A Netflix Price Makeover Is Coming

Business Week on iTunes, SoundCloud, or Bloomberg dot Com. You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or watch us on YouTube search Bloomberg Global News. Well, we just talked about Netflix coming out with its tears in terms of its ad supported streaming. Tis not tears like earlier this year for Netflix. Okay, like those tears, Yeah, I mean that was happening earlier this year. I know people were like, what, yeah, what's

going on? Ats Netflix? Okay, So we mentioned that's going to launch that at supported plan on November three. That story was reported by Lucas shaw As is a most read on the Bloomberg That is in the new issue of Bloomberg Business Week, Maga Scene and that story that Netflix is coming makeover in the face of some real streaming competition. Yeah. The piece by Lucas Shaw, entertainment reporter

for Blueberg News. He joins us on the phone from Los Angeles, give a follow on Twitter at Lucas Underscore Shaw, and then sign up for screen time his fantastic newsletter. Lucas,

good to have you with us this afternoon. I want to go back years ago to sort of the d n a of Netflix, the way that it disrupted Blockbuster but then kind of had to disrupt itself when it really brought streaming to the masses, because I think that's a big part of your piece, because Netflix, once again, in order to succeed in this new ecosystem, has to

disrupt itself one more time. Where should we start. I mean, you can start with with advertising, which is where we started earlier, because it's something that Flix has always said it would never do, uh, you know, never say Yeah, being an ad free streaming service was sort of the core part of its proposition, something that made it better than cable TV, where people were overwhelmed with ten fifteen

minutes of advertising per hour. And it's really a sign of kind of the maybe not desperation, but the you know, the challenge they face here where they've just hit a wall in terms of growth over the last eighteen months and are now doing two things both advertising and charging for passwords sharing that they've long set we're not an issue.

The one the one quible I take with the comparison to starting streaming, which I think is totally valid, is that if you asked the leadership of the company, they would argue that this is more of a minor alteration because they still believe in streaming. They're just making some changes to it. But that is, of course a little

bit of corporate spin. Jieber's here, the editor of Bloomberg business Week magazine, and it's really timely story considering the headlines we got earlier today about netflak Netflix launching that service, and we've got some details on how much it's going

to cost you. Yeah, so the Lucas. The thing that I just wanted to it's been a little bit of time talking to you, was this the culture at Netflix, and you know, Surrender's obviously been there for a while, has been the arc text of of sort of the content strategy. Um. The the thing that you know, like we said in the story, he never wanted to do,

was was ads right? And so internally, I'm really curious to see how they tested this the price of this model, Like what's your early sense of just like how did they land on this particular price. Well, I think the price comes from mimicking other services. They don't like to

say that out externally. You know, there was a call earlier today where a reporter asked Regg Peters, the CEO of the company, if they chose six nine a month because it's a dollar less than Disney pluses at Sero, which is seven ninths nine a month, And they said no. But I've had conversations with people at the very top of the company who said that they were modeling it a little bit after Hulu, which was sort of the first big streaming service to offer AD, one of Netflix's

earliest competitors, and it's priced in a way where they believe the six nine a month, seven dollars a month plus what they'll make from advertising means that they'll make as much, if not more from an AD to your customer as they will from the premium one. To your question about culture, I just think this year, in general, the past couple of years have been very destructive towards

the culture that was was pretty unique in business. Well, stick with that because one of the things that you talk about was the I will call it a debacle, which was the Quister moment where they said, you know what, we're we're gonna change the name and we're gonna turn the streaming thing into Quister and uh, you know it's Boy, did not go over well, but it speaks to this

company's ability to sort of try things. Maybe you soft launched something, it doesn't go well and you pivot and boy, that last decade since the Quister thing looked really good. But one of the things you point out in the story is that there's not that many people left at the company from back then. Yeah, I mean you have to give them credit to your point about Quickster with the advertising and the passer charing. They're moving very quickly.

