Matt Belloni of Hollywood Reporter on the Entertainment Industry during the Covid-19 lockdown

Matthew Belloni of The Hollywood Reporter - Podcast Transcript

Scott:	Hey, it’s Scott Orn at Kruze Consulting and welcome to another awesome podcast. This one’s with Matt Belloni of Hollywood Reporter. He’s really funny. He also is really smart. He pointed out a ton of interesting stuff to me and I hope you enjoy it. Quick shout out to Rippling. Rippling we love for payroll, we love for benefits and we love for the IT infrastructure tool that allows you to provision new users so when you hire someone, they get up and running super-fast. It’s amazing. I just found out they actually do computer stuff too. They can actually procure computers for you. Rippling, their payroll and benefits solution is really great and the benefits allow you to work with the independent broker. We’re actually going through that process right now. It’s pretty nice. You can actually save a pretty good amount of money there. Check out Rippling. Rippling.com. And also, quick shout out to the Kruze financial modeling team. They are going crazy right now. Crazy in a good way. The COVID stuff has brought on a ton of demand for budget actuals, financial models, so they are working really hard. Great job team. And now let’s get to Matt Belloni of Hollywood Reporter. Thanks.
Singer:	So, when your troubles are mounting, in tax or accounting, you go to Kruze, from founders and friends. It’s Kruze Consulting. Founders and Friends with your host, Scotty Orn.
Scott:	All right, welcome to our guest, Matt Belloni, of Hollywood Reporter. Welcome Matt.
Matt:	Hi there.
Scott:	So, second time guest. You were a guest right when I started doing this.
Matt:	It was a different time. We were all so young and innocent.
Scott:	Exactly. That’s exactly true. I remember recording it on my mobile. I had a little mobile setup and we would, we sat in your office. So now we’re sophisticated and we got a lot better equipment.
Matt:	And the world has ended so I guess it gives us more to talk about.
Scott:	I know. Well, okay. Speaking of the world, the number one thing on my list of questions to ask you. So, by the way, can you give everyone the background, how you came to Hollywood Reporter, your resume, all that kind of stuff? Real fast.
Matt:	Well, sure. For the past 14 years, I have been an editor, writer, reporter, manager at the Hollywood Reporter, which is a weekly print magazine covering the entertainment industry as well as a 24/7 news website, audio platform, digital. We have TV shows, et cetera. And for the past three and a half, I’ve been the editorial director, which is the top editor position. I’m leaving that position on May 6th so whenever this posts, I may or may not still be in that job, but it has been a wild ride and we cover everything from the streaming wars to the newest TV shows, to the Cannes Film Festival, to everything Hollywood oriented.
Scott:	And I mean, I remember when he joined the Hollywood Reporter out of the law firm and it was a quiet, sleepy little brand I had never even really heard of. And now you guys are the number one web traffic for entertainment news, right?
Matt:	Yeah. I mean I was a lawyer as you mentioned. I was an entertainment lawyer before this. You and I of course know each other from college, but I went to law school at USC and then I Practiced entertainment law for about five years. And yeah, when I went to Hollywood Reporter, it was initially to cover the legal world and it was a really, really kind of traditional Hollywood small trade magazine. And one of the goals over the past 10 or so years was to grow it into an outlet that served both the entertainment community of insiders and also anyone who is passionate about entertainment in the world. And we’re now the market leader. We’re about 25 million unique a month and we play in a lot of different sandboxes.
Scott:	It’s crazy. You know where I read it now all the time is my little Apple News notifications. I actually read the Hollywood Reporter just as much as the New York Times now and I read it pretty much every day because I get an Apple News notification every day.
Matt:	Yeah, we’ve had a lot of success with Apple News. We were an early adopter there and when Apple News first launched, they were looking for domain experts in a variety of different fields and they wanted a couple of brands that could be representative tech, a couple that could be representative of healthcare, couple that could be representative of Hollywood. And we are a brand that covers a very specific industry in an accessible way with authority. So, they latched onto us and we latched onto them and we get a lot of our audience now from Apple News.
Scott:	Yeah, the authority is a good point because you guys always have an opinion. I feel like I’m almost going to entertainment school but it’s fun school because I learn how the industry works. I learn why this wasn’t successful or why that was successful. You guys have a good, authority is probably the right word, but always have a good strong opinion on something.
