around the world raising rates. It's 350 00:17:43,880 --> 00:17:45,600 Speaker 1: not just the Foot of Reserve, folks, it's a Bank 351 00:17:45,640 --> 00:17:47,919 Speaker 1: of England, It's the European Central Bank. And a lot 352 00:17:47,960 --> 00:17:50,240 Speaker 1: of folks are concerned about what that means for economic 353 00:17:50,440 --> 00:17:52,840 Speaker 1: growth going forward, for the manger of this year going 354 00:17:52,880 --> 00:17:54,640 Speaker 1: into next year. So let's check in with a professional 355 00:17:54,680 --> 00:17:57,840 Speaker 1: who does this stuff for living, Doctor Vanie Estrava Keva 356 00:17:58,080 --> 00:18:02,720 Speaker 1: professor of economics at the London Business School. Thank you 357 00:18:02,760 --> 00:18:05,119 Speaker 1: so much for joining us, professor here, give us a 358 00:18:05,160 --> 00:18:08,480 Speaker 1: sense of how the economy is. Lets let's start right 359 00:18:08,920 --> 00:18:11,919 Speaker 1: in your backyard there in the UK. How is the 360 00:18:11,960 --> 00:18:13,840 Speaker 1: economy in the UK? What's the outlook? 361 00:18:15,000 --> 00:18:17,359 Speaker 8: So thank you very much for having me. So we 362 00:18:17,560 --> 00:18:20,359 Speaker 8: just got the latest numbers for inflation and it appears the 363 00:18:20,400 --> 00:18:23,800 Speaker 8: demand is quite strong still in the UK, which creates 364 00:18:24,200 --> 00:18:26,920 Speaker 8: a headache for the central bank. In any ways, it's 365 00:18:26,920 --> 00:18:30,239 Speaker 8: important to put the recent numbers in context, and there 366 00:18:30,280 --> 00:18:33,480 Speaker 8: are two major differences between the current and previous tightening 367 00:18:33,800 --> 00:18:37,000 Speaker 8: cycles in the UK. So the first one is that 368 00:18:37,200 --> 00:18:40,760 Speaker 8: even after tightening, it's important to notice that real interest 369 00:18:40,800 --> 00:18:45,080 Speaker 8: rates are still negative in the UK and in other countries. 370 00:18:45,560 --> 00:18:48,120 Speaker 8: So if we, for example, you realize rather and expected 371 00:18:48,200 --> 00:18:51,240 Speaker 8: inflation to measure the real rate, we have a negative 372 00:18:51,240 --> 00:18:54,000 Speaker 8: real rate close to minus six percent. That is a 373 00:18:54,119 --> 00:18:56,760 Speaker 8: very negative number. So this is if we use the 374 00:18:56,760 --> 00:18:59,560 Speaker 8: CPI index. So we have something called the tailor rule, 375 00:18:59,560 --> 00:19:02,160 Speaker 8: which is our standard optimal multi policy rule that tells 376 00:19:02,240 --> 00:19:05,199 Speaker 8: us what should be the optimal policy rate. And at 377 00:19:05,200 --> 00:19:06,960 Speaker 8: the moment, it's telling us that for the UK we 378 00:19:07,000 --> 00:19:09,280 Speaker 8: need to be ten percent while we are at four 379 00:19:09,320 --> 00:19:11,840 Speaker 8: point to five percent, and that is if I use 380 00:19:11,920 --> 00:19:15,399 Speaker 8: the core CPI inflation rather than the actual CPI inflation. 381 00:19:15,960 --> 00:19:19,600 Speaker 8: Of course, you know, some have proposed justifications as to 382 00:19:19,640 --> 00:19:22,320 Speaker 8: why this time is different and there's no need to 383 00:19:22,320 --> 00:19:26,240 Speaker 8: tighten so aggressively. So for example, of course, we know 384 00:19:26,320 --> 00:19:30,560 Speaker 8: that the shock is a supply shock. The original shock, 385 00:19:30,680 --> 00:19:34,320 Speaker 8: which is assumed to be transitory. Inflation expectations have remained 386 00:19:34,320 --> 00:19:37,600 Speaker 8: well anchored, which is given opposed to central bank for 387 00:19:37,640 --> 00:19:41,080 Speaker 8: central bankers in terms of hiking further. So these have 388 00:19:41,160 --> 00:19:43,880 Speaker 8: made central bankers essentially more hesitant to follow the table rule, 389 00:19:44,920 --> 00:19:48,760 Speaker 8: and it might have and it's been used to justify 390 00:19:49,480 --> 00:19:54,200 Speaker 8: why they have an increased interest rates. Further, however, it 391 00:19:54,800 --> 00:19:56,760 Speaker 8: will need further hikes in order to reach the two 392 00:19:56,760 --> 00:19:59,240 Speaker 8: percent interest rate, and it can be seen from the 393 00:19:59,240 --> 00:20:01,280 Speaker 8: fact that we are ready is still very negative. There is 394 00:20:01,320 --> 00:20:05,199 Speaker 8: another major problem in the UK which is less present. 395 00:20:05,440 --> 00:20:07,440 Speaker 2: Sorry, can I just doctor, Can I just hang on there, 396 00:20:07,560 --> 00:20:09,639 Speaker 2: because I'm so happy you brought up the tailor rule, 397 00:20:10,359 --> 00:20:14,000 Speaker 2: and we have on the Bomberg a tool that helps 398 00:20:14,040 --> 00:20:16,320 Speaker 2: us fill that out. T A y L T A 399 00:20:16,600 --> 00:20:19,879 Speaker 2: y L go on the Bloomberg terminal. Yeah, it's so awesome. 400 00:20:20,000 --> 00:20:23,439 Speaker 2: Put the drop down menu into United Kingdom. I changed 401 00:20:23,800 --> 00:20:27,240 Speaker 2: the inflation metric to core CPI that's what you're you're using. 402 00:20:28,320 --> 00:20:31,960 Speaker 2: What do you put? I always struggle with two variables? 403 00:20:32,480 --> 00:20:35,400 Speaker 2: What do you use for your neutral real rate? 404 00:20:36,280 --> 00:20:36,960 Speaker 6: For use? 405 00:20:37,520 --> 00:20:40,080 Speaker 2: I use one point five one point five? And what 406 00:20:40,119 --> 00:20:44,480 Speaker 2: do you use for NEHRU for the uh none? 407 00:20:45,080 --> 00:20:47,160 Speaker 7: Sorry, I use four point. 408 00:20:46,960 --> 00:20:51,080 Speaker 2: Five four point five. I think it's so fascinating A. 409 00:20:51,160 --> 00:20:54,399 Speaker 1: This to explain what the tailor rule is for us neophytes. 410 00:20:54,680 --> 00:20:56,720 Speaker 1: So doctor, can can you explain it? The tailor rules. 411 00:20:56,760 --> 00:20:58,680 Speaker 1: I've got a new function here that Matt just turned 412 00:20:58,680 --> 00:20:59,840 Speaker 1: me on too, but I don't know what I'm doing. 413 00:21:00,600 --> 00:21:02,720 Speaker 8: So the tail room is fascinating. I mean, I will 414 00:21:02,760 --> 00:21:05,119 Speaker 8: explain what it is. But some people, such as Power 415 00:21:05,160 --> 00:21:06,960 Speaker 8: think it's outdated, so you need to take. 416 00:21:06,840 --> 00:21:07,439 Speaker 9: It with green up. 417 00:21:08,400 --> 00:21:11,399 Speaker 8: But essentially, the tailor room comes about big optimal montary 418 00:21:11,440 --> 00:21:14,840 Speaker 8: policy models, and it's telling us what should central bankers 419 00:21:14,880 --> 00:21:18,320 Speaker 8: optimally set the policy rate too, So it's taken into account. 420 00:21:18,400 --> 00:21:21,919 Speaker 8: You know, our big DG models that have you know, 421 00:21:21,960 --> 00:21:25,880 Speaker 8: optimal monthary policy embedded in them. And once we solve 422 00:21:25,920 --> 00:21:28,520 Speaker 8: these complicated models, we get a very simple rule, and 423 00:21:28,560 --> 00:21:30,960 Speaker 8: that is essentially called a tailor. It's essentially it's a 424 00:21:31,000 --> 00:21:34,240 Speaker 8: function of something called the real rate or the natural 425 00:21:34,520 --> 00:21:36,760 Speaker 8: real rate, which is kind of the steady state, long 426 00:21:36,840 --> 00:21:39,560 Speaker 8: run real growth of the economy. It has been falling 427 00:21:39,560 --> 00:21:41,840 Speaker 8: over time due to the secret state nation. It used 428 00:21:41,840 --> 00:21:43,639 Speaker 8: to be two percent. Now people think it's about one 429 00:21:43,680 --> 00:21:46,439 Speaker 8: point five percent. Of course, it's a function of the 430 00:21:46,440 --> 00:21:50,160 Speaker 8: inflation target, which is two percent, and realize inflation relative 431 00:21:50,160 --> 00:21:52,520 Speaker 8: to inflation target, and unemployment rate relative to the natural 432 00:21:52,560 --> 00:21:55,480 Speaker 8: rate of unemployment. There are debates and regarding how we 433 00:21:55,480 --> 00:21:58,000 Speaker 8: should calibrate it, how much weight central banks are putting 434 00:21:58,280 --> 00:22:00,840 Speaker 8: on the outook of relative to inflation the inflation target. 