Speaker 1: Welcome to another episode of Strictly Business, the podcast where
Speaker 1: we talk with some of the brightest minds working in
Speaker 1: media today. I'm Andrew Wallenstein with Variety. We're midway through
Speaker 1: so what better time is there to step back and
Speaker 1: taken the big picture for a media sector that has
Speaker 1: been impacted by the pandemic in many different ways. To
Speaker 1: sort through it all, I've brought back to the podcast
Speaker 1: Navine Sarma, Senior director of SMP Global Ratings. He first
Speaker 1: came on Strictly Business in early where he demonstrated a
Speaker 1: keen eye for understanding the industry from his vantage point
Speaker 1: as a credit analyst, and now he's back to offer
Speaker 1: an updated perspective. It's all coming up today on this
Speaker 1: episode of Strictly Business. Welcome back to Strictly Business is
Speaker 1: where my guest is an E. Vins Arma, Senior director
Speaker 1: of SMP Global Ratings. I wanted to start with sort
Speaker 1: of the broadest possible context in terms of taking a
Speaker 1: look at where the global economy is in the emergence
Speaker 1: from the pandemic and then sort of put that within uh,
Speaker 1: put the media business within that context because obviously one
Speaker 1: impacts the other, sure absolutely, so it's A. It's an
Speaker 1: interesting time right now because you know, we've certainly had UM,
Speaker 1: you know, a lot of growth this year, a lot
Speaker 1: of expectations. We expect in the US that GDP will
Speaker 1: grow more than than six clearly off of a base
Speaker 1: last year, but still that's really strong growth. But you're
Speaker 1: starting to see signs of pressure on potential growth that
Speaker 1: could lead to you know, slow different growth, and those
Speaker 1: are primarily things around inflation. We've seen inflation step up
Speaker 1: in the United States, and that's really from a couple
Speaker 1: of reasons. Right you have the stimulus money that the
Speaker 1: government has UM. The US government has it into UM,
Speaker 1: you know, to to UH to the population. A lot
Speaker 1: of that money is sitting in bank accounts and is
Speaker 1: not being spent, and that's driving at prices. And the
Speaker 1: other thing is you're having pressure from supply chains, which
Speaker 1: is something that we're spending a lot of time looking
Speaker 1: at as well, not just within media but across all
Speaker 1: of our corporate ratings. UM is supply chains are under pressure,
Speaker 1: and you're seeing pricing go up because of that. And
Speaker 1: then the second thing is the pressure UM the potential
Speaker 1: pressure from interest rates going up. And you know, we've
Speaker 1: heard some some statements out of the FED over the
Speaker 1: last couple of weeks. And then the case that maybe
Speaker 1: an interest rates could go up sooner rather than what
Speaker 1: people expected, which is twenty two maybe twenty three, And
Speaker 1: and what that means from a media standpoint, and really
Speaker 1: from a corporate standpoint, that you had a lot of
Speaker 1: companies make it through the crisis by issuing a lot
Speaker 1: of debt to sharp liquidity, um, you know, could cash
Speaker 1: on their balance to try to you know, to survive
Speaker 1: the pandemic. They've survived the pandemic, but they have balance
Speaker 1: sheets that are are over levered, and so you know,
Speaker 1: the last they want to see is inflation and you
Speaker 1: know kick in and also interest rates go up. And
Speaker 1: so that's a that's something that we're spending a lot
Speaker 1: of time thinking about because we have a lot of
Speaker 1: companies like that, and I'm sure we'll touch on some
Speaker 1: of them. Sure. I'm also curious to hear your perspective
Speaker 1: of what this sort of global economy means with regard
Speaker 1: to advertising, because I would imagine, I mean, we're seeing
Speaker 1: the data come in both on the TV side and
Speaker 1: the tech side. It just seems like marketers are chopping
Speaker 1: at the bit to get at consumers again. Yeah, yeah,
Speaker 1: absolutely right. What's interesting. I mean we thought advertising would
Speaker 1: be you know, weaker last year, it wasn't. Um and
Speaker 1: and we can talk about you know what this year,
Speaker 1: which is you're getting you know, a bifurcation some sectors
Speaker 1: that are recovering faster than others. But let's just start
Speaker 1: off by saying, you know, digital advertising was down maybe
Speaker 1: negative for one month last year, April, and then it
Speaker 1: came roaring back. And so you know that the shifts
Speaker 1: in spending to digital really helped overall advertising recover much faster.
