Welcome back to What I’m Hearing, still at my undisclosed location and unfortunately missing tonight’s premiere (in Beverly Hills!) for Beverly Hills Cop: Axel F, a movie that everyone except Eddie Murphy’s business manager will pretend doesn’t exist but that will dominate the streaming top 10 lists over the July 4th weekend.

Tonight I’ve got a fairly incendiary chat with the entrepreneur turned business professor turned podcaster Scott Galloway, who became the object of much hate during last summer’s strikes, and likely won’t win back many friends now. Plus a few smaller tidbits…

And of course, if you were forwarded this email or are new to the WIH community, click here to become a Puck member.

Let’s begin…

• Shari Redstone’s football-sized time bomb: As the new post-Skydance limbo sets in for Paramount Global and the C.E.O. threesome we’re definitely not calling the Pep Boys, employees I’ve spoken to have pretty low expectations for the June 25 town hall. Prudent “right-sizing”… reinvention for long-term health… investments in core franchises… our people are our best asset… yada yada. Not likely to be mentioned: the double-digit stock drop since Shari Redstone spiked the sale, the looming $14 billion debt bomb, Shari’s ongoing search for some kind of out, and the possibility that the Ellisons could re-emerge with an offer that might seem more appealing after Shari exhausts the alternatives.

  One key issue that rarely gets mentioned: The NFL has a change-of-control provision in its deal with CBS, as it does with all its broadcast partners. That means if Redstone sells Paramount, the league could rip up its current $2.1 billion-a-year arrangement with CBS, which just began in 2023 and runs until 2033. That’s unlikely—CBS still delivers a large and ingrained audience for its Sunday afternoon games, and the NFL would need to find a suitable replacement. But… now that the NBA is closing in on deals with Disney, NBCUniversal, and Amazon worth a collective $76 billion over 11 years, the NFL rights seem downright undervalued. NBCU, per Bloomberg, will shell out $2.5 billion a year to air around 100 NBA games on NBC and Peacock. CBS airs fewer NFL games, but they deliver far bigger audiences. And even if NFL commissioner Roger Goodell doesn’t intend to bail on CBS, he could use the change-of-control rights to renegotiate a higher fee to reflect that value. The NFL has a strong relationship with CBS Sports… but I’d argue it has a stronger relationship with money.

  This was a possibility with the Skydance sale, too. But Skydance is already in business with the NFL on shoulder programming, and the Ellisons are friendly with Goodell. I’m told the NFL was supportive in principle of the Skydance/RedBird takeover of CBS and likely would have waived its rights. But some of these other potential bidders for Paramount? If they don’t resolve this issue during negotiations, they could emerge victorious in a sale only to find that one of the company’s greatest assets—that NFL deal—goes way up in price or disappears entirely.

• Are we calling it Megaflopolis yet?: Thoughts and prayers to whoever at Lionsgate is currently trying to figure out how to hire people to play the “real life” character at every screening of Francis Ford Coppola’s $120 million head-scratcher Megalopolis in September. (Will it just be an unlucky ticket-taker? Is this “role” covered by SAG-AFTRA? Will audiences stand for a mock ovation like they did for Nicole Kidman’s infamous AMC ad?) Lionsgate’s tiny deal to release the film in the U.S.—basically a home video arrangement with a small theatrical component—doesn’t even include P&A costs. Coppola, like Kevin Costner on the first two installments of his nine-figure passion project, Horizon: An American Saga, at Warner Bros., will be paying the marketing tab himself.
• Box office over/under: Focus’s The Bikeriders has gotta do better than the $8 million tracking, right? Austin Butler voice fetishists alone should push it past that number, so I’ll take the over. I’m also willing to call Inside Out 2, which is doing insane midweek business and will soon top $500 million, as the year’s first billion-dollar grosser.

I don’t always agree with Scott’s takes, especially on Hollywood topics, but he’s got a great big-picture business perspective, and right now, that view is flashing huge warning signs. For instance, he thinks the way the studios are approaching the A.I. threat is totally wrong, he thinks major consolidation is needed to take on Big Tech, and he believes the entertainment labor unions are foolish to focus on 5 percent wage gains and wishy-washy A.I. protections when the entirety of the profession is at risk.

