Sharp Tech with Ben Thompson - The Cult of Iger and the Future at Disney and ESPN

Episode Date: November 28, 2022

The legend of Bob Iger and the recent history of Bob Chapek, why Disney stock went up last week (but not by much), ESPN and Disney+ in the shadow of the $71 billion 21st Century Fox acquisition, and emails about third party play-by-play and a scientific defense of cigar clubs.

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'm doing well. How are you? I'm pretty good. I'm excited to get back in the saddle here. We had a nice little week off. It was maybe not as relaxing for you with your tour of the Midwest for 72 hours. That's fine. That's the easy part.

The pounding together a daily update on a red-eye flight. That was the less fun part. But hopefully it'll pay off today when we cover the same topic. This nearly inspired our first ever emergency podcast, which would have been very exciting. And I would have done it at 11 o'clock Sunday night a week ago, except that I had already taken my nightly dose of melatonin and would have been pretty loopy talking about the Bob Iger situation. So by the time I checked your text, I was already on the way out. But there has indeed been some bob swapping out at Disney.

And it shocked the world a week ago, still relatively shocking today. Although I think as the news has set in, it's less of a dramatic twist when you consider who Bob Eiger has been. And speaking of who Bob Eiger has been, can you explain the cult of Eiger to me before we get into last week's news? like people have spent a solid seven days talking about him like he's Michael Jordan. So what are a few of his biggest wins as the Michael Jordan of CEOs? Well, I mean, number one, he's got a very long run at Disney. I mean, I think he was actually at ABC or Capital Cities, which owned ABC. And when that was brought in by Disney, they acquired Capital Cities, he sort of worked his way up.

So, I mean, he's definitely someone who's been there a long time, knows lots of people. If you've ever seen him speak or anything on those lines, he's clearly like a smooth operator, right? I mean, like, like, I mean, there's a reason why there was rumors about him potentially running for president, right? Like, he comes across as, as a politician in a sort of positive sense, right? Like, he clearly seems very smart. He speaks very well in his feet. You know, he's just like, just from the outside looking in, this is a guy that it's sort of easy to. to sort of cheer for and say, oh, yeah, that guy's got his got his crap together.

So I think there's number one. He's just sort of like, and there's a very stark contrast to Bob Sheapec in that regard. Bob Sheapec does not come across as a politician. He comes across as sort of a, you know, competent, but I think not a particularly smooth operator, kind of halting when he speaks. And even if when he's saying stuff that is smart and makes sense, it can come across is sort of uncertain and, you know, that's not super clear that he has,

sort of has it all together. And that's just a very sort of superficial thing, but you can imagine both them have very long careers at Disney, that that's the sort of a sense that, that I would imagine it accumulates over time. So that's sort of number one. Number two, I think what Iger is most well known for is really identifying the shift to IP

as the only real fundamental differentiator for content, of in the long run and thus, you know, famously buying Pixar, buying Star Wars, Social Lucas film, and probably the biggest one, you know, buying Marvel, and then buying 21st Century Fox, which is actually maybe the most problematic of them. We might get to that in a little bit, but really expanding, you know, the Disney universe and, you know, the Marvel one is obviously the big one. I mean, Marvel's had such an incredible run over the last, you know, 15 years or so and been a real moneymaker. And, you know, in retrospect, the amount that he paid for these properties was, you know, incredibly cheap.

And so just for those sort of acquisitions alone really set Disney up very well compared to what they were. So I think those are definitely the found, you know, those acquisitions are the foundation of his leadership. And then when he was there, Disney had just phenomenal results. Now, I think the bigger question is how much were those results because of fantastic leadership versus they owned ESPN at a time right when the case. bundle was unbelievably profitable and just threw off so much money. And, you know, there's,

there's a bit of a, you know, chicken and egg question there that I think, you know, is definitely remains to be answered. Well, I mean, as we said on the last episode, I love a good Zag. And so I wanted you to grade my Zag after consuming Iger coverage for the last week or so. Bob Eiger was never a great CEO. He was a competent CEO in a great situation. Are you buying or selling the zag there? I think I'm selling the zag. I mean, there's a tendency to criticize anyone that is successful by sort of saying, well, you know,

it was definitely the environment. So anyone else could have done that. There's, I think the response to that is always, well, no one else did do that, right? I mean, to take like the villain de jour these days, Elon Musk, this comes up like, oh, well, he actually got all these government subsidies for Tesla and for SpaceX. It's like, well, those subsidies were available to anyone, right? Like someone else could have taken them. And, you know, certainly the environment, again, largely because of the cable bundle and, you know,

and owning ESPN meant that Disney had big advantages because they just had this cash gusher that was, you know, driving, you know, not just profitability, but also cash flow. And they could have the money to make these purchases and, you know, make these investments. that certainly made it an advantageous situation, but he still had to play the hand that was dealt. And, you know, I think by and large played it very well. Okay. That feels fair. I still like my take if there were something like a first take for business executive news. I would love to throw that out there and stir the pot a little bit. But I hear you not only on the moves that Iger made, but the personal charisma, I do think is going to

be important to where Disney is now and the stock price is ticked up a little bit after a tumultuous month for them. And inspiring confidence is part of the deal. And it seems like Bob Chapec definitely didn't inspire confidence. Well, I think just on that, though, it's kind of interesting how relatively little the stock did go up. I mean, it's up like, six percent. Yeah, six, seven percent over the last week, which I think gets to the point that there are funding. fundamental reasons to be concerned about Disney's current state of affairs. And this was sort of my take about Sheapec. I don't think he had bad strategy.