Speaker 1: And if you look at more traditional advertising, whether it's UM,
Speaker 1: you know it's on television or radio or outdoor television,
Speaker 1: especially national television hung on really really well. Advertisers seemed
Speaker 1: to back off a bit, but then realize that the
Speaker 1: recovery was coming, and so they wanted to be in
Speaker 1: front of consumers, you know, pitching their brands, and so
Speaker 1: they didn't pull backs as quickly or as as thoroughly
Speaker 1: as we thought they were going to. And then you know,
Speaker 1: you had you had political advertising which really helped local
Speaker 1: and really helped support local television UM and then you
Speaker 1: know you kind of spring to this year. You have
Speaker 1: outdoor coming back really strong. You have local when some
Speaker 1: of these sectors are talking about already being in twenty levels,
Speaker 1: which is far faster than we thought. Um, you know
Speaker 1: National is trailing a bit, but you know a bit
Speaker 1: of that as a secular trends as well. But I
Speaker 1: think overall, when you look at advertising, it's a it's
Speaker 1: a lot better shape then we thought it was going
Speaker 1: to be at this point. But Navine, it seems a
Speaker 1: little nutty to me the TV side, because what we
Speaker 1: have seen clearly even before the pandemic, accelerated by the pandemic,
Speaker 1: is linear television is I don't I don't know what
Speaker 1: metaphor do we use, falling off a cliff, clearly declining precipitously.
Speaker 1: So why are they getting more money for less viewers?
Speaker 1: You and I talked about this recently. It's crazy because
Speaker 1: you know, you think that, you know, given those dynamics,
Speaker 1: you'd start to see a weakening and CPMs, but it
Speaker 1: just isn't happening. And I think primarily it's because television
Speaker 1: is really the best way and at the moment, the
Speaker 1: only way to reach the broadest audiences. So if you're
Speaker 1: advertising you know, to to generate transactional revenue, you're gonna
Speaker 1: go digital. But if you're looking to build brands, you
Speaker 1: still have to go to television. And so you know,
Speaker 1: at the moment, advertisers still want television, and I think
Speaker 1: you're going to see that start to weaken eventually. And
Speaker 1: I think I think the other thing that's complicating it
Speaker 1: is linear television is being combined and sold with UM
Speaker 1: with with you know, with digital television, you know, the
Speaker 1: streaming services, and so you're getting, you know, sales across
Speaker 1: both platforms. If you were to break one and the other,
Speaker 1: you'd see dynamics that are different. But if you combine
Speaker 1: the two, um, the digital side is definitely supporting the
Speaker 1: linear television side. Well, let's talk a bit more about streaming,
Speaker 1: because advertising obviously isn't just the entire picture there. It's
Speaker 1: the subscription dollar infusion that is been so interesting to
Speaker 1: watch all these media companies chasing Netflix right now, and
Speaker 1: you know, the pandemic again seem to have an impact there,
Speaker 1: although very positive one, much more consumption than ever, all
Speaker 1: these streaming service coming into the market at that time.
Speaker 1: Where does that set us up in terms of the
Speaker 1: next leg of the race for these streaming services. Sure,
Speaker 1: it's it's interesting because you had a pull forward of
Speaker 1: a lot of subscribers over the over the last year.
Speaker 1: And so I mean Netflix is a perfect example call
Speaker 1: of all of a sudden, all these new subscribers came in.
Speaker 1: And I think just seeing part of that um manifest
Speaker 1: and may call it, you know, slightly weaker subscriber growth
Speaker 1: this year, but you know, comparing the last year is
Speaker 1: is a bit unfair. UM. But I think what we've
Speaker 1: what we've got now is we have a number of
Speaker 1: companies that have decided that they want to be global
Speaker 1: and and go after you know, in kind of the
Speaker 1: Netflix model. But what you need for that is you
Speaker 1: need too things. When you need um, scale of content
Speaker 1: and scale of distribution, you need to be in a
Speaker 1: lot of countries. Um. And if you look at all
Speaker 1: the players, they're all have different they're all in different
Speaker 1: stages of that kind of competition and that kind of
Speaker 1: goose characteristics. If that's what they want to do. Um.
Speaker 1: You know, clearly Disney has both the scale of content
Speaker 1: as well as the geographic scale. They benefited from the
Speaker 1: you know, the twenty one century Fox acquisition and so
Speaker 1: they're pretty far along in terms of UM if you
Speaker 1: want to call it, you know, compaion against a Netflix.
