Latest / Bloomberg Intelligence / Netflix, UK CPI, Bank Earnings, and Fox News

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Netflix, UK CPI, Bank Earnings, and Fox News · Bloomberg Intelligence

0:00
Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
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Speaker 1: my co host Matt Miller.
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Speaker 2: Every business day we bring you interviews from CEOs, market pros,
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Speaker 2: and Bloomberg experts, along with essential market moving news.
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Speaker 1: Find the Bloomberg Markets podcast called Apple Podcasts or wherever
0:17
Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.
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Speaker 1: We've had some earnings from the media space. Last night,
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Speaker 1: Netflix reported some numbers. The stock is down here today,
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Speaker 1: let's break it out and see what's going on in
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Speaker 1: the world of media. We do that with the Keitha Raganath,
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Speaker 1: and she is the senior Media analyst for Bloomberg Intelligence,
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Speaker 1: calling in from Princeton, New Jersey office, which is the
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Speaker 1: HQ of Bloomberg Intelligence. So Githa talk to us about
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Speaker 1: Netflix here. This is the story. They kind of missed numbers.
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Speaker 1: But this is a story that it's not so much
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Speaker 1: about subscribers anymore. It's about making money. How are they
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Speaker 1: doing on that they.
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Speaker 3: Are making money and it shouldn't be about subscribers anymore.
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Speaker 3: I mean, this is why they've kind of gone away from,
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Speaker 3: you know, giving subscriber guidance in the market. It has
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Speaker 3: kind of said, you know, we don't really want you
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Speaker 3: companies to be chasing subscriber growth at all costs. We
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Speaker 3: really want you to focus on making money. And I
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Speaker 3: think on that front, Netflix kind of delivered. They really
1:11
Speaker 3: delivered the goods when it came to margins, when it
1:14
Speaker 3: came to operating profits, and especially when it came to
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Speaker 3: free cash flow. So I think this reaction this morning
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Speaker 3: in Netflix is stock. It's almost like the market is
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Speaker 3: a little bipolar here.
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Speaker 2: What is the story with password sharing? Is this something
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Speaker 2: that they're actually going to be able to conquer or
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Speaker 2: and is it going to be additive to revenue in
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Speaker 2: the next quarter.
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Speaker 3: It is going to be additive to revenue, and I
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Speaker 3: think potentially you know, subscribers as well over the long term.
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Speaker 3: But again, this is going to cause a lot of
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Speaker 3: short term volatility because remember when you're forcing you know,
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Speaker 3: subscribers to kind of pay up for that extra member,
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Speaker 3: for that extra account, there is going to be some
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Speaker 3: initial resistance. There is going to be some you know,
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Speaker 3: initial backlash. And they've already kind of tested this out
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Speaker 3: in a few markets. Was the first area that they
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Speaker 3: kind of implemented this, and they did it in Canada
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Speaker 3: and a few other markets where you know, they kind
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Speaker 3: of saw the same trajectory, right, So they are going
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Speaker 3: to roll it out in the US, which by far
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Speaker 3: is their biggest market. Out of thee hundred global households
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Speaker 3: who are not paying for Netflix subscription, about thirty percent
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Speaker 3: are in the US, so they need to do it.
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Speaker 3: It's also their most profitable market, so they need to
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Speaker 3: do it carefully. But again, they do expect a lot
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Speaker 3: of volatility in the subscriber numbers, at least you know,
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Speaker 3: in the second quarter and the third quarter. So they
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Speaker 3: have said that, you know, expect the second half to
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Speaker 3: be definitely much better than the first half, and then
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Speaker 3: I think things definitely will settle down towards the end
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Speaker 3: of the year.
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Speaker 1: Keeth, what are they saying in terms of programming investments here?
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Speaker 1: If the focus is increasing profitability, is this something they
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Speaker 1: want to scale back, hold steady or continue to increase this?
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Speaker 1: I mean it's you know, you know, fifteen twenty billion
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Speaker 1: dollars or something of programming.
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Speaker 3: Oh. Absolutely, And so they had said that they were
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Speaker 3: going to hold programming expenses in like the seventeen billion
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Speaker 3: dollar zip codes from like twenty twenty two to through
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Speaker 3: twenty twenty four. What's happening this year is actually that
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Speaker 3: number has come down quite a bit, so they said,
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Speaker 3: you know about maybe sixteen closer to sixteen sixteen point
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Speaker 3: four billion four twenty twenty three, which is why we're
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Speaker 3: kind of seeing that uptick in free cash flow. They
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Speaker 3: raise their free cash flow guidance, but then they are
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Speaker 3: going to go back to the seventeen billion dollars next year.
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Speaker 3: And the way that they kind of framed this yes
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Speaker 3: last night during the call was that, you know, it's
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Speaker 3: not just going to be you know, TV shows, It's
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Speaker 3: not just going to be movies. It's just the broader
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Speaker 3: entertainment space. So think of you know, gaming going into
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Speaker 3: other genres, maybe even sports programming, who knows. So they're
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Speaker 3: kind of keeping all their options open at this point.
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Speaker 2: Yeah, sports programming has to be huge, right, I mean,
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Speaker 2: at least I know that all of the people in
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Speaker 2: this radio studio right now would probably take advantage of that.
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Speaker 2: But it also seems to be an expensive business. Isn't
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Speaker 2: that where you know Disney is losing all the money.
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Speaker 3: Yeah, it is a very very expensive business. Disney spends
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Speaker 3: over ten billion dollars every year in sports rights, and
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Speaker 3: that has been the huge problem for them and all
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Speaker 3: of these media companies. I mean, if you look at
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Speaker 3: the major media companies, they're spending upwards of about twenty
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Speaker 3: five to twenty six billion dollars every year on just
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Speaker 3: sports fees. And if we've looked at some of the
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Speaker 3: recent renewals, they've been up over fifty to seventy percent.
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Speaker 3: Has been kind of the average increase in some of
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Speaker 3: those you know, rights fees. So obviously this is very
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Speaker 3: very expensive. Netflix doesn't want to necessarily go into it
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Speaker 3: because I don't think they see a return on investment.
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Speaker 3: I think sports really makes sense for them if their
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Speaker 3: advertising business kind of takes off in a big way,
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Speaker 3: because you do need kind of a huge, live, captive
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Speaker 3: audience to support you know, viewership, to kind of support
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Speaker 3: that spend. So maybe it's down the line. I don't
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Speaker 3: I don't see them doing anything quite transformative. Yeah, just yet.
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Speaker 3: But again, never say never.
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Speaker 1: With with all the court cutting, Githa, I mean we've
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Speaker 1: been saying this for decades about the sports rights. They
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Speaker 1: can't keep going up at this rate, but they always do.
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Speaker 1: But with court cutting, you could make the argument that
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Speaker 1: but the business models just not there anymore. So do
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Speaker 1: you expect to see some of these big sports rights,
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Speaker 1: even like NFL, to go to where the money is
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Speaker 1: like a Google, like a Facebook, like an Amazon or
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Speaker 1: an Apple.
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Speaker 3: It already has partly hasn't at fall because you know,
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Speaker 3: Amazon has Thursday Night Football. We saw kind of YouTube
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Speaker 3: TV snag the Sunday ticket package, so it's kind of
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Speaker 3: going in, you know, trickling down bits and pieces. The
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Speaker 3: major packages though, are still on broadcast television and will
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Speaker 3: remain there till twenty thirty thirty two, so at least
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Speaker 3: for another decade. I think we have the TV rights
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Speaker 3: in place. That said, I mean, you know, we do
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Speaker 3: have some other big deals kind of coming up. The
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Speaker 3: NBA is one that's going to be up after twenty
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Speaker 3: twenty four. Again, there's a lot of, you know, speculation,
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Speaker 3: a lot of buzz about whether Disney is really going
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Speaker 3: to want to pay up for that or whether you know,
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Speaker 3: an Amazon or an Apple or somebody else kind of
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Speaker 3: swoops in. So it's still pretty you know, it's all
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Speaker 3: it's all fair game. But big tech definitely wants to make,
5:58
Speaker 3: you know, a big play for sports. There's no doubt
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Speaker 3: about that.
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Speaker 2: You've been covering this sector for years, KEITHA, But I
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Speaker 2: don't know how much content you actually consume. Are there
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Speaker 2: any shows, any good shows out there that you like?
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Speaker 3: I watch The Love Is Blind?
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Speaker 2: Oh my god, I said, good shows.
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Speaker 3: That's a great show. What are you talking about, pleasure, hey, Keith.
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Speaker 1: It just switching gears real quick. Fox Corporation settled with
6:25
Speaker 1: I guess for seven hundred and eighty seven million dollars.
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Speaker 1: They settled with dominion voting machines from Fox News. Stocks
6:31
Speaker 1: off two point eight percent to investors. Care the Fox
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Speaker 1: investors really care about that?
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Speaker 3: Not really. I mean at the end of the day,
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Speaker 3: they had four billion dollars in cash. You know, they
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Speaker 3: have this accelerated share repurchase program going and Fox News,
6:44
Speaker 3: I mean, I know why they did this. They kind of,
6:46
Speaker 3: I guess, wanted to, you know, prevent embarrassment for.
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Speaker 2: Embarrassing, for us to really know what goes on.