I think he was playing Bob Eiger's strategy for sure. But he was doing what was necessary for that strategy. And maybe there's an extent to which there's a lot of touchy-feely stuff that could have been done better and is maybe necessary and communicating to investors better, dealing with creative talent better, dealing with internal. Disney employees better. Basically, number one, like, it's not like Sheapec was a wholesale failure. But number two, that's kind of why I started with the charisma leadership aspects, because the most optimistic take for Disney is that's actually what is needed. The more pessimistic take is that they're just, they're actually in a bad spot. It doesn't matter who is CEO. How was the transition of power handled back in February 2020? I'm trying to figure out just how,

screwed Bob Chapec was over the last couple of years because taking over Disney right as the pandemic hits the United States is a pretty rough deal. And like you said, he's executing Iger's streaming strategy, which I'm not sure why people expect it to be profitable. I mean, they lost $1.5 billion in streaming last quarter. And that's one of the first things everyone says and mentions in coverage of the shift from Chepec to Iger. But like, is it fair to blame Bob Chepec for those losses?

Well, the transition stuff is very complex. There's been two or three. I think Shepak was the third sort of next CEO after Iger. And there's an aspect here of where like, he just can't seem to say goodbye or can't seem to leave. I mean, there was, I think Thomas Staggs was like a long time CEO. He was supposed to be the next guy. Then he was out.

There was rumors about the, the, oh, the name escapes me, the guy who really headed up the Disney Plus streaming stuff. He was supposed to be the next CEO and he got over, overpassed, and he ended up going to TikTok and then bailed after like three months. And then Shepak came along. The time he was definitely interesting because Disney at that point was well aware of the pandemic impact because they had already had to close Shanghai Disneyland. And so, you know, certainly Iger missed a not very fun part, but also a fun part because Disney's streaming number. has exploded. Disney's stock was sky high. And there is, you have to tie this and look at this broadly in the context of Netflix, which we've talked about previously, where all these services were

exploding with subscribers and their stock prices were going along with it. And we're still to an extent in the COVID hangover where it's like, okay, maybe that growth wasn't real. It's like, we're sort of reverting back to where we were. And I think there, that's a definite question for Disney. Now, as far as their big loss, they blamed it on like all their production got screwed up during COVID. And so suddenly a bunch of shows that theoretically would have been more spread out, sort of all dropped in the third quarter.

And shows are accounted for on the income statement when they start showing. And so it's like, well, all the costs hit this quarter. This was an abnormally large loss. It's not normal. But all that sort of communication came out after the earnings call. And in an earnings call where they didn't seem to realize like how bad. it looked. And, you know, there's an aspect where this is supposed to be a profitable service by 2024 and you appear to be going backwards. Like, like your losses seem to be accelerating.

And I think that that really fits in with the optimistic narrative for Disney, which that shape I was just bad at being a CEO. Like, there's a big part of being a CEO, which is managing expectations, managing investors. There was that whole brouhaha last summer with Scarlett Johansson or a couple summers ago and, you know, because they wanted to stream it first day. which meant, you know, as a movie star, he'd get to share a ticket sales, you know, like her income was going to be, like that would have never happened under Eiger.

Like he would have, you know, solve that, smoothed over before it blew up, even if it blew up, he would have immediately like, Shepec came out with a super callous statement, like basically, like, and I mean,

well, hold on, hold on, let me ask you, though, it wouldn't have happened under Eiger. Is that because under Iger, Disney was printing money from all sorts of different places, and he could have just paid Scarlett Johansson,

and give her her money and send her on her way. Because it seems like that was part of what was going on is there was belt tightening and they didn't want to just like cash her out not to defend Disney in that scenario. I mean, I thought it was pretty lame. I don't know. I don't know how he would have handled it better. It's a, well, it's a fair point. But I think there is some aspect where again, like a big part of being a big company CEO is being a politician. And like that's just, you figure out some sort of solution.

You don't let it blow up in the press. And attention for Disney is the whole reason why this IP investment is so valuable is, number one, if you have content, customers go directly to you. That's how you go around arrogators, right? If you're either an aggregator, you have all the demand and you can commoditize content. But if you're a content producer, you can go directly to customers. You can get a direct connection with them and you can monetize that way. And so Disney can have their movie in a theater and they can take like 60, 65% of ticket sales,

which is like unprecedented. Why? Because the theaters need them more than Disney needs it the other way around. And so they have this real power. And the whole thing with the Marvel sort of universe in particular is what Disney is selling is the characters. Now, of course, certain actors become associated with the characters, and those actors do get more expensive over time.

But by and large, Disney can just reboot a series and people are still going to go see it, right? Like the, like, this is the value of franchises is it gives you bargaining power over the talent, right? It's not like back in the 80s or 90s where you sell a movie based on the actor. The problem there from a studio perspective is the actor knows they're driving the ticket sales,

and so they will take sort of their share of it. And, you know, for people that are, you know, are annoyed about all the franchise movies and lack of star-driven vehicles, well, there's a real, sort of fundamental economic reason as to why that happens. So, yes, there would have been tension. Disney was, is increasingly fundamentally in opposition to talent, but that's where all the

touchy-feely stuff of a CEO actually becomes really, really valuable. And, you know, so that's the one. So Sheapec didn't handle that well. He didn't handle the recent earnings well. And then, you know, there was that whole controversy in Florida that don't say gay bill. like just like again a very difficult situation where the skills necessary were political skills like how do you how do you sort of like glide through the middle somehow and not to say that eiger would have handled it better but we can say that shepa handled it poorly right yeah and so and so you you have this accumulation of self-inflicted screw-ups that are all attributable to the qualities that us on the outside can see which is Sheapec is not a good politician. And that's just, and so again, that's the optimistic take on Disney, which is Disney's just needs a much better politician as CEO.

