跟着 TSOH 的 Alex Morris 梳理媒体版图

You're about to listen to the Yet Another Value Podcast with your host, me, Andrew Walker. Today's episode, I have my friend Alex Morris from The Science of Hitting on. Alex is a friend, and I am a happy subscriber to The Science of Hitting. I'm having him on today because next week I'm doing a live webinar with AlphaSense covering everything that's going on in the media space in the wake of the Netflix, Paramount, Warner Bros. bidding war. There's always stuff to talk about: sports rights, Disney's new CEO. There's just so much to talk about. I love following the space. So, I had Alex on for kind of a warm-up to go through the space and start talking about everything that's going on in the media and start making sure I've got my views and everything right in front of that webinar, which will be live, and we will be taking live Q&A from the audience. If you want to come, join, listen, and ask questions, that would be awesome. There will also, of course, be a replay. I'm going to include two links in the show notes: one, a link to Alex's Substack, which I am a happy subscriber to; and two, a link to my live webinar where you can go sign up and listen to me ramble live. So, I'll include a link to both of those in the show notes. But first, a word from our sponsors.

This podcast is sponsored by me. Okay. Okay. It's sponsored by AlphaSense, but it's also sponsored by me. I'm going to be doing a live webinar with AlphaSense's Director of TMT Research, Michelle Brophie, on March 10th at 1 p.m. Eastern. We're going to be talking about all things media. If you're a longtime follower of this podcast or the blog, you know I love media, telecom, communication—I love it all. So, we're going to be talking about all things media. I am recording this advertisement on February 27th. Within the past 24 hours, Paramount outbid Netflix for Warner Bros. Netflix backs off. I bet you we're going to be talking about how that reshapes the media landscape a little bit. Disney's got a new CEO. Sports rights are always in the news. Video games, remember them? Those are pretty interesting. That's evolving quickly. What about AI content? We're going to be talking about all of it.

The best part is it's a live webinar. If you come join, and I'd love for you to come join and listen live, we're going to be taking questions live for listeners. So, you can hear me ramble like a madman in real time if you ask the right question. If you're interested, there'll be a link in the show notes, or go to getanothervalblog.com. You can find it there. Go to alpha-sense.com/yavp. That's alpha-sense.com/yavp. I did that off the cuff of my head. That's how much I know the referral link. So, go there, you can sign up, all that sort of stuff. We'd love to have you. March 10th, 1 p.m. Eastern. And, of course, there'll be a replay if you want to catch it on replay instead. See you soon.

All right. Hello and welcome to Yet Another Value Podcast. [laughter] I'm your host, Andrew Walker.

With me today, I’m happy to have Alex on. Have you gotten the shirt yet, Alex?

No, I don’t think so. I think I had the shirt at one point, but I think I wore it golfing, and now it’s not in a condition to be worn anymore.

Okay, so you have gotten the shirt anyway. I should say his name: Alex Morris from The Science of Hitting. Alex, how’s it going?

Hanging in there. As we were talking about before coming on, we both have 2 kids, and one kid is particularly young. So, hanging in there is as good as you can be doing.

Hey, that was, as I said before, wise words, man. Wise words.

We’re going to hit a bunch of stuff today. Before we get started, a quick disclaimer: nothing on the podcast is investing advice. You can see a full legal disclaimer at the end of the show.

We’re going to be jamming through all sorts of media stuff, so maybe just a heightened disclaimer. We’re going to talk about a bunch of stocks instead of a single-stock focus.

Look, I should have mentioned it at the front: Alex Morris, The Science of Hitting. I think I’m a happy day-one subscriber. I read most of everything he writes. Every now and then there’s a piece I don’t, but I read a lot. I love it.

We’re recording this on March 6. We’re going to jam through the media space. Alex, Netflix lost the deal for Warner Bros.; Paramount is buying them. Disney’s got a new CEO. I know you follow both companies closely. We can talk about them, and we can talk about all the minnows. Wherever you want to start, what are your overall thoughts on the media sector right now?

Yeah, I was thinking about this coming in. I think it probably makes sense for me to give a little bit of background on my history in the industry as an investor, so that way you can see where I’ve made good decisions and, probably more often than not, bad decisions. It seems to be a pretty difficult sector to get right.

There have been 1 or 2 good decisions in media over the past 10 years: sell everything except Netflix. That’s the only thing that’s worked in media for the past 10 years.

My foray started with what, at the time, seemed like a good decision: I owned Fox. I owned Fox largely because of thoughts about their live rights and how that would navigate the transition the world was going through, which I certainly did not appreciate or fully understand at that point in time. But that was the underlying idea.

When the Fox-Disney deal happened, I took equity in Disney, which I’ve now held for more than 10 years, right around there, which obviously has not worked very well, to your point. But owning Disney and following it for a long time gave me a certain amount of appreciation for what was happening, particularly in terms of streaming and DTC. I started to really buy into the idea of what it meant to be global and truly have scale in this business.

Long story short, fast-forward to 2022, when Netflix went through its troubles. My conclusion at the time was effectively that they were the canary in the coal mine, and the pain they were going through was subsequently going to hit everybody else. The reactions from everybody else would be a huge net positive for Netflix.

I’ve owned Disney for a long time—not a good investment. I bought Netflix in 2022. It eventually ran to a mid-teens percentage of the portfolio. I subsequently trimmed a good amount, and the stock has gotten killed over the past however many months in advance of this deal and all that jazz. Those are my priors on the space.

My sense coming in for a long time has been that there are 2 particularly attractive assets in this space for someone like Netflix: Warner Bros. and NBCUniversal. They could fit in different ways depending on whether it was with or without the linear networks and all that jazz.

When the price tag for the deal got announced, I thought it was excessive. When I say that, I should probably frame it in terms of the amount of value that was going to be transferred from Netflix to Warner Bros. Discovery. Not necessarily that the price tag itself didn’t make sense, but a significant percentage of the price tag making sense was from value that Netflix specifically could add. For Netflix to give a very large percentage or all of that to Warner Bros. Discovery shareholders was something I viewed as a bridge too far.

You want to pause there? I think this is a really interesting debate I’ve had with a lot of people.

Most people, I think, think Netflix would have been the best home for Warner Bros. And that’s obvious. The player with the best scale, adding these IP assets, is going to make the IP the most valuable.

