OpenAI Accuses Moonshot of Extracting Data From AI Models

9AM in Shanghai, Shenzhen and here in Hong Kong. You're watching The China Show. I'm Yvonne Man with David Ingles. Good morning. Let's get to your top stories today. Asian stocks slipping to begin this new quarter after a late drop into the close in Wall Street, erasing gains sparked by this tepid inflation numbers. Yet bonds in Oz and New Zealand tracking the move lower in treasuries. OpenAI accuses Chinese rival Moonshot of extracting data from its AI models, adding to Silicon Valley's claims of large scale Chinese distillation. Also ahead, passengers avert disaster on a flydubai flight after a pilot stabs his colleague, reviving debate about the need for cockpit video recording. Plus we'll be live from Bloomberg Screen Time in Los Angeles, with the Netflix co-CEO Ted Sarandos joining us, along with some big names there as well.

Yeah, it's not much of a China Show today, I got to tell you. Golden week is underway. So certainly we're seeing both Hong Kong and China shut. So we've got to talk about other things, right? We can also talk about Conan O'Brien and Ben Affleck coming on to talk about that. It's a good chance to talk about that. But yes, markets, we're starting off the quarter not too golden at this point. No. Uh, no. And I think what's interesting is obviously because we are entering this new quarter, we were up against month and quarter end overnight, which I guess goes a long way to explain why, uh, the headline on markets today is really that massive close lower, uh, in the U.S. session. There's Micron earnings, Micron earnings that we'll unpack better. Uh, you had some issues around the margin, uh, unimpressed as far as markets go. But I think, you know, let's give it some time for markets to digest what had happened. Because the commentary from the street is really, really good set of earnings. It's showing up across some, uh, big names here in the Asia Pacific. As far as data goes, on the, sorry, South Korea exports were again another banner, explosive, I guess you could say. Right. More than 100% gains for the month. So certainly does that add to this whole robustness when it comes to AI boom and demand picture there, what it means for the chip sector in particular. So certainly that could be adding in terms of beneficiary to, of course, the chip space here today. Uh, Kospi is slightly better, but we are seeing quite a bit of movement in Japan here. The Nikkei 225 up about 1.5%. Yes. The survey was decent, right? It was better than the last quarter's read. I think we went from 22 to 24 on the large manufacturers gauge. Slightly missed expectations there. I think what's interesting too is on the exchange rate where you do have corporates still expecting a weaker, uh, the Japanese yen to remain, uh, on the weaker side. I think that takes me into just one last note here. The dollar is coming out of the best month. Uh, going back to March, we, the last few days and then move into, we managed to edge, uh, the June, uh, gain there, so that 2%, uh, and exchange rates on your screens. Uh, in a moment, we'll also talk about the fixed income space, which, by the way, the 30-year yield is again starting to exhibit some weakness against it, uh, to the upside. But yeah, back to the, uh, the big earnings story from overnight, Micron earnings, adjusted sales and revenue, just over 54.25, uh, to the upside there. Earnings also climbing in 33.4. Uh, when you break things down, DRAM and NAND, you have about 40B on DRAM and NAND closer to about 14B, um, rounding down as far as that's concerned. Not much reaction in the after-hours trade. But when you look at what the street is saying and what the CEO is saying, as far as some of the sort of, uh, more qualitative, uh, takeaways from the numbers themselves, uh, it does seem that the memory story continues to be a strong one through into 2028. Yeah, that certainly seems to be. There's a bit more runway in this whole, uh, you know, memory chip cycle. In some ways, that's certainly what we heard from the Micron CEO saying that, you know, they deliver record fiscal 2026 results. Expect an even stronger fiscal 2027. And memory, he says, enhances the intelligence and the competitiveness of our customers' platforms. Uh, the call from the street is this, RBC was talking about. Yes, these are better than expected results. The guidance was also good here amid the sort of robust AI demand. So that certainly should help the Korea side of this trade here this morning too. Yeah. Vital knowledge also coming in here, the qualitative commentary on supply demand is bullish. Uh, the backlog is growing. And again, this underscores the, the visibility through 2028. Uh, let me just wrap things up with the comment coming through out of Zacks Investment Research. Micron crushed earnings expectations across the board. Its stock's reaction, perhaps how Wall Street investors likely already expected a bit, but also the need to increase worker pay, right? Compensation. Yeah, that was really what could lead to maybe that margin outlook. Why not? The company is doing well. Yeah. You got to pay your workers. Right. Okay. Um, let's have a look at how this is playing out across markets today here in the Asia Pacific. The markets that are open, of course. And Anthony's here, but it's, uh, we look at some names here, Anthony. Yeah.

What's been really interesting in the early going in Asia is how muted the reaction is in Korea versus this kind of joy in Japan. And one of the reasons for that is that Korea has gotten more muted over time. That is a kind of a short-term shareholder revolt against the fact that there isn't, it isn't a, uh, kind of a program of shareholder return that goes with the extraordinary profits that the memory space is having. So you're seeing that again play out. Samsung is flat on the day versus Sharp almost full. And SoftBank is up three. So there's a huge divergence. And I flip the board. And you can kind of graphically see why that is the case. We see that Korean earnings have just absolutely exploded to the upside, but dividends have not followed. So you've seen earnings explode here on the blue line. But the dividends are just pretty much where they've always been. And that speaks to some of this Korean discount, uh, kind of concerns. And that's really correct. The picture for the positivity in Korea. The volatility has come right off after the boom times in July. Correct. And it has not recovered even though the index has recovered. You contrast that to Japan. You flip the board and you see every time there is positive news that comes out of the tech space, the Japanese stocks react on the upside. That is what the kind of optimism in Japan is about. That's why the Nikkei is so strong and the gains are pretty much across the board. On the Japanese stocks today we see the advantage. It's almost up seven. We have big gains in Lasertec, which is a testing and kind of, uh, chip-making tool, uh, provider. It's just across the ecosystem. The money is actually flowing through to shareholders in Japan, and that's driving this dispersion. There is still about a 30% gap between Japan and Korea. And let's see how much of that it closes.

Anthony. Thank you. Anthony Stephens there, our Bloomberg Markets reporter, joining us for the latest. And of course, let's bring in Mark Cranfield now from our live team for more on these markets. Their market, it's a slow start of the quarter here. What's going to be some of that you're looking out for here for Q4?

Yeah, I think it's exactly what Anthony was saying there. People are going to be looking for the continue what the AI theme looks as though it's making a recovery. It's now just a question of who are the, who are the winners going to be in this next phase. So Micron's kicked off a period here. What do you, some Japanese names are doing very well off the back of that. And we're likely to see some, some follow-through as the Taiwanese markets get going today. And then as we look into the, to the U.S., it's right, the beginning of the earnings season and most of the big names will be expecting to have very decent results again, or at least the, the outlook from, um, analysts is that most of the Magnificent Seven companies, plus the other major tech companies will have another very strong quarter. So confidence should start to return. We do have the elections in the U.S. right in the middle of the quarter. That will of course be a speed bump for some people. But if you look at the way the markets are digesting the rate hikes that we've seen so far, the projections are that they're going to be very gradual. It looks as though everybody can live with it. There's still the wild card is the Middle East, what happens to oil prices? But even that seems to be something that people are factoring into their equations for the rest of the year. So all in all, the backdrop is pretty decent. If the AI theme has got legs, then we can expect the tech sector to lead everybody forward again. We should start to see some evidence of that over the next few days. So what we're seeing here in Asia is likely to follow through to the rest of the world. So a positive outlook for the AI space should feed into everybody else, barring upsets in the Middle East.

Mark, we had some data overnight in the U.S. and I think it goes to the point you made earlier in the week, uh, around, you know, some signposts to watch to really understand where confidence, to your earlier phrase there, is coming back into the bond markets. Are we in a better situation now as far as treasuries go than this time last week now?

Um, we are, apart from the very long end of the curve, probably. We have a huge, uh, sale next week. We have 10 and 30 auctions. The 30-year Treasury auction is a major obstacle for the whole market. You can see that the traders are pricing that they want to get their concession in early. They want to move the yield to a level where there should be demand for the insurance companies should come in, they should match asset liability managers. They can push the yield to a certain level where you would expect that the sale to go pretty well. If it doesn't, that's a huge problem for the whole market. But by the time we get to the auction at the end of next week, there should be enough in the market already to see that go through. Then people can relax a bit, but there is a very important auction and the way that the U.S. Treasury themselves and the Scott Bessent have behaved with their buybacks. Traders are also looking over their shoulder and saying, is there more going to come from the Treasury Department? Are they going to do more to stabilize the bond market or are they going to panic? Are they going to cancel 30-year auctions if they see another bad one? So there's a lot of debate about what's going on, particularly at the long end. Plus, when you look at what's happening with the lowest class of credit, the triple C credits. They're starting to get really hammered. They've gone about a thousand point range. That's a sign that we can expect some more defaults coming in the U.S. market. And those are weak companies anyway. But the default rates have been relatively low. And that's something else the Treasury market has to take into account. It's a pretty fluid situation, but if we can get through the auctions next week, the whole market will probably calm down.

Yeah, I'm just wondering now that we have most of the Treasury curve above 5%, it doesn't seem that many out there that are willing to stick their neck out and say that I'm going to go full on into duration. Now, there isn't that sort of conviction just yet, I feel. I mean, do you think 6% for the Treasury curve still is a possibility here? Or how do you think the direction of travel is going to look like?

I think at the very long end of the curve, 6% is very realistic. I think that is going to be hard actually, to stop the 30-year yields getting towards 6%, not so much in the short end of the curve. We've had a steepening over the past few days. It's probably going to continue. The messaging we're getting from the Federal Reserve is that they do want to raise interest rates again, but at a measured pace. So that probably means December, possibly another rate cut or another rate hike next year, but that's uncertain. But at least one more this year. That's a similar story in the Bank of Japan, probably the European Central Bank. So it's, it's something that people can factor in. They can see it coming, but it's not too fast. As far as the very long end of the curve is concerned, there's never great demand for 30-year bonds anyway. But if you're not quick enough to dampen down on inflation expectations, if the Fed is seen as slightly behind the curve, that is not good for that end of the market. Plus you got the mortgage factor as well. 7% yields on mortgages in the U.S. means there's convexity. People have to sell long-term treasuries to hedge for that as well. It's not a pretty picture at that end of the market. It probably means they need to get to something like a 6%, a shock, a shock value here to get people back in the market. The shorter end of the curve is a different story that may start to stabilize as Fed speakers give the idea that they're not going to squeeze the market too much. There won't be 50 basis point hikes. There will be a gradual tightening of policy. Market can absorb that.

Mark, thank you so much. Mark Cranfield there in Singapore. Right. Just to Mark, you know, one stock we've been tracking all week. Nidec. We're down a further almost 20% at one point, on 17 currently. Let's call it 30, 31% over the course of the last three days. In terms of the drop here and the latest here on, uh, on the back of some accounting issues, is the, and this is a really bad sign when your auditor withholds their opinion. It's almost akin to you going to the doctor and the doctor basically saying, let's go into another room and then just breathe. It really, really, really, uh, alongside there. Yeah. Um, so this is something that we're continuing to track. Uh, obviously the market's hitting this from a bullish perspective. We'll have more on this, of course, later on in the show. But shares are down 17%. The auditor has withheld opinion, and a company's financial statements coming up will be at the Bloomberg Screen Time in LA. Hearing from the Netflix co-CEO Ted Sarandos, as well as on your screens, Ben Affleck and Conan O'Brien are joining us for those conversations. So do join us as well. Uh, check that out on the times on your screens. And just a reminder that Hong Kong and Chinese markets are shut for National Day. We have plenty more ahead still. This is The China Show.

