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The Patent Strategy Podcast is a twice-monthly podcast where hosts Ian and Samar explore the patent tactics and portfolios of leading companies in tech, media, and beyond. Each episode breaks down a company's business strategy, analyzes their patent portfolios, and scores their patent strategy efforts. You'll gain valuable insights into the business landscape these companies operate within and learn how to effectively build a patent portfolio to support business objectives. Join us to deepen your understanding of patent and business strategy.
Disney - Ep 3 - Patent Strategy Pod
Samar Shah: [00:00:00] Hello and welcome to the Patent Strategy Scorecard Podcast. I'm your host, Samar Shah, and with me is Ian Holloway. Ian, how are you doing?
Ian Holloway: I'm doing well. Feels good to be here. Even if it's a little rainy and cold outside, it's nice and warm inside here.
Samar Shah: There we go. It's always nice and warm inside the recording studio.
Ian Holloway: That's right.
Samar Shah: Today, we're going to be talking about the Walt Disney company. This is going to be hopefully an interesting episode and maybe dovetails really nicely into a Netflix and Spotify. They are in the streaming business as those other two companies. And so hopefully we're building on our knowledge base of streaming and streaming economics and the patents around it.
Ian Holloway: We're going to be, hopefully our listeners are going to be experts about streaming now and. Yeah, anytime you want to bring it up at a dinner party, feel free to.
Samar Shah: After all this analysis, I feel like I am, like, even more lost. I used to have a pretty good thesis and a through line about this, but there's so many fascinating forks in the road that I didn't fully appreciate, and personalities involved that I didn't fully appreciate.
Samar Shah: [00:01:00] There is Iger is certainly very interesting as a personality. There is, we'll talk about this more as the episode goes. The Cable Cowboy, one of the most interesting characters in this space. We'll talk about that. So I think this will be a fun episode.
Ian Holloway: So shall we,
Samar Shah: Shall we hop into it here?
Samar Shah: Yes, let's do it. So I'll give everyone a brief history on Disney just so we can get on the same page. Everybody knows this, so I don't think we need to spend a lot of time here. Really, Disney started off as the Walt Disney Company as a studio business, right? They were making all these movies, animated movies with Mickey Mouse and others.
Samar Shah: And leveraged that into a parks business for the Disney theme parks, as well as a merchandising business as well, right? So that's really where Disney started. And actually there's a really cool. Chart that I think Walt Disney made on the next slide, Ian, about how all these various factions of Disney feeds into other businesses.
Samar Shah: It's like a really the first probably conceptualization of a flywheel, in internet economics, we talk about a flywheel all the [00:02:00] time that one part of the business runs and feeds into other parts of the businesses. And Walt Disney. Conceptualize this earlier and maybe better than anyone has.
Samar Shah: So I thought, kudos to him, really a visionary, a founder. So just wanted to share that as a nice piece of,
Ian Holloway: Oh, it's very cool bit of business history here coming in. It's like the Henry Ford of the flywheel, right? That's right.
Samar Shah: Okay. So they started there. Then they acquired really ABC.
Samar Shah: They acquired a broadcast studio and with it. So that was the crown jewel of the acquisition at the time, but it came with ESPN, which was an afterthought at that point. A forgotten little network, but Disney was able to leverage ESPN and through distribution help via cable, the cable companies and the cable bundle, they were able to turn it into a huge company.
Samar Shah: Really all their profits, two thirds of their profits came from. Revenues that they generated through ESPN and the cable bundle. So that was the second era of Disney, if you will. And we'll talk about this in a lot of detail, because this is I think key to understanding where Disney is [00:03:00] today and where they're going in the future.
Samar Shah: And then the third era, I would say that we're in right now is the streaming era. Where they're trying to stream, certainly the Disney plus channel, the Hulu channels, as well as ESPN. And there's interesting strategy and business implications as they move through this. But each one of these kind of distinct eras of Disney propelled the company forward at different points in time.
Samar Shah: And actually they still do, right? The, these segments.
Ian Holloway: These eras still continue to today like they've got all these the parks and all that still.
Samar Shah: Yeah, really remarkable And these haven't gone away. The cable bundle is diminishing very significantly very fast that may go away But the other the parks in the studios business It lives on and it is doing quite well.
Ian Holloway: Yes, indeed. Yes, indeed. Have you been to any disney parks at all Samar?
Samar Shah: I have been to both. Yeah disney world and disneyland. I guess they have more parks internationally, right in paris and japan and
Ian Holloway: tokyo yeah,
Samar Shah: I guess I shouldn't say I haven't been to them all but I have been to all of them in the united states I think
Ian Holloway: How about you ian?
Ian Holloway: Yeah, i've been to the Disney World in Florida, just [00:04:00] stuck to there, but I've heard good things of Disneyland over in California.
Samar Shah: Yeah, I have such fond memories of Disney World, and this is, we'll get into this, why it is such a good business. Really, it was the last vacation that my parents and I took before both my sister and I were out of the house.
Samar Shah: As more grown adults and it was just fun to just hang out for seven days as a family and just do fun stuff. And then, you're, off to a more complicated world. So I have long memories of that, but yeah let's maybe ground herself on the cable internet.
Samar Shah: Let's start with the cable business, right? This is, they're pivoting away from the cable business because. Of port cutting, which we've all heard about which is greatly diminishing that business. Let's talk about that a little bit. I would say the cable business has been one of the greatest business models of all time.
Samar Shah: And I know I've said that before, our listeners are going to be like, yeah, every business model is the greatest business model of all time. I think I said that about the advertising business advertising
Ian Holloway: before. Yeah. So maybe. They trained one and two, right? Yeah, maybe the
Samar Shah: second greatest business model of all time.
Samar Shah: And I think the reason for that is that [00:05:00] it forces all the stakeholders in an optimal arrangement, right? So you have these content producers like ESPN and Disney and AMC and All these channels, right? All these channels, right? They want to distribute, they want to sell their content to audiences like ourselves and then you have the cable companies, which are the delivery mechanisms, which are delivering the content to the user.
Samar Shah: And in many ways, their interests are in opposition, right? Because there's X amount of money that a consumer is willing to pay. And. It is in everyone's interest to, take as much of that money as possible. So there's some kind of in front of me situation going on here. But the cable bundle really organizes everyone in what I think in at a whole is an optimal arrangement, right?
Samar Shah: So it causes the cable companies to offer high quality distribution and distribution that doesn't fail or have significant outages. I know people have complained about cable for a long time, but it forces them to do that. It forces the content producers to produce high quality content.
Samar Shah: [00:06:00] And I think the realization of this for me was when. I think it was AMC came out with Mad Men, like these, like there was this kind of whole genre of prestige TV shows that really wouldn't have been possible without this arrangement because, AMC realized that, hey, Mad Men is a hugely popular show and people are subscribing to cable to or changing their plans to get AMC and they can now get a little bit more money out of the cable bundle, right?
Samar Shah: So it forced AMC and FX and all these companies to produce higher and higher quality shows, which is good for the consumer. And because they are all working together. The prices didn't balloon out of control. Because there was one choke point, so to speak, the consumers were able to keep a cap or a lid on the overall cost for the aggregated content that they were paying.
Samar Shah: So everybody wins, right? The cable company wins, the content producers win that, they get to build more and more shows and extract more and more value out of the value chain, and then the consumer wins because there's a lid on the cost as well. So that's a
Ian Holloway: little bit of a lid, right? I feel As a consumer back [00:07:00] in the day, I would complain because there wasn't an op, there wasn't a cheaper option back then, right?
Ian Holloway: When you had the cable bundle. Yeah, if you thought that was expensive.
Samar Shah: Yeah, if you thought that was expensive, just wait another five years. Okay. So this is where Disney comes in into this cable bundle is that they have this hugely a popular show or channel called ESPN. That is one of the primary drivers of people upgrading their cable plans, right?
Samar Shah: Or locking themselves into a cable, mostly people would just buy the cable plan that included ESPN. It's how you have
Ian Holloway: to buy
Samar Shah: the
Ian Holloway: sports
Samar Shah: package now,
Ian Holloway: right? You add a little bit more on top.
