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Speaker 1: Welcome to Daily Variety, your daily dose of news and

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Speaker 1: analysis for entertainment industry insiders. It's Thursday, October thirtieth, twenty

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Speaker 1: twenty five. I'm your host, Cynthia Littleton. I am co

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Speaker 1: editor in chief of Variety alongside Ramin Situta. I'm in

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Speaker 1: la He's in New York, and Variety has reporters around

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Speaker 1: the world covering the business of entertainment. In today's episode,

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Speaker 1: we'll take a big picture look at what to expect

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Speaker 1: for the industry for the rest of this year and

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Speaker 1: into twenty twenty six. We'll talk to Navin Sarma, Managing

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Speaker 1: director of SMP Global, who is the sector lead for

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Speaker 1: US Media and Telecom at the respected data and analytics company.

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Speaker 1: Navin recently published a report that has some good news

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Speaker 1: and some concerning news for media and entertainment. We'll unpack

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Speaker 1: it all, but before we get to that, here are

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Speaker 1: a few headlines just in this morning that you need

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Speaker 1: to know. The big news in Hollywood is what a

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Speaker 1: great time was had by all at Variety's Power of

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Speaker 1: Women event last night in Beverly Hills. It was really something.

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Speaker 1: The beautiful ballroom was packed with so many insiders. I

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Speaker 1: needed many more hours to do. All the schmooz Our

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Speaker 1: honorees were a wonderful combination of inspiring, funny, gracious and fierce,

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Speaker 1: and so were the presenters. All of our coverage and

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Speaker 1: copious amounts of video are available right now on Variety

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Speaker 1: dot com. And whatever you do, don't skip Sharon Stone's

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Speaker 1: introduction for honoree Sidney Sweeney. It was hot in other

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Speaker 1: news this morning, and there really is other news. This morning,

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Speaker 1: Comcasts delivered a less than stellar third quarter earnings report.

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Speaker 1: There's softness in the broadband numbers. The company also appointed

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Speaker 1: a new head of its cable and Connectivity division, Steve Crony,

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Speaker 1: who takes over from longtime head Dave Watson. As we expected,

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Speaker 1: Comcasts top leaders Brian Roberts and Mike Cavanaugh dods about

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Speaker 1: their interest in joining the bidding war for Warner Brothers Discovery,

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Speaker 1: but Kavanaugh did make a point of noting that the

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Speaker 1: company's ability to secure regulatory approval for a big transaction

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Speaker 1: will improve considerably once the Versanth spinoff of the NBC

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Speaker 1: universal cable channels is complete. It will be a much

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Speaker 1: smaller company at that point. However, there is still the

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Speaker 1: issue of President Donald Trump's open hostility to Comcast. We'll

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Speaker 1: see if that changes it all after Comcast spins out

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Speaker 1: MSNBC and other cablers into Versant. Meanwhile, Fox delivered a

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Speaker 1: mixed bag of a quarter, with higher revenue offset by

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Speaker 1: higher expenses. The bright spot for Fox was to be

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Speaker 1: the ad supported streamer reached the profitability mark earlier than expected.

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Speaker 1: That's never a bad thing. All of these stories in

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Speaker 1: our analysis and so much more can be found on

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Speaker 1: Variety dot com. Right now, Now we turn to a

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Speaker 1: conversation with an industry leader about news and trends and

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Speaker 1: show business. Today we'll hear from Navin Sarma, Managing Director

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Speaker 1: and Sector lead for US Media and Telecom for their

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Speaker 1: respected data and analytics firm, SMP Global. Navin has been

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Speaker 1: a regular on Daily Variety's sibling podcast, Strictly Business, so

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Speaker 1: we're excited to welcome here to Daily Variety Today. Here

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Speaker 1: he breaks down the key points that he made in

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Speaker 1: a recent report about the sector trends he's seeing so

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Speaker 1: far in the second half of twenty twenty five. Navin Sarma,

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Speaker 1: Managing Director and Sector lead of US Media and Telecom

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Speaker 1: for SMP Global, thank you for joining me today.

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Speaker 2: Thank you very much for having me well.

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Speaker 1: Navin. You put out a sector report that was looking

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Speaker 1: at the second half of the year for media and

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Speaker 1: entertainment and what you were seeing shaping up in a

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Speaker 1: year that has been nothing but unpredictable. I thought there

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Speaker 1: was stuff in the report that is going to be

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Speaker 1: nailbiting for Hollywood and stuff that was very encouraging, including

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Speaker 1: your first basic conclusion is that the extremely high demand

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Speaker 1: for content brings stability to this sector despite all of

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Speaker 1: the disruption that's going on. Fundamentally, people want to be

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Speaker 1: entertained and that is the demand curve that Hollywood can

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Speaker 1: lean on. In your report, you're talking about film, episodic TV, music,

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Speaker 1: video games, sports, leagues, concerts, books, newspapers, magazines, and even

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Speaker 1: consumer generated content.

