WEBVTT - Warner Bros Plans to Reject Paramount Offer Next Week 0:00:02.720 --> 0:00:10.559 Bloomberg Audio Studios, Podcasts, radio news. You're listening to the 0:00:10.600 --> 0:00:14.560 Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 0:00:14.600 --> 0:00:17.840 Eastern on Apple Coarclay and Android Auto with the Bloomberg 0:00:17.920 --> 0:00:21.040 Business App. Listen on demand wherever you get your podcasts, 0:00:21.360 --> 0:00:23.560 or watch us live on YouTube. 0:00:24.200 --> 0:00:27.120 Warner Brothers Discovery, Here we go again. Folks plans to 0:00:27.240 --> 0:00:32.120 once again reject a takeover bid from Paramount Skydance for More. 0:00:32.120 --> 0:00:33.120 Rejoined by Luke Stillman. 0:00:33.200 --> 0:00:38.160 Luke is a managing director ed Madison and Wall. How's 0:00:38.200 --> 0:00:39.960 this thing going to play out here? It feels like 0:00:40.720 --> 0:00:42.720 Paramount's got to come in with a higher bid at 0:00:42.720 --> 0:00:43.200 some point. 0:00:43.360 --> 0:00:47.840 Yeah, it's it's an interesting development. So Warner essentially rejecting 0:00:47.920 --> 0:00:52.559 Paramounts barely improved offer same thirty dollars a share, offer 0:00:53.000 --> 0:00:55.840 a few extra guarantees. If they want something to move 0:00:56.000 --> 0:00:57.840 in this discussion, I think it's going to have to 0:00:57.880 --> 0:01:00.520 move up to thirty four to thirty five five dollars 0:01:00.520 --> 0:01:03.640 a share. We're in an interesting situation here where it's 0:01:03.640 --> 0:01:07.200 hard to tell which of these bids is really the 0:01:07.280 --> 0:01:10.320 higher value one, because of course they're going after different assets. 0:01:10.720 --> 0:01:15.160 Netflix wants just the studio and streaming assets. Paramount wants everything, 0:01:15.440 --> 0:01:19.840 so understandable in that uncertainty that Warner's leaning towards Netflix, 0:01:20.080 --> 0:01:23.119 the much larger company. What I think is interesting about 0:01:23.160 --> 0:01:26.839 this is not so much the takeover commentary, but really 0:01:26.880 --> 0:01:30.280 what it says about the reset that's happening in the 0:01:30.319 --> 0:01:35.200 TV space, distribution shifting, monetization under pressure. So all this 0:01:35.280 --> 0:01:38.440 consolidation is a symptom of that pressure, not the cause 0:01:38.480 --> 0:01:38.760 of it. 0:01:38.920 --> 0:01:43.960 What is these strategic reason that Paramount hasn't raised its 0:01:43.959 --> 0:01:46.639 offer already? I mean, when I saw that Warner Brothers 0:01:46.720 --> 0:01:52.600 was expected to reject the bid, I immediately look to NSS. Right, No, duh, 0:01:52.720 --> 0:01:56.080 they're going to reject because they haven't offered any more money. 0:01:56.200 --> 0:01:58.400 Just because you say Ellison's good for it, and the 0:01:58.440 --> 0:02:00.800 breakup fees a little bit higher, that's not going to 0:02:00.840 --> 0:02:02.880 move the needle. Why don't they say, okay, it's thirty 0:02:02.880 --> 0:02:03.800 three dollars a share. 0:02:04.080 --> 0:02:05.960 Well, I think there's plenty of time here. I looked 0:02:05.960 --> 0:02:08.880 at betting markets the other day. There's a decent shot, 0:02:09.000 --> 0:02:11.680 according to them, that this drags on into twenty twenty seven. 0:02:11.800 --> 0:02:14.640 So I think there's five or ten new developments that 0:02:14.680 --> 0:02:16.960 we're going to get over the coming days and months 0:02:17.280 --> 0:02:19.240 and plenty of time to potentially raise the. 0:02:19.240 --> 0:02:22.440 Oh wait, it's interesting you bring up betting markets and 0:02:22.600 --> 0:02:26.600 more and more. That's an indicator that people care about. 0:02:26.880 --> 0:02:30.679 And I wonder if it's because does David Zaslov put 0:02:30.720 --> 0:02:33.960 down a bet? You know, does Larry Ellison put down 0:02:34.000 --> 0:02:37.120 a bet? Does you know? Do people in the know 0:02:37.320 --> 0:02:39.440 you think play in these betting markets? 