OpenAI has accused its Chinese rival, Moonshot AI, of a widescale effort to extract data from its GPT systems. Now, as to growing concerns in Washington and Silicon Valley about the use of AI distillation by Chinese developers. Let's bring in Redmond Low, our China correspondent here to talk us through. How big of a scale, uh, are we looking at currently now?

So OpenAI has revealed that they found as many as 16,000 attempts, at least in late July. There was the peak 16,000 attempts to uncover hidden information in terms of how OpenAI's models approach reasoning through problems. And what OpenAI has done so far in a bid to stop distillation is that they've already hid, uh, the reasoning part of its model. Right? So it offers answers instead of explanations to user queries. But according to OpenAI, Moonshot was able to get around it by copying the encrypted reasoning and then asking a model in a different conversation to decrypt and transcribe it. At the scale of this attack, up to 16,000 at one point is still much smaller than what Anthropic previously accused, uh, this, uh, Moonshot AI of doing. That was in the millions. But still, it adds to this pile of accusations we have heard from Silicon Valley companies against the Chinese counterparts. Of course, Moonshot has not responded to the accusations, but the Chinese government has hit back against it. And this is the crucial matter, right? Because, um, OpenAI has already shared this information with the government, partners with other Silicon Valley companies. And the question is what the U.S. will do about this? And if the U.S. does play some sort of punitive measure, that could have tremendous impact on the ability of these Chinese models to scale globally.

Meanwhile, there's a story about DeepSeek and Huawei. Uh, they've developed something together in terms of AI toolkit.

Yes. This is also very, very critical because we know, for example, Nvidia's hardware have had, had trouble entering, uh, China because of export controls. But Nvidia's moat also comes in a form of its software called the CUDA ecosystem, has been seen as this global industry standard, and it's very integrated by frontier models, whether it's in the U.S. or in China. And it's very hard to switch. There's a lot of migration cost to it. It's kind of like if you've been using the Apple OS for a long time, you're very reluctant to switch to Android, right? So what DeepSeek is doing is that it partnered with Huawei to create its own, uh, software ecosystem that is directly compatible with Huawei's Ascend chips. So they allow developers to program those AI chips. And what this does is that it would eventually allow many companies to access those chips and use that domestic ecosystem, uh, and allow Huawei to eventually be that anchor for the domestic supply chain. Right. It's all part of an answer to the, to the government's call for import substitution. And this software stack is going to be fully open source. And DeepSeek has touted that its programming language is also simpler and more straightforward, so making it more accessible to developers as well.

Amazing, man. Thank you so much, Redmond Low, our China correspondent there. On the other topic we just touched on there, which is the security angle, of course, I had Pershing Square CEO Bill Ackman. Uh, well, I'm talking about how Anthropic is really one of the greatest business stories that he's ever seen and that government oversight to the point we just made there is not needed for a larger AI firm. Speaking exclusively to Bloomberg, Ackman also told us that markets are just too focused on big IPOs.

Is that a problem? Especially if Anthropic. I think we should all remind everyone. I think it was on the 22nd. You put out something basically saying, are we going to see an Anthropic IPO? Oh, by the way, there's a 10% chance we kill humanity. And that is exactly what we saw. There was a large-ish part of that prospectus that basically said, here's all the harm we might cause. But what do you make of an IPO with that sort of thing in it? And is that a company you would even buy?

I mean, you, you wouldn't buy it because you're scared of that competition.

Do you think? I think, I think it's super interesting because there is a prospectus actually been filed. I've read.

Does that mean that you're less concerned about all this, you know, AI worst-case scenario out there? You think they're going to self-regulate?

Some stories are falling out of Hong Kong today. The embattled Hong Kong developer New World says it has the financial support of the billionaire Cheng family, even after a massive writedown of a Hong Kong airport complex led to a $3.6 billion loss for the fiscal year. The pledge of support confirms investor expectations that the family behind New World would back the firm. Hong Kong visitor arrivals climbed in August to their highest level since May 2019, signalling sustained tourism momentum after the recent recovery. The tourism board says total visits rose about 6% to 5.4 million. This was driven mainly by travelers from mainland China, while international arrivals softened and fewer visitors chose to stay overnight. One notable weak spot was India, from where visitor arrivals to Hong Kong fell from a year ago. Yep. And that's, uh. Well, this is essentially why, uh, we are on holiday here today. So no markets open, of course, across Hong Kong and mainland China. It's, um, and it's one of those days where we have, of course, we, you know, mind doesn't sleep. I say sad news. Uh, so. No. So we, so we don't either. So we don't. And it's one of those days where after the broadcast, Yvonne and I step outside and we kind of feel like we're in a scene from. What was that? Uh, the Will Smith movie I Am Legend when he walks in New York City. It's completely, uh, and is a ghost town. That's the feeling you get here in the Financial district. I love it, but we don't mind because you guys keep us company every day, and we thank you for that. Lots more ahead here. This is Bloomberg.

