When Netflix emphasized its “leader” status in the financial report, it was already anxious.
A few days ago, after the announcement of Netflix’s second-quarter financial report, its stock price fell nearly 6% after the market, and its market value evaporated by nearly US$8 billion in one day. US$8 billion is only a drop in the price of Netflix, which has a market value of more than US$200 billion, but the operating pressure hidden behind this financial report is Netflix unavoidable.
In the second quarter of 2021, Netflix achieved revenue of 7.34 billion US dollars, a year-on-year increase of 19.4%, and realized operating profits of US$ 1.85 billion, a year-on-year increase of 36.1%. These indicators are not much different from analysts’ expectations. The point is that the number of new Netflix subscribers in the second quarter was only 1.54 million, much lower than the same period last year, which proves that the dividends brought by the epidemic to Netflix are fading.
At the same time, Netflix’s free cash flow in the second quarter turned a loss from the previous quarter, at -175 million U.S. dollars, which is extremely unfriendly to Netflix. Because after the short-term return of cash flow in 2020, Netflix told a new story about becoming a “self-financing company”, but halfway through the story, funding pressure began to re-emerge Netflix.
In the second-quarter earnings report, Netflix cited third-party data to emphasize its status as the “first streaming media platform in the United States”, but Netflix, which has 200 million subscribers, cannot sit back and relax. Price wars and the merger trend of streaming media platforms are challenging Netflix’s recent profitability situation, and the madness of Disney and Amazon’s content investment has also forced Netflix to strategically defend.
Today, Netflix’s attitude towards the outside world is still elegant. It announced that it will stop borrowing and start share repurchases, and emphasized that it will not conduct mergers and acquisitions like HBO Max and Discovery+ because it does not make much sense for growth, but it does not mean Netflix is not anxious.
Entering the field of derivatives and games is an important turnaround for Netflix, which has focused on content for more than a decade. The melee of streaming media in the United States has become increasingly fierce, and Netflix needs new stories and imagination more than ever.
Half of the “new story” is broken down by reality
“Cannot become a bottomless pit for burning money. Not only can we make money from users every month, but we must also have enough users to ensure that we are able to cover the fixed costs of operating the business.” To this goal, Netflix has struggled for ten. More than a year. Today, the loss-making sword of Damocles has finally been removed from Netflix, but in fact, Netflix’s operating conditions are still not optimistic.
As early as 2019, industry insiders pointed out that Netflix’s profitability is a false proposition, because although Netflix’s income statement shows profit, its cash flow statement is negative, and Netflix’s long-term debt is expanding every year. In order to maintain high content production costs, since 2011, Netflix has raised a total of $15 billion through debt issuance.
It is true that borrowing money to survive is a set of operating models practiced by Netflix. In theory, as long as Netflix continues to output high-quality content, this model will not collapse. But from a reality point of view, it is just like the American middle-class family lives on credit cards. Once they lose a stable income and their funds cannot be released, this drawback of borrowing money will appear.
The capital market will worry about whether Netflix will be solvency in the future, and whether Netflix’s loan interest rate will continue to soar. Therefore, once Netflix’s performance gives a negative signal, its stock price will immediately fall. After the second quarter of this year’s financial report is released, it will be in this way.
In 2020, Netflix’s free cash flow reached US$1.9 billion (negative US$3.3 billion in 2019). This is the first time that Netflix’s cash flow has turned negative since 2011. In the first three quarters of 2020, Netflix’s free cash flow has always been just. Netflix executives said frankly that this was affected by the decline in content costs, that is, due to the delay in program production during the epidemic, Netflix’s long-term investment was temporarily reduced, but this does not prevent Netflix from telling “new stories.”
At the beginning of the year, Netflix stated that it plans to maintain a neutral cash flow this year. Since then, the cash flow will be positive every year. After that, the company does not need external financing to support operations. In addition, Netflix also said that it will consider stock repurchases. Netflix aspires to become a “self-financing company”, naturally to reverse the outside world’s inherent impression of “burning money bottomless” and “high debt”, and instead tells a new story to Wall Street: the platform has sufficient internal circulation.
When Netflix announced the news of the stock repurchase, the stock price did boost a lot in the short term, but just as the new story started, Netflix was beaten back to its original state in the “post-epidemic era.” In Q1 of 2021, Netflix’s free cash flow was US$692 million, but in Q2, Netflix’s free cash flow turned a loss from the previous month to US$175 million.
Netflix, which repeatedly jumps between positive and negative cash flow, holds investors’ money, but does not have its own “treasury”. This is another Damocles sword hanging over Netflix. Netflix intends to improve the situation, but at this time it has ushered in an increasingly harsh external competition environment.
Before Netflix’s primary problem is the US streaming media platform set off a price war, when domestic gifted love Teng membership prices remain at the same level, the United States has in streaming media platform at a lower price siege Netflix. The subscription price of Apple TV+ 4.99 USD/month, Disney+ 7.99 USD/month, Hulu 5.99 USD/month (ad-free version 11.99 USD), are all lower than Netflix’s monthly price of 8.99 to 17.99 USD.
The price war is the simplest and most direct and effective, not to mention that many opponents also hold high-quality content. For example, Hulu has head series such as “The Handmaid’s Tale”, “Famous Shu”, and “Doctor Chance”. In the future, as the reserves of high-quality content on major streaming media platforms increase, can Netflix still maintain the existing subscription prices? If the price is lowered, Netflix, which has just made a profit, may return to a loss-making state. If the original price is maintained, it may push users to the opponent.
The secondary problem facing Netflix is that the competitive landscape of streaming media in the United States is bound to change and move towards a merger. After all, the world is bound to converge for a long time. In fact, this is already happening now. Not long ago, after Warner and Discovery merged to form a new media company, HBO Max and Discovery+ became one of the two streaming media platforms. In the future, as the merger trend intensifies, will Netflix maintain its competitiveness through acquisitions? If so, does Netflix have enough confidence to play this capital game?
Although Netflix’s gameplay is still unknown in the future, it is clear that its rivals Amazon or Disney are more confident. In the American streaming media battle, it is natural to fight for content strength to survive, but also to fight for the financial strength of the platform. From the latter dimension, Amazon and Disney face less pressure than Netflix. It is not difficult to understand that the single profit model of Netflix is destined to be “monoclonal”, and both Amazon and Disney can use multiple businesses to transfuse money-burning streaming media business.
There is no moat in the streaming battlefield
Today, the American streaming media melee is still in its infancy, and it is still unknown whether Netflix can secure the top spot in the “first streaming media in the United States” in the future.
In the book ” Resume Netflix “, Blockbuster has been frequently mentioned. Blockbuster , the main video rental company, was once a household brand in the United States and Netflix’s largest competitor in the early years. In the millennium, Netflix, which had just reached 5 million U.S. dollars in operating income, was on the verge of bankruptcy. At that time, it sought help from Blockbuster, which had revenues of 6 billion U.S. dollars. Helping hand.
In the end, Netflix killed Blockbuster. At that time, Netflix understood: “E-commerce is the future trend. If Blockbuster wants to survive, it must develop an alternative to physical stores.” Netflix knew that the digital age was bound to come, and knew that it had an opinion on Blockbuster. The advantage of dimensionality reduction, but now in the war with Amazon and Disney, Netflix’s dimensionality reduction advantage does not exist, it only has a first-mover advantage.
Some people say that content is a barrier for Netflix, and this is indeed the foundation for Netflix’s continued expansion over the years. Beginning in 2011, in order to avoid copyright restrictions, Netflix began to recruit and establish its own studios to develop original content. Since 2016, although Netflix’s own content has not exceeded the licensed content, its proportion has been increasing. “House”, “Stranger Things”, “Queen’s Chess Game” and other platform original American dramas, the help brought to Netflix is top.
Today, Netflix is the largest streaming media platform in the United States. According to the latest data from the research company eMarketer, the penetration rate of Netflix in the US streaming media market is 87%, and the penetration rates of Amazon and Hulu are 53% and 41.5%, respectively. In the second quarter earnings report, Netflix also specifically quoted relevant data to prove its market share advantage compared to Amazon, Hulu, Disney+, etc.
