NETFLIX silences haters, but loses most US subs ever in a quarter

Eddie Murphy sets next AMAZON pic / NETFLIX Ad tier won't have all current content / Hugh Jackman joins HULU animated series

Mornin! This is Sean McNulty and here’s the Hollywood + Media news to know on WEDNESDAY July 20, 2022.

Where I don’t think Wall Street has seen this much excitement waiting for a report to drop since the Frozen Concentrated Orange Juice market of 1983. 🍊

You know Billy Ray went long on NFLX. via Giphy

BUT: Yes, NETFLIX stock certainly survived to fight another day… and even popped 8% in value last night with their “It’s not that bad” 🤷‍♂️ earnings report.

A full Wakeup #medianerd breakdown (longtime readers know what that means) is further below - plus this edition is free for all to read and share!

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📽 THE SILVER SCREEN

I mean when you have the opportunity for an Eddie twofer… ya take it. Via Giphy

Eddie Murphy’s first film at AMAZON will be “Candy Cane Lane”

Re-teaming with his “Boomerang” director Reginald Hudlin, and IMAGINE is producing. No word on plot other than holiday-themed naturally… and the script is from Kelly Younger who worked on many DISNEY & Muppets projects.

Will shoot this Winter in LA, and is the first film in Eddie’s 3 pic deal at the streamer. /Deadline

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ALSO IN MOVIES

• AMAZON sets Michael Pena to star in true-life Mexican astronaut story “A Million Miles Away”. He’ll play Jose Hernandez who grew up as a CA migrant farm worker who didn’t learn English until he was 12, who eventually went to space and the ISS in 2009. Will shoot end of Summer. /THR

• SONY moves their Tom Hanks pic “A Man Called Otto” up 2 weeks, will now hit theaters Wed Dec 14, 2 days before “Avatar 2”.

  • Dakota Johnson’s MARVEL pic “Madame Web” also moves from next Summer to the popular first weekend in October slot 2023. /Deadline

• SONY’s “The Woman King” will premiere at TIFF - it hits theaters Sept 16. /Variety

IN THE HOLLYWOOD EXECUTIVE SUITE

• LIONSGATE signs producer Todd Lieberman to a “film partnership” deal. His new company is HIDDEN PICTURES. /Deadline

• WB EVP Digital Marketing Andrew Hotz is leaving, going back to GOOGLE as Director, Platforms. Gotta say WB title > GOOGLE title. /Deadline

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📺 THE TV SET

Hugh voicing an Aussie - why overthink things? via Giphy

HULU sets Hugh Jackman as a lead voice in “Koala Man” animated series

It’s about an Australian middle-aged dad who has a passion for rules and a secret identity as a superhero mitigating petty crimes.

Hugh is playing “Big Greg”, a former fishing show celeb who’s a big shot in town. /Deadline

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ALSO IN TV

• Country Music’s ACM Awards will keep with streaming-only at AMAZON PRIME next May. /Deadline

• FX renews “Breeders” for a Season 4. /THR

• A parking crew member of “Law & Order: Organized Crime” was shot and killed in Brooklyn in the early morning yesterday while sitting in a vehicle. Police are looking for the killer. /Deadline

• HBOMAX makes deal to put many of their big series & movies on AMAZON PRIME in INDIA. Well guess that’s not a market on the expansion list anytime soon… /Forbes

  • AND: Hopefully WBD sets a date for their Q2 earnings call soon - they’re the only major streamer who hasn’t. Not helping the impending layoffs rumors and still 🤯 skipping of TCA.

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📝 IN OTHER WORDS…

“I remember one of the questions was, ‘Who do you think is going to be prom queen?’

I said, ‘I don’t know, I don’t care as long as it’s not Lauren Conrad.’” 

- KRISTIN CAVALLARI on the casting form MTV had all potential participants fill out, on her new podcast with Stephen Colletti revisiting each episode of “The Hills”. A show for which they were apparently paid about $2500 for Season 1. Ah MTV 2009…

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💻 THE MEDIA BIZ

#medianerd 🤓 returns!

via Giphy

“Stranger Things” helps NETFLIX avoid Q2 disaster… but US subscriber losses mount

GLOBAL SUBSCRIBERS: Now at 220.7 Million, a loss of 970k from April thru June.

Essentially a lotta people were expecting a foot of snow ❄️, and we got about 3 inches. 📏

• This is 50% less than they forecast back in Q1 (2 Million)

• Although it sounds like “Stranger Things”… and the decision to break it up in 2 parts so that it ended in Q3… is really the day-saver here (with an assist from KATE BUSH of course).

  • When asked what led to the better-than-anticipated result, Reed Hastings said “If there was a single thing, you might say ‘Stranger Things’”. Pretty sure we might.

