FTC Investigates AI Price Adjustments & TNT vs. Prime for NBA Rights

0:00Does it ever feel like you're a marketing professional just speaking into the void? But with LinkedIn ads, you can know you're reaching the right decision makers, a network of 130 million of them, in fact. You can even target buyers by job title, industry, company, seniority, skills, and... Did I say job title? See how you can avoid the void and reach the right buyers with LinkedIn ads. Spend$250 on your first campaign and get a free$250 credit for the next one. Get started at linkedin.com slash campaign. Terms and conditions apply. Good Morning Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell.

0:35Today, Amazon is losing an astonishing amount of money on its Echo devices. We'll tell you how much without waking up Alexa. Then, TNT told the NBA, I wish I knew how to quit you as the TV contract bidding wars are getting juicy. It's Wednesday, July 24th. Let's ride.

0:57I woke up feeling competitive today, Neil. When do you not wake up feeling competitive? That's true, but I'm feeling particularly ruthless this morning, and that's because we've got ourselves a t-shirt selling contest on our hands. That we do. Listeners of the pod know that we recently released our summer merch, a beautiful MBD t-shirt with a retro flair to it. And you guys have been awesome so far in supporting the drop. Seriously, thank you to everyone who has hit up shop.morningbrew.com and bought a shirt so far. But we wanted to up the stakes a bit now, introducing a discount code off. Yes, right now you can head to shop.morningbrew.com and enter code TOBY20 at checkout for 20 % off your order.

1:38Or you can head to shop.morningbrew.com and enter code NEAL20 at checkout for 20 % off your order. By the way, my name is spelled N-E-A-L. Good point. Yes, we have dueling discount codes. We can see which code is used more frequently, TOBY20 or NEAL20. so we're having a competition to see who can sling more t-shirts from now until next Wednesday. And we want to take this seriously, so we're adding some stakes. If you're listening to this, email us or comment on the YouTube channel with the punishment the loser should have to face. Get creative, but remember, Neil is going to have to do this, so be nice.

2:14Now let's go team Toby 20. Nah, Neil 20 Hive, let's ride. Are you kidding? That is my line. Now a word from our sponsor, Beehive. Neil, is it fair to say that most hobbies don't make money? Well, let's see. Golf is like setting money on fire, so is having a boat. Even crafting is getting expensive these days. So yeah, totally checks out. Well, what if I told you that you could turn your writing hobby into real cash? Preach into the choir, Toby. Beehive is not only a wonderful platform to start your first newsletter on, it's also a wonderful platform to make your first buck on. They have a built-in ad network, which is essentially like having an entire sales team in your pocket.

2:52They bring deals to you and handle all the reporting and invoicing. Or if you're a really great writer, Beehive lets you charge for your newsletter by putting it behind a paywall. Think about how good it would feel to make some money off your work better than striping a 7-iron or landing a striped bass, that's for sure. And truly, no better platform to do it on than Beehive. If you're interested in checking it out, head to beehive.com slash brew. That's B-E-E-H-I-I-V dot com slash brew and get a 30 day free trial and then 20 % off three months with code brew. This episode is brought to you by State Farm.

3:29Checking off the boxes on your to do list is a great feeling. And when it comes to checking off coverage, a State Farm agent can help you choose an option that's right for you. Whether you prefer talking in person, on the phone, or using the award-winning app, it's nice knowing you have help finding coverage that best fits your needs. Like a good neighbor, State Farm is there. There's a new name on the Federal Trade Commission's naughty list, and it's surveillance pricing. The agency is launching an investigation into this budding practice to see how AI is being used to change prices right under your noses based on data gleaned from your behavior or characteristics.

4:08On the list of companies it is looking into are eight names ranging from MasterCard to McKinsey to Task, which counts McDonald's and Starbucks as clients. FDC chair Lena Kahn describes surveillance pricing as shadowy ecosystem of pricing middlemen who exploit your data to charge higher prices. Factors like the device you're shopping on, your location, your credit history, or your browsing history could all influence how much you're charged. If that sounds familiar, that's because surveillance pricing is a cousin to dynamic pricing, which has been used by airlines or companies like Uber to charge customers higher prices when there's higher demand.

