Investment Insight: Netflix's stock dropped by 6% due to a lower-than-expected operating margin of 28%, attributed to a tax dispute with Brazilian authorities, which the company claims will not affect future results.
Market Outlook: Despite the setback, Netflix has experienced a 40% stock increase in 2025, reflecting high investor expectations and the company's strong performance in content engagement and strategic programming.
Content Strategy: Netflix's investments in live programming and popular franchises like "Squid Game" and "Wednesday" are driving user engagement, with upcoming NFL games expected to further enhance its content portfolio.
Competitive Landscape: The streaming market is highly competitive, with Netflix facing challenges from platforms like YouTube, Twitch, and emerging AI services, necessitating continuous innovation and content development.
Acquisition Speculation: Discussions around Netflix potentially acquiring Warner Brothers Discovery highlight strategic opportunities to expand its content library, although Netflix has historically focused on building its own franchises.
Advertising Revenue: Netflix's advertising business is in transition, with plans to enhance its ad tech stack to better monetize its growing ad-supported subscriber base, which is crucial for long-term revenue growth.
Industry Trends: The shift towards streaming as the dominant form of ad sales is evident, with live sports becoming increasingly significant, a sector Netflix is beginning to explore.
Future Prospects: Analysts see potential for Netflix to become a trillion-dollar media company, driven by its strategic content investments and expanding advertising capabilities.
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Trading at Schwab is now powered by Ameritrade, bringing you an expanding library of education with even more ways to sharpen your trading skills. Access new online courses, insightful webcasts, articles, engaging videos, and more, all curated just for traders. Plus, guided learning paths with content designed to fit your unique interests. No sifting to find exactly what you need, so you can spend your time learning to trade brilliantly. Learn more at schwab.com/trading. This holiday season is likely to be a roller coaster for logistics and manufacturing, but having the right staff in place can be easy when you choose Express Employment Professionals. They can handle everything to ensure you have the rightsiz contract workforce. Go to expresspros.com. Solve your workforce challenges when you choose Express to support your hiring in a variety of roles, including two of our biggest areas, manufacturing and logistics. Visit expresspros.com today. That's expresspros.com. >> How many vendors does it take to meet all your organization's food needs? Just one. Easyater, the workplace food platform that lets teams order from a huge variety of restaurants, over a 100,000 nationwide, all through a single vendor. In addition to all that variety, Easy Cater also gives you full visibility of your organization's food spend with invoicing, centralized reporting, and seamless integration with expense management systems, all on one platform. Easyater, your business tool for food. To learn more, visit easycater.com/mpodcast. >> Bloomberg Audio Studios. Podcasts, radio, news. This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3,000 journalists and analysts around the world. Shares of Netflix down to the company forecast revenue for the four for the full year. The guidance met the average analyst estimate, but operating margin of 28% came in below Netflix's guidance of 31.5%. That was due, the company says, to an expense related to an ongoing dispute with Brazilian tax authorities that was not in our forecast. Is that what has investors not so happy? >> I don't know. It feels like a one-off, but I don't know. >> They say it's a one-off. The company says that, you know, we don't expect What did they say in the in the press release? They say, "We do not expect this matter to have a material impact on future results." >> Yeah. All right. Got it. But investors are sending the stock down about 6%. Keep in mind the stock has had quite a run this year as we mentioned up almost 40% here in 2025. So investors maybe expect a lot out of it. >> Let's bring in Felix Gillette. He is the man who knows about media. He's Bloomberg News media entertainment editor. He's also the author of It's Not TV, the spectacular rise, revolution, and future of HBO, which yes, we're going to be talking about HBO in just a minute. He does join us here in the Bloomberg Interactive Brokers studio. Going through the results here. Look, as Lucas pointed out earlier, this is a $500 billion company. Expectations are high. Yeah, >> everybody kind of looks to it. Uh, is the reaction that we're seeing because of this one-off from the Brazilian tax authorities? >> It seems that way, although again, it's a crazy time in Hollywood. You know, taking a step back, there is competition coming from everywhere. YouTube, Twitch, AI, new AI services. But, you know, if you take a breath, you look at the third quarter slate. They had an incredible engagement across the board. You know, they had K-pop Demon Hunters, the most popular movie in the history of the service. >> 325 million views, it says in the press release, >> new Squid Game episodes. Uh, you jump on there now. You got new Wednesday episodes. The franchise are all doing really well. At the same time, all these investments they've made in live programming, WWE, boxing, uh, you know, all of that is starting to really pay off. They're going to have their first NFL games coming this Christmas. So, you know, I think from a strategic uh programming platform, you have to say that things are going well for Netflix. >> I mean, yeah, I'm looking at I guess they're talking about one fight uh here. Was it the uh Alvarez and Crawford fight or something? >> I knew that was a you were Carol was up all night waiting for that. >> I was totally up all night. I was not up all night, but it said across Netflix's social channels, the fight generated over 950 million owned impressions. So, uh it's a lot of momentum. Um having said that, there's lots of competition. I know when I'm looking around for things to stream, sometimes I stop on Netflix, sometimes I don't. I mean, what's what's what is it that it needs to kind of keep doing in terms of the momentum? Is it, Felix, all about the spend and making sure their IP and their content keeps bringing in the eyeballs? >> Yeah. And making sure that the churn rate stays low and that people looking forward think that there's something coming down the pipeline that they need to stick around for because it's so easy to bounce in and out of these streaming services. Now you watch a, you know, a show