Yet Another Value Podcast - Alex Morris (TSOH) on $NFLX, $DIS, and the media space (podcast #108)

Episode Date: May 20, 2022

Ales Morris, founder of The Science of Hitting, returns to the podcast to discuss all things media, including his investment in Disney and Netflix.Alex's first podcast appearance on Spotify: https://twitter.com/AndrewRangeley/status/1388122956837097482?s=20Alex's / TSOH substack: https://thescienceofhitting.comChapters0:00 Intro2:55 What's going on in media?6:15 What is the market missing with its media bearishness?8:45 Is media too competitive to invest in?14:35 Why is Netflix having a problem with breakout hits?18:30 Can you trust these companies when they say "trust us"?20:30 Is it true that Alex is a Marvel hater?22:30 NFLX's move into ad supported30:05 NFLX's (and the industry's) rising churn35:00 Why is DIS bundling when everyone else is consolidating into one product?38:05 Why hasn't Seinfeld broken out on NFLX?42:30 ESPN's streaming future49:00 Can you really make a profit streaming sports?54:15 Is Marvel fatigue real?58:50 Disney parks1:01:50 Opportunity cost of investing in DIS vs NFLX vs CMCSA (or something else)1:06:35 Berkshire buying Paramount

Today's episode is sponsored by TIGIS. Understanding expert insights is table stakes for investors, and there's no better option than TIGS. I've been using them for almost two years to get up to speed on companies, and they've helped me immensely as an investor. TIGS also recently acquired BAM SEC, which adds a super fast way to access SEC filings and earnings calls and to incorporate financial data into my models. I run a monthly DeepDive series sponsored by TIGS on the blogs. I'll include a link to my cable deep dive in the show notes, and I'd encourage you to follow the link if you're interested in how expert interviews

can help you learn more about a company. Currently, anyone who signs up for Tigis gets free access to BAMSCC as well. So check it out. All right, hello, welcome to yet another value podcast. I'm your host, Andrew Walker. If you like this podcast, it means a lot to me if you could rate it, review it, subscribe to it wherever you're listening. With me today, I'm happy to have my friend.

Alex Morris. Alex is the founder and the editor, sole writer, entrepreneur in charge of the science of hitting substack. I'll include a link in the show notes, of course. Alex, how's it going? It's going good. Thanks for having me. I think Francisco Alvarez technically the editor, because I send him everything, and he's the one who tells me what sucks and what's good. Between you and Bill Brewster, Francisco is doing a lot of editing on the side. We keep him busy. Yeah, but anyway, let me start this podcast the way to every podcast. First, a disclaimer to remind everyone that nothing on this podcast is investing advice. Normally, we do one stock, but so much is going on in the media space. I think Alex and I are just going to riff about a bunch of media stocks, a bunch of media stocks today. So Alex might have a position of you. I might have a position for you. Please just remember, nothing on this podcast is investing advice. Consult a financial advisor, do your own work. Second, a pitch for you, my guess, you know, this is the second time on the pod. So people can go listen to the first one from last summer for a whole pitch. But, you know, Alex is one of the clearest thinkers. I know.

He runs a concentrated portfolio in some of the best businesses out there. I'm a happy subscriber to the science of hitting. So everybody should go out there, check it out. I think it'll really help you improve if you're looking at, you know, larger cap, better businesses, media, retail, consumer focus. I think that's fair to say. A little bit of Berkshire Hathaway in there, of course, too. But I don't want to give way all the secrets. But anyway, having you on the podcast today, we started talking about this about a month ago when Netflix stock, you know, I say it sold off, but there's been about four selloffs this year, but it's come down a lot. You wrote some really good notes on it. I know you recently added to your Netflix position, but then I figured we'd expand

it to an all-in-media podcast because media in general is crazy interesting right now. I know you just put out a note like two days ago discussing Disney has sold off this year too. You were adding to your Disney position. So I just wanted to talk media in general. I guess I'll flip it over to you. What are you seeing just media in general? It doesn't have to be company specific right now. Well, I think the main thing I'm seeing is a change in perception. We have gone through, gosh, you can probably say a 10-year period, I would think, where we completely flipped from, you know, Netflix isn't a competitor,

as I think Zaslaw famously said about 10 years ago, or maybe it was less Wunvez, to, You know, Netflix has eaten everybody's lunch, multi-hundred billion dollar market cap. You know, Malone famously saying basically they've already won, and that was years ago now. So, you know, Barry Diller said they've reached escape velocity. And I think the stock was, this was five years ago and the stock was 300. Right. So a huge sea change in terms of perception and, you know, obviously the actual results as well.

you know another big development along the way is is disney launches disney plus after you know dithering for a couple years astounding success right out of the gates i mean at least in terms of sub numbers and obviously there's you know ways that those numbers are kind of juiced to get people to trial the product initially but the numbers objectively have been very very strong and you know you kind of get to today where the disney plus subscriber base alone is just shy of 140 million Netflix is that you know call at 220. So they've really closed the gap in a very significant way in a fairly short period of time. So started seeing a lot more competition. You know, Netflix had Netflix had EB margin guidance for the last couple of years. And we can argue about income statement

figures versus cash flow figures. But the reality was we were seeing a very meaningful trend and improvement in the financial results, a business model and strategy that was clearly working. And then we get to the pandemic, you know, two quarters where they added, they had 25 million subs in six months, I think it was. Just insane growth. Now we're on the back end. And, you know, we've seen the subgrowth completely shut off, which was not anybody's expectations at all. Management kind of fumble the communication on launching an advertising supported product. Margin guidance is scrapped.

So, you know, everything that was looking good, we're now on the exact opposite end of that. And, you know, even as some of the smaller players have come out and reported numbers that in some cases, we're objectively pretty good or at least decent, the market just isn't having it right now because they see what the prize is now and they're not very interested in the prize. Yep. You know, right now, so again, you've recently added to Disney and Netflix. I'll disclose I own Warner Brothers Discovery. I've recently added there as well. So, you know, all of these are, I think it's fair to say, not loved right now, right? Netflix is the worst performing stock on S&P 500, I believe, down 70% so far this year. Disney's been cut in half since its pandemic highs. Warner Brother,

you know, Discovery was $90 per share when Bill Hong was just driving the stock to the moon and the infinity squeeze. And now they've done a really, I think, a creative deal and the stock is 17, even take the squeeze out. It's been cut in half. What do you, you and I are both bullish media. What do you think you're seeing that the market is missing that has you bullish media? I think, well, there's a couple different ways to think about this. Let's start with Disney because that's the one I've owned the longest and it's the one I, you know, I wrote something about Disney before I bought Netflix where I basically said

Disney's path to becoming Netflix is easier than Netflix's path to becoming Disney. And I think what I really meant by that was Disney has the asset base to, become a global D to C video business. And that opportunity was, or that transformation was going to create economic opportunities for them that in my mind would be quite a bit larger than what existed for them in the prior world where, you know, obviously they were a global company, but it was very much a U.S. company as well in terms of, you know, what drove the economics. So I think that was, that was part of the thought process.

And the other thinking was, over time, the level of spend that is going to be required to basically be a place where people consider going to consume content is going to require such a scale that there's naturally going to be competitors that fizzle out, get consolidated, revert to a licensing model, whatever it may be. I think that's still true today. But in the interim, we've seen a number of competitors come to market, some of whom have you know, varies from not great IP to pretty darn good IP. Yep.

And they've invested significant amounts of money to try to build a subscriber base. And obviously, you know, competition that's been pretty heightened is, you know, in some ways bad for everybody. So let me, one of my big worries. And I think Disney is separate than Netflix, Warner Brothers, everyone else just because Disney has the parks business. Disney has the IP, like, will Disney outperform the market from here? Maybe, maybe not. I think the odds are probably in your favor, but maybe not. But Disney's not going away, right?