Matt:	Well, that’s the goal. I mean, the model is really to utilize this access to this core group of industry decision makers and to serve them with information that helps their business, but also to translate that access into a product that could be enjoyed and utilized by anyone.
Scott:	Yeah, you nailed it, man. I’m really proud of all your work. It’s been a great run. Okay.
Matt:	Well, thank you.
Scott:	First question, I’m putting you on the spot here a little bit. What did Bob Iger know and why can you tell me didn’t I sell my Disney stock when he’d become CEO?
Matt:	That has been the big question that a lot of people in Hollywood have been debating over the past couple of months. It was a very odd thing because this is a guy who’s been the CEO of the Walt Disney Company for 14 years, has had unprecedented success and his big thing is timing. He bought Pixar at the right time. He bought Marvel and turned a superhero franchise into a global juggernaut. He bought Lucasfilm and then started churning out Star Wars movies at an unbelievable pace and then he’s put off retiring three times and then all of a sudden on a Tuesday in February, we get this note that says, “Oh yeah, Bob Iger is stepping down immediately from CEO,” and, “Oh yeah, this guy who’s running the parks division that most people had not really speculated about,” there was another guy there that people thought was more likely to get it, “He’s now the CEO effective immediately.” So, then you start asking why did that happen? Obviously, the Coronavirus and the impact on Disney has been incredibly damaging to them, more so than other media companies. Obviously, everybody is impacted, but Disney, in addition to being in the movie and television business, they are in the theme park business in a big way. All of their theme parks are now shut down. They’re in the cruise line business. They’re in the resorts business. They not only are in the movie business, but they released the biggest movies and last year, they had a 40% market share of the theater business, theatrical movie going business, which is unheard of and just incredibly dominant. So, they’re hurting more than anyone else in the media world in this crisis. And around the time that Iger stepped down was just before the shit hit the fan, if I can swear on your podcast.
Scott:	You definitely can. But Disney also has a presence in China and the shit already hit the fan in China.
Matt:	Yes. And in fact, the Shanghai theme park had closed before Iger stepped down. And this is a guy who built his reputation and called in his book, the China theme park, the biggest achievement of his career. So, he has deep, deep ties with China. And at a time when the US government was downplaying this and bunch of people that are so called experts were saying it wasn’t going to be that big of a deal, Iger definitely knew better. And he knew that this was going to be a major, major thing for the company. Now did that cause him to step down so abruptly? Who knows? You’d have to ask him and I bet even if you asked him, he would say absolutely not. This has always been planned and even though people in the media and the observers of the company hadn’t identified this number to Bob Chapek as being the one to take over, he says that he and the board had decided a long time ago that this was going to be the case and it was just, the timing looks bad, but it’s not that is essentially what he’s saying.
Scott:	Well, I listened to his book and he had done a bunch of podcasts interviews because he was promoting a book. And so, I feel like I got to know him a little bit. I mean you can see why he’s successful. He’s obviously very smart and everything, but he’s so personable. So, I was like, “Oh, Bob Iger, he couldn’t have any ulterior motives for this. He must have wanted that.” This is me in the cheerleader voice, “He must have wanted that new parks guy to really get his feet wet and know how to do things and everything.” And then the kind of negative part of me is like CEOs are kind of measured in performance against the S&P 500 and so he didn’t want the Disney stock to go down to 80 which it did.
Matt:	Right. The cynical person said that for his own personal benefit or his legacy, he wanted to get out where he could say the stock was at X when you started and it’s at Y when I left. And that’s a really compelling narrative. The problem is that it got so bad for Disney that now his legacy is, oh, crap, he jumped ship right before it all went to hell. So much so that in the past couple of weeks there have been signs that he’s been kind of ramping up his management of the company. He moved into this weird role where he was called executive chairman and he said that he was going to focus on the content side of the business and seed a lot of the control to Bob Chapek. But then there was a New York Times piece a couple of weeks ago where he essentially said that he’s running the company and you could understand why. I’m sure the board is like, “What the hell man? You got to get back in here and steer this ship correct.”
Scott:	Yeah. And probably a huge amount of it, I mean his entire net worth probably is in that company too. So, he’s financially incentivized. It would be like if Kruze Consulting wasn’t working out, I would definitely need to get involved.
Matt:	Yeah, I mean there’s been a lot of speculation about what he was going to do next. At one point, he was going to run for president. He’s a big sports fan, so there was speculation as to whether he would want to own an NFL franchise or maybe even become a commissioner of one of the leagues. But at this point, it looks like he’s going to stick with Disney at least for the short term to figure out how they survive this.
Scott:	Yeah, I mean they definitely need him. That’s good he’s reengaging. That makes me feel a lot happier. Can you just promise me this, next time the CEO of a major media company that I own stock in retires abruptly, can you just call me and be like, “Hey, maybe you should sell that stock.”
Matt:	Sometimes I know about this stuff in advance. Sometimes I don’t. The big example is I knew that Les Moonves at CBS was going down the day before the news broke and we all were joking around the office that if we had shorted CBS, we may have been able to make a quick buck. But of course, that is unethical.
Scott:	Yeah, it was probably insider trading. I don’t want any insider trading. Just be like, “Hey, remember that CEO you really liked and he’s gone so you should sell.” Okay. I mean, yeah, God. I mean we just love Disney from a, we just love going to Disney and we watch Disney+ every night because we have a little baby, so it’s like, gosh.
Matt:	Well, that’s been the big bright spot at Disney is the streaming service. I mean, Reed Hastings at Netflix just said this yesterday, he said he’s never seen an incumbent company pivot to something so successfully as Disney did with Disney+. In five months of existence, that thing has 50 million subscribers.
Scott:	It’s crazy. It’s amazing.
Matt:	That’s bigger. I mean, Hulu doesn’t even have that and Hulu has been in existence for almost nine years now.
Scott:	So that’s a great segue into our next topic, which is what’s going to happen in the streaming wars because, so Netflix is number one. Disney+ is number two. My thesis, which you probably don’t agree with, is that there’s only really going to be room for two, maybe three. And I know this is, just let me get my argument out. I think a bunch of these conglomerates were going to spend a shitload of money to compete and they wanted to do it and they had every intention of doing it, but with COVID, they’re already getting their ass kicked and plus Netflix and Disney are accelerating, so the delta is getting bigger and so they’re not going to have the wherewithal, the commitment to spend five billion dollars or whatever it’s going to take to add all those customers to be legit. That is my straw man. What do you think?
Matt:	Okay. I see that point. I think your opinion is shared by a number of analysts that cover this industry, so I see it a little bit differently because I think there are nuances in what the streaming wars entail because there are different types of streaming services, there are different goals, there are different metrics for what is success and if you are talking about premium, ad-free streaming service, I believe that Netflix will continue to be the leader. Although there are some that say it’s spending itself into the poor house and Disney+ will always be able to compete because of the brands, because of the library, because of the IP and the brand loyalty. I think that Amazon’s streaming service, it’ll be there as long as Jeff Bezos wants it to be there and as long as he sees it as being an additive portion of the Prime experience, which they don’t produce numbers about that, but anecdotally, people at Amazon say that Bezos continues to be super into the Prime video product because of how much it drives Prime subscriptions.
Scott:	I forgot about Amazon in my crack analysis there by the way, because it’s actually right, I’m actually just randomly met so many people who, because they have Prime, they default to Amazon actually because it’s free. It’s basically free. And so, it’s a great value for people. So, I forgot about that.
Matt:	But it’s not free because all it does is it keeps you in the Amazon ecosystem and you may consider it to be free, but to Amazon, it’s incredibly valuable.
Scott:	Yeah, well it’s also critical [crosstalk 00:14:40].
Matt:	In that ecosystem, the more money they make.
Scott:	Yeah. It’s also incredibly expensive but they’re doing it because it’s the customer acquisition and the retention hook.
Matt:	They would not be spending a billion dollars to do a Lord Of The Rings TV show if they were not getting some return on that investment.
Scott:	I agree with you a hundred percent, yeah.
Matt:	Or maybe Bezos just likes going to the Oscars. I mean, who knows? He’s got enough money where that might just be you know enough to play with but I think that there is a real value proposition there. So those are the premium ad free services. Then you get into this whole second world which I think is underappreciated in the conversation but is going to be a bigger player going forward and that is the ad supported streaming services and that’s where you have the big one right now is Hulu, which has a premium tier and then has an ad supported tier. Then you have NBCUniversal launching their version with Peacock, which is going to be a Comcast oriented streaming service that you can either get for free if you’re a Comcast subscriber or you can pay a little extra and get it with ads or pay even more and get it without ads.
Scott:	Don’t forget my guys Tubi TV who are owned by Fox.
