Everyone Still Chasing Netflix For International Subs

Tom Keene would say. We're talking Netflix because Netflix is reporting earnings after the bell, highly anticipated given how much their shares have absolutely surged at how much competition they face this year, Tara, what are you looking for when they report? So? I think a lot of people expect that the US numbers aren't going to be so great.

They might miss on those. Um you could tell by sort of the ramp up and marketing they did towards the end of last year, and a lot of their newer movies and shows didn't get released until around the holidays anyway, so you might see an uptick in customers are up taking, customers leaving or a fewer sign ups in the US, but really the growth is coming internationally, so you can can kind of see how they're so far ahead of these other apps that are launching, and

how these other companies like Disney A're going to have to catch up with that. Um But I think as far as the threat of you know, Disney Plus and Apple TV Plus, there shouldn't be too much of an impact on this quarters earnings yet because you know, these apps are so new, and I don't think that they had enough on them at launch for people to just

go ahead and just cut Netflix. But it does point to you know, a higher rate of churn on all of these apps towards the middle and end of this year as more people become aware of these services and start to kind of bounce between them. What is Netflix management saying and Read Hastings, the co founder and CEO, has really always been I think, very forthright with how he used competition. What is he saying about how the streaming you know environment is likely to play out over

the next few years. I mean, I think he thinks there's room for everybody, but it does mean more spending. You know, we're seeing that already. He said. You know, Netflix spending had gone up like on new content last year because you know, they can't make a show like House of Cards at a hundred million dollars anymore. You know, it's becoming very costly because there's just more studios and more services competing for talent, and there's more demand for content.

So there's a lot more shows out today than there were, you know, ten years ago on regular cable TV. So

I think it's just becoming very expensive. And I think that's why last week's release or unveiling of Comcast and bc US Peacock service was very interesting because they're going the ad supported route, and I think that tells you that, you know, Comcast realizes this isn't really a great business model the way the streaming apps are now, and maybe we're going to need to go to advertising to make these profitable. And you were to call them about how

that's the right approach, I think. So, I mean, I don't think ads are enjoyable, but I think that when it comes down to price, and you know, just having all these different services and it's it's just becomes very expensive. I think at the end of the day. So I think if they could find a way to have ads be less and true of and maybe keep the cost down, it would be good. Is there an opportunity here to have no cost or a very low cost, get enough

of a critical mass? And if they're the only mover in this kind of model, they can command a higher premium from advertisers, and it's been shown that people would prefer a lower cost than no ads. Is that absolutely?

They're going for eyeballs? And you know, Comcast even said this is going to be free for not just Comcast subscribers, but Cox subscribers as well, and they're hoping to talk to the other cable operators about this and have those operators make it free for their customers as well, because this is all about getting eyeballs, not about getting a five dollar ten dollar month subscription fee. And that's a very different strategy than what these other companies are pursuing.

You know, the margins on that look a lot better. Um. You know, Hulu makes more money off of its ad supported customers than it's higher subscription based customers. So I think that's what Comcast is looking at in China. Emulate. Isn't Netflix still a stock that's driven by subscriber numbers as opposed to you know, profit margins and free cash

flow and things like that. I guess for now, I mean, I think this year that's going to have to change, right or maybe they'll have to talk up international more. We're just not going to see the growth on the U S side anymore. And you know, Netflix has kind of gone back and forth between talking about this goal of getting to you know, cash flow positive versus well, maybe not now, you know, because there's all these other services and it's very expensive to stock this with content nowadays.

So I think I don't know what this story is going to be this year. You know, something's going to have to change in this business generally, Um, but right now, I don't think subscriber numbers are going to be super impressive tonight. Well, and shareholders don't care about cash burn at this point. Right for Netflix, UM, they're starting to care a little bit more. I think people are starting to care a little bit more because they're going to

have competition for the first time, real competition. And as much as read Hastings says that, you know, their competition is still traditional cable TV and getting people to cut the cord, and he kind of used it as anyone who cuts the cord is good for the streaming industry. You know, Netflix does have rivals, and they may not be as great as Netflix, but they're gonna be out

