WEBVTT - Instant Reaction: Netflix Beats on Earnings, Disappoints on Cautious Forecast 0:00:02.520 --> 0:00:07.000 Bloomberg Audio Studios, Podcasts, radio News. 0:00:09.160 --> 0:00:12.040 This is a breaking news update from Bloomberg. 0:00:12.880 --> 0:00:16.840 Instant reaction and analysis from our three thousand journalists and 0:00:16.920 --> 0:00:21.520 analysts around the world looking at Netflix shares. They're continuing 0:00:21.680 --> 0:00:25.599 to move lower this after the company reported results for 0:00:25.880 --> 0:00:30.120 the most recent quarter, concerns about the guidance and boosting 0:00:30.200 --> 0:00:34.239 spending the company saying, for even though they largely beat 0:00:34.240 --> 0:00:36.400 Wall Street estimates, they issued a cautious forecast for the 0:00:36.440 --> 0:00:39.640 months ahead, setting higher program spending, and then, of course, 0:00:39.720 --> 0:00:42.479 Carol the cost of closing its deal with Warner Brothers Discovery. 0:00:42.560 --> 0:00:44.879 Number of customers growing by almost eight percent last year, 0:00:44.920 --> 0:00:48.040 topping three hundred and twenty five million subscribers. Let's get 0:00:48.960 --> 0:00:51.520 to our team who certainly follows it, and of course 0:00:51.520 --> 0:00:53.640 our own Chris Paul Mary, who's been following this company 0:00:53.640 --> 0:00:56.200 and the ins and out of the pursuit of Warner 0:00:56.240 --> 0:01:00.000 Brothers Discovery. Chris, there out there on the West coast, Chris, 0:01:01.320 --> 0:01:04.520 you know you've known this company, you followed it. Investors 0:01:04.600 --> 0:01:07.160 not too impressed. They're worried about I guess it seems 0:01:07.200 --> 0:01:10.720 like the spend that's out there. But walk us through 0:01:10.760 --> 0:01:12.679 what really jumped out for you in their reporting. 0:01:13.520 --> 0:01:15.959 Well, first of all, obviously, investments has been really concerned 0:01:15.959 --> 0:01:18.840 about the Warner Brothers bid. The stock has lost a 0:01:18.880 --> 0:01:21.560 lot of money since the since the you know, in 0:01:21.680 --> 0:01:24.080 October when it first came out the Netflix was interested 0:01:24.080 --> 0:01:27.960 in bidding, and you still see concern here. I mean, 0:01:28.000 --> 0:01:31.800 they said they've spent sixty million dollars already on pursuing 0:01:31.920 --> 0:01:34.920 Warner Brothers. They're anticipating another two hundred and seventy five 0:01:34.959 --> 0:01:38.440 million in cost for that. They paused their share buybacks, 0:01:38.600 --> 0:01:42.440 which were considerable. They had eight billion dollars left in 0:01:42.520 --> 0:01:46.039 their buyback program, so they can conserve cash for the 0:01:46.040 --> 0:01:48.720 Warner Brothers bid. So if you're if you're concerned about 0:01:48.760 --> 0:01:51.200 all this, there's certainly enough in there for that. 0:01:51.800 --> 0:01:54.640 You know. I'm I'm just looking at some of the 0:01:54.960 --> 0:02:00.680 headlines from here, and given Chris, the re action from 0:02:00.880 --> 0:02:03.800 investors over the last few months as Netflix emerged as 0:02:03.840 --> 0:02:07.240 a bidder, it hasn't exactly been a positive one. What's 0:02:07.240 --> 0:02:10.040 the case for why Netflix actually needs these assets? Because 0:02:10.040 --> 0:02:13.600 this is a lot of money to spend, especially when 0:02:13.639 --> 0:02:16.840 investors are getting increasingly concerned about how much money the 0:02:16.840 --> 0:02:18.040 company is spending on content. 