Sharp Tech with Ben Thompson - Cable Temperature Check and a Bundle Experiment

Episode Date: October 4, 2022

Why it may make sense to sell Netflix, Apple TV, Paramount Plus and other streamers as one product, why cable may (or may not) be the intermediary brokering the sale, questions for the future of live sports rights. Then, an answer to listeners who have questions about the new era of Stratechery.

Hello and welcome back to another episode of Sharp Tech. I'm your host, Andrew Sharp, and sitting across from me live and in person, not nearly as jet lagged as I feared. Ben Thompson. Ben, how you doing? I'm doing well. This is kind of weird. I actually don't think I've been podcasting for many years now. I don't know that I've ever done a podcast in person before.

So this is going to be quite a adventure. Wow. A groundbreaking night here. That's very exciting. exciting and you're coming off of 23 hours of traveling. So coherence is going to be the goal, but it's not guaranteed as we unfold here. Yeah, so you can just kick me under the table if I start fading. We'll see how it goes. Fingers crossed. Okay. So for the past two episodes, we've been talking about tech of the future. And I was thinking for this week's first episode,

we could sort of zag here and go away from the... the metaverse side of tech and just go to good old-fashioned wire in the ground cable and have just a general check-in with the state of the cable industry. One of my favorite things that you've written this year was about the long-term outlook of cable. And I'll briefly summarize. Your thesis in March was that some kind of re-bundling was inevitable in the streaming space and cable companies because they had the advantage of having physical infrastructure in place, literally wires into your home, they were probably the best position to eventually sell those bundles and capitalize as the middleman once everything rebundles. Is that accurate in terms of what

your thoughts were in the spring? Yeah. And looking, I'm not sure how I feel with that article, to be honest, looking back. On one hand, I think the overall thesis is right. There's a big question on timing, right? But there's the first of all, there's the famous phrase, you know, the way to make money business, Jim Barclis is either bundle or unbundle, right?

We've clearly gone through the unbundling phase. Like you have, you know, shows on Netflix, you have shows on HBO, you have shows on Apple TV, you have shows on Amazon streaming. You know, have sports on Amazon. The NFL is on there.

You have baseball, allegedly, an Apple TV, but from the numbers I've seen, apparently nobody knows. If a game streams on Apple TV or no watches it, did it actually happen? And then you still have cable. And cable by and large, the sort of dominant players are sports and news,

which makes sense because those are sort of live and they're immediate and that's why people stay signed up. However, not that any people are staying signed up. Like the numbers are falling, they keep falling. they fell even faster during the pandemic, which I think actually reiterates the importance of sports because sports in the pandemic either didn't exist or they sucked. I think you didn't realize until fans came back in the arena

how much it sucked to watch sports without fans. You know, it's a testament to our desperation that we all watch these games with no fans whatsoever and convinced ourselves that it was half decent. Like at the time, it didn't really seem that miserable. But in retrospect, it's kind of, of unimaginable that we all just sat there watching this dystopian version of the things we love. I mean, did that remember when the NBA had like the partnership with like Microsoft teams? Oh my God.

Exactly. The images around the court. So yeah, big picture, there's been this massive unbundling. And it seems sort of inevitable in the long run that you're, people are going to try to put this stuff back together. And you're seeing, you're seeing lots of co-marketing deals right now. Like I was just in an Uber speaking of traveling. and there was a thing to get Apple TV for three months or something.

They're like they're spraying this stuff around everywhere. I am bombarded with offers for three free months of Apple TV. Like everywhere I look. And Apple itself is hitting me with different pop-ups in all sorts of different places. Even in like the settings feature of my iPhone, they'll be like, do you want Apple TV? Do you want to? I'm all set, Apple. If anyone out there is listening, I'm good.

I subscribe to Apple anytime there's a good show. like every six months or so, I'll get it for a month, binge it, and then unsubscribe. Well, so that's actually a phenomenal segue. Because one of the problems and a great thing from a consumer perspective is you can sort of dip in it out. You can just sign up and you can catch up on all my own TV shows for the last six months and then cancel and then go somewhere else. And you're seeing a lot of these streaming companies. Like, and this is the challenge of subscriptions in general is churn.

Churn is what kills you because it's hard. and expensive to acquire a customer. Like we're seeing all these customer acquisition efforts. It's much more efficient to sort of keep the customers that you already have. But if you don't have a huge library and ongoing amount of sort of new stuff that's compelling, then it's like if it's really just one click to cancel, then why not just follow that sort of strategy? And that starts to get back to the logic of why you bundle.

Like a reason why a bundle is very beneficial from a sort of content creator standpoint is you can all kind of support each other. And, you know, I have a good show this month. You have a good show that month. That other person is a show over here. I have a show that appeals to one person in the household. This other network has a show that appeals it to the kids. Like that's what the cable bundle delivered. Like there was a whole bunch of different stuff, a whole bunch of different shows. And you wouldn't cancel because there was always something from someone. And it was a very sort of beneficial. arrangement for everyone involved.

And for lots of reasons, it's come undone. But as you see companies struggle, as you see Netflix in particular is a big leading indicator here, like a way to, you know, it's not just about acquiring new users for Netflix. It's how they keep the users that they have. And this applies to every network, even more so when they have an even smaller library than Netflix, there starts to be a real economic logic for them to sort of ban together and work together.

