Yet Another Value Podcast - Alex Morris provides 2023 overview on Cable and what makes Media so attractive

Episode Date: March 28, 2023

Alex Morris, Founder of TSOH Investment Research, returns to Yet Another Value Podcast for the third time to chat with Andrew about the Media and Cable sectors in 2023. The Media and Cable sectors move at a mile a minute and it was time to have Alex back on to sift through all the noise. This conversation covers everything from: how mobile carriers think about fixed wireless, Charter vs. Cable One & T-Mobile, does Disney have an IP problem, and much more. For more information about Alex Morris and subscribe to his research service, TSOH Investment Research Service, please visit: https://thescienceofhitting.com/ You can Follow Alex Morris on Twitter @TSOH_Investing: https://twitter.com/TSOH_Investing Chapters: [0:00] Introduction + Daloopa [2:22] Media and Cable space - high level thoughts on 2022/beginning of 2023 [4:30] Rewinding to better understand current media/cable infrastructure and how Alex thinks about fixed wireless [8:57] How mobile carriers talking about fixed wireless [12:08] Why Alex has Charter and Comcast in his portfolio? [14:43] How does Alex think about Comcast being potentially being valued with conglomerate discount? [19:05] Charter vs. Cable One and Charter vs. T-Mobile [23:11] A bit more on T-Mobile [27:54] Why Alex thinks you can achieve risk-adjusted alpha investing in Charter? [31:53] Understanding Charter's CAPEX story [33:45] Cable assets, Fiber assets + M&A [37:09] Final thoughts on Cable/Fiber conversation [40:06] What Alex is seeing in the Media business that is so attractive [43:53] Does Disney have an IP problem? [48:28] Taking a look at the state of Netflix - do they need a merger partner or to buy something? [51:37] Making the case that Netflix is a risk-adjusted alpha generator [54:32] Final thoughts This podcast is brought to you by Daloopa. Daloopa was founded by a former hedge fund analyst. He didn’t have a tool that he trusted to be 99.9% accurate that allowed him to pull updates directly into his existing models, and had the granularity in KPIs, Guidance, and non-GAAP adjustments that he needed. So, he built Daloopa. Daloopa is the fastest growing source for public company data, with data available for over 3,000 companies. Hundreds of AI algorithms collect and organize customized company historicals with an accuracy level and depth of data that is higher than anything achievable by other modeling tools. Each datapoint is auditable to the source. Daloopa’s Excel plugin is the first to allow you to update your models in your existing format. It’s simple and non-invasive—Daloopa will never #REF out your models. Daloopa clients are able to cover more opportunities and generate more ideas. No more data errors, no more Excel monkeying, just the fundamentals. See why equity investors are switching to Daloopa by checking them out at Daloopa.com/YAVP.

This podcast is sponsored by Delupa. Delupa was founded by a former hedge fund analyst. He didn't have a tool that he trusted to be 99.9% accurate that allowed him to pull updates directly into his existing models and that had the granularity in KPI's guidance and non-gap adjustments that he needed. So he built Delupa. Delupa is the fastest growing source for public company data with data available for over 3,000 companies.

Hundreds of AI algorithms collect and organize customized company historicals with an accuracy level and depth of data that is higher than anything achievable by other modeling tools. Each data point is audible to the source. Delupa's Excel plugin is the first to allow you to update your models in your existing format. It's simple and non-invasive. Delupa's clients are able to cover more opportunities and generate more ideas. No more data errors, no more Excel monkeying, just the fundamentals. See why equity investors are switching to Delupa. visit dilupa.com slash y-a-v-p that's delupa d-a-l-o-o-o-pa-com slash y-a-v-p to learn more

all right hello and welcome to you another value podcast i'm your host andrew walker if you like this podcast would mean a lot if you could follow rate subscribe review it wherever you're watching listening to it i don't know how else you'd consume it but uh with me today i'm happy to have one i believe for the third time my friend alex morris Alex is the founder of the science of hitting substack i'll include a link to it in the show notes everyone should go check that out. But Alex, how's it going? Good. Thanks for having me. In prep for this podcast, I was on Spotify just searching for charter and Comcast and seeing if there were things I hadn't listened to recently. And one of the top searches that came up was you on my now

defunct podcast talking about cable. We've had this conversation before, the flip way. You know, you and Scuddle Blurb, both use have the podcast and both are gone. And those were in my listening feed. And, you know, it's always nice to kill a competitor. I'm the full monopoly now, but anyway, before we get started, let me just start the podcast away. Do every podcast a quick disclaimer. Just remind everyone, nothing on this podcast is investing advice. I think we're going to bounce through the cable sector, maybe the media sector in general. I mean, people can question if you're even in your right mind, if you're investing in the cable or media sector these days. But, you know, we're going to bounce through several

socks. So please remember, not investing advice, do your own work, do your own diligence. That out the way, Alex, want to have you on again, just bounce through all the cable space in media space. I forgot almost two years ago we did that cable space. I think the last time you were on the podcast, we were talking media about a year ago, but media cable, all of it has really changed over the past year. The main thing that's changed is the shareholders have a lot less money these days. But everything's changing really rapidly. So I just want to talk, you know, as we're talking end of March 2023, like what are your overall thoughts particularly on, I guess, the cable space? What's happening in it? Yeah, it's really fascinating. I mean, I think

you have to, you have to have kind of historic perspective here for any of it to make sense. If you pick Comcast as an example, we went through a 12 or 13 year period where they ticked off 1 million plus net ads and broadband every single year. The story was pretty clear on both volume and Arpoo's. And then you get to COVID and you see this massive gross spurt relative to what they normally expected. I think one of the quarters peaked out at right around two million trailing 12 month net ads, which is, you know, far above kind of what normal was. And, you know, now in some ways it feels like we're on the backside of that, but nobody knows really how to quantify it. You take management at their word. It seems like it's more than just

that, given, you know, impacts from mover turn or impacts from FWA, there's a lingering question of fiber. And then on top of all of that, you have, you know, the wireless strategy of the cable, which were, you know, nascent efforts two, three, four years ago and now are really a lot more front and center, you know, in terms of how they communicate to customers, in terms of what they're talking about, the shareholders, in terms of where the industry, the connectivity industries as a whole are kind of moving. So, you know, it said the stories are changing fairly quickly and it makes for a very interesting environment for, you know, longer term investors like ourselves. Yeah. And I guess I should just note to everyone earlier this week, I posted a podcast with, the CEO of Cable One, we might reference that a little bit. I thought that was just an absolutely fantastic conversation. So if anybody wants to go check out kind of another podcast that might work while as

companion, but this one, you can go refer to that. But let's just start, you know, if I rewound a year ago, I think that's when the story, you know, fixed wireless had been coming. I think you and I first started talking about fixed wireless, the whole industry in 2017 or 2018, right? Verizon had this fixed wireless. We'll probably call it FWA, Fix Wireless Access. that's a competitive broadband product where you use wireless instead of, you know, fiber or cable to the home to deliver.

But it started coming in 2018. There had been attempts before, but the Verizon product failed. And then in 2021-ish, T-Mobile had just closed on their sprint deal. And T-Mobile said, hey, we're really going to get into the fixed wireless game. And all through 2021, you saw the cable company saying, we've dealt with fixed wireless before. This is not a big deal. And Verizon, T-Mobile, started putting up some pretty nice numbers. And then in 2022, about a year ago, is roughly when it shifted from fixed wireless is not a big deal to, hey, you know, maybe fix wireless is taking something at the margins.

And, hey, our churn is super low, but we're going to start not reporting as many broadband ads because the cable companies were saying because of move churn. And then over the year, it kind of shifted from it's not just move churn. We're also, it's not just low move churn. It's also that we're not winning our share bads because, you know, the DSL lever, instead of going to cable, maybe they're going to fix wireless. and then they'll come to cable later, but I guess when you look at this, the biggest change has probably been the competitive concerns have really amplified because of fixed wireless. And I think the cable companies have done them no, they have not helped themselves with how they dismissed it and then their story evolved over time. So just when I ask, that's probably the biggest concern for cable investors. How are you thinking about fixed wireless these days?

Yeah, I think it's, I honestly think about it mostly from the way the wireless companies talk about it more so than the cable. companies. You know, you had kind of changing commentary over time. I think in T-Mobile's first press release where they spoke about home internet, they explicitly said something along the lines of doing this in a capacity-aware way. And it speaks to the nature of what this product is and how it's basically competing for prioritization on the network to the extent that there are capacity constraints between, you know, home internet and the wireless product, which on a, you know, a unit basis is obviously significantly more attractive for a wireless customer given the usage relative to the home internet product. So I think there's, you know, there's been this

overhang of, is it a good product for a certain type of customer? Yes. What percentage of the market is that? That's a little bit more of a squishy question to answer. And then where does this kind of get tapped out at? And I think another important part of that is this is my understanding of the kind of technology of it all, it's very hyper localized. It's not, it's not just the network, it's the network. It's very, you know, geographic specific in terms of where you would or would not have capacity constraints. And I think you see this in terms of the way these products are marketed and, you know, your ability to actually sign up for them. I saw one of the T-Mobile commercials when I was watching, I believe it was the World Series, and looked in my area,

South Florida, which obviously has a lot of people who live there. And the product's simply not available, which makes sense, given, you know, again, the nature of what they're dealing with on the network side. So it's been interesting to watch. I think where we stand today, my sense is T-Mobile is probably more in the middle of AT&T and Verizon saying, we think this is a suitable product for a certain type of customer. I think they really see it as a way for them to bundle primarily with their high-tier, you know, Magenta Max wireless customers. Verizon sounds a little bit more optimistic than they do in terms of this being a longer term solution. And AT&T is by far the most, you know, aligned with the cable sort of worldview where this is just a temporary

stopgap that that is not an effective use of the network over the long term. So, you know, it's all a bit muddled. But in the short term, I think as an investor, you have to ask yourself, you know, even if we're talking about something that's capped two, three, four years down the road, if they're taking half a million or a million net ads collectively that would have gone to cable otherwise, that is problematic for two, three, four years. And two, three, four years in real life is a lot longer than two, three, four years on a spreadsheet. And I don't know if it's actually capped once you get to that point either. Maybe the mass starts to change if you have five, seven, 10 million subs. So it's a bit of an open question. I still feel pretty comfortable about

where it shakes out over time, but certainly not positive. You know, you mentioned the divergence into three carriers, right? So there are obviously three big mobile carriers in the United States. There's T-Mobile, there's AT&T, and there's Verizon. And what strikes me is AT&T continues to say, hey, like there is a place for fixed wireless, but it is a, it is a niche case is kind of how I described it, right? They say, if fixed wireless is going to work where you've got really rural customers that are really far away from our network, and then we can just drop them a fixed wireless or something like that's really where you're going to use that. But But you say it's not the core.

Obviously, you know, if you're charging fixed wireless, you're going to consume 10 or 20x more data at your home than you will on mobile. They're saying, look, if we're selling somebody a $50 a $50 a month all-in broadband plan versus a $75 per month all-in wireless plan, like, and they're consuming 20 times the data on that all-in broadband plan. Like the economics just don't make sense. The usage doesn't make sense. We don't really see it, right? So AT&T is saying one thing. T-Mobile, who does not have any fixed network capabilities, is saying, hey, it makes sense, but, you know, there's a limit to how much we can take and all this.

And then Verizon, it's interesting because they've got, you know, they've built out Verizon Fios in a lot of the country. They're kind of going more aggressive, as you said. They're saying, hey, we think this can be a lot more people. We don't think there's any network capacity constraints as kind of some of the stuff they're starting to say. How do you read into the difference in how each of the mobile operators is talking? Because, look, obviously, I've only been following the industry for 10 years.

