00:00How is this thing going to play out here? It feels like Paramount's got to come in with a higher bid at some point.
00:06Yeah, it's an interesting development. So Warner essentially rejecting Paramount's barely improved offer, same $30 a share offer, a few extra guarantees.
00:17If they want something to move in this discussion, I think it's going to have to move up to $34, $35 a share.
00:23We're in an interesting situation here where it's hard to tell which of these bids is really the higher value one because, of course, they're going after different assets.
00:33Netflix wants just the studio and streaming assets. Paramount wants everything.
00:38So understandable in that uncertainty that Warner's leaning towards Netflix, the much larger company.
00:43What I think is interesting about this is not so much the takeover commentary, but really what it says about the reset that's happening in the TV space, distribution shifting, monetization under pressure.
00:57So all this consolidation is a symptom of that pressure, not the cause of it.
01:01What is the strategic reason that Paramount hasn't raised its offer already?
01:07I mean, when I saw that Warner Brothers was expected to reject the bid, I immediately looked to NINSS, right?
01:14No, duh, they're going to reject because they haven't offered any more money just because you say Ellison's good for it and the breakup fee is a little bit higher.
01:22That's not going to move the needle. Why don't they say, OK, it's $33 a share?
01:26Well, I think there's plenty of time here. I looked at betting markets the other day.
01:30There is a decent shot, according to them, that this drags on into 2027.
01:34So I think there's five or 10 new developments that we're going to get over the coming days and months and plenty of time to potentially raise the offer.
01:42By the way, it's interesting you bring up betting markets.
01:45And more and more, that's an indicator that people care about.
01:49And I wonder if it's because, does David Zaslav put down a bet?
01:54You know, does Larry Ellison put down a bet?
01:57Do people in the know, you think, play in these betting markets?
02:02Well, you know, I don't know if people in the know are playing in the betting markets, but certainly.
02:07The thing is, Luke, you know more than everybody else about this stuff, right?
02:10So when you're looking at the betting markets, like, why do you care what these chumps are putting down on the market?
02:16It's a question of how deep that market is.
02:18Yeah.
02:18Like, how representative are those betting markets?
02:20Yeah, well, look, there's lots of moving parts in this takeover battle, regulatory issues, political connections.
02:27So, again, I don't think the story is over there.
02:29Is that when the Trump administration would be playing on Polymarket?
02:32Crazy to think so.
02:33So, Luke, how about this?
02:34I'm shocked to hear that there's gambling going on in this place.
02:37Looking at this deal, it feels like it's a nice-to-have for Netflix, but it's kind of a must-have for Paramount.
02:44Because if Paramount doesn't get this deal, I don't know what they do.
02:48So how do you think about that?
02:49I mean, if I'm Paramount, I feel like I really got a stretch to get this deal.
02:53Part of the problem in the whole TV space is really the economics don't work anymore.
03:00So we're at something we call the pay TV singularity.
03:03Right now in 4Q25 is when fewer than half of the households in the U.S. have a pay TV subscription.
03:12That's down from nearly 90% in 2010.
03:15And the economics just don't work anymore.
03:17Consumers want video more than they ever have.
03:20They spend more on video than they ever have.
03:22They're just doing it in a different way.
03:24And a lot of the gains aren't going to the streaming platforms of Paramount.
03:29They're going to a Netflix or an Amazon or an Apple.
03:33Do consumers care about – I go to the movies all the time, but I'm old, right?
03:38And that's because I want to do something with my wife where I don't have to, like, talk to her.
03:43Do consumers care about going to the theater?
03:45Because if Netflix wins, the worry is that we're going to see the end of the big screen business.
03:51I mean, theater, box office receipts still haven't really recovered since COVID.
03:57We haven't seen a new high yet, even though every year we expect everyone forecasts a new high.
04:02I think part of it is that people underestimate how engaged consumers are with streaming platforms.
04:09Every time we see a price increase or a password crackdown, everyone has a discussion about, is this too much?
04:16Is this where consumers say it's too expensive?
04:18But consumers aren't trying to save money by cutting their cable subscription.
04:22They're just moving that money over.
04:24And so for a Netflix, HBO or another combination, $30, $40, $50 streaming bundles, there's plenty of runway for price increases.
04:33What's amazing here is the value being ascribed by various players in the marketplace for the cable networks business of Warner Brothers Discovery.
