Motley Fool Money - Netflix: Show Me the Ad Money

Episode Date: November 18, 2024

Over 60 million households tuned in to Tyson vs. Paul – Netflix’s first livestreamed sports event – we unpack what went well, what didn’t, and how it fits into the company’s new hybrid monetization model. (00:15) Seth Jayson and Dylan Lewis discuss: - Netflix’s foray into live sports with the Paul vs. Tyson fight, how technical issues didn’t prevent the audience numbers from hitting staggering levels, and what to watch for as the streamer goes deeper into live this winter. - Spirit Airlines’ widely anticipated bankruptcy and how it’s a reminder of how quickly fates can change in the airline industry. - Apple’s rumored “AI Wall Tablet” and why it seems like an odd entry into artificial intelligence and the smart home market. (14:44) Coming up luxury stocks have taken a dip – Mary Long and analyst Asit Sharma check in on LVMH and some of the other big brands commanding big bucks. Companies discussed: NFLX, DIS, SAVE, JBLU, AAPL, LVMH Visit our sponsor: www.1password.com/MOTLEYFOOL for a two-week trial. Host: Dylan Lewis Guests: Seth Jayson, Mary Long, Asit Sharma Producer: Ricky Mulvey Engineers: Rick Engdahl Learn more about your ad choices. Visit megaphone.fm/adchoices

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In the blue corner, everyone's favorite streamer, and in the red corner, buffering and video interruptions, Motleyful money starts now. I'm Dylan Lewis, and I'm joined over the airwaves by Motleyful analyst, Seth. Jason. Seth, thanks for joining me. Yep, no problem. Having a little fun right there with the fight motif bringing us into the show, because we are going to be talking about Netflix's first foray into live sports programming today. A lot of eyes on the streamer this weekend, Seth. They said they had 60 million households worldwide tuned in to see the boxing match between Jake Paul and Mike Tyson. Did you watch it?

I did not. I don't watch a lot of sports ball. We watch a little volleyball and cross country in this house, but mostly we go out running or biking. Well, I can say I was glued to my couch and I was watching it. And I can confirm that the tech issues were very present as Netflix was taking its first dive into live sports. It turns out live streaming a little bit different than putting video on demand out there for people. Yeah, well, and I was trying to compare here. I didn't know if they had sent this thing worldwide or what the percentage is, you know,

what the proportion was U.S. versus worldwide. If it's 60 million, keep in mind Netflix has, what is it, 280 million worldwide or something like that? And it would have been like 80% of U.S. viewers alone, just that number. So that's a huge number, and that's got to be tough to do. I've seen the headlines as well. It's hard to kind of get a beat on how widespread this was and whether or not, you know, anybody is going to rage quit as a result?

I think this is one of those times I'd love to put it to our listener audience and say, if you watch the fight, we want your perspective. We want people to write in. I've seen some data points out there, but they're all estimates. Podcast at fool.com. Let us know your experience. And if you ran into some video issues watching the fight, I will say, as someone who did run into those issues,

I saw the problems that they ran into, but I also saw kind of the two-pronged strategy that Netflix has been chasing at play. And I was pretty impressed by it. I mean, we have this tent pole moment here, Seth, where it's highly anticipated fight. You have a major social media influencer. You have this incredibly well-known legendary boxer. And then you also have a lot of ads being served up. And I think we are seeing with this event the encapsulation of the two-prong strategy here.

We are going to have a clear membership ad-free model. We're going to provide a lot of people with a reason to subscribe. But also, we are going to take some nice subsidy from advertisers when it comes to our content costs. Yeah, and who knows what direction it moves in the future because Disney, of course, has been putting ads in their services for a while. And in fact, they were talking in the last conference call about increasing the price of the bundle, the ad-free bundle, in order to shift people over to ad-supported because that's more profitable for them. So people used to laugh, and for years I've been saying kind of the future of all of this is ad-supported, because

most people don't even want to pay a subscription and they'll sit through ads. But now we're in one of those kind of weird worst of all world situations where you pay them 15 bucks a month and you get to look at ads. I mean, I see so many ads on Hulu right now. I'm about ready to hop over Bob Iger's mark on the floor there and just give them the extra money to try and get some relief from the insurance ads or the weird drug ads for diseases you've never heard of. It kind of feels like cable with more steps, just a little bit, right? It does. And it's interesting the buffering issues you mentioned because as a you, this is all we do is like Hulu Netflix, you know, the Disney bundle and Netflix is all we have. And I feel like the service has kind of gotten worse lately. They stutter, they hiccup, they drop you back out of the program. You have to log back in. This still is not a seamless product. And we've got files. We've got great fiber. And this is on Roku, which is a pretty solid, a pretty solid plastic. platform. So it'll be interesting to see where this goes. The other interesting thing will

