Netflix has ‘a massive lead in product’ despite stock woes: Expert

Dade Hayes, Deadline Business Editor and "Binge Times" Co-Author, sits down with Yahoo Finance Live to talk about Netflix's outlook in the streaming space after reporting subscriber losses, ad spending, and newcomers to the industry.

Video transcript

RACHELLE AKUFFO: Welcome back, everyone. Netflix's disappointing subscriber data put the streaming world on notice, but then you had a different story when it came to Disney+. Well, let's take a look at what's happening in the streaming wars with Dade Hayes, "Deadline" business editor and co-author of the new book "Binge Times." So welcome to the show. So first of all, key takeaways from this book about where we are now in the streaming wars.

DADE HAYES: Well, thanks so much for having me, Rachelle. It's been a fascinating time. My co-author, Dawn Chmielewski, and I put our pens down at the end of 2021. Our goal was to really portray the rush to market of Disney, NBCUniversal, WarnerMedia, Apple, and Quibi, actually, in our book. But boy, how the landscape has changed.

I would say Netflix, you know, really has more competition than ever. They've been very candid about that. They sort of went about their business, you know, when we were doing our deepest reporting in 2020 and 2021 as though they had no competition. And now it's caught up with them.

DAVE BRIGGS: It certainly has, their first sub loss in a decade. The stock is now down 68% year to date. Fill in the blanks, though. Reports of Netflix's untimely demise are what?

DADE HAYES: Premature, I have to say. I mean, you know, our belief-- and I think we really lay out a pretty thorough case in our book-- is that they have a massive lead in product, in engineering talent, in Hollywood talent relationships. They've-- they've built a pretty substantial moat. Now, there's plenty of bears that would wisely point out that they're also spending like crazy. Even they admit that the spending has gotten out of control. But they can kind of tweak the dials, bring in advertising, crack down on password sharing, and maybe get more disciplined with the spend. And they can still win this race, we believe.

EMILY MCCORMICK: So do you think it's then Netflix who's going to be the long-term winner in streaming, or do you think it could potentially be one of these more diversified businesses like a Disney, an Apple, or Amazon that can also lean on its other business units to bolster profits and subsidize what is often a money-losing streaming business?

DADE HAYES: You bring up a completely germane point. Nobody can ever disregard the businesses that complement streaming at these other companies. I mean, Amazon is just a machine. Maybe they don't always dazzle, you know, the marketplace with their streaming. They have their-- they have their hits under their belt for sure. But you know, they just have such a big, gigantic organization. They're very heavily into sports, as you guys were just discussing earlier.

Apple, obviously, now has momentum with "Ted Lasso" on the programming side, and they have quite a-- a giant tech engine of-- of hardware and services to hitch it onto. And then Disney, with theme parks, they can kind of pump Disney+ through the bloodstream of that company, I think, more effectively than anyone. So you know, I still give the edge to Netflix, but there's at least three heavy-duty competitors right on their heels.

RACHELLE AKUFFO: And I want to ask you about the ad business. I mean, how are they sort of adapting to this new form that we're seeing with streaming, and how has their revenue been impacted?

DADE HAYES: Well, it's a great question because next week in New York, as you know, it's the upfronts, where all the big media companies and even YouTube will be pitching their ad-supported businesses to Madison Avenue. And it's going to be a fascinating time.

I mean, you ask about the impact. I think if you're, let's say, NBCUniversal and Comcast, you can point to some success on the ad side, as can Hulu as well. Other players are a little newer to it. Netflix shocked the whole industry by saying they're going to finally put ads on their service. We don't know what direction that will take or how substantial that will be.

But you know, it used to be called the duopoly, right, in the tech world. It was Facebook, and it was Google. Amazon has proven by putting their shoulder into video advertising, they can move the market. And so it's a-- it's a pretty compelling area. I would say a couple of years ago, when I started writing this book, it was all about subscription. Now, as we head through 2022, it's all about advertising.

DAVE BRIGGS: And when you started writing this book, Warner Bros. Discovery was certainly not a thing. They are the new kid on the block. What is, do you think, their competitive advantage against others? And how crucial is sports for survival in the streaming wars?

DADE HAYES: Well, you-- definitely, you mentioned sports. That would be a key, Turner Sports, their legacy property. They've got NBA rights. They now have hockey rights. They have a whole bunch of very important sports rights. NCAA Tournament-- let's not forget about that. So sports is key.

I would say this is really like a heavying up on the cable side and then adding Warner Bros., the-- the film and television studio, to the mix. So you do have a pretty formidable company that's doing everything from "90 Day Fiancé" and the "Property Brothers" on the one end of the scale all the way up to "Batman" and, you know, $200 million blockbusters on the other. So it is a pretty formidable-- it's very rich in content. And then sports, as you say, is kind of a differentiator.

The question, I think, looming over Warner Bros. Discovery is, you know, can they fight against the tide? I mean, they're losing traditional subscribers at a pretty steady clip. HBO Max is a pretty strong new entry into the streaming space, obviously. But can they really lever up to get to the very top echelon? They believe they can. I think, you know, the Street-- certainly, if you look at the stock since the deal closed in early April, it's not really ringing endorsement yet on the-- on the new combined company. But that's kind of what they have on the plus and the minus side-- great well of content assets. But let's not forget, the iceberg is kind of melting on all those kinds of companies.

DAVE BRIGGS: Well, we can't wait to read the book. It's great to have you on and talk streaming wars. Much appreciated, sir. Thanks so much for being here.

DADE HAYES: Happy to be here. Thanks, everyone.