04:43Those businesses used to trade at 10 and 12 times EBITDA.
04:47They're being valued today around three to four times EBITDA.
04:49Three to four times EBITDA.
04:50Is that the Netflix valuation or the Paramount valuation?
04:53Again, the problem is those are pretty far apart, aren't they?
04:56Somewhere in between.
04:57Bloomberg Intelligence, Geether values them at about $4 per share.
05:01That's about four, four and a half, five times EBITDA.
05:04Less than half of what they were 10 years ago.
05:06And part of the problem is the TV ad business is just in permanent structural decline.
05:12So it's this $70 billion slowly melting iceberg of value that is not recovering.
05:19As much as broadcasters want to brag about their streaming ad growth, it's just cannibalizing the linear dollars.
05:26It's not growing the pie.
05:27By the way, can you weigh in on the Trade Desk issue?
05:29We were just talking with Isabel Lee about why is Trade Desk doing so badly?
05:33It's down 70% year-to-date.
05:34And to my mind, that's an incredibly valuable business model, right?
05:40You want to be able to aim your ads at the correct viewers.
05:43Yeah, we just launched a programmatic ad forecast, and it is a growing space.
05:48The problem for the Trade Desk is their take rate is really high, and there's new competition.
05:54So potentially some challenges there.
05:56Not to mention the open Internet, like the TV marketplace, is struggling, at least compared to big search platforms and big social media platforms.
06:04What's the AI impact on advertising, do you guys think, these days?
06:08We think the AI impact is not much for search.
06:13We don't think it erodes the search business.
06:15Well, because I could have made an argument, that's the death knell of search, but it hasn't been the case.
06:19It hasn't been the case, and half of search comes from small businesses.
06:22They're never going to move to a ChatGPT search for years.
06:26They're going to stick with Google.
06:27It's not the death knell for social.
06:29What we're worried about is the open Internet, long tail of publishers, where we think this completely undermines their business, and what they should do is they should license their content as fast and as often as possible with these AI platforms and take that money and pivot to event businesses, to subscription businesses, and move away from advertising.
06:48What about on the provider side?
06:49My buddy, Mark Douglas, runs a company called Mountain, right?
06:54They got together with Ryan Reynolds on the creative side, and now they have an AI program that allows small businesses to create their own advertisement and then aim it at the right people in their region.
07:08Yeah.
07:08Seems like it should be a slam dunk.
07:10Small business, CTV, B2B, CTV, these are a lot of spaces that didn't really exist a few years ago,
07:16and now because of some of those AI tools, the creative barrier has dropped much lower, and everybody wants targeted advertising.
07:24Everyone wants targeted on TV, and so those are definitely some growth areas, but overall, if you zoom out to the total TV landscape, it's not growing.
07:33It's not growing the pie, and that's why we're seeing consolidation, because when the pie stops growing, everyone starts battling over taking share.
07:39You know who gets paid here?
07:41David Zaslav, the CEO of Warner Brothers Discovery.
07:43Yeah, he looks like a genius right now.
07:45He does.
07:46He does.
07:46I mean—
07:47And he looks like a defender of the creative community.
07:50He's starting to look like a man of the people.
07:52I tell you, the best trades in media over the last 15 years have been sales.
07:55I mean, Larry Mays in the radio business, Rupert Murdoch in the big diversified media empire.
08:03Now maybe the Zaslav and John Malone, all those guys, boom, they said, had enough.
08:08Now it's up for some of the new technologies.
08:11When does Google spin out YouTube?
08:16Wouldn't that be great?
08:18The thing about YouTube—
08:19Speaking of former banker.
08:20Yeah.
08:20I mean, YouTube is—I think YouTube is core to their business.
08:25Yeah.
08:25The thing is, though, advertisers don't think of YouTube as TV, but consumers think of YouTube as TV.
08:31Consumers even think of social video as TV more and more.
08:35So if you look at how TV broadcasters are positioning themselves, they're still going after the old story.
08:40We have brand safe, the most premium content, the live sports you want.
08:44Digital platforms have that.
08:46Thursday Night Football is on Amazon.
08:47The Oscars is going to YouTube.
08:49The landscape is shifting, and we're not seeing the kind of investments in content or investments in global solutions that we think we'll need to see for those to turn the business around.
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