What Does Success Look Like for Apple TV+? - 7investing 7investing
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What Does Success Look Like for Apple TV+?

Apple has spent billions of dollars on its streaming TV service but its goals for that product may not be the same as its rivals. For the technology giant, it’s not all about subscriber counts. In fact, it’s not entirely easy for people to judge whether Apple is on the right track with Apple TV+ or if the company has fallen behind its goals (partially because Apple does not share much information on its streaming service. Anirban Mahanti, however, knows what the company wants to achieve and he joins Dan Kline on “7investing Now” to explain what success looks like for the expensive, and relatively lightly-watched streaming service.

September 29, 2021

Apple has spent billions of dollars on its streaming TV service but its goals for that product may not be the same as its rivals. For the technology giant, it’s not all about subscriber counts. In fact, it’s not entirely easy for people to judge whether Apple is on the right track with Apple TV+ or if the company has fallen behind its goals (partially because Apple does not share much information on its streaming service. Anirban Mahanti, however, knows what the company wants to achieve and he joins Dan Kline on “7investing Now” to explain what success looks like for the expensive, and relatively lightly-watched streaming service.


Sam Bailey  0:14  Welcome to 7Investing Now, a show that teaches you how to take a long term view on investing by better understanding what’s happening in the market now.

Dan Kline  0:24 Good afternoon 7Investors and welcome to the Wednesday edition or should I say good morning? Should I say good evening, I don’t know where you are, you could be anywhere. And that’s kind of the theme of this show I interviewed Anirban Mahanti and we’re going to talk about what success means for Apple (NASDAQ: AAPL) television. My name, of course, is Daniel Brooks Kline. I am the host of the program. Sitting next to me today is our producer, director JT Street. And why is he here? Because we had the wrong video prepared for today’s show. So he is downloading the Anirban video.

We’re going to take your questions and comments on streaming services. Here’s what I would like to hear if you are watching along. It’s about a 22-minute interview actually, actually maybe longer than that, because JT gave me the time for the wrong interview. So I think this is a little bit longer than that.

JT Street  1:10  23 minute interview.

Dan Kline  1:11 23 minute interview. So while he’s downloading that, JT, I saw something this morning, that I wanted to point out at the end of the show, but to buy us a little time here. And while we’re doing this, I would love for you all to share what shows I should be watching on streaming. I am notoriously hard to please throw out your ideas. Just don’t tell me Ted Lasso. I get it. You all think it’s funny, there’s no chance I would think it was funny. You all loved Parks and Rec. I didn’t. I’m very persnickety when it comes to to comedy. Anirban and I are going to talk about that. But here’s one of my favorite things that happened today. So JT, are you familiar with Macy’s (NYSE: M), the legacy clothing brand, the legacy department store?

JT Street  1:50  My last experience with Macy’s was probably my mom dragging me to the women’s clothing section when I was four years old.

Dan Kline  1:59  JT as a child wore women’s clothes. That is because of course, I’m sure his mom was shopping. So I like Macy’s. I needed a suit a few years ago, Macy’s is a wonderful place to go in and get a suit, I needed a tailored same day, they handled all of that. But Macy’s, as you know, has been a struggling business. And I promise we’re gonna get to Apple and that interview with Anirban where we talk about everything there is to know about what the success metrics are for Apple TV plus that is downloading as we speak. So you’re watching the sausage get made.

But here is what Amazon (NASDAQ: AMZN) did to kind of kick Macy’s when they’re down, across from the signature Herald Square Macy’s location and a location that has been made famous in movie after movie used to be a Macy’s billboard for decades. You saw it in the Christmas parade that Thanksgiving, I don’t know, when their parades are. I’m not a fan of parades. But you would see it all the time. And Macy’s let that deal expire. They decided it no longer made sense to pay for that. And they believed they had exclusivity that another retailer could not come in and buy that.

Well, Amazon came along and said you know we should do? We should buy the billboard across from Macy’s. Now, does Amazon need to do this? Absolutely they don’t need to do this. But this is an absolute sort of we’re the big player, you’re the old person. And is this going to go to court? Absolutely. But I just think it’s like a prime example of a company knowing that it’s winning, and really saying, hey, wait, why are you walking into Macy’s when you could just go on your phone and get whatever you need at Amazon? This is a make-or-break holiday season for retailers like Macy’s. This is one of those companies that I would call sort of on the fence. They’re kind of 50% there 50% gone. And they have a pretty decent balance sheet. So if they make the right moves, I haven’t seen a lot of the right moves. I would argue the same thing with Kohl’s which is the other retailer in this space.

So again, we would love your questions and comments as we go along. We are going to be talking about what are the success metrics for Apple TV plus. This is a weird one because this all started because I was on Slack and I basically said, Hey Apple saying they only have 20 million paid subscribers. This is a disaster. They’ve spent $6 billion on content. Anirban pushed back as we often do in a friendly way and said hey, here is the situation. It’s not what you think it is. And with that I have vamped long enough JT Street we don’t know exactly what we’re going to get at the beginning of this video here there might be a few seconds of nonsense that doesn’t work quite so well. But if you want to play my interview with a Anirban Mahanti.I will see you all on the other side.

Joining me as I just mentioned is a Anirban Mahanti. Anirban before we start the show and talk about Apple TV plus I heard I saw this in the news is your lockdown ending Are you soon going to be able to freely walk the streets of Sydney Australia?

