Morning Brew Daily - Netflix Cashes In on Ads and Password-Sharing Crackdown & AI Lawyer Fail

Episode Date: October 19, 2023

Episode 173: Toby and Neal share their biggest takeaways from Netflix and Tesla earnings. Turns our password sharing restrictions work! Plus, premiums for health insurance have never been higher and why one high profile court case was lost because of an AI lawyer. Neal gets to share his favorite numbers and Toby might even get in on the action. And finally, Meta's new headset hits the streets of San Francisco. Listen to Our Future Podcast Here: https://link.chtbl.com/ourfuturepodcast Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

Many employees can't afford a hefty medical bill that pops up out of the blue, but it happens. And employees who are financially stressed are, understandably, more likely to be distracted at work, costing their employers greatly in lost productivity. Luckily, AFLAQ plans help with out-of-pocket expenses not covered by health insurance and can be offered at no direct cost to businesses. Learn more at aflac.com slash morning brewdaily. That's aflac.com slash morning brewdaily. Good morning brew daily show. I'm Neil Fryman. And I'm Toby Howell.

On today's pod, AI lawyers are not ready for prime time. I rest my case. Then Netflix and Tesla both reported Q3 earnings yesterday, and one performed much better than the other. It's Thursday, October 19th. Let's ride. Toby, I want to ask you about the power of celebrity endorsements, because Skechers, the shoe brand that used to get me stuffed into a locker in middle school,

is reportedly close to signing a shoe deal with a reigning MBA MVP. P. Joel Embed that would have him wearing Skechers while playing NBA basketball. Now, as a Sixers fan, this makes me very nervous because I expect his production to plummet. But from a business perspective, your marketing was, how much of a difference do you think one high-profile endorser can have for a brand like Skechers? I mean, I just recently watched the Air movie, which features the story of Nike signing Michael Jordan. So it's very hard for me to say that no, one person can't.

move the needle because that's clearly the most successful endorsement ever. So maybe it won't get to Michael Jordan levels, but I'm going to say I'm bullish on it because Joel Embed, he's got that star power and one person can move the needle in this type of scenario. All right. We'll see. Before we jump in the show, I want to take a minute to tell you all about Yahoo Finance. As you all are about to hear, we are entering earnings season and parsing through earnings reports, seeing if companies exceeded or missed expectations, it can be a lot. And that is where our friends at Yahoo Finance come in. They combine breaking news with high quality real-time market data on a single platform that helps you do everything for

make smart financial decisions to host a daily news podcasts. So head to finance.com to learn more or download the Yahoo Finance mobile app to get it directly on your phone. It's time to refresh your yard during spring backyard days at the Home Depot. Get low prices guaranteed on propane grills starting at $179, like the next grill 3-burner gas grill. Or get $50 off a select Weber Spirit grill and bring big flavor to your backyard. Then set the scene with Hampton Bay string lights that bring it all together. Shop spring backyard days for seven days at the Home Depot. Now through May 6th.

Exclusion supplies to homedipo.com slash price match for details. For our top story of the day, Neil, it's earning season again. And what better way to kick it off than with two stalwarts, Netflix and Tesla? First up is Netflix. Netflix is back. And all it took for them was to kick us all off our parents' accounts. The company reported a boost in subscribers driven mostly by its password sharing crackdown. They added 8.76 million global subscribers during the quarter, which was way higher than the 5.49 Wall Street was

expecting. That's actually its biggest quarterly net ad since the 10.1 million subscribers. It brought in during the second quarter of 2020, which was when COVID kept everyone at home snuggled on their couches. The second piece of good news came from its recently launched ad-supported tier, which grew nearly 70% quarter over quarter. In an earnings call that may have been unsettled by the now-resolved writer strike and the still active actor strike, Netflix came out looking like it's in a very strong position, Neil. It does. There. There's, you know, in April 2020, there were a lot of warning signs for Netflix. It lost subscribers.

