Full transcription: may contain unintentionally confusing, inaccurate and/or amusing transcription errors

Nuno: Welcome to episode 5. 

Today we’ll spend most of our time talking about media: the launch of Apple TV, Disney Plus, and a few other in-depth articles that we’ve had a chance to take a look at 

Bertrand: Hello Nuno, how are you?

Nuno: I’m well, how about you Bertrand?

Bertrand: I’m doing good, thank you. I’m pretty excited to talk about the media space today. A lot of action in that space in the few months, so glad we find the time to talk about what’s happening and what is all this media streaming war all about. 

Apple TV Plus: why it’s not about what you think it is (01:59)

Nuno: So let’s start with Apple TV. 

So, Apple TV Plus launched November 1st, we have a bunch of articles that we’ve been talking about for the last few weeks around and interesting. So what are your thoughts early on, on Apple TV Plus? 

Bertrand: If you look at Apple TV Plus alone by itself it’s not a very interesting service  would be my take, in the sense that what’s coming and what’s unique from this service in term of unique shows you cannot get anywhere else, right now you just have a few of them, and at least from my perspective as a consumer, I have not been keen to see any of their shows. 

I tried actually, I tried, it was kind of disappointing: what you can see is that a lot of money has been spent on any one of them, that’s for sure, it’s extremely polished, extremely polished, but for me the story is not there, it’s disapointing in term of story basically on all these shows. 

But when you look at the bigger picture of what they’re trying to achieve it’s probably better . The bigger picture is a few things, at least from my perspective: these  new shows are more a magnet to bring you to Apple TV Plus in general, to the overall Apple ecosystem. And why would they want to do that? On Apple TV Plus you can get access to other TV channels, so it’s not just Apple content you get , it’s other TV content you can get access to: from HBO to a lot of others who you can pick. And they are, as usual, getting some significant margins playing with that. 

Nuno: It’s interesting because in some ways it seems like they are seeding what I would call a meta-play, right? They are trying to serve all the different experiences that you have with different streaming services onto one banner which is Apple TV, and the way for them to seed this, is to do Apple TV Plus, have all these different shows that are originals, and push people into it, so that people start consuming more and more. It’s a really interesting thing because if we’re right about this, what Apple is doing is they’re seeding a service that in effect, just wants to aggregate your user experience at the end of the day by just creating some content.

So our view is that Apple, to be clear, doesn’t want to be a content owner,  they don’t want to be Netflix. 

Bertrand: Yes, I think that’s really the take here, is that there is some bigger strategic reason at play, and we talk about now aggregating these different services, and by the way this is very very similar to how Prime is working. Amazon Video, part of the prime service: it’s the same playbook. They make a few shows, they make a few movies, but at the end of the day it’s a magnet, so is that you use Prime as your destination to subscribe to other TV channels. Surprisingly enough very similar business model on that part, where they are trying to attract you so they become the main place where you will find and play your shows, your movies, but ultimately and we’ll talk more about that, at a service of a bigger business model which in the case of Apple is to sell devices, in the case of Amazon is to sell you everything. 

Nuno: Yes, but with Amazon Prime there are still some significant differences. They are not making the user experience totally seamless for you to see Hulu and other types of services that you might have. And they are building their content inventory, right? 

They’ve been winning a lot of awards, they actually have great shows. I’ve been part of all their pilots seasons and voting, and their first pilot season was a little bit iffy, but they’ve been really doing well and they have great shows with actually pretty impressive ratings, and as I said they’ve won awards. So I buy the whole generation of traffic piece that Prime is doing, that Apple is doing with the TV Plus, but I think the TV Plus play might be actually very different in the sense that it will aggregate other streaming services under one banner, whereas with Amazon that’s not really the play. I think with Amazon they do want to pull you into their ecosystem and into the whole Prime ecosystem overall. So I do think they’ll continue developing content, and they’ll continue wanting to own your time with them, in effect. 

Bertrand: Yes but again, interestingly enough Amazon really pioneered this model to attract to that center location of looking for TV shows, movies, and letting you very easily subscribe to 3rd parties TV channels, basically that’s what it is. So in a way Apple TV has copied part of the approach of Amazon. I was myself surprised. 

Nuno: But it feels, Bertrand, it feels more, the Prime play I know it’s a broader play within sort of the realm and the world of Amazon, but it does seem to me that what Amazon is doing with Prime TV and Video is closer to Netflix than what Apple TV Plus is doing right now, and we’ll see where Apple TV Plus goes.

They have plenty of cash to just go and develop content. So it’s not like they can’t develop content, It just seems as you said earlier on, that they are anchoring around this sort of unified user experience with all your streaming services, which makes sense because that’s how Apple TV started in the first place, as a software service. 

Bertrand: Yes and obviously interestingly enough you cannot browse from Apple TV, Netflix. So Netflix is not opening its content to Apple TV, or to any other service by the way. So Netflix is pushing you to go to Netflix and then you discover content and obviously only Netflix content. 

When the other providers from Roku, to Apple, to Prime, absolutely tried to get every other service available from outside, and be visible from their own system. 

But as you say, I’m expecting that, over time, Apple’s offering will improve, will expand, but will it go really big beyond just being a “Magnet” it’s not clear. Another interesting point is right now you get it for free in many cases: basically if you buy an iPhone or an iPad or a Mac or an Apple TV, you get a one year free. 

So I also think there is some realism on Apple side that the offer by itself, it’s not truly standing on its own: a few TV shows with no back catalog for $5 a month, and we will talk later about the Disney offering for instance at $6/month basically it would be a pretty bad deal to pay for Apple TV Plus subscription right now. 

Nuno: So a couple of interesting things. 