Anirban Mahanti  4:49  Without being worried about the army taking me in? Well, it looks like we are close to hitting the vaccination numbers that we need to hit which according to some report that has that the government is using allows freedom of some forms. I think October 11 is sort of the target date at which I think a lot of the economy would actually open. Right now like we can I can go to the park, and I can socialize with people at the park. My thing is that most things are closed. It’s like stuff is closed right now. So you can go to the park and meet people, which is better than not meeting anyone. But yeah, light seeing the end of the tunnel, so to speak.

Dan Kline  5:25  I, of course, am in Florida, I’m in the Orlando area at the moment, which is definitely I don’t say not locked down, but you’re still seeing like paper menus or QR codes and, and plastic barriers. And because of the tourist area, and optics matter. You’re not seeing a ton of that in other parts of the state. West Palm where I live maybe a little bit different. But let’s not spend too much time on this.

So we want to talk a little bit about Apple TV plus, and this came up in our private conversation because Apple recently told a union representing TV workers that fewer than 20 million subscribers in North America. Why does that matter? If you have fewer than 20 million subscribers, the rates you pay are lower. Now, that number is wonky, because Apple gives away like if you buy an Apple device you get what six months is that used to be year, I think it’s six months now. Well, I buy an Apple phone every year. So that’s like half my you know, and I probably buy a computer every two years. So there’s a lot of people that are not paid subscribers. Though I am a paid subscriber because I get Apple Music. And it was almost cheaper. Because I also get Apple publisher like the news one, I think it’s called Apple news. Once you have two, it actually makes sense to get almost all of them fitness is sort of the one that’s the outlier.

So those numbers don’t mean that much to me. They’ve also, Verizon gives you subscriptions, there’s a lot of different ways to not be counted. So if I’m a TV union, I’m probably a little bit mad. But that is not the story we’re gonna talk about today. So I look at Apple TV plus, and my first thought is, wow, this is a lot of money being spent like $6 billion a year. So like Tim Cook and meeet Jennifer Aniston and Oprah, like this doesn’t seem to me, like it’s a great play. Because until Ted Lasso hard to see a lot of hits here like like not, but you pointed out that that’s kind of not their goal. So what is Apple trying to do with Apple TV plus, and what am I missing here as an investor who does not directly own Apple, but has an awful lot of it in my 401k?

Anirban Mahanti  7:22  Yeah, so like I said, the number one thing I would point out is, unlike say, Netflix (NASDAQ: NFLX), which needs the streaming to be huge and big, and the subscriber numbers matter. for Apple, this is really a shining sideshow, right? Because what matters for Apple is its ecosystem. And as long as the ecosystem is kicking and alive, and people are buying iPhones, and the Apple watches and things like that this is all in the side. What I think matters for Apple from an apple, it needs to be a niche, a loved niche for its audience, right? And I think that’s their goal, and it will take them many iterations to get there. Right? And what by and as you said, numbers are wonky, because numbers I won’t keep because how do you what is a paid subscriber exactly as you said, is it is independent Apple TV plus subscriber? I would almost wager that like less than 5% of the total number that they say, who’s an independent Apple TV plus subscriber. Nobody’s going looking for Apple TV Plus, I understand that.

What I think is that it’s a little bit of a value add for someone like so I subscribe to Apple one. They give me a credit for one of the 4.99 or whatever equivalent it is in Aussie dollars into my account because you know, they still feel that Apple TV plus has hasn’t got the shows that it should have. So one of the things I want to point out is I think Apple TV plus is supposed to be niche focused on curated good content. That’s number one. And number two, is that I think they had a lineup of strong content which didn’t get produced largely because of the pandemic. So stuff basically got rolled back. And then you know, like headlines, so here’s the funny thing with TV, right? So this is person this is anecdotal, right. Ted Lasso gets Emmys and stuff like that. My wife and I tried to watch Ted Lasso one we, you know, watched one episode and kind of like, okay, it’s Oh, it’s okay, but not that funny. We watched another upset and then we stopped. Right?

Dan Kline  9:16  Yeah. I feel the same way. So as you know, in your mind, my brother is a British soccer executive. And so many people have said, and here’s the reality they’re all the same people who told me I would love Parks and Rec, and I didn’t love Parks and Rec. My bar for comedy is really really high. So like, the Simpsons and 30 Rock and maybe Brooklyn Nine Nine that’s kind of it in the last like 15 years so I know I’m the odds of me. Liking Ted Lasso are really small. So yes, please stop telling me but that is not of course the point.

Anirban Mahanti  9:49 But the example I was giving that so that I’ll tell you this, you know, so we watched Tehran, we loved it, you know, and we can’t wait for season two. I think it’s one of the best made spy thriller You know, you know, it’s about Iran and Israel and it’s beautifully made. We watched Defending Jacob, when we loved it. We loved Little America. And we were we thought that was fantastical. So there is a there is a group of there’s an audience for that niche content. In fact my go to is to actually find a we love Coda. And we’re watching Foundation now, in fact of the all the three subscriptions I have my go to is Apple TV, because it’s A it’s got a smaller catalog so it’s easier to find and B it’s got content that would likely appeal across, you know, age groups. And you know, the, the Netflix has a lot of adult content, which is hard to watch with your children and stuff like that.

So there’s I think it’s I think a play here is it’s a bundle play is what I want to number one point out. And the other thing I want to point out is, I think you think about it this way. There are a billion plus iPhones out there assume two to three iPhones per family. That works out to be about 300 million plus households. Those are the people that it wants to entertain with Apple TV plus. And it’s really just trying to make them feel like they’re getting extra something so that they can get Apple one or some bundle like you have right once you’ve got news plus, and fitness plus and Apple Music, well, it’s kind of no brainer that you just get the Apple one. And it’s the thing to offer. Last point I want to make is, there is something else to think about here is or a company like Apple, which produces 100 billion dollars of free cash flow. What does it do? Other than giving the money back? What does it do? Right? And that’s something to think about? I’ll pass it back to you.

