He unpacks that in a fascinating piece which is then surpassed by his four–parts–and–counting deep dive into “Netflix Misunderstandings,” composed last summer and since then required reading for every armchair media analyst worldwide. Some highlights:
This cash loss only exists because Netflix is funding next year’s content against this year’s revenue. Netflix could have chosen to stabilize its 2018 content offering at 2017 levels … and had the company done this, it would have generated $700MM in cash, not lost $2B.
At a time in which most tech companies need to be bullied into admitting they’re also media companies, Netflix’s tech identity is often glossed over. It is as much a technology and product company as Google, Apple or Amazon.
Hastings knows that if Netflix falls short of, say, 250MM subscribers, his business will buckle. His spend is predicated upon achieving this degree of scale … Even at the low end, Netflix would have achieved greater dominance than the media business has ever seen.
The company boasts that it will launch 700 total original series in 2018 (or 14 per week) and offer more than 1,000 by the end of the year. This raises the question of what, exactly, is an “Original” … Understanding this difference is critical for any attempt to benchmark SVOD services
We can conclude that Netflix’s (and, to a lesser extent, Amazon Prime’s) reshaping of the visual media industry has only just begun; the repercussions of the first few tremors are still rippling through Hollywood, but we can expect ever bigger quakes in the years to come.
The saving grace is that the rest of the world is getting wealthier, and spending more on Hollywood … although the studios only pull in roughly 25% of what their releases in China gross, compared to 50% back home. Still, 25% of a huge number is still very large, and China is huge. Two of last year’s top 15 worldwide movies made essentially all of their money in China. It seems plausible that The Wandering Earth, which has pulled in $557 million in China only two weeks, will make more money there this year than presumed 2019 #1 Avengers:Endgame will in the USA. (Infinity War earned $679 million domestically.)
So where does that leave Hollywood? Being slowly disrupted back home by technical superiors in the form of Netflix and Amazon Prime, while racing to make up their losses overseas. But it’s not like Netflix doesn’t have a robust international strategy. Hollywood’s studios aren’t going anywhere anytime soon, but, with the possible exception of Disney, they’ll soon have to get used to being mid-level players rather than the kings of the world they once were.