AI transcript
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0:01:16 – Today’s number zero.
0:01:19 That’s how many stocks Democratic VP pick Tim Walz owns.
0:01:21 I’d rather talk about G.D. Vance.
0:01:23 I think he looks like one of those illustrations
0:01:24 on the back of a milk carton
0:01:26 saying what a lost child would look like now
0:01:28 if he were an adult.
0:01:30 Also Ed, he’s definitely the kind of guy
0:01:32 that invites you over for Bible study
0:01:34 and won’t stop asking if you want a massage.
0:01:36 – I like the first one, did you come up with that?
0:01:37 – I don’t come up with any of these.
0:01:42 – Oh, we need a prof to your original, that was great.
0:01:47 – There is so much good shit about G.D. Vance.
0:01:49 I mean, I absolutely, I mean,
0:01:51 with all the makeup he’s wearing,
0:01:52 he looks like he’s joined
0:01:54 a fundamentalist Christian metal band.
0:01:56 – Yeah, yeah, the eyeliner is insane, huh?
0:01:59 – The eyeliner, the guy, the guy is clearly
0:02:02 like the handmade’s tail, but he wears an eyeliner.
0:02:03 What’s going on here, Ed?
0:02:05 – Times are changing.
0:02:06 We have to accept it.
0:02:09 – He also looks like the guy that will play him on SNL.
0:02:11 Or I think he actually looks like you would look
0:02:13 at your reflection in a teaspoon.
0:02:16 I think you would look like him.
0:02:19 (laughing)
0:02:22 (singing in foreign language)
0:02:27 (singing in foreign language)
0:02:29 – One more, come on.
0:02:31 – He looks like a picture of one of those dogs
0:02:33 you see on Instagram that’s just been stung by a bee.
0:02:35 – Yeah, these are good.
0:02:36 – Should we get an update from Aspen?
0:02:38 Anything interesting going on?
0:02:39 – Trying to think.
0:02:41 My kids went to the rodeo last night.
0:02:44 It was sort of a family thing, so I didn’t do it.
0:02:45 They went to the rodeo.
0:02:48 We have some friends, all these friends.
0:02:49 Aspen is like New York.
0:02:50 Once people find you have a place there,
0:02:52 they’re like, hey, let’s get together.
0:02:53 It’d be great to catch up.
0:02:54 – When do you leave?
0:02:55 You’re heading to California, sir?
0:02:58 – Yeah, I head to Los Angeles this afternoon
0:03:00 ’cause I’m pitching this original scripted drama
0:03:01 and I have a bunch of meetings tomorrow
0:03:03 and I’ll hang out at the Beverly Hills Hotel.
0:03:04 – Favorite hotel in the world?
0:03:05 – I’ll go down to the pool
0:03:07 and put on big black sunglasses
0:03:08 and unleashed cigarette in my mouth.
0:03:10 And every woman who walks by me,
0:03:12 I take my sunglasses down and I go,
0:03:13 Jackie, marry me.
0:03:15 I make you very happy woman.
0:03:16 And nobody knows what I’m saying.
0:03:19 That’s actually Aristotle and Nassus.
0:03:21 What I thought he would have said to Jackie on Nassus.
0:03:23 – Do you think anyone understands that
0:03:24 or just wants to call security?
0:03:26 – No, I don’t think anyone understands.
0:03:27 I don’t even understand, but it doesn’t matter
0:03:32 ’cause I still find it funny because it’s so strange.
0:03:33 – I love that.
0:03:34 It’s what I call one of those.
0:03:35 So I’m super into hotels
0:03:37 and the Beverly Hills Hotel is what I call it,
0:03:38 Disney Hotel.
0:03:39 It has all these attractions.
0:03:40 It has the Polo Lounge,
0:03:42 which is this cool restaurant and bar.
0:03:44 It has this thing called, is it called the counter?
0:03:46 – Yeah, the diner, right?
0:03:48 – The diner has like the best breakfast diner.
0:03:50 It has this great pool
0:03:52 and then a great restaurant off the side of the pool.
0:03:54 So everyone will come to you.
0:03:55 You never need to leave.
0:03:58 People love coming to the Beverly Hills Hotel.
0:04:01 So I absolutely, I love it there.
0:04:04 I feel like a producer in the 50s having an affair with,
0:04:06 I don’t know, a starlet
0:04:08 or one of the gaffers or something.
0:04:10 It’s great.
0:04:11 – Well, I’m excited for you.
0:04:12 – Thank you.
0:04:12 Thanks for that.
0:04:13 All right, get to the news.
0:04:15 – Let’s start with our weekly review of Market Vitals.
0:04:18 (upbeat music)
0:04:21 (upbeat music)
0:04:23 The S&P 500 was volatile,
0:04:25 but recovered some of its Monday losses.
0:04:28 The dollar stabilized after sliding to a four month low,
0:04:31 Bitcoin rose and the yield on 10 year treasuries climbed.
0:04:33 Shifting to the headlines.
0:04:36 Shopify reported second quarter sales and profit
0:04:37 that beat expectations.
0:04:39 Revenue projections for the third quarter
0:04:40 were also higher than expected
0:04:43 and shares rose almost 18%.
0:04:46 Airbnb revenue came in higher than expected,
0:04:48 rising 11% year over year.
0:04:51 Shares dropped the most in two years, however,
0:04:53 after second quarter bookings fell below
0:04:54 analyst expectations.
0:04:57 The company also forecasted third quarter bookings
0:05:00 will grow at their slowest pace since 2020.
0:05:02 Disney’s streaming unit posted a profit
0:05:04 for the first time ever
0:05:06 and overall revenue increased 4%.
0:05:09 Still, investors were spooked by a 6% drop
0:05:12 in operating income for its theme parks in the US.
0:05:15 The stock fell more than 4%.
0:05:18 And finally, Elon Musk’s ex is suing a group
0:05:20 of major advertisers for alleged violation
0:05:21 of antitrust laws.
0:05:23 The suit claims that a group of advertisers
0:05:25 have been withholding ad dollars from ex
0:05:27 since Musk took over.
0:05:29 Ex says this was a quote, a legal boycott
0:05:31 that cost the company billions of dollars.
0:05:34 Scott, your thoughts starting with the earnings
0:05:35 from Shopify.
0:05:37 – Well, we had a really interesting interview
0:05:40 with Mark Mahaney, who’s the head of, I guess,
0:05:42 internet research for Evercore.
0:05:47 And Shopify, he said, was sort of had been overly punished.
0:05:50 And then the next day, you know, this happens,
0:05:52 revenue increased 21% and subscription revenue
0:05:53 increased 27%.
0:05:56 Subscription revenue is generally valued
0:05:59 at a greater multiple than general revenue
0:06:00 because it’s stickier.
0:06:02 Their profitability improved.
0:06:04 Operating expenses decreased quarter over quarter
0:06:06 and free cash flow margin doubled from last year.
0:06:08 So the gangster move here, the chocolate and peanut butter
0:06:12 is after a crazy amount of growth and investment
0:06:14 in sort of the new economy.
0:06:17 A lot of these CEOs have said, here’s an idea,
0:06:19 let’s cut costs and see if we can maintain some growth.
0:06:23 And if you can both cut costs as Shopify has done,
0:06:25 obviously above operating expenses decreased
0:06:28 while maintaining some growth, which they did substantially,
0:06:31 that is nitro and glycerin around earnings.
0:06:33 And that is your earnings absolutely explode.
0:06:35 – Yeah, I think it’s interesting also, you know,
0:06:38 we’ve seen all these recession fears
0:06:40 that we’ve been talking about in the past week
0:06:43 after we saw that big stock market drawdown.
0:06:46 I feel like those fears have mostly been put
0:06:47 to rest at this point,
0:06:49 but people are still kind of talking about it.
0:06:51 But if you were to make an argument today
0:06:54 as to why we are not about to enter a recession
0:06:56 or a recession is not coming,
0:07:01 I think these earnings from Shopify would probably be
0:07:03 exhibit A in your defense case.
0:07:07 You’ve got one of the largest retail platforms in the world.
0:07:09 It operates across every vertical.
0:07:13 It works with tiny, small to medium-sized businesses,
0:07:15 even to huge enterprises.
0:07:20 It works with clients like Heinz and Mattel and Luxotica.
0:07:21 It’s across all of consumer
0:07:24 and this company is experiencing historic revenue growth.
0:07:27 So I don’t think it’s a hot take for me to say,
0:07:30 I don’t think recession is on the table,
0:07:32 but if you do want to make that argument,
0:07:35 I think Shopify’s earnings are a good place to start.
0:07:38 – The only way I’m talked about that has been sort of a great,
0:07:39 I don’t know what the term is,
0:07:42 a great gift with purchase or kind of makes the story
0:07:45 that much sexier is that they are,
0:07:48 they have rolled out a number of AI-enabled tools
0:07:50 for its merchants that help you better market,
0:07:54 better allocate your capital, look at your dataset.
0:07:56 And that seems to have the market excited
0:07:58 that these small and medium-sized companies
0:08:01 now have access to these AI tools.
0:08:04 So that was part of the great story here.
0:08:06 Feels like it’s oversold.
0:08:10 Year-to-date, the company is down 8%, right?
0:08:13 So whereas when you look at Amazon year-to-date,
0:08:16 Amazon is up 10%.
0:08:18 So I just think a lot of this was,
0:08:19 when people got their pencils out,
0:08:23 they said, all right, Shopify has been unfairly punished,
0:08:25 is actually doing better than people think,
0:08:27 some AI secret sauce,
0:08:31 and it all adds up to a good trade here.
0:08:32 Should we talk about Airbnb?
0:08:33 – Let’s do it.
0:08:34 Your thoughts, you’re a big shallower, so.
0:08:37 I am, although I’ve paired a lot of my holdings.
0:08:39 Profits fell 15% year on year,
0:08:41 mostly due to higher income taxes, which is interesting.
0:08:44 I wonder why they’re paying higher income taxes.
0:08:48 Q2 bookings only increased by 9% from a year earlier,
0:08:51 still good but below expectations.
0:08:55 Airbnb said it expects a sequential moderation
0:08:56 of bookings growth in the third.
0:08:58 Can you imagine how many high-paid comms consultants
0:09:02 came up with the term sequential moderation?
0:09:05 I mean, literally, if you’re having sex with someone
0:09:06 and you just want to kill the moment,
0:09:09 start screaming sequential moderation.
0:09:10 What the fuck does that even mean?
0:09:13 Anyways, booking lead times got shorter,
0:09:15 a sign that customers have less confidence
0:09:17 in making long-term financial commitments.
0:09:19 I wonder if people are a little bit running out of money
0:09:21 or they’re returning to the office
0:09:23 or they’re not deciding to take a backpack
0:09:26 and go work from Thailand.
0:09:29 I don’t know, Airbnb also expects margins to contract
0:09:32 in Q3 as a result of higher marketing spend.
0:09:34 One of the things I always loved about Airbnb
0:09:35 is that they were one of the few companies
0:09:37 that was able to exit the stranglehold
0:09:40 of Metta, Alphabet, and Amazon,
0:09:42 that the majority of their bookings are direct to site.
0:09:45 So when you go and book a hotel,
0:09:47 such as the Beverly Hills Hotel,
0:09:50 and you use Expedia, which I love, I love the Expedia site,
0:09:54 if that traffic to the Dorchester collection
0:09:56 who owns the Beverly Hills Hotel comes in through Expedia,
0:10:01 Expedia gets anywhere between $100 and $400 a night
0:10:07 of the $1300 a night that these firms are charging now,
0:10:09 which dramatically reduces their margin, whereas Airbnb
0:10:12 doesn’t have to pay the toll nearly as often.
0:10:15 So I’ve always thought that Airbnb was the best brand
0:10:17 at hospitality in the last several decades.
0:10:21 As expected, the Olympics helped increase demand in Paris,
0:10:23 nights booked in Paris for strangle in the Olympics
0:10:25 were over five X higher than the same time a year ago.
0:10:27 That’s not a shocker.
0:10:29 The stock was down 13% after earnings.
0:10:32 Jesus, that’s a hit, right?
0:10:34 The bottom line is I think they would have been fine,
0:10:36 the numbers were fine, but what they’re saying is
0:10:37 they’re trying to prep people for what sounds like
0:10:40 it’s gonna be a shitty next quarter.
0:10:43 And that term sequential moderation costs the company
0:10:45 about $10 billion.
0:10:47 So this is not about their performance,
0:10:49 it’s about their guidance.
0:10:50 – Yeah, I think that’s exactly right.
0:10:52 I think sequential moderation was the line
0:10:53 that freaked Wall Street out.
0:10:56 And the other line that freaked them out was quote,
0:11:00 we’re seeing signs of slowing demand from US guests.
0:11:02 So I think a lot of this is wrapped up
0:11:07 in those more general fears about a recession in the US
0:11:08 that we’ve been talking about
0:11:11 that we saw play out in the markets last week.
0:11:14 I believe as it relates to Airbnb,
0:11:16 those fears are really overblown.
0:11:20 If you look at Airbnb’s previous earnings report,
0:11:22 which we also discussed on this podcast,
0:11:23 they said almost the exact same thing.
0:11:26 They said, we’re seeing a moderation
0:11:28 and we’re seeing signs of slowdown
0:11:30 and the market didn’t really like it,
0:11:34 but they weren’t as upset about it as they were this time.
0:11:37 I think if you are a long-term shareholder
0:11:39 in this company though,
0:11:41 I really don’t think any of this should bother you
0:11:44 because everything we’re talking about right now
0:11:48 is about near-term consumer demand.
0:11:50 And all of that consumer demand is cyclical.
0:11:53 None of this has to do with Airbnb
0:11:55 as a business on its own.
0:11:57 And all the things that make Airbnb great,
0:12:00 you know, you said this, the best brand in hospitality,
0:12:02 number one travel app in the world,
0:12:06 one of the most network-advantaged companies you could buy
0:12:09 in the US stock market, none of that has changed.
0:12:11 This is still a great company.
0:12:14 It’s just the consumer that has supposedly changed.
0:12:16 – So more importantly,
0:12:18 I think the two of us should start a boy band
0:12:20 called Sequential Moderation.
0:12:21 You’re gonna be the dreamy front man.
0:12:25 I’m gonna be the brooding, depressed backup guy
0:12:27 that develops a heroin addict and then overdoses.
0:12:29 And then you’ll do it behind the music,
0:12:31 talking about what a good guy that was.
0:12:33 By the way, if you’re wondering
0:12:36 if they still sell edibles in Aspen,
0:12:38 I think I just answered the question.
0:12:40 By the way, I think it’s time we started talking
0:12:41 about legal edible products.
0:12:45 I use Wild Time to help me wind down at night.
0:12:46 I do five milligrams.