Matt:	No, Tubi TV just bought by Fox. That is their version of it. CBS has CBS All Access, which is now a premium subscription product, but most people think that it will have some kind of ad version as well. They may actually already have an ad version. I’m not sure about that.
Scott:	If I could put a little plug in for Kruze Consulting. We have been with Tubi TV for five years or six years and I’ve watched that company and I’ve known Farhad for 10 years. Watching him build that company. I have some amazing stories for you about other meetings he’s done, but I watched that company ramp. The ad supported streaming is just going to be humongous.
Matt:	Well, and Viacom also owns another one called Pluto TV, which they are positioning as a thing and when you say who’s going to win or lose the streaming wars, what we’re seeing right now is a great migration. The viewers are moving from cable and broadcast to a streaming on-demand environment. And so, when you say who’s going to win or lose, it’s not really. Everything digital is going to become the norm. And a lot of these traditional cable networks will either go away or be reinvented in a digital environment. So, for the media companies that own cable, what you’re seeing is they’re investing in streaming and whatever they can. Fox buying Tubi, Viacom, which owns all the MTV and VH1 networks, they’re buying Pluto and trying to launch that. HBO, which is owned by AT&T now, they are launching a product called HBO Max, which is a combination of HBO plus a whole bunch of other stuff. So, HBO right now is the most expensive streaming service. It costs about 14 bucks a month and what AT&T is doing is they’re saying, “Okay, you pay us 14 bucks a month for HBO.” There was a universe of people for whom that is a good value and HBO produces a certain type of show that appeals to a certain type of viewer. They’re now going to add on this HBO Max tier. They’re not going to charge people anything extra if you already subscribed to HBO.
Scott:	Oh, I didn’t know that. Wow.
Matt:	If you already subscribed to HBO, you can get HBO Max, but they believe that HBO Max will open up the universe of subscribers way beyond the people that just subscribe to HBO and the words of the head of programming there said HBO has sort of hit a wall. It is executed as well as you could possibly execute appealing to the demographic of people that like adult dramas and award-winning programming. They kill it, but they’re not doing as well when you compare them to Netflix that has garbage sitcoms that nobody wants to watch except everybody watches and crafts reality shows or documentaries like Tiger King that HBO probably would have passed on because it wasn’t the right quality. It just was super compelling. So, they’re launching all these programs on HBO Max that are going to try to broaden out what it means to be an HBO customer. And AT&T is betting billions and billions of dollars on this.
Scott:	But can they keep the price? I was surprised they were keeping the price point the same because doesn’t that or is that just the intro price kind of how Disney+ is eight bucks or whatever.
Matt:	Yeah, people speculate that a lot of these services will have to ultimately raise their prices and Netflix has raised their prices a little bit over the years. Disney is artificially low. They have said and at some point, may raise their prices, but right now, the stock market values subscriber acquisition, so they’re all judged on how many subscribers. Netflix yesterday announced 16 million new subscribers in the first quarter. And what that show is obviously it’s being inflated by the pandemic and everybody’s staying home and people that might not have subscribed to Netflix are now getting it because it’s the number one default streaming service, but they’re up to 183 million subscribers globally. That is just a huge advantage. So, everybody else is kind of chasing that.
Scott:	And my whole point was every dollar they spend on content, it gets amortized over 183 million people instead of 20 million people and so that’s why I feel like it’s going to be tough to catch up with them.
Matt:	But it’s not a zero-sum game. I mean, NBCUniversal can have a very solid streaming business if it keeps people in the Comcast universe, keeps them subscribed to Comcast services in a world where cord cutters are killing the cable business and they have an ad tier that can allow their ad salespeople to wean their customers off of cable dramas and into this new streaming environment and provide value for their advertisers across the different platforms.
Scott:	That’s a good point. So, one of my questions was going to be would Netflix ever do an ad supported thing, because it seems like in one hand there’s a ton of money, there’s a ton of ad revenue there to be had, but also their kind of implicit bargain with the consumer is that they’re not going to have ads. What do you see happening?
Matt:	They have said repeatedly that they are not interested in advertising and it’s sort of like how much money could Google charge for a homepage ad?
Scott:	Yeah. I guess that’s a great analogy actually. A billion dollars.
Matt:	Whatever they want. And if you could put an ad on the Netflix homepage, who wouldn’t do that? But they haven’t needed to, I guess, is the better answer.