I've read some history, but I've never seen mobile carriers like, approach a product with this much divergence in terms of one person thinking it could take everyone and one person saying, there's nothing here, you know? I feel like T-Mobiles going back and having read a decent number of transcripts going back, call it three, four, five years, I feel like T-Mobile's messaging around what the product is and what it could become from a business standpoint has been probably the most consistent and the most logical to me. And even in terms of how they sell the products, if you go look after home internet kind of, you know, consumer product page, it's clear that the typical

speeds are, as they explicitly state, the typical speeds are certainly inferior than what you expect for kind of a baseline, you know, broadband internet offering. And they also make it clear on their consumer product page that there can be times where prioritization issues mean that you're kind of pushed further down the stack in terms of the quality of the product that you're receiving. But, you know, that can all work in the context of a potentially $30 offering if you're a Magenta Max customer and if you're in, you know, a part of the country where your alternatives are not particularly attractive. So I think it, I think it has a place, but I think even Team Mobile's language, you know, they make it very clear, again, that they're writing fallow capacity

and the math on the economics is largely based on this being a sunk cost. And the question obviously becomes at some point, if it's incremental investment to justify this, does the math work? And they've been asked that pretty directly. And their answer so far from there. everything I've seen is we're just not sure at this point. I think they'd probably lean towards no if they had to truly be honest about it. So I just feel like they're wording around it all and their conversations around it all has been the most direct to me. That's perfect. So right now in the cable space, again, I follow the signs of fitting book. Right now you're invested in two cable companies, right? You're invested in Charter. You're invested in Charter. You're invested in

Comcast. And I think Charter, are you through Liberty Broadband or are you in Charter? Liberty Broadband. Literally right. So I know recently you took down your Comcast state, right? You decreased it. Obviously, you run pretty concentrated, so it's still a pretty big position, but you recently reduced their position. So I just want to walk through like, like the world is large.

Oh, you can invest in anything. You can invest in microcap, Italian real estate companies, or we can invest in Apple, you know, we could invest in absolutely anything. But when I look at this, just you've got the chartering Comcast exposure. Why chartering Comcast specifically? Why are you invested in these two? Well, I think generally, one, you go back to the results historically and think about how the industry is playing out, and obviously that influences some of the decision making. And then as we look forward, and particularly as I look at something like Spectrum 1 and compare it to alternatives in the marketplace, and think about, you know, the cost dynamics of their network and kind of what the economics will look like as they serve these different products in a bundle.

and obviously the MDNO has a massive impact on how I think about all this. For Charter specifically, I just think it's clear that they have a view on what the right strategy is here going forward. I think if you look at the numbers in terms of what it will cost consumers, they also have a pretty compelling point in terms of this being an attractive offering. So I think it can make sense in that regard. It's obviously a very big market. In terms of Comcast, the calculus gets a little bit messier because of the things happening at NBCU. And I think they've dithered a bit in terms of what their D to C strategy is and what the path is to actually being, you know, successful long term, whatever successful even means by their definition.

And again, I don't think it's, it's not just an NBCU issue. And I kind of wrote about this recently. I think it bleeds over in terms of just the kind of effectiveness of the organization, the clear strategic vision of the broader contest organization. I think the spectrum one, it's been a very clear customer value property. how they've laid it out. And from what I've seen when I've been in the markets that they operate in, they've been advertising this pretty aggressively. And it just feels like Comcast has been a bit slower to get to that same place. And I think you see it in the Q4 results, especially where Charter had a massive quarter on wireless net ads. And Comcast, a very good quarter still, but

not to the same level. And again, I think it might speak to strategic focus and really the core business and what they're going after. You know, just Comcast is, it's really, tough because I don't think there's anybody who would look at these businesses put together and be like, hey, the stock, as you and I are talking to is about $35 per share. I don't think there's really anyone who'd look and say, oh, yeah, like, that's a fair price. Like, it's clear it's getting hit. To me, at least, it's clear it's getting hit with a massive, massive conglomerate discount. You know, like I kind of, when I run by some of the parts, I think you could argue that the

current stock price, the cable side covers all of the current stock price, maybe more than all the current stock price, depending on how you value cable. And then you're getting NBC and that just disaster sky acquisition for free. But then I think the pushback people would have is, yeah, but the conglomer discount, like Ryan Roberts controls that company. He did the sky acquisition. Like NBC has been, I think the NBC acquisition was good, but the past few years, the execution probably hasn't been fantastic. And there's lots of questions about it going forward. So the conglomer discount kind of worth it. And I guess, you know, just overarching that, things I used to say, I'm not sure if it applies anymore, but when I would talk to people at Comcast,

I know, I know emailed you about this one time. It was like, hey, if you want Comcast, you know, if you like that exposure, why not just go by Charter and Disney and create your own conglomerate, your own Comcast with, you know, Disney's probably a better asset than NBC. Charter might not be as good an asset as Comcast cable, but it's very focused. They, you know, they're going to do, they go aggressively at mobile. They're going to do share buybacks pretty aggressively. Like, why not create that own conglomerate? So I guess I just pause there like, How are you thinking about specifically Comcast with that conglomerate discount? Yeah, I think, you know, the NBCU slash streaming side of the house has had impending change for a longer period of time that I would have assumed it would last.

You have a very clear catalyst in terms of the Hulu conclusion finally coming here next year. It doesn't mean something big is going to happen, but there is an important transaction. And, you know, it would presumably cause executives to step back and reassess what their strategy is and what they're trying to do. Again, I don't think they've come to that moment as quickly as I kind of hope they would originally. And, you know, from where we stand today, it's unclear that they even are uncomfortable with the position that they find themselves in, which is, for me, I just don't think aligns with kind of the facts on the ground in terms of sub-base, revenue. new base, you know, look at Nielsen data and see engagement. Peacock, I think, just got broken out recently, but it's 1% of engagement in the U.S. where, you know, Netflix is six or seven times that amount. And also, this is, you know, Comcast slash Peacock's best market in terms of

their ability to compete. Internationally, it's a very different picture. So I just, I think they've been slow to really position that business for the future. And I don't know even when we stand today if they have the clear strategy for doing so. As you pointed out, you can make the argument that it's still quite attractive, even if that asset isn't worth very much. But just for me, the kind of investor I am, it's not, those aren't really the ideas I'm drawn to as much as the companies that are actually executing and going out and building bigger and better businesses. And now, a quick word from our sponsor. This podcast is sponsored by Delupa. Delupa was founded by a former hedge fund analyst. He didn't have a tool that he trusted to be 99.9%

accurate, that allowed him to pull updates directly into his existing models, and that had the granularity and KPI's guidance and non-gap adjustments that he needed. So, he built Dilupa. Delupa is the fastest growing source for public company data, with data available for over 3,000 companies. Hundreds of AI algorithms collect and organize customized company historicals with an accuracy level and depth of data that is higher than anything achievable by other modeling tools. Each data point is audible to the source. Delupa's Excel plugin is the first to allow you to update your models in your existing format. It's simple and non-invasive. DeLupa's clients are able to cover more opportunities and generate more ideas. No more data errors, no more Excel monkeying,

just the fundamentals. See why equity investors are switching to Delupa. Visit dilupa.com slash Y-A-V-P. That's Delupa, D-A-L-O-O-O-P to learn more. So again, everything is opportunity costs, right? And you've circled the wagons with Comcast, and Charter through Liberty Broadbans. I've kind of circled the wagons with Charter through Liberty Broadband. Actually, I'm a little bit of both at this point. But, you know, I think the biggest, like, Altis, I got absolutely burned on Altis. You're really dumpster diving there.

