WEBVTT - Apple Extends Broadcom Pact With 5G Deal 0:00:01.360 --> 0:00:05.720 This is Bloomberg Business Wait inside from the reporters and 0:00:05.880 --> 0:00:09.440 editors who bring you America's most trusted business magazine, plus 0:00:09.520 --> 0:00:13.680 global business, finance and tech news the Bloomberg Business Week 0:00:13.720 --> 0:00:19.000 Podcast with Carol Messer and Tim Stenebek from Bloomberg Radio. 0:00:19.920 --> 0:00:22.079 And we want to talk at bit about a headline 0:00:22.120 --> 0:00:25.480 we got and a story that involves Apple and Broadcom. 0:00:25.520 --> 0:00:28.040 We've got Apple shares they're down a bit. Broadcom they 0:00:28.080 --> 0:00:30.240 were rallying this after Apple signed a new multi year, 0:00:30.320 --> 0:00:33.479 multi billion dollar deal with Broadcom to develop five G 0:00:33.680 --> 0:00:36.400 radio frequency components, which made us want to say, I 0:00:36.400 --> 0:00:38.400 feel like, what's interesting about this story, Matty, is you 0:00:38.479 --> 0:00:40.960 keep we all keep kind of watching Apple and what 0:00:41.000 --> 0:00:44.120 it's doing in terms of its supply chain, and you 0:00:44.159 --> 0:00:47.080 know the questions of whether it's reducing its exposure to 0:00:47.400 --> 0:00:49.360 Asia China specifically. 0:00:48.920 --> 0:00:50.839 Yeah, and what they're going to do with all of 0:00:50.880 --> 0:00:53.600 the money that they have, which is a big question. 0:00:53.520 --> 0:00:55.320 Right, A lot of money out there, right, It's the 0:00:55.400 --> 0:00:57.800 richest balanceet whenever you look at it. All right, So 0:00:57.880 --> 0:01:00.400 let's get to it and let's talk about it deal 0:01:00.640 --> 0:01:04.840 and broader Apple. Bloomberg Intelligence Senior Technology Analyst Anara Grana 0:01:04.880 --> 0:01:08.039 is back with us via zoom from Chicago. Honurag good 0:01:08.040 --> 0:01:10.479 to have you here. First of all, folks on radio 0:01:10.520 --> 0:01:12.480 can't see it, but really nice haircut. Can I just 0:01:12.600 --> 0:01:14.319 can I just put that out there something the summary 0:01:14.360 --> 0:01:19.640 air cut? You're very welcome. Tell us about this deal. 0:01:20.440 --> 0:01:23.960 Is this just another company signing up with a supplier 0:01:24.200 --> 0:01:26.400 to make sure that their supply chain works or is 0:01:26.440 --> 0:01:27.920 it something much more significant? 0:01:29.360 --> 0:01:32.040 No, I think it is diversification of supply chain. They're 0:01:32.040 --> 0:01:34.880 trying to make sure everybody knows that. You know, they're 0:01:34.920 --> 0:01:38.760 not just dependent on Asia. They're trying to diversify around 0:01:38.760 --> 0:01:42.400 the world wherever they can make parts for their devices. 0:01:42.440 --> 0:01:44.560 I think they have been criticized quite a bit of 0:01:45.160 --> 0:01:47.920 being very heavy in Asia compared to the rest of 0:01:47.960 --> 0:01:50.760 the world. And you know, this is a statement saying 0:01:50.760 --> 0:01:53.200 if there are pots to be made somewhere else, they 0:01:53.200 --> 0:01:54.120 will go out into it. 0:01:54.800 --> 0:01:57.120 So I want to ask you more about the significance 0:01:57.200 --> 0:01:58.920 of the deal and everything, but just so I can 0:01:59.000 --> 0:02:02.920 understand the trade. Why is Apple getting punished here? Is 0:02:02.960 --> 0:02:05.440 this related to downgrades from earlier in the week, or 0:02:05.560 --> 0:02:07.920 is there something with this deal that the market isn't loving. 0:02:09.200 --> 0:02:09.320 Oh? 0:02:09.440 --> 0:02:11.160 No, there's nothing to do with the deal, or to 0:02:11.240 --> 0:02:13.639 be honest, the last few days of downgrade, if you 0:02:13.720 --> 0:02:16.840 look at it, all tech stocks are really coming under pressure. 0:02:17.080 --> 0:02:19.840 They've had some unbelievable run over the past two to 0:02:19.880 --> 0:02:22.000 three months, and I think probably is the first day 0:02:22.000 --> 0:02:24.640 that I'm seeing some kind of pressure on technology that 0:02:24.720 --> 0:02:26.920 I can remember in like, you know, several weeks. 