Scott:	I think that’s what it is. Yeah, exactly. Even maybe when they have these bond and debt discussions with the Wall Street, they may say, “Hey, if it ever got really bad we just turn on some advertising and that’s another revenue stream they could pay you back.”
Matt:	I don’t think they would have that conversation publicly because they have made such a big deal about creating this ad free premium universe and so much of the value proposition for subscribing to Netflix is an on demand, ad free environment. And that’s what people pay for and that’s what people like about HBO. And that’s what they like about Hulu if they subscribed to the ad free tier. Hulu is an interesting one right now because for most of its existence it has been owned by a consortium of traditional studio conglomerates. But with Disney’s acquisition of Fox last year, they bought out NBCUniversal stake, took Fox’s stake and now Disney is the controlling shareholder of Hulu and they seem to indicate that what they’re going to do with Hulu is create a more adult oriented tier of streaming that they can bundle with ESPN Plus for sports, Disney+ for family content and create essentially their own little cable bundle for the streaming universe and that seems pretty smart to me.
Scott:	That seems super smart. And they’ve got all those ESPN contracts with the SEC and college basketball and Monday Night Football and all that kind of stuff too.
Matt:	But those are all coming up in 2021, 22 and 23, the entire sports rights universe is going to be realigned.
Scott:	Wow. And you think Amazon or someone like that will jump in there and buy one of those? It seems like a great way to, if Jeff Bezos likes the reach and the retention of Amazon Studios, it seems like adding the NFL that would be on steroids.
Matt:	It would, and there’s been a lot of debate about that. I happen to think that these properties like NFL and to a lesser extent, NBA, that they are more valuable to traditional broadcasters still than they would be to Netflix. I mean, think about it, we’re seeing a taste of it right now, but think about broadcast television without sports. What is CBS and NBC and Fox without sports? I mean, the Murdoch’s sold off all of their studio assets, kept Fox News and the Fox Broadcasting Company and Fox Sports. Why did they do that? Because they see the future of the Fox broadcast network to the extent it has one in live programming, sports and cheap reality shows, not this kind of premium scripted content that everybody is watching on Netflix. And without any takeaways, sports, you take away the NFL. I mean most people know this, but the top 50 highest performing broadcasts in every television season are almost exclusively NFL games.
Scott:	I know. It’s crazy. It’s so powerful. I know. And yeah, and also, I’ve heard the NFL likes the fact that it’s on broadcast, so it reaches the most people. It’s not seen as exclusive and things like that.
Matt:	Exactly. And they’ve been very smart about making their product as available as possible. They’ve toyed with doing different deals. They put a game on NFL network and they put a game here or there on other. They’ve tested the waters, but for the most part they go with the biggest platforms they can because they know that that’s the way they have become the most popular game.
Scott:	Yeah. It keeps the sport relevant for everybody.
Matt:	Right, and they don’t have them and there are so few games compared to other sports leagues that they don’t have a model like Major League Baseball where the money really comes out of the individual markets rather than the national television.
Scott:	Yeah. Next topic. I love talking about this, subscription versus advertising media companies. We’re kind of talking about this a little bit with Netflix and the free stuff, but I’m an incredibly small investor in The Athletic. I love The Athletic. I got a little bit of money in there just out of luck, but I read it every freaking day. I love The Athletic. It’s something I read multiple times a day, at night before I go to bed. I’m totally addicted. It’s an amazing value. What do you see as the future? Are there going to be more Athletics in different verticals like entertainment and I can’t think of anything. How do you see this unfolding?
Matt:	The short answer is yes, because of the collapse of the advertising market. Obviously, that is all been exacerbated by the COVID crisis where brands have just a hundred percent pulled back on advertising. But even before this, we were seeing the value of advertising just being sucked up by Facebook, Google and Amazon, that it’s really difficult for mainstream media companies appealing to a wide audience to survive on advertising. And the brands that have been successful in the past few years have been the brands that have successfully pivoted to a subscription model. New York Times is obviously the one that everyone talks about because they have more subscribers now than they ever have in the history of the New York Times, but majority of them are digital subscribers and they are getting people to pay for that product. The Journal is another good one. Upstart brands like The Athletic, The Information is another one [crosstalk 00:27:05]. A lot of these brands that are trying to appeal to niche audiences are also having success in the subscription market because if you have content that is so specialized, you can’t get it elsewhere, people will pay for that.
Scott:	Yeah. Do you think any of them will have hybrid ad subscriptions?