But objectively speaking, there is no lasting and stable moat in the streaming media battlefield, because mobile users cannot bring stickiness and loyalty. If other platforms also have high-quality exclusive content, user defection or diversion will inevitably occur. For streaming media platforms, stickiness always comes from the content rather than the platform itself. This is also the case in China. Whoever can produce explosives in the three You Aiteng, then the platform’s paid membership income and user growth in the quarter can give a bright spot The data.
The performance of Disney+ can also prove this point. At the beginning of March this year, Disney stated that the number of users of its streaming media service Disney+ exceeded 100 million only 16 months after its launch. This was naturally driven by solo shows such as “The Mandalorian” and “Wanda Vision”. . In addition, data from the Nielsen website shows that as of July 6, “Rocky” has more than 700 million views, making it one of the best-performing series on the Disney+ platform.
At this stage, Netflix’s first-mover advantage exists, but Amazon, Hulu, and HBO Max are catching up behind them, Disney+ is sharpening its knife, how can Netflix “sit back and relax”.
Perhaps from the outside world, Disney+ is more like a distribution channel for Disney’s self-produced content, and its influence is highly dependent on Disney’s brand. In contrast, Netflix’s advantage is that it is a pure content production platform. , Its IP density and productivity in the original field are unmatched by others. At the same time, Netflix’s globalization is far ahead, and its model of finding strong production teams around the world to create content with the role of publisher is also mature.
However, the future of the streaming media track is still full of uncertainties, because each company has made a lot of efforts. They no longer regard streaming media as a test of the water, but a battleground in the digital age. This is also Disney. Under the pressure of the American Theater Association, the reason why “Black Widow” will be launched on Disney + simultaneously is to pave the way for Disney + to attract customers. For Disney+, Marvel IPs such as “Wanda Vision”, “Rocky”, and “Black Widow” are just the beginning. At the Investor Day last December, Disney promised to launch more than 100 new original movies and TV drama.
Disney+’s goal is to have 230 million to 260 million users by 2024. It is not only Disney that is crazy. In 2020, Amazon’s annual report revealed that the company’s spending on video streaming and music services reached 11 billion U.S. dollars. In addition, Amazon has planned to spend nearly 500 million U.S. dollars to produce the “Lord of the Rings” series. TV drama.
Looking at it now, when Disney+ is attracting users faster than expected, Netflix is also maintaining growth, indicating that the streaming war is not a “zero-sum game.” However, the future streaming media war in the United States will infinitely approach a “zero-sum game.” Although the statement that “if other streaming media platforms increase one user, Netflix will lose one user” is too exaggerated, after entering the era of stock, the total number of users on each major platform will indeed only fluctuate.
By then, what will affect the competitive landscape of streaming media will no longer only be the ability to “sustainably produce high-quality content”, but will be related to more factors such as content success rate, scale advantage, long-term value, and monetization model. So far, Netflix has done a good job in sustainable productivity and content success rate, but the others are lackluster.
Netflix is no longer simply “crazy for content”
When Netflix emphasized its “leader” status in its earnings report, it was already anxious.
Therefore, Netflix executives wrote in a letter to shareholders: “The substantial growth of the streaming entertainment business has allowed established rivals such as Disney, WarnerMedia, and Discovery to compete with us in new ways. To a certain extent, this is also The reason that drives us to move forward quickly and further strengthens our original content library covering various genres and markets.” Translated, Netflix will continue to expand its own scale advantages in the future.
At present, Netflix is facing considerable pressure on the content library. In 2019, Netflix and Disney ended their cooperation, and Disney, which launched its own streaming media platform, no longer provides new content to Netflix. With technology giants such as Apple and YouTube, radio and television companies such as NBC, ABC, and CBS, and media giants such as Disney and Warner all in the streaming media battlefield, Netflix’s copyrighted content will inevitably be further restricted. Now, ” Friends ” and “The Office”, etc. The copyright has been reclaimed. Therefore, it is urgent for Netflix to increase the proportion of original content and its advantages in scale.
