Dialogue. Netflix Investment Update and Why Renting Isn't Throwing Money Away

Summary

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The Synopsis — Episode Summary

Podcast: The Synopsis
Host: Drew Cohen
Episode: Dialogue. Netflix Investment Update and Why Renting Isn't Throwing Money Away
Date: July 15, 2026

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Overview

In this "Dialogue" edition of The Synopsis, Drew Cohen and his co-host examine two frequently debated topics: the current state of Netflix as an investment after a sharp share price drop, and the perennial financial dilemma of renting versus buying a home. The episode emphasizes data-driven and behavioral perspectives, debunks simplistic financial dogmas, and offers nuanced, research-backed viewpoints rooted in the hosts’ extensive industry and advisory experience.

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Netflix Investment Update

The Streaming Wars—Has Netflix Really Won?

• Opening Perspective ([00:50]):
  The co-host wonders why negativity toward Netflix is increasing despite it being the default streaming service most people stick with even as they churn in and out of others like Paramount+ or Apple TV.

  "It feels like they won the streaming wars. They're the go-to platform. ...You find your 20 bucks a month because that's the one you keep."
  — Co-host ([00:50])

• Social Media vs. Ground Reality ([01:20]):
  Drew notes that much of the skepticism comes from "Twitter narratives" about failed acquisition attempts (Time Warner, Lionsgate, Roku), suggesting insecurity about Netflix’s position. But both hosts quickly dismiss this as superficial.

  "That narrative is the dumbest narrative."
  — Co-host ([02:16])
  "I really don't have another viewpoint, nor do I want to defend kind of what the narrative is around that."
  — Drew ([02:36])

Netflix's Unique Content Strategy: Weakness or Strength?

• Always Something to Watch ([04:45]):
  Unlike platforms built around a small number of mega-hits, Netflix retains its audience with breadth over individual blockbuster series.

  "No one really signs up just to watch those shows...it's just enough stuff that's there, that there's always something that you can watch."
  — Drew ([04:45])

• User Retention vs. Churn ([06:23]–[07:34]):
  While others see Netflix’s lack of flagship prestige content as a disadvantage, the hosts argue it actually reduces churn, cementing its subscriber base.

Engagement Concerns and Ad-Supported Tier

• Bearish Pressures: Engagement Down ([07:34]):
  Netflix engagement is at a low point since May 2025. The real bear case is not failed M&A, but diminished TV viewing overall, which can precede subscriber churn.

  "Engagement being down usually precedes churn increasing."
  — Drew ([07:34])

• Ad-Supported Economics Explained ([09:48]–[14:53])
  The co-host notes the growing ad-supported tier is predicated on Netflix matching ad revenues to subscription price differences.
  Drew explains the reality:

  • Netflix ad sales are mostly direct, not programmatic.
  • CPMs (cost per mille) are already extremely high ($30–40 vs. $5–10 for YouTube).
  • These are branding ads, not performance-based; conversion isn't measureable like web ads.

  "The Netflix problem in story is not a pricing story... it's not entirely programmatic."
  — Drew ([10:46])

  "It wouldn't surprise me if prices actually go down before they go up [as Netflix fills more lower-tier ad slots]."
  — Drew ([14:00])

Growth Levers and Competitive Moat

• Room For Growth ([15:38]–[18:15]):
  Traditional TV ad dollars haven’t fully shifted to streaming—Netflix still has room to grow by attracting more advertisers, particularly for less-premium inventory.

• Content Cost and Operating Leverage ([18:15]):
  Netflix spends $5/month per sub on content, vs. $13–18 for competitors; they deliver better margins and have steadily rising operating profits.

  "Right now Netflix is spending about $5 in content costs per subscriber a month, whereas Paramount is spending $18."
  — Drew ([18:15])
  "Warner Brothers [is] loss making in terms of operating profit...Netflix for this year...estimated to be 31.5%."
  — Drew ([18:15])

  Discussion includes Disney’s transition from lucrative cable carriage fees ($13/subscriber) to streaming ($9/subscriber), a structurally inferior business.

Valuation Takeaways and Market Narrative

• Why the 30% Drop? ([22:16]):
  The hosts dissect whether the recent 30% price drop is justified, separating technical valuation questions from media narratives.

  "Whenever you are talking about valuation, you're basically asking the question, what should an investor expect to return?"
  — Drew ([22:16])

  Netflix has strong operating leverage:

  "If they can increase ARPU by just a dollar...operating income increases 20%."
  — Drew ([23:15])

  Multiple years of above-average growth and buybacks mean the stock could be reasonably attractive, even without an "AI story."

• AI Buzz—Lacking or Unthreatening?

  "That's the real problem is they don't have an AI story."
  — Co-host ([24:50])
  But the notion that "AI-generated shows" would be an existential threat is also lampooned.

The Big Picture: Narrative Shifts and Resilience

• Reversal of Fortunes ([25:50]):
  Netflix went from a cash-burning cautionary tale to cash flow king—now authorizing $31B in buybacks.

  "How ironic the tables have turned that now they're really one of the only very solidly cash flow positive, free cash flow positive media companies out there."
  — Drew ([25:50])

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Renting vs. Buying: Debunking ‘Throwing Money Away’

Common Beliefs vs. Reality

• The American Dream, Questioned ([27:31]):
  The hosts address the near-religious financial advice that buying a house is always best—rooted in social pressure, habit, and ‘forced savings,’ not pure returns.

• Spreadsheet vs. Behavior ([28:13]):

  "It's a very contentious subject...for a lot of people, if they did own a home, it was like the biggest financial decision they made in their life."
  — Drew ([28:13])

What the Numbers Actually Show

• Simulation & Research ([28:13], [33:36]):
  Drew ran a Monte Carlo simulation (10,000 scenarios):

  • Strictly financially, renting wins ~70–77% of the time.
  • This finding matches academic work and is heavily dependent on unknowable future returns of BOTH the housing and stock markets.

