Netflix Cashes In on Ads and Password-Sharing Crackdown & AI Lawyer Fail

0:00Tonight on NBC, Jimmy Fallon and Bozma St John host the highly anticipated new competition show. I hired 10 creatives from all walks of life. They will be battling it out to see who can impress the world's biggest brands. This is a huge opportunity. This is the battle for the next big idea. This is not play play. We're spending millions of dollars. I'm so excited to embark on this adventure with all of you. Make the best idea win! On Brand with Jimmy Fallon. Series premiere tonight on NBC. Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. On today's pod, AI lawyers are not ready for prime time.

0:37I rest my case. Then Netflix and Tesla both reported Q3 earnings yesterday, and one performed much better than the other. It's Thursday, October 19th. Let's ride.

0:52Toby, I want to ask you about the power of celebrity endorsements because Skechers, the shoe brand that used to get me stuffed into a locker in middle school, is reportedly close to signing a shoe deal with the reigning NBA MVP, Joel Embiid, that would have him wearing Skechers while playing NBA basketball. Now, as a Sixers fan, this makes me very nervous because I expect his production to plummet. But from a business perspective, your marketing whiz, how much of a difference do you think one high-profile endorser can have for a brand like Skechers? I mean, I just recently watched the Air movie, which features the story of Nike signing Michael Jordan.

1:33So it's very hard for me to say that no one person can't move the needle because that's clearly the most successful endorsement ever. So maybe it won't get to Michael Jordan levels, but I'm going to say I'm bullish on it because Joel Embiid, he's got that star power and one person can move the needle in this type of scenario. All right, we'll see. Before we jump in the show, I want to take a minute to tell you all about Yahoo Finance. As you all are about to hear, we are entering earnings season and parsing through earnings reports, seeing if companies exceeded or missed expectations. It can be a lot.

2:06And that is where our friends at Yahoo Finance come in. They combine breaking news with high-quality, real-time market data on a single platform that helps you do everything from make smart financial decisions to host a daily news podcast. So head to finance.yahoo.com to learn more or download the Yahoo Finance mobile app to get it directly on your phone. Does it ever feel like you're a marketing professional just speaking into the void? But with LinkedIn ads, you can know you're reaching the right decision makers, a network of 130 million of them. In fact, you can even target buyers by job title, industry, company, seniority, skills.

2:44And did I say job title? See how you can avoid the void and reach the right buyers with LinkedIn ads. Spend$250 on your first campaign and get a free$250 credit for the next one. Get started at linkedin.com slash campaign. Terms and conditions apply. For our top story of the day, Neil, it's earnings season again. And what better way to kick it off than with two stalwarts, Netflix and Tesla? First up is Netflix. Netflix is back. And all it took for them was to kick us all off our parents' accounts. The company reported a boost in subscribers driven mostly by its password sharing crackdown. They added 8.76 million global subscribers during the quarter, which was way higher than the 5.49 Wall Street was expecting.

3:28That's actually its biggest quarterly net ad since the 10.1 million subscribers it brought in during the second quarter of 2020, which was when COVID kept everyone at home snuggled on their couches. The second piece of good news came from its recently launched ad-supported tier, which grew nearly 70 % quarter over quarter. In an earnings call that may have been unsettled by the now-resolved writer's strike and the still-active actor's strike, Netflix came out looking like it's in a very strong position, Neil. It does. In April 2022, there were a lot of warning signs for Netflix. It lost subscribers.

4:03It warned it was going to hemorrhage even more subscribers. Everyone declared Netflix dead and the streaming era dead, and Netflix just comes roaring back. One thing that we should mention is that they announced price hikes. So for the premium tier, you're about to pay$22.99. That's up from$19.99 currently. And then the basic plan in the U.S., which is no longer available to new customers, is jumping from$11.99 to$9.99. Or jumping from$9.99 to$11.99. Yes, thank you. I don't know English. But I think that's a really important key to say Netflix wants to capitalize on this momentum and squeeze a lot more revenue from each subscriber it has.

