WEBVTT - Media Stocks Midyear Assessment 0:00:08.119 --> 0:00:11.600 Welcome to a special episode of Strictly Business, the podcast 0:00:11.680 --> 0:00:14.040 in which we speak with some of the brightest minds 0:00:14.520 --> 0:00:19.239 in media today. I'm Andrew Wallenstein with Variety. No guests 0:00:19.360 --> 0:00:23.520 this week, just a roundtable of Variety hosts coming together 0:00:23.640 --> 0:00:26.279 to talk shop at a time when there's plenty of 0:00:26.320 --> 0:00:29.240 shop to talk about. Not only are we coming out 0:00:29.280 --> 0:00:32.320 of the midpoint of twenty twenty three, but the second 0:00:32.400 --> 0:00:36.520 quarter earning season will begin on the nineteenth, with Netflix 0:00:36.560 --> 0:00:39.760 among a slew of media and tech stocks ready to 0:00:39.800 --> 0:00:43.360 reveal their latest numbers in the coming weeks. We're also 0:00:43.400 --> 0:00:45.920 coming to you as many of the CEOs of those 0:00:46.000 --> 0:00:49.800 companies are convening in sun Valley for the annual Allen 0:00:49.920 --> 0:00:53.479 and Company Conference. Where there are no shortage of issues 0:00:53.520 --> 0:00:57.840 and challenges to be discussed. That gives us plenty to discuss. 0:00:58.200 --> 0:01:01.080 So I'm glad to be joined by the business partner 0:01:01.240 --> 0:01:05.679 Variety co editor in chief Cynthia Littleton, and my colleague 0:01:05.720 --> 0:01:10.680 at Variety Intelligence platform analyst, Heidi Chump. That's all coming 0:01:10.760 --> 0:01:16.440 up right after the break. Hi, this is Andrew Wallenstein 0:01:16.520 --> 0:01:21.200 with Variety's Strictly Business podcast. If you love Varieties podcasts, 0:01:21.200 --> 0:01:25.680 you're going to want to try Variety Intelligence Platform or VIP. 0:01:26.600 --> 0:01:29.560 It's a digital subscription tier on Variety dot com for 0:01:29.680 --> 0:01:33.920 industry professionals to dig deeper into analysis and data that 0:01:34.040 --> 0:01:37.679 helps them be smarter about their business. VIP just launched 0:01:37.720 --> 0:01:41.320 a great new newsletter and offers more special reports than ever. 0:01:41.840 --> 0:01:46.039 So visit Variety dot com slash VIP save for a 0:01:46.160 --> 0:01:53.240 twenty percent discount, and we are back with strictly business. 0:01:54.320 --> 0:01:59.280 Heidi is the editor of Variety Intelligence Platforms, Media and 0:01:59.400 --> 0:02:02.920 Money newsletter, which comes every Monday. It's part of a 0:02:03.480 --> 0:02:09.040 expanded slate of newsletters that VIP puts out five days 0:02:09.080 --> 0:02:11.720 a week. If you haven't checked it out, please do. 0:02:11.960 --> 0:02:15.959 It's really a labor of love for myself and my team, 0:02:16.400 --> 0:02:18.560 and I really suggest you check it out. 0:02:19.240 --> 0:02:22.000 I echo that, and I am excited to be sitting 0:02:22.000 --> 0:02:24.760 here with Heidi. Heidi's newsletter is now part of my 0:02:25.000 --> 0:02:28.359 weekly routine. It sets us off on Monday with all 0:02:28.400 --> 0:02:31.920 the news we need to know. And so Heidi, with that, 0:02:32.040 --> 0:02:34.919 let's take it away. Will give you the biggest jump 0:02:34.960 --> 0:02:38.240 ball question to start from the thirty thousand foot view. 0:02:38.840 --> 0:02:41.679 We've just completed the first half of twenty twenty three. 0:02:41.919 --> 0:02:44.320 What stands out to you in terms of themes or 0:02:44.320 --> 0:02:48.880 developments inequities as you study them every day. You don't 0:02:48.880 --> 0:02:51.240 call Heidi between nine thirty and four on weekdays. 0:02:51.960 --> 0:02:52.520 Thanks Cynthia. 0:02:52.639 --> 0:02:55.639 First, I'm so excited to make my debut on this podcast. 0:02:56.000 --> 0:02:58.400 Any excuse to talk about the markets and media and 0:02:58.480 --> 0:03:02.680 entertainment really is a great opportunity for us. To take 0:03:02.880 --> 0:03:05.560 your question. I do want to step back a little 0:03:05.600 --> 0:03:07.760 bit and look at the broader market here to really 0:03:07.800 --> 0:03:11.120 get some context into what we're seeing here in media 0:03:11.200 --> 0:03:12.240 and entertainment. 