[On :freetrade:] Netflix (NFLX) 📺

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The report highlights the scale of the dramatic consumer shift towards internet-based services, from subscribing to Netflix or Spotify to buying or renting a film or box set on Sky Store or Apple’s iTunes, with more than 80% of total entertainment spend now on digital services. Digital video sales hit £2.1bn last year, while UK music fans spent £1bn on streaming services for the first time.

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https://www.cityam.com/netflix-beats-fourth-quarter-revenue-estimates-as-subscribers-jump/

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This is a slightly old but very insightful series of articles on Netflix. This is the last part:

Because Netflix operates as a content business, it tends to be assessed principally on its content. This leads many to think that Netflix is perpetually on the precipice of being crushed or squeezed out of the market, as:

  1. The majority of Netflix’s content is rented and can thus be reclaimed by its owners over time
  2. Nearly all of Netflix’s “good” original content comes from third parties, most of whom are vertically integrating to support their own services and will soon (in theory) no longer sell to third parties
  3. Given Netflix’s internally developed original content is “bad”, it will be unable to compete with Disney+, Hulu, WarnerMedia SVOD, NBCUniversal A/SVOD once their corporate attention shifts to OTT
  4. Netflix’s content offering is only “good” because they spend (so much) more than anyone else, as this gives give more “at bats” through which to produce home runs and triples. However, this spend is unsustainable and can/will easily be beaten by the cash-rich technology giants (i.e. Amazon and Apple), and/or the cashflow positive media giants (e.g. Disney, WarnerMedia, NBCUniversal)

There are numerous problems with these critiques.

Working hard.

care to shed some light on why you think so?

That sentence is part of the quoted article - click on the link to it :slight_smile:

point 4 was always the the big one for me. Netflix did the leg work, figuring out how to deliver HD video to tens of thousands of people, how to present the app, etc.
The others sat back and watched to see how it’s done.
Netflix doesn’t have the cash to get through a bad year (saying that, the others probably don’t either now) and it’s income comes only from it’s streaming service, where as most of the others have fingers in other pies.

@manoadamro Do you reckon its content is a differentiator though? Not in the same way as Disney, but it has a lot of great shows on.

I did read somewhere that Friends has a Pareto effect on viewership, and that will go away. I’d investigate that if I was to invest in this company.

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Has anybody heard or read of any ambitious plans by any business to try and tie a few of the streaming platforms together as a bundle at sell at a discounted amount. It would be a tough thing to pull off I know but it must have been considered, I think there would be plenty of interest.

Sure, but how many great shows are Netflix originals? There are a lot of duds for each hit. Is that sustainable without third party content? Even the BBC are considering a premium streaming service instead of the licence fee.

If that’s true about friends: this might be of interest to you

I think that would be awesome, although I think that would be the final nail for Netflix imo

Disney+ other revenue comes from segments most of which may not see any traffic for long time.

2019 annual report - https://thewaltdisneycompany.com/app/uploads/2020/01/2019-Annual-Report.pdf

NYT:

Amazon need Prime Video to keep its Prime users happy.

So, maybe, Amazon is better positioned.

Netflix had $5 billion as of the end of last year. And it’s long-term debt was much lower than Disney’s.

2019 annual report - https://d18rn0p25nwr6d.cloudfront.net/CIK-0001065280/4b247013-f3f1-4881-92d2-13088d2bd8d7.pdf

$5bn will allow them to make content for approximately 4 months.

This was my thinking of Netflix before the covid fun started, I would have said Disney was in a better position, but after covid, and after using their service, maybe not. (not suggesting the service is bad, just seems to serve a different demographic)
Maybe it’ll be Amazon, maybe HBO, I don’t know. I would be genuinely surprised if Netflix is still on top in 5 years time though

Netflix could temporarily switch to just buying older content or extending rights on existing blockbusters, while figuring out how to continue making animated movies with studios as they’re WFH?

If Nasa’s engineers can operate the rover on Mars whle WFH, maybe so can Netflix?

Perhaps, YouTube is better positioned among them all - TV and other mediums post their content there regularly, including news. YouTube is a juggenaut. They don’t have to create any content themselves. The ad business will be affected but the business is run on scalable GCP cloud and they have Google’s cash - it’s a winner.

Scalable pure tech > content-creating tech.

In comparison, TikTok is hiring by the thousands and Instagram is probably more popular than ever.

What do you think?

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Yeah, Youtube is the real winner here.
No one has to pay for it and creators are under pressure to make content to keep everyone entertained while they have nothing but time, soaking up all the juicy ad revenue.

What makes Disney superior as a company is that it has recurring revenue such as merchandise and parks. If Netflix can do that one day, that will extend the longevity of the company and make it less dependent on the one-off content such as Stranger Things and Crown or Tiger King.

That’s an interesting thought :thinking: