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Capital One-Discover Mega Merger & Why Hollywood Execs Are Freaking Out
00:31:55
Capital One and Discover making moves & Ryan Coogler upsets the system
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- [00:01]
Toby Howell
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- [00:31]
Neal Freyman
Good morning, Brew Daily Show. I'm Neal Freyman.
- [00:35]
Toby Howell
And I'm Toby Howell.
- [00:36]
Neal Freyman
Today, humanoid robots ran a half marathon in China. They're already taking our jobs. They're gonna take our hobbies, too.
- [00:42]
Toby Howell
Then Hollywood studio execs are freaking out over a deal Ryan Coogler cut for his new movie, sinners. It's Monday, April 21st. Let's ride.
- [00:56]
Neal Freyman
Big news out of Vatic City this morning. Pope Francis has died at age 88, one day after Easter Sunday. The first pope in history from Latin America, he was Argentinian. Francis was known for bucking his predecessors more rigid views by taking progressive stances for the Catholic Church, like advocating for the world's marginalized and poorest people, criticizing capitalism and climate change, and calling nuclear weapons and the death penalty immoral. Francis had not been in good health this year, coming off a lengthy hospital stay for pneumonia. But he had been making several public appearances in recent weeks, including meeting Vice President J.D. vance yesterday. So, Toby, I saw Conclave, but what happens next?
- [01:36]
Toby Howell
No, seriously, Conclave does a pretty good job of explaining what happens. All cardinals under the age of 80 gather in the Vatican to begin the process of choosing a new pope in about two weeks, just like in the movies. The cardinals vote in the Sistine chaplain are kept under tight lockdown during the whole conclave, with minimal outside news. They need a majority of two thirds to elect a new pope. So the voting can often take several rounds, each unsuccessful. Each time an unsuccessful vote takes place, they burn the ballots and kind of cause black smoke to pour from the Sistine Chapel's chimney. But once a new pope is elected and accepts, the world finds out when the paper ballots are burned with a special chemical that makes white smoke pour from the chapel's chimney, indicating that a new religious leader has been chosen. So it could be very soon after the conclave is convened, or it could take a while. But it will likely be faster than the longest papal conclave in history, which lasted two years in nine months, from November 1268 to September 1271, which they eventually settled when the townspeople locked the cardinals and reduced their food rations until they finally did elect a pope. So hopefully it won't come to that. But that's generally the process that the Catholic Church is about to follow.
- [02:52]
Neal Freyman
In the heavy metal world of credit cards, there is a new rock star in town. On Friday, regulators gave their blessing to Capital One's $35 billion acquisition of Discover, clearing the final hurdle for the formation of the new biggest credit card company in the United States. The acquisition was announced last year and was under regulatory review. Now, company leaders say they expect to complete the merger early next year. This completely changes the credit card landscape. With Discover. Capital One will add a payment network to its arsenal. So not only will it credit cards like banks such as JP Morgan Chase, bank of America and Citi, but it will also present a new major challenger to the companies that dominate the infrastructure for processing transactions. Visa, MasterCard and American Express. Meanwhile, adding Discover will give it a war chest to go upmarket. Capital One currently focuses on subprime customers, those with lower credit scores. But adding Discover will give it an extra $1.2 billion in annual revenue to go after higher income customers who want things like airport lounges and Fanc perks to come with their credit cards. Toby, this is Capital One joining the big leagues, and its rivals are on notice.
- [04:01]
Toby Howell
Yeah, it's really looking forward to unlocking at least $1.2 billion in additional revenue for Capital One because historically they've had to rely on different, you know, networks like Visa and MasterCard to kind of facilitate these transactions. And so when you can cut out that middleman, you have more control over the prices that merchants are charged each time a consumer swipes a card. So it just adds in a little bit of extra cost savings. And you're right. When you have that little war chest now, you can start doing things like upgrading your airport lounges, which has historically been very important to a lot of credit card holders. And you do start to compete at that higher echelon of credit card owners. The Amex is of the world, you know, the Chase, Sapphire Preferred of the world, or Reserves of the world. And yeah, so it does look like Capital One is saying, hey, this is where the, the money is. We've historically catered to this group of people. Now we want to go upmarket. It reminds me even of, like, Spirit Airlines, who typically cater to a budget customer. They're now offering, you know, additional premium seatings in the front of their plane. So I feel like a similar sort of rebrand is happening for Capital One. And this merger Kind of sets the groundwork for all of that.
