Hello and welcome back to Sharp Tech, presented to you for the first time ever by Stripe. I'm Andrew Sharp, and joining me on the other side of the couch, Ben Thompson, our new studio. How you doing?
Uh, the accidental studio. Uh, I wanted to make a studio when I moved back here.
Mhm. And but I like we really needed the extra bed in case like we ever had guests. So I'm like I gotta do the sofa bed. It's a very nice sofa bed.
It's comfortable. Here we go.
It's not that comfortable to sit, I'll be honest. But
But I did get all this sound stuff in here, and I'm like, this works unbelievably well. Every time we are together, I feel the podcast is way better.
We both love it. Absolutely.
The only problem is, is you're really loud. So we need a very well, a very good acoustic. My mic has been turned down in order to account for my podcast voice. Now, here we are.
So, the chance. So, I'm super excited.
The Stripe thing does make all this possible. Like, we've spent a lot of money on this. I already having visions of actually a real studio, not just my office that's made into a studio. But uh, it's super important to me that we are always getting better and I delivering for you. You're going to hear some ads, but I think the podcasts, which I've been super proud of where we are, uh, how good Sharp Tech has been, and yet every time we're together, I'm like, that was, it could be so much better.
No, I know. So fine, let's be together uh almost every time.
It's a whole new era, whole new studio.
Well, there is one big problem. Um, we have taken on a dependency on American Airlines.
That is the problem. The ointment wasn't a problem today. You know, I did sit on the runway for about 30 minutes before I finally got to Madison, but I landed in Madison. Had some Culver's. Here we are.
That's right. Midwest living.
If they could sponsor the University of Wisconsin uh athletic teams. That's right. They can for the first one. We had to have our drinks.
We're like uh I've been watching a lot of America's Got Talent cuz there's this. Did you see the whole N royal thing?
Of course you're watching America's Got Talent. Got Talent crap that you watch.
This is why I'm afraid to recommend things to you. It's sports and America's Got Talent.
No, I did not watch any of the shows. I watched the YouTube clips. No, there's this girl from Thailand who...
Oh, yeah. This is your favorite celebrity right now?
Uh yes, I do have celebrity crushes. Uh not like crushes and obsessed with. She's like 16-year-old girl. Let me be clear about that point.
Let's not get cancelled on
No, but she like she shows up is unbelievable. Like her performance is like her stage presence. And then you realize she's been playing at like a night market in Thailand like every week since she was like 10 years old. And it's like it it's not only is she unbelievably talented, but it's like such a oh no wonder like like she has all the pieces sort of coming together. Um anyhow on America,
How does that relate to this?
They always have the sponsored drinks. They're always like setting them just right and taking big swigs.
Maybe that's our trademark. You know, Culver's not actually a sponsor, but certainly a a sponsor in our hearts.
Yeah. I mean, I was going to say at this point, clearly uh we're for sale. Um, but we're actually not cuz we have an exclusive. It is an exclusive deal. What are you going to do? Well, and just from this point forward to clarify to anybody who might be lost, who didn't see your Stripe announcement earlier in the week, Sharptech is now going to be a public podcast going forward. Every episode will be on YouTube.
There's going to be members only episodes.
Well, I was getting to that. There's also going to be a special sort of bonus episode for strategy subscribers that will be around 30 minutes long. Will be released later in the week. Probably on Sundays is when we're going to publish that.
And how frequently is it going to actually be 30 minutes long?
Well, that's going to be the challenge, isn't it? I honestly think the issue will be running up against my return flight to Washington DC time we record.
No, but to that point, we're going to do the extra episode. We're not going to use the same day. Give you a little breathing room. But we're going to do that in person, too. Like, we're all in on this. We want to make again, we want to make the best podcast possible.
We are still. This is on video, but we will still be on audio. The the feeds. We were super invested. Hopefully the our producer was very worried when when we had this idea and he's like but then he heard it like I hate it when podcasts go from audio to video. By the way, it's so weird that he's actually like listening to us right now. I'm not used to that. They have to use like an in-person producer. Hi Jim. Um
Silent partner. That's right. Uh third chair.
We want this is we're still a podcast. We have great audio. The subscribers only will be audio only. If you're not a subscriber, if you're listening on YouTube, watching on YouTube, you can subscribe.
Yeah, for you to subscribe. That's right. Get on the bandwagon. All right. Well, enough prelude. We can jump in. First segment here. The SS Sarandos has hit some turbulent waters over the last seven days or so. I'm sure you've followed all kinds of news. I did sort of call it in mid July as far as the Netflix peak and it's gotten so much worse from there. So, we'll start with Rav. Well, not that much worse, but um certainly a lot of bad news and bad press over the last week or so. Raph says Andrew and Ben Netflix
They fired executives. They laid off 6% of the workforce. Their stock 40%
I think it's gotten worse.
It has gotten worse. He says Andrew and Ben, this is Rav. Netflix reported earnings this week and the company appears to be at a crossroads. They laid off 6% of staff last week which included relieving their head of content and chairman of Netflix film. Relieving by the way.
It's a great verb in this context.