0:02:18.800 --> 0:02:21.600 Well, they do in their Letterator shareholders sort of cite 0:02:21.639 --> 0:02:24.120 the broader case that they're you know, no longer just 0:02:24.160 --> 0:02:28.760 competing against you know, HBO or Paramount Plus or whoever, 0:02:29.720 --> 0:02:34.600 that they're competing against YouTube, TikTok, Instagram, and that they 0:02:34.639 --> 0:02:37.480 really only have a still small share of overall TV 0:02:37.600 --> 0:02:41.880 viewing about nine percent, and by acquiring this great library 0:02:41.919 --> 0:02:46.639 and these facilities Warner Brothers, they could really increase their 0:02:46.639 --> 0:02:51.360 production of stuff all around the world and getting into 0:02:51.400 --> 0:02:55.160 some new business, more consumer products, more video games, and 0:02:55.200 --> 0:02:59.000 so that's the that's their argument. HBO Max would would 0:02:59.040 --> 0:03:02.360 give them the oppagility offer different pricing plans. So somebody 0:03:02.440 --> 0:03:05.840 just wanted HBO programming, they could get that instead of Netflix. 0:03:05.919 --> 0:03:08.080 So those are the things they're talking about. 0:03:08.200 --> 0:03:12.440 I'm going to play Netflix's accountant. I mean how much 0:03:12.520 --> 0:03:14.640 I mean the content that they do get, They're going 0:03:14.720 --> 0:03:17.560 to get a lot of content right in one like 0:03:18.120 --> 0:03:19.520 if they get the deal. If they get the. 0:03:19.480 --> 0:03:24.799 Deal, yeah huge, I mean it's a massive purchase in 0:03:24.840 --> 0:03:28.720 the seventy eighty billion range. There's numbers that came out 0:03:28.760 --> 0:03:32.079 today with Warner Brothers projections of what their studios and 0:03:32.120 --> 0:03:35.160 streaming business are going to doout five years, and you 0:03:35.200 --> 0:03:39.200 know it's a potentially huge boost you know, Batman, Bugs, Bunny, 0:03:39.280 --> 0:03:41.920 everything you can imagine for Netflix to own. But you 0:03:41.960 --> 0:03:44.880 know they've also been investing in their own licensing deals. 0:03:44.960 --> 0:03:49.040 Huge deal just announced with Sony Universal kicked in as 0:03:49.080 --> 0:03:54.880 well this month, and they're even licensing shows they noted 0:03:55.160 --> 0:04:01.640 from Paramount twenty programs, So huge perchon is of every variety. 0:04:02.280 --> 0:04:04.720 Does Netflix christ get these assets? 0:04:06.360 --> 0:04:08.600 You mean, do they ultimately win Warner Brothers to think? 0:04:08.800 --> 0:04:09.560 Is that what you're saying? 0:04:09.640 --> 0:04:16.680 Yeah, there's quite a few chuckles. Yeah, yeah, Well to 0:04:16.760 --> 0:04:18.680 be expected with a question like that where you know 0:04:18.800 --> 0:04:20.760 where you can't release either yes or no. 0:04:20.920 --> 0:04:25.120 Right, they look like, well, let's do the poly market 0:04:25.160 --> 0:04:26.200 prediction exactly. 0:04:26.360 --> 0:04:28.839 But they are the favorable. They are the favorite, no 0:04:28.960 --> 0:04:31.160 question about that. It's it's the board has said this 0:04:31.240 --> 0:04:32.080 is a better offer. 0:04:33.480 --> 0:04:35.839 Well, they're the favorite from Warner Brothers standpoint for sure. 0:04:36.560 --> 0:04:40.080 But there's certainly a community of people that think smart 0:04:40.120 --> 0:04:42.680 people who think the Paramount is going to increase the offer, 0:04:42.839 --> 0:04:45.279 or that this is going to fail from a regulatory standpoint. 0:04:45.680 --> 0:04:48.440 So to pick the winner from here is a real 0:04:48.560 --> 0:04:49.960 dicey proposition. 0:04:50.560 --> 0:04:53.159 In terms of their subscriber numbers. Where does that? I 0:04:53.160 --> 0:04:55.560 mean this has been something investors have been concerned about 0:04:55.680 --> 0:04:59.040 right now, the sustainability of their growth based on what 0:04:59.080 --> 0:05:01.520 we got from the company. How does that you know, 0:05:01.600 --> 0:05:03.359 push back on that argument or does it not? 0:05:04.600 --> 0:05:07.520 It was pretty strong growth eight percent to the past 0:05:07.560 --> 0:05:09.920 three hundred and twenty five million. That was a year 0:05:10.040 --> 0:05:13.160 end that was in line with what investors were forecasting. 