Another Mega Streaming Merger? & The Big Business of Elf on a Shelf

0:26Race the rudders! Good morning, Brew Daily Show. I'm Toby Howell. And I'm Kyle Heggie. Today, we're talking about a potential merger that would shake Hollywood, TV, sports broadcasting, streaming, and news to its very core. And we're also going to break down the economics of Christmas. It's Friday, December 22nd. Let's ride.

0:54this is our last show before christmas so i just want to take a moment to tell everyone how freaking grateful i am to kick things off to everyone listening to this you make my job neil's kyle's job so much more enjoyable we see your emails we see your tweets we see your responses to our instagram stories and it's just so cool that you tune in to support the show every day. It's truly amazing. It's been such a pleasure co-hosting when I get the opportunity in 2023. This will be my last episode of 2023. And I just want to give a kudos to the entire team as well. Like the amount of work you all put in, I kind of fly in and have some fun.

1:29You're up every day at 4am doing the research, setting up the graphics, like the entire team here is incredible. So kudos to you as well, Toby. Kudos to everyone. Kudos to you, Kyle. This is our second show of the day. Even though this is going out on Friday, we were recording this on Thursday, the day before. back to back. Also, if you've been enjoying the show, I know a lot of people look for new pods around the new year. So maybe send it to a friend or two or three. My Christmas present is just a Spotify link to the show to everyone. Exactly. Before we jump into the show, I want to take a minute to tell you all about Yahoo Finance.

2:03Christmas is right around the corner, but after December, we enter my favorite time of the year, earnings season. And parsing through earnings reports, seeing if companies exceeded or missed expectations, it can be a lot. But that's where our friends at Yahoo Finance come in. They combine breaking news with high-quality real-time market data to give you a platform that helps you do everything from make smart financial decisions to host a daily news podcast. So head to finance.yahoo.com to learn more or download the Yahoo Finance mobile app to get it directly on your phone. Eczema isn't always obvious, but it's real.

2:36And so is the relief from EBCLIS. After an initial dosing phase, about 4 in 10 people taking EBCLIS achieve itch relief and clear or almost clear skin at 16 weeks. And most of those people maintain skin that's still more clear at one year with monthly dosing. EBCLIS, LibriKizumab, LBKZ, a 250 milligram per two milliliter injection, is a prescription medicine used to treat adults and children 12 years of age and older who weigh at least 88 pounds or 40 kilograms with moderate to severe eczema. Also called atopic dermatitis that is not well controlled with prescription therapies used on the skin or topicals or who cannot use topical therapies.

3:09EPCLIS can be used with or without topical corticosteroids. Don't use if you're allergic to EPCLIS. Allergic reactions can occur that can be severe. Eye problems can occur. Tell your doctor if you have new or worsening eye problems. You should not receive a live vaccine when treated with EPCLIS. Before starting EPCLIS, tell your doctor if you have a parasitic infection. Searching for real relief? Ask your doctor about EPCLIS and visit ebclus.lily.com or call 1-800-LILY-RX or 1-800-545-5979. The Hollywood rumor mill is churning again, but instead of dissecting if Glenn Powell and Sidney Sweeney are canoodling or not, insiders are talking about a streaming consolidation.

3:43The two names to be floated as potential candidates for a merger are Warner Bros. Discovery and Paramount. Multiple outlets have reported that Warner Bros. CEO David Zaslav, who has never met a deal he doesn't like, met with Paramount chief Bob Backish this week to discuss the potential merger. But is this even a good idea? On the surface, combining the owners of Max and Paramount Plus seems like a good plan to try and put a dent in Netflix's streaming dominance. Together, they would have around 158 million subscribers, which would be more than Disney and only trail Netflix's 247 million subs.

4:18But the big question marks around this deal are the two companies combined would have an enormous$61 billion debt load, and regulators would no doubt have a thing or two to say about it as well. But in a world where people are cord-cutting left and right and big tech has their eyes set on the streaming and entertainment worlds. Maybe the two need this deal, warts and all, to remain competitive. Yeah, I love how you said the two might need this deal. And I think the best way to describe this is it's not a match made in heaven. It is a match out of necessity. It's kind of like me and my 10th grade prom date when we both still need a date.

