WEBVTT - Why Stocks Are Rising While Economy Crashes: Paul Krugman 0:00:02.680 --> 0:00:05.360 Welcome to the Bloomberg Penl Podcast. I'm Paul swing you, 0:00:05.400 --> 0:00:07.720 along with my co host Lisa Brahma wits. Each day 0:00:07.760 --> 0:00:10.280 we bring you the most noteworthy and useful interviews for 0:00:10.320 --> 0:00:12.560 you and your money, whether at the grocery store or 0:00:12.600 --> 0:00:15.520 the trading floor. Find a Bloomberg Penl podcast on Apple 0:00:15.560 --> 0:00:18.000 podcast or wherever you listen to podcasts, as well as 0:00:18.000 --> 0:00:21.880 that Bloomberg dot com. When you think about the broader SMP, 0:00:22.120 --> 0:00:24.280 you know, from the peak to trough when this coronavirus 0:00:24.400 --> 0:00:26.640 really hit the markets, we had about a thirty four 0:00:26.720 --> 0:00:29.880 percent decline in the SMP. The markets kind of carved 0:00:29.920 --> 0:00:32.720 back or clawed back about half that and for a 0:00:32.760 --> 0:00:36.000 lot of investors that seems a little bit unusual given 0:00:36.159 --> 0:00:38.840 or incongruous with the data we're seeing, the economic data, 0:00:38.920 --> 0:00:42.280 the jobless data, UH and the data that we're certain 0:00:42.320 --> 0:00:45.400 to see over the coming days, weeks, and months. To 0:00:45.479 --> 0:00:47.520 get a sense of kind of how that's really playing 0:00:47.520 --> 0:00:50.400 out in what the relationship is there between the equity 0:00:50.440 --> 0:00:54.240 markets and the economic environment. We welcome Paul Krugman, Distinguished 0:00:54.280 --> 0:00:56.720 Professor of Economics at the City University of New York. 0:00:56.960 --> 0:01:00.720 He's also a New York Times columnist and Nobel Laurea Paul, 0:01:00.760 --> 0:01:03.800 thanks so much for joining us again. A lot of 0:01:03.840 --> 0:01:06.440 our listeners, a lot of investors are not sure whether 0:01:07.000 --> 0:01:09.000 or how to square it with what's going on in 0:01:09.040 --> 0:01:11.720 the economy, the pain that they're seeing the economy, yet 0:01:11.760 --> 0:01:16.000 the stock market seems to be pretty solid. Yeah. Well, 0:01:16.080 --> 0:01:20.120 the first thing to say is that stock market. As 0:01:20.160 --> 0:01:22.080 I like to say, there are three rules about the 0:01:22.120 --> 0:01:24.720 stock market and the economy, which is that the stock 0:01:24.760 --> 0:01:26.800 market is not the economy. The stock market is not 0:01:26.840 --> 0:01:31.120 the economy, and the stock market economy. Um. And actually, 0:01:31.560 --> 0:01:33.760 beyond the fact that there's a whole lot of psychology 0:01:33.760 --> 0:01:36.639 in the market, and uh, all those kinds of things 0:01:36.680 --> 0:01:41.120 can move stocks, Um, there's the simple fact that, um, 0:01:41.200 --> 0:01:45.480 there there's another market that is much more closely linked 0:01:45.480 --> 0:01:48.560 to economic prospects, which is the bond market. The bond 0:01:48.560 --> 0:01:51.040 market has been telling us something very clearly. If you 0:01:51.080 --> 0:01:54.040 look at at long term interest rates, you see that 0:01:54.040 --> 0:02:00.480 that um, the ten year is falling from almost actually 0:02:00.480 --> 0:02:03.600 a little over three um at at the beginning of 0:02:03.600 --> 0:02:08.480 twenty nineteen and uh well over two percent that you know, 0:02:08.639 --> 0:02:11.919 not not very long ago to to you know, frash 0:02:11.960 --> 0:02:16.320 number percent now thirty year rates down by half since uh, 0:02:16.440 --> 0:02:20.919 since last fall. UM, So the bond market is signaling 0:02:21.120 --> 0:02:25.359 economic weakness. UM. That has a bearing on stocks because 0:02:25.800 --> 0:02:28.919 you know, bonds are the alternative to stocks. A stock 0:02:29.000 --> 0:02:31.519 is a claim on future profits, not just profits in 0:02:31.560 --> 0:02:34.720 the next year, profits some ways into the future. And 0:02:34.760 --> 0:02:37.280 if you're going to discount those future profits at a 0:02:37.360 --> 0:02:40.480 much lower rate because interest rates are down, uh, that's 0:02:40.680 --> 0:02:43.600 an upward push for stocks. So once you take two account, 