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Speaker 1: Who you put your trust in matters. Investors have put

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Speaker 1: their trust and independent registered investment advisors to the two

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Speaker 1: and four trillion dollars. Why learn more at find your

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Speaker 1: Independent Advisor dot com. Welcome to the Bloomberg Surveillance Podcast.

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Speaker 1: I'm Tom Keene with David Gura. Daily we bring you

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Speaker 1: insight from the best in economics, finance, investment, and international relations.

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Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and

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Speaker 1: of course on the Bloomberg Justin Craig mof At, Michael

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Speaker 1: Nathanson their substantial report on this transaction, and worth shrilled

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Speaker 1: to bring you Scott Galloway from New York University and

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Speaker 1: Stern School with thoughts in the Scott, You and I

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Speaker 1: talked this morning, particularly with Brian Weezer, about cost synergies

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Speaker 1: Moffat and Nathanson degree. You can also dismiss the notion

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Speaker 1: of cost synergies. But where they go before that is

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Speaker 1: this idea of net neutrality that if you vertically integrate,

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Speaker 1: you've got to offer everything that everybody outside the company

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Speaker 1: as well. Right, Sure, but there might be some ways

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Speaker 1: about that. You might have faster download, you might have enhancements.

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Speaker 1: You might have previews, special special opportunities to get Game

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Speaker 1: of Thrones the night before it comes out if you're

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Speaker 1: an a T and T subscriber. I think there's all

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Speaker 1: kinds of ways they can play. I mean, HBO now

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Speaker 1: is working in the point of Game of Thrones, but

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Speaker 1: it's not a big count. There's not a lot of

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Speaker 1: mass there is there versus say the huge platform of CNN. Well,

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Speaker 1: it depends. I see a lot of people seeing their

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Speaker 1: parents HBO go um passwords and watching it on this

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Speaker 1: way range. So I think Game of Thrones has probably

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Speaker 1: got more mass, and if you look at the impact

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Speaker 1: it's having versus kind of people just sort of numb

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Speaker 1: and sort of sleepwalking through their day with and on

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Speaker 1: in the background. I think Game of Thrones is, you know,

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Speaker 1: some of the content they have is not only fantastic content,

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Speaker 1: but will continue to have pricing power such that these

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Speaker 1: people can exit this awful ecosystem called advertising and well,

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Speaker 1: and and that's where we went with Scott earlier David

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Speaker 1: gurd this idea of advertising or no ads. Yeah, hearing that,

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Speaker 1: you gotta think that's bad news for Verizon, which is

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Speaker 1: pursuing a strategy that is fully focused on ads, right.

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Speaker 1: I generally believe that the advertising ecosystem. I think in America,

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Speaker 1: just like we become numb to mass shootings, we become

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Speaker 1: numb to how bad advertising is. The the constant reload

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Speaker 1: on website pages with this these banner ads that are irrelevant.

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Speaker 1: Look at look at the television ads. If you read

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Speaker 1: if you think that TV is out is targeting you,

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Speaker 1: that means really in the market for a South Korean car,

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Speaker 1: a light beer, and that you're bipolar and have cis

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Speaker 1: leg syndrome. There's absolutely no targeting taking place in TV.

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Speaker 1: We have seen the end of I think we're at

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Speaker 1: peak advertising and people are going to opt out using

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Speaker 1: technology to say I'll pay fifty cents to opt out

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Speaker 1: of advertising. And when was the ball dropped on that? Gosh,

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Speaker 1: that's that's an interesting point. I don't know what the

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Speaker 1: folk rum was. But at the end of the day,

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Speaker 1: what where you have is now the technology will give

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Speaker 1: people the opportunity to opt out and digest the business

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Speaker 1: inside of for an entire year for five cents. Do

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Speaker 1: you know how much New York Times gets for littering

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Speaker 1: your newspaper with ads an entire year? They can monetize

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Speaker 1: you to the extent of two dollars and sixty four

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Speaker 1: cents a year. So if they make it easy for

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Speaker 1: you to pay another two dollars and seventy cents for

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Speaker 1: no ads, I think people are gonna start opting out.

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Speaker 1: There was a note from John Martin the head of

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Speaker 1: Turning to his staff I saw excerpted this morning, saying,

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Speaker 1: you know, I can't do anything, of course until the

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Speaker 1: deal goes through, but start thinking about what you could

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Speaker 1: do with HUD thirty million mobile subscribers, sixty million broadband subscribers,

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Speaker 1: and twenty five million video subscriberies. Bearing that in mind,

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Speaker 1: what what is the what is available to this company

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Speaker 1: if the deal goes through? What what does change in

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Speaker 1: terms of how they approach the media space? Well, the

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Speaker 1: idea of just having on demand and live TV on

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Speaker 1: an app where you just you just it's just your

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Speaker 1: finger on it and then boom, it's playing, and we

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Speaker 1: don't quite have that yet. This Some of the stuff

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Speaker 1: is pretty cumbersome. It does take some time to figure

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Speaker 1: it out. I love HBoL, love Game of throunds. I

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Speaker 1: have not figured out their pay service on my iPad.

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Speaker 1: I don't know if you guys have I just have

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Speaker 1: to figured it out. And I think there's more of

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Speaker 1: us out there than people would like to admit. So

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Speaker 1: the the kind of on demand easy. Not only not

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Speaker 1: only on demand over the top, but one of the

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Speaker 1: bets A. T and T is making with their direct

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Speaker 1: TV now is that they noticed six of the consumption

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Speaker 1: of video on their network was live TV. I'm seeing

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Speaker 1: the headlines come out of c NBC in conversation with

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Speaker 1: a head of of A T and T on this

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Speaker 1: right now. It's eerie to me. Scott Galloway how the

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Speaker 1: headlines are the same as every other merger in particularly

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Speaker 1: Time Warner a O L from another time in place

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Speaker 1: and I get the idea of CEOs are supposed to

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Speaker 1: talk their book. That's all I see here this morning.

