WEBVTT - Instant Reaction: Netflix Tops Wall Street Estimates 

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. This is a breaking

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<v Speaker 1>news update from Bloomberg instant reaction and analysis from our

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<v Speaker 1>three thousand journalists and analysts around the world. Netflix reported

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<v Speaker 1>second quarter results that exceeded investor expectations. It raised its

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<v Speaker 1>forecast as well. I want to bring in Getha Ranganathan.

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<v Speaker 1>She's Bloomberg Intelligence senior media analyst. She joins us from

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<v Speaker 1>New Jersey at Bloomberg Intelligence headquarters. What is the most

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<v Speaker 1>important metric that you watch now that Netflix no longer

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<v Speaker 1>reports subscribers or gives guidance on subscribers.

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<v Speaker 2>Yeah, the focus tim has obviously changed from the subscriber

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<v Speaker 2>metrics and ARM or average revenue per member to broader

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<v Speaker 2>financial metrics. So really the two most I think important

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<v Speaker 2>numbers that everybody looks for right now is revenue growth

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<v Speaker 2>and operating margin. And as you write pointed out the

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<v Speaker 2>two Q numbers, Netflix surpassed expectations or they exceeded guidance

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<v Speaker 2>on both those accounts.

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<v Speaker 3>So of course we see that they did beat on

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<v Speaker 3>multiple metrics, even some of the loftiest of expectations, raising

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<v Speaker 3>their forecast. But we're still seeing the street selling off

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<v Speaker 3>on and do you think maybe this is some profit

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<v Speaker 3>taking or was there anything in the report that you

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<v Speaker 3>saw that was particularly concerning.

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<v Speaker 2>Absolutely not. I think the report was definitely solid, So

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<v Speaker 2>I would characterize this as a solid report, but maybe

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<v Speaker 2>not spectacular. So I think even in terms of the

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<v Speaker 2>guidance RaSE, yes, we did have the revenue guidance raised

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<v Speaker 2>from about thirteen percent to fifteen percent for the full year,

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<v Speaker 2>which I think is really solid. Mid teen's revenue growth

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<v Speaker 2>is really solid for a mature company like Netflix. But

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<v Speaker 2>I think with the operating margin, and I think this

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<v Speaker 2>is where maybe investors are slightly disappointed. You know, they

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<v Speaker 2>raised the guidance from twenty nine percent only a smidge

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<v Speaker 2>to twenty nine point five. I think a lot of

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<v Speaker 2>the investment community was looking at something and excess of

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<v Speaker 2>thirty percent. But again, they're operating margin guidance for three

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<v Speaker 2>Q seems really strong. I think they're taking a little

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<v Speaker 2>bit of a conservative approach. Of course, they do point

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<v Speaker 2>out that they do have all of their big content

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<v Speaker 2>releases coming out in the second half, which is obviously

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<v Speaker 2>going to crimp that margin, but I think still it

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<v Speaker 2>is a little bit conservative conservative, and I think eventually

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<v Speaker 2>they can go above thirty percent for this year.

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<v Speaker 1>Expectations were so high going into this This is a

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<v Speaker 1>I was shocked when I looked this morning that Netflix's

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<v Speaker 1>market cap is up to five hundred and forty two

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<v Speaker 1>billion dollars. It's up forty three percent this year. The

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<v Speaker 1>value has pretty much doubled over the last year. It's

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<v Speaker 1>pretty remarkable that even though expectations were so high, they

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<v Speaker 1>were still able to beat and raise.

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<v Speaker 2>Oh absolutely, I mean, and remember Tim, you know, they

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<v Speaker 2>have set not just expectations for this quarter or this year,

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<v Speaker 2>they have expectations going out till twenty thirty. So their

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<v Speaker 2>whole goal by the time of twenty thirty is to

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<v Speaker 2>reach the trillion dollar market market cap club. And they

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<v Speaker 2>have so many other different metrics. You know, they want

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<v Speaker 2>to across the four hundred and ten million subscriber mark

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<v Speaker 2>right now they're somewhere right above three hundred million. They

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<v Speaker 2>want to get an operating margin of somewhere around thirty

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<v Speaker 2>eight to close to almost forty percent. They want to

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<v Speaker 2>double revenue, and then most importantly, they want to get

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<v Speaker 2>their advertising business really growing at nine billions. So you know,

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<v Speaker 2>there are multiple metrics, there are multiple catalysts. Twenty twenty

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<v Speaker 2>four obviously was the biggest year in terms of subscriber numbers.

