Andrew Sharp
Hello, and welcome to a free preview of Sharp Tech. Hello, and welcome back to another episode of Sharp Tech. I'm Andrew Sharp, and on the other line, Ben Thompson. Ben, how are you doing?
Ben Thompson
I'm doing well, Andrew. I'm girded.
Andrew Sharp
Oh, boy.
Ben Thompson
Is that the word? Girded for battle.
Andrew Sharp
Your loins are girded? Sure.
Ben Thompson
Yes. We have both written about Netflix and Warner Bros. this week. I think there are excellent points on both sides and some possible points of contention.
Andrew Sharp
Hmm.
Andrew Sharp
I would imagine there are some points of contention. We're gonna talk through every aspect of the Netflix–Warner Bros. proposed merger, and we're gonna begin with John at UVA, who sent this email on Friday night. He wrote, “Ben and Andrew, my friends and I found out about the Netflix–Warner Bros. deal, and our immediate reaction was, ‘Devastated. We have to wait till Monday for the Ben Thompson take on this.’”
He included a picture of him and his two friends at an ice cream shop with their heads in their hands, really laying on the drama. Just tremendous nerd behavior that made my Friday night. So I wanna start with a thank-you to John and his friends, counting the hours until Stratechery published on Monday morning. Any thoughts on that note?
Ben Thompson
I did do an emergency podcast with Michael Nathanson about this deal on Sunday.
Andrew Sharp
Mm-hmm.
Ben Thompson
And we could have gotten it out on Monday, but I'm not gonna lie: This picture in the message made me feel like, no, I need to get my take out first. Then I dropped the interview on Tuesday. Turns out I can be affected and influenced, so yes, thank you. Thank you for the note. It was very funny.
Andrew Sharp
Absolutely. As we talk through this deal, we did get a request for a good old-fashioned antitrust argument.
Ben Thompson
I know it's been a while.
Andrew Sharp
I wanna put a pin in the regulatory angle at the top and focus first on the Netflix side. It's funny because you mentioned the Netflix–Warner Bros. possibility maybe 6 weeks ago in a Daily Update, and when I was reading that Daily Update, my honest reaction at the time was, “Man, I'm surprised Ben is even dignifying these rumors,” because Netflix, I mean, they've become known for their restraint and fiscal discipline over the last couple of years, and Warner Bros. has been sold 4 times since 2001, and it just—
Ben Thompson
Right, and it—
Andrew Sharp
—seemed like a crazy idea.
Ben Thompson
You could rank all the acquisitions by how much of a disaster they were.
Andrew Sharp
Exactly. And so Netflix going that direction seemed inconceivable, but here we are. So question number 1 for you: What have we learned about Netflix and its position in the market over the last week? What do you take away from their interest here?
Ben Thompson
I have bad news for you, Andrew.
Andrew Sharp
Oh, boy.
Ben Thompson
Because I think the biggest takeaway cuts right back to where we're going to have the biggest point of contention on this podcast.
My biggest takeaway from this is that Netflix is scared shitless by YouTube.
Andrew Sharp
Yeah.
Ben Thompson
They can feel their share. You could go back a number of years. Netflix is inexorably growing as a share of TV.
Andrew Sharp
Mm-hmm.
Ben Thompson
This is one of those things—I should probably go back and cite all these—but I've read every Netflix investor letter and their comments to the media. Netflix's investor calls are hilarious, by the way. They used to have interviews where 1 analyst was allowed to go on and ask them questions at the earnings call as a stand-in for everyone.
Andrew Sharp
Yeah.
Ben Thompson
Now they do have a group of analysts, but they're very controlling about this whole process. That has always been interesting to me. But there was this ongoing sense. They include charts of their increasing share of TV, and part of that was to show how well they're doing, but also part of it was to show how much potential they still had.
“It's just a single-digit share.” It's 3%, then it's 4%.
Andrew Sharp
So much room to grow.
Ben Thompson
Then it's 5%.
Andrew Sharp
Sure, yeah.
Ben Thompson
Then it's 6%. The problem with those charts is that there is another entity that is growing faster than them and surpassed them 2 to 3 years ago.
Andrew Sharp
Even more inexorably.
Ben Thompson
And that is YouTube.
Andrew Sharp
Yeah.
Ben Thompson
I'm talking specifically about share of TV.
Andrew Sharp
Mm-hmm.
Ben Thompson
This isn't mobile. YouTube's actually far, far larger. We're talking about TV specifically.
Andrew Sharp
Yeah.
Ben Thompson
The thing on your wall.
Andrew Sharp
Total minutes watched on TV, YouTube now beats Netflix consistently.