Scott was on The Town this week, but we couldn’t include all of our conversation, so I edited down our back-and-forth to give What I’m Hearing readers a written version, plus some of what we excluded in audio. Enjoy, even if it makes you angry…

Scott Galloway: This was nothing but a transfer of wealth from the members of the unions and some of the smaller streamers to Netflix. You pay dues to a union and then let them arbitrate and legislate when you can work and not work, such that you can make less money? I would argue that’s not a good deal.

Well, they got higher wages. They got commitments to hire certain amounts of writers per show. They got some protections against A.I. These are pretty significant gains. But the employers saved a ton of money. They now buy fewer projects. And we’re seeing the overall pie of entertainment is smaller than it was pre-strike.

Let’s talk about those significant gains. A certain number of writers in the writers room, I think that’s a big one. The culture of apprenticeship is really important, so good for them. They made some gains in health insurance and a retirement plan. My understanding is they got a 5 percent increase in wages. Inflation last year was 6 percent. They were out of work for four to five months. It sounds to me like they’re making less money. Where do I have that wrong?

The increase is more than they have negotiated in previous deals with the studios. It’s typically been 3 percent. And there are additional gains in subsequent years of the deal. But I hear your point with inflation.

They lost 30 to 40 percent of their earnings in that year. We’re going to just ignore that? So, I work another eight years to get back the 40 percent I lost in order to try and pretend I had leverage as a group of people that have their heads so far up their ass, they decide to strike when they have absolutely no leverage? And Matt, tell me what their protection is from A.I.

On the actors’ side, they are going to be at the bargaining table with studios to benefit financially from their image and likeness being used to train A.I. models. They have a commitment to writers that a human will be the author of a script. If you look at the overall regulation of A.I. right now, which is pretty minimal, some of the most significant regulation is happening within the entertainment industry.

My understanding is that the language is purposely vague.

It does allow for experimentation on the studios’ part. That is true.

The studios have out-of-control spending, which benefits the actors and the creative community. To force a multilateral pause in spending, such that they can all re-evaluate their spend and decide who they really need or don’t need… and for the first time in the history of Netflix, they have paused their spending. It hasn’t gone up. And then let everybody else decide to consolidate. My understanding is there are fewer writers making money now than there were pre-strike.

Yeah, the orders and overall buying are way down. Now, this was a trend that was coming before the strike.

So let’s expedite the trend? The people who tried to couch me as anti-labor, I believe there should be one union, and it should be in D.C., and it should be 25 bucks an hour minimum wage. Beyond that, I think labor should largely be supply and demand. Too many people go into the vanity industries: 87 percent of the people in SAG-AFTRA didn’t have health insurance last year because they didn’t make more than $23,000. It is a vanity industry. You move out to L.A., good luck to you. Chase your dreams, God be with you. But the notion somehow that these individuals see themselves as so precious? They’re angry that the executives are making more than $30 million a year. The top 10 actors make more than $30 million a year. Were they striking at Tom Cruise’s house? I found the whole thing just a little bit arrogant.

Well, you take Tom Cruise out of Top Gun, what is it? You take David Zaslav out of Warner Bros. Discovery, there’s probably another dude that could do that.

I agree with you, but it’s a market economy, and these guys have figured out a way to make a lot of money. And they’ve been around a while, so clearly they’re adding value. I agree with you that to cut your stock in half and make a quarter of a billion dollars makes no sense. The Warner Bros. shareholders should absolutely ask for a word with Zaslav. But the way I saw it, [the writers and actors] shouldn’t have been picketing Disney or Burbank, they should be picketing the house of a 17-year-old who is now spending more time on TikTok than on all other media combined. You have 1.7 billion people on TikTok, half of them are creators, so the entire Hollywood community—half a million people work in and around streaming—are competing against 850 million creators on TikTok who are not demanding that people contribute more to their healthcare plan. That is the dynamic here.