One, we were talking about the quality, or you were talking about the quality of the Apple TV Plus shows, I guess we’re talking about SEE, For all mankind, Dickinson, and The morning show. And I actually have to agree with you, I haven’t watched Dickinson, but I’ve watched all the other three, and I think they’re very well produced, but I don’t get, what’s the appeal. I’m not sure where the stickiness is going to lie on these series, but it seems like at least the reviews from consumers have been positive thus far. Although critics agree with us that it’s not very good, but shockingly enough they seem to have committed already two second seasons for all of these, which is again, like a huge leap of faith, sight-unseen on ratings: let’s just see what happens and we’re going to commit to second season. 

Bertrand: I think they had no choice, in the sense that, they had to commit very quickly to the second season for these shows, they had to commit before they released the first version, because they had to keep the cadence, but at the same time if they did not commit to the second season they were immediately sending a super bad signal: that this is starting very bad for them. So right now at least they can claim that there will be a second season. My take is that there won’t be season 3 of many of these shows, at some point it will become more rational. 

Are we at “Peak TV”? (09:34)

Nuno: I think there’s probably a more profound issue as well which is talent, and talent right now in Hollywood is scarce. And so, locking in people, locking in actors, I mean, a lot of these series have very well known actors, very well known writers, directors, et cetera attached to them. If you don’t commit you lose them, right? 

And this again, we’ll come back to this later as we go into more strategic topics, but for me it represents that we’re probably now at peak TV. I think over the next year year and a half max we’re going to be at peak TV. I think the amount of cash, the amount of resources that are being thrown into TV, which has really displaced a lot of the focus on the movie side.

At some point, it needs to plateau. I think we’re probably closer, rather than further away from it, and it’s again the same thing, resources are calling the shots, right? All these super well known actors, have better things to do with their lives unless you commit to them for a second season or third season. Netflix, the amount of money they’ve been spending on locking in a lot of this talent is incredible. 

Bertrand: I will agree and disagree with you at the same time on this one. Because my take and we’ll talk more about Marvel universe for instance, you could argue that’s a system that has been designed  to remove power from the star system. 

Nuno: But if you look at it again, the Marvel thing is movies, right? And movies. If you are creating a franchise play, you can probably get away with the actors and you have in the well known names.

But if we’re seeing TV, it’s the opposite. We’re seeing all these incredible movie star moving to TV. In some ways in the past we used to have the TV stars, and the movie stars, and the movie stars were always the top ones, the ones that made the real big bucks. The really famous ones. And the TV stars were sort of the sons and daughters of a lesser God.

And now it’s the other way around. All the movie stars are coming into TV and all the money’s moving into TV. And in some ways, I don’t know if that will empty out some of the talents in movies. Probably not, because you probably can still get away with bringing in some of this top talent back to specific movies. But honestly I would say we’ll have a lot more talent calling the shots going forward. It will be more and more difficult to lock in some talent because there’s just too much going on in TV right now, and not enough talent. 

Bertrand: I am still not convinced, because when I see some of the top TV shows that I personally follow, they’re not big names that are leading these shows or they become big names thanks to the TV shows. So my take actually is that some of these new TV shows, like the shows from Apple, you see a lot of big name talents from movies, but my impression is actually it’s more because they know the story’s bad. And what do you do when the story is bad? You get great special effects, you get great shots, and you get great actors, and hopefully you hope that it’s savings the rest. But if you have a great original story and content, I think you can get away with good talent, but not very famous, not very known actors. 

 Nuno: I think what you’re talking about, about having TV series that are high quality, well scripted, with great talent, that we may have not seen before will always happen. I do think that’s not the trend. The trend is more and more talent, more and more resources being brought into the TV space and being paid properly, and we see some of these actors or movie actors, like “Big little lies”, what happened over the last two seasons is incredible. They already had probably one of the most, if not the most significant female cast or ensemble cast in TV ever. And they bring in Meryl Streep for season 2 and it’s not like, it’s not well written, it’s not a great story, and they didn’t have great actresses already. 

I mean, I think it’s just part of the fight for resources right now and being in TV right now is cool, and if you’re an actor and I’ve dabbled in acting over the years, you get to create a character that is normally much deeper than you get in movies, right? 

Unless again you get away with a franchise play where there’s like five or six movies, but normally that’s not the case. So, I think right now the trend is really resources to TV, clearly talented TV, and we’ll see what happens. Again as I’ve shared before, I believe we’re probably close to peak TV. 

Bertrand: Another interesting part is, and we have seen these trend led by Netflix, is what’s going on with international markets.  Because if you look at the TV shows right now on Apple TV Plus, it’s very much for an American audience: Many of these topics I’m not sure they are going to generate a lot of interest from foreign audience. So that would be another interesting thing to watch: It’s how these TV show business coming from companies like Apple, Netflix and others are building up actually their international audience by building up TV shows with local known, or well known, or less well known actors  from Europe, from Asia, or from Latin America for instance. 

Nuno: And the cool thing about that, is the production costs are also much lower. And so in some ways we go back to our tech analogy of you can then pick up this content and actually distribute it in the US, right? 

Netflix has a bunch of series that have been done in other parts of the world, now available in the U S that you can watch, like “La Casa de Papel”, which is obviously a Spanish series, and a few others. HBO has done similar plays as well in the past, so I think in that sense the quality of what we’re seeing today in TV is incredible . I think there’s too much stuff happening. There’s too many new shows, there’s almost too much quality out there. It’s very difficult to follow at times. times. 

Bertrand: That’s true.

Nuno: And so that’s what leads me to believe that with resource constraints , at some point, something’s gotta give and we all have to sort of lower our expectations. 

Bertrand: Yes, I don’t know. On the contrary you could argue maybe it could be a reverse of the media and entertainment industry in the sense that it brings more people to go to this industry and career because they see more opportunities than before. 

Also producing content is getting cheaper and cheaper. And I’m talking at every level from: in some ways you could start shooting a short movie with an iPhone. I’m not sure many we go to that extreme but my point is that the tools of the trade, their costs have been dramatically going down, and we will talk later a bit more about this, but if we think about some of these big movies like the Marvel movies for instance would have been impossible to do 20 years ago, and it’s only the past 10 years that you can add this layer of special effects at such a scale while keeping costs under control. 

So yes, on one side I tend to agree with you, it feels there a lot, there is too much to consume, and at the same time I wonder will it actually create new opportunities for people to basically consider to do more in acting, and more interest in developing media content. 

AT&T’s new media strategy (16:10)

Nuno: Clear. Let’s move on and talk maybe about DirecTV, AT&T DirecTV, AT&T HBO max, and what’s happening around that. 

Bertrand: Yes, it’s pretty amazing from my perspective, and we’re reading this article where there was I was actually a reminder on how AT&T TV Now actually evolved over time. 

It started with a $35 per month plan with 100 channels, and today it nearly doubled in cost, that’s $65 a month, half the channel at 45 channels. 

So for me it’s very interesting:  it’s a great reminder about what to expect when we start to see some services that are dirt cheap with a huge offering. Let’s think in 5/10 years from now, are we going to get double the price twice as less offering, and then you need to pay for different add-ons to keep what you are looking for.

So what I was talking about it’s the old AT&T service, they are planning to launch in 2020 a $14.99 a month HBO max service. So in a similar price range to Netflix, so it’s definitely interesting to basically see what’s going to happen. And again as in the past AT&T might try to leverage that to sell you wireless subscription to entice you to their either wireless or broadband subscription. 

What’s your take Nuno on this? 

Nuno: It’s like the classic telco playbook, right? We bundle/ unbundle and they obviously had difficulties competing so that DirecTV play was the right one to go after, and then they’re playing by the playbook of all the cable players. And let’s bundle more, let’s make it more expensive, and so it’s the value of aggregation that is being put at the table that the end consumer is going to benefit from. 

But you know, what doesn’t work is the end consumers are getting smarter and they are figuring out, well, I can get some of these channels, I don’t need all of them somewhere else. And there’s effectively a rebundling of the industry somehow that is happening as we look at it right now. 

So for me the exciting thing is I don’t think this whole cable model it’s gonna withstand itself. And I think we are at some point in the U S really going to start having real cord cutting. I mean, we’ve already seen it, the trend is there, but like aggressive cord cutting and the streaming guys are going to win, I think the writing’s on the wall and what AT&T is doing right now by going with the HBO max offering is sort of the beginning of the end of that model in some ways. 

Bertrand: Yes, I’m not very optimistic here because I’ve not seen a lot of case where big carriers are able to manage well content, and maybe Comcast with NBCU is an exception, but definitely not super optimistic. By the way it looks like a lot of great talent and execs at Time Warner / HBO left in the past few months. 

So I think there is a very different way to manage a media organization versus a telco organization. 

So that’s worrisome, another piece this article is actually pointing to is “datacap” it looks like at least on mobile but I would not be surprised on broadband, the services from AT&T if you are accessing them from their network, they don’t count against your data cap but Netflix and others are counting against your data cap. And actually the data cap I was quite shocked myself because I’m living in the U S and the data cap are very low: if you start using quite a bit your Internet connection, like you are in the 21st century not in the 20th century, so you truly use your connection, I had to pay myself the upgrade to unlimited data, I was constantly getting into the cap, and it’s $30 a month extra just to remove that cap. So that part for me, from the perspective of net neutrality, I’m actually pretty surprised that they get away with that. 

Nuno: Yes. and, do you have cable at your place? Do you subscribe to cable, or are are you just having a TV…

Bertrand: I should absolutely cancel  the cable part because it’s useless for me, I don’t use it anymore .

Nuno: So you have to have basic cable. You’re forced to have basic cable? 

Bertrand: I think so, and I’ve not looked at recently, but when you want to buy your package above a certain Internet access and stuff they try to bundle you, at some point you can remove it, but it would barely change your subscription price. 

Nuno: I have the same issue, I would just wanted Internet, and they’re like you need to have at least a basic cable offering. And the place where I live actually the Internet offering is okay, but it’s not exceptional in terms of throughput and bandwidth. So I honestly think hopefully this will lead to more pure plays that are just giving us the pipe because that’s what we sort of need right now. 

I don’t see how this game is winnable If you’re the network provider right now in the US. It’s incredibly difficult, you’re competing with all the streaming providers and that’s a game that’s just going to be incredibly difficult to play in.

Bertrand: I think the reason is that if you look at the US at least for broadband, but also for mobile there is a competition issue. I mean if you look at how many providers are really competing to provide you broadband in a specific locations in the US, it’s usually one or two providers competing. 

Nuno: In many cases it’s one for the same comparable service. 

Bertrand: Exactly , so ultimately that bigger question is: what happened in competition in the US in that space? I’m not clear what happened, what I just know is that each time there is a ranking in term of cost of broadband: in the US it’s way beyond any other markets from Asia or Europe, like two or three X. 

Nuno: So clearly a market structure complexity and issue as well here. 

Bertrand: Yes 

Disney Plus: a new giant of streaming emerges? (21:40)

Nuno: So maybe let’s switch to another launch, the Disney Plus launch, now that’s a really exciting launch. 

Bertrand: Yes. It’s very exciting, you can get all of Disney content on Disney Plus for $6 a month: from Star Wars, to Marvel, to all their kids content. And Disney is also providing a bundle now around $12 combining Disney Plus with ESPN, with Hulu, and let’s not forget that Disney is now the majority owner of Hulu after acquiring back different providers including Fox more recently.  So it’s very cheaply positioned as an offering, I mean when you see the quality and amount of content, that’s really impressive. Actually in many cases you can get it for free, because it’s being bundled by Verizon,  apparently Disney is getting paid by Verizon, so Verizon is assuming that and providing some Disney Plus access, at least for a year, for free. 