Speaker 1: But if you look at UM some of the other players,
Speaker 1: you know, they're either lacking scale yelled geographically. And I
Speaker 1: would point to like you know, Concast, NBC and and
Speaker 1: Time Warner, which we'll talk about our Warner brothers, which
Speaker 1: we'll talk about. I'm sure UM, but they all are.
Speaker 1: And then you have other companies that are lacking in
Speaker 1: in content and I think Discovery is a good example
Speaker 1: of that. They're certainly one of the um one of
Speaker 1: the most diverse geographically media companies in the world, but
Speaker 1: they don't have the same kind of content scale. And
Speaker 1: so I think what you're seeing is a lot of
Speaker 1: companies have decided we're going to go down that path,
Speaker 1: or those companies have decided they're going to go down
Speaker 1: that path looking at the assets that they have and
Speaker 1: making decisions on do they have the right set of
Speaker 1: assets and do they want to keep playing this game?
Speaker 1: And you know, and I think Fox or I think
Speaker 1: Discovery and Warner are clearly in that boat. Well, to me,
Speaker 1: this is the biggest question mark looming over this space
Speaker 1: because as you're describing it. There are these companies that
Speaker 1: are trying to play by the Netflix playbook, spending what
Speaker 1: I could would assume seem to be putting them well
Speaker 1: in front of their skis as they cannibalized their core business. So,
Speaker 1: you know, is the market taking it on faith that
Speaker 1: the Netflix playbook can still be played years after Netflix
Speaker 1: has already played it. It's a good question. Um. I mean, initially,
Speaker 1: if you looked at some of the run ups and
Speaker 1: let's let's you know, I mean, what happened to Discovery
Speaker 1: and Viacom was a bit of you know, an anomaly
Speaker 1: this year, but you did see her run up in
Speaker 1: the like the Disney Stock where you know, investors looked
Speaker 1: at this and gave them credit for two hundred and
Speaker 1: fifty million subscribers. And then as we kind of got
Speaker 1: into the first court and the name just came maybe
Speaker 1: a little weaker than people expected, they pulled back a little.
Speaker 1: And so I think you're going to have over the
Speaker 1: next year, um, a separation um in in in the
Speaker 1: market's eyes about who are the winners and who are
Speaker 1: the losers? But you know what were we spent a
Speaker 1: lot of time to getting asked this question and a
Speaker 1: lot of times, and we're spending a lot of times
Speaker 1: deflecting it at the moment because I think it's too
Speaker 1: early to pick winners and losers. But I also think
Speaker 1: it's a bit unfair to look at everybody and paint
Speaker 1: them in the same brush and say everyone needs to
Speaker 1: be like Netflix. We talked to Comcast about their you know,
Speaker 1: about what they want out at NBC. It's different than
Speaker 1: what Disney wants to achieve, and so I think you
Speaker 1: have to look at it within the context of their
Speaker 1: strategies and so and what they're trying to achieve. Well,
Speaker 1: when you look at this, as you put it, this
Speaker 1: separation that is happening in the streaming land, deals like
Speaker 1: Warner Media and Discovery makes sense. Deals like Amazon and
Speaker 1: MGM makes sense. They're trying to get into that top tier. Uh,
Speaker 1: what do you think of Warner Discovery. Let's let's let's
Speaker 1: start with that. That combination. Well, I think one of
Speaker 1: the things, and I keep reminding investors of this point,
Speaker 1: which is, prior to a t T buying, Warner Warner
Speaker 1: was arguably the best media company in the world. And
Speaker 1: this is before Disney merged with with we kind of
Speaker 1: forget that right, because it got buried within any team take.
Speaker 1: And so now you stand back and you look at Warner,
Speaker 1: and what's interesting from the transaction I think was more
Speaker 1: a function of both companies looking at what they had
Speaker 1: and realizing they needed to do something. A T. T
Speaker 1: looked at Warner and looked at frantically all of its
Speaker 1: other businesses and says, you know, we have a limited
Speaker 1: amount of capital. It's a T T. But it's a
Speaker 1: limited amount of capital. What do we have to spend
Speaker 1: it on? And it was Spectrum and it's five G.