I hear you on, “Hey, Netflix, a lot of the value they’re creating”—but that’s part of the auction process, right? I’m standalone worth 1. I think, to Paramount, Warner Bros. was worth 2, and to Netflix, Warner Bros. was worth 2.5. Part of the auction process is, “Hey, you’ve got all that value you’ve got to create; you’ve got to split it somehow.”

The more bidders at auction, the more I get to take the value from you. You’re bidding up to your last dollar, where you say, “Hey, I can no longer create value from here.” So I certainly hear you, but it was a pretty damn competitive auction.

Obviously, Paramount was going crazy for it, but I’ve heard varying reports of how serious this was. I don’t think Warner Bros. actually could have done it, but Comcast threw in a bid that they valued at 35. That was basically, “Warner Bros., take half the company plus cash,” if I’m remembering correctly. So that’s a pretty intense bid from Comcast, too. There were a lot of competitive dynamics. I’ll pause there and turn it back to you.

No, I absolutely agree with what you said. Then you get back to the question of: Is this a want to have or a need to have, and what else can Netflix do? So that’s where, for me, that’s the breaking point.

But to your statement, if you’re going to get into these bidding wars, then you’re getting to a place where more and more of the value is being transferred to the sellers, right?

And, by the way, on this point, I think an interesting part of this whole saga that you and I have been following for a long time is David Zaslav generally receives a lot of flak for how he’s managed these businesses over time and the amount of compensation he’s received.

And I think, in hindsight, if you look at how this played out in the end, particularly around this sale, he played it masterfully. I mean, the smartest thing to do was to find a deal with Netflix at a price that was quite high, which he managed to do.

I think they always knew they had Paramount Skydance really, really, really wanting to do this, and they’d ultimately find a way to get very, very close to that value or ahead of it. There were a lot of holes in the bid, and they changed a lot of things subsequently that got them there.

So it’s funny to say that someone can get paid hundreds and hundreds of millions of dollars, and then you look at the net result on something and go, “Hey, actually, maybe some of that pay—when you’re dealing with big numbers, that pay can be justified.” I guess that’s what I’m trying to say.

I do hear you, but at the same time, the deal was a disaster. I mean, the Discovery stock price is flat to down over 10 years, and the man is going to be a billionaire off this. I’m not even sure he ran a good process here, to be honest with you.

But the fact that he ran a process and had a bidding war—hey, guess what? Every studio in history that’s gone for sale, people have gone crazy for it. And he had this great studio that’s still valued below where they merged Warner Bros. and Discovery together.

Actually, I do think he’s done a nice job at Warner Bros. I do think the business was a mess when he took it from AT&T, but HBO is firing on all cylinders again. He brought James Gunn in. DCU might be in a better place than Marvel is right now. I do think the fruits of the labor were starting to be realized, but there was a lot of turmoil, and shareholders didn’t really benefit along the way.

So let me ask you a specific question here. One of the things I was very interested in when I was reading this is Ted Sarandos, Netflix’s co-CEO, goes out and says, “Look, Reed Hastings is a buy-versus-build guy. He prefers build, and while we have his full support, I don’t think he’s a big fan of this deal.” He basically says that, right?

Netflix has pretty much never done an acquisition in its history. They’ve done small little IP things, but to go from, “Hey, we’ve done 5 deals worth a total of $600 million in our history,” to, “We’re doing $100 billion M&A”—I think a big question, and one of the reasons the share price was weak, was not just that they were paying for Warner Bros. I think people were looking at Netflix and saying, “Hey, are they seeing something in their internals? Are they seeing something in their long-term vision here that suggests the core business is weaker than they thought it needed to be, and that they needed to pivot to this massive transformational deal?”

I’d love to pose that question to you.

My answer in a word is no. I don’t believe that’s the case. Now, that said, you’ve seen the transition underway in terms of ad-supported and their view on live rights, and the things that they’re trying to do with gaming and podcasts.

I think they’re certainly trying to figure out—and mobile is a glaring example of this—how do we get our share of screen time, generally, to change from being a number that’s, in a market like the U.S., basically stagnant at best? In terms of share of streaming TV time, it’s been going down. How do we bend that? I think they have been looking for ways to try to do that while also trying to further the global strategy and continuing to move forward in that direction.

I don’t view it as something that is existential or reflects a very significant change from what’s been happening for a while now. But I do think they want to find a path to get stronger, and IP is one obviously prominent way to go out and try to do that.

The question I’ve always come back to is, okay, how much do you have to pay for that IP? How is that IP monetized currently? How are you going to change how it’s monetized currently? And to the extent that you come to answers about that particular piece of IP, how translatable is that to other kinds of IP that you either own currently, can license, or can potentially go out and buy?

I think, long story short, you see this as a moment where they really start to ask themselves tougher questions: What is the change in our strategy from here forward? And obviously, from the advantageous position of being really in a solid financial position, going out and spending $80 billion of cash would not have been insignificant for Netflix to go and do. Their financial position is not—I know their market value is obviously quite high, but they don’t generate that much cash to easily—

This is not NVIDIA. This is not Google.

Right. So I think they now have a lot of opportunities to go play offense, and they have to go find what those opportunities are.

You mentioned IP, and I want to take a question I have later and just bring it here because it’s been top of my mind. Netflix is one of, to say it lightly, the most forward-looking, technologically savvy companies out there. And then there’s Paramount, which historically, let’s put it nicely, has not been as technologically savvy. But Larry Ellison is backing this whole thing.

And if you think Larry Ellison isn’t one of the most tech-savvy people out there, I would point you to the podcast I did with Byrne Hobart, or encourage you to read it. I mean, the man has nailed almost every single technological shift and wave. Right now, he is all in on AI. Maybe he misses a wave at some point, but he’s all in on AI.

The reason I mention this is that you have, let’s just say, both of these technologically savvy people who have a vision for where AI is going. Both of them looked at Warner Bros. and said IP is the benchmark.

And I wondered about that along 2 lines. A, do you think AI juices the value of IP? And B, if you think that’s the case, is Netflix’s hand a little bit weaker than maybe we’d been thinking? They’ve got unbelievable distribution. They’ve got unbelievable consumer engagement, all this sort of stuff. The one thing they do not have is IP that they themselves own, right? They’ve got Stranger Things. That’s pretty much it in terms of the really good owned IP.

