WEBVTT - Daybreak Holiday: Trump's Second Term, Netflix, Fed 0:00:00.080 --> 0:00:12.559 Bloomberg Audio Studios, Podcasts, radio News. 0:00:15.800 --> 0:00:18.000 Thank you so much for joining us on this special 0:00:18.160 --> 0:00:21.639 edition of Bloomberg Daybreak. US markets are closed for the 0:00:21.680 --> 0:00:24.919 Martin Luther King Junior Day holiday. I'm Nathan Hager, and 0:00:25.040 --> 0:00:27.320 coming up this hour, we'll look ahead to the federal 0:00:27.360 --> 0:00:30.840 reserves first policy decision of the year, what's in store 0:00:30.880 --> 0:00:34.320 for interest rates after last week's key reports on inflation, 0:00:34.800 --> 0:00:39.040 Plus streaming behemoth Netflix gets set to report earnings. We'll 0:00:39.040 --> 0:00:42.920 have a special Bloomberg Intelligence roundtable with media analyst KEITHA. 0:00:42.960 --> 0:00:47.280 Ronganathan and senior credit analyst Stephen Flynn. But first we 0:00:47.400 --> 0:00:51.280 begin with politics because this is not only MLK Day 0:00:51.440 --> 0:00:55.640 in a rare occurrence, it is also Inauguration Day, as 0:00:55.680 --> 0:01:00.200 Donald Trump officially begins his second term as president. So 0:01:00.240 --> 0:01:02.640 what will the next four years hold in store with 0:01:02.720 --> 0:01:06.040 Trump back as commander in chief. We're pleased to welcome 0:01:06.080 --> 0:01:09.319 Wendy Schiller, director of the Alfred Taubman Center for American 0:01:09.360 --> 0:01:13.120 Politics and Policy at Brown University. Great to speak with 0:01:13.160 --> 0:01:16.360 you on this inauguration Day. Wendy, thanks for being here, 0:01:16.360 --> 0:01:19.640 And of course we saw plenty of dramatic moves in 0:01:19.720 --> 0:01:23.800 the first hundred days of the first Trump administration, how 0:01:23.840 --> 0:01:27.080 could the second first one hundred days be different? 0:01:27.800 --> 0:01:31.640 Hello Nathan, and happy inauguration Day to you too. You know, 0:01:31.680 --> 0:01:34.600 there's just a question mark, you know, will the second 0:01:34.640 --> 0:01:38.520 Trump administration learn from some of the stumbles of the 0:01:38.560 --> 0:01:42.360 first Trump administration, things like the travel band, things like 0:01:42.440 --> 0:01:47.280 you know, sweeping immigration and deportation actions. This time, I 0:01:47.280 --> 0:01:50.200 think the rollout will be much smoother, and I do 0:01:50.400 --> 0:01:54.280 think that the Trump administration is planning ahead for things 0:01:54.320 --> 0:01:57.600 like lawsuits or public challenges to some of the actions 0:01:57.640 --> 0:02:01.240 that's going to take. Clearly it will use more security 0:02:01.320 --> 0:02:04.320 and immigration as some of its pillar foundations in the 0:02:04.360 --> 0:02:07.640 early part of the administration. But politically, you know, the 0:02:07.920 --> 0:02:11.800 Trump administration, led by incoming President Trump, is very focused 0:02:11.840 --> 0:02:14.960 on getting a tax cut bill and certainly making sure 0:02:15.000 --> 0:02:18.640 the debt ceiling gets extended. And so those are the 0:02:18.639 --> 0:02:21.360 things that the Trump administration wants to get done earlier 0:02:21.560 --> 0:02:25.040 in sort of the congressional legislative season. Then we typically 0:02:25.080 --> 0:02:25.880 see I do. 0:02:25.919 --> 0:02:29.360 Want to get to the plans for tax policy. But 0:02:29.560 --> 0:02:33.880 you mentioned the possibility or at least the preparation for 0:02:34.080 --> 0:02:37.359 potential legal challenges to some of what President Trump may 0:02:37.360 --> 0:02:41.600 have in store here. How prepared is the next president 0:02:41.880 --> 0:02:44.720 for what could be coming in terms of the flurry 0:02:45.160 --> 0:02:48.000 of executive orders that he has said he wants to 0:02:48.120 --> 0:02:49.280 enact on day one. 0:02:49.800 --> 0:02:53.280 This is all are very much dependent on the Justice Department. 0:02:53.639 --> 0:02:56.440 You know, should the Attorney I'll be confirmed fairly, smoothly, 0:02:57.240 --> 0:03:01.160 and then what happens to career Justice Department lawyers? Do 0:03:01.240 --> 0:03:03.520 they stay or do they go? How much of an 0:03:03.560 --> 0:03:07.400 exotus will there be in the executive branch for people 0:03:07.440 --> 0:03:11.040 who are still service and who are either fearful of 0:03:11.160 --> 0:03:14.480 served you projects twenty twenty five, or you know, any 0:03:14.560 --> 0:03:19.280 kind of other attempt to cut or eliminate positions. But 0:03:19.400 --> 0:03:22.280 even that, they don't want to carry out Trump administration policies. 0:03:22.720 --> 0:03:24.960 So you know, if you get a hollowing out of. 0:03:25.040 --> 0:03:25.920 The Justice Department. 0:03:25.919 --> 0:03:27.919 I'm not suggesting that there will be a hollowing out, 0:03:27.960 --> 0:03:31.120 but there could be. Then when groups that are gearing 0:03:31.240 --> 0:03:33.799 up that are already prepared to challenge some of these 0:03:33.800 --> 0:03:36.480 executive orders go to court, you know, who's going to 0:03:36.480 --> 0:03:40.400 defend the Trump administration. That's where I think the opponent 0:03:40.600 --> 0:03:44.040 may have a head start, depending on what the staff 0:03:44.080 --> 0:03:46.320 situation looks like in the executive branch. So at the 0:03:46.400 --> 0:03:48.880 same time you want, you know, elon Musk and then 0:03:49.000 --> 0:03:51.040 go almost want me to clean up and limit and 0:03:51.120 --> 0:03:54.560 trim government. He's going to need those people to implement 0:03:54.600 --> 0:03:55.160 his policy. 0:03:55.680 --> 0:03:57.320 Do you think we're going to see the kind of 0:03:57.360 --> 0:04:01.760 sea change that President Trump has talked about if it 0:04:01.960 --> 0:04:07.200 does produce some kind of backlash from the electorate, if 0:04:07.520 --> 0:04:10.160 some of these things are seen as not popular, if 0:04:10.200 --> 0:04:12.160 they come into drastically. 0:04:12.480 --> 0:04:15.120 Well, Nadan, this is a really important part of the 0:04:15.120 --> 0:04:17.200 federal government that a lot of people sort of overlook. 0:04:17.240 --> 0:04:22.640 It is deeply embedded in every American's daily life. Everything 0:04:22.720 --> 0:04:26.120 we do, the safety, the food we eat, the healthcare system, 0:04:26.279 --> 0:04:28.640 the roads, which of course you know up in New 0:04:28.680 --> 0:04:32.039 England we complain about all the time. Every single thing 0:04:32.120 --> 0:04:35.720 we do is absolutely affected by the federal government. And 0:04:35.760 --> 0:04:38.920 you need people to be implementing those policies and conducting 0:04:38.960 --> 0:04:42.240 oversight of how they're going on the ground level. So 0:04:42.600 --> 0:04:46.320 if you want to gut or trim or eliminate, people 0:04:46.400 --> 0:04:49.039 will feel that. And so the big question is how 0:04:49.040 --> 0:04:51.839 many of those people will be in Republican leading districts 0:04:52.360 --> 0:04:56.560 and whether the House of Representatives they very slim Republican 0:04:56.640 --> 0:04:59.680 majority react to the things that are happening on the 0:04:59.720 --> 0:05:02.600 ground in their districts. So this is the big thing 0:05:02.600 --> 0:05:04.200 that I'm watching for, and we may not see it 0:05:04.279 --> 0:05:06.599 till this summer, but those of those who know history 0:05:06.600 --> 0:05:09.400 go way back to nineteen ninety five and New Cambridge 0:05:09.560 --> 0:05:11.320 to have got out of the gate very fast, very 0:05:11.400 --> 0:05:14.200 successfully in the Republican House, and then by the summer 0:05:14.279 --> 0:05:16.360 the impact of some of those decisions are being self 0:05:16.440 --> 0:05:20.040 and districts and the party started to really fight with itself. 0:05:20.160 --> 0:05:22.440 So we have to see how they roll it out, 0:05:22.480 --> 0:05:24.280 where they roll it out, and what they're actually going 0:05:24.320 --> 0:05:24.680 to cut. 0:05:25.440 --> 0:05:27.520 Of course, it's not just you know, the Department of 0:05:27.560 --> 0:05:31.360 Government efficiency that we've been looking forward to, but there's 0:05:31.400 --> 0:05:34.359 been a lot of talk as well about plans to 0:05:34.600 --> 0:05:39.520 really rain in immigration, boosting border security, a lot of 0:05:39.560 --> 0:05:43.600 executive orders expected there as well. How could the rollout 0:05:43.720 --> 0:05:46.000 of a border policy be different from where it was 0:05:46.040 --> 0:05:48.560 the last time around, when, as you mentioned, it was 0:05:49.440 --> 0:05:52.960 facing a lot of challenges under the first Trump administration. 0:05:53.279 --> 0:05:55.520 Well, Nathan, when you think about the border policy and 0:05:55.720 --> 0:05:59.480 shotainly what outcome President Biden did and many argues far 0:05:59.600 --> 0:06:02.640 too late, But you know understanding that if you are 0:06:02.640 --> 0:06:06.479 seeking asylum, and then refugees are different from assyl leads 0:06:06.560 --> 0:06:09.320 for different kinds of reasons. You know, can you cross 0:06:09.360 --> 0:06:12.120 the border and make the claim and then stay in 0:06:12.160 --> 0:06:14.919 the United States while the claim is being processed. Certainly 0:06:14.920 --> 0:06:17.440 that was the Biden administration policy, and we had millions 0:06:17.440 --> 0:06:20.000 of people come over the border. The Trump administration will 0:06:20.000 --> 0:06:22.320 not have that policy used to be called stay in Mexico. 0:06:22.600 --> 0:06:25.120 But what they're going to say is you cannot come 0:06:25.200 --> 0:06:28.520 here if you are not legally permitted to do so. 0:06:28.600 --> 0:06:32.680 If you don't have legal permanent residents, you cannot come 0:06:32.720 --> 0:06:35.800 and stay. And that will be disruptive to those people 0:06:35.800 --> 0:06:39.000 who are currently have being allowed by the bidenmistration to 0:06:39.000 --> 0:06:42.080 come here stay here. Will the Trump administration force all 0:06:42.200 --> 0:06:46.320 those people to return to their home countries. That's a 0:06:46.400 --> 0:06:48.920 lot of people, So when we think about undocumented, it's 0:06:48.960 --> 0:06:51.480 a very long range of people. But certainly these sylum 0:06:51.520 --> 0:06:54.520 seekers are probably going to be the first target after 0:06:54.720 --> 0:06:57.760 what they view as the criminals. Those people are irrestively 0:06:57.800 --> 0:07:00.719 hard to find, and that will be a steady stream 0:07:00.960 --> 0:07:05.720 of women and children being shown to being deported. And 0:07:05.760 --> 0:07:08.360 we saw last time that did not go overwhel with 0:07:08.400 --> 0:07:11.560 the American public, So they're even disconnecting voters' minds. They 0:07:11.560 --> 0:07:14.640 want border security, they want limited on document and immigration. 0:07:14.720 --> 0:07:16.760 Of course, on the other hand, they don't like the 0:07:16.800 --> 0:07:19.800 images of seeing women and children, you know, forcibly deported 0:07:19.840 --> 0:07:20.720 from the United States. 0:07:20.800 --> 0:07:23.360 We're speaking with Wendy Schiller, director of the Alfred Taubman 0:07:23.440 --> 0:07:27.200 Center for American Politics and Policy at Brown University. Of course, 0:07:27.320 --> 0:07:30.400 the policy that markets are looking for in terms of 0:07:30.400 --> 0:07:35.640 the rollout is tax cuts and the potential for expanded tariffs, 0:07:36.000 --> 0:07:39.280 not just on adversaries but potentially on allies as well. 0:07:39.440 --> 0:07:42.520 When it comes to the tax cut piece, how much 0:07:42.560 --> 0:07:45.320 of a difficulty is the new president going to face 0:07:45.600 --> 0:07:49.120 when the margins in Congress are so much tighter than 0:07:49.160 --> 0:07:52.240 they were when the twenty seventeen tax cuts were passed 0:07:52.280 --> 0:07:53.160 the last time around. 