THB #160: "Leave Netflix ALONE!!!!"

Things are going to change at Netflix, going from being a $300 billion market cap company to an $82 billion market cap company.

There is more pressure on performance. There is a lot more negative energy out there about the company. Taking on more debt is not a good option (interest rates going up as well).

But here is what hasn’t changed. It still has revenues of over $30 billion a year.

Strike that! It was just under $30 billion in 2021. It will be over $30 billion for the first time this year, 2022.

Disney will still be under $20 billion in streaming at the end of 2022. Paramount Global will be fortunate to get to $4.5 billion in streaming. Warner Bros. Discovery is a newborn, but even so, total revenues are under $6 billion. Comcast doesn’t break out streaming, but their entire television revenues (broadcast, cable, and streaming) will be under $28b this year… with Peacock likely being 10% or less of that total.

So, let’s all shed some tears for Netflix. It’s obviously all over. Turn out the lights. How will they ever survive with the most revenue in the streaming world, the most subscribers, the widest base of countries they are working in, etc, etc, etc.?

Wall Street and media treat almost everything that changes nowadays like a teenager expecting a car for their 16th birthday and only getting a $1000 check. How dare they! My parents aren’t generous… they hate me!

Or was that Johnny and Amber on cocaine? Same thing… more blood and poop.

Every day now, there is some new theory - always presented as reported - about what Netflix will do next.

But in realty, Netflix spends a lot of time and energy at the highest levels talking about all kinds of ideas every year. Advertising (AVOD), for instance, came up for long conversations over the last year before the boss man vomited out the new openness to an AVOD tier like a teenager with one too many beers in him.

There are two distinct levels when it comes to change at Netflix. What they know and what we know. And the company’s execs are really great at releasing information in their favor and making the media feel like they are getting a freshly mined gold nugget. This is the job of corporations, their execs, and their publicists. And the job of a journalist is to not publish fool’s gold.

The problem is, once writers have sold your story as though you were born in a manger, they still think you are going to win every fight, even when that becomes impossible… as it always does.

So what is real at Netflix? Mostly, we don’t know.

What we do know is that as they head into the paid advertising selling business, for instance, they will make it happen pretty quickly. Once they make up their mind about a change, historically, it tends to happen pretty fast. No looking back.

Here is another reality… Netflix has never faced this kind of challenge before. Started with a paradigm shift (DVD subscription), when they saw trouble coming in that area, including growth issues internationally, what did they do to counter? Paradigm shift… to streaming. And when they realized that content creators were not going to keep feeding their subscription service with cheap content after Netflix started making a lot of money, what did they do? Paradigm shift… creating their own original and expensive content at a scale even faster than any television creation program ever before.

So now, facing a lot of new-ish competition and a Wall Street that has gotten of the crazy train for the first time in a long time, valuing Netflix at a price that is pretty well reflective of the company’s value, is there another serious change coming? Maybe. But there is no paradigm to shift to this time.

Netflix’s only option is to fight it out on the now-shared industry’s terms. They can do that by changing or by not changing. Let’s make a quick list, shall we?

Gaming
Advertising Option
Theatrical

Hardware
Events
Physical Media
Syndication
Merchandising
8K and Interactive
Acquisition

There are probably others. But that seems to be the basic list.

The first 3, they are now involved with. Gaming started first. I believe it’s a wild goose chase, but one never knows. They could have a hit one of these days. The interactive gaming on the site, so far, makes Pac-Man look cutting edge.

The advertising thing? I honestly think they are a little nuts even considering it for US/Can at this point, when they have almost 70% of domestic households on pricier subscriptions. But there is a lot of world that can’t afford a proper month subscription and rent.

The stroke of genius, in my view, would be launching a fully free AVOD business that doesn’t just program Netflix content, but uses some of it in clever ways. People excited about Paramount PlutoTV must realize that they don’t rely on old Paramount product to fill the channels. They are mixing it up. Imagine a dynamically programmed free ad-driven space that drives people to a wide array of content. Then imagine the same available in other countries… including buying up the classic content of those companies that no one has seen much in years.

Theatrical is complicated. The old con of blaming the movie theaters should be no more. It all comes down to, will Netflix spend the money to open movies in theatrical? And if they are willing, do they have the personnel to do it right? And if they do it right, will it generate enough money and good will to make it “profitable,” without the VOD and physical media windows (or with them)?

