Sony Corporate Development Chair Ravi Ahuja on M&A and Streaming Bundles - TheGrill 2023 Spotlight

Yeah, so I mean that's absolutely right. We have a very big studio, some of the top shows the cold just put up there are ours right like The Night Agent and The Last of Us. Oh, nice, two of them. Yeah, take note of that. Yeah, and many others. We make 200 shows or so in our studios, so that's our traditional arms dealer business.

Turn me up. Um, so we make 200 shows in our studios. I never have that problem by the way. So that's scripted, unscripted, kids, game shows. It's a global group, so it's a lot of shows that we make. And you're right, we don't have a general entertainment streaming service and that was a design by choice, and it was largely driven by looking at the landscape and saying there's just too many of these and this is not a really good business decision and we won't be adding anything by being another streamer. So our whole focus is, that means if you can't be Netflix, don't play Netflix. And the rest right don't do that. Right now we have focused streaming services like Crunchyroll, which is anime-focused and is big and profitable and all of that, but it's not general entertainment. So the shows that we make in our studio we make for others. So The Night Agent is obviously for Netflix and The Last of Us is for HBO. We make for broadcasters Jeopardy, Wheel of Fortune, 90 Day Fiancé for TLC. So we make a whole host of different shows but for others. And it's served us very well so far. It's been really good to be focused. The clarity of mission, the clarity of focus allows us to deploy resources in a way that we think is very efficient and creatively excellent. So that's been the strategy and so far it's been good.

I came from Disney and I was attracted to that strategy actually. Yes, that was one of the things. Yeah, so I left Disney. I was at Disney two years. My kids say I was traded to Disney and the Fox deal. So I was at Fox for 14 years but then I was at Disney for two years. And the catalyst that brought me to Sony was that ill-fated reorganization that created a distribution organization. It changed my role. At the same time, it got totally undone. Yeah, that's a whole other conversation we could take a lot of time on that. But then at Sony I was very attracted to what Sony was up to. Sony was making lots of great shows. I knew as because I was on the buy side at Disney that there were a lot of great things coming from Sony. There was an opening. Mike Hopkins, my longtime colleague, had left Sony for Amazon and thus the opportunity came along. I to Tony before, so it was a great thing. I got lucky.

No, I think generally there's a lot of value in zigging when others zag, right, of doing things differently. Right. I mean there were 10 general entertainment streaming services. Do you need an 11th? Do you need to be one of those ten? Well, do you think all of those ten will survive? Not sure about that. And I'm not sure that they'll shut down. I think what we're seeing is a rationalization, you know, of some bundling that's happening within the services. And I think inside one company, inside one company, yeah, Disney. But I think we're going to see bundling by platforms, by Amazon, by YouTube, by Apple, by Roku, across. Yes, and that's already started too. I mean many of the Paramount+ subscribers for example come from those channels programs and many others. It's a more customer-friendly efficient way. So basically cable-like through streaming internet. Yeah. I mean, okay, if you look at television around the world, right, there's always a bundle of some sort, right. It's not all individual a la carte services. So there'll be a lot of valuing putting together the experience for customers. I think when I talk to groups and when we talk about it, the hardest thing now is what should I watch, where do I find it? All these services cost too much. Right, right. Some sort of platform bundling is the way to address that.

I think the smaller streamers will opt into bundles first, right, and they already are. Right, right. So you're seeing that all over the place. So like Peacock, you mean? Yeah, I mean they bundle in with Comcast, so they'll bundle without. Well, they're owned by Comcast exactly, so they'll bundle with others. I think the Spectrum Disney deal is interesting, right, right. Where Disney is bundling through Spectrum its linear channels and its add tiers. And so I think it's a customer-friendly way of approaching the business and it's better for the streamers. The hardest thing now for them is profitability. Having a more efficient model, so spending as much as they do on marketing right because they have to manage churn or to acquire subscribers, and even having as many big shows as they do is economically very challenging. So I do think we're going to see that. I think it's going to take time. I think we're in the middle of a 20-year evolution from coaxial cable and satellite delivered television to IP delivered television. In that 20 years, I think we're a little past the middle. A little past the middle. Yeah, I've said the same. I think it evolves through this decade. And so that by 2030 it's also it's a weird thing to say out loud. We're all still here. It's all streaming and there's no more cable. I think ultimately, yeah.

