Speaker 1: This is Bloomberg Business Week. I'm Carol Masser and I'm
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Speaker 1: pm Eastern Time on Bloomberg Radio, or watch us on
Speaker 1: YouTube search Bloomberg Global News. I gotta say not fun
Speaker 1: watching shares of Netflix dropped like a rock, especially if
Speaker 1: you here are an investor. Stock down nearly's lows, today's
Speaker 1: creating as investors punished the company for shock loss and
Speaker 1: subscribers in an abrupt turnabout to embrace advertising after years
Speaker 1: of not so we gotta get this story. A few
Speaker 1: people know as much about Netflix as our own Lucas
Speaker 1: Shaw does. He's entertainment reporter for Bloomberg News. He joins
Speaker 1: us now on the phone from l A. Lucas. For
Speaker 1: years we heard from read Hastings and Company that it
Speaker 1: didn't matter if people shared their passwords and that they
Speaker 1: were never going to bring advertising into Netflix. What what
Speaker 1: what prompted this about Face? It's a great question in
Speaker 1: one twitch, I don't think anyone has the clear answer. Uh.
Speaker 1: You know, I've asked people up and down the company
Speaker 1: today because as recently as a you know, a month ago,
Speaker 1: they were saying that the strategy was just to stay
Speaker 1: the course. But it's clear that they have been spooked
Speaker 1: both by the subscriber losses in the most recent quarter,
Speaker 1: in the first quarter, and what they're seeing happening in
Speaker 1: the current one. The second you know this is this
Speaker 1: has been a growth stock for the last fifteen twenty years. Uh,
Speaker 1: and they're not growing anymore, and so they need to
Speaker 1: try a bunch of different things. And what they announced
Speaker 1: yesterday felt a little bit to me like the kitchen
Speaker 1: sink approach, where they were just sort of throwing everything
Speaker 1: at people. All the things they said they wouldn't do,
Speaker 1: they now say they will. The only the only thing
Speaker 1: that they're sort of holding the lines on, holding the
Speaker 1: line on his sports. It did feel like a little
Speaker 1: tinge of desperation and kind of jumping the shark a
Speaker 1: little bit. Um, I mean, is it just that there's
Speaker 1: so much more competition? Is it that we're coming out
Speaker 1: of the pandemic and we're all tired of sitting on
Speaker 1: the couch watching stuff? Is it a couple of things
Speaker 1: that play or is it what is it? Yeah, it's
Speaker 1: hard to pick one reason. You know that the company
Speaker 1: identified for they talked about smart TV penetration, they talked
Speaker 1: about competition, they talked about password sharing. Um, you know,
Speaker 1: you identified one that that they spoke about less. But
Speaker 1: I think it is also an issue, which is people
Speaker 1: are going out into the world and you know, they're
Speaker 1: they're just not as interested in staying home and watching TV.
Speaker 1: You know, it's always hard to diagnose one reason for
Speaker 1: something like this. I do think the competition and reopening
Speaker 1: are probably the two biggest factors. Because password schairing has
Speaker 1: been been an issue for Netflix for a long time,
Speaker 1: they're now saying they're going to do more to combat it.
Speaker 1: But it's not a new problem. The new problem is
Speaker 1: that people have a lot of other things that they
Speaker 1: want to do with their time, including other services where
Speaker 1: they can get pretty much that you know, this the
Speaker 1: same quality shows and often actually had a cheaper price, right, Hey,
Speaker 1: I do wonder you know, Lucas. I think all of
Speaker 1: us were kind of shocked with the headline crossed about
Speaker 1: Netflix losing subscribers yesterday, to the point where like, wait a, ma,
Speaker 1: is this a mistake? Right? Because it was just not
Speaker 1: what we were anticipating. Here we are kind of the
Speaker 1: morning after. How are you thinking about the Netflix story
Speaker 1: going forward? What are you hearing? Are kind of the
Speaker 1: smart conversations to be having, because I'm thinking about a
Speaker 1: lot of investors out there are pretty pretty spooked right now.
