Instant Reaction: Netflix Says Tax Dispute Hurt Solid Quarter

Summary

Bloomberg Talks – Instant Reaction: Netflix Says Tax Dispute Hurt Solid Quarter (October 21, 2025)

Main Theme / Purpose

This episode offers an instant reaction and in-depth analysis of Netflix's latest quarterly earnings, which showed strong overall performance but were marred by a surprise operating margin miss due to an unexpected tax dispute charge from Brazilian authorities. The discussion expands to cover Netflix's strategic position in the streaming industry, the potential for content acquisition (especially the Warner Bros. Discovery rumors), evolving advertising efforts, and the current and future competitive landscape.

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Key Discussion Points & Insights

1. Netflix’s Earnings – Solid Performance, But A Surprise Margin Miss

• Key Facts:
  • Revenue guidance for the full year met expectations.
  • Operating margin of 28% fell short of Netflix's own guidance (31.5%) due to a one-off expense from an ongoing dispute with Brazilian tax authorities.
  • Netflix claims this will not materially affect future results.
• Market Reaction:
  • The stock dropped ~6% after-hours, likely attributable to high investor expectations following a 40% rise earlier in the year.
  • (Felix Gillette, Bloomberg Media Editor, 03:05):
    “It seems that way. Although again, it's a crazy time in Hollywood, you know, taking a step back. There is competition coming from everywhere.”

2. Programming, Viewership & Strategic Position

• Major Hits:
  • Record engagement with hits like "K Pop Demon Hunters" (325 million views—the most popular film in Netflix history), "Squid Game," and "Wednesday.”
• Live Programming & Sports:
  • Investments in live programs (WWE, boxing) and upcoming first NFL games mark Netflix’s push into tentpole events.
  • (Felix Gillette, 03:30): “All these investments they've made in live programming, WWE, Boxing… They're going to have their first NFL games coming this Christmas… you have to say that things are going well for Netflix.”
• Retention Strategy:
  • Netflix’s content pipeline keeps churn lower than rivals. Franchise sequels and event programming encourage continued subscriptions.
  • (Felix Gillette, 04:32): “I think more so than the other streaming services, [Netflix] has done a good job of making sure that there is this steady drumbeat of, oh, you got to stick around because Wednesday's coming back…”

3. Industry Shifts: M&A and Potential Warner Bros. Discovery Acquisition

• Rumor Discussion:

  • Reports suggest Warner Bros. Discovery could be up for sale—with Netflix reportedly interested in possibly acquiring studio assets or IP, not cable networks like CNN.
  • The move is seen as surprising given Netflix’s long-standing “builders, not buyers” philosophy.
  • (Interviewer, 05:46): “I was like, that's a crazy world that we're living in when, like, less than a decade ago, you had Reed Hastings saying, we want to become HBO faster than HBO becomes us. And now they are the media giant. They are the incumbent.”
  • (Felix Gillette, 06:57): “Warner Brothers Discovery still has one of the biggest, richest libraries of IP in the world. They have Harry Potter. They have, you know, the Hobbit universe. They have DC Universe…”

• On the Value & Management of Warner Bros. Discovery:

  • Multiple reorganizations and failed M&A have weakened WBD.
  • Adding too many types of content (HBO + Discovery) backfired with “Max.”
  • (Felix Gillette, 12:05): “Sometimes you have to be wary of this idea that more is always more in the streaming world… The cadence of how you roll these things out is very important.”

4. Advertising: Progress, Challenges, and Future Monetization

• Netflix’s Ad Strategy:

  • Entered advertising less than three years ago.
  • Early ambitions for “top-tier” ad rates were rebuffed by agencies—Netflix had to adjust.
  • Growth is occurring, but progress is slower than expected due to programmatic advertising limitations and a still-nascent ad tech stack.
  • (Mark Douglas, CEO Mountain, 14:11):
    “[Netflix] wanted the highest prices in the industry to advertise on Netflix… advertisers said, look, we want to be on Netflix… but we're not going to pay Super Bowl prices.”

• Current Status:

  • More than half of new Netflix subscribers are entering through the ad-supported tier, but overall, the majority of members remain ad-free.
  • The launch of Netflix’s own ad tech platform (“Netflix Ads Suite”) is highly anticipated and seen as key to boosting long-term ad revenue growth.
  • (Mark Douglas, 18:43): “That's the change. That's what we're waiting on. And that will help the monetization.”