0:02:39.880 --> 0:02:41.800 Well, you know, I don't know if people in the 0:02:41.840 --> 0:02:44.520 know are playing in the betting markets, but certainly. 0:02:44.200 --> 0:02:46.560 The thing is Looke, you know more than everybody else 0:02:46.600 --> 0:02:48.720 about this stuff. Right, So when you're looking at the 0:02:48.760 --> 0:02:52.000 betting markets, like, why do you care what these chumps 0:02:52.000 --> 0:02:54.560 are putting down a how market? That's a question how 0:02:54.600 --> 0:02:55.520 deep that market is? 0:02:55.560 --> 0:02:55.760 Yeah? 0:02:55.760 --> 0:02:57.799 Like how representative are those betting markets? Yeah? 0:02:57.800 --> 0:03:01.359 Well, look, there's lots of moving parts in this takeover battle, 0:03:01.440 --> 0:03:05.679 regulatory issues, political connections. So again, I don't think the 0:03:05.720 --> 0:03:06.880 story's over there when. 0:03:06.720 --> 0:03:09.960 The Trump administration would be playing on polymarkets. 0:03:09.280 --> 0:03:10.200 Crazy to think. 0:03:10.240 --> 0:03:13.520 So, So, Luke, how about this. I'm shocked to hear 0:03:13.560 --> 0:03:15.160 that there is gambling going on in this place. 0:03:15.200 --> 0:03:17.880 Looking at this deal, it feels like it's a nice 0:03:17.880 --> 0:03:20.280 to have for Netflix, but it's kind of a must 0:03:20.280 --> 0:03:24.120 have for Paramount because if Paramount doesn't get this deal, 0:03:24.160 --> 0:03:26.239 I don't know what they do. So how do you 0:03:26.280 --> 0:03:28.040 think about that? I mean, if I'm Paramoun, I feel 0:03:28.080 --> 0:03:30.400 like I really got a stretch to get this steal. 0:03:30.760 --> 0:03:34.000 Part of the problem in the whole TV space is 0:03:34.480 --> 0:03:38.840 really the economics don't work anymore. So we're at something 0:03:38.880 --> 0:03:42.000 we call the PayTV singularity right now. In four Q 0:03:42.080 --> 0:03:45.640 twenty five is when fewer than half of the households 0:03:45.640 --> 0:03:49.880 in the US have a PayTV subscription. That's down from 0:03:49.880 --> 0:03:54.040 nearly ninety percent in twenty ten, and the economics just 0:03:54.080 --> 0:03:57.200 don't work anymore. Consumers want video more than they ever have. 0:03:57.360 --> 0:04:00.400 They spend more on video than they ever have, doing 0:04:00.440 --> 0:04:02.320 it in a different way, and a lot of the 0:04:02.360 --> 0:04:06.640 gains aren't going to the streaming platforms of a Paramount. 0:04:06.680 --> 0:04:09.760 They're going to a Netflix or an Amazon or an Apple. 0:04:10.400 --> 0:04:13.760 Do consumers care about I go to the movies all 0:04:13.800 --> 0:04:16.159 the time, but I'm old, right, and that's because I 0:04:16.200 --> 0:04:18.160 want to do something with my wife where I don't 0:04:18.160 --> 0:04:22.160 have to talk to her. Do consumers care about going 0:04:22.160 --> 0:04:25.480 to the theater? Because if Netflix wins. The worry is that 0:04:26.160 --> 0:04:28.920 we're going to see the end of the big screen business. 0:04:29.440 --> 0:04:33.560 I mean theater bucks office receipts still haven't really recovered 0:04:33.960 --> 0:04:36.120 since COVID. We haven't seen a new high yet, even 0:04:36.160 --> 0:04:39.279 though every year we expect everyone forecasts a new high. 0:04:40.120 --> 0:04:43.960 I think part of it is that people underestimate how 0:04:44.120 --> 0:04:47.320 engaged consumers are with streaming platforms. Every time we see 0:04:47.320 --> 0:04:51.800 a price increase or a password crackdown, everyone has a 0:04:51.839 --> 0:04:54.520 discussion about is this too much? Is this where consumers 0:04:54.560 --> 0:04:58.039 say it's too expensive, But consumers aren't trying to save 0:04:58.160 --> 0:05:00.640 money by cutting their cable subscription. We're just moving that 0:05:00.720 --> 0:05:04.560 money over and so for a Netflix, HBO or another 0:05:04.600 --> 0:05:08.720 combination you know, thirty forty fifty dollars streaming bundles is 0:05:09.000 --> 0:05:10.919 there's plenty of runway for price increasing. 