0:02:43.600 --> 0:02:46.040 the full and interest rates, it's not so peculiar that 0:02:46.080 --> 0:02:50.960 stocks are held up pretty well despite these calamitous economic numbers. Paul, 0:02:51.360 --> 0:02:54.280 is what I'm hearing from you support of the Fed 0:02:54.360 --> 0:02:57.960 bottle the idea that the lower the interest rates, the 0:02:58.000 --> 0:03:00.760 more people will just be pushed into stocks because the 0:03:00.840 --> 0:03:06.080 relative earnings that you get ultimately proved that they become 0:03:06.160 --> 0:03:11.239 attractive regardless of what the economy it seems to be showing. Yeah, 0:03:11.240 --> 0:03:14.080 I mean that's not I mean that's sort of obvious, 0:03:14.160 --> 0:03:17.160 right if you think about there are stocks are competing 0:03:17.160 --> 0:03:20.880 with with other assets, uh, and for money they you 0:03:20.960 --> 0:03:23.600 can't tell what a stock is worth until you tell 0:03:23.600 --> 0:03:27.239 me what what are the alternatives? Um? And the alternatives 0:03:27.639 --> 0:03:31.160 are are actually looking pretty grimply. Uh, the markets just 0:03:31.240 --> 0:03:34.080 saying there's there's just not much yield. Well, although you 0:03:34.120 --> 0:03:36.200 say it's kind of obvious, and yet we see that 0:03:36.240 --> 0:03:39.080 the earnings yield is falling dramatically on stocks as they 0:03:39.080 --> 0:03:41.960 cut their dividends and they cut their payouts, uh just 0:03:42.040 --> 0:03:44.880 in general and share buybacks because they are running out 0:03:44.920 --> 0:03:47.840 of money. So at what point is getting your money 0:03:47.880 --> 0:03:52.120 back a preferable outcome than risking it with a company 0:03:52.160 --> 0:03:56.760 that faces a very bleak outcome. Well, there's a Remember 0:03:56.880 --> 0:03:59.720 the earning deal on bonds is also very long. Now 0:04:00.080 --> 0:04:02.680 again it's really long term bonds. It's half what it 0:04:02.800 --> 0:04:07.280 was before the coronavirus hit, and so um you would expend. 0:04:07.560 --> 0:04:11.400 Remember also that for the value of the stock depends 0:04:11.400 --> 0:04:16.120 a lot on expected future uh yields, not just this year, 0:04:16.160 --> 0:04:19.280 but three, four or five, maybe even ten years out. 0:04:19.440 --> 0:04:23.599 So they it's really is not that peculiar. Um what 0:04:23.760 --> 0:04:26.479 the old The question is, at what point do people say, 0:04:27.000 --> 0:04:29.200 all of these yields are so low that I'm going 0:04:29.279 --> 0:04:34.440 to I'm scared and I'm just gonna go into cash. Um. 0:04:34.560 --> 0:04:37.120 And that's that actually was happening for a couple of 0:04:37.200 --> 0:04:40.800 weeks in March. We had a point there where everything froze, 0:04:40.640 --> 0:04:44.800 where bond prices and stock prices both fell, where UM 0:04:45.040 --> 0:04:48.599 where corporate bonds were selling at the deel on corporate 0:04:48.640 --> 0:04:52.640 bonds shot up because people were afraid of default and 0:04:52.680 --> 0:04:56.000 the and the stocks created UM that came to a 0:04:56.160 --> 0:05:00.520 pretty abrupt end UH in late March, and stops be bounded, 0:05:00.600 --> 0:05:02.640 making up you know, something like half the losses that 0:05:02.640 --> 0:05:05.600 they've experienced. But that's the story. The As long as 0:05:05.640 --> 0:05:10.680 people are not afraid of a real financial crisis, and 0:05:10.720 --> 0:05:13.840 at the moment that that fear has receded, UM, then 0:05:13.880 --> 0:05:15.760 it makes sense for stocks to hold up pretty well 0:05:15.800 --> 0:05:20.920 despite a truly ghastly real economy. Talking about the real economy, Paul, 0:05:20.960 --> 0:05:23.960 we've seen obviously the second quote of expectations are for 0:05:24.000 --> 0:05:27.480 just crushing, crushing contraction in g d P. But then 0:05:27.520 --> 0:05:31.240 I guess the real discussion becomes to what extent and 0:05:31.279 --> 0:05:34.599 over what time period will the US economy recover. We've 0:05:34.600 --> 0:05:38.000 had to fed very aggressive, we've had fiscal stimulus from 0:05:38.000 --> 0:05:40.839 Congress and more likely to come. How do you think 0:05:41.040 --> 0:05:44.480 the recovery plays out? I won't ask you to give 0:05:44.520 --> 0:05:47.240 me a letter of V or W rn L or anything. 