Netflix in the Senate Hot Seat, and Disney’s Demographic Problem

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1:00Before we get started, I have an announcement to make. The town is going on tour. Yes, we're going to three top film schools around Southern California. Craig is driving the town bus, going to Chapman, going to USC, going to AFI. And we're going to bring some special guests along with us. Unfortunately, tickets are only for people that go to those film schools or alumni. But we're going to post the episodes on Spotify, YouTube, and all of the other platforms. So you will be able to listen. And if this is successful, maybe we'll do more. I'm looking at the Aruba, Bahamas film schools. All right, let's get to the show.

1:32This episode of The Town is presented by 20th Century Studios, Avatar, Fire, and Ash. Don't miss the movie Critics Are Raving is epic and exciting and gorgeous and heartbreaking and stands as one of the greatest films ever made. It's got incredible visuals, jaw-dropping action, and a cinematic achievement. Avatar, Fire, and Ash now playing in theaters and now nominated for the Academy Awards for Best Visual Effects and Best Costume Design. It is Monday, February 9th. It's been a pretty wild week in the saga of what's going to happen to Warner Brothers. Netflix, which is in the process of buying the studio and HBO Max for $83 billion, its co-CEO Ted Sarandos was summoned to a surreal hearing before a U.S.

2:13Senate subcommittee in Washington alongside the top strategy executive for Warner Discovery. This was supposed to be about whether Netflix buying Warners was bad for consumers, but it was mostly a forum for political grandstanding about culture war stuff. At one point, Ted Cruz asked Sarandos if he thought they were sitting on stolen land, which was a reference to something Billie Eilish said at the Grammys, which, of course, air on CBS and have nothing to do with Netflix. The whole thing was pretty embarrassing, but amid all that, there were some legitimately skeptical questions about how this consolidation would change Hollywood.

2:45And Ted predictably said the Warner's deal would, quote, strengthen the American entertainment industry. He pointed out that about 80 % of HBO Max subscribers also have Netflix, which means they're, quote, complementary. And Netflix plans to increase its production spend to$26 billion this year, most of it in the U.S. At the same time, The Wall Street Journal reported that the DOJ has launched a wide-ranging inquiry into Netflix's business practices. And Paramount, yes, they're still around, they're trying to convince Warner Discovery shareholders to reject the Netflix deal and instead go with their offer for the whole company.

3:19They're now scrambling in this country and in Europe to get their competing bid approved by regulators so they can better lobby those shareholders, especially if Netflix is having problems. And on top of that, Donald Trump, of course, announced that he's going to stay out of the whole thing and let his regulators deal with it. Do we believe that? Lots going on. So we got Lucas Shaw from Bloomberg back in here to discuss. We're also going to go into a little more on the new Disney CEO and some early tea leaves on what he's up to. But mostly today, it's Netflix on the hot seat. Can they get this Warner's deal approved?

3:51From The Ringer and Puck, I'm Matt Bellany and this is The Town.

3:59All right, we are here with Lucas Shaw from Bloomberg. Welcome back, Lucas. How jealous were you and your fiancé of the couple that got married with Bad Bunny on stage? I mean, you have connections in the music business. I would think that you could have swung that. I can't think of something that my fiancé would like less than getting married in front of 100 million people. Well, it's in front of an audience of one, Bad Bunny, and you were on the bandwagon way early on him. I was. At least way early for white people. Way early for white people, sure. It only increased my desire to go to one of his concerts, even if he's not doing a U.S.

4:37tour this time. Well, we are talking not about Bad Bunny. We are talking about Netflix and Disney today, our favorite subjects. Let's start with Netflix. One to ten, how dumb do you feel having gone to D.C. to witness that farce of an antitrust hearing in person last week? Ten is dumb. Ten is the most dumb. I don't feel dumb at all, so I guess I'll say two or three. Did you do the facepalm at any point? No, because I knew what I was getting into. I knew that it was going to be a bunch of senators grandstanding trying to make their points. Their points? You mean talking about Billie Eilish at the Grammys?

5:15You had a few people who asked smart questions. Mike Lee, the chairman of the commission, Cory Booker, a couple of other people. And then you had a bunch of folks who just talked about trans ideology and corrupting kids, referencing Instagram posts that Netflix made in 2020 and this movie Cuties that none of them have actually seen. Oh my God, Cuties. I know the trans stuff, I want to introduce them to Dave Chappelle and tell him that he's one of the biggest standups on Netflix and has some pretty strong opinions about trans people. More people have watched Dave Chappelle say horrible things about trans people than any of the pro-trans stuff on Netflix, other than maybe Orange is the New Black.