435 00:22:01,200 --> 00:22:03,840 Speaker 8: There is heterogenator across countries. But the point is that 436 00:22:03,880 --> 00:22:06,479 Speaker 8: it's a very useful tool, and actually particularly for the US, 437 00:22:06,520 --> 00:22:08,800 Speaker 8: if you plot it going back in town even before 438 00:22:08,840 --> 00:22:11,639 Speaker 8: the concept existed, you would see that even in the 439 00:22:11,640 --> 00:22:14,080 Speaker 8: seventies in the eighties, the US followed the tail rule 440 00:22:14,160 --> 00:22:17,200 Speaker 8: very closely. It is the first time in history where 441 00:22:17,200 --> 00:22:20,040 Speaker 8: we're see seeing such major deviations on the upside. Of course, 442 00:22:20,119 --> 00:22:22,200 Speaker 8: during the zero lower bound that they were also was 443 00:22:22,280 --> 00:22:24,040 Speaker 8: telling us that we should be at minus four percent, 444 00:22:24,119 --> 00:22:27,160 Speaker 8: and because of the ZOB we couldn't. But when we're 445 00:22:27,160 --> 00:22:29,600 Speaker 8: talking about, you know, hikes, it's the first time in 446 00:22:29,760 --> 00:22:32,560 Speaker 8: history that central councy deviating so much from the tail ord. 447 00:22:33,160 --> 00:22:35,360 Speaker 2: Now, even in the US, I want to point out, 448 00:22:35,400 --> 00:22:39,200 Speaker 2: so if I plug in your R Starret and Neah 449 00:22:39,280 --> 00:22:43,000 Speaker 2: Room numbers in the US, I show them the tail 450 00:22:43,119 --> 00:22:48,000 Speaker 2: And even if I give them a three percent inflation target, 451 00:22:48,080 --> 00:22:51,680 Speaker 2: because I think we all know they're not really sticking 452 00:22:51,920 --> 00:22:54,240 Speaker 2: close to the two, they're still at eight. They should still 453 00:22:54,280 --> 00:22:57,399 Speaker 2: be at eight percent in the US. And so my 454 00:22:57,520 --> 00:22:59,480 Speaker 2: question is, then if we should be at eight percent 455 00:22:59,480 --> 00:23:00,960 Speaker 2: in the US, we should be a ten percent in 456 00:23:01,000 --> 00:23:04,000 Speaker 2: the UK according to tail rule. Does that mean you 457 00:23:04,040 --> 00:23:06,920 Speaker 2: think the FED should and the BOE should really go there, 458 00:23:07,040 --> 00:23:11,760 Speaker 2: because obviously going there quickly would cause a lot of problems. 459 00:23:12,160 --> 00:23:14,080 Speaker 8: Exactly, you can't go there equipply. You have to be 460 00:23:14,119 --> 00:23:16,359 Speaker 8: graduate and you have to see how the effect changes. 461 00:23:16,440 --> 00:23:18,639 Speaker 8: Of course, we know there are issues with our models, right, 462 00:23:18,720 --> 00:23:21,119 Speaker 8: so we're aware that a lot of the aspects of 463 00:23:21,119 --> 00:23:24,040 Speaker 8: our models are outdated. For example, we still assume rational 464 00:23:24,119 --> 00:23:27,360 Speaker 8: expectations in these models that derive the tail rule now 465 00:23:27,359 --> 00:23:30,200 Speaker 8: there is a pushing economic research that acknowledges that agents 466 00:23:30,200 --> 00:23:32,280 Speaker 8: are not rational, and we're trying to figure out how 467 00:23:32,280 --> 00:23:35,480 Speaker 8: to imbed this irrationality in the models. So there's fascinating 468 00:23:35,480 --> 00:23:37,200 Speaker 8: research going on there and I think they're doing the 469 00:23:37,280 --> 00:23:39,560 Speaker 8: right thing to be gradual. But also at the same time, 470 00:23:40,240 --> 00:23:44,960 Speaker 8: the real rate matters, right, The real raid is telling us. Effectively, 471 00:23:45,040 --> 00:23:47,399 Speaker 8: if you're a company and you're deciding, okay, you know 472 00:23:47,440 --> 00:23:50,880 Speaker 8: how much they produce, how much they invest, You're calculating 473 00:23:51,320 --> 00:23:54,560 Speaker 8: at what inflation you can increase your prices, and what 474 00:23:54,640 --> 00:23:56,760 Speaker 8: is the cost you need to pay to the bank 475 00:23:56,800 --> 00:23:59,560 Speaker 8: to repay your loan. So if you're borrowing even at 476 00:24:00,000 --> 00:24:03,159 Speaker 8: five percent, if you're factoring inflation of ten percent in 477 00:24:03,200 --> 00:24:06,359 Speaker 8: the UK, it's still good terms, right, You're still borrow it. 478 00:24:06,400 --> 00:24:10,600 Speaker 8: For it's the real rate that drives our economic models, 479 00:24:10,600 --> 00:24:12,320 Speaker 8: and that's what matters for the real economy, and everyone 480 00:24:12,359 --> 00:24:14,560 Speaker 8: is focusing too much on the nominal rate, which is 481 00:24:15,080 --> 00:24:18,080 Speaker 8: effectively not not the right metric. So in that sense, 482 00:24:18,119 --> 00:24:20,520 Speaker 8: I think banks central banks might have to go further. 483 00:24:20,600 --> 00:24:23,280 Speaker 8: And the main reason why is at this point the 484 00:24:23,280 --> 00:24:28,320 Speaker 8: supply shock is essentially calming down. However, demand the demand shock. 485 00:24:28,720 --> 00:24:33,240 Speaker 8: The demand component of inflation is very persistent, and that's 486 00:24:33,240 --> 00:24:36,119 Speaker 8: to a large degree for the UK, particularly due to 487 00:24:36,160 --> 00:24:38,960 Speaker 8: wage inflation, and the UK is unique. I believe that 488 00:24:39,000 --> 00:24:41,159 Speaker 8: the wage inflation problem will be much more severe for 489 00:24:41,200 --> 00:24:43,440 Speaker 8: the UK because we are coming out of decades of 490 00:24:43,480 --> 00:24:48,560 Speaker 8: stagnation of public sector wages due to austerity. People are tired, doctors, attired, 491 00:24:48,600 --> 00:24:51,080 Speaker 8: teachers attired. We see it in the strikes and that's 492 00:24:51,160 --> 00:24:54,040 Speaker 8: what's interesting when you see when they're negotiating, they're not 493 00:24:54,119 --> 00:24:57,879 Speaker 8: quoting just the latest inflation numbers. They're quoting decades of 494 00:24:57,920 --> 00:25:01,119 Speaker 8: austerity that have led to the real way ages deteriorating. 495 00:25:01,720 --> 00:25:03,760 Speaker 8: And this is a very different stories from some other 496 00:25:03,800 --> 00:25:06,720 Speaker 8: countries that haven't had the same period of austerity that 497 00:25:06,680 --> 00:25:09,600 Speaker 8: the UK, so I expect a much more persistent period 498 00:25:09,640 --> 00:25:13,200 Speaker 8: of strikes. Moreover, there is Brexit and labor shortages due 499 00:25:13,200 --> 00:25:16,960 Speaker 8: to it, and we have NHS being broken, leading chronic 500 00:25:17,040 --> 00:25:19,440 Speaker 8: illnesses and four hundred thousand people not returning to the 501 00:25:19,480 --> 00:25:22,320 Speaker 8: labor force. So the UK is actually the worst shape 502 00:25:22,359 --> 00:25:24,840 Speaker 8: out of all the countries. Having said that, it will 503 00:25:24,880 --> 00:25:27,040 Speaker 8: take time even for the US and your go back 504 00:25:27,560 --> 00:25:29,640 Speaker 8: maybe even three percent, As you said, probably not even 505 00:25:29,640 --> 00:25:30,159 Speaker 8: two percent. 506 00:25:30,400 --> 00:25:35,480 Speaker 2: Fascinating, fascinating stuff. Doctor Cyberkeva, thank you so much for 507 00:25:35,560 --> 00:25:37,119 Speaker 2: joining us. We could go on, and I hope we 508 00:25:37,119 --> 00:25:39,399 Speaker 2: can get you back as soon as possible, because I 509 00:25:39,440 --> 00:25:42,280 Speaker 2: really think that's exciting insight. There. 510 00:25:44,119 --> 00:25:47,960 Speaker 5: You're listening to the Team Cancer Line program Bloomberg Markets 511 00:25:48,000 --> 00:25:51,080 Speaker 5: weekdays at ten am Eastern on Bloomberg dot com, the 512 00:25:51,160 --> 00:25:54,280 Speaker 5: iHeartRadio app and the Bloomberg Business app, or listen on 513 00:25:54,359 --> 00:25:56,320 Speaker 5: demand wherever you get your podcasts. 514 00:25:58,320 --> 00:26:01,119 Speaker 1: Let just talk about some bank stocks. Some of the 515 00:26:01,160 --> 00:26:04,320 Speaker 1: big bank names report. We've had some of the smaller 516 00:26:04,400 --> 00:26:07,320 Speaker 1: names report as well, and it kind of goes to 517 00:26:07,359 --> 00:26:08,880 Speaker 1: the issue. I think what a lot of folks we're 518 00:26:09,160 --> 00:26:11,720 Speaker 1: focusing on are focusing on during this earning season with 519 00:26:11,800 --> 00:26:15,280 Speaker 1: the banks is not so much what they're reporting right now, 520 00:26:15,320 --> 00:26:17,960 Speaker 1: but just kind of the outlook for their business. Some 521 00:26:18,119 --> 00:26:22,000 Speaker 1: basic stuff like deposits is or you know, you know, 522 00:26:22,119 --> 00:26:24,920 Speaker 1: just kind of base banking one on one accounting. Herman 523 00:26:25,000 --> 00:26:28,399 Speaker 1: Chan Joints is here. He covers the regional banks. Herman 524 00:26:28,520 --> 00:26:31,520 Speaker 1: just give them what we've seen so far. What's your 525 00:26:31,560 --> 00:26:33,960 Speaker 1: takeaway from this US banking system in terms of its 526 00:26:34,359 --> 00:26:35,080 Speaker 1: general health. 527 00:26:35,440 --> 00:26:39,400 Speaker 10: Yeah, the overall, banking system looks fine. It's healthy. We're 528 00:26:39,440 --> 00:26:42,960 Speaker 10: seeing some deposit outflow, but that's natural given the state 529 00:26:43,119 --> 00:26:46,639 Speaker 10: of where interest rates are, and you have better alternatives 530 00:26:46,680 --> 00:26:50,439 Speaker 10: and money market funds. But you have a certain certain 531 00:26:50,480 --> 00:26:54,920 Speaker 10: amount of folks of banks that are still in the crosshairs, 532 00:26:54,960 --> 00:26:58,119 Speaker 10: like First Republic and Backwest. But overall, everybody that's reported 533 00:26:58,160 --> 00:27:00,920 Speaker 10: from the large cap region on the bank side has 534 00:27:01,000 --> 00:27:02,880 Speaker 10: shown a lot of stability, which is great to see. 535 00:27:03,840 --> 00:27:05,800 Speaker 2: What are What I want to know is what are 536 00:27:05,800 --> 00:27:10,880 Speaker 2: we seeing in terms of savings account or checking checking accounts? 