So it’s pretty impressive the price point that Disney is willing to start with, and it’s not like Apple TV Plus where you barely have any back catalog, you have a very strong catalog, so this price point is pretty amazing must say.

Nuno: It is incredible, I mean the domination, we are in a world that’s dominated by Disney right now, in terms of content development, content production – you know Matthew Ball had the tweet where he was showing the 2019 numbers in terms of gross revenues and the top eight movies in the world were from Disney, top eight. Right?

Out of the top 10, the top eight are from Disney. And this was obviously numbers in September, I’m not sure if the numbers have changed that much, but it is incredible, it’s mind blowing how strong Disney is right now and as Matt rightfully pointed out this didn’t include any movies that came from Fox, which was an acquisition that obviously, Disney made as well. 

Bertrand: I think Disney managed to strike gold with most of their acquisitions, but especially Marvel, they acquired Marvel early on when they started to make movies, they had only done two movies when Disney acquired them. And it’s easy to destroy an acquisition, so I’m very impressed how it has been the complete opposite. It works so well and that’s probably why they were able to acquire Star Wars, there was apparently no competition, he only wanted to sell his Star Wars universe to Disney given how good of a job they did with Marvel. So it’s pretty impressive to see how they manage this grand arc of story in the Marvel universe. 

You could argue, it’s like a TV show what they have built. It’s like making sure that you’ve got a few movies a year, 23 movies over a decade, and except that you have a level of investment that is far beyond any TV show and obviously you have a level of profit that is far far beyond.  So for me, yes Disney is doing an absolutely fantastic job and obviously everyone is trying in some ways to emulate, but as we can see with others like DC Universe, it’s not that easy to emulate and copy Disney, you have to be ready to invest for the long run to patiently develop and build the arc of the story across multiple movies. And so far it looks like very few studios have been able to manage anything closely similar. 

Nuno: I think there’s two effects here. 

One I agree the ability that they’ve had in terms of their acquisitions, even going back to Pixar and keeping these organizations relatively intact keeping the talent around I think their sort of secret sauce has been the ability to keep their acquisitions still running and to keep the talent around for significant periods of time , and that is difficult we know. But also the studio model, maybe loans itself a little bit more to that. So that I think they’ve been very, very thoughtful about not only how they acquire specific franchises and specific content but how they acquire and keep specific talent. 

The second thing is at some point you have to question how much control Disney now has around a lot of stuff: theme parks is a huge business for them, movies, TV, now going straight up to after TV with Disney Plus, as you said, owning the majority of Hulu now as well. And at the same time, let’s not forget that this starts creating a level of absolute control over the market that propagates beyond that. 

I had heard, and I have to still check exactly, but I’d heard that Disney has locked up the major holidays over the next two to three years if I’m not mistaken for launching Disney movies. So for the next two or three years they’ve planned what Disney movies will be launched and that locks in for example theater capacity, right?

Because if I’m a theater owner, I better have Disney movies on two or three of my screens, you know, the 3D version, the 2D version of whatever, and so at the end of the day, the key thing here for me is: are we going through a point where at some point in time someone will say, well, Disney is now effectively almost like a monopoly.

They’re just controlling dramatically content development, production, distribution, and all the ancillar things around theme parks, etc.  

Bertrand: Interestingly enough, if you remember Hollywood  history in the 50s, the studios used to control distribution, used to have their own movies theaters chains, they used to pay actors very differently. They were not that well-paid they were basically employees of the studios and they will do whatever movies they were taught to do, so it was a completely different system until it was broken down actually for antitrust reason. 

So yes, could it happened again? I don’t know because obviously I’m not sure now you truly need that  theatrical release for instance. You could argue that: streaming makes it an alternative, but I think you’re making a great point here. It’s a phase of control of the industry, but at the same time  you could argue before Disney was not controlling so well in the sense that they had to distribute through others . So now what’s brand new for Disney is their ability to know the customer much better than ever before. They are moving from a model where they had indirect touch of the customers to direct touch model, so I still think it’s pretty exciting for Disney but we will see what are the implication for the rest of the industry. 

Nuno: But even talking about distribution, clearly Disney is not a tech company, right? They made an acquisition to launch their service.

Bertrand: Bamtech Media 

 Nuno: And they had significant issues in terms of performance and reliability of their service in the first few days. And a lot of people trying to subscribe to it, they may have gone too overboard in asking all their stars tweet about 

Bertrand: Yes, that was funny they did not realized you don’t do that on the Internet. You are not launching a movie on theaters. 

Nuno: On the Internet you want to manage a little bit the demand, if you know you’re going to have huge demand let’s manage it a little bit early on. Incredible incredible success from just people wanting to subscribe to it. But obviously these glitches in the first few days which clearly were not a positive thing.

Bertrand: Yes, and at the same time, it’s okay I don’t think it will be a make or break for Disney, but as you say I agree that it somewhat shows that they are not used to run as a tech company. And honestly to be fair, one thing I never understood is: why did they wait so long to launch their own streaming service. What is clear is that they were addicted to the distribution rights they got paid from Netflix and others for their movies, and they didn’t want that to go away immediately because there would be a time to rebuild that up with their own subscription. But I feel they been late by three to five years: they should have been there much sooner and that’s probably the part that’s disapointing me because analysts so excited to see suddenly, you know what? 10 million registered users in a week or two.

Nuno: They said a day. 

Bertrand: Yes and at the same time, there is insane pent up demand, because they were not doing the right job to basically deliver on that request from their consumers which is: to have easy access of all the Disney properties from one place, one streaming service focused on that. 

