Disney CEO Bob Iger Staying on Apple's Board, Will 'Continue to Monitor' Situation

[Brandhouse]

Am I missing something here? It's a conflict of interest!

 

[0388631]

Your perspective is a bit skewed. Netflix is spending borrowed money and paying their loans with the remnants of their dwindling DVD rental business, and their subscriber base which has recently been missing their target growth projections. In order to forgo third party content, they have to have a library of equitable content to replace it, as they continue to churn out hit original content to sustain and grow their base. FRIENDS is a perfect example of how important Netflix views those third party shows to their subscriber base. The FRIENDS deal is far from the norm. Warner Bros. Gouged Netflix and they bought it because they are desperate for it. WB had nothing to lose as they know the value of the property and would have pulled it back and put it on their new streaming service. But if Netflix was dumb enough to spend $100 million for one year to keep it, well money is money to WB. They’ll just add it to ATTs new platform next year as they suck away a chunk of Netflix customers for whom that was a draw.

Meanwhile, many people I know are watching Netflix to catch up on Network TV shows they’ve missed, like the AMERICANS — they don’t even realize that they are original to Netflix. Many of those shows will be pulled to competing studio platforms, along with another chunk of subscribers. At some point, it will be solely about Netflix original offerings, and considering the borrowed billions Netflix has spent, and is committed to spend, each show will have to be a hit the size of FRIENDS to ensure sustained subscriber base to make enough profit to pay off that massive debt and make more shows. I would argue Netflix doesn’t have one show on the level of FRIENDS which is why they paid $100MM out of desperation to keep it for a mere additional year. And despite your assertion, the cost to produce an hour of quality TV has only gone up year after year. There is great value in licensed programs in added value for their subscribers, most of which programs are far less expensive than the friends deal. But you’re right, the license fees are going to go up for Netflix for the same reason — is it worth more to Netflix to retain subscribers, or to the original studio for their own competing streaming platform? And Netflix will likely overpay as they have for everything including studio executives they poached away from other studios, for 2-3x the salaries the industry otherwise pays.

And so it will go. Netflix has put itself in a box, and will soon find itself competing on its own merits with no other diversification to help sustain it. The day may even come where Netflix starts licensing its content to syndicated TV and opening a download store to reach more customers with its limited catalogue of hits. The math really doesn’t work out in Netflix’ favor once you look below the veneer of their operating model to date. And that makes them ripe for takeover once their subscriber rates fall enough that they begin to miss debt payments, and make quality compromises in their new programs, and lay off essential employees.

You're assuming borrowed money is bad. It isn't. The adage spend more to make more is nearly always true. If a company can provide projected profits and make payments on time, they can borrow for the foreseeable future. Even Disney was in debt prior to their Fox purchase. Disney projects they'll lose 3-5 billion over the next 2 years to get this streaming service off the ground. They'll be running at a large loss until they inch more subscribers which add to the loss since their price point isn't high enough to get nearer the green instead of the red. Comcast themselves are in over $100B in debt. Apple is in over $120B in debt themselves. As of Q4 2018, Intel has nearly $30B in debt.

Debt doesn't mean these companies will lose their place or never succeed. At the end of the day, creditors know Netflix, Disney, Intel, IBM or even Apple are good for their money and will pay back these loans. Netflix outpaces their own growth predictions.

And at the current rate of new platforms popping up, all costing between $5-15, the idea of picking and choosing what you want to watch and not what you're offered goes out the window. It isn't hard nowadays to have a few subscriptions and pay just as much or more as you did with your cable bill presuming you cut cable in the first place.

At which point you also have to consider services and media being available to be streamed in your country/region. If people can't, they'll resort to piracy. We've come full circle back to cable television already. Disney has been bleeding ESPN subscribers for years and though that's slowed down in the last five or six quarters, it's still happening.


Whether we agree or not on any of this doesn't matter. I personally believe Disney will be bleeding money over the next five to six years as they develop the technology for delivering video on scale at static high quality levels.

In other words, delivering minimum 720p to 4K UHD while staying within a size envelope and not suffer buffering issues. That isn't cheap, and no amount of money can buy an off the shelf solution. Netflix has had nearly a decade to develop their internal tools. Apple isn't too far behind. Amazon still needs to play catchup.


As I said, I suspect the $6.99 pricing to go up or if it doesn't, it's the bottom of the barrel price for active screens and quality delivery.

2 screens, 720p.
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some of them I’m interested in seeing, like Jordan Peele’s remake of Twighlight Zone.

One word: Phenomenal.
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As for US income, you’re correct, the studios can take more than 90% on some films, but that’s only in the first 30 days, after that, the longer a successful film runs, the greater the share of box office the theater gets. By then end of a long successful run, some theater owners can get close to 100% of the revenue. the theater can also pull a film early if it fails to make a certain amount of income.