So wherever that shakes out, Sony's in a good position because you're just a supplier. I mean, just but I mean you're a supplier rather than a distributor more specifically. So our core is film and television production, right, that's the core of what we do. But we do find areas to lead in, whether it's anime or in India where we have a very big business and we're in the middle of a merger to become the biggest.

Right, right. We have a studio in Japan, Aniplex, that's one of the suppliers and my colleague Keith Lagoy here oversees that. I can call on people for some of these questions. But yeah, Crunchyroll is a very strong offering. It provides a really solid community for anime. How many subscribers does that have now? I think we say it, I think it's over 12 million. 12 million. Okay, yeah, so it's global for a niche that's really strong. It's global, right. And there's e-commerce, it sells manga books, it has games, so it's a community of a lot more.

Yeah, thank you. Three best drama nominations which are three best drama nominations which are The Crown, Better Call Saul, also The Last of Us and Last of Us. That's great.

Well, we produce the show with our creators, right. So we are the owner of the show, we're the owner of the IP, and we license it to the streamer. Right. So it all of this very much does affect us. And actually the biggest challenge to our strategy right now is the pullback in streaming, right, which I think everybody has probably kind of felt or experienced even before this drive. Right. So that's the greatest challenge. What that does is it puts a priority on us to just keep elevating our game. Stronger creative excellence, that's what we're particularly proud of the 54 Emmy nominations. Being better at producing, better at execution, bringing shows in on time. And that's the focus of all of us very much, right. Streamers have to feel like we add value, otherwise they can buy a show from their own internal studio. Right, right. So we know that and that puts a tremendous focus on us and tremendous pressure.

Yeah, pretty much all the big streamers have announced that they have cut the budgets. Yes, right. We're seeing it, we're feeling it. It's a little harder to get a show over the finish line. But I wouldn't say it's necessarily impacted if we feel really strongly about a show, we still feel like we can find the right home. We haven't gotten to the point where we look at or hoping we don't get to a point where we have a show and we love it and we can't find a home. So we haven't experienced that. Our bet really is that focus and really getting the execution right and having creative excellence will be fine.

Yeah, I mean you could argue that. It's just our parent company I think has no desire to sell us. I mean they've publicly stated that about a million times. But yeah, they've owned us for 30 something years through some really challenging times. Right. Honestly, right. So I'd like to think. When you have to hack and go back to the '90s and the early years of ownership but um but now things are going well and Sony itself is on very strong footing. But is it? But it is a bit, the studio is a bit of an outlier in others. I believe. Yeah. I mean I think Sony strategy was to kind of integrate into its core business and that doesn't really, yes, never never really happened. You'd be a wonderful add-on to Apple for example. Yeah, yeah. If I were them, if I were sitting at Apple I would say I'd love to buy Sony, but as far as I know we're not for sale.

I am concerned about the next couple of years. Over the long term I'm bullish.

So if you look at even over the last five or ten years, we were looking at this data the other day at the office. If you look at the revenue in the business, it's grown steadily at four or five percent a year. So for all the challenges in the media business right now, revenue has grown. Profit however has gone down 30 to 40 percent across all the media companies in the past five years, in the past five or six years, well actually since maybe 2015, 2016. So the last eight years where the industry really had its peak profits. So what's going on? Right. It's a tremendous amount of spending to acquire subscribers. And I think that land grab phase is over. Right. So I think the peak streaming or Peak TV, yeah, and but I don't think it's going to go back to where it was before. I think you'll see a little bit of the air coming out of the balloon that will probably be painful for most companies over the next couple of years. I think after that though...

I think Disney will end up owning it. I think that's the most likely outcome. But again, you know, all these corporate questions after my Fox experience, I don't know. How was it that took you by surprise? Yeah, that was surprising. I didn't like all the people who worked at Fox back then. We didn't think the Murdochs were going to sell, but they did. So it's what do you do.

