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The Wakeup

NETFLIX's 27% stock drop explained as Ad-supported version on the way

Damon & Affleck doing NIKE Air Jordan pic at AMAZON / CNN+ freezes marketing spend / Ezra Miller arrested again

Apr 20, 2022

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

Where any quarterly letter to shareholders that has the term “revenue growth headwinds” in the 3rd sentence isn’t a good look 😳. A breakdown on NETFLIX’s new post-Covid business realities is down in THE MEDIA BIZ.

Also not having a good look is the WELLS FARGO analyst who predicted 2.9 Million subscriber additions on Monday. Not gonna be a fun Wednesday at the office for Steven Cahall 🫣. #OffBy3.1Million #NoOneKnowsAnything

HBOMAX you’re up next tomorrow AM (heads up - tomorrow’s newsletter will be a little late while I process #s in a record time and do espresso shots).

Not a great 2022 at NFLX - it’s also dropped another 2-3% in pre-market trading this morning

AND: WB officially has an Ezra Miller problem on their hands. “The Flash” star was arrested again yesterday for the 2nd time in 2 weeks in Hawaii for assault, after throwing a chair at a 26 year-old woman at a party when he was asked to leave.

ALSO: KID CUDI joins the “Folks no longer boys with YE” group.

The Chosen One : I 💖 YOU FRESHIE 4EVER @KidCudi

Hey! So I know some of you heard about the song I got w Pusha. I did this song a year ago when I was still cool w Kanye. I am not cool w that man. He's not my friend and I only cleared the song for Pusha cuz thats my guy. This is the last song u will hear me on w Kanye -Scott

📽 THE SILVER SCREEN

Damon & Affleck teaming up for NIKE pic at AMAZON

Affleck will direct, and both will re-write an existing script about the story of “Sole Man” Sonny Vaccaro, the NIKE exec who essentially spearheaded the Air Jordan brand. 🏀

Damon is playing Sonny, Affleck is playing NIKE founder Phil Knight… which I’m sure he’ll prefer over his portrayal in HBO’s “Winning Time” this past Sunday.

Any chance we can get Michael B. Jordan as Michael Jordan or am I reaching? 😁

SKYDANCE SPORTS (Peter Guber) is also producing, and for the curious Vaccaro had an ESPN 30 for 30 done on him in 2015 called “Sole Man” which you can check out here on ESPN+. /THR

ALSO IN MOVIES

AMAZON looks to be in the lead to pick up that “Voltron” movie project with Rawson Marshall Thurber (“Red Notice”) directing. /Deadline
SEARCHLIGHT sets Nov 18 release date for Anya Taylor-Joy / Nicholas Hoult / Ralph Fiennes dark comedy pic “The Menu”. /THR
TRIBECA releases lineup, including Jon Hamm pic “Corner Office”, and Ray Romano directed pic “Somewhere in Queens”. Fest begins June 8. /Deadline
ICM re-opens NYC office, looks like an early May return is expected in LA. /Deadline

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HBO’s “Winning Time” draws biggest audience yet on Sunday, +60% from premiere episode

Ok yes that audience was just 1.4 Million - not bad… though not exactly “Euphoria” either. But it’s now matching “Succession” numbers, and matched the Sunday audience for “Better Call Saul”.

No word on tallies when the rest of us watch it on HBOMAX during the week. /Variety

ALTHOUGH: Jerry West’s lawyers are demanding a retraction (he knows HBO isn’t a newspaper right?) and apology for his portrayal in the series by Jason Clarke, which other NBA figures have also taken umbrage at. Although gotta say those limo scenes in this weekend’s episode were pretty great… at least dramatically speaking. 📻
AND: The NBA had its biggest average audience for Playoffs opening weekend since 2011, also +41% from 2019. /FrontOfficeSports

ALSO IN TV

ABC renews “The Goldbergs” for Season 10. /THR
NBC sets Melissa Stark to join “Sunday Night Football” on the sidelines this Fall, alongside Collinsworth and Tirico in the broadcast booth. /Deadline
Arsenio (Hall, not Billingham #30RockDeepCut) will host 4 days of his talk show in LA during the NETFLIX is a Joke comedy event starting Mon May 2, episodes will be on NETFLIX’s YT page.
PEACOCK sets Kitao Sakurai (“Bad Trip”, “Eric Andre Show”) to direct most of Anthony Mackie comedy series “Twisted Metal” based on the video game. /Deadline

💻 THE MEDIA BIZ

The return of #MediaNerd🤓! Or just scroll down for a new “Emmy Rossum as an 80s pinup star” trailer from PEACOCK

Netflix’s new business consultant. via Giphy

NETFLIX growth train stalls

SUBSCRIBERS: Now at 221.6 Million global, that’s down 200k from Jan.

Their RUSSIA exit dropped 700k subs, otherwise Q1 would have been +500k, so call that what you will. But - as they were projecting to add at least 2.5 Million Q1 subscribers…
AND they are projecting to lose 2 Million subscribers in Q2, marking their first real quarter of subscriber loss in 11 years - yeah the 25% stock price dive thing is making more sense (if not a bit extreme).

REGIONAL BREAKDOWN:

US / CAN: 74.6 Million (-640k since Jan - #pricehike)
- AVG REVENUE PER USER #ARPU: $14.91 (+5% vs a year ago)
EUROPE + MIDDLE EAST: 73.7 Million (-300k)
- ARPU: $11.56 (this has pretty much been the same for a year now)
LATIN AMERICA: 39.6 Million (-350k)
- ARPU: $8.37 (+13% vs a year ago)
ASIA PACIFIC (incl INDIA): 33.7 Million (+1 Million)
- ARPU: $9.21 (-5% vs a year ago… likely due to INDIA price cuts to grow subscribers)

All of those ARPU’s are the biggest in the business, often by a large amount.