0:05:13.760 --> 0:05:18.080 Stronger numbers were the you know, the sales growth, which 0:05:18.160 --> 0:05:21.640 you know any company would kill for double digit like that. Uh, 0:05:21.760 --> 0:05:23.920 they said, where it's coming from, it's it's new members 0:05:23.960 --> 0:05:27.200 all around the world. And price increases. They said they're 0:05:27.200 --> 0:05:30.200 going to increase prices again this year. They weren't specific, 0:05:30.839 --> 0:05:34.520 so it could be just in certain markets. Advertising business 0:05:34.560 --> 0:05:36.320 is growing. We all wondered how big a deal that 0:05:36.400 --> 0:05:38.080 was going to be. They said it was one point 0:05:38.080 --> 0:05:40.960 five billion last year. That's only about three percent of 0:05:41.000 --> 0:05:43.120 their overall revenue. But they said the number was going 0:05:43.160 --> 0:05:46.120 to double this year. Is that part of it's growing. 0:05:46.600 --> 0:05:49.880 So as long as they can keep the prices climbing 0:05:49.960 --> 0:05:52.839 and the and the subscribers growing and the ad sales coming, 0:05:53.160 --> 0:05:54.800 you know, they're going to see that revenue growth. 0:05:54.920 --> 0:05:56.920 I just want to especially for those people who are 0:05:56.920 --> 0:05:59.640 listening on radio. Netflix shares are down about four and 0:05:59.680 --> 0:06:03.159 a half. They've been as low as a five percent 0:06:03.200 --> 0:06:05.640 decline here in the aftermarket. This is after the company 0:06:05.640 --> 0:06:08.120 plans to be spending on programs in twenty twenty six, 0:06:08.240 --> 0:06:12.240 crimping profits at the massive streaming company. 0:06:12.040 --> 0:06:14.800 A Chris, before we let you go, pricing power that 0:06:14.839 --> 0:06:17.320 the company has, you mentioned price increases that we could 0:06:17.400 --> 0:06:20.400 see how much pricing power does Netflix have in the US, 0:06:20.440 --> 0:06:23.039 Like there are there's no shortage of places to go 0:06:23.120 --> 0:06:25.960 for content, but you know Netflix, they're kind of the og. 0:06:26.960 --> 0:06:28.960 Right, Well, I think the big story of last year 0:06:29.000 --> 0:06:31.960 really was that everybody raised prices and we didn't see 0:06:32.400 --> 0:06:36.359 huge defections of subscribers. And it's certainly getting to the 0:06:36.400 --> 0:06:41.080 point where you know, it's getting very pricey. Netflix has 0:06:41.320 --> 0:06:43.760 kind of been like the video utility, that's the one 0:06:43.800 --> 0:06:47.200 you can't cancel. It's the it's got the just about 0:06:47.200 --> 0:06:50.200 the lowest churn rate of you know, subscriber cancelations of 0:06:50.200 --> 0:06:53.400 any of the big ones. So you know, how long 0:06:53.440 --> 0:06:56.440 can it continue to do that? And maybe they would say, 0:06:56.440 --> 0:06:58.000 if we have Warner brothers. It's going to be a 0:06:58.040 --> 0:06:58.640 long time. 0:06:58.560 --> 0:07:00.880 All right, Chris, thank you so much, really appreciate it. Chris, 0:07:00.920 --> 0:07:03.760 Paul Mary, Senior editor and Entertainment team leader here at 0:07:03.760 --> 0:07:06.040 Bloomberg News out there in our bureau in Los Angeles. 0:07:06.080 --> 0:07:07.240 We're going to stay on Netflix though. 0:07:07.279 --> 0:07:09.560 Yeah. Let's bring in Eric Clark. He's chief investment officer 0:07:09.600 --> 0:07:12.760 of the ra Acuvest Global Advisors, about one point two 0:07:12.760 --> 0:07:16.520 billion dollars in assets under management, portfolio manager too of 0:07:16.560 --> 0:07:19.559 the Alpha Brand's logo ETF. He covers about two hundred 0:07:19.560 --> 0:07:23.400 consumer stocks, including Netflix. It's the eleventh biggest holding in 0:07:23.600 --> 0:07:26.440 the logo ETF. Eric joins us from San Diego, which 0:07:26.840 --> 0:07:29.160 I understand. It's like sixty nine degrees there. It's not 0:07:29.240 --> 0:07:32.440 like here, Eric, where the high today was twenty one degrees. 0:07:32.160 --> 0:07:33.320 So don't rub it in. 0:07:33.600 --> 0:07:35.040 Yeah. I don't even know why you guys like watch 0:07:35.080 --> 0:07:37.440 Netflix in San Diego. You just should be playing outside 0:07:37.640 --> 0:07:41.480 all the time. A decline of four percent after hours 0:07:41.840 --> 0:07:45.880 right now, are you buying more Netflix? I will buy 0:07:45.920 --> 0:07:47.080 more Netflix. 