Transcript 0:00 [upbeat music] Hello, and welcome to another episode of Screen Wars, our thought leader series where we learn from industry experts about the latest trends and challenges from across the convergent TV space. 0:16 Hosted by Michael Beach. All right. Welcome to Screen Wars podcast. Today I am joined by Rich Greenfield. Rich is a partner at Lightshed. Lightshed is a research firm focused on technology, media, and telecom. 0:30 Uh, many of you already are familiar with Rich. Uh, he's all over the place when it comes to news in the space. Uh, any time there's breaking news, I turn on CNBC, and Rich and Andrew Ross Sorkin are breaking it down. 0:42 I can always count on that. Um, you know, you're gonna love the conversation. We cover a couple key areas. Uh, the bull-bear case, um, for companies like Netflix and Roku and Disney and Comcast. 0:53 Uh, the overall TAM for streaming, uh, the future of news, uh, and challenges of launching an ad-supported streaming offering, uh, from scratch. Uh, so please enjoy my conversation with Rich Greenfield. 1:06 Rich Greenfield, welcome to Screen Wars. Thanks for having me. Absolutely. Well, why don't you give us a little bit, uh, background for our audience, um, about kind of how you ended up where you are today in your career. 1:18 I've been, I guess, 27 years, as the gray hair attests, uh, to looking at the broad world of media. I started at Goldman Sachs in 1995 looking at media stocks, and here we are 27 years later. 1:34 I think, uh, after working at four firms, created our own about two and a half years ago called Lightshed. 1:40 Starts off as a research business, uh, and a media platform, a weekly podcast, uh, interview series of, of executives throughout the public and private media tech and telecom world. 1:51 And then we also have Lightshed Ventures, which is our $80 million early-stage tech media telecom venture fund as well. 1:58 So really on the research, you know, media platform and venture fund, we do a little bit of everything. Yeah, so on the Lightshed front, who's your core customer? 2:10 So our research, uh, from the research platform, uh, our research is targeted at institutional investors. 2:18 So we don't focus on retail, but we look at institutional investors, so hedge funds, mutual funds, private equity firms around the world, and then have a robust readership around the world of corporate executives from earliest stage startup to, uh, the largest public companies in the world who are voracious readers of our content. 2:40 Excellent. Well, playing the news, we're recording this kind of right in the middle of earnings season. 2:43 Uh, you know, big tranche of companies have gone last week and early today, and, uh, you know, several more to follow, but I wanna start off, you know, I love your point of view on this. 2:52 Uh, you don't, you don't shy away from, uh, from a strong opinion here. Kind of looking for the bear case and the, the bull case for, uh, the following four companies. We'll, uh, Netflix, Roku, Disney, and Comcast. 3:06 We'll start off with Netflix. You know, look, I think with, um... I think with Netflix, the, the bull case obviously is that streaming isn't going away. I mean, I think we've heard from 3:18 virtually every one of the media companies, new and old companies, uh, that streaming is just getting started. You know, this is not... I- is it slower right now than it's been in a long time? It is. 3:32 But do you believe that 220 million homes is sort of the top or, you know, even 300 million homes is the top for worldwide subscribers to streaming services? The answer is no. I mean, you've... right? 3:45 You've got, you know, probably 7, 800 million homes worldwide with broadband connections. Uh, that's gonna grow to a billion plus. 3:53 I think Jason Kilar, who started Hulu, a- and then most recently ran Warner Media, he's on record saying, you know, he thinks they'll be one of these companies that reaches a billion subscribers. 4:02 And so right now the pessimism is growth has slowed, people are worried the ceiling is a lot lower than they thought, that the revenue per user, effectively ARPU, is a lot lower than people had hoped for, that it isn't gonna get... 4:16 You know, Netflix have been talking for years about getting average ARPU to $20, $25, so they're sort of, you know, low teens global ARPU today. 4:23 Looks very low and has huge upside, but yet growth is slowing subscriber-wise. And I think people have really panicked about the entire sector. 4:33 Y- yet the reality is if you sort of look at this and you take sort of a, a longer-term view and go, "We're still... That transition is still alive and well." 4:42 We can debate whether advertising on Netflix is the right answer or not, but we can certainly say that there's a lot of growth left in streaming. 4:48 The content, though, goes up and down, and you know, there's probably periods of time where you've probably watched... 