4:44But the FTC is concerned with the level of specificity and opacity involved in surveillance pricing. So it wants to get a look under the hood of a couple of companies to see if anything nefarious is going on. Yeah, she is. Lena Khan is going straight to the source on this because companies over the past few months have been bragging about their personalized pricing. You had Lowe's Finance Chief Brandon Sigg saying, we're going to continue to leverage that data, continue to drive personalized offers, personalized pricing. And then over at Verizon, they said, with personalization, we are able to give offers that are targeted at customers.

5:21So the FTC heard what these companies were saying, that they're going to try to implement personalized pricing, which is very different than dynamic pricing. This is pricing geared toward a specific person based on their personal data. And she said, well, I want to look into this because I don't know if this is good for consumers. The incentives are all there for businesses to pursue this because businesses have always tried to maximize what they can charge people to pay. They want to walk it up right to the line of what they can charge someone without having someone walk away. And what's ironic is that this is the way that business used to be conducted.

5:57I mean, if you go back to like the 1800s, sales clerks would haggle with people over what price they would pay. They're aiming for that sweet spot. Some people would pay more. Some people would pay less. And it was only when like department stores became a thing in the late 1800s that putting a price tag on items became mainstream. and so once that occurred, it's very hard to charge people something different because just the public perception of doing that, if you see a price and you heard that your friend got a lower or higher price, that's gonna make you mad at the company. But now Pandora's box has been reopened because a lot of our shopping is conducted online.

6:32You're not seeing a price tag in a department store and therefore companies are saying, wait a second, I think we could maybe notch up our pricing personalization a little bit and get back to almost like the old way of doing business. Yeah, I mean, I don't know what when you open Amazon or any e-commerce site, I have no idea what your price is compared to mine. I was thinking about this on Amazon Prime Day. Just you're inundated with price information. And I'm looking at them like, well, I bought a laptop in the past. Are they upping the price on me because they know I'm willing to pay vis-a-vis you?

7:03So you just don't know. And that opacity is really what these companies are preying on. But there is an expectation that consumers will not be happy with this. I mean, there have been numerous examples in the past of companies trying out personalization and facing a lot of blowback. I mean, in 2000, Amazon varied its prices randomly for DVDs and MP3 players as an experiment to see which price points worked. But people found that out. They talked to each other in chat rooms and then that forced Jeff Bezos to apologize. And then in 2012, Orbit steered Mac users to pricier hotels because they learned that Mac users spend$20 or$30 more per night.

7:41and then the Wall Street Journal found this out and Orbitz backpedaled. So there have been numerous examples of companies trying to do this right under our noses until people found out and they had to walk it back. I mean, diving down the price personalization rabbit hole is wild. I just looked at what, think about what McDonald's could do with their app that they now have and the treasure trove of customer data they have. If the app knows that maybe you get paid on Friday, it can make your deal cost$5 instead of$4. If it knows that you always get an Egg McMuffin before class, then they can run a promotion for that.

8:12If they know it's hot out, maybe they'll make McFlurries less expensive. If they know it's cold out, they'll make a cup of coffee different. So there is so much. This is why there's been this race for data. This is why McDonald's has been pushing you into their app ecosystem because they want to be able to add up those little price changes over time because it ends up being a very big business increase for them. Totally. I mean, look at Walmart. They're rolling out digital prices in all of the in 2300 stores over the next few years. They're going to be able to change prices six times per minute.

8:44So dynamic pricing is absolutely coming. What the FTC is wants to draw the line is that hyper targeted, personalized pricing that these companies and a bunch of consultants, which they're going after, are offering their wares for. Earnings season kicked into full gear yesterday with tons of companies dropping their Q2 reports. Toby, you won the pre-show limbo contest, so you get to go first. My company up first is Tesla, and Tesla earnings came in sort of like my bench press at the gym yesterday, weaker than expected. Revenue was up 2 % from a year ago, but auto sales actually dropped 7%, and that's including a hefty$890 million in regulatory credits, which was more than triple last year.