537 00:27:10,920 --> 00:27:14,920 Speaker 2: Interest rates? Snapple came out with Goldman Sachs and they're 538 00:27:14,960 --> 00:27:18,320 Speaker 2: offering four point one nine percent, And I think four 539 00:27:18,359 --> 00:27:22,080 Speaker 2: percent is probably the bar that banks have to meet 540 00:27:22,160 --> 00:27:26,320 Speaker 2: in order to impress me now or the average American depositor. 541 00:27:26,400 --> 00:27:28,760 Speaker 2: I know that Americans are more likely to leave their 542 00:27:28,760 --> 00:27:32,399 Speaker 2: wives or husbands than change their bank accounts, but I 543 00:27:32,400 --> 00:27:35,040 Speaker 2: think that has changed drastically this year. So are they 544 00:27:35,040 --> 00:27:36,919 Speaker 2: going to all have to offer at least four percent? 545 00:27:38,040 --> 00:27:41,159 Speaker 10: That's not going to be the case. You're seeing banks, well, 546 00:27:41,200 --> 00:27:46,800 Speaker 10: then I'm out seats, but they're they're expecting a lot 547 00:27:46,840 --> 00:27:50,240 Speaker 10: of their remaining customers to be stable. It takes a 548 00:27:50,320 --> 00:27:53,680 Speaker 10: lot of effort and time and energy to change your bank. 549 00:27:53,800 --> 00:27:56,040 Speaker 10: But you can move some of your money into a 550 00:27:56,119 --> 00:27:59,119 Speaker 10: high yield savings account, which a lot of these renoal 551 00:27:59,119 --> 00:28:02,560 Speaker 10: banks do offer. But they're not going to reprice their 552 00:28:02,720 --> 00:28:06,360 Speaker 10: entire portfolio. That's not going to be how they manage 553 00:28:06,640 --> 00:28:10,000 Speaker 10: deposit costs and funding and because if they did that, 554 00:28:10,040 --> 00:28:13,400 Speaker 10: they would basically just creator their nana ors margins. 555 00:28:13,600 --> 00:28:17,920 Speaker 2: Is there a great way to compare banks rates the 556 00:28:18,080 --> 00:28:19,960 Speaker 2: rates that they have on offer? I mean, I just 557 00:28:20,080 --> 00:28:23,480 Speaker 2: pull up Huntington, which is where I bank, and I 558 00:28:23,560 --> 00:28:27,040 Speaker 2: look on their website as of April nineteenth, which is today. 559 00:28:27,680 --> 00:28:30,879 Speaker 2: I'm looking at rates depending on how whether you have 560 00:28:31,000 --> 00:28:35,080 Speaker 2: twenty five hundred in with them or look ninety nine 561 00:28:35,400 --> 00:28:39,640 Speaker 2: billion in with them. That have a zero point zero 562 00:28:39,920 --> 00:28:41,560 Speaker 2: in front of all of the numbers, and that's for 563 00:28:41,640 --> 00:28:44,200 Speaker 2: your bank zero point zero one, zero point zero two, 564 00:28:44,360 --> 00:28:47,080 Speaker 2: zero point zero six. That's if you have a private 565 00:28:47,160 --> 00:28:52,000 Speaker 2: client account. That's not enough by four hundred basis points. 566 00:28:52,240 --> 00:28:54,160 Speaker 2: How can they get away with it? Why do I 567 00:28:54,320 --> 00:28:55,280 Speaker 2: leave my money there? 568 00:28:55,360 --> 00:28:59,200 Speaker 10: Herman, That's the question you should ask yourself. You go 569 00:28:59,280 --> 00:29:01,880 Speaker 10: to bankrate dot com and you can see the menu 570 00:29:02,160 --> 00:29:07,720 Speaker 10: of offerings four point two five percent for Citizens, which 571 00:29:07,960 --> 00:29:10,719 Speaker 10: which just reported today. So that's a good list mis 572 00:29:10,840 --> 00:29:13,440 Speaker 10: test of what's out there. C I T Bank that's 573 00:29:13,560 --> 00:29:17,000 Speaker 10: that's the first uh first Citizens bank that bought SBB 574 00:29:17,440 --> 00:29:20,000 Speaker 10: that's four point seventy five percent, so you can get deals. 575 00:29:21,360 --> 00:29:24,840 Speaker 1: How about what are we seeing in terms of loan growth? 576 00:29:25,040 --> 00:29:28,400 Speaker 1: I mean if there was concern that if there was 577 00:29:28,480 --> 00:29:31,600 Speaker 1: concern there on the deposits and I go down to 578 00:29:31,680 --> 00:29:33,680 Speaker 1: my local bank to get a loan, I might not 579 00:29:33,880 --> 00:29:34,480 Speaker 1: be able to get it. 580 00:29:34,600 --> 00:29:36,400 Speaker 2: With a good question what we're seeing. 581 00:29:36,320 --> 00:29:38,920 Speaker 10: That's right. So there's some commentary on the call today 582 00:29:39,760 --> 00:29:42,959 Speaker 10: for Citizens, for example, they said they're tightening the screws 583 00:29:43,000 --> 00:29:47,440 Speaker 10: on underwriting because of their funding is declining and they 584 00:29:47,800 --> 00:29:51,920 Speaker 10: expect to see economic weakness down down the road. So 585 00:29:52,640 --> 00:29:54,880 Speaker 10: that's something that we've talked about that that could be 586 00:29:55,320 --> 00:29:59,160 Speaker 10: occurring across the system, and banks like Citizens have confirmed 587 00:29:59,200 --> 00:29:59,920 Speaker 10: that on their earnings call. 588 00:30:00,600 --> 00:30:03,920 Speaker 2: But credit crunch is a term that's been increasingly used 589 00:30:03,920 --> 00:30:06,720 Speaker 2: over the past two or three weeks. I'm gonna say 590 00:30:06,800 --> 00:30:09,719 Speaker 2: like three weekends ago. Neil Kashkari was on at one 591 00:30:09,720 --> 00:30:12,440 Speaker 2: of the Sunday shows and said, that's a concern, and 592 00:30:12,600 --> 00:30:15,760 Speaker 2: now everyone's starting to look at it. The fact that 593 00:30:16,120 --> 00:30:20,480 Speaker 2: you know, even if you're willing to pay seven percent 594 00:30:20,800 --> 00:30:23,120 Speaker 2: or whatever on a car loan, even if you have 595 00:30:23,600 --> 00:30:27,800 Speaker 2: an eight hundred credit rating a credit score, you're still 596 00:30:28,800 --> 00:30:31,480 Speaker 2: not able to get the loan right, is what we're 597 00:30:31,520 --> 00:30:34,440 Speaker 2: hearing from a lot of Americans. Is this going to 598 00:30:34,480 --> 00:30:37,120 Speaker 2: be a problem for banks? Is this gonna be a 599 00:30:37,160 --> 00:30:38,240 Speaker 2: problem for the US economy. 600 00:30:38,520 --> 00:30:41,280 Speaker 10: It's going to slow down load growth. And a lot 601 00:30:41,320 --> 00:30:43,400 Speaker 10: of that is self induced because they want to protect 602 00:30:43,400 --> 00:30:46,280 Speaker 10: themselves and don't want to create tail risk from credit 603 00:30:46,400 --> 00:30:51,760 Speaker 10: quality perspectives. So, and that does have implications for economic growth, 604 00:30:51,880 --> 00:30:55,440 Speaker 10: and the trajectory of credit availability is one of the 605 00:30:55,480 --> 00:31:01,560 Speaker 10: big factors of how our US economy grows. If availability 606 00:31:01,840 --> 00:31:04,440 Speaker 10: is softened, then that it definitely has implications. 607 00:31:05,040 --> 00:31:08,280 Speaker 1: Are banks going to or or have they started taking 608 00:31:08,440 --> 00:31:12,120 Speaker 1: more reserves for potentially a recessionary economy? 609 00:31:12,160 --> 00:31:12,360 Speaker 11: Are they? 610 00:31:12,440 --> 00:31:13,719 Speaker 1: Are you seeing that in the results? 611 00:31:14,200 --> 00:31:19,120 Speaker 10: It's come up marginally. I would say that the big factor, 612 00:31:19,240 --> 00:31:22,840 Speaker 10: the big issue that the big bogie across the industry 613 00:31:23,000 --> 00:31:25,720 Speaker 10: in this quarter was the focus on commercial real estate. 614 00:31:25,840 --> 00:31:28,600 Speaker 10: And you've seen a lot of the banks increase their 615 00:31:28,640 --> 00:31:31,880 Speaker 10: reserves specifically to the commercial real estate portfolio. Some of 616 00:31:31,920 --> 00:31:34,160 Speaker 10: the banks like M and TY are seeing some modest 617 00:31:34,280 --> 00:31:39,840 Speaker 10: charge offs related to those office property exposures. So it's 618 00:31:39,880 --> 00:31:43,040 Speaker 10: something that will be longer tailed and banks are prepared 619 00:31:43,120 --> 00:31:46,840 Speaker 10: for it. There continues to be some headline risk given 620 00:31:46,880 --> 00:31:47,800 Speaker 10: the fact that you. 621 00:31:48,440 --> 00:31:50,920 Speaker 1: Are there some banks that have exposure to what I 622 00:31:51,120 --> 00:31:52,960 Speaker 1: consider in not knowing anyth about real estate, but just 623 00:31:53,560 --> 00:31:56,280 Speaker 1: the office real estate markets in New York and San 624 00:31:56,320 --> 00:31:58,680 Speaker 1: Francisco and LA and things like that, are the banks 625 00:31:58,720 --> 00:32:00,360 Speaker 1: that are particularly exposed there. 626 00:32:00,800 --> 00:32:04,520 Speaker 10: Yeah, it's part of the portfolio. You know, banks like 627 00:32:05,480 --> 00:32:09,240 Speaker 10: M and T have some exposure banks like in your community, 628 00:32:09,760 --> 00:32:12,760 Speaker 10: but all in all, it's part of a broader portfolio. 629 00:32:12,920 --> 00:32:17,400 Speaker 10: And you're talking about office real estate that's fifteen ten, fifteen, 630 00:32:17,480 --> 00:32:20,680 Speaker 10: twenty percent of the overall commercial real estate portfolio. So 631 00:32:20,800 --> 00:32:25,440 Speaker 10: everything's pretty diversified, but you're gonna see some lumpiness going ahead. 