Motley Fool Hidden Gems Investing - Hollywood Rivalries and Business Tips from the Oscars

Episode Date: March 26, 2022

Before the 94th Academy Awards on Sunday, we're taking a closer look at the battle between streaming services and some of the bitter rivalries in entertainment history.  Chris Hill is joined by Maria Gallagher, Catie Peiper, and Mac Greer, as they discuss: - The Academy’s tenuous relationship with Netflix and other streamers - Warner Brothers' history of trying to recreate Disney’s magic - Unexpected business lessons from Oscar winners and nominees Stocks: DIS, NFLX, T Host: Chris Hill Guests: Gordon Gekko, Maria Gallagher, Catie Peiper, Mac Greer Producer: Ricky Mulvey Engineers: Steve Broido, Tim Sparks Learn more about your ad choices. Visit megaphone.fm/adchoices

The point is, ladies and gentlemen, that greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. I'm Chris Hill, and that was Michael Douglas. In 1988, he won the Academy Award for Best Actor for his portrayal of Gordon Gekko in the film Wall Street. It was a brilliant performance throughout the film, but the greed is good speech not only provided a signature moment for the voters, it also became a hot-button catchphrase.

Some saw it as glorifying selfishness. Others used it as a rallying cry for the next generation of investors and entrepreneurs. But there's something that happens just moments earlier in the speech that's more relevant for investors. If you haven't seen the film, and you should because it's a classic, here's the scene. Gordon Gekko is a corporate raider. He's attempting to make a hostile takeover of a company called Teldar Paper. At the annual shareholder meeting, Teldar Papers CEO, Mr. Cromwell, makes a plea for the shareholders to vote for his plan to restructure the company and reject Gecko's plan. The meeting is held in a hotel ballroom filled with smoke.

Remember, this was the 1980s, so it wasn't all that unusual for company executives to be up on stage smoking cigarettes. When Gordon Gecko gets his turn to speak, he takes the microphone and opens his case to shareholders, with a point that's similar to what you may have heard before on this show. Now, in the days of the free market, when our country was a top industrial power, there was accountability to the stockholder. The Carnegies, the Mellons, the men that built this great industrial empire made sure of it because it was their money at stake. Today, management has no stake in the company. Altogether, these men sitting up here,

own less than 3% of the company. And where does Mr. Cromwell put his million-dollar salary? Not in Teldar stock. He owns less than 1%. Say what you want about Gordon Gekko, but that's an argument that Motley Fool investors can get behind. Yes, we like it when a company's CEO and management team have skin in the game, just like individual investors like us. Today, in advance of Sunday's Academy Awards, we thought it'd be fun to take a closer look at the film industry, from unexpected business and investing lessons that show up on the big screen, to the early competition between Warner Brothers and the Walt Disney Company, to the streaming wars of today. In addition to being a fan of movies,

Maria Gallagher has studied the entertainment industry in her job as a senior analyst here at The Motley Fool. Maria, we've seen a lot of change in the Academy Awards over the past decade. There's a lot more diversity. There's a lot more inclusions. But from a business standpoint, one of the most significant changes has been the requirements for films that are eligible for Academy Awards. For the longest time, it was pretty straightforward. If you want to be considered for an Academy Award, your film needs to be in theaters. Specifically, at a minimum, it needs to be in theaters in New York City and Los Angeles before the end of the calendar year. And when Netflix started getting into producing their own movies, that was kind of a wall that

they ran into. And the resistance was pretty fierce early on. It was basically, sorry, Netflix, you're a streaming service, you're not eligible. Yeah, what's really interesting is so the business model for streaming doesn't really have that type of vested interest in making these theatrical experience and propping up that type of industry. So it was kind of hard for Netflix to find theater chains to show their movies. They tried to do this with Roma. A lot of the major chains denied it. They had to go to indie cinemas because Netflix is only trying to get their movies to run for that minimum time, about two weeks, maybe three weeks. And so you see a lot of resistance in the attitudes of people saying, that's not long enough. We're not going to allow you to do