Matt:	Yeah. And some of them already do. I mean, if you look at The Times, advertising revenue is down for The Times, but it’s still a really big business. And some of these other ones, if you amass an audience of any scale, there is an advertising market for you and it may not be what it once was, but if you have scale, the programmatic ad market when it returns will provide revenue for you. And if you are in any particular niche, there are categories of advertisers that will find you.
Scott:	Yeah, it’s exciting because I feel like The Athletic, because there’s a subscription fee, they can just aggregate so many great writers.
Matt:	They’ve also spent a lot of money as you know as a shareholder.
Scott:	Yeah. And I don’t get to see their financials, but they’re like Netflix in that they’re over-delivering to me as a consumer. They’re amortizing that same amortization math I did with Netflix and how every dollar of content, Athletic’s like that too, for every dollar of content they’re advertising. That’s not entirely true because I think The Athletic is pretty interesting because they have the big national writers, which they’re amortizing that content costs over me and everybody else. But then the local markets are really just for local people and so it’s kind of fascinating. They’re such a hybrid. They’re not like a pure Netflix kind of model.
Matt:	But to be honest, we’re old enough to remember when newspapers were a thing, but we’re not too old where we think they were the end all be all. But if you remember back in the day, a good newspaper would have your local beat writers and then they would have the national voices that would chime in on bigger issue topics. And The Athletic is really just repeating that for a mass subscriber audience where they went in to all these newspapers that are struggling and they made a pitch to the writers and said, “Hey, you are valuable as an expert in this domain, whether it’s the Kansas City Chiefs or the San Francisco Giants or whatever. Come to this platform. You’ll bring your audience. You will get paid and you could be part of a product that has the scale to serve that national audience as well as the niche.”
Scott:	Yeah, that’s exactly it. I mean when I talked to him a long time ago, he referenced literally exactly how you said the Google, Facebook is sucking up all the ad dollars. So there just wasn’t enough ad dollars to pay the salaries of the local writers. The local newspapers couldn’t make it work anymore. And I think with COVID, it’s even way worse.
Matt:	It is. And they are spending a lot of money. A newspaper could not get the PE investment that something like The Athletic, because newspapers, most of their money is spent on pensions for people that don’t work there anymore. Not most, but a lot. They have a lot of legacy costs. Let’s just say that. And something like The Athletic, they are spending and I really hope they make it work in the long-term because they are spending a ton of money to amass this scale and right now with no sports, I bet they’re hurting, but I think they will come back when sports comes back.
Scott:	Yeah, I think so too. That’s fascinating. Well, okay, but one final topic. Spotify podcasts. They acquired Bill Simmons’s platform, which by the way, Bill Simmons is my Oprah. I listen to him like every week. The way my mom talks about Oprah, maybe not quite as glowingly, but I like Bill Simmons. I like the people he has on the podcast. I get a lot of entertainment news from him, so to me that was pretty smart, but what do you see happening there with Spotify?
Matt:	Well, first of all, Spotify has a ton of money and they have a problem in that anything they do in the music space is inherently tied to rights that they don’t own. And that’s the problem with all of these music distributors, Apple Music, Spotify, Pandora. The artists and the labels own the music, the content that they play. So, if you’re at your Spotify, you’re looking at the future, what do you want? You want content that you can own and control. So, you look in the space and say, “Okay, podcasts. That’s a thing. That’s a growing business. People seem to like them and the consumption is through the roof.” So, they look at the landscape, they’re like, “Okay, who are the biggest podcast generators and how can we be in business with them?” They bought Simmons for, I think, the reported price was 200 million, which good for bill Simmons.
Scott:	That seems crazy, but yeah.
Matt:	That seems a lot, but there’s only a few brands that matter in the podcast space. They bought a couple of scripted podcast producers that produce more narrative oriented podcasts and a little bit higher bar to entry podcasts. And they’re trying to leverage that into exclusives for Spotify and in the market, if you have podcasts that are curated by Bill Simmons and Apple Music and Pandora doesn’t have those, that’s a good value proposition for people. And ultimately, they are in the subscription business, so they’re trying to have things that others don’t.
Scott:	Yeah. Do you think that, I keep coming back to that, how much the content costs to make amortized over how many subscribers you have, right? But like you pointed out, they don’t own the content with music, right? So, Warner and, I don’t even know, EMI or whatever, you know the music labels better than I do, so owning the podcast and amortizing that production costs over their entire user base makes so much sense. But do you ever think they’ll get big enough to just turn the tables on the music labels and be like, “Hey guys, you’re either part of the Spotify network or you’re not?”
