Netflix is still king

24:23Okay, but the market changed. The business changed. Now, they also publicly came out and said, you know what? We were two years late to the game. We saw the market changing and we should have changed with it. And we should have introduced an ad tier approximately two years earlier. They made a mistake. And yet, are they having trouble catching up? No, more than 50 % of all their members signing up, new members are signing up for the ad tier. That number is from them directly. So yes, they have been a little slow to the market with certain things. With live events, no. They didn't think they'd ever really get into live events, but they did.

24:57Why? Well, some unique opportunities came up with NFL content that at the time when they commented they wouldn't do it, they weren't available. So I think people got to give Netflix a little bit of slack in terms of the fact that they've changed their strategy over the years. That's what good businesses do. That's what good companies do. Should they have been a little faster to move in the market when it came to an AVOD advertising video on demand model? Yes, Yes, they should have, but it's not slowing them down in terms of adding growth. So no, I would say they're firing on all cylinders. It's very clear what they're doing with their business.

25:33They know where they're going with it. They know what consumers want. They know that growth is coming internationally, and they know that the largest percentage of growth will be coming from the ad side because the more hours we watch and the more hours they insert and the more targeted they are and the better they can measure it, what happens? The CPMs are higher. It's more money for them.

25:52Dan Rayburn:Happy for you to go on to Disney or whoever else you think is. Yeah, let's do Disney. You know, Disney is an interesting one just because they've announced a few things here. So, you know, Q1, Disney ended with 126 million total Disney Plus subscribers. You know, Hulu had 50.3 million. So Hulu is kind of just always a little up, a little down, but it's always hovering around 50, 52, 53 million. Hulu Plus Live TV lost 200 ,000 subs. and Hulu Plus Live TV, that's a funny one, 4.4 million paying subscribers. And if you look at their sub count over the last, well, really since it launched, they've never gotten above, I think it's 4.6, 4.7 million subs.

26:36And so it goes up, it goes down, they gain 200 ,000, they lose 300 ,000. It just, it ebbs and flows, but it's never really grown over time. And the reason for that is, remember when all these live linear services came to the market, Sling TV, Hulu Plus Live TV, YouTube TV, they all sold a value proposition and they were cheap. And they were in the beginning. And then all of a sudden, the prices went up very quickly over time. So the average live linear service now comparable to broadcast TV starts at$85. So that's part of the reason why none of these services have really seen a lot of growth. Sling TV is under 2 million now.

27:15It was 1.9 million when they last reported it, number of subs. and also you still have some blackout restrictions it those services didn't didn't turn into what consumers thought they would be so hulu plus live tvs really kind of stayed just flat over the years espn ended with just over 24 million subs but they lost 800 ,000 in the quarter the big thing with disney and any investor knows this following this is in q1 disney's d2c business which is DTC plus ESPN combined, had an operating income of$336 million. And that's great for Disney because at one quarter, a little while ago, two years ago, I think it was, they lost$1.1 billion in a quarter.

28:00In a quarter, that means they were losing$100 million a day from the direct-to-consumer streaming service. So when consumers who don't follow the back end of this business, obviously, why would they? Can't figure out why do these companies keep raising prices every year or twice a year? Well, it's because for the vast majority of them, they've been losing so much money for so long. So what you have to do as an investor is you have to look at the SEC filings of these companies and what they put in there because Disney's, it was interesting in Q1. They said advertising growth in the D to C business was due to increase in impressions.

28:38Okay. Increasing impressions. That's great. But was partially offset by lower CPM rates. So we increased impressions, but we got paid less for each at. Oh, that's not good. What you want is you want them to both go up. You increased impressions and you increase CPM rates. The advertising business is economics of scale plus targeting. So that's something you have to watch. Disney's also doing a lot more to integrate Hulu, embedding it into the Disney Plus offering, plus the sports content that's there. But Disney doesn't really give us any insight into what that's doing. All they say is engagement is up.