Well, and I believe the chairman of Netflix film had to fire the head of content and then was fired himself. So, been a messy week out there.
The Wall Street Journal cited data showing Netflix has fully saturated its US base and has not added any subscribers this year. Engagement has notably slumped and is missing targets by 10%. Their current podcasting and gaming initiatives are useless. Meanwhile, Netflix has increased its standard subscription price four times over the past 5 years. They hiked it by 16% in 2025 and 12% in 2026. Given the slowing engagement, another increase will result in the dreaded customer churn. So, Rav asks, "What should Netflix do?" The Warner Brothers acquisition was seen as a killshot, but in retrospect, the move was a desperate bid to reinvigorate their content and engagement. Should Netflix make a bid for NBC Universal? They wanted Warner Brothers because of HBO. But NBC Universal has something Netflix does not have. Sports, Sunday Night Football, Big 10, the NBA, the EPL, and the Olympics all in a single package. NBC also has a fantastic parks business, which would put Netflix on the diversified Disney path. Alternatively, Netflix could keep investing in its own content and wait for Skydance to self-implode under its ridiculous debt load and then vulture the Warner Brothers carcass. Speaking of which, let's take a quick second to acknowledge how atrocious the Ellison family's core investments have performed over the past year. Larry Ellison's Oracle shares are down
I saw the numbers there. I didn't realize they were part of the email.
They're down 53%. David Ellison's Skydance shares are down 59%.
And Jolan Jews Bryce Underwood shares those are down 99%.
Are we sure not bankrupt?
No. So the Western was it Western Michigan or Eastern Michigan?
Western Michigan. That was like a government bailout of the auto industry that the Big 10
Supporting it for a little bailing out. Yes. That's the only reason there is 1% uh or or one basis point left.
Let me tell like 98% of the audience that's a very specific college football joke from Rav, but also a very funny college football joke. Larry Ellison embryo. Yes,
And then look at Michigan's record.
So bigger picture. I think Rav's email covers the Netflix status quo fairly well. We've both
I push back on is he said given the slowing engagement, another increase will result in the dreaded customer turn.
I don't know. That's the question, right? Because the so the every time they were asked and the Netflix executives are so funny. I think I've pointed out before everything they do was always their strategy. They've always been doing this all along. Even as they're weaving all over the place uh and you know, we're never going to do ads. Now we're doing ads like as being the most prominent example. But it in this case what was it was actually kind of jarring.
Where they've been asked about engagement for several calls now and they're like ah blah blah blah blah. This like yeah engagement is a problem. It's like I'm not unexpected straight talk was not in my is not what you usually expect from them on these earnings calls and these are so controlled. It's actually an improvement now where their head of investment reads questions from analysts.
Like it used to be they would do earnings interviews where one like journalist slan analyst often was like a journalist was allowed to come in and ask questions.
And it was like and it was like super controlled. Now multiple analysts ask questions but it's still read out by a Netflix guy. Like they they it's not a like earnings call where they
Fascinating. How do they get away with that? Basically one person goes in and asks questions on behalf of the masses.
Well, when when when your stock price keeps going up and to the right, you get away with a lot. Sure. Okay. So, uh the No, but even now though, no one is allowed to ask questions. It is a they send their questions and then the Netflix guy reads the questions. So, these earnings calls are very shaped, very controlled how they communicate. This has always been the case. So, in this for them to come out and say, "Yeah, uh engagement is a problem." And to be like pretty explicit about it means it's probably a big problem. Big problem
And and and you layer on top of this the other thing that that that was very notable about talking well every time there were the questions were about engagement but again controlled by Netflix. Their answer was we raised prices and we didn't have higher than normal churn.
Sure. Make no mistake like Netflix's low churn is the key to this superpower that they've had for 10 years and for you know the saturation of the US market that's been the case for a long time. Of course they're going to have to raise prices in in part to increase the revenue but the problem is once the churn shows up it's too late. Right? So the the yes that's good it hasn't happened yet but that doesn't mean everything's okay. And if that is your answer, you're basically saying our last line of defense has not yet broken. But you're the fact you're not listing other things is a problem. And then you layer on top of this the part I the the call that made me a little raised my eyebrows was they had a big advertising miss. They were I think it was $3 billion. They're going to come in at 2.7 and they're like well we had really aacious goals 100% growth. We're only going to have 80% growth. That's still really good. It is really good but except last year didn't grow as much like because they had to redo their whole stack. Okay. And so part of this like oh we have certain partnership things that are not in place that are taking longer. We want to do it right the first time. All that is reasonable except that we're in a call. Investors are worried about engagement and the business model that depends on engagement which is advertising is not is missing right. It's growing but not as much as they thought. Sure. So,
Well, and going forward, I I think it's interesting given the news with Netflix, cuz clearly they're aware that not everything is okay and they're signaling that changes are necessary. I think it's a two it's a twotrack conversation. One is what can Netflix fix and one is what can't Netflix fix. And as far as what Netflix can fix, they can fix the content issues. It's like the American content has not been good enough recently and it seems like they recognize that and recognize that the brand has suffered because of the confusion at Netflix.
