Ken Moraif  

Hello everyone, and welcome to the retirement planners of America podcast where we have more fun than a human being should be allowed to have when talking about all this boring financial stuff. And on this episode, we’ve entitled it market power, monopoly fears and the Warner Brothers battle. Because this is actually very significant when it comes to us as investors and what the future holds. And so we’re going to talk about that. But before we get going, let me introduce myself. I am Ken Moray. I’m the founder and CEO of retirement planners of America, and we’re a firm that specializes in retirement planning. So our focus, our bent in terms of everything that we do is, how does do these things impact someone who is retired or retiring soon and wanting to accomplish their goals and objectives? So I have two guests with me today. I have Jeromy and Jordan. Jeromy has a lot of passion, which is why I brought him in for this one. Because Jeromy has a lot of passion about where the where all this is going and what all this means, right? Because there’s some significant changes on the way because of all of this, right? And then, of course, Jordan’s going to tell us, you know, what it means in terms of concentration in the markets, and what that means for investing in our retirement planning. So we got a lot to talk about. So I hope this podcast finds you healthy, wealthy and wise, and so let’s set the stage before we get going. So first of all, right, now we got this 100 billion dollar bidding war. But again, this isn’t about the movie stars or red carpets. This is about market power monopoly and who controls the content of what Americans are going to be watching? So Jeromy, you have a lot of passion about this. What are your thoughts about it?

Jeremy Thornton  

Yeah, we’re talking about two juggernauts really, in the not just movie theater business, but entertainment business overall, millions and millions of views, between the both of them and Netflix is really there. I’m sure you know the Stranger Things, but they’re also known for the movie called parasites. We’re talking about K Pop demon hunters. That’s kind of a new one.

Ken Moraif  

That’s my favorite. Yeah, yeah, I do your

Jeremy Thornton  

squid game. We’re talking Wednesday, bridgerton. Really, really, big, heavy hitting. A lot of their stuff is original stuff, right? Yes. Warner Brothers kind of owns a lot of we’re talking like one of the oldest studios in Hollywood. So they have the rights to things like Batman, Superman, the whole DC Universe, Harry Potter, Lord of the Rings Game of Thrones, Barbie and a really big sub ownership of there is HBO Max, yeah, yeah. So two absolute huge players in the entertainment industry controlling essentially a lot of eyes that are on them, and I think that that really affects this possible deal, and it’s

Ken Moraif  

going to affect our experience as consumers of entertainment, also, because these are two giants are going to join together, and if they do, Netflix currently controls 30% of us streaming right now,

Jordan Roach  

they control my household

Ken Moraif  

and Warner’s Brothers is another 40 to 45% or 3015 to 15% so you put it together, and it could be a $300 billion valuation and control basically half Of all the content that Americans watch. So that creates some fears with regulators Jordan about what this means from a monopoly standpoint.

Jordan Roach  

Yeah, from a from pure antitrust monopoly issue, it is interesting. I mean, because even, you know, you go back to 2016 2018 you know, Warner Brothers has actually gotten kicked around, bought and sold and spun off several times in the last 20 years, but AT and T went after him in 2016, 18, and that got gummed up in the courts, I think, for a couple years before eventually it got approved. So I would imagine, you know, similar fears would be there, maybe even more so discount of how fast Netflix is growing.

Ken Moraif  

So lawmakers right now are pushing for antitrust hearings. The Department of Justice has recently just moved very aggressively against other media mergers, but this one seems to be the one that they’re particularly interested in. And so right now, we don’t know the outcome of this, but if they get involved, they could gum it up. Paramount wants them, they offered $20 billion more, right? And the shareholders, they’re probably licking their chops on, hey, 20 billion is not peanuts, no question.

Jordan Roach  

I think, I think, I think Paramount is now trying to find maybe an avenue to jump kind of up the totem pole a little bit from where they sit in the market, because they’re probably third player, I would say, you know, third or fourth in there, if you. Put Disney in there as well.

