1 00:00:08,080 --> 00:00:11,200 Speaker 1: Welcome to another episode of Strictly Business, the podcast in 2 00:00:11,240 --> 00:00:13,640 Speaker 1: which we speak with some of the brightest minds working 3 00:00:13,680 --> 00:00:17,120 Speaker 1: in the media business today. I'm Andrew Wallenstein with Variety. 4 00:00:18,040 --> 00:00:20,960 Speaker 1: There are no shortage of indicators these days about the 5 00:00:21,079 --> 00:00:24,480 Speaker 1: sorry state of the economy, which leaves me with a question, 6 00:00:25,160 --> 00:00:27,960 Speaker 1: what does that mean for the media and entertainment business. 7 00:00:28,560 --> 00:00:32,120 Speaker 1: To understand this better, I'm bringing back Navin Sarma, Senior 8 00:00:32,200 --> 00:00:37,160 Speaker 1: director of SNP Global Ratings, for an unprecedented third appearance 9 00:00:37,200 --> 00:00:40,480 Speaker 1: on Strictly Business. More with him in just a moment. 10 00:00:47,600 --> 00:00:50,640 Speaker 1: We're back with veteran media analyst Navin Sarma for a 11 00:00:50,680 --> 00:00:54,760 Speaker 1: conversation we held on May as a virtual part of 12 00:00:54,800 --> 00:00:59,720 Speaker 1: the program from the Monaco Streaming Film Festival. I think 13 00:01:00,240 --> 00:01:02,880 Speaker 1: to the first time I interviewed you back in ten 14 00:01:02,920 --> 00:01:06,760 Speaker 1: and the discussion was pegged to looming fears of a recession, 15 00:01:06,959 --> 00:01:10,440 Speaker 1: fears that I should point out proved unfounded. Then now 16 00:01:10,480 --> 00:01:12,480 Speaker 1: here we are, more than three years later, for a 17 00:01:12,600 --> 00:01:17,760 Speaker 1: very similar conversation, though under very different circumstances. So how 18 00:01:17,760 --> 00:01:20,560 Speaker 1: does where we stand now in terms of these recessionary 19 00:01:20,680 --> 00:01:24,759 Speaker 1: fears differ from where things stood economically last we talked 20 00:01:24,800 --> 00:01:29,360 Speaker 1: about this sure, and as you point out, and we 21 00:01:29,360 --> 00:01:31,720 Speaker 1: talked about a recession, it didn't happen. We got a 22 00:01:31,720 --> 00:01:35,600 Speaker 1: pandemic instead. UM. So I went back and I looked 23 00:01:35,640 --> 00:01:38,440 Speaker 1: through my notes on you know what we thought was 24 00:01:38,640 --> 00:01:43,880 Speaker 1: baked into a potential um economic recession in twent and 25 00:01:43,920 --> 00:01:46,200 Speaker 1: I've got to say that that this time around, things 26 00:01:46,200 --> 00:01:49,760 Speaker 1: are far more complicated. UM. When we think of scenarios 27 00:01:49,880 --> 00:01:52,880 Speaker 1: which could result in an economic down turn our recession, 28 00:01:53,280 --> 00:01:57,000 Speaker 1: there's multiple overhangs this time, any of which can ultimately 29 00:01:57,040 --> 00:01:59,080 Speaker 1: push the economy into a recession. I'm going to go 30 00:01:59,120 --> 00:02:01,680 Speaker 1: through a list. I'm probably gonna miss a couple, but 31 00:02:01,760 --> 00:02:06,080 Speaker 1: here it goes high inflation. We haven't seen that forty 32 00:02:06,160 --> 00:02:09,720 Speaker 1: years or forty years, certainly since I've been working. UM, 33 00:02:09,760 --> 00:02:13,080 Speaker 1: But but that's certainly a concern. We've got high interest rates, 34 00:02:13,320 --> 00:02:16,840 Speaker 1: we haven't seen that since, certainly before the Great Procession 35 00:02:16,840 --> 00:02:21,160 Speaker 1: in two thousand and eight. We've got supply chain issues, um, 36 00:02:21,240 --> 00:02:25,480 Speaker 1: which is impacting the ability to get product of consumers. 37 00:02:25,840 --> 00:02:29,840 Speaker 1: We've got high energy costs in this country, but certainly 38 00:02:29,840 --> 00:02:33,519 Speaker 1: in Europe much more of an issue. We have labor constraints. 39 00:02:33,840 --> 00:02:37,760 Speaker 1: The workforce hasn't come back after the pandemic, and so 40 00:02:38,040 --> 00:02:41,239 Speaker 1: many businesses are so short of labor that's resulting in 41 00:02:41,360 --> 00:02:44,880 Speaker 1: high labor costs. And then we've got geopolitical risks. We 42 00:02:44,919 --> 00:02:47,040 Speaker 1: have a war in Europe as well, and so all 43 00:02:47,080 --> 00:02:51,120 Speaker 1: of those things are are complicating the ability to assess 44 00:02:51,480 --> 00:02:54,720 Speaker 1: what could drive an economic downturn, what could result in 45 00:02:54,760 --> 00:02:57,919 Speaker 1: an economic downturn, and then what could the impact be 46 00:02:58,040 --> 00:03:19,200 Speaker 1: on companies? H Yeah, sure, so, UM, actually go ahead 47 00:03:18,960 --> 00:03:37,520 Speaker 1: if you want to. Sure, so let's verst that's the fun. 48 00:03:38,000 --> 00:03:41,600 Speaker 1: We haven't seen any evidence current habits or at least 49 00:03:41,680 --> 00:03:43,760 Speaker 1: you know, at the moment of a recession. We had, Yes, 50 00:03:43,920 --> 00:03:47,200 Speaker 1: last last quarter we had negative GDP growth, but you 51 00:03:47,640 --> 00:03:51,040 Speaker 1: you need, you know, two quarters for recession. So recession 52 00:03:51,040 --> 00:03:54,160 Speaker 1: technically is a contract created by by economis and politicians. 53 00:03:54,320 --> 00:03:57,240 Speaker 1: But ultimately, when we think about consumer spending and we 54 00:03:57,280 --> 00:03:59,880 Speaker 1: think about the media sector, we're really thinking about how 55 00:04:00,040 --> 00:04:03,880 Speaker 1: consumers feel about spending. Because consumer spending represents two thirds 56 00:04:03,920 --> 00:04:07,280 Speaker 1: of the US GDP UM. If consumers feel stressed and 57 00:04:07,400 --> 00:04:10,320 Speaker 1: stretch and they choose to cut back on spending, that 58 00:04:10,480 --> 00:04:14,040 Speaker 1: ultimately UM will impact the media and entertainment sector. Even 59 00:04:14,080 --> 00:04:17,400 Speaker 1: if there isn't a recession. UM I think one of 60 00:04:17,400 --> 00:04:20,240 Speaker 1: the things that we have to consider is is consumers 61 00:04:20,320 --> 00:04:24,320 Speaker 1: change behavior, sometimes permanently due to stresses. We certainly saw 62 00:04:24,360 --> 00:04:26,680 Speaker 1: that during the Great Recession, and we certainly saw that 63 00:04:26,760 --> 00:04:29,680 Speaker 1: during the pandemic. In the case of the pandemic, we 64 00:04:29,720 --> 00:04:33,840 Speaker 1: saw an acceleration in secular trends, um, which you know, 65 00:04:33,880 --> 00:04:37,920 Speaker 1: you and I've talked a lot um about these trends. 66 00:04:38,120 --> 00:04:40,720 Speaker 1: You know, whether it's cord cutting, it's the move to streaming, 67 00:04:40,880 --> 00:04:44,600 Speaker 1: it's the shift of advertising from you know, traditional um, 68 00:04:45,279 --> 00:04:48,839 Speaker 1: you know, media to digital. All of those things accelerated 69 00:04:48,880 --> 00:04:53,239 Speaker 1: during the pandemic. Um. If we get another economic downturn, 70 00:04:53,400 --> 00:04:55,919 Speaker 1: we certainly think that that could re accelerate those trends again. 