The thing about trade wars is they really stop you from trading…

Reports have piled up about how Big Tech companies have turned on their money hoses to poach top AI talent from each other. They’ve also turned on the charm — both OpenAI’s Sam Altman and Meta CEO Mark Zuckerberg have reportedly been personally involved in courting candidates and offering lavish salaries. But a larger and more intractable talent war is brewing between the US and China.

U-S-A-I 

China has had a habit of overtaking the US in technology, like EV adoption or 5G rollout. But when it comes to the hype-beast of generative AI, the US holds the reins. That’s partly because of how the tech industry is set up — Big Tech companies are developing AI in-house, but they’re also forging partnerships with startups like OpenAI, Anthropic, and France-based Mistral AI, because the cloud and computing infrastructure needed to run AI models is dominated by Microsoft, Amazon, and to a lesser extent, Google.

Meanwhile, the US wants to box China out of AI development, arguing that it might use it for military or otherwise nefarious purposes. Its ever-escalating chip trade war is aimed at depriving China of physical infrastructure, and the US is reportedly considering banning exports of AI models (although that seems a little nonsensical). The US is even fighting by proxy: The New York Times reported in November that US officials were feverishly dissuading Dubai-based G42 to cut its AI links to Chinese businesses.

The problem is that China is also the source of invaluable AI talent:

• Think tank Marco Polo compiled a database that found China’s output of top AI researchers is booming. In 2019, Chinese researchers accounted for 29% of the world’s top AI researchers; by 2022, that figure was up to 49%.
• In US institutions, top AI researchers from China outnumbered home-grown ones in 2022, accounting for 38% of researchers compared to the US’ 37%. 

Marco Polo also found that the US’ ability to attract top researchers, particularly from China and India, is waning. The share of top-tier AI researchers working outside their home countries fell by 13 percentage points from 2019 to 2022, meaning the mobility of top-tier talent is waning.

No Manchurian Job Candidates: China’s talent pool puts the US in a paradox, Keegan McBride, an adjunct senior fellow at the Center for a New American Security and a lecturer at the Oxford Internet Institute, told The Daily Upside. “If you look at the most impactful AI research, a lot of it is coming out of China,” he said, “so the US has a lot of interest in attracting Chinese scientists, but then this leads to other sorts of national security concerns.” McBride believes this tension will provoke more conflict at many societal levels as AI expands. “I don’t think people fully grasp how all-encompassing this actually is,” he said. At least one company seems to be getting ahead of the wave: Microsoft has reportedly offered 700 to 800 employees in China the chance to relocate to the US.

Lachlan Murdoch is hoping Tubi will do to streaming what streamers did to television, which had been very kind to him and his family. 

Last week, at the TV industry’s annual “upfronts” event with advertisers, the Fox CEO pitched the massive — and perhaps surprising — growth of its free streaming service, an example of the increasingly popular FAST (free ad-supported streaming television) platform. 

But just how big a force is Tubi, exactly?

FAST and Furious

When Fox cashed out most of its entertainment assets in the 2019 Disney sale, the firm was arguably in the wilderness (albeit with a giant mountain of fresh capital). While still strong, its remaining portfolio — primarily cable networks Fox News and Fox Sports 1, a slew of regional sports networks, and the Fox broadcast network — remained ensnared in linear TV’s decaying infrastructure, and hyper-dependent on cyclical events like elections and the Super Bowl. With virtually no high-value intellectual property and little production capacity for original content, Fox slid into the streaming space in 2020 with its $440 million all-cash acquisition of Tubi.

The platform has succeeded — at least by streaming standards. In its most recent earnings call, Fox said the service had grown to 74 million monthly active users, giving it a bigger audience than Warner Bros. Discovery’s Max paid-subscription service. According to Nielsen’s Media Distribution Gauge, Tubi scored nearly as much screen time as Disney+ in April, and more than Max, Peacock, and Paramount+. It’s enough to make Tubi “the most valuable asset” Fox owns, Doug Arthur, managing director and research analyst at Huber Research Partners, told The Daily Upside.

Tubi’s selling point of being free helps explain its growth: 

• Tubi says 63% of its audience are either cord-cutters or “cord nevers,” while 40% don’t subscribe to any other streaming service. Translation: Here lies Gen Z.
• In a recent Puck podcast appearance, Tubi CEO Anjali Sud made exactly that pitch to advertisers: Come to Tubi for the Gen Z crowd, stay for a space far more brand-safe than social media.

Fox Hole: Like many streaming services, Tubi remains “on the path to profitability” (Fox doesn’t break out Tubi’s financials, but one analyst told The Daily Upside they’d estimate its annual revenue has jumped to more than $1 billion from less than $150 million in 2020). As competitors spend billions to keep content flowing, Tubi has instead almost entirely opted to stock its biggest-in-the-industry library with cheaper licensed content. Cash-starved WBD has even handed over some IP crown jewels in a revenue-sharing model, including HBO programming and DC superhero movies. Another revenue-sharing program lets independent filmmakers upload movies. In other words, Tubi is one part syndicated TV, and one part YouTube-alternative for creators. It’s what Lachlan Murdoch’s fictional counterpart Kendall Roy might call “a lifeboat.”

What are the three most important words in commercial real estate today? Luxury, luxury, luxury. 

While high interest rates across the US and Europe have hurt commercial property values, real estate attached to luxury brands has skirted the trend. It turns out that supply and demand can still trump the onerousness of rates at nearly 17-year highs.

Exclusive, Expensive Club

High interest rates can be a real burden for consumers, which is the idea: The goal is to slow an economy whose growth is stoking inflation. That includes making it less attractive to bid up commercial real estate prices. And that’s exactly what’s happening: US commercial property prices are down about 21% from their March 2022 peak when the Federal Reserve started hiking interest rates, according to Green Street. In Europe, they’re down 24%.

However, it’s a different story when you’re talking about New York’s Fifth Avenue or Milan’s Via Montenapoleone, homes to the likes of Gucci, Prada, Hermès, and more:

• According to The Wall Street Journal, Cartier’s Swiss parent company recently bought a property on London’s Bond Street at a 2.2% rent yield (the cash generated as a proportion of purchase price.) Similar to bond pricing, the lower the yield, the fuller the valuation.
• But the luxury-store landscape is still as exclusive as a pair of Louis Vuitton trainers, which will set you back about $1,200. Bond Street, Fifth Avenue, and Beverly Hills’ Rodeo Drive have only so many buildings fancy enough for luxury brands to want to set up shop. As a result, luxury retailers have spent more than $9 billion buying boutiques since the start of 2023, the WSJ said.

These Stores Sell Themselves: The highly competitive market has led to some solid wins for real estate owners and private equity firms. Blackstone, the world’s largest asset manager, doesn’t often deal in retail property. However, after buying a portfolio of 14 locations on Via Montenapoleone in 2021 for $1.2 billion, it managed to sell just one of the properties to Kering last month for $1.4 billion. Meanwhile, office building owners are green with envy.