0:05:47.320 --> 0:05:49.719 But how do you think this is going to play out? Actually, 0:05:49.760 --> 0:05:51.400 I will give you it's not a it's not a letter. 0:05:51.440 --> 0:05:55.279 It's a swoosh right, very step, very steep decline and 0:05:55.320 --> 0:05:57.920 then a climb the only which is clearly going to 0:05:58.000 --> 0:06:02.680 be much slower than the crash. Um and Uh, it's 0:06:03.480 --> 0:06:07.000 the question of how fast that rise uh is going 0:06:07.040 --> 0:06:10.320 to be is actually one of the hardest things. We 0:06:10.320 --> 0:06:13.720 we really don't have experience with this that the we Uh, 0:06:14.000 --> 0:06:16.760 you can tell stories that go in all directions. I 0:06:17.680 --> 0:06:21.360 have no confidence at all in in any prediction, including 0:06:21.360 --> 0:06:23.840 my own, on this. Uh. You know, on the one hand, 0:06:23.960 --> 0:06:27.279 there could be pent up demand, um, people raring to go. 0:06:28.400 --> 0:06:31.520 On the other hand, Uh, there's probably a lot of 0:06:31.520 --> 0:06:36.360 financial damaging taking taking place down businesses. Business can't come 0:06:36.360 --> 0:06:39.800 back if the business has gone under. Uh, consumers maybe 0:06:39.920 --> 0:06:44.880 wanting to rebuild their balance sheets after after the beating 0:06:44.920 --> 0:06:48.800 they've taken in at the peak of the crisis. UM. 0:06:49.000 --> 0:06:53.279 And we'll also the the epidemiology is how the uncertain 0:06:53.360 --> 0:06:54.960 You said, well, we're going to be ready to go 0:06:55.000 --> 0:06:58.080 back to business, are we? I mean everything I see 0:06:58.120 --> 0:07:00.599 so is that Um, if you take out new York, 0:07:00.640 --> 0:07:03.480 which had a very steep peak in cases and is 0:07:03.560 --> 0:07:06.000 now falling. The rest of the country things are still 0:07:06.000 --> 0:07:10.400 getting worse, and so your guess is really as good 0:07:10.400 --> 0:07:13.440 as mine. It's used to certain they can't count on 0:07:13.440 --> 0:07:16.800 a rampid recovery. Flying blind is the way a lot 0:07:16.800 --> 0:07:18.560 of analysts have put it, and that's definitely how I 0:07:18.560 --> 0:07:21.960 feel right now. Paul Krugman, Distinguished Professor of Economics at 0:07:21.960 --> 0:07:24.320 the City A University of New York, and New York 0:07:24.320 --> 0:07:29.960 Times columnist Nobel laureate and uh, really really helpful insights 0:07:30.000 --> 0:07:33.040 into this issue. Joining us on the phone from New Jersey. 0:07:33.080 --> 0:07:38.520 We are expecting a truly horrific jobs data figure on 0:07:38.560 --> 0:07:42.000 Friday when we get the April jobs numbers. Were expecting 0:07:42.000 --> 0:07:44.560 more than twenty million jobs to have been lost, and 0:07:44.600 --> 0:07:46.760 we saw a numbers similar to that this morning from 0:07:46.760 --> 0:07:53.600 the ADP report. It is time for Bloomberg Opinion. We 0:07:53.680 --> 0:07:56.600 are joined today by Bloomberg Opinion coms Tera la Chapelle. 0:07:56.640 --> 0:08:00.720 She covers all things on the entertainment, telecommunications and deals 0:08:00.760 --> 0:08:03.600 front for Bloomberg Opinion. So Tara, thanks so much for 0:08:03.800 --> 0:08:06.920 joining us here. We had, you know, highly anticipated numbers 0:08:06.920 --> 0:08:09.480 out of Disney last night, and boy, it seems like 0:08:09.520 --> 0:08:13.000 they're key businesses really bore the brunt of you know, 0:08:13.040 --> 0:08:16.560 what's happening to the US economy resulting from this pandemic. 