Meta in Court, Disney v. FCC and the Paramount/WBD Wrangling

Speaker 0 · 0:00

Hello. Welcome to the Media Unfiltered podcast. We're back after a little bit of a summer break. Ian has been away in Italy, Spain, the Mediterranean, enjoying lots of food and lots of wine. I've still been working, sadly. We've got a lot on in the autumn, and I've had to do a lot of work, unfortunately, during the heat of summer. So today, what we're going to do is talk a bit about, politics in metering tech. We we touched on it in our last podcast, but there's a lot that's happened since. As you've seen in the news, we've got four state AGs suing Meta. There's a lot on that that we're going to talk about. We've got Disney suing the FCC. We've got state ADs against the Paramount WBD deal. We did a little bit on that, but there's been update on it, that has just occurred over the last couple of weeks. And then we've got the rising backlash against AI. And, again, we have touched on this, but it's occurring in lots of different countries actually around the world, not just in The US. So we're gonna have a little look at that. And, obviously, in the meantime, since we have not published an episode, we've had the origin news. And, of course, what happened this week with YouTube changing the way that they determine a view. So, Ian, let's start with the meta stuff. It's very, topical. Four state AGs are suing meta. The basic, overview here, or I guess the, the allegation, if you like, is that they knew of the harms. They hid the truth. And I think it's down to the prosecution to prove that that was the case. So what's going on there? What do you think? Do you think it'll harm Meta's ability to attract advertising dollars?

Speaker 1 · 1:45

Well, look. This is a really interesting one. I mean, Meta if you look a couple of weeks back, Meta lost a a similar case in New Mexico where of damages awarded against it. Now California, that's a whole different scale altogether because California in many ways if California decides on something, then de facto tends to set a lot of the regulations for for an industry just because of its size. You've seen this particularly when it comes to, the digital space. Will it impact, advertising dollars? I think in the short term, no, would be the answer. I still think advertisers, yeah, what they would do is they will still put money onto these platforms. Obviously, press for me advertisers, they will still, they will still need to spend on there as well. I think the more interesting question here is both the strategy that the state attorney general seems to be following in in what they're doing and then the potential long term consequences of that, and also as well what could come in on the federal side. So if you look at the strategy, what this seems to be, it's got very and this has been commented on sort of before. It's got quite a lot of similarities with with big tobacco and the court cases that took place decades ago there, where, essentially, tobacco companies were accused of knowing the harms of their products and trying to either cover it up or or just just gloss over them. That seems to be very much the tactic that's being used here. Now if you look at what that actually led to in terms of tobacco industry, and, obviously, it's different from online advertising, not least because consumers buy tobacco products directly. Yeah. Whereas advertising is a little bit of a different dynamic. Yeah. What you have there was, first of all, you know, governments and regulators saw the tobacco industry as a cash cow. First of all, in terms of the fines that they actually issued, against those companies, and second of all, in terms of the taxes that they actually sort of imposed. But in terms of banning the product, you know, yes, tobacco has faced restrictions, but it's been allowed to continue. Now I think in terms of the online industry and what's happening with the case for Mesa here, my feeling is, similarly, I think many of these states, what they're looking to do, first of all, is essentially there's an extraction. There's a revenue extraction game that's going on here. That's my personal view. I'm sure the state attorney generals would would disagree with that. I think over the medium term, what that therefore means, are the more in it's sort of important consequences. Does it necessarily change the algorithms that the tech platforms have to operate under? And there, I'm sort of more quite frankly, more uncertain because with a tobacco product, you know, actually imposing a restriction on a on a tobacco product is, like, is actually quite easy to do. You raise the agent with minors to buy the product. You you know, there are similar restrictions you put on an advertisement, etcetera. When it comes to the algorithms, these are, you know, they're ever changing. Yeah. It can be hard for courts to put an exact finger on things. There are many areas where it comes to where things are are very much great. So the short answer is, do I think this will necessarily impact Meta's advertising business in the short to medium term? The answer to that is no. I don't think so. Where there is a risk, and this is where, again, the federal sort of angle potentially comes in, is yeah. If you get these court cases time and time and time again, and the financial markets are starting to sort of, catch up with this, where there are just multibillion dollar fines which have just been posed, sort of multi multimillion dollar fines Mhmm. Then at some point, that has an inability both an inability, an impact on the company's abilities in terms of cash flow and what they can fund in terms of investment if such fines are huge and they are ongoing. And then also as well, what it then puts into sort of investors' minds are doubts about the company. And where Neto, I think, is particularly sort of vulnerable here is that for many investors, if they were to look at the major tech platforms, probably the one that they would have, I'd say, the most significant structural doubts about, you know, would probably be Meta. And the reason for that is that at the end of the day, Meta has one product that it potentially sells online advertising through sort of the main product Facebook and obviously with with Instagram and so forth. And so it hasn't got the diversification of other tech platforms. There is also another angle here as well, which, you know, which again wasn't wasn't there with tobacco, but it is with the online tech companies, which is at what point does the does the federal government start to get involved in these cases as well? Because for the federal government and the administration, they actually named it in their national security document last year. US tech giants, they stated in print, are part of their national security strategy. So you've got a whole range of different things that are coming on here. But the sort of short one line answer to what you asked at the beginning, does this have an impact on advertising? At least in the short to medium term, I think the answer is no.

