Netflix rallies despite subscriber losses

This is an audio transcript of the FT News Briefing podcast episode: Netflix rallies despite subscriber losses

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, July 20th, and this is your FT News Briefing.

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Netflix shares rose, like a lot, even though the streaming service lost subscribers last quarter. Chinese venture capital firms have become strapped for cash. Plus, Jair Bolsonaro is taking on a very familiar face in this year’s Brazilian election. We’ll hear what Luiz Inácio Lula da Silva plans to do if he wins. I’m Marc Filippino, and here’s the news you need to start your day.

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Netflix yesterday said it lost a million subscribers last quarter, but it wasn’t as bad as what the streaming giant had predicted, thanks in part to Vecna and the kids over at Stranger Things.

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The streaming service said it would gain subscribers this quarter, but not at the pace Wall Street predicted. The focus on subscriber numbers comes after Netflix spooked the entertainment industry back in April. Then it said its decade-long subscriber boom was over. Yesterday’s report revived some confidence. Netflix shares jumped more than 6 per cent in after-hours trading.

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Global investors have poured a lot of money into Chinese venture capital firms, and it helped fuel the country’s tech start-ups. But now all those pension funds and sovereign wealth funds are pulling back from China. They’re worried about more government crackdowns on tech, more Covid lockdowns and even sanctions. As a result, Chinese VCs are scrambling for cash.

Ryan McMorrow
What we’ve heard from people in the industry is that a lot of the newer funds in the smaller and medium-sized funds are having the most difficult days.

Marc Filippino
That’s our China technology reporter Ryan McMorrow.

Ryan McMorrow
As China just became this premier investment destination, the number of funds that were created to invest in Chinese start-ups and Chinese businesses just exploded over the past decade, I think from like 100 to 3,000 last year. But now there starting to be somewhat of a fallout.

Marc Filippino
A few superstar VC firms are doing just fine. Take Sequoia China, that’s the arm of Silicon Valley VC giant Sequoia Capital. This month, Sequoia China raised $9bn to fund start-ups. But Ryan says the broader loss of funding to VC still hurts. That’s because foreign investment has become a big part of the Chinese tech ecosystem.

Ryan McMorrow
These start-ups raised dollars from their investors, and then they usually would go list in New York or Hong Kong, sell shares and their investors would be able to cash out outside of China. But China has made it a lot harder, and there’s still kind of ongoing reforms where there seem to be still undecided on how foreign investors will be able to cash out in the future, which has made it difficult for some to invest in them and made it difficult for everybody to get their money back at the moment because there’s just so many Chinese start-ups that were planning to IPO this year or last year that haven’t been able to.

Marc Filippino
That’s our China technology reporter Ryan McMorrow.

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Brazil could be the stage for an extraordinary political comeback this autumn, or at least a match up for the ages. Luiz Inácio Lula da Silva is running for president again. Lula, as he’s known, was one of the country’s most popular leaders in recent memory. He served the country from 2003 to 2010. After leaving office, though, he was jailed on graft charges. Now, at the age of 76, the leftwing politician is taking on the current president, rightwing populist Jair Bolsonaro. Our Latin America editor Michael Scott interviewed Lula. He joins me now to talk about their conversation. Hey, Michael.

Michael Stott
Hello, Marc.

Marc Filippino
So why does Lula want to be president again?

Michael Stott
He thinks it’s, in a way, his duty. I think he’s very upset by what’s happened to Brazil under Bolsonaro. He feels strongly that poverty and hunger, which were two of the things he was most proud of reducing during his terms, have increased again, and that he’s the right man to solve the problem this time. He also is still the undisputed sort of leader on the left. So there’s a sort of consensus amongst all of the anti Bolsonaro left that Lula is the best man to win.

Marc Filippino
So one of the things Lula wants to do, Michael, is restore a successful spending programme. How would he make this work?

Michael Stott
Lula believes very strongly that what he needs to do if he wins in October is repeat the success he had before by introducing what were conditional cash transfer programme so these were payments to poorer families, which were conditional on them putting their children education, keeping them education and going to regular health checks. It was a successful programme in reducing poverty, but the criticism of it was that when the economy hit hard times and the money ran short, the poverty just went back up again because the payments had to stop. And of course, this time Lula’s coming in and trying the same thing with an economy that’s in a more difficult situation. And so there’s a real question about how he’s going to pay for it. Now he says he’ll do this by putting up taxes. What’s unusual about taxes in Brazil is they’re really loaded on to the poor because sales taxes and consumption taxes are the bulk of the revenue and income taxes on property taxes are much lower and notoriously dividends paid no taxes at all. So Lula reckons he’s going to change some of that, and that’ll help him provide the money to run these social programmes again.

Marc Filippino
Michael, what does the business community think of Lula?

Michael Stott
A lot of the business and banking people will tell you we’re not that worried. We know Lula. We think he’s a known quantity. He’s not going to suddenly radicalise and do something really mad. But they are concerned that the quality of policy will suffer. Lula wants to use the state to control fuel prices again, which will hurt the finances of Petrobras, the state-controlled oil company. And he’s not going to be privatising things and looking for measures to make government more efficient. So I think there’s a worry amongst the business community that it’s not going to be terrible, but it could be a lot better.

Marc Filippino
So what does Lula have over Bolsonaro? Why does he think he can win this thing?

Michael Stott
Well, he told us that, you know, he was a popular international figure who commanded respect on the world stage and there certainly truth on that. And Barack Obama described him once as the most popular politician on earth. So he’s contrasting his international stature with Bolsonaro, who, in the words of Lula, is an international pariah. And there’s some truth in that. And he’s trying to reach out a little bit to the political centre, trying to show that he can build bridges. So Lula’s portraying himself as a figure that can bring Brazil together after a very divisive period under Bolsonaro.

Marc Filippino
And Bolsonaro, how’s he responding to Lula’s challenge?

Michael Stott
So Lula is actually the opponent Bolsonaro wants. And the reason is because Lula is also a controversial character. You know, he was jailed on these corruption charges. He was then released, and he was acquitted on some of the charges against him. But there were actually 25 separate investigations against Lula, some of which resulted in prosecutions, three of which resulted in acquittals. Some expired due to term limits. Others were dropped. Others were ruled inadmissible. There was also a ruling that some of the prosecutors were biased, but, you know, Lula nonetheless was president at a time when what the US Department of Justice has described as the world’s biggest foreign corruption case. Foreign bribery case happened, and Bolsonaro likes that. Bolsonaro wants to paint him as a corrupt figure, as a thief, somebody who stole, somebody who can’t be trusted, as someone who’s an extremist. The other thing, interestingly, Bolsonaro is doing in the campaign is he’s taking a leaf out of Lula’s book. He’s trying to copy Lula social programme. So on the one hand, he’s attacking Lula. On the other hand, he’s actually copying some of his more popular policies.

Marc Filippino
That’s our Latin America editor Michael Stott. You can read about his interview with Brazil’s former president and now presidential candidate at FT.com. Thanks, Michael.

Michael Stott
Thank you, Marc.

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Marc Filippino
Before we go, here’s something else we’ll be watching this autumn, the trial between Twitter and Elon Musk. Yesterday, a US judge set the start date for October. Twitter is suing Musk to try and force him to go through with his $44bn deal to buy the social media company. But Musk wants out. The judge said waiting a long time for the trial to start would increase the cloud of uncertainty over Twitter’s business. Her ruling is seen as a victory for Twitter. Musk’s team, meanwhile, was pushing for the trial next year.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.

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