Elon’s Skydance Bet, Netflix’s New Rival, and the YouTube Problem

The Town is presented by Fandool. Have you heard the news? Fandool is now available everywhere. And when we say everywhere, we mean everywhere. Tallahassee, Florida, El Paso, Texas, Athens, Georgia, Madison, Wisconsin, Birmingham, Alabama. All right, you get the picture. Wherever you're watching, whatever game you're fired up for, Fandool is there to bring you closer to the action. So make your picks and play wherever the games take you. Download the Fandool app to get started. Age and location restrictions apply. Product availability varies by market. See Fandool.com for eligibility, gambling problem called 1-800-Gamberler. It is Monday, October 26. I suppose this was inevitable. Elon Musk has invested $1 billion in the new SkyDance Mega Studio, owner of Paramount and now Warner Brothers and HBO, supported by Semaphore last week. Not a huge shock. Elon and Larry Ellison are buddies. Larry invested a billion dollars into Twitter when Elon took that over. Maybe he's just returning the favor now that the Ellison's own SkyDance, but there's certainly business reasons for Elon to want in on SkyDance and vice versa. Not least of which is the $80 billion in debt that SkyDance is going to need to address. Most people think David Ellison will need to bring in a lot more than $1 billion in new equity backers to make that work. In fact, the media mogul John Malone, the same John Malone that engineered the discovery takeover of Warner Brothers and its recent sale to SkyDance, he predicted last week that Elon will invest $8 billion to $10 billion in SkyDance. Partly in exchange for some kind of global content distribution agreement. Remember, Elon owns SpaceX in addition to Tesla and X/Twitter, and a SpaceX unit is starling the satellite internet provider that is competing with wireless companies like T-Mobile and traditional connectivity companies like Comcast. David Ellison is already bragging about the technology prowess of the new company, so could that involve a more significant tie up with the world's most erratic and thin skin trillionaire? A guy who would probably love to exert some influence over the owner of CNN, CBS News, not to mention two Hollywood studios, and two massive streaming services. So, what does Elon actually want here? Today, we've got Lucas Shah or Monday guy here to discuss their usual disclosure that we're talking about SkyDance, one of the investors, Redbird Capital, is also an investor in Puck where I work. Today, it's the Elon Factor at SkyDance. What he wants and how afraid should the rest of Hollywood be? From the rear in Puck. I'm Matt Bellini, and this is the town. Okay, we are here with Lucas Shah, our normal Monday guy. Welcome back, Lucas. We missed you at the Cat and the Hat premiere yesterday afternoon at the Warner Brothers Lot. You know, Warner Brothers, one of the few studios I'm not on the list for their premieres. Well, that'll change, I'm sure. Now that the SkyDance people are in charge, I, it's just weird. It's weird to see the SkyDance paramount people now cruising around Warner Brothers, like they own the place, which they do. It was on the lot. It was on the lot. And they've already changed the water tower, right? It now says this. Oh, yeah. All the signage inside the Stephen J. Ross theater. There's a giant sign that says SkyDance and then it has paramount and Warner Brothers underneath it. It's a nice little warning to people as they walk in. Just weird times. Is that movie going to be a hit, though? Because that was, that's sort of the first big swing under the new animation unit, which is no longer new, because they got sold again. Yeah, I think it worked. It's good. Bill Hader's funny in it. Pretty creative, ambitious. We'll see. I don't know if it's, it's all, these are, that's a marketing play. If they can successfully convince people that they need another Cat and Hat movie, then great. It delivers. And are you going to do a Cat and Hat premiere on a Sunday because your son wants to see it or because. Yeah, of course. And Bill Hader is coming on the show. We're doing a live episode with Bill Hader. So I knew I, I need to see the movie. And I, my kid was into it. So we went, all right, enough about that. Let's talk about Elon Musk. I'm fascinated by this because I was in the minority, I think, wrong turned out that Skydance, I thought Skydance would try to avoid the Elon of it all until they absolutely had to just knowing how toxic he is to many in the creative community and how domineering and the fact that he commands such a big place in the culture. Nope. They took a billion dollars from Elon Musk. And a lot of people are speculating that they may ultimately take more. And by people, we can just say John Malone, who's one. Malone who tends to know about these things and sees the future of often. Right. And was a major shareholder in Warner Brothers Discovery. Exactly. And he seems to think this is only the beginning. So my question for you is, why does Elon want into this company? Oh, you want me to, you want me to try to understand what happens and that guy's brain? Please do. Take a moment to take some ketamine. If you need to, but go ahead and give me your sense of other than just friends with Larry, he donated