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Speaker 3: Behind for the murdocks and probably for some of their
6:55
Speaker 3: biggest anchors. At the end of the day, it's just
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Speaker 3: it's really just a blip. I mean, Fox News is
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Speaker 3: really the cash cow, It's the crown jewel of the
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Speaker 3: Fox empire. Shows off about two and a half three
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Speaker 3: billion dollars in even every year, it's seventy five percent
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Speaker 3: of the company's profits.
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Speaker 2: So it just shows you how much they care about Tucker,
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Speaker 2: Carls and hand Hannedy. Can you imagine, Paul, if you
7:16
Speaker 2: and I got sued and Bloomberg paid eight hundred million
7:21
Speaker 2: million dollars to I'm not sure I'd see that coming.
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Speaker 4: Wow.
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Speaker 1: All right, Keitha, thank you so much for joining us.
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Speaker 1: Keitha Raganath and she covers media for Bloomberg Intelligence.
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Speaker 5: You're listening to the team Ken's are Live program Bloomberg
7:34
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg dot com,
7:37
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7:40
Speaker 5: on demand wherever you get your podcasts.
7:44
Speaker 1: All right, let's get throw next. Let's talk ETFs. David Mann,
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Speaker 1: head of Global ETF Market and Capital Markets for Franklin
7:50
Speaker 1: Temilton Joints, is David. You know, I've been on Wall
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Speaker 1: Street since the mid eighties, and one of the greatest
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Speaker 1: and most interesting developments has been the growth of ETA.
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Speaker 1: It's just amazing the money that goes into exchange traded funds.
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Speaker 1: It's kind of the mutual fund of my youth. Where's
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Speaker 1: the money going these days? With this level of uncertainty
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Speaker 1: in the marketplace, where's the money in the ETF space
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Speaker 1: going these days?
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Speaker 2: Yeah?
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Speaker 6: Great, thanks for having me. I'm still processing the Chick
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Speaker 6: fil A comment, so yeah.
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Speaker 1: We're still eating, So don't worry about us.
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Speaker 4: Yeah, I mean we've seen a pretty broad amount of
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Speaker 4: inflos I think, for the for the industry, I mean,
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Speaker 4: more broadly speaking, you're right, every year seems to be
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Speaker 4: either another record or close to another record in terms
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Speaker 4: of the hundreds of billions. And even when things seem
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Speaker 4: slower from a markets perspective, we're still seeing inflows into
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Speaker 4: ETFs over one hundred billions so far. You know, when
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Speaker 4: when I sort of look at our lineup against the
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Speaker 4: broader context of the ETF industry, I see a pretty
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Speaker 4: steady flow into you know, market cap passive, those big
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Speaker 4: benchmarks are still seeing. But you know, you're also seeing
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Speaker 4: flows into active funds. Those are starting to get more
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Speaker 4: more more traction, especially in the back of the ETF rule.
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Speaker 4: And then somewhere in between. You know, we've called it
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Speaker 4: rules base, we've called it smart beta, but you know,
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Speaker 4: the the the index structure with some different rules than
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Speaker 4: market cap weighted also seemed to be gathering assets. So
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Speaker 4: I think the systematic bigger take yes, systematic exactly. So
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Speaker 4: I think the bigger takeaway is I think now that
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Speaker 4: investors are just very comfortable with the ETF rapper, there's
9:30
Speaker 4: now more conversations about, hey, I can get lots of
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Speaker 4: different exposures within that vehicle, so let's have a conversation.
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Speaker 2: So specifically, I mean, yeah, active is huge, and that's
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Speaker 2: what we talk about all the time on the E
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Speaker 2: T f IQ show. But we had seen a ton
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Speaker 2: of inflows to ultra short treasury ETFs and outside of
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Speaker 2: ETFs into money markets as well. Has that calmed down
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Speaker 2: or reversed a little bit? I mean, that was all
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Speaker 2: due to the banking I don't want to say crisis.
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Speaker 2: What were you saying, uhoil turmoil, banking turmoil. Has that
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Speaker 2: turned around to a point where we can say that's
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Speaker 2: in the rear view mirror?
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Speaker 6: I think, I think a little bit in the rear
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Speaker 6: view mirror.
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Speaker 4: I mean when the when the I guess if turmoil
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Speaker 4: is the term, when the turmoil, UH banking turmoil hit.
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Speaker 4: You know, a lot of the questions we were getting
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Speaker 4: here in Franklin was sort of, Hey, tell us about
10:25
Speaker 4: our exposure to these you know, Silicon Valley Bank or
10:28
Speaker 4: or First Republic, et cetera.
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Speaker 6: And uh, you.
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Speaker 4: Know specifically, Hey, how much of the weights are those stocks.
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Speaker 6: In these in these indices?
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Speaker 4: And you know, back to my uh, you know, sort
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Speaker 4: of my market cab versus uh, systematical rules bases. You know,
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Speaker 4: a lot of a lot of the a lot of
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Speaker 4: US equities have didn't hold those names for a variety
10:49
Speaker 4: of screening reasons, you know, when when whether factor methodologies
10:52
Speaker 4: or or other types of you know, income or other screens.
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Speaker 4: So those are the questions we were getting. But yeah,
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Speaker 4: I think I think you you you touched on a
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Speaker 4: broader point, which is, if ETFs are tactical vehicles, and
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Speaker 4: whether it's an opinion on what the tech sector will
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Speaker 4: do or the US equity market's going to do or
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Speaker 4: where rates are going to go, there's going to be
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Speaker 4: a vehicle that will give you that option and then
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Speaker 4: you and then the flows usually bear.
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Speaker 7: That out for sure.
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Speaker 2: I mean we're talking about yeah, ten trillion dollars worth
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Speaker 2: of assets globally and growing as you as you pointed out,
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Speaker 2: at a tremendous clip by the way, you come to
11:33
Speaker 2: Franklin Templeton from one of the you know, ETF doopolies.
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Speaker 2: How do you see that structure? Is it a problem
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Speaker 2: that you know, Vanguard and Blackrock and State Street as well,
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Speaker 2: you know, kind of dominate this market. Is it changing?
11:51
Speaker 2: Is there a point when we're going to see more
11:56
Speaker 2: uh more players with a with a bigger role.
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Speaker 6: So a couple thoughts come to mind. The first, the
12:07
Speaker 6: first conversation, which.
12:09
Speaker 4: Is maybe not even specific to the names of the
12:13
Speaker 4: of those of those issuers, but there's just a general
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Speaker 4: A lot of investors use counting stats when keeping scores,
12:23
Speaker 4: and what that ends up meaning is big funds tend
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Speaker 4: to get bigger.
12:27
Speaker 6: And so you know comment one and I and I.
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Speaker 4: Don't know if this is going to be ever explicit
12:32
Speaker 4: regulations changing or different mindset, but you know, I can
12:38
Speaker 4: tell you that we have conversations where the only reason
12:40
Speaker 4: that an investor is not using is because they have
12:43
Speaker 4: some percent ownership limit on the size of the fund
12:45
Speaker 4: and they would love to use ours, except they want
12:48
Speaker 4: to do X, and X would be too big given
12:50
Speaker 4: the size of the fund. So I think that's you know,
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Speaker 4: from account markets lens, we will always have the uh,
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Speaker 4: you know, the liquidity conversation, but certainly I think investors
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Speaker 4: get that.
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Speaker 6: I think investors like having options.
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Speaker 1: Uh.
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Speaker 4: You know, if I look at our inflows to year,
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Speaker 4: we're batting above our you know, percent of assets.
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Speaker 6: Of the total PI.
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Speaker 4: So I think we just you know, keep highlighting our
13:15
Speaker 4: our our lineup, but the you know, the the the
13:19
Speaker 4: size as a way to keep score is sometimes challenging.
13:23
Speaker 2: All right, so let's talk about your lineup. What do
13:24
Speaker 2: you have to offer investors?
13:27
Speaker 6: Sures.
13:28
Speaker 8: Yeah.
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Speaker 4: So so you know, as I touched on at the
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Speaker 4: very beginning, uh, you know, we have passive funds, we
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Speaker 4: have the smart data funds, we have active funds.
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Speaker 6: I'll start actually in the middle of this year, I
13:39
Speaker 6: would say there.
13:39
Speaker 4: The the rules based approaches have been quite popular.
13:46
Speaker 6: Our low vall high div uh duo.
13:49
Speaker 4: That's LVHD and l v H I uh your to
13:52
Speaker 4: day they've combined for over three hundred million. Those are
13:55
Speaker 4: low vall high div strategies, you know, in the income space.
14:00
Speaker 4: Because that's something that we we've heard over and over again,
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Speaker 4: we launched a core dividend suite which you know call
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Speaker 4: it you know, aware of the benchmarks, but with a
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Speaker 4: tilt towards income. And you know, given this particular market
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Speaker 4: cycle where growth stocks and tech stocks have really shown
14:23
Speaker 4: a lot of dividend strategies have really been underperforming, and
14:26
Speaker 4: ours have been, you know, because of that awareness to
14:29
Speaker 4: the benchmark.
14:30
Speaker 6: Those have been doing great.