0:07:54.080 --> 0:07:56.920 Well, I mean, you know, the Democrats and Republicans will 0:07:57.000 --> 0:08:00.680 vote for a renewal of some version of the original 0:08:00.960 --> 0:08:04.760 trop tax cuts. Congress rarely meets the tax cut. They 0:08:04.800 --> 0:08:07.320 don't want to pay us. And that's true across the 0:08:07.400 --> 0:08:11.160 aisle political aisle. Question is what are the specifics of 0:08:11.160 --> 0:08:12.800 the you know, what are we going to do with corporations, 0:08:12.800 --> 0:08:15.920 what about repatriation coming back to the United States, you know, 0:08:16.480 --> 0:08:19.480 or everything capital gains, particularly you know, the state and 0:08:19.520 --> 0:08:24.640 local tax possession fault, which disproportionately affects a Democrat or 0:08:24.640 --> 0:08:28.000 blue leaning state. These are the sort of nuts and 0:08:28.080 --> 0:08:30.960 bolts of the bill that will bog it down, and 0:08:31.000 --> 0:08:33.400 you'll see very strong differences I think, between the House 0:08:33.440 --> 0:08:36.560 and the Senate based on geography. You know, a district's 0:08:36.600 --> 0:08:38.440 impact from some of this stuff is not the same 0:08:38.440 --> 0:08:40.760 as the space impact, so you know you're going to 0:08:40.800 --> 0:08:43.040 see that. And at the same time, if you see 0:08:43.120 --> 0:08:48.480 tariffs negatively affecting particular industries geographically, that's also going to 0:08:48.520 --> 0:08:51.400 be something that the GOP has to manage internally within 0:08:51.440 --> 0:08:54.840 its caucus. That's where I see the biggest difficulties in 0:08:54.880 --> 0:08:57.920 the response to any kind of sweeping Trump tariffs. You know, 0:08:57.960 --> 0:09:01.760 Pennsylvania went for Trump right like it's starting to lean Republican. 0:09:02.080 --> 0:09:05.400 You start throwing tariff on things, does that affect manufacturing 0:09:05.400 --> 0:09:09.000 in Pennsylvania? So we will see that local nature of 0:09:09.080 --> 0:09:12.079 Congress rear its head, I think, particularly in the Republican 0:09:12.080 --> 0:09:13.040 CLOCKUS in response to. 0:09:13.040 --> 0:09:16.160 What Trump does in terms of the herding of cats 0:09:16.320 --> 0:09:20.240 on Capitol Hill. How do you see President Trump dealing 0:09:20.440 --> 0:09:23.680 with the congressional leadership. Of course, you've got House Speaker 0:09:23.720 --> 0:09:26.360 Mike Johnson and a brand new majority leader in the 0:09:26.400 --> 0:09:27.400 Senate in John Thynne. 0:09:28.160 --> 0:09:31.199 No President denpawn Republican, loved Congress go all aback to 0:09:31.200 --> 0:09:34.040 George Washington is constantly complaining about Congress even before he 0:09:34.120 --> 0:09:36.199 was President of United States. They don't like it. They 0:09:36.240 --> 0:09:38.280 think they got elected their president. They also be able 0:09:38.320 --> 0:09:40.040 to do what they want to do, and the party 0:09:40.160 --> 0:09:43.559 is you know, a trifecta. But Trump will get frustrated 0:09:43.760 --> 0:09:46.880 very quickly if things don't go his way. We've seen 0:09:46.920 --> 0:09:49.640 Mike Johnson even do some small things like you know, 0:09:49.800 --> 0:09:52.680 raising the flags and inauguration around the Capitol. You know, 0:09:52.679 --> 0:09:54.960 we have a period of morning for Jimmy Carter, usually 0:09:54.960 --> 0:09:57.360 supposed to be a half step, they'll be raised because 0:09:57.400 --> 0:09:59.960 Trump complained about it. It may seem small, but if 0:10:00.000 --> 0:10:02.679 it's an indication of the President's influence and House of 0:10:02.800 --> 0:10:07.160 Representatives in the Senate, Johnson's a pretty healthy majority, so 0:10:07.240 --> 0:10:09.640 he doesn't really have to trade away too much. But 0:10:09.679 --> 0:10:11.920 he's got people with Lisa Murkowski, sus and Collins, who 0:10:11.920 --> 0:10:14.280 may not go along with everything, You've still got some 0:10:14.400 --> 0:10:17.240 leeway there. So I think Soon and Trump may have 0:10:17.280 --> 0:10:21.120 a so smoother relationship because soone can deliver in ways 0:10:21.160 --> 0:10:23.079 that Mike Johnson's gonna have very difficult time doing. 