Will Big Tech and AI Save or Kill Hollywood?

0:00Andrew Ross Sorkin:Hi, everyone. It's Amy Poehler, and I'm launching a new podcast called Good Hang. In preparation for that, I asked some of my friends to send in some videos and give me some advice. Just be yourself and the guests will come. Don't be the celebrity that this is their sixth thing they're doing. I love true crime and cooking podcasts. Is there any way you could combine the two? Well, everyone has an opinion and a podcast. So join me for Good Hang. It's rough out there. We're just trying to lighten it up a little. Fourth of July savings are happening now at the Home Depot with select appliances starting at$398.

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1:09Then, they showed up. So they just came over to use the Wi-Fi? For what?

1:16Andrew Ross Sorkin:Better not to know. Get online in minutes with same-day Wi-Fi from Xfinity. Plus, lock in your price for five years. And see Minions and Monsters only in theaters. Xfinity, imagine that. Restrictions apply, not available in all areas. Learn more at Xfinity.com slash same-day Wi-Fi. It is Thursday, October 30th. You'd never know it in Hollywood these days, but the U.S. economy is experiencing a pretty massive bubble. You take out the hundreds of billions of dollars spent on artificial intelligence infrastructure, this country would almost certainly be in the middle of a recession, according to most analysts.

1:49But when will this bubble burst, and could it make the current content recession and entertainment even worse. I thought of that while reading Andrew Ross Sorkin's new best-selling book, 1929, Inside the Greatest Crash in Wall Street History and How It Shattered a Nation. Some pretty eerie parallels to what's going on today and smart insights from Sorkin. You don't know Andrew. He's the co-host of Squawk Box on CNBC. That's their popular morning show. And he's a reporter and editor at the New York Times. He founded their excellent deal book newsletter and recently has been reporting on the overtures from David Ellison and Paramount to Warner Brothers Discovery.

2:22He's also a film and TV producer. He's an EP on Billions and the adaptation of Too Big to Fail, his last book. As a CNBC host, he's also a current employee of an NBC Universal cable network that is soon to be part of Versin. That's the spinoff or so-called Krapco company. You might dispute that term. So I figured Sorgh would be great to come on the show to talk about it all from a big picture point of view. The boom time in tech and how it relates to the bus time in Hollywood. This awkward consolidation moment what the Ellisons really want in entertainment, the future of cable and all these chess pieces currently in play.

2:56So today is the macro economy view of the industry. Will big tech and AI save or kill Hollywood? From the Ringer and Puck, I'm Matt Bellany, and this is The Town.

3:11Okay, we are here with Andrew Ross Sorkin, who is anchor of Squawk Box on CNBC and the founder of the Dealbook newsletter and a celebrated author, including the new book, 1929, about the stock market crash. Am I missing anything, Andrew? Producer of sorts, you know, for Hollywood purposes. Oh, that's right. Producer of billions. And I helped produce too big to fail. That's right. Okay. I apologize. We are nothing if not accurate on credits here. No, but I just figure for our Hollywood listeners. Absolutely. So you have many, many jobs. I'm actually jealous of how you balance it all because I have difficulty balancing my written stuff with my podcast and all the other stuff I do.

3:56How do you do all that? It's hard.

3:59Andrew Ross Sorkin:I think I breathe the work. That's the truth. And in a way, I don't feel like I'm working. You and I, I think, we love the work so much. Yeah. And therefore, you know, sometimes I think to myself, am I out of balance? Not in balance. I don't think I'll ever be, quote, in balance. I don't know what in balance. I'm balanced because I'm balanced for doing the thing I like to do. Well, I appreciate you coming on the show. I'm turning the tables a little bit. It's not three in the morning like I'm usually usually is when I come on your show. Throw them overhand and hard. Yeah. So I'm a little I'm a little I've had coffee, I'm a little more excited.

4:37I want to talk about the book. I want to talk about this current moment in Hollywood. I want to kind of go big picture and look at the landscape and what you are seeing as someone who covers the entire financial world and what is going on in Hollywood and what honestly what people in the market think of Hollywood right now. But I want to start by talking about the bubble question because obviously 1929 is about a bubble essentially and a lot of the things that were handled poorly when there was a bubble and you've got to look at what's going on today i mean are we really talking about nvidia getting to five trillion dollars as a valuation like are we talking about these big tech firms being allowed to get bigger and bigger and bigger with essentially no pushback from the government.

5:31And we're talking about people getting rich on crypto and all of these things that are just flashing gigantic warning signs. And the implications go all the way down to Hollywood. A major studio has just been taken over essentially by a big tech company in Oracle with the Ellisons. And perhaps another studio is going to be taken over by big tech. The other studios are terrified of these large tech companies and are remaking themselves in order to better compete with these companies that have been allowed to grow larger and larger and larger. What are you seeing with respect to the bubble that we are pretty clearly in and how it might trickle down to the entertainment industry?

6:17Andrew Ross Sorkin:There's no question that we're in some kind of a bubble. And just to be fair, when I wrote this book, I started this eight years ago, I had no sense that I was going to be publishing it into what clearly does feel like a bubble. What I don't know is whether we're in 1929 or I think we're probably more likely in 1999, which is to say that there's just so much spending in one particular space that seems very much like the internet bubble. And the question is, when's it gonna pop? It would be hard to believe that it won't pop at some point, just given the almost indiscriminate religious-like spending.

6:55Andrew Ross Sorkin:You know, I think when I talk to most of the leaders in Silicon Valley today, if you ask them to do the math, what is their return on investment? They can't. They don't know what it is. No one knows. It's like a roulette board. Everyone's just putting their trillion dollar bets down and a couple numbers are going to come up and the rest are going to get washed away. And that's the prayer. It's a prayer and a hope. And that's not to say that AI and this whole revolution is not going to change our world the same way the internet did. It will. In 10, 20 years from now, I imagine we'll be living with AI in all sorts of ways we can't even fathom.

7:31Andrew Ross Sorkin:So it's not that we shouldn't be excited about this technology, though, frankly, I think the technology will have some huge transition costs, especially for those of us who are in creative endeavors like those in Hollywood. But along the way, will there be a hiccup or worse? How could there not be? The question, of course, is when does it come? What is the inflection point? And I don't think we know. Typically, I would tell you that the inflection point comes when somebody can't pay their bills. So all of these companies that are basically buying NVIDIA chips and leasing data centers, when they can't make the payment, at some point, someone's going to say, ah, they can't do it.

8:09Andrew Ross Sorkin:Well, what about everybody else? So they can have the same problem later. Yeah. It's almost a little bit like when Netflix had that bad quarter in 2022. And Netflix recovered and is doing great. But the other Hollywood companies really haven't recovered because all of a sudden, everyone was looking at profitability and streaming. And they're like, wait a second. We were told we were supposed to just green light shows and movies ad nauseum and the investor community would come along for the ride. Completely. That's actually a great analogy to put it in the Hollywood context. But the other flip side of this for me is it's not just is there indiscriminate and overspending taking place that will invariably create some kind of correction along the way.

8:48Andrew Ross Sorkin:It's in success. if AI is as successful as the leaders of these companies say it will ultimately be, and they grow into these valuations, which are extraordinary, they have to create an extraordinary amount of productivity. Well, what does productivity mean? Productivity is a euphemism for cutting costs. Well, what are the costs? The costs are us, Matt. The costs are us. And so even in success, success could also look like failure. And that to me is the great conundrum of this moment. Yes. Well, nobody can create the chemistry that you and Joe Kernan have on Squawk Box. AI is not doing that. God bless you.

9:27God bless you. What is going to be the AOL Time Warner of this moment? Because obviously people look back at the internet bubble and look at some of the dumb corporate maneuvering that was done at the time. and AOL buying Time Warner essentially is considered one of the worst mergers of all time. You know, are we going to look back in the media world and is, you know, the Ellison takeover of two Hollywood studios going to be looked back as dumb or a necessary consolidation in this moment?

10:00Andrew Ross Sorkin:Look, I think that what David Ellison's doing with Paramount is extraordinary and ultimately could work. It probably only works, and I put works in sort of air quotes, if in fact he's able to consolidate more. You think so? You think he needs more for this to work? I think on its own, he wouldn't say it's a subscale play, but on a relative basis to a Netflix, I think you'd have to invest an extraordinary amount in content if you're not going to own some other platform and you're going to have to spend an extraordinary amount of money to market that platform and do all of that. So there's a reason why he wants Warner Brothers as much as he does and how aggressive he is in terms of approaching that company.

10:43Andrew Ross Sorkin:So I think even if he doesn't get Warner Brothers, ultimately, I would even imagine there might have to be some other transactions that take place probably that are smaller. Or ultimately, I mean, we keep talking about, you know, what happens to the parent company, at least the current parent company of CNBC. It's gonna be spun off soon. But everybody thinks that, you know, Brian Roberts is gonna wanna buy Warner Brothers if he could buy Warner Brothers. But you could also eventually see maybe a Peacock deal with Paramount too. Like that would be a possibility. It's not off the table. Yeah. And by the way, I speak as a journalist, not as an insider.

