Welcome to a special episode of Strictly Business, the podcast in which we speak with some of the brightest minds in media today. I'm Andrew Wallenstein with Variety. No guests this week, just a roundtable of Variety hosts coming together to talk shop at a time when there's plenty of shop to talk about. Not only are we coming out of the midpoint of twenty twenty three, but the second quarter earning season will begin on the nineteenth, with Netflix among a slew of media and tech stocks ready to
reveal their latest numbers in the coming weeks. We're also coming to you as many of the CEOs of those companies are convening in sun Valley for the annual Allen and Company Conference. Where there are no shortage of issues and challenges to be discussed. That gives us plenty to discuss. So I'm glad to be joined by the business partner Variety co editor in chief Cynthia Littleton, and my colleague at Variety Intelligence platform analyst, Heidi Chump. That's all coming
up right after the break. Hi, this is Andrew Wallenstein with Variety's Strictly Business podcast. If you love Varieties podcasts, you're going to want to try Variety Intelligence Platform or VIP. It's a digital subscription tier on Variety dot com for industry professionals to dig deeper into analysis and data that helps them be smarter about their business. VIP just launched a great new newsletter and offers more special reports than ever.
So visit Variety dot com slash VIP save for a twenty percent discount, and we are back with strictly business. Heidi is the editor of Variety Intelligence Platforms, Media and Money newsletter, which comes every Monday. It's part of a expanded slate of newsletters that VIP puts out five days a week. If you haven't checked it out, please do. It's really a labor of love for myself and my team, and I really suggest you check it out.
I echo that, and I am excited to be sitting here with Heidi. Heidi's newsletter is now part of my weekly routine. It sets us off on Monday with all the news we need to know. And so Heidi, with that, let's take it away. Will give you the biggest jump ball question to start from the thirty thousand foot view. We've just completed the first half of twenty twenty three. What stands out to you in terms of themes or
developments inequities as you study them every day. You don't call Heidi between nine thirty and four on weekdays.
Thanks Cynthia.
First, I'm so excited to make my debut on this podcast. Any excuse to talk about the markets and media and entertainment really is a great opportunity for us. To take your question. I do want to step back a little bit and look at the broader market here to really get some context into what we're seeing here in media and entertainment.
As well as the tech sectors. So I'm sure you both recalled.
Twenty twenty two was a brutal year for the stock market, right the SMP five hundred tumbling nearly twenty percent to finish the year. It was actually the worst year on record for the index since two thousand and eight, So I think it's safe to say a lot of folks out there were pretty bearish headed into twenty twenty three.
But if you're looking at the markets now and kind of how we ended up at the first half of twenty twenty three, I think a lot of people were pretty surprised to see this bull run that we have been on also a recession with something that a lot of people were talking about. We have not seen that come to fruition, and a lot more strategists are saying we might not even see that this year or beyond. So to wrap up the first half of this year, the SMP five hundred was up fifteen percent. That was
the best first half since twenty nineteen. The Dow climbed about three point eight percent, and the tech heavy Nasdaq jumped nearly thirty two percent. So I do also want to mention we've seen some data out there from research firms like CFRA. If we see a positive first half, historically for the SMP five hundred, we're much more likely to see a positive second half. Now, for additional context, when we take a look at the macroeconomic backdrop, all
of this is very strange, right. We're seeing an extremely high interest rate environment. The FED is planning to raise interest rates further from here. I believe it's about a sixteen year high for these interest rate levels, right, So that's pretty dramatic, and traditionally that's not great for stocks, especially for tech stocks which are very sensitive to borrowing costs. So with inflation where it is, the labor market remaining tight. We do see that consumer confidence is pretty high as
well as consumer spending. We did see a little bit of a pullback last month, but overall levels are pretty good. So I don't want to be the one betting against the markets in the second half of this year. But like I said earlier, if history is any indication we could see another positive half.
Let me ask you, though, I'm sort of wondering, like what headlines is Wall Street and investors reading that we are not because I hate just I mean, it has just been unrelentlessly doom and gloom. In the media sector, it's been budget cuts, staff cuts, I mean not, I mean on a massive scale. We're seeing We're seeing we feel the tectonic plates in Hollywood shift. There's labor strife is just ever is the perfect cauldron of economic disruption.
And so what do you think is driving this, you know, level of buoyancy.
So when I say the markets are up, that doesn't mean every facet of the market is up. Right, So the best performing sector in the first half of the year was technology, and a lot of that was driven by the the interest by investors in the AI boom, the generative AI boom specifically, and so even though we're in a situation where interest rates are high, we had the two banks collapse back in March.
That was really scary.
The markets really didn't react as badly as a lot of us were thinking. But this, this sort of optimism about where technology is headed has really driven up those stocks. Though. I will say, even though there's a lot of bullishness in the market, a lot of investors right now are sort of worried that we're seeing a bit of an overbought situation. So does this market have that much more
room to run? That remains to be seen. But like I said, technology was one of the best performers, and within technology, it was really companies like Nvidia, mentioning AI, Microsoft Google. On the flip side, you don't really have, you know, sectors like healthcare or industrials talking about AI. Right those companies are probably not going to see the kind of booms that we've been seeing, especially headed into
Q two earning season. It's oy're all, we're not expecting earnings growth for the SMP five hundred in Q two earnings. We're actually expecting a decline of seven point two percent.
So that just kind of.
Gives you some context into the fact that most companies in the SNP five hundred are probably not going to report big earnings growth, and that is a result of a lot of the pressures we're seeing in the macroeconomic environment right now.
On the one hand, I'm not surprised that AI is driving what I think is still kind of an irrational confidence in the tech sector. On the other hand, if you look at what to me is still the most important indicator for the tech sector, which is advertising, which is still that's the biggest revenue generator. And yes, those numbers are up, but they're nowhere near as up as they usually are. You look at that top line number and it's still a much lower number than it's been.
I think it's like the lowest increase it's been in like fourteen years. It's below h ten percent for the first time in a long time. Why isn't that making investors more nervous.
Because at least within the advertising market, Yes, we're seeing an overall slow down when we're taking a look at the bigger picture, but digital advertising is still growing, right It's not growing nearly the same level that it was before, but we're still expecting about eight point four percent growth
within global digital advertising. I think a lot of the tech sector though we've seen tons of layoffs, which of course isn't great, but it's good for the company's bottom line, right, They're able to cut costs while they're focusing on this adversssion sort of passing. Everyone is expecting it to be cyclical, then that the ad market will bounce back at some point.
No one knows when.
But that being said, yes, digital advertising isn't growing at the pace it used to, but it is still a growth area, and so I think that's why investors aren't necessarily ringing the lorm for these big.
Tech companies, especially social like Meta as well.
Heidi, is there any kind of hangover from the predictions that there would be a more significant slowdown of economic activity, including even a recession. Did some people pull back on advertising expecting the slow down and are a little surprised to see so much activity, So we might see a bounce, a higher bounce in the second half.
Yeah, I think a lot of you know, any kind of recession, whether it's an advertising recession, economic recession. It's very forward looking, right, People are expecting something to happen and thus they cut back on those costs ahead of time. And so when we were heading into twenty twenty three, twenty twenty two was so bad, everyone was out there saying we're going to see a recession for sure, doom and gloom.
We saw marketers and advertisers really pulled back on those budgets.
But as we see the economy sort of continue to chug along, I think right now we're in a very important wait and see approach. If the second half of twenty twenty three is again better than a lot of people were expecting, I think we could definitely see advertising start to come back. That being said, balance sheets are so important at these companies, right it's about how much money they're going to have to spend on other things aside from their day to day you know, line items.
And so again, twenty twenty three has been an interesting year. The second half will I think be very indicative of where we'll be heading in twenty twenty four, recession or no recession.
Cynthia, what do you think will be what we'll hear from media CEOs with regard to the advertising outlook, Because typically we hear what I think is sort of interrational exuberance with regard to the advertising market when we are hearing that the upfront pricing is not going to be looking good. Brian Steinberg's been all over that, and yet you know, Bob Backish and Bob Iger, all the bobs, they're always talking it up as if not everything's going
to be fine. I got a feeling that this time around, even these guys can't possibly put lipstick on a What do you think we're going to hear from that?