Samar Shah: Yeah. And that was ESPN knew that, or Disney knew that, and they squeezed as much margin out of that package as possible.
Samar Shah: So if a consumer is paying a hundred dollars for cable, Disney's extracting anywhere from, 12 to 20, 25 even though they're. Only one of 150 channels on that cable package. So they're squeezing more and more leverage out of this cable bundle. And it's a great arrangement for Disney.
Samar Shah: If I were Disney, I would never leave the cable [00:08:00] bundle. It's just it's just margin. And they rode that bundle all the way to the top. So it, it is interesting that they're shifting away from that. We'll talk about that I'm sure as well. So that's where the bundle was, I think in the nineties and early two thousands.
Ian Holloway: And this was a pretty significant source of revenue for the Disney company as a whole, like with the parks doing the same amount of, or less, or what kind of situation were they in? Yeah,
Samar Shah: no, it was a huge revenue driver. I think it was two thirds of their mar, two thirds of their profit. from this cable, or carrier fees that they were charging.
Samar Shah: And then the other one third was coming from the parks division. Okay. So this is where I think we are in the late nineties, early two thousands. And then we all know about the cord cutting business or the cord cutting phenomenon that starts happening. And the internet comes along, and the internet.
Samar Shah: In many ways, there's an opportunity for everyone to re stake their claim into this new paradigm, right? In this new world. And if AMC didn't like the world that they were living in, it was an opportunity for them to, stake out some space for themselves in this different world. And ESPN and Disney does the same thing.
Samar Shah: [00:09:00] They're like, Hey, maybe we can stake out some space for ourselves in the Disney Plus app, in the Hulu app. So on and so forth. So the whole model kind of reorganizes itself, which is makes sense for some companies, right? Like AMC potentially, or, companies that were getting squeezed out of this bundle, but probably doesn't make any sense for companies like Disney and Warner brother discovery Fox.
Samar Shah: They. are, extracting huge amounts of value from the cable bundle. So why would they,
Ian Holloway: shift to it? What's the
Samar Shah: motivation to, to
Ian Holloway: leave the cable bundle at this point? Just a fear of missing out here? With
Samar Shah: FOMO or? Yeah. What it is, I think is Netflix. Netflix was getting valued as an internet company and trading at internet multiples, like a tech company.
Samar Shah: Whereas Disney, Fox, Warner Brothers Discovery were trading like Cable companies. So I think everybody looked around and they said we want to be trading at a much higher multiple kind of Netflix. And for us to get that multiple and that valuation, we need to be in the streaming business. So everybody had dollar signs in their eyes.
Samar Shah: But they didn't, I don't think they understood [00:10:00] how difficult internet businesses are or how internet economics work. So they all left the bundle to achieve a higher multiple. And of course, the truth today that we know is that streaming companies get a really low multiple. Many of them have yet to turn a profit, including Disney plus up until a few quarters ago.
Samar Shah: So yeah, it's. It actually became like a huge albatross and it in a value destruction, but I think they just didn't appreciate how good they had it right in the cable bundle, maybe. Okay. And maybe we should set the stage for ESPN a little bit as well. And how it became such a big cash cow. Okay. I think ESPN though, the way they were able to extract all this value from the cable bundle was that it.
Samar Shah: It became, it reaches everyone, right? It reaches a huge mass market audience segment. The advertisers who advertise on TV are mass market brands, right? Cheetos or Kleenex or a Volvo, right? Everyone needs a car. Everyone needs, groceries and things like that. So not so much targeted.
Ian Holloway: Yeah.
Samar Shah: Yeah. They don't need. [00:11:00] Yeah. Very good distinction. Yeah. They don't need to really discriminate in their audience segments as much. The name of the game is to reach as many people as possible. And ESPN has, it has, sports content where everybody kind of gathers around to watch. They acquire sports rights from a lot of sports leagues on the cheap relative to their value.
Samar Shah: And they lock them up for 10, 15 year deals in the late nineties. And they also are competing with Fox. So Fox is doing the same thing. They are aggregating sports rights as well. So ESPN was really worried. I think that, Hey, Fox is going to corner the market. And then they are going to extract all the value out of this cable bundle.
Samar Shah: Oh, they both started gobbling up sports rights in the late nineties, early two thousands. ESPN got a lot of that content. For cheap and they were able to leverage that content for ads and then, but relatively speaking is still expensive content and then they were able to produce this kind of studio shows like a sports center and talking head shows like PTI and first take and all that stuff, which is very low cost content and they were able to [00:12:00] keep people on, get more viewership and serve ads to those people.
Samar Shah: They were able to get like highlights, the rights from NFLs and things like that. So they were able to leverage all of this into a pretty profitable business. So they were getting money from advertisers to advertise on shows like sports center and of course the games and they were getting money that way.
Samar Shah: They were also getting money from the cable providers and carriage fees. And then they were able to additionally bundle. Additional challenge. So they said, Hey, cable company, if you want ESPN, guess what? You also had to buy all of our other ESPN channels and Disney channels. So it only comes with ESPN classics and ESPNU and like the Disney channel.
Samar Shah: And then there were like Hallmark channel, like 20 other channels. And Oh, by the way, you had to pay us a dollar per channel and you had to buy them all. So they, they really leveraged the heck out of this arrangement and they were pioneers in a way, right? Other companies start copying their lead.
Samar Shah: In fact, there's this famous I don't know if you listen to Bill Simmons at all, Ian. I do not. Okay. Yeah I'm a fan of Bill Simmons and he used to work for ESPN famously got fired [00:13:00] for having opinions that were, not consistent with what the company wanted to project.
Samar Shah: But he, he, and he, ESPN or Bill Simmons has always been on the cutting edge of how to deliver better content, sports related content in the internet era. And he had this anecdote that he was sharing. He was like, I had this, like this plan about ESP and classic because ESP and classics just like shows old games, right?
Samar Shah: I don't know if you've ever seen it. Yeah, no, I usually don't watch it because of that. Yeah.
Ian Holloway: It's a
Samar Shah: live moment type thing to watch. That's right. It is. So nobody watches ESPN Classics and he was like, Bill Simmons made all these documentaries about like sports historical events and stuff like that and he was like why don't we do this?
Samar Shah: Like we'll build a whole theme around this game and, show this documentary and interview people and we'll make ESPN Classics a destination for sports diehards, right? And it actually sounded like a great idea. I was like, yeah, I would watch that. But ESPN came back and said, no, we don't touch ESPN classics.
Samar Shah: It is purely there to extract more money from the cable companies. We're not going to spend a dime on this channel other [00:14:00] than replay old games. My God this is, this happens sometimes when companies are so good at making money they become bad at innovating, but oh so anyhow this is where ESPN is.
Samar Shah: They're at the top of the food chain, if you will. Eventually they do run into some headwinds, as sports leagues realize that, hey, ESPN is making all this money off of our hard work and the product that we're putting out. When it comes time to renew these sports rights, they become more and more expensive.
Samar Shah: So there's some of that. But ESPN is so profitable that they don't care, right? It's still, they're still able to leverage all this content as we talked about with the internet streaming, cord cutting, I think the talking head studio content becomes less and less interesting as well because everybody's getting their sports takes and highlights on Twitter and, other YouTube and all that.
Samar Shah: YouTube, internet forums. You don't
Ian Holloway: have to wait to see your highlights. It used to be dorm room, TV was on, sports center in somebody's room, and you're just waiting to see the highlights of what happened for the day. But when you can draw it up on demand, I guess that kind of goes away.
Samar Shah: It does, and the other challenge was that, I grew up in Atlanta, I'm a huge Atlanta Hawks fan.
Samar Shah: I [00:15:00] lived outside of Atlanta for most of my life, so I would try to get Hawks content whenever I could, and we had one sports journalist for the Atlanta Journal Constitution, who would write about the Atlanta Hawks, and every now and then I would get a highlight on SportsCenter about, a Hawks game.
