The Compound and Friends - Where is Netflix’s Marvel Studios?

Episode Date: May 13, 2024

On this episode of Great Quarter Guys, Josh Brown and Michael Batnick, are joined by Julia Alexander, Head of Parrot IQ at Parrot Analytics to discuss earnings reports from Netflix, Warner Bros. Discovery, Disney, Paramount, and more! Thanks to Public for sponsoring this episode! Visit https://public.com/ to learn more! Sign up for The Compound newsletter and never miss out: https://www.thecompoundnews.com/subscribe Check out the latest in financial blogger fashion at The Compound shop: https://www.idontshop.com See https://www.wisdomtree.com/investments/etfs/equity/dgrw for more information on fund facts and disclosures. Investing involves the risk of loss. This podcast is for informational purposes only and should not be or regarded as personalized investment advice or relied upon for investment decisions. Michael Batnick and Josh Brown are employees of Ritholtz Wealth Management and may maintain positions in the securities discussed in this video. All opinions expressed by them are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. The Compound Media, Incorporated, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. For additional advertisement disclaimers see here https://ritholtzwealth.com/advertising-disclaimers. Investments in securities involve the risk of loss. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. The information provided on this website (including any information that may be accessed through this website) is not directed at any investor or category of investors and is provided solely as general information. "Options are not suitable for all investors and carry significant risk. Option investors can rapidly lose the value of their investment in a short period of time and incur permanent loss by expiration date. Certain complex options strategies carry additional risk. There are additional costs associated with option strategies that call for multiple purchases and sales of options, such as spreads, straddles, among others, as compared with a single option trade. Prior to buying or selling an option, investors must read and understand the “Characteristics and Risks of Standardized Options”, also known as the options disclosure document (ODD) which can be found at: www.theocc.com/company-information/documents-and-archives/options-disclosure-document Supporting documentation for any claims will be furnished upon request. If you are enrolled in our Options Order Flow Rebate Program, The exact rebate will depend on the specifics of each transaction and will be previewed for you prior to submitting each trade. This rebate will be deducted from your cost to place the trade and will be reflected on your trade confirmation. Order flow rebates are not available for non-options transactions. To learn more, see our Fee Schedule, Order Flow Rebate FAQ, and Order Flow Rebate Program Terms & Conditions. Options can be risky and are not suitable for all investors. See the Characteristics and Risks of Standardized Options to learn more. All investing involves the risk of loss, including loss of principal. Brokerage services for US-listed, registered securities, options and bonds in a self-directed account are offered by Open to the Public Investing, Inc., member FINRA & SIPC. See public.com/#disclosures-main for more information." Obviously nothing on this channel should be considered as personalized financial advice or a solicitation to buy or sell any securities. See our disclosures here: https://ritholtzwealth.com/podcast-youtube-disclosures/ Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to Great Quarter, guys! A series of quarterly episodes where participants react to earnings week and express their opinions, both positively and negatively, on quarterly earnings calls. The views expressed by the hosts and panelists are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management, LLC. The information discussed should not be relied upon

as a recommendation to buy or sell any of the securities discussed. Investing involves risk and possible loss of principal. Hey guys, very excited about today's show, but first I wanna tell you about trading options on public.com and the Public Trading app. If you want to literally earn money to place options trades,

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This has been paid for by Public Investing. Options are not suitable for all investors and carry significant risk. Full disclosures in the podcast description below. US members only. Hello and welcome to another episode of Great Quarter, guys. We're here today with my co-host Josh Brown and a special guest, Julia Alexander. Julia is an analyst and writer at Puck covering streaming, tech, media, and telecom. Julia is also the head of Powered IQ at Powered Analytics, an audience demand analytics company tracking

over one trillion expressions of media demand across 200 countries. Julia previously spent time at both IGN and Vox leading content and streaming strategy. Julia, thank you so much for coming on the show today. Thank you so much for having me and go Knicks. Go Knicks. Julia, so today we're going to be covering your business, Thank you so much for having me and go next. I'm looking at your hat. Go next. Julia, so today we're going to be covering your business, streaming, and we're going

to get into Disney and Warner Brothers, Paramount, and Netflix. Do you think that the business of show business is a lot more interesting than it used to be? I think there is a larger fight over who will emerge as the king of distribution in a way that wasn't a conversation when many of these companies who you just mentioned were pure suppliers and so they were working with intermediaries between themselves and the client or sorry, the customer rather. And so you had Comcast and Charter on one end who were really an AT&T and they were the intermediary between customers at home and the content suppliers.

You had the theatrical exhibitors like AMC and Regal who were the intermediary between customers and audiences and the supplier. Now there is this new game of how do you emerge as a distribution king in an era of apples and Amazons when you are still trying to create that one-to-one relationship with a customer. And I think that is a newfound problem for a lot of these companies that makes it inherently interesting to watch and to see play out. Prior to streaming, which we're going to cover today, the status quo was the

status quo for decades. Like things just ran how they did and it's a completely different universe right now. So one of the- Yeah, I think the- Go ahead, I'm sorry. Go first, sorry. No, no, no, answer, answer.

No, I was just gonna say, I was just gonna say, I think the, what's really interesting to watch change is the incentivization factor for being in entertainment because it's not what it was 20 years ago. It's not what it was 10 years ago. It's certainly much more in line with the incentivization structure of tech companies in Silicon Valley.

That is interesting for an industry that is famously slow moving. Let's get to some charts. We're talking streaming and what we're looking at is the share by service as a percentage of overall TV viewed. What jumps out to you, Julia, here? I think like many of my fellow analysts, YouTube, that real big dominance from a AVOD, from a user-generated content AVOD platform that is just dominating overall monthly viewage in the United States. If you look at some really impressive statistics that come out of Google and come out of YouTube,

and clearly those statistics are going to be self-serving. But when you look at it, the idea that they've seen a huge increase in consumption of YouTube on connected TVs, when they see an increase of usage of their YouTube shorts, which is their competitor to TikTok and Instagram's reels, really being viewed on TVs more often, this really gives them the ability to maintain that dominance in terms of consumption on these devices. It certainly allows them to secure higher advertising spend because they can convert those audiences into potential customers for these different brands in a way that you weren't necessarily getting with the A-vod like Peacock.