there in people are curious interesting. I'd be interesting to see to what extent these these stories can go from being subscriber growth stories to kind of real business stories and p and L because I think we'll be interesting to see what Disney does if they start disclosing their subscribers, which we don't know whether they're gonna do that, but initially it seemed like they were subscriber numbers for Disney plus Lease in the first day, the first week, the

first month. We're we're pretty good. Teary La Chapelle Entertainment and telecommunications columns for Bloomberg Opinion. Thank joining us here in our Bloomberg in Actor Brooker studio. You can read more of terror stuff. It's awesome stuff which she covers the T M T space. You can read that on Bloomberg dot com, Slash Opinion and on the terminal by typing O P I N go. Well, the Senate impeachment trial begins in earnest later today to get a sense

of how this could play out. We welcome Bob mince. Bob's a partner of Harder in English based in Newark, New Jersey. Bob, thanks so much for joining us. I guess the first question is will Senator McConnell allow witnesses to be called? Because that is really probably the first key issue here. Do anything. Yeah, That's ultimately what this

entire trial will be about. We're not going to get that answer though, for several days, and I think people watching this ought to be paying close attention to these presentations given by the House managers and by the President's defense team, and everything that is said during that process should be viewed through the lens of the question of will it bring four or more senators closer to perhaps joining Democrats and asking for witnesses, or will it push

them further away from that, because ultimately the climax of this trial will be that vote on whether to call witnesses and whether to ask for additional documents. Bob, there are a lot of discussions over the weekend about media access to the hearings, with even c Span, not normally thought of as a firebrand of of media outlets coming out and and really lobbying for better access. Can you talk a little bit about that and sort of in perspective how common it is for press not really be

allowed into most of the proceedings. Well, we've obviously not had very many impeachment trials. This will be only the third and only the second in modern history since the Clinton impeachment trial, and so a lot of this stuff is really uncharted territory. What's going to be interesting here is that while senators do get to ask questions, even that process will be behind closed doors, so the media will not be there to listen to what the senators

have to say. So there's a lot of pressure to have this brought to the public, to have the media there to watch what's going on, But there are also some kind of vailing forces there that are against that, such as the caucusing of senators privately to ask questions. And then there's also the fact that mc McConnell is pushing this twenty four hours of argument into a compressed two day period. So it's quite possible that we're going to see some of these presentations by the House managers

and by the president's defense team late into the evening. So, Bob, what do you make of the White House defense brief, the kind of the the what they are laying out as the defense position. Well, what they're arguing essentially is that there's been no crime here that's been committed, and what's really being attacked here, uh, is the president's judgment that he was merely acting in the United States been interests and all of these charges are a little more

than political attacks by presidents by Democrats. But but really, the most of the scholars out there who have looked at this don't agree with the position that Republicans are taking. They say that high crimes and misdemeanors do not have

to include an actual criminal act. The problem is that, by by design, the framers gave very little guidance as to what would constitute a high crime and misdemeanor and really lifted up to the political process to be to decide what would be enough to remove a president from office. I'm curious about Chief Justice Roberts. What's his role exactly going to be here? Yeah, that's a great question. Again, the Constitution is very vague on what the role of

the chief Justice was. When Chief Justice Rehnquist presided over the Clinton impeachment trial. He did very little. I think he was famously quoted as saying he did nothing in particular, and did it very well. So I don't think we're going to see a very critical role played by Chief Justice Roberts because one of the things that the impeachment process provides is that even if the Chief Justice makes a ruling, that ruling can be overturned by a simple

majority of the Senate. That's obviously not something we would ever see in actual trial here, and it really sets the stage for the fact that the Senate is the one that will ultimately call the shots here. Last week, Bob, the Department of Accountability found that uh, the withholding Ukraine

aid was in fact an issue a problem. Does that factor at all into this impeachment process, Well, it's certainly going to be something we're to see the Democrats arguing, but at the end of the day, that was not

a finding of any criminal wrongdoing. And what the Republicans are trying to do is frame this as an argument that since no crime has been committed, President shouldn't be removed for something that doesn't even rise to the level of criminal conduct, and otherwise what we're doing is we're taking political differences and allowing Democrats to use that as

a means to remove the president from office. Just taking a step back, I think a lot of people aren't following this as closely as people who are in the Beltway or in the media world, and I'm wondering what the big takeaway is going to be since we know what the outcome is going to be. The likely outcome is that the Senate will not vote to convict, and then probably it will be a very short trial and then everybody will move on. I'll be with a lot of noise on both sides, or at least certainly on

the Democratic side. Is there a bigger legal takeaway from this whole affair that you think is important? Yeah, well, I think there is, and that is that for impeachment to really work, I think what we've seen is that there has to be at least some bipartisan buying. And even in the Clinton impeachment process, when they began the process and they adopted the rules for the trial itself,

it was a vote of one hundred zero. That meant that every single senator brought into the process, even though they may have disagreed with what the outcome would be here we've seeing we're seeing just the opposite. We're going to see a complete party line vote as to the process. And if you don't have any buying from from the other side as to the process, it's very hard to believe that the outcome will be in any way bipartisan or objective. What is your sense of timing here, Bob,

How should we think about this over the next few days. Well, I think the critical moment will come when we do have this decision about whether or not to callnesses. We're going to have the arguments from both sides that will occur over twenty four hour period that will still into the weekend, and then I think sometime early next week, after the Senate spends sixteen hours deliberating, they will call up this critical question of whether or not there will

be witnesses here. And there are four senators on the Republican side that have expressed some interesting calling witnesses, So there's a possibility that four senators will swing over to the Democratic side to allow for at least some witnesses to be called. And if that happens, we go into an entirely new phase. Of this trial that will be unpredictable in terms of how we'll play out and how long will last, Bob just twenty seconds. How should it

play out? From your perspective, Well, I think that we ought to at least have some witnesses called here, and I think that is a view of four senators. Whether or not they will ultimately buck MTS McConnell, buck the party, buck their base in order to do that, that remains a big open question. Bob Man's, Thank you so much for your perspective. Bob Men's is a partner at mcarter

in English in Newark, New Jersey. Also former federal organized crime prosecutor and was assistant council to former New Jersey Governor Tom Keane, So a lot of experience when it comes Also Duke undergrad. This is I don't roll my eyes because I have anything against Duke. I think Duke is phenomenal school. We don't need to bring it up every time, is except except that you do, right, That's basically what you're saying. You're looking at me. Yes, we

do have to bring that up every every time. Looking at the Brexit story, the never ending Brexit story, four years and still moving interesting things that relates to the equity markets. The good news is that the foot sea has been increasing, that's the UK stock market. But bad news is that the total value of that market is shrinking. I'm not sure how that work math works, but our next guest does, John Author, senior editor for Bloomberg Markets,

joining us here in our Bloomberg Interactive Broker Studio. So reconcile those two things. For me, it's down to the concept of the equitization. That companies are increasingly swapping equity for debt for all the good reasons that debt is extremely cheap these days, and because they are less interested

in raising capital from stock markets. So if a private equity company takes out a large British company, and that has been known to happen, that the index doesn't move down as a result of that take out, but the actual market cap of the companies in that index decreases by by the by whatever that the value of that stock company was when it was taken out. This is a really interesting trend because we haven't just seen it

in the United Kingdom. We've seen it globally, with public markets shrinking, public equity markets shrinking as an increasing number of companies up to either stay or go private these take private deals, and the latest over in the United Kingdom, Warburg Pinkers is evidently a milling this deal to buy

Quilter PLC, which would be a take private deal. Where is the potential consequence of this, I mean both when it comes to potential terms and public markets as well as the disclosures and the shareholder power when it comes to some of these companies exactly. I mean, that's that is the concern we've got to have here, is that we've got a model of capitalism that's basically built around shareholder capitalism for the last few decades, and it makes

a great deal of sense. You don't need to socialize companies and have them open to the electric because they are answerable to their shareholders into the open public markets.

If they're not so accountable in some general way through capitalism through through open markets, it becomes much more questionable how much public consents you're going to have in those companies, and you've got to be more concerned about whether you're really going to have the creative destruction that makes capitalism work.