4:44Yeah, shares jumped 12 % after the bell yesterday. And to me, this is kind of a transition phase for Netflix. It's growing up a bit. I mean, the price increases are a sign that it's kind of moving away from those really, really low-priced packages that were meant to lure people away from traditional cable. That was kind of at the outset of its streaming era. It was trying to undercut cable. But now it feels like it's kind of captured enough in the market that it can start focusing more on profitability. It ditches physical DVD business. So this is like a coming of age story. It does feel like Netflix is kind of in its maturity phase if that metaphor checks out.

5:21I also want to talk about what we can expect from Netflix looking ahead. One interesting program is its first live sporting event. Unlike many other streamers, Netflix has not moved into live sports, which can be super pricey but are also very attractive. for viewers its first live sporting event is going to be called the netflix cup and it's a combination of golf and f1 leveraging its full swing documentary and drive to survive for formula one it's occurring on the same week where f1 is going to las vegas and it's going to pair golfers with f1 drivers who are playing golf toby this seems like right up your alley is this something you'd watch it seems right up my alley but no because my take on this is watching people who are bad at golf play golf no matter who they are is not entertaining so but i do think it's a great marketing idea because those are two of its more popular kind of inside the the ropes documentaries that they've been uh producing so i mean i guess i'll tune in but i'm not i'm not very excited to actually see the product on the course most people listening to this are like well you think golf is entertaining even when when good people are playing yeah that's true all right now let's move on to Tesla.

6:30One of the big boogeyman's on Tesla's earnings call were higher interest rates. Elon Musk talked extensively about the impact higher rates had on car buyers and demand. He said, I am worried about the high interest rate environment that we're in. I just can't emphasize this enough that for the vast majority of people, buying a car is about the monthly payment. So in an effort to boost demand, Tesla has been dropping prices of their vehicles left and right, reducing them by about 25 % in the third quarter. Remember, Tesla used to be the king of margin in the auto industry. And while it's still more profitable than the traditional automakers, its gross margins fell 7 % from a year earlier, while adjusted automotive margin, which excludes regulatory credits, fell by 11%.

7:14There was also bad news on the new factory it's building in Mexico. Elon said it would take stock of the global economy first before deciding whether to plow ahead with the construction. Still, there's always some good news. Tesla delivered 435 ,000 vehicles, up 27 % from a year earlier. All this added up led to misses across most metrics and a bit of a messy quarter for Tesla. This was definitely disappointing on a number of fronts. Profits plunged 44%. As you mentioned, those industry-leading margins were squeezed from all of the cost-cutting and price drops that Tesla did. He also, Elon spent a lot of time talking about this Cybertruck, which was announced in 2019 and has still not hit the market.

7:58He finally gave a day for the first delivery, which would be November 30th. But Elon did not seem so optimistic about the Cybertruck. He said, we dug our own grave with Cybertruck and talked about producing this vehicle, which looks bizarre. I don't know. I hope most people have seen it. But if not, look at it. And you can probably understand why this takes a lot of time to produce. It's very expensive. And it's about two years behind schedule. And it's not going to make any money for the company for another 18 months. Although he did say, I think it is our best product ever. So, again, that's kind of what you have to say when you spend this much time kind of developing this odd-looking truck.

8:38So that is definitely going to be kind of the main thing that people focus on for Tesla going forward. Just because we haven't had a new Tesla car in a while. models they're just regurgitating the models finally i just thought this was a hilarious quote this is quintessential elon he talked about the growth rate of tesla how it had grown so much in the past and how growth is slowing down a little bit and he said it is not possible to have a compound growth rate of 50 forever or you will exceed the mass of the known universe gosh i mean that's i think we have good metaphors i don't know that one's that comparison's a bit much for me.

9:12Okay, we're moving on. We just talked about streaming inflation. Now we have to talk about healthcare inflation. Last year, the cost of employer health insurance jumped at the fastest pace since 2011, according to an annual report from the research nonprofit KFF. Given that 153 million people in the U.S. get their coverage through their employer, this means you probably saw your premiums go up in 2022. Let's run the numbers here. Last year, a family plan jumped 7 % to an average tab of nearly$24 ,000, which KFF pointed out is about the same price as a new car. The cost of premiums is typically shared between employers and workers, so workers themselves are now paying$500 more than the year before with an average payment of$6 ,500.