29:21Okay, well, define up. And how are you defining engagement? Because some companies define finite time spent on platform versus actually viewing content. So that's interesting. And then, you know, on the advertising side too, in Q1, they noted that advertising was more challenged in the quarter, and they said it wasn't driven by lack of demand, but rather increased supply with new entrants in the marketplace. Now, they didn't call it out, but what they're really saying is Prime Video. Because Prime Video added ads, so all of a sudden all this inventory opened up, and in the last couple months, Prime has also doubled the number of ads that they're showing.

30:05Initially, it was about two minutes. Now it's about four minutes per hour on average. Well, if you're an advertiser, that gives you more options to buy ads, which means that's competitive to Disney. So it's really important to look at the filings and what these companies are saying as opposed to just what you're reading in a press release or you're hearing on an earnings call because it's very interesting just how we hear what they're thinking about when it comes to advertising and what they're seeing. And that's really important. These numbers give an insight to the business of what they're seeing, both short and long-term.

30:45And then the last big piece on Disney is just the fact that they're going to launch by the fall their new DDC offering, which they're now just calling ESPN. and you can get a bundle of Disney Plus, Hulu, and ESPN. It'll be$17 a month. That's with ads. You can get it separately. Based on a current subscription level for existing ESPN subscribers, they'll automatically become subscribers to ESPN's new service, but depends the level that they're at. We also don't know much of just what the new ESPN service is going to look like because all they've said is that it's going to be enhancements to the app.

31:24and it'll have more functionality and customization, but we don't know what exactly that means. They haven't said. We do know it'll have the ESPN lineup like you have on linear TV, but without seeing that launch in the market, we just don't really know what that offering is, and then you're going to have consumers going, okay, what's the difference, ESPN versus ESPN Plus? So they'll have to do a great job of just marketing that and making it clear. And then this month, well, actually last month it was, we heard that Disney agreed to pay Comcast$438.7 million to acquire the Comcast stake in Hulu.

32:04So we've known this has been coming. That's only been a matter of time. But now we actually have the numbers. We have a timeline of when they think it's going to take place. So we've been waiting on that for a couple of years. We don't yet know what the impact is to Disney from an advertising standpoint on that, and that's definitely something that Wall Street is going to want to know. But for right now, it's just a little bit early. And the DTC offering just early this fall, we're all assuming it's before football kicks off in September, but we'll see. The plan is going to be, there's two plans.

32:45and its select plan, again, we don't know the difference between select and unlimited, but the select plan is going to be$12 a month. The unlimited plan is going to be$30 a month. When it launches, it'll have a special bundle at$30 a month for Disney +, Hulu, and ESPN Unlimited. The select plan is going to have access to all content on ESPN +, but the unlimited plan is going to have all the ESPN's linear network. So we have some idea there in content, but we haven't seen it yet. And until we see it, it's really hard to know just how much will consumers like it and will they want it. But, you know, another service coming to the market.

33:27Dan Rayburn:And what other companies would you add to the top of this conversation? Well, you got to put WBD in there. So WBD is going to spin out linear networks. So that's something to watch. It won't be till next year. they think it's completed. They're rebranding Max to HBO Max this summer, pretty much now. There was a lot of talk in our industry just about how crazy that is and it makes no sense and this and that. But I thought it was really interesting. Their CEO came out and he said, he told a story of when they went from HBO and calling it HBO Max and the whole Max name. What he said was at the time, And the idea around that was we wanted to explain to consumers that we had a lot of content, a depth and breadth of catalog is really what he was saying.

34:18And so dropped HBO, just wanted to focus on the Mac side. But the reason they're changing it back is, you know, during his upfront presentation, he said, quote, no consumer today is saying they want more content, but better content. And he's right. We already have enough choice. All these services already have so much content on them. Like the last thing we're asking for is like, man, you know, just give me more options to have to scroll through and figure out. And what they want to focus on going forward is what makes them unique. and so it's interesting to watch the max platform change over time so you might remember at some point last year i forget when you know they started removing sesame street episodes from the platform and the media went wild they were like this is crazy they shouldn't do that sesame street kids love it wbd came out and said nobody's watching it they're just not watching it like we're a platform for adults we just don't see viewership as sesame street on our platform so why should we continue to pay to license content people aren't watching and they shouldn't like they're running a business they have to do what's best for the business but when that happened man it was it was crazy just how the media really hit them was like hey you don't really understand how popular this content is even though they came out and said it's not popular and that goes to show just how well all these streaming services know what's being watched and what isn't.

