Sonos CEO Patrick Spence, E3, and net neutrality ends

In addition to our classic Nilay, Dieter, and Paul trio, we’ve added a few things this week. To give you the best coverage of E3, culture editor Laura Hudson gives us a quick rundown of the news from the expo to start off the show In the second half of the show, Nilay sits down with Sonos CEO Patrick Spence. Don’t worry, there’s plenty of other classic Vergecast — some gadget talk, Paul’s weekly segment (you know, “How big is the Moon?”), and some deep dives into net neutrality, antitrust law, and Comcast’s $65 million bid on 21st Century Fox. 02:06 - Laura Hudson’s E3 roundup 07:13 - Sony issues weak response to Fortnite cross-play controversy on PS4 and Switch 11:26 - Microsoft is getting ready for the next Xbox vs. PlayStation console war 16:33 - Joseph Gordon-Levitt is defending a controversial plan to crowdsource Beyond Good and Evil 2 art 25:01 - Interview with CEO of Sonos Patrick Spence 1:02:49 - Paul’s weekly segment “How big is the moon?” 1:06:28 - I picked up a Boring Company Not-A-Flamethrower and it’s mine now 1:07:04 - The Boring Company’s Chicago project seems awfully cheap for something so big 1:11:18 - HTC U12 Plus review: fixing what didn’t need to be broken 1:12:54 - Samsung upgrades the Chromebook Plus with a second camera and new processor 1:13:44 - Eero promises not to brick routers if you don’t pay a subscription 1:17:47 - Net neutrality is dead — what now? 1:19:48 - Comcast makes $65 billion offer to steal 21st Century Fox away from Disney Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Nilay Patel?

  This episode of The Vergecast is brought to you by IBM. The music industry is facing new frontiers for talent discovery. Find out how IBM partnered with Spotify and multi-platinum music producer Alex DeKid to help Alex work smarter using AI to discover the perfect artist for his latest single, "Go." Learn more at ibm.com/music.

• 0:20Nilay Patel?

  Hello and welcome to The Vergecast, the premier podcast of the Vox Media Podcast Network. How do you like that? Is that like a soccer reference? Yeah. Because of football? No, but it could be. Because of the World, sorry, the World Cup? Yeah, the FIFA podcast that you've been waiting for. Anyway, it's a, this show is huge this week, but there's only three of us. Yeah. How do you like that? But Paul's back. Hello. Dieter's here.

• 0:48Speaker 01

  Hi.

• 0:49Nilay Patel?

  And I'm Neelai, your friend. We, I'm going to just tell you, the show is out of control this week. E3 is going on. I interviewed the CEO of Sonos after the beam came out. We're going to run a piece of that. We're going to do a chunk of that interview, which is very interesting, by the way. Every company has bought every other company, from what I can tell. Yeah. Which is a lot. Net neutrality is over. And a number of companies are threatening to kill your Wi-Fi router if you stop paying them a subscription fee, which is just a lot. It's like the world is creating content for us. Yeah, it's, it's so much. And we found out today that some artist painted a bunch of our headlines in the New York Times font in giant letters in our puzzle, which is amazing. Ron Taurata.

• 1:34Speaker 01

  You know, as the flagship podcast, I feel like you should have done that little summary and then at the end added, "All that and the BlackBerry Key 2 on this week's Vergecast."

• 1:44Nilay Patel?

  And then we run an ad. We don't have an ad to run there, but all that and a BlackBerry Key 2. Well, we back after we tell you how to shave or not shave.

• 1:55Nilay Patel?

  We've told you how to shave so many times. I still don't know. All right, let's start with E3. So here's the deal. We're gonna try something new here on this, The Vergecast. Yeah. The flagship podcast of OX Media Network. I really wanted someone who was at E3 to come on the show with us today. Laura Hudson, Megan Frogmash, Casey Newton, a bunch of people are all there. There's a ton of coverage from it on the site. Unfortunately, between flights and scheduling, east coast, west coast, we couldn't make it happen. But we got Laura to record just a couple of minutes of all the biggest headlines, so that you can know what they are, and then we're gonna dive into a couple of them. So let's listen. This is Laura Hudson, our culture editor. Check this out.

• 2:33Speaker 02

  Hey, it's Laura Hudson, culture editor at The Verge here. The team has been out at E3 all week hitting the news. But if you haven't had a chance to keep up, here are the headlines you need to know. One of the biggest announcements at E3 also ended up being one of the most frustrating. The massively popular Fortnite came to the Switch, and the game was downloaded 2 million times within 24 hours. But we also learned that Sony is blocking cross-play between the PS4 and the Switch and Xbox One, which understandably infuriated many fans. Bethesda gave us our first look at Fallout 76, which will take players back to the world of Fallout through an online survival game set in West Virginia, where you'll be able to nuke other players. We also got a glimpse of Doom Eternal, a

• 3:15Speaker 02

  sequel to the 2016 reboot of the classic shooter, the announcement of Elder Scrolls 6, and the news that the next Elder Scrolls will be a mobile RPG called Blades. We also got the announcement of Starfield, Bethesda's long-rumored sci-fi adventure. There are VR games coming for both Prey and Wolfenstein, and a new Wolfenstein game called Youngblood, where you can play co-op or single-player as the twin daughters of Nazi hunter BJ Blaskowitz in 1980s Paris. Nintendo gave us a detailed look at Super Smash Brothers Ultimate, where you'll be able to play as Metroid's Ridley, as well as every other character that's ever been in a Smash Brothers title before. Minecraft Story Mode is coming to Netflix this fall as an interactive adventure,

• 3:58Speaker 02

  and Telltale is making a standalone Stranger Things game for consoles and computers. We got a closer look at gameplay from Death Stranding, the bizarre, baby-focused horror game from Hideo Kojima, as well as the very cool-looking open-world RPG Cyberpunk 2077, and the hotly anticipated Last of Us Part II, which centered on a much more grown-up Ellie kissing girls and cutting throats. We learned that there isn't going to be any romance in BioWare's upcoming game Anthem, but there will be an Assassin's Creed Odyssey, which will take the time-traveling franchise back to ancient Greece. Gears of War V is coming in 2019, and we learned that Microsoft is not only hard at work on its next console, but making a big push for Xbox-exclusive games by acquiring

• 4:42Speaker 02

  five studios to help make them. On the indie side, we got a closer look at the super-slick-looking Neo Cab, an emotional survival game where you play as a rideshare driver in a dystopian alternate reality that honestly doesn't seem that alternate. And there are two unstoppable cute games coming from Double Fine: Ooblitz, which is Animal Crossing meets Pokémon for dance battles, and Knights and Bikes, which is Stranger Things meets Little Big Planet but with badass bike-riding girls on an isolated British island. Oh, and there's a new Battletoads game on the way. Those are the big stories for E3, but we've got a lot of interviews and deeper dives on the site as well, and lots more to come.

• 5:21Speaker 03

  Thanks, Laura. Back to you, Paul. Basically, let me break E3 down for you.

• 5:27Nilay Patel?

  Yeah. By the way, that was great. Before you do that, I thought that was great. Let us know if you want us to do more of that kind of thing.

• 5:34Speaker 03

  Like recap stuff.

• 5:35Nilay Patel?

  That kind of thing.

• 5:36Speaker 03

  Quick summary. I learned a lot.

• 5:38Nilay Patel?

  Yeah.

• 5:39Speaker 03

  And I've been basically... So here's what happened. Tyler, the creator, tweeted a Sony-France tweet that had an image of a guy with a skateboard. Microsoft... Announced a terrible looking, I mean, I've seen a lot of previous for this game called Session or whatever.

• 5:56Nilay Patel?

  Yeah. Oh, yeah.

• 5:57Speaker 03

  What the world needs a Skate 4?

• 5:59Nilay Patel?

  Yeah.

• 6:00Speaker 03

  Entirely, the creator knows that. Microsoft knows that, so that's why they're backing this Kickstarter game called Session. Does EA know that? EA, in the biggest PR hole of its very deeply dug PR hole history.

• 6:14Nilay Patel?

  Yeah.

• 6:15Speaker 03

  EA just doesn't know that they need Skate 4. And so I was like, here it is. EA didn't announce it at their presser because they're saving it, so it's Sony can like announce a timed exclusive. So like the only press conference I watched front to back, which by the way, happened at 9:00 PM ET, guess what was happening also at 9:00 PM ET? Trump and Kim Jong-un were meeting. So I'm like watching these two things, hoping for Skate 4, hoping that there's no nuclear war.

• 6:46Nilay Patel?

  And what would you, instead you got no Skate 4 and you got a nuclear war.

• 6:51Speaker 03

  Yeah, like a, like a loose agreement to not, nobody's dying yet right now, and also I can't skateboard. So that's my E3.

• 6:59Nilay Patel?

  I will put, I will say this, when we were putting together the show notes, I was like, Paul, we got a big show. And he's like, I'll do an hour on Skate 4. Well, let's, let's focus on the first thing Laura mentioned.

• 7:10Speaker 03

  Sure.

• 7:11Nilay Patel?

  Which was the news, speaking of Sony press conference.

• 7:13Speaker 03

  Right.

• 7:14Nilay Patel?

  They didn't address it there, but Nintendo announces Fortnite on the Switch. Not just announces, but it got released, bang, right away. Yeah. I feel like at this port, there's a team at Epic that has ported Fortnite to everything and they're just waiting.

• 7:26Speaker 03

  Well, so Epic, and now, talked about this at the, at GDC, I believe, like Epic is very important to them, cross-platform, and they're, they're gonna use as much leverage as they possibly have, and they've never had more leverage because they have the most popular game in the world right now.

• 7:42Nilay Patel?

  Yeah.

• 7:43Speaker 03

  Uh, to, to make cross-platform play happen, and they've been engineering Unreal Engine to be super cross-platform, which is why not only was Fortnite came to mobile, but PUBG, which is also built on Unreal Engine, was quickly was able to come to mobile. So, you know, Epic has been setting themselves up for this cross-platform future, and now who looks like a stick in the mud?

• 8:08Nilay Patel?

  So Sony is not allowing, it's actually worse than this. It's not just they're not allowing. Let me just give you the rundown. Yeah.

• 8:16Speaker 01

  They announced, alright Fortnite's available on the Switch, go get it at 10:00 PM Pacific. Everyone's like, "Hooray!" And they go and they download it, and then they start it up. And if you have ever, even once, played Fortnite on a PS4, you cannot log into that account on your Switch. You've been locked out. You can do cross-play across PC and Xbox and Switch and mobile and all, that's fine. But Sony specifically seems to be blocking cross-play with the Switch. Although, nobody knew for sure what the story was, because people saw this error message. There was this error message from Epic that was just like, ice cold.

• 8:52Nilay Patel?

  Yeah, the error message is comically bad.

• 8:54Speaker 01

  "This doesn't work, and don't email us or call us because we can't fix it. Make a new account, sorry."

• 8:59Nilay Patel?

  Yeah.

• 9:00Speaker 01

  At which point, Epic says nothing. You know that there's, there was probably a lawyer with like a Sony logo on their lapel with a knife just like standing next to their Twitter account. People just like, "Be quiet." Sony said nothing. Xbox, Microsoft was like, "Ha ha!" They like, "No, our stuff is cross-compatible, I don't know what's up," for something like 36 to 48 hours. And then finally, Sony issued a statement that was, "We love cross-play. Our cross-play works with PC. Bye." Completely ignoring the massive backlash that they've been facing.

• 9:37Speaker 03

  Something about, "We like to hear people's comments."

• 9:40Speaker 01

  Yeah, yeah. "We want your feedback."

• 9:41Nilay Patel?

  Yeah.

• 9:42Speaker 01

  Our feedback is, "Stop it."

• 9:43Nilay Patel?

  Yeah. The Sony corporate PR AI machine was like, "Feedback accepted."

• 9:51Speaker 01

  It's a mess. Here's what I don't understand. Can you help me figure this out?

• 9:55Speaker 03

  Yeah, yeah, yeah, yeah.

• 9:56Nilay Patel?

  It's very confusing, actually. So when you log into Fortnite, you're logging into Epic.

• 10:00Speaker 03

  Mm-hmm.

• 10:01Nilay Patel?

  Right. So how can Sony like intercept?

• 10:04Speaker 03

  As far as I know, there, at one point with Fortnite, there was a bug in Fortnite, and there was cross-platform play.

• 10:13Nilay Patel?

  Yeah.

• 10:13Speaker 03

  Epic is artificially restricting cross-platform play from PS4 specifically because Sony wants it.

• 10:21Nilay Patel?

  Okay, so what is Sony giving Epic? Right, that's like an interesting dynamic there that I don't understand. Because it's just software that connects to a server.

• 10:29Speaker 01

  I think they're giving them access to the platform. Like, maybe they're giving them money, maybe there's something under the table there. But I think it's just as likely that what they're doing is not banning Epic from the PS4. And so if that's the case, the question is, does Epic have enough leverage to be like, "Whatever, we're turning it on." Or can Sony somehow block it in their system where they, everything that goes online gets routed through Sony's server at one point through your PSN account? Which means that Sony can block it and Epic doesn't even have a chance to say, "No, we're doing it, screw you."

• 10:58Nilay Patel?

  Well, you can't play online in a PS4 unless you're signed into PSN.

• 11:01Speaker 03

  Right, and so you'd have to be pinging Sony's servers at some point for that identity stuff. But obviously, that's already working for, like, if, if on Epic's end, they just pretended like the Xbox and Switch were like iOS devices. As far as I know, yeah, so that's, I mean, that's what, and so the other thing Laura was mentioning is Microsoft's really into these exclusives. Doesn't anybody realize? I feel like we're, we're out of the exclusive era. I understand that like Nintendo can do Nintendo things. I don't think Sony and Microsoft really get to do the classic console war anymore. Because I just feel like-

• 11:41Nilay Patel?

  I don't know, man.

• 11:42Speaker 03

  PC gaming, it has so much power in this market now.

• 11:46Nilay Patel?

  I mean, Sony won, though, because of its exclusives.

• 11:51Nilay Patel?

  They just blew Microsoft away this generation. Microsoft's announcement were not about fixing the Xbox One.

