Prof G Markets: The Writers' Strike, the Art of the Earnings Call, & Microsoft’s Nuclear Fusion Bet

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1:27This week's number, 334 ,000. That's how many fast food delivery orders New Yorkers placed every day. No joke, one of my high school teachers predicted I would be an alcoholic working at a fast food restaurant. Yeah, fuck you. That was just a lucky guess.

1:55Welcome to Property Markets. Today, we're discussing the writer's strike, AI hype on earnings calls, and Microsoft's next big bet. Here with the news is fast food consumer, Chick-fil-A extraordinaire, McDonald's, September man of the month, Prop G media analyst, Ed Elson. Ed, what is going on? I'm counting down the days till Costa Rica, Scott. Daddy's sending his kids to Costa Rica. You came down to it. You had Tulum again, Costa Rica. What was the other one you were thinking of? Third one was St. Bart's. Oh, St. Bart's. Yeah, I kiboshed that. To quote you, you said that was too ritzy for us. What does that mean exactly?

2:33Well, that means daddy's credit card has a limit. And that is he's generous, but he's not stupid. And also, you guys in St. Barts. It doesn't fit. That's just, you know, that's when like, you know, my wet dog jumps in the back of a Mercedes. It's just not a good idea. You guys are wet dogs. Go on. All right. What's going on in the news? Let's start with our weekly review of Market Vitals.

3:01The S &P 500 was relatively stable, the dollar gained, Bitcoin fell below 27 ,000, and the yield on 10-year treasuries tumbled on fresh economic data. Shifting to the headlines. US inflation cooled for the 10th month in a row to 4.9 % from a year earlier. That should make it easier for the Fed to pause rate hikes at the next meeting. The nation's banks posted record profits of$80 billion amid the banking crisis. It appears the industry in aggregate benefited from that turmoil as well as continued interest rate increases. Crypto exchange Binance is planning to leave the US and set up operations in the UK.

3:40As we reported last month, the CFTC sued the company for evading commodities compliance. Binance later said it's, quote, very difficult to do business in the US, and it's doing, quote, everything we possibly can to be regulated in the UK. Icon Enterprises is under federal investigation following Hindenburg's short report, which questioned the company's asset valuations and dividends. We discussed that short position last week. The stock dropped another 15 % on news of that investigation, bringing its loss for the month to around 40%. Airbnb reported record bookings and its first ever profitable start to the year.

4:18However, the stock fell 12 % on the company's cautious guidance that the second quarter will be up against a tough comparison to last year, which saw a surge in revenge travel post-COVID. And finally, as you predicted on this show, Scott, Tucker Carlson is launching a show on Twitter. He claimed Twitter is the last big platform in the world allowing free speech. Elon Musk then clarified that there is no commercial relationship, but that he hoped others would follow suit and become content creators on Twitter. Scott, your reactions. Shouldn't we play a clip of me predicting the Twitter thing? Let's do it.

4:56Yeah, my prediction is around Tucker Carlson and Twitter. I think they're going to do something together. I think he's pissed off. And my impression of Twitter and Elon Musk is it's gone totally red pill. You know, listening to that self, I can't help but touch myself. Is that wrong? Is that wrong? By the way, I've been getting people have been sending me personal emails saying I need to tone down the cringy sex jokes. I also got an email from someone saying that. People are just like, look, boss, it's just it's not funny. It's really just stop it already. Look, the banks, it's no doubt. What do you know?

5:33There's going to be less competition. So much of capital flows into the banks and they're making a bunch of money. So that's not that's not shocking. That's the problem with consolidation. And the icon thing is really interesting. You've been following this and talking a lot about it on Twitter. What are your thoughts here? Well, you know, last week we pointed out that the accusations weren't just about mismanagement, but that it's about outright fraud, specifically that dividend yield, which they believe isn't subsidized by the cash flows and is therefore likely subsidized by outside investors.

