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Flip the Switch Episode 35: Massive Mergers

June 6, 2018
Table of Contents

SOPHIA: Today on Flip the Switch. Snapchat’s got a new CFO courtesy of Amazon. And Jeff Bezos has a product review problem on his e-commerce platform. Starbuck’s is lending Nestle its name for the small cost of 7 billion dollars, as more and more brands continue to collaborate.

Our main discussion stays on the topic of collaboration as we discuss the massive mergers occurring in the telecom and media industries and what it means for consumers. We finish with a Minute with Musk. Let’s get into it.

01:00 AUSTIN: Welcome to Flip the Switch presented by Power Digital Marketing. We hope you all have had a very good week. And welcome to episode number 35.

01:09 PAT: Episode 35. The wait for it… Kevin Durant episode, somebody?

01:14 AUSTIN: Snake in the grass. I don’t know. I don’t want to be associated with him.

01:15 PAT: Should we just not even name an athlete for this one?

01:19 JOE: We’ll just call it the “snake” episode.

01:20 PAT: Perfect. Snake episode. We can go ahead and edit out the Durant thing. But we also have some great business news and trends coming at you today.

01:25 AUSTIN: Absolutely. A lot going on in the business world. Merger’s and acquisitions come out of telecom and media. Very huge news. But without further ado, Pat, let’s go ahead and start off with our first article.

01:36 PAT: Perfect. So going into our business news and trends here, 2 of our favorite companies… each of which for different reasons… Snapchat and Amazon look to be merging in a way that…

01:43 AUSTIN: Snapchat’s my favorite company.

01:45 PAT: Well, yeah, but they’re also kind of trash. They’re merging in a way that we didn’t really expect them to. And I don’t mean a merger and acquisition. I’m talking about actual leadership.

So it came out this week on Tech Crunch that Snapchat’s CFO, Drew Valero is going to be leaving his post next week. And he’s going to be replaced by the current Amazon VP of Finance, Tim Stone. So I think this has a lot to do with the performance that we’ve seen with the stock over the last year. So when the stock opened… when they IPOed, they IPOed at 24 dollars. Right now it’s trading below 11 dollars.

02:21 AUSTIN: Right. So this is clearly a move to go after a CFO that has been at Amazon for 20 years. So he took their stock price from I believe, what was it? About $6?

And now they’re trading at 1600 now. So this man has unbelievably wild success in finance and of course, just financial strategy of a business.

But the big difference here is the product. So we’re looking at 2 completely different markets. Yes, they’re both in tech, but Snapchat is a personalized social app, versus Amazon as an e-comm, gigantic marketplace with personalized shopping.

So I think maybe the personalized is the one thing that ties these 2 together. Amazon has personalized shopping. Snapchat has personalized social interaction with DMs and stories and those type of things. So maybe there’s some correlation there I guess, in terms of business strategy?

03:13 PAT: I don’t know.

03:15 AUSTIN: I’m really trying…

03:16 PAT: I’m grasping at straws here, trying to spin gold. But here’s the thing though. Is I think that they’re not looking so much for that kind of strategy, direction and leveraging the product as much as they are financial responsibility.

So I think that what the issue was and what we’ve talked about a lot with these tech companies that come out with an IPO like a Spotify or like Snapchat is that the tech is sound. The actual platform is good.

But no one knows how to monetize it. Nobody on their team knew how to make a profit for shareholders and how to take direction from a Board of Directors.

Cue Stone who can come in here and tell them exactly how to do those things. I think that’s a little bit of a different conversation.

It’s also figuring out how to responsibly manage the cash that they have now. And that’s really what their looking to him for.

04:01 AUSTIN: Yeah, it may boil down to his ability to make sound investments. Which clearly he’s shown he can do. Investing in the right technology, and then the correct strategy in terms of where they should put their money.

So I do understand that. He’s going to much better of course, cause he has proven success in that sort of thing. But managing your cash doesn’t lead to more revenue.

04:22 PAT: That’s true. That’s true. But if you manage it effectively it does lead to potentially smarter investments and smarter paths to allocate that money that can indirectly lead to more revenue.

04:33 AUSTIN: That’s true. I still… I think this is a great move. And it probably had a little bump in their stock price from it.

But really got to prove something to me here. Because I still see them as a pretty one dimensional product. And one that’s kind of one the way out, since it’s been smashed by Instagram. And yeah, we’ll see what they can do. But very, very curious to see… you know this guy’s coming to the table with some ideas.

04:53 PAT: He’s going to come in hot.

04:55 AUSTIN: Right. That’s the only way he could get this gig. But I mean, it is Amazon, but also at the same time it’s like… if you’re going to boot out the CFO of a startup that IPOed 2 years ago, there needs to be a pretty dire situation. And the person that you’re bringing in really needs to be able to overhaul the entire organization. So you can expect big, flashy moves from Snap.