632 00:32:25,800 --> 00:32:28,480 Speaker 2: Yeah, so that must be interesting as an analyst. You 633 00:32:28,560 --> 00:32:31,920 Speaker 2: have to look at their real estate loans and break 634 00:32:32,000 --> 00:32:38,680 Speaker 2: them out into what's you know, student housing, medical centers, apartments, malls, apartments, 635 00:32:38,840 --> 00:32:42,080 Speaker 2: office space. Is it difficult to do that research Herman, 636 00:32:42,200 --> 00:32:42,760 Speaker 2: is your job. 637 00:32:42,680 --> 00:32:48,800 Speaker 10: Hard, it's fascinating? Say yes, it's fun. I wouldn't say 638 00:32:48,840 --> 00:32:51,120 Speaker 10: it's hard. It's fun. I've been doing this for a while, 639 00:32:51,240 --> 00:32:53,680 Speaker 10: so I feel like I know what I'm what I'm 640 00:32:53,720 --> 00:32:58,360 Speaker 10: getting into. But definitely the issues that come up quarter 641 00:32:58,520 --> 00:33:02,480 Speaker 10: after quarter can change. And so the office thing is 642 00:33:02,560 --> 00:33:05,320 Speaker 10: something that has popped up more frequently after the pandemic. 643 00:33:05,480 --> 00:33:10,040 Speaker 10: It's been on people's radar screens. But we're looking for 644 00:33:10,160 --> 00:33:13,080 Speaker 10: better disclosure across the group. So the challenging part is 645 00:33:13,200 --> 00:33:17,640 Speaker 10: not everybody discloses their office ciis we're trying to coax 646 00:33:17,720 --> 00:33:18,360 Speaker 10: them to do. 647 00:33:18,680 --> 00:33:20,280 Speaker 2: So you have to call up ir. You have to 648 00:33:20,320 --> 00:33:22,000 Speaker 2: call it the CFO and be like, dude, come on, 649 00:33:22,120 --> 00:33:23,280 Speaker 2: give me the breakdown. 650 00:33:22,920 --> 00:33:25,520 Speaker 10: Exactly, give me the numbers so I can make some assessment. 651 00:33:25,760 --> 00:33:29,040 Speaker 1: There you go, Hermit Chan, senior Anaal's doing that handles stuff, 652 00:33:29,200 --> 00:33:29,400 Speaker 1: you know. 653 00:33:29,640 --> 00:33:30,840 Speaker 2: Which is fun but not hard. 654 00:33:30,880 --> 00:33:34,520 Speaker 1: Apparently I hope his boss isn't listening exactly, Herman Chan, 655 00:33:34,600 --> 00:33:37,200 Speaker 1: he's the senior animals covers the US regional banks and 656 00:33:37,280 --> 00:33:42,200 Speaker 1: fintech for Bloomberg Intelligence. We've got some the earnings coming 657 00:33:42,280 --> 00:33:45,080 Speaker 1: up from the banks and generally, you know on the 658 00:33:45,200 --> 00:33:48,800 Speaker 1: margin better than expected for most of them, including some 659 00:33:48,880 --> 00:33:51,480 Speaker 1: of the regional banks. So maybe, just maybe some of 660 00:33:51,560 --> 00:33:54,400 Speaker 1: that pressure can come out of those banking stocks. 661 00:33:54,720 --> 00:33:57,160 Speaker 5: You're listening to the tape. Catch a our live program, 662 00:33:57,280 --> 00:34:01,200 Speaker 5: Bloomberg Markets weekdays at ten am Eastern on Bloomberg Radio, 663 00:34:01,400 --> 00:34:04,080 Speaker 5: the tune in app, Bloomberg dot Com, and the Bloomberg 664 00:34:04,160 --> 00:34:07,200 Speaker 5: Business App. You can also listen live on Amazon Alexa 665 00:34:07,320 --> 00:34:10,640 Speaker 5: from our flagship New York station, Just Say Alexa, playing 666 00:34:10,719 --> 00:34:12,000 Speaker 5: Bloomberg eleven thirty. 667 00:34:13,880 --> 00:34:16,800 Speaker 1: You know, man, I drove my first Tkiya ever this weekend, 668 00:34:16,840 --> 00:34:18,359 Speaker 1: the Kia Soul. I rented it when I was out 669 00:34:18,360 --> 00:34:21,040 Speaker 1: in California, and it was a very good experience. It 670 00:34:21,080 --> 00:34:22,320 Speaker 1: was pretty cool. It's got some peppin. 671 00:34:22,440 --> 00:34:22,600 Speaker 10: Man. 672 00:34:22,920 --> 00:34:24,359 Speaker 1: I was flying out the one time. 673 00:34:24,600 --> 00:34:27,719 Speaker 2: I like the original one. Uh, it was like more box. 674 00:34:27,840 --> 00:34:30,480 Speaker 2: He wasn't okay, and I've always whenever I see him, 675 00:34:30,480 --> 00:34:32,399 Speaker 2: I point him out to my wife and she's like, yeah, 676 00:34:32,400 --> 00:34:34,920 Speaker 2: I know a Kia Soul, but I think they're so cool. Okay. 677 00:34:35,320 --> 00:34:38,279 Speaker 1: Steve Center joins us. He's the COO and EVP of 678 00:34:38,440 --> 00:34:42,240 Speaker 1: Kia America. Before that, he spent thirty years at Honda, 679 00:34:42,320 --> 00:34:45,040 Speaker 1: so he knows the car business here. Hey, Steve, thanks 680 00:34:45,080 --> 00:34:47,800 Speaker 1: so much for joining us here. Again. I had a 681 00:34:47,800 --> 00:34:49,840 Speaker 1: great experience with my Kia Soul over the weekend, so 682 00:34:49,920 --> 00:34:52,000 Speaker 1: thanks for that. Give us a sense of just kind 683 00:34:52,040 --> 00:34:55,759 Speaker 1: of how your business has kind of weathered through the 684 00:34:55,840 --> 00:34:58,320 Speaker 1: last you know, two three four years with a pandemic 685 00:34:58,440 --> 00:35:02,200 Speaker 1: and the chip shortages and and demand sputtering here and there. 686 00:35:02,400 --> 00:35:04,360 Speaker 1: Talk to us about how Key has performed over the 687 00:35:04,440 --> 00:35:04,960 Speaker 1: last few years. 688 00:35:05,880 --> 00:35:08,280 Speaker 12: Well, first of all, thanks for having us on this morning, 689 00:35:09,080 --> 00:35:13,000 Speaker 12: and renting a Soul was my first Key experience as well, 690 00:35:13,440 --> 00:35:16,759 Speaker 12: so I can relate to that. It's a great little car. 691 00:35:17,400 --> 00:35:17,560 Speaker 6: You know. 692 00:35:17,719 --> 00:35:21,200 Speaker 12: It's been a pretty wild ride for the last few years, 693 00:35:21,719 --> 00:35:28,080 Speaker 12: and between the lockdowns, the whole industry absorbed probably three 694 00:35:28,239 --> 00:35:32,160 Speaker 12: or four months supply of inventory. We've been running on 695 00:35:32,360 --> 00:35:36,800 Speaker 12: vapors ever since, and Key has done exceptionally well in 696 00:35:36,920 --> 00:35:39,840 Speaker 12: that instance. And a lot of it's due to product, 697 00:35:39,960 --> 00:35:42,720 Speaker 12: you know, the six p's product, product, product, product, product, 698 00:35:42,719 --> 00:35:48,279 Speaker 12: and product and demand's been strong. The supply chain is 699 00:35:49,719 --> 00:35:53,560 Speaker 12: immature in some senses, especially on the EV side, and 700 00:35:53,840 --> 00:35:56,960 Speaker 12: as we renew our products and you have more and 701 00:35:57,080 --> 00:36:00,600 Speaker 12: more tech in them, you're using new chip and there 702 00:36:00,640 --> 00:36:04,840 Speaker 12: aren't built up inventories of those, so the demand's been strong. 703 00:36:04,920 --> 00:36:09,600 Speaker 12: We've introduced award winning cars all around, the EV six. 704 00:36:09,719 --> 00:36:14,160 Speaker 12: The EV six GT's been named North American Car of 705 00:36:14,200 --> 00:36:18,000 Speaker 12: the Year. The Tell You Ride is one awards. It's 706 00:36:18,040 --> 00:36:23,440 Speaker 12: a whole new brand for attracting new customers, younger, better educated, wealthier. 707 00:36:23,640 --> 00:36:26,520 Speaker 2: I had to say, Steve, for those who don't, I 708 00:36:26,600 --> 00:36:30,200 Speaker 2: follow the automotive innessry very closely and I work closely 709 00:36:30,280 --> 00:36:33,680 Speaker 2: with FMI. They manage your fleet here on the East Coast, 710 00:36:33,840 --> 00:36:36,759 Speaker 2: and so I test drive at pretty much every car 711 00:36:36,840 --> 00:36:41,239 Speaker 2: that's out there. Kia has been knocking the cover off 712 00:36:41,480 --> 00:36:44,239 Speaker 2: the ball with the products that I mean. First thing 713 00:36:44,280 --> 00:36:46,600 Speaker 2: I noticed a couple of years ago is the Taller Ride, 714 00:36:46,640 --> 00:36:49,440 Speaker 2: which I think is just a range Rover killer, and 715 00:36:49,680 --> 00:36:52,839 Speaker 2: that at like a third or a quarter the price right, 716 00:36:53,239 --> 00:36:57,520 Speaker 2: and they just I think are knockout vehicles and I 717 00:36:57,640 --> 00:37:00,719 Speaker 2: love driving it as well. Then I got in the 718 00:37:02,200 --> 00:37:07,920 Speaker 2: EV six GT, which was an unbelievable experience. I mean, 719 00:37:07,960 --> 00:37:11,680 Speaker 2: the speed that's capable that that vehicle is capable of 720 00:37:12,360 --> 00:37:15,600 Speaker 2: is just eye opening. You blow away Porsche's off the 721 00:37:15,719 --> 00:37:18,880 Speaker 2: line and you're in a Kia. So it's I think 722 00:37:18,960 --> 00:37:21,840 Speaker 2: a whole new brand. It's a whole new product offering. 723 00:37:21,920 --> 00:37:24,840 Speaker 2: I can't wait to drive the EV nine, which is 724 00:37:25,040 --> 00:37:29,319 Speaker 2: the big all electric suv. I'm obviously a fanboy. Where 725 00:37:29,360 --> 00:37:31,879 Speaker 2: do you want to go with this? Because you started out, 726 00:37:32,080 --> 00:37:36,239 Speaker 2: as you know, an affordable Korean brand, and a lot 727 00:37:36,320 --> 00:37:39,880 Speaker 2: of people, I think, especially back then, were more xenophobic 728 00:37:39,960 --> 00:37:40,400 Speaker 2: than they are. 729 00:37:40,560 --> 00:37:40,719 Speaker 4: Now. 730 00:37:41,840 --> 00:37:46,799 Speaker 2: You've got an entirely new image and expectations are are 731 00:37:46,880 --> 00:37:50,520 Speaker 2: getting higher and higher and higher for Kia products. Where 732 00:37:50,560 --> 00:37:54,320 Speaker 2: are you aiming your your range of products? 