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Podcast

What the AI Scare Gets Wrong

Prof G Markets

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  • Narrative, Not Fundamentals, Drove The AI Selloff
    • The Citrini Research piece triggered large market moves despite offering imaginative fiction rather than new fundamentals.
    • Many stocks fell simply because they were named in the blog, showing narrative can outrun actual business metrics. Transcript: Ed Elson Blog post about AI from Citrini Research stirred up some market chaos last week. After it dropped, the Dow fell as much as 2% and software stocks fell 5%. We’ve seen markets react to AI commentary before, but this time there was a twist. This piece wasn’t really an analysis. This piece was actually fiction. AI drives unemployment to 10%, where consumer spending collapses, where markets plunge, and the entire economy is fundamentally reshaped. So Scott, we discussed this a little bit with Josh Brown during the week last week. He had some interesting thoughts. We also got a lot of feedback from our audience. A lot of people are very shaken by this article. Again, it doesn’t really tell us anything we didn’t already know, but it does imagine a potential scenario where AI is so powerful, it’s so productive, that actually it just completely Rewrites the script of our economy and actually puts the S&P, puts all markets into the red and takes the consumer economy down with it. So let’s just start with your initial reaction to the Citrini research article, the blog post, and also how the markets reacted. Scott Galloway I think the best thing about that paper, that paper inspired an enormous drawdown on the market. And it’s inspired me to start buying stocks in Apollo, TPG, and Blue Owl. Because, I mean, just to summarize, and I bet everybody’s already heard this, but the basic notion is that, okay, these white-collar work gets kicked in the nuts, right? And that unemployment basically doubles. And then there’s, because of all these big spenders who have good jobs get fired, they cut their consumer spending and consumer companies are forced to look for places to save money, To maintain their EBITDA margins. They turn to AI, and it just kind of inspires us and so on and so on in this downward loop. That’s not an original concept. I mean, the idea that we’ve gone from 90% of us in agriculture to 2%, you would have thought that people being laid off, spend less money, spend less money on food. Technically, it’s not a new concept. What’s different here is the speed and they think the severity. But where I head with this is that effectively what you have, now the companies I’m looking at, I’ve been doing a lot of selling and buying. I’ve been selling down Apple and Amazon for kind of resistant unsubscribe. And I’m reallocating it into SaaS companies. And also, I think the new opportunity is in these PE, private credit, or what they call business development firms. So just to look at them, Apollo is trading at 14 times earnings while maintaining double-digit earnings and AUM growth. And that’s how they make money, is they deploy AUM and they collect 2 and 20 on it. So it’s trading below market multiple of the S&P despite higher growth. TPG is trading at about a third below kind of fair value estimates relative to its peers. It’s got incredible fundraising and it’s expanding its fee earnings. And essentially, these prices reflect pessimism more than growth trajectory. And then Blue Owl, which was kind of the ground zero for this, has a 78% dividend yield. And the market appears to be, in my opinion, overinflating the fears around private credit. Or put another way, I think the opportunity here, and I want to get your thoughts, is that there’s a growth versus valuation mismatch. And that is all three of those companies are growing AOM and recurring fee revenue. And sector multiples compress due to kind of private credit or liquidity fears. So I would argue kind of to summarize, compressed multiples plus durable fee growth plus strong fundraising all adds up to what I think is undervalued stocks relative to the broader Ed Elson Market. All those companies you mentioned, they have gotten really, they got really hit hard after this article came out. Some other names that have gotten really hit hard, again, because of this AI narrative, Visa, MasterCard, American Express, DoorDash, a lot of the big software names. And you ask yourself like, okay, what do all of these companies, what do all of these stocks have in common? If you look at their fundamental businesses, they do not have a lot in common. They’re very different businesses pursuing very, very different objectives. The thing that all of those companies have in common is they were all mentioned by name in the blog post, which tells you that these drawdowns have absolutely nothing to do with fundamentals, Nothing to do with what we’re actually seeing with their businesses on the ground, nothing to do with their earnings. It’s all about the vibes. It’s all about the fact that they were included in the big bucket of stocks that this guy who wrote this interesting and, as we’ve discussed, very well-written article that was really Creative and really fun to read. I think that’s an important underlooked aspect of this. And they were all mentioned by name. And because of that, you saw this gigantic drawdown literally in a single day on all of these stocks because they were included in that article. (Time 0:06:55)
  • Move Upstream Into Complexity And Relationships
    • Evaluate which tasks in your job are complex, relational, or high-EQ and aim to move upstream into those roles.