0:07:46.640 --> 0:07:50.520 Tomorrow, absolutely, because it's seventy five here. 0:07:50.520 --> 0:07:52.600 By the way, Oh my bad. 0:07:52.840 --> 0:07:55.200 Thanks thanks very much for that. We're done with this interview. 0:07:55.520 --> 0:07:57.560 All right, so why are you going to be buying tomorrow? 0:07:58.560 --> 0:08:03.320 Well, you know, bigger picture, nothing's really changed with the business. 0:08:03.360 --> 0:08:06.040 It's just that people have left Netflix. 0:08:05.680 --> 0:08:08.960 Stock because of the Warner Brothers the time that it 0:08:09.000 --> 0:08:11.400 takes to get a deal done like this. So people 0:08:11.480 --> 0:08:13.559 just say, I just don't want to have my money 0:08:13.560 --> 0:08:15.280 tied up in something that's going to be a little 0:08:15.320 --> 0:08:18.640 more uncertain than maybe quote dead money. That's the opportunity. 0:08:19.000 --> 0:08:22.200 So the stock's down over thirty percent and business is 0:08:22.240 --> 0:08:25.560 still doing really well. And at this point where the 0:08:25.560 --> 0:08:27.400 stock is now, I don't even think it matters what 0:08:27.520 --> 0:08:30.360 the outcome of the Warner Brothers deal is. You're just 0:08:30.400 --> 0:08:32.760 getting the stock at a great price here, So we 0:08:32.880 --> 0:08:34.080 just have to be patient. 0:08:33.760 --> 0:08:37.080 That's all. Are you? Are you saying that the Warner 0:08:37.080 --> 0:08:40.439 Brothers Discovery deal will happen, Netflix will get. 0:08:40.240 --> 0:08:44.280 That That one is a little tough because there are 0:08:44.320 --> 0:08:47.840 the unknowns of the regulatory part. I think, generally speaking, 0:08:47.920 --> 0:08:52.320 I agree with the concept that Netflix really is competing 0:08:52.679 --> 0:08:54.840 with all of our time, not just you know, other 0:08:54.960 --> 0:08:59.000 streamers or cable. It's YouTube and TikTok and Instagram, et cetera. 0:08:59.080 --> 0:09:02.400 But within the streaming within the quote, you know, kind 0:09:02.400 --> 0:09:06.560 of core cable TV viewing. They obviously are the dominant one. 0:09:06.640 --> 0:09:09.719 It's just there's much more than just streaming and and 0:09:09.880 --> 0:09:13.079 there's room for every brand here. You know, Netflix is 0:09:13.120 --> 0:09:16.760 the first place that people generally start that gives them 0:09:16.800 --> 0:09:19.800 that pricing power. And then we bolt on the paramount 0:09:19.840 --> 0:09:23.000 for the landman and you know Mayor of Kingstown, et cetera. 0:09:23.080 --> 0:09:25.080 And you know HBO, Max, et cetera. 0:09:25.160 --> 0:09:26.120 But you know, the. 0:09:26.080 --> 0:09:29.440 Assets and Warner are so powerful and they are in 0:09:29.520 --> 0:09:33.480 the best hands with Netflix. It's impossible to know about 0:09:33.480 --> 0:09:34.640 the regulatory stuff. 0:09:35.240 --> 0:09:39.440 But Eric, what if Netflix doesn't get Warner Brothers, do 0:09:39.480 --> 0:09:43.000 you still like Netflix going forward or do you think 0:09:43.000 --> 0:09:45.400 then there is this would be a big loss. We've 0:09:45.440 --> 0:09:47.280 done some reporting. I think we've had some stories that say, 0:09:47.320 --> 0:09:50.040 you know, this is going to help shape Hollywood, you know, 0:09:50.160 --> 0:09:52.959 for years to come. Whoever gets this property. So I'm 0:09:52.960 --> 0:09:55.120 just curious. If they don't get it, Netflix does not 0:09:55.240 --> 0:09:57.560 get it, then what well. 0:09:57.600 --> 0:09:59.280 I think they're just going to go back to the 0:09:59.280 --> 0:10:04.040 same playbook that has you know, driven seventeen percent annual 0:10:04.520 --> 0:10:07.200 subscriber growth for the last decade. I mean, they're just 0:10:07.640 --> 0:10:11.040 nobody can compete with them on the content spend. So 0:10:11.080 --> 0:10:13.079 they're just going to go back to doing the spending. 