733 00:37:55,040 --> 00:38:00,800 Speaker 12: So if you had to define us, we want to 734 00:38:00,880 --> 00:38:05,280 Speaker 12: be a sustainable mobility company. And that's kind of a mouthful, 735 00:38:05,400 --> 00:38:08,320 Speaker 12: so let me describe that. We're going to expand the 736 00:38:08,360 --> 00:38:11,279 Speaker 12: product line right now. We've got a very exciting line 737 00:38:11,320 --> 00:38:15,520 Speaker 12: of internal combustion powered vehicles, a whole new line coming 738 00:38:15,800 --> 00:38:19,480 Speaker 12: of electric powered vehicles, which is a whole different experience 739 00:38:19,560 --> 00:38:23,600 Speaker 12: for people, and we're getting into different types of vehicles 740 00:38:23,719 --> 00:38:28,520 Speaker 12: like purpose built vehicles as well. So Kia celebrating its 741 00:38:28,640 --> 00:38:32,200 Speaker 12: thirtieth year as a business in the US this year, 742 00:38:32,680 --> 00:38:35,719 Speaker 12: and this is just the beginning. It's a whole new 743 00:38:35,760 --> 00:38:39,160 Speaker 12: start for the company and in the marketplace. 744 00:38:38,800 --> 00:38:42,960 Speaker 2: Are the sales numbers. Are you able to sell? I mean, 745 00:38:43,000 --> 00:38:45,759 Speaker 2: I assume you sell as many as you produce. Are 746 00:38:45,840 --> 00:38:47,520 Speaker 2: you hitting new records every year? 747 00:38:47,600 --> 00:38:50,680 Speaker 12: In terms of US sale new records. We've had six 748 00:38:50,840 --> 00:38:53,560 Speaker 12: or seven sales month records. We almost hit a sales 749 00:38:53,680 --> 00:38:57,560 Speaker 12: record last year. We hit a quarter record this year. 750 00:38:57,960 --> 00:39:01,000 Speaker 12: It's as soon as we can get them, they're sold. 751 00:39:01,120 --> 00:39:05,080 Speaker 12: Many of our dealers have wait lists of vehicles, so 752 00:39:06,400 --> 00:39:08,400 Speaker 12: as soon as we can make them, they're gone. And 753 00:39:08,560 --> 00:39:11,520 Speaker 12: as many as we can make this year will be 754 00:39:11,640 --> 00:39:12,280 Speaker 12: the new record. 755 00:39:12,760 --> 00:39:15,600 Speaker 2: Are you Are you constrained by the chip and supply 756 00:39:15,719 --> 00:39:17,360 Speaker 2: chain issues? I mean, I have a buddy who just 757 00:39:17,440 --> 00:39:19,680 Speaker 2: got a Kia Tell You Ride and we all followed 758 00:39:19,760 --> 00:39:23,320 Speaker 2: his journey very closely. I think he waited eight months 759 00:39:23,440 --> 00:39:26,600 Speaker 2: to get the vehicle. Are you able to bring that down? 760 00:39:27,719 --> 00:39:30,640 Speaker 12: We're getting caught up. I think everyone has their own 761 00:39:30,719 --> 00:39:35,520 Speaker 12: supply challenges, and it's pretty interesting what pops up that 762 00:39:35,640 --> 00:39:39,200 Speaker 12: you can't get because of some component, and it's it's 763 00:39:39,280 --> 00:39:42,120 Speaker 12: mostly chips, but it's other things. But we were able 764 00:39:42,200 --> 00:39:45,800 Speaker 12: to increase Tell Your Ride production over twenty percent in 765 00:39:45,960 --> 00:39:49,320 Speaker 12: terms of on an annual run rate despite all of this. 766 00:39:49,920 --> 00:39:53,359 Speaker 12: So we're working very hard to satisfy the demand that's 767 00:39:53,440 --> 00:39:53,799 Speaker 12: out there. 768 00:39:54,040 --> 00:39:56,279 Speaker 1: Well, I do notice, and it says it's a totally 769 00:39:56,280 --> 00:39:59,320 Speaker 1: irrelevant point, but I noticed it. I like the new logo. 770 00:39:59,600 --> 00:40:01,680 Speaker 2: Y I don't think it's a really I think it 771 00:40:01,719 --> 00:40:02,240 Speaker 2: looks awesome. 772 00:40:02,320 --> 00:40:04,640 Speaker 1: I mean usually companies screw that up when they update 773 00:40:04,719 --> 00:40:06,360 Speaker 1: something and they change something, they screwed up it and 774 00:40:06,440 --> 00:40:09,880 Speaker 1: kiss it's a big improvement. So whatever marketing geek at 775 00:40:10,000 --> 00:40:11,439 Speaker 1: Kia did that, you can get him a pep pat 776 00:40:11,480 --> 00:40:14,960 Speaker 1: on the back there. But where do you produce your cars, Steve? 777 00:40:15,000 --> 00:40:16,759 Speaker 1: Are they in Korea in the US? 778 00:40:16,800 --> 00:40:17,960 Speaker 2: And are you going to be able to get the 779 00:40:18,040 --> 00:40:19,880 Speaker 2: IRA Are you going to be able to get the 780 00:40:20,640 --> 00:40:23,880 Speaker 2: tax credit? Because I know that's been incredibly confusing, but 781 00:40:23,960 --> 00:40:25,640 Speaker 2: it's probably important to your consumers. 782 00:40:26,600 --> 00:40:30,160 Speaker 12: Yes, and that's a mouthful. So we produce a lot 783 00:40:30,239 --> 00:40:33,520 Speaker 12: of our products in North America. We have a plant 784 00:40:33,560 --> 00:40:37,880 Speaker 12: in Mexico, and we have a plant in West Point, Georgia, 785 00:40:38,480 --> 00:40:41,000 Speaker 12: and we build the Teller Ride there, the Sorrento, the 786 00:40:41,120 --> 00:40:44,720 Speaker 12: K five and the Sportage which is our mid size, 787 00:40:45,160 --> 00:40:47,960 Speaker 12: our new mid size suv, and the balance of the 788 00:40:48,040 --> 00:40:54,160 Speaker 12: cars are sourced from plants in Korea, and we announced 789 00:40:54,200 --> 00:40:57,760 Speaker 12: in August before the IRA was passed that we're building 790 00:40:57,960 --> 00:41:00,759 Speaker 12: the what we call the Meta Plant, which is a 791 00:41:00,840 --> 00:41:05,320 Speaker 12: battery and EV factory just north of Savannah, Georgia. So 792 00:41:06,320 --> 00:41:08,520 Speaker 12: we have a commitment to build more and more cars 793 00:41:08,560 --> 00:41:12,480 Speaker 12: here despite the regulations. So we're doing all the right 794 00:41:12,600 --> 00:41:17,239 Speaker 12: things right now. Because of the way the IRA was 795 00:41:17,400 --> 00:41:20,919 Speaker 12: a bit of a i'll call it a sheet pull, 796 00:41:21,360 --> 00:41:24,120 Speaker 12: you know, we pulled the tablecloth out from under the 797 00:41:24,160 --> 00:41:27,480 Speaker 12: place settings on everybody. So the cars don't qualify, and 798 00:41:27,560 --> 00:41:29,160 Speaker 12: I think if you look on the list that went 799 00:41:29,239 --> 00:41:32,720 Speaker 12: from thirty or so cars that qualified to maybe nine. 800 00:41:33,320 --> 00:41:37,520 Speaker 12: But pretty soon they will. And it's very important to 801 00:41:37,600 --> 00:41:40,200 Speaker 12: our customers to get as good a value as possible. 802 00:41:40,680 --> 00:41:43,920 Speaker 12: So we're doing all the right things. It'll take a 803 00:41:43,960 --> 00:41:44,480 Speaker 12: little time. 804 00:41:44,960 --> 00:41:47,120 Speaker 1: Hi, Steve, thanks much for joining us. Really appreciate it. 805 00:41:48,000 --> 00:41:52,120 Speaker 1: Steve Center, COO and EVP of Kia America. And again 806 00:41:52,160 --> 00:41:55,360 Speaker 1: I took my first kias tell you go on. 807 00:41:55,520 --> 00:41:58,920 Speaker 2: The Kia dot com website and use the configurator to 808 00:41:58,960 --> 00:42:01,080 Speaker 2: build some of these vehicles. Are pretty awesome, all right. 809 00:42:00,960 --> 00:42:02,000 Speaker 1: Pretty cool. I'll take a look. 810 00:42:02,280 --> 00:42:05,360 Speaker 5: You're listening to the tape catch our live program Bloomberg 811 00:42:05,480 --> 00:42:09,040 Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the 812 00:42:09,120 --> 00:42:12,319 Speaker 5: tune in app, Bloomberg dot Com, and the Bloomberg Business App. 813 00:42:12,400 --> 00:42:15,160 Speaker 5: You can also listen live on Amazon Alexa from our 814 00:42:15,239 --> 00:42:19,600 Speaker 5: flagship New York station. Just say Alexa play Bloomberg eleven thirty. 815 00:42:21,200 --> 00:42:22,600 Speaker 1: I want to switch. Here's here on a bit to 816 00:42:22,640 --> 00:42:25,560 Speaker 1: our good friends at Fox. The stock is down one 817 00:42:25,600 --> 00:42:30,080 Speaker 1: point seven percent. They had a legal settlement yesterday for 818 00:42:30,480 --> 00:42:32,799 Speaker 1: like seven hundred and eighty seven million dollars. I want 819 00:42:32,840 --> 00:42:34,960 Speaker 1: to get to the bottom of that. What's that mean 820 00:42:35,000 --> 00:42:37,200 Speaker 1: for the company? What is that what kind of what 821 00:42:37,320 --> 00:42:40,080 Speaker 1: does that signal about what's happening at Fox. Matt Sheltenhelm, 822 00:42:40,360 --> 00:42:43,080 Speaker 1: he's a senior litigation analyst with Bloomberg Intelligence. He joins 823 00:42:43,120 --> 00:42:46,200 Speaker 1: us on the phone to talk to us. So, Matt, 824 00:42:46,360 --> 00:42:49,000 Speaker 1: talk to us about this settlement and kind of what 825 00:42:49,200 --> 00:42:51,680 Speaker 1: happened and what does it represent to you, Hi. 826 00:42:51,680 --> 00:42:55,279 Speaker 11: Paul, Yeah. So yeah, we were on the eve of 827 00:42:55,680 --> 00:42:58,919 Speaker 11: we were about to begin trial yesterday, and just as 828 00:42:59,200 --> 00:43:04,160 Speaker 11: the opening statements were we're going to begin, the attorneys 829 00:43:04,200 --> 00:43:07,160 Speaker 11: didn't return to the courtroom and we had an announced settlement. 