Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane along
Speaker 1: with Jonathan Ferroll and Lisa Brownwitz Jailey. We bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg terminal. So I'm set
Speaker 1: up our next guest. This from Ben Laidler of ETA.
Speaker 1: All right, this is what he had to say. Analysts
Speaker 1: are dramatically underestimating the recovering company profits. They have hugely
Speaker 1: underestimated the earnings rebound for three quarters in a row,
Speaker 1: and Tommy thinks they will continue to do so. This
Speaker 1: is some of the nuances of the bullmarket. And with that, Yard,
Speaker 1: Danny and David Coston with us later as a standout
Speaker 1: show John, Ben Laidler more than anyone I know, he's
Speaker 1: consistently been shut up and get along. He's been doing
Speaker 1: that for pushing three years now. More than anyone else.
Speaker 1: He has reaffirmed his optim as some week to week.
Speaker 1: The Equity Bill joined us right now, Ben later at
Speaker 1: a global market strategist. Ben, let's start there, why do
Speaker 1: you think this will continue? So? I look at forecasts
Speaker 1: from the consensus says that earnings actually four next quarter,
Speaker 1: the quarter after that, and the quarter after that. But
Speaker 1: this was the peak. I disagree with that. You look
Speaker 1: forward to two, consensus has nine earnings growth. I mean
Speaker 1: that just looks like a sort of placeholder that we
Speaker 1: haven't really got around to sort of looking at yet.
Speaker 1: Um And and again, you know, we're coming off just
Speaker 1: this huge earnings rebound, which the market consistently underestimates. I mean,
Speaker 1: just but overy one second. I mean the last quarter,
Speaker 1: coming in, we thought we were gonna get sixty earnings growth.
Speaker 1: Coming out, we had ninety. I mean that that's just
Speaker 1: a dramatic, dramatic um, you know, earnings mix. And I
Speaker 1: think that again there's more to come, I mean growth,
Speaker 1: you know, it's very very high and very resilient to
Speaker 1: you know, this third sort of virus way, these concerns
Speaker 1: on margins. I think this is sort of the peak
Speaker 1: of the margin pressure. And we just saw all time
Speaker 1: high margins. So and I think that sort of underlying driver,
Speaker 1: if you like, of why consensus is so verish. But
Speaker 1: you know, I think the march impressure is right now.
Speaker 1: It's not you know, it's it's it's not in twelve
Speaker 1: months time, and that sort of top line remains remains
Speaker 1: super strong, and people continue to underestimate the earnings leverage
Speaker 1: to that top line. I mean, companies did a lot
Speaker 1: of costs set over the last sort of twelve months
Speaker 1: or so, and you know that's where the mistakes been made,
Speaker 1: the leverage earnings to that sort of incremental improvement in revenues.
Speaker 1: Then the key phrase there for me is placeholder. You
Speaker 1: remember when the street at a conviction and they had
Speaker 1: a twenty one belief for twenty two belief and they'd
Speaker 1: even get out the June or twenty three right now,
Speaker 1: I totally take your point and the timidity of the market.
Speaker 1: How should our viewers and listeners play that timidity when
Speaker 1: they look out to say, oh, I don't know February
Speaker 1: of twenty two right. So so I think earnings are
Speaker 1: being underestimated by maybe a factor of two for next year,
Speaker 1: and I think the way to think about that is
Speaker 1: a I think that gives more oxygen for this market
Speaker 1: to keep moving up. And secondly, and as importantly, you know,
Speaker 1: as we're facing sort of the fair about to make
Speaker 1: a sort of decision on tapering. I think that's the
Speaker 1: sort of insurance policy to the risk here. I mean,
Speaker 1: earning evaluations at twenty one times, that's super high. You know,
Speaker 1: bond yields go up. The FED tasks tapering. I mean,
Speaker 1: those valuation numbers are probably gonna keep coming down a bit.
Speaker 1: But the big offset to that, which I think we
Speaker 1: continue to underestimate, is that growth will more than offset that.
