The more self-driving cars become a reality, the more stakeholders in this technology must grapple with challenging moral dilemmas -- namely, how will an autonomous car respond to an imminent, life-threatening collision? Will programmers be expected to write software that determines who should survive an accident?
In this week's episode of Consumer Goods Industry Focus, Sean O'Reilly and Vincent Shen field listener questions as they discuss the monumental task of creating a moral and legal framework to usher in the coming generation of autonomous vehicles. Beyond driverless cars, they also look at the complicated ownership of superhero movie rights and how much the record-breaking run of Deadpool flows to the bottom line of Marvel parent-company, Walt Disney (NYSE:DIS).
A full transcript follows the video.
This podcast was recorded on Feb. 23, 2016.
Sean O'Reilly: We're talking the moral ambiguity of driverless cars. My favorite? If you tell it to take you to a great restaurant, will it take you to Chipotle or Qdoba? On this Consumer Goods edition of Industry Focus.
Greetings, Fools! Sean O'Reilly here at Fool headquarters in Alexandria, Virginia. It is Tuesday, Feb. 23, 2016, and joining me in studio is my partner in podcast crime, Mr. Vincent Shen. What's up, man?
Vincent Shen: Hey, how's it going, Sean?
O'Reilly: Which restaurant do you think the driverless car would take you to?
Shen: Oh, that's tough. In college, I would have said Qdoba. Now I'm a Chipotle man.
O'Reilly: Right, because you've got to have the cheese.
Shen: The queso at Qdoba is the differentiating factor there, for sure. (laughs)
O'Reilly: So, Vince, we're kind of cheating today. We got a lot of listener emails and comments following last week's Deadpool and driverless car show. And instead of actually doing any real work putting together any new content, we're just going to kind of talk about all the things people wrote in about. So, are we bad people, is really what I need some reassurance on.
Shen: You did not have to put it that way. OK, for all of our listeners, I want to always encourage you to reach out to us if you have any questions about a previous show or topics that you'd like us to cover. We're always looking for ideas. And we actually have two questions from listeners...
O'Reilly: Yeah, these were good.
Shen: ... that I'm really happy to discuss and follow up on, on the previous two shows, really. We had one on Deadpool and one on the crossover week we did...
O'Reilly: Driverless car episode.
Shen: Exactly. So, why don't you start us off, Sean?
O'Reilly: So, Deadpool revisited. Just an update, it has (laughs)... this movie made so much money... dominated the box office since its Feb. 12 release. Domestically, $235 million, foreign $255 million. That's $500 million on a $58 million budget film -- not including marketing, of course. But...
Shen: After just a two-week run!
O'Reilly: This is cuckoo bananas profits. And it's not even, like, a major character, or whatever you want to say. Took the top spot again this past weekend, as predicted. The competition wasn't quite there. It was Risen and The Witch, which...
Shen: Kung Fu Panda was No. 2 in terms of actual dollar amounts.
O'Reilly: Oh, that's good.
Shen: The new releases like Risen and The Witch, they came in like third and fourth. But they actually did well on their own, smaller releases, as they were. But Deadpool, kind of like we called, there wasn't that much competition coming up this past weekend, and it continues to dominate really well. Last week, we'd talked about how Deadpool logged the best opening weekend ever for 20th Century Fox. Now, that has extended. This unlikely superhero, really, has...
O'Reilly: He's an anti-hero, Vince.
Shen: Exactly. He's become the best-performing X-Men movie for the studio ever, at least in terms of the U.S. box office. And that's out of eight films at this point, and they have a ninth one coming out with X-Men: Apocalypse.
O'Reilly: Right. So, the reason we're bringing this up again, and what the question pertains to is, after discussing its impact on Twenty-First Century Fox (NASDAQ: FOX) (NASDAQ: FOXA) last week, there was a question received from Brian W. It basically amounts to, "Since this is a Marvel character, and Disney owns Marvel, does Disney see any of the profits from this movie? What's the deal there?" And actually, this situation exists also with the X-Men franchise, as I recall. So, what does this mean for the shareholders of both of these companies? How does that shake out?
