Motley Fool Hidden Gems Investing - ESPN+ Is Going Higher

Episode Date: July 18, 2022

Disney announces a (selective) price hike to one of its core streaming services. (0:22) Jason Moser discusses: - The strategy of encouraging people to sign up for a bundle of Disney services - Bob Iger, Bob Chapek, and their ongoing soap opera - A listener's question about Cerence and the opportunity shares present today (12:50) Tim Beyers talks with Vitaliy Katsenelson, CEO of Investment Management Associates, about his new book "Soul In The Game" and how philosophers from more than 2,000 years ago can make you a better investor today. Got a question about stocks? Call the Motley Fool Money Hotline at 703-254-1445! Stocks mentioned: DIS, CRNC, MSFT Host: Chris Hill Guests: Jason Moser, Tim Beyers, Vitaliy Katsenelson Producer: Ricky Mulvey Engineers: Dan Boyd, Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

Volvo is leaving the chaos of rush hour outside. Start by settling into your saddle-stitched Nappa leather seats. Notice the open space around you. Uncluttered, elegant, intentional, warm ambient light, and natural wood details to ground you. This is Volvo's Scandinavian sanctuary for every journey. Learn more at volvocars.ca. Optional features mentioned. Chris Hill. One consumer brand is about to raise prices, and Wall Street seems to approve. Motley Fool Money starts now.

I'm Chris Hill. Joining me in studio, Motley Fool Senior Analyst, Jason Moser. Good to see you. Hey, it's nice to be here, collaborating in-person together again. Once again, we're going to dip into the Fool mailbag, but let's start with Disney, because there are a couple of things that have come out recently. Disney reports earnings on August 10th, which makes me wonder if what we're about to discuss was specifically designed and timed in advance of the earnings report, because Disney is raising the price of ESPN+. And I'm going to use the word substantially. They're raising it from $7 a month to $10 a month. Annual subscription goes from $70 to $100. The Disney bundle, which is ESPN+, Hulu,

and Disney+, that price is staying the same, which tells me that they are really trying to get as many people. It's basically, we're going to jack up the price of ESPN+, and if If you want to pay us more for that, you can. Or, you can get a much better value by going the Disney bundle route. Yeah. It's not a surprising decision. We always felt like, when they made this move over to over-the-top streaming, taking all these properties over the top, they started with very low pricing on all of them, which made a lot of sense. Their first foray into this space, they need to nail it. You, I think, really harped on that early on, they better execute. Don't make this something where you

have to go back and try to fix a bad experience. And I think for the most part, they really did nail it. It's been a pretty good experience. And as a subscriber, maybe that's coming just from a user's perspective there. This does a couple of things. No. 1, I think you're right, it makes the bundle that much more attractive. I think they want to steer as many people to the bundle as humanly possible. And the main reason for that is pretty obvious. The bundle is going to be stickier. You're going to get into that bundle, you're going to see all of the stuff you're getting for what is really a very fair price. At some point or another, the price of that bundle is going to go up, too. But I think for now,

you probably have some ESPN enthusiasts that don't really want that other content. They'll probably be willing to pay for this little bump up. But it also may lead them to consider at least subscribing to the bundle. I think longer-term, what we're seeing with Disney, The strategy, ultimately, is to take ESPN into a full-on direct-to-consumer offering. What we're seeing now on linear television, the world is going towards streaming. On-demand, you want to be able to watch what you want, when you want, where you want. That's not going to change, I don't think. And so, they, in time, want to be able to steer ESPN ultimately to that offering.

It's going to take a little while to get there. Sports costs a lot. And a lot of the money that they're paying right now is based on deals that they've cut over the past several years before ESPN was really a standalone direct-to-consumer offering. So, it does make a lot of sense to see this move. I mean, I think that ultimately taking ESPN to a full-on direct-to-consumer offering makes sense. But even more so, I think focusing on that bundle makes more sense. Again, just coming from the user's perspective, it does give you a whole world of content. So, I suspect over time, we will see that bundle price continue to creep up there as well.

Which is fine, because as of now, it is a very, very attractive offering. We got another story over the weekend. I believe it was Insider who reported this. Basically, Bob Iger now regrets picking Bob Chapek to be his successor. The more I think about this, the more I think, are we almost done with these stories? The reason I say that is because the board of directors just extended Bob Chapek's contract through July of 2025, so they just added three years to his contract. The reason I say, are we almost done with these, is because I feel like we know everything

there is to know. These guys don't really get along all that much. I'm not sure what else there is to say. Again, the board just extended Chapek. Doesn't mean that if things go south for the business that a year from now, they fire him and give him some golden parachute and put someone else in his place. But for the moment, it seems like things are set where they are. Yeah. I'm with you. At some point, this really just has to die down. The board has spoken. They want to give Bob Chapek the opportunity to take this business in the direction where it's clearly headed. I don't think you're going to see two or three

years down the road, the powers that be come back and say, you know what, the streaming thing, maybe it's just a flash in the pan. We don't feel like it has any staying power. No, this is the direction the business is headed. I think that going ahead and committing to current leadership makes a lot of sense. From what I read, and these are all reports from inside. So, there was some hearsay, I guess, in regard to all of this. But it sounds like a lot of it rings true. And I think we were all Bob Iger fans. I was. Absolutely. I thought he did a wonderful job running the business. And I think we had a lot of fun with the, well, Bob Iger's set

to retire. Oh, nope, he's extending his contract another year. And so, that kind of went on for a little while. And I think we all felt really good about that, because Disney was a company at that point in transition, and he spearheaded three really, really successful acquisitions. I will say, at some point, Iger needs to be careful about reports like this coming out, because it can start to sound a little petty. It can start to sound like, alright, dude, you know what, you did your thing, you did a great job, you've got a tremendous track record and a wonderful legacy. Sometimes it's best to just leave these things alone and just move forward. He seems like he has other things he wants to do in life, and that's

very understandable. I'm sure he'll be very successful. It does sound like COVID played a lot into this. I think that changed a lot of strategy midstream, so to speak. It seems that Bob Iger and Bob Chapek do things very differently. That's OK. We're going to see in time whether Chapek really is the leader for this business. Just like we tell our kids, you learn from your mistakes as you go along. They really are the best learning opportunities. And so, I'm sure that Mr. Chapek will make some mistakes along the way that hopefully he learns from. Bob Iger disagrees with some of the stuff he does, that's fine. It doesn't necessarily mean it's wrong, they just have a different style.

And so, I think we should start to see this die down. The only caveat there is, if a year from now, two years from now, we start to see some things come to the surface that leads to believe that maybe Mr. Chapek isn't the leader we think he could be, then you have a whole separate issue there to deal with. But yeah, it does feel like this soap opera needs to wrap itself up, because the path forward for Disney clearly is Bob Chapek. But let's also make sure to give Bob Iger the credit that he deserves, because he did a wonderful job getting this company to where it is today. Our e-mail address is podcasts at fool.com. Got an e-mail from Jared Kitt, who writes,

Some time ago, Jason Moser discussed Cerenc, ticker symbol C-R-E-N-C, and I took an interest in the stock. The price has come down to a level that I think it has value, so I have established a starter position. Their AI applications intrigue me, but I notice there have been more than a few high-profile executive departures at the company. Is the investing thesis still intact? Should I expand my small position in the stock? I enjoy listening to your show on Spotify. Thanks for the good work!" Thank you for that, Jared! Thank you for the question! Great question about the investing thesis. Is it still intact if some of the leaders at the company are no longer there to execute it?

Is in limbo a good answer? It's not intact, but it's not not intact. Is it in limbo? Does that suffice? If that's what you think, then yeah, that suffices. I would say it is in limbo. Sarins is a company that I've recommended in a couple of services here. It remains an active recommendations. I do still believe this is a company with a lot of potential and a lot of opportunity. For those who aren't familiar with the business, as a reminder, Sarens develops artificial intelligence, AI, and virtual assistant technology for the connected vehicle. Big focus on conversational and voice interface. Sarens is a company that spun out from Nuance

Communications several years ago. Then, that Nuance side of the business ultimately was acquired by Microsoft, if I'm not mistaken. But for Sarens, I think it really all boils down to, do you believe in this future where the automobile is connected? I think we've seen clearly that is going to be the case. You've got some of the largest companies in the world, from Nvidia to Qualcomm and everyone in between, making large investments in the connected vehicle. Nearly 300 million cars on the road today already include Searance's artificial intelligence technology. It counts most all of the major automakers as customers. I'm talking about BMW, Mercedes-Benz, Volkswagen, Ford, GM, go on. They all use

Searance's technology in some capacity. I think there are a lot of reasons to be optimistic there. But to Jared's question there, he's right. There has been some serious leadership turnover there. That's what has me not saying this is a thesis broken, but it's one where I don't feel like it's a plain-to-see opportunity either. I think you really need to be a little careful here to ultimately get an idea of new leadership's vision. Ultimately, that's the guidance that I expressed towards the beginning of the year when all of this was happening. They had a CEO turn over there and also a CFO turn over there. So, we're seeing a company that's feeling the impacts of all the stuff that's going

on in the world right now. Supply chain issues, semiconductor shortages. I mean, this is something that is right into Sarin's wheelhouse. And as automobile production falls, that impacts Sarin's business significantly. Now, it does feel like it's more timing than anything. It's business that will eventually come online, but it's delayed. But with that, along with the leadership transition, and ultimately what appears to be not a new strategy by new leadership, but just some pivots in where they want to go with the business, and ultimately how they feel like they can get there in regard to the connected automobile opportunity,

I just want to see a few quarters with new leadership. I want to see that they are, No. 1, going to be there. The last thing you want to see is, well, we've got another CEO leading or another CFO taking a hike. Then you've got real problems. So, for me, when you see leadership turnover like that, I really do want to give it a little bit of time before I jump in and say, yeah, this is really an opportunity. I do agree, the share price looks compelling. The business is growing despite some of these challenges.

it is profitable, it is cash flow positive, but it is also very small, and it is subject to a lot of the macroeconomic concerns that apply today. So, there is a risk-reward scenario that I just don't feel like right now weighs so much in the investor's favor. Jason Moser, thanks for being here! Thank you! How can philosophers from more than 2,000 years ago make you a better investor in the 21st century? Vitaly Katsil-Nelson is the CEO of Investment Management Associates. He joined Tim Byers on Motley Fool Live to talk about his new book, Soul in the Game, and lessons from the Stoics for investors today.

during this half hour we talk a lot about mindset and your book speaks so much to to mindset um there's there are portions of it and i want to talk about stoicism in a minute i want to come back to that because you call it an operating system for life but there are big pieces of it where you have made decisions I'll call it to live deliberately and I think that's really really interesting so I want you to talk about that you did this with eating you've done this with meditating and you talk a lot about it in the book what how did it become important to you I would let me use a slightly different word mindfully both are good words I think the one that clicks me better is mindfully yeah so I think we go through life and a lot of times we do things

an autopilot we do things because we've been doing them right because our parents were doing it and when you're mindful you basically approach your decisions or even you're thinking and you say do actually want to keep making this decision okay so when um like when i decided i want to um like i need to be healthy okay because as you get older you realize that you know the things you could do within your 20 or 30 you cannot do when you're 40 or 50 or 60 so realize i want to become healthy. What's the, for one thing, the first thing I had to do, I had to, you know, improve my diet. So one of the first things, and the first thing you wanted to do is drop how much sugar I eat. So I told myself, I am the person who doesn't eat sugar. And that became my identity.

The reason it's important because it's not like I don't eat sugar. I eat sugar sometimes, but I don't eat most of the time. If you do that, then every single time you face is a decision, you know, it's sugar now to, you know, it's a yes or no decision. And that consumes energy. If you're the person who does not eat sugar, then it's becomes what I call a half binary decision. In other words, it's a just no. Okay. And I'll give you a very quick example. I have a friend who is a Orthodox rabbi who, you know,

and you know, Orthodox rabbis, they have a very strict diet. And one of the things they don't do, which is most people know, they don't need pork. So, so this friend says, Vitaly, I can, you know, and I told him about the sugar thing. He's like, you know what? I eat too much bread. I'm like, well, just become a person who doesn't eat bread. He's like, but this is so difficult. I don't know how to do this. I'm like, well, you do this every single day when you, when you,

when you don't eat pork because, because if somebody offers you a little bit of pork, would you say, yeah, maybe, maybe today? He's like, no, of course not. I don't need pork. I'm like, well, just become a person who does not eat bread. He called me a few months later and he lost a lot of weight that one little tweak. I, and he made a mindful decision to reprogram his identity to a person who does not eat bread.

I think that, I mean, this is something I'm going to quickly pivot to, to investing here, but that is something that we've talked about a lot. And for new investors in particular, becoming the person that is, you know, I am a person who does not panic sell that actually is a, I mean, that's a thing that you can, you can do, but you do. I think the thing that you said there, the word that's really important is you kind of need to program yourself to be, become that person. That is not just something that you repeat as a mantra into the mirror.

you program yourself to become that person. Let me give you one example that applies directly to investing. I'm the person who does not buy low quality companies. I'm the person who does not buy companies run by poor management. And this is important. And to me, this is important because as a value investor, sometimes you get attracted by the cheapness, uh, yeah, by the company.

