The Media Odyssey

Marion Ranchet (00:00)
Why did I put this? I put this because we're going to talk about earnings, right? We're going to talk about Disney. We got Spotify. That's why you're in green?

Evan Shapiro (00:08)
That's exactly why I'm in green, yeah.

Welcome back to the Media Odyssey podcast. That is Marion Ranchet.

Marion Ranchet
And that is Evan Shapiro.

Evan Shapiro
And this week we're going to be talking about fourth quarter and full year earnings 2024. We're going to concentrate on three companies. We're going to concentrate on Disney. We're going to concentrate on Alphabet slash Google slash YouTube. And we're going to concentrate on Spotify. We're going to go through those earnings, talk about our findings there. And then we're going to promote our live appearance at MIP London in just a couple of weeks.

Actually, by the time this pod hits, it will be the following week that we'll be there live on stage, February 26th at 5 p.m. Get your passes now. We will put a link to a promo code that will get you a discount for passes to MIP in the notes of this pod.

So, earnings. I actually, you know, I pride myself on reading the actual earnings reports of all the 125 companies that are on my map.

I don't think anybody else in the industry does that. Do you dig into the earnings reports of each Company?

Marion Ranchet (01:31)
Yeah, I do. Not 125. And I would say that I also focus, of course, with the big guys on your side of the ocean, but I take a close look at local and regional players within Europe. Not a lot has come out just yet on our end, right? So ITV is coming up, Channel 4. There's a lot of those happening in the next few weeks. So that's why we're going to be looking at, you know, companies on your side of the ocean, although I'm so happy to see that we have Spotify in the mix today.

Evan Shapiro (02:07)
Yeah, and I actually had to change, I have some slides to share on this, I had to change the currency to euros for Spotify, so it's a very difficult task for me.

Marion Ranchet (02:17)
Oh yeah, actually, I thought of that today when I was proofreading a few of the things I had.

Evan Shapiro (02:24)
PowerPoint doesn't like euros. It prefers dollars. But I was able to convince it to change it to euros. So should we dig in?

Marion Ranchet (02:31)
Yeah, yeah, yeah, let's go for it.

Evan Shapiro (02:53)
So I have some slides that I prepared as I do because I'm a nerd. Let's dig into them now. So this is Disney's earnings. These are the percentage growth for year on year across these categories and across from left to right.

And for those listening from left to right, so go from your left ear to your right ear. In total revenue year on year for fourth quarter, revenue went up about 5%, 4.8%. In the entertainment division alone, it went up 9%. Linear revenue went down almost 7%. Direct-to-consumer revenue went up 9.5%, almost 10%. And then what I like to focus on, because revenue's great, but profit is better.

And so when you look at the operating income, you can see a big jump in total operating income of almost 31%, 30.5%. The entertainment division, in particular, went up almost 100%, 94.9 %. Linear OP income dropped 11%. And then this is really what's driving the operating income for them. And the good story around fourth quarter is their DTC, their streaming revenue.

Their revenue went up almost 10%, but their streaming operating income went up over 300%. When you look at that in what's happened over the last year, what I find interesting is Disney cannot get out of this market capitalization. They hover around $200 billion in market capitalization forever. A year ago, they were worth $197 billion. Today, they're worth the exact same amount. It's kind of fascinating to look at.

Marion Ranchet (04:18)
Well, so one thing on that, before you go to that slide, looking at that growth in operating income, what is it coming from? Are we looking at price hacks, layoffs, cutting down on content spend? What's your analysis on that?

Evan Shapiro (04:40)
Yeah, so I actually will go to the next slide because I think it's good to look at it in total numbers. But what it's being driven by is a couple of things. Most notably, if you look at their D2C revenue, it's up a lot. So they're at $6 billion in streaming revenue now. But also, when you look at their operating income, yeah, D2C, basically, the growth in operating income went from having a loss a year ago, to having a little profit this year.

But, that's the key. The turn is they went from a loss on streaming to a profit on streaming. And what's inside of that, I think primarily, is a concentration on more profitable subscribers, not more subscribers, because they actually lost,

Marion Ranchet (05:26)
They've lost.

Evan Shapiro (05:38)
Yeah, 700,000 subscribers and 100 % of those losses, actually 200% of those losses because they lost 1.5 million subscribers around
the rest of the world, but they actually gained 800,000 subscribers in the US. And so what they're doing is they're basically raising prices, as you mentioned, and they're forcing out lower paying, lower profit subscribers and swapping them in for much higher margin, much higher average revenue per user subscribers. And if you look at their ARPU, their average revenue per user,

Their average revenue per user on direct to consumer streaming went up almost a buck per month in a year. So they're focusing on the profitability of subscribers, not necessarily pure scaling.

Marion Ranchet (06:18)
So we're looking at what? $8, I think in the US. And there's not such a big gap versus international, which is a little below $7, I think. So yeah, all around. So that's the price hike potentially also, ad revenues coming their way, that helps as well.

Evan Shapiro (06:41)
Yeah, the other major element to look at here is India. So they failed hard in India. By the way, as every streamer has, Netflix failed there first, then Disney bought Hotstar as part of the Fox acquisition and failed epically, just failed epically because they tried to charge for Cricket. And that's not how it works in India. And so what they've done is they've basically offloaded their Indian operations Hotstar Plus to Reliance, which is a gas company basically, but they also own a lot of television and media properties in India. And they understand that market in a way that nobody from the outside ever or can.

They're basically really what they're doing is, that you're right. The subscribers in Europe and in other parts of the world are actually pretty profitable. They're, they're shedding a lot of subscribers in India because it's just a change in business model there and they're now not in control. They're not the majority owner of Hotstar anymore. And so this is a major shift. And I think, you know, it shows unlike a lot of the traditional media players out there, there feels like there's a strategy at Disney. Whether or not it will work long-term, okay, I don't know. It's very hard to understand.

And by the way, the market cap of this company has remained flat for basically the last five years. So, you know, and that's one of the frustrations when they had that activist investor, Elliot, really come at them. You know, that was the complaint is you can't grow the market cap. What the fuck is wrong? But it does feel at least in the last half year that Disney is landing on a strategy. And I feel like they're operating substantially better than most of the other traditional media companies out there.

I believe that Iger, as much shit as I've given him over the last couple of years for retiring and really undercutting the guy who replaced him, he's come back and I think there is, especially in the last half year, there seems to be a strategy afoot there and they seem to be operating better than the rest of the traditional media players, at least from my point of view.

Marion Ranchet (09:00)
Yeah. So if we go back just a second to your previous slide, when we're seeing that the linear, the earnings on the linear, he was asked whether he felt that it would be a good move to get rid of his linear asset. He said no. I thought that was quite interesting because it shows in the number that there should be a question around that.

Could that be one of the reasons why the market cap is not moving? That plus the fact that the parks, the experience segment was pretty flat this quarter. I know that on the French markets, they've had a tough year last year because they went very crazy after COVID. Things were awesome. And then last year they bumped the prices so much at a time where actually people were, you know, tightening purses and wallets and they've been hit hard, right? Also the cost of operating those parks keeps going up. So could that be one of the few things? And one thing that is missing from this and they still haven't done anything, but last year, didn't they announce something around gaming? They wanted to do something with, was it with EA or?

Evan Shapiro (10:15)
Yeah, they invested $1.5 billion in Epic, which owns Fortnite.

Marion Ranchet
Ah, Epic.

Evan Shapiro
They actually own 5 % of Epic Gaming now, and they've not done anything with it.

Marion Ranchet (10:29)

Evan Shapiro (10:45)
That was a year ago, exactly. I mean look, takes a long time. That's not true. They have a presence in Fortnite, but they have not built out a park there. I think what everybody is truly expecting them to do.

