Streaming, the Oscars, and Investing Lessons on the Big Screen

In this episode of Motley Fool Money, host Chris Hill is joined by The Motley Fool's Maria Gallagher, Catie Peiper, and Mac Greer as they discuss: 

• The Academy of Motion Pictures Arts and Science's tenuous relationship with Netflix (NFLX -9.09%) and other streamers;
• Warner Bros.' history of trying to recreate Disney's (DIS 0.16%) magic; and
• Unexpected business lessons from Oscar winners and nominees.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.

This video was recorded on March 26, 2022.

[MUSIC AND THE VOICE OF MICHAEL DOUGLAS] "The point is, ladies and gentlemen, that greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and catches the essence of the evolutionary spirit."

Chris Hill: I'm Chris Hill, and that was Michael Douglas. In 1988 he won the Academy Award for Best Actor for his portrayal of Gordon Gekko in the film Wall Street. It was a brilliant performance throughout the film, but the "greed is good" speech not only provided a signature moment for the voters, it also became a hot-button catchphrase. Some saw it as glorifying selfishness, others used it as a rallying cry for the next generation of investors and entrepreneurs. But there's something that happens just moments earlier in the speech that's more relevant for investors. If you haven't seen this film. and you should because it's a classic, here's the scene. Gordon Gekko is a corporate raider, he's attempting to make a hostile takeover of a company called Teldar Paper. At the annual shareholder meeting, Teldar Paper's CEO, Mr. Cromwell, makes a plea for the shareholders to vote for his plan to restructure the company and reject Gekko's plan. The meeting is held in a hotel ballroom filled with smoke. Remember, this was the 1980s, so it wasn't all that unusual for company executives to be up on stage smoking cigarettes. When Gordon Gekko gets his turn to speak, he takes the microphone and opens his case to shareholders with a point that's similar to what you may have heard before on this show.

[VOICE OF MICHAEL DOUGLAS] "Now, in the days of the free market when our country was a top industrial power, there was accountability to the stockholder. The Carnegies, the Mellons, the men that built this great industrial empire made sure of it because it was their money at stake. Today management has no stake in the company. Altogether, these men sitting up here own less than 3 percent of the company, and where does Mr. Cromwell put his million-dollar support? Not in Teldar stock; he owns less than 1 percent."

Hill: Say what you want about Gordon Gekko. But that's an argument that Motley Fool investors can get behind. Yes, we like it when a company's CEO and management team have skin in the game, just like individual investors like us. Today, in advance of Sunday's Academy Awards, we thought would be fun to take a closer look at the film industry from unexpected business and investing lessons that show up on the big screen, to the early competition between Warner Bros. and The Walt Disney Company, to the streaming wars of today. In addition to being a fan of movies, Maria Gallagher has studied the entertainment industry in her job as a senior analyst here at The Motley Fool. Maria, we've seen a lot of change in the Academy Awards over the past decade. There's a lot more diversity. There's a lot more inclusions. But from a business standpoint, one of the most significant changes has been the requirements for films that are eligible for Academy Awards. For the longest time, it was pretty straightforward. If you want to be considered for an Academy Award, your film needs to be in theaters. Specifically, at a minimum, it needs to be in theaters in New York City and Los Angeles before the end of the calendar year. When Netflix started getting into producing their own movies, that was a wall that they ran into, and the resistance was pretty fierce early on. It was basically, "Sorry, Netflix, you're streaming service, you're not eligible."

Maria Gallagher: Yeah. What's really interesting is, so the business model for streaming doesn't really have that type of vested interest in making these theatrical experience and propping up that type of industry. It was hard for Netflix to find theater chains to show their movies. They tried to do this with Roma, a lot of the major chains denied it. They have to go to indie cinemas because Netflix is only trying to get their movies to run for that minimum time, about two weeks, maybe three weeks. You see a lot of resistance in the attitudes of people saying, "That's not long enough, we're not going to allow you to do that," essentially. It's interesting because it becomes this push and pull where filmmakers don't want to sign on to do their film with Netflix until they get that guaranteed theatrical release. Because even if Netflix doesn't necessarily want that claim of the Oscars, even though it does, but the filmmakers really do. It's that push and pull of trying to get that accolade from the Academy while trying to make it business sense for it to happen for Netflix.

Hill: We've also seen not just the rule changes by the Academy but also an attitude shift among the voters. Because early on, you go back a decade or so, streaming movies were essentially seen as lesser than because they're not on the big screen. Even when films became eligible, they weren't really getting the love from voters in terms of nominations that they're getting more recently.

Gallagher: There was, people were talking about anti-streaming bias. A lot of people would say that the voters just didn't like a movie because it was on a streaming platform. In 2013, that was the first time Netflix was nominated for an Emmy, with House of Cards. But it wasn't until 2017 that Amazon was the first streamer to get an Oscar nomination for best picture for Manchester by the Sea. Netflix that year won for best documentary. But now this year for best picture, half the field are traditional methods and half are little to no theatrical presence, so through streaming. Netflix has 12 nominations. Apple has six nominations. Amazon has four, and Hulu has one. It's actually the total nominations for Netflix is 27 this year, which is a bit of a drop from 36 from last year, but it's still making up a real chunk of the potential awards. We're seeing that reluctantly this mindset has to shift is if you watch these movies, a good movie is a good movie. Reluctantly the attitude has started to shift to say, "OK, I guess Netflix and Amazon and Hulu can make really good movies."

Hill: They can make really good movies, and as we're seeing with a movie like Dune, they can make the type of movies that we traditionally think of as being well, this is one you've got to see on the big screen and you can, but it also is good enough that it plays on the small screen.

Gallagher: Yeah. The past few years you've had a lot of hybrid releases. I think that's going to be interesting to see in the next couple of years how that changes, how that stays the same, if we're going to continue to see this, or you can see it in the theaters or you could see it at home. I know I over the summer saw In the Heights in the theaters because my roommate and I thought it would be fun, but I can't think of any other movies that I would go out of my way to go to the theaters to see it if I knew it was going to be on streaming relatively quickly. I wonder what that's going to look like for the next couple of years and how that's going to change the habits of people going to see movies in person.

Hill: This time of year, before the Academy Awards, where you always see a lot of advertising from the studios. They're really trying to put their films forward and the performances forward for voting consideration. There's an economic calculus by these businesses, because in theory, if they're winning awards, if they're paying money for this advertising up front to win awards, presumably, in the case of the streaming services, there will be a reward for them at the end in terms of more subscribers and maybe even reducing their churn.

Gallagher: It's really interesting to look at the churn environment today. According to Deloitte, in 2022, they're anticipating more than 150 million people will cancel a paid streaming subscription. A global churn of about 30 percent, a U.S. churn rate of about 38 percent. They call it churn in return, which a lot of millennials and Gen Z do,  where you sign up to watch one thing, that thing ends you cancel it you come back for it to happen again. There is actually almost half of the U.S. households have a minimum of four streaming platforms. People are really bopping around and then they're going to delete it, redownload it, and what they're trying to do is trying to reduce that turn trying to keep people coming back and what they're really trying to focus on is getting better at predicting what people should watch next based on what they've already watched. Because if I go for one TV show and then they predict another show I'll really like, and they prove to me that they have enough options to keep me on the platform, that's what's going to reduce that churn. We're seeing a lot of innovations with their machine learning to try and give us the best possible options. We even saw that with Netflix now has a shuffle option where you can go and they'll just pick something for you based on what you've already seen. I think that's going to be really interesting to see how they invest in keeping and retaining those people once you come on for one thing, getting you to stay is really what that challenges is for these streaming services.

Hill: I'm a huge movie fan and I always find it a pleasant surprise as an investor when I watch a movie that imparts some type of business or investing lesson. I know you're a movie fan. What's a film that's given you a business or investing lesson when you watch it?

Gallagher: I'm specifically a romantic comedy movie fan. I'm not that great at watching all movies, I really have a niche. I think the best business lesson I learned from a rom-com is that if you have a failing bookstore and you date a superstar, you can actually still run a bookstore for a really long time. That's what I learned from watching Notting Hill.

Hill: That doesn't seem like the most repeatable business model for small business owners out there.

Gallagher: It worked once, who says it can't work again.

Hill: Maria Gallagher, thanks for being here.