0:10:23.440 --> 0:10:26.480 As we get into this new administration, Wendy, we're returning 0:10:26.520 --> 0:10:30.320 to unified government in Washington. We have a Republican president 0:10:30.520 --> 0:10:35.199 and Republican majorities on both sides of Capitol Hill. How 0:10:35.200 --> 0:10:38.880 do Democrats regroup after President Trump's win? 0:10:39.640 --> 0:10:43.200 People think about regrouping politically, these broader teams moving to 0:10:43.280 --> 0:10:45.760 the center. I do see it that way. In the 0:10:45.760 --> 0:10:48.319 first year of the Trump administration. You're going to twenty 0:10:48.360 --> 0:10:52.360 twenty six, which are midterm elections more locally focused. It's 0:10:52.400 --> 0:10:56.280 really hammering home if it happens negative impacts from the 0:10:56.280 --> 0:11:00.640 Trump administration policies on local constituents have to go back 0:11:00.640 --> 0:11:04.000 to their retail routes and really sort of lead bigger 0:11:04.080 --> 0:11:07.200 issues I think on the table probably leading up to 0:11:07.240 --> 0:11:10.000 twenty eight, but for twenty six, it's how are these 0:11:10.040 --> 0:11:12.760 benefiting you or hurting you? And we are the party 0:11:12.800 --> 0:11:14.680 that tries to help you, and this is what we're 0:11:14.720 --> 0:11:17.959 trying to do. And a consistent message. Chancy Pelosi was 0:11:18.080 --> 0:11:20.720 very good at this in two thousand and six, consistent 0:11:20.760 --> 0:11:23.959 message across district about the way that Trump policies are 0:11:24.040 --> 0:11:27.800 hurting voters where they live, where their kids go to school, 0:11:28.080 --> 0:11:30.920 where they work. And that's sort of the key for 0:11:31.040 --> 0:11:33.520 Democrats to regain their footing, and they have a very 0:11:33.520 --> 0:11:36.120 good chance of taking the House back in twenty and 0:11:36.160 --> 0:11:38.600 twenty six. The Republicans are well aware of that, so 0:11:38.800 --> 0:11:42.359 focusing local, focusing on the things they can stop or obstruct, 0:11:42.559 --> 0:11:45.000 and if they can't, focusing on the negative impact of 0:11:45.040 --> 0:11:47.760 their constituents, you know, focusing on the national I don't 0:11:47.800 --> 0:11:49.719 think it's going to get a very cost And. 0:11:49.679 --> 0:11:52.800 In terms of the focus for President Trump, do you 0:11:52.880 --> 0:11:56.760 see him being focused on policy, implementing an agenda or 0:11:56.880 --> 0:11:59.600 how much do you think he's going to be focusing 0:11:59.640 --> 0:12:02.960 on on retribution in the first one hundred days. 0:12:03.400 --> 0:12:07.000 Well, predicting President Trump is a risky business. I think 0:12:07.080 --> 0:12:09.839 he could derail his agenda if he focuses too much 0:12:09.840 --> 0:12:13.160 on retribution. And I think that's where the Democrats may 0:12:13.160 --> 0:12:15.960 have their singular national issue is if he looks like 0:12:16.000 --> 0:12:19.120 his abusing presidential power to go after personal enemies and 0:12:19.640 --> 0:12:22.679 sort of personal grudges. That's going to derail things. It's 0:12:22.679 --> 0:12:25.120 hard for Congress that to send that. It's harder soon 0:12:25.400 --> 0:12:28.280 and Mike Johnson to actually publicly defend that behavior. So 0:12:28.360 --> 0:12:30.240 I think his advisor is going to say, don't do that. 0:12:30.320 --> 0:12:33.200 We play the long game. Got four years. Let's focus 0:12:33.240 --> 0:12:35.240 on wins. And I think the president wants to keep 0:12:35.280 --> 0:12:38.080 his very high approval rating highest he's never had. It's 0:12:38.080 --> 0:12:40.599 comparable for Reagan and Clinton at the end of their administrations. 0:12:40.720 --> 0:12:42.600 He's going to want to keep that and stay popular. 0:12:42.800 --> 0:12:45.480 So he'll want win after win after win. But I 0:12:45.559 --> 0:12:48.160 think he's less concerned with the actual policy and more 0:12:48.160 --> 0:12:49.559 concernable with the outfix of winning. 0:12:50.120 --> 0:12:52.520 Really good to have you with us on what happens 0:12:52.520 --> 0:12:55.480 to be an inauguration day on a federal holiday. Wendy 0:12:55.520 --> 0:12:59.920 Schiller there, Director of Brown Universities, Alfred Taubman Center from 0:13:00.000 --> 0:13:02.920 American Politics and Policy, and up next, we're going to 0:13:02.960 --> 0:13:08.400 preview earnings tomorrow from Netflix and a special Bloomberg Intelligence roundtable, 0:13:08.480 --> 0:13:10.959 So stay with us for that. I'm Nathan Hager, and 0:13:11.080 --> 0:13:30.320 this is Bloomberg. Welcome back to this special edition of 0:13:30.320 --> 0:13:33.920 Bloomberg daybreak, markets are closed from the Martin Luther King holiday. 