Did you watch Stranger Things?
I did watch Stranger Things. It
Debuted playing a Netflix executive where all they would talk about whatever content
It has been a decade like The Queen's Gambit was really good and won a bunch of Emmys. I think that was six or seven years ago and they haven't been able to recreate any of that success.
And in terms of Netflix pricing power, I do think having some of those prestige shows, I I forget who you pointed this out to, it may have been Greg Peters himself, but like HBO, one of the reasons they're able to charge what they can charge is because they have one or two tentpole shows that everybody wants to watch per quarter. It's not a tremendous amount of great content, but it's enough great content to protect a pretty good business. Netflix could try to do that, but it seems like they've been trying to do quantity over quality in recent years.
Well, I would say this decade for sure because they started out with quirky quality stuff that really caught people's attention. That's not where they've been living.
The other thing that I thought was interesting in your update as a specific content issue is uh Bella Bajaria, the now fired head of content. One of the things that was part of her remitt was growing the global originals program.
Well, so there's a uh one of my favorite ways to insult people in Chinese is uh there's these things called called Chung, which are like four characters that have like things. Have I told this one before?
It is one of my favorites. Yeah. So, so they'll have like four adjectives and you drop one of them and say this person is very duh 1, two, and three.
You not saying the fourth is like a massive insult, right? Everyone, it's such a beautiful formulation of an insult. Like very well done. The Chinese are great at stuff like this. So, so, uh, in this case, like they want to think the former head of content really did a great job internationally. And it's like, meanwhile, the rest of the call is all about the US. It's like uh yeah spoken it was clear. Yes.
Well, and what's interesting is that like Netflix has done really well globally. That's a that's been a huge part of their success over the last six or seven years and it's success that other like peers have not been able to replicate in any way.
Well, in part because they're a lot of the challenges for a lot of the other companies is they're locked into all these distribution agreements like they they were to distribute their shows like HBO for example. HBO would be only in the US and so actual HBO content would be sold to other distributors in other countries.
So like Game of Thrones created one by one, right? Market.
Well, if you want to have a global service, you have to get out of those agreements, right? And like and and you know, go the other way. So this is always a tension with this is a problem with sports rights, right? Like a lot those are also sort of parcled out and uh a platform like Netflix gets scale by reaching because they came up by themselves organically. They didn't have a previous business model. It's not just the advantage isn't just that they don't have old business model assumptions or they're not used to getting money from the cable bundle. It's also they can like rethink distribution from first principles like it's on Netflix. It's everywhere.
And you still get some stuff like licensing. So some of their licensed shows are not always available everywhere, but like Netflix original content usually always is because it was and so that's why they're so much more dominant in around the world than any of the competitors,
Right? I mean the content will differ a little around the world, but by and large if you get Netflix and so you you can have a global conversation or something can resonate globally like they've dominated like K-pop dramas, I think,
Right? Has been a huge thing. And if you're into K-pop K-pop dramas, Kdramas, Korean dramas,
Kdramas is what they're called.
K-pop Demon Hunters and Kdramas.
Yeah. You watch K-pop Demon Hunters?
Not yet. Not yet. I'll get around to it.
Um, how about I'll watch the Elizabeth Holmes.
You can see everything. If you watch K-pop Demon Hunters,
I will make that deal 100%. I'll sit through K-pop Demon Hunters. I'll start singing all the songs on the podcast.
Uh, we need to get to your review of that movie, by the way.
We will. We We can mention it for sure. Um, anyways, I do think one of the things that's interesting is that Bella Bajaria, she was growing all this international content. You made the point American content done well also do very well globally and they've neglected that.
I mean, they'll always hype up a local show that goes big. Like by local I mean non US like a like a Korean show or like a there's talk about some French show or I think actually there there's a few Latin American shows that that tend to do pretty well but the ones that everyone watch like the old Hollywood being a US export still lives like that's still a real thing.
So the US doing poorly it it affects the whole business in a way any one unit elsewhere doing poorly does not.
Indeed, and it's important context for all the international success that has been celebrated here.
Um, so content side, spending an unbelievable amount of money, empowering the wrong people, making all kinds of weird choices. The Narnia movie sounds like a complete disaster. So, there's some stuff that they can clean up and just run their business better. What can't Netflix fix as we look at the future here?
Well, they can't fix fix the number of amount of the population number American market. I mean that so you you can grow three ways. You can grow your number of subscribers.
You can grow how much you charge those subscribers and you can show subscribers ads.
This is why the ad business model is so amazing. Um man, now I feel so every everything's going to be interpreted the wrong way. Now I've been defending the ad business model forever and that is because you have infinite capacity to raise prices.
Yeah. So when you raise prices on Netflix as a service and this was sort of Raj's or Rob's concern at some point people are going to like how much am I
I would churn yeah if if they charge me $30 a month
On a very personal level there's a lot of people that are annoyed they're going to be paying for subscription get ads but well one option is I just retire because this is tiring but uh number two is I just jack up the prices
I'm going to lose subscribers that way I want to reach more people not fewer and I like I there's like elasticity is a thing. And this was a whole issue we talked about with the AI companies. It was madness that they're going to have a consumer business predicate on subscriptions. Yeah. Like it's actually incredible how far they got. But at the end of the day, people aren't willing. They don't want to pay at all if they don't have to.