Welcome back. You're watching The China Show. Of course, a reminder that, yeah, mainland markets and here in Hong Kong are closed for a holiday here today. So I'm guessing you guys are heading either to the train station, the airport on your way. Of course. We're shut for one day here in Hong Kong, so. Certainly. Uh, yeah. Enjoy it while you can. We're still here, though. On this holiday, we're taking a look at when it comes to markets here. You are still seeing some standouts when it comes to Japan. That seems to be it outshine the likes of the Kospi here today. We continue to see that momentum behind Nikkei 225. We're close to 2% gains now here right now if the futures are slightly in the red here this morning. But yeah, it's interesting what's happening with the Kospi. I guess it was a bit of a moderate response to the Micron earnings. Maybe that's why the chip sector is not really. Yeah, booming here, but certainly the export side of things. The data that we got from Korea continues to be very, very strong. Beyond crazy some of the names. And I think the, if you think the previous month's growth rates were already out of whack with what is orthodox, uh, this last number which came out, um, I think the adjusted one is north of 100% growth and exports headline was 83.5%. But yeah, adjusted is even bigger, even bigger. And I think it just underscores the Micron story and the supply chain. Right, even further. The Taiwan number we've kept with top talk, talked about that a lot. The Hong Kong imports number, which grew at the fastest pace since the 1960s, which I think was out of view about a week, a week and a half ago, all are pointing to the same thing that the boom for AI exports is almost single-handedly lifting many economies, especially here across the supply chain. Certainly, the key area of growth, and I would imagine will be the key driver of equity market return. And just looking at how consistent and how much momentum there is behind that. Um, just very quickly to see the exports number. And I think there have, we showed that. Can we show that, please. Just to give you a sense really of the direction of travel there. Right. So if you took a snapshot this time it may already be impressed. You take that a fast forward. Uh, no. The export dynamic. Okay. Thank you so much. On the left side. Uh, 80% is the headline, adjusted is more than 100. And on Japan, uh, the, the Tankan survey was that this is, of course, a quarterly survey which also underscored an improvement in underlying sentiment across large manufacturers in Japan. And maybe a lot of that might have to do with the fact that the yen is, of course, weaker. And of course, you have a big part of the supply chain. It was kind of like a Goldilocks sort of print, right, where it was a strong economy, but not exactly like red hot, and to a point where the BOJ may just have to hike, uh, sooner than later. So I think that itself has eased a little bit of that pressure for the central bank as well. But certainly maybe, maybe the UK has to really rethink things too when it comes to their, you know, tightening cycle, which they also are now underway as well as other world news. We're also following here today. Authorities in Saudi Arabia are now questioning a commercial pilot who allegedly stabbed his colleague and tried to crash a plane carrying more than 170 people. Passengers and crew stormed the cockpit of the flydubai plane that was on its way to Tel Aviv after a plunge more than 14,000ft in less than 30s. They were able to subdue the attacker with another pilot who was on board as a passenger able to land the Boeing 737 in Saudi Arabia. And I salute these heroes who showed exceptional resourcefulness and courage. They saved many lives and prevented a major disaster. President Trump says former Fed chair Jay Powell should resign from the central bank's board of governors over the mismanaged renovation of its headquarters. Report from the Fed's internal watchdog has outlined a series of missteps that caused a project cost to balloon. From initial estimates of $1.3 billion to $2.4 billion. But it found no evidence of criminal wrongdoing. It's horrible. What they've done is incompetent, and a man that's incompetent should not be sitting on the Federal Reserve Board. And I get, I'm sure that Todd and everybody's going to be lucky because the report was a pretty bad report. The report said. They did. They did a bad job. They didn't know what they were doing. All right, uh, just ahead here, we'll be on your screens coming up. Of course. Conversations with these individuals. Uh, my understanding is, uh, Bloomberg Screen Time has in fact just started in LA. Anyway, stay tuned, of course, for those, uh, big conversations coming up. The co-CEO of Netflix and of course, Conan O'Brien. And of course, also Ben Affleck. Uh, lots of star-studded names. So suffice to say, yeah, uh, if you haven't got enough of the, the, the gravitas of me and Yvonne. Oh, yeah. Yeah. You have big stars coming in any day, right? We don't even hold a candle to these guys. Right? And certainly they're gonna be having a lot of conversations. Uh, really, when it comes, the opportunity is the challenges facing the entertainment industry. Of course, in the age of AI as well. So stay tuned for those because discussions there's our very own Luca Shaw kicking off the show. We're going to listen it really take off a slot became something we all talked about. Um, you had the movie business, which I think had been left for dead at basically every event we've done for this feeling very strong right now. We have a new CEO at the Walt Disney Company and Josh tomorrow. His predecessor, Bob Iger, just bought the Lakers, which is my basketball team. And David Ellison bought his second movie studio in as many years, maybe in one year. Um, I am not prone to hyperbole, but it does feel like we are on the brink of a pretty major change in media in the sense that, you know, streaming, which has been kind of the engine of growth for the last ten years, is slowing down a little bit. You have AI music, which I think was kind of a novelty when we started this a few years ago. Now being very mainstream, we have a lot of music being made with AI. Uh, and social media creators, podcasters, people have been treated as a second class. Citizens entertainment are now being treated as and paid as much as pop idols and movie stars. Uh, I cannot promise to know what is going to happen over the next 12 months, but I trust that the people that we have speaking here will be able to elucidate and help us a little bit. We're going to kick things off on this stage with the gentleman waiting over there, the co-CEO of Netflix. Ted Sarandos. He is our first returning guest, so be nice to him. Um, then we're going to go to producer Kathy Kennedy. Uh, we'll hear from comedian slash podcaster Conan O'Brien, and then we'll close things here with Ben Affleck, actor, director and I entrepreneur. Uh, but before we get things going, I want to run through a few logistics things you should know. Um, I need to thank our supporting sponsors, Autodesk, Harborview, Equity Partners, Turkish Airlines. And while Doctor Allen manages, uh, as well as our participating sponsor, Cord Music Partners. Now, for a second, uh, it's probably the only time I'll ask you to do this. Take out your phones. Um, put them on silent. Do not disturb whatever you do. Uh, there is a QR code here for an app. That's the hub app you can use. It's kind of your one stop shop. During the event, you can get Wi-Fi information. You can get the agenda, you can meet up with other people. The number one feedback we hear from folks who come is they want to network. And so we introduce these bilateral meetings this year. Uh, we have a couple of other new additions to the screentime portfolio, if you will. There's a social content hub out there behind the registration desk. It'll give you some fun questions. You don't have to do it. I am, I said that the, uh, the Oscar winner for Best Picture was going to be The Odyssey, which is not a particularly original opinion. Um, there's also this memento I partnership we have related to photos taken of people here. So if you want to track them or track them down and use that, uh, if you want to talk about the event on social media, use the hashtag Bloomberg screen time tag at the Bloomberg Live. Tag me at Lucas underscore shore. I think my handle is a little different on Instagram, but don't worry about it. Um, and one final thing before we get going, this is really more for tomorrow, but we do have that Turkish Airlines lounge across the way acquired. It'll be good when it's 85 degrees. Fortunately, not next week when it's 99 degrees. Um, you all know Netflix. I think most of you know who Ted Sarandos is, but it has been a pretty busy year, the last 12 months for them. So we have a little sizzle to, to show you what's happening. Uh, uh. All right. As they have just dim the lights. So we'll leave for a couple of moments. We'll take you straight back there to LA with Bloomberg. Screen time in a moment. This is Bloomberg.