And the question is who or what is going to be sort of the nexus that pulls all this back together into a single piece. And that's how I got sort of to the cable companies because they still have a big portion of stuff that most houses want, which is sports and news. They are providing the internet service over which you're watching all these shows. So you already have a building relationship with them. And it sort of makes sense. Well, that's an obvious place just at. it on to your bill like like add on the netflix subscription add on xyz and you've seen xfinity in particular like they sell a box where that that's just for streaming it has their channels

and has netflix and as it has amazon is all the different things all in one place and that that that was what i was driving at like like they're actually pretty well placed to put the bundle back together i guess the question i have is well wait wait before we get to the these ads are enough companies to pull it off. So your argument resonated with me because from my own experience, I will cancel Apple on a whim. I would cancel Netflix if my wife would let me. She loves it for her old sitcoms and whatnot and watches it every night. But I mean, it's like $17 a month.

And I can't even remember the last time Netflix made something I care about. And so I'm willing to cancel. Drive to survive, obviously. Of course. Drive to survive. I would pick it. back up for a month of drive to survive, and then the other 11 months, I'm set without Netflix. But the one thing I would never cancel is cable, in part because they're running internet into my

house. And I'm already paying for the internet. So why not pay for the sports package that I care a lot about and eat the movies even? Like, all of it has appeal to me. And I think that is true for a lot of people. Like, the power of inertia is real. If you've become accustomed to cable, the thought of just cutting the cord and relying on internet and a couple of streamers for your entertainment doesn't really make sense or certainly doesn't hold very much appeal. And I think that's like a pretty big advantage when you look toward the future and look at who might be in position to capitalize. Some of the the economics just don't work for some of these streamers. So, like, part of the re-bundling will be consolidation after some of them fail.

Is that right? Yeah. I mean, I do think, though, it's important to make one point here, which is that you're old. Okay. It's very fair. And I say this as someone who is even older. And so from our perspective, yeah, like, cable's better, right? Like, especially for sports.

The idea that people stream sports willingly As someone who is forced to stream sports unwillingly because I'm abroad half the time Boggles my mind Like there's nothing more annoying than seeing Twitter erupt over something before you've actually seen it happen There are little delays interspersed and it just becomes very frustrating if you've grown accustomed to watching sports over linear TV Yep, yep So there's a really interesting factoid with Amazon and the NFL So Amazon picked up this Thursday night game for

for the NFL. And there was a lot of, I think, trepidation and nervousness about how well is this going to go. Again, I think the Apple TV MLB baseball thing has not been super successful from what I understand. And so it'll be like,

well, just people aren't going to watch sports on streaming. Turns out they will. Like it's like averaging like 12 million viewers, uh, for that streaming, which interestingly enough is, I think the average last year on Fox was like 15 million or 16 million. So it's definitely less.

So there is some number of people that aren't discovering it aren't finding it. But the average age of the viewer is like six or seven years younger than it was previously. So there's definitely a bit where that's just the way young people want to consume content. There's some number of people that don't have cable, you know, especially the younger you are, the less likely you are to have it. And like, oh, wow, now I can watch the NFL. Usually I couldn't, but it's available on sort of streaming.

And so I will. Like that, there definitely is a real sort of generational aspect. to this about, you know, just the idea of paying for cable every month and for shows that aren't on demand and you just sort of do it whenever. It's just something that that whole new generation doesn't do. Well, and inertia works in the other direction for Gen Z is basically what we're saying. It's like if you throughout your 20s get by just fine without paying an extra $100 in your cable bill every month for TV that you mostly don't watch, like the thought of switching over and buying into an Xfinity or Verizon is going to be inconceivable for someone like that.

Yeah, and I think that's really, that's the question. And that's kind of like why no one is really sure what's going to happen. I mean, bundles for a lot of people have a dirty connotation. Like, oh, I get all this stuff I don't want. No, that, like, that's, it's actually a benefit. You're paying a lot less for the stuff you do want precisely because that stuff that you don't want, someone else does want. And so they're paying for it and then they're subsidizing this stuff you do. And it's interesting because it's definitely a good thing for consumers, but consumers don't

always feel like it's a good thing. Like the feeling of paying for this. It'd be like, oh, it's so much better for streaming. I can buy just what I want. But it turns out, as we're seeing, that was one thing when there was just Netflix out there. I just get Netflix and I get all the streaming stuff and they have all these old shows. But as these other streaming services come along and they pull off these different pieces. So it's like, well, I'm paying for 14 streaming services and I have to get cable. And so I think people are realizing, yeah, actually this isn't so great. The question, though, is will, yeah, it's a generational question.

Will people come back to cable? You know, definitely questionable. They will get internet for sure. Is internet, is 5G going to get so good that you can have like internet via your phone company? You know, there's obviously fiber is, is great. I recommend it if you can get it. but they'll usually have a TV offering. Like there's all these moving pieces.

What I was trying to get out in this article, big picture though, is it's kind of getting, like the unbundling has gone so far that I think more and more people are waking up to. Actually, it would be kind of nice to have this stuff all back together.

Yeah. And more importantly, the content producers themselves are realizing when you're in this growth phase, when you're just acquiring customers because it's this new thing, everything's great. Why would I want to partner with anyone?

But when your growth is now dependent on weight, I keep turning, people keep, I keep losing customers, how can I stop the bleeding? It's like, well, we could actually work together as a group and that would be good for us. And so all this stuff's aligning.

So there's two big problems, though. Number one, when does it all come to a head? When does it all actually be, everyone gets on the same page, like, look, we have to figure out how to work together, you know, give up certain upsides and so we avoid downsides, et cetera, et cetera. And then number two, who's going to actually make that come together?

Right. I mean, Apple actually, I think has made an effort at this. Like their Apple TV app on the Apple TV, which you can access an Apple TV box. Not great naming. But the idea of that was we're going to make one interface where you can get streaming services and you can get cable channels and we're going to present them all together and mix and matching. and one of the reasons it didn't work out is Netflix said no.