0:12:48 The peach keeps me awake
0:12:50 and the grape is just too much, Ed.
0:12:51 It’s just too much.
0:12:54 It’s like being hit over the head with a sledgehammer.
0:12:56 – Have you ever recorded a podcast under the influence?
0:12:57 That’s a genuine question, by the way.
0:12:58 – No, I never have.
0:12:59 – We should change that.
0:13:01 – I don’t think I’ve ever been under the influence
0:13:02 during when the sun’s out.
0:13:04 Yeah, I’m not, that’s not my gig.
0:13:05 How about you?
0:13:07 How about tell all your future employers
0:13:08 and potential mates?
0:13:10 – No, no, no, not yet.
0:13:11 Not yet.
0:13:13 I’m happy to change that, but we have to do it together.
0:13:15 That’s my only rule.
0:13:17 – No, I don’t think anyone needs to see that.
0:13:21 I become a better version of myself a little bit fucked up.
0:13:24 I’m nicer, more affectionate, more complimentary.
0:13:27 I’m definitely a much more interesting,
0:13:28 a little bit fucked up.
0:13:29 Anyways.
0:13:30 – Yeah, we have things to cover.
0:13:33 The next thing we have to cover is Disney’s earnings.
0:13:36 What are your thoughts on finally some profitability
0:13:37 in the streaming unit?
0:13:39 – I thought, I was shocked that the stock
0:13:41 didn’t respond more positively.
0:13:45 ‘Cause I saw this as, I saw this as a pretty good quarter.
0:13:49 Revenue up 4%, the EPS up 35%.
0:13:51 So again, see above, same thing, right?
0:13:53 That means they reduce their expenses
0:13:55 while maintaining growth.
0:13:57 So the company recorded a loss in the year ago quarter,
0:14:00 largely result of restructuring charges,
0:14:02 making the jump in EPS this quarter less substantive.
0:14:04 So you could argue it was sort of an artificial jump,
0:14:06 but still I was impressed.
0:14:10 Where I think people got freaked out was that
0:14:13 the experiences division, which is the parks,
0:14:17 revenue increased 2% while operating income declined 3%.
0:14:20 And executives blamed moderating consumer demand.
0:14:22 Again, more of this, at least they didn’t call
0:14:24 sequential moderation.
0:14:26 Disney’s CFO said the lower income consumer
0:14:29 is feeling a bit of stress and the higher income consumer
0:14:32 is traveling internationally a bit more.
0:14:33 Those are both really interesting things.
0:14:36 One, people are running out of stimulus or PPP
0:14:37 or whatever you want to call it.
0:14:40 And something I’ve actually tangibly noticed in Aspen,
0:14:42 I’ve been coming here, I don’t know,
0:14:43 eight or 10 summers in a row.
0:14:48 The last two summers, it’s dramatically less crowded.
0:14:51 And I think it’s because the high-end consumer
0:14:55 who accurately decides who comes to Aspen
0:14:57 has all this pent-up demand to go to Europe
0:14:59 ’cause they didn’t go for three or four years during COVID.
0:15:04 And so I think that they are leaving basically going
0:15:07 to the Amalfi Coast ’cause I haven’t been there in a while.
0:15:09 But the experiences group of the parks
0:15:12 was always sort of the cash cow
0:15:13 that kept on giving at Disney.
0:15:16 They could go play in traffic with streaming,
0:15:18 have their problems with ABC or activists,
0:15:22 but they could always rely on a massive amount
0:15:23 of cash flow from the experiences.
0:15:26 I think that they probably haven’t given the parks
0:15:29 the love they deserve in terms of catbacks.
0:15:32 I think they weren’t milking them a little too much.
0:15:34 It’s expensive and not that great.
0:15:36 It’s the way I would describe Disney right now.
0:15:38 And I think they recognized this,
0:15:41 and a year ago they were gonna start making more investments,
0:15:44 but they got used to this massive cash flows
0:15:45 in this milking.
0:15:46 And I think they’ve, quite frankly,
0:15:47 I just think they milked it a little too hard
0:15:50 and they’re starting to see the consumer turn away
0:15:50 to other options.
0:15:53 And I think this has spooked the market that,
0:15:56 oh, the parks aren’t just gonna keep generating cash flow
0:15:57 without catbacks.
0:16:00 Last year, Disney experiences contributed 70%
0:16:01 of Disney’s operating profit
0:16:03 up from about 30% a decade ago.
0:16:05 God, that’s incredible.
0:16:07 And there were some other positives this quarter.
0:16:08 Disney’s streaming division generated a profit for the
0:16:09 first time.
0:16:11 I think that’s a big deal.
0:16:15 And they also had that big movie inside out, part two.
0:16:16 Is that what it was called?
0:16:16 – Uh-huh.
0:16:17 – What did it do?
0:16:19 It had like one and a half billion dollars.
0:16:21 I’m finally at the stage where my kids are old enough
0:16:25 that we don’t have to go to every single kid’s movie.
0:16:30 I saw the emoji movie in theaters, Ed, the emoji movie
0:16:33 where the star was like that four-fingered hand.
0:16:35 Oh my God, don’t have kids, Ed.
0:16:37 Don’t have kids.
0:16:38 Anyways.
0:16:40 – Yeah, the start that caught my attention the most
0:16:44 was “Inside Out 2” which I saw, very mediocre movie.
0:16:46 – You saw “Inside Out 2”?
0:16:47 – I saw it, yeah.
0:16:48 – Why would you choose to do that?
0:16:50 You don’t have to do that.
0:16:52 Why would anyone choose to do that?
0:16:54 – That’s what I realized after.
0:16:56 – Oh wait, and you claim not to do edibles?
0:16:59 There’s no way you saw that sober.
0:17:00 – I kept on seeing it on my social media
0:17:03 and saying it’s the best Pixar movie of all time.
0:17:04 It’s incredible.
0:17:05 It sucked.
0:17:08 It was terrible, but everyone disagrees with me.
0:17:09 – Who did you go with?
0:17:12 – I threw it in my girlfriend and you’re gonna give me some.
0:17:13 – A little night out.
0:17:14 – Yeah, there you go.
0:17:15 That’s what we do.
0:17:17 – A little dating hall of lame.
0:17:20 Hey, sweetie, let’s go to “Inside Out 2”.
0:17:22 So let me just give you a little bit of heads up.
0:17:25 – Oh no, oh my God.
0:17:26 – You got a few of those swings and a miss,
0:17:28 but you can’t repeatedly do that
0:17:31 or she’s gonna end up going out with an older guy
0:17:32 who like takes her to St. Bart’s
0:17:34 not to some lame fucking Pixar movie.
0:17:35 Get it together, Ed.
0:17:37 – Yeah, we did the best of both worlds.
0:17:39 We like to do both of them.
0:17:43 But it sold $1.6 billion in tickets,
0:17:45 which makes it the highest grossing animated film
0:17:46 of all time.
0:17:47 – Amazing.
0:17:49 – That’s just absurd to me.
0:17:52 I can’t wrap my head around that.
0:17:56 And that’s all I could focus on on this earnings.
0:18:00 I don’t really care if streaming’s profitable now.
0:18:03 I’m like, wow, $1.6 billion at the box office.
0:18:06 Everyone was saying movie theaters were dead
0:18:07 just a couple of years ago.
0:18:09 And now they’ve come roaring back
0:18:11 with “Wait For It, Inside Out 2”.
0:18:13 So it’s just incredible.
0:18:15 Let’s move on to X’s lawsuit.
0:18:18 I’m sure you have a lot of things to say.
0:18:23 I saw your very good host on threads.
0:18:25 Thoughts on X’s lawsuit here.
0:18:26 – This is not only stupid,
0:18:29 it reflects something that’s a little bit more mendacious.
0:18:34 So the idea that someone who claims to be a free speech warrior,
0:18:36 which by the way is total bullshit
0:18:38 on kind of the supply side.
0:18:41 He throttles the speech of the New York times
0:18:43 when we have white dudes for Harris,
0:18:47 somehow the account for white dudes for Harris
0:18:48 shut down during the speech,
0:18:51 somehow just went offline.
0:18:54 And then to claim that he’s a free speech warrior,
0:18:56 advertising is a form of speech
0:18:58 and your ability not to say something.
0:19:00 So people often ask me are you upset
0:19:03 that other people aren’t speaking up about Israel?
0:19:05 I’m like, free speech means I get to say what I want,
0:19:08 but it also means someone has the opportunity
0:19:10 to not say something if they don’t want.
0:19:11 That’s their right.
0:19:13 And it’s the same way with advertisers.
0:19:15 The notion that you have some sort of legal obligation
0:19:17 to advertise across any platform,
0:19:20 especially the Nazi porn bar that is Twitter now,
0:19:22 is just fucking ridiculous.
0:19:25 The suit alleges that this group,
0:19:28 the Global Alliance for Responsible Media or GARM,
0:19:30 triggered a boycott of Twitter ads
0:19:32 immediately following Musk’s purchase of the company
0:19:33 in October, 2022.
0:19:37 GARM encouraged advertisers to avoid X after Musk bought it.
0:19:39 And this quote unquote illegal boycott,
0:19:42 according to the suit cost X billions of dollars in revenue.
0:19:45 Musk wrote on X, we tried being nice for two years,
0:19:47 might by telling them to go fuck themselves.
0:19:48 He literally said that on stage.
0:19:49 He was trying to play nice.
0:19:53 That’s him nice and got nothing but empty words.
0:19:54 Now it’s war.
0:19:56 Really boss?
0:19:57 Really?
0:19:59 X generated almost one and a half billion in revenue
0:20:01 for the first six months of 2023,
0:20:04 down almost 40% from the same period in 2022
0:20:06 before Musk bought the company.
0:20:10 You have never seen a company over a billion dollars
0:20:13 during non-war time decline.
0:20:17 The way that X is literally the worst performing business
0:20:20 in modern history outside of war time.
0:20:23 And so they’re going to start suing advertisers.
0:20:25 This just makes apps of fucking literally no sense.
0:20:26 What are your thoughts, Ed?
0:20:27 – I think you nailed it.
0:20:30 And I think that desperate people do desperate things.
0:20:35 And the reality for X is that their revenue has fallen 83%
0:20:38 in the past two years.
0:20:40 They went from 700 million in quarterly revenue
0:20:44 to just over 100 million in the most recent quarter.
0:20:45 – Is that right?
0:20:46 Because if they generate one and a half million revenue
0:20:47 in six months.
0:20:49 – That’s what the New York Times has reported.
0:20:51 Is that in their most recent quarter,
0:20:54 they made over a hundred million dollars in revenue.
0:20:57 And in 2022, in the same quarter,
0:20:59 the number was 700 million dollars.
0:21:00 – So I just want to be clear.
0:21:03 The New York Times is claiming the most recent quarter.
0:21:04 They did a hundred million.
0:21:05 – Yes.
0:21:06 – Well, that means the company’s almost out of business.
0:21:07 – Exactly.
0:21:09 – That means it’s basically totally imploded.
0:21:13 Did you see the hostage video that CEO Linda Yaccarino
0:21:14 put out?
0:21:16 – So I was going to get to that too, exactly.
0:21:17 – I thought it was a parody.
0:21:21 The evidence and facts are on our side.
0:21:23 They conspire to boycott X,
0:21:26 which threatens our ability to thrive in the future.
0:21:30 That puts your global town square,
0:21:33 the one place that you can express yourself freely
0:21:36 and openly at long-term risk.
0:21:40 – I have some advice for her and for Elon and for X.
0:21:45 They need to go to Metta and they need to find and locate
0:21:49 whoever was behind Mark Zuckerberg’s rebrand,
0:21:53 and then they need to give whatever drug they gave Mark
0:21:55 to make Mark look cool suddenly.
0:21:56 They need to give Linda Yaccarino that drug,
0:21:59 because that video, as you have just pointed out,
0:22:03 that was, in my view, one of the most awkward,
0:22:07 stiffest, weirdest statements I’ve ever seen from a CEO.
0:22:09 It did look like she was at gunpoint.
0:22:11 – It’s one thing to accept a job
0:22:13 as the internet’s best compensated rodeo clown,
0:22:16 but it’s another thing to watch this person perform it.
0:22:18 – Well, I don’t blame her for taking the job.
0:22:19 I would have taken the job for sure.
0:22:20 – Yeah, I agree.
0:22:23 – It’s just, it was a trap.
0:22:26 I mean, there’s no way that you can do that job right.
0:22:31 I guess it’s a question of doing it as not badly as possible.
0:22:33 I think it’s an impossible job there.
0:22:34 We’ll be right back after the break
0:22:37 for our conversation with Professor Rebecca Allensworth.
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0:26:00 Google is a monopoly.
0:26:02 That is the ruling from Judge Amit Mehta
0:26:05 on the biggest U.S. antitrust trial in decades.
0:26:08 Judge Mehta found Google has illegally exploited
0:26:09 its dominance in the search business
0:26:12 to crush competition and suppress innovation.
0:26:14 It’s roughly 90% share of the market
0:26:17 was evidence of that dominance.
0:26:18 Here to help us break down the ruling
0:26:21 and what it means for Google and the rest of Big Tech
0:26:23 is Professor Rebecca Allensworth,
0:26:24 Associate Dean for Research
0:26:26 at Vanderbilt University Law School.
0:26:29 Professor Allensworth, thank you very much for joining us.
0:26:30 – Thanks for having me.
0:26:32 (upbeat music)
0:26:35 So let’s just start with the background here.
0:26:38 This is a ruling on a lawsuit brought against Google
0:26:40 by the Department of Justice.
0:26:45 What exactly were the DOJ’s accusations in this lawsuit?
0:26:48 – Well, the DOJ claims that Google monopolized
0:26:51 the search market and the advertising market.
0:26:54 And monopolization in the U.S. requires two showings.
0:26:57 One, that the company is indeed a monopolist.
0:26:59 In other words, that it has monopoly power
0:27:01 that, as you said, was found here
0:27:05 by virtue of Google’s size in the search market
0:27:08 and in a relevant advertising market.
0:27:09 And then that’s not enough though.
0:27:12 It’s not enough to be a monopolist to violate the law.
0:27:16 You have to have maintained or obtained that monopoly
0:27:19 using some sort of exclusionary tactics.
0:27:23 In this case, that was exclusive dealing contracts
0:27:27 that Google has with Apple and Mozilla
0:27:30 and in the Android ecosystem
0:27:34 that essentially make it the default search engine
0:27:37 on almost all mobile devices.
0:27:40 And that that kind of prevented any avenues
0:27:44 for competitors to use to get to the kind of scale
0:27:46 that they would need to build a better search engine
0:27:48 that could actually compete with Google.
0:27:52 So the idea is that Google kind of foreclosed its rivals
0:27:54 from entry into the search market.
