Speaker 1: Welcome to another episode of Strictly Business, the podcast in
Speaker 1: which we speak with some of the brightest minds working
Speaker 1: in the media business today. I'm Andrew Wallenstein with Variety.
Speaker 1: There are no shortage of indicators these days about the
Speaker 1: sorry state of the economy, which leaves me with a question,
Speaker 1: what does that mean for the media and entertainment business.
Speaker 1: To understand this better, I'm bringing back Navin Sarma, Senior
Speaker 1: director of SNP Global Ratings, for an unprecedented third appearance
Speaker 1: on Strictly Business. More with him in just a moment.
Speaker 1: We're back with veteran media analyst Navin Sarma for a
Speaker 1: conversation we held on May as a virtual part of
Speaker 1: the program from the Monaco Streaming Film Festival. I think
Speaker 1: to the first time I interviewed you back in ten
Speaker 1: and the discussion was pegged to looming fears of a recession,
Speaker 1: fears that I should point out proved unfounded. Then now
Speaker 1: here we are, more than three years later, for a
Speaker 1: very similar conversation, though under very different circumstances. So how
Speaker 1: does where we stand now in terms of these recessionary
Speaker 1: fears differ from where things stood economically last we talked
Speaker 1: about this sure, and as you point out, and we
Speaker 1: talked about a recession, it didn't happen. We got a
Speaker 1: pandemic instead. UM. So I went back and I looked
Speaker 1: through my notes on you know what we thought was
Speaker 1: baked into a potential um economic recession in twent and
Speaker 1: I've got to say that that this time around, things
Speaker 1: are far more complicated. UM. When we think of scenarios
Speaker 1: which could result in an economic down turn our recession,
Speaker 1: there's multiple overhangs this time, any of which can ultimately
Speaker 1: push the economy into a recession. I'm going to go
Speaker 1: through a list. I'm probably gonna miss a couple, but
Speaker 1: here it goes high inflation. We haven't seen that forty
Speaker 1: years or forty years, certainly since I've been working. UM,
Speaker 1: But but that's certainly a concern. We've got high interest rates,
Speaker 1: we haven't seen that since, certainly before the Great Procession
Speaker 1: in two thousand and eight. We've got supply chain issues, um,
Speaker 1: which is impacting the ability to get product of consumers.
Speaker 1: We've got high energy costs in this country, but certainly
Speaker 1: in Europe much more of an issue. We have labor constraints.
Speaker 1: The workforce hasn't come back after the pandemic, and so
Speaker 1: many businesses are so short of labor that's resulting in
Speaker 1: high labor costs. And then we've got geopolitical risks. We
Speaker 1: have a war in Europe as well, and so all
Speaker 1: of those things are are complicating the ability to assess
Speaker 1: what could drive an economic downturn, what could result in
Speaker 1: an economic downturn, and then what could the impact be
Speaker 1: on companies? H Yeah, sure, so, UM, actually go ahead
Speaker 1: if you want to. Sure, so let's verst that's the fun.
Speaker 1: We haven't seen any evidence current habits or at least
Speaker 1: you know, at the moment of a recession. We had, Yes,
Speaker 1: last last quarter we had negative GDP growth, but you
Speaker 1: you need, you know, two quarters for recession. So recession
Speaker 1: technically is a contract created by by economis and politicians.
Speaker 1: But ultimately, when we think about consumer spending and we
Speaker 1: think about the media sector, we're really thinking about how
Speaker 1: consumers feel about spending. Because consumer spending represents two thirds
Speaker 1: of the US GDP UM. If consumers feel stressed and
Speaker 1: stretch and they choose to cut back on spending, that
Speaker 1: ultimately UM will impact the media and entertainment sector. Even
Speaker 1: if there isn't a recession. UM I think one of
Speaker 1: the things that we have to consider is is consumers
Speaker 1: change behavior, sometimes permanently due to stresses. We certainly saw
Speaker 1: that during the Great Recession, and we certainly saw that
Speaker 1: during the pandemic. In the case of the pandemic, we
Speaker 1: saw an acceleration in secular trends, um, which you know,
Speaker 1: you and I've talked a lot um about these trends.