You certainly weren't getting with the S-vod who are advertising free until very recently. I think this is the... The phrase I like to use about YouTube is that it casts a gentle hum of anxiety over the entire industry. It is this question of how do we defeat this monster who has some of the lowest Kpacks out of all of these different services and who can create hundreds of millions of content every single minute that people are gravitating toward. The other thing that's not set in that chart, but where that chart really comes into play

with what I spend a lot of time thinking about is the benefit to YouTube has always been that YouTube just has to be good enough, right? No one goes to YouTube and says I'm looking for this to replace my Netflix viewing or my Disney viewing This is not going to replace my desire for dune to or frozen But it is going to be just good enough that I can spend more time here when we think about The very specific process of how people upload videos to YouTube, how they record videos, and we think about the idea of generative AI and the hardware manufacturers like Apple and Google, especially Google, which owns YouTube, really getting into this idea of how do we put generative AI into the hands of creators to allow them to create

more content at a faster rate, but also even better content than we've been used to. I think that's what gets into this really strong concern if you're a Netflix or if you're a Disney or if you're a Paramount because if YouTube is already controlling the vast majority of viewership and now they're going to be slightly better than just okay, how does that compare to your Cape Hacks where you're looking at you're looking at 15, 16 billion dollars spent, 17 billion dollars spent by Netflix alone, and YouTube is doing it at not even a fraction of that, and still generating those huge upsides and upswings

in the viewer consumption, and that's that anxiety. I want to just make sure for the listener, the chart that we're talking about, when you think about the percentage of TV viewed It's basically YouTube and Netflix and then everyone else YouTube is is this nine point seven percent of all TV viewed is happening on YouTube. Am I saying that right? That's exactly right. Okay, so that's crazy to me It's insane and Netflix is the closest to it's your point Netflix is the closest second and point. Netflix is the closest second

and it's really funny because when you talk to people about the streaming wars, it's always Netflix is one. Netflix is very far and away the leader that is evident in its subscriber base, that is evident in its stock. Very clear far and away the winner. I'm glad you said that. I'm glad you said that because most people don't most uh civilians not Parrot IQ and and not Wall Street but viewers don't consider Netflix and YouTube to be competing with each other but as we know from an advertising perspective you only have 12 hours a day during which you're lucid and you can only watch one of these things at a time or maybe two with A second screen so it's attention whether one is user-generated and the other is Hollywood product. It doesn't make a difference

This is where people are putting their eyeballs and that's what really matters And the important part part about that that nine percent for YouTube is that that does not include YouTube TV, right? Like Nielsen doesn't measure the VM VPDs And so we we think- Oh, I thought that was YouTube TV as well. No. And so when we think of Sunday Ticket, right? And when we think about State of the Union and some of these other major events that

draw in strong viewer engagement, that is an additional part of the audience viewership that YouTube really has. And I think to your point, Josh, about the advertising spend, this is why I think you can look at YouTube and Google and see why they're very interested in sports spending, potentially local TV spending, which is what Amazon is really chasing. This is the idea of we've got the digital spend right between Meta and Google, and we're fine there, but what we really want is this super high value, high CPM local TV spend, a national TV spend.

Now YouTube is the fourth largest MVPD. They just surpassed Dish. They're the largest MVPD. They're the only growing MVPD out of all of these services of the slings and the foobos. It puts YouTube in this really interesting position of not only a strong content supplier and aggregator on YouTube, but also a very strong distributor in a way that companies like Disney and Paramount Inc. and even Comcast to an extent are still trying to re-figure out in this new age.

I want to get to the companies in a second, but before we do, I just want to stick with this YouTube thing. John, chart back on, please. It looks like YouTube is now breaking out and Julie, I really thought that YouTube TV plus was in here or YouTube TV was in here, which I think you can correct me is like seven or eight million subscribers alone. But it looks like there's like a breakout. So YouTube is now accelerating its share of streaming. If YouTube were a standalone company, do you think it's worth at least as much as Netflix? Maybe more because the economics might be better?

I would say, and this is just gut valuation because I haven't run any of it, but based on value, based on the advertising rates of commands, based on its growing dominance globally, right? So I'm just domestically in markets that Netflix has not figured out. The demography of its users. Exactly. Exactly. And like what is a market that Netflix really wants figured out. The demography of its users. Exactly. Right. Exactly. What is a market that Netflix really wants and it can't really figure out is India.

Amazon's kind of figuring out India, but YouTube is India. That's a lot of people in India go to YouTube as their main source of entertainment. When you look at that and then you look at YouTube's ability to really be this true globalized entertainment asset in a way that none of these other companies, even Netflix, can't reach. I think it's definitely more valuable than Netflix. Now, is the content more valuable than the content on Netflix? Probably not.

I think on average, you look at the content on Netflix, it's worth a lot more. That's actual IP. But if you're looking at, on average, a Str stranger things or Bridgerton versus a Mr. Beast, like there's now there's a question, right? If Amazon gives Mr. Beast $100 million to do a show that is effectively his YouTube show at a larger scale, what does that mean if you now have a ton of Mr. Beast replicas? And so which is what YouTube incentivizes. And so I think it gets really tricky. But I do think as a whole unit, my gut would tell me that YouTube is probably worth more than Netflix at this point, especially when you take into the fact that there is hardly any cost, excuse me, when you take into account that there's

hardly any content costs associated with that. Kids don't distinguish between which of these was created by professionals at a studio and distributed the right quote unquote the right way versus which of these is a guy with a camera who had the budget to blow up a few cars. It's not a distinction is not important to them. And if anything, they might prefer the latter to the former. And that's really tricky. If you've invested all this money in studios and infrastructure to create content in Hollywood.

Well, and I think you can look at Netflix's largest kids show is a YouTube show, right? Coco Mellon. They licensed it from Moonbug, who's owned by Kevin Mayer and Tom Stagg's company. They licensed it and said, this is our biggest show. It is why, during the Bob Chapek era, that very short-lived era of Disney, he mentioned on an earnings call that he was losing the preschool audience, or Disney was losing the preschool audience to YouTube,

which is a crazy fact because they own Mickey Mouse, right? So you're kind of like, how's that possible? But it was this idea that, to your point, Josh, kids go to the platform that they most spend time on and they don't care if that's watching Mickey Mouse on YouTube or if that's watching CocoLon on YouTube, and then those things come to a platform that parents feel better about.

