Speaker 1: Who you put your trust in matters. Investors have put
Speaker 1: their trust and independent registered investment advisors to the two
Speaker 1: and four trillion dollars. Why learn more at find your
Speaker 1: Independent Advisor dot com. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keene with David Gura. Daily we bring you
Speaker 1: insight from the best in economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com, and
Speaker 1: of course on the Bloomberg Justin Craig mof At, Michael
Speaker 1: Nathanson their substantial report on this transaction, and worth shrilled
Speaker 1: to bring you Scott Galloway from New York University and
Speaker 1: Stern School with thoughts in the Scott, You and I
Speaker 1: talked this morning, particularly with Brian Weezer, about cost synergies
Speaker 1: Moffat and Nathanson degree. You can also dismiss the notion
Speaker 1: of cost synergies. But where they go before that is
Speaker 1: this idea of net neutrality that if you vertically integrate,
Speaker 1: you've got to offer everything that everybody outside the company
Speaker 1: as well. Right, Sure, but there might be some ways
Speaker 1: about that. You might have faster download, you might have enhancements.
Speaker 1: You might have previews, special special opportunities to get Game
Speaker 1: of Thrones the night before it comes out if you're
Speaker 1: an a T and T subscriber. I think there's all
Speaker 1: kinds of ways they can play. I mean, HBO now
Speaker 1: is working in the point of Game of Thrones, but
Speaker 1: it's not a big count. There's not a lot of
Speaker 1: mass there is there versus say the huge platform of CNN. Well,
Speaker 1: it depends. I see a lot of people seeing their
Speaker 1: parents HBO go um passwords and watching it on this
Speaker 1: way range. So I think Game of Thrones has probably
Speaker 1: got more mass, and if you look at the impact
Speaker 1: it's having versus kind of people just sort of numb
Speaker 1: and sort of sleepwalking through their day with and on
Speaker 1: in the background. I think Game of Thrones is, you know,
Speaker 1: some of the content they have is not only fantastic content,
Speaker 1: but will continue to have pricing power such that these
Speaker 1: people can exit this awful ecosystem called advertising and well,
Speaker 1: and and that's where we went with Scott earlier David
Speaker 1: gurd this idea of advertising or no ads. Yeah, hearing that,
Speaker 1: you gotta think that's bad news for Verizon, which is
Speaker 1: pursuing a strategy that is fully focused on ads, right.
Speaker 1: I generally believe that the advertising ecosystem. I think in America,
Speaker 1: just like we become numb to mass shootings, we become
Speaker 1: numb to how bad advertising is. The the constant reload
Speaker 1: on website pages with this these banner ads that are irrelevant.
Speaker 1: Look at look at the television ads. If you read
Speaker 1: if you think that TV is out is targeting you,
Speaker 1: that means really in the market for a South Korean car,
Speaker 1: a light beer, and that you're bipolar and have cis
Speaker 1: leg syndrome. There's absolutely no targeting taking place in TV.
Speaker 1: We have seen the end of I think we're at
Speaker 1: peak advertising and people are going to opt out using
Speaker 1: technology to say I'll pay fifty cents to opt out
Speaker 1: of advertising. And when was the ball dropped on that? Gosh,
Speaker 1: that's that's an interesting point. I don't know what the
Speaker 1: folk rum was. But at the end of the day,
Speaker 1: what where you have is now the technology will give
Speaker 1: people the opportunity to opt out and digest the business
Speaker 1: inside of for an entire year for five cents. Do
Speaker 1: you know how much New York Times gets for littering
Speaker 1: your newspaper with ads an entire year? They can monetize
Speaker 1: you to the extent of two dollars and sixty four
Speaker 1: cents a year. So if they make it easy for
Speaker 1: you to pay another two dollars and seventy cents for
Speaker 1: no ads, I think people are gonna start opting out.
Speaker 1: There was a note from John Martin the head of
Speaker 1: Turning to his staff I saw excerpted this morning, saying,
Speaker 1: you know, I can't do anything, of course until the
Speaker 1: deal goes through, but start thinking about what you could
Speaker 1: do with HUD thirty million mobile subscribers, sixty million broadband subscribers,
Speaker 1: and twenty five million video subscriberies. Bearing that in mind,
Speaker 1: what what is the what is available to this company
Speaker 1: if the deal goes through? What what does change in
Speaker 1: terms of how they approach the media space? Well, the
Speaker 1: idea of just having on demand and live TV on
Speaker 1: an app where you just you just it's just your
Speaker 1: finger on it and then boom, it's playing, and we
Speaker 1: don't quite have that yet. This Some of the stuff
Speaker 1: is pretty cumbersome. It does take some time to figure
Speaker 1: it out. I love HBoL, love Game of throunds. I
Speaker 1: have not figured out their pay service on my iPad.
