Plus: How Netflix (almost) won the streaming wars. February 5, 2024 Sign Up | View online IN THIS ISSUE 7 min read 💊 Loblaw’s pill pact 🎂 Meta’s b-day 🎥 Netflix’s ad play Netflix is sort of like the monster from Stranger Things in that it’s actively trying to take over the world and wants to control your brain. | Netflix THE WEEK IN 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. THE WEEK IN ONE NUMBER 46% The growth in Canada’s gig workforce last year. With immigration way up and unemployment slightly rising, job-seeking newcomers are turning to companies like DoorDash and Uber. WHAT HAPPENED LAST WEEK IMPORTANT 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. INTERESTING Mind-altering drugs, meanwhile, are getting easier to buy. In a first for Canada, Biotech company PharmAla has been granted a dealer’s licence to sell MDMA (aka ecstasy) to treat patients with psychiatric conditions like PTSD. Following the lead of some U.S. states, Alberta introduced regulations last year that allow the drug to be used in therapeutic treatments, and therapy clinics have started to open across Canada in hopes of making bank off tripping out. Facebook turned 20. And its parent company, Meta, marked the occasion by announcing that it tripled profits last quarter, which sent its stock price up 20% Friday and ballooned the company’s market cap by US$196 billion. That’s the biggest one-day value gain in Wall Street history, and it’s a testament to Mark Zuckerberg’s skill at developing an addictive platform, in Facebook, and at making savvy acquisitions of others like it (Instagram, WhatsApp, etc.). Of course, Meta’s addictive apps have also wreaked havoc. Early last week, for instance, in a U.S. Senate hearing, Zuck apologized for the harm Meta’s platforms have caused children. And now the company is pivoting hard into AI… China’s stock slump gets extra-slumpy. After slipping for months, Hong Kong’s Hang Seng Index has now sunk so low that if you would have invested in it back in 2000, your money would have grown a big fat 0%. Just for comparison: the TSX is up 150% since Y2K, and U.S. stocks are north 450%. Chinese stocks are suffering largely because Chinese consumers and businesses feel gloomy about the country’s outlook and aren’t spending much, while President Xi has not committed to a major stimulus package. — Sarah Rieger FROM OUR SPONSOR THE FOMO INDEX by Stacey Woods IMPORTANT 🤒 Syphilis cases are surging. If you develop a sudden rash or urge to write 19th-century poetry, get tested. Source 🇨🇳 Negative takes on China’s economy are being deleted online, so don’t believe everything you read on UnbiasedChina.com. Source 🏠 Ho-ho-hold the door! Leon’s Furniture plans to build a neighbourhood with 4,000 housing units near its headquarters in Toronto. Source ⚡ Proposed refurbishment of Pickering, Ont., nuclear plant could provide more power, new jobs, and a great episode of This Old Reactor. Source CRASH & BURN TO THE MOON ⛔ Amazon cancels its US$1.4-billion plan to buy parent company of Roomba. Doesn’t want to scare the cat. Source 💸 Judge blocks Elon Musk’s US$56-billion Tesla pay package. Guess that second bedroom addition is off. Source ❄️ “Taylor Drift” wins Minnesota’s annual snowplow-naming competition. “Gwyneth Plowtrow” didn’t even make the finals. Source 🗞️ All the games that are fit to play: 8 billion plays last year helped the New York Times stay afloat. Source WHO CARES WHAT’S UP THIS WEEK Estee Lauder (Monday) and e.l.f. Beauty (Tuesday) announce earnings. Their performances will affect the “lipstick index,” followers of which believe cosmetics sales do well during tough economic times as consumers opt for small luxuries over big ones. It’s Lunar New Year (Saturday). An impending winter storm might put a damper on China’s biggest travel holiday and hurt what’s usually a reliable economic booster. 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. OTHER VERY GOOD READS 📰 Why Does Journalism Seem Like It’s Collapsing? Two words: market failure. | Fast Company 🔍 Meet Canada’s Undocumented Kids On the invisible lives of undocumented youth. | The Walrus 🤑 Big Life Moments That’ll Affect Your Taxes A guide to having a baby, buying a home, and beyond. | Wealthsimple Magazine THE WISDOM OF TWITTER X We’re in the Also Up Era. THOUGHTS ON TODAY’S ISSUE? Love it Good So so This week’s newsletter contributors: Ben Mathis-Lilley (writer), Devin Gordon (writer), Stacey Woods (writer), Sarah Rieger (news writer), Ambrose Martos (fact checker), Ciara Rickard (copy editor), Nikki Holmes (copy editor), Sara Black McCulloch (fact checker), Mohini Tailor (senior lifecycle specialist), Matthew Karasz (markets editor) Jared Sullivan (senior editor), Peter Martin (senior editor), Kat Angus (managing editor), and Devin Friedman (editor-in-chief). Disclosures: Contributors to the newsletter own shares in Amazon, Google, and Microsoft. 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