Bloomberg Audio Studios, Podcasts, radio News. This is Bloomberg Business Week Daily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies, and trends shaping today's complex economy. Plus global business finance and tech news as it happens. The Bloomberg Business Week Daily Podcast with Carol Masser and Tim Steneveek on Bloomberg Radio.
George Ferguson our next guest has definitely been my guy.
I love to read his research.
He is, of course Bloomberg Intelligence senior Aerospace, Defense and Airlines analysts, and he's joining us here today just to chat about what's going on right now in the aerospace and defense industry. I mean, of course we've really been talking about the defense budget and how all those things are really impacting US defense primes.
Here, George, we booked him to talk about the Boeing sales fair, Hi, ge, But now getting there, Yeah, now we got the headlines on Newark.
No very true, So many things going on right now. But I mean, of course, as Matt just pointed out, we have the ITEG it's ordering seventy one large jets from Boeing and Airbus to grow its network. George, what is the initial reaction to this and how are you all thinking about this in terms of peers and what it really just generally means for Boeing.
First, thanks for having me on. Yeah, so you know, we've we really thought that Boeing would probably be in the middle of the Trump administration's balance of payments equalization process, let's call it, right, And I think the defense primes will be there as well. And so it wasn't surprising to us when we saw the first deal made with the UK include Boeing jets, right, and so I think they talked about ten billion dollars orth the Boeing jets.
We saw a bunch of seventy seven orders today. I might quibble about whether it's really ten billion dollars worth. I think they're using list prices, so maybe we could have we could have goosed that up a little bit
if we used actual pay prices. But I'd expect this is going to be a trend you're going to see around the world as the Trump administration engages countries with again balance of payment with the US that's out of whack, and they're gonna they're going to probably offer them components for aircraft from Boeing and defense products in order to balance it. So I think you could see a pretty
good year for the Boeing order book. And it's it's been a little bit like recently because they haven't been executing Airbus has been and Airbus has been taking the majority of orders last couple of years. So it would be a nice talent for Boeing to have a good year of orders underneath.
Well, I'm glad of that.
I love the wide body planes. I hate the seven thirty sevens and the A three to twenty.
So why body more space?
I need more space, you know, And I guess they'll i AG is going to use these for BA.
I use Iberia a lot, which i G also owns.
I'm looking forward just to having more, you know, look at me. I'm a big guy guy.
I like it.
But I am not going to be flying out of Newark. Typically when I go to Berlin, I'm on a United flight straight out of Newark. But over the last two weeks, George, we've had two events where the radar screens go blank, and to me, although I heard from I think the CEO of United said it's still safe, that does not sound safe to me. How safe is it when the radar screen turns off?
George?
I think you're right. I would argue that probably isn't that safe. But I would expect the FAA and the CEO of United to say it is safe, because that's what they always say. But I'd find it very concerning.
So I mean, what happens then? I mean, first of all, what happens. Does the FAA have to stop people flying out of Newark? Because if we think that all airline travel is dangerous, that is horrendous for the US economy. So isn't it the right move for officials to say, no, it's just this one airport and stop people from flying in and out of that one.
I mean, I think one, there's just no way we're gonna be able to stop people coming in and out of Newark. And just to make sure we understand what, you know, what the outage is. The outage is for aircraft sort of arriving into the Newark area, not so much the air traffic control going you know, directly landing at Newark. And so is that a little bit better? I think it is. I think give more time to react. Clearly,
the FAA has to get better systems in place. You know, part of the backstory here is they moved the control of this approach and departure from Newark from a control center in New York, out of Long Island to Philadelphia, because New York is pretty overworked. They've got LaGuardia, They've
got Kennedy. They tried to put in systems that would essentially remote into the New York center to get the controllers all the information they needed, and they thought they had redundant systems in place, and clearly they didn't, so they have to redouble their efforts and making sure they've absolutely got a fail safe line that gets in the
data they need from that New York center. And then I think, you know, part of that is that some of the employees were, you know, very stressed out about the experience, and they've gone on leave and that's put them at a shortage. So I think it's temporary. At New York is a challenging airport. As you know, in the summer when we start to get thunderstorms, we can
always have backups at Newark even under normal circumstances. But if the FA wants to push through and control this out of Philadelphia, which seems to be the right move given the amount of workload in New York. They've got have to redouble their efforts on this backup, this backup you know system to make sure there's always information and they're going to have to get you know, the controllers work there in Philadelphia.
