Sharp Tech with Ben Thompson - Tech and Two Strikes in Hollywood, Harsh Streaming Realities and a Big Residuals Mess, Iger’s Challenges at Disney

Episode Date: July 18, 2023

The familiar tech stories underlying the WGA and SAG-AFTRA strikes, why streaming residuals are so difficult to calculate, and Disney's current problems as a microcosm for the entertainment industry as a whole. At the end: A few words about coffee.

Hello and welcome back to another episode of Sharp Tech. I'm Andrew Sharp. And on the other line, Ben Thompson, Ben, how are you doing? I'm doing well. I'm doing well. How are you, Andrew? I'm doing well. I've been hearing rumors the past few days. There's a lot of speculation that over the weekend you may have become a pickleball guy. Oh, yes. I did. I did. I've been wanting to try it for ages. It's all the rage in America. but it has not come to Taiwan.

Although apparently my daughter played at school one time. Ah, interesting. Thumbs up. Thumbs up. My friend Kevin has the best take on pickleball, which he says this is going to be the vanguard of an entire new generation of sports, which is that all of our existing sports were created for a population that was much fitter and much more athletic. And so what we need are new versions of the old sports.

Lazy sports. That's right. And pickleball is lazy tennis. And so just wait, there's going to be lazy tennis. volleyball, lazy basketball. It's an entire opportunity here. Well, I don't think we're going to be able to top Kevin's take for the rest of the episode here. A generation of lazy sports to look forward to. But I'm happy for you.

I haven't been able to try pickleball yet. I don't have any friends who have played. Yeah. So you and I are going to have to play at the at the Stratacry corporate retreat in Taipei. That's why we are going to go ball. We are going to like find. No, we are going to find a place. to have a retreat that has a that is a pickleball resort that's what we're looking for there you go well

for now we'll turn from pickleball to hollywood uh and on may second 2023 the writer's guild of america went on strike over an ongoing labor dispute with the alliance of motion picture and television producers then on july 14th 2023 the american actors union sag aftra went on the strike over an ongoing labor dispute with the Alliance of Motion Picture and Television Producers. You wrote about both these strikes on Monday. And just as a baseline, I'm not sure how many people think of this as a tech story. So why are those people wrong?

What are they missing? Why were you covering this on Stratory? Well, something that's interesting if you look back at the history of waiver dispute. So the actors go and strike a lot less often than the writers. You can interpret that as you will about what that means about writers. In all seriousness, it's probably that they're a little bit more of a commodity than the actors. But the 1960 strike was the last time they both went on strike was really about television. You know, it was the movie industry and then television was sort of coming along.

The next strike was in 1980, which was really about sort of home video. That's when, you know, VCRs and video cassettes were the thing. And the one today is, I think. by and large about streaming. And, you know, all of those are technological changes that are sort of the currents, the ripples affect industries of all sorts. And, you know, there is a bit where Sartecore has always written a lot about media. But the reason I've written a lot about media is media is always been the most visibly impacted industry by technology because technology in the internet, the big thing is sort of the zero distribution cost, the ability to sort of

anyone can sort of publish. And that hit newspapers in a major way first, then it hit music. And now I think we're seeing sort of the hitting sort of video. And I think that's at the root of sort of this dispute. There's also an AI angle, of course, which we can get into. But first and foremost, I think that all of these disputes have always been about technology. And that's definitely the case today. Yeah, it's interesting because I was not aware and wouldn't have guessed that it has been 60 years since both of these unions were striking at the same time. And it makes sense that the introduction of television was such a seismic event that it prompted the entire industry to sort of rejigger itself and restructure the way everyone's making money. The one difference is that that was a case where it looked like the entertainment industry had found ways to make more money.

So writers and actors wanted a piece of that pie, which was reasonable. Now, it seems like everyone involved in the entertainment business is making less money. And it's interesting because this is all sort of like a second order consequence of the discussions we were having back in May and June about how the glory days are over. There's been a ton of value destruction across the entertainment business. And now we're seeing it trickle down to the creative talent. And so I'm curious to see where it goes from here. But reading you on this strike and thinking back and reading about the 1960 strike, that's like the key difference here is right now there's bad news for basically everybody involved in the entertainment business. Well, more or less money is kind of an interesting question because I think there's almost certainly more money on sort of an absolute basis.

but it's sort of like less money on like a per capita basis in some respects, right? Because there's, you know, if you think about it, if you talk about like entertainment broadly speaking, what do you do with your time? What do you do with your free time when you're not sleeping or working or eating or whatever else you might do? When you're not consuming content, well, what other companies should be in that? Facebook should probably be in it, right? Like, you know, TikTok should be in it.

And there's lots of money that is being made around people's. entertainment, but a lot of that money is not necessarily going to Hollywood. And even with Hollywood, there was a big increase when streaming came along. There's been a decade of like TV and like the like hundreds of new series a year, you know, in which has been lots and lots of new jobs. But I think you saw this with the internet when it came around the first time with newspapers where the newspaper, where the internet comes along is like, wow, what an opportunity to layer on our core business, right?

We have this geographic monopoly. we make money through print. We could also have digital. Now we can reach the whole world. And it's like, wow, this is amazing. And the problem is that that amazingness applied to everyone. And so now you're competing with everyone in a way you weren't previously. And you're not just competing with, like, say, other newspapers.

You're competing with blogs. You're competing with forums. You're competing with all the things that were online. And that very much applies to the video industry. Video in many respects, like resisted the internet longer than anyone else. just because video takes a lot of bandwidth, right? There was a real sort of infrastructure obstacle, whereas you could be reading text-based sites in the 90s.

You would take like a minute to load, but you definitely weren't watching video. Like the first time you started streaming video and you'd like take forever and be like potion stamp size. But today you can stream anything. And anyone can also produce anything. You can create a whole movie on your iPhone or what really happens with new technology is new things are created that weren't possible

previously like TikTok videos, right? And you can create those. And millions of people can create them. And sure, they're not making two-hour feature films. But what is two hours, if not what? 250 TikTok videos. I was going to say so many different TikTok videos. Which are, you know, mutual friend Ben Golver will easily consume in one sitting.