6:06And you pointed out that's just a Ponzi scheme. And I think we should also point out what you got right, which is that you made the point that Icahn will not go out without a fight and that he'll make a huge deal out of this. And he had this pretty remarkable quote. He said, quote, Hindenburg Research would be more aptly named Blitzkrieg Research given its tactics of wantonly destroying property and harming innocent civilians. Well, that's rich coming from Carl Icahn, who has literally rolls around corporate America for the last 40 or 50 years with a mace and a blowtorch. The thing I noticed about that was he owns, I think, about 80 % of the stock.

6:44And so the question is, is there a play now that its dividend yield is 25 % or 28 % and someone has challenged him or kind of taken their glove off and smacked him in the face and an affront to his honor? Will he just come up with more sleights of hand to continue to pay this 25 % dividend? I mean, he has so much capital or could he do some sort of offering or some sort of financial engineering because he is a billionaire. You know, one of the assets I'm looking at, I'm kind of curious when the banks that underwrote the Twitter debt are going to cure it or sell it and take it off their balance sheet.

7:18And I would be interested in that paper because I imagine it's going to go out at a severe discount or a really high yield. and because of the success of SpaceX and mostly ego, I don't think Elon Musk is going to let Twitter go into receivership or bankruptcy. I just don't think he could handle that from an ego standpoint. So, and he has, he's going to get a bunch more cash from SpaceX such that he could just continue to pay the, pay the interest on the debt. And I wonder if the same thing's going to happen here. If Icon is going to figure out a way to capitalize this such that it's solid just for pure ego reasons.

7:51Now, the Fed's getting involved is really interesting. It feels as if more generally, whether it's George Santos or the libel case against former President Trump or some of these tech executives getting put away, I think Elizabeth Holmes is about to start her tenure sentence, it feels as if the sheriff has shown up on a lot of different levels. And that is the Justice Department is saying that the markets and more generally our society have moved to this post-truth environment that is not healthy and they are going after people and saying, well, no, that's not an exaggeration. It's fraud. So moving on, Airbnb is my largest holding.

8:31I love those guys. We talked to Brian Chesky on this show. I like what he's doing. He's doing kind of some boring stuff, things around pricing transparency and just kind of operational fixes. I generally find when I'm on a board that the CEOs who move shareholder value over the medium and long-term aren't the ones with a lot of jazz hands who try, you know, who go for kind of sexy quick wins, but that are very operationally focused and sort of huge companies. And my mom used to say, how to eat an elephant? And the answer is one bite at a time. And I think how you build shareholder value is one small incremental operational change at a time.

9:03Every day, what can we do to get a little bit better? The crypto guys taking their Bitcoin and going home, you know, good riddance. The notion that it's hard to do business in the U.S., well, actually, most surveys would show that the U.S., I think, other than Singapore, is arguably the most business-friendly place in the world, and that oftentimes to a fault, we opt for a lack of regulation or to be exceptionally business-friendly. We love corporations, so that just doesn't, in my view, that doesn't hold water. Do you have any thoughts? Just that I completely agree. I mean, we talked about this last time.

9:36I think Binance as a company is predicated on illegality and it can't exist within a strong regulatory system. And now they're complaining, they're probably going to say that the US is anti-innovation, that they're stifling progress. But the reality is that there are laws around commodities and securities and you got to follow them. And so, yeah, they're not going to be able to exist here. And I think they're getting their heads around that. And so they're packing up and leaving. My prediction in April was that this company wouldn't exist in the next 12 months, or at least it would be a weird pivoted shell of the company that it once was.

10:13So this to me is more evidence that that'll probably come true. We'll be right back after the break with a look at the writer's strike. Thank you.

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12:51We're back with Prof G Markets. Hollywood is facing its first strike in 15 years after a six-week negotiation between screenwriters and movie studios collapsed. Almost 98 % of the Writers Guild of America voted in favor of authorizing the strike, and their 11 ,500 members are demanding greater pay and greater transparency from their employers. Much of the dispute has to do with streaming. Under the traditional broadcast model, writers produce roughly 22 scripts per season and earn royalties if the show performs well. But streaming series are usually 8 to 10 episodes and royalty payments are much more limited.