Like, that IP is just, that is gold. Buffett said in the 60s, like the oil well that refills, right? Whereas when you look at something like Netflix or maybe to lesser extent Warner Brothers, just because they do have some pretty iconic properties. But, you know, I think the market is looking at Netflix, Warner Brothers, and saying, like, is media investable? The competition is just so heightened and it's heightened for two reasons. One, you've got big players, Apple, Amazon are coming in with unlimited checkbooks and they don't appear to care about the economics of just the media business, right? They've got bundled

economics for a lot of other products. And three years ago, you know, everybody was laughing at Apple TV. Everybody was laughing at Amazon Prime Video. Today, people are not laughing at those, right? And you can get them and they've got great products. You know, Apple has some of the best shows of the past couple years. Amazon's got that Lord of the Ring show coming up. So you can get those. They're real competitors. And you've got a giant company that doesn't care about economics that's releasing

a competitor that's generally not good for you in the long run. And then I think the second thing that people worry about is just, you know, if we rewound this podcast 40 years, you and I would both be in the womb or pre-wom. but if we if we rewound this podcast there were three channels right if you wanted to entertain yourself you could watch three channels or you could read a book if we round this 20 years you could do some really basic video games or you could watch the cable bundle or you could read a book today you can spend all your time on tic top you can do youtube you can go download fortnight for free and get hundreds of hours of play through that like i'm just worried there's so

much entertainment out there that the competition is just ratcheting up and like between fortnight youtube and amazon prime you can entertain yourself for a lifetime for basically free so how do you think about just like the competition in media right now okay there's a lot there i want to hit a couple things i did as i was saying there i was like wow i just threw out what is the meaning of life Alex well i'll try my best answer um i think start with the the point on disney because I think it's a really important point. And, you know, Berkshire owned Disney up until, I believe, the late 90s, maybe into the 2000s. And I think a big part of what happened there, to your point on them returning to the well is Buffett was seeing that that wasn't actually really happening anymore.

Disney's content production and ability to create IP was boltering. It was not working anymore. And it is so important to the output of that business over time. time, you know, Iger, for all the faults that he may have, he did three deals that completely transformed, you know, that company's base of business. And they built everything around that now. And, you know, obviously the opportunity is to be differentiated as a result of that. And the risk is that you go down the path you went down before where these things lose their, you know, relevancy value, however you want to frame it. So, you know, obviously something to monitor,

but we've been hearing about Marvel fatigue for at least 10 years now, and it's clearly not showing in the numbers. It's still as strong as ever, basically. In terms of the comment on linear, I think that's an interesting point to understand her to think about as well, is the idea of hundreds of channels, obviously, you know, fairly consolidated around a handful of companies, but hundreds of channels competing for time and attention

and now we're moving into a world where we're kind of seeing something like that. It's not explicitly, you know, HGTV or a food network, but it's all consolidated into one package and obviously on a DEC basis. I just think if you look at the progression of how that worked in the linear world and you see where that ended up in terms of the business economics, I think there may prove to be some parallels there. But we're still relatively early in that happening. And I also think, honestly, that informs the strategies that companies should pursue.

or at least think about in terms of, you know, think about a business like ESPN and how the economics of that worked and what the strategy was. Think about legacy discovery and how they kind of operated within the linear bundle and how they thought about the important things within their business. And I think there's slight variations in some of those things that will inform how some of these companies will ultimately need to go forward, especially if we don't see a ton of consolidation. You know, the final point on competition, I think it's spot. on. At the end of the day, YouTube is a competitor. As Reed Hastings said, a couple years ago, Fortnite's a competitor. It's one of the problems I've always had with the gaming

spaces. Everything is usage and new demos coming in is up into the right and look at the companies. I'm like, yeah, but is EA really winning as a result of that or are they just losing share to these emerging competitors? So I think that's a very real thing to think about. And, you know, For me, as I first got in this space, I feel like Disney gives me a nice competitive position within that because they have the IP that even with everything going on, the fire hose that we're all consuming every single day, when they come out with Black Panther 2, it's going to get attention and it's going to get consumed by probably hundreds of millions of people. you know if you're in netflix and your advantage is global scale and spending power i think you really have to adjust your strategy in order to play to those strengths and you know drive to survive obviously is a is a perfect example of that where you know go out celebrity guys i don't i don't know what the economics of that deal were but you know how much would paramount plus

have to pay you to put it on that platform versus netflix for that you know it's it's a non-starter so they have to think about things like that, I think, more than they maybe have up to this point. For Netflix, for years, like, I never had a position in it, but I always looked at and I said, look, the bear case is, this company is crap, competition is coming, all this, and I would always went, drive to survive, that reinvigorated F1, or my personal favorite was, look at Cobra Kai, the TV show. That was on YouTube for two seasons, the YouTube TV when they were trying to do a TV product. No one watched it.

It got great reviews, but no one watched it. And you would hear, you know, some of the TV people, like, TV critics and stuff. This show is great. You guys just need to try it. But no one watched it because it was on YouTube TV. And then Netflix picks it up, puts it on Netflix, and it instantly becomes a hit. And, you know, it's not the only show that's done that. Manifest had a moment for a while.

All the CW shows break out. And they all break out because they're on Netflix. So I would always look at it and be like, you can say that, but the best real estate in the world is the Netflix home screen. But I'm increasingly a little concerned, like, you know, I would have said, Cobra Kai, huge hit. All the shows that Netflix picks up from syndication, huge hits. But outside of Stranger Things and Squid Games, which you can't discuss Squid Games, Netflix just, it doesn't feel like the shows are really breaking out in the same way, Leninger TV did, or I get like most streamer haven't had breakout breakout hits, but it does concern me that it seems like all the breakout hits come from linear TV. And if Netflix can't have those breakout hits, X Squid

Games, X stranger things like that does speak to maybe like streaming just doesn't stick the same way linear TV did. Yeah, I think, I mean, you know, obviously there's two ways to think about that. Is it a company specific thing or is an industry specific thing? Yeah, yeah. And thinking about what that means. And, you know, again, as I kind of was referencing a second ago, These thoughts need to inform your strategy. A good example is we don't want to do sports because we'd rather focus on-demand and we don't want to have to do advertising. Well, now you're introducing an advertising tier, so you're going to be in the advertising

business either way. And the on-demand thing is somewhat of a fallacy to your point if you put a show out and the vast majority of the consumption happens, maybe not at 9 p.m. on Friday night, But if the vast majority of the consumption happens in a relatively small window, basically what I'm trying to say is you need to take these signals and rethink some of the thoughts that you have about your business. And it's funny to think how Netflix even came to be in terms of the industry, standard practices on things like windowing and what they were willing to do with their content. Now it's time for Netflix to probably explore some of these ideas and at least think about what they mean. I've always liked the, I think it was Blank Find who said, you know, if you can't get a, at Goldman,

like if you can't get a mark on something to sell 10% of it and then you'll know what the value is, basically. Like, they should be pursuing some of these ideas that what is the value of red notice, you know, was it actually a smart idea to make that or not? And obviously they can measure some of these things internally, but it may be worth testing theatrical and, you know, you may need to reconsider live and sports and news. And, you know, some of those things may not be intelligent to do, but they're certainly worth at least thinking about as you go, hey, we have a massive global sub base. Nobody can rival what we do. Again, Formula One, you know, is there a rationale for having a much deeper relationship there? It's worth at least thinking about that question. And where does that get you to? Are you some version of ESPN slash YouTube? You have interviews. You know, there's a bunch of different ways that you can go from there, but you need to be having these conversations. This is the fun thing about the podcast and just talking media with smart people because you said that.

I had like 15 different questions and thoughts and ways and go and response to that. No, but you know, one thing you said, which I haven't heard someone say before, but I do think is interesting. You said red notice, which correct me if I'm wrong, the Ryan Reynolds, rock, Galgado film. Yeah. I think I have the name right. Yeah. Red notice. Go sell it and see what it's marked at, which I don't think they should.

but, you know, it reminds me of Spotify. Spotify for years has said, you've got to trust us. We see the data in buying and releasing our own podcast, and you've got to trust us. We're leaning to this heavily because the internal data we have is off the charts. And, you know, when the stock is going from 100 to 300, you get that trust. But then when the stock comes back from 300 to 100, people look and say, you guys are investing a lot of money into podcasts. and we're not really seeing it in the financials. And Netflix is in the same way, right? When the stock goes 100 to 700, they get all the trust in the world.

