WEBVTT - What the Bear Market Means for the Media Sector 0:00:08.080 --> 0:00:11.200 Welcome to another episode of Strictly Business, the podcast in 0:00:11.240 --> 0:00:13.640 which we speak with some of the brightest minds working 0:00:13.680 --> 0:00:17.120 in the media business today. I'm Andrew Wallenstein with Variety. 0:00:18.040 --> 0:00:20.960 There are no shortage of indicators these days about the 0:00:21.079 --> 0:00:24.480 sorry state of the economy, which leaves me with a question, 0:00:25.160 --> 0:00:27.960 what does that mean for the media and entertainment business. 0:00:28.560 --> 0:00:32.120 To understand this better, I'm bringing back Navin Sarma, Senior 0:00:32.200 --> 0:00:37.160 director of SNP Global Ratings, for an unprecedented third appearance 0:00:37.200 --> 0:00:40.480 on Strictly Business. More with him in just a moment. 0:00:47.600 --> 0:00:50.640 We're back with veteran media analyst Navin Sarma for a 0:00:50.680 --> 0:00:54.760 conversation we held on May as a virtual part of 0:00:54.800 --> 0:00:59.720 the program from the Monaco Streaming Film Festival. I think 0:01:00.240 --> 0:01:02.880 to the first time I interviewed you back in ten 0:01:02.920 --> 0:01:06.760 and the discussion was pegged to looming fears of a recession, 0:01:06.959 --> 0:01:10.440 fears that I should point out proved unfounded. Then now 0:01:10.480 --> 0:01:12.480 here we are, more than three years later, for a 0:01:12.600 --> 0:01:17.760 very similar conversation, though under very different circumstances. So how 0:01:17.760 --> 0:01:20.560 does where we stand now in terms of these recessionary 0:01:20.680 --> 0:01:24.759 fears differ from where things stood economically last we talked 0:01:24.800 --> 0:01:29.360 about this sure, and as you point out, and we 0:01:29.360 --> 0:01:31.720 talked about a recession, it didn't happen. We got a 0:01:31.720 --> 0:01:35.600 pandemic instead. UM. So I went back and I looked 0:01:35.640 --> 0:01:38.440 through my notes on you know what we thought was 0:01:38.640 --> 0:01:43.880 baked into a potential um economic recession in twent and 0:01:43.920 --> 0:01:46.200 I've got to say that that this time around, things 0:01:46.200 --> 0:01:49.760 are far more complicated. UM. When we think of scenarios 0:01:49.880 --> 0:01:52.880 which could result in an economic down turn our recession, 0:01:53.280 --> 0:01:57.000 there's multiple overhangs this time, any of which can ultimately 0:01:57.040 --> 0:01:59.080 push the economy into a recession. I'm going to go 0:01:59.120 --> 0:02:01.680 through a list. I'm probably gonna miss a couple, but 0:02:01.760 --> 0:02:06.080 here it goes high inflation. We haven't seen that forty 0:02:06.160 --> 0:02:09.720 years or forty years, certainly since I've been working. UM, 0:02:09.760 --> 0:02:13.080 But but that's certainly a concern. We've got high interest rates, 0:02:13.320 --> 0:02:16.840 we haven't seen that since, certainly before the Great Procession 0:02:16.840 --> 0:02:21.160 in two thousand and eight. We've got supply chain issues, um, 0:02:21.240 --> 0:02:25.480 which is impacting the ability to get product of consumers. 0:02:25.840 --> 0:02:29.840 We've got high energy costs in this country, but certainly 0:02:29.840 --> 0:02:33.519 in Europe much more of an issue. We have labor constraints. 0:02:33.840 --> 0:02:37.760 The workforce hasn't come back after the pandemic, and so 0:02:38.040 --> 0:02:41.239 many businesses are so short of labor that's resulting in 0:02:41.360 --> 0:02:44.880 high labor costs. And then we've got geopolitical risks. We 0:02:44.919 --> 0:02:47.040 have a war in Europe as well, and so all 0:02:47.080 --> 0:02:51.120 of those things are are complicating the ability to assess 0:02:51.480 --> 0:02:54.720 what could drive an economic downturn, what could result in 0:02:54.760 --> 0:02:57.919 an economic downturn, and then what could the impact be 0:02:58.040 --> 0:03:19.200 on companies? H Yeah, sure, so, UM, actually go ahead 0:03:18.960 --> 0:03:37.520 if you want to. Sure, so let's verst that's the fun. 0:03:38.000 --> 0:03:41.600 We haven't seen any evidence current habits or at least 0:03:41.680 --> 0:03:43.760 you know, at the moment of a recession. We had, Yes, 0:03:43.920 --> 0:03:47.200 last last quarter we had negative GDP growth, but you 0:03:47.640 --> 0:03:51.040 you need, you know, two quarters for recession. So recession 0:03:51.040 --> 0:03:54.160 technically is a contract created by by economis and politicians. 