Interview Transcript

Let’s look at Disney, then. Clearly, that’s where the hype has been around, with Disney Plus. They have, probably, the most unique IP, globally. How do you think this is going to shake up, between those two?

I don’t know, but my intuition is that Disney is going to put more pressure on cable TV in North America, than it is on Netflix. I think what you’re going to see is, people paying $100 plus for cable bills and they’re going to start to say, if I can just get my sports someplace else, if ESPN Plus is just a little bit more compelling, I can watch news online and I can watch a ton of TV between Hulu and Disney and Netflix for $25. I feel that’s a bad sign for cable. Their value proposition is most out of whack.

I don’t particularly see a world where Disney being successful puts a massive turn pressure on Netflix. I think it’s possible that a lot of people will have both subscriptions. I do worry if you’re fourth, fifth, sixth, seventh or eighth in these markets, what that looks like. My intuition is that consumers are going to pay for two, three, four services, that cable subs are going to continue to go down and that, at some point, there is a limit to how many services people want.

If you’re running HBO, which is arguably the third player here, what would you be thinking?

There’s a bunch of players. There’s Apple Plus and there’s Amazon, HBO and Peacock. I think they’re a little bit late. They could play it a couple of different ways. One is, they can be this really blue-chip service, where it’s everything that they do on TV is good. They have six, seven, eight shows a year and they are all really, really well developed and they can continue to strengthen their relationships around the world. They can make money not being global, but selling HBO output packages to regional competitors, like Sky and others, who need that content.

But long term, if you believe that eventually, all these services are going to be global, they are going to have to be in a volume game. You have to look at it in the way that consumers are going to want to spend 15, 20, 25 hours on a service, per month, to stay subscribed to it and people aren’t going to want to watch the same things. For every 15 hours of a consumer, you’re going to need hundreds of hours of choice. I think they’re going to have to figure out how to get to scale. It’s a boring answer, but they’re going to have to figure out how to, effectively, either redistribute their content as sales channels, or how do they get to scale.

Getting to scale, there’s no other way, apart from serving the diverse tastes of everyone?

I think Disney might be the exception, because I feel that Disney, with those hundreds of movies and they’re so blue chip and they’re so global, that you think for $7 a month, if I’m watching one of those movies, maybe it’s just worth it. It’s The Mandalorian, but it’s also hundreds of kids’ movies that can just be rewatched. For everybody else, it’s got to be volume, local content and massive scale.

It’s going to be a challenge, even for HBO, which have some experience in this, but what about the other cable players like those that you mentioned, such as Peacock, moving into this? What are the challenges for those smaller players?

There are six, seven, eight groups that are trying to become global and I don’t believe that all of them can be. I think it’s going to be very fiercely competitive and hard, out of which, probably there’s three, maybe four, services that really will emerge, over time. Others will have to be in different business models. I think Peacock is smart to be doing AVOD services and look for other ways to grow what they are doing. There are too many platforms, relative to, I think, the end game.

Back to HBO, because they have the potential to go global and compete with Netflix and Disney. We can put Apple and Amazon to the side, because they play a completely different game to selling straight subs for video. Talking about the diverse tastes of consumers and the ability to serve each consumer with different content, how can HBO go about that, from producing 20 good shows a year, that they spend a lot of time on, to producing the scale that Netflix produce?

It may be that you need different groups to do those things. Maybe, the answer is, you don’t change HBO; you try to keep that as your blue-chip brand. In the same way that Disney didn’t come in and suddenly say, hey film studio, you’ve been producing 10 or 12 films a year; you’re now going to produce 100. They had different groups pick up those things and so you have Turner as a resource, you have Warner Bros films as a resource. You have lots of assets that can be developed. It’s largely a question of expectations in traditional media, of now that you’re part of this integrated pipe and content business, what are the expectations for shareholders?

They could do it. Any of these groups could say, we’re willing to forego, $5, $6, $7 billion in profit, for the next four years, to get to scale. But that’s very scary, as a decision, I’d imagine, for a chairman of a board to make. We’ve been driving down one path, for 50 years, about it means for shareholder expectations and profitability, and we’re just going to wipe that out for five or six years.

It’s why, by the way, people have lots of questions about what Apple is doing, but I don’t. I think Apple is in a very, very different position. This is a company that has $60 billion in profit, per year. For them to say, we’re going to spend $1, $2 or even $3 billion on content, you could practically view that as a marketing expense. If it just makes their hardware that much more compelling and the brand a little bit more engaging, that’s a much less scary decision than a media company that is expecting a certain type of profitability out of their branches.

They also have almost instant global distribution.

They do. Apple Plus, who knows what it looks like. It may be an experiment, it may be something that they go more aggressively into, but it’s not such a risk. Amazon, I think, is more like Netflix and more like Apple, in its ability to say, we’re just disrupting ourselves, but our business has always been to disrupt bigger businesses. Given the skill of Amazon, as a business, if it makes all the other parts of Amazon Prime that much more effective, it’s a pretty compelling reason to be in the content game. Those three feel very different from Disney and Peacock and HBO Max and the decisions that they need to make.

I guess that aligns with the business models they run? I imagine Apple and Amazon are completely different. They monetise via hardware and Prime and other stuff, for Amazon. Netflix, obviously, subs. These old traditional, legacy media companies, it’s tricky for them to change, not only the culture and their business model and compete at scale, globally?

You have to be impressed with what Disney has done.

Of course, but I think that Disney stands alone, though?

They do, but just think about it. They separated that business unit so they can go to the street and say, this is a growth business versus our existing business. The acquisition of Fox, at that time, was amazing. All of a sudden, they have scale to make lots of different things. They’re also sitting on all these pieces of IP that are global. That’s amazing; great for them.

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