Yep. And as I recall, some of the chain and non-chain theaters back in the late 90s had Titanic on for months and months. It was a win-win for all except the consumer, if you don't count women wanting to see DiCaprio over and over again. When it did go to rental or VHS purchase (I don't remember if DVD was offered initially), it would always be checked out or sold.

Apart from that and Avatar, I can't think of any movie that had such a profound effect or long run like those two.

 

[Mac 128]

You're assuming borrowed money is bad. It isn't.

Not really. What I’m saying about Netflix is they’re spending their money irresponsibly. It reminds me of the dotcom bust. They’re paying executives and talent 2-3x the going rate to lure them away from other studios, and upsetting the Apple cart for everyone, forcing the other studios to up their costs in the process.

The difference is, Netflix is about to be left with only their original content library and new programming. Their DVD business is dwindling, which until recently was responsible for a substantial portion of their profits — more than their subscriber base. Now the price is going up, and they’re about to lose most of their third party content, as their income sources drop, and they’re blowing through those loans overpaying for their employees and productions. They’ve got a few award winning programs, some more hit shows, mostly catalogue at this point, and a lot of unwatchable catalogue material. It’s hard to imagine they’re going to keep their subscriber base with only their original catalogue, once Disney, ATT, and Comcast become options and pull back their licensed material — not to mention not shopping their ideas for Netflix to license.

The Netflix model of grossly overpaying talent also assumes that the talent will continue to crank out hit shows, based on the hits that landed them the massive payday in the first place. That’s a massive overestimation. And it’s more of the same thinking that has them overpaying for everything because the have billions on loan. Netflix is basically throwing everything at the wall, in a strategy that almost assures something will stick. If enough things don’t stick, or their massively overpaid talent don’t deliver a string of hit shows, veteran producers like Disney and ATT will almost certainly be the preferred choice for many of the Netflix subscribers who must chose which services to subscribe to, if only for the added value of extensive back catalogue.

Netflix is in a far more precarious position than Disney, ATT, or Comcast, or even Amazon. Disney will be managing a huge debt load for many years, but they also have substantial assets to help them recoup, and are well diversified such that their entire business won’t hinge on a streaming service. Netflix is virtually the opposite situation.

The debt in of itself is not a bad thing. But the situation Netflix may find themselves in shortly will make that debt a very heavy weight on their business model.

 

[PickUrPoison]

Am I missing something here? It's a conflict of interest!

Iger leaves the room during any discussion about Apple TV+. If there were a board vote on a subject that would be a conflict of interest—for instance, a vote on the proposed acquisition of a studio to add content to Apple TV+—he would recuse himself.

 

[0388631]

Not really. What I’m saying about Netflix is they’re spending their money irresponsibly. It reminds me of the dotcom bust. They’re paying executives and talent 2-3x the going rate to lure them away from other studios, and upsetting the Apple cart for everyone, forcing the other studios to up their costs in the process.

Except they're not. If people want something and their data shows people want it, they'll pay for it. You have to understand that if you want to succeed, you need to pay for the talent. It's why Apple has been upping their AI salaries which were lower than the standard in SV for years. They want to improve Siri, they have to spend money. Siri may take another 8 years to become level with today's Alexa, Cortana or Google's AI. And according to a user-submit site such as Glassdoor, their pay rates are slightly above other major SV companies, but those companies don't focus exclusively on streaming.

And in the end, it's far cheaper to borrow and repay money than spend your money outright. It's cheaper for Netflix to borrow $5B in a 3-year span at a fixed rate with no interest and required to pay it back within 8 years with a 2 year grace period and quarterly lump sums atop monthly payments than it is to burn through their reserves and pay for it outright.
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The difference is, Netflix is about to be left with only their original content library and new programming. Their DVD business is dwindling, which until recently was responsible for a substantial portion of their profits — more than their subscriber base.

These are contradictory claims. How is it both a substantial amount and dwindling? According to the following article, they have just over 3M subscribers, and their net amounts to less than $40M a month. In 2017, all of Netflix had a net of $558M. In 2018, they surpassed this with a net income of over $1.2B.

https://www.cnbc.com/2018/05/20/netflixs-dvd-business-still-has-more-than-3-million-subscribers.html


Netflix has over 140M subscribers. Disney estimates to have just over a third of that amount by 2025. Hulu has offered subscriptions for a decade now. They crossed over the 25M subscribe point back in December.
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The Netflix model of grossly overpaying talent also assumes that the talent will continue to crank out hit shows, based on the hits that landed them the massive payday in the first place. That’s a massive overestimation. And it’s more of the same thinking that has them overpaying for everything because the have billions on loan. Netflix is basically throwing everything at the wall, in a strategy that almost assures something will stick. If enough things don’t stick, or their massively overpaid talent don’t deliver a string of hit shows, veteran producers like Disney and ATT will almost certainly be the preferred choice for many of the Netflix subscribers who must chose which services to subscribe to, if only for the added value of extensive back catalogue.