It's really lever. There's a huge turnaround. But, you know, I think the two that most people would say, hey, you're invested in charter. Why are you invested in Charter versus Cable One on one side, who I had the CEO on? She was absolutely fantastic. I got a lot of emails that were like, hey, the cable one CEO is awesome. Why are you not in cable one right now? So I think that would be one.

Why are you in charter versus cable one? Or the other would be, hey, you're in charter. Why are you in charter instead of T-Mobile? Would be the other choice, right? Like T-Mobile, this pure play wireless company. They're taking share. They've got the best network. They've got great spectrum access.

And they're just gobbling up wireless. They're really gobbling up not just wireless, but also fixed wireless customers. And they've committed. to kind of the charter, we're going to do the levered buyback story. We're generating huge amounts of free cash flow. We're just going to eat our share account going forward. So I guess just why charter instead of those two? We can talk about either one to start.

Yeah, first of all, as you already said, the Cabo interview was fantastic. Anybody who hasn't gone and listened to it should definitely go listen to it. Yeah, I can't pitch it too many more time. But it was really good. It was really good. And it's a CEO in the industry who's like experiencing the things we're discussing every day. And I thought she had fantastic answers on it. Yeah, I'll pitch it instead then. It was fantastic.

You know, I think part of it for me as that discussion, you know, got around to, I think the wireless strategy at Charter and Comcast is incredibly important to how I think about where the businesses are going long term. I think for the smaller players, I don't know what everybody's strategy is in that space, but it's less clear to me how they are going to play that same game long term. I feel like Charter and Comcasts have a very well-established position for how they plan on attacking the broader connectivity opportunity. long-term. So maybe there are smaller companies that have a similar strategy that I'm just not as familiar with, but I'm very comfortable with the approach they're taking. And I can see

this industry, you know, connectivity broadly restructuring around, you know, the customer counts at a Comcast or a charter may not change as significantly as they used to, but it could be a number of customers who are getting both home internet and wireless through this company. And I think that could work for them very well, both in terms of the size of that business, but also churn, profitability, etc. In terms of T-Mobile, I still feel like I like Cable's hand as they come to this game that'll continue to play out in the years ahead. I like their hand better than what the wireless companies have, you know, and what I spoke about on the ad that I saw during the World Series speaks to it. You know, they're selling home internet, but the pricing for

someone who's a Magenta Max customer, which is the highest tier, is significantly lower than just your average T-Mobile customer. And they have to think about things like that as they market the product. I mean, the difference is, I think it's 60 or 70% more expensive, $30 versus $50. So again, there's a difference there in how they market it, and Magenta Max is only 15% of their base, something like that. There are geographic considerations that I spoke to. They can't just go out there and say, hey, get this product today. You go on to the page and try to get it and, hey, it's not offering your area. So I just think the wireless companies still have certain limitations. And as Moffa Nathanson has done a good job laying out, there's kind of

a difference between true connectivity and just bundling. And cable, in my mind, has a very clear connectivity strategy. T-Mobile does as well with FWA, but there's a question of whether or not the network is actually going to be, whether or not that's actually going to be something that can be used by potentially tens of millions of customers over time. So I just like cables. hand in terms of, again, the cost of their asset base, their ability to sell broadly to their customers and the math on it all working out. Yeah, no, look, I agree with everything you said. On the T-Mobile point, like, I get pinged quite a bit on T-Mobile. The numbers make sense to me. I definitely see what they're, I definitely see what people are saying. They're taking

great share, but I'm with you. I just keep looking at it and I say, hey, you know, I think history, It's not like we've got a couple of decades of history in telecom, right? Like we don't have forever. But I think history just suggests in the way my model suggests it's who's ever got the most deepest fiber is ultimately going to have the best mode, the best product. And I continue to think that that's cable in the majority of the country or they're tied with fibers to the home and the places they overlap. So I just keep looking at that.

I say, look, I think as you said, the cable wireless business is going to take a heck of a lot share, a heck of a lot of share. it's a lot cheaper for cable to go and attack wireless than it is for wireless to go and attack cable because with wireless cable is already handling 90% of the data, they just need to get that last 10%. They can do it over the MV&O. Wherever the MVNO is hottest, they can go and build out cable to kind of offload it to themselves versus if you're T-Mobile, you're saying, hey, we're going to take on 90% of the data and we're going to have to do it selling it cheaper than our wireless plans. It just makes so much more cable just makes more sense to me. And then on the Cabo thing, I agree with everything you said, like, look, I thought you was great. could I own Cabo at some point in the future? Yeah, I definitely could see it. Like the capital allocation has been outstanding.

The execution has been great. The thing that kind of holds me back is table one and charter kind of trade it about the same multiple, which is crazy. If you went back a year ago, you know, cable one was at like $2,000 per share and charter was at like 500. Cable one was trading for double the multiple charter. And everybody would look at it and be like, why there were lots of thoughts on why they did it. But, you know, nobody knew why there was a lot of people who were really bullish on

role was one thought. they're a lot more rural. But today I look at them trading the same multiple. And Charter's got that wireless growth where I think that it will deliver real value for them. So that's one kicker I get. And then the second kicker I get like a year ago people loved rural. Two years ago, people love rural. Today I'm a little bit more nervous about rural and cable one has a lot of rural, whereas charter is much more suburban and urban. And I do feel a lot better about that as it goes to to fix wireless. I threw a lot out at you. I'll kind of pause there if you wanted to add anything on to that? No, I had one thing that's a bit of a, a bit of a tangent that I think

T-Mobile deserves, I don't know if this is just an accident that had happened this way, but I think they deserve some credit for, you know, as I think about Cable, and you think about the pay TV universe and what's happening there with cost rising pretty aggressively every single year, obviously very significant pay TV losses. I think Cable, in a lot of ways, their brand is, they're perceived as the person who's kind of doing that in some ways. And I think it negatively impacts their brand. And as people, you know, cut pay TV, there is also the question that comes up of whether or not they want to continue operating with that, you know, cable provider,

especially if your bill is, you know, $2.250 a month, which it very well may be, depending on the pay TV package you were taking. I think T-Mobile did a smart thing where they were trying to build out their own pay TV offering. I don't know how it was going to be branded. I can't remember the specifics of it all. But I think they eventually just threw in the towel and said, we're just going to use YouTube TV as our kind of the MVPD

and we'll offer, you know, per month discounts, whatever it may be. But I think that was a very smart way for them to offer that capability without them being perceived as a person who's pushing. I mean, even YouTube TV is at price of business, right? So I just think they do have kind of a leg up there where Comcast and, you know, Charter may be perceived as the company that's layering on this 10, $15, $20 incremental every year for pay TV costs when really they're just passing it through. But the pissed off customers are pissed off at them.