And sometimes you're in situations where there's no real viable way to charge. Hello YouTube. Uh or sometimes there's there's examples where just you're going to raise prices, you're going to lose customers. Like there is no SSD with ads.
You get to raise prices infinitely with no effect on your customer base. Now, infinitely is obviously overstating it, but you this is like Meta's like why is Meta still growing?
Just they there's not they have the same problem. They've saturated everyone.
Well, because their ads are like more and more and more valuable over time as they get better and better at targeting them as they like the gap between them and everyone else sort of increases. And so that's why the ad story is so important. Yeah. Yeah.
And this miss again allegedly for like weird partnerships are not worked out, whatever it might be. It's like that better be the case. And these better come through because what's the growth story? If the growth story is nothing but raising prices, you're running into the Rav nightmare.
That's my question with Netflix. And I don't want to underestimate them.
Sorry. The other thing about the about the rest of the world to mention the problem is the rest of the world, the prices are just way lower.
Yeah. Nearly as much money, right? Yeah. Exactly. So,
Well, and if the fight is for engagement and like because engagement is elemental to the ad story and if that's their path to long-term growth, then it looks to me and it looked to me over the summer when I wrote about Netflix in July, it just looks like the company is at a fundamental disadvantage relative to the rest.
So, this gets this gets into the bigger issue that I was trying to get at with here. And it's funny. I thought like we talked about Netflix a lot. How much there to say? And I'm like actually no, we're only halfway through. I had a lot to get to here. So one of the issues with Netflix is or the hope for Netflix. He kind of refers to this like wait for Sundance to like blow up.
And I made the point like Hollywood feels much or whatever they are. What would I call it?
It was uh it's not Sundance. That's a film festival. Skydance invented like two years ago. Who cares? Whatever.
Their stock is also getting hammered.
Yeah. No, it was listed in that list. Uh, I was too too distracted by by the Underwood reference. Uh,
Hollywood is not what is rational, but to what I thought would be rational, like the where the Sony strategy of we're just going to focus on making content and
Sell it to the highest bidder.
And everyone's nope, we're going to do our streaming service. Nope. We're gonna buy Warner Brothers apparently with no like how idea how we're gonna actually make this profitable.
Again, I think Fox and Sony have been the two really rational actors. Basically, Fox got out of the studio business and then they're combining Tuby and Roku. Tubi Roku is 2B the one like the the free services. They're all in on like live ad supported stuff. Super smart. I think it makes a ton of sense. Sports is obviously a big part of that. And then you have Sony's in the opposite direction. All we're just going to do is scripted content. We're not going to have our own streaming service. I thought everyone should have followed those paths.
And basically no one else has like there. So they're still in the game. And the problem is had everyone sort of bailed on that then Netflix's content problem would have solved itself. I always thought Netflix doing original content was not what they were good at.
It was a bridge to get to a world where they got back to getting all the good content from the people who are best at making content.
Right. And they leverage in that scenario. So it it's almost like they're they're the tail end of a whip in a little bit where everyone is still being irrational, but they're good content makers. Maybe that's related. And Netflix is good at business is like was waiting for them to show up.
And they just never showed up. And that's how I interpreted the Warner Brothers thing was like look,
Everyone should be selling to us. Fine, we'll just go and buy you and then you have to sell to us because we own you. And that's why I called it the Hollywood endgame. Like they were trying to force the endgame of what I thought should happen. I think that should still happen, but the issue is who knows how long it's going to take. It's already taken longer than expected and they need to they're ongoing concern. They need to keep growing. They if they want to keep their stock price, all these sorts of things that go into companies.
Would it make any sense for them to buy NBC Universal?
Well, they seem like they're out of ideas as a starting point with that conversation.
Yeah. I mean, well, what's really interesting, the sports issue is super interesting. Obviously, they've gotten much more into sports recently.
Well, and that's the real premium content.
Well, and that is also the if you have one big event every month, it's like that's enough to keep everyone signed up to a certain extent that like as far as a churn avoidance. Sports does a lot for a billion advertising business. It's still the best place to advertise. Yeah.
And the they're allergic to it because sports is structured such that the leagues are going to extract the vast majority of there. You can't even lie to yourself and say, "Okay, eventually these costs are going to come down because people are going to go out of business."
But that's always been the case. Like the the the whole brilliance of the Rupert when Rupert Murdoch got the NFL was he I don't I don't know that Fox has ever made money in the NFL.
But we don't talk about a big three, we talk about a big four. Yeah.
Because of the NFL. And so Fox has made billions of dollars because of the NFL. Even if like on the NFL package specifically, I would I don't know for sure, but I would guess that they've never made money on that narrowly, but it made them into a real network. And then you get all the shoulder stuff that that comes from that.
And maybe that's something Netflix think about like how do we actually build an ad business?
An ad business that benefits the whole business.
