Letters of Intent

Pankaj Raval (00:02)
Welcome back to Letters of Intent, the podcast for risk takers and deal makers. I'm your host, Pankaj Raval the founder of Carbon Law Group, and I'm here with our corporate attorney, Sahil Chaudry, and my co-host. Sahil how are you doing today?

Sahil (00:13)
I'm doing great. Hello, Letters of Intent world. We are ready to bring you our latest episode. It's coming hot off the heels of some big controversies surrounding freedom of speech.

Pankaj Raval (00:24)
Yes, absolutely. Sahil there's a lot going on in the news as I feel like, you know we say that every week because there always is something going on in the kind of crazy.

Sahil (00:29)
Yeah

Pankaj Raval (00:32)
Today we're continuing our series on media, tech and branding.

Our focus, a company that has made the news lately and not for the best reasons. We're talking about Disney, the magic mouse here. As you may all may know, Disney is the owner of ABC and ABC hosts the Jimmy Kimmel live show. You guys may have heard about this show recently because it's made news for some interesting reasons. So last week, just to catch everyone up in case you've been under a rock, Kimmel was taken off the air last week.

abruptly when he made some comments the murder Kirk. Whether these comments were in poor taste or not is up to everyone's opinion. However, on their face, they didn't seem all that problematic. He just made some comments about shooter maybe some political affiliations, but it wasn't anything that I think that would shock anyone if they heard them.

That said, and what we'll do is actually play a clip for you guys so you guys can hear what that actually what was actually said by Jimmy Kimmel right now.

So Sahil, what this clip is about is really just Kimmel making commentary on what happened and his belief that perhaps there's too much finger pointing going on. But right after that, the FCC chairman comes out, goes on a podcast and says, he should be taken off the air, what he says is despicable. All this stuff has happened. You know all of a sudden, ABC reacts

and makes quite a few threats. You know, he actually at one point acts like, you know, someone from the mafia and says, we can either use the hard way or the easy way. So it's quite shocking, you know, what he said out in public. And all of a sudden, ABC pulls Jimmy Kimmel from the air. And now this has kind of sparked a huge controversy. The entire Internet went nuts as it tends to do in this time for, I think, good reason, because this is, exactly

a challenge to our free speech and a challenge to our right to speak and say whatever we want. it's the First Amendment because it is so important. And that is the right to free speech. So Sahil, explain to me, though, why is this different this time than in instances before where we see people on streaming podcasts, social media being canceled for things that they've said?

Sahil (03:35)
Well, yeah, first of all, Bunker, you're right. I I think when we think of freedom of speech, we think that that is the most fundamental value we hold dear as Americans. I mean, if you go back to our roots, much of the history of the United States was anti-colonial against Britain and protecting the rights of citizens and our independence. So this was a major breach of that, actually. So

The reason this is such a big deal, mean, if you own a privately held company and you want to censor or tell your employees or someone who's a host on your show what to say or not say, that's actually protected by our laws and by the Constitution. But what's not protected is when you are operating on the public airwaves.

So broadcast networks like ABC operate on public airwaves. These frequencies are actually owned by the public and the government through the FCC. So the FCC hands out these licenses to broadcasters. And the deal is you can use the spectrum, but you've got to do it in the public interest. And that's why broadcasters face all these extra rules. There are certain limits to freedom of speech there, indecency standards, political advertising, obligations to serve local communities, but

telling jokes is not really one of them, especially when it's that subjective. And because the government is involved in granting and overseeing those licenses, there is a big First Amendment wrinkle. The government can't just tell Jimmy Kimmel you can't say that, that would be unconstitutional censorship. So when you're broadcasting over public airwaves, you get this weird mix of government oversight and strong free speech protections. Actually, more free speech protections than a private citizen would have.

broadcasting over, let's say, the internet. So if we look at streaming, Disney Plus or Hulu, owned by Disney, doesn't use the public airwaves. They're private platforms. And the First Amendment doesn't stop a private company from deciding what content it wants to carry. If Netflix cancels a show or YouTube takes down a video, that's not government censorship. That's a private business making an editorial decision. So the key difference here is public airwaves come with

public rules and protections streaming doesn't. So that when we're looking at this first issue, that's the important part of the framework here is this. It's not just that Jimmy Kimmel told a joke and is is getting canceled by the right. It's that Jimmy Kimmel is a is a host on a show that's broadcasting on public airwaves regulated by the government. And so his speech.

his freedom to tell jokes that don't violate the other standards is actually protected in the public interest. So this is really a wild breach of what we've seen in terms of government respect for freedom of speech.