a billion to Twitter. And now Elon's returning the favor. Let's go beyond that and assume that Elon sees a business reason here. Well, look, Occam's razor. That's the answer, which is just he and Larry are tight. Larry put money into the Twitter deal. This is another deal involving a lot of debt. And Larry and David could, I mean, there has been coverage by us by the journal by many others about how much money that Larry has had to borrow and the financial engineering needs had to do to even make this deal possible. If you're trying to search for like some larger motive, it would be, you know, he is, Elon is acquiring or is trying to get a lot of spectrum and kind of build out the capabilities at SpaceX. There's been a lot of chatter, much some of it, thanks to reporting by by my colleague Kelsey Griffiths about building kind of a wireless carrier under SpaceX, all the kind of the the major connectivity companies, your Verizon, T-Mobile, AT&T, Comcast, Charter, they're all sort of scared about Elon entering their world and competing with them. And their stock prices have taken a hit reporting. And so if you are one of them and or so if you are Elon and you think you are trying to do that, you are eventually going to want partnerships with media companies, Skydance being a good one. You know, part of what Malone hypothesized in the investment was that that Elon would be paying essentially as part of a commercial partnership with Skydance. Yeah, a global output deal, he called it. Which could be a fancy way of basically being like a carriage deal. Much, you know, John Malone has got a lot of his money through telecom companies. He was a major holder in Charter, I believe. And so could just be like, we are going to distribute your channels and we have to pay you for that. But keep them, but that's not in consequential here because that could be the end game where David Ellison has been talking about this magic technology pixie dust that he's going to sprinkle over the Skydance assets. Maybe the Elon relationship is going to give him this global distribution. And you know, the pipes to be a global player via Starlink. But his pixie dust he's always talked about has been about Oracle. True. And like streaming, you know, streaming in the studio in the cloud and all the stuff that if you have watch recent history doesn't make a ton of sense. Yeah, well, and speaking of recent history, we have an example of a telecom company owning the water assets with AT&T and this dream of five minute Game of Thrones episodes distributed on your phone, that didn't seem to work. Yeah, integrating distribution and programming has never worked all that well. I mean, we're not talking about, okay, well, technically, you know, Netflix did that because it's programming and a streaming service. But we're talking about like actual pipes and programming, you know, there was the whole AOL time Warner disaster. There's AT&T Warner Brothers disaster. Comcast worked fine, but it was almost because they kept them separate other than, you know, advertising and marketing. They did not. And they're not global. Correct. Do you believe that there is a political angle to this in the sense that Elon, Elon, Elon would like to influence culture and media in a profound way. And here is a major media company that he can now have some influence at. Of course. I mean, this is this guy is a mega maniac. He want, why do you think he bought Twitter because he's obsessed with it. He wants to control. He just put a version of the Odyssey that he likes online because he didn't like the Christopher Nolan version. Like, this is a guy who wants to influence every aspect of global media, culture, technology, lifestyle, everything. Why wouldn't you want access to global news properties and to movie studios? This is a guy who went to the Iron Man 2 premiere. Like, he clearly cares about movies. This is my counter to that though is I feel like he bought Twitter because he was on Twitter all the time. Right. And so that he he thought he cared a lot about the platform. Does he, I mean, other than ranting about the Odyssey, does he really care that much about Hollywood studios and streaming services. - Yes, yes he does. Now I mean obviously I don't talk to him, but his actions have suggested that he does. He talks about movies a lot. So he wants to de-wokify Hollywood by these videos. - And I love it's that. I don't know if it's necessarily de-wokify, but he wants to have a role. He sees the culture machine as being very powerful and he wants to role in it. This is my opinion on why he's interested in this company other than the fact that it could do a solid to the Ellicins. And he wants to influence the news media. We know that, we know that. So getting his nose into the tent and being able to look around, even though he's gonna be a tiny shareholder in this company, I do think is important to him. And the question is, will there be blowback from the Hollywood studios, from the news divisions, from all of these aspects of the Skydance Empire, the more and more Elon potentially becomes involved in the company? - Well, I think there'll be blowback if he gets involved, right? As Elon goes to Casey Boyz and says, here's what you should be doing in your Harry Potter show or goes to Josh and