that you love and then you kind of binge watch and then I'll cancel that one. I'll pop over to the next one, subscribe to that, watch, cancel. And yeah, Netflix, I think more so than the other streaming services, has done a good job of making sure that there is this steady drum beat of, oh, you got to stick around because Wednesday's coming back. Oh, you got to stick around cuz Stranger Things is coming back, you know. >> Yeah, it's brilliant. I mean, it's an easy service to cancel. They they kind of pride themselves on that, but there's no reason to cancel if you want to watch that next thing. I promised we'd talk about HBO because my mind was a little blown a little earlier today when we got a report from uh Lucas Shaw and Kelsey Griffith that uh >> Warner Brothers Discovery is >> in the running for Netflix. >> Uh which is a little bit of a surprise to me given what we heard from uh Greg Peters that they're builders, not buyers. Lucas made the point to us on our air in the 2:00 hour that maybe they could carve it up a little bit and they would get the studio and he made this comment that they might not even take HBO and they just feed HBO's programming, >> right? >> And I was like that's a crazy world that we're living in when like less than a decade ago. >> Yeah. >> You know, you had >> uh Reed Hastings saying we want to become HBO faster than HBO becomes us. Yeah. >> And now they are the they are the media giant. They are the incumbent. >> Yeah. And meanwhile, HBO's parent company has been staggering through one, you know, M&A deal after another and they haven't worked out. Um, and so once again, we're talking about who's going to buy Warner Brothers Discovery's assets and today they're saying, well, you know, we have interest from multiple parties. We were going to reorganize the company and these two, you know, one part of the company would be focused on the studios and streaming. the other part would be the TV networks, but maybe, you know, we'll be open to different possibilities, including potentially selling parts instead of the whole. Um, and yeah, I think Netflix clearly wouldn't want to be owning a bunch of cable uh networks. They don't want to own CNN. They don't want to get into that business. But would they take a look at the library? I think due diligence, you have to because Warner Brothers Discovery still has one of the biggest, richest libraries of IP in the world. They have Harry Potter. They have, you know, the Hobbit universe. They have DC Universe. They have so many different things. >> What would happen if you had walked into Richard Pller's office 10 years ago and said Netflix could buy you? >> Yeah. He'd have a stroke. I mean, this is just like a crazy world we're living in. >> It's been very topsyturvy. And you know, Netflix Star has risen uh to the point where yeah, they're the dominant streaming service and and they're in control and they can kick the tires on uh you know, the entire company or whatever bits and pieces. >> This is Time Warner like happening all over again or something or no to go through the whole history. You now we had AOL Time Warner, we had Time Inc., Time Warner Inc., Warner Media, AT&T, Discovery. I mean, it's just you have to Yeah. It's a whole alphabet of of different companies that have now been in charge of this. >> Is content still king? >> Yeah. But it's king for five minutes and then the next thing comes down the pipeline. You have to It's so It's just endless. You can never rest. >> Is Netflix a good indication of the US economy? Is US Netflix penetration? Is it discretionary in your view? I think that it's proven that uh consumers are fairly willing to pay more for it. You know, they've been r raising the prices and people haven't been cancelling. Um which is, you know, somewhat a good sign for Netflix that the demand has proven strong regardless. And I see that in my own house. It seems like Netflix has become kind of like the base one you keep and then you cycle in these other ones as sort of these ancillary add-ons. Um, and I think that's the position that Netflix has wanted and that's the position that HBO enjoyed as the first mover premium cable network for decades. You know, it was it was always you get HBO and do you want Showtime or Cinemax or do you want, you know, one of these other services. Now Netflix very much has that primary foundational position. >> That just seems so sweet and it wasn't such a long time ago. Uh, Felix, do not go anywhere. Uh let's bring into the conversation uh Mark Douglas, founder, chairman, president, and CEO of the publicly traded $1.2 billion market cap advertising and marketing company Mountain uh joining us here. Um Mark, come on in. Good to have you back with us. Uh Carol Masser, Tim Stenc, and Felix Gillette, all of Bloomberg here. Uh walk us through what you see as interesting from Netflix as the stock continues uh to be under some pressure here in the aftermarket. Let me just bring it up on my Bloomberg just to update everybody. It's down about 4.3% here. >> Yeah. Well, I think obviously investors are reacting to the slightly mixed earnings results, but the industry as a whole right now I think is in in in its entirety is a bit in a transition. We are fully fully moving into streaming is the dominant form of ad sales in the industry meaning that Disney's Netflix of course because they're only streaming and things like that. live sports is becoming a really really big deal. Something that Netflix is dabbling in a bit. Um and so I feel like right now there's just a lot of the same and it's just execution is the key word. Um you're not going to see a bunch of big announcements. You're just going to see everyone focused on growth. I also think the potential to acquire um a um Warner Brothers Discovery is very interesting and I think the value of Discovery is possibly being, you know, underestimated what Netflix could do with the disco all the Discovery content and essentially reignite a lot of that content. >> So Mark, do you think Netflix should do it? Should Netflix buy Warner Brothers Discovery or at least parts of it? >> I I I personally think it would be a terrific move. I mean, I don't know if that means the end of, you know, CNN period like CNN, >> you know, remember they're carving they're carving off the live TV portion anyway in this, you know, a potential spin-off at this point. So, they wouldn't have to buy at all. Uh, our reporting has indicated fantastic assets there. I mean, White Lotus and the um dragons and the almost the entire, you know, um Discovery catalog that can be not only turned into content people still love to watch, but whole new seasons of content and you know, and probably at a discount in terms of the purchase price. I think it I think it makes a lot of sense for Netflix and and really anyone. I