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Speaker 1: How do you translate the actions of these CEOs as

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Speaker 1: they move forward with this trans this transaction. Well, one

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Speaker 1: of these guys is hoping it's a good deal. One

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Speaker 1: of them knows it's a great deal. Jeffrey Jucos. Jeffrey Jucos,

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Speaker 1: It's like, I don't know if this is the best

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Speaker 1: time to sell a condo and Manhattan are the best

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Speaker 1: time to sell time owner, but you know it's a

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Speaker 1: good time. The cable isn't structural decline, and they are

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Speaker 1: taking some outstanding cable assets but nonetheless instructural decline and

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Speaker 1: selling them. He may be ringing the bell at the

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Speaker 1: high here. I think this is you. This is what

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Speaker 1: you want from a CEO on a board, if you're

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Speaker 1: a shareholder, you want them to time and sell at

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Speaker 1: the top. I led with my first line, Scott Galloway,

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Speaker 1: thank you so much in with New York University, and

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Speaker 1: just thank you again for your important perspective and will

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Speaker 1: get you yo in the Verizon. Trenwick. This is Bloomberg

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Speaker 1: Surveillance on Bloomberg. Rerady. I'm David Garrow with Tom Keane

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Speaker 1: digging into that billion dollar A T and T Time

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Speaker 1: Warner deal this morning. It's our pleasure to welcome Craig

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Speaker 1: Moffitt to the program, Craig Mofet of Mofet Nathanson, who

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Speaker 1: has just published a note as Tom was mentioning on

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Speaker 1: the deal. And Craig, let me start with the two

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Speaker 1: seas here the rationale for the deal, content and cost savings.

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Speaker 1: Let's take the latter one first. Here when you when

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Speaker 1: you look at the deal so much as we know

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Speaker 1: of it right now, does the cost savings argument makes sense?

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Speaker 1: All night morning, David, What what cost savings? Exactly? I'm

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Speaker 1: struggling to see the logic for any cost savings. Give

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Speaker 1: me you can shut down and investor relations department and

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Speaker 1: the cost of listing one of the docks on the exchange.

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Speaker 1: But that's about it. There's there's there's not any any

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Speaker 1: particular industrial logic to this being cheaper to run because

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Speaker 1: you put them under one umbrella when you when you

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Speaker 1: look at at atencies hunger for content here? How how

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Speaker 1: complementary is this combination? In other words, is this a

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Speaker 1: logical fit in that regard as a teen going to

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Speaker 1: get the content of once out of Time Warner. Well,

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Speaker 1: here's the way I would think about it. Um. You know,

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Speaker 1: there's a lot of things you could do with vertical integration.

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Speaker 1: Um you could A lot of people this morning are

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Speaker 1: talking about the theory at least of could you keep

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Speaker 1: HBO or some of the Time Warner properties proprietary to

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Speaker 1: one of the A, T and T distribution platforms. That's

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Speaker 1: not going to be allowed that It's not clear that

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Speaker 1: would economically make sense anyway, but it will clearly be prohibited,

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Speaker 1: so you won't be able to advantage your distribution because

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Speaker 1: you own content. At the same time, Net neutrality and

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Speaker 1: and rules around so called zero rating or trying to

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Speaker 1: exempt time warner content from usage caps and that sort

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Speaker 1: of thing will also be prohibited. So it's almost impossible

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Speaker 1: to differentiate your distribution because you own content, and it's

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Speaker 1: almost impossible to differentiate your content because you own distribution.

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Speaker 1: So you end up with two companies that operate side

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Speaker 1: by side, and I suppose they're vertically integrated in concept

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Speaker 1: because they're both owned by the same entity, But there's

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Speaker 1: no real vertical integration in any meaningful business sense here.

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Speaker 1: It's it's really diversification rather than strategy. What's the regulatory

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Speaker 1: hurdle going to be here this gets kicked down to Washington.

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Speaker 1: Is that a given that the FEC takes it up?

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Speaker 1: And how high hurdle is that going to be? Well,

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Speaker 1: it's a given that the d o J will take

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Speaker 1: it up. There's a lot of question right now about

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Speaker 1: whether or not the SEC actually has any jurisdiction here. Um,

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Speaker 1: the SEC's authority to review deals arises from licenses, and

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Speaker 1: there's a single broadcast station in Atlanta that that Time

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Speaker 1: owner owns that. I'm guessing they will rapidly try to

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Speaker 1: divest if they can avoid STEC reviews. Are a handful

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Speaker 1: of satellite uplink licensees, but there's nothing really material in

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Speaker 1: Time Warner that that revolves around licenses. So there's still

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Speaker 1: some ambiguity about whether the STC will actually get to

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Speaker 1: get its claws into the steel at all. Anyway, the

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Speaker 1: d J is going to be a tough hurdle. That's

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Speaker 1: a rule of law tests. Um, this is a they're

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Speaker 1: they're outstaying. There's no parrizonal issues, and that's true, but

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Speaker 1: the vertical issues are really profound. And you've seen an

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Speaker 1: already a tremendous amount of political blowback uh, not only

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Speaker 1: from uh kind of Trump um and uh and but

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Speaker 1: but from across both sides of the aisle. And there's

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Speaker 1: gonna be a tremendous amount of scrutiny. I don't think

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Speaker 1: you can give this deal better than fifty fifty odds

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Speaker 1: being approved. I know Tom wants to get in here,

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Speaker 1: but let me ask you quickly how useful the comparison

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Speaker 1: to the Comcast deal is. When when you're looking at

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Speaker 1: this one, well, it's useful in some ways. Um, you know,

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Speaker 1: I happen to think that the Comcast deal also was

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Speaker 1: largely diversification, and that Comcast really hasn't on all that

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Speaker 1: much Tom to differentiate what it does in either content

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Speaker 1: or distribution, but virtual owning the other. So in suset

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Speaker 1: you can think of them both as diversification deals. The

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Speaker 1: difference is Comcast brought NBC at the bottom of the

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Speaker 1: cycle and they bought it for less than nine times EBITDA.

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Speaker 1: A T and T is buying time or at the

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Speaker 1: top of the cycle, and they're buying it a twelve

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Speaker 1: times VODA. So if diversification is all about what price

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Speaker 1: you paid, Comcast paid a much much more attractive price

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Speaker 1: than A T and T. Craig, There's so much to

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Speaker 1: talk about. You and I could go for three hours

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Speaker 1: this morning. I've got a minute and a half with you.

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Speaker 1: I lead my show open this morning with the word desperation.

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Speaker 1: You nailed that in your research report of moments ago

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Speaker 1: to say that A T and T had to do something.