Dana at the movie studio and says, you should really make a movie about this or let's remake some horrible movie or whatever. - I don't think it gets that granular. I think it's more of the executive level. - I wanna go back to the smaller, to the small state point that you make, 'cause within about a week of it, there being reports that Elon was investing in, in this company. There was also reporting disclosures about Lorraine Powell jobs putting in money and she's on the board. I asked this question knowing the answer, but why do you think there is such a strong reaction to them taking money from Elon, who has kind of political motivations and not from Lorraine, who also has political motivations. Is it just that her motivations are more in line with what Hollywood wants because she is more of a, she is a Democrat, she puts her money towards progressive causes to things that most people they do business with like. - Yes, and also she has not shown herself to be as self-interested and a blunt force trauma to the industries that he gets into as Elon has. - Sure, she gives money and suddenly the Atlantic is a thriving magazine or anonymous content has money to spend or whatever it is. - Yeah, and Elon doesn't do that. He has shown himself that he gets involved and has opinions and tweets up a storm and is disruptive in a way that I don't think Lorraine Powell jobs is. Now also, I think the reaction around town to her investing and becoming a board member was positive and the people I talked to about Elon becoming involved in Skydance is just a bunch of headshaking. Like what is going on? - Well other than our here. - Oh, sure, but are he self-interested on this? Are he has a relationship with Elon and thinks that he could benefit from this? So I, and you know, in the history there is shown that he has. So I don't, I look to the, I wonder if they're, the blowback there is going to reverberate around town or does nothing matter anymore? Oh no, I think it matters if he gets involved. To me, the question is, is he gonna get involved? If it's either very simple and he's doing this to support Larry and maybe because he makes him feel good, but he's got so many other things going on that he's not gonna spend a lot of time dwelling on Paramount Skydance or there's a moment where John Oliver goes after Elon or John Stewart goes after Elon or South Park goes after Elon or whatever it is. Or HBO Max airs the four-hour documentary taking Elon down, which it's supposed to. And they, which they say they're gonna do. And he freaks, and he freaks out. And then we have a problem, yeah. And keep in mind, you know, a billion dollars is a lot of money, but pocket change for both Elon and for a company. - Right, we're talking about a hundred plus billion dollar deal. - Yeah, and there's $80 billion in debt. And in this same report last week from JP Morgan, they disclose that Larry is putting in $17 billion additional. Redbird is putting in $4 billion. That's the backer of the Ellisons. And the Saudi sovereign wealth fund is putting in another nine billion dollars. Abu Dhabi's sovereign wealth fund is putting in $7.7 billion. And Qatar's sovereign wealth fund is putting in $6.4 billion. So, and then Ari Berkoff, yeah. Ari Berkoff, the investment maker, is also putting in $2.8 billion. So yeah, this is a murderous row here. (laughing) Some cases, literally, of journalists in Saudi Arabia. But yeah, I just, Elon is special, is my opinion. That this is not a normal guy, and this is not a normal investor. There has been kind of some outrage about the Middle Eastern money, but not, you know, that's not something that people are gonna go totally crazy over in the way. They're not quite as offensive to Americans as Elon, yeah. - 'Cause they don't see it. And the Saudi wealth fund is not on Twitter all day, bitching about CBS news, or some movie that Warner Brothers puts out, you know? But listen, when you're the Ellisons, you got $80 billion in debt, and they're predicted to have little over $12 billion of adjusted EBITDA at the end of this year. That's a measure of profitability. That is a net debt ratio, according to my colleague Bill Cohen, of 6.56 times. - That's a lot. - That is not good. - No, that is a lot. (laughing) - So you wanna be in like the two or three times range, not four is pushing it, you know? - So we knew from the beginning, we've done episodes about this. The debt bomb covering this company is going to influence a lot of its decision making. And here we are. The question is, is how this is going to impact other things? Because as Skydance deals with this debt, they now put a lot of emphasis on whether streaming can become profitable. And how big stream has to be? - That is because the cable business is moving in the wrong direction. The studio business is could be stable, but it's not suddenly going to be growing 20% a year. - Right, so the importance of growth in streaming is it's the entire enchilada of this company. And we saw last week, Casey Boyz, who's now the content chief for all of the streaming services. He announced his executive team running both streaming services for now. You mean he just brought over the HBO team to run? (laughing) - Shocker, it's all HBO people. And can I tell you my favorite part of the