← Pablo Torre Finds Out
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- [00:00]
A
Welcome to Pablo Torre Finds Out I Am Pablo Torre. And today we're going to find out what this sound is.
- [00:06]
B
Umfo.
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A
Right after this ad. You're listening to Giraffe Kings Network. David could not put more hand sanitizer on his. On his mitts.
- [00:33]
C
I touched John's hand, and then I was looking at John, and his eyes are completely red and pink. And I know what that means. He's got pink eyes. So I nicely asked, do you have pink eye? Hoping the answer was no.
- [00:45]
B
I have conjunctivitis.
- [00:47]
C
Either way, you're contagious and we shouldn't be sitting next to each other like this. And I want to leave so badly right now that I can't even tell you. I don't know what we're talking about today.
- [00:56]
A
Well, we're talking about this to start. Just. I am continually staggered by how different the two of you are. John has no. No. What's the. What's the word?
- [01:08]
C
Compunction for compulsion.
- [01:09]
A
Compunction. He has no conjunctivitis. Compunction.
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B
I'm not grotesque. I just. I'm simply not squeamish.
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C
I don't consider myself squeamish.
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A
Actually, I do.
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C
Do you? I don't mind snakes.
- [01:23]
A
You don't mind? Well, you mind dogs.
- [01:26]
C
Well, I don't like dogs. That's different than minding them. I'm not screaming. I just don't. I don't think it's nice to come in here into a little studio with pink eye. I actually don't think it's nice of John to have done. He could have called. I mean, you've canceled for far worse things than pink eye. This seems to be legitimate.
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B
Well, you mean far less things than.
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C
Far, far less important.
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B
It's not really a.
- [01:46]
C
Hey, I got.
- [01:46]
B
It's not really a effective comparison to say I've canceled for worse things. Yeah, the effective comparison is damn you. Canceled for, you know, open lesions. Well, that would be worse. Actually, I think.
- [02:04]
A
I believe that John's health seems pretty good. He looks. He's doing so much better than I imagine he was doing over the weekend.
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B
I'm. My eyes are better. Should we start or.
- [02:18]
C
I. I'd like to start. There's so much going on.
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A
There's so much going on.
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C
Thank you for having us here again.
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A
It's my pleasure. We lock the door, by the way. So you're also stuck here.
- [02:27]
C
Another strange thing that I've never seen happen before. Well, we're locked in this studio, and that made me.
- [02:33]
B
You're not in here until.
- [02:36]
C
No, I can leave at any moment. That's the beautiful thing about my life.
- [02:39]
A
But the thing about the door is that you can't.
- [02:43]
B
I think they've locked in, they've sealed and they've cut off the air supply. So whatever is being dispersed around the atmosphere will, soon, I will just tell.
- [02:53]
C
You, permeate the atmosphere. My life is governed by things that make sure I don't lose freedom.
- [02:58]
A
Yeah, yeah, yeah. I got bad news for you. There is actually quite a bit for us to get to. And this topic that I want to lead with is one of those enormous topics that you both are uniquely qualified to shed light on, because DirecTV and Disney's carriage dispute. When I say the term carriage dispute, it does not sound particularly sexy, I must admit. It sounds like in 1800s, you know.
- [03:43]
B
Sounds like a couple of gentlemen up on a surrey with a fringe on top arguing, yes, it's a carriage.
- [03:49]
C
I don't believe anyone thinks of it that way.
- [03:51]
B
It's a carriage dispute. I was here first. Get the down off my carriage.
- [03:56]
C
There is so much money at stake that these carriage disputes are so sticky. Because if you blink.
- [04:07]
B
Are you dirty? Are you using these metaphors relative to your eyes and eyes?
- [04:13]
C
There will be 12 of them throughout the show today. It's up to you to find them. But I've made it my life's work to make sure that John knows at all times during the show that I've not forgotten about his eyes. But, yes, this is. These are obviously very important situations and what we thought. What made it more interesting to me is that we thought there'd be a deadline on Nothing Personal. I had to wait to see that it would end by the Monday Night Football game because that is what we have always seen. And the fact that we didn't see that, to me, that has now opened the door to major future events.
- [04:48]
A
Yes. So the big. The big sea change, it seems, in how the story tended to go when Jon was overseeing a carriage dispute that in this case, in this context also seems to be full of various allegations of manure, is that jets 49ers did not air on DirecTV.
- [05:06]
C
So you have to picture in the room, and this is what I've been thinking about all weekend, is the crusty old men who are in the room negotiating this and how. What changed for DirecTV, I think, is the realization that they can't give in to what they are fighting for because to them, it's their last chance to actually have a going concern. And I'm not sure if that ever existed before.
- [05:33]
B
Well, I. First of all, Pablo, you said didn't happen when I was in the seat. Well, this time I was in seat was different. Right. This circumstance is different. I'm not sure that anyone could have prevented this because it's been building for a long, long time.
- [05:50]
A
Could you explain, John, for those who are unfamiliar with what this even is, what is the argument here?