35:49The other thing is their password sharing initiative. So in Q1, the company did announce that it's rolling out its password sharing initiative. And they said it would take 12 to 18 months to fully roll it out. So what they said was, you know, initially, we're just sort of rolling it out slowly. And then they said they're going to get more aggressive, sorry, more assertive over the course of the back half of the year and into 2026. So for consumers, you know, who might be sharing that in a way that, you know, works right now without having to pay for another user, that's not going to work in 2026 at some point.

36:29There's just, there's no way they're going to be able to do that. And again, it's not surprising these folks are, all of them are cracking down on password sharing because again, Again, the focus here is to get to profitability and to get to it as quickly as you can because Wall Street changed over the last couple of years how they value these companies. And it used to be just get big fast. Lose as much money as you want. We don't care. Just get big fast. And then all of a sudden they realized, oh, wait a minute. This is about free cash flow. This is about profitability. So that's why all the companies started really cracking down.

37:06that's why they all started realizing that they have to focus on the right amount of content to the right user paying paying the right right amount and and that's why you also see max changing just some of its strategy where it's rolling out globally so their platform's approaching almost 100 markets globally they've they've rolled out into europe some in asia July they rolled out in some additional locations so not surprising you're seeing them not just also grow globally but the other thing you're seeing is their ad supported plan when it first launched in 2021 it promised no more than four minutes of ads per hour now if you look in their website it says you can get up to six minutes of ads per hour okay so what are they doing they're increasing the ad load you're seeing that from some others as well, including Amazon.

38:05So again, not too surprising here, but why some people are confused that more ads are being shown and pricing is going up, it's because of the cost of what it takes to operate these services. So WBD is definitely one to watch and spinning out the linear assets, that's really the biggest thing to see what happens to those assets over the call the next 12 to 18 months.

38:36Dan Rayburn:And rounding out the conversation, who would you round it out with? Comcast, DirecTV, others, neither? Well, yeah. I mean, DirecTV is doing some cool stuff just for bundling. So that's something to keep an eye on. They're offering a lot of value, a lot of RSN, regional sports networks in the bundles. That's great to see. A couple key things to call out here that, you know, certainly new is the big one is just it's a one-off, but you do have YouTube, which has secured an exclusive NFL game, which is going to be on YouTube this year, and it's going to be on YouTube free. It's not going to be that you have to pay.

39:18You don't have to be a YouTube NFL Sunday ticket member. You don't have to be a member of YouTube TV. It's going to be completely free. So this is the NFL game from Brazil on September 5th, and they have the global rights to the game. So you'll get it almost everywhere, except it won't be streaming in Canada. Sorry, Canadians, but the NFL has an existing streaming deal with Bell Canada. So there are a few countries that will be blacked out in, but otherwise it's going to be global. It's also going to be a matchup with the Kansas City Chiefs, which, you know, potentially brings more of an audience many times, but it's international.

39:56It's in a different time zone. So we'll see how, you know, traffic is for that. Also, per the NFL's policy, it will be available on broadcast TV over the air in each local team's market, as it always is. But that's something to keep an eye on because YouTube's never had an event of that size and scale. Ever. And it's free. So that's a key one to watch. We did get some new numbers here from Amazon, which almost never gives out any numbers, and they're not great, but it's at least a little something. They said that their ad tier of Prime Video now reaches more than 130 million U.S. consumers, which is up from 115 million last year.