be to see what happens when you've got Netflix versus Disney in live sports because Disney is ramping up their ESPN offering. They're going to release kind of an all-in-one app. And it's going to also include sports betting, which sort of saddens me as a human, but it interests me as an investor or an observer of business. Because they promised to wrap this all up in sort of one package. And I'm interested to see how they get that done. We're going to see what Netflix's future swings look like in live sports fairly soon. They need to get the ship right. They have a Christmas Day double header for NFL games. They also have their WWE deal going live in January of 2025. So we're going to get a very

quick read on whether they've been able to get the streaming tech right for some of those other big tent pole things that are on the calendar. Yeah. And doesn't Beyonce? going to be at one of those events? Oh, is she? I thought I saw a headline that Beyonce was going to be around. Well, I heard it here first. I guess you're not true. Let's just say it.

Let's just say it. It's dangerous territory. All right, we're going to switch over to the world of airlines. Word out on the street this week is that Spirit Airlines has filed for Chapter 11 bankruptcy. Seth, to get ahead of some of the concerns here, it will not affect holiday travel, but it will mean that the company is going to be restructuring its books. Yeah, so if you own shares, those are, you know, usually wiped out entirely in these kinds of proceedings, but everybody has seen this coming

for quite a while. There hasn't been any equity value left in the business for quite a while. And everybody sort of agrees already. There's bondholder, there's shareholder commitments of some time. I didn't read through all the details, but this is sort of a pre-packaged situation where they had it ready to go. And because the JetBlue thing didn't work out, it just didn't work out for them. The problem, you know, Spirit was actually a hidden gems pick back in the day. Back in the day when I was your age. And that was before the legacy airlines, the big ones, caught on to the game. So they were doing things that nobody else did. They were nickel and diming you for things. But what did happen is that the legacy airlines figured out how to make everything

all a cart and sell tickets at about the same prices without a lot of the same. same inconveniences, you know, having to go to the Spittle County Airport or, you know, absolutely no leg room. And then they were the butt of every joke. I mean, I'm sure there's fights on plenty of airplanes, but the ones that were on video for a while or streaming video were always people on Spirit or something, you know, duking it out over a seat. So you mentioned the JetBlue deal not materializing. And there was, there's a period where it seemed like Spirit was going to merge with Frontier, then JetBlue hopped in, they offered a better deal, and then regulators said, not so fast. Do you think that them being a part of another airline

would have saved them from this, or do you think that this was in some ways kind of inevitable? I think it saves you. I mean, you've got to be able to get some synergy somewhere, but I think it's a tough business once the big airlines figured out how to sort of pull apart the fares and offer stuff that was similarly cheap. And you know, you get those now when you do a search, you get these options to have, you know, no luggage or, you know, other inconveniences. And I don't know how everybody else handles it, but I usually just opt to go up to what was the regular ticket. I mean, people used to think that that bag was free. And I think, you know, it was at Southwest, is like your bag is free. Well, your bag was never free. The cost is folded in the ticket.

So some of this may be just people waking up to the realization that, you know, a bag actually costs money and you can pay for it on your own or it can be rolled into the ticket. And how much money am I going to pay or how much do I want to save to be uncomfortable, inconvenienced, whatever it might be? It's a bit interesting because we notice in all these different markets that the pendulum can swing a little bit. And you're talking about how the rest of the industry caught on to the discount a la carte option. We're seeing the industry struggle a little bit right now. and many airlines are trying to get more into that premium delta world.