announcement? - Sure. - So, from the desk of Casey Boyle. - No, no, no, no, no, no, no, no, no, no, no, no, no, no, no. - This is, it's just that, so Sarah Aubrey, who had been in charge of max original since mother stuff, she, she was given like two or three jobs, one of which is paramount streaming. So you have one executive who's spending like, a third or a half their time on paramount streaming, and then you have six different executives overseeing different types of HBO programming, right? Documentary, stand up, comedy, drama. - Yeah, it says everything you need to know about how this company views its streaming services. And part of that is just logistically, if you look at HBO Max, there's 140 million subscribers, look at paramount plus, there's 80 million subscribers. And if you look at the creative engine, David Ellsson, obviously putting a lot of value on the HBO creative engine. And if you look at what is powering paramount plus right now, it's Taylor Sheridan, who is leaving the company in two years, and a lot of other legacy stuff. So HBO is powering this company. It also to me suggests that the ultimate service when they combine the two will be HBO Max. - Yeah. - That is, I think it's pretty clear, now we don't know that, but why would you put this service in the hands of all HBO people and then call it paramount plus? - Right, well also it's just a, it's a stronger brand. People know HBO, most people don't care about the name paramount, right? - Yeah. They also haven't announced the leadership for Pluto. That's calling that. - Well, they don't care about Pluto anymore. - And they, that was my other point is, if Pluto becomes the free tier of whatever service this ultimately becomes, then do they even need an entire creative team at Pluto? I mean, they got a license stuff for that platform, but it'll be interesting to see how that plays out. The funny thing about that is while they have worked to integrate the back end of Pluto and paramount plus, they have still not combined them for consumers, right? Like if you wanna watch Pluto, you go to a different place than if you wanna watch Paramount Plus. And that's why I think when you taught you made the comment about combining HBO Max and Paramount Plus, which I do believe will happen in some way. But, oh yeah, they say it will happen. - But it's been years and they haven't fully combined Paramount Plus and Pluto. And so I think the combination of Paramount Plus and HBO Max, figuring out the best way to do it and how and all that, Taylor Sheridan could be gone before that's completed. - Yeah, I know. That's JB Peretti's job to figure that out, the new head of streaming. And listen, it's hard because of the revenue that comes in from both services separately. And once you combine that, It's difficult to replicate that duplicative revenue and we're seeing it right now with Disney and Hulu Where they still have not fully combined Hulu and Disney plus they just make the bundle so attractive That nobody would subscribe to both of them separately right and they make all the programming available on Disney plus But they but they don't want to suddenly give up the billions and revenue that they're getting from Hulu Right, I know it's a tough one which leads to the greater question, which I think came into larger focus this past week Which is the Skydance competition with Netflix the Netflix numbers were By most measures great on their earnings, you know, they're gonna have $15 billion in profit this year They are still growing faster than any of the legacy peers yet They are not growing as fast we've discussed this on the show as they want to be and the stock took another hit I haven't checked today, but it was down like 7% last week and This competition, I think with the combined Skydance streamers is a factor the Netflix engagement issues that you've written about I've written about This is a factor of competition. I believe Netflix was the leader they created the category and now there is a whole bunch of other stuff out there and It's not good enough to just be on Netflix anymore. Right. Yeah, look. It's competition in so many different forms, right? I was reading One of the Wall Street analysts notes at the end of last week apologies to the person because I don't remember exactly which one But they were I think it might have been the pivotal research guy where he laid out like There are multiple ways in which they're facing more competition, right? It's the it's social. It's you know you to short form YouTube and Instagram and all that There's the fast channels. There's the growth and to be and Roku channel and all that then there's they held up this sort of New lease emboldened Skydance. We'll see I don't think that is eaten in so much recently I think that's more of a forward looking thing But it does tie into this idea that you know even even if you set aside YouTube, Roku, Instagram all that stuff, which I think is the biggest problem or challenge for Netflix just within Hollywood Yeah, there's a lot of places to go for premium storytelling and if you are you know If you're sitting at home on Sunday night and you're trying to figure out what to watch There was a point in time at which your first stop and maybe not Sunday because of HBO But your average night like Netflix was