- [05:13]
Neal Freyman
So Capital One has really dominated the market for subprime. Those, those customers who are in the credit range around 600. They've had this amazing data operation that finds an arbitrage opportunity where others have not. Their stock has increased 13% each year since it went public in 1994. That's far better than most credit card companies besides Amex, which gets this premium because they cater to more wealthy customers. But the problem is they, these people who are Capital One customers are improving their credit scores and they're looking for other options. Capital One says it has 4,42 million subprime customers who have improved their credit card enough to qualify for better products and pricing. And once they do qualify for those better products, they are looking elsewhere beyond Capital One. They're looking to JP Morgan, they are looking to American Express. So Capital One thinks by adding Discover, by adding a payments network, by adding more customers, they're unlocking all of this revenue they can spend on airport lounges and other perks. I mean, American Express is everywhere you can, it gives all of these perks. You can go to a sporting event and skip the line. You can go to JFK or LaGuardia and get into a really fancy lounge. Capital One thinks that by improving those capabilities, it can keep those customers with it over the course of their credit building journey.
- [06:27]
Toby Howell
And then the final aspect is that this deal definitely encourages, you know, the financial services industry who, when Trump was elected, thought they'd see an uptick in mergers and acquisitions. So this deal, everyone was kind of waited with bated breath seeing how it would transpire. Would it actually be approved or not? So this is maybe one of those signs of a thawing M and A industry, especially when it comes to, you know, big financial services tie ups like Discover and Capital One. This next story is for all you runners out there. You ever been in a race and been passed by someone and thought to yourself, holy moly, they're a machine. How are they running like that? Well, at a half marathon in China over the weekend, struggling runners were literally being passed by machines AS21 Humanoid robot models toe the line alongside their human counterparts. Organizers billed the race as a chance for domestic robotics labs to show off their progress, especially as China races for technological supremacy over the US So there was a lot at stake for the assembled group of fitness inclined bipedal humanoids. And like humans, some robots had solid races, while others, not so much. The star of the show was Tian Kung Ultra, a 5 foot 9 inch 115 pound machine that donned an orange tank top for its 13.1 mile romp. Three people ran alongside it to help control its halting progress. Despite one fall and three battery changes, it managed to navigate the curvy and hilly course to finish in 2 hours, 40 minutes and 42 seconds. Not exactly a Boston Marathon qualifying time or close to the first men's finisher who finished in just 62 minutes, but good enough to win the robot race. Especially on a day when only two of the original 21 finished under the three and a half hour time limit. Still, it was surreal. It was a surreal sight on social media this weekend to see these robots outside a factory line or a controlled research setting and amongst real people actually running a race. And a perfect metaphor to Neil for the geopolitical robotics race that is also happening between the US and China.
- [08:26]
Neal Freyman
Totally watching these robots, I saw myself in them. I mean, very few got past the finish line. There was another one that crashed into a wall and broke. Most of them needed a battery recharge, which certainly reminded me of, you know, getting needed, needing some water along the way, running 13 miles. But you're right, this was a showcase for China's robotics industry. The government has made a huge push to invest in this sector. They want to be the world leader by 2027. And to a T, all of these executives that were interviewed who made the robots were saying, this is, you know, we want to make robots that can replicate humans. This is our goal. That's why we're building a humanoid robot. What's a better test of what a human can do than run a race? And they called out the west saying, I don't see anybody over there doing anything remotely close to this. So they kind of boasted about their prowess. Even if, you know, the one, the fastest one finished in 2 hours and 40 minutes, it's still finished. And. And they just think this is a sign of big things to come, not necessarily in the running world, but more to build up their industrial base.