And unlike every other streaming service… NETFLIX is continually making Billions while competitors are projecting to lose Billions for the forseeable future 👇.

Q1 REVENUE: $7.8 Billion. $1.6 Billion was profit (down $200 Million from Q1 2021), but the revenue growth rate is slowing (under 10% year-over-year).

#FunFact: General admin costs (salaries, expenses etc) were up 33% in a year to $397 Million.

SO: THE PASSWORD SHARING GRAVY-TRAIN IS OVER

Not immediately… but expect a crackdown to roll out over the next 12-18 months.

NETFLIX estimates 100 Million accounts share passwords (almost half of their subscribers), with 30 Million alone in the US & CANADA. #U.S.A.!U.S.A.!

They say this hasn’t changed much over the years (ie the percentage has been about the same over time), but as subscriber growth is now mostly saturated (except for ASIA)… yeah it’s a problem they’re going to finally confront.

Though likely by upcharging people a couple bucks a month to share their passwords vs. just blocking people from doing so.

AND: ADS ARE COMING

Expect an ad-supported version of NETFLIX (at least in the US) by likely 2024, if not late 2023 depending how things go in the next 12 months. Here’s Reed Hastings:

“Allowing consumers who would like to have a lower price and are advertising-tolerant get what they want makes a lot of sense.
So, that’s something we’re looking at now, we’re trying to figure out over the next year or two. Think of us as quite open to offering even lower prices with advertising as a consumer choice.”

No real details available yet… although if you’re an Ad exec at WARNER DISCO concerned about all the “cost efficiencies” talk - this is very welcome news.

TAKEAWAY

Yeah… this is a bad time. A definite inflection point for the company, with the real damage still 3 months away with the projection of losing 2 Million subscribers from now thru June (no guidance given for the 2nd half of the year).

Plus I think as we’ve all come to realize, inflation has only just started to manifest its effects. And even NETFLIX seems not to know how the password crackdown will go in terms of subscriber loss/gains.

But if other streaming services are a good indication, an Ad-Supported tier can do wonders - some streamers (HULU, DISCO+) make more $$ per month from their Ad-Supported subscribers than the Ad-Free ones. So even if a lot of people shift to the Ad-Supported tier in a couple years, it could be a boon for NETFLIX in the mid-2020s:

Which will be right about when the HBOMAX subscriber count will kick into a one-time overdrive… as their HBO SKY output deal ends and HBOMAX will likely launch in EUROPE’s biggest territories (UK, GER, FRA).
And about when DISNEY has to buy out COMCAST’s stake in HULU, likely causing big changes there as well (including the launch of an ad-supported tier for DIS+).

While NETFLIX will still spend, the purse strings are now going to tighten (or at least stop expanding), and this combined with Zazlav’s statements that a similar tactic will take place at HBOMAX - the peak era of streaming spending may have just peaked at 2 of the 4 largest buyers.

Cue the bottomless checkbooks at AMAZON & APPLE TV… AND: Just an outside long-shot thought here - Which major company:

A) knows advertising better than anyone
B) has a bottomless checkbook for both a big acquisition and huge content spends to compete with AMAZON and APPLE TV
C) has a large, global presence
D) does not have a premium streaming service?

It rhymes with GOOGLE. Ok yes, it’s GOOGLE.

CNN+ Marketing budgets reportedly put on hold

Not for nothing… but yeah I said this would be one of Zazlav’s first moves the day the WARNER DISCO deal officially closed. 🖐

Essentially the gist is Zazlav wishes Kilar had never launched CNN+ before he left… and is just buying time before HBOMAX is ready for CNN+ to be folded into it as an upsell, perhaps even before the same thing happens with DISCOVERY+.

A move that really makes the most sense - hiding CNN+ inside the CNN app is already bad enough… at least hide it in HBOMAX and give it a fighting chance.

Bringing in Chris Licht to run CNN with an emphasis on breaking news (not docuseries & lifestyle programming) also lends to this narrative. He starts May 2.

CNN’s CFO is also leaving, being replaced by a DISCOVERY streaming CFO. /Axios

ALSO IN MEDIA

NY TIMES sets new leader - Joe Kahn is the new Executive Editor, replacing the outgoing Dean Baquet. AXIOS describes Joe as “cerebral and measured and tends to lead from behind”. 🤔
ENTERTAINMENT WEEKLY EIC Mary Margret departs, Exec Editor Patrick Gomez will now lead the digital publisher as General Manager. /Variety

🏦 STOCK NOTES:

AMC NETWORKS +6% ($39.85)

ROKU +8% ($116.78)

AMC THEATERS +7% ($18.68)

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👩‍💻 NEW TO WATCH:

NETFLIX “Russian Doll” Season 2 - STREAM HERE

PEACOCK “So Dumb it’s Criminal” - SNOOP and a rotating group of comedic figures bust on surveillance footage of Darwin Award winning criminals. Pretty genius idea actually. STREAM HERE

🎥 TRAILER HOUSE

PEACOCK“Angelyne” series trailer - Emmy Rossum as the mysterious 80’s LA icon, premieres Thu May 19.

APPLE TV+ “Now & Then” - Adults try to keep a secret from their high school past a secret, which is always successful - I mean I’ve kept my high school loitering citation a secret for decades now… ah dammit. Premieres Fri May 20

🎧 PLAYING ME OFF

New MAGGIE ROGERS “That’s Where I Am” - Great new song, look forward to the album on July 29

If you need some new tunes:

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