0:02:27.160 --> 0:02:29.400 So talk to us about Apple and Broadcom, because I 0:02:29.440 --> 0:02:31.400 thought I heard you earlier on TV that these aren't 0:02:31.960 --> 0:02:35.480 necessarily companies that have always come along, especially as Apple 0:02:35.520 --> 0:02:37.400 is building out its own kind of chip world, if 0:02:37.400 --> 0:02:39.120 you will. So you know, I don't know where can 0:02:39.120 --> 0:02:41.000 we go as far as calling them frenemies, But that's 0:02:41.040 --> 0:02:44.120 the tech sector, right, It's often competitors also having to 0:02:44.160 --> 0:02:44.680 work together. 0:02:45.919 --> 0:02:49.600 Yeah, Apple buys products from everywhere. I mean it's you know, Qualcomm, Broadcom, 0:02:49.600 --> 0:02:51.960 I mean, you name it. And in this case, you know, 0:02:52.000 --> 0:02:54.320 one of the big questions out there for qualcomf here 0:02:54.360 --> 0:02:56.360 holders has when you know there will there be a 0:02:56.400 --> 0:02:58.840 time when Apple stops working with them down the road, 0:02:59.280 --> 0:03:02.480 and you know, the Capples just basically saying, you know, 0:03:02.680 --> 0:03:05.800 they'll go and get paths from wherever they can. You know, 0:03:05.800 --> 0:03:08.320 One of the things we talk about is Apple doesn't 0:03:08.360 --> 0:03:10.400 think of these things from a margin point of view, 0:03:10.400 --> 0:03:13.160 in terms of way they can get things cheaper. But 0:03:13.200 --> 0:03:17.400 they're more worried about getting the best product from their suppliers. 0:03:17.760 --> 0:03:19.720 And we see that from a chip point of view. 0:03:19.760 --> 0:03:22.720 When when now they can't find a chip, they went 0:03:22.760 --> 0:03:24.959 ahead and designed their own chip, which has been a 0:03:25.040 --> 0:03:28.000 key driver of their backbooks. And I think we see 0:03:28.080 --> 0:03:30.560 we're going to see that. And Mark has reported on this. 0:03:30.880 --> 0:03:33.680 He broke the story that Apple is looking to develop 0:03:33.800 --> 0:03:38.000 some of these you know, radio frequency devices internally also 0:03:38.160 --> 0:03:40.640 down the road. It's just a matter of, you know, 0:03:40.680 --> 0:03:42.160 how long it's going to take them to do it. 0:03:43.040 --> 0:03:46.600 I wonder too, how you rate this move for Apple 0:03:46.720 --> 0:03:49.440 versus something like I know we've talked before about dividends 0:03:49.440 --> 0:03:53.280 for an Apple. Do you prefer this use of their finances? 0:03:54.760 --> 0:03:54.920 Oh? 0:03:54.920 --> 0:03:57.760 Absolutely, I mean there is no two ways about it. 0:03:57.840 --> 0:04:01.560 A technology company spending more on our far better than 0:04:01.640 --> 0:04:05.520 any other capital allocation they can do. Because technology is 0:04:05.560 --> 0:04:07.840 a lot about innovation, and if they're spending a lot 0:04:07.880 --> 0:04:10.200 more money into that. In the case of Apple, they 0:04:10.200 --> 0:04:13.320 have way too much money, even after spending on R 0:04:13.360 --> 0:04:15.560 and D and other areas, and that's where then you 0:04:15.560 --> 0:04:18.480 have to decide whether you do a buyback versus a dividend, 0:04:18.520 --> 0:04:19.960 and that's always an ongoing debate. 