And now that the stocks go to 700, 200, people start looking and say, how much did you guys pay for the Knives Out sequels? That's a lot of money to pay for the Knives Out sequel. Why aren't you releasing these movies into these movies into theaters? Why are you doing like, for a long time, I have thought the release it all at once and let people binge it model for a long time. I've thought that it works for some shows, but I think Disney gets a lot more,

the Marvel shows that they release. They get a lot more buzz because they do it weekly, and I can go listen to the, I can go listen to a podcast recapping, hey, here's what happened in this episode of Moon Night, and let's speculate on what's about to happen and how that meet. Like, I do think there's some brand value there.

Anyway, I don't know where I'm good. Let's actually Netflix. Just out on that point real quick. I mean, it's a good example, like theatrical. they don't have to pursue it for the sake of financials alone it's the idea of to your to your exact point people like going to the theater with their friends and seeing you know dr strange too on a massive screen with great sound you know with people that they want to you know these experiences have value for the brand and for the customer outside of the fact that you're

going to scrape five dollars a ticket from doing that it's that kind of thought right you mentioned Dr. Strange, too. So let me go in a completely different point and ask the most important question that we'll be asked on this podcast. I've heard you do not like Marvel. Who told you this? I've talked to you for multiple years now. I've known you. I can't believe you can be a Disney shareholder and not like Marvel. I shouldn't say I don't like it. I have had very little exposure to it. I've seen Iron Man, I think, and maybe two or three others. I liked him. They are fine. I like Pixar stuff a lot more. I like the office. I like sports. Hey, nothing wrong with

liking Pixar stuff. I love Pixar stuff. But you know, you not liking Marvel reminds me of every now and then there'll be somebody who inherits a sports team and, you know, these sports teams will mint money and the value go up. And they're like, yeah, you know, I own the, I own the Knicks, but I just really don't like basketball. And you'll just be like, gosh, like you hate the product and You're just making mincey money off the scale of ownership on those two examples is slightly different. I'm slightly smaller than my ownership that owning the entire sports team. Maybe one day, though, maybe one day.

Lots of different areas to go, but one of the big news recently is Netflix is exploring, and I think it's pretty clear at this point that they're going to launch an ad-supported tier. Disney, I believe it was this morning, the Wall Street Journal said, hey, we're all systems go for an ad-supported tier for Disney Plus by the, end of the year. So both them are moving to ads supported tears. Disney, that makes total sense, right? They've done ads for years. Netflix is interesting. For years, they said, we don't do ads. We want to be HBO. We want people, we want all of our money to come from, people say, I love your content so much. I will pay $10 or $15 per month to get it. And, you know, when you introduce

ads, there can be a little bit of weird dynamics where ads kind of encourage you. It's the clickbait model, right? You just want eyeballs, maybe. So lots of different stuff there, but what do you think about Netflix's move into launching ads supported? I'd say I'm skeptical is not the right word. I'm just uncertain on it all. And I'd like to understand it more. And I think that, you know, part of the Netflix thesis or owning the company that's been a bit of a struggle for me is understanding things like international arpoos, which seem, which seems someone out of whack with what you'd expect given, you know, purchasing power and, and those kind of considerations. So, I mean, it obviously makes sense in terms of, in terms of making the product more

accessible for a customer who was unwilling or unable to, you know, pay a few more dollars a month. I do worry about the impact that has on the product. And, you know, a good example is I was watching a show on HBO Max the other day. And, you know, the show was created without the idea that there'd be natural ad breaks, you know, shows used to be written with the Or at least they'd be shot with the idea that, hey, there's going to be an ad break every seven minutes or whatever it is. And, you know, now I'm sure they tell someone or have a computer say, hey, you know, in this 30-second window, find a place to put an ad. Sometimes there's not a place to put one. And it's just, you know, kind of right in the middle of someone talking, screws up the captions after the ad.

You see these same ads six times during the episode. So point being, and that's not unique to HBO Max, you see similar things like that on Hulu. and I'm sure you'll probably see it on some of the companies who are just introducing this for the first time. So, you know, it's thinking about those things and just being really thoughtful about, really thoughtful about the tradeoff of what you're creating when you start doing this. And obviously them coming very much off the cuff and saying, hey, we're going to do it now after being pretty clear for years that this is a key point of differentiation relative to the industry. That's certainly concerning. Let me push back on two things. So one, you just mentioned,

and seen the ad six times in a row, I hate it, we all hate it. I'm with you. It's 2022, like how do these people not have this? But at some point, you have to imagine the ad tech gets better and they can run ads where they're not showing the same tied detergent ad 15 times in a row or something. You have to imagine that. So I'm with you there. It's awful, but they've got to fix that at some point. Jesus Christ. But on the firm thing, I do think there is something like you are in a if you're Netflix or any of these guys you're in a war for attention and you are in a war for subscribers. And I think anything that gets you that can get you more subscribers, I think it's good for your business. And if that's, hey, we need to offer a free

tier that's ad supported to get an extra 10 million people. Like I think it makes all the sense in the world because there's extra 10 million people, you'll get money from them in ads. People can still pay up if they want to remove the ads. And that does lower your overall unit cost, right? Like, if you have 100 million people who are watching a show and it costs 100 million, that's a dollar per show. But if you get an extra 10 million people who are on there because they got the free ads, that lowers your unit cost. It just helps you hit that scale flywheel. So I think it makes sense. And then I also think it makes sense to build that muscle up because as we were saying earlier, if you're ever going to get into sports, you need advertising to pay for

sports like there's just no way you can have NFL football with those ad breaks and maybe they stick to we never get into sports maybe they don't but it's probably good to build that muscle and that habit for a bunch of different reasons i don't know do you want to say anything there yeah i'm just it'll be curious you know the devil's in the details in a lot of this stuff would be curious to see what it actually looks like you know we said we heard yesterday at the upfront Disney plus basically or Disney basically said Disney plus will have four minutes of ad load per hour on the ad supported tier versus you know linear i think can't data has it at like 20 minutes an hour or something so a very significantly reduced ad load

and the question that pops in my mind is what does the pricing look like on that and how much our how much art who can you get added from the ad supported tier and you know you have you have different people saying different things on this but this was a big promise of the vmvpd when they launched was because of the nature of the product the advertising is going to be higher cpm and will be be able to price the product lower. And you look at something like Hulu Live, price went from $50 to, you know, 90 bucks or whatever over the past handful of years because that theory was at least somewhat flawed. It could just be an offset from the lower ad load. And obviously the pricing could be higher and you end up in the same place. So the product is better. But it's just a

question I have. I mean, how much, how, what are they going to price the ad support product at? If you can only advertise for four minutes an hour, that's not going to drive much. of an ARPU, but we'll see. I don't know if you follow them closely, but Warner Brothers Discovery and especially Discovery before. So they haven't talked to it too much recently because, you know, you're going through $100 billion merger. It turns out you're more concerned with synergies and integration and getting improved

and stuff, but especially when Discovery Plus first launched, they had the ad and the ad free. And they came out after they launched and they were like, we're actually making more money from the ad supported model, which was like price that I believe it was half. of the ad of the ad free model that we can't believe when you get these targeted advertisements we can't believe like the rates and how much people will pay for that and they haven't talked about that too much but I do I do believe like hey if I'm subscribing to Disney Plus and they have my credit card information they know when I'm watching they know where I'm watching all this

