Speaker 1: This is Bloomberg Business Week with Carol Masser from Bloomberg Radio. Well,
Speaker 1: he's a star analyst when it comes to telecom, cable
Speaker 1: and satellite space. Uh. He's watched it grow, evolve and
Speaker 1: really be challenged over the years. And as someone described
Speaker 1: on our morning call as we were setting our line up,
Speaker 1: he is definitely a legend. Named the number one analyst
Speaker 1: by Institutional Investor magazine year after year, rated number one
Speaker 1: in the telecom space by our own Bloomberg Markets. Uh.
Speaker 1: And he his vantage point is really great because he
Speaker 1: understands the industry. He's been an analyst, he's covered it,
Speaker 1: but he's also seen it from the inside as the
Speaker 1: founder and c of the e commerce business over at Southby.
Speaker 1: So Craig Mofatt is back founding Partners, senior analyst at
Speaker 1: Mafat Nathanson back with us on the phone in New
Speaker 1: York City. Um, so good to have you back. How
Speaker 1: are you what's changed since we last talked roughly about
Speaker 1: a month or so ago. Yeah, thank you, nice to
Speaker 1: be back. Well, I think the big the big news
Speaker 1: really is the big announcement yesterday from A T and T,
Speaker 1: which about bringing movies in so called day and date
Speaker 1: or the same day that they bring in the movie theaters,
Speaker 1: bringing them the bringing them to HBO Max, and that
Speaker 1: is really an extraordinary development. UM. It has implications for
Speaker 1: the exhibitors, that is the movie theaters, It has implications
Speaker 1: for a T and T itself, and I think, as
Speaker 1: you saw with a lot of the blowback today, it
Speaker 1: has a big, big implications for the actors and artists
Speaker 1: and directors, which I think was was maybe under appreciated yesterday.
Speaker 1: And boy, oh boy, did they hear in earful today
Speaker 1: from how angry some of their stakeholders are kind a
Speaker 1: million questions. So do you think this is one thing
Speaker 1: or just a short term thing, or do you think
Speaker 1: this is something that becomes part of how it happens
Speaker 1: longer term and maybe forever. Well, you know, it's it's
Speaker 1: it's It puts them in a in a difficult position
Speaker 1: because Jason clar who formerly of Hulu and the person
Speaker 1: who put himself out front in this decision, um uh
Speaker 1: now running Warner Media, made it very clear that this
Speaker 1: is a decision about customers, and that the customers want
Speaker 1: movies day and date. It's what they've always wanted. UM
Speaker 1: and I don't think anybody would argue with that. It's
Speaker 1: customers would love to have movies day and date. The
Speaker 1: problem is, once you say that, it's a little hard
Speaker 1: to put the genie back in the bottle and then
Speaker 1: say what we've in two we know do want to
Speaker 1: put customers first? Um, And so uh it feels like
Speaker 1: not just to me, but I think to most people
Speaker 1: as if this is um going to become an expectation,
Speaker 1: and uh, the implications of that again are just enormous. Well,
Speaker 1: I love listen, you just get into the weeds with
Speaker 1: all of this and you really break it down at
Speaker 1: you know, when somebody creates a piece of content, you know,
Speaker 1: a major film or something. You know, the theaters is
Speaker 1: just one level, right, but there's so many their levels,
Speaker 1: and you go through the pay windows, right, and you
Speaker 1: say that often when it does its theatrical release, it
Speaker 1: doesn't necessarily make money there, But it's the later windows,
Speaker 1: Like you talk about the pay one window like an hbout,
Speaker 1: that's where it starts to maybe you know, be at
Speaker 1: least be in the green on some kind of movie.
Speaker 1: And and remember it's we're not just talking about a
Speaker 1: T and T and Warner Media themselves. We're also talking
Speaker 1: about directors and actors who have participation deals. So Christopher
Speaker 1: Nolan today UM a critically important director to Warner Warner Media.
Speaker 1: UM is our rate and UM as are lots of
Speaker 1: these directors. So you know, in Legendary Entertainment, which was
Speaker 1: offered hundreds of millions of dollars for King Kong versus
Speaker 1: Godzilla to go direct to Netflix, took it, took the
Speaker 1: deal to Warner Brothers instead, and then got blindside it
Speaker 1: and wasn't told in advance from what we read today
Speaker 1: that oh, by the way, we're taking your movie out
Speaker 1: of movie theaters or at least, um, we're going to
Speaker 1: be making it available at no extra charge on HBO
Speaker 1: same day. Um, if you're a director and you're and
Speaker 1: or an investor in one of those films, and you've
Speaker 1: got hundreds of millions of dollars writing on the performance
Speaker 1: at the box office based on your contract, your head's
Speaker 1: kind of explode. And and from what we understand, UM,
Speaker 1: they were not not told in advance in order to
Speaker 1: keep secrecy. So when when they did this with Wonder Woman,
Speaker 1: which was you may recall Wonder Woman was the first
Speaker 1: movie and that was very done purely as a one off.