I mean, they went from at the end of last year still not thinking they were doing advertising to standing up an AD service less than a year. They're doing it faster than Disney got there at supported tier out there. And keep in mind, Disney already has an ad supported service in Hulu, and Disney is a major player in

video advertising. So there is a degree to which the company can still move incredibly quickly, and I think that's the credit to be Page Things and and Ted serandos, but a lot of the senior leadership around them has left. There's just in general, a lot of restlessness among employees. And I think there was a feeling for a long time that, you know, Netflix was the place to work if you wanted to be in in media and in some cases in tech. I mean, it was at the

top of every list of most desirable company. And it's not like it's completely fallen off, but for a lot of the folks who work there, it now feels like another company because there there was forever this very unique culture that Read Tastings had built and written a book about. And while while it still there in pieces, you know, it has kind of fallen to pray to the same thing that all companies do, is they is they get scale,

They just become a more corporate and traditional. So what is stuck around from that that infamous culture deck that kind of went viral years ago. The idea, you know, the company is is like a sports team, not a family, right, They'll cut people who don't who aren't taught performers. But at the same time they encourage you to go out and see how much you're worth in the marketplace and come back and you can can get a raise from

Netflix that way. I mean, what parts are sticking around to you and what parts are kind of gone there? I mean it's I'd say it's it's a moderation of things, right. So the company is infamous for having radical transparency. You know. Redhastings modeled a lot of his leadership off of Ray Dahlio the Bridgewater guy um. And that comes in a couple forms. It's it's a lot of feedback, so people being very direct and blunt with one another, and also

then sharing metrics and data. You know, Netflix makes pay the pay available to or excuse me, employees can see what one others making above a certain level. They share their financial results weeks before they announced them publicly with hundreds of employees, which is very rare. Um. Some of that is still sticking around. They still share some of

those financial results ahead of time. They do still have to pay available to some, but you talk to employees and they say that a lot of the decision making which used to be decentralized. It used to be you wanted to empower people who are you know, VP level, relatively mid level executives to be able to buy a project or try something that just doesn't happen as much anymore. A lot of the decisions seem to be made by a few stakeholders, and people are just playing with fear

more because the company is under more pression. Hey just got about thirty seconds left here. I love this line though, in your story, with all this going on, you say, it's important to note that in some ways Netflix, Netflix

has never been stronger twenty seconds. Why. Uh, it's profitable, it doesn't have to borrow money anymore, and it is far and away the bigger than all these other companies which are dealing with the decline of cable DV which does not affect Netflix, which I mean, Lucas, thank you for this story perfectly timed. I mean, you think about all these other companies that are basically going through the

growing pains that Netflix has gone through. Netflix built its dynasty on cheap debt and they're profitable, know how to do this. It's like, you know, to some advantage that there's a serious advantage there. Yeah, It's a great deep dive into so much. When it comes to Netflix and the changes that it's making. It's like you knew something was going on it there'd be some headlines here, Doll.

I mean, get to work with people like Lucas he is amazing, Lucashaw's entertainment reporter at Bloomberg News from l A and of course the editor of Bloomberg Business Week, Deal Webber. Here in our studio. This is Bloomberg Radio. You're listening to Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio this past Monday. You all know this, uh And depending on where you were around the country, Columbus Day and or Indigenous People's

Day and on the ladder. The World Health Organization has noted that the health of Indigenous peoples is often marked by higher rates of health risks, poor health outcomes, and greater unmet needs in terms of health and social services. We've got Dr Donald Warren with US, co director of the Center for Indian Health at the Johns Hopkins Bloomberg School of Public Health. Doctor Warren joining us on the phone from Baltimore this afternoon Dr Warren, how are you

doing very well? How are you doing? We're doing well. Thanks. Hey. Um, give us an idea of the health challenges facing indigenous people in this country. Um, what are what are you focused on as at the Center for Indian Health at the Johns Hopkins Bloomberg School of Public Health, which I should note is supported by Michael R. Bloomberg, the founder

of Bloomberg LP and Bloomberg Philanthropies. Yeah. So we've had the Center for American Indian Health over thirty years actually, and the original work took place in Arizona and collaboration with a couple of the tribes who are facing some infectious disease issues. And at that time there were children, very young children who are dying from dehydration. So the original work was actually to develop oral rehydration therapy that

eventually be game pediolite. Actually, it's a little long fact that could be like actually originated out of that work, interesting to the Johns Hopkins School of Public Health and collaboration with tribes in Arizona. And since that time or less thirty or so years, they've expanded the work to well over two tribes across the US and expanded beyond infectious disease to include things like maternal and child health as well as addressing behavioral health considerations and chronic disease.