Gallagher: Thanks so much for having me. [MUSIC]

Hill: Entertainment companies tend to have a tenuous relationship with one another, and that dynamic started long before Netflix in the streaming wars. Film studios in the 20th century had bitter rivalries, and that history helps inform the competitions we see today. Before she started working at The Motley Fool, my colleague Catie Peiper got her Ph.D. in media studies at the University of Southern California. It was there that she spent time researching the archives of Jack Warner. As the founder and head of Warner Bros. Studios, Jack Warner was one of the most powerful men in the industry, and as his private memos show, he was increasingly obsessed with what his rival Walt Disney was doing, not just in film, but expanding into the new technology of television, as well as theme parks. Catie, what was the Disney formula that these other movie studios were trying to follow.

Catie Peiper: Disney started their show based on their unique IP that they owned. It had a lot of success with their animated films and their animated shorts. They also were building out their first theme park attraction, Disneyland, at the time. So the content of the show was a combination of all three, where they were showing behind the scenes, they were touring the theme park that was being built, and really dialing into, if you'll excuse the pun, the magic of what that content was and leveraging the connection that they had with viewers, with box office  audiences, to inform what they were putting in that show. It seemed like, looking at other studios, is that they saw that Disney was having success and didn't really pay attention to why people were interested in that Disney content. They said, "Disney, can turn their movie into a TV show, we can do that, too." Not realizing that Mickey Mouse is very different than Rick from Casablanca [laughs] in terms of appeal to audiences.

Hill: That's one of the things that's jaw-dropping is that Warner Bros., Jack Warner and his team, take Casablanca, on the short list of the most classic films of all time, and say, "This is a TV show. We're going to take this, we're going to turn it into a TV show." Am I right that it was so bad that writers said, "I don't want my credits on this show"?

Peiper: Yes, actually. There were internal memos at the time, and it was after, but a couple of episodes of it airing where they continued to see declining ratings. The highest ratings they had initially were from the premiere episode and they didn't even end up in the top 30 [laughs] of the shows that it premiered. So the writers asked for their names to be taken off of the credits, and their sponsors were actually thinking about withdrawing their support as well. What was interesting is the Warner Bros., the properties that they chose, they decided to do this anthology show where one episode would be a story from Casablanca. Then next week's episode would be a story from King's Row, which was another popular film that they'd run at the time. That was about like psychiatric care and asylums. Then the following week they were doing an episode from Cheyenne, and then they circle back around and start doing little vignette stories from those three properties all over again. I don't know about you, but when I think about what I'm turning in on TV at 7 p.m. at a family time slot, I'm not looking to watch a show about Nazis or asylums [laughs] as something I want to watch with my kids.

Hill: As you indicated before, these other studios, and Jack Warner probably chief among them, they're competing with Disney first as a film studio and it's a fair fight. When they move to this nascent medium of television, as you indicated, they understand the structure, but [laughs] they're not able to fill in the blanks. This blueprint that they're trying to follow that ultimately doesn't work. One of the things you've talked about before is at some point it starts to show not just Warner Bros. is trying to compete with the Walt Disney Company, it starts to show that Jack Warner appears to be obsessed with Walt Disney, the person.

Peiper: Yes, and I would say it wasn't just Warner himself, although absolutely there's this rivalry going on there on the Disneyland show. Walt Disney was the host of the show, so there absolutely was this identity of Walt Disney, the person, with this project. Whereas Jack Warner got his son-in-law to be the show runner [laughs] for his entry. There absolutely was personal stake in the game. But I think it also, looking at the memos that I saw in the archives when I was doing a lot of research on this, is it just shows how much "yes, ma'am"- or "yes, sir"-ism would happen from those at the lower levels. So the president of ABC kept sending telegrams to Jack Warner saying, "Next week's ratings are going to be so much better, don't pay attention to this week and we'll be laughing all the way to the bank." Jack Warner, on the flip side, was saying, "Look at how well Disney is doing, we absolutely have to be able to be as successful as Disney, because we also have Academy Awards on our IP." There's just like a cycle of self-delusion in the way that they would talk to each other.

Hill: Obviously, we're living in a much different world now, and yet it seems as though Disney, at least from an intellectual property standpoint, is maybe not the envy of every other streaming company out there, but when you think about the acquisitions the company has made with Pixar, with Lucasfilm, with Marvel Entertainment. Just from a catalog standpoint, they have so much intellectual property that they can work off. Look, I know they paid real money for these acquisitions, but just from an IP standpoint, it almost seems like an unfair fight.

