00:00We start with the ever-changing media world, as leaders have been meeting this week for the annual Allen &
00:06Company conference in Sun Valley.
00:08Activate founder and CEO Michael Wolff has spent his career in media, including as president and COO of MTV Networks.
00:18So, Michael, this week, the media conference of Herb Allen out in Sun Valley has been held.
00:23Typically, deals come out of that conference.
00:26This time, we have a couple of big media deals going in, one with Fox and Roku, and one with
00:31Comcast deciding to spin off NBCU.
00:33What do you think the talk is going to be?
00:35First of all, it's not just a media conference any longer.
00:37A lot of it is tech.
00:39You're going to be the head of all the major tech companies and the heads of all the major AI
00:43companies.
00:43So, I think there may be some other deals that will come out of it.
00:47And they're going to be, the conversations are going to be everything about video streaming, big media deals, AI, sports.
00:55It's all going to come together, and all these people have a stake in it.
00:59Start with Fox, Roku, because some people said, what are they doing buying Roku?
01:03Well, first of all, Fox has been the most disciplined of all the media and entertainment companies in this age
01:09of streaming.
01:10They really totally avoided the streaming arms race.
01:14So, they bought, a couple of years ago, they bought Tubi in 2020, $440 million, probably one of the best
01:21media deals of the last decade.
01:24Today, it's doing over a billion dollars in revenue.
01:26And it's all about free advertiser-supported television.
01:3186% of American households today are paying for streaming.
01:35You only have about 50% that are watching free advertiser-supported television.
01:40And they have the largest service in that.
01:42They have almost 100 million users.
01:44So, that's their starting place.
01:47They buy Roku.
01:48Roku has 100 million homes in the U.S. that are using the Roku operating system.
01:5428% of all connected TVs in the U.S. go through Roku.
02:01They have the Roku channel, which itself is about 80 million users.
02:05And so, here they have, they own the channel, they own the box, they own the software, they own the
02:13data, and they own the advertising.
02:15And so, this deal makes a huge amount of sense.
02:18And it takes them out of the business of competing with everybody else in terms of buying big programming, paying
02:24for customer acquisition, retention, and worry about where the next subscriber is going to come from.
02:30So, pick up on exactly that point.
02:31You, for a long time, have been telling me, watch the free advertiser-supported streaming coming up.
02:37But that works better for some content than for others.
02:40I mean, news and sports, it may work well for.
02:43I'm not sure it works well for the blockbuster Netflix mega show.
02:47Well, it doesn't have to work for the mega show.
02:50You've got shows like, so, for example, on Tubi, you've got shows like Empire.
02:53And you've got movies like Twilight.
02:57A lot of this is not news or sports.
03:00A lot of this is largely scripted programming that both series and films that wouldn't ordinarily be on the major
03:11streaming services.
03:12Or if they are, they're on a streaming service and then they're on Tubi, Roku, or Pluto for free.
03:17Even with the Roku acquisition, Fox remains a much smaller media company than a Disney or a Netflix, not to
03:27speak of Paramount, the Warner Brothers.
03:30Can it compete in that world?
03:32I think we're moving to a point where focus is more important.
03:36I think size is not as important.
03:37And in these media conglomerates, some of them will work and some of them won't.
03:42But Fox is very focused and it's focused on businesses that throw off cash.
03:46It's one of the reasons why it's been the absolute best performing media stock.
03:51And the result of it is just very disciplined, not going after the battle on streaming and sticking to businesses
03:59like television stations and a network and cable networks and now Tubi that throw off cash.
04:05When you talk about focus, I think about Brian Roberts and Comcast, the other big deal here.
04:10By the way, I did this if you look at the track of the stock of the two companies, Fox
04:14versus Comcast, over the last five years.
04:16They're almost inverses of one another.
04:18So why is Brian Roberts finally throwing in the towel and saying, let's break it up?
04:22You're asking the right question, David, because they're not really throwing in the towel.
04:26They're taking this business.
04:27And essentially earlier they spun off the cable networks in Diversant.
04:31And they're creating three different companies, each of them with different competitive dynamics, different growth profiles and different economics.
04:41So by simplifying the business, the core connectivity business can make the capital investments it wants.
04:50Investors aren't worried.
04:51Are they going to spend on more on more plant and equipment versus are they going to spend on the
04:57next series?
04:58So it's very focused.
