← Sharp Tech with Ben Thompson
Sharp Tech with Ben Thompson
(Preview) Netflix Opportunities and Anxieties, Merger Hurdles to Come, Hollywood’s Endgame and What Comes Next
00:20:08
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- [00:00]
A
Hello and welcome to a free preview of Sharp Tech. Hello, and welcome back to another episode of Sharp Tech. I'm Andrew Sharp and on the other line, Ben Thompson. Ben, how you doing?
- [00:20]
B
I'm doing well, Andrew. I'm girded. Is that the word? Girded for battle? Yes. We have both written about Netflix and Warner Brothers this week. Think some excellent points on both sides and some possible points of contention.
- [00:36]
A
I would imagine there are some points of contention. We're going to talk through every aspect of the Netflix Warner Brothers proposed merger. And we're going to begin with Jean at uva, who sent this email on Friday night. He wrote, ben and Andrew, my friends and I found out about the Netflix Warner Brothers deal and our immediate reaction was devastated. We have to wait till Monday for the Ben Thompson take on this. And he included a picture of him and his two friends at an ice cream shop with their heads in their hands, really laying on the drama. Just tremendous nerd behavior. That made my Friday night. So I want to start with a thank you to John and his friends, counting the hours until stri published on Monday morning. Any thoughts on that note?
- [01:29]
B
I did do an emergency podcast with Michael Nathanson about this deal on Sunday and we could have gotten out on Monday. But I'm not going to lie, this picture in the message made me feel like, no, I needed to get my take out first and then I dropped the interview on Tuesday. So turns out can be, can be affected and influenced. So yes, thank you. Thank you for the note. It was very funny.
- [01:48]
A
Absolutely. So as we talk through this deal, we did get a request for a good old fashioned antitrust.
- [01:55]
B
I know it's been a while.
- [01:57]
A
I want to put a pin in the regulatory angle at the top and focus first on the Netflix side. It's funny because you mentioned the Netflix Warner Brothers possibility like maybe six weeks ago in a daily update. And when I was reading that Daily update, my honest reaction at the time was, man, I'm surprised Ben is even dignifying these rumors because Netflix, I mean, they've become known for their restraint and fiscal discipline over the last couple of years and Warner Brothers has been sold four times since 2001. And it's a crazy idea.
- [02:34]
B
You can rank all the acquisitions by how much of a disaster they were.
- [02:38]
A
Exactly. Netflix going that direction seemed inconceivable, but here we are. So question number one for you. What have we learned about Netflix and its position in the market over the last week? What do you take away from their interest here?
- [02:55]
B
I have bad news for You, Andrew, Because I think the biggest takeaway cuts right back to where we're going to have the biggest point of contention on this podcast. My biggest takeaway from this is that Netflix is scared shitless by YouTube. Yeah, like the, the, there is a. They can feel their share. I think you could go back a number. Netflix is inexorably growing as a share of tv and this is one of those things. I should probably go back inside all these, but I've read every Netflix investor letter and their comments to the media. Netflix's investor calls are hilarious, by the way. So they used to have interviews where one analyst was allowed to go on and ask them at the earnings call and ask questions as a stand in for everyone. Now they have like, they do have a group of analysts, but it's all like they're very controlling about this whole process. That has always been sort of interesting to me. But there was just sort of this ongoing sense. They include charts of their, their increasing share of tv and part of that was to show how well they're doing, but also part of it was to show how much potential they still had. You know, like we're just a single digit share and it's like it's 3%, then it's 4%, 5%, then it's 6%. The problem with those charts is there is another entity that is growing faster than them, even surpassed them two to three years ago.
- [04:26]
A
Yeah.
- [04:26]
B
And that is YouTube. And YouTube is. So it's not just that you have. I'm talking specifically about share of TV. Like not. This isn't mobile. YouTube is actually far, far larger. We're talking about TV specifically the thing
- [04:41]
A
on your wall, total minutes watched on TV. YouTub beats Netflix consistently.