• NFLX stock was +8% in after hours trading yesterday.

HOWEVER: This is the first quarter ever that NETFLIX lost total global subscribers (I’m excluding Q1 as it had the pullout from RUSSIA which skewed things).

Yes Q2 is generally the worst for subscriber adds each year… but this just is not a good headline no matter how you spin it.

THE MURKY US HORIZON

NETFLIX lost 1.3 Million subscribers in the US/CAN market alone, its largest quarterly drop ever, and 2X the loss from Q1.

A quarter where they reportedly had their greatest share of “minutes viewed” in the US ever, according to NIELSEN (7.7% in June).

So during their month of greatest user engagement - they had their worst subscriber loss ever in the US.

SO - Either competition’s gotten that great in the US streaming market, OR… gasp, the minutes viewed metric is kinda dumb, and in no way a real indication of a service’s health.

You know where I stand on this one.

BUT: US #ARPU (Avg Revenue Per User) was up sizeably to $15.95, up almost $1 since Q1 - thank you March price hike 🤑.

So total US Revenue still increased, despite the subscriber hit.

But the more concerning trend - NETFLIX has lost about 2 Million US subscribers in the first half of 2022, and Q3 presents big challenges (more on that below).

The Ad-Supported version also can’t come fast enough (more on that below too).

THE EURO PROBLEM

EMEA (Europe, Middle East, Africa - so mostly Europe) lost 800k subscribers… also 2X’ing account losses from Q1.

and

Total Revenue fell in this region for the first time ever. #ARPU fell here almost 40 cents to $11.17. Not a promising combination.

Not to mention… the strength of the Dollar vs. the Euro (and just globally) is of concern.

Take the 12 Euro a month price in GERMANY for example - it used to translate to say $13.50 of Revenue 6 months ago as NETFLIX operates in Dollars. Now that same subscription translates to… $12.

Same number of subscribers, but less actual Revenue. And you can’t really raise the price to compensate in the short term.

This “strong Dollar issue” is an area that NETFLIX would like to see improve and is monitoring: 60% of NETFLIX revenue comes from outside the US.

ASIA PACIFIC FTW

This is where NETFLIX continues to see growth, adding 1.08 Million subscribers, although the big INDIA price cut ate into the region’s #ARPU by about 4%.

REGIONAL BREAKDOWN:

• US / CAN: 73.2 Million (-1.3 Million)

  • #ARPU: $15.95 (+10% vs a year ago)

• EUROPE + MIDDLE EAST: 73 Million (-770k)

  • ARPU: $11.17 (-4% vs a year ago)

• LATIN AMERICA: 39.6 Million (even)

  • ARPU: $8.67 (+16% vs a year ago)

• ASIA PACIFIC (incl INDIA): 34.8 Million (+1.08 Million)

  • ARPU: $8.83 (-9% vs a year ago)

FOLLOW THE MONEY

Q2 2022 REVENUE: $8 Billion

Q2 2022 NET PROFIT: $1.44 Billion

NETFLIX is still very profitable with healthy cash flow, and is still the only subscription streaming service turning a profit (except for HULU possibly - DISNEY doesn’t break that out).

HOWEVER: Excluding the strong Dollar situ, Revenue is +13% vs a year ago - a slower growth rate than previous years… hence the choice to level off production spending at $17 Billion a year for the foreseeable future, and the Q2 layoffs and real estate cutbacks:

• NETFLIX spent $70 Million in severance related costs from April-June, laying off about 475 people.

AND

• Had $80 Million in losses from abandoning previous real estate deals as they bit the bullet on the process of “rightsizing our office footprint”.

OTHER BUSINESS ITEMS

AD-SUPPORTED TIER

• Will launch “early 2023” instead of end of this year.

• Will not have all content that is on regular NETFLIX, as pretty much all other services with 2 versions do.

  • All NETFLIX OP will be there, but NETFLIX is not going to license all 3rd party shows & movies for this version.

  • So if a customer downgrades from No Ads to Ads, some of the shows in their List (say “Seinfeld” perhaps) may not be there. Sure they won’t Tweet about it.

PASSWORD SHARING CRACKDOWN

• Will roll out in 2023 TBA, as testing continues elsewhere in the globe this year.

CHANGES NOT HAPPENING

• They Doubled-down on:

  • No Wide theatrical releases for Films

  • No shift from the Binge drop model to a Weekly for anything

LOOKING AHEAD - EH?

NETFLIX is projecting to add 1 Million global subscribers in Q3.

Not huge growth, but growth, which would mean NETFLIX could be at the same global subscriber count in October that it had in… January.

But Q3 has clouds, especially in the US.