Samar Shah: But it was like, 1 percent of SportsCenter, right? But with the advent of internet, I could actually stream the Hawks games, while living in a city across the country, there was blogs and, forums about the Atlanta Hawks. We could discuss things about the game and about the players.
Samar Shah: They're podcasts about it. So there's really no reason for me to turn to ESPN to learn more about the Hawks. It's just
Ian Holloway: to get 1 percent of your information
Samar Shah: is relevant to
Ian Holloway: you.
Samar Shah: Yeah.
Ian Holloway: Yeah.
Samar Shah: So internet really shifted that. And then of course the court cutting process continues to be the paradigm shift, right?
Samar Shah: So court cutting accelerates, we talked about how everyone wants to get into the streaming business to one get a better valuation multiple, but to also improve their relative positioning in the value chain. It is curious. I guess greed is the motivating factor here by these content production companies, but.
Samar Shah: As we talked [00:16:00] about, I don't know why they would ever leave the cable bundle. It was huge, hugely profitable for everyone for so long, but then they do other things, which really made no sense to me. They accelerate their own demise in many ways, right? They start offering streaming to cable subscribers.
Samar Shah: And then, some of these studios started selling or, making their like best TV shows and best movies. Exclusive to streaming,
Ian Holloway: so you're just asking people to cut the cord at that point. And join my specific streaming service. Pay for that.
Samar Shah: Yeah, it's I'll spend 120 a month.
Samar Shah: Come spend 3 a month with us. It just makes no sense.
Ian Holloway: I gotta assume that oh, they're the people getting 2 a month from the cable package. And they think they can get three or four. My guess as a consumer, I don't know if you've seen people do this, where you subscribe to something for a couple months, watch what you want.
Ian Holloway: And then forced to stay into that package.
Samar Shah: Oh, that's right. This is the truth of internet, right? That churn is a huge problem as we talked about with Netflix and Spotify. And these companies have to contend with that too. That's exactly what people are doing is, if you have a [00:17:00] really interesting piece of content, people will subscribe for a month or two.
Samar Shah: They'll binge it and then they're gone. And then we'll see you when you release the next season. Two years later or whatever the timeframe is. So that's a really tough model for them to be in. They're just not making enough money. There's the churn numbers that they reporting is, pretty high.
Samar Shah: Netflix has done really well here relative to everyone else, but nobody else has been able to keep consumers interested for that long. Even Netflix is having trouble with it. The other, so Disney, Bob Iger is an icon, right? Iconic CEO made lots of really good decisions. Actually, some of the best decisions that he made was acquiring.
Samar Shah: Lucasfilms, right? Star Wars, acquiring all this content, Pixar. He made a huge bet and at that time, a counterintuitive bet that like content's going to rule everything, right? Where everyone else was fighting over other parts of this distribution channel. And it was correct. They made a lot of money, leveraged a lot of profits that way.
Samar Shah: But the other bet that they had at this time is that If we're going to go direct to consumer, if we're going to have a streaming app, then we need to have a library of content to [00:18:00] keep people on our apps. Otherwise people are going to churn. So they go ahead and acquire Mia Century Fox, as well as Hulu.
Samar Shah: Those are both very big bets, if I recall. Big, huge bets. What is 70? 2 billion or something like that.
Ian Holloway: Yeah. And another
Samar Shah: like 18 for Hulu. Very expensive. And I think the logic there was that, Hey, let's just fill up our back catalog. But we talked about this with the Spotify, with Spotify back catalog is everything, right?
Samar Shah: If you don't have a back catalog of old music You are toast. People are going to switch out of your service. Turns out back catalog is not important in video content. People only subscribe for the hot new show, right? And then they could care less if you have, what is it? A police Academy one on your streaming network.
Samar Shah: And I bring that up because I watched it recently. It was great. Does
Ian Holloway: your head still holds up? It still holds up. It's great. All right.
But yeah, so those are
Samar Shah: huge, hugely expensive albatrosses for Disney. And actually Fox did about as well as you could have. They sold at the tippy top and they said, so instead of Fox, they said, [00:19:00] we're not going to get into the streaming business, right? The Murdoch's smart, made a really smart decision here.
Samar Shah: So everybody was getting into streaming. The Murdoch said, we don't think we can compete in streaming. So we're going to sell. All of the content and we're only going to focus on sports and news, right? The FS1 channels and then the Fox news channels are huge moneymakers and they so live content really, right?
Samar Shah: The live content. And they made a bet that, Hey, live content's going to have to live on cable, which. Eventually won't be true, but they sold all the non live content to Disney at the highest possible valuation at the very tip, or about as close to the top as possible. So they did really well.
Samar Shah: And then by contrast, Disney did really poorly. That's going to force some decisions. If you acquire all this, it's going to drive. That's right. And the other, yeah, like this, and this is maybe the theme of all these podcasts is you make these big bets, they force your hand, right? They prevent you from being flexible because you have a lot of potential for value destruction and yeah and you have a debt load to service, right?
Samar Shah: So you gotta keep making money, even if it's not the kind of money [00:20:00] you want to make. It's just. How it goes. So with the internet, Disney acquires all this content. They launched Disney plus they've earned a lot of cash. They forego a bunch movies, theater revenue as well.
Samar Shah: So they, all these movies that they're producing, one of the big ones is Pixar, and I don't know if this is me because I have little kids But like pixar movies were an event right like we would go watch them in the movie theater I can't remember like the last pixar movie that we were like really excited about like we haven't even seen them Even though we're disney plus subscribers like we haven't seen them You don't even watch it because you can
Ian Holloway: watch it at any time.
Ian Holloway: that's a consumer behavior or just a In general with people if you have the option to do it whenever you'll push it off because it's always available, right? But yeah, it's out in the theaters for a month to
Samar Shah: month. You got to go see it, right? Yeah, it's I think do that and it becomes like a topic of conversation, right?
Samar Shah: It becomes a piece of conversation and the by the water cooler. It's hey, did you watch this? I'm like, oh, can you believe that? You know that kind of thing Like, my favorite show on Disney Plus is The Mandalorian and that could be a show like you, [00:21:00] like on HBO that people would talk about, but Disney releases it like on a weekday in the middle of the night, something like that, we don't watch it when it comes out, we usually watch it a year later or whatever it is, right?
Samar Shah: They were really like, I don't know, Disney used to capture the cultural zeitgeist in the moment and they just don't do that anymore. Which is value destructive to their brand. I think they used to like when, those Marvel movies came out, like they, because they had so much leverage, even over movie theaters, they would be like, Hey, movie theater chain, you have to show our movie on eight of your theaters.
Samar Shah: And all the time, there's like people were forced if you were like, Hey, I have a Saturday afternoon free and I want to watch something. My only option was a Marvel movie at some point. So they destroy that relationship and that leverage hugely value destructive just to drive people to Disney plus, which they do.
Samar Shah: Is that the
Ian Holloway: motivation you see here? Just. We're going to force people into our streaming platform.
Samar Shah: Okay. For sure. Because they all got valued at like how many new net new subscribers they had in the just like five years ago, four or five years ago. So like name of the game to get Netflix type of valuation was to have a lot of [00:22:00] net new subscribers.
Samar Shah: What they didn't appreciate is that yeah, they could subscribe a lot of people and they did but those people churned right out a couple of months later, so the hugely value destructive there they You know, they got to figure out what to do with ESPN, right? Cuz like it's a cash cow, but it is becoming A smaller cash cow every day, right?
Samar Shah: Because of the cord cutting phenomenon. So I have a, actually I have a clip here. I don't know. We're going to try this for the first time in the podcast. Let's see. You tell me how it sounds, but I'm going to try to play Bob Iger's comments about taking ESPN. They call it over the top, which means direct to consumer.
Samar Shah: So instead of you having to purchase a cable subscription to access ESPN programming, instead you could just download the ESPN app, pay ESPN, whatever monthly subscription fees are, and watch all the content that way. So they're gonna, they're gonna take ESPN over the top. They think that is the future, because the cable bundle is dying.
