Prof G Markets: OpenAI’s $90 Billion Valuation, FTC Takes on Amazon, and The Recession is Coming

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1:28Welcome to Prop G Markets. Today, we're discussing big AI investments, the FTC's Amazon suit, and the decline of household savings. Here with the news is Prop G media analyst Ed Elson. Ed, Yeah, let's bring back the dirty jokes, maybe. Okay, that's easy. I'm an easy yes on that. I checked the Signal Awards voting this morning, and guess what percentage of the vote we're at? If it's not 100, I don't want to know. Where are we? Pretty close. We're at 90%. Yeah, but it's all about the last minute. People game it, and then they weigh in at the last minute. So, see, all you're doing is telling people to be lazy and not to vote.

2:02So, here's the bottom line. We're at 3%, so please show up and vote for us at the Signal Awards for Best Money and Finance Podcast. Plus, we're up against the Wall Street Journal and the FT. The FT and Barron's, I guess they're owned by the Wall Street. The FT, which is owned by Nikkei, owned by Japan. I don't have anything bad to say about Japan. But the other one is owned by Wall Street Journal. What do you think of Rupert Murdoch? What do you think of Rupert Murdoch? Vote for the dog. That's right. All right, what are the headlines here, Ed? Let's start with our weekly review of Market Vitals.

2:43The S &P 500 declined, the dollar rose, Bitcoin gained, and the yield on 10-year treasuries hit a 15-year high. Shifting to the headlines. Chase UK is banning its customers from purchasing cryptocurrency starting this month due to an increase in scams and fraud. Meta unveiled a new smart glasses model in collaboration with Ray-Bans. The glasses will start at$299 and include speakers, microphones, and a camera. Las Vegas hospitality workers authorized a strike against major resorts on the Strip. The union representing 60 ,000 workers is demanding higher wages, more safety protections, and stronger recall rights.

3:22Those rights enable workers to return to their jobs during an economic crisis or a pandemic. And finally, the writers' strike officially came to an end. The Writers Guild of America called the agreement, quote, exceptional, with meaningful gains and protections for writers in every sector of the membership. Scott I assume you have a lot of thoughts Wait let me get this the riders one on strike I did not know that I did not know that Let's start with meta glasses I do think that Kind of smart lenses or smart speakers Smart cameras or micro cameras Once that technology is there I do think that you'll have some sort of Smart glasses or whatever the term is And remember Google Glass It was just I don't want to say it was out of its time But the technology wasn't there My guess is the technology is still not there, and this product will be more kind of novelty than useful.

4:12Also, Meta has never been very good at designing actual products, so to partner with Luxottica, who makes Ray-Bans, makes a lot of sense. And also, I would imagine Luxottica is probably looking for some of that innovation pixie dust. So I think that's a smart thing for both companies. Chase banning cryptocurrency. You know, crypto is kind of like the thing that was going to change the world that didn't. I'm shocked how resilient Bitcoin and Ethereum have been, although I don't know how much of that is market manipulation, but I think Bitcoin is still at$29 ,000. It feels like those technologies are enduring.

4:47The strike in Vegas, you know, good for them. I hope they have leverage. I hope that, you know, I think Vegas is doing better. I think it's actually a growing industry again. and you know when daddy's when daddy's playing blackjack and he needs his sevenths of cop and coke vegas the service there is amazing i don't know what it is about vegas i think they do a great i think the workers there i think the culture the vibe i think they just do a great job so they want to negotiate a five-year contract with a major las vegas properties the current minimum wage in las vegas is 11.25 an hour that is ridiculous a they have leverage those places is print money every day.

5:24And I think they're growing. So I would imagine they'll probably come to some sort of agreement, at least before I go to the sphere and see you two in Las Vegas at that new thing that looks like a giant golf ball. And then what else should we talk about? Let me think here. Let me think. Oh, yes, the strike came to an end. Oh, wait, you forwarded me, regarding the writer's strike, you forwarded me a breakdown of their exceptional terms that they had garnered as a function of the strike. Give us a breakdown And let me know your thoughts, Ed, on what they did or didn't get and whether you think it's exceptional or not.