Speaker 1: And I think that's the pathway to this market to
Speaker 1: sort of continuing higher even as we move through sort
Speaker 1: of FED tapering and potentially lower evaluations. Then what do
Speaker 1: you say to potential critics who say, look, take a
Speaker 1: look at the delta area that's spreading, take a look
Speaker 1: at some of the shutdowns that we're seeing in China,
Speaker 1: some of the potential regulatory actions that are slowing growth there.
Speaker 1: All of these issues a contribute to supply side constraints
Speaker 1: that will lead to ongoing margin pressures and be removes
Speaker 1: some China demand from the market. What do you say
Speaker 1: to people who say, no, these margin pressures are going
Speaker 1: to continue for a long time. I say, look at
Speaker 1: the data right now, so PPR, you know producer prices
Speaker 1: if you're gonna get today, you know minus consumer prices.
Speaker 1: You look at the p M I S sort of
Speaker 1: input prices minus output prices, it's really hard for me
Speaker 1: to see that. You're going to see, you know, the discrepancy,
Speaker 1: the gap, that huge gap that we've seen over the
Speaker 1: last sort of six to nine months. You know, that
Speaker 1: really continuing. So I think, you know, margins are going
Speaker 1: to be under pressure, but I think that's going to
Speaker 1: be more than offset by this, by by the revenue rebound.
Speaker 1: I mean, just for example, just look at the sort
Speaker 1: of these classic reopening stocks. You know, those earnings are
Speaker 1: still down from where they work coming into the crisis.
Speaker 1: I mean, this reopening trade has I would argue, hasn't
Speaker 1: even started yet. I mean, these reopening stocks are still
Speaker 1: under mowhelmed sort of work from home by six the
Speaker 1: earnings have still been absolutely decimated, and you know, your
Speaker 1: average economy glotally it's still you know, if you look
Speaker 1: at these sort of lockdown indices, they're they're over fifty right,
Speaker 1: relative to zero by definition before we came into this,
Speaker 1: and you know, in the world hasn't been fully vaccinated yet.
Speaker 1: So I think there's a reopening trade which is gonna
Speaker 1: push revenues or it's gonna put journings is badly to
Speaker 1: start started, and it may be delayed somewhat here, absolutely,
Speaker 1: but it's it's it's not derailed. And and and the
Speaker 1: macro day that we're seeing tells you we're just learning
Speaker 1: to live with this. I mean, this is the third wave. Um,
Speaker 1: you know, we're a bit more vaccinated, we're a bit
Speaker 1: more used to dealing with this. And I think again,
Speaker 1: earnings are going to remake very resilient and the market's
Speaker 1: underestimating them. That is quite a statement to wrap things out.
Speaker 1: Ben Laidla of ETA Global Market STRATEGYES Ben, thank you
Speaker 1: right now, a massive joy. Michael Spence is any number
Speaker 1: of things, including a noble lawyer. Yes it's General Atlantic
Speaker 1: Senior Advisor, but he is someone who was thoughtfully rebuilt
Speaker 1: American education with his work at Stanford and then onto
Speaker 1: New York University and the Lawya joins us this morning
Speaker 1: from Hello, welto Italy. This is something folks you need
Speaker 1: to know about surveillance is these guys are on the shores.
Speaker 1: It's some fancy, gorgeous place and they drive up in
Speaker 1: whatever they want to drop in to pretend they're toughen
Speaker 1: it out in Palo Alto at Stanford. You're not at Stanford,
Speaker 1: are you, Professor Spence? I am not on the coast
Speaker 1: of Italy. Very good, that's good to know. Right now,
Speaker 1: I want to know a redo of your wonderful book
Speaker 1: on convergence of a decade ago, and I want to
Speaker 1: take a chapter there on multi speed globalism and say
Speaker 1: it's convergence within what certainly we're seeing a multi speed pandemic.
