Two Think Minimum Podcast Transcript
Episode 021: “eSports, Content, and Privacy with Brian Sullivan and Laura Martin”
Recorded on: August 20, 2019
Brian Sullivan of CNBC and Laura Martin of Needham & Company sit down with Scott Wallsten in this episode recorded in Aspen, Colorado at the Technology Policy Institute’s annual Aspen Forum on August 18-20, 2019. Brian, Laura, and Scott discuss a wide range of topics from eSports, content, and privacy. Brian and Laura discuss their perspectives on the growing influence of Washington, D.C. on business decisions on Wall Street and around the world.
Scott Wallsten: Hi, this is Scott Wallsten, President and Senior Fellow at the Technology Policy Institute. It is August 20th, 2019. This is the final day of the TPI Aspen Forum and I’m here with CNBC’s Brian Sullivan who just interviewed DOJ’s Makan Delrahim and, Needham and TPI board member Laura Martin who just came off moderating a panel on entertainment. So we’re going to talk today about several things, but I’d like to start off by asking either of you, you all generally interact with a different kind of audience than we do. We talk to DC people mostly. What do you all think of people in DC, policymakers? Do you view them as naive about the way your worlds work?
Laura Martin: I think they’re late. I mean, one of the things we see in our world is each of the big platform aggregators are entering each other’s businesses and they’re about to go compete with each other. And now the government is saying, they have monopolies. Well, that was true two years ago, but it’s not true today because they’re going and everybody- Google is entering the social business and Facebook’s trying to get into the search business and Apple is trying to get into everything. Everybody’s getting into video. So it isn’t anticompetitive. They’re competing with each other and some of them are going to get put out of business by each other and meanwhile the government’s going to be trying to attack them as monopolies.
Scott Wallsten: So if you think that are late, does that mean that there’s something now that they should be paying attention to that you think they will be paying attention in two years but will be too late then?
Laura Martin: Yeah. eSports and the rise of video game dominance in five years is going to have taken over all of the consumer time, and so none of these ad driven platforms are going to work if they don’t have consumer spending time. Even Wall Street is just coming to grips with this, which means it’s probably three years in the future. And people who invest now will make a lot of money for three years and the government will figure it out five years after that, after it’s become the mass of consumer spending. Time spent under 25 years old is two hours a day on average under 25. But those people as they age up suddenly become more important in the voter base and then the government is going to be really- that, I think, trend will start actually hurting other businesses over the next decade.
Scott Wallsten: Brian, do you find that to be the same thing when you talk to people in tech policy? You talk to them and you’re thinking behind the scenes “Jesus we should’ve been talking about this two years ago. They don’t know what’s going on.”
Brian Sullivan: First off, thanks- I never get interviewed. So this is like a big- I’m nervous right now. I just want to be clear on this, I might stumble. Thanks for having me here at the conference and yeah, I agree with Laura. I mean, the one point we didn’t get into with Makan today but I probably could have, is if you look at antitrust and things over the years- going back a hundred years, this is not a new development- antitrust takes so long, by the time you start something, by the time it’s over, it’s almost irrelevant. There was a case in the forties or thirties- I went to law school, but I’ve, my brain is zzz- GM was buying up all the railroads in Los Angeles and basically systematically disassembling them.
Laura Martin: So you had to drive cars.
Brian Sullivan: Yeah. It was under the American Railcar Corporation, can’t remember all the details. The point is by the time the case was decided, I think if my memory serves correctly, GM was fined $1. Cause at that point all the freeways were built and what the hell was the point anyway. So I think, when you look at government agencies and some of these government workers who do great jobs, I think that they’re hamstrung just by the size of some of these things they’re dealing with. Also just government isn’t the fastest moving entity in the world. What’s the thing? Move fast and break things. But the government is the exact opposite of that. It’s not their fault.
Scott Wallsten: Not quite the opposite- they move slow and break things.
Brian Sullivan: Or sometimes break things up, which is sort of the antitrust thing, Scott. So I don’t think it’s their fault, but yes. I was really fascinated by what Laura just said about video games because here we are sort of having these discussions about the possible investigation of some of the big tech companies. Maybe over search, maybe it’s over data, whatever it is. And yet the 22 year old, the 18 year old in America isn’t googling anything, he’s playing Fortnite. Now when they can find a way to put like search ads on Fortnite or whatever game is big then, what you need to be able to do is be playing- and I’ve never played it, but I know what it looks like- and be like, Hey Siri, have pizza delivered to my house now. If you can do that- maybe you already can- if you could do that in Fortnite, now you got something.
Scott Wallsten: But you’re right. They’ve got to figure out a way to monetize it because at the moment it’s like- a quarter of the people on the globe are playing eSports and revenues are a couple billion dollars.
Laura Martin: Actually Fortnite will do 5 billion. Overall eSports- a billion dollars globally this year.
Brian Sullivan: So maybe we’re arguing about moot points, I don’t want to say moot, but you know, certainly changes.
