Narrative: Netflix is Spending Too Much on Content
Each narrative page (like this) has a page describing and evaluating the narrative, followed by all the posts on the site tagged with that narrative. Scroll down beyond the introduction to see the posts.
Netflix’s Cannes Movies Blocked From Release in France by Film Board (May 11, 2017)
This content requires a subscription to Tech Narratives. Subscribe now by clicking on this link, or read more about subscriptions here.
Amazon Buys Rights for 40 Movies at SXSW Film Festival (May 10, 2017)
This content requires a subscription to Tech Narratives. Subscribe now by clicking on this link, or read more about subscriptions here.
HBO Will Pull Shows from Amazon Prime After Next Year (May 3, 2017)
This content requires a subscription to Tech Narratives. Subscribe now by clicking on this link, or read more about subscriptions here.
Netflix Agrees to License Content to Baidu Subsidiary iQIYI (Apr 25, 2017)
This content requires a subscription to Tech Narratives. Subscribe now by clicking on this link, or read more about subscriptions here.
Netflix Raising 1 Billion Euros to Cover Negative Cash Flows from Content Investment (Apr 24, 2017)
This content requires a subscription to Tech Narratives. Subscribe now by clicking on this link, or read more about subscriptions here.
★ Netflix Reports Q1 2017, Gains 5m Subs, Makes First Profit Internationally (Apr 17, 2017)
Note: this is my first piece of commentary on Q1 2017 earnings. The Q1 2017 tag attached to this post will eventually house all my earnings comments for this quarter, just as the Q4 2016 tag does for last quarter and the earnings tag does for all past earnings comments. Netflix is also one of the dozen or so companies for which I do quarterly slide decks as part of the Jackdaw Research Quarterly Decks Service. See here for more.
Netflix today reported its earnings for Q1 2017, and the results were mostly good, with a few possible red flags. This year, the new season of House of Cards will debut in Q2 rather than Q1, and that makes some of the year on year comparisons tough. One of the results was much weaker Q1 subscriber adds this year than a year ago in the US, worsening what’s already been a trend of slowing growth for several years. Netflix is projecting something of a recovery next quarter, however. In some ways, the biggest news was the first quarterly profit for the international business, which has neared profitability in the past but been plunged deeper into the red by market expansions every time it did so. Now that Netflix is in essentially every country it can be, that won’t be the case anymore, so although it’s projecting a return to small losses next quarter, it’s now saying it wants to be judged partly on growing revenue and margins globally over time, which is a big shift (previously it wanted to be judged on sub growth and domestic margins only).
There were a couple of mild admissions of failure: customer satisfaction in Asia, the Middle East and Africa is not what it could be, and the company’s Crouching Tiger sequel didn’t achieve its goals for original content. Marketing spend will be up at least a little in 2017, and content obligations continue to grow. The company also made clear that the big free cash flow losses caused by its investment in original content will continue for “many years”, though it also said that it will eventually throw off significant cash when it hits a “much larger revenue base”, giving I think the clearest indication yet of what a long-term project positive free cash flow will be. In the meantime, it will continue to borrow to fund that growth. Domestically, profits are growing very rapidly, and the theory continues to be that eventually the International business will reach that level of maturity too and deliver decent margins. But in the meantime, a bet on Netflix continues to be a bet on continued high growth, something which certainly isn’t guaranteed in the US and may end up being tough long term internationally too.
via Netflix Shareholder Letter (PDF)
Netflix: The Monster That’s Eating Hollywood – WSJ (Mar 24, 2017)
The headline here is indicative of the language used by some TV execs in the article, but that rhetoric feels pretty overblown, along with the suggestions that Netflix is somehow singlehandedly doubling the fees actors ask for or squeezing other players out of the business. Yes, both Amazon and Netflix are raising prices for acquisitions of indie movies at Sundance, but no, they’re not having that dramatic effect on the entire industry, not least because they’re still just a fraction of the size of the industry as a whole. The reality is that competition has been intensifying for years because the industry is getting tighter in an age of shrinking audiences and higher standards, and Netflix and Amazon aren’t to blame. Having said all that, the article is likely indicative of a souring of relationships between Netflix and traditional media companies, and if that continues we’ll likely see more content pulled from Netflix and other SVOD services, which just validates Netflix’s massive investment in original content which no-one can take away.
via WSJ
Netflix will explore mobile-specific cuts of its original series – The Verge (Mar 16, 2017)
Like the recent choose-your-ending report, this is something Netflix is merely experimenting with rather than something it’s going to be releasing imminently. But one of the advantages of commissioning and owning original content is the freedom to do interesting things with it, including chopping it up in different ways for mobile devices. I’m not quite sure how this would work in practice – in general, it’s pretty tough to take content created for one format and make it as compelling in smaller chunks or edited down, and Netflix will likely be best served by creating content specifically for mobile, but we’ll see. It has in the past (and even recently) said that it doesn’t create content with specific screens in mind, but that mindset seems to be changing subtly.
via The Verge
Marvel’s ‘Iron Fist’ critics rating: 0% on Rotten Tomatoes – Business Insider (Mar 9, 2017)
Netflix’s original content has always been a mixed bag – on the one hand, shows like House of Cards won awards (and also won Netflix lots of customers), but on the other there was Marco Polo, which critics panned (it has a 24% score on Rotten Tomatoes) but audiences enjoyed anyway (the corresponding audience score is 93%). Given that Netflix doesn’t release any kind of viewing data, it’s emphasized positive critical response as a validation of its original content, but it’s also defended shows like Marco Polo as being popular with real people even if critics didn’t like them. This new show has done even worse than Marco Polo with critics, but there’s a decent chance audiences will lap that up too. The fact is that any content production is a gamble, and given that Netflix doesn’t use Amazon’s pilot model to select new shows, that gamble is that much larger, especially with a big budget, Marvel-branded show. Only Netflix knows what its internal calculus on what makes a show a success or a failure looks like, but I’m guessing a one-off critical panning won’t do too much damage to its original content strategy. If it starts to become a pattern, however, that would be more worrisome.
via Business Insider
Netflix uses AI in its new codec to compress video scene by scene — Quartz (Mar 2, 2017)
This feels like a somewhat gratuitous use of AI here by Netflix – maybe this is technically AI, but it’s hard to see how it’s not just image analysis. But the broader point here is that this is an often overlooked aspect of Netflix’s differentiation: its technical capabilities in video delivery. Yes, its investments in original content and its massive and rapidly growing scale globally are huge advantages over the competition, but its content delivery networks, compression techniques, and a host of other technical capabilities are also key to making its user experience better. And this is another area where it often feels like it will take competitors a long time to catch up even if they ever decide that’s strategically important.
via Quartz