0:10:13.120 --> 0:10:15.280 Maybe they do some tuck in acquisitions. It's you know, 0:10:15.320 --> 0:10:17.280 it's it's hard to know, but you know, you have 0:10:17.360 --> 0:10:20.840 to give management the benefit of the doubt. They've done, 0:10:21.000 --> 0:10:25.480 generally speaking, a pretty amazing job building this brand, and 0:10:25.520 --> 0:10:27.559 so you have to assume that they're going to continue 0:10:27.640 --> 0:10:30.640 making solid decisions. And you're getting it. You know, a 0:10:30.679 --> 0:10:33.720 stock that's thirty percent off the highs with strong free 0:10:33.720 --> 0:10:36.160 cash flow. I know they will continue to grow margins, 0:10:36.480 --> 0:10:39.640 they will continue to grow subscriber growth, the ad teers 0:10:39.679 --> 0:10:42.240 growing like a weed. So there's just a lot to 0:10:42.400 --> 0:10:44.640 like here. So I love this thing on a dip. 0:10:45.280 --> 0:10:47.800 You know. I'm looking at the the most the ten 0:10:47.960 --> 0:10:52.520 most watch movies from the second half of twenty twenty 0:10:52.600 --> 0:10:55.400 five Carol k Pop, Demon Hunter is Happy, gil Moore 0:10:55.400 --> 0:10:58.400 to Frankenstein, My Oxford. I did not see one of these. 0:10:58.520 --> 0:11:00.080 I was just thinking movies, Wait. 0:11:00.040 --> 0:11:02.160 The Woman and Cavin ten, A House of Dynamite. 0:11:03.080 --> 0:11:05.480 Those are movies, not shows. Oh okay, okay, And even 0:11:05.520 --> 0:11:08.920 the top ten shows didn't see a single one of them. Wednesday, 0:11:08.960 --> 0:11:12.720 Stranger Things five, Untamed Squid Game, Stranger Things, Eric, this 0:11:12.840 --> 0:11:17.560 is interesting the way that people watch the different seasons 0:11:17.600 --> 0:11:20.880 of Stranger Things in the second half of the year 0:11:21.120 --> 0:11:24.440 in anticipation for season five. In the second half of 0:11:24.440 --> 0:11:27.920 the year, Stranger with different different seasons of Stranger Things 0:11:28.320 --> 0:11:32.360 were three of the top ten shows most watched on Netflix. 0:11:34.440 --> 0:11:37.240 So is that is that an issue for Netflix moving forward? 0:11:37.240 --> 0:11:38.360 That's it for Stranger Things. 0:11:39.720 --> 0:11:42.200 No, I don't think so. They will continue to bring 0:11:42.200 --> 0:11:44.520 out other stuff. I mean, they're just so good at 0:11:44.520 --> 0:11:47.360 this concept. I mean, listen, if they get Warner that's 0:11:47.400 --> 0:11:50.400 even better because there's so much more that they can 0:11:50.440 --> 0:11:51.800 do to refresh. 0:11:51.400 --> 0:11:55.080 That entire library. Oh so you're saying, you're saying, like, Okay, 0:11:55.080 --> 0:11:58.440 Happy Gillmore two was in there, so maybe like another 0:11:58.559 --> 0:12:02.079 version of a classic each show or another version of 0:12:02.640 --> 0:12:06.640 classic Warner Brothers movies. Is that what you're saying? I 0:12:06.679 --> 0:12:07.160 think there. 0:12:07.240 --> 0:12:09.360 I think you know, you get a bunch of creative 0:12:09.360 --> 0:12:11.800 people in a room and they take something. Let's say, 0:12:12.080 --> 0:12:15.200 let's say Sopranos for instance, what could we do to 0:12:15.280 --> 0:12:18.600 refresh Sopranos in the same theme. There's just so many, 0:12:19.000 --> 0:12:21.520 so many things that they could potentially do hard to 0:12:21.559 --> 0:12:24.440 see again, because you need the budget and nobody else 0:12:24.480 --> 0:12:25.199 has the budget. 0:12:25.600 --> 0:12:29.880 Does does Paramount Skuidance? If they get the assets, do 0:12:29.960 --> 0:12:33.560 they have the creatives, do they have the budget to do? 0:12:33.720 --> 0:12:36.040 I think they catalogue what you think Netflix could do. 0:12:37.040 --> 0:12:40.160 I don't think that they can compete with Netflix. And 0:12:40.360 --> 0:12:42.360 remember they get they're still going to have a metric 0:12:42.400 --> 0:12:45.560 ton of debt to deal with. So I look at 0:12:45.559 --> 0:12:48.040 this like a private equity owner. If if I owned 0:12:48.120 --> 0:12:51.120 Warner and that was my baby, who would I love 0:12:51.200 --> 0:12:54.360 to be able to sell that library to that would 0:12:54.400 --> 0:12:57.680 put it in the best shape for the rest of time. 0:12:58.040 --> 0:13:00.880 And that's clearly Netflix. It is not Paramount Sky. 0:13:02.320 --> 0:13:05.880 Okay, all right, So top of mind on the call 0:13:05.920 --> 0:13:08.760 with analysts and investors, Eric like, what is it that 0:13:08.960 --> 0:13:11.280 you know we need to be asking this company right now? 0:13:11.320 --> 0:13:13.800 Or is it just really all about their pursuit of 0:13:14.120 --> 0:13:14.880 Warner Brothers. 