Netflix’s next steps
Reed Hastings, the co-founder of Netflix, once rejected the idea of placing ads on the streaming service as a nonstarter. Then, this year, the company posted the loss of its first customer in more than a decade, causing its stock to dive. Now, the company is talking to Comcast and Google to help with details of plans to bring ad-supported offerings to its service, The Wall Street Journal reported yesterday.
Ben Mullin, a media reporter for The Times, said the advertising plan could create significant profits for Netflix, even if it raises questions in Hollywood. Here are the thoughts:
Ads can funnel more than $1 billion in high-margin revenue to streaming services each year, according to some analyst reports. And it can be done in a relatively short timeframe: Netflix executives have informed employees that they plan to start advertising on the service sometime in the last three months of this year. That matters at a time when Wall Street is putting additional pressure on the video streaming business to increase profitability after tolerating years of wasteful spending.
Nonetheless, Hollywood execs have questions about Netflix’s ad-supported offering: Will content producers get a cut of the revenue Netflix generates by selling ads on their movies and TV shows? Will directors with final cut privileges get a chance to negotiate with Netflix over which ads to include, and when? And will advertisers get a detailed reading of viewer behavior from Netflix, which it accuses of being stingy with user data? Do Netflix’s existing licensing deals with producers even allow streamers to show ads alongside their content?
Ed Leeanother media watcher at The Times, said Netflix made the move out of necessity, not opportunity.
The real reason Netflix is in such a rush to get its ad-based service up and running: Growth has slowed. And the streamer doesn’t have the tech, sales staff, or Rolodex to make any deals. So you can’t do it alone.
Netflix has finally been able to cannibalize most of its current subscriber base. Earlier this month, analysts at Wells Fargo predicted that Netflix’s cheaper, ad-supported offering will attract more than 100 million subscribers by the end of 2025. But only 16 million of those subscribers will be new users — Wells Fargo analysts believe that nearly 85 percent of users of the cheaper Netflix service are existing subscribers who want to pay less for streaming.
In the end, Hollywood may refuse. It’s hard to imagine Martin Scorsese being happy to hear his film could be fronted by commercials for … anything. And, as Ben points out, Hollywood executives are already asking what’s in it for them. Netflix may have to renegotiate some of its license agreements. For new deals, manufacturers want a cut in advertising revenue or just more money upfront.
For now, Netflix hasn’t said much about its plans. A Netflix spokesperson said yesterday: “We are still in the early days deciding how to launch an ad-supported option at a lower price, and no decisions have been made. So it’s all just speculation at this point.”
THIS IS WHAT HAPPENED
Jay Powell, chairman of the Fed, said a recession is “certainly a possibility.” Powell said the Fed may be able to slow inflation without subjecting America to a painful downturn. But succeeding in a so-called soft landing “has been made significantly more challenging by the events of the last few months,” he said, citing supply disruptions that had pushed prices higher. He will appear before the House Financial Services Committee today.
Support for bipartisan gun reform measures in the Senate reflects political change. Fourteen Republicans – including Mitch McConnell of Kentucky, the minority leader – cut ties with their party to advance legislation. Only two will be re-elected this year, and most Republicans are expected to oppose the bill.
Russia steps up hacking attacks against ally Ukraine, said Microsoft researchers. About 128 targets in 42 countries has been hit by Kremlin-directed cyberattacks since the war began, with the US topping the list, they said. An increase in attacks was expected, but they were less successful than security experts initially thought.
Elon Musk says Tesla’s factory is “the giant money furnace of today.” Musk said in Interview that factories in Texas and Berlin “lost billions of dollars” as battery shortages and shipping problems slowed production. He said the company’s main concern was keeping the factory operational, so it could keep paying people and “not go bankrupt.”