Again, Hey, George, there was a time where people were really concerned about hopping on a Boeing plane. I would argue that people are still a little bit uncomfortable with getting on some Boeing planes. But as we've kind of navigated through earning season, has the focus really been about tariffs and Boeing in other A and D companies exposure.
To tariffs or are people at all still.
Talking a little bit about the safety aspect for passengers on flights you.
Know here and there. I do still hear people tell me they won't fly a Bowing airplane to they're concerned about it. I presume not. I'd fly in any time. So, but I do think that the narrative is starting to turn to effective tariffs as well. As you know Boeing's manufacturing process, is it stable? Is quality coming through it? Which I guess sort of bleeds into that question, would you fly a Boeing airplane? And you know what we've
seen in one queue. We've saw good deliveries. We saw them get ready rid of some of the inventory of airplanes they've already been built. They've been sitting on TARA costs a lot of money to keep those maintained. They're getting rid of them. That'll help the the cost at Boeing, and it helps them focus on the manufacturing line, which is you know, which is where the cash generation's got
to come from. That's going to lead the turnaround. And I would say one que looked pretty good, and so I think the narrative, you know, we've got to watch tariffs closely. I do. I don't think tariffs will hurt Boeing that much. Again, I think they'll be involved in negotiations over balance of payments. I think there's other parts of the backlog where they could deliver airplanes away from
tariff issues. And so it looks to us like the setup could still be pretty good for a recovery for Boeing, for a lot of deliveries this year and some good cash generation.
George in general, I think people though are worried about safety, not necessarily about the seven thirty seven. I know you'll still fly at Paul Sweeney loves that plane. But you know, we've had we've had more air crashes, we have these problems now at Newark. Is it just bad timing that this happens at the same time that you know, Elon Mosk is taking a chainsaw to government jobs? Or is
this because of that kind of cost cutting? And I also wonder air traffic control are they paid enough to work in the New York metro area or do we need to pay them more?
So?
I think a bunch of questions in there, maybe.
Two separate questions, right is it is it Doge or not?
And so should we pay these should we pay these guys moving ten a little bit more? So?
I think that first it's not Doge in my view? Right, So, air traffic control system is something that is built over decades, and that's part of the challenge, challenge of managing it and upgrading it, is that you've got old systems working with new The air traffic control system never seems to get enough money from Congress to make it as maybe as whiz bang as we should have here in the United States. It's important to us, it's important to our economy.
We have a very disparare country. Right, We've got population centers pretty far apart, no trains that link them. So to me, it's super critical to the US infrastructure. It never seems to get the money it deserves. And so this is a build up over decades of you know, putting this together with bailing wire and tape. Right. So hopefully the Trump administration does come through with a nice upgrade program for the system, because I think it would
also fix some of the controller issue. I think you could bring a lot better technology to the business and not have to worry about recruiting controllers. I think we're having a challenge recruiting controllers. Are they paid enough? Probably not, right, I hear ranges from seventy to two hundred and twenty
thousand dollars. You probably know, even with two hundred and twenty thousand dollars a year, it's probably a little bit hard to live on Long Island if you're starting out at seventy I don't know how you live in Long Island. I will tell you some of them get you know, over time and other things that bolster their pay and you know, so maybe they don't want, they don't want
one hundred percent backfill of all the employees. But probably just a bad situation for us to be in, and so we need to do better at recruiting and we probably need to raise some day in that area.
All right, George, thanks very much, George Ferguson.
There, you're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from two to five eas during Listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube.
Well, you know, a lot has been going on right now, Matt. I've been watching, I.
Mean, what we're doing, the news, but there's so many headlines that have been coming through. And one of the things that I've been keeping an eye on is Trump saying that he is interested, he's open to right. He said he's okay if they do hiking on hiking taxes on the wealthy. Those are people who are earning two and a half million dollars or more. And it seems as though he's cautioning the GOP on it, but he says that he's okay with it.
It's a lot to uncover here.