Speaker 1: And so the Warner's side of the business wasn't going
Speaker 1: to be able to get the kind of investments aid programming,
Speaker 1: but also an expansion overseas because they don't really have
Speaker 1: that big a footprint overseas compared to some of their peers.
Speaker 1: And so they realized A T. T. Realized they just
Speaker 1: couldn't make the investments to make Warner a truly global
Speaker 1: streaming service. And then you turn it around and you
Speaker 1: look at Discovery, Discoveries and two odd markets, and so
Speaker 1: they've got the um the global footprint. But I think
Speaker 1: what they've discovered is that launching what the content they
Speaker 1: have is a bit of a challenge. It's a good content,
Speaker 1: it's niche content, and so if you're trying to get
Speaker 1: the two hundred or three hundred David zaslofs at formimillion,
Speaker 1: but if you're trying to get to it, you know,
Speaker 1: hundreds of millions of subscribers. I don't think the Discovery
Speaker 1: content on its own as it can do that, and
Speaker 1: you need to have kind of you know, the the
Speaker 1: the Warner Brothers, big movies and you know, you know,
Speaker 1: big brands, and so the combination of the two I
Speaker 1: think is a reflection of the limitations that both companies have.
Speaker 1: And so that made a lot of sense. Yeah, And
Speaker 1: it also creates another big question for this space, which
Speaker 1: is you look at what's gone on now and if
Speaker 1: you're Viacom, CBS, if you're NBC Universal, must you make
Speaker 1: similar moves in the M and A arena in order
Speaker 1: to be able to compete at the highest levels to
Speaker 1: be among the top tier streaming services. Do you do?
Speaker 1: You do you see much activity coming on in this
Speaker 1: as a result of the Warner Discovery deal. I don't know. Oh,
Speaker 1: I don't think so. And I say that because I
Speaker 1: think there's been a lot of I would say there's
Speaker 1: been probably a lot more internal discussions within both companies
Speaker 1: and so what there, what their goals are, And I
Speaker 1: think you have to look at them separately. I think
Speaker 1: if you look at Comcast, it's a cable company. I think,
Speaker 1: you know, I think Brian realizes that that NBC is
Speaker 1: called limited scale, you know, compared to the other companies,
Speaker 1: and and that's fine for him. If all of these,
Speaker 1: all of these, if all off all he is thinking,
Speaker 1: get that one out, is that NBC is there to
Speaker 1: support the cable business and the Sky business in Europe.
Speaker 1: And if that's all it is, it's plenty. It's plenty
Speaker 1: large enough in terms of the amount of content it
Speaker 1: has and the and the content that it produces, not
Speaker 1: just as library but also um, you know, it's it's
Speaker 1: production out of this film studio. To be able to
Speaker 1: support that business. Vicom is a separate question because they
Speaker 1: don't have, you know that those kinds of businesses to
Speaker 1: lean on um and so if they really want to
Speaker 1: be like you know, Disney, they've got more scale and
Speaker 1: it kind of what's interesting is the guidance that they
Speaker 1: gave so far for their global subscribers was the top
Speaker 1: seventy five million. You know, maybe that's just something about
Speaker 1: their intentions overseas, or you know, it's a question that
Speaker 1: they have to answer. I don't know if Emine necessarily
Speaker 1: solved that problem, but maybe they need to scale back
Speaker 1: on their you know, on their expectations overseas. We need
Speaker 1: to take a quick break, but we'll be back with
Speaker 1: more from Navene Sarma. And we're back with Navin Sarma,
Speaker 1: Senior director of SMP Lottal Ratings. I also mentioned a
Speaker 1: very different deal Amazon MGM. Different in the sense that
Speaker 1: it brings together entertainment and big tech in a way
Speaker 1: we haven't really seen before, but also I think is
Speaker 1: similarly motivated in terms of the Warner Discovery deal. This
Speaker 1: is about competing in the streaming race. It's not scaling
Speaker 1: up for the global push, but it is scaling up
Speaker 1: the sort of the content arsenal. Anything I do, I do,
Speaker 1: I agree with you. For the longest time, I was
Speaker 1: a bit skeptical about whether or not either Apple or
Speaker 1: or Amazon would really want to get into into the
Speaker 1: entertainment business. To the media business, it's expensive, it's full
Speaker 1: of I mean, you know, it's a difficult industry to
Speaker 1: try to break into. You see other companies try to
Speaker 1: get into media and realize it's it's got a bunch
Speaker 1: of characteristic to make it very difficult for you to
Speaker 1: get in and be successful, especially if you're not a
Speaker 1: media company getting into there. Um So what Amazon is
Speaker 1: doing is interesting because they've always kind of dabbled on
Speaker 1: the side of the studio. They hired people, they want content.
Speaker 1: This just seems to be a bigger push. Having said that,
Speaker 1: it's I think there's their intention still is to try
Speaker 1: to sell you know, diapers and retail stuff, and so
Speaker 1: the content. How big they want to get in terms
Speaker 1: of their content base, Um, it will be interesting to stay.
Speaker 1: They don't want to get too big, I think, but
Speaker 1: they also want to be able to offer enough content
Speaker 1: that people will stay on their websites and use that
Speaker 1: as a kind of a selling point to get people
Speaker 1: to sign up for Amazon Prime, especially in those markets
Speaker 1: where you know, either the shipping costs are higher or
Speaker 1: you can't do one or two day deliberate got it.
Speaker 1: I do wonder whether this will end up forcing the
Speaker 1: hand of Apple in terms of its investments in this space.
Speaker 1: They kicked the tires at MGM at the very least,
Speaker 1: and there's other entities out there, like a lions Gate
Speaker 1: and a MC that could make sense if Apple wanted
Speaker 1: to make a similar move. Yeah, I a great. Great,
Speaker 1: We'll see. They haven't done anything. They let a lot
Speaker 1: of deals go. I mean, you know, they haven't completed
Speaker 1: any deals. So we'll have to see if if they're
Speaker 1: really serious about being a serious media player. So we're
Speaker 1: talking about all these companies that are spending you know,
Speaker 1: tens of billions, well not everyone spending tens of billions,
Speaker 1: but single billions, tens of billions to be in the
Speaker 1: programming space. What does this mean in terms of the
Speaker 1: backlog of production that we've seen building up out of
Speaker 1: the pandemic. It's amazing, isn't it. Every time I pick
Speaker 1: up Variety or I get an email from Variety it's
Speaker 1: another project that just got greenlit. You've gotta wonder how
Speaker 1: they're gonna space us all out and actually produce all
Speaker 1: this stuff. It's got to be years and years of backlog.
Speaker 1: Um they called the Golden Age of television. There's a
Speaker 1: lot of content. There's just a lot of content, and
Speaker 1: you know, and and from our standpoint, it's putting stress
Speaker 1: on a lot of companies balance sheets because you know,
Speaker 1: the revenue is not going to come in for a while,
Speaker 1: especially streaming services as you grow that and so you're
Speaker 1: gonna see twenty three twenty four before any of these
Speaker 1: streaming services even chief break even status. And so that
Speaker 1: stresses the you know, the balance sheets of all these
Speaker 1: companies and the cash flows of all these companies. Um.
Speaker 1: You know, from a rating standpoint, it's a concern. And
Speaker 1: and we've taken rating actions where we've downgraded some companies
Speaker 1: because of that, um you know, and eventually and the
Speaker 1: problem is, you know, if a company doesn't win and
Speaker 1: spends all that money and doesn't grow out of that,
Speaker 1: you know, then they're kind of locked in longer term
Speaker 1: with with credit measures that are just are weaker. That's
Speaker 1: to me a big red flag. And yet I also
Speaker 1: wonder whether investors kind of as we saw with Disney
Speaker 1: at the end of will still say, wait, I see
Speaker 1: a big streaming service success story happening here hundreds of millions,
Speaker 1: So we'll just give them a pass and they'll just
Speaker 1: keep spending. I don't know, I think you're gonna get
Speaker 1: some that are going to get a pass and some
Speaker 1: companies that aren't gonna get a pass. Yeah, that's that's
Speaker 1: that's basically how this competition is going to play out.
Speaker 1: UM also wanted to ask, you know, we're we're talking
Speaker 1: about streaming, but of course movie theaters remain a big
Speaker 1: part of the business. Movie theaters, of course, took a
Speaker 1: huge hit during the pandemic, and so I wanted to
Speaker 1: get your sense of how you saw the exhibition business
Speaker 1: as we return to normal. Yeah, it's a great question.