0:08:16.600 --> 0:08:18.680 What kind of stood out for you as you looked 0:08:18.680 --> 0:08:21.520 at the results last night, Well, if you look at 0:08:21.560 --> 0:08:25.440 the park, the Theme parks division, they're operating income and 0:08:25.560 --> 0:08:29.240 just that business was down fifty eight percent. And if 0:08:29.240 --> 0:08:32.600 you recall, that's for the quarter ended March thirty one, 0:08:32.760 --> 0:08:35.160 So that was only the beginning of this crisis, which 0:08:35.160 --> 0:08:37.839 means this quarter is going to be a lot worse um, 0:08:37.880 --> 0:08:41.880 and that drove down Disney's overall net income by ninety 0:08:41.960 --> 0:08:44.680 one percent. So it wasn't really surprising to see that, 0:08:44.720 --> 0:08:47.520 given that we know so much of Disney's different businesses 0:08:47.559 --> 0:08:51.320 have been affected and closed because of these lockdowns, but 0:08:51.559 --> 0:08:54.160 it was still really just momentous to look at those 0:08:54.200 --> 0:08:56.440 numbers and be like, Wow, we haven't seen something like 0:08:56.440 --> 0:08:59.319 this from Disney for a really long time. Can you 0:08:59.400 --> 0:09:01.439 just talk a little little bit about the breakdown in 0:09:01.520 --> 0:09:04.439 terms of where Disney gets revenues, in terms of how 0:09:04.520 --> 0:09:08.320 much Disney Plus could actually pull with respect to revenues 0:09:08.360 --> 0:09:12.240 it brings in. So Disney Plus has been a bright spot, 0:09:12.280 --> 0:09:14.280 but when you look at the numbers, I mean they're 0:09:14.280 --> 0:09:17.600 not that impressive yet because you know, it's still losing money. 0:09:17.720 --> 0:09:20.680 It's it's nowhere near the level of these other businesses. 0:09:20.679 --> 0:09:23.080 Their Disney is still very dependent on their media network, 0:09:23.520 --> 0:09:26.240 the advertising money they get from that, their theme parks. 0:09:26.240 --> 0:09:29.400 Of course, they're films that get released to movie theaters, 0:09:29.440 --> 0:09:32.679 so they're still very much tied to that. However, you 0:09:32.720 --> 0:09:36.040 can see that bob Iger as he was preparing for retirement, 0:09:36.080 --> 0:09:38.679 was trying to set up Disney for a future where 0:09:38.760 --> 0:09:41.160 streaming is going to play a much bigger role. And 0:09:41.200 --> 0:09:43.520 they have been hoping to get to sixteed and ninety 0:09:43.520 --> 0:09:48.560 million subscribers globally for Disney Plus by the year. They're 0:09:48.600 --> 0:09:51.839 already almost at sixty million now, so you can see that, 0:09:51.880 --> 0:09:54.200 you know, this is doing better than they expected. It 0:09:54.280 --> 0:09:56.400 can't carry the weight of Disney, but I think it 0:09:56.440 --> 0:09:58.520 definitely is a bright spot in something investors are at 0:09:58.600 --> 0:10:01.320 least like while they have this and it is the future, 0:10:01.400 --> 0:10:05.599 so maybe that's an opportunity there. Hey, tera did was 0:10:05.640 --> 0:10:08.240 there any clarification on the call last night of what 0:10:08.480 --> 0:10:11.320 Bob Eyre's role is. I mean, you know, it's been 0:10:11.360 --> 0:10:13.920 an on again, off again for years about whether he was, 0:10:14.440 --> 0:10:17.199 you know, when when he was gonna retire. He surprised 0:10:17.200 --> 0:10:19.680 everybody by retiring a couple of months ago, kind of 0:10:19.760 --> 0:10:22.200 right in front of this pandemic, which I think surprised 0:10:22.200 --> 0:10:25.480 a lot of people, and Bob Speck was elevated the 0:10:25.480 --> 0:10:29.240 CEO role, and then there's some announcement that Bob was 0:10:29.320 --> 0:10:31.760 kind of coming back and taking more hands on roles. 0:10:31.760 --> 0:10:35.280 So is there any clarification last night? See didn't address 0:10:35.320 --> 0:10:36.800 it head on, but I think there was kind of 0:10:36.800 --> 0:10:40.520 an unspoken message. When the earnings call began, Bob Iger 0:10:40.600 --> 0:10:43.600 kicked it off with some introductory remarks on just how 0:10:43.640 --> 0:10:45.920 he sees the business and how he's still really optimistic 0:10:45.960 --> 0:10:48.920 about the future and so on. But then from there 0:10:49.080 --> 0:10:51.880 the new CEO, Bob Check He handled all the questions 0:10:51.920 --> 0:10:54.319 along with their chief financial officer, and we didn't really 0:10:54.360 --> 0:10:56.720 hear from Igor the rest of the evening. So I 0:10:56.760 --> 0:10:59.080 think that was a Disney's way of saying Check is 0:10:59.120 --> 0:11:03.360 the CEO. But I do think that Eiger, as executive chairman, 0:11:03.679 --> 0:11:06.520 is perhaps being a little bit