Shen: Sure. We talked a bit about 20th Century Fox's studio -- obviously, part of Twenty-First Century Fox. I know it can get a little confusing sometimes.
O'Reilly: Oh, did they change the names? Oh, wow.
Shen: Brian, if you're listening, thanks again for the question. I kind of wish we had just covered this last week, as well. But it's good, because I needed to get some of the research done, and I actually had a follow up to the response I sent him, actually. I think a lot of moviegoers were surprised, and maybe a little bit relieved, too, to find out that the company that's known for Disney, Frozen, Wall-E, Disney princesses, and then you get this very heavy rated-R flick, it doesn't really sit as well within that range of films from Disney. But, obviously, it was put out by 20th Century Fox. What is Disney's role in all this? And otherwise, in doing the research, trying to find out the background of how they share profits, who gets rights to what, we learned that basically, Marvel has a lot of these kinds of agreements, it can get pretty convoluted. So, Marvel, before it was purchased by Disney in 2009 for like $4 billion, they had their three operating segments, essentially. They had their publishing, the more traditional...
O'Reilly: Comic books.
Shen: Exactly. And then, they had their licensing business -- which is what we're going to touch on -- and then they had their film production. But keep in mind, they didn't even start producing their own films until 2006. They took out this huge credit facility in order to fund those efforts. But before that, they generated the revenue by allowing other major studios to license their character intellectual property, essentially, and then to produce films. Another example that we'd looked at previously was Sony and Spider-Man, where Sony acquired those rights in, I think, 1999, and they ended up producing five Spider-Man movies. Those, I think, really paved the way for some of these bigger superhero films. They did super well at the box office, basically two different reboots, one with Tobey Maguire, one with Andrew Garfield.
And in that agreement, Marvel and eventually Disney, after the acquisition, kept the rights to things like the TV shows, merchandising, and other platforms and outlets. But the company still benefited from a lot of the surging popularity for the character itself that accompanied each movie, naturally. And, the thing is, Sony and Disney signed a deal in February of last year, as if things weren't complicated enough, where they are changing their relationship a little bit, because the most recent movie that Sony put out, I think it was The Amazing Spider-Man 2, didn't do as well in the box office as they'd hoped, they cancelled a third installment in what was supposed to be that trilogy. So now, the new agreement, interestingly enough, has Sony basically saying, "OK, Disney, you can use Spider-Man in your upcoming movies, tie-ins with the Avengers. We'll still also be able to portray the character in our own stand-alone films. But that way we'll both benefit from the tied-in marketing and just, I guess, reboot, of this character, again, in another trilogy."
O'Reilly: Right. That sounds really convoluted. (laughs) It sounds really messy, but OK.
Shen: And, in that agreement, they both actually get to keep the profits from each film. I don't really think they share in that. It's just more of a mutually beneficial situation. Now, the difference here, rolling back to Deadpool, is that 20th Century Fox, just to give some background, acquired X-Men rights way back in 1993. I thought Disney actually had a similar arrangement with Spider-Man, but after following up and doing some more reading and getting some input from one of our Fool.com writers, Tim Beyers, he was able to find this court legal filing, essentially, that shed some more light on the actual relationship between Fox and Marvel and what this means for the movies. So, (laughs) you're going to laugh at this number, I know you will. Fox acquired the X-Men live action and animated rights from Marvel for $2.6 million...
O'Reilly: Wh--hold on!
O'Reilly: ... They got the rights to these two...
Shen: Keep in mind, this was way back in 1993, before all the...
O'Reilly: That doesn't make it right.
Shen: ... before the potential...
O'Reilly: It doesn't make it right. (laughs)
Shen: ... showed itself, I think.
O'Reilly: The X-Men cartoon alone from the 90s!