- [04:46]
B
So it's not just that there is another entity that is doing better at the graphic that Netflix was so, so proud of for so long. That entity has a fundamental structural advantage which is they get their content for free now.
- [05:03]
A
Limited content that they're able to serve.
- [05:05]
B
Sure, that's right. And it's totally personalized. Like Netflix can talk about. Oh, we have data and then we can personalize your. Like you want true personalization. That's what YouTube is. And I, you know, look, I could monologue for a while here, so feel free to jump in.
- [05:22]
A
No, I'm enjoying it.
- [05:24]
B
Well, what I've enjoyed about this deal for me personally and this actually I owe Michael Nathanson for it because I think I kind of. This crystallized for me while we were talking and then I put it in my article then and then didn't post the interview till the next day. So sorry, Michael.
- [05:42]
A
Sorry, Michael. And thank you, Michael. I love any interview you do with Michael Nathanson. Always great podcast.
- [05:48]
B
Netflix is always like a core piece of it. So, like, we. We had to do this.
- [05:52]
A
Well, you revisit the same Netflix argument that you've been having with Michael Nathanson for, like, seven years. So it's interesting to sort of chart the progress of the takes over time. I enjoy that you kick things off that way. I will just note before you finish, I did the takeability rankings with tech companies last month and had a bunch of fun. Netflix was low on that list. And they were on your side. Well, a little bit, because, look, I. In my mind, you thought.
- [06:23]
B
You thought they graduated from the taking.
- [06:25]
A
The game is over. There are lots of arguments about Netflix going back to your conversations with Michael Nathanson. And they won was the way I saw it a month ago. And the fact that they are interested in this deal. I find myself wondering, is this a great opportunity where they can press their advantage, or are they panicked about some of the failures they've had developing original content of their own, the ongoing costs, licensing, the unwillingness of others in Hollywood to license content, and of course, the threat to Google. I've come away from the last week wondering whether they were way more vulnerable than anyone realized.
- [07:09]
B
Well, I don't know. I don't know that I put it as vulnerable, but just sort of zooming out. Let me get. Let me get to my sort of insight that this is a story as old as the Internet, which is the threat to professional media from the masses. Like me. Right. Like, I know, I think, like, people now would, like, consider me, like, a professional media creator or whatever it might be, but I'm still a guy on a WordPress blog at the end of a day. You know, there's just this. This aspect of. These were gatekeepers in both a positive and a negative sense. Like, if you wanted to write something that people read, you had to get into the newspaper because how were people gonna act? Like, what are you gonna do? Like, print it out? Like. Like a crazy person on a street corner started passing out pamphlets. Like. Like you needed to actually get the content into people's hands so they could read it. And newspapers were the way that you did that and do letters to the editor. That's how I started writing letters to the editor in college.
- [08:11]
A
So you might have been a columnist. I wrote an angry letter to the Boston College student paper, and they ended up publishing it. And I was Officially a published author.
- [08:21]
B
I love it. The. And so there's, you know, the Internet made that different. Anyone can publish. And, you know, one of my. I actually think the best. One of my better articulations of aggregation theory was actually in 2014, and I didn't. Number one, it speaks to the power of branding. Yeah, I think. I think I've referenced this, like, Economic Power in the Age of Abundance is like the name of the title, not so catchy, didn't really stick. But it was about this. I think I put in there. I put a couple of graphs or drawings that's like, look, I have readers in, like, at that time, I think it was like 150 countries. Now I think I might. I don't know if I'm North Korea yet, but, like, I haven't looked for a while, but I have readers in literally every country in the world, or basically every country in the world. I shouldn't, you know, screw up my language.
- [09:09]
A
Let's call it half.
- [09:10]
B
Yeah, I have subscribers everywhere. Like the. And I am for those. Anyone who reads me. Every minute spent reading me is a minute not spent reading something else.
- [09:25]
A
Yeah.