Netflix is like, no, we want people in our app, in our experience that we control, and they were in a real position of strength at that time. This was, I think, 2016 or something like that. And it made sense for them to do it, but now Netflix isn't doing so hot. Now they really need to not lose customers. Maybe the calculus starts to change a little bit.

I don't know. Apple since then is kind of a, ban on that strategy for their Apple TV plus sort of approach. Amazon has like this channels thing. Yeah, Amazon, you can you can subscribe to like stars through Amazon and Amazon takes a cut of that and they've worked with a bunch of different channels selling subscriptions that way like Paramount Plus you can you can subscribe through Amazon. And that makes sense to me.

And it also your theory of the case being that ultimately the most convenient, you're re-bundler will be an Xfinity selling a bundle. Like that that makes sense to me, but what if it isn't? Like, what's the alternate scenario there? Because I look at my friends, if you watch sports, you have cable, and if you don't watch sports, I have like five different friends who have raved about YouTube TV over the last four or five months. And that seems plausible as a like enduring replacement to the Xfinity Verizon. in boondoggle because the cable bills do get fairly expensive and a lot of people just don't have the appetite to keep paying that over and over.

Well, I mean, so YouTube TV TV part is really, really interesting because the number one reason why YouTube TV is cheaper. At the end of the day, Google still has to pay these networks. And when it comes to certain channels like the Disney channels, including ESPN, there was a dispute, I think, last December. And so Disney turned off their channels and YouTube TV came back to the Vardy cable within 24 hours. Because like, because that's the problem, right? They're in the position where it's easier to be able to cancel. And so if they don't have it's like, fine, I'll just go somewhere else. I go to Sling TV or I'll go to, you know, whatever other alternative Hulu live. Like, yeah, like, yes, thank you. That's hard. We'll be happy, happy to accommodate you there. And so in some respects, this easy canceling, if you're just a pure content provider, you also almost have more leverage, right? If it used to be if the cable company didn't want to carry ESPN, they'd have to go get a satellite dish,

you have to get it installed, there's all this sort of thing. And so on one hand, YouTube TV has to pay for this stuff. On the other hand, they don't have to pay for everything. And the number one reason why YouTube TV is cheaper is because they don't pay for regional sports.

And regional sports are, sports networks are super expensive. They're usually the second or sometimes the most expensive part of your cable bundle. And that money basically goes straight through to the local teams. And very few people watch them. Like the number of people that actually watch those channels. Now, again, to go back to the cable satellite thing,

if you went to all the effort of getting a satellite dish into someone's porch or getting that line built to a house and someone connected, you're going to do what it takes that keep that person as a customer. Because the customer acquisition costs are super high, in part because you had to actually build physical infrastructure to support this, to support this person. And if that physical infrastructure is just sitting there not being used, that's, that's not great. Right.

YouTube TV, though, is just using the internet. It's just going over the pipes. And so if there's some number of people that really care about the local sports team, YouTube TV is fine, not serving them. It's like, fine, go sign up with your local cable company. What we get in exchange is by declining to serve this relatively small number of super hard, not just sports fans, but super hardcore sports fans

that want to watch every single game with their local team is we get to run ads during the NBA finals, you know, which is they're a sponsor saying, hey,

look, YouTube TV is so much cheaper than cable. I mean, the whole YouTube TV sponsoring the NBA finals is wild because this is a real problem for the NBA.

It's a problem for the NBA. It's an even bigger problem for MLB. It's also a problem for NHEL. These are the three leagues that have a ton of games. Mm-hmm. And a lot of those games, the,

the, games, the most important games are on national TV, but a lot of the inventories on these regional sports networks. And services like YouTube TV are killing the regional sports networks because they've lost way more subscribers than anyone else because they're not just losing people cutting the core generally. They're also losing all the people that are going to YouTube TV or Hulu Live or whatever it might be. And so, you know, the NBA is taking this like blood money from YouTube TV to sponsor for a service that is really problematic for them. the long run. Well, and what percentage of a team's revenue, roughly speaking, is derived from RSNs? You're putting me on the spot. I have the numbers somewhere. It varies by league. I think for MLB, it's like close to like 50-50. I think for the NBA, it's like 65, 35 or something like that.

So it's a lesser amount. But it's still a meaningful, a meaningful chunk of change. That's the point. It's meaningful. And given how big the numbers are for like an ABC, ESPN national. deal, I wouldn't think that that revenue would matter. And when you talk to people around the NBA, the revenue really does matter. And those RSNs are, I mean, half of them are like on the verge of bankruptcy right now. Yeah. So what happened was Fox used to own all these and Fox sold all these assets to Disney. It was a brilliant deal by Fox where they basically said, okay, we see all this stream stuff going on. We want nothing to do with it. We're going to double down on the bundle and live. And so they kept Fox News, which is one of the most expensive channels in your lineup,

because it's very popular. Yes. It is, it is a strictly business podcast right now. Good for the Murdoch family. Yeah. And then they kept Fox, the broadcast network. They kept Fox Sports FS1 and like basically anything that involved live, they kept. And like, we're going to double down on this and then we give everything else to Disney. Disney was sort of saved or maybe they knew this would happen where as a condition of the deal, they got 21st century Fox and, you know, all their content in the studio and that sort of stuff. But they had to spin out the regional sports networks because the, I think the Justice Department said it was like competitive with the SPN is like, you know, whatever, even though

it's, it is kind of, but not really because whatever. So regardless, they had to spend them off. So they spun them off to Sinclair Broadcasting, which is like this local TV conglomerate sort of group who bought all these regional sports networks for, you. them in this new entity called Diamond Sports. And they did this right before the pandemic. And as these virtual channel, you know, cable providers were not, were not renewing any of their contracts. And so they took on a ton of debt to do this deal that presumed a relatively stable number of subscribers paying $8 a month or $10 a month or whatever it was.