Pankaj Raval (06:19)
fascinating. Yeah, it is. is fascinating. It's been a lot of discussion about this, you know, over the last six days. you know, Jimmy Campbell was brought back on the air on Tuesday night. And I just I just had a chance to watch his monologue. And, you know, these are these are kind of some some pretty scary times and crazy times that we're seeing our Constitution attacked in ways we've we haven't seen in probably a long time in our in our history and our lifetimes. And, you know, it definitely.

is cause for concern. I think for me, it just, it reminds me of how maybe much we take our rights for granted. I don't know your thoughts, Sahil.

Sahil (06:52)
Yeah, I

think that's true. People, you we look at history and we look at these periods of time where our citizens have fought really hard for the rights that they have and the rights that we enjoy today. But I think it's really easy to take it for granted and think that they're just protected. mean, they're not. We we have to fight for them. We have to enforce them. It's actually kind of a concept in law, you know, making sure you don't sit on your rights. So we do.

We do see that. And I think we're seeing society changing and the culture is changing. I mean, it does feel like we are very divided and even when it comes to social media, feels like content is really pulling us apart in really extreme directions. Like it seems like the algorithms are rewarding extreme kinds of content. So, yeah, it's a really dangerous time to not have open discussions.

So I think this is, yeah, I mean, it seems like there was some kind of correction that happened. But all kinds of business implications here. And also, you know, it kind of takes us into the question we're dealing with and what's going on with ABC recent report, research report from Needham & Co. based out of New York. Whereas is it worth it to be a public broadcaster anymore?

Pankaj Raval (07:41)
Absolutely.

Sahil (08:03)
Used to be right you had these few channels that were the dominant players But today when streaming taking over and taking up way more share of the industry It's a question now Disney has to ask which is okay I've got this political hot potato on my hands now where if I'm Running a broadcast channel. There are all these rules and the government is always

gonna be threatening me with the FCC license. They can pull it at any time. So does Disney really wanna play that game? I mean, we've kind of seen content move from broadcast to cable to the internet.

I mean, we have a lot of clients in entertainment and content. Are you seeing that power dynamic shift? Do you think there's still a lot of power in that broadcast license just

an anecdotal kind of perspective.

Pankaj Raval (08:51)
it is interesting, right? I mean, I think if you look at trends in the media and how much has gone into streaming, right? Like it's, it's, one could easily argue that streaming has really just become cable, right? Like the 2.0, because now you have to have a streaming subscription for eight different, you know, channels, right? Like before we could have Netflix, but now all these other companies like, well,

Sahil (09:01)
Right, yeah.

Pankaj Raval (09:11)
these are, this is our IP. Why don't we just create our own streaming service and now people will pay us and we get that money directly. So, you know, it's interesting. Now we're seeing this competition among streaming channels and, they're definitely eating the lunch of a lot of traditional broadcasters. So, you know, yeah, what does that mean? does it make sense business wise to be so heavily regulated when you can operate a channel

Sahil (09:12)
Yeah.

Pankaj Raval (09:33)
that is more private and much fewer regulations. I think it's a big question. You know, I don't know the benefit, the reach, you know, of having a broadcast channel. Right. Could you, for example, be successful having the Super Bowl on Amazon Prime? Right. Like, imagine that in the future. Right. Like, because Amazon's already got Thursday Night Football. What if now in the future people have to pay to watch the Super Bowl? You know, does that what does that mean for democracy? What does that mean for

Sahil (09:47)
Right.

Pankaj Raval (09:59)
even public channels, Like there's these, you know, Sesame Street and these other public broadcast channels that do serve a public service. What does that mean? Right? So I think there's a lot going on. And I mean, and this administration has attacked public service and public broadcast, which is very sad to see because, lot of kids who don't have the resources to pay for all these different streaming sources rely on this for some education even just kids entertainment.

So I think it's gonna be a hot button question, so I like to also zoom out because I feel like, you know, we're also in unique times, right? And that's easy to say, sure everyone can say that to a certain extent, but we've never seen this level of attack, of undermining of our constitutional rights ever before. And I think, you know, people are sounding the horn, you know, there's so many...

people in government who have or left government who are sounding the horn. You know, this is, you know, someone argue a five alarm fire because you know, what is happening right now is the attack on our fundamental freedoms. And if we don't speak up, if we don't make our voices heard, it's going to continue to happen. So, you know, do I think, Hey, let's, let's just abandon these traditional forms of media because of what's going on right now. I would say no, just because I do think, you know,

while we're only one year into this or not even that, you know nine months into this presidency, which it feels like a lifetime, we still we have three years left, you know, and then we'll hopefully have someone a little bit more pragmatic, a little bit more balanced and be able to kind of restore some of the sanity that we've lost. So I do think that you have to kind of take this in and the baby out with the bath water.

Sahil (11:31)
So

Pankaj, you're saying there's no third term.

Pankaj Raval (11:32)
or like the better term.

I would have said it, but I also don't want to jinx it because if I say it— Hahaha!