0:27:58 – We’ve been talking about antitrust for years now,
0:28:00 Scott, especially.
0:28:02 The way I would describe the antitrust conversation
0:28:05 is that it is just that, just a conversation.
0:28:08 It’s kind of all talk, very little action.
0:28:11 Most big tech companies have not faced much
0:28:12 substantive enforcement.
0:28:15 Maybe that’s about to change,
0:28:18 but what’s different about this lawsuit today
0:28:22 versus all the other lawsuits we’ve covered in the past?
0:28:24 – Well, I guess I wouldn’t argue that they’re that
0:28:25 different.
0:28:26 So I think if you’re talking about antitrust
0:28:28 being all talk and no action,
0:28:33 you’re kind of having to go back to a time before 2020.
0:28:35 So this suit was filed in 2020.
0:28:38 It was at the end of the Trump administration.
0:28:41 But largely this push for antitrust enforcement,
0:28:42 especially against big tech companies
0:28:44 is associated with the Biden administration.
0:28:46 And there’s been a lot of action,
0:28:47 so I wouldn’t call it talk.
0:28:52 If what you mean is actual decisions in these cases,
0:28:54 it’s true that this is the first
0:28:58 of all the major monopolization cases to come to trial.
0:29:01 These cases take a very long time to bring,
0:29:02 and they always have.
0:29:05 In fact, one of the most famous monopolization cases
0:29:06 from more than a century ago,
0:29:09 Standard Oil also took five years.
0:29:11 So part of the answer to your question
0:29:12 is what’s different about this one
0:29:14 is that it’s just the first to be decided.
0:29:16 In fact, something very similar could happen
0:29:19 in some of these pending monopolization cases.
0:29:21 – What do you think the potential remedies are?
0:29:23 What happens now to Google
0:29:25 to try and rectify the monopoly maintenance?
0:29:27 – Well, that is the big question.
0:29:28 And nobody really knows.
0:29:30 This judge has been very careful
0:29:33 not to tip his hand about remedies.
0:29:35 Some people have been very excited
0:29:37 about the possibility of a breakup.
0:29:40 I think that that’s really, really unlikely in this case.
0:29:43 Not only because breakups are sort of disfavored remedies
0:29:45 and seen as a bit extreme.
0:29:48 And I’ll note that even though the decision
0:29:50 that came down on Monday is a huge win for the government
0:29:54 and a big loss for Google, it’s also very careful.
0:29:55 It’s really not out there.
0:30:00 It’s very much couched in traditional antitrust terms.
0:30:01 And so I would be very surprised
0:30:03 to see this judge go for a remedy
0:30:05 that would be seen as out there.
0:30:07 The other reason why I think a breakup is unlikely
0:30:10 is because there’s not a natural or simple way
0:30:12 in which you would break up this company
0:30:15 to address the harms from this lawsuit.
0:30:17 A different example would be the Facebook lawsuit.
0:30:19 So there’s a pending monopolization claim
0:30:24 against Meta because Facebook acquired Instagram in 2012
0:30:27 and WhatsApp a couple of years later.
0:30:30 Well, it would seem like if that’s monopolization,
0:30:33 a natural remedy would be to force divestiture
0:30:35 of these kind of independent properties.
0:30:37 We don’t really have that in the Google case.
0:30:40 So anyway, that’s a long way of saying,
0:30:42 I think that breakup is off the table.
0:30:44 More likely, I think they’ll enjoy
0:30:46 the kinds of exclusive dealing contracts
0:30:48 that were found to be unlawful here.
0:30:51 That might result in a choice screen for us
0:30:53 when it comes to using search.
0:30:55 – Choice screen meaning when you open up your phone,
0:30:58 you’re given multiple different options
0:31:00 of what browser you wanna use, right?
0:31:02 – The doubles in the design details, right?
0:31:04 Is this a choice screen that happens
0:31:06 when you open up your phone, as you say?
0:31:08 What is it a choice between?
0:31:11 Is it a choice once and then it’s the default forever?
0:31:14 So these are all questions, I think,
0:31:16 that will be raised in this next phase of litigation.
0:31:19 But yes, put simply, I’m calling a choice screen
0:31:22 some sort of moment where the user is able to decide
0:31:25 this is the search engine that I want to use,
0:31:27 be it Google or Bing or DuckDuckGo
0:31:29 or some other product.
0:31:32 – I mean, I’m just saying from a consumer preference standpoint,
0:31:36 I wouldn’t be surprised if they maintain that 93% share.
0:31:38 It has an outstanding product.
0:31:40 People are just sort of inclined to click
0:31:42 on the Google logo.
0:31:46 And then, but it diminishes the power of Apple
0:31:49 to extract, exorbitant $20 billion a year
0:31:51 by being the default.
0:31:54 Could this end up being sort of a net neutral for Alphabet
0:31:55 and hurting Apple a lot?
0:31:57 – So this is gonna say, let’s put it this way,
0:32:01 this is gonna save Google a lot of money
0:32:04 because they’re gonna get potentially for free
0:32:06 what they were having to pay a lot for
0:32:08 and that could hurt Apple.
0:32:12 But I think viewing it in that sort of zero sum
0:32:14 way is maybe incorrect
0:32:18 because I don’t think revenue sharing is gonna go away.
0:32:23 So that $20 billion payment represents
0:32:24 the revenue sharing agreement.
0:32:26 I don’t think that it’s necessarily true
0:32:29 that now that there won’t be a default
0:32:33 that there are some sort of like exclusive default
0:32:35 that there won’t be some sort of revenue sharing.
0:32:38 For example, at trial it was shown
0:32:43 that Apple tried to negotiate for a less lucrative
0:32:46 revenue sharing agreement if Google agreed
0:32:48 it would not be exclusive.
0:32:50 So in other words, if it opened up the possibility
0:32:55 for Apple to also use to push its own search product
0:32:58 or maybe Bing or something, Google refused.
0:33:00 Now maybe Google can’t refuse that
0:33:02 and yet so that revenue sharing will go down.
0:33:03 So I’m not sure it’s net a total
0:33:06 like $20 billion change of hands.
0:33:08 There’s also other dynamics in here
0:33:10 that we need to put in play.
0:33:13 So I totally agree that if I were now
0:33:15 presently given a choice between DuckDuckGo,
0:33:17 and in fact I am in a way given a choice
0:33:21 between DuckDuckGo, Bing and Google, I would pick Google.
0:33:27 However, it would seem that that 94% share
0:33:30 is vulnerable in a world in which
0:33:32 there’s not this exclusive default.
0:33:36 Otherwise, what was Google paying for?
0:33:39 And so over time, I think it’s reasonable to assume
0:33:41 that if you open up these barriers,
0:33:43 something will change within this market.
0:33:45 It kind of unfreezes the market
0:33:50 and does it on day two, really alter Google’s market share?
0:33:51 Maybe not right away.
0:33:53 Does it make that market share more vulnerable?
0:33:54 I think so.
0:33:57 – One thing I found really interesting
0:34:00 is that the Google’s stock
0:34:03 wasn’t actually affected too heavily by this decision.
0:34:06 It did fall, but so did the rest of the market.
0:34:10 And this drop wasn’t that much more pronounced
0:34:11 than the rest of the stock market,
0:34:14 which leads me to believe that Wall Street
0:34:18 isn’t worried about this from a shareholder perspective.
0:34:21 Perhaps they think Google won’t be punished
0:34:23 or that if it is punished,
0:34:25 the punishment is gonna be extremely light.
0:34:27 I’m wondering if you have any thoughts on that
0:34:29 and is Wall Street correct
0:34:31 if that’s what they’re assuming here?
0:34:32 – Okay, well you have a lot more expertise
0:34:35 about whether movement of the markets
0:34:37 actually reflects real information
0:34:39 about whether the future will happen.
0:34:41 And I tend to be a little skeptical about that,
0:34:45 but I think the fact that the markets didn’t move
0:34:48 in a way that reflected panic about Google
0:34:50 makes perfect sense to me for a few reasons.
0:34:54 One, reasonable antitrust law enforcement
0:34:56 is not gonna destroy these companies.
0:34:58 It is going to shift their tactics.
0:35:01 It’s gonna make them compete harder.
0:35:04 I don’t see that meaning that Google’s not a good bet, right?
0:35:09 I don’t think that that’s a reason to sell your Google stock,
0:35:12 that the only reason why this company is worth investing in
0:35:15 is because it has a lockdown illegal monopoly
0:35:18 and when that’s threatened, the company’s worthless.
0:35:20 That’s just sort of a straw man argument,
0:35:21 which is another reason why I think
0:35:22 when the tech companies say,
0:35:24 “Why are you trying to destroy us, America?
0:35:26 “We make your most valuable products.”
0:35:29 That’s also a little bit of a straw man argument.
0:35:31 The other thing is this is gonna take a very long time.
0:35:34 This is gonna take potentially years.
0:35:36 I would say potentially up to a year
0:35:37 before we know what the remedy is,
0:35:40 whether it’s strong or weak or whatever.
0:35:42 And probably another year before it’s implemented.
0:35:44 And so this is where I defer to the experts
0:35:46 on how markets move,
0:35:49 but I think it would be strange to sell off in a scenario
0:35:52 where you’re worried about losing value two years from now.
0:35:53 – Yeah, that makes a lot of sense.
0:35:55 And also Google will appeal, right?
0:35:57 – Yeah, that’s why it’s gonna take,
0:35:59 so I think that we may have a decision
0:36:01 on the question of remedy within a year,
0:36:03 but then the whole thing will be appealed.
0:36:06 – What do you think their argument would be?
0:36:09 If we were to try to steal man the other side of this,
0:36:11 how do you think Google will argue
0:36:14 that those $20 billion payments to Apple were kosher
0:36:16 and that they are in fact not a monopoly?
0:36:18 – Well, I mean, they made these arguments at trial.
0:36:22 The argument that they’re not a monopoly is pretty weak.
0:36:26 I think that they gave the government more of a run
0:36:27 for its money on the question of,
0:36:30 what did these payments really represent?
0:36:34 And they presented them as profit sharing.
0:36:35 We have an extremely valuable product.
0:36:37 People love it, people use it a lot.
0:36:40 And we have so many eyeballs on our stuff day in and day out
0:36:43 that we make a lot of money off of advertising revenue.
0:36:47 It’s only natural that we would wanna share that revenue
0:36:50 through our distribution channels
0:36:52 with our distribution partners like Apple.
0:36:54 That was sort of the thrust of their argument.
0:36:56 And the place where it fell apart was on the idea
0:36:59 that, okay, fine, share it.
0:37:01 Why does it have to be exclusive?
0:37:04 What is the value?
0:37:06 Not to Google, which is clear, the value,
0:37:10 but what is the value to consumers that this be exclusive?
0:37:13 (upbeat music)
0:37:14 – We’ll be right back.
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0:39:41 What do you think this will do
0:39:43 for antitrust moving forward?
0:39:46 I mean, you talked about the fact
0:39:49 that there are several other antitrust cases
0:39:51 in litigation at the moment.
0:39:53 I also like your point that I’m saying nothing’s happened,
0:39:55 but the reality is these things take a while
0:39:57 and I’ve just been impatient.
0:39:59 But it is annoying how long it takes.
0:40:01 But do you think this decision
0:40:04 will have any effects on those cases?
0:40:06 Does the fact that Judge Mehta ruled
0:40:08 in favor of the Department of Justice
0:40:12 do anything to affect what’s going on with Metta
0:40:14 and Microsoft and all these other big tech companies?
0:40:17 – Absolutely, in ways that are big and small
0:40:19 and short-term and long-term.
0:40:20 So it’s hard to know where to start.
0:40:24 But the first is just that this is an indication
0:40:26 of the times that we’re in now.
0:40:31 This is a data point of how a sort of careful legalistic,
0:40:34 pretty much down the middle federal judge
0:40:37 thinks about this kind of monopolization case
0:40:39 of which there are four other ones pending.
0:40:41 So it’s just kind of like a test case.
0:40:43 And I think for that reason,
0:40:46 we can think about what it means about the other cases.
0:40:48 Not that they’re all as strong as this one.
0:40:49 They have their own problems,
0:40:52 but it is a data point that I think is very relevant.
0:40:54 And the other is in specific holdings that he made,
0:40:56 that these are not gonna be presidential,
0:40:58 you don’t have to follow them
0:41:00 if you’re a judge in another case.
0:41:03 But he said a lot about how you define a market in tech,
0:41:06 about the power of defaults,
0:41:09 about the importance of scale in tech markets
0:41:12 that are in various ways relevant to these other cases.
0:41:14 And so I think that it could be hugely influential
0:41:16 in those ways too.
0:41:17 – Quick question, professor.
0:41:20 Imagine there’s a presidential candidate
0:41:22 and a VP candidate and his VP
0:41:25 are basically sort of bought and owned by the tech industry.
0:41:27 That some tech bros have said,
0:41:30 we’ll get you a billion dollars,
0:41:32 but we want you to take a very much of free markets,
0:41:34 laissez-faire, hands-off approach to tech.
0:41:35 Could they–
0:41:36 – Is this a hypothetical?
0:41:38 – This is a total hypothetical.
0:41:40 So imagine a different world
0:41:41 where you had an insurrectionist
0:41:43 and a rapist running for president.
0:41:47 – Okay, so they get elected.
0:41:49 Could they effectively, if they decided,
0:41:51 could they undo this decision
0:41:54 or just make it essentially neuter the whole thing
0:41:55 and stop it?
0:41:58 – Yes, technically.
0:42:03 So they could, from a legal perspective,
0:42:06 they could not appeal.
0:42:08 For example, they could abandon their appeal.
0:42:11 They could change what’s being sought on remedy.
0:42:13 So I think the remedy phase
0:42:15 is going to last probably through the election.
0:42:18 But I will remind you that this hypothetical
0:42:21 presidential candidate was the president
0:42:22 when this case was brought.
0:42:27 So it’s actually not a Biden administration case.
0:42:29 So it would be optically odd
0:42:34 for this particular case to switch horses in that way.
0:42:36 – You mean hypocritical and inconsistent?
0:42:40 – So maybe the answer is that definitely will be abandoned.
0:42:44 I think the conventional wisdom is that it won’t be.
0:42:49 And for that, I defer to some regulators
0:42:53 and former heads of these agencies that have said that,
0:42:56 that this will kind of survive into the,
0:42:58 I mean, part of it is like,
0:43:00 so now we’re talking politics and not antitrust
0:43:01 and I’ll do my best here,
0:43:06 but I could see somebody spinning this
0:43:09 to their own advantage as their own win
0:43:11 in a way that actually was politically expedient,
0:43:14 even if it is against a big tech company.
0:43:14 – When I saw this,
0:43:18 I saw that the biggest or the most important feature
0:43:21 of this decision wasn’t what happens to Alphabet
0:43:24 or even to its partners.