4:53 Forget about Netflix, but there's probably periods of time where you've watched less HBO and more HBO, and more Showtime and less Showtime. 4:58 And content goes in cycles, and I think even Netflix with a very diverse portfolio of content, I think they've been a little more cold than they have been in the past, and I think it matters more now than it did in the past because there is competition. 5:12 You have other choices, and so having a lot of good enough content is no longer good enough. Now you need enough hit content and really zeitgeisty content that really breaks through all of the competitive noise. 5:26 And I think if you were to say one thing Netflix really hasn't done over the last 12 months is really have breakout content, you know, English language content. 5:35 Sure, Squid Games did great, um, for, you know, an X number of weeks in Q4 last year, but they really haven't had a steady stream of big breakout hits, of new shows. 5:45 Given all of their spending on content, I think the content just hasn't been good enough. The negative would be, look, you know, growth is slowing. 5:52 The whole space, Disney's, you know, Disney's going out having saying they have to do advertising now. 5:57 So there's sort of broad panic that this whole category is just a lot smaller than people thought, and that this is just not- A great business and, you know, the, the bear thesis would essentially tie to the fact that unlike the cable bundle where you had to take a day off from work to cancel, clicking cancel on, you know, HBO Max or Netflix or Disney+ is a sort of a two-second exercise on your smartphone. 6:20 And, you know, does that ab- ease of ability to cancel, that lack of friction and so much choice, right? Like there's so many streaming services. Are these just not great businesses? 6:31 I think that's what investors are increasingly spooked about. Yeah, I thought it was interesting 'cause you always look for what's the stickiness kind of in the subscription model when... 6:41 I, I'm sure you read it last week, but it was an outline of the, what the password-sharing program would look like for Netflix, and one of the things they, they highlighted was the fact that you would be able to port your viewership history 6:52 over to your new account, you know, when you created it, and I thought that was really interesting that they thought y- you know, that that is a, that's some kind of leverage or stickiness, um, 'cause you're like, "Well, yeah, what c- what's gonna keep people from, from churning out, you know, seasonality-wise or anything else?" 7:07 Um, I... You know, look, th- th- the reality is the best way to keep subscribers is to have content that they can't live without, and Netflix is certainly making enough content. 7:19 You know, you look at a service like, um, you know, HBO, go back, this is pre-HBO Max, but, you know, Game of Thrones would end and people would leave, like a lot. 7:29 Millions of people would leave because they were in it for Game of Thrones. So the reason and the rationale that they went and built HBO Max was we need a broader array of content. 7:39 We can't just have, you know, four or five really big things a year. We need a lot more content that keeps people there all the time. You know, with Disney+, there isn't a lot for people our age, but you know what? 7:51 Now that they have all of the kids titles, that's sort of the glue that keeps people there even when there isn't much for adults to do. 7:58 And so finding that glue and really cementing that glue I think is really important, and I think that's what HBO, Netflix, I think what a lot of these services are trying to build and diversify enough so that they don't have that churn that you sort of just highlighted is e- it's just so easy to churn. 8:14 It never used to be in the old world. What about Roku? You know, I think with Roku the question is, um, you know, 8:25 th- the reality is, is that the streaming TV wave, uh, similar, in many ways similar to Netflix, right? We leapfrogged two years into the future, right? 8:36 Like, if you think about sort of what the pandemic did is it sort of turbocharged the growth of smart televisions and people's adoption of internet television. 8:45 Now they're dealing with the other side of that at the same time that there's definitely more robust competition, right? Like Google TV is great. I mean, let me tell you a story and step back. 8:55 Uh, I would go to CES five years ago. 8:58 I don't know if you've ever been to CES or the show floor, but, you know, Brandon Ross, my partner at Lightshed, and I would, we would roam the floors, and we would look at the TVs, and we would go up to them, and, you know, we would pick up the remote controls and look at the user interfaces, and we would laugh. 9:12 I don't care whether it was Samsung or LG or VIZI- Like, you would walk up to these televisions and you would laugh and go like, "This is like..." You know, I mean, do they, they ever take a class in consumer interface? 9:23 Like, it was just like it was embarrassing. 