0:04:20.080 --> 0:04:21.839 Hey, Anrach. One of the things I thought too in 0:04:21.920 --> 0:04:25.560 reading Mark's story today along with Ian king story, is 0:04:25.680 --> 0:04:28.240 you know, they reminded us that Apple vowed a couple 0:04:28.279 --> 0:04:30.000 of years ago, right, that they're going to pump about 0:04:30.080 --> 0:04:32.520 not quite half a tillion dollars into the US economy 0:04:32.600 --> 0:04:34.960 over the next five years, right, And so this is 0:04:35.000 --> 0:04:37.719 another deal that helps them move towards that target. So 0:04:38.400 --> 0:04:40.680 it is part of a bigger, broader strategy on the 0:04:40.720 --> 0:04:42.359 part of Apple. And I also do think about the 0:04:42.400 --> 0:04:44.080 politics involved in that as well. 0:04:45.839 --> 0:04:48.200 I mean that goes without saying I think, as I said, 0:04:48.279 --> 0:04:52.040 you know, after the last five six years, there has 0:04:52.080 --> 0:04:56.000 been extreme tension between the US and China. And everybody 0:04:56.040 --> 0:04:59.320 knows Apple makes most of its electronic products in China, 0:04:59.320 --> 0:05:02.640 consumer product They are all assembled there, most of them are, 0:05:03.080 --> 0:05:05.560 and Apple needs to figure that out over the next 0:05:05.600 --> 0:05:08.680 several years as how it's going to diversify it, because 0:05:09.080 --> 0:05:11.279 you know, it could be a big problem for Apple 0:05:11.360 --> 0:05:14.520 if they are not able to furnish products just in case, 0:05:14.560 --> 0:05:16.679 you know, things go south between US and China. 0:05:16.720 --> 0:05:19.200 Having said that, I was talking with someone preparing for 0:05:19.240 --> 0:05:21.480 a couple of panels that I have coming up, a 0:05:21.839 --> 0:05:24.880 former top regulator in the United States and saying that 0:05:24.920 --> 0:05:29.160 this idea gets the idea of planning, you know, backup 0:05:29.200 --> 0:05:31.320 supply chains and so on and so forth, but also 0:05:31.440 --> 0:05:35.960 said US and China are intertwined, they need each other. 0:05:36.040 --> 0:05:38.400 Do you agree, as you look at the tech sector 0:05:38.440 --> 0:05:41.880 more broadly, that that is going to stay in place 0:05:42.040 --> 0:05:43.920 on some level for years to come. 0:05:45.880 --> 0:05:47.960 I'm very honest, I hope so, and not just for 0:05:48.040 --> 0:05:50.960 tech products, but also for consumer products, because you know, 0:05:51.080 --> 0:05:53.719 while I'm getting my stuff made over there, I like 0:05:53.760 --> 0:05:55.520 to go out and sell them some you know, Ray 0:05:55.560 --> 0:05:58.000 banglasses and jeans about it at the same time. So 0:05:58.040 --> 0:06:00.719 for me, it's a very big consumer market. It spends 0:06:00.760 --> 0:06:03.719 a lot of money, and it'll be stupid for American 0:06:03.720 --> 0:06:05.800 corporations not to sell their products in China. 0:06:06.760 --> 0:06:09.120 Well, I wonder, since you brought up products, I do 0:06:09.200 --> 0:06:10.839 want to do a look ahead with you to some 0:06:11.000 --> 0:06:14.599 of Apple's product announcements that should be coming soon. Do 0:06:14.640 --> 0:06:18.440 you have any fun surprises you can tell us, and 0:06:18.480 --> 0:06:20.200 what are you most looking forward. 0:06:19.920 --> 0:06:22.120 To because we've talked a lot about the virtual headset 0:06:22.160 --> 0:06:24.400 with Mark German and that how this is kind of 0:06:24.960 --> 0:06:27.760 a big project for Tim Kok kind of his alone 0:06:27.800 --> 0:06:28.520 to move forward. 0:06:30.040 --> 0:06:32.320 I'm so looking forward to that release when it comes out, 0:06:32.360 --> 0:06:35.680 and again it's probably the best not well kept secret 0:06:35.720 --> 0:06:38.680 out there. From a financial point of view, I don't 0:06:38.680 --> 0:06:40.440 think it is going to have a material impact in 0:06:40.440 --> 0:06:42.839 the first year or second year, third year, just because 0:06:42.880 --> 0:06:45.920 then the Apple's revenue size is so big that you know, 0:06:45.960 --> 0:06:48.479 these new product launches even are three thousand dollars a pop, 0:06:48.800 --> 0:06:51.080 it's not going to have that many unit shipments out there. 0:06:51.279 --> 0:06:53.760 But what it does is that, you know, it opens 0:06:53.839 --> 0:06:56.840 up a new ecosystems of applications. You're going to have 0:06:56.960 --> 0:07:01.200 a brand new operating system that's for virtual reality. People 0:07:01.240 --> 0:07:03.520 are going to build applications on it. You're going to have, 0:07:03.920 --> 0:07:07.120 you know, people developing e commerce applications, gaming applications, So 0:07:08.000 --> 0:07:11.120 it's an entire new ecosystem. It's going to have a separate, 0:07:11.880 --> 0:07:15.200 i would say, schema of how to build those applications. 