NFLX

Netflix, Inc.

184.06
USD
-0.98%
184.06
USD
-0.98%
162.71 700.99
52 weeks
52 weeks

Mkt Cap 81.46B

Shares Out 442.60M

Chat
Send me real-time posts from this site at my email

Why Disney Should Replace Netflix As Industry Standard

Summary It’s been a busy few months in streaming with things going wrong for Netflix and (mostly) good for Disney – which recently reported an influx of 8 million new subscribers. Disney’s continued success, along with strong gains by other top streamers, has made Netflix go from the center of the universe to an outlier, something previously thought impossible. Netflix’s problems are very much self-inflicted and most of it comes from over-spending, being reluctant to changing what are now outdated methods, and being solely a streaming company. Conversely, Disney’s streaming play encompasses Disney+, Hulu, and ESPN+ but then builds out with multiple other divisions, making it an all-around company skilled in the synergy game. Netflix will eventually rebound but not overnight, and in the meantime, we can continue to look to it as a North Star OR look towards more well-rounded companies like Disney. The king is dead…long live the king. It's been a busy few months in streaming and entertainment overall, but the long and short of it is that for Netflix (NASDAQ:NFLX) it's a been a hard stretch, while for Disney (NYSE:DIS) it's been much more profitable. And yet that seems to be a surprise for most people even though the writing has been on the wall for months … the problem is that some people just didn't want to see it. Now that it's crystal-clear Disney is in the catbird seat, perhaps it's time to look closer and realize it's a position it has no intention of surrendering anytime soon … and the sooner investors catch onto that the more money they can save. First as always some background. Disney had been on pace to catch Netflix quicker than expected for a while, but hit a barrier that never should have been one. That barrier is one Netflix is very familiar with … earnings. Disney's earnings a few quarters back showed a slowdown in streaming subscribers and the investment community collectively lost its mind. It was like the world was ending because Disney pulled in a few million less new subs than expected. And that's overlooking that CEO Bob Chapek had essentially warned this was coming just a few weeks prior at an investment conference AND that the service itself had been a cash cow since "go." Remember Disney as a company has been successful for awhile without the influx of revenue from streaming, so to have what amounts to around $1 billion+ in extra money roughly every two months is only adding to an already well-oiled machine. Yet following Netflix posting an earnings miss, that disclosure sent the media into a frenzy and the sky was falling on streaming overall. Never mind that the other streamers were posting gains, the narrative of Netflix and Disney "failing" was too good to pass up. Then Disney rebounded and did so in a way that quieted even the most jaded analysts. The company's most recent earnings showing an influx of 8 million subscribers, which combined with the aforementioned continued success of the other streamers, made Netflix go from the center of the universe to an outlier. Funny how fast that happens right? But still many look at streaming and predict a bubble burst akin to the dotcom and housing collapses of years past. I'm not saying we won't get there, but we aren't there yet and it's important to note why. Netflix didn't slip because there's a problem with streaming overall. Netflix slipped because it has an internal problem around streaming overall. The company's problems are very much self-inflicted and most of it comes from over-spending … whether it be on content or head count, it burns through a ton of money. It also has kept on the "if it's not broken…" mantra for years, even when something was in fact broken. Being reluctant to try something new - which is surprising after setting the bar in trying something new in the first place - proved to be a major Achilles heel. Netflix refused to abandon the batch/binge model, do anything LIVE (including sports) or add an ad-supported option, which are all things that had been helping its rivals gain on them. Now that the emperor's missing wardrobe is visible you are seeing the ad-tier fast-tracked and a few LIVE options teased … yet they are still steadfastly behind the all-at-once model. Abandoning or modifying that method would greatly expand the life of Netflix's content and reduce how much it is forced to spend per quarter. Although there may be hope as a new Bloomberg report states that Netflix may (finally) be moving towards having its movies come to theatres FIRST for an extended period of time. The day/date technique which has long been decried by theaters could be on its way out. It's really not a surprise either as with the amount of money Netflix has spent on original content they need to ensure a return for shareholders. Knives Out is a great example as the streamer spent $400 million to snag the rights to the franchise and two sequels. The mystery is one of the movies reportedly being looked at to go to theaters with a 45-day exclusivity window. The whole thing is fascinating because it represents a complete about-face and really puts into perspective how far Netflix has fallen. Yet it also makes sense as the pandemic forced studios and theaters to re-arrange its policies. What we learned was that the previous 60-90 window was no longer needed and audiences will pay to be the "first" to see something if the content is deemed "worth it" to them. Once studios saw that they were more open to playing ball with theaters because now they could double-dip. Encanto is a great example. The Disney movie had a solid theatrical run beginning around Thanksgiving with nearly $100 million earned in revenue. It then moved onto Disney+ towards Christmas and continued to take off from there and build in popularity. The amount of money it "left on the table" by expanding out from theaters was not a lot in the grand scheme and Disney likely made it all back (and then some) through subscription fees. What is also lost in the conversation is the one move I'm personally surprised Netflix was behind on - expansion. The main reason Netflix's rivals are seeing success is because they are not ONLY streaming companies. That's important because it means when a company's division (i.e. streaming) has a bad quarter for whatever reason, the others pick up the slack. That's what happened with Disney. When it missed in streaming, the savvier investors and analyst were quick to point out that its parks division rose 99%. That's something Netflix can't point to so when the company misses -it misses hard. Netflix is not coming back from this anytime soon … it's Netflix so yes likely it will eventually right the ship, but that is not going to be an overnight fix. So in the meantime, we have two options, we can either continue to look to Netflix as a North Star and have a debate about if streaming is having an identity crises every quarter OR we can look at companies like Disney that are more well-rounded. Disney's streaming play is not just Disney+, but also Hulu and ESPN+ and that's on top of multiple linear channels which are all fueled by the same vast pipeline of content. There is a lot to go around and that rings true for its film, parks and consumer products divisions. It is an all-around company that has been playing the synergy game for years. Netflix's reliance on sticking to the model it created and being slow to adjust has been holding it back and taking the industry down a peg as a result. Netflix may still be a power player but it no longer is the center of the streaming universe. Once we accept that change, expect to see a similar change of pace in the sector and maybe finally some stability. A long time entertainment industry professional, I have worked with a number of top Hollywood studios and networks. With over a decade in the field I use my in-depth knowledge of film and television to inform potential investors about the viability of the many upcoming projects in the industry. Questions? E-mail me at TheEntertainmentOracle[at]gmail.com. Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. Comment

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue