Tech Brew Ride Home - The Streaming Wars With Eric Jackson

Episode Date: May 19, 2019

Eric Jackson is an investor at EMJ Capital Ltd. He’s deep in the media space, he’s deep in the streaming wars, as I think I say in this episode, he’s shaped a ton of my thinking about the streaming wars. So… where are we? Who’s up? Who’s down? Is it time to get bullish on Disney+ for a ton of reasons? Eric has a great podcast: The Eric Jackson Podcast. Sponsors: Audible.com/techmeme Instacart. Promocode RIDE at checkout. Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to a tech meme ride home bonus episode. I'm your host, Brian McCullough. Eric Jackson is an investor at EMJ Capital Limited.

He's deep in the media space. He's deep in the streaming wars. As I think I say in this episode, he's shaped a ton of my thinking about the streaming wars in general. Where are we? Who's up? Who's down? Is it time to get bullish on Disney Plus for a ton of reasons?

Eric has a great podcast. the Eric Jackson podcast, link in the show notes. Please enjoy this deep dive into the streaming wars. Maybe the easiest way to ease into this is like, let's do some news from this week. What'd you think about Disney finally taking control of Hulu? This has sort of been, it seems like this has been a strategy that they've been quietly pursuing this whole time, or is it just an accident of having acquired all the Fox assets and everything like that? No, I've got the feeling that this has been definitely on the whiteboard for a while for them. I was at the investor day that they held a few weeks back in California,

and where they unveiled Disney Plus, and they talked about ESPN Plus, and they also had a segment about Hulu and Hot Star as well. And definitely, you got the feeling even then from what was said that they definitely had a plan on introducing a bundle later this year of those three services. And there were also lots of, there was lots of talk about international rollout, not just of Disney Plus, but of Hulu and even ESPN Plus. So in order for that to happen, though, they needed control of Hulu. And so when they were asked about it and when Brian Roberts of Comcast was asked about at point blank and in the days afterwards, you could tell, at least to me, they didn't deny it. They didn't, you know, they sort of said as of today, the ownership structure is such and such.

But, you know, we will see that sort of thing. And so I was just perhaps surprised that it was announced so quickly. know, since that investor day. And so now they've got effective control of Hulu, even though Comcast is still technically an owner, at least for a few more years. And, but they can run it as they see fit. They can expand internationally. They can bundle it. They can control the data between the different services. So that's really what Disney wanted to get off the blocks quickly, and that's what's going to happen. So let me, speculatively, let me poke at this from a couple different angles. So as you said, the obvious play here is you bundle it with Disney Plus, you bundle it

with ESPN, you know, whatever that dollar figure is, probably in the neighborhood of $15 to $20 a month. Like, you get all this stuff, like, this can be your entire TV offering. So the first thing is, does that, like, should we think that maybe Hulu is their play to take a bite of the ad-supported streaming video pie as well? They're definitely going to get a lot of, you know, ad revenue from Hulu. Because what, I'm sorry, maybe I need to be more clear about that. Obviously, you bundle them together, they're the subscription thing, and you would be ad-free in that sense.

But I keep reading about how much there's growth in the ad-supported streaming video stuff. So like, does this allow them to, are they doing this because it would allow them to play both sides of that fence, or is the play really just to bundle it all together and be like, sort of how Netflix is like, well, you don't really need TV, all the TV you need is through us. And they could say the same thing, especially with ESPN being a part of that as well. We'll have to see, but I suspect that they're going to, there's probably going to be bundle 1A and bundle 1B. And bundle 1A is with ads on Hulu, which will be a lower price than bundle 1B, which is a high price, higher price for no ads. But what they said at their

investor day was, you know, and surprises me that there's, you know, the vast majority of people, people when they subscribe to Hulu prefer the lower price and therefore prefer to watch ads. So I think the whole Avod, advertising video on demand area has surprising people with the growth of Roku in the last few years. People are willing to put up with ads as long as they get a ton of, quote unquote, free content that goes with it. So I think, and then there's probably going to be bundle 1C and bundle 1D, which is when they throw in the Hulu Live services as well to that bundle too. All right. So then the other thing, and this is purely speculative, but I'd be curious to know your thoughts on this. One part of this equation that we're not hammering on is the ESPN part of the equation.