I want to ask you the AI questions on those 2 lines. I’ll turn it over to you, and you can go where you want with it.

Yeah. Not to skirt the question, but I think the question, as I partly think about it, is: What is IP? What are we even defining IP as? What’s the top 1% of IP? What’s the top 10% of IP?

I think about this in terms of—and I wrote about this probably 6 months ago—you look at something like Sex and the City, which, at the time when it came out on HBO, was a very prominent show for them, and it still has an audience today. The show ended; the series finale was in 2004.

When the show came on Netflix, you can look at the engagement reports to try to guess this. It basically accounted for, by my math, something like 0.5% to 1% of all engagement in the U.S. during the periods where it was released on Netflix. For a show that’s 20 years old at this point, that’s pretty darn impressive.

But when you then look at it relative to Netflix’s overall scale, during the most recent period that we had that data for, shows on the Netflix engagement report are broken down into individual seasons. There were 800 other shows that had comparable or higher viewership than the average season of Sex and the City in the same period.

That just speaks to the breadth of, again, what does IP actually mean? And by the way, that was inclusive of 3 shows that, in that 6-month window, had more viewership than Sex and the City had the entire time it was on Netflix. One of them was Squid Game. I’m forgetting the other one, but the third was a Korean show called When Life Gives You Tangerines.

That’s kind of the point, right? When you’re talking about a global platform that has a huge amount of breadth and depth in terms of what they provide, yes, it’s very important, I think, to have these kinds of big cultural moments. There’s a lot of value to be had in them, whether it’s sports or—

Is Harry Styles a singer?

Yes.

Okay. They’re doing a show with him in Manchester. He’s doing a big performance. I don’t know if it’s live or shortly after. I can imagine them doing stuff like that over time, right? With the biggest concert on Taylor Swift’s next tour, maybe it should be on Netflix—a live show, things like that that they can do.

That’s where it’s the benefit of scale, right? Taylor Swift says, “I have a concert,” and Netflix says, “Okay, we’ll pay you $50 million, and we have 1 billion users.” So you divide that $50 million over 1 billion users. Even if Disney really wants it, if Disney’s got 200 million users and it wants to top that, well, guess what? The price per user of that is 5x as high.

That’s where your scale really begets scale and gives you really interesting things, which I want people to keep in mind when we go to sports rights later.

But it’s really great to have things like Squid Game. By the way, they still license a ton of content. I’m sure, as people in the U.S. have seen in the last couple weeks, something like James Bond, if it comes on the platform, can take over the Top 10 basically because there’s a lot of demand to watch those types of shows.

But there’s also a huge, huge amount of other content besides that that people watch on the platform. And I think this partly gets to the question about AI and new content: What is the value of the library as it stands today?

I guess if it can be used to some extent, or repurposed to some extent, maybe the value changes. But what really is the value of The Wire, The Sopranos, or these other shows? Are they really game-changing content to add to Netflix's platform? And to the extent that they are, is it game-changing for 6 months or a year? Is it game-changing for 5 years? I've never been particularly confident about that.

Now, that said, HBO still punches above its weight in terms of The White Lotus and Game of Thrones. A lot of the shows that they have now—would you even define The White Lotus as IP? You know what I mean? A lot of these shows are just something that they've created more recently from something that was an unknown quantity before. So I think that's what Netflix has to continue to get better at, which apparently is quite hard to do. Props to HBO for being so good at that for so long.

Yeah, I mean, I think HBO—I think that is a definition of culture and letting things sit, just how good they've been at making all these shows and stuff. Obviously, I'm not an industry person, but I hear they do everything so differently from everyone else, and they're willing to sit on things and let them circulate.

For Netflix, the worry in my mind—and this might be too forward-focused, this might be too galaxy-brain—is that people are increasingly turning to short-form apps, TikTok, and stuff. We can talk regulation later. I can't believe there was even a question like, “Okay, cool, they're buying HBO.” There are still plenty of streaming platforms out there, and they're competing with YouTube, TikTok, and video games. It's all a competition for time. I've always believed Reed Hastings: It's all a competition for time. Our biggest enemy is sleep.

These short-form apps and YouTube are taking so much time. My worry would be, if we run this forward 5 years, people go to TikTok to watch their favorite short-form videos, and then they've got 4 or 5 worlds that they love and just want to spend all their time in. You pick your world—The Sopranos, DC—and instead of going to Netflix, they go to The Sopranos AI and have it spin up 3 new episodes for them. They can personalize the episodes.

I've never watched the show, so I don't know, but I think Starz's big new show is a Spartacus spinoff. Apparently, there was a popular character who gets killed, and the new spinoff is, “What if he didn't get killed?” You could imagine how, with Game of Thrones, you have an AI and it's, “Hey, what if Ned Stark had escaped here?” Or, “What if, in the Red Wedding, Robb had made it out?” You could imagine just spinning up different shows and spending all your time there.

The reason I mention that is, that's a disaster for Netflix, right? Their distribution no longer matters. People go to their favorite app; they go to their AI engine. All the economics are clinging to the IP, and then the AI engine spins it up. Probably the memory companies are making some money selling memory in the super-memory cycle, but that might be galaxy-brain. What do you think about that risk? If people are going to be able to spend more and more time with IP through AI, and then short-form video, Netflix is in a tough spot there.

Yeah, I think, really, either way, it comes back to the idea that Netflix needs to have IP that's relevant to people. It needs to either do that through one-off deals to acquire IP, or through the big global licensing deal they did with Sony. Obviously, as they sign these deals, they need to contemplate the type of things you're talking about.

It needs to be all-encompassing. When they sit down at the table with an XYZ producer, director, or actor—whoever it may be—they sit there in a very advantageous position in terms of what they can do for the audience and how they can drive the economics of that.

As was very prominent throughout this deal, movie-theater attendance in the US is down 40% over the past 2 decades. Audiences, to some extent, have voted with their feet. Not to say it's irrelevant, but they have voted with their feet to some extent.

The industry is still a big stakeholder in this process, and it has a view about this. Going forward, Netflix needs to—and they have been this way for some time—be more accommodating and, to the extent it makes sense from a business perspective, tweak things like this. It's kind of the idea that they frame this as, “Once we got into WBD and saw the books, and we saw Warner Bros. and realized what the theatrical business was like, we realized it's a good fit for us.” That's kind of like, “Okay, I guess I hear what you're saying.” But going forward, they need to really have a thoughtful view on this stuff, right?

