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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. I gotta say not fun watching shares of Netflix dropped like a rock, especially if you here are an investor. Stock down nearly's lows, today's creating as investors punished the company for shock loss and subscribers in an abrupt turnabout to embrace advertising after years of not so we gotta get this story. A few people know as much about Netflix as our own Lucas
Shaw does. He's entertainment reporter for Bloomberg News. He joins us now on the phone from l A. Lucas. For years we heard from read Hastings and Company that it didn't matter if people shared their passwords and that they were never going to bring advertising into Netflix. What what what prompted this about Face? It's a great question in
one twitch, I don't think anyone has the clear answer. Uh. You know, I've asked people up and down the company today because as recently as a you know, a month ago, they were saying that the strategy was just to stay the course. But it's clear that they have been spooked both by the subscriber losses in the most recent quarter, in the first quarter, and what they're seeing happening in the current one. The second you know this is this
has been a growth stock for the last fifteen twenty years. Uh, and they're not growing anymore, and so they need to try a bunch of different things. And what they announced yesterday felt a little bit to me like the kitchen sink approach, where they were just sort of throwing everything at people. All the things they said they wouldn't do, they now say they will. The only the only thing that they're sort of holding the lines on, holding the
line on his sports. It did feel like a little tinge of desperation and kind of jumping the shark a little bit. Um, I mean, is it just that there's so much more competition? Is it that we're coming out of the pandemic and we're all tired of sitting on the couch watching stuff? Is it a couple of things that play or is it what is it? Yeah, it's hard to pick one reason. You know that the company identified for they talked about smart TV penetration, they talked
about competition, they talked about password sharing. Um, you know, you identified one that that they spoke about less. But I think it is also an issue, which is people are going out into the world and you know, they're they're just not as interested in staying home and watching TV. You know, it's always hard to diagnose one reason for something like this. I do think the competition and reopening
are probably the two biggest factors. Because password schairing has been been an issue for Netflix for a long time, they're now saying they're going to do more to combat it. But it's not a new problem. The new problem is that people have a lot of other things that they want to do with their time, including other services where they can get pretty much that you know, this the same quality shows and often actually had a cheaper price, right, Hey,
I do wonder you know, Lucas. I think all of us were kind of shocked with the headline crossed about Netflix losing subscribers yesterday, to the point where like, wait a, ma, is this a mistake? Right? Because it was just not what we were anticipating. Here we are kind of the morning after. How are you thinking about the Netflix story
going forward? What are you hearing? Are kind of the smart conversations to be having, because I'm thinking about a lot of investors out there are pretty pretty spooked right now. They have they have a right to be spooked. This is the most vulnerable the company has felt in a long time. Um, you know, it's it's not really clear exactly where they go from here. I think some of the comments from read Hastings and others caught people even
inside the company off guard. Um you know, I remember having a meeting with someone at Netflix, uh, you know, a few months ago in which I detected a shift and how they were talking about advertising and it felt to me like this was coming. And when I asked other people at the company, they told me not to make too much of it. And so the clearly things
have changed over the last couple of months. You know, if you take what what read Hastings said yesterday, it feels like they're in the you know, they're they're just trying stuff right now. I don't think they have any idea exactly what advertising on their service is going to look like. I don't think they are they have a ton of confidence or certainty that trying to curR password
sharing is going to work. And one of the things that that did strike me yesterday was that they didn't talk a lot in about content or shows in in
diagnosing their problems. They've always attributed you know, the quality of their shows and popular titles with attracting new subscribers, and you'd think that maybe that's one of the reasons why they've they've now run into a problem, is that their shows aren't being as effective at bringing people in Lucas I see a drop like this, and I think back to more than ten years ago, the quick Stir debacle, when Read Hastings had to come out and essentially apologize