0:13:16.000 --> 0:13:18.840 Well, I just think that there's obviously just a lot 0:13:18.880 --> 0:13:22.000 of noise, and there's a lot of assumptions. There's a 0:13:22.040 --> 0:13:24.760 lot of assumptions and a lot of industries like AI too. 0:13:24.800 --> 0:13:29.360 But I think that if you widen the lens, nothing 0:13:29.400 --> 0:13:32.680 has changed. It's still an important part of people's consumption. 0:13:33.400 --> 0:13:37.200 It's still an absolute, crazy good value even at twenty 0:13:37.240 --> 0:13:39.560 five bucks. I mean, I go out to dinner in 0:13:39.640 --> 0:13:41.440 San Diego and you get a drink and a half 0:13:41.480 --> 0:13:44.000 and it's twenty five bucks. I can watch an unlimited 0:13:44.000 --> 0:13:47.000 amount of content on Netflix, So there's still a lot 0:13:47.040 --> 0:13:53.360 of value there, and you know, recurring revenue, business global 0:13:53.400 --> 0:13:56.920 in size and scope, you know, reaching kids as well 0:13:56.960 --> 0:14:00.320 as my mom. At eighty three male female. I mean, like, 0:14:00.320 --> 0:14:03.200 there's just a lot to love about a business like this. 0:14:03.679 --> 0:14:06.800 And I feel the same way about Spotify too. Similar 0:14:06.960 --> 0:14:10.760 you know, similar business, slightly different category, but for the 0:14:10.800 --> 0:14:13.680 same reason. And Spotify is off thirty five percent too. 0:14:13.880 --> 0:14:15.880 You know, it's interesting too they talk about you know, 0:14:15.880 --> 0:14:19.120 we've already begun to launch video podcasts from our partnerships 0:14:19.160 --> 0:14:23.240 with Spotify, The Ringer, iHeartMedia and Barstool Sports, and I've 0:14:23.320 --> 0:14:26.320 just announced two new original podcasts with Pete Davis in 0:14:26.320 --> 0:14:30.880 The Comedian and NFL read Legend Michael Irvin. So like, 0:14:31.360 --> 0:14:34.920 you know, we talked too about just podcast taking off, 0:14:34.920 --> 0:14:37.560 and now it's not just audio anymore, it's video. So 0:14:38.360 --> 0:14:40.680 is this a big opportunity for this company or just 0:14:40.680 --> 0:14:42.040 a nice side business. 0:14:42.840 --> 0:14:44.360 No, I think it's a big I think it's a 0:14:44.360 --> 0:14:46.400 big opportunity. I don't know about you guys, but I 0:14:46.800 --> 0:14:50.880 can consume five, ten, ten times more content when I 0:14:50.920 --> 0:14:53.960 can listen to it in the car and you know, 0:14:54.080 --> 0:14:56.240 listen to it on a bike rider or whatever. It's 0:14:56.280 --> 0:15:00.000 not just about reading anymore. People want audiobooks, they want music, 0:15:00.240 --> 0:15:04.760 they want videos, they want podcasts. There's just there's there's 0:15:04.760 --> 0:15:07.800 so much opportunity, and both of these brands have just 0:15:07.840 --> 0:15:12.800 a wild opportunity, you know, long term gathering subscribers and 0:15:13.040 --> 0:15:17.160 bolting on new opportunities that drive operating efficiencies. 0:15:17.240 --> 0:15:19.000 Add AI to the to the. 0:15:18.920 --> 0:15:23.360 Mix in in more engagement, better profitability. 0:15:23.720 --> 0:15:25.320 There's there's just a lot of lot. 0:15:25.200 --> 0:15:27.600 To like, and you don't often get a compounder on 0:15:27.760 --> 0:15:30.600 sale like both of these companies, so you should take 0:15:30.600 --> 0:15:32.760 advantage of it if you can look through some of 0:15:32.760 --> 0:15:34.400 the short term, you know, kind of noise. 0:15:34.640 --> 0:15:37.960 Eric loves Netflix. Eric, always good to see you. Thanks 0:15:38.000 --> 0:15:41.800 for great to see you. Going to come out here, yes, yeah, 0:15:41.880 --> 0:15:42.240 we will. 0:15:42.920 --> 0:15:45.640 Stupidly, I think the studio is about ten degrees. 