It takes time to do that. That's a very difficult thing to build. You know, Fortnite runs in season. So I think we might expect that later this year. But to go back to your earlier point, which is I'm really glad you brought it up because I meant to talk about it. Yes. When you look at this slide, linear looks like an albatross around their neck. There is no question about it. When you see linear revenue down 7% year on year and linear operating income down 11.2% year on year, it is, I would say, distracting and it looks like it's a problem.

And in fact, when we talked about the Netflix earnings a couple of weeks ago, the Netflix folks said, well, at least we're not distracted by linear TV. And they basically gave the middle finger to traditional media. And when you at what Comcast is doing by spinning off their cable networks and Warner Brothers, Discovery, or as I call them, Disco Brothers are dividing the division so that Linear's over here and Streaming's over here.

You would think that this would be a problem for them. But then look at the revenue and look at the operating income in real dollar here. So linear TV is still generating almost $3 billion in revenue. But more importantly, when you look at the profit of the company, it's entirely driven by Linear TV. Look at the total operating income.

Marion Ranchet (12:06)
As we all know. It's a good business to be in. Again, who had that quote that you were trading dollars in TV for cents in streaming, right?

Evan Shapiro (12:18)
That's exactly right. And so when you look at the total operating income for Disney for fourth quarter of last year is $1.2 billion. $1.1 billion of that came from linear television. So if you take linear television out of that business, and this is Bob Iger's kind of like, he's basically saying, dude, are you not reading my earnings reports? Are you not looking at the fucking numbers? Because it does not seem like the analysts are truly looking at the numbers. If you take linear television out of this, they have no profit.

And so what I believe Iger is really doing, and it is the continuum of, I'm gonna take the profits from Linear as they're still there, and I'm gonna use them to change my streaming business into a profitable business. I'm gonna trade out subscribers who aren't profitable for me for now profitable subscribers. So I understand the question, but I do not understand why they don't know the answer to it.

Marion Ranchet (13:12)
Nice. Okay. Let's move to YouTube now. So, you have some slides, I'm assuming. Awesome. So I actually saw your posts on this and I will say that to me, those numbers look so amazing that I was curious on why the reaction was from Wall Street was what it was.

For people who haven't read what you posted about that. What's your understanding of what went on? Why is Wall Street treating Alphabet like not good enough, essentially?

Evan Shapiro (13:47)
Yeah, well, they missed on a couple of little elements on the top line, but really it was more about their guidance for the coming year. And they were a little bit conservative about that. And they basically brought down certain parts of their revenue projections for the year, but not by a lot, to be honest with you. So this, to me, is like getting an A minus in math and your parents grounding you.

You're right, the shares dropped almost 9 % overnight and they bounced back since then. If, I mean, look at YouTube, it's actually 36.5, it says 36.2 on this slide, but it was actually $36.5 billion just for YouTube, just for YouTube. And then you look at their other elements like cloud and subscriptions. And by the way, these were all tremendous growth across most of these, across most of these categories here. Revenue was up over 11%. There was a tremendous story here if you were able to kind of dig into the numbers and really think about what they truly meant.

So revenue year on year was up 12%. Net income was up 28%. Net income was up 28%. If everybody else in traditional media could get net income up 28%, on revenue up 12%, they'd be jumping up and down, right? But because the guidance was a little bit conservative, they just got punished. And the other element is they continue to

Marion Ranchet (15:25)
Search and cloud?

Evan Shapiro
Yeah, search and cloud, I think they're not, again, the cloud revenue was still, it was up 30%. So like, it's just not growing fast enough for some people, which I don't...

Marion Ranchet (15:25)
Or not as fast as it used to.

Evan Shapiro
Correct.

Marion Ranchet
That's the thing.

Evan Shapiro (15:41)
Beginning to flatten out a little bit. But I really do think that the key element is, and this is one of the pieces of hyperbole about this topic, is they announced that they're going to invest continually and heavily in AI. And they've yet to demonstrate in ways that the street can understand how that's going to be profitable for them. And really, the way it's going to be profitable for them is it's going to keep people on their platforms longer.