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Speaker 2: Right, So consumers continue to want to consume that kind

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Speaker 2: of content. The problem is there's only twenty four hours

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Speaker 2: in the day, and so there's become more fragmentation. The

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Speaker 2: model that made Hollywood work so well and so profitably

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Speaker 2: was you made a piece of content and then you

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Speaker 2: monetize it across what we would call a matrix, right,

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Speaker 2: multiple geographies and multiple platforms. That hasn't been fixed with

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Speaker 2: the launch of streaming. Yes, their content is being monetized globally.

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Speaker 2: But the multiple platform thing where you put on television,

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Speaker 2: you put in the theaters, you sold it to multiple

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Speaker 2: media companies, that still hasn't been fixed, and so that's

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Speaker 2: still a problem in terms of being profitable. In addition,

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Speaker 2: when you look at especially like the large US media companies,

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Speaker 2: while they're growing their profitability on the streaming side, they're

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Speaker 2: still dealing with the overall of the kind of linear television.

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Speaker 2: And you know, linear television at one point, you know,

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Speaker 2: in some cases had forty eight to fifty percent margins

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Speaker 2: and those margins are coming down dramatically, and so that

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Speaker 2: need that trends still leads to clear where linear television

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Speaker 2: either stabilizes or disappears and streaming profitability takes off. Before

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Speaker 2: you start to see a reversal and margins start to

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Speaker 2: really improve for the media companies.

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Speaker 1: There's no conversation about global financial markets would be complete

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Speaker 1: without discussing AI. It still feels like we're in the

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Speaker 1: stage of boy, there's a lot of promise on the horizon,

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Speaker 1: but what is actually happening now? Are you seeing anybody

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Speaker 1: at a few basis points or at a few percentages

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Speaker 1: to their margin because of AI savings.

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Speaker 2: Not yet. In our conversations with the companies the studios,

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Speaker 2: they've talked about the potential to get significant savings both

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Speaker 2: on the pre production side as well as on the

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Speaker 2: post production side. Whether that translates to the studios having

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Speaker 2: greater return on their production, I don't know. Those savings

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Speaker 2: might get rolled up and put back into more productions.

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Speaker 2: So for the money that's saved on a particular movie,

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Speaker 2: you might get put back into additional films, so you

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Speaker 2: might get an increase in the number of films or

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Speaker 2: TV shows being made, or it may go go to

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Speaker 2: paying for talent. So it isn't clear to me yet

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Speaker 2: that these savings are going to show up in the

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Speaker 2: bottom line, but the companies are talking about it, and

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Speaker 2: at some point in the next couple of years you'll

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Speaker 2: start to see that impact and it'll probably start to

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Speaker 2: quantify how much savings this means on the bottom line

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Speaker 2: for their content creation.

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Speaker 1: Another key point you make is about just in general,

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Speaker 1: the much increased focus on profitability for streamers, and you,

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Speaker 1: like many others, very flatly note that Netflix has quote

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Speaker 1: an insurmountable lead compared to its in industry rivals end quote,

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Speaker 1: three hundred million global subscribers operating margins of just over

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Speaker 1: thirty percent. Do you see anybody else getting near that

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Speaker 1: in five years?

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Speaker 2: Not from the legacy media companies. So Disney clearly has

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Speaker 2: taken on the strategy. They aren't necessarily trying to be Netflix,

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Speaker 2: but they certainly have the global scale and the content

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Speaker 2: to be able to, you know, be a strong number

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Speaker 2: two or number three. But you certainly have Amazon who

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Speaker 2: could do that, Apple could do that. The other guys,

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Speaker 2: the legacy media companies don't have the global scale right,

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Speaker 2: and frankly they're not really pursuing it, whether it's Peacock

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Speaker 2: that has saying primarily in the US and will do

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Speaker 2: joint ventures overseas or Paramount which is in a many

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Speaker 2: of the English language countries but hasn't really gone beyond that.

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Speaker 2: And so that limitation itself, the fact that they're not

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Speaker 2: three hundred million subscribers in two hundred territories limits their

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Speaker 2: ability to get economies of scale, and so you might

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Speaker 2: see this is where mergers make sense, where you can

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Speaker 2: get scaled domestically but also overseas, where they might be

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Speaker 2: able to try to get to the same profitability levels

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Speaker 2: as a Disney or a Netflix down the road.

