Ask Us Anything: To Gap Year or Not To Gap Year? + Will We Have AI Movies Soon?

0:00I'm Adam Schwab. I'm Adir Shifflin. And this is The Contrarians with Adam and Adir.

0:08And we are back. Episode 166, Ask Us Anything. We love getting your questions every week. Thank you for sending them in, of course. Over to the chief question asker himself, Mike. Hey, everyone. First question this week is from Lewis on LinkedIn. I thought this was a good one to do early in the year. Lewis asks, what are both of your ambitions for your respective businesses in 2026? What is the biggest change you want to see in LE and Catapult this year? I think my answer is boring. My answer is you got to know in life what, especially like I'm the chairman, I'm not the CEO. I don't work in the business day to day.

0:51So I think you've got to know what you can control and not get sidetracked based on circumstances. And what I can be involved in controlling, like to whatever degree you have any control, is setting a coherent strategy, making sure the right people are in the right seats on the bus, so to speak, and trying to get the message out there honestly and consistently. Although the CEO does that more than I do, but like that's what I can do and so I think our strategy is great we just have to make sure we keep executing on that strategy like we know where we're going it's been a great few years I think the next few years are going to be even better we've got the right people involved in the business we're always stress testing that that's terrific right this is year seven of the CO he's been terrific and there's a great team around Will and then we talk about getting the message out there and that was a weird year last year for Catapult because the message finally got out there really clearly and it was reflected in the value of the company.

1:50And then things beyond our control happened in October, November, December, which is this global cycling out of growth tech. Then the share price fell a bit again. And so I feel like that it's easy for that to become a distraction, but that's something that we don't control. And what history has demonstrated for us is if I and the bit that I can control around strategy and making sure the right people are there, if that is good, then the CEO and like the board is very much involved in doing that part of Catapult, like it's a very active board, especially the founders. If we deliver on that, and then the CEO and his team execute well, the business goes in the right direction.

2:31And so there is no say it's a boring answer, is because the answer is we're just going to keep doing what we said we were going to do for the last three years. We're going to do more of that. And every year that we do it and get it right, it gets better and better and stronger and stronger. And the flywheel spins. And I think the temptation often is to say, new year, what's this year's revolution? But wherever you've got a chance to have evolutionary growth and just keep delivering, I think that is by far the priority from my point of view. Yeah, that's a really good answer. And we're not that different, to be honest.

3:00So we're probably maybe a year or two behind in terms of, I guess, the focus on longer term strategy in a sense. So when you look, I guess when you look from top down as how do we build our power as we talk about a lot on the show how do we continue to how to continue to build scale brand and in our case scale brand switching costs and probably cornered resource and probably the four uh and brand is kind of all and always and always on task uh switching costs is something we really started looking at 18 months ago and and this year amped up again with our loyalty program uh we've actually just crossed over a million members which is great so how do we continue to make that loyalty program more valuable to those members and get members to engage more, which has been a great story in the last year and we want to keep getting better.

3:45And I think one advantage we have is great loyalty programs in Australia, the Qantas, the Accor's, the Marriott's in travel anyway, are pretty powerful and probably aren't making their programs any better. They're probably making it less good. So we have a nice opportunity now to really lean in hard and hopefully get some more engagement from probably not just our already engaged customers, but potentially less engaged customers. That's a big one. And we just continue our profitability focus. So we have probably two and a half years ago, we pivoted to let's, instead of just grow at any cost, how do we grow contribution margin profitably?

4:20And that's a really big focus for our marketing team daily is what's our contribution margin. And where if you look at sort of January is our biggest month, we're now a week into it, our top line, which is a bit of an irrelevant metric, let's be fair, but that's up about 25%. It's what's called TTV, but our margin, where our margin is up about 40%, which is the one, which is what we really like and contribution margins up probably like 60 percent so we sort of and then obviously ibadaby up more so we sort of look at that waterfall how do we how do we grow those bottom cup of lines specifically and so it's a combination of working out the strategy at the top level how do we build those powers and then tactically how are we on the ground doing stuff right how are we making sure we got the right content the right product for our customers so and we're obviously pretty hands-on like your guys have the pretty hands-on management team We're a bit of a, probably a faster moving business because we're a consumer, not enterprise.

