Cash for programming fuels Netflix’s journey to streaming dominance
Here are some notable numbers from Netflix:
130 million paying
customers as of September.
$14.9 billion in reve
nue in the last 12 months.
$1.3 billion in profit
for the same period.
7.6 million more paid
subscribers expected to be added in the last three months of 2018.
23 Emmy Awards this
year, the same as HBO.
Here’s another: $18.6 billion.
That’s the amount Netflix has committed to spending on content, including many shows that won’t show up on the service for months or even more than a year, like new seasons of “The Crown” and “Stranger Things” and the much-anticipated lineup from the superproducer Shonda Rhimes.
It’s also far more than what traditional players like the Walt Disney Co., HBO or NBCUniversal generally spend on entertainment.
But that’s why investors are mad for Netflix. They’re betting on its unorthodox media model: Spend big now and reap a massive subscriber base (and big profits) later. Possibly much later. The service’s current tally of 130 million customers beat Wall Street estimates, but investors are ultimately counting on 300 million, or more.
The size of that number explains why Netflix is valued so highly relative to other entertainment businesses. The company’s market capitalization currently stands at approximately $156 billion. Disney, by comparison, is valued at about $174 billion.
Those figures look out of whack when comparing the size of the companies. Netflix had $14.9 billion in revenue and $1.3 billion in profit for the last 12 months. Disney generated $58 billion in revenue and $10.1 billion in profit for the 12 months ending June 30. (Disney won’t report results for its most recent quarter until Nov. 8.)
In other words, Disney made eight times more money than Netflix, but it’s only worth about 12 percent more. Another way to consider it: Netflix investors are paying about $120 for every $1 of profit it generates. For Disney, investors are paying about $17.
Netflix is the streaming pioneer, but it’s about to get some serious competition.
Disney, led by Robert Iger, has already introduced a streaming sports service, ESPN+, and will introduce an entertainment offering next year. The company also spent $71.3 billion for most of Rupert Murdoch’s media empire, including the 20th Century Fox movie and television studios, a set of cable networks and – critically – a controlling stake in the streaming service Hulu.
Disney will soon be able to sell access to films such as “Black Panther,” “Avatar” and the original “Star Wars” trilogy directly to home viewers without having to go through Netflix.
Netflix is also part of the reason AT&T spent $85.4 billion for Time Warner – renamed WarnerMedia – which will unveil a new streaming service built around HBO by the end of next year.
Those astronomical deals put Netflix’s $18.6 billion content spend in a slightly different light.