Speaker 1: You know, whether it's cord cutting, it's the move to streaming,
Speaker 1: it's the shift of advertising from you know, traditional um,
Speaker 1: you know, media to digital. All of those things accelerated
Speaker 1: during the pandemic. Um. If we get another economic downturn,
Speaker 1: we certainly think that that could re accelerate those trends again.
Speaker 1: And you know, and we can talk about what that
Speaker 1: means for for Hollywood longer term. Sure, I mean, I
Speaker 1: just think of all the things that could be at
Speaker 1: risk here, advertising right off the bat. To me, that
Speaker 1: that seems to always go hand in hand that when
Speaker 1: there's some sort of economic downturn, that's the first thing
Speaker 1: that companies cut. Correct. So advertising actually, interestingly enough, is
Speaker 1: a lagging indicator of economic activity. It happens about six
Speaker 1: months you start to see you know, um, advertising decline
Speaker 1: really six months into a recession um and so it's
Speaker 1: actually a lagging indicator and then attempts to take some
Speaker 1: time to recover at post a recovery. Now, at the moment,
Speaker 1: we're not seeing any any impact or any evidence of
Speaker 1: and spending declines UM though there are certainly is expectations
Speaker 1: that it will decline if the current economic path continues. Okay,
Speaker 1: and there's also I mean, take your pick. Cord cutting
Speaker 1: is something that we've got to keep an eye on.
Speaker 1: Theatrical tendons, which certainly has already been facing its challenges,
Speaker 1: and what to me is sort of the grand daddy
Speaker 1: of them all here is streaming. Where could the timing
Speaker 1: possibly be worse given there's such a focus now on
Speaker 1: churn and retaining customers in a brutally competitive environment. Yep,
Speaker 1: So let's let's tackle each one of those. So cord cutting, yes, um,
Speaker 1: you know, even prior to discussions of a recession, we
Speaker 1: had SMP expected card cutting to re accelerate, so it
Speaker 1: was about four and a half percent if you include
Speaker 1: the virtual operators, UM one, we think it's going to
Speaker 1: re accelerate to over six and even worse than that.
Speaker 1: And then if you layer in you know, an accounting
Speaker 1: procession stress, consumers are more than likely to drop their
Speaker 1: linear TV services at a much faster rate. UM. You know.
Speaker 1: On the streaming side, Yeah, churn chef Ley is an issue,
Speaker 1: and it's something that we've been spending a lot of
Speaker 1: time focusing on because, um, all of the all of
Speaker 1: the streaming services have have shown an ability to grow
Speaker 1: grow subscribers. What they haven't shown the ability to do
Speaker 1: at the moment is to retain those subscribers. And so
Speaker 1: your favorite show ends, you watch a movie, and then
Speaker 1: you cut the core, you cut your streaming service, and
Speaker 1: then you come back after six months or so. And
Speaker 1: so what we've seen in a number of the streaming
Speaker 1: services is the subscriber based turns over once or twice
Speaker 1: a year. Um. What happens when you go into a
Speaker 1: recession and consumers look at how much they're spending on
Speaker 1: the streaming services, They're spending a lot of money, and
Speaker 1: they decide they're going to cut back on the number
Speaker 1: of services or they're not going to stick around as
Speaker 1: long as they previously did. And so that could re
Speaker 1: accelerate churn. And and that's got you implications for you know,
Speaker 1: operating metrics, cash flow metrics, um, and really the financial
Speaker 1: performances for the media companies. Well, certainly there's other factors
Speaker 1: to talk about, and we'll get to theatrical and a
Speaker 1: cent in a second, but let's dick with streaming for
Speaker 1: a second. It's where all the eyeballs are right now
Speaker 1: in terms of the marketplace and what Netflix has gone
Speaker 1: through recently. Such a dramatic, dramatic turn of events we
Speaker 1: saw coming out of last quarter, and so I wanted
Speaker 1: to get your take. Uh, is it as bad as
Speaker 1: it looks right now for Netflix? Or perhaps the market
Speaker 1: is perhaps ra acting a little too strongly? What do
Speaker 1: you think? Well, so, I mean there's there's the growth aspect,
Speaker 1: which is is certainly a concern. Um. I think you
Speaker 1: know a lot of the concerns that that came out
Speaker 1: in the quarterly earnings were ones that the market had
Speaker 1: been focusing on and asking questions of Netflix. However, um,
Speaker 1: given the growth that they had had previously, they it
Speaker 1: wasn't a concern certainly for the equity markets. And that's
Speaker 1: and that's you know, password sharing, which as as um
Speaker 1: if you look at the results, they're essentially at you know,
Speaker 1: if you include Pastor, Chary Summer, un thanky billion household
Speaker 1: penetrated in the United States and Canada. That's basically a
Speaker 1: fully penetrated mature market. UM and so UM. You know
Speaker 1: that the question that that has been asked of them
Speaker 1: is and this kind of addresses UM. This will impact
Speaker 1: a lot of the media companies in the next couple
Speaker 1: of years as well. As you start to get mature
Speaker 1: and as you start to see growth start to slow,
Speaker 1: what do you do as a result of that? Do
Speaker 1: you which would be the easiest thing? Would you would do?