0:05:10.960 --> 0:05:15.239 What's amazing here is the value being ascribed by various 0:05:15.240 --> 0:05:18.560 players in the marketplace for the cable networks business of 0:05:18.640 --> 0:05:23.080 Warner Brothers Discovery. Those businesses used to trade a ten 0:05:23.120 --> 0:05:25.719 and twelve times IBADA. They're being valued today around three 0:05:25.760 --> 0:05:27.040 or four times EBITDA. 0:05:26.880 --> 0:05:30.000 Three to four. Is that the Netflix valuation of the 0:05:30.000 --> 0:05:33.039 paramount evaluation against the problem is those are pretty far apart. 0:05:33.200 --> 0:05:36.640 Yes, somewhere in between Bloomberg Intelligence ETHA values is at 0:05:36.640 --> 0:05:39.480 about four dollars per share. That's about four four and 0:05:39.520 --> 0:05:42.720 a half five times EBITDA, less than half. 0:05:42.480 --> 0:05:44.120 Of what they were, you know, ten years ago. 0:05:44.520 --> 0:05:47.720 And part of the problem is the TV ad business 0:05:47.839 --> 0:05:51.000 is just in permanent structural decline. So it's this seventy 0:05:51.040 --> 0:05:56.480 billion dollar, slowly melting iceberg of value that is not recovering. 0:05:56.560 --> 0:06:01.000 As much as broadcasters want to brag about their streaming 0:06:01.040 --> 0:06:03.680 ad growth, it's just cannibalizing the linear dollars. It's not 0:06:03.760 --> 0:06:04.280 growing the pot. 0:06:04.400 --> 0:06:06.000 By the way, can you weigh in on the trade 0:06:06.000 --> 0:06:08.600 desk issue. We were just talking with Isabelle Lee about 0:06:08.680 --> 0:06:11.040 why is trade desk doing so badly? It's sound seventy 0:06:11.040 --> 0:06:14.040 percent year to date, and to my mind, that's an 0:06:14.080 --> 0:06:17.359 incredibly value business valuable business model. 0:06:17.400 --> 0:06:17.560 Right. 0:06:17.600 --> 0:06:19.880 You want to be able to aim your ads at 0:06:19.880 --> 0:06:20.799 the correct viewers. 0:06:21.000 --> 0:06:24.360 Yeah, we just launched a programmatic ad forecast and it 0:06:24.480 --> 0:06:27.159 is a growing space. The problem for the trade desk 0:06:27.480 --> 0:06:31.280 is their take rate is really high and there's new competitions, 0:06:31.320 --> 0:06:35.320 so potentially some challenges there. Not to mention the open Internet, 0:06:35.960 --> 0:06:38.680 like the TV marketplace is struggling at least compared to 0:06:38.880 --> 0:06:41.520 big search platforms and big social media platforms. 0:06:41.720 --> 0:06:45.400 What's the AI impact on advertising, you guys think these days? 0:06:45.480 --> 0:06:50.320 We think the AI impact is not much for search. 0:06:50.880 --> 0:06:52.480 We don't think it erodes the search business. 0:06:52.480 --> 0:06:54.320 Well as I could have made an argument that's the 0:06:54.440 --> 0:06:56.400 death knell of search, but it hasn't been the case. 0:06:56.480 --> 0:06:58.960 It hasn't been the case, and half of search comes 0:06:58.960 --> 0:07:01.680 from small businesses. They're never going to move to a 0:07:01.760 --> 0:07:04.480 chat GPT surge for years, They're going to stick with Google. 0:07:04.800 --> 0:07:07.159 It's not the death knell for social What we're worried 0:07:07.200 --> 0:07:11.040 about is the open Internet long tail of publishers, where 0:07:11.240 --> 0:07:14.760 we think this completely undermines their business. And what they 0:07:14.840 --> 0:07:17.840 should do is they should license their content as fast 0:07:17.880 --> 0:07:20.760 and as often as possible with these AI platforms and 0:07:20.840 --> 0:07:24.240 take that money and pivot to event businesses, to subscription 0:07:24.360 --> 0:07:25.920 businesses and move away from advertising. 