Iger is a good politician and he can surf through these things. But TBD, because it might just be that Disney's actually in a tough position. Well, let me ask you, before we get to Disney's position now and what Iger has to do, are we really supposed to believe? believe that Susan Arnold, the chairman of the Disney board, hadn't spoken to Iger in months before she offered the job in mid-November. And it's hard because, like, there could be an entire season of succession, the HBO show, about the past month at Disney. Like, there was, you know, some party at the beginning of the month where Iger was asked whether he wanted to come back to Disney and he said, no, he told Bloomberg, no. And now he was, you know, and now he was, you know,

we are. But I mean, what is your take as an analyst on the way all this went down? Because I felt like that was as big a part of the story as what actually happened. Well, I like you, you frame it as my take as an analyst when you just want me to comment on rumor and scuttlebutt and speculation. I know. Well, no. What I mean is as someone who's watched a lot of these corporate transitions over the years, this feels unique in some ways, at least. I mean, I think it's very viable. They didn't speak. Maybe they text message.

I'm sure there was, I mean, I think it's been well known that Iger's not been very happy with Sheapec, basically from day one, which is an Iger problem, to be clear. Like, he can't find a replacement. And I probably a big aspect of that is because he has the biggest ego in the room, right? And like, he thinks he knows better than everyone. And, you know, to an extent, you know, in the past he has. And so, but that, again, that's, that's an Iger. problem. Clearly the factor in the replacement now was the recent earnings. And it wasn't just that the earnings were bad. And again, there's maybe good structural reasons why they might be bad.

It was number one, investors were not prepped at all. Like, like, for example, this streaming loss, if it's because you have all the, if it's because you have a weird production schedule and stuff dropping at the wrong time, you should have known that three months ago. You could have let investors know. And then they come on the street and they don't seem to be taking it seriously on the call. But at the call, they watch into like some, you know, these little stories about the parks and the shows they have coming out. And investors are like, you just drop this bomb on us and you don't even seem to realize that it's a big problem. The tone was was weirdly flippant throughout that call. And I just don't know.

I mean, maybe he just wasn't reading the room right. But he should have pre-read the room months ago. That's the problem. Right. No, exactly. And then they come out like the next week. like, oh, we're going to form a committee to look into like layoffs or whatever. Like if you're going to announce layoffs, you announce the layoffs, you announce the layoffs,

you're bad results, right? Because you say, look, we recognize the problem. We're doing XYZ. And you don't announce a committee that we're going to look into the layoffs and then put all your employees on pins and needles for the next however long it takes. You should have that in place and execute it. Again, strategically, I think Shepak was mostly fine. But the actual blocking and tackling, the nuts and bolts of being a CEO, he would

he just failed and I think that was the final failure. And so I think it's definitely viable. I mean, it was clear that Eiger had opinions on Disney. He did not take shape. It was really good job. I think it's definitely viable that until that earnings call, there was, there wasn't really a thought about him coming back, but there was a collective realization that, yeah, this is a mess.

Oh, man. And they had just given Chepec a contract extension this summer. So clearly it was urgent on. the boards part. Yeah, well, I mean, this gets to the strategic part. Like, like, Bob Eiger bought all these assets. His final acquisition was 21st century Fox, which was the most expensive. Was the most expensive all of them.

And it was the hardest one to sort of justify strategically because it didn't really fit with the, I mean, they did get to acquire, you know, the X-Men, which I think was, you know, so that's going to be an important part, I think, of the Marvel. You know, that was traditionally part of the Marvel universe that was split off, know, Marvel was like in bankruptcy practically years and years ago. They were just selling off pieces. That's why Sony owns Spider-Man. That's why Fox owned

X-Men. And so I think bringing that in, that was definitely a valuable asset. But you're getting all this content production and it really only made sense if you're going like, it's not just we're going to do Disney. You know, because Disney

sort of, the content's so unique and differentiated. You can sell it without having a large library. But no, we're actually taking on Netflix and we want to have a huge library of content and all this sort of stuff. And so in the context of that strategy, the reason why it would make sense for Disney is we're not just going to sell subscriptions to our content like Netflix, but we're a larger company.

We want this to all feed into a bigger machine. And we, and so if we get customers, we get their information, we can really get a deep understanding of their preferences. We can market to them more effectively. We can upsell them. We can sell them trips to Disneyland. You know, Disney cruises or, you know, special events that feature their favorite shows or characters, wherever it might be. And that is a reason to enter the space and also to have relatively aggressive pricing because we're going to monetize in other ways.

And if you're monetizing in other ways, well, we really need to pay it off on the back end. So that means raising prices on the theme parks. That means like more aggressive yield harvesting, which is, you know, getting different price points for different folks based. on what they're willing to pay. And Sheapec did all that. And I think a lot of the misplaced criticism about this shift is about those decisions he made. Because that's what you had to do if you were following Iger's strategy that Iger put in place. So I think those sorts of things are, it's unfair to criticize Sheapec and say that's why he need replacement.

Oh, Disney land is getting more expensive. Well, if the whole point of your strategy is to have a holistic company strategy, that, you know, Disney Plus isn't just a standalone service, but feeds into the broader Disney machine. You got to pay that off. Yeah. And same thing about some of his reorganizations. And this is where, like, Iger was very critical of the way Shepak reorganized the company

to have like a single P&L where individual creative entities are not responsible for their profits and losses. There's a whole broad thing. I wrote an article about this next year. Right when I started to check about the difference between a functional organization and a sort of divisional organization. Division organization of all these different entities, they all their own profit and loss statements. The idea is they're directly motivated and compensated and incentivized based on the quality of their business.

The downside of that is it's hard to get sort of cooperation across entities. A functional organization, it's like, look, the P&L is at the top. It's much more of a dictatorial approach. Top down, you do this, you work together on XYZ. But the reason to do that is, look, if we're doing a whole company strategy where Disney Plus is at the center and it's going to pay off on all these places, well, you need a reason for the creative entities to send their content to Disney Plus. If they're motivated on a profit and loss, why would they want to send their content to a service that's losing tons and tons of money, right?