So, you know, like the just it's the. all these things that at first glance seem like a benefit and something that increases opportunity, it almost increases opportunity too much if you're sort of an established player and you're facing all this new competition. And to me, that's the framework that you have to think about with all this stuff. All the individual issues that they argue about are all undergirded by this reality. Yeah. I'm looking at it as a Hollywood version of example.

exactly what happened to the media, exactly what happened to the music industry. But one of the reasons I'm really interested to see how it plays out is in this case, the creatives have much stronger unions and historically have gotten a really good deal. I mean, it's one of the first things I learned. I took a class in entertainment law when I was in law school. And like day one was the unions have done a great job in this industry. And everybody who makes hits does really, really well. And so I wonder what impact that's going to have on the shape this industry takes going forward.

Because, you know, writers, they always get kicked around. Actors, you would think, have real leverage in some of these discussions. But again, the challenge is that the pie is shrinking for everybody. So the upside might just be lower than anyone wants, regardless of how much leverage there is or isn't. Right. And that was kind of my point, one of my points sort of today when I was writing is, it's you know Bob Eiger you know in the end of the annals of terrible timing him signing this extension last week for tens of millions of dollars or whatever it is and then sitting down at his you know high flute and retreat and saying we really don't need this right now it's it's like the terrible look

but also totally accurate right like the studios and the actors this force this technological shift has them on the same side and it's kind of the losing side and And so there is, I think it's going to be a very fraught sort of fight and negotiation because you have these, like the studios are not in great shape. And that's just sort of a reality of the current situation. And if, you know, when you're negotiating with someone that doesn't have much to lose or because they're already losing a lot, right? That's, that's, it's definitely. I think it's going to get. I think it's going to get pretty messy to be honest.

I think this is going to be a pretty ugly sort of negotiation. You layer on things like social media and all the stuff that goes into that. And yeah, we'll see what happens. Yeah. So I was curious about some of the specific demands. Here's a very brief summary that I found from Vulture. They write the first is basic wage increases. The actors want wage increases that reflect the levels of inflation for the last two or three years.

The studios are not offering that. The writers are actually not looking for an inflation. adjustment. Their last ask was 6% and the directors got 5%. Secondly, SAG wants a success metric for residuals, for streaming residuals. There are residuals programs for programs that are made streaming, but the residual is no greater for a success than for a flop. Both SAG and the WGA are concerned with AI, but the issue works somewhat differently. The writers don't want AI to replace them. The actors may be comfortable with some replacement as long as they're compensated for it. But if they're going to train AI on an actor's performance, they want to get paid for that. And then if the AI version

gets deployed, they want to get paid for that too. So let's focus on the AI aspects of the bargaining dispute. What do you make of what's in play for each union here? So I definitely agree that the writers probably have more to fear than the actors. It seems plausible today for an L.M to write a fairly crappy predictable script, but that's sort of like the fodder of a lot of terrible movies and shows. So you could definitely see that one being a threat. And, you know, the actor won. Yeah, I think the actors actually could potentially make a lot of money with this. This was actually like the Drake discussion that we had, right? Re-licensing sort of likenesses and things on those lines. My sense, though, and maybe this is a little bit cynical, is that

the studios love AI being an issue on this one, because that's, something they may be willing to give on in exchange for other stuff. You know, that again, I don't have this, this isn't source or just, that's sort of my sort reading of the situation. The more things that are in a negotiation, the better, right? Because there's more opportunities to compromise. I'll give over here. You give over there.

I wouldn't be surprised if the, this ends up being fairly favorable to the, both the writers and the actors in terms of AI, but they will have had to have give, out on some of the other stuff where it actually gets down to dollars and cents. And so that's my view of this situation. Again, that's bordering on speculation from my perspective. But I don't know. What do you think? Do you think that the AI thing is a big driver here?

Well, I think it's interesting because right now, AI is not capable of doing very much with like an actor's likeness and creating something compelling or that's worth anything of real value. But you probably would have said that six months ago about music. And then we saw that come out. These fights are worth fighting in large part because who the hell knows where we're going to be like two years from now or five years from now or 10 years from now. And right now you're just setting precedence for how this is going to play out. So I don't blame the actors and the writers for fighting tooth and nail over this stuff is simply as a precaution on where things might be five or 10 years from now. And

I think your instinct is probably right that the studios are looking at this and saying long term, this may not be where we need to draw a line. But part of that is because they definitely are going to drive a much harder bargain in other areas. Yeah. Yeah. And that's why I think it's really about the streaming stuff. I mean, the pay rate stuff is interesting. I mean, like there's a the macro sort of economist in me or not macro cons, but just sort of

observer. like the way that inflation gets entrenched is when this is exactly how it happens is often unions demand like pay raises commensurate with inflation, which then drives further inflation, which is sort of a bad spiral that comes in. But you can understand why that happens. People are facing higher prices, right? And so given that, why wouldn't they want sort of a pay increase? And that's just that's why inflation is so deadly and why you don't want to even get into that sort of cycle. But again, that's sort of a macro thing where I would imagine, it's interesting that I weren't if the directors regret signing a deal already. Certainly that's going to be sort of a baseline sort of thing. I would bet that that will probably be figured out broadly in line with the director sort of got. But I do think it's the streaming stuff that is really, it's really the issue.

And, you know, on one hand, this bit about visibility into residuals is totally legitimate. It's like, what are we getting paid based on? Yeah. But the problem is. is the modernization model is so different. You're talking about generating a subscription, an ongoing subscription fee from viewers, where you're calculating that they're worth

on sort of a lifetime value basis, right? How much does it cost to acquire them? How long do they say a subscriber for? What's the churn ratio? All these sorts of things. And it's very hard to draw a one-to-one connection from this person watch this show to they had this much lifetime value.

Certainly there might be the first show they watch and they subscribe, but it's very, very tricky. And in some respects, this is to the sort of, you know, advantage of the subscriber offer because we talked about this in the context of, I think, podcasting and like Spotify and Joe Rogan and some of these other sort of podcasting services that try to do, what was it, Luminary or something, like trying to do a subscription podcast sort of thing. And anyone that, like, this implies a substack.