sort of stuff like it does make sense that they're going to be able to hit you with some targeted ads that are worth a heck of lot more than when I turn on NFL Sunday on the TV and they hit me with 15 truck ads in a row and I'm not even a car driver. I don't even own a car, right? So it does make sense that they should be able to get pretty good money for that or, you know, I would think of something like Disney is advertising the next Dr. Strange product, right? And they're going to put that in every freaking ad break during NFL Sunday or whatever show you're watching. But maybe if they see, hey, Andrew already purchased the Dr. Strange, Andrew already saw Dr. Strange. Maybe they could dial back all that ads and hit it with something else that would probably cost less

in the aggregate, but it's probably better for the overall brand. So I think it does make a lot of sense. Yeah, I mean, to your point, we've, Discovery has said that for pretty consistently now. Hulu, Hulu has said similar things over time. It's clear that it's, the economics are clearly working. So it's something you have to at least consider, especially if, again, if you can do it on a basis where we are out of the insanity of 20 minutes of ad load per hour and it's a very reasonable ad load and, you know, pacefully done, then yeah, I think that's a very compelling option for consumers. So you would be crazy to not at least think about how to participate there. I've got so many notes. Let me, let me hop into something different. Just this morning,

an article came out that in the information. It was talking about rising churn at Netflix. And I did think that was interesting because, you know, a lot of the concern with Netflix is they're not, they're not adding subs anymore. They're not going to take over the world. We're not in a scenario where every person in the world has a Netflix account. But rising churn is really concerning, right? Because it shows that the competitive products, and specifically mentioned in this was Peacock and Paramount Plus were gaining a lot of steam. And in part because I think Paramount Plus, you could get access to the Super Bowl through it. and Peacock, you could get the Winter Olympics, which were a disaster, but, you know, people to

care about the Olympics, but there were a lot of different interesting angles to that, right? Like, sports seems to be driving sinus for competitive products. Competitive products are making inroads, but I was surprised for years, the thing with Netflix was people said, hey, you pay $15 per Netflix, they could raise that price to $30 tomorrow, and they wouldn't see any churn. They didn't see a lot of churn when they increased price last year or a couple years ago. now it seems like the churn's getting to them. So as a bull, it's no longer their ads are coming and lower. It seems like churns are going to increase too. So how do you think about that?

Well, I think the reality, I think we've seen data kind of for the industry that shows churn is is on the rise, which again, this all makes sense given, you know, the quality of the offerings and economic or not, companies are, there's numerous products out there with very attractive price points. And if there's content on there that people want, then they're willing to, you know, sign up for a month or two and then hop off. you know, I think that's kind of just how it's going to be, you know, in terms of how you defend yourself against that, I think this is where Disney with the, with its U.S. bundle looks pretty smart right now. And, you know, to the, there have been many people of one of them to spin ESPN off for a long time. And I think what you're starting to see as is as you look to build, you know, a D to C offering, at least a complete one that can keep people's attention across the entire calendar. You know, it's hard to put out a new Marvel show or movie every single week. They can get relatively close to doing that, especially if they stagger the releases of the episodes.

But, you know, it's very nice to have content that is going to drive subs and drive retention. And I think a lot of the content they have on the ESPN side does exactly that. So, again, it goes back to what I said earlier. I think a lot of these companies will have to figure out almost who they're trying to replicate from the old linear US TV world. because there's a lot of important lessons from the differing strategies that exist there. And if you're not going to be in sports, then, you know, that kind of informs what you need to look to.

And it also informs probably the pricing strategy for that product and, you know, the reliance on something like an ad supported tier. So for Netflix specifically, you know, as we know, and I, you already mentioned, you know, the IP is a hit rate for the IP seems quite low relative to what they're spending. you know, maybe, maybe they should ask themselves was letting something like the office go, should we have paid any price we had to basically keep that IP or friends, you know, friends, whatever it may be. Maybe in hindsight that would have been an intelligent decision as opposed to taking that risk.

And, you know, things like movies, does it make sense to spend $200 million on a movie given the nature of their product? The answer may be yes, but how can we ensure that it's actually going to be anywhere, close to the hit rate of a Marvel type of movie, which is basically impossible to do when you start with a blank sheet of paper. How do we monetize it? Is there value in having a run in theatrical before it shows up on our service? It may actually be additive to do that. But they have to think through these things and change what they're doing, it seems like. But they start from a very strong position. We should also add that point too. They have a massive recurring revenue base.

you know they have a very strong uh you know very strong subscriber base and obviously a lot of spend now that they can it's it's funny to think that disney came out on their call and said you know our target was 33 billion to spend for the year it's actually 32 now it's almost a small enough number that it's like why would you even say that and i think the reason why they're saying it is because everybody recognizes we're at the point of the cycle where you have to show that you're spending cost effectively and and someone like netflix needs to actually do that it is just funny like as you A couple years ago was how much more can you pump into spending on streaming content?

And now it's how low can you go on streaming content? Again, so many places I want to go. And I want to talk about ESPN a second, but you mentioned the Disney bundle, right? And how the Disney bundle reduces churn and the Disney bundle for those who aren't listening. It bundles Disney Plus plus the Hulu, not the Hulu live product, but just the Hulu general product plus ESPN Plus. And it's a big discount. I think if you subscribe to the three of them, I'm close on the numbers. It'd be like $30 or $25 per month.

If you subscribe to the three individually, subscribe together and it's like $15 per month. And it does strike me. I get that. Bundles work. Definitely get that. But the two things that are interesting about that is one, you're basically just starting to recreate the old cable bundle. Now, it doesn't have live sports.

It's a lot cheaper, but you're just recreating the old cable bundle. But the second thing that's interesting there is Netflix is a standalone product. And for years, the argument is one of the nice things about Netflix is you subscribe to them. And they're basically a bundle in one thing, right? You subscribe to Netflix and you got everything on linear TV basically except for sports. And then for HBO Max, Warner Brothers Discovery, right? They just did the merger. And as soon as the merger's closed, they cancel CNN Plus.

They say, hey, we've done these. We tried to roll out a food plus product. We tried to work, none of it works. We're HBO Max is going to be our product. And at some point, I believe towards the end of this year, they're going to combine Discovery Plus and HBO Max into one product. And it's just interesting that Disney is rolling out this bundle. And those are separate brands and everything. So I guess it makes sense.

But Disney has their bundle. And everyone else seems to be going, hey, let's merge it all into one. We don't want a bundle. What do you think about that? Well, I think a huge part of it is just an accident of what happened with Hulu and where they're sitting now, where Tomcast still owns a third. and we're all waiting for this to finally come to its end, something that should have already happened by now, but they're both kind of sitting there and without any signs of moving.

So I think that's a massive part of it, because rolling everything into one product would have been a huge headache in terms of how to think about that. I mean, who's already a huge headache anyways in terms of all this stuff? And, you know, Disney effectively kind of killed the brand when they went international. I mean, brands doesn't have any relevance internationally. anyways, but they basically said, why the heck would we consider taking this brand internationally and adding more value to this product when we could just do it in a different wrapper?

Yep. So I think that's a massive part of it. I do think it's an open question once we finally get this resolved is the plan to more to more tightly integrate those offerings. I think the answer, at least from a consumer side of it all, it has to be much easier for them to be kind of one product in terms of logins and ability to access the content. And you see that more and more, right? If you're a Hulu user, you'll frequently see tiles when you open the app to kind of the most prominent tiles that are sports.

And it's content that's coming from the ESPN Plus side of the business. So I think they'll continue to do that where Hulu content will be featured on Disney Plus and ESPN Plus contents on Hulu. But I think they're effectively getting closer to that end state, whether or not they ever actually do it. I guess it's just a question of how much, you know, for example, like with Discovery and Discovery and A HBO Mac. I mean, obviously, Discovery Plus is a fairly small product. But, you know, there's headaches with actually doing that transition. And there's also questions, you know, if I'm signing for Discovery Plus and I don't want the HBO content, you're going to roll me into it and charge me, you know, 2X what I was paying before. That's going to piss some people off.

