Royal Bank of Scotland to investors: 'Sell everything'

Subscriber growth indicates they are selling a product/service people want.
But they’re selling it for much less than it costs to make and deliver.

 

I would have thought a potential trade war would have impacted the stock market, but the tariffs on China and the TPP minus the US doesn't seem to have caused a ripple.

 

Netflix has clearly established itself as the dominant subscription streaming company. That's the business that all their rivals are now trying to crack, and Netflix can fight them from their current position of strength. Their competitors are going to have to burn a lot of cash to get in their neighborhood. So no, their strategy definitely isn't ridiculous. However, spending so much money on content creation as opposed to licensing content brings an added layer of risk that they didn't have before.

One other note is that pretty much all of those companies you cite aren't standalone companies, but part of large media conglomerates. ABC and Marvel are part of Disney; NBC is part of NBCUniversal which is part of Comcast; DC is part of Warner Brothers which is part of Time Warner which will likely be part of AT&T. CBS is (I think) kinda standalone at the moment, but there's talk it might again become part of its former parent, Viacom. Essentially every major movie studio is part of a larger company.

One reason for all that consolidation is that being a standalone studio is a tough go, and their stocks didn't trade at great multiples because their profits tended to rise and fall with hits/busts and their revenues can't just go up-up-up because that's not the nature of that business. Lately there's been an especially big push to combine content with distribution (AT&T/Time Warner, Comcast/NBCUniversal, Disney buying 20th Century Fox and the rest of the content world in part to start their own streaming services, etc.). Netflix likely feels that they need to be that too – they have the distribution, but likely feel they need to control their own content, and making it themselves is the best way to do that. However I'm arguing that they started that war, not vice versa.

But hey, the war is here, so I think Netflix is (and perhaps has to be) all-in on content creation. I'm just very curious to see where they'll be in 3-5 years.

 

I’m not sure it’s accurate to label Netflix a “content creator” ...

 

It's pretty clearly becoming one, and spending a ton of money to do so.

Though obviously that content is being created to (hopefully) make its subscription service more attractive, which is how it makes its money. Original content is exclusive content – at least the way they're approaching it – so they clearly feel that can be a powerful differentiator to their offering, since there are now lots of streaming options and will soon be even more (Disney in 2019, etc.).

 

Perhaps my mild objection to the labeling is overly picayune. My take is that they're simply licensing content directly, rather than having the studios (?) being an additional intermediary between them and the content creators (as before). It's not like they've set up a production company (with all that investment, etc.).

 

Yeah. If they one day decided "shit, we have way too much already, let's let people catch up!" they wouldn't have a major operation to shutter.

 

With all due respect, this isn't correct. The studios ARE the content creators in this context. And Netflix has explicitly moved their content acquisition budget away from licensing others' content and toward creating their own original content. They have effectively set up a large production company, just like any other major studio. So has Amazon (Amazon Studios) for that matter, though not at the same scale. The only difference is that Netflix hasn't made its studio arm a standalone company (I don't believe).

Netlix's Sarandos Aims to Build the Next Great Hollywood Studio

 

Fair enough. I am apparently not familiar enough with the content-production business, particularly Netflix's. I was just seeing things like The Crown being produced by Left Bank/Sony.

 

That is what they generally did at first for their original shows, like a typical TV network – license the shows from a studio, such as Sony. (Quick departure: The major TV networks don't own the shows they air, they just license them from a studio, though they also all have studios as part of their corporate family. So a show made/owned by Universal Television (part of NBCUniversal) might air on Fox, for instance, like Brooklyn Nine-Nine.) And as you note with The Crown, Netflix still licenses shows made by "traditional" studios and production companies.

But now they're doing things like throwing a lot of money at Shonda Rhimes for an overall deal to make original shows for them. That's what a studio does. In fact, they're saying they want to be the world's largest creator of entertainment – or, in other words, the biggest studio.

It's an interesting bet. To me, anyway.