  "For a vast majority of time...renting is a better financial decision than buying a home. Strictly if you're looking at the spreadsheet."
  — Drew ([28:13])

  "In 70% of scenarios, renting was better. Was that surprising to you?"
  — Co-host ([33:36])

• Why Not Buy? Opportunity Cost and Headaches ([32:21]–[32:44]):
  Renting makes sense when opportunity cost (what you could invest in stocks or elsewhere) and the intangible benefits (liquidity, freedom from maintenance) outweigh tax and price appreciation benefits of ownership.

  "For me, those would be my larger piece of advice than a rule, because it just becomes very, very difficult in this scenario."
  — Co-host ([35:24])

Rules of Thumb and Practical Heuristics

• Rent vs. Buy Rule ([37:35]):
  Use the "house price to annual rent" multiple:

  • If [price / annual rent] < 15: favors buying
  • If > 20: favors renting
  • 15–20: gray zone, but still generally favors renting

  "If that is 15 or under, that tends to favor buying. If it's a 20 or higher multiple, that tends to favor renting."
  — Drew ([37:35])

• Duration Matters ([39:46]):
  Only buy if you plan to stay at least 5–7 years—transaction costs make shorter ownerships disadvantageous.

  "It almost never makes sense to buy a home unless you're going to be in there for at least five to seven years...you want to amortize that closing cost."
  — Drew ([39:46])

• Do It For the Right Reasons ([39:04], [43:23]):
  Major buying decisions should consider emotions, risk tolerance, and behavior:

  "The point of money is to have the money work for you...if buying a home makes you happy, makes you feel safer, that shouldn't really matter relative to whether or not you're getting one more point of return."
  — Drew ([39:04])

  "Do it because you want to own it and because you know yourself, you know your behavior...don't do it because you think that it's going to make you ultra rich."
  — Drew ([43:02])

Psychological & Behavioral Factors

• Forced Savings ([31:08]):
  Mortgages force people to accumulate equity; for many, this is their only reliable savings behavior.

  "[A mortgage is] a forced savings vehicle...That in and of itself becomes one of the larger factors than any sort of return differential."
  — Drew ([31:08])

• Liquidity and Risk ([32:21]):
  Renting gives flexibility and insulation from unexpected, large expenses—important for some financial personalities.

• Unknowable Future, One Life to Live ([41:25]):
  Even with perfect data, you only get one outcome, not the law of averages.

Notable Quotes & Memorable Moments

• On Market Narratives

  "The tables have turned and the narratives shift quickly. ...Uber is the winner of this ride-hail wars, and now they're screwed. And now Netflix was the winner. And now...it's quite a dynamic environment..."
  — Co-host ([27:07])

• On Housing Decisions

  "You don't live a life of averages, you have one outcome."
  — Drew ([41:38])

  "Your real estate agent is always going to tell you it's a good time to buy and probably sell, too."
  — Co-host ([44:17])

Silver Lining for Renters

• Renting is not ‘throwing money away’ but often the more prudent financial choice, especially given market uncertainties and behavioral factors.
• FOMO about missing out on homeownership as the ‘only path’ to wealth is unsupported by rigorous analysis.

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Key Timestamps

• Netflix Investment Discussion Begins: [00:47]
• Ad Narratives and Engagement Down: [07:34]
• Ad Tier Economics and CPMs: [09:48]
• Content Spending Differentials: [18:15]
• Financials and Buybacks: [25:50]
• Renting vs. Buying Opens: [27:31]
• Simulation Findings: [33:36]
• Rule of Thumb for Rent vs. Buy: [37:35]
• Time Horizon Guidance (5–7 years): [39:46]
• Closing Housing Takeaways: [43:23]

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Final Takeaways

• Netflix remains an industry leader with robust margins, strong cash flow, and potential for continued growth—but engagement concerns and high expectations frame a nuanced investment case.
• Renting vs. Buying: There is no one-size-fits-all answer; spreadsheet logic and emotional needs/behaviors can point opposite ways. Renting is often financially superior, especially in high-priced markets or short timeframes, and deserves to be destigmatized.
• Narratives Shift Quickly: Whether about companies or personal finance, don’t accept conventional wisdom without critical scrutiny.

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End of Summary.

Transcript

[A]

Foreign.

[B]

Welcome to the Synopsis, a business and investing podcast. Today I'm joined by Drew Cohen and we have another installment of our dialogue series. Last time we left off, we did not quite get to Netflix because Drew and I were arguing about something I don't even remember at this point. But we're on to Netflix now and we're also going to talk a little housing, which I think you did a really great video. It's a question I often get asked when people, you know, kind of, oh, you're in finance, you're an accountant, what do you think about, you know, rentals and buying? And the question is definitely a little more complicated than people thought. So I think it's was a great deep dive you did there. But where do you want to start, Drew? Netflix or housing? What are you feeling over there?

[A]

Let's start. Let's start a little Netflix.

[B]

Let's start a little Netflix. And Netflix has been one that I really don't understand what's happening in a negative sense. I just feel like it's a pretty simple narrative to me. I'm trying to understand why the negativity has been growing around them. It feels like they won the streaming wars. They're the go to platform. Everyone buys Netflix. You find your 20 bucks a month because that's the one you keep. And all these other ancillary ones are more kind of the. If you got some extra budget, you go buy Paramount plus, but you keep Netflix, right?

[A]

This is why I think it's great having a host who's not on Twitter at all and who isn't in that new stream because that's probably like the right way to think about this, which is what's really changed in the past couple months. Now, if you are someone that's on Twitter like me, unfortunately you get fed a narrative from a lot of people. And the narrative as of late is that they have been trying to acquire different businesses, including Time Warner. Then when that failed, they tried to acquire Lionsgate. When that failed, they tried to acquire Roku. And this desire for acquisitions is driven by the fact that they feel they have an inferior position position in streaming and they're very self conscious about it and they need to improve their positioning or something like that. And so every not only attempt, but failure to acquire a business is just further entrenching the fact that they are not a leading winner in the stream wars. I think something like that.

[B]

I think narrative is the dumbest narrative. Okay. You're a content acquisition and creation machine. You can either create content or you can acquire it. And if they feel that there's a good deal to acquire content, why not shoot your shot and acquire it? And if not, no big deal, we'll create it. It doesn't seem that off brand to try to acquire stuff. Doesn't make me feel like management's lost their shirt on that.