71 00:04:56,320 --> 00:04:57,680 Speaker 1: And you know, and we can talk about what that 72 00:04:57,720 --> 00:05:01,719 Speaker 1: means for for Hollywood longer term. Sure, I mean, I 73 00:05:01,839 --> 00:05:05,640 Speaker 1: just think of all the things that could be at 74 00:05:05,760 --> 00:05:11,000 Speaker 1: risk here, advertising right off the bat. To me, that 75 00:05:11,000 --> 00:05:13,920 Speaker 1: that seems to always go hand in hand that when 76 00:05:13,920 --> 00:05:17,160 Speaker 1: there's some sort of economic downturn, that's the first thing 77 00:05:17,320 --> 00:05:22,480 Speaker 1: that companies cut. Correct. So advertising actually, interestingly enough, is 78 00:05:22,480 --> 00:05:26,400 Speaker 1: a lagging indicator of economic activity. It happens about six 79 00:05:26,480 --> 00:05:30,400 Speaker 1: months you start to see you know, um, advertising decline 80 00:05:30,760 --> 00:05:34,360 Speaker 1: really six months into a recession um and so it's 81 00:05:34,360 --> 00:05:36,600 Speaker 1: actually a lagging indicator and then attempts to take some 82 00:05:36,640 --> 00:05:40,359 Speaker 1: time to recover at post a recovery. Now, at the moment, 83 00:05:40,360 --> 00:05:43,839 Speaker 1: we're not seeing any any impact or any evidence of 84 00:05:43,880 --> 00:05:47,480 Speaker 1: and spending declines UM though there are certainly is expectations 85 00:05:47,520 --> 00:05:52,760 Speaker 1: that it will decline if the current economic path continues. Okay, 86 00:05:52,839 --> 00:05:57,280 Speaker 1: and there's also I mean, take your pick. Cord cutting 87 00:05:57,400 --> 00:05:59,039 Speaker 1: is something that we've got to keep an eye on. 88 00:05:59,200 --> 00:06:03,080 Speaker 1: Theatrical tendons, which certainly has already been facing its challenges, 89 00:06:03,360 --> 00:06:06,239 Speaker 1: and what to me is sort of the grand daddy 90 00:06:06,320 --> 00:06:11,159 Speaker 1: of them all here is streaming. Where could the timing 91 00:06:11,200 --> 00:06:15,400 Speaker 1: possibly be worse given there's such a focus now on 92 00:06:15,640 --> 00:06:21,479 Speaker 1: churn and retaining customers in a brutally competitive environment. Yep, 93 00:06:21,680 --> 00:06:25,560 Speaker 1: So let's let's tackle each one of those. So cord cutting, yes, um, 94 00:06:25,600 --> 00:06:28,760 Speaker 1: you know, even prior to discussions of a recession, we 95 00:06:28,839 --> 00:06:31,760 Speaker 1: had SMP expected card cutting to re accelerate, so it 96 00:06:31,839 --> 00:06:33,840 Speaker 1: was about four and a half percent if you include 97 00:06:33,839 --> 00:06:38,200 Speaker 1: the virtual operators, UM one, we think it's going to 98 00:06:38,240 --> 00:06:42,960 Speaker 1: re accelerate to over six and even worse than that. 99 00:06:45,000 --> 00:06:47,000 Speaker 1: And then if you layer in you know, an accounting 100 00:06:47,040 --> 00:06:50,280 Speaker 1: procession stress, consumers are more than likely to drop their 101 00:06:50,320 --> 00:06:54,840 Speaker 1: linear TV services at a much faster rate. UM. You know. 102 00:06:55,000 --> 00:06:58,279 Speaker 1: On the streaming side, Yeah, churn chef Ley is an issue, 103 00:06:58,520 --> 00:06:59,960 Speaker 1: and it's something that we've been spending a lot of 104 00:07:00,040 --> 00:07:04,080 Speaker 1: time focusing on because, um, all of the all of 105 00:07:04,120 --> 00:07:06,679 Speaker 1: the streaming services have have shown an ability to grow 106 00:07:06,880 --> 00:07:10,080 Speaker 1: grow subscribers. What they haven't shown the ability to do 107 00:07:10,120 --> 00:07:12,440 Speaker 1: at the moment is to retain those subscribers. And so 108 00:07:12,560 --> 00:07:15,160 Speaker 1: your favorite show ends, you watch a movie, and then 109 00:07:15,160 --> 00:07:18,240 Speaker 1: you cut the core, you cut your streaming service, and 110 00:07:18,240 --> 00:07:20,440 Speaker 1: then you come back after six months or so. And 111 00:07:20,480 --> 00:07:22,720 Speaker 1: so what we've seen in a number of the streaming 112 00:07:22,720 --> 00:07:26,080 Speaker 1: services is the subscriber based turns over once or twice 113 00:07:26,080 --> 00:07:29,960 Speaker 1: a year. Um. What happens when you go into a 114 00:07:30,000 --> 00:07:33,040 Speaker 1: recession and consumers look at how much they're spending on 115 00:07:33,080 --> 00:07:36,040 Speaker 1: the streaming services, They're spending a lot of money, and 116 00:07:36,080 --> 00:07:38,800 Speaker 1: they decide they're going to cut back on the number 117 00:07:38,800 --> 00:07:40,600 Speaker 1: of services or they're not going to stick around as 118 00:07:40,640 --> 00:07:43,120 Speaker 1: long as they previously did. And so that could re 119 00:07:43,200 --> 00:07:47,840 Speaker 1: accelerate churn. And and that's got you implications for you know, 120 00:07:47,960 --> 00:07:51,680 Speaker 1: operating metrics, cash flow metrics, um, and really the financial 121 00:07:51,680 --> 00:07:56,040 Speaker 1: performances for the media companies. Well, certainly there's other factors 122 00:07:56,080 --> 00:07:58,040 Speaker 1: to talk about, and we'll get to theatrical and a 123 00:07:58,160 --> 00:08:01,080 Speaker 1: cent in a second, but let's dick with streaming for 124 00:08:01,120 --> 00:08:04,400 Speaker 1: a second. It's where all the eyeballs are right now 125 00:08:04,440 --> 00:08:09,440 Speaker 1: in terms of the marketplace and what Netflix has gone 126 00:08:09,480 --> 00:08:13,640 Speaker 1: through recently. Such a dramatic, dramatic turn of events we 127 00:08:13,680 --> 00:08:16,400 Speaker 1: saw coming out of last quarter, and so I wanted 128 00:08:16,440 --> 00:08:19,600 Speaker 1: to get your take. Uh, is it as bad as 129 00:08:19,640 --> 00:08:23,280 Speaker 1: it looks right now for Netflix? Or perhaps the market 130 00:08:24,120 --> 00:08:27,240 Speaker 1: is perhaps ra acting a little too strongly? What do 131 00:08:27,280 --> 00:08:31,040 Speaker 1: you think? Well, so, I mean there's there's the growth aspect, 132 00:08:31,080 --> 00:08:34,840 Speaker 1: which is is certainly a concern. Um. I think you 133 00:08:34,840 --> 00:08:37,960 Speaker 1: know a lot of the concerns that that came out 134 00:08:37,840 --> 00:08:40,679 Speaker 1: in the quarterly earnings were ones that the market had 135 00:08:40,720 --> 00:08:46,160 Speaker 1: been focusing on and asking questions of Netflix. However, um, 136 00:08:46,960 --> 00:08:49,800 Speaker 1: given the growth that they had had previously, they it 137 00:08:50,000 --> 00:08:52,600 Speaker 1: wasn't a concern certainly for the equity markets. And that's 138 00:08:53,080 --> 00:08:57,120 Speaker 1: and that's you know, password sharing, which as as um 139 00:08:57,240 --> 00:09:00,200 Speaker 1: if you look at the results, they're essentially at you know, 140 00:09:00,240 --> 00:09:03,079 Speaker 1: if you include Pastor, Chary Summer, un thanky billion household 141 00:09:03,120 --> 00:09:05,920 Speaker 1: penetrated in the United States and Canada. That's basically a 142 00:09:05,920 --> 00:09:11,160 Speaker 1: fully penetrated mature market. UM and so UM. You know 143 00:09:11,400 --> 00:09:14,840 Speaker 1: that the question that that has been asked of them 144 00:09:15,080 --> 00:09:18,040 Speaker 1: is and this kind of addresses UM. This will impact 145 00:09:18,080 --> 00:09:20,240 Speaker 1: a lot of the media companies in the next couple 146 00:09:20,240 --> 00:09:22,520 Speaker 1: of years as well. As you start to get mature 147 00:09:22,800 --> 00:09:24,760 Speaker 1: and as you start to see growth start to slow, 148 00:09:25,000 --> 00:09:27,240 Speaker 1: what do you do as a result of that? Do 149 00:09:27,400 --> 00:09:29,840 Speaker 1: you which would be the easiest thing? Would you would do? 150 00:09:30,000 --> 00:09:33,760 Speaker 1: Increase content spending, Push more content in front of consumers. 151 00:09:33,800 --> 00:09:37,520 Speaker 1: That will energize UM that that will energize subscriber growth 152 00:09:38,320 --> 00:09:40,760 Speaker 1: going forward. However, there's a price to that. If you 153 00:09:40,760 --> 00:09:43,000 Speaker 1: are going to be spending more money, you're gonna push 154 00:09:43,000 --> 00:09:45,560 Speaker 1: out your break even points. You could go cash flow 155 00:09:45,600 --> 00:09:48,920 Speaker 1: negative in a way. That's a bit of undisciplined spending 156 00:09:49,520 --> 00:09:52,400 Speaker 1: for the sake of growth. And as we saw with 157 00:09:52,400 --> 00:09:55,600 Speaker 1: with Netflix and its earnings, the market currently doesn't like that, 158 00:09:55,720 --> 00:10:00,760 Speaker 1: and so UM and so undisciplined spending to just grow 159 00:10:01,280 --> 00:10:04,320 Speaker 1: isn't the solution. You have to come up with other 160 00:10:04,400 --> 00:10:08,240 Speaker 1: alternatives to try to re energize growth, or certainly to 161 00:10:08,280 --> 00:10:11,400 Speaker 1: try to to try to reduce chart. And and that's 162 00:10:11,440 --> 00:10:12,720 Speaker 1: something that I think a lot of the companies are 163 00:10:12,720 --> 00:10:15,760 Speaker 1: working on and we'll see over the next couple of quarters. 164 00:10:16,080 --> 00:10:19,000 Speaker 1: I think companies experimenting on ways to try to reduce chart. 165 00:10:20,160 --> 00:10:23,480 Speaker 1: And what do you think about the competitive set surrounding Netflix? 166 00:10:23,720 --> 00:10:26,320 Speaker 1: It feels like once a week I I see a 167 00:10:26,400 --> 00:10:31,640 Speaker 1: survey of some kind addressing just how many services the 168 00:10:31,720 --> 00:10:34,880 Speaker 1: average US home or global home needs is at four? 169 00:10:35,000 --> 00:10:40,640 Speaker 1: Is at six? Is? It's whatever? Um? What do you think? So? 170 00:10:40,760 --> 00:10:44,280 Speaker 1: I mean, certainly the number of services that people are 171 00:10:44,320 --> 00:10:48,560 Speaker 1: signing up for UM. I mean I I can't how 172 00:10:48,559 --> 00:10:52,199 Speaker 1: many I have. I think I have eight? Um, that's unsustainable, 173 00:10:52,400 --> 00:10:55,840 Speaker 1: especially if consumers are feeling stressed, they're going to cut 174 00:10:55,840 --> 00:10:58,160 Speaker 1: back on the number of services. And is three is 175 00:10:58,200 --> 00:11:01,160 Speaker 1: it too? It hard to tell. I mean we're so 176 00:11:01,240 --> 00:11:04,040 Speaker 1: early on in terms of the evolution of these services, 177 00:11:04,679 --> 00:11:08,520 Speaker 1: UM that I think I think the jury still lot 178 00:11:08,559 --> 00:11:10,680 Speaker 1: on how many of these services people will sign up for. 179 00:11:10,720 --> 00:11:12,719 Speaker 1: I think you're gonna get a lot of experimentation over 180 00:11:12,720 --> 00:11:14,560 Speaker 1: the next year or two. In terms of business models. 181 00:11:15,040 --> 00:11:17,480 Speaker 1: You know we're seeing Netflix, say you know, they'll they 182 00:11:17,480 --> 00:11:22,080 Speaker 1: may introduce UM an advertising UM service. Disney is talked 183 00:11:22,080 --> 00:11:25,520 Speaker 1: about doing an advertising service. That's certainly uh, you know, 184 00:11:25,760 --> 00:11:29,680 Speaker 1: could could benefit those companies because offering a lower price 185 00:11:29,760 --> 00:11:33,240 Speaker 1: point might get them to stay longer with those services. Um. 186 00:11:33,280 --> 00:11:36,360 Speaker 1: You may see bundling be different. You may see um, 187 00:11:37,000 --> 00:11:39,320 Speaker 1: you know, bundling of all of the services. So I 188 00:11:39,320 --> 00:11:41,280 Speaker 1: think you're gonna see a lot of experimentation over the 189 00:11:41,280 --> 00:11:44,240 Speaker 1: next couple of years and trying to draw conclusions from 190 00:11:44,320 --> 00:11:47,600 Speaker 1: what companies are experiencing today. UM. I think in the 191 00:11:47,600 --> 00:11:50,920 Speaker 1: next couple of year, months and years, we're gonna have 192 00:11:50,960 --> 00:11:53,560 Speaker 1: to have, you know, a different set of conversations about 193 00:11:53,640 --> 00:11:56,719 Speaker 1: what that means for the streaming service. What do you 194 00:11:56,760 --> 00:12:00,560 Speaker 1: think about the hand Warner Brothers Discovery is playing with, 195 00:12:00,720 --> 00:12:03,160 Speaker 1: especially as it relates to what you brought up with bundling, 196 00:12:03,200 --> 00:12:09,080 Speaker 1: because here they are with HBO, Max Discovery, Rest in Peace, 197 00:12:09,320 --> 00:12:13,440 Speaker 1: CNN plus Uh, how does it all come together, do 198 00:12:13,520 --> 00:12:17,400 Speaker 1: you think for this company in the streaming space? Yeah, Look, 199 00:12:17,440 --> 00:12:19,840 Speaker 1: I think one of the things that that kind of 200 00:12:19,880 --> 00:12:22,959 Speaker 1: got lost over the last couple of years, especially with 201 00:12:23,320 --> 00:12:27,199 Speaker 1: Warner Media being embedded with it, the larger A T 202 00:12:27,320 --> 00:12:32,040 Speaker 1: and T family was how powerful a company, um Warner 203 00:12:32,080 --> 00:12:35,680 Speaker 1: Media is with its its legacy of you know, of 204 00:12:35,800 --> 00:12:38,880 Speaker 1: content going all the way back to the beginning of 205 00:12:38,880 --> 00:12:41,840 Speaker 1: of the film and TV industry. And so there's a 206 00:12:41,840 --> 00:12:44,120 Speaker 1: lot of content there. And oh, by the way, they 207 00:12:44,120 --> 00:12:46,960 Speaker 1: have Warner Brothers, which is one of the premier studios 208 00:12:46,960 --> 00:12:49,120 Speaker 1: in the world, and their ability to generate a lot 209 00:12:49,160 --> 00:12:52,200 Speaker 1: of content, uh, you know, a lot of which they 210 00:12:52,240 --> 00:12:53,920 Speaker 1: used to sell the third parties. Now a lot of 211 00:12:53,920 --> 