Speaker 0 · 7:15

What it might help is curry favor from consumers to see more governments actually take a stance. Obviously, we've seen this sort of under 16 ruling come in, which a lot of people complain is is is not enough. Changing the algorithm is very challenging. I mean, very few people understand how it works. I'm sure lawmakers don't, but it might sway consumers' opinion towards the platforms and I think that or towards Meta. And I think that will then therefore, it will take time have have, a bit impact sort of further down the line. Some of the stuff coming out that you can see in the news, particularly from the whistleblower is that Meta knew that it was harming people and underreported it. Right? Meta's rebuttal, which I think was today, is that they're saying that they have a long history of sharing information about social media harm. So it's about who do you believe, really? You know, and again, this is an allegation at this point. This is an ongoing court case. I'm not saying one or the other. But, it that must be damaging. Right? The the financial markets and analysts must be looking at this to see, see what impact it has. And it's, you know, at some point, surely, there's gonna be a moral sort of discussion about Meta and its, and its impact on its financial success. Surely, that comes into it at some point with the, the analyst that you go that you engage with.

Speaker 1 · 8:39

I I'm I'm not sure. I think as long as the yeah. I think as long as the company continues to deliver numbers I mean, as I said before, you know, there is gonna be an impact in terms of if there are continual court cases that go on Yeah. And then and those do lead significant legal rulings that could have long term implications, then, yes, it will affect the share price because the share price is essentially investors' expectations of future cash flows discounted back to the the current value. But what you've got here with these platforms is this is a more complicated situation than than what happened with Big Tobacco. You know, first of all, as I said, you know, from the from the administration standpoint, from the federal standpoint and this is why you're seeing this sort of towing and throwing between the federal administration and the states over sort of, AI legislation and particularly the administration pushing back against states trying to enforce specific state AI legislation. Yeah. Yeah. These platforms are the same. They are seen as being vital to America's long term strategic future, at least under the current administration. Yes. So you have that factor there. You have another factor, which is essentially these platforms also are they're used by politicians themselves. So they are important conduits for getting messages out to voters. You have that factor. You also as well have the other factor here that yeah. Again, what's happening in terms of big tech, the reason for this, is because, you know, when it came to one of the big factors behind the success of the major tech platforms and really sort of one one of the crucial factors was that you had a very, very loose regulatory and government policy under the Obama administration. At the crucial point, when these platforms would gain momentum and start to take significant chunks out of the advertising market. And, essentially, Obama administration didn't really do anything about them. Now the reason why yeah. And, again, this is why I sort of say the politics is quite important. You know, what's quite interesting is the sort of we've got Democrat attorney generals now attacking Meta. Funny enough, actually, the real momentum behind many of these court cases came from Republican state attorney generals who viewed back in the day the tech platforms as then pro democrat and anti republican Mhmm. And therefore wants to to take charge. So so I think, you know, this has been going on for a number of years. I think, you know, again, I think from a stock market perspective, something they keep an eye on. They're worried about the fines. I don't think at the moment it said. There were no signs it's impacting the advertising business as yet. There is a wider sort of, thing here, and, you know, I'll stop, and then we can go to this in in more detail if needed. What is interesting is there is a wider voter backlash, which is going on against the tech platforms at at the moment, but it's on a different issue. And that is the whole issue of data centers Yes. Been sort of, go all over the countries. And that is really becoming, yeah, especially as we go into the midterms in November, that's becoming a huge issue Mhmm. In these congressional elections. Mhmm. And that potentially has the, yeah, has the the potential to really start changing legislation.