Dan Kline  11:38  Let me ask the question, because some of that content appeals to me. I reread the Foundation books at the beginning of the pandemic, because, well, when I first read them, I was in high school. So that’s a really long time ago, I didn’t remember them all that well. So I’m excited about that show. And many of the shows you just listed our shows I would be watching were we not in a very heavy depressing pandemic. I I have to admit my go to right now is HBO Maxx. I’m watching Titans, which which is a superhero show, I and it’s a very adult, very well done that superhero show. But my tolerance for reality is not or sad, is not very high. So I can deal with like superheroes dying, not so much real life. But normally, I think I would probably really want to watch many of the shows you just mentioned, we’re just not living in normal right now. I’m more likely to like, rewatch old Simpsons or like turn on House Hunters than things I know I will like because just mentally you know, we’re immersed in the news all day. And sometimes that can be exhausting.

But let me ask the Amazon Prime question because I’ve pointed this out now, before everyone sends me angry notes. There are multiple shows on Amazon prime, I watch. I would argue that The Boys is one of my favorite shows in a very long time. There are other things that are really interesting. My wife has watched a few things, and they could cancel Amazon prime tomorrow, and Prime TV and I would have no change in my relationship with Amazon. It in my opinion does not add one subscriber. The Amazon hook is free shipping. For me, Apple, the hook is you know, it’s pretty awesome. My iPhone and the new one which is arriving in a month, which I’ve already ordered. Or I’m taping this on a four year old MacBook that’s still pretty awesome. And by the way, I bought two other Mac’s since then. So I am fully in the Apple camp. Right? Are they getting a I don’t know what Apple one cost me. But is it a 19.99 subscription instead of a 14.99? subscription if I was just getting, you know, news and music? It doesn’t seem to me worth the money. What am I missing with that?

Anirban Mahanti  13:37  Yeah, so I think a couple of things. One, I don’t think I’m missing anything. So I think we can I agree with you that on a standalone basis. This is what a two-year-old.

Dan Kline  13:48  It’s almost two years old. Exactly.

Anirban Mahanti  13:50  Yeah. So two years old venture where they hadn’t haven’t really acquired any IP. So you know, they basically tried to build the IPS like building a catalog from scratch, which is really hard. So I think you’re not missing anything. I think that the game here is basically iterate, iterate and iterate. This is Apple’s game. Apple is really a massive iterator of things. And it has I guess Apple looks at software hardware services as this you know, minimum viable product. So the minimum viable product is I need to have Foundation and this and that Ted Lasso so maybe morning, morning wars or whatever it is called. And then I’ve got a minimum viable product. And then from there I’ll iterate.

This is and it works for Apple because it is not dependent. This is it doesn’t it doesn’t live or die because of TV plus, right? So it can meticulously spend whatever 6 billion in a span, it’s not going to spend 20 billion it’s not going to go into debt because an apple never does right Apple will never kill itself over any one thing. It’s been it’s a very minor, it’s a miser, it’s a it’s a Scrooge when it comes to even spending on R&D, it’s very, very meticulous with it spending. So I think what they’re doing is iterating. They’re going to iterate over this A few times, right? And they’re gonna keep working at it. It’s like almost like what they did with Apple Music. It took them a while to get Apple Music going, right? But then Apple Music became an integral part of your experience with air pods or what I’ve got right now, right? It’s an integrated experience. Now with the spatial audio and Dolby Atmos. It’s an integrated experience. I think this is about also an integrated experience, and they’re gonna just iterate slowly, and they can afford to because they don’t have to show the numbers to anyone. Right. And that’s, I think, what they’re up to.

Dan Kline  15:31  Let me ask the sort of question nobody is asking. So if you look at I just mentioned watching Titans. Well, Titans is part of the HBO family, which also owns the Turner networks. And they’ve been airing some of the early seasons on TNT, or maybe it’s TBS, but one of those two channels. Historically in television, when a show doesn’t do that, well in the network, but limped its way to syndication, it does a lot better.

The Office is a great example that How I Met Your Mother is a great example. Shows that we’re doing okay, but then when they started getting replayed five nights a week became really, really big hits. Is it possible and I know this sounds crazy, given what we think of the cable world. But does Apple buy a cable network or I mean, I don’t think there is an actual network for sale. But like AMC would make a lot of sense for Apple, maybe some part of the Time Warner Discovery or like, frankly, I don’t think they’re going to sell off HBO. But like, boy, Apple owning HBO would make a lot more sense in this weird hybrid of things that that are going to muck up Discovery, which is like my favorite play of all of this, except now they own like CNN, like it just makes no sense. Like, is Apple on its way to sort of owning something fully traditional in the TV space?

Anirban Mahanti  16:45 I think so I think you’re onto something there. Because like what Amazon Prime is Amazon films, whatever it is called Amazon Studios is a current word MGM. Right. And that means it means they acquired the James Bond franchise, isn’t it?

Dan Kline  16:57  Sort of, and that’s a really like, so they, they acquire it, but they don’t really control. It’s a very complicated rights picture. It’s not as simple as like Disney bought Star Wars from George Lucas, like, right, they, they control it financially, not so much creatively. And I no one can explain this. But like, it’s been produced by the broccoli family of all things for like 40 years, and that doesn’t change.

Anirban Mahanti  17:22  So it doesn’t change, but they can change, that least they control the distribution. So at least it is if you want to stream it, it’s probably going to be on Amazon prime.

