Is Netflix looking at ways to make more (or spend less) money?
Streaming video on demand (SVOD) market leader Netflix burns through cash like there’s no tomorrow. Ironically, it’s doing this precisely because there is a tomorrow: just like we saw with Amazon last decade, Netflix is choosing to sacrifice profitability for market share. That means spending billions of dollars every year on creative content, both original, self-made, stuff, and exclusively licensed shows from external creators. Is the company planning to redress its cash-burning ways? According to the Wall Street Journal, a new hire suggests it might be.
Netflix’s share price appreciated by almost 16% last week!
Source: Yahoo Finance
Netflix has managed to poach Spencer Neumann, Activision Blizzard’s out-going chief financial officer, to occupy the same role at Netflix. Activision Blizzard wasn’t amused, and announced his firing (his contract forbade him negotiating new contracts elsewhere until the final six months of his tenure with Activision – which he did not reach). The aforementioned Wall Street Journal ran with the headline: “New Netflix CFO to Tackle Cash Flow Conundrum.”
Netflix has a few options open to it when it comes to cash flow. The first is to stick with its core strategy thus far: sacrificing cash flow for customers is effective in the long run (as long the customers keep coming – and so far, they are). Additionally, Netflix’s new focus on the international market means that subscriber growth could have a long way to go yet.
The second might be to wrangle more money from its most devoted customers, and cater directly to them. This is where Netflix could pick up some tricks from Neumann’s previous employers (Disney and Activision Blizzard). In Bloomberg, Eric Newcomer wrote: “Both of those companies—in very different ways—do a great job of charging different customers vastly disparate amounts of money for consuming their content. Disney doesn’t just charge you for a ticket to see Star Wars. If you’re a superfan, you can buy action figures, go to a Disney theme park or watch “The Clone Wars” on Netflix. There are endless ways to upsell customers based on their affection for a particular piece of intellectual property.” Activision, he continues, sells in-game loot boxes and the like, letting them “extract the maximum amount from those willing to pay.”
Of course, there is a third way: slash the content budget. But the chances of Netflix doing that, with competitors waiting in the wings, are low. It’s far more likely that Neumann is a tactical hire, and the company’s cash flow is about to get a close examination.
Dominion holds Netflix in its Global Trends Ecommerce Fund.
If you would you like to receive the Newsfeeds daily, please click here to sign up now!Help us make this Newsfeed better by rating this article. 1 star = Poor and 5 stars = Excellent
The views expressed in this article are those of the author at the date of publication and not necessarily those of Dominion Fund Management Limited. The content of this article is not intended as investment advice and will not be updated after publication. Images, video, quotations from literature and any such material which may be subject to copyright is reproduced in whole or in part in this article on the basis of Fair use as applied to news reporting and journalistic comment on events.