0:07:25.920 --> 0:07:29.120 What about on the provider side. My buddy Mark Douglass 0:07:29.400 --> 0:07:32.240 runs a company called Mountain Right. They got together with 0:07:32.400 --> 0:07:35.960 Ryan Reynolds on the creative side, and now they have 0:07:36.160 --> 0:07:41.200 an AI program that allows small businesses to create their 0:07:41.240 --> 0:07:43.960 own advertisement and then aim it at the right people 0:07:44.080 --> 0:07:46.520 in their region. Yes, seems like it should be a 0:07:46.520 --> 0:07:47.440 slam dunk. 0:07:47.320 --> 0:07:51.160 Small business CTV B to B CTV. These are a 0:07:51.200 --> 0:07:54.080 lot of spaces that didn't really exist a few years ago, 0:07:54.120 --> 0:07:56.280 and now because of some of those AI tools, the 0:07:56.360 --> 0:08:01.880 creative barrier has dropped much lower. And everybody wants targeted advertising. 0:08:01.920 --> 0:08:05.000 Everyone wants targeted on TV. And so those are definitely 0:08:05.000 --> 0:08:07.880 some growth areas. But overall, if you zoom out to 0:08:07.920 --> 0:08:11.239 the total TV landscape, it's not growing. It's not growing 0:08:11.240 --> 0:08:13.800 the pie. And that's why we're seeing consolidation because when 0:08:13.800 --> 0:08:16.720 the pie stops growing, everyone starts battling over taking share. 0:08:16.960 --> 0:08:19.680 You know who gets paid here, David Zaslov, the CEO 0:08:19.840 --> 0:08:21.040 of Warner Brothers Discovery. 0:08:21.120 --> 0:08:23.600 Yeah, he looks like a genius right now, does it? Does? 0:08:23.720 --> 0:08:25.800 I mean? And he looks like a defender of the 0:08:25.800 --> 0:08:28.680 creative community, Like he's starting to look like a man 0:08:28.680 --> 0:08:29.240 of the people. 0:08:29.680 --> 0:08:31.680 You know, the best trades in media over the last 0:08:31.680 --> 0:08:34.199 fifteen years have been sales. I mean, Larry May's in 0:08:34.240 --> 0:08:37.320 the radio business, Rupert Murdock and the big diversified you 0:08:37.320 --> 0:08:42.200 know media empire. Now maybe you know the Zaslov and 0:08:42.280 --> 0:08:45.880 John Malone, all those guys Boom they said had enough. 0:08:46.000 --> 0:08:49.480 Now it's up for some of the new technologies. When 0:08:49.520 --> 0:08:53.079 does Google spin out YouTube? 0:08:53.640 --> 0:08:54.520 Would that be great? 0:08:55.800 --> 0:08:58.800 The thing about YouTube, I mean yeah, I mean YouTube 0:08:59.000 --> 0:09:03.360 is I think YouTube is core to their business. The 0:09:03.400 --> 0:09:05.880 thing is, though, you know, advertisers don't think of YouTube 0:09:05.880 --> 0:09:08.800 as TV, but consumers think of YouTube as TV. Consumers 0:09:08.840 --> 0:09:12.280 even think of social video as TV more and more so. 0:09:12.320 --> 0:09:15.800 If you look at how TV broadcasters are positioning themselves, 0:09:15.880 --> 0:09:18.840 they're still going after the old story. We have brand safe, 0:09:18.960 --> 0:09:22.640 the most premium content, the live sports you want. Digital 0:09:22.640 --> 0:09:25.360 platforms have that. Thursday Night football is on Amazon. The 0:09:25.360 --> 0:09:28.439 oscars is going to YouTube. You know, the landscape is shifting, 0:09:28.800 --> 0:09:32.040 and we're not seeing the kind of investments in content 0:09:32.200 --> 0:09:36.160 or investments in global solutions that we think will need 0:09:36.200 --> 0:09:38.200 to see for those to turn the business around. 0:09:38.679 --> 0:09:41.760 Stay with us. More from Bloomberg Intelligence coming up after this. 0:09:45.400 --> 0:09:49.080 You're listening to the Bloomberg Intelligence podcast. Catch US Live 0:09:49.160 --> 0:09:52.240 weekdays at ten am Eastern on Apple, Coarclay, and Android 0:09:52.280 --> 0:09:55.560 Auto with the Bloomberg Business App. Listen on demand wherever 0:09:55.640 --> 0:09:59.959 you get your podcasts, or watch US live on youtubey. 