0:03:54.320 --> 0:03:57.240 But ultimately, when we think about consumer spending and we 0:03:57.280 --> 0:03:59.880 think about the media sector, we're really thinking about how 0:04:00.040 --> 0:04:03.880 consumers feel about spending. Because consumer spending represents two thirds 0:04:03.920 --> 0:04:07.280 of the US GDP UM. If consumers feel stressed and 0:04:07.400 --> 0:04:10.320 stretch and they choose to cut back on spending, that 0:04:10.480 --> 0:04:14.040 ultimately UM will impact the media and entertainment sector. Even 0:04:14.080 --> 0:04:17.400 if there isn't a recession. UM I think one of 0:04:17.400 --> 0:04:20.240 the things that we have to consider is is consumers 0:04:20.320 --> 0:04:24.320 change behavior, sometimes permanently due to stresses. We certainly saw 0:04:24.360 --> 0:04:26.680 that during the Great Recession, and we certainly saw that 0:04:26.760 --> 0:04:29.680 during the pandemic. In the case of the pandemic, we 0:04:29.720 --> 0:04:33.840 saw an acceleration in secular trends, um, which you know, 0:04:33.880 --> 0:04:37.920 you and I've talked a lot um about these trends. 0:04:38.120 --> 0:04:40.720 You know, whether it's cord cutting, it's the move to streaming, 0:04:40.880 --> 0:04:44.600 it's the shift of advertising from you know, traditional um, 0:04:45.279 --> 0:04:48.839 you know, media to digital. All of those things accelerated 0:04:48.880 --> 0:04:53.239 during the pandemic. Um. If we get another economic downturn, 0:04:53.400 --> 0:04:55.919 we certainly think that that could re accelerate those trends again. 0:04:56.320 --> 0:04:57.680 And you know, and we can talk about what that 0:04:57.720 --> 0:05:01.719 means for for Hollywood longer term. Sure, I mean, I 0:05:01.839 --> 0:05:05.640 just think of all the things that could be at 0:05:05.760 --> 0:05:11.000 risk here, advertising right off the bat. To me, that 0:05:11.000 --> 0:05:13.920 that seems to always go hand in hand that when 0:05:13.920 --> 0:05:17.160 there's some sort of economic downturn, that's the first thing 0:05:17.320 --> 0:05:22.480 that companies cut. Correct. So advertising actually, interestingly enough, is 0:05:22.480 --> 0:05:26.400 a lagging indicator of economic activity. It happens about six 0:05:26.480 --> 0:05:30.400 months you start to see you know, um, advertising decline 0:05:30.760 --> 0:05:34.360 really six months into a recession um and so it's 0:05:34.360 --> 0:05:36.600 actually a lagging indicator and then attempts to take some 0:05:36.640 --> 0:05:40.359 time to recover at post a recovery. Now, at the moment, 0:05:40.360 --> 0:05:43.839 we're not seeing any any impact or any evidence of 0:05:43.880 --> 0:05:47.480 and spending declines UM though there are certainly is expectations 0:05:47.520 --> 0:05:52.760 that it will decline if the current economic path continues. Okay, 0:05:52.839 --> 0:05:57.280 and there's also I mean, take your pick. Cord cutting 0:05:57.400 --> 0:05:59.039 is something that we've got to keep an eye on. 0:05:59.200 --> 0:06:03.080 Theatrical tendons, which certainly has already been facing its challenges, 0:06:03.360 --> 0:06:06.239 and what to me is sort of the grand daddy 0:06:06.320 --> 0:06:11.159 of them all here is streaming. Where could the timing 0:06:11.200 --> 0:06:15.400 possibly be worse given there's such a focus now on 0:06:15.640 --> 0:06:21.479 churn and retaining customers in a brutally competitive environment. Yep, 0:06:21.680 --> 0:06:25.560 So let's let's tackle each one of those. So cord cutting, yes, um, 0:06:25.600 --> 0:06:28.760 you know, even prior to discussions of a recession, we 0:06:28.839 --> 0:06:31.760 had SMP expected card cutting to re accelerate, so it 0:06:31.839 --> 0:06:33.840 was about four and a half percent if you include 0:06:33.839 --> 0:06:38.200 the virtual operators, UM one, we think