They lost a whole bunch of that. And so they're, they're bleeding. They're losing so much money. There's actually, I think, a report a couple weeks ago. about the leagues might have to buy them out. Yeah. Which is not where you want to be as a league, but they can't afford to not have them either.

So it's definitely a big mess. Yeah, it's going to be really interesting to see how they resolve it. Because if the leagues buy those RSNs, it's not like they're going to stop hemmerging money in that scenario. So it's like you sort of have to fall on the grenade if you're a major league baseball or the NHL or the NBA. But as far as like the long term outlook of cable, the threat then is that there are going to be more and more people who don't care enough about sports to pay that premium.

And then the streamers become a lot more competitive in that landscape. Yeah. So this is the problem is the reason why the bundle is so effective is because there's a huge wide variety of content that is a reason to be subscribed. Then if you're already. subscribed, you might check out stuff you're not that interested in, right? It's like, well, I would normally not subscribe to my regional sports network. I'm not going to pay for it $20 a month directly, that's for sure.

But if a game happens to be on, oh, I'll check it out. And that's the real value of a bundle is you get access to lots of stuff you would never pay for directly, but you might be interested in. Hey, it happens to be part of the whole thing. as the bundle gets narrower, where it is just news and sports, and you don't have the drama, you don't have the reality TV, because all that's on streaming, the problem is that the number of people who are not necessarily sports fans,

but would watch sports if it were available, they just no longer have access. And this gets into a real long-term sort of future of the league thing, of all the leagues. Like, you need people, people don't just become hardcore fans. They sort of graduate into being hardcore fans over time. And so in the sort of Helicon days of the bundle, when everyone had cable and that game was always there, you might start watching the game occasionally. You might start watching the game a little bit more and then sort of becoming more of a hardcore fan such that you end up like you and I who are like, of course, you would pay for cable.

Why would you not want to want to do it? But there's a, there's a sort of a, it used to be this nice sort of like a hillside, right, where you could like a stone rolling down hill. and you could sort of build up new fans. Now, if the price of entry is actually getting cable or getting YouTube TV and making a $60 a month commitment or an $8 month commitment or whatever much it might be, or in an even more extreme case, paying like $20 just to get one channel, like that it's such a barrier to the casual fan that you're, your. You start cutting into other revenue streams. Well, you start hurting your. growth because like how do you get new fans like or how do you get fans who care enough to spend

four hundred dollars on tickets for four people right yeah so yeah so the downstream effects are even larger as you sort of sort of constrain your market and so this is this is the logic of bundling in the long run is you want access to the widest amount of people possible because you can draw in casual users and make them hardcore fans and you also have access to all this other content to stop them from churning. But it's so hard to get everything wrapped back into one, right? Like, I mean, the whole story of cable where the reason cable existed is because you had people that wanted access to broadcast TV, but they were like in a valley and a mountain

and they couldn't access it, right? And so they would all like, there was literally like community access TV with like this idea of we're going to build one tower super high that's going to get the broadcast signal. We'll run cables from that tower to people's homes so that you can get the broadcast TV from Philadelphia or from New York, whatever. You recounted that whole story. I'm not going to make you go through it blow by blow here after 23 hours of travel, but it was my favorite part of your cable piece back in the spring. I always love when you weave in ancient history and give people a little context for how all this tech emerged. And that physical infrastructure is still a real advantage going forward.

it is but the key thing about it was the you had this sort of totem around which to build the bundle because you had that wire in the ground that everyone wanted access to because TV turned out was really cool and people liked it and that was the only way to get it and once they had it then you then satellite dishes came along so you can now pull in signals from lots of other places like that's how you know Turner sort of it's sort of big breakthrough HBO's the same thing and you see started with the bundle and sort of built out from there. What's much trickier and is much more difficult to pull off is how do you have lots of disparate pieces and sort of reunite them and bring them together? And it might not be possible. I mean, maybe the one real example in recent years is maybe music where music was not a bundle.

You went and bought things individually and Spotify basically dragged the industry kicking and screaming into being a bundle where you pay one amount per month you get access to all the music and it turns out it was a great idea that they're making more, you know, back to the heights of the CD era and still growing.

But that entailed like just this looming threat of like piracy and just basically sales falling off a cliff and like desperation. Desperation is what drove the music bundle in many respects. Desperation is what drove cooperation.

Yes. Yeah. And so it's tough. Like the, that's sort of the big question. Like everyone, like everyone knows that bundles are a great deal. They're great for the producers.

They're great for the consumers. They're great for everyone involved. Like, they just make all kinds of sense. The problem is who's going to sacrifice what? Like, theoretically, the outcome is going to be so large that everyone's going to eat.

But in the meantime, if you're like, if you have something, super valuable and you're selling directly to consumers and you're making a lot of money doing it and you get to keep all the money because it's just you. It's like, well, you want me to be part of the bundle so that your bundle be valuable, but then I'm just... What's in it for me? Yeah, what's in it for me? What am I getting from it? And I think a more realistic version of that story is there are certain people who are willing to withstand losses without blinking in the streaming landscape.

And so if losses are hurting certain competitors more than they are an Apple or an Amazon or even in Netflix, although the Netflix losses are beginning to hurt, it behooves them to wait an extra couple years until people get more desperate and strike a deal at that point. Yeah. And that's why a major context of writing this article was Netflix's struggles. Because Netflix had been the holdout. You know, just to go back again to that Apple example where Apple trial. to do this and Netflix's like, nope, not interested. Like, why would we want to be part of your thing? People come to us directly.

