The Netflix Effect

🌈 Abstract

The article discusses the recent quarterly earnings of Netflix and Meta, with a focus on Netflix's performance. It highlights how Netflix has defied the odds and emerged as a content powerhouse, despite the challenges faced by the entertainment industry. The article delves into Netflix's business strategies, such as diversification, content licensing, and aggressive investment in original content, which have contributed to its success.

🙋 Q&A

[01] Netflix's Performance

1. What were the key highlights of Netflix's quarterly earnings?

• Netflix's profits hit $1.6 billion, up 20% from a year earlier
• The platform added 9 million new subscribers
• Netflix is raising prices for its subscription plans

2. How has Netflix's performance changed over the past year?

• A year ago, Netflix was losing 1 million subscribers per quarter and had shed 75% of its market cap
• Now, Wall Street is "gushing" over Netflix's "beautiful" results, while the rest of the industry flounders

3. What factors contributed to Netflix's rebound?

• Netflix's diversification into international content, with more than half of its scripted titles being produced abroad
• Netflix's mix of original and licensed content, such as the successful acquisition of the rights to the TV series "Suits"
• Netflix's ability to adapt and pivot its business model, such as the transition from DVD-by-mail to streaming

[02] Netflix's Business Strategies

1. How has Netflix's diversification strategy helped the company?

• Netflix has invested heavily in international content, with spending in Asia increasing to $2 billion and European investment doubling
• This has helped protect Netflix against supply chain interruptions and content shortages, as the foreign production gears kept grinding while American actors and writers went on strike

2. What other creative business moves has Netflix made?

• Netflix approached NBCUniversal to buy the rights to the TV series "Suits," which became the most streamed show across all platforms for three straight months in 2022

3. How has Netflix's aggressive investment in original content contributed to its success?

• In 2011, Netflix decided to foray into original content, spending $2 billion on content in the first year
• This bold move allowed Netflix to go up against Hollywood titans and eventually earn numerous Emmy and Golden Globe nominations for its original series, such as "House of Cards"

4. How has Netflix's pricing strategy evolved?

• Netflix has increased its premium plan price to $22.99 per month, a 15% increase
• This reflects the platform's strength and its adoption of a means-based pricing strategy, retaining low-income users while squeezing more from upper-income households

[03] Challenges Facing Netflix

1. What are the potential threats to Netflix's dominance?

• The rise of TikTok, which is stealing eyeballs (especially from young viewers) and generating significant revenue
• The threat of YouTube, which is the most popular TV streaming service and also has a strong presence on laptops and mobile phones

2. How does the author view the potential impact of the writers' strike on Netflix?

• The author suggests that the writers' strike has actually benefited Netflix, as it has forced a universal reduction in spending, while increasing the relative value of Netflix to consumers
• The author even jokingly wonders if the folks running the WGA/SAG-Aftra might be covert assets working for the streaming giant