• 11:57Speaker 01

  Also, God of War, by the way, exclusive, just saying. Like, one of my favorite games of the past six months, anyway.

• 12:03Nilay Patel?

  But I, I think Microsoft bought all these studios so that when, because they're already talking about their next generation. Sony was out there a month or so ago being like, "We're in the final phase of the PS4." Right, they're, they're setting themselves up for the next console generation.

• 12:18Speaker 03

  Yeah, but I just feel like-

• 12:19Speaker 01

  So is Microsoft, although for a different reason.

• 12:21Nilay Patel?

  No, I'm saying, I'm saying both of them.

• 12:22Speaker 03

  I'm saying winning the, the battle of console exclusives is winning what is not necessarily a smaller pie, but it is a small pie relative to the future of games. The most important games in the world are Fortnite-

• 12:37Nilay Patel?

  Which is everywhere.

• 12:38Speaker 03

  PUBG.

• 12:39Nilay Patel?

  Which is just one place.

• 12:40Speaker 03

  No, it's everywhere.

• 12:41Nilay Patel?

  It's everywhere now?

• 12:42Speaker 01

  Mm-hmm.

• 12:42Nilay Patel?

  It's everywhere, yeah.

• 12:43Speaker 03

  League of Legends, which is PC.

• 12:45Nilay Patel?

  Mm-hmm.

• 12:45Speaker 03

  Minecraft, which is everywhere. I mean, jump in if there's like stuff I'm missing. Like, I know that there's really important games that people love.

• 12:52Nilay Patel?

  Skate 4.

• 12:57Nilay Patel?

  It's one you're missing. Technically, that was an accurate answer.

• 13:03Nilay Patel?

  No, again, we're saying the biggest games in the world are everywhere.

• 13:06Speaker 03

  Yeah.

• 13:06Nilay Patel?

  But you've got to move it on the margin, right? So like...

• 13:09Speaker 03

  Right, that's why I'm saying they're playing for the margin. They're fighting over the margin.

• 13:12Nilay Patel?

  That's not a bad fight to win.

• 13:14Speaker 03

  Whatever, I don't care.

• 13:15Nilay Patel?

  You're just gonna...

• 13:16Speaker 01

  I don't know that I fully agree with you, Paul.

• 13:18Nilay Patel?

  I do care. I stupidly bought a PS4 Pro instead of an Xbox One X.

• 13:20Speaker 03

  Right.

• 13:21Nilay Patel?

  Because everyone was like, you gotta get these exclusives.

• 13:23Speaker 01

  You made the right decision, except for this Fortnite garbage. Because there are better games on the PS4. There just are.

• 13:29Nilay Patel?

  Yeah.

• 13:29Speaker 01

  I think built into that argument is that PC gaming is the future for everybody. And I just don't know. Sorry, I hate PC gaming. I love gaming on consoles. Like, having a big, dumb, cordy keyboard in front of me while I'm trying to play a video game is not fun or immersive for me.

• 13:41Nilay Patel?

  Hmm. What I like doing is buying all the video games and not playing them.

• 13:45Speaker 03

  Yeah.

• 13:45Nilay Patel?

  That's my strategy.

• 13:46Speaker 01

  Yeah, I do that. Yeah.

• 13:48Nilay Patel?

  Any other E3 news that you want to talk about, Dieter, Paul?

• 13:51Speaker 01

  I mean, so Microsoft, they bought a bunch of companies to try and actually make games for the Xbox to get exclusives. They are planning a streaming, a good streaming video game service. We'll see. But they, they want to release stuff, you know, day and date on the streaming service and have it be high quality and not wait for it to come later is like, you know, other stuff. There was no Metroid Prime 4. I'm very unhappy about that. It's fine, it's fine. I know I should be excited about Smash Brothers. I'm not. I know I should be, but I'm bad at video games and you have to be good at video games in order to enjoy playing Smash Brothers. And I'm bad at them and therefore, whatever. I think Cyberpunk 2077 or whatever, it looks fine, it looks good. I played Cyberpunk back in the day, like the RPG that this is based on.

• 14:34Nilay Patel?

  Mm-hmm.

• 14:34Speaker 01

  But I don't know, something, something about it strikes me is it's like they're not going to pull it off. It'll be good, but I, I don't think it's going to be like generation-defining. And I wish I had something interesting to say about Death Stranding beyond the thing that everybody says, which is what the hell is going on here? It looks like it's just going to be unsettling all the time.

• 14:53Speaker 03

  I was talking to my buddy and it's like, there's a game coming out where you're like a mailman. It's like, you're just alone and then it's like weird apocalypse and you're a mailman. I was like, you mean the Kojima game? It's like, oh, that makes all the sense.

• 15:09Speaker 01

  Yeah.

• 15:09Speaker 03

  I'm very excited.

• 15:10Speaker 01

  I love a Kojima game.

• 15:11Speaker 03

  Yeah.

• 15:12Speaker 01

  I love carrying babies in little weird things and then they detect invisible creatures.

• 15:18Speaker 03

  It's unsettling and it's different and you don't expect it.

• 15:20Speaker 01

  Yeah.

• 15:21Speaker 03

  I think that's what's worrying about like Fallout 76 was probably, to me, it seems like the biggest announcement of the show. And it's just not unsettling or different enough. It's like, what if we mixed Grand Theft Auto Online with Rust and kind of something a little bit like Fallout? Yeah.

• 15:38Speaker 01

  Yeah. So it's like, I think everyone's chasing the Fortnite wave, right? Like, what if we take our world and make it funner for everyone to play? And like, maybe that's what you want?

• 15:46Speaker 03

  Yeah. It's gotta be different or...

• 15:49Speaker 01

  I personally hope Beyond Good and Evil 2 is great, uh, cause I loved the original Beyond Good and Evil. But did you see this drama about Jason Gordon Levitt's HitRecord thing? Apparently they're gonna try and crowdsource music for it. And everyone's like, that's spec work, yo. And he's like, no, it's fine. And it just, I don't know, man. If you're partnering, like, he's a very fine actor. And I love that he gets to make a viral video once a year where people feel like they're empowered. That's all very nice. But it's so clearly just like a play for him to make money off of branded content. He's been like partnered with LG for years that I kinda just don't care and I wish they wouldn't have bothered.

• 16:26Speaker 03

  Hmm.

• 16:27Nilay Patel?

  So I read his whole thing on Medium, so Joseph Gordon Levitt, just to explain what's going on.

• 16:31Speaker 03

  JGO.

• 16:32Nilay Patel?

  He is making music for a game.

• 16:34Speaker 03

  Mm-hmm.

• 16:35Nilay Patel?

  And he has a platform.

• 16:37Speaker 03

  Called a HitRecord.

• 16:38Nilay Patel?

  Called HitRecord, where everybody can like participate in the making of music. And his thing is like, participate in making music and we'll put it in this game.

• 16:44Speaker 03

  Hmm.

• 16:45Nilay Patel?

  But it was unclear until today where it got slightly less unclear how anyone get paid for that work? Like, why would you participate and give something away for free to a game that would be sold for money and presumably play JGO? And then he like, this long thing about how everyone gets paid if you're in the final thing. And some people's contributions are small, so they get just paid pennies. Some people get paid hundreds of dollars. It was a very long thing about... How the payment would work and his theories about payment. And I just, we're coming to a point on the internet where the kids are gonna start realizing that Metallica was right. It's gonna happen. Where we're gonna look back on Lars Ulrich being like, hey, don't steal our shit and give it away for free.

• 17:29Nilay Patel?

  And everyone yelled at him. And now we're gonna loop all the way back around to anytime I publish something, you're gonna actually get paid for it. Which is not a bad argument. It's just, to me, very funny because of how pilloried every artist years and years ago was about stealing their music.

• 17:44Speaker 03

  I feel like we're progressing towards the end of copyright.

• 17:47Nilay Patel?

  You are definitely wrong.

• 17:49Speaker 03

  Probably.

• 17:52Nilay Patel?

  No, it's just like, you can't, I was talking about this with a bunch of our culture reporters, Megan, Bijan, Patricia, and Devon. Like, YouTubers now get mad when people steal their formats, right? YouTubers get really mad when people do reaction videos to their videos. All that stuff is just, it's fundamental copyright stuff. And the moral outrage they feel is actually reflected in the law, but they hate it. So it's like this parallel system where just like how many internet comment points you score is like the alternative to like getting lawyered up. It's really wacky.

• 18:27Speaker 03

  Explain what you're saying, because I don't quite understand. My understanding of YouTube culture is they are freaked out if anybody's gonna do copyright strikes against them.

• 18:36Nilay Patel?

  Right, so they hate that.

• 18:37Speaker 03

  Yeah.

• 18:38Nilay Patel?

  But they don't, they also don't like it if like you're a smaller YouTuber and a bigger YouTuber lifts your format. Or they do a reaction video to your thing, or there's a lot of people who they're like, my music got used. But the cycle, or here's another example, smaller designers hate it when bigger brands steal their designs, right? Which is a thing that happens all the time, and there's waves and waves of outrage.

• 19:01Speaker 03

  But I feel like YouTube culture is not very much like that. People are used to this idea that you get exposure.

• 19:08Nilay Patel?

  I think that's changing.

• 19:09Speaker 03

  Through this.

• 19:09Nilay Patel?

  I think that's changing in serious ways.

• 19:11Speaker 03

  And I, I, I think this video game thing is interesting because, you know, Bethesda, I really is feels like one of the just, it's a behemoth now. And a lot of it is based on a user generated content.

• 19:23Nilay Patel?

  Yeah. So I think that.

• 19:24Speaker 03

  Which happens after release, after people have already paid for the game and people build content for Skyrim or Fallout after the fact.

• 19:32Nilay Patel?

  Yeah. So, but I think it's, there's, I mean, there, it's like parallel thought processes that are not reconciled. One is you built a thing. I'm actively participating in a thing and the dawning realization that I'm receiving no compensation, but you're getting rich. Right. And there's like a, something is changing in there. Right. And then on the other side, there's like the formal copyright regime, which is, I'm going to lift the new Ariana Grande song and put it on YouTube and write no copyright intended under it. And that should be fine. And like, those things have not been reconciled at all.

• 20:07Speaker 03

  Right.

• 20:07Nilay Patel?

  Right. Either you're like, you live in a world where it's, it's fine to just like take and remix and share. And then some people will like sell it or you live in a world where it's, it's not fine. And I, I, I just watching sort of this new generation of creators, which I, I love, I love the fact that they're, they just have different ideas. I'm just watching everybody sort of reconcile the idea that they're making stuff and they want that stuff to be valuable with the environment. In, in many cases, the platforms that like created the ability for them to make stuff. So like, I, it seems like this thing to me is this JGL.

• 20:43Speaker 03

  Yeah.

• 20:44Nilay Patel?

  Thing to me is like, just an example of we're past the point of corporations really asking people to make them suffer free. Right. Like they, they're like, no, you're gonna, you're gonna make a lot of money if I do this.

• 20:55Speaker 03

  In some industries we are, but I, I ultimately it's their right to do, to, to do spec work. Like obviously a lot of industries, like it's really frowned upon, but like, I'm not going to get outraged on behalf of somebody who's totally fine with it and into it.

• 21:08Nilay Patel?

  Yeah.

• 21:09Speaker 03

  You know?

• 21:09Nilay Patel?

  It also is a way to like. In many cases, like, submit a thing where you would never have the entry point.

• 21:15Speaker 03

  Yeah, if you want to be involved in something bigger than yourself, or you want exposure or whatever, go for it. If you say, "No, my work is worth money. I will only do it for money," then go for that as well.

• 21:27Speaker 01

  Yeah, I'm actually not mad about the spec work that, or not that mad about the spec work. I think, I think you shouldn't do it if you can avoid it. I think it's not great for, you know, your life. I'm just mad that JGL gets to, is still thinking that he can act like he's doing a nice, lovely internet thing and not just doing brand advertising, because that's what he's doing.

• 21:47Nilay Patel?

  Yeah. I mean, at the end of the day, aren't we all just doing spec work for Twitter? We just give that shit away for free all day long.

• 21:55Speaker 01

  I want to go back to Microsoft really quick, and I know this is unfair, but, man, am I tired of Microsoft selling me on like, "They're gonna get it right next time," and that "The future's gonna be amazing," instead of selling me video games right now.

• 22:07Nilay Patel?

  Yeah.

• 22:08Speaker 01

  Like, and I'm not just talking about like, crackdown is taking forever to come out, right? I'm talking about like, they're like, "Here's our thing, but just hang on. The next thing is gonna be even better."

• 22:18Nilay Patel?

  Microsoft can't help it because they're a platform vendor. That's what every platform vendor does, right? They think about the Xbox like Windows. They're like, "We built a new platform. It's got new APIs. It's gonna work in great ways. Take it away, developers." And the developer's like, "Sony paid us." But like, we just came off dev conference season, and like, that's what all the platform vendors do. They're like, "Look at all the new features of our platform. Developers, take it away."

• 22:42Speaker 03

  It's weird to me, because it seems like Microsoft understood this back in the day. What did they do to get the Xbox? They bought Bungie.

• 22:50Nilay Patel?

  Yeah.

• 22:50Speaker 03

  They outbid Apple for Bungie, or for Halo.

• 22:54Speaker 01

  Can you imagine?

• 22:55Speaker 03

  They also had Peter Molyneux.

• 22:59Nilay Patel?

  Yeah, but they were, the first Xbox, it's the Xbox 360.

• 23:04Speaker 01

  That really did it.

• 23:06Nilay Patel?

  Right, and they, they beat Sony very significantly to that generation. Right, like, they were first out with HD. Which is wild to think about.

• 23:16Speaker 03

  Oh, yeah, they had Gears of War.

• 23:18Nilay Patel?

  Right, they just sort of won the race in a way that they have not yet won the race.

• 23:22Speaker 03

  But it just seems like, I don't know, I've never had a billion dollars, so I don't know. It seems like it's easy to spend a billion dollars and make a lot of video games that are exclusive. That's one way to get exclusive video games is to pay.

• 23:32Nilay Patel?

  Well, they just bought four studios or something, so that's the plan.

• 23:36Speaker 03

  Like you said, years late.

• 23:39Nilay Patel?