- [05:56]
B
Well, start with what is the situation here? The situation is that Disney ESPN has an agreement with DirecTV which I believe ran out the last day of August. That is when all of Disney ESPN's big deals run out. And that was deliberate. It, it's deliberately set up. And there's one big deal a year. DirecTV comes up one year. Dish comes up one year. Comcast comes up one year. A charter comes up one year. That was last year.
- [06:28]
A
And that is by design.
- [06:29]
B
That is by design because we were able to create what we thought was a roadblock of great sports content that no distributor would be willing to to take us off the air. And up until this year and this event, which as I say is a different time, a different circumstance, that always proved to be true. And while there always were protestations by the distributor, we're going to black out your stations. We can't agree to this contract you have in front of us. I never for a minute believed any of it. I always knew we were going to get a call at 10:30pm that yes, we're going to sign the agreement. We, we're not going off the air. And that's what always happened. And there have been other disputes with other people and they've always gone off. They've always been curtailed by the sight over the horizon of an NFL game. The highest rated programming There is 93 of the top 100 ratings last year were the NFL. So this is the best content you could put up. Monday Night Football, the first game, I believe there was a dispute a few years ago with CBS in which their first Sunday game prevented it from happening. I think the charter agreement last year with ESPN and Disney stopped because here came NFL around, around the pass. This time it didn't work. And by the way, we triangulated that NFL content with somewhere between 25 and 35 college football games, when our college football games are really popular in the Southeast and the Midwest, the West Coast. So we always made sure we had games in every territory that the distributor was in. And we bought all of the US Open and which meant that on that final weekend you could have come college football Games you could have the semis and finals of the US Open. And here came Monday Night Football. And nobody was willing to forego the loss, the actual loss of subscribers. They would have, people would start going out of their minds and they would start calling up the distributor and going, I'm going to switch. Now, interestingly enough, the easiest ones to switch to were the satellite operators. Right. They could get you in and out pretty quick. And, and we once had an agreement to do the SEC network with Dish and they got a right to advertise it for several months before the SECs and started. And they had people switch. It was a great time period, maybe in the last time that DISH actually went up. So this is deliberate. It's always worked. And the fact that it doesn't work means we're in a new world. And the main thing about that new world is, is what David said is these distributors are declining in subscribers so fast that they're going, what the hell, I'm going to lose, I'm losing subscribers already. I'm just going to lose more if I accept this deal. They're going to lose more if they don't, in fact. But that's what's happened.
- [09:42]
A
Well, David, the idea that all of these customers are faced with this choice of like, if I can't get my football, I'm out of here. Right? That is, that has been the thing that John clearly was quite confident in as the deterrent for why these deals would get brokered, why DirecTV would pay a fee that they believed as they were doing it was way too high. Right. To Disney, the strategy of the rollout, the timing of it, U.S. open college football, NFL. Was that all obvious to you as somebody in sports business, that they were up to this, this strategically, when you.
- [10:20]
C
Say up to this, I, you know, I, I think it's great that John presents us with this great Mavellian plan that they had in order to max all of their money. And I get it. But here's the thing that he's not saying that I think has to be said, John, which is you counted on espn, specifically counted on a never ending flow of funds from distributors that you would then pass on a percentage of to the people making the content, actually, which were the sports teams who would give you their live content. And you kept, you're in the margin business basically, and you had guaranteed margins year after year. But when the world changed, ESPN to me, among other places, is trying to hold on to a flow of funds that is really not the case anymore. And I Present this as. As somewhat proof the deterrent he discussed was real. If I can't get my NFL game this way, what am I going to do? How. How am I going to get an appointment with the different cable company? How am I going to get DirecTV? You say it was easy. They gotta come put the dish on. Can I face north and south and east and west? Now I can't get it from you. I am one click away, one click for the overwhelming majority of households to get exactly what I'm missing from a different provider. So I believe that all the leverage that used to exist on both sides between DirecTV and ESPN has changed. And that's why no deal happened, because both sides still are holding on to this thought that it's the world that did exist in terms of the relationship between the distributor and the content provider. And for me, that world, as you said, has changed. And we're now going to see a complete change in the economics of it.
- [12:07]
B
The world has changed. Now I'm going to quarrel with you, first of all about your Machiavellian. It was. Machiavellian isn't all business, by definition strategic and tactical. It just was a tactic to take advantage of the fact that you had the most complimentary. You're the only person who could use the adjective Machiavellian as a compliment.
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A
David had a poster of Niccolo Machiavelli, I believe, in his bedroom where kids would have, you know, it was the.
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C
Prince, Phil Sim Farrah Fawcett.
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B
But for the average Machiavelli, I will say for the average human being, Machiavellian is a synonym for manipulative. And manipulative in a. In a. In a power frenzy of.
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C
Look, we, we say it like you don't want to admit it. It's okay. You are that way.
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A
But that's the tactic. The tactic, right. For just a second. Part of the brilliance of it. So John mentioned the US Open in that triad of products that would be coinciding at the same time. Don, explain why the US Open mattered. Because that is not nearly the same product as college football and the NFL, the two most popular sports in America. Why did the US Open matter for this specific strategic reason?