And I kind of wonder like where it actually puts them long term because they've created a certain expectation for the way that things work and the way that they are billed for things. But also they've created a certain expectation on what service looks like and it's generally not a very premium experience. Yeah, it's tough. I mean, I load flying. I get scared on airplanes even though I know intellectually that there's,

way safer than any other form of transportation. The biggest risk any of us takes every day is usually getting in our car and driving somewhere. But every time that airplane drops, I freak out. I don't like sitting in airports. And for a while, especially when people were really getting ornery toward the end of COVID. I mean, it seemed like everybody was fed up with airlines. You can't, you know, you can't get from one place to another quickly without airplanes. I think they're always going to have the problem that we don't want to pay that watch for what is essentially like an absolute science fiction experience even today. I mean, to get in a tube and then fly from Washington, D.C. to Los Angeles in six or seven hours,

whatever it is, that is still an absolutely incredible thing. And, you know, most of us figure like, why should that cost more than 400 bucks? I think we're the problem. our expectations are just out of line with reality i think they are you know and and you're air travel people go oh it used to be so luxurious and it was and it was so elegant well yeah only people with money who dressed up flew on airplanes then now it's all of us you know you got to sit next to a scum like me on an airplane you know so so there's a bit of nostalgia for a period that never existed huh is that was i have existed other you know some of our listeners may still

when there was a smoking section on airplanes, and it was separated from the non-smoking section by a nice wall of air, right? Yeah. I'm glad that we are past that. I think we've advanced in a lot of ways. And in some ways we haven't. An American tradition seems to be airlines filing for bankruptcy spirit joining them now. Which famous investors said the way to be a millionaire in airlines is to start to buy one for a

billion? Was it Buffett? It sounds like Buffett. I mean, we know he's talked about the airline industry plenty, right? Yeah. All right, our final headline for today, this one's from The Verge, and I think it's from last week. Apple's rumored six-inch AI wall tablet could control your smart home by March 2025. Seth, did you know that Apple was working on this?

Yeah, and I think everyone was reporting on this, and I think the original story was over in Bloomberg. I hadn't, and I guess that means you and I aren't paying attention because some other stories, I guess maybe I read it on Mac rumors too and they're like, they've been predicting this forever and I was going, really? Have people been predicting this because I've missed it? Maybe I just missed it. I find it really interesting and I almost have trouble believing it.

It just because it seems really weird. So we've had tablets and phones for quite a while now. And the interesting thing to me about them as a kind of an art historian, and I like movie history too, and I was an art historian, that's my thing. So this is where I'm going to go is that in the 80s, right who remembers the 80s the vision of of the computer and the artificial intelligence device that controlled the house and from which you did your video calls and you got your news and you did

all this was a screen on the wall right and when it actually happened it was a screen in your pocket and everybody figured out how much more convenient that was and now we have this idea to stick this back on the wall and that just seems really wild to me one because it's not not new, too, because it's not even new recently, like Google has, you know, a home hub that is similar, and so does Amazon, I believe. And the Apple one is, is apparently has, as some slight differences and that it may be movable from place to place or even put on a, on a stick, like on a robot or on a robot arm. But according to the descriptions, and these are all still rumors, as it's been reported, the idea is that this thing will be kind of the size of two iPhones.

and that from a distance, it would be a square, from a distance you'll see something like the temperature, some kind of a display that reads well at a distance. And then as you get closer, the display would change, and it would show you maybe stock tickers or other smaller bits of information. And you could interact with it. The idea, what I've heard,

is that it would be almost entirely voice interaction. You wouldn't be standing around poking at the thing. It would use, make heavy use of Apple intelligence in order to do this. And they also throw out the word Siri in there, which makes you cringe a little bit maybe, because I think Siri still has kind of a bad reputation, even among Apple fans. And so it just sounds like a really wild device to me that you wonder, do people want more screens? You know, we had iPads next to our conference rooms at full HQ.

And half the time when I saw people poking at them, they were muttering under their breath, curse words. And we even also. And that was only appointment booking and meeting booking. Yeah, that wasn't just to play the booking. music and all that stuff. And we also, do you remember, we also had an iPad on a robotic stick that drove around and it was supposed to be like a greeter? So none of these are new ideas that, of course, it's kind of how Apple works, right?

They look at something that's been done and maybe done poorly and they go, well, can we do a lot better job than that? And maybe people will buy it. Again, the reports are that this would sell from anywhere from low hundreds to up to a thousand bucks, depending on how many sensors and cameras it has. The competing air quotes products are like two. $300 and under. So it'll be interesting to see, supposedly we'll see it in March.

