OpenAI & Microsoft Feud, Homebuilder Vibes Slump, and WBD Cuts Zaslav’s Pay

Summary

Prof G Markets Podcast Summary Episode: OpenAI & Microsoft Feud, Homebuilder Vibes Slump, and WBD Cuts Zaslav’s Pay
Release Date: June 18, 2025

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1. Market Overview

Ed Elson begins the episode by providing a snapshot of the current market conditions:

• Stock Indices: Major indices declined as geopolitical tensions escalated between Iran and Israel, leading to increased missile strikes.
• Oil Prices: Spiked in response to these geopolitical developments, exacerbated by former President Trump's demand for Iran's unconditional surrender.
• Treasury Yields: The yield on 10-year Treasuries dropped following weaker-than-expected US retail sales data.
• Solar Stocks: Experienced a significant downturn after Senate Republicans proposed the elimination of clean energy tax credits. Specifically, Enphase Energy saw a dramatic decline, shedding 24% of its value.

"The major indices fell as Iran and Israel continued their missile strikes. Oil prices spiked as Trump demanded Iran's unconditional surrender."
— Ed Elson [02:18]

2. Housing Market Analysis

A concerning outlook is presented for the US housing market, highlighting several key points:

• Homebuilder Confidence: A recent survey from Wells Fargo and the National Association of Homebuilders indicates that US homebuilder confidence has plummeted to its lowest level since 2022. All three components of the survey—prospective buyers, expected sales, and present sales—have declined, with present sales reaching their lowest since 2012. Additionally, there is a forecasted decline in single-family housing starts for the year.

• Impact of Tariffs: The primary reason for this pessimism is the imposition of tariffs, which are projected to increase construction costs by approximately $11,000 per home. Key materials such as lumber, steel, and aluminum are largely imported, with Canada supplying 30% of softwood lumber and 25% of all steel in the US.

• Broader Data Insights:

  • Total housing construction in the US has decreased by 13% year-over-year.
  • Housing permits have declined for four consecutive months.
  • Housing starts have fallen 10% year-over-year.
  • The median home price has surged to nearly $420,000, making it unaffordable for 75% of Americans, as per the National Association of Homebuilders.

Rick Palacios Jr., Director of Research at John Burns Research and Consulting, offers deeper insights:

"If you're staring at mortgage rates close to seven, it's going to be a grind higher on resale supply, and that's going to start to eat into your market share."
— Rick Palacios Jr. [05:35]

Discussion Highlights:

• The housing market is in a state of stasis, with no significant improvement expected in 2025.
• The first half of the year did not exhibit the typical seasonal strength for housing, leading into an anticipated slower second half.

Ed Elson summarizes the dire situation:

"US Housing is still very much unaffordable. And we've yet to see any indication either in the data, in this data, or even on a policy level that any of that is going to change."
— Ed Elson [07:21]

3. OpenAI & Microsoft Feud

A significant focus of the episode is the escalating conflict between OpenAI and Microsoft, which has tarnished their partnership established in 2019. Key developments include:

• Nature of the Dispute: OpenAI executives are reportedly considering legal action against Microsoft, accusing the tech giant of anti-competitive behavior. The tensions reportedly reached a "boiling point" due to disagreements over contractual terms and control issues.

• Contractual Abnormalities:

  1. IP Ownership: Microsoft holds rights to all of OpenAI's intellectual property, effectively granting them ownership despite OpenAI's status as a separate entity.
  2. Exclusive Compute Partnership: OpenAI must rely solely on Microsoft for additional computing resources, limiting their operational flexibility.
  3. Revenue Sharing: OpenAI is obligated to pay 20% of its top-line revenue to Microsoft, a figure they have unsuccessfully attempted to renegotiate.

• Acquisition of Windsurf: The immediate trigger for the feud was OpenAI's acquisition of Windsurf, an AI code generation company. Under the existing contract, Microsoft gained unfettered access to Windsurf's IP, creating a direct conflict as Microsoft’s Copilot directly competes with Windsurf’s offerings.