Ben Thompson
It's not just that there is another entity that is doing better on the graphic that Netflix was so proud of for so long.
Andrew Sharp
Mm-hmm.
Ben Thompson
That entity has a fundamental structural advantage, which is that they get their content for free.
Andrew Sharp
It's unlimited content that they're able to serve, sure.
Ben Thompson
That's right, and it's totally personalized. Netflix can talk about, “Oh, we have data, and then we can personalize your f—” If you want true personalization, that's what YouTube is.
Andrew Sharp
Mm-hmm.
Ben Thompson
Look, I could monologue for a while here, so feel free to jump in.
Andrew Sharp
No, I'm enjoying it.
Ben Thompson
What I've enjoyed about this deal personally—and this actually, I owe Michael Nathanson for it because I think this crystallized for me while we were talking—
Andrew Sharp
Mm-hmm.
Ben Thompson
And then I put it in my article, then didn't post the interview until the next day, so sorry, Michael.
Andrew Sharp
Sorry, Michael, and thank you, Michael. I love any interview you do with Michael Nathanson. Always a great podcast.
Ben Thompson
Netflix is always—
Andrew Sharp
I was delighted.
Ben Thompson
—a core piece of it, so we had to do this one.
Andrew Sharp
Well, you revisit the same Netflix argument that you've been having with Michael Nathanson for about 7 years, so it's—
Ben Thompson
I know.
Andrew Sharp
—interesting to chart the progress of the takes over time. I enjoy that you kick things off that way. I will just note, before you finish: I did the takeability rankings with tech companies last month and had a bunch of fun. Netflix was low on that list, and they were low on that list—
Ben Thompson
Oh, regret on your side, huh?
Andrew Sharp
Well, a little bit, because, look, in my mind, the—
Ben Thompson
You thought they graduated—
Andrew Sharp
The game is over.
Ben Thompson
—from the take game, yeah.
Andrew Sharp
The game is over. There are lots of arguments about Netflix going back to your conversations with Michael Nathanson, and they won, was the way I saw it a month ago. The fact that they are interested in this deal, I find myself wondering: Is this a great opportunity where they can press their advantage? Or are they panicked about some of the failures they've had developing original content of their own, the ongoing costs, licensing, the unwillingness of others in Hollywood to license content, and, of course, the threat to Google? I've come away from the last week wondering whether they were way more vulnerable than anyone realized.
Ben Thompson
I don't know that I'd put it as vulnerable, but just zooming out, let me get to my insight that this is a story as old as the internet.
Andrew Sharp
Mm-hmm.
Ben Thompson
Which is the threat to professional media from the masses like me, right?
Andrew Sharp
Sure.
Ben Thompson
I know people now would consider me a professional media creator or whatever it might be. But I'm still a guy on a WordPress blog at the end of the day.
Andrew Sharp
Mm-hmm.
Ben Thompson
There's just this aspect: These were gatekeepers, in both a positive and a negative sense. If you wanted to write something that people read, you had to get into the newspaper, because how were people going to access it? What are you going to do? Print it out like a crazy person on the street corner and start passing out pamphlets?
Andrew Sharp
Mm-hmm.
Ben Thompson
You needed to actually get the content into people's hands so they could read it, and newspapers were the way that you did that.
Andrew Sharp
Sure.
Ben Thompson
And do letters to the editor. That's how I started, writing letters to the editor in college. Then I got invited to be an opinion columnist.
Andrew Sharp
I wrote an angry letter to the Boston College student paper, and they ended up publishing it, and I was officially a published author.
Ben Thompson
I love it.
And so the internet made that different. Anyone can publish. I actually think one of my better articulations of aggregation theory was in 2014. Number 1, it speaks to the power of branding.
I think I've referenced this: “Economic Power in the Age of Abundance” is the name of the title. Not so catchy.
It didn’t really stick. But it was about this: I think I put in there a couple of graphs or drawings that were like, “Look, I have readers in, at that time, I think it was, 150 countries.” Now I think I might—I don’t know if I have North Korea yet, but I haven’t looked for a while—but I have readers in literally every country in the world, or basically every country in the world. I shouldn't screw up my labor.
Andrew Sharp
Hmm.
Ben Thompson
I have subscribers everywhere.
Andrew Sharp
Mm-hmm.
Ben Thompson
For anyone who reads me, every minute spent reading me is a minute not spent reading something else. That something else could be other bloggers. It could be Twitter. It could be The New York Times. It could be your local newspaper. This speaks to the point that the only plane of competition left is time and attention.
Andrew Sharp
Mm-hmm.