It warned it was going to hemorrhage even more subscribers. Everyone declared Netflix dead in the streaming era dead. And Netflix just comes roaring back. One thing that we should mention is that they announced price hikes. So for the premium tier, you're going to, you're about to pay $2.99. That's up from 1999 currently. And then the basic plan in the U.S., which is no longer available to new customers. is jumping from 1199 to 999.

Or jumping from 999 to 1199. Yes, thank you. I don't know English. But I think that's a really important key to say Netflix is wants to capitalize on this momentum and squeeze a lot more revenue from each subscriber it has. Yeah, shares jumped 12% after the bell yesterday. And to me, this is kind of a transition phase for Netflix. It's growing up a bit.

I mean, the price increases are a sign that it's kind of moving away from those really, really low-priced packages that were meant to lure people away from traditional cable. That was kind of at the outset of its streaming era. It was trying to undercut cable, but now it feels like it's kind of captured enough in the market that it can start focusing more on profitability. It ditch its physical DVD business. So this is like a coming-of-age story. It does feel like Netflix is kind of in its maturity phase if that metaphor checks out.

I also want to talk about what we can expect from Netflix looking ahead. one interesting program is its first live sporting event. Unlike many other streamers, Netflix has not moved into live sports, which can be super pricey but are also very attractive for viewers. Its first live sporting event is going to be called the Netflix Cup, and it's a combination of golf and F1 leveraging its full swing documentary and drive to survive for Formula One. It's occurring on the same week where F1 is going to Las Vegas, and it's going to pair golfers with F1 drivers who are playing golf.

Toby, this seems like right up your alley. Is this something you'd watch? It seems right up my alley, but no, because my take on this is watching people who are bad at golf play golf, no matter who they are is not entertaining. But I do think it's a great marketing idea because those are two of its more popular

kind of inside the ropes documentaries that they've been producing. So, I mean, I guess I'll tune in, but I'm not very excited to actually see the product on the course. Most people listening to this are like, well, you think golf is. entertaining even when good people are playing. Yeah, that's true. All right, now let's move on to Tesla. One of the big boogeymans on Tesla's earnings call were higher interest rates. Elon Musk talked

extensively about the impact higher rates had on car buyers and demand. He said, I am worried about the high interest rate environment that we're in. I just can't emphasize this enough that for the vast majority of people, buying a car is about the monthly payment. So in an effort to boost demand, Tesla has been dropping prices of their vehicles left and right, reducing them by about 25% in the third quarter. Remember, Tesla used to be the king of margin in the auto industry, and while it's still more profitable than the traditional auto makers, its gross margins fell 7% from a year earlier, while adjusted automotive margin, which excludes regulatory credits, fell by 11%. There was also bad news on the new factory it's building in Mexico. Elon said it would take stock of the global economy first before deciding whether to plow ahead with the construction. Still, there's always some good news. Tesla delivered 435,000 vehicles up 27% from a year earlier.

All this added up led to misses across most metrics in a bit of a messy quarter for Tesla. This was definitely disappointing on a number of fronts. Profits plunged 44%. As you mentioned, those industry leading margins were squeezed from all of the cost cutting. and price drops that Tesla did. He also, Elon spent a lot of time talking about this cyber truck, which was announced in 2019 and has still not hit the market. He finally gave a day for the first delivery,

which would be November 30th. But Elon did not seem so optimistic about the cyber truck. He said, we dug our own grave with cyber truck and talked about producing this vehicle, which looks bizarre. I don't know, I hope most people have seen it, but if not look at it, and you can probably understand why this takes a lot of time to produce. It's very expensive, and it's about two years behind schedule, and it's not going to make any money for the company for another 18 months.

Although he did say, I think it is our best product ever. So, again, that's kind of what you have to say when you spend this much time kind of developing this odd-looking truck. So that is definitely going to be kind of the main thing that people focus on for Tesla going forward, just because we haven't had a new Tesla car in a while. models, they're just regurgitating the models. Finally, I just thought this was a hilarious quote. This is quintessential Elon. He talked about the growth rate of Tesla, how it had grown so much in the past and how

growth is slowing down a little bit. And he said, it is not possible to have a compound growth rate of 50% forever, or you will exceed the mass of the known universe. Gosh. I mean, I think we have good metaphors. I don't know. That comparison's a bit much for me. Okay, we're moving on.

