Three Things (7/29)

NBA chooses Amazon for TV deal

The National Basketball Association signed 11-year contracts that grant broadcasting rights to Disney, Comcast, and Amazon. Amazon will pay $1.8 billion annually as part of its contract in hopes of capturing more viewers on Prime Video, while the NBA aims to make streaming an integral part of its strategy. After supposedly matching Amazon’s $1.8 billion offer and being rejected, Warner Bros. sued on the grounds that it has contractual rights to the business as an incumbent partner.

The NBA games broadcasted on Warner Bros.’ TNT and Max were a major revenue stream for the company that it did not want to relinquish. However, Amazon’s distribution abilities, prime membership audience, and tech-forward business model were understandably appealing to the NBA as it renegotiated its contracts. Since it now gets to show 66 regular season games on Prime Video, there’s no doubt Amazon will capture a significant portion of market share away from streaming peers - a classic example of how Amazon seeks to attract and retain more customers with add-on Prime membership perks.

SearchGPT

OpenAI has a group testing its search engine prototype, SearchGPT, which promises a more conversational experience and access to real-time information across the internet. OpenAI partnered with publishers to build a tool that summarizes information from news sites in complete responses and includes a sidebar citing relevant sources. The inclusion of citations, one of competitor Perplexity’s differentiators, should help OpenAI avoid lawsuits with news outlets and publishing companies while also building user credibility.

SearchGPT may be able to answer questions so comprehensively that it eliminates the need for users to click into online sites to find information. A change this drastic would challenge Google’s dominance in the search engine world by making search even easier and results more relevant. Not to mention, OpenAI’s partnership with Apple on integrating its LLMs into iPhones will broaden GPT adoption. It seems OpenAI is finding ways to anchor users inside the GPT ecosystem, and SearchGPT is an early attempt at breaking the universal habit of turning to Google first.

Commercial real estate distress

Commercial real estate distress, specifically office, is on the rise as multiple firms announce that they’ve set aside greater amounts of cash for real estate loss provisions last quarter than expected. Deutsche Bank’s second quarter earnings report showed that the dent to its profitability from commercial real estate loans has hit all time highs, Blackstone Mortgage Trust Inc. slashed its dividend, and New York Community Bancorp loss provisions came in way above expectations.

It’s likely that high-cost commercial office loans will continue to affect earnings in the coming weeks, as more than $94 billion of US commercial real estate is currently distressed. Despite having the knowledge that interest rate cuts are on the horizon, it’s clear that lenders are not ready to extend loans or refinance yet. With more than $1 trillion in loans coming due over the next two years, companies are preparing for further declines in appraised valuations and potential defaults. Just as we’ve seen the delayed effects of a higher interest rate environment, once rates start to drop it will certainly take time before there’s any relief in the commercial real estate market.

Disclosures:

As of writing GOOG, AMZN, and AAPL are holdings in Titan's Flagship strategy. As of writing, OpenAI is a 4.00% holding in ARK Venture Fund.

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