    • Scott recommends delegating routine contract review to AI and spending more on strategic legal advice for tax and structure. Transcript: Scott Galloway What you’ve done, and I want to use it as a jumping out point, you’ve been talking a lot about what does AI mean for your career. And I’ve been thinking a lot about, okay, on a meta level, how should you be thinking about not only how you allocate your financial capital, and we talk a lot about where we think things Are oversold and there’s opportunity as we do in the SaaS space and now the private credit space or the business development space. In terms of your own human capital, the way I would try and frame it is the following. My mom was a secretary and she oversaw the secretarial pool at the Southwestern University School of Law in downtown LA, where, by the way, I worked in the mailroom. And that’s gone away. Word processing, there’s no more secretaries, they’re gone. But my mom had good EQ and went upstream and became an executive assistant. Another example, we have every piece, every contract I had with an advertiser, with an employee, I used to, if I got an investment document, if I’m negotiating an agreement with Vox, I’d send to our lawyers. And some mid-level, not even a partner attorney, would review it, come back with some thoughts. I’d jump on the call, cost me one, three, $5,000. Every agreement, send it to a lawyer. Now, I say to Claude, who’s working with us, no, you’re smart. Have AI look at it. Give the prompt on what you’re worried about it. Get a feedback. And you’re now the in-house counsel. At the same time, so being a quote-unquote fairly mid-level attorney, that’s not a good place to be. At the same time, I’m spending more money than ever on a woman named Lucy Lee, who’s this partner at a firm called Citroen, around things like corporate structure, ensuring that the Types of compensation strategies for you guys that give you the opportunity to sell shares at some point, long-term capital gains, structuring the company such that any capital I Put in, if we hold onto it for five years, might qualify for 1202. I am spending probably more on legal this year, but it’s moving upstream from reviewing simple advertising agreements to, okay, corporate structure and tax efficiency, which is Latin for tax avoidance. So the question everyone should be asking in their job is, of all the things I do here, what is most complicated? And generally, most of them come down to, a lot of them come down to sort of EQ or complexity. What do I do that’s hard or complex? What involves relationships? And will I have an opportunity to move upstream or downstream? You know, because a lot of that stuff will be taken out. (Time 0:18:15)
  • AI Reallocates Friction And Value Not Eliminates It
    • AI will shift where friction is handled rather than eliminate friction entirely, reallocating value to new players.
    • Visa analogy: past friction moved to card networks; AI agents will capture value similarly, not vanish markets. Transcript: Ed Elson Think this is a really important point. You mentioned you’re pulling back on a certain type of legal service, and you’re spending a lot less money on that because you’ve got this AI tool that is helpful, and you’ve hired someone Who’s going to consolidate that work. But then you’re spending more on the corporate restructuring over here. And that is a dynamic that I think a lot of people are not really recognizing, which is, sure, some money might move out of this ecosystem, but then where is it going to go? That’s the question that people aren’t really asking enough and that the Cetrini Research article actually refuses to acknowledge at all. They spend a lot of time saying, here’s where the money’s going to move away from. It’s going to pull out of here and here and here and here and here. And then, I don’t know. And they just offer no other alternatives. And I think one of the, in my view, one of the silliest predictions is the idea that friction goes to zero. This is a big thesis that we see in the article. The idea that all forms of friction in business and in daily life, when you’re, you know, trying to book something and it takes time and it’s annoying, all of these things that often involve Some level of middle management or human relationships, all of that is going to go to zero because AI agents can do them for us. Therefore, friction on which a lot of the economy is built is going to be entirely eliminated. That’s the way they describe it. It’s just gone now. That, again, is the wrong characterization. Because what’s happening, it’s not that the friction is suddenly eliminated, is that we now have a technology and a set of companies that are just handling the friction better than The old companies, which is the same thing we always see with technology. If you look at Visa, which was brought up in the article, or MasterCard, someone might make the argument that when they came up with the credit card, they eliminated the friction of paying With a check or paying with cash, and so therefore friction is gone. No, the friction has just been handled by someone else, and now the value and the money is accruing to a different player. The same thing is going to happen with these AI agents. And the same thing is going to happen for, as you say, you’re taking the money away from here, and now I’m going to spend it on something that is also worth my time. And so the money is going to go to someone. The only real concern, if the doomsday scenario actually plays out, would be that all of the value is sucked up and literally hoarded with no redistribution mechanism whatsoever into The hands of literally just like the few people that own the AI companies. Now, that’s not a totally ridiculous statement because we’re already seeing how that’s kind of playing out in our current economy. But it’s not going to go to the extent that I think that this article assumes. You’re going to need some level of consumption in the regular economy for the value to go up and for the value to accrue somewhere. And that’s the part that the article doesn’t really acknowledge enough. (Time 0:20:57)
  • Job Loss Risk Comes With New Entrepreneurial Demand
    • Technology-driven job displacement raises real risks but also creates new niches and entrepreneurial opportunities.
    • Scott points to record business applications and advises learning AI plus domain expertise like healthcare to start niche businesses. Transcript: Scott Galloway Think that comment is a function of dissatisfaction with our economy where too few people are enjoying the spoils. And I don’t even think, some of that is a function of technology, but what we hate to admit is we keep voting in people. Bernie and Senator Sanders and Senator Warren have been bitching and moaning about inequality for 30 years while they’ve been in the Senate, including when they controlled all three Houses. We have purposely chosen, Democrats and Republicans, income inequality. So yeah, technology has been played a part in it. But be clear, we have decided we want income inequality in the U.S. Because we all believe at some point that we’ll be a millionaire and just wait to see how we treat the bottom 99% when we’re in the top 1%. Now, is that a breaking point where it’s at the same, the Gini coefficient is at the same levels of France during the French Revolution? Absolutely. But what Josh has said that really struck me, you need to ask yourself what could go right. I love that. So what does your kid do? First off, in terms of this narrative that your college degree isn’t worth, that’s effectively what he’s saying is that the college degree Stern or at UVA is not worth $300,000 to $500,000. Okay, I get it in theory, but guess what? Applications hit record highs this year to law school. If there’s a place you would think people would not be applying to school or would have no pricing power, you would think it’d be law schools. No evidence of that. People are still doubling down on law school. I would argue that probably it’s because EQ and being a well-rounded person better immunizes you against whatever change comes down from this technology or others than anything else You can do. In addition, when people ask me, what’s the difference? When I speak here in the UK, what’s the difference between the UK and the US? I say the same thing. You’re the ones that stayed. The word risk defines our success. We’re more willing to