00:00It's really, I was going to say, a great day to talk about Netflix, but maybe not so much with
00:04the stock down.
00:04But do you think that Netflix still has a major growth runway, or maybe are the easy days of gains
00:10behind Netflix?
00:13Well, the bears are certainly in charge, and when we speak to institutional investors,
00:18they want to put sort of a traditional, you know, PE multiple on this of something in the low teens,
00:24and that seems to be the direction of travel.
00:26Well, what I suggest to clients is there's quite a few levers that Netflix has at their disposal that are
00:32sort of underappreciated.
00:34The company talked about on their public call about new high-end tiers, new low-end tiers.
00:39So I could imagine things like paying extra to binge watch, right, and not giving that to every consumer for
00:46free,
00:47charging premiums for early access to their films.
00:50And so there are absolutely levers that they have at their disposal.
00:55Is the growth going to re-accelerate?
00:56I don't think so.
00:57But can it stay in this, you know, double-digit range for a number of years?
01:00I think the answer is yes.
01:02Yeah, I mean, that's actually a great point.
01:03I think a lot of people would pay a little extra to be able to binge watch or just, you
01:07know,
01:08they would tell themselves they wouldn't do it, but just to have the option there, right?
01:12So, I mean, obviously, these are things that the company is thinking about,
01:16and it's implemented so many new things.
01:18Because why would it have a problem implementing these new things, Jason?
01:22Why are investors losing confidence?
01:26Well, on this particular quarter, I think they lost confidence
01:29because Netflix has very carefully trained the buy side to sort of follow this simple algorithm,
01:35which is Netflix spends money on content.
01:38They drive engagement.
01:39That engagement allows them to ask for permission to take a price hike.
01:43And so what the buy side is looking at is the engagement numbers are falling.
01:47And so that makes investors very nervous that they're not going to be able to get pricing.
01:51That's sort of the soft hypothesis.
01:53What happened in the quarter that they just reported is in the United States,
01:57they announced a price hike that took effect in the second quarter.
02:01But the U.S. and Canada's division of Netflix missed street estimates.
02:06And so what investors think is, oh, they took the price hike,
02:09but because the engagement is down, they must have lost subs.
02:11Now, the company says that's not true, but it was a tactical data point that fed into that buy side
02:17narrative.
02:18And that's why you're seeing outside downside performance in the stock today.
02:22What about other initiatives of Netflix?
02:24Do you think live sports, podcasts, or even ads can become meaningful growth drivers?
02:28And if so, by how much?
02:31Yeah, so, I mean, we've argued for a number of years that the direction of travel,
02:35if you look more broadly in the entertainment landscape, is what I call open platforms.
02:40That is content that is not curated by some sort of expert.
02:45And so what does that mean?
02:46In the video world, it means YouTube grows faster than Netflix.
02:49It means in the publishing world, Substack grows faster than a lot of other publishers.
02:54And you can just go through the list of any sort of media vertical.
02:56It's the same pattern.
02:58Open beats closed.
03:01This is probably one reason why there is this visceral reaction to Netflix trying to go out and buy traditional
03:06media,
03:07because much like generals are often accused of preparing their battle plan to win the last war,
03:12the future direction of travel may be more around user-generated content.
03:16Netflix used to sort of scoff at this notion two years ago.
03:19They clearly have made some JVs where they're bringing in more podcast content and more content from content creators.
03:27And I think they just need to go in that direction, but probably go faster than what's been announced so
03:32far.
03:33Yeah, I mean, it lost out most recently on Roku.
03:36Are there any other assets like that that it might pursue again?
03:39Or were these, you know, two particular assets that they wanted and if they weren't available,
03:43it's not that they're just going to acquire for acquiring sake?
03:47Yeah, I mean, there's a number of potentially traditional media assets that they could buy.
03:52The one investors are talking about now is NBCUniversal, which is getting spun off from Comcast in about a year.
03:59You know, I think what would be more intelligent for Netflix to do is not to go back and try
04:03and buy IP
04:04or buy a traditional film and TV studio.
04:07The direction of travel should be if Netflix goes out and makes some documentary about some crime that occurred,
04:14maybe give that content earlier, like a sneak peek to content creators that will go do things on YouTube, right?
04:23And then put that user-generated content next to Netflix early, right?
04:28And then allow the consumer to go in, watch the Netflix show.
04:31But if they want to go deeper, not pop out of the app and go to YouTube,
04:34stay inside the Netflix app and sort of watch user-generated content that's been created around something that Netflix has
04:41built.
04:41So this is a strategic, I think, shift that Netflix needs to go through.
04:45And then it doesn't necessarily require M&A.
04:50What it requires is just a reorientation of how they spend their content spending to lean more into content creators.
04:55Yeah, capture and keep.
04:57Yeah.
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