Speaker 1: Increase content spending, Push more content in front of consumers.
Speaker 1: That will energize UM that that will energize subscriber growth
Speaker 1: going forward. However, there's a price to that. If you
Speaker 1: are going to be spending more money, you're gonna push
Speaker 1: out your break even points. You could go cash flow
Speaker 1: negative in a way. That's a bit of undisciplined spending
Speaker 1: for the sake of growth. And as we saw with
Speaker 1: with Netflix and its earnings, the market currently doesn't like that,
Speaker 1: and so UM and so undisciplined spending to just grow
Speaker 1: isn't the solution. You have to come up with other
Speaker 1: alternatives to try to re energize growth, or certainly to
Speaker 1: try to to try to reduce chart. And and that's
Speaker 1: something that I think a lot of the companies are
Speaker 1: working on and we'll see over the next couple of quarters.
Speaker 1: I think companies experimenting on ways to try to reduce chart.
Speaker 1: And what do you think about the competitive set surrounding Netflix?
Speaker 1: It feels like once a week I I see a
Speaker 1: survey of some kind addressing just how many services the
Speaker 1: average US home or global home needs is at four?
Speaker 1: Is at six? Is? It's whatever? Um? What do you think? So?
Speaker 1: I mean, certainly the number of services that people are
Speaker 1: signing up for UM. I mean I I can't how
Speaker 1: many I have. I think I have eight? Um, that's unsustainable,
Speaker 1: especially if consumers are feeling stressed, they're going to cut
Speaker 1: back on the number of services. And is three is
Speaker 1: it too? It hard to tell. I mean we're so
Speaker 1: early on in terms of the evolution of these services,
Speaker 1: UM that I think I think the jury still lot
Speaker 1: on how many of these services people will sign up for.
Speaker 1: I think you're gonna get a lot of experimentation over
Speaker 1: the next year or two. In terms of business models.
Speaker 1: You know we're seeing Netflix, say you know, they'll they
Speaker 1: may introduce UM an advertising UM service. Disney is talked
Speaker 1: about doing an advertising service. That's certainly uh, you know,
Speaker 1: could could benefit those companies because offering a lower price
Speaker 1: point might get them to stay longer with those services. Um.
Speaker 1: You may see bundling be different. You may see um,
Speaker 1: you know, bundling of all of the services. So I
Speaker 1: think you're gonna see a lot of experimentation over the
Speaker 1: next couple of years and trying to draw conclusions from
Speaker 1: what companies are experiencing today. UM. I think in the
Speaker 1: next couple of year, months and years, we're gonna have
Speaker 1: to have, you know, a different set of conversations about
Speaker 1: what that means for the streaming service. What do you
Speaker 1: think about the hand Warner Brothers Discovery is playing with,
Speaker 1: especially as it relates to what you brought up with bundling,
Speaker 1: because here they are with HBO, Max Discovery, Rest in Peace,
Speaker 1: CNN plus Uh, how does it all come together, do
Speaker 1: you think for this company in the streaming space? Yeah, Look,
Speaker 1: I think one of the things that that kind of
Speaker 1: got lost over the last couple of years, especially with
Speaker 1: Warner Media being embedded with it, the larger A T
Speaker 1: and T family was how powerful a company, um Warner
Speaker 1: Media is with its its legacy of you know, of
Speaker 1: content going all the way back to the beginning of
Speaker 1: of the film and TV industry. And so there's a
Speaker 1: lot of content there. And oh, by the way, they
Speaker 1: have Warner Brothers, which is one of the premier studios
Speaker 1: in the world, and their ability to generate a lot
Speaker 1: of content, uh, you know, a lot of which they
Speaker 1: used to sell the third parties. Now a lot of
Speaker 1: that would go towards UM the you know, the HBO
Speaker 1: Max streaming service. So I wouldn't just count their ability
Speaker 1: to be one of the long term survivors in the
Speaker 1: streaming awards. Got it. I want to get back to
Speaker 1: what we raised earlier with regards to the state of
Speaker 1: the theatrical business. We're having this conversation the weekend that
Speaker 1: Top Gun returns to theaters. Very high expectations there. Uh.
