Tyler Cowen: preference

Transcript context

…It’s not a mistake, but it is a problem. I mean that because it’s not an active choice. I wrote a piece back in 2020 — this is actually when I last held Netflix stock; I missed most of the COVID run-up — called “Content, Cars, and Comparisons.” I was making this esoteric argument that accounting principles did a disservice. Why? Because we don’t have GAAP (Generally Accepted Account Principles) rules to really say how do you depreciate? What’s the useful life of content? And therefore, the average series, whether it was canceled 30 days after its premiere, whether it was outstanding, whether it was IP or not, is effectively amortized the same way. Yet, we all know that if HBO were to create a space opera, or Disney+ were to create a new spin-off space opera from Star Wars, or Netflix were to create a spin-off at the same budget, we could probably accurately guess different popularity, different relevance in the years to come. So, we had an industry problem, where all of the content spend was being capitalized equivalently. Yet the actual capital assets on a service-by-service basis as your team two were quite different. When you’re in a period of hypergrowth as we were, it’s easy to overlook that because humans love video. We were excited to have all of it, but over time we are seeing those returns start to play out. HBO would famously make the point that everyone should watch their library but no one did, but we know that Sopranos blew up last year. We know that the Sex in the Cities’ catalog blew up. We know that True Blood blew up. We’re starting to see that actual GAAP failure being proven out in new revenue growth. But to answer your question, yes, Deadwood you’ll love. Extraordinary. Now, if I think of the Cowen household, we subscribe to Disney, to Hulu, to Apple, HBO, other things. I can’t even name them all. I feel that can’t last forever. Maybe we subscribe to them all because it’s a pain to cancel them. Other households are willing to go through the pain of canceling to save some money, maybe more than we are. What does the equilibrium look like there? How many streaming services are there going to be? Is there a stable market equilibrium? Or is it like the airlines, where they always just keep on going bankrupt? Or how do you view the economics of that sector? Well, the economics are an interesting question. If you go from 2005 to 2015, let’s say the heyday of television financially, it was in the top decile of EBITDA margins nationally. The median was around 12 percent to 15 percent. TV’s EBITDA margin was 40 percent, 45 percent. What was beside it in that stack rank? Renewables, oil and gas, heavy fixed-cost businesses that had really, really high marginal costs, and therefore, EBITDA looks pretty good. That was never sustainable. There’s no good argument for why television was going to have margins 3X the median. We’re seeing that right now. It had them because there was almost a communitarian approach. Everyone fought together. You and I would compete in the time slot, Tyler, but you could never fail out, and we’d have different cascades of renewals with different providers at different times for different channels. It was a perfect system. When you’re talking about what the future looks like, it’s likely that those margins stay much, much lower. Most people are thinking 20 percent right now. But I want to stress that it’s easy to underestimate the TAM in video. There are 300 million Americans who watch video every day. The average American watches five and a half hours of television, streaming or otherwise, but excluding TikTok and YouTube. That is so, so much. We think about this — I subscribe to five services, but you really should be thinking my family watches 250 hours of TV a month.…

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