Speaker 1: When we look at all of the sectors that we
Speaker 1: cover print TV, UM, the one that that has popped
Speaker 1: up on our raider screens and one as the one
Speaker 1: that we think is the most impacted and the one
Speaker 1: that's less most likely to be to change permanently because
Speaker 1: of the pandemic. Our movie theaters. Other ones we think
Speaker 1: we're gonna come back, whether it's theme parks or you know, um,
Speaker 1: you know, live events. But you know, for us, you
Speaker 1: had the rise of streaming, you've had the change of
Speaker 1: the of of windowing. UM, people may be a bit
Speaker 1: not reluctant to go back to the theaters, but certainly
Speaker 1: less likely to because you're gonna have other options to
Speaker 1: see the same piece of content. Um. Having said that,
Speaker 1: you know, we've always thought for years that there were
Speaker 1: just too many screens in the US, and UM and
Speaker 1: and I just I don't want to sound like, you know,
Speaker 1: we were hoping for this would happen, but we certainly
Speaker 1: thought that the pandemic would be an opportunity for for
Speaker 1: the the the industry to look at the number of
Speaker 1: screens and to reduce those numbers of screens. It doesn't
Speaker 1: appear that that's going to happen. UM. I think we've
Speaker 1: seen a couple of comments by a couple of companies
Speaker 1: that Cinemark talked about this the last week or a
Speaker 1: couple of weeks ago, where they think, you know, maybe
Speaker 1: it's five or five percent of screens might shrink. That's
Speaker 1: probably not sufficient. But I think the ones who are
Speaker 1: going to benefit from that are the larger guys. The
Speaker 1: smaller guys, UM are the ones who are probably going
Speaker 1: to consolidate or shrink. And we've seen some bankruptcies, but overall,
Speaker 1: I think the fund, the small business funding that came
Speaker 1: from the US government has supported a lot of these
Speaker 1: smaller studies, the smaller exhibitors, and so they've managed to
Speaker 1: survive their way through the pandemic. So you're saying a
Speaker 1: smaller footprint overall consolid bigger companies. Um, you're you're not saying,
Speaker 1: as as some seem to say lately that we're a
Speaker 1: Vergin extinction for theaters, like there's a place for them
Speaker 1: going forward. There's no. Yeah, yeah, we don't think that
Speaker 1: that's gonna I mean every no, No, I won't happen
Speaker 1: that quickly. I think I think there's still in need.
Speaker 1: If you talk to all these studios, they still want
Speaker 1: to put big blockbusters into the theaters. Um, you're you know,
Speaker 1: I think what you're seeing this year, Um you know
Speaker 1: with things like, um, what Disney is gonna do with
Speaker 1: Black Widow or what Warners has done with this entire
Speaker 1: slate is more a function of the pandemic and the
Speaker 1: uncertainty over are all the theater is going to be reopen?
Speaker 1: And even today I think we're like, and so Black
Speaker 1: Widow and F nine comes out this weekend, next weekend,
Speaker 1: comes out really soon. Yeah, and so you know it's
Speaker 1: not gonna it'll do really well, but it's not going
Speaker 1: to be in every theater, and so you're not gonna
Speaker 1: get the kind of releases you got two years ago,
Speaker 1: and so I still think the studios are heading their
Speaker 1: bets this year. But I think going forward, you're going
Speaker 1: to see Disney Point, it's Marvel movies, and it's Star
Speaker 1: Wars movies into the theaters. What you're gonna see is
Speaker 1: also a shrinking number of call it you know, um,
Speaker 1: you know, smaller releases, drama and clearly dramas and comedies
Speaker 1: have kind of already abandoned the theaters. But I think
Speaker 1: you're gonna see more and more of that going forward. Um,
Speaker 1: you know, will Netflix or Amazon step in and kind of,
Speaker 1: you know, fill those empty screens. I'd like the things,
Speaker 1: So I don't think that's gonna happen. I think Netflix
Speaker 1: looks at the ex the theaters and says, you know,
Speaker 1: you can put a couple of movies in there, But
Speaker 1: at the end of the day, they're making movies for
Speaker 1: their their subscribers, and so putting it into the theaters
Speaker 1: doesn't benefit their subscribers or the subscriber totals. So I
Speaker 1: think there's less likely that happening. So it sounds like
Speaker 1: you're saying, you know, it's hard to have a monolithic
Speaker 1: conversation here. Different kinds of movies are going to take
Speaker 1: on different kinds of distribution strategies. Uh, you know, the
Speaker 1: biggest and brightest blockbusters will go straight to theaters. I
Speaker 1: think where we're headed, though, is in a period of
Speaker 1: experimentation in the coming years for just about everything else,
Speaker 1: in terms of the amount of time they're in theaters,
Speaker 1: exclusively how much they'll be, if they'll be day and
Speaker 1: date releases. I mean, do you think, as I do,
Speaker 1: that there's gonna be a lot of experimentation or will
Speaker 1: we move to a standard fairly quickly? I mean, you
Speaker 1: could argue the easiest, simplest thing is one forty five
Speaker 1: day window for everything, and there's something to be said
Speaker 1: for simplicity, and there is, there is. But um but
Speaker 1: I think you're right. I think it's going to be experimentation.