- [13:21]
B
Well, among other reasons, when the U.S. open happens, the media world moves out to Flushing Meadows. And every CEO of pretty much every distributor and every media company is sitting in a suite somewhere and they can all see each other. Assuming their eyes aren't cloudy, they can all see each other from their suite. And nobody wants to be the chairman of DirecTV. And sitting out there at the Open and having a bunch of people looking at them across the court going, you, you mofo. I need to watch my U.S. open tomorrow. And I can't watch it because I have DirecTV and I'm gonna have to figure out some way to watch it other than coming out here. So it's the media world gathers out out in Queens and it, it was the right, it's amazing, right thing to do.
- [14:11]
A
It's amazing that the flesh and blood politics, the local, all politics being local, like just having a luxury box being a fulcrum of influence over a multi gazillion dollar dispute, which, by the way, DirecTV has on the record previously accused Disney of negotiating in bad faith. You know, all that stuff. The blood seems to be growing, works well.
- [14:33]
B
They're mad about venue, right? I mean, DirecTV was mad about venue, which clearly was a new service which would be competitive with their service. And they have asked to have the ability to do a lighter sports package, to sell people just sports in a sports package. And at the Walt Disney Company, they've already always resisted that. I, I would quarrel with another thing which is until now, the world did not change. Disney was indeed continuing to get annual year over year revenue increases, mostly which offset the decline of subs. So that their revenue has not been going down. I think I saw in their latest quarterly report that their distribution revenue had actually gone up year over year. So they were enjoying. And that is their strategy is that as I know that these subscribers are coming down and down and down, but we're going to launch our own streaming service. We're also in Fubo and we're in YouTube TV, so we're in all the light packages. So our distribution revenue has not. Our increases have gone down, but they have continued to live in that world. They also have a set of MFNS on all their distribution deals. And if you read their press releases, it's clear that what they're trying to say, they're. They're arguing in public and the public doesn't understand what they're arguing about, but they're saying in public, we have offered you everything we've offered any other distributor.
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A
MFNs, by the way, meaning most Favored nation.
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B
It means that if you give DirecTV something that Comcast and Dish and Charter don't have, then they're going to have their lawyers call you the next day and say, great, we get this too. So it's not just whatever the differential in money is between DirecTV and Disney, it's a Differential between what they give them and then what it costs them to give the same thing to all these other distributors. Disney has the more defensible posture, by which I don't mean defensible in a logical way or trying to convince the customer, by the way. Neither. Neither company though all of their emails that go out have everything to do with the customer. We're just thinking about the customer. They're not. They're thinking about the money they're going to get from DirecTV. DirecTV is looking at their shrinking universe and their universe is shrinking. Yes, they were. They were once north of 20 million. They now are reported to have 11 million subscribers. I doubt that takes into account the number of hotel rooms and apartment building complexes they're in where they don't get the same amount of money they get for a household that calls and has a truck troll up in. So the situation is actually worse for them than it sounds.
- [17:29]
C
It's worse for all of the distributors. I mean, we can talk about ratings and all the different ways that people count things. I'd like to go revisit though, when you're saying that the ESPN and Disney distribution revenue, the allocations are what's changing. And the reason why we know that is ESPN and Disney are investing so much in direct to consumer. This is all of their argument is we're going dtc, as they call it, direct to consumer. They are pushing everyone, as is everybody else, toward their streaming. And it's going to end up being, as you predicted, behind subscriptions, maybe even behind paywalls, maybe even pay per view. And when you were doing deals that what you. If you say you have an mfn, one thing that we should clear up for the audience is it's not the same contract. Because if it were, then there'd be nothing to negotiate and it would just be a multiple of the number of subscribers. And then it would be fill in the blank. Because it doesn't mean like it's a matching contract. It means that there's certain provisions contained within the contract or certain things that if they exist in other contracts, have to exist in the current one. But there's all sorts of differences. I assume that you would agree that you're not just copying and pasting to the different distributors.
- [18:45]
B
The MFN that matters the most is the MFN around price. And I do not know if things have changed in the past few years, but ESPN had one price and that is the most important thing in their MFN is if you get charged $12 for all of our channels. Then everybody else has to get 12. Charge $12 as well. You're right. There are provisions relative to what the channel position is, relative to what promotion.
- [19:17]
C
The tiers. All sorts of different money can be in there. Because remember, you can charge $12 for a subscriber and have that not violate your MFN. But what you get back in consideration could be totally different with different distributors.
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A
When you say channel position, quick point of clarification. Do you literally mean the lineup of channels?
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B
Yeah.
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A
I don't know any of this either.
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B
You want to be as low as possible.
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C
No one wants to be 269. You want to be 17.
- [19:42]
A
Wait, so what you're saying is that the channel lineup is also a reflection of a hierarchy of economic.
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C
Have you ever gone grocery shopping?
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A
I have.
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C
Do you know that the stuff on the shelves is not there by accident?
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A
So all of this does make me feel very stupid.
- [19:57]
C
No, I don't.
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A
Retrospect. No, it does. It does make. Of course, it makes sense that the real estate question is a real estate question. When it came to the channel lineup, all of this being negotiated under these various terms and agreements.