Speaker 1: They have they have a right to be spooked. This
Speaker 1: is the most vulnerable the company has felt in a
Speaker 1: long time. Um, you know, it's it's not really clear
Speaker 1: exactly where they go from here. I think some of
Speaker 1: the comments from read Hastings and others caught people even
Speaker 1: inside the company off guard. Um you know, I remember
Speaker 1: having a meeting with someone at Netflix, uh, you know,
Speaker 1: a few months ago in which I detected a shift
Speaker 1: and how they were talking about advertising and it felt
Speaker 1: to me like this was coming. And when I asked
Speaker 1: other people at the company, they told me not to
Speaker 1: make too much of it. And so the clearly things
Speaker 1: have changed over the last couple of months. You know,
Speaker 1: if you take what what read Hastings said yesterday, it
Speaker 1: feels like they're in the you know, they're they're just
Speaker 1: trying stuff right now. I don't think they have any
Speaker 1: idea exactly what advertising on their service is going to
Speaker 1: look like. I don't think they are they have a
Speaker 1: ton of confidence or certainty that trying to curR password
Speaker 1: sharing is going to work. And one of the things
Speaker 1: that that did strike me yesterday was that they didn't
Speaker 1: talk a lot in about content or shows in in
Speaker 1: diagnosing their problems. They've always attributed you know, the quality
Speaker 1: of their shows and popular titles with attracting new subscribers,
Speaker 1: and you'd think that maybe that's one of the reasons
Speaker 1: why they've they've now run into a problem, is that
Speaker 1: their shows aren't being as effective at bringing people in
Speaker 1: Lucas I see a drop like this, and I think
Speaker 1: back to more than ten years ago, the quick Stir debacle,
Speaker 1: when Read Hastings had to come out and essentially apologize
Speaker 1: for confusing consumers about splitting the businesses and to one
Speaker 1: the DVD business, the other, of course, the streaming business
Speaker 1: that it's now known for is this another quick a
Speaker 1: moment for the company where it doesn't really understand its
Speaker 1: identity moving forward. Well, so it's interesting that you bring
Speaker 1: that up because Quickster was the last time that that
Speaker 1: they had a subscriber loss. But Quickster was was more
Speaker 1: of a like a kind of a an optics error
Speaker 1: or or a minor tactical ayer. The big picture strategy
Speaker 1: was dead on what retast Things was trying to do
Speaker 1: with the company in splitting DVD by mail from from streaming,
Speaker 1: was getting ahead of what he saw as the next
Speaker 1: evolution in entertainment. And Netflix has been ahead of the curve,
Speaker 1: first with that and then with producing original programming. They
Speaker 1: sort of saw the threat to their business and they
Speaker 1: got ahead of it. What's interesting this time to me
Speaker 1: is it feels more reactive. You know, Netflix is now
Speaker 1: the incumbent and they're not really sure what their next
Speaker 1: move should be. Um So I actually think it's a
Speaker 1: it's a totally different situation similar in that you know,
Speaker 1: there's there's now an existential threat, but they don't necessarily
Speaker 1: have the answer. Just got first of all, Netflix DVDs,
Speaker 1: I mean in the mail just sounds so quaint. Hey
Speaker 1: just got about twenty thirty seconds here, Lucas um, should
Speaker 1: we not be counting Netflix out or read hastings. No.
Speaker 1: I mean, look, this is a company with two million customers,
Speaker 1: run by one of the most successful entrepreneurs in the
Speaker 1: last twenty years. It's not like it's going to die tomorrow,
Speaker 1: but they do face a greater challenge than they have
Speaker 1: in a very long time. All Right, we're gonna run. Hey,
Speaker 1: great reporting and great conversation. Of course, our Bloomberg News
Speaker 1: Entertainment reporter Lucas Shaw. Netflix shares tanking today. They're now
Speaker 1: down six so far here in two stocks down right now.
Speaker 1: Lucas the story the most read on the Blueberg terminal
Speaker 1: in the last eight hours. Already tweetered it out if
Speaker 1: you haven't read it yet on Blueberg dot com. We're
Speaker 1: still reeling from that. You're listening to Bloomberg Business Week
Speaker 1: with Carol Messer and Bloomberg Quick Takes Tim Stinovic on
Speaker 1: Bloomberg Radio. So we are focusing, like all of us,
Speaker 1: on what's going on with Netflix still down about thirty
Speaker 1: six percent. It's also dragging down some other members of
Speaker 1: the media group. Roku is down more than five percent.