Speaker 1: It was single film with no expectations of any others
Speaker 1: to follow. UM was moved directly to HBO Max in
Speaker 1: a similar model. They ended up having to pay each
Speaker 1: of of Gal Gadot, the star and the director ten
Speaker 1: million dollar is each in order to uh sort of
Speaker 1: satisfy them that they weren't giving up too much in
Speaker 1: terms of their residuals. But you're talking about what happened
Speaker 1: with Wonder Woman and what people are now calling the
Speaker 1: Wonder Woman money. You know, this comes down to, you know,
Speaker 1: how people are paid, right, whether it's directors, actors, all
Speaker 1: of the people involved in getting a movie to the theater.
Speaker 1: It kind of comes down to that, right, the upfront
Speaker 1: money versus maybe the money that comes later after ticket sales.
Speaker 1: That's right. And the reason this is also important is look,
Speaker 1: at the end of the day, a T and T
Speaker 1: is a phone company, and culturally, UM, you always have
Speaker 1: to wonder how well is it is a phone company
Speaker 1: going to adapt to what is essentially a creative business
Speaker 1: and the core competence of of Warner Brothers Studio and
Speaker 1: what has made it such a special place for the
Speaker 1: last ninety three years is that it has wonderful relationships
Speaker 1: with creative talent, and so I just I want to
Speaker 1: make sure your your listeners sort of appreciate how important
Speaker 1: it is for a studio to make sure that that
Speaker 1: they cultivate and maintain those relationships. And they clearly have
Speaker 1: some damage control to do here because of the way
Speaker 1: this was done. So separated apart from whether or not
Speaker 1: it was a good strategic decision, the execution I think
Speaker 1: raises some questions about did they care for the talent
Speaker 1: and the creative partners properly in a way that's going
Speaker 1: to preserve the specialness of what Warner Warner Brothers has
Speaker 1: always been, right and as you rightfully say, and as
Speaker 1: people have written about that, you know, Warner Brothers was
Speaker 1: known as a place that really kind of took care
Speaker 1: of its talent. And so to see this um is
Speaker 1: really kind of disconcerting. So what so, Craig, So do
Speaker 1: we figure this out? Do we figure out the pay issues,
Speaker 1: do we figure out the transparency? And do contracts change
Speaker 1: going forward? As you said, once the genies out of
Speaker 1: the bottle for customers, you know, our customer is going
Speaker 1: to demand more of it be released. Eckily to home. Um,
Speaker 1: you know through various services are streaming services versus the theater.
Speaker 1: Does the theater go away in your view? Well, I
Speaker 1: don't know that the theater goes away, but I certainly
Speaker 1: you can't pretend that this is anything other than bad
Speaker 1: news for the exhibitors. And you do have to now look,
Speaker 1: the exhibitors, under normal circumstances would have said, we will
Speaker 1: simply boycott Warner Brothers movies and we will only do
Speaker 1: business with others, and they would have had at least
Speaker 1: some leverage. They are so badly damaged by the COVID
Speaker 1: crisis and are barely hanging on for dear life. Um.
Speaker 1: And so they really don't have a lot of negotiating
Speaker 1: leverage here and um that also won't help relationships. But
Speaker 1: they clearly are in a very difficult position. UM. So
Speaker 1: you wonder, um, what what the play will be. I
Speaker 1: do think long term, this is the beginning of what's
Speaker 1: going to have to be the elimination of a lot
Speaker 1: of screens. There will still be the um, the experience
Speaker 1: of going out and enjoying a movie, but but the
Speaker 1: economics just aren't going to support the number of screens
Speaker 1: we have. As this transition starts to happen, and you
Speaker 1: did play may have implications overseas too. Because you put
Speaker 1: a movie onto HBO Max, you can guarantee that within
Speaker 1: five minutes after it ends, there are going to be
Speaker 1: digital copies all over the web, and they're going to
Speaker 1: be and it's going to be pirated and and therefore
Speaker 1: it's going to impact movie theater viewership in Asia and
Speaker 1: in South America and in Europe. And I should put
Speaker 1: out you did put a cell rating right on A
Speaker 1: T and T. Is that correct? Yeah? Well, I've had
Speaker 1: one for a long time. It is not because of this,
Speaker 1: because of a whole series of structural problems at A
Speaker 1: T and T and the challenge that they have in
Speaker 1: supporting the dividend. All right, good to know. So, Hey,
Speaker 1: one thing I want to ask you, because we talked
Speaker 1: about it last time you were on, and that was
Speaker 1: about five. I have not bought my phone, but my
Speaker 1: rest of my family. I did get off to Aaron.
