U.S. Economy is the Tallest Midget
Economics / US Economy May 11, 2015 - 05:58 PM GMTBy: Bloomberg
Dick Parsons, former chairman and chief executive officer at Time Warner, spoke with Bloomberg Television's Erik Schatzker and Stephanie Ruhle about the future for former ESPN columnist Bill Simmons, the challenge to build your own brand in digital media and looks at the future of cable M&A. He also discussed the state of banking in the U.S. as firms face penalties for Libor rate-rigging and continued regulatory oversight by the U.S. and global governments.
On the future of Bill Simmons and ESPN, Parsons said: "ESPN is going to be just fine. Bill has got to figure out what's in Bill's interests…When you're a part of ESPN or NBC that platform is there for you. You just show up and put your tap shoes on…If [Simmons] tries to do the entrepreneurial thing, it's tougher than people think….I don't know what he wants to do. I just know that ESPN is going to be fine and he will probably be fine."
On the state of banking in the U.S. in light of the investigation into currency rigging, Parsons said: "What I will say is the big banks are still in the penalty box. They're still in the penalty box coming out of '08/'09. And they're going to be there for a while because, my opinion, and I think the regulatory regimes around the world have decided they're too big. They really want to put pressure on them to -- not to bust them up, but to get them smaller, less risky, and also, as someone told me when I was Chairman of Citibank, the people are still angry at the banks."
When asked about his overall view on the economy, Parsons said: "The way to think about it is I think we're the tallest midget. No one is doing great. Compared to the rest of the world, we're the tallest midget."
STEPHANIE RUHLE: I can't wait anymore until we bring Dick Parsons in. He's sitting right next to me. He's the president of Providence Equity Partners. He's done so many things. I don't even have time to get into it, but I want to talk just for a moment.
ERIK SCHATZKER: We just promoted you right there.
RICHARD PARSONS: And I got promoted.
RUHLE: There you go, the most important guy on the planet is really what his title is. He's sitting next to me. When we think about the economy right now, just what is your overall view? The Warren Buffets of the world are saying the U.S. is the greatest place ever to invest. And then we get more and more data that says America is just not doing so hot.
PARSONS: Yes. The way to think about it is I think we're -- we're the tallest midget. No one is doing great. No one is doing great. But I agree with you. We're -- we're slumping along and we're doing better when we're doing better. It's still a lot of areas that could be strengthened, and nobody would call this robust. But compared to the rest of the world, we're the tallest midget.
SCHATZKER: So if we're just the tallest midget living in a world of midgets, Dick, does that mean -- does that -- are you effectively saying that we're in, I don't know, a Larry Summers-like secular stagnation at the next several years, or -- or you agree with a guy like Bill Gross that the next several years are going to be low growth, and as a result interest rates, even if they go up 25 basis points, 50 basis points, aren't returning to normal levels anytime soon?
PARSONS: Yes. I think -- I think the latter is right. It wouldn't surprise me if the Fed didn't tighten at all this year. And if they do, they're going to do -- they'll do a quarter turn and that will probably be it. I think we're in a low growth, low interest rate environment for a while. And I think it's just it's taking the world a good while to recover from -- from the crisis of '08.
SCHATZKER: A great environment for deal making.
PARSONS: It's a good environment for deal making. It's a good environment for investors. And it may not be actually a bad environment for the rest of us, just kind of keep balloons and from creating or --
SCHATZKER: Bubbles.
PARSONS: -- bubbles popping up.
RUHLE: But is it really? If you look at the consumer, one would say, look at gas prices, oil prices, when are we going to see the consumer start spending? The housing market is better than it's been. Let us -- you can buy a house right now. You can get a mortgage. Why aren't we seeing more activity? It's still so sluggish across the board, just rich people getting way richer.
JOE WIESENTHAL, BLOOMBERG NEWS: Yes. I don't know. There is something a little weird going on with the data. And I'd like more time to see what's going on because, yes, we didn't yet the consumer spending surge in the first quarter that everybody predicted because of lower gas prices. But if you look at surveys of consumer attitudes, whether it's the Bloomberg consumer comfort index, University of Michigan consumer sentiment, they're at their highest level in years.
So it's not like the consumer, when asked how they're doing, is feeling particularly bad. So I would actually just like to wait a little while to see what's going on. Maybe there was some weirdness in Q1 data. That wouldn't be unprecedented. Last -- last Q1 was shockingly bad. So let's wait a little while and see how the consumer shakes out.
PARSONS: It's also possible that the consumers learned something. I mean they're not just not going jump back into the pool with the -- with the enthusiasm.