9:25 And then you'd walk over to the Roku booth and you'd be like, "Oh my God, it's like, it's almost like stupidly simple how easy to use it is with like a purple remote with buttons up, down, left, right, and ba-" Like it was all just very simple. 9:37 And so it was clear why Roku was taking market share and really built this easy-to-use, you know, sort of the keep it simple, stupid mentality of tech. 9:46 You walk into a Best Buy today, and I don't know if you've done it recently or a Walmart today, I don't know, like does it really matter whether you buy a VIZIO or a Roku or you buy a Samsung or an Amazon Insignia? 9:58 Like, all these TVs are essentially great UIs, great TV OSs. Like the, the bar is, you know, it's gotten... It's really, really different, and differentiating other than price has gotten really hard. 10:10 And so the competitive dynamic for Roku is very different than it was just a few years ago, so that's part of the problem that they're facing. 10:19 And the other piece is the fact that in order to really grow their advertising business, they're actually being forced to go into, or they're looking to go into content creation, so they're actually spending on content to create their own rather than just taking a small sliver from other people. 10:36 Obviously, that's expensive. Um, that's hurting margins, and so there's definitely a multitude of fears on Roku. I think, look, you could take the long term. The bull view, right, is the world's going to streaming. 10:46 They're the market leader in the category. Someone's gonna wanna own this or they're simply gonna win on their own because they're in the dominant position. 10:54 You know, the, the, the bear case would be every day you walk up and there's more competition, right? 10:59 Like Comcast and Charter just this past week announced they're partnering to create a nationwide effectively competitor to Roku. Not a good thing for Roku at the margin. Does it matter? 11:10 I mean, look, only if it's really successful do, does the Comcast, you know, Charter, Flex joint venture matter. But it certainly adds fuel to the fears around Roku's stock. 11:21 Yeah, I wanna get into the Charter, Comcast news in a minute, but, you know, what's the, the same, uh, bull/bear case for Disney? I know that's a, a favorite of yours. Yeah. 11:31 I think the bull story on Disney, right, is that, you know, there is... Th- they're the probably the most iconic producer of content in the world with some of the most recognizable brands, 11:46 sort of the only content that gets watched over and over and over again, so kind of reusable, repeatable content, uh, makes it very unique, franchise content. A- and maybe most importantly, you know, where there is this 12:04 Well, I guess I would almost call it like a flywheel, right? Where you create the content, whether it's for a movie or a TV show, but then that content can go on and, and live in so many other parts of the business. 12:17 It can fuel their theme parks, it can fuel their consumer products, it can be characters on their cruise ships. 12:24 Like, there's just so much that Disney can do with IP because of sort of the entirety of the company, that it's really uniquely positioned to exploit good content. 12:35 And they've certainly been, you know, pretty consistent with their ability to create great content. 12:39 The flip side is, you know, like many l- legacy media companies, they have a lot of legacy assets that are in trouble, right? Like, the broadcast and cable network story is not so good. 12:50 Just as people are watching more and more streaming, the amount of time and energy being devoted to linear television is going in the wrong direction. 12:58 Lot of revenue tied up and a lot of profitability tied up in those old businesses that is problematic. And, you know, you take a business like ESPN. 13:09 It was probably the most amazing part of the Cap Cities/ABC transaction in 1995. It's a great asset. It generates lots of cash. ESPN is not a great business anymore, right? 13:22 Like, it is definitely a business that is facing real structural headwinds. More consumers are cutting the cord. I mean, Comcast has lost almost 9% of its entire subscriber base in the past 12 months. 13:34 You know, as people are shifting from linear cable bundles or broadcast and cable network TV bundles to streaming television, 13:42 they're cutting the cord and giving up and focusing on things like Netflix and Disney+ and Hulu. That's all great, but the profitability is in the ESPNs of the world, the ABCs of the world, the FXs of the world. 13:58 And so you're basically taking very high margin revenues out of the legacy business and pushing them into streaming where you are still losing money. 14:06 That, that's sort of the existential crisis that these companies are facing, is that their legacy businesses are in secular decline. Do they keep them? Do they harvest cash out of them? And think about it in sports. 14:18 Disney puts all this money into... You know, they're putting $2.5 billion a year into Thursday Night Footb- sorry, into Monday Night Football, because that basically supports the future of ESPN. 14:30 But they don't own the NFL. They can't exploit that content outside the US. You know, it only works for a few hours a week during the live game. No one's watching it after the fact. 14:40 What could they spend $2.5 billion on if they weren't buying NFL rights for ESPN? Like, it basically just begs the question of like, should Disney be in the ESPN business? 14:49 Like, why do you wanna be in a business where you're a, quote-unquote, "renter or licensor of content," when what Disney does best is create, own, and control globally and exploit that great content all over the world? 15:02 You can't do that with the NFL. You can't do that with the NBA. Can you use it as a way to get subscribers in the door to ESPN Plus? Sure. 15:11 It, it's not a bad customer acquisition tool because of the high-profile nature of it. But the problem is you don't own and control it. And, you know, if, if you had a dollar of cash, where would you best wanna put it? 15:23 It's hard for me not to believe that, you know, creating the next Doctor Str- you know, like, 15:29 the, the next, you know, Avengers-type series, that that isn't a better use of capital, if you can achieve it, than simply buying sports. 15:36 And I know sports is sort of a known entity, and I get that aspect of it, but Disney's better than anyone else at creating content, and I think that's sort of where the, the bull-bear thesis sort of sits, is like, what is Disney gonna do? 15:47 They buying ESPN? Are they keeping ESPN, selling ESPN? Are they buying the rest of Hulu? Are they selling Hulu? 15:54 There's a bunch of big strategic decisions that current CEO Bob Chapek really hasn't made yet, and we're sort of all waiting. When Bob Iger came in, remember, he bought Pixar very swiftly. 16:05 It became very clear the focus of Disney was on I- great IP creation. I don't think we really know what the, quote-unquote, "story" is for, um, you know, the Chapek era that we're in right now. Yeah. 16:21 Touch on the sports for a minute. Uh, you know, for a long time I've kind of been wrong and thought that the sports rights would start to flatten out at least, uh, and not- Mm-hmm... 16:30 if not slightly decline, and that's been kind of the short term very, you know, incorrect. But are we in a period right now to where 16:39 three or four years from now we're gonna look up at the sports rights that has been paid by these traditional media companies and s- and have the same conversation like we've had about original streaming content in the last month, where it's no longer a good business to... 16:52 'Cause y- you know, 40%-plus increases in rates while you lose 9% of your customer base to me just doesn't seem like a good thing. But- Uh, you know, look, you're, you're, uh... 17:03 [chuckles] The funny part is, is right, like all signs sort of pointed to cable system subscribers or, you know, multi-channel video bundle subscribers declining, viewership declining, 17:17 advertising sort of, you know, increasing modestly 'cause you were jacking 17:24 the cost of the ads so much because of sort of the, you know, having fewer and fewer, um, overall viewers meant that you paid a premium for the ones you could reach. So that reach is still very powerful. 17:37 But, you know, the overall health of the linear TV business isn't great. You would go in that environment, why wouldn't sports rights costs go down? Like, why would you pay more for sports rights? 17:47 And the answer is, is that, sure, does it hurt the profitability to overspend on sports rights? It does. What's the alternative? If you don't buy the sports rights, these businesses literally collapse. 17:57 And so they're basically willing to overspend on sports rights to keep their over-earning businesses alive and afloat. And I think that's sort of the, probably the part that we underestimated, is how far they would go 18:10 In overspending to protect their legacy profits because they need all of those legacy profits to invest in their future streaming, right? 18:17 Like, that's what they're using is those strong cash flows because, you know, a lot of these companies are levered, they have a lot of debt, and they need to generate cash. 18:25 And so these legacy businesses throw off even, even with them going the wrong direction, they still throw off a ton of cash. Great. Last one. 18:35 I know y- uh, your team put out some research today on the, the Charter Comcast partnership on the, the kinda TVOS. What's the, the bull and bear case for that? I'm s- uh, for the Charter JV? Yeah. Um, 18:49 I don't know if it's a bull and a bear case. I mean, you know, I mean, the... 18:53 I guess the bear case would be simply, you know, when I tell you, "Hey, two cable companies walk into a restaurant and they talk about, 'Hey, we're gonna go do a joint venture.'" 