more hands on than 0:11:06.559 --> 0:11:09.200 a chairman normally would and I think maybe his focus 0:11:09.559 --> 0:11:11.920 while Chapeck is, you know, all his attention has to 0:11:11.960 --> 0:11:13.680 go to the theme parks right now and getting those 0:11:13.720 --> 0:11:16.560 back open. I think maybe Eiger is focusing on the 0:11:16.640 --> 0:11:20.319 content side and making sure Disney Plus doesn't get thrown 0:11:20.320 --> 0:11:23.160 off course by all of this. One thing I was 0:11:23.200 --> 0:11:25.560 wondering about Terra the dividend. They said they were not 0:11:25.600 --> 0:11:27.640 going to pay it for the second half of the year. 0:11:28.000 --> 0:11:29.959 Do we have a sense of how long they will 0:11:30.000 --> 0:11:34.960 suspend the dividend as the theme parks are struggling to reopen. 0:11:35.840 --> 0:11:38.440 It sounded like they were going to reassess it in 0:11:38.480 --> 0:11:41.240 about six months, So I think this was it wasn't 0:11:41.240 --> 0:11:43.520 something they necessarily needed to do, but it just seems 0:11:43.520 --> 0:11:46.160 like a smart move. They're trying to conserve their money 0:11:46.240 --> 0:11:48.240 right now. You know, they have lots of workers that 0:11:48.240 --> 0:11:50.600 are fur allowed at the moment, but as so their 0:11:50.640 --> 0:11:52.880 costs are lower than they would be. But as they 0:11:52.880 --> 0:11:54.800 get these parks back up and running, they're trying to 0:11:54.840 --> 0:11:57.240 figure out how many people they need to staff and 0:11:57.280 --> 0:11:59.920 what the effects of that are going to be relative 0:12:00.040 --> 0:12:03.800 to the lower volume of visitors that they're going to 0:12:03.840 --> 0:12:06.280 be allowing in. So I think they're just going to 0:12:06.360 --> 0:12:09.840 have to reassess that down the road. There's also a 0:12:09.920 --> 0:12:13.920 question of executive compensation. There's been some political ire over 0:12:13.960 --> 0:12:17.480 the fact that there still aren't packages incentive packages for 0:12:17.640 --> 0:12:20.560 some of the top executives, even though there is this 0:12:20.720 --> 0:12:24.240 absolute demolition of their balance sheet. Any word on that. 0:12:25.679 --> 0:12:27.960 You know, this has been an ongoing issue for Disney 0:12:28.000 --> 0:12:33.240 even before this crisis. Tiger's pay has been increasingly controversial, 0:12:33.440 --> 0:12:37.640 and you know, now with them furloughing so many workers, 0:12:38.240 --> 0:12:40.920 and I think this could be, you know, something that 0:12:41.080 --> 0:12:42.839 makes its way back into the news again. They really 0:12:42.840 --> 0:12:45.200 haven't talked much about it other than doing the same 0:12:45.240 --> 0:12:47.520 things that other companies are doing with cutting you know, 0:12:47.559 --> 0:12:50.800 executive pay and things like that. But you know, as 0:12:50.920 --> 0:12:53.840 time wears on those employees that they had been paying 0:12:54.080 --> 0:12:57.200 even though they weren't working at the park, that's going 0:12:57.240 --> 0:12:59.559 to you know, they're going to stop doing that, and 0:12:59.600 --> 0:13:01.800 that's to be something that becomes a little bit more 0:13:01.840 --> 0:13:05.520 controversial when these executives are obviously still making lots of money. 0:13:06.040 --> 0:13:08.520 Tera La Chapelle, Bloomberg Opinion Columnists, thank you so much 0:13:08.559 --> 0:13:10.800 for being with us. Definitely, Paul, that's been a political 0:13:10.840 --> 0:13:15.679 hot button issue, especially as the company cuts half of 0:13:15.720 --> 0:13:18.880 its employees tied to the theme parks. I'm just wondering 0:13:18.880 --> 0:13:21.400 what would you make of the earnings. Yeah, it's interesting, 0:13:21.760 --> 0:13:24.160 kind of as expected, but just decimated. And they're gonna 0:13:24.160 --> 0:13:26.480 be even worse this coming fiscal quarter because I kind 0:13:26.480 --> 0:13:28.960 of a full quarter of the park shutdown and no 0:13:29.120 --> 0:13:32.240 film and entertainment, and so it's gonna be tough. But 0:13:32.280 --> 0:13:34.440 I think the I think what most investors are saying is, 