You know I support theaters… but Netflix may be right about this for their bottom line. Do “real” theatrical release for 10 films and you are looking at and added $1.5 billion minimum worldwide investment.

My advocacy has always been to have 100 or so 5-screen Netflix film complexes in, probably 75 metropolitan areas around the globe, each of which includes a premium screen, as good as any in whatever town. Show docs… premiere some shows… maybe make deals to show films from top independents like Neon or A24, and have a place for your awards hopefuls. Show things early and exclusively. Let the press sneak in if they like. The review window really doesn’t matter much anymore. Work the niche audience. Create a $35 a month subscription that includes the stream and 2 movies in their theater. Announce grosses or not… your theater. 26,000 play weeks to fill… about 6.5 million tickets to sell a year. For your bigger films, platform them in your houses first and then expand to the wide market, with a real sense of how things play.

It’s an expensive side business, but to make theatrical work, there needs to be a living, breathing culture. Throwing a handful of titles into theaters for award season is just trying to hit a target from too far away. A stunt.

As for the rest of the list… maybe 1 or 2 of them could become a thing. But they are all reaches. Why would Netflix want to be in the hardware game? Events are lovely, but they tend to lose money, are incredibly time-sucking, and if they have any impact, everyone steals the ideas as soon as they can. Physical media is a niche business and they could easily experiment with Arrow or someone like that… can’t put them all on Criterion.

Syndication could be a real thing… depending on how Netflix approaches AVOD. But it’s never going to be a cash cow in this era, especially with so many non-exclusives being done now. Merchandising… is so small. They are already doing about as much as one can do… maybe a little bit more. 8K and Interactive are utilitarian expansions… not profit centers. And acquisition is as acquisition does… they don’t really need it at this point… aside from growing their gaming profile and potential adds along the way.

Some would have included Sports, Live Programming, and News on the list. They are so far behind. And the streamers doing those and aren’t legacy-based, are really doing it differently than Netflix would need to do it for. Netflix isn’t servicing another business.

But the conversation about Sports, News, and Live does bring up an issue for Netflix that they do need to focus on ASAP…

What is Netflix in 2022?

What is the big, broad pitch?

They aren’t the only one with good programming.
They aren’t cheap anymore.
They can’t convince anyone they are ubiquitous.
They kill off your favorite shows at about the total number of shows that used to be a single season on legacy TV.

You can’t keep selling your channel as “But it’s Netflix… you HAVE to have it!”

I turn it on right now and I get new titles, The G Word, The Lincoln Lawyer, Katt Williams, Our Father, Senior Year, Like a Rolling Stone, Clark, Heartstopper, Meltdown: Three Mile Island, The John Wayne Gacy Tapes, Bling Empire…

Who is this line-up for?

The excitement of digging for gold is very 2018. I highly recommend Like A Rolling Stone for anyone old enough to spell Jann Wenner’s name correctly. But there is not s single thing outside of that which I am clicking on.

I am not on the “make better shows” bandwagon. It’s B.S. But it’s becoming like going to a restaurant with an 11-page menu. It some point, it was cool to read all the drink explanations and to be able to get mediocre recreations of an entire world of food at one mediocre restaurant with enthusiastic wait staff. But it forces the consumer to do too much work after a while.

Netflix is the most mature streamer in the world. They were the definition of people thinking that their excrement didn’t stink. Netflix could make “fetch” a thing. Every choice by every new streamer was measured against Netflix.

Suddenly, Wall Street, which insanely over-anointed Netflix heard the company fart in bed. And instead of seeing it as human and normal and a part of a kind on intimacy, the entire world suddenly decided that Cinderella not only wasn’t a real princess, but she was not as cute as her stepsisters.

Netflix can’t shift paradigms again. Just not realistic.

They can’t stand still… which was also true before the stock drop, when few were accounting for it.

They are surrounded by danger.

But if they really believe the philosophy they publish and re-publish, they are in a better position than anyone else to make a powerful evolution. It’s a new kind of pivot for them, but their stock lost value, the execs didn’t have their IQs reduced by 65%. They are smart. And they can adjust, so long as it is clear and decisive.

And everyone else (4-6 companies) can succeed too, with hard, smart work, luck, and patience.

Stop thinking too hard about Netflix buying Lockheed or the W hotel chain or a burger franchise or moving to Ukraine to fight the Russians directly. They are a media company with work to do. Just like they were last October.

And awaaaaaay they go.

Until tomorrow…