5:07So you have to constantly react to what customers are doing. We've got our Maldives charter selling now. So we're constantly looking at how do we make sure we sell that out or getting close to sell it out. So we're very hands-on details every day. At the same time, how do we match, how do we marry that with a longer term sort of power building strategy? Well, each one of us has to hold our businesses accountable for investments in 2025. you have to hold your business accountable, predominantly for your investment in loyalty, because that would not have been an inconsequential investment. And we bought a couple of businesses in 2025.

5:43And so we have to show investors that they're delivering what we had believed they could and they're contributing to the strategy and to financial results, like in the way that we had promised. And so I think that's, there's a similarity in both of us that if you're going to make, well, I think this is one of the biggest mistakes that even mature businesses make. Maybe the curve of this mistake is that it's very high in young businesses and then it drops down and then it goes up really high again in enormous businesses, which is a lack of accountability for investment cases. So they go and make some investment case, they go and invest the money, buy something, build something, whatever it might be.

6:23And then nobody ever sits down and says, well we committed to these outcomes before we made the investment let's not move the goalpost now let's assess our performance against the commitments that we made before we put the money in that took me some time to learn the importance of that but for us now like that is extremely important and the business runs on that basis is that is that the way you look at things as well to be different you're the ceo like it's easy for me to hold people accountable because i'm the chairman right there's i've got no i mean i'm accountable to investors right but like i'm not it's you're under much more pressure to be held accountable well i'm the ceo and also the equal sort of bigger shareholder as well so i kind of wear both hats but um as an individual shareholder i think it's a really great point generally speaking is and why so you see sort of companies making these big and not so much we used to make a lot of acquisitions back when we were small that's your point on small medium big we're in that medium phase now so we haven't made an acquisition for a number of years and have no sort of immediate plans to.

7:21But when we did initially, and to your point on being a company, so many businesses buy something and there's all this sort of fanfare and laudatory. Oh, you've bought, it's a bit like the person, inverted commas, winning the auction. And as you know, my feeling, people clapping when someone pays the most in auction, it's the most ridiculous thing ever. There's the financial review equivalents. A company buys another company and there's the financial review clapping them on that they've done this deal because the bankers are happy and the bankers leak to the press and everybody's so they're happy at deal flow.

7:45But most deals lose money and they lose money because people celebrate the purchase and forget about the hard work of actually making the integration happen. So that's an incredibly good point and why so many acquisitions fail. And that's why probably you guys are better than most. A, you integrate them quickly and B, you actually hold yourself accountable. And it's not simply spending shareholders money. It's actually making sure you spend in a responsible way. Well, this is my theory about why that curve exists. When you're a little business, you don't, and like, especially a lot of little businesses are started by first-time founders or young founders in their professional journey.

8:19And so they don't really know what they're doing. Like I didn't know what I was doing. And someone gives you this money and you fundamentally confuse revenue for profitability. And even though you know they're different things, you kind of think they're more linked than they are and you forget that all of the middle bits is what determines the profitability. And so that's why that mistake gets made early. Because you see something and your eyes light up and you're inexperienced and you don't really understand. It's not going to do what you think it's going to do and you don't even bother writing down what it has to do in order to be successful.

8:46And then like, you know, you just put it down to a learning experience. And so that's why little businesses do it. And the reason medium sized businesses get better is because they're probably making money. And so it's much more painful to burn cash that you've worked so hard to make, especially when you know what you're doing and you've got more experience. I think that's why medium sized businesses do better. And then big businesses, those leaders are under extreme pressure to find the next growth driver. And so effectively, I think the human emotional bar is much lower to do a deal because if you don't do a deal or you don't spend money, you'll keep the money or you'll find some other way to grow or you'll spend it later.

9:27But if you're a big business with a public company, let's say, is worth 10, 20, 30, 40, 50, 100 billion dollars, you're the chair or you're the CEO, you're under pressure to grow, you don't have forever, you've got a few years probably. And so you better find something that's going to drive growth. And that is why I think a lot of those acquisitions fail because the bar lowers. And so each of us are in the middle band, right? I totally agree with that. Just a large company. I think there's three right. Reason one is definitely right. I think reason two is if you're CEO of a big company, you're probably not really doing that much work on the business.