Peiper: Absolutely. I think that's something that is really interesting to think about when you hear about the streaming wars and there's always a question of like, "Who's winning the streaming wars?" Netflix and Amazon have the most amount of content in their catalog and the most number of subscribers. But how much money do they have to pay for that content and per subscriber in order to get to that level of success? The Disney Vault has been something that's existed for decades. I remember being a kid and being excited because some movie was coming out of the Disney Vault and being rereleased on DVD or VHS. They've had that IP to build their success on for years and years, plus those acquisitions you mentioned. So they don't have to expend nearly as much in terms of getting that IP that draws subscriptions. That's something that has been a struggle for studios even prior to streaming. HBO used to have this issue where they would have people who had subscribed just for Sopranos and then drop their subscriptions. The same thing happened again with Game of Thrones. What I think is really enviable about what Disney's done is that they've managed to keep a slate of content that keeps the subscribers year round because of everything that they have.

Hill: Thank you for mentioning HBO because it is a reminder back in the studio days there are other studios, but Jack Warner is such a formidable presence. Warner Bros. as a studio seems like their prime competitor. Today Netflix obviously the leading platform with the number of subscribers they have, but there are other platforms out there. When you look across the streaming landscape, whether it's HBO or Amazon Prime, or Paramount, are there any other smaller platforms that you think they're not as big, but from an intellectual property standpoint, this is one to keep your eyes on?

Peiper: Yeah. There's absolutely a few, and I do want to call out that Disney is the third service. Disney+ has only been out there for just over two years. So it has managed to really exceed the ranks in a way that Prime and Netflix have had to be on this theme for over a decade at this point. I would say that the other ones that are interesting are actually the broadcast networks, or the cable networks that are doubling down on the unique content that they can offer, or the strong variables that are contributors to their back catalog. So Paramount+, which is CBS, has turned their streaming platform into a vehicle for five different new Star Trek properties on top of all of their back catalog of Star Trek episodes. That has driven a huge number of subscriptions for them.

Hill: Before I let you go, is there a movie you've seen recently? Is that it may not be a financial movie or a business movie, but you found yourself gleaning a business or financial lesson from it?

Peiper: Yeah. It's interesting. I've had my mind on Disney, obviously because of what we're talking about and I've been watching Encanto probably more than I should have, and it just gets stuck in your head.

Hill: You and everybody else on the planet?

Peiper: Yeah, [laughs] and one of the things that I really took home when I watched it is, we have the grandmother character who is so focused on what she perceives as her mission that she loses sight of who the duty and the job is for, which is her family and her community. It brings it back to remember why you're doing something, not just what you're doing. I think that for investing, that's also really important as you remember why we're doing the investing. Is it from our long-term goals? Is it to make sustainable investments in technologies that I believe in? Not just go through the motions of smart investing. [MUSIC]

Hill: If you're telling the complete story of Disney as a business, then you have to include the things that didn't go well. Walt Disney's first studio went bankrupt. Most of its early animated features in the 1930s lost money, and it wasn't until Snow White and the Seven Dwarfs was a hit that he was able to pay off his debts and build a new studio, and failures like this are not confined to ancient history. Even after the acquisition of Marvel Entertainment in late 2009 and the early box office success of live-action films like Iron Man and Captain America, Disney was not immune to a box office disaster. In 2012, Disney released John Carter, a science-fiction movie based on a book series by Edgar Rice Burroughs. It lost so much money that the name John Carter became synonymous with box office bomb. Long time Motley Fool producer Mac Greer remembers it well because he was involved in the creation and running of this show at the time. But when I think back to 2012, on this show, we talked about Disney a lot. We talked about John Carter a lot, and part of that had to do with the numbers. This was such a huge box office disaster that the company continued to write down quarter after quarter. But part of it also had to do with the fact that it was almost confusing that this was happening to Disney because their live-action movies were doing so great, and this was a movie directed by Andrew Stanton, who is an award-winning director for the company.

Mac Greer: Chris, it is amazing when you think about Andrew Stanton. At the time, he had a Toy Story 1, 2, and 3. That's all before John Carter came out ,and he had done plenty of other movies, Monsters, Inc., you may have heard of that, Finding Nemo. He has this amazing portfolio, and it's a reminder to me that you know what as investors, we are all going to have some John Carters in our portfolio.