0:15:45.800 --> 0:15:47.600 We were out there last year and it was actually 0:15:47.600 --> 0:15:49.680 like kind of June gloom. When we were out in 0:15:49.720 --> 0:15:53.640 San Diego? Was it? Oh? Was yeah? Netflix shares let's 0:15:53.640 --> 0:15:56.360 stay on this. The company shares fell in the after 0:15:56.400 --> 0:15:59.360 hours as much as five point one percent, this after 0:15:59.600 --> 0:16:02.800 it for cast first quarter EPs below the average analyssessment. 0:16:02.840 --> 0:16:05.000 The company also plans to posits share buybacks in an 0:16:05.000 --> 0:16:08.800 effort to accumulate cash to fund them pending acquisition of 0:16:08.960 --> 0:16:11.400 Warner Brothers. I want to bring in a Bloomberg Intelligence 0:16:11.480 --> 0:16:15.560 senior media analyst, Geetha Ranganoth, and she joins us from Princeton, 0:16:15.600 --> 0:16:20.640 New Jersey, where Bloomberg Intelligence headquarters are. Githa, just your 0:16:20.720 --> 0:16:24.280 takeaway from this report? The outlook is a concern spending 0:16:24.320 --> 0:16:26.960 on content. Got to tell you this is like an 0:16:27.000 --> 0:16:29.960 age old story for Netflix, right, the concern about, oh, 0:16:30.000 --> 0:16:31.680 you guys are spending way too much. We could have 0:16:31.760 --> 0:16:34.720 had this discussion a dozen years ago, I know. 0:16:35.440 --> 0:16:38.600 And yes, content spending, so it was up about seven 0:16:38.640 --> 0:16:41.680 percent in twenty twenty five. They're projecting about a ten 0:16:41.760 --> 0:16:45.200 percent increase in content spend going into twenty twenty six. 0:16:45.520 --> 0:16:47.680 And then of course you have the cost related to 0:16:47.760 --> 0:16:50.400 the Warner Brothers deal. And I think it's not just 0:16:50.480 --> 0:16:53.920 the cost site right, Yes, operating margin. The guidance of 0:16:54.280 --> 0:16:57.520 tim looks a little bit light. It's below thirty two percent. 0:16:57.560 --> 0:16:59.680 I think the street was looking for something like closer 0:16:59.720 --> 0:17:04.119 to thirty three percent. But also the ad revenue, you know, 0:17:04.560 --> 0:17:07.159 definitely not bad, but not gangbusters. So this is the 0:17:07.240 --> 0:17:10.679 very first time that they've actually reported advertising revenue. They 0:17:10.720 --> 0:17:12.560 said it was about a one and a half billion 0:17:12.640 --> 0:17:16.919 dollars in twenty twenty five. They expect to double that 0:17:17.119 --> 0:17:20.320 in going into twenty twenty six. Again, definitely not bad 0:17:20.400 --> 0:17:22.880 given that you know, this company made its foray into 0:17:22.880 --> 0:17:25.480 adds just a few years ago versus all of the 0:17:25.520 --> 0:17:30.320 other media giants, But again, not really a number to 0:17:30.440 --> 0:17:32.200 kind of get too too thrilled about. 0:17:32.560 --> 0:17:34.480 Was so that's not I was just going to ask, 0:17:34.600 --> 0:17:37.200 is that in line or below or above the expectations 0:17:37.200 --> 0:17:39.680 that you've been making of late. I mean, a nice 0:17:39.720 --> 0:17:42.400 to get some new data from the company, especially yeah, 0:17:42.680 --> 0:17:44.600 in recent quarters that you know they're not doing the 0:17:44.640 --> 0:17:47.960 same same sort of disclosures they have in the past. 0:17:48.880 --> 0:17:52.240 No, absolutely, I mean, so really twenty twenty so you know, 0:17:52.280 --> 0:17:53.960 as we kind of zoom out and we just take 0:17:53.960 --> 0:17:55.919 a look at Netflix. So twenty twenty four was all 0:17:55.920 --> 0:17:58.719 about subscriber growth, right, they had about forty two million 0:17:58.760 --> 0:18:01.960 new subscribers. Twenty twenty five was all about pricing, right, 0:18:02.080 --> 0:18:05.399 huge price increases. Again, pretty stable subscriber growth. They obviously 0:18:05.440 --> 0:18:08.679 did add close to almost twenty five million subscribers. But 0:18:08.720 --> 0:18:10.560 then twenty twenty six, as we kind of looked at 0:18:10.560 --> 0:18:13.160 twenty twenty six, here was like the big head scratcher, Right, 0:18:13.280 --> 0:18:15.560 what is the big growth catalyst for this company going 0:18:15.560 --> 0:18:18.520 into twenty twenty six. And that's really where people were wondering, 0:18:18.520 --> 0:18:20.600 whether you know, that's why they had to buy Warner. 