Can Netflix Survive in the New World It Created?

By Aarthi Rayapura June 16, 2016

Netflix, since its streaming service debuted in 2007, has had its annual revenue grow sixfold, to $6.8 billion from $1.2 billion. More than 81 million subscribers pay Netflix $8 to $12 a month, and slowly but unmistakably these consumers are giving up cable for internet television: Over the last five years, cable has lost 6.7 million subscribers; more than a quarter of millennials (70 percent of whom use streaming services) report having never subscribed to cable in their lives. Those still paying for cable television were watching less of it. In 2015, for instance, television viewing time was down 3 percent; and 50 percent of that drop was directly attributable to Netflix, according to a study by MoffettNathanson, an investment firm that tracks the media business.

All of this has made Netflix a Wall Street favorite, with a stock price that rose 134 percent last year. Easy access to capital has allowed the company to bid aggressively on content for its service. This year Netflix will spend $5 billion, nearly three times what HBO spends, on content, which includes what it licenses, shows like AMC’s “Better Call Saul,” and original series like “House of Cards.” Its dozens of original shows (more than 600 hours of original programming are planned for this year) often receive as much critical acclaim and popular buzz as anything available on cable. Having invented the binge-streaming phenomenon when it became the first company to put a show’s entire season online at once, it then secured a place in the popular culture: “Netflix and chill.”

But the assembled executives also had reason to worry. Just because Netflix had essentially created this new world of internet TV was no guarantee that it could continue to dominate it. Hulu, a streaming service jointly owned by 21st Century Fox, Disney and NBC Universal, had become more assertive in licensing and developing shows, vying with Netflix for deals. And there was other competition as well: small companies like Vimeo and giants like Amazon, an aggressive buyer of original series. Even the networks, which long considered Netflix an ally, had begun to fight back by developing their own streaming apps. Last fall, Time Warner hinted that it was considering withholding its shows from Netflix and other streaming services for a longer period. John Landgraf, the chief executive of the FX networks — and one of the company’s fiercest critics — told a reporter a few months ago, “I look at Netflix as a company that’s trying to take over the world.”

At the moment, Netflix has a negative cash flow of almost $1 billion; it regularly needs to go to the debt market to replenish its coffers. Its $6.8 billion in revenue last year pales in comparison to the $28 billion or so at media giants like Time Warner and 21st Century Fox. And for all the original shows Netflix has underwritten, it remains dependent on the very networks that fear its potential to destroy their longtime business model in the way that internet competitors undermined the newspaper and music industries. Now that so many entertainment companies see it as an existential threat, the question is whether Netflix can continue to thrive in the new TV universe that it has brought into being.

Read the full article at: www.nytimes.com

And here’s a recent piece on the company by Zuora CEO, Tien Tzuo – Netflix And The Six Billion-Dollar Bet (That Isn’t One)