December 5, 2025 • 22 mins
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Bloomberg Intelligence hosted by Paul Sweeney and Norah Mulinda
-Geetha Ranganathan, Bloomberg Intelligence Analyst on US Media, discusses Netflix agreeing to buy Warner Bros. Discovery, marking a seismic shift in the entertainment business as a Silicon Valley-bred streaming giant swallows one of Hollywood’s oldest and most revered studios.
-Jennifer Rie, Bloomberg Intelligence Senior Litigation Analyst, discusses Antitrust implications of Netflix agreeing to buy Warner Bros. Discovery.
- Woo Jin Ho, Bloomberg Intelligence Senior Technology Analyst, recaps earnings from Hewlett Packard Enterprise. HPE shares dropped after the company gave an outlook for sales in the current quarter that fell short of high expectations for the AI server business. Revenue will be $9 billion to $9.4 billion and profit, excluding some items, will be 57 cents to 61 cents in the period ending in January, according to HPE.
- George Ferguson, Bloomberg Intelligence Senior Aerospace, Defense, & Airlines Analyst, discusses Southwest Airlines lowering its operating profit target for the full year due to the US government shutdown and higher fuel prices. The airline now expects earnings before interest and taxes to be approximately $500 million, compared with its prior expectation of $600 million to $800 million.
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Episode Transcript
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Speaker 1 (00:00):
Bloomberg Audio Studios, podcasts, radio news. You're listening to the
Bloomberg Intelligence podcast. Catch us live weekdays at ten am
Eastern on Apple Coarclay and Android Auto with the Bloomberg
Business App. Listen on demand wherever you get your podcasts,
(00:21):
or watch us live on YouTube.
Speaker 2 (00:24):
It is Merger Friday.
Speaker 3 (00:25):
Here Netflix agree to by Warner Brothers Discovery in a
historic combination, joining the world's dominant paid streaming service with
one of Hollywood's oldest and most revered studios. To get
the bottom of this, gets some real analysis with this
return to Githa rang Annat and she covers all the
media companies for Bloomberg Intelligence here. You know, it's interesting, getha.
(00:48):
You could argue that paramount sky Dance and Comcasts arguably
needed this Warner Brothers Discovery company more than Netflix. Yeah,
Netflix comes out on top here. What do you think
the strategy for netfocuses?
Speaker 4 (01:02):
Yeah, thank you so much, Paul, So definitely in Netflix here.
Kind of really looking at the future. I mean we
are I think at you know, this cusp of the
media landscape kind of completely changing with the advent of
jen Ai, and I think the barriers to entry for
anybody is going to come down substantially because the costs
to produce content are going to come down substantially. And
(01:22):
I think Netflix kind of sees the writing on the
wall and says that they really need to play the
long game here and deepen their library with a lot
of the beloved and you know, global franchises that Warner
Brothers Discovery has to offer. So I'm just absolutely not
seen as existential for Netflix at all, but I think
they see it as existential from a long range perspective.
(01:44):
But of course the big losers here definitely Paramount and Comcast,
at least in the short run.
Speaker 5 (01:50):
In talking about Paramount and Comcast here, how are we
thinking about the added pressures that they may be potentially
facing if we think about the fact that they are
lower or subscale I should say, into their streaming in
comparison to Netflix.
Speaker 4 (02:02):
Yeah, this is pretty much game over. You know, we
already knew that Netflix had won the streaming wars. Now
without a shred of doubt, they are going to cement
their dominance. I mean, you just look at the numbers,
four hundred and fifty million global streamers. Yes, Paramount Plus
was already a subscale streamer with only about seventy million subscribers.
Peacock is even in worse shape with you know, only
(02:23):
close about forty to forty five million. So this really
kind of puts, you know, tremendous pressure on them, and
they really have to come up with some kind of
strategy to to you know, fortify their businesses. Maybe they
have to look at a potential combination. I don't know
what it's going to look like.
Speaker 3 (02:41):
Keith and we talked who spoke earlier this morning to Jenrie.
She covers all the anti trust stuff for Bloomberg Intelligence.
Since she suggested that this will face a very difficult
regulatory review.
Speaker 2 (02:52):
What if that is.
Speaker 3 (02:53):
In fact the case, what do you think Netflix would
be willing to do to maybe get this deal done with?
They think about selling some massets here.
Speaker 4 (03:03):
They definitely could, so so far paut there. They're saying
all the right things. They're saying everything you know that
should assuage any regulatory regulatory fears that said, I mean,
you are combining the number one streaming service in the
world with the number three streaming service. Obviously a lot
of red flags there. Potentially They are, however, saying that
this is going to be good for consumers. This you know,
(03:24):
it's going to provide more consumer choice, that's actually going
to lower costs for consumers because you know, they're going
to be able to sell a bundle of HBO Max
with Netflix, potentially lowering costs by I don't know, thirty
forty percent. So that's one thing they're saying. The second
thing where there was obviously a lot of concern, and
not just from regulators but also from Hollywood content and
Hollywood moguls, would be that, you know, Netflix has typically
(03:46):
been very anti theatrical, so they talk always about day
and date releases, how you know, movies should be released
directly to streaming, and so obviously there's been a lot
of backlash from the exhibitors, from the theater, from the
you know, create community. But Netflix again kind of plicating everybody,
saying that they are going to continue the Warner theatrical
(04:06):
strategy by continuing to release those fifteen twenty movies year
after year in the theaters. And the last thing that
you know, everybody has been worried about is we have
to remember that Warner is actually a huge content supplier,
so they supply all of these big shows or you
think of Ted Lasso on Apple Tweed that's a Warner show.
So you know, again, are they going to pull The
big question is is Netflix going to pull back on that,
(04:28):
on all that content, And just this morning Ted Sarandos
said on the call that no, we're not. You know,
Warner Studio is going to continue to do whatever it
has been doing. But again, you know, not really sure
how that's going to work for Netflix if they you know,
just continue to do that. But so far they're saying
all the right things from you know, a regulatory standpoint.
Speaker 5 (04:47):
So from a consumer experience standpoint here if it's Netflix
and they've got Warner Brothers Discovery here, we're thinking about
HBO Max and things of that sort. Essentially, are you
going to maybe see some sort of merger of experience
when you go on to net you're also accessing HBO
or will it be more of a bundle mindset here?
Speaker 4 (05:04):
Yeah, So that is what has been really difficult to
parse out Nora. So they were asked this question again
repeatedly this in this morning's call. Is HBO Max kind
of going to be like one of the tiles that
you would see on a Disney Plus? Right, you go
and you see Pixar and Marvel, and is HBO going
to be something similar to that or are they just
going to continue to run the two services completely independently.
(05:24):
If you kind of run the math, it just doesn't
make sense for them to have two separate streaming platforms
because you have all of the overhead expenses and the
corporates and all of that to a company at that
so that doesn't really make sense. I think at some
point they basically fold in HBO max all of that
content onto Netflix, although they haven't necessarily clarified that, but
I think that in you know, basically helps them from
(05:47):
a cost perspective, helps them from a content perspective, and
then really helps them with engagement, which is really what
they're looking for. Deepen engagement on the Netflix platform. How
do you do that by increasing the amount of content?
So I think eventually that is the game plan, But
no specifics from the Netflix management team just yet.
Speaker 2 (06:03):
Stay with us more from Bloomberg Intelligence coming up after this.
Speaker 1 (06:10):
You're listening to the Bloomberg Intelligence Podcast. Catch us live
weekdays at ten am Eastern on Apple, Cocklay and Android
Auto with the Bloomberg Business app. Listen on demand wherever
you get your podcasts or watch us live on YouTube.
Speaker 3 (06:24):
A big deal of the day, Netflix acquiring Warner Brothers Discovery.
What's the regulatory framework? Are the regulators going to take
a look at this deal? This is a monster deal
in terms of dollars, you know, eighty billion dollars of
enterprise value. Let's check in with Jennifer Rea, Bloomberg Intelligence
senior litigation analysts.
Speaker 2 (06:40):
So, Jen, this is a big deal. How the regulator's
going to view this?
Speaker 6 (06:47):
It really is, Paul, and I think, and we've seen
a lot of opposition to it coming out already. I
think it's going to get really significant scrutiny, not just
in the United States by the Department of Justice, but
likely also in Europe and by the UK and possibly
some other jurisdictions as well. But you know, they're going
to look at these overlaps, which in this case are
both horizontal. That's in streaming. They both provide stream both
(07:10):
companies provide streaming services, but they're also vertical. You have
a big streaming service buying a big movie and TV
producer and a big content a library of content, and
that creates vertical issues. And when a company is really
strong in both levels of a supply chain. When they
vertically integrate this way, that can raise concerns too, So
(07:31):
the Department of Justice is going to have to dig
into both of those issues. And last, Paul, I'll say
this because we haven't seen very much about it, but
there's also what we call a monopsony concern here. Monopsony
is when there are a merger results and too few
buyers of a service or product. So in this case,
you've got two huge creators of scripted content that are
coming together and that could have a negative impact on
(07:54):
the artists, the production people, the writers that go into
making all the TV and movie content that the companies make.
Speaker 5 (08:02):
Jennifer walk us through what exactly happens to the deal
if the DOJ or regulators more broadly decide to push
back on this.
Speaker 6 (08:10):
Sure, So there are a couple different things that can happen.
I'll start by saying this. In depth investigation usually starts
by issuing what are called second requests for information. Those
are like really big subpoenas where they're going to get
a lot of business documents, a lot of data and
information from the companies. Now, once the DOJ has looked
at all that material. They have to decide either they
clear it out right, they clear it with the negotiated
(08:31):
settlement with the companies, or they soon to try to
block it in trial. A negotiated settlement could mean agreeing
to divest a product such as HBO max and or
agreeing to behavioral remedies such as making promises about the
way the post merger firm will behave in the marketplace.
But if something like that can't be agreed upon, then
(08:52):
the only thing the DJ has left to do is
go to trial and seek a permanent injunction from a
judge that blocks the companies from closing the deal. They
did that when AT and T he tried to buy
Time Warner several many years ago. But I'll contrast that
to when Comcasts bought NBCU. They also had some concerns there,
but they entered a settlement agreement with respect to that deal.
Speaker 3 (09:14):
Jen Politics, I think politics is going to come into
this deal, maybe more so than some others here generally,
I guess, on the one hand, we have an administration
that presumably is more open to consolidation across industries, taking
a lighter touch. But then there's also a president who
makes it personal oftentimes.
Speaker 2 (09:33):
Do we have any idea how that might shake out?