You know, the theater's interesting because I'm not breaking new ground here, but there are a lot of movies on Netflix. Some of them are of very poor quality, but some of them are good quality. I remember really liking Red Notice. It had The Rock and Ryan Reynolds—how am I not going to like that? It was buzzing and fun.

I do think there is something to the fact that Netflix's movies haven't really popped in the same way that a lot of movies in theaters have. Yes, they get big numbers, but I think people watch them and forget about them, versus a lot of movies in theaters that people still talk about. This is a little bit pre-streaming, but Bridesmaids and Anchorman—these are more in my generation than this generation. I do think there is something that they might learn or be thinking about.

They might have gotten it from the fact that when you put a movie in theaters, it's not just about the economics. It's about people remembering the experience, and there's something a little bit more memorable about going to the movie theater and sitting there and watching it versus sitting on your couch. If you're trying to build brands and build IP, there might be something to that.

Stranger Things—they probably split up the last season because it cost so much money. They wanted to get the real bang for their buck and have retention for 4 months. But there is something to dropping it all at once. I think you can binge it and just forget it, versus when you create that water-cooler-style moment and let things circulate, allowing people to say, “Hey, what do you think is going to happen next?” I do think that's how you build a brand. Let me ask you real quick, by the way.

I mean, look, the flip side of that is that it's awesome to have a series where you can watch the whole thing, right? But look at Love Is Blind right now, which is a hugely popular show for them. It's a very different type of show from what we call IP, right? They've dropped—I know this because my wife and I watch the show—the wedding episode a week after the previous episodes aired, and now they're airing the reunion a week later.

So, if nothing else, I think Netflix historically has been really good at being flexible and changing as they see reason to do so. Reed Hastings has always said our 2 religions are basically customer satisfaction and operating profits. That's what we're focused on. Everything else is just a tactic to help us get there.

I think there is content that could be treated differently. Some things can be dropped all at once, and some things can be parsed out a little bit more. This gets back to the Disney discussion, which I'm sure we'll get into, but this is one part of the deal where I do think there was some logic to saying, “If we buy Warner Bros. and HBO—what was called HBO Max, I guess it's called Max now—that can return to a more traditional HBO positioning with a certain amount of really tentpole movies and the content that we all know HBO for. We can take everything else that's more filler stuff, and that could probably work on Netflix in some capacity.”

Domestically, HBO has less than 60 million subscribers, and it had 50 million a decade ago. Its ARPU is $10 today, and I'm going to take a wild guess that its ARPU is probably somewhere in the $10 range. It has an audience, but that audience is only so large. The content that they're really, really good at is something they uniquely do well, outside of—I guess Apple does pretty well now as well, right?

They could have returned that to where it was and had a way to differentiate between those 2 offerings in a way that I think probably could have really been sensible. Internationally, they probably could have just done away with it for the most part and made it a tile or whatever. But it could have really worked for them in that regard, and I think maybe that part of the deal was actually pretty thoughtful.

Get those sweet, sweet bundle economics, too. Let me ask 2 more questions on Netflix, and then we can start hitting some other things. First, Netflix: Do you think they were surprised by the regulatory pushback here? I especially think the Republican senators were hitting the company, and Europe was hitting the company. There was a lot of pushback here on all sides.

Do you think Netflix went into this thinking, “Hey, everybody loves us. We're one of the few tech businesses where people literally vote with their wallet. We make it so easy for them to cancel every month—they vote. People love us”? Do you think they were surprised by the regulatory pushback, and do you think they learned anything from it?

I mean, if they were, I don't think they should have been.

I would bucket them into the group of what people perceive to be the big tech companies. They've obviously had issues with content, too, that's perceived to have a certain political or cultural slant. So I think they should have had their eyes wide open as they went into this.

Anything in Hollywood, as you can see with the deal now, was like, “Oh my gosh, we're going to get bought by Netflix,” and then Netflix is no longer the winner. We wish Netflix had bought us.

Yeah, this is the worst thing in the world, and then the buyer changes, like, “Oh my God, this is actually even worse.” That always seemed like something that, if they overlooked it, was kind of foolish, if they did.

Last question on Netflix. I follow a lot of these mergers. When you are the spurned bidder in a situation, often the question is, “Well, let's go buy Plan B.” I don't know—I don't think there was a Plan B. Again, Netflix is focusing on a big acquisition, but they learned a lot. They got into the Warner Bros. books, they got regulatory pushback, and they got all this sort of stuff. What do you think the next step for Netflix is? Do you think they changed the strategy? Do you think they might go after something?

I mean, you mentioned Sony earlier. They've got the licensing deal. Sony doesn't have the best IP library, but it is one of the Big 4 studios with 100 years of movie history. That seems like a pretty clean acquisition. We could get even crazier if you wanted, but what do you think the next steps for Netflix are?

I think the next steps are really a continuation of what we've seen, but maybe it accelerates to some extent. From the perspective of a Disney shareholder, I thought the Netflix-Warner Bros. deal was interesting in terms of potentially providing a certain umbrella on pricing, particularly if they consolidated the services, which maybe they wouldn't have done. But I thought it provided an interesting cover there.

I thought it provided some nice protection against Netflix really going all in on sports because they were going to be in a position where they were really serving that non-live-rights role well. Not to say they wouldn't have done anything, but I think they could have kept it as a bit more of a sideshow. I think that probably changes now as a result of this. Obviously, they've been going down that path anyway, right? But I think that becomes a much more prominent focus.

I think they also really, as they've been doing for a long time, lean into global and international. One of the funny numbers is that WBD's international DTC business does $3.5 billion in revenue, while Netflix's international DTC business does $27 billion in revenue. So they're in a very strong position to go out and do—I'm forgetting the name now; it might be TF1—the deal they did in France for basically local live rights, finding ways to have that network with their platform.

There are a ton of things like that they can do internationally to go into markets and say, “Okay, in the top 10, 20, or 30 markets outside of the U.S., what do we do to really supercharge our position?” We have competitors like Paramount Skydance, or even Disney to some extent, that just can't act with the level of aggressiveness that we can because of our current financial position and the scale that we have.