Windsurf Founder provides perspective on competitive strategies:

"There are reasons why we are able to compete directly with copilot. The results are highly personalized and we're seeing like a 30 to 40% boost in accuracy."
— Windsurf Founder [10:25]

Ed Elson criticizes the partnership dynamics:

"In 2025, in AI, quality doesn't win, size wins. Windsurf was acquired by another company that was fundamentally controlled by Big Tech, and now Big Tech has access to all of Windsurf's IP."
— Ed Elson [11:05]

Scott Galloway adds his analysis:

"OpenAI's original sin was taking that $1 billion from Microsoft way back in 2019. They should never have taken the money."
— Scott Galloway [11:05 - 14:52]

Key Takeaways:

• The contractual constraints have hindered OpenAI's autonomy and competitive edge.
• The feud underscores the broader issue of Big Tech's dominance overshadowing smaller, innovative companies in the AI sector.
• There is a growing sentiment that financial dependencies created during early funding rounds can have long-term negative repercussions.

4. Warner Bros. Discovery CEO Compensation Update

The episode addresses the controversial compensation package of David Zaslav, CEO of Warner Bros. Discovery (WBD):

• Background: Despite WBD's stock plummeting by approximately 60% since Zaslav took over, the board awarded him a $52 million pay package in 2024, ranking him as the 8th highest-paid CEO in the S&P.

• Shareholder Response: Shareholders voted against this compensation, leading the board to adjust future pay structures.

• New Compensation Terms:

  • Reduction: Zaslav's annual pay will decrease by 50%, targeting $16.5 million from the previous $37 million in his current contract.
  • Performance-Based Incentives: If Zaslav meets 100% of his operational and financial goals by 2026, his compensation could increase to between $150 million and $250 million through stock options.

Scott Galloway provides a scathing critique of the situation:

"David Zaslav has gotten 400 million dollars for incinerating 25 billion in shareholder value... The compensation committee here are terrible fiduciaries for shareholder value."
— Scott Galloway [20:59 - 22:45]

Discussion Highlights:

• The current arrangement appears to offer minimal immediate relief to shareholders while setting the stage for potentially exorbitant future payouts.
• Galloway argues that the board is failing in its fiduciary duty by not adequately penalizing leadership for the substantial loss in shareholder value.
• There is a call for more stringent oversight and possibly activist interventions to hold executive compensation in check.

Ed Elson summarizes the issue:

"This isn't a material change and I don't think this is much of a response to the shareholders."
— Ed Elson [26:18]

5. Conclusion

The episode of Prof G Markets delves deep into the turbulent landscapes of the capital markets, housing sector, AI industry, and executive compensation. Key themes include the detrimental impact of geopolitical tensions on markets, the growing affordability crisis in housing, the fraught dynamics between AI innovators and Big Tech, and the ongoing challenges of ensuring executive compensation aligns with shareholder interests.

Notable Quotes Recap:

• "US Housing is still very much unaffordable." — Ed Elson [07:21]
• "The compensation committee here are terrible fiduciaries for shareholder value." — Scott Galloway [22:45]
• "OpenAI's original sin was taking that $1 billion from Microsoft way back in 2019." — Scott Galloway [11:05]

This comprehensive analysis provides listeners with a nuanced understanding of the current economic and corporate climates, equipping them with insights to navigate the complexities of a capitalist society.

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Disclaimer: This summary is based on the transcript provided and aims to capture the essence of the podcast episode without including commercial breaks or non-content segments.

Transcript

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[Scott]

Money market matter. If money is evil, then that building is hell.

[Ed Elson]