So we just recently, within the last less than one month, changed the name from the Center for American Indian Health to the Center for Indigenous Health, and we'll be having more of an international focus moving forward. Talk to us about indigenous communities in the US, in the United States or or even globally. Um, what's why is it that they're having such a tough time in terms of access to good health care and having good health outcomes. Well,

each population is different, but there are some commonalities. And when we look at the indigenous populations as are the first inhabitants of various parts of the earth, and of course of the United States, that would include both American Indian and Alaska Native populations, as well as Native Hawaiian and other indigenous peoples in the Pacific Islands that are in U s territories. So we have a very diverse group of indigenous peoples in the United States, but specifically

for American Indians and Alaskan Natives. What really makes us unique is that we have sovereign nations within the United States, there's actually five seventy four federally recognized sovereign tribes. So we have our own elected officials, our own governments, in many cases, our own health systems. But the big challenge is that we face terrible rates of poverty and marginalization

in many of our tribes. So one of the things that we see across population served by Indian Health Service is a lot of poverty related illnesses and other socially determined health to spared ease. And unfortunately, the Indian Health Service is terribly underfunded. And if we look at just the funding for i S compared to Medicare, for example, is funded about free to four thousand dollars per patient per year. Medicare has funded a twelve thousand dollars per

patient per year. So we just have a terribly underfunded health system coupled with an impoverished population. Generally speaking, Dr Warren Um, can you talk a little bit about your bio and and you know from what I've I've read um this you know medicine runs in your family. Can you talk a little bit about your background and how you bring a traditional approach to what you're doing today?

Absolutely so I'm Oglala Lakota reading from Kyle, South Dakota on the Pine Bridge Indian Reservation, and I was very fortunate to grow up in a family with a lot of traditional healers and medicine men. So several uncles and a head of grandfather who were all traditional healers, and I've learned a lot about traditional Lakota approaches to health

and wellness just from my own family. And it's also a ceremony family, so we have sacred ceremonies that we participate in every year and really hanging onto the beauty and the benefits of connectedness to traditional culture. In addition to that, my mom is a nurse. Um she's eighty three and still working. I like to teach her that she failed retirement. She tried to retire, still working as an educator and really helping to educate the next generation

of American Indian nurses. So I've been exposed to the whole field of health care from traditional cultural perspectives as well as modern medical perspectives. And then I was very fortunately did well in school and was able to go to Stanford for medical school and Harvard for my master public Health. I've got to ask you, we've only got about a minute left. So this is not an easy thing, I know to answer, but I mean it feels like another population in the United States that gets an incredible

raw deal and Indigenous people over and over again. You know, you can pick your point um is being left behind? What what big program or policy change could we do that would make a difference on the population in the

United States, specifically in asking we've got about a minute. Yeah, And in the US, one of the unique considerations that most of our tribes also have treaties with the federal government, so there's a government to government relationship, and as part of those treaties, it's well documented in case law and then other examples that we have a legal treaty right to health services in the United States. So the only thing that we would ask is that the federal government

live up to its treaty obligations. Much in the same way we would criticize other nations for not living up to their treaty obligations, we should actually be looking at our treaty obligations to our indigenous peoples in the US and recognize that underfunding the Indian Health Service really is a breach of those treaty obligations very interesting, um and informative. Dr Donald Warren, thank you so much, really appreciate your

time today. Co director for the soon to be Center for Indigenous People at the Johns Hopkins Bloomberg School of Public Health Center for Indigenous Help People's Health, I should say uh. And of course Johns Hopkins is supported by Michael or Bloomberg founder, Bloomberg LP and Bloomberg Philanthropies. Dr Warren joining us on the phone from Baltimore, and we just want to mention be sure to check out to We've got a podcast here at Bloomberg. Rachel Adams heard.

