About this episode
Our roundtable of experts recaps highlights from the 2024 Morgan Stanley Technology, Media & Telecom Conference, including AI innovation, trends in live entertainment and the need for operational efficiency. ----- Transcript ----- Michelle Weaver: Welcome to Thoughts on the Market. I'm Michelle Weaver, Morgan Stanley Research's US thematic strategist. I'm joined by Ben Swinburne, who leads coverage of the media and entertainment, advertising, and cable and satellite industries, and Kieran Kenny, who covers internet. Along with my colleagues, bringing you a variety of perspectives, today we'll discuss some key themes from Morgan Stanley's recently concluded Technology, Media, and Telecom Conference in San Francisco. It's Tuesday, March 12th, at 10am in New York. Ben, Kieran, we have to lead off on AI. It was a tech conference. As we've written about in the past, most companies want to either be AI enablers or AI adopters. And we believe that 2024 will be the year of the adopters. We scraped transcripts of the presentations at the conference and found that AI was mentioned 155 times. There was a particular focus on Generative AI or Gen AI. And one of the means of adopting AI that was repeatedly mentioned was using chatbots for customer service. And chatbots can easily handle commonly asked questions without needing a customer service person to speak live. Kieran, can we start by talking about some of the most interesting ways companies and internet are adopting AI? Kieran Kenny: So, there's a wide range of use cases so far. What we're seeing more recently is growing adoption for, to your point, AI assistance for customer support types of use cases. We're also seeing increased adoption from advertisers; for generative AI, for image and text creation for advertisements. And in the video game space, we're also seeing demand for generative AI based content creation tools -- to give you a sense of some of the use cases. The most common use case, though, is adoption of generative AI coding assistant tools, which we're seeing that pretty pervasively across the internet space. Michelle Weaver: Great. And I know you've done a bunch of work around AI. What are some of the areas you think we'll see the quickest AI driven efficiency gains? Kieran Kenny: I think most likely you'll see the efficiency gains come first in the code assistant use cases. That when we go through and scan company disclosures for efficiency gains related to generative AI and look through some of the empirical studies -- code assistant tools tend to show the most consistent productivity gains in the 20 to 50 per cent range. And because R&D expenses are such a large percent of revenue for internet. It's on average 25 percent. There's a really strong incentive for companies to adopt those tools to drive productivity amongst their software engineers. So, we think that's the area you're likely going to see the benefits first. Michelle Weaver: Great. Thanks, Kieran. Ben, what do you think some of the most interesting ways companies in your coverage are leveraging AI? Benjamin Swinburne: I would echo some of the points that Kieran made, particularly around content creation and dealing with customers. You know, in the content creation area, we're seeing AI leveraged in creative services. So, creating content for marketing purposes is an area we're seeing the ad agencies look for opportunities. In the audio industry, we've seen AI used to more efficiently and more effectively translate podcasts and audio books to different languages, which can be then distributed around the world. One leading streaming audio company has an AI DJ that they used to drive recommendations for listeners. And on the customer front, we're seeing a lot of companies in the cable industry, basically distribute AI tools into their call centers and into their network diagnostics -- so they can predict where network failures may happen before they happen. Or help call center agents better help customers with issues more effectively using, you know, AI and big data. Michelle Weaver: Great. Super interesting. I'm sure that's just the tip of the iceberg, too, in terms of what we'll see with AI adoption. Ben, I also noticed that there was a lot of discussion from media companies around live events and whether that's high demand for concert tickets, streaming services offering live events, or demand for theme parks. Can you tell us a little bit about consumer experiences in the media space? Benjamin Swinburne: Yeah, absolutely. I mean, we believe that there are secular drivers of consumer spending towards experiences, for a variety of reasons. And we're seeing that happen; show up in the results and outlook for a number of companies in our coverage. We had some really positive commentary from a number of companies in the theme park space around current trends, which are pacing better than expected from the conference. We've seen leading streaming companies increase their investment in live content, particularly live sports, which is uniquely powerful and driving customer acquisition and attracting advertising dollars. And probably no place is consumer spending continuing to grow and grow off record levels as quickly as they are in concerts. Where we really see -- while it's a minority of the population that drives the concert industry. Our survey work and what we heard at the conference last week is that consumers value that live communal experience more than ever. And we're seeing that show up in financial results. Michelle Weaver: The last theme I want to talk about is operational efficiency and profitable growth. Our research has shown that companies that demonstrate high operational efficiency have outperformed on a relative basis over the past two years; and operational efficiency and cost cutting came up repeatedly and fireside conversations with the phrase ‘do more with less’ being used quite a few times. And it was clear that at the conference companies are very aware of the importance of being the best operators, given the expectations for more tepid economic growth in 2024. Kieran, what did you hear about profitable growth or the importance of efficiency within internet? Kieran Kenny: For many of our companies, including one of the largest social media slash advertising companies in the space, 2023 was very much a year of efficiency. But that focus is persisting through 2024 and is likely to continue going forward. So, I think a lot of companies are pointing to that one social media company as the North Star of their ability to operate with a leaner cost structure, to be more disciplined in their investments. And ultimately do that in a way where hopefully it can reaccelerate revenue growth and not be detrimental to revenue growth. So, efficiency and AI, well they go hand in hand. Both of those are two of the biggest focus areas for internet companies broadly. Michelle Weaver: Ben, same question for you. What did you hear about the importance of efficiency in the media world? Benjamin Swinburne: Yeah, we’re seeing focus on efficiency, both in sort of an offensive and a defensive posture. I mean, there are companies who are seeing accelerating revenue growth, demonstrating real pricing power in their business who are also reducing headcount and focusing on operating leverage. So, there's no question that efficiency, particularly in the technology industries, has probably never been a bigger focus than it is right now. We're also seeing companies that are heavily driven by -- you know, service companies driven by labor costs looking at offshoring. That's a big theme in our space. Probably more on the defensive side, companies facing real secular challenges on the revenue front are looking for efficiencies, particularly around content spending. That typically shows up in a shift to more unscripted content, which is less expensive or producing more content offshore with lower cost of production. Michelle Weaver: Ben, Kieran, thank you for taking the time to talk. And thanks for listening. If you enjoy the show, please leave us a review wherever you listen to podcasts and share thoughts on the market with a friend or colleague today.