Speaker 1: I don't know if you guys have I just have
Speaker 1: to figured it out. And I think there's more of
Speaker 1: us out there than people would like to admit. So
Speaker 1: the the kind of on demand easy. Not only not
Speaker 1: only on demand over the top, but one of the
Speaker 1: bets A. T and T is making with their direct
Speaker 1: TV now is that they noticed six of the consumption
Speaker 1: of video on their network was live TV. I'm seeing
Speaker 1: the headlines come out of c NBC in conversation with
Speaker 1: a head of of A T and T on this
Speaker 1: right now. It's eerie to me. Scott Galloway how the
Speaker 1: headlines are the same as every other merger in particularly
Speaker 1: Time Warner a O L from another time in place
Speaker 1: and I get the idea of CEOs are supposed to
Speaker 1: talk their book. That's all I see here this morning.
Speaker 1: How do you translate the actions of these CEOs as
Speaker 1: they move forward with this trans this transaction. Well, one
Speaker 1: of these guys is hoping it's a good deal. One
Speaker 1: of them knows it's a great deal. Jeffrey Jucos. Jeffrey Jucos,
Speaker 1: It's like, I don't know if this is the best
Speaker 1: time to sell a condo and Manhattan are the best
Speaker 1: time to sell time owner, but you know it's a
Speaker 1: good time. The cable isn't structural decline, and they are
Speaker 1: taking some outstanding cable assets but nonetheless instructural decline and
Speaker 1: selling them. He may be ringing the bell at the
Speaker 1: high here. I think this is you. This is what
Speaker 1: you want from a CEO on a board, if you're
Speaker 1: a shareholder, you want them to time and sell at
Speaker 1: the top. I led with my first line, Scott Galloway,
Speaker 1: thank you so much in with New York University, and
Speaker 1: just thank you again for your important perspective and will
Speaker 1: get you yo in the Verizon. Trenwick. This is Bloomberg
Speaker 1: Surveillance on Bloomberg. Rerady. I'm David Garrow with Tom Keane
Speaker 1: digging into that billion dollar A T and T Time
Speaker 1: Warner deal this morning. It's our pleasure to welcome Craig
Speaker 1: Moffitt to the program, Craig Mofet of Mofet Nathanson, who
Speaker 1: has just published a note as Tom was mentioning on
Speaker 1: the deal. And Craig, let me start with the two
Speaker 1: seas here the rationale for the deal, content and cost savings.
Speaker 1: Let's take the latter one first. Here when you when
Speaker 1: you look at the deal so much as we know
Speaker 1: of it right now, does the cost savings argument makes sense?
Speaker 1: All night morning, David, What what cost savings? Exactly? I'm
Speaker 1: struggling to see the logic for any cost savings. Give
Speaker 1: me you can shut down and investor relations department and
Speaker 1: the cost of listing one of the docks on the exchange.
Speaker 1: But that's about it. There's there's there's not any any
Speaker 1: particular industrial logic to this being cheaper to run because
Speaker 1: you put them under one umbrella when you when you
Speaker 1: look at at atencies hunger for content here? How how
Speaker 1: complementary is this combination? In other words, is this a
Speaker 1: logical fit in that regard as a teen going to
Speaker 1: get the content of once out of Time Warner. Well,
Speaker 1: here's the way I would think about it. Um. You know,
Speaker 1: there's a lot of things you could do with vertical integration.
Speaker 1: Um you could A lot of people this morning are
Speaker 1: talking about the theory at least of could you keep
Speaker 1: HBO or some of the Time Warner properties proprietary to
Speaker 1: one of the A, T and T distribution platforms. That's
Speaker 1: not going to be allowed that It's not clear that
Speaker 1: would economically make sense anyway, but it will clearly be prohibited,
Speaker 1: so you won't be able to advantage your distribution because
Speaker 1: you own content. At the same time, Net neutrality and
Speaker 1: and rules around so called zero rating or trying to
Speaker 1: exempt time warner content from usage caps and that sort
Speaker 1: of thing will also be prohibited. So it's almost impossible
Speaker 1: to differentiate your distribution because you own content, and it's
Speaker 1: almost impossible to differentiate your content because you own distribution.
Speaker 1: So you end up with two companies that operate side
Speaker 1: by side, and I suppose they're vertically integrated in concept
Speaker 1: because they're both owned by the same entity, But there's
Speaker 1: no real vertical integration in any meaningful business sense here.
Speaker 1: It's it's really diversification rather than strategy. What's the regulatory
Speaker 1: hurdle going to be here this gets kicked down to Washington.
Speaker 1: Is that a given that the FEC takes it up?