No passwords on YouTube. No password protected app. Very important. There's always something more. So YouTube is growing faster than Netflix. It probably is, certainly has better margins, and so the market cap of Netflix is $260 billion. So yeah, probably YouTube is plus or minus, who knows. All right, so let's get to Netflix. Netflix reported on

April 18th, we're recording this a couple of weeks later on May 10th, they beat in the top line and bottom line that they beat in their margin. But the stock on hammered, I think it was down 10% the next day. And one of the reasons why we do this show the way that we do is we like to let these things marinate and digest and not just have the knee-jerk reaction, but what actually has happened since, because since it reported, it filled the gap. Meaning all of the losses it gained back.

And I don't know why it fell as much as it did. Maybe investors were nervous that it's going to stop reporting its user count, I think starting next year. So, Julie, what did you think of Netflix this quarter? Like everything with Netflix, it's really hard to say, oh, that's rough. They are just the global leader at this point. What has always concerned me about Netflix, and this kind of came through in the wording of this most recent earnings report. I mentioned to a colleague of mine at Puck, Matt Bellany, great guy, and I said to him, when you read through earnings reports, typically it feels like they're geared towards Wall Street. It's like, hey, here's what's happening with our company. Please increase

our stock. We're feeling really good about it. This earnings report and the earnings report before it felt like it was geared toward Madison Avenue. It really felt like we are fan first. We're engagement heavy. Don't worry about how many subscribers we have because we have a lot and you can see it in this engagement. We are eight out of 11 weeks within this year, top movie on the platform, et cetera, et cetera. What has always struck me about Netflix and what its biggest advantage has been is that

it is heavily convenient. There's always something on and if you have it as your go-to app that you use for your entertainment, there's a good chance you're going to find something to watch, whether it's original, whether it's licensed. That is something that no other service has been able to replicate. Netflix is also able to release kind of binge titles, which helps with their viewership numbers because you have more people watching an entire series at once, in part because to release kind of binge titles, which helps with their viewership numbers because you'd have more people watching

an entire series at once, in part because they have been spending, I mean, since 2014, they've spent easily more than $100 billion on original content, right? So there's always something to bring people in and say there's something new, so when you finish, you can watch this new thing. There was a study done by Roku

that showed that when you release via binge, you have a 70% higher chance, or of those customers, 70% are more likely to then go and find something else within that month on your platform compared to like 60% or I think it was 56% maybe of people who were watching via weekly. For Netflix, there's this incentivization structure within its content strategy, within its UI, within its recommendation algorithm structure to really say, like, continue watching with us week after week after week. The only downside, and this is something that I look at whenever I read through Netflix's

earnings and they have their whole section on, here's the shows and films are really proud of, here's the numbers they put up, like they're really big. No one can compete with us, right? That's the message they send to Wall Street. It's the message they send to Madison Avenue. The issue is none of those titles have longevity. Very few of those titles are actually seeing a strong ROI on the online investment. If you think about it, the way Netflix works, and we see this at Parade Analytics when we look at the data of those shows post four weeks after launch, post eight weeks after

launch, post 12 weeks after launch, post 12 weeks after launch. It's like strong up, really big decline. Like Tiger King. Versus if you look... Exactly. Can I ask you though, is that because of the programming itself or is that because Netflix keeps feeding you to the point where nobody has to go back to something that they loved? It's unlikely Netflix is going to create the next Seinfeld

because they're worried about creating the next Friends Man about you. They want to just keep barraging you. So it almost doesn't allow for something to become a classic that has longevity. Yeah. And what I would say is that I think one of the points I had sent over was where is Netflix's Marvel Studios? And it's this idea that they're not a theatrical company. This is not me asking, where is your billion dollar title at the box office?

This is 15 years from now, what is the title people are still talking about? And at some point, if you're spending, spending, spending, just to have titles that reach certain audience clusters, this was a big Netflix strategy in early days. This show would reach this cluster and that would keep them engaged and that cluster would maybe overlap with this cluster. Very, very tech. They're the tech-oriented company. It's what really set them apart. The only issue with that is what we can see they're not happy with it based on their executive turnover. We see them

bringing in Bella Bajaria, who's really been over Cindy Holland, who they say, okay, bring some of that NBC universal magic to us. They're bringing in Dan Lin, who's known for the Sherlock Holmes films, versus Scott Stuber, who did some of the Martin Scorsese stuff. There's this idea of we want our properties to become properties. You can see why. I mean, they're launching their games division, right? They're launching their merchandising division.

They're launching live events. They're now following this kind of Disney structure of we want a flywheel. It's really hard to create flywheels that people are going to continue spending on and they're going to be excited about when they're forgetting about the show or the film in four weeks because, to your point, Josh, Netflix has a constant rotating entry of shows and films. And I think with Netflix and even with advertisers who they're now trying to appeal to, that's going to become a concern because advertisers want to be on a title that has a strong feeling

of emotion, typically positive, so that way they can be associated with that and that's the brand association. And so when you look at what Netflix touts on its ad division, it's like, oh, we have too hot to handle, right? We have these shows that we're actually releasing weekly now. We're releasing in batches. We have these shows and these sports events, these live events that we want to bring people into, we want to bring advertisers into, and this stands out.

This is our scarce resource. And it's ironic to see Netflix chasing scarcity when they were the company that really brought in abundance. They were the company that said, we can just have a steady flow and we're convenient. And I think if you look at the rest of the companies, we'll get into in a second, but when we look at the rest of the companies, the way that they have tried to fight back was to match Netflix's convenience. We're going to have something new all the time.

Can we ask you about sub growth really quickly before we move on? Of course. Put that chart. tried to fight back was to match Netflix's convenience. We're going to have something new all the time. Can we ask you about sub growth really quickly before we move on? Put that chart. Yeah. So this is interesting to me. The quarter that Netflix's stock blew up, which was the spring of 22. And you can see that correspond to sub growth. First of all, looking at this chart, you could understand why they no longer want investors to anchor to that number, similarly to the way Apple pulled the analysts away from focusing on

iPhone sales each quarter. Okay, I understand that. Do you think the comeback here is remarkable? How much of the comeback would you ascribe to the introduction of advertising tiers and the concurrent crackdown on password sharing. Is that the source of the sub growth that we're seeing? And if so, do you think it can continue or have we already seen the best of it?