You're like, I'd rather just sell it to Netflix. They'll pay me a bunch of money for it, right? And so if you're going to have a whole company strategy, a whole company organizational structure does make some amount of sense. But number one, it's really, really hard to do to like transition just the way. way a company operates. And so, number one, it's already hard. Number two, we already established Bob Sheapec was not good at the people management

political sort of stuff. And so he was sort of in a tough place there. But the strategy itself was not, was not bad. And so this is, I mean, this is where I really, like, it's, I think it's been very easy for Bob Eiger to sit on the side and to take pot shots at everything that Sheapec has done. But again, I feel like the actual things he's done are downstream from Eiger's decisions. And this leads to a broader question, which is, was the strategy wrong? Was it a mistake to go so hard after streaming?

Was it a mistake to try to not just be Disney, but to take on Netflix via Hulu and acquiring 21st century Fox and all these sorts of pieces? And that's a much bigger question because that's not a touchy-feely be a better politician. question. That's a, our company is in a structurally problematic place question. To frame the Chepec failures, like Netflix on their earnings call knew their earnings were crappy and we were razzing them earlier this year because there was that call where it sounded like they came up with the idea to sell ads like three or four days before, but at least they had some sort of strategy because they knew that they had screwed up and they needed to signal to the market. that like the company was in good hands and was taking it seriously and Disney just didn't.

And then you look at the the broader strategy and Netflix is a really good parallel because they're charging nearly twice what Disney Plus costs for families. And so I just don't know if you're charging only half of your competition, like how is the expectation from shareholders and anybody else associated with the company, that that particular slice of the business be profitable. We know it's a really competitive space where all these different players are throwing money at stuff. And, you know, Apple and Amazon are losing gobs of money and don't care.

So if you're Disney, like, I understand the goal should be to make it profitable. But it's surprising to me that so many outsiders and analysts are capital. by the idea that this business is losing money when it sort of seems like that was the design. Yeah, and this is why it raises all sorts of questions. Like, number one, what is the long-term payoff for like the whole company strategy, right? Where you're. Yeah, is it working at all? Yeah.

And I think so I, this has raised a lot of questions for me personally. I mean, I think we've already talked about Netflix and like I underestimated with Netflix, for example, the degree to which they just were so slow to improve their content. And then also which by extension meant their old content ended up not having very much value to acquiring new new users. And my thought was that all this content spend, yeah, it's a lot, but it also has a marketing component because it's a way to get sort of new customers in the long run. Turns out no one really subscribes to Netflix because of a show that was made five years ago. It's just like it's all a commodity. And that's a tough place to be because you have to keep making new stuff.

Like I'm in the content business, right? Like I enjoy my livelihood, but I still have to produce content, right? I have to be on that red eye, like putting out a daily update because I feel it's an important news event that people would expect me to cover. And that's a much tougher business than like we just produce something once and we can make money off it forever and ever and ever. So that's number one. Number two, they have this whole structural issue with a cable bundle where. while the streaming services exploded during the pandemic, the cable, the cord cutting really accelerated to a huge degree.

And probably sports was a big part of this. There were just, there were no sports on for a while and then incredibly depressing sports on for like the next year. And, uh, and so you had, you had that, a real acceleration there. And this is a tough thing for Disney because on one hand,

well, they need to switch over to a sort of stream. streaming future. And if the streaming future isn't a very good business, then where are they going, right? Like, they can't really go back. You can't go back and double down on ESPN and the other channels. I think Shepak was going in the right direction. Oh, there's one more point I want to make. The big question I have is the whole company strategy entailed the top of the funnel, the customer acquisition, customer building their, you know, your profile, every customer knowing what they like, what they're interested in. That all rests on sort of.

of zero marginal distributed content, which is you make a show once, you can show it to as many people as you want. Like Disney Plus can scale to, you know, hundreds of millions of people. And that's fine. But if that's supposed to pay off on things like theme parks, those are scarce resources. And like, you can only allow so many people into a theme park in a year, particularly if you want to sort of preserve the customer experience. And so you have to raise prices for that strategy to pay off. And like people are mad at Sheapec for raising prices. is they're mad at feeling there's nickel and diming. And I think what made it worse is since I did a dithering episode about Disney and we heard

from a lot of people, including my co-host, John, that the experience of going to Disney Park has gotten worse. Like, and that's what really can't happen. You can't have a situation where we're going to pay it off gear. We're going to charge more prices and also it's going to be crappier than before. Right. Yeah, I mean, that makes sense. Every now and then I'll make the mistake of going to a commander's game.

and the degree to which you are nickel and dined at like every stage of going to that stupid, horrible stadium. It's like the worst stadium in all of American sports. And it's crowded. And the last time I went, I was just like, I'm never going back. And so you really can, like, alienate people if you're not concerned with the customer experience. But to your point earlier, it's like, all right, well, if we're losing money over here, And the plan is to monetize the long-term investment we're creating with our customers,

then that has to happen somewhere. And so it's not shocking that he looked to parks to try to capitalize, at least as far as he could take it. Yeah, for the record, I think Bob Shepak was better than Dan Snyder. But I don't want to compare him to Dan Snyder. Nobody should be compared to Dan Snyder. But, you know, you mentioned ESPN and their role in a. all of this is pretty interesting to me. I've read a few different places throw out the possibility of Disney spinning ESPN off.

And I'm curious what you think of that idea. Like what's the logic there? Well, I think the logic was had they done it before this decline really kicked in, they could have gotten a whole bunch of money. They could have paid. Like, they took out a lot of debt for this 40th century Fox acquisition in particular. They could be in a much better position as far as their debt load goes and really sort of accelerated their investment into a future without the cable bundle.

I think the reason Disney did not is, number one, DSPN is still throwing off a lot of money, like even today, right? Even with all the cord cutting. It's also increasing, by the way, to be clear, because they are raising the rates on current subscribers, the carriage fees, faster than the number of people they're losing. And this is, this is in, this is at least is something I think I got right, where I think the cable bundle is transitioning to the sports and news bundle.