14:31
Speaker 4: So that ticker is U d I v I Divvy
14:34
Speaker 4: for our international core dividend suite. And you know, lastly,
14:39
Speaker 4: you know, we launched a whole suite of single country
14:42
Speaker 4: passive ETFs benchmark to footsie. Those are meant to be
14:48
Speaker 4: very very low cost options to get exposure to UH
14:54
Speaker 4: South Korea, to UK, to Japan, et cetera. And and
14:58
Speaker 4: those have been really doing great. I mean, a lot
15:00
Speaker 4: of international markets are really strong so far this year,
15:02
Speaker 4: and so for investors to be able to get that
15:05
Speaker 4: specific exposure to a single country at a very low,
15:09
Speaker 4: little cost point has been great. So tickers like FLKR,
15:13
Speaker 4: fl jp FLTWFC close to one hundred million or more
15:16
Speaker 4: of inflows this year.
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Speaker 1: David, one of the areas that's been fascinating to me
15:20
Speaker 1: is mutual funds converting to ETFs. Could you just give
15:24
Speaker 1: us your commentary on that part of the market.
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Speaker 4: Yeah, sure, I mean the the you know Franklin we
15:33
Speaker 4: converted to towards the end of last year. That was
15:36
Speaker 4: a a Brandywine Dynamic Value d v A L and
15:42
Speaker 4: Martin Curry mc s E are those two tickers. And yeah,
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Speaker 4: I mean we have obviously hundreds of billions trillions of
15:51
Speaker 4: dollars of active mutual funds. We're looking to see what
15:54
Speaker 4: makes the most sense to move into an ETF vehicle.
15:57
Speaker 4: A lot will depend on the track record, the size,
16:00
Speaker 4: does it fit nicely into the ETF vehicle in terms
16:03
Speaker 4: of transparency and and those are conversations we're we're repeatedly
16:08
Speaker 4: having we scheduled one more for.
16:11
Speaker 6: Later this year.
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Speaker 4: That's that's been filed and and we'll continue to explore
16:16
Speaker 4: where it makes sense.
16:18
Speaker 2: In terms of the best returns. I see, Uh, there
16:25
Speaker 2: are funds here that have just uh gotten into this
16:29
Speaker 2: sort of tech innovation side. Is that a blip you
16:33
Speaker 2: think of Q one or will that continue?
16:39
Speaker 5: Yeah?
16:40
Speaker 4: I wish I wish I had that type of foresight
16:43
Speaker 4: to know which which are going to be the the
16:45
Speaker 4: highest performers or what's not. You know, it's funny, I
16:48
Speaker 4: was actually reviewing our league table and I think the uh,
16:52
Speaker 4: you know, uh Intelligent Machines, which was one of our
16:55
Speaker 4: active factor funds, was right around twenty percent, but so
16:59
Speaker 4: was single country Mexico and single country France.
17:03
Speaker 6: So I wish I knew which way that was going
17:07
Speaker 6: to go, But I mean for the tech sentor.
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Speaker 1: All right, David, thank you so much for taking the
17:14
Speaker 1: time and joining us. David Mann, head of Global ETF
17:16
Speaker 1: Market and Capital Markets for Franklin Templeton.
17:20
Speaker 5: You're listening to the tape cans Are Live program Bloomberg
17:23
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17:30
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17:39
Speaker 1: We've got central banks around the world raising rates. It's
17:43
Speaker 1: not just the Foot of Reserve, folks, it's a Bank
17:45
Speaker 1: of England, It's the European Central Bank. And a lot
17:47
Speaker 1: of folks are concerned about what that means for economic
17:50
Speaker 1: growth going forward, for the manger of this year going
17:52
Speaker 1: into next year. So let's check in with a professional
17:54
Speaker 1: who does this stuff for living, Doctor Vanie Estrava Keva
17:58
Speaker 1: professor of economics at the London Business School. Thank you
18:02
Speaker 1: so much for joining us, professor here, give us a
18:05
Speaker 1: sense of how the economy is. Lets let's start right
18:08
Speaker 1: in your backyard there in the UK. How is the
18:11
Speaker 1: economy in the UK? What's the outlook?
18:15
Speaker 8: So thank you very much for having me. So we
18:17
Speaker 8: just got the latest numbers for inflation and it appears the
18:20
Speaker 8: demand is quite strong still in the UK, which creates
18:24
Speaker 8: a headache for the central bank. In any ways, it's
18:26
Speaker 8: important to put the recent numbers in context, and there
18:30
Speaker 8: are two major differences between the current and previous tightening
18:33
Speaker 8: cycles in the UK. So the first one is that
18:37
Speaker 8: even after tightening, it's important to notice that real interest
18:40
Speaker 8: rates are still negative in the UK and in other countries.
18:45
Speaker 8: So if we, for example, you realize rather and expected
18:48
Speaker 8: inflation to measure the real rate, we have a negative
18:51
Speaker 8: real rate close to minus six percent. That is a
18:54
Speaker 8: very negative number. So this is if we use the
18:56
Speaker 8: CPI index. So we have something called the tailor rule,
18:59
Speaker 8: which is our standard optimal multi policy rule that tells
19:02
Speaker 8: us what should be the optimal policy rate. And at
19:05
Speaker 8: the moment, it's telling us that for the UK we
19:07
Speaker 8: need to be ten percent while we are at four
19:09
Speaker 8: point to five percent, and that is if I use
19:11
Speaker 8: the core CPI inflation rather than the actual CPI inflation.
19:15
Speaker 8: Of course, you know, some have proposed justifications as to
19:19
Speaker 8: why this time is different and there's no need to
19:22
Speaker 8: tighten so aggressively. So for example, of course, we know
19:26
Speaker 8: that the shock is a supply shock. The original shock,
19:30
Speaker 8: which is assumed to be transitory. Inflation expectations have remained
19:34
Speaker 8: well anchored, which is given opposed to central bank for
19:37
Speaker 8: central bankers in terms of hiking further. So these have
19:41
Speaker 8: made central bankers essentially more hesitant to follow the table rule,
19:44
Speaker 8: and it might have and it's been used to justify
19:49
Speaker 8: why they have an increased interest rates. Further, however, it
19:54
Speaker 8: will need further hikes in order to reach the two
19:56
Speaker 8: percent interest rate, and it can be seen from the
19:59
Speaker 8: fact that we are ready is still very negative. There is
20:01
Speaker 8: another major problem in the UK which is less present.
20:05
Speaker 2: Sorry, can I just doctor, Can I just hang on there,
20:07
Speaker 2: because I'm so happy you brought up the tailor rule,
20:10
Speaker 2: and we have on the Bomberg a tool that helps
20:14
Speaker 2: us fill that out. T A y L T A
20:16
Speaker 2: y L go on the Bloomberg terminal. Yeah, it's so awesome.
20:20
Speaker 2: Put the drop down menu into United Kingdom. I changed
20:23
Speaker 2: the inflation metric to core CPI that's what you're you're using.
20:28
Speaker 2: What do you put? I always struggle with two variables?
20:32
Speaker 2: What do you use for your neutral real rate?
20:36
Speaker 6: For use?
20:37
Speaker 2: I use one point five one point five? And what
20:40
Speaker 2: do you use for NEHRU for the uh none?
20:45
Speaker 7: Sorry, I use four point.
20:46
Speaker 2: Five four point five. I think it's so fascinating A.
20:51
Speaker 1: This to explain what the tailor rule is for us neophytes.
20:54
Speaker 1: So doctor, can can you explain it? The tailor rules.
20:56
Speaker 1: I've got a new function here that Matt just turned
20:58
Speaker 1: me on too, but I don't know what I'm doing.
21:00
Speaker 8: So the tail room is fascinating. I mean, I will
21:02
Speaker 8: explain what it is. But some people, such as Power
21:05
Speaker 8: think it's outdated, so you need to take.
21:06
Speaker 9: It with green up.
21:08
Speaker 8: But essentially, the tailor room comes about big optimal montary
21:11
Speaker 8: policy models, and it's telling us what should central bankers
21:14
Speaker 8: optimally set the policy rate too, So it's taken into account.
21:18
Speaker 8: You know, our big DG models that have you know,
21:21
Speaker 8: optimal monthary policy embedded in them. And once we solve
21:25
Speaker 8: these complicated models, we get a very simple rule, and
21:28
Speaker 8: that is essentially called a tailor. It's essentially it's a
21:31
Speaker 8: function of something called the real rate or the natural
21:34
Speaker 8: real rate, which is kind of the steady state, long
21:36
Speaker 8: run real growth of the economy. It has been falling
21:39
Speaker 8: over time due to the secret state nation. It used
21:41
Speaker 8: to be two percent. Now people think it's about one
21:43
Speaker 8: point five percent. Of course, it's a function of the
21:46
Speaker 8: inflation target, which is two percent, and realize inflation relative
21:50
Speaker 8: to inflation target, and unemployment rate relative to the natural
21:52
Speaker 8: rate of unemployment. There are debates and regarding how we
21:55
Speaker 8: should calibrate it, how much weight central banks are putting
21:58
Speaker 8: on the outook of relative to inflation the inflation target.