Shen: They also get -- let me finish -- a percentage of the gross box office receipts. But those, generally...
Shen: ... seem to be small based on...
O'Reilly: You can't even get a house in D.C....
O'Reilly: I mean, granted, D.C. is really stinking expensive compared to the rest of the country. But you see what I'm saying.
Shen: Yes, of course.
O'Reilly: You're talking about a house north of Dupont Circle, for the rights to... All right! Whatever.
Shen: This is over 20 years ago.
O'Reilly: All right, I'll deal.
Shen: Keep that in mind. So, they purchased those rights for $2.6 million, and in terms of the percentage of what the gross box office recipes actually came out to be, in that legal filing, from 2001, actually, the original X-Men film generated about $160 million in profits for Fox. Not bad at all. Marvel earned just about $6 million in back-end contingent compensations -- about 2% of worldwide ticket sales.
So, we're thinking, maybe, that 2% is what the fees actually were agreed to. So, assuming it hasn't changed, it could happen, we don't have the details. But assuming it hasn't changed since that time, based on that almost $500 million that Deadpool has generated in total worldwide ticket sales, Disney would only be getting around $10 million from that, so a pretty small nominal amount. And the thing is, supporting the idea that Marvel maybe undersold a lot of its characters, like, the licensing rights earlier on, before they realized how these huge blockbuster franchises can go... Disney, since acquiring Marvel, has been pretty active in reacquiring rights, including, I think Black Panther was part of that, and also Scarlett Johansson's character...
O'Reilly: Black Widow.
Shen: Yes, exactly. So, I think they've reevaluated some of those agreements, seen the value that they're losing out on, and now they're trying to fix that. But, for Brian and other listeners, to give you that background, Disney has different agreements with these studios, and in some cases, they're much better than others.
O'Reilly: Right, OK. Cool. So, how big of a deal do you think this is, before we move on, for the shareholders of each company? We saw that Twenty-First Century Fox's share price is up 3% after Deadpool's box office results and everything.
Shen: We talked about how, their studio segment is essentially their second largest one. It's important, and the thing is, a huge success like this film, or Star Wars: The Force Awakens, we've seen the impact that can have on quarterly results, for sure, and the long tail that it's likely to have with the franchise. But it's still one film in a business that we talked about, Hollywood can be really choppy. Who knows? Hopefully, the second Deadpool is awesome. I really liked the first one. But there's no guarantee of that. So, it's bigger impact for Fox, certainly. For Disney, I'm sure they get that lift in general from having another Marvel character become a huge blockbuster success. But obviously, it's not going to be as nice a lift for them.
O'Reilly: Got it, cool. Before we move on, I wanted to point our listeners to the newly redesigned focus.fool.com. There, you'll discover a special offer to join The Motley Fool's Stock Advisor newsletter to start off your year Foolishly. All loyal IF listeners have access to a special discount on Stock Advisor that works out to $129 for a full two-year subscription. Just go to focus.fool.com to take advantage of this offer. Once again, that's focus.fool.com.
All right, so moving on. We briefly touched on a previous show, autonomous cars, driverless cars, and what's going on there. But it's a topic that has such breadth that we couldn't really talk about everything. So, we got a listener question that, I think we briefly mentioned this in the show before, the moral ambiguities of an autonomous car, and how it picks who lives and who dies -- in an extreme example.
O'Reilly: So, Sam M. wrote in, after listening to our crossover show between tech and CG, and he wanted to know... "If there's a situation in which collision is imminent, who does the software computer try to save? The passengers or the pedestrians? Does the car try to save the maximum number of lives? The human driver would naturally have his own self-interest as a priority. But would a computer driving one passenger purposely endanger its one passenger in order to save four pedestrians? I wonder how the tech companies would address this. What do you think?" And that's just one example. I mean, we watched tons of videos and TED talks, and this is... it's kind of crazy to think about.