Good morning from Asia Pacific. Welcome back, by the way. We're taking you straight back here to LA. Screen time is underway. And as you can see on your screens, that is Luca Shaw, our managing editor for media, entertainment and sports. And his conversation is just starting there with, as you can see on your screens, the co-CEO of Netflix. Ted Sarandos, it's time for us to Netflix and relax. Have a look.

All to agree on what to watch. So you make a lot of things that appeal to different tastes, including more, uh, prestige awards, kinds of programming for that audience and which is, by the way, when we started, that's all we did. Sure. So to think getting kind of an idea of how the programming initiative has broadened over, over the years that day. And we started with House of Cards in February of 2013, we had one kind of thing just prestige serialized drama. Uh, and then we've since then, we've added competition shows and game shows and cooking shows and travel shows and original movies and standup comedy. Everything we've done since then, it's just been an ongoing expansion. But we've been doing, we're not doing it instead of the kind of things you were talking about. Um, so and so I don't think, um, and including, by the way, doing it in nearly every country in the world. So when we talk about Netflix, only half of the story, revenue or watching is happening in America. It's happening all over the world, and we have these culturally resonant shows in nearly every market that we operate in, right? But so does that mean to, to follow up on it that the, the answer is essentially something for everyone? Not that all programming is for everyone, but you have something for everyone because there is something for everyone for sure. Yeah, but it isn't to say that any one thing is for everyone. Yeah. Um, there's been a lot of focus of talking like Willy Wonka, right? Yeah, yeah. Um, there's been a lot of focus over the last 6 to 8 months, shall we say, on the question of engagement, which is a jargon word for how much time, people. And in watching you, there's people are worried that the, the growth has not been as strong as it once was. And so what is your answer for why engagement on Netflix is not growing as quickly as people would like it to. And what are you guys doing to fix that? Well, if I can talk about engagement for a second, just itself, the whole act of it, we, we kind of set up this debate ourselves. Not on purpose. Uh, but at one point we stop talking about subscriber growth, and we talked about why don't we stop talking about subscriber growth? Because when you look at our business model, it used to be a one for one. We were a one skew company. We had one product. So if you added a new member, you knew exactly had to take those economics out. Uh, now we have multiple types of memberships, multiple in every different country, various. ALM so it became much less easy for Wall Street or the press to track Netflix. My subscriber growth, uh, our growth in any given part of the world. So we said and so instead of giving that number we said look we're going to give you engagement. So we publish a report of everything watched on Netflix. And, you know, down to the minute, uh, you know, twice a year. And so we started talking a lot about engagement. So don't worry about subscriber growth count revenue, profit just like a real company. Uh, and engagement is a, is it just as another metric. But at the time we said that, I think we were pretty unsophisticated about how we talked about engagement. Meaning, in that world, all think all revenue is equal, a profit is equal, our engagement is equal, and all engagement is not equal. So we are first and foremost, we are growing engagement. Uh, so we're growing on 200,000,000,000 hours of watching. We grew 2%, you know, in our last announcement. About 2% is not what people are hoping for out of you right there used to double digit growth in at least and certainly in revenue and to some extent even in viewership, they'd expect this is this is my point about the growth in general. Yes. Overall, we're not growing as fast as I want us to, and we're working on and making that move faster. We are, though, also doing things that create a lot of headwind to that number. Meaning when we do live programming on Netflix, which is a relatively new thing, um, we spend about 5% of our content budget on live events. They generate about 1% of our watching right now they all but they do a very different job. They generate a lot of signups. They're really effective for signup, retention, advertising, all those things that they do. But it creates engagement headwind in how you invest against it. Um, and remember when I say we grew 2%, that's an easy number to sneeze at. But it's through all the growth of live. It's through incredible headwinds from things like the World Cup and world sports and all those things that are going on too. So it is a, we are growing the business. We want to keep growing it faster. This past quarter, we did double digit revenue growth in every quarter in every region of the world. So the business is great and growing fine. Um, I do, I mean, if you ask me when if we were growing at 20%, I would be telling you, I wish we were growing faster. Right? So when you said you wish you were growing faster and we're working on it, what are the things that you are working on to kind of re accelerate that, that growth? Well, it's these are some of the things are in the expansion of what we do. So like it was an expansion of what we did that didn't necessarily bring more growth engagement, but it brings very valuable engagement. So it's not a mystery that all engagement is not equal, because it's you probably are not surprised to know that an hour of Judge Judy in the middle of the day does not generate as much revenue as an hour of NFL football. And so those are some CPM charts recently that showed what you make per view versus what YouTube makes per view. And yours is higher. Yeah, we generate more. We monetize better. Our programming monetize is better. Now we do. We're looking constantly about how do we do things to bring more value to the members, more things to watch, more ways to watch all those things. So that is some of these things that are and I don't want to over characterize things like podcast and those things because they're very small investment and very small additions to what we're doing. Um, the best the vast majority of what we spend on is professionally made movies and television series and games. And so as we lean into those things and make those big swings, we have $20 billion content budget, and about 5% of that goes to live. And a fraction of that goes to all those other things I was just talking about. But there's other ways to, you know, put things on the format for people that they love their art of one deal in France, as an example, where, um, you can watch now, our, our customers in France would like more French content faster than we can make it. So we have an arrangement of one where the TF1 programming is available on Netflix, and it's very successful and it's growing very fast. Were you I mean, speaking of of TF1, YouTube just did that deal with Peacock, which was similar, and that you're bringing in another type of programming for YouTube premium. Was that something that like, why didn't that end up at Netflix? That felt like, um, but by the way, we're in our infancy and doing all that part and doing all those that on. So, uh, in that particular model, I'm not sure how the economics of it play out. It should be designed so that it's they're selling the peak, selling Peacock through YouTube, which is not different than other channels deals there. I think they're trying to incorporate some of the content into their own premium tier, but I haven't seen the details of it yet. But do you think because had you ended up doing the Warner Brothers deal, you would have added HBO. As you know, you would have purchased it as an add on to Netflix. Yeah, right. It would have been bundled. Yeah. Do you feel like going forward because Netflix has always been a service, you go there, there is one, one place you watch everything that as you try to keep growing, you have to become more of a platform where you are selling other services. It's not that we have to, but we should be. We think we should be much more nimble to be able to add new ways to watch on Netflix, for sure. Over time, what are the types of services that you think would? Well, I think the entertainment business itself is plenty big and we're only, you know, about 6% of it. Seven. But so that means like you would if they haven't done this with anyone. But like if you could sell Disney Plus as an add on, you would do that. I think over time those things have I think for us, the what we did with TF1 was one of the more difficult executions of it, which enables us to then spend that out too much simpler, more straightforward add ons. Right? If we choose to go that path, and I think you look at it, as we've not looked to any of those ways to grow revenue yet. So that's upside in the business over time. Um, I know you said YouTube and podcasting is a small part of what you do, but I have to ask because you like talking about different types of viewership. Yeah. And you made, at this point, somewhat infamous remarks. I think it was last year where you talked about sort of Netflix is where you spend time and YouTube is where you waste time. I probably didn't say waste time. Um, but you, Neil, you