A lot as He mastered the flip flop, the wishy washy statement in a way that nobody else could because he said in a truth social posting that this is what cost George Bush Senior the election, although this isn't what cost George Bush Sheenery the election. He thinks Congress could do it, although he doesn't think Congress maybe should do it. He's contradicted himself in so many ways. But
it's interesting. Nonetheless, Yes, and so we're going to talk about it right now with Eric Wasson, congressional reporter out of Washington, d C.
For US at Bloomberg News. Eric, it seems as.
If President Trump wants to do this to pay for a lot of the other tax cuts that he's promised while he was on the campaign trail.
Is that fair to say?
Yeah?
You know, his truth social post differs very much from what he's saying in private. He called up Speaker of Mike Johnson on Wednesday and ask for this tax rate increase on the wealthy. He also asked in that same conversation to close what's known as the carried interest loophole, to to call tax carried interest as ordinary income, something that's opposed by private equity venture capital in the real
estate industry. But you know he's waffling in public. One GPA high level texted me, you know, this guy's a fortress force of nature. They're really trying to put together this very complicated bill, and his public statements and private interventions are making it even harder to get you get together on this. The big question is, you know, how how many years can they you know, suspend taxation on tips overtime and raise a standard deduction for seniors to
compensate for paying tax and Social Security benefits. You know, the if they do these other pay fors as they're called, like raising decks on the ritch, you could maybe do that for ten years. If not, maybe it's just two or three or four years of that tax new tax benefit and then basically they can go to the voters say, you know, re elect Republicans in twenty twenty eight, will extend it.
Eric I mean, of course, when we think about the idea of hiking taxes, especially on the wealthy, this could be said to be counter to what the Republican agenda is in Washington. If there is merit to these tweets and there is a push for this, what exactly does that look like in terms of the hurdles that it takes to make that happen, and does Trump actually have the jurisdiction to make that call.
Well, well, just put it simply, I don't see this tax rate increase happening. It's opposed by congressional leadership in both the House and Senate. You know, this is opposed by the core, you know, the traditional Republicans. Now there are these New America First populists like JD. Vance or in cast others who are in favor of it, and
you know what, the politics, they're probably right. Democrats are going to attack this bill as a tax cut for billionaires paid for by cuts to medicaid in food stamps, and it is a very good chance that Democrats take the House in twenty twenty six elections running against this bill. So I think Trump's political instincts are correct. But the party really doesn't want to be the party of raising taxes. It's one thing that really unites Republicans in the past,
and it's going to be almost impossible. They can only lose like three votes in the House, you know, the same number in the Senate, and then you're just not going to get those votes for this, So I don't think it's really going to happen. That carried interests is a different story. Maybe that gets snuck in. Certainly lobbyists or fighting tooth and nail on that issue as we speak, but I just don't think it's going to happen. And
Trump has remade the party. If his truth social posts today came out strongly in favor of this, perhaps he could move mountains. But he's so tepid in his support that I just I don't see him really being able to get this through now.
The interesting thing is that he raised taxes on so many millions of middle class families in twenty seventeen with the TCJA when he capped the State and Local tax deduction, a deduction that has been in place for over a century. That really, that really, I think reflects the heart of American tax policy, that you shouldn't be taxing people twice on the same income. And that cap he promised to lift when he was campaigning here in New York on Long Island before the before the election.
Do you think we're gonna see the salt cap lifted?
It's going to be lifted, but the amount that's on the table now is a thirty thousand dollars cap as if the ten thousand that's there now not doubled for for for married couples. You know, that was rejected immediately by a group of Republicans from high tax states like New York and California, including Elise Stefonik, who may be running for governor, who jumped into this fray kind of
at the eleventh dour. You know, I think they maybe they're gonna get the marriage penalty eliminated, maybe goes up to forties. Can't be much more. It's extremely expensive. Uh, you know, we're talking trillions if you get high I hire into the size of the cap that some people are talking aboute hundred thousand dollars, and they just don't
have the running room. And then the House, the real issue is that the Conservatives want spending cuts, and if you go above four trillion dollars, they want more spending cuts that the moderates will not do to medicate. The Senate's a different story. You know, in the end of the day, the Senate has given itself a mandate of
only cutting four billion dollars in spending. They're pretty much primed to put a lot of this on the nation's credit card and then increase the deficit through a budget gimmick that I won't go into now, but basically it assumes that the cost of extending the existing tax cuts is zero. You know, the Senate will probably win the end of the day, but for now, they're just trying
to get this out of the House. The House has to start all tax legislation under the Constitution, and you know, they got to satisfy the conservative fiscal hawks a little bit by not just going hogwild on things like an unlimited salt cap.
