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Speaker 1: Welcome to Strictly Business, Varieties weekly podcast featuring conversations with

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Speaker 1: industry leaders about the business of entertainment. I'm Cynthia Littleton,

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Speaker 1: Managing editor of Television for Variety. Today's guest is John

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Speaker 1: land Graph, CEO of FX Networks. Land Graph is well

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Speaker 1: known as one of the industry's most astute thinkers. This

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Speaker 1: conversation was held as part of varieties annual Entertainment and

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Speaker 1: Technology Summit in Beverly Hills on September five. Land Graph

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Speaker 1: discusses the streaming strategy that drove Disney's acquisition of f

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Speaker 1: X and other twenty one century Fox assets. He also

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Speaker 1: muses about how the incredible demand for original content has

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Speaker 1: rocked the competitive landscape. If the distribution world is going

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Speaker 1: to sort itself around a smaller number of very very

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Speaker 1: large companies and a smaller number of very very large

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Speaker 1: streaming at forms which have who have tens of millions,

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Speaker 1: even hundreds of millions of subscribers, and so that content

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Speaker 1: is now going to cluster. Right. So if you just

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Speaker 1: think about the largest streaming platforms you know, Amazon, Netflix,

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Speaker 1: who today you're talking about platforms that have a hundred

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Speaker 1: thousand pieces of content. You know they are a vast

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Speaker 1: warehouse of nonlinear content. And I know that it's a

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Speaker 1: little unpopular and unfashionable to talk about curation or talk

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Speaker 1: about brand, because there's a lot of people who perceive

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Speaker 1: that we're moving into a world where there will be

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Speaker 1: no brand and there will be no creation, and everyone

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Speaker 1: will basically be fed what they want via algorithms and

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Speaker 1: recommendations or prediction of their future desires based on their

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Speaker 1: past behavior. I am someone who believes that that a

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Speaker 1: society needs curation, that the New York Times, in the

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Speaker 1: Wall Street Journal and Atlantic Monthly and Variety magazine and

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Speaker 1: um many others who do the work of trying to

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Speaker 1: sort through all the editorial post stabilities and provide something

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Speaker 1: that's of coherence and value to the consumer do play

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Speaker 1: a role. And you know, what we've tried to do

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Speaker 1: over the sixteen or seventeen years is to imagine an

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Speaker 1: idea about a brand of programming that is large enough

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Speaker 1: to contain that kind of diversity across the genres animation

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Speaker 1: to heavy drama, to the right gender diversity, you know,

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Speaker 1: diversity of of sexual identity, sexual preference, ethnicity, older skewing shows,

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Speaker 1: younger skewing, shows, male shows, female shows, funny shows, dramatic shows,

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Speaker 1: you name it, but that that there could be a

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Speaker 1: common thread through them. That's the reason we chose the

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Speaker 1: you know, fearlessness and the notion of artistic depth and

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Speaker 1: artistic bravery um and that we could try to make

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Speaker 1: something that was at once large and include accommodate a

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Speaker 1: large portion of the American viewing public adult viewing public,

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Speaker 1: I would say, but that had a coherence to it, right,

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Speaker 1: And so that's the dynamic tension we find ourselves in

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Speaker 1: all the time, which is how to be large enough

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Speaker 1: to be meaningful and relevant in an increasingly overstuffed and

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Speaker 1: competitive marketplace without becoming diffuse. Because once you're diffused, then

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Speaker 1: what value do you really provide relative to to another

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Speaker 1: organization that's spending thirteen billion dollars on programming and has

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Speaker 1: a hundred and fifty thousand piece of content. At that point,

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Speaker 1: it's a utility. And that's not to say that they

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Speaker 1: don't have good programming. They do have a good program

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Speaker 1: but it's essentially a really great bundle of programming at

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Speaker 1: a really low price. It's a good user interface. It's

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Speaker 1: a utility. It's not what we're trying to do, which

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Speaker 1: is we're trying to say, and I think HBO would

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Speaker 1: be an example, and there are others that are examples, AMC, Showtime,

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Speaker 1: others that are saying, you know, there's some we're hoping

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Speaker 1: we can provide you, the consumer, with some value to

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Speaker 1: guide you via our curation and our identity towards uh

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Speaker 1: more reliably high quality work. So that would be it's

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Speaker 1: worth your time to pay attention to what's on our

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Speaker 1: serve is because you can find good stuff there. It

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Speaker 1: is I mean, you know, I mean what you touched

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Speaker 1: on the shift in just the way that people are

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Speaker 1: consuming content and the way not only just consuming shows,

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Speaker 1: but but shopping for programming, you know, instead of instead

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Speaker 1: of surfing the dial. Now it's a it's a matter

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Speaker 1: of as you say, like gigantic platforms with with literally

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Speaker 1: hundreds of thousands of content. Um FFX Networks is part

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Speaker 1: of a very big transaction that we've been writing about

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Speaker 1: for more than for seemingly it's coming up on a

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Speaker 1: year now, UM two. And part of the part of

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Speaker 1: the motivation for Disney and buying large chunks of Century

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Speaker 1: Fox is to build one of those big global platforms.