4:49It's one week before. But that's neither here nor there. I don't think there's an incredible amount of synergies, and they would be doing this if both businesses were doing well. But as you mentioned, a combined about$60 billion in debt, they might just need to do this to compete with companies like Netflix, Apple, Amazon, who have way more capital. And it's very interesting. There's this take where there's essentially two business strategies, the yin and the yang, the bundle and the unbundle. And cable was the ultimate bundle. You paid one price, you got everything. And then companies like Netflix, Disney +, Apple came along and they basically unbundled cable.

5:23The idea being, you're just going to get what you want. You're going to pay a much cheaper price. and the really interesting narrative now is like they're merging and basically re-bundling to create a new cable subscription the jokes just write themselves that the unbundling and then re-bundling has happened they're just reinventing cable again but i i mean you mentioned synergies and there are certainly certain synergies between these two businesses because i mean we haven't even mentioned the tv empire that would would be created yet both of these companies own popular channels like hbo showtime mtv and the two would also be a news juggernaut if they combine because you got cnn and cbs news operations that would combine to create a very a news organization that might even rival morning brew daily some some might say and then on combined analysts estimate that the two companies would account for around 35 to 40 percent of viewing time on linear tv networks so even though linear tv is dying and there's all this cord cutting going on they would still dominate this still sizable industry.

6:23So you can see why they are at least considering this deal. Right. I think it makes sense for a lot of these streaming services to start considering merging together. And what is interesting to me, we talked about bundling and unbundling. People, I think, thought the problem with cable was like, it's too expensive. It was like too much choice. I really think to me, it was like a terrible customer and user experience. Actually, like canceling a cable bill was impossible. What Netflix is, one of their innovations was like having a Chris UI and making it easy to cancel. So we're going to get cable maybe again, but like it will be seamless.

6:54It'll be on your phone. You can log in. You can cancel easily. And I think that's going to put the consumer in a better spot. You did also mention the FTC and they have a noticeable distaste for mergers. So I'm very curious how they would react to this, although I don't think this causes consumer harm. Yeah, I think that the execs are pretty confident a deal would receive regulatory approval, despite the extremely active antitrust climate that we've been seeing affect numerous deals. Warner Bros. Discovery doesn't own a broadcast network like Paramount does, which would create an easier path towards combination versus say if they were combining with someone like an NBC or NBC owner Comcast or something like that.

7:35So I see why they think that this deal can get through, even though on the surface, when you see some of these statistics, it seems like something that the FTC would kind of put their foot down on. The real question is, what is the new streaming service going to be called, Toby? Do you have any ideas for them? I just say they embrace it and say Cable Plus. They just totally embrace the joke. I love it. All right, let's move on to our next segment, which is Stock of the Year, Dog of the Year. And if you've been following the show, then you know we do Stock of the Week, Dog of the Week. And since we're close to wrapping up 2023, we thought let's go big and then literally let's go home on vacation.

8:08So we're going to do Stock of the Year, Dog of the Year. Now, I have to caveat this with this. This is not financial advice. I'm a philosophy major. I just learned that a mutual fund isn't when your friends all Venmo you at the same time. So do not listen to me for financial advice. All right, Toby, we looked at Santa's Naughty and Nice list backstage. I was nicer than you this year, so I'm going to start. My stock of the year is Affirm. The California-based Buy Now, Pay Later company founded by Max Levchin, one of the co-founders of PayPal, went on an absolute tear in 2023. While it enables customers to buy now and pay later, The stock was a buy now, make a ton of money later, because Affirm is up close to 420 % year to date.

8:53They've had an incredible year, capped off with an expanded Walmart partnership. They announced this week that's going to bring Affirm to the 4 ,500 self-checkout machines across Walmart stores in the U.S. This is in addition to partnerships with Stripe, Amazon, Apple. So they have some big players on their side. I think their biggest win, however, was allowing me to buy my mom's Christmas present and pay it off over time. So you're welcome, mom, and you're going to get your gift soon. Toby, what's your take on Affirm this year? My take was that BNPL, Buy Now, Pay Later, was supposed to be kind of dead in the water after the pandemic boom times.