19:02 You know, like you've probably heard the joke before like, "Oh, great, you're gonna do it" You know? You probably remember something called Canoe, right? 19:07 Which was their advertising JV, and I'm old enough to remember I think they did something called Spectrum Co, and they tried to collaborate for years on cable labs. 19:14 And, you know, look, the industry's a lot more consolidated now. Charter and Comcast really are like the vast majority of the industry, so, you know, m- maybe this will work better than it did before. Um, 19:26 but you know, like the, the, the bull case is, is pretty simple, right? Streaming or the TVOS being the operating system makes you a gatekeeper, right? Like you can keep HBO Max out, right? That... 19:39 Remember, like there... You can decide who gets in, who gets out of the platform if you're the operating system. It's the power of being... You know, look at what Facebook did as an operating system, right? 19:48 Or sorry, look what Apple did with iOS as an operating system. Hey, you can't track people the way you used to, and look what it did to companies like Facebook and Snapchat, right? 19:56 Like when you're the operating system, you set the rules, and it is incredibly valuable if you look at what Google and, and, and Apple do in mobile. 20:05 If you looked at what, you know, um, what Apple and Microsoft, um, can do, uh, or sorry, what, you know, Microsoft Windows like sort of as a platform and operating system for PCs. 20:16 It's not hard to see why Comcast and Charter wanna be the TVOS. 20:21 I mean, you could almost imagine them sitting around in a conference room sort of pissed off that like Roku got to a $60 billion valuation by creating a, you know, an OS that either Comcast or Charter could have created years ago. 20:35 I mean, Comcast has even had an OS called Flex for a while that they've only used in footprint on their devices, but nothing would've stopped these companies from going national and, or even globally a long time ago. 20:47 It's just they s- were stuck in sort of their video and then broadband footprints and didn't like venturing outside of it. And I think what they're sort of recognizing is, "Hey, the cable world is slowing. 21:00 You know, broadband subscriber growth is slowing, so that's gonna slow our revenue growth. How do we generate incremental revenues? Oh, I got it. 21:08 We'll be a gatekeeper to the, to the broadband world, and we'll take a cut of lots of things that happen. If you watch Pluto TV, we'll try to take a cut of ad revenue. 21:16 If you sign up for Netflix, we'll try to take a cut of that." Like, you know, it's, it's... I started, I sort of joke in our piece today, it's like you can't take the gatekeeper out of the gatekeeper, right? 21:23 Like they were the gatekeeper. You know, you wanted to watch ESPN on Comcast, you had to sign a deal. ESPN had to sign that deal with Comcast. 21:31 There was no other way to get to those consumers without going through Comcast in that market. 21:35 Sure, there ended up being DirecTV eventually, and there was some competition that, you know, changed the dynamics, but effectively these were sort of regional local monopolists that like using that power. 21:46 And so I think in many ways this venture is about recreating it. But Michael, the, the flip side of this is they waited till 2022. It's not like Roku's a no company, right? 21:56 Like they waited an awfully long time, and they sort of waited until the core broadband business had s- finally started to collapse or slow down before doing this. 22:06 They didn't do this proactively five years ago, and that's what's just sort of, I guess, more than anything, it's just sad. What do you think the floor is for paid TV subs? You know, it's not a fair question. 22:21 Um, I'm gonna answer it, but I do think it's not a fair question to ask because it, it really, when you say something like that, is Sunday football in 10 years still on linear TV or is it on streaming TV? 22:35 Like w- what li- what's left on linear TV? 'Cause I think it's, you know, if you were to say, "Okay, if you took what I saw on linear TV today, what do I think the floor is?" 22:44 I think if you look today, it's probably, you know, sub 50 million subscribers versus the 75 we have today 'cause I don't think there's more than 50 million households with a, with a diehard sports fan in it. 22:55 And so I think that number is somewhere in that range. Now the reality is I don't know if there's 50 million subs for the entire year, right? There might be 50 million subs for football season. 23:08 Maybe there's only 35 million or 40 million outside of football season. 23:12 And so part of the problem with understanding, you know, subscribers to these channels is, especially as you start to think about VM, VPDs where just like Netflix or HBO Max, it takes one second to cancel. 23:25 You, the floor is probably a lot lower than 50 million subs, and if you keep taking more and more sports out of the bundle, the floor isn't 40 or 50. The floor is probably, you know, 20 or less, right? 