And right now, I mean, if they're trying because they've hire they brought on uh podcasts and cooking shows and like internet friendly content to try to juice the engagement numbers, none of which was mentioned on this call. I mean, you listened to the whole thing, but I saw some notes that basically they didn't mention the podcast. They didn't mention the video game stuff. And so,
No, actually the opposite. They were like, "Actually, we're spending all our money on the important stuff. Don't worry, we have a little 5% over there. Don't worry about that." So they were like very I think there was a bit where people that was it was it looked bad, right? It's like you're going to solve your problem with the ringer and and it's can't solve with those problems
Where like 6 months ago those were all points of emphasis and now so
No exactly but their strategy has always been their strategy.
Get the feeling it up as they go here.
It is really like we've we've always been doing it this way even as it's like 180 degrees different than it was a little bit ago.
Well, and in terms of the broader ecosystem, the extent to which Netflix is dependent on engagement to sell its growth story feels to me like the extent to which Netflix's growth story just isn't as compelling as
Well. That's just Well, the issue is it's the ads. It's the ad model. Like the the their growth more and more in the long run is about ads, which means
It's ad model, but also it's the way people are consuming entertainment these days. Like Meta is a real competitor to what Netflix wants to do.
I mean, honestly, that's the real problem. Yeah.
It's devouring everything and like how many people are sitting down and watching Meta Reels every night. Actually, a staggering number of people are choosing that over Netflix and I think that's what they've been running into over years.
I don't consume video content. Um, again, another great irony here. So, I I don't but uh No, I was actually I just
Here we are. Look though. I discovered the quality of the audio content in this room cuz I like did like a a podcast with my daughter. Y uh and which I I never did publish, but I thought it was pretty good. Um
I loved it. She was great.
And she was a huge Netflix consumer.
And I didn't ask her about this specifically, but she about Oh, she has her little reals time every night.
And it's like it is just occurred to me right now. Oh, yeah. That's a perfect example.
That's when the light bulb went off with me. My wife has her reals time every single night and she'll just sit over there on her phone. I'm like, "What are you doing?" And she doesn't know. She doesn't have a good answer beyond just watching reals. So, uh, that's the challenge for Netflix is a lot of people who used to watch Netflix are now watching Instagram and Tik Tok. Um, and that will be a headwind as they try to build.
Well, it's a headwind if if your growth story evolves. Yeah, exactly. All right. One other note related to the streaming world, just because I came across it and was kind of uh gobsmacked. Uh, the Hollywood Reporter this week wrote, "Could a major deal between David Ellison's Skydance and Elon Musk's SpaceX be brewing? The media mogul John Malone thinks so. I think there's a deal coming there," Malone said, citing an eyebrow raisingly specific 8 to10 billion investment figure. I predict big prediction that you'll see a global output deal for Skyance with SpaceX and an investment by SpaceX into Skyance to delever Skydance and take a little bit of the burden off David Ellison's shoulders because he's taking on a pretty big pile of debt. What exactly would SpaceX get in that deal? That's less obvious, the Hollywood Reporter notes. Though Malone, who was the architect of the Warner Brothers Discovery Deal alongside David Zazlov, noted that Musk and David Ellison's father, Larry Ellison, are very intertwined. Who helped Elon finance Twitter when he bought it? Larry Ellison, Malone said. How did Larry Ellison come up with some of the money to put into the creation of Skydance? Tesla stock. And I would not doubt for a minute that before very long, you're going to see an announcement. And then Thursday morning there was
I actually didn't know this this morning. You're a little busy getting stuff set up. I was gonna like
Well, number one, basically whatever uh John Malone says is likely the gospel truth. So that's I clicked on the story. I was like, "Okay, I guess if John Malone is saying it, there must be something real here."
That's right. So but that's going to sort of poo poo or the idea say, "Well, yeah, they are buddies, but ah there you go. News breaking on the show."
Elon a billion dollars into Skydance. Not $10 billion, but maybe that's coming. I have no idea what SpaceX would get out of this investment.
Is it from Elon Musk or is it from
From Elon today, Thursday as we record this?
An investment from from SpaceX would be straining the bounds of credul.
So this ora boros like I don't really understand what's happening. The the first time I wrote I I've written about Tesla very little and people sometimes wonder why and part of it is just like writing about anything Elon related even before like our politics went particularly crazy over the last few years
Was like writing about any hot button political issue
Because the Elon zealots are just like
Yeah, six-dimensional chess and you either see it or you don't.
That's right. They might be right, but it doesn't make them any less annoying. Actually, the more right they are, the more annoying they are, which is I guess fair enough. But, uh, I wrote about Tesla. I wrote It's a Tesla. When they opened up the Model 3 and they added all these orders overnight, they found an affordable Tesla. It just went crazy. And I talked about how they built they built up the, um, the built up the brand and how that sort of paid off. And the next week they did this crazy deal for like Ewan's brother-in-law solar thing or something like that. And I'm like that's insane. I don't want to write about this. This is not worth it. Like I will write about you like once every 3 years. I know. Exactly. Um so that was that would if SpaceX invested this that would be that would be the same lines.