Nice. Let's wrap Netflix up there, and I'm sure they'll come up in our other discussions. There are 3 other things I wanted to hit. We've got 30 minutes, so we have to run, but I want to talk about the winner, Paramount Skydance and Warner Bros. You're going to have a scaled competitor there, and I'd love to discuss our thoughts on that.

The other media company—I mean, again, I'm a subscriber, and I'm looking at your portfolio right now. You own Disney and Netflix. I think the competition here revealed a lot and is going to have a lot of impacts for Disney and Netflix. Plus, they've got a new CEO coming in in—what?—a couple of weeks. So I'd love to discuss Disney.

And then, you're my favorite. I'd love to discuss the outlook for sports rights, which I love because I'm a sports fan, but I also don't think people realize, outside of Netflix, how large these sports rights are and how existential the NFL bidding rights are. People do not realize how crazy it's going to get in the next few years.

You pick where you want to start, and we can hop into any of them. Let's just go to Paramount Skydance from here.

Okay, let's go to Paramount Skydance. So Paramount Skydance is the winner, buying Warner Bros. for $100 billion-plus. This is truly the fish that swallowed the whale, thanks to the Ellisons backstopping a heck of a lot of money here. They're going to be a scaled competitor. I think they might be larger than Disney when you stack them together.

So, same ballpark. Yeah. What's your outlook for Paramount as they combine and become the third scaled player here?

Yeah, I think it's relevant to step back a little bit and talk about the WarnerMedia-Discovery deal. When that deal was signed, or when the deal deck was put out there, I believe in mid-2021—correct me if I'm wrong—the projections that were given for 2023 were $52 billion in revenue.

It's borderline a SPAC projection deck, and it was April 2021, as you said. So it's kind of running in the right time frame, too.

So, $52 billion in top-line revenue. Let's do them one by one to make it easier to follow. The guide for 2023 was $52 billion. 2025 revenue was $37 billion, so $15 billion short. DTC revenue for 2023 was $15 billion or more. It came in at just shy of $10 billion in 2025, with an extra 2 years to work with. EBITDA was, correct me if I'm wrong, $14 billion, and it came in at $8 billion.

Feels about right.

Free cash flow was, I think, 60% conversion. So call it $8 billion, and it came in at $3 billion. Obviously, you can have timing issues with free cash flow. Long story short, they missed every projection by a really wide margin.

I have to specifically look at this to remember. My sense is the main reason was that the pace of cord-cutting accelerated from, I think, low single digits at that time, and we got to a point where it was high singles as of fairly recently. That's obviously a problem, and it throws a wrench into everything when you have so much leverage, right?

And, yeah, look, even today, when you look at these companies' financials, the linear—the legacy linear TV business—is still the majority driver of revenue, cash flow, and all this sort of stuff. So even after all this, they're still very dependent on it. We can talk about that later, but please continue.

The Warner Bros. Discovery Global Linear Networks and Paramount Skydance TV Media, pro forma, are north of 50% of revenue and in the ballpark of 80% of EBITDA. For a long time, it was, “Okay, DTC is losing money. That's why the legacy stuff is so big as a percentage of EBITDA.”

On a pro forma basis, they're actually, as you said, right around $20 billion in revenue. They were at $1.6 billion of EBITDA for 2025 between the 2 of them. That's an 8% margin. For context, Netflix was at low-teens margins when it had $20 billion in revenue. Even if you want to say there's a gap there and give them credit for those couple hundred basis points, that's another $1 billion.

So it's not like you have a false number here. You have massive exposure to linear TV still. Where that gets really scary for me is that you look at WBD's Q4 FY25 results, and domestic subscribers were down 10%. In an environment where, if you look at the other players in the space, I believe most of them were down around 6% or 7%, the portfolio is under pressure.

I think you've seen more aggressive actions from the distributors in terms of what they require to sign deals with these companies and what they're willing to pay for. The 2 most prominent examples for a long time of companies that were double-dipping were Peacock and NBCUniversal, and Paramount+ and Paramount. Those were the companies that were saying, “Okay, you can pay for this DTC product over here for rights that are also on live TV.”

The distributors are now saying that's not okay. If we're going to distribute these channels, people need access to the DTC offering for free. So I think that's going to present ongoing pressure. Again, the question of what the pace of subscriber declines is for linear TV is still to be seen. If that comes in worse than what they're anticipating, the pressure there is going to be massive.

One additional point here: If you listen to David Ellison talk about what they want to do with this deal, and you see it with the UFC deal as an example, he is very clearly saying that they want to add more shows and more content to the DTC platform. I don't know if that's just a remix of spending from elsewhere or if he actually means net dollars going up, but this is the WarnerMedia-Discovery deal all over again, where Zaslav is saying, “Hey, 200, 300, 400 million DTC subscribers, $15 billion in revenue by 2023.”

If the linear side starts to go against you and you have to find places to cut, the content and marketing spend on the DTC side is where it happens. You also need to get pricing on these services, which—just to add this real quick because it is relevant—you look at something like HBO Max domestically. As I said before, ARPU is around $10. The list price for their ad-supported service is $11.

The list price for their Standard service is $18.50. The list price for Premium is $23. They're giving up a huge percentage of the economics between list prices and what people are actually paying. Paramount+ is similar. Essentials is $9, Premium is $14, and their ARPU is in the $6.60–$6.50 range. That's global, to be fair.

These companies have to truly figure out what it means to consolidate a platform. What does that mean for pricing, and how many subscribers do you move out of or lose as a result? Disney has been through this process in a lot of ways with Disney+ and Hulu. It is very, very challenging.

I know Paramount Skydance is talking a lot about how they've taken platforms and put them on common tech stacks before. The platforms they're referencing are Paramount+, which is a reasonably large service, to be fair, and Pluto TV, which is the largest FAST service by a very wide margin relative to—

How dare you, sir.

How dare you.

And the third service they're referencing is BET+, which I don't know how large BET+ is, but my guess is not very large. It's going to be a very different challenge to take 2 actual large platforms and merge them together, or whatever they want to do with that, and also deal with the issue of live rights. HBO Max is still tiering access to sports depending on whether you're on the AVOD tier versus the Standard or Premium. Those are really tough questions to answer, and it's made 10 times more difficult when your back is against the wall from financial pressures.

I will be honest: I think it is just an absolute disaster. The amount of integration here is so crazy to me. What's really funny is that we actually have an example of this happening. Seagram bought MCA in 1995, and they doubled down and bought PolyGram, and it was a disaster. I think it was just a pure disaster. I think the Bronfman family, who owned it, called it—I’m looking at a quote here in my loose notes, and I haven't fully compared it—but it was a disaster.

