Sharp Tech with Ben Thompson - Netflix Revives the Monoculture, The NBA and Its Rights Fee Future, The Bidding Calculus for Amazon and Disney

Episode Date: October 26, 2023

A Netflix letter to shareholders that doubles as a message to the rest of Hollywood, the NBA’s precarious negotiating posture as the cable bundle crumbles, and one way Amazon could make the NBA a worthwhile investment.

Hello and welcome back to another episode of Sharp Tech. I'm Andrew Sharp and on the other line, Ben Thompson. Ben, how you doing? I made a terrible mistake, Andrew. I got invested in the New York Knicks knocking off the Boston Celtics and I realized that the Knicks are terrible. And so I'm a little sad, but it's okay. MBA's back. I'm happy, happy in that regard and ready to podcast.

You know, I was wondering how long it would be before we had to start this podcast with an official apology to America. Do you want to explain to people exactly what happened as we sat down to record a few minutes ago? Well, I mean, the Celtics were collapsing and I wanted to sort of be that meme where the guy is just like, you know, standing over the grave making sure they are dead. And the last, instead it was the meme where the where the guy stands up out of a coffin. So what are you going to do? Oh, my God. We literally sat down. The Celtics were getting beat 26 to 11 in the fourth quarter. We're in the midst of a full-scale meltdown on opening night, about to blow it against

the Knicks after the entire world has picked them to make the finals and potentially be the best team in the league. And we just couldn't resist the Shaden Freud there. We pulled ourselves away from the podcast and jigs the Celtics into an opening night win, a recovery in the fourth quarter. And I just sincerely apologize to a nation of. of Celtics haters and Celtics fans out there. I take solace knowing that there's no way you're comfortable after that first game.

So that's always reassuring. We are going to talk basketball later in the show, celebrate the beginning of the NBA regular season with a little bit of sports business talk. But Ben, before we get there, we're starting tonight with a company that many years ago was nearly named Take One, Take Two, Fast forward, cinema direct, rent.com, now showing, and it was formally known as Kibble. So first question, as a veteran business analyst in the tech space, do you think Netflix would have succeeded if it had never changed its name from Kibble? I mean, counterfactuals are always difficult.

There's a lot of terrible names that we just sort of accept now, right? I mean, was Google a good name? I mean, now it seems like very obvious. That's why I'm wondering. It was actually a great name. It could be a verb. Is Straterea a good name? No, it's not.

But sort of managed. So I don't know. Probably I think Netflix was a better choice than Kibble. But fortunately, you know, we will never know. It's been a real joy working with you for the past year and a half or so and explaining to people what Sartechri is and then just spelling it out, like spelling out S. Well, what you say is strategy and tech, people get it? Yeah.

But yeah. I mean, what are you going to do? It's memorable at least. Well, memorable in a, I can't remember how to say it sort of way, but whatever. Kibble was a name in beta used by co-founder Mark Randolph. He said, I was very concerned about building a service that looked good, but that nobody wanted to use. So I choose Kibble to remind us of the old advertising adage that, quote,

It doesn't matter how good your dog food advertising campaign is if the dogs won't eat the dog food. And I think there is something to it. I mean, like John Gruber had a good post today, you know, talking about the Apple TV sort of price changes. He sort of went on a tangent that at the end of the day, when it comes to these streaming services, there is something to be concerned about and think about, which is go back 20, 25 years to music. The real threat in the long run is always piracy, right? And to the extent you make these services hard to use and difficult to navigate and log you out all the time, it's bad. And Netflix, as John noted, is very good in this regard.

The apps work, right? And like, you can't sort of underrate that that actually is important. And so they did arrive at the right name, but the principle fortunately also carried through for Netflix. Well, yes. And this is why we're starting with Netflix because they are now succeeding on several different fronts. They seem to have lapped the field in the streaming space and reported great earnings in Q3. And there was one aspect of it that I was pretty interested in. So I'll read from the Netflix letter to shareholders.

The variety and quality of our programming combined with our reach, superior recommendations, and intense fandom means we are able to generate higher engagement than our competitors. Another example is suits. This legal drama originally premiered on USA Network in 2011. and ran until 2019. Despite having been available on other streaming services, the debut of seasons 1 to 8 on Netflix in July broke viewing records. According to Nielsen, Soutes was the most watched title across film, original TV,

and Acquire TV on streaming in the U.S. for 12 weeks. Licensing has always been an important part of our programming strategy. As the competitive environment evolves, we may have increased opportunities to license more, hit titles to complement our original programming. We believe this will deliver additional value for our members as well as for rights holders who benefit from the increased awareness and revenue that Netflix delivers in addition to the new life that success on Netflix can drive.

For example, The Office, Friends, a new series from the suits universe. Oh my God, a new series from the suits universe. Here we go. Did you just find out about that as you were reading that? I saw, though, you got very excited. I mean, I've not sat down to watch suits, but I love that it was so successful on Netflix that we're now launching a spinoff of suits. Yes, that is the first time I'm finding out about it. I thought I thought you were a suit. That was your previous career.

You know, so I've seen part of suits. I just haven't sat down and binged with the rest of America, but I watched like three quarters of the first season like four or five years ago back when I was in law school. Not the worst show in the world. It is entertaining. I can see why people got into it. But it wasn't on Netflix yet. So now, now it's good. That is the operative point, Ben. So Netflix, in that letter, they say they now have 247 million paying households globally. And they can take a show like suits, which would otherwise just disappear into the ether and turn it into a hit. So I have some thoughts on what that could mean for culture. But first and foremost, what are the implications for Netflix as a business here?

Well, I could not resist in my update this week. Trying to accrue some Ben was right points on this, where this has always been, you know, I've been by and large a Netflix bull, but it was, I think, in 2019, I said, look, the next five years are going to be tough. And the reason it's going to be tough is because all of these other Hollywood studios

have delusions of grandeur. And this was back at the time when it's still, you know, Netflix's stock price was sky high. And they're like, look, why are they worth so much? We should be worth that much too. They're using our content. Let's launch our own streaming service. And then we could be valued like Netflix as well. And you just kind of knew, like they had to learn the hard way, even though the reality

is that, and this is downstream from aggregation theory, what actually gives you power in the marketplace is not that you produce the content. What gives you power in the marketplace is if you control demand. And this is exactly what we're talking about. And so the thesis then was, look, all these streaming services, all these Hollywood studios are going to try these streaming services, and they're going to fail. And they're going to fail because they don't understand the cost that they're going to accrue.

They're going to, they're setting up the service, customer service, dealing with churn. And by the way, all the money they're going to forego, by not selling their stuff to Netflix. And so when they were doing these things and friends, you know, was brought back into whoever it was with and the office and whatever it might be, I'm like, you actually know for a fact that they are paying too much. Now, the paying too much is always the Hollywood accounting, where they're doing internal transfer pricing or whatever it might be.

You know they're probably manipulating it to in either direction. But what happens is Netflix, because they have 247 million payments, households globally. They have the most subscribers. Their price point at this point is still relatively high. Their ability, they're paying a fixed price for this content, right? And they can spread it over more people. And so their per subscriber pricing power is higher than anyone else because they have more leverage on the cost. So if you are going to outbid Netflix for content, you are basically, you're going to pay more than the clearing price for Netflix for a service that is going to have fewer users. So if Netflix thought it was too rich, what are you doing with you having a service that's smaller?