If you're sort of a middle provider that is selling a subscription, Actually, the TV, too, we talked about in this case. If you're only selling one thing, you're set up for fundamental conflict with the provider of that thing, right? So if you were, say, if you're substack, if I was on substack and people were subscribing to me, then I say, well, substack, they're subscribing to me. I want more of the share. And you get into this sort of negotiation, otherwise I'm going to sort of go somewhere else

or whatever might be. You have this sort of, if you're in the exact same value chain, it's hard to, extract value if you're in the middle because you're going to be competing for it. This has happened with the cable bundle. As the cable bundles become more and more about just sports, ESPN and the leagues in particular are extracting more and more of that value, right? The studios thought they could sort of have their cake and eat it too. And what happened, you know, they could sort of move all their shows to streaming and just

rely on sports. But if they relied on sports, number one, they lost all the people that didn't care about sports. They cut the cord first. then they end up with subscribers that only care about sports. And all the leagues are like, well, they're only there because they care about sports. We're going to jack up our rights fees and take more. That's how we end up in a situation where the NBA is poised to sign a new rights deal that's expected to be a significant increase over the last one,

which is already a massive increase because what other choice does T&T have, right? Like Discovery Time Warner is this huge debt load. They still get the most cash from their cable networks. what is a driver of why their cable networks have leverage because TNT has the MBA. It's like, and it's an essential part of how they generate cash flow, but that makes them vulnerable because it's kind of a direct value chain to have that value sort of negotiated away from them. The alternative is like, why didn't it make sense for Spotify to pay Joe Rogan, right? Spotify's trying to build an advertising business.

That's something Joe Rogan can't build for himself. And they're trying to build that advertising business across all podcasts. So they're actually in a better negotiating position relative to their suppliers because their value extraction is sort of like orthogonal to the supplier's value. And that makes, that's better for sort of negotiation. This is an issue with streaming. Streaming, you're offering a streaming service as a whole. The value is all of the content in there. All the actors and the writers are used to, look, we make a show.

that show is sold to CBS or NBC or whatever might be. Then it's sold again to TNT or whatever might be to show reruns. That it's sold on DVD. It's these discrete units of sale that are easy to track and we just get a percentage of it. Yeah. That doesn't exist in streams. So there's on one hand that's good for the studios because it does increase their sort of leverage because they're offering a channel that the sort of actors couldn't do

their own. On the other hand, it makes the entire residual model feel obsolete. Like, how does this, even going to work? Well, and I understand why if you're an actor or writer, you're really frustrated by the status quo because it was a pretty good, sensible arrangement for many decades there. Right. You make a good show and it's syndicated and then suddenly you're getting a paycheck basically for life. And again, it could just make your entire career if you're on the right show. Whereas now you make a hit show and it becomes a fixture on like a Netflix or a Hulu. And the lack of visibility, like I'll read this actor and comedian named Wayne Federman did an interview with Slate. And he said, this is about how residuals specifically for streaming entertainment are being calculated.

those numbers are not really released. It's not like a Nielsen rating. Sometimes you'll hear something like, oh, 1.2 million minutes of Squid Game. What does that mean? Does that mean that many people watched one minute of it? Or does that mean people watched it a number of times? I don't know why it's all proprietary for these streamers, but that's just where we're at.

We want a little more transparency in that if we're on a hit show, is that paid differently than a non-hit show? And I mean, even as a consumer, I've been mystified that streamers are allowed to get away with such opaque, like, audience data. Like, Netflix basically is the only source we have for how well Netflix shows are doing. And if I were on the creative side, I'd be like, come on. Well, you have to do better than that. But your point on like gauging how much value you're really creating with a reliable show on Netflix. Like that's a really tricky thing to do at this point.

I mean, there are a handful of network sitcoms and stuff that I actually think have driven a ton of value for Netflix. But beyond that, a lot of it just sort of feels like filler. And how many subscribers are you really driving or retaining based on that? Yeah, so I think there's three interesting points to make about this. And to me, this is one of the most illuminating parts of going back to like that 1960s strike, where the actors union is like, okay, look, there's this entire new medium of TV. That's great. That means more union jobs. But if you take a movie and you put it on TV, you are denying union workers the opportunity to be to have a job.

fill those two hours. Right. But what's critical about this, this is super important, is sort of the main point I'm trying to make in my article. That by definition is about scarcity. It's saying there's only a certain number of hours available. And if you deny the union a right to act in those shows, you still need to pay up because you like the union, the union collectively, and you're right, it is a strong union. They are basically saying we as a collective ought to be paid for every, minute of television. And you can pay us either by paying a new actor for a new show or you pay the old actor for the old show, but you're going to pay regardless. That was sort of the foundational reason for residuals. And there's a very sort of compelling logic to that, right? Like, it sort of makes sense. The problem, though, is with streaming, streaming's all additive. There is no limit to how many shows can be streamed. That's the whole Netflix value proposition. The I always talk about when Netflix started, they had that Stars Library, which is like 7,000 or 11,000 shows or movies or whatever it might be.

Stars Effective Library was one, which was on the Stars Channel. Netflix's Effective Library was 11,000 because you could pick and choose any of them and choose them. That just is such a fundamental transformation, and it makes the logic of residuals fall apart because watching an old movie is not denying a job necessarily to a new actor that that because you could also make available a new show to stream at the same time and i think that gets at why this it's very tricky to figure out how this is going to be negotiated like there's a lot of things that happen where once the foundation is wiped out you're all talking about like this

higher level thing and what's our share going to be and how do we measure it the reason why the conversation feels intractable is because the foundation of why this exists has sort of gone away and and i think there's honestly an argument you made. This is not going to be a popular argument, but I think there's an argument to be made that when Netflix started, they didn't do residuals. They're like, we're going to pay a ton of money up front. And if success or failure, there's this crazy show you always want to make, we'll pay for it, whatever. And that's sort of how they got in and got a lot of traction. And over time, of course, it tells like, well, this, this show seems very popular. I like this idea to your point of I'm going to get checks for

life if I sort of if I can sort of get it and and and Netflix was sort of forced back into the residual model but you can make the case that in this world of infinite content there actually is more risk going to producers than used to go previously if you made a show that went on linear TV that show is guaranteed a certain level of success just because there was nothing else on right right and so that's the scarcity that's the scarcity point exactly today if you make a new show on Netflix and no one watches it. Spitting in the ocean. It doesn't.

Most of this content business has been to do, honestly. There's a bit where these studios have really actually have taken on much more risk and are taking on more risk than they did previously, especially where these straight to streaming shows, which raises the question of why should they be paying for upside with their risking much more on the downside. Now, again, I don't think it's going to fly that their negotiating position is no more residuals. But if you were to go back to the fundamentals, that's actually arguably should be more of the case going forward.