5:57My thoughts are that it is extremely unexceptional. I mean, one of the first things they got was a 5 % increase in pay. But just to account for inflation in the past three years that the contract's been in effect, they would have needed a 10 % bump. So in order to not devalue the purchasing power of the writers, they would have needed a 10 % increase in their pay, and they got 5%. They asked for 6%. To be fair, though, they get 5 % the first year, then 4%, then 3.5%. So technically, over three years, it's a 12.5 % increase. Sure, but prices are rising at 4 % right now. In terms of the direct wage compensation increases they were able to garner from the studios, it's basically just a cost of living adjustment.

6:41I mean, for God's sakes, the government gave Social Security recipients a 9 % bump. And by the way, and this isn't necessarily the union's fault. It's a function of the dynamics in the industry, which is in structural decline, quite frankly, especially linear TV. The UAW over negotiating against the domestic auto manufacturers has already been offered a 20 % bump in pay and they've already rejected it. This is an indication that, again, they just didn't, they clearly didn't have a lot of leverage. What about some of the other terms? They did get some other stuff. Any thoughts? Yeah. So the other thing that was, that they were disputing was residuals, which is basically another word for royalty payments.

7:18and they wanted more transparency in their residual payments. They achieved more transparency, but the main thing that they want is more money. They want more money from the residual payments they get, the more that a show is streamed. Here's what I found crazy. You will receive a residual bonus if and only if your show is viewed by one fifth of a streaming platform's entire domestic subscriber base. Bridgerton and The Last of Us and nothing else. Exactly. So, you know, it's supposed to be a win for meaningful gain for all writers from every sector. It's a meaningful gain for only the top 10, the writers of the top 10 shows.

7:58You're not going to see those gains across the rest of the writers. There is one thing that I think is somewhat meaningful, and that is that they now have a minimum staffing requirement for each show, which means that you're going to have more jobs for younger rising writers. And there's an increased minimum duration that they have to work on each show. So they'll be working for longer. I just couldn't get over it. The media was heralding this as that they got huge concessions and this was an exceptional win. And then I kept looking for the exceptional win part. And it felt like they had all these convoluted things around this new formula for calculating residuals and international.

8:38I thought, these are folks from the union trying to add in a bunch of language just to give the illusion that there's a there there. And the thing in America, I think people really are rooting for labor. I think they recognize that labor has gotten screwed, that the tension between capital and labor has swung way too far towards capital. Wages have gone flat the last 40 years. And productivity is up and to the right, meaning there's trillions of dollars in shareholder gains or stakeholder gains, and they've all gone to capital. That is shareholders. That is the top 1%. So everybody is on the side of labor.

9:14But this specific union in its representation in the current atmospherics, it was sort of, I thought they'd lost before they won. I will say they did get more than I thought. I think that, I do think that minimum staffing thing is a big deal. They also got another half a percent and then up to 1 % additional contribution to their pension or health care fund, which isn't huge, but every dollar counts. but the thing that nobody wants to talk about is their compensation went to zero for five months in addition i don't know if you know the set i've been on bill maher several times when i'm there there's probably a hundred people working on the show and that's everyone building the set the guy driving the golf court to go get me my covid test the you know the person warming up the crowd the five or six cameramen the people i mean there's people everywhere there's probably a hundred people.

10:06I would bet somewhere between a half a dozen and a dozen of them were in the Riders Union. And they basically took everyone's wages, all 100 people, down to zero. And while we'd all like to think they like to think of themselves as precious, they also took the California economy down by$3 billion. So who accounts for those lost wages? You know, that lost revenue. So this for me was, okay, they're back to where they were at the beginning. We'll be right back after the break with a look at recent AI investments.