And on the flip side, you know, you're doing this internal transfer pricing. So you're not actually getting the true benefits of selling that content to a third party. The money's not coming in. There's the opportunity cost of not selling the content to Netflix. And so, but of course, no one wanted to actually think through these implications. So they were going to try. And I said it in 2019, I put a five-year time period on it. I'm like, the next five years are going to be rough.

But what's going to happen? In five years, as long as Netflix can get through this period, they'll be sitting there. And sure, Netflix was very wise and smart to invest in originals. And they needed to do it for this five-year period. But the real bull case for Netflix in the long. run is actually they don't need to double down on originals. They can start licensing content again and let the folks that are good at making content, go out and make content, and they can sell it to Netflix.

And even, and you see the interesting thing is Netflix actually benefits and all these shows benefit. And streaming in general is more compelling with unoriginal content, which is kind of like where you get a big marketing boost from a movie being in the theater. and people talking about it. You get a big boost from something being on TV. This is why friends in the office, like, that's downstream from, I don't you want to talk about the monoculture in general.

That's downstream from the monoculture sort of previously. And then it sort of, it has residual value that is much more compelling on streaming because it was popular in the first place. Now, Suits is super compelling because I don't think it was, I mean, again, I'm not the TV content expert. I don't remember it being a huge deal was on USA Network. actually Netflix is increasing it in value. And you think about in the long run,

Netflix is negotiating power. It's not just that, look, we can best help you harvest something like friends where you did establish the value. It's that, no, we can actually take content that you have and we can increase the value. So what we're bringing to the table is that content,

sure, go ahead and sell it to someone else. But if you sell it to us, it will become worth more. And that gives Netflix, It's like talking about ESPN and Sports Center relative to sports. They would basically have a de facto discount in their rights deals because leagues new, if we do a deal with ESPN, we'll have more focus on sports center. Which is like, yeah, which is like super important. One of the problems of many problems ESPN faces is the complete diminishment of sports center's value.

All the highlights and stuff on social media and on internet and things like that. And so they basically lost a bit of their pricing power for that. reason. Netflix is the opposite. They're like, look, it's not just that we have more subscribers. It's that we have this proven ability to make something back into a hit and to elevate it into a friend's office sort of thing. Now, is it that big? No, probably not. Having being originally big is still a big deal. But no, I think this is a, I think this suits thing is a big deal. I think it's going to have, you know, it ought to force everyone to reconsider this. And it's arriving at a time when as we've talked about, every streaming service is losing a lot of money and not getting

evaluations they thought they would. You know, as we talk through all this, it is kind of beautiful, the symmetry between the incumbent studios and Netflix, because on one side, you had the studios just throwing hundreds of millions of dollars at the wall trying to make their streaming services work and taking haircuts in all sorts of different ways. I mean, they literally, like, abandoned wildly successful windowing strategy to try to make this fantasy work. They just obliterated the actual moneymakers, which was their TV business. Yes. And you know what their lesson was in the end? Making dog food is hard. So they were learning

that on one side of the spectrum. And then Netflix has also been lighting money on fire, trying to make original content and has found that it's actually much harder to do that than it looks. So you can't just throw money at the problem and expect to dominate in that world. And so, and they've had some success, but it's been, I would say, inefficient spending over the last 10 years or so. Yeah, I mean, I'm not sure. I'm not sure. I get your point. I'm not sure it's comparable, though. Netflix's original programming has been good enough, right? It's been good enough to get them through this five-year period. I'm just saying that they also learned that making dog food is harder than it looks in certain respects. And they will benefit from licensing.

Yeah, Netflix has learned that making dog food is hard. But what the studios have learned is that selling dog food is also hard. You actually need both. Yes. And the reason that this was all interesting to me is earlier in the week, I was listening to one of my favorite podcasts, The Watch with Chris Ryan and Andy Greenwald. And Andy made the point that for a lot of people now, the word Netflix has become a modern version of like the word Kleenex, where it just acts as a stand in for watching TV and movies generally. and number one, that feels like it's true for a certain subset of the population, particularly among young people. So that's why I started with all the crappy names they came up with years ago.

But number two, when he said that, it occurred to me that among both cord cutters and like the suckers like me and you who still pay for cable, Netflix is the one product that basically everyone has. and that's only going to become more true as they move to ad-supported tiers and make it more affordable to get on the ad tier. And it's kind of encouraging when you start to look at the future. Like we've talked about all these different ways the internet has fractured culture into a million pieces and made it harder to create more universal cultural experiences. But it feels like Netflix is going the other direction where suddenly there's, is going to be this common platform where when there's a big show or a big movie on Netflix, the whole world will experience it.

And maybe it's not going to be quite as fractured as we expect the future to be. Oh, it's interesting. Like you're excited about the monoculture is what you're saying. I miss the monoculture. I was getting wistful, you know, because there's, there's a thrill when there's a show that everyone's watching together, whether it was Game of Thrones or like Succession or something else. Like when everyone's sitting down and experiencing something at once, there's a communal aspect that I feel like has gotten increasingly lost over the last, you know, five to seven years as all these trends have accelerated. Well, it's one of the reasons I do wish Netflix would, they've done it a tiny little bit, but would get back to sort of like internal windowing where you have these sort of like original content release once a week.

And like, yeah, I mean, I, the whole like that everyone writes content about it. like in reviewing the show like half the fun of Game of Thrones was like all the stuff that was written about it in the sort of the days afterwards and you know or go back to Mad Men who was the incredible was it Andy Greenwald there was someone that was just an incredible would summarize like sort of the shows every week and deepen your understanding of it and make you like it more you know so it was sort of this virtuous cycle that people had one of the long running sort of I think obvious predictions but about sort of the streaming landscape sort of in general was there was, you know, people, there's a lot of saying that the cable bundle will go away because people don't want to pay that much. And that was always a mistake. At the end of the day, we're going to be paying about the same amount. The question is, how is that money distributed and sort of where does it go? And we've seen that with all the streaming prices going up in price. Now, the one caveat is there has been an inversion where it used to be that everyone subsidized sports and increasingly sports is probably going to be, you know, its own tier and sports fans are

going to pay a lot more. So there is going to be a bit of a differentiation sort of in that regard. But the money is going to sort of be as a whole. And the question is, you know, all the other pieces that surround it, like stuff that works, works for a reason. I mean, you mentioned windowing. I think windowing is a perfect example. It's not just that if you make a piece of content once and you show it multiple times and multiple places and monetize it every time, you make more money. It's also that there are downstream effects independent of money. Like I mentioned at the beginning, if you have a big movie, all that marketing that goes to the movie doesn't just pay off in the box office sales. It pays off years down the road when someone's in an airplane. It's on

the back of the screen. Like, oh yeah, I've been meaning to catch that or, or, you know, it comes on whatever it might be. One thing that is interesting, though, I brought this up in the context of the John Stewart, Apple sort of thing is I do wonder what content looks like in a world where everything is streaming, right? And you lose the sort of like content that's just on because we have 24 hours to fill and it makes sense to have something here versus there is a bit about streaming that is intentional. You have to go and you have to choose to watch something. But that also ties into you can promote something. Netflix can put suits sort of front and center on the Netflix app in front of 247 million people.

And it's going to, you know, that, that is a lot of power. It will be interesting to see how that plays out in sort of the type of content that we do get in the long run. Yeah. And I think the John Stewart point is actually really important because the reality with streaming is that the audiences for any of these products are so much smaller than most people realize. And I think Netflix is the exception to that rule.

