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Jeremy Owens: Hello and welcome to On Watch by MarketWatch. I'm Jeremy Owens. When streaming services exploded in popularity, subscribers liked that they were cheap, ad-free sources of high-quality content they could share with friends and family. But in recent years, Netflix and its younger rivals have added commercials while increasing prices and cutting back on expensive shows and movies. We're also at the beginning of a crackdown on password sharing, one that's going to sweep across platforms before we know it. How should subscribers react to these changes? We'll talk about that with our Senior Tech Reporter, Jonathan Schwartz, then MarketWatch's own Tax Guy, Andrew Keschner joins us to discuss the start of tax season. We'll walk through what you need to know about this year's prep and the truth behind TurboTax's free offering. Plus we'll take a quick look at the news stories we are watching right now and how they'll affect your wallet. First, let's talk about the new economics of streaming. When friends ask me why streaming has changed so much in the past couple of years, I simply point to Netflix's profit. The streaming pioneer has earned more than $15 billion in the past three years. To put that number in perspective, it's roughly double the profit from its first 22 years as a public company. How did Netflix do that? By purposefully slowing its growth in content spending, rapidly increasing subscription prices and introducing an ad-supported tier, and as of late, cracking down on subscribers sharing their passwords. The streaming industry has always been a reflection of Netflix. Big companies like Disney, Apple and NBC crafted their platforms in Netflix's image and are still chasing the Silicon Valley company's success and mimicking its moves. For example, Amazon launched ads on their streaming service just this week. Plus, as investors balked at streamers, big content spending plans, executives followed Netflix and focusing more on their bottom lines than new shows. In response, subscribers have focused on their own bottom lines turning to a strategy that is in essence churn baby churn. Churn is an industry term that basically means canceling a subscription. Most streamers allow you to subscribe for a month so you can binge the content on that service and then cancel before the next bill comes. That's been the approach for many as countless new services arrive recently, executives have begun to counter the churn with a new content strategy, including dumping money into live sports like the NFL playoffs and WWE. So what is a streaming subscriber supposed to do now? We talked with senior reporter Jonathan Schwartz about where the industry currently stands and where it's going next. So Jon, we've talked a lot about streaming and where it's headed, where it's been, and we did go through the peak TV era basically that seems to be over. These companies were spending tons of money on prestige movies, prestige shows, really big names, actors, actresses, but that spending has shifted in terms of the type of content they're really putting their money toward. What are they looking to do? Why are they shifting this and what kind of content are they shifting toward?

Jonathan Swartz: So you're right, you're right. The platinum age of TV is basically over. It's kind of a basic case of economics. So in the case of Disney, Disney's cutting back, they are budgeted for $25 billion in content spending this year. Netflix is at 17 billion, and both of those companies want to either maintain or lower those numbers because there is a great deal of pressure on Disney to be profitable on the direct-to-consumer model. So consequently, they and Netflix, which is also budget conscious, they've introduced advertising, they're cracking down on password sharing. In the case of Netflix, they are looking at more licensing of older shows like Suits, and I think Netflix is going to start licensing and showing Sex in the City, which originated on HBO and is part of HBO Max. It's quite unusual for the first time, this incredibly popular show is going to be available on Netflix.

Jeremy Owens: And these are shows that people have watched over and over again. And we saw this early in streaming where there were fights over things like South Park and Friends, these older shows that people tend to watch over and over again. Besides Sex in the City. The big news about Netflix was that they landed a deal with WWE for its Monday night show, a weekly thing that will get people to subscribe and stay subscribed because they watch it every week.

Jonathan Swartz: Right. They want to avoid churn, so they don't want to lose people. And I think that's the key reason behind this ten-year $5 billion deal with which TKO which owns WWE. WWE, I think on average on Monday night gets close to 1.5 To 2 million viewers, and the beauty of that is that you can't churn through that content because it's once a week and it's live. And I think that the key thing with the WWE is they're going to do original programming. So the USA Network, which now is carrying Raw for the rest of this year, has a lot of original series that are built around the live events. So for Netflix, this is a key way to get content relatively cheap with a very, very loyal audience.

Jeremy Owens: The fascination with sports programming is a replay of what we saw with the cable bundle, and now streamers are seeing that they need those as well to keep people in front of their TV and attract advertisers. Take the Peacock, NFL playoff game this year where people who already owned the bundle had to pay again to see that game. They had subscribed to Peacock, and again, Jon, that's where we're seeing the economics of streaming work against the consumer.