  All right, we gotta move on from E3. Thank you, Laura, for recording that segment for us. I'm very curious if you want more of that on The Vergecast. We have a lot of reporters who would just do that every week. Let me know if you enjoyed segments like that. We'll have Laura on the show soon to actually get into it, but let me know if you like it. We are gonna take a break, then we're gonna come back and check this out. I interviewed Patrick Spence, CEO of Sonos. Last week on the show, Paul, you weren't here. I posited that Sonos' entire business model was driving people to build bigger and bigger houses so that you would need more and more speakers. I asked him about this, this is true.

• 24:13Speaker 03

  This is a great theory.

• 24:14Nilay Patel?

  And I told him that if he ever partners with LinkedIn to build a career services division, then I'll royalties. Anyway, we're gonna have an ad, you're gonna listen to me interview Patrick Spence, Dieter's just gonna keep ranting about video games in the background. Then, we're gonna come back, talk about gadgets, and honestly, and I trust law.

• 24:30Speaker 03

  And then a half hour about Skate4.

• 24:33Nilay Patel?

  All right, listen to this.

• 24:34Speaker 04

  Hi, Vergecast listeners, I'm Kara Swisher, the editor-at-large at Recode. I want to tell you about an interview I just published on my podcast, Recode Decode. At the Code Conference this year, I interviewed Uber CEO Dara Khosrowshahi about replacing Travis Kalanick, its founder, and his plan for the future of Uber and what happens to its self-driving division after that fatal accident in Arizona. Once again, the name of the show is Recode Decode, hosted by me, Kara Swisher. You can find it wherever you listen to The Vergecast, see you there.

• 25:01Nilay Patel?

  Hey, everybody, we're back. Patrick Spence, the CEO of Sonos, is with us. Hey, Patrick, how are you?

• 25:05Speaker 05

  Hey, good, Neela, how are you?

• 25:06Nilay Patel?

  I am great. You launched a new product last week, the Beam. How are you feeling?

• 25:10Speaker 05

  Feeling very good, yeah. We were very happy with the reception of that product and really, you know, what we think is the best smart speaker in the world.

• 25:18Nilay Patel?

  Well, that's a bold claim. Let's dive into it, I like it. Just to set the stage, you have been at Sonos for some time, right? Six years or so?

• 25:27Speaker 05

  That's right, yeah, I'm just coming up on my six-year anniversary.

• 25:30Nilay Patel?

  And you took over as CEO about 18 months ago.

• 25:33Speaker 05

  That's correct.

• 25:34Nilay Patel?

  So I was just looking at some of the... You wrote a great memo to your team when you took over as CEO, and... You know, it's interesting, you'd been there for several years before and you took over, so you obviously want to make change, but you're from the culture. But there was one line, I just want to ask about specifically, and it's a great line, I really like it. You said, "We need a bias to action. We need to innovate boldly and move faster." How, in the last 18 months, how's that going? What changes have you made to like really deliver on that?

• 26:02Speaker 05

  Well, I think the announcement cadence speaks for itself. So we've actually had three new products over that 18-month period, and we've ended in a good position where people are moving faster. And really, I think the demand was latent in the organization to really, you know, really put us in a position where we could unleash kind of people inside the company. And so it was one of those things where it was there and I was just kind of opening it up. And again, you have to think about the whole lifecycle of the company, because really in the beginning, Sonos was quite ahead of its time and was in a position where if we were moving too fast, we actually would have been ahead of the customer. And

• 26:45Speaker 05

  in some of those situations, you know, you can actually end up extending yourself too far and in a situation where the company just, you know, is gone, right? And so there was a little bit of making sure that we were working through it in kind of the right cadence and not getting too far ahead of it. But now, certainly, like we've seen smart speakers and everything we've been doing kind of really hit with the mainstream. And so I felt it was really important to say, "All right, now's the time to really unleash the team and like, let's go and let's bring, you know, everything we got to the game."

• 27:17Nilay Patel?

  So the three products that you talked about that you've introduced, the, obviously, Sonos one, which was

• 27:22Speaker 05

  Yes.

• 27:22Nilay Patel?

  probably the splashiest, most mainstream consumer product. It's a smart speaker, it's a hot market. The Play Base, which was an extension of your existing home theater line, like a nice repackaging of the Play Bar. And then now the Beam, which is another home theater device with speakers in it. Were all of those brought up under your watch? Were some of them kind of products that were coming anyway? Did you say, "We have to do this right now, start from scratch, release a product"? Or are they all kind of in the pipeline already?

• 27:51Speaker 05

  We always have a number of ideas we're kind of working on. And I think what I did with the team is really say, all right, it's time to move on these products. So Playbase was just a couple of months after I took over. You know, that one was in the pipeline. And then the first, I was really the one that was pushing around the importance of voice control as making it even easier for our experience, which is something we've always prided ourselves on, is that ability really for customers to get the music playing quickly and have a great experience. And so the Sonos One has been our fastest product to market. And obviously, it's leveraged everything we've learned in the past and built up the Play One. But that is, I'm really proud of the team's efforts there because that's something

• 28:35Speaker 05

  that we brought to market faster than any other product. And with Beam, it was something that we had the ideas around. And again, with voice coming into it, just really needed to kind of need a bit of a push, if you will, in order to get that in the right place. And so, yeah, so just been trying to make it clear, like, what's the right next one? What are the important attributes of the product that we need to bring to the market to keep building on a kind of experience we believe customers really want?

• 29:02Nilay Patel?

  So the Beam, when it was, I think Dieter wrote a great profile of the Beam and how you're working on it. I noticed that piece, he said it started two years ago. Was there a moment when you pulled the ripcord and said, hey, add microphones to this?

• 29:16Speaker 05

  Absolutely. Absolutely. No, that was important. So I really, it wasn't too long after the Echo, original Echo came out, that I tried to get every product, I tried to be experimenting and experience everything that's happening in the industry and even outside the industry, just to see what's happening and have a feel for that. And I have been on the voice bandwagon for quite a while. And that's one where we said, no, this is, we need to get this in the product. It wasn't originally in the scope. And we said, no, we've got to get voice into this product.

• 29:50Nilay Patel?

  Yeah. So the voice market's obviously very, it's hot, right? I mean, you're competing against some All the big players, they've validated their approach, right? Google has a bunch of products out there. Amazon, obviously, you both compete with and work with. Apple has a HomePod. And, you know, the value of Sonos to me, I have a pretty big Sonos system, is that I can just use all the music services. You have Alexa on there now. You've been talking about adding Google Assistant. When is that sort of next stage coming where you have multiple voice services? When is Assistant coming, for example?

• 30:23Speaker 05

  Well, last week, we demoed the ability to use Siri to actually start the music on Sonos as well with AirPlay 2. And so, yes, you know, it's not directly on the speaker, but you're using your iOS device to be able to activate the music and move it around.

• 30:36Nilay Patel?

  Yeah, that's not what I mean, though.

• 30:37Speaker 05

  And, no, fair enough. Yeah, and so, so we, you know, we announced last year with Google that we'll be bringing Google Assistant to our speakers, and we continue to work on that. And when it's ready to go, we'll roll that out. So, we're working, we're working closely with them right now, and stay tuned, you know, on that one.

• 30:53Nilay Patel?

  Let me ask you a very leading question. Is the holdup a technical holdup or a business holdup?

• 30:58Speaker 05

  Oh, it's all the technical work right now that the teams need to do to create a great experience. Yeah, that's, that's what it's taking. And, and look, like, even, you know, this is, this is a repeat to the same questions I got last year at this time, which is, where's Alexa? Where's Alexa? Where's Alexa? You know, when, when we approach one of these things, and I think we built the reputation with these partners, remember, we've worked with Amazon, Google, Apple, Spotify for a long, long time. And, on the music service front. And now that we're working with partners like Amazon and Google and Apple around voice, you know, they know how we approach this from a very, you know, holistic experience basis. And we do things, you know, in the experience, like we're doing with Continuity Control, where, you know, last week, you could start the music with Siri, and you could ask Alexa what's playing, and Alexa would know.

• 31:43Speaker 05

  And so, as we think about these experiences, we build them in a more holistic way, because we're not thinking the way everybody else is, which is kind of walled garden speakers. We're thinking about an open system which supports every service that you need, whether it's a music streaming service, a voice service, audiobook service, podcast service, whatever it may be, anything from the sonic internet that you want to play out loud on Sonos, you should be able to. And that's what we're committed to.

• 32:09Nilay Patel?

  So I gotta, I'm gonna come all the way back around to this very specific question. You only have one Assistant now. When you've, you've said Google Assistant's coming. Is there a timeline on that?

• 32:19Speaker 05

  We're working on it. So we always pride ourselves in bringing it out when it's ready. So we'll let you know when it's ready.

• 32:26Nilay Patel?

  I'm gonna try again. Is it this year?

• 32:28Speaker 05

  We'll launch the product when it's ready.

• 32:30Nilay Patel?

  All right. Well, I had to give it a shot.

• 32:33Speaker 05

  Of course.

• 32:33Nilay Patel?

  It does not sound like you just... I will say, it doesn't sound like you're saying this year. See? The Sonic Internet fails this question. No Sonics at all. Well, hopefully it will be this year. I'm sure you're gonna let us know?

• 32:46Speaker 05

  Yeah, of course, we'll let you know as we, you know, go through that. But I also want to make sure that we get the experience right. And like I said, you know, we, this is the exact same question we were going through last year. And so I would just say, stay tuned. So.

• 33:02Nilay Patel?

  All right. So then here's the natural follow-up question. You have AirPlay 2. AirPlay 2 only on the newer devices. You just told me that, you know, you've got, you know, five-year-old devices, 93% of it is still being used. Was there a specific reason you couldn't bring AirPlay 2 to the older devices?

• 33:19Speaker 05

  You know, with the processor, memory requirements, we had to look back and, you know, make basically a decision in terms of how far back we could support at this point. And so that was the guiding principle as we went through it.

• 33:32Nilay Patel?

  And then with AirPlay, AirPlay 2 is great, you know, but Apple, that's their open-ish standard for audio. And they really want you to have a HomePod and control AirPlay 2 through HomePod. But the bigger question is obviously Siri. And I know I was listening to, you were on Two Bears to Ask with Cara and Lauren Good last year, and they pushed you on this, so I'm gonna do it again. Is there any update on the conversation with Apple or on bringing Siri to the Sonos platform?

• 33:56Speaker 05

  You know, I think at this point, Apple needs to decide if they're going to be, you know, opening Siri to third parties. But we have a good relationship with Apple and we've had some conversations on this and look forward to having more.

• 34:11Nilay Patel?

  Yeah, I mean, I think it's a coup that you, you know, I'm an Apple Music subscriber, and I think it's a coup that Apple let you have Apple Music from the beginning. That's not usually how they work. And it, I think it speaks to the fact that a lot of very influential people have Sonos in their homes, and Apple would have never gotten anywhere if they didn't, if they didn't offer you the support. But do you feel like you have the leverage, that similar kind of leverage to get Siri?

• 34:35Speaker 05

  Yeah, look, I think the, what the services we have kind of speak for themselves in the sense that we're in millions of the most desirable homes around the world. And so companies like Amazon, Google, and Apple want to get their services in front of those customers and in fact must. And remember, like, their agendas are quite different than ours in many cases. Like, we're not attempting to build an Ask Anything voice assistant and try to own the search space, right? And we're not, we're not looking to build a big e-commerce company and sell you everything. And we're not also going to go build a mobile phone, you know, and approach it in that way. And so I think as all these companies, from my conversations with them, what I've found is they love the experience. They, we have a history with them, right? In terms of work we did do on streaming music, to your point.

• 35:17Speaker 05

  And then they're looking at it saying, okay, we want to work with you on creating a great experience and bring our voice services together. And I think, you know, for the most part, if we can continue to show them that we're good partners in that way and continue to build our household base in the kind of way we have been, then we're in a good position and it's the right thing for the customers and everybody wins.

• 35:40Nilay Patel?

  So when you say you can work with everyone, that's a lofty goal, but they also have cross purposes as well, right? And, you know, I think Amazon's strategy with Alexa, honestly you're my, I feel like Alexa is Amazon's windows, right? They, they want it everywhere. They want everyone to use it. Virtually anybody can build an Alexa product. Google is doing something similar with Assistant, although it really feels like Google's first-party Assistant products are where their emphasis is. Apple, obviously, is very tightly controlling of Siri. But when you think about what you're doing with Alexa in particular, are you getting a deeper relationship with them and their team than sort of any other Alexa voice services

• 36:23Nilay Patel?

  vendor would get? Or are you just taking what they're offering publicly and building your own sort of like middle layer to control it all?

• 36:30Speaker 05

  We're working more closely with them, just as we did on streaming services. And that goes across the board as we engage with voice services. So you know, working to make sure that the continuity control continues in the cloud. So we know it's playing and that there's that there's good continuity between our app. And like, for instance, the Spotify app and as well Alexa. And so that takes work between our teams. And so we have a good partnership with Dave Limb and his team over at Amazon. And I really think, you know, they're approaching it with Alexa. Yeah, they absolutely want to get Alexa everywhere. And they they look at the households we're in and say, hey, we want to make sure that those homes can experience Alexa. And look, also, when I look at it, you know, there'll be there'll be some rooms in the home that maybe do have a, you know, an Echo Dot, let's say.

• 37:15Speaker 05

  And then there'll be others that are more appropriate for Sonos. And I think that may be the world, you know, that we live in. And if so, that's fine, right? We want to have the interoperability so that people can be using that. But I think what happens longer term is that people look to different brands for different things. It just happens in apps. It happens in all these spaces where, you know, you'll ask one company for ordering something. So Amazon for ordering something as part of Prime. You are going to ask Google for, you know, the general searches. And you might ask Siri to play Apple Music or to find your iPhone, for instance. And then maybe you're going to ask Facebook to do something. Maybe you'll ask Spotify to do something.

• 37:55Speaker 05

  I just don't see a world where you're going to have one assistant that's going to do everything for you. And that's why we think it's important to be able to offer the the whole host of services and kind of give customers that ability to be future proof, if you will.

• 38:10Nilay Patel?