And you, as you said at the top, you've been writing about this for a while and predicting that it would go this direction. It just feels like in the last year or so, we've started to really see some of the Netflix advantages compound. And now, you know, like I watched Beckham recently, the documentary, four-part documentary about David Beckham. And I put up an Instagram story saying, well, that series was much better than I expected, which it was. I figured it was just going to be some of that sort of like filler content. Yeah, that Netflix has made a lot of money on over the years. But it was actually really good. And so I shared it to Instagram.

And like all these different people from different corners of my life responded and were like, yeah, I just watched that too. I really liked it. I can't believe how much fun that was or posh spice or whatever. And that just would never happen if I was sharing like an Amazon Prime documentary or God forbid an Apple TV Plus documentary or whatever they call their streaming service. Like there's just one meeting place where if there's like a hit show on Netflix, everybody watches it at around the same time.

And I think, you know, some of the other streaming numbers are going to be relevant when we get to the NBA portion of this conversation. But it just, it's all starting to click for me that yes, in fact, Ben was dead on like five or six years ago writing about all this. and the advantages are only going to get more pronounced moving forward here for Netflix. Yeah, to be fair, it's easy to look back with rose-colored glasses and only see the good parts of the predictions and the stuff that you miss. So we don't need to, we don't either praise me too much. But there is a bit about the Beckham documentary.

I think it's interesting, which is, and I didn't write about it this week, but they said, you know, in the other thing on the earnings interview or whatever, that we're, we're into sports. And I was like, oh, Netflix is into sports. Like, well, no, they're not into renting rights. Right. But I think there is a realization that sports is a tremendous, it's just a content generator, right? That's why you have a twice weekly, you know, podcast. It's the longest podcast in the Czechry Empire, usually 90 minutes to two hours each twice a week. Why?

Because sports just generates content, right? It's something that's ongoing. There's interesting. And the whole thing, one of the whole challenges of the NBA is the NBA is like, can be more culturally relevant than ever, talked about all the time. The problem is people don't watch the games. That's how the NBA makes money. But the cultural stuff is a big thing.

It's like a soap opera, you know, that, you know, two hours worth of content twice a week, man, you know, subscribe to greatest of all talk now in your show notes. That's exactly what Netflix is. That's what Netflix is investing in, right? It's a much cheaper investment, too. Right. Because, you know, we don't need the generator of the idea. It's more, it's more almost sort of harvesting in a way.

But yeah, I mean, I think they are well placed. You can envision a scenario in the very long run where basically Netflix is the bundle where all non-sport, all non-live sports and non-news content is on Netflix. Like all the streaming services go away. That's actually a viable outcome. Now, I am definitely not predicting that. We will sort of see what happens in that regard. But the other thing is that outcome could happen without there being acquisitions. It's not like Netflix is to go up and buy up all the streaming services like a network might have needed to go up by other networks.

Because in that case, you're limited to 24-7, right? There's only so much stuff you can put on. In this case, Netflix, you know, Disney or HBO or any of these could decide tomorrow. Again, I'm not saying they will, but they could decide we're just going to sell our content to Netflix. and we're going to deprioritize our streaming service, just like we did to cable once upon a time. And by the way, they will make a lot more money doing that. And Netflix put in their earnings letter,

this was the first sort of quote they had. But at the end, they're like, you know, we believe in creativity and we believe in the value of this medium. And it's really great that we can make sure that people don't forget that TV matters. And it's like this appeal to the heart of Hollywood. It's like, look, you are fading in relevance. You don't matter unless you,

Get the monoculture, you need the monoculture. We can make you matter. We can provide it. That's right. Yeah, exactly. Well, so that was one of my final questions here before we shift to hoops. How should a Disney or an HBO respond? And it's a loaded question. So we don't have to spend 35, 40 minutes on it.

But I do think on one hand, obviously all this makes it clear that it would behoove studios to license content to Netflix, you know, let their shows get five times as big, make some money, monetize it over there. But on the other hand, if they're basically surrendering as distributors, doesn't that sort of seal their fate and guarantee that they'll eventually surrender all their negotiating leverage to Netflix? Or do we think that's inevitable? Well, that's the challenge of being a supplier for sort of an aggregator, is ultimately, you know, you are, you sort of exist at their whimsy.

We see this with publishers relative to Google and things on those lines. your best chance is to build sort of a direct connection with customers. And I think it's going to vary. I mean, Time Warner Discovery, whatever combination of names is that company, Warner Brothers Discovery. Yeah. They have already started selling stuff to Netflix. And they, you know, I think like the Band of Brothers was another one where it's actually still on Max, but it's on Netflix as well.

The numbers on Netflix are like 20X. Like I don't have the numbers in front of me, but it's huge. relative in sort of the streaming thing and sort of is making the point all over again. I think you will probably see more deals like that in sort of the interim. Warner Bros. Discovery has been pretty explicit about that, that they're going to be selling more, more content. Disney, I think, will probably experiment with it. Disney has this huge problem, which is they have to buy Comcast share of Hulu. Like, it's contractually obliged.

The only question is, how much are they going to have to pay for it? The minimum price is a valuation of $27.27 million, I think, so they have to pay at least $9 million. But Netflix's stock making a big jump this week is bad for Disney in that regard because, you know, you're going to, it's going to be valued on a cop. They have to pay $9 million or $9 billion. $9 billion, a minimum of $9 billion. But obviously Comcast is going to be out there saying, oh, it's worth drastically more than that. And so Disney is sort of like pot committed in some respects. Like the, you know, they have fixed cost.

And so my suspicion is Disney again, it wants to try to make a goal of advertising. Like they actually have a more sophisticated advertising setup than Netflix does. They started long before Netflix did. Advertising the most valuable product is, of course, live sports, which they're going to have ESPN streaming over the top. They did separate out ESPN, which I know we're going to get to a little bit in its own thing, which does weigh the groundwork to potentially. sell it. But, but, you know, in the meantime, I think that, you know, their big thing is, is going to be, can we build a meaningful ad tier? And of course, there's the Disney content,

which has a alternative monetization loop where it ties into the parks, it ties into the cruise ships, it ties in these other ways of monetizing, which, as we've talked about, is, is a lower ceiling because you have to actually build real-world assets, your capacity constraint, but is still sort of a compelling sort of offering. I think, right, I'm rambling. But I think if Disney could go back and do everything over again, having the Disney assets in one bundle would be nice. They would not have bought 20th Century Fox. General entertainment would maybe go in this direction towards Netflix. But there's a real sunk cost challenge, which is we've put a lot of money.

Now we're here. At the same time, the Disney valuation is so low that their media assets are basically valid at like zero. And so they actually do have a fair bit of freedom of movement. I don't think they're going to bail. Maybe they should, but... Well, I do think it's fun that Bob Iger, the guy who sunk all that cash into Fox, is going to be the one making the decision and deciding what's next here. That's a good example.

I was not nearly sufficiently... When that transaction happened, I was complimentary of Fox for selling. And I was mostly on board of... You understood the logic on Disney side. Yeah. In retrospect, that was a terrible deal, and I should have been much more critical of it. So just a, you know, I'll welcome an appropriate sort of rejoinder to be taking get right points. I have get wrong points to accumulate there as well. That's right. Grateful to Bob Eiger, we could take Ben down a peg or two here, live on the show. While you mentioned Netflix's share price, I'm wondering, do you think we've hit a point where Netflix is no longer a bellwether for all these other.

streaming stocks because for years when they go up suddenly everybody gets more bullish on Disney and you know all these other players do you think at some point we sort of admit that Netflix is a unicorn relative to the rest of the field there I think we should for for all these exact reasons it was always foolhardy for these content companies to be looking at Netflix's valuation and think they deserved a similar sort of multiple now obviously Netflix's stock has come down a lot but it's interesting when I wrote that ever since I wrote that five years ago So they're up 10%, which over five years is not great. Like that that's actually, you know, relative to what you could have had, not, not very, you know, not very good.