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Speaker 1: Do you see Disney Plus as having a lot of

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Speaker 1: runway internationally?

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Speaker 2: Yes, Disney has an incredibly strong brand, and I know

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Speaker 2: that they're not planning on going to every market, but

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Speaker 2: they certainly could offered their services, whether it's through a

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Speaker 2: joint venture or through them launching their own streaming service

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Speaker 2: in a particular country globally, So yeah, they could in

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Speaker 2: theory get to that kind of scale.

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Speaker 1: Let's move to advertising. You say advertising remains solid after

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Speaker 1: a shaky start to the year. Now, it's a pretty

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Speaker 1: grim forecast for linear TV. National TV U forecast to

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Speaker 1: be down about seven point four percent for the year.

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Speaker 1: That's not a surprise coming off a political year as

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Speaker 1: well as the Olympics last August. Local TV is a

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Speaker 1: little bit better, but also with three percent decline. Digital,

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Speaker 1: of course, no surprise is your forecasting nine point five

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Speaker 1: percent growth for the year, and for streaming specifically, the

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Speaker 1: number is twenty percent to zero, up five point five

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Speaker 1: percent from your previous forecast. Now, Vin, what's going on here?

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Speaker 2: If you go back to the beginning of the year

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Speaker 2: and the threat of tariffs, advertisers were concerned that tariffs

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Speaker 2: would have a huge impact on the economy, consumers would

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Speaker 2: cut back on spending, and so there was a pause

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Speaker 2: in March in to April where advertisers basically said, let's

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Speaker 2: like a pause on this and see where the economy

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Speaker 2: is going. And they came back pretty quickly. The one

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Speaker 2: thing about advertising today, especially on digital platforms, is it

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Speaker 2: can get placed very very quickly, and so the old

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Speaker 2: days where it took months to place, and so it

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Speaker 2: was a trailer indicator of economic activity, that's kind of ended,

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Speaker 2: and so advertisers can turn on and off Di Spiggot

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Speaker 2: relatively quickly, and so they did, and it stayed relatively

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Speaker 2: healthy the rest of the year. In general, the economy

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Speaker 2: is doing relatively well, especially when you consider how it's

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Speaker 2: comparing to the rest of the world. And advertisers have

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Speaker 2: learned over the years. If you look at the pandemic, if

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Speaker 2: you don't advertise, you lose market share when the economy

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Speaker 2: returns and people start spending. So advertisers have continued to

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Speaker 2: spend and it's benefited connected TV and clearly linear television

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Speaker 2: will continue to lose advertising. But if you're a media

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Speaker 2: company and you sell linear television and connected TV advertising

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Speaker 2: together and aggregate. That's growth, right, So it's a share shift,

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Speaker 2: but the media companies are benefiting from that because they're

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Speaker 2: getting the streaming advertising as well.

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Speaker 1: It's an attention economy and the dollars follow the eyeballs.

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Speaker 1: Your last item is of course about M and A,

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Speaker 1: which is also something that has consumed a lot of

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Speaker 1: people at Variety following the bouncing ball of the Paramount

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Speaker 1: Skydance transaction, and now just as the dust settle there,

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Speaker 1: stirred it up about Paramount possibly going after Warner Brothers Discovery,

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Speaker 1: possibly others jumping in bring barring in a different transaction.

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Speaker 1: Warner Brothers Discovery is on track to separate CNN and

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Speaker 1: TNT and a bunch of they're well established declining leading

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Speaker 1: or cable channels off into a separate company. NBC Universal

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Speaker 1: is also well along on such a spin off that

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Speaker 1: they're gonna call Versant Media Group. In the harsh light

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Speaker 1: of seeing companies that are divesting, you know, big media

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Speaker 1: companies are divesting these assets, I have to ask the

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Speaker 1: skeptical question, what is going to be the reception to

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Speaker 1: these Are they going to be seen as a well

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Speaker 1: built but listing ocean liner.

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Speaker 2: That's a good question. I'm not an equity analyst, so

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Speaker 2: I can't talk about how the equity is going to perform.

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Speaker 2: But from a credit standpoint, the question we're getting asked

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Speaker 2: by investors is how long are these businesses going to last?

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Speaker 2: Is it ten years? Is five years? Is it twelve years?

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Speaker 2: You know, to make a comparison, It's kind of like

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Speaker 2: yellow pages and newspapers, right, it's a decline? Can they

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Speaker 2: manage that decline? And that decline in the cash flow?

