1 00:00:02,720 --> 00:00:10,559 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. You're listening to the 2 00:00:10,600 --> 00:00:14,560 Speaker 1: Bloomberg Intelligence Podcast. Catch us live weekdays at ten am 3 00:00:14,600 --> 00:00:17,840 Speaker 1: Eastern on Apple, Cocklay and Android Auto with the Bloomberg 4 00:00:17,920 --> 00:00:21,040 Speaker 1: Business App. Listen on demand wherever you get your podcasts, 5 00:00:21,360 --> 00:00:23,520 Speaker 1: or watch us live on YouTube. 6 00:00:24,160 --> 00:00:26,239 Speaker 2: You know what firm is celebrating one hundred years what 7 00:00:26,600 --> 00:00:30,280 Speaker 2: McKenzie really, Yeah, it's one hundred years in business and 8 00:00:30,320 --> 00:00:35,040 Speaker 2: of course they kind of invented the modern consultancy business overall. 9 00:00:35,280 --> 00:00:37,760 Speaker 2: But what's interesting is, of course the solutions that they 10 00:00:37,800 --> 00:00:41,920 Speaker 2: tend to prescribe, you know, streamlining and cutting down staff 11 00:00:41,960 --> 00:00:44,360 Speaker 2: and consolidating is something that they now. 12 00:00:44,240 --> 00:00:46,000 Speaker 3: Need to do to themselves. 13 00:00:46,080 --> 00:00:49,080 Speaker 2: Okay, treat our Notterrogon is Bloomberg News is chief Wall 14 00:00:49,120 --> 00:00:49,880 Speaker 2: Stret correspondent. 15 00:00:49,880 --> 00:00:51,720 Speaker 3: He's been writing about this and Treed. 16 00:00:51,800 --> 00:00:53,960 Speaker 2: This all comes on the heels of a pretty, i 17 00:00:54,000 --> 00:00:56,800 Speaker 2: don't want to say disappointing, but lackluster five years. 18 00:00:57,200 --> 00:00:59,680 Speaker 4: And that's that's probably the best way to describe it, right, 19 00:01:00,080 --> 00:01:03,160 Speaker 4: any company that earns fifteen billion dollars a year, you 20 00:01:03,200 --> 00:01:05,120 Speaker 4: can't really look at their performance and say, wow, they're 21 00:01:05,120 --> 00:01:09,319 Speaker 4: in terrible shape. But around twenty twenty one, McKenzie at 22 00:01:09,400 --> 00:01:11,920 Speaker 4: revenue at the fifteen billion dollar mark. Here we are 23 00:01:11,920 --> 00:01:14,080 Speaker 4: in twenty twenty four to twenty five. By the time 24 00:01:14,120 --> 00:01:16,039 Speaker 4: this year, NZ, we're going to be sixteen billion, just 25 00:01:16,080 --> 00:01:18,800 Speaker 4: a little bit over. So they've operated in this narrow 26 00:01:18,959 --> 00:01:21,440 Speaker 4: band of fifteen billion dollars to sixteen billion dollars in 27 00:01:21,480 --> 00:01:25,360 Speaker 4: annual revenue, which is great. Any other management consulting firm 28 00:01:25,400 --> 00:01:29,200 Speaker 4: would absolutely love to post numbers like that. For McKinsey, 29 00:01:29,240 --> 00:01:31,320 Speaker 4: it is the sense that their revenue has flatlined a 30 00:01:31,360 --> 00:01:34,640 Speaker 4: little bit. And you did mention their one hundred year 31 00:01:34,680 --> 00:01:38,440 Speaker 4: celebrations right which twenty twenty six, that is when they 32 00:01:38,480 --> 00:01:41,600 Speaker 4: will turn one hundred. So they had this annual partner 33 00:01:41,680 --> 00:01:44,160 Speaker 4: gathering which also doubled up as this kickoff for their 34 00:01:44,160 --> 00:01:46,720 Speaker 4: one hundred year festivities. And for those who were there 35 00:01:46,760 --> 00:01:50,880 Speaker 4: who listened to Bob's Turnfels, the global managing partner at McKenzie, 36 00:01:50,880 --> 00:01:55,160 Speaker 4: the de facto leader, you could send some plain spoken bravado. 37 00:01:55,320 --> 00:01:58,680 Speaker 4: His words to his partners were, we will kick some 38 00:01:58,760 --> 00:02:02,080 Speaker 4: ass as we start our second century. He was asking people, 39 00:02:02,160 --> 00:02:04,680 Speaker 4: are you in for this mission? And those who say yes, 40 00:02:05,120 --> 00:02:07,320 Speaker 4: I can assure you good times are ahead because it 41 00:02:07,400 --> 00:02:09,400 Speaker 4: is also an acknowledgment that the last few years have 42 00:02:09,480 --> 00:02:12,960 Speaker 4: been rocky, not just from its standpoint of its financial health, 43 00:02:13,040 --> 00:02:14,799 Speaker 4: but you have to think about some of the challenges 44 00:02:14,800 --> 00:02:17,920 Speaker 4: in the controversies that McKenzie has had to navigate, the 45 00:02:17,960 --> 00:02:20,600 Speaker 4: opioid scandal, some of the criticism over their work in 46 00:02:20,720 --> 00:02:22,720 Speaker 4: China and Saudi Arabia and even back home here in 47 00:02:22,720 --> 00:02:26,960 Speaker 4: the US with Ice for instance. These are questions that 48 00:02:27,000 --> 00:02:29,320 Speaker 4: were asked and stuff that McKenzie has had to answer, 49 00:02:29,720 --> 00:02:34,480 Speaker 4: and it presented an unwelcome distraction. But the bottom line 50 00:02:34,600 --> 00:02:37,760 Speaker 4: is for this firm is when it looks at its numbers, 51 00:02:38,240 --> 00:02:41,880 Speaker 4: it does realize people won't like hearing this, but at 52 00:02:41,880 --> 00:02:44,400 Speaker 4: management levels that's how they talk about it. It realized 53 00:02:44,440 --> 00:02:47,480 Speaker 4: that there was some bloat and the message that's percolating 54 00:02:47,520 --> 00:02:50,160 Speaker 4: through the firm right now is it's time to get leaner. 55 00:02:51,000 --> 00:02:53,280 Speaker 5: I was interviewing with McKenzie when I was in business school, 56 00:02:53,520 --> 00:02:55,440 Speaker 5: and like the second round, they asked me to get 57 00:02:55,520 --> 00:02:57,800 Speaker 5: up on a whiteboard and sketch out kind of like 58 00:02:57,840 --> 00:03:00,880 Speaker 5: a business flow model. I just turned it them and 59 00:03:00,960 --> 00:03:02,920 Speaker 5: said thank you, but no thank you and walk out 60 00:03:02,960 --> 00:03:05,520 Speaker 5: the door. Anytime you bring a whiteboard I'm out of there. 61 00:03:05,560 --> 00:03:09,240 Speaker 5: I can't think like it. So when trade it stocks 62 00:03:09,320 --> 00:03:14,000 Speaker 5: for a living? After that, shre Why has revenue been flat? 63 00:03:14,040 --> 00:03:14,359 Speaker 6: Here? 64 00:03:14,560 --> 00:03:17,760 Speaker 5: Is there some concern that maybe all this AI spending 65 00:03:17,880 --> 00:03:21,120 Speaker 5: is taken away from other budgets. 