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Speaker 1: Does that how does that make you feel as you

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Speaker 1: are looking at looking at the future of trying to

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Speaker 1: maintain that effex the value of the FX curation. Well,

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Speaker 1: I think it's a necessary step. So I'm I'm excited

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Speaker 1: about it. I have um uh curiosity and some trepidation

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Speaker 1: about how it's actually gonna work, but I'm really excited

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Speaker 1: about it. Because so if you take the f X channels,

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Speaker 1: the three f X channels fx f x x x M,

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Speaker 1: and you basically double count or triple counts in a

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Speaker 1: home where there are three the three channels are available,

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Speaker 1: that would count as three subscriptions. Those three channels are

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Speaker 1: two fifteen million subscriptions in the United States, and that

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Speaker 1: two fifty million actually grew by two and a half

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Speaker 1: million in the last twelve months, so it increased. And

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Speaker 1: you would credit that to like the hulus and the

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Speaker 1: YouTube's the virtual m v p d V m v

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Speaker 1: p d s uh and the fact that X is

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Speaker 1: in uh N f x X there in all but

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Speaker 1: one of them, which is one of the two sling packages,

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Speaker 1: but every other one they're in and um but during

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Speaker 1: that period time, the number of broadband only homes the

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Speaker 1: United States has also grown it's now pushing three thirty

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Speaker 1: million people, and those people do not get FX as

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Speaker 1: a linear channel. And I would say it's whereas linear

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Speaker 1: channels still account for the vast majority of consumption when

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Speaker 1: it comes to the types of programming that's consumed live

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Speaker 1: or near live, sports, news, competition, reality that uh, you know,

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Speaker 1: there's if you actually look at the amount of time

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Speaker 1: spent watching television versus watching video on a screen or

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Speaker 1: being in a social media network, it's still dwarfs all

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Speaker 1: other usages and the bulk of it, the bulk of

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Speaker 1: it is live. But if you want to think about

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Speaker 1: what we do, which is we make scripted programming that

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Speaker 1: for a long time has not been primarily consumed live,

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Speaker 1: that's consumed live live plus same dab of Life plus

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Speaker 1: three plus seven plus fourteen plus twenty eight on v

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Speaker 1: O D systems, now on f X plus. It's just

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Speaker 1: it's just you can see it that the that the

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Speaker 1: consumption of that kind of content has shifted considerably towards

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Speaker 1: streaming platforms. And so I think in particular, are in

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Speaker 1: the portion of the business that we wish to address,

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Speaker 1: which is the sort of high quality, high end scripted

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Speaker 1: television business. I don't think we could thrive in the

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Speaker 1: long run without being a part of a large media

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Speaker 1: company that itself has a very large streaming platform and

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Speaker 1: that and that is an aggregator right of enough content

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Speaker 1: that fifties sixty seventy million people in the United States

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Speaker 1: independently would want to subscribe to that. So I think

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Speaker 1: the logic behind the Disney transaction is is irrefutable and necessary.

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Speaker 1: And so then the question becomes, Okay, so that's great

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Speaker 1: because that you know, one of the things if you

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Speaker 1: pay close attention to the sort of input side baseball status,

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Speaker 1: you can see that clearly HBO was sitting on a

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Speaker 1: lot of really good development that they were unable to

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Speaker 1: pull the trigger on in prior to the A, T

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Speaker 1: and T transaction. Now that the transaction is closed, they've

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Speaker 1: really been on a spree and they've picked up a

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Speaker 1: lot of stuff that looks really good. So they've gotten

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Speaker 1: more resources to sort of curate and develop and deep

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Speaker 1: in their brand in the aftermath that transaction. So that's

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Speaker 1: very exciting. And then you come back to the dynamic

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Speaker 1: tension of yeah, but what we don't want to do

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Speaker 1: is try to be all things to all people. We

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Speaker 1: don't want to diffuse the brand. We want to try

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Speaker 1: to have an identity. That identity is expressed as best

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Speaker 1: we can express it through that reel that you just saw.

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Speaker 1: And that's a dynamic tension that they think the whole

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Speaker 1: of the content business and the television business will be in,

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Speaker 1: which is ubiquity, democratization of access, new forms of distribution

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Speaker 1: versus curation. And and all I can tell you is

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Speaker 1: I I think that I think a culture, I think

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Speaker 1: it's a democracy needs curation. I think what we're seeing,

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Speaker 1: for example, in the news businesses, there have to be

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Speaker 1: editors and fact checkers, you know, because if you say

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Speaker 1: facts don't matter, and you say basically you can have

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Speaker 1: your facts that you want, you can have your facts

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Speaker 1: that you want, those facts are not both facts, right.

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Speaker 1: Some of them are true, some of them are false.

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Speaker 1: It's not a good thing in a democracy when people

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Speaker 1: have different facts. It's it was better right, all be.

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Speaker 1: There's a lot that's going on that's exciting from a

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Speaker 1: distribution standpoint in terms of democratization and diversity, and we're

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Speaker 1: right in the center of that. But I think it's

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Speaker 1: hard to argue that it was better when we had

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Speaker 1: four newscasts, and most people in America got their information

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Speaker 1: from those four newscasts in some ways. In other ways

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Speaker 1: it wasn't as good because maybe all those newscasts were

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Speaker 1: run by white men, three minutes of content, and maybe

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Speaker 1: they all had a bias about what would go in

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Speaker 1: and what wouldn't go in. But you could move the

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Speaker 1: needle on American opinion in the main when everybody was

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Speaker 1: watching the same thing, and you could address difficult issues

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Speaker 1: and facts that people didn't want to know. You could

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Speaker 1: get into their living room. Now, if somebody doesn't want

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Speaker 1: to know a fact, they don't have to know it,

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Speaker 1: and they and the way the news media structured. So

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Speaker 1: that's an example of where I would argue that you

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Speaker 1: know what the Wall Street Journal in the New York Times,

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Speaker 1: Atlantic Monthly, in Variety and many others you know do

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Speaker 1: is a value. It is a value to me anyway,

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Speaker 1: I don't. I don't get my news from a feed.

