Netflix acknowledges the punishing landscape that streaming is today, but – even as some now question the entire model – insists that if you have “strong execution and focus” If so it is a good business and it does.
“Consumers have so many amazing entertainment options,” it said, citing its biggest rivals Disney, Comcast, Paramount Global and Warner Bros. Discovery “with their large content libraries and creative expertise.” [who] Now they’re focused on profit so they can build sustainable, long-term streaming businesses.” Big-tech rivals Apple, Amazon and YouTube, “with their wide reach and deep pockets, are investing heavily to grow their streaming revenues.” Let’s continue,” read in its letter to shareholders accompanying the quarterly earnings.
“Combined with Apple’s video initiatives, there is quite a competitive battle going on,” Netflix said. “But while streaming is extremely competitive, we have shown that with strong execution and focus, it can be a great business. Long-term success requires strengths in both entertainment and technology, a combination that has not been needed by large media or tech companies in the past.
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Netflix is the first and foremost streamer and therefore has a significant first-mover advantage. It’s loosely supported compared to other big media competitors and has a fountain of free cash flow — a metric prized by Wall Street and that is falling short of its rivals. Netflix said it is forecast to generate an estimated $5 billion in free cash flow this year.
Things are believed to have become difficult due to Covid, and the streamer is set to record its first subscriber loss in years in the spring of 2022. That event created a huge situation that shifted the entire industry to focus on profitability rather than customer growth.
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In a video interview posted on its website after the figures, officials said it was a grim time. Netflix reined in spending, CFO Spencer Newman said, adding that it planned to keep the numbers stable for a few years. “When our revenue slowed down in early 2022, we said we would continue [spending] Broadly flat, and that’s what we’re doing…the wavering we talked about,” he said, “coming out of Covid, and now, with the Hollywood attacks.” But as -As revenue picks up – from the recent password-sharing crackdown and a new ad-supported level – “we expect to begin to recoup our cash spend on content” in the third and fourth quarters. He didn’t give a dollar figure, but said, “We want to do this responsibly.”
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Co-CEO Ted Sarandos was certain that content spending would not include live sports, except for events that could promote other “sports-related” programming. A celebrity golf match with Formula 1 drivers and professional golfers is “something we’re excited about,” he said, as a promotional tool for the series. Formula 1: Drive to Survive And full swing, others include Tour de France: Unchained And Quarterback.
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The costly economic model of live sports licensing is very difficult, Sarandos said, preferring Netflix to “introduce new audiences to a sport that has existed for a long time.” And you do that through exceptional storytelling, not the liveliness of the game.”
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Nor will Netflix begin licensing its content to others, he said in response to a question from BofA Securities analyst Jessica Reif Ehrlich. It’s simply “not exciting enough.” With contracts in the syndication and home video markets, he prefers to let content pop up across platforms and occasionally — like recently when extraction 2 Strike.