  Tell me about the IKEA thing. So that was really interesting, just a little inside baseball. This wasn't your press release. It's you're free to laugh, but IKEA put out a press release and they sent us the wrong photos. So we had to like go back. So this otherwise like innocuous sort of story like became a fire drill for our international team. Because they're pulling down all the tweets and Facebook posts and putting up the right pictures. So at least from my perspective, I suddenly was paying a lot of attention to this. But tell me, so you partner with IKEA, they're going to make their own. Speakers with your tech in them. That is a very new move for you, right?

• 38:45Speaker 05

  Absolutely. So I think the, I'm now curious as to what pictures you receive, but I think the, you know, we're, we've been experimenting with them on a few different, you know, four factors, obviously. And they, they bring, it's been fun to work with them because they bring such an interesting home design mentality and kind of modular thinking to it and at different price points, right? As they think about it. So we're, we're working with them to help with some of the hardware platforming, but probably most importantly, the software setup experience and the services around it. And so this is what I mean when I talk about the fact that most of our product team's actually in software and that experience for a lot of people has been, Sonos has made

• 39:24Speaker 05

  it super simple for me to experience music around my home. And we're bringing that to Ikea and they'll have other ideas about the ways to, you know, when what kind of form factors should sound really show up. But I think with our TruePlay technology, right, which allows you to move the sound around the room and really tailor it to the room, plus their ingenuity on furniture and, and, you know, and then our combination around sound and some of the software experience, there's some really interesting possibilities for the way you experience sound in your home that are very different than the way we've experienced it for the last 50 years, right?

• 40:03Nilay Patel?

  But you're not, you're not designing their speakers for them, right? Like if Ikea, is there like a minimum sound quality threshold that Ikea has to reach or do they just have your software and you're going for it?

• 40:12Speaker 05

  It's a much closer collaboration than that. So we both, you know, obviously we're very near and dear to the fact that anything that is part of the Sonos ecosystem needs to sound great. And so we're working very closely with them and helping there as well. But certainly at the end of the day, they will be the ones, you know, selling and creating those speakers, but we're collaborating on that, collaborating on the form factors, collaborating on the ideas around the furniture and then bringing our expertise around software.

• 40:36Nilay Patel?

  So you brought up TruePlay. Here's a simple question. You're now putting out speakers with microphones in them. Obviously, Apple's doing all this like crazy tuning with the HomePod. Google's doing it with the Home Max. Are you thinking about having TruePlay just sort of automatically work instead of waving an iOS device around?

• 40:52Speaker 05

  Absolutely. No, that's the next step for TruePlay, for sure. You know, everybody enjoyed the TruePlay dance, but I think we could take it a step further from simplicity, and we're definitely working on that right now.

• 41:03Nilay Patel?

  My, every time I go to a friend's house with Sonos, I can immediately determine how much of a AV nerd that they are by, you know, opening the app and seeing if TruePlay has been enabled. Because I know, I know they spent the five minutes listening to beeps and like walking around.

• 41:18Speaker 05

  Exactly, doing the dance, yes, doing the dance.

• 41:20Nilay Patel?

  But you're saying that that's coming, that the products, the microphones presumably only, they're the only ones that could do it. They're gonna, they're gonna start listening and tuning in real time?

• 41:28Speaker 05

  Yeah, we're, yeah, we're working on that now to actually do it without you needing to do anything. In the same way that look like one of the, one of the things that we're also working on is the ability to do auto updates so that the software's updating in the background so that you don't have to, when you open the app, you don't have to go through and do that, which has been something that's been, gotten the way of people listening faster, if you will. So it sounds like a small thing, but at the end of the day, I really think it's a lot of these small things that ultimately add up to the great experience around Sonos and what really matters.

• 42:03Nilay Patel?

  Yeah, my favorite Sonos update of the recent months was, it very much wanted me to update to the newest version so that Sonos One Alexa support would be available in New Zealand.

• 42:14Speaker 05

  Australia, come on, come on. Get it right, get it right.

• 42:18Nilay Patel?

  I'm sorry if I irritated anybody down under. But it was just like one of those moments where I was like, I don't, I mean, I'll do it, but I don't actually want to stop. I've opened the app to listen to music, I don't want to shut everything down, right? And then, and then you gotta remember to do it. So you're saying that you can bring that. Can you, now this is like a 10-year product cycle question, right? Can you bring those capabilities to your older products?

• 42:40Speaker 05

  Yes, that capability we can. There's certain things that you can't, like all the time as you go through it, you know, from time to time. So we have to decide on which things we can. But we definitely, it's interesting because we're probably on the leading edge of the smart home as you think about that and how long we've been in the home and connected to the internet and everything around that. And shipping products now for 13 years that are internet connected. And we have a pretty good reputation of being able to deliver the new functionality and help keep making those speakers better. But it does get to a point. We recently end of life the CR100, for instance, our controller, right? Because it was a 13-year-old mini-computer, basically, and it can only do so much. And so this is, it's one of those things that I think we do better than most, but they

• 43:25Speaker 05

  still do, you know, eventually they come to some point where you can't keep going.

• 43:31Nilay Patel?

  So just staying on that sort of the 10-year timeline thing, can you, as these things get smarter and smarter and smarter, the connectivity gets more and more intense as you build out into, you know, more interconnections with smart homes, as assistants get, you know, the push and pull between what you're doing locally and what you're doing in the cloud happens among all these country companies. Are you, do you think these products now are going to last the full 10 years with the hardware that's in them? Are you building them out? Or are you, are you saying this is our, this is what we can do right now?

• 44:00Speaker 05

  We're thinking in the, in the kind of five to 10-year range. That's the way we think about these products. So for sure, you know, in terms of doing that now, we'll see, like, is there some major leap in technology, either, you know, software or hardware that then says, okay, this one's only going to live seven versus this one at 10. I can't, you know, specifically say for each product, but we definitely think in that five to 10 year, you know, timeline, which is so different, right, than most companies I find in consumer electronics, because we believe if we do that, we do that well and make it better over time, people will add another one, right? And they'll tell their friends and family about it. And, and that builds like a great business for the long term. I just think people in this day and age are so impatient and so like all these disposable devices

• 44:44Speaker 05

  and people that, you know, buy a Bluetooth speaker this year and then the next one next year or like in a couple of years, and they all end up in drawers and all that kind of stuff. It's just, it's disappointing. And it's just different than the way we approach the whole space and want people to use, use our stuff.

• 44:58Nilay Patel?

  Yeah, I guess, I don't know if you listened to our show last week or somebody tattled on us, but we were joking that your, the Sonos business model, it almost demands that every Sonos customer becomes more and more successful over time. So their, their house will have more rooms. And so you'll be able to sell another speaker for every room. Like, is that how you think about the customer? Or is it, I'm going to tell my friend that this was great?

• 45:21Speaker 05

  There's really, so two things happen. One is that, you know, every year, uh, over a third of our sales come from existing customers adding another Sonos product, which I think is unprecedented in the industry. So people engage in it. They listen to 80% more music once they buy Sonos. And then they engage in the system and they're using it all the time. And they add another room because they love it so much. So that's like one driver. But that, you know, two thirds of our revenue that come from new homes, the number one driver of that is people telling, you know, their friends and family, right? So existing customers telling their friends and family, I got Sonos, it's great, you should get it, or buying it for them for Christmas, what have you.

• 46:01Speaker 05

  And so that's really the way that happens. And I think it's our job to bring additional products out and like what we're doing with IKEA and what have you, to, to really reach a broader range of customers as we go through it, and just make it more accessible. And I think if we do that, then we end up being able to get it into even more homes. But right now, definitely the, the flywheel is engagement and love that drives repeat purchases from existing customers and then telling their friends and family about Sonos.

• 46:31Nilay Patel?

  Have you ever thought about like partnering with LinkedIn to do like Sonos career development? So that people have to buy, they buy, every, every Sonos customer is like eventually going to buy a bigger house?

• 46:41Speaker 05

  Well, it's interesting because then we get into correlation causation. So maybe it's because they bought Sonos that they became successful. And maybe that is, maybe that should be the marketing line, right? Is that this is a, if you buy Sonos, you can expect a bigger career, a bigger house and everything that comes with it. So I like that.

• 46:58Nilay Patel?

  I'm definitely calling you for royalties if you pull out a LinkedIn.

• 47:02Nilay Patel?

  Actually, I have one more question about you expanding. You, there was another, this is way under the radar, but, um, compared to IKEA, but you partnered with like Pioneer, Morantz, and you're letting their receivers control some Sonos devices now. Are you gonna, and that's like a big. You know, there's a lot of people with like full-on crazy home theaters. They want to put Sonos in them. Now it's a little bit more seamless than it was before. You still have to buy some hardware. Are you ever just going to straight up license the underlying Sonos connectivity stack and just let them build it into a receiver directly or let Yamaha put it in a soundbar on their own?

• 47:37Speaker 05

  We've been thinking, we've been thinking about it because I think in that space, you know, there's a lot of still great traditional audio companies that don't have the software expertise that we do. And really, I don't see many of them investing. And it's kind of a shame. And so there's these great audio brands. And certainly it's something that we continue to look at, like how deeply should we partner on that? So yeah, you've seen us dip our toe in the water there, but much like we're also working with IKEA on how do we bring, you know, Sonos to more people through their, you know, kind of through furniture at home and all of that. We're definitely looking as well at the more high-end audio file space. And how do we, you know, give that Sonos experience, but also give people the flexibility they want, right?

• 48:19Speaker 05

  Because there are people that still will want these high-powered specific receivers or, you know, their, their tower speakers or what have you. And so we want to be there. And you know, I mean, we came out of that world originally, right? With Connect and Connect Amp in terms of really powering other people's systems. And so it's interesting you would raise it because it has been something that's been more of a conversation around here lately. We've dipped our toe in the water. We're obviously extending the software platform. And so look for us to be doing more in that space for sure, because I think there's something there. And I think it's good for the industry.

• 48:51Nilay Patel?

  Yeah, I mean, I have a Denon receiver with a Connect, you know, plugged into it. Of course, I've only ever bought Pioneer receivers before and I bought a Denon this time. And then you announced that an integration with Pioneer. So that was great. But the second, you know, you, Denon's already because they have their own crappy HEOS thing. But the second a receiver with it all just tightly integrated comes out, like I would upgrade, even though I literally just bought this thing. And I don't know, are you thinking about that as a market that's growing, that's going to give you licensing revenue? Or are you just thinking about, you know, how to get this in more, in more places?

• 49:22Speaker 05

  Both, and I think the the approach is, you know, it's a niche still. So I wouldn't say that's like a huge driver in terms of what's there. But like I said, I think the I think exploring some of these things makes sense. We'll see how it goes in terms of the work we've done with Pioneer Onkyo and the others and like see what kind of demand is there. But I think for, you know, customers like you, there is still a space for us, for sure.

• 49:46Nilay Patel?

  All right, so we've entered the home theater zone, so I'm going to ask you this question. I'm sure you you were prepared for it, but you just put out a new home theater product. There is a hot new home theater standard in audio called Atmos.

• 49:59Speaker 05

  I haven't heard of it.

• 49:59Nilay Patel?

  Apple just announced that they're supporting it, and you're not yet. And I sort of understand why, but I'm curious, why, why aren't, if you're increasing the innovation rate, you're increasing the bias to action, you're increasing the the product cadence, and you want these things to last for a long time, why not, you know, the big new standard that the Apple TV is now supporting very prominently, or, you know, every other streamer supports now?

• 50:22Speaker 05

  Yeah, look, we we've always taken the approach of how do we create great sound, you know, for the room? And we look at the technologies that are out there, and we also look at the sources. So, you know, it was good to see Apple pick that up. I point out that like for Netflix and a lot of the streaming services, and you know, this Dolby Digital 5.1 is kind of the thing that is used primarily today and we support. And so we're, we're always looking at what's happening. And Atmos is fantastic in 7.1.4 today, right? In terms of that experience, and you you probably know Giles, our sound experience leader, he's actually mixed stuff for Atmos specifically. And we've, I mean, it sounds majestic in that kind of environment. How you bring it into soundbars to really enhance the experience is something, you

• 51:05Speaker 05

  know, we're definitely looking at and thinking about. But I'd also say the primary driver at the end of the day is, hey, like, how do we create the best sound possible in the room and not get too caught up in like what's the flavor of the day from a audio technology perspective? And so sometimes we'll do things where, yeah, it frustrates some of the people that are like a little bit more into the space, you know, in terms of what are the Standards and what's the new stuff. But look, if something emerges that's, you know, really experience defining, we have no hesitation about like building that into our products as we go through. But as we went through this one, we said, hey, this is fantastic for seven dot one dot four. There's still some work to figure out how does it really enhance a soundbar relation,

• 51:49Speaker 05

  the soundbar experience. And so there's still more work to be done.

• 51:53Nilay Patel?

  Well, you know, it's funny, last year you put out the playbase. Walt Mossberg and I, we were doing his podcast and he was laughing at me that I even cared. He's like, no one cares. That's not what this product is for. And there's no content anyway. And all of those things were true at that time. But now you are in a world where a lot of your competitors, however you wanted to find the competitors, but in soundbars, they're all just putting out cheap Atmos soundbars. And Apple in particular, you know, was on stage last week at W W C and they made a big splash and people clapped. And bizarrely, people tweeted at me, congratulations, which is, I didn't intend to be Dolby's brand ambassador for object oriented surround, but here I am. Is that something that you could add via software to something like the beam over time? You know, a new decode support, because it's gone from being pretty niche to,

• 52:38Nilay Patel?

  you know, one of the largest services supporting it. And by default on there, when people have, you know, their Dolby Vision TVs or whatever, they're going to look for that next piece.

• 52:48Speaker 05

  Well, I think the question is up to Dolby a little bit too, because they, as you know, have been changing what Atmos means in terms of like software, soundbars, all of that. And so they've been working on, hey, what does, what does Atmos really represent as they go through it? And so I don't think, you know, from my perspective, I think the better thing to do is, like approach it more like from a full sound perspective, which is hardware and software and kind of integrated in it. But we'll have to see what Dolby decides to do Atmos around software. And do they, you know, do they change that up a little bit? But I would, I'd say I land on the, I'm doubtful that is something that ends up being implemented via software versus hardware. But we'll continue to work with them and really watch it.