0:07:15.280 --> 0:07:16.840 So it's going to be a lot of fun to watch. 0:07:17.120 --> 0:07:19.560 But from a mathematical point of view, I don't see 0:07:19.600 --> 0:07:22.000 that adding that much to the bottom line or the 0:07:22.000 --> 0:07:23.640 top line anytime soon. 0:07:23.680 --> 0:07:25.680 It's like an octopus, right Apple, right, Like they just 0:07:25.720 --> 0:07:27.520 have all these tentacles and they don't even care. Like 0:07:27.560 --> 0:07:30.520 the watch or these different things which may bring in, 0:07:30.840 --> 0:07:33.880 you know, a few billion dollars but maybe aren't behemoths, 0:07:34.160 --> 0:07:37.200 but they feed kind of you know, people into the 0:07:37.280 --> 0:07:40.280 Apple infrastructure, right, and that's where you start to see 0:07:40.280 --> 0:07:41.360 some of the money really grow. 0:07:43.000 --> 0:07:45.280 The ecosystem is the most important thing for Apple, and 0:07:45.320 --> 0:07:47.920 that's where we've been talking about it. Imagine. I mean, 0:07:48.280 --> 0:07:51.520 if I'm bound everything from my pictures to my music 0:07:51.920 --> 0:07:54.920 into the system, and I use Apple Pay to pay 0:07:54.960 --> 0:07:58.040 for products, all of that really feeds to the bottom line. 0:07:58.240 --> 0:08:01.560 Remember services, even though it's on twenty percent of revenue 0:08:01.600 --> 0:08:04.920 or roughly, it has gross margins of seventy percent. I 0:08:05.000 --> 0:08:08.200 mean that's very high compared to the product gross margins 0:08:08.280 --> 0:08:12.440 or hardware gross margins. And that's really I think that's 0:08:12.480 --> 0:08:15.400 going to improve the profitability of the company down the road. 0:08:15.600 --> 0:08:16.560 It is already doing. 0:08:16.480 --> 0:08:18.280 It actually well really quickly. 0:08:18.320 --> 0:08:18.520 Though. 0:08:18.560 --> 0:08:20.880 I know in your report you talk about how AirPods 0:08:20.880 --> 0:08:23.080 are expected to be the third most important product for 0:08:23.080 --> 0:08:26.320 Apple in the next decade and our final thirty seconds here. 0:08:26.480 --> 0:08:28.440 If it's the most important product, why are there only 0:08:28.480 --> 0:08:30.680 like two options. I just feel like we should get 0:08:30.720 --> 0:08:33.680 some diversity of offering in the air pod space. What 0:08:33.720 --> 0:08:34.199 do you think. 0:08:35.480 --> 0:08:37.480 I'm sure they'll offer one and yellow color for you 0:08:37.559 --> 0:08:40.000 one of these days. But okay, from my side of you, 0:08:40.880 --> 0:08:45.120 From my point, it is an absolute essential accessory to have. 0:08:45.920 --> 0:08:48.240 I have very rarely seen people go back to some 0:08:48.360 --> 0:08:51.439 of the other you know, AirPods after they've tried it. 0:08:51.720 --> 0:08:55.120 You know, it just increases the average cost that a 0:08:55.240 --> 0:08:58.600 user spends on an iPhone because before it was part 0:08:58.640 --> 0:09:01.599 of the iPhone accessory you have to p ex struckloaded. 0:09:01.920 --> 0:09:04.120 I have to say they are crucial and as soon 0:09:04.160 --> 0:09:07.240 as I lose one, I order us a pair right 0:09:07.240 --> 0:09:08.320 away and replace it. 0:09:08.360 --> 0:09:11.800 So it's like a consumer staple like this is not discretionary. 0:09:12.200 --> 0:09:14.320 Spot on yellow or white. I don't care what color, 0:09:14.360 --> 0:09:16.480 but I've got to have them. Thank you so much, 0:09:16.520 --> 0:09:19.199 Honourrog really appreciate it. Onnorrog Rana. He is our senior 0:09:19.240 --> 0:09:23.280 technology analyst at Bloomberg Intelligence, joining us on Zoom from Chicago. 