Speaker 6 (09:36):
You know, Paul, You're exactly right, And it makes it
so hard nowadays to actually really do a true anti
trust analysis of a deal because we have seen the
Department of Justice and the Federal Trade Commission, I could say,
aligning with the Trump administration in anti trust outcomes for
deals and pushing the policy priorities of the administration and
listening to what the President has to say. So where
(09:59):
the pre and the administration is against a deal, it
is a higher risk, i would say, of that deal
having to defend itself in court and the Department of
Justice seeking a block. But on the other hand, Paul,
we don't really know what's going on behind the scenes.
You know, we've seen some of these companies to mergers
hire some Trump aligned lobbyists, powerful people in Washington that
(10:20):
have helped them to push through the deal that was
the allegation with respect to the settlement the DJ entered
when Hewlett Packard bought Juniper. We don't know what other
kinds of concessions or agreements are being made. You know,
this is all sort of the back room channels and
without knowing that It's hard to understand where the administration
may come out months from now in the end on
(10:40):
the deal, but at least for right now, we know
that the administration doesn't look happy about this buyer. They
would have preferred Paramount.
Speaker 2 (10:46):
Stay with us. More from Bloomberg Intelligence coming up after this.
Speaker 1 (10:53):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Applecarqel, and Android Auto
with the Bloomberg Business app. Listen on demand wherever you
get your podcasts, or watch us live on YouTube.
Speaker 5 (11:07):
We did get some earnings out of Hewlett Packard Enterprise,
that's taker HPE. We did see that this essentially disappointed
what investors were looking for here. We did see the
company gave an outlook for sales in the current quarter
that fell short of the high expectations, particularly for its
AI server business. And we've got the best person to
help us break this down. We're looking at going to
be chatting with Bloomberg Intelligence senior tech analyst Wu Jinho.
(11:31):
He's coming to us out of Princeton, New Jersey. Tell
us a little bit about what you took away from
this earnings report.
Speaker 7 (11:37):
Oh yeah, thanks for having me so I actually like it.
I know there was a high focus on the revenue
numbers for the upcoming quarter, but EPs they actually erased
the EPs guidance from two twenty on the lower end
to two twenty five and two forty on the high
end to two forty five. So essentially, the strategy that
(11:58):
Antonio straight laid out with the Juniper acquisition is working
out as planned. It is cushioning some of these higher
commodity costs and the higher AI mix. So you despite
the disappointing one Q sales outlook, the overall years should
be fine.
Speaker 3 (12:15):
So the company's talking about, you know, substantial interest in
its AI servers, and they call out governments, and that's
kind of new for me at least. I guess I'm
kind of used to talking about the hyper scalers, whether
it's Microsoft or Amazon. I've just spent maybe other categories
of people that may be making some AI investments and servers.
Speaker 7 (12:35):
Yeah, hey, Paul, So let's think about the sovereigns. Let's
think about the Saudi's, the US, the US federal government,
they are going to start ramping up their own AI
initiatives as well, right, the Department of Energy, Department of defense.
They're customers of HPEES Supercompute, and they're going to convert
(12:57):
from supercomputing to AI s servers as some of these
configurations start rolling out. They already you know, h HPE
already has some agreements with the saudist. But you know,
and that's one of the issues with with HPE's outlook.
It's more on the timing of when these deals are
flowing through. It's being pushed out more towards the second
(13:20):
half of the year versus the first half. But they
are going to play a much more meaningful role in
the future, not only for HPE, for Dells and super
Micro as well.
Speaker 5 (13:31):
So how are they doing in terms of comparison to
competitors in this market.
Speaker 7 (13:36):
Well, I mean, you know, HPE has made the strategic
content on not going after these lower margin AI server deals.
If we look at, you know, some of the competitors
the way I have Dell modeled out, they're going to
do roughly about forty billion dollars in AI server revenue.
(13:56):
Super Micro around the seminal level similar level for next
year is probably going to do roughly about five billion
dollars in AI server AI server revenues. In physical twenty six. Now,
look that five billion dollars is not that the sneeze at,
but you know, relatively speaking, it's gonna be much smaller
in scope and scale.
Speaker 3 (14:16):
Why are they smaller? Why are they lagging? And is
there a plan for them to kind of narrow that gap?
Speaker 7 (14:21):
Yeah, you know, I found that to be disappointing in
terms of lagging. I do think they have the assets
to do so. But at the end of the day,
you know, the management team at HPE is very focused
on shareholder and shareholder value. These AI server deals are
very low in margin and highly competitive, so they're not
(14:43):
chasing after these lower margin deals. And one of the
streetategic reasons on why they're going after HP is going
after these sovereign deals is because they think it's going
to be higher in margin and and hopefully that does
pan out for them, which is one of the reasons
why that you know, we're talking about one fifth the
size of the deal flow for them.
Speaker 5 (15:03):
So out of outside of HPE, what else are you
really keeping an eye on right now in this tech space?
Speaker 7 (15:09):
Well, well, the AI play is going to be pretty important,
but I will tell you, uh, the d ram story
is actually going to start materializing in as a potential
headwind for all of the hardware space. One thing that
we didn't discuss on HPE is the three hundred percent
rise and d RAM prices is going to affect their
(15:31):
server sales. They think they're going to pass that through
to customers. I have I'm a little bit skeptical, but
I think it's you know, the rise in commodity costs
and d RAM is going to be the new tariff
story in twenty twenty six. That's going to affect a
lot of these hardware vendors.