9:27But I think it's just kind of stuck around. Affirm was not supposed to do this well in the current market because higher interest rates were supposed to hurt because unlike banks who fund their loans by receiving deposits from customers, Buy Now, Pay Later companies need to get their funds from capital markets like the stocks or bond markets. And stocks and bonds have been just kind of seesawing every which way. So it's been very difficult for these buy now, pay later companies to have kind of that consistent lending pool in order to make these short-term loans. But all that aside, a firm absolutely crushed it.

10:00They saw 37 % revenue growth last quarter. They got these big Walmart partnerships. I'm curious to hear your thoughts. Do you think offering a buy-now-pay-later short-term loan at a Walmart kiosk is a good idea? I mean, it's quite interesting. Like, I'm going to pay off this$7 gallon of milk for four payments. Yeah, I totally could see it backfiring, though, because you do make some impulse purchases in checkout lines. And the dark side of buy-now-pay-later is always, are these predatory short-term loans? And if you miss the loan payments, they have pretty big penalties attached to them. So I don't know if necessarily putting it in a place like Walmart is going to end up being good for consumers, but it's certainly good for a firm.

10:44Right. I think one take for a firm is if you're financially savvy, it really helps because it allows you more cash flow because you're not paying off all at once. But if you get behind, it can be a very dangerous trap. So definitely something to watch out for buy now, pay later. But when it comes to a firm, from a business perspective, they crushed it this year. Yeah, the globe is real. My stock of the year is actually not a stock, but an index, the regional banking index. It is up a whopping 0 % since March of this year. Yes, I said zero. But when you consider the fact that we had a full-blown regional banking crisis in March, suddenly clawing back to even doesn't seem so bad.

11:21The S &P 500 regional bank index and the NASDAQ's U.S. regional bank index both had two of their best days of the month last week, and both reached above where they were on March 9th, the day before Silicon Valley Bank imploded. Kyle, it feels like a lifetime ago, but the whole global banking system was teetering on the edge just a few short months ago. But swift action from the Fed, as well as interest rates, cuts, forecasts on the horizon has led to this huge comeback for regional banks, which is why they are my stock of the year. I love this pick and the fact that you picked an index. That's when you know you really went deep into the numbers.

11:57I think this is great just for the country and for the world. I mean, I remember SVB and everyone was like, everyone's going to take out their deposits, give them to JP Morgan, and we're just going to have one bank. It is great to see these regional banks still kind of bounce back, stay strong. I think they're great for entrepreneurs. They're great for the regions they exist in, oftentimes giving credit to people that couldn't get credit elsewhere. So this is very good, I believe, for the American economy. It's so interesting because regional banks have kind of lived and died by the Fed this year, because you might say the Fed did very well to step in and kind of backstop and make sure that those bank runs didn't happen.

12:31But then you also might say that the Fed created the regional banking crisis because they jacked one of the most aggressive rate hiking cycles in recent memory. So it's definitely like a seesaw effect. And now the Fed is once again forecasting cuts on interest rates on the horizon, which has led the index to rebound. So I was going to say, good on the Fed for saving the banks, but also they were the ones who almost created the issue in the first place. So it's certainly one of those things where we're not out of the woods yet, but the horizon is looking much better. Right. I think the best way to describe it is regional banks are in a toxic relationship with the Fed.

13:06Aren't we all? There's some pros and cons. Aren't we all? Okay, let's move on to our dogs of the year. And my pick is AMC. Yes, this is the movie theater company you would sneak into R-rated movies when you were 14. It is my dog of the year. AMC is down 80 % year to date, standing at about$6 a share. This is down from a March high of about$60, a high for this year. But I think the numbers don't tell the whole story. And this is why I wanted to make this stock in particular my dog of the year. AMC really rose to fame as one of the most mainstream quote unquote meme stocks, right? Retail investors were aping into this stock, creating wild price swings.

13:45and upwards of 90 % of outstanding shares currently are owned by retail investors, which is an absurd number. They reached an all-time high, the stock of$551 per share in 2021. That is adjusted for the reverse stocks that they did this August. And again, now they sit at$6 a share. And what's interesting is this year, they've been struggling to keep the momentum alive, even though the box office has kind of had this like renaissance year. There's been Barbie, Oppenheimer, Super Mario Bros., Taylor Swift in theaters. Like, if Taylor Swift can't save her company, this is bad news. This week, AMC also announced an equity for debt exchange.