9:58The 7 % jump in health insurance costs is even more stark because in 2021, annual premiums only increased 1 % as some people avoided surgeries and other medical care during COVID, But now with prices rising across the economy, health insurance just got a lot more expensive. There's no way to cut it other than to say that's a huge number, the co-author of the report said. Yeah, it is a big, big number for sure. But it is interesting, too, because employers are kind of towing this really delicate line right now because the job market is so tight that if they water down their health insurance plans too much, then it could lead to issues with retention and recruiting.

10:36And so you do see these premiums rising very, very fast. But also, they're not outpacing wages and inflation by too, too much. Premiums rose 7 % while wages grew 5.2%. So you can see this concerted effort from employers to say, we do want our employees to have health care because, again, the labor market is so, so hot right now. Employees have a lot of leverage right now. So employers can't get away with just bumping up premiums too, too much. I also want to go over the stats on employer coverage of abortions. 10 % of large firms said their biggest plan does not cover legal abortions. Another 18 % said they only cover abortion under limited circumstances, such as incest or life endangerment.

11:17Nearly a third of large firms said they cover abortion in most or all circumstances, while 40 % said they were unsure of their coverage policy, possibly because it was changing or they were unaware of the details. This topic has certainly been top of mind after the Supreme Court scrapped Roe v. Wade last year, overturning the constitutional right to an abortion. And just overall looking ahead, the big question in this industry is whether this dramatic health care inflation is a blip on the radar or part of a longer term trend of surging medical costs. Our next story brings us to an interesting intersection of hip-hop fraud and AI.

11:51Praz Michelle, which some of our elder millennial listeners will no doubt recognize as a member of the rap group The Fugees, is seeking a mistrial claiming his former lawyer mishandled his criminal conspiracy case by using AI to write his closing arguments. For some background, Praz was convicted by a federal court back in April for political conspiracy after funneling money from the infamous Malaysian financier Joe Lowe to Barack Obama's 2012 re-election campaign. He was also caught trying to impede a Justice Department investigation on behalf of China. And while him getting convicted on all 10 counts could be a story in its own right, I want to talk about the role AI once again played in a legal setting.

12:33Proz is trying to toss out the convictions based on arguments that his lawyer's use of AI worked against him and deprived him of a fair trial. And here's the crazy part to me. Proz's lawyer didn't even hide it. In fact, there is a press release from the company called iLevel.ai bragging about his lawyer's use of its platform in the trial. Neil, this is a can of worms we've touched on a time of two, but this time it feels different because this wasn't an intentional use of AI. It was, and I think it was the first use of generative AI in a federal trial, and there was a lot of boasting going on, and it came to bite them in the butt, and now he's trying to find a new lawyer and say this was all a huge mistake.

13:11The crazy part of this is that his first substantive remarks, the lawyer, to the jury appeared to be an admission of guilt, and that's what their version of ChatGPT wrote. He said that, ladies and gentlemen, this case started back in 2012 when there was, as the government characterizes it, an effort to funnel money to President Obama's re-election campaign, which kind of undercuts the entire argument. So this is another instance of where AI can go completely wrong and hallucinate. It's been known to spit back wrong answers. And if you don't do your fact checking, they could really bite you in the butt.

13:46So this tool is interesting, though, because iLevel.ai said the program isn't experimental in any sense of the word. It's trained using only facts from the case, including court transcripts and no musical lyrics or anything found online. So technically it should be self-contained and using just facts from the case. But the problem that you run into, even if you are training it just on case data, is that in closing arguments, a lot has happened over the course of the trial. There's a lot of nuance that went on in between. So if you're just using transcripts or whatnot from the case, you might miss some of that nuance.

14:22And that seems like exactly what happened in this scenario right here. This reminded me of another AI lawyer case. I think it was in the spring or it was definitely earlier this year where a lawyer who filed a court brief on behalf of his client who was suing an airline company completely made up fictitious, completely made up previous cases as it pertained to this particular trial. There was Miller versus United Airlines, which didn't happen. Peterson versus Iran Air, which never happened. So this has been percolating. And you see lawyers, we talked about the accountants using generative AI a lot more.

14:59It does seem like the lawyer profession will be using generative AI even more because there are a lot of repetitive tasks. There are a lot of things to sift through, and it could be very useful for the profession. but it seems right now that it is not ready for primetime. I don't know. I don't want my lawyer doing it. If I ever get in legal trouble, no AI for me, please. All right, Neil, before we jump into the next half of our show, we're going to take a quick break.

