THB #239: Good Morning, NETFLIXXXXXX!

You are reading the best newsletter about the television and film industry. I am the smartest person on the planet and if you are an unpaid sub, it would be insane for you to go another day without paying the meager price for an annual subscription.

If you know anyone who is not already subscribing, you are making their life worse by not forcing them to subscribe. All the other newsletters are fine… but the model of gathering a bunch of journalists together and raising the price every year is… I think Bob Iger said this… is going off a cliff.

I am the future. Only I can write it.

Did that work?

It’s working for Netflix today.

What did Jim Cramer love about the call yesterday? Not the numbers. The bravado.

He loved, as many have mentioned, the big dick energy.

Of course, that energy didn’t really make a lot of sense. The upturn this quarter for Netflix hasn’t made up for the downturn of the last year. The real story remains that the company is flat. The big dick energy boys themselves told us that the new ad tier would be revenue flat. Apparently no one heard that part. BDE Boys told us that the “ads are going to be targeted” thing that makes investors wet themselves are not happening anytime soon… that their current system is much broader than anything that is really exciting potential ad buyers, though they has sold out their first offering.

George Seay of Annandale Capital had it right yesterday, just after earnings were announced, which CNBC is now headlining as, “Pleasant surprises in this market are most welcome, says Netflix investor George Seay.” Watch the actual interview. He says that the pitch yesterday was a bit of a con and suggests that if you aren’t in it long-term, sell the stock today, taking advantage of the price bump after hours.

Seems like a mixed review to me.

When the conversation this morning on Squawk Box turned to Netflix password sharing, which is rolling out in South and Central America based on location - as locked down and limiting as cable - the two guys shrugged and wrote off the likely increase in the monthly Netflix bill for individual families if this becomes the norm in America. Becky made the point that her 4 kids using their $20/mo family membership at college didn’t seem like cheating that required a price bump.

Becky, trying to fight off the shrugs of Andrew and Joe, couldn’t quite find the argument to crystalize her very smart point.

This strategy by Netflix is the end of the promise of streaming… everything, everywhere, all the time, for a flat price.

Becky pressed on the basic idea of, “What of I want to watch outside of the house?” Andrew hemmed and hawed that this was just about people who were sharing their password to someone across the country.

But that isn’t actually what the Central/South American rules suggest.

I am not mocking Netflix on this. It is a difficult problem. No one else is out there trying to find the right answer either.

It is the same problem they have with the new pricing offering. They have not found a solution to the chicken and the egg. If they are going to make a lot of money on ads, they need a significant chunk of their subs to be watching ads. But the offering they have made is extremely marginal, even by their own count, projecting 4 million new subs next quarter, less than 2% of their base and not all based on a non-HD, limited extra-cheap offer.

If I am paying $16 for Standard service, which I would expect is their majority user group, what is my reaction going to be to a 25% monthly increase because my kid who lives 15 miles away and the kid who went off to college demand a fee of $2 more for each every month… kind of like satellite charging me for each “extra” TV in my home every month… which is a big reason why I cut the cord.

If I am paying the max, $20 a month, for the highest level of Netflix service, how will I react to being squeezed for another $2 or $4 a month? I, personally, don’t hand out out passwords to family, far flung or nearby. But if I am paying the max, the pitch of The Magic of Streaming is that I am not going to be nickle and dimed. But are we seeing the beginning of nickel and diming in streaming?

Peacock and Paramount+ are both, as I recall, twice as much without ads as with on an annual basis ($50 with ads, $100 without). Hulu without ads is $6 more a month even with new pricing on The Disney Bundle, almost a 50% cost. But in these cases, it is a payment for an added service. Everything Everywhere has been a core feature of streaming, not a bug… not an added value.

BUT… Netflix may be able to figure this out using a scalpel, not a sledgehammer. Their first take on it… pure Gallagher. Same with the first ad-supported tier.

But these are the things that are driving the stock for Netflix, which had already been inflated for no clear reason in recent months, to another 14% bump today (as of this writing). Is Netflix a 14% more valuable company today than it was yesterday before 4p eastern? Rhetorical question for sane people.

But there is was, on Squawk on the Street, with the 2 hosts basically singing from the Netflix hymnal. Everything, no matter how clearly unresolved, is GREAT! “Thank God we’re done with shrinking quarters!,” Reed Hastings chortles and the chorus chortles along.

Of course, they are done with shrinking subscriber counts… because except for the worldwide totals, they won’t be breaking them out anymore! Hysterical!!! That’s so funny. Show of strength to hide stats. Yeah!!!

It’s amazing that in the era of the most details statistical information on content consumption ever, by far, we keep accepting Netflix changing the nomenclature and giving us less information every few months and just smiling and letting it pass without thinking about why.

In its second hour, Squawk on the Street brought on Michael Nathanson and Barton Crockett for perspective. And they both put the breaks on. (The video is here.)

As for the sub increase and the EPS beat this quarter, “That’s noise,” says Crockett.

And it is exactly that. Doesn’t mean the stock price is going to go back down later today. People want to have a hero. Desperately.

Netflix is a great company. Their headwinds are getting stronger. They are claiming that the headwinds are getting lighter. They are talking about their most viewed shows ever this year… and then how they are going to do better. Absolutely mad talk. They are claiming that others are going to make worse programming, which they somehow can project. And while mocking companies that have been in business a couple years and projected losses in their first 4 or 5 years, as Netflix did in the streaming era, Sarandos is complaining that everyone else has an advantage because Netflix has only been making programming for a decade and everyone else has been doing it for 100 years. (Not only absurd on its face, but in fact, most often the reverse of reality. Content success feeds on endless new blood.)

It’s silly. And they have a lot of very real work to do to make all or any of the Big Dick Fantasy a reality in the next year. They might. Anything can happen. It’s not like Netflix hasn’t done wonders. Or they might just be a really strong company that is worth about $100 billion and will be a market leader for the next 30 years.

Meanwhile, the much bigger story is David Faber talking to Dan Loeb, who told him that Disney is going to try to spend a lot less on the high end theatrical movies, looking for savings there, because they don’t need to spend that kind of money for something being watched mostly on TV.

This is the horror that Disney’s behavior suggests is very real… and potentially, the end of theatrical as we know it today.

Until tomorrow…