Absolutely. It's definitely attributable to the ad-supported tier and even more importantly, the password crackdown. That's when they really brought in those advertisers at a lower ARPU, because they were coming in at half the price of an average sub. Is this going to continue? And that's why they know that. It's part of the reason that they say we're not going to report this, because it's going to take away from the fact that our revenue is stronger because we're

building up the ads here, because we have the password sharing. And so our revenue is something none of these other companies can do. We've got strong revenue. We've got strong cash flow. But if you look at pure subs, at some point, you're going to hit critical mass. I think Reed Hastings had always said that they thought Netflix in the US could be 100 million customer base. I think it's probably around 95.

I don't think he was too far off. Around 95 with password sharing. At some point, that stopped. The only game in the United States is term reduction. The only game is like, OK, can we keep them and monetize them at a higher rate? Globally, is there room for subscriber growth for Netflix? Absolutely.

APAC, Latam, EMEA, to an extent, huge growth potential. But the ARPU on those subscribers are going to be much lower because they're coming in at lower price plans. And I think that is where Netflix says, okay, we don't want to get into this question of, okay, well, how many subs are you adding and how much are you making off those subs and how is your biggest market, which is you can, how is that performing at a sub level when they can say, here's what's happening at a revenue level. I think the larger question, and I'm sure Josh, Michael, you guys have thoughts on this, is does subscriber

growth matter at all if revenue and profit is still growing? You can say, well, we're monetizing a stagnant base at a higher rate, which is almost what cable did. That's almost where they figured out that structure as well. I guess I would answer that by saying you might be able to convince half of the sell side that it doesn't matter and then maybe half will continue to focus on their modeling of subs. But the only reason why that would be challenging is I think it's a shorthand for what is going

to be the revenue and earnings in the future. Because they think about lifetime value of a customer more than they think about what happened over the last 90 days if they're doing their job right. I'd also point out you're not going to get an average family in India where the per capita income is significantly lower to pay the equivalent of $15, $17 USD. Now you might say, well, what offsets that is the cost to advertise a streaming service in India is also lower. Maybe customer acquisition costs will be low enough that that will still look good.

Apple struggles with that. It's going to be really hard to sell a $1,500 phone in India and they know it. I don't know if that's really going to be the answer. I think right now, though, maybe the earnings growth is just good enough. And I think the figure that matters for all these streaming services in the United States, especially, but will be as they grow globally, uh, too. And they hit that level of kind of stagnation, which just happens with critical mass is the churn rate.

And Netflix is still sitting at a 2% in the U S right? Like it's an insane churn rate. And so that's what gives me the greatest sign of strength for Netflix. All right. Let's move on to Warner Brothers. The stock has been a disaster. Full disclosure, I just bought this disaster. Josh just bought the disaster.

Zaslav has been under the microscope. I know, Julie, you spent a lot of time, you and your colleagues covering that. He has paid down some of their long-term debt, which is just an astounding number. So the quarter wasn't great. A lot of misses, top line, bottom line, margins were all lower than expected. So, Julie, what did you take away from the quarter? And where does Warner Brothers' discovery go from here? I had two takeaways and I'm interested in your opinions on the first one. The first one is it almost feels like, and I am not the biggest as love defender. Uh, I know I'm the biggest WBD defender, but it almost feels like he is being punished by the street for doing what he said he was going to do, right?

Like he said, he's like, we're going to come in and we're going to cut down our debt, we're going to let, and what she did, he's he and Gunnar have done a very good McKinsey style job going in. Is that the number? Yeah, that's exactly it. 12 billion in debt so far? Okay. Not bad. They've done a remarkable job and I think they're being punished for it.

And I think on the other hand though, everything about what they've done, including the potential missteps with the NBA, and I say misstep because I want to see reasoning for a lot of this, right? We're getting some interesting reports, but we don't have a lot of internal details about the reasoning behind some of the decisions. I don't know if they can build. And I think that's always been my question is you're very good at cutting down the debt.

You're going in, you're saying, we don't like what Jason Clar and the team did at WarnerMedia, we're going to go and do this other thing. Cool, that's awesome. Like pay down the debt. You know, nearly $44 billion debt you have to pay down. But can you build this into an actual streaming business or is this something that you basically cut the fat off of to then sell to a Brian Roberts?

And that's where I kind of get curious about. And I wonder, Josh, if you have thoughts on it. Well, let me answer your question with a question Julia. They went out of their way to emphasize on the conference call yesterday that they're going to tender for $1.75 billion worth of debt in the marketplace. They've got an average I think they've got an average interest rate of around 4% or maybe slightly under miraculous, which is actually in line with what a long-term treasury bought.

That's what the US government is now paying to borrow. They are calling their debt an asset, which was interesting. I don't think I've heard that before. They have debt that's so turned out relative to what a new borrower would have. Okay. So they're now referring to their debt hoard as an asset, which I love. But would they have committed to buying back

almost $2 billion worth of their debt if they were worried about coming up with the money for the next NBA deal? I feel like they would not do, they have 3 billion in cash on hand, 3.4, whatever the number is. I feel like if they weren't confident that they could build, then they wouldn't be tendering for more debt every quarter.