0:43:28 It’s just that it feels like antitrust has its mojo back.
0:43:30 And that this is sort of,
0:43:33 there was a general almost a bereft resignation.
0:43:36 That’s a redundant that we had been overrun
0:43:38 by these guys or government just couldn’t compete,
0:43:40 the government couldn’t,
0:43:42 they kind of show up and almost dare them
0:43:43 to try and do this shit,
0:43:45 that they had more lawyers,
0:43:47 public sentiment behind them,
0:43:49 consumers love their products,
0:43:52 try to take us on.
0:43:56 And the DOJ and the FTC have,
0:43:59 and they’ve taken on one of the biggest
0:44:01 and most well-resourced and most overlawered
0:44:04 and over lobbyist and they’ve won.
0:44:08 And this to me represents a change in the tide
0:44:10 where the government and the kind of antitrust folks
0:44:13 have their mojo back and might inspire
0:44:16 some of these companies to prophylactically,
0:44:18 I mean, I can see Alphabet spinning YouTube,
0:44:21 I can see Amazon spinning AWS going,
0:44:23 you know, we’re gonna become more valuable
0:44:25 and we wanna get out in front of this
0:44:27 because clearly these guys are no longer afraid of us
0:44:29 and judges are no longer afraid to rule against us.
0:44:33 It feels like momentum has shifted dramatically here.
0:44:34 Your thoughts?
0:44:36 – I mean, I could not have put it better than that.
0:44:39 That is what I think is so important about this case.
0:44:41 You know, what it does for Google
0:44:43 and the specific search market in question,
0:44:46 I think is a little bit unclear at this point.
0:44:47 But what it definitely shows,
0:44:49 well, first of all, the holding that Google
0:44:53 has monopoly power also opens the door
0:44:56 to everything else that’s gonna now do with that power.
0:44:59 So let’s say that they’re negotiating contracts
0:45:02 to get content for AI.
0:45:06 Well, now they’re negotiating contracts for AI content
0:45:09 to train their models as a monopolist.
0:45:10 In America, that, you know,
0:45:13 you’re halfway to a monopolization verdict
0:45:14 if you have that first half.
0:45:15 So now they’re gonna have to be thinking
0:45:18 about how exclusive are those contracts gonna be?
0:45:21 So even for Google, I think before we even get to remedy,
0:45:23 it’s meaningful.
0:45:25 But I agree that the biggest important thing here is that,
0:45:28 as you said, Antitrust has its mojo back.
0:45:30 And I don’t think a change in administration
0:45:31 can really change that.
0:45:33 I take a long view.
0:45:34 There was a big shift in the way
0:45:36 that we did Antitrust in the ’70s.
0:45:38 I think we’re at the beginning of that same kind of shift
0:45:40 in the other direction now.
0:45:44 – Professor, where do you stand on consumer harm?
0:45:47 I feel like that’s been one of the big arguments
0:45:49 from Big Tech that, yes,
0:45:53 they have these sort of monopolistic-esque practices,
0:45:56 but ultimately they’re delivering great product.
0:45:59 Everyone still loves buying from Amazon
0:46:03 because stuff is cheap and people, as you said,
0:46:05 would choose, if they were given the option,
0:46:08 would probably choose Google over Bing and DuckDuckGo.
0:46:11 Where do you stand on that side of the argument
0:46:13 that consumers aren’t being harmed?
0:46:15 So what’s the problem?
0:46:17 – I think consumers are being harmed.
0:46:21 And I think that’s what the opinion says.
0:46:23 The question is how innovative are these companies?
0:46:27 How much energy is Google putting into defending
0:46:31 its monopoly that it could be putting into competing?
0:46:34 What other smaller search engines,
0:46:38 like Neva is an example that came up during the trial,
0:46:39 could have been bringing something new
0:46:41 to the table that aren’t?
0:46:43 I think the most striking thing about this opinion
0:46:46 is that it actually uses this idea of innovation,
0:46:48 which the big tech companies have been using
0:46:51 as kind of trying to beat back antitrust laws,
0:46:53 saying antitrust enforcement is gonna stifle innovation.
0:46:56 And it says, “No, it’s you that’s stifling it.”
0:46:57 – You want that innovative.
0:46:59 – Well, so I mean, the idea that antitrust law
0:47:01 can be used to improve innovation,
0:47:04 I think it’s really squarely in this case.
0:47:06 – I’d love to get your view
0:47:09 on the rest of these antitrust cases.
0:47:15 There are cases out against Meta, Microsoft, Apple.
0:47:20 Which company in your view is the worst
0:47:22 when it comes to antitrust?
0:47:24 Which is the most monopolistic,
0:47:26 which has violated the most amount of laws?
0:47:28 And in your view, which one needs,
0:47:32 is most in need of some sort of enforcement or break up?
0:47:34 – That’s a hard question to answer
0:47:38 because I’m inclined to say Amazon
0:47:42 has the worst impact on markets
0:47:46 and is the most problematic,
0:47:49 but it is also, I think the least likely
0:47:51 to be found to be a monopolist.
0:47:55 And that’s because of some defects in the way
0:47:58 that antitrust law has evolved over the last 40 years
0:47:59 that need to be undone
0:48:01 and they can only be undone incrementally.
0:48:03 So in other words,
0:48:06 I think that the pending suit against Amazon is the weakest,
0:48:09 but it’s the one maybe that I’m most rooting for.
0:48:12 So I can’t predict that they’re gonna win.
0:48:17 I think the strongest of the pending suits,
0:48:19 I think the suit against Apple
0:48:22 came out a lot stronger than I thought it was going to.
0:48:23 – Around the App Store,
0:48:25 and kind of useless pricing around the App Store?
0:48:27 – No, it’s more the green bubble, blue bubble
0:48:30 is the way that people are kind of shorthanding it.
0:48:32 It’s the idea that they’re degrading
0:48:34 the quality of Android on the phone
0:48:39 so that people choose the Apple ecosystem kind of artificially
0:48:42 and they’re holding back interoperability
0:48:45 in order to basically keep Android at bay.
0:48:47 That’s a decent complaint.
0:48:49 – The thing you said that I found fascinating
0:48:53 with Amazon is probably the most in need of a break up.
0:48:56 I imagine because you believe it suppresses competition,
0:49:01 but it’s the least likely to be broken up on legal grounds,
0:49:04 which connotes a need for the change in antitrust law
0:49:08 and all cosplay and antitrust lawyer here.
0:49:11 Isn’t that, don’t we need sort of a return
0:49:15 from the Bork kind of test around consumer pricing
0:49:18 to more brand-ising around what makes markets
0:49:20 less or more competitive?
0:49:22 Isn’t it, don’t we need to move from the consumer test
0:49:25 back to just the competitive test?
0:49:30 – So I actually believe in the consumer welfare standard,
0:49:32 but I find that when I talk about it,
0:49:35 often people who also believe in the consumer welfare standard
0:49:38 describe it in a way that I don’t recognize.
0:49:41 They’ll say things like consumer welfare standard
0:49:46 demands present short-term numerical harmed consumers
0:49:48 to make for an antitrust violation.
0:49:50 I don’t believe in that.
0:49:53 I think all of these lawsuits describe long-term
0:49:55 meaningful consumer harm.
0:50:00 And to me, I think that you can get 95%
0:50:03 of what the brand-isians want through a sort of common sense
0:50:06 and reasonable understanding of what consumer welfare
0:50:07 really is.
0:50:10 So I’m kind of actually in my own work struggling
0:50:13 with whether I say I believe in the consumer welfare standard
0:50:16 because that phrase often means something
0:50:18 that I can’t endorse.
0:50:21 On the other hand, I do feel like moving away
0:50:24 from consumer protection, you lose a lot of like,
0:50:26 well, what are we doing here exactly?
0:50:27 What does competition mean?
0:50:30 So I feel ambivalent about that question.
0:50:33 – Just as we wrap up here, one observation,
0:50:36 Professor Ellensworth, you are outstanding.
0:50:37 You are outstanding.
0:50:39 Your ability to take these topics
0:50:41 and make them seem somewhat interesting,
0:50:45 which is nearly a miracle of oration and presence.
0:50:48 You are in the right seat helping shape legal minds.
0:50:52 We very much appreciate you coming on.
0:50:55 And again, really enjoyed this conversation.
0:50:55 Well done.
0:50:56 – Thank you.
0:50:57 That’s really nice to hear.
0:50:58 Thank you so much.
0:50:59 – 100%.
0:51:01 Rebecca Hall Ellensworth studies antitrust
0:51:02 and professional licensing.
0:51:05 Her work on antitrust focuses on how to adapt competition
0:51:07 policy to address competition problems
0:51:08 posed by tech platforms.
0:51:10 She teaches contracts and antitrust law
0:51:13 at Vanderbilt University and is a six-time winner
0:51:16 of the Hall Hartman Outstanding Professor Award
0:51:18 for Excellence in Teaching.
0:51:20 Clearly too qualified to be on this podcast.
0:51:22 Thank you very much for joining us, Professor Ellensworth.
0:51:23 – Thank you.
0:51:26 (upbeat music)
0:51:34 – Ed, what’d you think?
0:51:35 – Incredible.
0:51:36 I loved all of her points.
0:51:37 – Right?
0:51:41 And by the way, she won the best teaching award
0:51:43 every school graduate school has this.
0:51:45 And she’s won that six times.
0:51:47 I would imagine the faculty at the Law School of Vanderbilt
0:51:49 have between 100 and 200 profs.
0:51:51 For her to win it six years, that means she’s out.
0:51:52 She’s out.
0:51:56 That is, that’s like, that is literally like being MVP
0:52:00 or yeah, the MVP in a league six years in a row.
0:52:01 That is so hard to accomplish.
0:52:04 There was one guy who’s done that at Stern
0:52:05 who we also have asked about the motor.
0:52:08 And I’ve been nominated a couple of times
0:52:08 for that award, Ed.
0:52:10 I haven’t yet to win it.
0:52:11 – What do you think you’re doing wrong?
0:52:12 – You know, let’s be honest.
0:52:15 The reason I haven’t won it is just simple jealousy.
0:52:18 It’s just that that I got to be honest.
0:52:20 That’s an award I coveted.
0:52:22 I think I’ve been nominated once or twice.
0:52:25 You want to hear, okay, this is my life.
0:52:28 My department chair calls me and says,
0:52:29 I’ve got great news.
0:52:31 You won best teaching, the best teaching award.
0:52:32 This is like 10 years ago.
0:52:34 And he’s like, we’re so proud of you.
0:52:36 This is such great news.
0:52:37 I was so excited.
0:52:39 I called a bunch of people and he calls them back.
0:52:40 He goes, oh, we fucked up.
0:52:42 Glenn Oaken won it.
0:52:42 Sorry about that.
0:52:47 And I’m like, I just called pretty much everyone I know
0:52:49 and told them I just won best props.
0:52:51 – It’s like the Steve Harvey Miss Universe Blunder.
0:52:52 This is terrible.
0:52:53 – This happens all the time.
0:52:55 It happened to-
0:52:56 – I went to the Oscars too.
0:52:59 – Yeah, and it happened to Paul Romer,
0:53:01 who is an outstanding professor,
0:53:04 especially the dean of our university called him
0:53:05 and told me to win the Nobel Prize
0:53:07 and it ended up he hadn’t.
0:53:09 But the good news about Professor Romer
0:53:11 is he did eventually win the Nobel Prize.
0:53:13 – I have not.
0:53:14 I’m still waiting, but-
0:53:17 – Yeah, that was similar to when I got an email
0:53:19 about the Webby Awards.
0:53:21 I thought that we had won a Webby
0:53:22 or that I had won a Webby.
0:53:24 And it turns out that I had won an honorable mention
0:53:26 for the Webby Award.
0:53:29 Did not win the actual Webby, so that’s it.
0:53:31 – The Webby’s have adopted the same business model
0:53:32 as Amazon.
0:53:35 So if you write a book on and you put it on Amazon,
0:53:37 they slice it into so many categories.
0:53:40 It’ll be your number seven in professors
0:53:43 with erectile dysfunction, who have a shaved head,
0:53:45 who write books about the economy.
0:53:48 – Come to our dinner and spend $1,000 just to show up.
0:53:51 – That’s the Webby’s, is they just slice,
0:53:53 they slice the cheese a million different ways
0:53:55 to get people engaged.
0:53:57 Anyways, you’ll get there, Ed.
0:53:58 – Okay, let’s take a look at the week ahead.
0:53:59 We’ll see the consumer price
0:54:01 and producer price indices for July.
0:54:03 We’ll also see earnings from Home Depot,
0:54:05 Walmart, and Alibaba.
0:54:08 Scott, do you have a prediction for us?
0:54:10 – I would bet over the next couple of weeks
0:54:12 you’re gonna have a lot of very smart people
0:54:14 at all of the big tech firms, get in a room and say,
0:54:17 “Okay, the jig is up.”
0:54:19 And these guys clearly have Mojo now
0:54:21 are gonna allocate more resources, more lawyers,
0:54:25 and Judge Metta has given permission to other judges
0:54:28 to say, “No, you’re guilty of monopoly abuse.”
0:54:31 And I think some of them might decide
0:54:34 to prophylactically stave off the wolves at the door here
0:54:36 and break themselves up.
0:54:39 I think you’re going to the next 24 months
0:54:44 see a prophylactic spin of an AWS or a YouTube
0:54:46 because these guys are so smart.
0:54:49 And also, I generally believe that
0:54:51 it would increase shareholder value.
0:54:52 So anyways, the prediction,
0:54:55 you’re gonna see some spins that attempt
0:54:57 to immunize them against antitrust.
0:55:03 – This episode was produced by Claire Miller
0:55:04 and engineered by Benjamin Spencer.
0:55:06 Our associate producer is Allison Weiss,
0:55:07 our executive producer is Catherine Dillon.
0:55:09 Mia Silverio is our research lead
0:55:11 and Drew Burris is our technical director.
0:55:13 Thank you for listening to “Prophecy Markets”
0:55:15 from the Vox Media Podcast Network.
0:55:16 If you liked what you heard,
0:55:18 give us a follow and join us on Thursday
0:55:21 for our conversation with Ramit Sethi,
0:55:22 only on “Prophecy Markets.”
0:55:29 ♪ Lifetimes ♪
0:55:36 ♪ You help me ♪
0:55:41 ♪ In kind reunion ♪
0:55:48 ♪ As the world turns ♪
0:55:53 ♪ And the dark lights ♪
0:55:58 ♪ In love ♪
0:56:00 (upbeat music)
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0:01:16 – Today’s number zero.
0:01:19 That’s how many stocks Democratic VP pick Tim Walz owns.
0:01:21 I’d rather talk about G.D. Vance.
