Plain English with Derek Thompson - The End of the Golden Age of Streaming

Episode Date: April 26, 2022

What can save Netflix? Who killed CNN+? What the hell is going on between Disney and Florida Governor Ron DeSantis? It's a big media hellscape roundup. Rich Greenfield, general partner at LightShed Ventures, forecasts a rocky future for streaming. Nick Papantonis, a reporter for WFTV in Orlando, explains that Florida's war against Disney might have some surprising collateral damage. Host: Derek Thompson Guests: Rich Greenfield and Nick Papantonis Producer: Devon Manze Learn more about your ad choices. Visit podcastchoices.com/adchoices

Hey, it's Sean Fennessey. We've got something special cooking on the Prestige TV podcast. I'll be recapping one of my favorite shows, HBO's Barry, every Sunday night with the writer-director star of the show, The Great Bill Hater. We'll talk about the show's wild twists and turns, its special brand of dark comedy, and how it all came together. So on Sunday nights, immediately after a new episode airs, you can hear Bill and I break it all down on the Prestige TV pod. Subscribe on Spotify or wherever you get your podcasts. Today's episode is a trio of entertainment crises. and a month from hell for some Hollywood giants. First, Netflix.

Company stock slumped after an earnings report revealed last week that its subscriber growth had suddenly and rather shockingly reversed. Netflix was supposed to add a little more than 1 million subscribers last quarter. Instead, it's now projected to lose more than 2 million subscribers in the first half of this year. These sort of misses are pretty rare for companies as successful and well-run as Netflix, and it raises some really big and interesting questions about the future of the entire streaming business and by extension the future of Hollywood. Company number two is CNN Plus.

CNN Plus was a standalone streaming news product for about 13 seconds. CNN poured $300 million into this company in production and marketing. The service existed for technically about 30, 32 days, but in the last week we started to hear a little drip, drip, drip about how the company was struggling to add subscribers. There was news about how, for example, at any given time, only 10,000 people were tuning in to CNN Plus. That's not very many. And after its parent company moved from AT&T to Discovery and a merger, the head honchos at Discovery shuttered the service, essentially torching that $300 million investment.

And this move also raises some very big questions, not only about CNN, Discovery, streaming, but really the future of all news media. Crisis number three is Disney, which finds itself in. And a very bizarre war with Florida Republicans over the legal status of Disney World. We're going to talk to a local reporter in Orlando about what the national news media is missing in covering the showdown between Disney and an emerging Republican star in the state, Florida governor Ron DeSantis. But first, we welcome return guest Rich Greenfield, media analyst, extraordinary and general partner at Lightshed Ventures. For years when I've had a question about media, streaming, television, I've gone to Rich. He has been bullish on streaming for a long, long time.

And that makes today's episode, I think, all the more interesting. Because today, he rings the warning bell, not just for Netflix, but for this entire industry. I'm Derek Thompson. This is plain English. Rich Greenfield, welcome back to the podcast. Thanks for having me. Rich, so I've interviewed you a few times in the last few years. And typically, it's been about how streaming was eating the world and traditional TV was in consistent decline.

And now the worm has turned a little bit. Netflix is losing subscribers, says it will lose more next quarter. The stock is way down. My big first question for you is, is this about Netflix or is it about streaming? Like, did Netflix mess up in ways, and we'll talk about all the various ways it might have, or is the big picture here that we're just in a new chapter of streaming where these big Goliaths are fighting over a relatively zero sum pie? I think that sort of is the multi-trillion dollar question. So I do agree with the premise that this has always been about sort of the transition from linear TV to streaming TV. And it looked like there was huge long-term opportunity.

I mean, you had guys like Jason Kailar from Hulu and then most recently from Warner Media within AT&T talking about a billion subscribers potentially. And Reed Hastings talking about 7, 800 million and how the next 100 million subs will come from India. And here we are, and, you know, growth overall for the sector is slowing pretty dramatically. I mean, everyone is sort of talking about sort of a slowdown in subscriber growth. This is not just Netflix. I mean, Netflix is obviously the, they're the giant in the category. And so them seeing sort of, you know, negative subscriber growth in Q2 talking about, you know, some level of growth for the year, but certainly nothing near what people were expecting.

has certainly made everyone sort of step back and go, is streaming over? Like, is it mature? Is it just timing, meaning the pace of growth to get to 700, a billion subscribers is going to be much, much more extended than expected? Maybe part of that was COVID accelerating,

and we just, we overshot, and now it's going to take a couple of years to work its way out. Maybe that's part of the answer. I mean, obviously there was incredible subgrowth. And remember, just as a lot of these services were just launching during the pandemic.

So, you know, you sort of turbocharged some of these services. So maybe that's all played into it. You know, the economy is weakening. Obviously, we've got, you know, inflation rearing its head. Europe sort of teetering on recession. Recession talks about the U.S. Like there's a lot of factors. We've still got supply chain issues for connected TVs overseas.

