IE 11 is not supported. For an optimal experience visit our site on another browser.

Why Netflix needs more hits to remain competitive

Byers Market is a daily newsletter from NBC News senior media reporter Dylan Byers that takes you behind the scenes in Hollywood, Silicon Valley, New York and Washington.
Image: Reed Hastings
Netflix CEO Reed Hastings speaks on day two of the Netflix See What's Next: Asia event at the Marina Bay Sands on Nov. 9, 2018 in Singapore.Ore Huiying / Getty Images file

Good morning. 🦁 Bob Iger's "Lion King" opens tonight in North America. The film is expected to bring in $150 million to $180 million in its opening weekend in the U.S. and gross around $450 million globally.

• Slate's Sam Adams says it represents the biggest technological leap since "Avatar."

Join the Market.

Reed Hastings needs more hits

Moving the Market: Netflix's subscriber miss in Q2 highlights the growing pressure on Reed Hastings and Ted Sarandos to develop more original hits as rivals launch their own services and the streamer loses rights to its most popular licensed programming, Hollywood executives tell me.

The numbers: Netflix added 2.7 million subscribers in Q2, or just over half of the 5 million that Wall Street was expecting. Netflix also lost 130,000 domestic subscribers, its first decline in eight years.

The excuse: Hastings attributed the shortfall to the second-quarter programming lineup and a recent price hike for subscriptions.

The big picture: Hastings' hardest days are still to come. "Netflix just hit a big speed bump on its march to global domination," says one veteran television executive. "There are many bigger and more dangerous bumps ahead."

• Disney, AT&T, Comcast and Apple haven't even launched their rival streaming services yet. When they do, Netflix will face increased competition for the best new shows while losing rights to the most popular old ones, such as "Friends" (to AT&T) and "The Office" (to Comcast).

• With more competition and a diminished library, Netflix will need to create more original hits. It will also need to release those hits more regularly to retain customers who can unsubscribe and resubscribe at will.

• "Ease of unsubscribing will matter as people subscribe to more than one service and hits will give at least a short term boost," Barry Diller, the IAC chief and media mogul, tells me. "It’s an arms race for programming."

The good news for Netflix in the U.S. is that many of its biggest original content bets haven't started to pay off yet. The company's biggest showrunners ⁠— Ryan Murphy, Shonda Rhimes, Kenya Barris — are still at work on their new offerings. Murphy's first, "The Politician," debuts Sept. 27.

• Then again, as I noted last week, there's no way to guarantee that the best showrunners will deliver hits. If these ones don't, more customers may unsubscribe from Netflix and stay unsubscribed

What's next: Hastings says he expects Netflix to add seven million paid subscribers in Q3, including about 800,000 in the U.S.

Hot takes: Shira Ovide, Alex Sherman, Peter Kafka

Jeff Bezos faces E.U. probe

Big in Brussels: European Competition Commissioner Margrethe Vestager has launched a formal investigationinto Amazon to see whether it is using sales data to gain an advantage over independent retailers, abusing its role as both retailer and marketplace, CNBC's Elizabeth Schulze reports.

The big picture, via The Verge's Jon Porter: "Vestager has fined almost all of the major tech giants, including Google, Qualcomm, and Facebook. So far, Amazon has managed to avoid being fined by EU regulators, but that could all change as a result of this investigation."

🇺🇸 Talk of the Trail 🇺🇸

Close to home: Sen. Kamala Harris, D-Calif., leads and Sen. Elizabeth Warren, D-Mass., is "gaining traction" among voters in delegate-rich California, Politico's Carla Marinucci reports, citing a new Quinnipiac California poll.

• Harris has the support of 23 percent of California Democratic and Democratic-leaning voters. Warren, with 16 percent, has more than doubled her standing since April.

Sen. Schumer fears FaceApp

Big in the Bay, big in the Beltway: Senate Minority Leader Chuck Schumer, D-N.Y., has sent a letter to the FTC and the FBI asking the agencies to investigate FaceApp, the wildly popular Russian photo-editing app, my colleagues Kalhan Rosenblatt and Frank Thorp report.

The big picture: "The sudden popularity of the app has triggered growing concerns about how apps use the data and images supplied by users, particularly those that are owned or operated outside the U.S."

• In his letter to the FTC and FBI, Schumer wrote that he has "serious concerns regarding both the protection of the data that is being aggregated as well as whether users are aware of who may have access to it."

• The Democratic National Committee has also sent an alert to the 2020 presidential campaigns warning them about using an app that was "developed by Russians."

The pushback: In an interview with The Washington Post, FaceApp chief Yaroslav Goncharov categorically denies that the app secretly stores user identities, uses the photos for facial identification or shares any of its data with the Russian government.

Real talk, via The Verge's Ashley Carman: "Close research suggests FaceApp isn’t doing anything particularly unusual in either its code or its network traffic, so if you’re worried about FaceApp, there are probably a bunch of other apps on your phone doing the same thing."

Market Links

David Marcus faces a second day of Libra hearings (CNBC)

Brian Chesky looks for love from New Jersey voters (NYT)

Anne Kornblut attempts a meta-network for local news (Nieman)

Alex Mather sets The Athletic on a U.K. hiring spree (BuzzFeed)

Robert Simonds goes searching for a new STX chief (Variety)

Jeremy Zimmer wants sports

Big in Beverly Hills: Jeremy Zimmer is pushing United Talent Agency deeper into sports representation, tappingLeBron James' agent, Rich Paul, to head a newly formed sports division and investing in his Klutch Sports Group, per THR's Erik Hayden.

The big picture: "Until now, rival major Hollywood talent agencies CAA and WME had been much more established in sports representation, and the investment in Klutch gives UTA a foothold into that world."

Whither Comic-Con?

Talk of Tinseltown: The 50th annual Comic-Con is underway in San Diego, where an estimated 135,000 people will determine what's hot and what's not in superheroes, fantasy and science fiction. The implications for major film studios couldn't be bigger, and yet increasingly they're not showing up.

• "While [SDCC] is set to host splashy panels by Disney/Marvel Studios, Paramount, Netflix, and HBO over the next few days, a handful of Hollywood’s major studios have chosen to sit out the proceedings this year," Vulture's Chris Lee reports.

• "Notably absent: Universal... Sony... Warner Bros. ... and Lionsgate. ... Fans and producers alike are wondering: Is SDCC as appealing a marketing tool to Hollywood as it used to be?"

The big picture: "One outspoken industry insider [says] the paucity of studio attendance this year can be attributed to a growing consciousness inside the C-suite that attempts at word-of-mouth marketing in and around SDCC don’t necessarily translate into bigger box-office returns."

• "The more common refrain around Hollywood, though, is that 2019 is an off year for film at the con."

🦁 What's next: In honor of "The Lion King," The Ringer Staff has ranked the top 40 Disney songs of all time.

See you tomorrow.