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Speaker 1: I get my news from trusted sources because I think

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Speaker 1: that news is of better quality. And applying that to

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Speaker 1: the entertainment realm, it is interesting that that this is

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Speaker 1: such a such a schism for television in that there

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Speaker 1: is a world that is going to live entertainment that

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Speaker 1: you still shop on the shop on the dial, and

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Speaker 1: you still is supported by advertising. I would imagine that

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Speaker 1: you guys are very much preparing for a world, a

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Speaker 1: post advertising world for EFFEX at this point. I don't

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Speaker 1: know if I would say post advertising by the way.

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Speaker 1: I mean, one one thing that I would I would

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Speaker 1: say is I think you just made a really strong

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Speaker 1: case for the logic of the Disney Fox transaction from

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Speaker 1: the Fox standpoint, because the new Fox that will verge

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Speaker 1: is eight percent of its gross ratings points will be live.

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Speaker 1: Is a predominantly live focused business, and I think that's

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Speaker 1: an area where broadcast network and where traditional linear channels

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Speaker 1: are still can still compete. In fact, they're dominant in

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Speaker 1: that area relative to a streaming service, which is not

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Speaker 1: necessarily the best place to find and watch topical news

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Speaker 1: program or a sports program. Back back to your question,

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Speaker 1: um uh, why I ask it again? I'm sorry about advertising.

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Speaker 1: I mean, do you when I when I started at

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Speaker 1: f X again, this was you know, fourteen almost fifteen

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Speaker 1: years ago, advertising comprised of our revenue, total top line revenue,

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Speaker 1: and it's down in the low thirties now, and it's

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Speaker 1: going down. That's a signpost of where by about one

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Speaker 1: percent a year. So fortunately we have reached all time

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Speaker 1: highs in terms of our revenue because our subscription revenue

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Speaker 1: and our content revenue have grown apace. Um. Ironically, the

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Speaker 1: the ad revenue is actually pretty flat. So and actually

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Speaker 1: it's not going down now. What's happening is the other

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Speaker 1: forms of revenue going up, so it becomes a lower

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Speaker 1: percentage each year. And the reason it's flat is because

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Speaker 1: um CPMs have just been really really strong. It's still

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Speaker 1: a scarce resource that a rating point that you deliver

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Speaker 1: it is, I mean, the truth of the batter is

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Speaker 1: that far and away the best place to actually consume

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Speaker 1: a spot. And there are things that the Internet does

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Speaker 1: very well in terms of targeting and data driven uh

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Speaker 1: you know, curation of advertising. But if you want to

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Speaker 1: actually put thirty minutes thirty seconds of sound and picture

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Speaker 1: and things that can actually move and connect to people

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Speaker 1: in front of them, the Internet is not a good

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Speaker 1: place to do that. How many thirty second ads do

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Speaker 1: you watch on you actually pay attention to on the internet, um,

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Speaker 1: And so that form of advertising, there's a dwindling supply

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Speaker 1: of a place to really put it, so we're actually

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Speaker 1: doing quite well. And you can now start to see

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Speaker 1: also that so all of our content is available in

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Speaker 1: an add add supported video on demand environment, that amount

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Speaker 1: of usage has been consistently growing over time. The the

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Speaker 1: ad interruption is half or less than half in that

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Speaker 1: format than it is in the linear line. And but

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Speaker 1: we get higher CPM, so we're pretty equivalent from A

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Speaker 1: from A. So what's happening also is the amount of

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Speaker 1: revenue shifting from linear to nonlinear, and increasingly more of

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Speaker 1: that UM content is addressable, meaning this data appended to

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Speaker 1: it so that there's some form of actual targeting that

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Speaker 1: you can do, which is the Internet's killer app is

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Speaker 1: essentially sucking up your data and then using it to

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Speaker 1: try to sell you the thing you've already bought. UM.

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Speaker 1: And you know, television is now being able to do

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Speaker 1: that increasingly across some of the inventory we sell, and

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Speaker 1: that targeted time is what really those targeted sales are

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Speaker 1: what really boost your CPMs in the main when you

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Speaker 1: incorporate the and more and especially they allow us to

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Speaker 1: reduce the amount of load commercial load because you know, increasingly,

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Speaker 1: for for most consumers who have become accustomed to very

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Speaker 1: light commercial interruption on the internet. The notion that they're

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Speaker 1: going to come watch something on our channel live and

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Speaker 1: they're going to tolerate, you know, fourteen minutes of promo

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Speaker 1: and local and national advertising. That's just not a deal

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Speaker 1: that most consumers are willing to make. Increasingly, Yeah, we

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Speaker 1: are absolutely seeing that. Um And then you about a

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Speaker 1: year maybe year two ago, you kind of didn't experiment

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Speaker 1: with something called f X plus offering people the chance

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Speaker 1: to pay a little extra and get the programming with

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Speaker 1: commercial free. Have you learned if you gleaned any insights

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Speaker 1: from that From that, you know, the we basically confirmed

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Speaker 1: a strong suspicion that we had, which is so you know,

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Speaker 1: we've been doing uh branding research for six or seven