[A]

I have nothing to add. I mean, that, that's, that's exactly right. I really don't have another viewpoint, nor do I want to defend kind of what the narrative is around that.

[B]

Well, I'll defend it.

[A]

Okay, go ahead. We're switching roles here. Go ahead, go ahead, go ahead.

[B]

I'll say, oh, my God. Netflix knows that they put out a thousand shows and 999 of them are complete duds. And one of them makes it. And you know, they're, they're not confident that they can retain eyeballs, and they don't have the same hit making ability as HBO Max or some of these other streamers perhaps, I guess. Or they just don't have. I mean, it just doesn't feel right like that. They don't have confidence. They make so many hits. Yeah, they spend a lot of money, but they've got. I mean, every year there's a must see Netflix show. I feel like every year you give

[A]

up defending that viewpoint pretty quickly.

[B]

I just, I just felt stupid as I was saying it. I couldn't, I couldn't quite get all the way through it. It just doesn't make a lot of sense. I mean, I don't know, I also maybe over index anecdotally, but I think at this point, you know, Netflix is one subscription and I'm not a big TV watcher, but I won't cancel that. I'm always gonna have it. And then, yeah, maybe someone comes up to me and goes, oh, you gotta watch Landman. They've got cowboys and oil and you gotta check it out. And I go, all right, maybe I'll subscribe to Paramount plus for like a month. But then after I'm done watching Landman, I'm canceling, I'm churning, I'm out.

[A]

You know, that's a lot of TV show for someone who claims that they don't watch a lot of tv, you know, one month you're killing off a series.

[B]

Like, that's eight hours of TV in a month. That's like pretty reasonable, you know. Okay, listen, Drew's trying to assign me more reading after he heard that Landman was educational. It's about oil fields and allocation of capital. Did you cancel Paramount, though, I canceled it immediately after.

[A]

Yeah, nice.

[B]

Or I don't even know if it's on Peacock. I can't remember which one it was on, but whatever one it was, it got canceled immediately. Same thing with Apple tv. I was a friend of. I like Jon Hamm shamelessly, like, he has friends and neighbors on there. Watched that season. Canceled Apple tv. It's just. It's just. That's how it goes. Like, Netflix is not in that position for me. I feel like that's the narrative they're trying to bestow on Netflix. But these other ancillary services are very much. They don't have the content to keep me involved. I guess that's the fear with Netflix.

[A]

But, I mean, it's kind of funny because something that's very commonly thought of as a weakness for Netflix is actually a strength in this case, which is that Netflix doesn't have the most compelling single series. So people never actually sign up for Netflix to just watch, like, a single hit show. No one really signs up just to watch, like, Squid Games or, like, Stranger Things, even though those were, like, their biggest hit shows. I'm sure, like, on margin, a couple of people did, but by and large, no one really signs up just to watch those shows. And so because they don't have these big hit shows which actually bring people in, and instead it's like a lot of, I don't know, middle content, whatever you want to call it, that it's just enough stuff that's there, that there's always something that you can watch, that it doesn't have that same sort of behavior and feature as these other platforms that really look for these big hits. So it's kind of interesting because that's usually thought to be a downside of Netflix, is that they don't have these big ongoing hits and prestige content. And it's actually, I think, a benefit. Yeah.

[B]

I mean, I look at. If I were on a deserted island with no books, Drew, no books and no pencil, I can't do anything productive. I have to watch TV for the rest of my life. What streaming platform am I bringing? It's Netflix. I mean, the breadth of content is. I mean, it's just unparalleled to me. You know, Like, I look at Hulu, they got some Gordon Ramsay shows I like, but I don't know, it's not like I could live without Hulu. Netflix has the most variety and the continuous development of a show that's always. Yeah, I'll give that a go. You know, like, I'll Try that out. Right.

[A]

Even though you're never like, oh, have you checked out this Netflix show? Like once in a while. But usually it's about a show on a different platform that you're like, really psyched on, but then you also churn that platform once it's over.

[B]

For sure. You're right. I just don't. You're right. Like, Netflix for me is my stalwart. But, you know, this is the other thing that. And we'll kind of get into a more structured conversation about this. But the Wall Street Journal just came out with kind of this article as well, which I don't know if you read. I just want everyone to know I read the Wall Street Journal as well. I like to flex when I can. But the Wall Street Journal was talking about how Netflix was concerned that engagement numbers were down. Right. Which is a number that they look at. And so they're like, oh, are they going to get into live tv? Are they going to do all these things? And I just, I don't know. And maybe this is too first level because I don't follow Netflix in enough depth. But engagement being down, I don't know. It's summer. I don't know what quarter this was for. Maybe people are out, maybe they're watching a little more YouTube. But I just feel like because people aren't spending six hours a day on Netflix or engagements down a little bit, it doesn't make me feel like the value is not there. Right. Maybe TV as a share of time goes down. Maybe people are watching more TikTok, maybe people are watching more Instagram. But I think people always enjoy watching TV as an activity. And if you're not, you know, going to pay for a cable subscription, I think most people have the $911 for the ad support or the 20 bucks for the premium. And it just feels like that's the one that people would allocate capital to if you were budget constrained, in my humble opinion.

[A]

And so, yeah, that figure is something they were looking at, which I believe it was a total percent of overall TV viewership and that they look at that as a monthly basis. And they said that it's been the lowest since May 2025. So that is even looking back, you know, so it's not just the summer kind of factor there. And the real kind of concern with that is engagement being down usually precedes churn increasing and so rightfully so. Netflix wants to understand why is engagement been following. And some of the things they talked about doing is potentially more live sports which they've talked about in the past as well. But also live channels that just continuously stream certain programs, shows or films. And then on top of that, potentially also bundling more with different subscription services with competitors. And so that, you know, that's rumored, I don't know exactly how that actually fixes the engagement problem. It seems like that can make the engagement problem actually worse. If you have more competitors together in the same bundle, it could increase retention, but not engagement. And so I think something else they've, you know, I've seen surfaced as a potential is that they cancel a lot of shows kind of early in their runs. And so no one really wants to watch, you know, two seasons of a show that then gets canceled. And so if they continue to support some shows, even if they do have kind of lower viewership status in hopes that that actually over the fullness of time increases viewership of kind of unknown shows, that could be one thing to kind of address that. In addition, it's going to be a lot on the algorithmic side just making sure you're getting more recommend recommendations to a viewer quicker. But I, I think to the extent that there are other competition out there, whether it is from streaming services or, or not just, you know, from TikTok, from YouTube, whoever, I think that is worrisome that you're seeing percent of TV viewership fall. I think that that is a much more reputable sort of bear case here for why Netflix shares are down so much rather than kind of the acquisition narrative.

