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Netflix’s next move
Reed Hastings, Netflix’s co-founder, once dismissed the idea of putting ads on the streaming service as a nonstarter. Then, this year, the company posted its first subscriber loss in more than a decade, causing its stock to nosedive. Now, the company is talking to Comcast and Google to help it with the details of a plan to bring an ad-supported offering to its service, The Wall Street Journal reported yesterday.
Ben Mullin, a media reporter for The Times, says the advertising plan could create significant upside for Netflix, even if it raises questions in Hollywood. Here are his thoughts:
Ads could funnel more than $1 billion of high-margin revenue to the streaming service annually, according to some analyst reports. And it could do that in a relatively short time frame: Netflix executives have told employees that they plan to start advertising on the service sometime in the final three months of this year. That’s crucial at a time when Wall Street is putting additional pressure on video-streaming businesses to increase profitability after tolerating years of profligate spending.
Nonetheless, Hollywood execs have questions about an ad-supported Netflix offering: Will content producers get a cut of the revenue that Netflix generates by selling ads against their movies and TV shows? Will directors with final cut privileges get a chance to negotiate with Netflix over which commercials are inserted, and when? And will advertisers get a detailed readout of viewer behavior from Netflix, which has been accused of being stingy with user data? Do Netflix’s existing licensing deals with producers even allow the streamer to show commercials alongside their content?
Ed Lee, another media watcher at The Times, says Netflix is making the move out of necessity, not opportunity.
The real reason Netflix is in a hurry to get its ad-based service up and running: Growth has slowed. And the streamer doesn’t have the technology, the sales staff or the Rolodex to cut any deals. So it can’t do it on its own.
Netflix could end up cannibalizing a big chunk of its current customer base. Earlier this month, analysts at Wells Fargo predicted that a cheaper, ad-supported Netflix offering would attract just over 100 million subscribers by the end of 2025. But only 16 million of those customers would be new users — the Wells Fargo analysts believe nearly 85 percent of the users of Netflix’s cheaper service will be existing subscribers looking to pay less for streaming.
In the end, Hollywood might balk. It’s hard to imagine Martin Scorsese is happy to hear his films could be fronted by an ad for … anything. And, as Ben says, Hollywood execs are already asking questions about what’s in it for them. Netflix could have to renegotiate some of its licensing agreements. For new deals, producers would either want a cut of ad revenue or just more money up front.
For now, Netflix isn’t saying much about its plans. A Netflix spokeswoman said yesterday: “We are still in the early days of deciding how to launch a lower-priced, ad-supported option, and no decisions have been made. So this is all just speculation at this point.”
HERE’S WHAT’S HAPPENING
Jay Powell, the Fed chair, says a recession is “certainly a possibility.” Powell said the Fed might be able to slow inflation without tipping America into a painful downturn. But successfully executing a so-called soft landing “has been made significantly more challenging by the events of the past few months,” he said, citing supply disruptions that have pushed prices higher. He will appear before the House Financial Services Committee today.
Support for a bipartisan gun reform measure in the Senate reflects a political shift. Fourteen Republicans — including Mitch McConnell of Kentucky, the minority leader — broke with their party to advance the legislation. Only two are up for re-election this year, and most Republicans are expected to oppose the bill.
Russia is ramping up hacking attacks on Ukraine’s allies, Microsoft researchers say. About 128 targets in 42 countries have been hit by Kremlin-directed cyberattacks since the war began, with the U.S. topping the list, they say. The increase in attacks was expected, but they have been less successful than security experts initially predicted.
Elon Musk says Tesla’s factories are “gigantic money furnaces right now.” Musk said in an interview that plants in Texas and Berlin were “losing billions of dollars” as battery shortages and shipping issues slowed production. He said the company’s main concern was keeping factories operating, so it could keep paying people and “not go bankrupt.”
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Altria’s burning question
Shares of Altria, the Marlboro maker, were hit yesterday after The Wall Street Journal reported that the Food and Drug Administration would order Juul Labs to take its e-cigarettes off the U.S. market. Altria paid nearly $13 billion for a 35 percent stake in Juul in 2018, and the Marlboro maker had already written down its investment in Juul by at least $11 billion. Yesterday’s news could render that stake worthless or close to it — and leave a huge question mark on the tobacco giant’s future.
E-cigarettes were once the next big thing. Big Tobacco, facing slowing sales of traditional cigarettes, jumped right in. R.J. Reynolds introduced Vuse. The e-cigarette start-up Njoy got backing from high-profile investors like Sean Parker, of Napster and Facebook fame, and the venture capitalist Peter Thiel.