• Potential Impact:

  • Once ad tech catches up, there's a “backlog” of ad-willing users to monetize—a new growth vector for Netflix’s revenue.
  • (Mark Douglas, 18:43): “When that catches up, that's like a whole new growth vector for the company.”

5. Competitive Landscape & The Nature of ‘Content is King’

• Fierce Competition:
  • Continued surge in competitors (Disney+, YouTube, Twitch, AI-driven content) means perpetual innovation is required.
  • “Content is king” but only briefly—audiences rapidly move to the next big thing.
  • (Felix Gillette, 07:47): “Yeah, but it's king for five minutes and then the next thing comes down the pipeline. You have to… It's just endless. You can never rest.”
• Netflix as Key Indicator for US Consumer:
  • Despite price hikes, Netflix's subscriber base remains resilient—suggesting strong demand and perhaps a “must-have” status akin to legacy HBO.
  • (Felix Gillette, 08:04): “It seems like Netflix has become kind of like the base one you keep and then you cycle in these other ones…”

6. Investor & Analyst Perspective

• Key Concerns:

  • Margin performance is now the most watched metric (not merely top-line growth).
  • Investors seek greater clarity and detail from Netflix on advertising metrics (MAUs, ad revenue, conversion).
  • AI is seen as a near-term tailwind for Netflix; long-term effects remain uncertain.
  • (Geeta Ranganathan, 21:59): “Operating margin is now the new metric… We were really expecting them to actually exceed their guidance for both this quarter as well as… the full-year… this kind of really throws cold water and all of those expectations.”

• On Warner Bros. Discovery Acquisition:

  • Not essential, but could provide significant advantages.
  • (Geeta Ranganathan, 24:07): “Do they absolutely need it? No, not at all. So again, there's a lot they can do with it, especially the studio lot and, you know, all of the IP. But again, I don't think it's do or die.”

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Notable Quotes & Memorable Moments (with Timestamps)

• On the surprise quarter:

  • “Shares of Netflix down to the company forecast revenue… but operating margin of 28% came in below Netflix’s guidance… due… to an ongoing dispute with Brazilian tax authorities.” (Interviewer, 01:49)

• On franchise content keeping churn down:

  • “…Netflix… has done a good job of making sure that there is this steady drumbeat of, oh, you got to stick around because Wednesday’s coming back…” (Felix Gillette, 04:32)

• On M&A possibilities upending the industry:

  • “…less than a decade ago, you had Reed Hastings saying, we want to become HBO faster than HBO becomes us. And now they are the media giant.” (Interviewer, 05:46)

• On the still-unmatched value of content libraries:

  • “Warner Brothers Discovery still has one of the biggest richest libraries of IP in the world. They have Harry Potter, the Hobbit universe, the DC Universe…” (Felix Gillette, 06:46)

• On programmatic ad tech progress:

  • “Once Netflix and Disney plus kind of came in the market and of course Amazon prime, it… created downward pressure on prices… the big thing that affected Netflix… is they… came into that market thinking… we’re going to get Netflix prices… and that essentially got rejected.” (Mark Douglas, 14:11)

• On Netflix’s bread-and-butter status for viewers:

  • “Netflix has become kind of like the base one you keep and then you cycle in these other ones…” (Felix Gillette, 08:04)

• On strategic discipline in content additions:

  • “You have to be wary of this idea that more is always more in the streaming world… the cadence of how you roll these things out is very important…” (Felix Gillette, 12:05)

• On margin guidance disappointment:

  • “Operating margin is now the new metric… all of those expectations… [the margin miss] kind of really throws cold water.” (Geeta Ranganathan, 21:59)

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Important Timestamps

• 01:49 — Introduction of Netflix’s quarterly earnings and the margin miss
• 03:05 — Felix Gillette analyses earnings and industry context
• 04:32 — Discussion on content, churn, and retention strategies
• 05:46 — Talk about Warner Bros. Discovery M&A rumors and the changing industry
• 06:57 — The value of major IP libraries (Harry Potter, DC, etc.)
• 08:04 — Discussion on Netflix as a staple streaming service in households
• 14:11 — Mark Douglas on Netflix’s advertising journey and market dynamics
• 18:43 — The upcoming release of Netflix’s first-party ad stack (“Netflix Ads Suite”)
• 21:59 — Geeta Ranganathan summarizes why margin guidance miss worries investors
• 23:51 — Geeta’s take on Warner Bros. Discovery acquisition: “nice to have… not a make or break”