9:25Remember, earlier this month, we got word that Tesla actually beat expectations for deliveries and increased their total from Q1, but they are still down compared to Q2 last year. Neil, the drum that Elon and Tesla have been beating is that, hey, we're in between growth waves right now. Our goal is to cut costs and growth is going to be lower this year, but we have big things coming. And those big things being the Optimus humanoid robot that Elon says they'll be using at Tesla next year, as well as Elon's versions of Gatsby's green light, the autonomous robo-taxi. Elon said yesterday, the value of Tesla overwhelmingly is in autonomy.

10:02Those other things are in the noise relative to autonomy. Again, he told everyone who disagrees to sell the stock. Neil, the stock is down about 7 % pre-market as everyone digests this earning report. How's it sitting for you? It's sitting like Tesla is not a car company anymore. I mean, they're not. They're just focusing totally on tech. Elon is spending$10 billion on AI-related expenditures. He talked a lot about NVIDIA GPUs and building a Dojo supercomputer. He talked a lot about this humanoid robot that is expected to come into Tesla factories next year and then go into other factories in 2026.

10:40He just didn't hear a lot of excitement or interest in new car models. The only thing that seems to be on the radar is this robo-taxi, which the unveiling of was pushed back from August 8th to now October 10th, which is probably a soft deadline. So you just don't hear much about the car business anymore. Tesla's market share has dropped in the U.S. from 60 % last year to 50 % in the first half of this year. It seems like Elon is just betting the bank on AI for Tesla. The only way that they've been beating on deliveries, too, for their cars is by just putting a bunch of price cuts out there. I mean, remember, their automotive gross margin, which used to be the gold standard of the industry, used to be in like the 20 % range, has now fallen all the way to 14.6 % in the second quarter.

11:27That's down from 16 % the first quarter. So they've basically been cutting costs. They've been dynamically pricing their cars by just making them a lot cheaper to try to boost those delivery numbers. But you're right. Like the enthusiasm from Elon is not directed towards its car business at all. It's directed towards pretty much anything other than its car. So I think you're right in saying that Elon doesn't even see Tesla as like a car business anymore. No, he's very he's very loud about that. As for Alphabet, the parent company of Google, it was another ho-hum quarter of making more money than God.

12:01While its AI buggy search might tell you to eat rocks or put glue on pizza, everything else is clicking for this company with its cash cow ad revenue and growth engine Google Cloud, both jumping by double digits last quarter. profits rose 28.6 % from a year earlier to$23.6 billion. The only thing that's been a real headache is all these failed purchases piling up in its shopping cart. In recent months, Google has been trying to land its biggest acquisition ever, first with software firm HubSpot and then with cloud cybersecurity provider Wiz. The HubSpot deal fell apart and then earlier this week, Wiz said it was rejecting Google's$23 billion offer because it wanted to control its own destiny and go public.

12:44So while most things are going perfectly fine for Google, its acquisitions are getting stymied. Yeah. One acquisition that it made a long time ago is doing well, though, and that is Waymo. It's under its other bets unit. It finally brought in a little bit of money, 365 million up from 285 million a year ago. But the big news is that Alphabet did say that they're committing$5 billion more to investment in Waymo. And remember, Waymo did have a pretty nice quarter. It opened its service to all San Francisco users. Sooner Pichai said that they're now making 50 ,000 weekly paid public rides between San Francisco and Phoenix.

13:19So Waymo is doing all right. Right. Waymo is doing fine. And so are many of other Google's past acquisitions. I mean, remember, they kind of built this company a lot due to these very savvy purchases like Android and YouTube. But right now they just can't buy anything. And that's because of one, antitrust scrutiny and two specifically for whiz that this has directly to deal with the crowd strike outage that happened because whiz is a cyber security provider and once they saw what happened with crowd strike they were like google is paying us 23 billion dollars like now definitely not because every company is going to come to us to batten the hatches after what happened with this massive global it outage so people are saying that whiz backed off because of crowd strike and Google's probably like, damn it.

14:05Just a few days after the NBA confirmed it was committing to a long-term throuple with broadcast partners Disney, NBCUniversal, and Amazon for 11 years and$76 billion for the rights to the league, a new bombshell has entered the villa. The current rights holder, Warner Bros. Discovery, has rediscovered its feelings for the NBA and exercised its matching rights in a last-ditch effort to keep games on its TNT network. Rumors have it that it's after Amazon's $1.9 billion per season portion of the deal. The NBA, meanwhile, is playing hard to get. It said it had received Warner's proposal and is reviewing it, but gave no indication on whose offer it'll accept.