And that's, but I say this not to argue for that case, just to point out that's one of the reasons why it's going to be so fraught. That's number one. Okay. Number two, you have this. Before you go to number two, I just want to ask you, do you have the same sense in that it's like essentially impossible to come up with an accurate number for what the residuals should be on a. streaming shows. I just don't know how you calculate the value, whereas there were, like you said, traditional buckets that made it really easy for studios and actors. Everybody was working with the same set of facts. Now it's so much more nebulous that, like, again, the negotiations are going to

be a mess because it's just not a clear-cut issue one way or the other. Yeah, I think the possible answer might end up looking a bit like Spotify. So we had a similar shift in music where we went away from selling discrete items, selling a single, selling a CD, which it turns out it was really about selling that plastic disc, right? What's what's the what's that B3s came along? It's like, well, there's actually not much value there. And so that's how you used to make money was by selling a disc. And an artist would usually get paid a percentage per disc sold. Like that's how it sort of worked.

And the way it worked with Spotify is like, okay, look, we have a pool of money. which is all of the money that all the subscribers paid this month. And that is the set pool, and we're going to divide that pool based on percentage of listeners. Or a percentage of listens. So that's how you get in these discussions. Oh, a listen is worth so little. It's 0.000 X percent. That actually the value of a listen changes every single month because it's recalculated every month

where all the musicians on Spotify are in competition with each other, basically, for what share of this of this pot that they get. And so, you know, and this is, you have the things like Apple say, we pay a penny per play. Well, the reason they pay more is because Apple doesn't, Apple Music doesn't have an advertising level. So, which monetizes at a lower rate, even though the absolute payout for Spotify is larger because they're getting more listeners.

So, like, and Apple is actually very duplicitous about this because they, they pretend like that's their rate. That rate is not, that's not a set rate. That's downstream. You're making more on Spotify than you are on Apple Music. On an absolute basis. That's right. That's right.

And this is the internet in general. You have to look at absolute numbers more than like per capita numbers because the scale is so large it breaks down. And these business models don't really apply on this sort of per capita basis. So Spotify did this. And I think that if you wanted to do residuals, it would probably with a streaming service, it looks something like that. Netflix collected all this money. We're going to distribute that money on a per capita. show based on how much every show was watched.

And then on that show, it'll be distributed on the talent to the show, the director, whatever goes to Netflix, XYZ. That's probably the outcome that would make the most sense. But it's very, very different than the way it looks today. And so I wouldn't be surprised, actually, now that I think about it and sort of like talking out loud, if that's actually where this ends up, some sort of Spotify-type pool that is distributed across all the things on a streaming service. But then you have the complexity of, to your point, how do you differentiate between stuff that was created just for streaming versus stuff that's licensed?

And it has like this other model that was sort of borrowed from TV. It's sort of coming on. And one thing you're seeing is, why are streaming services dumping shows? Right? Like, they have infinite shelf space. What's the point? And the reason is because they have to pay residuals. So they're paying residuals on shows whether or not those shows are watched currently.

And I think there's a reasonable pushback from studios, which is like, we would rather have everything available. We don't want to reduce our library. But it's unrealistic for us to be paying residuals for something that our numbers show no one's really watching. And in the past, you're paying residuals for something that you're broadcasting. It's on a channel so somebody gets a check. Whereas now, Westwood was a notable example. An HBO show, sci-fi thing wasn't very good. frankly. And it was taken off of HBO Max, much to everyone's chagrin. Excuse me, Max,

much to everyone's chagrin. I thought you were like, I think you said chagrin correctly. I was sure you're about to correct there, but yes, Max. But nobody was signing up for Max to watch Westwood. And so at a certain point, you have to just cut your losses as opposed to pay residuals in perpetuity. Right. And you could see because they were using the old model. Because it was on HBO, they had to pay residuals. Right. That doesn't make sense. You have to see, you would think the actress could see how that doesn't make sense.

It has to be tied to performance somehow. And so on one hand, the actor's like, yes, we want it tied to performance. But I'm not sure if they fully thought through the implications of that, which is if it's tied to performance, you're not going to get paid for something that's not being watched. And just because it exists on a service is not sort of sufficient. Okay. So I derailed us with the residuals question. There's a point two and a point three.

No, point two was dumping shows. You actually just hit point two. Point three is this sort of filler sort of question where there's stuff made just to sort of be there. I think that actually is tied into all of this. Like there certainly is, you know, the more I think about it, the more a Spotify solution actually handles all this sort of stuff. And it also solves this issue of risk. Because there is a bit where if you're going to get paid just to have. it on the service, you're actually not bearing sufficient risk. Yeah, you may want more upside,

but the actors ought to appreciate they're getting paid whether or not a show performs or not. A better outcome is probably, it's tied actually much more closely to performance, but it's going to be in this sort of Spotify model. You're not going to get paid just for existing. And it's going to be interesting to see what that means for content going forward. Like, like, it probably is a reason to worry. Like, are you going to get sort of like highfalutin content that is like only appeals to a small niche if your payout comes from your percentage of total plays, right? If, if Taylor Swift is going to make a lot of money, is it going to be profitable to invest in like that indie band that is not going to get as many plays? They make it up through things like touring and shows.

Right. What alternative is there for sort of like a video thing? Stage performance, making it come back in the 2020s here. Yeah. So there's another aspect of it that makes it really challenging if you're negotiating on the actor's side. You talk about the lack of visibility. It's like you have no idea how many shows are successful, what those metrics look like. Because I think performance-based residuals does make a lot of sense.