Speaker 0 · 12:26

Yeah. It's very much a local issue because you see these datasets going in. There's a resource issue, power issue, water issue, and, there's, there's lobbying and even picket lines now. So that's becoming a really big issue. Do you know what would be great? And I know I'm an idealist here, but, it would be great if politics could be put aside for a bit regarding Meta, and we can actually look at the harms. We can look at the evidence and actually do something about it as a collective. It's it's a shame that everything gets embroiled into politics, what benefits politicians, and all the rest of it, but I guess that's just the world that we live in. Speaking of politics and, political sort of, government bodies. We're looking at the FCC, which is famously political in the last couple of years with the Trump administration. Absolutely ridiculous what's going on there. And now we've got Disney suing the FCC, which probably won't go too far. But what why are they suing the FCC, and, what's the likely outcome of that, Ian?

Speaker 1 · 13:25

Well, what's happened here is that the FCC is deciding to review ABC's eight of their broadcast television licenses earlier than usual. So these licenses, they were due to come up here in, I think, it was 2028. Obviously, there's been a lot of beef between the administration, you know, when it comes to the the Jimmy Kimmel show and so forth. But, also, as well, you know, there's been question mark over the view, in terms of, of that. Disney has been on the yeah. It has been on in the toss house for the Republicans for a number of years now. You know, you've had the comments about the films, the TV programs, etcetera, etcetera. What's quite interesting about this lawsuit is that it is unusually aggressive, I guess, when it comes to media companies pushing back, against the administration. I mean, in the lawsuit, Disney describes the FCC acts action as, quote, an existential threat, on here. And so I think, you know, again, does this necessary you know, will this succeed or or or so forth? Who knows? It will need to go through need to go through the courts. But, again, what I think is interesting here is that I would say twelve months ago, Disney would have been more circumspect with this. There's a growing expectation that in the November midterms, the Republicans will lose, you know, certainly the house, potentially even the senate on here. And that maybe is leading to many of the media companies who were, you know, relatively sort of quiet, sort of twelve months ago, maybe flexing some of their muscle muscles when it comes to the political angle. Now, you know, sort of I look at political sort of events and, sort of on an ongoing basis. I think you're getting something? You You know, there is a question mark over what does happen in November for a multitude of reasons. But I think what's happening here here with a, with Disney is Disney has probably thought, okay. We've taken multiple hits by the administration. Now we actually have to make a stand, and this is what they decide to do in terms of their broadcast licenses. Again, you know, will it make a huge amount of difference? We'll have to see what the court cases say. I think at the very least, what it may do is it may sort of, you know, place a question mark in the, FCC minds whether they should pursue similar action against other broadcasting networks. So the overall thing is, as a case in itself, it's important. Yeah. But it's probably more the signal that it sends, which is critical.

Speaker 0 · 16:09

It's a great signal. Don't you think it's it's I mean, I'm asking your opinion on this, but don't don't you think it's a good thing that Disney are pushing back because it's becoming incredibly partisan? Some of the things that are coming out of The US are just absolutely absurd, and this is one of them. Don't you think it's great that Disney are making a stand rather than just folding?