We just talked about streaming inflation. Now we have to talk about health care inflation. Last year, the cost of employer health insurance jumped at the fastest pace since 2011, according to an annual report from the research nonprofit KFF. Given that 153 million people in the U.S. get their coverage through their employer, this means you probably saw your premiums go up in 2022. Let's run the numbers here.

Last year, a family plan jumped 7% to an average tab of nearly $24,000. which KFF pointed out is about the same price as a new car. The cost of premiums is typically shared between employers and workers, so workers themselves are now paying $500 more than the year before, with an average payment of $6,500. The 7% jump in health insurance costs is even more stark because in 2021, annual premiums only increased 1% as some people avoided surgeries and other medical care during COVID,

but now with prices rising across the economy, health insurance just got a lot more expensive. There's no way to cut it other than to say that's a huge number, the co-author of the report said. Yeah, it is a big, big number for sure, but it is interesting too because employers are kind of towing this really delicate line right now because the job market is so tight that if they water down their health insurance plans too much, then it could lead to issues with retention and recruiting. And so you do see these premiums rising very, very fast, but also they're not outpacing wages in inflation by two, much. Premiums rose 7% while wages grew 5.2%. So you can see this concerted effort from employers

to say we do want our employees to have health care because, again, the labor market is so, so hot right now. Employees have a lot of leverage right now. So employers can't get away with just bumping up premiums too, too much. I also want to go over the stats on employer coverage of abortions. 10% of large firms said their biggest plan does not cover legal abortions. Another 18% said they only cover abortion under limited circumstances such as incest or life endangerment. Nearly a third of large firms said they cover abortion in most or all circumstances, while 40% said they were unsure of their coverage policy, possibly because it was changing or they were unaware of the details. This topic has certainly been top of mind after the Supreme Court scrapped

Roe v. Wade last year, overturning the constitutional right to an abortion. And just overall looking ahead, the big question in this industry is whether this dramatic health care inflation is a blip on the radar or part of a longer-term trend of surging medical costs. Our next story brings us to an interesting intersection of hip-hop fraud and AI. Praz, Michelle, which some of our elder millennial listeners will no doubt recognize as a member of the rap group, the Fugees, is seeking a mistrial claiming his former lawyer mishandled his criminal conspiracy case by using AI to write his closing arguments. For some background, Praz was convicted by a federal court back in April for political

conspiracy after funneling money from the infamous Malaysian financier Joe Lowe to Barack Obama's 2012 re-election campaign. He was also caught trying to impede a Justice Department investigation on behalf of China. And while him getting convicted on all 10 counts could be a story in its own right, I want to talk about the role AI once again played in a legal setting. Praz is trying to toss out the convictions based on arguments that his lawyer's use of AI worked against him and deprived him of a fair trial. And here's the crazy part to me. Praz's lawyer didn't even hide it.

In fact, there is a press release from the company called iLevel.a.i, bragging about his lawyer's use of its platform in the trial. Neil, this is a can of worms we've touched on a time of two. But this time it feels different because this wasn't an intentional use of AI. It was, and I think it was the first use of generative AI in a federal trial. And there was a lot of boasting going on. And it came to bite them in the butt. And now he's trying to find a new lawyer.

and say this was all a huge mistake. The crazy part of this is that his first substantive remarks, the lawyer, to the jury, appeared to be an admission of guilt. And that's what their version of ChatGPT wrote. He said that, ladies and gentlemen, this case started back in 2012 when there was, as the government characterizes it, an effort to funnel money to President Obama's reelection campaign, which kind of undercuts the entire argument. So this is another instance of where AI can go completely wrong. and hallucinate. It's been known to spit back wrong answers. And if you don't do your fact-checking,

they could really butt you in the butt. So this tool is interesting, though, because I-level.a-I said the program isn't experimental in any sense of the word. It's trained using only facts from the case, including court transcripts and no musical lyrics or anything found online. So technically it should be self-contained and using just facts from the case. But the problem that you run into, even if you are training it just on case data, is that in closing arguments, a lot has happened over the course of the trial. There's a lot of nuance that went on in between. So if you're just using transcripts or whatnot from the case, you might miss some of that nuance.