Speaker 1: I think even best case scenario for Top Gun, for
Speaker 1: the entire movie business, it's never that total box office,
Speaker 1: whether global or domestic, is just never going to get
Speaker 1: back what it used to be, in part because the pandemic,
Speaker 1: I think will shrink the theatrical business. Whether we're talking
Speaker 1: about just the footprint of the exhibition business, or just
Speaker 1: more to the point, the kinds of movies that are
Speaker 1: viable in theaters, which you know, Marvel a handful of
Speaker 1: horror movies and and and and that's about it as
Speaker 1: far as I see it. How do you see the
Speaker 1: prospects for theatrical Yeah, it's it's very interesting. Um. I've
Speaker 1: been I mean anecdotically, I've been to the theater seven
Speaker 1: or eight times since the pandemic ended, and or I
Speaker 1: guess since the theaters reopened. I've yet to be in
Speaker 1: a theater that is crowded. Um. I think. I think
Speaker 1: one of the challenges at the moment is that there's
Speaker 1: significant parts of the population that are are a bit
Speaker 1: uncomfortable going back into the theater. Certainly, um. You know,
Speaker 1: young adults and teenagers and you know twenty five year
Speaker 1: old are comfortable going back, and so they're they're the
Speaker 1: ones who are who are flocking to the theaters to
Speaker 1: watch all those um um those superhero movies. Children. On
Speaker 1: the other hand, parents are a bit uncomfortable taking them
Speaker 1: there and so they've been slower to come back, as
Speaker 1: are are are older adults. You know, the ones who
Speaker 1: would go and see comedies and dramas and things like that.
Speaker 1: I think those will relaxed as people get more comfortable
Speaker 1: with the idea that UM that you know they're vaccinated
Speaker 1: and that they aren't going to get sick by going
Speaker 1: to movie theaters. But I do agree with your basic premise,
Speaker 1: which is I think longer term, the box office is
Speaker 1: going to struggle to come back to pre COVID pre
Speaker 1: pandemic levels UM. The number of movies being released into
Speaker 1: theaters has declined. It's unlikely to come back to the
Speaker 1: levels that you previous saw. Dramas and comedies they worked
Speaker 1: much better on a streaming service, or at least that's
Speaker 1: what the studios seem to think, and so putting them
Speaker 1: into theaters UM is going to be a bit of
Speaker 1: a challenge. I don't think we're going to go back
Speaker 1: to the you know, the days where you had day
Speaker 1: and date releases, or that studios would would take higher
Speaker 1: profile movies and put them directly into their streaming services.
Speaker 1: I think the studios have learned a lesson over the
Speaker 1: last year or so that that putting a a a
Speaker 1: movie through a theatrical release UM benefits the long term. UM.
Speaker 1: The long the long term value of that particular film. Um,
Speaker 1: you have better discovery, you have franchise building. All of
Speaker 1: those things are clear. And so yes, we've gone from
Speaker 1: ninety days to potentially forty five days for for a
Speaker 1: release window. But I don't think, um, but I don't
Speaker 1: think that you are going to have you know, the
Speaker 1: fear that everyone has, which is or many people have,
Speaker 1: which is that the theatrical window completely disappears. Having said that,
Speaker 1: now we have an opportunity for a lot of companies,
Speaker 1: and Netflix is of the world, the app the Apples
Speaker 1: and the Amazons, to put more movies into the theaters. Um,
Speaker 1: there's a lot of screens that are available. They can
Speaker 1: take advantage of that. We'll we'll see what happens. We'll
Speaker 1: be back with Navin Sarma after this. We're back with
Speaker 1: Navin Sarma, Senior director of SMP Global Ratings. What you
Speaker 1: were saying with regard to the pandemic overhang on the
Speaker 1: theatrical business, I'm wondering how you see other out of
Speaker 1: home media businesses faring. Whether we're talking about theme parks, concerts, Broadway, uh,
Speaker 1: all of which have took taken some serious lumps in
Speaker 1: the past few years. But also have shown a lot
Speaker 1: of resilience. UM. Longer term, how are you feeling about
Speaker 1: those out of home businesses. Experiential is the word that
Speaker 1: all the media companies are out throwing around. So consumers
Speaker 1: don't just want to sit on there, you know, in
Speaker 1: their chairs and and have stuff happen in front of them.
Speaker 1: They want to get out there and experience it, whether
Speaker 1: it's concerts or going to theme parks or going to
Speaker 1: sporting events. I think that's where we think consumers are
Speaker 1: going to really push the media sector. Um. We've kind
Speaker 1: of seen that already, right, UM. You know, the theme
Speaker 1: parks have been have done incredibly well. They may not
Speaker 1: necessarily back to occupancy, but they are. They are crowded,
Speaker 1: and people are signing up and going to those steam parks. UM.
Speaker 1: Concerts and especially the concert venues are doing quite well.
Speaker 1: And we've seen a number of um of concerts get
Speaker 1: announced for next year. So next year I think will
Speaker 1: be a big year for for concerts. But I do
Speaker 1: think people want to go out and actually interact with
Speaker 1: the people, um, you know, an experience events rather than
Speaker 1: just sit at home. Sure. UM, although and I think
Speaker 1: to some degree that's being driven by the fact that
Speaker 1: people because it was suppressed over the past two years
Speaker 1: and sort of exploding now. I do wonder though, uh,
Speaker 1: you know, if the pandemic continues to persist, continues to linger,
Speaker 1: whether it's going to have a more deleterious effect than
Speaker 1: than we might be envisioning here. I don't know. I
Speaker 1: think at this point, Um, I think the majority of
Speaker 1: the population is in effect moved on and you know,
Speaker 1: and told our politicians, yeah, we might get sick, but
Speaker 1: we think it's something that we can live with. So
Speaker 1: I don't see, and we're certainly not anticipating our resurgence
Speaker 1: of the pandemic leading to any kind of a shutdown
Speaker 1: in the you know, in the in the in the
Speaker 1: in the in the economy. I also wanted to ask
Speaker 1: you about M and A and the and deal making, which,
Speaker 1: you know, going back to our recession conversation, I think
Speaker 1: is only going to get more difficult, which runs contrary
Speaker 1: to the narrative that's been prevailing the past few years
Speaker 1: that we're gonna seem more and more consolidation. Um, how
Speaker 1: are you feeling about how the state of M and
Speaker 1: A is playing out? Yeah? So so at the moment,
Speaker 1: I mean it's interesting. So for the last ten years
Speaker 1: or so, actually since the really the Great Recession, interest
Speaker 1: rights have been incredib really low. UM. The Fed cut
Speaker 1: interest rates, you know, right at the beginning of them,
Speaker 1: of the Great pro Session, and they kept it very low.
Speaker 1: And they they you know, they kept right through the
Speaker 1: pandemic to really stimulate economic growth. And that had some
Speaker 1: side effects or effects and impacted the It made money
Speaker 1: very cheap for deal making an M and A. And
Speaker 1: so we saw a lot of deal making over the
Speaker 1: last number of years, UM financed by by cheap money.
Speaker 1: What you're and you know, but what you're seeing today, however,
Speaker 1: is that the cost of capital, especially over the last
Speaker 1: couple of weeks, is the Fed has ratchet up interest
Speaker 1: rates UM. The cost of capital has gone up considerably,
Speaker 1: and that definitely has hurt dealmaking. And M and A.
Speaker 1: We've we've heard anecdotal stories of deals getting to the
Speaker 1: finish line but dying because of expensive financing. Now, having
Speaker 1: said that, if we go into an economic downturn, UM
Speaker 1: and the Fed decides that they do need to um
Speaker 1: you know, cut interest rates to try to once against
Speaker 1: stimulated and on my growth, you certainly could see deal
Speaker 1: making them and a pick up and and look that
Speaker 1: that tends to happen towards the end of ose session.
Speaker 1: Companies have underperforming assets um that they'd like to shed.
Speaker 1: You have companies that are that are underperforming because of
Speaker 1: an economic recession, that are unable to meet their financial commitments.
Speaker 1: You get bankruptcies, especially increasing after we come out of
Speaker 1: a recession. You get for sales. So I think you
Speaker 1: could you could see a return to that, but a
Speaker 1: lot of that would depend on what happens to interest
Speaker 1: rates going forward. And I'm thinking that what's going on
Speaker 1: in Washington will certainly come into bear here in terms
Speaker 1: of the potential for regulation. There seems to be an
Speaker 1: increasing focus on antitrust. Uh. Do you think that's going
Speaker 1: to weigh on the deal making as well? I think
Speaker 1: it's a good it's a good point. I think it
Speaker 1: a weigh on the the desire of some companies to
Speaker 1: actually do deals. Clearly, the regular there's in Washington. The
Speaker 1: politicians of Washington are very focused on the tech industry um,
Speaker 1: and so we could see them step in and and
Speaker 1: potentially um, you know, prevent or try to prevent deals
Speaker 1: happening that involved the tech companies. Uh, you know, we
Speaker 1: saw some comments from the FTC about Amazon's acquisition of MGM,
Speaker 1: and in the grand scheme of things, MGM is a
Speaker 1: you know, is tiny compared to Amazon, and yet that
Speaker 1: raised a number of concerns in Washington over that deal.
Speaker 1: So it kind of depends on who's getting involved in
Speaker 1: those transactions. I think with media companies, if you saw,
Speaker 1: you know, further consolidation in certain sectors, you know, if
Speaker 1: there's a consolidation of movie studios, that might raise some
Speaker 1: some regulatory issues. UM. Certainly, if cable companies decide that
Speaker 1: they're going to try to merge, um, that could raise
Speaker 1: some issues. But I do think the especially you know,
Speaker 1: the people who have the money today, it's the tech companies.
Speaker 1: They may be limited what they can do given the
Speaker 1: height and focus on on their businesses. Staying on tech
Speaker 1: for a second, you know, it's an interesting time because
Speaker 1: we've looked at these businesses as too big to fail
Speaker 1: for so long. But here we are coming off a
Speaker 1: week where you know, we saw Evan Spiegel ats Snap
Speaker 1: a revised guidance which sent the stocks for anyone in
Speaker 1: digital advertising plummeting. We're seeing meta take a huge hit
Speaker 1: coming out of their previous quarter. Are we finally kind
Speaker 1: of as we saw with Netflix. Are we finally seeing
Speaker 1: companies that seem too big to fail, too successful to stumble?
Speaker 1: Are we perhaps moving into a new era of understanding
Speaker 1: just how incredible these companies are. I think what's interesting
Speaker 1: is is the discussion I was at a conference for
Speaker 1: for the last couple of days. In fact, I was
Speaker 1: at the conference where Snap spoke, and the question that
Speaker 1: everyone was asking was is this a Snap platform question issue?
Speaker 1: M Are they just losing share to the platforms like
Speaker 1: TikTok or is this a you know, the forerunner of
Speaker 1: um of an advertising decline or pressure on advertising? So
Speaker 1: when you when you when you look at digital advertising
Speaker 1: on tech and social media platforms, they may be more
Speaker 1: vulnerable in an economic downturn because so much of that
Speaker 1: advertising is skewed towards small and mid sized businesses UM
Speaker 1: and then they certainly get hurt in a recession. In addition,
Speaker 1: when you think about the ad funnel, advertisers allocate bottom
Speaker 1: of the funnel transactional ad dollars to digital platforms, and
Speaker 1: these these may be more vulnerable. These dollars may be
Speaker 1: more vulnerable if consumers cut back on spending. Um, you know,
Speaker 1: and so, and when you look at top of the
Speaker 1: funnel brand advertising, they may that may see less decline
Speaker 1: depending on the session scenario, which may actually benefit television.
Speaker 1: So um, so, you know, what we're seeing with the
Speaker 1: tech companies might be specific to Snap or it might
Speaker 1: be you know, our forerunner of of you know, pressure
Speaker 1: on digital advertising intercession. Um, You're you're mentioning s spending
Speaker 1: made me think of a different area of spending that
Speaker 1: I'm curious about, which is content spend, which you know
Speaker 1: has risen astronomically in recent years, primarily because of the
Speaker 1: competitive streaming marketplace. And I have to wonder, you know, certainly,
Speaker 1: as we've seen you know, Disney recently announcing that they're
Speaker 1: gonna shave a billion dollars off an initial spending projection
Speaker 1: they gave earlier in the year, We've seen David's as
Speaker 1: Love and Warner Discovery more than one say hey, you know,
Speaker 1: we're not going to get crazy here. Are we on
Speaker 1: the verge of of a broader base pullback in content spend?
Speaker 1: And what would that mean? Yeah, that's the hundred billion
Speaker 1: dollar questions exactly exactly. I think at the moment in Hollywood.
Speaker 1: The message that um that we're hearing, as you point out,
Speaker 1: is that all of the companies are going to be
Speaker 1: disciplined in spending to growth subscribers. It's not that they're
Speaker 1: going to cut back on spending, it's that they're going
Speaker 1: to control the growth of spending. UM yeah, to you know,
Speaker 1: to to to be more disciplined and and and and
Speaker 1: look for you know, and and grow what they would call,
Speaker 1: you know, financially responsible subscribers. So I don't think, I think,
Speaker 1: I don't think the fears of them cutting spending are
Speaker 1: are accurate. I think I think what what we should
Speaker 1: be asking the media companies is is you know, how
Speaker 1: much are they going to increase spending this year to
Speaker 1: next year and then the following year and then the
Speaker 1: following year. I think that that where that is where
Speaker 1: we're going to see the discipline, um and and and
Speaker 1: look at the end of the day, what that results
Speaker 1: in is that they may they get through financial stability,
Speaker 1: you know, break even on their services faster. And and
Speaker 1: that's what the current um, you know, equity markets are
Speaker 1: rewarding for. I think one of the concerns that we've
Speaker 1: raised as a result of that is okay. So let's
Speaker 1: say we get to the end of this year and
Speaker 1: subscriber growth is weaker than the companies that anticipated chun
Speaker 1: might be higher because of the economic recession. What do
Speaker 1: the media companies do. Do they back off this pledge
Speaker 1: to be disciplined in their spending and spend a lot
Speaker 1: more to try to re energize growth, or do they
Speaker 1: like what Netflix has done, which is, you know, look
Speaker 1: at their spending and say that the growth of spending
Speaker 1: will go in line with the revenue growth, and so
Speaker 1: be more and remain and continue to remain discipline and
Speaker 1: how they spend on content. I can't imagine that we're
Speaker 1: going to see an increased, you know, ratcheting up of spending.
Speaker 1: And if anything, what we may see that will bring
Speaker 1: down spending is with regard to the streaming business, somebody's
Speaker 1: going to step away from the table. Somebody is going
Speaker 1: to say this is getting too rich for my blood.
Speaker 1: Doesn't necessarily mean they you know, I think there's a
Speaker 1: few scenarios there. Number one, we can see someone pull
Speaker 1: out and revert to the Sony model of hey, we're
Speaker 1: an arm supplier, everyone could buy our content, or we're
Speaker 1: going to see perhaps a consolidation among players, and there's
Speaker 1: been plenty of speculation about Paramount and maybe a spun
Speaker 1: off NBC Universal UM. As I mentioned those companies, I'm
Speaker 1: particularly curious about Paramount and what you think about the
Speaker 1: hand that they're playing. Uh, you know what, what would
Speaker 1: you be advising Sherry Redstone in this marketplace? Yeah, it's
Speaker 1: a it's a good question. And I think I think
Speaker 1: one of the things that we do forget when we
Speaker 1: look at the US media companies and we size up
Speaker 1: Paramount versus Disney and and and Warner UM And and
Speaker 1: Warner Brothers. Discovery, Disney, and Warner Brothers are massive companies
Speaker 1: and massive global companies. UM far bigger than everybody else.
Speaker 1: Paramount is actually a global media company as well, and
Speaker 1: they've got tremendous scale. And so I think one of
Speaker 1: the one of the one of the things we forget
Speaker 1: about is is what is our comparison to if we're
Speaker 1: just looking at US companies. Yes, Paramount has a scale problem.
Speaker 1: If you look at Paramount versus the global media companies
Speaker 1: and you throw on I t V, you throw at
Speaker 1: the Bertles amount of a vending Paramount is a very,
Speaker 1: very large diversified media company with with operations all over
Speaker 1: the world. They've got a big Latin American operation, and
Speaker 1: so I wouldn't discount their ability to be one of
Speaker 1: the winners. Having said that, they certainly have more limited
Speaker 1: financial resources than a Disney or or a Discovery UM,
Speaker 1: and so they have to be a bit more careful
Speaker 1: in what they do, especially internationally, what content they the Greenland,
Speaker 1: and also what markets they operated. So the approach that
Speaker 1: they've taken so far, which is they'll settle or license
Speaker 1: some of their content UM and then in markets where
Speaker 1: they don't think they can get a good return, they'll partner,
Speaker 1: like what they are doing with UM with NBC in Europe.
Speaker 1: I think that's a good financial model. I think that
Speaker 1: that works as long as you remain discipline again once
Speaker 1: in you're spending UM, and also in your expectations for
Speaker 1: what growth it will be overseas. I think Comcast UH
Speaker 1: is a bit similar in terms of that international scale
Speaker 1: through Sky. Comcast, though, is a very different company because
Speaker 1: they're in the pipes business, and I'm curious what you
Speaker 1: think about that business. We talked a little about cord cutting,
Speaker 1: but it's more than that. When you think about how
Speaker 1: Comcast is really almost more a broad band company now
Speaker 1: and they're in mobile. So how do you feel about
Speaker 1: the broadband bis this and where Comcast stands there? Yeah,
Speaker 1: and I'll say this about Comcasts as well as for
Speaker 1: companies like Amazon and Apple. They've got businesses that are
Speaker 1: far stronger than the media businesses that they own. UM,
Speaker 1: and those are the businesses that they want to defend.
Speaker 1: And so maybe not as much for Comcast because NBC
Speaker 1: is a as your point at a global media company,
Speaker 1: but media essences can be a retention tool for for
Speaker 1: some of these companies to you offer the media at
Speaker 1: you know, you you offer a media media video film
Speaker 1: TV to your your subscribers, whether it's an Amazon or
Speaker 1: it's an Apple, and you essentially give it to them
Speaker 1: for free and say, if you sign up for our services,
Speaker 1: you can get this as an add on. And so
Speaker 1: you can use media as a retention to them. We
Speaker 1: can talk a bit about you know what that means
Speaker 1: for media in general. Comcast doesn't. Comcast has a similar
Speaker 1: type of strategy, maybe not necessarily as there Conian is
Speaker 1: what I just laid out, UM, but they are more
Speaker 1: than willing to use media and they do this within
Speaker 1: their their comcast broadband footprint. They offer Peacock for free
Speaker 1: to consumers, and that's an attempt to keep customers on
Speaker 1: their platform. Well, let's talk about that media as retention
Speaker 1: tool strategy more broadly, because it's interesting when you look
Speaker 1: at Amazon and Apple, media is really just a rounding error,
Speaker 1: even though they are going to be spending huge amounts
Speaker 1: of money, uh, compared to everything going on in media,
Speaker 1: So in is weird counterintuitive ways. It almost like, well,
Speaker 1: the best way to approach the media business is not
Speaker 1: really to be focused on it, which sounds insane and
Speaker 1: it and it is because if especially if you're you know,
Speaker 1: if you're a media company and you've got returns that
Speaker 1: you're trying to achieve on content, and some of your
Speaker 1: competitors don't really care about the returns because they're looking
Speaker 1: at their subscriber numbers. It's a hard thing to compete against.
Speaker 1: How much are you willing to pay? There may be
Speaker 1: discipline on the side of the traditional media companies in
Speaker 1: terms of what they're willing to pay for a certain
Speaker 1: piece of content, but that kind of goes out the
Speaker 1: window when you're looking at some of these other companies
Speaker 1: and so it makes it makes it an unbalanced playing
Speaker 1: field for the traditional media companies. Yeah, but it is
Speaker 1: a playing field that I'm enjoying watching immensely. And I
Speaker 1: know you are too, uh, Navina, appreciate you sharing your
Speaker 1: insights today. Always good to talk to you. Great talking
Speaker 1: to you to as well. Thank you. This has been
Speaker 1: another episode of Strictly Business. Tune in next week for
Speaker 1: another helping of scintillating conversation with media movers and shakers,
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