But at the same time, I would be very wary of committing to that. when I have no idea what the numbers are. You see this. You know, like you assume you made this point on Sharp Tech last week where if you assume bad intentions on whoever you're negotiating with or talking with, you're going to have a huge blind spot. And you do get the sense the actors are assuming such bad intention on sort of the side of the studios and saying you're, the reason you're obscuring these numbers is because

you're making so much money and you don't want to give. it to us. And by the way, there's good reason to be skeptical of the studios. Like the, the, the, the accounting tricks the studios are known to play, particularly things like residuals or the cost they ascribe to X, Y, Z, or how much they show it for, are legendary. Like, they, they've been figuring out ways about how to screw creators for years, which is one of the reasons why there is such strong solidarity in these unions, because they need to be, right? They've had to be for a long time. But there is a bit where I think there might be a blind spot where you might get what you want, which is you do get visibility. And it turns out no one watches your show. And you're

actually going to end up making less. There's, you know, and you see this in internet, once an industry becomes internetized, as it were, you end up with this long tail and this high shoulder, where you have a few shows that make all the money and there's a whole bunch of shows that don't. You see this in content, right? Obviously, I'm a very successful sort of newsletter, blog, subscription sort of writer, right? My position is not predictive of the average sort of writer, right? Like, I, you know, unfortunately, I got an early start. You cover a profitable industry, whatever reasons you want to say, the reality is the vast majority of people on, say, substack are not going to make very much money. They might make sort of lunch money or cough money or something along those

lines. And that's the case with music. Like, if you're, if you're the biggest star, like, you'll make more money than ever. Taylor starts making however much money on her tour and her streaming and all this sort of stuff. She's literally, releasing songs that she already recorded just in like double dipping. Of course you have to listen to both, which means there's a double stream for you. Like great for Taylor, not so great if you're sure of that

indie band. You kind of have to slug it out. Like go, it's back, get in the van. Go to go to tour after tour. Sell some t-shirts, right? And that's going to happen to video. Is it going to happen in this negotiation? I'm not sure, but we've seen it in industry after industry. This is

what happens when the internet hits in industry. The shift from a world of scarcity, to a world of abundance. It's now hitting video and the repercussions are going to be felt. They're already being felt, but now it's like it's going to get very real, I think, for everyone involved very quickly. Yeah. Well, and it's super interesting having podcasted with you for the last nine months. I just have a very different perspective on it than a lot of people I talk to who are very sympathetic to the creatives. And like you said, assume that there is this untold fortune being hidden behind all these studios who are reaping all these rewards from streaming,

whereas we've been talking about these like wounded animals that are all just like throwing off cash every quarter, hundreds of millions of dollars in losses, even Netflix, who's like the behemoth just barely hit profitability like a year ago. And so I'm just curious and skeptical, frankly, that there are huge audience numbers for some of these shows that hit streaming and that there's an untold fortune of residuals being withheld here. And I think if you went strictly by the numbers and the value that's being created, it might be more disappointing. But to your point, do not trust the studios either. They're definitely playing all sorts of games. Always have. The one point I wanted to hit before we shift to Iger, the classic example is the

traditional movie window you wrote. First, you sell a movie to first run theaters, then to budget theaters, then to hotels and airlines, then to pay-per-view, then to video cassettes or DVDs, then to cable, and finally to broadcast TV. That's seven distinct opportunities to sell a piece of content. Going straight to streaming, though, collapses seven windows to one, reducing the ability to make money off of a particular piece of content. And I had a question on the rundown, is there any chance that Hollywood can put the genie back at the bottle with respect to the windowing strategy?

And then as we were waiting to come on and record, I realized that like five of the seven technologies in the traditional windowing strategy are now obsolete and not really used by anyone. So they might have a hard time putting the windowing strategy back into play here. But I do think that highlights really well why the economics are just very different now. There used to be so many more bites at the Apple.

And now there's basically just one for television. And then maybe two, you get theaters and then sell the streaming rights if you're a movie. Yeah, there's definitely going to be an attempt to do so. I mean, everyone has talked about this. Zazlav has talked about this. Iger's talked about this. But to your point, yeah, some of these are not really there anymore. budget theaters. Is that even sort of a thing?

You, I guess, you know, paper view, I mean, they do do the pay-per-view thing, like, but it's more like for rent or buy or whatever. It's, it's tough. It's going to be tough. But there is a bit where if you have highly differentiated content, you have to sort of trust that content at some point, right? There's just a reality of, you know, business is some, is in some respects oppositional to the customer. I think there's this bit, the customer is always right. That is not true, right? Like I've made this point on this podcast,

which is treachery. People would prefer if it was free, right? Tough luck. It's not going to be free because I need to make a living, right? And this applies to a lot of, like, if you make the hot new Marvel movie or Star Wars movie or whatever it is, no one is making you put it on streaming right away, right? Like, yeah, sure, people are going to clamor about it.

We're going to complain and say, oh, you're so behind. Like, there's this weird, there's been this for a lot. long time this weird fear of media executives of being called Luddites and being called behind the times and of course you should make it streaming available look at the audience you're foregoing and it's like that's the case if it's like undifferentiated content where convenience wins if your bet is that you're making something unique that is special which is exactly what Hollywood should be putting its eggs in that sort of basket you have to make choices to realize that value And I do think there's going to be an attempt to get some of this stuff back.

But, yeah, there has been a real training of consumer expectations to the contrary. That you're going to get what you want when you want it. And if you want to cancel and churn and go away, well, I guess we'll have to try harder next time. Yeah. And they're still making a lot of mistakes where they'll put a movie in theaters for three weeks. And then three weeks after that, they'll put it on a streaming network. And suddenly it's like there's no incentive. wait yeah like like even you know even us fat americans that are taking a pickleball can manage to wait three weeks right exactly

you made it three months or six months and i really want to see this movie okay i guess go back to the theater and hey may i go back to the theater maybe i realize theaters these days are actually pretty great you know all these reclining chairs and the food's much better and all this sort of stuff and maybe i'll go to more movies but there's yeah there's a it's almost like a lack of confidence in some respects has sort of seized hollywood does feel like over the last, you know, this technology BMF has been coming and Netflix and they seem so awesome and their stock prices so high. And a real lack of sort of like, look, we make the most compelling best content in the world and we're going to lead into that and leverage that.