Sahil (11:36)
Yeah, I know. Seriously.

mean, know, we don't want to get written into Cash Patel's book, the plot to kill the king. Listen, we don't know if he's listening right now but you know, currently under the terms of our constitution, a third term wouldn't be permitted. you things have happened. So.

Pankaj Raval (11:44)
I do not, yeah. Exactly.

Yeah.

Yes,

let's see. mean, I'm sure there's gonna be an attempt,

say that. But yeah, I don't think it'll happen. I think I still believe that we still have a functioning government, functioning democracy

will prevent it.

sure he's gonna

damndest to do it. let's

So we can talk about ages about what this means for society, for democracy. But we're a dealmaking podcast. We talk about deals, we talk about business. And in the context of dealmaking.

What does this all mean from ⁓ &A and then we can talk about intellectual property next, but what does this all mean from an M&A perspective?

Sahil (12:36)
Well, see, this is where we meet one of the biggest dealmakers in America today. Don't let Mickey Mouse fool you. Don't yet let the cuteness fool you. Mickey Mouse is a media Disney owns massive assets in the entertainment industry and they want to make money. And so what's interesting here is Needham & Co. is saying there's still

Pankaj Raval (12:43)
Yes.

Sahil (12:59)
IP. There's still valuable IP in ABC. It's just we don't want to deal with the regulatory headaches from the FCC and DOJ and maybe even Congress. You know, you don't need that. And also that would happen if if let's say Disney sells ABC, the sale would trigger regulatory review by the FCC, by the DOJ. And so in order to avoid that by shutting down

By shutting down, meaning not renewing the FCC license, Disney avoids that scrutiny. They essentially remove declining low margin business line from their books and present investors with a cleaner story. Streaming in parks are the core and linear broadcast is gone. That's appealing to Wall Street.

And here's the trade-off. They walk away from the cash proceeds a sale might have generated. Even a discounted sale could fund debt reduction or new growth. Shuttering does mean no liquidity just to write off.

From a signaling perspective, it also sends a message. Broadcast is negative strategic value and that could ripple through the market, especially if your company's like Paramount or Warner Brothers Discovery that still rely heavily on their network. So ABCN is in this position where they may be getting good advice. Keep the IP and the assets that are associated with the IP.

but lose the liability and the exposure of being an FCC regulated entity.

Pankaj Raval (14:17)
It is interesting. to just go out there and say, I disagree wholeheartedly with assessment by Needham. It's my hot take. I think it's complete bullshit, honestly. You know, probably got some angle here. You know, who knows their investment bank? Maybe they have holdings in other companies. they might have a personal interest in seeing ABC shutter. But I think it's complete bullshit, honestly, because

this is such an old brand, you know, having this broadcasting license is still extremely valuable. Look at- they generate millions upon millions in revenue in ads every year. The the Super Bowl is on broadcast television. Right. mean, sports is so valuable. I don't know, you know, all the sports programs on ABC, but that's still where people go to watch live television. So as

even if we're going to talk about the streaming universe and how that's kind of eating the lunch of lot of broadcast, there's still one area that I think is not touched and that is live sports. And that's where people usually going to be going to broadcast networks that show a lot of these live sports games. I think, you know, I think their analysis is bullshit and I don't think it's going to go anywhere, but

But it does raise an interesting question because what do these people do if the value of these networks is in fact falling? Who's going to catch them? What's going to happen? But think shuttering it from my perspective is a non-starter.

Sahil (15:35)
Okay, so Pankaj, you're gonna play general counsel for Disney here. Considering the IP implications, what is your strategy for how to deal with ABC?

Pankaj Raval (15:45)
I think ABC is going to continue to do well. mean, think this is one hiccup for ABC in terms of they caved to a administration that is trying to bully them. And you can't give in to a bully because then you're going to embolden the bully. it's obviously easy for me to say, but they're looking out for their profits. They're looking out for their shareholder value. But the funny thing is,

when they did this, lost $3.7 billion in market value after taking this action. So it actually backfired them in a very bad way. it shows that, if you lose a spine, if you give in to the bullies, people are gonna see that and not respect that. So I think Disney, Mickey Mouse needs to grow a pair again get out there and compete continue to provide great IP and great values and great shows.

the masses and people will come. That's what they've been doing and that's been trying to do for last 50 years, whatever it has been, and people will still they can now leverage those on their streaming platforms as well. I don't think it's this or that. I think it's this and, right? I don't think it's or, they're gonna work together and I think there's still a lot of value here in live television.

That being said, will say I have not had cable. I don't really watch television. You kind of consume all my media through streaming channels. I haven't had cable in 15 years. you know, been okay with it. But I think the majority of Americans still watch live television, sports, whatever it might that's where this is going to be very valuable. So for them to say, can I think is just insane.