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11:48We're back with ProfG Markets. OpenAI is exploring an existing share sale at a valuation between 80 and 90 billion dollars. That's roughly three times its January valuation when Microsoft made a$10 billion investment in the company. At$80 billion, OpenAI would become the third most valuable private company in the world behind SpaceX and ByteDance. Scott, what do you make of this? I think we're probably at that peak. There really is a cycle that's repeated, and that is there's a hype cycle, peak valuation. It goes into kind of this trough of, I forget what they call it, disappointment, and then the enduring technologies come back.

12:25I think we've probably hit peak AI in terms of valuation. I just, Aswata Motaran, who we've had on the show several times, says that unless NVIDIA finds another market similar to AI and captures 90 % of the processing market for a brand new market that needs processors, it's overvalued. And when you look at the fact that since the pandemic, the kind of five, the big five have added$4 trillion of market cap and central to all of those gains has been something to do with AI, whether it's increased engagement on Reels, for Meta, whether it's the release of or the investment in ChatGPT or OpenAI for Microsoft and incorporating AI into its office suite.

13:04This has been an AI inspired kind of tech Lollapalooza market cap boom. And I think it's peaked. You know, I think it's just crazy that these guys call themselves a nonprofit. Ed, we need to start a nonprofit and see if we can get a valuation of$90 billion on it. So look, good for them, but I can't help it. I'm going to return back to my favorite writer's strike. There was an Atlantic article and this guy highlighted a place you could go in your database, type in your name and see which of your books, if you're an author, have been crawled by generative AI. And it ends up two of my books, The Algebra of Happiness and the four have been crawled by generative AI.

13:40And if you go to chat GBT and type in something and say in the voice of Scott Galloway, it returns something that feels kind of eerily similar, including almost exact backphrases lifted out of one of my books. And my question is, why am I, or specifically Portfolio Penguin Random House, who paid me a large advance for the rights to my book, not getting compensated? And this is what you want to do when you're negotiating. You want to figure out your leverage, and then you want to go after the biggest pile of money. You want to find out in the supply chain, we're adding value that is garnering or creating the most economic value.

14:14And what I think they should do, and I'd like to be a part of this, is develop a consortium. We're going to call it the sisterhood of the dog or the international sisterhood of creators. And you go to everyone from Nikkei to FT to NASPERS to Le Monde to the Telegraph, Time Warner, Disney, Vox Media, small and big Canadian broadcasting company, the Pittsburgh Gazette. And you say, we're starting a consortium because we believe generative AI is crawling your IP and not compensating you. And you're going to give is a small amount of money that we're going to spend on lobbyists, lawyers, and enforcement.

14:52And by the way, the content's going to have a lot of leverage here, Ed. You know why? I know you're wondering why. Because the LLMs themselves will use their own generative AI to ensure that no other LLM gets too far out ahead of them from a technical standpoint. Very hard to maintain technical differentiation. So what's the point of differentiation? The coal that goes in the fucking furnace, specifically the content. So if we all rallied together and then packaged it into one licensable agreement. And then we went to all of them. Hey, Meta. Hey, Alphabet. Hey, Apple. Hey, Microsoft. How would you like to have access to all of this gorgeous content from all of the most famous authors, podcasters, creators, producers, showrunners, every piece of content out there that has any value?

15:37And only one of you gets to crawl it. And anyone else who crawls it, we have our own janitor of AI that will flag it and we're going going to sue your ass and you have to stop. This is that moment. Instead, we're fighting over pennies, see above 5%. We could go get billions. If OpenA, if CheckGPT is going from 30 billion to 90 billion in four months or five months, how much money do you think one of these entities would pay to have access to the world's greatest content if, one, we had total unanimity and we developed leverage through either existing or new IP laws. We got to start thinking bigger.

