The ESPN+ Price Raise and the Iger-Chapek Soap Opera

In this podcast, Motley Fool senior analyst Jason Moser discusses:

• The strategy of encouraging people to sign up for a bundle of Disney (DIS 0.18%) services.
• Bob Iger, Bob Chapek, and their ongoing soap opera.
• A listener's question about Cerence and the opportunity shares present today.

Motley Fool senior analyst Tim Beyers talks with Vitaliy Katsenelson, CEO of Investment Management Associates, about his new book Soul In The Game and how philosophers from more than 2,000 years ago can make you a better investor today.

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 July 18, 2022.

Chris Hill: One consumer brand is about to raise prices and Wall Street seems to approve. Motley Fool Money starts now. I'm Chris Hill, joining me in the studio with Motley Fool Senior Analyst Jason Moser. Good to see you.

Jason Moser: Hey, it's nice to be here, collaborating in person together again.

Chris Hill: Once again. We're going to dip into the Fool mailbag. But let's start with Disney because there are a couple of things that have come out recently. Disney reports earnings on August 10th, which makes me wonder if what we're about to discuss was specifically designed and timed in advance of the earnings report because Disney is raising the price of ESPN Plus. I'm going to use the word substantially. They're raising it from $7 a month to $10 a month, annual subscription goes from $70 to 100. The Disney Bundle, which is ESPN Plus, Hulu, and Disney Plus that price is staying the same, which tells me that they are really trying to get as many people. It's basically, that we're going to jack up the price of ESPN Plus. If you want to pay us more for that, you can or you can get a much better value by going the Disney Bundle route.

Jason Moser: Yeah, it's not a surprising decision. We always felt like when they made this move over-the-top streaming, taking all of these properties over the top, they started with very low pricing on all of them, which made a lot of sense. It's their first foray really into this space. They need to nail it. I think you really harped on that early on. They better execute. Don't make this something where you got to go back and try to fix a bad experience. I think for the most part, they really did nail it. It's been a pretty good experience. As a subscriber, maybe that's coming just from a user's perspective there. This does a couple of things. Number 1, I think you're right. It makes the bundle that much more attractive. I think they want to steer as many people to the bundle as humanly possible. The main reason for that is pretty obvious, the bundle is going to be stickier.

You're going to get into that bundle. You're going to see all of this stuff you're getting for what is really a very fair price. At some point or another, the price of that bundle is going to go up too. But I think for now, you probably have some ESPN enthusiasts that don't really want that other content. They'll probably be willing to pay for this little bump up, but it also may lead them to consider at least subscribing to the bundle. I think longer-term, what we're seeing with Disney, the strategy ultimately is to take ESPN into a full-on direct-to-consumer offering. What we're seeing now on linear television, they ultimately, t he world is going toward streaming on-demand. You want to be able to watch what you want, when you want, where you want, that's not going to change I don't think.

They in time, I think want to be able to steer ESPN ultimately to that offering. It's going to take a little while to get there. Sports costs a lot and a lot of the money that they're paying right now is based on deals that they've cut over the past several years before ESPN was really a stand-alone direct-to-consumer offering. It does make a lot of sense to see this move. I think that ultimately taking ESPN to a full-on direct-to-consumer offering makes sense. But even more so I think focusing on that bundle makes more sense. Again, just coming from the user's perspective, it does give you a whole world of content. I suspect over time, we will see that bundled price continue to creep up there as well, which is fine because as of now, it is a very attractive offering.

Chris Hill: We got another story over the weekend of, I believe it was Insider who reported this. Basically, that Bob Iger now regrets picking Bob Chapek to be his successor. The more I think about this, the more I think, are we almost done with these stories? The reason I say that is because the board of directors just extended Bob Chapek's contract through July of 2025. They just added three years to his contract. The reason I say are we almost done with these is because I feel like we know everything there is to know. These guys don't really get along all that much, and I'm not sure what else there is to say. Again, the board just extended Chapek; doesn't mean that if things go south for the business that a year from now, they fire him and give him some golden parachute and put someone else in his place. But for the moment, it seems like things are set where they are.

Jason Moser: Yeah, I'm with you. At some point this really just has to die down. I think the board has spoken. They want to give Bob Chapek the opportunity to take this business in the direction where it's clearly headed. I don't think you're going to see two or three years down the road the powers that be come back and say, you know what, the streaming thing, maybe it's just a flash in the pan and we don't feel like it has any staying power. No. This is the direction that business is headed. I think that going ahead and committing to current leadership makes a lot of sense. I think from what I read and these are all reports from inside. There is some hearsay, I guess, in regard to all of this, but it sounds like a lot of it rings true. I think we were all Bob Iger fans. I was.

Chris Hill: Absolutely.

Jason Moser: A wonderful job running the business. I think we had a lot of fun with the well Bob Iger set to retire, op nope, he's extending his contract another year. That went on for a little while. I think we all felt really good about that because Disney was a company at that point in transition and he spearheaded three really successful acquisitions. I will say at some point, Iger needs to be careful about reports like this coming out because it can start to sound a little petty. It can start to sound like, all right dude, you know what? You did your thing, you did a great job, you've got a tremendous track record and a wonderful legacy.

Sometimes it's best to just leave these things alone and just move forward. He seems like he has other things he wants to do in life and that's very understandable. I'm sure he'll be very successful. It does sound like COVID played a lot into this. I think that changed a lot of strategy midstream, so to speak. Yeah, it seems that Bob Iger and Bob Chapek do things very differently, and that's OK. We're going to see in time whether Chapek really is the leader for this business. Just like we tell our kids, you learn from your mistakes as you go along. They really are the best learning opportunities. I'm sure that Mr. Chapek will make some mistakes along the way that hopefully he learns from.

Bob Iger disagrees with some of the stuff he does, that's fine. It doesn't necessarily mean it's wrong. They just have a different style. I think we should start to see this die down. The only caveat there is if a year from now, two years from now we start to see some things come to the surface that we used to believe that maybe Mr. Chapek and the leader we think he could be, then you have a whole separate issue there to deal with. But it does feel like this soap opera needs to wrap itself up because the path forward for Disney clearly is Bob Chapek.

Jason Moser: But let's also make sure to give Bob Iger the credit that he deserves because he did a wonderful job getting this company to where it is today.

Chris Hill: Our email address is [email protected]. Got an email from Jared Kit who writes sometime ago, Jason Moser discussed Cerence ticker symbol CRNC, and I took an interest in the stock. The price has come down to a level that I think it has value. I have established a starter position. Their AI applications intrigue me, but I noticed there have been more than a few high-profile executives departures at the company. Is the investing thesis still intact? Should I expand my small position in the stock? I enjoy listening to your show on Spotify. Thanks for the good work. Thank you for that, Jared. Thank you for the question. Great question about the investing thesis. Is it still intact if some of the leaders at the company are no longer there to execute?

Jason Moser: It's in limbo, a good answer? It's not intact, but it's not intact. Is in limbo? Does that suffice?

Chris Hill: If that's what you think, then yeah, that suffices.

Jason Moser: I think right now, I would say it is in limbo now. Cerence is a company that I've recommended in a couple of services here, it remains an active recommendation. I do still believe this is a company with a lot of potential and a lot of opportunity. For those who aren't familiar with the business, a s a reminder, Cerence develops artificial intelligence, AI and virtual assistant technology for the connected vehicle. Big focus on a conversational and voice interface. Cerence is a company that spun out from Nuance Communications several years ago. Then that Nuance side of the business ultimately was acquired I believe by Microsoft if I'm not mistaken.

But for Cerence, I think it really all boils down to do you believe in this future where the automobile is connected? I think we've seen clearly that is going to be the case. You've got some of the largest companies in the world, from NVIDIA to Qualcomm, and everyone in between making large investments in the connected vehicle and nearly 300 million cars on the road today already includes Cerence's artificial intelligence technology. It counts most all of the major automakers as customers. We've been talking about BMW, Mercedes-Benz, Volkswagen, Ford, GM, go on. They all use Cerence's technology in some capacity. I think there are a lot of reasons to be optimistic there, but to Jared's question there, he's right. There has been some serious leadership turnover there and that's what has me not saying this is the thesis broken, but it's one where I don't feel like it's a plain-to-see opportunity either.