And that seems like exactly what happened in this scenario right here. This reminded me of another AI lawyer case. I think it was in the springer. It was definitely earlier this year where a lawyer who filed a court brief on behalf of his client who is suing an airline company completely made up fictitious, completely made up previous cases as it pertained to this particular trial. There was Miller v. United Airlines, which didn't happen. Peterson versus Iran Air, which never happened.

So this has been percolating. And you see lawyer, we talked about the accountants using generative AI a lot more. It does seem like the lawyer profession will be using generative AI even more because there are a lot of repetitive tasks. There are a lot of things to sift through, and it could be very useful for the profession, but it seems right now that it is not ready for prime time. I don't know.

I don't want my lawyer doing it. If I ever get in legal trouble, no AI for me, please. All right, Neil, before we jump into the next half of our show, we're going to take a quick break. Study and play. Come together on a Windows 11 PC. And for a limited time, college students get the best of both worlds.

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terms at aka.m.m.m. Hey, Mama. Thanks for making all my favorite recipes. Hi, Ma. Thanks for your unfiltered advice. Hi, Mom. Thanks for always being by the phone. Hey, Mom. Happy Mother's Day. When you ship UPS Air at the UPS store, your items arrive on time or your money back, guaranteed at no extra cost, exclusively at the UPS store UPS store UPSS.S. retail locations. Visit the UPS store.com slash air shipping for full details. Terms and conditions apply.

Send your Mother's Day gifts at the UPS store and we'll get your gratitude there on time. Let's head to Neal's numbers, the segment where I share three stats from the week's news that will spark a 4th of July fireworks show in your brain. For my first number, Toby, genuine question. What is your spice tolerance like? I feel like I haven't paid attention when we've been together. Zero, zero, very, very low. Okay, well, you're definitely not going to be able to handle Pepper X. It's the newly crowned hottest pepper in the world by the Guinness Book of World Records

after it was found to be three times as hot as the previous record holder, the Carolina Reaper. Pepper X, which hit the market this week, is the brainchild of South Carolina hot pepper expert, Ed Curry. I guess that's a funny name for him, who also cross-bred the Carolina Reader. For decades, Curry has been working to make peppers hotter and hotter, and after spending 10 years developing Pepper X, he finally created a vegetable that will make your entire body sing with agony. When he first tried Pepper X, Curry said he was feeling the heat for three and a half hours, got cramps, and was laid out flat on a wall for about an hour, groaning in pain. Let's finally get to the actual numbers of this story. Heat and peppers is measured in Skullville heat unit.

A jalapeno pepper registers at about 5,000 units, okay? Got that? Pepper spray used by police is around 1.6 million units. Pepper X is an average of 2.69 million units. Tell me, would you try this? Absolutely not. I can't even handle jalapinos which are 5,000 Scoville units. I'm sweating already.

What was interesting to me, though, is the science behind why this pepper is just so much hotter than the Carolina Reaper. It's because the exterior. has this bumpiness to it, and you need that extra surface area in order for the placenta, which is actually the spiciest part of a pepper. That's that white stuff you see on the inside to grow. So I love the science behind it, even though I am not going within a 10-mile radius of this pepper. I'm feeling the sweats already.

Okay. I actually would try it, but in very limited quantities, that description sounded pretty awful. Okay, for our second number, if it seems like the lunch line at the downtown Kava is getting longer, you aren't imagining it. the share of Americans working from home has dropped to its lowest level since COVID started, according to the Census Bureau, which is a big win for your boss who's been nagging you to come back to work for the past few months. Here is the data from September 20th to October 2nd, just 26% of households had at least one person working remotely for one day a week or more. During the remote work peak of March 2021, that share was 39%.