22:01
Speaker 8: There is heterogenator across countries. But the point is that
22:03
Speaker 8: it's a very useful tool, and actually particularly for the US,
22:06
Speaker 8: if you plot it going back in town even before
22:08
Speaker 8: the concept existed, you would see that even in the
22:11
Speaker 8: seventies in the eighties, the US followed the tail rule
22:14
Speaker 8: very closely. It is the first time in history where
22:17
Speaker 8: we're see seeing such major deviations on the upside. Of course,
22:20
Speaker 8: during the zero lower bound that they were also was
22:22
Speaker 8: telling us that we should be at minus four percent,
22:24
Speaker 8: and because of the ZOB we couldn't. But when we're
22:27
Speaker 8: talking about, you know, hikes, it's the first time in
22:29
Speaker 8: history that central councy deviating so much from the tail ord.
22:33
Speaker 2: Now, even in the US, I want to point out,
22:35
Speaker 2: so if I plug in your R Starret and Neah
22:39
Speaker 2: Room numbers in the US, I show them the tail
22:43
Speaker 2: And even if I give them a three percent inflation target,
22:48
Speaker 2: because I think we all know they're not really sticking
22:51
Speaker 2: close to the two, they're still at eight. They should still
22:54
Speaker 2: be at eight percent in the US. And so my
22:57
Speaker 2: question is, then if we should be at eight percent
22:59
Speaker 2: in the US, we should be a ten percent in
23:01
Speaker 2: the UK according to tail rule. Does that mean you
23:04
Speaker 2: think the FED should and the BOE should really go there,
23:07
Speaker 2: because obviously going there quickly would cause a lot of problems.
23:12
Speaker 8: Exactly, you can't go there equipply. You have to be
23:14
Speaker 8: graduate and you have to see how the effect changes.
23:16
Speaker 8: Of course, we know there are issues with our models, right,
23:18
Speaker 8: so we're aware that a lot of the aspects of
23:21
Speaker 8: our models are outdated. For example, we still assume rational
23:24
Speaker 8: expectations in these models that derive the tail rule now
23:27
Speaker 8: there is a pushing economic research that acknowledges that agents
23:30
Speaker 8: are not rational, and we're trying to figure out how
23:32
Speaker 8: to imbed this irrationality in the models. So there's fascinating
23:35
Speaker 8: research going on there and I think they're doing the
23:37
Speaker 8: right thing to be gradual. But also at the same time,
23:40
Speaker 8: the real rate matters, right, The real raid is telling us. Effectively,
23:45
Speaker 8: if you're a company and you're deciding, okay, you know
23:47
Speaker 8: how much they produce, how much they invest, You're calculating
23:51
Speaker 8: at what inflation you can increase your prices, and what
23:54
Speaker 8: is the cost you need to pay to the bank
23:56
Speaker 8: to repay your loan. So if you're borrowing even at
24:00
Speaker 8: five percent, if you're factoring inflation of ten percent in
24:03
Speaker 8: the UK, it's still good terms, right, You're still borrow it.
24:06
Speaker 8: For it's the real rate that drives our economic models,
24:10
Speaker 8: and that's what matters for the real economy, and everyone
24:12
Speaker 8: is focusing too much on the nominal rate, which is
24:15
Speaker 8: effectively not not the right metric. So in that sense,
24:18
Speaker 8: I think banks central banks might have to go further.
24:20
Speaker 8: And the main reason why is at this point the
24:23
Speaker 8: supply shock is essentially calming down. However, demand the demand shock.
24:28
Speaker 8: The demand component of inflation is very persistent, and that's
24:33
Speaker 8: to a large degree for the UK, particularly due to
24:36
Speaker 8: wage inflation, and the UK is unique. I believe that
24:39
Speaker 8: the wage inflation problem will be much more severe for
24:41
Speaker 8: the UK because we are coming out of decades of
24:43
Speaker 8: stagnation of public sector wages due to austerity. People are tired, doctors, attired,
24:48
Speaker 8: teachers attired. We see it in the strikes and that's
24:51
Speaker 8: what's interesting when you see when they're negotiating, they're not
24:54
Speaker 8: quoting just the latest inflation numbers. They're quoting decades of
24:57
Speaker 8: austerity that have led to the real way ages deteriorating.
25:01
Speaker 8: And this is a very different stories from some other
25:03
Speaker 8: countries that haven't had the same period of austerity that
25:06
Speaker 8: the UK, so I expect a much more persistent period
25:09
Speaker 8: of strikes. Moreover, there is Brexit and labor shortages due
25:13
Speaker 8: to it, and we have NHS being broken, leading chronic
25:17
Speaker 8: illnesses and four hundred thousand people not returning to the
25:19
Speaker 8: labor force. So the UK is actually the worst shape
25:22
Speaker 8: out of all the countries. Having said that, it will
25:24
Speaker 8: take time even for the US and your go back
25:27
Speaker 8: maybe even three percent, As you said, probably not even
25:29
Speaker 8: two percent.
25:30
Speaker 2: Fascinating, fascinating stuff. Doctor Cyberkeva, thank you so much for
25:35
Speaker 2: joining us. We could go on, and I hope we
25:37
Speaker 2: can get you back as soon as possible, because I
25:39
Speaker 2: really think that's exciting insight. There.
25:44
Speaker 5: You're listening to the Team Cancer Line program Bloomberg Markets
25:48
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25:51
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25:58
Speaker 1: Let just talk about some bank stocks. Some of the
26:01
Speaker 1: big bank names report. We've had some of the smaller
26:04
Speaker 1: names report as well, and it kind of goes to
26:07
Speaker 1: the issue. I think what a lot of folks we're
26:09
Speaker 1: focusing on are focusing on during this earning season with
26:11
Speaker 1: the banks is not so much what they're reporting right now,
26:15
Speaker 1: but just kind of the outlook for their business. Some
26:18
Speaker 1: basic stuff like deposits is or you know, you know,
26:22
Speaker 1: just kind of base banking one on one accounting. Herman
26:25
Speaker 1: Chan Joints is here. He covers the regional banks. Herman
26:28
Speaker 1: just give them what we've seen so far. What's your
26:31
Speaker 1: takeaway from this US banking system in terms of its
26:34
Speaker 1: general health.
26:35
Speaker 10: Yeah, the overall, banking system looks fine. It's healthy. We're
26:39
Speaker 10: seeing some deposit outflow, but that's natural given the state
26:43
Speaker 10: of where interest rates are, and you have better alternatives
26:46
Speaker 10: and money market funds. But you have a certain certain
26:50
Speaker 10: amount of folks of banks that are still in the crosshairs,
26:54
Speaker 10: like First Republic and Backwest. But overall, everybody that's reported
26:58
Speaker 10: from the large cap region on the bank side has
27:01
Speaker 10: shown a lot of stability, which is great to see.
27:03
Speaker 2: What are What I want to know is what are
27:05
Speaker 2: we seeing in terms of savings account or checking checking accounts?
27:10
Speaker 2: Interest rates? Snapple came out with Goldman Sachs and they're
27:14
Speaker 2: offering four point one nine percent, And I think four
27:18
Speaker 2: percent is probably the bar that banks have to meet
27:22
Speaker 2: in order to impress me now or the average American depositor.
27:26
Speaker 2: I know that Americans are more likely to leave their
27:28
Speaker 2: wives or husbands than change their bank accounts, but I
27:32
Speaker 2: think that has changed drastically this year. So are they
27:35
Speaker 2: going to all have to offer at least four percent?
27:38
Speaker 10: That's not going to be the case. You're seeing banks, well,
27:41
Speaker 10: then I'm out seats, but they're they're expecting a lot
27:46
Speaker 10: of their remaining customers to be stable. It takes a
27:50
Speaker 10: lot of effort and time and energy to change your bank.
27:53
Speaker 10: But you can move some of your money into a
27:56
Speaker 10: high yield savings account, which a lot of these renoal
27:59
Speaker 10: banks do offer. But they're not going to reprice their
28:02
Speaker 10: entire portfolio. That's not going to be how they manage
28:06
Speaker 10: deposit costs and funding and because if they did that,
28:10
Speaker 10: they would basically just creator their nana ors margins.
28:13
Speaker 2: Is there a great way to compare banks rates the
28:18
Speaker 2: rates that they have on offer? I mean, I just
28:20
Speaker 2: pull up Huntington, which is where I bank, and I
28:23
Speaker 2: look on their website as of April nineteenth, which is today.
28:27
Speaker 2: I'm looking at rates depending on how whether you have
28:31
Speaker 2: twenty five hundred in with them or look ninety nine
28:35
Speaker 2: billion in with them. That have a zero point zero
28:39
Speaker 2: in front of all of the numbers, and that's for
28:41
Speaker 2: your bank zero point zero one, zero point zero two,
28:44
Speaker 2: zero point zero six. That's if you have a private
28:47
Speaker 2: client account. That's not enough by four hundred basis points.
28:52
Speaker 2: How can they get away with it? Why do I
28:54
Speaker 2: leave my money there?
28:55
Speaker 10: Herman, That's the question you should ask yourself. You go
28:59
Speaker 10: to bankrate dot com and you can see the menu
29:02
Speaker 10: of offerings four point two five percent for Citizens, which
29:07
Speaker 10: which just reported today. So that's a good list mis
29:10
Speaker 10: test of what's out there. C I T Bank that's
29:13
Speaker 10: that's the first uh first Citizens bank that bought SBB
29:17
Speaker 10: that's four point seventy five percent, so you can get deals.