Speaker 1: How do we come out of this with constructive convergence? Well, Tom,
Speaker 1: I mean it's a very important question that you raised
Speaker 1: so briefly. Um, I think there's some serious question about
Speaker 1: whether the convergence is going to be fairly complete with
Speaker 1: respect to the low income countries. I mean, they're adversely
Speaker 1: affected by it's nearly a perfect storm, the pandemic, with
Speaker 1: very very slow vaccine rollout, that the the climate change
Speaker 1: is obviously accelerating. They have demographic problems, they have internal
Speaker 1: governance problems. So so you know, it was always going
Speaker 1: to be a kind of struggle to get there. But
Speaker 1: but I think, you know, with digital technology coming, questioning
Speaker 1: the growth model and so on, I think you know,
Speaker 1: we probably have to rethink this and in in the meantime,
Speaker 1: I mean, we have some important priorities before us, and
Speaker 1: I think item one on the list would be a
Speaker 1: real plan to roll out the vaccine global. You have
Speaker 1: a cottage industry and consultancy on the Pacific RIM and
Speaker 1: particularly to China. You have studied the domestic dynamics of China.
Speaker 1: What is our best practice to assist Beijing to diminish
Speaker 1: the use of coal? Um? You know, they have the
Speaker 1: technology to get this done. Um. And it's not clear
Speaker 1: to me why they aren't moving faster. Now. You know,
Speaker 1: China is far enough along in their economic development that
Speaker 1: they have a problem that's similar cars, which is replacing
Speaker 1: coal and fossil fuels with green energy and electricity generation. Uh.
Speaker 1: And whereas a lot of you know, earlier stage countries,
Speaker 1: you know, can have most of the electricity generation capacity
Speaker 1: to build, so they can build it green, you know,
Speaker 1: ab initio, so to speak. Um. But I I think
Speaker 1: you know the answer to that is, I don't know.
Speaker 1: And I think we ought to have a serious talk
Speaker 1: in the context of what is now you know, globally
Speaker 1: perceived as a serious problem. And I think we need
Speaker 1: acceleration everywhere on a broader level of Michael in order
Speaker 1: to lobby for an acceleration to greenify the industries like
Speaker 1: coal and like fossil fuels. In general, there's a question
Speaker 1: of the labor market and whether some of the adaptation
Speaker 1: of the U the U S and Chinese economy actually
Speaker 1: helps the labor market, where you can make an argument
Speaker 1: that it will actually provide some sort of back tail
Speaker 1: win basically to the improvements that the Biden administration and
Speaker 1: jes and Ping would like to see. I think I
Speaker 1: think there's a lot of merit in that argument, Lisa.
Speaker 1: I mean, you know, with very large amounts of public
Speaker 1: sector and private sector investment, which is what it's going
Speaker 1: to take to deal with this problem in China, in
Speaker 1: the United States, in Europe. Um, there's gonna be lots
Speaker 1: of you know, economic activity and employment associated with it. Now,
Speaker 1: you know, the flip side of the coin is this
Speaker 1: is a transition and the structure of the economy, So
Speaker 1: they'll be pockets of distress that require some kind of support.
Speaker 1: But I think when you add it all up, it's
Speaker 1: a positive provided the provided the investment momentum is behind it.
Speaker 1: Is the investment momentum more likely to come from public entities,
Speaker 1: or private entities. You know what what I was talking
Speaker 1: with John Brown the other day, who's you know, probably
Speaker 1: one of one of the most knowledgeable people I know
Speaker 1: in in the in the energy field, and he thinks
Speaker 1: it's a combination, right. You know, I don't know exactly
Speaker 1: what the percentages. Let's call it. We need public sector
Speaker 1: investment UM in the whole variety of kinds of infrastructure
Speaker 1: and research and stuff. But we need private sector investment
Speaker 1: to deliver the technologies that that businesses are now demanding.
Speaker 1: I mean business is business broadly globally, not completely, has
Speaker 1: committed to being part of the solution to this problem.