And so, and then look, on top. of it, certainly companies like Netflix, calling them out specifically, I think has been less iconic programming, less breakthrough programming than they had hoped for or had they've done in prior years. I think they just haven't had as many sort of iconic big hits that have really worked relative to what they're spending. So I don't know if there's like one specific answer, but I will say that I do think that it does feel like that the story of wild up into the right growth of streaming does feel very much dampened.

And the question that everyone should be asking is, well, linear TV is dying. If streaming TV is a smaller business or not as profitable of a business, then what? What are these companies supposed to? Like, what is plan C? Like, if A and B are not, you know, what is C?

And I don't have that yet. I don't actually know what these companies. And I think that's what, you know, what all these management teams need to be thinking about is like, well, they were all chasing Netflix. If Netflix isn't as sexy to chase, what do you do now? Right. Yeah. Plan A, linear television, that's in structural decline. Plan B, streaming seems to be flatlining.

What's plan C? I have some ideas about what plan C might be. But that's a question. for a few minutes from now. I had a hot take that occurred to me just before we got on that I wanted to throw at you. And in a way,

you sort of presaged it. My hot take is that the pandemic binged Netflix. Think about what happens when you binge a show. You consume it at an accelerated pace. And then before you know it, there's nothing left.

And in a way, that's kind of like what COVID did to Netflix, but did to maybe other companies too, Peloton, you could argue. The pandemic binge Netflix. It accelerated subscriber growth in 2020 and 2020. 201, exhausting the set of marginal subscriber growth. It pulled forward a lot of subscribers. But more

importantly, it also pulled forward competition from other streamers. Like, I just watched The Batman with Robert Pattinson this weekend on my television, on HBO Max, just a few weeks after debuted in theaters. That never would have happened without COVID. It never would have happened without the pandemic. Warner totally changed its attitude toward the film industry because of COVID, and that has made HBO Max more competitive, and it's made other streamers more competitive as they have shrunk these windows between debuting and theaters and debuting on your flat screen.

So I see that as a double whammy that Netflix has to deal with, that the pandemic accelerated its subscriber growth and accelerated the competition so that right now we kind of were like thrust into the future, the pandemic binged streaming. How do you kind of feel about that take? Yeah, look, I think the reality is

all of these media companies, technology companies, they all sort of realized that they needed to go maybe not all in. They still have a lot of linear TV assets, but they certainly did, they took a far more aggressive approach to programming, streaming. You know, you can certainly look at Disney putting, you know, what is it, their recent movie, Finding Red onto Disney, direct to Disney Plus, and Encanto was on Disney Plus 30 days after launch in time for Christmas. And more and more, content is getting to streaming faster or even shifting over, right? Like, you know, look at Paramount Plus. Halo was supposed to be on Showtime. They decided to move it off of Showtime and to put it

right onto Paramount Plus. Regardless of whether it's an amazing show or not, the point is, is that they're all taking more of their quote unquote high profile content and figuring out how they can advantage their streaming platforms, which is giving you more to watch on streaming. And I think to the Netflix challenge, making it so that simply having good enough content is no longer enough. Having great iconic must watch programming becomes that much more critical. And so I think sort of what they've relied on is outproducing everybody else with good but not great content all of the time. That was good enough before. My guess is now looking at what's just happened, given more and more things to do elsewhere,

that it's raised the bar that Netflix has to jump over, and they have not achieved that. And I think that's sort of the challenge they're facing is that it's just raising the bar of what they need to do. The fact that you can watch the Batman 45 days after means their movies have to be that much better because there's just lots of competitive content out there. And this gets to not the macro picture,

but the micro picture, the Netflix-specific analysis, which is that maybe Netflix just has a hits problem. $17 billion spent a year on content. They don't have a Pixar, Marvel, Star Wars. They don't have Game of Thrones. They don't have a Warner Media studio. They don't have the Bond series

that Amazon Prime just acquired. They bought for like a billion dollars the right to, I believe, Roll Doll's entire library. Not a billion. Much smaller than that. Oh, much smaller number? But it's fine. But you're right. Look, franchises matter. And I would argue that while they've done a good job of getting hits, you know, things that actually matter, things that will be living and breathing forever or for generations, not clear that they've achieved that yet. You know, Stranger Things has been very successful. But is Stranger Things going to be around in 10 years or 15 years? It's not clear. I mean, and look, creating franchises is not easy. I mean,

you know, HBO, like Game of Thrones was, you know, it's not like HBO does it every single week, you know, but the reality is when you create franchises, they have massive long-term value. And I think if you're sitting there looking at Netflix and going for $17 billion of content spend, should they be more successful, should the movies that they've created, they're probably spending $4 or $5 billion a year on movies? Should some of these movies be more memorable? The answer is yes. There's no doubt that I'm sure they would, and I think if you asked Netflix to sort of grade themselves, they would say it's a bit uneven. Some stuff works, some stuff

