After Netflix was skewered by Disney’s announcement that it will remove its content from Netflix Barron’s announced that Netflix stock was vulnerable because it essentially was the Moneyball of content (i.e.: it took former homerun hits and recycled them to manufacture everyday hits by becoming a default syndicator). But now, following the Moneyball analogy, Netflix has responded by dropping Neymar sized money (for those that don’t follow football Paris St. Germain paid a record $500 million transfer fee to rip Neymar away from FCBarcelona) stealing a top talent from Disney in Shonda Rhimes to be their new Designated Hitter. Sounds good, right? Netflix gets a proven winner to help them build amazing content and shrug off the defection of Disney. Not so fast. Like fashion content creation can be fickle (just as Mickey Drexler) and what is trending and hot today can be passé tomorrow (or in internet speed the next few seconds before you finish reading this post). And after shelling out at least $10 million a year for Rhimes (the Wall Street Journal reported that was what ABC paid Rhimes. https://www.wsj.com/articles/netflix-signs-scandal-creator-shonda-rhimes-away-from-abc-as-battle-for-talent-escalates-1502683261) Netflix still then has to throw more dollars down to build that amazing content. Now also according to WSJ Rhimes generated $2 billion for Disney over the course of her work there so there is some buffer to protect margins but if the creative well runs dry or and stops producing home runs then what?
Like any other content producer Netflix will go through peaks and valleys. There will be the “Scandals” and “Grey’s Anatomy” (home runs) but Netflix lacks the ability to syndicate unless they reverse the model and then syndicate those hits with the networks. And what happens to the stock during those fallow times? The same thing Coca-Cola learned when it bought Columbia Pictures = not good.
How do you think Netflix should proceed? Is this the next stage in its business evolution cycle in order to maintain relevancy and drive share owner value? Will Amazon mimic this maneuver?
Back in the day Amazon used to sell books but it also had a strategic approach to broaden it's portfolio. That was to establish a seemingly non-hostile relationship with brick & mortar retailers like Toys 'R Us (see bankruptcy), Borders Books..etc. The goal? To get in front of the customer interaction. Amazon sold itself as an expert in the digital space and allowed for cost efficiencies (i.e: not having to build out a web-site or deal with the head-ache of how to fulfill product or the logistics on from where) from the brick and mortar company to focus on what it did best (selling in a physical store) while letting Amazon manage it's digital footprint which was a low volume mix relative to the traffic that was walking into the brick & mortar stores on a daily basis. But, as we all know now, by insinuating itself in the path to purchase and putting its brand in-between the customer and the brick & mortar brand Amazon was able to create a wedge that has grown
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