Netflix, too, could be vulnerable to a prolonged strike in Hollywood.Credit…Mario Tama/Getty Images
How immune is Netflix to the Hollywood strikes?
Netflix’s latest financial report yesterday had a lot to impress shareholders, including renewed subscriber growth and expectations of better cash flow, thanks to strike-enabled cutbacks in content spending.
But its shares fell in post-market trading and are still down this morning. That’s partly because Wall Street expected better numbers. But there’s also a worry that, despite being better insulated from Hollywood’s shutdown than most of its rivals, the streaming giant may eventually be hurt by the near-complete blackout of American movie and TV production.
The company claimed some notable victories. Its global crackdown on password sharing helped it add 5.9 million subscribers in the second quarter, bringing its total to 238 million and reversing a drop in subscribers during the same time a year ago. Revenue was up year-on-year, though it fell short of expectations.
And, as many analysts had predicted, Netflix said it expected free cash flow to grow this year to at least $5 billion from $3.5 billion, thanks to lower spending on content because of the writers’ and actors’ strikes effectively shutting down Hollywood productions.
Netflix is the best-positioned media player for the strikes. Beyond having a huge head start on streaming, the company also has a vast network of international studios to draw on that aren’t affected by the Hollywood stoppage. Its investment in Korean productions, for instance, has bolstered its business in that country — and some of that content has since found audiences worldwide.
Netflix’s focus on streaming has also helped it dodge some of the other problems bedeviling its peers, including weaker-than-expected box office results for expensive blockbusters. (That was also evident in China, which some in Hollywood had hoped could make up for underperformance at home.)
But a prolonged strike could cause some damage. While the company will save on content spending in 2023, it will have to pay for American productions at some point. Netflix itself said this “may create some lumpiness” in free cash flow in 2024. And investors may fear that the costs of streaming will increase for media companies if writers and actors are given a bigger piece of the economic pie to resolve the standoff.
Netflix executives, perhaps wary after their company was singled out for criticism by striking writers and actors (and taking a cue from the poor reception to comments by Disney’s Robert Iger), stuck to largely anodyne comments about labor dispute. “This strike is not an outcome that we wanted,” Ted Sarandos, the company’s co-C.E.O., told analysts yesterday. (He also noted that his father was a union electrician.)
In more strike news: Film production in Los Angeles during the second quarter fell to lows not seen since the middle of the pandemic.
HERE’S WHAT’S HAPPENING
Tesla’s shrinking profits spook investors. Shares in the electric vehicle maker fell roughly 3 percent in after-hours tradingafter the company said that a price war with rivals continued to eat into profit margins. But Elon Musk, Tesla’s chief executive, said that the company would invest more than $1 billion on a supercomputer meant to advance its autonomous driving offerings.
Wheat prices spike on Russia’s blockade threat. Chicago wheat futures jumped as much as 9 percent after Moscow appeared to suggest that it would treat as hostile any ship passing through the Black Sea to Ukraine. The prospect of wheat shortages stoked fears of renewed inflation, just as food prices in many countries had appeared to finally be ticking down.
China rebuffs John Kerry’s pleas to move faster on climate efforts. President Biden’s climate envoy left Beijing empty-handed, after three days of negotiations over new ways their countries could work together to reduce carbon emissions; President Xi Jinping instead said China would stick to its own efforts at its own pace. Meanwhile, Earth most likely set records for global temperatures.
The Fed fines Deutsche Bank $186 million. Officials at the central bank cited “insufficient remedial progress” by the German lender to bolster its money-laundering controls. It’s the latest black eye for Deutsche Bank, which has paid billions in fines in recent years for failing to crack down on illegal activity by customers.
Wesleyan is the latest university to end legacy admissions. The Connecticut institution said it would no longer give priority to children of alumni, weeks after the Supreme Court struck down affirmative action in higher education. Both Democratic and Republican critics of legacy admissions policies say they disproportionately favor wealthy white applicants; defenders say the practice helps schools raise more money.
Like pretty much everyone else, lawmakers are talking a lot about artificial intelligence. But as industry leaders descend on Washington and politicians broadcast their plans to monitor developments closely, don’t expect legislation anytime soon.
Instead, keep an eye on regulators and the courts, where high-profile authors, actors and other creatives have introduced a number of legal cases that could shape the contours of A.I. before lawmakers get around to it.