Laura Martin: But the FAANGs are the past. They’re the past decade. They got big, now they’re being looked at. But the thing that’s going to get big based on consumer time will get ignored until it’s really, really big and hurtful. I mean, and that’s when the government will look at it when people are writing letters
Brian Sullivan: A strongly worded letter to the government. Yeah, that should get somewhere.
Scott Wallsten: You think that they start paying attention once people start saying bad things, not just because they’re big? Because right now we’ve got the idea that they’re going after these companies because, I mean, some people have antitrust issues, but basically because they’re big. Right?
Laura Martin: Yeah. I think that is part of it.
Brian Sullivan: I think it’s their big and that people- I think there’s a lot more concern now over how your data is used. We talked about this in the panel, which by the way, if you’re listening to this podcast, it should be available on the TPI website. Okay. Data is, you know, sort of the key thing. It’s not just data exists, but how they use that data, which I think is the key. By the way, may not be Fortnite in a year, maybe some other game. Fortnite as far as I understand it copied a game called Player Unknown: Battlegrounds, which then just didn’t do as well as Fortnite. So you never know, but when you are playing these games, what you’re not doing to Laura’s point is you’re not engaged in their world. They’re not getting data on you other than that you’re playing Fortnite. They know that, but they don’t know that you’ve gone to the 7-11. Because your phone is tracked constantly. You’re out of that sphere, which I think has kind of terrified these companies, they can’t lose that.
Laura Martin: They are losing that, for under 25 year olds.
Scott Wallsten: So when you talk to people, policy makers are worried now about companies collecting data and what they might do with it. When you talk to investors, do they worry that Washington might take away the data stream or do they see this really not as an issue or are they more worried about what- Laura, what you’re saying- that actually it’s now other groups that are starting to get your hands on the data and what are now the incumbents may lose out?
Laura Martin: Well, I thought what was interesting on my panel just now with the entertainment, and really TPI ran an excellent agenda for both days and I would give Brian’s interview a 10 out of 10 in my panel a 9 out of 10, I brought down the average. But, what I would say is, and it was all the heads of all the chief content groups and they really felt content was king, but data was a big, I would say, argumentative point. And some of the content creators felt that aggregated data was enough. Aggregated means like Nielsen data. Like we know that 2 million people watched your piece of content, and 5 million people watched somebody else’s piece of content. But it’s my point of view and a couple of people on the panel, that you must have person by person data. You must have first party data about what they’re doing. Netflix has it in viewing and Amazon has it in shopping and Facebook has it in the 50 minutes a day you’re spending there. So what the platforms have is data. So if the person moves and the new platform has data on the person, to Brian’s point, you’re becoming less valuable because you don’t know what that person’s doing off your platform. You never know what they’re doing off your platform, but they are about be spending more time off your platform.
Brian Sullivan: But are we overestimating the value of data? I do wonder sometimes, Laura, if there’s so much data, can they really actually figure it out? Like what to do with it all? I mean they probably know 11 million data points about me? That I’m a white male over six feet, who’s in his mid to late forties got a couple of kids, live in New Jersey based on Waze, here’s my daily average commute, here’s how much I’m stopping at the gas station. They get figure these, but what can they really do with it? I do wonder.
Laura Martin: No, I think data’s relevant where it relates to the monetization engine. So what Netflix has on you is what you watch. So then it knows what to produce to tell you what to watch.
Brian Sullivan: That’s good though. I like that.
Scott Wallsten: But we actually, I mean, do we know how successful that is? They say that they use data to think of what new shows to produce, but they don’t really release any information to tell us whether their predictions are right. They still make all their money off of Friends and The Office.
Brian Sullivan: Not Friends anymore. That’s Warner Media now!
Scott Wallsten: So maybe all the data is for nothing.
Laura Martin: But I think owning first party data is the only thing that’s protected. What the government’s going after is when you have data and then you sell it for money to somebody else, that transaction is what they’re really trying to lock down. The consumer knows you’re gonna sell that consumer data to a third party for money. I think having first party data, you’re allowed to- like Roku has 30 million connected homes. They’re allowed to use their data to sell ads all day long. They know what you watch so they can target ads to you. They know how many hours of Netflix you watch a day, guess who they’re targeting Disney+ ads to? All the people that are paying $12 for Netflix a month. They’re going to say for $7 you can have Disney+ or for $12.99 the same price, you can have ESPN+, Hulu, and Disney+.
Brian Sullivan: It’s not random that they’re all the same price effectively or $1 less, or the way they’re doing it is what you’re saying.
Laura Martin: That’s true. But also because Roku has that first party data, they can use it to monetize and then they get a bounty from Disney from bringing new subscribers in the first three months.
Brian Sullivan: And that’s why the stock is up 200% or whatever this year.
Laura Martin: 300% this year.
Brian Sullivan: I short-changed them 100%!
Laura Martin: But I mean that’s what data matters on a person by person basis. All data doesn’t matter, I agree with you Brian, but the data that you monetize matters a lot if you have better data than somebody that’s aggregating.