5:55Well, we are not talking about that. I do want to talk about some of the smarter comments because you mentioned Mike Lee, and he did kick off this hearing by focusing not just on the power of the combined streaming business, which I think most people in Hollywood have looked at and been like, wow, Netflix is going to have more than 400 million subscribers worldwide. They're going to own two of the top four streamers globally. He focused a little bit on the production of TV shows. And he raised this idea that a merger would shrink the market for Hollywood talent. That he specifically referenced the Random House case, the Penguin Random House acquisition of Simon & Schuster, which was shot down by the Justice Department.

6:41and this term monopsony. Am I pronouncing that correct? Monopsony power, the quote, potential power to suppress wages or limit professional opportunities. It's an antitrust harm, he said, separate and apart from any monopoly-focused concerns. That is like music to Hollywood people's ears. Well, it's the biggest bipartisan issue, and it also is an argument against both deals, frankly. It's something that a Republican like Mike Lee and a Democrat like Adam Schiff, who's from, represents California, can unite on because they're trying to, they're saying they're trying to save jobs. They're saying they're trying to keep production in the US.

7:21Both Paramount and Netflix would result in job losses. Both of them would likely result in a contraction of production, even though they say that's not the case. Well, Netflix is saying that's not the case. I don't think Paramount is saying that they're not going to fire people. They're not saying there wouldn't be job losses, but they are saying that they're going to produce. like they're sure they're gonna produce 30 movies right and people are most people are skeptical of that yes 15 movies from each paramount and warners they say i know that that sounds like a year one goal and then by year five they're down to 20 and then they go from there so that to me is is the most damaging issue at the same time it's not what antitrust cases have historically depended on right like yes they referenced penguin random house but usually antitrust is about the consumer and pricing and competition there, not so much about the effect on people working in the industry.

8:14I actually think it's a very valid concern. It's just rare that that's what ends up stopping a deal. Yeah, and it's interesting because it comes as the industry has been reeling from job losses. And I think that's an argument that could get traction from both sides. I mean, Ted Sarandos obviously says that this is a pro-consumer transaction, that this is going to reduce costs, get more content. We are investing in movies and TV. Others are not. I mean, it's all the same stuff we've heard out of him. The 45-day window that he is sticking to. I got Netflix to commit last week to a PIVOD window because that's been a big thing.

8:54As Ted keeps saying, 45 days to streaming. But the theaters want 45 days to premium video on demand, not what they call free or subscription streaming that everybody already has. Netflix says that that's true. Ted has not said that one way or the other. The theater owners were pretty aggressive coming out against this. They kind of wound up and waited for this hearing to drop their statements and their op-eds and everything. Do you think that matters? Do you think that the regulators care at all what the theater owners think? I don't understand how movie theaters are a defining issue in this deal.

9:29No? The effect on people working in the entertainment business, very relevant. The effect on consumers and pricing and choice and all of that seems very relevant. It's not really the government's job to preserve an industry that's struggling, right? Yeah, but they make it their jobs. I mean, this is what I said from the beginning is that these theaters are part of, you know, quote, Main Street USA. Every town has a theater. And when the theater goes out of business, there is a halo effect of that. And it's something that constituents in these districts would notice if this goes through and Netflix all of a sudden is sending the 15 movies a year that would have been big blockbusters to Netflix after 10 or 17 days, then people will notice.

10:15So it's not a surprise to me that they would take note of that. It definitely came up in the hearing. I think if you were to rank it on the priority list for a lot of these people, it's not number one or number two. It's like number three or four. Now, it's an issue, I think more than anything for Netflix, it's an issue with talent that could get very vocal in the process, right? I don't think that Netflix is super concerned about Regal and AMC or Cinema United coming after them. You know, they want to placate them, although AMC seems pretty happy with Netflix at the moment. I think they're more concerned about what happens if Christopher Nolan, Ryan Coogler, Steven Spielberg, all of these A-list filmmakers come out and oppose the deal for that reason.

10:58Which could very well happen. I mean, I know Paramount would love that because Paramount's the one, you know, talking about keeping theaters alive and, you know, we'll see. I heard a rumor that maybe Tom Cruise would get involved, but not confirmed on that point. Let's just say, for example, that the shareholders approve the Netflix deal and then we have the regulatory process. I would not be surprised if there was some consent decree or whatever, where Netflix had to put in paper some commitment to theatrical. But the devil on that will be in the details. Like, are these people really going to make them commit to a PIVOD window?

