I’m always on the look out for a good story that I think matters but that barely registered in the media coverage. Over the last few weeks we got a perfect example. If instead you want to worry about Disney’s subscriber additions—and I may do just that in another outlet this week, wink wink—you can, but I plan to dive into boring government regulations. Yes, they’re boring, but that doesn’t mean they aren’t important.
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Most Important Story of the Week – President Biden Appoints Jessica Rosenworcel to Permanently Lead the FCC
If you’ve ever seen a powerpoint deck or read an issue of Harvard Business Review, you know that as a society, we value leadership. But not just any leadership, “transformational” leadership. We talk about it (and examples of such leaders) all the time.
I mean, even China’s Xi Jinping sees himself as a “transformational leader”.
Yawn. Transformational leadership has become just another buzz word that’s ceased to have any meaning. If every leader really were transforming their organizations, we’d live in a much different world.
Instead, it’s really another example of “self help” advice masquerading as business strategy. Self-help, because most folks, when they read business advice, just assume it applies to them. If a study says, “Leaders who have good hygiene have higher returns”, and it gets written up in HBR, then readers thinks, “Oh, I have good hygiene so I’m a good leader!”
I made that example up, but there are plenty of real world examples. My favorite probably being the “marshmallow test”. You give a five-year-old a marshmallow, tell them not to eat it and then they’ll get two marshmallows. Then you see how long they can hold out. Allegedly—and it has been mostly debunked—kids who hold out longer have better self-control, so get higher grades and score better on the SATs. I first heard about this in a class of over-achieving MBA students. If the rest of the class were like me, they likely thought, “Oh hey, I’ve done well in life, presumably I would have aced the Marshmallow Test.” But how would I know?
(Also, ignore this marshmallow study whenever you read about it. Despite the buzz, the actual results had a tiny impact on behavior and it hasn’t been well replicated.)
Nevertheless, we love “transformational leadership”, across business, academia, not-for-profits and, oh yes, the federal government. Every secretary, governor, or even department head thinks they’re providing that very same transformational leadership. Of course, if we actually had truly transformative leaders across the Federal government, the last two years probably would have gone a bit better.
With that preamble, can you guess what my takeaway is for the official appointment of Jessica Rosenworcel to the chairperson of the FCC?
I think she’ll do a fine job based on the standards of the last, say, four decades of FCC leadership. Sure, she’ll put some Democratic priorities higher on the agenda. But will she transform the communications landscape? Or even just the regulatory priorities of the FCC?
In this case, the comparison to fellow newly-appointed FTC Commissioner Lina Khan, a truly transformative leader. In everything from how the FTC conducts meetings (more open) to the guidance to her staff (focusing on a broad set of antitrust harms) to the future suits she plans to pursue (evaluating past merger behavior and industry consolidation in addition to vetting new mergers), Khan has and is transforming the FTC from a sleepy bureaucracy to a regulatory force.
The work will take years, but transformative it could be.
Coincidentally or not, she also came from outside the regulatory apparatus. Khan built her influence by publishing a legal paper that went “viral” as far as legal papers can. Then she found allies on the House Antitrust Subcommittee who allowed her to write an influential report on Big Tech. Only after this did she find herself inside the actual government. She’s also a lawyer, but only just barely (graduating in 2018) and not having spent years inside a big D.C. law firm.
Rosenworcel on the other hand, has been a D.C. bureaucrat for years. And there’s nothing wrong with this. It’s fine! It’s actually good. She knows the ropes. But we shouldn’t expect transformative change from such a type, unless they’re really ready to act outside of their training. (The reason? If you are a D.C. type who floats between regulatory jobs and jobs at big law firms, truly transformative leadership in regulatory bodies jeopardizes the latter.)
– Reviving Net Neutrality
– Broadband expansion (especially for underserved areas)
– Guiding the roll out of 5G
– Combatting robocalls.
Frankly, I’m thrilled that robocalls is on the agenda. How can the phone system be so jammed with fake calls? The technology of “cellular phones” is almost broken. Related is the “do not call” list. I often get calls from local companies via these robocalls, especially mortgage brokers. The FCC should start a renewed push to fine businesses violating that sacred list.
So what won’t be on the list?
– Antitrust concerns/Industry consolidation in cellular, cable or entertainment industries.
– Antitrust concerns/Vertical consolidation across communications industries.
– Regulating app stores
– Regulating speech on social media
In short, the entertainment landscape of the next few years will look quite a bit like the entertainment landscape of the last few years.