Samar Shah: They have some concerns, it's interesting they haven't done it so far, and I think Bob Iger's comments are probably the most interesting here, so I'm gonna try to play them.
Samar Shah: Interesting. Yeah. So yeah, a few [00:23:00] different threads here is that they think they need more content. To launch ESPN over the top, if you will. And the other thing he said is that we need to add more content under economical circumstances. I picked
Ian Holloway: up on that. This looking back to what SportsCenter used to do for him, right?
Ian Holloway: Produce something a little bit cheaper, but still decent enough to get people to watch.
Samar Shah: Yeah. So this is from an earnings call last September. So this is when they were thinking about how to take ESPN. Direct to consumer, this is the same thing that we talked about with Spotify is that if you are going to, be a streaming platform and be an ads business, you need to have a lot of inventory of content.
Samar Shah: And, ESPN used to have an amazing inventory of content, which was the games, but then all the studio head talking shows. But as we just talked about, those studio heads talking shows are going away. Nobody's watching SportsCenter or I should say to the same extent. Not as much.
Yeah. It's all
Samar Shah: relative.
Samar Shah: Yeah. In the future, I think they rightly figured out that people are not going to watch ESPN. There's just like too much niche content out there, which is again, the barbell effect that we talk about with internet. You either have tentpole [00:24:00] content like a game, or you have a really niche kind of content that like it's going to be attractive to people that people are going to pay for as well.
Samar Shah: So that's the environment that they're in. So they're trying to find a. They said a couple of different things. So they're trying to find more content before they launch ESPN over the top. They said, he also said that he wants to find a distribution partner to help them distribute the ESPN content.
Samar Shah: It was very
Ian Holloway: much a, Hey, we could do this ourselves, but let's try to find somebody that maybe will support us in this. Yeah.
Samar Shah: Yeah. And I think the reason for that is because. ESPN is like such a cash cow. They, I think they think that launching it over the top will further cannibalize their cable business.
Samar Shah: So like people will leave cable even faster and that revenue is gone. And they, if they don't make it up very quickly with ad dollars, they're going to be in the whole, a lot, right? So like before they do this transition and they flip the switch, they need to ensure that they have revenue coming in from [00:25:00] advertising businesses.
Samar Shah: So that's, I think the logic there. And to me, it's really funny that he said distribution partners. I'm like, yeah, who would be a really good distribution partner.
Ian Holloway: Comcast and Charter,
Ian Holloway: Since then they have
Samar Shah: launched this venue product, right? Which is like a combination of three different companies aggregating all their sports content together in one app to be like a super sports app. I think there's problems with that. Is it going to solve the content problem with that then?
Samar Shah: I don't think so. I think you, if you subscribe to that venue app, you get 70 percent of all sports content maybe, but you still don't get like NFL games. You don't get NBA games and, or some NBA games, I should say. If I'm a sports fan, is it a really good value proposition? To me, it is not. So I don't know if I'm representative here.
Ian Holloway: No, I think people feel the same way about it. NFL is such a big part of sports content. If you don't have that, you're missing out on a big chunk
Samar Shah: [00:26:00] of eyes
Ian Holloway: right
there.
Samar Shah: Yeah. So it'd be really hard to justify spending what is 150 a month for NFL pass. And then another 50 a month for like other sports.
Samar Shah: And then, if you need to subscribe to max or HBO to get some TNT related game content, it's a mess. You'd be you'd be spending 200 a month to just say that 80
Ian Holloway: a month back in the day. It doesn't seem so bad.
Samar Shah: That's right. You were not happy with it, but it was a pretty good deal.
Samar Shah: And this is the kind of the dirty secret of the cable business is that for sports fans, is that all the other non sports fans were subsidizing the sports content. So like my wife doesn't, who doesn't watch any sports really would be ESPN tier because it gave her access to some other shows that she might be watching.
Samar Shah: And and most of that money, most of her money went to ESPN and other sports providers. Now that the content is no longer subsidized, it is a whole
Ian Holloway: heck of a lot more [00:27:00] expensive.
Ian Holloway: So yeah, very interesting.
Samar Shah: They do launch this venue app and then immediately a Fubo, which is also another streaming provider that provides sports launches an antitrust lawsuit against the venue app that, Hey, you can't. Cut us out of like you can't just make a new app and put all your content there and not deal with us.
Samar Shah: Like that is anti competitive and there, there is, for kind of legal listeners there's no duty to self deal, but. Because this is a three companies banding together, I think it's not a very tenable position to be in from a Disney perspective. So they were intending, they launched or intending to launch this thing right before the NFL season.
Samar Shah: The lawsuit has put a hold on that launch, so ESPN is still not DTC or over the top. And yeah, that's where we are now.
Ian Holloway: My
Samar Shah: yeah. So that's where the over the top efforts are for Disney currently, two years later, after those aggregate comments, there will be a trial in that case in October of 2025.
Samar Shah: We'll be [00:28:00] waiting two years. Yes. And then they also got into this lawsuit with Charter, which is also pretty famous because it cut off a bunch of games, I think college football games from Charter. A lot of people, I think there was an outage for about a week, ESPN said that, Hey, we're going to charge you an extra dollar to, keep our channels, the carrier fees on your cable bundle and Charter.
Samar Shah: Kind of balked at that and they said, okay, fine. We'll pay you a dollar, but we also want you to Make, ad supported hulu and disney plus streaming apps available to our cable subscribers And disney said no and there was there was that pretty public dispute which charter one hands down, and and even the charter one, I think disney won So, so here's, I think what Disney was trying to do.
Samar Shah: They're trying to double dip, right? So they're saying, Hey, Charter, you had to pay us money for all your cable subscribers to get ESPN. And then, Hey, consumer, you had to pay us for Disney plus and Hulu as [00:29:00] well. So you got to pay for cable and for our streaming services. Which, it is also just greed.
Samar Shah: I, the other backdrop here is that Disney and ESPN have been on the top for so long. They're so used to dictating the terms of engagement and they were just like Kingmakers in many ways that they're just not used to. Being in a, like the underdog, right? Like you have to, when you're the scrappy underdog, you have to deal, make deals a lot of different ways.
Samar Shah: And you have to really be consumer friendly. Like ultimately that's how you become the overdog. But because ESPN has been such an overdog for so long, they're just like, yeah, you do what we say, or you're going to be in big trouble because you're not, you're going to lose a whole bunch of money.
Samar Shah: So anyhow there's some of that. I think that there's culturally. We talk about this all the time. They'll have to relearn how the world works and how to be more consumer friendly the reason I say, even though it did, Disney lost this dispute on every count, they actually won.
Samar Shah: In a way, because they do get an extra dollar or whatever [00:30:00] it is, 1. 25 from Charter per cable subscriber. But if you think about it with the ads business, you want to have as many eyeballs as possible, right? Some of these cable subscribers would never sign up for a streaming app, but because now they have it for free, they're going to log on sometime, right?
Samar Shah: And they're going to get more eyeballs on their streaming app. So to me, like it made no sense why Disney would fight this. Other than just like they just used to double dipping, on their revenue, but like the whole name of the game with advertising is to get as many people on your platform as possible so that you can attract more advertisers and you can create a bidding war that kind of thing.
Samar Shah: So why would you kneecap and say, A huge millions of people can't watch our streaming service. It made no sense to me.
Ian Holloway: Yeah, it just it's a culture shift, I think. And they're just a little bit slow moving in that, which makes sense for a company so large,
Samar Shah: I think. Yeah, so large and so used to dictating terms.
Samar Shah: Yeah, I think that's going to be interesting. And I got into, their disputes with [00:31:00] cable providers. There's a lot of legal documents to read. There's this book called A Cable Cowboy. Which is a story of John Malone. He actually probably is like the biggest land owner in the United States.
Samar Shah: I think owns like half of Western United States who like through just like a lot of guile and cunningness and robber baron tendencies. Made this huge cable conglomerate, like charter and really interesting read. But anyhow, one of those interesting figures in business history, who found a way to win every transaction until he ran into Bob Iger and ESPN.