Speaker 1: Paramount is down seven point four percent. Disney UH is
Speaker 1: down about five percent. So we want to bring in
Speaker 1: a member of our Bloomberg Intelligence team who watches this space.
Speaker 1: It just has some great insight, and we're talking about
Speaker 1: Gita Rockney, goth and technology and media analysts for Bloomberg Intelligence.
Speaker 1: She joins us on the phone from our Princeton, New
Speaker 1: Jersey bureau, Guita. I know it's been a very busy
Speaker 1: day for you, so we certainly appreciate you taking the time.
Speaker 1: We spoke to Lucas specifically about Netflix in the last
Speaker 1: few minutes. We want to broaden the conversation with you
Speaker 1: and talk more about the ecosystem right now, because for years,
Speaker 1: linear companies have been in the midst of this transformation
Speaker 1: that Netflix really invented, and they seem to be doing
Speaker 1: a pretty good job. Are there new questions now? That
Speaker 1: was about the sustainability of streaming as a business after
Speaker 1: Netflix's shocking quarter. Absolutely uh, And thank you so much
Speaker 1: Tim and Carol for having me. I think this was
Speaker 1: really a reality check, right This was a wake up
Speaker 1: call for media um and for the full streaming model
Speaker 1: as a whole. So I think there are a couple
Speaker 1: of things here that we kind of really have to
Speaker 1: look at UM. I don't think, you know, if you
Speaker 1: kind of look at some of the other streaming entrance,
Speaker 1: like you look at a Disney Plus or or even
Speaker 1: a Discovery plus, HBO Max, those companies are all still
Speaker 1: pretty nascent in terms of their streaming growth, and so
Speaker 1: I don't necessarily think they'll face these headwinds right away.
Speaker 1: But I think what it does do is kind of
Speaker 1: raised the question about what the total addressable market is.
Speaker 1: And I think that's where, uh, you know, we kind
Speaker 1: of had a real investor reset last night when Netflix
Speaker 1: told us that they were already very very highly penetrated.
Speaker 1: So they talked about the two hundred and twenty million
Speaker 1: subscribers that they have globally, but then they said they
Speaker 1: also have another hundred million, you know, households who are
Speaker 1: possibly like freeloading, you know, with with the whole password
Speaker 1: sharing issue going on, which means that they've already attained
Speaker 1: what they think is very very high penetration. So if
Speaker 1: you look at just the US market, for instance, it
Speaker 1: means they're all probably already at about an eight percent
Speaker 1: penetration level. So I think the you know, when you
Speaker 1: kind of then expand that what it does is um
Speaker 1: almost reduced the total addressable market um for you know,
Speaker 1: streaming subscribers. So we've been traditionally taught to think that
Speaker 1: it's about a billion global Internet connected households. I think
Speaker 1: that market is actually much much smaller now kind of
Speaker 1: given Netflix's assessment of the situation, and so then that
Speaker 1: reduces the potential for all of these other streaming companies
Speaker 1: as well. Wait, so you don't think it's the potential
Speaker 1: in terms of Internet connected market globally is a billion?
Speaker 1: You think it's smaller than that. I think. I think
Speaker 1: that's exactly what Netflix was kind of trying to tell
Speaker 1: us last night when they said, you know, penetration is
Speaker 1: already very very high in most of these markets, and
Speaker 1: they kind of spoke around it, you know, by by
Speaker 1: you know, talking about passwords sharing. But I think the
Speaker 1: basic point being that it's not the one billion that
Speaker 1: we're used to thinking. It's probably closer to maybe half
Speaker 1: of that. So maybe why all of a sudden they're
Speaker 1: realizing this, Yeah that no, that is that is the
Speaker 1: you know, that is the question, I think, and I
Speaker 1: think they were so this was the first time on
Speaker 1: the earning skull that we really saw management kind of
Speaker 1: lack that usual swagger and confidence. Right, they really looked,
Speaker 1: you know, like deer in headlights, not really being able
Speaker 1: to explain why you have this sudden you know, slow down,
Speaker 1: and they looked just as blindsided as you know, the
Speaker 1: rest of us. So it was really an interesting picture
Speaker 1: for Tim. He's trying to get any Is this like
Speaker 1: an ESPN moment? Remember when those ESPN numbers were lousy?