Dan Kline  17:30  And so as part of that deal, they end up with a bunch of like TV shows that you don’t think of as being big properties. And I don’t even remember what they are, I want to I want to say maybe Shark Tank is one of them. But they ended up with like a really interesting TV library. So it did feel to me a bit like like, wait a minute, like, why is Apple not finding better venues for this and ways to monetize? And, again, everyone wants to talk about cable dying. The reality is, cables gonna look different, and we’re gonna have like, 40% less channels, but there’s still gonna be a cable bundle, whether you’re getting it individually, or from YouTube, or from Sling or God forbid, from Fubu or Fubo, or whoever it is, they’re or your cable company. And so like, I don’t know who’s out there. But you think that’s not crazy. It could be Amazon buying Whole Foods like that type of.

Anirban Mahanti  18:23  I think so like, I think what’s gonna happen my, the way I picture this is between Apple TV plus, Amazon Prime, Netflix and Disney plus the other smaller ones are gonna get squeezed. I mean, really, that is the reality. And I think from a consumer point of view, too, that’s great, because if you have four or five of them that you need to only buy instead of buying like 15 of them to watch some show that you want to watch. I think that’s good for consumers.

I think it’s that’s what’s gonna happen. An Apple will buy Apple is I think, as I said, it’s very conscious of how much it’s going to pay. Remember, it paid what, 3 billion for Beats, because not only it gives them the beats hardware platform, it also gave them you know, the Beats one station, which became the foundation for Apple Music. So Apple is very cost aware, right? And at some point, they might decide, okay, we’re spending 6 billion is the number, right? That’s the number floating around. If they’re spending 6 billion, they might say, Okay, well, we can spend 10 or 15 billion and just buy, you know, talent plus and attack catalogs. I think that is definitely a possibility if they want to stay in the business of doing this, which I think they want to know that as part of Apple one, I think it’s going to happen.

Dan Kline  19:35 I would argue, and we’re going to talk about this a little bit later to sort of end the segment, that there’s going to be consolidation in this space because you can’t judge Apple. You can’t really judge Amazon prime. Those don’t use the same metrics. Netflix is a hit, Disney is a hit. Maybe by some metrics HBO is a hit because it has that legacy cable subscription. And Discovery plus was probably on its way to being a hit because it’s very inexpensive. Peacocks is giant failure. Paramount plus, I know people are gonna get mad at me for saying this is bad IP and nobody wants it. And they’re doing fine with Pluto and they have other venues and things. But there has to be consolidation in this space. What I have trouble seeing is what the actual deal would be because the reality is like CBS isn’t Paramount or whatever you want to call them, CBS Viacom, they’re not going to sell out the CBS network. They’re not even going to like sell you the CW necessarily, like because so but I agree.

Let’s start to close up here. Netflix has been really good. And I have a personal not investment here. But a friend of mine is one of the heads of this division at Netflix, not that he would necessarily know I was talking about this. But Netflix has done really well with interactive, they did the interactive Black Mirror episode. They’re clearly going to be out there when it comes to VR and AR and obviously, that’s an area where Facebook, were just sort of a niche player and TV has been investing. Do you think that’s something that Apple is planning? Because they’ve been very quiet about AR and VR products.

Anirban Mahanti  21:04  Yeah, so I think that so that’s the you know, I think that’s the play. If I had to guess I would say that’s the play. I think TV is fundamentally going to change dramatically over the next 10 years. But you know, there was there was this in, if you go 10 years back, I think there was this talk of Imax experience and happening at home, which provide a date, if you think of the big screens that we have now at home, right, you could have like a 90 inch 100 inch TV OLED, which you can look at from any different, you know, any number of angles, and it doesn’t fade and all those things, right?

But I think where it gets really interesting is interactive content, whether it’s with sports, or whether it is with interactive TV, whether it is how we view reality content. I think all of those things will change. We already as as you have just rightly noted, in terms of experimenting Netflix is well ahead of the game. They had they had a multiple ending I think it was a Clue or Clue was actually released in theater way back –

Dan Kline  21:58  Clue was in the 80s.

Anirban Mahanti  22:00  In the 80s. And and how does it do it? And model you know, depending on which theater you want watched it, you had a different ending that you could see.

Dan Kline  22:07  Yeah, and then towards the end of the run, you could go see it. And they showed all the endings. So yeah, we’re not set up for this. Whereas Netflix, very much you’re set up to Hey, I want to see the ending you give me that I want to see this ending.

Anirban Mahanti  22:23  Yeah, you live in this virtual world, right? So I think exactly that. I agree with you. And I think if the headsets happen, which I think will happen, then the headset should integrate with an Apple TV, which then integrates with your Apple TV plus, and I think they’re going to produce. And if you think about it shows like foundation or the stuff that Star Wars, those are ideal candidates for, you know, integrating gaming and watching and you know, role-playing and things like that. So I think those things are gonna happen.

And Apple is not going to want to miss that. But I would say here’s the thing. Personally, I don’t think Facebook has a shot at this. It can talk about meta metaverse, but it doesn’t have a shot because it doesn’t control the operating system. Right? If you don’t control the operating systems, then what do you produce? You can produce an Oculus hardware, but everybody’s used to Facebook as being a free thing from a consumer point of view. Right? So I think that’s the challenge. And I think you know, that’s why I think Netflix has a headset, as you’ve had to say Netflix, Roku, those people who control something in that layer, or stack of things. It’s not just the content, you have to control how the delivery happens delivery platform. And I guess, user experience.

