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Ashwath on Valuation: Netflix - The Future of Entertainment or House of Cards?
- yarapavan 9y agoIt is worth taking a pause, and considering the differences between Netflix and Spotify, both subscription-based business models, that draw their value from immense subscriber bases. 1. By paying for its content, both licensed and original, and using that content to go after subscribers, Netflix has built a more levered business model, where subscribers, both new and existing, have higher marginal value than at Spotify, where content costs are tied to subscribers listening to music. 2. The Netflix model, which is increasingly built around original rather than licensed content, provides for a stronger competitive edge, which should show up in higher renewal rates and more pricing power, adding to the value per subscriber, both existing and new. 3.The Netflix model will deliver higher value from subscription growth than the Spotify model, but it comes with a greater downside, because a slackening of that growth will leave Netflix much deeper in the hole, with more negative cash flows, than it would Spotify.