it's going to 0:06:38.240 --> 0:06:42.960 re accelerate to over six and even worse than that. 0:06:45.000 --> 0:06:47.000 And then if you layer in you know, an accounting 0:06:47.040 --> 0:06:50.280 procession stress, consumers are more than likely to drop their 0:06:50.320 --> 0:06:54.840 linear TV services at a much faster rate. UM. You know. 0:06:55.000 --> 0:06:58.279 On the streaming side, Yeah, churn chef Ley is an issue, 0:06:58.520 --> 0:06:59.960 and it's something that we've been spending a lot of 0:07:00.040 --> 0:07:04.080 time focusing on because, um, all of the all of 0:07:04.120 --> 0:07:06.679 the streaming services have have shown an ability to grow 0:07:06.880 --> 0:07:10.080 grow subscribers. What they haven't shown the ability to do 0:07:10.120 --> 0:07:12.440 at the moment is to retain those subscribers. And so 0:07:12.560 --> 0:07:15.160 your favorite show ends, you watch a movie, and then 0:07:15.160 --> 0:07:18.240 you cut the core, you cut your streaming service, and 0:07:18.240 --> 0:07:20.440 then you come back after six months or so. And 0:07:20.480 --> 0:07:22.720 so what we've seen in a number of the streaming 0:07:22.720 --> 0:07:26.080 services is the subscriber based turns over once or twice 0:07:26.080 --> 0:07:29.960 a year. Um. What happens when you go into a 0:07:30.000 --> 0:07:33.040 recession and consumers look at how much they're spending on 0:07:33.080 --> 0:07:36.040 the streaming services, They're spending a lot of money, and 0:07:36.080 --> 0:07:38.800 they decide they're going to cut back on the number 0:07:38.800 --> 0:07:40.600 of services or they're not going to stick around as 0:07:40.640 --> 0:07:43.120 long as they previously did. And so that could re 0:07:43.200 --> 0:07:47.840 accelerate churn. And and that's got you implications for you know, 0:07:47.960 --> 0:07:51.680 operating metrics, cash flow metrics, um, and really the financial 0:07:51.680 --> 0:07:56.040 performances for the media companies. Well, certainly there's other factors 0:07:56.080 --> 0:07:58.040 to talk about, and we'll get to theatrical and a 0:07:58.160 --> 0:08:01.080 cent in a second, but let's dick with streaming for 0:08:01.120 --> 0:08:04.400 a second. It's where all the eyeballs are right now 0:08:04.440 --> 0:08:09.440 in terms of the marketplace and what Netflix has gone 0:08:09.480 --> 0:08:13.640 through recently. Such a dramatic, dramatic turn of events we 0:08:13.680 --> 0:08:16.400 saw coming out of last quarter, and so I wanted 0:08:16.440 --> 0:08:19.600 to get your take. Uh, is it as bad as 0:08:19.640 --> 0:08:23.280 it looks right now for Netflix? Or perhaps the market 0:08:24.120 --> 0:08:27.240 is perhaps ra acting a little too strongly? What do 0:08:27.280 --> 0:08:31.040 you think? Well, so, I mean there's there's the growth aspect, 0:08:31.080 --> 0:08:34.840 which is is certainly a concern. Um. I think you 0:08:34.840 --> 0:08:37.960 know a lot of the concerns that that came out 0:08:37.840 --> 0:08:40.679 in the quarterly earnings were ones that the market had 0:08:40.720 --> 0:08:46.160 been focusing on and asking questions of Netflix. However, um, 0:08:46.960 --> 0:08:49.800 given the growth that they had had previously, they it 0:08:50.000 --> 0:08:52.600 wasn't a concern certainly for the equity markets. And that's 0:08:53.080 --> 0:08:57.120 and that's you know, password sharing, which as as um 0:08:57.240 --> 0:09:00.200 if you look at the results, they're essentially at you know, 0:09:00.240 --> 0:09:03.079 if you include Pastor, Chary Summer, un thanky billion household 0:09:03.120 --> 0:09:05.920 penetrated in the United States and Canada. That's basically a 0:09:05.920 --> 0:09:11.160 fully penetrated mature market. UM and so UM. You know 0:09:11.400 --> 0:09:14.840 that the question that that has been asked of them 0:09:15.080 --> 0:09:18.040 is and this kind of addresses UM. This will impact 0:09:18.080 --> 0:09:20.240 a lot of the media companies in the next couple 0:09:20.240 --> 0:09:22.520 of years as well. As you start to get mature 0:09:22.800 --> 0:09:24.760 and as you start to see growth start to slow, 0:09:25.000 --> 0:09:27.240 what do you do as a result of that? Do 0:09:27.400 --> 0:09:29.840 you which would be the easiest thing? Would you would do? 0:09:30.000 --> 0:09:33.760 Increase content spending, Push more content in front of consumers. 