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<v Speaker 2>They gained something like over forty million new subscribers. This

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<v Speaker 2>year is all about price increases. We already saw them

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<v Speaker 2>take those price increases, and then next year is all

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<v Speaker 2>about building their advertising business. So they do have multiple catalysts,

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<v Speaker 2>you know, through twenty twenty five through twenty twenty six.

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<v Speaker 2>I think the street is going to those start to

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<v Speaker 2>wonder what happens after that, and so we do need

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<v Speaker 2>some strategic direction from them, you know, sooner rather than later.

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<v Speaker 3>Jitha, I remember back when Netflix used to be options

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<v Speaker 3>to get DVDs? Do you remember that? To him? I

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<v Speaker 3>used to go and actually go get a DVD. Then

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<v Speaker 3>there weren't any commercials at the time.

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<v Speaker 1>Really did I did that?

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<v Speaker 3>Hey, you know I can hang with the big dogs,

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<v Speaker 3>say okay, but we used to have DVDs. Then there

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<v Speaker 3>was no commercials. Now we're seeing commercials. We're seeing a

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<v Speaker 3>lot of these competitors coming out and doing the ad

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<v Speaker 3>tier version as well. How is Netflix settling in this

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<v Speaker 3>entire thing? Are they still the front runner here or

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<v Speaker 3>do we see the likes of Peacock and Disney Plus

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<v Speaker 3>and all these other streaming services coming in to compete.

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<v Speaker 2>So they are definitely not the front runner. Nora, So

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<v Speaker 2>they might have won the streaming wars, the streaming subscription wars,

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<v Speaker 2>but they're definitely a late entrant to the whole advertising party.

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<v Speaker 2>I would say the front runner there in terms of

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<v Speaker 2>streaming ad dollars is definitely Disney. They have an absolutely

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<v Speaker 2>fantastic business. They have Hulu, they have Disney Plus, they

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<v Speaker 2>have all of their ad infrastructure up and running from

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<v Speaker 2>their linear TV business. So Netflix definitely late to the game,

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<v Speaker 2>but I think they can still make a dent here

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<v Speaker 2>because we're seeing a whole huge shift, an industry wide

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<v Speaker 2>shift away from linear TV, which used to be about

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<v Speaker 2>a fifty five sixty billion dollar industry, to what is

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<v Speaker 2>called connected TV digital advertising, and Netflix is kind of

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<v Speaker 2>putting everything in place. So they're making sure that they

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<v Speaker 2>have the right type of content because this type of

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<v Speaker 2>on demand content doesn't necessarily really play well to advertising.

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<v Speaker 2>You really need to have more of a live event

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<v Speaker 2>or a sports type of content where you have you know,

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<v Speaker 2>a huge audience tuning and at the same time to

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<v Speaker 2>really appeal to advertisers. And they're making you know, they're

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<v Speaker 2>definitely making those investments. So we know that they went

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<v Speaker 2>after WWE, They're going after NFL. There's more and more

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<v Speaker 2>live programming that they're adding every day. And then of

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<v Speaker 2>course it is building on the tech side, right they

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<v Speaker 2>need all of the ad inventory capability. They just recently

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<v Speaker 2>partnered with Yahoo. They set up their own proprietary, proprietary

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<v Speaker 2>ad tech platform, so they're you know, kind of getting

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<v Speaker 2>all the infrastructure, all the plumbing in place for the

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<v Speaker 2>ad business to take off in a pretty big way.

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<v Speaker 2>And even this year, you know, they expected to double

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<v Speaker 2>from last year, and while they didn't give any numbers,

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<v Speaker 2>we think that even this year it will approach about

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<v Speaker 2>two and a half to three billion dollars in revenue,

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<v Speaker 2>which is pretty significant considering that, you know, they just

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<v Speaker 2>introduced advertising about two years ago.

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<v Speaker 3>What is international programming looking like?

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<v Speaker 2>Very strong? I mean, quarter after quarter we see you know,

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<v Speaker 2>some of their biggest titles being non English titles. I mean,

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<v Speaker 2>the greatest example, of course, is Squid Game, which is

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<v Speaker 2>their biggest title ever in the history of Netflix. And

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<v Speaker 2>they have multiple, you know, titles that they highlighted in

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<v Speaker 2>their investor newsletter for the second quarter. I mean, whether

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<v Speaker 2>it was X Territorial, which is a German movie. You know,

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<v Speaker 2>so many there was a big animation series from Korea.