think Warner Brothers Discovery is honestly and I know a lot of people there so I hope they're not going to hate me but like they that it just hasn't been managed well. The assets were there to turn that into a true challenger and and it it just you know continues to do reasonably well but not I think where it should have arrived at this point. >> Felix, come on back in here. You you wrote the book on HBO. What what have been the missteps at Warner Brothers Discovery? Is it is it I mean how much time do we have? But but is it is it Mark here? But in your view is Mark right that it was about it was about the running of it rather than about just the um challenges of the industry and the technological change >> a bunch of different factors. I think as you remember the deal um you know there's been just so many deals that have gone through this company and so many reorganizations and it makes you dizzy when you think about it. I think in terms of the assets, yeah, on paper they look amazing, but um, you know, the idea of just, you know, piling a whole lot of different assets into one service, adding, they thought that adding all the Discovery shows was going to be great for HBO Max. As you recall, they changed the name of the service to Max. Oh, we're broadening it out. We're going to have something for everybody. And then it turns out that a lot of that programming was not uh compelling to the same audience. people didn't want the leanback programming and so you know a couple years into that they say oh we're going to get rid of some of that discovery uh reality programming from the service we're going to go back to naming it HBO Max um so sometimes I think you have to be wary of this idea that more is always more in the streaming world um the assets have to make set yes Netflix has built kind of the Walmart of streaming it's something for everybody but even so they've been very um cautious in their approach and doing it you know step by step um adding things in uh slowly and you know that you've seen them lately making this deal with Spotify where they're now going to bring uh podcasts onto Netflix and you know they've been trying for years to get a some sort of topical uh comedy show working. Everything they've tried has failed and so this will be another opportunity for them to try that. Um, you know, adding everything from the HBO and the broader Warner Brothers library onto the service at once could be a little bit overwhelming. Um, and so, uh, again, the cadence of how you roll these things out is very important in the streaming world. >> Mark Douglas, you know, you have a front row seat in terms of the advertising, uh, market when it comes to certainly these streaming companies. I mean, what does it look like right now? Uh, is there demand? Is there too many places to put it? like give us give us some size and scope here. >> Well, there once Netflix and Disney Plus kind of came in the market and of course Amazon Prime, it created, you know, a surplus of inventory and it's created downward pressure on prices, but overall I think the the big thing that affected Netflix to go back to them is they came into that market thinking that we're going to get Netflix prices, which for advertising are not like the consumer prices. They're like they wanted the highest prices in the industry to advertise on Netflix and they and that essentially got rejected and that they and and the the advertisers, the big agency said, "Look, we want to be on Netflix, but we're not going to pay Super Bowl prices to do it." And so Netflix had to adjust. They had to reboot their ad effort somewhat. They've teamed up a bit with Amazon. Um, and I think it's still going to grow and I think they will do well, but it's definitely taking longer than I think they thought it would. But I would still bet on it long term that if you take their continued growth in subscribers, um, I believe still more than half of the new subscribers are ad supported that they will figure out how to monetize that and that additional growth factor will keep them growing for a very long time. I mean, I I still think I said last year, I think Netflix it has the potential to be the first trillion dollar media company. I still firmly believe that. >> Mark, are there any uh particular demographics for Netflix in terms of the advertising that they could still get better in? Um, you know, we're talking about how it's a very broad service at this point. Uh, kind of all things to all people. Is there any piece of that uh that they're missing? >> Not really, because it's the advertising is not done that way anymore. It's it's it's audiences but the audiences are no longer you know women in this age range. The audiences are people shopping for particular type of products and they have you know they have so many people watching Netflix that there's an audience for everyone. The biggest challenge Netflix is having in advertising is the industry has moved fully programmatic. The ad sales are not or nearly fully programmatic. The ad sales are not done over the phone near anymore. There's not linear bundles or anything like that. And Netflix is playing catchup in that game where they're building their own ad stack, moving off the Microsoft ad stack that they initially um teamed up with Microsoft on and it's taking time and so they're losing out to a lot of the more targeted advertising on television um because they're playing catchup. But once they get there, I think you'll see their their revenue accelerate very very quickly um in terms of their ad sales and that's going to probably post some really outstanding quarters when they do that. Hey Mark, from what you are seeing though about ad sales and how it pertains to Netflix specifically, I'm not quite sure how much uh you can drill down with what you are seeing and the data you are seeing, but does it give us any indication of about how well Netflix is holding on to its audience in the US globally if we're if it indicates anything about churn? Is there anything that you can glean from that? >> I I I I get the question. I don't think so because less than half of their users you know the new half the newest users are more than half but less than half the overall customer base is ad support I think quite a bit less than half that'll change over time and then even within they don't have high ad loads so just because you know they they're they're not serving that many ads given the number of people have signed up to receive them. So, we're we're it's a bit of time away before and they're not fully programmatic where that data is just literally streaming out. To give you to give you some concrete numbers, we receive 4 million pro ad requests to buy a TV ad per second at Mountain and Netflix is nearly zero in that cuz they're still doing the sales