Is there a scenario where over the next 10 years they go hog on trying to get the rights to all the sports that they can. And then that becomes a really compelling third leg of the stool where it's where you go to watch football, basketball, whatever. Well, I would say they've gone whole hog on the sports rights now. It's just that most of the major sports rights that they own are still going to be on ESPN, linear, and ABC. So I think, you know, I guess the question then becomes when over the next 10 years. years, is it going to flip that people are just not going to put up with linear anymore and want everything on OTT or streaming?

And nobody knows. But I think the whole part of Disney's thinking is that now they've got a hedge with ESPN Plus, that they have this streaming service, which is a heck of a lot more compelling than I thought it was going to be a year ago when they first launched it. even though it's still got lots of niche stuff. It's got really interesting original content, the 30 for 30, the Peyton Manning breaking down NFL plays, Kobe Bryant talking about basketball plays.

Then it's got unique sports rights that are going to be interesting for dedicated viewers and everything from boxing to soccer to Ivy League football and all this kind of stuff. So they have the service. They're running it. They're seeing how it goes. They're learning from what people like from it. But they're still getting a lot of revenues from linear and the traditional bundle today from ESPN.

And there's still going to be lots of reasons for you to hang on to your traditional ESPN subscription. But whenever the time does come that people say, enough is enough. We're willing to switch. They will be ready to port it over from linear to ESPN Plus. I guess that's what I was asking is you're not expecting that to happen in like the next three years or something. where all of a sudden it's like, you know what, guys, the only way you're going to be able to watch football is through our service. You're not expecting them to be that aggressive that soon. I don't think so.

I wouldn't expect them to lead that. I think they'll follow, you know, customer demand. And it wouldn't surprise me if, you know, the cable, the traditional cable bundle lasts a lot longer than, you know, what most of us, quote-unquote, media futurists say. So I think You know, it works for a lot of people You still have to subscribe I mean, the people You know, one thing that I don't think gets discussed a lot is that

I still need to pay Comcast for my for my internet connection In order to stream, right? And if I've got the relationship with Comcast or Spectrum or whoever it is already And they're going to offer me some additional TV linear content, you know, you know, for a nominal additional amount. And it's, I'm getting Monday Night football or whatever it is, you know, the traditional ESPN stuff and news and all that kind of stuff.

Then I'm going to continue to pay, I think, or a bunch of people are for a while. So, and I think the major sports leagues are still going to want to see things like the Super Bowl on Linear for a while. They were willing to, you know, to go along with Fox building out a network of new broadcast channels back in the 80s when they made the switch over from CBS to Fox. But I think, you know, for a lot of people, they're not ready to, you know, fire up their connected TVs and watch the Super Bowl on their DeZone app or their ESPN Plus app just yet. I think we're still a few years away from that. Well, we're generally talking about Disney here. So in the broad horse race sense, what's your take on Disney's position here? So the Disney Plus is going live, I think, in November of this year.

I read your piece about at the Investors Day or whatever it was, and not only were they super aggressive with the pricing, but they also were apparently super aggressive with their guidance in terms of the amount of subscribers they think they'll have like five years out. Well, they were super aggressive to some. I mean, I think they are sandbagging, and I think that they're going to have way more. I think they said something, 60 to 90 million Disney Plus subscribers, but they picked, I think it was. 2024, you know, so we're five years from now. And, you know, things are changing so rapidly and that I just think that people are not, I think a lot of Wall Street analysts, they look at what Netflix, how Netflix's subscriber growth has grown historically. And they've sort of said, okay, well, I'm just going to take that graph and I'm going to plot it from starting today with

with Disney Plus having zero, and I'm going to imagine that it's going to ramp up in a similar, slow and methodical fashion, and then eventually there'll be a hockey stick curve five to eight years from now. But the world is a lot different today than it was in 2010 or 2012 or whatever when streaming was just getting started for Netflix. So I just think the world is a lot, a lot more ready for Disney Plus. I think there are going to be a lot more people that jump on board very quickly. So to me, I think they'll far exceed 90 million. And that's keep in mind that's global. That's not just, that's not US. Right. A lot of overseas subscribers. And they said they predicted two-thirds of their subs would be international versus US, which is,