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Conclusion

This episode delivers a real-time, nuanced breakdown of how Netflix’s solid quarter was overshadowed by an unexpected cost, igniting debate over performance metrics, strategic direction, and whether a major acquisition could rewrite the streaming landscape. Despite innovations and expansion in ads, sports, and content, Netflix faces internal and external pressures to evolve. The panel’s consensus: Netflix remains a potent industry leader, but must execute flawlessly on advertising and content strategies—while keeping investor expectations in check.

Transcript

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[Mark Douglas]

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[Tim Stankus]

Bloomberg Audio Studios Podcasts Radio News.

[Mark Douglas]

This.

[Carol Massar]

Is a breaking news update from Bloomberg. Instant reaction and analysis from our 3,000 journalists and analysts around the world.

[Interviewer (Bloomberg Host)]

Shares of Netflix down to the company forecast revenue for the for the full year. The guidance met the average analyst estimate, but operating margin of 28% came in below Netflix's guidance of 31 and a half percent. That was due, the company says, to an expense related to an ongoing dispute with Brazilian tax authorities. That was not in our forecast. Is that what has investors not so happy?

[Tim Stankus]

I don't know. It feels like a one off, but I don't know.

[Interviewer (Bloomberg Host)]

They say it's a one off. The company says that, you know, we don't expect. What did they say in this in the press release? They say we do not expect this matter to have a material impact on future results.

[Tim Stankus]

Yeah, all right, got it. But investors are sending the stock down about 6%. Keep in mind this stock has had quite a run this year, as we mentioned, up almost 40% here in 2025. So investors maybe expect a lot out of it.

[Interviewer (Bloomberg Host)]

Let's bring in Felix Gillette. He is the man who knows about media. He's Bloomberg News Media entertainment editor. He's also the author of it's not tv, the Spectacular Rise Revolution and Future of hbo, which, yes, we're going to be talking about HBO in just a minute. He does join us here in the Bloomberg Interactive Brokers studio. Going through the results here. Look, as Lucas pointed out earlier, this is a $500 billion company. Expectations are high. Yeah, everybody kind of looks to it. Is the reaction that we're seeing because of this one off from the Brazilian tax authorities?

[Felix Gillette]

It seems that way. Although again, it's a crazy time in Hollywood, you know, taking a step back. There is competition coming from everywhere. YouTube, Twitch, AI, new AI services. But, you know, if you take a breath, you look at the third quarter slate, they had an incredible engagement across the board. You know, they had K Pop Demon Hunters, the most popular movie in the history of the service.

[Tim Stankus]

325 million views. It says in the press release.

[Felix Gillette]

Squid Game episodes. You jump on there now you got new Wednesday episodes. The franchise are all doing really well at the same time. All these investments they've made in live programming, WWE Boxing, you know, all of that is starting to really pay off. They're going to have their first NFL games coming this Christmas. So, you know, I think from a strategic programming platform, you have to say that things are going well for Netflix.

[Geeta Ranganathan]

I mean.

[Tim Stankus]

Yeah, I'm looking at. I guess they're talking about one fight here. Was it the Alvarez and Crawford fight or something?

[Interviewer (Bloomberg Host)]

Carol was up all night waiting for that.

[Tim Stankus]

I was totally up all night. I was not up all night. But it said across Netflix's social channels, the fight generated over 950 million owned impressions. So it's a lot of momentum. Having said that, there's lots of competition. I know when I'm looking around for things to stream, sometimes I stop on Netflix, sometimes I don't. I mean, what's, what's, what is it that it needs to kind of keep doing in terms of the momentum? Is it, Felix, all about the spend and making sure their IP and their content keeps bringing in the eyeballs?

[Interviewer (Bloomberg Host)]

Yeah.

[Felix Gillette]

And making sure that the churn rate stays low and that people looking forward think that there's something coming down the pipeline that they need to stick around for because it's so easy to bounce in and out of these streaming services now. You watch a, you know, a show that you love and then you kind of binge watch and cancel that one. I'll pop over to the next one, subscribe to that Watch. Cancel. Cancel. And yet Netflix, I think more so than the other streaming services, has done a good job of making sure that there is this steady drumbeat of, oh, you got to stick around because Wednesday's coming back. Oh, you got to stick around because Stranger Things is coming back.