Here is the current programming slate to come - more to be announced of course (especially in September I’m sure) but:

• SERIES: “Uncoupled” NPH series, “Cobra Kai” Season 5, “Locke & Key” final season, “Never Have I Ever” Season 3.

• MOVIES: A Kev Hart-Wahlberg comedy, Jamie Foxx’s vampire pic, a Ninja Turtles movie, and the Marilyn Monroe arthouse pic.

The Competition in rest of Q3:

• AMAZON: “LOTR” series & NFL THURSDAY FOOTBALL

• HBOMAX: Return of “GOT” and “Baz’s Elvis”.

• DISNEY+ : New STAR WARS series “Andor” and Tom Hanks’s “Pinocchio”, plus “Thor 4” and “Lightyear”.

• HULU: Return of “Handmaid’s Tale” and “The Kardashians” and the Steve Carell series “The Patient”

• And even PEACOCK will get all of UNI’s big summer hits (“Minions” etc) in addition to PREMIERE LEAGUE returning. Plus all NBC series leave HULU in Sept to be PEACOCK only.

• PAR+ yer lookin a little light…. outside of new “Beavis & Butt-head” episodes. Tho I’m guessing “Top Gun” will eventually get there if it ever stops making box office bank.

TAKEAWAY

This was a good day for NETFLIX - “Stranger Things” did exactly what it needed to do, profitability is still strong, and the feared (or hoped for depending on where you are in the industry) splat did not happen.

But as much as there’s a “we’re out of the woods” vibe, Q3 still has a lot of ?? hanging over it. Especially with that current programming comps grid above.

Let’s not even mention where the economy might be by early October.

NETFLIX is entering a new, mature phase. The years of explosive growth, quarter after quarter are in the rearview, and it’s time to evolve the model that’s worked for them for a decade.

Hence the 2023 levers:

1. Password Sharing Crackdown: Seeing how many of the estimated 100 Million freeloaders they can convert to a pay stream of some sort. Or what the backlash here might be - dealers choice which way this goes.

2. The Ad-Supported version: Once it launches, evaluating NETFLIX will get far more nuanced…

   • But if NETFLIX can say, add $500 Million a quarter from Ads alone by the end of 2023 - that’s a huge win. Not to mention the subscription fees from people who just were never gonna pay $16 a month for NETFLIX.

These are the two huge new strategies to get their Revenue gears moving more rapidly again, which between the stalling US & EMEA markets and the strong Dollar, is really Job #1.

NETFLIX even ended their letter to shareholders with this sentiment:

“Reaccelerating our revenue growth is a big challenge.”

While they are projecting that 1 Million Q3 subscriber addition… they are also projecting Revenue to fall in Q3 - something NETFLIX Revenue has never done.

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If you found this useful:

1. I’ll be doing this kind of breakdown for all Streaming services as earnings are announced over the next month or so. YOUTUBE, PEACOCK & COMCAST are up next week along with all the tech biggies, and SNAP this Fridy.

   They will only be for paid Ankler subscribers.

1. If you’d like to share this - here’s a button

PLUS: Janice & Richard kindly invited me to join for “The Ankler Hot Seat” podcast last night to discuss all of the above and share their insights, or listen here on SPOTIFY or APPLE

Netflix Saved by 'Stranger Things'

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ALSO IN MEDIA

• Elon’s TWITTER trial will take place over 5 days in October. /Deadline

• SNAPCHAT adds desktop access for SNAP+ $4 a month subscribers. You can send Snaps & messages and do video chats… but can’t view Stories. You’ll be able to use Lenses on your video chats at some point as well. /Tech Crunch

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🏦 STOCK NOTES

META +5% ($175.78)

CINEMARK THEATERS +13% ($18.83)

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👩‍💻 NEW TO WATCH:

ABC ESPY Awards at 8p

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🎥 TRAILER HOUSE

UNIVERSAL “Halloween Ends” trailer - A bit short at 75 seconds, but effective. IN THEATERS OCTOBER 14

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HULU “This Fool” series trailer - Comedy series about an organization that helps former gang members transition to legitimate careers, centering on a guy whose relative just got out of prison. PREMIERES FRI AUG 12

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AMAZON PRIME “All or Nothing: Arsenal” series trailer - Go behind the scenes of life in the UK PREMIERE LEAGUE with the Arsenal club, PREMIERES THU AUG 4

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And Jon Hamm added to his pitchman list… again - this time promoting the ill-advised, now in November WORLD CUP on FOX.

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🎧 PLAYING ME OFF

New CALVIN HARRIS disco dance stylings with JT, HALSEY, and PHARELL, “Stay With Me”

If you need some new tunes:

Email me anytime at seanmcnultynyc@gmail.com or connect here on LINKED IN.

-SEAN MCNULTY

@theseanmac on TWITTER

@TheWakeupNews on INSTAGRAM