66 00:03:20,720 --> 00:03:22,720 Speaker 6: Where maybe I don't need the consulting or. 67 00:03:23,160 --> 00:03:26,840 Speaker 4: That's certainly the concern on the forward perhaps, but just 68 00:03:26,880 --> 00:03:30,000 Speaker 4: in the last few years the reality of the industry 69 00:03:30,000 --> 00:03:31,880 Speaker 4: and McKinsey in some ways is the flag bearer for 70 00:03:31,919 --> 00:03:35,560 Speaker 4: the industry. But there are perhaps other major consulting films 71 00:03:35,600 --> 00:03:36,560 Speaker 4: that are struggling even more. 72 00:03:36,560 --> 00:03:37,520 Speaker 6: And the fact is that. 73 00:03:37,440 --> 00:03:41,560 Speaker 4: The demand for traditional consulting services may not be as 74 00:03:41,640 --> 00:03:44,640 Speaker 4: high as it used to be. Companies and clients are 75 00:03:44,680 --> 00:03:48,960 Speaker 4: getting cost conscious. When your clients are not able to 76 00:03:49,000 --> 00:03:52,960 Speaker 4: post great revenue growth, the only other level that they 77 00:03:52,960 --> 00:03:56,720 Speaker 4: can pull is expenses, and consulting fees are the first 78 00:03:56,800 --> 00:03:57,680 Speaker 4: ones thrown out the. 79 00:03:57,680 --> 00:04:00,880 Speaker 6: Window, right Advertising is the first one. I think advertising 80 00:04:00,920 --> 00:04:02,320 Speaker 6: then consultant for us. 81 00:04:02,360 --> 00:04:04,920 Speaker 3: But is McKenzie's solutions so out of the box. 82 00:04:04,960 --> 00:04:07,400 Speaker 2: I mean, at this point what McKinsey recommends is kind 83 00:04:07,440 --> 00:04:10,000 Speaker 2: of dogma in corporate boardrooms. You don't need to hire 84 00:04:10,040 --> 00:04:12,640 Speaker 2: mckenzy to tell you how to do some of these things. 85 00:04:12,480 --> 00:04:15,080 Speaker 4: Look and I think the way you're framing it is 86 00:04:15,160 --> 00:04:18,040 Speaker 4: just a little bit more of a polite way of 87 00:04:18,320 --> 00:04:20,160 Speaker 4: some of the memes that you see out there right, 88 00:04:20,200 --> 00:04:23,440 Speaker 4: which is this idea that all that consulting firms do 89 00:04:23,760 --> 00:04:28,599 Speaker 4: is prescribe, grow revenue and cut costs. And you know, 90 00:04:28,680 --> 00:04:30,720 Speaker 4: in the moment, it might be funny, but to some 91 00:04:30,880 --> 00:04:34,560 Speaker 4: extent it is an oversimplification of what they do because 92 00:04:35,400 --> 00:04:38,200 Speaker 4: if you look at the list of clients that they've 93 00:04:38,240 --> 00:04:40,599 Speaker 4: wrapped up. We talked about them starting out in nineteen 94 00:04:40,640 --> 00:04:46,680 Speaker 4: twenty six university professor who advised a local meatpacker, Armors 95 00:04:46,680 --> 00:04:50,000 Speaker 4: and company. From that, what they've grown up to they 96 00:04:50,040 --> 00:04:53,160 Speaker 4: are the go to advisor to blue chip companies from 97 00:04:53,160 --> 00:04:55,719 Speaker 4: Coca Cola and Goldman Sachs to everyone else and also 98 00:04:55,839 --> 00:04:58,040 Speaker 4: countries that span the globe. And a lot of these 99 00:04:58,040 --> 00:05:00,680 Speaker 4: people are repeat clients. So you have to assume that 100 00:05:00,839 --> 00:05:04,320 Speaker 4: is not as simple as wrote advice that they're doling out, 101 00:05:04,360 --> 00:05:07,400 Speaker 4: because for these big companies to turn to McKinsey again 102 00:05:07,440 --> 00:05:10,480 Speaker 4: and again tells you that they see value in most 103 00:05:10,520 --> 00:05:13,600 Speaker 4: of what they do. There might be some extreme cases 104 00:05:13,600 --> 00:05:16,400 Speaker 4: on either side. One it might be some undesirable work, 105 00:05:16,400 --> 00:05:19,440 Speaker 4: and two it might just be obvious advice. But for 106 00:05:19,520 --> 00:05:22,360 Speaker 4: the most part, they're clearly doing something that companies value 107 00:05:22,360 --> 00:05:23,640 Speaker 4: and country's value. 108 00:05:23,839 --> 00:05:27,040 Speaker 2: Speaking of countries you mentioned China and Saudi Arabia, China 109 00:05:27,520 --> 00:05:32,080 Speaker 2: wants its companies to continue to bring in consults, but 110 00:05:32,200 --> 00:05:34,960 Speaker 2: they just want them to be homegrown consultants. 111 00:05:34,480 --> 00:05:36,480 Speaker 4: Right and like that seems to be the push in China, 112 00:05:36,520 --> 00:05:39,000 Speaker 4: which is a good job relying on all of these 113 00:05:39,040 --> 00:05:41,680 Speaker 4: Western firms to figure out how you need to modernize 114 00:05:41,760 --> 00:05:44,039 Speaker 4: and be ready to compete on a global scale, but 115 00:05:44,080 --> 00:05:47,760 Speaker 4: they're also encouraging them now to turn to homegrown consulting firms. 116 00:05:47,880 --> 00:05:50,040 Speaker 4: Saudi Arabia is a completely different channel. We have a 117 00:05:50,080 --> 00:05:53,960 Speaker 4: person at McKenzie estimated that in the prior decades are 118 00:05:53,960 --> 00:05:57,640 Speaker 4: twenty fourteen to twenty twenty, for McKinsey earned at least 119 00:05:57,760 --> 00:06:00,320 Speaker 4: five hundred million dollars a year from the kingdom, which 120 00:06:00,360 --> 00:06:03,320 Speaker 4: is either with companies affiliated with Saudi Arabia or the 121 00:06:03,320 --> 00:06:06,679 Speaker 4: government itself. But the challenge in Saudi Araba is also 122 00:06:06,760 --> 00:06:09,599 Speaker 4: obviously you've seen some of the recent headlines where they're 123 00:06:09,640 --> 00:06:12,680 Speaker 4: pulling back on consulting expenses. Some of these Spine and 124 00:06:12,680 --> 00:06:14,840 Speaker 4: the Sky projects are not working out as they had 125 00:06:14,880 --> 00:06:18,000 Speaker 4: hoped for, and again consulting fees are going away, and 126 00:06:18,080 --> 00:06:22,840 Speaker 4: Saudi Arabia had become one of mckinzie's most important clients globally, 127 00:06:22,960 --> 00:06:26,559 Speaker 4: so that is obviously also a place where they don't 128 00:06:26,600 --> 00:06:29,080 Speaker 4: necessarily see a lot of room for rapping growth. 129 00:06:30,040 --> 00:06:33,120 Speaker 6: Stay with us. More from Bloomberg Intelligence coming up after this. 130 00:06:36,760 --> 00:06:40,440 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 131 00:06:40,520 --> 00:06:43,919 Speaker 1: weekdays at ten am Eastern on Applecarplay and Android Auto 132 00:06:44,040 --> 00:06:47,080 Speaker 1: with the Bloomberg Business App. Listen on demand wherever you 133 00:06:47,120 --> 00:06:50,120 Speaker 1: get your podcasts, or watch us live on YouTube. 134 00:06:50,839 --> 00:06:54,160 Speaker 2: We are monitoring the latest on Netflix's bid for Warner 135 00:06:54,200 --> 00:06:54,960 Speaker 2: Brothers Discovery. 136 00:06:54,960 --> 00:06:57,320 Speaker 3: I think we're in week two or week three, were 137 00:06:57,320 --> 00:06:57,800 Speaker 3: we Yeah. 138 00:06:57,680 --> 00:06:59,720 Speaker 6: I've just been out there for a long time. 139 00:07:00,360 --> 00:07:02,640 Speaker 2: Take a long time to absolutely so, I mean they 140 00:07:02,640 --> 00:07:05,320 Speaker 2: were thinking twelve to eighteen months could be longer. Of course, 141 00:07:05,320 --> 00:07:07,760 Speaker 2: we need to bring in Jennifer Read Bloomberg Intelligence senior 142 00:07:07,839 --> 00:07:11,640 Speaker 2: litigation analysts who's been on top of all the regulatory concerns. 