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16:06See a Lowe's Red Vest Associate or visit lowes.com slash holiday install to get started. Lowe's. We help. You save. Basic install only. Date restrictions apply. Subject to availability. Install by independent contractors. See associate for details. Contiguous U.S. only. Let's head to Neil's Numbers, the segment where I share three stats from the week's news that will spark a 4th of July fireworks show in your brain. For my first number, Toby, genuine question. What is your spice tolerance like? I feel like I haven't paid attention when we've beaten together. Zero. Zero. Very, very low. Okay. Well, you're definitely not going to be able to handle Pepper X.

16:45It's the newly crowned hottest pepper in the world by the Guinness Book of World Records after it was found to be three times as hot as the previous record holder, the Carolina Reaper. Pepper X, which hit the market this week, is the brainchild of South Carolina hot pepper expert Ed Curry. I guess that's a funny name for him. who also crossbred the Carolina Reaper. For decades, Curry has been working to make peppers hotter and hotter. And after spending 10 years developing Pepper X, he finally created a vegetable that will make your entire body sing with agony. When he first tried Pepper X, Curry said he was feeling the heat for three and a half hours, got cramps, and was laid out flat on a wall for about an hour, groaning in pain.

17:26Let's finally get to the actual numbers of this story. Heat in peppers is measured in Scoville heat units. A jalapeno pepper registers at about 5 ,000 units. Okay, got that? Pepper spray used by police is around 1.6 million units. Pepper X is an average of 2.69 million units. Tell me, would you try this? Absolutely not. I can't even handle jalapenos with our 5 ,000 Scoville units. I'm sweating already. What was interesting to me, though, is the science behind why this pepper is just so much hotter than the Carolina Reaper. It's because the exterior has this bumpiness to it, and you need that extra surface area in order for the placenta, which is actually the spiciest part of a pepper that's that white stuff you see on the inside, to grow.

18:13So I love the science behind it, even though I am not going within a 10-mile radius of this pepper. I'm feeling the sweats already. Okay, I actually would try it, but in very limited quantities. That description sounded pretty awful. Okay, for our second number, if it seems like the lunch line at the downtown Cava is getting longer, you aren't imagining it. The share of Americans working from home has dropped to its lowest level since COVID started, according to the Census Bureau, which is a big win for your boss who's been nagging you to come back to work for the past few months. Here is the data.

18:43From September 20th to October 2nd, just 26 % of households had at least one person working remotely for one day a week or more. During the remote work peak of March 2021, that share was 39%. So as more companies force their workers to return to the office, every single U.S. state has seen remote work rates drop from their pandemic peak. But there are significant differences. The top five remote work states are Colorado, not a surprise. Maryland, also not a surprise given those government employees who hate going back to the office. Utah, Massachusetts, and Minnesota. The states least likely to work from home are Arkansas, North Dakota, Alabama, Mississippi, and Wyoming.

19:20Toby, it seems like 2023 has been all about employers reversing their earlier stances on remote work and mandating at least three days in the office. On Tuesday, the video gaming platform Roblox told employees they need to work three times a week or take a severance pay. That was the most intense headline of this new era of return to office that I've seen is that, yeah, you're going to fire people if they don't come back to the office. But I also I'm seeing these office stats to that office attendance across the big, big 10 U.S. cities remains about 50 percent of pre-pandemic levels. So it does feel like we're seeing these return to office mandates, but we're still not even really close to the full office occupancy that we once were.

20:03So it's definitely you do have to kind of parse through and see. All right. Is everyone truly going back to the office or are we just seeing more and more of these headlines and we'll eventually maybe get back? I think more people are going back to the office for several days a week. I don't think there will ever be a five-day-a-week renaissance or anything like that, unlike what we do. I know. But, no, it does seem like there's going to be a – it does seem like there is a trickle back to the office, and that's really decreased remote work levels overall. But there's going to be – there's still an office space reckoning for sure.