0:13:34.640 --> 0:13:37.080 you know, this is a world class brand, and when 0:13:37.080 --> 0:13:39.440 we do get to the other side of this, uh, 0:13:39.440 --> 0:13:42.000 this is a brand that once again start generating returns 0:13:42.000 --> 0:13:44.520 for shareholders. I think that's kind of what we're seeing 0:13:44.559 --> 0:13:46.600 in the stock today. It's up about three percent today, 0:13:46.640 --> 0:13:49.719 but still down about year to date. Yeah, there's also 0:13:49.800 --> 0:13:53.840 this idea that the entire environment is giving some wind 0:13:54.080 --> 0:13:56.520 to its Disney Plus offering and making it a real 0:13:56.559 --> 0:13:59.079 competitor for Netflix. So if they can hang on to 0:13:59.160 --> 0:14:02.040 the subscribers, is that could be a potential boon to them. 0:14:02.120 --> 0:14:07.600 On the other side of this, As we were just 0:14:07.640 --> 0:14:10.520 talking about with Terry La Chappelle, Disney Plus and Netflix 0:14:10.520 --> 0:14:12.320 have been some of the few bright spots in an 0:14:12.400 --> 0:14:15.880 otherwise bleak time for companies and employees alike. Meanwhile, theater 0:14:15.960 --> 0:14:18.720 companies like a MC are struggling to survive all this 0:14:18.880 --> 0:14:21.560 leading to the question how much will the media landscape 0:14:21.640 --> 0:14:24.720 change in the wake of this pandemic? Joining us now 0:14:24.840 --> 0:14:27.080 someone with a front row seat to all of the 0:14:27.160 --> 0:14:30.680 changes over media, which is Terry Quaja. He was former 0:14:30.720 --> 0:14:33.400 global head of Media Mergers and Acquisitions at City Group 0:14:33.440 --> 0:14:36.480 and Credit suitees First Boston, more than twenty years of experience. 0:14:36.520 --> 0:14:40.560 Currently founder and Chief executive Officer of Luma Partners Investment 0:14:40.600 --> 0:14:44.920 Banking in New York. Terry, as you surveil the landscape 0:14:45.000 --> 0:14:48.680 right now that seems to be under a dramatic change, 0:14:48.720 --> 0:14:52.920 what will it look like on the other side? Good morning, 0:14:52.960 --> 0:14:55.160 Lakes are a great debe with you. You know we 0:14:55.280 --> 0:14:57.920 have this What's going on right now is this bizarre 0:14:58.120 --> 0:15:06.160 dichotomy between we normally connect time stent media with advertising opportunity, 0:15:06.440 --> 0:15:09.680 and we've got this saving that has taken place because 0:15:09.840 --> 0:15:13.760 here we are in COVID in lockdown, and consumers across 0:15:13.800 --> 0:15:18.560 the board are consuming more media almost across every conceivable 0:15:18.920 --> 0:15:23.720 uh category, more TV, more digital um uh and and 0:15:23.760 --> 0:15:27.760 what's interesting is yet at the same time, advertising is down. 0:15:28.160 --> 0:15:30.840 And and when I say these changes are taking place, 0:15:31.280 --> 0:15:35.160 we're watching way more TV, way more digital, uh, you know, 0:15:35.200 --> 0:15:37.440 spending more time on our funds, and yet advertising is 0:15:37.480 --> 0:15:41.800 down thirty just in the course of the last two months. 0:15:41.880 --> 0:15:46.920 So this dichotomy between time spent and and revenue from 0:15:46.960 --> 0:15:52.200 advertising is pretty material. I think post COVID we have 0:15:52.320 --> 0:15:56.360 to look to see what of these patterns are are 0:15:56.720 --> 0:15:59.880 you know, we'll stick are more permanent than others because 0:16:00.160 --> 0:16:02.520 we should presume that when things get back to normal, 0:16:02.880 --> 0:16:07.600 the sort of advertising opportunity should rematch with time spent, 0:16:07.880 --> 0:16:10.600 so we should get rid of that tasm. Then the 0:16:10.680 --> 0:16:14.640 question is what will consumption look like? And I think, uh, 0:16:14.760 --> 0:16:18.480 in large part, you can assume that the impacts of 0:16:18.560 --> 0:16:24.640 COVID have been not to necessarily change our patterns permanently, 0:16:24.840 --> 0:16:28.480 but rather accelerate the trends that we were previously seeing. So, 0:16:28.760 --> 0:16:33.840 for example, the shift from linear television to cutting the 0:16:33.960 --> 0:16:39.080 chord and watching via streaming, that will likely accelerate post COVID. 