So as more companies forced their workers to return to the office, every single U.S. state has seen remote work rates, drop from their pandemic peak, but there are significant differences. The top five remote work states are Colorado, not a surprise. Maryland, also not a surprise given those government employees who hate going back to the office, Utah, Massachusetts, and Minnesota. The state's least likely to work from home are Arkansas, North Dakota, Alabama, Mississippi, and Wyoming. Toby, it seems like 2023 has been all about employers reversing their earlier stances on remote work and mandating at least three days in the office.

on Tuesday, the video gaming platform Roblox told employees they need to work three times a week or take a severance pay. That was the most intense headline of like this new era of return to office that I've seen is that yeah, you're going to fire people if they don't come back to the office. But I also, I'm seeing these office stats too, that office attendance across the big, big 10 U.S. cities remains about 50% of pre-pandemic levels. So it does feel like we're seeing these return to office mandates, but we're still not even really close to the full office occupancy that we once were.

So it's definitely you do have to kind of parse through and see, all right, is everyone truly going back to the office? Are we just seeing more and more of these headlines and we'll eventually maybe get back there? I think more people are going back to the office for several days a week. I don't think there will ever be a five-day-a-week Renaissance or anything like that, unlike what we do. But no, it does seem like there's going to be a, there does seem like there is a trickle back to the office.

And that's really decreased remote work levels overall. But there's still an office space reckoning for sure. Okay, for the final stat, this is one Toby can't stop talking about. It's about the absurd number of intra-office romances that have developed by people working for Chuck Grassley, the Republican senator from Iowa. Over the weekend, Grassley's chief of staff and his former legislative aide had their wedding, which was the 20th marriage of people who met in Grassley's office. Grassley has been a senator since 1981, so that works out to one marriage for every 2.1 years. He's a modern-day Yenta. I just want to say, screw Hinge, screw Tinder, screw Raya, screw all the apps.

It's all about the Senate Budget Committee, baby. That's where all the love is going down. Although, in reading this, it does feel like maybe there should have been even more romances because, I mean, Chuck Grassley's been involved in politics in some form since 1959. So from that expective perspective, maybe you think that that number should be closer to 40 or 50. So maybe Chuck Grassley, he could be doing more to facilitate. So I looked up the occupations that are most likely to marry their own kind. I'm going to ask you, what do you think is number one?

Like job to job, you mean? Within jobs. Okay. It's got to be one where you spend a lot like teachers? Teachers are not on the top list. Professors are number two. The first is physicians. Okay.

Right. And that's the, that's the right tack, though. It's like you are spending so much time. You go to, you know, five to ten years of school with these people. You don't have so much time outside of the office, which probably is a similar situation to what happens in Chuck Grassley's office. You're just there all the time and you're meeting people, you're meeting like-minded people. Yeah.

It's just time spent together. All right, Neil, you know how I appreciate your numbers so much so that I'm stealing a page right out of your book in bringing a. you two stats from the week's news that will spark an even bigger 4th of July fireworks show in your brain. This segment is called Toby's Talley's. And the first tally I want to tell you about is the increase in American workers using their sick days. For a long time, given our whole rah-rah attitude about work and productivity, not using sick days has almost been a badge of honor for workers. But in the wake of the pandemic where cases of RSV and COVID-19 are still elevated, the number of sick

days Americans take has soared. 30% of white-collar workers with access to pay leave have taken sick time up from 21% in 2019, according to data from the payroll company Gusto. And the use in the workforce may be unsurprisingly are the most frequent partakers. Employees between 25 and 34 have seen their use rates jump 45% from before the pandemic. In general, there is a much more expansive view of sick days these days. It's not just if you're hacking up a lung anymore. Sometimes people use them to deal with other issues with their parents or children, or maybe they're just feeling burnt out. Yeah, I think this is part of the reevaluation of work-life balance with COVID. And it's starting to make its way to actual labor negotiations.

I know we've talked about the tight labor market so much on this particular podcast episode. But during the auto workers strike negotiations that are going right now, it's a big issue brought up by Stalantis, which is one of Detroit's big three. automakers. It said it lost 11% of hourly worker time last year due to unplanned absenteeism. So employers are starting to notice this, and I'm not sure they can do so much about it. Yeah, I think overall the destigmatization of using sick days is a good thing. Like, obviously, if you're not feeling well, just don't come to work. All right, Neil, my next tally comes from the NFL.