• 53:31Speaker 05

  And I think you're right, it has picked up some momentum, but I'd still say from our experience with consumers, for the most part, they look at it and they're listening to the sound and trying to determine, does that thing sound great, you know, maybe versus something else instead of, does it have Atmos or does it have this and that? So that's, that's been our experience so far.

• 53:52Nilay Patel?

  I definitely agree with you that Dolby has taken. The word Atmos and they, it's like they got a brand that anybody would remember. You know, it's like, that only happens every so often if you're Dolby, I think. And they were like, now it's on headphones. Your keyboard is an Atmos keyboard. And I think that it's great. Now, you know, they've accomplished one goal of everybody knows this word, but no one actually quite knows what it means. And I, it's interesting, you know, we've been, we've sent reporters out. There's a nightclub in Chicago called Soundbar that has an Atmos audio system and the DJs can like swirl sounds around people's heads while they like dance on drugs or whatever. And that is actually very different technology than what the movie side would do. And I think that is, it's interesting.

• 54:37Nilay Patel?

  But at the same time, the basic definition is like you more or less add two up firing speakers to a 5.1 system and you're there. So when you think about the next Playbar, right? Cause that product is several years old now. Is that something your engineers are like fiercely debating? Or are you just saying, wait and see?

• 54:54Speaker 05

  Oh, we're definitely debating that and looking at it. And, you know, and obviously we talked to Dolby as well. So on all of this stuff, we're, you know, we try to be on the leading edge in terms of thinking about what, what's, what are the right things that should be, you know, in future products, right? As we go through that. So, and you're, you know, and then where will content be, right? Like, will it all be coming through Apple TV? That's a good sign, right? In terms of where it is. But what, what is it to the core of where you started? What does it really mean to a consumer, right? Like, is it a good housekeeping kind of CLO approval on sound? Or what, what does it mean? Because today, for a lot of our customers, they just relate Sonos as good sound and the kind of sound that they want.

• 55:35Speaker 05

  And so I think if we continue to set the bar there and just make sure our products sound great in your home and you can do the modular thing of adding two Sonos Ones as rears if you want, and adding sub and everything with that. Then I think for the vast, vast majority of consumers, we're going to continue to be the right solution.

• 55:53Nilay Patel?

  So I want to, I want to end here on sort of like the future of where you're going. So you probably can't tell me yes or no, but there's a lot of rumors that you guys are going to IPO someday. The Sonic Internet remains quiet when I say that. Anyway, a lot of managed hardware companies, companies that build hardware that have cloud components, are starting to do premium services. A big story in the Verge this week, which we did not expect to be a big service story, was the Plume Wi-Fi router. They've lowered the price of hardware to like $39, but you have to pay a subscription fee every year to make it even work. If you stop paying, the hardware stops working. Then there's, I don't know, Xbox Live, right? You can buy an Xbox, you can buy a premium subscription to Xbox Live, you get a whole bunch of new features.

• 56:35Nilay Patel?

  Are you thinking about recurring revenue from existing Sonos customers? Are you thinking about premium services, subscription services? Or are you just, you're going to tell your friend, we're going to buy a new one, and that's how you're going to grow your revenue base?

• 56:47Speaker 05

  We are, after 16 years in business, 13 years of shipping products, we are very comfortable with a model where we monetize really our investments in experience, software, everything that we do through hardware, and a one-time purchase. And I think the, we'll always, you know, look at, hey, are there other revenue streams? To be open to other opportunities. But we're very happy with our business model and think it's built for the long term. And consumers are, you know, continue to be very happy with it. And so, it's a little bit, I think sometimes the services question is a little bit of solution searching for a problem, and it's kind of the flavor of the day right now. And, you know, we've been at this long enough to know that if you build a good business

• 57:32Speaker 05

  around these things, and you're smart about the way you're investing, the way you monetize is secondary.

• 57:37Nilay Patel?

  Does that, not to get too wonky here, but you've got to support, you know, 10 years of the past products, you've got to support 10 years in the future. Is there enough margin built into the purchase price of every product to let you support it for 10 years? Is that, is that how you model out the prices? Or are you just trying to win and get the scale and, I mean, the competition's fierce, like, winning is important. So, how are you thinking about that balance?

• 57:57Speaker 05

  Yeah, we've been very thoughtful about the way we've scaled the organization and thought about our investments to be able to do that. And, you know, we, since the beginning, you know, the founders have really, you know, thought about the long term and being in it for the long term. And that was part of the equation and thinking about the products. And so, we remain comfortable that the way we monetize today allows us to continue to grow, continue to invest, and continue to be profitable.

• 58:24Nilay Patel?

  Do you think every speaker needs to have a microphone? Where do you think the microphones ultimately live?

• 58:27Speaker 05

  Oh, that's a, that's a really good one. And one that I, I think this is excellent because, you know, this is one where right now, everybody is putting a speaker and mic into every product. And so I don't know if it's, you know, next year or three or four years from now, but there's going to be this really weird scenario where you're in your kitchen and you say something and your toaster, your refrigerator, microwave, your speaker, you know, all this stuff's going to be talking to you. And it's just, I can see this potential nightmare scenario, right? Where everything has it all and it just, people's minds are blown. And that to me is like a perfect spot where the Sono simplicity comes into play. And you know, I mean, one of the reasons that it takes a little longer with us and it did on Alexa

• 59:11Speaker 05

  is because we're also working on that software that allows you to use an Echo Dot to control your existing Sono system. And so we've done a lot of work already in software to be able to, to think about, hey, where, where, you know, how would we control our system off potentially another mic, right? And be able to do that. Cause I do really wonder, I don't believe that every product should have a mic and speaker. And I think in the end that there's the potential that every room will have a mic and a speaker, and they may not be together either. And so, you know, I can see a mic potentially in a light bulb or a light switch, right? For each room, something really low cost. And then the key is how are we using the software to actually be able to interface with it and control and make that a really simple and elegant

• 59:55Speaker 05

  experience for users. So this will hash out probably over the next three to five years. But I think we're gonna, you know, the consumer electronics industry, I think, is in danger of potentially overwhelming customers and confusing them with all these mics and speakers in the midterm. So it's something we're thinking about. Don't have the solution yet, but it's something we're definitely thinking about.

• 1:00:15Nilay Patel?

  You know, you've got a couple of products in your lineup that are much older, right? The Play 3 has been around for a while. The Play 5 was up to date years ago. Obviously you've got the Sona S1, which is sitting right next to Play 1. Are you going to refresh the Play 3? Or, you know, there's a lot of people I saw in our coverage, when the Beam was announced, like, I'm just going to buy this to replace my Play 3. Are you, are you going to replace all those other ones? Are you going to add mics to all of those? Like, what is your cadence with sort of the, the older products in your lineup? Especially now that You know, only the new one support I play too.

• 1:00:44Speaker 05

  Well, you've seen with one with the Sonos one and Sonos Beam that we're putting mics into those products. And I think that's something that's important right now, kind of in the phase that we're in as we go through that. But also, I don't necessarily, we've always got, you know, a bunch of things that we're working on, a bunch of new products and new software stuff. And we're always looking at like, is the right thing really to replace that product? Or is it to bring something else, you know, into the home? And so it's a balance in terms of do you actually go refresh versus do you do something like a little bit different? But maybe still in that price point. And that's the kind of conversation that we have as we go through it. And so I think it's important not to think as linearly as, hey, you got to refresh that thing. That's just very traditional consumer electronics.

• 1:01:28Speaker 05

  And instead it's like, okay, what Beam is solving for people that want a $400 amazing smart speaker that also creates, you know, great sound for their TV. And so, you know, beyond that, what's the next most important thing as we think about our portfolio? And so I don't get too caught up in what do we have today? And then do we replace it? And much more, it's like, what's the next best experience for somebody in their home?

• 1:01:53Nilay Patel?

  Yeah. All right. Patrick Spence, thank you so much for coming on The Vergecast. I hope I didn't give you too hard of a time, but I am very interested in the new products coming out and very interested on the Google Assistant timeline, which I know will be an exclusive news release with The Verge when it happens.

• 1:02:09Speaker 05

  I enjoyed our conversation.

• 1:02:11Nilay Patel?

  Thanks. Thanks so much, man. So I will say this, we followed up with Sonos and said, hey, when I asked Patrick when Google Assistant was coming and if it would be this year, he was just very quiet. But anyway, I followed up and said, you guys have been saying it would be 2018. Your Twitter account's been tweeting it'd be 2018, but he didn't, he refused to confirm that. And they said, yeah, it'll be 2018. I think that puts it way more up in the air than before. Cause I don't know, we'll see. But he did say the hurdle was not business, but technical, which is very interesting to me.

• 1:02:46Speaker 05

  Hmm.

• 1:02:46Nilay Patel?

  Anyhow, Paul.

• 1:02:48Speaker 03

  Yeah.

• 1:02:49Nilay Patel?

  Every week, my man.

• 1:02:50Speaker 03

  Never forget.

• 1:02:51Nilay Patel?

  Except last week, when you weren't here. But every other week.

• 1:02:55Speaker 03

  Yeah.

• 1:02:55Nilay Patel?

  You do a segment.

• 1:02:56Speaker 03

  It's called, How Big Is The Moon? So you know, the bezel is phone, right? It's here at last in China. It's like every time it's my time to do a segment, my like browser crashes.

• 1:03:09Nilay Patel?

  That's right. I mean, you are trying to work on an iPad right now.

• 1:03:12Speaker 03

  Yeah, that's, you know what? That's my fault. Okay, Vivo announces next phone with no bezels, no notch and a pop-up selfie camera. So we've been seeing this phone for a little while. It's got the pop-up selfie. It's really happening. No buzzle, no buzzles or bezels.

• 1:03:28Nilay Patel?

  Wow.

• 1:03:29Speaker 03

  And the embedded fingerprint sensor behind the screen. Uh, it's coming to China. But what really grabbed me, and you know, on this segment every week, I love to talk about photos that people can't see.

• 1:03:42Speaker 03

  The press image, or one of the press images for this phone is the phone is on a moon-like landscape. But it looks like it's probably like the, the, the phone is at least the size of a Boeing 747. Maybe the, the size of like a city. And it's like touching down on this moon. But then if you look in the background, there's like a planet that looks kind of like an icy earth with rings around it. So this, there's basically a whole sci-fi plot here.

• 1:04:10Nilay Patel?

  Yeah.

• 1:04:10Speaker 03

  Be unpacked.

• 1:04:11Nilay Patel?

  I would like to, to just go back to the size of the phone in the image.

• 1:04:15Speaker 03

  Hmm.

• 1:04:16Nilay Patel?

  747s and cities are dramatically different sizes. Depends on the city. There are some very small towns.

• 1:04:22Speaker 03

  What I'm trying to say is that we're looking at four to five orders of magnitude bigger than a phone.

• 1:04:30Nilay Patel?

  Okay, I'm with you.

• 1:04:31Speaker 03

  Right? It's a logarithmic scale of, you know what I mean?

• 1:04:35Nilay Patel?

  I, I got you. What do you think the conspiracy is?

• 1:04:38Speaker 03

  Well.

• 1:04:40Nilay Patel?

  Are they just too chicken to actually do the 2001 monolith on, on the moon?

• 1:04:44Speaker 03

  They see that's.

• 1:04:45Nilay Patel?

  They want to say that it's a monolith, but they, they can't.

• 1:04:47Speaker 03

  Right. So it's like, they, they wouldn't want to knock off 2001 entirely. So they can't have it landing on the literal moon. So like, what if the phone is enormous, way bigger than a monolith, not at all like 2001? And what if it's also happening in a different solar system that has a moon very much like our moon? But the earth is an ice planet with rings around it.

• 1:05:08Nilay Patel?

  Hmm.

• 1:05:09Speaker 03

  That's my thinking.

• 1:05:10Nilay Patel?

  I like it.

• 1:05:10Speaker 03

  So basically this is the future phones.

• 1:05:12Nilay Patel?

  The future phones is gigantic.

• 1:05:13Speaker 03

  So futuristic that it is a complete fantasy.

• 1:05:18Nilay Patel?

  I mean, to be honest, that is most phones. For example, Mm hmm. my favorite rumor of the week. Apple rumored to put USB C on a phone, which is a beautiful fantasy. No way. But the No. The rumor was so bad that we skipped it. We didn't cover it because in the middle of the little rumor report from the Chinese supply chain, Hmm. they were like, if Apple adopts USB C, it will accelerate the adoption of USB C in other phones. And we're all just like, whoever wrote this has never seen a phone. Like, they can't possibly know that every other phone uses USB C already. Anyway, that's why we skipped it. I don't believe it will happen for one second.

• 1:05:57Nilay Patel?

  This episode of Veritas brought to you by IBM. By 2050, the world population will reach nearly 10 billion and food production will need to grow by 70%. What if artificial intelligence could help? Farmers are already using it to help increase crop yields. Watson and the IBM cloud provide access to weather data and analyze satellite imagery to help them monitor soil moisture levels and reduce water waste. So as the population grows, more food can be put on tables. Let's put smart to work is the inflection I'm using for that sentence this week. But anyway, you can find out how at IBM.com/smart. Here are the things that Elon Musk did this week. This is a segment we should do every week. Here are the things Elon Musk did this week. Do, do, do, do, do. Yeah. Liz Lapata went to the SpaceX parking lot and picked up a flamethrower to support the boring company. Mm hmm. The flamethrower is hilarious. Not a flamethrower.

• 1:06:42Nilay Patel?

  It's not a flamethrower. It's just a propane torch. It's not as dangerous as everyone's making you see. Liz and I are both people who would like, in our regular lives, just want to have flamethrowers. Sort of laughing at all the hand wringing because we're like, you're not going to stop the people who want flamethrowers from having them. Right. Because they're, it's just a propane torch and airsoft case. Anyway, Liz has it. She's making a video, very fun. The boring company announced a deal with the city of Chicago to build a, like a high speed underground train from downtown to O'Hare Airport.

• 1:07:14Speaker 03

  She's very smart.