Yes. I read it only to say that might happen and at a certain point with Skydance and with Elon I just throw up my hands. So the debt that Skyance has taken on is completely ridiculous and I have no idea how they could sustain it over the next several years. But maybe they'll find a way. Maybe Elon will be part of that story. So uh time will tell in the streaming world here.
For now to keep it moving. As I mentioned earlier, Ben, we are presented by Stripe today. Whole new era. I'm gonna read a note from Gurgley Orz on Twitter. This week, Stripe announced they are sponsoring the Mercedes F1 team and they are becoming the first ever exclusive sponsor for Strateery. The second one in my book is possibly a bigger achievement than the first. Mercedes has and always had dozens of sponsors. Strategy has never had any. I for one, just for the record, am absolutely delighted to be one step removed from the Mercedes family these days.
Well, as you know, I've always been a big Mercedes fan. It's always been my number one team. Um, no, there figure there's two ways I could take the Mercedes news. Number one, I could pretend like now my views are being influenced by Stripe and Mercedes. I went with that one. The other one was uh reiterating that Mercedes they they control the FIA. They manipulated the rules. It's unbelievable. They get an engine upgrade and Red Bull doesn't.
Yeah, it's absurd. Screw this T. No. So, I'm going to troll independence. They go both directions. Uh, no.
Uh yeah. Well, the funny thing about this is, uh, it is not for a sponsor. So, when Trajectory went independent, I had sponsors for like
I didn't know this until your announcement post.
Yep. I know WordPress was one of them, which I appreciate them. And WordPress also, WordPress.com sponsored another company that I'm just intrinsically not going to, cannot be unbiased about. Google, how close I work with them, used to work there.
I think Mailchimp did, who again, another company I worked with and for. But if you go back, I should go back and find the list of, because God bless them, anyone who sent me, but at the end of the day, it's like I could not charge a lot for ads back then. It was a lot of work and it just, the math like...
It would not have been a business that sustains a family, right?
So you think, and I've since then, because I've counseled a lot of people on going independent, and people will start with the, oh, I'm going to do this and this and this. I'm like, no, you're not. I'm like, the cost, the payoff's not worth it, and it's going to take you so much time and energy. You're one person. You have to focus on one thing. And if you're small, it has to be maximizing your revenue per user through subscriptions. Like be super narrowed, be super focused, deliver on that, become indispensable for a small number of people who will give you a lot of money and grow from there. In the long run, you might be able to do sort of other things. And you know, we are now 12 years past that capacity, other things. Here we are. So, but yeah, so that's why, so I bailed on those super quickly. I'm like, no, I just have to build this business.
So, 13 years later, why Stripe?
Well, the Stripe part is easy. As far as choosing them, I can write about why ads make sense. We have a lot of attention. We should capitalize that. We want to get more attention. Like just, you know, especially with the podcast, Sharp Tech has been very successful, very high penetration among Substack subscribers. Turns out our thesis about it driving new subscriptions doesn't really work.
It's hard if you're not going to be free and public.
That's right. And I think the show is good and deserves to be larger and bigger and better. And so that's part of the calculus there. And Stripe, you know, Stripe helps make that possible, but at the same time it is a big change. I understand people who feel, I don't know if they're betrayed or disappointed or whatever it might be, and I can feel that a bit too, particularly if I was going to, you know...
Everyone has the dream of like, let me get like a luxury company to sponsor me, right? I have an affluent audience. Rolex, you come sign up, right? Or LVMH, like your stock's down, why don't you, you see the strategy, audience can pick you up a little bit there, sure.
But realistically, you know, amongst the companies that would find this compelling, they're going to be close to or adjacent to what I cover. And the cool thing about Stripe is, number one, I'm an unabashed believer and supporter of Stripe. I mean, when I was proposing to you the companies, what was your line?
I would still be a lawyer if not for Stripe.
Yeah, that's our tagline. I would still be a lawyer if not for Stripe, which by the way is literally true because what Stripe enables with the independent creator system and the ecosystem and the subscription basketball podcast, like I would not have been able to stay in the media while practicing law.
No, Sports Illustrated is imploding with everyone else in media. You get laid off, and I had a bunch of offers to do ad-supported podcasts, but had I gone that direction, it just would not have been sustainable with the workload I had at a law firm. I needed to be able to create my own schedule and sort of exist as an independent publisher, which Stripe makes possible. Like I would never be able to figure out payments without that sort of thing. And by remaining in the media, like that led me here. So I do owe a lot to Stripe.
So number one, it's like super genuine. And then number two, just the reality is because I've been so dependent on Stripe from the beginning, because we work closely with them with Passport, and because I've had the good fortune to get to know Patrick and John sort of over the years, I've always, like, actually a subscriber, I was writing about Adyen, being biased, the European payments entity, and I, you know, and he's, I wrote something and he's like, you're too in the bag for Stripe. And I'm like, I don't think I was in this analysis, but then I think about, I try to be objective, but of all the companies in tech, there's a few that's just difficult. And they were on there. So, it's like, I love this company. How about I just lean into the conflict? Like, guess what? Everything I say about Stripe, take with a grain of salt. That was a layer of, I do really love it. So, there you go.