- [09:30]
Toby Howell
Yeah, I mean, maybe running is not even the right term for some of the stuff that these robots were doing. I mean, Tian Kung, who won the race at some points, needed a helper to run alongside it with their hands hovering around its back and neck in case it fell over. A lot of them were run with people holding leashes to make sure that they don't crash. But still, running a course out in the real world is different than, you know, these controlled demos that we've seen a lot out of, you know, companies like Tesla out of Boston Dynamics when they do their crazy obstacle course stuff like that. And it was funny to see just the vast array of robots that were trotted out there. One of my favorites was Little Rascal N2, which was 4ft tall, 66 pounds and it ran kind of like a child. And it just was very funny seeing this four foot thing kind of motor along. Another one had propellers, so they didn't all go as planned. That being said, some AI and robotics experts were saying this isn't actually as impressive as China was kind of framing this to be. The technology for learning how to run doesn't require any AI breakthrough. This has been around for, you know, five years at this point. So basically what this was was more of a hardware endurance example showing that the joints can withstand, you know, two hours plus of pounding because, you know, nearly three hours is a lot of pounding. Like I've run marathons before. It hurts your joints, hurts your knees. So maybe it wasn't as, as big of like the brains of the robot, but it was maybe the brawn of the robot that was on display.
- [10:57]
Neal Freyman
Yeah, maybe it was more like a motorsport, like designing F1 vehicle for these, for these robots to run instead of, you know. Yeah, instead of like a road race, it was more of a, of a motor race. But certainly this rivalry is heating up and the companies in the west are, you know, pursuing robotics. I mean, Tesla. Elon Musk says that his optimists robot will be a $10 trillion unit one day as part of Tesla. They've completely reframed their company in that regard. Metta started a new team under its Reality Labs division earlier this year to produce humanoid robots in video. Jensen Huang, the CEO, said at a key at his keynote speech at CES this January just a few months ago that the ChatGPT moment for general robotics is just around the corner. Amazon, Apple, Google are also making humanoid robots. Jensen says that it's going, they're going to come to factories near you within a few years. So this is the next frontier. This is possibly the next frontier in this tech rivalry between us and China.
- [11:58]
Toby Howell
Well, someone finally did it. Sinners, the Jim Crow era drama thriller survival horror mashup written and directed by Ryan Coogler, starring Michael B. Jordan as twin bootleggers turned juke joint owner owners battling river dancing vampires finally kicked the Minecraft movie out of the top spot at the box office. Audiences are digging it with the movie bringing in over $45 million at the North American box office this past weekend. The biggest debut for an original film since Jordan Peele's Us in 2019 and critics really love it. It currently has a 98% Rotten Tomatoes rating from 223 critics, which when you combine that with its audience rating means it's tied with the Godfather on the site. But here's the issue. Centers has to be not just a success but a smashing one one because it costs a lot around $150 million to make in market and to Warner Bros. Struck a very unique deal with Ryan Coogler. The Black Panther director not only secured final cut approval and first dollar participation which lets them start earning money even before the studio makes a profit, but he also negotiated a deal which 25 years after release reverts all ownership rights back to him. That has the industry shaking in its boots. If directors start demanding rights reversions, the very model of building and owning a film library which spits off revenue through licensing and distributing to other channels like pay per view, the bedrock and money making machine that powers Hollywood could crumble. So Neil, great movie. People love it, critics love it. But the question studio execs are asking if is if the success is having right now is worth shaking the foundations of the Hollywood studio model.
- [13:40]
Neal Freyman
It is a very exclusive club that Coogler is joining in getting this rights reversion deal. It's in only his fifth movie. I mean there are very few directors who have managed to negotiate this with studios and the reason they have been able to do that is A their God tier directors and B that they took very extreme risk to make the movie and often self finance it. So this club is very few. Mel Gibson owns the Passion of the Christ. Richard Linklater has partial ownership of Boyhood which he filmed in stops and starts over 11 years. And then Quentin Tarantino is getting ownership back of Once Upon a Time in Hollywood in a couple of decades which was attributed to a deal that he signed with Miramax before you know it went to to the studio that it did. So this is a very small club. Coogler is not is a amazing director, but he's only directed five films now. So that's what studio execs were saying. They're like, well if Coogler is going around demanding rights reversions from the studios that he's pitching these movies to, what does it mean for the entire industry? We're already reeling from the collapse of theaters post pandemic. What does it mean for us?
- [14:48]
Toby Howell
Right? And the thing that it means is that maybe your library won't be as valuable as it was. Libraries are the main reason why studios have the valuations that they do, because that allows the films to have long term value rather than just their box office receipts. Because, you know, they make it to video or to dvd, they make it to pay per view, they make it to stuff that, you know, people watch after it leaves the theaters. And so if you build up that library over time, that makes your company valuable. But if suddenly 25 years down the line, those movies leave that library, then suddenly your whole foundation for how you are valued, how you make money, is shaken. So that's why people are saying, wow, this is shaking the very foundations of the industry itself. A lot of people have also called out to like, why are we establishing this crazy narrative around Sinners to. Ben Stiller literally tweeted last night that because a lot of headlines came out like, oh, sinners did well at the box office, but it needs to make this amount of money to, you know, turn a profit. And Ben Stiller was like, in what Universe is a $60 million opening for an original studio studio movie warrant this headline? People are saying it's being covered very unfairly when it comes to, you know, the grand scope of the movie industry. But it does have, like this interesting through line of this deal that Coogler struck that is having some studio execs shaking in their boots.
- [16:03]
Neal Freyman
Last week, I mean, we talked about the fact that original films were unable to break through. There is a ton more flops and successes. And then here we have a major success from certainly not any IP that anyone had heard any had heard of because there was no IP behind it. And it has this massive opening, the best for an original film in, in many years. So overall, a massive success for Sinners, for Coogler, who I would love to, you know, meet up with his negotiating team.
- [16:30]
Toby Howell
Up next, it's our winners of the weekend.
- [16:34]
Neal Freyman
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- [16:45]
Toby Howell
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- [16:53]
Neal Freyman
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- [17:02]
Toby Howell
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Neal Freyman
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Toby Howell
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Neal Freyman
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- [17:57]
Neal Freyman
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- [18:16]
Toby Howell
Our winners of the weekend, where Neil and I picked two stories from Saturday and Sunday that had a better weekend than the people of New York City who had their first 80 degree day in months. Neil I won the pre show typing contest. Mavis Beacon really coming in clutch. So I'm up first. And my winner of the weekend is Home Depot because springtime means it's money making time. While your first thought when it comes to Home Depot is that kitchen renovation you've been putting off, the real moneymaker for the DIY store isn't two by fours, it's petunias. Home Depot's garden department makes more money for the business than appliances, lumber or paint. The $20 billion it pulls in annually is more than the entirety of Hermes revenue, because more people need Bergonia than Birkins. So how does Home Depot prepare for the rush of people wanting to try out their green thumbs come springtime with an event known as the Spring Trials? A Wall Street Journal reporter recently visited this all important event in an industrial warehouse behind an office park. Described the magic of the private gardening event where breeders, growers and buyers all mingle to figure out which shapes and smells the garden department will be filled in in the coming years. Right now you're in the present, Jennifer McCormick, one of Home Depot's head of live goods, told the Journal. But when you walk through those doors, it's the future. The goal is to find plants that are hardy enough to withstand different climates and easy enough to care for that first timers become repeat customers after they tasted some Gardening success. The event has also become all the more important as higher interest rates and housing costs have lower demand for expensive renovations. So, Neal, what does the future look like? It's bright, flowery, and Home Depot hopes it smells like money.
- [19:56]
Neal Freyman
This is an incredibly remarkable and sophisticated operation. Home Depot sends a team to Paris Fashion Week each year to keep up with the latest color trends. They're planting all of these gardens, 25 trial gardens in nine climate zones across the United States to test different genetic varieties of these particular plants. Then they sift from 800 down to 40 to 50 that they eventually put in their stores for you to see. Some of these gardens, actually, in fact, most of them, you don't know where they are because they're protected like a high security prison behind cornfields. Because this is truly a huge moneymaker for Home Depot. They can't give away any of their secrets. And you're right, the ultimate goal, as we heard from Home Depot leaders every single time, was that they needed to turn one time customers into repeat customers. So they need to make particular variations to the genetic makeup of these plants so that, you know, people like you and I can't kill them as easily as we would.
- [20:53]
Toby Howell
So what's coming down the pipeline, though? There's a couple to keep an eye out for. One plant variety is Amor petunias. They're named Amor because every bloom has a pattern that looks like a heart on it. Apparently, it's going to be a big Mother's Day hit, so remember that, people. And then ficus is too. They've technically been on the out recently because they shed, the leaves fall off. But a new one with better foliage retention called the Klingon Ficus is, is coming to a Home Depot near you. There's also a basil plant with greater leaf surface area to produce better pesto. And then the star of the show, people were crowding around this one. This was the super cow all weather petunia. Its heat tolerance makes it suitable for every single part of the US Climate. So one person looking at it said, this thing is a unicorn. So those are a couple of the plant varieties that you should keep in the back of your mind next time you want to test out your green thumb.