Speaker 1: And how high hurdle is that going to be? Well,
Speaker 1: it's a given that the d o J will take
Speaker 1: it up. There's a lot of question right now about
Speaker 1: whether or not the SEC actually has any jurisdiction here. Um,
Speaker 1: the SEC's authority to review deals arises from licenses, and
Speaker 1: there's a single broadcast station in Atlanta that that Time
Speaker 1: owner owns that. I'm guessing they will rapidly try to
Speaker 1: divest if they can avoid STEC reviews. Are a handful
Speaker 1: of satellite uplink licensees, but there's nothing really material in
Speaker 1: Time Warner that that revolves around licenses. So there's still
Speaker 1: some ambiguity about whether the STC will actually get to
Speaker 1: get its claws into the steel at all. Anyway, the
Speaker 1: d J is going to be a tough hurdle. That's
Speaker 1: a rule of law tests. Um, this is a they're
Speaker 1: they're outstaying. There's no parrizonal issues, and that's true, but
Speaker 1: the vertical issues are really profound. And you've seen an
Speaker 1: already a tremendous amount of political blowback uh, not only
Speaker 1: from uh kind of Trump um and uh and but
Speaker 1: but from across both sides of the aisle. And there's
Speaker 1: gonna be a tremendous amount of scrutiny. I don't think
Speaker 1: you can give this deal better than fifty fifty odds
Speaker 1: being approved. I know Tom wants to get in here,
Speaker 1: but let me ask you quickly how useful the comparison
Speaker 1: to the Comcast deal is. When when you're looking at
Speaker 1: this one, well, it's useful in some ways. Um, you know,
Speaker 1: I happen to think that the Comcast deal also was
Speaker 1: largely diversification, and that Comcast really hasn't on all that
Speaker 1: much Tom to differentiate what it does in either content
Speaker 1: or distribution, but virtual owning the other. So in suset
Speaker 1: you can think of them both as diversification deals. The
Speaker 1: difference is Comcast brought NBC at the bottom of the
Speaker 1: cycle and they bought it for less than nine times EBITDA.
Speaker 1: A T and T is buying time or at the
Speaker 1: top of the cycle, and they're buying it a twelve
Speaker 1: times VODA. So if diversification is all about what price
Speaker 1: you paid, Comcast paid a much much more attractive price
Speaker 1: than A T and T. Craig, There's so much to
Speaker 1: talk about. You and I could go for three hours
Speaker 1: this morning. I've got a minute and a half with you.
Speaker 1: I lead my show open this morning with the word desperation.
Speaker 1: You nailed that in your research report of moments ago
Speaker 1: to say that A T and T had to do something.
Speaker 1: All my radar is up on that Moffatt Nathanson headline.
Speaker 1: I mean that never ends pretty, doesn't No, you know,
Speaker 1: it's it's fun. I mean, they've they've gotten bigger and bigger.
Speaker 1: And the problem that you get into in these kinds
Speaker 1: of situations that look, they did direct TV a year
Speaker 1: and a half ago because they had to do something
Speaker 1: that would help them support the dividend um, and so
Speaker 1: they bought a company that generated a lot of cash flow.
Speaker 1: But direct TV is in a precarious position of being
Speaker 1: potentially a declining event and they're already starting to lose
Speaker 1: subscribers and pay TV. You've already got a shrinking wireless
Speaker 1: business and a shrinking wire line business. Now you're buying
Speaker 1: yet another business to try to support the cash flow
Speaker 1: because direct TV doesn't look like you can do it
Speaker 1: for long. But all you get is a bigger and
Speaker 1: bigger and bigger balance sheet along the way. And eventually,
Speaker 1: as you say, it tends to end badly. Do you
Speaker 1: very quickly? Or do you and Michael actually believe the
Speaker 1: advertising business as we know it will continue to be
Speaker 1: the cash flow that will support this transaction, or as
Speaker 1: Scott Galloway just said, the real news is that it
Speaker 1: will be a no ad world the next number of years. Well,
Speaker 1: they're certainly an awful lot of questions about advertising, and
Speaker 1: you know that there's a fundamental theoretical question that you
Speaker 1: and I could talk about forever about does targeting actually
Speaker 1: lead to higher CPM. There's the price of advertising cost
Speaker 1: for thousand people reached. Does does better targeting actually gilds
Speaker 1: higher CPMs? Theory says it should because it's better targeted
Speaker 1: left face or does it lead to lower CPMs, which
Speaker 1: history says happens every time because as targeting gets better,
Speaker 1: the opportunity for arbitrage between advertisers get better, and historically
Speaker 1: that has won out. So there's lots of questions about
Speaker 1: the future of the advertising correct. Thank you so much
Speaker 1: from your busy day, Craig Moffatt with Moffatt Nathanson, we continue.
Speaker 1: This is Bloomer who you put your trust in matters.