But it is interesting how it fits the, it's going to be a rough 10 years, but then they'll be well positioned. And I think that is a, I think that's correct. It was sort of a five year period. You could see coming that was going to be a bit of a loss. And it was super weird because COVID was in the middle. And so, you know, in the middle of COVID and their stock. with Sky. I'm like, well, I said five years. It's going pretty well now. Maybe this has been pushed out a little bit. Maybe it actually pulled some of this forward. And we've sort of

sped run through a lot of the shakeout that's happened. And that's an interesting theory. Yeah. Yeah, it is clear. We spent a lot of time the last few months. I spent a lot of times for checking writing about things like ESPN and the NBA in streaming. And it's because we're approaching the moment of truth. Right. It's very clear that it's all sort of converging on really crystallizing how this is going to look in the long run. And that's why it's super interesting right now. In, you know, in three years we'll be talking about nearly as much. Probably not because the trajectory is going to be much clear.

Yeah. No, it's a good take too when you think back to the pandemic because that's when a lot of these studios were like, oh shit. You know, nobody's ever going to go to theaters again. Let's speed up this spending. And it probably did accelerate a lot of the downward trends that we've seen. And there's a whole thing where there's a whole thing where all these plans were in motion before the pandemic.

And then the pandemic made all the plans look phenomenally successful because they got way more subscribers than they were expected. And so then they doubled down on it and then sort of like put the final nail in the coffin of the TV bunch of their TV channels in particular. And so again, all these things were very long run trends that, you know, you could go back years and years and talk about. And, you know, at the beginning of Shrek, I was always pushing back against the people, the cord cutter triumphal as saying, no, this. is going to take a while. And, and there's a bit where the COVID just accelerated what was going to happen. And it incentivized bad choices that made that happening sooner. But at the end of the day, maybe that was actually a good thing because we're just going

to get to the end game, you know, more quickly. Yep. Just getting back to the monoculture faster than ever. I'm just glad that somewhere, somewhere there's going to be monoculture. That's all I really care about moving. forward. And, you know, it's been nice to watch all of it crystallized. It crystallized for me like a week or two ago as I'm sitting there responding to like 15 different DMs on Instagram about the Beckham documentary. It's like, wow, people actually do watch Netflix. Not sure that's true for the other streaming services. Yeah, so basically the takeaway here is you don't care how the dog food is sold. You don't even care what the dog food tastes like. You just want everybody eating dog food. Exactly. I just want to be eating dog food on a Sunday night with all my friends.

you know, sprinkled throughout the United States and the world and we'll all experience it together. But for now, let's shift to from the future of media to the past. As people read the cable bundle, its last rights, Ben G Oliver and I mentioned the NBA rights fees and the negotiations that the NBA is going to be engaged in next summer. They've paused negotiations and aren't going to do any deals until after the this season, but we talked about it on Greatest of All Talk, and we received a few requests to get your take as well. So for anyone who hasn't been following, I'll read this from Front Office Sports. According to sources, after agreeing to pay $1 billion annually for

Thursday night football through 2033, Amazon Prime Video is eyeing an NBA game package on Tuesday or Thursday nights. The goal, create the NBA's version of TNF, said, sources. According to sources, the NBA is also intrigued by Amazon's ability to draw an audience seven years younger than the NFL's legacy TV partners. Beginning with the 2025-26th season, the NBA will seek an estimated $50 billion to $75 billion for its next cycle of long-term media rights. The league is still negotiating exclusively with incumbent media rights partners, the Walt Disney Company's ESPN, and Warner Bros. Discovery Sports, and TNT.

But both the NBA and Amazon have been dropping hints they're interested in a billion-dollar streaming partnership. So, Ben, generally speaking, I'll let you take it wherever you want to go at the top. What's most interesting to you about where these negotiations stand right now? There is another article in the Wall Street Journal about like, wow, the MBA's huge opportunity to grow its rights fees by negotiating with lots of people, which is actually really bad news because that means that ESPN and TNT are not sort of like going to make a deal in the exclusive negotiating window, which is what happened the last time the rights

came up. Like at that time, it's hard to remember, but you go back nine years or 10 years or whenever it was, 2013 sort of time period. And ESPN's big concern at the time was FS1. They're like, and we, they were in like a rights buying spree. We're not going to let Fox get a foothold here. ESPN is sort of going to dominate the space. And so they tripled the rights fees then. And it never sort of got to the market. And, and, you know, I think that ESPN pays an average of $1.4 billion a year now. TNT, I believe, pays $1.2 billion. This is because ESPN gets the finals, which is on, on ABC, and you can see in the, you know, in their financials, like, it's the big stuff that moves that, that does move the needle. That's where they make a lot of money. And so that's worth a lot. That's

worth the extra sort of, you know, $200 million a year. And it's been out there constantly for years now. yeah, just look forward to the next TV deal and we're going to triple it again. It's really been incredible. So to put it in context for people, in 2015, the NBA announced a nine-year, $24 billion rights deal with ESPN and Turner. And now they're seeking between $50 billion and $75 billion over 10 years. So they really are trying to triple it. And then on the heels of all the talk of tripling it, over the last 12 months or so,

The rumors about how intrigued big tech has been in getting in on the NBA business have been pretty much constant. It's like, oh, my gosh, Google and Amazon are really interested in the NBA. My guess is that a lot of it is coming from the NBA itself. It's all coming from the NBA itself, right? And they're screwed. If you can't create a market and actually create some competition for ESPN and Turner and anyone else who might be bidding on broadcast rights for your sport, guess what?

You're not going to triple the rights fees you were collecting on the previous deal. So it'll be interesting to see how real any of it is. Right. So there's a lot of things that are a problem for the NBA right now. And this is why this isn't just about hoops. It's sort of a broader sort of observation on this space. So first off, they're the last sort of big entity to negotiate new rights, which usually that's on purpose because like it's.

the last big property out there. If you want to, if you want to have something, you know, if you want to have it, you know, this is your last chance to get in for another 10 years. That was a great strategy a decade ago when it's like, you know, if we don't get this, we're not going to get anything. It's not so great today when everyone already negotiated big rights deals for other sports and they're like, we're running out of money. Right. We don't have an issue number one. Number two, the fundamental issue that faces the NBA is the nature of the product is a poor fit for streaming. And I mentioned this before in the context of Netflix and sports, which is sports is great as an ongoing generator of content, right? That's sort of a good thing. And so

that's been great for everything around the NBA. It's great for podcasting, right? It's great for, you know, it's great for Netflix making these docu-series or whatever it might be. The challenge, though is that was a huge asset in the world of TV where, you know, filler content is important. And in this case, filler content is ESPN is a 24-7 sports network. They need to have

sports on 24-7. And what are you going to put on TV in February or March or April? Right? Like the college basketball is basically the only alternative and the NBA for all its flaws is still a much better product and draws a much larger audience than college basketball.