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Speaker 1: All my radar is up on that Moffatt Nathanson headline.

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Speaker 1: I mean that never ends pretty, doesn't No, you know,

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Speaker 1: it's it's fun. I mean, they've they've gotten bigger and bigger.

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Speaker 1: And the problem that you get into in these kinds

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Speaker 1: of situations that look, they did direct TV a year

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Speaker 1: and a half ago because they had to do something

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Speaker 1: that would help them support the dividend um, and so

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Speaker 1: they bought a company that generated a lot of cash flow.

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Speaker 1: But direct TV is in a precarious position of being

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Speaker 1: potentially a declining event and they're already starting to lose

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Speaker 1: subscribers and pay TV. You've already got a shrinking wireless

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Speaker 1: business and a shrinking wire line business. Now you're buying

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Speaker 1: yet another business to try to support the cash flow

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Speaker 1: because direct TV doesn't look like you can do it

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Speaker 1: for long. But all you get is a bigger and

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Speaker 1: bigger and bigger balance sheet along the way. And eventually,

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Speaker 1: as you say, it tends to end badly. Do you

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Speaker 1: very quickly? Or do you and Michael actually believe the

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Speaker 1: advertising business as we know it will continue to be

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Speaker 1: the cash flow that will support this transaction, or as

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Speaker 1: Scott Galloway just said, the real news is that it

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Speaker 1: will be a no ad world the next number of years. Well,

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Speaker 1: they're certainly an awful lot of questions about advertising, and

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Speaker 1: you know that there's a fundamental theoretical question that you

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Speaker 1: and I could talk about forever about does targeting actually

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Speaker 1: lead to higher CPM. There's the price of advertising cost

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Speaker 1: for thousand people reached. Does does better targeting actually gilds

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Speaker 1: higher CPMs? Theory says it should because it's better targeted

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Speaker 1: left face or does it lead to lower CPMs, which

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Speaker 1: history says happens every time because as targeting gets better,

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Speaker 1: the opportunity for arbitrage between advertisers get better, and historically

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Speaker 1: that has won out. So there's lots of questions about

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Speaker 1: the future of the advertising correct. Thank you so much

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Speaker 1: from your busy day, Craig Moffatt with Moffatt Nathanson, we continue.

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Speaker 1: This is Bloomer who you put your trust in matters.

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Speaker 1: Investors have put their trust in independent registered investment advisors

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Speaker 1: to the tune of four trillion dollars. Why they see

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Speaker 1: their roles to serve, not sell. That's why Charles Schwab

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Speaker 1: is committed to the success over seven thousand independent financial

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Speaker 1: We've of course been looking at the transaction of a

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Speaker 1: T and T and Time Warner. They will sign contracts

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Speaker 1: many I assume, not only to retain personnel, but actually

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Speaker 1: to get this transaction done. They will do it within

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Speaker 1: a principle and agency basis. Gentleman has just won the

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Speaker 1: Nobel Prize in Economics for thinking about contract theory. We

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Speaker 1: spoke with benk Olstrom of M I T a few

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Speaker 1: days ago and now joining us a laureate from Harvard

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Speaker 1: Oliver Heart Professor Hart. Good morning, good morning, congratulations in

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Speaker 1: on thinking of contracts in theory. If you were to

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Speaker 1: speak this morning to a T and T executives about

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Speaker 1: this strange principal agency relationship, what would a Nobel Prize

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Speaker 1: winners council be to the management of a T and T. Well,

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Speaker 1: that's besides lower your cable TV bill. Well, that's a

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Speaker 1: that's a difficult question because it's a very complicated transaction,

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Speaker 1: and I wouldn't presume to give them advice without knowing

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Speaker 1: a great deal more about the transaction. And it's two

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Speaker 1: very large companies, and there are there are many, many,

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Speaker 1: many things going on. I suppose I would probably more

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Speaker 1: ask them questions such as why why are you doing it?

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Speaker 1: What are the efficiency gains from this deal? You know,

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Speaker 1: a lot of people are worried about it because they think, um,

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Speaker 1: it's going to lead to higher prices, that it's really

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Speaker 1: an attempt to increase the monopoly power of the parties

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Speaker 1: as opposed to being efficiency enhancing. So I would like

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Speaker 1: to know why why they think it will lead to efficiencies?

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Speaker 1: What what exactly they are? Could they be achieved by

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Speaker 1: in some other way, by some sort of joint venture

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Speaker 1: or you know, contract as opposed to a merger. Um, Yeah,

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Speaker 1: that's that's that's what I sorry, would be more questions

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Speaker 1: than answers for me. I'm curious for someone who isn't

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Speaker 1: that familiar with with contract theory, and it's it's still

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Speaker 1: a fairly new field here situated for us, and and

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Speaker 1: and walk us through the wider applications of it. I

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Speaker 1: know you're teaching the economics department, but you teach with

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Speaker 1: the business school, and you teach in the law school

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Speaker 1: school as well. Just talk about the wider implications of

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Speaker 1: the field itself. Well, Um, you know, contracts are everywhere,

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Speaker 1: and I think they're everywhere in economics because almost all

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Speaker 1: the as that parties make have some sort of contract

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Speaker 1: behind them. The most interesting cases are where it's some

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Speaker 1: sort of long term economic relationship that parties are getting

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Speaker 1: themselves into. And then, you know, a contract is a

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Speaker 1: way to regulate that relationship as it goes through as

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Speaker 1: it goes through time, instead of having to talk to

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Speaker 1: each other, you know, every day about how we should

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Speaker 1: you were you know what price I should pay for something?