It's called Interest and they've been investigating a transfer of Native American wealth and you can find that at Bloomberg dot com or wherever you get your podcasts. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes Tim Stenovic on Bloomberg Radio. Well today Bloomberg Live hosting a second day of Bloomberg invest It's an annual gathering of the leading names covering everything from cryptot to credit

markets and then everything in between. And it was in person for the first time since the pandemic and comes amid, as you know, an era of lots of market volatility and uncertainty. I caught up with an exact it from the largest owner of commercial real estate globally, Kathleen McCarthy. She is the global co head of Blackstone real Estate, which has a five hundred seventy seven billion dollar portfolio and about three twenty twenty billion that is investor capital

under management. Lots of talk about we began, though when I asked her how against a tough market backdrop and daily mixed signals, how things are going. It is an exciting and interesting time because, as you can see, there's different signals coming through, and I think we are better positioned than anyone to know what's really happening. We have six hundred billion dollars of real estate. We're in thirty seven different countries portfolio, though that's highly concentrated into four

key themes. Eight percent of our capital is in warehouses, rental housing, lab office and hospitality investments, and what I'd say we're seeing is actually very strong fundamentals in those sectors.

So when you talk about property performance, particularly for rental housing, that continues to be strong, partly because of the pressures on the for sale market with rise interest rates, logistics demands, so warehouses in the US today we are at record low vacancies, less than three percent vacancies and the markets we operate in which are the densest, most urban kind of areas, and we're also seeing very strong rent growth. So in the US and last month rent growth in

our markets was thirty percent. In Canada it was even stronger fifty percent. And so I think when we when we're thinking about the real estate market, we continue to see a lot of strength. Notwithstanding there are pressures around us in terms of interest rates, an economy that the central governments are of course trying to cool uh and and persistent inflation. But we feel really well positioned for that.

And i'd also highlight that I think this moment in real estate, this cycle is quite different than others we've been different. That's a good different, I mean good different. When you think about what kind of lad to real estate downturns in the past, there are really two primary factors. It was too much capital, generally in the four of debt,

creating greater leverage fueling new speculative development. And it was too many cranes, too much development and really when you think about what happened in the years following the financial crisis and leading up into COVID, we really never saw those excesses come into our market. And so as we head into um, you know, period where there may be more economic headwinds, real estate actually is really well positioned from a fundamental standpoint. Economic headwinds or recession, it's very

hard to call, and I'm not it's so hard. I think, you know, I think part of it is what we're seeing and and some of the things that I think the central governments are trying to to combat, which is just this continued strength that they see, low unemployment, strong rend growth, and and that is part of what the big challenges challenges ahead. So I I don't know if we're going to have a recession. I'm not an economist,

but I would say there's definitely economic cooling. Are you guys having conversations internally like thinking like, hey, guys, we need to be thinking that maybe in this market, in this market, Yeah, What I would say is we've been we've been planning for a long time, and in this comes through in the portfolio we've constructed for an environment that might have been like this in terms of higher interest rates, higher inflation, and so we really focused on

trying it to be in those high cash flow growth and assets. And again i'd say today we're still seeing those stronger than inflationary cash flows in our portfolio, but certainly we are always trying to position for environments that change. We've been doing this for thirty years. We've seen a lot of different environments. We thought we had seen it all and then COVID hit and hotel revenues went to zero. I'm telling you no one underwrote that where we had

a pandemic um. But the great news is our portfolios are built really to try to withstand any kind of environment, and the higher than anticipated rent growth we've experienced again may kind of come down modestly, but we're we feel really well positioned for that. Distressed for you guys can be opportunity big time. We saw that after the financial crisis in terms of housing. I would say, uh, environments with distress, with volatility, with a pullback in capital markets activity.

