In this episode of Industry Focus: Consumer Goods, Emily Flippen and Motley Fool contributor Dan Kline chat about the current state of the cord-cutting trend. They discuss some of the players operating in the streaming and TV space, their various business models, and the viewing habits of consumers. As content becomes more and more fragmented across different streaming services and channels, it adds to the cost for consumers, so is cable going to re-emerge as the ultimate winner or is there some other way?

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This video was recorded on July 14, 2020.

Emily Flippen: Welcome to Industry Focus. It's Tuesday, July 14, and I'm your host Emily Flippen. This week I'm joined by Motley Fool contributor Dan Kline as we take a look at the current state of cord-cutting. Dan, how are you?

Dan Kline: I'm good. Dealing with some technical issues, as you know. Cords, which I have an awful lot of around me, sometimes get cut even if you don't want them to. I don't know, maybe there are ghosts in the machine on occasion.

Flippen: I think technical issues are something that everybody who has been working home during this pandemic can relate to. I know I myself have dropped out of a number of important calls, like taping Industry Focus, because my internet just didn't want to work.

Kline: It's happened. But we're going to talk about the more intentional cord-cutting, and wow, have those numbers sped up -- 2 million people in the last quarter, which is just stunning to me.

Flippen: Yeah. So, cord-cutting, maybe we should preface this with an explanation of what cord-cutting is. I always operate under the assumption that people may be familiar with this trend, but in reality, I'm not sure if the name [laughs] cord-cutting really addresses the core issue, which is really just people stopping their cable subscriptions.

Kline: Yeah, this is kind of an outdated term, because not everybody's cable still has that cord. Like, we have a Motley Fool ad where it's an older gentleman with the scissors, and he's cutting an old-school coaxial cable. That image is out there, but yeah, it's getting rid of the traditional cable bundle, the live channels, it's usually $100 to $200. You're paying somewhere between $99 and $200-plus, depending on what you have.

Emily, I'm old enough that I remember how exciting it was to first get cable. When I was in, like, fifth or sixth grade, we had eight channels. It was like, three networks and a handful of very scratchy channels that didn't come in all that well. Maybe PBS in Boston, you could watch Zoom and Mr. Rogers -- not the Zoom we use for video conferencing, the old Boston-area children's show Zoom.

When we got cable, our first box, if you wanted to go to Channel 4, you pressed a "4," there was a push-down button for each channel. And there were still only, like, 25, 30 channels. I joke that HBO basically had Grease 2 and Just One Of The Boys (sic) [Guys] and rotated those two movies. That's not entirely true, but it's pretty close. And that has exploded into the universe where not just one Food Network is enough, but we also have to have the Cooking Channel, we have subchannels of niche channels. And, look, that's going to change, but people, for a while, cable was table stakes, you had to have cable or you were, like, not a member of society. That is slowly becoming not the case because there's all sorts of other choices. Some of which are cable-like, and we're going to talk about that, and some of which are things like Netflix (NASDAQ:NFLX), which are not cable at all.

So, I had black-and-white TVs. [laughs] Yeah, when I was a kid, on our porch, we had a black-and-white TV. And in my room, I had a battery-powered black-and-white TV that I used to bring to summer camp. We would watch pro wrestling on Saturday mornings around a 6-inch black-and-white television. Yeah, my parents had the big cabinet and then the giant TV embedded in the wall, where, when that no longer became a thing, it's like, what do you do with this hole in the wall that goes four feet back? So, Emily, in my 46 years, television has changed quite a bit. I now have 32-inch TVs that cost less than $150, whereas when we first got a 32-inch flat-screen TV, that was like an investment, that was something I was, like, proud to own. Now, that's like the TV in my fourth bathroom. I don't have four bathrooms, but you know what I'm saying.

Flippen: I've clearly shown my age here and underrated the evolution that was TV. That joke may have hit [laughs] a little too close to home.

Kline: It wasn't like we didn't have color TVs; it was just our third and fourth TVs were black-and-white.