00:12:57,360 Speaker 1: that would go towards UM the you know, the HBO 212 00:12:57,440 --> 00:13:01,040 Speaker 1: Max streaming service. So I wouldn't just count their ability 213 00:13:01,120 --> 00:13:03,920 Speaker 1: to be one of the long term survivors in the 214 00:13:03,920 --> 00:13:08,400 Speaker 1: streaming awards. Got it. I want to get back to 215 00:13:08,760 --> 00:13:12,080 Speaker 1: what we raised earlier with regards to the state of 216 00:13:12,120 --> 00:13:16,360 Speaker 1: the theatrical business. We're having this conversation the weekend that 217 00:13:16,640 --> 00:13:22,640 Speaker 1: Top Gun returns to theaters. Very high expectations there. Uh. 218 00:13:22,679 --> 00:13:27,360 Speaker 1: I think even best case scenario for Top Gun, for 219 00:13:27,440 --> 00:13:31,760 Speaker 1: the entire movie business, it's never that total box office, 220 00:13:31,800 --> 00:13:34,920 Speaker 1: whether global or domestic, is just never going to get 221 00:13:34,920 --> 00:13:39,679 Speaker 1: back what it used to be, in part because the pandemic, 222 00:13:39,800 --> 00:13:43,880 Speaker 1: I think will shrink the theatrical business. Whether we're talking 223 00:13:43,920 --> 00:13:48,080 Speaker 1: about just the footprint of the exhibition business, or just 224 00:13:48,720 --> 00:13:51,400 Speaker 1: more to the point, the kinds of movies that are 225 00:13:51,480 --> 00:13:56,480 Speaker 1: viable in theaters, which you know, Marvel a handful of 226 00:13:56,520 --> 00:13:59,200 Speaker 1: horror movies and and and and that's about it as 227 00:13:59,240 --> 00:14:01,560 Speaker 1: far as I see it. How do you see the 228 00:14:01,640 --> 00:14:06,560 Speaker 1: prospects for theatrical Yeah, it's it's very interesting. Um. I've 229 00:14:06,559 --> 00:14:10,439 Speaker 1: been I mean anecdotically, I've been to the theater seven 230 00:14:10,520 --> 00:14:14,040 Speaker 1: or eight times since the pandemic ended, and or I 231 00:14:14,040 --> 00:14:17,200 Speaker 1: guess since the theaters reopened. I've yet to be in 232 00:14:17,240 --> 00:14:20,040 Speaker 1: a theater that is crowded. Um. I think. I think 233 00:14:20,080 --> 00:14:22,840 Speaker 1: one of the challenges at the moment is that there's 234 00:14:23,480 --> 00:14:27,120 Speaker 1: significant parts of the population that are are a bit 235 00:14:27,200 --> 00:14:30,640 Speaker 1: uncomfortable going back into the theater. Certainly, um. You know, 236 00:14:30,720 --> 00:14:34,040 Speaker 1: young adults and teenagers and you know twenty five year 237 00:14:34,080 --> 00:14:36,640 Speaker 1: old are comfortable going back, and so they're they're the 238 00:14:36,640 --> 00:14:38,760 Speaker 1: ones who are who are flocking to the theaters to 239 00:14:38,800 --> 00:14:42,880 Speaker 1: watch all those um um those superhero movies. Children. On 240 00:14:42,920 --> 00:14:45,880 Speaker 1: the other hand, parents are a bit uncomfortable taking them 241 00:14:45,880 --> 00:14:48,760 Speaker 1: there and so they've been slower to come back, as 242 00:14:48,800 --> 00:14:51,920 Speaker 1: are are are older adults. You know, the ones who 243 00:14:51,920 --> 00:14:54,000 Speaker 1: would go and see comedies and dramas and things like that. 244 00:14:54,800 --> 00:14:57,920 Speaker 1: I think those will relaxed as people get more comfortable 245 00:14:57,960 --> 00:15:02,000 Speaker 1: with the idea that UM that you know they're vaccinated 246 00:15:02,160 --> 00:15:04,200 Speaker 1: and that they aren't going to get sick by going 247 00:15:04,240 --> 00:15:07,160 Speaker 1: to movie theaters. But I do agree with your basic premise, 248 00:15:07,200 --> 00:15:10,040 Speaker 1: which is I think longer term, the box office is 249 00:15:10,120 --> 00:15:13,480 Speaker 1: going to struggle to come back to pre COVID pre 250 00:15:13,640 --> 00:15:17,480 Speaker 1: pandemic levels UM. The number of movies being released into 251 00:15:17,600 --> 00:15:22,040 Speaker 1: theaters has declined. It's unlikely to come back to the 252 00:15:22,120 --> 00:15:25,440 Speaker 1: levels that you previous saw. Dramas and comedies they worked 253 00:15:25,560 --> 00:15:28,800 Speaker 1: much better on a streaming service, or at least that's 254 00:15:28,800 --> 00:15:31,160 Speaker 1: what the studios seem to think, and so putting them 255 00:15:31,280 --> 00:15:34,280 Speaker 1: into theaters UM is going to be a bit of 256 00:15:34,280 --> 00:15:36,920 Speaker 1: a challenge. I don't think we're going to go back 257 00:15:36,960 --> 00:15:39,440 Speaker 1: to the you know, the days where you had day 258 00:15:39,440 --> 00:15:43,160 Speaker 1: and date releases, or that studios would would take higher 259 00:15:43,200 --> 00:15:46,360 Speaker 1: profile movies and put them directly into their streaming services. 260 00:15:46,400 --> 00:15:48,240 Speaker 1: I think the studios have learned a lesson over the 261 00:15:48,320 --> 00:15:51,600 Speaker 1: last year or so that that putting a a a 262 00:15:52,360 --> 00:15:57,520 Speaker 1: movie through a theatrical release UM benefits the long term. UM. 263 00:15:57,560 --> 00:16:00,680 Speaker 1: The long the long term value of that particular film. Um, 264 00:16:00,680 --> 00:16:04,480 Speaker 1: you have better discovery, you have franchise building. All of 265 00:16:04,520 --> 00:16:07,480 Speaker 1: those things are clear. And so yes, we've gone from 266 00:16:07,560 --> 00:16:10,720 Speaker 1: ninety days to potentially forty five days for for a 267 00:16:10,800 --> 00:16:14,400 Speaker 1: release window. But I don't think, um, but I don't 268 00:16:14,440 --> 00:16:17,160 Speaker 1: think that you are going to have you know, the 269 00:16:18,240 --> 00:16:20,160 Speaker 1: fear that everyone has, which is or many people have, 270 00:16:20,480 --> 00:16:25,160 Speaker 1: which is that the theatrical window completely disappears. Having said that, 271 00:16:25,480 --> 00:16:27,760 Speaker 1: now we have an opportunity for a lot of companies, 272 00:16:27,880 --> 00:16:30,640 Speaker 1: and Netflix is of the world, the app the Apples 273 00:16:30,680 --> 00:16:36,239 Speaker 1: and the Amazons, to put more movies into the theaters. Um, 274 00:16:36,280 --> 00:16:38,240 Speaker 1: there's a lot of screens that are available. They can 275 00:16:38,280 --> 00:16:44,440 Speaker 1: take advantage of that. We'll we'll see what happens. We'll 276 00:16:44,440 --> 00:16:54,240 Speaker 1: be back with Navin Sarma after this. We're back with 277 00:16:54,400 --> 00:16:59,640 Speaker 1: Navin Sarma, Senior director of SMP Global Ratings. What you 278 00:16:59,680 --> 00:17:03,960 Speaker 1: were saying with regard to the pandemic overhang on the 279 00:17:03,960 --> 00:17:08,280 Speaker 1: theatrical business, I'm wondering how you see other out of 280 00:17:08,400 --> 00:17:16,600 Speaker 1: home media businesses faring. Whether we're talking about theme parks, concerts, Broadway, uh, 281 00:17:16,680 --> 