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Speaker 1: You're you're telling me if if we're talking about a

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Speaker 1: long term relationship, you know, it could be an electricity

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Speaker 1: company that wants to burn coal, so is contracting with

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Speaker 1: a coal mine. You know, we might be talking about

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Speaker 1: a thirty to fifty year relationship. So they want to

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Speaker 1: set out the terms in advance. And I think the

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Speaker 1: way economists think of it is the contract is a

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Speaker 1: way to maximize the value of the relationship. So it's

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Speaker 1: not just some sort of legal constructed has this is

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Speaker 1: very important economic value that the parties have an interest

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Speaker 1: in arranging their relationship so as to achieve as much

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Speaker 1: as possible from it, and that's the contract is a

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Speaker 1: way to do that very quickly. Here and Professor Hart,

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Speaker 1: I want to make clear that Sandy Grossman is someone

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Speaker 1: that I have immense respect for his work with stiglets,

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Speaker 1: and obviously Grossman in Heart three as well. What did

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Speaker 1: you and Sanford Grossman do there? What was it that

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Speaker 1: you found nuanced about how we make contracts each and

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Speaker 1: every day? Yes, actually it was it was my I

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Speaker 1: did write a paper with Sandy Grossman eight three, but

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Speaker 1: the one I actually got the prize, I understand that

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Speaker 1: it was six It was eightiesix paper. The innovation there,

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Speaker 1: I think it was that we realized that when when

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Speaker 1: parties write contracts, and we're talking again the electricity coal

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Speaker 1: example is quite a good one, a long term relationship,

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Speaker 1: it's very hard to anticipate all the things that are

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Speaker 1: going to happen, you know, of a thirty fifty period.

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Speaker 1: It's it's absolutely impossible. So any contract will be incompleted,

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Speaker 1: will have a lot of stuff missing. And then what

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Speaker 1: we realized was that a key question then is who

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Speaker 1: gets to decide on the things that are missing? And um,

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Speaker 1: what we what we then went on to argue was well, um,

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Speaker 1: that's something that can be decided and advanced. In other words,

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Speaker 1: while you can't decide or putting the contract, all the

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Speaker 1: things that can happen you can decide who's going to decide,

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Speaker 1: and one way you can do that is through allocating

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Speaker 1: ownership of that. It's all more generally um uh, deciding

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Speaker 1: whether two companies should merge or not. That's going to

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Speaker 1: so in the case of just to give you an

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Speaker 1: example of a T and T by Time Warner, then

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Speaker 1: in the future, when some decision has to be made

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Speaker 1: concerning Time Warner, a T and T will be able

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Speaker 1: to make that decision. We continue with Professor Hart of Harvard,

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Speaker 1: who was an acclaimed teacher and educator and has wandered

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Speaker 1: into a Nobel prize and contract theory. Professor I interrupted you,

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Speaker 1: as only we do on Bloomberg Surveillance. You were my

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Speaker 1: answers are too long. No, no, no, they're they're very professorial.

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Speaker 1: And also we want tickets to Harvard Yale football. Professor,

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Speaker 1: could you please explain, as you were, long term agreements

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Speaker 1: and how it folds into, as an example, a major

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Speaker 1: media acquisition between a telephone company of ancient vintage in

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Speaker 1: Bugs Bunny in Yosemite, Sam, how does that work? Well,

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Speaker 1: are we to amount Time Warner and yeah, Well, as

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Speaker 1: I say, I I would have to look at the

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Speaker 1: details more. But my My point is that what my

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Speaker 1: work has been about is how if you acquire a company,

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Speaker 1: you also acquire residual control rights, which means the ability

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Speaker 1: to make decisions in the company you've acquired that previously

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Speaker 1: somebody else was was doing. And this these this transfer

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Speaker 1: of decision rights, this is really what characterizes a merger,

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Speaker 1: that the decision rights have changed. Once company A buys

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Speaker 1: company the company A now has decision rights over what

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Speaker 1: company B is doing that previously company B had. And

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Speaker 1: it's all it matters because the initial any contract they

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Speaker 1: write doesn't can't specify everything. So these residual decision rights matter. Now,

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Speaker 1: that's the theory. And then to say why that transfer

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Speaker 1: of decision or control rights is important in a particular context,

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Speaker 1: like a t in tee in Time Warner, you have

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Speaker 1: to get into the weeds there. You know, if they

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Speaker 1: want to hire me as a consultant, I'll start thinking

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Speaker 1: about it, but it would take a long time. I'd

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Speaker 1: really have to roll up my sleeves. You can't. It's yeah.

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Speaker 1: I wanted to ask you about performance based pay. There

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Speaker 1: has been such a movement over these last few years

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Speaker 1: to tie pay more to executive performance, and I wanted

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Speaker 1: to agree to, which that's a no brainer. In other words,

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Speaker 1: should that be the case all the time when you're

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Speaker 1: going through those calculations, one is it we're there not

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Speaker 1: to tie paid performance. Well, you are now actually asking

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Speaker 1: me about what my colleague, but what my friend and

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Speaker 1: co winner begged Homestrom worked on. Actually it's not really

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Speaker 1: my thing, but I'm sure he if you asked him

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Speaker 1: that question, he would say that paper performance can be

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Speaker 1: good in for the obvious reason that it can get

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Speaker 1: people to work hard to achieve some goal, but that

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Speaker 1: it can also be bad because sometimes you're trying the

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Speaker 1: pay to the to the wrong goal, or maybe just

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Speaker 1: one of several goals, and it can have a distortionary

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Speaker 1: impact as people. You know, people may then start focusing

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Speaker 1: on one thing at the expense of a lot of

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Speaker 1: other things, and so you have to be careful that.

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Speaker 1: That's why, you know, the devil is in the details.

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Speaker 1: But I think he's the guy really to to ask

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Speaker 1: about that. Fair enough. I mentioned to somebody this week

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Speaker 1: and I was going to be speaking with you, and

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Speaker 1: uh she she wanted me to ask you if if

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Speaker 1: you're a Bob Dylan fan, as a matter of joking,

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Speaker 1: But wonder to what you what you plan to talk

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Speaker 1: about in the lecture that you'll be giving in December.

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Speaker 1: Oh well, am I Bob Dylan. Actually, I think members

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Speaker 1: of my family are probably bigger fans than I am

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Speaker 1: the U. I have to say, you know, it would

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Speaker 1: be nice if he shows up. I will not be devon.

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Speaker 1: I'm still going to go. I'm going to go and

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Speaker 1: get my pride um taking guitar. Go practice it, pest seems,

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Speaker 1: Go practice it, pest seems up the street from Harvard,

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Speaker 1: you know, for a couple of months, and you'll be

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Speaker 1: fine when you get the stock home with your guitar

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Speaker 1: and him, Professor, we've got one minute left. I'm sorry

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Speaker 1: for that. The most honorable thing within your resume and

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Speaker 1: your biography is you'r the chairman of hurting Cats for

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Speaker 1: Harvard Economics for three years two thousands to two thousand three.