10:04So if we were to buy something, I'd be working from the target or the acquiree business for probably three months and speaking to all the staff and doing all the stuff. If you're a big CEO of whatever, ASX top 20, you're not doing the work. There's a million other people doing the work. So you guys do the work. You just don't care. I always say I could be a great CEO of a business that had 10 ,000 or more people because the day-to-day running of the business managing, you have people that do that as their day job and I would be strong on the strategy and directional side of that business. You'd obviously be far better than most of these.

10:37You'd be far better than most big company CEOs because they're not good at either. And I think the third reason, so you've got reason one, which is the reason you gave. Reason two is that they don't do the work. And reason three is, it's kind of related to your reason, is people, CEOs are paid, big company CEOs are paid, essentially based on market cap. Bigger the business, the more you're paid. So it's in the interest of the CEOs of these big businesses to grow their fiefdom. And this is what Scott Galloway says and Warren Buffett says, the bigger the business, you get paid more and you've got more people reporting to you and you've got more people asking about you and you've got more articles in the financial review.

11:08So it's better for these big CEOs. There's such a misalignment between shareholders, what we call agency cost. Shareholders and these big CEOs, they're not just CEOs, the executive teams, they want a big fief to big business. Whereas as medium, so we're sort of caught in the medium-sized realm, we want to be maximum efficiency where we're doing the work. In my case, there's no agency cost because I am the agency, and your case, very similar. But that's why there's been such a flip to founder-led businesses and why the L1s of this world spend so much time focusing on founder-led businesses. It's just a reduced agency cost, and let's not say there's zero.

11:44Wilson's has a founder's fund. I think they only invest in founder-associated businesses. We've talked about a lot, founder mode, manager mode, and founder mode is in fashion now. There's no question. But if you go back to 2019, manager mode was in fashion. This does flick and there's no doubt management mode will come back into fashion at some point. I think wrongly, I think in most cases, and you get to a point where you get the Richard White situation where maybe time for the founder to move on. But generally, if you back Richard White the first 98 % of his career, you've done incredibly well.

12:14So in most cases, I think founder mode is the mode you want to be backing for that reason. So that's what the answer to the question is. both of us are kind of doing the same thing, which is keep executing on stuff that's part of the existing strategy. Make sure value is being realized in line with the investments that happened in the last year and try to retain founder mode inside the business. I think like our answers are kind of the same. Yeah. On to question number two, Michael. Okay, guys. Question two comes in from Robert on LinkedIn as well. With AI generated videos becoming more and more accessible, is it possible that we're heading toward a world where AI movies and TV shows are the norm?

12:55Will we see a theatrically released movie in the next 10 years that was completely made from AI? Oh, 10 years. First, you want to ask one year so that Adam can go way too early and say, yeah, the revolution of AI movies are coming next year. Tomorrow. So let's just qualify the question slightly and say, when we talk about a theatrical release, let's talk about not some piece of crap, right? Like let's talk about like a proper high quality, doesn't matter if it's - Like a big five studio release at cinemas you're talking about. Putting it out or something that sells tons of tickets or whatever it might be.

13:35I think the chances of that happening in the next 10 years are exceptionally high, well above 50%. I think the main reasons it won't happen are less technological and more human reasons, i.e. unions are powerful and it just depends what's in the interest of studios. So this is phrased as a technological question, but actually it's not really a technological question. If you say, do I think the tech is going to be at the stage where it can do it? Probably. I think there's a high likelihood. But if you say, what are the economic drivers of successful theatrical releases? almost entirely the actors like the you know the stars will or the or the um franchise will drive the success of that movie especially now i mean like like indie stuff is diminishing and there's no comedies being made anymore and and so i think the biggest impediment to this is um the lack of star power and therefore pulling power that an ai movie would have rather than a tech limitation Yeah, that's a great point.

14:36Did you see that? There was a thing that was an Adidas ad. It's probably about a year old now, completely made with AI. Well, they claim it was completely made with AI, but it was a fair bit of human intervention. So the cost would have been probably similar to a normal ad, but it was AI generator. It was actually a better ad than almost any other ad I've seen for a shoot. Yes, I did see that. So I think we need to sort of break it down in different forms of content. So you go, people are already using it for social, like quick social reels. So that's already happening. um then you got sort of longer format which is start with the adidas point starting to happen then you've kind of got i guess again that mid form court 10 minute youtube type length then you got 30 minute then you got feature film clearly feature film is going to be the last domino to fall for various i think your point's right the how important is star power versus court narrative call it versus sort of just content itself i probably agree with you i think it will get there eventually.