Dan Kline  23:32  I think we’re a long way away on hardware. But let me ask you this sort of so we’re both old men like in this world in the real world. We’re not but you know, in our emerging technology, we both have children. And I know that my son and I don’t know if this is true of your daughter. My son watches the vast majority of his television on his phone to the point that there are some things we both like that I watched while he’s asleep because he gets up very early for school. So he’s asleep by nine o’clock, where he’ll be like, how can I watch that? And I’ll be like, it’s on the DVR like he’s looking for to YouTube and like kind of find it. I’m like, is this preemptive play by Apple where it knows that that the 20 somethings of today, as they get older, maybe they don’t have those 85-inch televisions like it maybe they do just like all sit around in a room by themselves. I think sports means you’re probably gonna have the big TV. But is that just going to become more common? Because I know, it’s not super uncommon for me to in a hotel room, if I don’t have a great TV to just watch TV on my phone because that is a better experience than when you have like a 42 inch television that you’re sitting like 10 feet away from in a hotel room.

Anirban Mahanti  24:44  I think yes, I think you’ve you’ve hit you hit a very important point. I think that’s actually people don’t realize that but that’s exactly how what happens right? So either I’m consuming it on my iPad, or my iPhone, because if I have to consume it on something else, I have to hit the remote. To find the channel, I have to go over some wonky something that is so difficult to use. Yeah, so I think this is this is another angle, right? I mean, if you integrate game playing with watching, then maybe your phone is the ideal screen, maybe phone with a headset is not you know is like the Nirvana for for that sort of environment. So yeah, I mean, here’s the thing. I think we know that something like this will happen.

And the best bet of who produces that hardware is Apple. Apple’s going to produce it, others are going to then copy it. I’m not going to say that Apple is the only one that is going to lead the charge. But almost like a lot of these things, either in the perfection of the hardware for mass market adoption happens when Apple basically brings it right and doesn’t have to be the first one so that you know others will come up with hardware but Apple will actually make the experience so good and others will figure it out how you do it.

Dan Kline  25:54  So is this just Apple investing to be ahead of the game so at the point they figure it out, they own the IP? Because like you and I are both excited about Foundation. There is zero possibility my son who likes Star Wars has ever heard of foundation. I’m not entirely sure how familiar he is even with Lord of the Rings, which is going to be a big Amazon show. I don’t know I feel like the world has changed from certain books being just like any smart kid reads those books my son’s not a reader.

But is this like establishing because obviously if you’re Amazon and you have The Boys, they just announced another show in that universe you can start to build out your Disney. I think Netflix has done a terrible job with that they don’t own really any marketable IP even though they’ve had some hit shows. Apple does seem to be building a excuse the pun foundation of shows that might become like theme park rides and like there’s a lot of money to be made in licensing and Netflix has really only been able to do that with Stranger Things.

Anirban Mahanti  26:52  Yeah, so Netflix recently, I think what did the Roald Dahl they have acquired that Friday?

Dan Kline  27:00 They did and there’s like, a little bit of that possibility there. You know, yeah, it’s it’s like sort of like, Well, you can’t get Dr. Seuss. Like, whats 17 rungs down the ladder? It’s fine. But I’m not sure how many more Charlie in the Chocolate Factory remakes can we have? Like, I’m sure some. But yeah, I wasn’t. There was no price on that, though. So we don’t know what they paid.

Anirban Mahanti  27:20  We don’t know what they paid. I’m with you. Like I’m in a lot of stuff that Netflix has spent money on. And we’re sort of we you know, going off track a bit here. But lots of the Netflix have spent money on it. You know, I you know that the Brad Pitt movies or the Adam Sandler movies that really be great quality content that apparently people watch because if they don’t watch, I don’t know, you know, Netflix has the viewer data, right? But it doesn’t add to that IP base in the real way that you’re talking about. What if Foundation does? I begin with you on that, you know, my wife and I are gonna watch Foundation because you know it, you know, it’s mesmerizing to us. My daughter watched first show maybe 35, 40 minutes, and then she walked away like what is this.

Dan Kline  27:59  Very difficult property to adapt. So again, I have a few things to get through before before I get to it. And yeah, the Adam Sandler movies are all about an algorithm. You pay him $20 million, he spends another 20 million making the movie. And it does X amount good. But it also does pile up. So it’s a bit like investing in comedy specials, where if you like Adam Sandler, well, you’re just perfectly happy to fall into that vortex where I think they’ve made a big mistake. And I actually think and I talked about this with Steve, on Monday’s show where I think the big investing pullback is going to be is why would you spend $200 million to make a James Bond-like movie, when I don’t know that the return on that is better than spending like $60 million on like, Jason Statham does a James Bond ish kind of thing with lower production value.

I think Disney’s gonna learn this lesson too, that some of your movies are not necessarily going to need to spend these huge bucks because the returns aren’t there. Like if you’re making a kid’s movie, they might still do really well in theaters, or people pay extra or they sign up for Disney plus. I’m not sure that like Shang Chi, which by most accounts is being reported as a success but based on past history is not financially a success, that that movie would have made a lot more sense at half the budget. So I don’t know, do you think we’re seeing sort of a reckoning where like, they might not be willing to just pay $200 million, just to say Will Smith was in their movie?

Anirban Mahanti  29:26  I think so. Like I think for the standalone folks. Right? I mean, the difficulty is that you have to you know, they’re basically taking debt, right? So I mean, in many ways, Netflix is like, we’ve talked about this before, right? Netflix is is basically like another cable company because it’s got debt right? Cable companies had debt, Netflix has debt, and content production companies have debt. So it is a there’s a question of, I’m valuing this as tech or are we valuing this as you know, as something in between and then the question is, of course, how do you measure return on investment, right? I mean, that’s the challenge, the return on investment is a huge challenge because there is no theater. There is no dollars directly flowing in, right? So how do you know if you produce a Will Smith movie that you actually got extra subscribers who, whose lifetime value is x because they’re going to be sticking around for these main number of years because they’ve watched Bright or whatever it was called, you know what I mean? Yeah, return investment calculations are hard.