I think you really need to be a little careful here to ultimately get an idea of new leadership's vision. Ultimately, that's the guidance that I expressed toward the beginning of the year when all this was happening. They had a CEO turnover there, and also a CFO turnover there. We're seeing a company, it's feeling the impacts of all the stuff that's going on in the world right now, supply chain issues, and semiconductor shortages. This is something that is right into Cerence's wheelhouse and as automobile production falls, that impacts Cerence's business significantly. Now, it does feel like it's more timing than anything. It's business that will eventually come online, but it's delayed. But with that, along with the leadership transition and ultimately what appears to be not a new strategy by new leadership, but just some pivots in where they want to go with the business and ultimately how they feel like they can get there in regard to the connected automobile opportunity. I just want to see a few quarters with new leadership.

I want to see that they are number 1. Number 1, going to be there. The last thing you want to see and hear and while we get another CEO leading or another CFO taking a hike, then you got real problems. For me, when you see leadership turnover like that, I really do want to give it a little bit of time before I jump in and say, this is really an opportunity. I do agree the share price, it looks compelling. The business is growing despite some of these challenges. It is profitable, it's cash flow positive, but it is also very small, and it is subject to a lot of the macroeconomic concerns that apply today. There is a risk/reward scenario that I just don't feel like right now weighs so much in the investor's favor.

Chris Hill: Jason Moser, thanks for being here.

Jason Moser: Thank you.

Chris Hill: How can philosophers from more than 2,000 years ago make you a better investor in the 21st century? Vitaliy Katsenelson is the CEO of Investment Management Associates. He joined Tim Byers on Motley Fool Live to talk about his new book, Soul In The Game, and Lessons From the Stoics for Investors Today.

Tim Byers: During this half hour, we talk a lot about mindset, and your books speak so much to mindset. There are portions of it, and I want to talk about stoicism in a minute. I want to come back to that because you call it an operating system for life. But there are big pieces of it where you have made decisions. I'll call it to live deliberately, and I think that's really, really interesting. I want you to talk about that. You did this with eating, you've done this with meditating, and you talk a lot about it in the book. How did it become important to you?

Vitaliy Katsenelson: I would only use a slightly different word, mindfully. Both are good words. I think the one that clicks better is mindful. I think the goal is through life, and a lot of times, we do things that are on autopilot. We do things because we've been doing them, but because our parents were doing them. When you are mindful, your basic approach to your decisions, or even your thinking in a say, do I actually want to keep making this decision? When I decided I need to be healthy. Because as you get older, you realize that the things you could do when you were 20 or 30, you cannot do when you're 40 or 50 or 60. I realized I want to become healthy. The first thing that had to do, I had to improve my diet. The first thing I wanted to do is drop how much sugar I ate.

I told myself, I'm the person who doesn't eat sugar. That became my identity. The reason it's important because it's not like I eat sugar some times, but I don't eat most of the time. If you do that, then every single time you face this decision, eat sugar or not. It's a yes or no decision, and that consumes energy. If you're the person who does not eat sugar, then it becomes what they call a half-binary decision. In other words, it's just no. I'll give you a very quick example. I have a friend who is an Orthodox Rabbi, and Orthodox Rabbis have a very strict diet. One of the things they don't do, which most people know, they don't eat pork. This friend, says Vitaliy, I told him about the sugar thing, he's like, "You know what? I eat too much bread." I'm like "Paul, just become a person who doesn't eat bread." He's like, "But this is so difficult, I don't know how to do this." I'm like, "Well, you do this every single day."

Vitaliy Katsenelson: When you don't eat pork, because if somebody offers you a little bit of pork, and you say yes, maybe today. No, of course not. I don't use pork. I'm well, just become a person who does not eat bread. He called me a few months later and he lost a lot of weight. That's one little tweak. He made a mindful decision to reprogram his identity to a person who does not eat bread.

Tim Byers: This is something I'm going to quickly pivot to investing here. But that is something that we've talked about a lot. For new investors in particular, becoming the person that is, I am a person who does not panic sell. That's a thing that you can do. But I think the thing that you said there, the word that's really important is, you need to program yourself to become that person. That is not just something that you repeat as a mantra into the mirror; you program yourself to become that person.