The Show Go welcome to Property Markets. I'm Ed elson. It is June 18th. Let's check in on yesterday's market vitals. The major indices fell as Iran and Israel continued their missile strikes. Oil prices spiked as Trump demanded Iran's unconditional surrender. The yield on 10 year Treasuries dropped after US retail sales came in weaker than expected and solar stocks tumbled after Senate Republicans moved to fully eliminate clean energy tax credits. In the latest version of the tax bill, the biggest loser of the day was Enphase energy, which shed 24%. Okay, what else is happening? A new survey from Wells Fargo and the national association of homebuilders found that US homebuilder confidence has fallen to its lowest level since 2022. All three components of the survey declined. That includes measures of prospective buyers, of expected sales and also of present sales, which fell to its lowest level since 2012. Also forecasted a decline in single family housing starts this year. Now, why are homebuilders so pessimistic right now? Well, according to them, it's largely because of the tariffs. According to the association, tariffs will increase construction costs by roughly $11,000 per home. And that would make sense because many of the materials we need to build homes like lumber and steel and aluminum, they are in large part imported from abroad. For example, Canada supplies roughly 30% of softwood lumber in the United States. Meanwhile, a quarter of all the steel in America is imported from abroad and most of it comes from Mexico and again, Canada. So, yeah, it makes sense that homebuilders aren't building homes because suddenly with the tariffs, building just for no reason got a lot more expensive. Now, when we take a broader look at the data, the situation becomes even more concerning. Last, total housing construction in the US fell 13% year over year. Housing permits have also declined for four consecutive months. Housing starts have fallen 10% year over year. We'll get an updated report on that data later today. But this is all happening against the backdrop of what is just an unprecedentedly unaffordable housing market. I mean, the median price of a home right now is almost $420,000. That is a record high. And per this analysis by that same association, association of home builders, 75% of Americans cannot afford that. Just think about that. Three quarters of the country can't afford the median priced home. In sum, we have a housing crisis. No one can really afford a home. The only people who can are, generally speaking, the people who can also afford a second home. And that is why the share of home buyers that are first time home buyers just hit a record low. But as always, there is more to it. So our producer, Claire, spoke with Rick Palacios Jr. He's the director of research at John Burns Research and Consulting, and he discussed what else is dragging down construction.

[Rick Palacios Jr.]

Yeah, so I mean, we entered the year with a negative outlook for home builders in particular in terms of sales volumes, single family construction, because we just, we thought they were coming into the year with too much standing inventory. And it was really a plan based off of the hope that interest Rates would fall down. And I think anybody will tell you, hope it's not a good plan. And our view has been, look, if you're staring at mortgage rates close to seven, it's going to be a grind higher on resale supply, and that's going to start to eat into your market share and you're going to have to compete with the resale market. And that's where I think the last two years of higher for longer has been this really weird dynamic where home builders have been able to do well, especially relative to the resale market. But almost 90% of that, maybe more, is because the resale market wasn't participating from a supply standpoint. And the resale market, like any home builder you talk to, will tell you the resale market dictates what I can do with sales and pricing trends. And we're kind of at this fork in the road moment, I think, where a lot of home builders are realizing, wait a second, resale market is actually back. Rates aren't going down, supply is here to stay. I need to. I need to rein it in.

[Claire]

Seems like we're in a moment of stasis then.

[Ed Elson]

Do you think that persists for 2025?

[Rick Palacios Jr.]

I think it does, yeah. I mean, the first half of the year, namely the spring, was supposed to be in seasonally, typically always is the stronger part of the calendar year for housing, especially homebuilders. We didn't experience anything like that. And so now we are actually tiptoeing into the softer, seasonal part of the year. And so again, if your view is what we just walked through on rates and supply continuing to grind higher in that rate environment, the back half of the year is probably going to be slower than what the first half was, and first half wasn't great.

[Ed Elson]