And this is where the churn thing is going to be super important because at the end of the day, there are a lot of consumer friendly aspects to streaming, particularly the ability to cancel and there's not having contracts and things along those lines. But that makes it all the more important that you figure out a way for them not to want to do that. And if you're paying, yeah, you could pay $15 for Netflix, $15 for HBO Max, you know, $5 for Apple TV or whatever it is, Paramount Plus, blah, blah, blah, blah, you add it all up, suddenly you're up to like 50, 60 bucks. If that was available for 35 bucks or 40 bucks and, you know, Comcast is like, hey, we got a new deal for you, get your internet service. Oh, and also cable companies are super big into offering cell phone service.

they have this sweetheart deal with Verizon for reasons that are that are complicated as far as spectrum auction all the sort of things it's kind of like the new like triple play right but instead of like being phone and TV or whatever it's like hey pay one price you get all the video content you want don't you remember back in the day we did that

that was kind of nice wasn't it like here we have it for you and that's so like the optimistic scenario I was painting it could just be chaos It might just always be chaos. You have to wonder, do the cable companies really have it in them to be this sort of innovative and forward leaning? Like, I have this building relationship is really valuable, but they are sort of like they're real monopolies.

Like they own wires in the ground. They're the only way to do it. And that does not engender a great customer service in like forward. Oh, my God. In that regard. And so that's why I'm like, yeah, I think I've put together a lot of good. points about why bundling makes sense, why it might be getting closer. I'm not sure if making the bet on the cable companies was necessarily the right idea there. Yeah. Well, I mean,

to your point on the monopolies and the lethargy that it results, I will say that I switched from Expedity to Verizon earlier this year because the Verizon Internet was so much better. and telling Xfinity that I was unsubscribing and did not want to be a customer anymore and just basically telling them to go F themselves was the most satisfying phone call I've had in a really long time. And, you know, I hope everyone gets to experience something like that. All right, final question on the cable side.

And it's not about the cable providers themselves, but about some of the channels that are part of this bundle. So ESPN, as they're fending off competition for live rights, is having to spend a lot of money to retain something like professional basketball. They lost Big Ten football. And I just wonder when the economics on their end start becoming too burdensome. Or like a TNT, for example, with basketball, like if they lose professional. basketball, what does TNT really offer? Like, why is that going to be a going

concern in 10 or 15 years? Yeah, I was, I was jealous that you dropped on your other podcast at TNT may not may not exist because I think that's a big question. I mean, the whole Discover HBO tie up, I think is really interesting

because you see this on the internet in general. The internet has this barbell effect where you either win by being very large or by being very small, very niche and having like internet driven cost structures, right? So you can have like a Facebook on one side and you can have a trajectory on the other, right? Or it's like what, you know, one person, like costs are super low.

Yeah, every user is super high margin or you have this massive infrastructure serving, you know, billions of people and you're sort of making money sort of by doing that at scale. And advertising obviously is a great fit there. But you see this again and again in all sorts of situations where the folks, the middle are the ones that sort of get squeezed out. Their costs aren't low enough to be competitive with the small, you know, and their qualities not necessarily good.

Like lots of newspapers are in the situation, but they don't have the scale to sort of like, like, like, work around. I mean, newspapers, you have like the New York Times on one side and then like substacks on the other. And then like anything in the middle is like sort of screwed. And I think this makes sense in the context of like streaming stuff. Like why I find HBO and discovery really interesting is

you have these tent pull shows that cost. a lot like, you know, House of Dragons or whatever on HBO. And that's a reason for people to sign up. Like, like, feel like I don't want to miss out. I want to be a part of this. And then you have discovered producing all this low-cost content, like basically these reality TV shows that are super cheap

and are lots of filler on the other. And both of those make sense for like a streaming service. Yeah. All this stuff in the middle where it costs you a fair bit to produce, but it doesn't get buzzed. so it doesn't like it's not a reason to sign up that stuff is like that's that's a good way to like not making any money at all and so you hear about hbo discovery making all these cuts it's all this stuff in the middle which i think makes all kinds of sense like like it just it does the economics

lighting money on fire yeah the economics just don't work in sort of in sort of a streaming landscape and that does make me wonder about t and t specifically because if if you're in this company that is taking this either your go big or go home or go big or go discovery basically is is is the approach the NBA is kind of a middling league like NFL is going big. Whoa, whoa, whoa. Who's calling the NBA middling? I am right now. Middling from a business perspective. Yeah, we're both massive NBA fans. At the end of the day, the finals draws four or five, six million people. Yeah. The NFL on Thursday night on a streaming

service draws 12 million. Their Sunday games draw 26 million. Like that's like going that that's going big. It's a reason why a huge number of people subscribe. The NFL knows its value. They charge for it. You're paying a whole bunch. But you pay that price just like even just the ability to promote your other shows during games like helps pay for it. Because there's so many people watching. And then on the other hand, you have something that's like small worth paying for. So is is are they going to be willing to pay? MBA has these expectations for this huge new rights package. And that makes sense for an ESPN. At the end of the day, ESPN is still deriving its value from if you don't have ESPN,

people are going to cancel your package. They already pulled, they did that with YouTube to you last year. They're in a dispute right now, I think with Sling. Same thing where it was turned off over the weekend. And now there's, I just saw like a handshake agreement to turn it back on, which probably means ESPN, like they're going to get paid. Yeah. And so, but they have, they have.

they have to keep paying for that right, for that ability to sort of pull that off. And so I think they'll keep paying. But if you're a TNT and yeah, I guess you do NCAA basketball and then you have, you know, the NBA, but it's,

it's not like you're kind of stuck in the middle. It's a fair question to ask what they're going to do with it. Yeah. ESPN, the last TV deal they did with the NBA, at least, led to layoffs. And like the,

the economics over there are tighter than they used to be. Right. But what they're not skrimping on is like the actual. It's the one thing they can't scrimp on. Right. No, exactly. Exactly. Right.