29:21
Speaker 1: How about what are we seeing in terms of loan growth?
29:25
Speaker 1: I mean if there was concern that if there was
29:28
Speaker 1: concern there on the deposits and I go down to
29:31
Speaker 1: my local bank to get a loan, I might not
29:33
Speaker 1: be able to get it.
29:34
Speaker 2: With a good question what we're seeing.
29:36
Speaker 10: That's right. So there's some commentary on the call today
29:39
Speaker 10: for Citizens, for example, they said they're tightening the screws
29:43
Speaker 10: on underwriting because of their funding is declining and they
29:47
Speaker 10: expect to see economic weakness down down the road. So
29:52
Speaker 10: that's something that we've talked about that that could be
29:55
Speaker 10: occurring across the system, and banks like Citizens have confirmed
29:59
Speaker 10: that on their earnings call.
30:00
Speaker 2: But credit crunch is a term that's been increasingly used
30:03
Speaker 2: over the past two or three weeks. I'm gonna say
30:06
Speaker 2: like three weekends ago. Neil Kashkari was on at one
30:09
Speaker 2: of the Sunday shows and said, that's a concern, and
30:12
Speaker 2: now everyone's starting to look at it. The fact that
30:16
Speaker 2: you know, even if you're willing to pay seven percent
30:20
Speaker 2: or whatever on a car loan, even if you have
30:23
Speaker 2: an eight hundred credit rating a credit score, you're still
30:28
Speaker 2: not able to get the loan right, is what we're
30:31
Speaker 2: hearing from a lot of Americans. Is this going to
30:34
Speaker 2: be a problem for banks? Is this gonna be a
30:37
Speaker 2: problem for the US economy.
30:38
Speaker 10: It's going to slow down load growth. And a lot
30:41
Speaker 10: of that is self induced because they want to protect
30:43
Speaker 10: themselves and don't want to create tail risk from credit
30:46
Speaker 10: quality perspectives. So, and that does have implications for economic growth,
30:51
Speaker 10: and the trajectory of credit availability is one of the
30:55
Speaker 10: big factors of how our US economy grows. If availability
31:01
Speaker 10: is softened, then that it definitely has implications.
31:05
Speaker 1: Are banks going to or or have they started taking
31:08
Speaker 1: more reserves for potentially a recessionary economy?
31:12
Speaker 11: Are they?
31:12
Speaker 1: Are you seeing that in the results?
31:14
Speaker 10: It's come up marginally. I would say that the big factor,
31:19
Speaker 10: the big issue that the big bogie across the industry
31:23
Speaker 10: in this quarter was the focus on commercial real estate.
31:25
Speaker 10: And you've seen a lot of the banks increase their
31:28
Speaker 10: reserves specifically to the commercial real estate portfolio. Some of
31:31
Speaker 10: the banks like M and TY are seeing some modest
31:34
Speaker 10: charge offs related to those office property exposures. So it's
31:39
Speaker 10: something that will be longer tailed and banks are prepared
31:43
Speaker 10: for it. There continues to be some headline risk given
31:46
Speaker 10: the fact that you.
31:48
Speaker 1: Are there some banks that have exposure to what I
31:51
Speaker 1: consider in not knowing anyth about real estate, but just
31:53
Speaker 1: the office real estate markets in New York and San
31:56
Speaker 1: Francisco and LA and things like that, are the banks
31:58
Speaker 1: that are particularly exposed there.
32:00
Speaker 10: Yeah, it's part of the portfolio. You know, banks like
32:05
Speaker 10: M and T have some exposure banks like in your community,
32:09
Speaker 10: but all in all, it's part of a broader portfolio.
32:12
Speaker 10: And you're talking about office real estate that's fifteen ten, fifteen,
32:17
Speaker 10: twenty percent of the overall commercial real estate portfolio. So
32:20
Speaker 10: everything's pretty diversified, but you're gonna see some lumpiness going ahead.
32:25
Speaker 2: Yeah, so that must be interesting as an analyst. You
32:28
Speaker 2: have to look at their real estate loans and break
32:32
Speaker 2: them out into what's you know, student housing, medical centers, apartments, malls, apartments,
32:38
Speaker 2: office space. Is it difficult to do that research Herman,
32:42
Speaker 2: is your job.
32:42
Speaker 10: Hard, it's fascinating? Say yes, it's fun. I wouldn't say
32:48
Speaker 10: it's hard. It's fun. I've been doing this for a while,
32:51
Speaker 10: so I feel like I know what I'm what I'm
32:53
Speaker 10: getting into. But definitely the issues that come up quarter
32:58
Speaker 10: after quarter can change. And so the office thing is
33:02
Speaker 10: something that has popped up more frequently after the pandemic.
33:05
Speaker 10: It's been on people's radar screens. But we're looking for
33:10
Speaker 10: better disclosure across the group. So the challenging part is
33:13
Speaker 10: not everybody discloses their office ciis we're trying to coax
33:17
Speaker 10: them to do.
33:18
Speaker 2: So you have to call up ir. You have to
33:20
Speaker 2: call it the CFO and be like, dude, come on,
33:22
Speaker 2: give me the breakdown.
33:22
Speaker 10: Exactly, give me the numbers so I can make some assessment.
33:25
Speaker 1: There you go, Hermit Chan, senior Anaal's doing that handles stuff,
33:29
Speaker 1: you know.
33:29
Speaker 2: Which is fun but not hard.
33:30
Speaker 1: Apparently I hope his boss isn't listening exactly, Herman Chan,
33:34
Speaker 1: he's the senior animals covers the US regional banks and
33:37
Speaker 1: fintech for Bloomberg Intelligence. We've got some the earnings coming
33:42
Speaker 1: up from the banks and generally, you know on the
33:45
Speaker 1: margin better than expected for most of them, including some
33:48
Speaker 1: of the regional banks. So maybe, just maybe some of
33:51
Speaker 1: that pressure can come out of those banking stocks.
33:54
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34:01
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34:04
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34:07
Speaker 5: from our flagship New York station, Just Say Alexa, playing
34:10
Speaker 5: Bloomberg eleven thirty.
34:13
Speaker 1: You know, man, I drove my first Tkiya ever this weekend,
34:16
Speaker 1: the Kia Soul. I rented it when I was out
34:18
Speaker 1: in California, and it was a very good experience. It
34:21
Speaker 1: was pretty cool. It's got some peppin.
34:22
Speaker 10: Man.
34:22
Speaker 1: I was flying out the one time.
34:24
Speaker 2: I like the original one. Uh, it was like more box.
34:27
Speaker 2: He wasn't okay, and I've always whenever I see him,
34:30
Speaker 2: I point him out to my wife and she's like, yeah,
34:32
Speaker 2: I know a Kia Soul, but I think they're so cool. Okay.
34:35
Speaker 1: Steve Center joins us. He's the COO and EVP of
34:38
Speaker 1: Kia America. Before that, he spent thirty years at Honda,
34:42
Speaker 1: so he knows the car business here. Hey, Steve, thanks
34:45
Speaker 1: so much for joining us here. Again. I had a
34:47
Speaker 1: great experience with my Kia Soul over the weekend, so
34:49
Speaker 1: thanks for that. Give us a sense of just kind
34:52
Speaker 1: of how your business has kind of weathered through the
34:55
Speaker 1: last you know, two three four years with a pandemic
34:58
Speaker 1: and the chip shortages and and demand sputtering here and there.
35:02
Speaker 1: Talk to us about how Key has performed over the
35:04
Speaker 1: last few years.
35:05
Speaker 12: Well, first of all, thanks for having us on this morning,
35:09
Speaker 12: and renting a Soul was my first Key experience as well,
35:13
Speaker 12: so I can relate to that. It's a great little car.
35:17
Speaker 6: You know.
35:17
Speaker 12: It's been a pretty wild ride for the last few years,
35:21
Speaker 12: and between the lockdowns, the whole industry absorbed probably three
35:28
Speaker 12: or four months supply of inventory. We've been running on
35:32
Speaker 12: vapors ever since, and Key has done exceptionally well in
35:36
Speaker 12: that instance. And a lot of it's due to product,
35:39
Speaker 12: you know, the six p's product, product, product, product, product,
35:42
Speaker 12: and product and demand's been strong. The supply chain is
35:49
Speaker 12: immature in some senses, especially on the EV side, and
35:53
Speaker 12: as we renew our products and you have more and
35:57
Speaker 12: more tech in them, you're using new chip and there
36:00
Speaker 12: aren't built up inventories of those, so the demand's been strong.
36:04
Speaker 12: We've introduced award winning cars all around, the EV six.
36:09
Speaker 12: The EV six GT's been named North American Car of
36:14
Speaker 12: the Year. The Tell You Ride is one awards. It's
36:18
Speaker 12: a whole new brand for attracting new customers, younger, better educated, wealthier.