I think we will hear a lot about a lot of emphasis in the digital sector, in the avod sector, any place where you have any green shoots of growth, We're going to hear a lot about that. I think, even as Heidi was talking, even for the macro economy outside of media entertainment, in so many sectors, it feels like twenty twenty three is a real year of just restructuring and extreme bell tightening, Like twenty twenty three is the year you clean up the messes that have probably
been brewing since pandemic or even even pre pandemic. After the Q one results, I don't you know, I don't know how the spin gets better for Q two. I think it's going to be a lot of like we're investing for the long haul. We did the we've made the hard choices. Now now we're coming out of that. I think there we're going to talk company by company, but I think there will be some companies that really have to have some very specific answers to things that
they probably don't want to address. And Disney has I think a few of those big questions. But I think you'll hear a lot about like cost cutting, belt tightening, downsizing of their labor forces. I just think it's going to be, you know, it's it's it's certainly not going to be no matter you know, no matter how they spend it, it's not going to be a record quarter.
It's going to be it's going to be a pretty painful, I think, a pretty painful march of results for most, not everybody, but probably for most.
No, absolutely I agree.
If you take a look at the major media companies and sort of their performance so far this year, we have far more companies underperforming the broader market than we do having you know, outperforming the market, and so I think that says a lot about investor sentiment towards media
right now. I think a lot of folks are kind of scared to jump in in the group because there's so many changes going on internally, whether it's management, whether it's figuring out profitability, whether it's dealing with linear TV declines. Think there's a lot of trouble at these companies now that you know management is going to have to clean up and figure out.
Well, let's get into the individual companies. Since the gat you mentioned, Disney, uh Iger has man. I wonder whether going back into this big job that he realized just I'm sure he knew it was going to be challenging. I wonder if he saw how challenging it was going to be, if he saw, you know, Indiana Jones flopping, Elemental flopping, all the many challenges that he's that he's facing, the cuts that he's had to put in place at ESPN.
Do you think that when he gets on the call, I guess in August at this point, it's it's still a bit of way that he is going to be able to project an air of confidence for Wall Street.
I think Iiger will come on and he will bring every ounce of his Bob igerness to to the and of course you know he does have that measure of respect that his is a long track record, but boy does he have big questions. He's going to get questions about the departure of Disney's CFO, Christine McCarthy. That's going
to be a big question for Wall Street analysts. I know reporters are often frustrated because there's big there's big headlines that are happening in the world, and analysts on these earnings calls always ask the very financial specific questions. I don't think there's any world in which he doesn't get grilled about what's going on with Christine McCarthy, given the extremely prominent role that she has played in that company.
There's another, you know, another big question looming about Hulu and Disney and Comcasts have a complicated transaction that basically calls Disney to buy Hulu at a preset price that is a much bigger check than Disney probably wants to write right now. So there are some big issues that are big that have big financial dollars associated with them and deadlines that I think he's really going to have
to have to address. And I think he's going to probably in the sort of the version of throwing himself on the mercy of the court, I did the layoffs. I have done the cuts, and I have done the cuts. And we know Wall Street does cheer layoffs in the sense not that they're greedy and awful, but that it does show that the company is wreck is looking at a balance sheet and saying, WHOA, we cannot continue at this pace. So I think the other the real question too,
for Disney is, as always, what's the bell weather? The parks are such an interesting bell weather of consumers, and this year they have been doing a real heavy lift the park, so that will be really interesting to see. By all accounts, just my observations as a Southern California resident, the people are still going to those Disney parks.
Well, not to be the bearer of bad news, but we've recently seen some reporting saying that maybe the parks are starting to see a bit of a slowdown in terms of attendance.
The Wall Street.
Journal citing a third party company that was tracking the wait times at Disney World, Disneyland, as well as other theme parks like Universal Studios, and they take a look at the time spent in each line and they found that during Independence Day, the actual day and the weekend before it was the lowest level of attendance for that weekend in quite some time, So that could be bad news for not just Disney, but other companies that rely on theme park revenue like Comcast.
Right, let me ask you too, let me ask you to Heidi, in terms of my sense is that the Disney stock is kind of like Disney is the general motors of the entertainment sector. And I'm probably aging myself with that description, but it so.