And you know we're seeing in particular much more constrained capital markets today. That tends to be a great environment for us and really for any investor who is well capitalized and who has real strength to lean on, So we have a data advantage. Our portfolio gives us more information on what's really happening that helps us build conviction

around what we want to do next. And then I'd say the combination of deep experience from a large team and capital makes us well positioned to really support situations where others may be needing to sell assets, others might need liquidity, and we were able to then get in and buy high quality real estate. Alright, that was a conversation earlier at Bloomberg Live there Bloomberg Invest event Kathleen McCarthy, Global co head of Blackstone real Estate Massive Portfolio. As

I mentioned largestone of commercial real estate. We covered a lot of ground. We could have stuck for another thirty forty minutes easily. But there's a lot more to that conversation. You can find it at Bloomberg Live dot com and just search on Bloomberg invest. We're good, but well, I'm eager to see what they do in this environment, like when they start seriously deploying more capital when they see valuations come down enough to do that. But they are

really good at picking up distressed ousets. They bought a lot of residential housing after the financial crisis. Uh, casino in Vegas, the Cosmopolitan picked up for a song it was beaten up and then they sold it and made a really strong profit on it. So what does this cycle look like opportunity she sees globally around the market. Uh, they really double down on warehousing and distributions. She thinks

there's going to be more of it. And that was something that they that was a play pre pandemic and played off and paid off really well for them. Think about the consumer shift exactly. And then as we have more companies coming back and they're gonna need, you know, distribution facilities like we talked about near shoring. On shoring, that all plays into road a journal. Yeah, but you let me drive, no, no, no no, please, I'll do the riding revals. I want to try. It's a good question.

This is the Drive to the Clothes on Bluebird Radio. All right, speaking of going crazy, we're all a little bit crazy about today's market, trying to understand it. We keep getting lots of emails and thank you everybody, listeners in the Wall Street community and others who are saying, here's what we think is going on. Uh So we're gonna continue to track and we've got another voice to tell us what he thinks about the trade, because we are definitely well offer those and big swings in the

equity averages today, Big swings today. Dave don Obedien is Chief investment Officer at CIBC Private Wealth Management. Dave joins us this afternoon on the phone from Baltimore. Dave, good to have you back with us. How are you doing well? Are you We're doing pretty well. We're trying to We're kind of scratching our head heads here quite a bit thinking about today's equity trade. We had some great comments from Ira Jersey earlier giving us some insight into what's

going on in the bond market. How do you look at things? Well, you'd love to think this sharp turnaround was because everybody took a second look at the CPI report and said, gee, not as bad as we thought. But but we know that's not the case. It's sad um and that you know that the timing of the move late morning, that it was a rather sort of violent turnaround to the upside, and usually that suggests some kind of programmatic or algorithmic buying, So I think that's

part of the story. You know, we've down six days in a row. Um. A lot of the sentiment indicators show we were sort of extreme levels of bearishness. The you know, the bullbear ratio coming into the last couple of days is about as low as it ever gets. So they have just been an oversold market. Um. Okay, I mean I'll take that as a as good an explanation as any. You don't sound like you got conviction behind it the day. I mean, does it feel you know?

It's funny. I just put out a Twitter poll and I'm asking everybody again stock market bottom tweeting during the show. I am I'm a multitasker. Um. And the majority of responses say no, it's not a bottom. Almost about say yes and about say no. Idea and I had hashtag volatility. So it's it is what does a market bottoming look like?

And can we say that the market bottoming that we are likely to see this time around is going to be the same as what we've seen in the past, because I do wonder how the pandemic and all the liquidity that was pumped into the market's kind of changes what it looks like, right, Yeah, I don't think a day like this signifies the market bottom. Obviously, we had a really strong market from mid June to mid August

and it was just a bear market rally. But um, yeah, I think we're certainly closer to the end than the beginning of this bowl market. And we really identify three things that need to fall into place, uh, to feel confident that a new a new bowl market can can begin, and we're just to sort of do a progress The first one is we need to see clear evidence that inflation is peaked as on and is on a downward trajectory.