13:28Also at issue is AI. The WGA's contract demands that studios do not use AI to write scripts and also that the writer's own work is not used to train AI models. Thousands of writers picketed in New York and LA last week. Several late night shows went dark. And while streamers have a backlog of content to serve in the meantime, the pressure is on to produce more. Scott, we had a long discussion about this yesterday. You feel that people are misplacing the blame. Can you take us through your thoughts? Yeah, so in typical Hollywood fashion, there's all of these shots of famous actors standing shoulder to shoulder with their union brothers and sisters on the picket line saying, I stand with the writers.

14:10And, you know, that's adorable. And there are some real contrasts here, as there always is, between kind of the working class, if you will, and management. Specifically, an interesting comparison is David Zasloff, the CEO of Warner Brothers Discovery or Discovery Warner Brothers, who made$39 million last year and, get this, a quarter of a billion dollars the year before. my suggestion and he's the CEO of Time Warner or Discovery Time Warner is that he just keep quiet around this stuff as is always the case at the end of the day the culprit here is the end consumer and how much money they're spending or not spending the model is changing and the model is more of an equity model than a revenue model what do I mean by that the streamers for a while were able to attract enormous market capitalization because the market valued growth over profits and they overinvested and now they're all, or most of them, are in a situation where they're not making nearly as much money.

15:04In addition, consumers aren't interested in watching late night with Jimmy Kimmel every night as much for 60 minutes where they can run 12 or 18 minutes of ads. That's an incredible business when you're running that many ads every night. And that supported a lot of riders who were very busy and there was a lot of cash. There was a lot of money coming from the manufacturers of Nissans and opioid-induced constipation medication. And now that it's gone to streaming and consumers can get a ton of content for$12, and the studios are saying, all of a sudden, the market wants us to be profitable. We aren't.

15:42Our ad revenues are collapsing. I think all of the big guys have sort of looked at each other and winked and said, it's grown-up time. We've got to cut costs. We've got to hold the line here. I think this is going to be a strike that's going to go on for a while. I think there's probably a lot of distance between the parties, and I don't think the corporations or the streamers are going to give in. I think they realize their model has been flipped upside down. It's a poor economic model. They have got to cut costs. They have no choice. And this strike will not only have economic ramifications around what they pay riders, but it'll set the tone for future negotiations with different unions across the entertainment industry.

16:21So I think it's about to get awfully chilly in Los Angeles. I think you're going to see a lot of people out of work, at least temporarily. And the thing I don't understand about this industry is that the shows I worked on or try to work on, the writers have a lot of power. I'm shocked that they're not exceptionally well compensated because I'm trying to turn my book the four. My first book, Ed, New York Times bestseller. I'm trying to convert it into an original scripted series. I did not know that. That's awesome. You're not on the A-team here. We don't let you in on stuff like this. But what Succession was to Family Owned Media or Billions was to hedge funds, we're trying to do the same thing around big tech.

16:59And the reason my agent got so excited was we got a fantastic writer attached to the project. The other interesting part is about the AI. And that is, I think the union should, it does make sense for them to say, we need to put in place IP protection that if a script or a bunch of scripts from modern family get fed into an LLM and inform it such that AI can be used to draft scenes and scripts, then they should be compensated. But the notion that they should somehow put the kibosh on a technology is just fucking ridiculous. That's like saying, we don't want you to use typewriters because that'll replace us.

17:33That's just a non-starter. I generally agree with everything that you've said thus far. But I think the main thing that one of the first things that the writers would point to is the CEO compensation that you mentioned. So CEOs of these TV companies are making around$40 million a year. Bob Iger made$46 million. Ted Sarandos made$38 million. And then you mentioned David Zaslav. isn't it on them to start cutting their pay packages dramatically in order to serve the interests of the writers isn't that adorable isn't that adorable that you would think these individuals would would sacrifice you're a ceo you're a ceo and you've worked your whole life you've kissed a ton of ass played game of thrones politically you're finally ceo and your buddy Bob, who became CEO of Viacom or whatever, made 200 million bucks in five years, you're really going to decide to be a good guy and cut your pay?