The search results are more fulsome. It is helping people discover content better on YouTube. And so they're investing in AI because it is improving their overall platform. Meanwhile, they're spitting off unbelievable, like, you know, net income, $100 billion for a full year last year. That's just crazy. It's just nuts.

And so, you know, it is just evidence of how little the analysts understand the businesses that they're covering.

Marion Ranchet (16:44)
When I look at this and the fact that you have search, cloud, subs, platform, and then YouTube, I think it shows nicely the road to diversification, right? Where they started, how they've grown, how they've diversified, which is something that is missing quite a lot in a lot of other companies' strategy.

About YouTube, so 36.5. This year, so 23 to 24, I think we're looking at close to 15 % growth year on year. The last time they've grown that much was in 2020 to 2021. A year where everyone was skittish and saying that the advertising business was going down and that Amazon would suck all of the demand, et cetera. I think it's just fascinating. And when you see that...

I mean, there's no way that you can just stay on the side of the road and be like, yeah, let's wait and see what this platform is becoming, right? On top of that, in December, they broke the 11% market share on the gauge, right? So 11.1. And I had a prediction for this year that we would go at 15. Honestly, if already in February we're at 11.1, it sounds quite good. You know, buy me, someone buy me dinner if they do get that 15, they're trending to it. Honestly, it's just, it's unbelievable.

Evan Shapiro (18:20)
And they're worth $2.8 trillion now, which by the way is the highest, their highest market valuation ever. So don't cry for Alphabet and for Google. They're doing quite well. But what I want to talk about, because this is something that you and I chatted about really quickly before we went on the air, quote unquote, is Neil Mohan. Is that how you say his name?

Marion Ranchet
Yeah.

Evan Shapiro
Who's the CEO of YouTube. So he runs, and by the way, YouTube, if it was its own business, there's a ton of people out there who believe it would be a $500 billion valuation in and of itself. Bigger than Disney, bigger than Netflix, just in and of itself. But he did his own report on the year of YouTube yesterday, and you had some real distinct thoughts on that. What were those?

Marion Ranchet (19:15)
So first thing, they're turning 20 and he's hammering again the fact that TV is now the primary device. So he's making that claim only in the US. And actually I find that interesting. I would be curious to see how different it is in Europe. I would assume that in Asia and LATAM, we would be seeing more of a mobile first approach.

His blog is named, you know, My Five or Our Five Big Bets for 2025. And so number one, YouTube will remain the epicenter of culture. Sure. That's a bit vague. I was more interested in YouTubers are becoming the startups of Hollywood. The title was kind of weird. It's like, what? What is he talking about? But what's interesting is that he's sharing data on the fact that YouTube saw a 40 % increase in channel membership. And when we did the prediction episode for this year, I spoke about the fact that when everyone's been busy at moving from premium to advertising, they were making the inverse move, meaning that they capitalize on advertising and move to paid subscription more and more. And so by doing that, they're enabling creators to make money, not just out of advertising, sponsorship, but direct subscriptions.

Evan Shapiro (20:40)
Explain what YouTube memberships are, because I actually, when we talked about this, I was not as aware of how this worked as you are. So can you just break that really quickly?

Marion Ranchet (20:50)
Yeah. So when you land on a YouTube channel page, you have the button subscribe, which for us means subscription, which is interesting. But that means someone is just, you know, kind of signing up to follow your channel. You're seeing more and more a button called join and you join a membership. And that means that that creator is bringing you more value. That can be community features that can be exclusive members only content, preview, you know, you name it. Tons of fun stuff like, you know, badges or emojis, things like that, that is building a sense of you are being part of, you know, my community as a creator. Show me, so to say, your love by signing up to my premium membership.