have done a bunch of deals with prominent YouTubers. We we had dinner last night. Mark Rober was there. You've done a deal with him. He's a big star on YouTube. So has your opinion of YouTube changed as you do more of these deals? I shouldn't have said that. The truth of it is no. I mean, we're definitely we're not in the UGC business. We are um, we are in the I told you and we're in the professionally produced content business now, I think there's a bunch of people on platforms that are doing pretty close to professional programming already. And and if we can better monetize that program for them, they we can make a deal with them, but we're definitely not trying to bring over the whole population of creators. There's some people, I would remind you, my my kids are 30 and 32 years old when they were seven and nine. I'm from doing the math, right. They were watching Blue's Clues on on Nickelodeon. It looks just like some of those shows. Just like Danny Go. I mean, the program. And that's how that's how that stuff has evolved. So when I look when we're looking for new talent, we're looking everywhere film festivals, film schools and submissions everywhere we go. So of course, you're going to look to the platforms and find new talent and what we do. And you could ask Mark about it when you see him. Mark, Rober, we basically take this, what they're doing and give them the resources, financially and infrastructure and otherwise and in production support to do things on a larger scale than they can do currently and that they can monetize well on other platforms. And so is that that because if I'm a YouTuber and YouTube has sort of made it known recently that they don't love, your deals have changed a little bit. The Mark Rober deal was make a bigger show than you were making, but you started to do these deals where it's day and day, post to YouTube your videos on YouTube and Netflix at the same time and YouTube does not like that. So if I'm a YouTuber and YouTube says, please don't do that, why am I still going ahead and doing a deal with Netflix? What is it you. No, I mean, it must be good for you or you want to do it. And in a perfect world, I think anytime you've got a business where you've built up, you're a content brand and you're trying to monetize the best you can, you're trying to figure out how to build one without cannibalizing the other the same way that the studio is doing today with windowing or the networks do it today with least with, should they license their content or not. So how do you build a business without cannibalizing the other one? And sometimes you can't and you just have to pick a partner. Um, you mentioned gaming earlier, which is, though you've done it for a few years, still feels new for you guys. Um, five years from now. Do you guys do you think you're still hosting games on the service? I think so we really what's exciting right now and the mobile gaming was a gateway to cloud gaming. So really, we're much more interested in what you could do on the TV, using your phone as a remote. And remember, in a kind of post console world. There's going to be all kinds of opportunities for gaming on the television. And that we want to be, you know, early invested in that. I like it for cut for IP extension. I certainly like it for, uh, brand value for people who want to spend time on that stream gaming instead of watching, uh, that we have an option for them. And would you, because you've closed some, some studios, some of which you bought, I believe, would you as you look to scale it, would you ever buy one of the big studios? Take-Two? Microsoft seems to be unhappy with that. Well, you know, we're not we have not been traditionally big buyers. Um, the Warner Brothers notwithstanding, um, that we've not really been we've been been builders from the script, from scratch. So I do think we've looked at so we have built some worked with some of the smaller studios and programmers and developers, and there's a likelihood of those things come the, the big problem. But when you do these deals, uh, and the reason why I go back, why the Warner Brothers was attractive, you know, I said we were not going to do that because it's very rare that so that this kind of asset was so clean. It was just you're just buying just the things we wanted to buy. And so we were able to very easily look at this and say, how will this add value to Netflix and not destroy value in other ways? How do you take this growth engine and have it supercharge our growth engine? And for us, the ability to do that made that deal super unique. We're not looking for the next opportunity to backfill that deal, because we are our plans. And how we're going to grow is is primarily organic and will look for opportunities that complement the business as we go. It's game. That's for games too. I'm curious, knowing what you know now and how the street has sort of turned on you a little bit because of that deal. Do you regret going after Warner Brothers at all? No, I think it was, um, the plan was solid. Um, I think we we And we won the deal at some point so that we priced it right. Um, at our scale, that was the top price point where I thought we could return value to our shareholders with that asset. Any more than that, I thought we'd be taking you into negative territory, even with our scale. So, uh, when I look at that and I think, well, you and I think that what you're just referring to, I think what it did, is it the deal itself kind of threw the business narrative off for, for and for investors, for for the price, for other, for it. And you have to be willing to put the business narrative at risk for something that's good for the long term of the business, not the whole business. You don't put the business at risk, but put the business. You have to have to put the business narrative at risk. If you are convinced that it's good for the long term return. And we have we have always run this business for the long term. And how do you reset the narrative when investors come to you and say, well, you know, we're a little worried, how are you going to grow? You just say more of the same, because that feels like an answer that's not going to you. It's been the answer, though. Yeah, you have many, many years. And I'd say if you look at it and say, you know, the business is in double digit growth in every region of the world, um, is growth. And we are doing that. And there's a funny thing, like all the bells and whistles and all the exotic things you want to do and try in India right now, our business is growing very, very healthy. And it has. The reason why it's working is they have two shows that are very, very hot in India right now. Uh, operations to feed Zafar and Musafir Cafe. And they have a daily show called Lock Up. It started off as a five day a week show and went to seven days a week. Uh, it was one day a week, went to five days, went to seven. And it is drives so much conversation and buzz in India that they come in and then they lean into this other show, which is kind of a Top Gun like series. And there's other one which is like a slow burn romance, and it's just the programming is on fire in India right now, and that's driving the business. No, they don't even have an ad tier in India. So it is it's all the end of the day. We will win and lose by executing on that core. Yeah. I mean the programming, the movies and TV that you can't live without. Okay. Movies. Um, you have a movie opening in a couple of weeks. Loyola. Niagara. It's going, I think, the longest window Netflix has ever given the movie. Um, yes. Window from the first before it ever shows up again. Remember when people always talk about these windows? We don't take the movies out of the theater when they come on Netflix, and some of them do great business after they're on Netflix. Uh, I think, uh, Frankenstein played in theaters for like four months. But you are giving level of Niagara you're giving credit for. Hence, yes, you're giving it more than a month where it's in theaters before it goes to service. Why are you doing this now? Um, there's a couple of things I'd say when we were looking at the business early on, we we this is a true thing that people have a hard time with. Um, movies in the box office are not necessarily bigger on Netflix. Not not. No disparaging movies in the box office, but movies that come out in the theater do pretty well. That happens is the the most passionate audience went to see it in the theater. So by the time it comes to Netflix, you've lost that passionate audience and you got the people to go, oh, I meant to see that, or I'm going to get around to that. Or I heard that was crappy. And I'm curious now. Yeah, now we'll take a look at it. But by the way, is this isn't that new? I go to the theater all the time, I sit, I listen to what people are talking about, and they do talk in the theater a lot more than they used to. Um, but the people sitting in front of me while they're running the trailers, I go, oh, I miss you. I can see that. What's on Netflix? I want to watch Netflix, you know? Oh, I'm going to see that. I'm going to see that. So it's not like the window is really driving that decision. They made that choice for the first time. They saw the trailer. Right? Um, but I do. But but what surprised me about, if you look at that, uh, data that we published twice a year or once a year now of, uh, the top movies, all of our top movies are the Netflix originals. They beat all the pay-TV window titles that come to Netflix, except for the