[Interviewer (Bloomberg Host)]

Yeah, it's brilliant. I mean, it's an easy service to cancel. They kind of pride themselves on that. But there's no reason to cancel if you want to watch that. Next thing, I promise, we talk about hbo. Because my mind was blown a little earlier today when we got a report from Lucas Shaw and Kelsey Griffiths that Warner Brothers Discovery is in the running for Netflix. Yeah. Which is a little bit of a surprise to me given what we heard from Greg Peters, that they're builders, not buyers. But Lucas made the point to us on our air in the 2 o' clock hour that maybe they could carve it up a little bit and they would get the studio. And he made this comment that they might not even take hbo and they just feed. HBO is programming.

[Felix Gillette]

Right.

[Interviewer (Bloomberg Host)]

And I was like, that's a crazy world that we're living in when, like, less than a decade ago, you know, you had Reed Hastings saying, we want to become HBO faster than HBO becomes us.

[Felix Gillette]

Yeah.

[Interviewer (Bloomberg Host)]

And now they are the media giant. They are the incumbent.

[Felix Gillette]

Yeah. And meanwhile, HBO's parent company has been staggering through one, you know, m and a deal after another, and they haven't worked out. And so once again, we're talking about who's going to buy Warner Brothers Discovery's assets. And today they're saying, well, you know, we have interest from multiple parties. We were going to reorganize the company. And these two, you know, one part of the company would be focused on the studios and streaming. The other part would be the TV networks. But maybe, you know, we'll be open to different possibilities, including potentially selling parts instead of the whole. And yeah, I think Netflix clearly wouldn't want to be owning a bunch of cable networks. They don't want to own cnn. They don't want to get into that business. But would they take a look at the library? I think due diligence. You have to, because.

[Interviewer (Bloomberg Host)]

Right.

[Felix Gillette]

Warner Brothers Discovery still has one of the biggest r richest libraries of IP in the world. They have Harry Potter. They have, you know, the Hobbit universe. They have DC Universe. They have so many different things.

[Interviewer (Bloomberg Host)]

What would happen if you had walked into Richard Plepler's office 10 years ago and said Netflix could buy you?

[Felix Gillette]

Yeah, he'd have a stroke. I mean, this is just like crazy.

[Interviewer (Bloomberg Host)]

World we're living in.

[Felix Gillette]

It's been very topsy turvy and you know, Netflix star has risen to the point where, yeah, they're the dominant streaming service and they're in control and they can kick the tires on, you know, the entire company or whatever. Bits and pieces.

[Tim Stankus]

AOL Time Warner like happening all over again or something or.

[Felix Gillette]

No, we learned to go through the whole history. Now we have AOL Time Warner, we have Time Inc. Time Warner Inc. WarnerMedia AT&T Discovery. I mean it just, you have to. Yeah, it's the whole Alphabet of different companies that have now been in charge of this.

[Tim Stankus]

Is content still king?

[Felix Gillette]

Yeah, but it's king for five minutes and then the next thing comes down the pipeline. You have to. It's so. It's just endless. You can never rest.

[Interviewer (Bloomberg Host)]

Is Netflix a good indication of the US Economy? Is US Netflix penetration? Is it discretionary in your view?

[Felix Gillette]

I think that it's proven that consumers are fairly willing to pay more for it. You know, they've been raising the prices and people haven't been canceling, which is, you know, somewhat a good sign for Netflix. The demand has proven strong regardless. And I see that in my own house. It seems like Netflix has become kind of like the base one you keep and then you cycle in these other ones as sort of these ancillary add ons. And I think that's the position that Netflix has wanted and that's the position that HBO enjoyed as the first mover premium cable network for decades. You know, it was, it was always, you get HBO and do you want Showtime or Cinemax or do you want, you know, one of these other services? Now Netflix very much has that primary foundational position that just seems so sweet.

[Tim Stankus]

And it wasn't such a long time ago. Felix, do not go anywhere. Let's bring into the conversation Mark Douglas, founder, Chairman, President and CEO of the publicly traded $1.2 billion market cap advertising and marketing company Mountain, joining us here. Mark, come on in. Good to have you back with us. Carol Massar, Tim Stanvak and Felix Gillette, all of Bloomberg here. Walk us through what you see as interesting from Netflix as the stock continue to be under some pressure here in the aftermarket. Let me just bring it up on my Bloomberg just to update everybody. It's down about 4.3% here.