The NBA is almost a side effect of the larger sports issue I find with WBD, which is what are your plans with sports? And so if I look at their different assets outside of their debt, if I look at the different assets, TNT is a large cable network for them in terms of the deals with their distributors. So are the other discovery channels, right? That's been the largest asset that Zadz Lev has done a very good job of building over the last 25 years. But if you look at TNT, if you don't have basketball, what is that worth to a Comcast

and AT&T dish? It's how I met your mother reruns until it's yet not. Right. And so at this point when you're saying, especially when WBD is saying, we are not necessarily all in on streaming, we're not all in a linear, we're going to try to maximize revenue wherever we can while growing out this digital future. It's like, okay, well, if you don't have that, what does that do to the negotiations you then have with some of these carriers? Because you don't have basketball. Your other channels, you're bringing some of that original content to streaming services, which all the other guys do. So it's not like you're going to be penalized

for that as an independent. But as a whole, it's really hard to say, well, the value of your product now for us when we're already in this declining state is something that we want to spend money on compared to a Disney where we're going to make concessions. We're going to carry Disney Plus because we really want ESPN. We're not going to carry some of those other channels, but we do want Monday Night Football and some of these other events. It's one side of it, which is an asset where I'm concerned and confused about. The other question, and this was something I was hoping would be brought up on the earnings

calls the last few times and I haven't heard anyone ask it, is like, they're doing the JV product now with Disney and Fox. What is Bleacher Report Sports on Max? What does that now become? What does that compare to the JV? Where is the incentivization structure for your consumer? Where do they go to get the best experience? I think the answer to that is going to become a function of what people actually do, what

customers do. If customers are signing up in droves for something, they'll do more of it. If customers ignore something, they'll do less of it. I don't think they have to have the answer because I still think it's the spaghetti at the wall phase. There are so many trial balloons. The combined sports thing is weird to people. If you love the lack of leadership and indecision around Hulu for 15 years, you're really going

to love three companies banding together to do a sports app that doesn't have any major sporting events on it. I still think there's room for experimentation. But look, they didn't rack up 50 billion in debt. That was their parting gift from AT&T. That's important. So they are trying to get their arms around that. I think that they are counting on a re-rating

on Wall Street. If they can get that down to, no, yeah. If they can get the debt level, it's an $18 billion equity market cap on 43 billion in debt. You can't, you can't have that. If they can get that, if they can get that to 35 billion, that the execution on paying down the debt might be good enough for a rerating on Wall Street, which I think buys them the breathing room to build what you're talking about, Julia, and have coherent answers about what all these packages are.

Well, and here's, and I think that's exactly it, Josh. And the last thing I'll say about my other concern about WBD, which I think ties into what you're saying, is, so if you look at a lot of what they were boasting about, which I get where they're coming from. So the Verizon deal, the Netflix bundle, they said it's doing really well. They're excited about the Disney Plus Hulu bundle that they're going to be a part of. They're excited about the JV bundle. And all of that sounds to me like, okay, this is a great way of increasing your TAM, right?

And reducing your churn. All of that makes sense to me, except you don't own the relationship with any of those customers. Verizon owns that relationship and Disney is going to own that relationship. So in terms of what that negotiation and to be a fly on the wall in the business affairs teams, but to what you get in terms of data, what are the customers actually doing versus if I'm Disney and I want to be a sole aggregator in the space like an Amazon or an Apple. I want to be in that world. The customer data means everything to me because that's where

I'm going to go and build off of and decide, okay, here's what's working and here's not. All of this, this goes back to what we were talking about at the beginning of this company section, Josh, is none of this matters if you're not going to make it to tomorrow. When you are faced with that much debt that you've inherited, when you're faced with, we need to take care of our finances before while we figure out, okay, how do we innovate on the content side? How do we innovate on the partnership side? That means that you can't do any form of the innovation that Disney and Netflix and Google and Amazon have the advantage of doing because they have less debt. This could end up being a

channel on Amazon Prime and YouTube's like starter screen, and that's the danger. I want to ask you one more thing on this. One of the points that I think the company's gone out of the way to make that I think is true is that they are substantially under earning on the studio and on their IP. So if you just think about Batman, Superman, DC Universe alone, Harry Potter, Lord of the Rings,

they are, the machinery is now cranking up and they are going to like remodetize all of those properties and they're massive. Those are as big as Marvel if done correctly. I don't feel like that's in the stock. Like they're not getting any credit for those things going well and they could. It's a two year, three year thing, but-

It's the new Lord of the Rings. They just announced yesterday, I think. Yeah, it'll take them three years to make it. I guess the question that some may have, I know it's certainly a question I have, is it's funny, if you look at the overall numbers with the HBO customers on LinkedIn. They're scratching and clawing to come up with that number. But what I will say about the IP thing is where I think there's probably some level of concern. And again, I know I've had it is you say the DC aspect, which is a great asset to have, many people would kill for it.

You know, Aquaman 2 didn't do great, right? You look at Flash 2, didn't do great. And so there's this concern of- Wrong creatives. I think they're going to fix that. Right. And so you're hopeful that James Gunn comes in and fix a lot. And he's obviously done a great job with the Guardians series at Marvel. And so I think that will fix it. And then there's the overlying question, which gets into a larger macro discussion we do not have time for about theatrical going and kind of these this epidemic of

Share third spaces that are declining and so where do people actually go to get their energy? And so how does that impact the bottom line of a lot of these companies who are involved in that space? And I think there's still a lot of what if what if now I mean, they had a huge year last year, right? Barbie was massive, a great year for WBD. They just had the Kong movie that did really well with Godzilla. That did well. And so I think they're in a better suited position than even potentially a company like Disney, a company like Sony, where they've had, you know, it's less quantity. More misses. And misses.

More misses, Disney. Yeah. Yeah. I think Warner Brothers is probably up there with Universal in terms of there's a really strong slate across the board from smaller titles to large titles. But it's just you've got to prove that you can take those large IP that have the marketing budgets and the production budgets and the cast budgets to then say, okay, we can turn this into a 850 million, $1.2 billion film. Julia, last question before we move on to Disney. Sports, what are you hearing in terms of the NBA deal and what happens, Josh, I'd be curious

to hear your thoughts. What happens to the stock if we find out that they don't secure those rights? hearing in terms of the NBA deal and what happens, Josh, I'll be curious to hear your thoughts. What happens to the stock if we find out that they don't secure those rights? Part of me thinks, and Josh, I'm interested in your thoughts on this too, part of me thinks it wasn't just a misstep from Zazz and Gunnar. They're smart guys. I don't think they would just be like, oh, we can wait out the NBA and there's no other interest, especially when they have close relationships with Brian Roberts and the Comcast. There would have been murmurs of some kind that

if they're not doing this, the NBA will go elsewhere. The NBA is the youngest sport in terms of average audience. It is one of the most global sports in terms of average audience. It is a high premium audience conversion for advertising spend because it's a young audience. You can see why there'd be a lot of interest in it, second to the NFL. They are aware of this as well as other guys like Comcast and NBCUniversal. My assumption is they are either going to go smaller on that front and say, we don't necessarily need the NBA if we can find other niche sports that are actually going to cost us less but have a tight-end audience that we think we can monetize at a better rate and then use our partnerships with Fox and with Disney to ride that coattail in the way

that companies did in the way that companies did in the cable ecosystem. Or it's like, we're not ESPN, but we're going to be thankful for ESPN because we're going to make some revenue off of it. This is my deep, deep, almost conspiracy theory that I have no proof of any of this on, but it's just a theory. If I'm getting ready to potentially sell my business in a few years, and it might be to someone who has the MBA rights, why buy them?