The quote from them is, “It was a disaster, a family tragedy.” It almost imploded the company. We've seen this before. A rich guy buying into media is a disaster, and he comes in thinking he's smarter than everyone. I think it's going to be terrible.

They say it's not lost on me: I think Warner Bros. standalone is doing $8 billion in EBITDA, and they're saying, “We're going to find $6 billion of EBITDA of synergies.” I have absolutely no doubt that you can find $6 billion of synergies. Absolutely no doubt. What I do have doubt about is that you can find $6 billion of synergies without destroying the core business, right?

Anyone can find a cost cut. You just fire everyone, and then you come and sit around and say, “You know, what was the Elon Musk thing? Hey, we accidentally took away Ebola protection for a little bit.” You can find a lot of cost cuts. You want to make sure you don't find the Ebola virus prevention cost cuts. I'm really worried they're not going to do it. Look, I see the vision, right? You take on that.

Go ahead on that point. The flip side is, we want to invest more and add more content. I completely agree with what you're saying here. David Ellison is saying, “We want to have the best tech platform of anybody in the industry, better than Netflix.” We're going to—I believe he said, which seems like a crazy thing to say—“We're going to 10× the number of product engineers.”

So you have to go out and hire the people. Who's going to want this job? I guess you can pay somebody a significant amount of money and always influence their decision, but these are the things that they have to go out and win at. It might be very challenging relative to someone who looks at a career at Netflix, which is probably doing quite well, and that introduces a lot of risk into your life to move to that role.

Now, if I back up, I can see the vision, right? You've got Paramount, which has the legacy studio. They've got the broadcaster. Warner Bros. was always this great asset because they don't have ABC, NBC, CBS, or Fox. They don't have one of the Big 4. So, from a regulatory perspective, you can bolt them on.

For the linear business, as you're saying, it's melting away. But I think Paramount's going to realize the reverse of this in about 2 years. You attach Warner Bros.—CNN and TNT—to CBS, and you go for your rights renegotiations. I think you're going to do much better in those renegotiations when you're protected by the umbrella of a broadcast network.

So I do see the vision, right? You combine them, you get a bigger library, but the execution is going to be devilishly hard. David Ellison—I hear good things about him. He's not the traditional, “Hey, my dad's a billionaire. I'm just living off this.” It seems like he works. Skydance seems like it did a good job. But he's never been in an operating role where he needs to cut billions of dollars like this. At least David Zaslav had done that before. I just think this is a disaster. Honestly, I wouldn't be surprised if Netflix is buying the pieces in 3, 4, or 5 years.

Yeah, and we're about—I'm sure—about to talk about sports in a minute. Speaking of Versant, think about a sports league like the EPL, the English Premier League soccer. You sign a deal with NBCUniversal, and you have a presence on linear television in the US. You also have a presence on Peacock. That's disconnected in some sense, but there can be continuity in that to the extent that all customers who are pay-TV customers have that service.

You now split up that relationship. You're dealing with Versant to have the games on USA Network, but you're still dealing with NBCUniversal for the games that are on NBC broadcast and on Peacock. When a deal comes up for renewal, I just think you ask yourself: Is this actually worth it for us to go through this headache, for us to put our customers through this headache?

The example now is Paramount+ with UFC. I think they announced the deal and said, “If you pay $8.99 a month for Paramount+ Essential, you get access to UFC cards with no pay-per-view buy.” That's a massively beneficial thing for customers relative to the ESPN deal. I don't know how the math pans out on that, but it is massively beneficial for customers.

Then you fast-forward, and now you're already having talks about how some will be on Paramount+. We can also put them on CBS. We can also put them on TNT. You start to get this bifurcation again.

From the perspective of a distributor, I go, “My head would be—it's all the same thing.” You can show different streams. It's not that there are no ways to add value by doing that. But the idea that you're going to protect TNT by periodically doing that—I'm just not going to put up with it. We can let customers decide, as a distributor, at the end of the day. So I think it's really challenging in practice.

I'm a big NBA fan, and one of the most frequent things you hear—and I have this, too—is, “I don't know where I have to watch games.” For a while, the Tuesday games were on one network, then they were on the next network. You can solve that, but I think if Paramount—and I think they'll be smarter about it than this—but if you say, “Hey, you can watch it on the streaming service, or we'll air it on CBS,” that's great.

But if you're like, “We're going to put 4 a year on TNT and 4 a year on CBS so that TNT can get carriage,” eventually people are going to just say, “F off.” I think you're kind of just doing yourself a disservice on the Versant thing.

Well, that might work for the big UFC fans, but it gets harder as you go down that range to the less die-hard fans. Along these lines, our mutual friend Francisco Oliveira sent me something this morning about some of the RSN deals potentially getting reworked so that they can then be distributed through digital platforms. I can't remember which league it even was, but RSN deals are getting reworked to be distributed through digital platforms.

As a broadcaster or national rights partner, you do run the risk that it becomes really easy for people to watch out-of-market games. Especially for someone who's not an in-market die-hard fan, it just becomes a way for them to say, “I don't need to watch the Knicks and the Nuggets. I'll pick one of these other 10 games that's on XYZ service that I'm already paying for, and I'll watch that.”

Especially in a world with sports betting, people's affiliation with a given team is declining as well. So that's a risk for national rights partners to the extent it goes in that direction.

RSNs are an area I'm really interested in. But just back to your Versant point, this is why, when it spun off, I was like, “Oh, bring it to me.” It's very cheap, very hated, and very cheap and hated spin-offs have historically been something I've underbought. Everything's got a price, and Versant is very cheap.

You look at it, and I was just running the math. All their distribution deals are ending in 2027 and 2028. As you said earlier, you go and negotiate and say, “Hey, we've got USA, Bravo, and CNBC,” and the distributors are going to laugh them out of the room without the NBC protection.

Then they're going to say, “Oh, we've got these sports leagues.” And they do, right? They signed a NASCAR deal that NBCUniversal and USA signed, where I think 4 NASCAR races are on USA and 8 are on NBC.