40:40Now, that's not how many Prime subscribers they have. That we don't know. But not surprising that the number is higher for the ad tier because they're working on launching in Brazil, India, Japan, Netherlands, New Zealand, other locations around the world. Another number that's interesting here just for listeners to know is Netflix gave us an updated number, their upfront presentation in May. it's ad tier members in the u.s so u.s only spent 41 hours per month on netflix that's that's a big number 41 hours so interesting we've seen a few stats here and there you also have to throw paramount in there paramount was is working to emerge with skydance and that transaction initially they were hoping to close in the first half of 2025 it didn't close by the end of June.

41:37So we're recording this on July 8th. Basically what kicked in was another 90-day window to get this deal approved because it has to be approved from regulators. So that deal has not gone through. We're still waiting to see that get approved. The other thing you have to look at with Paramount is Paramount's still losing money from their streaming service. Now they've narrowed their loss. In Q1, their DTC revenue was just over$2 billion, which was up almost 10 % year over year, and it narrowed its streaming loss to$109 million. So that's good. Their loss from the businesses is going down. Also, let's throw out Fox.

42:21Fox is going to be rolling out a new DTC streaming service called Fox One. It's going to launch ahead of the college football season. It'll have live streaming and on-demand. It'll have access to the full portfolio of Fox brands. You can bundle Fox Nation in with it, but there's no details on pricing. The difference here is Fox has been very clear that they're not trying to get people to cut the cord. So if you're a cable TV subscriber, you're going to get access to Fox 1 at no cost. You'll have to authenticate, of course. But otherwise, you'll have no cost. So they're not trying to take people away.

42:57They're just in a very smart way saying, we want to give you another way to get content that you're already paying for. And if you're not, we're happy to have you sign up individually. But you're talking about maybe, maybe, by my estimates, a couple million people would sign up for that over the next few years in the US. So it's small. Jumping into Comcast, we've got to go through Peacock because Peacock is still losing money every quarter. so Peacock and Q1 had a they had an EBITDA loss of 215 million now it's down from 639 million year over year in Q1 but they're still losing money from Peacock and they ended the quarter with 41 million subs so that's that's something that we have to continue to watch they also announced that they added RSN channels so for anywhere between 18 to 25 dollars a month in And in the Bay Area, Boston, California, Philly, you could add some of the local sports channels, sports teams really that you might want to watch.

44:07So interesting to see what we're doing there with RSNs in the market, which are still really a mess. And that's just been terrible as far as RSNs. And then finally, I would end with cord cutting. Interesting how my industry loves to argue about cord cutting, whether it's taking place. Everyone wants to speculate. I don't know why. So Dish TV and Sling, they lost 380 ,000 subscribers in Q1. Hulu Plus Live TV lost 200 ,000. Comcast lost 427 ,000. Charter, 167. Altice, 87. Fubo, 200 ,000. Verizon, 257 ,000. And WoW, almost 12 ,000. So you combine that up, you combine that, you're talking about 1.73 million total losses in Q1 of pay TV and virtual MVPDs.

45:02That's a big number. So as you can see, we've gone through a lot of data today, a lot of numbers, but these numbers are what's driving the industry. It's not the top headlines that many people and many investors are reading about. It's what's behind those headlines. What are the actual numbers? What does it say in the filings?

45:22Dan Rayburn:Something we like to preach and bring to the show is context. And I think that you have provided that amply today. So really appreciate that. Am I misremembering that you don't go long these stocks? Is that false? There are a lot of stocks I cannot buy because I write about, especially infrastructure stocks. I'm trying to think here. So they're all stripped from my portfolios, even managed portfolios. I cannot buy infrastructure stocks because I'm breaking news on my blog about new contracts these infrastructure providers have gotten. That said, consumer streaming services like Netflix, Apple, et cetera, yes, I can own stock in those.

46:01Of all the ones we talked about today, the only ones I own stock in actually is only one is Apple. That's something I've never sold. I've had that, wow, I'd have to count the number of years, maybe 12, 13 years, maybe longer. But other than that, no, I don't have any vested interest in the stock. I don't make money when the price goes up or down.