doesn't. But I think, again, given the competition that's out there and given sort of the state of the consumer and the economy, they need to be, they need to perform at a higher level. So I wrote a book a few years ago called Hitmakers, which tried to synthesize a lot of psychological and sociological research to answer the question, like, what's the forefirmary? formula for hits? How did hits happen? So long book, everybody in the world should buy multiple copies, but TLDR, to the extent that hit formulas exist in the world, and there is no literal formula, this isn't salt or math, it's human nature. But the closest thing you have to a formula that I could find was what I called familiar surprises. People love new products that extend and

echo old products. This is true about movies. It's true about TV. It's true about music. You look at the film industry. Every year of the century, a majority of the top 10 films in America have been sequels, adaptations, and reboots. You look at 2021, the top 10 films in 2021. It is two sequels, one reboot, one bond franchise extension, and five comic book IP movies plus Free Guy, which is literally the only original movie. So people sometimes say, like, oh, Hollywood doesn't make original stories anymore. That's wrong. Hollywood makes more original TV shows than it ever has. More original TV shows debuted last year than any year since the invention of TV. But audiences love familiarity. They love sequels, adaptations.

and reboots. This brings me to my point, why hasn't Netflix acquired more IP? Why didn't Netflix buy James Bond? Why isn't it Netflix trying to buy these studios? Why didn't it buy the Tolkien rights that Amazon acquired? It seems to me that Netflix is doing a really good job at producing original stories that people want to watch, but it just turns out that people want to watch even more iterations of familiar IP, and Netflix's library just seems a little bit bearer on that count. So I wonder how you think about that interpretation. First of all, simply buying MGM actually doesn't even mean that Amazon gets to make new bond films. That's something the broccoli family actually gets to the side. So it's not even clear exactly what that Amazon purchase will mean

for bond, even after spending $8.5 billion on MGM. So, I think that's an important. I think if it was very clear that you could create the world of James Bond, I think you would have had a lot more bidders than just Amazon trying to buy that. But, you know, outside of Bond, you know, stepping away, it's not like most of these franchises per se or for sale. Like it's, you know, Disney owns theirs. You can't go out and get the Despicable Me Minions franchise,

which is embedded inside of Illumination, which is embedded inside of universal pictures. It's just not so easy to go out and do that, even with the capital Netflix has. And to be fair, they've certainly created content with massive appeal without having to go out and acquire studios. So, you know, I mean, look no further than,

I mean, Squid Game is probably the most watched television series in the history of television. So now, is it a living, breathing, franchise where for generations people will talk about Squid Game or is it more disposable in nature where it was won and done? It probably leans, you know, I'm sure there'll be a Squid game season two, but it does feel more disposable in nature than an ongoing franchise where you have to be a Netflix subscriber so that you can get to season two. I think that's a fair criticism that Netflix has not created those multi-year must-watch series. You know, the

Crown is probably a good example of one. I don't know if there's as much passion as there needs to be, but it's along those lines that they've created something where people have to keep coming back. But do they need to figure out how they create more of these franchise ongoing? Absolutely. There's no doubt that when you think about subscriber acquisition and especially retention, having pieces of content that year and year out people are coming back for is critical. One other thing that I wondered is that this is my piece,

of my last hot take to throw at you, and maybe my most avant-garde theory about what's happening with Netflix. So one thought is that if Netflix subscriber growth is like the dead body and the sanctuary, Professor Plum with the candlestick is Apple for a couple reasons. Number one, Netflix's stock plunge is, well, Apple's film, Coda, winning Best Picture.

Actually, that's the least of it. You mentioned that Apple is plowing money into TV and film the last time that we talked. That's a part of it too. But here's part number three that I think not enough people are talking about. This is like the candlestick. Apple's sweeping privacy changes have made advertising and customer acquisition much more expensive.

How do we know this? Well, we saw it with Facebook's earnings. Facebook said, we're finding it harder to target users with ads after Apple's rules changed. Now look at Netflix. The company spent $600 million last quarter in CA, customer acquisition. You take out Russia, they miss projections by $1 million. Next quarter, they say it's an even worse, $2 million declining. What does that tell me?

Well, I think, I think actually the VC Chimath Polyopedia made this point. Online advertising is getting less efficient. Customer acquisition is getting more expensive. And so Apple is kind of like strangling from both ends. And not only represents a strong competitor in streaming, but also its new rules on iPhones are reducing advertising efficiency and making it more expensive for Netflix to acquire new customers. How do you feel about this theory? You know, the funny thing is, is that I always say,

thought that the best way to acquire customers in the streaming world was your content, right? I mean, if you have must-see content, you don't need to do nearly as much marketing. And, you know, I always thought that it's better off to spend your money on programming than it is on your marketing budget. And I still feel that way. I mean, I think that that is the, you know, from the standpoint of Netflix, do you have to go out and market, hey, Netflix is over here, or do you have to go, hey, the only place you can watch Stranger Things or The Crown or Squid Games is on Netflix. That seems to be the poll. And so, you know, I don't look at sort of Apple's changes as overly problematic from a, you know, Netflix is nowhere near spending sort of like what traditional media companies spend on marketing.