Speaker 1: So that then the question is, and what are we
Speaker 1: gonna do? And the answer is, a whole bunch of
Speaker 1: investment has to occur to provide solutions, uh, in the
Speaker 1: whole variety of sectors. I think it's coming. Whether it's
Speaker 1: coming fast enough, I think it's the open question. Your
Speaker 1: speech in Stockholm a few years ago, Professor Spence, was
Speaker 1: about signaling about the things that we do within our
Speaker 1: system and in our financial system that signaled to us,
Speaker 1: what is the signal of this odd time? We live
Speaker 1: in a massive monetary accommodation and particularly unprecedented fiscal stimulus
Speaker 1: in the United States. What are we signaling? I think,
Speaker 1: what what's what's being signaled? And it's the Central Bank
Speaker 1: in the administration. Is that, you know, in balancing off
Speaker 1: sort of you know, potential inflation slash instability as opposed
Speaker 1: to sort of righting the ship in terms of inclusive growth.
Speaker 1: They're going for inclusive growth. Uh and and there I
Speaker 1: think if you've got them privately, they would say, yeah,
Speaker 1: I know we're running some risks on on the other side,
Speaker 1: but but it's worth it. We we had a terribly
Speaker 1: weak um and unequal recovery from the Great Financial Crisis.
Speaker 1: We're not doing it again, and we're gonna you know,
Speaker 1: fire all the guns. I mean, just johonn if I
Speaker 1: may here Pressure Spence, a guy named Boston, a guy
Speaker 1: named John Taylor out at Palo Alto, Stanford. It looks
Speaker 1: a lot like Palo Alto, Italy, Michael Spence, but it's
Speaker 1: out at Stanford. They're gonna take a more conservative tax
Speaker 1: to this and say we can't trust the path to
Speaker 1: inclusive growth. How should the Biden administration respond to that?
Speaker 1: In liberals worldwide, Well, you know, I think the Biden administration.
Speaker 1: This is a personal opinion, and I respect my colleagues
Speaker 1: who are you know, at Stanford, who are I think
Speaker 1: a little bit more conservative on this than I am possible.
Speaker 1: But my view is the deficit that we faced in
Speaker 1: America that caused our growth patterns to be um out
Speaker 1: of out of kilter in terms of inclusiveness were investment deficits,
Speaker 1: some of its infrastructure, some of its human capital, some
Speaker 1: of it's you know, kind of new technology and so on.
Speaker 1: I think they're trying to address that now. They have
Speaker 1: pressure on the left to do a whole lot more
Speaker 1: than that, um, you know, and make the government a
Speaker 1: whole lot bigger, and to be perfectly honest, you know,
Speaker 1: beyond a certain point. I don't think that's gonna fly
Speaker 1: in the American context. I mean, you know, when you
Speaker 1: when you start getting governments that are noticeably larger than
Speaker 1: what Americans broadly are comfortable with. The bark uh And
Speaker 1: we won't go down that road onto the midterms next
Speaker 1: year politically speaking, anyway, Michael gonna catch up. Appreciate time, sir,
Speaker 1: as always the wonderful Michael spents there Nobolt Laureate and
Speaker 1: General Atlantic Senior advisor. Well, let's get one for you
Speaker 1: right now with any research founder and chief investment strategist,
Speaker 1: and let's start there. The path to five K on
Speaker 1: the SMP five hundred next year. Just walk us through
Speaker 1: the framework for you, Ed. Well, you know, forecasting the
Speaker 1: stock market is actually very easy. It's only two variables.
Speaker 1: What do you have to do is get P and
Speaker 1: E right. The trick is getting them right. Uh. And
Speaker 1: the challenge up ahead here, I think is the valuation
Speaker 1: multiple has already quite elevated at around twenty two. It's
Speaker 1: been an earnings driven bull market. We've had a melt
Speaker 1: up really since March twenty three of last year, and
Speaker 1: initially that melt up was led by the PE. Uh forward.