And I did a piece on that topic because I think that a lot more of YouTube creators are making that move in order to mitigate only relying on advertising and only relying on YouTube. So a lot of examples Dropouts, they have a membership. Our friends at Dude Perfect, they have one. Even are building that ecosystem outside of YouTube. So they have an app. They have CTV apps. They have a website, et cetera, et cetera. And I think that's super interesting. Actually, you and I, we're the pods, provided that we grow it the right way, at some point we'll get to activate those features should we choose to. Quite exciting.

Evan Shapiro (22:21)
And I think, we're gonna be at London in a couple weeks talking about the state of the content economy. And one of the things that I talk to creators and producers about is leaning into social video, in particular YouTube, as a way to make your own audience, make your own revenues, and not be so reliant on the big professional gatekeepers to green light yourself. And that,

Marion Ranchet (22:47)
Yeah, whoever that is.

Evan Shapiro (22:50)
And then on the publisher side, I again encouraged and we've had a conversation with Channel 4 on the last pod about how to lean in and embrace YouTube as the next distribution mechanism. And it's working. This is not, this is the next Sky. This is the next MVPD. And for producers, there is a way to make money and basically protect yourself from the twists and turns in the marketplace.

But also, as Mohan announced, more than half of usage of YouTube in the U.S. is now on television. More than half of the viewing. And when you look at, there was a, Digital Eye released a report last week, which showed somewhere north of 70 % of all YouTube usage is now long form, 20 minutes or more.

Marion Ranchet (23:43)
30 is, yeah. 30 or more qualify as long form for them and it was like 73 and jumping to 79 for younger demos.

Evan Shapiro (23:56)
So it is

Marion Ranchet
You see those lines doing like this, short versus long form. So yeah.

Evan Shapiro
Yeah, and it's a premium television environment. He called YouTube TV, he called creators the new Hollywood. So A, let's take a minute here. You predicted creators monetizing social video and particularly YouTube in your predictions. I predicted this would be the year of YouTube on TV and the year of the creator. I think Mr. Mohan, the CEO of YouTube, really proved us right.

Marion Ranchet (24:31)
Yeah, he's agreeing with us. Speaking of Channel 4, that's a good example of a company who has a membership. So one of their YouTube channel, Mashed, which is very digital first because it's animation done bespoke for social and YouTube and they have a joint membership. So there's separate tiers. You get members exclusive, badges, et cetera. Yeah, people are noticing already, but you need to pull in big, big numbers before you can, in a way, be allowed to tap into that opportunity. But I think for any streaming service, it's a fantastic opportunity.

I actually wonder why none of the streamers are thinking about potentially doing a mini version of their streaming service within YouTube.

Evan Shapiro (25:21)
Good question. I will, I will

Marion Ranchet
Especially in markets where people don't want to cough up $20 to $25.

Evan Shapiro
And there's data that shows that your YouTube channel doesn't cannibalize either your broadcast or your app, but it also is actually one of the best marketing platforms for your paid service. What's fascinating is, I think it was a couple days ago, Netflix leaked that they were looking at putting video podcasts on their platform.

Marion Ranchet (25:48)
Oh us. Let's do it. Netflix.

Evan Shapiro (25:50)
Well I don't know the way I talk about Netflix. I'm pretty sure we'll never be on Netflix.

Marion Ranchet (25:54)
Come on Netflix, give us a call.

Evan Shapiro
Yeah, if you were brave, Ted Sarandos, you would put us on Netflix. But, what I find fascinating is that is another example of them basically copying YouTube. You know, they had Jake Paul slap an old man around a boxing ring, then they bought the Sidemen, then they bought Miss Rachel. Now they're going to bring video podcasts, which is, YouTube is the number one podcasting platform in the world. And they crush specifically on that.

So I think it's another example of, A, the creator sphere being dominant, but B, YouTube really being the one to chase. It's not Netflix to chase. It is YouTube. And I think there's going to be greater opportunity for most of the publishers and creators out there on YouTube. And eventually, if TikTok is allowed to survive in the US and they do what they've done in China, which is go big screen and horizontal.