15:33I just don't know how long it will take. And I don't know how emotionally connected the audience is to actors slash knowing the character's real. But you'd think as younger people grow up with AI being more sort of ingrained and natural, it eventually happens. I just don't know the time. This is a rare case for me. It's not going to be six months or a year. I think this timeline could be longer than we all think for feature films. But for advertising, like for making ads is faster than I expected. Like basically, many, many, many times I've had people come to me to tell me about really high-performing ads that were entirely recommended and crafted by AI.

16:13Now, they had some inputs on the prompt side, right? But still, you know, that's the same. You know, when we look at the movies that have sold the most tickets in the last five years, it's predominantly like superhero franchises have been crazy. And let's look at that as a genre for a second. So narrative, I mean, it's not a strong narrative, right? It's not narrative driven. So plots are often quite weak, not always, but often. It's special effects. Well, AI can replicate those special effects. That's not an issue. And so I think the predominant thing that people seem to gravitate towards to reiterate the point is the actors that are in the movie and those actors become associated with the characters.

16:51And so I think that's the challenge. Let me talk about the world of video games very briefly. Can you see before we move on to video games? I was listening to the old Sony acquired episode this week. That's kind of a couple of years old. And they talked about Marvel because Marvel kind of is that just one great story they had. Do you know the Spider-Man story with Sony and Marvel? Oh, I do know that story. Yes. The IP relationship. I think it was like 1999, the first Tobey Maguire Spider-Man. They paid$10 million for the rights to Spider-Man. They've got to make a Spider-Man movie every five years.

17:25This is why they put out random crappy Spider-Man movies, just to make sure they're gone. And they did an extension deal where Marvel can have the rights to Spider-Man if Spider-Man is not the main character, like in the Avengers movies. But if it is the main character, Sony does it. And Sony has made like billions out of this$10 million deal. But you can also say that pre this Spider-Man deal, Marvel weren't doing movies at all. And Spider-Man, the Tobey Maguire Spider-Man may have led Marvel to actually creating the Marvel universe. Oh, I totally think so. It was a win. It looks like in hindsight, it looks like Marvel shafted themselves, but I think actually it was a win-win for both parties.

18:04Yeah. I think, and then go back to your point, like Marvel had this grab bag of second, third, fourth tier characters. Like they were far worse than DC, which is Superman and Batman, et cetera, which is obviously Warner Brothers owned and soon to be Ellison owned or Netflix owned. But so if you look at Marvel in terms of the AI stuff, Marvel had, So what Marvel did was they got a bunch of high-name actors. Look at Iron Man with Robert Downey Jr. and then obviously the Marvel Universe with the Avengers and a whole bunch of actors. They kind of created these characters via the actors, which obviously you can't do with AI.

18:37So the Marvel Universe is almost a testament to – That's what I think. You kind of need the actors. Like Robert Downey Jr. and his redemption – his personal redemption arc is inextricably linked to the arc of Iron Man. Like they are totally intertwined, right? And so that is my – and like the narratives of those movies, like they're not bad. Some of them are pretty good. But like AI could have done those narratives. Like they're not some out of the box kind of, you know, my God, it needed a human being. God, that's a weird, you know. It's not being John Malkovich, right, the narrative. Like it's not something like that.

19:15It can't bring the brand of the actor. That's right. So the question becomes is how important is the brand of the actor? I think you sort of have that with special effects as AI becomes much more important in the kind of everything else but the acting part, if that makes sense. So you use AI much more for special effects. So you can bring costs down a lot with AI potentially. Maybe you're still using actors. As Scott Calloway says, there was like thousands of people involved in the making of some of these sort of big movies. And you think there's as many people that are involved in the making of a big movie in like a multi-billion dollar company.

19:47So these movies have a huge number of people on it. So I think there's a way to cut a lot of costs out. say AI, like that's what CGI did and now you're just going to replace it for some AI and like, I think it's just the next stage of tech. I'll tell you briefly in games. So there's, I was having this long chat with Liam, my son, about this. I'm just going to say there's effectively two main ways that you can use AI for games. Life's language models. You can use it to write code and you can use it inside the game itself. Like for example, voice acting for characters would be one example of using it.