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<v Speaker 2>You know, multiple series across the globe playing really really

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<v Speaker 2>well and scoring on par or even better with the

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<v Speaker 2>English titles. So you know, this has been a really

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<v Speaker 2>good strategy for them, you know, localizing a lot of

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<v Speaker 2>the content, going after international content in all of the

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<v Speaker 2>different territories, and that really health drive subscriber numbers as well.

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<v Speaker 2>You know, seventy percent of Netflix a subscriber bases outside

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<v Speaker 2>the United States.

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<v Speaker 1>Getha, Since it's your job to know what Netflix has?

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<v Speaker 1>Can you just sit at work all day watch Netflix?

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<v Speaker 2>I wish I could, damn all.

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<v Speaker 1>Right, Well, it sounds like you know what you're doing,

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<v Speaker 1>so you're doing something right, and we really appreciate you

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<v Speaker 1>joining us on Netflix earnings Day. It's always great to

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<v Speaker 1>have you on the program. Getha Ranganath and she's Bloomberg

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<v Speaker 1>Intelligence senior media analyst joining us on Netflix. Check out

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<v Speaker 1>her research. It's going to be updated soon if it's

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<v Speaker 1>not already, it's on the Bloomberg terminal. We are seeing

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<v Speaker 1>shares of Netflix actually move lower in the after hours

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<v Speaker 1>after an initial bounts hired. The company did report results

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<v Speaker 1>that exceeded investor expectations in every major metric, revenue growing

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<v Speaker 1>to eleven point one billion dollars, earnings jumping from seven,

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<v Speaker 1>earn is jumping two rather seven dollars, and nineteen cents

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<v Speaker 1>per share. The company also raised its forecast for full

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<v Speaker 1>year sales and profit margins. It expects to generate up

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<v Speaker 1>to forty five point two billion dollars in sales and

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<v Speaker 1>have an operating margin of twenty nine point five percent.

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<v Speaker 1>Let's bring in Mark Douglass, the CEO of the publicly

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<v Speaker 1>traded advertising and marketing company Mountain ticker MNTN. He joins

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<v Speaker 1>us from Miami. Mark, always good to check in with you.

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<v Speaker 1>I want to focus specifically with you on the ads

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<v Speaker 1>supported element of this. I was telling Nora earlier. You know,

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<v Speaker 1>I'm old enough to remember when Netflix said they would

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<v Speaker 1>never do ads, they would never do live content, they

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<v Speaker 1>would never do news, they would never do sports. Now

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<v Speaker 1>they do all of those things, And is the and

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<v Speaker 1>more is the ads business working?

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<v Speaker 4>I think the ad business is off to a start.

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<v Speaker 4>It can grow so much bigger, and you know it's

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<v Speaker 4>obviously growing. I think they're they're saying that they expect

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<v Speaker 4>a lot more growth, but it's also in a competitive space.

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<v Speaker 4>They're competing with Disney, with Peacock, with Paramount, Warner Brothers,

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<v Speaker 4>and you know those big spenders, those big brands, they

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<v Speaker 4>don't really increase their budget, So if you want to

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<v Speaker 4>come into that space, you have to take market share

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<v Speaker 4>from someone else. Netflix is what I would expect over time,

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<v Speaker 4>is that whatever percentage of viewership they have is what

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<v Speaker 4>percentage of the ad market they can get, So they

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<v Speaker 4>have a lot of room to grow. It is working,

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<v Speaker 4>but it's still relatively small compared to where it can be.

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<v Speaker 3>I find it really interesting. We were discussing how people

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<v Speaker 3>are willing to pay for these subscriptions even if they

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<v Speaker 3>do contain ads. I can literally remember when you would

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<v Speaker 3>watch Netflix all the way through, no gaps at all.

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<v Speaker 3>But it seems as though this is a really thriving

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<v Speaker 3>part of their business here.

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<v Speaker 4>Yeah. Well, I mean why did they add the ads?