[Mark Douglas]

Yeah, well, I think obviously investors are reacting to the slightly mixed earnings results, but the industry as a whole right now, I think is in its entirety is a bit in a transition. We are fully, fully Moving into streaming is the dominant form of ad sales in the industry. Meaning the Disney's Netflix, of course, because they only streaming and things like that. Live sports is becoming a really, really big deal, something Netflix is dabbling in a bit. And so I feel like right now there's just a lot of the same and it's just execution is the key word. You're not going to see a bunch of big announcements. You're just going to see everyone focused on growth. I also think the potential to acquire Warner Brothers Discovery is very interesting and I think the value of Discovery Discovery is possibly being, you know, underestimated and what Netflix could do with the, all the Discovery content and essentially reignite a lot of that content.

[Interviewer (Bloomberg Host)]

So Mark, do you think Netflix should do it? Should Netflix buy Warner Brothers Discovery or at least parts of it?

[Mark Douglas]

I personally think it would be a terrific move. I mean, I don't know if that means the end of, you know, CNN period.

[Interviewer (Bloomberg Host)]

Well, you know, remember they're carving, they're carving off the live TV portion anyway in this, you know, a potential spin off at this point so they wouldn't have to buy at all.

[Mark Douglas]

Our report, I mean just the assets there, I mean White Lotus and the dragons and almost the entire Discovery catalog that can be not only turned into content people still love to watch, but whole new seasons of content and you know, and probably at a discount in terms of the purchase price. I think it makes a lot of sense for Netflix and really anyone. I think Warner Brothers Discovery is honestly, and I know a lot of people there, so I hope they're not going to hate me, but it just hasn't been managed well. The assets were there to turn that into a true challenger and it continues to do reasonably well. But not, I think we should have arrived at this point.

[Interviewer (Bloomberg Host)]

Felix, you're like, come on back in here. You wrote the book on hbo. What have been the missteps at Warner Brothers Discovery? Is it, Is it? How much time do we have? But chapter Mark here, your view is, Mark, right. That it was about, it was about the running of it rather than about just the challenges of the industry.

[Felix Gillette]

I think the technological change, a bunch of different factors. I think as you remember the deal, you know, there's been just so many deals that have gone through this company and so many reorganizations and it makes you dizzy when you think about it. I think in terms of the assets, yeah, on paper they look amazing. But you know, the idea of just, you know, piling a whole lot of different assets into one service, adding they Thought that adding all the Discovery shows was going to be great for HBO Max. As you recall, they changed the name of the service to Max. Well, we're broadening it out. We're going to have something for everybody. And then it turns out that a lot of that programming was not compelling to the same audience. People didn't want the lean back programming. And so, you know, a couple years into that they say, oh, we're going to get rid of some of that Discovery reality programming from the service. We're going to go back to naming it HBO Max. So sometimes I think you have to be wary of this idea that more is always more in the streaming world. The assets have to make that. Yes, Netflix has built kind of the Wal Mart of streaming. It's something for everybody. But even so, they've been very cautious in their approach and doing it step by step, adding things in slowly. And you know, you've seen them lately making this deal with Spotify where they're now going to bring podcasts onto Netflix. And you know, they've been trying for years to get some sort of topical comedy show working. Everything they've tried has failed. And so this will be another opportunity for them to try that. You know, adding everything from the HBO and the broader Warner Brothers library onto the service at once could be a little bit overwhelming. And so again, the cadence of how you roll these things out is very important in the streaming world.

[Tim Stankus]

Mark Douglas, you know, you have a front row seat in terms of the advertising market when it comes to certainly these streaming companies. I mean, what does it look like right now? Is there demand? Is there too many places to put it, like give us, give us some size and scope here.