• 1:07:15Speaker 01

  Everything about this deal is like just wildly optimistic. I hope it happens, but he thinks it'll get done for less than a billion dollars. He thinks that it'll take longer to get through security at O'Hare than it will to make the trip. And I think that the, oh, he's gonna, he's gonna make money off it by, not by charging fares, but by selling you stuff while you're, oh, they'll be fares, fine. By selling you stuff while you're in transit. So it'll only take 12 minutes, but in that 12 minutes, you're definitely gonna buy some headphones and then that will pay for this thing. Which is, by the way, is gonna cost less than a billion dollars.

• 1:07:48Nilay Patel?

  So it needs to go a pretty long distance. The current trip on the Blue Line on Chicago South, a trip I've made many times, 40 minutes. He's gonna do it in 12. You're gonna sit in a modified Tesla Model X. It's electric and it's gonna shoot along the track at 150 miles an hour. All this sounds amazing. It's my favorite. $20, $25 a ride and the city of Chicago's paying no money. He's gonna front all the cash, build the thing, and then collect all the revenue.

• 1:08:14Speaker 01

  Cash he raised by selling Liz a flamethrower?

• 1:08:16Nilay Patel?

  I don't think he raised a billion dollars by selling flamethrowers. Unclear where the billion's gonna come from, but it is true that in the plan, it's, the revenue plan is the tickets, of course, ads and branding on the cars, and in-vehicle sales is specifically listed. And all I can think of, I swear to God, the only thing in my mind that you would need to buy in 12 minutes at 150 miles an hour is a headphone dongle.

• 1:08:42Speaker 03

  Hmm.

• 1:08:43Nilay Patel?

  It's people going to the fucking airport and they forgot their headphone dongle and Elon's gonna be like, that'll be $45 and you're just gonna buy one. He's gonna be like, I paid off a billion dollar tunnel.

• 1:08:52Speaker 03

  You could buy neck pillows too.

• 1:08:54Nilay Patel?

  You think Elon's gonna put neck pillows in his beautiful repurposed Model X?

• 1:08:58Speaker 03

  I'm saying it's a high margin item.

• 1:08:59Nilay Patel?

  Yeah, but it's, it's too big. They're not beautiful enough. Also, the, the image, this was supposed to be quick. The image of the, the proposed station at O'Hare is, it looks like a space station. It's like totally stark and white.

• 1:09:12Speaker 03

  Well, this is why, this is why everybody loves Elon. Everybody in the world loves this man because he promises a future that we believe should happen. This is how it should be and he describes it how we want it to exist, including all the ads that we clearly desire.

• 1:09:27Nilay Patel?

  Including the ads and the sales of it.

• 1:09:29Speaker 03

  So it sounds so realistic and it'll probably be delayed a bunch of times and rising costs and then, but we'll still love Elon.

• 1:09:36Nilay Patel?

  That's probably true. So we're, Andy's covering the hell out of that. Look for that. There's coverage of that on the site, including a bunch of... You know, Nasa and transportation experts who are like, how will we build this tunnel cheaper? Which is the whole point, but we'll see. Tesla laid off a bunch of workers, several thousand workers, part of company-wide restructuring. That is very, what's happening with Tesla is just very interesting. We're covering the hell out of that. They've got to produce enough Model 3s. They've got to reduce the cost of companies. He's got a bunch of shareholders who are a little queasy.

• 1:10:03Speaker 03

  And they need to have enough yellow at their factories.

• 1:10:05Nilay Patel?

  They have more yellow at their factories. We're covering that basically nonstop because obviously, A, I think we're all very interested in what happens with Tesla. And B, the, the gap between the Elon fans and sort of what is actually happening is widening. And I think that's a very interesting place to explore. And Elon says Tesla wrote a full self-driving package in August, which we'll see. That's, it's just, an Elon deadline is a, is a squishy construct. But you're right, Paul. He does tend to deliver on these things. So we'll see. We'll see if he hits it. He's already late.

• 1:10:41Speaker 03

  He tends to deliver descriptions of things that we want. That's what I would say.

• 1:10:45Nilay Patel?

  Well, he's missed it. He said by now we would have a car fully drive from New York to LA.

• 1:10:50Speaker 03

  Right.

• 1:10:50Nilay Patel?

  That has not yet happened.

• 1:10:52Speaker 03

  Yeah, but it sounds like a good thing that would be nice to have.

• 1:10:55Nilay Patel?

  Amazing. All right. That was Elon update sponsored by Elon.

• 1:10:59Speaker 03

  No, it wasn't.

• 1:11:01Nilay Patel?

  My other favorite piece of Elon news, Gary Vaynerchuk bought a company called Pure, Pure Wow. And they're going to do radio and one of the channels is just called The Musk Report. And they promised it will only have positive news, which is amazing. So good. Anyway, Dieter, let's do gadgets.

• 1:11:18Speaker 01

  So the, we, Vlad did a review of the HCC U12 Plus and man, it's just, they did everything right except the important things.

• 1:11:29Nilay Patel?

  The camera looks amazing. I've seen a bunch of-

• 1:11:31Speaker 01

  The camera looks incredible.

• 1:11:32Nilay Patel?

  Yeah.

• 1:11:32Speaker 01

  The, the pressure sensitive buttons are a terrible idea. And it's just like, I don't know, like HCC has been making really good phones and then just tripping right before the finish line. And this just feels like another example of like, everything here is amazing. And then you just missed, missed it right at the end.

• 1:11:50Speaker 03

  Do you think anything has changed since Google took most of their employees?

• 1:11:55Speaker 01

  I, I don't know. Like, that's the thing. Like, I'm sure that this thing was in development before Google took those employees, right? They must, it must have been.

• 1:12:02Speaker 03

  That makes sense.

• 1:12:03Nilay Patel?

  Well, I will point out-

• 1:12:04Speaker 01

  We're going to see.

• 1:12:04Nilay Patel?

  Vlad's review of the U12 Plus starts- On that basically existential note.

• 1:12:11Speaker 01

  Mm hmm.

• 1:12:11Nilay Patel?

  I'm just gonna read this to you. It's a tough task to review an HTC phone in 2018. Am I supposed to treat this company whose phone design team was recently gutted by Google as a sustainable and continuing business? How do I factor in the non-zero probability of HTC no longer even having a phone division at this time next year? These are questions I don't have answers to.

• 1:12:32Nilay Patel?

  It's like, alright, I'm gonna read the rest of this review now. But the camera looks great.

• 1:12:36Speaker 01

  Good for them.

• 1:12:36Nilay Patel?

  Yeah. The one HTC, the one thing they never could get exactly right.

• 1:12:41Speaker 01

  Well, they started getting it right about a year ago, but yeah.

• 1:12:45Nilay Patel?

  But they weren't industry leading, right?

• 1:12:47Speaker 01

  They were, they were, no.

• 1:12:48Nilay Patel?

  They're, they're at the top point of the curve, which I think is great. Alright, what else?

• 1:12:51Speaker 01

  I should care about the BlackBerry Key 2, but I don't. I'm fascinated that the Samsung Chromebook Plus, the new version, has a Celeron processor. They made a big to-do about the OP1 ARM-based processor that they had custom-made, or that Google, you know, was working with ARM on. And, because it, you know, it ran way faster than I thought it ever would. I was really pleased with it, I was really excited about it. And, uh, radio silence on that issue. So that, that may have been an experiment gone awry.

• 1:13:20Speaker 03

  For Linux, a lot, there is a lot of ARM support on Linux, but it is not as good as it is for x86. So I wonder if that is a play to make. I mean, the Linux apps on Chromebook are very, very exciting to me. And if you could have a really cheap, like, here's the, the Samsung Chromebook Plus could be like the cheapest way to start developing Android apps.

• 1:13:43Nilay Patel?

  Interesting. Alright, can I talk about the Eero and Plume thing?

• 1:13:46Speaker 01

  Yeah, I was just about to ask you to do that.

• 1:13:48Nilay Patel?

  Okay. So Jake covered some Plume, Plume is a Wi-Fi router, mesh Wi-Fi router, Eero's a mesh Wi-Fi router. I'm sure you're familiar. Plume is not quite as well-known as Eero, but they are a pretty big business because they took a huge investment from Comcast. And that Comcast actually sells the Plume product as the X-Fi. It's a whole thing. Plume is actually, their tech is really interesting. They do some neat virtual networking things. Anyway, Plume announced, hey, we are changing the pricing of our routers. We're lowering the cost of like the four-pack or five-pack to $39. But you have to pay either a $200 lifetime membership or a $60 a year membership. And if you don't pay, the routers don't work anymore.

• 1:14:28Speaker 01

  This is edge computing.

• 1:14:29Nilay Patel?

  It's edge computing. This is your whole thing.

• 1:14:31Speaker 01

  Mm hmm.

• 1:14:32Nilay Patel?

  Super-managed thing. So we published this and they went back and forth in the story. The CEO was like, "Yeah, it'll be fine." And then they followed up with Jake later to be like, "No, it won't be fine." This story blew up.

• 1:14:43Speaker 03

  Won't be fine if you stop paying.

• 1:14:44Nilay Patel?

  Yeah, they're gonna stop working if you stop paying. Story blows up. Hilar- it's like, I don't think a lot of people have Plume routers, but the idea that we're moving to this managed device world, people just, they really cared about it.

• 1:14:56Speaker 03

  Mm-hmm.

• 1:14:57Nilay Patel?

  Story blows up. So then, uh, we had Patrick Spence on. I was asking him about Sonos and I was like, "You know, you probably heard this already, but, um, you run a managed hardware business.

• 1:15:06Speaker 03

  Mm-hmm.

• 1:15:06Nilay Patel?

  Would you ever do a subscription product and then, you know, break your hardware if people don't pay the fee?" And he was like, "No, never. That's not how we do our pricing." And I was thinking, "You know, we should just ask Eero." Like, we know them. So call Eero, Nick Weaver, like, he's like, "Yes, I will make that basket." And says, "We're never gonna do this with Eero. Where we have the same pricing model as Apple and Sonos. We price into the product the continuing cost of support."

• 1:15:30Speaker 03

  Hmm.

• 1:15:30Nilay Patel?

  Great. Then he says some stuff about how it's better to do, this is Nick Weaver, the CEO of Eero, says to Jake, "It's better to actually do some of this stuff all the time because it optimizes the network. And if you lose this, if you kill, it's, the subscription stuff you wanna have happen in the cloud is, is like, security-related. But network optimization, you wanna push down the thing and leave them running all the time anyway." So Jake's like, "Let me ask Plume if they're gonna lose that." So he goes back to Plume's CEO. Plume's CEO is like, "I changed my mind." This is true, this happened. Uh, they will work. But when you don't pay the subscription, it'll work. Our fallback is really just as good as the other guys can get. So by hook or by crook, we have now gotten the CEO of Plume

• 1:16:14Nilay Patel?

  and CEO of Eero fighting each other about, uh, the future of subscription routers. This all seems like a nightmare to me. I would not buy a Plume. Also, Plume says their business is, uh, it's a quote, "B2B2C." So they wanna sell to, they wanna sell to the broadband providers who will then give you a Plume.

• 1:16:30Speaker 03

  And that's just called being an OEM.

• 1:16:32Nilay Patel?

  Yeah, well, no, I mean, they're gonna be branded and they're gonna run the backend. But the the goal is for them to snake some of the, you know, that money you pay to Comcast for their garbage router that you don't want to pay?

• 1:16:42Speaker 03

  Uh huh.

• 1:16:43Nilay Patel?

  Their goal is to be that money.

• 1:16:45Speaker 01

  And I think that's a good goal.

• 1:16:46Nilay Patel?

  Yeah, it's not a bad goal.

• 1:16:47Speaker 01

  If you ran a like a little mom and pop store that was like technically an independent business, but like you provided like Comcast services for like rural areas or whatever. You'd be an independent business. So then if you sold Plume browsers in your little independent store, then technically Plume's business would be B to B to B to C.

• 1:17:05Nilay Patel?

  My god.

• 1:17:06Speaker 01

  And then if you were the customer and you sold it back to the store because you were done with it because it wasn't working, you got to return. And then they sold it to another customer, it'd be B to B to B to C to B to C.

• 1:17:16Speaker 03

  Yeah.

• 1:17:18Nilay Patel?

  Dieter was thinking, yes, I will sink that basket.

• 1:17:23Nilay Patel?

  It's just wild. The managed hardware stuff, every company now that does a cloud service, I feel like they're gonna turn on premium pricing and get recurring revenue. And they're gonna cut down the.

• 1:17:34Speaker 03

  I think it's OEM plus SaaS, software as a service plus being an OEM, OpsaaS.

• 1:17:40Nilay Patel?

  We gotta move on. All right, let's talk about the thing.

• 1:17:42Speaker 03

  What?

• 1:17:43Nilay Patel?

  OpsaaS.

• 1:17:43Speaker 03

  OpsaaS.

• 1:17:44Nilay Patel?

  Well, here's things that happened this week, big things.

• 1:17:47Speaker 03

  Yeah.

• 1:17:47Nilay Patel?

  On Monday, the net neutrality repeal order went into effect. Hilariously, a thing that everyone, all the sort of proponents of repealing net neutrality said was, nothing bad will happen.

• 1:18:00Speaker 03

  Hmm.

• 1:18:00Nilay Patel?

  It'll go into effect, nothing's gonna happen, it'll be fine. On Tuesday, the judge ruled that AT&T could buy Time Warner.

• 1:18:07Speaker 03

  Hmm.

• 1:18:08Nilay Patel?

  And Wednesday, Comcast put in a $65 billion offer to buy Fox, which already has a 50 some billion dollar offer from Disney to buy Fox.

• 1:18:18Speaker 03

  Hmm.

• 1:18:18Nilay Patel?

  So they're not correlated, but the timing is very, very funny to me because the goal of all these carriers buying all this content, all these content companies is to prioritize their streaming services.

• 1:18:31Speaker 01

  I just want credit for what I wrote in the show notes, which was I had these two things separate because they're not directly causal. But I did write, what a coinkydink.

• 1:18:38Nilay Patel?

  It is a coinkydink.

• 1:18:39Speaker 01

  It's a big coinkydink.

• 1:18:40Nilay Patel?