143 00:07:11,680 --> 00:07:14,240 Speaker 2: And jen you heard what Lisa was saying about this 144 00:07:14,400 --> 00:07:17,480 Speaker 2: letter that the co CEOs, Greg Peters and Ted Saranda's 145 00:07:17,520 --> 00:07:20,880 Speaker 2: have released. Did we learn anything new from that letter 146 00:07:20,960 --> 00:07:25,800 Speaker 2: that helps clarify and clear up the regulatory murkiness. 147 00:07:26,280 --> 00:07:28,480 Speaker 7: I mean, I think what they said in the letter 148 00:07:28,520 --> 00:07:30,560 Speaker 7: is what they had to say. You know, right now, 149 00:07:30,600 --> 00:07:33,200 Speaker 7: they are trying to convince the shareholders of Warner Brothers 150 00:07:33,200 --> 00:07:35,640 Speaker 7: that they are going to be a better buyer than Paramount. 151 00:07:35,640 --> 00:07:38,200 Speaker 7: They're in a fight for the assets, and they've heard 152 00:07:38,240 --> 00:07:40,360 Speaker 7: what the concerns are, that it's going to kill the 153 00:07:40,400 --> 00:07:43,560 Speaker 7: movie theater experience and kill movie theaters, That people will 154 00:07:43,560 --> 00:07:46,520 Speaker 7: lose jobs, people who create content will lose jobs because 155 00:07:46,560 --> 00:07:48,960 Speaker 7: it's one fewer buyer of content, and so they're just 156 00:07:49,000 --> 00:07:51,800 Speaker 7: trying to assuage these people that that won't be the 157 00:07:51,840 --> 00:07:55,120 Speaker 7: case if Netflix ends up actually being the fire of 158 00:07:55,120 --> 00:07:55,760 Speaker 7: Warner Brothers. 159 00:07:55,800 --> 00:07:59,320 Speaker 5: Down the road, red headline crossing the Bloomberg terminal, Nick 160 00:07:59,440 --> 00:08:04,480 Speaker 5: Reiner arrested by LAPD. Bail set at four million dollars. 161 00:08:04,680 --> 00:08:07,080 Speaker 6: That's according to Bloomberg News. We'll have some more reporting 162 00:08:07,080 --> 00:08:07,920 Speaker 6: on that going forward. 163 00:08:09,640 --> 00:08:13,040 Speaker 5: If you were advising that Warner Brothers Discovery board, which 164 00:08:13,040 --> 00:08:15,160 Speaker 5: do you would you recommend from a regulatory standpoint, which 165 00:08:15,240 --> 00:08:16,400 Speaker 5: is the least amount of. 166 00:08:16,440 --> 00:08:18,840 Speaker 7: Risk oh, I think from an anti trust perspective, it 167 00:08:18,880 --> 00:08:22,960 Speaker 7: would be Paramount, and the reason is because there are overlaps. 168 00:08:23,000 --> 00:08:26,720 Speaker 7: Both companies have risk, both companies raise anti trust issues, 169 00:08:27,000 --> 00:08:28,960 Speaker 7: but I think the issues that are raised by the 170 00:08:29,000 --> 00:08:32,920 Speaker 7: Paramount bid may be more easily defensible or easily more 171 00:08:32,920 --> 00:08:35,600 Speaker 7: easily fixed than the issues that come up with Netflix. 172 00:08:35,600 --> 00:08:37,800 Speaker 7: And then you also have you know, what we've seen 173 00:08:37,840 --> 00:08:40,440 Speaker 7: in the news that it seems that the owners, the 174 00:08:40,440 --> 00:08:43,920 Speaker 7: people who are behind Paramount are allies with the administration, 175 00:08:44,280 --> 00:08:46,959 Speaker 7: and this administration has said that they will be involved 176 00:08:47,000 --> 00:08:49,640 Speaker 7: in this, and that obviously gives them a lake up 177 00:08:49,679 --> 00:08:51,359 Speaker 7: with respect to that situation. 178 00:08:51,880 --> 00:08:54,360 Speaker 2: Jen you not noted in your research that there is 179 00:08:54,360 --> 00:08:57,640 Speaker 2: a consumer lawsuit filed against Netflix's bid for Warner Brothers, 180 00:08:58,160 --> 00:09:01,440 Speaker 2: and it's a proposed class action suit as well. Does 181 00:09:01,440 --> 00:09:03,679 Speaker 2: that matter? Does that make a difference to what we're 182 00:09:03,679 --> 00:09:04,400 Speaker 2: seeing right now? 183 00:09:04,480 --> 00:09:07,200 Speaker 7: You know it does. I'll say that these consumer lawsuits 184 00:09:07,200 --> 00:09:10,679 Speaker 7: seeking to block a deal, it's sort of aligned alongside 185 00:09:10,679 --> 00:09:13,199 Speaker 7: any kind of federal or state scrutiny that would occur. 186 00:09:13,440 --> 00:09:16,480 Speaker 7: They are rarely successful, and this is usually because the 187 00:09:16,520 --> 00:09:19,920 Speaker 7: Department of Justice or the FTC, whoever the reviewer is 188 00:09:20,000 --> 00:09:22,880 Speaker 7: at the time is really considered the expert in antitrust right, 189 00:09:23,120 --> 00:09:25,240 Speaker 7: and a judge would prefer to sit back and let 190 00:09:25,280 --> 00:09:27,640 Speaker 7: that play out and see what happens there then to 191 00:09:27,679 --> 00:09:29,520 Speaker 7: be the one to decide to block a deal, because 192 00:09:29,520 --> 00:09:32,400 Speaker 7: that's what the consumers are looking for. It's not you know, money, 193 00:09:32,480 --> 00:09:34,240 Speaker 7: which is what you usually see in a class action, 194 00:09:34,320 --> 00:09:36,080 Speaker 7: but to enjoin the closing of the deal. 195 00:09:36,520 --> 00:09:38,040 Speaker 3: But it adds risk no matter what. 196 00:09:38,200 --> 00:09:42,200 Speaker 7: It's yet another piece of opposition that you never know 197 00:09:42,360 --> 00:09:45,960 Speaker 7: could turn into something along with states right, that could 198 00:09:45,960 --> 00:09:49,120 Speaker 7: get involved, that could align with this consumer action or 199 00:09:49,160 --> 00:09:51,880 Speaker 7: align with the federal agency, the Department of Justice, that 200 00:09:52,240 --> 00:09:55,520 Speaker 7: could end up going after a deal. So yes, it 201 00:09:55,559 --> 00:09:59,160 Speaker 7: adds risk. I would say it's limited risk, but it does. 202 00:10:00,480 --> 00:10:04,280 Speaker 5: So if Paramount wins, there's going to be, just my 203 00:10:04,360 --> 00:10:07,440 Speaker 5: understanding of the media business, a lot more job losses 204 00:10:08,000 --> 00:10:10,239 Speaker 5: for every set designer, every writer. 205 00:10:11,720 --> 00:10:15,320 Speaker 6: That Warner Brothers has. Paramount has won as well. That's right, 206 00:10:15,800 --> 00:10:17,000 Speaker 6: And I would argue. 207 00:10:16,840 --> 00:10:19,600 Speaker 5: The synergies and I've seen research that the synergies ie 208 00:10:19,679 --> 00:10:24,000 Speaker 5: job cuts are two x Paramount versus Netflix. Does that 209 00:10:24,040 --> 00:10:26,400 Speaker 5: factor into what the regulators look at it? 210 00:10:26,480 --> 00:10:26,760 Speaker 8: Does? 211 00:10:27,000 --> 00:10:29,040 Speaker 7: You know it didn't as much in the past, but 212 00:10:29,120 --> 00:10:31,120 Speaker 7: this has been a trend in the last ten years. 213 00:10:31,400 --> 00:10:33,880 Speaker 3: They will look at the impact on workers. 