[Mark Douglas]

Well, there's once Netflix and Disney plus kind of came in the market and of course Amazon prime, it created you a surplus of inventory and it's created downward pressure on prices. But overall, I think the big thing that affected Netflix to go back to them is they came into that market thinking that we're going to get Netflix prices, which for advertising are not like the consumer prices. They're like they wanted the highest prices in the industry to advertise on Netflix. And that essentially got rejected. And that the end, the advertisers of big agencies said, look, we want to be on Netflix, Netflix, but we're not going to pay super bowl prices to do it. And so Netflix had to adjust. They had to reboot their ad efforts somewhat. They've teamed up a bit with Amazon and I think it's still going to grow. And I think they will do well, but it's definitely taking longer than I think they thought it would. But I would still bet on it long term that if you take their continued growth in subscribers, I believe still more than half of the new subscribers are ad supported, that they will figure out how to monetize that and that additional factor will keep them growing for a very long time. And I, I still think, I said last year, I think Netflix has the potential to be the first trillion dollar media company. I still firmly believe that.

[Felix Gillette]

Mark, are there any particular demographics for Netflix in terms of the advertising that they could still get better in? You know, we were talking about how it's a very broad service at this point, kind of all things to all people. Is there any piece of that that they're missing?

[Mark Douglas]

Not really because the advertising is not done that way anymore. It's, it's, it's audiences, but the audiences are no longer, you know, women in this age range. The audiences are people shopping for particular type of products and they have, you know, they have so many people watching Netflix that there's an audience for everyone. The biggest challenge Netflix is having in advertising is the industry has moved fully programmatic. The ad sales are not or nearly fully programmatic. The ad sales are not done over the phone near anymore. There's not linear or bundles or anything like that. And Netflix is playing catch up in that game where they're building their own ad stack, moving off the Microsoft ad stack that they initially teamed up with Microsoft on. And it's taking time and so they're losing out to a lot of the more targeted advertising on television because they're playing catch up. But once they get there, I think you'll see their, their revenue accelerate very, very quickly in terms of ad sales. And that's going to probably post some really outstanding quarters when they do that.

[Tim Stankus]

Hey Mark, from what are seeing though about ad sales and how it pertains to Netflix specifically, I'm not quite sure how much you can drill down with what you are seeing in the data you are seeing. But does it give us any indication of about how well Netflix is holding on to its audience in the US globally? If it indicates anything about Churn, is there anything that you can glean from that?

[Mark Douglas]

I, I get the question. I don't think so. Because less than half of their users, you know, the new half, the newest users are more than half, but less than half the overall customer base is ad supported. I think quite a bit less than half. That'll change over time. And then even with Them, they don't have high ad loads. So just because they're not serving that many ads, given the number of people have signed up to receive them. So it's a bit of time away before and they're not fully programmatic, where that data is just literally streaming out. To give you some concrete, concrete Numbers, we received 4 million ad requests to buy a TV ad per second at Mountain. And Netflix is nearly zero in that because they're still doing the sales, kind of like calling the brands and not doing it in the new way, which is. It's all electronic. It's like the move on Wall street from having traders to being, you know, electronic, fully electronic trading. Netflix hasn't gotten there yet.

[Interviewer (Bloomberg Host)]

Yeah, I'm looking, I'm just looking through the press release. The company says we've come a long way in building our advertising business in less than three years. In that time, we've gone from zero members on our ads plan to achieving sufficient scale in all 12 of our ads markets. We'll continue to grow from here, building out our ad sales and operations team and enhancing our capabilities for advertisers, including launching our own first party ad tech stack Netflix Ads suite. Will that mark change things?

[Mark Douglas]

That's that. Yeah, that's the change. That's what we're waiting on. And that will help the monetization. And really nice thing to think about is someone, you know, deciding whether you should invest in Netflix or continue. That is like password sharing. And the analogy, I mean, in that it's a backlog of revenue. When that releases, it's going to unleash additional revenue. So they have this growing backlog of users that saying, hey, I'll get ads. Just give, you know, but they don't have the ability to serve them as fast as people are saying they'll receive them. When that catches up, that's like a whole new growth vector for the company. That's like a bet. And you're going to see that, you know, some really nice quarters the way we saw really nice quarters when they got a little stricter about the passwords.

[Interviewer (Bloomberg Host)]

So, Felix, you have been covering the industry for long enough to remember Netflix saying, we're never going to do ads, we're never going to do live content, we're never going to do sports. Of course, it's done all those things and kind of excelled in most of those things.

[Felix Gillette]

Yeah.

[Interviewer (Bloomberg Host)]

What is Netflix not done yet?

[Felix Gillette]

Well, I guess the acquisitions, right. The circle back to where we started.

