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The great streaming service shakeup

Source Code

Good morning! Netflix is having its face-the-music moment and CNN+ is reportedly against the ropes after executives realized people don’t want to pay for what amounts to just CNN. What’s a streaming service to do? I’m Janko Roettgers, and I’ve been a Netflix subscriber since 2010 (am I … old?).

Also, we want to know what keeps you up at night when it comes to how companies are using AI. Read the bottom for more, then respond to this email and let us know.

It’s tough to be a streaming service

Netflix co-CEO Reed Hastings shocked the streaming world this week by announcing that, after years of saying absolutely not to the idea of an ad-supported tier, Netflix will almost definitely be launching an ad-supported tier. And CNN’s new streaming service, CNN+, appears to be imploding just three weeks after launching — kind of like Quibi but even more wild because CNN is a legacy brand with a stable of reliable content and Quibi was, well, Quibi. All this goes to show: It’s hard out there for streaming services.

Netflix is adjusting its business model after losing subscribers for the first time in a decade. Its stock price plunged 35% after its earnings whiff, the biggest drop since 2004, and investment firm Pershing Square sold its 3 million shares at a loss yesterday, saying, “We have lost confidence in our ability to predict the company’s future prospects.” Yikes. But changes are coming.

  • Ad-free plans will remain options for existing subscribers, but a new, cheaper plan that includes advertising is on the way. “If you still want the ad-free option, you’ll be able to have that as a consumer,” Hastings said. “And if you rather pay a lower price and you’re ad-tolerant, we’re going to cater to you also.”
  • This dual model has been a proven success story for Hulu, which began as an ad-supported service before introducing an ad-free tier in 2015. Hastings specifically called out Hulu as proof that ads are working for video subscription services: The company ended 2021 with 40.9 million paying subscribers, up from 35.4 million a year ago. And a closer look at Hulu’s revenue per user shows that it can make as much money with an ad-supported subscriber as it does with its higher-priced ad-free tiers.

Netflix ads won’t happen anytime soon, though. Netflix is famous for trialing, testing and fine-tuning features on its service, and the company frequently A/B-tests features that ultimately don’t make it into the final product.

  • Netflix probably won’t do the same with ads — again, look at Hulu: Ads simply work — but it still has to build out the capacity, and strike the necessary business deals, to run ads against its content.
  • It’s also done looking the other way when it comes to password-sharing. The company said more than 100 million users share their accounts with others, and it’s quite literally costing the company money. Get ready for a crackdown.

Streaming is hard for legacy brands, too. The service launched in the midst of a giant media merger that brought in new corporate overlords with some very different ideas. After a splashy start, reports indicate that CNN+ isn’t long for this world.

  • Discovery and WarnerMedia completed a merger this month — unfortunate timing for CNN+, which debuted at the end of March without the newly formed company’s full buy-in. Discovery executives are reportedly questioning why CNN+ even exists and have since laid off CNN’s chief financial officer and ceased marketing spend to promote the service.
  • HBO Max is the future of Discovery WarnerMedia, not CNN+. Discovery CFO Gunnar Wiedenfels said at a conference in March — ahead of the CNN+ launch — that the merged company had an eye on combining HBO Max and Discovery+ for a super-bundle that could rival Netflix (which is currently on its heels).
  • CNN+ has racked up 150,000 subscribers, with an eye toward amassing 2 million this year — and 15 million to 18 million over the next four years. That’s looking more and more unlikely, as Discovery execs are reportedly considering dividing CNN+ content between HBO Max and CNN’s free, ad-supported app.

Next up for a potential moment of truth: Disney+. Despite its lock on children — and their captive, “Encanto”-obsessed parents — around the globe, the service isn’t immune to the same competitive pressures that Netflix faces. On May 11, the company will provide an update on subscriptions, and those numbers will be revealing: Either Disney+ is bucking the trend, or the entire streaming industry is in a world of hurt.

Janko Roettgers (twitter)


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People are talking

Elon Musk thinks more people should get into lithium mining:

  • "Can some more people please get into the lithium business? Do you like minting money? Well the lithium business is for you."

Bill Ackman's hedge fund sold its stake in Netflix yesterday:

  • “While Netflix’s business is fundamentally simple to understand, in light of recent events, we have lost confidence in our ability to predict the company’s future prospects with a sufficient degree of certainty."

Andy Jassy thinks unionsmake it harder for workers to make change:

  • "[When] you’re part of the union it’s much slower and much more bureaucratic.”

Salesforce’s Nathalie Scardino said tech interns have a bigger voice than ever:

  • “I don't think there's ever been a better time to be an intern in the tech space.”

Making moves

Barack Obama will talk about online disinformation at Stanford University today.

The Obamas are exiting Spotify, sources told Bloomberg. The family's production company is now eyeing deals with partners like Audible and iHeartMedia.

Shopify is looking to buy Deliverr, which uses analysts to figure out where customers may want to buy makeup, shampoo and other goods.

Darya Pourshasb is Royal’s first head of Global Artist and Label Partnerships. She last worked on premium content strategy at Spotify.

Ted Gaubert joined Graphite Health as CTO. Gaubert was the CTO of Global Product Engineering at Dun & Bradstreet.

Nextdoor, Chegg and Swimply joined TechNet. The tech leadership network has added around a dozen members so far this year.

In other news

Apple’s introducing a child safety feature in the U.K. that’ll use AI to scan messages sent to and from children.

Coinbase launched an NFT marketplace. Coinbase NFT is currently in beta, and testers can buy and sell NFTs on the Ethereum blockchain.

Employees at an Apple store location in Atlanta filed to hold a union election. The proposed union would be the company’s first.

Amazon will let third-party merchants sell goods with Prime perks. Sellers who ship goods using Amazon's fulfillment centers can add the button "Buy with Prime" to their sites.

Get ready to see less of the TikTok logo. Instagram is changing its algorithm to prioritize original content like Reels.

Binance.US is leaving the Blockchain Association. Binance's U.S. arm plans to create its own lobbying operation in Washington.

What's worrying you about AI?

Over the last week, our own Kate Kaye has documented how companies are using AI to monitor your mood during calls. And it's fair to say that the response has been one of concern.

But that got us thinking: What keeps you up at night when it comes to how companies are using and rolling out AI? Is it intrusions of personal privacy? Concerns of bias? Applications in the defense space? Or something else entirely? Respond to this email and let us know, and we’ll round up our favorites in the Sunday edition of Source Code.


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