that essentially. And it's interesting because it becomes this push and pull where filmmakers don't want to sign on to do their film with Netflix until they get that guaranteed theatrical release, because even if Netflix doesn't necessarily want the acclaim of the Oscars, even though it does, but the filmmakers really do, right? So it's kind of that push and pull of trying to get that accolade from the Academy while trying to make it business sense for it to happen for Netflix. And we've also seen not just the rule changes by the Academy, but also an attitude shift among the voters. Because early on, you go back a decade or so, streaming movies were essentially seen as lesser than because they're not on the big screen. And even when films became

eligible, they weren't really getting the love from voters in terms of nominations that they're getting more recently. People were talking about anti-streaming bias. A lot of people would say that the voters just didn't like a movie because it was on a streaming platform. So in 2013, that was the first time Netflix was nominated for an Emmy with House of Cards. But it wasn't until 2017 that Amazon was the first streamer to get an Oscar nomination for Best Picture for Manchester by the Sea. Netflix that year won for Best Documentary. But now, this year, for Best Picture, half the field are traditional methods and half are little to no theatrical presence. So through streaming, Netflix has 12 nominations, Apple has six nominations, Amazon has four, and Hulu has

one. It's actually the total nominations for Netflix is 27 this year, which is a bit of a drop from 36 from last year, but it's still making up a real chunk of the potential awards. And so we're seeing that reluctantly, this mindset has to shift as if you watch these movies, a good movie is a good movie. And reluctantly, the attitude has kind of started to shift to say, okay, I guess Netflix and Amazon and Hulu can make really good movies. They can make really good movies. And as we're seeing with a movie like Dune, they can make the type of movie that we traditionally think of as being, well, this is one you got to see on the big screen. And you can, but it also is good enough that it plays

on the small screen. Yeah, you see a lot of these, of the past two years, you've had a lot of hybrid releases. So I think that's going to be interesting to see in the next couple of years, how that changes, how that stays the same, if we're going to continue to see this. Well, you can see it in the theaters, or you could see it at home. I know I over the summer saw In the Heights in the theaters, because my roommate and I thought it would be fun. But I can't think of any other movie that I would go out of my way to go to the theaters to see it if I knew it was going to be on streaming relatively quickly. So I wonder what that's going to look like for the next couple of years and how that's going to change the habits of people going to see movies in person.

This time of year before the Academy Awards, where you always see a lot of advertising from the studios, they're really trying to put their films forward and the performances forward for voting consideration. And there's an economic calculus by these businesses, because in theory, if they're winning awards, if they're paying money for this advertising upfront to win awards, presumably in the case of the streaming services, there'll be a reward for them at the end in terms of more subscribers and maybe even reducing their churn. It's really interesting to look at the churn environment today. So according to Deloitte, in 2022, they're anticipating more than 150 million people will cancel a paid streaming subscription, a global churn of about 30%,

a US churn rate of about 38%. They call it churn and return, which a lot of millennials and Gen Z do where you sign up to watch one thing, the thing ends, you cancel it, you come back for it to happen again. So there is actually almost half of the US households have a minimum of four streaming platforms. So people are really bopping around and then they're going to delete it, redownload it. And what they're trying to do is trying to reduce that churn, trying to keep people coming back. And what they're really trying to focus on is getting better at predicting what people should watch next based on what they've already watched. Because if I go for one TV show and then they predict another show I'll really like, and they prove to me that they have enough

options to keep me on the platform, that's what's going to reduce that churn. And so we're seeing a lot of innovations with their machine learning to try and give us the best possible options. We even saw that with Netflix now has kind of a shuffle option where you can go and they'll just pick something for you based on what you've already seen. And so I think that's going to be really interesting to see how they invest in keeping and retaining those people. Once you come on for one thing, getting you to stay is really what that challenge is for these streaming services. I'm a huge movie fan and I always find it a pleasant surprise as an investor when I watch a movie that imparts some type of business or investing lesson. I know you're a movie fan.

What's a film that's given you a business or investing lesson when you watch it? I'm specifically a romantic comedy movie fan. I'm not that great at watching all movies. I really have a niche. And so I think the best business lesson I learned from a rom-com is that if you have a failing bookstore and you date a superstar, you can actually still run a bookstore for a really long time. And that's what I learned from watching Notting Hill. That doesn't seem like the most repeatable business model for small business owners out there. It worked once. Who says it can't work again?