Speaker 1: Email like, oh my god, ESPN is over right, exactly,
Speaker 1: well medium down two point oh okay. So but ESPN
Speaker 1: is doing okay, right, ESPN is doing okay. They're throwing
Speaker 1: off about five billion dollars and even yes they are.
Speaker 1: So is this can we compare that? Is it apples
Speaker 1: to apples? So I think, Carol, I mean, this is
Speaker 1: such a such a great question, and this really kind
Speaker 1: of brings us to, you know, what is the future
Speaker 1: for all of these media companies? So, yes, you know
Speaker 1: Disney included ESPN's parents is in the midst of this
Speaker 1: three make a pivot. We know that linear TV is
Speaker 1: kind of you know, I don't want to say it's dead,
Speaker 1: but it's definitely not thriving. You know, more and more
Speaker 1: people are cutting the cord, but then the streaming model
Speaker 1: is not necessarily thriving either, And so now they're kind
Speaker 1: of hit on both ends. Right. They have their their
Speaker 1: traditional cash cows no longer, you know, throwing off tons
Speaker 1: and tons of cash. It's still pretty stable, but there's
Speaker 1: no growth there. Uh, And you have them throwing all
Speaker 1: this money into the streaming business, and probably the economics
Speaker 1: there aren't going to be as great as they had
Speaker 1: originally thought it would be. So you know, it's kind
Speaker 1: of this double whammy right now. Alright, Kee Rocknegothen, thank
Speaker 1: you so much for joining us technology and media analyst
Speaker 1: a Bloomberg Intelligence. This is Bloomberg Business Week with Carol
Speaker 1: Masser and Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio.
Speaker 1: Life imitating art, Art imitating life. I used to think
Speaker 1: about that when I watched your Times Home, because it
Speaker 1: really felt that way. Not sure thought of cartoons, and
Speaker 1: I'm pretty sure that many of us thought about that
Speaker 1: relationship and predictive insight when we were watching Pixars Wally
Speaker 1: when that came out in two thousand eight. Writer and
Speaker 1: director of Wally Alex Stanton addressed that in a quick
Speaker 1: Take feature that was by our own Alex Webb. You know,
Speaker 1: the funny thing we found out was like, where do
Speaker 1: you think technology would go? And why? And what ended
Speaker 1: up being our way to to guess that was what
Speaker 1: would seduce you because we were watching it happened with
Speaker 1: the phone, and we were watching happening with these electric scooters.
Speaker 1: It's like fast food. You know it's bad for you,
Speaker 1: but it's just deductively too tasty and you you cave.
Speaker 1: Ain't that the truth? All right? That was writer and
Speaker 1: director of Wally, Alex Stanton in a quick Take feature
Speaker 1: by Alex Webb. Alex Webb is a correspondent for Bloomberg
Speaker 1: Quick Take. He joins us on the phone from London,
Speaker 1: also joining us as Joel Webber, editor at Bloomberg Business Week.
Speaker 1: He joins us on the remote access line from Brooklyn, Joel,
Speaker 1: good to have you with us. The comment about the
Speaker 1: phone really hits hard considering that Stanton was at Pixar,
Speaker 1: where as Alex Webb rights uh Steve Jobs at the time,
Speaker 1: spent about half of his week, so he saw an
Speaker 1: early version of the iPhone. Hard to believe that Wally
Speaker 1: came out all the way back in two thousand and eight,
Speaker 1: because it feels like that world is playing out for
Speaker 1: us right now. It's really eerie. Um. Actually, what's what's
Speaker 1: transpired since then? You know? I remember watching Wally in
Speaker 1: the theater again in the real before times, right, um,
Speaker 1: And even back then it was like, oh wow, this
Speaker 1: is like, you know, deeply satirical. But what makes story
Speaker 1: ud remarkable is just how much of reality now looks
Speaker 1: like uh what was depicted in the movie. So So, Alex,
Speaker 1: where did this idea come to you from? I mean,
Speaker 1: I guess I've got to admit to my later Disney obsession,
Speaker 1: and I think that actually it was the The real
Speaker 1: thing that drove for me was the space tourism and stuff.