214 00:10:33,920 --> 00:10:35,880 Speaker 7: This is what we call in the antitrust world a 215 00:10:35,920 --> 00:10:39,320 Speaker 7: monopsony issue, too few buyers of a service. And the 216 00:10:39,400 --> 00:10:41,679 Speaker 7: Department of Justice is coming off success with. 217 00:10:41,679 --> 00:10:42,520 Speaker 3: That theory of harm. 218 00:10:42,559 --> 00:10:45,440 Speaker 7: They were able to block Simon and Schuster from acquiring 219 00:10:45,920 --> 00:10:49,080 Speaker 7: Penguin Random House and it was all about fewer bidders 220 00:10:49,120 --> 00:10:52,440 Speaker 7: for top selling authors and similar right, fewer bidders for 221 00:10:52,480 --> 00:10:55,840 Speaker 7: content for writers for creatives. And so they won that 222 00:10:55,920 --> 00:10:59,560 Speaker 7: in court recently, and so it is a theory that 223 00:10:59,600 --> 00:11:02,560 Speaker 7: they could they could pursue and it's a viable anti 224 00:11:02,559 --> 00:11:03,520 Speaker 7: trust theory of harm. 225 00:11:04,480 --> 00:11:06,559 Speaker 2: My other question for you, and I guess this should 226 00:11:06,559 --> 00:11:09,240 Speaker 2: have been the first question I asked you, is Netflix 227 00:11:09,240 --> 00:11:11,360 Speaker 2: has promised all kinds of things. They're going to continue 228 00:11:11,360 --> 00:11:13,760 Speaker 2: to release Warner Brothers movies and theaters. They promise no 229 00:11:13,800 --> 00:11:18,360 Speaker 2: overlap or studio closures. Netflix has a habit, a tendency 230 00:11:18,400 --> 00:11:22,040 Speaker 2: of going back on their word. They reverse course on advertising, 231 00:11:22,080 --> 00:11:24,600 Speaker 2: the reverse course on live sports. So how much can 232 00:11:24,600 --> 00:11:27,480 Speaker 2: we really trust legally any of what they're saying? 233 00:11:27,760 --> 00:11:31,200 Speaker 7: Nothing, You really can't And honestly, sometimes there are consent 234 00:11:31,320 --> 00:11:33,520 Speaker 7: orders settlements entered with the government where these kinds of 235 00:11:33,559 --> 00:11:36,880 Speaker 7: promises are memorialized in writing. And even in that case, 236 00:11:37,280 --> 00:11:40,520 Speaker 7: what anti trust practitioners would tell you is that it 237 00:11:41,080 --> 00:11:44,080 Speaker 7: often fails. Right that those and the companies would say, look, 238 00:11:44,120 --> 00:11:46,760 Speaker 7: we're publicly traded companies. We have a fiduciary duty to 239 00:11:46,760 --> 00:11:50,280 Speaker 7: our shareholders. Economic conditions change, things change, and so that 240 00:11:50,360 --> 00:11:53,360 Speaker 7: had to change our strategy. So really what they say 241 00:11:53,360 --> 00:11:55,959 Speaker 7: today doesn't have a lot of meaning. Now, if it 242 00:11:56,000 --> 00:11:58,480 Speaker 7: were memorialized in a consent order, maybe it has a 243 00:11:58,480 --> 00:12:00,920 Speaker 7: little bit more clout because then somebody could go after 244 00:12:00,960 --> 00:12:03,960 Speaker 7: it in court if they failed to abide by those promises. 245 00:12:03,960 --> 00:12:07,280 Speaker 7: But even in those cases, you know, this doesn't mean 246 00:12:07,400 --> 00:12:07,840 Speaker 7: very much. 247 00:12:07,920 --> 00:12:10,800 Speaker 5: Do we know which regulatory body, the Department of Justice 248 00:12:10,840 --> 00:12:12,680 Speaker 5: or the Federal Trade Commission, which one's going to review 249 00:12:12,720 --> 00:12:13,080 Speaker 5: this deal? 250 00:12:13,320 --> 00:12:13,920 Speaker 6: Do we care? 251 00:12:14,200 --> 00:12:16,880 Speaker 7: It'll very likely be the Department of Justice because they 252 00:12:16,880 --> 00:12:19,560 Speaker 7: have experience in this area that that's how these deals 253 00:12:19,559 --> 00:12:20,640 Speaker 7: are cleared to one or the other. 254 00:12:21,360 --> 00:12:22,479 Speaker 6: So do I hire. 255 00:12:23,720 --> 00:12:26,600 Speaker 5: Like DOJ Council just to argue my case, or do 256 00:12:26,679 --> 00:12:29,520 Speaker 5: the dudes it's Simpson Thatcher or wherever they have those 257 00:12:29,559 --> 00:12:31,719 Speaker 5: people do I hire a specialist law firm to do this. 258 00:12:31,840 --> 00:12:34,040 Speaker 7: I will tell you you hire a big anti trust 259 00:12:34,080 --> 00:12:37,120 Speaker 7: firm where many of the partners probably came from the 260 00:12:37,120 --> 00:12:40,400 Speaker 7: Department of Justice or Federal Trade Commission that revolving yes. 261 00:12:40,600 --> 00:12:43,560 Speaker 2: Final question to you, Jen, is a burden all on 262 00:12:43,640 --> 00:12:47,319 Speaker 2: Netflix to prove that this is not an antitrust breaking deal? 263 00:12:47,600 --> 00:12:50,199 Speaker 2: Or does Warner Brothers Discovery have a role to play here? 264 00:12:50,280 --> 00:12:52,200 Speaker 3: They've been fairly quiet well. 265 00:12:52,320 --> 00:12:54,920 Speaker 7: The burden if they have a deal and it goes 266 00:12:55,120 --> 00:12:57,160 Speaker 7: before the Department of Justice, the burden is on the 267 00:12:57,200 --> 00:13:00,200 Speaker 7: Department of Justice actually to prove that the deal is 268 00:13:00,200 --> 00:13:03,040 Speaker 7: anti trust concerns. I think they have a fairly easy 269 00:13:03,080 --> 00:13:05,319 Speaker 7: burden because right off, with the. 270 00:13:05,280 --> 00:13:07,959 Speaker 2: Overlapering streaming says it is the burden on Netflix to 271 00:13:08,040 --> 00:13:10,280 Speaker 2: defend against that person on Warner Brothers Discovery. 272 00:13:10,360 --> 00:13:12,200 Speaker 7: Once there's an agreement sign it will be up to 273 00:13:12,240 --> 00:13:16,000 Speaker 7: both of them, mostly Netflix as the buyer, but the 274 00:13:16,559 --> 00:13:19,960 Speaker 7: seller also has to be a participant and cooperate in 275 00:13:20,000 --> 00:13:20,720 Speaker 7: defending the deal. 276 00:13:20,760 --> 00:13:23,360 Speaker 3: What does Warner Brothers do in the meantime right now? 277 00:13:23,400 --> 00:13:26,040 Speaker 7: I think they should just be sitting quietly because it 278 00:13:26,120 --> 00:13:28,040 Speaker 7: might be there's a battle for the assets, and it 279 00:13:28,120 --> 00:13:30,640 Speaker 7: might be there are yet higher bids coming which would 280 00:13:30,679 --> 00:13:32,480 Speaker 7: be a benefit to them. So it seems to me 281 00:13:32,600 --> 00:13:35,840 Speaker 7: that I think they've been fairly quiet. Seems to me 282 00:13:35,920 --> 00:13:37,720 Speaker 7: that's probably a good strategy for them. 283 00:13:38,120 --> 00:13:39,360 Speaker 6: Oh boy, I'm looking at this the U. 284 00:13:40,000 --> 00:13:44,800 Speaker 5: This the paramount acquisite they've got on the lawyer's clearing. 285 00:13:45,360 --> 00:13:49,320 Speaker 5: They've got Cravat, they got Latham, got three of them monsters. 286 00:13:49,360 --> 00:13:51,120 Speaker 3: Yes, yes, now you're serious. 287 00:13:51,360 --> 00:13:54,000 Speaker 5: Each of those firms and including the firms representing Netflix, 288 00:13:54,000 --> 00:13:56,640 Speaker 5: they probably had to say, proceed with this deal. 289 00:13:56,679 --> 00:13:59,319 Speaker 6: We think it will pass muster right. 