Samar Shah: So now, but now, John Malone is on the board of Charter, and I'm sure he's whispering in the CEO's ear that, Hey, ESPN has had us over a barrel for all these years, now is the time for us to do something about it. So there is that. The other kind of thing, Charter would have never [00:32:00] entertained such a dispute, and, leaving their millions of subscribers without sports content for a whole week.
Samar Shah: Historically, they just never would have dared to do that. But I think they dare now because they're like, our business is going away. Anyways, we don't care. Like you can't kill the dead. And John Malone's we've taken enough of ESPN's crap. We're not taking any more crap. They're gonna deal with us like there's a history there, right?
Samar Shah: So historically cable providers were competing against dish and telecoms, right? And actually if you go back telecoms were considered like the everybody thought they were gonna win the cable transition because they already had a wire going into everyone's And then they could use that wire for, as a DSL for providing cable and internet, but it just never took off.
Samar Shah: And cable companies at that time, like John Malone's were like fly by the night operations. They were just like unregulated and they were just like small, scrappy. Nobody thought they would be, [00:33:00] tell telecom companies, but they did because they were able to provide much better bandwidth and throughput.
Samar Shah: And then, and they won, but their competition was dish and satellite and all that stuff. They really paid ESPN all this money because they wanted that consumer was worth a lot to them. Cause if you can get a consumer signed up for cable, you can also sell them telephone and telecom and then you can also send them package
Ian Holloway: deal at that point.
Ian Holloway: Yeah. You can get internet, you can sell internet to them. So they're like, yeah, ESPN is raking us over the coals here, but there's still money to be made by bundling. All of these different services, the truth is that's not the case anymore. Right now, the fiber optic companies are taking share away from cable companies.
Ian Holloway: So there's the, it's okay. Everybody's going to choose fiber optics usually because it has more bandwidth. So for these cable companies to survive, they know it's not going to be cable anymore. Like they're going to be competing on broadband and bandwidth. It is a kind of an interesting thing that they, in some ways, [00:34:00] would prefer to get rid of video content altogether and use their copper wires to deliver internet.
Ian Holloway: So if they free up all this bandwidth off of copper from video, then they can offer speeds that are competitive with fiber optics. So the cable companies are like, yeah, sure. If you leave, that's cool with us. We're just won't offer a cable anymore. We'll just offer internet and we'll compete with fiber optic companies in a much better position.
Ian Holloway: It feels like the theme we've had here is just bundles that have become unbundled throughout this and what these companies are going to do.
Samar Shah: Yeah. And it actually I learned so much about cable companies and all the stuff that the cable bill build out in the late nineties and the internet build out.
Samar Shah: That we should do a podcast on that, but it's a fascinating industry. There's the overbuilt, infrastructure in during the internet era, then the. com bubble, and it led to all sorts of huge downstream consequences in many ways, like the low interest rate environment after the.
Samar Shah: com bubble propped up the [00:35:00] housing bubble, right? Which Caused a huge recession and then almost failed our banking system. So this telecom companies are like, anyhow very interesting. Maybe we should talk about it. And we should make a episode on that. That's right.
Samar Shah: Maybe we'll make an episode on John Malone himself and Bob Iger. Which might be fun. Oh, it
Ian Holloway: feels like we're going to get more and more details as this goes on between those two here.
Samar Shah: Okay this is a long preamble into Disney here. They, needless to say, the market dynamics are changing. Most of their revenue came from ESPN and linear television.
Samar Shah: Two thirds of it two or three years ago. Today, two thirds of their revenue and profits come from the parks division and the experiences division. And actually There's this Craig Moffat is the analyst where actually I learned a lot of this stuff from, as I was analyzing Disney, because this is so complicated, just reading The lawsuits was so complicated, all these legal relationship between these companies.
Samar Shah: But, Craig Moffitt said, that the value of just the parks division is more than like the entire enterprise value [00:36:00] of Disney. Jeez.
Ian Holloway: Okay.
Samar Shah: So in one of his analyst notes, which is probably right, I'll try to play this clip as well. So he asked Eiger should we split Disney?
Samar Shah: So I'll play this. It's also an interesting exchange.
Disney: And then one
Disney (2): and
Disney: everything else, so
Ian Holloway: no comment. Okay.
Samar Shah: No comment, but I did read a Moffat's thesis about this, that he published after the, this exchange on the earnings call. And that's basically what he said is that, the parts division is worth more than the enterprise value of Disney currently, it is, it makes a lot of sense to potentially break up the company, right?
Samar Shah: You unlock all that additional value. And then somebody, like the streaming business can be somebody else's problem potentially, or you spin off ESPN or what have you. And everybody benefits like shareholder. There's a lot of shareholder value there, right? So they haven't done it yet,
Ian Holloway: though.
Ian Holloway: So what would keep them together? Or why would you not break them up? Can you think of a
Samar Shah: Yeah, Iger has been very clear that ESPN is going to go over the top. I played that clip already. He said it was inevitable. [00:37:00] So he's made that decision and I guess I think I agree with that.
Samar Shah: Hard to disagree with Bob Iger, but I agree with that. The parks business is not very scalable, right? You, it's, you've had a lot of infrastructure build out. In fact, I think in December's earnings call, they said that they're going to double their expenditure in parks. So they were going to spend something like 60 billion of infrastructure rollout and build out in the parks segment.
Samar Shah: And immediately the stock was like down 3. 5 percent the next morning. And I'm like, actually, this is a good thing. This is where most of your profit comes from. Like, why would the stock be down? I think all that spend is scary to investors and it's not as profitable, right? Because, revenue from carrier fees from cable companies for running ESPN was, there's no infrastructure build out.
Samar Shah: You had to buy the sports leagues rights, but like you don't have to spend any money. It's just like a lot of margin. There's not as much margin in the [00:38:00] parks business. So I think that makes sense, but they're still going to scale that business. They're going to double their efforts, double their expenditures, and ideally double the revenue.
Samar Shah: So they're going to keep their foot in both boats, okay.
Ian Holloway: Okay.
Samar Shah: So they are making a lot of investments there, but they're also taking ESPN D2C. And that is interesting. If they can pull it off and there's advertising, as we said last time is the greatest business model of all time.
Samar Shah: That makes a lot of sense to me. The other reason I, we talked about why the cable bundle's a good model, but advertising is a great business model because it is also value accretive to all the stakeholders. If you're in a business transaction with somebody, for one stakeholder to win that transaction, they have to either charge more money to generate more profit or margin, or they have to lower the quality of the product so that they're.
Samar Shah: In effect, getting more margin, right? So there's a clear winner and a loser in that transaction. But when you have advertisers involved, it is value accretive to [00:39:00] everyone, right? Because it doesn't cost the consumer any additional money, right? Which is good. And then it incentivizes the studio or the producer to make better and better content so that they can keep the.
Samar Shah: Consumer on the platform and then advert and they can serve advertisement. So like it's a win for everyone and that's why I think this is such a great business model. But anytime you can find a model where everyone wins a little bit that's a great place to be. Yeah they do need to get that off the ground.
Samar Shah: And I think it makes sense to me that they're going this route. If you're Bob Iger and you are used to being the kingmaker, you probably want that high margin, high velocity business as opposed to the low margin utilities type of a business. So I get it. The place where I would maybe criticize Bob Iger at respectfully.
Samar Shah: I don't know, who am I to criticize Bob Iger? What I don't get is like, why haven't they just bundled ESPN with Disney and Hulu? To me, that's like the most obvious bundle. Do you really need more sports [00:40:00] content? You need some tentpole sports content. But then why can't you use the Disney content and the Hulu content as a way to fill The additional hours, right?
Samar Shah: Like I get it, studio shows are not going to fill those hours. But do you really need dedicated sports content for that?
Ian Holloway: It doesn't have to be sports 24 seven. You've got other options as a consumer then with it bundled there you go for the sports and Hey, you've got the bonus shows from Hulu and all that.
Ian Holloway: Sure. Seems like a, and then that's your distribution right there.