Brian Sullivan: There’s a part of me- I’m a huge- Scott, do you like music? Okay, so I’m a huge music guy. What I mean is thousands of CDs. By the way, I still buy them because I like to own the rights to my music. I make Apple Music and Spotify playlist for my friends and my family. I like to discover new music, blah, blah, blah. Nobody cares. The reason I mentioned this is that sometimes some of these data recommendations are bad. Like if you like this band, The Record Cover, whatever, Black Keys, then you should listen to this. But I wonder if it keeps me in a bubble, in like a tunnel of music. Because it’s not saying if you like the Black Keys, you should listen to Vivaldi. It’s saying if you like the Black Keys, you should listen to The Record Company, which is sort of a similar, if you like Black Crows, then you should listen to Blackberry Smoke. I wonder if there’s a downside to the data where these companies are actually holding themselves back because they’re not- if I like Ozark, I might like Bloodline, but like I’m not discovering something really different and changing my worldview.
Scott Wallsten: Based on no information except for what I see, it seems like that used to be a bigger problem. I get it, like everybody, all Gen X people, I still remember 80s music and so I listen to it.
Brian Sullivan: Say it proud, man, there’s nothing wrong with that.
Scott Wallsten: Except the problem is like when I used to listen to Pandora all of my stations ended up being all Journey all the time and it was terrible.
Brian Sullivan: It sounds like you and Pandora need to go your separate ways. I didn’t get any credit for that. Come on, “separate ways?”
Scott Wallsten: That was bad!
Laura Martin: But I mean I think where I’m going to push back at you on that Brian, is their business model is driven by time spent. So they want you to spend the most time. If they take a risk and tell you to listen to Vivaldi and you turn off Spotify or change the channel or worse, de-subscribe to Spotify cause Apple Music you like better. That is a lower risk-
Brian Sullivan: So they’re going to feed me stuff they know I’m probably gonna like already.
Laura Martin: And then elongate your listening time and then take the next recommendation. Cause probably what really happens in real life is you listen to one song of their recommended and if you don’t like it, you’re out and you just go back to your normal playlist and they take that into account.
Brian Sullivan: Do dating sites work like this? I don’t have any idea. It’s like- do they just recommend the same type of potential meeting? It’s like I’m sick of steak every day.
Laura Martin: Tara, now Sarah, now Anne, same person.
Brian Sullivan: Jane, Jean, Joan. Like where are we going with this? Brian, Ryan.
Laura Martin: I didn’t like her when it was Jane, I still don’t like it when she’s Joan.
Brian Sullivan: Everybody’s named Brian, but they spell it Y, I, I-E-N.
Laura Martin: Why do they spell it with an I?
Brian Sullivan: The I is the right way.
Laura Martin: Oh I see cause that’s your way.
Brian Sullivan: That’s the Gaelic way. That’s the way.
Scott Wallsten: Well we’ll get Bryan Tramont in here.
Brian Sullivan: But going back to your very first point Scott, if you sort of-occasionally on my show I’ll say tongue in cheek, but there’s a hint of truth to what I say- if we go down to one of our awesome DC people, Amon or Alan or Kayla or anybody on air then- I’ll say, let’s go now to the new capital of Wall Street, Washington, DC. And I say that only semi tongue in cheek, because I’ve been doing this now for 20 years, which is hard to believe. But I have watched DC’s power grow in business exponentially. I mean, and forget about just business and technology. You look at every day the market moves if some Federal Reserve member belches right. The power of DC- and by the way, my parents live 75 miles outside of DC. I went to high school in rural Virginia town called Winchester, which is like three things have come out of Winchester. Apples, Patsy Cline, and me. I guess I’m not comparing myself to Patsy Cline. My Dad went to high school the same year as Patsy Cline. She went to Hamlin, he went to James Wood. Anyway, Winchester is almost become a suburb of DC now. I mean it’s gone from like 20,000 people to 110,000. Leesburg used to be like a sleepy, horse town village. Now it’s the Loudon county. And the reason I bring this up is Scott, the power of DC has grown, but the size- everything has grown about DC. Its importance, its relevance, its size, its scope.
Scott Wallsten: One of the reasons Amazon picked it as originally half of its new headquarters I suppose.
Brian Sullivan: I broke that story by the way, because Virginia Tech, my alma mater, is involved in the innovation campus next door. Not revealing my sources. Virginia Tech, it’s over now. But it’s grown. DC has grown in importance and relevance in our life and you could argue that it’s good or bad, but it’s certainly grown in business. Look at all the people that are here at this conference. I mean, heavy hitters for these companies are now based in DC.
Scott Wallsten: Phil Weiser, the Attorney General of Colorado, opened the conference, and you talked to Makan about the Attorneys General haul, the two dozen, who are doing with him. It seems like every part of the tech economy, every time there’s a choice to be made about whether states should have power or whether that power should be preempted, we choose to preempt their power under the idea that it’s more efficient for anything digital to operate on its biggest scale as possible. And that sounds kind of right to me and the economics sounds right. But it’s still part of the same trend, moving more and more power to DC do you think the digital economy is part of that? Does anybody on Wall Street care?