Ben Thompson
I’m not The New York Times. They are a publicly listed company. They make a lot of money. I’ve raved endlessly about how they’ve handled the transition, especially over the last 10 years, just from a business perspective, setting aside all the editorial stuff, really brilliantly. They’ve also sort of cleaned up the entire space because everyone just subscribes to them first. So their success is very much at the cost of a lot of other newspapers. It’s funny how—
Andrew Sharp
Including The Washington Post, for example.
Andrew Sharp
Yeah.
Ben Thompson
Yeah. No one holds them responsible for everyone else getting decimated.
Andrew Sharp
Mm-hmm.
Ben Thompson
And they are one of the chief entities that ought to be held responsible. But the plane of competition is shifting, and this is a core problem. Again, I’m talking about newspapers, but this sort of matters everywhere.
Andrew Sharp
Mm-hmm.
Ben Thompson
And it certainly matters in media. YouTube is absolutely a competitor for Netflix, and I’m willing to go to the mat fighting with you about this point.
Andrew Sharp
Yeah.
Ben Thompson
So, in that context, what do you do?
Andrew Sharp
Hmm.
Ben Thompson
Because YouTube owns that supply. Netflix is doing these deals with Spotify. This is how you opened your piece, which I want you to articulate your thesis on in a little bit, but with some of The Ringer’s content, for example. Is it professional content?
Andrew Sharp
A feeble attempt.
Ben Thompson
Is it whatever?
Andrew Sharp
Yeah. I don’t really know what that deal is supposed to be.
Ben Thompson
If you create video content, you do it on YouTube.
Andrew Sharp
Yeah.
Ben Thompson
That’s where the audience is if you want to get any sort of growth, if you want to have any sort of breakthrough, and they monetize you. One of the brilliant parts of YouTube is how, from the very beginning, they’ve helped creators monetize. It is actually a beautiful manifestation of Google’s—what’s the word?—enlightened selflessness, where they’ve shared a lot of revenue with creators all along. And does that mean their revenue is actually zero-marginal-cost content? Yes, I think it does, because there’s inventory.
Andrew Sharp
Yeah.
Ben Thompson
But setting that aside, they own that space. They own that space more than Netflix could ever dream of owning Hollywood content, even if this deal goes through. So what do you do? What I think has been revealed over the last, I would say, 10 years or so is that what distinguishes professional content at its best is that it’s a little bit more like music than I ever appreciated.
Andrew Sharp
Hmm.
Ben Thompson
I wrote an article differentiating between different types of media and why different industries played out differently with these internet dynamics. I did print, and I did TV and movies—they might have been together, I can’t remember—and I did music. The thing about music was that I was pretty early on saying that the labels are, all things considered, doing pretty good.
Andrew Sharp
Yeah.
Ben Thompson
They’re the poster child for the internet ruining their business model. Napster comes along, all that sort of thing. But why? The reason is because with music, yes, of course, new releases matter. Spotify’s ability to create hits or make people aware of new things is very powerful and useful, and they are making real money selling access to help that happen.
Andrew Sharp
Mm-hmm.
Ben Thompson
But at the end of the day, I get my Spotify Unwrapped—
Andrew Sharp
They’re making money from Biggie Smalls and Tupac and all sorts of music we still listen to 30 years later.
Ben Thompson
—and it’s like, “What did you listen to this year?” It’s ’90s alternative. That’s what I listened to, right? You listen to the same songs again and again and again and again and again and again and again and again. As you get older, it gets worse.
Andrew Sharp
Mm-hmm.
Ben Thompson
The thing about music is, once a song is published, it’s part of the library. There’s a bit where the power of the labels—it’s not perfect, it’s not absolute—but their power is more cemented and permanent than you might think because of the control they have of libraries.
Andrew Sharp
Yeah.
Ben Thompson
There actually are some shows that are like that on TV. You have Friends, you have The Office, you have Seinfeld. It’s really interesting how a lot of these sorts of shows don’t get made anymore. But these are shows that you come back to as comfort food, again and again. They’re content that people enjoy. I would like to be a music person and be into the new bands, and I just don’t have the time and mental energy to do that. And frankly—
Andrew Sharp
Neither do I, which I think signifies we’re officially old.
Ben Thompson
We’re the worst.
Andrew Sharp
It’s like, “Listen to a new album. Come on.”
Ben Thompson
But the great thing—just leaning into how washed we are—gives us sort of real expertise in this area, right?
Andrew Sharp
Yeah.
