After nearly five months, the Hollywood writers' strike is coming to an end with a tentative agreement with studios reached last week. But can Netflix, which was called "Enemy No. 1" during the strike, afford the new deal with the Writers Guild of America? And how will it affect Netflix stock?
To start, Netflix is apparently planning a price increase for its ad-free tier in the months ahead, once the Hollywood actors strike breaks, the Wall Street Journal reports. It's not yet known exactly when or how much the price of the plan will go up.
In an interview for Investor's Business Daily's Industry Insights show, Eric Savitz, Barron's associate editor for technology, spoke about Netflix's future now that Hollywood is heading back to work.
Netflix Stock: After The Strike
IBD: What can we expect from Netflix stock and the industry overall now that the writers' strike is coming to an end?
Eric Savitz: It was a long strike by the Hollywood writers. We should start to see some original programming, particularly for things like late-night TV shows returning within a week or two. Unscripted TV will take a little longer. And the same with movies that got put on hold while the strike was unfolding. Of course, the actors are still on strike, so we're not completely out of the woods yet. But there's light at the end of the tunnel.
IBD: Now that the writers' strike is nearing conclusion, how long do you think before the Screen Actors Guild follows suit?
Eric Savitz: The terms of the writers' agreement include things like better pay and limitations on the use of (artificial intelligence). (The deal also) requires a (certain) number of people who work in the writers' room, a bunch of issues that they were very concerned about. Some of those overlap with what the actors are trying to achieve. And so I suspect it will be relatively quick from here to get that one settled and get Hollywood back on its way.
'Stranger Things' Back On Track?
IBD: How did the strike affect Netflix stock and its financials?
Eric Savitz: Ironically, the strike reduces (Netflix's) costs when they're not producing a lot of content, and so it actually improves their profitability. We'll see some of that when they report results for the September quarter, which (are due) about a month out from now.
Looking further out, of course, we all want to watch more new content from Netflix, and that includes some favorite shows that got delayed, like the new season of "Stranger Things." (It) should have been in production by now and has been delayed.
That could impact earnings over the next three quarters. If people were clamoring to watch the new season of "Stranger Things," maybe they wait to sign up for a new subscription. So there's some potential impact there.
Can Netflix Stock Afford the Writers' New Deal
IBD: How will the terms of the Writers Guild of America deal impact Netflix stock?
Eric Savitz: There are some more favorable terms for residuals. (That was) one of the issues (writers) particularly had with Netflix. Historically, whenever a rerun of "Gilligan's Island" would reappear, you would hit the cash register a little each time. (Netflix has) not historically structured their contracts that way. So there could be a little bit of a hit to them financially on that side. Also, they've had to agree to at least a minimum number of writers per show (and) to keep them on throughout each new season.
So, there's some economic impact there. But I think it's largely offset by the fact that they'll be back in full production.
Netflix has been well positioned relative to some of the competitors because it generates so much foreign-language content that hasn't been subject to these contracts. I've been watching an Israeli television show on Netflix lately called "The Beauty Queen of Jerusalem," which I would recommend. But they're not American actors. They're not American writers. They're not part of the Writers Guild. So there's lots of that kind of content on Netflix. And so I think they've fared reasonably well through this period.
We will see the ripple effects of this for a few months to come. So the fall season, at least on broadcast TV, is dominated by reality TV and sports. There's not a lot of original linear programming because there's been no one to create it or write it.
The movie slate for early 2024 is going to be a little light for that reason as well as they play catch up. So, we'll be feeling the ripples of this for a while. But it's nice to see them back sitting at the desk and typing away.
Netflix's Next Earnings Report
IBD: What other factors will affect Netflix stock and its upcoming earnings report?
Eric Savitz: What they describe as password sharing, which is kind of an ironic name because what it really is, is a crackdown on sharing passwords. They want people who have been sharing their passwords, say, with your children, your parents, your cousins, or your next-door neighbor to get their own Netflix subscriptions. And the hope has been that that will drive a new leg of growth for them.
It's early. We'll see. Some people on the Street are a little concerned that in the current environment, the economic times are tough for some people, and some consumers may just opt not to do it. So we'll see how that plays out.
The other (major company initiative) is Netflix's push to sell an advertising-driven subscription tier. Now that tier is cheaper, right? So, they get some of the revenue from advertising (and some) from subscriber dollars. (That effort) is off to a modest start. It's a good situation for Netflix because they think they can attract consumers who might not want to pay the full price for Netflix.
And advertising is generally lucrative. This is an audience that advertisers would like to reach. So, that's another part of the earnings story for Netflix. And it's one that will take a little longer to play out as they grow the advertising-driven subscriber base.
Economy Is A Wildcard
Eric Savitz: One of the other wild cards for Netflix is just the state of the consumer economy. This is a consumer-driven business, obviously. Consumers are feeling a little tighter. The streaming business is highly competitive. And we'll see in a few weeks how the September quarter went.
The other thing that's true that I think consumers have learned is they can easily start and stop these subscriptions. Typically, there's no cost to, you know, subscribing for a month, letting that subscription lapse, and then maybe subscribing to something else that maybe has a different program that you want to watch.
IBD: Now that the writers have returned, what's one show you're super excited to see come back?
Eric Savitz: I'm just going to go back to "Stranger Things." I'm a big "Stranger Things" fan. It's a really fun show. It's smartly done and has a little bit of 80s nostalgia, which fits my demographic. So, (I'm) excited about that.
IBD: I have a feeling I will have to wait very patiently. But I want the final season of "The Crown."
