Netflix, Inc. Content Hunters Aren’t As Good As You Think

Netflix Inc shares spike on Japan launch

Netflix Inc. (NFLX) Headquarters ExteriorNetflix, Inc. produces some of America’s favorite shows, but the firm’s success rate is far from perfect. In recent months the streaming platform has been talking more and more about canceling shows that aren’t successful sooner rather than later. That may not be the firm’s only content problem, however.

According to Ted Sarandos, the firm’s chief of content, Netflix was offered the rights to some of the biggest shows on US TV right now. The executive made the comment in an interview with Variety earlier this week. The entire interview is noteworthy, offering as it does an insight into the firm’s content acquisition process.

Netflix tries to find a megahit

The nature of content is hit-and-miss. Firms make money on their blockbusters, and the make less, or even lose, on their less popular content. The problem is that it’s tough to see which is which from the script, or even when the film is half way through production. That’s what appears to have happened to Netflix.

Mr. Sarandos mentioned three programs in particular that the firm has turned down. The first, Transparent, became the first real megahit from Amazon.com, Inc. . The second, Mr. Robot, became a hit for USA Network. The third, A Handmaid’s Tale, is set up to be the most successful show this coming awards season.

This all goes to show that Netflix is far from infallible. The firm may be able to pick out great shows, but it doesn’t have any real special sauce. It’s going through a similar process as other firms in order to pick out what is going to be a hit. Netflix has two perceived advantages. First, it’s got more money to spend than a lot of its rivals. Second it’s got more data on what people like to watch than traditional tv networks.

That’s the game Netflix, Inc. has to play. The firm needs to get the ratio between megahits and niche programming right in order to attract the most people possible to its platform. As a result it’s going to have to spend billions of dollars, Sarandos says $7 billion this year, in order to make its content better than that of rivals.

Netflix stock relies on content chops

For those holding Netflix stock, content is king. It’s what keeps bringing people back to the streaming platform, and it’s the only reason new users are joining up.

Despite the risks of the hit-or-miss business model, those following Netflix stock seem to think the firm is in a great position to take advantage of the change in the content market. On Wall Street right now the only 3 out of the 42 analysts studying the firm have a negative outlook on the firm. On the other hand 24 analysts have an Outperform or Buy rating on the stock.

The median price target among those polled by the Financial Times sits at $193. On Thursday shares in the firm closed at $166.09. That’s a massive rise for what’s considered to be a risky business.

Netflix may be ahead in the content and streaming world, but competition is building. Those looking for a safe bet, should stay away from the firm, but the risk and reward may work out for more risk seeking investors.

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Adrian Smith

Adrian Smith is a finance and tech writer and currently working on a Masters in Business Information. He has developed a keen interest in all things finance and technology and loves to write about it.


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