And it has all the knockout effects if we to fill sports center. We have to fill our talk shows, like all these sorts of things. This has always been the NBA sort of ace in the hole, which is, look, we get we're not the NFL, but where else are you going to go for the rest of the year? There's only one NFL draft. And otherwise, you're just sort of waiting for eight buds for football to come back. That's right. This is a time period where people are at home and they want something to watch, right? It's cold outside. And so this has always been what the NBA has offered. And so this bit about being filler content sounds like an insult, but it's actually really powerful.

It's actually a really good thing. You fill inventory. And the issue with streaming is you do need filler content on streaming, right? You want to always have something to watch. And we've talked about Netflix's filler content. But the sort of filler content you want on streaming is the exact opposite of the kind of filler content you want for linear TV. On linear TV, you need something that is temporal, that is. that is sort of on all the time.

With streaming content, you want something that's evergreen, stuff that is not related to current events. You want to be able to show someone suits from like a decade ago, and you put it up there. It's like, oh, I haven't watched this before, and there's no tie to like the current time period, wherever it might be.

That Beckham documentary, that can be watched for the next hundred years, right? It's going to be fine. It's actually taking a previous temporal time. The whole aspect of it captures the pop culture at the time, right? And you don't just get the soccer sort of aspects. It's the Spice Girl sort of aspects. You know, you get the David Beckham just exploding, you know, being this like poor kid and becoming the biggest star in the world.

He had a more interesting career than I realized just for the record. Everybody should check it out. There was a lot of exploits on old Beck's side. I thought he was more famous than good. But it turns out he was both. No, he was really good. And you get the whole context in retrospect, all the burden that was on him of England's great hope, right? we're going to finally be good.

And now you can look back and say England didn't win. They still haven't won. And you could contextualize all that. And it wasn't his fault. Yeah. Yeah. And you sort of put it in sort of this broader context. And so that content is very, very different than we have a game on every single night of the week that you can televise.

And the game might be good. It might not be. Whatever it might be. But at least it's on. And so when we're shifting to this world, suddenly this, this, this, this, this filler, it's no longer good filler content. And what actually matters, what is actually meaningful, where is the live sports compelling? It's when it's an event.

It's something, and you're changing from being something that is churn mitigation, which there's something that's always on, to I'm going to go sign up for this service. Or in the case like Amazon Prime, basically everyone has Amazon Prime, like 170 million people in the U.S. But the goal there is I didn't realize I had Amazon Prime video. I'm going to go get this app, but I'm going to sign in. Oh, and I've already signed in. Oh, I want to watch HBO show.

I can just buy it on Amazon, right? It's like a tent pole. It's a destination that pulls people into that product. And it's just a fundamentally different job to be a customer acquisition driver. In that acquisition, again, might be subscriptions or it might be just sort of behavior to change their behavior versus something that is that that is filler and the NBA product is a terrible customer acquisition product because most of the games are meaningless and suck and because there's too many of them right interminable regular season that they've been pitching to ESPN for the last

20 years and the internal regular season was a perfect fit for cable that's the key thing they actually had you know they over monetized they're the sort of like amount of money they made relative to the audience they drew was outside arguably compared to compared anything else, just because they were sort of the best possible product for huge portions of the calendar

for entities that had to fill time. Now today, the entities, they want to fill time with stuff that is timeless, which are not sort of live games, and what they need and what sports can offer is a way to acquire new customers

and to change customer behavior. And the NBA is just not that compelling in that regard. You sort of have the ratings on here, even just last night, 2.8, 2.9 million viewers for the opening night of the season with, you know, the rating NBA champs and three of their biggest working teams with the biggest stars. And baseball of all sports is outdrawing them by three.

Now, again, you had a collision of markets, both Phoenix markets. It's the NLCS. It's much more meaningful. But it doesn't change the fact that this is not a, it's not a must-see TV, right? There's like, yeah, and that's the tricky spot that the NBA finds itself in is over the weekend, I told somebody that the NBA rights are the Tobias Harris of streaming products because, number one, they're going to be way overpriced. And number two, Tobias Harris is not quite a small forward, but he's also not quite a power forward. And the NBA is sort of the same situation

where you look at the NFL on Amazon. And if that's the analogy for what the NBA is, can be. The NFL makes sense for a company like Amazon or YouTube because even though it is really expensive to spend, you know, a billion plus per year on NFL rights, football is so universally popular that it can make a decent sized audience proactively seek out the app. Exactly. Football is the ultimate monoculture and people will spend time on the platform, get comfortable on the platform, you know, and there will be all sorts of secondary benefits from that. On the other side, what crystallized the NBA's dilemma is our conversation about Formula One and why Formula One would make so much sense for Apple, because a niche product

like that or soccer makes sense because the rights are less expensive, but compelling enough to get specific hardcore fans trying the app, opening the app, proactively seeking out that experience. the NBA's issue is that basketball works great as space filler for all the cable channels, but the league is just closer to Formula One and soccer in terms of the audience that will actually go to the app and watch a regular season basketball game, but they want to charge NFL prices. Because that's the value it used to have for cable channels, and it's just going to be really, really hard to pull off that two-step, you know? Like maybe they'll succeed.

And I'm curious, like, why might it make sense for Amazon? Because this story also has quotes from Amazon sports chief, Jay Marine, who coyly signaled the $500 billion giant's interest saying they will be aggressive yet rational in pursuing the NBA and other league rights. Like, could it make sense for Amazon to just overpay for NBA rights and see where that leads? Let me circle back to that. I just want to double down on one point you made, which was, the trouble is the transition. There is a, there's, this was a problem that newspapers face. There was a, you, it was clear, the optimal model for print in the long run on the internet is subscription.

But subscription is all about quality and consistency. And that is totally antithetical to the advertising supported thing, which is about quantity and sort of, your consistency is just like massive amounts of output. And so how do you switch a product that is just about spamming content so you cover everything, you get SEO, you get ads, and it's just sort of just out there as much as you can do, who's going to pay for that? Why would I ever want to pay for this garbage content that I can barely keep up with? It actually is a better proposition to be like trajectory and offer one piece of content a day, but your level of trust that is going to be worth your time is very high.

I am like, it's like a, look, it is a trust sort of thing that I'm selling. Like, this is going to be worth your time to read. And so therefore, you ought to pay for it on an ongoing basis. It's the, it's the sort of assumption of value. Whereas you click onto a random news site that's advertised supported, the likelihood that anyone article is going to be good is very, very low. It's mostly going to be crap. And it's very hard to do that transition.

What you needed to do is start fresh with a new business model. And there's tons of successful tech-based businesses on the internet. now, but they all started fresh from that thing. Again, the New York Times being the notable exception for all the reasons we've talked about previously. Same thing was saying Formula One. Formula one going to Apple makes sense because it's building up from something. It's, and like, it's not, there's no opportunity costs of trying to give up what it was.

You're not foregoing hundreds of millions of dollars in rights fees, yeah. Right. If you want the NBA to be a great subscription product, you drastically reduce the regular season. You have dedicated days that you have it. and it's like an event every time a game happens. The reason they can't do that is they have all this assumption of revenue from 82 games in the gate, from concessions, from parking, and from these TV deals. And the issue is the baggage of the old business model makes it so much more harder to move to the new one,

even if what you need to do is super clear. The NBA's, almost all the NBA's problems would be fixed by drastically shortening the regular season. They can't do that because they have this sort of overhang. That's their sort of big problem. That's number one. Number two, Amazon. I do think Amazon is by far the most interesting partner for the NBA. But that depends on if Amazon, I put forward this proposition a little bit.