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Speaker 1: We've of course been looking at the transaction of a
Speaker 1: T and T and Time Warner. They will sign contracts
Speaker 1: many I assume, not only to retain personnel, but actually
Speaker 1: to get this transaction done. They will do it within
Speaker 1: a principle and agency basis. Gentleman has just won the
Speaker 1: Nobel Prize in Economics for thinking about contract theory. We
Speaker 1: spoke with benk Olstrom of M I T a few
Speaker 1: days ago and now joining us a laureate from Harvard
Speaker 1: Oliver Heart Professor Hart. Good morning, good morning, congratulations in
Speaker 1: on thinking of contracts in theory. If you were to
Speaker 1: speak this morning to a T and T executives about
Speaker 1: this strange principal agency relationship, what would a Nobel Prize
Speaker 1: winners council be to the management of a T and T. Well,
Speaker 1: that's besides lower your cable TV bill. Well, that's a
Speaker 1: that's a difficult question because it's a very complicated transaction,
Speaker 1: and I wouldn't presume to give them advice without knowing
Speaker 1: a great deal more about the transaction. And it's two
Speaker 1: very large companies, and there are there are many, many,
Speaker 1: many things going on. I suppose I would probably more
Speaker 1: ask them questions such as why why are you doing it?
Speaker 1: What are the efficiency gains from this deal? You know,
Speaker 1: a lot of people are worried about it because they think, um,
Speaker 1: it's going to lead to higher prices, that it's really
Speaker 1: an attempt to increase the monopoly power of the parties
Speaker 1: as opposed to being efficiency enhancing. So I would like
Speaker 1: to know why why they think it will lead to efficiencies?
Speaker 1: What what exactly they are? Could they be achieved by
Speaker 1: in some other way, by some sort of joint venture
Speaker 1: or you know, contract as opposed to a merger. Um, Yeah,
Speaker 1: that's that's that's what I sorry, would be more questions
Speaker 1: than answers for me. I'm curious for someone who isn't
Speaker 1: that familiar with with contract theory, and it's it's still
Speaker 1: a fairly new field here situated for us, and and
Speaker 1: and walk us through the wider applications of it. I
Speaker 1: know you're teaching the economics department, but you teach with
Speaker 1: the business school, and you teach in the law school
Speaker 1: school as well. Just talk about the wider implications of
Speaker 1: the field itself. Well, Um, you know, contracts are everywhere,
Speaker 1: and I think they're everywhere in economics because almost all
Speaker 1: the as that parties make have some sort of contract
Speaker 1: behind them. The most interesting cases are where it's some
Speaker 1: sort of long term economic relationship that parties are getting
Speaker 1: themselves into. And then, you know, a contract is a
Speaker 1: way to regulate that relationship as it goes through as
Speaker 1: it goes through time, instead of having to talk to
Speaker 1: each other, you know, every day about how we should
Speaker 1: you were you know what price I should pay for something?
Speaker 1: You're you're telling me if if we're talking about a
Speaker 1: long term relationship, you know, it could be an electricity
Speaker 1: company that wants to burn coal, so is contracting with
Speaker 1: a coal mine. You know, we might be talking about
Speaker 1: a thirty to fifty year relationship. So they want to
Speaker 1: set out the terms in advance. And I think the
Speaker 1: way economists think of it is the contract is a
Speaker 1: way to maximize the value of the relationship. So it's
Speaker 1: not just some sort of legal constructed has this is
Speaker 1: very important economic value that the parties have an interest
Speaker 1: in arranging their relationship so as to achieve as much
Speaker 1: as possible from it, and that's the contract is a
Speaker 1: way to do that very quickly. Here and Professor Hart,
Speaker 1: I want to make clear that Sandy Grossman is someone
Speaker 1: that I have immense respect for his work with stiglets,
Speaker 1: and obviously Grossman in Heart three as well. What did
Speaker 1: you and Sanford Grossman do there? What was it that
Speaker 1: you found nuanced about how we make contracts each and
Speaker 1: every day? Yes, actually it was it was my I
Speaker 1: did write a paper with Sandy Grossman eight three, but
Speaker 1: the one I actually got the prize, I understand that
Speaker 1: it was six It was eightiesix paper. The innovation there,
Speaker 1: I think it was that we realized that when when
Speaker 1: parties write contracts, and we're talking again the electricity coal
Speaker 1: example is quite a good one, a long term relationship,
Speaker 1: it's very hard to anticipate all the things that are
Speaker 1: going to happen, you know, of a thirty fifty period.