All right, I just you know, it feels like they didn't get tax revenue before. So if you double tax people to get more tax revenue temporarily, and then all of a sudden it turns into I guess all temporary taxes eric turn into permanent taxes, don't they.
Well, I was a pay.
Four in twenty seventeen. I mean, it was one of the pay fours, So they're trying to use it again to some degree. But yeah, I mean there's certainly an argument. Interestingly, business really cares about something you know, to sea salt, which is the corporate salt deduction. There's been a real effort here to limit that. That's the ability of companies to deduct state income, property and other fees from their federal taxes. And I was thought of as a pay
for for this salt cap increase. We are hearing that business is probably going to be successful in beating that back. It's a top priority of places like the US Chamber of Commerce to not have this in the bill, and we can get into it. There's a host of other similar tax provisions on executive compensation, stock buybacks that lobbyists are fighting over even as we speak.
It's so funny because they don't pay taxes anyway, these corporations, right, if you look at Eric, correct me if I'm wrong, But individual taxpayers contribute I think two point two trillion dollars to annual revenue, and corporations contribute less than half a trillion, something like four hundred and fifty billion.
Is that right.
I don't have those stats right in front of me, so I can't confirm or deny them, but I will. I will say that you know, corporations will argue that this will impinge on economic growth and their ability to hire and grow their businesses. So you know, there's probably some merit to that, especially if new corporate taxes go
much higher. You know, the corporate solid tax proposal is talking about that's on the table is a one percent effective corporate tax increase from the current twenty one to twenty two percent.
I mean, of course, when we think about the idea of taxing the rich, this is something that Democrats do want to hear. But I mean when we think about their Republican party, is there anybody that would be in support of this?
Who else would be potentially on board with Trump?
Oh? Well, you know, it's very interesting. Andy Harris is the head of the House Freedom Caucus. He's very much on board. I think I first broke that story when I talked to him in the hallway. He's out on media again today saying yes, let's do it. He would even go for millionaires, not just two point five millionaires, and to pay for some of these other agenda items. So it's interesting. There are interesting allies even among the most conservative. Josh Hawley, who's a populist of the new
style close to JD. Vans in the Senate, is also in favor. So there are allies, and these are part of the people who think the Republican Party needs to cement itself as a working class party. Culturally, it's very working class, it braces very similar values, anti woke, etc. These guys say it needs to be followed up with
economic benefits. But on the other hand, you know, certainly economists woul say these tariffs, some of which would go into place permanently, that Trump is talking about, are a direct you know, basically a sales tax that really hits lower and blue collar workers.
Eric, great talking to you.
I'll continue to send you the occasional email here and there when if you're right assault story. He's sick of me, probably shooting him a Bloomberg message. By the way, where are you It looks like you're set up in a debate hall or something.
I'm so curious.
I'm in the press conference studio of the House Representatives, right next next to the place where I work.
Oh, that makes sense for our congressional reporter, Eric Watson definitely follow his reporting on the Bloomberg terminal or Bloomberg dot com.
This is the Bloomberg Business Week Daily Podcast. Listen live each weekday starting at two pm Eastern on Applecarplay and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Nina Trentman from the Bloomberg News Side of the Building.
And Nina, you brought the CFO of a construction company, which I find particularly interesting in this environment.
Yeah, like it's actually a software company. That's a lot of construction company software. But yeah, it's an interesting space to be.
Howard Food joins us right now from Carpenteria, California. Did I say that right, Howard Carpenteria.
Yes, the pro Core is actually based in Carpentrya, California. I'm joining you today from Washington, DC.
Actually, well, I've getting.
All sorts of things wrong, but I'm excited about pro Core. I actually think the software side is such a cool piece of this business. I have a family full of architects, so they all use this stuff. But as you may have heard in the teas, when it comes to construction, I'm wondering about not only the labor issue with mass deportations, but also the high price of lumber, the high price of steel. Like, isn't all of this converging to make it a difficult business for growth.
Yeah.
Well, first of all, thank you all for having me today. The short answer is yes. But remember construction we've always talked about as being a very resilient industry. And when you think about labor, when you think about costs, and you think about terrorists, when you think about all those different things, all of these challenges are not unique in terms of what the industry has faced, and the industry
has always come back. And we're in an industry that is continuing to build and continuing to rebuild, and this is just another line of things that the industry has been used to dealing with, and I'm confident that the industry will come out of this.
So tell us a bit more about what your company does, specifically from the software perspective, and of course you will work with construction industries, but what role do you really play.
Yeah, construction is one of the least digitized industries in the world, and what pro Core does is to help facilitate through our customers the industry to help digitize what's traditionally been a very manual work process to how we build things in the world. So think about digitizing project management think about digitizing the financial aspect of managing a
construction project. Think about digitizing how we manage the labor and the equipment and estimating all the different parts of the ecosystem and the flow for what needs to happen and the information that needs to happen and need to be verified. That's what pro coord does. And our vision and mission is to connect everyone in construction on a global platform, and our vision is to improve the lives of everyone in construction.
How about jumping in here, Nina, Thanks for joining us. I'm just wondering what are you hearing from from clients at this point in time. We heard from Mark sort of a lot of uncertainty in the economy. We're expecting changes to the construction industry, and how far is that affecting your sales cycles? Are you already seeing some form of impact?
Yeah, you know, in Q one we actually had really strong results and through April, which is the first month of our second quarter, we actually have not seen a material deviations from our pipeline in our demand or anything of that nature. Obviously, our customers are keeping a close tabs on what's going on in the broader economic environment, but you have to remember also, remember I said that the industry is really resilient, resilient, and they've been through
things like this before. And when the industry and our customers make decisions, they're making decisions based on commitments that are going to have impacts over the next two three years, and so the industry actually doesn't shift too quickly in terms of what the flavor of the day is in terms of the news that's going on. So what we're hearing from customers is they're keeping close tabs on things.
They're making sure they have the pulse on what the subcontractors are doing, what owners are doing, making sure they have a good understanding, and making sure they have an understanding of the exposure that they have across different things in there in there, in their in their supply chains and so forth. That's actually what's going on right now.
And pro Core is actually seen as a part or in this because because we do digitize the industry and we do help our customers digitize, we actually help them manage and give visibility into a lot of what they need to make sure that they keep a pulse on what's going on today.
So when should we then expect any changes of course, you said, sort of your clients are not showing you any any signs yet, sort of, when is a realistic point in time for us to expect changes?
You know, I wish I had an answer to that. You know, we're in the same boat as our customers, and again, we are actually doubling down on our partnerships to make sure that we have an open dialogue to make sure that not only do our customers engage with us, and we engage our customers, but our customers engage each other to make sure that when things do continue to evolve, that they are able to react.
In a timely matter.
But it's very difficult to predict when things are going to happen, and so we're the same boat with our customers.
House is from a CFO perspective, we've seen a lot of companies this earning cycle adjust their guidance, pulling guidance, adjusting guidance ranges. How are you thinking about guiding the street at this point, given that, of course, is this uncertainty potentially facing your business?
Yeah, well, the first thing is we had we had a strong key one and our approach to guidance has been to take quite a conservative approach, both in terms of our full year guidance for the top line on revenue as well as our profitability, and also definitely for Q two as well. I think in this environment it's
prudent to take that approach. We have run multiple scenarios internally about what would need to happen in terms of bookings for us to even come close to our guidance, and our guidance allows us to actually weather scenarios where there's a significant downturn to our demand, which actually we
haven't seen yet through Q one and through April. We think it's a highly conservative We have great confidence that we're going to beat our guidance for both Q two and for the full year, but I think it's prudent to take a conservative approach given the uncertainties that are out there right now.
Yeah, I'm looking.
Sorry, I'm looking at your website.
You have these giant customers Brookfield Ball for Gilbain, et cetera. And you just mentioned your Q one was strong, but your stock is pretty much flat over the last five years.