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<v Speaker 4>Because their customers wanted a lower price point, and so

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<v Speaker 4>it's a simple trade off. We'll give you the lower

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<v Speaker 4>price point if you'll let advertisers pay for part of

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<v Speaker 4>your subscription. That's effectively what's happening. And so the customer

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<v Speaker 4>is getting what they want and Netflix is getting the

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<v Speaker 4>revenue they need know in order to make that possible.

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<v Speaker 4>So it is a win win. I'm not sure sure

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<v Speaker 4>everyone that gets ads thinks it's a win, but it's

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<v Speaker 4>certainly a win that they don't have to pay as

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<v Speaker 4>much to get the content.

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<v Speaker 1>So I'm looking at the different plans and pricing for

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<v Speaker 1>Netflix here in the US. There's the standard with ads.

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<v Speaker 1>There's standard, there's premium, so it starts with seven to

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<v Speaker 1>ninety nine a month. You can go for premium up

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<v Speaker 1>to twenty five dollars a month. Again, this is here

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<v Speaker 1>in the US. There are different intricacies to this because

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<v Speaker 1>you can pay for extra members and the like. Netflix

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<v Speaker 1>has gotten really good at as my brother likes to

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<v Speaker 1>remind our entire family understanding if you're sharing an account

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<v Speaker 1>and now everybody kind of needs their own accounts. Is

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<v Speaker 1>there from the perspective of actual growth here in a

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<v Speaker 1>saturated market in the US, is there a concern or

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<v Speaker 1>is this by design that if Netflix raises the premium

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<v Speaker 1>price then there will be a small portion of the

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<v Speaker 1>folks who don't want to pay twenty five dollars a

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<v Speaker 1>month or whatever, and instead they'll drop down to that

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<v Speaker 1>ad supported model. Is that the strategy?

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<v Speaker 4>I think yeah. I think worldwide Netflix maybe last quarter,

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<v Speaker 4>the quarter before Essential, the last time they were reporting

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<v Speaker 4>subscriber numbers, they said the number one, you know, kind

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<v Speaker 4>of tier that people were buying was the ad supported tier.

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<v Speaker 4>I think it was as much as half of all

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<v Speaker 4>new subscribers. And so people want it. They want that

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<v Speaker 4>price point. I think what's really interesting is the way

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<v Speaker 4>to think of it is Netflix is building a backlog

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<v Speaker 4>of future revenue. So, in other words, they bring on

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<v Speaker 4>the subscribers that they are essentially under moonetizing. They're charging

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<v Speaker 4>them seven ninety nine, and they're getting relatively few ads.

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<v Speaker 4>And as Netflix increases the ad load and essentially makes

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<v Speaker 4>more money, that is just like pure like that's going

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<v Speaker 4>to flow directly a bottom line. I would expect Netflix's

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<v Speaker 4>earnings to outstrip their revenue growth literally for years to come.

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<v Speaker 4>It's somewhat similar to the password backlog, where they knew

0:11:58.280 --> 0:12:01.000
<v Speaker 4>all these people were sharing the password, and at any

0:12:01.080 --> 0:12:04.000
<v Speaker 4>time they can just kind of kind of get more

0:12:04.040 --> 0:12:06.640
<v Speaker 4>serious about that and all of a sudden it produced

0:12:06.679 --> 0:12:09.280
<v Speaker 4>all this additional revenue. That's what's going to happen with

0:12:09.440 --> 0:12:13.560
<v Speaker 4>Netflix is advertising and I think I have never seen

0:12:13.600 --> 0:12:16.920
<v Speaker 4>a company this large that I would say should be

0:12:16.960 --> 0:12:19.840
<v Speaker 4>treated as a high growth stock. That's the potential in

0:12:19.840 --> 0:12:21.080
<v Speaker 4>the at business right Mark.

0:12:21.120 --> 0:12:22.920
<v Speaker 3>One thing that was interesting to me as we're parsing

0:12:22.920 --> 0:12:25.920
<v Speaker 3>through this earnings was the fact that Netflix boosted its

0:12:25.960 --> 0:12:30.520
<v Speaker 3>full year revenue primarily due to US dollar depreciation. What's

0:12:30.559 --> 0:12:31.440
<v Speaker 3>your takeaway from.