23:36 Like you start, you start to get into this sort of circular loop if you take too much content. And I think one of the problems you're seeing with the multi-channel bundle right now 23:45 is as more and more content comes out and shifts over to streaming, it's like a red flag to consumers. "Wait, why are we paying for this? We never turn on the TV. Like why are we paying for this?" 23:57 We've all had that experience and it's like, especially with inflation kicking in, maybe recession starting off in Europe, maybe coming here after, like 24:06 as things get weaker, you're gonna look to cut the things that are overpriced and you're not using. Feels like a bad sign when you think about these legacy businesses as you look out over the next couple years. 24:18 All right, just a couple more questions. Uh, one, um, you got into the TAM for streaming earlier and, and just quickly, like, has Netflix results recently changed your view on what that is? 24:30 And does the addition of ad-supported streaming make it- change your, your view of the TAM either, increase or decrease? Um, uh, I don't... Maybe rephrase it. I don't know if I understand. 24:42 I guess, uh, people are kind of freaking out, right, about the, you know, negative sub growth, which obviously under the, the, the Russia thing, uh, is what caused it to go negative and, and the fact that they're growing slower. 24:54 You know, we talk about, you know, Jason and Kyle are talking about a billion subs, right? Has anything recently happened that changed your view on that? 24:59 Or is it just gonna take potentially longer than we thought because there's increased competition and, you know, other, other things happening, and then if this advertising- I see, I, I sort of take a different approach to that. 25:10 I, I sort of think that the... You know, when I, when I look at this is I think it's less about competition. You know, it's not, it's not like the competition has been so crazy. 25:19 Like, it's like v- you know, name a huge hit in the last quarter on Peacock or on, um, you know, o- on HBO Max, something that really, like, sucked the life year over year out of Netflix. Like, I, I don't buy it. 25:32 I think the bigger issue is, honestly more than anything else, I, I think a lot of these businesses did so incredibly well during COVID. They built subscribers so much faster. 25:44 The pace of smart TV installations was so much greater. You know, you did, you know, essentially two years' worth of growth in a year. 25:53 And on the other side of it now, you have supply chain issues, COVID in China, hard to get smart TVs, costs are up a lot, inflation is hitting the consumer, geopolitical uncertainty overseas, maybe a recession starting in Europe. 26:07 Like, I think, you know, it's more of like we, we jumped too far up the curve and we're sort of, quote unquote, "catching up," combined with the content has been, you know, maybe the best word might be to use, like, uneven. 26:19 Certainly hasn't been, like, crushingly great or amazingly great. 26:23 I think all of that is sort of more at, more of an explanation of, like, why Netflix has struggled versus all of a sudden there is this robust competition that's just crushing them. Okay. 26:37 Well, if they, say they get the content more consistent and figured out. So, like, just to equalize that, do you think that if, if content was improved and more consistent, 26:49 you would say you're running Netflix and you would increase, just continue to increase subscription fees? Or do you think the addition of the ad-supported streaming... 26:58 I mean, do you fall in the kind of the Hulu use case where this is gonna be, you know, $13 versus, you know, $10 and, uh, I c- I've got my own kind of perspective, that's why I'm really interested to hear kinda how you'd look at that from a kind of business model perspective. 27:10 Well, look, I... 27:11 Look, advertising worries me only because I, I do believe that consumers, when given a choice, will downgrade to the lower, or many consumers, especially new consumers, will take the lower tier, and some might even downgrade to the lower tier, not because they like advertising, but just to save a few dollars. 27:27 Like, I think it's just sort of human behavior. The problem is when you introduce advertising, especially disruptive, repetitive advertising, unless it's done r- you know. 27:35 If it's done like Instagram where the ads feel like content, that's one thing. 27:38 But if the ads are disruptive and annoying and, you know, if you've used Hulu ad-supported, you certainly know what I'm talking about, or if you've used TV Everywhere, like these are bad experiences. 27:47 And the idea of having a, quote unquote, "bad experience" on Netflix seems, you know, very troubling. 