I think, a similar kind of skew for Netflix. So I think they're going to be well above that by 24. Am I wrong in thinking that Bob Eiger deserves more credit for maybe kicking off these streaming wars? I mean, I can remember, it wasn't that long ago when people like me were screaming that there should be an ESPN streaming offering, and it seemed like that was something Disney would never do. So on the one hand, it feels kind of like they turned on a dime, but then, as you pointed out in one of your pieces that, like, if you look backwards, like, what Disney is about to pull off right now has been, you know, years in the making, and it's all been about, you know, Iger putting together the pieces that even make this possible.

I think, I think Iger is fantastic. I'm a shareholder in Disney, and I personally, you know, I wish he would, I wish people would, it seems like only the journalists in the world constantly bring up, when are you going to retire, when are you going to retire? and they talk about, and they read articles about how he's almost retired. I forget how many times now, two or three or four. And he's put it off. If it was up to me, the guy would work another, I don't know, 10, 20 years. I mean, you see him.

I don't know how old he is, but he looks a heck of a lot more in shape than I do. So he looks like he's good to go for a long time. I think he's a great CEO. I think he's a great communicator. And lots of people love him. Lots of analysts love them, shareholders love them. But I don't think he's perfect, and I don't think he's handled this transition perfectly. And none of us has crystal balls.

So I think we have to cut him some slack. But I think it's worth remembering that, and there's a good article in I think it's the information that sort of talks about some of the behind the scenes. dynamics that have played out over the last five years at Disney, where some of the lieutenants, people like Kevin Mayer and others were sort of advocating a more aggressive push on going into Disney Plus and streaming. And it was Iger who basically made that last deal with Netflix to kind of choose to keep Disney content on there for another, or whatever it was, three to five years additionally for hugely profitable revenue in exchange.

But he also deserves credit for however many years into that new deal, deciding no, the world is changing too quickly, and we have to get on this and we have to acquire BAM tech so that we have this infrastructure in place to do streaming. And we have to terminate our deal with Netflix. We have to go out and buy back the rights to the original Star Wars movies that we licensed to Turner to show until early 2020s so that they'd be exclusive on this new service. So I think once he made the decision to go, you know, whole hog, like you were saying, into streaming, he's definitely been supportive and he's definitely kind of gotten everyone pointed in the right direction. But, you know, he was trying to feel his way. He was trying to balance the traditional ways that he as a media executive got rewarded,

which was increasing EBITDA every year and sort of say, well, no, we've got to change more to a Netflix model where we're not going to make a lot of profits from the streaming service. And that doesn't matter. What really matters in the long run is can we acquire this huge global system? millions of subscribers that we're going to learn about, that we can kind of not just bundle other things like Hulu and ESPN plus with, but we can eventually start to kind of use our understanding of what they like and build it into our parks and build it into our consumer products and our cruise lines and all this kind of. Yeah, let me, let me interrupt you there because I don't remember if I listened to it on your podcast or I read it, maybe it was a medium piece or whatever, but one of the, one of the greatest things I've I've read in the last couple years is your thing about Disney as a service. Because then it became obvious to me, and it popped up everywhere, you know, like, when Apple is, you know, pivoting towards services, and it's like, eventually you're going to pay your,

you know, 50 or 70 or $100 a month nut to Apple for all of the things they do for you. We're already doing that with Amazon, with Amazon Prime and things like that. And so, again, bizarrely, well, maybe not bizarrely, but, like, Disney seems to be well positioned to be able to be one of the players in this new game of everything as a service, everything subscription revenue. They can go toe to toe with Apple and Amazon and everybody, and that's kind of amazing. Yeah, and I want to give credit to Matthew Ball, who writes for Redef. He's also, he wrote about Disney as a service in an article before I did. I think mine was a little bit more investor-y-focused than his was, but I think we were kind of coming