- [09:25]
B
And that something else could be other bloggers. It could be Twitter, it could be the New York Times, it could be your local newspaper. And this speaks to the point that there is. The only plane of competition left is time and attention. And so I am not the New York Times. They are a publicly listed company. They make a lot of money. I've raved endlessly about how they've handled the transition, especially over the last 10 years, just from a business perspective, setting aside all editorial, just really brilliantly. They've also sort of cleaned up the entire space because everyone just subscribes to them first. So their success is very much at the cost of a lot of other newspapers, including the Washington Post, for example. Yeah, yeah. Like, like, like, like, like. No one holds them responsible for everyone else getting decimated, and they are one of the chief entities that ought to be held responsible. But, but the. This is just the. The. The plane of competition is shifting, and this is a core problem. Again, I'm talking about newspapers. But this sort of matters everywhere, and it certainly matters in media. YouTube is absolutely a competitor for Netflix, and I'm willing to go to the mat fighting with you about this point. So in that context, what do you do? Because YouTube owns that supply now. Netflix is doing these deals with Spotify. This is how you opened your piece, which I want you to sort of articulate your thesis in a little bit. But with some of the ringer content, for example, which is. It's like social content. Is it? Whatever.
- [11:05]
A
Yeah, I don't really know what that feels.
- [11:08]
B
If you create video content, you do it on YouTube. Like that's where the audience is if you want to get any sort of growth, if you want to have any sort of breakthrough. And they monetize you like, like one of the brilliant parts of YouTube is how from the very beginning they have helped creators monetize. And it's, it is actually a beautiful manifestation of Google's what's the word? Enlightened selflessness like, like where they've shared a lot of revenue with creators all along. And does that mean the revenue is actually zero marginal cost content? Yes, I think it does because that revenue is because there's inventory. So like it's matched. But setting aside they own that space. They own that space more than Netflix could ever dream of owning Hollywood content, even if this deal goes through. So what do you do? What I think's been revealed over the last, I would say 10 years or so is what distinguishes professional content at its best is it's a little bit more like music than I ever appreciated. So I wrote an article differentiating between different types of media and why different industries played out differently with these Internet dynamics. And I did like print and I did TV and movies. They might have been together, I can't remember. And I did music. And the thing about music was I was pretty early on that actually the labels are doing, all things considered, doing pretty good. They're the poster child for the Internet ruining their business model, Napster comes along, all that sort of thing. But why? And the reason is because with music, yes, of course new releases matter. Spotify's ability to create hits or, you know, make people aware of new things is very powerful and useful. And they're making real money selling the access to sort of help that happen. But at the end of the day,
- [13:02]
A
I get Spotify, unwrapped, Smalls and Tupac and all the classic music. We still.
- [13:08]
B
What did you listen to this year? And it's 90s alternative. That's what I listen to. Right. Like, and like you listen to the same songs again and again and again and again and again and again and again and again. And as you get older, it gets worse. And the. And the thing about music is once you create, once a song is published, it's part of the library. And so there's a bit where the power of the labels, it's not perfect, it's not absolute. Spotify has real power, but their power is more cemented and permanent than you might think because of the control they have of libraries. Yeah, that actually there are some shows that are like that on tv. You have your friends here, you have the Office, you have Seinfeld, you have these. And it's really interesting how a lot of these sort of shows don't get made anymore, but these are shows that you come back to as comfort food sort of again and again. There are content that people enjoy. Like there's a bit where they don't. I don't. I would like to be a music person and be into the new bands and I just don't have the time and mental energy to do that.
- [14:19]
A
Neither do I. Which I think signifies we're officially old.