46:20Dan Rayburn:Can I ask why you're not long Netflix? Netflix is just something where, frankly, I like investing in things that I'm not necessarily writing about or talking about or discussing every single day. And also, define long and define investing strategy. You have a lot of folks who are throwing an investing strategy in all these sites, but what they don't know is, well, define the person's lifestyle and risk and what level of risk is acceptable. And are they trying to make X amount of money because in three years they want to take it out and redo their kitchen? Are they saving it up for sending their kids to college in 15 years?

46:58Are they saving it for retirement? There's all these different ways that you look at investments and you look at who you want to invest in long-term, short-term, and what short and long are to you. So I've always taken a very diversified approach in terms of what I invest in across many different industries and just in terms of what I am looking to get as a return over a period of time. I also invest in private companies. I've invested in a couple of companies in the streaming space that are still private. One got sold. So another one I was a seed investor on, which is still out there and has since raised a lot of money.

47:36So there's different ways to invest. I would say what I belong on Netflix all depends on how long is and what you want to get out of return. At$1 ,200 a day,$1 ,200 about stock price today, share, a lot of people would say it's expensive. It is, but compared to what? Because people would also say when it was$600, it was expensive. Well, that was.

48:00Dan Rayburn:Well, that's what I was mostly wondering. Why not hang on, get in early to Netflix like maybe you did with Apple, I don't know, and hold on to it for a while, maybe like you did with Apple. I don't know. But that's kind of where my thought process is. Yeah, you certainly could. Well, Apple, I certainly got in way early, 12, 13, 14 years ago, and it's split multiple times since then. There was at least a, what, four for one? I don't even remember. But back in the days, I did own quite a bit of Netflix stock, sold it when it was high, and I was happy with the return. I never got back into it, but that was probably, wow, nine, ten years ago?

48:37But yeah, Netflix is one of those companies where I think you could also say that about NVIDIA, right? A lot of the other companies out there. The difference too is depending again on your risk and what you're looking for, Netflix is also one of those stocks that can go up or down extremely quickly. The peaks in value in its charts are pretty dramatic at times because a lot of shares are being traded. Then how many shares are being shorted a particular day? Also look at the Tyson-Paul fight. It was fascinating how, okay, they had a problem with that one event and investors the next day were like, man, this stock is going to get hammered.

49:12And it didn't. Why? Because a lot of investors are like, wow, that's the audience they had? And it was that large? This platform's even more popular than I thought. I better go out and get their stock. So the stock went up over time as a result. So I think it's just the way you're looking at risk versus reward in the market as an investor.

49:32Dan Rayburn:Dan, really appreciate this conversation. If there's anything else you'd care to add to it, or if you'd care to just share with listeners where they can find more of your very important work on this space and sector. Really appreciate the conversation today. Yeah, I appreciate you having me. Yeah, the easiest thing they can do is follow me on LinkedIn. So all the information I give out is free. As an analyst on the market, I don't charge for anything. My blog at streammediablog.com is free. My podcast is free every week at danraverandpodcast.com. But on LinkedIn, I am tracking about 50 public companies in the market tied to media entertainment, streaming infrastructure, reading every single SEC filing.

50:11And I'm recapping in one or two paragraphs what everybody needs to know. What are the important numbers? So time is the most valuable commodity we all have. and most people don't have the time to read all this information. I've already done it for you. Just follow me on LinkedIn. And I separate facts from opinions. These are the numbers. People want to argue about something else, fine, but these are the numbers from every single company. So everything we've talked about today comes from blog posts, from LinkedIn posts I've already put up. But I would say just following me on LinkedIn is the easiest way to get a lot of this information.

50:46Also, many find this crazy, but I've been publishing my cell phone number for 20 years for free. It's right on LinkedIn with my email. It's on my blog. I talk to people all day long, not consumers. It's content owners, broadcasters, sports leagues, CEOs calling what I'm seeing in the market. But I'm always talking to people and giving out information. That's my business. Just give out information. Just a reminder, anything you hear on this podcast should not be considered investment advice. This is for entertainment purposes only, and you should seek advice from a licensed professional before investing.

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