0:01:23 I think he looks like one of those illustrations
0:01:24 on the back of a milk carton
0:01:26 saying what a lost child would look like now
0:01:28 if he were an adult.
0:01:30 Also Ed, he’s definitely the kind of guy
0:01:32 that invites you over for Bible study
0:01:34 and won’t stop asking if you want a massage.
0:01:36 – I like the first one, did you come up with that?
0:01:37 – I don’t come up with any of these.
0:01:42 – Oh, we need a prof to your original, that was great.
0:01:47 – There is so much good shit about G.D. Vance.
0:01:49 I mean, I absolutely, I mean,
0:01:51 with all the makeup he’s wearing,
0:01:52 he looks like he’s joined
0:01:54 a fundamentalist Christian metal band.
0:01:56 – Yeah, yeah, the eyeliner is insane, huh?
0:01:59 – The eyeliner, the guy, the guy is clearly
0:02:02 like the handmade’s tail, but he wears an eyeliner.
0:02:03 What’s going on here, Ed?
0:02:05 – Times are changing.
0:02:06 We have to accept it.
0:02:09 – He also looks like the guy that will play him on SNL.
0:02:11 Or I think he actually looks like you would look
0:02:13 at your reflection in a teaspoon.
0:02:16 I think you would look like him.
0:02:19 (laughing)
0:02:22 (singing in foreign language)
0:02:27 (singing in foreign language)
0:02:29 – One more, come on.
0:02:31 – He looks like a picture of one of those dogs
0:02:33 you see on Instagram that’s just been stung by a bee.
0:02:35 – Yeah, these are good.
0:02:36 – Should we get an update from Aspen?
0:02:38 Anything interesting going on?
0:02:39 – Trying to think.
0:02:41 My kids went to the rodeo last night.
0:02:44 It was sort of a family thing, so I didn’t do it.
0:02:45 They went to the rodeo.
0:02:48 We have some friends, all these friends.
0:02:49 Aspen is like New York.
0:02:50 Once people find you have a place there,
0:02:52 they’re like, hey, let’s get together.
0:02:53 It’d be great to catch up.
0:02:54 – When do you leave?
0:02:55 You’re heading to California, sir?
0:02:58 – Yeah, I head to Los Angeles this afternoon
0:03:00 ’cause I’m pitching this original scripted drama
0:03:01 and I have a bunch of meetings tomorrow
0:03:03 and I’ll hang out at the Beverly Hills Hotel.
0:03:04 – Favorite hotel in the world?
0:03:05 – I’ll go down to the pool
0:03:07 and put on big black sunglasses
0:03:08 and unleashed cigarette in my mouth.
0:03:10 And every woman who walks by me,
0:03:12 I take my sunglasses down and I go,
0:03:13 Jackie, marry me.
0:03:15 I make you very happy woman.
0:03:16 And nobody knows what I’m saying.
0:03:19 That’s actually Aristotle and Nassus.
0:03:21 What I thought he would have said to Jackie on Nassus.
0:03:23 – Do you think anyone understands that
0:03:24 or just wants to call security?
0:03:26 – No, I don’t think anyone understands.
0:03:27 I don’t even understand, but it doesn’t matter
0:03:32 ’cause I still find it funny because it’s so strange.
0:03:33 – I love that.
0:03:34 It’s what I call one of those.
0:03:35 So I’m super into hotels
0:03:37 and the Beverly Hills Hotel is what I call it,
0:03:38 Disney Hotel.
0:03:39 It has all these attractions.
0:03:40 It has the Polo Lounge,
0:03:42 which is this cool restaurant and bar.
0:03:44 It has this thing called, is it called the counter?
0:03:46 – Yeah, the diner, right?
0:03:48 – The diner has like the best breakfast diner.
0:03:50 It has this great pool
0:03:52 and then a great restaurant off the side of the pool.
0:03:54 So everyone will come to you.
0:03:55 You never need to leave.
0:03:58 People love coming to the Beverly Hills Hotel.
0:04:01 So I absolutely, I love it there.
0:04:04 I feel like a producer in the 50s having an affair with,
0:04:06 I don’t know, a starlet
0:04:08 or one of the gaffers or something.
0:04:10 It’s great.
0:04:11 – Well, I’m excited for you.
0:04:12 – Thank you.
0:04:12 Thanks for that.
0:04:13 All right, get to the news.
0:04:15 – Let’s start with our weekly review of Market Vitals.
0:04:18 (upbeat music)
0:04:21 (upbeat music)
0:04:23 The S&P 500 was volatile,
0:04:25 but recovered some of its Monday losses.
0:04:28 The dollar stabilized after sliding to a four month low,
0:04:31 Bitcoin rose and the yield on 10 year treasuries climbed.
0:04:33 Shifting to the headlines.
0:04:36 Shopify reported second quarter sales and profit
0:04:37 that beat expectations.
0:04:39 Revenue projections for the third quarter
0:04:40 were also higher than expected
0:04:43 and shares rose almost 18%.
0:04:46 Airbnb revenue came in higher than expected,
0:04:48 rising 11% year over year.
0:04:51 Shares dropped the most in two years, however,
0:04:53 after second quarter bookings fell below
0:04:54 analyst expectations.
0:04:57 The company also forecasted third quarter bookings
0:05:00 will grow at their slowest pace since 2020.
0:05:02 Disney’s streaming unit posted a profit
0:05:04 for the first time ever
0:05:06 and overall revenue increased 4%.
0:05:09 Still, investors were spooked by a 6% drop
0:05:12 in operating income for its theme parks in the US.
0:05:15 The stock fell more than 4%.
0:05:18 And finally, Elon Musk’s ex is suing a group
0:05:20 of major advertisers for alleged violation
0:05:21 of antitrust laws.
0:05:23 The suit claims that a group of advertisers
0:05:25 have been withholding ad dollars from ex
0:05:27 since Musk took over.
0:05:29 Ex says this was a quote, a legal boycott
0:05:31 that cost the company billions of dollars.
0:05:34 Scott, your thoughts starting with the earnings
0:05:35 from Shopify.
0:05:37 – Well, we had a really interesting interview
0:05:40 with Mark Mahaney, who’s the head of, I guess,
0:05:42 internet research for Evercore.
0:05:47 And Shopify, he said, was sort of had been overly punished.
0:05:50 And then the next day, you know, this happens,
0:05:52 revenue increased 21% and subscription revenue
0:05:53 increased 27%.
0:05:56 Subscription revenue is generally valued
0:05:59 at a greater multiple than general revenue
0:06:00 because it’s stickier.
0:06:02 Their profitability improved.
0:06:04 Operating expenses decreased quarter over quarter
0:06:06 and free cash flow margin doubled from last year.
0:06:08 So the gangster move here, the chocolate and peanut butter
0:06:12 is after a crazy amount of growth and investment
0:06:14 in sort of the new economy.
0:06:17 A lot of these CEOs have said, here’s an idea,
0:06:19 let’s cut costs and see if we can maintain some growth.
0:06:23 And if you can both cut costs as Shopify has done,
0:06:25 obviously above operating expenses decreased
0:06:28 while maintaining some growth, which they did substantially,
0:06:31 that is nitro and glycerin around earnings.
0:06:33 And that is your earnings absolutely explode.
0:06:35 – Yeah, I think it’s interesting also, you know,
0:06:38 we’ve seen all these recession fears
0:06:40 that we’ve been talking about in the past week
0:06:43 after we saw that big stock market drawdown.
0:06:46 I feel like those fears have mostly been put
0:06:47 to rest at this point,
0:06:49 but people are still kind of talking about it.
0:06:51 But if you were to make an argument today
0:06:54 as to why we are not about to enter a recession
0:06:56 or a recession is not coming,
0:07:01 I think these earnings from Shopify would probably be
0:07:03 exhibit A in your defense case.
0:07:07 You’ve got one of the largest retail platforms in the world.
0:07:09 It operates across every vertical.
0:07:13 It works with tiny, small to medium-sized businesses,
0:07:15 even to huge enterprises.
0:07:20 It works with clients like Heinz and Mattel and Luxotica.
0:07:21 It’s across all of consumer
0:07:24 and this company is experiencing historic revenue growth.
0:07:27 So I don’t think it’s a hot take for me to say,
0:07:30 I don’t think recession is on the table,
0:07:32 but if you do want to make that argument,
0:07:35 I think Shopify’s earnings are a good place to start.
0:07:38 – The only way I’m talked about that has been sort of a great,
0:07:39 I don’t know what the term is,
0:07:42 a great gift with purchase or kind of makes the story
0:07:45 that much sexier is that they are,
0:07:48 they have rolled out a number of AI-enabled tools
0:07:50 for its merchants that help you better market,
0:07:54 better allocate your capital, look at your dataset.
0:07:56 And that seems to have the market excited
0:07:58 that these small and medium-sized companies
0:08:01 now have access to these AI tools.
0:08:04 So that was part of the great story here.
0:08:06 Feels like it’s oversold.
0:08:10 Year-to-date, the company is down 8%, right?
0:08:13 So whereas when you look at Amazon year-to-date,
0:08:16 Amazon is up 10%.
0:08:18 So I just think a lot of this was,
0:08:19 when people got their pencils out,
0:08:23 they said, all right, Shopify has been unfairly punished,
0:08:25 is actually doing better than people think,
0:08:27 some AI secret sauce,
0:08:31 and it all adds up to a good trade here.
0:08:32 Should we talk about Airbnb?
0:08:33 – Let’s do it.
0:08:34 Your thoughts, you’re a big shallower, so.
0:08:37 I am, although I’ve paired a lot of my holdings.
0:08:39 Profits fell 15% year on year,
0:08:41 mostly due to higher income taxes, which is interesting.
0:08:44 I wonder why they’re paying higher income taxes.
0:08:48 Q2 bookings only increased by 9% from a year earlier,
0:08:51 still good but below expectations.
0:08:55 Airbnb said it expects a sequential moderation
0:08:56 of bookings growth in the third.
0:08:58 Can you imagine how many high-paid comms consultants
0:09:02 came up with the term sequential moderation?
0:09:05 I mean, literally, if you’re having sex with someone
0:09:06 and you just want to kill the moment,
0:09:09 start screaming sequential moderation.
0:09:10 What the fuck does that even mean?
0:09:13 Anyways, booking lead times got shorter,
0:09:15 a sign that customers have less confidence
0:09:17 in making long-term financial commitments.
0:09:19 I wonder if people are a little bit running out of money
0:09:21 or they’re returning to the office
0:09:23 or they’re not deciding to take a backpack
0:09:26 and go work from Thailand.
0:09:29 I don’t know, Airbnb also expects margins to contract
0:09:32 in Q3 as a result of higher marketing spend.
0:09:34 One of the things I always loved about Airbnb
0:09:35 is that they were one of the few companies
0:09:37 that was able to exit the stranglehold
0:09:40 of Metta, Alphabet, and Amazon,
0:09:42 that the majority of their bookings are direct to site.
0:09:45 So when you go and book a hotel,
0:09:47 such as the Beverly Hills Hotel,
0:09:50 and you use Expedia, which I love, I love the Expedia site,
0:09:54 if that traffic to the Dorchester collection
0:09:56 who owns the Beverly Hills Hotel comes in through Expedia,
0:10:01 Expedia gets anywhere between $100 and $400 a night
0:10:07 of the $1300 a night that these firms are charging now,
0:10:09 which dramatically reduces their margin, whereas Airbnb
0:10:12 doesn’t have to pay the toll nearly as often.
0:10:15 So I’ve always thought that Airbnb was the best brand
0:10:17 at hospitality in the last several decades.
0:10:21 As expected, the Olympics helped increase demand in Paris,
0:10:23 nights booked in Paris for strangle in the Olympics
0:10:25 were over five X higher than the same time a year ago.
0:10:27 That’s not a shocker.
0:10:29 The stock was down 13% after earnings.
0:10:32 Jesus, that’s a hit, right?
0:10:34 The bottom line is I think they would have been fine,
0:10:36 the numbers were fine, but what they’re saying is
0:10:37 they’re trying to prep people for what sounds like
0:10:40 it’s gonna be a shitty next quarter.
0:10:43 And that term sequential moderation costs the company
0:10:45 about $10 billion.
0:10:47 So this is not about their performance,
0:10:49 it’s about their guidance.
0:10:50 – Yeah, I think that’s exactly right.
0:10:52 I think sequential moderation was the line
0:10:53 that freaked Wall Street out.
0:10:56 And the other line that freaked them out was quote,
0:11:00 we’re seeing signs of slowing demand from US guests.
0:11:02 So I think a lot of this is wrapped up
0:11:07 in those more general fears about a recession in the US
0:11:08 that we’ve been talking about
0:11:11 that we saw play out in the markets last week.
0:11:14 I believe as it relates to Airbnb,
0:11:16 those fears are really overblown.
0:11:20 If you look at Airbnb’s previous earnings report,
0:11:22 which we also discussed on this podcast,
0:11:23 they said almost the exact same thing.
0:11:26 They said, we’re seeing a moderation
0:11:28 and we’re seeing signs of slowdown
0:11:30 and the market didn’t really like it,
0:11:34 but they weren’t as upset about it as they were this time.
0:11:37 I think if you are a long-term shareholder
0:11:39 in this company though,
0:11:41 I really don’t think any of this should bother you
0:11:44 because everything we’re talking about right now
0:11:48 is about near-term consumer demand.
0:11:50 And all of that consumer demand is cyclical.
0:11:53 None of this has to do with Airbnb
0:11:55 as a business on its own.
0:11:57 And all the things that make Airbnb great,
0:12:00 you know, you said this, the best brand in hospitality,
0:12:02 number one travel app in the world,
0:12:06 one of the most network-advantaged companies you could buy
0:12:09 in the US stock market, none of that has changed.
0:12:11 This is still a great company.
0:12:14 It’s just the consumer that has supposedly changed.
0:12:16 – So more importantly,
0:12:18 I think the two of us should start a boy band
0:12:20 called Sequential Moderation.
0:12:21 You’re gonna be the dreamy front man.
0:12:25 I’m gonna be the brooding, depressed backup guy
0:12:27 that develops a heroin addict and then overdoses.
0:12:29 And then you’ll do it behind the music,
0:12:31 talking about what a good guy that was.
0:12:33 By the way, if you’re wondering
0:12:36 if they still sell edibles in Aspen,
0:12:38 I think I just answered the question.
0:12:40 By the way, I think it’s time we started talking
0:12:41 about legal edible products.
0:12:45 I use Wild Time to help me wind down at night.
0:12:46 I do five milligrams.
0:12:48 The peach keeps me awake
0:12:50 and the grape is just too much, Ed.
0:12:51 It’s just too much.
0:12:54 It’s like being hit over the head with a sledgehammer.