Shen: I have to say that, for this segment, and having touched on this in the crossover, I have to say, for Sam and all our other listeners, we're probably going to have more questions for you than any answers at all. There are a lot of bright minds in terms of, on the technological side, and the regulatory side, who are thinking about this and the impact it's likely to have in the next five to 10 years as this technology becomes more mainstream, where the rubber starts meeting the road. So, we talked, last time, about how the National Highway Transportation and Safety Administration released a letter in response to some petitioning from Google basically acknowledging that, "Hey, if the car doesn't have any of the typical driver instruments, like the steering wheel, brake pedal, etc., the software itself could be considered the driver."
So, that leads to all these other questions, like you mentioned. How does the software determine what the right action is? Whereas, if it's a person who's driving the car, naturally, they're going to react, and make that split-second decision. And it's harder to fault them for that. It truly is just a panicked decision. But that software, assuming it could process millions or billions of inputs...
O'Reilly: Then it's a reasoned decision.
Shen: In that split second, who's writing this? Who are the programmers who are writing this? What are they told? How are they told to program the software? Who decides that? So, a lot of these questions come into play that I wanted to touch on in the show today in our discussion. So, a lot of people talk about, do we prioritize minimizing harm, or do we prioritize the passenger? And the thing is, even behind each of those questions, there are so many nuances. It's really interesting to think about, and also very difficult to try to wrap your mind around.
Ultimately, I think public opinion will play a big role in this. It's not even that simple. So, MIT Technology Review, first thing I wanted to bring up. They mentioned an experimental survey that was conducted in France with several hundred participants. And the result leaned toward the people's preference being to minimize harm in the software, to minimize harm or death toll from accidents, because ultimately, that's what people say is so great about this technology's potential, that it can reduce traffic fatalities. The thing is, that makes a lot of sense and I agree with it. But then, the question is, that's also followed up with, someone sitting in a traditional car might feel really comfortable if they're surrounded by autonomous cars that minimize harm. But what happens if you're sitting in one of these autonomous cars, and you know, for a fact, that if the situation arose, the software would sacrifice you in order to save...
O'Reilly: I might not get in the car. (laughs)
Shen: Exactly. So, we have this challenge now of not only figuring out this moral dilemma, but you also have the challenge of making it, I guess, appetizing enough that the consumer market will actually adopt the technology. Because ultimately, people have to buy these cars to put them on the road. And, even minimizing harm isn't clear. There are a lot of scenarios posed in the research we did. One, for example, saving six people vs three people is still not an easy question, but it seems like it would go toward, again, minimizing loss of life. But what happens if, those six people are all octogenarians...
O'Reilly: Oh, gosh.
Shen: ... and the three people is a mother and two very young children? How does software make that kind of distinction?
Shen: And it's almost unfair, in a way, to ask anybody to have to program this software to have to think in that way. So, its just a very challenging question indeed. And, like I said, we can't give you the answers, but we can touch on the fact that, I think, going forward, cybersecurity, privacy, safety, tons of testing trial and error, are going to be things we hear about constantly with this technology.
O'Reilly: Well, it definitely seems like public opinion is going to play a big role in what happens.
Shen: Well, I agree, the survey kind of shows, everybody's going to say, "Yeah, it makes perfect sense, you want to try and minimize harm or loss of life." But when it comes down to it individually, when they have to make that purchase...
O'Reilly: ... what if somebody's 90 and has cancer, versus a newborn baby?
Shen: It's not that black and white, obviously. And before people think they're going to be able to kick up their feet and enjoy that overnight drive to their in-law's house two states away, I think we'll have to figure out questions around the safety. We'll have to figure out questions around cyber security, what happens if somebody can change the software that comes with the car and alter it in a way that benefits them more, or is dangerous. Privacy, in terms of, all of the software that knows exactly where you're going, it's tracking us all the time, what if there are updates that go to the software provider and they basically know everywhere you're going, how does that impact things?