It's basically a blue chip within the entertainment space.
Does Disney, you know, as goes Disney, does it drag down other stocks? If people are looking at saying there's not a lot of confidence in Disney, does that hurt everybody else down the line?
You know, that used to be the case and to some extent, and I would agree that that is still probably the way that a lot of folks take a look at Disney as a stock, because it is part of the doubt. It's one of those blue chip companies within the entertainment space. It has its hand in a lot of different kinds of businesses, whether it's theme parks, linear TV as well as now streaming.
Right.
But the reason why I think we're seeing such a big underperformance by Disney shares is because they're starting to see a little bit bit of trouble in their very profitable linear TV business and now potentially even its theme
parks business. Now with streaming, it's a difficult one, right, It's not exactly profitable for a lot of these players in the space, and so they were relying on revenues from linear TV to sort of prop up streaming for the time being until they reach break even or profitability.
Disney was originally planning to reach break even by twenty twenty four, I believe the fall of twenty twenty four, and management continues to say that that's the goal and that they're planning to reach that, but a lot of folks are concerned. I think last quarter, operating income from linear TV fell by a significant amount, like thirty to thirty five percent or so, and that was the sharpest year over year decline in at least three years.
So not great news on that front.
And then, like I mentioned, those reports about the theme parks slowing down as well, that's a cash cow for Disney, right, that's basically where all the free cash flow is coming in, and if we start to see a decline in that with all the promotions that they're putting out there for not only hotel stays, but you know, park spending on like food and things like that, that could be bad news for Disney too.
I would argue the general motors as Netflix that they are the bell weather in this space, and we saw that in twenty twenty two when the subscriber declined happened, and that reset Wall Street's expectations for the entire space. We are still in that place now, and let's fast forward to now where Netflix is on a roll and their stock has been performing better than it has in the past eighteen months. Their ability to generate hit after hit is doing better than anyone else in the space.
I think they are the ones to watch, and they are going to be the first out the gate in Q two, and I think they're making all the right moves right now. I think what they're doing in terms of enabling password sharing with families is the right move. I think they've gotten off on the right foot in terms of the ad supported subscriptions, and I think they are still the ones that set the agenda in this space. Wouldn't you agree?
I do agree with that. I do.
I think That status of potentially being the general motors of the entertainment space is a very new thing though for Netflix, because it is such a volatile stock. Right before, it used to trade so heavily on subscriber editions. You would see ten percent pops or ten percent fifteen percent declines, and that's extremely volatile for a potential blue chip stock. But recently with Netflix, as the industry has begun to grade these media giants differently, I think it has reached
that status andy of potentially being the GM. That being said, I have to echo what you're saying. In terms of strategic moves by the company. Recently, we've seen you know, yes, it was off to a slow start, but the ad supporter has really started to gain momentum. And I think investors agree with you. I think investors are saying Netflix is one of those companies that it's a long term
bet within media, right they have the content library. The stock is up nearly fifty percent this year, significantly outperforming the SMP five hundreds fifteen percent gain. But I do want to say that I think that a lot of those bullish sentiments are already priced into the stock. That forty five percent gain is rather massive, right, So yes, I think Q two results from Netflix will be fairly good.
I think I think the market will be happy with the developments and the updates that we get from the company in terms of those two strategic initiatives. That being said, I don't know that we'll see more double digit gains like this for the next half of this year. Again, I don't want to be too contrarian here, but I do think a lot of the bullishness is already priced into the stock price.
It's so interesting because with my very Hollywood centric hat on, I say, like, Netflix seems to have everything going for it, and it has, of course, it has great shows, but it hasn't There hasn't been something new that really bubbled to the surface as a big hit, something that like everybody was talking about it a certain time. And that's
a very subjective and unscientific measure. But my hunches, whereas like you know, qualitatively, HBO had a really strong first half between the Last of Us and the succession for that, like they qualitatively, I felt like HBO was firing on all cylinders. Cannot say the same thing. Maybe this is our say way into Warner Brothers Discovery we did not plan this, but I really think that. So just to button up on Netflix, I think that and content I
think still. I think entertainment is still a hit driven business, and they their their content is important. Although their hits now are measured in more territories than just the contiguous United States Alaska, Hawaii, So that does that really does open up the open up the world for them.