That was a layer I was not prepared for is actually I'm going to cover fintech more going forward now that I can do it with a clear context.
I think there's an aspect to that, like I can't say that for sure, but it's been in the back, like there's a lot of interesting on stablecoins, for example, or Stripe with what they're doing like Link and for agents and all this. It's actually a very interesting layer, and I think there, and I'm, you know, we'll see, maybe there's going to be some information that we'll be able to uncover from Stripe with a closer connection. All this is to be determined, but there's an aspect of if something's uncomfortable, actually just go into it all the way. And well, here we go, we're kind of doing that, right? And to your point, I don't have to fake my enthusiasm for any of what Stripe makes possible, which is pretty cool.
It's good to have an ad with a company you believe in. So, I'm very lucky in that regard. Could Stratechery have survived as a business model? Like, would it have been viable?
No. The only option I thought about for ages, PayPal was the only option. There was tons of problems with that. It was just, I mean, there were people who had tried it and that was part of it being a big disaster. When Stripe came out with a subscription API, that to me it was very clear like this is what the model should be. I started Stratechery with the goal of it being a subscription business because of Stripe. So there we are. Yeah. And here we are now.
All right, well, to keep it moving, we have some news in the cyber universe. And I don't know where to begin. I'm just, there's...
No, this tweet is pretty good.
There are eight different cyber issues that have...
How many did you list here?
Well, no. Here's, I'll just read, NSA this week wrote, effective immediately, all organizations using PHP for their systems... Oh, by the way, did you see the thing about the elliptical? There's another NSA story this week that is actually super interesting.
There's elliptic curves. It's a type of encryption that is like...
Not elliptical trainers. Okay.
No, it's not elliptical trainers. Basically, you need some seeds that generate curves based, and it's how you...
It's actually a very efficient way to encrypt things, more encrypted than using hashes. But the idea is you want to be able to encrypt things, and you have a public key and private key, you can pass the other side and you can decrypt it, and it's easy to get encrypted but hard to get decrypted unless you have the right key. But a particular style is called elliptic, and it depends on certain seeds like that generator, whatever it might be, and the seeds came from the NSA.
For this type of encryption.
And no one, there was like stories about, oh, there was some funny catchphrase or something, but no one could remember what the seeds were. I was like, how are these seeds chosen? Like, is there something, wait, there's no obvious reason why it shouldn't matter what the seed is based on the encryption works, but maybe they did, there's something about this that we don't know. The NSA is like, correct. Oh, part of this is Bitcoin uses elliptic cryptography or their elliptic curves, but they use a different set than what everyone else uses.
And Ethereum is the same way. Why? Because they assume the NSA was like behind this.
So it turns out, so Anthropic, cool AI story, doing random stuff. They, like everyone had heard this myth of there's like these joking phrases that were used, and they're like, let's back up, let's throw away assumptions and have Claude or some version of Claude think through how these passphrases might have been made.
And it turns out if you take what was a standard pseudo random number generator and combine it with a specific date and time around the time the seeds were generated, that's where it came from.
All it happened, the NSA just ran a program that generated some seed numbers and handed them over. It was not, so all this assumption that it was like they were doing something dodgy, no, it was just, there's nothing wrong with them. They were just, someone ran a program at a particular moment in time and handed over some seeds.
There you go. Well, that might be the most benign update of the week, because the other note on the NSA is...
Sorry, we didn't finish the tweet.
Effective immediately, all organizations using PHP for their systems are advised to be prepared for an update addressing two critical vulnerabilities. PHP is widely used for web applications. These vulnerabilities often provide a direct path to the server's file system or database. If an immediate update is not feasible, it is recommended that organizations take the system offline until it can be fully mitigated. NSA will follow up shortly with more specific guidance. So, as I said, that's one of a couple different threads that are pretty ominous. You took care of this, right?
I have not taken care of anything related to PHPs or security certificates. Haven't taken any of my websites offline. SharpTech.net still live. What do you think? Should I be...
SharpTech.net is a WordPress site. Boy, you have a PHP. You haven't fixed it.
Is this a bit because you're scaring the crap out of me?
Don't worry. It was fixed for you.
No, I didn't fix it. Like any sane person who has anything exposed to the internet, I have contracted it out to professionals to take care of it. In this case, Pressable, which is a WordPress or an Automattic company...
This is as part of the disclosure process. It's actually been patched for a while, not just this week, I believe. So congratulations on that.
Thank you so much. But yeah, it is. So it's kind of funny because there's this whole list of stuff that's happened this week. Some of it is probably AI derived. Some of it might not be, in particular this PHP. I don't... Well, there's another story, this certificate story.
This one is particularly insane, which is, I'm going to come back to the PHP one. This other story, there was a company from India. So there's certificates that are issued. The problem with encryption or whatever, there has to be something at the bottom. We've talked about this in the context like smartphones, right? At the end of the day, you are trusting Apple because ultimately all encryption has to go down to something. There has to be something at its root.
And in the case of stuff online, how do you have a trusted transaction with like an Amazon?