So, look, I could go on and on about what a mess the housing market is right now. Sky high prices, input costs rising, construction falling. To Rick's point, you've got resale supply starting to come back online. But as he also points out, you've still got mortgage rates at 7%, and you think back to just four years ago when they were below 3%. So the long and short of it is kind of the same. US Housing is still very much unaffordable. And we've yet to see any indication either in the data, in this data, or even on a policy level that any of that is going to change. I wish I could tell you different. Here's a new report from the Wall street journal. Tensions between OpenAI and Microsoft are, quote, reaching A boiling point. Supposedly the partnership between the two companies, which started back in 2019 when Microsoft invested in OpenAI. Supposedly that partnership is flaring up. OpenAI is frustrated with Microsoft. They're frustrated by its tight grip on the company. And supposedly they're considering taking this to court. Per the Wall street journal, quote, OpenAI's executives have discussed accusing Microsoft of anti competitive behavior. That effort could involve seeking federal regulatory review for potential violations of antitrust law. So this is quite something, this partnership, which I've criticized in the past, but it's been very important to the AI ecosystem. This might now be coming to an end. A lot to dig into here. I think the first question we should probably address why OpenAI is so upset. What triggered this reaction? Well, it's many things, but the moment that really set it off was a discussion with Microsoft about this new acquisition that OpenAI made of a company called Windsurf. And the problem that OpenAI is running into right now is that under the terms of its contract with Microsoft, Microsoft will have complete and unfettered access to all of windsurf's intellectual property. And the reason that is a problem is because Microsoft is basically a direct competitor to Windsurf. Windsurf is an AI code generation company and Microsoft's co pilot does the exact same thing. So that's what set this off. Now, if you listen to my other show, First Time Founders, you actually have some inside scoop on this conflict, because on that podcast, I interviewed the founders of a company called codeium. And just a few months later, that company, Codeium, changed its name to Windsurf. So you and I know these guys. And if you're interested in that company, I encourage you to go back and check out the episode. But when I interviewed the founders, I asked them specifically about this. I asked them, how are you supposed to compete with Microsoft, which is developing Copilot, which directly competes with your product? And their response was, basically, we're going to build a better product.

[Windsurf Founder]

There are reasons why we are able to compete directly with copilot. The results are highly personalized and we're seeing like a 30 to 40% boost in accuracy. So just the quality of our code suggestions are very competitive. And then the thing that we're really kind of trying to lean in on though, is our ability to deploy onto like a private server. And people can host codeium inside their company or their work environment. And for example, if you're like in the defense space or like the finance or healthcare space, they can't use Copilot at all. And that's kind of where we are focusing right now, our efforts. But then we have some things down the pipe where we'll just be competitive, even on the cloud front too.

[Ed Elson]

In other words, quality wins, or at least that's what you would hope. But with this news, we are seeing yet more evidence that actually, no, in 2025, in AI, quality doesn't win, size wins. And the reality for Windsurf or codeium is that it is smaller than Microsoft. And ultimately the story played out the way it always does in AI. Windsurf was acquired by another company that was fundamentally controlled by Big Tech, and now Big Tech has access to all of Windsurf's ip. So that's what started this conflict. But there is a lot more that OpenAI is also upset about. And to understand that, you need to understand exactly how Microsoft controls them. There are three main abnormalities in this contract between Microsoft and OpenAI. The first is that Microsoft owns all the rights to all of OpenAI's IP. In other words, despite the fact that they are separate companies, anything OpenAI creates, Microsoft can just duplicate and transfer over to its own business. In that sense, Microsoft isn't just an investor in OpenAI, it really is an owner of OpenAI. And we've made that point before. The second detail is that Microsoft is also the exclusive compute partner for OpenAI's API. Meaning if OpenAI needs more compute to build their enterprise product, as we have repeatedly seen in the past, they have to go through Microsoft to get it. And that is a very difficult position to be in if you're the biggest AI startup in the world. And the third and final abnormality is this revenue sharing agreement. Currently, OpenAI has to pay 20% of its top line revenue to Microsoft. They have reportedly tried to bring that number back, but it hasn't materialized. And ultimately, it's been a great thing for Microsoft. According to the information, OpenAI had an operating loss of $5 billion last year. 700 million of that went directly to Microsoft. So this is not the kind of situation you want to be in if you're OpenAI. If you're trying to be the number one AI company, you don't want to be beholden to Microsoft, who is, let's be honest, also trying to be the number one AI company. The incentives just don't make any sense here. But this all gets back to something I've been saying for a long time, and that is that OpenAI's original sin was taking that $1 billion from Microsoft way back in 2019. They should never have taken the money. Because as soon as you take the money, even if Microsoft makes all these strange concessions and says, you know, oh, we're going to be just a minority owner or we'll only take a limited share in the profits or we'll take a board seat, but it will be a non voting observer board seat, none of it really matters. You took the money, which means you owe them something now. And this is what we're seeing across the entire AI ecosystem. It's not just OpenAI, as we discussed last week. It's also scale AI, it's also anthropic, it's also perplexity, it's also cohere. All of these companies have signed deal terms with big tech and it's all coming due right about now. This is the moment where the startup looks back at those contracts that they signed when they were very hungry for cash and understandably so. And now they have to ask themselves the following question, was the money worth it? And so far we have gotten one answer and the answer has come from OpenAI. No, it wasn't. And now let's go to court. After the break, an update on David Zaslav and his pay package. Stay with us.