18:31No, you're going to clock as many Benjamins as you can because you worked your ass off. And no one says at your funeral. And, you know, Joe or Lisa was such a good person, she took 60 million instead of 120 during their six-year run at Marvel or whatever. That's just, yeah, that's all fine and good until it's you. And then, you know, you're going to reach your hand as far and as deep as possible into the barrel. What this reflects is just a broader trend in society. And that is CO pay has gone from about 30 times the average worker's compensation to about 300. And I'm not sure there's anything we can do about it because we assign too much credit and too much blame to the top guy or gal.

19:13So getting the right guy or the right gal, you pay up. I've been on these boards where we just have to hold our nose and give them a pay package that is just so outrageous. But you got to pay market. These people will do a market check and find out, well, if I go over to Comcast, I'm going to make this much money. I think the only way you address this is with – and it's not a solution here, but it's one thing – is that at a minimum, we need to have a more progressive tax structure. But at the end of the day, what was the stat that the average compensation on an inflation adjustment basis has gone down 23 %?

19:46In the past decade, yeah. Okay, but look at what's happened to your expenditures on the consumption of great content. You are now spending at least 23 % less. When I was your age, I had to pay$100 to$150 so I could get Food Networks 4, 5, and six because I wasn't allowed to have HBO or CNN unless I had the Food Network and Bravo and all this other shit that they bundled in. And also there was so much regulatory capture with cable companies that they figured out a way to be the only cable company in all of Manhattan. And so they would raise prices. And then that chin, that mother of all chins was met by a fist of stone called Netflix.

20:24But the bottom line is there's just a lot less money to go around because people your age can now spend 12 bucks a month instead of 100 or 150 and get amazing content. Maybe you double up and you go Netflix and HBO. Actually, it's a good question. Where do you spend money on media? And then there's one other huge elephant in the room that we'll talk about. But how much money do you spend on media every month? God, I don't know. I honestly canceled a lot of my subscriptions because I just haven't been watching television. Well, case in point. Yeah. Are you saying that just because you think that chicks will dig it, that you read and you don't watch a lot of TV.

20:59Are you at home watching Keeping Up with the Kardashians like 18 hours a day? No, it's even worse. I'm in the YouTube K-hole. I'm just obsessed with YouTube. Okay, so there's YouTube. And then the other elephant in the room here is the writers aren't competing against David Zaslav or streaming. What they're really competing against is TikTok. And that is the most valuable consumers in the world are teenagers and young adults because they're stupid and they spend a lot of money on dumb things like high margin coffee and tennis shoes. And so advertisers love them. And here's the problem. They're not watching TV.

21:31They're watching TikTok. In addition, in addition, here's who the writers are competing against. There's 1.7 billion people on TikTok. Half of them are creators. So you have a talent pool that's the depth of the Mariana Trench or 850 million people who are working for, get this, not$200 ,000 a year, but most of them for zero. Now, granted, they're not nearly the same quality as the half a million people employed by the streaming networks. But if you have 850 million creators, assume 1 % are really talented, that's 8.5 million creators creating content for next to nothing that the consumer loves and is spending more time watching that free content instead of watching HBO or watching ESPN or what have you.

22:14So the bottom line is the tail that's wagging the dog here and who they should be picketing against is you, Ed. And that's the bottom line. You're not spending as much time or money on traditional ad-supported television that supported a plethora of writers such that we could all tune into the Big Bang Theory. One detail that I found really interesting from this guy, Rich Greenfield, who's an analyst, who's a media analyst at LightShed. He points out that the longer that you prolong this strike, it could actually mean boosted profits for a lot of these companies. because a lot of them already have a massive backlog of content and they don't need to be producing more.

22:48They don't need to be increasing their expenses. And then there are also a lot of companies, specifically Netflix, who have a massive library of international shows and they can continue producing those international shows. And so to me, what we're finding out here, it's like a very tough, difficult economic negotiation of who actually has the power here. And I think basically in agreement with you, what we're going to find more and more is that writers actually don't have as much power as they think they do. But you're exactly right. This is capitalism at the invisible hand of the market. And regardless of whether, you know, Bob Odenkirk marches and shows up and all these photo moments that are just such radical virtue signaling from actors who are making 10 or 20 million dollars a year because they're in the 0.1%, standing with their brothers and sisters on the picket line, it's going to get ugly.