RUHLE: You think consumers have they learned their lesson for once?
PARSONS: I don't know about their lesson, but -- but there is more caution on the part of consumers. And there's more orientation toward savings.
RUHLE: I hope so.
SCHATZKER: All right. Dick, please sit tight.
09:33
(BREAK)
09:37
SCHATZKER: John Skipper, the ESPN president, says it's clear Simmons and the network needed to part ways, and so his contract won't be renewed this fall. Now the question is where Simmons will go, to a rival like Fox, or maybe a digital venture with some Wall Street backing. It's a story at the intersection of sports business and media, a perfect topic for our guest, Dick Parsons, the former chairman of Time Warner, also the former CEO and also the former chairman of Citigroup. Dick also served as the interim CEO of the Los Angeles Clippers.
Dick what makes more sense to you? Bill Simmons is a huge name. Should he trade on his notoriety and the massive audience that he has built with Grantland, and go and build a digital venture with the backing of, I don't know, maybe, maybe a private equity firm like Providence?
PARSONS: You never know. But, listen, it has been my experience that always the most important name on the business card is not yours, right? So ESPN is going to be just fine. So Bill has got to figure out what's in Bill's interests. And a lot of guys are making that move now to the digital world because they see the opportunity to create something, create enormous impact and enormous wealth, trading on their notoriety and their fan base.
RUHLE: But it's a lot harder job.
PARSONS: Oh --
RUHLE: When you look at -- at -- when you look at Katie -- Katie Couric and what she has done now that she's in the digital world that's a hustle. When you're a part of ESPN or NBC that platform is there for you. You just show up and put your tap shoes on.
PARSONS: All I can is you are 110 percent right. People think it's easy because they see other people do it. And they say, well I can do that, and I'm that talented. It's a hustle. It's a hustle. You got to get lucky. You got to work hard.
SCHATZKER: If you were advising Bill Simmons, what would you tell him to do?
PARSONS: Oh I wouldn't presume to answer that question just yet because I don't know what he wants to do. I just know that ESPN is going to be fine and he will probably be fine.
SCHATZKER: How hard should Fox, Fox Sports chase after him?
PARSONS: Well he is a big name, and he's a good -- he's a good sportscaster. So I suspect there will be a lot of people who will be dangling things in front of him. But if he tries to do the entrepreneurial thing, Stephanie is 100 percent right. It's tougher than people think.
RUHLE: But it seems like more and more superstars, whether they are bankers, or sportscasters or restaurateurs, want to own an equity stake. They're seeing people get so extraordinarily rich. Nobody wants to be an employee anymore.
PARSONS: And you can't pick up a newspaper and not find someone who started something in their garage four weeks ago and just sold it for $2 billion, or something like that. So that's addictive. People say, I can do that. But it's --
RUHLE: Become jealous.
PARSONS: But envy, right? This is -- everything changes except people, but it isn't so easy.
SCHATZKER: One of the reasons we love talking about ESPN is because it is at the center of this debate between content and distribution, right? There is no more valuable property on television than ESPN, pays Disney, what, $5.50 a subscriber every month. Let's talk about distribution for a moment. Time Warner Cable was part of Time Warner when you were there, Dick.
PARSON: Correct.
SCHATZKER: You look at the aborted talks with Comcast because of the justice department objections and the FCC objections. What makes the most sense for Time Warner Cable? Is it to join with Malone and Charter, or is it -- is it another path forward?
PARSONS: Well I think Time Warner Cable has a lot of options, a lot of options, because distribution is key. People always argue is it content, is it distribution. And I once worked for a guy who put it this way, content is king, but distribution is the power behind the throne. Without distribution, you have got nothing, right? And they've got a terrific distribution platform.
What makes the most sense for them, I think what they are going to have to do is try and figure out what makes the most sense for their shareholders. Consolidation has been going on the cable business since there was a cable business, right? There used to be thousands of them. Now there are a few. And it's going to continue. My own view is that ultimately there is probably room for two big telcos, two big -- two big cable companies.
SCHATZKER: So Verizon and AT&T on the one hand.
PARSONS: Right.
SCHATZKER: And presumably Comcast and (INAUDIBLE).
PARSONS: Well I always thought, when I was there I always thought it was going to be Time Warner, but we'll -- that remains to be seen.
RUHLE: And why exactly should Washington be intervening, because any of these companies we're talk about, it doesn't seem like customer service is a priority for them. And Washington should care about Americans and what they have to say.
PARSONS: Well Washington cares about the politics.
