WHAT NETFLIX NEEDS TO DO
Netflix stock fell 35% today. That is an enormous enormous drop. Sure, it might bounce from here but the drop was well deserved.
Netflix was the original powerful streaming service. It felt like nobody could beat it. They were spending over $10 billion a year on content to keep out competitors.
The problem is: that is chump change for Apple, Amazon, and even Disney, HBO, Hulu and others.
Right now, probably the most critically acclaimed show on TV is "Severance" on Apple TV. Not only a great story but a director/producer like Ben Stiller, and actors like Christopher Walken, John Turtorro, Patricia Arquette, etc.
Great content is a commodity. You can't buy a stock because of it.
But, to misquote Mark Twain, business history doesn't repeat but it rhymes. We've seen this story before and it gives clues as to what Netflix should do.
Netflix was the original powerful streaming service. It felt like nobody could beat it. They were spending over $10 billion a year on content to keep out competitors.
The problem is: that is chump change for Apple, Amazon, and even Disney, HBO, Hulu and others.
Right now, probably the most critically acclaimed show on TV is "Severance" on Apple TV. Not only a great story but a director/producer like Ben Stiller, and actors like Christopher Walken, John Turtorro, Patricia Arquette, etc.
Great content is a commodity. You can't buy a stock because of it.
But, to misquote Mark Twain, business history doesn't repeat but it rhymes. We've seen this story before and it gives clues as to what Netflix should do.
1. 1980 HBO
They also started having original content in the form of sports (particularly boxing) and later edgy TV shows they became famous for.
2. But then they had competition
Suddenly, paying money to see movies without commercials became a commodity. And Showtime even started showing boxing.
Premium cable was becoming a commodity.
3. HBO's solution
Instead, start another premium cable service that does the competition for you.
HBO started Cinemax.
4. Why Cinemax?
It was cheaper. And it didn't have newly released moves but instead had movies released between 1930 and 1960. It was cheaper, much cheaper, to buy those movies.
Cinemax also started having more adult type tv shows. In fact, it was nicknamed "Skinemax".
HBO, with their 20,000,000 subscribers, was able to bundle the two services. Suddenly, it was a better deal than what Showtime was offering.
5. It worked and HBO remained the best
Jerry Levin (who was CEO of HBO then), became the CEO of all of Time Warner for awhile.
Michael Fuchs became CEO of HBO and later of Warner Music
Frank Biondi because CEO of Viacom (MTV, Nickelodeon, Comedy Central, etc) and later Universal
Matt Blank who was head of marketing at HBO became CEO across the street at Showtime.
Chris Albrecht, who was head of original programming, is CEO of Starz.
And on and on. Some execs of the old HBO are at Netflix, Amazon, etc.
6. So what should Netflix do?
7. Make a new streaming service they can market it to their tens of millions of subscribers.
8. What would Netflix 2 look like? how would it differentiate itself?
- perhaps all reality shows get moved to Netflix 2
- maybe live, broadcast-style shows like news shows or business shows get put on Netflix 2.
Broadcast style business shows or even stock picking shows are hugely popular but are only useful live so it's a different business model for Netflix. But, given their popularity, still make sense for a streaming service (like a Netflix 2).
9. In other words, if you can't expland horizontally, expand vertically.
Vertically means creating additional services that offer products that the streaming service currently doesn't provide. And the additional service means you have a new product that can be marketed to your subscibers.
This is why magazine companies used to own many magazines. If you bought Time, you might as well also subscribe to Sports Illustrated because of the huge coupons for it you would see in Time. Time owned Sports ILlustrated (and People, and Life, etc).
Uber doesn't expand vertically but the Chinese Uber, DiDi, does. they own gas stations for their cars, mechanics, and even some of the cars they own, unlike Uber.
10. Important lesson
Again business history doesn't repeat but it rhymes. They should use their own examples, plus historical examples like HBO to figure out their next steps.
Else their stock wlll long-term go down
Along with Facebook's, but for other reasons in that case.
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