05:12 PAT: Yeah, and I think that it’s interesting too, right, because you have… the issue really kind of sounds like it’s with the tech. Like the platform is sound but the tech isn’t built to monetize right now. So maybe they’re trying to bring in Stone to give a little bit of an advisory role. Let them know where they should be spending their time and their money. And then later on they’re looking to iterate the technology better.

But right now it’s just a cash flow issue. They’re not making as much money, their stock price is trading downward. They’re a first mover in what is now turning into a little bit of a saturated industry because of solutions like an Instagram.

So we’ll see.

05:50 AUSTIN: To use an investing term, I’m bearish…

05:55 PAT: I’m very bearish on this one. I’m not as bullish as I would like to be.

Also sidebar, he’s going to be making $500,000 in base salary.

06:03 AUSTIN: And what was it? 20 million in stock or something?

06:06 PAT: Yeah. 20 million in RSUs. So I guess…

06:09 AUSTIN: It’s a good payday.

06:11 PAT: Yeah, seems okay.

06:13 AUSTIN: Yeah, he’s built a giant over there.

All right, all right. Let’s move onto our next one. We’ve talked too much about Snap of course.

We’re moving into coffee business. Nestle has purchased the rights from Starbucks to use their brand. 7 billion dollars they’re going to be paying Starbucks to basically sell their products. They’re going to be selling Starbucks products as no longer an espresso, as Nestlé’s brand. Yeah, Pat, open this up a little bit. I’m a little bit curious on why this is happening and what’s going on.

So basically what they’re trying to do. So this is the 3rd biggest transaction in Nestlé’s 152 years of business. They’re spending 7.15 billion dollars on the right to market Starbucks Corp products from beans to capsules. So basically they’re leveraging their international distribution network with the allure of Starbucks. So they’re taking the brand name and using what they know… they have great distribution channels and long reach internationally. So it’s beneficial for both in a sense.

But the funniest part about this for me, was that Nestle isn’t getting any physical assets from the deal at all. When you see a deal that’s in the billions, usually you’re acquiring assets and you’re acquiring a lot of them.

07:25 AUSTIN: Some sort of organization.

07:29 PAT: Something tangible. Right now this is… that was a transaction for the right to use the Starbucks name, and I get that. I do get that.

Btu at the same time, I don’t think that this is the solution that Nestle is looking for.

07:41 AUSTIN: The big issue I have with this is what you do from your own brand perspectives? What I mean is Nespresso is one of them? And then Nescafe. Those are the two Nestlé’s caffeinated beverages I guess you could say. Or coffee.

So this is a great Band-Aid in terms of maybe generating revenue and staying on track with maybe quarterly goals. Something that they probably haven’t been able to do.

But how long is this going to last? Are you just forever going to sell Starbucks products? What’s even the point of having a coffee line? I guess there’s probably some sort of margin that they’re making on each Starbucks sale, so that makes it okay. But why wouldn’t you just kind of do some sort of merger at that point?

08:22 PAT: Yeah. So I do get that point of view. I personally don’t think that this… it’s an unusual deal, but I don’t think that it’s a “bad” deal. I think that the logistics need to be worked out. I think that it’s a little murky and that it might have been overpriced.

But if you look at the just brand valuation of Starbucks it’s the 2nd most valuable brand in the world. So if you’re buying essentially, the right to market as that brand with better distribution channels, I think that that can actually help, if executed correctly.

Now it’s going to come down to the logistics of how they actually go about doing this. And it’s going to come down to a lot of other details that aren’t even listed out in the article.

But I think that the reason that this was interesting is because we’re seeing kind of that… it’s almost like a shift in what is considered a tangible asset. Nowadays the brand and the brand recognition and the brand awareness that a company has… it is a tangible asset in a sense. But at the same time, it’s very intangible in a traditional sense.

09:23 AUSTIN: Yeah. It’s truly… they’re selling a feeling to this other company if you think about it. They’re selling that feeling that you have when you look at a Starbucks, you go in a Starbucks, you enjoy a Starbucks. And Nestlé’s going to try to emulate and kind of mask their own products with the Starbucks feel.

So it’s simply a cover up of how you feel about Nestle and their products, and now you just are going to be thinking about that as Starbucks.

So yeah, I don’t know. We’ll see. Short-term problem. I think long-term, not sold on how this is going to do.

But big ups to Starbucks. Wow. You’re selling just the name…

09:57 PAT: Yeah. Here’s like this weird logo of the person with a crown.

10:02 JOE: It’s a mermaid.

10:03 PAT: Okay. Sure. Wouldn’t have known that. And that’s 7 Bil. I think that’s pretty funny too. And there was an analyst at Main First Bank from Zurich who said that Nestle needed a big brand because their shares were dipping, their sales growth was slowing. Their stocks had dipped 7% this year if I read that correctly.