Well, there are certificates that are issued by these, like everyone agrees they're an authority. They're embedded inside your browser and inside your operating system, and then you get, so I have, our websites have keys. There's a service called Let's Encrypt, you get keys very easily, but it's all based on these baseline certificates that everyone agrees that if you have a key that matches that, it's secure. So when you go to amazon.com, there's a little lock in your browser. If you go somewhere and it'll throw up that scary screen, this site is not secure, what it means is they don't have a certificate issued by one of these certificate issuers. So a certificate issuer in India, it's not clear what happened. They're blaming software, but...
These are supposed to be 256-bit encrypted.
So 256 unique digits or letters or numbers or symbols.
Their numbers were like four.
A little easier to decrypt.
It appears they interpreted 256-bit as a number between 0 and 255 or something like that.
You're so visibly disgusted.
It's unbelievable. And the problem is so...
What does that put at risk?
Well, so you number one, make sure your browser's up to date. But all the browsers and stuff have been updated to exclude these.
But look around this. How many things in this office are connected to the internet?
Like I'm worried about running around like IP address...
Which is not true because I have like different VLANs and stuff. But like all this internet of things stuff out there, a lot of them will have like trusted certificates like deeply embedded in there. Are those ever going to be updated?
Yeah. Like, so it's just, this certificate issue is going to persist where people can basically...
And it's just going to persist like forever. It's going to be this permanent damage done to the internet of these...
Because of one company's incompetence.
So you get back to this PHP issue. The PHP Foundation has issued a patch for everything, I believe, from 8.2 on. I think 8.2 came out in 2022. There are millions of websites, millions of things out there that have older versions of PHP, or even if they have newer versions of PHP, are they going to be updated immediately? And this bug is so bad that if you go to a site that has it, you can take control of the machine like basically immediately.
Like it's extreme. That's why the NSA is putting out tweets about this.
And there's a, it's really interesting because there is a, there's like a political and sociological and technology story here.
The internet connected everything, made everything global, and everything being connected and being global is what's going to bring the internet down.
That's the vulnerability right now.
The internet seeded AI. It gave all the content for AI, and AI is devouring the internet. There is this like, we overstretched ourselves like as a species with the internet.
So there was a big controversy a few years ago, or a lot of pushback, argument, like so the US is always, I think it's, I should have checked, like ICANN or something, there's like an internet governance body that's controlled by the US, and there was a lot of like, I can't remember if they got changed or not or undone, but...
But that wasn't popular with the rest of the world, like sure.
But then you see something like this, you're like, was it a good idea to let the world issue certificates that everyone is going to trust on? And that is a very biased sort of American statement, but what I'm getting at is the internet, the way it is constructed, it entails so much trust for so many people, for so many entities, and might not work out well, particularly so now that AI has emerged and can exploit any sort of vulnerability. So the AI comes along, it finds these vulnerabilities. No, different one to be clear, that's not an AI one, that is sheer incompetence. One, the PHP one, I haven't looked at the details, I would imagine AI helped discover it. AI is going to find way more. My big takeaway from this though, and this goes back to my sort of getting, having a vulnerability, again, stupidly my fault...
Which was caught by Claude.
I think everyone's like, I don't want to set these AI agents loose on my computer, I don't trust them. We're very rapidly approaching, if we have not yet already gone over the line of, you are nuts if you don't have an AI agent looking at all your stuff all the time.
Because your agent is what caught the vulnerability.
No, just in general, there's going to be so many vulnerabilities.
Saying that was an example of the AI agent like actually...
Yeah, no, for sure. And that was sort of on accident, but like I, you know, we have, I have my, you know, I have a rack. Did you know, I show you the rack later? Have you seen the rack?
I went into the other room and saw the rack. It's a great rack.
Yeah, it really is a great rack. Now again, all that is purposely kept offline to the greatest extent possible. You know, all behind Tailscale. I don't want anything serving the public internet should not be at my house. It should be like, that's what I pay professionals to do. I will note like my version of Linux had the olderts. I'm like, oops, I didn't have because it...
It was like, it was bad by me because I think the fix, but I don't know, was issued, but I need to have a watcher going that is keeping stuff on a regular schedule, which I had...
But regular updates and then something that is deputized to keep track of this all the time. And this idea that no, I can't let it, I don't trust it. It's like you need to stop trusting yourself. Let go of the reins because you're screwed otherwise because there are so many threats and potential vulnerabilities. And so, you know, of course, everyone should be proactive in looking for these bugs.
Right. And it's hard because it's difficult to podcast about it right now because there are so many different vectors that have been highlighted this week. And so many, there are like six or seven ongoing stories here. And so I'm hesitant to talk in like ambiguous language like, oh, things are getting bad. It just, when you read some of the headlines, it does feel like things are beginning to crack to some degree and sort of a ground. We said this was coming. It's going to get worse and worse and worse.
And it feels like the end of the internet, like the old internet.
Of I'm going to throw up a WordPress site. I used to do it all the time. I've had a bunch of WordPress sites over the years. I'm going to run my own email server, that's dead. That's been dead for a long time. No email gets delivered if it's not sent by like one of the big ones. This, the whole promise of the internet of the...