Dan Kline  30:27  I think Disney, because the content is so focused kind of has that figured out and they know, and I brought this up, like in relation to the Scarlett Johansson lawsuit, what’s really difficult to figure out is not how much money people paid directly to watch it. It’s what percentage of people that vaguely went, hey, these movies will at some point be free on Disney Plus, I should get Disney plus. That’s tough to know. Because like, I did not spend extra for Black Widow. But I will absolutely watch Black Widow on the day it’s free on Disney plus. It helps justify my subscription. Now am I someone who would ever cancel? No, I’m not. I’m the target consumer. But for someone like my mother who got Disney plus, because she wanted to watch Hamilton and washed it 50 times canceled Disney plus, like that’s kind of the equation.

So let me ask one last question. As an Apple investor, as someone who and we’re both fans of the brand, and indirectly, I’m an investor, as well. Do you view this just like Amazon investing in infrastructure where this is just Apple has to sort of have all these irons in the fire? And if this turns out to not be the thing, because how we consume television or what we consider television changes, because I think that’s possible. My kid watches a lot of cats falling on a trees or whatever ridiculous content is on on YouTube. And then he also watches like historical documentaries of questionable origin. So it’s like, but is this just Apple sort of hedging its bets and saying, like, we may need to be in this space? And if we do where we’re there?

Anirban Mahanti  31:55  I think so. Dan, I think I think, again, you’re on the money there. I think that, you know, Apple is a big business, right? And there are not many ways in which it can return, it can generate return on investment. So it needs to think long term, it needs to think about the future. And it needs to have a lot of irons, you know, a lot of you know, a lot of things that it needs to be working on. And this is one of those things where as long as they’ve been disciplined, they seem to be very disciplined with their cash investments with the cash spending, right?

So, I mean, what do you do if you have a company generates 100 billion dollars of fresh cash flow, and is returning cash crazily back to its investors, it is in indirectly saying it doesn’t have that many ways of generating further returns from the cash it can generate? Because otherwise you’d be investing in growth is basically saying, well, look at these are things that we’re going to try and everything is a long term play for Apple. So I think it’s it’s one of those things where I would say that if you are Apple, and you didn’t do it, we would come back later and say, Well, why didn’t you try? Because you had all the things, you know, there’s no shortage of money. You can you know, if Tim Cook wants to get someone to work for them, just needs to pick up the phone and say, Hey, you know, can you do something for Apple TV? Plus, and I’m sure a lot people say yes to that.

Dan Kline  33:09  So yeah, and I actually think that’s, and we’re gonna close this up in a second. I actually think that’s the lesson they need to learn. Because if you give innovative filmmakers money, you get shows like Tehran. If you give people who are already acclaimed, blank checks, that’s when you get the Steven Spielberg movie, nobody wants to watch and I think that has traditionally been a problem with Netflix. I’ve talked a lot about, you can hire all these brilliant creators and give them no network notes. But here’s the reality. Most people need network notes.

And I’m not saying there aren’t amazing entrepreneurs that need very little. But if you let most people be creatively unchecked, you’re not necessarily going to get commercial projects. And I think some of the early Apple TV was very much built around the we really need to have Steven Spielberg and Oprah at the press conference. If you look at the history of investing in Oprah, that isn’t The Oprah Winfrey Show, and maybe WW, the former Weight Watchers, Oprah’s taken a lot of money from a lot of people and produce zero. Sirius XM would be a huge example, where Oprah did almost nothing and took hundreds of millions of dollars. So

Anirban Mahanti  34:21  I think I agree with you on that. Yeah. So you need to focus on finding creativity, right? And not necessarily honoring people who have got the creativity stamp on them and probably on a decline or have passed their peak, right. It’s like, you know, you want to find the next stranger Stranger Things, which is not going to come from the people who made the Stranger Things kind of thing. Right, which is  – Yeah, so I think that’s that’s very true. And they probably have to learn that.

Dan Kline  34:47  I mean, yes, and no, obviously, Netflix has done really well with the creative team behind Orange is the New Black which has led to a number of other shows for them, but you need to find people that are using new directors. That are taking the mid-level producer on one show and then building their idea and letting them run it rather than sort of the people who are just doing their own thing. But that is an entertainment lesson. We do not need to talk.

What we were going to talk about other streaming networks, but I think we’ll do that on another show because we’ve gone longer than expected. So the short run for investors here the takeaway is that the reality is for any other company, this is a lot of money. for Apple, this is just an itch that’s probably worth scratching. And it’s not that important if it pays off because what’s the worst-case scenario is it that Apple has a few hits that down the road, it sells to Time Warner? Like it’s not like right now if you were Apple, you said I don’t want to make any more Ted Lasso or any more the Morning Show. There’ll be bidding wars for those shows, they could be a television production studio that would be really successful. And frankly, they’re probably if you weren’t Apple, you wouldn’t be making some third-party licensing deals on these shows which they there is no reason for Apple to do because they don’t want to dilute their brand or send it anywhere else. So is there any piece of that I’m missing?

Anirban Mahanti  36:06  No, I think that’s right. And plus you know, every show that is not a fiction has Apple gadgets is a free advertising so why wouldn’t you do that?