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[Ed Elson]

We're back with Prof. G Markets. Our final story we have updates on a Warner Bros. Discovery's compensation package for the CEO David Zaslav. This is a story we've been following very closely. When we last discussed it, the board of WBD was reckoning with this shareholder vote which determined that David Zaslav's $52 million pay package in 2024 was too much and we agreed. We pointed to the fact that the stock has fallen around 60% since David Zaslav took over. It fell again in 2024. And despite that, the board decided to crown him as the 8th highest paid CEO in the S and P last year. We thought that was ridiculous. And then it was put to a vote. So did the shareholders. So what is the new update? Well, the board has decided to cut his pay. Zaslav's annual pay package will drop by about 50% after the company completes its spin in 2026. If Zaslav hits 100% of his operational and financial goals, his target pay will be 16 and a half million. That is down from the $37 million in his current contract. Now, does this revoke the 52 million that he was paid in 2024? No, it doesn't. He still gets that money. It's just that he will now be paid likely less in the future. So the argument from the board would be. Yes, yes, we hear you, shareholders. We get that you don't approve of the compensation and this is how we're going to address it. We are going to reduce his compensation in the future. So let's get Scott on the line because he has been following this very closely and he also made a prediction about this. I previously asked him if he thought that 2024 package would be revoked or annulled. And he said unequivocally, no, it won't. It appears he was right. The 2024 comp is staying, but it appears the future contract will be reduced. So let's get his updated perspective on this David Zaslav compensation story. Hey, Scott.

[Scott]

How are you? Ed, I'm doing well.

[Ed Elson]

How's can?

[Scott]

Ann is great. I'm stressed. I got my calendar and wires confused and I stood up a bunch of people where I was supposed to be in a fireside chat and I've been in a bad mood all anyways. No, no excuse. These are good problems. How are you, Ed?

[Ed Elson]

I'm doing well. I'm doing very well. I'm sorry to hear that. Okay, Scott, what do you make of this David Zaslav news?

[Scott]

This is a hand jump from your cousin at Thanksgiving. This is. This is. Okay, so after taking $400 million out of a company for destroying 25 billion in shareholder value, Adam Newman probably takes the crown. He got a billion dollars for incinerating 11 billion. And David Zaslav has gotten 400 million for incinerating 25 billion. And they're acting like this is a big fucking deal that they're reducing his current comp but topping him up with a huge options package that if he gets the stock back to anything near where he talked a bunch of investors into this brain dumb idea of buying Time Warner assets from AT&T and merging them with Discovery. If he gets it back to where it was when he said it was a good idea, I think he makes another 150 to 250 million. And I don't even hold him responsible. He's doing what people do. He's doing the best he can. The comp committee of this board is literally taking a half a billion dollars into the street and incinerating it. I mean, are they worried that they would lose the magic of David Zaslav? That he has offers from Hulu or from FUBU to go run their companies for 3 million a year? So they have to top them up with what will be an extraordinarily dilutive package if this company just recovers to where it was. So look, good for him. He's doing what he's supposed to do. But the folks at the compensation committee here. Hey, guys, the compensation committee here are literally terrible fiduciaries for shareholder value.

[Ed Elson]

One question I had. I can't tell how much of this is a response to what the shareholders voted for just a few weeks ago where they said that the compensation in 2024 was too high versus the simple fact that the company is restructuring. Because, you know, on its face, this kind of looks like a response to the shareholders. The shareholders said, Hey, $52 million last year was too high. And the board's come back and they've said, well, in 2026, we're going to pay him less. But I can't tell if that's because of that or if it's just because the company is splitting in two. And therefore it would make sense that you also split the CEO's compensation in two as well. To what extent do you think this was actually a response to the shareholder vote?