for confusing consumers about splitting the businesses and to one the DVD business, the other, of course, the streaming business that it's now known for is this another quick a moment for the company where it doesn't really understand its identity moving forward. Well, so it's interesting that you bring that up because Quickster was the last time that that they had a subscriber loss. But Quickster was was more of a like a kind of a an optics error
or or a minor tactical ayer. The big picture strategy was dead on what retast Things was trying to do with the company in splitting DVD by mail from from streaming, was getting ahead of what he saw as the next evolution in entertainment. And Netflix has been ahead of the curve, first with that and then with producing original programming. They sort of saw the threat to their business and they got ahead of it. What's interesting this time to me
is it feels more reactive. You know, Netflix is now the incumbent and they're not really sure what their next move should be. Um So I actually think it's a it's a totally different situation similar in that you know, there's there's now an existential threat, but they don't necessarily have the answer. Just got first of all, Netflix DVDs, I mean in the mail just sounds so quaint. Hey just got about twenty thirty seconds here, Lucas um, should
we not be counting Netflix out or read hastings. No. I mean, look, this is a company with two million customers, run by one of the most successful entrepreneurs in the last twenty years. It's not like it's going to die tomorrow, but they do face a greater challenge than they have in a very long time. All Right, we're gonna run. Hey, great reporting and great conversation. Of course, our Bloomberg News
Entertainment reporter Lucas Shaw. Netflix shares tanking today. They're now down six so far here in two stocks down right now. Lucas the story the most read on the Blueberg terminal in the last eight hours. Already tweetered it out if you haven't read it yet on Blueberg dot com. We're still reeling from that. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovic on
Bloomberg Radio. So we are focusing, like all of us, on what's going on with Netflix still down about thirty six percent. It's also dragging down some other members of the media group. Roku is down more than five percent. Paramount is down seven point four percent. Disney UH is down about five percent. So we want to bring in a member of our Bloomberg Intelligence team who watches this space.
It just has some great insight, and we're talking about Gita Rockney, goth and technology and media analysts for Bloomberg Intelligence. She joins us on the phone from our Princeton, New Jersey bureau, Guita. I know it's been a very busy day for you, so we certainly appreciate you taking the time. We spoke to Lucas specifically about Netflix in the last
few minutes. We want to broaden the conversation with you and talk more about the ecosystem right now, because for years, linear companies have been in the midst of this transformation that Netflix really invented, and they seem to be doing a pretty good job. Are there new questions now? That was about the sustainability of streaming as a business after Netflix's shocking quarter. Absolutely uh, And thank you so much
Tim and Carol for having me. I think this was really a reality check, right This was a wake up call for media um and for the full streaming model as a whole. So I think there are a couple of things here that we kind of really have to
look at UM. I don't think, you know, if you kind of look at some of the other streaming entrance, like you look at a Disney Plus or or even a Discovery plus, HBO Max, those companies are all still pretty nascent in terms of their streaming growth, and so I don't necessarily think they'll face these headwinds right away. But I think what it does do is kind of raised the question about what the total addressable market is.
And I think that's where, uh, you know, we kind of had a real investor reset last night when Netflix told us that they were already very very highly penetrated. So they talked about the two hundred and twenty million subscribers that they have globally, but then they said they also have another hundred million, you know, households who are possibly like freeloading, you know, with with the whole password sharing issue going on, which means that they've already attained
what they think is very very high penetration. So if you look at just the US market, for instance, it means they're all probably already at about an eight percent penetration level. So I think the you know, when you kind of then expand that what it does is um almost reduced the total addressable market um for you know, streaming subscribers. So we've been traditionally taught to think that
it's about a billion global Internet connected households. I think that market is actually much much smaller now kind of given Netflix's assessment of the situation, and so then that reduces the potential for all of these other streaming companies as well. Wait, so you don't think it's the potential in terms of Internet connected market globally is a billion?