If the union had any sense, it would be spending all of its money to hire very aggressive law firms and get every single studio on their side. They should be partnering together to try and figure out a way to sue the shit out of all LLMs and A.I. companies such that if they’re crawling their data, they participate in those revenues. Instead, they’re fighting each other and all they’re doing is making Netflix wealthier and letting the A.I. and LLMs continue to crawl their data. I don’t think they were very strategic.

The guy who runs the UAW was brilliant. He saw leverage, the demand for autos was strong. He chose precision points of leverage that would bring down entire swaths of the U.S. auto-making industry. And he got not 5 percent, I believe he got a 23 or a 28 percent increase. That’s what you call a good union with good management. So I’m not anti-labor, I’m anti whatever it was the WGA did. [Its leaders] clearly haven’t taken a strategy course, or understand anything about game theory, and the people paying their dues paid the price for it.

I was on the board of The New York Times and I suggested in my second meeting that we call the Murdochs, the Newhouses, the people that own Pearson, the Financial Times, and that we all bind together and shut off Google. And that we put all of our content into one omnibus licensing agreement, similar to what recording artists do, and bid it out. At that time, Bing was under the illusion it could still be a player, so I believe we would have gotten billions of dollars.

Instead, everyone was worried about antitrust and thought that they were gonna send all this traffic our way. Now you’re seeing The Washington Post, you’re seeing The New York Times, you’re seeing Forbes sue these folks saying, We have evidence that you are crawling our I.P., including word-for-word, and not paying us. And they are starting to strike deals.

Now, granted, the deals with Axel Springer and Vox and Washington Post and the Murdochs, they’ve been small. But I don’t understand why [Hollywood] wouldn’t get Barry Diller or someone else very smart and very mean, and tens of millions of dollars, to hire the biggest, meanest law firm and basically try and shut down their activity and show that they are crawling every episode of Family Guy. And that if they continue to do that, [Hollywood] needs to participate in the upside of that. NVIDIA has added the market cap of the global film industry in the past three weeks. I mean, for God’s sake, go where the money is, guys! You’re trying to squeeze blood from a rock when you go after Disney.

Are you advocating that the studios try to shut down A.I. models trawling their content? Or are you advocating just for a better licensing deal? Because what you seem to be saying is, Just get yourself in on the money train, not necessarily prevent them from using the content.

Well, you do both. You shut it down to the extent you can. You use your own LLMs to figure out that they’re in fact getting the transcripts from Puck, from Emily in Paris, from old episodes of M*A*S*H, and they’re crawling all of it. And you say, “We want you to cease and desist.”

Let me guess, this is a guy who’s already rich. I saw Google pull up a dump truck, fill it with our cash at The New York Times, and then leave. So we could go have cocktails with Steve Jobs and Larry and Sergey [at Google]. They crawled our gorgeous content, sliced it up, and gave us a nickel for every dollar—more like a penny for every dollar they were getting. But we got to hang out with the cool people and say, Oh, we’re working with Google. Don’t fall for this shit again.

These firms are huge, and there are more full-time lobbyists working for Amazon in D.C. than there are sitting U.S. senators. Google has triple that amount. You are up against an enormous foe. But what [is Hollywood] doing? You’re not partnering with other industries. You don’t have a figurehead. You’re not out there with a powerful spokesperson every day: Oh, it’s clear that Anthropic has crawled Dopesick and we don’t like it and we are suing you. Essentially force those guys to enter into an agreement. Instead, you’re all making big, flowery statements about embracing the future. Yeah, wouldn’t that be nice? Get serious, try and shut these guys down. They have added $3 trillion in market capitalization and you’re all fighting over fucking 5 percent. Wake the fuck up!

Or fighting over whether OpenAI mimicked Scarlett Johansson’s voice. Do you think it’s inevitable that these studios consolidate to fight off Big Tech? Or is there some scenario where we can continue with the ecosystem we have today, where there are three or four major streamers, five major studios, and they all can exist?

The streaming market is a fantastic case study for any basic economics class. People started cutting the cord and signing up for Netflix, and the market said Every dollar you get from streaming we will value at eight to 12 times what we value a dollar coming from CNN. They had so much capital they kept growing and throwing more capital at it, getting a higher stock price, cheaper capital, more growth, more spending on content. And then all of a sudden, investors said, Hey, Netflix, we would like you to move from growth to profitability. All of a sudden, they checked their spending. They cut their costs, they rationalized, they had pricing power, they raised their prices, and boom, they’re making money.