14:43Though, Commissioner Adam Silver has expressed his preference for a pure streaming partner like Amazon. One thing Warner and TNT have going for them is a lot of history. TNT has carried the league for more than 30 years, but when the deal came up for renewal, the bid started to get a little rich for their blood. NBC and Disney have both agreed to pay more than$2.5 billion per year. So it looked like TNT was going to let its basketball love slip through its fingers, but clearly it's still got some fight left in it yet. It has some fight because this is existential for this company. The NBA contributes 7 % of their total profits.

15:21Analysts predict that if they lose the NBA, they're going to lose out on$600 million in revenue. So this is really the last gasp for this legacy media company that is on its last legs. It has$40 billion worth of debt. Its share price has declined by a third. And it's going up against Amazon, which doesn't seem like a fair fight, given that Warner Bros. Discovery is worth$20 billion compared to Amazon's$2 trillion. So you have to, you know, NBA commissioner Adam Silver is looking at this and being like, do I go with nostalgia with Warner Bros. Discovery and TNT and inside the NBA? Or do I go with this hot new streaming platform, Amazon, which I know has a lot of money and a ton of distribution and a ton of tech and data behind it.

16:03And it's actually growing while the other company is shrinking. But without the NBA and all of the ecosystem around it, like if you don't show the NBA on TNT on a Thursday night, what are you going to show? I mean, the NBA and live sports are the only thing holding up the cable package at all. So are they just going to throw like on the Hobbit or the Dark Knight for the 50th time? Ratings would plummet. So I think they're going to go all out to try to get this deal from the NBA. And it's been a rocky last couple of years between TNT and the NBA because Warner Bros. Discovery CEO David Zlaslav said at an investor conference in 2022, we don't have to have the NBA, which kind of set a lot of warning bells off.

16:42And if you're Adam Silver, of course you're gonna shop the league around because literally your biggest partner just said that we don't really need you anymore. And yeah, it is a streamer's world that we're just living in it. Adam Silver has come out and said, we wanted to make sure that going forward, our games would be accessible to our fans through various streaming services. So it looked like all the I's were dotted and the T's were crossed on this deal. But then at the last second, Warner Bros. does have the option to exercise the right to match any deal. They went on the lower end of the spectrum.

17:11It's not the A package, the B package that ESPN and NBC shelled out for. They're going after Amazon's portion because it's a little bit more in budget for them. They said that they'll be able to show some of the games on their Max platform. So they're trying to show that they still have that, that they have the streaming fastball that the league is looking for. But I don't know. Who would you choose? Which offer? Okay. Yes. You lose like inside the NBA, which is this pregame and postgame show that has been lauded, considered one of the best sports studio shows around. Charles Barkley is the star of that show.

17:42But if I'm just making a calculated business decision, I look at Amazon Prime Video with 200 million subscribers. I look at a shrinking legacy media company with a streaming platform, though Max has 100 million, so it has half of what Amazon has. I think if you're making just a business decision here, you have to go with Amazon. But this legality could come into play because Warner Bros. Discovery does have this matching clause, and they're threatening to possibly sue if NBA goes with Amazon. So I think there's a long, a lot of story left here before we see the NBA leave TNT. but it is coming to NBC, which means that we get Round Ball Rock and that song back for the first time since 2002.

18:24Up next, wouldn't you believe it, but Logan Paul and KSI's Prime Hydration is in trouble again. Eczema isn't always obvious, but it's real. And so is the relief from EBCLIS. After an initial dosing phase, about four in 10 people taking EBCLIS achieved 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.

19:16Tell your doctor if you have new or worsening eye problems. You should not receive a live vaccine when treated with EpGliss. Before starting EpGliss, tell your doctor if you have a parasitic infection. Searching for real relief? Ask your doctor about EpGliss and visit epgliss.lily.com or call 1-800-LILY-RX or 1-800-545-5979. Tuesday 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.