11:18Andrew Ross Sorkin:I don't know. Sure, of course. Yes. I mean, and I was going to add another title. You are still doing reporting and you actually had the letter from Ellison to the Warner Brothers Discovery Board for a story in the New York Times just showing that it's actually pretty overt. He is telling them that our two companies together can be a scaled operation. So he's sort of admitting that he needs this. How high do you think he's willing to go to get this company? The last rejected offer was$23.50 a share. Zaslav said, thanks, but no thanks. I appreciate the fake job that you are willing to offer me, but we're not going to do that.

11:59He's telling his staff in a town hall yesterday, Lucas reported that they think that they can get a lot more money for this company. Ellison, via the New York Post, is saying, oh, we're willing to walk away, although he was also willing to walk away from Paramount, we were told. How high do you think he goes?

12:17Andrew Ross Sorkin:I don't know. I mean, I think the investor class and some of the analysts would love to get$30. And I think if the company was offered$30, they'd probably just have to take it. That would be that. And Mike Kavanaugh said today on the Comcast earnings, or didn't say, but at least suggested that they would be interested in the studios and streaming half of the company. But it doesn't sound like Comcast is interested in the entirety of the company, which leaves Paramount as, so far, the only company that is interested in all of Warner Discovery, including cable. So the big question for the board of Warner Brothers, I think, is going to be this.

12:59Andrew Ross Sorkin:you're either going to be sitting with a bid from David Ellison and Larry Ellison, and let's call it$25, even$26. And you would either take that for the whole thing and call it a day, or would you be willing to take the following risk? You split the company, the legacy cable assets, continues to pace as a publicly spun out company, and you sell the studio businesses. effectively, to either a Comcast, to a Amazon. I don't know how interested really ultimately a Netflix or an Apple would be in that business. I don't think they are. I think we've gotten a lot of mixed views about that. But could Comcast make a play for just effectively the studio business, the business that David Zaslav was going to run?

13:53Andrew Ross Sorkin:Could Amazon make a play for those businesses? I think that's possible. And then the question is, if you're the board of Warner Brothers and you can either take the full takeout price or you could take the sort of split the baby and take half on the studio business from Comcast or Amazon and then see what happens to the publicly traded company, is that a better half? And that is going to be a question depending on what kind of number you could get for the studio business. And that is where I believe money wins because I think Ellison will nudge higher and higher until it becomes so attractive and that every model they run and every banker they talk to and every interview they do, it becomes inevitable that that is the most beneficial path.

14:41The money now versus the potential for a little more, but a lot of uncertainty later.

14:47Andrew Ross Sorkin:I do think that if you are potentially a Comcast and potentially an Amazon, and maybe others that you might think to yourself, this is our last big chance. I mean, Peacock, in fairness, is a subscale business as well. They've talked about that. They've talked about wanting to do joint ventures and mergers. 41 million subs as of today. If you take that business and you will never have the opportunity to merge it with a Warner Brothers and that chess piece is off the table, your options become more limited. And so how much would you pay or frankly even overpay for the privilege of both preventing your competitor from getting that chess piece and getting that chess piece yourself?

15:32Andrew Ross Sorkin:and then throw Amazon into the mix, I could see them also potentially for that asset and that library bid relatively competitively because it would then put them really in a very similar place to a Netflix potentially or at least a Disney. Right. And that's the dream that Brian Roberts has always had. He seems to be obsessed with Disney. And then if they don't get it, at least they've run up the price for a competitor and made them pay a lot more, which is what happened with Fox and Disney. That's exactly what happened with Fox. Yeah. Maybe I'm cynical about this. You know, I wrote in my newsletter about Ellison.

16:11I just, you know, he's just like the natural byproduct of this current age. It's like it's I made the analogy to the Industrial Revolution to bring it back to your book, like the railroad trusts that emerge and the, you know, the fact that they consume the entire economy. That's what's going on with big tech right now. It has essentially gobbled the advertising industry, which is the media industry. And it was only a matter of time before it came for the professionally produced content industry, Hollywood. Do you believe that there's a larger play for the Ellison family that ultimately relates

16:46Andrew Ross Sorkin:to having Oracle and Paramount and maybe Warner Brothers merged into that and TikTok all as sort of one monolithic thing? Or do you see these as sort of disparate parts that just happen to be owned by one family? I think they see it as a strategic play to have all of these companies under one roof and the magic fairy dust of the Oracle tech is going to boost all of these content businesses. And perhaps they can get a distribution partner with TikTok and they can have a narrative of a content company fueled by the power of big tech. Now, I think what they're going to message to Hollywood, and we've already started to see this, is, oh, well, we're just going to have these companies under one roof, but they're going to operate separately.