290 00:13:59,440 --> 00:14:01,400 Speaker 7: Well, what they say says we think we can defend this. 291 00:14:01,520 --> 00:14:04,080 Speaker 7: I don't think any lawyer would say for sure, we're 292 00:14:04,120 --> 00:14:06,880 Speaker 7: clearing this deal for you. They would say, look, we 293 00:14:06,960 --> 00:14:10,040 Speaker 7: think we have defenses, and that if those defenses don't 294 00:14:10,040 --> 00:14:12,360 Speaker 7: work before the Department of Justice, you have yet another 295 00:14:12,400 --> 00:14:14,959 Speaker 7: shot before a judge. Because it isn't really at the 296 00:14:15,040 --> 00:14:16,640 Speaker 7: end of the day, up to the Department of Justice. 297 00:14:16,640 --> 00:14:17,839 Speaker 7: It's up to a federal judge. 298 00:14:17,840 --> 00:14:20,120 Speaker 3: You have to go to court and the Department you 299 00:14:20,200 --> 00:14:23,280 Speaker 3: can win. Merging companies can win these deals in court. 300 00:14:23,560 --> 00:14:26,800 Speaker 6: Stay with us. More from Bloomberg Intelligence coming up after this. 301 00:14:30,160 --> 00:14:33,840 Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live 302 00:14:33,920 --> 00:14:37,000 Speaker 1: weekdays at ten am Eastern on Apple Coarclay and Android 303 00:14:37,040 --> 00:14:40,320 Speaker 1: Auto with the Bloomberg Business App. Listen on demand wherever 304 00:14:40,400 --> 00:14:43,520 Speaker 1: you get your podcasts, or watch us live on YouTube. 305 00:14:44,360 --> 00:14:45,960 Speaker 5: Scarlet Fumpaul, So when you were live here in our 306 00:14:45,960 --> 00:14:48,320 Speaker 5: Bloomberg Interactive Broker studio in New York City, we are 307 00:14:48,360 --> 00:14:51,280 Speaker 5: streaming live on YouTube as well. You know, we love 308 00:14:51,320 --> 00:14:55,560 Speaker 5: the big take stories. These are really interesting topics. They 309 00:14:55,560 --> 00:14:59,440 Speaker 5: are deeply resourced research, deeply sourced and get a lot 310 00:14:59,440 --> 00:15:02,360 Speaker 5: of resources, and they are just awesome and a lot 311 00:15:02,400 --> 00:15:04,560 Speaker 5: of cool graphics for people like me who likes graphics. 312 00:15:04,800 --> 00:15:05,560 Speaker 6: This one's a good one. 313 00:15:05,760 --> 00:15:10,200 Speaker 5: A shadowy global network help Trump make millions in meme coins. 314 00:15:10,520 --> 00:15:13,880 Speaker 5: I can't follow all of the places and exposure that 315 00:15:14,200 --> 00:15:16,760 Speaker 5: President Trump's family has in the crypto space, but I 316 00:15:16,800 --> 00:15:18,240 Speaker 5: know meme coins is certainly one of them. 317 00:15:18,360 --> 00:15:19,520 Speaker 6: So let's check in with the author. 318 00:15:20,040 --> 00:15:23,320 Speaker 5: Zeke Fox, investigative reporter for Bloomberg News joints his life 319 00:15:23,320 --> 00:15:26,920 Speaker 5: here in our Bloomberg Interactive Brokers studio, meme Coins, President 320 00:15:26,960 --> 00:15:31,680 Speaker 5: Trump and his family. What's the story? Yeah, so, during 321 00:15:31,720 --> 00:15:33,920 Speaker 5: his first term. Just a couple of years ago, Trump 322 00:15:34,240 --> 00:15:39,040 Speaker 5: was calling crypto a scam. But as he prepared to 323 00:15:39,080 --> 00:15:44,280 Speaker 5: take office this time, he and his family started two 324 00:15:44,440 --> 00:15:48,800 Speaker 5: big crypto ventures. And for this story I went deep 325 00:15:48,920 --> 00:15:52,720 Speaker 5: on kind of the silliest one, which is the Trump 326 00:15:52,800 --> 00:15:54,480 Speaker 5: and Millennia meme coins. 327 00:15:54,560 --> 00:15:55,440 Speaker 6: I forgot about that one. 328 00:15:55,680 --> 00:15:58,320 Speaker 9: Yeah, So this was on the eve of inauguration the 329 00:15:58,360 --> 00:16:00,920 Speaker 9: president and then his wife both announced they were creating 330 00:16:00,960 --> 00:16:05,560 Speaker 9: new cryptocurrencies that didn't do anything at all. And these 331 00:16:05,600 --> 00:16:09,880 Speaker 9: are like transparently useless. It's kind of like a gambling game. 332 00:16:10,880 --> 00:16:12,960 Speaker 9: And at the time this was really hot in crypto, 333 00:16:13,480 --> 00:16:16,720 Speaker 9: so many people dived in that on paper for just 334 00:16:16,720 --> 00:16:20,760 Speaker 9: a second, the Trump meme coin. The Trump family had 335 00:16:21,160 --> 00:16:24,280 Speaker 9: fifty billion dollars of holdings of this meme coin. But 336 00:16:25,720 --> 00:16:28,120 Speaker 9: this is a crypto world where things can go poof overnight. 337 00:16:29,280 --> 00:16:33,360 Speaker 9: The best estimates we've found from chainnalysis and bubble maps 338 00:16:33,360 --> 00:16:36,240 Speaker 9: to crypto research firms were that the Trump family made 339 00:16:36,240 --> 00:16:39,720 Speaker 9: about three hundred and fifty million dollars of real profit 340 00:16:39,840 --> 00:16:41,480 Speaker 9: on these meme coins. 341 00:16:42,360 --> 00:16:48,160 Speaker 2: Wow, help them market these coins? Who helped them, you know, presumably. 342 00:16:47,600 --> 00:16:48,680 Speaker 3: Profit off of that. 343 00:16:48,400 --> 00:16:52,080 Speaker 2: That's the gist of your story and was it a 344 00:16:52,120 --> 00:16:53,800 Speaker 2: difficult question to answer. 345 00:16:54,080 --> 00:16:55,920 Speaker 9: Yeah, Like, on the one hand, the whole thing sort 346 00:16:55,920 --> 00:16:58,760 Speaker 9: of happened in the open, and it felt like there 347 00:16:58,880 --> 00:17:01,400 Speaker 9: was a sort of knew what happened. On the other hand, 348 00:17:01,440 --> 00:17:03,520 Speaker 9: as I tried to dive in and figure out who 349 00:17:03,600 --> 00:17:07,280 Speaker 9: was behind this, it was really tough. You'd think that 350 00:17:07,320 --> 00:17:10,240 Speaker 9: people might be proud to say that they'd helped the 351 00:17:10,280 --> 00:17:14,200 Speaker 9: president with an important business venture, but really nobody was talking. 352 00:17:14,640 --> 00:17:17,159 Speaker 9: The trail took us in a very convoluted way, but 353 00:17:17,200 --> 00:17:21,920 Speaker 9: it ended up with a guy who uses an icon 354 00:17:21,960 --> 00:17:25,679 Speaker 9: of a cartoon cat wearing an astronaut suit on Twitter. 355 00:17:26,040 --> 00:17:30,800 Speaker 9: He goes only by meal and he runs a crypto exchange, 356 00:17:31,000 --> 00:17:33,080 Speaker 9: or he was the co founder of a crypto exchange 357 00:17:33,080 --> 00:17:37,280 Speaker 9: called Metiora that was actually home to a ton of 358 00:17:37,320 --> 00:17:41,120 Speaker 9: these giant mean coin launches, and all of them were 359 00:17:41,480 --> 00:17:43,960 Speaker 9: Most of them seemed to follow this pattern where they'd 360 00:17:44,280 --> 00:17:46,200 Speaker 9: go up a lot on hype when they got announced 361 00:17:46,200 --> 00:17:50,760 Speaker 9: and then soon crash, and we were trying to figure out, 362 00:17:50,880 --> 00:17:54,679 Speaker 9: you know, who knew what When a trail took us 363 00:17:54,680 --> 00:17:58,399 Speaker 9: to Istanbul to Singapore, you got to read the story 364 00:17:58,440 --> 00:18:00,000 Speaker 9: to see how close we. 365 00:18:00,800 --> 00:18:05,760 Speaker 6: So what was is the Trump meme coin still in existence. 