Matt:	Well, the problem there is that they’re competitors. I mean, when Spotify became big, it did so because it built a user interface that was better than the others. And it did innovative deals with the labels, with the labels actually owned a stake in Spotify. So, it incentivized the labels to make their artists available for exclusives and to promote the platform and because of antitrust reasons and others, the music labels themselves could not come up with a similar platform. So, it made sense for them to back something like Spotify that was already becoming big without them and just to become stakeholders. Now in the way that the market has developed, Apple is the biggest company in the world, so their music product, Apple Music is going to necessarily be the biggest product, is necessarily going to be a stiff competitor out there. And the labels are happy to play these services off of one another.
Scott:	That’s a good point.
Matt:	And YouTube is another one. The labels hated YouTube forever because they paid royalty rates that were much lower than some of these other subscription services and there are a variety of reasons for that, but it really made the labels disincentivized to participate and to promote and to do things with YouTube, whereas if you go to the Spotify holiday party, it’s fricking Lizzo, Billie Eilish, Camilla Cabello, all of these artists that, I mean it was better than the Grammys and it’s because all of these artists are so in bed with Spotify because of the audience they bring.
Scott:	Yeah, they need them. I forgot about Apple, because it seems like Spotify will have enough market power to do that, but Apple doesn’t really make money on Apple Music. So, they just be like, “Hey labels, we’ll do whatever you want,” and just eat Spotify as lunch. It’d be almost like Spotify calling a strike and not paying the labels or not meeting the prices they want. Apple would just be the strike breaker and just go in there and say, “Work with us.”
Matt:	Yeah. And think about that. I mean Spotify is in the customer service business too and they want to have good relationships, not only with their own customers but with the artists who in some way are their customers as well because they have to appeal to them. They are selling their product. They are a distributor. They are not making anything until now they are. Now they’re in the podcast business with exclusives.
Scott:	So, do you think they’ll start a label, like a quiet little label to just start developing artists so they own the music?
Matt:	Yeah, there have been efforts like that, and I’m not 100% expert in stuff that they’ve done, but they have made moves to go directly into business with the artists. And that is a lot of people think that that is the future where some of these services will do exclusive deals with certain artists to be the home of, maybe not all of their work, but certain exclusives or windows. Jay Z tried this with Tidal.
Scott:	Oh yeah, yeah, yeah. Is that still around or that close?
Matt:	I think it’s still around actually. And the whole proposition was that they were going to get access to certain huge artists’ music either 100% exclusively or for a certain time period. I think there was a Beyonce album that was only on Tidal for a long time. And that may work if you add such scale where you can get away with that, but if you did that, you would alienate a lot of people.
Scott:	Yeah, yeah, yeah. Half the market, at least, in Apple. That’s fascinating. I mean, you got to feel happy and excited that you’re been working in media during this so much change in the last 10 years. It’s crazy.
Matt:	It is. I mean, part of the change has involved a lot of traditional media outlets having real struggles, so it’s been painful to see that. And right now, during this whole pandemic, I mean the ad market has virtually dried up, so a lot of outlets are really, really struggling. But the upside of that is there’s a ton of opportunity and there’s a lot of disruptive forces that are going to, I think, realign a lot of the power players.
Scott:	Yeah. I love it. All right, buddy. Thanks for your time. Really appreciate it. And I learned about 20 things during this conversation.
Matt:	Oh, that’s good.
Scott:	You’re making me smarter.
Matt:	I hope I didn’t give you any fake news.
Scott:	No fake news. By the way, last time we talked, Trump was running for president and you had a great line about, you said something like, “We’ve dined out on Trump for a while,” and both of us laughed because they weren’t thinking that he would actually become president. And lo and behold, it’s amazing.
Matt:	Oh gosh. It would be hilarious if it weren’t also tragic.
Scott:	I love it. All right buddy, thanks so much. Appreciate it. Bye bye.
Singer:	So, when your troubles are mounting in tax or accounting, you go to Kruze, Founders and Friends. It’s Kruze Consulting, Founders and Friends with your host, Scotty Orn.

Matt Belloni of Hollywood Reporter on the Entertainment Industry during the Covid-19 lockdown

Explore podcasts from these experts