So again I think they were late to the game three to five years, but that’s okay they are Disney, still making a lot of money, but you could argue that they helped build up competitive services like Netflix by having shows and movies available on Netflix instead of being available from a Disney service. 

Nuno: Look, in defense of Bob Iger and the team at Disney, they got Star Wars, if I’m not mistaken, 2012, 2013 early 2013, I’m not sure when it went through, so the thing is, you actually need to think through these franchises pretty holistically. They had Marvel still very much ongoing. I think the complexity of putting together these movies, these franchises, the complexity of bringing it back to theme parks and creating the attractions, the theme parks, and creating all this narrative around it. The complexity of then starting to think about: how do we expand into movies and into TV, and how do we address that market, cannot be underrepresented here. 

So I know everyone’s like, well, they should have come out three years, four years ago, but three years, four years ago, the streaming thing wasn’t a done deal. And now it is, so there’s huge market momentum, they can just offer their content. They know their content will win because it has won at the box office, and because it has won in a bunch of stuff, their theme parks trajectories ridiculous as well . And so I do think, waiting was probably a better decision than to just launch and see what happens. 

Bertrand: Yes, I cannot disagree that they were making good money, that they could afford an approach of wait and see, until you know it’s totally right, and at the end of the day say they are not a trailblazer and that’s probably fine for them. Again I think the only negative is that it helped build up their competitors to their expense. But for the rest incredibly well-run well oiled machine, and as you say you talked about theme park, I think that something big to keep in mind is: if Disney can make Disney Plus so cheap, why? 

It’s for a few reason: one is for the first time at last they manage to get direct contact with the customer, two they are going to be able to cross sell and  upsell to so many different things: from toys to cruises, to Disney theme parks. 

So the exact LTV of this customer is going to be way beyond that initial $6 a month Disney Plus offering. It might transfer actually in $100 plus, I mean easily $100 plus, given you are already at $60 a year LTV, and I would even expect hundreds of dollars per customer. 

Nuno: As of today Disney is worth, more or less, double in market value than Netflix, and we’re not talking about small companies, so Disney is around $260-$270 billion in market value, the highest valuation they’ve ever had,  and so I do think that there is somehow a lot of work that needs to be done by an organization like this when it’s really done significant acquisitions where it needs to create significant product lines around what it’s doing , to decide to launch something like Disney Plus. I think except for the launch which as we discussed had a lot of hiccups cause they had got too many people onto the service, this is going in a successful manner. The Verizon deal is probably a good deal for them right now in terms of extra distribution, so I would still say the way and playbook that they followed is a very positive one. 

Bertrand: Oh of course, overall it’s very positive. 

How the Marvel Universe changed the movie arena (33:05)

And maybe to go a bit deeper on some topics, there was these two very interesting articles from Matthew Ball, an analyst focused on the media industry, and one of them is about the Marveliad, the story about how you build an Epic, an Epic story based actually on the Marvel universe. 

Nuno: And he wrote it as an Epic, an epic number of articles.

Bertrand: Indeed, indeed, the Epic of the Epic, you cannot do more meta than that guess. 

Nuno: It was Matthew and Jonathan Glick to recognize them. 

Bertrand: You’re right, and Jonathan Glick. Very impressive review of how this was architectured very early on by Marvel initially, and then ultimately being accelerated thanks to Disney investment. And what’s interesting because there’s always this question:  where will it stop? Can it sustain itself? After 10 years it’s clear that they have found a formula. This formula they can probably do still more with it, even if there are some risks: some heroes like Ironman and others might not come back before sometime, but at the same time what they are explaining is that, this is not something random. 

Epic story have been around for such a while, from hundreds, if not actually thousands of years. Take the Iliad from Homer for instance, basically in a way it’s going back to the roots of humans talking about stories and creating stories and building up stories, and that’s what they managed to achieve with the Marvel “Epic” and I remember initially people were very suspicious of how fast it will go down, but actually what Matthew and Jonathan are showing is that  when you structure such a story on, actually something that has been with us humans for so long, the concept of an Epic, actually there is something really big and really sustainable that you can build, as long as you are very careful on a few criteria. 

And they say for instance you need to have heart in the story, you need to have humor. I think there is also a concept that Matthew has been going in depth, it’s called around marginal affinity: you have to make sure how you craft very carefully your story, to build up step by step, and find the right balance between surprising your audience, but not surprising it too much. And interestingly enough and maybe we can talk more about it, they might have gone the balance wrong with Star Wars. Myself as a Star Wars fan, I’m not so excited by the latest one, I can see what’s happening, they tried too much to change the direction, surprising and actually step-by-step making the fan not so excited to keep going and see the next one. 

Nuno: Yes, I mean there is a notion of momentum on characters in the story and you can’t just say: oh by the way now they’re totally different, and if we look at the Marvel universe that was built, it is a unique universe also because it’s not just good versus evil. It’s not just Epic stories. It’s not less just incredible visual effects. It goes well beyond that. 

There was a creation of characters that was very thoughtful, and some of these characters are staying with us. Thor is very different than Ironman, right? They’re not the same. Captain America is very different. And if you look at how Marvel and Disney have then positioned this over the different movies, I would almost say they had so many characters to play with that they’ve done the right thing, which is at a certain point in time to start serving specific demographics and specific audiences with their characters. I mean, Ant man is funny, he is sort of an unlikely hero. Black Panther is a different type of demographic that is being looked after and they’ve done this incredibly well.

So I think a lot of the success of Marvel is not just the Avengers, but it’s just the ability that they’ve had: one, to have very rich characters to really, really spec these characters over different movies and to create these enduring relationships. 

It’s not just stories, it’s not great visual effects only. It’s that we like and care about these characters, and then we want to see what happens next. 