Flippen: [laughs] Well, the reason why I wanted to have this conversation today is because last week, we had news that YouTube TV would be increasing its monthly subscription price to $65/month, because -- wait for it -- they were expanding the programming [laughs] and offerings as part of their product, throwing back to the reminiscent days of your cable product [price] going up as they expanded new programming. So, there was, obviously, a really large amount of backlash from these cord-cutters, because the whole reason why people subscribed to services like YouTube TV, was because they didn't want to pay for channels and subscriptions that they didn't use.

And I know you've made the argument, Dan, that you think the state of cord-cutting as it exists today is going to dramatically change or already has changed. So, what do you make of this?

Kline: Well, you have a problem: People want their cake and they want to eat it too, and then they want another cake delivered, [laughs] you know, and that all to be included. The problem is, if you want to have a skinny bundle, which is what YouTube TV was first promised to be, you're going to have to give up some channels or you're going to have to pay more money per channel. In a truly a la carte world, you're going to pay a lot more, because let's think of it now. I mentioned Cooking Channel before, Emily, I don't know if you watch Cooking Channel, but I'm going to guess we both watch -- I don't know if you have cable even, but Animal Planet, if you had cable, is something you might watch. There's a show there called Too Cute! that's just kittens. And I feel like you'd enjoy that show -- we're both cat people.

You and I, if you had cable, which I don't think you do, we each pay maybe $0.02 [a month] to get Animal Planet. But you pay it whether you want Animal Planet or you don't. When you get rid of tens of millions of people from paying that $0.02, and you say, OK, Emily, you really want Animal Planet, a la carte on Sling TV or YouTube TV, you want to add that to your subscription? Okay, it's $6.99 a month. And that's the problem. Now, that's not a channel that's available a la carte, but a lot of channels are. And if you take away this, sort of, communist system where we all support each other's weird likes -- like, my wife likes to watch true crime dramas. I don't understand that at all. But whoever else has cable is paying their fraction of a cent so she can get Court TV or whatever channel it is that she's watching. That world is crumbling.

As cable lost about 5 million people last year, it's about double that number since cord-cutting started, and it's only getting worse. That's going to make some of these lesser channels that have their fan bases less viable. And some of them, look, the Food Network and Cooking Channel might be able to make up that revenue via an app, via selling content other ways, maybe via charging you for a $9.99 subscription that comes with some special stuff, and they'll get half a million subscribers in addition to their cable base, and that will help prop them up. But a lot of channels? I don't know. Like, I might flip by and watch something on MTV, but I'm not going to pay for MTV. You know, I have Sling TV, which is really the only true skinny bundle, mass-market product, and it's $35 for 35 channels. I can add other channel bundles, but on a per-channel cost, they're pretty high.

So, we kind of have a devil's bargain here. We all wanted lower cable bills. In exchange for lower cable bills, we're going to get a lot less, and when you get a lot less, sometimes you're going to miss what you don't have, even if it's something you only watched occasionally.

Flippen: What's really interesting is, the reason why we saw a move toward cord-cutting was because prices were, you could say, getting out of hand and people wanted a cheaper alternative in the era of streaming services like Netflix. But to your point, if you start buying things a la carte, that really, dramatically increases the amount of money that you pay for your entertainment services, whether that's subscribing to YouTube TV or subscribing to Sling. So, is the future of cord-cutting actually [laughs] just more expensive than cable ever was?

Kline: More expensive and less convenient for some people. So, think of it this way. So, I have Sling, I have Netflix, I have HBO Max because I have HBO, I have WWE Network. And some of those I can watch in one interface on my TiVo device, but I only have one of those. So, if I am using my Roku device or my Amazon device, and I want to switch from Sling to Netflix, I have to switch services, and that actually takes time. So, I'm paying individually for each of those services, and it's not that fun to flip around. Now, my TiVo does make that easier for the big-name services. If you know what you want to watch, you don't have to switch in and out of devices and it works better. And I do think we're eventually moving toward aggregators, where they figure out how to do that, to take all the content you're legally entitled to and giving it up to you on a grid, a more television-like flipping experience, but right now, that is not the norm.