0:13:34.200 --> 0:13:36.800 I'm Nathan Hager, and Wall Street gets back to work 0:13:36.800 --> 0:13:39.760 tomorrow with a key earnings report on the docket. After 0:13:39.800 --> 0:13:42.120 the close of trading, we get the latest quarterly numbers 0:13:42.520 --> 0:13:46.880 from Netflix. So what should we expect from the streaming behemoth. 0:13:47.360 --> 0:13:50.880 Let's find out with a special Bloomberg Intelligence roundtable. Joining 0:13:50.960 --> 0:13:55.439 us now Bloomberg Intelligence Media analyst Geeta Ranganathan and BI 0:13:55.720 --> 0:13:59.120 Senior credit analyst Stephen Flint. Great to have both of 0:13:59.160 --> 0:14:01.440 you with us as we wait for these results. And 0:14:01.520 --> 0:14:05.080 as I recall, Githa, Netflix had a pretty solid quarter 0:14:05.280 --> 0:14:07.840 last time around, So what are we expecting now? 0:14:08.559 --> 0:14:12.760 Yeah, they've had solid multiple quarters, Nathan, and I think 0:14:12.760 --> 0:14:15.920 we're going to continue to see that play out again 0:14:16.120 --> 0:14:19.520 for the fourth quarter when they report results. So you know, 0:14:19.560 --> 0:14:22.160 it's actually been this perfect moment for them because they've 0:14:22.200 --> 0:14:26.800 had one of the strongest content cycles ever in their history. 0:14:26.960 --> 0:14:29.720 They've made this very big foray into live events. We 0:14:29.800 --> 0:14:33.760 had two huge live events that they streamed on their 0:14:33.800 --> 0:14:36.160 service actually in the fourth quarter. One was the big 0:14:36.200 --> 0:14:39.120 Mike Tyson Versus Jake Paul boxing event, which happened in 0:14:39.160 --> 0:14:42.120 November and then in December, on Christmas Day, you had 0:14:42.240 --> 0:14:46.560 two NFL games, and both those along with the release 0:14:46.600 --> 0:14:49.320 of their biggest hit ever, which was Quid Game Season 0:14:49.360 --> 0:14:52.760 two on December twenty sixth, is believed to have really 0:14:52.880 --> 0:14:56.520 kind of boosted those subscriber numbers. So we're expecting roughly 0:14:56.560 --> 0:15:01.120 about eleven million or so subscriber editions will make, you know, 0:15:01.160 --> 0:15:04.560 one of their biggest years ever in terms of adding subscribers. 0:15:04.960 --> 0:15:07.720 And Stephen, in terms of the numbers that you look 0:15:07.760 --> 0:15:13.200 at on the credit side, what are your expectations. Yeah, well, Netflix's. 0:15:12.720 --> 0:15:15.600 Credit profile is very strong and we believe it's likely 0:15:15.640 --> 0:15:19.080 to stay that way given the companies capital allocation priorities 0:15:19.400 --> 0:15:22.920 and its ability to generate significant free cash flow. The 0:15:22.960 --> 0:15:26.400 company has a pretty conservative approach to cash and debt 0:15:26.720 --> 0:15:28.360 and I don't see that changing. 0:15:28.480 --> 0:15:31.400 When it comes to that cash flow. Githa, Is it 0:15:31.440 --> 0:15:36.760 all about the subscriber numbers? Is it about the advertising 0:15:36.800 --> 0:15:39.280 revenue that they're starting to generate now with these new 0:15:39.520 --> 0:15:42.120 ads supported tiers? What are you looking at? 0:15:42.320 --> 0:15:45.680 It's a little bit of everything, Nathan. So remember after 0:15:45.800 --> 0:15:51.320 this report, they will stop disclosing subscriber metrics, So you know, 0:15:51.360 --> 0:15:54.800 Netflix of course, we all kind of think and we 0:15:55.120 --> 0:15:57.520 know highly anticipate the subscriber numbers when they come out 0:15:57.520 --> 0:15:59.960 every quarter, but they will no longer be providing those metrics. 0:16:00.040 --> 0:16:03.120 So really this is kind of almost this watershed moment 0:16:03.120 --> 0:16:06.280 for Netflix because investors have to kind of really refocus 0:16:07.000 --> 0:16:09.520 how they think about Netflix, and so the metrics that 0:16:09.560 --> 0:16:12.360 we are really going to be focusing on is revenue growth, 0:16:13.040 --> 0:16:15.920 is operating income growth, as well as operating margins. And 0:16:15.960 --> 0:16:17.800 if you just kind of see the profile for Netflix 0:16:17.800 --> 0:16:20.840 over the next few years, you're absolutely right. Advertising is 0:16:20.880 --> 0:16:24.000 going to be a significant portion driving that revenue growth. 