Laura Martin: The digital economy is sitting in the Silicon Valley, and I guess you could argue Seattle. I mean that’s where the digital economy is, and I guess for content you could argue LA, but the whole west coast is where the digital economy is.
Scott Wallsten: Right, and so maybe DC doesn’t like that
Laura Martin: Maybe, but they’re not going to move to DC because one of the things we see in businesses is, there’s really interesting academic work being done, that the right competitive unit is not a company but it’s actually geographic region. And that the smartest people go to the geographic region that dominates that thing, whether it’s hardware or software or content, and that therefore, you get to call on the best people and they move up cause it’s connections based. And they share information because they change jobs, and therefore the cluster accumulates best practices faster and faster than anywhere outside the cluster. So I mean, you know it’s an economic theory-
Scott Wallsten: They haven’t exactly been able to displace Silicon Valley even though they try.
Brian Sullivan: But that’s kind of sad though. To me that that that’s a bigger issue. We talk about social inequality, economic inequality, wealth inequality. I’ve often thought like what if Facebook was based in Youngstown, Ohio?
Laura Martin: It wouldn’t be Facebook. Somebody else would pad that-
Brian Sullivan: You sure? You think so?
Laura Martin: I do. I think, MySpace would have either survived and been like Facebook at half the size or somebody else would have replaced Facebook- I do. I believe in this cluster theory, I believe that the best-
Brian Sullivan: Is it beneficial?
Laura Martin: Yeah, I do think it is because these are big difficult, complex problems and so you need a centralization for people to go there. The best engineers to go somewhere. And they don’t want to go somewhere where they have to move their whole family to a different town when they get sick of their boss,
Brian Sullivan: There’s no job mobility. Once they’re in a company, they’re stuck.
Laura Martin: Right, in the middle of nowhere, they don’t want to do that. So what they want to do is move from Facebook to Google to a startup once they’ve made their 10 million. And that’s what happened. Stanford’s right there.
Brian Sullivan: We know that hundreds, maybe thousands of places have tried to recreate a Silicon Valley and they think, oh, it’s just ingredients. You have two universities and we’ll give you-
Laura Martin: And a couple of venture capitalists-
Brian Sullivan: Yes, except the fact that teachers have to live a hundred miles away because they can’t afford a 3 bedroom, 2 bath ranch house.
Scott Wallsten: Then the alternatives, you put it in the middle of Iowa and then nobody wants to go.
Brian Sullivan: But that’s why we’re seeing places like Austin pop up. Atlanta.
Scott Wallsten: It’s true. There are some successful examples.
Brian Sullivan: By the way, Fortnite is built in in Raleigh, North Carolina. Fortnite is not a Silicon Valley- what’s the name of the company? Epic games? Privately held sitting there in a 3 story, nondescript office building in the Raleigh-Durham area and they’re going to become- they already are- the company and the game that ate the world.
Scott Wallsten: I bet we see them move to Silicon Valley.
Laura Martin: Netflix moved, when it turned into a content company, it moved all but 3 people down to LA, which is a great example of somebody starting the Silicon Valley as a tech company-
Brian Sullivan: All but 3 people. So it’s Netflix has more people. I’ve heard that their lobby is the place to be seen right now, there’s Leonardo DiCaprio, here’s Brad Pitt.
Laura Martin: And they made an underground bridge into their lobby now.
Brian Sullivan: For super, super stars. Like hey, here’s Laura Martin. You don’t come in through the door, you go in under.
Laura Martin: But the point is once they decided they were a content company, even they obeyed the cluster rules of coming into Hollywood.
Brian Sullivan: But there’s a difference in my opinion, between- again this is my opinion- Netflix is like, I just watched TV on Netflix. If they know that I like Ozark or whatever, I don’t care. You know what I mean? Like Comcast, my company, my ultimate parent company, they’ve got great offerings. They’ve been super smart with their Xfinity remote. I’m not promoting the company, I’m just saying I use it at home. You can click through to Netflix and stuff. Everyone’s kind of coming together. That’s just watching TV. To me, that’s data that’s benign. Okay, they know I like this band or that show. Who cares if they know that I’m, you know, googling… oh I don’t want to say googling. If I’m searching for, on Duck Duck Go, if I’m searching for do I have an ulcer. Okay. Then that data- I read a book called Everybody Lies. You heard about this book? And it’s basically how everyone lies to everyone about everything except to Google. Because you google “why do I have this rash?”
Scott Wallsten: That’s Hal Varian’s point. He says that everyone trusts Google with everything.
Brian Sullivan: Anonymity. No one’s knocking Google here. I’m simply saying that it’s like you tell the truth to Google because you’re actually worried “why do I have a headache for seven days?” And God, never do that, by the way. Everything’s “you have brain cancer!” It actually just might be you have a headache because you’re dehydrated, you’re in Aspen. It’s interesting how that data, to me as just as a consumer, not as a CNBC anchor, as a consumer, that’s the data that worries me.