There is a need. You have a customer service challenge when it comes to sports on TV right now. If you sit down, where is the game? Right. Like is it on cable TV? Which channel is it on? That was already hard enough than we have things like the guide, right? The guide was brilliant.

You can go on and it has the list of everything that's on right now, right? And that's actually very beneficial. I need to watch the Celtics collapse. I need to watch this as quickly as possible. Yeah. What's a guide in a world of multiple interfaces and streaming apps and services and where do I go and I have to download X, Y, Z, all that sort of thing? There is, in my estimation, a big opportunity to make the new guide for sports, which is you go to this place and it says, here's the game. and if the game is on that service,

let's say it's Amazon, right? You go to the Amazon sports app. There ought to be an Amazon sports app. You go there and it shows you what's on. You click it. If it's on Amazon, it starts playing. If it's on another service, then, and you're already subscribed,

it knows that because you subscribe via Amazon, of course. You click it, it kicks over to the other app, it starts playing. Or you click it and you don't have it. Amazon pops up. You don't have this. Would you like to subscribe for X a month with your attack?

sort of like credit card or whatever. You click a button, boom, your subscribe. Amazon's going to take 30% on forever, and then you can start watching it. This is what, if the NBA is going to get anything close to what they want, they need to sell a strategic benefit because the sort of like the tactical money benefit is not going to be there. ESPN show their financials. Their revenue is increasing by 2% about a year.

like and that's right now the best case scenario it's before it's and their profit is 20% of what it was I think a year ago or something I mean the decline is is hitting hard on ESPN side it's hard to do year over year because the way sports rights move around you only cost the right when it actually showed and so like it's hard they haven't they only went back like seven quarters or eight quarters so it's hard to know exactly but basically it's not very much they you cannot have an alignment between a 2% revenue increase and a 300% rights fee increase or whatever the NBA is asking for. So that's that, you know, or 200% I guess would be. Like, so that's clearly not going to happen there. And there's just no. And when you think about Amazon paying a billion dollars to the NFL, they're paying that for 12 million viewers on the worst night of the week that gets the lowest ratings. And it's dribbled out over four or five months.

So like, you're going to keep the subscription that whole time. Right. Like when it comes to churn mitigation, you don't need to show something every day. you just need to have it spaced out sufficiently that they're there for multiple months. So in what world would the NBA be worth a billion dollars to Amazon, given that it draws 1.5 million viewers on average for a regular season game? It just the numbers don't make sense. Yeah.

No, the vision that you lay out makes so much more sense than sitting there being like, let's recreate Thursday night football with a sport that, you know, 15% as much the public cares about. Let's see if that makes it worthwhile. The analogy here is what YouTube paid for NFL streaming ticket. They are never going to make back how much money they made on that and subscribers. You could pencil that out when they made the deal. Just look at how many DirecTV had. Sure, they're going to be able to sell more because it's going to be much more accessible through YouTube and that sort of thing.

Even if they, like, quadruple the number of subscribers, they're not going to make the money back. Why would they do it? Because they're trying to kick off this YouTube marketplace. They're way behind Amazon and Apple in sales. selling rights to other channels. They want to do the same thing through YouTube, but you need like an anchor tenant that gets people to get their credit card out, that gets them in the habit and expectation of paying more on YouTube for extra content.

That is what Sunday tickets serves for them. I think the NBA, in this case, all the inventory is beneficial, could be a good anchor tenant for an Amazon sports app that becomes this interface for selling lots of other content. And if the NBA gets anything close to what they want, it will be because of that. But the implication is if you're a strategic asset for a big tech company, like, I'm glad you got your money. The tech company is also going to get theirs. Yes. Yeah.

Well, it'll be interesting. That vision, again, just makes so much more sense to me. So I'm curious how much backing it has at Amazon because that sort of product also. also makes sense. Amazon already has tons of subscribers, right? Their goal, their overall arching goal for prime is turn mitigation. It's making sure people don't leave. That makes them a much more attractive partner for the NBA because the NBA going to

Apple TV plus. It's not a subscriber driving tool. That's right. And so the problem is Apple TV Plus is 25 million or $3 million or whatever it is. How many are actually paying is much less than that. If you're only drawing 1.5 million subscribers for an average game, it's hard. to pencil out your value as far as how many net new subscribers are you going to do for the service.

Because they're not an event thing. They're not like the NFL in that regard. And at that point, you're just playing an obscurity. And how does that affect the other aspects of the business? Yeah. So it would be a risk. And Amazon would be a softer landing than like 20 million people on Apple service. And I did kind of mock in the daily update.

Like, look, what the NBA wants is money. They're going to go whoever pays them the most. But this bit about a younger audience is a fair. point. This is a huge existential problem for sports is how do you get the next generation? And the fact of the matter is younger people are more likely to have Amazon Prime than the R-D-F cable. Like that's a that's a very real thing. And I will note, by the way, there's a, you know, it's hard to know for sure. NBA sort of, uh, uh, so it's a real thing. Hold on. It's a thing. But I also think that there are a lot of young people who won't have Amazon Prime. So

the idea that you're going to suddenly like spike in popularity among younger demographics by going to a service that fewer people overall are going to have. Why would they not have Amazon Prime? It feels foolhardy. Well, I just don't think that that many young people pay for anything. And so you're just going to have trouble acquiring like 14 year old customers or, you know, college kids. Well, we are, we are speculating. But I would bet the number one subscription, the vast majority of people have is an Amazon subscription.

Like it's like, yeah, I don't know. Particularly young people like, they are the like, why would they want to go to a store? They don't have, you know, you can get it delivered. You can get it the sort of same day. It's super compelling. And we just know from a numbers perspective, they have 100, I think it's like 170 million subscribers. That's like double, more than double.

It's like nearly triple what cable is. Like, and so by definition, they have to have more of everyone regardless of what age it is. So I think, I think you're probably wrong, but we are completely talking over our ends here. We're far afield. And this goes back to the John Stewart point, though, which is that these streaming services is just don't release numbers in terms of who's watching what and how many people are watching anything. And so my baseline assumption on all of this is that fewer people than we realize

are watching most of these streaming platforms except for Netflix. And that extends to Amazon Prime video as well. But again, pure speculation at this point. So I just think in general, there will be a cost if the NBA goes to a streaming only or streaming DOM. approach to broadcasting its games that I think won't be accounted for when they sign the deal. And it's like, oh, my God, $40 billion for the next 10 years or whatever the number ends up being. But ultimately, I think it's going to sort of shrink the pie as far as like overall audience. But who can say? Just to double down, though, on this sports app point, the one way the NBA really could get their money is if Amazon takes the whole thing.

They're like, we're going to be the exclusive broadcaster of the NBA. It's going to be the anchor tenant of our Amazon sports app that is the sort of vision that I did. And that is, you know, it might be worth Amazon to pay a lot more where you have no choice but to, you know, figure out Amazon. Like if you ever want to watch a game and to, and the whole goal is changing customer behavior of being under, you know, basically in this idealized world, if Amazon wants to forecast out 25 years, we're going to say that in 2045 or whenever it is, this menagerie of apps on your TV, there's going to be two. There's going to be Netflix and there's going to be Amazon.