[B]

Yeah. And you know, to talk about some of the, and I'm seem to be quite a positive individual on Netflix, but it just seems, seems to me that there's a lot of room to run here. And again, I loved your point about the ad supported portion of it. Right. The differential between the no ad tier and then obviously the ad supported tier. And I think the Delta was what, $11 there, Drew?

[A]

Yep, that's right.

[B]

So, you know, they're assuming that they can make up that difference on advertising. And if you look at again, the average revenue per user of a, you know, YouTube subscriber and obviously you're right, the density of the ad network and YouTube has been built up over decades by one of the best advertisers literally to ever exist. So again, is it fair to say they're going to reach parity with YouTube at any time soon? I don't know. But the notion that you have what is presumably very targeted advertising, I think based on people's TV shows, and I don't know about You. But I have friends who don't watch this on my Netflix account because it's going to mess up my algorithm. Go to the guest account. Right. They are very much about the Netflix algorithm servicing the content they like. It seems to me you could have some pretty good inclination of what ads would convert or have a higher conversion rate based on the kind of watching data. I mean, it seems like it's not trivial. So it feels like they can get ARPU's up over time, right? I mean, maybe not.

[A]

I think we've talked too much about meta because I feel like you're importing an understanding of the meta ad tech and what they needed to do to Netflix. And so Netflix is in a weird position. So the way TV advertising historically works is that there's something called upfronts, and these are negotiated deals that happen at the beginning of every year where a TV network will actually sell the majority of their advertising upfront, hence the name upfronts. And then they'll hold back, you know, 20 to 40% of it throughout the year, and they'll sell that on spot market prices. But the majority of the ads are being done up front. And so the way Netflix operates its advertising is it's not entirely programmatic. In fact, it's mostly not programmatic. So programmatic, you could sub out for basically digital or technologically aided advertising buying. In this case, this is for Netflix. This is people that actually make, you know, humans make a sales effort with brands, with advertisers in order to close a certain amount of ad deals. And when it is this manual effort, and it is a premium sort of streaming platform, which is what Netflix is, even though, you know, we said they don't always have the best content and all that in terms of actual viewers, it's known as a premium platform. The advertisers are thus then paying premium pricing, which could be $30 to $40 cpms. For comparison, maybe some advertisers on YouTube are paying 5, $10 cpm. So the cpms are already a lot higher on Netflix. So the Netflix problem in story is not a pricing story. So that's the first thing. Prices are already pretty full prices. That's kind of the best you're going to get in terms of pricing for a TV streamer. The second thing that you said was you said conversion, and there's no conversion on these ads because these are basically brand ads, right? There's maybe some ads they'll do like a QR code in the corner and like, you could scan it and. But that's not really a big thing. That's not really how people are pricing their advertising. It's not done on a return on ad spend basis. It's much more about, you know, how many viewers am I reaching? Am I reaching the right audience, the right demographics? And then I'll do kind of a lift study in terms of this entire geography later on to see if this advertising would work or not. But it's a very hard thing to do. Maybe down the line they could get better at direct response ads, which could include a QR code on the tv, which would be even better too. If a lot of people get a Netflix habit of listening to podcasts or something in the Netflix app, then that could really get them a direct response business. Because if you're on your phone, it's much easier to, you know, click on an ad all of a sudden, be on a and be purchasing something. It's just you can't really do it on a tv, which is the problem with the direct response there. And then the third thing in the real thing, which is how they are going to improve their overall advertising, it has to do with fill rates.

[B]

Well, but I understand what you're saying, which is, hey, this is operating a lot more like linear TV advertising. But wouldn't you say that the cost of these ads should be higher than linear TV because it's not like, oh, guys, watch espn, right? And that's how I'm going to target. This is a lot more nuanced than that. Based on you would assume that the data can get a lot more nuance than traditional tv.

[A]

I get what you're saying, but kind of no, at the same price. And it's less because linear TV advertising isn't targeted. And it's more because linear TV advertising is very expensive. So if you're advertising on, you know, ESPN, certain channels, you're already paying the most expensive ad pricing there is out there. And in order then to reach, you know, someone on Netflix, you're not going to pay more money than already the most expensive ads out there. And I see you're trying to compare it to the fact that you get more targeting and all that, but my point being that, you know, it's a very developed advertising network on linear tv, those are the fullest prices you're kind of going to get. Maybe way, way, way over time those prices go up, but before that ends up happening, they have to fill up a bunch of advertising slots. And it's wouldn't surprise me if prices actually go down before they Go up.

[B]

Okay, so I'm starting to see the bear case a little bit here, am I? Because I, I feel like their whole big thing was, oh, we're going to, you know, open this up, we're going to get more people who can afford this with the ads. But it seems like, you know, if they've already lowered the price, they've made the differential between essentially the ad supported tier and the no ad tier. And again, it's not clear that it.

[A]

Sorry, what do you mean lower the price?

[B]

Sorry, I mean lowered the price in terms of the entry price. Now you can have it with ads. So theoretically, you've opened up the market to a lot more people and now it seems like, okay, well, ad, yes, there's room to grow, but it's already the most expensive form of advertising. So how much room is there to grow in that? Now I'm kind of seeing, well, where does Netflix's growth come from, right? Is that kind of the, I mean, that's a bit of an issue, right?