So there's a, there's risks associated with doing all these things. But I think they effectively get there at the end of the day where it's pretty tightly integrated. I just wanted, one thing you said earlier that I've kind of thought about, was, Netflix okay to let the office leave, right? So they let the office leave. They had this weird thing with Peacock where for a year they shared. And then now the office is exclusively on Peacock. And for a while, Peacock was basically like only the office, which was kind of funny. It's an interesting question. Like how much can just one TV show reduce your turn and pay for it? But one thing that strikes me about Netflix, I don't know if there's anything here, but they brought Seinfeld on basically to replace.

the office, right? Now, Seinfeld's a little bit older, but widely regarded as one of the best comedies of all time. You know, it's a classic. People thought, oh, it's something new. It's going to introduce it to a new generation of yours. And I just don't feel like it's broken out in the same way as the office did. So is there anything to read there, or is it just different shows, different quality, a little bit different humor? Do you read anything to that? No, I think it's a good question. I mean, maybe the answer is partly that as these other offerings have come to be and as the quality and, you know, scale of the content spend as risen across the industry, maybe maybe the quality of the alternatives. I was just, you know, the office was competing against easier competition than Seinfeld maybe. I mean, that could partially be the read.

You know, I look through the numbers and see, you know, Peacocks at 13 million paid subs, the business with $2 billion and, you know, kind of run rate revenues call it. And a company like NBCU will have to figure out what that means and where they're actually trying to go long term. And as someone who owns Comcast, their strategy seems a bit interesting because they're, I'd argue on the margin, they're stepping away from some sports rights. Granted, they did a massive EPL renewal at a price point that nobody thought was going to happen. But they shut down NBC Sports. They kind of use EPL to try to drive Peacock, but at the same time, it's not a really prominent part of what they're doing. They're still monetizing it through USA Network and linear television. It's just really, how are you going to get to the other side with what you're doing here?

You know, I know the legacy companies now have kind of a talking point about ability to monetize across various channels and this type of idea. It's just important to remember that that type of thinking also kind of got them to where we are. So it's not a strategy without at least some risks or thoughts that have to be considered. You know, and these companies have all effectively said, hey, we're very flexible and we're not going to win the spending war. And it's just thinking about what that actually means. And again, what kind of strategy does that almost push you towards? What can you actually do if that's the way you're going to approach it? And, you know, it's very hard.

If HBO Max is going to have sports rights on there, you need a lot of sports rights. You need a way to present it in an intelligent way. It's really, it's going to be odd if you pull it up. And it's like, hey, we have, here's one hockey game. Yeah. And that's it. Like, how are you actually going to present it? That's why I've always thought ESPN was a really interesting way, at least to start.

And granted, they may have been forced her because of Hulu. They couldn't really integrate in a way. But it made it very, very clear to people what the product is and what you're going to get from it. And now it's at a place where obviously helped by the bundle, but it's at a place where it has over 20 million paid subs. and, you know, the ARPU is not insignificant and will continue to go higher over time. So just an interesting place to start from. I don't know where the end game is there, but it's much more real than just saying, hey, we're going to take, you know, Paramount Plus and just throw a ton of sports rights on there.

It's unclear to me if that works nearly as well. Well, that's a great transition. I want to talk to ESPN, but I do just want to laugh. When you were saying Seinfeld, when we were talking Seinfeld versus the office, I pulled up Netflix, and I searched, if you search the office, the fourth thing that pops up is Seinfeld. And if you search for friends on Netflix, the second or first thing that pops up is Seinfeld. So they clearly know that there was a whole appeal and Phil. And I just think that's that's kind of interesting. Let's talk ESPN, because ESPN is one of the most hotly debated pieces

of Disney. You know, a couple years ago, John Malone said they should spin ESPN off. I think John Malone was arguing sell it to private equity and run it for cash flow, which is kind of interesting. Now it seems an interesting part of the bundle, but I look at ESPN Plus. Last quarter, RPU for ESPN Plus, $4.73. I haven't looked at the numbers in a while, but I believe ESPN and the legacy bundle gets $9 or $10 per sub, right? So that's not even, every sub does not watch ESPN. So when you think about the subs who actually watch ESPN, now at this point, we can talk about the bundle as pretty much a sports bundle, so probably more do than used to. But, you know, I do look at ESPN and I say, okay, yeah, it's a nice product. They're putting

stuff on there. But you know, like the UFC fights, you have to pay pay-per-view for them. And I do think if at some point ESPN, I know Bob was seeing on the last earnings call, hey, we think ESPN has a clear path to even if linear goes away, it's being direct to CERA. And I just don't know, like $4 per month is not going to cover, hey, we're shifting to NFL or NBA rights to ESPN Plus. So it's just in a weird spot. So I threw a lot out at you again. I love this subject, obviously, but I just want to turn a few. ESPN as we go into a direct-to-consumer world, how do you see that evolving?

Yeah. Well, Chapic may say it's a clear path and maybe it is, but the amount of time for that path to unfold is probably the most important question. And, you know, in this quarter, the pay TV numbers were really concerning for a while. I can't remember the dates now. But the pay TV numbers have improved pretty significantly, which is a massive, a massive tailwind for many of the players in this space in terms of obviously cash flows and ability to, you know, take more time to transition from from linear to D to C. And, you know, if you look at the actual numbers, I mean, linear for Disney is a 25 billion plus revenue stream. and it's actually been growing a little bit over time. It hasn't even been shrinking yet, and it generates a significant amount of profitability

for the company. So to make that leap is going to require something from the D to C side, not just ESPN Plus on its own, but the collective assets, at least viewed in some way, it has to be somewhat on par with that and justify doing it. I think the other really important point in my mind is just technologically, I don't even, even in a market like the U.S., I just don't think we're there yet. go watch a game on your TV through a peacock or ESPN Plus, whatever it may be. The quality of the stream is just not equivalent.

And if you live in a good place with good internet, the quality of the stream is not equivalent to turning on CBS and watching Sunday football. I watch the Super Bowl. I watched the Super Bowl on Paramount. You know, I downloaded and described to it literally just for the Super Bowl. And the service, it was horrible. I think halfway through the third quarter, there was like a five-minute. pause in it, it was not good.

I don't understand why they can't figure it out, but they cannot figure it out for some reason. Yeah. So, I mean, I think those two factors pretty clearly suggest that this is, I mean, outside of a significant change in the pace of pay TV subdeclines, it's obviously a very important variable. But outside of that, I don't think you can clearly show how this happens in the next two, three, five years. We're a long ways off, which is, you know, from my.

my perspective, a thought a long time has been a company like Disney coming out and saying it's Doomsday, we're taking everything off linear, is a very significant point for the industry. And from a competitive perspective, it has huge ramifications for a lot of their, a lot of their competitors. But you can only do that within reason. You can't kill yourself in the process. I just don't think they can do it because, you know, these, it sounds so simple. Like, hey, you guys, the new season of Arrow and put it on your DTC show. It sounds so simple, but you don't have any commitments to Arrow. Like, you can cancel the show tomorrow if you want to and nobody's going to notice the write-off.

Whereas these guys are paying a billion dollars a year for the NFL to just say, hey, we're canceling the thing that provides all of the money. You know, if you think ESPN, $10 per month, $10 per month for sub, $65 million of the subs, that's $650 million in revenue. during advertising per month coming in from ESPN, say, hey, we're going to forego all of that because that's what you would do if you took NFL and took it all and put it on ESPN Plus. Every provider would cancel their contracts with you. To forego all of that and put it on to ESPN plus, like the losses explode, I just don't see a path to it. These are contractual commitments. And by the way, the NFL would probably be pretty pissed because they'd say, hey, we were getting 30 million views per game on ESPN. And now ESPN plus, we're going to get 10? Like, that's

20 million viewers less, they're not going to be happy even if they're making the same money. Yeah, two points there real quick. And two points there real quick. And the last point you just made, we'll see how this test, or I guess we're not to call it a test. It's a significant commitment, but we'll see how Thursday Night Football goes on Prime as an exclusive. And, you know, Thursday Night Football has been on Prime for a number of years. And I haven't seen the numbers lately, but there was a period of time where if you looked at the numbers that came out afterwards, The linear viewership compared to what Prime was reporting was 10 or 20 to 1. Like there was, granted, it wasn't an exclusive, so people didn't have to go to that window,

but there was no real interest in consuming it that way when the alternative was turning on Fox or turning on CBS. So that's a big problem that still needs to be addressed. And again, that's just, some of it's just technological until people have much better internet, much better, you know, the TV or whatever app they're using, that problem is going to remain. The other thing I'd say is to your point, you know, ESPN linear is north of $10 billion in annual revenue. And even with the numbers you just said on ESPN Plus, it's called a billion a year, whatever it is. So the gap there is just so massive at this point that we're just not really close. And, you know, I think those in the interim, they're kind of complimentary in some ways.