They're not pissed off at Disney or, you know, Paramount or whoever. When a fibers of the home overbuilder comes and builds out in cable companies, they get in the first year, this is rough math, but in the first year, they're going to get, you know, if they pass 100 homes, 15 of the homes are going to switch over to the fiber home player. And then in the second year, another five to 10 are going to switch. over, right? So it's about you get 15% of your one and you get up to 25% of year two. Rough math. Don't hold me to that exactly, but that's rough math. And, you know, it would seem that you should get more in year two versus year one because you've been there for a year.

You've had more time for the advertising. So, but the reason you get more in year one is exactly what you're saying, right? You've got 10% of the customer base. I mean, everybody hates the cable company, but 10% of the customer base hates the cable company. And the moment someone comes to switch, they say, they've been over billing me for years on TV. I'm out of here. You know, it doesn't matter. And I'm sure some people have other service issues, but a lot of it is just they hate the TV and they're just going to switch instantly, right? And it all speaks to what you're saying there. Let me ask another question here.

So, you know, we talked a little bit about the headwinds in cable. We talked a little bit about opportunity costs of buying cable versus buying charter versus Calo, buying the cable companies versus the wireless company. There is another question, right? You and I are in this game. Your hope is to generate risk. your hope is A, to enjoy it, and B, to generate risk-adjusted alpha in the long term, probably B over A, but both of them are helpful. You know, everything, again, is opportunity costs.

I think both you and I look at the cable companies and say, hey, I think I can generate risk-adjusted alpha and the cable companies today. We said this last year, and we were very, very wrong from last year. But, you know, what are, I'm not going to have you put words in my mouth, but what are you seeing today in, let's just focus on Charter because, again, Comcast got the other stuff, but Charter's trading for about 340, 350 per share. what are you seeing today in charter that makes you think you can generate risk-adjusted alpha going forward despite all the headwinds we've talked about? Yeah, again, I think it's this combination of

a cost-effective network, a very clear strategic vision, a path to communicate that to customers in a way that is attractive and can lead to, again, like what was last quarter, 650,000 net ads on wireless lines, I believe, somewhere around there. I've got, I can pull up the model a second, but something like that, yeah. I think they're proving out the logic of the offering from a consumer perspective, and I think the logic's there as well from a business and network perspective. And it's still early, obviously, on CBRS offload and things like that. But I think they have a very clear understanding of why this works. And I think it's a compelling package for someone who is interested in doing

all of their connectivity business with a single company. And you're looking at some spitballing numbers off the top of my head, but obviously the first year promotional pricing on Spectrum 1 is very attractive. But I think after you get past year one, you're paying roughly $140 a month for home internet with two lines and the comparable offering on Team Mobile was about 170 or 175. So I just think the math works there. And that goes for trying to onboard new customers, but it also goes for the sustainability of the base. And I think I think people are very reticent to switch these services just for the sake of switching them.

There needs to be a clear reason for doing so. You know, saving $10 probably doesn't do it, slightly faster speeds where it's not very perceptible, probably doesn't do it either. So I just think there's a path forward where they can slide into a place where, again, maybe the customer base overall doesn't grow as significantly as it once used to, but they can start to have higher penetration within that customer base. But people who are taking a bundle that has obviously significantly higher, you know, ARPAs across the offerings. And then if I could just yes and you on that, I agree with everything you said.

And then you also get on top of that, you know, the charter is trading for seven times EB to EBTA. The EV to unlevered free cash flow is going to look a little funky in the near term because they're doing the rural investments, which we'll talk about in a second. But, you know, trading around 12, 13 times EV to unlevered free cash flow. And my number is like, you're getting a pretty juicy cash flow. and all that cash flow is going to go what I personally think are going to be attractive investments and see their growth through the rural buildouts or it's going to get returns to cash flow. So you get this like really bond.

To me, it's a bond growing with inflation protection plus some growth, plus it's all just kicking back to you. I do want to ask a question on the charter hosted Investor Day in December. They come out in the Investor Day. They say we are going to spend a lot more in Capax than anyone thought, right? We're going to upgrade our network, doxas 4.0, make it future proof. we're going to spend a lot of money going after these rural networks. The market doesn't like it initially.

Stock goes from about 400 to 330 the next day. And over the next month or two, stock recovers back to about 400. And then in the past, you know, a couple weeks with SIVV failing everything is back down to 340. But I guess we can ignore the volatility. I do you just want to ask you, you know, Charter's CapEx story. And Comcast is kind of the same CapEx story as well, though not quite as much as the real.

Charter's CapEx story, what do you think about the rural? out the upgrade, all of that. I'm not as well versed on the rule build out outside of, you know, a lot of things I've obviously said and some of the numbers they've shared. It all strikes me as very logical. And again, when you're investing in a company and partnering with the management team, you usually do so from the perspective of actually trusting them and, you know, proven track record obviously helps.