We're going to take a quick break. We'll be back with more conversations about media stocks.
Hi.
This is Andrew Wallenstein with Variety's Strictly Business podcast. If you love Varieties podcasts, you're going to want to try Variety Intelligence Platform or v P. It's a digital subscription tier on Variety dot com for industry professionals to dig deeper into analysis and data that helps them be smart or about their business. VIP just launched a great new
newsletter and offers more special reports than ever. So visit Variety dot com slash viip save for a twenty percent discount, And we're back talking about media stocks heading into the second quarter. I'm joined by my colleagues Cynthia Littleton and Heidi Chung. I'm Andrew Wallenstein. But let's talk some more Warner Brothers Discovery because that's a stock. I mean, it's interesting. On the one hand, I think there's all this headline noise about David Zaslov lurching from one pr nightmare to
the other. I mean, but wouldn't you agree that there's a lot of upside to this stock.
Well, I don't know about upside, but I will say despite everything that's going on headline wise with as the market is loving everything that he's doing strategically within the company. Right. So, last quarter of the company announcing that it turned up fifty million dollar profit, Yay, that's good news, and Zaslov saying that he expects that they're going to reach profitability in its US streaming business in twenty twenty three, not
the original twenty twenty five. So those things got the investors really hyped up and excited about where this company is headed. They like the fact that he's aggressive, right, Like, he is not shy about making the necessary cuts, He is not shy about pulling content from the platform. He is aggressive, and I think that's what Wall Street analysts and investors like to see. We don't want to see slow moves that take years to really see the benefit. Of right, like we want to see things now. Times
are rough and they have a huge debt load. Free cash flow is not great, so let's get those numbers back to where they need to be.
And he's been delivering.
And here I go, just interrupting our flow here. But one thing I wanted to say about Disney was they have quietly been selling rights to shows the package just shows here in different regions. They've been quietly selling content outside the US in the old fashioned way where they sell it to somebody and somebody writes them a check that they can cash in the bank, as opposed to the streaming model of we're going to everything we keep, we're going to keep on our platform, and so they
don't get that vital revenue. Same thing with Warrener Brothers Discovery, they've been doing a little more loudly, but they're out there AVA channels, licensing in different territories. They don't have as big a footprint with HBO, excuse me. They don't have as big a footprints with Max as Disney does with Disney Plus internationally. So I think that both I think you will hear Eiger talk about hey, we are We're we're waking up to the need for more, you know,
more cash flow to just circulate through this company. So I think you'll hear both both Iiger and Zaslav will talk about their deals in ben A Luxe and Luxembourg and other big territories to say, hey, everybody, we get we need dollars, you know, we need dollars and other currencies coming in.
We should note that our VIP colleague Gavin Bridge has said that he affects both Netflix and Disney to get into the fast business, as as Max has already signaled it will do. It's just there is a lot of upside there. It's it's the future I think for anyone in the streaming business right now.
Yeah, I growth what HEI do, what you know, but when you have a company, I just can't. I mean, you know, I've covered Warner Brothers and its iterations for so long. It's a thirteen dollars. I mean, the price of the real estate where Warner Brothers sits is worth thirteen You know what does it do to a company when you're no matter what you do, you know, your shares are just underwater.
Yeah, and you know, I think when we talk about Warner Brothers, Discovery stock doing well this year, that's not really the whole picture, like you point out right, if you take a look at the chart over a five year period. Five years ago, it was at twenty five bucks a year, and so sitting at thirteen is far far lower than it should be on a historical basis,
And so there's a lot of room to run here. Again, it's going to depend on David's aslov and what he can do, not just like fixing up the balance sheet, but also you know, all his own personal PR nightmares as well, like he needs to figure out what the message is that he's sending across to investors, like do a good job of making sure you're not in the spotlight, make sure the company's name is in the spotlight for
good reason. So I think yes to your point, it's at a very historical lows in terms of market cap. It's sitting out about thirty one point four billion dollars. That's very far off from where its rivals are sitting right like Netflix and Disney, and so yeah, I we'll have to see where it ends.