Why take on that cost? If I can lean up, if I can figure out ways to bring my debt up to a higher rating, if I can cut some of that stuff, make my company, bring the DC thing forward, make sure max is at its height, really bring that forward and make that a promising offering and then say, okay, well, we don't have to worry about where the NBA is go because we don't have them and we can be partnered with someone and work on entry asset. If Warner Brothers wants to clean itself up to become a consolation prize for Apollo and Sony, the way they can do it is not good on the NBA.

It's like my biggest conspiracy theory. I've said this to people who are just like, no, that's bad. That's a bad idea. I think there's a lot of articles from people who are well informed saying, oh, it was a misstep. They just didn't do it. I think Zaz and Gunnar, especially Gunnar, deserve more credit than that. They would know if it was

a strong asset that they wanted and it is that they wanted to go after immediately. They would have done what Disney did and said, okay, we'll figure it out. We have this exclusive window. Like, let's figure this out. But at this point, now you can sit back, see what the other guys are doing. You're still involved in those conversations and you can decide, okay, do we need to have this for our next, what is it 11 years, our 11 year plan? Is the NBA something crucial to us or can we go a different route within sports? so the first thing I would the first thing that I would say to that is It's either gonna be them or a Comcast because you cannot turn the NBA into an all app All streaming product it like you, you will kill the sport.

They've done this, they did this with boxing. They turned it into pay-per-view. And I know there's still five fights a year that make a lot of money, but the sport is impoverished as a result of their having removed all of the marquee product away from the public's eye. So I don't think the NBA strategically is going to have the third partner be just another app.

Agreed. So I think we all agree on that. Okay, fine. So you need a broadcast component. I know linear TV is dying, but it's not disappearing tomorrow. It's a really important audience building tool, especially if you want to keep the sport youthful. Okay.

So we could all agree to that. Now what's the reaction in the stock price? Honestly, this is why Wall Street is so hard. This is why A plus B is never C. Because I can envision a scenario where, and I'm not saying this is my prediction, where they don't end up getting it. Comcast gets it. And Warner Brothers goes up 10% on the news. And why?

Because the narrative is, see, they really are being disciplined. See? Right? They'll get it the next time when things are better, or whatever it is. Like I could totally picture that happening now. That's too clever.

It's not gonna happen. It could, but it's not gonna happen. Dude, we were hearing that the stock market was going to fall by 20% if Trump won the election. I know, I know. And it rose by 50%. I know. So now what do I really think though, Michael?

I think you're right. What I really think is if the news were to break that they've been excluded from the NBA, they're going to lose Shaq and Kenny, like that whole thing. Dude, the narrative is not- I think it's bad news for the stock. The narrative is not they're being disciplined. Shaq and Kenny like that whole thing. Dude, the narrative is not, I think it's bad. I think it's bad. The narrative is not they're being disciplined. The stock is in a 70% drawdown.

The narrative is they are fucking buried. That's the narrative. I'm trying to be optimistic. All right. So Disney reported on May 7th, oh, we just reported the stock got hammered pretty good. And I'm a Disney shareholder, but the stock had been on a good run. I think the main story here is the money that had been hemorrhaging out of the company with the direct-to-consumer product finally turned a corner.

If you back out ESPN+, they're profitable there. So what did you make of the quarter? I mean, they did miss on the top line. They beat on the bottom line. What did you make of the quarter and where do you think stand for Mickey Mouse? The most under talked about conversation within Disney and I get it because it's probably one of the more boring ones, but is I think crucial to the company's inherent future is parks and experience, right?

The fact that they are seeing huge growth and parks and experience, they're investing the $60 billion over the next 10 years into it. Demaro who runs it is in line to be a potential successor to Eiger. All of that is really interesting to me because there's this idea that I think we live in this kind of Taylor Swift era, right?

Which ironically did not do very well for Disney Plus, but this Taylor Swift era of people want to go and have these experiences in person again That has been ripped away from them. COVID Accelerated that ripping away these the kind of these these these shared spaces that we have Ranging from by the way from like concert halls to churches to like just spaces that people don't hang out anymore Has not taken away the idea that I want to go create intimate memories with family and friends I want to go have these experiences and I want to celebrate the things I love the most.

Disney has that advantage where you've got these huge parks globally that people are still flocking to that they can take this IP, they can turn them into these highly monetizable the moment you walk into the park experiences, and people will continue to flock because there's less of those opportunities. They're going, okay, I'd rather spend my money here because I'm not going to theaters as much. I'm not doing this thing as much. I'm not necessarily going out as much.

And this is my one time or two time a year to do it. I took my family to Disneyland a week or two ago in California. And the first thing that we did, we had the buffet dinner with the characters and it was $350 for myself, my wife, my two little kids. And I think you're right, the streaming has overshadowed how successful the parks are because that's all we want to talk about. But parks are a great business, good margins, I think around 20%. It's booming.

And to be clear, the operations costs of a park are massive. I'm not trying to downplay it. This is really cheap for them to do. Also it's really hard to, to your point, Michael, like there is a cost associated with it. So if you're a lower income family, really hard to go to Disney. It's just extremely expensive.

But I think that's a core part of it. And so when I look at streaming, or as you look at different components of what their business is, like parks is a high win, streaming's becoming a win. And I think what they've done a really good job of, and you can kind of see this with plans within the ESPN OTT space, is I think they realized we cannot command the attention of what people watch all the time, but we can be the aggregator.