0:10:00.120 --> 0:10:02.800 I obviously the driver of last year, of the year 0:10:02.840 --> 0:10:07.040 before and really the year before that, driving demand for 0:10:07.160 --> 0:10:11.679 cybersecurity as well as more industries adopt the technology, and 0:10:11.679 --> 0:10:16.400 Bloomberg Intelligence says expect more cyber spending and consolidation in 0:10:16.440 --> 0:10:19.439 the sector. Let's discuss that with Teresa Payton. She's the 0:10:19.559 --> 0:10:23.199 CEO of Fortalist Solution. She was the White House Chief 0:10:23.240 --> 0:10:28.319 Information Officer, the CIO of the White House under George W. Bush. Teresa, 0:10:28.320 --> 0:10:33.400 thanks so much for joining us. How important do you 0:10:33.400 --> 0:10:36.280 think cybersecurity will be in twenty twenty six. I feel 0:10:36.280 --> 0:10:39.920 like I just can't overstate the importance of cybersecurity in 0:10:40.120 --> 0:10:40.840 AI world. 0:10:41.600 --> 0:10:44.240 Yeah, thanks for having me here on a happy New 0:10:44.280 --> 0:10:48.240 Year's Eve, and yes, I'm predicting everyone needs to get 0:10:48.240 --> 0:10:51.640 ready for a new wave of attax that we have 0:10:51.760 --> 0:10:54.840 never seen before, because cyber criminals. As we get better 0:10:54.920 --> 0:10:58.280 at cybersecurity, they don't give up and suddenly say, gosh, 0:10:58.320 --> 0:10:59.720 maybe I should be a good. 0:10:59.559 --> 0:11:01.320 Person because they've made it harder for me. 0:11:01.400 --> 0:11:04.840 Now they just up their game, and so be prepared 0:11:05.080 --> 0:11:09.760 with AI with I think quantum computing could be available 0:11:09.760 --> 0:11:13.319 by the end of twenty twenty six and quantum computing 0:11:13.360 --> 0:11:17.800 is going to be incredible for solving the previously unsolvable problems. 0:11:18.200 --> 0:11:20.760 But that also means for cyber criminals breaking encryption. 0:11:21.880 --> 0:11:25.720 So is AI is quantum computing. 0:11:25.840 --> 0:11:28.319 I'm not sure if it's friend or foe here in 0:11:28.360 --> 0:11:31.200 your world of cyber just you know, technical security. 0:11:31.200 --> 0:11:31.960 How do you think about it? 0:11:33.080 --> 0:11:37.040 Well as sort of you know, for mankind, quantum computing, 0:11:37.240 --> 0:11:38.960 if we do it right and get it right on 0:11:39.000 --> 0:11:42.160 sort of the environmental impacts and issues, is going to 0:11:42.200 --> 0:11:44.680 be incredible. It's going to allow us to solve problems 0:11:44.679 --> 0:11:47.760 that we haven't solved before because massive amounts of data 0:11:47.840 --> 0:11:52.720 volumes mathematical problems, and we truly will see breakthroughs I 0:11:52.800 --> 0:11:56.440 believe in healthcare, protecting the environment, and a lot of 0:11:56.440 --> 0:11:58.200 other issues on everybody's minds. 0:11:58.559 --> 0:12:01.240 However, in the wrong hands, you know, it's. 0:12:01.120 --> 0:12:04.240 A tool, and so the tool is neither good nor bad, 0:12:04.320 --> 0:12:07.720 it's just how is it wielded. And in the wrong hands, 0:12:07.760 --> 0:12:11.920 this quantum computing tool could be used to sort of 0:12:12.360 --> 0:12:18.439 do decryption on previously stolen data that has been encrypted 0:12:18.880 --> 0:12:22.720 based on yesterday's and today's standards, But with quantum computing, 0:12:23.160 --> 0:12:25.680 it's no longer safe So if you think about nation 0:12:25.800 --> 0:12:28.360 states and cyber criminal syndicates who have been stealing data 0:12:28.400 --> 0:12:31.800 for the last ten to twenty years, and people have said, gosh, they're. 0:12:31.559 --> 0:12:33.400 Just sitting on it. They haven't done anything with it. 0:12:33.679 --> 0:12:36.400 When quantum computing comes, they may actually be able to 0:12:36.440 --> 0:12:37.080 weaponize it. 0:12:37.240 --> 0:12:40.760 What is that? A lot of people talking about quantum 0:12:40.760 --> 0:12:43.880 computing these days. I'm watching the stocks. Most of them 0:12:44.120 --> 0:12:48.960 have not done well this year, but it's coming, right. 0:12:49.160 --> 0:12:51.839 I remember when Jensen Wong said it's fifteen years out, 0:12:51.880 --> 0:12:53.840 and now he was like, well, maybe more like five 0:12:53.880 --> 0:12:56.000 to ten. Yeah. 0:12:56.040 --> 0:12:59.439 Based on what I'm seeing, there's been some incredible breakthroughs 0:12:59.520 --> 0:13:03.040 and several labs around the world, and this is a 0:13:03.280 --> 0:13:06.000 global race as to who's. 0:13:05.760 --> 0:13:07.880 Going to figure out quantum computing first. 