830 00:43:07,560 --> 00:43:11,960 Speaker 11: We expected a settlement before the jury would rule but 831 00:43:12,200 --> 00:43:14,479 Speaker 11: this one came in at a little bit steeper price 832 00:43:14,560 --> 00:43:17,279 Speaker 11: tag than we expected. I think we had had ball 833 00:43:17,360 --> 00:43:20,080 Speaker 11: parked it at five hundred million dollars, and I think 834 00:43:20,160 --> 00:43:25,000 Speaker 11: Dominion drove a stiffer bargain and and and pushed Fox 835 00:43:25,160 --> 00:43:27,480 Speaker 11: to settle for seven hundred and eighty seven million dollars. 836 00:43:27,560 --> 00:43:32,359 Speaker 11: That equates to about forty three percent of Fox's net 837 00:43:32,440 --> 00:43:35,400 Speaker 11: income for the year. So it's a big deal for 838 00:43:35,520 --> 00:43:38,400 Speaker 11: the company. And I think it's a big deal as 839 00:43:38,480 --> 00:43:41,319 Speaker 11: well because there's a second case trailing behind this one 840 00:43:41,440 --> 00:43:45,000 Speaker 11: and Fox. Fox isn't done with this yet, so. 841 00:43:46,560 --> 00:43:48,840 Speaker 2: But they it seems like they've spent eight hundred million 842 00:43:48,960 --> 00:43:53,560 Speaker 2: dollars to avoid the embarrassment of having Rupert and Lachlan 843 00:43:53,840 --> 00:44:00,319 Speaker 2: and Tucker and Hannity, Hannity, you know, testify. Are they 844 00:44:00,360 --> 00:44:04,000 Speaker 2: going to have to spend that kind of money again, 845 00:44:04,400 --> 00:44:07,439 Speaker 2: or is this testimony going to eventually come out? 846 00:44:07,960 --> 00:44:11,520 Speaker 11: Yeah, So I really don't see any way that they 847 00:44:11,680 --> 00:44:14,840 Speaker 11: don't end up paying at least that for this this 848 00:44:15,000 --> 00:44:18,400 Speaker 11: second case. Now, the suit that was settled yesterday was 849 00:44:18,440 --> 00:44:22,120 Speaker 11: a company called Dominion. The second suit is a company 850 00:44:22,200 --> 00:44:26,640 Speaker 11: called Smartmatic. And when both of these companies filed their 851 00:44:26,680 --> 00:44:33,000 Speaker 11: initial complaints, Smartmatics was actually seeking much more than Dominion 852 00:44:33,160 --> 00:44:36,480 Speaker 11: was in terms of the damages here. They sought two 853 00:44:36,560 --> 00:44:40,680 Speaker 11: point seven billion dollars in lost enterprise value. Dominion was 854 00:44:40,719 --> 00:44:44,840 Speaker 11: only seeking a billion dollars. And so, you know, I 855 00:44:45,160 --> 00:44:47,680 Speaker 11: really do think that you're exactly right that Fox was 856 00:44:47,719 --> 00:44:52,000 Speaker 11: settling this to avoid the spectacle of a trial. And 857 00:44:52,640 --> 00:44:57,000 Speaker 11: it's very difficult to see them going ahead with a trial, 858 00:44:57,320 --> 00:45:00,759 Speaker 11: and that would do the same thing with this Marmatic case. 859 00:45:00,760 --> 00:45:03,120 Speaker 11: So I think it might be facing an even bigger 860 00:45:03,239 --> 00:45:06,279 Speaker 11: price tag, uh to get away from that second one. 861 00:45:06,360 --> 00:45:09,400 Speaker 2: You know, that leads me to two questions. One, is 862 00:45:09,480 --> 00:45:15,640 Speaker 2: it really billions of dollars worth of embarrassing to have 863 00:45:16,560 --> 00:45:22,360 Speaker 2: Tucker Carlson and uh Sean Hannity, you know, testify, to 864 00:45:22,400 --> 00:45:26,239 Speaker 2: have Rupert and Lachlan Murdock testify. Is it are are 865 00:45:26,320 --> 00:45:29,160 Speaker 2: there really that many secrets that they need to keep uh, 866 00:45:29,440 --> 00:45:33,360 Speaker 2: you know, two billion dollars worth, let's say, Or is 867 00:45:33,440 --> 00:45:36,520 Speaker 2: it worth it to Fox to spend two billion dollars 868 00:45:36,960 --> 00:45:41,200 Speaker 2: to continue to stir up and promote you know, partisanship 869 00:45:41,360 --> 00:45:45,640 Speaker 2: and anger. Is that part of their brand? And and 870 00:45:45,680 --> 00:45:48,759 Speaker 2: they're and they're making enough money from that part of 871 00:45:48,800 --> 00:45:51,200 Speaker 2: the brand to keep to keep ongoing that direction. 872 00:45:51,560 --> 00:45:53,800 Speaker 11: Yeah, it's a great question, I mean, and part of 873 00:45:53,840 --> 00:45:57,320 Speaker 11: me was surprised that they that Fox let this dominion 874 00:45:57,480 --> 00:45:59,759 Speaker 11: case get as far as it did. All of the 875 00:46:00,000 --> 00:46:02,520 Speaker 11: a lot of this stuff came out because Fox, you know, 876 00:46:02,600 --> 00:46:04,880 Speaker 11: Fox could have settled it much earlier, but it let 877 00:46:04,960 --> 00:46:07,040 Speaker 11: it go ahead to a summary judgment ruling where we 878 00:46:07,239 --> 00:46:10,640 Speaker 11: saw you know, a lot of these harmful facts already. 879 00:46:11,080 --> 00:46:15,440 Speaker 11: I think the concern, though, is a trial over a 880 00:46:15,520 --> 00:46:20,120 Speaker 11: couple months, with with testimony puts a much larger spotlight 881 00:46:20,239 --> 00:46:22,600 Speaker 11: on this that might actually start to reach its core 882 00:46:22,680 --> 00:46:24,960 Speaker 11: audience in a way that might have been you know, 883 00:46:25,200 --> 00:46:29,960 Speaker 11: more more disruptive than just the legal filings on summary judgment. 884 00:46:30,320 --> 00:46:32,120 Speaker 2: I mean, as long as they don't cover it on Fox, 885 00:46:32,320 --> 00:46:34,600 Speaker 2: will his core audience ever even find out? 886 00:46:35,280 --> 00:46:37,480 Speaker 11: That's a good question. That's a good question. But I 887 00:46:37,920 --> 00:46:40,040 Speaker 11: think you know, the fact that they were willing to 888 00:46:40,160 --> 00:46:43,840 Speaker 11: settle this one yesterday for you know, seven hundred and 889 00:46:43,880 --> 00:46:46,799 Speaker 11: eighty seven million dollars is not you know, a pocket change. 890 00:46:46,840 --> 00:46:49,040 Speaker 11: It's it's it's a it's a real impact. I think 891 00:46:49,120 --> 00:46:52,840 Speaker 11: it suggests that there is real concern about what that 892 00:46:53,000 --> 00:46:53,600 Speaker 11: might lead. 893 00:46:53,520 --> 00:46:56,360 Speaker 1: To real quick bout ten seconds, Matt, when's what's the 894 00:46:56,440 --> 00:46:57,960 Speaker 1: timing of the second case? 895 00:46:58,000 --> 00:47:01,120 Speaker 11: So yeah, that one's trailing about a year behind. That 896 00:47:01,360 --> 00:47:04,960 Speaker 11: discovery wasn't set to close until July of next year, 897 00:47:05,120 --> 00:47:09,120 Speaker 11: so there's time for negotiations there. But I wouldn't expect 898 00:47:09,719 --> 00:47:12,839 Speaker 11: you to drag out very long. I would think there's 899 00:47:12,840 --> 00:47:15,000 Speaker 11: an incentive to settle this sooner rather. 900 00:47:15,000 --> 00:47:18,200 Speaker 2: Especially before we get deeper and deeper into president election. 901 00:47:18,640 --> 00:47:22,200 Speaker 1: All Right, Matt, thanks for that. We appreciate your analysis there. 902 00:47:22,280 --> 00:47:25,560 Speaker 1: Matt setting Heelm he's a senior litigation analyst for Bloomberg 903 00:47:25,560 --> 00:47:29,160 Speaker 1: Intelligence following this trial between Fox and some of the 904 00:47:29,239 --> 00:47:30,560 Speaker 1: voting machine companies. 905 00:47:31,040 --> 00:47:34,120 Speaker 5: You're listening to the tape Cat's are live program Bloomberg 906 00:47:34,200 --> 00:47:37,759 Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the 907 00:47:37,880 --> 00:47:41,080 Speaker 5: tune in app, Bloomberg dot Com, and the Bloomberg Business App. 908 00:47:41,120 --> 00:47:43,920 Speaker 5: You can also listen live on Amazon Alexa from our 909 00:47:43,960 --> 00:47:48,360 Speaker 5: flagship New York station. Just say Alexa play Bloomberg eleven thirty. 910 00:47:50,000 --> 00:47:52,520 Speaker 1: I guess this is time of a big pivot for Netflix. 911 00:47:52,600 --> 00:47:55,600 Speaker 1: It's going from a story that's driven almost entirely by 912 00:47:55,640 --> 00:47:59,120 Speaker 1: subscriber growth to now it's focusing on profitability and how 913 00:47:59,120 --> 00:48:01,640 Speaker 1: do they you know, kind of drive profitability. And a 914 00:48:01,680 --> 00:48:04,080 Speaker 1: couple of levers that they are talking about is this 915 00:48:04,280 --> 00:48:07,840 Speaker 1: AD supported tier as well as cracking down on the 916 00:48:08,160 --> 00:48:11,759 Speaker 1: nearly one hundred million folks who kind of share their credentials. 