0:18:20.880 --> 0:18:22.600 And of course one of the big things that everybody 0:18:22.640 --> 0:18:25.800 was looking for was AD revenue. Again, it has gotten 0:18:25.800 --> 0:18:29.480 off to I would say, an okay start, but slightly 0:18:29.520 --> 0:18:31.560 on the lower side than I think people were expecting. 0:18:31.560 --> 0:18:34.160 People who are probably expecting something closer to about two 0:18:34.200 --> 0:18:36.600 to two and a half billion dollars in twenty twenty five. 0:18:36.840 --> 0:18:40.760 So definitely I think fell slightly lower than general expectations. 0:18:40.800 --> 0:18:42.560 You know, I always think about Giza, like what's the 0:18:42.640 --> 0:18:45.040 next markets or how much more is they're out there? 0:18:45.040 --> 0:18:47.919 And in their company release they talk about, you know, 0:18:47.960 --> 0:18:51.080 we relish competition, work to earn more of our consumer's attention, 0:18:51.600 --> 0:18:53.719 and they say, despite our success over the years, our 0:18:53.760 --> 0:18:56.159 share of TV time remains below ten percent in the 0:18:56.160 --> 0:18:59.159 major markets in which we operate. And then they said, 0:18:59.200 --> 0:19:02.120 for example, to Nielsen, in December, our share of US 0:19:02.200 --> 0:19:05.919 TV time reached an all time high nine percent point 0:19:05.920 --> 0:19:08.840 five points year overy year, yet linear TV still comprises 0:19:08.880 --> 0:19:12.040 over forty percent of US TV screen time. You know, 0:19:12.440 --> 0:19:14.679 is this just blowing smoke or is it really that 0:19:14.920 --> 0:19:17.520 there is still a lot out there for either Netflix 0:19:17.640 --> 0:19:20.560 or Amazon or some others to still grab when it 0:19:20.600 --> 0:19:22.400 comes to screen time. 0:19:23.320 --> 0:19:23.399 Oh. 0:19:23.480 --> 0:19:26.200 Absolutely, there is still a lot more room for streaming 0:19:26.240 --> 0:19:28.359 to grow, and I think it absolutely will. So I 0:19:28.359 --> 0:19:30.360 think one of the big things that we've seen, especially 0:19:30.359 --> 0:19:32.439 towards the end of twenty twenty five and going more 0:19:32.480 --> 0:19:35.320 into twenty twenty six, is that, you know, most of 0:19:35.359 --> 0:19:38.440 the Marquee sports properties are now moving to streaming. So 0:19:38.440 --> 0:19:42.080 obviously you have the big launch of ESPN. You know, 0:19:42.160 --> 0:19:44.000 for the very first time in the history of television, 0:19:44.040 --> 0:19:46.639 all of the Marque sports are now available for people 0:19:46.680 --> 0:19:48.679 to watch on streaming. They don't have to subscribe to 0:19:48.680 --> 0:19:51.000 a PATV bundle anymore, and I think that makes a 0:19:51.119 --> 0:19:54.680 huge difference. You know, consumer behavior is changing, It's changing rapidly, 0:19:55.119 --> 0:19:58.200 and so obviously there is you know, a lot more 0:19:58.280 --> 0:20:02.080 room for a Netflix for and Amazon as you pointed out, 0:20:02.119 --> 0:20:05.639 but also equally for a YouTube to grow. And this 0:20:05.720 --> 0:20:08.560 is where you have this whole, this whole debate with AI, 0:20:08.840 --> 0:20:11.640 right because as AI comes in and kind of democratizes 0:20:12.040 --> 0:20:14.959 content creation, you have more and more user generated content. 0:20:15.520 --> 0:20:18.320 Are people going to be spending more time on YouTube 0:20:18.400 --> 0:20:22.240 and less time with like premiere platforms like a Netflix, 0:20:22.359 --> 0:20:23.040 like an HBO. 0:20:23.560 --> 0:20:27.359 I've just seen junk is obsessed with YouTube? 0:20:27.440 --> 0:20:30.560 Yeah, but but not with the AI junk. I mean 0:20:30.880 --> 0:20:36.320