0:16:24.040 --> 0:16:27.840 So we're expecting obviously ten plus percent revenue growth for 0:16:27.880 --> 0:16:30.640 the next few years, as well as operating margin, and 0:16:30.640 --> 0:16:32.920 all of those actually then factor into free cash flow 0:16:32.920 --> 0:16:36.320 because remember Netflix, along with increasing its revenue as well 0:16:36.320 --> 0:16:39.520 as subscribers, has also really been very disciplined when it 0:16:39.520 --> 0:16:43.360 comes to costs, and that has really helped fuel free 0:16:43.360 --> 0:16:45.200 cash flow pretty dramatically. 0:16:45.480 --> 0:16:50.280 Gud, you reminded me about the end of subscriber number reporting, 0:16:50.600 --> 0:16:54.280 because Steven raises the question for you about what kind 0:16:54.280 --> 0:16:56.800 of metrics you're going to be looking at in terms 0:16:56.840 --> 0:17:00.280 of gauging the ongoing health of this company. 0:17:00.480 --> 0:17:02.000 Yeah, so from the credit side, we look at a 0:17:02.040 --> 0:17:04.280 lot of the traditional credit metrics. We look at free 0:17:04.320 --> 0:17:06.280 cash flow, what the company is doing with the free 0:17:06.320 --> 0:17:10.800 cash flow. Obviously leverage. Netflix's leverage is very low. Net 0:17:10.840 --> 0:17:14.280 leverages less than one times, and it should remain around 0:17:14.280 --> 0:17:16.960 the one times area going forward. I mean compare that 0:17:17.040 --> 0:17:21.199 to companies like very highly rated Disney or Comcast. They 0:17:21.240 --> 0:17:23.960 each have a net leverage ratio about two point four times, 0:17:24.040 --> 0:17:28.000 so Netflix is very conservative relative to them. Netflix has 0:17:28.040 --> 0:17:30.800 no plans to add debt to its balance sheet to 0:17:30.880 --> 0:17:34.880 fund dividend or fund buybacks, so they're very conservative. We'd 0:17:34.880 --> 0:17:36.320 like to keep a couple of billion dollars of cash 0:17:36.359 --> 0:17:38.560 on hands. We look at a lot of those metrics 0:17:38.600 --> 0:17:42.119 going forward, and Netflix's credit profile looks very strong. 0:17:42.320 --> 0:17:43.359 Another way even to look. 0:17:43.200 --> 0:17:45.720 At it is if you look at Netflix's debt versus 0:17:45.760 --> 0:17:48.479 its equity market cap, it shows you how conservative they are. 0:17:48.520 --> 0:17:50.959 The company has about sixteen billion dollars at debt right 0:17:50.960 --> 0:17:53.120 now and the market cap is, you know, over three 0:17:53.200 --> 0:17:57.440 hundred and fifty billion dollars, so it's a very conservative profile. 0:17:58.320 --> 0:18:01.719 And Githa. When it comes to then you mentioned some 0:18:01.760 --> 0:18:05.480 of the live events and the scripted content that Netflix 0:18:05.560 --> 0:18:08.080 is expected to put out. What more are you looking 0:18:08.160 --> 0:18:10.959 for when it comes to the type of content that 0:18:11.000 --> 0:18:13.000 Netflix is putting out there and how it could stack 0:18:13.080 --> 0:18:14.440 up to some of its competitors. 0:18:14.840 --> 0:18:17.200 It stacks up really, really well, Nate than compared to 0:18:17.280 --> 0:18:20.480 its competitors, And we are actually going to see Netflix 0:18:20.520 --> 0:18:23.399 make a deeper and deeper foray into live events, especially 0:18:23.440 --> 0:18:26.240 as it looks to build that advertising business. So we 0:18:26.280 --> 0:18:28.400 talked a little bit about, you know, the Jake Paul 0:18:28.480 --> 0:18:30.399 Mike Tyson event, we talked a little bit about the 0:18:30.520 --> 0:18:33.720 NFL games, but the real big move happened actually a 0:18:33.800 --> 0:18:39.480 few weeks back when Netflix really started streaming WWE's raw 0:18:39.560 --> 0:18:44.600 content every Monday. So that's live on Netflix globally, and 0:18:44.640 --> 0:18:47.520 we're going to see you know, Netflix actually make I think, 0:18:47.720 --> 0:18:51.840 bigger investments, you know, and MLB and NFL rights may 0:18:51.880 --> 0:18:54.680 be available in the next few years, you know, we think. 