Speaker 1: I'm like, John, my husband, did you know? So we
Speaker 1: had a long conversation. Um, but tell me, you guys
Speaker 1: did a big summit, A summit, excuse me, a day
Speaker 1: long summit. I think back in November. So tell me
Speaker 1: about what you guys looked into and what kind of
Speaker 1: were the major takeaways. Greig Well, I think one of
Speaker 1: the things that we talked about last time that I
Speaker 1: think was reinforced at our summit from from all of
Speaker 1: the speakers is that UM five G in the United
Speaker 1: States is still not quite ready for prime time. UM.
Speaker 1: We have a version of five T that has reasonably
Speaker 1: good coverage but not terribly good speeds, and it's going
Speaker 1: to take a little while. T Mobile is really best
Speaker 1: positioned UM and I. But one of the things that
Speaker 1: was striking to come back to a T and T
Speaker 1: is how much at our summit we heard from from
Speaker 1: T Mobile about how they were going to compete with
Speaker 1: Verizon and Verizon how they're going to compete with T Mobile,
Speaker 1: and a T and T almost doesn't come up in
Speaker 1: the conversation. A T and T is is, I think
Speaker 1: in a in a much more challenge position for five GUM,
Speaker 1: in part because of an auction that just started today. UM.
Speaker 1: The C band auction as it's called, that started at
Speaker 1: the SEC today is a critical input for five G.
Speaker 1: Most of the rest of the world already has what's
Speaker 1: so called C band spectrum UM the US. It's just
Speaker 1: coming to market now, and it looks for all the
Speaker 1: world like Verizon is best position to get it. That
Speaker 1: will give them an offering that's going to be competitive
Speaker 1: against T Mobile. But you really wonder whether A T
Speaker 1: and T has the money to be able to participate
Speaker 1: in the auction because their balance sheet is so weak,
Speaker 1: um that it's just not clear that the rating agencies
Speaker 1: will allow them to spend the money that they need
Speaker 1: without having to cut the dividends. So it puts them
Speaker 1: in a very tough spot. That stayed with me from
Speaker 1: our last conversation about how A T and T was
Speaker 1: kind of its hands were tied to some extent that
Speaker 1: it necessarily did it didn't necessarily have the cash needed
Speaker 1: to be, you know, to participate in these auctions. And
Speaker 1: I do wonder, you know, that's one of those things
Speaker 1: that longer term, what kind of impact that will have? Yeah,
Speaker 1: if if they don't. You know, these are telecom businesses
Speaker 1: are really long cycle businesses. These are not businesses where
Speaker 1: two years later you you um move from from being
Speaker 1: behind to being ahead and back again. Um. These are
Speaker 1: businesses where cycles are ten years long and or even
Speaker 1: twenty years long. And so a T and T S
Speaker 1: network right now is pretty competitive. It's actually as good
Speaker 1: relative to Verizon at any time that I can recall
Speaker 1: in the last twenty years. Um. But you really wonder
Speaker 1: if they don't get the spectrum with no more spectrum
Speaker 1: in the pipeline like this behind it, um, whether they
Speaker 1: could be disadvantaged for a decade or more um if
Speaker 1: they don't get it. On the other hand, if they do,
Speaker 1: their leverage ratio would be so high that they're already
Speaker 1: teetering on the knife edge of of dividends sustainability. That
Speaker 1: would arguably make it even worse. And so um, there
Speaker 1: may not be any good outcomes. Yeah, which makes it
Speaker 1: just even trick. You're going fun when it comes to
Speaker 1: five G. Just remind our audience just got about thirty
Speaker 1: seconds left here. So do you are you saying that
Speaker 1: ultimately Verizon you think is the best positioned here? No,
Speaker 1: I think T Mobile is the best position. Probably their
Speaker 1: their spectrum position is a bit better and um, and
Speaker 1: they come in. You know what's nice about T Mobile
Speaker 1: is they're the cheapest service, um by virtue of once
Speaker 1: upon a time having a subpart network as their network
Speaker 1: now has gotten to parody, and I think in five
Speaker 1: G will actually be the best in class. Having the
Speaker 1: lowest prices and the best service is a pretty powerful
Speaker 1: combination to drive not only market share games but also
Speaker 1: margin enhancements. So I'm still still quite excited about T Mobile,
Speaker 1: even though the stocks had a very good run. All right,
Speaker 1: great to check in with you, Thank you so much,
Speaker 1: and really what's going on in terms of theaters UH
Speaker 1: and movie releases that is just something we've all got
Speaker 1: to take a closer look at UH and following other
Speaker 1: markets have certainly been reacting. Craig Moffatt, thank you so much,
Speaker 1: have a great holiday. Founding partner Senior analyst at Moffatt Nathanson.
Speaker 1: He really is a go to when it comes to
Speaker 1: telecom understanding these companies the cable space as well