- [21:47]
Neal Freyman
My winner is the Wall, because this novel piece of arena design is giving the Los Angeles Clippers a major home court advantage as the NBA playoffs get going. If you have no idea what I'm talking about, the wall is a key feature of the $2 billion Intuit Dome, a new stadium the Clippers began playing in this year it's the brainchild of owner Steve Ballmer, who had the idea to create an uninterrupted section of seats 51 rows deep, ultra steep, behind one of the baskets that can only be occupied by die hard Clippers fans. The goal was to throw opposing shooters off their game by stuffing all of the craziest fans on the wall who would provide distractions. And it has worked to a degree few thought possible. According to an analysis by Sportico, visiting teams made just 73.5% of their foul shots when shooting against the wall this season, compared to 76.1% they made at the other end of the floor. That 73% would have ranked last for any arena in the NBA. And the advantage goes beyond foul shots. Road teams made 32.9% of their three pointers while facing the wall, compared to the league average of 36%. We'll see if this home court advantage comes through in the playoffs. The Clippers will host game three of their series versus the Denver Nuggets Thursday night.
- [23:02]
Toby Howell
I one person who is very happy to see these stats is Clippers owner Steve Ballmer, who put $2 billion into this new arena. And the whole arena is geared around making it a very hostile place for opposing teams. And the way you do that is by keeping, you know, these crazy fans in their seats at all times throughout the game. So there's other aspects where there's a lot of easy commerce that you can do right from your seat. You don't have to like wait in long concessions lines. There's also a ton of restrooms so you can get up quickly, find an empty toilet, get back to your seat before the action starts. They have clocks around the arena telling people how long it will be until the action starts up again. And the whole environment is geared towards really like a European soccer style environment, which it actually was inspired by. Bruce Adorman has this thing called the wall where all their diehard fans sit behind the opposing goal as well. So I love that, you know, he put his money where his mouth is. He's seeing some results now with the free throw percentage, but we'll see if it's actually an enduring mode or if it's more just a one season aberration.
- [24:02]
Neal Freyman
Yeah, here's the problem. The team they're facing, the Nuggets actually has the best home court advantage of any team in the NBA. And Denver teams do have the best home court home court advantage across sports because they're up a mile high and it's very hard for opposing teams to come acclimated with that elevation. And the Clippers already lost game one. They're playing game two tonight. So they may go back home to the wall at an O2 deficit because the one team that has a better home court advantage is the team that they're playing. It's Monday, so here's what you need to know about the week ahead. Top finance leaders from around the world will gather in a post peak Cherry Blossom Washington, D.C. for the IMF and World bank spring meetings, a major summit to discuss the most pressing global economic issues. Of course, the trade war and negotiations on deals to lower tariffs will take center stage, including in the IMF's closely watched World Economic Outlook forecast released tomorrow. The IMF said it will slash its own growth forecast due to the trade war, previewing notable markdowns, but not a recession.
- [25:01]
Toby Howell
Yeah, usually when all these economists gather for something like the imf, they talk policy coordination, things like climate change, inflation. But now this year, the one topic of conversation will be tariffs. Also, a lot of focus will be on one man in particular, U.S. treasury Secretary Scott Bessant, who is kind of the lead negotiator for the Trump administration when it comes to tariff deals. So whose support also for the IMF in general and the World bank is a little bit of a question mark. So a lot of uncertainty they say. You know, economics has earned the moniker of the dismal science. So I think it's kind of living up to that moniker right now.
- [25:37]
Neal Freyman
Can you believe that this is the first time we said tariffs in the show? I know, all the way down here.
- [25:42]
Toby Howell
That is a new record. Mark the timestamp right now.
- [25:45]
Neal Freyman
If you don't know how to read a financial statement, time to brush up because this week has more than 120 earnings on tap in the Magnificent Seven. Tesla and Alphabet will drop their Q1 performance. Corporate America stalwarts Boeing, AT&T, Procter and Gamble and Pepsi are also on the docket. Plus Chipotle, Southwest and American Airlines investors will be listening to how exactly the trade war impacting their businesses.