And, yeah, if you get YouTube TV and layer that with a bunch of different streaming services, you could take yourself above the $110 average cable bill. Now, are you going to take yourself to the cable extremist who is paying $185, $200, probably not, but there are more streaming services coming. Peacock launches this week. Well, that's [$5 a month], if you want the [full] advertising-supported service.

And look -- nothing is going to get cheaper. Netflix isn't going to come around and say "we're lowering prices." You can bet that every few years, everybody is going to raise prices. That may well no longer happen with cable because they simply might not be able to. So, you might see a point where to get everything you want, especially in say, a family of four -- I'm in a family of three, and we all watch different things. I don't particularly watch Netflix; I could get rid of Netflix and not be that upset about it. My wife would stab me in my sleep, she wouldn't literally do that -- that's an expression, but she likes Netflix, she watches a lot of shows without me on Netflix. She probably doesn't even know we have WWE Network or DC Universe. We have different tastes in things.

So, this is one of those scenarios where absolutely cost could get out of control. You know, if you order a sushi meal, that's going to fill you up. If you order a la carte sushi, that gets expensive really fast.

Flippen: You kind of pitched two concepts here, one being that streaming services are going to get more expensive. And I can see that as a really compelling argument. As their cost structure increases from the original programming, but also just as they get more scale, they get a little bit of pricing power with their audience. But the flip side of that is, if there are more streaming services, doesn't that mean that competition heats up, and shouldn't that lower prices? Do prices for streaming services really go up from here?

Kline: I think they do for the winners. Look, do I think Netflix is going to raise its price by $5 next year? No. Do I think they'll say, 18 months out, "we're going up a $1"? Yes. Do I think Disney+ is not charging enough? They're not charging enough. And I think there will be a scenario where Disney+ says, "Hey, we had this new Star Wars thing and we were going to release it this way, but now we're just going to bring it to Disney+, but by the way, our prices are going up to $8.99, you know, if you don't join now." It would only be $7.99, if you join now, instead of the $6.99 people are currently paying. I think $9.99 is not a difficult price ceiling for something that has that. So, I think they have a lot of ability to go up.

I think Netflix starts to hit some bumps as they go higher, they might see increased churn. But those two, kind of, have endless pricing power. Some of the other players ... I mentioned WWE Network, they're going to go to more of a tiered system. They might take something like WrestleMania, which is their biggest show of the year, bring that back to traditional pay-per-view, but instead of $9.99 a month, they might say, well, if you pay $14.99 a month, you'll be on the premium tier, and we'll give you WrestleMania as part of that, instead of you having to pay $60.

That was kind of the original premise that people who were paying $60 a couple of times a year for pay-per-views would pay $9.99 to get all of that programming. And that turned out to not be the case. People were actually willing to spend more money in $60 increments when they were really interested in the show than to pay $9.99 every month for content they may or may not want to watch, which, that might be unique to sports -- or fake sports as wrestling is, sorry, wrestling fans, if I spoiled something there. I'm sorry, "preplanned results" or however they call it. But this is one of those scenarios where I don't think we really understand the pricing model.

If Netflix went to $19.99 and you're a big fan of it, I don't think that matters, but it might mean you get rid of CBS All Access or something else you're paying for. I really think this is going to be a market where the winners win big, the niche players might do OK. I think if ESPN came out with, you know, you can get the SEC Network for $2.99 a month. Well, if you're a fan of the SEC, you're probably going to do that, so.

But the mid-tier players, like, I worry a lot about HBO Max. When was the last time HBO had a big hit? I worry about Peacock, because what's on that platform that you care about? And people say, "Oh, well, The Office." People watch The Office in the background. Nobody is subscribing to something so they can get F.R.I.E.N.D.S. episodes. F.R.I.E.N.D.S. is like comforting and something you watch with -- it's like my mother always having The Big Bang Theory on. She's not paying attention to it; she's seen them all 100 times. My grandmother used to do that with the Ted Danson show Becker. She had seen it 100 times, but it was just comforting. You're not spending money for that.

So, I am very confident that the winners will win. And there might be three winners, it might not just be Netflix and Disney+, but it's not going to be five winners, would be my guess.