11:33Are they going to like, is the federal government going to get involved in enshrining essentially the windows for how the minimum windows for the movie business? I don't know the answer. It seems like a level of detail beyond what what they're going to concern themselves with. Well, and like you said, there are so many details that go along with that. You can say great 45-day window, but does that mean Pivot? Does that mean a certain number of releases under those terms? Only movies over a certain budget have to do that, right? Does it mean a marketing spend? Does it mean you report box office, which is key to many of these stakeholders?

12:08There's a lot of details there. Bottom line is, do you think this made any difference? I mean, obviously, these senators are not going to be the ones that are doing this review. Do you think their concerns? I mean, we saw in the Tenga, Nextar deal where, you know, these two station groups want to merge. And basically the FCC chair, Brendan Carr, said, I'm with Trump when Trump said, do this deal, let it go. And, you know, six months ago, he was voicing concern about that deal. Now Trump says he's staying out of the battle for Warner Brothers. Do we believe that? And if we do believe that, is it going to impact these regulators on when they look at the deal?

12:50So two different questions on the Trump upfront, I think he changed his mind every few weeks. And so for now, he's saying he's going to stay out of it because it looks good and he can say it's up to the DOJ. But we know that the DOJ largely does what Trump wants. So I think he is involved one way or the other. As for the hearing, I think there was more downside than upside, right? Like if Ted Sarandos had gone and really struggled and not been able to address questions, I think that would have made Netflix look bad. That was not the case. He did just fine. Oh, he was coached very well. He knew not.

13:21He's good. He's good in those scenarios like no culture war bait. He did not answer when they said, are you on stolen land? He's like, frankly, I don't know where I am. And so I think he he present he prevented any real problems, which was the main goal of that. Right. He got to go and say to all the senators, I went I went and talked to you. You guys all, by the way, all those senators, I'm sure, are avid Netflix viewers. Like, Ted Cruz was there. Like, Amy Klobuchar and Ted Cruz were referencing movies and going back and forth. And, like, they're all probably a little kind of fanboys in their heart of hearts.

14:00And so he did fine on that. The real question is going to be, you know, does Trump come down on it? What happens with the DOJ investigation? What happens in Europe? You know, there are a lot of other more significant hurdles for Netflix to clear. and to that end paramount seems to be positioning itself as the clearer regulatory option they are pushing hard to get this approval in europe and potentially in this country so that they can go to the shareholders and say why are you dealing with this you really want to take this risk just take our deal we can get it approved by the end of the year don't worry about it yeah and you know that's not a bad strategy.

14:40Like if they get these approvals quickly and it could come, you know, in the next month or so, right? Month would be fast, but I think they can, at a minimum, they can get some signs of momentum that point or, or like public statements, certain, certain hurdles clear to say, look, we're going to be easier than this Netflix deal. And I guess the, the flip side of that is if there is, you know, more people who come out against the Netflix deal, or it becomes clear that there will be challenges in the US and Europe, that helps Paramount's case. But yeah, they have, at this point, like four to eight weeks likely before there's a Warner Brothers shareholder vote.

15:18They need there to be some signs between now and then to convince enough shareholders to say, you know what? We're not going to do this. We're going to go with Paramount. And in the meantime, Wuthering Heights is going to open. And this is a movie that very famously, Netflix wanted and offered more money for. But the filmmaker Emerald Fennell went with Warner Brothers because she wanted a theatrical release. And if Wuthering Heights hits big, it is pretty good evidence that the market is working and that filmmakers, when they have a choice, will go with the theatrical oriented distributor. And there's upside there.

15:55I'm told the numbers look pretty good on that one. Yeah, it's tracking it like 45 for the four day. I talked to someone over the weekend who thought it would pretty easily clear 50. Yeah, I think that's probably true. There's a history of those types of movies on that weekend getting big. And that's great evidence for why this merger would potentially take out that scenario with the filmmaker trying to get the best deal for herself. And if Netflix owned Warner Brothers, maybe that wouldn't happen. Right. Unless the Netflix commitment is real. I know. There's really only one thing for Ted Sarandos to do here.

16:28I mean, they're opening a studio in New Jersey. You could just name it after Trump. The Donald J. Trump movie studio in New Jersey, his hometown. You know what? You heard it here first. Yeah, you should take a point if that ends up happening. I'm going to predict that. That's the saddest prediction ever. Snoring? Gasping during sleep? Feeling fatigued? Wake up to ZepBound Terzepatide, The first and only FDA-approved prescription medicine for moderate to severe obstructive sleep apnea, OSA, and adults with obesity. ZetBound is an injectable prescription medicine that may help adults with moderate to severe obstructive sleep apnea, OSA, and obesity to improve their OSA.