at the same the same ideas though which is that yeah you're right they disney has uh these very unique assets um the parks the consumer products the the history the um you know obviously the content that they've bought and things like lucas film and marvel and uh pixar and and all their you know original mary poppins homegrown type content as well that that generations of people are familiar with um and love and and so the Those are very powerful assets and, you know, frankly, ones that I think Netflix can only dream about. I think, you know, I don't often, you know, Disney Plus gets written about like, you know, is it going to kill Netflix or vice versa? And I think Netflix is, they're the, they're the gorilla in streaming. They're going to continue to be.

Disney Plus is not going to surpass them. Netflix is going to continue to be very successful and grow. The two are here to stay, but I think that Disney does have some great advantages, certainly in streaming compared to someone like an Apple, where they just have all of these great things that they can build into this sort of bundled service. So the bundle is going to start as just like kind of like the streaming version of a traditional cable bundle in terms of just you know we're going to have these different channels hulu for your adult stuff the s p.m. plus for your sports stuff disney plus for your family and teen stuff uh but eventually

it's going to it's going to branch out and touch um i think the other parts of disney the parks the cruise lines the consumer products and so forth and so and that's you know one of the the points that i was trying to make in in my article which i think it was a little different from Matthew's point was that from a just from an investor perspective or from a from bob iger management perspective i think there's nothing more that i think could help disney's stock value than to do that because if you just look around the world today and you look at what you know software companies whether it's like a microsoft or an adobe or some of the you know sales force dot com these companies are all have very very high very high very

valuations on a sort of a price to sales basis. And some people who are more more traditional value stock investors say, hey, this is not right. This they should be valued on profits. But I think the market is very wise in giving them such a high valuation because basically they're saying that these are subscription services and these people, Microsoft has turned itself into, you know, you're paying this sort of regular subscription service to have office and to have outlook and to have all these other things.

And it's going to be the same for Disney and other businesses who kind of choose to look at the world this way. If I as a parent of a bunch of kids, you know, in my family, we decide, you know, I want to have this regular relationship with Disney where I want to always be able to stream the content. You know, today, my girls are clamoring for the Little mermaid. But next week, it'll be the latest, you know, version of the Avengers that's coming out or whatever. And, you know, next month we want to go to Disney World or something like that. You know, I'm going, I want to have this ongoing relationship. And if Disney's able to cater to that and to delight me with all different kinds of options on a regular basis, the market is going to look at that as a very powerful kind of ongoing relationship.

That it just gives Disney a higher multiple for compared to the traditional relationship. where every once in a while I go to Walmart, I buy my DVDs and I come home and my kids watch them for a while. But and maybe I go to Disney World this year, but I might not go back for, you know, it becomes a much more predictable relationship in an ongoing subscription service world and the market is willing to assign more value to that to the company. Before I let you go, can we hit a couple of the other players? Curious for your thoughts on Apple TV Plus or maybe they just haven't told us enough yet to even be able to hazard a guess about where they're at with that. I've been frustrated with Apple. I'm not a shareholder currently. I mean, I was for a long time.

I think that their whole video event was sort of a mess. I think they thought that if they just threw some of their money around at some of these big stars like Oprah and Steven Spielberg and Reese Witherspoon, that it was just going to, they were going to be able to put some content on there that would be compelling enough to kind of get people's attention. But we'll still have to see. It still might. They haven't released anything yet. But I think what, you know, the sense that I got from watching that presentation was just

how far behind they are people like Netflix and people like Disney in terms of, you know, stockpiling content that they're going to be able to show in such a way that, you know, if Disney Plus is asking me to pay, we're going to. whatever was six bucks or seven bucks or something a month like and they're i'm getting all star wars all pixar etc etc like what how what how can apple expect to to charge me anything anything or right or a couple of shows basically so um now you know none of us probably six seven years ago would have expected netflix to be able to uh churn out the content the amount of quality content that they have over the last few years. Everybody, you know, who worked for a Hollywood

studio would have said, oh, no, it's a black art. It's so magical. These, you know, Silicon Valley types are not going to know how to do this. And guess what? They figured it out so quickly. So, you know, maybe Apple still will. I just get the impression that Apple has this very go slow approach. We don't need, you know, the house isn't on fire. We're printing money. We can take it slow. You know, we don't need to buy Netflix right now. We don't need to buy Disney. We'll just figure it out. We'll just start plot along. We did that in Apple music. And even though people made fun of us and said, we're not as good at Spotify, look at us now, we're basically whatever, just as good.