Up, and pretty far from where the AT and T Yes, Warner Media Discovery. That very complicated track transaction when that was done in April twenty twenty two. Off the top of my head, I know there were many more billions, tens of billions added to that market cap, and that's that's got to be tough, and it I know it's got a pain, probably David's aslov more than anyone, because I know that man loves his balance sheet.
Oh yes, I think it's going to bounce back. And I think it's going to bounce back in part because I do think they're going to sell CNN. That is my prediction, just as I think eventually we're going to see Disney sell off ESPN. I think the linear business,
of course, is in a secular decline. And I think, and I'm not telling these CEOs anything they don't already know, the pay TV business, as great as these brands have been to these businesses for a very long time, if they sell these businesses now before they decline any further, and there are buyers out there, I believe, in private equity or whatnot, now is the time to unload them.
No to that point, I just want to quickly bring up. The annual rate of cord cutting hit six point nine percent in the first q of twenty twenty three, and recent data from Nielsen show that summer broadcast viewing is down thirteen percent year over year, So it continues to bleed. I really don't see a scenario andy where it gets much better than where it is now, especially when we hear Q two results coming in.
Here's another stat. PwC put out their annual numbers recently. They said that the pay TV business was going to shed thirty billion dollars in the next I think it was five years. That's the combination of both affiliate fees and advertising. I mean, it's just tremendous.
I mean again, I have to just point out in the context of Hollywood and dealing with unions and contracts and you know, real issues of pay equity and who makes what that is, those conversations sometimes seem to happen in different worlds where you have the creative community and its concerns and then you have the financial community, and clearly there needs to be more understanding kind of in both worlds. But as we talk about these kinds of numbers and the transition, I feel like we use this
sentence every day in variety stories. This industry is going through a historic transition. I think some of what's broiling Hollywood right now, if there was a greater understanding of just billions of dollars of what used to be earnings in this business are evaporating with cord cutting, I think that would put some of some of this all into context. Cut I think that would help put things into context better for for contract, for asks at the negotiating table.
I mean that being said, you have been following that.
I'm curious how you think the c suite of a lot of these companies are sort of going to trust the labor issues that are ongoing right now.
Well, I think that these contracts are coming, these contract negotiations are coming at a time when they're dealing with the larger you know, these are these are truly existential issues they're dealing with. Cord Cutting isn't new, but it's accelerating. Streaming, which was the great hope, is clearly not going to
replicate remotely. You know, a court, maybe you know some some percentage of the economics, but you'll you're never going to get We are never going to see the kind of the heyday of cable television, which really does seem to be bookended by a period of call it roughly nineteen eighty, so let's just call it the pandemic like that. That seems to be a pretty good, pretty good rough period and those you know, those were forty great years of earnings. But but what is coming in its place
is very unclear. It'll be interesting to see to these third party licensing deals that you're starting to see Disney and Warners. It'll be interesting to see at what you know, long term, what dollars those are done, at what you know obviously, if they do more, if they if is is there a world someday where Disney Plus is a small thing and we're back to just kind of the same old movie licensing, TV you know, windowing of TV shows.
You know, it could in ten years time we could be looking back, Oh remember when everybody lost their mind over streaming.
And also a question that I have is we have quite a good amount of media giants right now that have their own identity. Right in ten years, is that going to be five media giants that have survived and after consolidation, Sure, M and A is not you know, mega deals are probably not likely for the time being,
but who knows. I mean, if we get a new administration if we have people who are a little more lax in Washington about M and A cold, we see another big deal, perhaps a paramount plus and a peacock. Those names are always thrown out there right as being on the chop or not the chopping block, but the auction block.
So also potential for like a CJ M or know, one of the larger conglomerates that are not based in the US. You know, that's happened before and it's usually not gone well, but it's it is truly now a different the content marketplace is truly global, and that would seem to really open up open up more opportunities. All that said, you know, the cultural issues can can often be fraught even you know, you could argue that it was a foreign entity at and T a butt time
Warner a few years ago. So but that but I think the potential for an international actor to come in as a as A in an M and A context is very interesting. And it's like we didn't have enough companies to keep an eye on now now we're watching me. But it is interesting. It's one of the big dynamic things.
A bunch more regulators who have to prove that too, though, so.
