Laura Martin, Needham, joins 'Fast Money' to talk the impact of film tariffs on U.S. companies.

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Donald Trump has signed an order to impose tariffs imports into the U.S. from countries including China, Mexico and Canada.

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Netflix could face significant implications due to the proposed film tariffs, according to Laura Martin from Needham. Martin noted that about 20% of Netflix's content expenditure is for films, and around 80% of these films are produced overseas. Consequently, the tariffs could potentially hit Netflix harder compared to other companies.

Martin elaborated on the complexity of the situation, as films often have various stages of production, with different parts being completed in diverse locations, raising the possibility of staggered tariffs. She also highlighted the issue of user-generated content, such as YouTube and TikTok, which could remain unaffected by the tariffs, given their prevalence and revenue generation outside the US.

Addressing the broader corporate impact, Martin pointed out that companies like Disney and Warner Brothers might have some protection against the proposed tariffs due to their substantial TV assets and domestic production facilities. However, it remains unclear how the proposed measures might differentiate between TV and film content, as both have distinct characteristics.

Lastly, Martin speculated on whether Netflix could potentially pass on additional costs to consumers or adopt alternative pricing strategies. Despite the uncertainty, she noted that Netflix might be well-positioned to absorb or adjust to the tariffs compared to its competitors. The wider implications of these tariffs on Hollywood's overall job creation and production costs were also considered, highlighting the higher expense of domestic film production compared to offshore locations.



Netflix will be impacted the most by film tariffs

Laura Martin joins us now. Laura, great to have you with us. Nice to see you. I know that there's a lot of unknowns about this proposal. It is at the very earliest of stages, but at the same time, in terms of what we know about how much content Netflix buys from overseas right now, how much could the hit be? Oh, it would be worse for Netflix. So the answer is to that question is, we think about 20% of their total content spending is films, because he said films, and of almost all of that, 80% of that is done outside the US. The Julia statistics she put up was 60% TV and films, and he might not be making a distinction between TV and films, because, you know, we do, because we think there's a difference in length, but he may not be making a difference, so we need to understand that. The more important point is that this pivots economic priority to user-generated content, because 2 3rds of YouTube creators are sitting offshore, but they're not getting taxed by generating revenue in America. So he's pivoting, and TikTok too. Most of that is offshore content, a lot of it, they're not getting taxed. So if it's TV, if it's only film and not TV, then Disney's at an advantage, because they got so much theme parks, and they have a lot of soundstages sitting in Burbank that's doing TV. Similarly, Warner Brothers has a lot of TV assets, and in theory, that's not cut up in the film 100% tariffs, unless he's not being very precise. So, but I would say Netflix gets hurt a lot, because it's a globally scaled platform, and so they make content all over the world. The other thing that's problematic is a film, if that's what he means, if that's what Trump means, takes three years. So he will actually be out of office before somebody could change their production location to make a film in America instead of offshore, whereas meanwhile, back at the ranch, over the next two years, the films that are halfway finished are gonna get, they have to be finished where they're being filmed right now. Right, I mean, I would imagine that there's a level of complexity here, because some films are probably shot overseas, edited, and produced final stages in the United States, so there could be stacked or staggered tariffs, depending on what parts of the film are produced where. You mentioned the impact on user-generated content, and so do you think that a YouTube, for instance, owned by Alphabet would be disproportionately hit hard should these tariffs go into effect, and it covers all content? No, it would go the other way. It must be any content that's made offshore, what would you do, put a gating factor in all American young people that are voters and say, you can't watch this without paying a fee? Because a lot of YouTube content and TikTok is free, so how do you tax that, right? It's got ads, so I think that'd be really hard. He'd lose a lot of votes if he suddenly put up a paywall in free services prior to this. Laura, let's get back to the core business, because what you're bringing up here is fascinating in terms of what the headlines look like today, but back to Netflix, and again, you're talking about a company that somewhere, 12 to 16% CAGR on revenue, but operating income will probably, over the next four or five years, at least what I'm seeing from the street, but operating income was up 28% last year, so obviously the economies of scale help us understand how this feeds into how you value this company. Right, well, so first thing, he says something yesterday on a Sunday, there's nothing that prevents him three days later from reversing himself, right? He sort of sees what the uproar is, and this isn't better for Hollywood or the exhibitors, so if he's trying to create more jobs, him adding tariffs to films in production before they come back isn't helping job production, it's hurting Hollywood, so I fully expect if he gets enough outcry from Hollywood that he'll reverse himself, so let's keep that in mind, but if he doesn't reverse himself, and films really means films, which is two hours or more, it is bad for Hollywood films because it is much cheaper to produce in London, to produce in Canada, to produce offshore than it is in America right now. What is the differential, Laura? 30%, typically offshore gives 30%. Within America, if you go to Atlanta and it's giving tax, or Philly was giving 20%, it's typically 15 to 20% within America, and 30% or more to go offshore. At the same time, if Netflix had to, I would imagine Netflix is the best position to pass the cost onto consumers versus others. Maybe, and maybe they could do a tier where you get the Netflix product, and then they upsell on films that are from offshore, so you charge an extra buck if you want unlimited, but Trump called Jeff Bezos, who technically no longer runs Amazon, said, don't you dare list the tariffs in the cost of goods that you're charging people. So I don't know if they would allow Netflix to have a tier that said tariff imposed on films.

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