Third Bridge Group Sector Analyst Jamie Lumley joins Yahoo Finance Live to discuss the expectations for Netflix earnings, ad-supported subscribers, password-sharing, and the outlook for streaming.
Video Transcript
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BRAD SMITH: Netflix is set to post its earnings results after the close tomorrow. Investors will be closely watching for its subscriber numbers and its crackdown on password sharing. For all things Netflix, let's bring in Third Bridge Group sector analyst Jamie Lumley alongside "Yahoo Finance's" Ali Canal. Jamie, great to have you here with us this morning. We were talking about "Beef." We were talking about "Love is Blind" during the break here, but everybody just wants to know for different password sharing that Netflix has cracked down on, what's this going to do for some of their subscriber numbers, too?
JAMIE LUMLEY: Really good question. Thanks so much for having me on today. I think as we go into earnings tomorrow, there are definitely a couple of areas which are worth keeping an eye on as you mentioned, when it comes to subscribers, really, the question comes down to how much traction has the ad tier been able to get since launching at the end of last year. And then also, what is going to happen with the crackdown on password sharing?
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In the conversations we've had with experts, we've certainly heard that there is huge opportunity for Netflix when it comes to boosting revenue and also really adding to its bottom line in terms of initiating its crackdown on password sharing. But at the same time, when it comes to users, there's definitely a lot of angst when it comes to what's that pricing going to look like? And how is that necessarily going to change the experience? So as we head into tomorrow, those are two areas which we're definitely interested in keeping an eye on, as well as also seeing if there are any other things which Netflix has up its sleeve.
Don't forget last year, of course, there was a ongoing push into video games. And there is, of course new leadership with Greg Peters formally taking the role as co-CEO. So definitely a number of things to keep an eye on as we look at where Netflix is going at the start of this year.
ALEXANDRA CANAL: And Jamie, you said that the company's goal of reaching 40 million ad subs by the end of 2023 is, quote, "unrealistic." Why do you think that is, and how much more pressure does that put on the password sharing crackdown? And do you think Netflix-- are they going to announce this in the US anytime soon?
JAMIE LUMLEY: That's a really good question. And certainly based off of the conversation we've had with experts, it seems that this ad tier has been off to a slow start. And simply running the math, if it needs 40 million ad-supported subscribers by the end of this year, that's adding 10 million subscribers a quarter. And just looking at the numbers Netflix has had even after beating expectations for subscribers at the end of Q4 last year, it was still only in that seven million range. So I think that-- and certainly based off the conversations we've been having with experts, there needs to be a bit of tempering of expectations here when it comes to those numbers.
Netflix, it is fair to say, has some incredibly strong content. This is, of course, the platform which brought us "Stranger Things" and a variety of other massive hits when it comes to originals. But at the same time, adding 10 million subscribers just to the ad tier per quarter? That's a really tall ask. So in looking at this year, certainly there can be some success with that ad-supported tier, but as the market is incredibly saturated-- there are so many other players out there with incredibly compelling content-- it is a tall ask to get that $40 million. And based on the conversations we've had, maybe 20 roughly half there would be a bit more reasonable just considering the market dynamics of play right now.
BRIAN SOZZI: Jamie, curious to get your thoughts on this. We're hearing lots of folks really concerned about an economic slowdown later this year. Maybe a recession. Is a recession good for Netflix in that people cut their cable bills and look to save money with Netflix? Or a recession is bad for Netflix, because they'll cancel Netflix?
JAMIE LUMLEY: It's an interesting point. And I think there are a couple of ways to look at this. As we enter-- or if we do enter-- a recessionary environment, one of the key strengths that Netflix has as a consumer looks at their entertainment package via cable or the variety of streaming services that they use, Netflix is always amongst the top when it concerns which ones are worth keeping. Right now, based off of estimates we've heard from experts, most consumers have between three and five different streaming services.