And as soon as the news of this deal came out, their shares rose 1.8% and Starbucks shares actually rose a little bit less than 1% as well. On the NYSE.

So I think that it is a vital step. I actually agree with what Allan Oberhuber says at Main First and he says that it’s a good move, but it’s late. It seems a little retro-active. They’ve needed a big brand for a while.

But it’s a strategically a vital step. So I think there’s a lot of good that can definitely come of this. And people are a little bit optimistic.

10:52 AUSTIN: I agree, Patrick. Good stuff there.

All right. Last piece of news before we get into our main topic. We’re going back over to Bezos’ Amazon. We’re going to be talking about fake reviews. This seems to be a growing problem on Amazon. I think a lot of brand that utilize Amazon are leveraging this as an ability to do a variety of things. Crush their own competition. Or use this to get better positions in their rankings. So there is a little bit of that. So, Pat, what are we looking at here?

11:20 PAT: So this story came out… it was on Buzz Feed news. It’s been corroborated by a lot of other sources as well. Kind of talking about it’s been uncovered… from January to the end of April that there are a lot of fake reviews that exist on Amazon. And I think that this is interesting and worth discussing because we talk about Amazon as one of the most competitive marketplaces in the world. 40% of all e-commerce sales in 2017 came from Amazon alone. So anytime, anybody purchased anything on the internet, 4 out of 10 of those people did that on Amazon. Which is a crazy number.

And because of that people know that’s where the consumers are and they need to get in front of them because the competition is so fierce and they can find other products that are similar, at probably a lower price-point right next to it.

So it comes down to the trustworthiness of your solution versus another one. And we talked about this on our forum page a little bit, but I think that while this is definitely a shady practice that a lot of companies are using. Generating fake reviews. I think that it’s also kind of their last-ditch effort to get in front of the right people. Their product is probably very similar to a lot of acceptable substitutes that show up right next to it. The price-point is probably very similar. And they know that competitors oftentimes too… this came out… competitors will also flood your products with fake bad reviews. Try to bring down that composite score.

So a lot of companies, I think, are using this as a method to basically rectify that.

12:52 AUSTIN: And this is what I’m seeing and thinking about as this problem is arising is this has happened before. And this has happened with Google’s algorithm and the way that Google was set up as well. So you have to think about it like this.

So Amazon’s algorithm ranks products based on a number of factors. Just like Google’s algorithm does.

One of the big ones is reviews. They factor in and can understand when a product is reviewed. So whether that’s positive or negative that’ll affect the reach of that product when someone types in the keyword that would bring that product up. So of course, if you have a lot of positive reviews, better chance to be up the page. Better chance to show up first. Better chance to drive more sales via Amazon.

On the flip side, a lot of negative reviews, you get pushed down the page. You will not be showing up for that product.

So people understand how to game this system. It’s an algorithm that can be gamed. It’s a robot that you can affect in whatever way you want. And what Amazon’s going to have to do to fix this is what Google has done. Just continue to iterate on their algorithm. Make it more intuitive. Make it more contextual. Make it more understanding.

So Amazon’s algorithm is completely different from Google’s of course, for a variety of reasons. One is that it’s pretty sales driven. It’s an e-comm platform. It’s not an information platform. So you have to view it a different way.

But they’re going to need to come up with a different way to rate these pages and these products, because their platform’s going to be getting gamed.

14:18 PAT: Yeah. And that’s the frustrating part too, because people know that there’s so many people on Amazon… if they flood it with overwhelmingly good reviews, not only does that make the product look better, but it feeds into the algorithm so that it serves more and gives you a higher likelihood of being shown.

14:35 AUSTIN: I do understand it from the business perspective like you’re saying though. If you’re not doing this, you’re going to fall behind, right?

14:41 PAT: Yeah. But that’s a bad precedent to set. That’s bad business. Bad Business Bureau.

14:46 AUSTIN: We need to call the triple-B in.

14:47PAT: That’s what I’m saying. But think about it this way. I’m a business owner, and I believe in my product. I’ve gotten nothing but positive reviews from people that have gotten the product and enjoyed… that have bought the product. But then I go on Amazon and I have 2.5 star rating. Of course I’m going to try to raise that. Not just because it’s going to hurt algorithmically if I don’t and competition-wise.

But it’s not a reflection of my actual offering either. And I think that’s kind of the issue that Amazon’s going to run into The perceived credibility and value of the products that they’re selling are going to be undermined by fraudulent reviews whether negative or positive.

15:24 AUSTIN: Yeah. I mean clearly reviews are a huge thing for people buying stuff. I know, personally, I like to check them out. Whether I’m on Yelp. Whether I’m on Amazon. So it’s a big thing.