basically everyone's first stop and now I think it is for a lot of people and it's still one of the stops But there's a lot of choices and on the premium side they are being hit hard by HBO Max and by the Taylor Sheridan stuff by Apple by Yeah, although the viewership for Apple we know is still pretty small is nobody watches, but they win a lot of Emmys and That's one of the factors that led to Bella Bajaria getting replaced by Peter Rice is that Ted Sarandas was sick of people coming up to him and saying You know, there's just nothing to watch on Netflix or seeing. Oh, this is our worst year at the Emmys in 10 years What the hell and we're spending 20 billion dollars and we can't compete with Widow's Bay like what are we doing and I think that Plus the fact that on the other side the YouTube Numbers, I mean the Neal's engaged that just came out 15.8% of viewership is now going to YouTube that race is over Netflix is now getting doubled by YouTube. Yes TV if you think about it for the longest time Was often something at least during the day that people just sort of had on in the background, right? It's not active viewing prime time was a little more active and the passive viewing I think that's where YouTube is just going to clean everyone's clock. Yeah, notably YouTube does not tell us Where their viewing comes from or what kind of content is driving it when you talk to Ted Serandos about this he will very quickly say you know a lot of this is white noise a lot of this is literally people just or putting it on People put on a podcast or music videos or whatever it is and they leave it on and then they go pick up their kids from school And all of a sudden it's played four different podcasts that you didn't even listen to does this mean that you think we have to stop treating the Neal's engage as Seriously as we have for because I feel like it's sort of been the stat of record for measuring any services against each other I think that we should keep looking at Neal's engage But I think that we should be a lot more careful about distinguishing YouTube and what it is Yeah, all of these reports about YouTube pulling away very rarely do we talk about what on YouTube is actually driving that engagement And I think it's much more of an apples to apples to compare the professionally produced content streamers Right, and if you look at the Netflix earnings call Ted specifically said we are at our core professionally produced So this this whole notion that you know Bella pushed them into YouTube creators and podcasts and all this stuff apologies to the ringer There's a ringer deal with Netflix But I think they're gonna pull back on that stuff and it won't it certainly won't be showcased as much on their home screen As it has been and I could see them investing less in that area just because for what it's where Bill still getting served up on my home page When I open up Netflix, well because you probably click on it a lot I don't I don't I listen to him. I don't watch him. But anyways. Oh, it's just hand check. Yeah I I have not checked this week But I was getting a lot of plugs for various podcasts and I was watching none of them So you know, sorry Craig. I know rewatchables is great to watch But I could see them pulling back on that that did from the reporting. I've done lift Some some usage of the service during the day, which was the point But I think you're right that it was clear that Ted wasn't and I reported this in my my newsletter yesterday Like Ted wasn't as excited about those types of programming and I guess there was a story this morning about kind of Instagram Doing supporting 90 minute videos and they've been rolling out an app for the TV and I think you're right that You need to distinguish between the professional and then kind of YouTube and Instagram because they all can be different use cases at the same time I was initially a little dismissive and Instagram said it was gonna go for TV But if you're like a 25 year old or a 15 year old and you're sitting at home and you're trying to figure out what app to open on your TV You're probably more interested in Instagram than Paramount Plus or peacock That's right. I think that's why theatrical is such a big deal because there's no real differentiator anymore when you're at home The difference between like Netflix and YouTube or Paramount Plus and Instagram. It's all just on your TV And it's all different types of content and it's why going to a movie theater it feels different It's separate and it's why that's a different experience But when you're at home on your TV all these apps whether it's social media or a streamer, they're blended especially and the social media apps are Ones that we all use on our phone and so there's a greater affinity for a lot of us because it's like oh I have like opened Instagram four times there and they're designed for you specifically like everything in that feed is for you Lucas and not you know general Paramount Plus is for not you Lucas technically nobody forget about Paramount Plus even Netflix is an Astro thought on the phone at least in the US totally yeah and It just feels like An extension of our habits on the phone and it used to be that there was a distinction between what we watched on TV and What we passed the time with on