[Tim Stankus]

I don't see anything in the press release about that.

[Interviewer (Bloomberg Host)]

Yeah, let me do a quick like search for Warner Brothers. Nothing in there.

[Tim Stankus]

I mean, is that what everybody's going to talk to? I mean, is that what everybody has to talk to on the call or what?

[Felix Gillette]

I mean, I think that's, you know, that's a big point of discussion at this point. Would they go out and buy a big library? Again, they've said for years that they wouldn't do that. They, you know, have been building their franchises themselves and they've done a good job at that. But, you know, there's a lot of franchises out there for sale right now and, and would they take a nibble? We'll see.

[Tim Stankus]

I mean, I don't know. Mark, last question to you. I mean, I'm just, we're waiting for the call with investors and analysts. Like what's going to come up on a day where we're trying to figure out what happens with Warner Brothers Discovery? Is that what's top of mind for you with this company?

[Mark Douglas]

The. I mean, like I said, I think they really getting the ads to monetize at the level at which they're signing up users to receive them, I think is the number one thing as an investor that I know be looking for. But I think in terms of the content and where they should buy content, you heard my opinion. I think HBO Max just has an incredible catalog of shows that they can, you know, can feed their audience and actually expand like, like reignite and build new episodes. So I think that is the best property that's outside of like Disney and Netflix. Like is, is HBO is Warner Brothers Discoveries. But I always think Max, HBO and Discovery Channel as the two, two premier properties there.

[Interviewer (Bloomberg Host)]

Mark Douglas, founder, chairman, president and CEO of Mountain, joining us from Miami. Also a big thank you to Felix Gilletti's Bloomberg news media and entertainment editor. He's also the author of It's Not TV the Spectacular Rise, Revolution and Future of hbo.

[Tim Stankus]

All right, so let's get to it with our own Bloomberg Intelligence senior media analyst Geeta Ranganathan. She's at by headquarters in Princeton, New Jersey. Take it away. So tell us what we need to know and why is the stock really down? Is it cost of that one time charge?

[Geeta Ranganathan]

Absolutely, Carol. So operating margin is now the new metric by, you know, how investors kind of look at this company. We've seen just a tremendous increase in the way that they have kind of grown their profits, in the way that they've expanded their margins. It was up over 600 basis points last year. We were really expecting them to actually exceed their guidance for both this quarter as well as to take up guidance for the full year. So this kind of really throws cold water and all of those expectations and overall kind of looks really, really underwhelming.

[Interviewer (Bloomberg Host)]

What's the, what's the biggest thing challenging the company right now?

[Geeta Ranganathan]

I mean, the biggest thing I think, Tim, over the past few months has really been, you know, the growth of AI and whether that's going to be a headwind or a tailwind for Netflix. I think we've all kind of finally come to the conclusion, at least in the near term, that it's going to be more of a tailwind. We've seen Netflix kind of really lean into AI, whether it's using a good user interface, whether it's improving that or using, you know, AI for, you know, even more, more and better content creation. So I think definitely in the near term, don't expect it to be much of a negative. But then, you know, I think over the longer term that's going to definitely be one of the concerns out there. For right now, I think what investors are really looking to. And we need guidance, more guidance from Netflix management on this. There really wasn't much spoken about this in the newsletter was, you know, anything related to advertising. They talk about doubling their advertising revenue, but again, there are no concrete metrics. There was no update in terms of monthly active users. The last time we got an update from them was in May. We really don't know what the number of subscribers are on the, on the ad tier or even what the revenue is. And I think that will definitely give investors some cause for concern.

[Tim Stankus]

Yeah, they talked about ads, I feel like in the press release. But yeah, it sounds like we need a little bit more concrete. Hey, 30 seconds. Geeta. Warner Brothers Discovery. Do you think Netflix should do something? And forgive me for just asking for you to be brief.

[Geeta Ranganathan]

Yeah, I know this is a little bit of a head scratcher, so I really don't think this is a make or break for them. Carol? Yes, it would be nice to have. Do they absolutely need it? No, not at all. So again, there's a lot they can do with it, especially the studio lot and, you know, all of the ip. But again, I don't think it's do or die.

[Tim Stankus]

As always, looking forward to reading your research. Thank you so much. Bloomberg Intelligence Senior Media Analyst list with a breakdown and what you need to know about Netflix.

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