36:23
Speaker 2: I had to say, Steve, for those who don't, I
36:26
Speaker 2: follow the automotive innessry very closely and I work closely
36:30
Speaker 2: with FMI. They manage your fleet here on the East Coast,
36:33
Speaker 2: and so I test drive at pretty much every car
36:36
Speaker 2: that's out there. Kia has been knocking the cover off
36:41
Speaker 2: the ball with the products that I mean. First thing
36:44
Speaker 2: I noticed a couple of years ago is the Taller Ride,
36:46
Speaker 2: which I think is just a range Rover killer, and
36:49
Speaker 2: that at like a third or a quarter the price right,
36:53
Speaker 2: and they just I think are knockout vehicles and I
36:57
Speaker 2: love driving it as well. Then I got in the
37:02
Speaker 2: EV six GT, which was an unbelievable experience. I mean,
37:07
Speaker 2: the speed that's capable that that vehicle is capable of
37:12
Speaker 2: is just eye opening. You blow away Porsche's off the
37:15
Speaker 2: line and you're in a Kia. So it's I think
37:18
Speaker 2: a whole new brand. It's a whole new product offering.
37:21
Speaker 2: I can't wait to drive the EV nine, which is
37:25
Speaker 2: the big all electric suv. I'm obviously a fanboy. Where
37:29
Speaker 2: do you want to go with this? Because you started out,
37:32
Speaker 2: as you know, an affordable Korean brand, and a lot
37:36
Speaker 2: of people, I think, especially back then, were more xenophobic
37:39
Speaker 2: than they are.
37:40
Speaker 4: Now.
37:41
Speaker 2: You've got an entirely new image and expectations are are
37:46
Speaker 2: getting higher and higher and higher for Kia products. Where
37:50
Speaker 2: are you aiming your your range of products?
37:55
Speaker 12: So if you had to define us, we want to
38:00
Speaker 12: be a sustainable mobility company. And that's kind of a mouthful,
38:05
Speaker 12: so let me describe that. We're going to expand the
38:08
Speaker 12: product line right now. We've got a very exciting line
38:11
Speaker 12: of internal combustion powered vehicles, a whole new line coming
38:15
Speaker 12: of electric powered vehicles, which is a whole different experience
38:19
Speaker 12: for people, and we're getting into different types of vehicles
38:23
Speaker 12: like purpose built vehicles as well. So Kia celebrating its
38:28
Speaker 12: thirtieth year as a business in the US this year,
38:32
Speaker 12: and this is just the beginning. It's a whole new
38:35
Speaker 12: start for the company and in the marketplace.
38:38
Speaker 2: Are the sales numbers. Are you able to sell? I mean,
38:43
Speaker 2: I assume you sell as many as you produce. Are
38:45
Speaker 2: you hitting new records every year?
38:47
Speaker 12: In terms of US sale new records. We've had six
38:50
Speaker 12: or seven sales month records. We almost hit a sales
38:53
Speaker 12: record last year. We hit a quarter record this year.
38:57
Speaker 12: It's as soon as we can get them, they're sold.
39:01
Speaker 12: Many of our dealers have wait lists of vehicles, so
39:06
Speaker 12: as soon as we can make them, they're gone. And
39:08
Speaker 12: as many as we can make this year will be
39:11
Speaker 12: the new record.
39:12
Speaker 2: Are you Are you constrained by the chip and supply
39:15
Speaker 2: chain issues? I mean, I have a buddy who just
39:17
Speaker 2: got a Kia Tell You Ride and we all followed
39:19
Speaker 2: his journey very closely. I think he waited eight months
39:23
Speaker 2: to get the vehicle. Are you able to bring that down?
39:27
Speaker 12: We're getting caught up. I think everyone has their own
39:30
Speaker 12: supply challenges, and it's pretty interesting what pops up that
39:35
Speaker 12: you can't get because of some component, and it's it's
39:39
Speaker 12: mostly chips, but it's other things. But we were able
39:42
Speaker 12: to increase Tell Your Ride production over twenty percent in
39:45
Speaker 12: terms of on an annual run rate despite all of this.
39:49
Speaker 12: So we're working very hard to satisfy the demand that's
39:53
Speaker 12: out there.
39:54
Speaker 1: Well, I do notice, and it says it's a totally
39:56
Speaker 1: irrelevant point, but I noticed it. I like the new logo.
39:59
Speaker 2: Y I don't think it's a really I think it
40:01
Speaker 2: looks awesome.
40:02
Speaker 1: I mean usually companies screw that up when they update
40:04
Speaker 1: something and they change something, they screwed up it and
40:06
Speaker 1: kiss it's a big improvement. So whatever marketing geek at
40:10
Speaker 1: Kia did that, you can get him a pep pat
40:11
Speaker 1: on the back there. But where do you produce your cars, Steve?
40:15
Speaker 1: Are they in Korea in the US?
40:16
Speaker 2: And are you going to be able to get the
40:18
Speaker 2: IRA Are you going to be able to get the
40:20
Speaker 2: tax credit? Because I know that's been incredibly confusing, but
40:23
Speaker 2: it's probably important to your consumers.
40:26
Speaker 12: Yes, and that's a mouthful. So we produce a lot
40:30
Speaker 12: of our products in North America. We have a plant
40:33
Speaker 12: in Mexico, and we have a plant in West Point, Georgia,
40:38
Speaker 12: and we build the Teller Ride there, the Sorrento, the
40:41
Speaker 12: K five and the Sportage which is our mid size,
40:45
Speaker 12: our new mid size suv, and the balance of the
40:48
Speaker 12: cars are sourced from plants in Korea, and we announced
40:54
Speaker 12: in August before the IRA was passed that we're building
40:57
Speaker 12: the what we call the Meta Plant, which is a
41:00
Speaker 12: battery and EV factory just north of Savannah, Georgia. So
41:06
Speaker 12: we have a commitment to build more and more cars
41:08
Speaker 12: here despite the regulations. So we're doing all the right
41:12
Speaker 12: things right now. Because of the way the IRA was
41:17
Speaker 12: a bit of a i'll call it a sheet pull,
41:21
Speaker 12: you know, we pulled the tablecloth out from under the
41:24
Speaker 12: place settings on everybody. So the cars don't qualify, and
41:27
Speaker 12: I think if you look on the list that went
41:29
Speaker 12: from thirty or so cars that qualified to maybe nine.
41:33
Speaker 12: But pretty soon they will. And it's very important to
41:37
Speaker 12: our customers to get as good a value as possible.
41:40
Speaker 12: So we're doing all the right things. It'll take a
41:43
Speaker 12: little time.
41:44
Speaker 1: Hi, Steve, thanks much for joining us. Really appreciate it.
41:48
Speaker 1: Steve Center, COO and EVP of Kia America. And again
41:52
Speaker 1: I took my first kias tell you go on.
41:55
Speaker 2: The Kia dot com website and use the configurator to
41:58
Speaker 2: build some of these vehicles. Are pretty awesome, all right.
42:00
Speaker 1: Pretty cool. I'll take a look.
42:02
Speaker 5: You're listening to the tape catch our live program Bloomberg
42:05
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the
42:09
Speaker 5: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
42:12
Speaker 5: You can also listen live on Amazon Alexa from our
42:15
Speaker 5: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
42:21
Speaker 1: I want to switch. Here's here on a bit to
42:22
Speaker 1: our good friends at Fox. The stock is down one
42:25
Speaker 1: point seven percent. They had a legal settlement yesterday for
42:30
Speaker 1: like seven hundred and eighty seven million dollars. I want
42:32
Speaker 1: to get to the bottom of that. What's that mean
42:35
Speaker 1: for the company? What is that what kind of what
42:37
Speaker 1: does that signal about what's happening at Fox. Matt Sheltenhelm,
42:40
Speaker 1: he's a senior litigation analyst with Bloomberg Intelligence. He joins
42:43
Speaker 1: us on the phone to talk to us. So, Matt,
42:46
Speaker 1: talk to us about this settlement and kind of what
42:49
Speaker 1: happened and what does it represent to you, Hi.
42:51
Speaker 11: Paul, Yeah. So yeah, we were on the eve of
42:55
Speaker 11: we were about to begin trial yesterday, and just as
42:59
Speaker 11: the opening statements were we're going to begin, the attorneys
43:04
Speaker 11: didn't return to the courtroom and we had an announced settlement.
43:07
Speaker 11: We expected a settlement before the jury would rule but
43:12
Speaker 11: this one came in at a little bit steeper price
43:14
Speaker 11: tag than we expected. I think we had had ball
43:17
Speaker 11: parked it at five hundred million dollars, and I think
43:20
Speaker 11: Dominion drove a stiffer bargain and and and pushed Fox
43:25
Speaker 11: to settle for seven hundred and eighty seven million dollars.
43:27
Speaker 11: That equates to about forty three percent of Fox's net
43:32
Speaker 11: income for the year. So it's a big deal for
43:35
Speaker 11: the company. And I think it's a big deal as
43:38
Speaker 11: well because there's a second case trailing behind this one
43:41
Speaker 11: and Fox. Fox isn't done with this yet, so.
43:46
Speaker 2: But they it seems like they've spent eight hundred million
43:48
Speaker 2: dollars to avoid the embarrassment of having Rupert and Lachlan
43:53
Speaker 2: and Tucker and Hannity, Hannity, you know, testify. Are they
44:00
Speaker 2: going to have to spend that kind of money again,
44:04
Speaker 2: or is this testimony going to eventually come out?