Speaker 1: Universal signing with seventeen days and so I think you're
Speaker 1: gonna get a lot of that kind of experimentation going forward. Um.
Speaker 1: So yeah, I don't think I think they'll they'll all
Speaker 1: kind of congregate around forty five days and so instead
Speaker 1: of nine, you will be forty five. But I think
Speaker 1: you're going to get, you know, decisions made. I don't
Speaker 1: know how close a release, it's gonna be made, but
Speaker 1: you know, the studio will look at the particular movie
Speaker 1: and say, you know, we're gonna put it on the
Speaker 1: streaming service and set and so I think you're going
Speaker 1: to get that kind of variability, which, um, I don't
Speaker 1: know how close to release we're going to see that,
Speaker 1: but I think that's gonna be the case. And I
Speaker 1: think based off of my conversations with all of the
Speaker 1: studios and all the exhibitors, the contracts that they've signed
Speaker 1: so far, aren't you know, one size fits all other
Speaker 1: than what Warner did for the twenty one slate. Everything
Speaker 1: else is based off of a film by film basis
Speaker 1: for analysis. Got it? Well, we should also be careful
Speaker 1: to note here. You know, we're we're kind of talking
Speaker 1: pretty generally, but there's the US market and then there's
Speaker 1: everything going on overseas. Um, do you see any fundamental
Speaker 1: differences between what goes out here in this country and
Speaker 1: everywhere else, especially in light of the pandemic is obviously
Speaker 1: impacting the globe in different ways. Yeah, it's an interesting question,
Speaker 1: and I think we as Americans tend to forget about
Speaker 1: how diverse the world is. So, you know, talking about
Speaker 1: windowing into somebody in France is a totally different conversation
Speaker 1: because the French government basically becomes in and dictates what
Speaker 1: the windows are and so um, and so I think
Speaker 1: studios have to be well aware of of what each
Speaker 1: market um is like. And especially as we come out
Speaker 1: of the pandemic, right, not all of the theaters have
Speaker 1: opened up around the world. And so you know, for
Speaker 1: our movie like Black Wad Up, you know, if you
Speaker 1: think it's going to do incredibly well in Europe, then
Speaker 1: you've got to be a bit careful how you release
Speaker 1: it because not all the European theaters are open. F
Speaker 1: nine made a lot of sense if you saw the
Speaker 1: release in China. China's theaters are all open. So um,
Speaker 1: I think you can't look at the US alone and
Speaker 1: and and draw conclusions off of what studios are going
Speaker 1: to do based off of the U S market, got it? Uh?
Speaker 1: It just I If you're at Disney and you're sitting
Speaker 1: there with a Disney plus and you've got the ability
Speaker 1: to make huge money with your best and brightest movies
Speaker 1: in theaters, how do you navigate that balance, which which
Speaker 1: Disney to some degree seems to be doing by not
Speaker 1: just throwing movies on Disney. Plus they do some of
Speaker 1: that as well, but they've got this window where they're spent,
Speaker 1: you know, consumers have to uh spend I think it's
Speaker 1: like thirty dollars to see a movie walls in theaters.
Speaker 1: What do you think of that approach? I I'm guessing
Speaker 1: that Disney is probably the only one who can get
Speaker 1: away with something like that. Um, it's interesting, and you know,
Speaker 1: it isn't clear what kind of viewing they're getting from
Speaker 1: for those movies, you know, whether it was Milan or
Speaker 1: you know, any of the other ones that they're released
Speaker 1: that way. The only thing I can guess is because
Speaker 1: they're continuing to do that, they're they're getting you know,
Speaker 1: they're seeing either interesting data or data that's positive. Um.