Flippen: You're definitely going to get some tweets out with that commentary on [laughs] The Office. It will be really interesting to see what Netflix's churn is like when they start to lose some of these, you know, powerhouse subscriptions, powerhouse channels that have been driving people.

Kline: Yeah. You know, the big hit shows that make you use Netflix more. Where you're just like, "I'm not doing anything, I'll put The Office on." And I think that's important, but as long as Netflix has hits that are driving people to it, you know, you're not going to not watch the new season of Orange Is The New Black if you're a fan of that. My wife asks me once a month, like, have they confirmed a new season of Ozark? And I said they haven't, but there's going to be a new season of Ozark, they're just going to be on their own production schedule. Hits are way more important. Disney is in a much better position to deliver hits than anybody else is.

And it's one of those scenarios where, you know, if NBC says, hey, we're going to do bonus episodes of Weekend Update during the summer on Peacock; and I used to watch those when they did that on actual NBC during the political season and it was a fun show. But would that drive you to subscribe to Peacock, or would it just be a nice thing if you had Peacock anyway? Maybe the Olympics will help, should we ever get an Olympics, maybe some sports rights will help with Peacock. And that could be the third winner. And HBO might be a winner more because their real service is HBO, and HBO Max is something you get if you're getting HBO, and there's a lot of ways to get HBO in addition to subscribing via cable. You can integrate HBO into your Sling TV account and it pops up just like it would on cable as any other channel, and that gives you rights to the new HBO streaming service.

So, this is a really changing world, but I would not -- I hate to pick on CBS -- I would not want to be CBS All Access, I would not want to be Sony's Crackle. I don't know what's left on Sony's Crackle, but that service still exists and it doesn't even feel like what I would ever turn on, whereas I used to occasionally in the early days of streaming, maybe see if they had a movie, or watch Dan Patrick do Sports Jeopardy. Now, there's like 8,000 things in my DVR and we're in the middle of a pandemic where they're not producing television.

Flippen: And we didn't even touch on a lot of the new ones coming out. You mentioned Disney+, but there's also HBO Max and Hulu, in addition to Netflix. It seems like every other week we get a new streaming service -- or Quibi, if you can even put that in the league of some of these other streamers. So, when you think about the future, is the future just a consolidation of streaming, or does it really come down to just producing original content, and everybody can be independent as long as they have compelling original content?

Kline: So, I think we're going to see a reverse of what happened with Hulu. Hulu started as Comcast and Disney and someone else -- I'll say Time Warner, but I might not be right there -- partnering to launch a streaming service. "Hey, we all have these shows, we'll spend some money on new productions, we'll all split that, we'll take our shows that are on our networks and we'll air them 48 hours after they air. We'll charge for this, that'll all work. And now, Disney owns the entire company, because they wanted to control it, because frankly, it matches really well with Disney+. So, Hulu is going to do fine for cord-cutters who want some access to some network programming, but I think you might see Comcast look around and say, "Geesh! Can we integrate with CBS All Access? Would this be better as a combined service where we all pitch in on new programming and have a lot more archives?"

I don't think Paramount and Sony and some of the other players -- they might continue licensing content, but the best play, in my opinion right now, would be to do what Netflix had been doing and aggregate as much content as you possibly [can]. I don't know what's left out there. That's the real challenge, all the best stuff is spoken for, but I do think you're going to see -- look, Time Warner launched DC Universe and then pretty quickly realized, who's going to pay for that when it's also going to be part of HBO Max? And I would fully expect that DC Universe, as a stand-alone product, goes away. They might still give you a stand-alone interface, you can actually get to that interface through HBO. So, you can see a lot of those shows on the HBO Max interface, but you could also just purely get the DC interface.

You're going to see consolidation; I don't know what that's going to look like. I mean, I don't know what Sony's Crackle owns and has rights to, that maybe that merges with Popcornflix, which is another free movie service, and maybe that becomes part of Pluto, which is another free TV service. If you want to watch ALF, Pluto is where you could probably go see it.

There is a crazy amount of choice right now, and that's a problem, it's too much choice. I don't know if you've looked at a Roku front page, but it can be daunting to see how many different apps are available. And they don't all do what you think they will do; we haven't even talked about ESPN+. ESPN+ isn't ESPN streaming. It's extra stuff, it's mostly mixed martial arts and, like, shoulder programming for things ESPN has the rights to.