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B
Well, on most people's systems, it's still the case that CBS is 2.
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A
Right.
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B
And NBC is 4 and ABC is 5.
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A
It felt like a constitutional decree. Like, yeah, they're 2. Yeah. Of course, CBS 4 is NBC.
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B
And then ESPN at one point on DirecTV was 206, 207, 208, 209, Etc. Because the second best thing is to have all your channels together. Right. You won't, because. So people can scroll among the many, many ESPN channels and you can see what college football game is on espn. One, what game is on two.
- [20:46]
A
What.
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B
What game is on you?
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C
It started when it was a dial.
- [20:51]
B
Yeah.
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C
So you have to imagine the effort required to go to higher on the dial.
- [20:59]
A
I just want to acknowledge the glee, the visible glee that both of you have on your faces remembering how cable television worked.
- [21:06]
B
That's not cable. That was actually rapid ears over the air that you had to get up and go, oh, I'm on CBS, Channel 2. I want to watch Brinkley and Huntley instead. So I'm going to cut over, over to four. Click, click. Oh, I don't like that. I'm gonna go today over to 7, 5, 6, 7.
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A
Every part of this, including my own reflection on the channel lineup, is so foreign to the young people that exist today that we are finding ourselves the place that DirecTV and Disney have found themselves. Which Is a very different economic landscape for everybody.
- [21:57]
C
DirecTV's main focus now, they don't care as much. So once Monday passed, I think everything changed. And there's some people saying that the new deadline will be the next NFL game, which will be next Monday night. My view is that I don't agree with that. I think that once you're in for a penny, you're in for a pound now. And the penny was missing the first Monday night game. Now that gone, DirecTV, in my opinion, is going to dig in as they need to, because I think they use the word and I like it. When this comes up in business, it's an existential crisis, which means this literally goes to whether they will live or die. And while John is saying they're dying, that may be true, as are we all. So act accordingly. But it's the speed and the slope in which your death comes that tends to change your action. If you know you're dying tomorrow, you're going to act differently than if you know you're dying in 50 years. So DirecTV has this feeling as they try to figure out how not to be blockbuster, how to change their way of making money. How long can we delay the inevitable?
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A
What DirecTV seems to be saying for the first time is something that they would never have said to John and to Disney in the past, which is, we don't negotiate with terrorists.
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C
They seem to be saying, unfortunate expression.
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A
They seem to be saying that you guys have had your way because the world you used to live in meant that we needed you. And they're saying now, John, we are in such dire straits that I'll take the devil that I know versus the devil that I've resented for years and years.
- [23:32]
B
Well, I'm not sure what devil it is they think they know. I mean, they still need this product. They do not have a business while it's existential for them because they're probably making less and less money and. And they're certainly the biggest check they're writing is to the Walt Disney Company. What are they going to do without it? They're just simply going to decline faster, right? I mean, the math always, and I may be wrong now, the math may work differently. I don't understand how the math can work for them. They're going to lose customers, which means they're going to make less money if they don't. And by the way, they're going to have to. This only has one outcome, and that is that somehow it Disney gives them something as they did charter that Makes them think that it's worth settling because now they're in, both sides are in a bad position. But make no mistake, DirecTV is in a worse position.
- [24:26]
A
They are now offering and recommending 7 day free free trials from Fubo. Sending people over to the Sling Orange service, giving them $30 credits for DirecTV. They're trying whatever they can to satiate.
- [24:39]
C
Just PR it the customer.
- [24:41]
B
It is and it's astonishing. I mean it's like if the UAW struck forward and they were giving out stickers to people to buy Chevrolets, you know, you ought to buy a Chevrolet as opposed to not buying a car. It's a, it's a move of desperation to give your, your customers a coupon to buy your competitor's product because you're so mad at your, at your wholesaler who's bringing in your fruits and vegetables that are like I'm going to send people to Piggly Wiggly.
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C
But it keep.
- [25:16]
A
We can get older. I believe we can get even older.
- [25:19]
C
By the end of the mat.
- [25:21]
B
Piggly Wiggly is a flourishing chain in the southeastern part of the United States.
- [25:26]
C
The key to offering the seven day trial period, keep in mind, is no one is getting rid of their dish. In that instance, you're not cutting the service, you're not getting people to come pick up your dish. You're not returning your box. You are simply getting an alternative for that seven days. So I think it's a brilliant strategy in order to try to appease from the PR standpoint because the war had.
- [25:49]
A
It's not a land war. Well, it's a land war if anything.
- [25:52]
B
Wait, do they still, if you cancel direct tv, do they still come get your dish?
- [25:58]
C
I, I assume that you don't just let it sit on your roof.
- [26:01]
B
I think you do actually. I don't think it's.
- [26:03]
A
Is it now too expensive to pick up?
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B
Given the fact that, that 10 to 11 million customers have canceled their service in the last couple years, do you think that there's a place where there's like 10 million dishes?
- [26:17]
C
There has to be a dish graveyard somewhere.
- [26:19]
A
This is according to a website called satellitedishremovalguy.com in the DirecTV FAQs section. Dismantling of the satellite dish falls on the responsibility of the customer. The dish actually becomes yours once it is placed on your house.