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Speaker 1: years now. We do three thousand people a quarters, twelve

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Speaker 1: thousand a year, so we have a very large, very

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Speaker 1: stable sample. And what we see is that based on

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Speaker 1: the kind of service you are premium cable network, a

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Speaker 1: basic cable network, a broadcast network, or a streaming service,

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Speaker 1: there's a kind of trading range in terms of the

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Speaker 1: top and the bottom of end of affinity. Right. So

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Speaker 1: ffax is as you might imagine, sometimes at but usually

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Speaker 1: at least near the top of the affinity in the

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Speaker 1: basic cable, but the trading range for premium service is higher,

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Speaker 1: and the trading range for premium for a streaming service

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Speaker 1: is higher still even then a premium network, which tells

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Speaker 1: you people don't like all those commercials, that's right, and

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Speaker 1: that they like they like the user interface, and they

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Speaker 1: like the price to the amount of content. They like

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Speaker 1: streaming services, and so what what's frustrating from our standpoint

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Speaker 1: is we get, we get, we bump against the ceiling

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Speaker 1: based on our distribution and our identity, our long term

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Speaker 1: identity as a as a linear basic cable networks. But

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Speaker 1: more than that, a linear network is not a great

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Speaker 1: place to put fift hundred episodes of television that represent

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Speaker 1: a coherent brand that you've been curating for sixteen years.

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Speaker 1: How do you do that? Just run fifteen episodes episodes

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Speaker 1: on a continuous loop on a channel? How is that

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Speaker 1: of any value to people? People want to make affirmative choices.

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Speaker 1: So the only way you can actually express the brand

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Speaker 1: is by making all that content available in a non

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Speaker 1: linear service. Right, So we've known for years and it's

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Speaker 1: been a real fascinating struggle to sort of break down

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Speaker 1: the restrictions in the business model that we were stuck in.

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Speaker 1: You know, initially networks just licensed content, they didn't even

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Speaker 1: make it. We started FEX Productions fifteen years ago with

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Speaker 1: It's Always Stunning in Philadelphia, and we said, well, we

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Speaker 1: can't just be in the business of licensing content. We

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Speaker 1: have to know how to make it. We have to

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Speaker 1: make it for ourselves. We've increasingly done that, but a

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Speaker 1: lot of it was trying to restructure the whole way

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Speaker 1: that rights around content investment works so that we could

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Speaker 1: actually have the right to offer the brand because just

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Speaker 1: putting it on a linear channel and then selling it

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Speaker 1: to Amazon or Netflix or Hulu in the back library,

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Speaker 1: and then you know, so many people now don't even

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Speaker 1: know that these shows are f X shows because where

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Speaker 1: they found them and where they watched them was on

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Speaker 1: a different service on Hulu or a Netflix or so

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Speaker 1: back to your question on the insite, So we we

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Speaker 1: get these you know, pretty substantial number of subscribers. They

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Speaker 1: tend to come into f X plus because they want

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Speaker 1: to particularly watch a particular show, but they stay in

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Speaker 1: it once they come in because what they find is

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Speaker 1: a really coherent, pretty deep library of content, all of

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Speaker 1: which is good. And what we're seeing is people are

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Speaker 1: watching the Shield and they're watching Niptuck and Damages and

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Speaker 1: Justified is not in there, so I can't say that,

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Speaker 1: but they're watching, uh, you know, all of our shows

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Speaker 1: all the way back, and I can see now the

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Speaker 1: usage of it. The big insight though, is that instantaneously

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Speaker 1: the brand breaks out of the trading range. Instantaneously it

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Speaker 1: leaps up and it is exactly where HBO is, right,

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Speaker 1: and we've been. That's the frustrating fresh is We've been

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Speaker 1: matching HBO in terms of critical claim pound for pound

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Speaker 1: for years, right. I mean, if you look at the

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Speaker 1: year end best list, the A five which is held

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Speaker 1: in this room, we've been we've been like the same

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Speaker 1: brand but that but we can't break out of that

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Speaker 1: trading range on our in our current distribution model, and

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Speaker 1: the instantaneously when we put it in that model and

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Speaker 1: people have it commercial free and to have all the

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Speaker 1: content literally you can't tell the difference between the two

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Speaker 1: brands in terms of affinity. So so that's the thing.

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Speaker 1: I mean, it's just it changes coming and if if

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Speaker 1: we don't change, will become irrelevant. Will die? Do you

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Speaker 1: think FX plus survives not survives. But do you think

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Speaker 1: f x plus will endure given what Disney's kind of

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Speaker 1: ambition is. I know that that's not going to happen overnight,

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Speaker 1: but they've talked about, you know, a late two tho

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Speaker 1: nineteen launch. Would f x plus kind of be in

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Speaker 1: the way of that in a way that's that's kind

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Speaker 1: of above my pay grade, to be honest, Cynthia, I

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Speaker 1: don't know that they have to figure out how to

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Speaker 1: address that. I will say that if you ask me,

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Speaker 1: could f X plus on its own scale up to

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Speaker 1: fifty million subscribers. No, I don't think it could because

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Speaker 1: I don't think the way people are gonna buy content

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Speaker 1: is they're gonna they're gonna, you know, fifty million homes

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Speaker 1: are not going to make by a single branded service.

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Speaker 1: It has to be bundled and aggregated into larger, more

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Speaker 1: convenient ways of buying. And I think what Disney said

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Speaker 1: publicly is they're going to have to have a sports

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Speaker 1: streaming service, is gonna have to primary entertainment orient services.