kind of like calling the brands and not doing it in the new way, which is it's all electronic. It's like the move on Wall Street from having traders to being, you know, electron fully electronic trading. Netflix hasn't gotten there yet. >> Ah, >> yeah. I'm looking I'm just looking through the press release. The company says, "We've come a long way in building our advertising business in less than three years. In that time, we've gone from zero members on our ads plan to achieving sufficient scale in all 12 of our ads markets. We'll continue to grow from here, building out our ad sales and operations team and enhancing our capabilities for advertisers, including launching our own firstparty ad tech stack, Netflix ads suite. Will that mark change things? >> That's that. Yeah, that's the change. That's what we're waiting on. And that will help the monetization and really nice thing to think about is someone, you know, deciding whether you should invest in Netflix or continue. That is like password sharing the analogy. I mean, in that it's a backlog of revenue. When that releases, it's going to unleash additional revenue. So, they have this growing backlog of users that's saying, "Hey, I'll get ads. Just give me," you know, but they don't have the ability to serve them as fast as people are saying they'll receive them. When that catches up, that's like a whole new growth vector for the company. That's like a back and and and and you're gonna see that, you know, some really nice quarters the way we saw really nice quarters when they got a little stricter about the passwords. >> So, Felix, you have been covering the industry for long enough to remember Netflix saying, "We're never going to do ads. We're never going to do live content. We're never going to do sports." >> Uh, of course, it's done all those things and uh kind of excelled in most of those things. >> Yeah. >> What has Netflix not done yet? >> Well, I guess the acquisitions, right? the circle back to where we started. >> I didn't see I didn't see anything in the press release about that. >> Yeah, let me do a quick like search for Warner Brothers. Nothing in there. >> I mean, is that what everybody's got to talk to? I mean, is that what everybody has to talk to on the call or what? >> I mean, I think that's, you know, that's a big point of discussion at this point. Would they go out and buy a big library? Again, they they've said for years that they wouldn't do that. they, you know, have been building their franchises themselves and they've done a good job at that. But, you know, there's a lot of franchises out there for sale right now. And would they take a nibble? We'll see. >> I mean, I don't know. Mark, last thought uh question to you. I mean, I'm just we're we're waiting for the the call with investors and analysts like what's going to come up on a day where we're trying to figure out what happens with Warner Brothers Discovery. Is that what's top of mind for you with this company? the I mean, like I said, I think they really um getting the ads to monetize at the level at which they're signing up users to receive them, I think is the number one thing as an investor that I'm I'd be looking for. But I think in terms of the content and where they should buy content, you heard my opinion. I think HBO Max just has an incredible catalog of shows that they can, you know, can feed their audience and actually expand like like reignite and and build new episodes. So, I'm I I I think that is the best um um property that's outside of like Disney and Netflix like is is it HBO is Warner Brothers Discovery, but I always think HBO Max, HBO, and and Discovery Channel as the two two premier properties there. >> Mark Douglas, founder, chairman, president, and CEO of Mountain joining us from Miami. Also, a big thank you to Felix Gillettes, Bloomberg News Media and Entertainment editor. He's also the author of It's Not TV: The Spectacular Rise, Revolution, and Future of HBO. >> All right, so let's get to it with our own Bloomberg Intelligence senior media analyst, Gita Ranganathan. Uh she's at BI headquarters in Princeton, New Jersey. Take it away. So tell us what we need to know and why is the stock really down? Is it because of that one-time charge? >> Absolutely, Carol. Uh so operating margin is now the new metric by, you know, how investors kind of look at this company. Uh we've seen just a tremendous increase in the way that they have kind of grown their profits in the way that they've expanded their margins. It was up over 600 basis points last year. We were really expecting them to actually uh exceed uh their guidance for both this quarter as well as to take up uh guidance for the full year. So this kind of really throws cold water and all of those expectations um and overall kind of looks really really underwhelming. >> What's the what's the biggest thing challenging the company right now? I mean the biggest thing I think Tim over the past few months has really been you know the growth of AI and whether that's going to be a headwind or a tailwind for Netflix. I think we've all kind of finally come to the you know conclusion at least in the near term that it's going to be more of a tailwind. We've seen Netflix kind of really lean into AI whether it's using a a good user interface whether it's improving that or using uh you know AI for you know even more more and better content creation. So I think definitely in the near term uh not don't expect it to be much of a negative. Uh but then you know I think over the longer term that's going to definitely be one of the concerns out there. For right now I think what investors are really looking to and and we need guidance more guidance from Netflix management on this. There really wasn't much spoken about this in the newsletter um was you know anything related to advertising. They talk about doubling their advertising revenue but again there are no concrete metrics. there was no update in terms of monthly active users. The last time we got an update from them was in May. Uh we really don't know what the you know number of subscribers are on the um on the ad tier or even what the revenue is and I think that will definitely give investors some um you know cause for concern. >> Yeah, they talked about ads I feel like in the press release, but yeah, it sounds like we need a little bit more concrete. Hey, 30 seconds. Uh Gita, uh Warner Brothers Discovery. Do you think Netflix should do something? And forgive me for just asking for you to be brief. >> Yeah, I know this is a little bit of a head scratcher. So, I really don't think this is a make or break for them, Carol. Yes, it would be nice to have. Do they absolutely need it? No, not at all. Um, so again, there's a lot they can do with it, especially the studio lot and, you know, all of the IP, but again, I don't think it's do or die. >> As always, looking forward to reading your research. Uh, Ranganathon, thank you so much. Bloomberg Intelligence, senior media analyst with a breakdown and what you need to know about Netflix. How many vendors does it take to meet all your organization's food needs? Just one. Easy Cater, the workplace food platform that lets teams order from a huge variety of restaurants, over a 100,000 nationwide, all through a single vendor. In addition to all that variety, Easy Cater also gives you full visibility of your organization's food spend with invoicing, centralized reporting, and seamless integration with expense management systems, all on one platform. Easyater, your business tool for food. 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Instant Reaction: Netflix Says Tax Dispute Hurt Solid Quarter | Bloomberg Talks