Samar Shah: Yeah, I don't know. Yeah. If they, I think I get it is that it's that 20th century Fox acquisition, that 70 billion Albatross, that is they got to generate revenue. And I don't even know if if they bundle all three of those services together, they charge 50, 60.
Samar Shah: I think they think consumers may balk at that, right? People will be outraged or it's just not enough money to service the debt on the
Ian Holloway: acquisition. I don't know. Suddenly you have to charge a hundred dollars for this one bundle there. Yeah, that comes a little harder of a pitch to the consumer.
Ian Holloway: People
Samar Shah: will be pissed, right? Oh, yeah, you said you were trying to lower the cost of cable When [00:41:00] it was like 80 a month, definitely, this is the other brilliant part about the cable bundle is that, cable got more and more expensive over time, not because the cable companies wanted more money is because ESPN wanted more money.
Samar Shah: So ESPN would be like, Hey, we'll charge you 10 more and the cable company is okay, fine, but we'll just charge our consumers 10 more and the consumers were
Ian Holloway: blamed.
Samar Shah: Yeah. Yeah, the cable company got blamed and they were like, Oh yeah, we're just a little ESPN trying to give you a sports and highlights.
Ian Holloway: You don't have that buffer anymore. You don't have that protective. A bulletproof vest of Comcast around you anymore. Suddenly those price increases become a little more thought out. Yeah, now people are going to hate you as opposed to Charter or Comcast.
Samar Shah: That is rough. Yeah yeah, maybe they're afraid of that.
Samar Shah: They're eroding like consumer confidence or like whatever the [00:42:00] brand prestige value is. There's a lot of brand value tied up in Disney and Even ESPN there. Yeah. Yeah. So maybe that's why they're not, but to me, it's like, why would you want to share revenue with Warner Brothers Discovery and these other companies in a mega stream sports streaming app?
Samar Shah: And maybe they think, Hey, we can still like leverage a lot of value out of this bundle. And then people will be mad at the prices to some other third company, as opposed to us. I don't know. I don't know, but I would just, personally, I would just bite the bullet and try to make that as affordable as possible.
Samar Shah: I would even make Disney and Hulu free, because if your goal is to get as many eyeballs onto your content as possible, attract more advertisers, I don't know why you would make people subscribe and pay money for these apps on top of that.
Ian Holloway: Yeah, just go
Samar Shah: Full into advertising here, which apparently they want to do.
Samar Shah: Yeah, and then on all the conference calls Bob Iger keeps calling ESPN a platform So I think their plans to turn it into a fantasy sports thing and [00:43:00] maybe do some sports betting on there That would be
Ian Holloway: That would be interesting for ESPN. So you go there, play fantasy sports, exchange money.
Ian Holloway: Yeah, that could work. And you would want from Disney's perspective, betting going on the same app that you have your Disney content on. That's a, yeah, it's a cultural
Samar Shah: difference there between the two sets. I would say even having betting on ESPN app would be problematic from a consumer expectations perspective.
Samar Shah: So I don't know. I don't know. It's seemed like a lot of plans that Only some of them will bear out or bear fruit. Okay, so now that we know about Disney and its really complicated relationship with everyone else, let's talk about what we would patent. Now that we have criticized Bob Iger, maybe we should
Ian Holloway: Now we can Monday morning quarterback this decision for ESPN and all that.
Samar Shah: Let's play a clip from Bob Iger in terms of what he thinks are the four core areas for Disney going forward. And then, the way we always talk about patent strategy [00:44:00] is that it should complement and follow business strategy, right? Let's hear about what the business strategy is and that would guide our patent strategy discussion as well.
Disney: As we look forward, we are focusing on four key building opportunities. It will be central for our success, as they are achieving significant and sustained profitability in our general business, serving ESPN into the preeminent digital sports platform, improving the output and economics of our film studios, and turbocharging growth in our creative discipline.
Disney: We've already made considerable progress on these four opportunities, and we will continue to move forward with a sense of equity.
Samar Shah: So there we go, we're going to do all four
Ian Holloway: of these things. We're going to do a little bit of everything. Okay.
Ian Holloway: Yeah, I wish
Samar Shah: they would be more discerning as we talked about already, but if we are Patent Council for Disney, we would say, Hey, then we will invest in these areas as well, right? Like I would try to understand what the relative [00:45:00] importance of these four things are and where most of the revenue is going to come from so that we can match our legal spend with those things and where the company is going.
Samar Shah: I think based on all of this, like certainly parks and experiences is going to be a big part of the investment from an IP perspective. There's not a lot there from a patent perspective that you can do with a park, but certainly copyrights and trademarks, Disney spends a lot of money on IP.
Samar Shah: It's just not patent in this particular space. You get a
Ian Holloway: decent number of design patents too, I think, within here. But yeah, I'm with you, there's not as much there.
Samar Shah: Yeah, one way to scale the park's experiences is AR VR, right? I would be spending money, spending IP budget there, right?
Samar Shah: So I would say 15 percent of my budget would go towards scaling the park's experiences in the future as much as possible. So if you can like charge, I can see a world where, they charge you 500 bucks to go to a Disney park on your vision pro or something like that.
Samar Shah: Yeah. It was possible. I don't know what that looks like, but I'm sure they're innovating and thinking about that. I would try to [00:46:00] protect that IP. I think they've made movies
Ian Holloway: about that. They're usually dystopian ones. of people just sitting around doing experiences in their living rooms there somewhere.
Samar Shah: It sounds dystopian, but especially during the pandemic, my kids spent a lot of time on FaceTime with our grandparents, with my parents. And if they are able to do a cool activity with their headset, And spend time together, I think that's really cool. And heartwarming in a way, cause otherwise the kids are not great on the phone, yeah. Mine, especially,
Ian Holloway: yeah, that would be cool. That would be cool. Okay. So AR VR, perhaps. For any parks and experiences.
Samar Shah: Okay.
Ian Holloway: Yeah. Yeah. They talked about streaming, I
Samar Shah: think as well. Yeah. Streaming is a big thing. Yeah. They, they currently, not to preview them too much, but they're spending a lot of IP budget on their streaming technologies.
Samar Shah: I don't know if that's a huge differentiator. This is something that you need to do and you need to provide a good streaming experience. But I think a lot of that is already done. I would spend maybe 10 [00:47:00] percent of my budget on that. Because that's just like putting cable down at this point, right?
Samar Shah: Like these would be defensive patents, in my opinion, more so than anything else. But that's how I would budget that allocation.
Ian Holloway: They were also keeping their studios going, right? Yeah. So anything that helps with animation,
Samar Shah: probably? Yep. Animation, probably some AI here to help you create the content.
Samar Shah: Yeah, I would be spending at least 15 percent of my patent budget on things that Make it easier for our studios to make movies to make higher quality movies relative to our peers like DreamWorks and stuff like that. So I'd be trying to protect that technology as much as possible, but maybe spending about 15 percent there.
Ian Holloway: And you probably get a little overlap with parks and experiences in there as well with that kind of content production. Sure. Sure. Which leaves. Advertising. Yes.
Samar Shah: This is the way forward. This is the future they are going to, try to get a lot of [00:48:00] customers and eyeballs onto the ESPN, a sports streaming app, and maybe leverage that into more advertising.
Samar Shah: In the Disney plus and Hulu apps, right? I don't know how, like I didn't see any patents about that, but like to me ESPN advertising is mass market advertising, right? Like we talked about with Doritos or cars and things like that But Disney plus and Hulu might be a more D2C type of advertising, right?
Samar Shah: Where a lot of targeting is very helpful and knowing exactly what kind of shows you watch What kind of who you are aggregating all that stuff and then giving advertisers a return on investment would be, like from my perspective, like the ESPN ads would be the eye of ROI, right? That's where all like a lot of the investment happens.
Samar Shah: And then you can leverage that into the R part at Hulu and Disney Plus, because by definition, you're going to have fewer people, fewer eyeballs on those streaming services. And it would behoove you to create a lot of revenue and a return for your customers, advertisers there. I would try to [00:49:00] leverage those relationships.