“Congress must join the A.I. revolution,” Senator Chuck Schumer, the majority leader, said at an event in New York this week with IBM, where he discussed a series of A.I. “insight forums” that he has planned this fall with businesses, experts and tech critics. The meetings, intended to help politicians get up to speed on the technology, will focus on national security, privacy, the effect on workforces, high-risk applications and bias. Some lawmakers are already issuing A.I. proposals, but Schumer is stressing patience given the complexity.
“We don’t have to treat A.I. as a looming catastrophe,” Dario Gil, IBM’s research director, told DealBook. He was one of dozens of the company’s representatives who met congressional staff members in Washington yesterday. He said that “hyperbolic rhetoric” about technology destroying humanity or replacing jobs failed to recognize its limitations. He also argued that existing rules were sufficient to start regulating A.I.
Regulators say they are on the case. Gary Gensler, the chair of the Securities and Exchange Commission, has said that A.I. poses a risk to financial stability, and new rules will probably be needed to safeguard the system. The agency, he added, is already watching for fraud, conflicts of interest and bias.
Last week, the Federal Trade Commission announced the first big investigation of OpenAI, the creator of ChatGPT, over the chatbot’s potential consumer harms. And last month, the Consumer Financial Protection Bureau highlighted “the expansive adoption and use of chatbots by financial institutions” that may run afoul of rules.
The most urgent action may be in the courts. Creators, including the comedian Sarah Silverman and authors like James Patterson and Margaret Atwood, are demanding compensation from companies and filing lawsuits over the use of their intellectual property in large language models. Similarly, a growing number of internet users want a say in how their data is being used, and are suing. This flurry of activity beyond Congress signals that regulators and judges, not lawmakers, may end up leading the way in defining the boundaries of A.I.
In other A.I. news:
Apple is developing a chatbot rival to ChatGPT and Google’s Bard that some engineers are internally calling “Apple GPT.”
Google has pitched a new A.I. tool to media organizations, including The New York Times and News Corp, owner of The Wall Street Journal, that is capable of writing news articles. Some executives who saw the pitch described the technology as “unsettling,” The Times’s Benjamin Mullin and Nico Grant report.
Researchers found that ChatGPT performed worse on select tasks, including solving math problems, last month than in March.
— The approximate reduction in staff in the first six months of the year by Wall Street’s biggest banks, either via layoffs or attrition, according to Bloomberg. A downturn in deal making and capital markets activity are the big culprits.
Is the ‘she-cession’ over?
Throughout the coronavirus pandemic, economists and pundits theorized about its lasting effects on the labor market. But few of those trends — whether “quiet quitting” or early retirements — have persisted, and the labor market seems to have fully recovered, write Jeanna Smialek and Ben Casselman for The Times.
Women are returning to the workplace in force. Early in the pandemic, women overwhelmingly experienced job losses, a phenomenon called the “she-cession” that led to fears that women would permanently be set back in the labor market. But employment data has recently shown a faster rebound for women than men.
As of June, the employment rate for women in their prime working years was the highest on record.
THE SPEED READ
Microsoft and Activision Blizzard extended a deadline to close their $69 billion deal to October, in a sign they believe that a key British regulator will sign off on the transaction. (NYT).
The activist investor Elliott Investment Management has reportedly taken a significant stake in Catalent, a big contract drug maker. (WSJ)
Warburg Pincus named Jeffrey Perlman as its president, succeeding Tim Geithner, a former Treasury secretary, in the role and positioning him as the investment firm’s next C.E.O. (WSJ)
New York City’s comptroller, Brad Lander, criticized BlackRock for naming Saudi Aramco’s C.E.O. to its board: “Actions speak louder than words.” (Bloomberg)
Senator Ed Markey, Democrat of Massachusetts, introduced a bill to raise levies on private jet fuel to make up for the lower taxes that private plane customers pay. (Insider)
A group of Chinese billionaires, including Pony Ma, the Tencent founder, issued rared public statements supporting President Xi Jinping’s contentious handling of the economy. (FT)
Desolate streets and mobile phones that conk out from the heat: what life has been like in Cagliari, a popular Italian vacation spot, recently. (Bloomberg)
“Why Heat Waves Are Deepening China’s Addiction to Coal.” (NYT)
Companies based in South Korea, Japan and China are the big winners so far from President Biden’s sweeping climate law. (WSJ)
Best of the rest
Marc Tessier-Lavigne said he would resign as Stanford’s president after a report found significant flaws in studies he supervised going back decades. (NYT)
How tech companies subsidized millennials’ lifestyles for years — and are now making those customers pay up. (Insider)
“She’s on a Mission From God: Suing Big Oil for Climate Damages.” (NYT)
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