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Trading at Schwab is now powered by Ameritrade, bringing you an expanding library of education with even more ways to sharpen your trading skills. Access new online courses, insightful webcasts, articles, engaging videos, and more, all curated just for traders. Plus, guided learning paths with content designed to fit your unique interests. No sifting to find exactly what you need, so you can spend your time learning to trade brilliantly. Learn more at schwab.com/trading. This holiday season is likely to be a roller coaster for logistics and manufacturing, but having the right staff in place can be easy when you choose Express Employment Professionals. They can handle everything to ensure you have the rightsiz contract workforce. Go to expresspros.com. Solve your workforce challenges when you choose Express to support your hiring in a variety of roles, including two of our biggest areas, manufacturing and logistics. Visit expresspros.com today. That's expresspros.com. >> How many vendors does it take to meet all your organization's food needs? Just one. Easyater, the workplace food platform that lets teams order from a huge variety of restaurants, over a 100,000 nationwide, all through a single vendor. In addition to all that variety, Easy Cater also gives you full visibility of your organization's food spend with invoicing, centralized reporting, and seamless integration with expense management systems, all on one platform. Easyater, your business tool for food. To learn more, visit easycater.com/mpodcast. >> Bloomberg Audio Studios. Podcasts, radio, news. This is a breaking news update from Bloomberg. Instant reaction and analysis from our 3,000 journalists and analysts around the world. Shares of Netflix down to the company forecast revenue for the four for the full year. The guidance met the average analyst estimate, but operating margin of 28% came in below Netflix's guidance of 31.5%. That was due, the company says, to an expense related to an ongoing dispute with Brazilian tax authorities that was not in our forecast. Is that what has investors not so happy? >> I don't know. It feels like a one-off, but I don't know. >> They say it's a one-off. The company says that, you know, we don't expect What did they say in the in the press release? They say, "We do not expect this matter to have a material impact on future results." >> Yeah. All right. Got it. But investors are sending the stock down about 6%. Keep in mind the stock has had quite a run this year as we mentioned up almost 40% here in 2025. So investors maybe expect a lot out of it. >> Let's bring in Felix Gillette. He is the man who knows about media. He's Bloomberg News media entertainment editor. He's also the author of It's Not TV, the spectacular rise, revolution, and future of HBO, which yes, we're going to be talking about HBO in just a minute. He does join us here in the Bloomberg Interactive Brokers studio. Going through the results here. Look, as Lucas pointed out earlier, this is a $500 billion company. Expectations are high. Yeah, >> everybody kind of looks to it. Uh, is the reaction that we're seeing because of this one-off from the Brazilian tax authorities? >> It seems that way, although again, it's a crazy time in Hollywood. You know, taking a step back, there is competition coming from everywhere. YouTube, Twitch, AI, new AI services. But, you know, if you take a breath, you look at the third quarter slate. They had an incredible engagement across the board. You know, they had K-pop Demon Hunters, the most popular movie in the history of the service. >> 325 million views, it says in the press release, >> new Squid Game episodes. Uh, you jump on there now. You got new Wednesday episodes. The franchise are all doing really well. At the same time, all these investments they've made in live programming, WWE, boxing, uh, you know, all of that is starting to really pay off. They're going to have their first NFL games coming this Christmas. So, you know, I think from a strategic uh programming platform, you have to say that things are going well for Netflix. >> I mean, yeah, I'm looking at I guess they're talking about one fight uh here. Was it the uh Alvarez and Crawford fight or something? >> I knew that was a you were Carol was up all night waiting for that. >> I was totally up all night. I was not up all night, but it said across Netflix's social channels, the fight generated over 950 million owned impressions. So, uh it's a lot of momentum. Um having said that, there's lots of competition. I know when I'm looking around for things to stream, sometimes I stop on Netflix, sometimes I don't. I mean, what's what's what is it that it needs to kind of keep doing in terms of the momentum? Is it, Felix, all about the spend and making sure their IP and their content keeps bringing in the eyeballs? >> Yeah. And making sure that the churn rate stays low and that people looking forward think that there's something coming down the pipeline that they need to stick around for because it's so easy to bounce in and out of these streaming services. Now you watch a, you know, a show that you love and then you kind of binge watch and then I'll cancel that one. I'll pop over to the next one, subscribe to that, watch, cancel. And yeah, Netflix, I think more so than the other streaming services, has done a good job of making sure that there is this steady drum beat of, oh, you got to stick around because Wednesday's coming back. Oh, you got to stick around cuz Stranger Things is coming back, you know. >> Yeah, it's brilliant. I mean, it's an easy service to cancel. They they kind of pride themselves on that, but there's no reason to cancel if you want to watch that next thing. I promised we'd talk about HBO because my mind was a little blown a little earlier today when we got a report from uh Lucas Shaw and Kelsey Griffith that uh >> Warner Brothers Discovery is >> in the running for Netflix. >> Uh which is a little bit of a surprise to me given what we heard from uh Greg Peters that they're builders, not buyers. Lucas made the point to us on our air in the 2:00 hour that maybe they could carve it up a little bit and they would get the studio and he made this comment that they might not even take HBO and they just feed HBO's programming, >> right? >> And I was like that's a crazy world that we're living in when like less than a decade ago. >> Yeah. >> You know, you had >> uh Reed Hastings saying we want to become HBO faster than HBO becomes us. Yeah. >> And now they are the they are the media giant. They are the incumbent. >> Yeah. And meanwhile, HBO's parent company has been staggering through one, you know, M&A deal after another and they haven't worked out. Um, and so once again, we're talking about who's going to buy Warner Brothers Discovery's assets and today they're saying, well, you know, we have interest from multiple parties. We were going to reorganize the company and these two, you know, one part of the company would be focused on the studios and streaming. the other part would be the TV networks, but maybe, you know, we'll be open to different possibilities, including potentially selling parts instead of the whole. Um, and yeah, I think Netflix clearly wouldn't want to be owning a bunch of cable uh networks. They don't want to own CNN. They don't want to get into that business. But would they take a look at the library? I think due diligence, you have to because Warner Brothers Discovery still has one of the biggest, richest libraries of IP in the world. They have Harry Potter. They have, you know, the Hobbit universe. They have DC Universe. They have so many different things. >> What would happen if you had walked into Richard Pller's office 10 years ago and said Netflix could buy you? >> Yeah. He'd have a stroke. I mean, this is just like a crazy world we're living in. >> It's been very topsyturvy. And you know, Netflix Star has risen uh to the point where yeah, they're the dominant streaming service and and they're in control and they can kick the tires on uh you know, the entire company or whatever bits and pieces. >> This is Time Warner like happening all over again or something or no to go through the whole history. You now we had AOL Time Warner, we had Time Inc., Time Warner Inc., Warner Media, AT&T, Discovery. I mean, it's just you have to Yeah. It's a whole alphabet of of different companies that have now been in charge of this. >> Is content still king? >> Yeah. But it's king for five minutes and then the next thing comes down the pipeline. You have to It's so It's just endless. You can never rest. >> Is Netflix a good indication of the US economy? Is US Netflix penetration? Is it discretionary in your view? I think that it's proven that uh consumers are fairly willing to pay more for it. You know, they've been r raising the prices and people haven't been cancelling. Um which is, you know, somewhat a good sign for Netflix that the demand has proven strong regardless. And I see that in my own house. It seems like Netflix has become kind of like the base one you keep and then you cycle in these other ones as sort of these ancillary add-ons. Um, and I think that's the position that Netflix has wanted and that's the position that HBO enjoyed as the first mover premium cable network for decades. You know, it was it was always you get HBO and do you want Showtime or Cinemax or do you want, you know, one of these other services. Now Netflix very much has that primary foundational position. >> That just seems so sweet and it wasn't such a long time ago. Uh, Felix, do not go anywhere. Uh let's bring into the conversation uh Mark Douglas, founder, chairman, president, and CEO of the publicly traded $1.2 billion market cap advertising and marketing company Mountain uh joining us here. Um Mark, come on in. Good to have you back with us. Uh Carol Masser, Tim Stenc, and Felix Gillette, all of Bloomberg here. Uh walk us through what you see as interesting from Netflix as the stock continues uh to be under some pressure here in the aftermarket. Let me just bring it up on my Bloomberg just to update everybody. It's down about 4.3% here. >> Yeah. Well, I think obviously investors are reacting to the slightly mixed earnings results, but the industry as a whole right now I think is in in in its entirety is a bit in a transition. We are fully fully moving into streaming is the dominant form of ad sales in the industry meaning that Disney's Netflix of course because they're only streaming and things like that. live sports is becoming a really really big deal. Something that Netflix is dabbling in a bit. Um and so I feel like right now there's just a lot of the same and it's just execution is the key word. Um you're not going to see a bunch of big announcements. You're just going to see everyone focused on growth. I also think the potential to acquire um a um Warner Brothers Discovery is very interesting and I think the value of Discovery is possibly being, you know, underestimated what Netflix could do with the disco all the Discovery content and essentially reignite a lot of that content. >> So Mark, do you think Netflix should do it? Should Netflix buy Warner Brothers Discovery or at least parts of it? >> I I I personally think it would be a terrific move. I mean, I don't know if that means the end of, you know, CNN period like CNN, >> you know, remember they're carving they're carving off the live TV portion anyway in this, you know, a potential spin-off at this point. So, they wouldn't have to buy at all. Uh, our reporting has indicated fantastic assets there. I mean, White Lotus and the um dragons and the almost the entire, you know, um Discovery catalog that can be not only turned into content people still love to watch, but whole new seasons of content and you know, and probably at a discount in terms of the purchase price. I think it I think it makes a lot of sense for Netflix and and really anyone. I think Warner Brothers Discovery is honestly and I know a lot of people there so I hope they're not going to hate me but like they that it just hasn't been managed well. The assets were there to turn that into a true challenger and and it it just you know continues to do reasonably well but not I think where it should have arrived at this point. >> Felix, come on back in here. You you wrote the book on HBO. What what have been the missteps at Warner Brothers Discovery? Is it is it I mean how much time do we have? But but is it is it Mark here? But in your view is Mark right that it was about it was about the running of it rather than about just the um challenges of the industry and the technological change >> a bunch of different factors. I think as you remember the deal um you