They have them for now, but when that NASCAR deal is up, Versant is going to get the worst of all worlds, right? Because NBC has better distribution. If NASCAR is working for them, NBC is no longer beholden to Versant. They’re just going to say, “All right, we’re taking it all over here.” If it’s not working for them, NBC is going to let NASCAR go, and then Versant is going to say, “Tier-four media asset. It’s still our best thing. We’ve got to sign up.” They’ve just got the worst of all worlds.

As we said with the Taylor Swift example, sports rights scale is the best thing you can have because you can pay up and distribute over a bigger base. Versant runs into every single small-scale issue. It’s going to be a disaster for them, and they’re going to generate a lot of cash flow over the next few years. It’s very hard to say that they’re going to generate anything, or that there’s any reason for them to really exist after that.

Now, having said that, I will say CNBC is a good property. I think you could do interesting things on the digital side there. They do have some digital assets. They’ve got—I know you’re a golf guy—GolfNow, a tee-time booking app that I think you could imagine becoming a really valuable business. They’ve got Fandango, they’ve got other stuff, but I think the core business is going to be bad in a couple of years.

One of the things I find hilarious about a Versant-type deal is that part of it was, as you know, now the NBCUniversal people—or the people running CNBC, as an example—can go out and do things on digital properties. They can have the level of focus they need there to go out and win beyond just linear.

I just think it’s kind of funny in the context of a small piece inside of NBCUniversal, which is an even smaller piece inside of Comcast. You can’t manage to have long-term thinking and the ability to spend $20 million, $50 million, or $100 million on something that you think can make a lot of sense for CNBC. I just find it hilarious that that doesn’t work in the context of that huge thing, but it does if we’re a standalone small piece. Not to say that it’s incorrect—I’m sure it happens all the time in big companies.

What prompted you there? Because it is interesting. The reason Warner Bros. got bought, if you listen to people, is that they announced the spin-off of the Global Linear Networks, and then that’s why people were coming after them. Comcast announced the spin-off, and Warner Bros. was going to spin off. Now they’re merging into Skydance.

To me, this is classic Disney, and I’m kind of curious. You’re putting two businesses together. There are synergies to having USA Networks and NBC together, and to having Discovery Global with HBO. Yet all the companies were going to spin it off, and it’s clear what they’re doing: They’re trying to get the lower-multiple, declining asset out of the company.

But to me, I didn’t understand it. It seemed like, hey, if there are synergies to having them together, you can cash-cow-manage one while focusing on the other without creating all this complexity of the spin-off, without creating the time and the expense. What did you think of that? Did you think that was a good strategy?

I guess hindsight is the proof in the pudding. Warner Bros. got a huge premium, but was that value-creating? Alex Morris

If we’re talking about Versant specifically, I don’t think the strategy is sound at all. I think it was the wrong decision. I think it was done even for the reasons they gave for doing it. I think they did it for the wrong reasons.

I’ve followed Comcast and its strategy for long enough now to take what they say at face value, as opposed to attributing any galaxy-brain thinking to it. I don’t think it’s the right strategy.

I think that also brings up the question, to some extent, of whether Netflix should have made a bid for the whole thing, as opposed to trying to just take out the assets. I know they have no interest in owning the linear assets, but I think there’s potentially an argument that they could have found something to do there that might have made sense, particularly when there’s so much cash flow.

Obviously, it introduces a bunch of different risks, but I think there is some validity to having both, particularly when you’re talking about the live rights. Again, it gets away from a lot of this. I talk about this a lot with Disney in terms of how they report—or how they did report—sports and entertainment, linear, and the accounting mirage of what’s actually getting paid for where.

As opposed to companies just being focused on what actually matters, which is that there are still 60 million paid-TV subscribers, or whatever it is. There are 2 different distribution channels that have value, and you need to find a way to potentially use both of them to the extent that you can create value out of using both of them, right? I just think something like Versant, as an example, was really misguided.

You’re spot-on on Netflix. I kind of didn’t understand why Netflix didn’t just say, “We’ll take the whole thing.” There are going to be synergies. We’ve got the NFL game that we have the rights to, right? If we plop that onto TNT, it’s not really changing it for us, but there are probably a bunch of 70- and 80-year-olds who want that. It’s going to boost TNT’s value. It’s incremental; it costs us nothing more.

Netflix has this huge library. Cool. Let’s start throwing Supernatural reruns on TNT all day. Let’s start running Stranger Things reruns all day. It just seemed like it would have been fun.

One more question on Netflix. Netflix says that the reason they dropped their bid for Warner Bros. was financial discipline, and I do believe them. I think there was some financial discipline. However, I’ve done a lot of bidding wars in history, and I’ve never seen a company bid, sign an agreement, and then, when the first superior bid comes, just say, “We’re out. We’re walking away.”

I think, if that’s the case, it would raise the question of how skinny the upside of the deal that you signed was, for one. So I wonder, do you believe them when they say that?

It’s not lost on me that Ted Sarandos was at the White House the day the Paramount bid came. I don’t think anyone at the White House met with him, according to the reporting, and then they dropped the bid that afternoon. I wonder if they were told in no uncertain terms, “Hey, the U.S. government will be opposing this deal,” and they just looked at it and said, “We can’t say that out loud because that’s a political bad look for us, but let’s just drop this deal. It’s not worth the regulatory headache. Let’s take the $1 billion. Let’s move on.”

I kind of lean the latter, but I’d love to hear your thoughts on that.

Yeah, I can appreciate the latter. The things that make me think it’s the former are, one, as you said, it’s pretty odd in terms of how they approached this. But they also said in advance of the deal being signed—they specifically communicated to WBD, “This is our best and final proposal.”

Granted, a proposal is different from a signed deal and then the bidding war from there, right? But they specifically told them it was the best and final proposal, and that they would walk away if it wasn’t good enough.

I just think they underwrote it to a level where they thought they could get the deal done and where they thought it still made sense for them. To your point, and kind of my conclusion from the jump, I think their subsequent action suggests that the margin of error built into that price was too skinny.

I don’t think I would have ever signed that deal at that price to begin with if I wasn’t comfortable going higher. We all know how spreadsheet math works, right? If going 5% higher was going to break it, then that might suggest that you were too close to the line anyway.

That’s why bidding wars are generally so profitable. You sign something and think there’s 20% upside, right? So when somebody comes in, you at least have room to go from, let’s say, Netflix’s bid of 28 to 30, because you thought the whole thing was worth 34 and you’re just chipping into that.