You know, I think the Vision Pro has proven not to be a world beater. So this is the next swing. Seth, Jason, thanks for going eight rounds today with me with Netflix and Spirit Story. You're welcome. Fools coming up. Luxury brands have taken a dip. My colleagues, Mary Long and Asa Sharma, check in on LVMH and some of the other big brands commanding big bucks. The old adage goes, it is.

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The Range Rover event is on now. Explore enhance offers at rangerover.com. Asset, nearly every luxury stock ETF is in the red. If you look at this over a year-to-date timeline, I will admit that I am not exactly in the market for any of these mega high-end goods, but I've heard whispers about a luxury slowdown and the trajectory of each of those ETFs

would seem to corroborate those whispers. What is going on among the Uber wealthy? Why are luxury items seemingly not selling like they used to? Mary, I think the primary reason is that the Uber wealthy are just bored out of their skulls. Money can't buy happiness. I think they're probably buying at the pace they usually do. But maybe the level of buyers beneath the Uber wealthy are part of the reason for this slowdown. You shared an article with me that indexed on China.

And I think that's a great place to start. We've seen so many brands go into China to try to hit that local. market because the population is so huge, and it has been an economy in which people were moving up the value chain and up the earnings chain. We know that luxury goods are extremely popular in China, but the economy is changing in real time. China built a lot of its success on real estate. So they have a huge real estate market. And as real estate got built, funnily enough, the working class, instead of buying into stocks, as we do, looked to real estate to place and build wealth. So if you were earning extra, you would buy an additional apartment. That would be your

nest egg. And what's happened is because that real estate market was built on so much debt, and the government is trying to correct for that, they're trying to steer China into more of an export-based lead economy than it was even before. They're de-emphasizing real estate as a way to build wealth both for the country and its citizens. And so what's happened is you've got so many dissolution Chinese citizens who have seen the value of their wealth plummet. And that wealth effect is spilling over when they look at things they normally would spend money on, luxury goods. Being a great one to think about and talk about. But one more thing I think we should point out about China is that the government is also making it difficult if you hold a government position

or are a member of the Communist Party to flaunt your wealth to be conspicuous about it. So that's having a dampening effect. And just finally, youth unemployment is sky high in China right now. So you have a willing class of consumers formerly who don't feel like they've got a place in the economy and aren't that interested in buying upmarket goods. Lots of different consumer brands are cyclical. But it sounds like with what you just outlined that like playing in this luxury good space, it demands understanding a few different trends, right, that are happening.

It's one thing if I'm a consumer and I say, oh, this is, you can, you can measure your own experience based on and tie that to what's playing out in the larger market. But there's a few more details in this luxury good space that are worth paying attention to if you really want to play in it. So with that in mind, and despite this current downturn that you just walked us through, what is the case for individual investors to be playing in this high-flying category at all, rather than just investing in brands that they're more familiar with. Well, if you can find the right companies, Mary, if you can isolate them,

there is still some magic in this space, and it's tied to the idea of timelessness. So when I think about what luxury is, it's sort of the opposite of something that's utilitarian. There are certain attributes that are tied to this concept of timeliness. I jotted a few down. So think design, materials, craft. satisfaction from use, what you get out of using the product, and self-identification. So when those all come together, you've got a product that will be good today sitting on your shelf or in your home, or maybe you're consuming it.

Let's say it's a fine whiskey. It will be good tomorrow. It will be good years from now. And so those types of items, they hold their value. They actually tend to rise in value in some cases on secondary markets. And companies that specialize in this really are sort of evergreen. Now, pit that against what we like to invest in today as a society, which are like high-flying tech companies.

Who knows if they'll be around tomorrow? My investing battlefield is strewn with the bodies of companies that nobody knows anymore. They were great in the 80s. Hello, compact computer. But technology is disruptive. Some of the brands that you and I've been chatting about and prepping for this show have been around for decades. and they'll be here for decades.

So it's not an easy place to invest in, but there is an argument for finding those companies, putting some money into the best of the breed, and just forgetting about them. Let's hone in on LVMH, which is an easy brand to talk about when we're playing in the luxury goods, when we're playing with luxury goods.