0:13:08.520 --> 0:13:11.360 And based on what I'm seeing, I really do believe 0:13:11.440 --> 0:13:13.640 it will be commercially available by the end of twenty 0:13:13.640 --> 0:13:16.600 twenty six. We've been saying in the next two to 0:13:16.640 --> 0:13:19.200 three years for over three years now, so I really 0:13:19.200 --> 0:13:21.079 do believe, based on what I'm seeing coming out out 0:13:21.120 --> 0:13:24.560 of the lab reports, it will be available, probably only 0:13:24.600 --> 0:13:26.400 to those with the deepest pockets. 0:13:26.679 --> 0:13:27.839 We'll be able to afford. 0:13:27.640 --> 0:13:30.120 Quantum computing at the end of twenty twenty six, and 0:13:30.160 --> 0:13:33.200 then we'll see it become more commercially available twenty twenty seven, 0:13:33.320 --> 0:13:34.080 twenty twenty eight. 0:13:34.800 --> 0:13:37.959 I should amend my issue with surveillance correction. Okay, I'm 0:13:37.960 --> 0:13:40.600 looking at the Defiance quantum ETF and it actually is 0:13:40.760 --> 0:13:43.600 up thirty seven and a half percent eight in terms 0:13:43.640 --> 0:13:45.319 of total return, so it has done quite. 0:13:45.120 --> 0:13:48.680 Well, Teresa, As we think, here, what are the risks 0:13:48.720 --> 0:13:50.920 that we're not even thinking about yet? I mean, it 0:13:51.040 --> 0:13:53.080 just seems like every time I see a hacking story, 0:13:53.080 --> 0:13:55.000 it's like I never even would have thought of that, 0:13:55.440 --> 0:13:56.280 but there it is. 0:13:56.360 --> 0:13:56.560 Here. 0:13:56.920 --> 0:13:58.839 Are there some things that are really worrying in the 0:13:58.880 --> 0:13:59.480 back of your mind? 0:14:00.640 --> 0:14:02.840 Yeah, I think if you sort of look at my 0:14:03.040 --> 0:14:05.280 top five list of things I'm worried about going into 0:14:05.280 --> 0:14:10.600 twenty twenty six, one is around the various AI implementations 0:14:10.600 --> 0:14:13.960 that have been happening. The lack of governance and guardrails 0:14:14.000 --> 0:14:17.240 also means that things are going to market and it 0:14:17.320 --> 0:14:19.560 may not be secure by design, and we're going to 0:14:19.600 --> 0:14:23.880 find out the hard way where those security is lacking 0:14:24.040 --> 0:14:27.000 in these different platforms. I think the second thing that 0:14:27.000 --> 0:14:29.480 I'm concerned about is again AI is going to be 0:14:29.480 --> 0:14:33.120 an incredible tool, a great productivity enhancement for a lot 0:14:33.160 --> 0:14:36.520 of businesses. It's going to democratize data so you no 0:14:36.600 --> 0:14:38.840 longer have to be the largest company with the best 0:14:38.880 --> 0:14:42.080 data scientists now to be able to actually leverage and 0:14:42.160 --> 0:14:49.080 monetize your own data. But with that powerful tool comes responsibilities, 0:14:49.120 --> 0:14:51.640 and it could end up in the hands We've already 0:14:51.680 --> 0:14:54.760 seen this year of cyber criminal syndicates trying to use 0:14:54.800 --> 0:14:59.520 it to create malware, to create ransomware, to create different 0:14:59.520 --> 0:15:03.320 types of tack vectors, and take advantage of where we've 0:15:03.360 --> 0:15:05.960 missed out on secure by design in our software stack. 0:15:06.200 --> 0:15:10.800 Hey, you serve Teresa in a Republican administration as CIO 0:15:10.920 --> 0:15:14.320 under President George W. Bush. What do you think of 0:15:14.360 --> 0:15:22.400 this Republican administration and it's uh and its effects on cybersecurity? 0:15:23.880 --> 0:15:26.960 Well, you know, I'd like to think that regardless of party, 0:15:27.040 --> 0:15:30.760 that the United States has dedicated public servants and all 0:15:30.800 --> 0:15:32.560 the departments and agencies. 0:15:32.040 --> 0:15:34.560 Who are very focused on security by design. 