Ken Moraif  

Now there is a poison pill in all of this, and I don’t know if it’s a poison pill Netflix can afford this, but basically, if Netflix backs out, they have to pay Warner Brothers $5 billion that amazing, yeah? So if they, if they don’t do that, if paramount, does the deal, Netflix is going to pay Warner Brothers 5 billion.

Jordan Roach  

Yeah, and they don’t want to do that. We may be going this later, but you know, Netflix on cash on hand only has about 8 billion, so they’re going to probably go ask somebody for that money if they have to back away, which means they’re probably not. I think actually Warner’s brothers, if they back out, I think there’s a walkout fee from war brothers too. That’s a couple billion. But I might be wrong on that, but there’s a lot of dollars being tied up into getting something done.

Ken Moraif  

This is a crazy deal. It’s and it’s interesting that with all the mergers and everything else, this is the one that everybody is hanging their hat on, Department of Justice and all of that. But let’s go into the consumer. So what do you think, I mean right now you were, you were looking at what’s going on with movie theaters. This could be the end of movie theaters. Couldn’t it? Yes.

Jeremy Thornton  

So we’re talking a 30% revenue drop from 2019 to 2025 which is huge historic numbers we’re talking they we improve a little bit from 2024 to 2025 with box office sales, but we’re still lagging far behind the pre pandemic numbers right?

Ken Moraif  

The pandemic, when people stop going to theaters from from the pandemic, it’s like they never recovered from that.

Jeremy Thornton  

Yes, that’s exactly right. And so we’re talking the industry itself is a $16 billion industry as of 2025 and that includes not just ticket sales, but that’s the food concessions, all that kind of stuff in movie theater. So if we’re watching this trend line of movie theaters and studios being bought and sold and segregated and well, actually, it’s going to go to streaming. And Netflix is talking about possibly, you know, they do limited releases, things like that. Well, Warner Brothers has all these huge movie titles.

Ken Moraif  

They’re the biggest studio in the world, right? They Yes,

Jeremy Thornton  

they are. They’re one of the biggest ones. And if we’re talking about less movies coming out, that’s less movies coming to the movie theater, we’re talking tons and tons and tons of employment, especially entry level jobs, especially, yeah, that are basically

Ken Moraif  

the robots are going to take that away anyway, right? Yeah, you get your popcorn from a robot, absolutely.

Jeremy Thornton  

And so we’re talking like that’s a lot of jobs, and that’s, again, that’s $16 billion revenue wise, gross revenue for the US that I

Ken Moraif  

mean, the truth is the movie theaters need to earn our business. I agree. I don’t know when the LA I went and saw f1 yes, you know the

Jordan Roach  

last one I saw in theaters. Well, that’s it pretty

Ken Moraif  

good before that. What did he get? A little experience before that. What did

Jordan Roach  

you it might have been that Encanto movie was an animated Disney movie A couple years ago, my kids

Ken Moraif  

a couple years ago. I think we’re probably right. So you’ve gone twice in two years, right? Because it’s, I mean, when you’re at home, you can pause it, you can go to the bathroom, you can, you can absolutely right. I mean, it’s right there. You’re hungry, you can go get something. You can make your own popcorn. You don’t need to buy that $25 Yeah, right. You can just pop it in the microwave. You can, you have your kids, you’re all sitting around on the sofa, and when it’s done, you just go to bed. You have to drive back and forth. So maybe this, this is just a natural thing that’s happening, right? Transitioning us out of movie theaters, yeah, yeah.

Jeremy Thornton  

Everyone’s gonna, you know, and then the next transition is going to be at home, but everyone’s gonna have their VR goggles on. Everyone’s watching their own individual movies.

Ken Moraif  

The whole family’s gonna be sitting on a sofa watching different things, yes, things on their face, not talking to each other that, oh, my goodness, we really need that.

Jordan Roach  

Who owns the rights for Idiocracy? You seen that movie? Oh, absolutely. That is, that is what we’re destined.

Jeremy Thornton  

Yeah, 100% you know, in that movie they, they were trying to find futuristic, dumb looking shoes. They chose crocs. No one knew who crocs were. What do you see everyone wearing nowadays?