00:17:19,560 Speaker 1: all of which have took taken some serious lumps in 282 00:17:19,600 --> 00:17:22,080 Speaker 1: the past few years. But also have shown a lot 283 00:17:22,119 --> 00:17:26,480 Speaker 1: of resilience. UM. Longer term, how are you feeling about 284 00:17:26,520 --> 00:17:30,240 Speaker 1: those out of home businesses. Experiential is the word that 285 00:17:30,320 --> 00:17:33,680 Speaker 1: all the media companies are out throwing around. So consumers 286 00:17:33,760 --> 00:17:36,159 Speaker 1: don't just want to sit on there, you know, in 287 00:17:36,200 --> 00:17:38,880 Speaker 1: their chairs and and have stuff happen in front of them. 288 00:17:39,200 --> 00:17:41,800 Speaker 1: They want to get out there and experience it, whether 289 00:17:41,840 --> 00:17:44,439 Speaker 1: it's concerts or going to theme parks or going to 290 00:17:44,480 --> 00:17:48,480 Speaker 1: sporting events. I think that's where we think consumers are 291 00:17:48,520 --> 00:17:52,000 Speaker 1: going to really push the media sector. Um. We've kind 292 00:17:52,000 --> 00:17:55,040 Speaker 1: of seen that already, right, UM. You know, the theme 293 00:17:55,080 --> 00:17:58,240 Speaker 1: parks have been have done incredibly well. They may not 294 00:17:58,320 --> 00:18:03,480 Speaker 1: necessarily back to occupancy, but they are. They are crowded, 295 00:18:03,520 --> 00:18:06,920 Speaker 1: and people are signing up and going to those steam parks. UM. 296 00:18:07,200 --> 00:18:11,400 Speaker 1: Concerts and especially the concert venues are doing quite well. 297 00:18:11,800 --> 00:18:15,000 Speaker 1: And we've seen a number of um of concerts get 298 00:18:15,000 --> 00:18:17,000 Speaker 1: announced for next year. So next year I think will 299 00:18:17,040 --> 00:18:19,959 Speaker 1: be a big year for for concerts. But I do 300 00:18:20,000 --> 00:18:22,560 Speaker 1: think people want to go out and actually interact with 301 00:18:22,720 --> 00:18:27,040 Speaker 1: the people, um, you know, an experience events rather than 302 00:18:27,080 --> 00:18:31,320 Speaker 1: just sit at home. Sure. UM, although and I think 303 00:18:31,320 --> 00:18:33,560 Speaker 1: to some degree that's being driven by the fact that 304 00:18:33,600 --> 00:18:37,040 Speaker 1: people because it was suppressed over the past two years 305 00:18:37,080 --> 00:18:41,760 Speaker 1: and sort of exploding now. I do wonder though, uh, 306 00:18:41,800 --> 00:18:46,679 Speaker 1: you know, if the pandemic continues to persist, continues to linger, 307 00:18:47,119 --> 00:18:51,840 Speaker 1: whether it's going to have a more deleterious effect than 308 00:18:52,440 --> 00:18:56,080 Speaker 1: than we might be envisioning here. I don't know. I 309 00:18:56,119 --> 00:18:59,680 Speaker 1: think at this point, Um, I think the majority of 310 00:18:59,720 --> 00:19:03,879 Speaker 1: the population is in effect moved on and you know, 311 00:19:03,920 --> 00:19:07,280 Speaker 1: and told our politicians, yeah, we might get sick, but 312 00:19:07,440 --> 00:19:09,600 Speaker 1: we think it's something that we can live with. So 313 00:19:09,760 --> 00:19:13,840 Speaker 1: I don't see, and we're certainly not anticipating our resurgence 314 00:19:13,880 --> 00:19:17,040 Speaker 1: of the pandemic leading to any kind of a shutdown 315 00:19:17,040 --> 00:19:20,159 Speaker 1: in the you know, in the in the in the 316 00:19:20,680 --> 00:19:24,000 Speaker 1: in the in the economy. I also wanted to ask 317 00:19:24,040 --> 00:19:28,200 Speaker 1: you about M and A and the and deal making, which, 318 00:19:28,680 --> 00:19:33,399 Speaker 1: you know, going back to our recession conversation, I think 319 00:19:33,560 --> 00:19:37,080 Speaker 1: is only going to get more difficult, which runs contrary 320 00:19:37,119 --> 00:19:40,920 Speaker 1: to the narrative that's been prevailing the past few years 321 00:19:40,960 --> 00:19:45,520 Speaker 1: that we're gonna seem more and more consolidation. Um, how 322 00:19:45,520 --> 00:19:48,480 Speaker 1: are you feeling about how the state of M and 323 00:19:48,520 --> 00:19:51,639 Speaker 1: A is playing out? Yeah? So so at the moment, 324 00:19:51,680 --> 00:19:55,480 Speaker 1: I mean it's interesting. So for the last ten years 325 00:19:55,560 --> 00:19:58,879 Speaker 1: or so, actually since the really the Great Recession, interest 326 00:19:59,000 --> 00:20:02,320 Speaker 1: rights have been incredib really low. UM. The Fed cut 327 00:20:02,359 --> 00:20:05,199 Speaker 1: interest rates, you know, right at the beginning of them, 328 00:20:05,320 --> 00:20:07,480 Speaker 1: of the Great pro Session, and they kept it very low. 329 00:20:07,520 --> 00:20:09,920 Speaker 1: And they they you know, they kept right through the 330 00:20:09,960 --> 00:20:13,800 Speaker 1: pandemic to really stimulate economic growth. And that had some 331 00:20:13,840 --> 00:20:18,359 Speaker 1: side effects or effects and impacted the It made money 332 00:20:18,560 --> 00:20:20,679 Speaker 1: very cheap for deal making an M and A. And 333 00:20:20,720 --> 00:20:22,800 Speaker 1: so we saw a lot of deal making over the 334 00:20:22,880 --> 00:20:26,600 Speaker 1: last number of years, UM financed by by cheap money. 335 00:20:28,080 --> 00:20:31,240 Speaker 1: What you're and you know, but what you're seeing today, however, 336 00:20:31,680 --> 00:20:33,680 Speaker 1: is that the cost of capital, especially over the last 337 00:20:33,720 --> 00:20:36,639 Speaker 1: couple of weeks, is the Fed has ratchet up interest 338 00:20:36,720 --> 00:20:39,720 Speaker 1: rates UM. The cost of capital has gone up considerably, 339 00:20:40,119 --> 00:20:42,800 Speaker 1: and that definitely has hurt dealmaking. And M and A. 340 00:20:43,400 --> 00:20:46,199 Speaker 1: We've we've heard anecdotal stories of deals getting to the 341 00:20:46,240 --> 00:20:50,359 Speaker 1: finish line but dying because of expensive financing. Now, having 342 00:20:50,400 --> 00:20:54,080 Speaker 1: said that, if we go into an economic downturn, UM 343 00:20:54,119 --> 00:20:57,359 Speaker 1: and the Fed decides that they do need to um 344 00:20:57,400 --> 00:20:59,480 Speaker 1: you know, cut interest rates to try to once against 345 00:20:59,480 --> 00:21:03,000 Speaker 1: stimulated and on my growth, you certainly could see deal 346 00:21:03,080 --> 00:21:04,920 Speaker 1: making them and a pick up and and look that 347 00:21:05,040 --> 00:21:07,199 Speaker 1: that tends to happen towards the end of ose session. 348 00:21:07,880 --> 00:21:12,080 Speaker 1: Companies have underperforming assets um that they'd like to shed. 349 00:21:12,600 --> 00:21:15,879 Speaker 1: You have companies that are that are underperforming because of 350 00:21:15,920 --> 00:21:18,879 Speaker 1: an economic recession, that are unable to meet their financial commitments. 