And Netflix is always at the top of that list. If it's a family who subscribing, they'll probably also have Disney, maybe HBO. Netflix is always in that conversation. So if different services are being cut, odds are Netflix is going to be one of the ones which sticks around. And certainly, if you look at one of the other things going for Netflix is it did just introduce its cheaper ad-supported tier coming in at seven bucks a month.
It seems that comparing that with some of the other entertainment options out there, it is certainly cheaper, be that cable, going to the movies, comparing to other platforms like HBO for example. The pricing does have a going for it. That being said, of course, recessionary environments are incredibly challenging. And if there are these new concerns around how much price-- or what the pricing will look like-- for password sharing, it might be a bit of a complicating factor when households are deciding where necessarily they want their entertainment spend to go.
BRAD SMITH: Jamie, we put this to a poll among our "Yahoo Finance" viewers. And we said, starting with Netflix earnings next week, we're going to be getting new information how the biggest players are faring with the streaming wars there. And we asked, if you could only have one streaming service, which one would it be? I won't put the question to you-- unless you'd like to answer it, of course. But Netflix, that came in as the leader at about 50%. Roughly half of all respondents said yeah, I'm fine with just Netflix.
So what does that mean in terms of how Netflix can perhaps set the tone at the start of this streaming part of the earnings season as well, and where we may hear from the rest of those players? Two of those other answers there were really largely just Disney. And then you've got HBO Max, of course, there too.
JAMIE LUMLEY: Certainly. So looking at this, I think it's really important to remember partly maybe one of the drivers for seeing Netflix in the lead here is that from a content perspective, it's really tried to be something for everyone for a very long time. When you look at the levels of content spend, the sorts of shows that it's been trying to develop, it really is aiming to have that broad appeal, which is not catering or super serving a specific audience segment, but really trying to have that broad basis.
And we've seen in recent announcements that certainly, other players are trying to aim for this, too. Disney has been experimenting with adding more adult-focused content, having some R-rated titles on Disney Plus. Max has been coming out from Warner Bros Discovery trying to have a broader slate of content to appeal to more people. So certainly, Netflix has been the leader when it comes to just its mass appeal. And that's probably why we see those sorts of numbers for it.
This is the service which people will have. Netflix was early mover in this space and really pioneering streaming, and their approach to content has certainly been successful. So as we head into this earnings season and see how these other players are faring, whether or not others are moving closer to that approach of trying to appeal to many masses, but then also having to up their content spend, or really focus on doubling down on specific niches either through compelling drama if it's HBO, or other specific content super serving specific audiences. That will be really interesting to see.
ALEXANDRA CANAL: And Jamie, I got to get your opinion on some drama that happened last night. Not in a good way, though. The "Love is Blind" reunion episode that was supposed to air live on Netflix last night-- they totally botched it. Fans were waiting upwards of an hour-plus. Eventually, Netflix came out and said they were going to film this special and air it at some point today. From an analyst perspective, how important are live events to the company's future? And does what happened last night concern you about Netflix's ability to successfully pull off live content?
JAMIE LUMLEY: So certainly, I think that example really speaks to the differences between being a streaming platform and watching it on demand and having these sorts of live events. As we expand the discussion out to the increasing prevalence within streaming platforms of having live sports and other marquee events where people tune in live, it does raise some questions about how much of a switching of gears is this. How big of a lift is it to really pull that off seamlessly and have it be effective? Certainly-- like you highlighted in this example-- that can lead to a lot of viewership frustration.
And that's definitely not good when a player like Netflix is really trying to boost those subscriber numbers. So I think this speaks to-- there's still some time or some work needed in order to work out exactly how to have live event be seamless, be effective, and really a good way of drawing viewers in because definitely the benefits of live events, especially if they're spaced out periodically, is in working on that subscriber retention and loyalty. But it does seem like there's still a few things to be worked out right here for Netflix that they really want to swing for the fences on that one.
BRIAN SOZZI: Jamie Lumley, Third Bridge Group sector analyst. Good to see you this morning, and thank you to our very own Ali Canal. Appreciate it.