Dan Kline  36:16  There was and I’ll close on this. Obviously on like reality TV that can be awful like you’re watching American Idol and they’re very blatantly drinking out of the coke cups or whatever. But you remember the period where it’s like now James Bond is driving a Toyota Corolla. Like he drives an Aston Martin like I think we’ve come back from the worst of that where that money is still being taken, but at least make sense within like the context of the film. I also feel like we do not do enough to disclose that I think that is a a real problem that should be very upfront in credits in you know, maybe even before a show being like Yep, like they don’t really love you know, the surface laptop at the NFL that is a paid for deal. And how many NFL announcers have called it an iPad when it is in fact the Microsoft Surface.

We’ve gotten way off track. Anirban enjoy your day, it is the evening here, my Uber Eats order knocked on the door during all this despite it saying in my notes, just leave at the door, I’m doing something. And I ordered it for between 815 and 830. It is 747 and five minutes ago, and you even get that pop up note. Hey, your orders early. Well that’s not how ordering things at a set time works. Like that is like you said a cab to pick you up at 530 in the morning. Go to the airport and they come at 430 in the morning and start calling you like where are you we’re early. That is not how it works. That is a rant for another day. I’m gonna throw it back to myself probably in the same location but in a slightly different position based on where the sunlight is tomorrow. Thank you Anirban.

Anirban Mahanti  37:53  Thank you.

Dan Kline  37:57  And it’s a very accurate prediction by me that I am in the same place in a different shirt. albeit the same shirt. But now with JT Street. JT. I want to take some of the comments we got. We learned during this show that Twitter has shuttered Periscope, which is how we first broadcast this and a lot of the comments made on Twitter don’t come through to the live show. That’s something we are going to work on but I want to take the binge comment from silver trap and then the last two that he made after that. One episode per week boring. I prefer binge-watching.

So here’s why I argue for one episode a week. If you want to show and it comes out one episode per week like say Mandalorian or the Marvel shows, they get an enormous amount of media coverage and if you’re someone who wants to binge-watch well here’s what you do. You don’t read that media coverage and you wait 10 weeks. It’s not that hard like I’m not caught up on television so it’s very rare that I can watch more than an episode a week of a show unless I really wait for it.

Like I mentioned Titans – I didn’t actually start watching the first two seasons of Titans until they renewed it for a third season because they closed the DC service and who knew if it was you know ever gonna happen again and I don’t watch shows that I don’t think are gonna get a resolution. So I think there’s really easy ways to solve that and there’s no way to solve Hey, we put out all of these episodes in one week. It gets 48 hours of media coverage. That’s Netflix shooting itself in the foot to serve a very small niche audience. That’s not a hill I want to die on people get really mad I’ve gone after Oprah and binge-watching on this show. So I’m guessing my Twitter is not going to be great.

But a silver trap says you did not share your Disney password with your mom? Come on Dan, actually. Perhaps I share many passwords with my mom. But that particular one she was very, very excited about.

So she went out and got it. There is a – she recently subscribed to Hulu because there was some stuff she wanted to watch. There might be some incidental services that she doesn’t use as often where I have shared the password. And silver trap finishes with asking what do you think about Roku? I will talk about this a little bit at the end of the program. I am very bullish on Roku, but I also think there are some things to be wary about. They’re an advertising-driven company. And I wonder if the Roku channel just like you’ve all heard me talk about Pluto. If people aren’t going to want to watch Webster reruns or Manimal reruns or the 17th News Network you’ve never heard of. There’s a lot of garbage on those channels, and not a lot of quality and it’s really hard to find whenever quality there is. Now look, if you really love Mash, you can find Mash. If you want to watch Manimal, it’s there. I’m just gonna list all the ridiculous old shows I can think of. I Married Dora, fully on all of those channels. JT, let’s take the comment from JD and then we will go to some of the comments we prepared earlier.

Do you think we see a time that instead of a CGI Mark Hamill that was creepy as much as I enjoyed it, I get paid for his likeness. We have a CGI movie star completely owned and created by Amazon, Apple, etc. I think it’s possible. But I think there’s a talent to acting. So even if that happens, is there still going to be like an Andy Serkis or somebody behind it? He played Gollum. So I don’t think you’re going to get this completely lab-generated creature. But I do think you might get like a new movie starring James Dean. Like that type of thing could happen.

JT if you want to share the couple of comments from Brock Briggs. And if you want to read them, that would be helpful as well, because I’m not sure sitting where I am, that I am going to be able to do that.

JT Street  41:32  Yeah, so Brock says about Apple TV Plus, the more base hits the higher total value and the harder to get out of the ecosystem. They know not everything they put out is great. But each little thing will appeal to someone streaming is a retention-based hit game. And with enough of those, you start to add the big points. They it’s the long game similar to Amazon. Apple has a core offering the hardware, having big hoards of cash allows the company to bolt on value and services small to large, maybe it’s Health app or at one show you like on all on Apple TV. These are all base hits.

Dan Kline  42:04  Yeah, I’ll say Anirban convinced me a little bit. Look, do I still think a lot of this is that Apple executives want to hang out with Jennifer Aniston? Like yeah, I do think that’s part of it. You know, every rock star wants to be a movie star. I’m guessing every rich television every rich tech executive wishes he was a rich television executive. So there is some of that. But I do see there’s a lot of positive buzz about say a Ted Lasso, which just to give you some perspective is roughly like the 18th watched most-watched show right now.

And I’m making that up. Like it’s really hard to find ratings data for these that’s actually a real number. So I do think there’s some benefit for this because a lot of people are talking about that. Probably more of your smart fin twit friends than the general public at large. But there is a perception among the people who are likely Apple customers that that show is a hit and they talk about that it’s on Apple, there’s some probably good to that and frankly, just being associated with Oprah or Ron Howard or Tom Hanks, who hasn’t been a viable movie star in 20 years, but having his name attached to a movie sorry but look at the box office record it’s much like Adam Sandler.