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Speaker 1: They're gonna have Disney which they've already announced, which is

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Speaker 1: a family orient service, and they're gonna have a more

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Speaker 1: adult orient service. And I think my point of view

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Speaker 1: is FX is going to have to figure out how

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Speaker 1: to support enable the success of that adult streaming service,

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Speaker 1: and we need it and it needs us, and we're

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Speaker 1: going to have to figure out how that works. But

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Speaker 1: I can't I can't know how that's going to work

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Speaker 1: sitting from sitting here. You know, at this moment, right

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Speaker 1: the deal is still on track. I believe that they've

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Speaker 1: said first quarter of twenty nineteen, so there's probably a

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Speaker 1: lot of a lot of details to be sorted out.

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Speaker 1: But it is interesting that you just hit on the

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Speaker 1: kind of dichotomy right now. Is like you On the

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Speaker 1: one hand, there there has been criticism that Netflix and

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Speaker 1: Amazon they just they have so much and things get lost.

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Speaker 1: But you, you, you so too much can become overwhelming,

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Speaker 1: but not enough is not going to get somebody to

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Speaker 1: write a five or ten dollar check a month. That's

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Speaker 1: exactly right. And look, I think quantity and quality are

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Speaker 1: natural antagonists. I think that they can be harmonized, but

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Speaker 1: I don't think they they are naturally harmonic with each other.

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Speaker 1: I think quantity tends to, you know, be lowest common

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Speaker 1: in the quality tends to be more best spoken, more focused.

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Speaker 1: So but You're right, we have to get we have

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Speaker 1: to get bigger or else why would anybody pay attention

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Speaker 1: to the to the f X letters, Because you know,

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Speaker 1: there's already so much that you could never consume it

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Speaker 1: in a lifetime. And we have to get better too.

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Speaker 1: And that, to me is actually both terrifying and exciting,

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Speaker 1: is that every year your shows have to get better

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Speaker 1: because television continually gets better. It's a tremendously difficult competitive environment.

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Speaker 1: But that's exciting from a creative standpoint. And how when

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Speaker 1: you say, when you say like better, you mean more

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Speaker 1: distinctive programming, more, more money on screen, bigger scope, more, um,

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Speaker 1: more innovative, more experimental, you know. I mean there are

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Speaker 1: many shows on the on the air Atlanta, maybe one

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Speaker 1: of them that just simply couldn't have existed five years ago,

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Speaker 1: um and so and and it's it's increasingly hard, I think,

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Speaker 1: to find the distinctive places. I mean, one of the

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Speaker 1: things that's really hard about this particular brand we're trying

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Speaker 1: to make is that, you know, we've never said, hey, um,

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Speaker 1: people like uh spy shows, just have a spy show,

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Speaker 1: and let's have a detective show, and let's have a

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Speaker 1: cop show. And let's have or let's have five cops

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Speaker 1: shows and five spy shows, if that's what they want.

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Speaker 1: We've always said, no, actually, let's try to find a

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Speaker 1: creative person who wants to deconstruct, reconstruct any genre he

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Speaker 1: she goes into, whether it's to sitcom or a spy

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Speaker 1: show or a detective show or mini series, and do

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Speaker 1: something new that doesn't exist on television. And so, you know,

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Speaker 1: that was a lot easier when we were primarily competing

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Speaker 1: against Showtime and HBO and AMC wasn't even in the

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Speaker 1: business yet. Now, when you have these services that are

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Speaker 1: literally just shoveling money at and making, you know, dozens

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Speaker 1: hundreds of television shows, it becomes harder to make a

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Speaker 1: show that doesn't feel like it already exists. And we've

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Speaker 1: never felt our purpose in television was just to make

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Speaker 1: more versions of shows that already exist. We've we've tried

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Speaker 1: to make things that added some value to the ecosystem.

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Speaker 1: There's a perception right now that I think, um, well,

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Speaker 1: obviously that you know, there's just an incredible called a renaissance,

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Speaker 1: called a Golden age. There is a lot of content

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Speaker 1: out there, and and a good portion of it is

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Speaker 1: very good is, you know, is challenging the movie business

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Speaker 1: in terms of, you know, the sort of the peak

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Speaker 1: of the art. There's also a perception that it's boom times.

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Speaker 1: It's certainly boom time for content creators, but that everything

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Speaker 1: is making money hand over fist. If you talk to people,

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Speaker 1: they say that margins are tighter than ever. You've got

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Speaker 1: to put more money on the screen. And we're in

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Speaker 1: this moment where the old ways of networks and studios

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Speaker 1: making money off of shows is changing radically, and we're

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Speaker 1: in that businesses in that difficult transit of you know,

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Speaker 1: most of the money comes from the old ways of

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Speaker 1: doing business, but everything has to pivot, you know, twenty

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Speaker 1: degrees to get to sort of the way that consumers

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Speaker 1: have clearly are clearly voting with their remote controls in

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Speaker 1: their pocketbooks. How are you guys managing that at a

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Speaker 1: time when you have incredible competition to put more and

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00:23:20,840 --> 00:23:23,840
Speaker 1: more distinctive on the screen. Well, I would go so

433
00:23:23,840 --> 00:23:26,480
Speaker 1: far as say all of the profit really comes from

434
00:23:26,520 --> 00:23:28,720
Speaker 1: the old part of the business, right, and you're in

