Sunny Side of the Doc | 19-22 June 2023

Documentary Business

Peter Hamilton Consultants, Inc

Netflix Market Value Crashes: What does losing $50 Bn mean for producers?

Investors hammered Netflix‘s market value by $50 Billion last week, and by around $130 Bn since November.

There’s a complex web of dynamics at work here.  Let’s pick them apart, and see if we can come up with Takeaways for the documentary/unscripted community.

Fickle Investors:

  • Market analysts are a small, fickle bunch, and they tend to react as a herd to data.
  • That’s particularly the case for valuing recent business models like streaming, and Netflix has experienced several smaller sell-offs.
  • When Netflix lowered its projections for subscriber gains in 1Q’22, and in a week when broad market sentiment had turned against tech stocks, the herd message was SELL.
  • But why do subscriber projections matter?

Home Run Drive Hits Fence

The Squid Game Factor

  • Investor sentiment was boosted by last year’s massive hit, the Korean drama Squid Game.
  • If an unheralded and low budget Korean production could become a global phenom, then why not productions in the pipeline from India, France, Australia, and all the other terrtories where Netflix is spending a portion of its nearly $20 Bn on programming this year??
  • Less emotional thinkers realized that Netflix is not delivering a Squid Game hit every quarter, and that you can’t build heady long term valuations because of a lightning strike in a Korean bottle.

Streaming Mature Already?

  • Netflix’s recent slowing subscriber growth suggests that the SVOD market could be mature already.
  • UCAN (U.S. & Canada) is mature at 70 millions subs… the experiece of the previous generation’s cable nets reveals that icreasing distribution becomes a subscriber-by-subscriber battle at that scale.
  • Netflix seems to recognize UCAN’s maturity with a turn to profit taking by raising prices by 11%.
  • # 2 streaming service Disney + also reports slower subscriber adds. (Doc Business)

Competitors Bite

  • Peacock, Paramount +, HBO, Discovery + and other new premium services lag far behind Netflix in both subscribers and minutes viewed (Doc Business).
  • But they do offer pockets of powerful entertainment that at least nibble away at Netflix’s audience and force it to spend more both on niche programs and on regional productions.

SELLING NETFLIX
Watch out for my “Selling Netflix” webinar & Q&A with Keith Ochwat and Show&Tell.
Coming on Thursday, February 17, 4PM / ET.
RSVP here
Details to follow.


 

What About International Growth?

  • Netflix enjoys 33 Mn subs in Asia, but is targeting India where limited household income, low pricing, strong competition from Disney / HotStar and other factors all raise questions about why the territory is a priority.
  • Korea and Japan also offer pockets of opportunity, and China is off the table.
  • 74 Mn subs in Europe / Middle East & Africa (EMEA) fall far short of the estimated 200 Mn broadband homes in the region, and growth is slow.

The “Think Global / Act Local” Fallacy

  • I worked for years on international network projects for Discovery, A&E, Nat Geo and others.
  • There was a constant strategic see-saw between:
    • Investing in regional originals to better target local audiences, versus
    • Feeding them less-appealing but more cost-efficient ‘global content’ from the American networks.
  • The cost for Netflix to create compelling offers across so many cultures and languages is not to be under-estimated!
  • Meanwhile, regulators like France’s CNC are narrowing Netflix’s options by mandating local content quotas (Variety) tied to the streamers’ local subscriber revenues.

OK! What About??

All of these dynamics shape Netflix’s market cap and stock price.  But is it all noise as far as producers are concerned?

Let’s look at several key positives:

  • Netflix reported 2021 revenues of $29.7 Bn.
  • Subscriber growth contines in every territory.
  • Depending on how its content spend is calculated, 2022 programming committments are between $12-20 Bn.
  • Netflix and the streamers still only earn a fraction (around 15%) of the linear networks’ share of total video consumption in U.S. and EMEA.
  • Legacy linear nets are losing viewers and share to the streamers.
  • Netflix dominates its streaming rivals in the key measure of minutes viewed on connected TV’s.

The AVOD Option?

  • Meanwhile advertiser-supported (AVOD) streamers and platforms continue to show impressive gains.
  • And Netflix retains the option to launch a lower price ad-supported platform.

Last Word

  • My Takeaway is that Netflix’s stock selloff is a warning that the SVOD solution is not a golden goose for investors or producers: there are limits to growth.
  • However our analysis does confirm the underlying favorable growth prospects for the streaming segment, particularly for Netflix as the dominant market leader.
  • And that means a favorable outlook for the producers who earn their commissions from streamers.
  • The downside is that the legacy channels are cutting back on commissions.
  • In upcoming posts, I’ll more closely examine who are producers who are getting today’s greenlights, and why!

Your Feedback

  • I covered a lot more territory than I anticipated when I started this post.
  • Your feedback is most welcome!