17:43Warner Brothers, they will not even know the difference. We're just going to buy it. They will still release 15 movies a year. They'll still have HBO. All the things you love about Warner Brothers Discovery will still be there. It'll just be a Skydance Corporation. I don't know how realistic that is. I think that they feel they need to say that to get this through regulatory review and through, you know, not have people in Hollywood with pitchforks in the streets. But I think the real vision here is take the money and technology of a big company like Oracle and the connections they have to the Trump administration and get as big as they can while they can.

18:20And then all of a sudden we're going to turn around in three to four years and there is a new dominant player in town that can battle big tech and battle Disney and really set themselves up for the next generation of entertainment.

18:34Andrew Ross Sorkin:Could it be akin to Netflix in the following way? Netflix shows up and starts spending money what people thought was almost indiscriminately. And it was exciting for Hollywood, right? They were buying project after project after project. They were ratcheting up these auctions for different series and films and all sorts of things. And for a couple of years, more than a couple of years, it was great. It was like boom times. And by the way, that forced everybody else to also spend more, to buy more, to pay more, all of the things. But as Netflix got more and more successful, there was a moment at which they therefore didn't have to do that anymore.

19:16Andrew Ross Sorkin:So there was sort of a sugar rush. And then the downside of a sugar rush is you know what that feels like. We're experiencing it in Hollywood right now. It's depression out here. Well, but my question is, right now, there's an element of the Ellison family actually putting some sugar back into the system, at least for this moment, that might actually force some other players to do things that might be a little bit more interesting than they would do otherwise. I think that's totally true, and I think people were very excited when the Ellisons bought Paramount because of exactly that fact. There is now activity.

19:51The fear was that Netflix and Amazon were going to run away with the business, and then there were going to be three or four major buyers, and that's it. Now, with Paramount being reinvigorated with some money, you have things like the Duffer Brothers getting poached from Netflix. You have things like NBCUniversal going after Taylor Sheridan to take a big piece of talent that wasn't happy with the new ownership. You have UFC getting$7.7 billion to move over to CBS and Paramount+. So there is a sense that a new buyer of Paramount has been good. I think a lot of that goodwill has kind of been flushed down the toilet with the prospect of Warner Brothers going away if it gets sold to another studio owner.

20:34But that has been a good thing in a very, very depressed content industry right now. I just don't know how long that's going to last.

20:47Andrew Ross Sorkin:I keep wondering when one of the big sovereign wealth funds from the Middle East shows up in Hollywood for real and says, you know what? We're also going to bid for this asset. Or maybe, by the way, we even partner with somebody else to bid for this asset. And whether Hollywood, if you will, would get their pitchforks out and say, hell no, we would never work for a company like this, or whether they'd get excited and say, these guys are going to breathe even more life into this industry. Yeah. It's funny you say that because there has been a rumor that some Middle Eastern entity is going to emerge as a suitor for Warner Discovery.

21:25I have not pegged who that would be. I heard it's not Saudi, but it's another entity in the Middle East that would have a face of a private equity firm or someone else, but the real money is there. We saw this, The Saudis just launched a billion dollar play for content to develop their IP that they own via games. And I broke that news in my newsletter and I got a lot of feedback from people saying like, this is terrible, but also like at least someone cares. At least someone's putting that money into Hollywood and not just launching an AI studio to put us all out of business, which is where a lot of the money is going right now.

22:06So I think people in Hollywood are really conflicted. I have my own thoughts on the Saudi stuff. I am not a fan. I think that it's tough to be in business as artists with a regime that dismembers journalists. But there are people that are like, where else is the money coming from? Hollywood has a long history of taking money from people all over the world, the Japanese, the Germans, every there's been phases. This is the moment where the Saudis are investing in this kind of stuff. And there are there is a lot of people that say, where else are we going to get it? Okay.

22:36Andrew Ross Sorkin:You think the administration would be happier with a Middle Eastern fund owning Warner Brothers or Brian Roberts? Or Brian Roberts. I don't know. That's a tough one for Trump. It's very difficult. I mean, we're not even talking about the regulatory stuff. We're talking about rational businesses. We're talking about who might buy Warners, but like you got to take into account. I mean, it's not a coincidence that Comcast donated to the ballroom. It's not a coincidence that the Ellisons are so closely aligned with Trump now. It's so much so that I think they're a little embarrassed about it. But, you know, they see that that is a huge opportunity, being able to get these deals through.