Everything there seems logical to me. In terms of the broader kind of network investments, you know, I think there's this question of whether or not it's maintenance first growth. And, you know, do you just constantly have these every five or or so years where you need to put a significant amount of dollars or, you know, percentage of capex intensity, however you want to measure it. But at the same time, you look at the numbers they're talking about in terms of what the network can do. And you look at competitive offerings from Google Fiber or AT&T Fiber in terms of two by one or five by one. And you

look at the prices that they're charging the customers. I just think it's logical to the extent that this doesn't, you know, devolve into this complete price war, people fighting for customers, which I don't know if that would, it would probably be worse for the competitors and it would be for the cable companies if that happened in terms of just purely the financials. But outside of that happening, I think there's a pretty clear opportunity for this to be, you know, an Arpoo driver over time if people, you know, as Cabo CEO did a good job of laying out, if people are electing to take higher tiers versus a base product at a very reasonable price, you know, that's not bad Arpoo, that's okay to have that happen. And I guess there's potential for this to potentially

flow through in the years ahead. So I feel pretty comfortable in terms of, you know, those investments doing a good job of protecting them from a volume side of the equation and also protecting them on the Arpoo side of the equation. Yeah, look, I completely agree. And just the last thing I wanted to ask, and this is something that's just been diving around in my mind. Like one of the things when I first started buying cable is cable was trading for, you know, a lot of people look at these on, you can do it. on an EV to EBTA number or you can do it on EV to Holmes pass number, right? I think at the time cable was trading for 10 times EBDA, I don't know, 10, 12, whatever. It's trading for about

$3,500 per home pass. And I think one of the things I looked at is I say, hey, we have seen tons of fiber transactions, right? And most of the fiber transactions happened at 20 times EBITDA. Most of the fiber transactions happen at 4.5K for homes pass. I would say, look, cable is basically, I don't think there's huge differences between cable as an asset. and fiber as an asset, right? And I would say cable is probably a better, buying charter is probably better than these fiber assets that people are building

because the fiber assets are generally, and I'm talking fiber to the home, right? But the fiber assets are generally duopoly type things. They're competing with cable, and cable's got a lot of assets, a lot of places where they're monopoly, there's more scale of this. And I just look at this and I say,

we haven't seen a, to my knowledge, we haven't seen a cable or fiber transaction in quite some time. And I do wonder, like, with interest rates having come up quite a bit, and the market kind of frozen, and this applies to all telecom investments. Like, are we stuck in, like, yes, cable's probably trading for under 3K for home capacity, but are we stuck in a, hey, you and I were looking at our 2021 blinders on when interest rates

were zero and everything was to the moon and all this sort of stuff, are we stuck just married to that old assumption? And today, it's like, hey, there is more competition, right? Fix wireless is a real competition. Bybidth home is probably even more aggressive than people thought about. Interest rates are up, multiples are down. Like, you know, has the world just shifted and we're the last people to acknowledge it? I hope not.

I hope not. You know, again, I think it's kind of speaks to the overarching discussion. You know, another example is you spoke about interest rates, also just inflation generally, right, in terms of buildout costs or labor or whatever it may be. I think about, I think about DG, which I wrote up this week, obviously a very different business. But, you know, their 22 KAPX was 60% higher than kind of the 19 to 21 average. and they're looking for another 20% jump in 23. You know, some of that is just the volume of projects that they're doing. But another important chunk of it is just cost inflation in terms of, you know,

obviously materials, labor, et cetera. As I was digging yesterday and looking through the fiber companies kind of public comments on what the cost is to build out, it seems a bit not totally clear at times how significantly the cost may have potentially changed. and, you know, whether or not that really fundamentally alter some of the math around some these, I mean, both on cost to capital and also the build-out cost. So I don't know. I think it's, when I was listening to our old pod, you were saying something about Verizon

making announcement and then like one week after they made all these huge splashy announcements that kind of just went silent. And it was the dream kind of differing from the story in some ways. And I still think in from where we stand today on both FWA and Fiber, there's a certain amount of, we have an idea of what the story is. And there is obviously some kind of demonstrated outcomes. But in terms of everything making sense as we truly think about the long term, for me, some of it's just still up in the air. I want to switch to media in a second because I threw an hour on your calendar and I'm going to take all of it. Gosh darn it.

But before we switch over there, anything else you want to talk about on cable? I mean, I think we did a pretty good job covering the risks, the opportunities, the balance. But anything else you think people should be thinking about? I'll throw them back to you because it's something I think about. So, again, the premise I laid out earlier, hey, 12, 13 years of a million net ads every year, crazy COVID thing. Who knows how much the overhang is impacting versus competitive dynamics, et cetera. How do you think about these names in terms of what a value trap looks like on those kind of core KPIs of broadband net ads?

You know, I don't think, I'm not worried about whether broadband net ads are 300,000 to a million per year. And I think I messed you, where I get concerned, I think a cable company you're looking at it as a bond-like thing with growth and inflation power, where I get concerned is when the cable company started reporting net losses last year, right? Like, I kind of didn't think net losses were really possible. I say that a little facetiously, but you know, these guys, you always get a little bit of growth just from new homes getting built out, new household formation, everything. You always had that little bit of growth. There was still like a little bit of DSL to cable tailwinds. Like I just didn't think they could start reporting net sub losses. And what I worry about is a cable business, any type of telecom business, at its heart, there's a lot of operational leverage.

And once they started reporting that, I started worried, hey, like, it seems like the competition's kind of getting to them. And if you start going, I mean, one of the reasons fixed wireless is so scary is because I think when you and I started underwriting cable, we were underwriting monopoly in a lot of markets, duopoly against fibers to a home in a lot of markets. If fixed wireless really works, you go from duopoly in a lot of markets to oligopoly, four or five players, right? You've got a cable player, a fiber to the home player, and then maybe three national skilled wireless players who can offer. That looks a lot different. So, yeah, I'm rambling a little bit. I don't even know where I was going with that. But no, what I really worried about, it's not necessarily the net ads picture because you

were never going to add. Actually, you probably could just on household information add, you know, 1% of your base every year. But to me, it was always a pricing power and a sustainability and a cash flow story. And when I started seeing those net ads go negative and then I see it continued, it like really calls into question, hey, was this a one-time thing because fixed wireless, you know, right now all fixed wireless is it's net ads, but they've got no one to churn because everyone's so new. Is it just right now fix wireless is gross ads? And in a year when they start churning a little bit,

you're really going to see this normalized or is this a new thing? I still lean that fixed wireless, once you see the churn, the broadband businesses go back to stable to slightly growing like they should be. But if you're wrong, like, you know, there is a lot of downside as you start seeing operational de-leveraging there. Agreed. We've got a few minutes left. Let's quickly turn to media, right? So we started talking about media with Comcast, obviously the O&MBC. I know that you are invested.

Two of your largest positions are Walt Disney and Netflix. You know, you want to talk about diametric, maybe not diametrically opposed, but if you want to talk about three companies with a lot different operating head, wins, tail wins, everything, we can talk Disney versus Netflix versus NBC. But I just want it is, you've got, you know, if I include concast, you've probably got 25% of your portfolio invested in the media space. What are you seen in the media space that is so attractive to you? And then we can maybe dive into some of these specific names.