Speaker 1: It's it's absolutely impossible. So any contract will be incompleted,
Speaker 1: will have a lot of stuff missing. And then what
Speaker 1: we realized was that a key question then is who
Speaker 1: gets to decide on the things that are missing? And um,
Speaker 1: what we what we then went on to argue was well, um,
Speaker 1: that's something that can be decided and advanced. In other words,
Speaker 1: while you can't decide or putting the contract, all the
Speaker 1: things that can happen you can decide who's going to decide,
Speaker 1: and one way you can do that is through allocating
Speaker 1: ownership of that. It's all more generally um uh, deciding
Speaker 1: whether two companies should merge or not. That's going to
Speaker 1: so in the case of just to give you an
Speaker 1: example of a T and T by Time Warner, then
Speaker 1: in the future, when some decision has to be made
Speaker 1: concerning Time Warner, a T and T will be able
Speaker 1: to make that decision. We continue with Professor Hart of Harvard,
Speaker 1: who was an acclaimed teacher and educator and has wandered
Speaker 1: into a Nobel prize and contract theory. Professor I interrupted you,
Speaker 1: as only we do on Bloomberg Surveillance. You were my
Speaker 1: answers are too long. No, no, no, they're they're very professorial.
Speaker 1: And also we want tickets to Harvard Yale football. Professor,
Speaker 1: could you please explain, as you were, long term agreements
Speaker 1: and how it folds into, as an example, a major
Speaker 1: media acquisition between a telephone company of ancient vintage in
Speaker 1: Bugs Bunny in Yosemite, Sam, how does that work? Well,
Speaker 1: are we to amount Time Warner and yeah, Well, as
Speaker 1: I say, I I would have to look at the
Speaker 1: details more. But my My point is that what my
Speaker 1: work has been about is how if you acquire a company,
Speaker 1: you also acquire residual control rights, which means the ability
Speaker 1: to make decisions in the company you've acquired that previously
Speaker 1: somebody else was was doing. And this these this transfer
Speaker 1: of decision rights, this is really what characterizes a merger,
Speaker 1: that the decision rights have changed. Once company A buys
Speaker 1: company the company A now has decision rights over what
Speaker 1: company B is doing that previously company B had. And
Speaker 1: it's all it matters because the initial any contract they
Speaker 1: write doesn't can't specify everything. So these residual decision rights matter. Now,
Speaker 1: that's the theory. And then to say why that transfer
Speaker 1: of decision or control rights is important in a particular context,
Speaker 1: like a t in tee in Time Warner, you have
Speaker 1: to get into the weeds there. You know, if they
Speaker 1: want to hire me as a consultant, I'll start thinking
Speaker 1: about it, but it would take a long time. I'd
Speaker 1: really have to roll up my sleeves. You can't. It's yeah.
Speaker 1: I wanted to ask you about performance based pay. There
Speaker 1: has been such a movement over these last few years
Speaker 1: to tie pay more to executive performance, and I wanted
Speaker 1: to agree to, which that's a no brainer. In other words,
Speaker 1: should that be the case all the time when you're
Speaker 1: going through those calculations, one is it we're there not
Speaker 1: to tie paid performance. Well, you are now actually asking
Speaker 1: me about what my colleague, but what my friend and
Speaker 1: co winner begged Homestrom worked on. Actually it's not really
Speaker 1: my thing, but I'm sure he if you asked him
Speaker 1: that question, he would say that paper performance can be
Speaker 1: good in for the obvious reason that it can get
Speaker 1: people to work hard to achieve some goal, but that
Speaker 1: it can also be bad because sometimes you're trying the
Speaker 1: pay to the to the wrong goal, or maybe just
Speaker 1: one of several goals, and it can have a distortionary
Speaker 1: impact as people. You know, people may then start focusing
Speaker 1: on one thing at the expense of a lot of
Speaker 1: other things, and so you have to be careful that.
Speaker 1: That's why, you know, the devil is in the details.
Speaker 1: But I think he's the guy really to to ask
Speaker 1: about that. Fair enough. I mentioned to somebody this week
Speaker 1: and I was going to be speaking with you, and
Speaker 1: uh she she wanted me to ask you if if
Speaker 1: you're a Bob Dylan fan, as a matter of joking,
Speaker 1: But wonder to what you what you plan to talk
Speaker 1: about in the lecture that you'll be giving in December.
Speaker 1: Oh well, am I Bob Dylan. Actually, I think members
Speaker 1: of my family are probably bigger fans than I am
Speaker 1: the U. I have to say, you know, it would
Speaker 1: be nice if he shows up. I will not be devon.
Speaker 1: I'm still going to go. I'm going to go and
Speaker 1: get my pride um taking guitar. Go practice it, pest seems,
Speaker 1: Go practice it, pest seems up the street from Harvard,
Speaker 1: you know, for a couple of months, and you'll be
Speaker 1: fine when you get the stock home with your guitar
Speaker 1: and him, Professor, we've got one minute left. I'm sorry
Speaker 1: for that. The most honorable thing within your resume and
Speaker 1: your biography is you'r the chairman of hurting Cats for
Speaker 1: Harvard Economics for three years two thousands to two thousand three.