Ian Holloway: Kind of do this, a
Samar Shah: New flywheel. Yeah.
Ian Holloway: Okay. Yeah. Get some more profitable advertising opportunities out of those other streaming. Okay. What is Disney patenting? So I looked into this. These big companies are. Interesting, there's layers upon layers to break through. I did restrict this down to patents filed within the United States.
Ian Holloway: This includes, Pixar and Lucasfilm and other acquisitions. However, I did not include Hulu and 20th Century Fox. Being the newest acquisitions, see what they add to the portfolio separately here. Most of the international stuff had to do with design and things like that.
Ian Holloway: Not as much utility patents. So we've got about 7, 000 patents that Disney has filed with about half of that, about 3, 500 families, so average two patents for every family. [00:50:00] Older patents are mostly towards park experiences, which makes sense with the history that you talked about. A lot of stuff from Lucasfilm, so there were a lot of at ats and toy designs and things like that.
Ian Holloway: When we get closer to the 20s though, I get closer to today, we're directing more towards AR, VR, some streaming things, which From late 2010s, we're looking at getting Disney Plus ready to go, some experiences. And the AI was direct, they did have a few AI or machine learning patents, but they were directed mostly towards entertainment purposes.
Ian Holloway: So can we have an AI that will respond to a user to make an experience? experience more enjoyable. It's not so much how do we use AI to target advertising and things like that. But what we want to know, focus on mainly is what they're doing in like the last five years. So last five years, based on what we were looking at, about 10 percent [00:51:00] of those patents had to do with animation, which puts it near the number that you were looking at, I think about 15 percent towards streaming.
Ian Holloway: So the nuts and bolts of streaming, in addition to I'm making recommendations and things like that to users, but a little bit got mixed in there about 15 percent for AR, VR type applications, so they are definitely focusing on that. Experiences, about the same rate, and about 20 percent had to do with AI or machine learning.
Ian Holloway: Mostly towards experiences and animation techniques on how to improve things. I gotta admit, they didn't have a lot on advertising somewhere, at least Disney as a company, right now. Yeah, I was going to say, I'm going to make you a little upset there for Adam.
Samar Shah: I was going to say, these numbers look pretty close to what we would have laid out in our previous slide, but with one notable exception,
Ian Holloway: Now that [00:52:00] doesn't mean that as a whole as the company, they acquired Hulu, right? So there are other ways to get IP that might be valuable that might make you a little happier here as their counsel. Okay. Hulu as a whole, and we looked at about 750 patents of theirs. And almost everything early on was dedicated to the nuts and bolts of streaming.
Ian Holloway: They're making sure they can get their content out there without little errors and hiccups as possible to the consumer. Recently, it is about 35 percent focused on advertising. So Hulu has made that shift and 40 percent had to do with UI, UX. Or I'm sorry, streaming services, more still optimizing distribution to people.
Ian Holloway: And they had about 10 percent directed towards user. interfaces and things like that. So better on the advertising side. They're a little more focused, I think, on what makes their business run.
Samar Shah: Yeah, this is a really good distribution. I think, although [00:53:00] I would be even more aggressive in this distribution, but this is certainly in the right direction relative to Disney.
Samar Shah: So I think Hulu's patent council have done a really good job of mining intellectual property that actually complements the business objectives. To me, that makes a lot of sense. We talked about, we didn't talk about UI UX a whole lot in this episode, but we certainly spent a lot of time talking about it with Netflix and Spotify.
Samar Shah: But if, as you become a giant streaming operation, content discovery is the name of the game. And if you don't have a good recommendation system and a good UI UX system, you're going to be toast. You're going to lose those eyeballs and you're going to lose advertisers. So those are like the key parts of the.
Samar Shah: Ads model is that you need to find a way to keep people engaged through really good recommendations and UI UX. You need to be able to, have auctioning systems to get. Advertisers to compete for those ads. You need to have really good targeting. For the D2C advertising and our Y calculation system, AI [00:54:00] is huge here, right?
Samar Shah: To figure out when somebody is going to convert or who's going to convert. And if you can do that for your advertisers, you can charge them a whole lot more. And then, advertising for the mass market is a little bit different. Like that, that is that's a lot of relationships and like sales processes and salespeople and stuff like that.
Samar Shah: So less of a concern there, but. But yeah I think this is a much better mix than what Disney was into.
Ian Holloway: I would agree with that. Fox didn't have a lot of patents. Mostly, almost 100 percent of them were dedicated to content production and movie filming technology. Some very interesting ones from the 1970s and earlier for this search.
Ian Holloway: They They don't patent a lot at Fox, which I guess is fine. They were primarily a content production studio. So I guess it follows with it.
Samar Shah: Yeah. I think
Ian Holloway: that
Samar Shah: makes sense. Not a lot happening at Fox. There's in the [00:55:00] studio making movies not a lot of patentable technology. I get it.
Ian Holloway: Yep. We did look at competitors and this was updating of what we talked about from Netflix here.
Ian Holloway: When we throw in. Comparing Disney and Netflix and Hulu, and then you add Amazon and Apple on top of that, you really get to see what the picture of this market this pond that all these fish are in. Amazon and Apple as a whole are just, perhaps 5x, 10x more than what Disney is doing, as far as number of filings at, and that those numbers carry through to how much they're putting towards recommendations.
Ian Holloway: And advertising as well, just as a whole. You're Disney, you're much larger than Netflix and Hulu, about 10 times larger than both of them, but then you've got above you, Amazon and Apple, which are just huge. So it puts you in a, I don't know, a weird position, you can throw your weight around on Netflix and [00:56:00] Hulu and make sure you're protecting things.
Ian Holloway: But Your lunch is gonna get eaten if
Samar Shah: Amazon or Apple turns their sights on you. This is another thing that I think Bob Iger did really well. Because, in his earnings call that we listened to, he said we're looking for distribution help and advertising help. You know who can really help you there?
Samar Shah: Apple and Amazon, right? Google and YouTube. So that was my big worry when I listened to that earnings call, I was like, okay, if they partner with Google or Amazon or Apple and they think, Oh, it's going to be the same as when we partner with a cable company as a distribution partner, it's not going to be the same.
Samar Shah: These companies, tech companies in particular are just going to completely eat your lunch once they are. In a relationship with you. So that was the big problem and the patent portfolios bear that out. There's so much technology here that goes into delivering a really good delivery network as well as a distribution network, advertising network and all that stuff.
Samar Shah: And they're going to extract all the value out of this. [00:57:00] Relationship and the bundle because the content for these companies remember is commoditized, right? So like each individual Facebook Comment or post is worth zero dollars, but it's the aggregation of it and the discovery of it and the algorithmic presentation of it that becomes Of huge value, like ESPN could have really good content, but it's going to get commoditized because they're going to extract a whole lot of value in the marketplace or the value chain from a lot of different angles.
Samar Shah: So Iger at least did that I think he did not partner with the tech companies because that would have been a big, a red flag, right? That means that. So he acknowledged that, I think, implicitly, which was very smart, I think.
Ian Holloway: Yeah. There's a reason he's held in high regard, right? It does something right sometimes.
Ian Holloway: That's right. That's right. This one was fun with the I looked up some litigation for Disney overall, most of their stuff they as a company don't get involved [00:58:00] in a lot of litigation. Most of the stuff has come from their acquisition at Hulu. We looked through a couple of these, they had 11 cases, seven as a plaintiff, eight as a defendant involving only eight patents.
Ian Holloway: One of them, we found our first litigation patent troll in our in this episode here. A Unilock company out of Australia sued sued Hulu for content distribution of patents. It lasted like three years for that one. It's very fun. And Hulu was also involved in three other of these cases involving, I don't know if you have gone to Applebee's or one of these restaurants where they have these screens at the table that have entertainment and you can pay and all that.
Ian Holloway: Hulu got involved in a case involved around one of those technologies. Patent trolls will sue you for anything. If we find anything, it is that. And then no, not a lot of licensing actually as well coming out of Disney, which [00:59:00] I think they're pretty protective about stuff like that. So I think
Samar Shah: that makes sense as well.