take risks on capital. We’re more willing to start crazy, stupid businesses. People are much more promiscuous with their own capital, thinking maybe someday I’m investing in the right Google. People are much, much more risk aggressive, giving up a good job and moving to San Francisco and taking a lower salary and more equity in a startup. And just along the lines of risk, the number of new business permits or new applications in 2004, not that long ago, was 150,000 new business applications. This year or last year, it was half a million. Triple the number of people have decided to try and start their businesses. Some of that might be because they’re fed up in the corporate world or they don’t have any choice, but whatever it is, it’s just striking how many people are starting businesses. When I graduated from business school in 2002, 92, were only two entrepreneurs in my entire class. And my co-founder was the second. No one was starting businesses. Just to be the optimist here, there is a really solid case here around what could go right. The American ethos of risk-taking and understanding of technology, every innovation in technology has over the medium and the long-term created more jobs. The market responds with good government policy. It tries to fill in the gaps. Unfortunately, the V might be more severe here in America. We are not good at taking care of the people who are retraining them who are on the wrong side of this trade. But not to sound too much like, I don’t know, a Pollyanna here. I think it’s a pretty interesting time to be coming out of college and looking at different opportunities. If Ed Elson was coming out of Princeton and you had two co-founders, now granted you’re white and privileged and a little bit snooty, but okay, you come out of Ohio State or you come out Of Michigan State, which are both really good schools, and you are outstanding at leveraging AI and you’re going to start a senior’s, you know, some sort of, you’re going to help people Find the right seniors facility for Pop-Up or Nana, and you’re going to charge them 200 bucks instead of the consultants charge 5,000, and then you’re going to negotiate using AI agents The best deal possible. I think that’s a really cool little bit. I just made that up in 30 seconds. I think it’s a really cool little business and people are going to fill all sorts of niches and be able to find capital and do really cool, interesting businesses. If I was coming out of school right now, I’d be saying, I’d want to learn AI and I’d want to understand healthcare. And I’d want to cut a swath through the middle of those two things. Anyways, long-winded way of saying, I think it’s important to ask what could go right. (Time 0:25:15)
  • Investors Must Seek Upside While Regulators Plan For Downside
    • Investors obsess over downside scenarios while governments underprepare for risks; both roles should flip priorities.
    • Ed urges investors to ask what could go right and regulators to plan for worst-case displacement like UBI or worker funds. Transcript: Ed Elson Now, a framework that I would add onto this, I think, going forward, I think it is the investor’s job to ask what could go right. Because as you say, if you are an investor and you spend all your time thinking what could go wrong, you are going to get absolutely destroyed. If you never put your capital to work, if you never take risks, if you always think that tomorrow is going to be doomsday, you’re just never going to get rich. That’s just the reality. So that’s why we’re asking this question. This is an investing show. This is a market show. If you want a chance of getting rich, sorry, you must ask yourself what could go right. You have no other choice. If you want to just sit and stay, you know, never increase your income, never increase your assets, then OK, go for it. And just always ask what could go wrong. Having said that, I also think that it is the government’s job to ask what could go wrong. It’s the regulator’s job to be asking that question. What could AI do to job displacement? How many jobs could it theoretically get rid of? If that happens, what is going to be our response to that? How do we regulate this technology such that we don’t walk into an economic disaster? And the thing that I am noticing right now is that the investors right now seem to be obsessed with the question of what could go wrong, which is a bad idea. And the government seems to be obsessed with the question of what could go right. The government seems to think everything’s going to be fine. Don’t worry about it. Hands off. Everything’s going to be great. We’re not even going to include any policies. In fact, we’re going to create policies that make sure that no one else creates any policies. And that is a very, very stupid idea because we should be asking that question. It is a legitimate possibility. We should be thinking about things like UBI. We should be thinking about a worker reinvestment fund. We should be thinking about what would happen if the unemployment rate actually was 10%, not if you’re an investor. I don’t think that’s a very wise move to assume that. But if you’re in government, if you’re a regulator, I think these are good things to assume. You should be erring on the side of caution. And what we’re seeing in government is not that at all. (Time 0:30:49)
  • Unforeseen Shocks Explain Why Obsession Can Be Misleading
    • Scott lists historical unforeseen shocks—9/11, subprime, COVID—to argue catastrophizing can prompt preparation and thus reduce risk.