I mean, as for the regulatory issues, I would imagine byte Dance would have taken over the entire world already. Yeah, but uh.
Up between byte Dance and and Meta basically yeah.
Yeah. But you know, Heidi, you wrote this week in VIP's coverage of Sun Valley that, uh, this is a conference that is famous or maybe infamous for uh M and A and deal making that goes on there. But because of the regulatory world and the fact that you know, at the FTC right now, Lena Khan is a real hawk on the monopoly front, that we just don't expect there to be any imminent activity. But in the long term, do you think that seeds are being planted this week for perhaps M and A in the long term?
Oh?
Absolutely.
We have Sherry Redstone there and she's previously held talks with Comcast and there was a lot of chatter at the time that oh, maybe they're working on something just more than a partnership, maybe there could be a potential merger. So if she's caught, you know, canoodling with with Comcast again or in the non romantic sense, yes yes, what a sexist time, then who knows, maybe they're having conversations about what could possibly on the horizon down the line.
But that being said, for taking a look at where MNA is now, it's really really.
At low's compared to where it was the past couple of years.
I think SMP Global Market Intelligence said that overall MNA in Q one globally was about twenty three percent lower than where it was last year, and that's because a lot of folks are one scared to spend that kind of capital right now and may not have that kind of capital unless they're PE or PC or whatever. But also because the regulatory stuff. When we look at Activision Microsoft that is still very much not been approved and we still don't know what's going to happen there.
So it's hard to say. I think I mentioned.
This earlier, but unless we have a more lax administration that comes in after the election, it's probably not likely we'll see a mega deal to this scale of Warner Brothers Discovery or even the Amazon MGM deal. Right, So those are some of the biggest recent ones that we've seen within media. But I don't know, but these are being planted for sure.
Not that you know, not that the CEOs needed, but you kind of have to fit like it's hard out here for a CEO right now, just every single thing and deal making. Let's face it, we've all seen companies and CEOs that were just deal junkies and just kept it going. Like even that solution, like even the solution of well, I'll float a potential for you know, company
X merged with company. Why we've all seen that juice of stock price or type, like, you can't even do that now because there is an understanding, and I think that will also, certainly for business, will cast an interesting tone on the presidential race because you know, I mean, the Biden administration signaled where it was when it blocked the merger of the oldest form of media books, when it blocked Simon and Schuster from from merging with Penguin
Random House. Now, granted Penguin Random House is the number one publisher. Would they have locked you know, Simon Schuster's number four? Would they have blocked number three and number four from cutting together? But that was a pretty big signal. They've also been saying, you know, they've been you know, saying that they're looking at higher regulation in the tech sector. So that regulatory threat is bigger than in median entertainment
and now tech. I think certainly bigger than it's been since like the early nineties in terms of a factor in moving markets and stuff.
And yet beet is a piece of paramount that I don't hear any regulatory issues there that I think is going to get unloaded. So to my thesis of ESPN CNN, I do think there's going to be an unwinding of the PayTV business that is going to happen. And I also wonder, you know, we saw rumors reports a year ago about Comcast and EA, and I still think there's an evitability to the video game business which we have not mentioned yet in this conversation and makes so much
sense because that is where the eyeballs are. I've got to imagine somehow the video game business is going to assert itself in the entertainment business somehow, some way. Don't you think there's logic there?
Yeah?
And I think, you know, with the whole generative AI stuff, with mixed reality headsets, there's a lot of opportunity within gaming as well, and so a lot of folks are saying that gaming is really a next opportunity. We see Netflix trying to get in on that space. I don't know though, that regulators would be okay with a purchase of a Take to Interactive or a merger of those
big names either. I feel like the Microsoft Activision Blizzard again, the regulatory framework for that is basically like it's you would be in charge of such a big part of the video game market that we don't think it's it aligns with you know, whatever antitrust's laws that are out there. And so I think if Microsoft Activision Blizzard gets through, then that's good news for potential video game acquisitions or mergers.
But I really don't see a situation where a big company like you know, like I said, a Take two Interactive and EA is really going to be bought out, do you? And no?
I think it does go back to the regulatory front. If Biden loses next year, the floodgates of M and A are going to open like nothing we have ever seen before.