It is a it is an underlying deep consent or presumably these private equity players take these companies private, do whatever they need to do over the three to five year holding period, and then monetize exit through perhaps another initial public offering. So shouldn't it all even out over time? Well it maybe it should, but it doesn't or it hasn't been in the last decade or so. Um In

many cases they're EXITINGCT to other private equity companies. Remember, and also in many cases that you know, the the actual assets that that emerge from the private equity process might be smaller. Even if they've generated a big return while they've been outside the public eye. They've they've generally they've they're generally not as big as they were before.

So what's the issue here. Is it that the actual shareholder structure or something about public equity mark goods is insufficient to handle the needs of these companies right now? Or is it just that there's so much money flooding into debt markets based on what's happened from the central banks, it's just better to be private, and it's ample financing available both of the above, but I would But the point I think is that if you say it's just better to be private, which I think is true for

a lot of companies. That's an alarming thing to be saying at this point because we have both an economy and an ecosystem for savers that's built around public companies. Um, yeah, that's it's a fair point. Basically, you're fur one K program or whatever else. You're basically funneling money into public equities.

If that public pool of equities is shrinking, that means that you've got that much less access than the companies that choose to say private might be the ones that actually are growing the fastest and give you the biggest returns kind of thing. Right, We work for one that's yes, yes, all right, full disclosure. Bloom Regulpi is private. But I am I am wondering going forward? I mean, is the answer just to open up private markets more easily, to

make it more easily accessible retail investor. I strongly believe that it should be. Obviously, you need to be very careful,

indeed about how you regulate that. You don't want mom and pop investors getting into private equity unless they are having their hands held very gently indeed, But in general terms, if you're in your twenties and only putting a pretty small amount of money aside, but beginning to put money aside into something like a four oh one K there really shouldn't be anything much more sensible than private equity to to put it into its money you don't want

for another forty or fifty years. You should be able to that. That should be exactly the kind of patient capital that would be good for that sector, and it should be a way to go to them safe. So certainly in the US we're starting to see that. We had Arthur Levitt, the former chairman of the Securities Exchange Commission, on over the last several weeks talking to us about some of these bills coming out of the administration, talking about making it easier for certain retail investors to get

into private equity. But of course there's obviously all those risks. Um I want to switch switch gears real quickly. John, give us a sense as we get close to Brexit the next stage. What's the I'm seeing some articles about, you know, re re relocating people from London to Paris, for example, JP Morgan taking out HSBC's office space there. What's the mood in the city of London among the finance professionals. Is it like it's not going to be that bad, or like, we still don't know what's going

to happen more. The latter I was in I was in London for a couple of weeks, just just at the beginning of the month. Um uh. I would mention Amsterdam as well as Paris. Um people many more people speak English. There, you've got the Skiffle Airport, which is a very well connected airport. UM the general senses, they still don't know exactly what's happening. But most of the large banks are braced for a pretty hard Brexit, which means that they're braced to move a lot of people

over to the continents. But you know, three or four years ago people were rubbing their hands looking forward to living in Paris on expact contracts for a few years, and it doesn't look as though it's going to work out quite that well for them. John Authors, thank you so much for being with us. We really appreciated. John Arthurs is a Bloomberg opinion columnist and senior markets editor

for Bloomberg News. Ob Jersey again, chief US interest rates strategist from Bloomberg Intelligent just joined us on the phone here, So I were good good to have you back talk to us about why the Treasury decided on the twenty year bond and maybe not the fifty year or the hundred year bond. Yeah, so, so I think a hundred year bond was always a pipe dream. Um, I don't think that that was ever going to realistically come about.

I think it has to do with liquidity. So one of the things is at least bureaucratically, and the Treasury Department likes to be regular and predictable, and the issue with doing a fifty year it would be hard to be regular and predictable in the issuance of that because, um, while there might be a lot of demand, initially, UM, how deep that demand is from the likes of pension company of pension funds and insurance companies was a little

bit questionable. So a twenty year kind of fits some other needs in that um it's still relatively long duration product. It fits within you know, the ten year and the third year. And quite frankly, and I think this is an underappreciated fact, is that there's also futures instruments that already trade in that context where you could use to

hedge that that part of the yield curve. So because there's already these products that are liquid um it it'll make issuance of them easier because dealers, for example, could hedge the potential risk that they're going to take down