And downstream of your point about the customer not always being right, the shareholders are not always right because there were a couple years there where these studios were releasing, movies directly to streaming services, and COVID was a part of it too, trying to drive people to sign up and subscribe. They were offering subscriptions at discounted rates. And for whatever reason, the market was responding to subscriber numbers every quarter. And that would have a outsize impact on the share price of some of these studios. And that didn't make sense either. And so a lot of

people were sort of operating with short-term incentives, try to get everyone signed up to streaming, and long-term really eroding the value and certainly like the model that they had worked with to great effect for like 40 or 50 years. We've documented it sort of endlessly with like the, you know, just the way they obliterated the cable bundle. Like it, it remains remarkable. Like this is going to be like one of the all-time business cases sort of books. Like, like, yeah, Netflix is, is definitely feels like a threat.

what if we make it even worse? Exactly. So let's talk Bob Eiger. There were multiple updates on Disney over the past few days. First, a big takeout in the Wall Street Journal that began like this. Bob Eiger is under pressure, they write. Eight months after his return to Disney, which was sold as a triumphant second act by a savior CEO,

reality is proving a lot more troublesome. Iger has described himself to associates at recent private gatherings as stressed from cleaning up a mess that is more extensive than he realized. At the office, he joked in one meeting that it was the wrong time to come back, according to people familiar with the matter. Since returning, Iger, 72 years old, has strained to put out fire after fire from accumulating losses in the streaming segment to a steep decline in Disney's traditional television business.

He has clashed with the company's CFO and an activist shareholder. And then, as for Disney's trillions, traditional television business, CNBC rights. Sorry, can I jump in real quick, though? Please. There's something that needs to be said about Iger,

and I made this point when he took over and moved out Bob Sheapec. Disney's problems are on Iger, first and foremost, not on Shepec. There's a bit where, like, look at this guy. Wow, did he really screw things up? And there was a bit where Disney went too far into streaming.

They got too obsessed with the numbers. They basically obliterated the Pixar brand, where, like, Pixar events, movies used to be events. They started dumping them all on streaming and now like every Pixar movie is basically flop since then. Again, maybe that's the quality of the movies. I don't know. I mean, I used

to go see them every time. I haven't seen a Pixar movie in ages to be totally, to be totally honest with you. So that was on Sheapec for sure. But Iger's the one that spent $70 billion or whatever it was on 21st century Fox. That was a double down on acquiring content that was not highly

differentiated, right? Yes, they got sort of like the X-Men and like a couple other things, but by and large, and that debt load is what is constraining Disney. That deal is also what forced Disney to basically buy Hulu because they acquire that extra part and it's part of the deal. They made this deal with Comcasts where they had to buy it at sort of the deal price, which is going to be overpriced. And so they're stuck in large part because of Iger.

Iger's Star Wars deal and Marvel deal and Pixar deal were all predicated on this very visionary content is going to win. Even on the internet, we actually have to double down on more compelling content. 21st Century Fox was a double down on we need lots of content for streaming because streaming is in infinite libraries

and we're going to compete with Netflix. That was the critical error. And that's what he's dating out from. And that's Iger's responsibility, not shape, X. Yes. And that is why I'm sympathetic to the writers and actors who are on strike right now. Yes.

Because at its core, what has happened to this industry? is that studios have undercut the value of their content and increase their cost by trying to make streaming work. And there have just been a lot of really bad decisions at the top of the industry that those studios are now telling writers and actors that they have to bear. And that's, you know, it's the way business works and we'll see how it plays out.

But I don't blame anybody for feeling like they're getting a shitty deal out of all this. That's, that's exactly right. that's the angle that actors and writers should be feeling. Not that there's this big pot of money that's being hidden from us, but you mofos ruin the industry and you're asking us to pay for it. This is on you, not us. Yes. So I'll read this note from CNBC, though, as far as specific Disney news.

Before the pandemic, Disney's media networks generated 35% or $24.8 billion of company revenue and more than 50% or $7.5 billion of its operating income. Yet the accelerating decline of cable TV has limited Iger's options. He thought he'd solve this problem with Disney Plus and Hulu, his two mass market streaming services, but his streaming business is expected to register a loss of about $800 million in the company's just ended third quarter. Management chase streaming subscribers at unsustainably low prices to goose the launch of Disney Plus in 2019 and is now seeking to raise prices without alienating customers.

Parentheses, Disney Plus lost 4 million subscribers last quarter. It's a pretty big number. Yeah, to be clear, that number is not quite right, though, because I think that includes Star India, which lost cricket rights, which is its main reason for existence. So I'm not certain on that, but you do always have to, and this is the case on the way up. You had to be careful about differentiating Star India specifically from the rest of sort of Disney Plus.

Anyhow, neither here or there. That's just sort of an aside that's worth keeping in mind. Okay, well, as Iger considers next steps, at the top of the list is assessing the traditional TV business, he said. Disney owns a portfolio of TV networks from broadcast station ABC to cable TV channels like ESPN. Disney is going to be, quote, expansive, end quote, and it's thinking about the traditional TV business, leaving the door open to a possible sale of the networks. they may not be core to Disney, Iger said, adding the creativity that has come from those networks has been key for Disney.

So do you have any general reactions to that news? No, I don't think there's anything new here. I mean, I think we discussed this a little bit ago about like everyone flipping out about him talking about spinning out ESPN. I think we already talked about that. I think that this is, this falls in that category. You know, back in the day these media networks were a cash cow. They spun off cash that Disney could invest elsewhere. These are the, that's what paid for Pixar, what paid for Star Wars, what paid for all those sorts of things.

And the right thing to have done would have been to spin them out seven, eight years ago, when they were still, seemed to be viable business. Someone wants to double down that space. You know, I've talked sort of approvingly, in this case, from the business sense of the Burdox, where they got rid of their content. they sold it to Disney and they sort of doubled down on sports and news in live TV, right? They kept Fox. They kept Fox News.

They kept FS1. And basically they got rid of all the content stuff. They're like, streaming is going to eat this. We can't compete. Let's get a big price for this. The thing that will retain values, anything that's live. And they held on to all that. You could imagine a deal back then where what if Disney had done a trade, right?

Or something like that. Yeah. You know, and, but that there is a distinction in those businesses. Now, there's still value there, but you have the issue of ESPN. It's getting its value pulled out by the leagues who realize the only reason ESPN makes money is because of us. SportsCenter doesn't make money anymore. All these filler shows, which is where they made all their profits, don't make money for us anymore. You know, the big event, seismic event was last summer when the Big Ten network, or the Big Ten, I should say,

signed deals with CBS, NBC, and Fox, and did not sign a deal with ESPN. The idea that a college conference where recruiting depends on sort of visibility would not be on ESPN was unheard of, but the reality is no one watches sports center anymore. That's what social media is for is. That's where your highlights get out. That's where you sort of build awareness and that sort of thing. And so the Big Ten is basically in the NFL model where we're going to be available

everywhere. We're going to double down on live. We're going to be on broadcast TV. And, you know, I think it's actually a very, very smart strategy. And ESPN is sort of stuck like what is our purpose sort of, sort of in life here. And there's, you know, they're stuck in bed with the NBA. And that's why they brought the NHL back and things along those lines. So yeah, this isn't a, this isn't a entity. It's not going to be throwing off cash like it was previously. It's only going to sort of decrease, number one. Number two, you already sacrificed the value of these channels by moving all their non-sports content to streaming.