0:09:23.320 --> 0:09:26.160 As we mentioned, Apple shares, they are a little bit lower, 0:09:26.640 --> 0:09:28.920 but as he mentioned, Averal Tech Space is a little down. 0:09:28.920 --> 0:09:30.840 Apple down about one and a half percent, but they 0:09:30.840 --> 0:09:33.160 are in quite a tear hair. In twenty twenty three, 0:09:33.200 --> 0:09:35.319 they're up about thirty two percent here, so we've seen 0:09:35.400 --> 0:09:36.040 quite a run here. 0:09:36.080 --> 0:09:38.440 Good year for them and also good year to have 0:09:38.559 --> 0:09:40.080 that market cap ever right. 0:09:40.000 --> 0:09:42.479 Oh my gosh, it's two point seven trillion, It's unbelievable. 0:09:42.760 --> 0:09:46.320 You're listening to the Bloomberg Business Week podcast. Catch us 0:09:46.360 --> 0:09:49.720 live weekday afternoons from three to six Eastern Listen on 0:09:49.760 --> 0:09:53.800 Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business App, 0:09:54.080 --> 0:10:18.319 or watch us live on YOUTUBEA. 0:10:00.480 --> 0:10:13.160 All right, everybody, you know that music, which means we're 0:10:13.200 --> 0:10:16.160 gonna talk a little bit about entertainment and one company 0:10:16.160 --> 0:10:18.680 that plays into it in a big way, and that is, 0:10:18.720 --> 0:10:21.080 of course, the Walt Disney Company. This story actually popping 0:10:21.160 --> 0:10:23.720 up earlier on the Bloomberg and it was a result 0:10:23.760 --> 0:10:28.400 of some comments from former News Corp. Executive Peter Chernan. 0:10:28.559 --> 0:10:31.360 He was at the Cutter Economic Forum that's underway by 0:10:31.440 --> 0:10:35.360 Bloomberg and it happened earlier today. And what it was is, 0:10:35.400 --> 0:10:39.079 he said, Walt Disney facing a very rushed succession process 0:10:39.120 --> 0:10:42.840 as it searches for a candidate to replace CEO Bob Iger. 0:10:43.240 --> 0:10:46.240 With more on Life after Iger, who was there for 0:10:46.280 --> 0:10:48.400 a long time, he left it for a brief time, 0:10:48.520 --> 0:10:53.040 came back, and also some cool research on the streaming 0:10:53.040 --> 0:10:56.000 download world with us as Bloomberg Intelligence Technology and Media 0:10:56.040 --> 0:10:59.199 analyst Gita Ringanathan. She's with us from BI headquarters in Princeton, 0:10:59.240 --> 0:11:02.199 New Jersey. Gita, so nice to have you back with us. 0:11:02.840 --> 0:11:04.480 We did see that story and it made us kind 0:11:04.480 --> 0:11:08.240 of stop and think. Bob Iger. He is just back 0:11:08.360 --> 0:11:10.840 at the company that he was at for a long time. 0:11:11.280 --> 0:11:14.600 How do you think about the world in Life after 0:11:14.640 --> 0:11:16.320 Bob Iger? Is it too soon for us to even 0:11:16.360 --> 0:11:17.280 be thinking about this? 0:11:18.640 --> 0:11:20.600 Yeah, thank you so much, Carol. Yeah, I definitely think 0:11:20.640 --> 0:11:23.160 it is really soon. But having said that, I mean, 0:11:23.200 --> 0:11:25.439 he has been now at the company, or he's been 0:11:25.559 --> 0:11:29.080 back for more than six months now, so time is 0:11:29.160 --> 0:11:32.840 kind of running out. So his new contract expires at 0:11:32.840 --> 0:11:35.240 the end of twenty twenty four, so he definitely does 0:11:35.360 --> 0:11:39.240 have a year and a half left. But you know, 0:11:39.440 --> 0:11:42.840 it's I don't know's They're just too many different things 0:11:42.880 --> 0:11:46.080 that need to be solved. He's already made I think, 0:11:46.200 --> 0:11:49.200 considerable progress when it comes to cost cutting efforts. But 0:11:49.240 --> 0:11:52.480 then there are so many existential questions that still remain. 0:11:52.559 --> 0:11:55.960 Whether it's the future of ESPN, what happens to so 0:11:56.000 --> 0:11:58.920 many of these movie franchises, what happens to the linear 0:11:59.000 --> 0:12:01.480 TV bundle, So there are lots of different things, and 0:12:01.520 --> 0:12:04.400 of course the top most question, as you rightly pointed out, 0:12:04.480 --> 0:12:06.040 is really the question of succession. 0:12:06.200 --> 0:12:07.840 Can I just jump in for a second. When he 0:12:08.000 --> 0:12:10.720 was brought back, was it just considered a stop gap? 0:12:10.760 --> 0:12:12.440 I'm trying to remember and going back to that time 0:12:12.440 --> 0:12:14.480 when we were all kind of shocked that he was 0:12:14.520 --> 0:12:16.800 coming back in Bob Chapek just having been there for 0:12:17.080 --> 0:12:20.600 what seemed like a pretty short time. Was it considered 0:12:20.640 --> 0:12:22.679 just a stop gap or was it something more? 0:12:24.280 --> 0:12:26.600 It was considered I think at that point they just 0:12:26.640 --> 0:12:31.680 needed somebody to kind of stabilize, you know, the narrative, 0:12:31.760 --> 0:12:35.040 the organization. There were just too many missteps, both internally 0:12:35.080 --> 0:12:37.719 as well as politically, so they just kind of kind 0:12:37.720 --> 0:12:40.440 of needed that guiding force, which obviously, you know, Bob 0:12:40.440 --> 0:12:43.760 Iger was more than happy to do. Of course, it 0:12:43.840 --> 0:12:46.079 was you know, a contract that ran for two years 0:12:46.080 --> 0:12:49.200 but I think coming in so far and seeing the 0:12:49.280 --> 0:12:51.439 amount of work that it's going to take to kind 0:12:51.480 --> 0:12:54.079 of right the ship, I think people are feeling now 0:12:54.080 --> 0:12:56.200 that the two years is really way, way too short 0:12:56.240 --> 0:12:56.760 of a time. 0:12:57.240 --> 0:12:59.600 Well that makes me wonder whether or not this two 0:12:59.679 --> 0:13:02.040 years thing is real. Can he just re up the 0:13:02.080 --> 0:13:03.160 contract at the end of it? 0:13:04.520 --> 0:13:06.360 And he's done that so many times now, I mean, 0:13:06.360 --> 0:13:08.360 this is this is probably like the biggest joke in 0:13:08.840 --> 0:13:12.520 you know, the entertainment world in Hollywood. You know, he 0:13:12.600 --> 0:13:15.199 is a legendary CEO. There's absolutely no doubt about it. 0:13:15.440 --> 0:13:18.280 World class track record, especially when it comes to those acquisitions. 0:13:18.280 --> 0:13:19.839 You look at Picks, or you look at Marvel, you 0:13:19.880 --> 0:13:21.599 look at Lucasfilm, and you look at of course the 0:13:21.640 --> 0:13:23.920 biggest one of them all, which was Fox. And he 0:13:23.960 --> 0:13:27.240 has really executed, I think, tremendously well in all of those. 0:13:27.240 --> 0:13:29.160 But if it comes down to, you know, one thing 0:13:29.200 --> 0:13:31.760 that he hasn't done well, it's been you know, succession, 0:13:31.760 --> 0:13:34.320 and this has just been such a persistent issue for him. 0:13:34.679 --> 0:13:38.199 And of course his hand picked successor, who was Bob Chapek, 0:13:39.160 --> 0:13:42.480 that completely flopping. So you know, he has to do this, 0:13:42.559 --> 0:13:44.679 He has to get this right this time. I think 0:13:44.679 --> 0:13:47.240 that's absolutely imperative for for Bob Biker. 0:13:47.040 --> 0:13:52.040 Internally candidates, which is what they have done historically. It 0:13:52.040 --> 0:13:54.439 feels like, right, yes, Or is it because when they've 0:13:54.480 --> 0:13:58.679 gone outside that has created some disaster outcomes? Is that 0:13:58.720 --> 0:14:01.120 what's expected at this point? Does that make the most sense? 0:14:02.000 --> 0:14:03.959 I think that definitely does make a lot of sense. 0:14:04.000 --> 0:14:07.680 I mean, he has now two executives who are heading 0:14:07.720 --> 0:14:10.720 the entertainment division. So you have Alan Bergman, you have 0:14:10.800 --> 0:14:15.440 Dana Walden, both of them creative maestros in their own right. 0:14:15.559 --> 0:14:19.040 They have fantastic, you know, creative skills, which is really 0:14:19.080 --> 0:14:20.880 needed for a company like Disney. I think that was 0:14:20.920 --> 0:14:23.480 one area where kind of Bob chape it really fell short. 0:14:24.880 --> 0:14:27.680 And you know, so Dana Walden Alan Bergman bring a 0:14:27.680 --> 0:14:30.440 wealth of experience. Bergman is a thirty year veteran at Disney, 0:14:30.520 --> 0:14:34.240 kind of knows the movie business inside out. I don't 0:14:34.240 --> 0:14:36.680 know if they want to maybe make them co CEOs 0:14:36.680 --> 0:14:37.960 to start off with or. 0:14:38.160 --> 0:14:42.080 Wait, because that always works out well, Tita, it actually did, 0:14:42.120 --> 0:14:46.200 It actually did for Netflix, right, Okay, so it's always 0:14:46.200 --> 0:14:49.920 an exception. There's always an exception, but go ahead, go ahead. 0:14:49.960 --> 0:14:52.440 So you know, I think one thing, if you if 0:14:52.480 --> 0:14:55.000 you if we have recognized one thing, it's that you know, 0:14:55.080 --> 0:14:59.400 you need you need folks who have very strong creative expertise, 0:14:59.440 --> 0:15:01.920 and of course Alden and Bergmann bring that. But then 0:15:01.960 --> 0:15:04.240 again you have to look at the business as a whole. 0:15:04.280 --> 0:15:06.520 And if you look at you know, the parks business, 0:15:06.520 --> 0:15:09.720 which is where kind of Bob Chapek excelled parks actually 0:15:09.720 --> 0:15:12.400 brings in about sixty five to seventy percent of Disney's 0:15:12.440 --> 0:15:15.520 profit Disney's bottom line. So it's going to be interesting 0:15:15.560 --> 0:15:18.480 to see how they kind of do this balancing act. 0:15:18.600 --> 0:15:21.280 Because you need the movie business, you need the creative 0:15:21.320 --> 0:15:24.800 expertise there for creating new ip because that's what that's 0:15:24.840 --> 0:15:27.040 what is ultimately going to drive people to your parks 0:15:27.040 --> 0:15:29.520 with all those characters and the franchises and all that stuff. 0:15:30.000 --> 0:15:31.600 But then you also have to be able to execute 0:15:31.640 --> 0:15:33.960 in terms of running the parks and running them really 0:15:34.000 --> 0:15:34.600 really well. 0:15:34.600 --> 0:15:38.720 Go back again. So the biggest profit drivers are the parks. 0:15:39.920 --> 0:15:42.680 Yes, the streaming business is still losing about three to 0:15:42.760 --> 0:15:47.080 four billion dollars. The linear TV business is in secular decline. 0:15:47.600 --> 0:15:50.440 We still really don't know what's going on with ESPN 0:15:51.000 --> 0:15:53.720 and the studios. They don't really generate a whole lot 0:15:53.760 --> 0:15:57.280 of money. Yes, Disney is practically half of the global 0:15:57.320 --> 0:16:01.720 box office, but it's not really necessarily a profit generator. 0:16:02.000 --> 0:16:04.800 It's really just more you know, kind of fueling the 0:16:04.840 --> 0:16:09.320 content flywheel, if you will. So it's so parks are 0:16:09.320 --> 0:16:11.480 really it's going to come down to a person who 0:16:11.560 --> 0:16:13.720 can kind of balance both those, right. You need the 0:16:13.760 --> 0:16:17.520 operational and the executional expertise and the acumen, which a 0:16:17.560 --> 0:16:20.520 Bob Chapek did have, but he was kind of falling 0:16:20.520 --> 0:16:23.120 short when it came to, you know, dealing with all 0:16:23.160 --> 0:16:26.640 these creative heads and they can be a really tough punch, 0:16:27.160 --> 0:16:29.800 and so you need that balance. It's it's going to 0:16:29.840 --> 0:16:32.600 be you know, Bob Iger's shoes are really hard to fill. 0:16:32.760 --> 0:16:33.960 They're really big shoes to fill. 0:16:34.000 --> 0:16:35.360 I mean, he grew up in this company. 0:16:36.400 --> 0:16:39.720 He did, he did, and and I think the mailroom. 0:16:39.240 --> 0:16:40.960 I think, wasn't it where you started away? 0:16:41.000 --> 0:16:41.600 Are you serious? 0:16:41.720 --> 0:16:41.880 Right? 