0:03:11.840 --> 0:03:14.400 As well as the tech sectors. So I'm sure you 0:03:14.480 --> 0:03:15.200 both recalled. 0:03:15.200 --> 0:03:18.240 Twenty twenty two was a brutal year for the stock market, 0:03:18.320 --> 0:03:22.040 right the SMP five hundred tumbling nearly twenty percent to 0:03:22.080 --> 0:03:24.480 finish the year. It was actually the worst year on 0:03:24.560 --> 0:03:27.760 record for the index since two thousand and eight, So 0:03:27.840 --> 0:03:29.799 I think it's safe to say a lot of folks 0:03:29.840 --> 0:03:32.720 out there were pretty bearish headed into twenty twenty three. 0:03:33.160 --> 0:03:36.040 But if you're looking at the markets now and kind 0:03:36.040 --> 0:03:38.960 of how we ended up at the first half of 0:03:39.000 --> 0:03:41.520 twenty twenty three, I think a lot of people were 0:03:41.520 --> 0:03:44.080 pretty surprised to see this bull run that we have 0:03:44.200 --> 0:03:47.040 been on also a recession with something that a lot 0:03:47.040 --> 0:03:49.400 of people were talking about. We have not seen that 0:03:49.760 --> 0:03:52.720 come to fruition, and a lot more strategists are saying 0:03:52.920 --> 0:03:56.280 we might not even see that this year or beyond. 0:03:56.400 --> 0:03:58.560 So to wrap up the first half of this year, 0:03:59.000 --> 0:04:02.120 the SMP five hundred was up fifteen percent. That was 0:04:02.160 --> 0:04:05.280 the best first half since twenty nineteen. The Dow climbed 0:04:05.360 --> 0:04:08.280 about three point eight percent, and the tech heavy Nasdaq 0:04:08.400 --> 0:04:12.040 jumped nearly thirty two percent. So I do also want 0:04:12.080 --> 0:04:14.840 to mention we've seen some data out there from research 0:04:14.880 --> 0:04:18.039 firms like CFRA. If we see a positive first half, 0:04:18.200 --> 0:04:21.479 historically for the SMP five hundred, we're much more likely 0:04:21.560 --> 0:04:25.680 to see a positive second half. Now, for additional context, 0:04:25.680 --> 0:04:29.120 when we take a look at the macroeconomic backdrop, all 0:04:29.160 --> 0:04:32.120 of this is very strange, right. We're seeing an extremely 0:04:32.240 --> 0:04:35.320 high interest rate environment. The FED is planning to raise 0:04:35.320 --> 0:04:38.560 interest rates further from here. I believe it's about a 0:04:38.720 --> 0:04:41.279 sixteen year high for these interest rate levels, right, So 0:04:41.360 --> 0:04:45.080 that's pretty dramatic, and traditionally that's not great for stocks, 0:04:45.800 --> 0:04:49.479 especially for tech stocks which are very sensitive to borrowing costs. 0:04:50.400 --> 0:04:53.839 So with inflation where it is, the labor market remaining tight. 0:04:54.400 --> 0:04:57.120 We do see that consumer confidence is pretty high as 0:04:57.160 --> 0:05:00.000 well as consumer spending. We did see a little bit 0:05:00.120 --> 0:05:03.240 of a pullback last month, but overall levels are pretty good. 0:05:03.440 --> 0:05:05.520 So I don't want to be the one betting against 0:05:05.560 --> 0:05:08.520 the markets in the second half of this year. But 0:05:09.160 --> 0:05:11.240 like I said earlier, if history is any indication we 0:05:11.279 --> 0:05:12.919 could see another positive half. 0:05:13.680 --> 0:05:15.400 Let me ask you, though, I'm sort of wondering, like 0:05:15.920 --> 0:05:19.680 what headlines is Wall Street and investors reading that we 0:05:19.720 --> 0:05:22.320 are not because I hate just I mean, it has 0:05:22.400 --> 0:05:26.600 just been unrelentlessly doom and gloom. In the media sector, 0:05:26.760 --> 0:05:29.839 it's been budget cuts, staff cuts, I mean not, I 0:05:29.880 --> 0:05:33.160 mean on a massive scale. We're seeing We're seeing we 0:05:33.360 --> 0:05:38.240 feel the tectonic plates in Hollywood shift. There's labor strife 0:05:38.320 --> 0:05:43.320 is just ever is the perfect cauldron of economic disruption. 