by Kevin Coupe
The Street has a story evaluating the private label strategy ... er, propriety content expenditures at Netflix, suggesting that the company "may actually deserve more credit for its content bets than it's getting."
Netflix has announced plans to spend more than $6 billion on content, and another $1 billion on content marketing. This includes not just the acquisition of content that already has been in theaters and on television, but also the production of original content such as "Orange Is The New Black," "Daredevil," "Fuller House," "Unbreakable Kimmy Schmidt," "Bloodline," and "Grace & Frankie."
Pacific Crest Securities analyst Andy Hargreaves writes in a note, The Street says, that companies worried about Netflix's long-term prospects simply do not understand its business model.
"Over the past three years, Netflix's U.S. streaming business has generated incremental contribution margins of approximately 50%, has driven [Return On Invested Capital] to 15% from less than 5% and has driven operating profit to what we estimate will be over $1.0 billion in 2016 from $178 million in 2013," Hargreaves writes.
The story also suggests that Netflix should be able to replicate its model internationally, which will cost it more but also contribute more to its bottom line.
I bring this up because I've always thought that the original content strategy pursued by Netflix - as well as by companies like HBO, Showtime and Amazon - is a good metaphor for what retailers have to do to differentiate themselves. At the end of the day, companies are going to be defined by the things they have and the services they offer that other companies do not have. It is that simple ... and that challenging.
Use the Netflix story as a conversation-starter. And an Eye-Opener.
The Street has a story evaluating the private label strategy ... er, propriety content expenditures at Netflix, suggesting that the company "may actually deserve more credit for its content bets than it's getting."
Netflix has announced plans to spend more than $6 billion on content, and another $1 billion on content marketing. This includes not just the acquisition of content that already has been in theaters and on television, but also the production of original content such as "Orange Is The New Black," "Daredevil," "Fuller House," "Unbreakable Kimmy Schmidt," "Bloodline," and "Grace & Frankie."
Pacific Crest Securities analyst Andy Hargreaves writes in a note, The Street says, that companies worried about Netflix's long-term prospects simply do not understand its business model.
"Over the past three years, Netflix's U.S. streaming business has generated incremental contribution margins of approximately 50%, has driven [Return On Invested Capital] to 15% from less than 5% and has driven operating profit to what we estimate will be over $1.0 billion in 2016 from $178 million in 2013," Hargreaves writes.
The story also suggests that Netflix should be able to replicate its model internationally, which will cost it more but also contribute more to its bottom line.
I bring this up because I've always thought that the original content strategy pursued by Netflix - as well as by companies like HBO, Showtime and Amazon - is a good metaphor for what retailers have to do to differentiate themselves. At the end of the day, companies are going to be defined by the things they have and the services they offer that other companies do not have. It is that simple ... and that challenging.
Use the Netflix story as a conversation-starter. And an Eye-Opener.
- KC's View:
