Netflix, streaming services continue trying to cut costs amid Hollywood writers' strike: Reporter

The Wall Street Journal Deputy Media Editor Jessica Toonkel joins Yahoo Finance Live to discuss Netflix's first upfront presentation, advertisers selling ads on Netflix's new ad-supported tier, the password-sharing crackdown, and the WGA strike's impact on content production.

Video transcript

[WHOOSH]

- Well, Netflix is about to hold its first ever upfront presentation. The streamer is now in the position of having to bring in advertisers for its ad-supported tier. Joining us now is Jessica Toonkel, Deputy Media Editor at "The Wall Street Journal." Jessica, it's good to talk to you today. You, as in "The Journal," has a story out today talking about some frustrations that may be percolating here when it comes to being able to sell ads on Netflix's platform. What are you hearing about what that demand picture is looking like?

JESSICA TOONKEL: So I think advertisers were very excited when Netflix announced they were going to be launching an ad tier. This is like a dream for many advertisers, to get their brands in front of very premiere content as Netflix and its huge reach of hundreds of millions of people. Netflix has started off slow. They have a smaller number of ad-supported subscribers right now to the ad tier. We reported today, according to data from Antenna, it looks like it's around 800,000, a little bit more as of March.

And the challenge for advertisers is they want to be able to target their customers. You can only do so much targeting and personalization to customers and get the customers that you want if the base is that small, and you only get so much inventory. So they want it to be bigger. They want more reach. They want Netflix to be marketing this ad tier more, and they just haven't seen it yet.

So it's frustrating, but it's very early days. So it'll be interesting to see what Netflix talks about at their Upfront today.

- Jessica, what do you expect Netflix to focus on here? Because there has certainly been a lot of concern just about the slowing growth in that space-- what exactly that means for the business, how much of that can be solved by their ad tier side of it. So what do you think will be that big focus when it comes to their new content?

JESSICA TOONKEL: Look, I think Netflix will be very clear that they are still the 800-pound gorilla in the space. They are the biggest. They are profitable. They are where the advertisers want to be. They have the most content. So I don't think that they're going to shy away from that.

I will say that I also think that they're saying, we're starting slow. We're being careful. We're going to be bigger. As they've said before, they're going to start-- I don't know if they'll talk about this at the Upfront, but I imagine they'll talk about how they're rolling out this crackdown on password sharing. And as part of that, they're saying to people, if you have a college kid that's using the parents login, they'll say, hey, why don't you pay $6.99 for this cheaper service with ads instead of-- because we're not going to let you just freeload off your parents anymore?

So that will increase the volume. And I think the plan is to increase the volume. And you'll see more subscribers joining the ad tier as they roll out the password sharing crackdown.

- Netflix, of course, not the only ones with the Upfront here. But there is a big cloud hanging over all of them, which is the writers' strike and the impact that's likely to have. So far, we have seen these studios put their best face forward, saying they've got the pipeline, they've got the content to withstand some of the challenges-- at least for now. What are you hearing behind the scenes of what this could look like the longer the strike drags out?

- I think that, when I was just talking to some studio executives an hour ago, I think that they are feeling very confident about how long this-- if this lasts a long time, through the summer, what position they will be in. I think for some of these companies, they are looking for a reason to cut costs, and if that means, frankly, cutting the contracts with some showrunners, so be it. None of these streaming services outside of Netflix are profitable right now, so they are all looking to cut costs. And the writers' strike, from that perspective, has come at an opportune time. If this keeps going into the fall, you're going to see some issues, obviously, particularly with networks, broadcast networks, that usually debut shows in the fall.

- Jessica, when it comes to some of the streamers, when they're trying to get a competitive edge against some of the others out there, we have seen more and more turn to sports. And I know you reported earlier this week on the deal that the NFL had reached with Peacock for one NFL playoff game. What do you think this really just signals about the priority that these streamers are placing on sports and how important that is to the future of streaming?

JESSICA TOONKEL: It's so interesting because sports was, not even that long ago, the one thing that the TV networks were saying, this is ours. The streamers won't get this. This will be ours, and we'll own the rights to it. And this is one of the only reasons that people, actually, today are still turning on live cable TV, is to watch sporting events.

However, now you're seeing the streamers really pick at that. So you have the Peacock got the Wild Card Game. You have YouTube TV, YouTube, just won the Sunday Ticket, which was a big surprise to many people. The NBA rights are going to be coming up in several months, and a lot of people are wondering if a streamer is going to get that. So it's becoming a real battleground between the streamers, tech companies, and the traditional entertainment companies.

- Yeah, and you have to wonder how much longer Netflix is going to remain an outlier, at least when it comes to sports. Jessica Toonkel, "The Wall Street Journal"'s deputy media editor, good to talk to you today.

JESSICA TOONKEL: Thanks so much.