Netflix To Kick Off Earnings Season Marked By Hollywood Labor Strife: What Will Media CEOs Say?

Netflix will be first out of the gate with quarterly earnings after market close today amid a level of Hollywood labor strife not seen since the 1960s. Writers and actors are protesting declines in pay and working conditions — an industry shift that many blame on the company whose name is synonymous with streaming.

The second quarter ended June 30, with the WGA on strike since May 2. SAG-AFTRA joined writers on the the picket lines last Friday. That means the financial impact during the quarter will be limited and numbers that will start rolling out today may show modest write-offs for shutting down production (a plus, in cold financial terms), as well as increased free cash flow from doing the same. The squeeze will get worse for most players if the strike drags on, although Netflix has decisive advantages. In fact, the work stoppage should enhance its competitive edge given its backlog of unreleased content and extensive global production, says analyst Alan Gould of Loop Capital. Netflix has fewer live shows and less need of talent for promotion. A disruption of the fall TV calendar would likely nudge viewers to the streamer.

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Co-CEO Ted Sarandos flagged this, trying to sound collegial, on the first-quarter earnings call in April when asked about a possible writers’ strike. “We respect the writers, and we respect the WGA. We couldn’t be here without them,” he said. “We don’t want a strike. If there’s a strike — and we want to work really hard to make sure we can find a fair and equitable deal so we can avoid one — but if there is one, we have a large base of upcoming shows and films from around the world. We can probably serve our members better than most.”

A strike was not avoided, with either writers or actors, leaving Wall Street and Hollywood awaiting a new round of commentary from Sarandos and his peer group.

On a corporate level, Netflix is set to post robust quarterly financials on what appears to be a successful rollout of $7.99 password sharing accounts, which led to a spike in new signups. The crackdown began in Canada on February 8 and in the U.S. on May 23. It also resulted in some cancellations, as execs had predicted, and may have accounted for some movement into the streamer’s new $6.99 advertising tier. The Street wants details on how all this is playing out but analysts say they will not be surprised if Q2 net subscriber additions beat the circa 1.8 million adds the company forecast (which is about flat with the number of subs it added in Q1).

A number of analysts have lifted their price targets for Netflix, in large part because of signs of success with the new password plan. One noted skeptic on the company’s prospects, MoffettNathanson’s Michael Nathanson, tacked $30 onto his 12-month outlook for the stock, which now stands at $380. In a quarterly review of major streaming services co-produced with data firm HarrisX, MoffettNathanson said it found some surprising resilience in the streaming market overall when surveying its second-quarter performance. “Despite our prior belief that streaming was reaching the upper end of the penetration curve in the U.S., a jump in 2Q penetration suggests another leg of growth (at least in the short term) across both newer launched services as well as the more mature streaming services” like Netflix, the companies said.

Consensus estimates see Netflix revenue at about $8.29 billion and earnings per share of $2.85. After releasing numbers just after the closing bell, the company at 3 p.m. PT will post its quarterly earnings interview, a pre-recorded video discussion with top executives speaking with a single analyst (Bank of America’s Jessica Reif Ehrlich in recent quarters). That format contrasts with the multi-analyst Q&A sessions during audio conference calls convened by most public companies and affords the top streamer a high degree of control.

Stock charts reflect Netflix’ status as a Wall Street favorite and a comeback story from 2022 when it found its subscriber momentum stalling and two-thirds of its market value evaporating. As of Tuesday’s close, it’s up nearly 50% from May 2, when the WGA struck. Disney is down 15%.

The rest of the media pack will follow soon after with NBC Universal parent Comcast reporting July 27, Warner Bros. Discovery Aug. 3, Paramount Global Aug. 7. Disney is up Aug. 9. Amazon and Apple, AMPTP members negotiating alongside studios, are also in the mix. Content, a sliver of these massive companies, is not broken out in their financial reports.

We did hear from Mouse House CEO Bob Iger early, in a shocker of a 40-minute CNBC interview from Allen & Company’s Sun Valley media mogul camp last week where he called the guilds “unreaslistc.” ABC and Disney’s cable networks are no longer core assets, he said, and everything is on the table. “I understand any labor organization’s desire to work on behalf of its members to get the most compensation and be compensated fairly based on the value that they deliver.” But, “There’s a level of expectation that they have, that is just not realistic. And they are adding to the set of the challenges that this business is already facing that is, quite frankly, very disruptive.”

Iger’s comments drew fierce backlash, showing the harshness of the spotlight media execs will be under this earnings season. An offhanded remark on a morning conference call could wind up on hundreds of picket signs by that afternoon.

One analyst called Iger’s takes “surprisingly frank.” If things are that bad at Disney, he wondered, what about more highly-levered, non-theme park owning rivals like Warner Bros. Discovery and Paramount Global?

Iger gave his interview the day after Disney announced plans to re-up him as CEO. He had to explain, the analyst said. “It was right for him to be the one to discuss why he was extending his contract for two years.” It remains to be seen if fellow CEOs will jump on the “unreasonable” train or tone it down.

WBD CEO David Zaslav hasn’t weighed in since the initial days of the WGA strike in May, when he told CNBC that “a love for the business and a love for working” would end the impasse. (Intriguingly, there was no strike talk at all on the company’s official earnings call.)

Paramount Global’s Bob Bakish said back on Day 3 of the WGA strike that “there is a pretty big gap” between the sides. “Obviously, we have been planning for this. We do have many levers to pull and that will allow us to manage through the strike even if it’s an extended duration.”

That said, when SAG-AFRA joined the WGA, everything changed. Hollywood production is “all on ice,” wrote Maquarie analyst Tim Nollen last week. “If the WGA writers strike that began in May was an annoyance for Hollywood production, the SAG-AFTRA actors strike…is much more disruptive.”

Dade Hayes contributed to this report.

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