So, yeah, this needs a lot of aggregation, it needs some consolidation. Wouldn't it be nice if Disney had one interface where if I paid for Hulu, Disney+ and ESPN+, I could get all of those on one screen, maybe with some parental controls? We are in maybe the second inning of a nine-inning game here, and what we're not sure is whether live-streaming, because that's what we started talking about with YouTube Live, we're not sure this is going to work. I think the best of these is Sling TV, based on what you're getting for the price. And Sling TV went in the wrong direction. They lost customers.

Overall, the concept of streaming TV, it has more players but it didn't grow in the last quarter. So I'm not sure there's this giant audience of people out there that want less cable, but still cable, but no local channels, but in some places, local channels, and you pay a lot more for that. It's very confusing, and I do think that's going to help cable for the next couple of years. I don't know where the bottom is, I don't know that the bottom for cable is zero. It might be, I think they're in about 87 million homes now; it might be 70 million, it might be 40 million. It's really hard to know those numbers.

Flippen: And to bring this back to YouTube TV, part of the reason why they justified increasing their price to $65 a month is they did a direct price comparison between YouTube TV versus alternatives, and they estimated that if you pay for Hulu plus live TV, that would cost about $65 a month, and if you paid, for what they call, traditional services, which are your traditional cable bundles, then you're paying somewhere, on average, around $110 a month. And that was their justification for increasing their price to $65 a month, seemingly unaware of everything you just mentioned, Dan, which is that people do not subscribe to only YouTube TV, right? That's not their only streaming service. They're likely paying for other streaming services as well, which push them above that traditional cable bundle.

With that in mind, and with everything that we've talked about, is the future just cable? I mean, you said that cable numbers are dropping, but at this point, the whole reason why people started cutting the cord was because they didn't like expensive contracts and everything was too pricey for what they were getting. If streaming services are getting more expensive and content is being distributed across numerous channels, aren't the aggregators, the cable networks, the ones that win in the end?

Kline: So, I think you might see a period where families recognize, especially if they have different age kids and a couple that have differing tastes, that they're spending so much money to get everything they want, that they'd be better off just paying for cable. That is the determination my family came to. Now, we have cable as part of our HOA, so I don't really have a choice there. But that said, when we travel and we have Sling TV, we are all losing things we would like to watch. So, because of what I do, I obviously pay for a lot of streaming services.

I think you're going to find people making the choice of, do I want some version of cable? That's the best way to get local channels. You can get them through YouTube Live. You can't get them in most cases through Sling TV -- there are a couple of exceptions in a few markets. But you're paying for that. Now, if I have to pay $70 for something that's not as good a viewing experience as traditional cable, and I could get cable for $109, I might get cable and Netflix and call it a day. I think there are large groups of people who are doing that. You might see the return of people who are doing that, or maybe they have cable and Disney+, depending on the age of the kids.

But the challenge is, as cable keeps getting smaller, which it has been steadily doing for five-plus years, and the numbers have been accelerating, you're going to start to see channels go away. If one of my justifications for cable is the Cooking Channel, and my wife and I watch a lot of Food Network and Cooking Channel, sort of, in that background sense. You know, Diners, Drive-Ins and Dives or Chopped is on while we're eating dinner or making dinner or whatever it is. If that goes away, does it cut into my justification for having a cable bundle? It does. But it also cuts into my justification for Sling TV or whatever service I was buying based on which one had the channels we like the most. This is going to be a universe that cannibalizes itself.

And, ultimately, we're living in a golden age of choice. There's going to be less choice around the -- I don't even know how to describe this, because a hit on Netflix isn't the same as an old-school hit on TV. So, you can be a hit on Netflix, you might have 5 million viewers, but those viewers might tell Netflix, "This is why I'm here," and it becomes very valuable. That would have been a decent size cable hit. It would be a failure, in most cases, on network TV. That level of show is still going to work. But the show that has, like, 750,000 devout fans, you know, something like Conan on TBS, which is about a 1 million people or even The Daily Show, which is not that much higher than that, maybe a 1.2 million to 1.3 million, it's going to be hard to justify the cost of those shows.