0:09:33.800 --> 0:09:37.520 That will energize UM that that will energize subscriber growth 0:09:38.320 --> 0:09:40.760 going forward. However, there's a price to that. If you 0:09:40.760 --> 0:09:43.000 are going to be spending more money, you're gonna push 0:09:43.000 --> 0:09:45.560 out your break even points. You could go cash flow 0:09:45.600 --> 0:09:48.920 negative in a way. That's a bit of undisciplined spending 0:09:49.520 --> 0:09:52.400 for the sake of growth. And as we saw with 0:09:52.400 --> 0:09:55.600 with Netflix and its earnings, the market currently doesn't like that, 0:09:55.720 --> 0:10:00.760 and so UM and so undisciplined spending to just grow 0:10:01.280 --> 0:10:04.320 isn't the solution. You have to come up with other 0:10:04.400 --> 0:10:08.240 alternatives to try to re energize growth, or certainly to 0:10:08.280 --> 0:10:11.400 try to to try to reduce chart. And and that's 0:10:11.440 --> 0:10:12.720 something that I think a lot of the companies are 0:10:12.720 --> 0:10:15.760 working on and we'll see over the next couple of quarters. 0:10:16.080 --> 0:10:19.000 I think companies experimenting on ways to try to reduce chart. 0:10:20.160 --> 0:10:23.480 And what do you think about the competitive set surrounding Netflix? 0:10:23.720 --> 0:10:26.320 It feels like once a week I I see a 0:10:26.400 --> 0:10:31.640 survey of some kind addressing just how many services the 0:10:31.720 --> 0:10:34.880 average US home or global home needs is at four? 0:10:35.000 --> 0:10:40.640 Is at six? Is? It's whatever? Um? What do you think? So? 0:10:40.760 --> 0:10:44.280 I mean, certainly the number of services that people are 0:10:44.320 --> 0:10:48.560 signing up for UM. I mean I I can't how 0:10:48.559 --> 0:10:52.199 many I have. I think I have eight? Um, that's unsustainable, 0:10:52.400 --> 0:10:55.840 especially if consumers are feeling stressed, they're going to cut 0:10:55.840 --> 0:10:58.160 back on the number of services. And is three is 0:10:58.200 --> 0:11:01.160 it too? It hard to tell. I mean we're so 0:11:01.240 --> 0:11:04.040 early on in terms of the evolution of these services, 0:11:04.679 --> 0:11:08.520 UM that I think I think the jury still lot 0:11:08.559 --> 0:11:10.680 on how many of these services people will sign up for. 0:11:10.720 --> 0:11:12.719 I think you're gonna get a lot of experimentation over 0:11:12.720 --> 0:11:14.560 the next year or two. In terms of business models. 0:11:15.040 --> 0:11:17.480 You know we're seeing Netflix, say you know, they'll they 0:11:17.480 --> 0:11:22.080 may introduce UM an advertising UM service. Disney is talked 0:11:22.080 --> 0:11:25.520 about doing an advertising service. That's certainly uh, you know, 0:11:25.760 --> 0:11:29.680 could could benefit those companies because offering a lower price 0:11:29.760 --> 0:11:33.240 point might get them to stay longer with those services. Um. 0:11:33.280 --> 0:11:36.360 You may see bundling be different. You may see um, 0:11:37.000 --> 0:11:39.320 you know, bundling of all of the services. So I 0:11:39.320 --> 0:11:41.280 think you're gonna see a lot of experimentation over the 0:11:41.280 --> 0:11:44.240 next couple of years and trying to draw conclusions from 0:11:44.320 --> 0:11:47.600 what companies are experiencing today. UM. I think in the 0:11:47.600 --> 0:11:50.920 next couple of year, months and years, we're gonna have 0:11:50.960 --> 0:11:53.560 to have, you know, a different set of conversations about 0:11:53.640 --> 0:11:56.719 what that means for the streaming service. What do you 0:11:56.760 --> 0:12:00.560 think about the hand Warner Brothers Discovery is playing with, 0:12:00.720 --> 0:12:03.160 especially as it relates to what you brought up with bundling, 0:12:03.200 --> 0:12:09.080 because here they are with HBO, Max Discovery, Rest in Peace, 0:12:09.320 --> 0:12:13.440 CNN plus Uh, how does it all come together, do 0:12:13.520 --> 0:12:17.400 you think for this company in the