0:16:39.440 --> 0:16:45.280 Um the enhanced listening of podcast the consumption of podcast 0:16:45.360 --> 0:16:49.640 media will likely enhanced post COVID. And then there's a 0:16:49.680 --> 0:16:54.800 two question marks uh, like around terrestrial radio. What you 0:16:54.960 --> 0:16:59.200 tell me what the work from home patterns change post COVID, 0:16:59.200 --> 0:17:02.120 and I'll tell you, but the implications of drive time 0:17:02.160 --> 0:17:05.680 and therefore listening of terrestrial radio. So some of them 0:17:05.720 --> 0:17:08.160 we know for sure are accelerance and trends that were 0:17:08.200 --> 0:17:12.880 already happening pre COVID. Others are more jump ball, Terry, 0:17:12.920 --> 0:17:15.160 I know you're really on the front lines and dealing 0:17:15.200 --> 0:17:18.639 with a lot of the digital advertising ecosystem here the 0:17:18.720 --> 0:17:21.720 buyers and sellers of digital advertising. Do you think one 0:17:21.720 --> 0:17:26.320 of the trends will be maybe an acceleration of advertising 0:17:26.359 --> 0:17:31.080 dollars from traditional media, whether it's broadcasting, cable, television, print 0:17:31.119 --> 0:17:33.800 and so on, to the digital, to the facebooks, to 0:17:33.840 --> 0:17:37.720 the Googles of the world. Is that just gonna be accelerated, Yeah, 0:17:37.520 --> 0:17:42.199 no question right if we you know, at times of crisis, 0:17:42.920 --> 0:17:46.520 that tends to create intellection points right on existing trends. 0:17:46.560 --> 0:17:49.840 If we look back at the financial crisis ten years ago, 0:17:50.359 --> 0:17:55.040 what happened was media spending. Every single category went down 0:17:55.359 --> 0:18:00.960 except for one search Search ad spend went up during 0:18:01.080 --> 0:18:04.240 the last recession, which is and and and that is 0:18:04.280 --> 0:18:09.359 a function of the fact that advertisers retreat towards performance 0:18:09.800 --> 0:18:13.440 when when times get tough, right, so UH brands spend 0:18:13.560 --> 0:18:18.200 spend on you know, garnering impressions without necessarily it leading 0:18:18.240 --> 0:18:20.720 to the direct sale of a product. Tends to be 0:18:20.800 --> 0:18:24.440 thought of as more discretionary in nature, So when economic 0:18:24.520 --> 0:18:27.560 times turned down, you sort of siphon off that some 0:18:27.680 --> 0:18:31.040 of that spend, whereas what you do keep spending on 0:18:31.160 --> 0:18:33.399 are the things that keep driving your business. So the 0:18:33.680 --> 0:18:37.240 tighter the connection between the spend on media in advertising 0:18:37.760 --> 0:18:41.200 and the results of driving actual new customers, those are 0:18:41.240 --> 0:18:44.760 the channels to which you will migrate to in downtimes, 0:18:44.800 --> 0:18:48.800 and those tend to be searchers. I mentioned performance ads 0:18:48.840 --> 0:18:55.040 on Facebook and other similar channels. Terry. There's also a 0:18:55.119 --> 0:18:58.760 question of who will remain after this crisis is over all. 0:18:58.800 --> 0:19:01.639 We've seen from AMC to leaters for example, are struggling 0:19:02.080 --> 0:19:04.520 UH to stay afloat as no one can go to 0:19:04.520 --> 0:19:07.600 the movies and actually see them in a theater. There 0:19:07.760 --> 0:19:10.639 is also a question about mergers and acquisitions. Do you 0:19:10.680 --> 0:19:14.879 expect a rash of deals and consolidation in the near future. 0:19:16.600 --> 0:19:19.719 So I think what this crisis does, obviously for growth 0:19:19.760 --> 0:19:22.640 companies is it puts a cash constraint on You've seen 0:19:22.920 --> 0:19:26.679 almost most companies, you know, cut their guidance, downsize their 0:19:26.760 --> 0:19:31.080 their workforce in preparation to withstand and whether this storm, 0:19:31.119 --> 0:19:34.119 because we just don't know the total extent of the 0:19:34.160 --> 0:19:37.520 impact or how long it will take, but absolutely this 0:19:37.600 --> 0:19:42.600 will create sellers, right, companies that need to find a home. 0:19:43.040 --> 0:19:47.240 And again the continuation or perhaps acceleration of a