It's safe to say we're not there yet. Um. The second one is we need to see a downside surprise on expectations for the Fed funds ring. Um. That's kind of interesting after today because we're getting there. Our view has been that the tread funds we need to go to five next year, which was way, you know, high on the consensus list. Um, but that's about where where the market is now, so we're making some progress there. The third one is I think there needs to be

a more realistic outlook for corporate profits. Right the current estimate still called for an eight percent increase in corporate profits next year. That's kind of magical thinking to me, given the economic environment we're likely to see. So we actually this sounds counterintuitive, but I think we actually need to see earnings estimates come down for us to feel that that they're appropriately uh value, before we can can really begin a new pull market. So we're ways away

from it. I think, how much do learning these estimates have to come down? In your opinion? Well, right, let's right now they're they're expecting to be up about eight percent versus this year numbers. UM I think will be really lucky to be flat vero and more likely slightly negative. So uh, you know, so they need to come down another we'll call it to say, dude, this is this

is realistic. You know it's interesting too that you know, you're talking about um downside expectation on the Fed funds, right, and I'm looking at the warp function on interest rate probability world interest rate probability for the United States, And you know, we're just talking to Ira Jersey who thinks that pricing cuts that are being priced in right now by the markets, he thinks they're pricing it too early.

In other words, that the Fed stops raising rates. Um. He thinks it's going to be later rather than earlier, and he also says they're not pricing more cuts to come later on that. I mean, do you trust kind of market indicators right now at this point? Do you feel I mean, here we have what a five percent swing in the S and P and the nasdack today and the Dow excuse me, and yet the VIX comes down. I don't know how to explain that. I can't explain

it either. I think in terms of the path for for you know, Fed funds, again, our view has been they you know, funds peak at five percent um, you know, probably in the second quarter next year. Um. That you know, the work function, as you mentioned, that is saying that's about what the market now thinks. Um. But but I think that the missing piece maybe that we go for a multi month period where whatever the peak is, let's say it's five percent, it stays there and the Fed watches.

There's there's you talked to a lot of market participants and there's an assumption that well, the Fed is gonna you know, do their final rate hike at one meeting and the next meeting that they're going to start to lower rate. I don't think so. So I think we're going to be stuck at that rate for for most of the second halfe as well, what would you be buying in this environment? Well, I think, um, you know,

the the equity market. Our our advice generally has been to go slow in terms of putting money to work, because, as I said, we don't quite think where we're at the bottom of this this bare market. We are focused mostly on on dividend payers and in those companies that are still going to be able to grow their dividends. Um. You know, through this difficult economic environment, defense contractors, infrastructure stocks, healthcare or some of the areas you know, small caps

continue to be quite attractive on a valuation basis. Now they're not going to be immune if we continue to be in a bear market environment. That they may be what leads us out when when the bull market begins, go ahead, go ahead, please So So Dave Carol asked what you'd be buying? I want to know. I mean, I know you try to explain when you'd be buying here, but in terms of time frame, how long are we going to be sort of I don't know, searching for a low here and kind of just treading water in

the SMP. I think, I think for a couple more months. Again, impossible to know exactly right, but but I think we've got a couple more months of this sort of slashing back and forth, and probably with a little bit of a of a downward bias. But UM, as negative as we maybe on the economic forecast, we're actually pretty positive

about equity prospects for UM for three. You know, we're likely to see a recession begin, you know, probably sometimes in the first half of three, but we know from long history that the stock market tends to bottom in the middle of the recession, sometimes even in the early stages of the recession. Not doesn't wait until the recession is over. So UM, we do think things are falling in place for a better market for equity investors, but it may not be until next year. You have to

make a choice US versus non US. Where would you go right now? Who? Short term US? If you if you're a longer term investor, non US, You've got truly um inexpensive valuations. And so I think with a again a one to three year of view, non US all right, well, good to know and and certainly something to think about on a day where we're all trying to make sense of another volatile day with lots of swings. Dave don

Obedie and thank you so much. He's Chief Investment Officer at CIBC Private Wealth Management, joining us on the phone from Baltimore. Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio, or watch us on YouTube search Bloomberg Global News