I think the bigger issue is, is companies like Apple as you started off is, you know, companies, is like Apple and Amazon are looking at Netflix sort of being a little wounded right now. And I certainly keep thinking, this is sort of their opportunity to spend more. Like if I was sitting at Apple right now and seeing Netflix's cutting costs, looking to cut back some projects, being more selective, Apple has a $3 trillion market cap, unlimited balance sheet effectively. like, why wouldn't you be saying to everyone in town, come here, we got you, we'll pay more, we'll pay anything.

Like, the danger right now is that you've got two companies in Apple and Amazon that are not dependent on streaming video for their success as companies. You know, certainly, certainly Disney's future relies on it, certainly paramount, certain, like, but let's be clear, Apple and Amazon's future, could they be better off with streaming success, sure, but they are not reliant on streaming video to be successful. And that makes them very dangerous when the industry leader is shaken. Look, not even just the industry leader, right? Netflix has said they're going to go embrace advertising to sort of reinvigorate growth. Disney came out two months ago and said the same thing, right? Like, hey, in order to get to,

you know, to hit our expectations, we're going to do ads too. Like, so you've got two players saying, we're going to degrade our product to grow the base. And then you've got two other players that don't care about the subscription video business in and of itself, who don't need to do advertising in their core product, and who have limitless capital to throw at this. That is actually the scariest part of looking at the landscape right now. And look, it may not happen. You may not see some massive acceleration from Apple. But I got to believe there's plenty of people looking at this going, here's our opportunity.

like the, you know, we've shaken the industry leaders. Do we have an opportunity to sort of accelerate and really grab some market share over the next couple of years? Yeah, the iPhone is basically the closest thing the private sector has to like the Federal Reserve. Like it basically creates money. It creates so much cash. It's like it's a printing press every day. It's a printing press. Much like Google Search does, right?

Like these are daily printing presses. Or Amazon e-commerce, yes. And so if you were looking at those printing presses and going, hey, there's a category that's important to us that creates a nice, brand halo, do we have an opportunity to take meaningful market share? And I think to me, that might be the scariest part of this whole Netflix debate right now is how does the competition react to their news? Last question about Netflix before we move on to CNN Plus. I'm hearing a lot of people talk about, including Netflix, moving on to ads, inserting ads into the television shows and maybe

even movies. They're talking about pressing that panic button. And I'm also hearing a lot of people say, sometimes including Netflix, that they're going to move from the binge model, everything all at once, to something more like the chunk model, not episode by episode, week by week, but, you know, week one, here's three episodes, quarter two, here's 10 more episodes, something like that. What concerns me about that is like, what is Netflix? What is its differentiator? Netflix equals binging without ads. So if you take away the binging and you take it and you add the ads, what is it? The sort of the scary thing is, is if the future of TV as TV is sort of very uninspiring, right?

Like, that's why I sort of go back to. And just say quickly what you mean by that, the future of TV is just TV. Well, if the future of TV is sort of, whether it's multiple episodes or weekly, like, if it is, you know, sort of not being able to watch the whole series at once and having to sit through untargeted, repetitive advertising, that sort of feels like the experience that most of us get with linear TV today. It's 1997 again. Yeah, so if the future of TV is what we've already been through,

that goes full circle to the beginning of this conversation, Derek, of like, well, wait, A isn't working, B isn't working. Is there a plan C or is this whole industry just in deep trouble? You know, should they revert? Should you just make content and sell it to other people? Well, or no, or maybe it's just, hey, maybe we shouldn't be doing a streaming service. Like maybe if you're sitting at Comcast, why are you doing Peacock? Like, do you really think Peacock has a shot?

Or should you just turn around and sell to all these others and just call it a day and not try to compete in streaming video? Yeah, this is why I think, and I think we're in agreement here, that there's going to be a lot of consolidation over the next few years. This is like the great power struggle era of streaming television is upon us, that Netflix understands that it needs to be more focused about creating franchisable hits. You're looking at Discovery. We'll get to that right now, I suppose. You know, Zazlev and Discovery with WarnerMedia saying, we want to have one giant death star to take on Netflix. Apple's coming in.

They got a printing press with the iPhone. Amazon's coming in. They're throwing off cash flow by the gazillions. Let's go to CNN Plus. Keeping with the sort of clue theme, I wanted to start by having you point to the killer here. Who killed CNN Plus? Like three suspects.