351 00:21:19,520 --> 00:21:23,040 Speaker 1: You get bankruptcies, especially increasing after we come out of 352 00:21:23,080 --> 00:21:25,800 Speaker 1: a recession. You get for sales. So I think you 353 00:21:25,840 --> 00:21:27,520 Speaker 1: could you could see a return to that, but a 354 00:21:27,600 --> 00:21:30,200 Speaker 1: lot of that would depend on what happens to interest 355 00:21:30,320 --> 00:21:34,960 Speaker 1: rates going forward. And I'm thinking that what's going on 356 00:21:35,160 --> 00:21:39,960 Speaker 1: in Washington will certainly come into bear here in terms 357 00:21:40,080 --> 00:21:43,439 Speaker 1: of the potential for regulation. There seems to be an 358 00:21:43,480 --> 00:21:47,040 Speaker 1: increasing focus on antitrust. Uh. Do you think that's going 359 00:21:47,080 --> 00:21:49,920 Speaker 1: to weigh on the deal making as well? I think 360 00:21:49,920 --> 00:21:51,960 Speaker 1: it's a good it's a good point. I think it 361 00:21:52,040 --> 00:21:56,119 Speaker 1: a weigh on the the desire of some companies to 362 00:21:56,680 --> 00:22:01,760 Speaker 1: actually do deals. Clearly, the regular there's in Washington. The 363 00:22:01,800 --> 00:22:06,800 Speaker 1: politicians of Washington are very focused on the tech industry um, 364 00:22:07,080 --> 00:22:11,000 Speaker 1: and so we could see them step in and and 365 00:22:11,240 --> 00:22:16,439 Speaker 1: potentially um, you know, prevent or try to prevent deals 366 00:22:16,520 --> 00:22:20,200 Speaker 1: happening that involved the tech companies. Uh, you know, we 367 00:22:20,280 --> 00:22:26,000 Speaker 1: saw some comments from the FTC about Amazon's acquisition of MGM, 368 00:22:26,200 --> 00:22:28,119 Speaker 1: and in the grand scheme of things, MGM is a 369 00:22:28,400 --> 00:22:31,639 Speaker 1: you know, is tiny compared to Amazon, and yet that 370 00:22:31,840 --> 00:22:35,760 Speaker 1: raised a number of concerns in Washington over that deal. 371 00:22:36,359 --> 00:22:39,119 Speaker 1: So it kind of depends on who's getting involved in 372 00:22:39,200 --> 00:22:43,120 Speaker 1: those transactions. I think with media companies, if you saw, 373 00:22:43,400 --> 00:22:46,879 Speaker 1: you know, further consolidation in certain sectors, you know, if 374 00:22:46,920 --> 00:22:49,960 Speaker 1: there's a consolidation of movie studios, that might raise some 375 00:22:50,480 --> 00:22:55,440 Speaker 1: some regulatory issues. UM. Certainly, if cable companies decide that 376 00:22:55,480 --> 00:22:58,040 Speaker 1: they're going to try to merge, um, that could raise 377 00:22:58,119 --> 00:23:01,840 Speaker 1: some issues. But I do think the especially you know, 378 00:23:01,920 --> 00:23:04,520 Speaker 1: the people who have the money today, it's the tech companies. 379 00:23:05,160 --> 00:23:07,320 Speaker 1: They may be limited what they can do given the 380 00:23:08,000 --> 00:23:12,000 Speaker 1: height and focus on on their businesses. Staying on tech 381 00:23:12,160 --> 00:23:16,080 Speaker 1: for a second, you know, it's an interesting time because 382 00:23:16,800 --> 00:23:20,240 Speaker 1: we've looked at these businesses as too big to fail 383 00:23:20,440 --> 00:23:23,240 Speaker 1: for so long. But here we are coming off a 384 00:23:23,320 --> 00:23:27,600 Speaker 1: week where you know, we saw Evan Spiegel ats Snap 385 00:23:27,840 --> 00:23:32,240 Speaker 1: a revised guidance which sent the stocks for anyone in 386 00:23:32,359 --> 00:23:39,080 Speaker 1: digital advertising plummeting. We're seeing meta take a huge hit 387 00:23:39,240 --> 00:23:43,400 Speaker 1: coming out of their previous quarter. Are we finally kind 388 00:23:43,440 --> 00:23:46,119 Speaker 1: of as we saw with Netflix. Are we finally seeing 389 00:23:46,440 --> 00:23:50,440 Speaker 1: companies that seem too big to fail, too successful to stumble? 390 00:23:51,800 --> 00:23:55,160 Speaker 1: Are we perhaps moving into a new era of understanding 391 00:23:55,359 --> 00:23:59,520 Speaker 1: just how incredible these companies are. I think what's interesting 392 00:23:59,760 --> 00:24:02,480 Speaker 1: is is the discussion I was at a conference for 393 00:24:03,000 --> 00:24:04,680 Speaker 1: for the last couple of days. In fact, I was 394 00:24:04,720 --> 00:24:07,879 Speaker 1: at the conference where Snap spoke, and the question that 395 00:24:07,920 --> 00:24:12,200 Speaker 1: everyone was asking was is this a Snap platform question issue? 396 00:24:12,800 --> 00:24:15,320 Speaker 1: M Are they just losing share to the platforms like 397 00:24:15,400 --> 00:24:19,080 Speaker 1: TikTok or is this a you know, the forerunner of 398 00:24:19,640 --> 00:24:23,760 Speaker 1: um of an advertising decline or pressure on advertising? So 399 00:24:24,400 --> 00:24:26,760 Speaker 1: when you when you when you look at digital advertising 400 00:24:26,880 --> 00:24:29,880 Speaker 1: on tech and social media platforms, they may be more 401 00:24:30,000 --> 00:24:33,040 Speaker 1: vulnerable in an economic downturn because so much of that 402 00:24:33,119 --> 00:24:37,239 Speaker 1: advertising is skewed towards small and mid sized businesses UM 403 00:24:37,280 --> 00:24:40,200 Speaker 1: and then they certainly get hurt in a recession. In addition, 404 00:24:40,400 --> 00:24:44,119 Speaker 1: when you think about the ad funnel, advertisers allocate bottom 405 00:24:44,160 --> 00:24:47,920 Speaker 1: of the funnel transactional ad dollars to digital platforms, and 406 00:24:48,040 --> 00:24:50,159 Speaker 1: these these may be more vulnerable. These dollars may be 407 00:24:50,240 --> 00:24:54,200 Speaker 1: more vulnerable if consumers cut back on spending. Um, you know, 408 00:24:54,359 --> 00:24:56,200 Speaker 1: and so, and when you look at top of the 409 00:24:56,240 --> 00:24:59,240 Speaker 1: funnel brand advertising, they may that may see less decline 410 00:24:59,320 --> 00:25:02,840 Speaker 1: depending on the session scenario, which may actually benefit television. 411 00:25:03,359 --> 00:25:06,960 Speaker 1: So um, so, you know, what we're seeing with the 412 00:25:07,000 --> 00:25:11,040 Speaker 1: tech companies might be specific to Snap or it might 413 00:25:11,160 --> 00:25:14,680 Speaker 1: be you know, our forerunner of of you know, pressure 414 00:25:14,720 --> 00:25:20,840 Speaker 1: on digital advertising intercession. Um, You're you're mentioning s spending 415 00:25:21,760 --> 00:25:24,560 Speaker 1: made me think of a different area of spending that 416 00:25:24,640 --> 00:25:28,240 Speaker 1: I'm curious about, which is content spend, which you know 417 00:25:28,880 --> 00:25:33,840 Speaker 1: has risen astronomically in recent years, primarily because of the 418 00:25:34,040 --> 00:25:39,320 Speaker 1: competitive streaming marketplace. And I have to wonder, you know, certainly, 419 00:25:39,400 --> 00:25:43,040 Speaker 1: as we've seen you know, Disney recently announcing that they're 420 00:25:43,040 --> 00:25:46,800 Speaker 1: gonna shave a billion dollars off an initial spending projection 421 00:25:46,880 --> 00:25:49,719 Speaker 1: they gave earlier in the year, We've seen David's as 422 00:25:49,800 --> 00:25:52,639 Speaker 1: Love and Warner Discovery more than one say hey, you know, 423 00:25:52,720 --> 00:25:55,480 Speaker 1: we're not going to get crazy here. Are we on 424 00:25:55,600 --> 00:25:59,919 Speaker 1: the verge of of a broader base pullback in content spend? 425 00:26:00,240 --> 00:26:03,560 Speaker 1: And what would that mean? Yeah, that's the hundred billion 426 00:26:03,600 --> 00:26:10,879 Speaker 1: dollar questions exactly exactly. I think at the moment in Hollywood. 427 00:26:10,880 --> 00:26:14,360 Speaker 1: The message that um that we're hearing, as you point out, 428 00:26:14,840 --> 00:26:16,440 Speaker 1: is that all of the companies are going to be 429 00:26:16,480 --> 00:26:20,160 Speaker 1: disciplined in spending to growth subscribers. It's not that they're 430 00:26:20,160 --> 00:26:22,639 Speaker 1: going to cut back on spending, it's that they're going 431 00:26:22,720 --> 00:26:27,320 Speaker 1: to control the growth of spending. UM yeah, to you know, 432 00:26:27,440 --> 00:26:31,760 Speaker 1: to to to be more disciplined and and and and 433 00:26:31,880 --> 00:26:34,199 Speaker 1: look for you know, and and grow what they would call, 434 00:26:34,280 --> 00:26:38,680 Speaker 1: you know, financially responsible subscribers. So I don't think, I think, 435 00:26:38,760 --> 00:26:41,840 Speaker 1: I don't think the fears of them cutting spending are 436 00:26:43,080 --> 00:26:45,920 Speaker 1: are accurate. I think I think what what we should 437 00:26:45,920 --> 00:26:49,080 Speaker 1: be asking the media companies is is you know, how 438 00:26:49,160 --> 00:26:51,680 Speaker 1: much are they going to increase spending this year to 439 00:26:51,800 --> 00:26:53,560 Speaker 1: next year and then the following year and then the 440 00:26:53,640 --> 00:26:55,920 Speaker 1: following year. I think that that where that is where 441 00:26:55,960 --> 00:26:58,720 Speaker 1: we're going to see the discipline, um and and and 442 00:26:58,840 --> 00:27:00,399 Speaker 1: look at the end of the day, what that results 443 00:27:00,440 --> 00:27:05,440 Speaker 1: in is that they may they get through financial stability, 444 00:27:05,840 --> 00:27:08,800 Speaker 1: you know, break even on their services faster. And and 445 00:27:08,880 --> 00:27:11,240 Speaker 1: that's what the current um, you know, equity markets are 446 00:27:11,560 --> 00:27:14,720 Speaker 1: rewarding for. I think one of the concerns that we've 447 00:27:14,840 --> 00:27:17,800 Speaker 1: raised as a result of that is okay. So let's 448 00:27:17,800 --> 00:27:19,440 Speaker 1: say we get to the end of this year and 449 00:27:19,560 --> 00:27:24,240 Speaker 1: subscriber growth is weaker than the companies that anticipated chun 450 00:27:24,359 --> 00:27:27,200 Speaker 1: might be higher because of the economic recession. What do 451 00:27:27,320 --> 00:27:30,439 Speaker 1: the media companies do. Do they back off this pledge 452 00:27:30,480 --> 00:27:33,320 Speaker 1: to be disciplined in their spending and spend a lot 453 00:27:33,440 --> 00:27:36,399 Speaker 1: more to try to re energize growth, or do they 454 00:27:37,119 --> 00:27:41,000 Speaker 1: like what Netflix has done, which is, you know, look 455 00:27:41,040 --> 00:27:43,240 Speaker 1: at their spending and say that the growth of spending 456 00:27:43,280 --> 00:27:46,320 Speaker 1: will go in line with the revenue growth, and so 457 00:27:46,520 --> 00:27:49,359 Speaker 1: be more and remain and continue to remain discipline and 458 00:27:49,400 --> 00:27:53,680 Speaker 1: how they spend on content. I can't imagine that we're 459 00:27:53,680 --> 00:27:57,160 Speaker 1: going to see an increased, you know, ratcheting up of spending. 460 00:27:57,280 --> 00:28:00,200 Speaker 1: And if anything, what we may see that will bring 461 00:28:00,320 --> 00:28:04,080 Speaker 1: down spending is with regard to the streaming business, somebody's 462 00:28:04,119 --> 00:28:06,600 Speaker 1: going to step away from the table. Somebody is going 463 00:28:06,680 --> 00:28:08,879 Speaker 1: to say this is getting too rich for my blood. 464 00:28:09,240 --> 00:28:11,320 Speaker 1: Doesn't necessarily mean they you know, I think there's a 465 00:28:11,359 --> 00:28:13,960 Speaker 1: few scenarios there. Number one, we can see someone pull 466 00:28:14,040 --> 00:28:17,320 Speaker 1: out and revert to the Sony model of hey, we're 467 00:28:17,320 --> 00:28:21,040 Speaker 1: an arm supplier, everyone could buy our content, or we're 468 00:28:21,080 --> 00:28:25,640 Speaker 1: going to see perhaps a consolidation among players, and there's 469 00:28:25,680 --> 00:28:30,800 Speaker 1: been plenty of speculation about Paramount and maybe a spun 470 00:28:30,880 --> 00:28:36,160 Speaker 1: off NBC Universal UM. As I mentioned those companies, I'm 471 00:28:36,160 --> 00:28:39,360 Speaker 1: particularly curious about Paramount and what you think about the 472 00:28:39,440 --> 00:28:42,040 Speaker 1: hand that they're playing. Uh, you know what, what would 473 00:28:42,080 --> 00:28:46,560 Speaker 1: you be advising Sherry Redstone in this marketplace? Yeah, it's 474 00:28:46,600 --> 00:28:49,640 Speaker 1: a it's a good question. And I think I think 475 00:28:49,680 --> 00:28:51,800 Speaker 1: one of the things that we do forget when we 476 00:28:51,920 --> 00:28:54,719 Speaker 1: look at the US media companies and we size up 477 00:28:55,120 --> 00:29:00,080 Speaker 1: Paramount versus Disney and and and Warner UM And and 478 00:29:00,160 --> 00:29:04,680 Speaker 1: Warner Brothers. Discovery, Disney, and Warner Brothers are massive companies 479 00:29:04,800 --> 00:29:10,200 Speaker 1: and massive global companies. UM far bigger than everybody else. 480 00:29:10,520 --> 00:29:13,800 Speaker 1: Paramount is actually a global media company as well, and 481 00:29:13,840 --> 00:29:16,680 Speaker 1: they've got tremendous scale. And so I think one of 482 00:29:16,720 --> 00:29:19,080 Speaker 1: the one of the one of the things we forget 483 00:29:19,080 --> 00:29:22,120 Speaker 1: about is is what is our comparison to if we're 484 00:29:22,320 --> 00:29:25,680 Speaker 1: just looking at US companies. Yes, Paramount has a scale problem. 485 00:29:25,760 --> 00:29:29,640 Speaker 1: If you look at Paramount versus the global media companies 486 00:29:29,680 --> 00:29:31,400 Speaker 1: and you throw on I t V, you throw at 487 00:29:31,400 --> 00:29:34,560 Speaker 1: the Bertles amount of a vending Paramount is a very, 488 00:29:34,720 --> 00:29:38,640 Speaker 1: very large diversified media company with with operations all over 489 00:29:38,680 --> 00:29:41,680 Speaker 1: the world. They've got a big Latin American operation, and 490 00:29:41,760 --> 00:29:45,400 Speaker 1: so I wouldn't discount their ability to be one of 491 00:29:45,440 --> 00:29:49,200 Speaker 1: the winners. Having said that, they certainly have more limited 492 00:29:49,240 --> 00:29:54,400 Speaker 1: financial resources than a Disney or or a Discovery UM, 493 00:29:54,560 --> 00:29:56,280 Speaker 1: and so they have to be a bit more careful 494 00:29:56,360 --> 00:30:00,880 Speaker 1: in what they do, especially internationally, what content they the Greenland, 495 00:30:01,040 --> 00:30:04,240 Speaker 1: and also what markets they operated. So the approach that 496 00:30:04,240 --> 00:30:07,320 Speaker 1: they've taken so far, which is they'll settle or license 497 00:30:07,360 --> 00:30:10,440 Speaker 1: some of their content UM and then in markets where 498 00:30:10,560 --> 00:30:13,640 Speaker 1: they don't think they can get a good return, they'll partner, 499 00:30:13,920 --> 00:30:17,080 Speaker 1: like what they are doing with UM with NBC in Europe. 500 00:30:17,480 --> 00:30:19,560 Speaker 1: I think that's a good financial model. I think that 501 00:30:19,720 --> 00:30:21,920 Speaker 1: that works as long as you remain discipline again once 502 00:30:22,000 --> 00:30:25,120 Speaker 1: in you're spending UM, and also in your expectations for 503 00:30:25,200 --> 00:30:30,160 Speaker 1: what growth it will be overseas. I think Comcast UH 504 00:30:30,720 --> 00:30:33,960 Speaker 1: is a bit similar in terms of that international scale 505 00:30:34,120 --> 00:30:38,240 Speaker 1: through Sky. Comcast, though, is a very different company because 506 00:30:38,520 --> 00:30:41,680 Speaker 1: they're in the pipes business, and I'm curious what you 507 00:30:41,840 --> 00:30:45,920 Speaker 1: think about that business. We talked a little about cord cutting, 508 00:30:46,040 --> 00:30:48,920 Speaker 1: but it's more than that. When you think about how 509 00:30:49,080 --> 00:30:53,040 Speaker 1: Comcast is really almost more a broad band company now 510 00:30:53,640 --> 00:30:57,960 Speaker 1: and they're in mobile. So how do you feel about 511 00:30:58,760 --> 00:31:02,880 Speaker 1: the broadband bis this and where Comcast stands there? Yeah, 512 00:31:02,880 --> 00:31:05,400 Speaker 1: and I'll say this about Comcasts as well as for 513 00:31:05,520 --> 00:31:09,360 Speaker 1: companies like Amazon and Apple. They've got businesses that are 514 00:31:09,400 --> 00:31:13,479 Speaker 1: far stronger than the media businesses that they own. UM, 515 00:31:13,560 --> 00:31:15,640 Speaker 1: and those are the businesses that they want to defend. 516 00:31:16,000 --> 00:31:20,720 Speaker 1: And so maybe not as much for Comcast because NBC 517 00:31:20,960 --> 00:31:24,000 Speaker 1: is a as your point at a global media company, 518 00:31:24,720 --> 00:31:29,080 Speaker 1: but media essences can be a retention tool for for 519 00:31:29,200 --> 00:31:32,640 Speaker 1: some of these companies to you offer the media at 520 00:31:32,920 --> 00:31:37,000 Speaker 1: you know, you you offer a media media video film 521 00:31:37,200 --> 00:31:42,440 Speaker 1: TV to your your subscribers, whether it's an Amazon or 522 00:31:42,600 --> 00:31:45,720 Speaker 1: it's an Apple, and you essentially give it to them 523 00:31:45,800 --> 00:31:47,719 Speaker 1: for free and say, if you sign up for our services, 524 00:31:47,800 --> 00:31:49,640 Speaker 1: you can get this as an add on. And so 525 00:31:50,400 --> 00:31:52,240 Speaker 1: you can use media as a retention to them. We 526 00:31:52,280 --> 00:31:54,120 Speaker 1: can talk a bit about you know what that means 527 00:31:54,200 --> 00:31:58,560 Speaker 1: for media in general. Comcast doesn't. Comcast has a similar 528 00:31:58,720 --> 00:32:01,920 Speaker 1: type of strategy, maybe not necessarily as there Conian is 529 00:32:01,960 --> 00:32:05,360 Speaker 1: what I just laid out, UM, but they are more 530 00:32:05,440 --> 00:32:07,720 Speaker 1: than willing to use media and they do this within 531 00:32:07,800 --> 00:32:12,200 Speaker 1: their their comcast broadband footprint. They offer Peacock for free 532 00:32:12,360 --> 00:32:15,240 Speaker 1: to consumers, and that's an attempt to keep customers on 533 00:32:15,360 --> 00:32:19,680 Speaker 1: their platform. Well, let's talk about that media as retention 534 00:32:19,760 --> 00:32:23,960 Speaker 1: tool strategy more broadly, because it's interesting when you look 535 00:32:24,000 --> 00:32:29,200 Speaker 1: at Amazon and Apple, media is really just a rounding error, 536 00:32:29,560 --> 00:32:33,840 Speaker 1: even though they are going to be spending huge amounts 537 00:32:33,920 --> 00:32:37,280 Speaker 1: of money, uh, compared to everything going on in media, 538 00:32:37,400 --> 00:32:41,000 Speaker 1: So in is weird counterintuitive ways. It almost like, well, 539 00:32:41,120 --> 00:32:43,480 Speaker 1: the best way to approach the media business is not 540 00:32:43,680 --> 00:32:48,440 Speaker 1: really to be focused on it, which sounds insane and 541 00:32:48,560 --> 00:32:52,400 Speaker 1: it and it is because if especially if you're you know, 542 00:32:52,520 --> 00:32:55,800 Speaker 1: if you're a media company and you've got returns that 543 00:32:55,960 --> 00:32:59,200 Speaker 1: you're trying to achieve on content, and some of your 544 00:32:59,240 --> 00:33:04,000 Speaker 1: competitors don't really care about the returns because they're looking 545 00:33:04,040 --> 00:33:07,840 Speaker 1: at their subscriber numbers. It's a hard thing to compete against. 546 00:33:08,000 --> 00:33:10,520 Speaker 1: How much are you willing to pay? There may be 547 00:33:10,640 --> 00:33:12,960 Speaker 1: discipline on the side of the traditional media companies in 548 00:33:13,080 --> 00:33:14,840 Speaker 1: terms of what they're willing to pay for a certain 549 00:33:14,880 --> 00:33:17,840 Speaker 1: piece of content, but that kind of goes out the 550 00:33:17,880 --> 00:33:20,280 Speaker 1: window when you're looking at some of these other companies 551 00:33:20,520 --> 00:33:23,400 Speaker 1: and so it makes it makes it an unbalanced playing 552 00:33:23,480 --> 00:33:28,080 Speaker 1: field for the traditional media companies. Yeah, but it is 553 00:33:28,160 --> 00:33:31,440 Speaker 1: a playing field that I'm enjoying watching immensely. And I 554 00:33:31,520 --> 00:33:35,360 Speaker 1: know you are too, uh, Navina, appreciate you sharing your 555 00:33:35,400 --> 00:33:38,640 Speaker 1: insights today. Always good to talk to you. Great talking 556 00:33:38,680 --> 00:33:46,640 Speaker 1: to you to as well. Thank you. This has been 557 00:33:46,680 --> 00:33:49,800 Speaker 1: another episode of Strictly Business. Tune in next week for 558 00:33:49,880 --> 00:33:53,840 Speaker 1: another helping of scintillating conversation with media movers and shakers, 559 00:33:54,000 --> 00:33:56,160 Speaker 1: and please make sure you subscribe to the podcast to 560 00:33:56,200 --> 00:33:59,920 Speaker 1: hear future episodes. Also, leave a review in Apple Podcast 561 00:34:00,360 --> 00:34:01,600 Speaker 1: let us know how we're doing.