435
00:23:28,720 --> 00:23:33,800
Speaker 1: a situation where actually having a profit is a structural deficit,

436
00:23:34,119 --> 00:23:36,480
Speaker 1: because if you have a profit, let's say pathetically, I'll

437
00:23:36,480 --> 00:23:39,639
Speaker 1: make an example. You were in ten profit on the

438
00:23:39,640 --> 00:23:42,480
Speaker 1: dollar that you spend. That means to be able to

439
00:23:42,520 --> 00:23:44,680
Speaker 1: be for to be worth borrowing and spending a dollar,

440
00:23:44,760 --> 00:23:48,359
Speaker 1: you have to make a dollar ten. If if Netflix

441
00:23:48,440 --> 00:23:51,600
Speaker 1: makes eight five cents on every dollar it spends, then

442
00:23:51,640 --> 00:23:53,639
Speaker 1: it's worth borrowing a dollar if they can make eighties

443
00:23:53,640 --> 00:23:55,800
Speaker 1: to five cents. And why is that? Why is a

444
00:23:55,840 --> 00:23:58,719
Speaker 1: company that has negative two and a half three billion

445
00:23:58,720 --> 00:24:01,880
Speaker 1: dollar free cash flow meaning they spend more than they

446
00:24:01,880 --> 00:24:05,159
Speaker 1: take in and a given year um why are they

447
00:24:05,200 --> 00:24:08,080
Speaker 1: worth hundred fifty billion dollars. The answer is because right now,

448
00:24:08,119 --> 00:24:10,920
Speaker 1: what's being valued or the is the acquisition of consumers

449
00:24:11,160 --> 00:24:14,200
Speaker 1: and the perception that Netflix can get to a place

450
00:24:14,240 --> 00:24:18,240
Speaker 1: where they have two hundred fifty three hundred millions subscribers

451
00:24:18,240 --> 00:24:20,639
Speaker 1: and they can raise prices and that that will be

452
00:24:20,680 --> 00:24:24,520
Speaker 1: an enormously profitable enterprise. They are not. They declare a profit,

453
00:24:24,560 --> 00:24:27,360
Speaker 1: but that's because they're admortizing costs and they're pushing them downstream.

454
00:24:27,359 --> 00:24:30,359
Speaker 1: They're spending more than they make. So that becomes really

455
00:24:30,359 --> 00:24:32,919
Speaker 1: hard when you're bidding for talent, because essentially, if you

456
00:24:32,960 --> 00:24:34,760
Speaker 1: have to say, well, I got to make a profit

457
00:24:34,800 --> 00:24:37,199
Speaker 1: on my relationship with you, and they're saying, I'll be

458
00:24:37,240 --> 00:24:40,600
Speaker 1: happy to lose f on my relationship with you. They're

459
00:24:40,600 --> 00:24:44,399
Speaker 1: gonna be able to spend more for talent, and I

460
00:24:44,440 --> 00:24:46,760
Speaker 1: think that's when you look at the logic of a

461
00:24:46,840 --> 00:24:49,400
Speaker 1: transaction like this, what you can see is that that

462
00:24:49,400 --> 00:24:52,879
Speaker 1: that Disney is an enormously profitable business. Fox is a

463
00:24:53,000 --> 00:24:55,280
Speaker 1: normally possible business. You put them to two together. This

464
00:24:55,359 --> 00:24:58,040
Speaker 1: is a very, very large business with an enormous amount

465
00:24:58,040 --> 00:25:01,399
Speaker 1: of financial resources and an enormous amount earnings and cash

466
00:25:01,480 --> 00:25:05,680
Speaker 1: free cash flow. But to be able to invest lavishly

467
00:25:05,720 --> 00:25:08,479
Speaker 1: in content, it has to get into the subscriber growth business,

468
00:25:08,520 --> 00:25:11,600
Speaker 1: because where capital is being extended right now is in

469
00:25:11,600 --> 00:25:15,520
Speaker 1: the subscriber growth business. The weird situation that creates, though,

470
00:25:15,960 --> 00:25:19,480
Speaker 1: is it's a massively awesome opportunity for talent and the

471
00:25:19,480 --> 00:25:22,400
Speaker 1: people that represent talent, and I'm always thrilled to see

472
00:25:22,440 --> 00:25:26,040
Speaker 1: talent get paid. But essentially more money is being spent

473
00:25:26,080 --> 00:25:29,640
Speaker 1: on content than can be earned in the current mode

474
00:25:29,680 --> 00:25:33,320
Speaker 1: of distribution right because people are spending at a loss,

475
00:25:33,400 --> 00:25:36,199
Speaker 1: and so I think that sustains as long as you

476
00:25:36,280 --> 00:25:38,880
Speaker 1: have this fascinating game of musical chairs, we're gonna see

477
00:25:38,880 --> 00:25:40,359
Speaker 1: for the next group of time, which is that you're

478
00:25:40,359 --> 00:25:43,040
Speaker 1: gonna have a number of very large media companies. So

479
00:25:43,800 --> 00:25:46,520
Speaker 1: we already have Netflix in Amazon, and you can have Disney,

480
00:25:46,520 --> 00:25:48,240
Speaker 1: and we'll see what Comcast does, and you have a

481
00:25:48,320 --> 00:25:50,119
Speaker 1: T and T Time Warner, and we'll see what Google

482
00:25:50,160 --> 00:25:53,680
Speaker 1: does and Facebook does, and you know there are many others.