And so your number one channel is ESPN. Your number of two channels, Fox News, as far as sort of carriage fees goes. You have to have sports and news because it's still live. It's still reason for people to sort of subscribe to these bundles. And in the long run, so my sense has always been that I'm skeptical of ESPN ever going over the top. Like ESPN Plus exists, but that's like for all these like surplus sports that don't fit in the 24-7. time frame, right? Like the 24-7 time frame, the fact that it's winner TV is

actually a benefit to ESPN because it means stuff is scarce and exclusive and like you have to sit down to watch it and then you're going to see ads. And you're going to be bad with your television provider if you don't have access. My just assumption, and ESPN only has

I think it's somewhere on 50% or 60% of relevant sports, which is a lot but it's not enough to be standalone. Like if you're a sports fan, need not just ESPN, but you also need Fox and you also need FS1, and you also need the broadcast networks in particular. And so my assumption is that remains a valuable entity that does throw off cash.

That said, one of the challenges of becoming just sports and news is that the people giving you the content for that sports and news are now much more powerful, relatively speaking, and they can extract much more money from you. Right. When the bundle was very broad where it included the history channel and, you know, home and garden and the Disney channel and all these sorts of pieces, no individual component of that was particularly powerful. And so that's why you could make so much money because you were the bundler.

Your whole goal was to get a lot of channels so you could take more money from Comcast, take more money from Spectrum because you had the content that they needed. Now when it's just sports, the sports leagues in particular are much more. they know they're essential. They know they're much more important. This goes back to like the whole, you know, the whole brouhaha when David Zaslov was like, do we actually need the NBA? And I was like, yeah, you do.

Right. And your read on that was pretty interesting because what Zaslov said was not terribly different than what Disney had said about the rights. And so I wonder whether that calculus changes. I mean, Bill Simmons knows this world pretty well and said it's a good thing for the NBA that Iger is taking over. Others I've talked to say Iger is a game changer in terms of what those negotiations could look like. But from where I'm sitting, it still makes sense to be conservative with what you're willing to pay for the NBA in 2022 or whenever they signed the

deal, I think, in the next couple of years. Like, proceeding with caution makes sense to me. So I'm curious what you think of Disney's calculus on that front. Well, let's go back to Discovery Time Warwick. I think that one is kind of more interesting because they like ESPN still has a bunch of stuff right. Especially like college football, college basketball, you know, they have the NHL now which you know, maybe

doesn't provide, you know, filler if they don't have the NBA. Discovery Time Warner, they have a whole bunch of cable channels as well. And TNT is obviously built around the NBA and you know, they also have the Final Four

and they have some other things. If they don't have that, they're negotiating leverage with all their channels, not just TNT, but it's all sold as a bundle, right? The reason why ESPN makes so much money, it's not just the fee that's charged for ESPN. It's that if you want ESPN, you also have to take, like, our other 10 cable channels, all of which are priced too high because if they were sold on their own. But you do that because it, like, it's a bundle within a bundle. And that's been happening over time.

And so, you know, if you, for, from a TNT perspective, if they don't have the MBA, they're negotiating leverage, not just for TNT, but for all their channels is much lower. And they, again, they need the cable money, which is still a lot of positive cash flow, because they have a ton of debt. It's a sort of, it's a similar situation for the, for the HBO or Time Warner acquisition. and ESPN has the same thing. They have a lot of debt. They need the cash flow.

But to your point about, you know, Simmons's comments about Iger, I don't know what fundamentally changes these realities of there being a different CEO. I mean, at the end of the day, there is a real point coming. I don't think it's, I think it's,

I don't know when it's going to come, but where there's going to be this real tension with sports channels and these bundlers that look, yeah, it's a game of chicken. Like, like who's going to blink? I think the hope for the sports leagues is that companies like Apple and Amazon do aggressively start bidding because that's going to be the key to getting these guys to pay up. But for now, it's worth knowing Amazon is really trimming costs.

Like, you can see, like, they're looking at their Alexa division, which lost a ton of money. They ended our free shipping to Taiwan, very sad. I got, I got like 10. Sorry. I got 10 notifications on Black Friday trying to get me to buy stuff. Like that's never. I saw that. That's never, never a good sign for a company.

And are they really going to spend billions of dollars where, again, these sports leagues are worth more to the bundler within the bundle because they give them negotiating leverage relative to a Comcastle or a spectrum, whereas Apple and Amazon are trying to get people to sign up directly. Like, that's just not worth this. much. Like getting direct subscriptions is not worth as much as keeping people in a bundle. And because again, it pays off sort of broadly and there's more stickiness. So I don't know. It's definitely one of the things I'm most interested in observing. I think these MBA negotiates are going to be super, super interesting. And interesting in part because of what it signals for the rest of the landscape over the next 10 to 15 years. Like, because I am with you, everybody can sense this tipping point coming where, all right, it doesn't make sense.

for us to pay a trillion dollars for games that don't rate very well and, you know, we're just going to go on our way here. It's probably not going to happen this cycle, but maybe the next TV deal, companies are just going to have to make difficult choices. And some of that will be informed by like how deep the cord cutting actually goes. Yeah. My assumption has been that we'd end up at about, you know, 50% of the, the high watermark for bundling that's sort of a, you know, just a guess, to be honest.

And then they'll never lose me. Yeah, no, exactly. I mean, there's some, like, in ESPN would be charging like 20 bucks or $25 per subscriber. Like, it basically ESPN and Fox are just collecting all the money for from the deal. And I think there's a, you know, if you looking back, had Disney spun off ESPN and their media networks generally, basically done the opposite of Fox. there is an aspect where they would be, yes, really locked into the streaming future and the rest of their, and theatrical releases and the rest of their business, but they wouldn't have debt. And it'd be pretty like the clarity of what they need to do.

It'd be pretty clear, right? They'd have a very clearly defined strategy. I think the challenge right now is they kept them and now they're stuck kind of like, which way do we go? Because the reason to keep them is we were depending on this cash flow, how long is this cash flow going to be good for? I was generally in favor of them keeping it. I think that ESPN Plus has a bad name because people get confused. But this idea that there's lots of sports that don't fit in the 24-7 window and having more of them, you know, makes for building a streaming bundle, which Disney is doing. Disney. Disney plus, Hulu and Disney and ESPN Plus, all for one price.