This is the world's largest luxury conglomerate, and it has not at all been spared by the slowdown that we talked about earlier. The stock is down nearly 17% over the past year. sales in the company's fashion and leather goods segment, down 5% in the most recent quarter. But to hit on this idea of balancing accessibility and exclusivity that you talked about, a bright spot in the company's latest earnings came from Sephora, which sells makeup and malls. So that's not exactly the height of exclusivity. On the flip side of that,

you can't buy LVMH's most exclusive brands on Amazon. So how is this company in particular or trying to tow that line between maintaining its high status among certain brands, but then also playing a bit more to the masses where that's appropriate. Well, they're probably the greatest exemplar of like a House of Brands approach. When you have a House of Brands approach, it lends itself to these types of economies of skill. You've got that in your approach. And also, LVMH is very good at not oversaturating a single market on the high end. So once they saw that they had really gained a lot of traction in New York, this is over the last few decades, you saw the next logical progression, which was to move to China. Now, okay, everyone moves to China. We've already said that. But it was very purposeful with this company. So a geographic approach is like once you hit that point where maybe your buyers feel that you're getting too common, you don't change much in that geography. You just go elsewhere. And then the third thing, I think they're really good.

at, which many of the top brands are, is managing inventory. And sometimes this means on the high end, I hate to say this, destroying product. The death knell of a super exclusive brand is the promotion. Unlike myself, there are people out there who see a discount and don't want a product. Like, why would I buy a product that you're incentivizing someone else to buy? Okay, so they're good at that. And then on the other extreme, as you point out, they understand retail. They understand mall traffic. So in that House of Brands, there's space in an LVMH to do what so many other great companies are doing that are more like common mass market companies, manage the inventory, manage the promotions, get that foot traffic in, understand what the patterns and sales and

trends of the day are, and cater to those trends. Two other companies that also kind of follow this House of Brands approach, though on a much smaller scale than LVMH, are tapestry. and Capri. And both of these companies were in the news a bit throughout this whole year because they were in a bit of a kerfuffle, shall we say, with the FTC, Tapestry, which owns brands like Coach and Kate Spade, sought to acquire Capri, which owns Michael Coors, Versace, Jimmy Chu, and the price tag for this was going to be $8.5 billion. Just a couple weeks ago, we get word that the FTC has said this is a no-go, and it's won its lawsuit to block the planned merger. even after a turbulent year, and even in spite of this luxury slowdown that's hitting other

stocks quite hard, tapestry stock is up over 80% since the start of the year. Capri Holdings, on the other hand, is down nearly 60%. So what is setting tapestry apart from other players in the luxury and fashion accessory space right now? Well, for one, they're beating the S&P 500, Mary. Over the last five years, I looked at this earlier. The total return of tapestry. is like 121%, and the S&P 500 total return index is at 110%. So they're being the market by 11 percentage points. I should say, in all fairness, to those who don't know this company, it has been a little bit of a roller coaster ride.

So some of that appreciation that we've seen this year is making up for a little bit of share price, depreciation over the past couple of years. But all in all, when you look at those five years, it's done pretty well. What's it doing different? I think this is a company that has a good grasp on its target market. They specifically target Gen Z and millennials. So when you listen to their conference calls, management is always talking about new customer acquisition of younger people. They're very good with their supply chain. They understand their cost structures, I was saying, which some companies never figure out. And I think that the strategy is pretty balanced between more mass market,

brands and then brands which are aspirational but not super exclusive. Coach is the greatest example of this. There you go with the timelessness aspect. Coach has been around for a long time. And with all the innovation that we see out of tapestry, they still know how to keep that one core brand going, which is actually maybe a minus as they tried to merge with Capri because the FTC is like, well, you're going to take Coach and Michael Cores. I mean, what's left?

You guys are going to kill competition in the marketplace. I still don't know if that deal will go through. But Tapestry does a lot of good things in its business model, and it does them day after day after day, a good executor, I would say. Asset, we didn't even get to touch on other aspects of the luxury goods market like cars and boats. So we'll have to save that for another time, perhaps when you are back from your vacation to Europe.

So enjoy your time there. And thanks so much for checking in with us on these stocks before you head overseas, perhaps to buy some luxury goods yourself. I'll be coming back with the bling. I'll show you the pictures of my merch when I return. But thanks a lot. This is a lot of fun, as always, Mary. As always, people on the program may have interests in the stocks they talk about, and the Motley Fool may have four more recommendations for or against Snowpire selling things based solely on what you hear. All personal finance content follows Mountiful editorial standards and is not approved by advertisers. Myllifle only picks products and personally recommend the friends like you.

I'm Dylan Lewis. Thanks for tuning in. We'll be back tomorrow.