Suspect number one is CNN Plus itself. The product just didn't work. It didn't connect with audiences. Suspect number two is Jeff Zucker, the former president of CNN, was recently fired. He was captain of the ship. And when the captain went down, the ship itself was vulnerable. And then suspect number three is Discovery CEO David Zaslov. Discovery merges with more than media.

I think this is door number three. I mean, this is... Discovery has a focus on cost-saving, synergies, bringing down leverage. Their number one focus is HBO Max. I think distractions, especially expensive distractions. Like, look, we could debate, you know, could CNN Plus have turned into New York Times? It's possible. But the reality is, like, people had a habit of paying for the New York Times in print.

They shifted that to streaming. I'm not sure that paying for something that, I mean, CNN.com is still free. Many people get CNN on their cable system and I don't think they think about paying incrementally. like paying for an add-on content service called CNN Plus felt like a stretch to begin with. And in a company that is trying to figure out how they add more breadth of content to HBO Max to make that the center of the world. Like Discovery Plus is not going to exist either. Like Discovery Plus is going to basically be rolled into Discovery Plus. Or into HBO Max.

In a world where there's a view from the top, of let's have a, let's have a diversified service with lots of different content. I think that was, and I think that that is Zazlov's view. The moment you have that view is the moment CNN Plus died. Because why do you want to have a separate marketing campaign? Why do you want to have it? Like, just why do you want to have all of this separate versus, you may keep the content actually was pretty good.

My guess is a lot of the content will still live. It just will live in a different form. Right. And Discovery, I think, specifically, was predisposed to come to this conclusion. Like, Zazlov had, if I'm not wrong, they'd experimented with single topic streaming services. Like they had, I think, like a car service, but that's food and golf. It did overseas. But again, I would not overthink that, like, you know, trying car services or individual sports services in Europe is very different than trying to launch a news service in the U.S. So I don't want to conflate those two. I do think, though, the larger issue is they have cost savings. targets. They have one focus, which is HBO Max. This was not, the losses and the challenge of trying to get CNN Plus is just not something they were ready to deal with or prepared to deal with. And so easier to just rip the Band-Aid off immediately and put it into cost savings tied to the transaction, then try to fight to keep it alive. Yeah, the way I would think about this is like going back to the Great Power Struggles metaphor, the way you defeat an empire is not by building a bunch of

different city states that try to surround it. It's to build your own empire. And the empire that he wants to build is HBO Max. And so you want to fold everything you possibly can into HBO Max. Bring Discovery Plus in there. Bring CNN Plus in there. Make it this incredible one-stop portal for Warner and Game of Thrones. But the irony of all of this is if you're trying to chase Netflix.

And I guess the big question is, are you still trying to, you know, the question for Zazlov is, are you still trying to chase Netflix? because maybe that chasing is not nearly as attractive as you once thought. So, you know, maybe there's a school of thought of maybe you shouldn't be throwing as much in there. Maybe you should be more, you know, maybe Disney should just stay Disney. Maybe HBO should just HBO. Like maybe this goal of being everything to compete with Netflix, maybe that's the mistake. I mean, again, I'm not sure we're there yet, but I'm just noodling out loud of like,

if streaming isn't what we thought or if this little bit of everything isn't what we thought, but maybe strategies will change. She was saying, there was this thought maybe a year or two, a couple years ago that the total addressable market of streaming was like a billion people around the world that might pay more and more and more for streaming. And if the ceiling is lower. And was way bigger than this cable network broadcast TV world.

And so there was so much more value to be created. And if that's not true, if the ceiling is lower, the average revenue per user is lower, the profitability is lower. Wait a second. Why are we pushing this hard to throw everything together? Maybe we shouldn't be doing that. Very last question for you.

11 years ago, Netflix had this experiment called Quickster. They tried to split their business between streaming and DVD by mail services. And that latter business, they called Quickster. Everyone had a conyption. Reed Hastings pivoted, consolidated the company while still prioritizing streaming. And yada, yada, yada, Netflix became Netflix. Is it possible that this is a Quixter moment? that Netflix looks at the lower than expected ceiling for streaming TV

and says this is our opportunity to emphasize some other business model, specifically video games. And that 10 years from now, Netflix will be a streaming video game company with an also very large streaming TV enterprise. I don't know. It's obviously their entry into games is very early. It's very hard to tell. I think, you know, look, they were smart to recognize that they're not just competing against Disney Plus and Apple TV Plus.

They're competing against Fortnite and gaming. So that is an appropriate conclusion that I'm glad they, you know, very few management teams sort of are willing to admit the risks to their business. And so I think it was smart that they started spending time there and investing there. Is that truly the future? I don't know. You know, like I sort of always thought Netflix would get to the point of having so much global scale. five, six, seven hundred million subscribers, that they would turn to things like sports and try to actually license or own sports. I thought that was sort of going to be the next major thing that

they did. I don't know now. I think that's a great question. Gaming is very competitive. You know, certainly mobile gaming is certainly not creating those like, you know, I'm not sure mobile games is sort of creating those franchises that you're talking about on the video side, but we'll say, I think the great conundrum of the last week is this has sort of shaken the trajectory of this industry. And nobody, based on all the conversations I've had over the last week with executives, I don't think anyone's sure what's going on right now. That's so fascinating. Rich Greenfield, thanks so much for joining.