a lot of bonds. So so I think it it fits a lot of those boxes where they can be regular and predictable and also of um kind of good execution and at the auctions I'm wondering just taking a broader look at the treasury market, we saw overnight the Bank of Japan coming out holding policy steady but increasing their growth expectations. We're seeing that kind of across the board, this view that central banks aren't moving any time soon

and are going to allow inflation to run hot. What's the risk that they get what they ask for and that that disrupts the bond market. Well, certainly the bond

market doesn't think that that's going to happen. I think that there is leads to the risk that you're talking about, where if inflation runs hot, because the expectation is that central banks are going to leave interest rates you know, lower, or say at this level, say the federal reserve, you know, we think the Federal Reserve will be on hold probably most of this year, if not all of this year, and if anything, that they they're more like the ease

than hike. And so in an environment like that, if you do get inflation, particularly at the core level, creeping up above two percent, which right now core CPI has been printing above two a but core pc the that that's the Fed's preferred measure of inflation, that the personal consumption expenditure is the flator. UM. If that creeps up towards two two and a half, then you'd wind up seeing probably a significant increase in things like tips break even.

So the inflation expectation built into the market right now has been very steady, and if that starts to creep up, that will wind up leading to a pretty big sell off probably in UH nominal nominal yields. And you know, an environment like that, UM twenty five basis point increase in inflation expectations might lead to a fifty basis point sell off and say ten year yields, So that would mean, um, you know, ten year yields back above two percent probably

on a pretty persistent basis. UH. Give us an update if you will, on kind of the short end of the curve the repo market. Are we at a new level of stability or is the market still looking for perhaps a longer term solution to kind of stabilize the short end. Yeah, so so the Fed is still I think looking at um some kind of facility. They don't like doing the traditional open market operations given the size of their balance sheet right now. But we do have

a lot of stability in the funt end. And you know, like we mentioned, and like I mentioned on your show, quite a lot ball is that you know, these these quarter end and these these kind of times when the balance sheet moves around a lot because of of things like tax receipts and UH and just natural functioning of the financial sector. Um. You'll see these jumps in things like the secured overnight financing rate or in the FED

funds rate UM, but they tend to stabilize very quickly. UM. And and right now we're in this period of stability, But you get towards the end of March and you're gonna be back into a quarter end situation where you could wind up seeing you know, some more volatility in repo. But again, like that's normal, I mean that that happens all the time. It's just now we're hyper sensitive to it.

Whereas you know, back in two thousand and five and two thousand four, UM, when things like this happened, it was only nerds like me that that actually paid attention. And just to put respective and I might be filed into the same category era. We did get the New York Feds term rebo operation results out today and it was undersubscribed, showing that there wasn't as much demand for

the services of this operation. Just to sort of feed into the narrative that there isn't any kind of disruption, Hey, I are going forward. One thing that's really been kind of weighing on me is the lack of movement in all markets, but including in the treasury market. It's been really really steady and without really big moves. Does this worry you that the market is not positioned for some sort of disruption, albeit potentially something from inflation or potentially

a policy policy move. Well, what's interesting I think in the treasury market in particular, and you're right, you know, we've been in basically a pretty narrow range from about one seventy broadly speaking for the last four months or so UM. But I think one of the one of

the things that speculators are actually positioned very short. So you look at treasury futures positioning and there's a lot of long duration shorts in the market, and so I think that's one of the things that's kind of impeding more significant sell off that um So, it's it's a little bit easier for those guys to cover at this point if they don't think that the risk of higher

rates is is UH is increasing. So um so, I think that that's actually kind of preventing a lot of big moves, particularly to to higher yields and lower prices in terms of the treasury market. Really interesting, especially at a time when the Move index, which is a measure of implied volatility in treasury yields going forward, is at the lowest levels since May two nine. Interesting to see the positioning isn't quite as vanilla as that range would suggest.

I Oro Jersey, thank you so much for being with us, O, our Jersey chief US interest rate strategist for Bloomberg Intelligence, joining us from Princeton, New Jersey. Thanks for listening to the Bloomberg pan L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa A. Bram Woyd's I'm on Twitter at Lisa Bramwoit's one before

the podcast. You can always catch us worldwide on Bloomberg Radio m