And as far as the negotiations go, just one extra point on this. I think what's clear is what both Disney and Discovery Time Warner want is they want lots of streaming rights in the New Deal. That's the main negotiating point. I think they're both willing to pay up. And I think they both need to pay up because they need the cash flow from the cable bundle still. But they do want to sort of hedge their bets for the future and have rights to stream more games so they can build up their streaming services for a potential future where they're, the cable bundle does go away. So I think that's actually the real point of negotiation.

So essentially they're looking to get streaming rights as a hedge and they're not necessarily in a position to capitalize on it now and make a ton of money from streaming now, but they just want to be ready for five to ten years from now. Yeah, I think I think that that's part of it. And, you know, building up, you know, building up there, which is kind of a weird strategy in some respects because I almost feel like doubling down on the bundle still makes sense. Again, I think the ideal outcome here is about 50% of people subscribe to the bundle. They pay about the same, but almost all that money goes to the sports channels.

The reason not to do it is you're just not acquiring new customers, right? Like how many young people actually have a cable subscription? And if games aren't readily available, like how do you? you become a fan, right? If it's sort of a big hoop to jump through. And that's a point that Zazov made relative to the NBA. It's like, he's like, look, like, you, you are not acquiring young subscribers. It was, it was smart.

He did a good job. Yeah, I mean, he was playing directly to Adam Silver's fears and or ambitions. I think Silver would want to have some of the games on streaming as well. But when you look at the long term here, I mean, Iger is going to be. addressing Disney employees later today. So beyond that address, what are you going to be watching over the next few weeks and months as signals for where Disney might be headed? Is there anything in addition to the NBA negotiations, which will take a couple years to play

out maybe? Well, I mean, I think you already did tell employees that, you know, he plans to restructure the company, including kicking out like, like, Shapex number one deputy who was put in charge of like the P&L sort of company. all that, yep. You know, there is an aspect where, you know, he gets to play with house money for a little bit. Like, he's going to get a certain grace period to sort of figure stuff out. There is a bit where everyone who dislikes Shepak by default will give Iger the benefit of the doubt.

I think this probably applies to, you know, the creative aspects and talent and all those sorts of things. So I think that's sort of going to be predictable and it's going to be hailed as some wins. the big question, the really big question is, was Iger's strategy wrong? Like, like, was it a mistake to go so heavily into streaming? And again, there was a middle ground where they just do Disney Plus. They just do their IP. They say, look, yeah, we don't have that much content. We're not in Netflix, but you're going to pay anyway because we have such good content

that you must have. That's what I was wondering about. They have enough content that's just recycled Disney movies. and Marvel movies and Star Wars movies that throwing a ton of money at shows like Andor, which I've heard is actually quite good, but throwing money at all these new shows to try to build up the streaming,

I understand the strategy, but it could be just as easy to just have that be your library that people can subscribe to. And every parent I know needs Disney Plus. And so they can sort of hold the parents hostage and a lot of people would be in regardless of whether they're throwing hundreds of millions of dollars at these new projects. Right, but it's not just the core IP though, right?

I think you make an argument that they should do Andor, they should do those sort of shows. But the big mistake was acquiring 21st Century Fox for $71 billion. Because that's not, that has nothing to do with Disney. That's like a Hulu play. That's like we're, like we're just going to beef up our content library and we're going to have. have content for everyone. That's, I think, the real Iger move that's in real fundamental question. Yeah, because they could basically be pursuing the same strategy.

Like, how many people are subscribing? This is the whole thing we talk about with Discovery Time Warner, right? If you have shows that don't move the needles for our subscribers go, what are you spending money on? Right? Might be just make a reality TV. Like, give me some more property brothers, right? Like, all this stuff in the middle, that's the stuff that's

in question. It's in question at Netflix. It's the stuff that Zazlov is wiping out at Discovery Time Warner. And that's the stuff that Disney paid $71 billion for and is why they have all this debt that is limiting their options, why they have to bleed money out of ESPN to help pay for it. And so I, if, oh, wait, I'm going to drive, basically, I think the 21st Century Fox acquisition in retrospect was a mistake. If they hadn't made that acquisition, they wouldn't have this debt issue, they could back off to a, look, we're going to have a Disney plus service that's just Disney content where Disney includes Marvel and Star Wars and those sorts of things. That fits with the Iger, to go full circle, the whole reason he's considered great COs,

he acquired these great properties that make sense as Disney properties. And they would just be in a much better spot today and have much more flexibility, I think, without that acquisition. And that's not shapeback. first take for business executives. Yeah, that wasn't shape. Acquisition was a flat out disaster and Iger has to own it. I mean, I'm sorry.

That's why you're the first take guy, not me. Yeah. That's why I talk too much. That's why you're entertaining. Here's the thing, though. Iger, what signals will there be? Because there's a chance that he's coming back to Disney knowing that he's, he made these mistakes and knowing that the the smart decision now is to find a way to back out

of it or as you said earlier find some middle ground where you're not quite as pot committed to this strategy as you have been recently so if that's the case what sort of signs will we see i don't know that they can back out i i think there's an aspect where the only way the only way to go is forward. And there may be the contribution Iger can make is, look, it's going to be messy. We're going to have to take investors with us, sell our vision, make sure they understand. Look, you have to look at us on a lifetime value basis. We're acquiring customers that are customers for life.

And we're going to make all this money in the long run. And it's worth this investment up front. He's going to have to go to talent. Say, look, we have to change the way we pay you. Like, just a reality. We love the movies, too. We love being in the theater, but, you know, things are fundamentally changing. He's got to go to the sports league to Simmons Point, right?