0:15:34.800 --> 0:15:37.480 Sometimes we fire all those dedicated public servants and replace 0:15:37.520 --> 0:15:39.600 them with Fox News hosts. So what do you think there? 0:15:39.640 --> 0:15:40.840 How do you how would you grade them? 0:15:42.200 --> 0:15:45.560 Well, what I would say is I would focus on 0:15:46.040 --> 0:15:47.880 the cybersecurity. 0:15:47.040 --> 0:15:48.920 Strategy for the administration. 0:15:49.440 --> 0:15:52.080 If I were advising them, I would tell them, you 0:15:52.120 --> 0:15:55.080 need to give a clear and consistent message. You need 0:15:55.120 --> 0:15:57.680 to let people know who's going to be in charge. 0:15:57.720 --> 0:16:01.040 We still, you know, have an acting situation over at 0:16:01.120 --> 0:16:04.200 DHS with cybersecurity, and I would say, the things that 0:16:04.240 --> 0:16:06.280 you are keeping that are good, and then the things 0:16:06.280 --> 0:16:09.880 that you are changing to reflect the changes in our 0:16:09.880 --> 0:16:13.120 modern technology infrastructure. A lot of the things that we 0:16:13.160 --> 0:16:17.960 are doing the last ten to fifteen years are not necessarily. 0:16:17.360 --> 0:16:18.120 Going to serve us. 0:16:18.120 --> 0:16:20.840 So it has been a very challenging time for many 0:16:20.880 --> 0:16:23.280 of the people that have been impacted by the layoffs 0:16:23.280 --> 0:16:25.960 and government. But we need to look at an opportunity 0:16:26.000 --> 0:16:29.480 to say who wants to do public service and what 0:16:29.520 --> 0:16:31.760 do we need to do next with all of this 0:16:31.880 --> 0:16:35.680 new technology that's being implemented, not just in the departments 0:16:35.680 --> 0:16:39.600 and agencies, but also in our critical infrastructure, which really 0:16:39.640 --> 0:16:40.320 needs attention. 0:16:41.280 --> 0:16:44.520 Stay with us or from Bloomberg Intelligence Coming up after. 0:16:44.280 --> 0:16:51.640 This, you're listening to the Bloomberg Intelligence podcast. Catch us 0:16:51.720 --> 0:16:54.760 live weekdays at ten am easterne on Apple cocklay and 0:16:54.760 --> 0:16:58.040 Android Auto with the Bloomberg Business app Listen on demand 0:16:58.080 --> 0:17:01.640 wherever you get your podcasts. Watch us live on YouTube. 0:17:02.600 --> 0:17:05.320 This week marks the end of an era for the 0:17:05.359 --> 0:17:09.520 man that many regard as the world's greatest investor. Greg Abel, 0:17:09.520 --> 0:17:12.600 will succeed Warren Buffett Bershire Hathaway in the new year, 0:17:13.119 --> 0:17:16.120 taking control of a one trillion dollar conglomerate with more 0:17:16.119 --> 0:17:19.160 than three hundred and fifty billion dollars in cash on hand. 0:17:19.200 --> 0:17:20.280 I don't know what you do with that. 0:17:20.680 --> 0:17:24.439 Let's discuss with CFR, a research analys Kathy Seaffort. Kathy, 0:17:24.520 --> 0:17:26.720 let's start with that big slug of cash that's on 0:17:26.760 --> 0:17:28.840 the balance sheet. It's been there for a long time. 0:17:29.760 --> 0:17:32.600 They've shown an inability to put that to work here. 0:17:33.359 --> 0:17:36.159 What do you think the plan might be under mister Abel. 0:17:37.920 --> 0:17:41.159 Well, I think this year is going to be a 0:17:41.280 --> 0:17:44.439 transitional year for the company under Greg Abel, and I 0:17:44.440 --> 0:17:47.280 think some of the steps he's recently taken have sort 0:17:47.280 --> 0:17:51.000 of shown that with regard to the cash pile, you know, 0:17:51.040 --> 0:17:57.640 some of that cash is being held to support insurance liability. 0:17:57.800 --> 0:18:01.320 So I don't think investors should think that that cash 0:18:01.359 --> 0:18:03.560 is all going to be deployed into ask you know, 0:18:03.600 --> 0:18:07.119 into acquisitions or what have you, you know, I know, 0:18:07.400 --> 0:18:13.800 given Warren's investment style and value oriented approach, he the 0:18:13.840 --> 0:18:16.240 sense that I had was he was sort of frustrated 0:18:16.320 --> 0:18:20.520 with valuations. He was having a hard time finding, you know, 0:18:20.640 --> 0:18:24.560 good uses for that cash. My senses, as we head 0:18:24.600 --> 0:18:28.359 into twenty twenty six, there may be some pressure on 0:18:28.440 --> 0:18:32.399 greg Able to potentially pay a cash dividend with that 0:18:32.880 --> 0:18:39.960 or possibly put forth a more structured share buyback program. 