20:35Okay, for the final stat, this is one Toby can't stop talking about. It's about the absurd number of intra-office romances that have developed by people working for Chuck Grassley, the Republican senator from Iowa. Over the weekend, Grassley's chief of staff and his former legislative aide had their wedding, which was the 20th marriage of people who met in Grassley's office. Grassley has been a senator since 1981, so that works out to one marriage for every 2.1 years. He's a modern-day yenta. I just want to say screw Hinge, screw Tinder, screw Raya, screw all the apps. It's all about the Senate Budget Committee, baby.

21:15That's where all the love is going down. Although in reading this, it does feel like maybe there should have been even more romances because, I mean, Chuck Grassley's been involved in politics in some form since 1959. So from that perspective, maybe you think that that number should be closer to 40 or 50. So maybe Chuck Grassley, he could be doing more to facilitate. So I looked up the occupations that are most likely to marry their own kind. I'm going to ask you, what do you think is number one? Oh, like job to job, you mean? No, within jobs. Okay. It's got to be one where you spend a lot, like teachers?

21:50Teachers are not on the top list. Professors are number two. The first is physicians. Okay. Right. Crazy anatomy. That's the right tack, though. It's like you are spending so much time. You go to five to 10 years of school with these people. You don't have so much time outside of the office, which probably is a similar situation to what happens in Chuck Grassley's office. You're just there all the time, and you're meeting people. You're meeting like-minded people. Yeah, it's just time spent together. All right, Neil, you know how I appreciate your numbers, so much so that I'm stealing a page right out of your book and bringing you two stats from the week's news that will that will spark an even bigger 4th of July fireworks show in your brain.

22:31This segment is called Toby's Tallies. And the first tally I want to tell you about is the increase in American workers using their sick days. For a long time, given our whole rah-rah attitude about work and productivity, not using sick days has almost been a badge of honor for workers. But in the wake of the pandemic, where cases of RSV and COVID-19 are still elevated, the number of sick days Americans take has soared. 30 % of white-collar workers with access to paid leave have taken sick time, up from 21 % in 2019, according to data from the payroll company Gusto. And the use in the workforce, maybe unsurprisingly, are the most frequent partakers.

23:12Employees between 25 and 34 have seen their use rates jump 45 % from before the pandemic. In general, there is a much more expansive view of sick days these days. It's not just if you're hacking up a lung anymore. Sometimes people use them to deal with other issues with their parents or children, or maybe they're just feeling burnt out. Yeah, I think this is part of the reevaluation of work-life balance with COVID. And it's starting to make its way to actual labor negotiations. I know we've talked about the tight labor market so much on this particular podcast episode. But during the autoworker strike negotiations that are going right now, it's a big issue brought up by Stellantis, which is one of Detroit's big three automakers.

23:55It said it lost 11 percent of hourly worker time last year due to unplanned absenteeism. So employers are starting to notice this, and I'm not sure they can do so much about it. Yeah, I think overall the destigmatization of using sick days is a good thing. Like, obviously, if you're not feeling well, just don't come to work. All right, Neil, my next tally comes from the NFL. NFL Commissioner Roger Goodell agreed to a three-year contract extension yesterday. It makes sense. He's done well for the league, nearly tripling revenue to about$20 billion a year from the time he took over in 2006. But the tally I want to bring your attention to is just how much he's made over his whole tenure as commissioner, including his latest contract extension.

24:37He will now be approaching$700 million in career earnings. that is more than double any player in NFL history. The closest contender is Aaron Rodgers, and he's sitting at just$342 million in career earnings. Neil, do we think the commission should be making more than double what his most lucrative players are earning? He's bringing in a lot of money to this league. He's been faced with a lot of scandals from concussions to race relations, but he can't hear you booing from his private jet. I mean, this guy is making so much money, tripled revenue to$20 billion. He secured$100 billion worth of TV deals.

25:13The NFL now accounts for 82 of the 100 most-watched U.S. TV broadcasts last year. Teams are selling for more than$6 billion. This guy is a money-making machine for both himself and the owners, and they're not going to get rid of him anytime soon. Yeah, the owners love him. The fans, not as big of fans, honestly, which, I mean, he works for the owners, so I guess it makes sense, but, yeah, I'm still anti-Rodgerton. Yeah, whenever he gets up in front of a stadium, everyone boos, which shows you the public perception of him, but he's going to be around for at least a little while longer. It's crazy that he's been working for the League for more than 40 years.