Speaker 1: How did your contract theory work play out? Is you
Speaker 1: had to manage the egos of Harvard Economics. It was
Speaker 1: fantastically helpful. Actually, interestingly enough, because I'm not a natural
Speaker 1: administrator at all, and so um I actually found it
Speaker 1: extremely useful when I was negotiating with people who are
Speaker 1: asking him to do things to know what the you know, my, my,
Speaker 1: what their rights and obligations were. So just sort of
Speaker 1: thinking about you know, when I ask you for examples
Speaker 1: beyond a committee, Um, is part of your contract with
Speaker 1: Harvard that you actually have agreed to be on something. Uh.
Speaker 1: This sound was like kind of trivial, But actually I
Speaker 1: found it extremely useful. Or actually, in one case, I
Speaker 1: removed someone from a course that they were teaching, not
Speaker 1: not one of the regular excuse me, it was this
Speaker 1: was Smartin Feldstunt. You said, you're out man cus In.
Speaker 1: It certainly wasn't him, but I it was somebody who
Speaker 1: wasn't performing very well. And I it was very helpful
Speaker 1: to know for me to figure out, you know, I
Speaker 1: have the right to do that. He doesn't have a
Speaker 1: right to teach the course. Um, you know that's not
Speaker 1: the deal. Um. Actually, I I think contractually a lot
Speaker 1: of the time. This is wonderful, Oliver Hurt, Thank you
Speaker 1: so much, greatly appreciate it. With Harvard University winning a
Speaker 1: Nobel Prize in economics, bank holds from m I t
Speaker 1: as well, that was wonderful. Was wonderful with both of them. Yeah,
Speaker 1: I had once in in one week, two separate deans
Speaker 1: of economics use language that we could not use on
Speaker 1: radio to discuss their professorial discussions in economics. It can
Speaker 1: be sports and now joining us Walter Pick Richard Greenfield
Speaker 1: A B T I G. They're on speaking terms. I
Speaker 1: believe who won the bet? Did either of you gain
Speaker 1: this to Rich Greenfield? Who's Richard today? Walter pi Sek
Speaker 1: or Rich Greenfield? I'm just glad that Walt now has
Speaker 1: to deal with media company. You can't imagine the battles
Speaker 1: that we have over things like this, but we don't
Speaker 1: let that bubble out in public speaking terms, what you
Speaker 1: guys do so well And in congratulations to the both
Speaker 1: of you quoted wildly through the press on Saturday. Let
Speaker 1: me start with you, Walter Piseck. You guys do the
Speaker 1: micro economics of the blather like no one I would suggest.
Speaker 1: Walter pi Seck, the microeconomics is Spray and T Mobile
Speaker 1: are cleaning the big boys. Clock Am I right on that?
Speaker 1: I mean T Mobile reported a phenomenal post paid uh
Speaker 1: net AD number. The subscriber base is growing a lot.
Speaker 1: Sprint actually had good numbers for the first time in
Speaker 1: a long time. And meanwhile there's there's a T and
Speaker 1: T losing customers and even Verizon has has inverted to law.
Speaker 1: So yeah, I mean, I think that's what's going on
Speaker 1: in the wireless industry right now. I look Rich Greenfield
Speaker 1: at the microeconomics of Time Warner, which is, you know,
Speaker 1: sell at the top and talking to all the great guests.
Speaker 1: We've had today, a terrific valuation. But what is the
Speaker 1: dynamics of advertising right now for Time Warner and others
Speaker 1: like it? Look, everyone's fine right now, business is actually okay,
Speaker 1: but you can see where the lines are going. I
Speaker 1: mean linear TV ratings TOM are literally collapsing. Uh you know.
Speaker 1: I think that's the fundamental challenge here is that we're
Speaker 1: moving away from watching linear television where you get home
Speaker 1: in a clock and you leave the TV on for
Speaker 1: several hours, absorbers twenty minutes an hour of commercials. We're
Speaker 1: moving to an on demand world where there really are
Speaker 1: no commercials. And I think this is Time Warner recognizing that, like,
Speaker 1: the future doesn't look so bright, and they found a
Speaker 1: buyer who really was interested in the content assets, the
Speaker 1: HBO and the Warner brothers, and we're willing to suck
Speaker 1: up the bad code, which is the Turner assets, and
Speaker 1: they basically said, you know what, we can absorb that,
Speaker 1: we'll use it to pay our dividends. But will will
Speaker 1: We really wanted was Warner Brothers in HBO, but we
Speaker 1: had to buy the whole thing, which, by the way,
Speaker 1: that negative outlook is probably not that different as far
Speaker 1: as the telecom business and what we talked about in
Speaker 1: wireless UH and buying. So buying this just as some diversity.