Laura Martin: But I don’t think that, if you can’t make money, as a Wall Street analyst, if you can’t make money, I don’t care. So I don’t care that somebody has that data. I care a lot if Netflix has your viewing data cause that’s what they’re doing to monetize. What I care about is that guys have the first party data around the person’s name that they can then monetize more effectively than a competitor who doesn’t have that data on a person’s name.
Scott Wallsten: First of all, I think that you could monetize some of it and there’s some types of information that you would want to share. Even some types of medical information. Imagine that you’re here in Aspen and you’ve typed in “why do I have a headache?” And they share it, somebody says, “oh, it’s because you’re at 7,000 feet and here’s this product you can take and it’ll fix it for you.” Is that bad?
Brian Sullivan: Oh, there’s lots of stores around here that are trying to sell you all kinds of products.
Scott Wallsten: Including the water in the lobby that’s green.
Brian Sullivan: The green lobby, gummies, edibles, you’ll solve anything here at Aspen apparently. It’s this an interesting town, I’ve never been here. It’s like coffee shop, restaurant, pot shop, $5,000 handbag. It’s an interesting place. They’re all interesting in their own way. Every location. I guess, Laura, it’s fun for me to do this cause usually our interviews on TV are like four minutes. You know, Apple’s making a big play on privacy. Apple’s whole thing now is we’re not selling your data. You’re going to pay for stuff, which is amazing because remember, if you’re not paying for stuff, you’re the product. But we need you to pay. But in doing- is that gonna work?
Laura Martin: Yeah, it’s gonna work.
Brian Sullivan: Is it gonna work with upper wealthier people or is it gonna work with everybody?
Laura Martin: I would say they have a monopoly on the richest 15% of the world’s population. 40% of Americans use an Apple phone, but around the world it’s only 15% penetrated and it’s just a monopoly on the richest.
Brian Sullivan: So I don’t know if anyone else has brought this up. If not, I guess we’ll talk about it, maybe it has. Data inequality. Could you see a situation where wealthier people are going to be able to protect their personal data better than the rest of the population because they can buy out- in other words, so Facebook. And again, we’re not picking on companies. What if Facebook said for $100 a year-
Laura Martin: Which is the break-even price.
Brian Sullivan: You can opt out of all data.
Laura Martin: I would do that deal.
Brian Sullivan: I would do that deal too. But a lot of people can’t afford $100.
Scott Wallsten: If data is a normal economic good, something that people are willing to pay for then yeah the first people, the people who will pay the most for it, are likely to be wealthy people cause that’s the way it is with everything.
Brian Sullivan: So wealthier people then, Scott, opt out of this world, they’re able to buy their way out. They’re buying their data freedom. How’s that?
Scott Wallsten: The other way to put it, and I’m not sure if this is the right way to put it, but the other way to put it is, all right, here’s this product that costs $100, but you can get it for free. So it actually allows people to access something they wouldn’t be able to otherwise. I mean that’s the other way of putting it.
Brian Sullivan: And that’s the beautiful thing about technology in so many ways. It doesn’t matter what your income level is, you can search on Google, you can use Pandora’s free product. There’s, so much free. You can use Gmail. They don’t know if you’re a billionaire or whatever, they might know. But you know what I mean? You can use it no matter who you are. But I do wonder, Apple’s whole thing is premium prices, but you’re buying your way out of that data world which, as a consumer, I like.
Scott Wallsten: And as Laura, you pointed out, Apple has this access, but to only a small share of population that’s very rich. But actually low income people are willing to pay for some things. And we learned that when mobile phones first came into existence in developing countries. At first- I worked at the World Bank and it’s terrible. The general advice was cell phones are just going to be a toy for the rich. Let’s not worry about it. That’s why the incumbent phone companies let them enter because they didn’t think they would be a threat. It turned out these people who have no money were able to buy cell phones because they valued-
Brian Sullivan: And by the way, they had better networks than we did here because they jumped the whole, like hard line fiber optic thing.
Scott Wallsten: Because they couldn’t get hard line and there was a huge demand for it. So obviously low income people have less money because that’s definition of low income.
Brian Sullivan: I guess the point I’m making was that I do wonder if we’re headed toward this- with so much talk around data-I wonder if we’re headed toward a debate on data as a privilege.
Laura Martin: Two statistics on this. CBS All Access, you can pay $5.99/month or you can pay $10. 2/3 of their consumers pay $10, no ads, which means you’re not the product. They have 4 million subscribers in America. So 2/3 of that 4 million say I’d rather pay $10 and have no ads. We saw with Pandora and Spotify, you both have a freemium model where it’s free and then they try to upsell you to the no ads model. So iin many cases, that’s their ultimate goal is to get you to pay.
Brian Sullivan: And I’m always shocked when I talked to some of my friends and they’re like, yeah, I don’t do the premium version. I’m like, you don’t? You don’t pay the 50 bucks a year or whatever it is on Pandora? They’re like, yeah, I don’t mind the ads. I’m always kind of shocked by that. Now that just means I’m a snob I suppose. And I work in the media, so I love advertisers and I think that the- we’re coming out with our own streaming product at some point. And you probably know a lot more about it than I do. I’m just a talking head on the air. But I wonder how many people will pay for all these services. Cause to me that’s the fun question. Two years out, how many of these companies are going to be left Laura?