0:05:43.600 --> 0:05:46.120 And so what do you think is driving this, you know, 0:05:46.600 --> 0:05:47.520 level of buoyancy. 0:05:48.080 --> 0:05:50.719 So when I say the markets are up, that doesn't 0:05:50.760 --> 0:05:53.000 mean every facet of the market is up. Right, So 0:05:53.120 --> 0:05:55.760 the best performing sector in the first half of the 0:05:55.839 --> 0:05:58.920 year was technology, and a lot of that was driven 0:05:59.080 --> 0:06:03.920 by the the interest by investors in the AI boom, 0:06:03.960 --> 0:06:06.800 the generative AI boom specifically, and so even though we're 0:06:06.839 --> 0:06:09.880 in a situation where interest rates are high, we had 0:06:09.920 --> 0:06:12.440 the two banks collapse back in March. 0:06:12.520 --> 0:06:13.480 That was really scary. 0:06:13.520 --> 0:06:16.640 The markets really didn't react as badly as a lot 0:06:16.640 --> 0:06:20.520 of us were thinking. But this, this sort of optimism 0:06:20.560 --> 0:06:25.120 about where technology is headed has really driven up those stocks. Though. 0:06:25.160 --> 0:06:27.360 I will say, even though there's a lot of bullishness 0:06:27.360 --> 0:06:29.960 in the market, a lot of investors right now are 0:06:30.040 --> 0:06:32.000 sort of worried that we're seeing a bit of an 0:06:32.040 --> 0:06:35.280 overbought situation. So does this market have that much more 0:06:35.320 --> 0:06:37.640 room to run? That remains to be seen. But like 0:06:37.680 --> 0:06:40.839 I said, technology was one of the best performers, and 0:06:40.880 --> 0:06:44.400 within technology, it was really companies like Nvidia, mentioning AI, 0:06:44.600 --> 0:06:48.080 Microsoft Google. On the flip side, you don't really have, 0:06:48.800 --> 0:06:51.920 you know, sectors like healthcare or industrials talking about AI. 0:06:52.040 --> 0:06:54.960 Right those companies are probably not going to see the 0:06:55.000 --> 0:06:57.960 kind of booms that we've been seeing, especially headed into 0:06:58.040 --> 0:07:01.599 Q two earning season. It's oy're all, we're not expecting 0:07:02.640 --> 0:07:05.919 earnings growth for the SMP five hundred in Q two earnings. 0:07:05.960 --> 0:07:08.600 We're actually expecting a decline of seven point two percent. 0:07:08.640 --> 0:07:09.279 So that just kind of. 0:07:09.279 --> 0:07:13.080 Gives you some context into the fact that most companies 0:07:13.080 --> 0:07:15.120 in the SNP five hundred are probably not going to 0:07:15.200 --> 0:07:18.360 report big earnings growth, and that is a result of 0:07:18.400 --> 0:07:20.720 a lot of the pressures we're seeing in the macroeconomic 0:07:20.800 --> 0:07:21.640 environment right now. 0:07:21.840 --> 0:07:24.200 On the one hand, I'm not surprised that AI is 0:07:24.280 --> 0:07:27.720 driving what I think is still kind of an irrational 0:07:27.800 --> 0:07:31.240 confidence in the tech sector. On the other hand, if 0:07:31.280 --> 0:07:34.320 you look at what to me is still the most 0:07:34.320 --> 0:07:38.040 important indicator for the tech sector, which is advertising, which 0:07:38.080 --> 0:07:42.720 is still that's the biggest revenue generator. And yes, those 0:07:42.800 --> 0:07:46.280 numbers are up, but they're nowhere near as up as 0:07:46.320 --> 0:07:50.200 they usually are. You look at that top line number 0:07:50.240 --> 0:07:54.080 and it's still a much lower number than it's been. 0:07:54.680 --> 0:07:57.920 I think it's like the lowest increase it's been in 0:07:57.960 --> 0:08:01.560 like fourteen years. It's below h ten percent for the 0:08:01.600 --> 0:08:04.320 first time in a long time. Why isn't that making 0:08:04.400 --> 0:08:07.000 investors more nervous. 