It's just done nothing. Why do you think that is and what can you do to change it?
Yeah, you have to remember over the last two years, we've kind of been in this challenging demand environment, and I think that has a lot to do. That has a big influence on the sentiment of our customers and how much they're willing to commit to in terms of the construction volume that they want to run on pro
Cores platform. The key thing to note is customers still stay with pro Course, So our gross retention rate is still in the mid nineties and customers stay with us, and so when we've been in this environment for this period of time and then you start to layer in some of the additional aspects of what's going in the broader economic environment, I think this is what I was speaking to earlier, where customers are staying partner in partnership
with us to make sure that we collectively manage through this environment. But ultimately, the industry is going to be resilient and we're going to be there along with our customers as we get through this. The other reason why customers stay with us and why we continue to get investor interest is because there is a tremendous opportunity in
the industry and we're at the forefront of that. We are at the forefront with our customers in terms of digitizing a very underdigitized industry, and we're unfortunately just in this limbo right now where there's a tremendous amount of uncertainty right now in the broader environment.
Been hearing from a lot of these major tech companies, a lot of software firms, and really the conversation has also been a focus on cap X as we think about AI and a lot of the transitions that are happening. Of course, that requires a lot of money. How are you all thinking about spending right now and what are you thinking in terms of AI developments at the company?
Yeah, AI, I think is exciting for the industry, for pro Core, for general software. For us, we are thinking about AI and agents and large language models both from an extra works it's off into our product as well as internally in the ways that it could optimize the way we work as a company here at pro Core.
We continue to make investments in AI. We have made investments historically in AI with some of our prior acquisitions, well before the recent push and the recent recent news and push on from a broader standpoint, it's something that we are continuing to work into our product with things like Copilot, our agents and our agents, studio, and then internally, we have been on a journey of operational excellence, of which AI is going to be a part of that.
As we continue to scale our business past where we are today at the billion dollar mark, over next several billion dollars as we continue to grow, so critical to how we think about the way we operate internally as well as critical to the value that we add in our product offerings to our customers.
How are you said earlier that your your guidance is conservative going into the second quarter. I'm wondering how are you're thinking about other spending, not just on AI, but also on for example, hiring. What are your plans there and then how far will you be also cautious there?
But you know what we've talked about is last year and going into the first half of this year, we made a commitment to go on a number of changes in our go to market organization to set ourselves up for much better engagement, much more intimacy with our customers. We're basically moving to a general manager model, adding more technical resources that allows us to do that. Most of that hiring was already completed at the back part of
Q four and N Q one. The reason that's important relative to this question is essentially, most of our expense structure is going to be around people, and most of our hiring incrementally has already been done, and so our expense profile is going to be very consistent throughout each quarter of this year, and as we continue to grow revenue, that scale will then flow through to our profitability profile
as we work throughout each quarter of this year. In terms of the commitments, those are the major commitments that we got done in the beginning, and as I think about commitments going forward, making sure that we are very careful about making commitments that our too long term leave ourselves flexibility depending on what happens in the demand environment. And that's the way that I'm thinking about how to
invest in the business. The other thing that we're doing is we still have two hundred million dollars left in our or astock buyback that we will continue to look for opportunities to deploy.
Howard, thanks so much for joining us. Really appreciate your time today. Howard fo there, he's the chief financial officer over at pro Core and our thanks of course.
Anina Trentman as well from.
Bloomberg News Check out her newsletter CFO Briefing Bloomberg CFO Briefing.
You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from two to five Eastering. Listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
We want to talk a little bit about Hollywood because President Trump has promised to tax films made in foreign countries, and there's so many questions around this. How would it happen and also would it be helpful to Hollywood, where I think it's safe to say revenue from this business has been on the decline. Chris Paul Mary joins us out of the Los Angeles Bureau, where he is Bloomberg
News Entertainment Reporter extraordinaire to give us his take. And Andrew Silverman is here with us in New York City at seven thirty one Lex. He's a Bloomberg Intelligence government analyst. He's a tax guy, a tax lawyer, here in the studio to talk about this. Let's kick it off with you, though, Chris and I want to ask if people in Hollywood, if people in Los Angeles traditionally not Donald Trump's demographic
or in favor probably of all of these tariffs. Were like, Ah, this one is good, this one makes sense, this one helps.