Samar Shah: Yeah. I like looking at this data because it. It gives us whether the company is taking a defensive posture with their IP spend, or if they are going to monetize this IP in some way, because that also changes how you would distribute your kind of IP spend across various different technology areas.
Samar Shah: All of this shows us that, Hey, it's all defensive by and large, which also would justify spending more money on the streaming nuts and bolts piece of things. That makes sense. It's all defensive. I don't. We'll talk about this as we get into the consolidation scorecard. But, generally when an industry is shrinking, there is consolidation that happens.
Samar Shah: And then there's also a bunch of lawsuits that happen. So that makes sense to be defensive in that situation. Interestingly, even though there's less money to be made, the industry is not shrinking, right? Like by and large, the streaming business is growing and it will continue to grow. I would be less aggressive about the streaming kind of defensive [01:00:00] portfolio when the industry does start shrinking, I think everybody's going to be competing on the advertising front, and this is why we would skew, keep pushing the client to give us more like advertising related IP projects because that consolidation may happen, but it's still a little far out
Ian Holloway: as
Samar Shah: far as streaming goes.
Ian Holloway: Got to be ahead of it though. So filing as a whole for Disney, and this is going to include. international as well. They file about 200 patents on average, but it does seem to be trending downward since 2020. However, they seem to be pretty efficient as far as their issuance rate, hovering around the high 80s, low 90s for that.
Ian Holloway: With the variety of patents that they put out, I think that's pretty impressive as far as what they're efficient, with what they choose to file, or at least Yeah, I think they've done a good job here. And then we looked at their key technologies and it really did, of those four groups outside of advertising, they push evenly on all these, or they pull evenly on all these [01:01:00] levers, right?
Ian Holloway: Nothing really goes over 15 percent as far as a focus. And they all hover between 10 and 15 percent of their patent portfolio. So very even keeled, even push, which we heard on that call Hey, we're going to focus on these four things. They are going to focus evenly on those four things overall.
Ian Holloway: Yeah. Except
Samar Shah: for advertising, but yeah.
Ian Holloway: Except for advertising. Yeah. Yeah. You gotta lose. I'm just elbowing them a little bit. I do. And then geographically they're mostly focused in the United States, 92 percent of their patents get produced there, which I think this is the most focused we've seen out of any company that we've reviewed so far.
Samar Shah: Yeah, it is, that is interesting. I guess there's maybe not as much streaming happening in other parts of the world.
Ian Holloway: Guess not. I think, as a whole we've looked at these companies so far, and Disney, for the most part, is it has that culturally an American company, when compared to say a Netflix or [01:02:00] Spotify, things like that, even though they are, but like Disney as a whole really focuses a lot of their product in America.
Samar Shah: So I guess that's what I see here. And this is right. This is what I would recommend they would do. They do as well. It's just patents outside of the United States are just not worth as much.
Samar Shah: And for a company like Disney. All about high margin, I would file 90 plus percent in us as well. So this to me is right. Excellent.
Ian Holloway: That brings us to the scorecard here, Summer. Let's do this. Yeah, it's been a fun one with with the history of Disney here and what they've looked at.
Ian Holloway: Maybe our listeners are going to guess what we're going to put beforehand here, but start us off. Does it cover the base tech on A through F grade?
Samar Shah: I think so, I think I would give them an A. They've done a good job. That distribution of their patent filings across those four, I should say three, three areas of focus is pretty good.
Samar Shah: They've covered the streaming based tech, they've covered the parks [01:03:00] experiences, they've covered the the ar vr experiences. . . Hulu has really covered the ui, ux stuff. So I think on the whole, except for the advertising piece, I'd give them an a, they've done a good job.
Samar Shah: Excellent. Does it cover competitive differentiation? This is really tough. I don't know what their competitive differentiation is other than the content that they're able to offer. So I'd give them a B because I think,
Ian Holloway: Like you said, it's a hard one to evaluate for this one. I think a B is a fair grade for this situation.
Samar Shah: Maybe they have some technology here about how the streaming happens, how they The UI is different and we see we've seen patents on those and they should seem like good quality patents to me So yeah, I think that'd be a beat Benchmarking against competitors. Yeah. I think that's also a B, right?
Samar Shah: Cause if you look at Netflix and Hulu, they are 10 X the size. But if you look at Apple and Amazon and Google, they are a 10th of the size. So we're right in the middle somewhere.
Ian Holloway: Does it [01:04:00] exclude important competitors though? And this, I feel like echoes what we just were talking about there. So probably looking at a B for this one.
Samar Shah: Yeah. Really, ultimately their biggest competitor is going to be Netflix. Does it exclude them in a meaningful way? I don't know. The streaming patents are nice, so they're defensive. The UI UX patents are nice. They're potentially exclusionary. So yeah, probably get a B there too.
Ian Holloway: Netflix doesn't really focus on advertising either though, I guess it's less impactful that Disney's lack of advertising against Netflix,
Samar Shah: maybe for right now, it doesn't have an impact.
Samar Shah: Yeah, but that's where you seize the opportunity, right? If we were doing a IP analysis, a landscape analysis, we would see a big old gaping hole in the advertising space. And we'd want to capture as much of that market from an IP perspective as possible. So I would, and I know I've said this many times in the podcast already, but I would continue to keep pushing my client and be like, Hey, give me more.
Samar Shah: Let's do some more IP mining around this stuff. Cause that's a big opportunity
Ian Holloway: [01:05:00] area though. Does it align with forward looking business plans and their R& D spend? I think this is a first here, Summer.
Samar Shah: Yeah, and this is what makes IP so hard, and this is why I think it's so fun to be in the line of work that we are in.
Samar Shah: You have to be so forward looking to, because it takes four or five years for these patents to issue. And it takes another couple of years of like strategic thinking to get there ahead of your competitors. So you have to be so forward looking. It's the best job in the world, I think.
Samar Shah: From a strategy perspective. Business, even business strategists are like near term focused. Patent strategists had to be long term focused. And I think they get an F here. They. Clearly, the company is going in the direction of advertising as the bulk of their revenue, and I see very little spent there.
Samar Shah: I would
Ian Holloway: agree. And our last one, does it anticipate potential horizontal or vertical integration in the industry? They are the horizontal integration right now, as they're buying up everybody.
Samar Shah: Yeah. Yeah. Actually the Hulu acquisition from an IP perspective is great. They're very complimentary. [01:06:00] So I think that props up their grade a little bit.
Samar Shah: The vertical integration is different, even like this venue app, right? That they have, that they partnered with other companies with, it's have you, I don't see any IP around how you integrate all these data streams and how you present it, how you chop up. Revenue from advertisers and do targeting based on information that you may not have.
Samar Shah: I don't see any IP spend there. So like you have this huge venue app as like your pathway of getting ESPN over the top. And then, I don't see any patterns around that. So we'll end there
Ian Holloway: with a B grade overall. I think Disney's, man, it's the forward looking. That's got me worried so much for them right now.
Samar Shah: Yeah, I agreed. I think they have done a good job. It is a little interesting for a company that's so focused on IP licensing, right? Like they license their characters. Like those are all huge revenue drivers for their experience as business. Not a lot of IP licensing with regards to patents. They're [01:07:00] all defensive, really good distribution.
Samar Shah: There's obviously a lot of thinking and choosing and filtering that's happening at Disney, which is good. Maybe the pivot is so sudden. And dramatic that they didn't anticipate the IP council didn't anticipate this. But yeah, it's that would be one area to shore up from an IP perspective. That brings us to the end of this episode.
Samar Shah: I think. Awesome. Thanks Ian for taking this journey with me. Hopefully it was interesting. Maybe we'll talk about the cable cowboy some other time. I hope so. And go from there.
Ian Holloway: Thank you, Summer. And thanks to all our listeners out there. Yes. Thank you, everyone.
Samar Shah: We'll see you on the next
Ian Holloway: one.
Ian Holloway: Take care.