The NFLX Dilemma
The news yesterday that NFLX is buying a tv program inspired me to post about them again. I don't just think they have a valuation problem I think their whole subscription based streaming model is unsustainable and IMHO the tv series is a desperate attempt by Hastings to try to address a fundamental flaw in their subscription model. How do you keep subs renewing over the long haul with nothing but old movies, tv reruns and when STARZ renews what ever new content STARZ bread and butter Cable customers don't care that NFLX gets. Take a look at the article below and imagine what happens to NFLX model once they reach saturation with new subs. I see hordes of older subs walking because they've seen everything a dozen times already which will force NFLX to cut back on content to keep costs down in a death spiral.
Comcast has about the same number of video subs ~23M as NFLX does right now. According to a recent 10Q they spend ~$7.4B/ year for programming. I think even after all the recent deals and factoring in the $200M-$300M estimated NFLX will pay for a STARZ renewal they will only pay ~$1B or so for content per year. Comcast pays ~7X what NFLX will pay because they want enough new content to keep subs renewing every year. To me the NFLX original program deal is a desperate attempt to address the problem of not having enough new content to keep subs for any length of time. Is one show going to solve the problem? If not how much original programming can they afford and how do they suddenly become a studio in addition to streaming content provider? Lightning struck once with a bone headed content deal on STARZ part, can it strike twice?