And think there's a lot of value here and I think they continue to grow the brand, but grow a pair. Don't do it caving to this madman who is throwing out every threat possible to get people to knee to his will.

Sahil (17:32)
And that's how we know this will be our last episode of Letters of Intent. We will put out a notice that the FCC has come down on us. Okay. So now speaking of the IP, okay. Now I'm looking for you to put on your IP lawyer technical expertise here because these concepts are kind of confusing.

Pankaj Raval (17:34)
Yes, exactly, exactly.

Sahil (17:49)
let's say Mickey Mouse falls through on this and pulls the plug on renewing the FCC license, what are the options here for Disney?

Pankaj Raval (17:59)
So Disney could do a few things with the ABC brand. I think it does definitely still have a lot of goodwill. There's a lot of cache there. It's a very valuable brand. I think they could sell it. I think selling it is probably better than shuttering it. If they were to shutter it, then I think they would have to kind of assign that IP even the Disney would assume all the IP. mean, probably still right now has rights to it, just by virtue of being a parent company.

But would have to kind look through all these contracts and say, okay, what are the rights, are the restrictions of all this IP? And I'll tell you, like I've negotiated several deals with Warner Brothers Discovery, I've negotiated these deals with Disney. There's a lot of nuance in the rights that are given to these different broadcasters and what they can and can't do based on every production and every deal.

So, you know, it's not going to be simple. It's going to take a lot of work and take a lot of analysis to go comb through all these contracts and figure out, what are the rights that they have? Can these contracts be assigned to who can they assign them? How can they license them? How can you license all this content? But fundamentally, you know, I think there's a huge value, millions of dollars in value to the content library that ABC owns. And I think that would be something that Disney would want to exploit and ideally leverage.

going forward, whatever it decides to do the ABC name.

Sahil (19:15)
I think that, you you brought up a really important point earlier too about sports. How, I mean, sports leagues have basically positioned themselves in terms of being, having very valuable contracts with broadcasters. And now with these broadcast networks, if it's seen as a negative in terms of market value,

that does affect how sports leagues are gonna start negotiating with companies like ABC and whether or not they will still be valuable. that is a very interesting point that, I mean, probably most of the public is still watching sports over broadcast. But if ABC, let's say the license doesn't get renewed, that has implications for these contracts, which I'm sure...

have the licenses cut up in so many different ways and with so much complexity. So the whole framework for negotiation between broadcaster and sports league could change.

Pankaj Raval (20:10)
Yeah, absolutely, absolutely.

Sahil (20:12)
So, you know, this is one issue and it's interesting that this was all triggered, you know, all this heat on ABC and whether or not it's valuable. I mean, there were lot of underlying factors here, but Jimmy Kimmel kind of became a lightning rod and a way for us to understand what is the FCC and why does it matter? What's the difference between public and private airwaves?

And also from an &A perspective, where is value today? Where has value been decimated by the rise of social and also by the rise of increased government intervention? I think we're going to see in our economy, the rise of government intervention is going to change the calculation for what industries create money.

Pankaj Raval (20:45)
Yeah.

Sahil (20:52)
Are we gonna see, know, we're seeing like Palantir, Facebook, all these companies with massive government contracts make a ton of money. Government is this new player. I government is now taking a stake in companies in a way they've never done before. So I think Pankaj as deal makers don't, yeah, exactly. This is not socialism. This is called government entrepreneurship. Just like Adam Smith intended.

Pankaj Raval (21:05)
But don't call it socialism. Don't call it socialism. Exactly. Yeah. Exactly. Exactly.

Sahil (21:16)
Well, hopefully you all enjoy our 18th century economics jokes. This has been another episode of Letters of Intent. Whether you're navigating trademarks, contracts, or &A strategy, the Disney ABC story is reminder that brand, IP, and corporate structure are always intertwined.

Pankaj Raval (21:33)
Yes. And I would say now we also see the government to that because, you're going to be seeing a lot more, you're seeing a lot more government intervention in private businesses and or even public businesses too, you know, than we've ever seen before. And it makes you realize that the government, the power of the government and maybe question how much power should our government have to have to meddle in these with these companies? Because right now it really feels like the government is, is trying to flex its muscles and intimidate.

Sahil (21:36)
at the government.

Pankaj Raval (22:00)
certain companies that don't toe the line and support the message coming out from the government.

Sahil (22:06)
That's exactly right. We are headed into a new economy and that is why you need your counsel. Remember to like, follow, subscribe. Carbon Law Group. You've got Pankaj Raval founding partner of Carbon Law Group. You've got me, Sahil, corporate attorney with Carbon Law here every week to keep you updated on the latest and greatest in deal making and risk taking. We will see you next time.

Pankaj Raval (22:12)
Yes.

Thank you again.