The Winners and the Losers of This Appointment
In the absence of strong regulatory bodies, who wins? Incumbents. They already have the inside track and ears of regulators, so they have the easiest path to influence future laws to their benefit. And since the last forty years have seen cable, cellular and entertainment firms consolidate, we can expect more of that. So incumbents win here.
(Though if the incumbent is being disrupted by Big Tech, this won’t help them. Cough ViacomCBS cough.)
The losers remain independent production companies. As I’ve speculated before, if streamers had a cap on how much content they could fully-own, the benefits would accrue directly to independent producers. This was the case in America before the 1980s. When broadcast networks had to buy most of their content, there was a host of independent producers. When Congress rescinded those rules, they mostly went away, and now giant conglomerates own most production. I’ve heard that the exact same situation happened in reverse in the U.K., where opening up Channel 4 to outside broadcasters led to a boom in independent producers.
Thus, the action in “government regulation” still seems to be at the FTC and DoJ Antitrust department. Preventing either the Discovery/Warner Media or Amazon/MGM merger would reverberate across industries. The FCC could get involved if it wanted, but likely won’t.
Almost Most Important Story of the Week – Moonbug Entertainment Sells for $3 Billion
If I know my readers, I know a significant chunk would have bet on this as the “story of the week”. Seriously, as an industry we love ourselves some merger talk.
The news, if you missed it, was that Moonbug, the company most well known as the progenitors of animated children’s “aural-visual cocaine” CoComelon, was sold to the as yet unnamed acquisition company run by Kevin Mayer and Tom Staggs, that’s backed by private equity giant the Blackstone Group. Previously, they’d bought a stake in Reese Witherspoon’s Hello Sunshine, and at the time we knew they were looking to acquire more content and Moonbug is the next step. In other words, they are running a classic private equity strategy called a “roll up”, where a fund buys many companies in an industry to either flip later or achieve dominance.
As I wrote back in July, though, I remain skeptical a roll-up will work here. It is one thing to roll up all the, say, cheerleading companies in America before anyone notices. (Something that actually happened!) In that type of roll up, the PE firm ends up controlling a dominant market share, often as high as 80-90% of the industry.
It’s another to “roll up” all the production companies when 80% of the most important productions are already at major studios. (See my last section!)
So I don’t see the value. Could a studio or streamer out there see value in these assets? Sure. As I said before, I don’t bet against PE. If they think they can use at least a multi-billion dollar war chest to buy entities and then flip the whole thing for twice what they paid for it, then good luck. They won’t be the ones who pay the wrong price, as I said last summer, it will be the future buyer.
(Side note: Kevin Mayer has had a fascinating year, hasn’t he? From leaving Disney to getting hired to run TikTok US, to leaving that job. And since then he hasn’t taken on a true role, but is chairman of sports streamer DAZN, running this acquisition company and advising Discovery on their Warner Media acquisition. How does he have the time?)
M&A Updates – Lionsgate Officially Exploring Splitting Off Starz
Speaking of M&A news. I usually ignore any M&A news short of a rumor. For example, when the Moonbug news first started leaking, I held my tongue on Twitter because it wasn’t official. The caveat to this rule is if a company puts out their intentions via public documents filed with the SEC. That raises the news from “maybe” to “genuine”.
In this case, Lionsgate in a filing with the SEC officially announced they are exploring spinning off Starz to another company, private equity group, SPAC merger, or as an independent entity. The stated reason is to “unlock shareholder value”, which usually means one industry is growth (presumably Starz as a streamer) and the other is not (Lionsgate’s film and TV business). As a benefit, a Lionsgate sans Starz is a more attractive M&A candidate itself for the big streamers. For example, Netflix doesn’t need a Starz in its life, but would probably love Lionsgate’s catalogue. This would be intriguing if it happens, since Lionsgate really is much smaller than its peers.
Other Contenders for Most Important Story
Apple TV+ Joins the Comcast Cable Operating System
Don’t sleep on Comcast’s interface. They’ve now convinced Netflix, Prime Video, Disney+, HBO Max and Apple TV+ to let them distribute their shows and films through their cable UX to subscribers. This type of user experience interface is the stuff Roku, Google Chromecast and Prime Video dream of. Even Apple TV+ wishes they could disaggregate shows like this on their own platform!. For all the hate coming at Comcast on the streaming side of the house, these strategic moves continue to impress me.
Roblox Crashed for 3 Days
Over Halloween weekend, Roblox crashed for three days and went completely offline. Some folks wondered if this could impact the streaming ratings, and maybe. Though the numbers are small enough I’m not sure we’ll see. Anyways, despite this terrible outage, Roblox blew past their earnings forecasts and had a banner quarter.