    • He uses past fixation on Greek bonds as an example of misplaced worry. Transcript: Scott Galloway We’re talking about this means convinces me this is not going to happen as it’s played out, because it’s the shit you’re not expecting that gets you. Very few people other than a really intelligent CIA analyst was thinking, oh, a bunch of young men from Saudi Arabia are going to hijack planes and slam them into buildings. That just wasn’t something we were worried about. That took down the economy for a brief time. The subprime crisis, you know, Michael Burry saw it, but not many people saw that, including the smartest financial people in the world were layering on layering and all the risk models Did not turn this up. We did not see a virus shutting down the economy and taking GDP down 31%. It’s the shit you’re not worried about. You’re too young to remember this. We spent a year masturbating over Greek sovereign bonds. We were convinced that Greece was going to take down the EU and the global economy. You know, 2% of the GDP of Europe, and we just sat here obsessing over it. There’s a phenomenon when you worry about something a lot, it doesn’t happen because you start to prepare for it. So I just don’t think by virtue of the fact that we’ve done so much catastrophizing around this, we don’t worry about it. The thing that is actually a bigger issue in the markets right now is the following. (Time 0:33:00)
  • Policy Chaos, Not Terminator, Threatens US Prosperity
    • Biggest economic threat may be erratic industrial policy and loss of rule-of-law, not AI itself.
    • Scott warns capital will flee US markets if policy unpredictability, tariffs, and weakened dollar persist. Transcript: Scott Galloway AI and the CapEx and the incredible opportunity of AI and the excitement around these things, which I think is probably overhyped as well to the upside, has created real economic growth, Capex, and buoyed the market, right? But a sclerotic industrial policy that makes Europe look more competitive and more decisive, where we have an administration saying, Anthropic, you got to do what we want. Even though you’re a private company, you’ve got to do what we want. We’re not putting in place laws around guardrails, around how companies should behave. We’re just going to do one-offs based on this guy’s blood sugar level. Oh, the administration is going to get to decide who gets to acquire whom. And oh, we’re taking a stake in one chip company and not others. Oh, we know how to run a steel company. When the deepest pools of capital become more shallow because foreign investors don’t know who the fuck they’re waking up to next because there’s different laws that might be imposed On them. What has happened in the last 12 months, despite the massive investment and success of these tech companies, the American market has underperformed every major market. Why? Because the dollar’s gotten much weaker because people have less faith in the full credit and faith of the United States government, our ability to pay back its debts because of fiscal Irresponsibility. And the entire world is rerouting their supply chain around us, including the capital they invest in these companies. And one of the reasons that people were willing to invest so much capital in the U.S. Is because there was a rule of fair play. And we have lost that. And people are rotating out of U.S. Stocks. That is, in my opinion, a much bigger threat to our economy when we have decided that with a third of the world’s GDP, we can control it. Whereas we used to be the operating system through cooperation rule of law and standards and consistency, where we were the operating system for two thirds of the world’s economy and Everybody wanted to invest in the U.S. Do you think big Canadian pension funds are thinking, how do we invest more in the U.S. Now? Fuck you. I’ll invest in Alibaba or I’ll invest in Mistral or whatever it is or Salonis in Germany. They’re like, we need to diversify away from this asshole. And you’re seeing that show up in our valuations in our market. That is, in my view, that is the existential threat here to a decline in our prosperity is the price of products go up when people either ban our products or stop buying our products, shrinking Our markets for exports. They impose reciprocal tariffs. (Time 0:34:11)
  • Macro Growth Masks Consumer Strain In The State Of The Union
    • State of the Union mixed cherry-picked wins like AI-driven GDP gains with ignored consumer pain from tariffs and inflation.
    • Ed notes GDP growth concentrated in a few firms while consumer sentiment and grocery bills worsen. Transcript: Ed Elson President Trump used his 107-minute State of the Union to paint an optimistic picture of the country, declaring what he called a, quote, turnaround for the ages. He touched on everything from inflation and immigration to healthcare and voter fraud. But not everyone feels so positive about it. So let’s move past the rhetoric and let’s dig into the numbers. We’re going to take a look at the data on inflation, on markets, on GDP and employment, and we are going to reach a consensus on the real state of the union. So, Scott, I think maybe we should just start with some of the untruths that we witnessed in this state of the union, just so that we’re all on the same page here about how America is doing And what’s true and what isn’t. So I think the first big lie that we need to just dispel immediately is that we secured $18 trillion of foreign investment in 12 months. I have no idea where Trump has gotten this number from. That is literally more than half of our current GDP. His own website says that the number is 9.7 trillion, which is also a made-up number. This is like based on nothing. As we’ve said, none of these are actual deals. They’re just verbal commitments, and then they explode the numbers by 100% to the upside and the downside, depending on the day. I mean, that number totally bogus. So that’s the first thing. The other thing he said is that foreign countries are paying the tariffs. Not true. Multiple studies have been done. 90 to 96% of the tariff burden is falling on U.S. Firms and U.S. Customers. He said the prices are plummeting downward. Not true. Prices have risen nearly 3%. Inflation is going up. Gas is below $2.30 in most states, $1.99 in some. Also not true. No state had an average below $2.37 and only two states averaged below $2.50. Those were sort of the big lies. So now that we agree, hopefully, that those are not true, let’s start with your reactions to the State of the Union. Scott Galloway I thought it was mostly a nothing burger. I thought if I try to cleanse my biases, I thought it came across as robust. It didn’t say a lot. I didn’t think it was that. I mean, it felt like not much to me. I was waiting for some sort of announcement. There was no new real new policies. He teased tax cuts. We didn’t see that. It was 75 minutes. There was 20 standing ovations. There was 80 applause breaks. I feel like these, you know, I feel like Congress burns more calories clapping than actually legislating. Totally agree. Okay. So unemployment, to be fair, unemployment is pretty low. Inflation is down from its peak, but it’s still above where it was when Biden left office. GDP growth is positive, but it’s especially concentrated around a small number of companies. He’s sort of asking everyone to stare at AI and big company CapEx and then take off your glasses when you’re looking at your grocery receipts, right? So I don’t know. I felt like it was a masterclass in cherry picking. I have trouble getting through the whole thing. So I didn’t, I actually thought the Democratic response from Abigail Spanberger, is that her name? I thought that was really strong. I actually have an idea there that I want to pitch you. But the data was sort of real. The spin was much realer. And again, I just don’t think we’re dealing with the real issues here, and that is the deficit. I think at some point we’re getting an adult in the room that says, okay, folks, Democrats, we’re going to have to cut spending. Republicans, we’re going to have to raise taxes. Let’s get to it. Who are the adults in this room? Is anyone actually ready to address it? We need a billion doses of GFTA-1 drugs to try and bring the average cost of healthcare from $13,000 per person down by $400 a year for the next 10 years and address the deficit because All roads lead to entitlements, which lead to healthcare. Anyway, I feel like I would love to just write this speech and just look at all of them and say, okay, who’s ready? Is there anyone in the middle here ready to actually address these issues? So, you know, I had, I have trouble watching it at this point. I just think it’s so insane. And these, at one point, I think he said that we brought in $18 trillion in investment. I mean, where the fuck is he even getting these numbers? It’s like, so it felt like it’s an earnings call, whereas investors are the Republicans and there’s no SEC. He can’t get in trouble. You can just throw out numbers. It’s a great analogy. It’d be like if Jensen Huang said, our earnings were up 11 million percent. There’s the greatest earnings quarter in history. And our backlog, we’re going to grow. Ed Elson We grew our revenues 440-fold. It’s honestly a great point. There should be legal implications for lying about the numbers of the economy during the State of the Union address. If we have legal implications for Jensen Huang saying the wrong thing, shouldn’t that exist for the president? It’s a really good point. Scott Galloway That’s an interesting statement on America, and that is we’re much more protective and value investors more than we do citizenry. Right. So, oh my God, that was the most insightful thing we’ve ever said, Ed. That was, come see us at South by Southwest. It’s a really good point. I hadn’t thought of that. Let me just bring it down a bit. Quarter, pounder. Ed Elson Sorry about that. His, I mean, just to run with this analogy between the State of the Union address and an earnings report, I think that’s exactly right. There’s a level of spin here and cherry picking, which was actually quite deft. And I think you actually have to give credit to whoever wrote that speech for navigating all of these issues pretty well. But to your point, he’s asking America to believe that everything is going really great for Americans and that gas prices are coming down and that food prices and grocery bills are coming Down. He’s asking everyone to believe that when that is simply not true. And consumer sentiment among Americans right now is absolutely tanking. Most Americans, two-thirds of Americans agree that he has completely bungled these tariffs. I think most Americans are realizing what tariffs are doing to consumer prices, what they are doing to their grocery bills. That is, they’re making their grocery bills go up because, as we’ve discussed, the tariffs are being passed through onto the consumer. And so it’s consumers that are paying the cost of the tariffs. We’re also seeing that a lot of Americans are (Time 0:41:16)
  • Deal Drama Created Clear Winners And Winners By Walking Away
    • Warner Brothers Discovery shareholders won massively from the bidding war; Netflix preserved value by walking away.
    • Scott details Warner shareholders’ gain and Netflix’s $36B implicit benefit from avoiding an overpriced deal. Transcript: Scott Galloway It depends what you mean by winners. So let’s talk about winners and losers here. And the top of the list in terms of winners is Warner Brothers Discovery shareholders. And that is David Zaslav. I think he was a pretty, I don’t know, mediocre operator. He’s an outstanding investment banker. I mean, they literally got, if either the Ellisons or Sarandos ever thought you’re going to bid more than 25 bucks a share for this, you know, six months ago, they would have said no fucking Way that company’s not worth it. This is a company that’s gone from a low of seven bucks share to $31 with no change. Arguably, the business has gotten worse over that period. So he put on a master class and his bankers and how to get testosterone involved and competitive dynamics. And literally every possible cent on the table has gone to Warner Brothers Discovery shareholders. So they’re the biggest winners. A close second in terms of winners is Netflix shareholders. Because what this shows, or Ted Surrounder specifically, what this shows is Ted is a disciplined operator. He can put out a press release saying, we have an obligation to shareholders. At some point, no deal makes sense. He was able to show he could do a deal. He handled it well. I think he acquitted himself well. And they’re doing what good operators do. And that is they walk away when it no longer, you know, every deal makes sense at some price and no deal makes any sense at a certain price. So him walking away from this deal, they save, I think the total consideration was approximately $120 billion. And then, and we predicted this, The stock is up 10% Netflix on the news. So with a $350 billion valuation, they got $36 billion for walking away and increased market cap. They’re going to get another $2.5 billion in cash for the breakup fee. If you look at the total consideration of, say, $120 billion plus the kind of $40 billion free gift with purchase in terms of stock appreciation and the breakup fee, you know, Netflix Got $160 billion technically for not doing this deal. And, I mean, we’re getting to the point where Netflix could take the money that they’re registering from not buying Warner Brothers and the increase in their stock price, and now they’re In striking distance of potentially buying Disney. Disney’s got about a $200 billion market cap. So, you know, close second in terms of winners, Ted Surroundos and Netflix from showing discipline and walking from a deal that made no sense. In addition, if I were them and I were more Machiavellian, I would start firing up my lobbyists and start questioning this deal, lawsuits everywhere. And I would try and, if not scuttle this deal, but delay it. And it’s going to put most of Hollywood into a sense of stasis. And that is, I have a deal at Netflix. During this period, it was sort of, I don’t want to say on hold, but there was a lot of insecurity around what they were going to do. Supposedly CBS and Paramount are in a bit of like flux right now for a lot of different reasons. So the insecurity here is going to be pretty dramatic. Meanwhile, Tets around us can say to his creative team, just for shits and giggles, what could we do? What else could we do with $120 billion? Could we own sports? Could we become the biggest sports network in history and go out and buy a bunch of rights, Olympics, NFL? Could we decide that we’re going to be the most dominant streaming media platform in all of Southeast Asia, Latin America, and Africa over the next decade? I mean, there’s just, they’ve got a lot of firepower now that they weren’t going to shoot at this. So Netflix, the second biggest winner here. Let’s talk about, and then I think you’d have to say Paramount because this was an existential must do for Paramount. If Paramount hadn’t gotten this deal and gotten some scale, they would have been in the company that paid, overpaid for a subscale Paramount. So their only way out here is scale. Now, can they ever show dad a return on this investment? You know, I don’t know. That remains to be seen. But at least now they are a scaled player in Hollywood, whether they decide to use AI, but they now have the requisite scale to compete the bigger players. Ed Elson I agree up to a point that Netflix is coming out a winner here because that price is totally ridiculous for the company. (Time 0:59:39)
  • Media Consolidation Will Put Creative Jobs At Risk
    • The creative community and unions face job loss pressure as new owners will prioritize cost cuts and AI-driven production efficiencies.
    • Scott predicts major layoffs and reduced budgets as buyers seek expense savings to justify prices. Transcript: Scott Galloway I think first and foremost, the biggest loser is the creative community. This combined company, they have paid so much for these two companies. When I say they, the Ellisons for Paramount and now Warner Brothers, there’s no vision that’s going to increase revenues to the extent to justify these prices they paid. They are going to have to focus on the expense side. Larry Ellison is one of the biggest players in AI. I think I use the analogy in the first Star Wars, Obi-Wan Kenobi is on the Millennium Falcon and has to sit down because he feels a disturbance in the force. And that disturbance is that millions of people died in an instant when Darth Vader orders the Death Star to destroy the planet Alderaan. And he said he hears a scream and then nothing. I think last night when this deal, when Netflix walked, I think you heard a scream from millions in the creative community that they’re just, the unions, WGA and SAG-AFTRA, are literally Too fucking stupid to realize what just happened. Ed Elson It’s the image of Ted Sarandon feeling a disturbance in the falls, taking a seat, having a breath. Scott Galloway Ted was a Jedi. So say what you want. You know, Hollywood bitch is about Netflix having too much power, but Ted likes Hollywood. I was at the BAFTA Awards. He shows up with a bow tie. He likes creatives. The guy ran video store chains. He was the manager of a video rental chain. He likes movies. He likes the creative community. Netflix may have outsourced much of their production to overseas, arbitraging geographically, but he believes in big production, makeup artists, gaffers, editors, actors. He is part of the community. Do you think Ellison gives a shit about… I think he’s going to literally say to his son, all right, okay. This has been a lot of fun. Good for you. I’m glad it’s your legacy. This company is trading at a crazy multiple Vibita. You got to grow revenues, high single digits. You got to cut expenses 10 to 20% within 24 months. Where are those? Well, how are we going to do that, dad, without dramatically reducing the top line? We’re going to use AI. And instead of putting out 30 movies at 150 million each, we’re going to put out 50 movies at 30 million each using this new cool thing called AI. And I’m not saying it’s going to work. It might be a bunch of AI slop, but all roads lead to the following. SAG-AFTRA and WGA, grab your fucking ankles. You are about to see so many people in your unions get so, rode so hard and put away wet. (Time 1:08:04)
  • Buy Select Private Capital Managers On Multiple Compression
    • Buy into discounted private capital managers with strong AUM growth like Apollo, TPG, Blue Owl where multiples appear oversold.
    • Scott cites Apollo trading at ~14x with double-digit earnings growth as a targeted opportunity. Transcript: Scott Galloway I made it. I think there’s real opportunity. I don’t know what you call these, business development, private capital, hedge funds, Apollo, 14 to 17 times earnings, double-digit earnings growth plus AUM growth, and trading At what feels like, or trading at a multi-year low. TPG is trading at a third below kind of fair value estimates. Unbelievable fundraising. I know some people who work there, they are just a juggernaut in terms of their fundraising, which is the kind of the raw capital for what they make money on. I think that current pricing reflects pessimism more than growth trajectory. Even Blue Owl, I’m doing a basket of these things. It’s got a 7-8 % dividend yield. In sum, the market is discounting private credit fears. And I think there’s a growth versus valuation mismatch. All three are growing AUM and recurring fee revenue. The sector multiples have compressed due to private credit liquidity fears that I think are overblown. And market pricing, the market’s basically pricing risk more aggressively than current earnings trends justify. And my thesis and the reason I’m starting to buy these things is that compressed multiples plus durable fee growth plus strong fundamentals equals potential upside relative to the Broader market. (Time 1:20:41)