Yeah, you're sort of, uh, you know, foo, like, uh, you know, websites like, you know, what's your old employer? Grantland. Oh, that's right. Yes. Um, look, Grantlin would have been a moneymaker. They were too lazy to figure out how to capitalize on the, I agree. engaged audience there.

They did not lean into podcast, which was the obvious way to leverage it. And so, yeah, Bill just said, okay, let me show you how you were supposed to do it. And then go do another. Yeah, that's right. Yes, good for Bill. And, yeah, we'll have to wait and see what the landscape turns into. The chaos model definitely seems plausible. And in that scenario, cable is just slowly bleeding users.

Well, and the real big question to me is how long does the NBA, keep making, everyone assumes this growth and rights will continue. And by and large, I think that's a fair point just because if you're a like Fox, for example, like Fox is all in on the live strategy. That's why they're paying so much for the Big Ten. Like they're, you know, they're all in. ESPN is by default sort of all in. And so as long as you're big enough to matter for those folks, like that's your leverage

because they need it. but if you are not meaningful enough and big enough that people will cancel their cable packages because you're not there, then it gets a lot more dice. There aren't that many Andrew Sharps and Ben Thompson's out there. You know, that's good and a bad thing. That's why the people come to Sharp Tech. The other tradeoff that's really interesting to me when you look at that landscape is, and you mentioned this earlier, there is real value to going over.

like traditional networks like Fox. Part of the Big Ten deal is the Big Ten is aired on Fox every weekend. And having that exposure with CBS and NBC. So they have three live games over the air. Totally. Well, and Formula One, another of our favorite sports, they were selling their TV rights. And there were streamers who were outbidding ESPN and F1 went with ESPN

because they're trying to build a base of people. in America who care about the sport. And the same tradeoff will be relevant to the NBA's decision making. Because I'm sure there are streamers who are going to be willing to pay more than what ESPN will pay. But there's real value to reaching bigger audiences. And that's going to be the question for them making money is, isn't Amazon going to want to bid for this sort of stuff? Isn't Apple going to want to bid for this sort of stuff? And it's, yeah, you like, MLS, for example, sign this deal with Apple for streaming, but that's kind of like an admission that we're not going to really grow our audience because you're putting up that wall.

Like it's, it's, you have to pay to get access, which means I'm not going to stumble across a game or in the afternoon just sort of check in. I have to already be a committed fan. Now, the MLS viewish viewership numbers suggest that's a good choice. Like they're, they really just make money on the in person experience. and this is sort of additive to that. I think it's shown by the fact they're actually adding this into season ticket holders. Like you'll also get access to the streaming service. So I think it makes sense for them.

For other leagues, it's it's a little diceier. The Amazon NFL deal is really interesting, though, because number one, Amazon has so much reach with Prime. Like, so many households have it that it's almost de facto cable reach for all intents and purposes. Number two, I didn't realize this until seeing the. Amazon games, but you would always think that, oh, TV is such a natural fit for advertising, especially sports on TV, because, you know, it's live, right? People are watching it. But you can also sort of flip channels, right, and flip around.

Not easy to flip channels if you're streaming. Yeah. Right? And so there's some aspect where actually you're totally locked in. And also because you're streaming and like Amazon is streaming these commercials, they know exactly who they're streaming to because they're all streaming to individual prime accounts Oh, wow. With names and address online.

The potential ability to target and induce stuff is going to be even higher than it would be in TV. Like, it might turn out that, and this is something that I, it was a surprise to me, sports on streaming might be more compelling sort of than I, than I appreciated. And that changes things completely. Like, if it actually, you can make a lot of money as a streamer with sports, then it's going to much more likely that the Amazon's of the world bid for it. Or Netflix, which has talked about, you know, getting the F1 rights. They've always issued sports.

And, uh, but if, if that mindset shifts, then it's going to, you know, it's going to change things a lot for the leagues because now it's not just ESPN and TNT. Yeah. It's, it's the big guys bidding for it too. I hadn't thought about the, the captive audience effect and, and, and how that might make their advertising even more valuable. I mean, at the same time, it seems very weird to me that, like, what's the Peacock? Like, they're streaming sports on Peacock TV.

And it's like, well, so when I mentioned streamers that are due to go out of business, like, I don't know why Peacock exists. I don't know what audience is serving. Why do you want to hurt your core business? Like streaming NFL games on Peacock TV that people pay $5 a month for and in the process, devaluing your cable bundle and your cable channel. seems like madness. It's like the NBA like running YouTube TV ads,

right? It's, it seems very short-term oriented. And watching them shoot themselves in the foot with the Summer Olympics is one of the most remarkably terrible decisions

we've seen in entertainment the last like five years given what they pay for those rights. And I was looking to watch the Summer Olympics and you had to like work hard to find it on Peacock. Like watching men's basketball

was really difficult, and that's just insanity. Again, this is, I mean, this is another reason why it's been a hard area to analyze, because it feels like there's been a lot of insanity all over the place. Like, I'm not sure why a lot of these services exist. One of the reasons I was bullish on Netflix is I assumed they would all come to their senses and go out of business, and Netflix would then sort of pull the content back in. The Discovery, HBO tie-up, I think was bad for that thesis, because one of the ones I assumed that would give up would be 18.

and T. But actually it was, I think, a pretty good recovery as far as those assets go. So it's going to be, it's going to be interesting to see. I wish I had better predictions here. I do think the, the seeming success of NFL on Amazon is a really big deal. If that actually is going as well as it seems to be going, that will do more than anything else to pull the streamers into sports rights. And if that happens, that's great for the sports leagues, for sure. sure because I mean in any case if you have exclusive content and there's lots of competitors for it that's that's that's a good place to be great for the sports leagues potentially not great for the future of cable but we're going to continue to monitor this marketplace well every six months we can do a check in and update our takes uh part two here we have gotten this question from listeners roughly every 12 hours since we launched so some version of this question asking about the Stratacri bundle. We'll start with this from Alex.