However, when the streaming media war has been fully raged, what Netflix has to do is not to think about one step, but to think about ten steps. Because in the highly industrialized American market for film and television content production, the creation and scale-up of high-quality content is not the most difficult for many streaming media platforms backed by established film companies and giants. In the future, streaming media platforms will strive for content “within one step” and the imagination of “one step beyond”. This is especially true for Netflix, which relies on membership fees alone.
Netflix must seek change. The so-called change is not only to find the long-term value of film and television content, but also to go out of the content itself and explore the path of diversified realization.
In this regard, although Disney+ started late, its advantages are self-evident by relying on Disney, the world’s most powerful giant in IP business value. Regardless of Disney’s previous big IPs, take “The Mandalorian” on Disney+ as an example. After only two seasons, it started to launch derivative products, such as launching derivative packages with Lego and developing related games. It is the embodiment of long-term value and multiple realization models. It is true that the speed of the development of “The Mandalorian” derivatives is supported by the influence of the “Star Wars” IP, but this also shows the strength of the Disney derivatives industry chain.
Nowadays, Netflix’s first strategy of “seeking change” is to enter the field of derivatives and develop peripheral products based on its own popular dramas and movie content. Netflix, which has created explosive models such as “House of Cards”, “Women’s Prison”, and “Stranger Things”, is not without groping on the road of derivatives, but they are all small tricks. For example, after “Stranger Things” became popular, Netflix and the United States Fashion brand Hot Topic cooperated to develop clothing, coffee cups, etc. After the broadcast of “Bridgetown”, it cooperated with clothing brand Phenomenal to develop sports shirts and so on.
From this year’s online mall Netflix.shop launched by Netflix, there are only dozens of products sold on it. It can be seen that Netflix is still a “newbie” in the field of derivatives development. In contrast, Shanghai Disneyland alone has more than 7000. Kind of commodity. In the future, it remains to be seen whether Netflix can get through the path of derivatives, but it is undeniable that this is indeed a growth point that Netflix and even domestic video websites hope to get through.
Over the past few years, Netflix’s focus on content itself is obvious to all. Lisa Nishimura, Vice President Netflix has said: “We need to ensure security net flight stick is made of the most exciting and fascinating story.” Crazy content is worthy of respect, but from the business point of view, you can create original content itself Higher added value. Over the past years, Netflix, which pursues “pureness”, has ignored this point.
Today, the environment does not allow Netflix to continue to be pure. Therefore, in addition to the development of derivatives, games have also become a new force for Netflix to “change”. Not long ago, Netflix stated that it would further invest in the production of VR and game content, and gamify the existing NetflixIP. At present, Netflix’s game development is still at an early stage, but the known information is that the first project of the platform will start from the direction of mobile games , In the future, it will be free for all subscribers
According to foreign media reports, Netflix is currently forming its own game team. Not long ago, Netflix was confirmed to have dug Mike Verdu, the vice president of AR/VR content in charge of the Oculus content ecology, from Facebook. After joining Netflix, Mike Verdu will serve as the vice president of game development. President.
Netflix previously adapted its well-known series “Stranger Things” into a game, but it did not cause much response. Compared with the development of derivatives, the game industry is a more barrier-free existence. Internet giants such as Google and Amazon, which entered the game industry before Netflix , have so far failed to make outstanding achievements in the game business. But no matter how difficult it is, Netflix must seize this breakthrough.
Netflix wrote in a letter to shareholders: “We treat games as a new type of show, just like original movies, animations and talk shows. We are still interested in movies and TV drama projects, but investment in existing content And growth have a long way to go.”
In the face of the streaming media scuffle in the United States, Netflix does not sit back and relax, and will never wait to die. Nowadays, Netflix, which has been cultivating the content track for many years, has begun to look for more possibilities beyond content to stabilize its lead. However, no one can predict how long it will take Netflix to surprise the capital market in the field of derivatives and games. .
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