And it’s a very difficult situation, right? Information that’s being gamed. We see this across a lot of platforms. We don’t know if information is real or not. It seems to be a larger societal problem on the Internet, and one that I don’t really know how to fix, of course.

But for Amazon, yeah, I guess at this point if it’s not affecting their bottom-line yet, they probably don’t see it as something they need to fix right away. But I think just from an ethical, moral standpoint–this is an issue you’re promoting and allowing people to lie pretty much. And create fake information on the Internet.

16:08 PAT: Yeah. And I think that Amazon’s too valuable right now to let that kind of thing happen.

16:13 AUSTIN: They’re in a very good position. Second largest company in the world behind Apple. Apple has been dipping a bit. They’re on the rise.

16:20 PAT: Yeah, so they’re on the rise, but here’s the problem though. When they’re on the rise, they’re going to be placed under additional scrutiny. We saw this with Facebook. They’re feeding right into the same untrustworthy narrative that Facebook did by generating fake news and fake trending topics. It’s going to be the same level of, I guess, distrust between consumers and Amazon if they let this continue to happen.

Which is why I firmly believe that Bezos is too smart to let this go unnoticed. I bet this article came out and Bezos is like, “We’ve known about this for 2 years, and we’ve been working on a solution for a year and 11 months.”

16:52 AUSTIN: Yeah. And it’s probably going to be taken care of soon.

Yeah, really interesting stuff, definitely. If you guys are out there checking out reviews remember that the company may have paid for those. So next time you’re reviewing a product, think about it long and hard. Maybe go and look at a couple other products. Compare them first before you make the buy.

But Amazon. It’s good and it’s bad.

Main topic today, we are talking market mergers. So we’ve had some very, very big ones that are happening. Some are not completely through and need to be regulated and understood if they can happen. That was funny.

17:29 PAT: That was good.

17:31 AUSTIN: Anyways, last week we kind of touched upon it very quickly with the Sprint, AT&T and then we kind of at the very end got excited about the Disney/Fox one. We talked a little bit about that.

Btu today we want to focus on all of them and what they mean to consumers. What’s going to happen? And where we’re going to go from a market standpoint for all these different engines.

So I think the first one we want to touch upon is the Sprint/AT&T one. Why they’re doing and what it means.

17:56 PAT: Yeah, exactly. So… and again the biggest takeaway that we want you guys to have from this is to think for yourself about whether or not a merger between 2 big companies within the same industry is good or bad for the consumer, right?

Because arguments are made on both sides about it frequently. People are like, “Too much market share means that people can price gouge. They can do whatever they want.”

And then there’s arguments to be made on the other side. So let’s get into it a little bit.

So Sprint/AT&T. The first thing that I kind of wanted to talk about with this. So we started talking about it last week. Basically the acquisition is an effort to create more of a 5G offering.

18:39 AUSTIN: Right. So right now it’s pretty much an arms race between these… what were 4, now 3 telecom companies to roll out 5G nationwide. The reason being that currently the complete market growth is flat. So these huge telecom providers have not seen much growth the last 2 or 3 years. And a large reason for this is data.

So people are continuing to use more and more data on a day-to-day basis, on a year-to-year basis as us as a society just consume more. We are consuming so much information and now you don’t go a minute without looking at your phone. And where do you think that comes from?

It’s these telecom companies providing you with the ability to do that. That eats up data every day.

So with a 5G network, a lot of this will be mitigated. They have the ability to have just more data. It’s faster, more efficient. It’s better for them long-term because it doesn’t cost them as much to provide you with that data. So the 5G network is huge. Huge, huge, huge.

But the problem is how much it costs. It’ll really put a company under if you don’t have the capital to invest in it.

Which is why boom. Here we go. 3 and 4, T-Mobile and Sprint merging into one. And now they do have the capital to make that investment.

19:49 PAT: Right. And it’s a way to stay competitive in what is right now, a pretty saturated market. With 4 major players, now 3. And that’s kind of going back to the main argument that we want to talk about.

Is the fact that they’re doing this, is that good or bad for the consumer?

20:04 AUSTIN: Yeah, and you could really look at it on both ends of the spectrum. So you can make the argument for both, I think, at this point. The obvious one is competition. We’re moving down to only 3 choices right? On a nationwide level. Where you can expect to get good coverage, and have a decent plan and a decent phone.

When have we seen that in a market work well? I don’t know. We don’t really ever see that with a lot of choices.

Even from a car perspective, right? Which is hard to break into and be mainstream. There’s a lot of choices. There’s various models, there’s various brands. Blah, blah, blah. All that stuff.

And then from TV there’s tons of networks to choose from, lots of different shows.