[Scott]

It was an attempt to say, honey, I've changed and it's total bullshit. Yeah, we've heard you. We're reducing his current comp, but we're going to issue him a shit ton of options where if he actually does his job and gets the stock back up, it's going to even be more dilutive for shareholders. This is the board attempting to placate shareholders by reducing his current comp in exchange for a shit ton of options should he again get the stock back to where it was before. He talked shareholders into a stupid merger. Jeff Bukus read the tea leaves and said, this is time to sell. We can't compete with Netflix. When Rupert Murdoch and Jeff Bukus, the two brightest minds in media, sell assets at the same time, that means you don't want to be on the other side of the trade. But David Zaslav, who wanted to move to Hollywood and be on top of the big media company, convinced shareholders this was a good idea. It wasn't. And he's taken. He's cut the share price in half, if not 60% and now wants $150 million in equity comp if he gets it back to where he started. The comp committee here are terrible fiduciaries and he's clearly a very charming guy. I'm not even sure if he's, he may even be very good at what he does. But right now he's the highest paid banker in the world. Just as Adam Newman got a billion dollar Commission on raising 12 billion for a shitty, stupid company, David Zaslav is getting what will, what already is 400 million. It might be another 150 million for talking shareholders into the idea that it made sense to merge assets that he's now splitting up. This is when a board fails to live up to its duty to serve all stakeholders. He in fact occasionally have to pay a CEO a couple billion dollars. And they usually deserve it in a market where you have to pay people to stay competitive. I'm not against paying people a lot of money. What I'm against is, is paying someone about 140 million more than you would need to pay them. There are a lot of very talented in this business that would say, okay, if I get the stock back to where it should be, give me 10 or 20 million on 150. This is just, this is just. I get the sense David Zaslav is good, good friends with the people on the comp committee of this publicly traded company. This is the comp committee here, the directors. David's just doing whatever he person does in a capitalist society. He's trying to make as much money as he can. He may even be very good at what he does. The compensation here of 400 million to destroy 25 billion in value and then another 150 million if he just gets it back to where the destruction began means that the board is not doing its job. And this bullshit trying to claim that they listen to shareholders is just ridiculous. Honey, I'll. Honey, I'm sorry. I'll stop behaving this way. I'm a new man now. Get me a fucking beer, bitch.

[Ed Elson]

Yeah, it's basically if you do your job as expected, we're going to pay you 16 and a half million dollars. And if you go above and beyond, it'll go up to probably around 37, 38 million plus. You've got the upside in the options.

[Scott]

That's right.

[Ed Elson]

So this isn't a material change and I don't think this is much of a response to the shareholders.

[Scott]

That's right. By the way, more importantly, I'm watching Mobland. First time I've watched Paramount ever. Have you seen Mobland, Ed?

[Ed Elson]

I've not. I've not. What's it about?

[Scott]

Oh, my God. You gotta watch it. Oh, wow. Pierce Brosnan, Tom Hardy. That guy's a movie star. Exceptionally violent and the best opening song in any streaming media right now. That's the real takeaway here is watch Mobland. And also have an activist come in and reelect or nominate directors to replace the current nominating committee of Warner Brothers Discovery, who are absolutely terrible fiduciaries for Sherril. That was a mouthful.

[Ed Elson]

Okay, thank you, Scott. I will watch Mobland tonight and I'll get back to you. Thanks for joining us.

[Scott]

All right, my brother. Peace.

[Ed Elson]

Okay, that's it for today. Thanks for listening to Profit Markets from the Vox Media podcast network. I'm Ed Elson. I'll see you tomorrow.

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[Claire]

Support for this show comes from Pure Leaf iced tea. When you find yourself in the afternoon slump, you need the right thing to make you bounce back. You need Pure Leaf iced tea. It's real brewed tea made in a variety of bold flavors with just the right amount of naturally occurring caffeine. You're left feeling refreshed and revitalized so you can be ready to take on what's next. The next time you need to hit the reset button, grab a Pure Leaf iced tea. Time for a tea break. Time for a pure Leaf.

[Ed Elson]

With HubSpot's suite of AI powered tools, you can get more done way faster. Speed up your lead generation and create attention grabbing, lead driving, quota crushing campaigns in an instant. Get started [e-mail] AI.