streaming space? Yeah, Look, 0:12:17.440 --> 0:12:19.840 I think one of the things that that kind of 0:12:19.880 --> 0:12:22.959 got lost over the last couple of years, especially with 0:12:23.320 --> 0:12:27.199 Warner Media being embedded with it, the larger A T 0:12:27.320 --> 0:12:32.040 and T family was how powerful a company, um Warner 0:12:32.080 --> 0:12:35.680 Media is with its its legacy of you know, of 0:12:35.800 --> 0:12:38.880 content going all the way back to the beginning of 0:12:38.880 --> 0:12:41.840 of the film and TV industry. And so there's a 0:12:41.840 --> 0:12:44.120 lot of content there. And oh, by the way, they 0:12:44.120 --> 0:12:46.960 have Warner Brothers, which is one of the premier studios 0:12:46.960 --> 0:12:49.120 in the world, and their ability to generate a lot 0:12:49.160 --> 0:12:52.200 of content, uh, you know, a lot of which they 0:12:52.240 --> 0:12:53.920 used to sell the third parties. Now a lot of 0:12:53.920 --> 0:12:57.360 that would go towards UM the you know, the HBO 0:12:57.440 --> 0:13:01.040 Max streaming service. So I wouldn't just count their ability 0:13:01.120 --> 0:13:03.920 to be one of the long term survivors in the 0:13:03.920 --> 0:13:08.400 streaming awards. Got it. I want to get back to 0:13:08.760 --> 0:13:12.080 what we raised earlier with regards to the state of 0:13:12.120 --> 0:13:16.360 the theatrical business. We're having this conversation the weekend that 0:13:16.640 --> 0:13:22.640 Top Gun returns to theaters. Very high expectations there. Uh. 0:13:22.679 --> 0:13:27.360 I think even best case scenario for Top Gun, for 0:13:27.440 --> 0:13:31.760 the entire movie business, it's never that total box office, 0:13:31.800 --> 0:13:34.920 whether global or domestic, is just never going to get 0:13:34.920 --> 0:13:39.679 back what it used to be, in part because the pandemic, 0:13:39.800 --> 0:13:43.880 I think will shrink the theatrical business. Whether we're talking 0:13:43.920 --> 0:13:48.080 about just the footprint of the exhibition business, or just 0:13:48.720 --> 0:13:51.400 more to the point, the kinds of movies that are 0:13:51.480 --> 0:13:56.480 viable in theaters, which you know, Marvel a handful of 0:13:56.520 --> 0:13:59.200 horror movies and and and and that's about it as 0:13:59.240 --> 0:14:01.560 far as I see it. How do you see the 0:14:01.640 --> 0:14:06.560 prospects for theatrical Yeah, it's it's very interesting. Um. I've 0:14:06.559 --> 0:14:10.439 been I mean anecdotically, I've been to the theater seven 0:14:10.520 --> 0:14:14.040 or eight times since the pandemic ended, and or I 0:14:14.040 --> 0:14:17.200 guess since the theaters reopened. I've yet to be in 0:14:17.240 --> 0:14:20.040 a theater that is crowded. Um. I think. I think 0:14:20.080 --> 0:14:22.840 one of the challenges at the moment is that there's 0:14:23.480 --> 0:14:27.120 significant parts of the population that are are a bit 0:14:27.200 --> 0:14:30.640 uncomfortable going back into the theater. Certainly, um. You know, 0:14:30.720 --> 0:14:34.040 young adults and teenagers and you know twenty five year 0:14:34.080 --> 0:14:36.640 old are comfortable going back, and so they're they're the 0:14:36.640 --> 0:14:38.760 ones who are who are flocking to the theaters to 0:14:38.800 --> 0:14:42.880 watch all those um um those superhero movies. Children. On 0:14:42.920 --> 0:14:45.880 the other hand, parents are a bit uncomfortable taking them 0:14:45.880 --> 0:14:48.760 there and so they've been slower to come back, as 0:14:48.800 --> 0:14:51.920 are are are older adults. You know, the ones who 0:14:51.920 --> 0:14:54.000 would go and see comedies and dramas and things like that. 0:14:54.800 --> 0:14:57.920 I think those will relaxed as people get more comfortable 0:14:57.960 --> 0:15:02.000 with the idea that UM that you know they're vaccinated 0:15:02.160 --> 0:15:04.200 and that they aren't going to get sick by going 0:15:04.240 --> 0:15:07.160 to movie theaters. But I do agree with your basic premise, 0:15:07.200 --> 0:15:10.040 which is I think longer term, the box office is 0:15:10.120 --> 0:15:13.480 going to struggle to come back to pre COVID pre 0:15:13.640 --> 0:15:17.480 pandemic levels UM. The number of movies being released into 0:15:17.600 --> 0:15:22.040 theaters has declined. It's unlikely to come back to the 0:15:22.120 --> 0:15:25.440 levels that you previous saw. Dramas and comedies they worked 0:15:25.560 --> 0:15:28.800 much better on a streaming service, or at least that's 0:15:28.800 --> 0:15:31.160 what the studios seem to think, and so putting them 0:15:31.280 --> 0:15:34.280 into theaters UM is going to be a bit of 0:15:34.280 --> 0:15:36.920 a challenge. I don't think we're going to go back 0:15:36.960 --> 0:15:39.440 to the you know, the days where you had day 0:15:39.440 --> 0:15:43.160 and date releases, or that studios would would take higher 0:15:43.200 --> 0:15:46.360 profile movies and put them directly into their streaming services. 0:15:46.400 --> 0:15:48.240 I think the studios have learned a lesson over the 0:15:48.320 --> 0:15:51.600 last year or so that that putting a a a 0:15:52.360 --> 0:15:57.520 movie through a theatrical release UM benefits the long term. UM. 0:15:57.560 --> 0:16:00.680 The long the long term value of that particular film. Um, 0:16:00.680 --> 0:16:04.480 you have better discovery, you have franchise building. All of 0:16:04.520 --> 0:16:07.480 those things are clear. And so yes, we've gone from 0:16:07.560 --> 0:16:10.720 ninety days to potentially forty five days for for a 0:16:10.800 --> 0:16:14.400 release window. But I don't think, um, but I don't 0:16:14.440 --> 0:16:17.160 think that you are going to have you know, the 0:16:18.240 --> 0:16:20.160 fear that everyone has, which is or many people have, 0:16:20.480 --> 0:16:25.160 which is that the theatrical window completely disappears. Having said that, 0:16:25.480 --> 0:16:27.760 now we have an opportunity for a lot of companies, 0:16:27.880 --> 0:16:30.640 and Netflix is of the world, the app the Apples 0:16:30.680 --> 0:16:36.239 and the Amazons, to put more movies into the theaters. Um, 0:16:36.280 --> 0:16:38.240 there's a lot of screens that are available. They can 0:16:38.280 --> 0:16:44.440 take advantage of that. We'll we'll see what happens. We'll 0:16:44.440 --> 0:16:54.240 be back with Navin Sarma after this. We're back with 0:16:54.400 --> 0:16:59.640 Navin Sarma, Senior director of SMP Global Ratings. What you 0:16:59.680 --> 0:17:03.960 were saying with regard to the pandemic overhang on the 0:17:03.960 --> 0:17:08.280 theatrical business, I'm wondering how you see other out of 0:17:08.400 --> 0:17:16.600 home media businesses faring. Whether we're talking about theme parks, concerts, Broadway, uh, 0:17:16.680 --> 0:17:19.560 all of which have took taken some serious lumps in 0:17:19.600 --> 0:17:22.080 the past few years. But also have shown a lot 0:17:22.119 --> 0:17:26.480 of resilience. UM. Longer term, how are you feeling about 0:17:26.520 --> 0:17:30.240 those out of home businesses. Experiential is the word that 0:17:30.320 --> 0:17:33.680 all the media companies are out throwing around. So consumers 0:17:33.760 --> 0:17:36.159 don't just want to sit on there, you know, in 0:17:36.200 --> 0:17:38.880 their chairs and and have stuff happen in front of them. 0:17:39.200 --> 0:17:41.800 They want to get out there and experience it, whether 0:17:41.840 --> 0:17:44.439 it's concerts or going to theme parks or going to 0:17:44.480 --> 0:17:48.480 sporting events. I think that's where we think consumers are 0:17:48.520 --> 0:17:52.000 going to really push the media sector. Um. We've kind 0:17:52.000 --> 0:17:55.040 of seen that already, right, UM. You know, the theme 0:17:55.080 --> 0:17:58.240 parks have been have done incredibly well. They may not 0:17:58.320 --> 0:18:03.480 necessarily back to occupancy, but they are. They are crowded, 0:18:03.520 --> 0:18:06.920 and people are signing up and going to those steam parks. UM. 0:18:07.200 --> 0:18:11.400 Concerts and especially the concert venues are doing quite well. 0:18:11.800 --> 0:18:15.000 And we've seen a number of um of concerts get 0:18:15.000 --> 0:18:17.000 announced for next year. So next year I think will 0:18:17.040 --> 0:18:19.959 be a big year for for concerts. But I do 0:18:20.000 --> 0:18:22.560 think people want to go out and actually interact with 0:18:22.720 --> 0:18:27.040 the people, um, you know, an experience events rather than 0:18:27.080 --> 0:18:31.320 just sit at home. Sure. UM, although and I think 0:18:31.320 --> 0:18:33.560 to some degree that's being driven by the fact that 0:18:33.600 --> 0:18:37.040 people because it was suppressed over the past two years 0:18:37.080 --> 0:18:41.760 and sort of exploding now. I do wonder though, uh, 0:18:41.800 --> 0:18:46.679 you know, if the pandemic continues to persist, continues to linger, 0:18:47.119 --> 0:18:51.840 whether it's going to have a more deleterious effect than 0:18:52.440 --> 0:18:56.080 than we might be envisioning here. I don't know. I 0:18:56.119 --> 0:18:59.680 think at this point, Um, I think the majority of 0:18:59.720 --> 0:19:03.879 the population is in effect moved on and you know, 0:19:03.920 --> 0:19:07.280 and told our politicians, yeah, we might get sick, but 0:19:07.440 --> 0:19:09.600 we think it's something that we can live with. So 0:19:09.760 --> 0:19:13.840 I don't see, and we're certainly not anticipating our resurgence 0:19:13.880 --> 0:19:17.040 of the pandemic leading to any kind of a shutdown 0:19:17.040 --> 0:19:20.159 in the you know, in the in the in the 0:19:20.680 --> 0:19:24.000 in the in the economy. I also wanted to ask 0:19:24.040 --> 0:19:28.200 you about M and A and the and deal making, which, 0:19:28.680 --> 0:19:33.399 you know, going back to our recession conversation, I think 0:19:33.560 --> 0:19:37.080 is only going to get more difficult, which runs contrary 0:19:37.119 --> 0:19:40.920 to the narrative that's been prevailing the past few years 0:19:40.960 --> 0:19:45.520 that we're gonna seem more and more consolidation. Um, how 0:19:45.520 --> 0:19:48.480 are you feeling about how the state of M and 0:19:48.520 --> 0:19:51.639 A is playing out? Yeah? So so at the moment, 0:19:51.680 --> 0:19:55.480 I mean it's interesting. So for the last ten years 0:19:55.560 --> 0:19:58.879 or so, actually since the really the Great Recession, interest 0:19:59.000 --> 0:20:02.320 rights have been incredib really low. UM. The Fed cut 0:20:02.359 --> 0:20:05.199 interest rates, you know, right at the beginning of them, 0:20:05.320 --> 0:20:07.480 of the Great pro Session, and they kept it very low. 0:20:07.520 --> 0:20:09.920 And they they you know, they kept right through the 0:20:09.960 --> 0:20:13.800 pandemic to really stimulate economic growth. And that had some 0:20:13.840 --> 0:20:18.359 side effects or effects and impacted the It made money 0:20:18.560 --> 0:20:20.679 very cheap for deal making an M and A. And 0:20:20.720 --> 0:20:22.800 so we saw a lot of deal making over the 0:20:22.880 --> 0:20:26.600 last number of years, UM financed by by cheap money. 0:20:28.080 --> 0:20:31.240 What you're and you know, but what you're seeing today, however, 0:20:31.680 --> 0:20:33.680 is that the cost of capital, especially over the last 0:20:33.720 --> 0:20:36.639 couple of weeks, is the Fed has ratchet up interest 0:20:36.720 --> 0:20:39.720 rates UM. The cost of capital has gone up considerably, 0:20:40.119 --> 0:20:42.800 and that definitely has hurt dealmaking. And M and A. 0:20:43.400 --> 0:20:46.199 We've we've heard anecdotal stories of deals getting to the 0:20:46.240 --> 0:20:50.359 finish line but dying because of expensive financing. Now, having 0:20:50.400 --> 0:20:54.080 said that, if we go into an economic downturn, UM 0:20:54.119 --> 0:20:57.359 and the Fed decides that they do need to um 0:20:57.400 --> 0:20:59.480 you know, cut interest rates to try to once against 0:20:59.480 --> 0:21:03.000 stimulated and on my growth, you certainly could see deal 0:21:03.080 --> 0:21:04.920 making them and a pick up and and look that 0:21:05.040 --> 0:21:07.199 that tends to happen towards the end of ose session. 0:21:07.880 --> 0:21:12.080 Companies have underperforming assets um that they'd like to shed. 0:21:12.600 --> 0:21:15.879 You have companies that are that are underperforming because of 0:21:15.920 --> 0:21:18.879 an economic recession, that are unable to meet their financial commitments. 