14:21Basically, they keep getting in trouble. They need capital. They issue more shares. That dilutes the price of the shares, and it starts a vicious cycle. So it's not looking good for AMC. And by all means, their only hope is they've begun selling their own branded line of chocolate bars. That's not good. Say what you will. AMC certainly tries stuff. I mean, they're selling the chocolate bars. They also were selling their own branded popcorn this year. They did that deal where they were the sole distributor of Taylor Swift's Ares Doer movie, and they got some of the rev share. So they certainly experiment.

14:51They certainly leaned into the meme stock, but you can live and die by the meme stock for sure. Right. I think the moral of the story here is you can't ape forever. Memes come and go, but business fundamentals really do matter in the long term, and they're going to have to figure out those fundamentals. And maybe it's to your point, they keep experimenting and finally find something that works. Just keep trying, AMC. My dog of the year is Pfizer. I would describe Pfizer's year as missing a train they desperately needed to catch. And that train is the class of GLP-1 weight loss drugs. Novo Nordisk has Ozempic.

15:24Eli Lilly has Monjaro. But Pfizer has nothing. And it's not for lack of trying. Johnson & Johnson, for instance, said, listen, there's already too much competition in the weight loss drug market. We're not even going to try to catch up. And investors looked at that positively. But Pfizer did give it a go, ended up pulling the plug on phase three studies for its twice daily oral weight loss drug candidate. And I haven't even mentioned the post-vaccine bonanza hangover it's experiencing either. Both have combined to send the stock down 45 percent so far this year. Yeah, I mean, I think the story of Pfizer is one they like kind of help save the world in some ways.

15:58And their focus had to be on that. And I think following up with the COVID vaccine, going back to back is always tough. And this GLP-1 might end up being a bigger story than GPT-4 next year. It is really taking over the world. To not be on that train is scary from a business perspective, and Pfizer has missed it. I also think it's kind of funny that Johnson & Johnson, I think after they did the COVID vaccine and it was kind of deemed the worst one, they were like, we're not even going to try anything else. Hey, know thyself. I mean, you just have to look at the difference between the fates of Novo Nordisk and Pfizer.

16:30I mean, Novotis has almost, it's up 50 % on the year so far. It's the second biggest drug maker in the world just because they nailed this wave versus Pfizer missed the boat. And now suddenly they also lost out on like the$100 billion of COVID era revenue that they were pulling in from the vaccine. So a lot of things went wrong for Pfizer this year, which is why it is my dog of the year. All right, before we jump into the next part of our show, we're going to take a quick break.

16:59Tonight on NBC, Jimmy Fallon and Bozema St. John host a highly anticipated new competition show. I hired 10 creatives from all walks of life. They will be battling it out to see who can impress the world's biggest brands. This is a huge opportunity. This is the battle for the next big idea. This is not play play. We're spending millions of dollars. I'm so excited to embark on this adventure with all of you. Make the best idea win! On brand with Jimmy Fallon. Series premiere tonight on NBC. I'm Christian McCaffrey, pro running back. And Abercrombie is an official fashion partner of the NFL. I'm not kidding when I say NFL by Abercrombie broke the internet last year.

17:37And I think this season's lineup is even cooler. And so does my wife, who keeps stealing all my hoodies. Stay fit for the season and Abercrombie's newest arrivals. Shop NFL by Abercrombie in the app, online, and in store.

17:58When people think Christmas, they think family, holiday cheers, or presents like normal people. But this is Morning Brew Daily, so we think business. So on the back half of the show, we're going to break down the business of Christmas, and we're going to start with the centerpiece of it all, which is the Christmas tree. And this was fascinating. I just want to give you a sense of this multibillion-dollar industry. It is so large, there's actually two trade unions around trees. One is team natural tree and one is team artificial tree. And what I found fascinating, there are three ways in the U.S.

18:27to get a Christmas tree. One is you buy a permit for$10 or less and you chop down your own tree. If our listeners are not lumberjacks, then we're left with two options, which is you go to a Christmas tree farm. There's about 3 ,000 of these in the U.S. where you can buy or chop down your own tree. But economic and kind of weather pressure has seen 500 Christmas tree farms shutter in the U.S. between 2014 and 2019, which leaves us with the main way now, which is to buy one from a retailer who has imported trees. In 2022, we imported 3 million natural Christmas trees, mainly from Canada, and that number has doubled what we imported in 2014.