[A]

I think there's a lot of, of traditional TV budget to go after still. And I think over time, you know, most, if not all of that's going to eventually move over to streaming. And, you know, of that Netflix is one of the biggest options and there could be bifurcated advertising deals. And what I mean by that is, let's say you're a big brand and you want to advertise on Netflix. You might pick and choose what TV shows you're going to be advertising against because you feel like that best fits your demographic or Netflix can help you do that for you. And if you're advertising on a very, very popular show like, you know, Queen's Gambit was a couple of years ago, that might be a premium advertising price. Now if you're advertising against, you know, some, some random, you know, B list celebrity, you know, soap opera I don't even know that no one's ever heard of, and it's in, you know, Hindi that's been ported over to English. Okay, that's probably going to be a lower advertising rate. So what I think is going to happen is that they're building out their technology platform which is going to allow them to onboard more advertisers and more. The advertisers that are going to come on, they're going to be smaller brands and smaller businesses over time who maybe aren't going to be paying the same premium pricing. But that doesn't mean the people that are paying the premium pricing, they lose that. They could still Garner that for those shows and for the targeting abilities that you were talking about. But then it's all of this other ad inventory that's not being filled currently that's going to get all of these other smaller brands, mid tier brands coming on that are going to be onboarded. Then they'll have advertising on the plan. Then over time, you continue to onboard more of these advertisers. They compete and bid against each other basically for more advertising. And that's how you get the price going up. So it may not be the right way to think about it as an average CPM level across the entire platform because, you know, there could be more premium TV shows that get higher ad rates and less, you know, desirable shows that get lower ad rates. And then timing of when the ads are shown as well could be another factor of it. Different demographics of where the households live, et cetera.

[B]

Yeah, no, and I understand you're right, there's a distinction as advertising. I think it was a good point to make here, but I started this discussion with, hey, Netflix seems to be the winner of the streaming wars. And that is why Netflix has been on this amazing run up to this point. And it seems like the numbers continue to support that. Netflix is the dominant player. I think you had a pretty interesting stat there about like content dollars spent per sub, which I think Netflix is quite, I mean, multiples ahead of the next platform on. Right, yeah.

[A]

And you know, these are rough estimate numbers because they don't always depending on the company. Exactly. Lay out. These are content costs. The segment disclosures are different, but rough estimates. Right now Netflix is spending about $5 in content costs per subscriber a month, whereas paramount is spending $18. Now, Paramount plus Warner Brothers, that does drop a lot, but it's still around 12 to $13 more than twice of what Netflix is paying. So even if Paramount can amortize their content cost across all of the Warner Brothers subs and Warner Brothers content cost gets amortized across all of Paramount subs, so their sub base grows. It's still not that much better. It helps, but they still have this disadvantage. And so long as Netflix's content cost per sub is so much lower, it becomes kind of a virtuous cycle where they could spend more money in absolute on content and still be spending less on a per user basis, which means their margins are higher. Which if you look at Netflix's operating margins, especially compared to any of the competitors, they are the only ones that have been improving profitability and are solidly profitable. In fact, you know, Warner Brothers, they were loss making in terms of operating profit. Ltm, operating profit margins though, for Netflix for this year, they're estimated to be 31.5%. Right now, LTM, they're 29.7%. If you rewind to 2022, they were 18%, which is still better than most of the rest of the industry today. And so this is kind of the structural issue that the entire traditional entertainment market is facing. You know, if we look at Disney, which they give their numbers in a way that it's clean. To do this math, right now Disney is making, roughly speaking, $13 in carriage fees for a linear TV subscriber. On the on demand side for streaming, they charge $9 though. So that means they're going from making $13 to $9. That is how much less profitable streaming is for them. It's just that much more competitive. It's harder to make as much money on streaming. And on top of that, this doesn't even touch the fact that customer acquisition costs are a lot higher and also Churn is a lot higher. So it's a less revenue generating business with more cost upfront and also less retention. So it's a worse business all around. Now, does that mean Netflix is a bad business? No, not necessarily, because Netflix kind of grew up in this environment. So it's very similar to this sort of Clay Christensen's innovators dilemma idea, where you start at the bottom with a very low margin and if you're able to make that business work, then any sort of incremental improvement from there, it's just even better for your business. Whereas traditional entertainment companies like Disney are coming from the opposite end. They had a very profitable cash cow business with very high margins, and now they're getting more and more into our worst margin in order to ensure they survive as a business, which is probably the right thing to do if you're optimizing to exist for many, many decades out into the future. But it doesn't change the fact that it just looks like a worse business model.

[B]

Yeah, I think that again, this all kind of is coming down to the Netflix, which is. Was there a justification in the rerating this valuation in your opinion? I mean, obviously down about 30%. What's your take on these acquisition positions on engagement being down? I mean, I know you just mentioned kind of being in the Twitter sphere. I don't know. What do you, do you feel like there is a compelling narrative here or do you think this is just kind of noise? Quarter to quarter. And again, that's A difficult question to ask, but it just seems like there's this spin that just happened out of nowhere that I'm not quite understanding. I get some of it. How much room is there left to run in the ad pricing? Why are they focused so much on acquisitions? I guess you can spin a negative narrative, I can spin something negative about anything or positive. I mean it's, you know, how it goes. But it just feels. I'm not sure why this has taken hold so strongly.

[A]

Yeah. So if you're asking the question whether or not the kind of reasons attributed to the stock prices decline makes sense, in my opinion it doesn't. But that's a separate question from whether or not the valuation made sense to start with three months ago. And that doesn't mean, at least in my opinion it was ever crazy, overvalued. But whenever you are talking about valuation, you're basically asking the question, what should an investor expect to return? And if I invest, I want to earn more than a 10% return. So. And I want to do that pretty often on conservative numbers. So I may look at a valuation multiple that other people think is reasonable and I still don't want to pay that because I'm more conservative. So that's why it's a little tricky answering that question. But right now at a 23 times 2026 multiple and they're expected to grow top line 12 to 14%, you should get a little bit of operating leverage there. And then they also said they're expecting growth of multiple years to be beyond their current 12 to 14% range. So re acceleration of revenue growth, then if you're getting a little bit of operating leverage on top of that, could be close to a mid teens earnings growth figure. For a 23 times multiple stock, you don't need many years for that multiple to drop below the current S&P 500 valuation level. Whereas, you know, if you get a couple more years of those above average growth rates, then it really starts dropping below that. So that's one way to think about valuation. Of course these are, you know, management's estimates. But what's very clear about this model is just the incredible operating leverage that exists in it. And so if they can increase arpus by just a dollar, right. So the average revenue the user is paying goes up by $1, operating income increases 20% because we're assuming all that basically falls to the bottom line less whatever, you know, a payment processing fee is. So their ability to continue to generate earnings is really just predicated on very, very tiny price. Increases and continuing to retain users, which, you know, it's easier said than done. Obviously it's a very competitive field, but if you're looking at what they've done and executed on the past five years, they've clearly been pretty good at this model. I mean, they've had multiple price hikes over the last few years and retention still at an all time high.