Thank you. Many thanks to Rich Greenfield. Now on to Disney. Let me set us up with a little long story short here. last month, Florida passed a parental rights in education law, which most opponents labeled Don't Say Gay. Disney leadership initially resisted commenting on the law. CEO Bob Chepec didn't want to get enmeshed in a political to and fro.

But then an outcry within the company forced Disney's hand. Disney makes an announcement. I'm going to read directly from their announcement. They say, quote, Florida's HB. 1557. also known as the don't say gay bill, should never have passed and should never have been signed into law. Our goal as a company is for this law to be repealed.

And quote, Ron DeSantis and state Republicans did not like this message very much. They retaliated against the company by revoking the special improvement district rules that govern Disney World. What the hell is a special improvement district? We're going to answer that question in a second.

TLDR, it's kind of like a Vatican, and city amusement park within the metro of Orlando, a city within a city. Now, here's something that's very normal in corporate political affairs. Companies talk to governments and get rewards. That's called lobbying. Here's something that's not so normal. Companies criticizing governments and getting punished for talking. Like, it's bizarro lobbying, anti-lobying,

government's punishing corporate speech, is very curious. So to talk about Disney, DeSantis, and the surprising collateral damage of Florida's war on Disney, my next guest is Nick Popentonis, reporter for WFTV covering the city of Orlando. Nick, welcome to the podcast.

Thank you so much for having me, Derek. Nick, set the scene for us. How did we get to a point where the Republican legislature of Florida is trying to punish its laws, largest private sector employer. Not just largest, but also arguably the most influential employer in the state as well. This started back during the legislative session in January. The government's one of their biggest priorities was the law that we call the parental rights and

education law, and your listeners might commonly know it as the don't say gay bill or the don't say gay law. This was something that limits the instruction of gay, transgender, sexuality issues, in classrooms in Florida, primarily in the younger grades, but it does extend to all of them. And this is something that Disney tried to stay out of, as it was a very nasty political fight. They tried to not take any positions, and their own employees, after it passed, got very angry that Disney didn't throw its weight behind the opposition. So the executives of Disney changed course. They came out against the law.

They called for it to not exist, essentially. and that irritated the Republican legislature, and in particular, the Governor Ron DeSantis. Right. I heard Governor Ron DeSantis and also members of the Florida Republican legislature say that essentially they kick the hornets nest and that this is a kind of retaliation. So the Florida House of Representatives on Thursday

passed this bill that would dissolve Disney's Special Improvement District for the majority of people listening, I imagine, who don't know exactly what a special improvement district is. What is Disney's Reedy Creek Improvement District? The best way to think about the Reedy Creek District is like the town that you may live in. It's an extra layer of government, in a sense, that doesn't exist in the unincorporated areas of the county.

What makes this different from the town you live in, though, is unlike a town which has elected politicians and representatives that you get to vote on, Disney controls Reedy Creek. So it's an extension of the big company. What this does, the benefits of it, is it allows Disney to ask itself for permission to do a lot of the things that businesses would normally have to go to the county for. If they want to build a road, they build a road. If they want to adjust their comprehensive plan, they adjust their comprehensive plan. In return, Reedy Creek taxes Disney for the services that it provides. So the sewer plant, the fire department, the planning department, again, just an extra layer of government. So essentially, it's kind of like Vatican City within Rome.

It's a little bit like a government within a government. Disney essentially at Disney World has control over its own kingdom. It has control over its own kingdom as if it's a kind of city. They have taxing power. And really importantly, they have regulatory power. Like Disney builds a lot. And the Muson Park has a bunch of stuff. It has rides.

It has signs. It has roads. It has hotels. It's got pools. And you can't go begging every single time. You're building something to the local authority, to Orlando, and say, hey, can we like fix the pool in this way that might not technically like match up to zoning law, XYKZ 2, 1, 2,3?

So this is just an easy way for Disney to build what it wants within the property of Disney World. What would happen if the Special Improvement District went away? So what's scheduled to happen is that on June 1st of 2023, as you said, Reedy Creek District disappears. It's like a town dissolving. So all of the assets and all of the debt of this town. town of Reedy Creek also got transferred to the county, which is now responsible for everything. So, Reedy Creek currently collects about $160 million a year in taxes.