0:12:31.280 --> 0:12:37.080
<v Speaker 4>That, Well, I mean their global business. I mean, I

0:12:37.080 --> 0:12:41.800
<v Speaker 4>think that's for financial analysts to really look at. I mean,

0:12:41.880 --> 0:12:44.520
<v Speaker 4>obviously they don't want to be fluctuating their price points

0:12:44.559 --> 0:12:48.120
<v Speaker 4>based on the way financial markets are valuing the dollar

0:12:48.760 --> 0:12:53.040
<v Speaker 4>and other things. But I think the I think most

0:12:53.080 --> 0:12:55.720
<v Speaker 4>investors are going to look at the growth in revenue,

0:12:56.080 --> 0:13:00.520
<v Speaker 4>growth in earnings, continue expansion in national and I think

0:13:00.559 --> 0:13:04.360
<v Speaker 4>the most important value for Netflix, which is not really

0:13:04.600 --> 0:13:08.960
<v Speaker 4>explicitly measured in numbers, is they, through surveys, they are

0:13:09.000 --> 0:13:11.480
<v Speaker 4>the first place people go when they turn on their TV.

0:13:11.840 --> 0:13:15.760
<v Speaker 4>Is they turn on Netflix. And the amount of power

0:13:15.840 --> 0:13:19.120
<v Speaker 4>that gives this company is it's almost hard to state

0:13:19.559 --> 0:13:23.080
<v Speaker 4>that that's how they can turn you know, like fights

0:13:23.120 --> 0:13:27.760
<v Speaker 4>into like numbers that rival some of the biggest sporting events,

0:13:27.920 --> 0:13:31.440
<v Speaker 4>or turn wwee into you know, a big show on

0:13:31.520 --> 0:13:34.280
<v Speaker 4>Netflix where one has been as big as another channel.

0:13:34.440 --> 0:13:36.840
<v Speaker 4>And if I'm gonna invest, I'm going to be as

0:13:36.880 --> 0:13:40.120
<v Speaker 4>long as Netflix is the first place people go, It's

0:13:40.160 --> 0:13:41.960
<v Speaker 4>going to be the first stock I want to invest

0:13:42.000 --> 0:13:44.360
<v Speaker 4>in that. I think that's the biggest correlation.

0:13:44.679 --> 0:13:47.520
<v Speaker 1>Hey, hey, Mark, since you are focused on the ads business,

0:13:47.559 --> 0:13:52.520
<v Speaker 1>in your view, what's a more profitable subscriber for Netflix?

0:13:52.679 --> 0:13:55.080
<v Speaker 1>Is it the one who's paying seven to ninety nine

0:13:55.120 --> 0:13:57.560
<v Speaker 1>a month for the ad supported version, or is it

0:13:57.600 --> 0:14:01.240
<v Speaker 1>the premium subscriber at twenty five or the standard subscriber

0:14:01.280 --> 0:14:02.080
<v Speaker 1>at eighteen bucks.

0:14:02.920 --> 0:14:06.120
<v Speaker 4>I think the premium is probably the most profitable, but

0:14:06.400 --> 0:14:10.320
<v Speaker 4>I think then the ad supported has the potential to

0:14:10.400 --> 0:14:12.840
<v Speaker 4>become the second most profitable. I don't think it's there

0:14:12.920 --> 0:14:17.760
<v Speaker 4>yet because they simply are not monetizing all those entertainment

0:14:17.800 --> 0:14:20.920
<v Speaker 4>consumers at the level they could be. But when they are,

0:14:21.080 --> 0:14:24.040
<v Speaker 4>they're doing seven ninety nine on that price point, who knows,

0:14:24.360 --> 0:14:26.800
<v Speaker 4>it might be eight ninety nine next year something like that,

0:14:26.880 --> 0:14:29.800
<v Speaker 4>and they can make probably equal to that in terms

0:14:29.840 --> 0:14:32.800
<v Speaker 4>of AD dollars per user, and maybe even a bit

0:14:32.880 --> 0:14:35.080
<v Speaker 4>more than equal to that in AD dollars per user.

0:14:35.080 --> 0:14:37.560
<v Speaker 4>And you see that's what Amazon did were Prime where

0:14:37.600 --> 0:14:40.480
<v Speaker 4>they just flipped the entire customer base and the AD supported,

0:14:40.840 --> 0:14:45.080
<v Speaker 4>So that ad supported in terms of volume because most

0:14:45.120 --> 0:14:47.800
<v Speaker 4>of the subscribers I think will be AD supported over time.

0:14:48.240 --> 0:14:51.080
<v Speaker 4>Is the most profitable in terms of just share dollars

0:14:51.160 --> 0:14:54.520
<v Speaker 4>right now, it's probably the premium at twenty five dollars mark.