Scott Wallsten: Earlier when there was lots of pressure from sort of so-called public interest groups to have the government break up the bundle in cable. People would say, well look, you make everything how hard it’s going to be a hell of a lot more expensive.
Laura Martin: And it’s going to end up being more expensive for the consumer even though this is what the consumer wants.
Brian Sullivan: But will the consumer, will they have Netflix, Hulu, NBC’s product, HBOGo or whatever it is, the Warner media product, will they have all of them?
Laura Martin: No, no. I don’t think so.
Brian Sullivan: You know what terrified me, if I was running one of these companies, I read a stat, I can’t remember where, forgive me, 28% or something of streaming subscribers admit that they cancel on a monthly basis based on a show or something like this. They’ll cut the subscription. Imagine trying to manage your cash flow is as a CFO when consumers are that fickle.
Laura Martin: Well one of the reasons Netflix had -100,000 subs in the second quarter is people turned off in April and May for Game of Thrones on HBO. They turned off their Netflix to save the $10 because they had to subscribe for $15 for 6 weeks of the Game of Thrones final season.
Brian Sullivan: But they’re literally willing to go like 6 deep in the settings thing to figure out how to cancel their account. And it’s not ever easy to do that.
Scott Wallsten: Because it makes sense when you think about it. People like to watch shows, nobody thinks we can’t wait to get home and watch Hulu.
Brian Sullivan: But how do you want a business like that though?
Laura Martin: I mean, their churn is extraordinary. And the problem is the minute Disney+ comes, and they all give you a freemium model, they’d all say, hey, 30 days free. Why wouldn’t you turn off your Netflix if you’re going to spend 30 days eating as much of Disney during the free period as possible? Your thought is if I can get through all their good stuff, then I can go back to Netflix, but for the 30 days free, I’m going to watch as much Disney+ as possible.
Brian Sullivan: I know we get a wrap up. I’m going to tell you, as a father of a nearly five year old, I’m admitting I’m a terrible parent right now, the most genius invention of the last 3 years, but it’s also the evilest is the autoplay. If I don’t monitor it, my son will sit there on an iPad and watch like Octonauts. Well, whatever it is, you know, Pauper, for eight hours. Now we try not, don’t do that. I’m just saying the autoplay is ridiculous.
Laura Martin: Well, one thing on your Apple phone, you can actually, as the parent have screen settings for your son. So if he’s playing too much Fortnite you can make it stop for 10 minutes every hour. Or you can say maximum screen time in any day over any 24 hours, 3 hours.
Scott Wallsten: Of course the problem is that as a teenager you put screen settings on your parents.
Laura Martin: True. That’s probably true. My parents are limited from their screens.
Brian Sullivan: Can we all just agree it’s going to be a really interesting next few years with all this stuff. Because these companies have gotten- I mean when we’re talking on CNBC, trillion dollar market caps. You know who just quietly goes about their business is Microsoft. Trillion dollar market cap. 20 years ago, they were the poster child of antitrust. I was in law school and that case was going on and then it just kind of petered out and no one cared.
Scott Wallsten: Some of it might have to do with what they learned or at that time. They learned how to interact with DC. And the other tech companies, they haven’t figured it out yet.
Laura Martin: Part of it is they’re not consumer facing. Everything Microsoft does now is B to B. They don’t face the consumer. All of the tech-
Brian Sullivan: You don’t have a Zune?
Laura Martin: I don’t. I don’t have a Zune. But I think that’s part of it. The consumers write letters to Congressmen and the government thinks it’s there to protect consumers and every platform they’re going after is a consumer facing platform.
Scott Wallsten: But they have their Surface product, which is small, but they still have Office. Everyone uses Office.
Brian Sullivan: Do you think the grocery stores are going to go after Amazon?
Laura Martin: I think they’d like to. I think a lot of small businesses are being put out of business by Amazon and there’s a lot of- I mean Adonis even is now been hired by a couple of these small, independent shops that feel like Amazon bullies them. There’s a lot of those small businesses.
Scott Wallsten: And as we talked about, regardless of the facts behind the claim, it’s a very discreet claim and it’s easier to bring in a case when you have a very specific argument than something big and broad like we’re going to break up the companies.
Brian Sullivan: We need to be careful too. The United States has like 5 times more retail space per capita than the next highest country or something like that. It’s very easy to say Amazon’s killing retail. Maybe retail killed retail by growing too fast. I’m so old, Scott, that I remember when Walmart was killing all the retail. It was Walmart is the enemy! Suddenly Walmart is the good guy because they actually employ people in your town right.
Scott Wallsten: Well they seem to be a bad guy when they employ too many people and a bad guy when they lay people off. People generally view them in a more positive light than they used to.