0:12:56 – Have you ever recorded a podcast under the influence?
0:12:57 That’s a genuine question, by the way.
0:12:58 – No, I never have.
0:12:59 – We should change that.
0:13:01 – I don’t think I’ve ever been under the influence
0:13:02 during when the sun’s out.
0:13:04 Yeah, I’m not, that’s not my gig.
0:13:05 How about you?
0:13:07 How about tell all your future employers
0:13:08 and potential mates?
0:13:10 – No, no, no, not yet.
0:13:11 Not yet.
0:13:13 I’m happy to change that, but we have to do it together.
0:13:15 That’s my only rule.
0:13:17 – No, I don’t think anyone needs to see that.
0:13:21 I become a better version of myself a little bit fucked up.
0:13:24 I’m nicer, more affectionate, more complimentary.
0:13:27 I’m definitely a much more interesting,
0:13:28 a little bit fucked up.
0:13:29 Anyways.
0:13:30 – Yeah, we have things to cover.
0:13:33 The next thing we have to cover is Disney’s earnings.
0:13:36 What are your thoughts on finally some profitability
0:13:37 in the streaming unit?
0:13:39 – I thought, I was shocked that the stock
0:13:41 didn’t respond more positively.
0:13:45 ‘Cause I saw this as, I saw this as a pretty good quarter.
0:13:49 Revenue up 4%, the EPS up 35%.
0:13:51 So again, see above, same thing, right?
0:13:53 That means they reduce their expenses
0:13:55 while maintaining growth.
0:13:57 So the company recorded a loss in the year ago quarter,
0:14:00 largely result of restructuring charges,
0:14:02 making the jump in EPS this quarter less substantive.
0:14:04 So you could argue it was sort of an artificial jump,
0:14:06 but still I was impressed.
0:14:10 Where I think people got freaked out was that
0:14:13 the experiences division, which is the parks,
0:14:17 revenue increased 2% while operating income declined 3%.
0:14:20 And executives blamed moderating consumer demand.
0:14:22 Again, more of this, at least they didn’t call
0:14:24 sequential moderation.
0:14:26 Disney’s CFO said the lower income consumer
0:14:29 is feeling a bit of stress and the higher income consumer
0:14:32 is traveling internationally a bit more.
0:14:33 Those are both really interesting things.
0:14:36 One, people are running out of stimulus or PPP
0:14:37 or whatever you want to call it.
0:14:40 And something I’ve actually tangibly noticed in Aspen,
0:14:42 I’ve been coming here, I don’t know,
0:14:43 eight or 10 summers in a row.
0:14:48 The last two summers, it’s dramatically less crowded.
0:14:51 And I think it’s because the high-end consumer
0:14:55 who accurately decides who comes to Aspen
0:14:57 has all this pent-up demand to go to Europe
0:14:59 ’cause they didn’t go for three or four years during COVID.
0:15:04 And so I think that they are leaving basically going
0:15:07 to the Amalfi Coast ’cause I haven’t been there in a while.
0:15:09 But the experiences group of the parks
0:15:12 was always sort of the cash cow
0:15:13 that kept on giving at Disney.
0:15:16 They could go play in traffic with streaming,
0:15:18 have their problems with ABC or activists,
0:15:22 but they could always rely on a massive amount
0:15:23 of cash flow from the experiences.
0:15:26 I think that they probably haven’t given the parks
0:15:29 the love they deserve in terms of catbacks.
0:15:32 I think they weren’t milking them a little too much.
0:15:34 It’s expensive and not that great.
0:15:36 It’s the way I would describe Disney right now.
0:15:38 And I think they recognized this,
0:15:41 and a year ago they were gonna start making more investments,
0:15:44 but they got used to this massive cash flows
0:15:45 in this milking.
0:15:46 And I think they’ve, quite frankly,
0:15:47 I just think they milked it a little too hard
0:15:50 and they’re starting to see the consumer turn away
0:15:50 to other options.
0:15:53 And I think this has spooked the market that,
0:15:56 oh, the parks aren’t just gonna keep generating cash flow
0:15:57 without catbacks.
0:16:00 Last year, Disney experiences contributed 70%
0:16:01 of Disney’s operating profit
0:16:03 up from about 30% a decade ago.
0:16:05 God, that’s incredible.
0:16:07 And there were some other positives this quarter.
0:16:08 Disney’s streaming division generated a profit for the
0:16:09 first time.
0:16:11 I think that’s a big deal.
0:16:15 And they also had that big movie inside out, part two.
0:16:16 Is that what it was called?
0:16:16 – Uh-huh.
0:16:17 – What did it do?
0:16:19 It had like one and a half billion dollars.
0:16:21 I’m finally at the stage where my kids are old enough
0:16:25 that we don’t have to go to every single kid’s movie.
0:16:30 I saw the emoji movie in theaters, Ed, the emoji movie
0:16:33 where the star was like that four-fingered hand.
0:16:35 Oh my God, don’t have kids, Ed.
0:16:37 Don’t have kids.
0:16:38 Anyways.
0:16:40 – Yeah, the start that caught my attention the most
0:16:44 was “Inside Out 2” which I saw, very mediocre movie.
0:16:46 – You saw “Inside Out 2”?
0:16:47 – I saw it, yeah.
0:16:48 – Why would you choose to do that?
0:16:50 You don’t have to do that.
0:16:52 Why would anyone choose to do that?
0:16:54 – That’s what I realized after.
0:16:56 – Oh wait, and you claim not to do edibles?
0:16:59 There’s no way you saw that sober.
0:17:00 – I kept on seeing it on my social media
0:17:03 and saying it’s the best Pixar movie of all time.
0:17:04 It’s incredible.
0:17:05 It sucked.
0:17:08 It was terrible, but everyone disagrees with me.
0:17:09 – Who did you go with?
0:17:12 – I threw it in my girlfriend and you’re gonna give me some.
0:17:13 – A little night out.
0:17:14 – Yeah, there you go.
0:17:15 That’s what we do.
0:17:17 – A little dating hall of lame.
0:17:20 Hey, sweetie, let’s go to “Inside Out 2”.
0:17:22 So let me just give you a little bit of heads up.
0:17:25 – Oh no, oh my God.
0:17:26 – You got a few of those swings and a miss,
0:17:28 but you can’t repeatedly do that
0:17:31 or she’s gonna end up going out with an older guy
0:17:32 who like takes her to St. Bart’s
0:17:34 not to some lame fucking Pixar movie.
0:17:35 Get it together, Ed.
0:17:37 – Yeah, we did the best of both worlds.
0:17:39 We like to do both of them.
0:17:43 But it sold $1.6 billion in tickets,
0:17:45 which makes it the highest grossing animated film
0:17:46 of all time.
0:17:47 – Amazing.
0:17:49 – That’s just absurd to me.
0:17:52 I can’t wrap my head around that.
0:17:56 And that’s all I could focus on on this earnings.
0:18:00 I don’t really care if streaming’s profitable now.
0:18:03 I’m like, wow, $1.6 billion at the box office.
0:18:06 Everyone was saying movie theaters were dead
0:18:07 just a couple of years ago.
0:18:09 And now they’ve come roaring back
0:18:11 with “Wait For It, Inside Out 2”.
0:18:13 So it’s just incredible.
0:18:15 Let’s move on to X’s lawsuit.
0:18:18 I’m sure you have a lot of things to say.
0:18:23 I saw your very good host on threads.
0:18:25 Thoughts on X’s lawsuit here.
0:18:26 – This is not only stupid,
0:18:29 it reflects something that’s a little bit more mendacious.
0:18:34 So the idea that someone who claims to be a free speech warrior,
0:18:36 which by the way is total bullshit
0:18:38 on kind of the supply side.
0:18:41 He throttles the speech of the New York times
0:18:43 when we have white dudes for Harris,
0:18:47 somehow the account for white dudes for Harris
0:18:48 shut down during the speech,
0:18:51 somehow just went offline.
0:18:54 And then to claim that he’s a free speech warrior,
0:18:56 advertising is a form of speech
0:18:58 and your ability not to say something.
0:19:00 So people often ask me are you upset
0:19:03 that other people aren’t speaking up about Israel?
0:19:05 I’m like, free speech means I get to say what I want,
0:19:08 but it also means someone has the opportunity
0:19:10 to not say something if they don’t want.
0:19:11 That’s their right.
0:19:13 And it’s the same way with advertisers.
0:19:15 The notion that you have some sort of legal obligation
0:19:17 to advertise across any platform,
0:19:20 especially the Nazi porn bar that is Twitter now,
0:19:22 is just fucking ridiculous.
0:19:25 The suit alleges that this group,
0:19:28 the Global Alliance for Responsible Media or GARM,
0:19:30 triggered a boycott of Twitter ads
0:19:32 immediately following Musk’s purchase of the company
0:19:33 in October, 2022.
0:19:37 GARM encouraged advertisers to avoid X after Musk bought it.
0:19:39 And this quote unquote illegal boycott,
0:19:42 according to the suit cost X billions of dollars in revenue.
0:19:45 Musk wrote on X, we tried being nice for two years,
0:19:47 might by telling them to go fuck themselves.
0:19:48 He literally said that on stage.
0:19:49 He was trying to play nice.
0:19:53 That’s him nice and got nothing but empty words.
0:19:54 Now it’s war.
0:19:56 Really boss?
0:19:57 Really?
0:19:59 X generated almost one and a half billion in revenue
0:20:01 for the first six months of 2023,
0:20:04 down almost 40% from the same period in 2022
0:20:06 before Musk bought the company.
0:20:10 You have never seen a company over a billion dollars
0:20:13 during non-war time decline.
0:20:17 The way that X is literally the worst performing business
0:20:20 in modern history outside of war time.
0:20:23 And so they’re going to start suing advertisers.
0:20:25 This just makes apps of fucking literally no sense.
0:20:26 What are your thoughts, Ed?
0:20:27 – I think you nailed it.
0:20:30 And I think that desperate people do desperate things.
0:20:35 And the reality for X is that their revenue has fallen 83%
0:20:38 in the past two years.
0:20:40 They went from 700 million in quarterly revenue
0:20:44 to just over 100 million in the most recent quarter.
0:20:45 – Is that right?
0:20:46 Because if they generate one and a half million revenue
0:20:47 in six months.
0:20:49 – That’s what the New York Times has reported.
0:20:51 Is that in their most recent quarter,
0:20:54 they made over a hundred million dollars in revenue.
0:20:57 And in 2022, in the same quarter,
0:20:59 the number was 700 million dollars.
0:21:00 – So I just want to be clear.
0:21:03 The New York Times is claiming the most recent quarter.
0:21:04 They did a hundred million.
0:21:05 – Yes.
0:21:06 – Well, that means the company’s almost out of business.
0:21:07 – Exactly.
0:21:09 – That means it’s basically totally imploded.
0:21:13 Did you see the hostage video that CEO Linda Yaccarino
0:21:14 put out?
0:21:16 – So I was going to get to that too, exactly.
0:21:17 – I thought it was a parody.
0:21:21 The evidence and facts are on our side.
0:21:23 They conspire to boycott X,
0:21:26 which threatens our ability to thrive in the future.
0:21:30 That puts your global town square,
0:21:33 the one place that you can express yourself freely
0:21:36 and openly at long-term risk.
0:21:40 – I have some advice for her and for Elon and for X.
0:21:45 They need to go to Metta and they need to find and locate
0:21:49 whoever was behind Mark Zuckerberg’s rebrand,
0:21:53 and then they need to give whatever drug they gave Mark
0:21:55 to make Mark look cool suddenly.
0:21:56 They need to give Linda Yaccarino that drug,
0:21:59 because that video, as you have just pointed out,
0:22:03 that was, in my view, one of the most awkward,
0:22:07 stiffest, weirdest statements I’ve ever seen from a CEO.
0:22:09 It did look like she was at gunpoint.
0:22:11 – It’s one thing to accept a job
0:22:13 as the internet’s best compensated rodeo clown,
0:22:16 but it’s another thing to watch this person perform it.
0:22:18 – Well, I don’t blame her for taking the job.
0:22:19 I would have taken the job for sure.
0:22:20 – Yeah, I agree.
0:22:23 – It’s just, it was a trap.
0:22:26 I mean, there’s no way that you can do that job right.
0:22:31 I guess it’s a question of doing it as not badly as possible.
0:22:33 I think it’s an impossible job there.
0:22:34 We’ll be right back after the break
0:22:37 for our conversation with Professor Rebecca Allensworth.
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0:26:00 Google is a monopoly.
0:26:02 That is the ruling from Judge Amit Mehta
0:26:05 on the biggest U.S. antitrust trial in decades.
0:26:08 Judge Mehta found Google has illegally exploited
0:26:09 its dominance in the search business
0:26:12 to crush competition and suppress innovation.
0:26:14 It’s roughly 90% share of the market
0:26:17 was evidence of that dominance.
0:26:18 Here to help us break down the ruling
0:26:21 and what it means for Google and the rest of Big Tech
0:26:23 is Professor Rebecca Allensworth,
0:26:24 Associate Dean for Research
0:26:26 at Vanderbilt University Law School.
0:26:29 Professor Allensworth, thank you very much for joining us.
0:26:30 – Thanks for having me.
0:26:32 (upbeat music)
0:26:35 So let’s just start with the background here.
0:26:38 This is a ruling on a lawsuit brought against Google
0:26:40 by the Department of Justice.
0:26:45 What exactly were the DOJ’s accusations in this lawsuit?
0:26:48 – Well, the DOJ claims that Google monopolized
0:26:51 the search market and the advertising market.
0:26:54 And monopolization in the U.S. requires two showings.
0:26:57 One, that the company is indeed a monopolist.
0:26:59 In other words, that it has monopoly power
0:27:01 that, as you said, was found here
0:27:05 by virtue of Google’s size in the search market
0:27:08 and in a relevant advertising market.
0:27:09 And then that’s not enough though.
0:27:12 It’s not enough to be a monopolist to violate the law.
0:27:16 You have to have maintained or obtained that monopoly
0:27:19 using some sort of exclusionary tactics.
0:27:23 In this case, that was exclusive dealing contracts
0:27:27 that Google has with Apple and Mozilla
0:27:30 and in the Android ecosystem
0:27:34 that essentially make it the default search engine
0:27:37 on almost all mobile devices.
0:27:40 And that that kind of prevented any avenues
0:27:44 for competitors to use to get to the kind of scale
0:27:46 that they would need to build a better search engine
0:27:48 that could actually compete with Google.
0:27:52 So the idea is that Google kind of foreclosed its rivals
0:27:54 from entry into the search market.
0:27:58 – We’ve been talking about antitrust for years now,
0:28:00 Scott, especially.
0:28:02 The way I would describe the antitrust conversation
0:28:05 is that it is just that, just a conversation.
