Netflix Jettisons Anti-ad Principles to Cope With Lean Times
As he built Netflix into the world’s biggest streaming service, one of Reed Hastings’ management mantras was for his staff to “tell the emperor when he has no clothes”.
With Netflix losing almost two-thirds of its market value since November and analysts likening its fall to the dotcom crash, Hastings on Tuesday finally heeded his own advice and admitted that his corporate strategy might be seriously underdressed.
In the course of an hour on Tuesday, the Netflix founder and chief executive jettisoned his long-cherished principles, reorienting a media group that changed Hollywood to cope with leaner times of slow growth and spending restraint.
Sharing passwords? In 2016, Hastings quipped “we love people sharing Netflix”. Now, he plans to crack down on the practice; Hastings estimated 100mn people have been sharing accounts.
Competition? For years he has dismissed the threat of Disney, Apple and HBO, insisting Netflix’s biggest competitors were Fortnite, YouTube and “sleep”. On Tuesday he admitted Netflix needs to “take it up a notch” because its competitors have “some very good shows and films out”.
But perhaps the clearest about-turn was on advertising. Having always defended Netflix as an advertising-free zone that allows viewers to “relax” without being “exploited”, Hastings flung open the doors to marketing money.
Casually dropping the change of strategy during a call with analysts, Hastings announced Netflix would work on a cheaper, advertising-backed version of its service “in the next year or two”.
And spending? Netflix single-handedly created a template for streaming in which the stock market rewarded it for spending more money. The company burnt cash for years while investors applauded its fast subscriber growth and commitment to steadily churning out fresh TV shows and movies. For the first time, the company on Tuesday said it would curb its spending on content.
“It was shocking,” summarised Michael Nathanson, analyst at MoffettNathanson. “These guys sounded like any other management team that just didn’t have the answers yet.”
The volte-face is a humbling moment for a company that while its subscriptions soared at the height of the pandemic was confident enough to begin proactively cancelling accounts for people who were not using them.
After a historic stock market run as one of the big tech ‘FAANG’ companies (Facebook, Apple, Amazon, Netflix and Google) soaring to a valuation of nearly $310bn in October, it has shrunk back to $95bn. Shares in Netflix plunged more than 38 per cent on Wednesday alone.
“We have watched a company go from growth darling to growth purgatory in an instant,” said Nathanson.
One of the most painful decisions for Hastings may have been on advertising.
His rivals had long predicted Netflix would eventually buckle on an anti-advertising position that Jason Kilar, the former chief executive of Warner Media, recently compared to a “religion”. But few imagined it would come so soon.
“The way you get a billion [subscribers] is not by continuing to charge a premium price that’s ad-free,” Kilar said. “[Netflix] will absolutely get to that conclusion.”
Morgan Stanley expects that in the long term, Netflix can make “billions” from advertising, estimating that adverts generate about $3bn in revenue a year for rival service Hulu.
But the bank’s analysts also questioned whether the option to offer cheaper subscriptions would boost revenues for the company, given that it has already convinced 75mn households in the US and Canada to pay on average $15 a month. “As it migrates customers to an ad-supported tier at a lower price point, can it generate higher overall [revenue]? This is less clear.”
Mark Read, chief executive of the WPP advertising group, said the change in strategy reflected the need to reach new customers and the clear “limits to growth of subscription-only models”.
“History has shown that successful media companies have both subscription and advertising,” he said. “No doubt the pressure on household budgets as well as the increasing number of subscription offers has focused consumer minds.”
The challenge for Netflix is to introduce the ad-supported tier of membership without either eating into its existing subscriber base, or devoting too much time and money into building an advertising business that it once saw as a distraction.
After years as a market leader in video subscription services, Netflix must adjust to the role of latecomer in ad-funded streaming, learning from Disney, Discovery, Paramount and NBC. “There was never any fear that we’re in trouble,” said one former Netflix executive. “The feeling was: we are leap years ahead.”
It now faces stiff competition from the world’s largest media and technology companies, which have found success with blockbuster television shows such as Apple’s Ted Lasso and HBO’s Succession.
Among some investors and analysts, there is a sense that Netflix’s lavish spending should yield better programming. “If you spend $18bn on content, I would like to think that you can persuade people to join your streaming platform,” said a top-10 shareholder in Netflix.
But its share price crash is worrying for the entire entertainment industry, because the biggest US media groups have earmarked more than $100bn for spending on content this year alone to try to emulate Netflix’s model.
Now, Hollywood is questioning whether Netflix executives seriously overestimated the size of the streaming market.
Netflix has 222mn paying subscribers, and Hastings has told investors that his “total addressable market” was any household in the world with access to the internet — potentially a billion subscribers. There was plenty of room to grow, and ample space for new competitors, he insisted.