Jonathan Swartz: Well, the interesting thing about the Peacock game, and I think you're referring to the Kansas City, Miami playoff game, which was the first time only on Peacock, so you had to subscribe to Peacock to watch an NFL playoff game, and he got 28 million viewers, I believe. Which to the NFL and Peacock's relief, there were no technical glitches. It went fairly smoothly. I think that, that event itself might encourage more pay-per-view, NFL games. Now, that's the other thing going back to the WWE, their big moneymakers are these monthly events that are live, that are essentially pay-per-views like the WrestleMania or the Royal Rumble. Those draw an incredible crowd. Now, Peacock still has the rights to those through 2026. It'd be interesting to see after 2026 if Netflix then takes over that because that is a huge way to bring in people who will pay 50 bucks to watch this scripted show for several hours.

Jeremy Owens: And Netflix and Peacock are not alone. Amazon has been doing Thursday night NFL football. If you want to watch Major League Soccer, you pretty much have to go through Apple now. Apple also has Major League baseball deal, and these are ways they're really trying to be that service that you never cancel, right? And that's where a lot of these are going, and it helps to kind of think about what they're aiming for as three buckets really. First, there's the streaming services that want to be everything for everyone. Netflix is really the best example, and then there's the new school Bundler, and really Amazon Prime is doing that, where they're trying to get you to access your streaming subscriptions through Amazon, even if it's not an Amazon service. And third, there's really still the prestige TV type of approach, which is like HBO, Apple appeared to also be going there and is now trying to expand into sports in other ways. One thing all these services have in common though, is they're getting more expensive and one reason they're getting more expensive is to create more of a gap between their standard and their ad supported tiers, and that gives those companies another avenue to extra revenue, a way to show faster growth now that streaming subscriber growth has kind of leveled off.

Jonathan Swartz: Well, it's working for Netflix. I mean they added 13.1 million net additional subscribers, which is a record, and they noted in their conference call that the movement towards advertising platform has drawn consumers and they really want to push that.

Jeremy Owens: Netflix could have also been helped by its crackdown on password sharing, though executives didn't mention that much when they talked last week at earnings time, but one thing that they did mention was the potential for industry consolidation. This has been a big talk among investors and analysts, and Netflix kind of said that it wasn't really looking to add in new streaming services to what it offers, but it does expect its rivals to look to band together, maybe some mergers. What did you take from what Netflix said about the competitive landscape and the opportunity for competition or the opportunity for consolidation?

Jonathan Swartz: I think something is going to be inevitable because here's the bottom line, if you look at any type of market research on streaming services and the number of streaming services that the average consumer uses, the average is around 4 to 4.5, and we have 7 or 8 options. And that doesn't even take into account really smaller ones. If anything, the number of streaming services people are going to use might even decrease because there's a lot of belt tightening going on. Maybe they are going to churn through the services.

Jeremy Owens: And what about the consumer who's just annoyed by the fact that they got away from the bundle, they got away from the traditional TV model to purchase streaming, and you're basically looking at a recreation of the cable bundle in the form of different streaming services that you have to subscribe to get everything you want?

Jonathan Swartz: You know what? In a weird way, it's like when you used to switch channels among cable, you wanted content for sports, you went to ESPN, or if you wanted a movie, you went to TNT or whatever it was. Now with streaming, in a weird sense, you have specialization among the streaming services, so you're just going to switch from one to the other to the other. There's no all-in-one solution, but with the streaming option, we're not locked into this kind of purgatory of paying for 300 channels when we only watched 10 of them.

Jeremy Owens: The biggest complaint about the cable bundle was the lack of being able to pay a la carte. Now streaming is giving you the option to only pay for what you want to watch, but we're seeing the downside of that option now. And for consumers who are looking to churn in and out of these services and need to know what they're getting into every month, we do have a column called What's Worth Streaming. Thanks to our colleague Mike Murphy, before every month starts, Mike will tell you what's coming on those streaming services and rates them much like an investment analyst does stocks. The investment analyst does buy, hold or sell. Mike will tell you whether to play, pause or stop your streaming subscriptions, and you can use that every month to kind of plan out your streaming strategy. And of course, keep following Jon's news coverage, your streaming services and other tech giants. Thanks so much for joining us, Jon, and we'll talk to you again.