- [26:08]
Toby Howell
I'm excited for Chipotle as well because springtime typically means it's burrito season. You guys think that springtime is marked by pollen? I think it's met by increased foot traffic buying more burritos from Chipotle.
- [26:19]
Neal Freyman
The Boston Marathon, the world's oldest modern marathon, is happening later this morning in picture perfect weather. But the runners might have to dodge a few war reenactors along the way because this weekend Boston held major celebrations marking the 250th anniversary of the start of the Revolutionary War. Friday was the 250th anniversary of the ride of Paul Revere, while the next day people stage a reenactment of the Battle of Lexington and Concord, which started the war back in 1775. Toby more impressive running the Boston Marathon or Paul Revere's 16 mile midnight ride?
- [26:52]
Toby Howell
I mean, it's the horse that we should be giving kudos to. But if you are a Boston Marathon fan and you're looking for someone to root for, look no further than American Connor Mance. He just set the half marathon US Record, so he's in good form right now. The last 41 years, only one American has won the Boston Marathon. So if you want to root for someone, put your put your energy behind. Conor Mance.
- [27:15]
Neal Freyman
I think if there's a year for it to do, it's the 200, 250th anniversary of the start of the Revolutionary War. So let's go Connor. In team sports, the big event this week is the NFL draft beginning on Thursday in Green Bay, Wisconsin. The Tennessee Titans are on the clock with the first pick. And while we could consult Mel Kuyper, here's how Google's Gemini AI thinks the draft will go. The Titans will take Miami QB Cam Ward at number one. Then the Browns will take Colorado's two way star Travis Hunter at two. And the Giants at three will take Shader Sanders, the quarterback from Colorado and the son of the Buffaloes coach Deion Sanders. How did Gemini do?
- [27:50]
Toby Howell
I don't know. I mean, that sounds actually pretty spot on. But I'm just worried about the fact that Green Bay is hosting the NFL draft. Last year, 775,000 people descended upon Detroit over multiple days for the NFL draft. That was a NFL record at the time. Green Bay has 5,000 hotel rooms. If you expand it more to Appleton in some cities a little ways away, it increases. But how can that many people descend on a city this small? I hope Green Bay figures it out, because if not, people are going to be sleeping outside on some some chilly Green Bay mornings.
- [28:26]
Neal Freyman
Also in sports, in a way, the world's first sperm race will be held on Friday at the Hollywood Palladium in Los Angeles. This is a real thing. A couple of teenage millionaires have created a startup called Sperm Racing in which they'll pit representatives from UCLA and USC against each other in a contest meant to raise awareness around male fertility issues. The track is 8 inches long and sperm typically swim at 5 millimeters per minute. So each race there will be three will take at least 40 minutes. The hosts say there will be play by play commentary, instant replays, leaderboards, and betting through polymarket. According to the Sperm Racing Manifesto, it's about turning health into a competition addition. It's about making male fertility something people actually want to talk about, track and improve.
- [29:10]
Toby Howell
I mean, my weird story is I know the guy who founded this. He. He kind of is a young kid. He used to take meetings with VCs in his bathroom at high school, like, literally. And I talked to him. He was in the stall of his toilet. So definitely like a viral marker, knows how to generate a lot of headlines. And yeah, they think that this could be as big as Formula one racing or the ufc. They're.
- [29:32]
Neal Freyman
I don't actually think.
- [29:33]
Toby Howell
Yeah, they don't. Again, it's part of it is just bringing attention. Most of it is bringing ATT into this issue. But, I mean, hey, they got us talking.
- [29:39]
Neal Freyman
Let's wrap it up there. Thanks so much for starting your morning with us and have a wonderful start to the week. For any questions, comments or feedback, send an email to Morning Brew daily at Morning Broadcom. Let's roll the credits. Emily Milian is our executive producer. Raymond Lu is our producer. Our associate producers are Olivia Graham, who celebrated her birthday this weekend. Happy birthday, Olivia. And olivia Lake. Eugenia Ogu is our technical director. He's here all week, folks. ScoopStar Daris is on audio, hair and makeup has a green thumb for all your gardening needs. Devin Emery is our president and our show is a production of Morning Brew.
- [30:13]
Toby Howell
Great show, Neil. Let's run it back tomorrow.