Yahoo Finance entertainment reporter Allie Canal breaks down how Netflix is investing big in its new film “The Gray Man.”
Video Transcript
– In the face of a shrinking subscriber base, instead of cutting back, Netflix is going big– in fact, huge– betting $200 million on star-studded spy flick, featuring Chris Evans and Ryan Gosling and a big name director as well. Allie Canal here with that story and a preview of Netflix earnings. Allie, nice to see you. Tell us about “The Gray Man,” and how big are the stakes for Netflix on this one?
ALLIE CANAL: Well, as you said, Dave, Netflix is betting really big on this film, for good reason. You mentioned some of that A-list cast– Ryan Gosling, Chris Evans, Ana de Armas. But the marketing around this film has been huge– TV ad spots, billboards in major cities, and it’s an interesting strategy for Netflix. Normally the platform relies on word of mouth. They don’t heavily market specific titles. So this is an experiment, in a lot of ways. And I think it speaks to Netflix reevaluating who they are as a streaming platform.
Do they just want to pump out title after title? Do they want more quality over quantity? Where do they need to spend money on, and where do they need to cut back? And this comes back to the real issue here, which is this subscriber slowdown that we’ve seen across the industry, increased competition. The stock is down 70% year to date, and investors have really been questioning the long-term outlook for Netflix. And with Q2 earnings right around the corner, all eyes are on that subscriber growth and whether or not the company can generate that revenue and free cash flow moving forward.
SEANA SMITH: Well yeah, Allie, that is the big question. You mentioned the fact that shares are off about 70% since the start of the year. They’re already expecting to lose 2 million subs in the latest quarter. That was at least what they were forecasting. UBS lowering its price target on the stock today ahead of those results. What do you think we should expect next week?
ALLIE CANAL: Well, analysts and investors alike are really bracing for impact. UBS has a neutral rating on the stock. The bank says it does expect subscribers to track in line with that loss of 2 million users. Price increases are largely to blame with this, along with data that underscores a drop in app downloads. But another thing to watch here will be foreign exchange pressures. Both UBS and Bank of America specifically called this out, saying foreign exchange is a big weak spot for the company as the dollar remains incredibly strong relative to other types of currencies. That could be a downside risk to outlook amid already slowing revenue growth.
Now that being said, we do have the ad-supported offering to help offset some of those losses. Netflix partnering with Netflix to roll this out. But a big question is, when can we actually expect this? Netflix originally estimated that an ad tier will hit the market at the end of this year, but analysts are a bit cautious on that timeline. Laura Martin from Needham said yesterday on our program that she doesn’t expect this until third quarter 2023 due to Microsoft’s lack of experience in the third-party ad tech business.
And I don’t think that potential delay is priced into the stock right now. Investors want ad revenue to come to Netflix fast and furious, especially as recession fears loom. So it’s really a show-me story for Netflix at this point, but general consensus is that investors will be disappointed next week.
– Yeah. So many thought you just flip the switch and you have ad-supported content, but they don’t have the infrastructure for it. To your point, going to take a while. I look forward to hearing from you next week on those earnings. Allie Canal, have a good weekend. Thanks.