Speaker 1: When last year when we saw particularly Blue Origin taking
Speaker 1: tourists to space, and I thought, well, that's the final
Speaker 1: piece in the sort of By and Large puzzle in
Speaker 1: the film. There's sort of monopolistic retailer called By and Large,
Speaker 1: which is basically Amazon, and they also run this space
Speaker 1: tourism operation. And so that was the sort of final straw,
Speaker 1: which when we think I've got to do something on this,
Speaker 1: I gotta say it's terrifying. I was reading a story
Speaker 1: by our Blue or Green Chief or Groston that talked
Speaker 1: about how carbon emissions are kind of back to where
Speaker 1: they were pre pandemic. Uh, it's terrifying to read this.
Speaker 1: I'm curious if you were smoking anything when you wrote this,
Speaker 1: But I'm just kidding. He's a father of tuld No.
Speaker 1: But you hit it so much. You know, we see
Speaker 1: so much that we think, Okay, this can never happen,
Speaker 1: but it is playing out. I mean, what do you
Speaker 1: think people who read this should kind of sit up
Speaker 1: and take notice about quite how near in the future was.
Speaker 1: We tend to think about science fiction as being centuries
Speaker 1: away and or or fifty years away. And and you know,
Speaker 1: when we looked at the two one space, obviously obviously
Speaker 1: we're twenty years beyond that, and not really much of
Speaker 1: it has happened in the way it was envision back then.
Speaker 1: This managed to look just around the corner. And the
Speaker 1: other piece of it, though, that I found fascinating, is that, yes,
Speaker 1: art sometimes imitates life unintentionally, but sometimes we you know,
Speaker 1: it influences the way that we think about things, and
Speaker 1: the the way that we decide to evolve is of
Speaker 1: course informed by the science fiction of the past. So
Speaker 1: you know, the metaverse is obviously a prime example of that.
Speaker 1: But even in this, like on a very granular level,
Speaker 1: the ship that the SpaceX rocket that launched two weeks ago,
Speaker 1: three weeks ago now, um, taking tourists in International Space
Speaker 1: Station is called the Axiom, and the ship in Wally
Speaker 1: is called the Axiom. You know, so this is presumably
Speaker 1: some sort of joke by by the founders of the
Speaker 1: company that is taking these people to space. But but
Speaker 1: you know, there is somethings that are unintentional and some
Speaker 1: things where this actually shapes the way we think about
Speaker 1: the future. Well, what what were some of the other
Speaker 1: compelling coincidences or maybe not coincidences, the things that that
Speaker 1: you know, you you wrote about in the story that
Speaker 1: you know, the similarities between what's depicted in the show
Speaker 1: and how how life looks. Now, what were some of
Speaker 1: the most compelling ones. Well, the people in the show,
Speaker 1: they're sort of a beasts living on this spaceship, and
Speaker 1: of course the bast levels have continued to increase and
Speaker 1: have gained pace in recent years. But also the people
Speaker 1: on the on the ship, they communicate through video call
Speaker 1: they you know, with people sometimes six ft away from them.