Kids and family movies, because they get a lot of rewatching. So what we're doing is looking at this model and saying, okay, how do we serve movie lovers who may want to see this movie in a theater? And how do we not harm value to Netflix? And how do we position the film best in the world? Last year, we put over 30 movies in the theaters, all with bespoke plans of how many days are going to be out, how much marketing to spend, what cities to play them, and very bespoke. But 30 movies in theaters. And when you look at all of this, what you figure out is that on one end of the spectrum is the boy Nagra train dreams. Last year, um, that could have played in the theaters for six months and it wouldn't have impacted. It would have done, you know, net positive to Netflix, those kind of arthouse films or, you know, play like that. Um, and then the other end is the kind of for quad family rewatch movie and that that, you know. So we said, let's take those two and treat them different. So we're going to do a big wide release for Narnia next year. Um, and then we'll do a big, wide release for Charlie Versus the Chocolate Factory at the end of the year. Um, we think they'll do great. And when the K-pop demon Hunter sequel comes, you can expect a very broad theatrical release. And, uh, what does one and the other two and the other end to we have. Um, he said label negra, but we also have, uh, a seven, uh, Imax release of, uh, the admissions booth. Um, and we have, uh, a, a shorter but not by design, shorter window release for Mosquito Ball, which is Pete Berg's new will. Uh. Uh, what? We're to move on with Pat McCarthy in it. Yeah. But it's a phenomenal movie. I'm so thrilled that we're going to get to see it on big screens, too.

What does success. Because it's not your main business. And what is success for a theatrical release look like for Netflix?

Well, it won't be tied to the eventual I mean, the piano itself would I would have relatively low expectations that will add much to the financial outcome of the of the film itself. Uh, so but the success would be that it played even with a big Narnia movie. You know, I would say, look, there's when you do all these things, if you're going to say to pick a little risk to the Netflix performance, it should have the potential for a very big upside in the theater. So if that and that, I think for for Narnia, for K-pop demon hunters, that's why they're going to get big, broad global release. Um, but I think in the other ones where it's kind of in the middle, that's where it gets tougher.

Right. Um, we talked about selling other services. I'm curious, you guys have also talked about giving or creating a free version of Netflix. I know you're not necessarily doing it, but what would that look like?

Um, well, we're not doing it. And you're not doing it. No, no, I said not now. Right. No. The second we're looking at it, right where you look at all these different models. And I think the one that would look when you look at that, you see, um, Avod has been an interesting new engine in the last couple of years that is taking attention and time and attention on television. Now, none of those services have gotten very big and none of them have gotten profitable. Um, you know, I'm talking about the, you know, to be, you know, I want to name names. You can. Sure. Um, I think they might quibble with that. They're not profitable, but maybe. Maybe, um, but when I look at it. But the hard part is, is that you're making these trade offs and saying how this can't be so this can't it won't be big enough that it will pay for cannibalizing the core product. So you have to figure out it's a very find that blind to walk of how much product you put in that product and how much you put in the product and how much you put in the hybrid one. I don't think that the Avod service can support very ambitious programming. Right. Um, and we're we are our primary reason for being the reason we jump out of bed in the morning is for ambitious programming.