This is the same with any tech company that relies on data to make decisions. Google has thrown hundreds of products at the wall and not much has stuck. Apple has done the same. Amazon has done the same. Here's a Google products graveyard.

https://gcemetery.co/

Though you keep stating "grossly overpaid talent" and aren't offering any examples. Do you mean engineers, network administrators, accountants, what exactly? And can you link to examples and specific or similar companies and the pay rates for those positions?
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Netflix is in a far more precarious position than Disney, ATT, or Comcast, or even Amazon. Disney will be managing a huge debt load for many years, but they also have substantial assets to help them recoup, and are well diversified such that their entire business won’t hinge on a streaming service. Netflix is virtually the opposite situation.

As of September 2018, the company was carrying $12B in debt. ATT is in over $160B in debt. Prior to the Fox assets purchase, Disney had a total debt of around $21B. By spending money on Fox assets, they acquired those via debt and also took on debt that portion of Fox had. Disney spent roughly $72B for Fox's assets and also took an extra $14B in debt Fox had as part of the deal. Disney spent over $85B for the deal. Disney expects to operate their streaming service at a loss of $4.5-6B a year. This is on top of $2B for new content plus a side amount of nearly $600M in cash reserves just to compete with Netflix. Apple themselves have over $120B in debt.


As you said yourself, carrying debt isn't a bad thing. Especially when your stream competitors have 10x a much as you do. The Disney service won't have any R rated material. It's a completely family friendly service. This isn't optimal when you're trying to compete. I can't speak for other adults, but if I'm paying for a streaming service, which I do, I want to be able to watch movies with guns, cursing, explosions and maybe the occasional risque scene.

 

[Gasu E.]

Not gonna lie... AppleTV+ still sounds lame, but Disney+ sounds awesome.

Disney+ will be based on serving up interminable offerings in the Star Wars and Marvel universes, Pixar sequels, and the exclusive landing place for Disney theatricals. Sounds great for those who like to watch the same stuff over and over. Apple is following the HBO model of a relatively small number of big budget, prestige originals. I'm far more interested in the latter. I see myself signing up for Disney temporarily, now and again, but I'm really not interested in the C3PO origin movie, "X-Men: Graduation Day", or Cars VIII.

 

[ColdShadow]

You assume that Apple is launching ATV+ to compete with Disney+ or Netflix. I don’t think that’s the case at all. If anything, Amazon is their direct competition in this area.

That said, all it takes is one hit show to boost ATV+ future. I currently subscribe to CBS All Access for one show: Star Trek Discovery. I subscribe for 4 months during the season then unsubscribe. There’s absolutely nothing else on that app I’m interested in watching much less paying for. But CBSAA is developing exclusive shows for the platform, and some of them I’m interested in seeing, like Jordan Peele’s remake of Twighlight Zone. In the beginning, that’s all Apple needs. Netflix was ultimately built the same way, but that’s not to suggest that’s Apples end goal. In the meantime, they’ve made their app available on as many platforms as possible, so when that one show takes off, they can generate revenue from as many sources as possible. With any luck, the non-Apple customers who experience the popular show through Apples technology, will give other Apple products a try. Meanwhile, Apple customers may have an added value proposition with Apples original programming when they subscribe to ATV+ for other subscriptions. We just don’t know yet what Apples plans are.

 

[Carnegie]

Mr. Iger got the second lowest against percentage (1.2%), behind only Mr. Cook (0.9%), among Apple directors in the voting at the annual meeting in March. I expect that percentage will go up a little at the next annual meeting. But I don't think he necessarily needs to leave the Apple board.

 

[Naaaaak]

This whole thing reads like “He’s gone as soon as we have a replacement”.

 

[code-m]

Iger has a tough job monitoring both sides.

As CEO at Apple, he's in a perfect position, however he's gotta feel a bit guilty knowing the company he is working for is going "against" the tide.

Smoke and mirrors, most large tech companies are going with the subscription flow model and getting into streaming entertainment. Google did it awhile ago with YouTube+, it is only time till these companies announce something to diversify their markets to please shareholders.

 

[Moonlight]

Earnings are all that matter in business. It’s confirmation of a job well done and the reason business exists. Sorry for bringing you a dose of reality.

Exactly what else are CEOs measured by? Increasing shareholder value is their only job. I don’t care what their IQ is...if they make me money, they are a good CEO.

I see that you just want to be right, but you're not. The topic I was talking about was intelligence, not "short term job valuation" So, nice try changing my subject.

 

[Baymowe335]

I see that you just want to be right, but you're not. The topic I was talking about was intelligence, not "short term job valuation" So, nice try changing my subject.

You have no way of measuring their intelligence from afar other than how they've done with their companies.

Cook has done better, period.