And a lot of times these companies have a kind of business model that's somewhat questionable or the balance sheet may be too heavy with that, or the management is a second rate management. And if I, you know, at some point in time, I looked at all my, all my biggest mistakes I've made and they all kind of came from this where I compromise in quality. So I'm the person who does not compromise in quality. And that became like, this is how I took this concept from my, you know, Stoics or whatever, and brought it into my investment, invest in life. That's great. Let's talk about Stoics now, because you do, you call it an operating system

for life so i want you to introduce stoicism how how you see it and let's talk about what it what it means and how you use it first of all i like a lot of times it sounds like when i would say stoic philosophy you have two words that are somewhat intimidating they shouldn't be it's really an operating system that is very commonsensical for life it's a the these people who lived 2 000 years ago and if you read them today a lot of their quotes they sounded like they've been reading six months ago they're so relevant but it is so what happens when we are born our programming basically happens in a our operating system program by our parents so that's probably the biggest impact especially when we're young sure and then our friends have impact on us

then life kind of happens to us and that impacts on how we interact with life stoic philosophy offers to us kind of an operating system that helps us to interact with life and allows us to reduce the negative volatility that comes with life. I'm trying to speak the monthly full language to people like negative volatility, but you know, if you try, if you just only have a positive, if you minimize my negative emotions, then by definition, you know, you maximize any positive emotions right so and that that is that's what allows you to do and it basically it but it's not it's a philosophy that requires practice it's in and and uh and this is like in my new chapters that's what i'm writing about is that if you know about story philosophy you learn it and you don't

do any uh there's a uh there's a uh asian proverb uh chinese proverb knowing and not doing is not knowing. So if you learned, uh, if you learn Cirque philosophy, but you don't do anything about it, it's, you know, you just waste your time or maybe not, but you, you haven't, you, your life is not going to change. It's requires constant practice because what you're trying to do again, you're trying to rewrite the, you know, the, the, the, uh, the operating system that you have right now in your head to a new operating system. And that process comes through repetition through practice, which will come with successes and failures. And so you have to accept the fact that you will fail and that's okay. Just learn, learn, keep going forward.

There is the reason I wanted to key on this in the last few minutes while, while I have you is it's really relevant to what we've talked about on this show. So many times are different, different tools from stoic philosophy that you talk about in the book. The one I want to key in on, which is very similar to what we've talked about, which is the difference between stimulus and response and putting stimulus between response, which feels very, all of them sort of provide this. But the one that was really interesting to me is the EJR framework, the right, the, you have an event, you have an, a judgment about that event, and then you have a reaction.

Yes. And I, that I want you to explain it a little bit, but that really, really resonated. Yeah. No. So, so a lot of times, uh, when we are kind of in our mindless state, which happens, something happens to us and there is an immediate reaction. Okay. And that reaction to me, a lot of times it's very random. It's, it's may depend, uh, depending on how much, what I had for breakfast. So stoic philosophy, and I would add the, you know, and we don't have much time on this, but I would add meditation would help you as well. Um, stoic philosophy basically allows you to you have an event now this point you need to uh insert judgment or it will

say reframing because a lot of times what happens to us we can perceive it as negative or as positive okay and then and at this point in time this is very important you have an opportunity to reframe it that what will look as negative becomes positive and therefore your reaction is going to be very different right and um and uh when i'll give you what when you're driving and somebody cuts you off in traffic the immediate reaction could be negative right frustrated or before you react you think well maybe this person is running right into the hospital or they're having a bad day and suddenly you have empathy kicks in and suddenly your reaction is actually empathy and and not anger as an example i want to key into something else for your for your listeners because

I think this is a very important concept, the Academy of control, because in the Academy of control that applies to invest in so much in investing, like the Academy of control, basically there's, there's certain things that are up to us as you know, which is basically our, our values, what we think our decisions and everything else is not up to us. Now think how it applies to stock market. What is up to us is our research, our process, our decisions, what is not up to us is what how the market is going to price them tomorrow. So Stoics would tell you if they were giving investment advice,

focus on the process and don't just fall and don't focus on a daily volatility and, and, and don't even focus on the outcome in a sense that look at the outcome in the context of your process. Can I improve the process to improve the outcome? That's what would Stoics tell us about the, how, how the folks could improve the process, the investment process. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks

based solely on what you hear. I'm Chris Hill, thanks for listening, we'll see you tomorrow.