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Speaker 2: What creditors want to know is can they get repaid?

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Speaker 2: You're not going to see these companies go out and

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Speaker 2: do ten year or fifteen year bonds because who knows

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Speaker 2: what the world is going to work like in ten

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Speaker 2: or fifteen years. They're going to be shorter duration and

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Speaker 2: probably more focused on bank debt, which will amortize and

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Speaker 2: they can pay that off quickly. Right, they can pay

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Speaker 2: it off as a generating cash flow. So as long

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Speaker 2: as they're generating cash flow as you can connaite to

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Speaker 2: finance these businesses. But as Ebadatic lines, the amount of

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Speaker 2: debt that public shareholders, private bondholders, private debt holders are

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Speaker 2: willing to put into this company will continue to shrike,

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Speaker 2: and the question is how long will will that go on?

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Speaker 2: You know, Yellow Pages companies are still around, and our

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Speaker 2: newspaper companies are still around, and so it doesn't just

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Speaker 2: dive off a cliff. It takes time, and so the

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Speaker 2: question is how long is that going to take?

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Speaker 1: At some point it just becomes math. Let me button

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Speaker 1: up by asking you, I mean, how is what's going

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Speaker 1: on in the credit marketplace and with interest rates? How

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Speaker 1: is that impacting the level of M and A going

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Speaker 1: on in media and telecom? Do you think would there

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Speaker 1: be more activity if things felt a little more stable.

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Speaker 2: Interest rates are interesting because interesting treasury rates are high

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Speaker 2: today versus where they were five years ago. So the

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Speaker 2: spread between the treasuries and where corporate debt trades are

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Speaker 2: at historic lows. The challenge for a lot of these

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Speaker 2: companies and the big investment grade companies have less need

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Speaker 2: for financing unless they're doing M and A, and so

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Speaker 2: you know they benefit from that. But if you look

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Speaker 2: at a lot of the smaller companies who are going

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Speaker 2: through refinancings, there's a lot of questions about long term

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Speaker 2: viability of some of these sectors, especially legacy media, and

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Speaker 2: so the interest rates that they have to pay to

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Speaker 2: refinanced debt is staggering. It's nine percent, it's ten percent.

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Speaker 2: My parents would say that, you know, these are rates

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Speaker 2: that they saw back in the sey.

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Speaker 1: Right, and that right on its face, is just prohibitive.

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Speaker 1: You can't do it right. Noven, thank you so much.

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Speaker 1: You're in the thick of media earning season. I really

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Speaker 1: appreciate you taking this time out to talk with us.

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Speaker 2: You're very welcome.

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Speaker 1: As we close out today's episode, here's a few things

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Speaker 1: we're watching for. Here comes Stranger Things. The season five

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Speaker 1: trailer is out and it looks spooky good. The first

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Speaker 1: four episodes drop on Netflix on November twenty six, but

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Speaker 1: you already know that because you read about it earlier

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Speaker 1: this month in Variety's cover story with the Duffer Brothers.

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Speaker 1: Here comes the American Film Market. The annual Film Market

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Speaker 1: is back to Los Angeles after shifting to Las Vegas

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Speaker 1: last year. Nobody liked the vibe in Sin City, so

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Speaker 1: they're posting up at the Century Plaza Hotel this time around. Somehow,

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Speaker 1: I feel like the AFM is just going to continue

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Speaker 1: to keep moving west, and in a few years it'll

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Speaker 1: probably be back in Santa Monica, where it was held

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Speaker 1: for decades. Starting tomorrow, we'll produce the first of two

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Speaker 1: digital dailies out of the h Lava Documentary Film Festival

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Speaker 1: in the Czech Republic, and next week we'll be in

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Speaker 1: Taiwan covering the Taiwan Creative Content Fest. You can find

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Speaker 1: all of that coverage on Variety dot com under the

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Speaker 1: Global tab. Before we go, Happy birthday greetings going out

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Speaker 1: to Variety's Michelle Sabrino Stearns. We can't wait to see

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Speaker 1: what the coming year brings for our fearless leader as

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Speaker 1: she segues into a new chapter of her career. Rock

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Speaker 1: on MSS. Thanks for listening. This episode was written and

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Speaker 1: reported by me Cynthia Littleton Stick Snack's hick Picks. Please

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Speaker 1: leave us a review at the podcast platform of your choice,

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Speaker 1: and please tune in Monday for another episode of Daily

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Speaker 1: Variety and once again for all the marbles, Go Dodgers.