Speaker 1 · 16:28

Well, the The US the thing is is that The US media and tech landscape has been incredibly politicized for, yeah,

Speaker 0 · 16:37

for several decades now. And and playing levels of Africa Nothing that we've ever seen, though. The last couple of years, you've got to agree, it's it's it's been taken up to a level that we've never seen before, though. You must admit that.

Speaker 1 · 16:51

Well, if you play Devil's Advocate on this and you were to ask somebody on the Republican side of the sort of of the chamber, they would come up with they would bring their own examples and say, ah, yes. But what about x, x, and x under previous Democrat administrations? The simple fact is is that the regulatory environment in The US, yeah, is, yeah, it is of quite a political nature. The FCC, yeah, the FCC nominees, you know, they're appointed by by the person or they're they're nominated by the president. Yeah. Every change of administration, what you get, you get a change in the political composition of the, of the FCC. Mhmm. Again, it's to go back with what's happening with the, you know, go back sort of with the tech platforms before. When you look at the tech platforms, you know, there has been there has been a notable swing of the pendulum in terms of how those platforms are are perceived. Go back four years ago, many of them were coming under the under the fire under five armed conservatives. If you look at sort of what's happened now, so that a lot of the moves have been made by attorney generals from the Democratic Party. So, yeah, what you have here is, yeah, you will always in The States just because the nature of its political system, yeah, because the political debate has become a lot more factuous. And, also, as well, bear in mind, over the past twenty years, what we've had is an erosion in The US more generally in terms of its political system, in terms of the need for bipartisanship. Mhmm. And whether that's, you know, the number of votes that you needed to get cabinet appointees through, federal judges through, supreme court justices through. Yeah. They have gone from needing, yeah, in many cases, a 60 at least 60 votes in the senate to now needing a a fair majority. So this is the trend that we're seeing in in media and tech, I would argue, is actually a trend that is a wider a wider sort of, feature increasingly of The US political system.

Speaker 0 · 19:16

Yep. I couldn't agree more. It's, it's it's a shit show, is how is how I would describe it, and it's it's a sad state of affairs when you look at our our neighbors down south or my neighbors down south as, as obviously I'm recording this in Canada. Now the final one to look at is, the state AGs against Paramount and WBD. Obviously, that's been the case for probably about a month now. Again, this is becoming something that's a little bit politicized, but but why why is the state AGs against this deal? And do you think, just very quickly on this, do you think it might not happen now? Because there was some news from the Paramount side saying, you know, that they they're they're willing to walk away from it. So what do you think is gonna happen here? What what is the case? And, do you think that puts the puts the deal in jeopardy?