Speaker 1: And I don't know about you guys, but I've certainly
Speaker 1: been on calls in the morning calls, editorial calls where
Speaker 1: I'm on the video call on the person of the
Speaker 1: desk next to me is at the same video call,
Speaker 1: and we're talking through through a zoom link rather than
Speaker 1: talking in person. And finally, they eat smoothies, which that's
Speaker 1: their meal replacement is a smoothie. And of course we've
Speaker 1: seen Hull and Soil and all these other sort of
Speaker 1: brands take off over the past decade. There's one further
Speaker 1: thing actually that I didn't mention either in the piece
Speaker 1: or the video form for time constraints, but the CEO
Speaker 1: of by and large this Amazon proto Amazon is also
Speaker 1: functionally the head of state. When you think about sort
Speaker 1: of a businessman becoming head of state, something like that
Speaker 1: seems to have happened recently. Yeah wow, speaking of yeah
Speaker 1: imitates life. Hey, Alex, what is what is Andrew Stanton,
Speaker 1: the writer and director of Wally, what does he think
Speaker 1: about all this? He said that he like, he said,
Speaker 1: he wished you hadn't been so right. You know, we spoke,
Speaker 1: we I spoke about twenty minutes. We used some of
Speaker 1: them in video and of course a quote a little bit,
Speaker 1: but he uh said, you know, his words were, I
Speaker 1: usually enjoy being right, but not on this one. And
Speaker 1: um he sort of was chuckling, but with a sort
Speaker 1: of rye um sense of essentially disappointment. Really, yeah, I
Speaker 1: do wonder like the creative process of what they were thinking.
Speaker 1: And you know, obviously you know where they were getting
Speaker 1: a lot of inspiration and from, um, but he has
Speaker 1: to be probably less about what Alex was smoking and
Speaker 1: when they were smoking. Yeah, I know, I've penned the Pixar.
Speaker 1: It's a really creative place where you can kind of
Speaker 1: do whatever you want. Um, but I they've just got
Speaker 1: to be marveling it. Like for me, it's a little
Speaker 1: freaky how much they got right. And I can't Joel
Speaker 1: knows this, Tim knows this. I joke that we're all
Speaker 1: going to be living in the metaverse because the climate
Speaker 1: is going to be so bad. Funny but not funny, Alex. Yeah,
Speaker 1: the thing that was actually quite interesting as well, if
Speaker 1: you know, you mentioned in the in the lead here
Speaker 1: that Steve Jobs was of course the see of Pixar,
Speaker 1: and he said that understanding told me that they actually
Speaker 1: saw the iPhone a year before it came out that
Speaker 1: they were at a party with Steve Jobs and he
Speaker 1: just couldn't resist showing off this sort of metal as
Speaker 1: the chunk of glass and aluminium, and the analogy that
Speaker 1: Irew Stanton he is talking about smoking things. He said
Speaker 1: that he used to be a smoker, and that like
Speaker 1: when he saw the kind of effect that even just
Speaker 1: having the iPhone for a few minutes had, and like
Speaker 1: the kind of obsessiveness that people were just sucked into it.
Speaker 1: And he said it was like when he was standing
Speaker 1: at the bus stop, have nothing to do and smoke
Speaker 1: a cigarette. Now he could see the people like be
Speaker 1: getting on their phones and so that fed into this
Speaker 1: this whole thread in the film, which I think you know,
Speaker 1: it's ostensibly a film about two robots falling in love,
Speaker 1: but it's really a kind of fable about over consumption
Speaker 1: and tech addiction. And those are the two I think
Speaker 1: you know, there are two huge themes in society at
Speaker 1: the moment. And uh yeah, it is something that he
Speaker 1: was informed by his proximity to Apple. I'm sorry, Alex,
Speaker 1: did you say something I was on my phone? No,
Speaker 1: I'm only kidding. I'm only It's just unbelievable. This is
Speaker 1: a great, great read, a great story, Joel, did you
Speaker 1: have something you wanted to say? Yeah, well, we'll see
Speaker 1: you in space. You know that's the next shooter drap.
Speaker 1: I guess it will be floating in space, right, Yeah,
Speaker 1: Happy Wednesday everybody. Um. Alex Webb, thank you so much.
Speaker 1: An incredible right and incredible read. Uh. He's correspondent Bloomberg
Speaker 1: Quick Take. Check out his piece his feature piece too
Speaker 1: on quick Tape. Joining us from London, Jill Webber. He's
Speaker 1: the editor of Bloomberg business Week, and this is Bloomberg Radio.
Speaker 1: Thanks for listening to Bloomberg Business Week. Download the podcast
Speaker 1: on iTunes, SoundCloud, or Bloomberg dot com. And you can
Speaker 1: also listen to our radio show at two pm Eastern
Speaker 1: on Bloomberg Radio or watch us on YouTube. Search to
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