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Forbes
17-07-2025
- Business
- Forbes
Netflix Cruises, But Will Live Sports, Events Drive More Growth?
Netflix had a very good second quarter, topping Wall Street expectations on its top and bottom lines, and providing guidance for the rest of the year, driven by a slate of popular returning shows. But the question will be, having decisively won the first era of the Streaming Wars, where does Netflix go from here? Needham & Co. senior analyst Laura Martin said on CNBC before the results were released that Wall Street was focused on a couple of key issues going forward: how much the company will spend on content, and whether that will incorporate more live-sports video rights spending. 'I think Wall Street would be okay if they went to $18 billion,' in annual content spending, Martin said. 'Where does live sports fit?' Indeed, that's a crucial question. Netflix executives have said in repeated earnings calls the past few years that they expected to spend around $17 billion on all their content spending worldwide. The company's executives repeated that mantra on Thursday's earnings Q&A with analysts, suggesting in passing that they were spending closer to $16 billion this year. MoffettNathanson's Robert Fishman asked about the company's sports rights acquisition plans now that Formula 1's deal appears likely to go to Apple's TV+ platform at a reported $150 million per year. 'Remember that sports are a sub-component of our live strategy,' Co-CEO Ted Sarandos said. 'We focus on ownable, big breatkthrough events.' That includes another year of two NFL games on Christmas Day, the Screen Actors Guild Awards, weekly WWE Smackdown 'casts, and upcoming combat sports fights and exhibitions. All of those rights deals 'have to make economic sense as well,' Sarandos said, perhaps suggesting $150 million a year for the F1 rights is a bit steep. Current rightsholder Disney/ESPN reportedly had offered a big bump, to close to $100 million, but wasn't going to try to match Apple's $3 trillion wallet. Sports and live events only drew about 200 billion hours hours of viewing, a small number in the vast reaches of Netflix audience data, but Sarandos said 'not all view hours are equal,' with sports and other live events helping with audience engagement and watch time overall, and probably with retention in an industry struggling elsewhere with customer churn rates. So Sarandos said the company is optimistic that it can further drive viewership in 2025's second half after seeing only 1 percent growth in view time in the first half. The 2025 slate is heavily weighted toward the back half of the year, featuring established hits such as Stranger Things and Wednesday and an already released final season of massive Korean hit Squid Game. Stranger Things creators the Duffer Bros. have a new show coming, and Oscar-winning writer/director/producer Greta Gerwig is bringing her take on the Chronicles of Narnia. Other likely hits are more seasons of Millie Bobby Brown's Enola Holmes, the live-action One Piece, The Last Avatar, Lupin, and Berlin. 'We can accelerate our growth with big hits, but that accelerates growth only about 1 percent,' said Sarandos. 'It's about a steady drumbeat of shows and films, and soon games. We had 44 shows nominated for Emmys this year (in last week's announcements). That's what quality at scale looks like.' Netflix has raised prices on its top tier pretty much worldwide in the past year, bumping up revenues while not appreciably denting its industry-leading low churn rate of around 2 percent. Needham analyst Martin suggested the Street wants to know how Netflix is leveraging its vast oceans of data with generative artificial intelligence tools. It's a question facing every tech firm, and many not so technical ones too. And it's further complicated by labor contracts that Netflix and other media companies have signed with the Hollywood guilds that limit the use of AI tools in many creative corners of the business. Those Hollywood contracts don't cover what Netflix productions from dozens of other cities around the world, however. Co-CEO Ted Sarandos pointed to a small Argentine production that wanted to incorporate a collapsing building into its story. Creating the scene with traditional visual effects would have been prohibitively expensive, but the production turned to a set of AI tools developed by Eyeline, the skunk works, er, 'production innovation shop' inside Netflix's in-house visual-effects company, Sarandos said. 'The cost wouldn't have been feasible on a project with that kind of budget,' Sarandos said, but the AI scene was created 10 times faster, at a dramatically lower cost, and still worked for the creators and the audience. 'More importantly, the audience was thrilled. (AI) expands the possibilities on the screen.' Even with U.S.-based productions governed by the guild contracts, there's plenty that AI can still reshape, such as better ad-targeting, more relevant program recommendations, and highly specific trailers and thumbnails that pull the elements from a show that a given viewer is likely to most be interested in, said Co-CEO Greg Peters. The company 'has been in the personalization and recommendation business for two decades,' Peters said, but AI will allow it to do a better job, for instance with the ability to use natural-language conversations with the Netflix search engine to more precisely find something to watch. 'We see all the work we do there as a force multiplier,' Peters said. 'There's a bunch of places where we think we have an advantage in terms of data and scale.' Martin suggested that for many investors going forward, the Walt Disney Co. might be a better bet, as AI opens the spigot of content creation to a vast new ocean of democratized content creation. Disney sidesteps some of that because nearly half its revenues come from its parks and resorts, among other business unites that are impossible to replicate with AI-generated content. Until recently, the company's gargantuan content spend didn't include any live sports or other events for its streaming-only operations. That's changing rapidly. That total also didn't include the legacy theatrical exhibition, broadcast and cable spending that traditional media companies have traditionally relied on to maximize their revenues, all of which are in secular decline. As a result, one thing is almost certain: the growth Netflix seeks won't be coming from a big acquisition of one of the Hollywood media companies now trying to figure out their futures. Both Comcast's NBCUniversal and Warner Bros. Discovery are busy spinning off most of their cable networks and other legacy assets facing structural decline. Paramount is in the throes of an $8 billion acquisition by David Elllison's Skydance, and Lionsgate just split off its Starz streaming unit. "We agree that continued consolidation is likely," said CFO Spencer Neumann. 'But within legacy media, we don't think that materially changes the landscape.' Netflix has 'no interest in owning legacy media networks,' Neumann went on. When the company applies its framework to possible acquisitions, 'one of the things we look at is the opportunity cost.' An acquisition, especially in a massively politicized regulatory environment, is likely a distraction from other things the company could do with the money, like buy more programming or returning cash to shareholders with stock buybacks.