Yeah, at a kind of core level, I think, you know, particularly for entertainment programming. I think streaming and video on demand and DTC obviously has proven itself to be, you know, just speaking from a U.S. perspective, a vastly superior offering to what was offered through linear pay TV in terms of obviously choice. on whether or not to have ads, you know, date and time for programming, breadth of programming, type, you know, everything. And I think I was very much in the value investor mindset when I first started looking at something like Netflix, you know, a decade ago now probably, five to ten years ago. Learn more and more over time. My involvement in the space started with 21st century

Fox and then taking equity on the Disney deal. So I owned Disney at the at that point did not own Netflix. And, you know, my perspective for a long time was it's easier for Disney to replicate what Netflix is built than it is for Netflix to replicate what Disney is built, you know, kind of a kind of simplistic idea, but obviously understand what I mean by that. You know, the subsequent 12 to 24 months especially may put that conclusion into some question in my mind, you know, particularly in terms of, I really think the biggest, the biggest headwind to getting there potentially over time is simply the ability and willingness to actually you know want to go after that prize and to believe that it's worth going after and to the

extent that you do believe that bearing the inevitable costs associated with getting there i mean netflix has clearly shown that what they went after required years of very significant investment both in terms of b and and cash flows etc and i you know disney in my mind the 21cf deal was somewhat of an indication that they did want to follow a similar playbook, given some of the assets they got, most notably Star, Hulu, you know, the incremental Hulu stake, et cetera. I think that's less clear now. And I think there's a very realistic outcome where they decide to revert to something that's kind of a more traditional Disney's best IP strategy, which may very well be the

right strategy for them to pursue, but in terms of what that means for Netflix as a kind of very broad, all you can eat, truly global brand. It kind of puts them in something of a league of their own outside of Apple and Amazon who have somewhat different strategies, very different engagement trends, et cetera. So it's been a very interesting space to watch. Again, like as I was saying with Comcast and NBCU, I think it's still up in the air where I would have expected a little more activity in the past, you know, year or two than what we've seen in terms of changes and strategy or maybe as far as M&A still feels like that's probably on the horizon, especially with the tone in the past six months especially has just kind of completely shifted from

the perspective that was being shared by the CEOs and CFOs of these companies, you know, not too long ago. So it feels like we're nearing a point of kind of fundamental change. and I'll be very interested to see how that all plays out. I've got a few quick. So Disney obviously flips their CEO almost six months ago now, right? Iger returns. But does Disney, I understand, Iger comes in and it's not like the day two, all the IP gets way better in the movies go from 50% to 70.

Like it takes a while, right? Iger probably hasn't even started green lighting real movies yet and everything. But does Disney have an IP problem? And I mean this in, if you look at. Marvel phase four, I think, has been kind of a disaster. Look, I see every Marvel movie. You and I've talked about our love of Marvel movies before. I see everyone pretty quickly when it comes out.

The only one I really enjoyed was the new Spider-Man, which was unbelievable. But I don't think I enjoyed anything else in Phase 4. When I think about Disney Plus, I don't have kids. And I understand if you have kids, you're always starting on Disney Plus. But, you know, I haven't watched The Mandalorian yet. I know that gets great reviews. But there's nothing really driving me to turn on Disney. So if there's nothing driving you, like, yeah,

great content, like a place to stick your kids, but Netflix is releasing so. I look at Phase 4 bungling. I look at Star Wars, the movies, and Iger released all the new Star, the new batch of Star Wars movie, and that ninth one was horrible. No new, it doesn't seem like they've gotten great new shows coming out. The movies aren't great. Like, are they in trouble? I think it would be foolish to say that they don't have at least cracks in terms of the core IP. I don't think they've been, it hasn't been connecting, at least from what I hear. not a big Marvel or Star Wars person, but it hasn't been hitting with the audience in the way that certain, you know, the previous kind of iterations as we look back three, four, five years

were. You know, I think more broadly, I think it's maybe problems, not the right word. I just think it's a strategy question. And again, it gets back to what I was saying. Is this company, is this company going to be selling Disney Plus to, you know, a very large, but more niche base in terms of major Star Wars fans, major Marvel fans, you know, families that have young children in the home. Is that who they're going after? Or is it a, you know, broader general entertainment strategy, a kind of all you can eat bundle that has a mix of, you know, very high-end Marvel movies, Pixar movies, but also, you know, I think it's funny. People say general entertainment, you know, I assume the office was general entertainment before it became a massively

popular show. Same with friends. Same with you. Same with Bridgett. Like, so I think the split between these things is a little bit less clear, but it gets back to the strategy that you want to pursue. An interesting example, I was watching, I was watching the golf tournament that's going on right now, the match play Dell, whatever it's called, is on ESPN Plus. And during the telecast, they mentioned full swing, which is the golf show on Netflix. And it's just kind of funny, Disney and ESPN could play in that space potentially, but you're not going to play in that space successfully if your strategy is not, in my opinion, you're not going to play in that space successfully relative to Netflix if your strategy is much more niche and targeted at,

you know, a smaller audience where you have less content spend, but you can still have a very attractive business a la, you know, historic HBO. But the F-1s of the world and the PGA tours of the world are going to clearly favor Netflix in that equation, if that's the strategy you go after, which is fine, but, you know, long story short, I just think they need to make a clearer choice about where they want to go and then they have to rework, you know, the asset base and the operational focus to align with that. And now, a quick word from our sponsor. This podcast is sponsored by Dilupa.

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visit dilupa.com slash y-a-v-p that's delupa d-a-l-o-o-o-pa dot com slash y-a-v-p to learn more just looking at netflix so it's crazy how quickly a narrative and i do think stock price somewhat drives narrative here but you know six or nine months ago people were talking about Netflix dying and everything all their competitors lean way way back on investment spend Netflix has a few hits, you know, you, Wednesday, and all of a sudden it's, it's like Netflix's back baby. And I get that. I think you're right. Like, look, I hear the subtracking numbers are really good, all this, but I do still wonder, like, you look at Netflix and I say, okay, maybe they're in a law right now where their big competitors are retrenching because, you know,

the advertising rates on their linear things that were funding everything have gone down thanks to mini recession or whatever. They're retrenching. Disney seems to be a little bit of a max. Hopefully, Iger fixes it. Peacock, who knows what's going on. But I do know, like, at Netflix and say, hey, like Apple's been releasing some really good TV shows.