44:07
Speaker 11: Yeah, So I really don't see any way that they
44:11
Speaker 11: don't end up paying at least that for this this
44:15
Speaker 11: second case. Now, the suit that was settled yesterday was
44:18
Speaker 11: a company called Dominion. The second suit is a company
44:22
Speaker 11: called Smartmatic. And when both of these companies filed their
44:26
Speaker 11: initial complaints, Smartmatics was actually seeking much more than Dominion
44:33
Speaker 11: was in terms of the damages here. They sought two
44:36
Speaker 11: point seven billion dollars in lost enterprise value. Dominion was
44:40
Speaker 11: only seeking a billion dollars. And so, you know, I
44:45
Speaker 11: really do think that you're exactly right that Fox was
44:47
Speaker 11: settling this to avoid the spectacle of a trial. And
44:52
Speaker 11: it's very difficult to see them going ahead with a trial,
44:57
Speaker 11: and that would do the same thing with this Marmatic case.
45:00
Speaker 11: So I think it might be facing an even bigger
45:03
Speaker 11: price tag, uh to get away from that second one.
45:06
Speaker 2: You know, that leads me to two questions. One, is
45:09
Speaker 2: it really billions of dollars worth of embarrassing to have
45:16
Speaker 2: Tucker Carlson and uh Sean Hannity, you know, testify, to
45:22
Speaker 2: have Rupert and Lachlan Murdock testify. Is it are are
45:26
Speaker 2: there really that many secrets that they need to keep uh,
45:29
Speaker 2: you know, two billion dollars worth, let's say, Or is
45:33
Speaker 2: it worth it to Fox to spend two billion dollars
45:36
Speaker 2: to continue to stir up and promote you know, partisanship
45:41
Speaker 2: and anger. Is that part of their brand? And and
45:45
Speaker 2: they're and they're making enough money from that part of
45:48
Speaker 2: the brand to keep to keep ongoing that direction.
45:51
Speaker 11: Yeah, it's a great question, I mean, and part of
45:53
Speaker 11: me was surprised that they that Fox let this dominion
45:57
Speaker 11: case get as far as it did. All of the
46:00
Speaker 11: a lot of this stuff came out because Fox, you know,
46:02
Speaker 11: Fox could have settled it much earlier, but it let
46:04
Speaker 11: it go ahead to a summary judgment ruling where we
46:07
Speaker 11: saw you know, a lot of these harmful facts already.
46:11
Speaker 11: I think the concern, though, is a trial over a
46:15
Speaker 11: couple months, with with testimony puts a much larger spotlight
46:20
Speaker 11: on this that might actually start to reach its core
46:22
Speaker 11: audience in a way that might have been you know,
46:25
Speaker 11: more more disruptive than just the legal filings on summary judgment.
46:30
Speaker 2: I mean, as long as they don't cover it on Fox,
46:32
Speaker 2: will his core audience ever even find out?
46:35
Speaker 11: That's a good question. That's a good question. But I
46:37
Speaker 11: think you know, the fact that they were willing to
46:40
Speaker 11: settle this one yesterday for you know, seven hundred and
46:43
Speaker 11: eighty seven million dollars is not you know, a pocket change.
46:46
Speaker 11: It's it's it's a it's a real impact. I think
46:49
Speaker 11: it suggests that there is real concern about what that
46:53
Speaker 11: might lead.
46:53
Speaker 1: To real quick bout ten seconds, Matt, when's what's the
46:56
Speaker 1: timing of the second case?
46:58
Speaker 11: So yeah, that one's trailing about a year behind. That
47:01
Speaker 11: discovery wasn't set to close until July of next year,
47:05
Speaker 11: so there's time for negotiations there. But I wouldn't expect
47:09
Speaker 11: you to drag out very long. I would think there's
47:12
Speaker 11: an incentive to settle this sooner rather.
47:15
Speaker 2: Especially before we get deeper and deeper into president election.
47:18
Speaker 1: All Right, Matt, thanks for that. We appreciate your analysis there.
47:22
Speaker 1: Matt setting Heelm he's a senior litigation analyst for Bloomberg
47:25
Speaker 1: Intelligence following this trial between Fox and some of the
47:29
Speaker 1: voting machine companies.
47:31
Speaker 5: You're listening to the tape Cat's are live program Bloomberg
47:34
Speaker 5: Markets weekdays at ten am Eastern on Bloomberg Radio, the
47:37
Speaker 5: tune in app, Bloomberg dot Com, and the Bloomberg Business App.
47:41
Speaker 5: You can also listen live on Amazon Alexa from our
47:43
Speaker 5: flagship New York station. Just say Alexa play Bloomberg eleven thirty.
47:50
Speaker 1: I guess this is time of a big pivot for Netflix.
47:52
Speaker 1: It's going from a story that's driven almost entirely by
47:55
Speaker 1: subscriber growth to now it's focusing on profitability and how
47:59
Speaker 1: do they you know, kind of drive profitability. And a
48:01
Speaker 1: couple of levers that they are talking about is this
48:04
Speaker 1: AD supported tier as well as cracking down on the
48:08
Speaker 1: nearly one hundred million folks who kind of share their credentials.
48:11
Speaker 1: And I'm thinking there is such a nice word to use,
48:14
Speaker 1: big stealing exactly, let's face it. And I think it
48:17
Speaker 1: may include some of the Sweeny offspring as well. I
48:19
Speaker 1: can't you know, prove that, but that's mysumptions. Let's bring
48:22
Speaker 1: in Mark Douglas. He's the president's CEO of Mountain. Mountain
48:25
Speaker 1: is the advertising software company enabling brands to drive measurable conversions,
48:30
Speaker 1: revenue and site visit. So he's all in on this
48:33
Speaker 1: digital advertising space. Mark, thanks so much for taking the
48:35
Speaker 1: time to join us here. What was your takeaway from
48:38
Speaker 1: kind of what we heard from the good folks at
48:40
Speaker 1: Netflix last night? I say, again, continue to pivot this
48:43
Speaker 1: company and focus on profitability.
48:47
Speaker 7: Yeah, so the good morning.
48:48
Speaker 9: The two big nuggets that I kind of took away
48:52
Speaker 9: from that is one is if you back up, the
48:56
Speaker 9: big concern is when they introduce their ad business that
48:59
Speaker 9: it would cannibalize a subscription business, and so like, if
49:03
Speaker 9: they lost twenty percent of their subscribers, said well, we're
49:06
Speaker 9: going to go for the ad supported option, but they
49:08
Speaker 9: didn't have the revenue yet to fill in that gap,
49:12
Speaker 9: that would be a huge problem from Netflix.
49:14
Speaker 7: That didn't happen. The exact opposite happened.
49:17
Speaker 9: It looks like the ad supported business is completely accreative,
49:22
Speaker 9: meaning that it's actually adding entirely new revenue from new
49:26
Speaker 9: subscribers for the most part. And on top of that,
49:29
Speaker 9: they announced and I think this might have been overlooked
49:31
Speaker 9: by a few people, that they're actually making more revenue
49:34
Speaker 9: per subscriber on the ad supported business than they are
49:37
Speaker 9: on a subscription business. So that's just a massive opportunity.
49:41
Speaker 9: It has the potential to literally double the size of
49:44
Speaker 9: the company.
49:45
Speaker 2: And what are the numbers? Stopping give us the numbers?
49:48
Speaker 2: What are they making? You know, what does the average
49:52
Speaker 2: subscriber pay and what does the you know, ad supported
49:56
Speaker 2: subscriber pay and get in terms of add money?
50:00
Speaker 9: Right, so the average subscriber plan is around fifteen dollars.
50:06
Speaker 9: They didn't break they just said that they're getting higher
50:09
Speaker 9: than that for the ad supported So they didn't say
50:13
Speaker 9: how much higher, but think of Netflix, they're you know,
50:16
Speaker 9: thirty billion plus in revenue. The estimates, I think pretty
50:21
Speaker 9: educated estimates are that the ad business is already looking
50:25
Speaker 9: at a three billion in the first year. So they're
50:27
Speaker 9: right out the gate with ten percent of their revenue
50:31
Speaker 9: coming from the ad supported tier and again in not
50:34
Speaker 9: just being subscribers switching from one to another, but being
50:39
Speaker 9: new revenue and you know, essentially higher lifetime value.
50:43
Speaker 7: So I think that's a big opportunity.
50:45
Speaker 9: The issue they're going to have is that the revenue
50:49
Speaker 9: they get from the subscriber, actually most of it comes
50:51
Speaker 9: from the largest brands in the world, it comes from
50:55
Speaker 9: the advertisers, so that can create a bit of revenue
50:58
Speaker 9: concentration over time.
51:00
Speaker 7: And then the other big issue is, well, you know,
51:03
Speaker 7: to zero some.
51:04
Speaker 9: Game, if they're getting money from these advertises, then then
51:06
Speaker 9: that's coming out of Disney's pocket or who Discovery's pocket. Yeah,
51:11
Speaker 9: so so now they're facing a new type of competitor.
51:14
Speaker 9: But I think, you know, with the business opportunity is
51:17
Speaker 9: their ad business and theory could you know, double the
51:21
Speaker 9: size of the company over the next few years. So
51:23
Speaker 9: it's kind of like a new rounded growth for Netflix,
51:27
Speaker 9: but also new challenges.