Yahoo
18-06-2025
- Business
- Yahoo
All Eyes Are on Nike Ahead of Q4 Earnings
Nike Inc.'s turnaround might take a bit longer than originally thought. Needham & Co. analyst Tom Nikic is a long-term bull of nike following changes in the company's leadership and strategy. He remains confident the moves will reverse Nike's 'flagging' bottom line. But he also said in a note that challenges remain over the near-term. More from WWD Nike and A Ma Maniére Unveil 'Every Summer Tells a Story' Campaign Featuring Air Force 1 and Air Max 95 Sneakers for 'Act I: The Block' How the Smoot-Hawley Tariff Act of 1930 Compares to Today's Landscape, According to AAFA CEO Michael Jordan's Air Jordan 4 Retro 'Black Cat' Gets a Purported First Look 'Nike still faces headwinds from rationalizing over-supplied product franchises (Jordan, Dunk), brand heat still appears to be lukewarm, and they now have tariffs to contend with as well,' he wrote. He also noted that many product launches of 'scarce' sneaker models, such as retro Jordans and Dunks, are selling slowly, resulting in discounts on secondary-market websites that include StockX and GOAT. Nikic pointed out that when Nike is on top its game, these styles trade at resale premiums. 'As further evidence of Nike's lack of 'brand heat' at the moment, we've also seen consistent year-over-year declines in online search trends for the brand, as well as persistent double-digit declines in credit card transactions in the U.S. DTC (direct-to-consumer) channel,' he said. The analyst also sees gross margin headwinds in the year ahead, notably due to tariff rates, and possibly even channel mix, with wholesale possibly outgrowing DTC and the brand perhaps giving more favorable terms to wholesale partners. The good news is that Nikic believes that the 'worst may nearly be over.' The biggest catalyst change is Nike veteran Elliott Hill becoming CEO. 'We also believe that management is clear-headed about the mistakes they've made, and are working aggressively to correct them,' he concluded. Telsey Advisory Group's (TAG) Cristina Fernández said the athletic brand 'seems several quarters away from reaching stabilization in the business, but is making the right moves by cleaning up inventory, rebalancing the product portfolio by increasing newness and reducing the focus on classic franchises, and strengthening relationships with wholesale partners.' The company is set to report fourth quarter earnings next Thursday after the markets close. Key areas of focus for the earnings conference call will be what progress Nike has made on product innovation, such as what's in the pipeline and reception to new launches. Also to be discussed is the timing of the NikeSKIMS launch that was originally slated for Spring 2025, which is expected to drive sales growth, Fernández said. Another area of interest is inventory reduction in connection with old inventory and status of rightsizing key lifestyle franchises. The TAG analyst said expectations are low for the just completed fourth quarter, mostly due to ongoing inventory clearance activity, and in part to unfavorable shipment timing in North America. In addition, gross margins were expected to get impacted from tariffs, currently an additional 10 percent for the reciprocal tariffs for global countries, particularly in Vietnam and Indonesia, with the exception of China, where tariffs are temporarily higher at 30 percent. At Bank of America Securities, analyst Lorraine Hutchinson is expecting fourth quarter earnings per share of 12 cents, in-line with Wall Street's consensus expectations, versus EPS of 99 cents a year ago. 'We think 4Q was peak sales and margin pressure as Nike bought back and cleared excess inventory, without sufficient innovation to offset,' Hutchinson wrote in her note. She noted that Fall 2025 order books are modestly down due to declines in classic footwear franchises, but that meetings with CEO Hill 'reaffirmed the point the wholesale partners are excited about Spring 2026 innovation.' The analyst said that while the wholesale environment continues to evolve, 'Nike is well-positioned to offset some of the channel headwinds as the brand leans into newer relationships and looks to recapture lost shelf space as other brands retrench from the channel.' Academy Sports + Outdoors is one of the retailers where Nike is expanding its partnership. Nike's Jordan brand was rolled out to 145 stores and online in April, showcasing both apparel and footwear across men's, women's and kids. The retailer's chief merchandising officer Matt McCabe said this month that the chain for the first time cross-merchandised the apparel, footwear and accessories together by gender into a 'brands shop concept.' He also said that the initial reaction from customers 'has been strong and the brand is tracking ahead of initial sales plans.' The current plan is to launch Jordan in all Academy stores this summer. Nike has raised prices on select products by $5 to $10 on average, but also noted that the Jordan brand and Nike kids apparel and footwear won't see any increases. 'We think it was smart to leave kids and footwear priced less than $100 unchanged and think Nike will benefit from its scale and wide pricing architecture if the consumer becomes stretched,' Hutchinson said. As for its product lines, Nike will be releasing this fall a new lifestyle sneaker called the Astra Ultra exclusively for women. The brand is also bringing back its first Foamposite sneaker. The Nike Air Flightposite in a 'Sail' style is slated to hit the sales floor later this month. Best of WWD All the Retailers That Nike Left and Then Went Back Mikey Madison's Elegant Red Carpet Shoe Style [PHOTOS] Julia Fox's Sleekest and Boldest Shoe Looks Over the Years [Photos] Sign in to access your portfolio