05:00And and also connectivity has become like a bundle.
05:03It isn't you don't just buy connectivity at home.
05:05You buy connectivity.
05:06You buy cable.
05:07You buy mobile.
05:08You buy other services from them.
05:10So that business is focused in terms of the NBC Universal.
05:15Well, this is a growth business.
05:16They're going to be able to go deeper and deeper into some of the areas that they're in today.
05:22They're doing unbelievably well as like your sports destination.
05:28It's a default if you want sports.
05:30I don't think you can you can get sports as all of sports unless you're watching NBC or you're you're
05:36subscribing to Peacock or both.
05:38For somebody who's been around this for a while now, streaming seems like a brand new thing.
05:42But it's rapidly looking like an old thing compared to what's next.
05:46Which is AI and tech takes us back to the Allen conference and the other half of the Allen conference.
05:52What can we expect in terms of media and tech?
05:54The AI guys are investing over seven hundred billion dollars next year in in plant equipment and capital.
06:02And they've suddenly realized that content is a critical asset for them, that it is a foundational asset.
06:09So they're all going to be trying to do deals with the content companies, first of all, around anything that
06:15is that is information or news.
06:17So that's why we saw earlier this year we saw News Corp just do a deal with Meta.
06:21We're going to see a lot more of those deals with content companies.
06:25The days are over where where the user is just going to be happy with them scraping the Web or
06:30going to Wikipedia.
06:31And then at the same time, they all want a piece of the they all want a piece of the
06:38video creation business.
06:39And so right now, Google has Veo, which is being used by studios and others to not just convert films,
06:46but make but make new programming.
06:48So everyone's going to be trying to figure out how they're going to go from the LLM, the query model,
06:55into one that it helps people create content.
06:58With each one of these steps, I wonder whether the margins don't get squeezed more.
07:03The size goes up, including internationally, globally, but the margin goes down.
07:07Back in the good old days, I would say, you owned a major market television station.
07:11The markets and margins were really big.
07:14WBCT, the first time I went there and got access to it, it was 60 percent profit margins.
07:18With each one of these, you may have a deal with the AI people to be able to use their
07:23content.
07:23But isn't it going to be pennies on the dollar?
07:25It's really turning out to be a world of have and have nots.
07:28If you have a high share station in a good market, you're making a lot of money.
07:34If you are a low share station, no matter what the market, you're not making a lot of money.
07:39And so TV station business is still a great business.
07:42It's slowed down because of what's the decline of cable.
07:45But in some of these businesses, the margins are going to decline.
07:49And the street, when the street looks at these media and entertainment companies, the street needs to be convinced that
07:56streaming is going to be a good business.
07:57And it's one that's going to ultimately be a high margin business.
08:01And right now, it doesn't look that way.
08:03To come back to deals and what might or might not come out of the Allen Conference, the AI people
08:08are spending a lot of money on data centers and on compute, right?
08:12A lot of money.
08:14Are they interested in actually buying a major media company?
08:17I really doubt it.
08:20I think that maybe on the information side, because information is so critical.
08:25But those deals are going to be easier for them to make those deals.
08:29And any of the information companies would be very glad to take a piece of the $700 billion that's going
08:35to be spent.
08:36I do think that there's going to be more soft deals.
08:40I think there will be investment in these different businesses because I don't think that they have a choice.
08:45So you spend your days advising a lot of these companies for their strategies and how to approach this uncertain
08:52world.
08:52Who's going to win?
08:53And I don't mean for you to say which name of which company, but the winner will do what?
08:59And the ones who don't win will have failed to do what?
09:02I think the winners will be the people that have the best programming or the best information and the best
09:09sports.
09:10So programming, they can own.
09:12Sports, they're going to have to have those rights.
09:14And sports is a huge driver of the entire ecosystem.
09:18It's why NBC is moving towards the year-round Sundays.
09:24So entertainment, long-form scripted, reality, whatever it might be, this is really what drives people.
09:30It's going to drive that over five hours a day of people in the U.S. watching video.
09:36It's going to be sports.
09:37It's going to be information.
09:38And then finally, it's going to be data and that people have, in order to be able to serve advertising
09:46that's going to help advertisers and marketers sell, there needs to be data.
09:50And that's a piece of the Fox-Roku deal that also we shouldn't forget, which is that Fox gets a
09:56huge amount of data through Roku that informs its own advertising.
10:00See you soon.
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