[B]

Yeah, I think you're right. It was a good delineation between yes, that narrative can shift and maybe that doesn't mean that the stock is worth off, but is the better question, you know, maybe it's just a valuation rerating. And again, at 23 times earnings, you know, it's. I'd say it's better priced than some AI companies. I can say that. Right.

[A]

Well, that's the real problem is they don't have an AI story.

[B]

They don't have an AI story otherwise. Yeah, hey, now we're talking about the leverage, which is they're just gonna make a bunch of AI shows for way cheaper. Right. Which is also could be a bear case for them. Cause now all of a sudden you don't need this whole content engine.

[A]

Right, but which is like kind of funny because on the one end people are like, oh like Netflix shows aren't good enough. And you know, you need great shows like Apple TV has and like, you know, Paramount is spending money and HBO and they're spending money on these great shows and you need that to attract people. And then at the other end they're like, oh yeah, AI slop. That'll be good enough to compete against them.

[B]

Yeah, I think again it's, there's so many ways to argue pretty much any fact at this point that it's kind of. Anyone can take any position and if you're somewhat coherent, you can make a compelling argument anyway, so. And you know, you just got to kind of have to have some conviction that you know what's true and not. And so before we move on to housing, any kind of final data on Netflix that you want to leave everyone

[A]

with, you know, what I just want to emphasize is pretty, pretty wild because if you guys followed Netflix for, for many, many years, not that I have at the closest level, but I've been aware of them for like well over a decade and followed their financials and you know, there was a long time where they were just burning so much money. I remember David Einhorn was shorting them and people, there were people that thought this would be a failed business. You know, you rewind to like before 2020. And they were burning a couple billion dollars a year in free cash flow. And really, a lot of people thought there was just no way this company is ever going to become profitable. And how ironic the tables have turned that now they're really one of the only very solidly cash flow positive, free cash flow positive media companies out there right now. They're generating around $12 billion in cash flow. They did a $25 billion stock authorization in addition to the 6 billion that was already left. So that's a total of $31 billion of stock they could buy back. And they have the cash flow to do it in just a matter of a couple years. And so, you know, if they're getting that all done, that's buying back around 10% of the business. So just really interesting to note how much the tables have turned for Netflix relative to competition.

[B]

The tables have turned and the narratives shift quickly. Like, Uber is the winner of this ride. Hail wars, and now they're screwed. And now Netflix was the winner. And now that you know, it's quite a dynamic environment, which is what keeps Drew busy. So it's good for him. I like a busy Drew. We don't want Drew to have too much time on his hands.

[A]

Otherwise I might be watching Landman or something like that. Yeah, the land has oil.

[B]

There's oil in this land, Drew. And it's complicated. So let's get into kind of a more personal finance discussion here, which was renting versus buying. And again, a very simple question, which I think sometimes advisors will just say, oh, you know, they'll have rules of thumb. I would say. I don't really know what the typical advice on this is. I think it's become more complicated in recent years with where rates are, where housing prices are. I guess not. I mean, probably always been this complicated, but it feels like it's a bigger discussion than it is than it was historically. I felt like the conventional wisdom is always, a house is a good investment. You want to buy a house, that's like the first thing you want to buy by. Is that fair? I feel like the narrative shifted a little bit.

[A]

I. And before we get into it, I feel like this. It's a very contentious subject, which is kind of interesting. And I get that, because for a lot of people, if they did own a home, it was like the biggest financial decision they made in their life. So they don't want to be told that it was anything other than a wonderful decision. But you could also very quickly fall prey to looking at what a spreadsheet says and kind of not really paying attention to how people actually act. And so when I did this video and I ran like a Monte Carlo simulation to see kind of the returns of what it looks like on buying a home versus renting. And yes, there's all sorts of different assumptions you could put into that. And yes, I know there's also assumptions that are hard to put into that, like whether or not you're taking something like a salt deduction on your mortgage. And so there's all sorts of different variables and factors and honestly it's kind of impossible to account for all of them, at least in a way that makes sense when you're trying to present the data. And so I'm well aware that, you know, the simulation isn't 100%. Having said that, I think the results of what we got, they are still consistent with actually a lot of academic papers, what those have shown as well, which is that for a vast majority of time, not always, but a vast majority of times, renting is a better financial decision than buying a home. Strictly if you're looking at the spreadsheet, that's ignoring all the other reasons you could buy a home of which there's many, you know, including you're able to do whatever you want with it. You don't have to ask a landlord if you want to redo a kitchen. You get full control over it. There's no risk of you ever getting kicked out. You're going to have, you know, safety and more permanence of a place to live. And so I'm well aware of all of these non financial factors. It's a financial channel, though, that I'm taught that I'm on and that this podcast is. And so the question really is just trying to figure out how the financial returns look, whether or not it's a big sacrifice. If you're buying a home versus renting, is there a big advantage versus one or the other? How does that all kind of play out? And so that was really what I was trying to tackle with this video. And I guess it was kind of a very ambitious one because probably got the most comments of people being pretty opinionated on that video versus a lot of the other ones. But let's, let's kick it off there.

[B]

Yeah, my big takeaway from this was there's theory and then there's reality. And for me, I find that some people, for example, need, and this is why housing a house becomes someone's biggest financial asset at the end of their life, is because you have to make that payment. It's almost like, let's say you had a client who's transferring 10 grand a month into Schwab or whatever it is as their savings. If they default on their savings plan, there's no repercussions, really. Right. But you can't default on a mortgage payment. And so I think for some people, that's a nice for savings mechanism for them when you had more difficult saving habits.