A hundred million of that for services, about $58, $60 million of that to pay off the debt that it has from building things. That tax layer disappears. However, the county is now responsible for all of the services, so that fire department, the planning department, and so on and so forth, the state will now be responsible. for fixing the roads, failing the potholes that might form. And it doesn't have that tax revenue to do that, to pay for that, or to pay off the debt that Reedy Creek has accumulated over time about, we're still not sure in the exact number, but the billion dollar figure has been

thrown around a lot. No, so keep, I mean, it sounds like Disney loses control over its property. It loses the ability to do what I said, you know, build what you want, when you want, without having to wait six months, two years to ask one for permission. But something else happens, but I think a lot of people aren't necessarily paying attention to, which is that the debt that it has accumulated gets passed on to other Floridians, and suddenly taxpayers around this special district within Orlando suddenly are responsible for taxes that Disney as a corporation have been paying.

Is that right? Yeah, so Disney, again, loses that control. and that's not the end of the world for the company. It is an inconvenience. Let's be real about something. They're still going to get pretty much everything they want. It's just going to be they can't call a meeting on Friday. They're going to have to wait to the next one on Tuesday.

For the counties, though, it's a lot more damaging. This is a $160 million a year of taxation that vanishes. And so Orange and Osceola counties, where this district is located in, now have to find a way to come up with that revenue. It doesn't get passed on to all Florida. It's just these two counties. And it's about 20% of the property taxes that Orange County currently collects. It's on top of that. So what does the county do? They can't raise the sales tax. They can't raise impact fees. They can't raise the tourism tax enough to cover this. And the county also-

Just say quickly why. Why is it that they can't raise those taxes specifically? Does it have to do with Florida? Because in other states, I imagine, you know, raising those kind of taxes might be the first thing that you do. A lot of states limit the ability for a certain area to raise those kinds of taxes. It's not just limited to Florida, but in this case, the Florida legislature has told the counties, hey, you can't go raising every single tax as much as you want. If we had that, there's a chance that the county here would just tax tourists to oblivion, and that would be bad for Florida's reputation. So what's left is really property taxes.

That's the only thing that county officials say they can touch at this point. Property taxes have said orange accounts for about $600 million a year. You have to get much higher than that. And you can't just tax one area of the county more than others. They can't slap a property tax on Reedy Creek and say, all right, we're good here. Here's that $160 million. They're going to have to raise taxes equally across the board for every property owner. And so the tax collector is saying his estimation right now is that we're going to have to raise taxes in Orange County about 20 to 25% to cover the loss.

I just to make sure I understand this, just to scope up a bit. In the big picture here, Ron DeSantis wants to punish Disney, it seems to me, wants to discourage both Disney and maybe other companies from voicing strong political opinions about Florida laws the same way that Bob Chappek, the CEO of Disney, voiced his opinion about the Don't Say Gay Parental Rights Act. But theoretically, in order to punish a company, you really want the force of that punishment to land on the company. And what's so interesting about your reporting is that it seems to say that, yes, Disney will lose some control. That is punishment. But the actual financial punishment is going to fall on the taxpayers that live outside of Disney's Special Improvement. district, it's going to raise their property taxes, and it might further raise costs because the

debt that is owned by Disney will suddenly be transferred in a certain way to taxpayers around Disney World. Is that a fair summary of what you're saying that essentially, you know, the spillover effect, the collateral damage will be felt by ordinary Floridians from a financial standpoint, not just Disney itself? There was misinformation at first that all of the tax revenue that Reedy Creek collects. We'll get transferred to the counties, and this will be a boon for them. This will be something that they're going to welcome because, hey, here's 20% more tax revenue. Come to find out once that dust settled, everybody figured out, no, Redy Creek's taxing abilities just go away, and now the counties have to figure it out. So there has been some interesting language coming out

of politicians in the last couple of days, framing it more as this is giving us an ability to look at the oversight that we have and don't have right now over Disney. There are some very legitimate reasons why the Reedy Creek District might need some adjusting. This was built, or this was designed when Disney was trying to build Epcot as this city of tomorrow with all of this advanced technology that other cities didn't have, especially Central Florida in the 1960s. So they currently have the ability to build a nuclear plant by asking themselves permission to build a nuclear plant. That's the big one that's been thrown around. They have some eminent domain powers. People think, people seem to think it's outside of their district or bordering their district based

on what I read. It's just within their district, but that's also something that's come up, where they can just take over properties on their own property, it seems like. So there's going to be certain things that their politicians are now saying, the politicians are now saying they would like to look into reform. So that's why the prevailing theory, especially from attorneys at the moment, is that Disney's not going to sue over this. I want to be clear, we don't know what the company is going to do

and not going to do. They have not said anything yet. They could sue. That's another sort of questions. Will they, the attorneys that specialize in this area think, no, they're going to use their lobbying power in the next regular session in January, come back, work out a new agreement,

a modified Reedy Creek that gets rid of some of the powers that does Disney never actually. needed and maintains the ones that the company currently has and cares about. You're really solid, down the line, objective reporter. So I don't want to ask you anything that's like overtly political here, but I'm just interested in what you're hearing on the ground because it seems to me pretty clear that from a political standpoint, Desantis wants to punish Disney and also help the average Floridian, right? As you said, the initial narrative coming out of this was that as the special benefits to Disney go down,