- [26:34]
B
So 1 to 0.
- [26:35]
C
Stand corrected. 10 for material man.
- [26:39]
A
In the land of the blind, the pink eyed man is king.
- [26:42]
B
Molly, you'd know this if you ever drove around up and you saw all of the. All of the rusty, shitty dishes that are still sitting out. You think those dishes still work? Yeah. They have to take that dish away because the dish actually attracts those signals and you can't cut it off. It's still.
- [27:01]
A
John.
- [27:01]
C
Okay. Can I have a wellness check?
- [27:03]
B
It still keeps coming into the house. These signals, these waves, microwaves, the fall.
- [27:09]
A
Of America measured in just loose satellite dishes, rusting satellite dishes. An empire. A fallen empire. A moat, as John used to call it. A moat. The biggest possible moat, meaning sports rights now being. What is it? Trebuchet over now, just like it's. So all of this, it speaks to the reason why it is existential. Not just for the people in the business of cable television, but also for the business of sports, of course. Is that just to remind everybody why we care about this so deeply, beyond it being your previous personal bailiwicks? It's because this. From this pie come all of the salaries and. And the largesse of sports as we.
- [27:50]
C
Understand it today, of players.
- [27:51]
A
Of players, sure.
- [27:52]
C
You say that.
- [27:53]
A
Yes.
- [27:53]
C
All the money we talked about, the river of money it flows from the cable company DirecTV down to ESPN, down to owners, down to players, down to whatever it is they buy with their money. And anything that interrupts that flow has pretty serious consequences.
- [28:14]
B
And so, yeah, I'm tickled that the CEO of. You're coughing a lot, David. Are you sure you should have come in here today?
- [28:20]
C
I have pink throat.
- [28:23]
A
Jesus.
- [28:24]
B
So I'm enjoying reading that the CEO of DirecTV predicted that they would not settle that week.
- [28:33]
C
Of course. It is his control. I wish I'd known that.
- [28:35]
B
Yeah, it is within his control and he's determined to be right about one thing.
- [28:40]
C
Well, it is his. We are not gonna settle if he gives in. So one side can always give in. In a negotiation, you just lose.
- [28:49]
A
What he has said, though, is that he will make history. They will lose the NFL game by choice. Mark his words. Read his lips. And they have been marked and they have been read and history has been made.
- [29:02]
B
We need something that is going to work for the long term. Sustainability of our video customers, which I'm sure is actually what he's worried about is the sustainability of those customers.
- [29:13]
C
He wants them to keep paying.
- [29:14]
B
Yes.
- [29:15]
C
I'm as cynical as you are. It's not about the customers ever. Or the fans or the audience. It really isn't. It's about the business side of it and the stockholders. That said, DirecTV, as I said, while they're waiting to figure out how they are going to change their business. It is incredibly important to them to get this deal done correctly. And it used to be important just to get it done. That used to be the threshold. Just do the deal, man, at any cost.
- [29:40]
A
It does not feel like John was ever really nervous during this part of the calendar when he was not, you know, he never set by the same.
- [29:50]
C
He never lost pressures.
- [29:51]
B
It was a different time and circumstance. But no, I was never worried that anyone was going to call our bluff.
- [29:59]
C
Do you know how hard it is in business when you have done nothing but win? When you've done nothing but been on the power side and then all of a sudden it changes, the power dynamic changes. It's very hard to make that adjustment.
- [30:12]
B
Yeah, I am and I know neither one of us actually know this. I'm not sure the power dynamic has changed. The circumstances have changed. And it may have changed such that ACO has thought it was the right thing to do for his company to actually stare them down and go, I'm not giving in. The question is just, you got to figure out what deal it is you want them to give in to. And ultimately that's how it got solved last time is Charter said, what we want is the ability to sell your streaming services because we know what's coming in the future. And I just don't know what it is that DirecTV wants from them because what that is they're able to give. Right. What they want from them is more flexibility, lower prices. They're not going to do that.
- [30:59]
C
They can do the more flexibility.
- [31:01]
B
They can do it, then they have to give it to everybody else.
- [31:04]
C
I think more. The MFN is probably more price related. I think we talked about.
- [31:08]
B
No, it's also. It's also tier related, I'm almost certain.
- [31:11]
C
Okay, tiers. When you say flexibility, I'm talking about in terms of not. Not just where, but what else gets offered with it. Like the bundle almost is really a lot that comes up in these conversations.
- [31:21]
B
Yeah, I mean, it's interesting now that I think about it. The ironically, the closest we came to a dispute was when AT&T announced that they were going to offer sports tiers. And I'll never forget calling them and going, you do understand this conflicts with your carriage agreement. And they said, we understand that, but this is the future. And you're going basically said, you're going to have to give in because this is good for our customers. They want more flexibility. And I remember thinking, man, you just don't get it. By the way, it was a new executive who had come in to run DirecTV. And I remember thinking, you're going to lose this. First of all, you have a signed contract, which is easy to predict, but they were sure that they would win the PR battle. I'll never forget turning to somebody, probably somebody in the office or somebody who was out in the hall that I walked out to and I went. They threatened me with fans, are, we're going to win a PR war with you. I'm like, you're the phone company. Remember? You know how popular you are. You're the phone company. You're going to win with the. In a PR battle against one of the. At. At the time, one of the country's most popular brands, which was almost ubiquitous in our landscape, espn. You're going to win that PR battle with us. And they didn't, of course.