know there's been just so many deals that have gone through this company and so many reorganizations and it makes you dizzy when you think about it. I think in terms of the assets, yeah, on paper they look amazing, but um, you know, the idea of just, you know, piling a whole lot of different assets into one service, adding, they thought that adding all the Discovery shows was going to be great for HBO Max. As you recall, they changed the name of the service to Max. Oh, we're broadening it out. We're going to have something for everybody. And then it turns out that a lot of that programming was not uh compelling to the same audience. people didn't want the leanback programming and so you know a couple years into that they say oh we're going to get rid of some of that discovery uh reality programming from the service we're going to go back to naming it HBO Max um so sometimes I think you have to be wary of this idea that more is always more in the streaming world um the assets have to make set yes Netflix has built kind of the Walmart of streaming it's something for everybody but even so they've been very um cautious in their approach and doing it you know step by step um adding things in uh slowly and you know that you've seen them lately making this deal with Spotify where they're now going to bring uh podcasts onto Netflix and you know they've been trying for years to get a some sort of topical uh comedy show working. Everything they've tried has failed and so this will be another opportunity for them to try that. Um, you know, adding everything from the HBO and the broader Warner Brothers library onto the service at once could be a little bit overwhelming. Um, and so, uh, again, the cadence of how you roll these things out is very important in the streaming world. >> Mark Douglas, you know, you have a front row seat in terms of the advertising, uh, market when it comes to certainly these streaming companies. I mean, what does it look like right now? Uh, is there demand? Is there too many places to put it? like give us give us some size and scope here. >> Well, there once Netflix and Disney Plus kind of came in the market and of course Amazon Prime, it created, you know, a surplus of inventory and it's created downward pressure on prices, but overall I think the the big thing that affected Netflix to go back to them is they came into that market thinking that we're going to get Netflix prices, which for advertising are not like the consumer prices. They're like they wanted the highest prices in the industry to advertise on Netflix and they and that essentially got rejected and that they and and the the advertisers, the big agency said, "Look, we want to be on Netflix, but we're not going to pay Super Bowl prices to do it." And so Netflix had to adjust. They had to reboot their ad effort somewhat. They've teamed up a bit with Amazon. Um, and I think it's still going to grow and I think they will do well, but it's definitely taking longer than I think they thought it would. But I would still bet on it long term that if you take their continued growth in subscribers, um, I believe still more than half of the new subscribers are ad supported that they will figure out how to monetize that and that additional growth factor will keep them growing for a very long time. I mean, I I still think I said last year, I think Netflix it has the potential to be the first trillion dollar media company. I still firmly believe that. >> Mark, are there any uh particular demographics for Netflix in terms of the advertising that they could still get better in? Um, you know, we're talking about how it's a very broad service at this point. Uh, kind of all things to all people. Is there any piece of that uh that they're missing? >> Not really, because it's the advertising is not done that way anymore. It's it's it's audiences but the audiences are no longer you know women in this age range. The audiences are people shopping for particular type of products and they have you know they have so many people watching Netflix that there's an audience for everyone. The biggest challenge Netflix is having in advertising is the industry has moved fully programmatic. The ad sales are not or nearly fully programmatic. The ad sales are not done over the phone near anymore. There's not linear bundles or anything like that. And Netflix is playing catchup in that game where they're building their own ad stack, moving off the Microsoft ad stack that they initially um teamed up with Microsoft on and it's taking time and so they're losing out to a lot of the more targeted advertising on television um because they're playing catchup. But once they get there, I think you'll see their their revenue accelerate very very quickly um in terms of their ad sales and that's going to probably post some really outstanding quarters when they do that. Hey Mark, from what you are seeing though about ad sales and how it pertains to Netflix specifically, I'm not quite sure how much uh you can drill down with what you are seeing and the data you are seeing, but does it give us any indication of about how well Netflix is holding on to its audience in the US globally if we're if it indicates anything about churn? Is there anything that you can glean from that? >> I I I I get the question. I don't think so because less than half of their users you know the new half the newest users are more than half but less than half the overall customer base is ad support I think quite a bit less than half that'll change over time and then even within they don't have high ad loads so just because you know they they're they're not serving that many ads given the number of people have signed up to receive them. So, we're we're it's a bit of time away before and they're not fully programmatic where that data is just literally streaming out. To give you to give you some concrete numbers, we receive 4 million pro ad requests to buy a TV ad per second at Mountain and Netflix is nearly zero in that cuz they're still doing the sales kind of like calling the brands and not doing it in the new way, which is it's all electronic. It's like the move on Wall Street from having traders to being, you know, electron fully electronic trading. Netflix hasn't gotten there yet. >> Ah, >> yeah. I'm looking I'm just looking through the press release. The company says, "We've come a long way in building our advertising business in less than three years. In that time, we've gone from zero members on our ads plan to achieving sufficient scale in all 12 of our ads markets. We'll continue to grow from here, building out our ad sales and operations team and enhancing our capabilities for advertisers, including launching our own firstparty ad tech stack, Netflix ads suite. Will that mark change things? >> That's that. Yeah, that's the