But as its growth has ground to a halt, analysts are poking holes in these optimistic assumptions. Given questions of affordability and global access to digital payment systems, Nathanson estimates that the “real” addressable market is closer to 400mn.
Equally worrying, he questions whether Netflix has already reached full saturation in the US and Canada, where the company revealed on Tuesday that an additional 30mn people are sharing accounts on top of its existing 75mn subscribers. The number of US pay-TV subscribers during the peak of television in 2011 was about 100mn, indicating Netflix may have tapped out in its largest market.
This is bad news for other media groups because their valuations have been benchmarked on Netflix. Shares in Warner Bros Discovery fell 5 per cent on Wednesday, while Disney was down 4 per cent and Paramount Global lost 10 per cent.
Rich Greenfield, an analyst at Lightshed partners, noted the irony that streaming champions such as Netflix and Disney were now embracing advertising, a key pillar of old-media strategy, to revive their businesses.
“It is scary if the only way to reinvigorate growth is offering cheaper products that worsen the consumer experience, essentially making it more like the dying linear TV experience,” he said.
Additional reporting by Harriet Agnew
Iceland Helps Families This Half Term With Free School Meal Initiative – With Added Bonus
The promotion launched this week to help “ease pressure” on families over half-term.
Scholz Airs Frustration Over Allies’ Stance on Tanks for Ukraine
Chancellor Olaf Scholz has admonished Germany’s allies for failing to deliver tanks to Ukraine after having spent months urging Berlin to do so.
Speaking at the Munich Security Conference, the German leader who was long criticised for his hesitancy in arming Ukraine, was asked if he was now pushing other nations to provide the heavy weaponry they had promised.
Scholz replied: “That’s a question I have to ask to others, especially those who were so much urging [me] to act.”
The three-day gathering was opened by Ukrainian President Volodymyr Zelenskyy, who compared his country to the biblical David in a fight to the death with Russia’s Goliath.
“It’s not just about Ukraine,” Zelenskyy said in his speech via video link. “The point is that Goliath must lose and there is no alternative to this.”
He said the west must pick up the pace of its support for Ukraine. “Delayed decisions are a resource that Putin’s dictatorship lives on.”
Scholz’s comments highlighted growing German frustration with its allies. The chancellor faced months of pressure to set up and lead a consortium of countries capable of supplying German-made Leopard main battle tanks to Ukraine. But in the weeks after Berlin finally agreed to send 14 Leopard 2s, few other countries have committed any of their own stockpiles of the tank.
In his conference address, Scholz urged “all those who can supply main battle tanks to really do so”. He said German defence minister Boris Pistorius and foreign minister Annalena Baerbock would be using the Munich conference to encourage allies to fulfil their commitments on tanks.
Germany would, he added, “do what it can to make this decision easier for our partners — say by training Ukrainian soldiers here in Germany, or providing support in terms of supplies and logistics”.
In a further indication of international differences on Ukraine, French President Emmanuel Macron acknowledged that the west had failed to win backing from countries ranging from Africa to Latin America and Asia.
“I am struck by how we have lost the trust of the global south,” Macron said to an audience made up of top officials from both developed and developing countries. He argued that the world’s response to the war showed the need to rebalance the global order and make it more inclusive.
Macron called Russia’s invasion of Ukraine a “neocolonialist and imperialist” attack that “broke all taboos” and called on leaders of the global south to join the west in condemning the war.
While western countries have rallied to help Ukraine, many Asian, Latin American and African countries have been at best lukewarm in their support for Kyiv in what they see as a European war that is far from their daily concerns. The French president insisted that was not the case.
“To close your eyes [to the invasion] is to legitimise neocolonialism and imperialism around the world,” Macron told the conference. “It is a vision of the world that has broken all taboos, not only violating the UN charter . . . but also murders, rapes, war crimes and the systemic destruction of civilian infrastructure.”
He added that the global south would be needed to eventually seal a sustainable end to the conflict.
First, however, the west needed “to intensify our support and our efforts to the resistance of the Ukrainian people and its army and help them to launch a counter-offensive which alone can allow credible negotiations, determined by Ukraine”, Macron said.
More than 40 heads of state and 60 ministers are attending the so-called Davos of defence, which has also attracted the biggest US congressional delegation in the event’s history. Kamala Harris, the US vice-president, will be taking part in the event that runs until Sunday and is expected to focus heavily on the war in Ukraine and its implications for the global security order.
Last year’s conference was held just days before Russia launched its invasion of Ukraine, and world leaders used it to urge President Vladimir Putin to desist from his war plans — pleas that fell on deaf ears. No Russian officials have been invited this year.