I think that yeah, I understand that. I mean when I was at Fox it was a very large company and we obviously weren't a part of that. That was the Roger Ailes New York-centric thing right. And I used to always think, I know a lot less about Fox News and maybe one or two people there than I do any competitor. And LA, so it was always a very separate thing. And I think for at that time, those of us who worked at Fox just didn't really have any connection to it right. Maybe that's different now. It's a smaller company. It is so much of the profit is driven by Fox News. Yeah. So I do wonder about that. It's funny because like when I'm out in the world and people know that regular people from my hometown of Cleveland, yeah both from Cleveland, we're from like the same couple of blocks. We're saving the same couple of blocks. Right. Yes. Exactly. Which is so cool. We discovered yeah, randomly. But they say they don't make a difference between somebody who is contributing to Fox and somebody who's had Fox News. To them it's all the same thing. Yeah. So I just wonder if there are so many executives who are quite liberal actually who now question whether did I help contribute to the creation of this really toxic force. Yeah, yeah, yeah. I can see that it had already been created when I was there, so doing its thing. Yeah.

Yeah, so we've been in India 24 years. It's a good long time. We have a really strong and very profitable business in India. We were the number four player. And just when we look around like I was talking about before, we look for places we can lead, where we can lead profitably, where we can build a winning business. We entered into about two years ago a deal to merge with the number two player in the market, Zee Media. And we've gone through a really long regulatory approval. We were warned back then it was going to take a long time, long regulatory approval process. We just got our last approval a month and a half ago and we're hopefully going to close within the next couple of months. And how many subscribers will you have together once that's done? Well, we have a streaming service that has over 30 million subscribers in India. And by the way, there the streaming service is frequently bundled with telecom services and others. Okay, so in that market you actually see that what I was talking about for the US market. So we have over 30 million subscribers. We're merging with Zee which has a service itself and has over 10 million subscribers. The two, what is Disney's? Disney now has 40, so you'll be about the same size. Yeah, they were up at about 60 until they lost one of the key cricket packages. Now keep in mind, these subscriber numbers sound huge but the ARPU, the revenue per user in India is much smaller. It's important like a buck, under a buck per month. Yeah. Right, so they're relatively inexpensive. But the bet on India is that it's the fastest growing economy and that it's very young. You're right, the average age in the country is 28 versus over 40 in the United States. How well do you know India because you grew up in Cleveland? I grew up in Cleveland and I was born in Tennessee. It's a little embarrassing because I'm Indian of Indian descent, I have an Indian name, and I go there and I can't speak the language. But I do know the bad words. [Laughter] So I do, so I tell them I know when you're talking badly about me. So it's been really interesting. I had never at Fox and other places had oversight over an involvement and really in a material way in Indian business. So it's been interesting on a personal level. I feel like I culturally understand it a little but not a ton. I'd never want to overestimate my knowledge of it because then you get into trouble.

Again, optimistic over time. I do see a light at the end of the tunnel. The content that's being made, I think the satisfaction people have in the shows they watch, just what Cole showed before, yeah, is very high. I think as an industry though, we kind of wrecked our business model in the attempt to transition or to solve customer problems. And I think, could that have been, was that avoidable? You could argue, but these things aren't always messy. I mean, look, I think in 2040 we're going to look back at this time and we're going to say, oh that was like really, it'll be 100 years old, well the grill 35 or whatever, it's going to be like, oh wow, that was really simple. Television just transitioned from one form of delivery to the other. But when you live through history, there's a lot that happens. Right. Everything that's going on with the guilds and profit participations, what kinds of shows are popular, the way we consume all these things are in flux. So many things are changing and living through that is challenging. But I'm optimistic that over time it's going to work out and the models will develop in a positive way. And you think Sony's going to stick with this strategy of being primarily a content? Yes, yes, but not religiously. I mean, it's a strategy, it's a business strategy, so it could change if circumstances change. Well certainly the film side does distribute, but yes. So it could change if circumstances change, but for now I think for the foreseeable future our strategy is exactly what it is. Nose to the grindstone, making shows, do a good job. Right, a good job. Exactly.