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18:47Carvana. Pickup fees may apply. All right, let's move on to Disney because we had Rich Greenfield on last week to give us the like instant reactions. You have now had a full weekend to think about Josh DiMauro, the new CEO of Disney, Dana Walden, getting promoted to... President and Chief Creative Officer. Chief Creative Officer and President. A lot of coverage out there saying this is the sign that Disney is now a theme parks company, is now a brand management company, is now a real estate company, not a media company. We both sort of wrote versions of this in our newsletter that that's not exactly right.

19:30Correct. I have a real problem with that when you consider, you know, even Universal, it's a little different because their theme parks pull from other companies, right? Like they have a Nintendo area and a Harry Potter area. Disney's theme parks are about Disney IP. Disney is like the one company that when they use that dreaded word flywheel, it like actually applies to their company. They release a movie. There's a literal drawing from Walt Disney that they continue to refer to. And DeMauro apparently carries it around like a Bible. And so you release. It often starts with a movie. And then guess what?

20:03There's toys and Halloween costumes and theme park rides. And then there's eventually a television show. And then they make a sequel 20 years later or a reboot or whatever. And so there's no question that if you're looking at what really matters at Disney, yes, they generate. Their biggest source of profit is the theme parks. The lion's share of the CapEx going forward is the theme parks. It's been the engine of the company. It's one of the reasons why Josh is the new CEO. But that only works if the studio, the engine, continues to supply new product. One of the reasons that I assume the theme parks are doing well right now, beyond just the boom and the experience economy, is it's coming after 15, 20 years of Disney being the dominant studio in Hollywood.

20:45And without real competition. And one thing I know, I know, Rich talked about on your show, which I agree with is like, if they aren't continuing to produce new relevant franchises and IP, that's a problem. And that's why I think that this sort of Hydra approach or combo is very interesting, right? Because Josh is the is the boss, Dana is now in charge of creative and Dana, who has had tremendous success as a creative executive and kind of head of a studio network over the years, but has not overseen the part of the Disney operation that really feeds the parks. And so what is it going to be like with her on top of that?

21:20It's exactly true. And, you know, DeMauro hasn't really addressed that. He did a off the record chat with some of the parks bloggers on Friday. And I got an audio of that. And he kept talking about this one Disney and how we're going to bring everything together in a much more cohesive way that is going to reflect, you know, raise all boats and one Disney. And I kept thinking, like, that's not what Dana Walden has done. She is not making the kinds of shows that travel across the company like that. She's making Ryan Murphy shows and she's making, you know, Paradise and these shows that are designed to compete in the general entertainment market, which is where Disney was five years ago when they brought her on board to compete in the streaming age.

22:10now disney has decided that they are competing in streaming they are competing in streaming they don't need to invest billions and billions of dollars extra in that they have what they need and they will continue to churn it out but they're all about profitability in streaming and the investment area the area of growth for them is this idea of boosting the parks and boosting that content engine to feed the parts. I think streaming is still a big focus for them. In particular, when you talk to executives at Disney, they say again and again, they recognize how far behind Netflix they are overseas.

22:50And this belief that they need to catch up, make up ground in Europe, in Asia. But I think they've struggled with how to do that because Disney for so long has made these properties, Marvel, Star Wars, all the animation, that they sort of export from the US and travels the world. But there's a limited, ultimately a limited audience for it, right? Huge business, but you're going to run into a ceiling. And if you want to grow even more in some of these other markets, you need to invest in local programming, which is something that Netflix has done. People have mocked it for, but it's been an incredibly successful strategy.

23:23And it's expensive though. It's very expensive. Well, yes and no. Making shows in most of these markets is cheaper than making shows in the US. But yes, you have to produce at a volume that - Yeah, you want the show that can originate here and then travel around the world. You don't want to have to replicate content in every market. Right. But the problem is, if you don't replicate content in other markets, there's just a ceiling on how big you can be. And so I think that's one of the things that Disney has wrestled with and has to figure out. You know, Dana is sending her team to all these different markets, whether it's Korea, Japan, Singapore, to say, OK, how do we beef up here?

24:01and how do we make it so that Disney has, you know, if Netflix is at, I think, 325 million plus customers, like how can we get Disney streaming services to 200, 250, something like that? You know how you do that? A Zootopia TV show. Still the top movie in China. Yes, but that's not what they're thinking about right now. In fact, they, I believe, have put it out there that Star Wars is now a film franchise. They're not going to do as many TV shows. They're not going to do as many Marvel TV shows. And that sort of was the strategy from the beginning. Because it's something we've talked about before, right?