Speaker 1: I mean one of the things that they've been able
Speaker 1: to put up good numbers because they've been using some
Speaker 1: accounting on his phone payment plans that have been named
Speaker 1: of them to take EBA done. Earnings look good, but
Speaker 1: without out you know, it's basically about diversification. Now, Really
Speaker 1: the most important thing today is that this is not
Speaker 1: a read through that everybody else is going to get
Speaker 1: acquired in media land. This was a very unique buyer
Speaker 1: looking at a very specific ACPKA. I don't think anybody
Speaker 1: else is getting bought on this theme, Walter Price. You
Speaker 1: know Richard Greenfield's courage and securities analysis. He proved that
Speaker 1: with Vantage a million years ago, and now he's the
Speaker 1: Pinata on Disney with his very negative view on Disney
Speaker 1: Walter pricech who's going to be dumb enough in your
Speaker 1: world to try to acquire Walt Disney? Is it Mr
Speaker 1: Cook and Cooper Tino? Well, that's that's certainly a name
Speaker 1: that gets bannered about, um, you know, and like Disney
Speaker 1: is a major company, you know, it's it's hard to
Speaker 1: say whether Apple has introduca so On. I think was
Speaker 1: was quoted. I think it was on CNBC saying no
Speaker 1: one else's has actually talked him. I think it's his
Speaker 1: quote with something like I can park my car out
Speaker 1: in the curb and if someone actually kicks the tires,
Speaker 1: does that really kind of like checking it? So I
Speaker 1: don't I'm not sure that that Apple or Google, just
Speaker 1: because they're big and everyone always lists them as a
Speaker 1: potential buyer, I'm not sure we should we should look
Speaker 1: for them to make a meaningful UM move. I think
Speaker 1: at this point, I'm I think they've talked about the
Speaker 1: TV and even the car in the past. But you know,
Speaker 1: you scrape the service, You take a look at things
Speaker 1: and you see if you can do something. Just because
Speaker 1: you have a lot of money doesn't mean you make
Speaker 1: a major deal. And let's think about Apple for a second.
Speaker 1: They both do big deals. Beats was like the shocker
Speaker 1: for everyone. It was four three billion dollars. Have they
Speaker 1: really done any other large acquisitions? No, Rich can talk
Speaker 1: about Google. Yeah, I was gonna I'm just gonna say
Speaker 1: there was. There's been so much talk of this sort
Speaker 1: of North South agreement. Rich, Who's who would be left
Speaker 1: for an Apple or Google? Well, look, Disney's a hundred
Speaker 1: and fifty billion dollar company. So assuming you know, even
Speaker 1: if the stock continues to fall as we think it will,
Speaker 1: you know, if you're buying it, you're still probably buying
Speaker 1: it for a hundred and seventy billion dollars. That's even
Speaker 1: a pretty big deal for the companies that we're talking
Speaker 1: about them. And yes, you've got five hundred billion dollar companies,
Speaker 1: but that's a very major shift of your entire business.
Speaker 1: For Google to own theme parks and cable networks really
Speaker 1: hard to imagine. I certainly don't think Facebook is going there.
Speaker 1: That's just not the way they look at the world.
Speaker 1: And so you know, when you look at the smaller companies,
Speaker 1: look Foxes owned by the Murdock's family. They're not for
Speaker 1: sale via comin CBS are gonna e Memrge together we
Speaker 1: believe owned by the Redstone family, not for sale. There
Speaker 1: really is nobody else that that would give you scale
Speaker 1: of content creation. I mean when you think about the
Speaker 1: Discoveries and the A m c s and the scripts,
Speaker 1: is like these are small that these wouldn't accomplish if
Speaker 1: if the goal is great content, meaning Warren Brothers and
Speaker 1: HBO in this transaction, all of those other assets don't
Speaker 1: get you that really unique high quality content creation. You know,
Speaker 1: well just just quickly here A T and T of
Speaker 1: course headquartered in Dallas, and I wonder when you look
Speaker 1: at the complimentarity of these these two companies, how big
Speaker 1: a factory is that? Is that geographic thing going to
Speaker 1: play here? That the fact that A T and T
Speaker 1: is based there? Uh, you know, how seamlessly integrated can
Speaker 1: these companies be without the case, you know, a Surer
Speaker 1: bought Time Warner. They're having a lot of those people,
Speaker 1: particularly the WiFi area, move out to Denver. But in
Speaker 1: this case, I think A T and T looks at
Speaker 1: this as a wholy owned subsidiary. I'm not sure that's
Speaker 1: something that that they're going to mess with. I think
Speaker 1: you need to keep the talent and the management teams,
Speaker 1: you know, for these assets where they are, so I
Speaker 1: don't I don't think the cultural issues that might exist
Speaker 1: where you're moving people to Dallas um really pertaining this
Speaker 1: particular action. What was really excited though, about the next