27:54 And yes, you can always sort of rationalize it by saying, "Oh, people will just upgrade if they're really unhappy," but I think people don't do that. 28:01 I think they just sit with their discomfort often, and they don't actually spend more money. A- and that's a real fear that I have, that this is one of those moments in time where 28:14 is Netflix actually doing the right thing or they're just embracing the flavor of the moment because people are so excited about ad-supported television? Yeah, it's interesting, especially for them. 28:26 I mean, uh, I was talking to somebody recently and that, you know, not in the, the media space, but they described it as, you know, Netflix as kind of the rare media company that, that they love. Right. Right? 28:34 And that they, you know, they hate their cable company. They... I mean, they went through the litany of things where, like, I've always just... 28:39 I mean, I've loved, you know, felt some kind of personal feelings for this, you know, this company and, uh, what, you know, what does advertising do to that? And you can cloak it in the idea of consumer choice. 28:51 But if you know consumers are gonna take something that they don't really like, and then you have a lot of consumers who don't have that love and affection that you just talked to, Michael, that really worries me. 29:05 Mm-hmm. Yeah, and one of the things, you know, we model out is a- about every 10% change, uh, you know, if an, uh, viewership from linear to streaming basically reduces the total video ad impressions by 8%. 29:18 And so, you know, because it's, you know, lower ad loads, uh, a lot more ad-free, you know, the Netflix time and, and Amazon Prime. So our thesis has always been, look, the... 29:29 For this to work, because all these media companies have their revenue going up and every... 29:33 You know, no one has a projection of their, the revenue declining, that you're gonna have to jack up your ad rates, and the only way to do that is, you know, relevance targeting, some kind of better experience, like the ads feel like content. 29:46 Um, what do you see as the biggest challenges for launching ad-supported streaming? Um, I think the, the hardest thing for ad-supported streaming... Remember, 30:00 almost everybody that has launched ad-supported streaming, I think everyone actually, is in the advertising business, right? 30:07 I mean, when Hulu launched it, their, all of their parent companies were in the advertising business. If you think about, you know, uh, HBO Max and what they've done, obviously Turner is. 30:19 Um, you know, Disney obviously with Disney+ now, Discovery. Like, one by one, they all are leveraging decades of advertising experience, existing workforces, ad tech, et cetera. 30:32 [smacks lips] You know, while there's Freevee, which is Amazon's free product, you know, the old IMDb TV, it's a totally separate product, but there's no ads on Prime. Apple TV+ doesn't have ads. 30:44 And so the companies that are not legacy TV advertisers haven't done it. And so you're starting from scratch. So the, the biggest challenge is just how do you do it? Like, how do you go from... 30:56 Remember, Netflix content wasn't built, the original programming wasn't built with ad breaks. W- wasn't built with natural slots to do advertising. 31:05 So you've gotta go back and sort of figure out how you, you know, create the c- you know, crack the content, make it suitable for advertising, insert ads, you know, all over the US or globally, you know, n- not make it a bad experience. 31:20 Do you do it in movies? Do you only do it in TV shows? Do you do it in kids content? Like, you know, how do you make it feel relevant? Um, you know, you have... [chuckles] Tony, you've, we've already... 31:32 We haven't really talked about it, but, like, you have a lot of password sharing, right? Like, you know, are you delivering the wrong ad to the wrong person because of password sharing? 31:38 Like, there's just, there's a lot of issues to deal with. Uh, and I'm still not convinced they actually need to do it. I think it, this feels a little reactionary, but we'll see. [sighs] All right, another quick one. 31:54 W- with CNN+, I know there's a lot written about the kinda downfall. 31:58 I'm interested in, you know, kind of we look at the framework for news a lot, and we're, we operate primarily at the local level, so, you know, local news is still a big, uh, thing keeping a l- you know, a lot of these broadcast groups, you know, the big profit driver. 32:12 Um, obviously national cable news hasn't gone fully into streaming. But what, I guess, A, do you think anyone else tries to, the same kinda high-end direct-to-consumer model on 32:24 stre- on news, or is it all the future is gonna be at least cable news are gonna kinda run their course, and then it's all gonna be social media and kinda companies built for that environment? 