O'Reilly: It almost seems to me like when I was trying to compare all of this in my mind, what happens -- is it anybody's fault, let's take a train. A train going 70 miles an hour for a train going 75 miles an hour, going across country. If a kid chases a ball in front of the train, and the unfortunate thing happens, is that anyone's fault? I kind of think it's going to get like that at some point, because the car is going straight, if it doesn't have time to stop... I don't know. It's trickier with the octogenarian-newborn baby thing, but like...
O'Reilly: It almost seems to me that autonomous cars are like a train or a roller coaster, just, something where, yeah, things happen. You know?
Shen: And something I also want to bring up -- Sam, if you're listening -- I want to bring up, basically comes up when we've talked about this, the fact that you have, it's not uncommon at all for technology to outpace where the legal situation is, where the laws have to catch up to cover things like cyber security, for example. But now, you have this instance where, we have these top minds at companies like Google, all the auto makers, think NVIDIA, for example, with some of its smart car technology, where they're writing all this code, or developing all this software, working on this, innovating in this space, and you're expecting the regulators to be able to decipher such technical information and to basically put rules up around that. It's going to be very challenging for them to have to work together and have to explain, "OK, this is how each piece works," to these regulators who, frankly, aren't programmers, and to have to figure that out.
O'Reilly: There's definitely a knowledge barrier there.
Shen: Exactly. So, and this is and idea that you and I were talking about before the show, where, you have HOV lanes right now on major highways. Like I-66, in the capital, where that can serve as a testing ground.
O'Reilly: It seems to me like, with the octogenarian/kid example and all this stuff, it does seem to me that we're making a mistake when we assume that, let's pretend everybody gets a driverless car, our roads are going to be structured the same. That's kind of unlikely to me. And I also think that, in most cities where there's congestion, it does seem to me like... I noticed the video we watched, the TED talk... we should pull that link out. If you want it, we'll email it to you. I noticed the examples were all in a fast-moving freeway. If there's a driverless car going down Duke St. outside Fool headquarters here, the speed limit's 25 to 30 mph. Who knows, a driverless car might actually go even slower than that, by law or whatever, sensors can probably stop the car if a kid runs out in front of it. Like, it seems to me like we're making a mistake, to just assume the laws that operate on the roadways are going to be the same.
Shen: And another thing is, ultimately, people say that this technology will be beneficial and safer because it takes that human error elements, whether it's an accident, or people aren't paying attention...
O'Reilly: No more drunk driving deaths, I mean, all kinds of stuff, yeah.
Shen: So, ultimately, while we have all these questions, and it might seem like, "Oh, wow, things aren't that clear," I do want to make it clear that, ultimately, I think this technology does have a lot of benefits in terms of the environment, just saving people's time, making them more productive, and just making the roads safer.
O'Reilly: I don't know where I got this, and I might be making this up, but I saw the statistic that a city the size of the D.C. metro area, which has a couple million people, maybe two to three million people?
Shen: No, I think it's a little under a million.
O'Reilly: A little under a million? OK, I'm sorry. Anyways, I saw this statistic, and I think the city that was used was Washington, D.C., and we could basically have a fleet of 7,000 driverless cars circling the city, acting as taxis or whatever...
Shen: And that would be enough to sustain--
O'Reilly: And that would statistically get you a ride pretty quick. I don't know, that's pretty sweet. Cool.
Shen: So, yeah, like I said, sorry, we don't have all the answers here. But, this will definitely be an interesting space to watch, and we're actually really excited to have the opportunity to give you updates as they start figuring out some of the answers to these very difficult questions.
O'Reilly: Cool. Well, thanks for joining us on the show, Vince.
Shen: Thanks, Sean.
O'Reilly: Always a pleasure. If you're a loyal listener and have questions or comments, we would love to hear from you. Just email us at IndustryFocus@Fool.com. Again, that's IndustryFocus@Fool.com. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against those stocks, so don't buy or sell anything based solely on what you hear on this program. For Vincent Shen, I am Sean O'Reilly. Thanks for listening and Fool on!