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Speaker 1: How did your contract theory work play out? Is you

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Speaker 1: had to manage the egos of Harvard Economics. It was

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Speaker 1: fantastically helpful. Actually, interestingly enough, because I'm not a natural

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Speaker 1: administrator at all, and so um I actually found it

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Speaker 1: extremely useful when I was negotiating with people who are

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Speaker 1: asking him to do things to know what the you know, my, my,

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Speaker 1: what their rights and obligations were. So just sort of

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Speaker 1: thinking about you know, when I ask you for examples

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Speaker 1: beyond a committee, Um, is part of your contract with

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Speaker 1: Harvard that you actually have agreed to be on something. Uh.

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Speaker 1: This sound was like kind of trivial, But actually I

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Speaker 1: found it extremely useful. Or actually, in one case, I

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Speaker 1: removed someone from a course that they were teaching, not

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Speaker 1: not one of the regular excuse me, it was this

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Speaker 1: was Smartin Feldstunt. You said, you're out man cus In.

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Speaker 1: It certainly wasn't him, but I it was somebody who

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Speaker 1: wasn't performing very well. And I it was very helpful

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Speaker 1: to know for me to figure out, you know, I

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Speaker 1: have the right to do that. He doesn't have a

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Speaker 1: right to teach the course. Um, you know that's not

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Speaker 1: the deal. Um. Actually, I I think contractually a lot

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Speaker 1: of the time. This is wonderful, Oliver Hurt, Thank you

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Speaker 1: so much, greatly appreciate it. With Harvard University winning a

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Speaker 1: Nobel Prize in economics, bank holds from m I t

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Speaker 1: as well, that was wonderful. Was wonderful with both of them. Yeah,

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Speaker 1: I had once in in one week, two separate deans

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Speaker 1: of economics use language that we could not use on

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Speaker 1: radio to discuss their professorial discussions in economics. It can

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Speaker 1: be sports and now joining us Walter Pick Richard Greenfield

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Speaker 1: A B T I G. They're on speaking terms. I

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Speaker 1: believe who won the bet? Did either of you gain

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Speaker 1: this to Rich Greenfield? Who's Richard today? Walter pi Sek

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Speaker 1: or Rich Greenfield? I'm just glad that Walt now has

430
00:25:30,560 --> 00:25:35,600
Speaker 1: to deal with media company. You can't imagine the battles

431
00:25:35,640 --> 00:25:38,280
Speaker 1: that we have over things like this, but we don't

432
00:25:38,359 --> 00:25:41,960
Speaker 1: let that bubble out in public speaking terms, what you

433
00:25:42,080 --> 00:25:45,440
Speaker 1: guys do so well And in congratulations to the both

434
00:25:45,520 --> 00:25:49,080
Speaker 1: of you quoted wildly through the press on Saturday. Let

435
00:25:49,160 --> 00:25:52,000
Speaker 1: me start with you, Walter Piseck. You guys do the

436
00:25:52,119 --> 00:25:57,120
Speaker 1: micro economics of the blather like no one I would suggest.

437
00:25:57,240 --> 00:26:00,840
Speaker 1: Walter pi Seck, the microeconomics is Spray and T Mobile

438
00:26:01,200 --> 00:26:04,200
Speaker 1: are cleaning the big boys. Clock Am I right on that?

439
00:26:05,240 --> 00:26:08,199
Speaker 1: I mean T Mobile reported a phenomenal post paid uh

440
00:26:08,359 --> 00:26:10,800
Speaker 1: net AD number. The subscriber base is growing a lot.

441
00:26:11,119 --> 00:26:13,320
Speaker 1: Sprint actually had good numbers for the first time in

442
00:26:13,359 --> 00:26:16,280
Speaker 1: a long time. And meanwhile there's there's a T and

443
00:26:16,320 --> 00:26:19,520
Speaker 1: T losing customers and even Verizon has has inverted to law.

444
00:26:19,600 --> 00:26:21,159
Speaker 1: So yeah, I mean, I think that's what's going on

445
00:26:21,200 --> 00:26:25,600
Speaker 1: in the wireless industry right now. I look Rich Greenfield

446
00:26:25,640 --> 00:26:28,639
Speaker 1: at the microeconomics of Time Warner, which is, you know,

447
00:26:28,840 --> 00:26:31,120
Speaker 1: sell at the top and talking to all the great guests.

448
00:26:31,160 --> 00:26:35,639
Speaker 1: We've had today, a terrific valuation. But what is the

449
00:26:35,880 --> 00:26:40,399
Speaker 1: dynamics of advertising right now for Time Warner and others

450
00:26:40,520 --> 00:26:45,880
Speaker 1: like it? Look, everyone's fine right now, business is actually okay,

451
00:26:46,600 --> 00:26:48,560
Speaker 1: but you can see where the lines are going. I

452
00:26:48,600 --> 00:26:53,159
Speaker 1: mean linear TV ratings TOM are literally collapsing. Uh you know.

453
00:26:53,280 --> 00:26:56,280
Speaker 1: I think that's the fundamental challenge here is that we're

454
00:26:56,320 --> 00:26:59,639
Speaker 1: moving away from watching linear television where you get home

455
00:26:59,680 --> 00:27:01,359
Speaker 1: in a clock and you leave the TV on for

456
00:27:01,480 --> 00:27:05,160
Speaker 1: several hours, absorbers twenty minutes an hour of commercials. We're

457
00:27:05,160 --> 00:27:07,000
Speaker 1: moving to an on demand world where there really are

458
00:27:07,080 --> 00:27:10,879
Speaker 1: no commercials. And I think this is Time Warner recognizing that, like,

459
00:27:11,000 --> 00:27:14,600
Speaker 1: the future doesn't look so bright, and they found a

460
00:27:14,680 --> 00:27:17,760
Speaker 1: buyer who really was interested in the content assets, the

461
00:27:17,880 --> 00:27:20,520
Speaker 1: HBO and the Warner brothers, and we're willing to suck

462
00:27:20,600 --> 00:27:22,840
Speaker 1: up the bad code, which is the Turner assets, and

463
00:27:22,840 --> 00:27:24,800
Speaker 1: they basically said, you know what, we can absorb that,

464
00:27:24,880 --> 00:27:27,240
Speaker 1: we'll use it to pay our dividends. But will will

465
00:27:27,280 --> 00:27:29,960
Speaker 1: We really wanted was Warner Brothers in HBO, but we

466
00:27:30,200 --> 00:27:31,960
Speaker 1: had to buy the whole thing, which, by the way,

467
00:27:32,000 --> 00:27:34,560
Speaker 1: that negative outlook is probably not that different as far

468
00:27:34,600 --> 00:27:36,520
Speaker 1: as the telecom business and what we talked about in

469
00:27:36,600 --> 00:27:40,119
Speaker 1: wireless UH and buying. So buying this just as some diversity.