Maria Gallagher, thanks for being here. Thanks so much for having me. Entertainment companies tend to have a tenuous relationship with one another. and that dynamic started long before Netflix and the streaming wars. Film studios in the 20th century had bitter rivalries, and that history helps inform the competitions we see today. Before she started working at The Motley Fool, my colleague Katie Piper got her PhD in media studies at the University of Southern California. It was there that she spent time researching the archives of Jack Warner. As the founder and head of Warner Brothers Studios, Jack Warner was one

of the most powerful men in the industry. And as his private memos show, he was increasingly obsessed with what his rival Walt Disney was doing, not just in film, but expanding into the new technology of television, as well as theme parks. So Katie, what was the Disney formula that these other movie studios were trying to follow? So Disney started their show based off of their unique ip that they owned they'd had a lot of success with their animated films and their animated shorts and they also were building out their first theme park attraction disneyland at the time and so the the content of the show was a combination of all three where they were showing behind the scenes they were touring the the theme park that was being built and really

dialing into, if you'll excuse the pun, the magic of what that content was and leveraging the connection that they had with viewers, with box office audiences to inform what they were putting in that show. And what it seemed like looking at other studios is that they saw that Disney was having success and didn't really pay attention to why people were interested in that Disney content. So they said, oh, Disney can turn their movie into a TV show. We can do that too. Not realizing that Mickey Mouse is very different than Rick from Casablanca in terms of appeal to audiences. Right. That's one of the things that's sort of jaw-dropping is that you know, Warner Brothers, Jack Warner and his team take Casablanca on the short list of

the most classic films of all time and says, oh, this is a TV show. We're going to take this, we're going to turn it into a TV show. And am I right that it was so bad that writers said, I don't want my credits on this show? Yes, actually. So there were internal memos at the time and it was after about a couple episodes of it airing where they continued to see declining ratings. The highest ratings they had initially were from the premiere episode, and they didn't even end up in the top 30 of the shows that had premiered. And so the writers asked for their names to be taken off of the credits, and their sponsors were actually thinking about withdrawing their support as well. And what was interesting is, so Warner Brothers,

the properties that they chose, they decided to do this anthology show where one episode would be a story from Casablanca. And then next week's episode would be a story from King's Row, which was another popular film that they'd run at the time that was about like psychiatric care and asylums. And then the following week they would do an episode from Cheyenne and then they'd circle back around and start doing little vignette stories from those three properties all over again. And I don't know about you, but when I think about what I'm turning in on TV at 7pm at a family time slot, I'm not looking to watch a show about Nazis or asylums as something that I want to watch with my kids. Yeah, as you indicated before, I mean, these other studios, and Jack

warner probably chief among them they're competing with disney first as a film studio and it's a fair fight when they move to this nascent medium of television as you indicated they they sort of understand the structure but they don't really they're not able to fill in the blanks um so it's just this you know this blueprint that they're trying to follow that ultimately doesn't work And one of the things you talked about before is, at some point, it starts to show not just Warner Brothers is trying to compete with the Walt Disney Company. It starts to show that Jack Warner appears to be obsessed with Walt Disney, the person. Yes. And I would say it wasn't just Warner himself, although absolutely there's this rivalry going on there.

On the Disneyland show, Walt Disney was the host of the show. So there absolutely was this identity of Walt Disney, the person with this project. Whereas Jack Warner got his son-in-law to be the showrunner for his entry. So there absolutely was personal stake in the game. But I think it also, you know, looking at the memos that I saw in the archives when I was doing a lot of research on this, is it just shows how much yes man or yes sir-ism would happen from those at the lower levels. So the president of ABC kept sending telegrams to Jack Warner saying, we're going to, you know, next week's ratings are going to be so much better. Don't pay attention to this week. And, you know, we'll be laughing all the way to the bank. and Jack Warner on the flip side was saying look at how well Disney is doing we absolutely have to be able to be as successful as Disney because we also have academy awards on our IP so it's just

sort of this like cycle of self-delusion in the way that they would talk to each other obviously we're living in a much different world now and yet it seems as though uh disney at least from an intellectual property standpoint um is maybe not the envy of every other streaming company out there but when you think about the acquisitions the company has made with pixar with lucasfilm with marvel entertainment uh just from a catalog catalog standpoint they have so much intellectual property that they can work off of. I mean, look, I know they paid real money for these acquisitions, but just from an IP standpoint, it almost seems like an unfair fight. Absolutely. And I think that's something that is really interesting to think about when

you hear about the streaming wars and there's always a question of like, who's winning the streaming wars? And Netflix and Amazon have the most amount of content in their catalog and the most number of subscribers, but how much money do they have to pay for that content and per subscriber in order to get to that level of success? And Disney, the Disney vault has been something that's existed for decades. I remember being a kid and being excited because some movie was coming out of the Disney vault and being re-released on DVD or VHS. So they've had that IP to build their success on for years and years, plus those acquisitions you mentioned. And so they don't have to expend nearly as much in terms of getting that IP that draws subscriptions. And that's something that has been a struggle for studios even prior to streaming. HBO used to have this issue where they would have people who would subscribe just for Sopranos and then drop their subscriptions. And the same thing happened again with Game of Thrones.

And what I think is really enviable about what Disney's done is that they've managed to keep a slate of content that keeps subscribers year-round because of everything that they have. Thank you for mentioning HBO, because it is a reminder. I mean, you know, back in the studio days, there were other studios, but Jack Warner is such a formidable presence. Warner Brothers as a studio seems like the prime competitor today. Netflix, obviously, the leading platform with the number of subscribers they have, but there are other platforms out there. When you look across the streaming landscape, whether it's HBO or Amazon Prime or Paramount, are there any other smaller platforms that you think, okay, they're not as big, but from an intellectual property standpoint, this is one to keep your

eyes on? Yeah, there's absolutely a few. And I do want to call out that Disney is the third service and Disney Plus has only been out there for just over two years. So it has managed to really exceed the ranks in a way that Prime and Netflix have had to be on the scene for over a decade at this point. I would say that the other ones that are interesting are actually the broadcast networks or the cable networks that are doubling down on the sort of unique content that they can offer or the strong variables or contributors to their back catalog. So Paramount Plus, which is CBS, has turned their streaming platform into a vehicle for five different Star Trek properties, new Star Trek properties, on top of all of their back catalog of Star Trek episodes. And that has driven a huge number of subscriptions for them. before I let you go is there a movie you've seen recently is that it may not be a financial movie or a business movie but you found yourself gleaning a business or financial lesson from it uh yeah so it's interesting I've had my mind on on Disney obviously because of what we're

talking about and I've been watching Encanto probably more than I should have and it just gets stuck in your head you and everybody else on the planet oh yeah um and and and one of the things that i i really took home when i watched it is you know we we have the the grandmother character who is so focused on what she perceives as her mission that she loses sight of who she the duty and the job is for which is her family and her community um and it brings it back to Remember why you're doing something, not just what you're doing. And I think that for investing, that's also really important, is remember why we're doing the investing.

Is it for my long-term goals? Is it to make sustainable investments in technologies that I believe in and not just go through the motions of smart investing? If you're telling the complete story of Disney as a business, then you have to include the things that didn't go well. Walt Disney's first studio went bankrupt. Most of his early animated features in the 1930s lost money, and it wasn't until Snow White and the Seven Dwarfs was a hit that he was able to pay off his debts and build a new studio. And failures

like this are not confined to ancient history. Even after the acquisition of Marvel Entertainment in late 2009 and the early box office success of live-action films like Iron Man and Captain America, Disney was not immune to a box office disaster. In 2012, Disney released John Carter, a science fiction movie based on a book series by Edgar Rice Burroughs. It lost so much money that the name John Carter became synonymous with box office bomb. Longtime Motley Fool producer Mac Greer remembers it well because he was involved in the creation and running of this show at the time. Mac, when I think back to 2012, on this show, we talked about Disney a lot. We talked about John Carter a lot. And part of that had to do with the numbers. This was such

a huge box office disaster that the company continued to write down quarter after quarter. But part of it also had to do with the fact that it was almost confusing that this was happening to Disney because their live action movies were doing so great. And this was a movie directed by Andrew Stanton, who is an award-winning director for the company. Chris, it is amazing when you think about Andrew Stanton. At the time, he had done Toy Story 1, 2, and 3. So that's all before John Carter came out. And he'd done plenty of other movies. Monsters, Inc., you may have heard that, Finding Nemo. So he has this amazing portfolio. And it's kind of a reminder to me that, you know what, as investors, we are all going to have some John Carters in our portfolio.

So in 1998, the American Film Institute came out with their list of the 100 best films of all time. In 2007, they came out with an updated version of that list. And on both lists, the film It's a Wonderful Life was in the top 20. I talked with Maria and Katie about business lessons they've picked up from movies. For obvious reasons, we all think of It's a Wonderful Life as a Christmas movie. But for you, this is one of those movies that goes deeper than that. Why is that? It's my favorite movie. It was my dad's favorite movie. I think my dad saw a lot of himself in that movie. My dad was a lifelong banker, Chris. His father was a lifelong banker, just like In It's a Wonderful Life. My dad's first bank job was when he was 16 years old.

And then after college, he worked as a bank examiner in Texas. In fact, up until he died, we could give him small towns in Texas, and he could give us the name of the bank and tell us all about the banks. He loved banking. He worked in banking until he died last year at the age of 87. He worked at big banks, he worked at small banks, but he always saw himself as a community banker. And I say he loved banking, but what he really loved was people. He spent his life investing in relationships and investing in people. And you know what? That's a pretty good skill set if you're going to be in banking. And that brings me to It's a Wonderful Life. So you have Jimmy Stewart, aka George Bailey. He is the quintessential community banker.

He prioritizes people above profits. He invests his life in relationships. The community knows him. The community loves him. And he knows and loves him back. And then, of course, hard times hit. Uncle Billy loses a lot of money. Chris, don't trust Uncle Billy with cash.

And George Bailey decides life really isn't worth living, right? That he's worth more dead than alive. And then the magic happens. George Bailey's lifetime of investing in people. well, that investment is returned 100-fold. Now, I'm not just talking about financial losses, you know, that he recoups, but I'm talking about George Bailey realizing that his life matters and mattered because it was a life spent on people. And so the line that always crushes me in It's a Wonderful Life, the line that always gets me, Chris, always makes me tear up, and it

always got my dad, is the toast at the end, the toast from George Bailey's brother, Harry Bailey, And Harry says, a toast to my big brother, George, the richest man in town. When I think about that toast, the richest man in town, he's right when you think about a full life. But in terms of actual dollars, the richest man in town is Mr. Potter, who's essentially the villain in the movie. And in thinking about Mr. Potter, I'm reminded of a story you and I have talked about in the past.

it's shown up in different places. It's been written about in The Motley Fool. It's that conversation between Kurt Vonnegut and Joseph Heller. They're at a party thrown by a hedge fund billionaire. And Vonnegut says, this guy makes more money in a day than you've earned in a lifetime from your most popular book. And Heller says, yes, but I'll have something he'll never have, enough. And now when I look at Mr. Potter, I think, you had all the money. Why were you so agreed. It's because you didn't have enough. Exactly, Chris. Exactly. Enough. And it reminds me, we talk about the stock market being a compounding machine, but the ultimate compounding machine is relationships. It's investing in other people. Because I think that as powerful of a tool

as money can be and is, and I think money is a tool. I think when you look at it as more than a tool, when it becomes the ends and not just the means, then you never have enough. And there's something incredibly liberating about getting to a point in your life where you say, I have enough. And by the way, money is not ultimately what's going to define me. The film itself, not really a huge commercial success when it comes out. It was nominated for a bunch of Academy Awards, Best Picture. Jimmy Stewart got nominated for Best Actor. Frank Capra got nominated for Best director. None of them won. And it's really not until 30 years later in the mid-1970s that It's a Wonderful Life gains its status as a classic because every December it's playing on TV.

It's this, from a stock perspective, it's this stock that's basically flat for decades and then just hockey sticks. It's incredible, Chris. It becomes the movie that's always on. I think A Christmas story, you know, has that potential also, but you know what? It's, it's relatively new. It's from the eighties. Um, but, um, it's a wonderful life. You're right. It, it has this like incredible second life and third life. And I suspect that, you know, 50 years from now, they'll still be showing it. Matt Greer. Thanks for being here. Thanks, Chris. The Academy Awards begins Sunday night at 8 PM Eastern time. Good luck to all the nominees. 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.