Speaker 1: Batman from here? I mean, come on, you know we
Speaker 1: played Yosemite, Sam and Bugs Bunny earlier, and I mean,
Speaker 1: come on, folks there, iconic Rich Greenfield. There's assets on
Speaker 1: the Time Warner balance sheet. Are they all priced into
Speaker 1: this hundred and seven dollars? A yeare? I mean, is
Speaker 1: it priced well? I mean, Tom, you're paying a really
Speaker 1: full price because you're getting this great content that you
Speaker 1: and from from Warner Brothers, which has Hanna bar Barrett,
Speaker 1: the DC comics, Harry Potter's branches. I mean, there's so
Speaker 1: much great I p within Warner Brothers. But remember half
Speaker 1: the company is linear Legacy Basic Cable Network, TBS, TNT,
Speaker 1: True TV. You know see, I mean there's a lot
Speaker 1: of stuff that has challenged and really duck in the
Speaker 1: Legacy bundle, and so you look, there's some great assets
Speaker 1: in there. It's why we were we were arguing for
Speaker 1: a long time that the way to maximize value was
Speaker 1: to split the company into HBO Warner Brothers and then
Speaker 1: Turner on the other side, and Jeff resisted, and you
Speaker 1: know what, in the end he proved us wrong because
Speaker 1: he found somebody who was willing to buy everything. Yeah,
Speaker 1: who's Walter. Who's the next distributor to buy this? I
Speaker 1: thought Jim ransoms ye Young Ransom's note deject draw research
Speaker 1: was brilliant on this. There's got to be another guy
Speaker 1: out there to buy the next media conglomerate, is it Google?
Speaker 1: I mean, look, Horizon has said they want to keep
Speaker 1: things small. I mean they're they're they're they're buying stuff
Speaker 1: like a O well that that time Warner has cast
Speaker 1: aside and they're not looking for a big transaction. Um,
Speaker 1: it's possible to rise in as you kind of approach
Speaker 1: the ultimate retirement of their CEO Low mcgannum may change
Speaker 1: that strategy, but for now and looks like they're going
Speaker 1: to get involved that we've already talked about Apple on Google.
Speaker 1: I mean rich very quickly here the idea of our
Speaker 1: regulated cell phone cash flows being distributed to buy the
Speaker 1: legacy of Bugs Bunny and the newness of season whatever
Speaker 1: it is of Game of Thrones. I mean that's really
Speaker 1: what this transaction is, right. I think what everyone forgets
Speaker 1: is when you line up on a chart the major
Speaker 1: distributors or platforms, whether we're talking Google or a t
Speaker 1: NT or Verizon versus the entire legacy media industry. All
Speaker 1: the companies that you know, whether it's Viacom or Fox
Speaker 1: or Time Warner, they're all pimples relative to the size
Speaker 1: of these tech platforms and distribution platforms. There's just a
Speaker 1: whole different size and scale, and I think we often
Speaker 1: lose sight of just how small the media world really is,
Speaker 1: despite all of our excitement of seeing and enjoying some
Speaker 1: of the contents. Well, very quickly, here the only company
Speaker 1: that pays more for lobbyists than fors ands a T
Speaker 1: and T when you handicap the regulatory heardlier, how high
Speaker 1: hurdle is that. I don't know if this is stacked,
Speaker 1: but I think Google probably spends more than all. Right,
Speaker 1: there you go. I think I think that week to
Speaker 1: have some dollars in the DC world as well. So
Speaker 1: on the regulatory side of things, I think the key
Speaker 1: thing to focus on is whether the f c C
Speaker 1: can have a formal review of this and use this
Speaker 1: very important administrative law judge. Basically you know level that
Speaker 1: they can pull up. This is just a d o
Speaker 1: J issue. I think a T T has got a
Speaker 1: pretty good shot at making their arguments. Tom. You also
Speaker 1: didn't mention one other stuff, which is Netflix. And so
Speaker 1: when you think about you're looking at distributors buying content creators,
Speaker 1: but there's also content creators may look to buy Netflix
Speaker 1: because that gets you distribution. So someone like Disney looking
Speaker 1: at something like Netflix could be really interesting, and I
Speaker 1: think that's probably why Netflix is up today. We want
Speaker 1: to say content companies and distribution getting together maybe maybe
Speaker 1: something we hear more about, but from different directions we
Speaker 1: have to go. But congratulations to both of you on
Speaker 1: your quotes through all media over the weekend. Walter Pisek,
Speaker 1: Richard Greenfield VT. I g with it just like Monson,
Speaker 1: Nathan Usin David gurl just a terrific synthesis of real
Speaker 1: world experience. Both of them have enjoyed losing money, which
Speaker 1: is the only way to gain wisdom. Thanks for listening
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews
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Speaker 1: out on Twitter at Tom Keene. David Gura is at
Speaker 1: David Gura. Before the podcast, you can always catch us worldwide.
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