- [14:23]
B
It's like this is the one. But the great thing, just leaning into how washed we are gives us sort of real expertise in this area, right? Yeah. And I think I'm not like, I'm famously not a TV watcher, right. I'm a big TV watcher. But if it's sports, like I will watch sort of any sort of sports content. But I can recognize and appreciate just having friends on in the background. Maybe you're watching, maybe you're not, is pretty great. And that's distinct from I'm going to watch this new show and I'm going to lean forward and I'm going to lock in and sort of see what's happening versus a. Oh, I'm watching the show and I'm also scrolling on my phone or I'm making dinner or sort of what, you know, whatever it might be. Or someone calls me and it's fine, I can pause it or I can not pause it because I've seen the show like 57 times, went to Canada fishing. This, this, this summer on the drive back, me and my buddy who used to watch every episode of Seinfeld on Thursdays in high school, put on like season seven, which I think was the all time great season, and just plowed through like 15 episodes on like this 12 hour drive. It was awesome. It was so great, right? And like, guess what? I was an attentive driver on the road because I didn't need to pay close attention because I've seen all these episodes. But it was also so delightful. And we were actually then recalling like in high school, like certain things that there was like tied to this.
- [15:47]
A
It was like, were you a Seinfeld guy or a Simpsons guy? Growing up Seinfeld, I was like, we were destined to podcast together I listened to an interview with Julia Louis Dreyfus earlier this week. And as I was listening to the interview, I found myself thinking, you know what? I need to revisit Seinfeld. Because I have very fond memories of growing up watching Seinfeld. It was syndicated when I was growing up, so I would watch it every day at 5:30. And that's the sort of content. They're not buying Seinfeld, but that's the sort of content that Netflix is acquiring if this deal goes through with Warner Brothers. And this is where I come back to the struggles that Netflix has had with their own original efforts because they've been unable to develop the sort of comfort food that people come back to over and over again on the Netflix platform.
- [16:38]
B
So it's actually your thesis, you talked about sort of the flattening of TV and, and like, overall, like what happened? Why? Why can't they do this?
- [16:47]
A
Well, I would say that everything is now more disposable than it was 25 years ago when there were more traditional distribution mechanisms. You would watch Seinfeld on TV every Thursday, for instance. And now there's just this river of content. As soon as I watch stuff I forget it. And then there's something new on and
- [17:10]
B
then you try to convince me to watch more tv. It's ridiculous.
- [17:13]
A
Yeah, well, it's enjoyable. Look, we're all just waiting to die here, trying to fill the time, but
- [17:20]
B
when you put it that way.
- [17:22]
A
I enjoy myself watching tv, but I feel like it's been rendered less meaningful than it once was. And particularly with movies. I actually cited an email that said Steven sent us the market for mid budget movies has been more or less destroyed. So my article about Netflix this week started with the irony that the Rewatchables podcast as part of that Spotify deal will be exclusive to Netflix beginning in January. And Netflix and the emergence of Netflix did more to kill the Rewatchable movie than any entity on earth. And the ecosystem in Hollywood looks completely different than it did even 10 or 15 years ago. What that creates is this new environment. Netflix needs to serve content to keep people engaged. And it actually makes sense to go back to a studio that has been making hits for 75 years and particularly has a lot of hits from 25 years ago that may help keep people engaged. Like I understand the logic of this move from that perspective. I do find myself wondering whether it is in fact any sort of insulation from the disruption threat that YouTube poses with a never ending avalanche of user generated content that happens to be pretty popular I don't watch YouTube on my TV, but clearly lots of people do. I'm not sure how much Warner Brothers content actually moves the needle as they try to fend off that threat.
- [18:57]
B
Well, the thing, this is sort of the contrast the thing with YouTube. And I'm more familiar with this from the creator side just because I've talked to creators and, you know, Johnny, who is part of the Checkery Bundle, asianometry is sort of amazing. And I feel bad for him sometimes because every YouTube creator you talk to, and I've heard similar things like mkbhd and I've talked to a fair number of other ones sort of off the record. The overwhelming, inescapable sense that you are on a hamster wheel and you just have to keep going is, like, kind of terrifying.
- [19:33]
A
All right, and that is the end of the free preview. If you'd like to hear more from Ben and I, there are links to subscribe in the show notes or you can also go to SharpTech FM. Either option will get you access to a personalized feed that has all the shows we do every week, plus lots more great content from stratechary and the Stratchri plus bundle. Check it out and if you've got feedback, please email us at. Email@sharptech FM.