16:13And when I say we, when I say we, I mean content creators, not the 11 % of people that have decided that, okay, look for the union label. Folks, they're not representing labor real well. That's my idea. Look for the union label. Look for the union label. When you are buying a coat dress or bow, remember somewhere. Well, the other news in AI is that Amazon is investing$4 billion in Anthropic, which is another generative AI startup. The valuation hasn't been disclosed, but the company said in a joint statement that Amazon will be taking a minority position. And as part of the deal, Anthropic will move most of its software to Amazon's AWS data center.

17:00Do you think that this is a good move by Amazon? I think it's a good move by Anthropic. I mean, it all comes down to valuation. I bet the folks at Anthropic were really excited to see OpenAI raising at a$90 billion valuation. I mean, unless they've signed the deal, the valuation at Anthropic has just gone up because the other guy is raising money at a$90 billion valuation or whatever it is. Everyone is partnering up. It's literally like the lights are about to come up and it's like, okay, if I'm going to find anyone to take home, it's now or it's never. They're all pairing up. So it'll be interesting to see what the valuation is.

17:30They're probably going to offer them in kind. They'll probably offer them a modest amount of cash and then in-kind around use of their cloud, which is, I think, the biggest cost line across an LLM. So I think this makes sense for both of them. But everyone's pairing up. I like Anthropic. I think, what is it, Claude? Claude is it Claude or Claude? Claude too? Claude? Claude. Bonsoir, Claude. Yes. Yes. Merde. Oh, no. I mean, you've got to explain what Claude actually is, right? Yeah, assistant for Anthropic. I like the voice. Actually, I'm kind of into Anthropic right now. anyways I think it makes sense they're all pairing up and Amazon has the processing power anthropic has a leader I think it's probably a better deal for anthropic because you don't want to be it's like they're sitting on top of oil but you need Exxon or BP or someone to come in who knows how to actually turn it into something although this is the processing power I don't know what the analogy is but they need each other and there's only there's there's a finite number of the folks that have the kind of processing power that these folks will need to be like serious players.

18:30So I think it's a good deal. It's going to be really interesting to see who the valuation is. It's also good news for you as an investor because FTX invested half a billion dollars in Anthropic in 2020. Half a billion? Half a billion. Oh, champagne and cocaine for the dog. I mean, you still got several, several billions of dollars in crypto to figure out. But Semaphore said that they think that FTX will make at least nine figures for the stake. Yeah, so what Ed is referring to is I've been buying claims against FTX and Celsius for about 25 or 28 cents on the dollar, thinking that once the court administrator finds where all the bodies are buried and the gold coins in the pockets of the dead body, that when they distribute it out, it'll be worth more than 27 cents.

19:10And one of the assets that FTX has is what appears to be a billion dollar stake in Anthropic. Half a billion. Half a billion. God damn it, Ed. The trouble is that no one knows what the valuation of this company actually is. They've been so secretive about valuation disclosures, but that's how much they invested back in 2020. So who knows what that's actually worth now. Okay, if they invested 500 million two years ago? That's right. Oh, Ed, Ed, let's just shut off the pod now. We don't need this shit. We're heading to Ibiza. All right. I hope so. I'm literally texting the guy who finds these deals at FTX.

19:43That stake has got to be worth 4 to 10 billion. It's up at least 8-fold in the last two years, I would imagine, especially with this hysteria.

20:00The FTC filed an antitrust lawsuit against Amazon, accusing the company of operating an illegal monopoly. The suit made several complaints against Amazon, such as overcharging sellers, decreasing quality for consumers, and punishing merchants who offer lower prices on competing sites. Douglas Farrar, the director of the Office of Public Affairs at the FTC, pointed out that the size of Amazon is not the problem in this case. The complaint specifically targets anti-competitive tactics, which he calls monopoly rents. It's not about Amazon being big. It's about Amazon doing everything it can to illegally prevent rivals from gaining the scale they would need to provide real competition to Amazon in the online superstore and services market.