0:28:08 It’s kind of all talk, very little action.
0:28:11 Most big tech companies have not faced much
0:28:12 substantive enforcement.
0:28:15 Maybe that’s about to change,
0:28:18 but what’s different about this lawsuit today
0:28:22 versus all the other lawsuits we’ve covered in the past?
0:28:24 – Well, I guess I wouldn’t argue that they’re that
0:28:25 different.
0:28:26 So I think if you’re talking about antitrust
0:28:28 being all talk and no action,
0:28:33 you’re kind of having to go back to a time before 2020.
0:28:35 So this suit was filed in 2020.
0:28:38 It was at the end of the Trump administration.
0:28:41 But largely this push for antitrust enforcement,
0:28:42 especially against big tech companies
0:28:44 is associated with the Biden administration.
0:28:46 And there’s been a lot of action,
0:28:47 so I wouldn’t call it talk.
0:28:52 If what you mean is actual decisions in these cases,
0:28:54 it’s true that this is the first
0:28:58 of all the major monopolization cases to come to trial.
0:29:01 These cases take a very long time to bring,
0:29:02 and they always have.
0:29:05 In fact, one of the most famous monopolization cases
0:29:06 from more than a century ago,
0:29:09 Standard Oil also took five years.
0:29:11 So part of the answer to your question
0:29:12 is what’s different about this one
0:29:14 is that it’s just the first to be decided.
0:29:16 In fact, something very similar could happen
0:29:19 in some of these pending monopolization cases.
0:29:21 – What do you think the potential remedies are?
0:29:23 What happens now to Google
0:29:25 to try and rectify the monopoly maintenance?
0:29:27 – Well, that is the big question.
0:29:28 And nobody really knows.
0:29:30 This judge has been very careful
0:29:33 not to tip his hand about remedies.
0:29:35 Some people have been very excited
0:29:37 about the possibility of a breakup.
0:29:40 I think that that’s really, really unlikely in this case.
0:29:43 Not only because breakups are sort of disfavored remedies
0:29:45 and seen as a bit extreme.
0:29:48 And I’ll note that even though the decision
0:29:50 that came down on Monday is a huge win for the government
0:29:54 and a big loss for Google, it’s also very careful.
0:29:55 It’s really not out there.
0:30:00 It’s very much couched in traditional antitrust terms.
0:30:01 And so I would be very surprised
0:30:03 to see this judge go for a remedy
0:30:05 that would be seen as out there.
0:30:07 The other reason why I think a breakup is unlikely
0:30:10 is because there’s not a natural or simple way
0:30:12 in which you would break up this company
0:30:15 to address the harms from this lawsuit.
0:30:17 A different example would be the Facebook lawsuit.
0:30:19 So there’s a pending monopolization claim
0:30:24 against Meta because Facebook acquired Instagram in 2012
0:30:27 and WhatsApp a couple of years later.
0:30:30 Well, it would seem like if that’s monopolization,
0:30:33 a natural remedy would be to force divestiture
0:30:35 of these kind of independent properties.
0:30:37 We don’t really have that in the Google case.
0:30:40 So anyway, that’s a long way of saying,
0:30:42 I think that breakup is off the table.
0:30:44 More likely, I think they’ll enjoy
0:30:46 the kinds of exclusive dealing contracts
0:30:48 that were found to be unlawful here.
0:30:51 That might result in a choice screen for us
0:30:53 when it comes to using search.
0:30:55 – Choice screen meaning when you open up your phone,
0:30:58 you’re given multiple different options
0:31:00 of what browser you wanna use, right?
0:31:02 – The doubles in the design details, right?
0:31:04 Is this a choice screen that happens
0:31:06 when you open up your phone, as you say?
0:31:08 What is it a choice between?
0:31:11 Is it a choice once and then it’s the default forever?
0:31:14 So these are all questions, I think,
0:31:16 that will be raised in this next phase of litigation.
0:31:19 But yes, put simply, I’m calling a choice screen
0:31:22 some sort of moment where the user is able to decide
0:31:25 this is the search engine that I want to use,
0:31:27 be it Google or Bing or DuckDuckGo
0:31:29 or some other product.
0:31:32 – I mean, I’m just saying from a consumer preference standpoint,
0:31:36 I wouldn’t be surprised if they maintain that 93% share.
0:31:38 It has an outstanding product.
0:31:40 People are just sort of inclined to click
0:31:42 on the Google logo.
0:31:46 And then, but it diminishes the power of Apple
0:31:49 to extract, exorbitant $20 billion a year
0:31:51 by being the default.
0:31:54 Could this end up being sort of a net neutral for Alphabet
0:31:55 and hurting Apple a lot?
0:31:57 – So this is gonna say, let’s put it this way,
0:32:01 this is gonna save Google a lot of money
0:32:04 because they’re gonna get potentially for free
0:32:06 what they were having to pay a lot for
0:32:08 and that could hurt Apple.
0:32:12 But I think viewing it in that sort of zero sum
0:32:14 way is maybe incorrect
0:32:18 because I don’t think revenue sharing is gonna go away.
0:32:23 So that $20 billion payment represents
0:32:24 the revenue sharing agreement.
0:32:26 I don’t think that it’s necessarily true
0:32:29 that now that there won’t be a default
0:32:33 that there are some sort of like exclusive default
0:32:35 that there won’t be some sort of revenue sharing.
0:32:38 For example, at trial it was shown
0:32:43 that Apple tried to negotiate for a less lucrative
0:32:46 revenue sharing agreement if Google agreed
0:32:48 it would not be exclusive.
0:32:50 So in other words, if it opened up the possibility
0:32:55 for Apple to also use to push its own search product
0:32:58 or maybe Bing or something, Google refused.
0:33:00 Now maybe Google can’t refuse that
0:33:02 and yet so that revenue sharing will go down.
0:33:03 So I’m not sure it’s net a total
0:33:06 like $20 billion change of hands.
0:33:08 There’s also other dynamics in here
0:33:10 that we need to put in play.
0:33:13 So I totally agree that if I were now
0:33:15 presently given a choice between DuckDuckGo,
0:33:17 and in fact I am in a way given a choice
0:33:21 between DuckDuckGo, Bing and Google, I would pick Google.
0:33:27 However, it would seem that that 94% share
0:33:30 is vulnerable in a world in which
0:33:32 there’s not this exclusive default.
0:33:36 Otherwise, what was Google paying for?
0:33:39 And so over time, I think it’s reasonable to assume
0:33:41 that if you open up these barriers,
0:33:43 something will change within this market.
0:33:45 It kind of unfreezes the market
0:33:50 and does it on day two, really alter Google’s market share?
0:33:51 Maybe not right away.
0:33:53 Does it make that market share more vulnerable?
0:33:54 I think so.
0:33:57 – One thing I found really interesting
0:34:00 is that the Google’s stock
0:34:03 wasn’t actually affected too heavily by this decision.
0:34:06 It did fall, but so did the rest of the market.
0:34:10 And this drop wasn’t that much more pronounced
0:34:11 than the rest of the stock market,
0:34:14 which leads me to believe that Wall Street
0:34:18 isn’t worried about this from a shareholder perspective.
0:34:21 Perhaps they think Google won’t be punished
0:34:23 or that if it is punished,
0:34:25 the punishment is gonna be extremely light.
0:34:27 I’m wondering if you have any thoughts on that
0:34:29 and is Wall Street correct
0:34:31 if that’s what they’re assuming here?
0:34:32 – Okay, well you have a lot more expertise
0:34:35 about whether movement of the markets
0:34:37 actually reflects real information
0:34:39 about whether the future will happen.
0:34:41 And I tend to be a little skeptical about that,
0:34:45 but I think the fact that the markets didn’t move
0:34:48 in a way that reflected panic about Google
0:34:50 makes perfect sense to me for a few reasons.
0:34:54 One, reasonable antitrust law enforcement
0:34:56 is not gonna destroy these companies.
0:34:58 It is going to shift their tactics.
0:35:01 It’s gonna make them compete harder.
0:35:04 I don’t see that meaning that Google’s not a good bet, right?
0:35:09 I don’t think that that’s a reason to sell your Google stock,
0:35:12 that the only reason why this company is worth investing in
0:35:15 is because it has a lockdown illegal monopoly
0:35:18 and when that’s threatened, the company’s worthless.
0:35:20 That’s just sort of a straw man argument,
0:35:21 which is another reason why I think
0:35:22 when the tech companies say,
0:35:24 “Why are you trying to destroy us, America?
0:35:26 “We make your most valuable products.”
0:35:29 That’s also a little bit of a straw man argument.
0:35:31 The other thing is this is gonna take a very long time.
0:35:34 This is gonna take potentially years.
0:35:36 I would say potentially up to a year
0:35:37 before we know what the remedy is,
0:35:40 whether it’s strong or weak or whatever.
0:35:42 And probably another year before it’s implemented.
0:35:44 And so this is where I defer to the experts
0:35:46 on how markets move,
0:35:49 but I think it would be strange to sell off in a scenario
0:35:52 where you’re worried about losing value two years from now.
0:35:53 – Yeah, that makes a lot of sense.
0:35:55 And also Google will appeal, right?
0:35:57 – Yeah, that’s why it’s gonna take,
0:35:59 so I think that we may have a decision
0:36:01 on the question of remedy within a year,
0:36:03 but then the whole thing will be appealed.
0:36:06 – What do you think their argument would be?
0:36:09 If we were to try to steal man the other side of this,
0:36:11 how do you think Google will argue
0:36:14 that those $20 billion payments to Apple were kosher
0:36:16 and that they are in fact not a monopoly?
0:36:18 – Well, I mean, they made these arguments at trial.
0:36:22 The argument that they’re not a monopoly is pretty weak.
0:36:26 I think that they gave the government more of a run
0:36:27 for its money on the question of,
0:36:30 what did these payments really represent?
0:36:34 And they presented them as profit sharing.
0:36:35 We have an extremely valuable product.
0:36:37 People love it, people use it a lot.
0:36:40 And we have so many eyeballs on our stuff day in and day out
0:36:43 that we make a lot of money off of advertising revenue.
0:36:47 It’s only natural that we would wanna share that revenue
0:36:50 through our distribution channels
0:36:52 with our distribution partners like Apple.
0:36:54 That was sort of the thrust of their argument.
0:36:56 And the place where it fell apart was on the idea
0:36:59 that, okay, fine, share it.
0:37:01 Why does it have to be exclusive?
0:37:04 What is the value?
0:37:06 Not to Google, which is clear, the value,
0:37:10 but what is the value to consumers that this be exclusive?
0:37:13 (upbeat music)
0:37:14 – We’ll be right back.
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0:39:41 What do you think this will do
0:39:43 for antitrust moving forward?
0:39:46 I mean, you talked about the fact
0:39:49 that there are several other antitrust cases
0:39:51 in litigation at the moment.
0:39:53 I also like your point that I’m saying nothing’s happened,
0:39:55 but the reality is these things take a while
0:39:57 and I’ve just been impatient.
0:39:59 But it is annoying how long it takes.
0:40:01 But do you think this decision
0:40:04 will have any effects on those cases?
0:40:06 Does the fact that Judge Mehta ruled
0:40:08 in favor of the Department of Justice
0:40:12 do anything to affect what’s going on with Metta
0:40:14 and Microsoft and all these other big tech companies?
0:40:17 – Absolutely, in ways that are big and small
0:40:19 and short-term and long-term.
0:40:20 So it’s hard to know where to start.
0:40:24 But the first is just that this is an indication
0:40:26 of the times that we’re in now.
0:40:31 This is a data point of how a sort of careful legalistic,
0:40:34 pretty much down the middle federal judge
0:40:37 thinks about this kind of monopolization case
0:40:39 of which there are four other ones pending.
0:40:41 So it’s just kind of like a test case.
0:40:43 And I think for that reason,
0:40:46 we can think about what it means about the other cases.
0:40:48 Not that they’re all as strong as this one.
0:40:49 They have their own problems,
0:40:52 but it is a data point that I think is very relevant.
0:40:54 And the other is in specific holdings that he made,
0:40:56 that these are not gonna be presidential,
0:40:58 you don’t have to follow them
0:41:00 if you’re a judge in another case.
0:41:03 But he said a lot about how you define a market in tech,
0:41:06 about the power of defaults,
0:41:09 about the importance of scale in tech markets
0:41:12 that are in various ways relevant to these other cases.
0:41:14 And so I think that it could be hugely influential
0:41:16 in those ways too.
0:41:17 – Quick question, professor.
0:41:20 Imagine there’s a presidential candidate
0:41:22 and a VP candidate and his VP
0:41:25 are basically sort of bought and owned by the tech industry.
0:41:27 That some tech bros have said,
0:41:30 we’ll get you a billion dollars,
0:41:32 but we want you to take a very much of free markets,
0:41:34 laissez-faire, hands-off approach to tech.
0:41:35 Could they–
0:41:36 – Is this a hypothetical?
0:41:38 – This is a total hypothetical.
0:41:40 So imagine a different world
0:41:41 where you had an insurrectionist
0:41:43 and a rapist running for president.
0:41:47 – Okay, so they get elected.
0:41:49 Could they effectively, if they decided,
0:41:51 could they undo this decision
0:41:54 or just make it essentially neuter the whole thing
0:41:55 and stop it?
0:41:58 – Yes, technically.
0:42:03 So they could, from a legal perspective,
0:42:06 they could not appeal.
0:42:08 For example, they could abandon their appeal.
0:42:11 They could change what’s being sought on remedy.
0:42:13 So I think the remedy phase
0:42:15 is going to last probably through the election.
0:42:18 But I will remind you that this hypothetical
0:42:21 presidential candidate was the president
0:42:22 when this case was brought.
0:42:27 So it’s actually not a Biden administration case.
0:42:29 So it would be optically odd
0:42:34 for this particular case to switch horses in that way.
0:42:36 – You mean hypocritical and inconsistent?
0:42:40 – So maybe the answer is that definitely will be abandoned.
0:42:44 I think the conventional wisdom is that it won’t be.
0:42:49 And for that, I defer to some regulators
0:42:53 and former heads of these agencies that have said that,
0:42:56 that this will kind of survive into the,
0:42:58 I mean, part of it is like,
0:43:00 so now we’re talking politics and not antitrust
0:43:01 and I’ll do my best here,
0:43:06 but I could see somebody spinning this
0:43:09 to their own advantage as their own win
0:43:11 in a way that actually was politically expedient,
0:43:14 even if it is against a big tech company.
0:43:14 – When I saw this,
0:43:18 I saw that the biggest or the most important feature
0:43:21 of this decision wasn’t what happens to Alphabet
0:43:24 or even to its partners.
0:43:28 It’s just that it feels like antitrust has its mojo back.
0:43:30 And that this is sort of,
0:43:33 there was a general almost a bereft resignation.