We can do that in a way that hopefully is able to slightly compete while benefiting from an Amazon, a Roku, an Apple, and Google. And so we really want to find ways to bring as much of this in via bundling and while we control the distribution of the bundle to elevate some of our profits and our revenue, to control some of that data within the customers, to then sell the merchandise, then sell them on the parks, then really buy into that flywheel. And I think the other conversation that we have about Disney all the time, which is crucial, it's crucial to WBD as well and NBC Union Paramount, is those linear declines are just,

you know, they're double digit every single quarter. And it's real, and it's nice because that profitability within streaming finally has kind of been like, okay, we're hitting the end of our runway and the plane's taken off, right? Like, okay, we're hitting the end of our runway and the plane's taken off. Right? Like, okay, we're actually maybe going to be okay if we're in for so many quarters it was. How long are you going to be able to just stay on this runway and keep going? And I think that, again, is like that gentle home of anxiety.

We actually don't know if this thing is going to ever, and you guys know this better than anyone, is ever going to generate the level of revenue and profit. My assumption is it is not. The revenue and profit that was out of this bundle. The other thing we don't know is we're now in a post Marvel world. They gave us too much Marvel, too much Star Wars, and they're there. They've got Planet of the Apes coming out today, actually. What does the slate look like?

Are theaters going to be a business for them going forward like it was in the past? I think it's a critical question and the other component of this is if you look at the Disney Plus original slate, so that's excluding Marvel and Star Wars, if you look at their titles on the originals front, most of them, the vast majority of them do not succeed. The vast majority of them do not surpass 85, 90, 100 million views in the US. Sorry, minutes streamed. Sorry, not views.

Minutes streamed in the US. When you look at their overall originals demand, it's declined every single quarter for the last five quarters. The level of attention and adoration that people want for Disney has really and for Disney Plus has really started to Hit a fact of I don't know and to your point about Marvel if there's not there's a less of a desire to go see these in theaters now you're talking about a really strong decline in the overall I call it like the Factor of Disney rice you're starting to see that happen more which impacts the parks which then impacts their merchandise Which is where they make a lot of their revenue.

What the smartest thing Disney did, and I think this has been true for a while, and I think this is partially why you're seeing the Comcast and Disney battle drag on, is that Hulu is paramount to the Disney business in the US. It is paramount. It is the one thing that keeps people engaged again and again, and you can kind of tie it into this larger app system now that they're doing, and it reduces your churns. You can actually create a profitable potential business that has longevity. That is really hard, though, to start learning user behavior and user interests and then sell them on really strong recommendations that keep people engaged and not just going to Netflix.

I think this is where Disney's next big battle is, is on the tech front. Their CTO, Aaron Laburge, just moved over to, I think, their partners on the betting side, Penn. He just moved over to them and so they've lost this architect of their streaming business from a tech side, which is a large component of this business. It's a big part of the reason why Greg Peters was elevated to co-CEO. It was assigned to Wall Street that we have Ted, and now we have Greg.

We are a dove that floats on content and technology. I think with Disney and other services, including Macs and including Peacock, whatever it might be, the question of can you succeed on the tech front to really create a habitual app that people want to open and want to spend time on is something they still haven't really figured out and who lose the best potential edge that they have as seen by this ongoing fight between Comcast and Disney over how much service is worth. I think they just need one hit. It's been so frozen was 10 years ago, 11 years ago.

And I was in the park in 2014 when they were retrofitting the Norway pavilion in Epcot to become the frozen ride. Like they have not had a movie since then where they would have to demolish something in the park to make room for the attraction. They've had really, really, really minor animation hits. Pixar too. Absolutely terrible. Not that I haven't even seen many of these movies, but they're not catching on. I think we might be at a bottom though. Disney found itself out of step with the culture. I think they got into a place where it's like, well, what race slash gender slash ethnicity

can we not, you know, make happy with this movie? And I think that's going to change now. And they're going to get back to like, what's universal? What are things that like everyone's going to love? And let's stop trying to play these games and let's just tell stories to children Josh right with Snow White the bottom. I Don't think that movie's gonna come out. No. Yeah, maybe culturally I think like they just it's so hard now with the internet and the fractiousness and the

politicization of everything but I honestly think that there is a Pendulum swing happening right now back in the other direction where people just want to be entertained. And I think that's going to benefit Disney and give them a better chance at another across-the-board hit that just changes the whole narrative around the company. And that'll be super bullish if and when they could pull it off. Yeah. And I think, so we've seen, with the really interesting conversation around Disney

is whether or not you can have a franchise take off on streaming, which has been the Netflix question. And so in Kanto, that movie did decently in theaters. I think it just sat under $100 million domestically, so not a huge win for Disney. And the song, like the songs transcendedended the streaming like people sing the Bruno song. 400, 500% growth on Disney plus in terms of the overall demand compared to theaters. And that was the rare moment though, because all the other ones when they took the Pixar films and brought them to Disney plus, it went the opposite direction. And so I think what you're seeing Disney really understand and and to your point, Josh really

move into this this new emerging era of creativity again, which I'm excited about, is them realizing our benefit. This is what I'm going to get to with Netflix. They realized we can't chase the convenience factor. We can't have six Star Wars shows. We can't have a bunch of these movies on streaming. We're not going to beat Netflix at that game. What does Netflix not have that we have? Valuable, globally adored IP. What is the one thing they can do? But the last time that they... You correct me if I'm wrong. Moana was 2016. Maybe there's been

something since then that's really been monster. So they're doing a Moana 2. They're doing a live action. But if Moana is the last one and I could be wrong, that's a long time ago. Yeah. I mean, Star Wars. We haven't had a Star Wars movie in six years, right? The Marvel films have been not great. They've kind of seen that decline in both CinemaScore, which is the audience reaction, as well as Box Office. They've also, Disney's lost China on a lot of it, and not just Disney, a lot of studios have and that used to be the big thing.