Speaker 1: And so my guest is Disney will be continuing to
Speaker 1: do that kind of But I guess I guess they'll
Speaker 1: experiment again. Right, some of those movies are going to
Speaker 1: go to thirty dollars, Some of those are gonna be
Speaker 1: day and date free, some of them. Every movie is
Speaker 1: gonna have a different story, got it. So, So bringing
Speaker 1: it back around to the broader view on these businesses,
Speaker 1: as we move into the second half of the year.
Speaker 1: I mean, are you anticipating that we're going to see it?
Speaker 1: Seems right right now in terms of investors in the
Speaker 1: media sector, it's not quite what it was maybe at
Speaker 1: the end of twenty When I think about, you know,
Speaker 1: Disney or how Viacom and Discovery went for some nice
Speaker 1: rides earlier this year. How how do you see uh
Speaker 1: it playing out for these stocks in the second half
Speaker 1: of the year. Sure, well, I'm thinking I'm a credit analyst,
Speaker 1: so I won't comment on but but I will say
Speaker 1: the conversations we've had have gone from let's talk about
Speaker 1: the pandemic and what the recovery looks like. Now we're
Speaker 1: talking about secular trans same exact conversations we were having
Speaker 1: with investors two years ago. What's a cutting a look like?
Speaker 1: You know, once the decline of television look like? And
Speaker 1: clearly you know what's streaming, and that's dominating every conversation
Speaker 1: we're having. And the thing about cord cutting, we we
Speaker 1: you know, we were were missed not bringing it up
Speaker 1: because at the end of the day, it is the
Speaker 1: biggest revenue stream in the business. Uh, it's sir, I mean,
Speaker 1: if I if I'm the pandemic. Actually, I think it
Speaker 1: wasn't quite the killer that people thought it would be
Speaker 1: for cord cutting, which actually held up for a variety
Speaker 1: of reasons. But do you feel that once we come
Speaker 1: out of the pandemic more clearly that in this country
Speaker 1: we're gonna see cord cutting re accelerate. It's a great question.
Speaker 1: And every year we published our forecast, and every year
Speaker 1: we're wrong. So I'm gonna say that I know I'm
Speaker 1: gonna be wrong. Which is we think so last year
Speaker 1: card cutting, you know, if you include them, both the
Speaker 1: virtual operators as well as the physical operators, cutting was
Speaker 1: summer on the order of about five UM. We think
Speaker 1: it's going to accelerate a little to about six going forward. Um.
Speaker 1: And and and you know, and we've looked at a
Speaker 1: couple of years, and that's our forecast at least that's
Speaker 1: where we're modeling to and and said that we're probably
Speaker 1: gonna be wrong. Well, I mean it's just because to
Speaker 1: some degree defies belief. You've for years now and will
Speaker 1: be the biggest yet. You see how much is collecting
Speaker 1: on the streaming side in terms of what they could
Speaker 1: do to entice chord cutting. But at the end of
Speaker 1: the day, isn't it really about sports? And that as
Speaker 1: long as linear TV keeps a stranglehold on the best rights,
Speaker 1: there's only so much we're going to see cord cutting happen.
Speaker 1: That's the theory. I agree with you, that's the theory.
Speaker 1: But then, you know, now the conversation becomes, you know,
Speaker 1: ESPN Plus, when does Disney decide ESPN Plus will now
Speaker 1: contain all of its kind because it's got it's gotten
Speaker 1: streaming rights, you know, for every one of its sports. Um,
Speaker 1: you know what happens with Sinclair and the RST that
Speaker 1: the dd c rs n s that they're pinning on watching.
Speaker 1: I mean all of these things, you know, peck away,
Speaker 1: peck probably too smaller word. They chip away and they
Speaker 1: take out big chunks of of of the cable bundle.
Speaker 1: At some point we're going to reach, you know, an
Speaker 1: inflection point where Disney is gonna say enough enough, you
Speaker 1: want ESPN you can get it by a streaming and
Speaker 1: then the model falls apart and there is that five
Speaker 1: years away? Is it ten years away? I don't know.
Speaker 1: That's the balancing acts. So any media companies are navigating
Speaker 1: right now, and it's gonna be interesting to continue to
Speaker 1: do that, um Levan, that's all the questions I have.
Speaker 1: Appreciating you taking the time out for a big picture discussion,
Speaker 1: Appreciate your having me. Thank you very much. This has
Speaker 1: been another episode of Strictly Business. Tune in next week
Speaker 1: for another helping of scintillating conversation with media movers and shakers,
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