0:43:36 That’s a redundant that we had been overrun
0:43:38 by these guys or government just couldn’t compete,
0:43:40 the government couldn’t,
0:43:42 they kind of show up and almost dare them
0:43:43 to try and do this shit,
0:43:45 that they had more lawyers,
0:43:47 public sentiment behind them,
0:43:49 consumers love their products,
0:43:52 try to take us on.
0:43:56 And the DOJ and the FTC have,
0:43:59 and they’ve taken on one of the biggest
0:44:01 and most well-resourced and most overlawered
0:44:04 and over lobbyist and they’ve won.
0:44:08 And this to me represents a change in the tide
0:44:10 where the government and the kind of antitrust folks
0:44:13 have their mojo back and might inspire
0:44:16 some of these companies to prophylactically,
0:44:18 I mean, I can see Alphabet spinning YouTube,
0:44:21 I can see Amazon spinning AWS going,
0:44:23 you know, we’re gonna become more valuable
0:44:25 and we wanna get out in front of this
0:44:27 because clearly these guys are no longer afraid of us
0:44:29 and judges are no longer afraid to rule against us.
0:44:33 It feels like momentum has shifted dramatically here.
0:44:34 Your thoughts?
0:44:36 – I mean, I could not have put it better than that.
0:44:39 That is what I think is so important about this case.
0:44:41 You know, what it does for Google
0:44:43 and the specific search market in question,
0:44:46 I think is a little bit unclear at this point.
0:44:47 But what it definitely shows,
0:44:49 well, first of all, the holding that Google
0:44:53 has monopoly power also opens the door
0:44:56 to everything else that’s gonna now do with that power.
0:44:59 So let’s say that they’re negotiating contracts
0:45:02 to get content for AI.
0:45:06 Well, now they’re negotiating contracts for AI content
0:45:09 to train their models as a monopolist.
0:45:10 In America, that, you know,
0:45:13 you’re halfway to a monopolization verdict
0:45:14 if you have that first half.
0:45:15 So now they’re gonna have to be thinking
0:45:18 about how exclusive are those contracts gonna be?
0:45:21 So even for Google, I think before we even get to remedy,
0:45:23 it’s meaningful.
0:45:25 But I agree that the biggest important thing here is that,
0:45:28 as you said, Antitrust has its mojo back.
0:45:30 And I don’t think a change in administration
0:45:31 can really change that.
0:45:33 I take a long view.
0:45:34 There was a big shift in the way
0:45:36 that we did Antitrust in the ’70s.
0:45:38 I think we’re at the beginning of that same kind of shift
0:45:40 in the other direction now.
0:45:44 – Professor, where do you stand on consumer harm?
0:45:47 I feel like that’s been one of the big arguments
0:45:49 from Big Tech that, yes,
0:45:53 they have these sort of monopolistic-esque practices,
0:45:56 but ultimately they’re delivering great product.
0:45:59 Everyone still loves buying from Amazon
0:46:03 because stuff is cheap and people, as you said,
0:46:05 would choose, if they were given the option,
0:46:08 would probably choose Google over Bing and DuckDuckGo.
0:46:11 Where do you stand on that side of the argument
0:46:13 that consumers aren’t being harmed?
0:46:15 So what’s the problem?
0:46:17 – I think consumers are being harmed.
0:46:21 And I think that’s what the opinion says.
0:46:23 The question is how innovative are these companies?
0:46:27 How much energy is Google putting into defending
0:46:31 its monopoly that it could be putting into competing?
0:46:34 What other smaller search engines,
0:46:38 like Neva is an example that came up during the trial,
0:46:39 could have been bringing something new
0:46:41 to the table that aren’t?
0:46:43 I think the most striking thing about this opinion
0:46:46 is that it actually uses this idea of innovation,
0:46:48 which the big tech companies have been using
0:46:51 as kind of trying to beat back antitrust laws,
0:46:53 saying antitrust enforcement is gonna stifle innovation.
0:46:56 And it says, “No, it’s you that’s stifling it.”
0:46:57 – You want that innovative.
0:46:59 – Well, so I mean, the idea that antitrust law
0:47:01 can be used to improve innovation,
0:47:04 I think it’s really squarely in this case.
0:47:06 – I’d love to get your view
0:47:09 on the rest of these antitrust cases.
0:47:15 There are cases out against Meta, Microsoft, Apple.
0:47:20 Which company in your view is the worst
0:47:22 when it comes to antitrust?
0:47:24 Which is the most monopolistic,
0:47:26 which has violated the most amount of laws?
0:47:28 And in your view, which one needs,
0:47:32 is most in need of some sort of enforcement or break up?
0:47:34 – That’s a hard question to answer
0:47:38 because I’m inclined to say Amazon
0:47:42 has the worst impact on markets
0:47:46 and is the most problematic,
0:47:49 but it is also, I think the least likely
0:47:51 to be found to be a monopolist.
0:47:55 And that’s because of some defects in the way
0:47:58 that antitrust law has evolved over the last 40 years
0:47:59 that need to be undone
0:48:01 and they can only be undone incrementally.
0:48:03 So in other words,
0:48:06 I think that the pending suit against Amazon is the weakest,
0:48:09 but it’s the one maybe that I’m most rooting for.
0:48:12 So I can’t predict that they’re gonna win.
0:48:17 I think the strongest of the pending suits,
0:48:19 I think the suit against Apple
0:48:22 came out a lot stronger than I thought it was going to.
0:48:23 – Around the App Store,
0:48:25 and kind of useless pricing around the App Store?
0:48:27 – No, it’s more the green bubble, blue bubble
0:48:30 is the way that people are kind of shorthanding it.
0:48:32 It’s the idea that they’re degrading
0:48:34 the quality of Android on the phone
0:48:39 so that people choose the Apple ecosystem kind of artificially
0:48:42 and they’re holding back interoperability
0:48:45 in order to basically keep Android at bay.
0:48:47 That’s a decent complaint.
0:48:49 – The thing you said that I found fascinating
0:48:53 with Amazon is probably the most in need of a break up.
0:48:56 I imagine because you believe it suppresses competition,
0:49:01 but it’s the least likely to be broken up on legal grounds,
0:49:04 which connotes a need for the change in antitrust law
0:49:08 and all cosplay and antitrust lawyer here.
0:49:11 Isn’t that, don’t we need sort of a return
0:49:15 from the Bork kind of test around consumer pricing
0:49:18 to more brand-ising around what makes markets
0:49:20 less or more competitive?
0:49:22 Isn’t it, don’t we need to move from the consumer test
0:49:25 back to just the competitive test?
0:49:30 – So I actually believe in the consumer welfare standard,
0:49:32 but I find that when I talk about it,
0:49:35 often people who also believe in the consumer welfare standard
0:49:38 describe it in a way that I don’t recognize.
0:49:41 They’ll say things like consumer welfare standard
0:49:46 demands present short-term numerical harmed consumers
0:49:48 to make for an antitrust violation.
0:49:50 I don’t believe in that.
0:49:53 I think all of these lawsuits describe long-term
0:49:55 meaningful consumer harm.
0:50:00 And to me, I think that you can get 95%
0:50:03 of what the brand-isians want through a sort of common sense
0:50:06 and reasonable understanding of what consumer welfare
0:50:07 really is.
0:50:10 So I’m kind of actually in my own work struggling
0:50:13 with whether I say I believe in the consumer welfare standard
0:50:16 because that phrase often means something
0:50:18 that I can’t endorse.
0:50:21 On the other hand, I do feel like moving away
0:50:24 from consumer protection, you lose a lot of like,
0:50:26 well, what are we doing here exactly?
0:50:27 What does competition mean?
0:50:30 So I feel ambivalent about that question.
0:50:33 – Just as we wrap up here, one observation,
0:50:36 Professor Ellensworth, you are outstanding.
0:50:37 You are outstanding.
0:50:39 Your ability to take these topics
0:50:41 and make them seem somewhat interesting,
0:50:45 which is nearly a miracle of oration and presence.
0:50:48 You are in the right seat helping shape legal minds.
0:50:52 We very much appreciate you coming on.
0:50:55 And again, really enjoyed this conversation.
0:50:55 Well done.
0:50:56 – Thank you.
0:50:57 That’s really nice to hear.
0:50:58 Thank you so much.
0:50:59 – 100%.
0:51:01 Rebecca Hall Ellensworth studies antitrust
0:51:02 and professional licensing.
0:51:05 Her work on antitrust focuses on how to adapt competition
0:51:07 policy to address competition problems
0:51:08 posed by tech platforms.
0:51:10 She teaches contracts and antitrust law
0:51:13 at Vanderbilt University and is a six-time winner
0:51:16 of the Hall Hartman Outstanding Professor Award
0:51:18 for Excellence in Teaching.
0:51:20 Clearly too qualified to be on this podcast.
0:51:22 Thank you very much for joining us, Professor Ellensworth.
0:51:23 – Thank you.
0:51:26 (upbeat music)
0:51:34 – Ed, what’d you think?
0:51:35 – Incredible.
0:51:36 I loved all of her points.
0:51:37 – Right?
0:51:41 And by the way, she won the best teaching award
0:51:43 every school graduate school has this.
0:51:45 And she’s won that six times.
0:51:47 I would imagine the faculty at the Law School of Vanderbilt
0:51:49 have between 100 and 200 profs.
0:51:51 For her to win it six years, that means she’s out.
0:51:52 She’s out.
0:51:56 That is, that’s like, that is literally like being MVP
0:52:00 or yeah, the MVP in a league six years in a row.
0:52:01 That is so hard to accomplish.
0:52:04 There was one guy who’s done that at Stern
0:52:05 who we also have asked about the motor.
0:52:08 And I’ve been nominated a couple of times
0:52:08 for that award, Ed.
0:52:10 I haven’t yet to win it.
0:52:11 – What do you think you’re doing wrong?
0:52:12 – You know, let’s be honest.
0:52:15 The reason I haven’t won it is just simple jealousy.
0:52:18 It’s just that that I got to be honest.
0:52:20 That’s an award I coveted.
0:52:22 I think I’ve been nominated once or twice.
0:52:25 You want to hear, okay, this is my life.
0:52:28 My department chair calls me and says,
0:52:29 I’ve got great news.
0:52:31 You won best teaching, the best teaching award.
0:52:32 This is like 10 years ago.
0:52:34 And he’s like, we’re so proud of you.
0:52:36 This is such great news.
0:52:37 I was so excited.
0:52:39 I called a bunch of people and he calls them back.
0:52:40 He goes, oh, we fucked up.
0:52:42 Glenn Oaken won it.
0:52:42 Sorry about that.
0:52:47 And I’m like, I just called pretty much everyone I know
0:52:49 and told them I just won best props.
0:52:51 – It’s like the Steve Harvey Miss Universe Blunder.
0:52:52 This is terrible.
0:52:53 – This happens all the time.
0:52:55 It happened to-
0:52:56 – I went to the Oscars too.
0:52:59 – Yeah, and it happened to Paul Romer,
0:53:01 who is an outstanding professor,
0:53:04 especially the dean of our university called him
0:53:05 and told me to win the Nobel Prize
0:53:07 and it ended up he hadn’t.
0:53:09 But the good news about Professor Romer
0:53:11 is he did eventually win the Nobel Prize.
0:53:13 – I have not.
0:53:14 I’m still waiting, but-
0:53:17 – Yeah, that was similar to when I got an email
0:53:19 about the Webby Awards.
0:53:21 I thought that we had won a Webby
0:53:22 or that I had won a Webby.
0:53:24 And it turns out that I had won an honorable mention
0:53:26 for the Webby Award.
0:53:29 Did not win the actual Webby, so that’s it.
0:53:31 – The Webby’s have adopted the same business model
0:53:32 as Amazon.
0:53:35 So if you write a book on and you put it on Amazon,
0:53:37 they slice it into so many categories.
0:53:40 It’ll be your number seven in professors
0:53:43 with erectile dysfunction, who have a shaved head,
0:53:45 who write books about the economy.
0:53:48 – Come to our dinner and spend $1,000 just to show up.
0:53:51 – That’s the Webby’s, is they just slice,
0:53:53 they slice the cheese a million different ways
0:53:55 to get people engaged.
0:53:57 Anyways, you’ll get there, Ed.
0:53:58 – Okay, let’s take a look at the week ahead.
0:53:59 We’ll see the consumer price
0:54:01 and producer price indices for July.
0:54:03 We’ll also see earnings from Home Depot,
0:54:05 Walmart, and Alibaba.
0:54:08 Scott, do you have a prediction for us?
0:54:10 – I would bet over the next couple of weeks
0:54:12 you’re gonna have a lot of very smart people
0:54:14 at all of the big tech firms, get in a room and say,
0:54:17 “Okay, the jig is up.”
0:54:19 And these guys clearly have Mojo now
0:54:21 are gonna allocate more resources, more lawyers,
0:54:25 and Judge Metta has given permission to other judges
0:54:28 to say, “No, you’re guilty of monopoly abuse.”
0:54:31 And I think some of them might decide
0:54:34 to prophylactically stave off the wolves at the door here
0:54:36 and break themselves up.
0:54:39 I think you’re going to the next 24 months
0:54:44 see a prophylactic spin of an AWS or a YouTube
0:54:46 because these guys are so smart.
0:54:49 And also, I generally believe that
0:54:51 it would increase shareholder value.
0:54:52 So anyways, the prediction,
0:54:55 you’re gonna see some spins that attempt
0:54:57 to immunize them against antitrust.
0:55:03 – This episode was produced by Claire Miller
0:55:04 and engineered by Benjamin Spencer.
0:55:06 Our associate producer is Allison Weiss,
0:55:07 our executive producer is Catherine Dillon.
0:55:09 Mia Silverio is our research lead
0:55:11 and Drew Burris is our technical director.
0:55:13 Thank you for listening to “Prophecy Markets”
0:55:15 from the Vox Media Podcast Network.
0:55:16 If you liked what you heard,
0:55:18 give us a follow and join us on Thursday
0:55:21 for our conversation with Ramit Sethi,
0:55:22 only on “Prophecy Markets.”
0:55:29 ♪ Lifetimes ♪
0:55:36 ♪ You help me ♪
0:55:41 ♪ In kind reunion ♪
0:55:48 ♪ As the world turns ♪
0:55:53 ♪ And the dark lights ♪
0:55:58 ♪ In love ♪
0:56:00 (upbeat music)
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Scott and Ed open the show by discussing Airbnb, Disney, and Shopify’s latest earnings, as well as X’s lawsuit against advertisers. Then they speak with Professor Rebecca Allensworth, Associate Dean for Research at Vanderbilt University, about the Google antitrust case. She breaks down the ruling, potential remedies for the situation, and what the case means for other big tech companies who are facing similar monopoly accusations.
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