And it was, if it got to China, it was great. And they've lost that as China's own domestic film businesses has grown. But I do think about Disney, what they've realized is, okay, let's slow it down, which is good. Let's slow it down. And we'll realize two things. One, let's actually find a lot of these projects that we think can be home runs. So what you're saying, Josh and Michael, I think they only have a few movies in theaters this year, maybe

six or seven, but I think you've got a few big hits. You've got Deadpool 3, which I suspect will be strong. You've got Inside Out 2, which I suspect will be strong. And so they've kind of got this reemergence of this IP that people really love and they'll go watch. But two, I think they very quickly realized critical mass within the Marvel and Star Wars section on Disney Plus could be done with two titles a year and not 10 titles because that also people like when something goes away for a while. So to your point, like not not giving us a Star Wars movie for six years, maybe let another two years go by. And then I know they're Mandalorian will be a theatrical release. I think that's smart.

But like, well, I mean, my, my favorite way here's a little, yeah. And my favorite comparison point with Marvel Studios, because I think it's just almost poetic is that, you know, Marvel Comics goes bankrupt in 1994, 1996. And the big reason Marvel Comics goes bankrupt is because they were chasing the speculator market and they were like, let's just print as much as we can. Let's create characters that people aren't really interested in. Let's make them interwoven so that they have to buy more of these comics. Eventually consumers went, I'm spending more than I want on stuff that I don't really want and I'm just not going to do it.

Marvel Comics goes bankrupt. When Marvel Studios emerges in 2008, when it basically became Marvel Studios, you had maybe a couple films a year. At its height, it was like three films across different of these. And they all were interweaving, but they were done with like this artistic direction. The creatives like James Gunn, they were all given their full control. Ryan Coogler, who did Favreau. And then instead- No TV shows that you were required to watch to understand the movies,

which is an insane thing to do. And so you saw the audience decline happen. And it was this moment where I was like, there was lessons from the Marvel Comics bankruptcy where we should not have chased this. And I think they're now getting to a point of we cannot squander. A phrase I like to use is that you cannot try and turn your extraordinary into ordinary because you've lost all value. If you're extraordinary, if your Disney is Star Wars and Marvel, you cannot have constant

things because people want, to your point, they want to wait a little bit, they want to go and have this big event. Then you want to have supplementary content that does decently, but that you can basically pay for because you have this one, two big event thing happening a year. that way it gets people to go and say, I want to buy a lightsaber again. We were with Matt Bellamy last week and I asked him if it's 2008 for Hollywood right now is Paramount the Lehman Brothers. I'd love to get your take on that.

Is this like as disastrous as it gets or is this thing going to climb out of the hole and find the resolution? What do you think? I mean, I have deep concerns about it. Not on the stock price maybe, but on the business, I'm saying. Yeah. I mean, what is its value? What is its inherent value?

The IP that they own, not even necessarily the brands that they own, the brands are not worth much beyond CBS. You don't like Rob Dyrdek? No. Like MTBU, they destroyed. Nickelodeon, they basically destroyed, right? They've got what? Paw Patrol and a few other things.

But CBS, hugely valuable. And I think the only problem with CBS is whoever wants to buy a CBS goes, we want all the NCISs. We do not want CBS news. That is not a thing that we're necessarily interested in because news... We want Star Trek. We don't want MTV or MTV2. Yeah, exactly. And so when I look at what makes a lot of sense for Paramount as a company, someone

going in and divesting of it and really being like, okay, this actually has a future and let's support it, which I do think both Sony and Skydance are doing different ways. I think Sony would take it and then basically theatrical sell to different networks. I think they would do that. I think Skydance would go in and say, let's pick the IP that we can do ourselves and let's find other ways to potentially license this other content. But I would go in, get rid of half the stuff that's not working, shut down Paramount Plus,

sell those subscribers to a complimentary business, which I think could be a peacock. I think it could potentially be a max. But I think the underlying question is you have a lot of shareholders who are going to say, yeah, we want the $26 billion sale from Apollo and Sony, and that is just going to decimate the vast majority of Paramount. I think that's where you have someone like Sherry Redstone who says, that's not the legacy I want to leave. And so to actually cite an analyst who I respect but often disagree with, Rich Greenfield.

Greenfield. Greenfield. Yeah. And again, I like Rich. I respect him, even though we disagree quite often. I do agree with him where I think nothing happens with Paramount. I think it just like that would be the issue. If you guys are right about that. Yeah. I mean, I issue here. No, I was just gonna say that's, that's, that's richest thing. And we can see a world that,

uh, parrot, we we've done a lot of the analysis, as I'm sure you guys have done and others have done on the potential M&A. And there's certainly a path that Sherry should take. And I think though, when you're dealing with someone who's still emotionally tied to a legacy of a company, not necessarily the financial realities of the company. She wants to be proven right. So in other words, she could get $2 billion from either Apollo, Sony or from the Ellison group. Okay. So the question is one group she knows is going to strip mine this thing

and undo everything that she's done. The other group is going to probably keep some of it together and maybe there'll be like some upside to the stock. So if you're if you're her and you really do care about your legacy, it seems kind of obvious which deal you would be leaning toward. Right. And let's and let's also be very clear. I think David Ellison seems like a really good guy. I haven't met him, but from all intents and purposes and what I've heard, he seems like a good guy. There's no world that I can imagine in which he says, yes, of course,

we're going to keep it together. And then three, four years from now, it's kept together. It's just something you say in a negotiation to get it, not necessarily what you plan to do. And I just think if you look at Paramount as a whole, it is full of assets that have, for the most part, declining value, and then a few assets that are really, really strong, including CBS, including the NFL, including various IP. But theatricality is a question, right? If the networks are eventually a question, broadcast or less so, obviously, look at that reach compared to cable.

But if you start looking at this as a whole, eventually you go, I know what I want, which is why Sony is part of the Apollo deal, I'm sure. We know what we want from this, and we don't want any of the other stuff. You go in and you say what you have to say to get it. There's no world in which I think five, 10 years from now, the idea of a paramount global, the idea of the vast majority of those assets stick around in any lingering capacity. Julia, Alexander, thank you so much for being so generous with your time.

If our listeners and viewers want to follow your work, where do we send them? ParrotAnalytics.com or I'm on Twitter at Loudmouth Julia if people are still on Twitter. That's your handle at Loudmouth Julia. I love it. Thank you so much. Yeah, my teachers used to call me a Loudmouth, so I just decided to own it. All right, Julia, that was incredible. Thank you.