483
00:25:53,720 --> 00:25:55,680
Speaker 1: There's a there's Verizon, what will they do? What will

484
00:25:55,720 --> 00:25:58,000
Speaker 1: T Mobile? Sprint do? Like, there's a lot of companies

485
00:25:58,000 --> 00:26:01,240
Speaker 1: that would want to be in that that sweepstakes for

486
00:26:01,280 --> 00:26:04,240
Speaker 1: streaming service. I think we can sit in this room

487
00:26:04,280 --> 00:26:07,800
Speaker 1: and imagine that it's hard to believe that the average

488
00:26:07,880 --> 00:26:09,720
Speaker 1: family is going to have more than three or four

489
00:26:09,760 --> 00:26:12,480
Speaker 1: of them five I don't know how many, but it's

490
00:26:12,480 --> 00:26:14,479
Speaker 1: not going to be ten or twelve. So that just

491
00:26:14,520 --> 00:26:18,280
Speaker 1: isn't enough room at the table for everybody to eat, right,

492
00:26:18,680 --> 00:26:20,919
Speaker 1: And so what's going to happen is as long as

493
00:26:20,960 --> 00:26:23,760
Speaker 1: that sweepstakes is happening. And nobody really knows for sure

494
00:26:23,760 --> 00:26:27,680
Speaker 1: whether there's a billion subscriptions or two billion worldwide, how

495
00:26:27,680 --> 00:26:31,320
Speaker 1: many subscriptions can the can the system accommodate across these

496
00:26:31,359 --> 00:26:35,240
Speaker 1: multiple streaming services? And everybody's point of view about what

497
00:26:35,400 --> 00:26:37,040
Speaker 1: you can achieve as pie in the sky, and I

498
00:26:37,080 --> 00:26:40,240
Speaker 1: really do believe that the winners will have a really

499
00:26:40,240 --> 00:26:43,119
Speaker 1: really strong financial return based on being one of the

500
00:26:43,200 --> 00:26:46,960
Speaker 1: dominant streaming platforms. But as long as you know what

501
00:26:47,080 --> 00:26:49,239
Speaker 1: that upside is and how many are gonna make it,

502
00:26:49,520 --> 00:26:51,479
Speaker 1: you can imagine a situation where there's going to be

503
00:26:51,840 --> 00:26:57,120
Speaker 1: overspending relative to two earnings for years two, three, four, five,

504
00:26:57,240 --> 00:27:00,320
Speaker 1: six years. I don't know, But eventually, just like any else,

505
00:27:00,320 --> 00:27:01,960
Speaker 1: you get to the top of the s curve. You

506
00:27:02,000 --> 00:27:05,240
Speaker 1: know then that you have X number of services that

507
00:27:05,280 --> 00:27:07,840
Speaker 1: are going to succeed, and they're gonna have Y number

508
00:27:07,880 --> 00:27:10,960
Speaker 1: of paying subscribers within a margin, at which point the

509
00:27:11,000 --> 00:27:14,720
Speaker 1: others will have to give up right and leave the business,

510
00:27:14,760 --> 00:27:17,040
Speaker 1: a radically scale back their ambitions in the business, and

511
00:27:17,040 --> 00:27:19,480
Speaker 1: the ones that remain will have to right size their

512
00:27:19,480 --> 00:27:23,440
Speaker 1: costs right with the actual revenue potential of that. So

513
00:27:23,840 --> 00:27:25,840
Speaker 1: what I would say is it seems to me, I mean,

514
00:27:25,840 --> 00:27:29,359
Speaker 1: I couldn't have been more wrong about calling the the

515
00:27:29,440 --> 00:27:31,159
Speaker 1: end of peak TV. I was just I was just

516
00:27:31,280 --> 00:27:33,480
Speaker 1: I missed the side of a barn. Right. We're just

517
00:27:33,640 --> 00:27:36,359
Speaker 1: years away from about a year ago, yeah, but now

518
00:27:36,520 --> 00:27:41,439
Speaker 1: approaching five plus and I just have scripted series on

519
00:27:41,480 --> 00:27:43,640
Speaker 1: the air. And I think that as long as this

520
00:27:44,359 --> 00:27:48,400
Speaker 1: as this competition, this titanic competition between these large media

521
00:27:48,440 --> 00:27:52,159
Speaker 1: companies exists and we don't see the outlines of the

522
00:27:52,280 --> 00:27:54,760
Speaker 1: end state, I think you're going to see that kind

523
00:27:54,760 --> 00:27:58,880
Speaker 1: of peak spending. But I think that our industry is

524
00:27:59,200 --> 00:28:03,280
Speaker 1: looking at the guess hangover it's ever had at whatever

525
00:28:03,480 --> 00:28:06,879
Speaker 1: point you reach the end state, because at that point,

526
00:28:07,200 --> 00:28:09,280
Speaker 1: not everyone's going to survive. The ones that don't are

527
00:28:09,280 --> 00:28:12,640
Speaker 1: going to radically scale back there they're spending in their ambitions,

528
00:28:12,640 --> 00:28:14,720
Speaker 1: and the ones that remain are going to have to create.

529
00:28:14,760 --> 00:28:17,119
Speaker 1: They're gonna have to be profitable because you can't. You

530
00:28:17,119 --> 00:28:19,600
Speaker 1: can you can basically have a very high stock price

531
00:28:19,640 --> 00:28:22,040
Speaker 1: based on the perception that you will be profitable in

532
00:28:22,040 --> 00:28:24,760
Speaker 1: the future, but you can't sustain that as you're reaching

533
00:28:24,800 --> 00:28:27,639
Speaker 1: the end state of whatever your your revenue potential is.