Me in my own pocketbook.
Kind of.
So this all began with Trump's ambassador to Hollywood, one of them, John Voight, meeting last weekend with Trump and mar A Lago. They came up with a proposal his group of really based on tax incentives. These are the tax credits that studios get for making movies in various states and countries. And there was a small component of that that was about tariffs. The President grabbed the tariff concept and then you know, put that out on social media.
I think the studios would love to see more of a tax incentive thing than a tariff related thing, because it's the tariff would impact their ability to still operate overseas and would cost them money.
All right, So they'd rather see I guess subsidies than tariffs or tax incentives. As you say, it's interesting, I
don't understand really exactly how this would work. And Andrew Silverman, maybe you have given it a little bit of thought from your vantage point, because there are a lot of films that are you know, there's scenes done in Eastern Europe or scenes filmed in China, for example, because of what a big market it's been, and then they still make the film, edit it, color it, put it together in in Hollywood. How does how does this work in a in a t tariff situation?
Yeah, you're absolutely right. I mean, there are a lot of things that we don't know about about this terraff. We don't know if it only applies to US film studios making movies outside the United States. We don't know if it applies to foreign film studios making movies out of the United States. We don't know if if a foreign film companies coming into the US making movies here would have the TERRORF applying to them. But but the tariff is is is really interesting. It's actually quite like
a tax. Uh well, you know, I'm a tax layer, so you know, to to to a hammer. Everything looks like an exactly right, But but it's it's a lot like either an excise tax or or a border adjustment tax. Right with regard to an XI tax. An excise tax in this in this case would be sort of a syntax right, attacks on alcohol, attacks on cigarettes. It's a
it's a federal sales tax. So in that sense, this is quite like that is trying to get American studios, American film studios, and American theater goers to not see movies made outside of the United States to change their behavior. And a border adjustment tax is a tax that only applies to imports, not to exports. Same situation here, right, If you're bringing movies, presumably, if you're bringing movie making
into the United States, tariff doesn't apply. If you're exporting your movie making outside the United States, teriff applies.
And it seems as though there's been some positive reception at least from Hollywood. What I'm hearing anecdotally about this the idea of bringing more dollars and more things being made here in the US as it pertains to films.
But I mean, of course, to your earlier.
Point blow in La as well that said they're pretty happy about.
That, right, So, Chris, what are you hearing?
Well?
I think you have to differentiate the people that want the sort of carrot portion of this whole package, the tax inteatives, as opposed to the stick portion, which is getting.
Hit with the tariff.
If you may be own studio space and are in the business of actually making movies. If you're an actor or screenwriter and you just want to see more work brought back to the US, then maybe you could make an argument for this whole movement, But I wouldn't say
there's a broad embrace of the idea of tariffs. In fact, a couple of days after this first came out, you saw California Governor now Gavin Newsom suggests sort of his own plan, which was seven and a half billion dollars of federal tax credits, which was actually more in line with what the John Boyd group was proposing tax instead of federal tax credits to make movies in the US.
Well, I mean Chris as a fall up to that.
So I cover real estate stocks in one of the stocks that I cover is Hudson Pacific Properties, and they are actually an owner of a lot of these Hollywood studios. And why Bush analysts are actually saying that tariffs, this whole situation could potentially be a possible positive for the company. When we think about these Hollywood studios, can it be a perk at all for them and terms of bringing in more dollars to them, specifically at all.
The tariff portion.
It's a little tricky for the studios. They're going overseas because they can it's cheaper for them to do so.
Okay, so if.
They're forced by tariffs to come back here, it's not necessarily a win for them, it's a win for US jobs, which is definitely something President Trump wants to do, and so you could see why some workers.
Would be happy about that.
Calculating a tariff on a foreign foreign film, I mean, if you depends on how you define it. I mean, basically all the Star Wars films were shot in the UK or Tunisia. They were all foreign films. It's a
very complicated process. The Void Group did suggest some way of doing so, only putting a tariff on the parts that are shot overseas, and then really only slapping the tariff on in the case of what they called a bad actor who could have made the movie domestically but deliberately one of It's a complicated thing.