And then you’re now just looking at it from pretty much a perspective you have 3 choices. And if they decide to do a price hike, like you’re saying, you don’t have a choice. It’s almost becoming intangible at this point in terms of the good you use… sorry. Inelastic was the right word to use there from an economic standpoint. Where you don’t have a choice. You need a phone to live. This is where we’re at.

You do. If you want to be connected and communicating. So from an inelastic economic standpoint, they know that. And a merger like this can really hurt an individual’s wallet by just driving the price up. Knowing that you’re going to pay for it regardless.

21:23 PAT: All right. Other side of that though. Let’s say that there were those 4 competitors in the space. 2 of which do have a massive amount of the market share. Leaving Sprint and T-Mobile as the trailing 2.

How are they expected to provide good service for their customers if they don’t have enough capital to invest in 5G?

21:43 AUSTIN: They have to. They have to come up with the money.

21:44 PAT: Exactly. So one could also make the argument that the level of competition as it pre-existed in the marketplace was worse for consumers, because there were 2 big companies that could give you 5G and now there’s 3 big companies that can give you 5G.

21:57 AUSTIN: It’s almost like a wake-up call for Verizon and AT&T who were pretty comfortable at the top knowing that T-Mobile and Sprint really couldn’t keep up with the technology because they simply didn’t have the capital to invest. So they’re kind of sitting up on their high horse. These two companies, AT&T and Verizon going, “Well, we’ll just divide this up and it’s ours.” And that’s pretty much it at the end of the day. There’s nothing they can do about it. T-Mobile has done a good job of creating plans that are priced really well.

So for people who can’t afford those AT&T and Verizon plans… Not locked into a contract. So they had a little bit of market share.

Btu you’re right. This is driving innovation. This is technological advancement from a provider from 2 providers now, 3 providers that touch pretty much every American.

22:43 PAT: Exactly.

22:44 AUSTIN: Every American interacts with this product on a day-to-day basis. So their driving innovation now by doing this merger.

22:50 PAT: Yeah. And I think that that is good for consumers.

22:52 AUSTIN: I think so too.

22:53 PAT: So there are those 2 sides to the coin. It’s bad because you can get price gouged in a situation like this… though I will say–I doubt that would happen–because of the fact that they are still competitors with one another.

23:05 AUSTIN: I was really playing Devil’s Advocate when we brought up the negative side. Because I’m going to come and say I like this merger.

23:11 PAT: I like this move a lot.

23:12 AUSTIN: I like it a lot because you do look at these two companies–Sprint and T-Mobile and they didn’t provide much value. And they weren’t competitors with the other 2.

23:19 PAT: As stand-alones they were not…

23:20 AUSTIN: No, they really weren’t. And now this is a brilliant move. You go, “Guess what? We’re becoming one. Now we have enough money to push you guys out of business… Not necessarily out of business, but compete with your business, so you better keep up.”

23:31 PAT: Exactly. It makes so then you take those two, so like, Comcast, AT&T that have an overwhelming majority. An overwhelming market share percentage and it pushes them to say, “Hey, you guys also need to keep innovating for your customers, cause we’re right on your heels and now we have the capital to keep up with you.”

What we see a lot of times… and we actually saw this to an extent with Apple even, at one point. When they had first come on the market with smartphones. There hasn’t been a ton of innovation since that if you really think about it relatively even to an Android phone. Or the Samsung Galaxy. They went from catching on fire to being one of the best smartphones on the market.

That was kind of an exaggeration, but it’s the same principle though. You need to keep innovating for your customers in order to continually delight them. Right? And to keep buying your product and pumping money into the economy. And whatever you have to do to force that hand from the big players is what you have to do. Whether that’s by having a lot of competitors in the marketplace that have a viable product and can gain market share.

Or whether you take 2 losers in the marketplace and combine them into what can be a winner or a serious player.

24:42 AUSTIN: And this is what I think’s going to happen from a pricing standpoint. So when you’re touching you guys down to the consumer level and seeing what you’re going to pay for this product. I think with this capital investment that they’re going to have combined, they’re still going to have a lower price-point than AT&T and Verizon.

I don’t know this for sure, but from what I’ve seen, they’re going to be just be T-Mobile. That’s going to be the brand now. Sprint is gone.

It’s just T-Mobile. And I think T-Mobile is going to want to keep that same look and feel that we’re more for your average person. There’s no contract obligations. Come and go as you please. Our price-point is lower. You just pay for your data up front, and that’s it.

I guarantee you they’re going to try to do that.

Of course, locking in people contractually, is how you produce lifetime value. So they’re going to want to do that also. But I guarantee you they want to keep their brand feel. Which is “We’re lower, we’re cheaper. And you’re going to find good coverage.”

25:32 PAT: Yeah. Exactly. I wonder if they’re gonna have that 2-timing spokesperson. You know, “Can you hear me now?” The guy from the…

25:39 AUSTIN: Is he Sprint?

25:41 PAT: Yeah, he’s Sprint now.

25:43 AUSTIN: Right. He went from Verizon to Sprint.

So, Ooh. That’s a great question. Maybe he’s going to T-Mobile. I don’t know if you guys have noticed too I don’t think I’ve seen any Sprint ads lately…

25:53 PAT: I’ve seen a couple. They’re not that funny.

Going into a couple other pieces of the market in mergers and acquisitions, another cool one that came out this week. So we had been talking about how Disney was looking to acquire Fox. Right?

We talked about that very briefly. I think at one point last week. But basically what’s happening is Disney’s making a push to acquire Fox and a lot of its news capabilities. A lot of its media capabilities.

Which is really interesting because Disney owns a lot of everything. In every industry. ESPN, ABC… I’m blanking on a ton… Pixar.

26:34 AUSTIN: The Marvel series–they own a ton of movies

26:38 PAT: Lucasfilm.

26:39 AUSTIN: Right. So they own a lot of stuff that you like and see on a day-to-day basis from television shows to movies. And now what they’re really going to try to do is just acquire an entire network. So when you acquire Fox, you’re not acquiring just television. You’re acquiring tons of rights to movies. Tons of rights to television shows that are currently on Netflix and Hulu and all sorts of these things. So this is a market grab. This is clearly an arms race, kind of similar to telecom where they see this as just growth potential. They need to make other investments that continue to grow. And what this really, really boils down to is what Netflix is and what it became.

And what Netflix has done is steal market share from cable television. Which who would have thought that’s possible, right? A mainstay in American society has always been cable television.

But it turns out that people like to choose what they watch. It really does. They don’t like to be told and just wait and sit and hope that their next show comes on Thursdays at 7:30…

27:38 PAT: Yeah. And they want new shoes to be generated to them. “Hey, you liked this? Here’s another one.”

27:42 AUSTIN: Exactly. Personalized. We’re in a personalized society.

So what do these big companies gotta do? They gotta follow suit. They gotta do the same thing. So this is why they’re acquiring… they have the capital to acquire the rights to all this information or all this media. Because then they can put it on their own platform.

This is the end-goal here. Disney’s going to create and build their own streaming platform.

28:05 PAT: Yeah. And that’s the play. But this week it came out that Comcast is indirectly trying to blow that deal for Disney.

28:14 AUSTIN: Yeah, that’s huge…

28:15 PAT: Yeah, so it came out this week that Comcast unveiled a 30 billion dollar takeover bid for Sky, which basically they’re competing against 21st Century Fox for this cable provider. So Sky is a British Satellite broadcaster. And Fox had a bid for them. And that’s a reason that they were appealing to Disney.

And now Comcast has come in and unveiled basically a higher bid for that same acquisition to stop Fox from being able to acquire that asset, and indirectly affecting Disney.

28:49 AUSTIN: It’s wild. And the ultimate play here is for Comcast to acquire Fox is what they want to do. So they’re trying to out-bid Disney by throwing 60 billion dollars at Fox for their assets. Disney came in at 52. So this could be just a little bit of a ploy to drive the price up.

It very, very much could be. Or it’s these companies like Comcast is saying, “If I don’t acquire Fox, there’s never going to be this much media available at once ever again. So this is really going to be a big grab of us–Comcast–building our own platform if we can acquire all the rights to this media. So we need to outbid Disney at costs.”

That could be the play as well.

29:34 PAT: and it’s just insane to me. The reason that we bring this up is because this is a market protection play. It’s like a defensive play. Because if the deal were to go through where Disney acquires 21st Century Fox, that consolidates a lot–a lot of different media outlets within the industry that then that’s really where, as a consumer, it’s almost worrisome.

Because we talk about if a few key, big players that have comparable assets and offerings then that’s pretty good, because it forces innovation. There’s some cons as well. You could be subject to price gouging, but the 3 competitors would have to mutually agree on a price hike. Which is tough to do.

But take a company like Disney that could own 61% of media…

30:21 AUSTIN: Of media. Across…

30:23 PAT: If they decide to price hike, that’s going to force everybody’s hand to price hike whether they want to or not. Just to stay relevant.

30:30 AUSTIN: So just the opposite of what we said about telecom is coming into play right here. I believe that this is bad for consumers.

30:36 PAT: This is an example of bad.

30:37 AUSTIN: And the reason why is this does not drive innovation.

30:40 PAT: No. This is purely a market grab play, like you said. It’s not because they want to do anything innovative or new or push the market forward that’s better for consumers.

It’s a defensive play and Disney just wants to continually accrue market share.

30:53 AUSTIN: People… These companies were scared by what Netflix is. They were. They saw that their market share was dipping because people were going to Netflix. So what’s the way to get that back?