0:16:41.920 --> 0:16:44.240 I think if he's starting actually as a weather man 0:16:45.480 --> 0:16:50.120 in an in an Itaca broadcast station and kind of yeah, 0:16:50.120 --> 0:16:54.160 he's a broadcaster and kind of made it, yeah, and 0:16:54.200 --> 0:16:56.640 made his way up. So but it's but it's really 0:16:56.680 --> 0:17:01.120 his his his power. I mean, he understood the power 0:17:01.160 --> 0:17:06.159 of storytelling and creativity and the and how important it 0:17:06.200 --> 0:17:08.760 is for the company to build franchises and made those 0:17:08.760 --> 0:17:11.400 acquisitions when you know they needed to be made. So 0:17:11.560 --> 0:17:13.520 he's absolutely a genius when it comes to that. 0:17:14.080 --> 0:17:16.360 So, Gi, then our final couple of minutes with you here, 0:17:16.480 --> 0:17:18.040 I want to broad in it out just a little 0:17:18.080 --> 0:17:22.120 bit because you have some great analysis on the streaming 0:17:22.160 --> 0:17:24.200 wars in general, and in it you say, like it 0:17:24.600 --> 0:17:28.200 it's no competition anymore when it comes to the subscriber's space. 0:17:28.680 --> 0:17:31.760 But what could Disney do to beat out a Netflix? 0:17:32.080 --> 0:17:34.159 Is ESPN the saving grace? 0:17:35.760 --> 0:17:38.040 That's a great question. I think everyone's kind of scratching 0:17:38.040 --> 0:17:40.440 their heads at this point, and you're absolutely right, Madison. 0:17:40.520 --> 0:17:43.960 I think the streaming wars are really over at this point. 0:17:44.000 --> 0:17:46.479 What it's coming down to now is which company can 0:17:46.520 --> 0:17:49.560 get to profitability and who can get to it fastest 0:17:49.640 --> 0:17:51.600 and who can make the most money for the longest 0:17:51.640 --> 0:17:55.439 period of time. Yes, I think content of you know, 0:17:55.560 --> 0:17:58.159 content obviously is going to be a huge differentiator. But 0:17:58.280 --> 0:18:00.040 at the same time, we're seeing all these company and 0:18:00.119 --> 0:18:02.639 these kind of really tightened the reins on their content 0:18:02.640 --> 0:18:06.120 spending budgets, whether it's a Disney, Netflix, all all of them. 0:18:06.440 --> 0:18:09.760 You know, they are spending money, but they're also going 0:18:09.800 --> 0:18:12.679 to be careful. They're not just green lighting you know, 0:18:12.760 --> 0:18:17.080 projects all over the place. So it's going to be 0:18:18.040 --> 0:18:20.480 really Again, this comes down again to this balancing act 0:18:20.520 --> 0:18:24.600 of you know, subscribers, you know, driving pricing. With ESPN again, 0:18:24.640 --> 0:18:26.919 there is that perennial question mark. There was a story 0:18:26.960 --> 0:18:28.679 which ran a few days ago it said, you know, 0:18:28.720 --> 0:18:31.439 they are very they're looking very closely at kind of 0:18:31.520 --> 0:18:34.440 launching this direct to consumer service. But it's a little 0:18:34.440 --> 0:18:36.560 more complex than that with the ESPN because you have 0:18:36.640 --> 0:18:38.919 all the leagues, you have these different sports rights that 0:18:38.920 --> 0:18:41.840 you have to negotiate, and remember most of these rights 0:18:41.920 --> 0:18:43.840 only still exist for the linear world, so they have 0:18:43.920 --> 0:18:46.200 to go back, they have to work out all those arrangements. 0:18:46.520 --> 0:18:48.960 And they know this is like pulling the trigger on 0:18:49.000 --> 0:18:52.600 a grenade because the minute they launched that ESPN trect 0:18:52.600 --> 0:18:56.760 to consumer service, you're basically going to accelerate cord cutting 0:18:56.840 --> 0:19:00.080 at a pace that was you know, that's unimaginable. So 0:19:00.119 --> 0:19:02.000 if you're seeing right now, like a seven to eight 0:19:02.040 --> 0:19:05.400 percent erosion. Right, there's nothing to stop like a fifteen 0:19:05.359 --> 0:19:09.359 to twenty percent erosion if that ESPN you know, direct 0:19:09.359 --> 0:19:11.639 to consumer service comes to market, so they have to 0:19:11.640 --> 0:19:12.880 do it very very tightfully. 0:19:13.440 --> 0:19:15.400 God, you know this company so well, it's so much fun. 0:19:15.400 --> 0:19:18.080 And forgive me Bob Iger because right, Keita knows it 0:19:18.119 --> 0:19:21.080