0:18:40.040 --> 0:18:42.879 If they're not going to deploy it into. 0:18:42.640 --> 0:18:48.480 Acquisitions, Well, what could they buy with that much cash? 0:18:48.880 --> 0:18:51.000 Is there anything that you could think of if if 0:18:51.040 --> 0:18:53.440 you were in charge, that you would try and pick up. 0:18:54.480 --> 0:18:57.679 I don't think my compliance folks would like me to speculate. 0:18:57.760 --> 0:18:59.879 I know who they I know who they might buy. 0:19:00.040 --> 0:19:02.240 But you know, I think if you look at the 0:19:02.440 --> 0:19:05.960 Berkshare operating model and you look at the framework, the 0:19:06.040 --> 0:19:11.359 investment portfolio is sort of barbelled between financial services and technology, 0:19:11.880 --> 0:19:14.440 and those are names that they like to own as 0:19:14.480 --> 0:19:19.399 an equity investor, not necessarily as an operator. So, you know, 0:19:19.520 --> 0:19:22.199 I think if we look at greg Abel's background in 0:19:22.440 --> 0:19:26.160 energy and industrials, my senses that he may tilt in 0:19:26.320 --> 0:19:31.119 favor of those businesses, which makes sense, given what's going 0:19:31.200 --> 0:19:35.200 on with some of the industrial and energy build out 0:19:35.240 --> 0:19:38.560 to support AI. And then I think the other area 0:19:38.680 --> 0:19:42.280 that probably makes sense to look at as the insurance space. 0:19:42.480 --> 0:19:48.680 It's a significant business segment for berkshare, and insurance pricing 0:19:48.920 --> 0:19:53.000 is softening, and when that happens, typically you see an 0:19:53.040 --> 0:19:55.960 increase in m and a activity. They have in the 0:19:56.000 --> 0:20:00.240 past added to their stable of companies through acquisitions. I 0:20:00.280 --> 0:20:03.000 wouldn't be surprised if they do that going forward. 0:20:03.760 --> 0:20:07.280 As a non Warren Buffett Accolyte, my first question would 0:20:07.280 --> 0:20:12.240 be he can't find any investments, that's clear. Why does 0:20:12.280 --> 0:20:15.199 a company not return that cash to shareholders via that 0:20:15.280 --> 0:20:16.840 dividends and or buybacks. 0:20:18.040 --> 0:20:21.199 That's a good question, and my sense is that Warren 0:20:21.240 --> 0:20:26.160 Buffett was given a certain level of grace and leeway 0:20:26.400 --> 0:20:30.000 that Greg may not be given, and there may be 0:20:30.359 --> 0:20:35.280 a cohort of investors who do agitate for a return 0:20:35.359 --> 0:20:39.280 of some of that capital. I would not be surprised 0:20:39.320 --> 0:20:39.880 to see. 0:20:39.680 --> 0:20:42.320 That you're getting some blowback in the live chat now, Paul, 0:20:42.440 --> 0:20:45.239 I know, and you're a dividend guy, I get it. 0:20:45.320 --> 0:20:49.000 But these investors on that are watching us on YouTube 0:20:49.040 --> 0:20:51.719 say they better not create a dividend completely wipes out 0:20:51.720 --> 0:20:55.119 a segment of investors. We do not hold Berkshire looking 0:20:55.119 --> 0:20:57.400 for a dividend. I invest in Berkshire because they're better 0:20:57.760 --> 0:21:00.760 with money than I am, and they make some good 0:21:00.760 --> 0:21:06.080 points here. So, Kathy, you know, I guess a buyback 0:21:06.160 --> 0:21:08.520 makes more sense if you're going to try and return cash, right, 0:21:08.520 --> 0:21:11.920 if you think Berkshire shares are undervalued, well, but. 0:21:11.840 --> 0:21:14.400 That's the interesting thing is that they haven't bought back 0:21:14.440 --> 0:21:15.720 any shares in over a year. 0:21:15.760 --> 0:21:16.920 They didn't buy back. 0:21:16.680 --> 0:21:20.480 Any shares this year, and so not buying back shares, 0:21:21.680 --> 0:21:25.360