470
00:27:40,119 --> 00:27:41,400
Speaker 1: I mean one of the things that they've been able

471
00:27:41,440 --> 00:27:43,159
Speaker 1: to put up good numbers because they've been using some

472
00:27:43,280 --> 00:27:46,000
Speaker 1: accounting on his phone payment plans that have been named

473
00:27:46,000 --> 00:27:48,639
Speaker 1: of them to take EBA done. Earnings look good, but

474
00:27:48,760 --> 00:27:52,840
Speaker 1: without out you know, it's basically about diversification. Now, Really

475
00:27:52,880 --> 00:27:55,000
Speaker 1: the most important thing today is that this is not

476
00:27:55,119 --> 00:27:56,840
Speaker 1: a read through that everybody else is going to get

477
00:27:56,840 --> 00:27:59,879
Speaker 1: acquired in media land. This was a very unique buyer

478
00:28:00,400 --> 00:28:03,520
Speaker 1: looking at a very specific ACPKA. I don't think anybody

479
00:28:03,560 --> 00:28:06,119
Speaker 1: else is getting bought on this theme, Walter Price. You

480
00:28:06,200 --> 00:28:09,680
Speaker 1: know Richard Greenfield's courage and securities analysis. He proved that

481
00:28:09,760 --> 00:28:12,560
Speaker 1: with Vantage a million years ago, and now he's the

482
00:28:12,640 --> 00:28:15,800
Speaker 1: Pinata on Disney with his very negative view on Disney

483
00:28:16,040 --> 00:28:18,400
Speaker 1: Walter pricech who's going to be dumb enough in your

484
00:28:18,480 --> 00:28:22,600
Speaker 1: world to try to acquire Walt Disney? Is it Mr

485
00:28:22,720 --> 00:28:27,520
Speaker 1: Cook and Cooper Tino? Well, that's that's certainly a name

486
00:28:27,560 --> 00:28:30,280
Speaker 1: that gets bannered about, um, you know, and like Disney

487
00:28:30,320 --> 00:28:32,280
Speaker 1: is a major company, you know, it's it's hard to

488
00:28:32,320 --> 00:28:36,000
Speaker 1: say whether Apple has introduca so On. I think was

489
00:28:36,359 --> 00:28:38,480
Speaker 1: was quoted. I think it was on CNBC saying no

490
00:28:38,560 --> 00:28:40,680
Speaker 1: one else's has actually talked him. I think it's his

491
00:28:41,120 --> 00:28:43,000
Speaker 1: quote with something like I can park my car out

492
00:28:43,040 --> 00:28:45,920
Speaker 1: in the curb and if someone actually kicks the tires,

493
00:28:45,920 --> 00:28:47,680
Speaker 1: does that really kind of like checking it? So I

494
00:28:47,680 --> 00:28:50,880
Speaker 1: don't I'm not sure that that Apple or Google, just

495
00:28:50,960 --> 00:28:53,200
Speaker 1: because they're big and everyone always lists them as a

496
00:28:53,240 --> 00:28:55,959
Speaker 1: potential buyer, I'm not sure we should we should look

497
00:28:56,000 --> 00:28:59,280
Speaker 1: for them to make a meaningful UM move. I think

498
00:28:59,320 --> 00:29:00,920
Speaker 1: at this point, I'm I think they've talked about the

499
00:29:00,960 --> 00:29:03,240
Speaker 1: TV and even the car in the past. But you know,

500
00:29:03,360 --> 00:29:05,200
Speaker 1: you scrape the service, You take a look at things

501
00:29:05,320 --> 00:29:07,960
Speaker 1: and you see if you can do something. Just because

502
00:29:08,000 --> 00:29:09,360
Speaker 1: you have a lot of money doesn't mean you make

503
00:29:09,400 --> 00:29:11,520
Speaker 1: a major deal. And let's think about Apple for a second.

504
00:29:11,560 --> 00:29:14,000
Speaker 1: They both do big deals. Beats was like the shocker

505
00:29:14,040 --> 00:29:17,360
Speaker 1: for everyone. It was four three billion dollars. Have they

506
00:29:17,480 --> 00:29:22,280
Speaker 1: really done any other large acquisitions? No, Rich can talk

507
00:29:22,280 --> 00:29:24,160
Speaker 1: about Google. Yeah, I was gonna I'm just gonna say

508
00:29:24,200 --> 00:29:25,640
Speaker 1: there was. There's been so much talk of this sort

509
00:29:25,640 --> 00:29:28,440
Speaker 1: of North South agreement. Rich, Who's who would be left

510
00:29:28,480 --> 00:29:32,040
Speaker 1: for an Apple or Google? Well, look, Disney's a hundred

511
00:29:32,080 --> 00:29:35,080
Speaker 1: and fifty billion dollar company. So assuming you know, even

512
00:29:35,120 --> 00:29:37,160
Speaker 1: if the stock continues to fall as we think it will,

513
00:29:37,760 --> 00:29:39,480
Speaker 1: you know, if you're buying it, you're still probably buying

514
00:29:39,520 --> 00:29:42,160
Speaker 1: it for a hundred and seventy billion dollars. That's even

515
00:29:42,240 --> 00:29:44,280
Speaker 1: a pretty big deal for the companies that we're talking

516
00:29:44,280 --> 00:29:46,600
Speaker 1: about them. And yes, you've got five hundred billion dollar companies,

517
00:29:46,680 --> 00:29:49,960
Speaker 1: but that's a very major shift of your entire business.

518
00:29:50,440 --> 00:29:53,520
Speaker 1: For Google to own theme parks and cable networks really

519
00:29:53,600 --> 00:29:56,640
Speaker 1: hard to imagine. I certainly don't think Facebook is going there.