32:33 The New- the New York Times has done a very good job of transitioning a subscription model from print to digital subscription, so it can be done. 32:42 Uh, obviously they really enforced a paywall and sort of forced their diehards into it one by one and built that perception of paying. Uh, Wall Street Journal and FT have certainly done the same. 32:53 C- you know, cable news is hard just because, like, you've got things like CNN.com that have been free forever, and so, you know, transitioning from free to paid when you give so much away every single day is really difficult. 33:04 You know, if they, if CNN.com disappeared and it was just CNN if you have a cable subscription or CNN+ if you have a streaming, I think that would be a very different story, but when you give away so much every day and there's so much news content available for free every day, 33:19 I, I, I don't s- You know, can news be an additive piece of a streaming offering? Sure. Can news be a standalone meaningful driver of any of these companies in a streaming world? I find it hard to believe. 33:35 [smacks lips] Yeah, see, like, just the funding to make that work, to start, you know, to even- I don't think it's a big enough business on its own... CNN+ in the first place. 33:41 I think it's gotta be a feature of a larger business rather than a standalone. I don't think these things can really stand on their own. And you know, people will say, "Well, why couldn't CNN+ have been New York Times?" 33:52 The problem is, there's just too much similar content available for free, I mean, even on CNN. Yeah. All right, gonna chat on the final two here. 34:04 Uh, looking at more at the kinda, uh, your investor hat, um, you know, kinda what's your overall, you know, investor thesis for the space, and are you currently looking at 34:16 private and pub- public companies with a different viewpoint? For instance, you know- No, we, we, we, we have-... do you see a, a change in business models coming? 34:22 We always look at sort of the disruption of private companies. 34:25 I think what makes Lightshed unique is that we do spend a tremendous amount of our time, even before the venture fund launch, we've always spent a tremendous amount of our time on the early-stage disruptive startups. 34:35 I mean, we were looking at Twitter and Snapchat in the early days trying to understand their impacts on things like Netflix, and we spend a lot of time on... 34:42 We were spending time on TikTok when it was called Musical.ly, um, trying to figure out its disruptive impact and why people were using it and what it meant. 34:49 So I think in many ways we're looking at, you know, we understand disruption, I think, better than anyone, and we're looking at how early-stage private companies can disrupt even the largest mega companies that exist. 35:01 And, uh, you know, I don't think there's an o- I think the, the overarching thesis right now is the legacy media businesses are, are clearly getting worse. 35:14 We-- On top of the fact that global economy looks like it's slowing. 35:18 The scary thing for media, though, is now that the, the future, meaning streaming, is slowing down and may not be as large as we had hoped, or forget about even as large, it may not be as profitable as we had hoped, nor how the companies thought. 35:31 And the unknown question is, like, is there a choice or door number three? Like, is it, where, where to next? And I don't think we know. 35:39 Like, you know, people talk a lot about Web3 and crypto and blockchain, and it's not clear how those are sort of, quote-unquote, "fixes" for the challenges facing these companies. 35:49 I think they're just in for a rougher next few years as profitability gets squeezed as they shift from sort of probably over-earning in the legacy world to the rea- the harsh realities of operating in the new direct-to-consumer world. 36:06 [smacks lips] Absolutely. All right, last one. What is on your reading list, uh, that should be on our, our audience's? Um, I mean, look, the favorite 36:16 blog that I love or the favorite sort of newsletter I love reading a- and interacting with, I'd say there's two that stand out. Uh, one is Puck News. I'm a huge fan of what Matt Belloni and team are building over there. 36:28 And I love, uh, Richard Rushfield over at The Ancl- Ankler. I think they do an incredible job. So th- those are probably the two that stand out. And look, I live on Twitter, so, uh, and it's @richlightshed at Twitter. 36:39 I live on Twitter. I spend a lot of time there. So, uh, Twitter's essential for me from a learning tool, at least for now. Hopefully Elon doesn't screw it up. Um, but- [chuckles]... 36:48 uh, you know, newsletter-wise, those are two that really stand out. Cool. Thank you. Rich, I'm grateful for your time, and I know our audience is gonna love the conversation. Thank you. 36:56 [upbeat music] Thank you for joining us on this episode of Screen Wars. I hope you enjoyed the discussion. You can find out more about Crossscreen Media at crossscreenmedia.com. 37:06 Please don't forget to sign up for our weekly newsletter, State of the Screens. You can find us on social media, @crossscreenmedia. Join us next time for more insights and analysis straight from the experts.