Speaker 1: PE went from twelve point nine to twenty three by
Speaker 1: m September of last year. And since May of last year,
Speaker 1: earnings have been on fire. They're gonna be up eighty
Speaker 1: percent on a year over year basis just in the
Speaker 1: second quarter. It should be up about forty for the
Speaker 1: year as a whole. Uh. So, I think the market's
Speaker 1: going higher. And my bullishness is based on my perception
Speaker 1: that there's no recession ahead, there's no credit crunch ahead.
Speaker 1: And they're still higher earnings ahead your Denny, when you
Speaker 1: took your PhD at Yale University with a privileged faculty
Speaker 1: at the time. I can't say enough about the quality
Speaker 1: of Yale in nineteen seventy six and down migrated from
Speaker 1: one thousand out to where we are now at thirty
Speaker 1: six thousand. On the way was a Carter malaise. As
Speaker 1: you know, from seventy six to roughly eighty two there
Speaker 1: was just a flatness. Is the thing we're not seeing
Speaker 1: here is not the up and down to the financial media,
Speaker 1: but the ability to just go flat and rest for
Speaker 1: a while. I think the huge story when you compare
Speaker 1: the nineteen seventies, which was called the Great Inflation Era, uh,
Speaker 1: and the what I think is going to is the
Speaker 1: Roaring twenties era right now is productivity. Productivity collapsed in
Speaker 1: the nine and this time around, productivity is up from
Speaker 1: zero point six percent on a twenty quarter basis. I
Speaker 1: try to smooth it out. That's what it was not
Speaker 1: too long ago, at the end of fifteen. Right now,
Speaker 1: we just got a new number. It's a two percent.
Speaker 1: I think it's going to four percent at leasta. Greg
Speaker 1: Granton at Yale University. The acclaimed his story and calls
Speaker 1: it the dismal seven in these I don't hear that
Speaker 1: right now, No no one saying it's the dismal seventies.
Speaker 1: Some people saying that we might get some sort of
Speaker 1: inflationary pressures that resemble something at last seen perhaps closer
Speaker 1: to seventies than we've seen in recent decades. And how
Speaker 1: much is your call five thousand by the year end
Speaker 1: of two predicated on treasury yields remaining where they are
Speaker 1: or around or around there. Well, I have to say
Speaker 1: that this year has been a tricky one, uh for
Speaker 1: forecasting the bond market. And uh I was I wasn't
Speaker 1: surprised that I went to one point seven percent back
Speaker 1: in March. I was surprised that I went back to
Speaker 1: one point one twelve percent recently, But now I'm not
Speaker 1: surprised again that it's heading back up to one point
Speaker 1: three five And I think we could be a two
Speaker 1: percent by the end of the year or sometime next year.
Speaker 1: And I think that would be a clearly a sign
Speaker 1: that the economy is getting a little bit closer to
Speaker 1: normal than it had been for quite some time. Uh.
Speaker 1: Now that could weigh on the on the evaluation ultiple,
Speaker 1: I suppose, And but you know, five thousand is actually
Speaker 1: a fairly conservative outlook. It's in of next year. There's
Speaker 1: plenty of time for earnings to grow along the along
Speaker 1: that time. And by the way, by the end of
Speaker 1: next year, the markets are going to be really discounting three.
Speaker 1: I know it's weird to be talking about that far out,
Speaker 1: but that's what the market does. And I got earnings
Speaker 1: two five this year, two dollars two hundred five dollars
Speaker 1: this year for the SMP five hundred next year two
Speaker 1: hundred fifteen, and then in two thousand and thirteen, looking
Speaker 1: that far out, it could be up two hundred forty bucks.