And it gives Disney interesting opportunities to commit to rights deals that, where they can use things in a way that's more. expansive and more unique and very difficult for others to do. So that's really helpful. But to your point, from an economic perspective, I just don't think we're really anywhere close to this making sense. So the way you would get there in the short term would be is if you were forced to, if a massive number, you know, if it gets back to 5, 10, 10% plus pay TV sub declines, then that would put things in a different place. That'd be very hard for the whole industry, though, in terms of the rights commitments they've made to your point. You front ran me a little bit because my next question was going to be on Amazon Prime because I believe this

year are they're exclusive the exclusive Thursday night football stop. I'm pretty sure it's this year. Yeah. Yeah. So like with for Netflix for years and I believe Netflix is not the only one. Greg Maffa said this for a while. It's like, hey, one of the issues with, when Liberty was looking to buy the RSNs, one of the issues with getting into sports is you pay these high fixed costs and you have a medium-term contract, and at the end of it, you were either underwater or if you were earning a profit, the leagues are going to come and say, okay, cool, we'll take all of that profit. And there's always another bidder for it, right? So Netflix said this, Liberty said this, a lot of people have said this. So I do worry with ESPN, there's, again, there's a lot of bidders who

might not be economic. Amazon is willing to light money on fire as they get prime going, because A, it learns people into prime. They can probably monetize better than everyone because they can, they know your purchasing history so they can really hit you with advertisements in the moment. But you know, Apple is, it looks like they're going to acquire Sunday ticket for $2.5 billion. So I look at ESPN and I say, not only do they have these fixed contracts and it's going to be really tough to make the move from linear to streaming just based on the ARPU problems that we've talked about, but the sports leagues are probably going to extract all the economics from them in the end. And by the way, maybe the sports leagues are going to extract more than

their economics because you've got Apple and Amazon. Again, it comes back to the thing we've talked about at the beginning. You've got these giant companies who might be willing to burn a billion dollars per year on sports or media in general because it fuels the rest of their business in interesting ways. So I think let's start with the idea that that is actually happening. Well, there's puts and takes. They're kind of ascending and descending is some of the legacy players in my mind. Again, mostly on the margin, but their ability to spend and keep spending in significant, they're just less comfortable doing it, especially if you're, again, your NBCU and, you know, you can't really do anything with Peacock, at least at this point.

It needs to be significantly more successful for you to feel confident committing to those rights deals. You know, on Amazon and Apple specifically, and Apple's making noise now about potentially trying to get the NBA rights when they come up for renewal. So that would be obviously a massive deal and Sunday ticket's a massive deal as well. I think it's still, it's funny. This is kind of like the Marvel thing, Marvel fatigue. Like, we've talked about this for, we've talked about this for 10 years. And it certainly has happened in some ways.

And on the other hand, if you looked at, you know, the cumulative control of sports rights in the U.S. from the big tech companies, it's, you know, probably some low single digit percentage of all the live programming that's consumed in a given year from sports rights. So they're still incredibly small players. But to your point, that can change over time. It is interesting to think about this idea of, obviously, in the media space and the D to C space, we're all talking about capital cycles and, okay, everybody is spending like crazy. Now we're going to the other side of it where everybody's going to try to justify their spend and show that they actually have a good business. Listen to the Amazon call. And it seems like they're going through a version of this as well in terms of thinking about the investments they've made on the e-commerce side and trying to justify that as we come out of COVID.

COVID. So we'll see how a new CEO at Amazon thinks about some of these areas and the investment. I mean, to your point, on the Lord of the Rings, they spent a lot of money to get that property. And we'll see how they think about the ROI in that spend. Maybe they just absolutely don't care or maybe they don't care until they hit a rough patch and then they, you know, decide, hey, we do need to care about the ROI and these things. And maybe the ROI is good. But I just think it may become more of a consideration. So we'll see what the viewership looks like. And, you know, their willingness to become much more aggressive.

Obviously, as we both know, you know, a lot of these agreements are long term. And it's almost the problem that I have or the question I have for a lot of the other computing services of ESPN Plus, which is how do you, how do you feature the content in a way, convince people to go there consistently such that you can get the eyeballs on this content to justify the ongoing spend? And again, we'll see how many people they can convince to, I don't even know how you walk, do you go to the website to watch it? Or I guess you would go to the prime video app. So, you know, those are headwinds for someone who's 55 years old and has absolutely no idea how to get prime video on their TV if they even have a connected TV. I've heard from a lot of people like, hey, my dad called me up and wanted to watch the game,

but I had to like walk them through downloading, opening an app and stuff. You know, at some point that there's problems go away. But in the near, it's a medium term like your panel. lot of money for these things and those things you apply to a small percent it does that up i'm laughing because i was prepping for my my next question and i pulled up rotten tomatoes and the the front of rotten tomatoes fire starter which is a horror movie where zach affront apparently plays a dad which has lit a lot of my girlfriend's on fire might light me on fire there's i have friends i'm attracted man but it got a 12% on rotten tomatoes and streaming on peacocks so the quality problem is not

limited to netflix uh yeah but i was pointing that up, I was pulling up Rodden Tomatoes to ask, we mentioned Marvel fatigue. People have been worried about this for years and it hasn't come to past. But I am, I love Marvel. I go see every movie within the first week he comes out. I watch every TV show. I love it. Love it, I love it, love it. But I am starting to worry about a little bit Marvel fatigue. And maybe that's because I didn't like Dr. Strange or The Eternal's. But, you know, I look at it and I would say two things. Dr. Strange, Eternal's Black Widow, three of the past five Marvel movies, and they been some of the lowest rated Marvel movies, Marvel movies to date. Now, to be fair,

Spider-Man, No Way Home was probably the, or multiverse or whatever it was, was probably the highest rated Marvel movie of all time. So they're still putting out good product. But three of the past five, that's not a great trend. I worry about that. And then number two, you know, I think Star Wars was just absolutely mismanaged. But in hindsight, people do say, oh, maybe there was a little Star Wars fatigue after Disney bought Star Wars. They released so many movies. I think it was more mismanaged than Star Wars fatigue because I do think people would take baby Yoda and inject it into their veins at this point if they could. But now I've got two evidence, right? Three of the past five movies haven't been great and Star Wars, it seems like there were Star Wars fatigue.