Ken Moraif  

And, you know, the other one? The other thing about the other thing about movie theaters is they’ve made the experience unpleasant, yes, because, you know, I remember, I like going to the theater, because I could get away from commercials, and then all of a sudden they started introducing literally, like, I think it’s like a half hour. It’s longer than it used to be a lot of commercials. It’s like, I’m sitting there watching stupid commercials, and that’s what I came to the theater. I want the theater experience, not the television experience. So they’ve actually contributed to their own demise by turning themselves into a television.

Jordan Roach  

Another thing Netflix got going for it, right? Just skip intro,

Jeremy Thornton  

yep, and then watch

Ken Moraif  

14 hours. So here’s another thing, what if? What if, instead of having a buyer and all that, because apparently, Warner Brothers is having financial difficulties, what if they just let Warner Brothers. Go bankrupt, and then whatever, you know, like the Batman thing, or the Harry Potter thing, whatever those things are, what if they let the new buy? People buy what they’re in love with. Because one of the big concerns people have is that, you know, Netflix doesn’t care about Batman. They’re buying the whole thing, and they may change it completely, you know. And, you know, go with whatever they think. But somebody who loves Batman, they say, You know what, I want to buy that. And I want to continue to a prequel to, you know, do, because I love Batman, so it might increase the quality of that. So maybe just letting Warner Brothers go under might be even just a better idea.

Jordan Roach  

Yeah, it’s really interesting, because you know, the thing where Netflix is trying to be, I think very deliberate, is their offer is for the streaming side, like HBO paramount, who’s trying to swoop in, and said, We’re going to buy the whole thing, including their traditional cable and distribution, which is the sad part of the business. I think they want to might let it die or spin it off. Yeah.

Ken Moraif  

And so, yeah, to me, you know, Jeromy, as you were saying this, this looks like just another step in the direction of movie theaters going away. Yeah, yeah.

Jeremy Thornton  

Every everything is pointing to that or changing movie theaters going away, or they would have to a radical change to how they do business, because this does not seem to be sustainable for the long term? Yeah.

Ken Moraif  

I mean, I’m trying to think how they would do that.

Jeremy Thornton  

Well, if you come with that, yeah, you can sell it

Ken Moraif  

to them. I mean, you’ve got these big screen TVs with surround sound that you can buy relatively inexpensively and enjoy it at home, right, without all the inconveniences of going to a theater. And, you know, we already talked about, so Jordan, let’s talk about, you know, from a from a stock market concentration. You know, what thoughts do you have on, on where that takes us?

Jordan Roach  

Well, you know, Netflix, currently, from a market cap, is a pretty big player, their top 20 holding in the s, p5, 100, right? We’re just pretty big, broad benchmark that US and many firms are going to benchmark to, and have a big holding there, you know, for for us, even though it’s a top 20 holding, broadly, you know, it’s still one of 500 Yeah. And the drop off and proportional risk is pretty quick once you get outside of the top 10 holdings, meaning it’s about, you know, one, it’s less than 1% of the market in and of itself, despite the fact that Netflix, in itself, is worth market cap wise, over 400 billion in the scope of things. The scope of things is, we’re talking a 1% holding. Now, I do think it’s interesting to think about like net if you know, for Netflix as a single stock within there not a subset of, how does it going to Domino and ripple in the market, which the market can soak up upside or downside of Netflix easily if you own Netflix. I do think there’s some interest interest there, because they’re probably going to be saddled with new debt when they already, relative their market cap. Kind of have a high debt structure. They’re experiencing some revenue drops. So I think, you know, I’ve watched Netflix stock this week. I mean, they big hit.