As Comedy Central is getting less nickels from people or quarters or whatever it is for Comedy Central, as that cable number goes down, unless they're part of HBO Max, unless they're able to monetize in other ways. But I do think you're going to lose some programming that people like, but don't love. I fear the Cooking Channel is probably a great example of that. I'd be upset if the Food Network went away. If the secondary Cooking Channel went away, it would be hard to argue with that.

Flippen: Well, you mentioned before that we're in the second inning of a nine-inning game here. So, this will inevitably change over time. I think what will be really interesting to see, and maybe we will do an update show a year from now, right? And just how much the landscape will have changed in regards to cord-cutting and the streaming services that we're seeing explode right now.

Kline: Yeah. And, Emily, there's also a third thing we haven't talked about. For people listening to the podcast, they may not know that Motley Fool has a product called Motley Fool Live, and if you're a member, you can watch eight or so hours a day, five on the weekends, of live television-like programming. You and I appear on a PTI-like show. And I bring this up because, in theory, television used to have a big barrier to entry. It was not easy to produce television. If you and I decided we wanted to do a call-in show on the internet where we talked about our cats and cat-related news, we could start that tomorrow. We already have the equipment to do that. And that might be a really important show for 500 people, 500 people might love it, they might be willing to send us $9.99 a month to do that. I'm making this up, but people who are more famous than us really have the ability to do programming in ways that didn't exist.

I mean, how many comedians have podcasts with hundreds of thousands, if not millions of people listening that they make a living from? Chris Jericho, the pro wrestler, has been going on YouTube Live on Saturday nights and it's attracting hundreds of thousands of people, because [laughs] we're all bored and stuck at home. I think you might see much more niche microprogramming, where you can really find exactly what you want and it becomes, sort of, like the podcasting world, where everyone has a television show but the barrier to be a professional television show -- look, a lot of people have investing podcasts. There's thousands of them. Most of them aren't being listened to by the tens of thousands of people, sometimes hundreds of thousands of people, that are listening to us here on Industry Focus. So, it's a changing world, and yeah, I feel like we're going to talk about this every six months until we, you know, both retire.

Flippen: Yeah. And one thing, and I swear we could go for an hour [laughs] if our producer lets us talk about this, but one thing we didn't even mention that's maybe worth mentioning before we sign off here is paid advertising in place of high subscription premiums. You mentioned live TV, for instance, on YouTube, on streaming sites, like Twitch, where a lot of that revenue actually comes from ad-based revenue. In that, people who maybe are already paying a really costly subscription to get content from HBO Max or Netflix, whatever it may be, may be more willing to watch ads on platforms where -- you know, I don't watch it enough to justify paying a monthly subscription, but when I do, I'm totally fine getting a two-minute ad before watching a show, because that justifies the price to me.

Kline: Yeah. I mentioned Crackle before. Crackle shows movies, and they're not top-tier movies, but they have plenty of things you've heard of. And in the middle of the movie, there are commercials, but if I'm alone and I didn't have to pay $3.99 to rent that movie on Amazon, and it's not on any of the other services, that's actually a commercial I'll sit through. It's frustrating, because it's always the same commercial over and over again, which does not seem effective.

Advertising doesn't work with traditional television the way it used to. I know that I don't watch anything unless I'm really excited about it, unless I've DVRed it. Even if I'm going to watch a football game, I usually just wait half an hour, isolate myself and then watch the game on a DVR, and skip the commercials. The only time I don't do that is if I know I'm going to be tweeting with friends or it's something like the Super Bowl which is kind of a communal experience. I don't think generally -- you know, with The Mandalorian, which is not ad-supported, that's a Disney+ show, there was an unofficial Motley Fool office rule, at least on the teams I'm on, that you had to watch it by Monday, because people were going to talk about it. And if you didn't -- it came out Friday, if by Monday morning you didn't watch it and somebody mentioned Baby Yoda and you didn't know what that is, that was on you. So, all of that is changing.