Apple's taking a lot of time. Amazon's still got a big commitment. Maybe it's still up in flux. But, you know, if you started to see some consolidation, you know, like a peacock plus pick your poison, peacock plus Warner Brother Disney. HBO's had a lot of success recently. I do wonder if Netflix, like, there is still the question, hey, longer term, yeah, they've built a real big business, but they still don't have great IP.

Like, do they need a merger partner or to buy something? I think there's, I mean, again, it depends on, it depends on the willingness of the sellers, obviously, right? And NBCU and Paramount of the two most obvious kind of players that should or would need to do something over time. and they're also the two that have kind of the most wonky ownership structures and are at the whims of, you know, the companies or the people that run them. So it's a little bit unclear. I have started to wonder more recently instead of, you know, an outright acquisition, if somebody would want to pursue something closer to what Box did with the 21 CF assets and with Disney, where they effectively are signing a long term slash perpetual kind of output agreement with this. a streaming service like Netflix or Amazon, whoever it may be,

while continuing to own and operate, whether it's the content production engines, the linear networks, those types of pieces. And I think that that thought process, I think kind of goes both ways. I think Netflix in particular has been clear that they're not particularly interested in doing any deals

that are not kind of perfectly aligned with their strategic vision. So I just don't know if they'd have any interest in buying, you know, a business that's economics are basically entirely tied to linear, and then the minute you buy them, I guess in theory, you could shut off the linear networks and just, you know, the math gets pretty difficult as you start thinking about it that way. So it's always tough to turn down a three or so billion dollars of free cash flow every year, even if it's declining. Yeah. So on Netflix, so again, everything's opportunity costs. We're looking to do risk adjusted

to alpha. I do just look, and I'm just pulling up a Bloomberg number. I haven't dusted off my model in a while. But, you know, Netflix, as we speak, is probably trading for a $150 billion enterprise value. I think not 2023, but 2024 EBDA is projected to come in at about $9 billion, right? So we're starting to brush up on the 20 times EV to EBDA number. Obviously, this is Netflix still has nice growth, right? It's probably a 10% grower. But you just look at that in this market and you say, hey, rushing up on the high teens 20 times EV to EBDA, yeah, growing, but, you know, I do still see some competitive threats lingering from Apple, Disney.

Like, how do you look at that and say, yeah, this is a risk-adjusted alpha generator here? Yeah, I think it's, I think it one, obviously, it speaks to the industry dynamics we're talking about and whether or not, you know, as the chess pieces are moved around, whether or not they have an opportunity to further their position in the industry, which I think they pretty clearly will. It doesn't mean they'll be the person that capitalizes on it, but I certainly think they'd be in the running to do so. You know, one of the other major considerations over long term is the ARPU that they generate

per account. And you think about the quality of the product that they're providing. And I think the most recent number I had from Comcast from the cable division in terms of programming costs was brushing up on $90 a month, if I have that, 80 or $90 a month for what people are paying for, again, just the cost, not in terms of what Comcast is charging the customer, just their programming expense. and you think about that in the context of a Netflix offering that that may be $15 or $20 a month in the U.S., you know, depending what tier you're on.

I think the long-term pricing power for these services is probably very significantly underappreciated in terms of, especially if there's a remix in terms of what assets and what content is available through these different services. So, you know, we'll see. And that gets back to Disney, by the way, in terms of thinking about their sports rights and as ESPN, you know, eventually makes a transition, how do they think about the volume and pricing mix there? And what's the, you know, what is the content that's offered there relative to what was available through ESPN linear historically? You know, I'm always down to talk sports

rights, but one of the things, I kind of didn't drive there because it's just such a long conversation to have. And like the ESPN future is, it's really tough to know. And, you know, I don't think, if I remember, you're not, you're not in any of the sports rights companies that you are in Disney, which buy sports rights, but you're not in like the New York Knicks or anything that sells the sports rights. And one thing that I've really struggled with is, hey, it seems great for these guys, right? Like sports rights double every time they come up. But at some point, you know, if ESPN is losing 10% of their subs every year, they can't keep doubling the price they pay for sports rights as well. And yes, there's going to be streaming. But I think we've seen streaming is much

more difficult to monetize these sports where you're not paying for a huge bundle. It's just a real question. I don't know how that develops, but I didn't go there because we're out of time, so it was going to be too late. But Alex, any last thought you want to leave anyone with or anything? Well, just to throw a wrench in there real quick, with Disney, they were building the mechanism for you to buy a bundle again. It was it was Hulu and Disney Plus and ESPN Plus. But if you don't want to own Hulu, then that becomes a little bit problematic in terms of, well, not only the people you've already onboarded, but in terms of what you're selling and if you're bundling it anymore. So we're building that bundle, but if you're going to do ESPN

plus with, you know, Monday night football and the NBA, then Disney Plus is going to cost you $14 a month. And ESPN Plus is going to cost you $60 per month or something, you know? So it's like, yeah, you're building a bundle, but the Disney part of it is, it might be a lot of the value, it might be very valuable, but it's nothing compared to once you start throwing live sports rights in it. So, you know, I think that's one of the thing the legacy bundle managed to bundle, A, it had a monopoly on TV viewership before streaming.

And B, it bundled all sports throughout the year. So, and it also, you know, it was where you went to get your live news until about eight years ago when Twitter got big. So it's just really tough to recreate that bundle with the sports room, right? But, hey, I know Markell is a 5% position for you. Are you going to join Bill and I and Markell Investor Day in May? I can't, unfortunately, because I'm getting married like the week before. Okay, well, this mustache was disappointed, but that's a pretty good reason. It's a good excuse.

Where's, you plan to honeymoon, going on a honeymoon? we're not totally set yet but i think maybe california love to love to drive the coast it's so nice drive the coast go hit california and if you want to do a trip through disneyland you can expense that since you're a dizzlement there you go well alice i i'm very happy for you getting very congratulations man that's awesome and uh appreciate you coming on for the third time alex morris from the science of hitting link to the sub stack will be in the show notes if anyone wants to check it out on the happy sub and we can uh yeah alks we'll chat soon awesome thank you A quick disclaimer. Nothing on this podcast should be considered an investment advice.

Guests or the host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.