And we will have all the sports and we'll have, you know, the stuff that, you know, whatever drama stuff we have that, that ends up going with it. And Netflix will have all the sort of other stuff. And we will be sort of the big players here. And that would be potentially worth losing a lot of money on the NBA to sort of kickstart.

if the NBA pulls a rabbit out of the hat, that's what I suspect it will be. That's what the NBA needs. They're not themselves a worthwhile investment, but you buy into the NBA to start a better business somewhere else and use it as sort of a launching pad. And that makes sense. And maybe that will be the direction that Amazon goes on the other end of the spectrum. Amazon, like everyone else, is super interested in advertising for streaming, right? And they obviously have a massive advertising business with sort of Amazon.com. It's not directly sort of analogous, but it's not completely dissimilar either.

They have a lot of data on customers. They can build targeted ads to a much more effective extent than any of these other streaming guys can have. Like everyone on Amazon is logged into their Amazon account for which Amazon knows basically every product you bought for the last 20 years. And they've been putting things in front of you. They have the potential to be a juggernaut, which also increases the value of sports because sports is the best product to advertise against. That remains the case. I'm talking myself into the NBA getting a double of rights to zero. I'm not sort of taking the whole thing.

I'll be totally honest with you. I know. It's working on me as well. So other end of the spectrum, though, put yourself in IGERS shoes, negotiating on behalf of ESPN. What sort of considerations are you weighing if you're on the Disney side at the conference table? I mean, is simultaneous to talking myself into Amazon actually giving the NBA the money they want is just sell ESPN. Give up. It kind of feels that way. I mean, I think there's a really interesting bit where the entities that do make the most sense,

and this is kind of an issue from the Amazon perspective, too, broadcast TV, you don't have to have a cable subscription. You can sort of, you can get a package from cable that is just the broadcast channels. You can put an intent on your house. Like, that makes a lot of sense for sports. And sports kind of going full circle and coming back to it's broadly available, mostly monetizes via. advertising and that's just sort of like it increases the audience and becomes a monoculture product all over again that's how the NFL has always maintained that and it's worked out tremendously their benefit college football is going in this direction the big 10's new deal is with three

broadcast networks at a set time every week they've got this national nationwide footprint with the conference now pursuing the same sort of thing and you know it's weird because for a long time ESPN is worth all this money it was kind of like towing a ABC sort of along with it. And there's a kind of an inversion where maybe ABC is going to be worth more in the long run and ESPN is the anchor that is sort of like, you know, coming along with it, could Disney, you know, I think that's a package right now, could they split them? You know, could they, should they retreat to just being the Disney company, have their IP,

do sort of X, Y, Z, spin everything else out, sort of be a smaller, but much more cogent, company with a value proposition that lets you connect directly to customers, that does not mean your subject to sort of the arrogators and all those sorts of things. That is probably the best strategy. It's not the sort of strategy you would associate with Bob Eiger. It's not the sort of strategy you would associate with sort of Hollywood kingdom building. It's a, it's an admission of defeat and a, and a sort of, we're going to retreat to what makes us special and unique. But that is what works on the internet. Being on the internet is being focused, being unique, and connecting directly with customers. That's what every great business on the internet does. And that's probably

in the very long run, the best path for Disney. But it's going to be hard to get there. And they have to buy Hulu for all this money. Like they're kind of like sort of, they're a bit stuck. Yeah. Well, it should be interesting on the ESPN side because one of the worries I would have, buying ESPN is that we've just come off of like a 15 year run of rights fees going up into the right for years on end. And if that's going to just continue to happen, then their costs are going to continue to spiral as their profits sort of disappear before our eyes. And so where does that leave the business 10 years from now?

Well, yeah, but the issue is they do like they have the NFL. They have SEC football. they do have destination events. And remember the, it's different. The goal for ESPN at the other day is turn mitigation. It's to get people to sign up for the service and to not cancel. And that is also why they are still interested in the NBA. And that's also why they're interested in a smaller slate of the NBA.

What they want is they want enough games so that people won't cancel ESPN. What they're much less concerned about is filling time. And so that's why, you know, they would still like games for sure. That value proposition of why are you going to keep the service when football is gone still matters. But what matters is having enough to keep that monthly subscription, not having multiple games every Wednesday and Friday night. Right. And I think it just leaves some of the more traditional networks in an interesting spot right now.

Because like with the college football playoff, like the rights for the expanded playoff still haven't been signed yet. And I think part of the reason is probably because everybody was expecting like a giant hike in the fees that are paid for those games. Just like there have been giant hikes for every other fees that have been sold. And the NBA obviously wants, you know, $75 billion after getting $25 billion 10 years ago. If that cycle ends, then there's some sanity restored to the landscape. But if it's just going to escalate in perpetuity and it's like, well, what do you do? No, it's all interconnected. Like at the end of the day, there's been tussling for years about who gets what value are the value chain.

So you have like the customer, then you have the cable company, then you have the network, then you have the sports league. And ultimately the money that is available is a function of how much you can jack up prices on the customer. And they were able to do that endlessly for sort of 40 years. And then once you jack up the price and there's a negotiation over who gets what share of that prices. And what happened over 15 years, the sports leagues realized they're increasing. importance of making this all work. They would raise their price, which led the network to raise the price, which led the cable company to raise their price, which led to customers paying more.

And it went too far, and customers just left. And so that domino is going to run in the opposite direction. The MBA is not going to be able to raise rights endlessly because there's not enough customers to pay the bills. And at the end of the day, what all these entities need to realize, they need to. each other. It goes back to my day. They should be on their hands and knees thinking and praying for the cable companies to rescue them, to do the customer service for them, to do the customer acquisition, to do the churn mitigation because and to tie them all together in a way that at the

end of the day, the NBA needs to be with baseball and it needs to be with hockey and it needs to be with tennis. It needs to be all together. So you have all these sports help each other to keep the sports fan engaged all the time. So you get all the benefits of a bunch of. Are they going to negotiate between each other? No, you need a third party to sort of arbitrate that. That is the role ESPN can and sort of should fill. But ESPN and sports in general needs other entertainment to be all together. That's the role the cable companies could fill.

But if they don't do it, it's going to be Amazon. It's going to be Apple. And I think that's going to be a less pleasant scenario. But we're going to end up there at some point. The question is, you know, do you want to go there willingly of your own volition? or you're going to hold on to the scraps of what you have as long as you possibly can and not have control. We shall see.

If only they had shortened the regular season when the TV rights tripled, you know, in 2015, that was the time to do it. Also would have saved us from Kevin Durant on the Warriors. It would have been a brighter future for everyone involved in the ecosystem then. Yeah, the NBA would be in really good shape right now had they done that. Like had they taken that windfall and instead of just. taking the money would have taken that opportunity to completely reshape the league for a different environment. But they like Hollywood, like Disney, like everyone else, sort of assume the money would come forever and they could have their cake and need it too.

And now the bill's coming due. Okay. So final note here. This came into greatest of all talk as we were recording. This is from Jonathan, who also listens to Sharp Tech. He says of the TV's of the NBA's TV product in 2023. there are way too many play stoppages. The TV product is just terrible. I'm a basketball sicko who listens to 10 NBA podcasts, but I pay for league pass monthly, not yearly, and I will likely cancel after one month because so many TV games take way too long with too many breaks. I don't blame TV partners for their hesitancy to pay top dollar to the NBA. Silver took his eye off the ball long ago, or maybe never even had it on the ball to begin with. He needs to go. The association needs a new commissioner. So shots at Adam Silver aside, I just wanted to read that for anybody who's like,

what do you mean the NBA is not a compelling product or compelling enough for people to go seek out on streaming and proactively watch it? You and I are obviously sickos who will watch regardless, but I think among casual viewers, including Jonathan, who listens to 10 NBA podcasts a week like a psychopath, there's just not that much appetite for the product over the next. you know, six or seven months. And it's a different story when you get to the playoffs. But the NBA is selling regular season inventory. So that's the challenge. Yeah, there's this really, you know, this Warren Buffett quote from like 20, 30 years ago.