Jonathan Swartz: Oh, thanks for having me.

Jeremy Owens: What's your approach to streaming? We want to know about it. If you're a listener on Spotify, answer this week's poll about whether you're a churner, a super subscriber or if you're sticking with the cable bundle? We're going to take a quick break up next, the tax man cometh, stay with us. Welcome back to On Watch by MarketWatch. Before the break, we talked with Jonathan Swartz about a shifting streaming strategy. Now we turn to a bill that is coming due for even more Americans, taxes. Last year, nearly two-thirds of Americans received tax refunds with an average total that topped $3,000. But both the number of refunds and the total amount going back to taxpayers declined from the year before, as pandemic-era tax benefits melted away. What should we expect this year and what do taxpayers need to know about? So-called free filing options. We called in Andrew Keshner who writes MarketWatch's Tax Guy column to learn more. Andrew, tax season started this week, and I think the only way most Americans would know that is from the just preponderance of TurboTax commercials claiming that their service is free. But this has been a point of contention with the US government and the halls of D.C. Can you walk us through exactly what the problem is there and whether TurboTax really is free?

Andrew Keshner: So this is something that's gone on for years. As you said, we see these ads, we can do your taxes for free, and yet the issue is that a lot of people start doing their taxes and then find that they're going to have to pay after all because it turns out that their situation is more complicated than a simple return can handle.

Jeremy Owens: It's only a little over a third of people have returned simple enough, and it's 37% percent have returns simple enough that they would be free through TurboTax.

Andrew Keshner: Yeah. That is the advertising that they have on the free edition TurboTax site right now. What FTCs their whole beef has been is, look, you guys are not adequately putting those caveats to let people know what they're getting themselves into. Now, Intuit, which is the owner, maker of TurboTax, they defend themselves hotly through this whole thing. They say, "Look, we have sufficient disclosures. We do millions of tax returns for free." And I've seen in a couple places they've talked about doing historically around 10 million returns for free. But again, it's this question of what is sufficiently disclosed or not? And so they say they're going to appeal what the FTC commissioners have decided. So we see where it goes from there.

Jeremy Owens: This is a very interesting thing to happen right now because the IRS is actually trying to compete with TurboTax and put its own free filing option out there. This is the first year we're going to see that in the wild and people are actually going to be able to use it, right?

Andrew Keshner: Right. This is a pilot program. The people at the IRS are very careful to say, test pilot, we're just trying it out now, this is part of the Inflation Reduction Act back in the summer of 2022, and it started with a study seeing whether or not it would be feasible for the IRS to launch its own filing program where you do your taxes straight to the IRS instead of paying a middleman. And then they did the study. They said, "Hey, it's feasible." And then the Treasury department said, "So let's give it a whirl, build this platform and let's see how it goes this filing season."

Jeremy Owens: It's only in 12 states right now.

Andrew Keshner: Yeah, California is one of them. New York is one of them. Massachusetts is one of them. Arizona is one of them. And the reason those four stick to mind, those are the four that are participating in the program where you also have to file a state income tax return. So they will push you on to a different site that will help you with your state return. But it's going to be really interesting because again, talking about tax companies getting their backs up, Intuit is not thrilled with this at all. H&R Block, not thrilled with this at all. I've heard it straight from them, repeatedly. They don't see it as a threat. They see it as it's a solution in search of a problem in their view. Another criticism I hear out there is do you really want the IRS, which is the chief tax collector in the country also doing your taxes? I mean, how can you be so sure that IRS is going to sniff out every last penny that you're owed?

Jeremy Owens: You brought up H&R Block, you spoke to their CEO recently about what to expect from this tax season. What'd you find out from that conversation?

Andrew Keshner: Well, there's two things that really stood out for me. Number one, Jeff Jones, he's the president and CEO. One thing he said is, "It's going to be a normal tax season. I mean, we've gone through the pandemic and filing deadlines were pushed all over the place, and the IRS was all clogged up with returns, and no one could get on the phone with anyone at the IRS. And there were all these changes in the middle of tax season one time." So he says, "Take some comfort in knowing that it's supposed to be just sort of as chilled out tax season as relatively anyone could get chilled out about taxes." But the other thing that jumped out at me is last year the big deal was refunds on average we're going to be a bit smaller than the year before because all of the pandemic era credits and extra money for things like child tax credit or the earned income tax credit, it's sunset, faded away. And so because it's faded away, it didn't make its way into returns. And so returns were smaller. And so then I asked, "How are returns looking this year?" And he said, it's really, really early, really, really early. And I talked to him before Monday's start of the filing season, but he said, refunds are up.