534
00:28:27,840 --> 00:28:31,080
Speaker 1: Eventually your valuation has to be driven by your earnings

535
00:28:31,080 --> 00:28:34,199
Speaker 1: per share. There's no other there's no other outcome. Yeah,

536
00:28:35,119 --> 00:28:41,280
Speaker 1: the the as you say, the hangover aspect is I

537
00:28:41,320 --> 00:28:43,520
Speaker 1: think very daunting for a lot of people to think

538
00:28:43,520 --> 00:28:47,240
Speaker 1: about right now. Even as you know spending is spending

539
00:28:47,320 --> 00:28:50,960
Speaker 1: is growing, and you know, even as subscribers are there's

540
00:28:50,960 --> 00:28:52,440
Speaker 1: a lot of talk about m v p d s

541
00:28:52,960 --> 00:28:55,600
Speaker 1: are starting to actually see see a little bit of

542
00:28:55,680 --> 00:28:58,120
Speaker 1: uptake thanks to the digital guys. It's it's a it's

543
00:28:58,160 --> 00:29:00,800
Speaker 1: a very fraught moment. But it sounds like because you

544
00:29:00,800 --> 00:29:04,480
Speaker 1: had mentioned the phrase titanic struggle of traditional media versus

545
00:29:04,520 --> 00:29:07,400
Speaker 1: the versus kind of the digital upstarts about a year ago,

546
00:29:07,720 --> 00:29:10,440
Speaker 1: do you feel like that titanic struggle is leveling out

547
00:29:10,440 --> 00:29:13,280
Speaker 1: a little bit more with Disney's bold move with a

548
00:29:13,400 --> 00:29:19,560
Speaker 1: T and T putting more more resources into and I

549
00:29:19,600 --> 00:29:22,560
Speaker 1: think we're in the middle innings, right, So, as I said,

550
00:29:22,600 --> 00:29:26,080
Speaker 1: I think you can you can now see that you know,

551
00:29:26,280 --> 00:29:29,400
Speaker 1: at least four large media companies are gonna be aggressively

552
00:29:29,560 --> 00:29:35,720
Speaker 1: pursuing a large streaming platform have taken shape, right, Netflix, Amazon,

553
00:29:36,480 --> 00:29:39,840
Speaker 1: Disney in its current future iteration, and a T and

554
00:29:39,880 --> 00:29:44,080
Speaker 1: T Time Warner. I don't think those are the last combinations,

555
00:29:44,120 --> 00:29:47,080
Speaker 1: and I don't think those are the last entrance. I'm

556
00:29:47,080 --> 00:29:49,640
Speaker 1: not saying, yeah, I'm not saying that YouTube isn't making

557
00:29:49,640 --> 00:29:52,640
Speaker 1: original series, or that Facebook isn't isn't edging around the

558
00:29:52,720 --> 00:29:55,360
Speaker 1: edge of that so others, but an Apple by the way, yes,

559
00:29:55,400 --> 00:29:57,480
Speaker 1: so you have to add Apple. But in terms of

560
00:29:57,520 --> 00:30:00,959
Speaker 1: somebody saying, okay, we're going to commit whatever it takes

561
00:30:00,960 --> 00:30:03,960
Speaker 1: five billion, ten billion, right, whatever it takes to be

562
00:30:04,000 --> 00:30:07,040
Speaker 1: a major streaming service, there are four companies that have

563
00:30:07,120 --> 00:30:09,520
Speaker 1: said now, okay, that's what we're gonna do. And there

564
00:30:09,520 --> 00:30:12,000
Speaker 1: are other companies that are doing significant work that is

565
00:30:12,040 --> 00:30:14,760
Speaker 1: not to be discounted, but but they haven't said we

566
00:30:14,840 --> 00:30:16,680
Speaker 1: want to have a hundred or two hundred or three

567
00:30:16,760 --> 00:30:20,400
Speaker 1: hundred million subscribers. But I think over the next two

568
00:30:20,520 --> 00:30:23,920
Speaker 1: three years, you're gonna see one to three four other companies,

569
00:30:24,280 --> 00:30:26,600
Speaker 1: and some of those companies will then buy other content

570
00:30:26,640 --> 00:30:29,920
Speaker 1: companies and create other competitions. I mean, it would be

571
00:30:29,960 --> 00:30:34,480
Speaker 1: surprising me, for example, if Comcast didn't eventually take a

572
00:30:34,600 --> 00:30:38,160
Speaker 1: step to create a large streaming platform. They're a massive

573
00:30:38,240 --> 00:30:41,320
Speaker 1: media company with an incredible amount of pretty clear about

574
00:30:41,360 --> 00:30:44,240
Speaker 1: their appetite. Yeah wow, well, my god. We could go

575
00:30:44,280 --> 00:30:47,000
Speaker 1: on for another hour, but our time is come short

576
00:30:47,040 --> 00:30:49,239
Speaker 1: and lunch is waiting. So thank you all very much,

577
00:30:49,280 --> 00:30:54,880
Speaker 1: and thank you John for your time. Thanks for listening.

578
00:30:55,200 --> 00:30:57,560
Speaker 1: Be sure to tune in next week for another episode

579
00:30:57,600 --> 00:30:58,600
Speaker 1: of strictly business