Just emulate it, just on a larger scale. So they’re going to give you more options on their platform, assuming that you’ll go over to them. They strip the shows that you like off of Netflix. Off of these other ones like Amazon as well.

And they only put it on their own. So then you have to switch over there.

And what they’re expecting, the long-term goal of these large networks is that you pay as much for streaming as you do for cable right now. So they have what their lifetime value of a customer is… locked into the cable providing situation. They want to keep that. They want to keep that growing as well.

And so they know that they can do that from a subscription based model now, if they create their own platform. Gather all the assets that you need to make a bigger, better platform and then start driving individuals to that platform. Away from Netflix. Even away from cable television, because they know that’s not where they’re going to generate their revenue long-term. They’re going to have to create a subscription based model platform. That’s the end goal.

This… as we’re saying… this is not anything new. They’re not going to be creating anything new. You might be excited at the fact that you now have all these television shows available to you on this platform that they’re creating. But how is that innovative? It’s not.

32:12 PAT: And they’re still telling what shows to watch at what time. It’s paid programming, it’s scheduled programming because advertisers drive the business, and they decide when they want to show their ads.

32:22 AUSTIN: Yeah. So Disney’s definitely going to be utilizing this on a more ad based, unlike where Netflix doesn’t do that as much. And it’s going to cost more. At the end of the day, it’s just going to cost you the consumer more. You’re still going to have your Netflix subscription cause you wanna watch those shows. Now you gotta buy this Disney subscription. You might have a Hulu subscription, and an Amazon Prime subscription. So guess, what? You’re now paying 80 to 100 dollars per month for TV.

32:46 PAT: Prime is yearly, though.

32:49 AUSTIN: Yeah, but once you factor in if you have a Hulu account, if you have a Netflix account, if you have this Disney account, and then you divide the Amazon Prime subscription… Maybe not a hundred bucks, but you’re getting close to 60 to 80 dollars a month. And guess what, that’s really close to what you pay for cable television right now on a monthly basis, right? So they now hit their price-point. They’re exactly where they were, just with a different look and feel. But it’s the same thing.

33:15 PAT: That’s a really good point.

We had… why didn’t you cue me up on that before we started talking about this? I would have had something better to say back.

33:22 AUSTIN: I don’t know. I just… I guess I thought about that right now.

33:25 PAT: Genius. Little bit of a Rain Man moment.

Also, so that’s an example of one that might be bad. And then we have another… a smaller one, but it’s more of a partnership between Amazon and Best Buy. And we actually started talking about this one time, but technical difficulties. The recording didn’t happen.

33:44 JOE: Oh, that’s right. That was the lost episode.

33:46 AUSTIN: The lost episode, Yeah, yeah.

33:48 PAT: Joe lost an episode. Remember that?

But Amazon and Best Buy are partnering together for some of the TV selection. Trying to create smart TVs that integrate into your smart home.

And you can stream Amazon Prime TV shows through that TV for the cost of the TV essentially, right?

And it’s smart for both of them, because it gets more people who have Prime the shows that they want to watch. It helps Best Buy with some of their sales goals. It’s essentially just a better distribution channel. And the reason why is that Amazon’s such a trustworthy brand.

So this almost goes to that Nestle-Starbucks discussion that we were having where this is just a little bit more a brand “Partnership” as it is a market grab play or as it is a consolidation defensive play. This is actually innovation.

34:38 AUSTIN: Insignia is Best Buy’s brand. That’s one. And also then Toshiba are the two televisions. If you’re looking on the floor to buy one of these, that’s what type of TV they’re going to be. But they’re all going to be loaded with all the great things that Amazon has. So it’s going to come preloaded with Fire. And then, of course, you’re going to be able to buy stuff on there. It’s a smart TV, but with just all the Amazon products loaded into it.

I like this. I think this is a really cool move. I don’t think it’s going to be extremely more expensive. And this is just the way that TVs are going. It’s more intuitive. It’s more personalized. It’s just what people want in their homes now.

And Amazon and Best Buy–Bezos and their CEO have been friends for a while. And they’ve seen each other’s businesses grow. Best Buy’s done a really good job of kind of keeping up with innovation and providing new products. And so now they both see this as a great opportunity for each other.

35:27 PAT: Exactly. And if you really think about it, that’s a prime example of innovation because it’s a new way to utilize a pre-existing technology. And that’s what innovation means, you know?

Also it means to create new technologies, but let’s say you’re just taking a current piece of technology and integrating it with other pieces of technology. That’s innovation. That’s something that is good for consumers.

35:52 AUSTIN: There’s also going to be Alexa integrated into that too. So that’s awesome.