Jeremy Owens: Those early numbers could be a little swayed, right? I mean, it's quite possible that the people who were filing early are doing it because they know they're getting a bigger return and they want it as early as possible.

Andrew Keshner: Right? But the note that he was saying is that when you look at all of the tax laws in play this year, there's nothing that is starting or nothing that is ending that in the broad brush is going to push those refund averages down.

Jeremy Owens: Yeah, Andy and I would say that one thing that really sticks out to me about tax season starting this week is that we could still see big changes in the tax law for this year. Congress is debating a new approach to the child tax credit. Some of it could be in effect if Congress passes it relatively soon and it is in both chambers of Congress right now, what would that bill change? And are we going to see changes from here even if people are already filing their taxes right now?

Andrew Keshner: So the child tax credit itself is worth up to $2,000 per child right now. Sounds straightforward. It's not. There's parts of the credit that are refundable, meaning that will convert into refund cash for you. And right now, that refundable portion is $1,600 of the $2,000. What this proposal is doing, one of the things it's doing is it's increasing the refundable portion to $1,800 for your 2023 income taxes. It's also making the calculations more generous to count children in a household instead of the way it is operating now. And the whole idea there is to get more cash to lower income eligible households. What it means for everyone right now, as you said, tax season started Monday. So what someone to do? Well, I heard from the IRS commissioner, Danny Warful. He said, "Go and file your return when it's ready, when it's accurate. I mean, the refund is a major windfall, maybe the major windfall for a person in their financial life every year. So if there is any sort of change in Congress because of new rules for the child tax credit, the IRS on their end do the adjustments, the calculations, whether that means bumping up your refund on its own side or sending a check afterward, they will do that work on their end." And they said, "If this happens with their new platform, the direct file, they could update their stuff in less than a day." And I'm sure the major tax companies, they can pivot very quickly on this if they have to.

Jeremy Owens: Now obviously, the child tax credit is still being debated. We will see what happens with that. You can follow Andrew Keshner, the Tax Guy and our own coverage of what's happening in Congress to see where that heads and good luck with tax season to both the listeners and to you, Andrew.

Andrew Keshner: Thank you.

Jeremy Owens: Before we go, it's time for What we are Watching and look at the news you need to know for the rest of the week and beyond. Yesterday, the Federal Reserve indicated it was not prepared to cut interest rates until it has gained confidence that inflation is moving sustainably toward 2%. The December consumer price index reading showed yearly inflation of 3.4%, which increased from the previous month. So that language suggests that Wall Street's hopes for several cuts this year, beginning in March, maybe overly optimistic. Stock indexes dipped immediately following the announcement. The tsunami of tech layoffs that began last year is continuing. In January alone, PayPal, Ebay and Square parent company, Block, join companies like Microsoft, Google, Amazon, TikTok, and others in workforce reductions. Reports put the number of tech layoffs in January so far at almost 25,000, and that's after nearly 250,000 job losses from tech companies last year. Now those cuts have so far not hurt the overall labor market. Our next view of the larger jobs picture will come Friday when the government releases January employment figures. Those will factor into where the Fed heads from here. Staying on the topic of tech. Earlier this week, Microsoft destroyed earnings expectations as its big artificial intelligence push pays off. Google also credited AI with strong cloud growth. And Nvidia rival AMD nearly doubled its forecast for AI chip sales this year. Yet all three stocks declined after those reports. Showing that the bar has been raised for tech this year after all the AI hype. We'll talk more about that next week. And that's it for this episode. Thanks to Jonathan Swartz and Andrew Keshner for joining us. To keep following the latest on streaming and tax season head to marketwatch.com. You can subscribe to the show wherever you get your podcasts, and please do. If you like what you heard, please leave us a rating or review. It really helps others discover the show, and let us know what you want to hear from us. You can reach us at onwatch@marketwatch.com, and if you're a listener on Spotify, be sure to answer this week's question about how you're approaching streaming subscriptions. The show is hosted by me, Jeremy Owens, and produced by Metta Lutz-Hopt and Katie Ferguson, who also mixed this episode. Melissa Haggerty is the executive producer. We'll be back next week with a new episode and until then, we'll be watching.