0:18:55.040 --> 0:18:58.520 And Netflix definitely obviously gained in terms of both subscribers 0:18:58.560 --> 0:19:02.040 as well as made good advertising money as well on 0:19:02.080 --> 0:19:04.600 the Christmas Day games, and so I think this is 0:19:04.640 --> 0:19:08.320 going to definitely become a bigger portion of their content strategy. 0:19:08.320 --> 0:19:10.920 Going forward. Along with that, of course, we do have 0:19:11.080 --> 0:19:14.919 you know, all the usual hits in terms of scripted content. 0:19:14.960 --> 0:19:17.080 So if you just kind of look at the slate 0:19:17.119 --> 0:19:20.760 for twenty twenty five, it's once again it's a blockbuster slate. 0:19:20.840 --> 0:19:24.359 So you have you know, hit shows like Stranger Things, Wednesday, 0:19:25.080 --> 0:19:28.920 Squid Game, you Cobraki, So it's just endless. So again, 0:19:29.400 --> 0:19:32.920 the content cycle looks extremely strong for the next twelve months. 0:19:33.160 --> 0:19:36.040 And Stephen, when we think about those kinds of investments, 0:19:36.440 --> 0:19:39.840 not just in the scripted content but live events, how 0:19:39.840 --> 0:19:41.720 could that affect the balance sheet for Netflix? 0:19:41.800 --> 0:19:44.119 Well, Netflix has plenty of cash flow to handle that. 0:19:44.320 --> 0:19:46.280 It's very interesting you think about the history of Netflix. 0:19:46.320 --> 0:19:48.680 For many, many years, it was a high yield rated 0:19:48.680 --> 0:19:51.280 company that would borrow to invest in its business, and 0:19:51.359 --> 0:19:54.400 it had pretty significant free cash flow losses every year. 0:19:54.720 --> 0:19:56.520 But they were able to finance that in the bond 0:19:56.560 --> 0:19:58.120 market until they got to the point where they got 0:19:58.119 --> 0:19:59.920 scale and they were able to flip that to pause 0:20:00.119 --> 0:20:03.840 a free cash flow. And the credit has significantly improved 0:20:03.840 --> 0:20:06.119 over the past couple of years, and so they have 0:20:06.240 --> 0:20:09.160 plenty of cash, plenty of cash on hand, plenty of 0:20:09.200 --> 0:20:12.879 free cash flow coming in the future to invest in 0:20:12.920 --> 0:20:16.680 their business, and the company could even easily borrow to invest, 0:20:16.760 --> 0:20:18.119 but there's no need for them to do that, and 0:20:18.160 --> 0:20:19.679 they seem to have no desire to do that. 0:20:19.960 --> 0:20:23.560 Speaking with Steven Flynn, Senior credit analyst for Bloomberg Intelligence 0:20:23.600 --> 0:20:26.960 along with Bimedia analyst Githa Rongganathan, as we look ahead 0:20:27.000 --> 0:20:34.440 to Netflix earnings this week. Githa, we've been talking about content, subscribers, advertising. 0:20:34.520 --> 0:20:37.960 How is the advertising environment right now? Do you see 0:20:38.000 --> 0:20:42.639 advertisers willing to spend to be on Netflix, particularly with 0:20:42.760 --> 0:20:43.880 some of these live events. 0:20:44.520 --> 0:20:47.439 I absolutely think so. So advertisers are going to go 0:20:47.560 --> 0:20:51.000 wherever eyeballs go, and we are seeing more and more 0:20:51.080 --> 0:20:54.760 content move to streaming. So we've seen this big shift 0:20:54.880 --> 0:20:57.800 away NASAN from linear TV into what is known as 0:20:57.840 --> 0:21:01.240 connected TV. Linear TV is know was a sixty sixty 0:21:01.280 --> 0:21:04.040 five billion market, but connect to TV has been really 0:21:04.119 --> 0:21:07.360 growing at a very very rapid pace and advertisers are 0:21:07.440 --> 0:21:10.000 kind of really scrambling to make sure that they reach 0:21:10.119 --> 0:21:13.840 their audiences. We've seen some pretty hefty numbers in terms 0:21:13.840 --> 0:21:16.280 of viewership for all of these Netflix events. So if 0:21:16.280 --> 0:21:18.639 you look at those Christmas Day games, for instance, we 0:21:18.720 --> 0:21:22.320 had an average twenty seven million people you tune into 0:21:22.359 --> 0:21:25.760 those games. That compares very nicely to broadcast television. So 0:21:25.800 --> 0:21:28.240 they were able to kind of gain the same amount 0:21:28.240 --> 0:21:31.520 of reach that broadcast TV has had, which means that 0:21:31.600 --> 0:21:34.520 they should be very easily able to command the same 0:21:34.560 --> 0:21:36.280