20:18There's a war that's going on in the industry between Tim Sweeney, who is the epic game. Epic Tim Sweeney, one of our favourites here at The Contrarians. And with Gabe Newell, who is Steam and Valve, which is the main platform for gaming. Another one of our favourites. And the worry is that Tim Sweeney just wants to use AI in every way in games and not be disclosing anything because obviously there's a good economic benefit for doing that. And Gabe Newell has created rules on Steam, which is you have to self-report the way in which AI is being used in games as part of your listing on Steam so that players know if they're buying stuff that's been AI written, AI developed, AI acting, etc.

21:04And they are having an enormous war of words which might kind of be best characterized by Tim Sweeney tweeting like Gabe Newell's next step. Some I'm paraphrasing but Gabe Newell's next step is that every developer has to report what shampoo they've been using at home. And so it is an interesting war that is going on right now in the gaming world, game developer world around the use of AI in games. This is definitely one to watch. Interesting. Great question. We'll go to a super quick break back in no time at all.

21:44And we're back at our last question, Michael. Final question this week comes in from Christo. Christo asks, my daughter just got an ATAR of 92 and wants to take a gap year in 2026. What do you guys think about what she should be doing next year? Well, you should answer first, Adam, because my son just came back from a gap year. So I didn't take a gap year. I'm not generally inherently not. They've become much more in fashion now. I think if you do go to uni, you get a three-month gap quarter every year. I don't think you need a gap year, although I think for males, given they're less developed, it's certainly more favorable.

22:22I think if you're a female, I don't think you need a gap year. I think some boys might because they're just less mature. But I didn't take one and I'm glad I didn't because you had three months off every year anyway, so I don't think you need one. And you look at the cost of a gap year and then bring it back, it's in the hundreds of thousands of dollars. So it's an expensive year if you're going to start working a year earlier, blah, blah, blah. In terms of what you should do, well, it really depends on the kid. As I dare you know about my views on university, if it's a very specific course, if it's medicine, if it's science, if it's engineering, if it's accounting, if it's law potentially, go ahead and 92 will get you into some of those courses, certainly not med and law, but most of the others.

23:02If you're going to go do arts, you know my view is forget about it um you might as well be working actually doing something proactive and useful with your life not wasting three years and stuffing around so i think it really depends on what your child wants to do and what they're good at and if they want to be an engineer then absolutely do engineer if they want to be a doctor then do my med and med and go do that um probably hard with a 92 to do medicine just the way that the doctor's union stops people doing well you can get into like because you know the way it works like at melbourne in particular at Melbourne Uni, Sydney Uni is you have to do like a pre-med course, a science course or something.

23:35So you'll get into that. So I think there's merit in doing that for sure. So I think it depends on what you do. But if you're just going to do an art degree, go and start work. Like there's – I used to work at a ski resort during those three months between years. And the great secret of ski resorts is the people who get promoted to managers and earn great money and make a great living, they're just the ones who hang around. Everybody leaves and then everybody leaves after the season ends. If you hang around, you get promoted. So there's some really great ways to, like what we do a lot is we start, people might start in customer service, luxury scapes, then move on to phone sales and move on to partnerships and be earning great money.

24:10And so we love promoting internally. So starting sort of, what I call it, inverted commas at the bottom, I think is the most junior role, still really important role and proving that you want to work hard and that you're really conscientious and want to serve customers and know how to sell. And we love promoting people really quickly. So I think if you can get a role at a great business or a good business and show you're really willing to work hard and work 50, 60 hours a week and make yourself indispensable. And we've got a grad program now and some incredible grads on them. And a lot of the grads have been promoted already within the first year.

24:43So there's lots of other paths that don't involve uni. Obviously, if you want to be a doctor or you want to be an engineer, you want to be a scientist, you can't have to go to uni. But short of those really specific vocational roles, go start work. Don't stuff around. Don't waste time because it's costing you a hundred thousands of dollars. And I told you a story. There was a guy who was probably the least academic guy at our school, very great sporting guy, least academic guy, didn't go to uni. I saw him about seven, eight years after we graduated from school and I'd done uni and worked as a lawyer.