Hill: In 1998, the American Film Institute came out with their list of the 100 best films of all time. In 2007, they came out with an updated version of that list. On both lists, the film It's a Wonderful Life was in the top 20. I talked with Maria and Catie about business lessons they've picked up from movies. For obvious reasons, we all think of It's a Wonderful Life as a Christmas movie. But for you, this is one of those movies that goes deeper than that. Why is that?

Greer: It's my favorite movie. It was my dad's favorite movie. I think my dad saw a lot of himself in that movie. My dad was a lifelong banker, Chris. His father was a lifelong banker, just like in It's a Wonderful Life. My dad's first bank job was when he was 16 years old. Then after college, he worked as a bank examiner in Texas. In fact, up until he died, we could give him small towns in Texas and he could give us the name of the bank and tell us all about the banks. He loved banking. He worked in banking until he died last year at the age of 87. He worked at big banks, he worked at small banks, but he always saw himself as a community banker. I say he loved banking, but what he really loved was people. He spent his life investing in relationships and investing in people, and you know what, that's a pretty good skill set if you're going to be in banking. That brings me to It's a Wonderful Life. You have Jimmy Stewart, aka George Bailey. He is the quintessential community banker. He prioritizes people above profits. He invests his life in relationships. The community knows him, the community loves him, and he knows and loves them back. Then of course, hard times hit, Uncle Billy loses a lot of money. Chris, don't trust Uncle Billy with cash. George Bailey decides life really isn't worth living. That he is worth more dead than alive, and then the magic happens. George Bailey's lifetime of investing in people, well, that investment has returned 100-fold. Now, I'm not just talking about financial losses that he recoups, but I'm talking about George Bailey realizing that his life matters and mattered because it was a life spent on people. The line that always crushes me in It's a Wonderful Life, the line that always gets me, Chris, always makes me tear up and it always got my dad, is the toast from George Bailey's brother, Harry Bailey. Harry says, ''A toast to my big brother George, the richest man in town.''

Hill: When I think about that toast, the richest man in town, he's right when you think about a full life. But in terms of actual dollars, the richest man in town is Mr. Potter, who is simply the villain in the movie. In thinking about Mr. Potter, I'm reminded of a story you and I have talked about in the past. It's shown up in different places. It's been written about in The Motley Fool. It's that conversation between Kurt Vonnegut and Joseph Heller. They're at a party thrown by a hedge fund billionaire and Vonnegut says, ''This guy makes more money in a day than you've earned in a lifetime from your most popular book.'' Heller says, ''Yes, but I will have something he'll never have -- enough.'' Now, when I look at Mr. Potter, I think, you had all the money, why were you so greedy? It's because he didn't have enough.

Greer: Exactly, Chris. Exactly. Enough, and it reminds me we talk about the stock market being a compounding machine. But the ultimate compounding machine is relationships. It's investing in other people. Because I think that as powerful of a tool as money can be and is, and I think money is a tool. I think when you look at it as more than a tool, when it becomes the ends and not just the means, then you never have enough. There's something incredibly liberating about getting to a point in your life before you say, "I have enough, and by the way, money is not ultimately what's going to define me."

Hill: The film itself, not really a huge commercial success when it comes out. It was nominated for a bunch of Academy Awards, best picture. Jimmy Stewart got nominated for best actor, Frank Capra got nominated for best director. None of them won. It's really not until 30 years later in the mid-1970s that It's a Wonderful Life changed its status as a classic because every December it's playing on TV. From a stock perspective, it's the stock that's basically flat for decades and then just hockey sticks.

Greer: It's incredible, Chris. It becomes the movie that's always on. I think A Christmas Story has that potential also, but you know what? It's relatively new. It's from the '80s. But It's a Wonderful Life, you're right. It has this incredible second life and third life, and I suspect that 50 years from now, they will still be showing it.

Hill: Mac Greer, thanks for being here.

Greer: Thanks, Chris.

Hill: The Academy Awards begin Sunday night at 8 p.m. Eastern Time. Good luck to all the nominees. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. I'm Chris Hill. Thanks for listening. We'll see you tomorrow.