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Sam Dickie: Fisher Funds expert on Netflix and similar streaming giants rolling out ads · Best of Business

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  Speaker 1: You're listening to a podcast from news talks'd be follow
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  Speaker 1: here the duplicyl.
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  Speaker 2: Now, chances are you're a Netflix customer, right ho isn't?
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  Speaker 2: And it's not doing too badly for investors either, But
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  Speaker 2: there has been some brutal competition and bumps in the road,
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  Speaker 2: and more recently it's changed its spots and done something
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  Speaker 2: it said it would never do, which is to introduce ads.
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  Speaker 2: Sam Dickey from Fisher Funds is with us, say.
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  Speaker 3: Sam, good evening here.
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  Speaker 2: A lot of people won't realize how Netflix started, which
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  Speaker 2: was it was a DVD rental company, wasn't it?
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  Speaker 3: That's right? Isn't that awesome? A DVD rental by mail business?
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  Speaker 3: And it wasn't until two thousand and seven actually that
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  Speaker 3: it launched its streaming service. And simplistically that means you
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  Speaker 3: could watch TV and videos real time over the Internet,
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  Speaker 3: and astonishingly it has almost three hundred million streaming subscribers
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  Speaker 3: today after starting as a DVD rental by mail business.
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  Speaker 2: Now it goes fast forward to today and we have
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  Speaker 2: a streaming service. But was it the first of its kind?
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  Speaker 1: Yeah?
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  Speaker 3: It was. It's the first of its kind, but we
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  Speaker 3: saw the explosion of many, many of these things in
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  Speaker 3: what was called the streaming was. It's really culminated in
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  Speaker 3: twenty nineteen when Disney launched, Disney Plus launched, and during
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  Speaker 3: the pandemic as well, when we're all locked up and
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  Speaker 3: watching TV, we had Amazon Prime Video, Apple TV and
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  Speaker 3: dozens of others ramping up further to grab our attention.
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  Speaker 3: But what was super brutal was that Disney and all
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  Speaker 3: these others launched at very low prices. So Disney launched
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  Speaker 3: at seven bucks a month in the US versus Netflix,
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  Speaker 3: which was thirteen bucks at the time, so almost a
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  Speaker 3: fifty percent discount.
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  Speaker 2: What happened in twenty twenty two that it fell seventy
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  Speaker 2: five percent. What happened there?
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  Speaker 3: Yeah, it got punished, so it roared through covid is.
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  Speaker 3: We all bought Netflix subscriptions to watch while lockdown, along
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  Speaker 3: with all these other subscriptions, it seems, and the company
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  Speaker 3: got a little bit too excited about the future and
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  Speaker 3: wrapped up investment and costs. And then the combination of
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  Speaker 3: us all coming out of lockdown and wanting to travel
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  Speaker 3: rather than watch Netflix us the drag from all these
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  Speaker 3: new low price competitors like Disney meant revenue was way
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  Speaker 3: lower than expected and costs higher, so profit got destroyed.
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  Speaker 2: Obviously, they have recently decided to introduce the ads. Now
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  Speaker 2: what brought this on?
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  Speaker 3: Yeah, I think founder Read Hastings is on records saying
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  Speaker 3: things like Netflix is a safe respite for users without
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  Speaker 3: the controversiversy of exploiting them via advertising, So that's what
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  Speaker 3: he said. Yet here we are, so it is an
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  Speaker 3: optional chief of subscription. So why the backflip. He was
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  Speaker 3: very frank about his mistake. He said, we got this wrong,
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  Speaker 3: which we had flipped sooner. And it's good business. You've
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  Speaker 3: got hundreds of millions of loyal subscribers and you know
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  Speaker 3: their viewing history, so you've got a good data to
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  Speaker 3: feed them appropriate ads, and that tier, the ad tier,
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  Speaker 3: the cheaper ad tea, has been a huge success, so
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  Speaker 3: especially in an era where there's been a cost of
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  Speaker 3: living crisis where now has more than fifty million subscribers
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  Speaker 3: from zero a couple of years ago, so incredible growth there. Yeah.
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  Speaker 2: Interesting, I see that a prime video Amazon Prime is
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  Speaker 2: going to do the same thing here in New Zealand
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  Speaker 2: roll out the ads. Is it for the same reason.
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  Speaker 3: Yeah, well, they've done a much blunt way actually, but
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  Speaker 3: they rolled it out to the US and UK earlier
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  Speaker 3: in the year and they said other countries would follow,
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  Speaker 3: and we're next on the list. Their much blunter approach though,
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  Speaker 3: as they're rolling out ads to all of their members.
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  Speaker 3: But if you don't want ads, you have to pay
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  Speaker 3: up an extra three bucks a month. And Disney, of
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  Speaker 3: course did it right out the gate in twenty nineteen,
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  Speaker 3: so most are doing it now.
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  Speaker 2: And so tell me, how is for investors thinking about
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  Speaker 2: the stuff, how is Netflix going in the face of
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  Speaker 2: all of this competition.
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  Speaker 3: It's going very very well. So during the streaming wars,
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  Speaker 3: where you know, again, dozens of competitors were plowing tens
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  Speaker 3: of billions of dollars into creating movies and TV, Netflix
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  Speaker 3: was the only pure place streaming service on Earth that
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  Speaker 3: was profitable. Hence the irrationally low prices that competitors were
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  Speaker 3: originally offering them couldn't last. So take that Disney example.
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  Speaker 3: They launched it seven bucks, almost a fifty percent discount
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  Speaker 3: to Netflix. Disney now costs sixteen dollars, so prices are
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  Speaker 3: up well over one hundred percent. And there's actually more
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  Speaker 3: expensive than Netflix, so it's really helpful if your competitors
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  Speaker 3: pushing prices up by more than one hundred percent. And
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  Speaker 3: what's super interesting is Netflix has ended up crushing the
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  Speaker 3: others on new subscribers. So since twenty twenty two, Disney
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  Speaker 3: subscribers have actually fallen slightly while Netflix has gained another
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  Speaker 3: eighty million.
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  Speaker 2: So what do investors need to think about when they
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  Speaker 2: think about this stuff?
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  Speaker 3: I think it's an excellent lens through which to look
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  Speaker 3: at economic moats and growth runways, which are both critical.
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  Speaker 3: So back in twenty twenty two, when the stock was
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  Speaker 3: down seventy five percent, many thought Netflix's moat was eroding.
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  Speaker 3: It was game over, the barbarians were at the gate.
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  Speaker 3: But the market actually mistook a fast move and competitive
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  Speaker 3: backdrop for an arrow in the moat. And in fact,
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  Speaker 3: Netflix's moat has had the blow torch applied to it
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  Speaker 3: and it came out the winner. And on top of that,
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  Speaker 3: they've extended the growth runway via the ad tearing and
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  Speaker 3: the password crackdowns you might have seen as well, Heather.
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  Speaker 3: So it's kind of like that positive flywheel on full force.
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  Speaker 3: Great content. It's making tons of profit, it's reinvesting that
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  Speaker 3: into content which is the polar opposite of New Plus Right.
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  Speaker 2: Now, very very interesting stuff, Sam, Thank you so much,
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  Speaker 2: as always at Sam dickey Official Funds.
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