The Netflix bet

The Netflix bet

The streaming service wants to be seen as a content company, not as a tech one.

As media groups like Disney and CBS work hard to frame themselves as tech companies by investing in streaming and other technology, Netflix, long a stock market darling thanks to its hyper growth as an online service, is taking the opposite tack: It’s boasting about its content.

“What we’ve seen more is that these shows that come out on Netflix are really piercing the culture,” Ted Sarandos, Chief Content Officer, said on the company’s October earnings call. “Some of the most-watched shows in television are on Netflix.”

Netflix wants investors to know that, too. The streaming giant is bracing for a fresh wave of competition from Disney, WarnerMedia, and Apple, in addition to increasingly formidable rivals like Amazon Prime Video and Hulu.

In this environment, where every media and tech company sells a streaming service, Netflix wants people to know it is among the one or two platforms people must have; it has the original shows and movies that everyone will be talking about at work, school, or on social media tomorrow.

Netflix’s talk of impact and viewership plays into a broader shift to get Wall Street to view the company less as a subscription-driven technology business and more like a movie studio or TV network whose financial results are driven by hits, said Jim Nail, principal analyst at Forrester.

Currently, the company’s stock lives and dies on subscriber growth. Investors like subscriber growth, in part, because it represents a reliable, recurring revenue stream. But growth could come under pressure as more competitors enter the marketplace and threaten Netflix’s share, particularly in the US, where growth is already slowing.

It behooves the company to shift investor thinking away from subscriber gains, which could be challenged in the months and weeks ahead, and toward engagement.

Engagement aligns more closely with where Netflix is heading as company. A majority of its investments now are in content rather than technology, and have been for some time. Netflix budgeted $10 billion for content and marketing in 2018, for example, and just $1.3 billion on technology and development.

The trouble is there’s no clear measure of engagement for a subscription service. Netflix doesn’t release many of its movies theatrically, or sell ads based on the audience for its various series. It makes money purely from subscription fees.

Netflix put out more movies than all the major US studios combined last year. And, by Quartz’s count, it released 1,500 hours of original content in the US alone. By comparison, HBO recently said it would boost (paywall) its output by 50% in 2019 to 150 hours of original scripted fare.

So far, investors don’t appear to have come around to Netflix’s thinking that engagement and cultural impact matter most. When Netflix received its first Oscar nomination for the movie Roma last month, investors didn’t care. The stock continued to drop on the prior day’s earnings release.

The good news is that over the last year, shares in Netflix have risen 34% to $359 on strong subscriber growth. But that’s an old story, even as Netflix tries to spin a new narrative.


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Oso Oseguera
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