RUHLE: Washington cares about Washington.
PARSONS: Washington cares about the politics. And I think, though, it has never been definitively articulated from the government. I think they just felt Comcast and Time Warner was just too big, particularly on the broadband side. They weren't worried about the cable side, I don't believe, but on broadband Time Warner Cable and Comcast has, what, 56 percent of the homes -- of the homes in this country in terms of broadband. That just felt too big.
SCHATZKER: In retrospect, Dick, looking at the success that Comcast has had, right, starting in cable, bringing content in with the NBC Universal acquisition, would it have -- would it have made more sense for Time Warner and Time Warner Cable to remain one?
PARSONS: No, I don't think so. And I think all you have to do is look at the marketplace to come to that conclusion. We had -- we had an issue where we had a big content-producing house on one hand, the big distribution house on the other. And they attract different shareholder bases.
And people don't want us making the choice for them as to whether to put this together or whether not to put it together. They either wanted something that was pure play on the content side and pure play on the distribution side so they can make their own choice. So I think the separation of Time Warner Cable and Time Warner was appropriate. And the marketplace has certainly rewarded the shareholders for that separation. And I think also it just makes it easier to manage in an uncertain world the direction you want to move in.
SCHATZKER: And, if like you say, there are going to be two big telcos, AT&T and Verizon, presumably, and two big cable companies, does it go without saying that John Malone is going to run one of those two cable companies?
PARSONS: Not without saying, but his reputation when I was in the business was John Malone was the smartest guy out there. I never found anything that caused me to question that reputation.
SCHATZKER: All right. Dick, we're taking another commercial break.
09:42
(BREAK)
09:47
SCHATZKER: moments ago, folks, we learned Citigroup is discussing a currency settlement with the justice department. That's from a quarterly filing. With us, who better than to comment on this situation, Dick Parsons. He's the former Chairman of Citigroup. Dick, I say who better, because you know what it's -- you know what the inside of the banking industry is like. It's a whole lot different today, perhaps worse than it was when you were Chairman of Citigroup. It's Citigroup, it's JP Morgan, it's UBS, it's RBS. They're all going to have to plead guilty, presumably, to the justice department on Wednesday in connection with this investigation into currency rigging.
PARSONS: Well you -- there's an old adage. You can't fight city hall. The banks are in no position to really resist the regulators on any of these things. You can't take them to the mat because they just have too many -- too many handles on you. So I don't have -- I don't have any insider knowledge was to with respect to this particular series of transactions.
What I will say is the big banks are still in the penalty box. They're still in the penalty box coming out of '08/'09. And they're going to be there for a while because, my opinion, and I think the regulatory regimes around the world have decided they're too big. They really want to put pressure on them to -- not to bust them up, but to get them smaller, less risky, and also, as someone told me when I was Chairman of Citibank, the people are still angry at the banks. And so --
SCHATZKER: Well that's why the banks are anticipating that come the elections in November of next year, once again they're going to be punching bags, and they've become -- going to become political fodder on presumably of for the progressive arm of the -- of the Democratic Party. Is there anything these banks can do to prevent that from happening? Or is that just inevitability?
PARSONS: I think it's inevitability, but I also think that the banks will survive because we need the banks, actually. The reality is this whole thing comes to a halt without these big intermediaries. And so they just have to survive. They've got to get their heads down, stick to their knitting, try and push as much risk out of the system as they can, although it's just going into the shadow banking.
RUHLE: But does it -- it seems like banks are doing everything they can, but they still can't catch a break. People hate them as much as ever. Employees don't want to be there anymore and regulators have the clamp on them. So what can the Jamie and Lloyd Blankfeins of the world do, get new jobs, see if Providence is hiring?
PARSONS: I'll tell you what someone -- see, and right. So what someone told me, when you're going through hell, the only thing you can do is keep going.
RUHLE: But when will it end?
PARSONS: In a couple of years, a couple years I think. It can't continue forever and ever. But I think the banks are -- they're going to be in the penalty box for another couple, three years.
RUHLE: All right. Well you either go through hell or you don't. I want to break this right now. Deutsche Bank's global head of fixed income, Rich Herman, has just announced moments ago he is leaving the firm after 20 years. Now, is he going to Comcast? Is he going to Carlyle? Is he going to Providence? No. In his memo to staffers, he is leaving Deutsche Bank "walk the earth."
Now this is similar that we heard from the CFO of Google, but if you're coming from the tech world, you're just so damn rich, you're like I'm just going to party the earth. But what does it say about career bankers, people who have spent their lives working inside an organization to say, you know what? I'm hanging it up. What does it say about the industry?