Speaker 1: So and I think I think on your point, I
Speaker 1: think profit margins are gonna hold up surprisingly well because
Speaker 1: of the productivity story. The story then comes down to
Speaker 1: the second point. Then it's the multiple And if we
Speaker 1: want to talk about twenty three, we'll be talking about
Speaker 1: ray hikes. Can we really tried positively through tapering given
Speaker 1: the amount of stimulus we've had from this federal Reserve
Speaker 1: into a conversation about ray hikes? Well, John, you know
Speaker 1: this tapering talks been around for a long time. It's
Speaker 1: not like a surprise. We've had previous tampering episodes which
Speaker 1: were more on the surprising side. This one certainly isn't.
Speaker 1: As a matter of fact, everybody's kind of wondering why
Speaker 1: they haven't started already given some of the economic data
Speaker 1: that we've had. So I think the market is gonna
Speaker 1: handle tapering just fine. By the way, m too, some
Speaker 1: people are getting starting to freak out about the empty
Speaker 1: growth rate. Uh, what they don't really appreciate is that
Speaker 1: empty today is five trillion dollars higher than there was
Speaker 1: before the pandemic. There's still just a tremendous amount of
Speaker 1: liquidity just sitting there. Uh. People look at velocity. I
Speaker 1: I look at the other side of velocity. If you
Speaker 1: take EMPTWO divided by nominal GDP, it's almost the year's
Speaker 1: worth of them too. Now with nominal GDP it's an
Speaker 1: all time record high. So there's lots of liquidity out
Speaker 1: there that's still kind of pent up. Supply of liquidity
Speaker 1: still bullish at John Tanny, It's gonna catch up, sir
Speaker 1: at any Research founder and chief Investment Strategistics right now.
Speaker 1: Treat for Lisa Rammins and myself, Craig MafA and Michael
Speaker 1: Nathanson they pick up the pieces after the Olympics, the
Speaker 1: streaming frenzy that's out there. And also, and we we
Speaker 1: do a tangent here Lisa on what's going on in Washington.
Speaker 1: Let me go to Craig Mafat on this. This is
Speaker 1: his wheelhouse as well. Craig, this is a story not told,
Speaker 1: which is we're almost on the edge of where there
Speaker 1: is a right to the Internet versus a privilege of
Speaker 1: the Internet. To me, it's a real subtle sea change.
Speaker 1: Are we at the point with Biden legislation that we're
Speaker 1: gonna demand pristine internet coast to coast? Well, first of all,
Speaker 1: thank you for having us back on. Always a pleasure
Speaker 1: to be here. You know, I'm not sure about that.
Speaker 1: That's been a push pull through the last what five administrations.
Speaker 1: And um, and this this question of is broadband utility?
Speaker 1: Should it be treated as a utility versus h that
Speaker 1: that the private sector has actually done a pretty good
Speaker 1: job bringing broadband to Americans. Um and that tension I
Speaker 1: think is appropriate. I don't think it's going to change
Speaker 1: my takeaway from from what's happened in Washington. And look,
Speaker 1: this shouldn't be a surprise is despite the fact that
Speaker 1: we've swung back to a democratic administration, Biden is who
Speaker 1: he said he was. He's a moderate and and and
Speaker 1: actually what we've seen fairly consistently is moderation in most
Speaker 1: of the policies around broadband. There was some talk about
Speaker 1: price regulation and some flirtations in the early drafts of
Speaker 1: the infrastructure plan. That's not where we ended up. So
Speaker 1: I think overall what we're seeing is reasonably friendly to
Speaker 1: the incumbents. There's so many things to talk to you
Speaker 1: about your claim to research here on the hardware of
Speaker 1: the media we look at every day and again, the
Speaker 1: media is content is king and Michael Nathanson, if I
Speaker 1: could go to you, what are you prepared for? What
Speaker 1: are you stealed for? In the streaming wars? Where's the
Speaker 1: curiosity right now? Well, Wren Tom, what I'm waiting for.