He says, did the work from Shishir Marotra on Marginal Churn contribution lead to the addition of Sharp Tech to your bundle? I'm interested to hear more about the strategy behind that decision. So what do you have to say to the masses who want to know more about the decision to bundle on Stratory? I think most of your Stratory readers by now know that you're something of a bundle evangelist.

So do you want to talk about how we decided to incorporate that philosophy into these next steps? Yeah, I mean, just to be super clear, there is like, I'm not offering a bundle right now. And I mean, I guess I am because you can get dithering and SharpTac and Schetectary all for one price. So I guess that is a bundle. It's not a very good, it's not a very good bundle. Like theoretically, you know.

Wait, wait, wait, wait, wait. I was paying $12 a month and really enjoying myself. It was the best subscription I had before all this other stuff. And now I don't have to pay extra for dithering. I don't have to pay extra for Sharp Tech. I shouldn't have to pay extra for Sharp Tech in any scenario. But I think it is a really good deal right out of the gate. But explain why you don't think it's a bundle.

Well, I mean, because it's all stuff that have appeals to the same people. Ah, okay. So the optimal strategy, if I wanted to make the most money, would be to raise my prices and or sort of add on these extra things for more money because I already know who the people that wanted are and I can get more money for them for the content that I already know that they like. So, you know, people ask me about pricing all the time. And, you know, I would say I'm definitely not pursuing the optimal maximize revenue in 2020. strategy without question. So that's number one. Number two, there is sort of a ratchet effect in that when you raise prices, you're

constructing your market. Like, the number of people that are willing to give it a shot are going to be lower. And so there is a bit here where I would like to experiment with continuing to grow the trajectory market before I raise prices. I can always raise prices. Like, that's always been an up. option. I have no doubt that I could raise prices tomorrow. And yes, some people would turn out,

but the incremental revenue from the people that stayed would be much higher. But I would rather sort of pull on the expand the base lever first before I did that. But the broader point is it'd be kind of neat to see, you know, I don't want to give away too much about, you know, what you and I would like to do. But if there were different products that appeal to different people, I mean, I think one of the challenges right now of explaining and articulating the goal is all the stuff does appeal to the same sort of person. I actually, a little worry that I'm like overloading people with content. It's like, like, too much Ben. Yeah, there's a little, little too much Ben.

I'm like, I'm like, you don't really have to listen to everything. I'm probably going to repeat myself a fair bit. But there is a bit where people like consuming stuff in a more conversational format, right? Like, whereas Shrek can be very dense. and you're writing about different sorts of things. But then there's the checkery interviews, which are a different approach to stuff. And so ideally there's different pieces

that appeal to different folks. And what I do worry about is people feel like, oh, there's too much stuff. I'm not getting my money's worth because I'm not listening to all of it. And then they actually end up unsubscribing because they feel overwhelmed. I think that's definitely a real risk factor

that I'm sort of concerned about. But if we could expand over time to have even more. content that's not necessarily me. That's sort of other folks talking about different subjects. I think that's something that could be very compelling. And it might completely and utterly fail. And that's okay.

Like I am very proud of trajectory, but I'm also very proud of like Schenectary business model, this idea that one person can build a little publishing business. And, you know, there were newsletters. I've told this story before on podcast, but there were newsletters on Wall Street that charge, you know, $20,000 or, you know, $5,000. or whatever it is, and they just, they have a few hundred customers and they have a good business that way. This idea that you're going to actually do it at scale using, you know, internet technologies to reach people and do it at volume,

I think was, you know, trajectory was a pioneer in that space, and I'm very, very proud of that. And I love what Substack has done and sort of take it the next mile. And I'd like to figure that out with podcasts. Like, like, how do you actually, I think podcasts are even better fit for direct subscriptions because people are, are so attached to like their podcasts. Yeah. Once you, you feel like you know the person and you're used to it and it's part of your

habit, I think even more than reading where there's a lot of distractions and the things that pull you away. But it's really hard to grow a podcast. Like how do you get new subscribers? Like the, that bit about it being super immersive cuts against like sampling and like trying stuff out. And,

and so I kind of want to figure that out for this space, not just for me, but for the, role of podcasting generally. It is thrilling to me that there are people making a living writing substacks and doing what they're good at. And I think there's more great content of the world because this business model exists. And I think the same thing could be the case for podcasts where, yes, we know there's one route to get fairly large and have ads and to do that sort of thing. Is there another route to have even more niche, even more focused stuff?

and a big part of this is just can we can we sort of figure that out? Yeah, well, and the other aspect of it is that Sharp Tech will potentially appeal to casual and hardcore tech observers alike. And that may lead people to Stratory. Like, I'll be completely honest. When I subscribed to Stratory, it was because you and I were friends through basketball. And I just wanted to support what you were doing. And then I came to enjoy it way more than I ever. would have expected to. And I think that's one of the things that happens with bundles is

you get stuff that you don't really care about, but it's there and it's free, essentially, because you're paying for something else that you care about. And then you start to like it because it's just available. And so it is really good for the consumers in that respect. And as we sort of broaden the offering, the bundle and the possibilities will get more and more interesting. It can get confusing, though, which is I do worry about, right? It's very straightforward.