You think it's smaller than that. I think. I think that's exactly what Netflix was kind of trying to tell us last night when they said, you know, penetration is already very very high in most of these markets, and they kind of spoke around it, you know, by by you know, talking about passwords sharing. But I think the basic point being that it's not the one billion that we're used to thinking. It's probably closer to maybe half
of that. So maybe why all of a sudden they're realizing this, Yeah that no, that is that is the you know, that is the question, I think, and I think they were so this was the first time on the earning skull that we really saw management kind of lack that usual swagger and confidence. Right, they really looked, you know, like deer in headlights, not really being able to explain why you have this sudden you know, slow down, and they looked just as blindsided as you know, the
rest of us. So it was really an interesting picture for Tim. He's trying to get any Is this like an ESPN moment? Remember when those ESPN numbers were lousy? Email like, oh my god, ESPN is over right, exactly, well medium down two point oh okay. So but ESPN is doing okay, right, ESPN is doing okay. They're throwing off about five billion dollars and even yes they are. So is this can we compare that? Is it apples
to apples? So I think, Carol, I mean, this is such a such a great question, and this really kind of brings us to, you know, what is the future for all of these media companies? So, yes, you know Disney included ESPN's parents is in the midst of this three make a pivot. We know that linear TV is kind of you know, I don't want to say it's dead,
but it's definitely not thriving. You know, more and more people are cutting the cord, but then the streaming model is not necessarily thriving either, And so now they're kind of hit on both ends. Right. They have their their traditional cash cows no longer, you know, throwing off tons and tons of cash. It's still pretty stable, but there's
no growth there. Uh, And you have them throwing all this money into the streaming business, and probably the economics there aren't going to be as great as they had originally thought it would be. So you know, it's kind of this double whammy right now. Alright, Kee Rocknegothen, thank you so much for joining us technology and media analyst a Bloomberg Intelligence. This is Bloomberg Business Week with Carol Masser and Bloomberg Quick Takes. Tim Stinovic on Bloomberg Radio.
Life imitating art, Art imitating life. I used to think about that when I watched your Times Home, because it really felt that way. Not sure thought of cartoons, and I'm pretty sure that many of us thought about that relationship and predictive insight when we were watching Pixars Wally when that came out in two thousand eight. Writer and director of Wally Alex Stanton addressed that in a quick Take feature that was by our own Alex Webb. You know, the funny thing we found out was like, where do
you think technology would go? And why? And what ended up being our way to to guess that was what would seduce you because we were watching it happened with the phone, and we were watching happening with these electric scooters. It's like fast food. You know it's bad for you, but it's just deductively too tasty and you you cave. Ain't that the truth? All right? That was writer and director of Wally, Alex Stanton in a quick Take feature by Alex Webb. Alex Webb is a correspondent for Bloomberg
Quick Take. He joins us on the phone from London, also joining us as Joel Webber, editor at Bloomberg Business Week. He joins us on the remote access line from Brooklyn, Joel, good to have you with us. The comment about the phone really hits hard considering that Stanton was at Pixar, where as Alex Webb rights uh Steve Jobs at the time, spent about half of his week, so he saw an
early version of the iPhone. Hard to believe that Wally came out all the way back in two thousand and eight, because it feels like that world is playing out for us right now. It's really eerie. Um. Actually, what's what's transpired since then? You know? I remember watching Wally in the theater again in the real before times, right, um, And even back then it was like, oh wow, this is like, you know, deeply satirical. But what makes story ud remarkable is just how much of reality now looks
like uh what was depicted in the movie. So So, Alex, where did this idea come to you from? I mean, I guess I've got to admit to my later Disney obsession, and I think that actually it was the The real thing that drove for me was the space tourism and stuff. When last year when we saw particularly Blue Origin taking tourists to space, and I thought, well, that's the final piece in the sort of By and Large puzzle in
the film. There's sort of monopolistic retailer called By and Large, which is basically Amazon, and they also run this space tourism operation. And so that was the sort of final straw, which when we think I've got to do something on this, I gotta say it's terrifying. I was reading a story by our Blue or Green Chief or Groston that talked about how carbon emissions are kind of back to where they were pre pandemic. Uh, it's terrifying to read this.
I'm curious if you were smoking anything when you wrote this, But I'm just kidding. He's a father of tuld No. But you hit it so much. You know, we see so much that we think, Okay, this can never happen, but it is playing out. I mean, what do you think people who read this should kind of sit up and take notice about quite how near in the future was. We tend to think about science fiction as being centuries
away and or or fifty years away. And and you know, when we looked at the two one space, obviously obviously we're twenty years beyond that, and not really much of it has happened in the way it was envision back then.