Ben Thompson
I’m famously not a TV watcher, right? I’m a big TV watcher, but if it’s sports. I will watch any sort of sports content. But I can recognize and appreciate that just having Friends on in the background, maybe you’re watching, maybe you’re not, is pretty great. That’s distinct from, “I’m going to watch this new show, and I’m going to lean forward, and I’m going to lock in and sort of see what’s happening,” versus, “Oh, I’m watching the show and I’m also scrolling on my phone,” or I’m making dinner or whatever it might be, or someone calls me, and it’s fine.
Andrew Sharp
Yeah.
Ben Thompson
I can pause it, or I don’t have to pause it because I’ve seen the show like 57 times. I went to Canada fishing this summer. On the drive back, me and my buddy, who used to watch every episode of Seinfeld on Thursdays in high school, put on Season 7, which I think was the all-time great season, and just plowed through like 15 episodes on this 12-hour drive.
Andrew Sharp
That sounds fantastic.
Ben Thompson
It was awesome. It was so great, right? And guess what? I was an attentive driver on the road because I didn’t need to pay close attention—I’ve seen all these episodes—but it was also so delightful. We were actually recalling certain things from high school that were tied to this. It was like a connection to it.
Andrew Sharp
Were you a Seinfeld guy or a Simpsons guy growing up?
Ben Thompson
Seinfeld. I was a—
Andrew Sharp
Me too.
Ben Thompson
Seinfeld guy. Yeah.
Andrew Sharp
Look, we were destined to podcast together. I was a Seinfeld fan as well. I listened to an interview with Julia Louis-Dreyfus earlier this week, and as I was listening to the interview, I found myself thinking, “You know what? I need to revisit Seinfeld,” because I have very fond memories of growing up watching Seinfeld. It was syndicated when I was growing up, so I would watch it every day at 5:30.
Ben Thompson
Yeah, TBS or whatever. Yep.
Andrew Sharp
And that’s the sort of content—they’re not buying Seinfeld, but that’s the sort of content that Netflix is acquiring if this deal goes through with Warner Bros. And this is where I come back to the struggles that Netflix has had with its own original efforts, because they’ve been unable to develop the sort of comfort food that people come back to over and over again on the Netflix platform. So it’s actually useful.
Ben Thompson
Well, give me your thesis. You talked about the flattening of TV and, overall, what happened? Why can’t they do this?
Andrew Sharp
Well, I would say that everything is now more disposable than it was 25 years ago, when there were more traditional distribution mechanisms. You would watch Seinfeld on TV every Thursday, for instance. And now there’s just this river of content. As soon as I watch stuff, I forget it, and then there’s something new on.
Ben Thompson
And then you try to convince me to watch more TV. It’s ridiculous.
Andrew Sharp
Yeah.
Ben Thompson
Well, it's enjoyable. Look, we're all just waiting to die here, trying to fill the time.
Andrew Sharp
Oh my God.
Ben Thompson
I enjoy myself watching TV, but I feel like it's been rendered less meaningful than it once was, and particularly with movies. I actually cited an email that Steven sent us. The market for mid-budget movies has been more or less destroyed.
Andrew Sharp
Yep.
Ben Thompson
So my article about Netflix this week started with the irony that The Rewatchables podcast, as part of that Spotify deal, will be exclusive to Netflix beginning in January, and Netflix and the emergence of Netflix did more to kill the rewatchable movie than any entity on Earth. The ecosystem in Hollywood looks completely different than it did even 10 or 15 years ago.
What that creates is this new environment. Netflix needs to serve content to keep people engaged, and it actually makes sense to go back to a studio that has been making hits for 75 years and particularly has a lot of hits from 25 years ago that may help keep people engaged. I understand the logic of this move from that perspective.
I do find myself wondering whether it is in fact any sort of insulation from the disruption threat that YouTube poses with a never-ending avalanche of user-generated content that happens to be pretty popular. I don't watch YouTube on my TV, but clearly lots of people do. I'm not sure how much Warner Bros. content actually moves the needle as they try to fend off that threat.
Ben Thompson
Well, the thing—this is sort of the contrast. The thing with YouTube, and I'm more familiar with this from the creator side just because I've talked to creators and, you know, Johnny, who is a part of the Stratechery Bundle—Asianometry is sort of amazing, and I feel bad for him sometimes because every YouTube creator you talk to, I've heard similar things from MKBHD, and I've talked to a fair number of other ones off the record.
The overwhelming, inescapable sense that you are on a hamster wheel and you just have to keep going is kind of terrifying.
Andrew Sharp
All right. And that is the end of the free preview. If you'd like to hear more from Ben and I, there are links to subscribe in the show notes, or you can also go to sharptech.fm. Either option will get you access to a personalized feed that has all the shows we do every week, plus lots more great content from Stratechery and the Stratechery Plus bundle. Check it out, and if you've got feedback, please email us at email@sharptech.fm.