Original Post: ft.com
Russia’s ‘big’ Ukraine Offensive Advancing in ‘metres Not Kilometres’, Says UK Defence Secretary
The Russian army is suffering huge losses in Ukraine, shows no sign it has improved its “meat grinder” tactics and is struggling to sustain a stuttering offensive that is “advancing, if at all, in metres not kilometres”, Britain’s defence secretary Ben Wallace said on Friday.
Despite fears that Russia is poised to launch a huge attack around the first anniversary of its full-scale invasion of Ukraine, Wallace said there was “no evidence of a big massing of Russian forces” akin to the assault on February 24 last year.
Speaking to the Financial Times on the sidelines of the Munich Security Conference, Wallace said the best Moscow had managed so far was a series of probing attacks along the frontline reinforced with recruits following a recent mass mobilisation. But he said those assaults had only led to high Russian casualties.
He added that Kyiv’s western allies were “more resolved than ever” to help Ukraine repel Russian forces and one clear sign was a strengthening of support from the US, which is now “committed to seeing the conflict through to the end”.
“There is no evidence to date of a great, big Russian offensive,” Wallace said. “What we have seen is an advance on all fronts, but at the expense of thousands of lives . . . We should actually question the assertion that they [the Russians] can go on.”
There has also been a shift in attitude about military aid among Kyiv’s western allies. This time last year, he said, they were debating whether to send anti-tank missiles to Kyiv. Now they are sending western main battle tanks.
“What has changed is that the US has decided to be more assertive,” Wallace said, pointing to the almost $8bn of military aid Washington has committed this year.
“Just think about it: we [western allies] have convened twice in the past three weeks [to discuss military aid], at the Ramstein [US air base in Germany] and at the Nato defence ministers meeting this week. That is a big change.”
One bridge that Kyiv’s allies have not yet crossed, however, is the provision of western fighter jets to Ukraine. President Volodymyr Zelenskyy made an eloquent plea for “wings for freedom” during an unexpected visit to London earlier this month.
But Wallace cautioned such supplies were still a long way off and that the modern fighter jet training the UK had offered to Ukrainian pilots was a “long-term resilience measure for after the war when Ukraine needs to defend itself”.
Wallace’s assessment of the state of the battlefield comes as Moscow’s full-scale invasion approaches its first anniversary next week. Since the start of the war, more than 180,000 Russian troops had been killed or wounded and, according to US estimates, two-thirds of the army’s tanks had been lost, he said.
Despite these losses, Wallace said there was no sign that the Russian army had changed its approach. He cited reports that 3,000 Russian soldiers had died during a three-day attack last week on the southern Ukrainian town of Vuhledar.
“Russian recruits are still being shoved into the meat grinder,” Wallace said. “And I am not sure that is sustainable, even for Russia, because 180,000 people have wives, mothers, sisters and friends and it becomes impossible for the scale of that loss to be hidden from the Russian people.”
Western officials also believe that Russia is struggling to source weapons and other materiel for its war effort. They cite the long gaps between its missile and drone attacks on Ukrainian infrastructure, and “active rationing” of shells for Russian artillery on the front line.
Kyiv’s western allies are similarly struggling to maintain supplies of artillery shells and other munitions and weaponry to Ukraine.
Wallace said that, while Ukraine might be suffering some shortages, this was a timing issue and Kyiv’s western backers had no strategic problem in continuing to supply Ukraine’s war effort.
“There’s always been a sense of shortages on [Ukraine’s] front line, but I don’t see any sign of strategic shortages . . . although there is a bit of a time lag” in getting supplies through, Wallace said.
The challenge, he added, was for Ukrainian forces to be precise in their use of weaponry and to continue fighting using western methods. “Do you need 100 artillery shells to blow up a Russian position, or just five? If you can be accurate, you don’t need 100 shells,” he said.
“Russia still has significant forces at its disposal,” Wallace said. “But what we have discovered is that when they muster them, they get whacked . . . They’re struggling.”
Original Source: ft.com
Finance1 year ago
Logically Announces Acquisition of Full-Service IT Managed Services Provider Halski Systems
Medicine1 year ago
Axe-wielding Man Broke Into North York Home, Stole Jewelry and Had a Shower: Police
Technology1 year ago
Kongsberg Geospatial TerraLens Technology Enables Next Generation…
Current Events1 year ago
BBNaija’s Angel Splashes Millions on New Range Rover Few Weeks After Renting a House
Technology1 year ago
NVT Phybridge and Avaya Help Customers Digitally Transform Their…
Finance1 year ago
Ensono Partners With NTT DATA to Advance Mission Critical Mainframe-As-A-Service and IBM I Offerings
Traveling1 year ago
Xinhua Asia-Pacific News Summary at 1600 GMT, Dec. 11
Technology1 year ago
Mainstream Technologies Hires Bill Napier