520
00:29:56,680 --> 00:29:58,520
Speaker 1: That's just not the way they look at the world.

521
00:29:58,600 --> 00:30:00,880
Speaker 1: And so you know, when you look at the smaller companies,

522
00:30:00,920 --> 00:30:02,920
Speaker 1: look Foxes owned by the Murdock's family. They're not for

523
00:30:03,040 --> 00:30:05,920
Speaker 1: sale via comin CBS are gonna e Memrge together we

524
00:30:06,040 --> 00:30:09,480
Speaker 1: believe owned by the Redstone family, not for sale. There

525
00:30:09,560 --> 00:30:12,880
Speaker 1: really is nobody else that that would give you scale

526
00:30:12,920 --> 00:30:14,760
Speaker 1: of content creation. I mean when you think about the

527
00:30:14,840 --> 00:30:17,000
Speaker 1: Discoveries and the A m c s and the scripts,

528
00:30:17,120 --> 00:30:20,280
Speaker 1: is like these are small that these wouldn't accomplish if

529
00:30:20,360 --> 00:30:22,640
Speaker 1: if the goal is great content, meaning Warren Brothers and

530
00:30:22,760 --> 00:30:25,720
Speaker 1: HBO in this transaction, all of those other assets don't

531
00:30:25,800 --> 00:30:29,360
Speaker 1: get you that really unique high quality content creation. You know,

532
00:30:29,640 --> 00:30:32,520
Speaker 1: well just just quickly here A T and T of

533
00:30:32,560 --> 00:30:35,160
Speaker 1: course headquartered in Dallas, and I wonder when you look

534
00:30:35,200 --> 00:30:38,720
Speaker 1: at the complimentarity of these these two companies, how big

535
00:30:38,760 --> 00:30:41,320
Speaker 1: a factory is that? Is that geographic thing going to

536
00:30:41,400 --> 00:30:42,880
Speaker 1: play here? That the fact that A T and T

537
00:30:43,040 --> 00:30:45,920
Speaker 1: is based there? Uh, you know, how seamlessly integrated can

538
00:30:45,960 --> 00:30:48,400
Speaker 1: these companies be without the case, you know, a Surer

539
00:30:48,480 --> 00:30:50,840
Speaker 1: bought Time Warner. They're having a lot of those people,

540
00:30:51,000 --> 00:30:53,240
Speaker 1: particularly the WiFi area, move out to Denver. But in

541
00:30:53,320 --> 00:30:54,959
Speaker 1: this case, I think A T and T looks at

542
00:30:55,000 --> 00:30:57,680
Speaker 1: this as a wholy owned subsidiary. I'm not sure that's

543
00:30:57,720 --> 00:30:59,560
Speaker 1: something that that they're going to mess with. I think

544
00:30:59,840 --> 00:31:02,720
Speaker 1: you need to keep the talent and the management teams,

545
00:31:03,200 --> 00:31:05,360
Speaker 1: you know, for these assets where they are, so I

546
00:31:05,440 --> 00:31:08,200
Speaker 1: don't I don't think the cultural issues that might exist

547
00:31:08,920 --> 00:31:12,080
Speaker 1: where you're moving people to Dallas um really pertaining this

548
00:31:12,200 --> 00:31:15,840
Speaker 1: particular action. What was really excited though, about the next

549
00:31:15,880 --> 00:31:18,640
Speaker 1: Batman from here? I mean, come on, you know we

550
00:31:18,720 --> 00:31:22,160
Speaker 1: played Yosemite, Sam and Bugs Bunny earlier, and I mean,

551
00:31:22,240 --> 00:31:26,200
Speaker 1: come on, folks there, iconic Rich Greenfield. There's assets on

552
00:31:26,320 --> 00:31:30,680
Speaker 1: the Time Warner balance sheet. Are they all priced into

553
00:31:30,760 --> 00:31:33,200
Speaker 1: this hundred and seven dollars? A yeare? I mean, is

554
00:31:33,240 --> 00:31:37,560
Speaker 1: it priced well? I mean, Tom, you're paying a really

555
00:31:37,680 --> 00:31:41,120
Speaker 1: full price because you're getting this great content that you

556
00:31:41,240 --> 00:31:44,959
Speaker 1: and from from Warner Brothers, which has Hanna bar Barrett,

557
00:31:45,000 --> 00:31:48,480
Speaker 1: the DC comics, Harry Potter's branches. I mean, there's so

558
00:31:48,600 --> 00:31:51,760
Speaker 1: much great I p within Warner Brothers. But remember half

559
00:31:51,840 --> 00:31:58,480
Speaker 1: the company is linear Legacy Basic Cable Network, TBS, TNT,

560
00:31:58,800 --> 00:32:02,040
Speaker 1: True TV. You know see, I mean there's a lot

561
00:32:02,160 --> 00:32:05,000
Speaker 1: of stuff that has challenged and really duck in the

562
00:32:05,120 --> 00:32:08,080
Speaker 1: Legacy bundle, and so you look, there's some great assets

563
00:32:08,080 --> 00:32:09,840
Speaker 1: in there. It's why we were we were arguing for

564
00:32:09,920 --> 00:32:11,960
Speaker 1: a long time that the way to maximize value was

565
00:32:12,000 --> 00:32:15,080
Speaker 1: to split the company into HBO Warner Brothers and then

566
00:32:15,120 --> 00:32:17,640
Speaker 1: Turner on the other side, and Jeff resisted, and you

567
00:32:17,680 --> 00:32:20,240
Speaker 1: know what, in the end he proved us wrong because

568
00:32:20,280 --> 00:32:23,800
Speaker 1: he found somebody who was willing to buy everything. Yeah,

569
00:32:24,400 --> 00:32:28,760
Speaker 1: who's Walter. Who's the next distributor to buy this? I

570
00:32:28,800 --> 00:32:34,320
Speaker 1: thought Jim ransoms ye Young Ransom's note deject draw research

571
00:32:34,480 --> 00:32:36,560
Speaker 1: was brilliant on this. There's got to be another guy

572
00:32:36,640 --> 00:32:40,080
Speaker 1: out there to buy the next media conglomerate, is it Google?