Speaker 1: There's someone to tap out, someone who looks at I
Speaker 1: guess we were a solid Warner Media and Discovery merge
Speaker 1: and acknowledgement that this is a hard business to uh
Speaker 1: to master. But I'm waiting to see what VI Common
Speaker 1: Comcast do. They're both too small to win this. So
Speaker 1: Craig and I are both waiting for somebody to realize
Speaker 1: that this is not a great business to chase. It's
Speaker 1: probably better to be a content seller than you know,
Speaker 1: a fifth rated streamer. So we're waiting for more consolidation here. Um.
Speaker 1: I don't know when that's going to be, but to
Speaker 1: us that has to happen. Well, Michael, just to follow
Speaker 1: up on that, are we passed peak content? Lisa? Um,
Speaker 1: I think we're a year two years away. You know,
Speaker 1: Apple's it's gonna put more money to work. Amazon will
Speaker 1: as well, So I would say the next one or
Speaker 1: two years gets peaked. There's clearly to your question, there's
Speaker 1: clearly too much content out there is not enough time
Speaker 1: in the day. The economics are forcing lower, lower returns. Um.
Speaker 1: But I think we're one two years away from it
Speaker 1: when realizing that they need to change their approach. Right,
Speaker 1: there's just too much capital chasing chasing this opportunity. Craig,
Speaker 1: which really wears on the hardware store a story of
Speaker 1: things basically that regardless of who wins the content wars,
Speaker 1: the bottom line is more people are going to be streaming,
Speaker 1: and so perhaps is that the pure play going forward
Speaker 1: to basically hinge on the streaming phenomenon that's only getting stronger,
Speaker 1: even if there is this war on content that perhaps
Speaker 1: has created some peaks in pricing at least down the road. Well,
Speaker 1: I wish I could say, yes, there's certainly going to
Speaker 1: be a lot of demand for for bits and bites.
Speaker 1: The question is really whether there's a mechanism for the
Speaker 1: industry's eye cover telecommon and cable to monetize that. You know,
Speaker 1: you could make the argument that in this particular gold rush,
Speaker 1: the ones that are selling the pickaxes and the shovels
Speaker 1: are not so much the network operators, but the network
Speaker 1: equipment suppliers who really are are I think seeing a
Speaker 1: serious boom for the For the wireless operators, monetizing incremental
Speaker 1: traffic has always been problematic. And for the cable operators,
Speaker 1: they have a better business structurally than the wireless operators,
Speaker 1: tend to be less competition, but they too generally don't
Speaker 1: charge extra for the throughput. If you're just joining us
Speaker 1: on Bloomberg Television in Bloomberg Radio, we are thrilled to
Speaker 1: bring you both Craig Moffatt and Michael Nathanson of Moffatt
Speaker 1: Nathanson years at Sanford Burnstein and truly definitive on all
Speaker 1: that we do in media. This is a joint question
Speaker 1: to both of you, and then Lisa is gonna pound
Speaker 1: in with another question. Michael Nathanson, I'm gonna let you
Speaker 1: go first. What are the two of you learn about
Speaker 1: the Olympics that NBC has to tattoo to their brain
Speaker 1: as they go to China and beyond. Michael First, well, Tom,
Speaker 1: great question. They need to change and who am? I am?
Speaker 1: An analyst? But no stuff, you're Michael Nathanson. They're gonna
Speaker 1: listen to this. Go okay. They need a constant always
Speaker 1: on Barker channel where I can go to watch Olympics.
Speaker 1: It was a hodgepodge to right, you do know what
Speaker 1: was on where it was there was no excitement. They
Speaker 1: basically need to take over either NBC or USA and
Speaker 1: make it Olympics and show game show everything live on
Speaker 1: broadcast and linear, then use digital to basically augment the
Speaker 1: non core you know events. I think ESPN has done
Speaker 1: a great job they figured that out. ESPN uses ESPN
Speaker 1: one for all their Maine events. They have all the
Speaker 1: other ESPN channels for the secondary and tertiary events. They
Speaker 1: need to rethink it. I thought it was really poorly done.