You think, so, I mean, let's say Donald Trump, who is you know, currently trying to run for a president. He has also been tough on tech regulation, and so let's say we get a Republican in office, will they be more locks.
I don't know that that's going to be true.
You know, that's a whole other ball of wax, because with Trump it was if you think back to his personal issues with CNN, and I think that's a different thing.
We reference cord cutting Heidi a little bit ago. I wanted to get back to that. So you know, you can't say you can't spell cord cutting without Comcasts. I don't know if that's true, but I just made that. But you know, Comcast is another one of these companies that is really betwixt in between in terms of its core business is undergoing a lot of a lot of shift. But I think people would give Comcast credit of the
big cable system operators, and they're the biggest. They have done the most investment R and D to try to keep that core cable system's business relevant, up to speed in terms of technology and features and functions. They you know, every single Comcast earnings call, we hear, we hear about the voice controlled remote. What is your thinking just both how the stock has been, but just long term, what do you see for Comcast?
Comcast is doing okay, It's still outperforming the broader market. Not by a huge margin, but it is.
And but the is with Comcast is it's not immune to cord cutting. Right last quarter, it also lost I think six hundred thousand PayTV subscribers excuse me.
And if you take a look at the chart of losses quarter over quarter, the chart is very much in a downward trend. So it's not immune.
But it does have a broadband which is something that was propping up the company, especially during the pandemic and even now because people do need high speed internet and Exfinity is one of those providers of that kind of internet, and Comcast is also in the media business. It has theme parks. It's planning on expanding those theme parks. Again, I don't know if the timing of that kind of
expansion is great. Sure it wants to capitalize on this pent up demand amongst consumers, but it's a capital intensive endeavor, right. It takes a lot of money and investment into building out these parks. And so it's been propped up again also by its theme parks business, which is a big free cash flow generator, not just for Comcasts but for Disney as well. So I think those things have been keeping it afloat. But Peacock is one of those companies
that's still sure. It had its growth quarter over quarter, but it's still not at a scale that's comparable to some of its larger rivals. So being in the media business is exceptionally hard, and I think, especially with the continued cord cutting acceleration, Comcast is not going to be immune. But yeah, the stock is still doing fairly well compared
to last year. Last year it was underperforming dramatically. But I think what we hear from Q two results from management in terms of how it's dealing with those losses in traditional TV and how it's investing further and broadband five G even those will be indicative of how the company could potentially do going forward.
I think there's a question of whether Comcast even needs to be in the media business, especially at a time where this is a year they've had some key executive exits in Jeff Schell and Lindya Karita, who my guess is regretting leaving NBC Universal right now for Twitter, and now they've got a new guy in place in Mike Cavanaugh,
who has got to prove himself right now. It's a really critical time for Brian Roberts, who I think people have wondered whether he's got to make another big deal and maybe has sort of sat on his on his you kept the gunpowder dry for perhaps a little too long in terms of what that next big deal is going to be. They thought EA was going to be a deal last year. He didn't pull the trigger on that. He's got to do something, and I don't know what that is going to be.
Except for back to our other other thread of this conversation, Comcast was has long been in the crosshairs regulators because broadband is so important, because broadband really is the utility now that powers you know, the powers everything in our homes.
And I think they have an extra layer of scrutiny in DC because they are so big and you know, remember hard to believe, like ten years ago they were mixed for you know, the FDC nixed them from buying Time Warner Cable, which would have really made them bigger in cable. I'm sure there's a lot of you know, what if scenarios, if that could have if that could
have happened. So I think that they are also I think they have always shot down any suggestion that NBC Universal might be somehow spun off from the cable but that just boy, that does that seem to like create more flexibility. So when something is that logical, it feels like, you know that it may sort of carry away on its own logical weight. But you know, then again, the
Roberts have preferred The Roberts family has preferred shares. They have pretty firm control of comcasts, so it's good to have preferred shares.
I guess, well, whether it's Brian Roberts, Bob Backish, Bob Iger, Ted Sarandos, a lot of people we got to keep an eye on in the coming quarter. Thank you Cynthia and Heidi for walking through some really interesting issues as we head into what's going to be a really interesting period for the media sector.
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