If not, you know, if not a little head. So I think they just, that's their modus operandi. I don't think it's a right choice. I think they would have been a lot smarter. They should have bought Netflix, right? Yeah, they should have bought Netflix. They should have bought Disney a couple of years ago. When they, you know, before they embarked on their whole.

cash, you know, dividend, debt, buyback thing. I mean, I don't think they've gotten much out of that. I think they would have been much better served from doing a mega acquisition like one of those companies. Super quick. So whatever the Warner Media streaming, like that's coming from AT&T, right? And so it's going to be like TNT, TBS, because I saw like Conan talking about that this week. and so an HBO in theory like do we think I guess what I'm most curious about is is HBO just going to be subsumed into whatever that becomes or do you think HBO will always still be its own separate service offering product offering right now I'm very skeptical about the

future for whatever they're going to call it Warner Media Plus or HBO Max or something I forget what it is. Now, I just, I mean, right, they don't seem to be off to a great start with, you know, licensing, continuing to license friends to Netflix for, for money rather than make it exclusive on this new service. You know, basically, all these people leaving Turner and HBO. I mean, you know, all of us, you know, is replaceable, but they're losing some pretty quality people and so you have to wonder are they going to be able to find the next game of thrones or you know west world or what have you so um there's a lot of question marks there and um you know it it's uh we'll have to see i mean uh the phone company running things i mean you only have to look as

far as verizon and their whole yahoo stuff and right uh kind of to get a little nervous about whether they're going to be able to pull that off well okay that leads perfectly into my final question then What degree is everybody jumping into the streaming wars, they have to know, as everyone's already screaming about and tearing their hair out about, like, we're not going to all subscribe to 10 different services, right? And to some degree, they're not stupid, they know that. So how much of it is people think that their streaming offering can win, and how much of it is, it's a strategic thing.

You feel like you have to have a distribution platform, otherwise people are afraid they would like lose control of their own destiny or something? Yeah, I mean, I think you've nailed it there. I think they feel like they've got to have something. Because otherwise you just become a company that produces the shows that then you have to then sell to whoever ends up being the winning platforms. Yeah, yeah, that's right. Or you exit the business entirely.

Yeah, I mean, and I guess people like Viacom are going to be like, try to be this arms dealer to sell to whoever and there probably will be others but yeah no it's it's going to be super expensive for those folks want to get into streaming and and the biggest thing is like the customer acquisition costs i mean that's that's a big advantage disney has like everyone knows their content so you don't really have to see a lot of bus shelter ads uh about disney plus to kind of get it and understand what it is and and kind of make a judgment in your mind whether you're going to subscribe to it. But like a Warner Media Plus offering or whatever they call it, HBO Max,

I mean, that's probably going to cost more money to kind of educate people on why they need that service to be part of their bundle. You joke that they should just call it Friends Plus or something. Right. Yeah, I mean, everyone seems to be calling their Service Plus, so they might as well go with the kind of the, you know, NBC Universal should call their service Office Plus. Warner should call it Friends Plus

because at the end of the day the reason why I'd be subscribed to any of these services is probably one hit show whether it's Handmaid's Tale or Game of Thrones So those are the best assets that NBC Universal and Warner have

Whether it's going to be enough to you know to make your top five streaming services is up for debate And so that's another reason why I do like the Disney approach because they're trying to say well you're going to have to have Disney Plus and if you're getting that anyway why don't you get our mini bundle of the Hulu and the ESPN Plus as well and you know they're betting that a meaningful number of their of their Disney Plus subscribers will

say yeah why not just as has happened in the cable cable world