"Netflix used to be the only game in town and now all of a sudden it's the Olympics."
|Isabelle Roughol||Jan 2|
Who will die in the streaming wars? Are we done adulating unicorns? Will Big Tech get broken up? What’s going on in media and tech right now is as fascinating to me as Game of Thrones before the last season. At least one person agrees with me: Scott Galloway. He’s a professor at the NYU Stern School of Business, co-host of the Pivot podcast with Kara Swisher and generally outspoken observer of business. While working on #BigIdeas2020, I called him up and asked him to read the tea leaves on Netflix, Amazon, Facebook, Uber and friends. There was so much good stuff left on the cutting room floor, I thought I'd publish more. Here’s the best of our conversation, in Galloway’s words, edited and condensed.
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The streaming wars get bloody
“In 2020 there will be more money spent on original scripted television than was spent in the entire decade of the 1990s, or is spent on defense by Australia or Canada. On a cultural level, in 100 years, we'll look back on this age and the defining art form will be television. The tech companies, the deepest pockets in the world have decided the most enduring medium is television. The entire media industry is going to go through... I don't want to call it disruption, but just enormous change. The streaming wars are going to be incredibly interesting to watch.
There will be a large cohort of people that just find this value proposition is so compelling that they just spend more money on streaming video. But there will be players who just can't survive. There'll be tremendous pressure on companies that don't have a flywheel effect. The companies that will likely win here are the companies that will be able to take the loyalty their media creates and monetize it across high-margin action figures, park visits, paper towels, loyalty to Prime, or purchases of what is the most profitable product in history, the iPhone. It's going to be interesting what happens to pure players.”
Netflix used to be the only game in town and now all of a sudden it's the Olympics.
On Netflix: “It'll be a tough year in the US market for Netflix. But the good news for Netflix is they already own everybody. People tend to think of Netflix as the car and all the other ones as the accessories: “I'll do Hulu, that's leather seats, but I'm not giving up the car.”
They used to be the only game in town and now all of a sudden it's the Olympics. The most creative, well-resourced companies in the world are all in this business. It's hard to imagine that in the next 24 months, Netflix doesn't either acquire distribution – like a ProSieben in Germany or a Roku here in the US – or its market cap gets hurt because of competitive pressures and it gets acquired, by Google or something like that. Netflix is going to have to forward integrate into distribution. Amazon controls a lot of it through their own devices and through the Firestick, which now has 30% share of streaming devices versus 38% for Roku. Netflix and Disney don't have distribution, and they're the only two. So it's hard to imagine they won't try and figure out a way to control the end user experience.”
On Hulu: “I'm not sure Hulu survives in this world, I'm just not sure people are going to pay $8.99 a month for The Handmaid's Tale. It doesn't have the quality reputation of HBO, and it doesn't have the bulk of Netflix or Amazon Prime Video. So it probably becomes the dramatic sub-brand of Disney plus.”
On Peacock: “Peacock has the second or third best content. It has the second or third best distribution, but there's no such thing. There's first mover advantage, there's even second mover advantage where you kind of wait and observe. But there really isn't much of a last mover advantage, and that's where Peacock is right now. It's hard to imagine how they're going to do anything different that's that interesting.”
On Quibi: “Quibi feels like two rich people who watched a YouTube video once and then raised $1 billion to create short-form content.”
Uber is an incinerator. It has about 24 months to figure out another business that has promise of being profitable.
Unicorns falter and markets get a healthy dose of skepticism
“Whether it's WeWork or Slack, these companies are trading at such multiples, you'd assume they are going to be the next Facebook or Google. And in those unicorns [private startups valued at more than $1 billion] you do have one or two players that will have those types of returns, but the majority do not. The market's becoming discerning.
Consumer companies posing as tech SaaS companies have replaced profits and margin with vision and growth. You have this new class of companies, this subset of unicorns that I refer to as incinerators. Typically they have a charismatic founder, low gross margins, negative operating margins, massive top line growth fueled by cheap capital, and they are effectively incinerators with billions of dollars. They have almost no prospect of ever getting to operating margins.
Uber is an incinerator. Uber has about 24 months to take their capital and their brand, and figure out another business that has promise of being profitable. Otherwise, they're going to have to exit dozens of markets that are unprofitable and raise prices, which will make Uber a great company that is a fraction of the size it is now. And the stock will get cut another 60%.
The private markets are now the dumb ones. Typically it's the public markets that are the drunk ones and the private markets are the smart money and have lower valuations. Things have flipped. The mother of all this (is) SoftBank, and everybody's had to follow them. We're about to see the equivalent of a mini housing crash across a lot of private market valuations.”
Facebook, Google and Amazon should all be broken up. These companies have now become invasive species.
Big Tech regulation is urgent
“I think Facebook, Google and Amazon should all be broken up, and I think Apple's App Store should be regulated. These companies have now become invasive species that prematurely euthanize big companies that tend to be good employers and good taxpayers, and also perform infanticide on startups. If you listen to CNBC or read The Wall Street Journal, you'd believe we're living in an era of innovation. We're actually living in an era of non-innovation: twice as many startups were being formed during the Carter administration than are being formed today. And the reason why is the fastest growing parts of our economy – tech hardware, social media, search, e-commerce – are controlled by one or two companies.
Try to raise money for an e-commerce company. Go into Andreessen Horowitz and say, ‘I'm going to start a social media firm.’ Go into Kleiner Perkins and say, ‘I have an idea for a search engine.’ These are enormous businesses that every year grow by tens of billions of dollars. This should be a massive area of growth for startups. The only places getting funding are sectors that aren't controlled by a monopoly – things like AI, crypto, fintech or biotech. The sectors that have the largest dollar volume growth are controlled by one or two firms. We decided a long time ago that that's bad for the economy, and we have a proud legacy of breaking these guys up. We seem to have lost the script around that. Antitrust is almost always great for all parties – shareholders, employees, the tax base. It's only bad for one person and that's the CEO who's no longer reigning over all of Westeros, but just one of the realms.”