NFL commissioner Roger Goodell agreed to a three-year contract extension yesterday. It makes sense. He's done well for the league, nearly tripling revenue, about $20 billion a year from the time he took over in 2006. But the tally I want to bring your attention to is just how much he's made over his whole tenure as commissioner, including his latest contract extension. He will now be approaching $700 million in career earnings. That is more than double any player in NFL history.

The closest contender is Aaron Rogers, and he's sitting at just $342 million in career earnings. Neil, do we think the commission should be making more than double what his most lucre lucre? players are earning. He's bringing in a lot of money to this league. He's been faced with a lot of scandals from concussions to race relations, but he can't hear you booing from his private jet. I mean, this guy is making so much money, tripled revenue to $20 billion. He secured $100 billion worth of TV deals. The NFL now accounts for 82 of the 100 most watch TV broadcast last year. Teams are selling for more than $6 billion. This guy is a money-making machine for both himself and the owners, and they're not going to get rid of him anytime soon.

Yeah, the owners love him. The fans, not as big of fans, honestly, which, I mean, he worked for the owner, so I guess it makes sense, but yeah, I'm still anti-Rodgy. Yeah, whenever he gets up in front of a stadium, everyone booze, which shows you the public perception of him, but he's going to be around for at least a little while longer. It's crazy that he's been working for the league for more than 40 years. Crazy. All right, for our final story, don't be surprised if you see someone on the street rocking a VR headset after Meta's new device was released last.

Tuesday, early adopters are strapping them on, heading out into the wild and sharing their misadventures. The headset is the meta-Quest 3, the company's latest attempt to turn us all into multitasking cyborgs. The key feature of the Quest 3 is what's known as pass-through technology, which allows you to not be trapped in the virtual reality world of your headset, but see the real world in color through cameras. The early customers showed themselves ordering coffee at a coffee shop with the headset

on, virtually painting a tree in the park, while we're going to be able to be in the park, while looking at the real tree and watching videos while doing mundane chores like cooking a meal or sweeping the floor. Toby, would you right now step outside this office into the mean streets of New York City wearing this headset? Okay, I am bearish on stepping outside to go get a coffee or something like that. And a lot of people who saw these videos said, it's a stunt. Like, they're not doing it because there's any actual function to it.

But I am bullish on using it within the confines of my own home, especially in cooking. Like you mentioned the mundane task like cooking. That is actually a game change. You're having your hands free with a screen kind of floating in front of your face. I could see that being extremely helpful in the kitchen because everyone's having struggle. Going back to the recipe. Right. It's the worst. Yeah.

So I'm very bullish on that and for doing things like sweeping or laundry where you can have a screen going while just having your hands free. So that weirdly kind of brought me around to the idea of the meta quest. If we thought our attention spans were quick now, we can't be able to do anything without watching Mr. Beast video. Another appealing thing about the MetaQuest 3 is its price point. It's only $500 to $650. The Apple Vision Pro, which is coming soon, is going to be a competitor in this space. It runs thousands of dollars.

So Meta is hoping that this will become more of a mass consumer product and is appealing at $500. Right. It's only going to get smaller two and more powerful. So I've come around to the idea. I'm all in. Anyway, people should watch these videos on TikTok. They're very interesting to see how the mixed reality, how the real world mixes with the virtual. world through this pass-through technology.

Okay, we have to end it there. It's Thursday. Tomorrow's Friday. Day after that is Saturday. I know I'm just rattling off the days of the week, but it's never too early to dream of the weekend. As always, please write us with any feedback you have in the show to Morning Brew Daily at Morningbrew.com. Let's roll the credits.

Emily Miliron is our editor and producer. Samantha Velas and Raymond Lou are associate producers. Euchenawa Ogu is our technical director. Billy Minino is on audio. Hair and makeup went to look for love in Chuck Grassley's office. Devin Emery is our chief content officer and our show is a production of Morning Brew.

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