Altria’s burning question
Altria, the maker of Marlboro, took a hit yesterday after The Wall Street Journal reported that the Food and Drug Administration will order Juul Labs to withdraw its e-cigarettes from the US market. Altria paid nearly $13 billion for a 35 percent stake in Juul in 2018, and the Marlboro maker has recorded its investment in Juul at least $11 billion. Yesterday’s news could render the stock 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. RJ Reynolds introduces Vuse. E-cigarette start-up Njoy has the backing of well-known investors such as Sean Parker, of Napster and Facebook fame, and venture capitalist Peter Thiel.
But as Juul sales skyrocket, especially among teenagers, FDA gets worried. That led to a 2018 regulatory crackdown. That’s when Juul turned to Altria for funding, as well as some regulatory powers, instead of trying to raise $20 billion from the venture capital firm. In 2020, the agency mandated e-cigarette makers get approval to remain in the US market, which Juul now looks unlikely to get. Possible appeal. Juul does most of its business in the US and is reported suffered a net loss last year of $259 million.
This could put Altria in a troubled world. Its core product has come under fire, with the FDA looking to significantly reduce nicotine levels in cigarettes. Altria gets about 90 percent of its revenue from products that can be smoked. Revenues fell slightly last year, in accordance with the submission of regulations, and its shares are down more than 45 percent in the last five years. Other diversification efforts, such as investing in cannabis company Cronos, also failed: Altria recorded the investment at $200 million at the end of last year. Could Altria want to play big outside of cigarettes—say a meal or a snack, given its large distribution in convenience stores? Pass popcorn.
“We are hired because of our specialized knowledge and experience, but our specialized knowledge and experience are not valued in the same way.”
— Malaika Adero, a writer and book agent, about being Black in publishing. New executive cadre trying to change the industry.
The NFL and the toxic workplace
A professional soccer team is not your ordinary day-to-day employer. But their visibility means they must set an example of how to deal with issues like bullying, harassment and intimidation, said Representative Carolyn Maloney, chair of the House Oversight and Reform Committee. On the other hand, some have fallen far short of it.
At yesterday’s hearing, Maloney said the NFL tacitly agreed to withhold evidence that Dan Snyder, owner of the Washington Commanders, had fostered a “famously toxic workplace.” Maloney, the New York Democrat, said the league’s failure had forced him to introduce two new laws meant to protect all workers: “What happens in the NFL has consequences for the entire nation.” (A representative for Snyder said the committee’s investigation was “pre-determined,” adding that the team dealt with workplace issues “many years ago.”)
The proposal would limit confidentiality agreements and protect worker privacy. The committee began investigating the NFL’s handling of misconduct claims and its subsequent investigation in the fall. It found that Snyder relied on bullying and intimidation and treated men and women unequally. The commander, for example, fired a female cheerleader who had consensual sexual relations with a performer, who kept her job. The cheerleading footage is also said to have played be private video for Snyder, a charge he and others deny. One of the bills introduced by Maloney outlines process for handling infringement claims and prohibit settlements which prevent transparency. Others need permission to take employee pictures and prohibits unauthorized use.
Will the bill pass? Republicans admit that intimidation 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 the “fix” in Commander had begun. Chances of passing may be slim, given the onslaught of resistance.
Toxicity in the workplace can also be an economic problem. A McKinsey report on the mental health of employees in 15 countries said employers are “paying a high price for failing to address workplace factors that are highly correlated with burnout, such as toxic behavior.” Toxicity is biggest predictor from friction, researchers found. Dissatisfaction with poor management has helped drive the “Great Resignation,” with company culture ranking more than 10 times more important to workers than compensation, based on analysis Glassdoor reviews by other researchers. Companies are increasingly offering programs for worker health while leaving underlying issues unresolved, McKinsey researcher writes: “As an employer, you can’t ‘yoga’ out of these challenges.”
Sanas, who uses artificial intelligence to change the accents of call-center workers and others, raised $32 million in Series A funding. (TekCrunch)
European dealmakers are having a hard time secure financing. (Bloomberg)
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