And say, okay, how can we come up with a solution here that actually benefits both of us in the long run? Like, whether that be, getting you younger viewers or whatever it might be. And again, that's really the optimistic take, which is, okay, maybe the Fox thing was a mistake. but by and large, we have to shift to a post-cable world. We have to shift to a world of streaming. We have to have a whole company strategy. But precisely because it's such a difficult shift, we need a CEO who's good at doing CEO things. And that's why.

And I mean, you can frame this as Iger just can't leave. You know, look at this guy. You could also, if you want to be pro-Iger, say, look, kudos to him for realizing that I'm going to come back. and put my whole legacy on the wine, because this could all blow up on me. But I need to actually see this through because the strategy I picked was actually really difficult. And I need to come back and make sure that we pull through. Yeah.

I think if you're pro Iger, you say, look, this is a company that he spent his entire career building and he feels a responsibility to invest in success and see it through this tumultuous period here, where the future is very much uncertain. Do you buy the idea that Iger's legacy is actually on the line with all of this? I think from my perspective it is, especially once he made that Fox acquisition. And again, I say all this,

this is 100% rearview mirror observations, right? I've already done Mayacopas about Netflix and the fact that I overvalued the content and the way that it might have drove subscriptions or avoided churn, particularly if that content wasn't different, And that's like had I had that take a few, you know, where they made the Fox acquisition, which I was always kind of confused about, but I wasn't like out there saying there's a bad idea. And so to the extent that I'm criticizing Iger for a mistake, it's a mistake that basically everyone made. Everyone's on Netflix and assumed Netflix was going to be dominant forever. And you had to compete with them. So the, the, this is not a, you know, what a dummy sort of thing. And I think there's definitely a case where, yeah, he's. his legacy is on the line, which is exactly why he wants to come back. Because if his legs

down the line, he wants to decide how that turns out and not have it in the hands of Bob Shepak. Interesting. Okay. Yeah, I just reading about Iger for the last week or so and paying attention to some of the commentary that this move has generated, it's like one of the first things people say is he's putting his legacy on the line. But then they'll spend like 45 minutes talking about him like he's CEO Jesus. And I just feel like anybody who's managed their public image that well is bulletproof at this point. Like he could fail to resuscitate Disney, but he succeeded like no other CEO has over the

last 20 years or so. Like he's got a pretty unimpeachable track record. So I'm not sure the stakes are actually as high as people are making them seem. That actually makes me more admire his coming back. Because I do think no one's going to care if some niche newsletter like Schochequerie says, actually we should revisit Bob Eiger's legacy because Bob Sheapex screwed because of decisions Bob Eiger made. Like you're right. In public consciousness, it would be viewed as Sheapac's failure.

It wouldn't be viewed as Iger's, even if it was the strategy that was the problem. So there is an extent to which, yeah, he's now owning it. but it's correct for him to own it. And, you know, and he's, so yeah, I mean, I, I like the fact he came back. I like the fact that he's putting it on the line. He ought to and a lot of folks wouldn't have. Is that motivated by, you know, by ego, by whatever it might be, who knows? But he's in for it now.

Yeah, well, we will continue to monitor the comings and goings at Disney. Hopefully he can mend that relationship with Scarlett Johansen and then... Well, by the account he couldn't mend the relationship with Robert Sarver and was never going to be allowed to buy the Phoenix Suns after... Oh, man. That was a great scoop from Bill last week. The news that he... That Sarver blamed Eiger for the coverage of the Sons. Pretty interesting, actually, because...

Makes total sense. There were a lot of rumors as that was happening that Eiger was. going to be the one to take over the suns eventually. And clearly some of those rumors got back to Sarver himself. So yes, he's not going to be an NBA owner. He'll have to settle for CEO of Disney. And also, don't cry for Bob Chapec because I was looking at him as sort of a tragic figure in all of this. And then I read that he's got a $23 million exit package from Disney. And he's going to be just fine. Probably not as fine as Bob Eiger, but he'll be okay at the end of everything. Two quick questions before we close out here. The first is from Jack. He says, and this is completely unrelated to Disney,

he says, back when Clubhouse was a big deal, I remember Ben mentioning that one day people could do their own play-by-play commentary for sporting events on it. Even though Clubhouse is pretty much gone, I still think third-party commentary is a good idea. I would tune into games I wouldn't normally watch if my favorite NBA podcasters were doing the commentary. So I'd love to hear you guys talk about this. Would the NBA ever release a game feed with only stadium noise? I'd love that if they ever did.

That's me, not Jack. Which platform would work best for this sort of thing post-clubhouse? Would you guys do commentary for a Bucks Wizards game? what are your thoughts, Ben? You can answer any one of those questions. Well, I do think this is something the NBA, and this gets back to the streaming bit, right? A few folks emailed me when I talked about,

you know, Discovery Time Warner and ESPN wanting streaming rights. What about the Microsoft deal that the NBA did? That's, you know, there is some tension there. I think the NBA would like to build up their own, like, week past. They've been very aggressive on pricing this year to really sort of increase the base. And one of the things I interviewed Adam Silver when this was first announced was talking about this idea of having different tracks and being able to do sort of different things. That's definitely one of the ideas that the NBA has. There is a really interesting company called Playback.

Our mutual friends, Sammas Fendiari, works there where you have to log in with your TV everywhere. So you have to have a cable subscription. So you have a right to watch it. But once you do that, you can log in and then there could be a conversation on top of the game. So it could be a group conversation where you're going to be a group conversation where you're. You're all watching the game. It's all synced up so it's at the same time. Or it could be your favorite commentators are talking.

Like they have control over who can speak, who can't. And so you can basically have your own commentary there. That's really interesting because one of the challenges with games, particularly in the streaming world, is making sure everyone's at the same moment in time, right? Like, one of the reasons I like having a real cable subscription, like when I'm in the U.S., is I hate the way.