Speaker 1 · 20:05

Well, I mean, yeah. Obviously, there is a question mark about the deal. You can see that from the share price of WBD in terms of discount that it trades at in relation to the deal. I mean, if there was a discount to a stated bid, what that essentially tells you, in effect, it's a proxy for the market saying, what do we think of the chance of this deal going through or not? So there is certainly some uncertainty and, you know, given the language of Paramount and, and the the ticking fee that is paying, you you would have to say, okay. There there is a chance they could walk away. Having said that, a few things. One is, I think from the Ellison standpoint, this is clearly part of a longer term strategy. So, yeah, there is a question mark whether they actually sort of, yeah, they really want this asset. Yeah. Therefore, they may be willing to take the short term hit for the long term gain. I think, yeah, more importantly, though, the fact that Paramount was talking about, you know, walking away from the deal, there are tensions there, apparently, on the political side. And, again, all these, state attorney generals are from the the Democratic party. You know? Bob Onslow, the California attorney general, also involved with the meta case as well, so a number of high profile cases there. The news report suggests that, actually, California's governor, Gavin Newsom, actually is, you know, increasingly concerned about the impact of the lawsuit on the Hollywood industry. Mhmm. And, you know, what you are starting to see now is you're starting to see previous some previous opponents, for example, the movie in this you know, the at movie theaters, who had been opposed to the deal, now start to say, well, actually, this is something we can live with if I am if certain, certain features are met. So I think, actually, when you look at that sort of statement of pan out saying, look, we'll walk away, you need to look at it in that context of as well. The simple fact is is that if you look at WBD as a stand alone asset yeah. What was happening before this deal was announced? Well, actually, they were gonna split up the company, was gonna have, as it were, a prototype, which would have the streaming assets and other assets. It was then gonna have a legacy business that would be burdened with the with the debt. You know, certainly, with the legacy business, that was not that was you would expect that to trade at relatively low multiples because the view would be it would be a low growth of any growth asset coming through. But there is no doubt that under such a structure, WBD's ability to invest in content would have been somewhat constrained by the limitations placed on it by shareholders. Paramount taking over WBD, you you would argue, yeah, there was a case for saying, look. You know, these are people who are saying they're willing to put x you know, invest in the platform, come from a technology background, and therefore can actually apply some of the standards there into what's happening in the in the broadcasting assets. And arguably given the cash and arguably also as well because they're looking at things from a long term perspective, not necessarily just thinking about short term shareholder needs, might be, playing devil's advocate here, might be sort of, actually, the thing the Hollywood industry needs. And so, you know, I think with this deal, do I think, you know, this deal still goes through? If you ask me on the balance of probabilities, I think it still does. What's also quite interesting as well we've had over the past forty eight hours is that you've had Paramount to run and say, state of the state attorney generals and also as well, to some of the other unions and, sort of posing the deal. We want you to put up a $1,800,000,000 bond, essentially against this lawsuit. Now whether that actually, you know, whether that actually works or not is a different matter. But, again, what it's sort of suggesting there is that Paramount is actually the Ellisons are preparing to sort of fight back on this one. And as I say, I think the two should think from the political standpoint, because it'd be California that will drive a lot of this, will drive yes. It's a coalition of state attorney generals, but California is gonna be the most important one in this. New York is gonna be, a second. If there is a split there between Gavin Newsom in the governor's office and Rob Bonter in terms of the state attorney general's office, that is something that potentially Paramount could can use as leverage.

Speaker 0 · 24:44

Interesting. It's gonna be a very interesting one to to watch, and, nothing is simple in this industry, is it? Is everything is such a mess that, these things, take take too long. We we're struggling as a collective industry to innovate and even get these deals through. They're absolutely essential, not just for the survival, but for the growth of the industry. Just a couple of things to look forward to in the next few weeks. We've we've had a lot on measurement, as I mentioned at the start. Origin, obviously, they're news about two weeks ago, two, three weeks ago, with, fifty five Blue taking a stake in, in Origin. We are going to be reporting on that more and having a a little bit more of an analysis on this. We've got Caroline Baxter, who's the new CEO of Barb. She's coming on as a guest, should be very exciting. And also, we're going to talk about YouTube changing how they determine what a view is. I wrote the other day that it's settled that YouTube isn't TV because it's actually reporting its views the same way as social video. So if it looks like social video and reported like social video, it must be social video is my, is my angle on that one. So we've got a lot. Don't do a duck. Yeah. Exactly. Yeah. Looks like a duck. Sounds like a duck. It must be a duck. So we've got a lot coming up, which is great, and it's good to have this episode. And, we're sort of back full time now, so you can expect this every week. Now with that in mind, this certainly isn't investment advice. And if you have other ideas and by the way, we we are getting messages for people to ask us to cover certain things. And, we are happy to take those take those messages and and actually try and do that too. So we will be covering some topics in-depth based on, user sort feedback. So do send those emails in to me and, we'll see what we can cover. Ian, anything else to wrap up?

Speaker 1 · 26:35

No. I think, you know, we've said, as usual, this is not investment advice. But look, you know, I mean, as you say, there's a hell of a lot going on. We didn't even talk in this episode about, you know, some of the interesting things happening in Europe as well. And and that's an entirely different sort of landscape when it comes to the, you know, how media and tech and politics are increasingly interacting. But look, we've got a lot to go through, and you can say we've got a very exciting couple of weeks. But thanks to everyone.