573
00:32:41,240 --> 00:32:44,000
Speaker 1: I mean, look, Horizon has said they want to keep

574
00:32:44,080 --> 00:32:46,320
Speaker 1: things small. I mean they're they're they're they're buying stuff

575
00:32:46,360 --> 00:32:48,520
Speaker 1: like a O well that that time Warner has cast

576
00:32:48,560 --> 00:32:51,840
Speaker 1: aside and they're not looking for a big transaction. Um,

577
00:32:52,560 --> 00:32:55,040
Speaker 1: it's possible to rise in as you kind of approach

578
00:32:55,200 --> 00:32:58,680
Speaker 1: the ultimate retirement of their CEO Low mcgannum may change

579
00:32:58,760 --> 00:33:00,720
Speaker 1: that strategy, but for now and looks like they're going

580
00:33:00,760 --> 00:33:02,920
Speaker 1: to get involved that we've already talked about Apple on Google.

581
00:33:03,920 --> 00:33:07,400
Speaker 1: I mean rich very quickly here the idea of our

582
00:33:07,480 --> 00:33:12,800
Speaker 1: regulated cell phone cash flows being distributed to buy the

583
00:33:12,960 --> 00:33:16,720
Speaker 1: legacy of Bugs Bunny and the newness of season whatever

584
00:33:16,800 --> 00:33:18,760
Speaker 1: it is of Game of Thrones. I mean that's really

585
00:33:18,840 --> 00:33:22,360
Speaker 1: what this transaction is, right. I think what everyone forgets

586
00:33:22,480 --> 00:33:24,800
Speaker 1: is when you line up on a chart the major

587
00:33:24,880 --> 00:33:27,960
Speaker 1: distributors or platforms, whether we're talking Google or a t

588
00:33:28,120 --> 00:33:32,480
Speaker 1: NT or Verizon versus the entire legacy media industry. All

589
00:33:32,560 --> 00:33:35,560
Speaker 1: the companies that you know, whether it's Viacom or Fox

590
00:33:35,760 --> 00:33:39,280
Speaker 1: or Time Warner, they're all pimples relative to the size

591
00:33:39,320 --> 00:33:43,240
Speaker 1: of these tech platforms and distribution platforms. There's just a

592
00:33:43,280 --> 00:33:45,360
Speaker 1: whole different size and scale, and I think we often

593
00:33:45,400 --> 00:33:48,360
Speaker 1: lose sight of just how small the media world really is,

594
00:33:48,440 --> 00:33:51,320
Speaker 1: despite all of our excitement of seeing and enjoying some

595
00:33:51,440 --> 00:33:53,920
Speaker 1: of the contents. Well, very quickly, here the only company

596
00:33:53,960 --> 00:33:56,760
Speaker 1: that pays more for lobbyists than fors ands a T

597
00:33:56,880 --> 00:34:00,000
Speaker 1: and T when you handicap the regulatory heardlier, how high

598
00:34:00,080 --> 00:34:02,480
Speaker 1: hurdle is that. I don't know if this is stacked,

599
00:34:02,480 --> 00:34:04,720
Speaker 1: but I think Google probably spends more than all. Right,

600
00:34:04,800 --> 00:34:06,800
Speaker 1: there you go. I think I think that week to

601
00:34:06,880 --> 00:34:09,480
Speaker 1: have some dollars in the DC world as well. So

602
00:34:10,040 --> 00:34:12,120
Speaker 1: on the regulatory side of things, I think the key

603
00:34:12,160 --> 00:34:14,360
Speaker 1: thing to focus on is whether the f c C

604
00:34:15,040 --> 00:34:16,960
Speaker 1: can have a formal review of this and use this

605
00:34:17,120 --> 00:34:21,560
Speaker 1: very important administrative law judge. Basically you know level that

606
00:34:21,600 --> 00:34:22,920
Speaker 1: they can pull up. This is just a d o

607
00:34:23,040 --> 00:34:25,000
Speaker 1: J issue. I think a T T has got a

608
00:34:25,000 --> 00:34:27,480
Speaker 1: pretty good shot at making their arguments. Tom. You also

609
00:34:27,640 --> 00:34:29,520
Speaker 1: didn't mention one other stuff, which is Netflix. And so

610
00:34:29,560 --> 00:34:32,960
Speaker 1: when you think about you're looking at distributors buying content creators,

611
00:34:33,000 --> 00:34:35,520
Speaker 1: but there's also content creators may look to buy Netflix

612
00:34:35,560 --> 00:34:39,200
Speaker 1: because that gets you distribution. So someone like Disney looking

613
00:34:39,280 --> 00:34:41,960
Speaker 1: at something like Netflix could be really interesting, and I

614
00:34:41,960 --> 00:34:44,040
Speaker 1: think that's probably why Netflix is up today. We want

615
00:34:44,080 --> 00:34:47,600
Speaker 1: to say content companies and distribution getting together maybe maybe

616
00:34:47,640 --> 00:34:49,840
Speaker 1: something we hear more about, but from different directions we

617
00:34:49,920 --> 00:34:52,520
Speaker 1: have to go. But congratulations to both of you on

618
00:34:52,640 --> 00:34:56,040
Speaker 1: your quotes through all media over the weekend. Walter Pisek,

619
00:34:56,160 --> 00:34:59,560
Speaker 1: Richard Greenfield VT. I g with it just like Monson,

620
00:34:59,680 --> 00:35:03,439
Speaker 1: Nathan Usin David gurl just a terrific synthesis of real

621
00:35:03,560 --> 00:35:07,520
Speaker 1: world experience. Both of them have enjoyed losing money, which

622
00:35:07,640 --> 00:35:16,880
Speaker 1: is the only way to gain wisdom. Thanks for listening

623
00:35:17,000 --> 00:35:21,680
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews

624
00:35:21,800 --> 00:35:27,160
Speaker 1: on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm

625
00:35:27,160 --> 00:35:30,120
Speaker 1: out on Twitter at Tom Keene. David Gura is at

626
00:35:30,280 --> 00:35:34,600
Speaker 1: David Gura. Before the podcast, you can always catch us worldwide.

627
00:35:35,080 --> 00:35:50,240
Speaker 1: I'm Bloomberg Radio. Who you put your trust in matters?

628
00:35:50,320 --> 00:35:54,759
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629
00:35:55,120 --> 00:35:58,400
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