- [33:00]
C
So you're so used to being the man that you may not recognize that ESPN and Disney have become, oh, trust.
- [33:06]
B
Me, I'm not used to being the man anymore. I remember what it was like to be the man, but I am clearly understand that I'm not the man anymore.
- [33:15]
C
I view you as the pink man. But I do respect that you are looking back at that time as, oh, no, no, think about it, too. But I do think it's different now.
- [33:25]
B
Oh, it's quite different.
- [33:27]
A
But what's funny, right, is that it is not simply, John, I'm Mr. ESPN, it's. I am the ones trying to give. I am the one trying to give football to your customers, and you are preventing them from having it. And that, to me, like, that's the, that's the, That's. That's the hand that wins is.
- [33:47]
C
Is that the PR stuff bothers me. You know, the people are. They're going on cnbc, they're going on Squat Boxer, then they're doing releases, or they're going on shows and podcasts, and they're trying to give their side of the story. And they're doing it to me so poorly. As John said, no one really understands what the issue is. People are more. The audience is more of a, well, can I see this game or not? Do I have this channel or not? That's all they care about.
- [34:10]
A
That is the question.
- [34:11]
B
Yeah. And what are my alternatives? And you correctly pointed out that there are better alternatives now than there used to be. It is easier to switch.
- [34:31]
A
I mean, let's talk about the NFL being. Yeah, John, I mean, back in, back when, when you were again making these deals, it was one way. What was that way like, compared to Now?
- [34:40]
B
Well, it was. You had a Thursday night game, you had games in Sunday afternoon, and you had a game on Monday night, a game on Sunday night. Now, there are lots of games around, lots of different places. And my suspicion is that fans are more willing to miss a game or they just go to their local bar, they go to a friend's house who has a different service. I don't think it's that hard anymore.
- [35:05]
C
Yeah, I'm not sure they're missing games from their couch. That was really more of my point that they don't even have to be inconvenienced to leave the house in order to get the game, even on a device they're carrying with them.
- [35:16]
B
Yeah, but there is. What is the. What can they buy to get ESPN's Monday Night Football game on their couch?
- [35:22]
A
Hulu.
- [35:24]
C
YouTube. YouTube Live.
- [35:27]
B
Hulu Live. Yeah, it's. But it's not, it's not incons. It's not trivial to change your service because it's not like you're just, oh, I will go over to Hulu and get espn. You just cut off a bunch of other stuff. You still won't as well.
- [35:41]
C
Well, no, actually, when you get Hulu Live tv, you click. It's one. It's one click. I only know this because I just did it. I did the click for YouTube TV and the Ticket.
- [35:52]
B
But you still have to figure out how to get Fox. You just cut your DirecTV subscription off.
- [35:58]
C
It all comes on Hulu Live. Oh, it does, it does.
- [36:00]
B
NBC, cbs, every one of them.
- [36:03]
C
Every one of them. I get it all.
- [36:05]
A
I want to talk about the ratings that these games have been getting. These games that are now more fragmented, not under the same roof in the way that they used to be when I was growing up.
- [36:13]
B
Can I make one more point, please? Then the power dynamic has shifted even more to the Walt Disney Company because they are the replacement for DirecTV. So DirecTV has less leverage, not more.
- [36:26]
C
It is. It is scary to think the size of Disney company. It's a point that's very well made on a micro level. The ESPN part of it, I think the power dynamics change. Disney, you can get more power by just buying more assets, of course, and you own more things, which is why the DOJ Department of Justice is always so busy, because the companies are doing that. And that's the consolidation that we've talked about on this show when it comes to streaming or distribution of content.
- [36:53]
A
But amid all of the recommendations from DirecTV, by the way, on this topic, encouraging its customers to its Fans, I suppose to send messages to Disney on X saying, hey, Disney, espn, Hulu, I deserve choice and flexibility. You've taken the magic out of my entertainment by forcing me to pay for all of your channel. I don't watch, exclamation point. While they're doing that, record numbers of people are again watching these games. Chiefs, Ravens, now again, the new age we live in on NBC. And Peacock averaged a record $28.9 million. That was a Thursday night Peacock game. Million people. Sorry. I've begun to think of dollars because I hang out with David. People. Meaningful, meaningful customers. Most watched kickoff game ever. And then you go down the list and it goes on from there. And if you want just the brief executive summary, things are going really, really, really well for the NFL. And I want, I, I want to know what these ratings actually mean because we talked about what the people in the rooms where it happens, what they care about. What do they care about when it comes to these ratings?
- [38:06]
B
They care that they get the highest possible number so they can sell the advertising for the most possible money.