You're paying for a trajectory. You know what you're getting. Now it's like I'm getting what and this and where and they. So I do worry about that. Shisher does deserve credit though. I didn't do any like calculations on marginal churn contribution or whatever. I do think that podcasts are very powerful audience retainers. Like if people,

if they have that habit, that is a great thing. But I did talk to Shish, when I was thinking about this strategy. And he sort of really made this point about, you know, what do you focus on? You focus on, do you want to focus on audience expansion or do you want to focus on increasing your average revenue and driving home how those are intention?

And at the end of the day, I think my consistent approach of strategicry has to always focus on audience expansion. Like, that's why I kept my prices relatively stable, you know, relatively low. People always like, oh, you should raise your prices to do this. I'm like, yeah, you're saying that as a committed reader who reads every day. Like, what about someone who doesn't? Like, the higher you raise it, it's more of a barrier. And, you know, I'm interested in sort of having an impact and, you know, being a part of the, you know, part of the conversation, as it were.

And high prices are a barrier to that. So this is sort of an experiment. Can I grow the audience, increase rent? revenue through getting more subscribers. And if it doesn't work, then hey, it can always raise prices in the future. Yeah, well, and Shishir definitely deserves credit for me, at least. Coming to understand this and be excited about the possibilities, because you and I had talked back and forth and I felt good about what was possible with this podcast.

But every time we'd start talking about bundling, I would sort of zone out. Like, if you've ever seen video of Kevin Durant with Steve Kerr and Steve Kerr is like passionate. coaching and KD's just clearly not paying attention. Like the bundle, I just, in life, one of the most important things is to know what you're good at and what you're not good at. And the economics of the creator economy, I defer to you entirely. And so I just sort of trusted your instincts on that front. Shishir, though, really did convince me because he wrote this article on Kota, the four myths of unbundling. We'll put that in the show notes. And I think that's, interesting for all sorts of different people to read.

And it's why I'm excited about our offering going forward. Yeah, we've got a long ways to go to think be the kind of bundle he describes, right? Which is you have a wide array of content that appeals to different people. You actually don't want overlap. You know, I think we have the pricing model in place as a not raising prices, not charging for every extra little piece. But there's a long, there's a long path to sort of get to where this should be. But the other point, and I think some people have asked about this, like, how would the economics work? I mean, really, this is just a luxury of starting with a large trajectory user base.

Yeah. Where pursuing this approach, it's not just costing me potential revenue. It's actually lowering my revenue, right? Like offering, dithering, dithering used to be an add-on. You paid extra for it. Including dithering for everyone means I'm like that that's coming out of my pocketbook, right? but that's just sort of I talked about

having a totem around which to sort of build this sort of thing and the idea here is can strategically be a totem around which to build out these sort of pieces and I'm willing and able to because I'm the only person that owns it so I can do with it what I want

I don't have to answer to shareholders I'm willing to make some short-term sacrifices for other content to bring you on board to bring up potentially other folks and again if it doesn't work out, can always like can always revert. Like there's nothing, there's nothing blocking that. But I don't know.

Like it's fun. Like I'm not ready, you know, despite our discussion of being old, the easiest path would be just, hey, just righteous techery for as long as I can. Keep going through the motions. Keep going through the price. And, you know, just sort of get as, yeah, get as much money. What this aspect of it is really stimulating. It's really fun, building out the software pieces of making it super easy. to add another podcast so you can recommend stuff and try stuff out.

All this is stuff that I think needs to exist in the world. Someone needs to figure it out. And I'm lucky enough to have this totem with Straterec and its user base that's very attractive. I think is already a demonstrated willingness to pay to actually try to build this out. And again, maybe it won't work, but hey, we'll have had some fun along the way. Yes, we will. And now that we've talked about this on the record, we have to go out and do some of this and expand the bundle in weird ways and bring in audiences that have zero overlap with your existing audience. I was always excited, though, because I have so many different friends in all sorts of different fields who I know would like Straterey, but would not arrive at Stratory on their own and decide to sign up and subscribe. So over the course of our time together, maybe we'll pull. some of those guys in as well. For now, I want to close with this.

Fresh Front says, I'd like to hear Andrew take Ben to task for pronouncing the word behemoth as though he's just woken from a Kafka-esque fever dream. And then Josh asks, does Ben purposely mispronounced words

like vehementionly to troll, dithering, and Sharp Tech crossover listeners? What do you have to say for yourself? You pronounce the word halcyon. in a pretty revolutionary way earlier in the podcast. So I like it because on my basketball show, I'm constantly getting made fun of for mispronouncing words.

I'm really happy to be wearing the other hat on this show. You know, there's some part of my mind that knew that Helicon was not right. I kind of felt it as I say, but I decided to push through. Now, he mentions the dither thing because Gruber and I laugh about this all the time. It's a classic story of people that read and write. all the time and don't necessarily speak to humans enough. You don't know a lot of words.

Don't necessarily how to say them. And you know what? I like to say that's just part of the offering. We're going to bundle in this pronunciation. And you know what? I deserve it after all the various ways people butcher strategy or whatever it might be. So it goes both ways. There you go.

Well, not that I didn't bring that out of myself. Everyone out there, you can send us questions, comments, takes, email at Sharp Tech. We're coming back later in the week with a subscriber-only mailbag. There will be plenty of mispronunciation on there. And any topics you want us to hit write in and we'll try to address them. Until then, Ben, you need to get some sleep. Although you're so jet lagged, you're probably going to be up for the next like seven or eight hours.

Time to write. All part of the adventure. Ben takes America for the next five days. All right. We'll come back later in the week. Talk to you later. Thank you.