change. That's what we're waiting on. And that will help the monetization and really nice thing to think about is someone, you know, deciding whether you should invest in Netflix or continue. That is like password sharing the analogy. I mean, in that it's a backlog of revenue. When that releases, it's going to unleash additional revenue. So, they have this growing backlog of users that's saying, "Hey, I'll get ads. Just give me," you know, but they don't have the ability to serve them as fast as people are saying they'll receive them. When that catches up, that's like a whole new growth vector for the company. That's like a back and and and and you're gonna see that, you know, some really nice quarters the way we saw really nice quarters when they got a little stricter about the passwords. >> So, Felix, you have been covering the industry for long enough to remember Netflix saying, "We're never going to do ads. We're never going to do live content. We're never going to do sports." >> Uh, of course, it's done all those things and uh kind of excelled in most of those things. >> Yeah. >> What has Netflix not done yet? >> Well, I guess the acquisitions, right? the circle back to where we started. >> I didn't see I didn't see anything in the press release about that. >> Yeah, let me do a quick like search for Warner Brothers. Nothing in there. >> I mean, is that what everybody's got to talk to? I mean, is that what everybody has to talk to on the call or what? >> I mean, I think that's, you know, that's a big point of discussion at this point. Would they go out and buy a big library? Again, they they've said for years that they wouldn't do that. they, you know, have been building their franchises themselves and they've done a good job at that. But, you know, there's a lot of franchises out there for sale right now. And would they take a nibble? We'll see. >> I mean, I don't know. Mark, last thought uh question to you. I mean, I'm just we're we're waiting for the the call with investors and analysts like what's going to come up on a day where we're trying to figure out what happens with Warner Brothers Discovery. Is that what's top of mind for you with this company? the I mean, like I said, I think they really um getting the ads to monetize at the level at which they're signing up users to receive them, I think is the number one thing as an investor that I'm I'd be looking for. But I think in terms of the content and where they should buy content, you heard my opinion. I think HBO Max just has an incredible catalog of shows that they can, you know, can feed their audience and actually expand like like reignite and and build new episodes. So, I'm I I I think that is the best um um property that's outside of like Disney and Netflix like is is it HBO is Warner Brothers Discovery, but I always think HBO Max, HBO, and and Discovery Channel as the two two premier properties there. >> Mark Douglas, founder, chairman, president, and CEO of Mountain joining us from Miami. Also, a big thank you to Felix Gillettes, Bloomberg News Media and Entertainment editor. He's also the author of It's Not TV: The Spectacular Rise, Revolution, and Future of HBO. >> All right, so let's get to it with our own Bloomberg Intelligence senior media analyst, Gita Ranganathan. Uh she's at BI headquarters in Princeton, New Jersey. Take it away. So tell us what we need to know and why is the stock really down? Is it because of that one-time charge? >> Absolutely, Carol. Uh so operating margin is now the new metric by, you know, how investors kind of look at this company. Uh we've seen just a tremendous increase in the way that they have kind of grown their profits in the way that they've expanded their margins. It was up over 600 basis points last year. We were really expecting them to actually uh exceed uh their guidance for both this quarter as well as to take up uh guidance for the full year. So this kind of really throws cold water and all of those expectations um and overall kind of looks really really underwhelming. >> What's the what's the biggest thing challenging the company right now? I mean the biggest thing I think Tim over the past few months has really been you know the growth of AI and whether that's going to be a headwind or a tailwind for Netflix. I think we've all kind of finally come to the you know conclusion at least in the near term that it's going to be more of a tailwind. We've seen Netflix kind of really lean into AI whether it's using a a good user interface whether it's improving that or using uh you know AI for you know even more more and better content creation. So I think definitely in the near term uh not don't expect it to be much of a negative. Uh but then you know I think over the longer term that's going to definitely be one of the concerns out there. For right now I think what investors are really looking to and and we need guidance more guidance from Netflix management on this. There really wasn't much spoken about this in the newsletter um was you know anything related to advertising. They talk about doubling their advertising revenue but again there are no concrete metrics. there was no update in terms of monthly active users. The last time we got an update from them was in May. Uh we really don't know what the you know number of subscribers are on the um on the ad tier or even what the revenue is and I think that will definitely give investors some um you know cause for concern. >> Yeah, they talked about ads I feel like in the press release, but yeah, it sounds like we need a little bit more concrete. Hey, 30 seconds. Uh Gita, uh Warner Brothers Discovery. Do you think Netflix should do something? And forgive me for just asking for you to be brief. >> Yeah, I know this is a little bit of a head scratcher. So, I really don't think this is a make or break for them, Carol. Yes, it would be nice to have. Do they absolutely need it? No, not at all. Um, so again, there's a lot they can do with it, especially the studio lot and, you know, all of the IP, but again, I don't think it's do or die. >> As always, looking forward to reading your research. Uh, Ranganathon, thank you so much. Bloomberg Intelligence, senior media analyst with a breakdown and what you need to know about Netflix. How many vendors does it take to meet all your organization's food needs? Just one. Easy Cater, the workplace food platform that lets teams order from a huge variety of restaurants, over a 100,000 nationwide, all through a single vendor. In addition to all that variety, Easy Cater also gives you full visibility of your organization's food spend with invoicing, centralized reporting, and seamless integration with expense management systems, all on one platform. Easyater, your business tool for food. 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