- [38:12]
C
The increment is so not meaningful to me. What they're doing is the press release war. Everyone loves the press release. Baseball would have press releases written prior to World Series games for how they're going to spin what the number is. If it's lower, they spin it and they talk about a certain demographic that.
- [38:29]
B
They'Ll just bragging rights.
- [38:31]
C
It's. It is, it's a.
- [38:33]
B
But if you're a network executive, it's because you want to charge more for the ads.
- [38:38]
C
I think what you tell. You tell me the Ravens, the NFL, if they go up by 13%. Do you. Are you saying there's a direct correlation between the ratings increase and the advertising rate increase?
- [38:53]
B
Ultimately, yes.
- [38:54]
C
So it's point for point.
- [38:55]
B
Yeah.
- [38:56]
C
Then I take back everything.
- [38:58]
B
It's cost per thousand is what you're charging advertisers. So 28.9 million is more thousands than 27.9. So that extra million.
- [39:08]
C
I'll tell you where I'm getting this from though. If you look at the super bowl rates or the championship rates or the daily rates or the regional sports network rates, I have never seen the price increases related to the ratings increase. The price increases for 30s or for 60s. It's based on supply demand on, on.
- [39:27]
A
Our local regional network, 30 seconds and.
- [39:30]
C
60 seconds for ads.
- [39:32]
B
Yeah, it's. You're right, David. It's quite complicated in that what I as a network executive charge you for your advertising is based on prior ratings. And my forecast of what they'll be in the future. So if I get consistently lower ratings than I sold you for, I have make goods means that you have paid me for delivery that you didn't get. So I have to give you ads for free to make that up so it doesn't get made. In other words, nobody gets money back if it's a. If you buy something for a hundred thousand dollars and you under deliver by 10%, you don't get 10,000 back, you get a $10,000 credit. Now, every now and then, an advertiser asks for their money back, but it doesn't really happen. And advertisers have been complicit in that. They've accepted higher and higher CPM increases. Why? Because they want to put their commercials on television. That's fun. It's interesting. You've made art. You've made a 36 second commercial.
- [40:33]
C
You made us do make goods for games, not for ratings. So the baseball, the baseball make goods. If we didn't have a certain number of games, you know, there's 21 total games you can have in the LCS in the world Series.
- [40:46]
B
Right.
- [40:46]
C
And if there's a season where it's only 12 games because there's three sweeps, then there's, there's an opportunity in the contract to extend it by a year. It's not that it's not based on only 8 million people watch game two or only 12 million people watch game four, but there's.
- [41:01]
B
That's a different thing. Now, you're talking about the agreement between the league and the broadcaster. I'm talking about the agreement between the broadcaster and an advertiser.
- [41:09]
C
Right. And I think, isn't there more concern for you? And when you think about ratings, I'm just throwing it out there because the math of the higher ratings, I, we always viewed it as just a pr that this is how we wanted to say it. I didn't realize that you're looking at ratings.
- [41:24]
B
Ad ratings are ultimately based. Ad prices are ultimately based on ratings estimates.
- [41:30]
C
But the networks would always tell me that we're not going to pay you money based on ratings or based on what our ad revenue is. We're doing it based on sub fees.
- [41:37]
B
Well, that, that is, we, we certainly always resisted the. By the way. We always resisted the, well, gee, if we do better, we want to get more money. We're like, great, if you do worse, you'll get less money. Right. And the answer was always, no, we will not get less money. This is a floor and we Go up from here.
- [41:54]
C
Players.
- [41:55]
B
Yeah. And we resisted that. But that doesn't. You. That doesn't change the fact that the ad, the ad rates are based on ratings. That's why they are.
- [42:10]
C
I don't want to bog it down. I just don't. When NFL releases how great the ratings were on Peacock, I, I just don't view that as an advertising driver for Peacock. I'm. I'm looking much more. As I look at Peacock. How many more subscribers did they get to Peacock? How many people are going to keep it after the cancellation period? Is there an actual driver to these streaming services? When you look at the breakdown of how the games are being distributed, I think that's a bigger focus for internally in the corporate level. But they do the press releases about ratings.
- [42:56]
A
But there is a bit of a Russian nesting doll here when it comes to the level of concern because we've previously said on the show when it comes to John, the meteor rights deal, the multi billion dollar contract, the ones that you negotiated with various leagues, that is not so based on ratings.
- [43:15]
B
No, it wasn't based on ratings.
- [43:17]
A
So just to get the sense for the, for the fan, for the listener at home, like the biggest picture thing is of course the meteorite steel which is not based on ratings. And so the biggest symptom of the biggest indicator of health being the meteorites deal. It's not affected on the week to week of these press releases.
- [43:36]
B
No, Dave is right about that. There's much about the press releases that come out of the broadcasters that is just bragging rights and also out of the offices of the rights holders. But there are economic consequences of it. Of course. You then get into. Everybody is sort of complicit in this because the rating services, this is like. Remember the big short.
- [44:02]
A
Yes.
- [44:02]
B
Where they go in and see that woman, I forget her name. And she's at one of the rating services and they ask her, well, why.
- [44:09]
C
Did you tell me Moody's or one of the Moody's.