Vitaliy Katsenelson: Let me give you one example that applies directly to investing. I'm the person who does not buy low-quality companies. I'm the person who does not buy companies run by poor management. To me, this is important because as a value investor, sometimes you get attracted by the cheapness by the company and a lot times this company has a kind of business model that's somewhat questionable or the balance sheet may be too heavy is that, or the management is a second wave management. If at some point in time I looked at the biggest mistakes I've made. They all came from this, compromise in quality. I'm a person who does not compromise in quality. That became like this is how it took this concept from my Life of Stoics or whatever and brought it into my investing life.

Tim Byers: That's great. Let's talk about Stoics now because you do, you call it an operating system for life. I want you to introduce Stoicism, how you see it, and let's talk about what it means and how you use it.

Vitaliy Katsenelson: First of all, a lot of times it sounds like whenever I say Stoic philosophy, you have two words that is somewhat intimidating, they shouldn't be. It's really in that [inaudible 00:17:40] system that is very commonsensical for life. These people lived 2000 years ago and if you read them today, a lot of their quotes, they sounded like they've been written six months ago. They are so relevant. But what happens when we are born, our programming it basically happens in our operating system program by our parents. That's probably the biggest impact, especially when we're young, and then our friends have impact on us, then life happens to us. That impacts on how we interact this life. Stoic philosophy offers to us an operating system that helps us to interact for this life and allows us to reduce the negative volatility that comes with life.

I'm trying to speak the Motley Fool language to people like negative volatility. But if you just only [inaudible 00:18:31] among my negative emotions, then by definition, you're maximizing the positive emotions. That's what it allows you to do. But it's a philosophy that requires practice. This is in my new chapters, that's what I'm writing about, is that if you know about Stoic philosophy, you learn it. There's a Chinese proverb. Knowing and not doing is not knowing. If you learn Stoic philosophy, but you don't do anything about it, you just waste your time or maybe not, but your life is not going to change. It requires constant practise because what you're trying to do again, you're trying to rewrite the operating system that you have right now in your head to a new operating system. That process comes through repetition, through practice, which would come with successes and failures. You have to accept the fact that you will fail and that's OK. Just learn; keep going forward.

Tim Byers: The reason I wanted to key on this in the last few minutes while I have you is it's really relevant to what we've talked about on this show so many times are different tools from Stoic philosophy that you talk about in the book. The one I want to key in on, which is very similar to what we've talked about, is the difference between stimulus and response and putting stimulus between response. Which feels very, all of them provide this. But the one that was really interesting to me is the EJR framework. You have an event, you have a judgment about that event, and then you have a reaction. I want you to explain it a little bit, but that really resonated with me.

Vitaliy Katsenelson: It's a lot of times when we're in our mindless state, which happens. Something happens to us and there is immediate reaction. That reaction to me, a lot of times it's very random. It may depend on how much, what I had for breakfast. Stoic philosophy and I would add that we don't have much time with this, but without meditation would help you as well. Stoic philosophy basically allows you to have an event. Now this point, you need to insert judgment or it was a reframing because a lot of times what happens to us, we can perceive it as negative or as positive. Then at this point in time, this is very important. You have an opportunity to reframe it that what will look as negative becomes positive.

Therefore, your reaction is going to be very different. I'll give you, when you're driving and somebody cuts you off in traffic. Our immediate reaction could be negative, frustrated, or before you react, you think, well, maybe this person is running to the hospital or they're having a bad day. Suddenly you have, empathy kicks in, and suddenly your reaction is actually empathy, not anger, is an example. I want to key in on something else for your listeners because I think this is very important concept. The Academy of Control because in the Academy Control that applies to investing so much. In investing, the Academy Control basically, there are certain things that are up to us which is basically our values. But we think our decisions and everything else is not up to us.

Now think how the place to stock market. What is up to us is our research, our process, our decisions. What's not up to us is how the market is going to price them tomorrow. Stoics will tell you, if they're giving investment advice, focus on the process and don't focus on a daily volatility. Don't even focus on outcome in a sense that look at the outcome in the context of your process, can I improve the process to improve the outcome. That's what would Stoics tell us about how they Fools could improve the process, the investment process.

Chris Hill: 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 them, 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.