I can't remember exactly what it was. It was about the newspaper business. And basically his point was it's changing. I think he called it was changing from a franchise to a business. I might have my terminology a bit wrong. But basically what he was saying is these were newspapers for years and years were, ones it didn't matter how good the management was. You were still going to make money.

And why? Because you had the geographic monopoly on distribution of information, which meant you got ads for, you got classifieds, you got ads, you got all those things. How else were you going to reach sort of people, right? And you could have terrible editorial,

you could have terrible management, it didn't matter. Those are the best businesses where it doesn't matter how well it's managed. You're just going to make money. And that is an NBA team, just for the record. There's scarcity in terms of teams. So you have 30 teams.

They're just going to increase in value. in perpetuity because rich people want to own basketball teams. It doesn't matter how well the businesses run. And so that's one area where basketball does still have some advantages. Yeah, I mean, we'll see. We'll see all that does. But the way his point was, and this was when he was getting out of newspapers. And this was like in the 90s.

He was obviously oppression on this point. But he's like, these are becoming businesses. And he's like, if they're well managed, they could still make money. but increasingly management matters. And obviously, even if they were all managed, maybe that was optimistic even about what happened in newspapers. But that was his point is I would rather own franchises. I'm not necessarily interested in owning businesses.

And I think that, you know, the MBA for a long time was a franchise. It just made money because of the inventory issue, all the things we talked about. And it needed to shift to being a business. It needed to shift to improving the quality of play. The television product is terrible. the you know the the talk around it with their broadcast partners is is so rough to listen to everyone's talking about trades of current players that might happen in the future or XYZ you know one talks about the game no one actually makes it interesting for viewers they have 47 reviews and challenges and there's too many timeouts and all this sort of thing and you have players sitting all the time and completely devaluing the regular season and you have this view of this year or suddenly the league office is like oh actually it turns out a rest doesn't help it's good thing and the problem is that And this goes back to like our talk about like speech and all these sorts of things. You don't change hearts and minds by suddenly changing like saying new things.

You can't flip a switch. It's a culture. It's an expectation. And there has been a decade or longer long run of devaluing the regular season, treating it like it doesn't matter, getting stuck on making sure we have the call just right. Because we're worried about a blogger criticizing it or people complaining on Twitter versus like, is it actually. actually fun for a normal person to sit down and watch this game. And you don't change that overnight. You change culture and you change consumer expectations over years and years and years. And to suddenly start in 2023 because you have a rights deal negotiation in 2024, it's way

too late. It has been an abject failure of leadership by the NBA in my estimation. Not just, I can, they should have shortened the season in 2013. You can understand why they didn't. No one was aware of it. But to let the quality of the product degrade to the extent that it has, is pretty unacceptable. There was hard discussions and hard decisions that needed to be made. And this has been a we

that's been averse to making hard decisions. And at some point, hard decisions will always be made. The question is, do you want to make them early when it's easier or don't make them late

when you're desperate? And that's an unfortunate reality. Well, I'm going to go glass half full at the end here. Netflix is bringing back the monoculture and maybe Amazon Prime Video We'll save the NBA and revolutionize the product over the next 10 years or so.

We shall see. I think the NBA is in a precarious spot and it's been underreported. And there's been a lot of messaging and message control coming out of the NBA side. But the next 12 months are going to be very, very interesting on that front. And it does, it's all a reflection of just broader trends that we've been talking about for the last six months or so. Right, exactly. make sure we mentioned it. We are obviously biased and we like to talk about basketball.

So there's a bit where, yes, we're talking about basketball again. But the point is this is representative of so many other things. And on the internet, it's a barbell effect. You're either super big and you dominate in that regard or you're super small and you win because you take advantage of internet costs and the cost structures and you are niche and focus and you have a dedicated high average revenue per user and you make it up sort of in that regard. And in the analog world, there is more of a normal distribution. There was lots of interesting opportunities in the middle.

And sure, the NFL can make a little bit more money, but you could also be decent and not make as much, but still be pretty good. The NBA is a, what's the name? It's a huge drop off, right? If you're the best, you do super well. And if you're not, you're just down with everybody else. And that is a reality that this has happened in music. Taylor Swift, massively successful. every other artist complaining because they're not getting paid enough on Spotify, right?

Like you see it in newspapers. New York Times, super successful. Every other newspaper struggling sort of terribly. And this is happening in sports. NFL couldn't be better. College football, maybe they get that second spot. Everyone else is sort of struggling. And, you know, credit the MLB.

They made real meaningful changes to the way the games were played that made it a much better product. And, you know, that everyone's going to have to do that. And it's going to be tough. If you have old expectations, it's going to be easier if you're new coming in with no base and can sort of build for the future. Yes. Well, sorry, can I add a rant? No, no, I want to add a rant as long as we're on this point. Okay.

Obviously, I like F1. Very optimistic about it, in part because it's an event product, right? It's like the big races on the weekend can look forward to it. If you're into it, you do qualifying sort of the night before. We've mentioned this before. It has to be said again. The Sprint idea is so stupid. And it's stupid not just because it sucks.

It's stupid because it's a misunderstanding. I know. It totally is compelling as a product. What is valuable on the internet are events. And this is why you can build something new and interesting because you can have. And by the way, this schedule is great. Starts in February. It's an event that is counter the NFL that goes all the way.

through. And by the way, if Max is dominating and you're not that compelling in the fall, whatever, it's fine. I was watching football anyway. Obviously, I'm focused on the American market in this regard, but that's the whole thing. You actually want products that don't require too, there's so much stuff to do. Like, the goal is not quantity. The goal is quality. The goal is monoculture. These stupid sprints make the race less interesting. It gives away what's going to happen. And they make it into a burden to follow. It's like, oh, I have to watch two qualifies. I have to watch two sprints. I feel so stupid. I wrote this thing about how F1 is sort of figured out the modern media format and the NBA needs to figure this out six months ago. And they're rolling out this

idea that is a, it comes straight from the old world of quantity over quality. Well, I think honestly, though, it could be a useful object lesson as far as the executives and foresight that either does or doesn't exist. Like the NFL, you know, do they have the best most valuable product on Earth because the executives were all brilliant over the last 20 years? Maybe not. It just helps to have 17 games in your regular season. Right.

It helps that the NFL like destroys this athlete's bodies and like all the dark sides of it are actually a factor. I couldn't possibly play more games. You could play more games. That's the gating element. And, you know, F1, they've, may look prescient, but really what's happening is they just stumbled into a world where there were like 20 races and now are trying to add races. In addition to adding sprints, they're trying to

add races to the calendar. It's like, relax. You guys have hit the jackpot here. But in any event, good rant at the end. The sprint pissed me off and ended up screwing Mercedes last weekend. But once again, I want to sincerely apologize on behalf of Sharp Tech for jinxing the Celtics fourth quarter meltdown in New York City Wednesday night. We'll try to do better next time. I also apologize to any NBA owners who I jinxed when I said that franchise valuations are going to continue to rise in perpetuity. Maybe not. Who could say? But Ben, this has been great. And I look forward to coming back next week. If you have questions, you can send them to email at sharptech.fm. And until then, Ben, I hope you have a great weekend. Sounds good. I'll talk to you later.