Speaker 1: It was a sad It was a sad Okay, Craig, Craig,
Speaker 1: your briefing. Brian Robert's here and you're looking more at
Speaker 1: the hardware as well. What do you tell Brian Roberts
Speaker 1: to do next on the Olympics. Well, I'll tell you so,
Speaker 1: you know, I think first you have to recognize in
Speaker 1: the diagnosis of the problem here. Rating ratings were down
Speaker 1: from five years ago total day um. A large part
Speaker 1: of that is the fact that there are just a
Speaker 1: lot fewer television households to uh to to watch the Olympics. Right.
Speaker 1: The court cutting that has accumulated over the last five
Speaker 1: years has left a mark and it hurts. The problem
Speaker 1: that that creates, though, is actually deeper than that, because
Speaker 1: I think about the machine that Comcast is or that
Speaker 1: NBC is in creating the run up to the Olympics
Speaker 1: and making people interested and engaged in the athletes and
Speaker 1: the stories around the Olympics. If ratings are down or
Speaker 1: more in the months leading up to the Olympics, then
Speaker 1: so much of that is being lost. That engagement when
Speaker 1: the Olympics comes around just isn't what it used to be.
Speaker 1: And I think the real problem now is trying to
Speaker 1: figure out whether the whole ecosystem that surrounds the Olympics
Speaker 1: of public personal interest stories about athletes and national pride
Speaker 1: and all that sort of thing is permanently damaged because fundamentally,
Speaker 1: the Olympics are made for TV event and we're just
Speaker 1: in a post TV world, right, Well, hold on a second,
Speaker 1: That's where I wanted to go, Craig, Can we extrapolate
Speaker 1: out beyond the Olympics two sports in general that perhaps
Speaker 1: cable news doesn't capture the same kind of audience, and frankly,
Speaker 1: some of these sports don't capture the same type of audiences.
Speaker 1: That goes hand in hand and a sea change that
Speaker 1: fundamentally undermines cable's prowess in this industry. Well, you can't say, Lesa.
Speaker 1: It goes to your question to me about this is
Speaker 1: just too much content out there, right, there's too much content.
Speaker 1: Discoveries become impossible. To Greg's point, we lost the audience
Speaker 1: past five years. It's incredible challenge right and sports right
Speaker 1: to keep going up. Um, So we wonder what happens
Speaker 1: in four or five years when the next NFL contract
Speaker 1: really kicks in its part. In terms of the heart
Speaker 1: of the escalation, it's a challenge, and I think I
Speaker 1: think you have you need consolidation here, you need less
Speaker 1: content being produced, and it eliminate some of the clutter
Speaker 1: we see right now over the dial basically and all
Speaker 1: over streaming and Craig From your perspective, what would it
Speaker 1: do to some of these cable giants if they sold
Speaker 1: the rights to some of the sports streaming well for
Speaker 1: the broadband providers, that is, the infrastructure providers, The short
Speaker 1: answer is not much. They're there, to some extent agnostic
Speaker 1: about what travels over the networks. In fact, I think
Speaker 1: they fought for years to say we don't want to
Speaker 1: have to carry every regional sports net for example, on
Speaker 1: the basic tier, and make everybody in America pay for
Speaker 1: sports even if they don't watch it. The problem has
Speaker 1: been that the programmers have been too strong and have
Speaker 1: demanded basic tier carroag. That's clearly breaking down right now,
Speaker 1: and and you wonder whether the straw that broke the
Speaker 1: camel's back will be one or two more of these
Speaker 1: networks being withdrawn, to the point that the sports system
Speaker 1: as we know it today really on ravels and and
Speaker 1: you're certainly seeing that on the regional sports side. UM,
Speaker 1: the national sports side has held in better because Disney
Speaker 1: has so much power in its negotiations, but the sports
Speaker 1: ecosystem is feeling a lot of stress. I gotta leave
Speaker 1: it there, Craig Moffatt, Michael Nathans is too just too
Speaker 1: short of visit, but always very generous of you to
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