19:51This 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 Tuesday on NBC. Logan Paul may be a professional wrestler, but if there's one organization you do not want to get in the ring with, It's the U.S. Olympic and Paralympic Committee because their lawyers will knock you out cold. Unfortunately for Paul, that's a situation he finds himself in after the committee sued his drink brand Prime for trademark infringement just one week ahead of the Paris Olympics. The committee accused Prime of using trademark phrases such as Olympic, Olympian, Team USA and going for gold on the packaging of a drink it made in partnership with NBA star Kevin Durant to capitalize on hype around the Olympics.

20:39The Olympic Committee is very protective of its trademarks, saying it uses the licensing of them to fund and train Team USA athletes. It accuses Prime of profiting from its brand despite having no connection and wants all the profits from the Kevin Durant drink sales, plus millions more in damages. After the lawsuit was filed, social media posts containing the phrases were removed from Prime's pages and the drink appears to have been removed from its website. But just add it to the list of controversies this company has racked up. Yeah, Prime can't get out of its own way. It seems like it's a company run by two YouTubers because they seem to play fast and loose with a lot of legal things from time to time.

21:16But, yes, there are a few properties which brands and distribution partners are very, very protective over. One of them is the World Cup. It happens every four years. One of them is the Olympics as well because that is a property that you pay a lot of eyeballs for and that you paid a lot of money to be like the sole distribution rights of it. So it is interesting that it's not Coca-Cola suing. It is literally Team USA suing because they say like, hey, this is how we derive a lot of our revenue is that through these exclusive brand partners. If you're stepping on the toes of Coca-Cola, we don't like that.

21:46So we're coming after you. Right. Currently, Coca-Cola does have the exclusive right to use these Olympic trademark on its beverages. Coca-Cola has been a sponsor of Team USA for 90 years. It's the longest continuing sponsor of the event. So, I mean, I just didn't know that Coke was so intertwined with the Olympics for 90 years since the 1940s. Just did a little math in my head. No big deal. But, yeah, so Coke is the only one that can do it. It just signed a recent contract with the Olympics that lasts 12 years and reportedly cost$3 billion. So that's a lot of money in the Olympics saying, Prime, you don't get any of that.

22:22And we've alluded to the fact that this is not Prime's first rodeo when it comes to controversy. Remember last year, a bunch of doctors, lawmakers came out and criticized Prime for just the absurd amount of caffeine in their energy drinks, saying that they could be harmful to children. And then Senator Chuck Schumer called on the FDA to investigate their caffeinated drinks, which that's where the famous stat of it's got 12. It's got as much caffeine as six 12-ounce cans of Coca-Cola. So it ties the whole ribbon on things right there comparing. They tend to get wrapped up with Coca-Cola when it comes to controversies, this drink does.

22:55When Amazon launched its smart home devices like the Echo speaker, it had high hopes for the Alexa-equipped gadgets. The vision was to sell the tech at an affordable price and hopefully make back some money when people ordered a bunch of stuff off Amazon. But that vision never came to fruition, and now its devices business, which includes its Echoes, Kindles, Fire Stick, and doorbells, is a hot mess. According to internal documents, Amazon lost more than$25 billion on devices between 2017 and 2021. It's a mess that was made by former CEO Jeff Bezos that current CEO Andy Jassy is working to clean up.

23:34First step, charge for Alexa. To help stem the bleeding, Amazon is launching a paid tier for the voice assistant as soon as this month. But Neil, there is a lot of bleeding to stem. How is it that this device's business could chug along for so many years, losing so much money? It seems to be caused by this particularly obscure metric that is unique to Amazon that they rounded up a team of economists in 2011 to create. It's called downstream impact or DSI, which assigns a financial value to a product or a service based on how customers spend within Amazon's ecosystem after they buy it. So think about the Kindle.

24:13You know, you buy a Kindle, but that is sort of a opening to the broader Amazon ecosystem, its marketplace, because you consistently buy books, e-books on your Kindle. So they say, OK, well, when looking at the value of a Kindle, let's not just look at the device sale itself. Let's look at how many how much people spend on it. And they use that across their devices like the Fire Stick. And they also use it for the Echo device with Alexa on. And that seems to be one way that this, by wrapping up the value of Echo and across its devices with, you know, the broader Amazon ecosystem sales, that's how this product was able to stay under the radar for so long and surviving, even though Bezos' motto is fail fast.