Um, we're low on time. And so I'm going to speed run through a few questions with you. You mentioned this is where we get in trouble. No. Um, you mentioned kind of big, ambitious programming. And I'm just curious because I feel like in the last little bit, there have been a lot of folks that you were in business with for a long time who are taking deal somewhere else or not sticking around with you. Well, we had the no bomb back announcement that Shawn Levy announcement. I wrote something about Fincher this week, and I'm just curious, does this say something to you about where you stand with the talent community? Or each of these are just individual cases where, you know, know their individual cases and the talent, these these deals all serve completely different purposes. Sometimes it's a simple way to organize a lot of work that you're going to do together for ten years, and the overall deals are interesting, a good way to repackage it and present it. Um, there there's other ones, which is you're a filmmaker, a state television creator has a very specific thing that they want to do, and that we're going to do it together and it's going to take a many years to develop. And the overall deal is a way to do business together for 2 or 3 years. It's going to take for this product to come to market, and different things come at different times.

I'll talk to you about a couple of the ones you just mentioned that the Duffers have worked, you know, with us for the first decade of creators of Stranger Things. Major thing. Sorry. Uh, and they and they had a dream that they did not want to make more TV shows right now. They really want to make big temple theatrical movies. And I said to them, I told Matt and I said, guys, Matt and Russ, you guys are great at what you do and I think you should go do that. You're 40. Don't wake up when you're 60. Wishing you did that 20 years later. And I'm thrilled for them. And they're gonna have great success and they have great success. And we, the Stranger Things universe, are going to continue to be a part of forever. And that's fantastic. Sean also was with that with them, and he just kind of doing the same thing. And the problem, when you have an overall deal with someone who has a commitment and other places. You're in constant conflict for their time. And Sean is going to be making Star Wars movies for a while. And he's so that the fact that this deal is with Disney makes a lot of sense. And I'm thrilled for Sean, and we're going to do a ton of things together. You know, we have we're still with we have chosen development together. We have a show called sticks coming up that we're doing with a lot of that stuff's going to stick around. But it was a big challenge. I think even in the Ryan Murphy deal when we brought it on, was he had all these people on all the shows, you know, all these commitments, everybody else. So I mean, the desire to do movies would seem like something you could solve now that you are putting certain movies in theaters. But yeah, if that's going to be your primary thing that you want to do, that's probably not there. I said, okay. And then with David, by the way, we've been in business with David Fincher since 2013, 2011, really when you first did that? And we did that. Yeah, yeah. And then we did. And he has not done a movie outside of Netflix since 2014. And his, um, and he, he doesn't know what he's going to do next. And he's, he's, he's a great guy. We made I love the three films we've, we've done. Where do you see the further, further misadventures of Cliff Booth. It's phenomenal. Um, I super proud of Mindhunter. Uh, 17 Emmy wins for love, death and Robots. House of cards, of course. Um, and, uh. And he's just, um, he's a he's an he's one of the greatest living directors. And the meeting is when we we plan on being in business together for a very long time. And this this deal is not like he's leaving to go somewhere else to do something else. Somewhere else. We'll see what he does next and we'll be in the mix with it.

Um, we talked about Warner Brothers. How big of a threat, competitive threat. Do you see? The whatever they call this new company?

Uh, well, it's it's it looks on paper so far, it's 1 in 1. So I don't know if one and one is 2 or 1, and one is one and a half or one and one is three. And when you say one and one, just their share of streaming work. Yeah, yeah. Um, they do have someone running it in KC who we know you like a lot though. He's I was a good guy. Yeah. Uh, some reason we had a very well publicized lunch. You know, I think I may have eaten there many times, but. Yeah, from what I heard, there was some suggestion that there might be a job for him. Not necessarily at Netflix, but working with Netflix. Yeah. That's that. He he's going to be in a very good position wherever he does. He's a super talented guy.

Um, you're another thing that got a lot of attention during that process was when the sort of relationships between the elephant family and the president, you and the president. Um, I guess two part question. What is that like? What is your relationship with President Trump like, and what do you think are the odds that we actually get this federal film tax credit passed?

Well, this is for everything else. You might not think he is the guy who really cares about the entertainment business, and he cares about protecting the industry and creating jobs. And he loves to creating jobs in the entertainment business in America. So we talk a lot about how that could work and what's the upside and the downside of that? We're one of the largest producers of, you know, film and television in the world. Um, and we do business. And we've shot last over the last couple of years. We've shot actually in all 50 states. Um, so we understand the kind of the where it works and where it doesn't, where these incentives actually do create jobs and where they don't and how they work best. And I feel like what we're doing right now in new Jersey, we developed an incentive in new Jersey that is the most competitive in the country, that actually competes with most of the most of the places in the world. A good chunk of the production in America has gone to the U.K. because it's a very big, very attractive incentive. And public companies have a fiduciary responsibility to deliver the most they can for the money, so they chase those incentives all over the place. Um, in the US, the states compete with each other for that, uh, but they do not compete well with other countries for it in total. So the federal incentive, which would be a a layer of incentive that would go on top of the state's incentives, would compete with other countries and bring those to keep those jobs back in America. So what we do when we film in new Jersey, it's an economic it's not a no. That's why you like it. But do you think it's going to happen? There's a couple of wild card things. I think it's a bipartisan approach, which is helps a lot. Um, I think it makes it's completely sound. And it has a working model that's proven that you can put a dollar in and get 6 to $9 out, depending on how well you administer the incentive. Um, the problem is, is you have, you know, depending on what's going to happen in a couple of weeks, you've got a lame duck session. And if you have a change in control, and who wants to champion what and who wants to give you a win? The win for America is if that if we got it, that would be a win for the country. Um, I don't I don't I can't predict what's going to happen in politics. I'm not very good at that on a good day. So yeah, but I do think I do. It is absolutely economically sound policy to have a competitive production instead of just like you would any other industry.