Speaker 2 (15:45):
Why are DRAMs up so much?
Speaker 7 (15:48):
AI AI AI, you know these hyperscale the hyperscale cloud
guys are sucking up so much of this memory, and
the DRAM vendors aren't raising the capacity. So when demand
is tilting over one way, uh and some of the
standard DRAMs they're not producing as many DRAMs and the
capacity is not growing, you know, there's no nowhere else
(16:11):
to go for the price to go higher.
Speaker 5 (16:12):
I mean, when we think about AI, and we're talking
about HPE right now in particular, our expectation is just
too high. Are people putting so much pressure in these
companies and we're seeing these you know, these estimates and
we're not really seeing them delivering or what's your read
on that?
Speaker 7 (16:27):
Well, So let let's let's let's talk about HPE in particular.
Speaker 3 (16:30):
Right.
Speaker 7 (16:32):
You know, the way I wrote my earnings outlook commentary
was it depends on the lens that you look at, right,
from an earning from a sales lens, the AI sales
did disappoint, right, But if we think about it from
an earnings and a cash flow lens, the networking business
actually did as well as it should have, and it's
doing the work that it's supposed to be doing in
(16:53):
terms of cushioning some of the lower margining business. And
quite frankly, I still think that there's potential for Ernie's
upside if networking execution strengthens going into the rest of
the year.
Speaker 2 (17:06):
Stay with us more from Bloomberg Intelligence coming up after this.
Speaker 1 (17:13):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Apple, Cocklay and Android
Auto with the Bloomberg Business app. Listen on demand wherever
you get your podcasts, or watch us live on YouTube.
Speaker 5 (17:27):
Let's switch gears and dig a bit into the industrial space.
I mean, just last month we had a sphears of
a government shutdown continuing, and we saw it was the
longest government shutdown in US history. But this did drag
on a lot of the major airlines. And we have
a wonderful person to discuss us here with us today,
George Ferguson. Of course, he's Bloomberg Intelligence senior Aerospace, Defense
and airlines analysts, and we want to chat a bit
(17:48):
about what's going on in terms of Southwest earnings and
how government shutdown actually weighed potentially on this company here. George,
what is your takeaway here from what we're hearing from Southwest?
Speaker 8 (17:59):
Yeah, I mean it was a little bit more than
we expected. I think the impact was about two hundred
million dollars on the quarter. It was in line with
what Delta Airlines had reported. We probably thought, you know,
perhaps Southwest a little bit less impacted as they're not
as heavily into the sort of the high volume airports,
(18:20):
you know. And actually I think it was a bit
surprised as well that they talked about the booking curve.
We think most people, you know, typically book well before
the holiday season, so we wouldn't have expected their booking
curve to be as impacted, But I mean again, I
think it's you know, largely in line with what we expected.
A couple hundred million dollars hit. I don't think it'd
be It's not gonna be terrible.
Speaker 3 (18:41):
Stock is up four point six percent today, fifty two
week high for Southwest Airlines. So, George, what's the I
know you've either have publisher working on your twenty twenty
six outlook here, what's kind of the call for the
airlines in the next six or twelve months?
Speaker 8 (18:56):
Yes, I mean as we look at you know, twenty
twenty six, we get it like visibility about six months
where the schedule and you know, we've already started to
look at schedules for the new year. So in the
first half of the year, the domestic business appears to
be growing. The domestic capacity for US airlines is.
Speaker 9 (19:15):
Growing around GDP is two and a half percent, and
we see less of that growth in the low cost
airlines space.
Speaker 8 (19:25):
Now, Southwest is in the middle of migrating between I
don't know if I call them low cost, they call
them budget. They're in the middle of migrating from budget
to an airline that's going to offer premium, you know,
premium seating and some premium services in the new year.
So look, you know, it looks like there is a
(19:46):
not a restructuring, but an adjustment underway again in that
budget low cost world. That's going to be less growth
than you're seeing in the full service the trend we've
seen here in twenty twenty five. So we're thinking that
premium seating, full service seating could be a bit excess
and could see continued push on the unfairs. We're thinking
(20:08):
budget ought to get a bit better. We were projecting
kind of a three percent increase in Southwest yields originally
before the government shut down. Now we're kind of thinking
two and a half percent. I mean, that's really not
bad for four Q So again we think that sort
of carries into the new year. Another big issue in
the new year is going to be a lot of
(20:28):
the US airlines got a bit of a kicker, got
a tailwind from lower fuel prices. We don't see fuel
prices going much lower from here, so that tailwind sort
of peels away in the new year, and that's something
they're going to have to manage as well, even as
they try to get sort of yields sorted out. We
don't see yields improving dramatically right now, but we see
(20:51):
yields probably firming a bit and maybe not falling. As
you know, following George, you have.
Speaker 5 (20:57):
A broad view between aerospace, defense, airline, and you know,
as we're kind of wrapping up earning season, if you
want to call it that, did you hear about tariffs
at all during this earning season? Are you expecting to
hear about this in twenty twenty six?
Speaker 8 (21:11):
The truth is tariffs. Really there was a little bit
of commentary around tariffs. We heard, I think most of
it from the engine makers, you know, a couple hundred million,
five hundred million here and there, which really doesn't matter
a lot on their business. So largely tariffs look to
have been you know, sort of I don't know if
(21:32):
they were sidestep but avoided by the aerospace supply chain.
One of the things about the aerospace supply chain is
that it definitely bridges the US and Europe, and it's
definitely sort of a you know, a NAFTA. NAFTA is
the old word whatever that North American Free Trade Zone is.
There's a lot of componentry that moves around that those
(21:55):
two regions, and so it's going to be I think
in everyone's best interest to keep tariffs off of aerospace, so,
you know, I think some of that had to play
obviously with the European agreements. In North America, we've seen
some give and take, right as Trump got mad at
at Canada here and there and decided there's going to
(22:17):
put some terrorfts on them. But again largely it's been
side step. The biggest problem was I think Brazil and
late in the you know, late or recently we've seen
the Canadian issue, but I think it's going to go.
I don't think it's going to be big issue.
Speaker 1 (22:31):
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(00:21):
or watch us live on YouTube.
Speaker 2 (00:24):
It is Merger Friday.
Speaker 3 (00:25):
Here Netflix agree to by Warner Brothers Discovery in a
historic combination, joining the world's dominant paid streaming service with
one of Hollywood's oldest and most revered studios. To get
the bottom of this, gets some real analysis with this
return to Githa rang Annat and she covers all the
media companies for Bloomberg Intelligence here. You know, it's interesting, getha.
(00:48):
You could argue that paramount sky Dance and Comcasts arguably
needed this Warner Brothers Discovery company more than Netflix. Yeah,
Netflix comes out on top here. What do you think
the strategy for netfocuses?
Speaker 4 (01:02):
Yeah, thank you so much, Paul, So definitely in Netflix here.
Kind of really looking at the future. I mean we
are I think at you know, this cusp of the
media landscape kind of completely changing with the advent of
jen Ai, and I think the barriers to entry for
anybody is going to come down substantially because the costs
to produce content are going to come down substantially. And
(01:22):
I think Netflix kind of sees the writing on the
wall and says that they really need to play the
long game here and deepen their library with a lot
of the beloved and you know, global franchises that Warner
Brothers Discovery has to offer. So I'm just absolutely not
seen as existential for Netflix at all, but I think
they see it as existential from a long range perspective.
(01:44):
But of course the big losers here definitely Paramount and Comcast,
at least in the short run.
Speaker 5 (01:50):
In talking about Paramount and Comcast here, how are we
thinking about the added pressures that they may be potentially
facing if we think about the fact that they are
lower or subscale I should say, into their streaming in
comparison to Netflix.
Speaker 4 (02:02):
Yeah, this is pretty much game over. You know, we
already knew that Netflix had won the streaming wars. Now
without a shred of doubt, they are going to cement
their dominance. I mean, you just look at the numbers,
four hundred and fifty million global streamers. Yes, Paramount Plus
was already a subscale streamer with only about seventy million subscribers.
Peacock is even in worse shape with you know, only
(02:23):
close about forty to forty five million. So this really
kind of puts, you know, tremendous pressure on them, and
they really have to come up with some kind of
strategy to to you know, fortify their businesses. Maybe they
have to look at a potential combination. I don't know
what it's going to look like.
Speaker 3 (02:41):
Keith and we talked who spoke earlier this morning to Jenrie.
She covers all the anti trust stuff for Bloomberg Intelligence.
Since she suggested that this will face a very difficult
regulatory review.
Speaker 2 (02:52):
What if that is.
Speaker 3 (02:53):
In fact the case, what do you think Netflix would
be willing to do to maybe get this deal done with?
They think about selling some massets here.
Speaker 4 (03:03):
They definitely could, so so far paut there. They're saying
all the right things. They're saying everything you know that
should assuage any regulatory regulatory fears that said, I mean,
you are combining the number one streaming service in the
world with the number three streaming service. Obviously a lot
of red flags there. Potentially They are, however, saying that
this is going to be good for consumers. This you know,
(03:24):
it's going to provide more consumer choice, that's actually going
to lower costs for consumers because you know, they're going
to be able to sell a bundle of HBO Max
with Netflix, potentially lowering costs by I don't know, thirty
forty percent. So that's one thing they're saying. The second
thing where there was obviously a lot of concern, and
not just from regulators but also from Hollywood content and
Hollywood moguls, would be that, you know, Netflix has typically
(03:46):
been very anti theatrical, so they talk always about day
and date releases, how you know, movies should be released
directly to streaming, and so obviously there's been a lot
of backlash from the exhibitors, from the theater, from the
you know, create community. But Netflix again kind of plicating everybody,
saying that they are going to continue the Warner theatrical
(04:06):
strategy by continuing to release those fifteen twenty movies year
after year in the theaters. And the last thing that
you know, everybody has been worried about is we have
to remember that Warner is actually a huge content supplier,
so they supply all of these big shows or you
think of Ted Lasso on Apple Tweed that's a Warner show.
So you know, again, are they going to pull The
big question is is Netflix going to pull back on that,
(04:28):
on all that content, And just this morning Ted Sarandos
said on the call that no, we're not. You know,
Warner Studio is going to continue to do whatever it
has been doing. But again, you know, not really sure
how that's going to work for Netflix if they you know,
just continue to do that. But so far they're saying
all the right things from you know, a regulatory standpoint.
Speaker 5 (04:47):
So from a consumer experience standpoint here if it's Netflix
and they've got Warner Brothers Discovery here, we're thinking about
HBO Max and things of that sort. Essentially, are you
going to maybe see some sort of merger of experience
when you go on to net you're also accessing HBO
or will it be more of a bundle mindset here?
Speaker 4 (05:04):
Yeah, So that is what has been really difficult to
parse out Nora. So they were asked this question again
repeatedly this in this morning's call. Is HBO Max kind
of going to be like one of the tiles that
you would see on a Disney Plus? Right, you go
and you see Pixar and Marvel, and is HBO going
to be something similar to that or are they just
going to continue to run the two services completely independently.
(05:24):
If you kind of run the math, it just doesn't
make sense for them to have two separate streaming platforms
because you have all of the overhead expenses and the
corporates and all of that to a company at that
so that doesn't really make sense. I think at some
point they basically fold in HBO max all of that
content onto Netflix, although they haven't necessarily clarified that, but
I think that in you know, basically helps them from
(05:47):
a cost perspective, helps them from a content perspective, and
then really helps them with engagement, which is really what
they're looking for. Deepen engagement on the Netflix platform. How
do you do that by increasing the amount of content?
So I think eventually that is the game plan, But
no specifics from the Netflix management team just yet.
Speaker 2 (06:03):
Stay with us more from Bloomberg Intelligence coming up after this.
Speaker 1 (06:10):
You're listening to the Bloomberg Intelligence Podcast. Catch us live
weekdays at ten am Eastern on Apple, Cocklay and Android
Auto with the Bloomberg Business app. Listen on demand wherever
you get your podcasts or watch us live on YouTube.
Speaker 3 (06:24):
A big deal of the day, Netflix acquiring Warner Brothers Discovery.
What's the regulatory framework? Are the regulators going to take
a look at this deal? This is a monster deal
in terms of dollars, you know, eighty billion dollars of
enterprise value. Let's check in with Jennifer Rea, Bloomberg Intelligence
senior litigation analysts.
Speaker 2 (06:40):
So, Jen, this is a big deal. How the regulator's
going to view this?
Speaker 6 (06:47):
It really is, Paul, and I think, and we've seen
a lot of opposition to it coming out already. I
think it's going to get really significant scrutiny, not just
in the United States by the Department of Justice, but
likely also in Europe and by the UK and possibly
some other jurisdictions as well. But you know, they're going
to look at these overlaps, which in this case are
both horizontal. That's in streaming. They both provide stream both
(07:10):
companies provide streaming services, but they're also vertical. You have
a big streaming service buying a big movie and TV
producer and a big content a library of content, and
that creates vertical issues. And when a company is really
strong in both levels of a supply chain. When they
vertically integrate this way, that can raise concerns too, So
(07:31):
the Department of Justice is going to have to dig
into both of those issues. And last, Paul, I'll say
this because we haven't seen very much about it, but
there's also what we call a monopsony concern here. Monopsony
is when there are a merger results and too few
buyers of a service or product. So in this case,
you've got two huge creators of scripted content that are
coming together and that could have a negative impact on
(07:54):
the artists, the production people, the writers that go into
making all the TV and movie content that the companies make.
Speaker 5 (08:02):
Jennifer walk us through what exactly happens to the deal
if the DOJ or regulators more broadly decide to push
back on this.
Speaker 6 (08:10):
Sure, So there are a couple different things that can happen.
I'll start by saying this. In depth investigation usually starts
by issuing what are called second requests for information. Those
are like really big subpoenas where they're going to get
a lot of business documents, a lot of data and
information from the companies. Now, once the DOJ has looked
at all that material. They have to decide either they
clear it out right, they clear it with the negotiated
(08:31):
settlement with the companies, or they soon to try to
block it in trial. A negotiated settlement could mean agreeing
to divest a product such as HBO max and or
agreeing to behavioral remedies such as making promises about the
way the post merger firm will behave in the marketplace.
But if something like that can't be agreed upon, then
(08:52):
the only thing the DJ has left to do is
go to trial and seek a permanent injunction from a
judge that blocks the companies from closing the deal. They
did that when AT and T he tried to buy
Time Warner several many years ago. But I'll contrast that
to when Comcasts bought NBCU. They also had some concerns there,
but they entered a settlement agreement with respect to that deal.
Speaker 3 (09:14):
Jen Politics, I think politics is going to come into
this deal, maybe more so than some others here generally,
I guess, on the one hand, we have an administration
that presumably is more open to consolidation across industries, taking
a lighter touch. But then there's also a president who
makes it personal oftentimes.
Speaker 2 (09:33):
Do we have any idea how that might shake out?
Speaker 6 (09:36):
You know, Paul, You're exactly right, And it makes it
so hard nowadays to actually really do a true anti
trust analysis of a deal because we have seen the
Department of Justice and the Federal Trade Commission, I could say,
aligning with the Trump administration in anti trust outcomes for
deals and pushing the policy priorities of the administration and
listening to what the President has to say. So where
(09:59):
the pre and the administration is against a deal, it
is a higher risk, i would say, of that deal
having to defend itself in court and the Department of
Justice seeking a block. But on the other hand, Paul,
we don't really know what's going on behind the scenes.
You know, we've seen some of these companies to mergers
hire some Trump aligned lobbyists, powerful people in Washington that
(10:20):
have helped them to push through the deal that was
the allegation with respect to the settlement the DJ entered
when Hewlett Packard bought Juniper. We don't know what other
kinds of concessions or agreements are being made. You know,
this is all sort of the back room channels and
without knowing that It's hard to understand where the administration
may come out months from now in the end on
(10:40):
the deal, but at least for right now, we know
that the administration doesn't look happy about this buyer. They
would have preferred Paramount.
Speaker 2 (10:46):
Stay with us. More from Bloomberg Intelligence coming up after this.
Speaker 1 (10:53):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Applecarqel, and Android Auto
with the Bloomberg Business app. Listen on demand wherever you
get your podcasts, or watch us live on YouTube.
Speaker 5 (11:07):
We did get some earnings out of Hewlett Packard Enterprise,
that's taker HPE. We did see that this essentially disappointed
what investors were looking for here. We did see the
company gave an outlook for sales in the current quarter
that fell short of the high expectations, particularly for its
AI server business. And we've got the best person to
help us break this down. We're looking at going to
be chatting with Bloomberg Intelligence senior tech analyst Wu Jinho.
(11:31):
He's coming to us out of Princeton, New Jersey. Tell
us a little bit about what you took away from
this earnings report.
Speaker 7 (11:37):
Oh yeah, thanks for having me so I actually like it.
I know there was a high focus on the revenue
numbers for the upcoming quarter, but EPs they actually erased
the EPs guidance from two twenty on the lower end
to two twenty five and two forty on the high
end to two forty five. So essentially, the strategy that
(11:58):
Antonio straight laid out with the Juniper acquisition is working
out as planned. It is cushioning some of these higher
commodity costs and the higher AI mix. So you despite
the disappointing one Q sales outlook, the overall years should
be fine.
Speaker 3 (12:15):
So the company's talking about, you know, substantial interest in
its AI servers, and they call out governments, and that's
kind of new for me at least. I guess I'm
kind of used to talking about the hyper scalers, whether
it's Microsoft or Amazon. I've just spent maybe other categories
of people that may be making some AI investments and servers.
Speaker 7 (12:35):
Yeah, hey, Paul, So let's think about the sovereigns. Let's
think about the Saudi's, the US, the US federal government,
they are going to start ramping up their own AI
initiatives as well, right, the Department of Energy, Department of defense.
They're customers of HPEES Supercompute, and they're going to convert
(12:57):
from supercomputing to AI s servers as some of these
configurations start rolling out. They already you know, h HPE
already has some agreements with the saudist. But you know,
and that's one of the issues with with HPE's outlook.
It's more on the timing of when these deals are
flowing through. It's being pushed out more towards the second
(13:20):
half of the year versus the first half. But they
are going to play a much more meaningful role in
the future, not only for HPE, for Dells and super
Micro as well.
Speaker 5 (13:31):
So how are they doing in terms of comparison to
competitors in this market.
Speaker 7 (13:36):
Well, I mean, you know, HPE has made the strategic
content on not going after these lower margin AI server deals.
If we look at, you know, some of the competitors
the way I have Dell modeled out, they're going to
do roughly about forty billion dollars in AI server revenue.
(13:56):
Super Micro around the seminal level similar level for next
year is probably going to do roughly about five billion
dollars in AI server AI server revenues. In physical twenty six. Now,
look that five billion dollars is not that the sneeze at,
but you know, relatively speaking, it's gonna be much smaller
in scope and scale.
Speaker 3 (14:16):
Why are they smaller? Why are they lagging? And is
there a plan for them to kind of narrow that gap?
Speaker 7 (14:21):
Yeah, you know, I found that to be disappointing in
terms of lagging. I do think they have the assets
to do so. But at the end of the day,
you know, the management team at HPE is very focused
on shareholder and shareholder value. These AI server deals are
very low in margin and highly competitive, so they're not
(14:43):
chasing after these lower margin deals. And one of the
streetategic reasons on why they're going after HP is going
after these sovereign deals is because they think it's going
to be higher in margin and and hopefully that does
pan out for them, which is one of the reasons
why that you know, we're talking about one fifth the
size of the deal flow for them.
Speaker 5 (15:03):
So out of outside of HPE, what else are you
really keeping an eye on right now in this tech space?
Speaker 7 (15:09):
Well, well, the AI play is going to be pretty important,
but I will tell you, uh, the d ram story
is actually going to start materializing in as a potential
headwind for all of the hardware space. One thing that
we didn't discuss on HPE is the three hundred percent
rise and d RAM prices is going to affect their
(15:31):
server sales. They think they're going to pass that through
to customers. I have I'm a little bit skeptical, but
I think it's you know, the rise in commodity costs
and d RAM is going to be the new tariff
story in twenty twenty six. That's going to affect a
lot of these hardware vendors.
Speaker 2 (15:45):
Why are DRAMs up so much?
Speaker 7 (15:48):
AI AI AI, you know these hyperscale the hyperscale cloud
guys are sucking up so much of this memory, and
the DRAM vendors aren't raising the capacity. So when demand
is tilting over one way, uh and some of the
standard DRAMs they're not producing as many DRAMs and the
capacity is not growing, you know, there's no nowhere else
(16:11):
to go for the price to go higher.
Speaker 5 (16:12):
I mean, when we think about AI, and we're talking
about HPE right now in particular, our expectation is just
too high. Are people putting so much pressure in these
companies and we're seeing these you know, these estimates and
we're not really seeing them delivering or what's your read
on that?
Speaker 7 (16:27):
Well, So let let's let's let's talk about HPE in particular.
Speaker 3 (16:30):
Right.
Speaker 7 (16:32):
You know, the way I wrote my earnings outlook commentary
was it depends on the lens that you look at, right,
from an earning from a sales lens, the AI sales
did disappoint, right, But if we think about it from
an earnings and a cash flow lens, the networking business
actually did as well as it should have, and it's
doing the work that it's supposed to be doing in
(16:53):
terms of cushioning some of the lower margining business. And
quite frankly, I still think that there's potential for Ernie's
upside if networking execution strengthens going into the rest of
the year.
Speaker 2 (17:06):
Stay with us more from Bloomberg Intelligence coming up after this.
Speaker 1 (17:13):
You're listening to the Bloomberg Intelligence podcast. Catch us live
weekdays at ten am Eastern on Apple, Cocklay and Android
Auto with the Bloomberg Business app. Listen on demand wherever
you get your podcasts, or watch us live on YouTube.
Speaker 5 (17:27):
Let's switch gears and dig a bit into the industrial space.
I mean, just last month we had a sphears of
a government shutdown continuing, and we saw it was the
longest government shutdown in US history. But this did drag
on a lot of the major airlines. And we have
a wonderful person to discuss us here with us today,
George Ferguson. Of course, he's Bloomberg Intelligence senior Aerospace, Defense
and airlines analysts, and we want to chat a bit
(17:48):
about what's going on in terms of Southwest earnings and
how government shutdown actually weighed potentially on this company here. George,
what is your takeaway here from what we're hearing from Southwest?
Speaker 8 (17:59):
Yeah, I mean it was a little bit more than
we expected. I think the impact was about two hundred
million dollars on the quarter. It was in line with
what Delta Airlines had reported. We probably thought, you know,
perhaps Southwest a little bit less impacted as they're not
as heavily into the sort of the high volume airports,
(18:20):
you know. And actually I think it was a bit
surprised as well that they talked about the booking curve.
We think most people, you know, typically book well before
the holiday season, so we wouldn't have expected their booking
curve to be as impacted, But I mean again, I
think it's you know, largely in line with what we expected.
A couple hundred million dollars hit. I don't think it'd
be It's not gonna be terrible.
Speaker 3 (18:41):
Stock is up four point six percent today, fifty two
week high for Southwest Airlines. So, George, what's the I
know you've either have publisher working on your twenty twenty
six outlook here, what's kind of the call for the
airlines in the next six or twelve months?
Speaker 8 (18:56):
Yes, I mean as we look at you know, twenty
twenty six, we get it like visibility about six months
where the schedule and you know, we've already started to
look at schedules for the new year. So in the
first half of the year, the domestic business appears to
be growing. The domestic capacity for US airlines is.
Speaker 9 (19:15):
Growing around GDP is two and a half percent, and
we see less of that growth in the low cost
airlines space.
Speaker 8 (19:25):
Now, Southwest is in the middle of migrating between I
don't know if I call them low cost, they call
them budget. They're in the middle of migrating from budget
to an airline that's going to offer premium, you know,
premium seating and some premium services in the new year.
So look, you know, it looks like there is a
(19:46):
not a restructuring, but an adjustment underway again in that
budget low cost world. That's going to be less growth
than you're seeing in the full service the trend we've
seen here in twenty twenty five. So we're thinking that
premium seating, full service seating could be a bit excess
and could see continued push on the unfairs. We're thinking
(20:08):
budget ought to get a bit better. We were projecting
kind of a three percent increase in Southwest yields originally
before the government shut down. Now we're kind of thinking
two and a half percent. I mean, that's really not
bad for four Q So again we think that sort
of carries into the new year. Another big issue in
the new year is going to be a lot of
(20:28):
the US airlines got a bit of a kicker, got
a tailwind from lower fuel prices. We don't see fuel
prices going much lower from here, so that tailwind sort
of peels away in the new year, and that's something
they're going to have to manage as well, even as
they try to get sort of yields sorted out. We
don't see yields improving dramatically right now, but we see
(20:51):
yields probably firming a bit and maybe not falling. As
you know, following George, you have.
Speaker 5 (20:57):
A broad view between aerospace, defense, airline, and you know,
as we're kind of wrapping up earning season, if you
want to call it that, did you hear about tariffs
at all during this earning season? Are you expecting to
hear about this in twenty twenty six?
Speaker 8 (21:11):
The truth is tariffs. Really there was a little bit
of commentary around tariffs. We heard, I think most of
it from the engine makers, you know, a couple hundred million,
five hundred million here and there, which really doesn't matter
a lot on their business. So largely tariffs look to
have been you know, sort of I don't know if
(21:32):
they were sidestep but avoided by the aerospace supply chain.
One of the things about the aerospace supply chain is
that it definitely bridges the US and Europe, and it's
definitely sort of a you know, a NAFTA. NAFTA is
the old word whatever that North American Free Trade Zone is.
There's a lot of componentry that moves around that those
(21:55):
two regions, and so it's going to be I think
in everyone's best interest to keep tariffs off of aerospace, so,
you know, I think some of that had to play
obviously with the European agreements. In North America, we've seen
some give and take, right as Trump got mad at
at Canada here and there and decided there's going to
(22:17):
put some terrorfts on them. But again largely it's been
side step. The biggest problem was I think Brazil and
late in the you know, late or recently we've seen
the Canadian issue, but I think it's going to go.
I don't think it's going to be big issue.
Speaker 1 (22:31):
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