We'll say there's an interesting report this week on TikTok being banned in India and what's happened since. That's not what we're about here.

Marion Ranchet (26:56)
Speaking of podcasts, let's go to Spotify, come to Europe a little.

Evan Shapiro (27:00)
Yeah, it's interesting. This is a company that I've tracked for a long time and I gave a lot of shit for a while. And when you look at this chart, you can see why I gave them a lot of shit. You know, they have, up until 2024, they have never really been profitable. And, you know, I, you look at who their competitors are, Apple, Google, Amazon.

It's really hard to fathom how they're going to manage to compete with the largest companies in the history of the world. But, and when we did our first episode of the pod, you asked me what surprised me in 2024. The thing I said was how good, how well Spotify did. So yeah, they've reported 1.1 billion euros in net income for 2024, which is a huge turnaround from the year prior.

Marion Ranchet (27:52)
Yeah, and what's fascinating to your point, it's a standalone company. They started in 2006. And honestly, the music business, it's a tough business to be in because yeah, for every dollar you get, you give 70 % to record labels, et cetera. So one, think one of the reasons why they're seeing that, so of course they've increased prices in some key markets. No one really has mentioned that, but I actually have a family plan and you won't believe it, but my husband was booted out of that thing. And so the reason is I think they're doing a bit of a password crackdown, right? Except, it's not working because within that family plan, you're allowed to have four or five people. But what they're making you do,

Evan Shapiro (28:46)
I'm in a f-

Marion Ranchet (28:49)
Yeah, what they're making you do is you need to report your address and everyone needs to, believe it or not on this thing, you need to say we're in the same address. So all of a sudden my husband, I don't have my premium Spotify. I was like, okay, let me look it up. I manage all the admin in this family. We had to declare that we're in the same address.

Evan Shapiro (29:10)
How does that not surprise me

Marion Ranchet
Right.

Evan Shapiro
Because you wouldn't let anybody do it even if they wanted to, would you?

Marion Ranchet (29:18)
I'm not sure I agree, right? Because now that I'm a business owner, like the personal admin and the work admin, I'm losing my mind. But let's say that I'm potentially more inclined to doing that. But we share, he's doing all this stuff, thank God. Otherwise I would be losing my mind. But so they've been doing a bit of password sharing crackdown.

So, raising prices, potentially pushing on that. They said they've had a good year on the advertising, although when you look at the total pie of revenue, I think the mix between premium and ads, it's like, not great.

Evan Shapiro (29:56)
Yeah, it's 87% subscriptions, about 13% advertising.

Marion Ranchet
Exactly.

Evan Shapiro
It's been hovering at that split for a couple of years now. And so they're really not growing the ad business. When you look at their year on year change for fourth quarter, their premium revenue went up 17%, 16.8%, 9%. When you look at their ad revenue, it only went up 7%.

And they're not even, they're just over a half a billion euro in revenue on advertising. When you think about the fact that they now have 675 million monthly average users and that the vast majority of those, 425 million of their 675 million monthly average users, are ad supported. They're not monetizing that incredibly well.

And I think that's something, that's one of the major reasons why I have issues with the company is like, how long are? Yes, they're the best music platform in the face of the earth, but they're not beating YouTube in podcasting despite this fact that they've spent billions and billions of dollars, including I think close to a billion dollars just on Joe Rogan. Right? And then on the flip side, one of the reasons why they were so profitable last year, I'll give you a guess, what's one of the major drivers for why they were so profitable last year?

Marion Ranchet (31:22)
political advertising on the no I don't know?

Evan Shapiro (31:25)
That might be a little bit. Layoffs. They did three layoffs.

Marion Ranchet (31:29)
Oh yeah, for sure. They laid off 17% of the workforce.