trend 0:19:47.280 --> 0:19:49.640 that we had witnessed and you we all had talked 0:19:49.640 --> 0:19:54.560 about on a prior program where it's inevitable that this 0:19:54.640 --> 0:19:57.159 will then cause some companies to want to sort of 0:19:57.600 --> 0:20:00.480 panic is probably too strong a word, but certainly seek 0:20:00.880 --> 0:20:04.040 an exit. And then on the back end of this, 0:20:04.200 --> 0:20:06.919 when things come back, I think we will get in 0:20:06.960 --> 0:20:09.840 whatever it is, three months, six months, nine months of 0:20:09.920 --> 0:20:12.879 a deal hiatus, and I actually do believe we'll see 0:20:13.440 --> 0:20:16.800 a tremendous amount of strategic activity take place. So I'm 0:20:16.800 --> 0:20:19.919 actually contemplating the end of this year and into two 0:20:20.000 --> 0:20:22.560 thousand twenty one as being a very active time for 0:20:22.680 --> 0:20:26.000 deals in media. So Barry, we Terry, we just had 0:20:26.800 --> 0:20:29.080 Disney report last night, and you know, the silver lining, 0:20:29.119 --> 0:20:31.040 I guess if there was one, was the Disney plus 0:20:31.040 --> 0:20:34.520 and all the streaming businesses uh doing pretty well. You know, 0:20:34.840 --> 0:20:37.480 people I guess are sampling a lot. Now we're all quarantined, 0:20:37.480 --> 0:20:40.120 we're sampling all the streaming products out there. How many 0:20:40.160 --> 0:20:43.600 streaming services do you think will ultimately uh shake out 0:20:43.600 --> 0:20:47.840 in this market? Yeah, it's a good question, Paul. I 0:20:47.840 --> 0:20:50.879 think if you look at the survey data, you know, 0:20:51.119 --> 0:20:54.280 people suggest that you know, sort of earns itself out 0:20:54.560 --> 0:20:58.800 in and around uh three to five you know subscription services, 0:20:58.800 --> 0:21:00.840 And of course it's a function of you know, what 0:21:00.840 --> 0:21:04.760 what the nature of those services and how comprehensive. I 0:21:04.800 --> 0:21:08.359 think of it more in terms of the total economic bundle. 0:21:08.480 --> 0:21:11.520 So the are pro the average revenue per user, what 0:21:11.520 --> 0:21:16.119 what the average American pays for their cable bundle is 0:21:16.160 --> 0:21:20.680 approximately a hundred dollars a month. Uh. That translated into 0:21:20.760 --> 0:21:24.320 a streaming world is about half of that, about fifty 0:21:24.320 --> 0:21:26.159 dollars a month. So if you think of you know, 0:21:26.320 --> 0:21:30.840 Netflix plus, maybe you know an HBO Mac subscription, maybe 0:21:30.840 --> 0:21:32.960 you've got you know, sling, is some one of these 0:21:33.040 --> 0:21:36.320 comprehensive v m v p ds to give you a 0:21:36.359 --> 0:21:39.280 bundle of channels you'll all add up to in that 0:21:39.400 --> 0:21:43.880 sort of range. So it's it's materially. Hey, Terry, thanks 0:21:43.880 --> 0:21:46.159 so much for joining us. We really appreciate your thoughts 0:21:46.160 --> 0:21:48.440 in your perspective. You're right on the front lines here 0:21:48.880 --> 0:21:51.879 of the media space, the digital media space, a transformation 0:21:51.960 --> 0:21:55.439 of linear media to digital media. Terry Kawasha, founder and 0:21:55.520 --> 0:21:59.480 CEO of Luma Partners Investment Banking. They target that whole 0:21:59.520 --> 0:22:03.200 digital media space and at least we've seen this transformational 0:22:03.520 --> 0:22:06.800 shift of ad dollars from traditional media to digital and 0:22:06.920 --> 0:22:08.840 and Terry and as firm er right there dealing with 0:22:08.880 --> 0:22:11.160 all those companies on the front lines. We appreciate that 0:22:11.200 --> 0:22:18.639 this is Bloomberg. The story Paul, that really really cried 0:22:18.680 --> 0:22:21.520 out to me this morning, written by Sean Donnon and 0:22:21.600 --> 0:22:24.639 Joe Doe, talking about the layoffs that we're seeing in 0:22:24.800 --> 0:22:28.919 unprecedented numbers across America. There is a question are we 0:22:29.040 --> 0:22:33.120 moving from a temporary wave of layoffs to something much 0:22:33.160 --> 0:22:36.480 more permanent and uh and and nefarious when it comes 0:22:36.560 --> 0:22:39.640