the benefits to Floridians living around Disney go up. And it turns out that's totally wrong. In fact, as the benefits to Disney go down in this case, the pain is spread throughout Orlando and throughout the neighboring counties that they'll have to pick up a lot of the bill. Are you hearing anybody talk about how this analysis of the economic fallout of DeSantis' war against Disney

could hurt DeSantis? because a lot of people living around Disney are thinking, well, he's doing this to help us. It's, he's our champion. He's fighting the woke corporation. But instead, it turns out that 12, 18 months later, they look at their property taxes and they owe $1,000, $2,000 more than they expected

because of this law. Are you hearing anything about the possibility of a political blowback here? That's a question that's been asked a lot, especially in the last 24 hours or so. what I can say is that from the beginning, this put Florida Republican representatives between a rock and a hard place, because they're going between the most influential company in Florida and the governor, who is the most powerful politician in Florida.

And it's a very tough line to go down, especially when everyone has term limits here. And they have a lot less influence than maybe a politician that's been there 30 years that knows they're going to get reelected no matter. wants. It's very hard to go up against that bully pulpit. In terms of the fallout from it, it's a little early. I think the dust is kind of settling in terms of where people are shifting their opinions. People are interested in hearing whether it's going to affect the November election for governor. What I can say is that Orange County in particular is a very blue area of the state. So we are a swing area in terms of the national politics, the way Orlando goes,

usually is the way that Florida goes. But for governor, for the state races, most of our representatives here are Democrats. And there is currently very little love between those representatives and the administration in Tallahassee. To put things delicately, yes. It seems so absurd to me that the governor would attempt to punish Disney and do so in a way that was transparently going to raise property taxes for Orlando residents and Orlando homeowners who have nothing to do with the Walt Disney Corporation. Is there any way that as that knowledge becomes more transparent, this just doesn't happen? What's appearing to kind of take shape right now is that they're going to come back in January. The lawmakers, the Disney lobbyists will sit down at the table, look at the Reedy Creek

Charter and say, okay, we're good with this, we're not good with this, and they're going to come to an agreement that makes more or less everybody happy. Reedy Creek is such a giant of an entity that we're all finding out how hard it will be to dismantle. It's got a lot more consequences than people expected 72 hours ago. Kind of sounds like the law that Ronda Santas might sign this week is a hammer, but the law that might actually be worked on in January will be more like a scalpel so that the Reedy Creek Improvement District will not be smashed to smithereens. It will be edited. It will be chiseled. This will be carved out. This will be preserved. And we'll end up in a situation that's more like the 2022 status quo than the sort of post-2020

world in which Disney World loses entirely its ability to govern itself. Exactly. I have one last question for you before I let you go. And that is, I think Republicans have been, it's interesting to me watching Republicans talk about this and CNBC and Fox News, because on the one hand, they say that Disney kicked the Hornets Nest and then we looked into the Special Improvement District and we decided to revoke these special privileges. And on the other hand, they don't want to say explicitly that this is retaliation for free speech. how do you see Republicans trying to square that? Again, I don't want to ask an overtly, I don't want to force you to an overtly political answer here,

but like, how do you see them trying to square that? It doesn't seem to me particularly squareable, but what are they, how are they simultaneously trying to argue this isn't about free speech, but also cause and effect? They said these things. They kicked the hornet's nest, and then we looked into the special improvement district. The president of the Florida Senate gave press conference,

after the Senate portion passed their bill. And he was asked about all those questions. And he didn't exactly answer it directly in that way, but he also didn't try to hide where this came from. He said that Disney stuck its neck out a little bit farther than they should have. And as a result, legislators got into looking at Reedy Creek what it means and what it gives Disney. And they decided at that time, hey, this is something that we should. probably look at. Again, they have an argument in that certain parts of Reedy Creek are possibly

problematic and not in the times of 2022 or 2023. But that is where he's also saying, this now gives us a chance to look at what Reedy Creek is, what it gives Disney, and update the code for the 21st century. It's always so fascinating to me to watch how the political domino show goes, like, Disney employees react negatively and emotionally to a Florida education bill, a butterfly flaps its wings, and Orlando homeowners pay 25% higher property taxes. Like, that's the beginning and the end of the domino set to me, right? It's, it's, uh, uh, what began seemingly as, as a culture war showdown is, going to cash out literally as just higher property taxes for everyone who owns property in Orlando.

Utterly fascinating stuff. Nick, thank you so much for joining. Thank you for your time as well. Planning this with Derek Thompson is produced by Devin Manzi. Thank you so much for listening to this show. If you like us, follow us on Spotify, rate and review on Apple Podcast. We will be back on Friday. We will see you then.