  Bertrand: I totally agree, it’s a very rich universe, but again unfortunately it looks like that formula, they didn’t find the exact same way to apply it to the Star Wars universe. Obviously it’s different people in charge, obviously the Star Wars universe is deep, but not as deep as Marvel. Marvel is 6,000 characters they can pick from, based on all of these comics release over what 80 years, but I’m still hopeful that they start to realize what might’ve gone wrong with Star Wars, and hopefully change that. 

And when we talk about Star Wars, obviously there is one issue that’s probably beyond their control, is China in the sense that the Chinese audience were not  raised like us with the Star Wars universe: the first trilogy was not shown in China, the 2nd trilogy was shown, but at the time there was very theatres in China, so barely anyone noticed. And so they have to do a much bigger job to explain that story versus Marvel that started in the late 2000s on movies, and therefore got a much bigger audience step by step,  were right at the right time to basically benefit from that insane rise in demand from China and therefore generating very significant revenues and profits for Disney. 

Nuno: Back to the point you were making, the breadth of characters will be difficult to recreate, I mean the Marvel universe because it comes from the comic book space is so rich, there’s so much affinity to those characters over the years, in different generations not just older generations. 

If we look at the depth of the behaviors of these different characters, again it takes years and years to build them, so I don’t know, it’s a shame for me, I’m a huge fan of Star Wars, but I don’t care about most of these characters anymore. They don’t stand for anything to me. You know, I cared about Luke Skywalker in the first trilogy, I cared about all these different characters and now I care less and less.

And in some ways. It would be important for us to see if somehow the team that’s dealing with this will take the time to recreate these characters, knowing that it’s going to take a long while. It’s not like magically these characters will be characters that we care tremendously about.

Bertrand: But don’t you think that you care less about his character because of the last movies, episode seven, episode eight, where suddenly the guy is not very interesting. First we don’t know why but it’s exactly the same story as  episode 4,  I mean episode 7 and 8 started in a very similar ways, there is another Death Star, another bad empire, there is another same stuff. And the guy who destroyed the previous Empire disappeared, Luke Skywalker is now an hermit and he doesn’t want to talk to anyone. I was very disappointed at every level: one is, attitude make no sense, and two the story is all over again the same. 

So I wonder if your reaction is not the reaction of of many fans actually. 

Nuno: I don’t care about Luke anymore. 

Bertrand: Exactly 

Nuno: And I don’t care about Luke, and all these new characters you are showing me. I’m not very interested in either. 

So. Cool. We watched Star Wars, we did our parts around Christmas, and now what? What’s the next thing, we’ll see if Mandalorian will bring something back, I suspect not. I do think this going back and forth in the timeline is getting very complex, you almost need like a huge map on your wall to figure out what you’re watching. When does this happen again? Did this happen before that movie or after that movie?  And so at some point, there needs to be almost this figure that we had in the Marvel universe of having someone who is almost a program manager for everything that makes sense that everything connects to each other, and it connects in the right way. 

And I don’t know if Star Wars has a person doing this? They might have. 

Bertrand: Master Yoda in the past.

Nuno: But they might not be doing a great job, because it’s very complex for us to understand what’s going on, and that just confuses even people that actually have followed this universe for a long time. 

Bertrand: But you know you’re making a good point here: is that, there is only so much Epics we can probably follow, even people like us who might be fan of Marvel, fan of Star Wars, at some point keeping in our head all the stories all together, how they work, how they connect, it’s pretty tough. So at some point you probably end up saying you know what, I’m just going to focus on one Epic because two or three it’s too difficult, and we’re probably not the typical audience, the more typical audience is probably even worse than us in the sense that they won’t put the time and effort to understand what’s happening and try to connect it all together in their head, and will certainly not bother to look at that big chart, if one exist, of how all these universes are connecting to each other. 

So that’s probably the big question mark. Can there be multiple epics truly successful at similar times, maybe not, maybe there is only so much that people are willing to keep in their head. 

Peak TV and Peak Media (41:40)

Nuno: Which brings me to my pet peeve / pet topic: if we’re at peak TV what’s happening if we look at the overall media industry maybe leaving gaming to the side for a second. 

Are we at the point where we have too many streaming services. Are we going to get to that point early next year, with Peacock, with HBO max coming into the market as well?

And I’ll start opening the hostilities, I think we are. I think over the next year, year and a half, we’re going to be at peak TV. And what I mean by that, I’m not saying that revenues won’t continue growing up, but I think there’s going to be a saturation of the market that will show with increase churn of some of these services, and at some point hopefully the industry will come back to either the rebundling of the experience which is maybe what Apple TV Plus is trying to do, as a “meta” layer, or you know with actual consolidation around this. I cannot believe that all these streaming services will exist 5 to 10 years down the road at scale.

Bertrand: Oh clearly not. It’s clear that right now everyone has been trying and there was this interesting article about how the media industry consolidated the past 10 years. 

And I think the idea was: we have to fight Netflix, we have to step by step prepare to build up our own TV streaming service, because there is probably a realization that only a few companies are going to emerge, also that it was going to be a much more global play, not just you dominate the US and that’s good enough, because if you can leverage your content across a much bigger footprint than the US you will be better off.

So yes, there has been the race for buildup and consolidation to build that critical mass, but I would be shocked if in 5 to 10 years there is not just a few clear dominating leaders worldwide. Maybe one or two regional, I don’t know, but yes it will be a smaller number and at the same time let’s not forget we are coming from the TV/cable era: with hundreds of channels that nobody was looking at anyway. 

So yes, my take is that a few will definitely survive, and if I had to bet I would definitely bet on an Amazon, an Apple , a Disney, Netflix, because they have the scale, they have the capacity, they have the dollars, and they all have very different business models. If we think in term of business models, Disney again they have all these theme parks, merchandising, and stuff. Apple has a device, Amazon is selling you everything. Netflix actually might be the only oddity in the sense that they are the only pure play in that industry . 