917 00:48:11,800 --> 00:48:14,359 Speaker 1: And I'm thinking there is such a nice word to use, 918 00:48:14,560 --> 00:48:17,239 Speaker 1: big stealing exactly, let's face it. And I think it 919 00:48:17,280 --> 00:48:19,400 Speaker 1: may include some of the Sweeny offspring as well. I 920 00:48:19,480 --> 00:48:22,520 Speaker 1: can't you know, prove that, but that's mysumptions. Let's bring 921 00:48:22,600 --> 00:48:25,760 Speaker 1: in Mark Douglas. He's the president's CEO of Mountain. Mountain 922 00:48:25,920 --> 00:48:30,040 Speaker 1: is the advertising software company enabling brands to drive measurable conversions, 923 00:48:30,120 --> 00:48:32,640 Speaker 1: revenue and site visit. So he's all in on this 924 00:48:33,080 --> 00:48:35,560 Speaker 1: digital advertising space. Mark, thanks so much for taking the 925 00:48:35,600 --> 00:48:38,160 Speaker 1: time to join us here. What was your takeaway from 926 00:48:38,239 --> 00:48:39,880 Speaker 1: kind of what we heard from the good folks at 927 00:48:40,280 --> 00:48:43,239 Speaker 1: Netflix last night? I say, again, continue to pivot this 928 00:48:43,320 --> 00:48:45,640 Speaker 1: company and focus on profitability. 929 00:48:47,200 --> 00:48:48,799 Speaker 7: Yeah, so the good morning. 930 00:48:48,920 --> 00:48:52,279 Speaker 9: The two big nuggets that I kind of took away 931 00:48:52,320 --> 00:48:56,680 Speaker 9: from that is one is if you back up, the 932 00:48:56,760 --> 00:48:59,640 Speaker 9: big concern is when they introduce their ad business that 933 00:48:59,640 --> 00:49:03,400 Speaker 9: it would cannibalize a subscription business, and so like, if 934 00:49:03,480 --> 00:49:06,799 Speaker 9: they lost twenty percent of their subscribers, said well, we're 935 00:49:06,800 --> 00:49:08,640 Speaker 9: going to go for the ad supported option, but they 936 00:49:08,719 --> 00:49:12,759 Speaker 9: didn't have the revenue yet to fill in that gap, 937 00:49:12,880 --> 00:49:14,440 Speaker 9: that would be a huge problem from Netflix. 938 00:49:14,560 --> 00:49:16,880 Speaker 7: That didn't happen. The exact opposite happened. 939 00:49:17,280 --> 00:49:21,319 Speaker 9: It looks like the ad supported business is completely accreative, 940 00:49:22,120 --> 00:49:26,040 Speaker 9: meaning that it's actually adding entirely new revenue from new 941 00:49:26,080 --> 00:49:28,880 Speaker 9: subscribers for the most part. And on top of that, 942 00:49:29,120 --> 00:49:31,560 Speaker 9: they announced and I think this might have been overlooked 943 00:49:31,560 --> 00:49:34,360 Speaker 9: by a few people, that they're actually making more revenue 944 00:49:34,400 --> 00:49:37,680 Speaker 9: per subscriber on the ad supported business than they are 945 00:49:37,880 --> 00:49:41,360 Speaker 9: on a subscription business. So that's just a massive opportunity. 946 00:49:41,400 --> 00:49:44,640 Speaker 9: It has the potential to literally double the size of 947 00:49:44,680 --> 00:49:45,160 Speaker 9: the company. 948 00:49:45,520 --> 00:49:48,120 Speaker 2: And what are the numbers? Stopping give us the numbers? 949 00:49:48,200 --> 00:49:52,640 Speaker 2: What are they making? You know, what does the average 950 00:49:52,680 --> 00:49:56,640 Speaker 2: subscriber pay and what does the you know, ad supported 951 00:49:56,760 --> 00:49:59,879 Speaker 2: subscriber pay and get in terms of add money? 952 00:50:00,440 --> 00:50:05,040 Speaker 9: Right, so the average subscriber plan is around fifteen dollars. 953 00:50:06,040 --> 00:50:08,920 Speaker 9: They didn't break they just said that they're getting higher 954 00:50:09,080 --> 00:50:12,919 Speaker 9: than that for the ad supported So they didn't say 955 00:50:13,000 --> 00:50:16,400 Speaker 9: how much higher, but think of Netflix, they're you know, 956 00:50:16,520 --> 00:50:20,880 Speaker 9: thirty billion plus in revenue. The estimates, I think pretty 957 00:50:21,200 --> 00:50:25,440 Speaker 9: educated estimates are that the ad business is already looking 958 00:50:25,520 --> 00:50:27,600 Speaker 9: at a three billion in the first year. So they're 959 00:50:27,719 --> 00:50:30,520 Speaker 9: right out the gate with ten percent of their revenue 960 00:50:31,680 --> 00:50:34,600 Speaker 9: coming from the ad supported tier and again in not 961 00:50:34,920 --> 00:50:38,759 Speaker 9: just being subscribers switching from one to another, but being 962 00:50:39,239 --> 00:50:43,720 Speaker 9: new revenue and you know, essentially higher lifetime value. 963 00:50:43,800 --> 00:50:45,160 Speaker 7: So I think that's a big opportunity. 964 00:50:45,200 --> 00:50:49,400 Speaker 9: The issue they're going to have is that the revenue 965 00:50:49,440 --> 00:50:51,680 Speaker 9: they get from the subscriber, actually most of it comes 966 00:50:51,719 --> 00:50:54,960 Speaker 9: from the largest brands in the world, it comes from 967 00:50:55,000 --> 00:50:58,280 Speaker 9: the advertisers, so that can create a bit of revenue 968 00:50:58,320 --> 00:50:59,960 Speaker 9: concentration over time. 969 00:51:00,680 --> 00:51:03,080 Speaker 7: And then the other big issue is, well, you know, 970 00:51:03,239 --> 00:51:03,840 Speaker 7: to zero some. 971 00:51:04,000 --> 00:51:06,880 Speaker 9: Game, if they're getting money from these advertises, then then 972 00:51:06,960 --> 00:51:11,080 Speaker 9: that's coming out of Disney's pocket or who Discovery's pocket. Yeah, 973 00:51:11,200 --> 00:51:13,880 Speaker 9: so so now they're facing a new type of competitor. 974 00:51:14,000 --> 00:51:17,719 Speaker 9: But I think, you know, with the business opportunity is 975 00:51:17,960 --> 00:51:21,560 Speaker 9: their ad business and theory could you know, double the 976 00:51:21,640 --> 00:51:23,480 Speaker 9: size of the company over the next few years. So 977 00:51:23,560 --> 00:51:27,600 Speaker 9: it's kind of like a new rounded growth for Netflix, 978 00:51:27,680 --> 00:51:28,920 Speaker 9: but also new challenges. 979 00:51:28,960 --> 00:51:31,800 Speaker 2: Oh wait, who are the big So actually Hulu is 980 00:51:31,920 --> 00:51:34,800 Speaker 2: part of Disney, right it's ye, yes, majority of so 981 00:51:36,400 --> 00:51:40,120 Speaker 2: of all the subscription services, I guess you've got one 982 00:51:40,320 --> 00:51:45,320 Speaker 2: basket that's Disney, Hulu, an ESPN, whatever. And then I 983 00:51:45,400 --> 00:51:49,880 Speaker 2: guess another basket would be HBO Max, which is inexplicably 984 00:51:50,480 --> 00:51:55,000 Speaker 2: dropping the most recognized part of that name. I don't 985 00:51:55,080 --> 00:51:58,360 Speaker 2: get that. Yeah, and then the third basket would be 986 00:51:59,040 --> 00:52:00,960 Speaker 2: Netflix and the fourth of Amazon. Right, so there are 987 00:52:00,960 --> 00:52:02,560 Speaker 2: four big competitors out there. 988 00:52:03,400 --> 00:52:06,440 Speaker 7: Yeah, I mean that I have to add to that. 989 00:52:06,560 --> 00:52:07,360 Speaker 7: Dig on HBO. 990 00:52:07,440 --> 00:52:11,239 Speaker 9: I mean, HBO's brand is associated with some of the 991 00:52:11,320 --> 00:52:14,560 Speaker 9: most iconic moments in entertainment, you know, just being home 992 00:52:14,640 --> 00:52:17,680 Speaker 9: on a Saturday Sunday night and watching Jess, you know, 993 00:52:17,760 --> 00:52:20,520 Speaker 9: some of them their old shows. And to drop that brand, 994 00:52:20,600 --> 00:52:22,640 Speaker 9: it's just I agree with you, it's kind of crazy. 995 00:52:22,680 --> 00:52:26,239 Speaker 2: But why did they just pay a group of eggheads 996 00:52:27,280 --> 00:52:29,800 Speaker 2: or knuckleheads as Paul would say, to make that decision? 997 00:52:29,840 --> 00:52:33,319 Speaker 2: Like why would you drop HBO? Is coke gonna change 998 00:52:33,360 --> 00:52:35,359 Speaker 2: its name? I mean, it doesn't make any sense at all, 999 00:52:36,160 --> 00:52:37,360 Speaker 2: It really doesn't. 1000 00:52:37,480 --> 00:52:40,400 Speaker 9: I mean, this is why you should never pay naming 1001 00:52:40,560 --> 00:52:44,239 Speaker 9: experts or hire naming firm, or you can make any 1002 00:52:44,440 --> 00:52:48,200 Speaker 9: data favor whatever decision someone decided they wanted to make. 1003 00:52:48,320 --> 00:52:51,160 Speaker 9: So I mean, I think this is a conversation over beer, 1004 00:52:51,880 --> 00:52:53,880 Speaker 9: just you know, because we can both complain about the 1005 00:52:53,960 --> 00:52:56,440 Speaker 9: name change and reminisce about all the great shows we 1006 00:52:56,520 --> 00:52:56,920 Speaker 9: watched on. 1007 00:52:57,080 --> 00:53:01,920 Speaker 1: H exact or how big of an issue or an 1008 00:53:01,960 --> 00:53:05,719 Speaker 1: opportunity is this whole password sharing thing. I'm not even 1009 00:53:05,719 --> 00:53:08,080 Speaker 1: sure how they get control of it, quite frankly, but 1010 00:53:08,560 --> 00:53:09,719 Speaker 1: how big of an opportunity is it. 1011 00:53:10,480 --> 00:53:12,800 Speaker 7: Yeah, at the end of the day, it's a price increase. 1012 00:53:13,680 --> 00:53:16,640 Speaker 7: You may frame it in like that. 1013 00:53:16,960 --> 00:53:20,439 Speaker 9: There are people that are sharing logins like I, Yeah, 1014 00:53:20,600 --> 00:53:22,879 Speaker 9: I have I have a friend, I have probably two 1015 00:53:22,960 --> 00:53:26,520 Speaker 9: friends that are using my Netflix login. It's a little 1016 00:53:26,520 --> 00:53:28,960 Speaker 9: anoying because they'll go watch shows I want to watch them, 1017 00:53:29,000 --> 00:53:33,279 Speaker 9: then I can't remember if I watch them. I feel 1018 00:53:33,280 --> 00:53:35,800 Speaker 9: they're advancing the show and now I'm advancing. 