So do you worry about Marvel fatigue at all? Yeah, I think it's something to always be cognizant of. And obviously it's one of those things as an investor, especially a long-term investor, that that can be somewhat difficult to monitor. I mean, as you're saying, like maybe the best way to do it is to look at things. like box office data or rotten tomato scores and you know I think it's something to always be thoughtful about and it's a massive massive risk for this business again I think it's what they effectively went through in the late 90s and it led to a lot of the decision making that created the current you know Walt Disney company that we see today and you think about what this entity looks like

without a Pixar and a Lucas film and a Marvel and it's just a completely different a completely different company and with a with a D to C offering and assuming a parallel universe where the ability to drive huge subscriber adoption very quickly in my mind doesn't happen. I mean, it's it's a completely different product if that happens. So I mean, I think it's one defending those franchises and then two, hopefully over time, obviously they're expanding within these franchises, especially Marvel and Pixar's, you know, clean slate for whatever content they can come up with, but maybe look to find other areas to continue to grow, which everybody wants to do. But, you know, Bob Eager said something interesting

about the Fox deal, which, you know, people have different thoughts on it. But he basically said, we have an ability to spend something on this that Brian Roberts can't match because of our ability to monetize across various channels. We just have a competitive advantage there, given our asset base. And I think that's still true today. So if they can go out and find things, that'd probably be very additive to the long-term results with marvel i do just worry like if you go back to the front of marvel right it was a story about tony stark robert downy and captain america and they it was building towards the avengers where they all came together and i do i know you don't like marvel so but i do worry now like they've got multiverses and i've seen every movie and i have no clue like where in the

timeline they relate to you've got multiverses you've got all these hanging plot threads and i worry it gets too expansive. It reminds me of Game of Thrones, right? Everybody loved it, but every little incremental bit of story, you start to get a little more complex, and then all of a sudden you've got this Gordian knot that you can unwind, and the quality goes to the quality goes to crap. And the last season of Game of Thrones widely reviled because of exactly this problem. Partly they had to rush it, but partly the story was too messy, and they had to clean it up in a bow. Well, it's part of the, just to add, it's part of the reason why I'm not necessarily a fan or someone who hasn't tried it right because the sense as someone who's not intimately familiar with it is it's too hard to

get in basically yeah you're gonna watch a movie and there's gonna be people you're in the theater and people are laughing at something you're like i have no i have absolutely no clue what that was a reference to so it makes it it's a hard problem to solve and something they obviously need to think about as they as they come out with you know these these shows feel like they're like evergreen like they're completely new things so i should be able to watch moon night and have some clue what's going on or at least get into the story. So they obviously have to think about that as they create these shows. Moon Night, you could have, but like something like Loki or Hawkeye, you had to watch

like six shows and six shows of movies. Dr. Strange, if you went and watched Dr. Strange and you hadn't watched Wanda Vision, Dr. Strange, Avengers, like, you, it was out. So, and look, Marvel, it's a big piece of Disney, but you don't have this problem at Pixar. You don't have this problem at everywhere else. So it is a unique problem, but it is one. I know we're running long, obviously love this stuff. I have two last questions for you.

One Disney specific. We've mainly focused on media. You know, people forget, Parks is a huge driver. It's one of the most unique assets out there and everything. Just wanted to get your thoughts real quick. Look, Parks, we can sum it up. It is booming right now. 100% occupancy, massive pricing power.

They don't even have a lot of international travel. Booming, booming, booming, booming. But there's been a lot in the news with Disney losing their special district status and all this sort of stuff. Don't want to bring politics into it, but just as an investor, when you see this noise about Disney losing special district status for kind of their crown jewel, which is the Orlando Parks, how do you look at, how do you look at parks from that lens? I've tried my best to understand exactly what's going on there, and it's always hard when there's huge political, especially in the moment, there's huge political back and forth in terms of all this and obviously the bill associated with it all, all those things. the best as best i can understand this is effectively effectively a wash it's probably not good for either party i find it i find it funny to think about how these things even come to be which make

a lot of sense at the time when they did it obviously it's been a huge boom for orlando it could have been a place like gainesville where i went to college or smaller cities around there and instead it's you know one of the most important cities of the united states largely because of that um i don't think it's particularly relevant to the long-term results of the business and I would assume they eventually this this fades away a little bit from the from the front pages of the paper and it just becomes a reasonable political company corporate negotiation like it like it should be the results in the parks business have been obviously astounding and like like anything with a company where you're planning on owning it for the long term it's a

balancing act I do worry that I do worry at times about pressing the pricing lever too hard and just Being thoughtful about those things, and especially with the company like Disney, where you can find an endless number of blogs where people, I mean, people are literally writing blog posts about they move a sign in Epcot. So there's really, really super fans. But you need to be thoughtful about how you monetize and, you know, kind of the price to value tradeoff that you're asking from people. So it's something I think they need to be cognizant of. And I don't want to see double digit per capita, you know, spending growth for at least if it's price driven, obviously. I just think you got to be very thoughtful. about this. It's a really interesting one because you do have to remember, like, if you're a four-year-old and you go to Disney, like, could Disney probably charge double the price and get, like, more super friends going to Disney World? Yeah. But at the same time, having that four-year-old go to Disney is almost customer acquisition costs, right? Like, that's going to be paying dividends, 30 year down the line and everything. So it's a weird thing. And if you really start gouging people, it starts to impact the brand, but there's always going to be pricing power at parks, in my personal opinion.

Last question, and then I'll let you go because I realize we've been running quite long. Look, everything in investing is opportunity costs. And there is the question which we started the whole podcast with, right? Is media investable versus everything else? But I know you are along Comcast. I know you are along Disney. I know you're on Netflix. So you are heavily invested media.

And it just does strike me like when I look at the three of them, right? Disney, we talked about impossible to kill great IP. Netflix, still the largest DTC service out there. trading more, it no longer has a bigger EV than Disney, but it is trading more expensive than Disney, but it is a pure play DTC already scaled business. And then you've got Comcast, which has a cable business, which I know you and I love cable businesses, probably trades at a discount to some of the parts. You know, I was just looking at my model. If you think Comcast's cable business is worth what charter trades for, which Comcast is a better managed business. It produces more

profits, probably got a little bit better. But if you just made that assumption, you would be buying where's my thing, you would be buying Sky and NBC for $70 billion if you made that assumption. And they paid, they probably overpaid for Sky, but they paid almost $50 billion for Sky. And NBC, when Parks was open in 2019, did about $9 billion in profits. So you can say you're getting a really big discount at Comcast, right? So when you look at those three, how do you weigh the opportunity costs in between all three? Because I know you're longed all three, but how do you weigh the opportunity costs? yeah this is obviously these these discussions are very very difficult and one thing i really try

to do first of all is is step back a little bit and you made it you framed it in a very good way basically if one of these businesses basically unkillable for lack of a better term and it's it's going to generate at least reasonable returns for me that's a massive part of thinking about okay if this one's a 15% IRA and this one's 12 but the one that's 12 is the business that i literally don't I think it's unkillable. Obviously, that has to be accounted for in some way. So I think Comcast is probably the one that I view as, you know, being particularly cheap right now, particularly if they take advantage of, I use the term patience slash dithering in my last article about what they're going to do with NBCU, but they're in a really, obviously, you know,

valuations across the space of an absolutely smash. But in terms of what they could get for that asset, after disposing of the Hulu stake, it's something that could put them in a very interesting spot in terms of a company that they have an equity interest in going forward. I don't think we've seen anything yet to suggest that that's going to happen in the immediate future, but I think we'll probably hear more about that in the coming months, especially. One thing I was looking for this past quarter was a little bit more difficulty on pay TV numbers, which would make people a little more skittish, it ended up coming in the other way where the numbers were actually pretty good. So I think that maybe delays that slightly, but I expect activity eventually there,

what form it takes we'll see. Now, Netflix, again, is another one where I think if the thesis plays out as expected, the IRAs on that, in my mind, will be quite a bit higher than what you probably get from Disney. But the tradeoff to your point is I feel incredibly well about what Disney ends up being long term. Not that there's nothing that can kill it. And the Marvel risk is probably one of the most prominent examples of that, just that IP losing its relevance. And then the other big one is as we go through the linear pay TV transition to what looks like a different version of the bundle at some point, what does it actually mean for the economics? It might mean that they're better,

but it might take 10 years to get there and they're only, you know, 5% per annum better. You know what I mean. Yep. Yep. No, it makes total sense. It's a tough one. But you know, I know somebody tweeted recently, they were like, look, here's my, here's my secret to market timing. When the most attractive thing in the market looks like Comcast, that's when it's time to sell and raise some cash. And when there's a lot of stuff more attractive than Comcast, that's when it's time to start buying. And the funny thing is like right now, I think there's a lot more attractive stuff in the market than Comcast. But Comcast looks incredibly attractive to me. And on a risk-adjusted basis, you know, as long as you think Brian Roberts is not going to do another sky, because I think

we can all agree he overpaid and destroyed value there. But as long as you don't think that's in the cards, which in the grand scheme of things, I think Roberts has done a great job with M&A, so I think you have to give them the benefit of the doubt. I'm not sure if there's a lot of better risk reward than Comcasts out there, just because you get kind of access to every different side of the media cable equation. And I think you get access in, like, a very good way. Let me turn this on you since it sounds like we're almost done. What do you think about Berkshire and Paramount? You know what? That actually was on my list. I'm a little surprise. You know, I just look at it. I doubt Buffett was going to buy Warner Discovery just because