Brian Sullivan: As Makan said in there, big is not bad. It’s big and behaving badly. That’s the problem.
Laura Martin: I thought it was interesting how he was talking about Standard Oil and how it was great at the beginning but then it started doing anti-competitive things to maintain their monopoly. I thought that was super interesting. It’s about maintaining your monopoly, not necessarily building your monopoly. I thought you made a good point that monopolies aren’t against the law.
Brian Sullivan: They’re not. A lot of people think they are.
Laura Martin: I mean they can be. If they weren’t, you could invent anything.
Brian Sullivan: It’s when you use it to tie to other products. That was Microsoft’s big problem. Was that it was like if you want, if I remember correctly, if you want Microsoft’s operating system, which everyone did at the time, Explorer was like on your computer. Don’t you remember when we used to buy new computers and they would come with like 62 different pieces of software on them and what the heck is this? Right? I don’t want this. All that stuff is just jammed onto the computer and made it so unwieldy, it would slow it down.
Laura Martin: I was wondering how he would justify the actual sanctioned monopoly power of the NFL and the sports leagues where the government does say it’s completely anticompetitive.
Scott Wallsten: Yes, it’s absurd. It’s absolutely absurd. It’s a whole other topic.
Laura Martin: I just think it’s interesting. They’re talking out of two sides of their mouth.
Brian Sullivan: Next year you should have a sports track, Scott, at this conference.
Laura Martin: Or trade.
Scott Wallsten: We might do eSports.
Brian Sullivan: That’d be beautiful. Actually do an eSports and regular sports track at this conference next year. We’ll get Brett Favre to come in and be on a panel.
Scott Wallsten: Antitrust exemptions like that, there’s the NCAA, which is able to completely exploit its labor.
Laura Martin: Yeah, that’s true. And now the eSports guys are gonna mess that up because all the eSports varsity players, they’re getting their tuitions paid out in 90 universities, they’re allowed to keep their winnings. When they go to a tournament, if they win a $1 million prize pool to split around the four of them, they get to keep their winnings.
Brian Sullivan: Then the football player’s getting just destroyed on the field, gets a couple hundred bucks. They do get tuition though.
Laura Martin: But so do the eSports guys. 90 universities are giving eSports tuition. And then they get to keep their winnings. So if I was the NCAA, that’s stupid because all the growth is going to come out of eSports. But there’s no way they’re going to join the NCAA if they take away their winnings.
Brian Sullivan: So should I tell my four year old to start playing golf or start playing golf online?
Laura Martin: Online. I would say eSports.
Scott Wallsten: Well you just need to turn off that autoplay feature and make sure he knows how to do it himself.
Brian Sullivan: And also make sure he knows how to wash himself, eat, rest himself. There’s some people, 20 year olds, like are you aware of these things? I’m just jealous. They didn’t have these delivery services when I was in college. That would’ve been spectacular. Pick up the phone. UberEats, $5, right at your door.
Laura Martin: You had pizza.
Brian Sullivan: That was it, you had pizza. Now you can have anything you want.
Scott Wallsten: And you never have to leave your room.
Laura Martin: Part of that is that the kids are getting married at 30 now and so for 10 years, especially women, they don’t want to go and sit in a restaurant alone, both because of the safety but also because of the social stigma. And these women and men too, they have a lot of money. They’re usually really hard workers. So now there’s whole services that not only deliver food, but they deliver it with the perfect napkin from the place with the logo, the perfect outline, it comes in a box. It’s magnificent. And it’s all about feeling like you’re in the restaurant without the inconvenience. You can work through dinner and nobody has to sit alone.
Brian Sullivan: But going out is fun because then you get to talk to people. Of course, I clearly like to talk.
Scott Wallsten: Part of the reason for eating in by yourself is like maybe you can wear it a bib and just be a slob.
Brian Sullivan: Only a bib. Nothing else. Whatever you want to do, man. You do you, as they say. Okay, but let’s be clear: It’s kinda gross.
Scott Wallsten: Depends on what you’re eating.
Brian Sullivan: That’s true. Naked lobster. That’s a thing. I’m going to Maine tomorrow actually, so maybe I’ll try that. I don’t know.
Scott Wallsten: You’ll have to tweet that.
Brian Sullivan: No. I do know this though. I read in Lies, damn Lies, whatever the number is. Something like one of every four food delivery drivers admitted to sampling your food before they brought it to your house. Did you guys see that study? Because you’re sitting in the car. Is there French fries? Oh, it’s French fries. I’ll just have one.
Scott Wallsten: Do you use that to decide whether or not you should get the food? It might be okay. I’ve gotten such terrible food from deliveries.
Brian Sullivan: Because it’s soggy, it’s cold. The driver’s touching doorknobs and petting dogs and then grabbing your food right, and then wiping the snot off his nose, then going back into your bag. Is that what’s happening? I’ll take the restaurant. Maybe I’m just an old man.
Laura Martin: Okay, one last question. And then we can go.
Scott Wallsten: Did you want to ask the question?
Laura Martin: Oh no, I’m good.