366 00:18:06,359 --> 00:18:09,239 Speaker 9: Yeah, these things like never really die, but there's uh, 367 00:18:09,320 --> 00:18:12,200 Speaker 9: there's no excitement around it anymore. The price is down 368 00:18:12,240 --> 00:18:14,919 Speaker 9: about ninety percent from its peak. 369 00:18:15,600 --> 00:18:16,520 Speaker 6: Do I find the price? 370 00:18:17,320 --> 00:18:17,520 Speaker 8: You know? 371 00:18:17,560 --> 00:18:23,400 Speaker 9: Their coin market is a pretty big, uh crypto tracking site. 372 00:18:23,480 --> 00:18:26,240 Speaker 9: But one funny thing we found in reporting this was 373 00:18:26,240 --> 00:18:29,200 Speaker 9: talking to meme coin traders. A lot of them said 374 00:18:29,200 --> 00:18:33,119 Speaker 9: that Trump actually killed this boom. Like for a while, 375 00:18:33,160 --> 00:18:34,840 Speaker 9: we were all having a lot of fun trading these 376 00:18:34,920 --> 00:18:37,880 Speaker 9: meme coins, but the Trump's made so much money off 377 00:18:37,920 --> 00:18:41,720 Speaker 9: theirs that the gamblers in the casino were like, you 378 00:18:41,760 --> 00:18:44,840 Speaker 9: know what we're You've we've emptied our pockets. We got 379 00:18:45,119 --> 00:18:47,520 Speaker 9: We're done with this. We need bring on prediction markets. 380 00:18:47,560 --> 00:18:48,960 Speaker 9: We need something different to gamble on. 381 00:18:49,240 --> 00:18:52,159 Speaker 2: So are meme coins they peaked already, they've died or 382 00:18:52,240 --> 00:18:55,000 Speaker 2: I mean there's still there, but no one's making money 383 00:18:55,040 --> 00:18:56,200 Speaker 2: off of them the way they used to. 384 00:18:56,480 --> 00:18:58,560 Speaker 9: Yeah, it's a little bit like if you remember the 385 00:18:58,800 --> 00:19:04,720 Speaker 9: NFT bubble, the digital crypto art. For a minute, it's 386 00:19:04,760 --> 00:19:07,760 Speaker 9: hot and people are making good money, they're telling their friends, 387 00:19:08,800 --> 00:19:13,760 Speaker 9: and then at some point people just they crashes and 388 00:19:13,800 --> 00:19:15,879 Speaker 9: people move on. So a lot of the same people 389 00:19:15,880 --> 00:19:19,840 Speaker 9: who were in on NFTs got in on meme coins. 390 00:19:20,320 --> 00:19:23,200 Speaker 9: And while this was while this was running, it was 391 00:19:23,240 --> 00:19:26,119 Speaker 9: a great business. We talked to one twenty two year 392 00:19:26,160 --> 00:19:30,080 Speaker 9: old who started one of the biggest meme coin creation 393 00:19:30,200 --> 00:19:33,200 Speaker 9: and trading apps. His company, which just had a few employees, 394 00:19:33,280 --> 00:19:37,840 Speaker 9: generated a billion dollars from the during this meme coin bubble. 395 00:19:38,920 --> 00:19:40,800 Speaker 9: But now a lot of the people who are excited 396 00:19:40,840 --> 00:19:44,919 Speaker 9: about meme coins have moved on to prediction markets, where 397 00:19:45,480 --> 00:19:48,760 Speaker 9: the Trump family has its own interests as well. 398 00:19:49,200 --> 00:19:52,159 Speaker 2: Yeah, Don Junior, right, has some pretty big stakes or 399 00:19:52,200 --> 00:19:54,160 Speaker 2: it has a pretty key role in some of the companies. 400 00:19:54,359 --> 00:19:59,399 Speaker 9: Yeah, he's an advisor to both Calshi and Polymarket, the 401 00:19:59,440 --> 00:20:04,560 Speaker 9: two big prediction markets. And then the Trump family's social 402 00:20:04,600 --> 00:20:10,120 Speaker 9: media platform, truth Social has announced plans to create its 403 00:20:10,160 --> 00:20:13,359 Speaker 9: own prediction market. But it's kind of a pattern where 404 00:20:13,640 --> 00:20:17,320 Speaker 9: the Trump family has these business interests in this kind 405 00:20:17,359 --> 00:20:20,840 Speaker 9: of gray area market, and then the Trump administration is 406 00:20:20,880 --> 00:20:24,720 Speaker 9: creating rules that are legalizing these markets and helping make 407 00:20:24,760 --> 00:20:25,840 Speaker 9: them grow. 408 00:20:26,320 --> 00:20:29,439 Speaker 5: As President Trump or his family or his administration comment 409 00:20:29,600 --> 00:20:32,439 Speaker 5: on your story or about the mean coin part of it. 410 00:20:32,880 --> 00:20:37,760 Speaker 9: So the Press secretary got back to us not really 411 00:20:37,800 --> 00:20:40,760 Speaker 9: getting into the specifics, but just saying, hey, the Trump 412 00:20:40,800 --> 00:20:44,800 Speaker 9: family would never engage in conflicts of interest, but not 413 00:20:44,840 --> 00:20:49,240 Speaker 9: really addressing how they manage having interests in both the 414 00:20:49,280 --> 00:20:53,520 Speaker 9: business side and being in charge of drafting the rules. 415 00:20:54,080 --> 00:20:55,720 Speaker 6: And I guess no one cares anymore. 416 00:20:57,320 --> 00:21:01,840 Speaker 9: I'd like to think that people still care. But you know, 417 00:21:01,880 --> 00:21:05,119 Speaker 9: when it came normally, you have like, let's say this 418 00:21:05,160 --> 00:21:07,679 Speaker 9: was the stock market and somebody created like a penny 419 00:21:07,720 --> 00:21:10,600 Speaker 9: stock that went up, you know, a thousand acts in trash. Yeah, 420 00:21:10,760 --> 00:21:13,760 Speaker 9: somebody would be diving in. They'd be digging through people's messages. 421 00:21:13,800 --> 00:21:16,200 Speaker 9: They've been trying to figure out what happened meme coins. 422 00:21:16,560 --> 00:21:19,080 Speaker 9: A few weeks after Trump was elected, the SEC put 423 00:21:19,119 --> 00:21:23,520 Speaker 9: out a statement that basically said, not our business, okay, 424 00:21:23,640 --> 00:21:26,480 Speaker 9: and nobody has stepped up to look into these yet. 425 00:21:26,880 --> 00:21:27,720 Speaker 6: All right, very good. 426 00:21:27,760 --> 00:21:28,920 Speaker 3: There's the answer to your question, Paul. 427 00:21:28,960 --> 00:21:30,080 Speaker 6: Yeah, there's answered to my question. 428 00:21:30,280 --> 00:21:32,880 Speaker 5: I think maybe the definitive report is your article here 429 00:21:33,760 --> 00:21:36,639 Speaker 5: Zeke Fox, investigative reporter for Bloomberg News, adjournings here on 430 00:21:36,640 --> 00:21:40,080 Speaker 5: a Bloomberg interactive broker's studio. Again, it's a you can 431 00:21:40,119 --> 00:21:42,760 Speaker 5: read this big take story on the Bloomberg criminal and 432 00:21:42,840 --> 00:21:46,159 Speaker 5: at Bloomberg dot com slash Big Take, so you can 433 00:21:46,200 --> 00:21:48,640 Speaker 5: read Zeke's article as well as all the other Big 434 00:21:48,680 --> 00:21:50,560 Speaker 5: Take stuff. And again every day they come out with 435 00:21:50,720 --> 00:21:54,639 Speaker 5: is blockbuster stories. Will you're really well sourced as well. 436 00:21:55,400 --> 00:21:58,480 Speaker 6: Stay with us more from Bloomberg Intelligence coming up after this. 437 00:22:02,440 --> 00:22:06,120 Speaker 1: You're listening to the Bloomberg Intelligence podcast. Catch us live 438 00:22:06,200 --> 00:22:09,600 Speaker 1: weekdays at ten am Eastern on Applecarclay, and Android Auto 439 00:22:09,720 --> 00:22:12,760 Speaker 1: with the Bloomberg Business App. Listen on demand wherever you 440 00:22:12,800 --> 00:22:16,159 Speaker 1: get your podcasts, or watch us live on YouTube. 441 00:22:16,520 --> 00:22:18,240 Speaker 5: All right, Scartan fil and Paul Sweeney, we're live here 442 00:22:18,240 --> 00:22:20,440 Speaker 5: in our Bloomberg Arrector Broker studio in New York City. 443 00:22:20,600 --> 00:22:23,080 Speaker 6: We are streaming live on YouTube. So check us out there. 444 00:22:23,200 --> 00:22:25,639 Speaker 5: Looking at the ten year yield down a little bit here, 445 00:22:25,680 --> 00:22:27,880 Speaker 5: We're down at four point one seven percent. 446 00:22:27,920 --> 00:22:30,119 Speaker 6: Here, looks like the fete. 447 00:22:29,960 --> 00:22:32,600 Speaker 5: Is in a rate cutting mode that you bet infit 448 00:22:32,880 --> 00:22:35,960 Speaker 5: a number of industries, including the housing market as well. 449 00:22:36,000 --> 00:22:38,040 Speaker 5: So let's check in on that. Drew Redding, he's the 450 00:22:38,080 --> 00:22:42,280 Speaker 5: homebuilder analyst for Bloomberg Intelligence. Drew, what's your twenty twenty 451 00:22:42,320 --> 00:22:45,760 Speaker 5: six outlook for the home builder segment? There the folks 452 00:22:45,760 --> 00:22:48,600 Speaker 5: that are out there building the homes, will lower interest rates? 453 00:22:48,600 --> 00:22:50,520 Speaker 6: Will that help their business? 454 00:22:51,800 --> 00:22:54,280 Speaker 10: So we actually think that twenty twenty six is going 455 00:22:54,320 --> 00:22:58,560 Speaker 10: to be another challenging year from a fundamental perspective for 456 00:22:58,600 --> 00:23:00,600 Speaker 10: the builders. If you think about the weeks that we've 457 00:23:00,600 --> 00:23:04,000 Speaker 10: had in demand over the last several quarters, it leaves 458 00:23:04,359 --> 00:23:07,000 Speaker 10: much of the group coming into the year with backlogs 459 00:23:07,000 --> 00:23:09,320 Speaker 10: that are down anywhere from ten to forty percent, and 460 00:23:09,320 --> 00:23:13,240 Speaker 10: that's ultimately what translates into revenue over the next call it, 461 00:23:13,240 --> 00:23:16,199 Speaker 10: three to nine months. In addition, I think you're going 462 00:23:16,280 --> 00:23:19,119 Speaker 10: to see further pricing pressure as builders look to adjust 463 00:23:19,119 --> 00:23:21,119 Speaker 10: prices to meet market demand. So we're going to have 464 00:23:21,640 --> 00:23:24,280 Speaker 10: further base price reductions and I think builder are going 465 00:23:24,320 --> 00:23:27,520 Speaker 10: to have to continue to lean on incentives because it's 466 00:23:27,560 --> 00:23:30,480 Speaker 10: something that home shoppers have become accustomed to, and you know, 467 00:23:30,520 --> 00:23:32,639 Speaker 10: they're looking for deals when they're out there in the market. So, 468 00:23:33,200 --> 00:23:35,560 Speaker 10: you know, slow top line growth and I think that 469 00:23:35,720 --> 00:23:38,879 Speaker 10: incentive dynamic is also going to continue to pressure gross 470 00:23:38,960 --> 00:23:41,080 Speaker 10: margins as we get into next year. 471 00:23:41,480 --> 00:23:42,200 Speaker 8: You know, on the on. 472 00:23:42,119 --> 00:23:45,280 Speaker 10: The positive side, we do have lower rates, so I 473 00:23:45,320 --> 00:23:49,239 Speaker 10: do think that orders can grow next year. You know, 474 00:23:49,359 --> 00:23:52,000 Speaker 10: we're looking at a six and a quarter rate call 475 00:23:52,040 --> 00:23:54,320 Speaker 10: it right now last year where romost one hundred basis 476 00:23:54,320 --> 00:23:57,679 Speaker 10: points higher heading into the spring. So lower rates and 477 00:23:57,720 --> 00:24:00,440 Speaker 10: community count growth could support orders, but I think that 478 00:24:00,960 --> 00:24:02,840 Speaker 10: revenue and margins are going to be down this year. 479 00:24:03,520 --> 00:24:07,920 Speaker 5: What's the relationship historically drew between new housing and existing 480 00:24:07,960 --> 00:24:08,560 Speaker 5: home sales. 481 00:24:10,400 --> 00:24:14,520 Speaker 10: So the new home market is historically about fifteen percent 482 00:24:14,560 --> 00:24:17,840 Speaker 10: of overall housing transactions, so a much smaller piece of 483 00:24:17,880 --> 00:24:21,760 Speaker 10: the market. You know, they've they've performed vastly differently over 484 00:24:21,800 --> 00:24:23,240 Speaker 10: the last couple of years. If you look at the 485 00:24:23,280 --> 00:24:26,399 Speaker 10: existing home market, we've been bumping along a four million 486 00:24:26,440 --> 00:24:29,840 Speaker 10: annualized run rate of home sales for about three years now, 487 00:24:29,880 --> 00:24:34,080 Speaker 10: and that's about twenty percent below normalized levels. So there's 488 00:24:34,080 --> 00:24:35,960 Speaker 10: been a lot of pressure because the mortgage rate lock 489 00:24:36,000 --> 00:24:40,080 Speaker 10: in effect affordability. We have seen an improvement in demand 490 00:24:40,119 --> 00:24:43,439 Speaker 10: in the resale market as rates have come down. You know, 491 00:24:43,440 --> 00:24:46,520 Speaker 10: we're looking at purchase applications, which is the most high 492 00:24:46,560 --> 00:24:49,280 Speaker 10: frequency data point that we have. So we have seen 493 00:24:49,320 --> 00:24:51,280 Speaker 10: some improvement and we think, you know, looking into twenty 494 00:24:51,320 --> 00:24:54,359 Speaker 10: twenty six, you could see growth in the resale market 495 00:24:54,440 --> 00:24:57,840 Speaker 10: anywhere from five to ten percent, call it but keep 496 00:24:57,840 --> 00:24:59,840 Speaker 10: in mind that's off a historically low level. 497 00:25:01,359 --> 00:25:05,840 Speaker 5: What's the Has the tariffs impacted the new home building market? 498 00:25:05,880 --> 00:25:08,320 Speaker 5: I'm thinking lumber and all the other materials used in 499 00:25:08,720 --> 00:25:09,280 Speaker 5: building a home. 500 00:25:09,320 --> 00:25:10,960 Speaker 6: Has that got an impact on the profitability? 