20:42Amazon said it will challenge the lawsuit in court. They also added in a statement that the FTC is, quote, wrong on the facts and the law. Scott, you are a shareholder in Amazon. What do you think of this? Amazon should be broken up. And Doug and the FTC's argument, in my opinion, is valid. What Amazon says, and I've been a party to this, say you want to establish a presence on eBay or on Overstock, or I mean, it's even hard to come up with them. They're so dominant, but other platforms, you say, well, as a function of doing that, I'm going to run a promotion. My product is unique. They're being good to me at eBay or whatever.

21:16And I want to run a really good promotion and give people a great deal. Amazon has crawlers that alerts Amazon when you are selling your product at a lower price than they can get on Amazon. And then they call you and say, we're going to kick you off Amazon. And they have such dominance that unless you kind of play by their terms, which ultimately kind of includes using their shipping, buying their media. Amazon's cut of revenue from U.S. sellers has grown from 19 % in 2014 to get this, 45 % of sales, because none of us have any choice. So it's not size. It is their willingness to leverage and abuse that size and that strength to force companies not to work with other platforms, meaning no other platforms can compete.

22:00This is the definition of monopoly, anti-competitive abuse. and also as a shareholder, I'm going to make money because this company should be broken up. This company should be forced to innovate and it'll be good for shareholders. I believe AWS would be one of the most valuable companies in the world as an independent company. I think Amazon Media Group would be an incredibly valuable company as an independent company. So I think as a shareholder, as someone who's in the ecosystem, as someone who invests in venture capital firms. I think this is a win-win-win all around. I'm, again, going to take the other side of this monopoly argument.

22:38Everything that you said about those merchants, that they're punishing merchants, okay, I think that's true. But in my view, the number one priority here is the consumer. And the reality is that Amazon has done more for consumers in the past decade than just about any other company. If you ask any customer of Amazon, everyone's happy. I'm sure you're happy as well. So I just, I don't really buy this business of, oh, it's not, it's not because they're big. To me, they look at the market cap. They look at, you know, how rich Bezos is. Lena Kahn wrote that landmark article at Yale Law. I think she set really high expectations for herself.

23:15And to me, this is just all about that and fulfilling those expectations. So first off, I'm not happy, Ed. I'm just not, generally not a happy person. So So this is your first of many inaccuracies there. Second, when you have one company that dominates 50 % of online shopping, you are going to have the power, the market power to start raising prices. And across a variety of product categories, it's no longer the least expensive. And two, your consumer test is what's called the Bork test. And Bork has mostly dominated antitrust law for the last 20 or 30 years. But before that was a better test, and that's the Brandeisian test.

23:55And because there's two things that create health in our economy. One, low prices and competition. And I would argue there's not a lot of competition here, and we don't know what we're not missing in terms of innovation. And two, what we do know is that retail has not been a growth sector and is not paying a lot of people a lot of money because everyone's had this oxygen sucked out of the air because of the channel power, the unfair power that Amazon exercises every day. So we have a lack of—Ed, try and go get funding for an e-commerce startup right now. But this is my point. Why is the FTC trying to protect the founder of an e-commerce startup?

24:30They're trying to maintain a healthy, competitive ecosystem. We need startups. I think the ecosystem is already healthy as measured by the experience of the consumer. The rents that they're charging to those founders of those startups or the rents that they're charging to those third-party sellers allows them to drive the prices down for consumers. So in my view, the consumer wins. There is research everywhere showing that Amazon, because of its volume and its liquidity, will give you the impression that it's cheaper because it sees if you're going somewhere else and it'll match that price. But when you actually do the hard analysis, it is no longer the least expensive place.

25:07Why? Because they no longer need to be because they are a monopoly and they are abusing those monopoly rents. In addition, Ed, when you finally decide you've had enough of me and you want to start an e-commerce company, there is no way to start. Two-thirds of jobs come from small and medium-sized companies. Retail is one of the biggest sectors in America, and it's been stagnant because small companies can't form. And the place they need to form and show some sort of growth is online. And no online player can survive without going to this toll booth, without going to the Death Star known as Amazon.