1019 00:53:36,120 --> 00:53:38,319 Speaker 7: So it's a little nooying. So it's worth a little 1020 00:53:38,360 --> 00:53:39,040 Speaker 7: money to end that. 1021 00:53:39,440 --> 00:53:41,120 Speaker 9: But at the end of the day, it's a price increase, 1022 00:53:41,160 --> 00:53:43,600 Speaker 9: and you don't build companies on price increases. 1023 00:53:43,719 --> 00:53:45,840 Speaker 7: So I think it's gonna you know, add something to 1024 00:53:45,960 --> 00:53:46,560 Speaker 7: the business. 1025 00:53:46,960 --> 00:53:49,359 Speaker 9: But if I'm an invest in Netflix, I'm not going yeah, 1026 00:53:49,360 --> 00:53:51,560 Speaker 9: I'm really banking on those price increases they're going to 1027 00:53:51,640 --> 00:53:53,799 Speaker 9: roll out this year. I mean, I think I think 1028 00:53:53,880 --> 00:53:56,920 Speaker 9: it's it's it will happen, but it's it's not the 1029 00:53:57,040 --> 00:54:02,080 Speaker 9: focus the focus. Netflix is has you know, created most 1030 00:54:02,120 --> 00:54:05,800 Speaker 9: of the innovation I think arguably in television over the 1031 00:54:05,880 --> 00:54:08,920 Speaker 9: last few years, starting with introducing Netflix, you know, with 1032 00:54:09,080 --> 00:54:12,080 Speaker 9: that having DVDs and then having it over the Internet, 1033 00:54:12,200 --> 00:54:14,120 Speaker 9: and the growth is going to come from innovation, and 1034 00:54:14,239 --> 00:54:17,799 Speaker 9: the innovation right now is coming from this new ads 1035 00:54:17,840 --> 00:54:20,600 Speaker 9: here that they're doing. That The price increase from password 1036 00:54:20,680 --> 00:54:23,120 Speaker 9: sharing is like that's for an analyst to put on 1037 00:54:23,200 --> 00:54:23,840 Speaker 9: a spreadsheet. 1038 00:54:23,920 --> 00:54:26,439 Speaker 7: That's not like to look at the stop long term. 1039 00:54:27,320 --> 00:54:31,799 Speaker 2: So as someone who helps companies make money in digital advertising, 1040 00:54:32,480 --> 00:54:35,560 Speaker 2: you know, leaving aside what how Hulu and Netflix are doing. 1041 00:54:35,640 --> 00:54:39,440 Speaker 2: What brands are best positioned to make money on streaming 1042 00:54:39,520 --> 00:54:41,839 Speaker 2: services and how should they do it? Mark, I mean, 1043 00:54:41,920 --> 00:54:44,200 Speaker 2: do they put a bunch of commercials at the beginning, 1044 00:54:44,280 --> 00:54:47,000 Speaker 2: do they break into the middle of your content? Do 1045 00:54:47,080 --> 00:54:49,279 Speaker 2: they build it into the story? Like what do you 1046 00:54:49,400 --> 00:54:50,080 Speaker 2: advise people? 1047 00:54:50,920 --> 00:54:55,360 Speaker 9: Well, I'm very bullish on NBC. I know we haven't 1048 00:54:55,560 --> 00:54:57,840 Speaker 9: mentioned NBC. I think there are a few of the 1049 00:54:58,080 --> 00:55:00,600 Speaker 9: I've worked with a lot of big TV network and 1050 00:55:00,800 --> 00:55:04,120 Speaker 9: some of them are really big, are innovating, So Netflix 1051 00:55:04,719 --> 00:55:07,160 Speaker 9: probably has the biggest innovation opportunity. 1052 00:55:07,280 --> 00:55:09,040 Speaker 7: The ads don't have to be thirty seconds. 1053 00:55:09,080 --> 00:55:12,719 Speaker 9: They have no legacy TV ad business their ad formats, 1054 00:55:12,960 --> 00:55:16,320 Speaker 9: and every new ad business comes with new ad formats. 1055 00:55:16,360 --> 00:55:19,759 Speaker 9: The ads on TikTok are not the same as on Instagram, 1056 00:55:19,880 --> 00:55:21,719 Speaker 9: and the ads on Netflix don't have to be the 1057 00:55:21,800 --> 00:55:24,080 Speaker 9: same as on Disney, so I think they have a 1058 00:55:24,160 --> 00:55:29,560 Speaker 9: huge opportunity. I think NBC as part of comcasts, is 1059 00:55:30,160 --> 00:55:33,239 Speaker 9: more innovative that I think most people realize and has 1060 00:55:33,680 --> 00:55:35,560 Speaker 9: a really big opportunity. So if I was to bet 1061 00:55:35,600 --> 00:55:38,280 Speaker 9: on two companies, it would be those, you know, Peacock 1062 00:55:38,680 --> 00:55:42,600 Speaker 9: NBC is Peacock, and Netflix. And I think that Disney 1063 00:55:42,680 --> 00:55:46,320 Speaker 9: obviously has the scale. They have incredible assets in terms 1064 00:55:46,400 --> 00:55:49,719 Speaker 9: of all of the various content they have, but I 1065 00:55:49,800 --> 00:55:53,360 Speaker 9: think maybe they need with with the return of Bob Bieger, 1066 00:55:53,440 --> 00:55:56,360 Speaker 9: they'll get they'll get a little more focused on innovation 1067 00:55:56,520 --> 00:55:56,879 Speaker 9: and growth. 1068 00:55:57,120 --> 00:56:00,879 Speaker 2: We should point out that NBC Universal owns minority steak 1069 00:56:00,920 --> 00:56:03,800 Speaker 2: in Hulu and Walt Disney stake owns the majority. I 1070 00:56:03,840 --> 00:56:05,120 Speaker 2: was just trying to figure out where they fit there. 1071 00:56:05,160 --> 00:56:08,840 Speaker 1: Gotcha, Hey, Mark, are we even gonna have an upfront 1072 00:56:09,120 --> 00:56:11,440 Speaker 1: this year? I have great memories of the upfront where 1073 00:56:11,480 --> 00:56:14,040 Speaker 1: the networks sell a lot of their TV advertising. Some 1074 00:56:14,160 --> 00:56:16,840 Speaker 1: great parties are remind. 1075 00:56:16,600 --> 00:56:17,520 Speaker 2: The kids of what the upfront. 1076 00:56:17,760 --> 00:56:19,640 Speaker 1: So the upfronts of when the TV networks will sell 1077 00:56:19,719 --> 00:56:22,560 Speaker 1: you know, seventy to eighty percent of their inventory for 1078 00:56:22,680 --> 00:56:25,320 Speaker 1: the upcoming TV season. You get that money upfront, so 1079 00:56:25,400 --> 00:56:27,040 Speaker 1: you kind of know what your revenue looks like, and 1080 00:56:27,920 --> 00:56:29,600 Speaker 1: as a result, the advertisers will get a little bit 1081 00:56:29,640 --> 00:56:31,879 Speaker 1: of a discount buying in the upfront market versus buying 1082 00:56:31,920 --> 00:56:35,200 Speaker 1: it at the time the show airs. So did they 1083 00:56:35,239 --> 00:56:36,040 Speaker 1: even do that anymore? 1084 00:56:36,080 --> 00:56:36,440 Speaker 5: To do it? 1085 00:56:37,320 --> 00:56:40,080 Speaker 9: Yeah, they're still doing it because it's hard for the 1086 00:56:40,680 --> 00:56:44,239 Speaker 9: ad executives, the sales executives to unhook from Like I 1087 00:56:44,280 --> 00:56:47,080 Speaker 9: could spend the week and hit half my revenue target 1088 00:56:47,560 --> 00:56:48,040 Speaker 9: this year. 1089 00:56:48,239 --> 00:56:51,000 Speaker 7: But I think you're gonna see it's applying over time. 1090 00:56:52,120 --> 00:56:55,120 Speaker 9: I think the average like, there's no company that's like, yeah, 1091 00:56:55,120 --> 00:56:58,319 Speaker 9: I want to commit a year in advance, especially given 1092 00:56:58,400 --> 00:57:02,359 Speaker 9: how vollidol you the world is economically that I want 1093 00:57:02,400 --> 00:57:04,160 Speaker 9: to commit a You're in advanced so I think you're 1094 00:57:04,160 --> 00:57:08,279 Speaker 9: going to see a steady decline in upfronts as advertisers 1095 00:57:08,360 --> 00:57:12,960 Speaker 9: demand more flexibility and quite frankly, you know, the networks 1096 00:57:13,000 --> 00:57:16,120 Speaker 9: decide why are we giving these discounts, Like like, as 1097 00:57:16,200 --> 00:57:18,920 Speaker 9: long as there's more demand. They have tons of supply. 1098 00:57:19,040 --> 00:57:22,320 Speaker 9: There's tons of demand that we don't need the upfronts 1099 00:57:22,360 --> 00:57:24,880 Speaker 9: in the same way. So you're going to see that 1100 00:57:24,960 --> 00:57:27,080 Speaker 9: starts a deplying. A lot of people will miss the 1101 00:57:27,200 --> 00:57:31,120 Speaker 9: parties and stuff like that, but you know, yeah, we 1102 00:57:31,200 --> 00:57:32,600 Speaker 9: don't have to feel too bad for them. 1103 00:57:32,600 --> 00:57:33,760 Speaker 7: They'll be fine, all. 1104 00:57:33,720 --> 00:57:35,520 Speaker 1: Right, Mark, Thanks so much for joining us, as I 1105 00:57:35,560 --> 00:57:38,120 Speaker 1: always love getting the latest from you. Mark dougas he's 1106 00:57:38,160 --> 00:57:41,000 Speaker 1: a president and CEO of Mountain kind of breaking down 1107 00:57:41,040 --> 00:57:43,080 Speaker 1: a little bit of just the earnings command of Netflix 1108 00:57:43,120 --> 00:57:47,600 Speaker 1: and maybe the upside opportunity there for their advertising driven tier. 1109 00:57:47,960 --> 00:57:51,000 Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can 1110 00:57:51,080 --> 00:57:54,800 Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever 1111 00:57:54,920 --> 00:57:58,560 Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter 1112 00:57:58,880 --> 00:58:00,960 Speaker 2: at Matt Miller nineteen seventy three. 1113 00:58:01,240 --> 00:58:03,600 Speaker 1: And I'm fall Sweeney. I'm on Twitter at pt Sweeney 1114 00:58:03,720 --> 00:58:06,400 Speaker 1: Before the podcast. You can always catch us worldwide at 1115 00:58:06,400 --> 00:58:07,160 Speaker 1: Bloomberg Radio