35:53 PAT: Exactly. That’s something that’s good for consumers. So the point that we’re trying to make here, is that there’s a lot of different market activity that can affect you positively or negatively based purely on the dynamic of what that deal is. If it’s a full-blown acquisition, you have to see whether or not it’s to maintain relevancy between maybe some trailers in the market. Like a Sprint or a T-Mobile.

It could be for a market grab play like it is with Comcast trying to block the Disney acquisition. Trying to either maintain market distribution as it is, and stop Disney from basically consolidating the entire media market.

Or it could be trying to drive innovation forward.

A couple of those are good for consumers. One’s bad. And you just need to know as a consumer, when you’re reading this in the news. And as a business owner, when you’re thinking about these types of things, how is it going to affect your consumer?

Because in a world where everything is incrementally more consumer driven than it’s ever been before, that needs to be your primary consideration.

36:47 AUSTIN: Absolutely. Very nice close there, Pat. Also great conversation.

36:51 PAT: Pretty good. Not bad.

All right everybody, moving into one of our favorite segments. Dedicated after one of our long-time listeners…

37:02 AUSTIN: Good friend.

37:04 PAT: Good friend. We’re kidding about that, but Elon Musk. We’re getting into a Minute with Musk. What has he been up to this week?

37:10 AUSTIN: Oh my gosh.

Yeah, what has he been up to? Has he been acquiring stock from his own company and trolling all of the people that are shorting his stock, right?

37:18 PAT: Exactly. I think this hilarious. So just to give you guys a little bit of a track record too. In the last 2 or 3 segments we’ve talked about how he started a flamethrower company. How he told Toyota they were going to school them on lean innovation. How… what was it… the April Fool’s joke tweet about how Tesla’s bankrupt. Ha-ha. And it might be true.

37:37 AUSTIN: And he literally just sent a rocket into space.

37:39 PAT: Sent a few rockets into space. So basically what happened this week is that Elon Musk bought 9.85 million dollars worth of Tesla shares, strictly to taunt people who were shorting the stock. Strictly.

He said online… he said “The sheer magnitude of short carnage will be unreal. If you short I suggest tiptoeing quietly to the exit.”

Who the hell is this guy?

38:06 AUSTIN: He promised to burn those betting against the electric car maker. This guy is on a vengeance run.

38:13 PAT: Crazy.

38:14 AUSTIN: A little bit of back story. So Tesla had a pretty bad quarter.

38:17 PAT: Awful.

38:18 AUSTIN: And he said that this was cause of production reasons. They went through money because they’re innovating and creating all these new cars, and they cost a lot or whatever. So he says that of course, this isn’t going to happen again.

But this opens the door for people to short his company. That’s just the way the market works.

38:32 PAT: It’s because the demand is so high that they can’t manufacture at the right pace.

38:34 AUSTIN: And I think people feel like his stock price is overvalued. So that’s come into a play where you would short it.

But clearly he’s not having it… he doesn’t like it. And it’s awesome because he has enough money where he can just change things. He’s just like, “Yeah, right. You’re going to short my stock? I’m just going to buy more of it, so then it doesn’t. It goes up. It’s going to go up. And now you’re going to lose your short and you’re going to lose money. So nice try,”

38:57 PAT: He owns 20% of the company now after this purchase. And it’s just… it happened right after the earnings call from last week too. So like we said, Q1, they didn’t do so great. People were shorting the stock at a pretty high rate, so he went in and just corrected it.

And you can say what you want about it, I personally think that this is hilarious. Like the fact that he can go in and change the direction that his stock is trending with his own money just to piss people off that were doubting him I think is really cool.

That being said though… from a business perspective, I don’t know. Is that even a good move?

39:36 AUSTIN: I have no idea.

39:37 PAT: Because he’s going to send the stock going up. They can’t manufacture at a pace to meet up with the demand. And that was the biggest pain point on that earnings call last week.

39:46 AUSTIN: Really scary for Tesla in all honesty. He might be trolling people in the short term, but I don’t know. What’s he doing? I guess with a 20% stake in the company, he understands that his whole world is invested in them, and we make the comparison. This guy is like Ironman, right?

40:04 PAT: Yeah, he’s a little bit like Tony Stark.

40:05 AUSTIN: So he’s going to take a few risks.

40:08 PAT: Yeah, we’ll see. We’ll update you guys on that on the next episode.

But in the meantime we’re going to wrap up today’s. Thank you guys so much for joining us for episode 35 of Flip the Switch presented by Power Digital Marketing.

Join our forum. We have a forum group on Facebook called Flip the Switch podcast forum. It’s a private group, so ask to join. Austin is sitting by his computer, waiting to approve you. He wants you in there. We need you in there.

We always have polls, questions and interact with you guys to see how we can keep bringing you great content. So do that.

But in the meantime, have a great rest of your week. This has been Pat Kriedler, Austin Mahaffy, Joe Hollerup and John Saunders signing off.

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