[A]

And by the way, it's that exact reason is why it's like one of the first things I'll do with any client I'm talking to is we'll talk about getting them onto a systematic savings plan. You want your savings to almost become invisible. The same way you're building equity in a mortgage, in a home becomes invisible. It's just a payment you're making. You're not thinking about it, and it's automatic. And over time, that builds up to be a lot of money. And the fact is, buying a home is a, as you're pointing out, it's a forced savings vehicle. It's something that forces you to save money. And that in and of itself becomes one of the larger factors than any sort of return differential. Just the fact that you are actually saving money. Because what's going to happen is a lot of people, and I'm aware of this and I'm sure it happens, you know, for the video, I assume that people were renting the money they're saving, they're putting in the stock market. And I'm sure most people aren't actually going to do that regularly every month, or they might access it some random month and decide to spend some of it. So I know that that's a big, you know, flaw in these, in these assumptions, is that people are going to be people. And that's a big benefit of owning a mortgage, of owning a home, is that you're locked into this decision to save, basically.

[B]

Right. But it is funny, which is if you have, and this is why it's a financial channel, because if people are looking at this, then odds are they are deeply curious about optimization. And so it is funny from an optimization standpoint. And I also think about the intangibles of not owning a house, which is you wake up and it's like, oh man, the, you know, plumbing's broken. Let me call the landlord. Not my problem, you fix it. Right. So again, those are the other situations that to me, it's almost a return on headache, which is, yes, maybe I can't remodel my kitchen when I feel like. But I also don't have to, you know, walk in and wake up one day and be out 30 grand for some unexpected payment. Right. You have to account for that. And then what are you going to do with that? Well, if you have, you know, you know that you have to have X amount dollars set aside because at any point you might need 40 grand to fix a H VAC unit or a plumbing unit or something like that, well then it doesn't make sense to put that in the stock market. Probably not. Because you don't want to be a for seller or have to sell down your Netflix when it's down 30% to get your plumbing repaired. So now you're putting it in Treasuries. Now that has a foregone cost. And so it was funny to go through this thought experiment and I think the outcome was probably one didn't people didn't like, which was what it was like 77% of the time that 70 renting was better. Was that surprising to you or did you kind of have that hunch?

[A]

So I mean, I looked up other research before I did this and a lot of them, they came around a similar number, 60 ish, 70 ish percent, something like that. That's surprising to a lot of people because I think if you're kind of looking at it from a first principles basis, you would say, well, you know, a landlord needs to make a profit, they need to make a margin. And so if I'm just buying the home, then basically the margin or profit they were making becomes mine and as a result of that, I'm better off owning. But then of course the big thing missed is the opportunity cost of what that other capital can do. And it's kind of funny because all of this ultimately comes down to variables or assumptions that we can't know the answer to. So I'm not going to lie, it's of limited use because the key variables are going to be what is the home going to appreciate, what is the stock market going to appreciate over time. Those two are some of the biggest variables. And when I ran this analysis, I came up with some rules. You're going to have to make assumptions to actually apply them though, which is, you know, unfortunate. They're not kind of easier to use. But there is one rule that actually is easy to use. That one's a little bit more well known. We could talk about that one. But some of the other rules that this Monte Carlo simulation I ran, that, you know, we did 10,000 different scenarios and what it found was that buying tends to lose when your expected stock return exceeds home appreciation by more than four points. So what that basically means is that if you're invested in the stock market and that does 4% or better than whatever your home does in terms of return, then it tends to be better to rent. So do with that what you will. If, if a normalized stock market return is like 9ish percent and you're assuming home prices return around 5%, then you're kind of right in, in the middle ground. But if you're those two things right

[B]

there is what makes this whole exercise pointless. Because it's like those numbers are not known, you know, and then it's kind of like, then it comes down to what I consider more behavioral anecdotal, which is, for example, I like having piles of liquid assets. That's what I value. Like, I like the ability to see it rack up and I don't have to worry about issues, for example. And so that might make me more predisposed to, hey, I'll just rent because I don't have to deal with this headache and whatever. Right. Other people might, you know, I've got family members, things like that, where it's like, listen, they better have a mortgage, otherwise there's no savings happening. Right? They're not disciplined enough if they don't make that payment to accrue any equity. So I think for me, those would be my larger piece of advice than a rule, because it just becomes very, very difficult in this scenario. But you have to, I think the housing has to be well planned for because you have to be able to prepare for down payment. You have to be able to prepare to carry that mortgage in negative outcomes so you don't lose the house to the bank. Then you have to be able to also prepare for unforeseen maintenance expenses. And so that's the thing that I don't think many people understand is you want to own a home in a safe manner. There are other things you have to account for rather than just, oh, I got the mortgage payment and I have the down payment. Like, there's other considerations that you have to be prepared for. So it's even more expensive, I think, than people give it credit for.

[A]

Yeah, I mean, you have, like, if you're living in la, for instance, all of a sudden your fire insurance just went up a lot. If you lived in Florida, all of a sudden you found out that you can't sometimes get hurricane insurance. So that's a risk that's being borne by the Homeowner. So there are a lot of other kind of risk involved in things you can't also account for with home ownership. And that's no way to say that it's bad or anything. It's just something that you should be aware of. There is a fact that it's nice if something happens to a property you're renting in and you could just walk away. But then, you know, the other side of that is people like the idea that it could stay somewhere in one spot forever.

[B]

Again, it's a much more emotional decision than it is financial. And I think that that's the real advice, which is, you know, it's what you prefer. It just feels. I don't know. I get what you're saying in 70% of scenarios, but those two numbers are inherently unknowable. Like, what's going to be the biggest factor?