  So the net neutrality thing is over. It's just over, it's done. What happened to Congress doing something about it? So Congress is, I believe, less than 50 votes away from sending the congressional review to Trump's desk. So the Senate has already passed it, saying, "We don't like what the FCC did." Okay. The House is very close. Who knows what Donald Trump will do? Hmm. But the Democrats are certainly going to run on this as an election issue in the coming midterms. They feel it drives turnout. They appear to be correct. People are very fired up about it. A bunch of states are passing their own net neutrality law, which is going to lead to a series of court battles, because the net neutrality repeal order specifically prohibits them from doing that. It also is bad for the internet for every state to have a different regulatory regime. Hmm.

• 1:19:25Nilay Patel?

  Like, it's just difficult. You can see, like, GDPR, for example. Europe makes GDPR. A bunch of places are like, "We can't reconcile this." Our website is no longer available in Europe. Hmm. You don't want that. That's weird to do it in all 50 states, too. It's kind of the same deal. But they're doing it to force the issue. You know, a bunch of service providers, platforms, what have you, are writing letters, rallying troops, doing things. But all of that is happening in the shadow of these two colossal mergers. AT&T and Time Warner, and then whatever, Fox and Disney or Fox and Comcast. I read the opinion from the district court judge in the AT&T case. Here is what I think. The government did a terrible job of arguing this case,

• 1:20:08Nilay Patel?

  and the judge did a terrible job of understanding what was going on. So everyone's at fault, except for AT&T, which literally just is like gleefully, throughout the entire opinion, is just gleefully getting away with it. Right. So, this is a quote from the judge in the opinion. "To sum it up, in the words of AT&T Chairman/CEO Randall Stephenson, 'The defendants view the proposed merger as a vision deal.'" And it's like that. Like, the whole opinion's like that. What? AT&T is putting forth its vision for the future of content. The judge is in love with it, and the judge is like, "The government is stupid." And the government, for its part, was indeed very stupid. So the main character you need to know in this whole thing is a professor named Carl Shapiro.

• 1:20:50Nilay Patel?

  Poor Carl, I feel bad for him. He's the government's expert witness on antitrust matters. And he literally tore the government's own case apart through the trial. So he gets on, on the stand, and he testifies, this is another quote from the decision, "The government's own expert predicts that due to a standard benefit of vertical integrations, AT&T's DirecTV and U-verse customers will pay a total of about $350 million less per year for their video services." Well, you just lost, because that's the whole... And this goes, like, on and on and on, the government shoots itself in the foot. The argument that they never make, they do not make, which is the thing that AT&T wants to do that is anti-competitive.

• 1:21:30Nilay Patel?

  They do not say AT&T is going to preload apps from Time Warner, like HBO Now and DirecTV Now, CNN, and prioritize their traffic and exclude it from data caps, which would give it preferential treatment to Netflix and YouTube and Google and Facebook and whatever else have you. The government, as near as I can tell, does not ever truly advance this argument. The judge does not take it into consideration, and instead spends 90 pages talking about whether TNT's, like, sports programming will cause it to blackout its channels as it negotiates for carriage and charter, which is not really the reason that this merger is happening. But that's a 90-page of the decision, is a point-by-point argument

• 1:22:12Nilay Patel?

  about cable blackout negotiations and literally nothing about what's going to happen on mobile phones. And that, to me, is like, the government blew it, and the judge didn't see it, and now we're here.

• 1:22:22Speaker 01

  Do you want to get into this idea that's floating out there that the metric by which we decide whether or not something is a, you know, a bad idea and needs to be regulated, typically it's just like consumer harm or consumers are going to have to pay more money, but maybe that's like the wrong thing to be paying attention to? It's like, it's around this, but it's not precisely what happened here.

• 1:22:41Nilay Patel?

  Yes, but can I read one more hilarious Carl Shapiro quote?

• 1:22:44Speaker 01

  Can you read it, like, he loves, he loves this thing, this AT&T argument so much.

• 1:22:50Nilay Patel?

  It's so bad.

• 1:22:50Speaker 01

  It's like a, it's like a romance novel. Can you read it?

• 1:22:53Nilay Patel?

  I'll try.

• 1:22:53Speaker 01

  As though you were dictating a romance novel?

• 1:22:56Nilay Patel?

  Yes. So, one of the government's other theories about why AT&T should be blocked from buying Time Warner, this is true, is that they would enter into a coordinated conspiracy with Comcast to kill other video providers. This is absolutely true.

• 1:23:15Nilay Patel?

  Which, fine. I'm just, here's the, here's, here's our man Carl Shapiro testifying to the government's case about coordination between AT&T and Comcast. When questioned at trial about the government's coordinated effects theory, Professor Shapiro conceded that he had no way of assessing the probability of coordination and thus had not attempted to quantify any risk whatsoever that the predicted coordination could occur. Accordingly, Professor Shapiro confirmed that he was not in a position to say that coordination is more likely to happen than not. And indeed Shapiro was not prepared to even say that there's a 1% chance that coordination will happen as a result of the merger. Carl Shapiro! Just take it. He's like, I don't know. I give up.

• 1:24:00Speaker 03

  Yeah, I mean-

• 1:24:00Nilay Patel?

  Do you know how the government, uh, AT&T's expert witness responded to that? "I don't know what I'm supposed to rebut."

• 1:24:08Speaker 03

  I mean, antitrust is so hard to, it seems like it's so hard to prosecute before the fact. Like with Microsoft, probably the most famous antitrust case, you could say, "Hey, Microsoft did these terrible things to Real and did these terrible things to Netscape. They used their market position to bully other people out of the market." But here, you're conjecturing. And so, something I've been reading is like, something that happens sometimes in these cases, is the judge is like, "Okay, this is all conjecture. They're worried about these harms and this stuff, so get rid of these businesses or like, sell off these businesses or like, here are some rules that you should follow for 10 years or something to..." But none of that happened here either.

• 1:24:52Nilay Patel?

  This was everyone's expectation. Everyone's expectation was the judge would say, "I'm allowing this on these list of conditions."

• 1:25:00Speaker 03

  You cannot collude with Comcast.

• 1:25:04Nilay Patel?

  I mean, it's just insanity. I mean, there's one good argument about the Comcast collusion. It doesn't really come up, but if you think about AT&T and Verizon are effectively a duopoly, their pricing rates basically mirror each other, their sponsored data plans and prioritization and zero rating stuff, they all tend to just be the same, right? And it's only in response to T-Mobile being a challenger from the outside that- They ever do anything different, and it's because they're effectively a duopoly. They're the two biggest, they own most of the market share, it's very hard to, they don't really need to compete with each other, they can just be the same.

• 1:25:34Speaker 03

  Right.

• 1:25:35Nilay Patel?

  Government didn't make that argument.

• 1:25:36Speaker 03

  They're literally red and blue.

• 1:25:37Nilay Patel?

  Yeah. Anyhow, everyone is expecting conditions, no conditions. This judge is also the judge who approved the Comcast NBCU deal, upon which there were significant conditions placed. So, net neutrality is over, but Comcast is still operating under the FTC consent decree that effectively imposes net neutrality on its network for a period of time.

• 1:25:59Speaker 03

  Well, Comcast just came out with a thing, they're saying they're not throttling anymore.

• 1:26:03Nilay Patel?

  Yeah.

• 1:26:04Speaker 03

  They stopped throttling about a year ago, and they said it was all technical reasons.

• 1:26:07Nilay Patel?

  Sure it was. They, they need to like, show off some good news after net neutrality is over.

• 1:26:12Speaker 03

  Yeah.

• 1:26:12Nilay Patel?

  By the way, disclosure, Comcast owns a significant state, or Comcast's NBCU division owns a significant state in Vox Media, which is the parent company of The Verge. I assure you, they don't love us.

• 1:26:21Speaker 03

  Here's my exciting theory. So, obviously, we're segueing into the fact that Comcast is trying to outbid Disney for Fox.

• 1:26:30Nilay Patel?

  Yeah.

• 1:26:30Speaker 03

  And everybody knows if Disney gets Fox, they can merge the Marvel Universe with the X-Men.

• 1:26:35Nilay Patel?

  We have a story about this coming.

• 1:26:36Speaker 03

  But, if Comcast buys Fox, then we basically have the X-Men.

• 1:26:41Nilay Patel?

  I don't know about that. They can merge the minions with X-Men.

• 1:26:45Speaker 03

  I don't think that's how this works.

• 1:26:48Nilay Patel?

  Batman with X-Men.

• 1:26:49Speaker 03

  I think I could be one of the X-Men.

• 1:26:51Nilay Patel?

  Yeah, that's how it works. You're gonna, you're gonna jump the, the corporate investment ladder.

• 1:26:56Speaker 03

  Yeah.

• 1:26:57Nilay Patel?

  The next X, you're Deadpool now.

• 1:26:59Speaker 03

  I'm basically becoming Deadpool if this goes through, so I'm really rooting for Comcast.

• 1:27:04Nilay Patel?

  So, that's actually a hilarious thing. So, literally Comcast's board was waiting for the AT&T decision to come down, to see if the government was gonna allow mergers of this type.

• 1:27:15Speaker 03

  Mm-hmm.

• 1:27:15Nilay Patel?

  Obviously, AT&T, the judge says you should buy them. There's a really interesting wrinkle here. This opinion is crazy. I'm gonna have a whole long thing that we'll publish ideally by the time that this podcast goes out. There's like a bunch of exclamation points in it, which is not usually what you get out of a judge. The word poppycock is used.

• 1:27:32Speaker 03

  Mm-hmm.

• 1:27:33Nilay Patel?

  It's crazy. But at the end of it, the judge points out that AT&T and Time Warner set a deadline on their deal. So if it doesn't close by June 21st, the deal's off, and Time Warner has to pay AT&T a bunch of money, which is like a standard thing.

• 1:27:47Speaker 03

  Yeah.

• 1:27:48Nilay Patel?

  The judge says, "I'm instructing the government to not appeal this ruling because it will extend the, it will extend the trial, the legal proceeding past the deadline and the deal will be off."

• 1:27:58Speaker 03

  Right.

• 1:27:59Nilay Patel?

  So, literally, it's like, you've had your day in court-

• 1:28:02Speaker 03

  And his reasoning for that was, that would be mean?

• 1:28:04Nilay Patel?

  It would be, "Manifestly unjust" was the words he used.

• 1:28:08Speaker 03

  Wow.

• 1:28:09Nilay Patel?

  He said, "It was going on for, for, you know, a year and a half."

• 1:28:12Speaker 03

  Is that long though? How long the court case has been going on?

• 1:28:15Nilay Patel?

  It's, yeah, 2016.

• 1:28:16Speaker 03

  There is a right to a speedy trial. I just want to point that out.

• 1:28:20Nilay Patel?

  Yeah.

• 1:28:21Speaker 03

  I'm just saying.

• 1:28:22Nilay Patel?

  One of the biggest mergers in corporate history. This is pretty, pretty speedy. That's actually one of his points. He's like, "I did a good job. It was real fast." Uh, because they had to do like millions of pages of document production.

• 1:28:32Speaker 03

  Mm.

• 1:28:33Nilay Patel?

  Right? Anyway, but he, he says, "You've had your day in court, and the court has spoken, and the defendants have won." Just an incredible decision.

• 1:28:41Speaker 03

  Hmm.

• 1:28:41Nilay Patel?

  But the government could still appeal. I'm not, I don't, it's shocking to me that Donald Trump has not tweeted about it yet because he hates CNN. This is a thing that Time Warner wants, and thus a thing that CNN wants.

• 1:28:54Speaker 03

  Is that the whole reason? But I, I tried to look up like, why did Donald Trump not like this? I, I don't understand his dislike of this merger.

• 1:29:02Nilay Patel?

  He hates CNN.

• 1:29:02Speaker 03

  Of this merger.

• 1:29:03Nilay Patel?

  The commercial wisdom is, he just hates CNN. Complex man.

• 1:29:05Speaker 03

  Yeah.

• 1:29:06Nilay Patel?

  Um, but, it's also true-

• 1:29:10Nilay Patel?

  And I think you know this about me, I'm a more liberal gentleman.

• 1:29:14Speaker 03

  Mm hmm.

• 1:29:15Nilay Patel?

  That the Obama DOJ would have likely never brought this case. There has not been a vertical merger antitrust lawsuit like this for 40 years.

• 1:29:24Speaker 03

  Yeah, it just doesn't seem like really strong grounds for the government to oppose.

• 1:29:28Nilay Patel?

  So this is what Dieter was mentioning earlier.

• 1:29:30Speaker 03

  That we need a new doctrine for this?

• 1:29:33Nilay Patel?

  Yeah, so there's this classic sort of way you measure. So the reason you don't do vertical mergers is because they typically don't reduce the number of competitors in the market.

• 1:29:42Speaker 03

  Right.

• 1:29:42Nilay Patel?

  Right, so you've got, think about a supply chain. You've got suppliers, you've got distributors, you've got marketers, something at the top. If you combine two companies at any level, you increase market power for that new entity and you decrease the number of competitors. That's bad. So horizontal mergers, that's what it's usually called, get blocked all the time, get challenged. Vertical mergers where like the distributor buys the supplier, it's pretty normal.

• 1:30:06Speaker 03

  Mm hmm.

• 1:30:07Nilay Patel?

  So great, that happens all the time. For 40 years, there has not been a lawsuit of this type for a vertical merger. One of the new things that is happening is the typical way that you measure the harm is whether consumer prices go up. Right, so you say, okay, you're going to have decreased competition in the market. We see the prices will go up for consumers, that's a consumer harm, reduces competitiveness, we're going to block it. In the new world that we live in, many products are free.

• 1:30:35Speaker 03

  Right.

• 1:30:35Nilay Patel?

  There are huge companies like Amazon that just relentlessly undercut their pricing. So it's actually very hard to measure pricing effects. It's also very hard to measure effects like net neutrality and like prioritizing of traffic. So there's, literally it's called hipster antitrust, you can look it up. That's the term people use. And it's, there was just a big, the Open Markets Institute just held a big conference called Breaking the News, where they talked about how they would apply a new idea about antitrust to basically internet platform companies. There's a great, Matt Honen wrote a great piece in Buzzfeed about it.