But as Juul’s sales skyrocketed, especially among teens, the F.D.A. became concerned. That led to a 2018 regulatory crackdown. That’s when Juul turned to Altria for funding, as well as some regulatory muscle, instead of trying to fund-raise $20 billion from venture capital firms. In 2020, the agency mandated e-cigarette makers get approval to stay on the U.S. market, which it now appears Juul will not get. An appeal is probable. Juul conducts a majority of its business in the U.S. and reportedly had a net loss last year of $259 million.
This could leave Altria in a world of trouble. Its core product is under fire, with the F.D.A. looking to significantly reduce nicotine levels in cigarettes. Altria gets about 90 percent of its revenue from smokable products. Its revenue fell slightly last year, according to regulatory filings, and its stock is down more than 45 percent in the past five years. Other attempts to diversify, like an investment in the cannabis company Cronos, have similarly faltered: Altria wrote down that investment by $200 million at the end of last year. Might Altria look to make a big play outside cigarettes — say food or snacking, given its huge distribution in convenience stores? Pass the popcorn.
“We’re hired for our special knowledge and experience, but our special knowledge and experience isn’t valued in the same way.”
The N.F.L. and toxic workplaces
Professional football teams are not your typical everyday employers. But their visibility means they should be setting an example for how to handle issues like bullying, harassment and intimidation, says Representative Carolyn Maloney, the chairwoman of the House Oversight and Reform Committee. Instead, some have fallen far short of that.
At a hearing yesterday, Maloney said the N.F.L. secretly agreed to withhold evidence that Dan Snyder, the owner of the Washington Commanders, had fostered a “notoriously toxic workplace.” Maloney, Democrat of New York, said the league’s failures had compelled her to introduce two new bills intended to protect all workers: “What happens in the N.F.L. has consequences for the rest of the country.” (A representative for Snyder said the committee’s investigation was “predetermined from the beginning,” adding that the team addressed workplace issues “years ago.”)
The proposals would limit nondisclosure agreements and protect worker privacy. The committee began investigating the N.F.L.’s handling of misconduct claims and subsequent investigations in the fall. It found that Snyder relied on bullying and intimidation and treated men and women unequally. The Commanders, for example, fired a female cheerleader who had a consensual sexual relationship with a player, who kept his job. Footage of cheerleaders was also said to have been turned into a personal video for Snyder, an accusation he and others deny. One of the bills introduced by Maloney outlines processes for handling misconduct claims and bans settlements that prevent transparency. The other requires consent to capture employee images and prohibits illegitimate uses.
Will the bills pass? Republicans acknowledge that bullying is a serious problem, but they say that private companies are not under the committee’s jurisdiction, and that Congress should focus on inflation and the economy. The top Republican on the committee, Representative James Comer of Kentucky, protested that an “overhaul” at the Commanders had already begun. The likelihood of passage may be slim, given the vociferous resistance.
Workplace toxicity can also be an economic issue. A McKinsey report on employee mental health across 15 countries says companies “pay a high price for failure to address workplace factors that strongly correlate with burnout, such as toxic behavior.” Toxicity was the biggest predictor of attrition, researchers found. Dissatisfaction with bad management has helped drive the “Great Resignation,” with corporate culture ranked more than 10 times as important to workers than compensation, based on an analysis of Glassdoor reviews by other researchers. Companies are increasingly offering programs for worker wellness while leaving fundamental problems unaddressed, McKinsey researchers wrote: “As an employer, you can’t ‘yoga’ your way out of these challenges.”
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THE SPEED READ
Deals
Sanas, which uses artificial intelligence to change the accents of call-center workers and others, raised $32 million in Series A funding. (TechCrunch)
Europe’s deal makers are having a harder time securing financing. (Bloomberg)
Policy
Mark Zuckerberg, who once said safeguarding elections was “the most important thing,” has shifted his company’s focus as the midterms loom. (NYT)
As Russia cuts energy supplies to Europe, some countries push for more regulation over energy-hungry data centers. (Bloomberg)
The South Korean won fell to a 13-year low amid recession fears. (NYT)
“We Can Do Better Than Title IX” (NYT Opinion)
Best of the rest
Amazon’s C.E.O. addressed the news that two Black senior executives had left the company. (GeekWire)
The news start-up Semafor readies its entry into the tricky digital news market. (NYT)
Shares in Revlon, which has filed for bankruptcy, climbed 34 percent yesterday. Is it a meme stock? (WSJ)
Amazon’s Alexa will soon be able to mimic voices after listening to less than a minute of audio. (Sky News)
Rupert Murdoch and Jerry Hall are said to be divorcing. (NYT)
“When Did Perfume Stop Being About Sex?” (NYT)
How to move your home office outside. (Wirecutter)
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