Everybody else that churns at 7 percent a month has to reinvent their customer base every year, which means the cost of customer acquisition is out of control. You have two choices: go out of business or consolidate. So they are consolidating, raising prices, the smaller guys are all gonna get sucked up into a bigger mothership. They’ll raise prices and this industry will normalize and start making money again. This is quintessential what happens in a marketplace.

How long do you think this will take?

I would imagine another two to four years of pain and calibration down. The problem is that people will come in with this vision of why the movie industry and storytelling has always been important, not recognizing that storytelling and revenue is all going to a smaller screen and to TikTok and to YouTube. Warner Bros. is a great business, you’re just gonna have to cut costs faster than the decline in revenue. And that’s not the mindset they have. People will come in with a new vision for why CBS is gonna be relevant again. No, it’s not. Ad-supported cable is going away. It’s not going away in two years. It’s not even going away in 10 years. But you’re gonna have to manage it very cost-effectively and consolidate. We’re already seeing that.

How do you think Bob Iger’s doing at Disney?

I think he’s fucking crazy to have taken that job. He’s literally the guy that was in Vietnam and came home a hero and decided to go back. I just don’t get it.

But he did come back. He quelled a shareholder revolt. He cut $7 billion in costs. He says he’s turned around the creative engines that were sputtering. He did a deal with Epic where they are now actively in gaming. What’s your impression from the innovator’s perspective?

Market dynamics will always trump individual performance. He is swimming upstream. But he’s got an unbelievable business in the parks. He’s got the streaming business. I actually think they’re a consolidator. Their assets and properties and I.P. are so incredible. Also, that positioning around family is so singular and deep, I think they can survive. If you have kids, you have Disney+, and at some point you’re going to the seventh ring of hell, a Disney park. That gives them pricing power.

I thank my lucky stars that it’s become a meme stock, and issue a shit-ton of stock and buy another business.

They got into the silver-mining business. They now sell popcorn in stores.

They’re trying. But that’s not a solution. Memeing is not a solution.

What is the solution for the theater business?

Well, it’s a very American question because we always assume there is a solution. That business is just going to go into massive structural decline.

But there is a right-sizing scenario. Close a third of your theaters, that’s what I’ve been advocating for, and focus on the premium market. Turn them into entertainment centers with a gigantic Imax screen. That’s a business. You just need capital to do that.

No one has woken up from the consensual hallucination that they need to close a third of their theaters. I haven’t heard anyone say that. You’re exactly right. I still love to go to the movies. It’s just an industry that is a shadow of itself. Look, if you’re over the age of 40 and have momentum in that industry, ride it out. But if you’re young and you have talent around storytelling, oh my God, get out of Dodge! That industry, look at how much dysfunction and agita there is at these companies when they’re shrinking. The Washington Post is a shitshow. This is what happens to a household when it’s making less money. Mom and dad start arguing.

L.A. is a much-better-weather version of Detroit right now. It’s been globalized. What Honda and Toyota did to Detroit, TikTok, and to a certain extent Netflix, [did to L.A.]. There’s gonna be more money spent on media and creative, but it’s gonna go to stars on TikTok and people producing YouTube videos.

Hollywood has always been a punching bag for people saying that it’s corrupting our youth. But we are only recently seeing that same level of criticism directed at the tech platforms that dominate behavior. Why?

What was interesting is I have been going after Big Tech, I think pretty aggressively, for a long time. They mostly ignore me. I say that the Writers Guild fucked up and I get so much hate mail from all these people who think that their storytelling is so fucking precious when they write season three of SpongeBob SquarePants. I have never found, other than academia, a more arrogant, self-aggrandized industry. You’re subject to the same economics as the rest of us, folks.

Correction: Jonah Nolan and Lisa Joy are E.P.s of Fallout but not the creators, as I said last week.

Got a question, comment, complaint, or suggested flavors for the new Netflix popcorn? Email me at Matt@puck.news or call/text me at 310-804-3198.