This managed to look just around the corner. And the other piece of it, though, that I found fascinating, is that, yes, art sometimes imitates life unintentionally, but sometimes we you know, it influences the way that we think about things, and the the way that we decide to evolve is of course informed by the science fiction of the past. So you know, the metaverse is obviously a prime example of that.
But even in this, like on a very granular level, the ship that the SpaceX rocket that launched two weeks ago, three weeks ago now, um, taking tourists in International Space Station is called the Axiom, and the ship in Wally is called the Axiom. You know, so this is presumably some sort of joke by by the founders of the company that is taking these people to space. But but you know, there is somethings that are unintentional and some things where this actually shapes the way we think about
the future. Well, what what were some of the other compelling coincidences or maybe not coincidences, the things that that you know, you you wrote about in the story that you know, the similarities between what's depicted in the show and how how life looks. Now, what were some of the most compelling ones. Well, the people in the show, they're sort of a beasts living on this spaceship, and of course the bast levels have continued to increase and
have gained pace in recent years. But also the people on the on the ship, they communicate through video call they you know, with people sometimes six ft away from them. And I don't know about you guys, but I've certainly been on calls in the morning calls, editorial calls where I'm on the video call on the person of the desk next to me is at the same video call, and we're talking through through a zoom link rather than talking in person. And finally, they eat smoothies, which that's
their meal replacement is a smoothie. And of course we've seen Hull and Soil and all these other sort of brands take off over the past decade. There's one further thing actually that I didn't mention either in the piece or the video form for time constraints, but the CEO of by and large this Amazon proto Amazon is also functionally the head of state. When you think about sort of a businessman becoming head of state, something like that seems to have happened recently. Yeah wow, speaking of yeah
imitates life. Hey, Alex, what is what is Andrew Stanton, the writer and director of Wally, what does he think about all this? He said that he like, he said, he wished you hadn't been so right. You know, we spoke, we I spoke about twenty minutes. We used some of them in video and of course a quote a little bit, but he uh said, you know, his words were, I usually enjoy being right, but not on this one. And um he sort of was chuckling, but with a sort
of rye um sense of essentially disappointment. Really, yeah, I do wonder like the creative process of what they were thinking. And you know, obviously you know where they were getting a lot of inspiration and from, um, but he has to be probably less about what Alex was smoking and when they were smoking. Yeah, I know, I've penned the Pixar. It's a really creative place where you can kind of do whatever you want. Um, but I they've just got to be marveling it. Like for me, it's a little
freaky how much they got right. And I can't Joel knows this, Tim knows this. I joke that we're all going to be living in the metaverse because the climate
is going to be so bad. Funny but not funny, Alex. Yeah, the thing that was actually quite interesting as well, if you know, you mentioned in the in the lead here that Steve Jobs was of course the see of Pixar, and he said that understanding told me that they actually saw the iPhone a year before it came out that they were at a party with Steve Jobs and he just couldn't resist showing off this sort of metal as the chunk of glass and aluminium, and the analogy that
Irew Stanton he is talking about smoking things. He said that he used to be a smoker, and that like when he saw the kind of effect that even just having the iPhone for a few minutes had, and like the kind of obsessiveness that people were just sucked into it. And he said it was like when he was standing at the bus stop, have nothing to do and smoke
a cigarette. Now he could see the people like be getting on their phones and so that fed into this this whole thread in the film, which I think you know, it's ostensibly a film about two robots falling in love, but it's really a kind of fable about over consumption and tech addiction. And those are the two I think you know, there are two huge themes in society at the moment. And uh yeah, it is something that he was informed by his proximity to Apple. I'm sorry, Alex,
did you say something I was on my phone? No, I'm only kidding. I'm only It's just unbelievable. This is a great, great read, a great story, Joel, did you have something you wanted to say? Yeah, well, we'll see you in space. You know that's the next shooter drap. I guess it will be floating in space, right, Yeah, Happy Wednesday everybody. Um. Alex Webb, thank you so much. An incredible right and incredible read. Uh. He's correspondent Bloomberg
Quick Take. Check out his piece his feature piece too on quick Tape. Joining us from London, Jill Webber. He's the editor of Bloomberg business Week, and this is Bloomberg Radio. 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 to Bloomberg Global News.