our phones and that distinction is going away and frankly Netflix is helping that distinction going going away because they've leaned into the YouTube and Instagram style content Yeah, it was a tough choice for them because I they they did it to try to Boost engagement and compete with YouTube and be more than just primetime TV and I so I understand why they did it But yeah, it also there is a there is a risk to it and it's it's a strategic decision that that Ted Sranos and Greg Peters the CEO So Netflix have to make which is what are what do we want to be to the customer? It's like Ali G who is I? Netflix who is I is that the first Ali G reference of the I don't know that movie tank this weekend So that'll be the first and the last so if you're Netflix are you actually afraid of Skydance. I think you're you're you're more afraid of Skydance As a combined entity then you were of those companies individually because of the sheer volume of you know great movies and TV shows that they own and the Roth the kind of executive cast and all of that. I think it is certainly a more potent competitor At the same time go back to go back to what we were talking about you look at the debt load and Go these guys are gonna get are gonna choke on this for a while and all we need to do is keep doing what we want to do unless Daddy's rich friend Elon saves the day and all the sudden the debt goes away and The Odyssey seven part TV series starring a bunch of AI generated white people is clogging up your paramount plus That seems like a good thing for the competition. Not a bad thing The Elon start making programming decisions. I think Netflix is gonna be pretty excited about that. Yeah. All right Lucas. Thank you. Thanks, ma'am We're back with the call sheet Greg. I know you are a new MLB fan recently Recent MLB fan. That's not true. I like the A's growing up a lot the A's are barely a baseball team I'm sorry, but you have recently become a fan of the Dodd. thanks and part to me and Lucas. No Dodgers in this year's-- Most of my family, but yes, my in-laws are Dodgers fans. Well, we'll take some credit there. OK. But no Dodgers in this world series. And I kind of feel bad for MLB, because this matchup, Tampa Bay, versus Milwaukee, two of the smallest media markets out there, not a lot of stars on these teams, great teams, but not a lot of big stars that regular people know about. And we're two games into the World Series now. We have not seen ratings yet. The Olsen conveniently has not revealed them at this time. I imagine they're trying to scrape together a narrative that seems at least somewhat positive for the World Series. But let's do an over-under on where we think the ratings are going to be. What do you want to set the line at? So the World Series last year was around 16 million a year. Before that was around 15 million, both involved the Dodgers. The last non-Dodgers World Series was around 9 in 2023. Yeah, so we got to go somewhere in between. Now, there's a big caveat, because all sports series, and especially baseball, it increases with the number of games, the number of people who care and watch. And last year's series went seven games. The final game is, by most accounts, one of the greatest World Series games in the history of baseball. So they're up against some pretty tall numbers here. I don't think it's fair to put the line at anywhere over like 10 or 11 million, right? I want to split the difference, I agree. I think that's the right spot. You want to do 10 and a half? Let's say 10.5 million is the line here. And with the caveat that if this thing goes four or five games, they are not going to get there. But let's say it goes five, six, maybe even seven. Let's put the line at 10.5 million viewers just on Fox and Fox 1 and Fox Deportes, the Fox Networks. Not Canada, not Japan, not any of these other countries. What do you say? Again, it's so hard, because if it goes six or seven, maybe, but if it goes four or five, definitely not. I think what it has going against it is game three is tonight, which is going up against Cowboys Eagles, Monday Night Football. That's going to be really tough. And if the brewers win that game, it's 3-0. And it's over. So I think I'm going to lean the under. Are you interested? Now, I am going to take slightly over only because the first two games were good games. They were one run games until the end and come back by Milwaukee. And I think that does matter a little bit. We haven't seen the ratings for those games yet. So if they come out before this publishes, don't at me. But I think it'll probably get to high tens. OK. Just maybe the momentum from baseball. Baseball ratings have been up across the board this year, not just the Dodgers Yankees, but across the board. Baseball ratings have been up. So I think that's going to bleed into it a little bit. Obviously, way down from the past couple of years with the Dodgers Yankees. Yeah, ratings wise, it's an unlucky outcome as we limp into this potential lockout. We'll see, though. So you have the under on 10.5. I have the over. We shall see. All right, that's the show for today. I want to thank my guest Lucas Shaw, producer Craig Horoback, artist Jesse Lopez, and stuff from No Sanchez. And I want to thank you. We'll see you a couple more times this week.