Evan Shapiro (31:34)
Yeah, in one year. This is, know, yeah, they're a big company, but they're not the size of Meta. They're not this, you know, so to carve out one in five employees, basically. And so, you know, also, if you talk to people who work there, which I do, not the happiest place on earth. And part of this is they're now asking people to do a lot more work for the same amount of money.

And so, you know, Daniel Ek really came out hard against his own employees. He threw his own CFO under the bus on an earnings call last year. And then that person left. And so, yeah, I think they had a really good year. And they have managed to continue to grow their user base pretty impressively. Again, I talked about the lack of growth in ad sales, but they did grow their total MAUs by 12% and their premium subs almost 12% as well. But they are not monetizing, advertising in the way that I think they're gonna need to long term.

And the price of music is not gonna go down.

Marion Ranchet (32:39)
It's not gonna go.

Evan Shapiro
And in fact, talk to the artists on Spotify, they're fucking pissed. They get very, very little in comparison. There's the Taylor Swift's and the big artists and we can put those aside, but that's the top 1%.

Marion Ranchet
Yeah, what's coming down, trickling down is is a miniscule. Cause it's very much a market share model, right? Or the share of voice. And it's why I think, you know, speaking of, you know, cause control, if you can't do anything with the music industry, well, that's where you get podcasts. That's where, you know, you get audio books. That's why you're pushing towards video.

All of those things to me are a way of saying, you know, we're going to lower, you know, content costs. Also could be that, you know, the fact that they're not so good on advertising in audio, I don't have a sense of, you know, how it fits within the bigger picture, but it feels like, you know, in comparison to video, it's, you know, not minuscule, but close to. And so why they're making that big push on video to try to grab those ad dollars.

Evan Shapiro (33:47)
I think they're just bad at selling ads. I think they're just bad at selling ads. know, there's another company, Warner Brothers Discover, as I call them, Disco Brothers. They are also terrible. People hate doing advertising business with them. They just really don't like it because they ask for outrageous pricing, and they don't really have a context of how it works. And when you look at the ad revenue on Macs, it's really sad.

I think this is another example of a company that's wanting to do advertising, but is just terrible at it. And I don't know that adding video all of sudden, which is not, this is not the first time they've tried that, by the way. It didn't work last time. I don't know how much it's gonna, like, I don't know that that consumer who loves Spotify when they run or when they drive or when they're sitting around doing their homework is gonna suddenly leave YouTube for their music, because that's where they get a lot of their music when they want video and come over to Spotify.

Spotify had a great year. They had very high revenues, they had very high margins. But I think, again, this is one of those reasons to dig into the earnings reports themselves. Because if you look at this trajectory, this feels like an anomaly. This feels, honestly, if I had to bet, this feels like a preparation for an exit. This feels like, hey

Marion Ranchet (35:11)
Interesting.

Evan Shapiro (35:12)
Daniel Ek is ready to cash in. And so we fired all these people and lowered all our costs and kept our music prices as low as we could so that I could sell this thing to someone else and finally become Elon Musk. That's how I see this number because it does feel, I mean, look at the trajectory, loss, loss, meh, loss.

Marion Ranchet (35:36)
Yeah and boom.

Evan Shapiro (35:41
And all of a sudden, all of a sudden, we are going to fire 18% of the company and then we're going to show a 1.1 billion euro profit. It just feels convenient.

Marion Ranchet (35:50)
There's also lot of stories on the fact that they are manipulating the playlists to push folks to listen to playlists that are including cheaper content, et cetera. A lot of white noise, there's a lot of that going on. I'll put in a show note, I read a great article and there's actually a book coming out specifically on that, on that topic, so I think that's fascinating. I hadn't thought about an exit.

Evan Shapiro (36:21)
On Spotify's use of the algorithm?

Marion Ranchet (36:24)
Yeah, on the playlist specifically.

Evan Shapiro
Fascinating.

Marion Ranchet
Super interesting. So I hadn't thought about an exit. Question is then, you know, let's play a game. Who could that be?