You know you're getting it live. Yeah. I hate like you see something on Twitter, like 10, says what happened. It's very disappointing. So I think that's interesting. I think, you know, I think playback would actually be something the NBA should look into. That'd be really cool if that was just built into the NBA app and you can sort of have a

conversation around that. Yeah. So I think the idea is, is interesting. You know, it's always going to be challenging how do you get the folks in the, it's almost like a social network problem, like how do you get the right people in the right place with the right app so that it's compelling as opposed to I could just be on Twitter and sort of watching whatever it is. What I want more than anything is the Twitter replay feature. so I can watch, you know, watch Twitter in lives. I've been thinking about that ever since you dropped it like a month ago. It's very frustrating that that's not part of Twitter blue.

The ability to just recap, like freeze three hours of Twitter, like Oscar's Twitter. I would pay for that the day after. Yeah. My reaction to this is that on the creator side, it's actually very difficult to do third-party live commentary in a compelling way. And I think that's one of the other obstacles. Remember when T&T did the players only broadcasts? Yeah.

And they were. Terrible. They were so bad. It turns out that play by play guys are really important and their jobs really hard. Exactly. You understand why Marve Albert still had a job when he was like drooling and couldn't even remember players names anymore. Like he's like it like it's because it's hard to replace him.

Like it's hard to get someone that's good at that job. It is analogous to the streaming cable conversation because oftentimes everyone's like, yeah, streaming is the future and these leagues should look into putting their games on streaming. But it's pretty powerful to be coming over the air on television. And like that shouldn't be underestimated in terms of building popularity, retaining popularity, retaining relevance. And similarly, yeah, like a guy like Marvell. Everyone's sitting at home hating on the announcers.

That's part of being a sports fan, but it's actually very difficult to execute. And so I like the idea in theory, but even if it's just you and me, would we ever do commentary for a Bucks Wizards game? Maybe, maybe we would do commentary, but we would probably be doing commentary poorly during a Bucs Wizards game. So everyone just set your expectations going into that one. Respect to Marv Albert. May have a pleasant retirement. Exactly. All right.

Final question. This is from David. It's actually a comment. He says, regarding the revelation that Ben is in a cigar club, as a Californian, I'm honestly a bit repulsed. However,

I thought you'd appreciate some ammo for the argument that smoking is worth it. Here's a thread discussing the study of adult development, that's been running since 1938. Too long, don't read. Relationships are very good for your health. Loneliness is similar in impact, in life expectancy impact to smoking. So maybe they cancel out. I'll include a link to the thread in the show notes of this episode. If anyone's curious, what do you think, Ben? I don't need ammo because I don't care what David thinks about my cigar club.

Okay, good for you. No, I mean, I think that, like, number one, I think this is self-evident that having relationships, having places to go are good for your mental health. I think that there's knock-on effects probably to your physical health. Is it good for you? Like, is it good for your lungs? No. Of course it's not. Also, it's cigar, so it's more bad for your throat and mouth.

I'm not definitely not inhaling. I'll tell you that much. But, I mean, I, I, it's interesting that I think there's a tendency. tendency, I tend to take the mindset that, like, there are certain things that we as sort of humanity figured out a long time ago that are probably good and, you know, get rid of them, be wary, right? And I think there's a bit where nutritional science in general is really interesting. I'm not coming out here saying that book is actually not dangerous doesn't kill you. Of course it does. Of course it's bad for you.

I'm not denying that at all. But there's an aspect where we get so fixated and focused on these clearly measurable, clear. like A causes B sort of things that we ignore and miss out on things that are also very meaningful, but hard to sort of measure. And there's an aspect where, look, say my cigar club costs me a couple of years of life. You know what's great? What's great is right now in my life having a weekly get together with a bunch of guys where, I mean, cigar is really is a great sort of guy activity.

Right. Because you need something to be doing, right? You can't just like sit there, right? You claim this is self-evident. I'm going to be citing this thread. I'm going to be forwarding it to my wife because you've pulled me into the cigar world. You're like Jordan and I'm Tiger Woods being corrupted by you. And I've come to really love cigars as a result.

That's such a lie. Well, listen, I am a cigar guy now and I plan to try to start a little cigar club of my own here at D.C. at some point. But I'm probably going to get hassled. And when I do, I will cite this study that David passed along healthfully, you know? Loneliness is just as bad as smoking. For the record, at the cigar cloud, there are actually about half the people don't smoke at all. So. Perfect.

Good for them. Yeah. Good, good, you know, David's, David's buddies, I guess. I mean, not nearly as, you know, they have as good of a time. But the broader point, though, I think is worth keeping in mind. I mean, it's good to hang out with folks. It's good to have those sort of connections. And I think it's okay to think that and believe that without having a scientific study to back you up.

Like, there is a role. And I think this is something we maybe learned over the last few years, at least I hope people have warned. There is a role for sort of common sense in like folk truths in a way. Like hanging out's good. I don't need science to tell me that. It makes me happier. Well, and it's also an essential part of health, getting out and communicating. with other humans, it does play a role. And to your point, it's, it's harder to measure.

That's why we have studies like this running since 1938, but it's important to account for. So even if there are less obvious, you know, measurables, it should be considered by everybody. Yeah. There's this real tendency of like, I mean, I don't know, where's the double-blind study proving that this obvious thing is true. It's like, you know, there's so much we don't know about anything, right? Like, like, I don't know. We don't need a study. Everybody can just go back and listen to the Thanksgiving mailbag and the 10-minute discussion of group chats, which generated a lot of feedback.

And we'll probably dive into that somewhere along the way over the next couple weeks. There were requests for a transcript. There were requests for like a video discussion of what was going on. in the group chat. So everyone can look forward to that. And some controversy in the group chats about who is who. Exactly. You're stirring the pot.

Maybe you're the Russell Westbrook of the chat. For now, we are going to come back later this week. We'll have a lot more mail. Everybody send us questions at email at sharptech.fm, whether they're about the bobs at Disney or anything else tech-related. we'd love to hear from you and I look forward to keeping this rolling. Sounds good. I'll talk to you later.