0:14:54.560 --> 0:14:56.760
<v Speaker 3>I mean, when you think about Netflix historically, they were

0:14:56.800 --> 0:14:58.840
<v Speaker 3>initially felt like the leader, but you're seeing a lot

0:14:58.840 --> 0:15:02.200
<v Speaker 3>of these other companies any here trying to additionally monopolize

0:15:02.200 --> 0:15:04.160
<v Speaker 3>the space. But that being said, we did see some

0:15:04.240 --> 0:15:06.720
<v Speaker 3>news earlier that Comcast is raising the price of his

0:15:06.840 --> 0:15:10.280
<v Speaker 3>Peacock streaming service by three dollars a month. Very fitting

0:15:10.360 --> 0:15:12.520
<v Speaker 3>today when we have Netflix earnings. How are you thinking

0:15:12.520 --> 0:15:15.200
<v Speaker 3>about Netflix as a potential leader right now in this space?

0:15:16.040 --> 0:15:19.160
<v Speaker 4>Yeah, I mean that losing that leadership position is going

0:15:19.200 --> 0:15:20.720
<v Speaker 4>to be hard for them because they just have to

0:15:20.800 --> 0:15:24.920
<v Speaker 4>keep investing in content, and they're profitable and very profitable,

0:15:24.960 --> 0:15:27.200
<v Speaker 4>so they can afford to keep doing that. But I

0:15:27.200 --> 0:15:30.240
<v Speaker 4>think what you're seeing happening is the other networks are

0:15:30.280 --> 0:15:35.160
<v Speaker 4>fighting back. Peacock with Love Island just massive show over

0:15:35.200 --> 0:15:39.920
<v Speaker 4>the last month from what I know, did incredibly well

0:15:40.040 --> 0:15:42.480
<v Speaker 4>advertise in terms of revenue generation. I think it's the

0:15:42.560 --> 0:15:44.920
<v Speaker 4>number one reality show in the world. Plus they have

0:15:45.040 --> 0:15:48.160
<v Speaker 4>Bravo and others. You have Disney with all the children's content,

0:15:48.320 --> 0:15:51.880
<v Speaker 4>Star Wars content, ESPN now going into live sports. I

0:15:51.920 --> 0:15:56.600
<v Speaker 4>think all the networks have gotten way more serious about

0:15:56.680 --> 0:16:01.000
<v Speaker 4>competing and they're bringing out their own hit content. But

0:16:01.280 --> 0:16:03.520
<v Speaker 4>as long as Netflix is number one, I think it's

0:16:03.560 --> 0:16:06.200
<v Speaker 4>hard for them to lose that spot. Probably the only

0:16:06.280 --> 0:16:09.120
<v Speaker 4>company that can really truly challenge them is Disney.

0:16:09.920 --> 0:16:12.960
<v Speaker 3>Absolutely. It's interesting. We were just talking about Love Island.

0:16:13.360 --> 0:16:13.600
<v Speaker 4>I am.

0:16:13.760 --> 0:16:16.120
<v Speaker 3>I'm a watcher of Love Island, so I see how

0:16:16.160 --> 0:16:17.200
<v Speaker 3>they were able to skyrocket.

0:16:17.200 --> 0:16:19.800
<v Speaker 1>Here somebody who I'm co anchoring with today went to

0:16:19.920 --> 0:16:23.280
<v Speaker 1>like a Love Island premiere, a watch party, watch party, or.

0:16:23.520 --> 0:16:26.920
<v Speaker 3>That you hosted a watch party of my own two

0:16:26.960 --> 0:16:27.360
<v Speaker 3>days later.

0:16:27.440 --> 0:16:29.480
<v Speaker 1>Meanwhile, I've never even seen an episode of whatever you

0:16:29.520 --> 0:16:32.320
<v Speaker 1>guys are talking about. Mark Douglas, always good to see

0:16:32.320 --> 0:16:34.680
<v Speaker 1>you fly on up here to New York next time

0:16:34.720 --> 0:16:36.880
<v Speaker 1>so we can hang out in the studio. Mark Douglas

0:16:36.920 --> 0:16:40.200
<v Speaker 1>is CEO of the publicly traded advertising and marketing company

0:16:40.640 --> 0:16:41.040
<v Speaker 1>Mountain