501 00:25:12,400 --> 00:25:15,080 Speaker 8: Yeah? Good question. To this point, it really hasn't. 502 00:25:15,359 --> 00:25:18,360 Speaker 10: We've heard from a number of builders who haven't seen 503 00:25:18,440 --> 00:25:21,160 Speaker 10: much of a increase in twenty twenty five. I think 504 00:25:21,200 --> 00:25:23,160 Speaker 10: you could see as you get into twenty twenty six 505 00:25:23,240 --> 00:25:25,760 Speaker 10: that become more of a problem. You know, we did 506 00:25:25,760 --> 00:25:28,320 Speaker 10: an analysis that looked at all the tariffs that have 507 00:25:28,400 --> 00:25:30,800 Speaker 10: come through, and you know, it shows that there could 508 00:25:30,840 --> 00:25:34,719 Speaker 10: be a ten thousand dollars cost increase per home as 509 00:25:34,760 --> 00:25:37,320 Speaker 10: it relates to tariffs. Now, when you think about who's 510 00:25:37,400 --> 00:25:39,880 Speaker 10: likely to feel that the most, it probably won't be 511 00:25:40,000 --> 00:25:40,920 Speaker 10: the large. 512 00:25:40,680 --> 00:25:42,280 Speaker 8: Single family production builders. 513 00:25:42,760 --> 00:25:44,480 Speaker 10: They've got a lot of scale, they've got a lot 514 00:25:44,480 --> 00:25:47,280 Speaker 10: of leverage, and they've had success in pushing back against 515 00:25:47,320 --> 00:25:50,159 Speaker 10: their suppliers. I think you're more likely to see the 516 00:25:50,200 --> 00:25:53,240 Speaker 10: pinch among smaller private home builders who just don't have 517 00:25:53,280 --> 00:25:56,680 Speaker 10: that scale and ability to push back. So to this point, 518 00:25:56,760 --> 00:25:58,680 Speaker 10: it hasn't had a bigger impact, but I think that's 519 00:25:58,680 --> 00:26:00,600 Speaker 10: something you need to watch as we look in next year. 520 00:26:06,119 --> 00:26:08,920 Speaker 5: Are they still building like crazy down there in Florida 521 00:26:09,000 --> 00:26:11,960 Speaker 5: and Texas and Tennessee and those kinds of states. 522 00:26:13,480 --> 00:26:14,720 Speaker 8: Yeah, that's a good question. 523 00:26:14,760 --> 00:26:16,879 Speaker 10: I mean, during the pandemic, that's where a lot of 524 00:26:16,920 --> 00:26:19,280 Speaker 10: people were flocking to. There was a lot of construction 525 00:26:19,400 --> 00:26:22,040 Speaker 10: down there. If you look at inventory levels now in 526 00:26:22,080 --> 00:26:25,280 Speaker 10: the South, they're actually at the highest level on record. 527 00:26:26,359 --> 00:26:28,360 Speaker 10: So that's where we're seeing a lot of the weakness 528 00:26:28,359 --> 00:26:31,080 Speaker 10: in the new home market. There's so much inventory. Builders 529 00:26:31,080 --> 00:26:35,440 Speaker 10: have had to get increasingly aggressive on prices you to 530 00:26:35,520 --> 00:26:38,920 Speaker 10: move inventory, a lot of incentives in the market, a 531 00:26:38,960 --> 00:26:41,120 Speaker 10: lot of base price reduction. So that's really where we've 532 00:26:41,160 --> 00:26:43,520 Speaker 10: seen the weakness, and if you can trast that to 533 00:26:43,560 --> 00:26:45,760 Speaker 10: some of the stronger markets, it's really a tale of 534 00:26:45,800 --> 00:26:49,000 Speaker 10: a couple of regions. You have the Midwest and the Northeast, 535 00:26:49,040 --> 00:26:51,720 Speaker 10: which tend not to be boom markets. We didn't see 536 00:26:51,720 --> 00:26:54,480 Speaker 10: the same type of inventory growth there, and you're seeing 537 00:26:54,480 --> 00:26:57,280 Speaker 10: a lot more price stability. On the other hand, you 538 00:26:57,320 --> 00:26:59,320 Speaker 10: mentioned the South, but you also have the West where 539 00:26:59,359 --> 00:27:01,680 Speaker 10: there was a lot of inventory growth and we're seeing 540 00:27:01,680 --> 00:27:02,880 Speaker 10: similar price and pressure. 541 00:27:03,800 --> 00:27:06,520 Speaker 5: So is there still a housing shortage in this country, 542 00:27:06,520 --> 00:27:08,840 Speaker 5: and if so, how does it right itself? 543 00:27:10,920 --> 00:27:14,320 Speaker 10: Yeah, another good question and the one that's frequently debated. 544 00:27:14,480 --> 00:27:16,840 Speaker 10: Just to take a step back, you'll hear estimates of 545 00:27:16,840 --> 00:27:19,760 Speaker 10: anywhere to you know, a million to five million unit 546 00:27:19,800 --> 00:27:22,080 Speaker 10: housing shortage. But I think, you know, I think it's 547 00:27:22,080 --> 00:27:26,200 Speaker 10: a more complex answer in that the shortage, so called shortage, 548 00:27:26,200 --> 00:27:28,960 Speaker 10: is probably more at lower price points. So there's a 549 00:27:29,000 --> 00:27:33,479 Speaker 10: mismatch between where there's theoretically demand, which would be at 550 00:27:33,480 --> 00:27:36,679 Speaker 10: lower price points, and what's available out there in the market. 551 00:27:36,720 --> 00:27:41,000 Speaker 10: So it's really afford affordability problem that's holding things back. 552 00:27:41,040 --> 00:27:42,880 Speaker 10: And now how do we get I mean, the government 553 00:27:42,920 --> 00:27:45,480 Speaker 10: has talked of about all sorts of things in order 554 00:27:45,520 --> 00:27:48,919 Speaker 10: to boost production and help builders to build more homes 555 00:27:48,960 --> 00:27:53,159 Speaker 10: at reasonable prices. Whether it's you know, dangling characters in 556 00:27:53,200 --> 00:27:57,080 Speaker 10: front of local municipalities to get them to reduce their regulations, 557 00:27:58,800 --> 00:28:00,639 Speaker 10: you know, whether it's trying to not down the price 558 00:28:00,680 --> 00:28:01,800 Speaker 10: of building materials. 559 00:28:01,800 --> 00:28:03,040 Speaker 8: There's a lot of different things. 560 00:28:03,040 --> 00:28:05,960 Speaker 10: But I don't really think that there's necessarily any one 561 00:28:06,080 --> 00:28:08,520 Speaker 10: single silver bullet that's going to solve this problem. I 562 00:28:08,520 --> 00:28:10,520 Speaker 10: think at the end of the day, you have home 563 00:28:10,520 --> 00:28:13,520 Speaker 10: prices that are up more than fifty percent since twenty nineteen, 564 00:28:13,560 --> 00:28:15,760 Speaker 10: and I think we need to let kind of the 565 00:28:16,080 --> 00:28:18,639 Speaker 10: basic laws of supply demands kind of take course in 566 00:28:18,720 --> 00:28:19,639 Speaker 10: order to write that. 567 00:28:21,080 --> 00:28:25,800 Speaker 1: This is the Bloomberg Intelligence Podcast, available on Apple, Spotify, 568 00:28:25,960 --> 00:28:29,960 Speaker 1: and anywhere else you get your podcasts. Listen live each weekday, 569 00:28:30,160 --> 00:28:33,439 Speaker 1: ten am to noon Eastern on Bloomberg dot com, the 570 00:28:33,520 --> 00:28:37,399 Speaker 1: iHeartRadio app, tune In, and the Bloomberg Business app. You 571 00:28:37,440 --> 00:28:40,720 Speaker 1: can also watch us live every weekday on YouTube and 572 00:28:40,920 --> 00:28:43,720 Speaker 1: always on the Bloomberg terminal