PARSONS: It's tough. I mean it really is tough. I remember when I left, my job was to get them through the crisis. And once we did, and not because of me, but because of all the good people at Citi, and (INAUDIBLE) and everybody --
SCHATZKER: And, Dick, hold the thought. We need to go to a commercial break.
PARSONS: Okay.
09:52
(BREAK)
09:54
RUHLE: I want to turn our attention back to Dick Parsons, who made his name in the business world serving as Chairman of Time Warner and Citibank, but his passion is jazz. However, when it comes to maintaining America's sense of musical history, Mr. Parsons is fighting an uphill battle. Digital and streaming technology from Spotify to Apple have made access easier, but perhaps limited millennials sense of how American music was born.
Mr. Parsons' first step in addressing this was to revive Minton's Jazz Club here in Harlem. Since resurrecting Minton's, where Duke Ellington and Louis Armstrong played, what is your next step? I mean clearly you are chairman of the Apollo Theater. You understand that Harlem is more than having a moment, as New York real estate is getting hot. It's only moving north. You can't move any further south. So tell us what exactly is going on here?
PARSONS: Well there -- there is a revival going on in Harlem right now. And jazz is a big part of it, because it was the scene of so much creativity in the '20s, '30s and '40s around jazz. And right at the center of that scene was a club called Minton's Playhouse, right?
Now Minton's, unfortunately like so many things in Harlem, burned down in the '70s. And it was shuttered. And notwithstanding a few attempts to sort of reopen it over the last 40 years, it was shuttered when we got it a couple or three years ago. So we reopened it, revived it. And what we're trying to do is two things, one, lock into that renaissance that's happening up there in terms of jazz, and capture some of the newer artists, but connected to the old, connected to their roots, because you're right. Young people today, they don't -- they' don't get the fact that America's only true contribution to global culture has been jazz.
RUHLE: Hold on a second, one more time?
PARSONS: Yes, true. Think of another. It's a global culture. Well, I mean you could say fast food.
RUHLE: Yes.
PARSONS: I'm talking about performing arts, art culture, music and arts was jazz.
RUHLE: But the fact -- but the fact --
SCHATZKER: What about the blues? Without the blue there would be no rock 'n roll.
PARSONS: Well, but rock 'n roll -- rock 'n roll is -- is still uniquely an American experience. Jazz is a global experience. You actually have --
(CROSSTALK)
RUHLE: Jazz, and I think of Motown.
PARSONS: Yes, there, so America and England are --
RUHLE: Yes. And Motown is American.
PARSONS: We just speak the same language, but no, jazz is global. Jazz is global. And jazz has affected global musical tastes around the world. And -- and it's -- and it's our contribution to the sort of global cultural ethos.
RUHLE: But --
PARSONS: And -- and people -- people have lost sight of how that happened, who that was. It's particularly relevant today, in my opinion. But it's also it's damn good music.
RUHLE: But do people care? So if people, if less and less people, young people aren't interested in jazz, if there's less jazz musicians coming on the scene, how are you going lead this charge?
PARSONS: Well, what do people care about? Do they care about that and intrinsically they feel, or do they care about things they're told to care about? I think a little bit of both. We're telling them, or we're trying to be a part of the group that's telling them, you ought to care about this. This is important. This is part of your heritage. This is -- this tells you something about who you are and where you came from.
RUHLE: And people love live events right now.
SCHATZKER: They do. Dick, is Harlem the next Brooklyn?
PARSONS: You know what? I'm from Brooklyn. So I --
SCHATZKER: I know. I know.
PARSONS: So I can accept that. Yes, yes. And in fact, the people in Harlem know it. They have looked at what's happened in Brooklyn, and they say, wait a minute. Those guys, they got the jump on us. They took control of their community, and they're investing in their community. They are -- and they're rebuilding their community. We need to do the same.
RUHLE: Then how are you going to help locals not get priced out?
PARSONS: Well one thing is we're giving them jobs. Still we're giving them jobs, because the problem with Harlem was it was economically hollowed out. So nobody who lived there could even work there because there were no jobs. So, for example, in our place 70 percent of our employees come from the neighborhood.
RUHLE: See?
PARSONS: Now they've got money. Now they can invest.
RUHLE: I knew I was moving uptown for a reason. Dick thank you so much.
SCHATZKER: Dick, thank you.
PARSONS: A pleasure.
SCHATZKER: What an honor, the one and only Dick Parsons here on "Market Makers."
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