- [44:11]
B
Yeah, the rating services are the same. The. I'll never forget Les Moonves raking the rating services over the coals with. You clearly are not finding all the people who are watching. And we need your service to be more accurate because we know that more people are watching. Former head of CBS and sure enough they would find ways. They're all sampling services. None of these ratings. We've always felt like these ratings were overblown. That really 28.9 million people did not actually sit and watch the whole game or that wasn't an average of 28.9 the whole time. In the old days when I was in magazines, they were based on holding up cards. Do you look at Rolling Stone magazine? Yes, I do. Oh, you're a reader. We used to have a million people buy a subscription or buy it on the newsstand, but somehow there was a concept called pass along readers, which is barbershops and friends come over your house and read it. And we at rolling stone had 8, 10, 12 readers per copy. I don't know. When you had your copy of Rolling Stone, did you give it to 10 or 11 more people?
- [45:17]
C
Yeah, some magazines. So the advertisers, I mean, I'm just pointing out what I think you're about to. Which is what you're saying though the advertisers then don't go to you and say, oh, wait a minute, there's 28.9 million people watching. We're willing to pay more because we're going to be in front of 28.9. They're not saying stupid either. They know that these ratings and the way they're done.
- [45:38]
B
Right. So, but wait, but, but they, they're not stupid. But this all works for everybody.
- [45:45]
A
And that's my question.
- [45:46]
B
One person, right? If the rating services manage to make the numbers go up, it works for them and the broadcasters, all good. And it also works for the advertisers. They still, they do not want all their money to be spent on Google and Facebook. They still want those nice 60 second ads. What do you think? When, when the CEO of an ad company brags about stuff it's not about, man, my return on investment on those little squares I'm buying on Facebook really are great. Did you see my, that little square that we bought last time? They're like, no, did you see that? Great. When they go to con in the summer, are they talking about little squares or they're talking about 30 and 60 second ads, which are.
- [46:31]
A
Right. You're talking artistic, iconic and, and, and fundamentally real estate.
- [46:36]
B
Yeah.
- [46:36]
A
In the way that you'd buy a four year consideration billboard on Sunset Boulevard. In the way that you would sponsor something where we were doing this show at Cannes. In the way that you would go and want it at the Super Bowl. It is a way of both getting visibility and bragging rights. And also it gives some chief marketing officer a reason to spend.
- [46:57]
C
That's the biggest thing. And so it's very hard for me to believe that people decide to drink Budweiser because of the Clydesdale ads. However, there is a budget that Budweiser has. And it's. And it's. This came up in a great movie called Dave. And very quickly, the concept was, why are we spending money to make people feel good about a purchase they've already made? And that's a very interesting concept because you want people to feel good about being associated with your brand, about drinking your brand. You're not looking for an ROI on the Clydesdale commercial because there is not one. And that's a huge thing when you're valuing something. It's. We call it the ego premium. And sports franchises. This is more the. The branding premium in, in advertising.
- [47:39]
B
Yeah. And there is business to it. There's brand loyalty. It is. People do get into habits. They walk in. I'm assuming that you walk into the store and there are certain things you buy every time. You buy certain kind of beer, you buy a certain kind of rum, you buy a certain kind of car, you probably shop at a certain clothing store. And if you get that, brand loyalty doesn't mean every commercial has an ROI on it. But, but it was a famous. I can't. I can never remember who said it, but there is a famous ad saying, which is, I know I'm wasting 50 of my money. I just don't know which 50.
- [48:14]
A
Right.
- [48:15]
C
That's hugely important. We feel that about players, too.
- [48:18]
B
Well, and it's also why the ad market has gone towards overwhelmingly digital. I mean, I think, isn't there an antitrust case right now about Google or Facebook and the amount of the advertising dollar they are getting sponsored ads?
- [48:35]
C
Yes, this is Google placement.
- [48:37]
A
But by the way, Google, all of this, right. When we talk about what's going to replace the economic sort of security that sports provided. Why is this changing? Tech companies are going to demand roi. They're going to say, what's the return on our investment for an ad for a game? What are we paying and what are we getting back for it?
- [49:00]
C
That's the existential crisis that.
- [49:02]
A
That is the crisis. We will talk about that, I presume, in the years to come, provided we all survive having been infected with everything we've been infected with today. John David.
- [49:13]
B
Yeah. If he didn't quit coughing, I'm leaving.
- [49:16]
A
Same.
- [49:17]
C
I already left.
- [49:20]
B
Are you leaving?
- [49:21]
C
I'm leaving this room. I swear to God. My ear hurts. My throat hurts.
- [49:25]
A
Jesus Christ.
- [49:26]
C
I'm just kidding.
- [49:37]
A
Pablo Torre finds out is produced by Michael Antonucci Walter Averoma Ryan Cortez Sam Dawig Juan Galindo Patrick Kim neely Lowman Rob McRae Rachel Miller Howard Ethan Schreier Carl Scott, Matt Sullivan, Chris To Manello and Juliet Warren. Steve Engineering by RG Systems Sound design by NGW Post Our theme song by John Bravo. All of us will see you on Tuesday.
- [50:07]
B
Sam.