Nuno: I totally agree with your assessment. And this portraying of tech versus media for me is not a very helpful portrayal, because this war of tech versus media in effect we know the end game: content always wins. So people will be drawn to content as long as the tech experience is good enough and if we look even at what Netflix has done over the years they’ve become more and more a content player than anything else, having become initially just the tech player that enabled the access to all these inventories of content and I think Apple TV Plus will either go for the same play or hope for the best that their “meta” strategy will somehow work. But we do know that content always wins. 

And I think that’s why Disney is what it is today, because it has all these incredible franchises and it can play them to no end. 

Bertrand: And content always win, but at the same time it’s pretty clear that content is not enough to build a business. There was this other great article from Matthew Ball, about the mining of media and how streaming wars are just a battle, yes the best content will win the heart and wallet of consumers, no question, but very few companies can afford to build content. 

If you look at all the studios they are owned by other conglomerates that  are in much bigger businesses. No one can afford to spend $500 million budget on a movie, and if it doesn’t work you are dead as a studio and that’s actually used to be the past in the studio industry in the seventies: a bad bet on one movie and the studio will go bankrupt. So now interestingly enough you’re totally right that the best content win, but at the same time the best content is, in itself, not sustainable enough, you need to have a bigger business model in order order to invest and get the value of this content. 

Nuno: But that’s why distribution matters such a high amount or so much. And at the end in some ways tech is enabling that distribution. A lot of people talk about tech, as tech is gonna disrupt media. Tech doesn’t disrupt media, distribution disrupts media, because getting access to content in different formats is what’s disrupted media in particular. 

If you go about to audio and we started having all the piracy, et cetera. It was distribution. It wasn’t a fundamental shift to technology, right? It was just technology enabling a much easier distribution much more a world in which the control for the different access points wasn’t in the hands of the content developer. And Disney and their current play for example, is clearly along those lines which is: now we actually want to own distribution. 

That’s basically it . and because they saw the writing on the wall, to the value of the article, because without distribution you can’t really scale this much more than you already do. 

Bertrand: I totally agree with you. Technology impact has been mostly on the distribution side. I would just argue that for a few movies, especially again we go back to Marvel, technology has been the enabler in that specific case you couldn’t do Marvel 20 30 40 years ago because the technology was lacking but I agree with you in general, the bigger impact has been on the distribution side.

Nuno: If we look at the extreme situation in which technology has disrupted something, I would say gaming is probably the best example for that because gaming is technology, right?

Now we talk about gaming as media and content, gaming is also technology. There are developers, there are engines behind these things that are massive technology pieces. And so from a software developer perspective, gaming is probably one of the most complex areas to play in, or to develop in, so to speak. 

So for me, that’s the big disruption that’s happened in tech and media.

Bertrand: I totally agree with you, and I think we’ll definitely dedicate an episode about gaming, especially now that after weeks of delay I received my Stadia controller but that’s for another story, but no we cannot talk properly about media without talking about gaming because it’s clear that gaming, in revenues and in potential to grow, is way bigger, and as you say for sure gaming has been the creation of technology, at least gaming in its more modern sense. So that will be an exciting episode, hopefully not too far from now where we will focus on what’s happening in gaming. 

Maybe before we go there Nuno do you want to talk about a smaller company but that is quite still important at least in the US in the media space , I am thinking about Roku.

Nuno: Yes. Roku it’s probably best known for its set top boxes.

They obviously have a content business themselves, they’ve been sort of in some ways the “meta enabler” through hardware and software for this new generation of cord cutters, in which many of us include ourselves. 

I’m a huge user of Roku, a big fan of theirs, but at this stage they’re sort of going upstream, so to speak.

It’s like how do we fight the fact that we’re not a significant streaming player? That hardware in and of itself at some point will get commoditized. And how do we really create user experiences that are defining for our end users. So really challenging space right now for a player like Roku to be participating in. 

Bertrand: Yes they are definitely one of the smaller player, in a space dominated by giants but where I’ve been impressed by Roku is how they changed their business model. I mean the past few years, it has been a complete transformation of this company: from my business is to sell on a TV stick, to I don’t care about making any margin on my TV sticks anymore because I want them to be as cheap as possible, to get the widest distribution possible, because now I’m going to monetize through a revenue share on subscription you buy from Roku, as well as an advertising business. So that transformation has been very impressive to see from far. I think they are mostly done with their transformation. The question probably is how much gas is there in that transformation, it’s already clear it’s probably not going to go beyond the US market but, it does mean a very impressive transformation to see, and so far it’s reflected in the stock price: you are talking about close to 10 X forward sales which is double of Netflix, but it’s coming from a much smaller base. 

Nuno: I think it’s interesting that we have Roku as this pure play that’s still doing decently, $16 billion or so in market cap, and I do think the execution for Roku has been really impressive.

Bertrand: Phenomenal 

Nuno: Changing from hardware very focused, to something that actually looks more like a content play with aggregation, is an endeavor that takes a long, long time, and so they’ve done very well. 

Bertrand: And to conclude two remaining topics on our agenda.

One, was this interview from Liberty media CEO who is forecasting exactly what we just discussed: which is at some point there is only so much space for so many streaming services, and people available time for entertainment, there is an upper ceiling and we’re already there. And let’s not forget media: it’s not just TV shows and movies, it can be stuff on YouTube, it can be Tik-Tok, it can be other type of content, without even talking about gaming. 

For me what was interesting was his conclusion: at the same time there is a space that is under-valued and under-represented where they plan to invest more. Actually it’s in the audio space, and more specifically not in music, but in podcasts.

Nuno: Yes, and that analysis comes from this really strong notion of: you don’t have unlimited time during your day to watch things, but you might have extra time where you could listen to things, and where you can interact with voice. So it’s like a classic use case, latent demand analysis of what’s happening. 