0:08:06.920 --> 0:08:10.960 Because at least within the advertising market, Yes, we're seeing 0:08:11.000 --> 0:08:12.840 an overall slow down when we're taking a look at 0:08:12.840 --> 0:08:15.960 the bigger picture, but digital advertising is still growing, right 0:08:16.000 --> 0:08:19.040 It's not growing nearly the same level that it was before, 0:08:19.400 --> 0:08:22.240 but we're still expecting about eight point four percent growth 0:08:22.480 --> 0:08:25.560 within global digital advertising. I think a lot of the 0:08:25.640 --> 0:08:28.960 tech sector though we've seen tons of layoffs, which of 0:08:29.000 --> 0:08:33.280 course isn't great, but it's good for the company's bottom line, right, 0:08:33.320 --> 0:08:36.600 They're able to cut costs while they're focusing on this 0:08:36.760 --> 0:08:40.160 adversssion sort of passing. Everyone is expecting it to be cyclical, 0:08:40.240 --> 0:08:42.720 then that the ad market will bounce back at some point. 0:08:43.080 --> 0:08:43.920 No one knows when. 0:08:44.480 --> 0:08:49.480 But that being said, yes, digital advertising isn't growing at 0:08:49.480 --> 0:08:51.120 the pace it used to, but it is still a 0:08:51.160 --> 0:08:54.000 growth area, and so I think that's why investors aren't 0:08:54.040 --> 0:08:56.480 necessarily ringing the lorm for these big. 0:08:56.280 --> 0:08:58.600 Tech companies, especially social like Meta as well. 0:08:59.000 --> 0:09:02.880 Heidi, is there any kind of hangover from the predictions 0:09:02.920 --> 0:09:06.160 that there would be a more significant slowdown of economic activity, 0:09:06.320 --> 0:09:09.560 including even a recession. Did some people pull back on 0:09:09.679 --> 0:09:12.840 advertising expecting the slow down and are a little surprised 0:09:12.840 --> 0:09:15.280 to see so much activity, So we might see a bounce, 0:09:15.880 --> 0:09:17.400 a higher bounce in the second half. 0:09:18.160 --> 0:09:20.240 Yeah, I think a lot of you know, any kind 0:09:20.240 --> 0:09:24.280 of recession, whether it's an advertising recession, economic recession. It's 0:09:24.360 --> 0:09:27.480 very forward looking, right, People are expecting something to happen 0:09:27.600 --> 0:09:30.320 and thus they cut back on those costs ahead of time. 0:09:30.880 --> 0:09:33.120 And so when we were heading into twenty twenty three, 0:09:33.200 --> 0:09:36.280 twenty twenty two was so bad, everyone was out there 0:09:36.320 --> 0:09:38.200 saying we're going to see a recession for sure, doom 0:09:38.240 --> 0:09:38.720 and gloom. 0:09:38.720 --> 0:09:42.599 We saw marketers and advertisers really pulled back on those budgets. 0:09:43.400 --> 0:09:45.480 But as we see the economy sort of continue to 0:09:45.559 --> 0:09:48.000 chug along, I think right now we're in a very 0:09:48.040 --> 0:09:50.800 important wait and see approach. If the second half of 0:09:50.840 --> 0:09:53.360 twenty twenty three is again better than a lot of 0:09:53.360 --> 0:09:56.400 people were expecting, I think we could definitely see advertising 0:09:56.520 --> 0:10:00.720 start to come back. That being said, balance sheets are 0:10:00.760 --> 0:10:03.880 so important at these companies, right it's about how much 0:10:03.880 --> 0:10:06.560 money they're going to have to spend on other things 0:10:06.600 --> 0:10:10.440 aside from their day to day you know, line items. 0:10:10.720 --> 0:10:13.960 And so again, twenty twenty three has been an interesting year. 0:10:14.080 --> 0:10:16.439 The second half will I think be very indicative of 0:10:16.480 --> 0:10:19.120 where we'll be heading in twenty twenty four, recession or 0:10:19.120 --> 0:10:20.160 no recession. 0:10:20.280 --> 0:10:23.360 Cynthia, what do you think will be what we'll hear 0:10:23.600 --> 0:10:30.480 from media CEOs with regard to the advertising outlook, Because 0:10:30.520 --> 0:10:33.960 typically we hear what I think is sort of interrational 0:10:34.040 --> 0:10:38.360 exuberance with regard to the advertising market when we are 0:10:38.520 --> 0:10:41.760 hearing that the upfront pricing is not going to be 0:10:41.840 --> 0:10:45.360 looking good. Brian Steinberg's been all over that, and yet 0:10:45.760 --> 0:10:49.520 you know, Bob Backish and Bob Iger, all the bobs, 0:10:50.040 --> 0:10:53.400 they're always talking it up as if not everything's going 0:10:53.440 --> 0:10:56.239 to be fine. I got a feeling that this time around, 0:10:56.360 --> 0:11:00.600 even these guys can't possibly put lipstick on a What 0:11:00.640 --> 0:11:02.120 do you think we're going to hear from that? 0:11:02.840 --> 0:11:05.400 I think we will hear a lot about a lot 0:11:05.400 --> 0:11:08.520 of emphasis in the digital sector, in the avod sector, 0:11:08.600 --> 0:11:11.440 any place where you have any green shoots of growth, 0:11:11.520 --> 0:11:13.800 We're going to hear a lot about that. I think, 0:11:13.880 --> 0:11:17.080 even as Heidi was talking, even for the macro economy 0:11:17.080 --> 0:11:19.960 outside of media entertainment, in so many sectors, it feels 0:11:20.000 --> 0:11:23.560 like twenty twenty three is a real year of just 0:11:24.040 --> 0:11:29.160 restructuring and extreme bell tightening, Like twenty twenty three is 0:11:29.200 --> 0:11:31.920 the year you clean up the messes that have probably 0:11:31.960 --> 0:11:36.480 been brewing since pandemic or even even pre pandemic. After 0:11:36.520 --> 0:11:39.800 the Q one results, I don't you know, I don't 0:11:39.880 --> 0:11:42.720 know how the spin gets better for Q two. I 0:11:42.760 --> 0:11:45.480 think it's going to be a lot of like we're 0:11:45.520 --> 0:11:49.320 investing for the long haul. We did the we've made 0:11:49.320 --> 0:11:51.960 the hard choices. Now now we're coming out of that. 0:11:52.520 --> 0:11:55.600 I think there we're going to talk company by company, 0:11:55.600 --> 0:11:58.880 but I think there will be some companies that really 0:11:59.320 --> 0:12:01.920 have to have some very specific answers to things that 0:12:01.960 --> 0:12:04.520 they probably don't want to address. And Disney has I 0:12:04.559 --> 0:12:07.360 think a few of those big questions. But I think 0:12:07.400 --> 0:12:11.240 you'll hear a lot about like cost cutting, belt tightening, 0:12:12.840 --> 0:12:16.400 downsizing of their labor forces. I just think it's going 0:12:16.480 --> 0:12:19.480 to be, you know, it's it's it's certainly not going 0:12:19.559 --> 0:12:21.400 to be no matter you know, no matter how they 0:12:21.440 --> 0:12:23.720 spend it, it's not going to be a record quarter. 0:12:23.800 --> 0:12:25.840 It's going to be it's going to be a pretty painful, 0:12:25.960 --> 0:12:29.680 I think, a pretty painful march of results for most, 0:12:29.800 --> 0:12:32.040 not everybody, but probably for most. 0:12:32.320 --> 0:12:33.240 No, absolutely I agree. 0:12:33.280 --> 0:12:35.319 If you take a look at the major media companies 0:12:35.320 --> 0:12:37.760 and sort of their performance so far this year, we 0:12:37.840 --> 0:12:40.560 have far more companies underperforming the broader market than we 0:12:40.640 --> 0:12:43.319 do having you know, outperforming the market, and so I 0:12:43.360 --> 0:12:46.520 think that says a lot about investor sentiment towards media 0:12:46.600 --> 0:12:48.559 right now. I think a lot of folks are kind 0:12:48.559 --> 0:12:50.920 of scared to jump in in the group because there's 0:12:51.280 --> 0:12:55.520 so many changes going on internally, whether it's management, whether 0:12:55.559 --> 0:12:59.800 it's figuring out profitability, whether it's dealing with linear TV declines. 0:13:00.080 --> 0:13:03.400 Think there's a lot of trouble at these companies now 0:13:03.440 --> 0:13:05.319 that you know management is going to have to clean 0:13:05.400 --> 0:13:06.080 up and figure out. 0:13:06.440 --> 0:13:09.000 Well, let's get into the individual companies. Since the gat 0:13:09.040 --> 0:13:14.920 you mentioned, Disney, uh Iger has man. I wonder whether 0:13:15.120 --> 0:13:19.880 going back into this big job that he realized just 0:13:19.960 --> 0:13:22.079 I'm sure he knew it was going to be challenging. 0:13:22.240 --> 0:13:25.040 I wonder if he saw how challenging it was going 0:13:25.120 --> 0:13:28.760 to be, if he saw, you know, Indiana Jones flopping, 0:13:28.840 --> 0:13:33.720 Elemental flopping, all the many challenges that he's that he's facing, 0:13:33.960 --> 0:13:38.120 the cuts that he's had to put in place at ESPN. 0:13:38.600 --> 0:13:43.000 Do you think that when he gets on the call, 0:13:44.040 --> 0:13:46.480 I guess in August at this point, it's it's still 0:13:46.520 --> 0:13:49.000 a bit of way that he is going to be 0:13:49.080 --> 0:13:53.400 able to project an air of confidence for Wall Street. 0:13:53.920 --> 0:13:56.280 I think Iiger will come on and he will bring 0:13:56.520 --> 0:14:00.480 every ounce of his Bob igerness to to the and 0:14:00.600 --> 0:14:03.560 of course you know he does have that measure of 0:14:03.600 --> 0:14:07.160 respect that his is a long track record, but boy 0:14:07.280 --> 0:14:09.640 does he have big questions. He's going to get questions 0:14:09.720 --> 0:14:13.800 about the departure of Disney's CFO, Christine McCarthy. That's going 0:14:13.880 --> 0:14:16.560 to be a big question for Wall Street analysts. I 0:14:16.600 --> 0:14:19.960 know reporters are often frustrated because there's big there's big 0:14:20.000 --> 0:14:22.920 headlines that are happening in the world, and analysts on 0:14:22.960 --> 0:14:27.120 these earnings calls always ask the very financial specific questions. 0:14:27.200 --> 0:14:29.480 I don't think there's any world in which he doesn't 0:14:29.520 --> 0:14:32.840 get grilled about what's going on with Christine McCarthy, given 0:14:32.880 --> 0:14:36.440 the extremely prominent role that she has played in that company. 0:14:36.840 --> 0:14:41.120 There's another, you know, another big question looming about Hulu 0:14:41.280 --> 0:14:45.280 and Disney and Comcasts have a complicated transaction that basically 0:14:45.320 --> 0:14:48.720 calls Disney to buy Hulu at a preset price that 0:14:48.880 --> 0:14:52.080 is a much bigger check than Disney probably wants to 0:14:52.080 --> 0:14:55.080 write right now. So there are some big issues that 0:14:55.120 --> 0:14:58.920 are big that have big financial dollars associated with them 0:14:59.000 --> 0:15:02.480 and deadlines that I think he's really going to have 0:15:02.600 --> 0:15:05.360 to have to address. And I think he's going to 0:15:05.440 --> 0:15:07.840 probably in the sort of the version of throwing himself 0:15:07.840 --> 0:15:10.200 on the mercy of the court, I did the layoffs. 0:15:10.240 --> 0:15:13.320 I have done the cuts, and I have done the cuts. 0:15:13.320 --> 0:15:16.160 And we know Wall Street does cheer layoffs in the 0:15:16.240 --> 0:15:19.720 sense not that they're greedy and awful, but that it 0:15:19.800 --> 0:15:21.880 does show that the company is wreck is looking at 0:15:21.880 --> 0:15:24.360 a balance sheet and saying, WHOA, we cannot continue at 0:15:24.360 --> 0:15:30.080 this pace. So I think the other the real question too, 0:15:31.160 --> 0:15:34.520 for Disney is, as always, what's the bell weather? The 0:15:34.560 --> 0:15:37.360 parks are such an interesting bell weather of consumers, and 0:15:37.560 --> 0:15:41.400 this year they have been doing a real heavy lift 0:15:41.560 --> 0:15:43.960 the park, so that will be really interesting to see. 0:15:44.120 --> 0:15:49.040 By all accounts, just my observations as a Southern California resident, 0:15:49.480 --> 0:15:52.520 the people are still going to those Disney parks. 0:15:52.920 --> 0:15:55.120 Well, not to be the bearer of bad news, but 0:15:55.200 --> 0:15:59.000 we've recently seen some reporting saying that maybe the parks 0:15:59.040 --> 0:16:00.800 are starting to see a bit of a slowdown in 0:16:00.920 --> 0:16:01.800 terms of attendance. 0:16:02.560 --> 0:16:03.320 The Wall Street. 0:16:03.160 --> 0:16:06.560 Journal citing a third party company that was tracking the 0:16:06.680 --> 0:16:10.160 wait times at Disney World, Disneyland, as well as other 0:16:10.240 --> 0:16:13.520 theme parks like Universal Studios, and they take a look 0:16:13.560 --> 0:16:16.960 at the time spent in each line and they found 0:16:17.080 --> 0:16:20.400 that during Independence Day, the actual day and the weekend 0:16:20.440 --> 0:16:23.320 before it was the lowest level of attendance for that 0:16:23.360 --> 0:16:25.800 weekend in quite some time, So that could be bad 0:16:25.880 --> 0:16:28.400 news for not just Disney, but other companies that rely 0:16:28.520 --> 0:16:30.400 on theme park revenue like Comcast. 0:16:30.520 --> 0:16:33.160 Right, let me ask you too, let me ask you 0:16:33.160 --> 0:16:35.640 to Heidi, in terms of my sense is that the 0:16:35.720 --> 0:16:38.640 Disney stock is kind of like Disney is the general 0:16:38.680 --> 0:16:42.640 motors of the entertainment sector. And I'm probably aging myself 0:16:42.680 --> 0:16:44.760 with that description, but it so. 0:16:45.040 --> 0:16:47.120 It's basically a blue chip within the entertainment space. 0:16:47.160 --> 0:16:50.120 Does Disney, you know, as goes Disney, does it drag 0:16:50.200 --> 0:16:53.000 down other stocks? If people are looking at saying there's 0:16:53.000 --> 0:16:55.080 not a lot of confidence in Disney, does that hurt 0:16:55.120 --> 0:16:56.400 everybody else down the line? 0:16:56.840 --> 0:16:59.560 You know, that used to be the case and to 0:16:59.560 --> 0:17:01.880 some extent, and I would agree that that is still 0:17:01.960 --> 0:17:04.080 probably the way that a lot of folks take a 0:17:04.119 --> 0:17:06.400 look at Disney as a stock, because it is part 0:17:06.440 --> 0:17:08.760 of the doubt. It's one of those blue chip companies 0:17:08.800 --> 0:17:12.119 within the entertainment space. It has its hand in a 0:17:12.119 --> 0:17:14.680 lot of different kinds of businesses, whether it's theme parks, 0:17:15.080 --> 0:17:18.200 linear TV as well as now streaming. 0:17:18.280 --> 0:17:18.480 Right. 0:17:19.119 --> 0:17:21.640 But the reason why I think we're seeing such a 0:17:21.680 --> 0:17:25.800 big underperformance by Disney shares is because they're starting to 0:17:25.840 --> 0:17:28.680 see a little bit bit of trouble in their very 0:17:28.680 --> 0:17:32.840 profitable linear TV business and now potentially even its theme 0:17:32.880 --> 0:17:36.320 parks business. Now with streaming, it's a difficult one, right, 0:17:36.320 --> 0:17:38.960 It's not exactly profitable for a lot of these players 0:17:39.000 --> 0:17:42.000 in the space, and so they were relying on revenues 0:17:42.080 --> 0:17:45.199 from linear TV to sort of prop up streaming for 0:17:45.280 --> 0:17:48.160 the time being until they reach break even or profitability. 0:17:48.520 --> 0:17:51.760 Disney was originally planning to reach break even by twenty 0:17:51.800 --> 0:17:53.960 twenty four, I believe the fall of twenty twenty four, 0:17:54.560 --> 0:17:57.560 and management continues to say that that's the goal and 0:17:57.600 --> 0:18:00.480 that they're planning to reach that, but a lot of 0:18:00.480 --> 0:18:04.040 folks are concerned. I think last quarter, operating income from 0:18:04.080 --> 0:18:07.760 linear TV fell by a significant amount, like thirty to 0:18:07.800 --> 0:18:10.520 thirty five percent or so, and that was the sharpest 0:18:10.600 --> 0:18:12.800 year over year decline in at least three years. 0:18:13.000 --> 0:18:15.120 So not great news on that front. 0:18:15.200 --> 0:18:17.480 And then, like I mentioned, those reports about the theme 0:18:17.520 --> 0:18:20.400 parks slowing down as well, that's a cash cow for Disney, right, 0:18:20.840 --> 0:18:23.600 that's basically where all the free cash flow is coming in, 0:18:23.880 --> 0:18:25.560 and if we start to see a decline in that 0:18:25.920 --> 0:18:28.000 with all the promotions that they're putting out there for 0:18:28.160 --> 0:18:31.240 not only hotel stays, but you know, park spending on 0:18:31.440 --> 0:18:33.280 like food and things like that, that could be bad 0:18:33.320 --> 0:18:34.560 news for Disney too. 0:18:34.880 --> 0:18:38.640 I would argue the general motors as Netflix that they 0:18:38.680 --> 0:18:40.840 are the bell weather in this space, and we saw 0:18:40.880 --> 0:18:44.000 that in twenty twenty two when the subscriber declined happened, 0:18:44.040 --> 0:18:48.159 and that reset Wall Street's expectations for the entire space. 0:18:48.240 --> 0:18:52.320 We are still in that place now, and let's fast 0:18:52.359 --> 0:18:57.880 forward to now where Netflix is on a roll and 0:18:58.040 --> 0:19:01.719 their stock has been performing better than it has in 0:19:01.760 --> 0:19:07.000 the past eighteen months. Their ability to generate hit after 0:19:07.119 --> 0:19:10.280 hit is doing better than anyone else in the space. 0:19:10.400 --> 0:19:13.680 I think they are the ones to watch, and they 0:19:13.720 --> 0:19:15.439 are going to be the first out the gate in 0:19:15.560 --> 0:19:19.120 Q two, and I think they're making all the right 0:19:19.160 --> 0:19:22.840 moves right now. I think what they're doing in terms 0:19:23.040 --> 0:19:29.480 of enabling password sharing with families is the right move. 0:19:29.680 --> 0:19:32.119 I think they've gotten off on the right foot in 0:19:32.200 --> 0:19:39.520 terms of the ad supported subscriptions, and I think they 0:19:39.640 --> 0:19:43.119 are still the ones that set the agenda in this space. 0:19:43.119 --> 0:19:44.280 Wouldn't you agree? 0:19:44.480 --> 0:19:45.720 I do agree with that. I do. 0:19:45.800 --> 0:19:49.000 I think That status of potentially being the general motors 0:19:49.080 --> 0:19:52.000 of the entertainment space is a very new thing though 0:19:52.040 --> 0:19:55.600 for Netflix, because it is such a volatile stock. Right before, 0:19:55.600 --> 0:19:58.080 it used to trade so heavily on subscriber editions. You 0:19:58.080 --> 0:20:01.720 would see ten percent pops or ten percent fifteen percent declines, 0:20:01.720 --> 0:20:05.520 and that's extremely volatile for a potential blue chip stock. 0:20:05.560 --> 0:20:09.560 But recently with Netflix, as the industry has begun to 0:20:09.760 --> 0:20:13.200 grade these media giants differently, I think it has reached 0:20:13.200 --> 0:20:16.679 that status andy of potentially being the GM. That being said, 0:20:16.800 --> 0:20:18.800 I have to echo what you're saying. In terms of 0:20:19.320 --> 0:20:24.160 strategic moves by the company. Recently, we've seen you know, yes, 0:20:24.280 --> 0:20:25.800 it was off to a slow start, but the ad 0:20:25.800 --> 0:20:29.120 supporter has really started to gain momentum. And I think 0:20:29.160 --> 0:20:32.760 investors agree with you. I think investors are saying Netflix 0:20:33.000 --> 0:20:35.480 is one of those companies that it's a long term 0:20:35.480 --> 0:20:38.600 bet within media, right they have the content library. The 0:20:38.640 --> 0:20:42.480 stock is up nearly fifty percent this year, significantly outperforming 0:20:42.520 --> 0:20:46.480 the SMP five hundreds fifteen percent gain. But I do 0:20:46.520 --> 0:20:49.479 want to say that I think that a lot of 0:20:49.520 --> 0:20:52.760 those bullish sentiments are already priced into the stock. That 0:20:52.840 --> 0:20:56.400 forty five percent gain is rather massive, right, So yes, 0:20:56.520 --> 0:20:59.640 I think Q two results from Netflix will be fairly good. 0:20:59.760 --> 0:21:02.359 I think I think the market will be happy with 0:21:02.480 --> 0:21:04.679 the developments and the updates that we get from the 0:21:04.680 --> 0:21:08.800 company in terms of those two strategic initiatives. That being said, 0:21:08.920 --> 0:21:12.399 I don't know that we'll see more double digit gains 0:21:12.440 --> 0:21:15.840 like this for the next half of this year. Again, 0:21:15.960 --> 0:21:18.320 I don't want to be too contrarian here, but I 0:21:18.359 --> 0:21:20.280 do think a lot of the bullishness is already priced 0:21:20.280 --> 0:21:21.119 into the stock price. 0:21:21.280 --> 0:21:24.080 It's so interesting because with my very Hollywood centric hat on, 0:21:24.359 --> 0:21:26.760 I say, like, Netflix seems to have everything going for it, 0:21:27.200 --> 0:21:29.240 and it has, of course, it has great shows, but 0:21:29.280 --> 0:21:32.520