Evan Shapiro (36:36)
I mean, whenever I bring this up, people in your territory, know, the socialists, they tell me this is...

Marion Ranchet (36:45)
Where life is good, you mean?

Evan Shapiro
Yeah, you have health insurance and free education, but, you know, we have Donald Trump. Anyway, the... So I always say that I think the perfect match is Meta and Spotify.

Marion Ranchet
You mentioned that.

Evan Shapiro (37:03)
So Meta is 100 % advertising business and Spotify is almost 100% subscription business. They both have youth culture at the center of them. I think they would be a really nice, they solve each other's problems. Then everybody in Europe says, EU would never approve that and yada, yada, yada. I'm like, I don't know, I think they might. But what do you say? Do you think a sale to a US company is even possible?

Marion Ranchet (37:26)
Well, I honestly, I wouldn't say why not. I think it's always a question of, they will look at this from a competition standpoint. And in front, who do you have? You have Apple, there's a French player, Deezer, but I think it's, know, these guys are really big. So I don't see them going to any of their fellow competitors. That would be too big.

Evan Shapiro (37:47)
YouTube would be prohibited.

Marion Ranchet (37:50)
No Amazon. Yeah. So it needs to go to someone who's actually not necessarily into that business, but is bringing the reach and the advertising. So yeah. How about TikTok?

Evan Shapiro (38:00)
Yeah, I think the regulatory pushback on it. It is not anti-competitive to your point. And Spotify could make the case, like how are we going to survive against YouTube and just a bigger valuation unto itself. It is worth noting that Spotify's valuation is up 166%. It's at its all time high valuation of $125 billion. I have to make that circle.

And every time I go to make that circle, bigger, will admit, it pains me. There are certain companies I'm happy when their circle gets bigger, and then there are certain companies I'm like, those motherfuckers are making me change my mind. And this is one of those companies. I do feel like they're a great technological engineering company, but I think their actual prowess is in financial engineering. And to your point, you just said kind of tricking the algorithm to point to less expensive music for them.

So, it'll be interesting. And by the way, Daniel Ek, basically, you know, when you read his statements about his own employees and the way he handled his CFO's exit last year, he's a dick, he's a not a nice person. And so I, I do actively root against him each earning season and yet.

Marion Ranchet (39:14)
Let's finish on that, calling people, calling European, I'm not going to say it. I don't want to say it. If I say it, we'll have to...

Evan Shapiro (39:26)
Why can I say it and you not say it?

Marion Ranchet (39:29)
Yeah. I don't know.

Evan Shapiro (39:30)
Should I call him an asshole?

Marion Ranchet
I can, then I can, I don't know why, I don't like to curse that much.

Evan Shapiro
He even looks like a dick. He's just a- he's just- he's just like one of those...

Marion Ranchet (39:42)
Actually, that's true. I don't like his face. Yeah, I don't like his face at all. Okay, cool. So we've covered Disney, YouTube, Spotify, so much is going on. I think we'll have potentially other episodes where we can go deeper into other earnings coming in the next few weeks. I'm waiting for folks like Roku and the likes. So this is the end for this week.

But again, a little promo, we're going to be in London, come say hi, tell us what you like, what you don't like, what would you like us to talk about? Actually, I like the idea of having people

Evan Shapiro
That'd be great.

Marion Ranchet
give us pointers about stuff. And yeah, I think that's a wrap for today. So, Ivan, where can we find your Substack?

Evan Shapiro (40:29)
It is Media War and Peace. You can search it anywhere and where is your Substack?

Marion Ranchet (40:33)
It's on Substack. No, I'm kidding. Streaming Made Easy. It is on Substack, but we're on LinkedIn. Come check us out for longer pieces on that industry.

Evan Shapiro (40:46)
And we'll see you in London live on stage. Come ask us questions live on stage.

Marion Ranchet (40:50)
Awesome. See you guys.

Evan Shapiro
Bye.