• 1:31:09Speaker 03

  Well, and so Comcast buying Fox would be vertical, or more vertical than Disney buying Fox.

• 1:31:15Nilay Patel?

  It would be both horizontal and vertical, because they own Universal. So they own one major studio, they'd be buying another one, and it would go up vertically. Disney is obviously like. Right there, but Fox is splitting up. They're not buying all of Fox. So Fox Broadcast, the Fox Network, Fox News, they're all gonna end up in a new company called New Fox, which is amazing. And then 21st Century Fox Movies Studios and all that stuff would either go to Comcast or Disney. But literally, they were waiting on the AT&T decision, the Comcast executives, to make this offer. We'll see. So I'll put it to you.

• 1:31:50Speaker 03

  Yeah.

• 1:31:51Nilay Patel?

  Would you rather have 50 some billion dollars worth of Disney stock, or would you rather just take a 65 billion dollar check from Comcast? That is the decision in front of the Fox board.

• 1:32:00Speaker 03

  I hate these kinds of decisions.

• 1:32:03Nilay Patel?

  Right?

• 1:32:03Speaker 03

  Or I'm so rich, or I'm so rich.

• 1:32:06Nilay Patel?

  Well, I mean, that's how they gotta decide.

• 1:32:08Speaker 03

  I, so I feel like I personally, I don't know what I would decide. I'd go with Comcast so that I could become an executive. So I like these vertical mergers a lot, because I feel like there's like, there's like a new kind of company, like that's emerging. Even Apple's trying to do it a little bit. I feel like a lot of it's been influenced by Netflix, which weirdly is the least vertical of all of these companies.

• 1:32:33Nilay Patel?

  No, in the decision, they called them the most vertical. Everyone's so confused.

• 1:32:36Speaker 03

  They're like, everybody, Netflix called it. Netflix is like, we're gonna do DVDs by mail until we can stream. And then they, they just, they just, they called the whole progress of how we would be entertained in the year 2018. All these companies wanna be like Netflix, but they're like, we could do more than Netflix. We could own a consumer, not just for $10 a month. We'll get, you know, in Comcast's case, they could have them as a mobile subscriber and a TV subscriber and HBO subscriber, or no, not HBO.

• 1:33:07Nilay Patel?

  And a consumer of advertising.

• 1:33:08Speaker 03

  And advertise, yeah. So like, we could be, we could be getting like $200, $300 a month in revenue per customer. Whereas like, if you're a movie studio, you hope, like, you, like, someone like sees two of your movies in a year, and you're doing great.

• 1:33:24Nilay Patel?

  So let me, let me take all these things and like, you're right about the new business model. I think that the, the thing that we're gonna be talking about in 2020 is loot boxes, but for cellphone service.

• 1:33:38Nilay Patel?

  All right, think about it.

• 1:33:40Speaker 03

  I hope, yeah, I just, the thing is-

• 1:33:42Nilay Patel?

  You're gonna pay five bucks and then you're gonna open up the thing and it'll be gamified about whether you get like 50 minutes of talk time or like two gigs of data.

• 1:33:50Speaker 03

  I think, I think my, my, my principle is, I was very small as a kid and so I developed a mantra, the bigger they are, the harder they fall. And I like these companies just getting disgustingly lorged and convoluted because I feel like at some point, they just lose total sight of what they are trying to accomplish and they completely fail.

• 1:34:15Nilay Patel?

  Yeah.

• 1:34:16Speaker 03

  And, and that's what I'm rooting for. So I'm rooting for these mergers because I want, I want, I want to live in a world where there's like five, maybe five more years of a content gold rush, where people are built, spending billions of dollars creating new shows like Westworld. And, and, and all these companies were trying to be Netflix and then they will all ultimately lose sight of actual customer interests and ultimately fail.

• 1:34:40Nilay Patel?

  Yeah, big things are funny.

• 1:34:42Speaker 03

  Yeah.

• 1:34:42Nilay Patel?

  They're like dum, dum, dum.

• 1:34:43Speaker 03

  Yeah.

• 1:34:44Nilay Patel?

  Like topple over.

• 1:34:45Speaker 03

  Exactly.

• 1:34:46Nilay Patel?

  I will say that that is, uh, uh, there's like a, it's like a very nihilist view of the world. We're like, we are just, we, we are just particles in the breeze of AT&T breaking up and recombining and eight, breaking up and recombining. And those winds will just blast us around the world until we're dead.

• 1:35:07Speaker 03

  I mean, just to be clear, Paul, the, the future that you just said you're hoping for is like almost word for word how Karl Marx described the collapse of capitalism. Just-

• 1:35:17Nilay Patel?

  He didn't make, he didn't make the big things are funny joke.

• 1:35:19Speaker 03

  If, if, if Karl Marx is right and capitalism will actually dethrone itself, good for Karl Marx. If it doesn't take a violent-

• 1:35:28Nilay Patel?

  Yeah.

• 1:35:28Speaker 03

  -revolution of, of, yeah.

• 1:35:31Nilay Patel?

  It just takes putting the X-Men in the MCU.

• 1:35:34Speaker 03

  Yeah.

• 1:35:35Nilay Patel?

  I mean, that would be, that would, that would, that would fuck some shit up right there if you did that. I will say that we, I found it very, the amount of Twitter standing for Disney to win the Fox deal and not Comcast-

• 1:35:46Speaker 03

  That's all X-Men based?

• 1:35:47Nilay Patel?

  It's all X-Men based. Devin, Devin Maloney, our, our, our culture writer is, is writing a piece on it. It's like the funniest thing.

• 1:35:54Speaker 03

  If, if, if Disney said, okay Comcast, go for it, we just want X-Men.

• 1:36:00Nilay Patel?

  Yeah.

• 1:36:01Speaker 03

  What would they pay? 30 billion? How much are the X-Men worth?

• 1:36:05Nilay Patel?

  Well, nothing anymore because Fox has blown it time and time again. There's two good X-Men movies.

• 1:36:11Speaker 03

  But Disney has a clear-

• 1:36:13Nilay Patel?

  Deadpool and Logan.

• 1:36:14Speaker 03

  A method of-

• 1:36:15Nilay Patel?

  Day of Future Past was good.

• 1:36:16Speaker 03

  Of getting a billion or two a year out of each of these properties.

• 1:36:21Nilay Patel?

  Do you think Bob Iger's like, "I just want those goddamn X-Men. I just want the X-Men." He's just strolling around his palatial villa.

• 1:36:28Speaker 03

  So many good ones. The Wolverine.

• 1:36:31Nilay Patel?

  Can I review-

• 1:36:31Speaker 03

  Everybody hates Cyclops, but still, he's like really important as a character.

• 1:36:35Nilay Patel?

  Can I read you one more insane line from this?

• 1:36:37Speaker 03

  Yes, please.

• 1:36:38Nilay Patel?

  I just, I don't understand. The judge does not know the difference or the similarities between Netflix and HBO Now. Don't show me this to you. HBO content reaches consumers in four ways. Uh, I'm gonna, I'm gonna expand the acronym for you. HBO content reaches consumers in four ways. Through cable companies, through virtual cable companies like DirecTV Now, through subscription video on demand, you know, you can buy it through Amazon Prime, and through HBO's proprietary over-the-top product, HBO Now. In each case, the end customer accesses HBO by way of a distributor, even for HBO Now, which is sold by digital distributors like Apple and Amazon.

• 1:37:13Speaker 03

  Hmm. Wow.

• 1:37:15Nilay Patel?

  I read that a dozen times. What is he talking about?

• 1:37:20Speaker 03

  Brr.

• 1:37:21Nilay Patel?

  It's, it's nonsense.

• 1:37:23Speaker 03

  Brr.

• 1:37:23Nilay Patel?

  You can, you can get HBO Now on the web, first of all.

• 1:37:26Speaker 03

  Apple doesn't sell iPhones because you can buy iPhones at Best Buy.

• 1:37:31Nilay Patel?

  What are you talking about? Netflix, HBO Now and Netflix are the same product.

• 1:37:35Speaker 03

  Mm-hmm.

• 1:37:35Nilay Patel?

  And the idea that to make HBO Now better, you need to stuff it full of location data from AT&T consumers is nonsense. That's, that's what this whole decision is like. It also, I think, presages the, the fall of capitalism through corporate collusion and merger.

• 1:37:53Speaker 03

  Yeah.

• 1:37:54Nilay Patel?

  Yeah.

• 1:37:54Speaker 03

  Look, I want them all to fail miserably and be so sad, like, "We thought we were so rich, but we were wrong."

• 1:38:01Nilay Patel?

  Well, they're gonna be so rich. Don't, don't you worry about that. All right, we've gone way over an hour and a half of Riggcast. I'm sorry that we... I'm not that sorry.

• 1:38:11Speaker 03

  I'm not sorry.

• 1:38:12Nilay Patel?

  I love antitrust law. Hipster antitrust.

• 1:38:14Speaker 03

  Hipster antitrust.

• 1:38:15Nilay Patel?

  I'm...

• 1:38:15Speaker 03

  Come here first.

• 1:38:17Nilay Patel?

  I want us to actually start covering it more because I think the only way that you're going to effectively regulate a company like Amazon is to change antitrust law, and that's the way it's going to be.

• 1:38:26Speaker 03

  What is a generic argument against vertical integration?

• 1:38:29Nilay Patel?

  There isn't. There isn't. That's actually why this case fell apart. The government put on a very conservative case that used sort of the standard model, and there's a reason that the standard model hasn't been used to block a vertical merger in 40 years.

• 1:38:43Speaker 03

  Right.

• 1:38:43Nilay Patel?

  And the judge was like, nope, that's not it.

• 1:38:46Speaker 03

  But you don't... What's the hipster argument?

• 1:38:48Nilay Patel?

  The hipster argument is that there are other ways to reduce competitiveness by measuring different factors in the environment, or by talking about platform dominance and control. So like, Google never raises prices because everything is free. If the only way that you're going to impose antitrust law is by saying, "Prices went up", well, now you've just... You've literally cut yourself off from that. Amazon rarely raises prices, right? They try to lower the price and everything. They sell so many goods that they can sell some things at cost. You can never really say Amazon buying this thing is going to raise prices. So you need to find some new ways of measuring competitiveness in the market. And one of the ways that I think is very interesting to both the right and the

• 1:39:32Nilay Patel?

  left is like access to distribution. And that's like, who knows how that will work? But if you have these dominant platforms, they get bigger and bigger and bigger because of network effects, then you need to... And they're free. You can never say the price of participation is going up. So that's like very... Who knows? It's just out there. And I think the fact that both the right and the left are kind of like into it is like very interesting. Now, we're going to do a thing on it.

• 1:39:55Speaker 03

  Hubris is what I enjoy in this.

• 1:39:58Nilay Patel?

  Yeah.

• 1:39:58Speaker 03

  Because the hubris leads to downfall.

• 1:40:01Nilay Patel?

  There's a great article in the Wall Street Journal about what happens now with AT&T and Time Warner. And literally the thing it points out, and like the second paragraph, is that AT&T is a very staid, like, it's a phone company. And all but nine executives at AT&T fly coach. And like, everybody at Time Warner is Hollywood, and they all fly first class. And they have like greeters at the airport and butlers who take them through security.

• 1:40:23Speaker 03

  Oh, culture class.

• 1:40:24Nilay Patel?

  And they gotta glue these cultures together. And that's like, it's not easy. Do you know what other companies tried to buy, uh, try to merge with Time Warner? Had a culture clash and failed? AOL. I was waiting for that. We used to work there. We, remember, we worked there when they spun it back out. Man. Thomas Ricker, our, our international editor, used to be so embarrassed that he worked for AOL. They told everybody he worked for Time Warner.

• 1:40:48Nilay Patel?

  He was really sad when it like unmerged. He was like, oh shit. Oh. Um, but AOL was a big distribution network, right? The dial-up service. They bought Time Warner to glue Time Inc.'s print properties into that distribution, because he couldn't do video yet. And the culture clash destroyed the company. I knew it. AT&T, you know, Time Warner and Time Inc. have split, so the magazines aren't there anymore. AT&T is buying Time Warner to glue its video onto its distribution network. And the culture clashes. Like, a lot of lessons there. You know who wrote great books about AOL, Time Warner? Kara Swisher wrote two of them. Oh. One of them is called, "There Must Be A Pony In Here Somewhere." Because that's what they used to say.

• 1:41:30Nilay Patel?

  But the merger is true. You can get, be by. It's a great book. Highly recommended. Speaking of Kara Swisher, that's the end of this podcast. So now I'm going to plug her podcast. You can listen to Kara every week. Recode Decode. Our friend Peter Kafka does Recode Media, both excellent podcasts. And Casey Newton, Silicon Valley editor at The Verge, doing Converge every week. It's so good. It's so good. So good. He has the CEO of Pocket on this week. Last week, he had the guy who fights spam at Google. They played a game called Spam or No Ma'am. It is the best. Check out Converge. I'll let you know. I think that, that show about buttons. Oh, really? Yeah, I was talking about it. Some button questions?

• 1:42:07Nilay Patel?

  Some button questions might be coming up. You can follow us everywhere. Paul's at FuturePaul, Dieter's at Backlon, I'm at Reckless. Let us know how you want us to do more interviews. I really want us to do more interviews. So if you liked the Laura segment and you liked the interview, I would love some feedback on how we should package ourselves in the Verge. Ask if we should have more episodes, edit interviews. Let me know. I'm just curious. And, this is true, a little surprise. One of our producers asked me to plug this on The Vergecast. I'm doing it very end in a quiet voice. The Verge and Curbed have built a house. There's an actual house in Austin that we have made. We made it. But it's not South by Southwest. It's not South by Southwest. We built a smart home. Okay. So Curbed helped us. They helped us build a cool prefab house, because that's the future of houses. We stocked it full of cool smart home stuff. Shooting a video series.

• 1:42:53Nilay Patel?

  Grant Imhara from Mythbusters is the host. That stuff is coming. The house is open next week in Austin. It's gonna be super cool. Keep an eye out. Home of the future. This whole thing. Brands. Brands. Brands. Working together, hand in hand. Hand in... Okay, we're done. That's it. That's The Vergecast. Thank you very much. Rock and roll. Paul. Promo code.