There was a comment from Ted Sarandos on a podcast—I think it was with Matt Belloni—where they were talking about their structure, the structure of agreements with talent for compensation. He said something along the lines of, “We structure all deals to pay based on success.”

Basically, it sounds like a largely fixed payout on an average deal. We then have a number, but there is a discount there to account for the value that we bring to the table, effectively, is what he said. I think this deal, for me, never had that last component. Again, too much of the value was going to WBD for things that, in my mind, uniquely reflect the value that Netflix could have a very high degree of confidence in creating.

Maybe Skydance can do it, but it’s much, much less certain to me.

I don’t think we’re going to have time to get into full sports rights. I have so many thoughts on sports rights, but we’ve got 5 minutes. Talking media and talking to you is fun, man. I’d love to quickly hit on Disney.

There’s a new CEO coming in. If you had asked me 6 months ago, I think Disney might have—I think they would have done the Fox deal again. But the math was close. When they look at this deal now, they’re probably like, “Boy, did we get a steal on that Fox deal?”

I’d love to spend the last few minutes talking about, as we transition to a new CEO, and as Disney seems to be getting its feet back under it, where you think Disney is sitting these days.

Yeah, my first thought is—and this is something I’ve written about quite a bit—it reminds me of Walmart in a lot of ways.

You learn with these huge companies that when they miss a major change in the business, it takes a long time—and costs a lot—to truly get back to level footing again, or back to a position where you feel really good about your path going forward. It is very challenging. I’ve seen that twice now, and it’s really seared in my brain at this point.

I view the paths as somewhat distinct from each other. The entertainment programming and DTC stuff has successfully made the turn, and success globally is still a bit challenging and less assured than it is for someone like Netflix. But I think Disney has a path forward to make the entertainment programming and DTC stuff work. It’s going to be a growth business with margins expanding over time, and it’s going to be a big earnings driver.

The US sports rights stuff is still where the challenge is, and where the transition is still ongoing. I think the ESPN DTC flagship launch, without knowing specific numbers, has probably come in a little bit weaker than I thought it would. Given the price point and the nature of what it is, as well as the amount of churn that you’ll see around certain sports rights, it has a very significant challenge in terms of platform technology, password sharing, and dealing with a significant number of concurrent streams around live events.

Those things are not easy to do. For people who use all these various platforms, you see as a consumer that Netflix, in my opinion, is typically best-in-class among them. But it’s not easy to do these things very well. When you click on a tile and something starts loading and it takes a while to work, if it’s an NFL game, maybe you’ll put up with it and wait. With other stuff, you just won’t come back.

These are the kinds of challenges that they have to address, and I think in that regard, they’re still really figuring out how to do it. That said, they are getting to the place, as we’ve discussed, where everybody on linear and anybody who signs up for standalone will be in the same place in terms of having access to everything. In my mind, that speaks to the fact that the ESPN+ strategy was really the wrong strategy. They pursued this incorrectly, and it cost them years.

It was tough, though. I mean, they were in a tough place there. There’s no doubt they were in a tough place there.

Password sharing is difficult now, let alone 5 or 6 years ago. It would have been really difficult.

You want to talk about password sharing? We share Netflix, which is $10. ESPN DTC is $30, and I think a few years ago it might have been more expensive. You want to talk about, “Hey, I have access to Monday Night Football”? Password-sharing nightmare. Oh, my God.

Yep, exactly. That’s the part of the story that I still think is really challenging. Then, obviously, you have something like the NFL. Every one of the legacy rights owners is of the mindset that they absolutely cannot lose these rights, and they’ll pay whatever they have to pay to keep their current position.

The marginal rights that are carved out of the current packages are going to the digital competitors. Their position there is one where it just feels like they’re trying to hang on more than anything else. To me, it’s still an open question: Do you have to go all in on one strategy or the other? Is it everything basically in this bundled package of our live rights and our entertainment programming, or is it, “We’re going to get out of the live rights game”? I still think it’s an open question, to be honest, whether they can pursue that strategy.

I have so much to say on live rights, but just very quickly, this is why I think the next NFL round is going to be so interesting. People used to love Fox: “Hey, we’re all in on live,” and all this sort of stuff. The issue—and this is why Netflix has always said, “We don’t want to do live”—is that the sports leagues suck all the economics out of your live business eventually.

You look at Fox: If they lost the NFL, there is no reason for Fox. They’re no longer a broadcaster. Heck, they’re no longer a very good basic cable channel if they lose the NFL, right? They’re basically The Masked Singer at that point. That’s pretty much their entire thing. They can literally bid up to the EV of the company to try to keep the NFL, right?

That’s one package. CBS is in a slightly better position, but if they want to be a linear broadcasting network, they do have—I know they have some college football, and I know they’ve got some other stuff—but they needed the NFL. They’re going to bid like crazy for it.

ESPN is probably in the best position. ESPN without the NFL is dead, but they’re probably in the best position because they just did the partnership with the NFL, and the NFL owns a 10% stake in them. I’m sure they’re going to have to pay through the nose for it. They would die if they didn’t have NFL rights, but they’re going to get access to NFL rights in some form just because they got that partnership.

They need it. There are 3 bidders who are basically existential on it, so you’re going to see unbelievable numbers.

Netflix is in an advantageous position in a funny way. Some of the newer platforms, or even someone like Peacock to some extent, are in a somewhat better place for making the transition, purely from a cost perspective, in terms of having less exposure to sports rights and having some exposure and some cost there, but it’s not everything.

To the exact point you’re making, the other players are stuck in a place where they spend a very significant number of dollars, both on an absolute basis and as a percentage of their total spend. That results in a price point for the products that has to be really high. Their exposure to something like the NFL is—again, it feels like they’ll literally pay anything to keep their current rights or accept fewer games, whatever it may be.

I’m just laughing that you said Peacock, because every time you hear Peacock at any conference, I’ll be like, “We’ve got the Olympics! We’ve got the Olympics!” So I’m just laughing that you said that.

Alex, this has been awesome. Thanks so much for hopping on, bud. Good luck. As I told you before, your kid’s almost 2 months. It’s 3 months. Mine just turned 3 months, and that’s where it gets a little bit easier. I appreciate you hopping on, and we’ll talk soon.

Thanks for having me.

A quick disclaimer. Nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial adviser. Thanks.