0:21:19.520 --> 0:21:23.040 You get bankruptcies, especially increasing after we come out of 0:21:23.080 --> 0:21:25.800 a recession. You get for sales. So I think you 0:21:25.840 --> 0:21:27.520 could you could see a return to that, but a 0:21:27.600 --> 0:21:30.200 lot of that would depend on what happens to interest 0:21:30.320 --> 0:21:34.960 rates going forward. And I'm thinking that what's going on 0:21:35.160 --> 0:21:39.960 in Washington will certainly come into bear here in terms 0:21:40.080 --> 0:21:43.439 of the potential for regulation. There seems to be an 0:21:43.480 --> 0:21:47.040 increasing focus on antitrust. Uh. Do you think that's going 0:21:47.080 --> 0:21:49.920 to weigh on the deal making as well? I think 0:21:49.920 --> 0:21:51.960 it's a good it's a good point. I think it 0:21:52.040 --> 0:21:56.119 a weigh on the the desire of some companies to 0:21:56.680 --> 0:22:01.760 actually do deals. Clearly, the regular there's in Washington. The 0:22:01.800 --> 0:22:06.800 politicians of Washington are very focused on the tech industry um, 0:22:07.080 --> 0:22:11.000 and so we could see them step in and and 0:22:11.240 --> 0:22:16.439 potentially um, you know, prevent or try to prevent deals 0:22:16.520 --> 0:22:20.200 happening that involved the tech companies. Uh, you know, we 0:22:20.280 --> 0:22:26.000 saw some comments from the FTC about Amazon's acquisition of MGM, 0:22:26.200 --> 0:22:28.119 and in the grand scheme of things, MGM is a 0:22:28.400 --> 0:22:31.639 you know, is tiny compared to Amazon, and yet that 0:22:31.840 --> 0:22:35.760 raised a number of concerns in Washington over that deal. 0:22:36.359 --> 0:22:39.119 So it kind of depends on who's getting involved in 0:22:39.200 --> 0:22:43.120 those transactions. I think with media companies, if you saw, 0:22:43.400 --> 0:22:46.879 you know, further consolidation in certain sectors, you know, if 0:22:46.920 --> 0:22:49.960 there's a consolidation of movie studios, that might raise some 0:22:50.480 --> 0:22:55.440 some regulatory issues. UM. Certainly, if cable companies decide that 0:22:55.480 --> 0:22:58.040 they're going to try to merge, um, that could raise 0:22:58.119 --> 0:23:01.840 some issues. But I do think the especially you know, 0:23:01.920 --> 0:23:04.520 the people who have the money today, it's the tech companies. 0:23:05.160 --> 0:23:07.320 They may be limited what they can do given the 0:23:08.000 --> 0:23:12.000 height and focus on on their businesses. Staying on tech 0:23:12.160 --> 0:23:16.080 for a second, you know, it's an interesting time because 0:23:16.800 --> 0:23:20.240 we've looked at these businesses as too big to fail 0:23:20.440 --> 0:23:23.240 for so long. But here we are coming off a 0:23:23.320 --> 0:23:27.600 week where you know, we saw Evan Spiegel ats Snap 0:23:27.840 --> 0:23:32.240 a revised guidance which sent the stocks for anyone in 0:23:32.359 --> 0:23:39.080 digital advertising plummeting. We're seeing meta take a huge hit 0:23:39.240 --> 0:23:43.400 coming out of their previous quarter. Are we finally kind 0:23:43.440 --> 0:23:46.119 of as we saw with Netflix. Are we finally seeing 0:23:46.440 --> 0:23:50.440 companies that seem too big to fail, too successful to stumble? 0:23:51.800 --> 0:23:55.160 Are we perhaps moving into a new era of understanding 0:23:55.359 --> 0:23:59.520 just how incredible these companies are. I think what's interesting 0:23:59.760 --> 0:24:02.480 is is the discussion I was at a conference for 0:24:03.000 --> 0:24:04.680 for the last couple of days. In fact, I was 0:24:04.720 --> 0:24:07.879 at the conference where Snap spoke, and the question that 0:24:07.920 --> 0:24:12.200 everyone was asking was is this a Snap platform question issue? 0:24:12.800 --> 0:24:15.320 M Are they just losing share to the platforms like 0:24:15.400 --> 0:24:19.080 TikTok or is this a you know, the forerunner of 0:24:19.640 --> 0:24:23.760 um of an advertising decline or pressure on advertising? So 0:24:24.400 --> 0:24:26.760 when you when you when you look at digital advertising 0:24:26.880 --> 0:24:29.880 on tech and social media platforms, they may be more 0:24:30.000 --> 0:24:33.040