I mean, I know people in la as well who have space that studios rent, you know, who have warehouses, and they have made for years revenue on companies shooting movies in their in their in their places, and they have less revenue now because films, Uh, because studios are going overseas more. Also, I will note Australia's US envoys said, this is a tax on Bluey, which is a fantastic
product completely filmed overseas or colored overseas. Andrew, I wonder about the legality of all of these taxes, and I guess it's a much bigger question, right. AIPA, which is the International Emergency Economic Powers Act, has been challenged in the past. President Trump tried to use it to uh TO to expel TikTok in his first term, and then a couple of courts told him no, can do Now. He's a huge fan of TikTok. Of course, that Chinese social media I used to spy on us. What do
you think about challenges to his tariff powers? Will they Will they be successful in the courts?
Any of them?
Is Congress ever going to take this power back from the executive?
So let me just start up by saying, I'm also a huge fan of blue Yeah.
I have to see this.
It's a great product, Absolutely love it.
I must be late, so so so so. The reason that President Trump referenced national security when he was talking about this tariff on form produced films was because that's a key aspect of AEPA. Right, if it's it's related to national security, then the president can do it. And Congress has given that power away even though it's in the constitution. Congress said, Look, if it's national security, it's the president's business to do what he wants to do.
And it has been challenged in the past. But but normally the president wins those lawsuits because courts don't question national national security.
And and Hollywood feel are a matter of national security? Right?
Isn't that Isn't that what we all think? Isn't that the case?
Of course?
Yeah, Chris, I mean the President has said that, Chris, I just want to ask for a second, because I can't let any mention of John Voight go without bringing up his christ Little baron that George Costanza bought.
Does everyone know the reference that I'm making or does nobody watch? Seinfeld?
I think you're alone?
Am I alone?
There?
Chris Palmery? Do you not see that episode?
You know, there's so many great John Voyd moments. I don't know where to start, but you know, look, you know the President Trump appointed him, Mel Gibson Sylvester Stallone as his ambassadors.
I gotta give Void credit.
He's the only guy who actually came up with some plan and he's getting everybody talking about it in Hollywood and maybe even won't get something accomplished.
So it's a great episode, Cowboy.
He leaves his pencil in the in the glove and then George has John Voyd's pencil. And anyway, I wonder if you think he also screened Alcatraz with the President while he was at mar A Lago, because together with the film Tariffs came the idea to reopen that prison off the coast of San Francisco. And what's the reaction been like on the West coast to that little piece of information?
Similarly shock and awe.
You know, you may have seen the reports that you know that was closed fifty years ago because it costs three times more than any other federal prison to operate.
So I can't tell you if they screened it.
I know they all watched the Kentucky Derby together and I'm almost positive that Trump did not bet on journalism.
But and Chris, I know, Hollywood has really been through a lot, especially as we reflect on the fires.
What's it like?
I mean, of course you live there personally, what's it like and what's the recovery been like for the industry more broadly, Well, you have.
To understand what's going on here. You have to step back a few years. We had this era people were calling peak TV and there were six hundred scripted TV programs were being made because everybody wanted to create the Netflix, and it didn't matter how much you were spending. You were trying to get as many subscribers. That started to change around twenty twenty two. The strikes happened, and then the studio said, look, they were already cutting back, and then they said we can get back by with a
lot less. And at the same time, streamers were trying to reach a global audience. So we're now watching TV shows that were made in South Korea or France or Israel, and so this is what happened. We reported last year production in the US between twenty twenty one and twenty twenty four declined about twenty nine percent.
So it's a number of factors.
The cost cutting, the globalization of the entertainment industry, and the tax credits that you can get by making a film in the UK or Australia or whatever.
A lot of things converging.
All right, Chris, great to have you on the program. Thanks for joining us.
Paul, Mary, they're out of our Los Angeles bureau covers Hollywood for US and entertainment. Andrew Silverman here from Bloomberg Intelligence, our resident tax lawyer.
This is the Bloomberg Business Weekdaily podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from two to five pm Eastern on Bloomberg dot Com, the iHeartRadio app, tune In, and the Bloomberg Business App. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal