This is Bloomberg Business Week with Carol Masser from Bloomberg Radio. Well, he's a star analyst when it comes to telecom, cable and satellite space. Uh. He's watched it grow, evolve and really be challenged over the years. And as someone described on our morning call as we were setting our line up, he is definitely a legend. Named the number one analyst by Institutional Investor magazine year after year, rated number one
in the telecom space by our own Bloomberg Markets. Uh. And he his vantage point is really great because he understands the industry. He's been an analyst, he's covered it, but he's also seen it from the inside as the founder and c of the e commerce business over at Southby. So Craig Mofatt is back founding Partners, senior analyst at Mafat Nathanson back with us on the phone in New York City. Um, so good to have you back. How are you what's changed since we last talked roughly about
a month or so ago. Yeah, thank you, nice to be back. Well, I think the big the big news really is the big announcement yesterday from A T and T, which about bringing movies in so called day and date or the same day that they bring in the movie theaters, bringing them the bringing them to HBO Max, and that
is really an extraordinary development. UM. It has implications for the exhibitors, that is the movie theaters, It has implications for a T and T itself, and I think, as you saw with a lot of the blowback today, it has a big, big implications for the actors and artists and directors, which I think was was maybe under appreciated yesterday. And boy, oh boy, did they hear in earful today from how angry some of their stakeholders are kind a
million questions. So do you think this is one thing or just a short term thing, or do you think this is something that becomes part of how it happens longer term and maybe forever. Well, you know, it's it's it's It puts them in a in a difficult position because Jason clar who formerly of Hulu and the person who put himself out front in this decision, um uh now running Warner Media, made it very clear that this is a decision about customers, and that the customers want
movies day and date. It's what they've always wanted. UM and I don't think anybody would argue with that. It's customers would love to have movies day and date. The problem is, once you say that, it's a little hard to put the genie back in the bottle and then say what we've in two we know do want to put customers first? Um, And so uh it feels like not just to me, but I think to most people as if this is um going to become an expectation,
and uh, the implications of that again are just enormous. Well, I love listen, you just get into the weeds with all of this and you really break it down at you know, when somebody creates a piece of content, you know,
a major film or something. You know, the theaters is just one level, right, but there's so many their levels, and you go through the pay windows, right, and you say that often when it does its theatrical release, it doesn't necessarily make money there, But it's the later windows, Like you talk about the pay one window like an hbout, that's where it starts to maybe you know, be at least be in the green on some kind of movie. And and remember it's we're not just talking about a
T and T and Warner Media themselves. We're also talking about directors and actors who have participation deals. So Christopher Nolan today UM a critically important director to Warner Warner Media. UM is our rate and UM as are lots of
these directors. So you know, in Legendary Entertainment, which was offered hundreds of millions of dollars for King Kong versus Godzilla to go direct to Netflix, took it, took the deal to Warner Brothers instead, and then got blindside it and wasn't told in advance from what we read today that oh, by the way, we're taking your movie out of movie theaters or at least, um, we're going to be making it available at no extra charge on HBO
same day. Um, if you're a director and you're and or an investor in one of those films, and you've got hundreds of millions of dollars writing on the performance at the box office based on your contract, your head's kind of explode. And and from what we understand, UM, they were not not told in advance in order to keep secrecy. So when when they did this with Wonder Woman, which was you may recall Wonder Woman was the first movie and that was very done purely as a one off.
It was single film with no expectations of any others to follow. UM was moved directly to HBO Max in a similar model. They ended up having to pay each of of Gal Gadot, the star and the director ten million dollar is each in order to uh sort of satisfy them that they weren't giving up too much in terms of their residuals. But you're talking about what happened with Wonder Woman and what people are now calling the
Wonder Woman money. You know, this comes down to, you know, how people are paid, right, whether it's directors, actors, all of the people involved in getting a movie to the theater. It kind of comes down to that, right, the upfront money versus maybe the money that comes later after ticket sales.
That's right. And the reason this is also important is look, at the end of the day, a T and T is a phone company, and culturally, UM, you always have to wonder how well is it is a phone company going to adapt to what is essentially a creative business and the core competence of of Warner Brothers Studio and what has made it such a special place for the last ninety three years is that it has wonderful relationships with creative talent, and so I just I want to
make sure your your listeners sort of appreciate how important it is for a studio to make sure that that they cultivate and maintain those relationships. And they clearly have some damage control to do here because of the way
this was done. So separated apart from whether or not it was a good strategic decision, the execution I think raises some questions about did they care for the talent and the creative partners properly in a way that's going to preserve the specialness of what Warner Warner Brothers has always been, right and as you rightfully say, and as people have written about that, you know, Warner Brothers was known as a place that really kind of took care of its talent. And so to see this um is
really kind of disconcerting. So what so, Craig, So do we figure this out? Do we figure out the pay issues, do we figure out the transparency? And do contracts change going forward? As you said, once the genies out of the bottle for customers, you know, our customer is going to demand more of it be released. Eckily to home. Um, you know through various services are streaming services versus the theater.
Does the theater go away in your view? Well, I don't know that the theater goes away, but I certainly you can't pretend that this is anything other than bad news for the exhibitors. And you do have to now look, the exhibitors, under normal circumstances would have said, we will simply boycott Warner Brothers movies and we will only do business with others, and they would have had at least some leverage. They are so badly damaged by the COVID
crisis and are barely hanging on for dear life. Um. And so they really don't have a lot of negotiating leverage here and um that also won't help relationships. But they clearly are in a very difficult position. UM. So you wonder, um, what what the play will be. I do think long term, this is the beginning of what's going to have to be the elimination of a lot
of screens. There will still be the um, the experience of going out and enjoying a movie, but but the economics just aren't going to support the number of screens we have. As this transition starts to happen, and you
did play may have implications overseas too. Because you put a movie onto HBO Max, you can guarantee that within five minutes after it ends, there are going to be digital copies all over the web, and they're going to be and it's going to be pirated and and therefore it's going to impact movie theater viewership in Asia and in South America and in Europe. And I should put out you did put a cell rating right on A T and T. Is that correct? Yeah? Well, I've had
one for a long time. It is not because of this, because of a whole series of structural problems at A T and T and the challenge that they have in supporting the dividend. All right, good to know. So, Hey, one thing I want to ask you, because we talked about it last time you were on, and that was about five. I have not bought my phone, but my rest of my family. I did get off to Aaron. I'm like, John, my husband, did you know? So we
had a long conversation. Um, but tell me, you guys did a big summit, A summit, excuse me, a day long summit. I think back in November. So tell me about what you guys looked into and what kind of were the major takeaways. Greig Well, I think one of the things that we talked about last time that I think was reinforced at our summit from from all of the speakers is that UM five G in the United
States is still not quite ready for prime time. UM. We have a version of five T that has reasonably good coverage but not terribly good speeds, and it's going to take a little while. T Mobile is really best positioned UM and I. But one of the things that was striking to come back to a T and T is how much at our summit we heard from from T Mobile about how they were going to compete with Verizon and Verizon how they're going to compete with T Mobile, and a T and T almost doesn't come up in
the conversation. A T and T is is, I think in a in a much more challenge position for five GUM, in part because of an auction that just started today. UM. The C band auction as it's called, that started at the SEC today is a critical input for five G. Most of the rest of the world already has what's so called C band spectrum UM the US. It's just coming to market now, and it looks for all the
world like Verizon is best position to get it. That will give them an offering that's going to be competitive against T Mobile. But you really wonder whether A T and T has the money to be able to participate in the auction because their balance sheet is so weak, um that it's just not clear that the rating agencies will allow them to spend the money that they need without having to cut the dividends. So it puts them
in a very tough spot. That stayed with me from our last conversation about how A T and T was kind of its hands were tied to some extent that it necessarily did it didn't necessarily have the cash needed to be, you know, to participate in these auctions. And I do wonder, you know, that's one of those things that longer term, what kind of impact that will have? Yeah, if if they don't. You know, these are telecom businesses
are really long cycle businesses. These are not businesses where two years later you you um move from from being behind to being ahead and back again. Um. These are businesses where cycles are ten years long and or even twenty years long. And so a T and T S network right now is pretty competitive. It's actually as good relative to Verizon at any time that I can recall
in the last twenty years. Um. But you really wonder if they don't get the spectrum with no more spectrum in the pipeline like this behind it, um, whether they could be disadvantaged for a decade or more um if they don't get it. On the other hand, if they do, their leverage ratio would be so high that they're already teetering on the knife edge of of dividends sustainability. That would arguably make it even worse. And so um, there may not be any good outcomes. Yeah, which makes it
just even trick. You're going fun when it comes to five G. Just remind our audience just got about thirty seconds left here. So do you are you saying that ultimately Verizon you think is the best positioned here? No, I think T Mobile is the best position. Probably their their spectrum position is a bit better and um, and
they come in. You know what's nice about T Mobile is they're the cheapest service, um by virtue of once upon a time having a subpart network as their network now has gotten to parody, and I think in five G will actually be the best in class. Having the lowest prices and the best service is a pretty powerful combination to drive not only market share games but also margin enhancements. So I'm still still quite excited about T Mobile,
even though the stocks had a very good run. All right, great to check in with you, Thank you so much, and really what's going on in terms of theaters UH and movie releases that is just something we've all got to take a closer look at UH and following other markets have certainly been reacting. Craig Moffatt, thank you so much, have a great holiday. Founding partner Senior analyst at Moffatt Nathanson.
He really is a go to when it comes to telecom understanding these companies the cable space as well