I agree with his view and it has been my view for a while that we are probably at a level of consumption that people really don’t have a lot more ability to consume, certainly in developed markets like the US et cetera. So the ability that we would have to consume more movies ,TV shows et cetera, is not there. I’m limited, I can’t watch more things, I consume mass amounts of TV and movies, and still I just can’t consume more, than it gets to a point where you almost start consuming less. 

 Bertrand: I would suggest Nuno you stop sleeping so that you have more time for your TV shows. Please  .

Nuno: Yes I have literally a list where I follow which episode and season I’m on for all these TV shows.

It’s difficult. Just as an anecdotal data point: over the last year I’ve dropped the most TV series ever. So I watch a couple of episodes: like this is not good enough, I’m done, it’s happening more and more. 

Bertrand: Our bar keeps getting higher. I noticed the same. In a way, we have so much good stuff coming up that: what was considered a great show before, worth my time, a few years after you’re like, seriously I used to look at this show? 

Nuno: Yes and maybe you don’t follow the next season because you’re like you know what, it was okay, and so I still have my popcorn, I call them my pop corn TV series which I just watch when I don’t want to think too much. 

But at the end of the day, at the end of the day, we are consuming way too much. 

Voice audio is here and it’s gonna stay and it’s going to be very interesting. It’s not just podcasts, I do think we’re going to have a big revolution on the audio side, because it addresses precisely what we’ve been talking about. Which is the moments of silence we still have, can still be explored with voice and other things. Now is that good for our society? Humanity? That’s a more complex discussion to be had.

Probably not. We probably should have more silence in our lives rather than less. 

Bertrand: Let’s remove all silence. 

Nuno: Let’s remove all the silence you’re occupied, visually, audio, etc. 

Bertrand: Never alone. 

Nuno: Yes never alone, but I do think there’s an opportunity around audio that is very very significant. We haven’t seen anything yet. 

Bertrand: Yes, I agree with you especially at a time where we all are buying our Airpods, and if you don’t have one, trust me, you will get one, in a year or 2 or 3 years, or another brand. But it’s truly transformational to have these  small gadgets that are finally working well in your ears. As well as your smart speakers at home that can also deliver audio. So there is truly a revolution that, through hardware, is going to change our habits and consumption. 

And maybe to close on this episode, we can’t close an episode on streaming and streaming wars, without talking about the end of the TV industry. It’s not clear how they keep sustaining themselves and obviously it’s going to get worse and worse, and there was his article on Bloomberg on how the TV industry was suffering the steepest drop in ad sales since the recession, 10 years ago exactly. 

Nuno: Well, you know it’s one of those cases, the King is dead long live the King. 

TV is still alive, and as we just discussed maybe one of the dominating forms of media right now in the world, certainly has taken over the movie industry in that respect. So my view is, the TV we’re talking about is the linear TV notion. 

Bertrand: Yes.

Nuno: You know the linear TV, TV ads on linear TV, etc. This money’s going to also TV ads, but just happened to be in streaming, on the Internet and that’s how they account. So I think linear TV , more than just saying TV’s dead because of ad sales, I would say linear TV is effectively that, with a few exceptions. Obviously sports, news and breaking news , and I think that writing has been on the wall for a long time now.

It’s not a new issue, we look at for example Liberty media puts a lot of money to sports TV. There are certainly things there that can still be monetized significantly, so it’s effectively going to become a niche, right. So linear TV becomes niche and video on demand takes over everything else.

Bertrand: I personally think that as you say: sports and news are very special type of linerar TV because you live in the moment, you don’t care if it happened two days ago, you don’t want to see that match again, or that whatever event again. So that part of linear TV I think is there for a long time, even if actually you can consume it from an app I mean no reason to use the old school cable distribution. 

But for anything else it’s clear, it’s video on demand: when is the last time I connected to a TV channel to check some movie or show at a specific time, it’s years. And we might be a bit in advance of the trends but ultimately that’s where everyone is going, and when you see some metrics it’s super bad: linear TV, beyond sports and news, is completely crashing, and basically the only audience that is probably still sticked to it, is probably older generations, that are very used to it, or simply are old enough that they have so much amount of free time, that they are very happy that the decision of what to watch is decided by the channel.

Nuno: This comes from a need that existed, obviously in a pre-Internet and streaming world, where you had limited spectrum, you had very little capabilities to basically deploy a lot of channels at the same time and therefore you had to slot things in.

You have to slot the TV shows at certain times. There was prime time when people were together, et cetera. Consumption has changed massively as well. People don’t consume everything together anymore either. Right? In  households, people have their computers, their mobile phones, they consume in all sorts of places in the house. 

So at the end of the day, if we look at this, you know, it is basically the usage of a much better distribution channel, that is much more efficient, that is quasi-unlimited versus a distribution channel that was limited by nature. And I think the end of linear TV needed to happen this way. 

As I said there will be some niches that will stay where “live” matters. But that’s a world where video on demand absolutely wins, there’s no doubt about it. 

So I think it’s time for us to start thinking about what we do with the spectrum. 

Bertrand: Very very good point Nuno, actually, it’s a lot of spectrum used, and  you could argue, badly badly used, so I guess the question will come soon enough in terms of spectrum. Indeed it makes no sense. 

And my take is that, this is going to accelerate, because linear TV has been declining, this was true before 2019, but as we have just discussed 2019 and 2020 will have been full of launches of very strong streaming offerings. So the question is where is that cliff? I believe there is a cliff in 2021 for linear TV: suddenly, it’s going to crash, to crash down, and right now they had an ability to extract higher prices for ads even if they had less audience, this will definitely stop working pretty soon. 

Nuno: Absolutely.

Bertrand: Thank you Nuno. 

Nuno: Thank you.