💊 Loblaw’s drug deal & how Netflix (almost) won the streaming wars

MARKETS

🐕 Dog Days Last week, we found out the markets are a golden retriever. We’ll explain. On Wednesday, Fed chair Jerome Powell announced the U.S. central bank probably isn’t going to cut interest rates in March like everyone assumed (because: strong economy). Cue the sadness. Markets immediately fell 1%. But hours later they reversed, and the major indexes finished the week positive (after towering earnings calls from Amazon, Apple, Meta, and Microsoft). The Nasdaq gained 1.1%, and the S&P 500 rose 1.3% to a new all-time high. (The light-on-tech TSX was flat.) Right now, it seems like no matter what happens stocks are in a good mood, since corporate earnings have been so consistently positive. Kind of like a golden retriever. Woof.

NEWS

🇨🇦 Why is the U.S. economy outshining Canada’s? Data out last week suggested that the Canadian economy grew by about 1.5% last year. Which is pretty not bad. But the U.S. economy outpaced not just Canada’s but most other rich nations’, growing a swole 2.5%. Why? Economist David Rosenberg argued that the Chips Act, a US$53 billion shot in the arm to America’s semiconductor industry, has a lot to do with it. Also, the U.S. spent more on COVID stimulus, as a percentage of its GDP, than most other countries, so there’s that too.

💊 You might have to road trip for life-saving drugs. Manulife, Canada’s largest health-insurance company, struck a deal with grocery oligarch Loblaw to cover 260 specialty drugs only if patients buy them at a Loblaw-owned pharmacy, e.g., Shoppers. A UBC professor explained that Manulife will get a “kickback” for directing customers to Shoppers. The problem is that rural Canadians might have to schlep hours to buy their cancer, MS, or Crohn’s meds, which is why Quebec has banned so-called preferred-pharmacy deals. (Manulife says the arrangement will drive down costs.) Critics also worry competition could suffer.

THE BIG IMPORTANT STORY

That’s showbiz, baby

Netflix Won the War on Churn. Now What? 

The streaming wars have been raging for years, but, after much blood, sweat, and binge-watching, Netflix now seems to be approaching something akin to victory. It’s the only streaming service that doesn’t churn customers like crazy — and the only one making money, which is why it seems to be on the verge of crushing traditional Hollywood once and for all. So how did Netflix pull this off? And what now? Puck’s Hollywood insider Matt Belloni explains in this Q&A adapted from our (very good; please listen) podcast. (You’ll have to check out the full episode for his Oscar takes.)

First, how would you describe the streaming business right now? It’s complete chaos. Five years ago, we were in the heat of peak TV. Then, in 2022, interest rates rose and streaming services suddenly needed to generate a profit. The trouble is that nobody knows how to make money except Netflix. That’s why we’re in an age of panic and consolidation. Disney bought Fox. Amazon bought MGM. Paramount is probably going to be merged or bought this year. It’s unclear who is going to make it to the other side of this deep chasm and emerge as one of the three or four global streaming services that will likely dominate the next 20 years of media and entertainment. 

How did Netflix evolve to have such a strong position? (And I’m hoping you can explain why it bought the rights to WWE.) Well, when Netflix started, it was a repository for old movies and TV shows licensed from studios. Then, in 2011 or so, it began ordering its first HBO-style shows, including House of Cards. It was a hit. Then Netflix ushered in this era of peak TV or whatever you want to call it. Next, in 2015–2016, it decided to get into the movie business and said, Okay, how do we get top talent? The answer was that they overpaid people and made passion projects like The Irishman. That was the second phase. 

Now we’re moving into a third phase where Netflix has added an advertising tier, which is something they said they’d never do. But because they’ve gone there, they’re moving into live events and sports, which are huge ad vehicles. That’s why they recently partnered with WWE, and they’re going to lean into live stuff and make fewer original movies.

So Netflix destroyed cable to become cable? Exactly. But not just cable in this country; cable around the world. One cable channel to rule them all.  

If Netflix is in such an enviable position, why add an advertising tier? Well, Netflix really only does one thing: video. And it needs money because it’s competing against Amazon and Apple, whose core businesses aren’t content. Amazon is a US$1.6 trillion e-commerce site. Apple is a hardware company worth US$3 trillion. So that’s what Netflix and the Hollywood studios are up against. Take Killers of the Flower Moon. That movie cost US$200 million to make and it grossed about US$150 million worldwide. If it was a Paramount release, we’d all be talking about what a huge bomb it was. But we’re not, because it’s an Apple movie and the money just doesn’t matter. 

What happens if Apple gets bored and decides You know what, this was fun, but we actually don’t care about content? If Apple or Amazon decide they’re done with Hollywood, it’s going to be catastrophic, because they’ve been propping up the market for years now. You are talking about every Hollywood agent’s worst nightmare.

Photo credit: Netflix

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🎧 TLDR Podcast

This week on TLDR: Is it just us, or does the entire economy now seem geared toward people who live entirely on DoorDash food? We unpack how introverts became a mega market force. Listen now