And, look, am I willing to sit through ads? If you said to me I'm going to get to watch a theatrical release at home, but there's going to be ads before it, I would certainly do that. I think Netflix makes a mistake in not offering you coming attractions. I don't mean ads, and I don't mean forcing you, but if I've chosen to watch something, part of the movie experience to me is well-curated current attractions. So, if I've decided I'm going to watch, you know, Bird Box or something that people were very excited about, and there was a quick -- just like you can skip the intro, you know, they said, "Would you like the full theatrical experience?" We will show you -- and they'll be good ones, it'll be for, like, exciting things coming to Netflix. Emily, do you ever know what's coming to Netflix unless you read about it? That feels to me like a giant missed opportunity.

Flippen: I'm one of those people that whenever I go to the movie theater, I purposely get there 15 minutes early to ensure [laughs] that I don't miss any of the trailers. And that's not to say that I go to movies often or that the trailers would somehow incline me to go see a show that I wouldn't have otherwise paid to see, but I just love that experience. And you know what, I'm surprised that Netflix isn't capitalizing on that idea already. I love that idea.

Kline: Yeah, look, discovery is difficult on the Netflix platform. I would love for them to just have, like, a channel that was trailers. There's actually a show called Nothing but Trailers on AXS TV. I don't think it's airing at the moment, because there's not a lot of movies coming out. And sometimes I would watch it just hoping to see trailers for movies I was excited about, because if you don't go to the movies often -- and obviously, none of us are going to the movies at all right now -- you don't know what's coming out. But sometimes on Netflix, it's really difficult to know, like, is this Ben Affleck action movie that's coming out, was it intentionally bought by Netflix, and they paid a lot of money for it and it's a theater-quality release? Or is this a movie that didn't work so well and was going to get released direct-to-DVD in the old days, and Netflix just swooped in and paid a little bit of money for it? A trailer can tell you this might be worth my time.

You know, they always say, "don't judge a book by its cover." How else would you judge a book then by its cover? You walk around the bookstore and you look for books that interest you, if the cover looks good, you may read the jacket. That's what advertising does when it works well. I know, Emily, if you're on Facebook or another platform, or frankly, if you're watching television and the ad is for a new flavor of something that you like and you go, "Oh, wow! There's a cookies-and-cream cereal? That sounds awesome, I'll go out and get it." You're not mad at the ad. But if the ad is for adult diapers and you don't need to see an ad for that, you're not looking for that product. Or it's for a sofa and you already bought a sofa -- well, that's not a good ad experience. I think we need directed ad experiences based on our choices.

Peacock is going to have an ad-supported tier, about half of their content is going to be available on an ad basis. Now, will that be a pleasant ad where they've targeted the ad toward the content, so it makes some sense? Are they going to break in every eight minutes and make me sit through the same three minutes of commercials like some places do, or is it going to work like a program with limited commercial interruptions where I'm getting maybe ads at the top and ads in the middle? How you handle advertising is really important.

We've talked before about embedded ads. If they've paid money for Bumblebee to be a Camaro and not a Volkswagen Bug, that is a way to show off the Camaro -- and anger Bumblebee fans -- but you're [laughs] going to see that type of thing more and more. Netflix isn't going to do it, because their bread-and-butter is not having advertising, but Hulu and Peacock and other platforms that have ad-integrated tiers are going to get more clever with their advertising.

Emily, we don't know where any of this is going to go, and it's really exciting to follow.

Flippen: It is really exciting to follow, and we'll see, again, as I said earlier, how it plays out over the next couple of years. Dan, thank you so much for indulging me [laughs] over the past half hour.

Kline: Thank you for putting up with my terrifying technical difficulties. I have no idea what was wrong, but really appreciate it. And Fools, thanks for listening.

Flippen: Listeners, that does it for this episode of Industry Focus. If you have any questions or just want to reach out to say "Hi!" you can always shoot us an email at IndustryFocus@Fool.com or tweet us @MFIndustryFocus.

As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against any stocks mentioned, so don't buy or sell anything based solely on what you hear.

Thanks to Tim Sparks for his work behind the screen today. For Dan Kline, I'm Emily Flippen, thanks for listening and Fool on!