So it's hard to sort of resuscitate that, right? Like, can you take content off of streaming and say, we're putting it back on ABC and back on the Disney channel and you need to subscribe and endure commercials? Sign up for Verizon. Sign up for Xfinity. Yeah, that's the part. They killed the golden goose.

That was the valuable part. and that's going to be the hardest to get back because customers have options. No one who doesn't watch sports wants to subscribe to cable and no one wants to sit through commercials. The idea that you're going to get back to that world is a fairy tale. And so they're kind of stuck with these assets where they don't get the bundle benefits of having Disney and ABC content and ESPN altogether. So they negotiate and like, yeah, well, we draw in customers all over the place. You have to give us a bigger share of your subscriber revenue Comcast or whoever it might be. And so, yeah, they're not in a position of strength.

And so I think probably the idea would be to get rid of it and to get the cash to pay down the debt to be sort of like be able to sort of reset and double down on what you do. But it's going to be much less than it would have been, say, a decade ago. Yeah. Well, and I wonder whether they remain committed to streaming, how long they remain committed to this Disney Plus experiment. like are they pot committed at this point after the $70 billion purchase of 21st century Fox? Yeah, the problem is it's not just Disney Plus, it's Hulu. They're stuck with Hulu, right? They're stuck with all.

They have all these content studios. So they are kind of pot committed in a way. Now, the really radical thing would be like, oh, we're going to start selling to Netflix. I think they are starting to experiment or was that Warner Bros. That was HBO. But it feels inevitable that they're going to at least supplement what they're doing. with licensing content to third parties or something. I mean, I think probably Disney's best bet is us and Netflix will be the last two standing.

There will be Hulu, Netflix, and Disney Plus. Disney Plus will shrink to be just Disney Plus sort of stuff. Okay. And it'll tie into the broader marketing engine. Must have for parents. It feeds into the theme parks theoretically. But the problem is this payoff being in the theme parks, that's not a, that's a, that's a, that's a capital intensive business.

You're spending a lot of money. Yes, you're making money, but that's not giving you the multiples that a streaming service is, which is what they were all sort of lusting over a decade ago. Yeah, well, and look, streaming services are just losing money across the board. That's a capital intensive business too if you're going to lose $800 million a quarter. Well, yeah, there's been a bit of already said an investor realization of that, I think. Yep. All right.

One question from Max. He says, our hearts all drop. when an NBA game is on ESPN rather than TNT, trading the charm of Chuck, Shaq, and Ernie for Stephen A. Smith and the worst half-time show in sports. Jeff Van Gundy was the sole beacon of light in an otherwise bleak ESPN NBA broadcast. ESPN laying him off was either a short-sighted business decision or gross mismanagement. His value to the broadcast is certainly many, many times his salary. which side do you take?

Cutting costs to pretty up the balance sheet in preparation for an imminent sale before the impact of Van Gundy's departure is felt or was this a sign of deep dysfunction at Disney in the Iger 2.0 era. So Ben, put on your no-tech Ben hat here and give us some Van Gundy takes. I mean, this has to be the biggest Van Gundy fan ever.

I've never heard just a passionate sort of response. I do have to note there was some Kenny Smith Eraser erasure, which is not, not, not kind. Kenny's great. Yeah, I did like Jeff Van Gundy. I did not like Mark Jackson. I thought Van Gundy was better without Mark Jackson, but I don't know.

Who knows what is, what, what issues went into play here. I personally am not a fan of ESPN's NBA coverage in general. Obviously, Mike Breen is great, but I don't know. I don't have any super strong takes. What's your, what's your view? You're the professional NBA podcaster here. Yeah. So I would say this,

has nothing to do with dysfunction at Disney per se and has more to do with dysfunction at ESPN and the crazy bureaucracy that undergirds their halftime show and the choices they make. Like one of the reasons ESPN's halftime show is so crappy is because they sell more ads than TNT. So there's literally less time for those guys to talk. And Van Gundy, I do love Van Gundy. I think it was stupid that they fired him. I think it's even dumber because they're probably going to end up paying a similar salary to Doc Rivers, who's probably going to be worse. I think he'll be fine. But Van Gundy, I actually felt like I was learning from him sometimes.

But his value to the broadcast certainly many, many times his salary. Not sure if I buy that. Not sure that applies to any announcer. That's the reality, right? Yeah. If you're cutting costs, are you actually watching a game because of who the announcer is? Right. Not probably not. And that's why I circle back to ESPN being dysfunctional because I think there's a possibility, maybe likelihood that they are cutting costs while also paying exactly the same amount of money to someone.

I will see. We'll see what happens. But I think the point here is anything extraneous is going to start feeling the pain, right? I think the reality is, is an announcer does not make the broadcast when it comes to sports. and that means that announcer salaries are going to start to get squeezed. This ties back to like the actors, right? Like the likely outcome is if you are actually measurably contributing to a show, you'll get paid, but there's going to be a realization that most shows aren't really contributing much, right?

And there's been a fuzziness to art, broadly construed art, right? Whether it be TV or whether it be newspapers or all these sorts of things where everyone, kind of got paid because no one really knew who was driving value, right? There is a bit where, okay, our sports calmness is pretty popular. He's probably driving a fair number of subscriptions. So he's going to make $150,000. A couple hundred grand, sure. Right, right, right?

When the reality is Bill Simmons comes along and he's on the internet and it's measurable how much traffic he's driving. Now he's getting paid millions, right? And once you introduce measurement, you introduce that curve I was talking about before. There is a bit where I think that, you know, the actors are demanding transparency. Be careful what you wish for. There's a bit where when you don't know, everyone kind of gets paid. You get sort of socialism by accident.

