A meta thread for video streaming services - Netflix, Hulu, Disney, HBO, Warner, Prime, AppleTV, etc

Some more context for the above from their latest results. This is the asset side of the content balance sheet

Netflix’s particular business model doesn’t seem sustainable to me. That amount of spending on original content just can’t keep going on forever, and it feels like they’re due for a big reckoning when their subscriber growth levels out.

It’s particularly troublesome, IMO, that they’re dumping all that money into content with no eye towards commercial viability. Look at Disney - so much of what they produce is built around future expansion opportunities: sequels, toys, licensing revenue, theme park rides, etc.

Obviously this is probably something that lots of people like about Netflix, but it seems like they should at least have some of that.

Now I just have so many questions!

True enough,but the whole point of the original content strategy was to be more sustainable than relying on licensed content from third parties. In some sense, it really can go on forever. And in general they’re being pretty smart about getting the most out of their spend — for instance they’re financing “foreign language” productions to help drive subscriber growth in particular countries, but also getting pretty unprecedented audiences for that sort of content in their anglophone markets. I would argue they are being fairly commercial in their decision making - not just throwing money at prestige content, but also paying Adam Sandler to make a bunch of lowest common denominator crap, say. Now, they’re certainly not monetising their IP in all the ways they could be, but that’s something they could do if the money gets tight.

I just don’t know how Netflix keeps this up. How do you run a business that requires this level of investment just to keep up growth?

In 2018, Netflix’s movie slate consists of 82 titles, with Warner Bros. set to release 23 films this year, and Disney (Hollywood’s most profitable studio) debuting a mere 10. Looking into the financial crystal ball, investment firm Goldman Sachs predicts that Netflix could have an annual spending budget of $22.5 billion in 2022. This staggering number would bring Netflix close to matching the total spending by all of the cable companies and networks in the United States combined.

I was just mentioning juststream, then I scrolled down to notice someone else mentioned it, and that you already tried it.

Instead of 82 movies that most people ignore, they should have done 10 really good ones that everyone wants to watch.

Yeah, thanks. I did appreciate that link. I’ve been to that site a number of times but always forget it exists when I need it. :/

Well, they don’t keep it up, is the short answer. At some point they just become a mature company with a large catalogue of content and humdrum growth and capex numbers but very good margins. Ideally (from their perspective) that happens when they’ve become far and away the biggest media company in the world. Also, a fair part of the content splurge is basically financial arbitrage. Capital is cheap for firms like Netflix now, so they might as well raise as much of it as they can and use it to grow. At some point the cycle will turn and the taps will turn off and growth will be harder to come by. As long as they don’t over-leverage themselves (a big if, admittedly), it’s a sensible response to the financial landscape.

I only sort of understand most of what you’re saying, so stop me where I get this wrong.

It looks like you’re saying at some point it’s harder to raise the money, but hopefully by that point they just have a huge library and stable income from their subscribers, and it comparatively it doesn’t cost much to just keep what they have going so they still make a lot of money off high margins.

Am I on track so far?

Because that sounds like a terrible plan in reality, when it’s easier than ever to drop and resubscribe to these services on a whim. There was the other story somewhere about how Netflix shows aren’t likely to go past 3 seasons because of the way they’re financed, and how that’s fine for Netflix because new shows and movies lure in more people than new seasons for existing shows.

That customer behavior sounds like bad news for a plan to spend a bunch up front, build a huge library, and then coast on people staying subscribers for that.

They’re definitely going for breadth over depth. HBO makes only a few shows. A few of them are good. So you can subscribe to HBO for a couple of months and get their good content.

Netflix doesn’t want that. They want you to have a sea of content that they own, and that you can’t get anywhere else. This means they don’t necessarily care so much about viewer count per show right now – a good show could be discovered later on. What they want is to not be reliant on TV networks pulling their shows and them being left with no content. They want you to browse Netflix and always find something to watch.

Yeah, but who knows ahead of time which 10 of the 80 are gonna be hits?

I would argue you can do the same with Netflix now (and I do). You don’t have to watch all 80 of their crappy movies, just the 10 good ones (to use the above numbers as an example).

But if that’s their strategy, they’re in trouble once the money gets tighter. “Always throwing tons of new shit at the screen” is expensive, especially when they can release a show and it’s in-and-out of the zeitgeist within a week because it’s already been binged.

I think they have a lot of above-average content a subscriber can enjoy. Their goal is to have enough to keep you around, and the stuff they acquire from other networks is the icing on the cake. I do think it was a mistake for them to cancel the Marvel shows though, as that was their main draw.

Also, like, they don’t have to be great to get people to watch them. I believe the Adam Sandler movies they made got big numbers and he has almost never made a good movie.

Basically, yeah. Part of this push is driven by the need to replace licensed content, which is getting a) more expensive as people realise how much money Netflix (and Amazon etc) has to throw around and b) harder to come by as everyone wants to hoard it for their own platforms. But part of it is also that for most of the last five years or so people have been throwing money (equity and debt) at tech companies. Ceteris paribus, if you can get a sufficient return on the investment, you should accept as much of that money as you can. Now all things are not equal, so it’s possible to mess that up and over borrow and make bad bets, but generally if people are giving you essentially free money, you take it. At some point that money is going to stop being free (because of the Fed, because of a market downturn, because your own company is no longer the hotness).

But you can still make good money off people re-upping every few months — certainly re-acquiring a customer is cheaper than acquiring new ones in this market — and they’re more likely to do so if you have a shit-ton of content so you can’t just burn through it all in a month. Moreover, in practice Netflix’s subscriber churn is really not very high, considering the dominant online discussion of subbing for a month every year or whatever.

Also, on this point, Netflix is producing/acquiring content for subscribers around the world, in many cases in their own languages. It makes more revenue abroad than in the US. So a fairer comparison would be the combined spending on content by all pay TV companies in the countries in which Netflix operates.

Amazing how they can spend so many billions of dollars and yet their apps remain simply awful.

This interview from 2013 seems pretty quaint now.

In a long and thoughtful profile of Netflix in GQ, the streaming company’s chief content officer Ted Sarandos speaks out about what the future holds for the firm. He suggests Netflix must be making at least five new shows a year in order to outdo the big boys.

Well, they certainly don’t have enough to keep me around, but then I know I’m not the average consumer. The vast, vast, vast majority of shows on any channel or streaming service aren’t something that will pull me away from books or games.

And I think you’re absolutely right about the goal being to keep people around. Once a subscriber leaves, they likely don’t come back, or at least not as an every-month subscriber. I suspect many, perhaps most, Netflix subscribers are there more out of inertia and convenience, rather than amount of content they care about. They could do one month on, two months off (or more) and not watch any less content…but they’re more interested in having it available to watch once a week instead of binging, or simply don’t want to go through the hassle of cancelling and re-subscribing.