Ken Moraif  

It’s an interesting dynamic, but the acquirer takes, you know, presumably it’s a good thing, right? They’re, they’re buying this company because it’s going to help their profits, it’s going to help their revenue, or whatever it is. But yet their stock goes down. And the the company being acquired, which is now going to go away, yes, right? Yes, their stock goes through the roof, yes. And that seems to be happening here too. Can you explain that dynamic? Why does that thing happen? Well, I mean,

Jordan Roach  

essentially where this comes through. Because, yes, this is going on, you know, right now. But I would imagine by the time we get clear ideas of what the the end deal is, the parity won’t be as stark as it is right now, meaning company move up here and the wardrobe is, go down. Eventually, Warner Brothers, Warner Brothers will probably settle a little bit, because now it’s going to get discounted into the price of Netflix. But I think Netflix itself could continue to experience short term headwinds as everybody’s repricing. What does this mean for their growth mechanism, their revenue forecast to get it back on, maybe to where it was, 2012 through 2015 but now again, you have a big, big company that’s going to be saddled with new dad is eat up their current cash, and I would imagine the market might continue to pull down their stock price, yeah, as they work through this.

Ken Moraif  

I mean, to me, the theater experience has has been one that has been going downhill. And you know, if Netflix gets them, then they want you to be home streaming. They don’t want you to go to theaters. So, so it’ll just accelerate a trend that’s already in place, which I think, when’s the last time you went to movie theater?

Jeremy Thornton  

I think I saw How to Train Your Dragon, the live action. Oh my gosh. How many years ago? Not the original they did a live action remake of it. Oh, okay, yeah. So when was that? That was either really early this year. It was last year, okay? And before that did, I couldn’t tell you,

Ken Moraif  

yeah, I know. And I bet you everybody watching this is the same thing. When’s the last time you went to a movie theater? Yep, fragmented audience, yeah, is a real problem. It’s amazing how the decline. This is just going to accelerate it. So one of the things that it does tell us, though, Jordan is the importance of diversification. Sure, right? Because you never know when something’s going to happen. A company could go away. This deal could turn out badly. Yes, it doesn’t look like it, but it could. And so being diversified is always important,

Jordan Roach  

no question. I mean, if you take Netflix and you say, you know, I’m going to make a one sided bet on this deal happening or not, you’re really putting yourself on a ledge, if you’re just always all the way in on the communication sector as a whole, and media entertainment, again, there’s a lot of risk that one or two of those companies stub their toe, and that could mean significant problems. Now you can also win by that so so for us broadly, this is why, yes, we have exposure to Netflix and communication sector, but we broaden it out, because if these things happen, takeovers happens, if they break down, really, for us, day to day, we’re not going to feel the effects.

Ken Moraif  

Yeah, and that’s, you know, we always look at diversification as when something happens, you know, worst case scenario, we want it to be like a punch in the arm that really hurts and you have a bruise and not an arm amputation. Okay? So we don’t want to be like overexposed to anything. We want to be broadly diversified at all times and so and then, in addition to that, you know, our overlay of invest and protect, tell us a little bit about that.

Jordan Roach  

Yes, what allows us to do broadly is not be focused so much on individual companies, but be able to participate in the uptrend, as long as there is a broad participation uptrend in the in the market, the s, p as a whole, and it allows us not to guess when things are going to break down or not, and us just to have a firm line where we can take action if the market as a whole, not Netflix itself, is experiencing sort of headwinds that are causing the market To

Ken Moraif  

pull it down. Yeah, so, ladies and gentlemen, I’m just going to give you my hot take. I hope the Department of Justice is that who’s doing this, DOJ, I hope they just let them go bankrupt. And I hope that people who love the different franchises, like Harry Potter or Batman or whatever it is, let somebody who loves that buy that and run with it and really love on it. Because my feeling is that what’s going to happen is, is that, you know, Netflix is going to take it over, and it’s going to be, you remember the end of the first Raiders of the Lost Ark, where they got the Lost Ark, right? Yes, the box, yes. And at the end, they go into that big room with a million boxes, and they just turn and they put it in there. I’m concerned that that’s going to happen to a lot of the favorite things that people love and that have grown up with and are cultural to us, to our whole country. So ladies and gentlemen, I hope you enjoyed please. Actually, I’m going to say it. I hope you had more fun than a human being should be allowed to have when listening to all this boring financial stuff. I hope you enjoyed it as much as we enjoyed making it for you, and please like and subscribe. It helps us a lot, and we’ll talk soon.