51:28
Speaker 2: Oh wait, who are the big So actually Hulu is
51:31
Speaker 2: part of Disney, right it's ye, yes, majority of so
51:36
Speaker 2: of all the subscription services, I guess you've got one
51:40
Speaker 2: basket that's Disney, Hulu, an ESPN, whatever. And then I
51:45
Speaker 2: guess another basket would be HBO Max, which is inexplicably
51:50
Speaker 2: dropping the most recognized part of that name. I don't
51:55
Speaker 2: get that. Yeah, and then the third basket would be
51:59
Speaker 2: Netflix and the fourth of Amazon. Right, so there are
52:00
Speaker 2: four big competitors out there.
52:03
Speaker 7: Yeah, I mean that I have to add to that.
52:06
Speaker 7: Dig on HBO.
52:07
Speaker 9: I mean, HBO's brand is associated with some of the
52:11
Speaker 9: most iconic moments in entertainment, you know, just being home
52:14
Speaker 9: on a Saturday Sunday night and watching Jess, you know,
52:17
Speaker 9: some of them their old shows. And to drop that brand,
52:20
Speaker 9: it's just I agree with you, it's kind of crazy.
52:22
Speaker 2: But why did they just pay a group of eggheads
52:27
Speaker 2: or knuckleheads as Paul would say, to make that decision?
52:29
Speaker 2: Like why would you drop HBO? Is coke gonna change
52:33
Speaker 2: its name? I mean, it doesn't make any sense at all,
52:36
Speaker 2: It really doesn't.
52:37
Speaker 9: I mean, this is why you should never pay naming
52:40
Speaker 9: experts or hire naming firm, or you can make any
52:44
Speaker 9: data favor whatever decision someone decided they wanted to make.
52:48
Speaker 9: So I mean, I think this is a conversation over beer,
52:51
Speaker 9: just you know, because we can both complain about the
52:53
Speaker 9: name change and reminisce about all the great shows we
52:56
Speaker 9: watched on.
52:57
Speaker 1: H exact or how big of an issue or an
53:01
Speaker 1: opportunity is this whole password sharing thing. I'm not even
53:05
Speaker 1: sure how they get control of it, quite frankly, but
53:08
Speaker 1: how big of an opportunity is it.
53:10
Speaker 7: Yeah, at the end of the day, it's a price increase.
53:13
Speaker 7: You may frame it in like that.
53:16
Speaker 9: There are people that are sharing logins like I, Yeah,
53:20
Speaker 9: I have I have a friend, I have probably two
53:22
Speaker 9: friends that are using my Netflix login. It's a little
53:26
Speaker 9: anoying because they'll go watch shows I want to watch them,
53:29
Speaker 9: then I can't remember if I watch them. I feel
53:33
Speaker 9: they're advancing the show and now I'm advancing.
53:36
Speaker 7: So it's a little nooying. So it's worth a little
53:38
Speaker 7: money to end that.
53:39
Speaker 9: But at the end of the day, it's a price increase,
53:41
Speaker 9: and you don't build companies on price increases.
53:43
Speaker 7: So I think it's gonna you know, add something to
53:45
Speaker 7: the business.
53:46
Speaker 9: But if I'm an invest in Netflix, I'm not going yeah,
53:49
Speaker 9: I'm really banking on those price increases they're going to
53:51
Speaker 9: roll out this year. I mean, I think I think
53:53
Speaker 9: it's it's it will happen, but it's it's not the
53:57
Speaker 9: focus the focus. Netflix is has you know, created most
54:02
Speaker 9: of the innovation I think arguably in television over the
54:05
Speaker 9: last few years, starting with introducing Netflix, you know, with
54:09
Speaker 9: that having DVDs and then having it over the Internet,
54:12
Speaker 9: and the growth is going to come from innovation, and
54:14
Speaker 9: the innovation right now is coming from this new ads
54:17
Speaker 9: here that they're doing. That The price increase from password
54:20
Speaker 9: sharing is like that's for an analyst to put on
54:23
Speaker 9: a spreadsheet.
54:23
Speaker 7: That's not like to look at the stop long term.
54:27
Speaker 2: So as someone who helps companies make money in digital advertising,
54:32
Speaker 2: you know, leaving aside what how Hulu and Netflix are doing.
54:35
Speaker 2: What brands are best positioned to make money on streaming
54:39
Speaker 2: services and how should they do it? Mark, I mean,
54:41
Speaker 2: do they put a bunch of commercials at the beginning,
54:44
Speaker 2: do they break into the middle of your content? Do
54:47
Speaker 2: they build it into the story? Like what do you
54:49
Speaker 2: advise people?
54:50
Speaker 9: Well, I'm very bullish on NBC. I know we haven't
54:55
Speaker 9: mentioned NBC. I think there are a few of the
54:58
Speaker 9: I've worked with a lot of big TV network and
55:00
Speaker 9: some of them are really big, are innovating, So Netflix
55:04
Speaker 9: probably has the biggest innovation opportunity.
55:07
Speaker 7: The ads don't have to be thirty seconds.
55:09
Speaker 9: They have no legacy TV ad business their ad formats,
55:12
Speaker 9: and every new ad business comes with new ad formats.
55:16
Speaker 9: The ads on TikTok are not the same as on Instagram,
55:19
Speaker 9: and the ads on Netflix don't have to be the
55:21
Speaker 9: same as on Disney, so I think they have a
55:24
Speaker 9: huge opportunity. I think NBC as part of comcasts, is
55:30
Speaker 9: more innovative that I think most people realize and has
55:33
Speaker 9: a really big opportunity. So if I was to bet
55:35
Speaker 9: on two companies, it would be those, you know, Peacock
55:38
Speaker 9: NBC is Peacock, and Netflix. And I think that Disney
55:42
Speaker 9: obviously has the scale. They have incredible assets in terms
55:46
Speaker 9: of all of the various content they have, but I
55:49
Speaker 9: think maybe they need with with the return of Bob Bieger,
55:53
Speaker 9: they'll get they'll get a little more focused on innovation
55:56
Speaker 9: and growth.
55:57
Speaker 2: We should point out that NBC Universal owns minority steak
56:00
Speaker 2: in Hulu and Walt Disney stake owns the majority. I
56:03
Speaker 2: was just trying to figure out where they fit there.
56:05
Speaker 1: Gotcha, Hey, Mark, are we even gonna have an upfront
56:09
Speaker 1: this year? I have great memories of the upfront where
56:11
Speaker 1: the networks sell a lot of their TV advertising. Some
56:14
Speaker 1: great parties are remind.
56:16
Speaker 2: The kids of what the upfront.
56:17
Speaker 1: So the upfronts of when the TV networks will sell
56:19
Speaker 1: you know, seventy to eighty percent of their inventory for
56:22
Speaker 1: the upcoming TV season. You get that money upfront, so
56:25
Speaker 1: you kind of know what your revenue looks like, and
56:27
Speaker 1: as a result, the advertisers will get a little bit
56:29
Speaker 1: of a discount buying in the upfront market versus buying
56:31
Speaker 1: it at the time the show airs. So did they
56:35
Speaker 1: even do that anymore?
56:36
Speaker 5: To do it?
56:37
Speaker 9: Yeah, they're still doing it because it's hard for the
56:40
Speaker 9: ad executives, the sales executives to unhook from Like I
56:44
Speaker 9: could spend the week and hit half my revenue target
56:47
Speaker 9: this year.
56:48
Speaker 7: But I think you're gonna see it's applying over time.
56:52
Speaker 9: I think the average like, there's no company that's like, yeah,
56:55
Speaker 9: I want to commit a year in advance, especially given
56:58
Speaker 9: how vollidol you the world is economically that I want
57:02
Speaker 9: to commit a You're in advanced so I think you're
57:04
Speaker 9: going to see a steady decline in upfronts as advertisers
57:08
Speaker 9: demand more flexibility and quite frankly, you know, the networks
57:13
Speaker 9: decide why are we giving these discounts, Like like, as
57:16
Speaker 9: long as there's more demand. They have tons of supply.
57:19
Speaker 9: There's tons of demand that we don't need the upfronts
57:22
Speaker 9: in the same way. So you're going to see that
57:24
Speaker 9: starts a deplying. A lot of people will miss the
57:27
Speaker 9: parties and stuff like that, but you know, yeah, we
57:31
Speaker 9: don't have to feel too bad for them.
57:32
Speaker 7: They'll be fine, all.
57:33
Speaker 1: Right, Mark, Thanks so much for joining us, as I
57:35
Speaker 1: always love getting the latest from you. Mark dougas he's
57:38
Speaker 1: a president and CEO of Mountain kind of breaking down
57:41
Speaker 1: a little bit of just the earnings command of Netflix
57:43
Speaker 1: and maybe the upside opportunity there for their advertising driven tier.
57:47
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can
57:51
Speaker 2: subscribe and listen to interviews at Apple Podcasts or whatever
57:54
Speaker 2: podcast platform you prefer. I'm Matt Miller. I'm on Twitter
57:58
Speaker 2: at Matt Miller nineteen seventy three.
58:01
Speaker 1: And I'm fall Sweeney. I'm on Twitter at pt Sweeney
58:03
Speaker 1: Before the podcast. You can always catch us worldwide at
58:06
Speaker 1: Bloomberg Radio