JT Street  43:13  It’s me. I’m one of the few of Tom Hanks bears out there so

Dan Kline  43:16  Yeah, same guy and every same guy in every movie now please.

JT Street  43:21  Exactly.

Dan Kline  43:22  Direct your hate mail to me @worstideas7. We have one more comment from another member of our operations team that is Scott Bates if you want to read that one JT.

JT Street  43:32  Scott Bates says I don’t think so. I’m in a house of girls and we’ve never gone all in on Disney plus Marvel Star Wars et cetera. They enjoy the movies but they’re not must watch Netflix is top for us and Apple plus has been pretty good all the services are probably closest to canceling Disney. Scott I gotta chime in here. I have a three year old daughter and Disney plus is by far my most watched. Like you just must not have princesses man because my kid is a mermaid princess unicorn. Doc McStuffins is like a an all the time. Like Disney is our jam. So I think that’s that’s by the kid.

Dan Kline  44:11  Little known fact that Kay Hanley from Letters to Cleo does the music on Doc McStuffins. One of my favorite 80s 90s alternative acts that one is for you on on chocolate blue who is also a big Letters to Cleo fan. But yeah, that being said, if you have young kids I don’t care if they’re princesses, why aren’t they watching cars? My son watch cars 800 times a DVD that was like a pseudo member of the family for a while. Cars 2, not as much but there is also 38 seasons of The Simpsons. I have yet to meet a 12-year-old who does not enjoy the Simpsons. So I think there is a point like we’re from like 12 to, I don’t know endless forever question mark or you would like the Simpsons.

But JT we are running out of time. I am running out of energy. I think that is I feel like I’m doing this show from the John Oliver void and that maybe the Arby’s guy will stop start talking over my shoulder that is actually also Archer, I believe is the voice who does that void. But if you want to hit our finisher we will wrap up and get out of here relatively quickly.

Which of these streaming players will see the highest returns over the next five years? 21.6% said Netflix, 56% said Roku, 10% said Curiosity Stream, 11% said another and share below and some of the ones that came up. It’s all the usual stuff. It’s NBC Peacock, it’s Paramount plus and here’s the reality. I left Disney out because Disney is such a big company. Same with Comcast, that as much as streaming is going to be like a third of the company it’s totally a third of the company. I actually think the answer is Netflix here. As much as I don’t particularly like the Netflix content. And I’ll speak to you know what Scott was saying earlier. In my house, my wife and son watch a lot of Netflix because Netflix has gone heavy on true crime and that’s a genre they like. It is not a genre I care about once the Marvel shows left Netflix for me, it’s just the occasional comedy special and I’m forgetting the name of the of the guy who used to be on Saturday live who has a sketch comedy show that’s really really good. But for the I think you should be going I think or something like that. Um, so I apologize for losing the name there.

But yeah, I think Roku is not a crazy bet. But winners tend to win and Netflix has momentum. Netflix has the archive. It’s almost like any person starting up their own household the way you used to get cable. I kind of feel like you’re probably gonna go get Netflix and it’s almost the same for Disney plus, but as big as Netflix is I think that’s the most leeway.

We didn’t do any promotion on this show. So if you were still watching and we appreciate it, if you are. If you’d like to subscribe to 7Investing our new picks come out on the first of the month. It is a bangin lineup. We’ve got stuff for people who like startups, we’ve got stuff for people who like established companies, we’ve got biotech ideas. We’ve got all sorts of stuff I never remember what they are. So I’m being a little broad and talking about them. It is 7Investing.com/subscribe if you use the code “Now” you will get $10 off your first month that is instead of it being $49 a month and JT correct my math here if I’m wrong, it’s only $39 a month. If you get our $399 annual subscription which is about a four-month saving anyways. It’s 389 so you could go out and buy I don’t know one cup of okay coffee and one cup of nice coffee at Starbucks and for that $10. That is 7Investing.com/subscribe.

This was a bit of an exciting show. It is very rare we start the show and don’t have the video process that’s going to be the body of the show.

JT Street  47:45  We have a video process.

Dan Kline  47:47  We have a video process that I promised you we are going to use with our friends from from Chitchat Money talking about Spotify, but that is not the show we promoted today. We were going to use that today as well, but Anirban and I ended up talking longer than we expected. If you would like to get in touch with us. We are info@7investing.com. That is our email address. That is usually Steve Symington. That’s questions about your memberships, questions about the service. Questions about our student membership $84 a year for students. Maybe they don’t have a.edu address but you have a student in your family. Questions about giving gift memberships questions about jeez I know Dan said this was on the site and I can’t find it. We are working really hard on that. Sam Bailey our marketing director is doing great work to make our site work better as is of course the entire rest of the team.

If you want to interact with us on social media. If you want to tell me how much I am wrong about Oprah or Ted Lasso or whatever that might be. You can tag us at our course our personal addresses but also at @7Investing. JT street thank you for doing this. I am exhausted. I am going to the pool there is going to be a pool and a hot tub. For those of you who don’t know I’m not at home. I’m in Orlando on the beautiful Bahama Bay Resort. I am going to go perhaps have an adult beverage and hang out by the pool because it has been a very long day. JT thank you for making this happen. Anirban Mahanti I hope you’re sleeping but thank you for recording this last night. The people at Uber Eats apologies I know it’s not your fault the delivery driver, but come on half an hour early. For JT street, for Anirban Mahanti, for our operations team, for Sam Bailey for whoever else might have helped on this show. I am Dan Kline. We will see you Friday.




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