Once you get numbers and the internet, this is why the internet drives these results, because everything is measurable. Well, guess what? If everything's measurable, then you're going to get. paid accordingly. And look, you can just step back. There's 10 times more content than there used to be. No, a hundred times more content. A million times you could YouTube or social media or stuff along those lines. It's an incredibly competitive landscape to the point where you can be really, really successful in the modern context and still not be driving very much audience at an absolute level. And that would be my concern if I were negotiating for that type of pay structure. But we'll see. what they come up with. Speaking of measurements, though, we'll close with two notes.

First, Aaron says, Andrew and Ben, I know a couple weeks ago, you both talked about the scale of a nanometer. I remember there was this cool website that illustrated the size of everything in the universe,

parentheses, including the typical transistor. And I will include a link in the show notes to scale of the universe.com. No, no. Scale of universe. Scale of universe.

Have you seen that before? I have not, but I'm going to click on it right after this show. Yes. Well, it was very informative and a nanometer to confirm for everybody is very, very, very, very, very, very, very small, smaller than a grain of price. That's a technical determination. Exactly. It's smaller than the width of a human hair, smaller than a grain of salt, smaller than a strand of DNA and a transistor gate, which is on scale of universe.com. In 1971, they were 400 times larger at 10 micrometers,

but now we are down to 5 nanometers and in the future they might be even smaller. They'll be smaller in a couple of months. There you go. Three nanometers in production. I enjoy those websites where you can visualize the real world. So thank you for passing that along.

Aaron. And then finally, an unfortunate email from Eli, he says, last week's episode on threads, but at the start of the show, Starbucks? More a fit for Normie Andrew, but I expected better from Ben and his love of Spanish food. I assumed that good taste extended to other great culinary experiences. Reading Stratory helped me get interested in business, and during college, I turned my coffee roasting hobby into a small direct-to-consumer company

from my apartment. Today, one way I touch grass is by hosting coffee-tasting hangouts for my friends. While I'd be happy to have either of you at one of these events, I figured a more practical suggestion is to give you a list of great specialty cafes in D.C. and Taipei that you can go try with friends or family. Chat with the staff, tell them what you like, and ask for a recommendation. And he does, true to his word, provide four wrecks for D.C. and four wrecks for Taipei. Ben, how do you respond to the Starbucks slander?

So I had a friend that was in a band, you know, growing up. And one of my favorite things that he did was in the show liner back in the day for kids that don't understand. Back when people bought physical CDs in a CD. And somewhere there, they would put like their things or whatever. Can I just say that when you said it turned out you were just selling a plastic CD and that was the value, I nearly interjected to say you were also getting show notes and a booklet that had value 25 years ago. That's right. You get that many CDs a year.

You'd sit down. You'd actually read through the whole thing. So he included one of my favorite notes, which is in the show liner, he thanked McDonald's. And he goes, thank you McDonald's for being the exact same everywhere. That was sort of his takeaway because you're on the road. It's a good take. getting meals at weird times. And is McDonald's the best food?

Obviously not. If you order a big mac and fries, do you know what you're going to get? Yes, you do. This is my pro-Stabucks take, where does Starbucks have great coffee? No, it doesn't. Does it have terrible coffee? Well, arguably, yes, it does. But you know what you're going to get.

My go-to order is the hot Americano, which I don't like their coffee, actually. but this, it is a caffeine vehicle that is not, that is predictable. You know exactly what you're going to get. So when I am traveling and I'm busy and I'm moving around, sure, I will get Starbucks. And in this case, if we're in Vegas and we were trying to wake up to record a podcast. Leary, yep. There's a Starbucks in the lobby. Guess what? You're going to get Starbucks, right?

So I will actually defend Starbucks by and large. Now, as for the finer things in life, sure, I am well known to enjoy them. To be clear, I rarely go to coffee shops, though. I do sort of bake my own coffee. Number one, most important, grind your own beans. I don't roast them. But number two, you want as freshly roasted beans as possible. I have a go-to coffee guy in the market where they roast them every day.

So I always get fresh beans, not on a daily basis, on a weekly basis. Look at you. Wow. But I'm not one to go. I just want to buy coffee. I don't need anything else fancy or whatever. I mean, my wife is actually super into it. She does all the pourovers and all that sort of thing.

And like she actually took classes on like barista classes. So I am well aware of the universe of great coffee. And she will, when we're traveling together, she will seek out great coffee shops. And I enjoy them. I do enjoy them. But I am an efficient man, a simple man. I want a pot of coffee in the morning. And what I'm traveling, I want something that I can trust to wake me up.

So that's where I'm at. There you go. How about you? You know, you're, we know, the normie label here did apply because you got to get Starbucks on the road. You get Starbucks at home. So it's heartening because this was a really nice note from Eli. I appreciate the recommendations.

And it's heartening to hear that you are, in fact, a kindred spirit and do appreciate good coffee and are at least familiar with what that looks like. you said I actually will defend Starbucks. I will proudly defend Starbucks. It's great coffee, everything you need from coffee. And I'm more of a function guy than a form guy when it comes to coffee. All I'm looking for is 24 ounces of caffeine, venty iced coffee. If it's been a really long week, I'll add a shot of espresso. And that's the extent of my coffee investment. I do have an update though, which is the next day. I don't think I saw you, but I did order my own coffee with the app from Starbucks.

Oh. And it was great. It worked great. There you go. See, it's an efficient business. Nothing better than Starbucks. That's right. The tools in the American crown.

Absolutely. And when it comes to chains, I think they're actually like the nationwide ones that are available anywhere. I mean, good Lord, that Duncan crap or the, you're going to get some emails there. like Pete's like the not a fan. No, Starbucks, it does the job. You know, thank you for being the same everywhere Starbucks. There you go.

Well, everyone go out there, touch some grass, find your local coffee shop, or find your local Starbucks, maybe play some lazy sports along the way. But good for Eli. I endorse all touchgrass movements. I would love to drink. If someone wants to make me a super fancy cup of coffee, I will enjoy it. I just personally am not going to make that investment. Exactly. And if he's ever in D.C. hosting one of these coffee tastings, please reach out, Eli. I will attend.

I'm just not a very discerning coffee drinker. My palate fairly ignorant. I can't promise I'm going to enjoy it. Or appreciate it. Coffee tastes like coffee to me for the most part. But for now, Ben, on that poignant note, we will come back later in the week and keep things rolling. Sounds good. I'll talk to you later.