I don't think he likes to buy messy mergers, though obviously he has the thing there. But I'm just surprised he would go buy Paramount instead of, as we just listed, you know, he definitely has knowledge of the cable business because I believe they have owned, I believe Tedder Todd has owned Charter in the past and took Buffett reads everything. So I'm a little surprised it wasn't Comcast or Disney because when I look at Paramount, like yes, they statistically look in screen cheap. And was was Paramount a Buffett pick or was it a Ted or Todd pick? I think the purchase was a decent size, a few billion, but I think I would still lean toward it being Tedder Todd. I just, I look at Paramount, and I don't just agree there's asset

value there. But I look at it as a controlled company run by a manager who I don't think has like really executed super successfully. And I look at it as a subscale company where the scale players are available at pretty much just as attractive valuations. And Paramount is the one where I look at them and I say, hey, if they, if NBC doesn't make a deal, they will survive. Paramount, if they don't make a deal, their future is dwindling really quickly. They don't have killer franchises. Like Star Trek's a nice franchise. They don't have killer franchises. A lot of their IP is locked up in strange

way. Like South Park's a killer franchise, but they get the movies to South Park, but HBO Max gets all the South Park shows currently. And I just, yeah, it's not my pick. It's cheap. He'll probably do well. He's way smarter than me. He'll probably do fantastic on it. But

it needs to get, it's probably a Warner Brother Discovery target in the long run, but it's just it's almost a bank shot. And I, I think there were four plays that are much better risk-adjusted plays in the media space. Yeah, I'd be curious if you ask them how much of this bet is basically some version of capital cycles plus M&A. But is that the bet here? Because if that's the bet, I can understand.

It's not something that I particularly do, but it's something I can understand making that bet. But to your point, if that scenario doesn't play out, where are you in five to 10 years? I mean, I think they've objectively, go ahead, go ahead. No, no, no, please, I want to hear what you said. I think they've objectively had a decent amount of success in D to C, but that said, they started from, they started from relatively low point. The success has been relatively recent, and we'll see if it actually holds. And they also have an interesting position in terms of kind of the ad support and slash free video space. And we'll see what that becomes, but they objectively have a reasonable starting point there.

We'll see if it's a viable part of the video space. business long term. You're referring to Pluto, which, you know, I did, I did a lot of work on Paramount again last summer. And I always think it's interesting. It always looks cheap. They've got great assets. CBS is a good asset. But, you know, Pluto, I had Andrew Friedman on and he was the one who said, look, Pluto, it looks good. It sounds good. But a lot of it is like kind of intercompany licensing where Paramount is probably like giving their content for free on Pluto. And yeah, you can drive lots of subs. But if you ever start like actually charging for that, if you ever start charging the your company for it. It doesn't look as good. And there's a lot of opportunity costs there.

So yeah, I just like, I look at Paramount. I say at some point they have to be a seller because they're so sub-scale. And, you know, would you rather be Long Warner Brothers, which just did a deal, doesn't need to do a deals and probably buys Paramount from a position of strength two months, two years from now. And they're getting lots of synergies and they're run by a guy who I think's pretty good, even though his results haven't been great, probably partly because of hell. Or would you rather just like go pie Paramount and kind of bet that they do the right thing at the right time? I'd leave Warner Brothers or or for Buffett. I'm just surprised it wasn't Disney.

I know we're over, but I have one more for you now. It's just off to my head. And it can be one of the legacy media. It can be one of the media guys going after someone like Paramount or more interesting for me. Do you think any of the big tech guys would consider taking a run at a Disney, a Netflix, a Warner Brothers discovery or just completely off the table? Look at you turning the tables around on the podcast. I'd be interested in your answer. Look, I think the tech companies, I think there would be natural synergies with all the tech

companies going and juicing, like both, all of them are going after video in some way. I think there would be natural synergies. I think it makes a lot of sense. I do think the regulatory environment isn't exactly in favor of Apple Disney for years was a popular room, right? I don't think the regulatory environment's super in favor of Apple writing a $350 billion check. to go acquire these guys. And then I do also think Netflix said proof, you can build it out yourself.

And yeah, you probably would really like the Marvel IP and stuff. But, you know, you build it out yourself. You don't have the regulatory issues. You can build it from scratch and you can build a product that, you know, can stream a Super Bowl with 100 million people watching without the whole app crashing constantly. So back and forth, but I kind of, I wouldn't be shocked, but I kind of think at this point they're going to go it alone.

and I wouldn't be surprised if the end game is actually the reverse AT&T, right? Where like Verizon looks to acquire our content company. I don't know. It's tough to say, but or video game companies. I do think like you could say, hey, we're going to be a consumer entertainment focus company. Netflix getting into video games was on my list, but we didn't hit it. I don't know. What do you think about tech giants acquiring the entertainment companies?

Well, the video game part you just added is perfect because I think a big part of this is Microsoft ATVI, if that gets done, then it probably opens the door to people at least think there's a possibility there. Yep. I've always thought that Microsoft, or I mean, obviously in the last handful of years, Microsoft just seems to be perceived a little bit differently than the apples and the Amazon's in terms of its scale and what people are worried about. So I don't know if that's just perception or if that's actually reality, but I would agree with you. I just think this environment is very difficult to get a deal done. But if the prices go down enough and I think this is also.

a very important part of this whole thing, which is, you know, Netflix getting into gaming is a very small version of it, but is there an integration between these things that makes sense? To your whole point earlier on basically it being an entertainment market, is there an intelligent way to bundle gaming and, you know, BOD that makes sense? And I think people are exploring that idea and nobody's really cracked it yet. But if somebody figures that out, it certainly would lend itself to the need for large-scale M&A. If Microsoft can be buy Activision, if that gets through, which I think it should. But, you know, the market is telling you it's about 50, 50. But if they can, I think the natural next step would be for them to go and

look to buy, hey, we've got Activision, we've got video game capabilities, we've got Xbox, so we've got the thing in people's home. I think the natural thing would be for them to go buy an entertainment company and kind of now you can get your whole bundle from Microsoft. And, you know, you think about marrying either, the nice thing about Disney is they've got all that great IP, which would be perfect to marry with a company with video game capabilities, or Warner Brothers, which owns Looney Tunes, which owns DC Comics. Like those two guys would be perfect targets for somebody who's like, hey, we bring all the super elite IP in-house.

We can marry it with the video game. We can use. So, yeah. We have gone so many different places. I really enjoyed this, Alex. You might have to come and do a cable one or something. But anything we didn't hit that you wish we had hit or anything, you think we should hit a little harder?

Not that really pops to mind. I would just always, I always note these things, especially during these tough times. It's amazing as an investor to see how the world can change so quickly and perception and reality in this case. But it's just, it's so fascinating to play this game. It's painful at times too, but it's very fun. It's been crazy. It's so funny. If we have been talking a year ago, we would have been talking how many subs can Netflix get to, Tam, all this sort of stuff. And now, you know, you mentioned earlier, Disney says, hey, it's not. 33 billion spend, it's 32. Investors like, yes, let's go. Huge deal, huge deal. Well, Alex Morris, founder of the science fitting investing, link in the show notes. I love reading all of his stuff. I love having you on the podcast and looking forward to doing it again in the near

future. Yeah, I really enjoyed it. Thanks for having me, Andrew.