Episode summary
Netflix's budget edge is fading as YouTube surges, says Tom Rogers
Summary
Tom Rogers argued that Netflix’s post-earnings selloff reflects a deeper shift: the company’s old advantage of having the biggest entertainment budget is becoming less decisive. He said Netflix’s flywheel depended on premium programming driving subscriber growth and pricing power, but engagement growth has slowed, the Warner library and HBO push failed, and YouTube has now moved well ahead in viewer engagement. He also said Netflix faces pressure from creator content, AI-generated programming and the need to spend more on sports, all of which reduce the value of simply outspending rivals on entertainment.
Rogers said Netflix still has major strengths, especially internationally, where non-English viewing is about a third of total viewing and the company leads in markets like India, Japan, the Netherlands, the Nordics and Mexico. He said the company is also strong on margins and still has room to grow advertising, even if the market has become less enthusiastic about that growth rate.
On strategy, Rogers said adding bundled channels or other services could be interesting, but would not by itself fix the engagement problem. He suggested the bigger opportunity could come from sports, including possible leverage around Paramount and the NFL, though that would likely make rights even more expensive for Netflix or Paramount.
Key takeaways
- Tom Rogers said Netflix’s biggest-budget advantage is fading because YouTube now has twice the viewer engagement and creator content is cheaper than premium TV.
- He said Netflix’s attempt to buy premium scale through the Warner library and HBO failed, leaving the company without a simple programming fix.
- Rogers said Netflix’s international business is a major strength, with non-English viewing at about a third of total viewership and leadership in India, Japan, the Netherlands, the Nordics and Mexico.
- He expects Netflix may go heavier on sports, but that would be expensive and could dilute entertainment spend.
- He said bundling channels could help at the margin, but it is unlikely to change engagement in a major way without a programming breakthrough.
Notable quotes
“THEIR SHARE OF ENGAGEMENT WAS DECLINING AND YOUTUBE WAS GOING THROUGH THE ROOF”
“YOUTUBE NOW HAS TWICE THE AMOUNT OF VIEWER ENGAGEMENT, AS NETFLIX DOES”
“THE COMPANY GAVE DISAPPOINTING SALES GUIDANCE AND LOWERED ITS 2026 AD REVENUE FORECAST”
“THE BIGGEST ENTERTAINMENT BUDGET IS NOT NECESSARILY GOING TO BE THE DECISIVE FACTOR THAT IT HAD BEEN FOR THEM”
How the episode opens
Welcome back to squawk box. Netflix shares under pressure, the company gave disappointing sales guidance and lowered its 2026 ad revenue forecast. Co-ceos ted sarandos and greg peters saying that customer engagement is solid, but they know they can do better.
Joining us right now is Tom Rogers, cnbc contributor, fountain zero executive chairman and first and senior advisor. Good morning to you. The stock down another 6% right now.
What do you think. What do you think. Everyone thought this was to the moon and now it's turned.
Yeah. — Well even though I think people saw the cracks the last couple of months.
I got cautious on Netflix a number of quarters ago. Look, their whole flywheel is a function of having the biggest entertainment budget, which supposedly could get the greatest premium programing. That drives everything else in terms of subs, pricing, etc.
And they saw that their growth in terms of engaging viewers was slowing. So they try to acquire premium programing with the warner library and hbo. That fails.
So they still have the biggest entertainment budget around. Others have comparable budgets, but others have a huge allocation of that to sports. So in terms of pure entertainment programing, Netflix had the biggest budget and their share of engagement was declining and YouTube was going through the roof.
YouTube now has twice the amount of viewer engagement, as Netflix does, and not long ago they were neck and neck. So they clean house, they bring in somebody new, they'll have a new strategy, but they have three things working against them. In terms of the biggest entertainment budget, really buying success.
One is creator content, which doesn't cost anywhere near what premium programing does. They're trying to disrupt YouTube some and throwing some money at it.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- netflix earnings
- youtube growth
- video streaming competition
- content budgets
- adoption and user shift
Companies and tickers mentioned
- NFLX
- GOOGL
- GOOG
- Netflix
- YouTube
- Fountain 0
- Versant
Watch the episode
Watch “Netflix's budget edge is fading as YouTube surges, says Tom Rogers” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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