[A]

So I was going to go somewhere else with that. Yeah, so I'm with you on that. Look, so again, like, we're running the analysis. It's a financial channel. If people want to make some assumptions on this that they're more than welcome to, the kind of other rule that you can actually apply, it basically is trying to get a sense of how expensive buying a home is in a certain area relative to renting is. And so if you're able to look at that home compared to renting it, the rule of thumb is basically the price of the home divided by the annual rent. If that is 15 or under, a 15 or under multiple, that tends to favor buying. If it's a 20 or higher multiple, that tends to favor renting. And so that. That's actually kind of a rule I've seen elsewhere. But it was interesting to see that once we ran our Monte Carlo simulation, I basically was able to prove it out again that that was kind of the case. And sometimes people take an opinion on 15 to 20 times multiple to say that's a middle ground. It's kind of not really. That still favors renting. And so you're really looking for a 15 or under multiple to buy. Again, though, this is if this is trying to be kind of a financial decision where it's not always going to be. The point isn't always to optimize every financial decision in your life. And I said this in the video too. The point of money is to have the money work for you. It's not to have you try to figure out how to make more money all the time. And so if buying a home makes you happy, makes you feel safer, that shouldn't really matter relative to whether or not you're getting one more point of return, annualized or whatever it is.

[B]

That's Drew's job, to figure out how your money makes more money all the time. But one rule I did like, because sometimes I hear this notion that, oh, I'm going to get this starter home for a few years and then we're going to flip that and buy a bigger home. And I always find that that logic is just fundamentally, and I don't have any data behind this, but I just go, you don't know what the market's going to be like in two or three years. Right. Like in the. Just like I don't know what the stock market's going to be like in two or three years. I think in the totality of time, the longer your time horizon, the more confidently you can say, yes, it is. More likely than not your money will be larger eight years from now in the stock market than three years. Right. Just running all the probabilities seems similar to the house. Right. And you kind of had a rule around this as well.

[A]

Yeah. So what really kills you there is the closing cost. You know, 3 to 5% closing, and then you're going to pay that again when you go and enter into a new house. And so the math I was running is that it almost never makes sense to buy a home unless you're going to be in there for at least five to seven years somewhere around there just because you want to amortize that closing cost. So if that is your plan, then it has to be because you just really want to own a home and live in a home. And it feels like you're kind of moving on with, you know, getting started with your life and all that, getting a new chapter. It can't be really a financial decision because we don't even need to run too complicated math to show that if you're paying a 5% closing cost on both, you know, in and out of a home, that's really gonna. That's a lot of money, you know, on a million dollar home that's 50,000 out each way.

[B]

It's a good point about. Yeah, you're right. I mean, the notion of let's flip houses, let's do this. If you're in, buy a house. Yeah. Stick with it for a little bit. I think. I don't want to get too much more into it. I just thought it was kind of an interesting video you made and I hadn't seen anyone actually do the in depth Analysis to come up with a conclusion. Even though tough conclusion, you know, based on what? Obviously very dependent on the data you use.

[A]

But I think that, look, here's what I'll say. If you could tell me exactly what's going to happen in the future, I could tell you exactly what the numbers

[B]

look like and that'll be good. And you know, listen, we can tell you what, how many Monte Carlo was it?

[A]

30,000 you ran 10,000, we can make 1,000 you ran.

[B]

We have no idea if any of the scenarios we're going to be in will be one of those 10,000. So how useful is the Monte Carlo? I'm not sure, but it could be one of those 10,000 even.

[A]

Even if it is one of them. So I said, you know, 73% of scenarios or something like that. Okay. That still leaves 27% where it's the opposite. And you never know because you only pick one life to live. So life, Right.

[B]

You don't live a life of averages, you have one outcome.

[A]

Yeah. And I will say something else though, is that having, there is something to having, you know, hard assets in case, you know, runaway inflation or something like that happens. Although in such a case, you know, you still could own equity in a business which could continue to go up in price too, because it's priced in nominal terms. But the ability to also have long term fixed rate debt, that's not going to be something you're able to access very often in your life. Really only with, with a home mortgage can you get something like 30 year debt at a fixed rate. So if you could do that, it does help out the returns a lot. But it also kind of provides you a weird hedge against inflation in a way because if there is, you know, higher inflation, your assets appreciating in real terms, but then the debt is basically being depreciated because it's being held at the same nominal rate. So there's some advantage there too, not entirely accounted for in the simulations.

[B]

Right. And so I think it was a very valiant effort to put as scientific of a lens as we can on this. And for me, I do feel more informed about the discussion and coming from simple rules of thumb, which is, hey, buying a house is really more, it's almost an emotional discussion to a degree that is now rooted in a lot of science, I think. Right. It's rooted in a lot of science to know that it's not that clear cut of an answer.

[A]

Yeah, I think the real takeaway for me is similar to what you're saying, which Is that. Do it because you want to own it and because you know yourself, you know your behavior, and it makes sense for, you know, the way you're living your life. Don't do it because you think that it's going to make you ultra rich or something like that. Because I don't know. And we saw what the numbers showed, and that's.

[B]

That's the ultimate takeaway here, which is, yeah, a lot of people will go, oh, I'm throwing. That's what you're. I'm throwing money out the window. Renting. And you go, not exactly. Right. And that's. That's the discussion. I think, especially some people in this day and age, given housing prices, feel very locked out of the housing market. Oh, I can't buy a house. I can't buy a house. I'm losing, missing out on something. And you go, not necessarily. Are you missing out on something? Right. It's not always the fact that you need to own a house to achieve the American dream in retirement. That's not the path. That's not the only path.

[A]

Yeah. And that's the other silver lining that I kind of mentioned in the video, which is that if you are renting, you might be better off financially. And so hang on to that if you want to. But if you do decide you want to own a home, there's nothing wrong with that. I just. I can't. We don't know that that's going to be the best financial decision you make. The same way a lot of people think it is for their parents and all that. That has more to do with the psychological factor that they're constantly saving every single month.

[B]

Let me give you one other piece of advice. Your real estate agent is always going to tell you it's a good time to buy

[A]

and probably sell, too.

[B]

Yeah, it's always a good time to buy and sell. No matter what's happening, it's always the best time. So don't listen to them on that. But I think that kind of wraps up our housing and Netflix discussion. We have another dialogue.

[A]

It's such a versatile podcast, talking about media, streaming services and renting. Alex.

[B]

I know just a little bit about everything, but not a lot about Dangerous. Drew knows a lot about everything. I know a little. I know enough to ask him questions. That's where my value comes in. So I think on that note, we'll end it there and we'll see you next time.

[A]

Until next time.