Brian Sullivan: John Denver is the always the answer.
Scott Wallsten: There is a John Denver Sanctuary here.
Brian Sullivan: There should be the man did a lot for Aspen.
Scott Wallsten: I don’t understand. Did he pay for it?
Laura Martin: Rocky Mountain High. No, it’s probably a tribute to him. Like they named streets in DC after famous people. It’s a tribute. What are we going to be talking about in a year that we should have been talking about today?
Brian Sullivan: I don’t know. You answer that. I’m in the media. I don’t know anything.
Laura Martin: A year isn’t that long.
Brian Sullivan: You mean in technology? Cause I was just in Hong Kong. They got some stuff going on over there. But I assume you mean tech, like why we’re here at this conference.
Laura Martin: Well, if this whole tariff trade war mean China, Hong Kong- cause you were saying yesterday that what’s going on in Hong Kong is effecting Trump’s stance on China on the tariffs.
Brian Sullivan: Yes. That’s why I was there.
Laura Martin: Exactly. So if we are all underestimating that, it totally can tank markets and the economy, which is really bad for ad-driven businesses.
Brian Sullivan: Can we also remember though, it was only 12 years ago that Blackberry had a 70% market share in phones or something like that. Now it’s like 0.6.
Scott Wallsten: Before that it was Nokia.
Brian Sullivan: Nokia Symbian, remember their operating system. We’re aging ourselves. Do what are we going to be talking about next year? I hope it’s the rise of more discussion around data privacy because I think that, it’s like that famous Target case. Target the store. I don’t remember if it was a case. But there was a teenage girl, and they kept getting adverts for like cribs and stuff at the house. And the dad was like- basically somebody called Target was like, “Hey, stop sending this. We have a teenage daughter. What are you trying to do?” And it turned out the girl I guess was pregnant and had been online searching for stuff and she didn’t want to tell her parents. I might have the story a little bit wrong, but you get the idea where the data broke the news to the family that should have been incredibly personal and difficult. And so I think we’re going to have more difficult conversations around data privacy. I also think we’ll have conversations around the role of social media in our society, cause it’s pretty nasty out there sometimes.
Laura Martin: Well, I think if we go under a recession and suddenly all of these fixed costs businesses watched their top line fall by 10%, their EBITDA alum fall by 20% and their EPS fall by 50%, suddenly this whole thing about being investigated for antitrust as you’re watching them lay off people and fall off the cliff, which ad-driven businesses do in any kind of recession- and by the way, if the capital markets close because of this China tariff trade war, if capital markets close, Netflix will bankrupt itself. It has $3 billion of cash on its books and over the next 12 months at those people $3 billion because it spends 13 billion in which you can only find 10 from internal.
Scott Wallsten: You’re saying if there’s a recession, and there has to be one some time, we have not overcome the business cycle that all of these talks about breaking up companies and antitrust will disappear?
Laura Martin: Yes, they have to disappear because these companies are going to look horrible. And not only are they fixed cost businesses, Google’s a fixed cost business, Facebook has taken up its cost by $1 billion extra a year in order to meet these privacy concerns. So it isn’t really a fixed cost business, it’s a rising cost business for privacy at a time when revenue would fall 10%.
Brian Sullivan: Do you think Facebook will ever go to a pay model?
Laura Martin: I think Facebook might go out of business. I think the government wants to put them out of business.
Brian Sullivan: We’re going to end it there? You should have started the whole podcast with that. Can’t end it with that!
Scott Wallsten: We can switch it around. But wait, are they going to go out of business because the government’s going to do that or because they’re done?
Laura Martin: I think their brand is so mistrusted in Washington, DC that I think the government really would like to see Facebook not exist as a brand/company and I think the fact that Facebook then introduced Libra, which was so tone deaf because what Libra tries to do is just intermediate the financial system globally, means they can’t be trusted to survive. That if they let them survive, it might be that in 10 years or 20 years after all these legislators-
Brian Sullivan: But nobody is forced to be on these platforms. That’s the thing. No one forces you to go onto Facebook. You know what I mean?
Laura Martin: That’s true. I agree with that. This has nothing to do the consumer. This has to do with fear in Washington of the power of Facebook.
Brian Sullivan: When you start talking about elections then yes, democracy is brought up…
Scott Wallsten: But the push back on that is that all of the politicians need Facebook too. I mean, they devote huge campaign budgets to advertise on Facebook and Google. I don’t know if they know what to do with that. Maybe it’ll just the politicians on there.
Laura Martin: Maybe. We’ll see.
Brian Sullivan: I’m on Friendster. I think that’s the future. MySpace and Friendster, they’re just plotting their comeback.
Scott Wallsten: It’s as if it’s the long game.
Brian Sullivan: I’ve been through three cycles now, Scott, I’m starting to feel like an old man. The Internet bust, you know, financial crisis and whatever the next one is, it’s coming and something is coming.
Laura Martin: Yeah. It’s got to, it’s healthy.
All: Thank you very much. Thank you. Thank you. That’s great. See you at next year’s Aspen.