19:04On the artificial side, the U.S. imported over 20 million trees, mainly from China, and natural trees used to be a two-to-one ratio, and now it's closer to one-to-one. And the last thing I'll say about Christmas trees, The markup is wild, about 400 to 500%. This is what happens when you have a kid whose Christmas will be ruined if you don't have a tree. The businesses have you right where they want you. Toby, what was your thoughts on the economics of Christmas trees? I think it's the worst business of all time. Christmas trees take over a decade to grow large enough to sell. So can you imagine your sales cycle being a decade, essentially?

19:40And so I'm totally out on the business of Christmas trees. I was digging into who are the top producers in the U.S. of Christmas trees. And the number one is Ash County, North Carolina. I guess that makes sense, but I never really associated growing Christmas trees with North Carolina. The other top five, there's two places in Oregon, another place in North Carolina, and then one place in Michigan. Oregon and Michigan makes sense to me. North Carolina, I don't know. I'm from Florida, so that just feels too close longitudinally to me to be growing Christmas trees. Well, shout out to North Carolina.

20:10Are you an artificial or a natural tree guy? I am team natural. Like if you're going to do Christmas, I feel like you got to go on natural with it. I'm totally with you on that one. And although the stats are showing that it's getting a lot closer than we'd like to admit. We're becoming the old people that are like, ah, back in my day, we had natural trees. So we might be getting too old for this team artificial. Our next Christmas business we want to look at is the elf on the shelf. Parents listening to this show right now are no doubt already nodding their heads because they know all about Elf on the Shelf.

20:43But for the rest of us, Elf on the Shelf is kind of like an advent calendar, but with rules for your kids. In the days leading up to Christmas, a parent sets up an Elf doll, usually on a shelf, to observe their kids' behavior and report back to Santa Claus. It pairs with a book and just lets parents have fun with creating scenes of mischief that the Elf might get up to in the night while the kids are sleeping. It's created this viral hype cycle that has led to 21 million global sales of the so-called Scout Elves and over 75 licensing partners for its parent company, the Loomistelico. This business is genius in so many ways, Kyle, because of this built-in virality.

21:21Parents get to become creative as heck when it comes to placing and having fun with their elf on the shelf. And this is a confession, honest to God. I had no idea what elf on the shelf meant until I read this article. Like no idea. I just thought it was like this funny meme where you rhyme two things together because everyone like would then do their own spin on it. I absolutely love this story. You mentioned the numbers. The founder story is amazing as well. It was founded in 2005 by Carol Abersold and her twin daughters. And they viewed this project as like a happy distraction when their mom was not feeling well.

21:53And then they wanted to make this book about Elf on the Shelf. Initially, no publisher would take it. So Bell amassed like insane credit card debt, emptied out the 401ks. Like they went all in on this and now they've turned it into a$100 million empire. So not only is it like a fun, festive thing, but shout out to these entrepreneurs who took an idea to the extreme and made something out of it. Yeah, they made a juggernaut out of it. At the end of the day, I think parents just want to play with their kids. I mean, the Toy Association did a study and they found that 64 % of parents want to buy toys and games this holiday season that they can share with their kids.

22:26And Elf on the Shelf is definitely one of those things. I mean, you're kind of manipulating your kid a little bit because you're saying, look at this all empowering. this is Santa's scout watching your every move. And if you do anything out of place, it's genius from a parenting perspective, but the kids love it. And obviously it gives the chance for the parents and kids to connect. Yeah, parenting pro tip. Keep this out all year. Santa's actually watching you every single day. You'll have a great acting kid. Let's move on to our final story. Like Christmas trees, Santa, and your uncle drinking too much eggnog on Christmas Eve, poinsettias are a staple of the Christmas tradition.

23:00This is one of the most popular plants in the world. They have annual sales of 90 million units and global retail impact of nearly$1 billion. But the question is, where did a poinsettia come from? It actually has a really fascinating history. It's indigenous to southern Mexico. It was very revered in that culture. And then an amateur botanist and statesman, John Roberts Poinsett, actually discovered, quote unquote, the plant in 1828. He brought it back to the U.S. And the problem with the plant from a business perspective is they would only last about two or three days. and you couldn't transport it, this guy named Paul Eck revolutionized the poinsettia game.