8 ms·

I never understood the super high valuation of Netflix in the past. Sure, they had great CDN tech, and sometimes they had good content (in the US at least) but

I never understood the super high valuation of Netflix in the past. Sure, they had great CDN tech, and sometimes they had good content (in the US at least) but their business model was the most susceptible to disruption from all of the FAANGS since their tech would ultimately become a commodity and their content could be taken away, surpassed or both. They had no vendor lock-in effect like Apple, Microsoft or Google and no social media network efect like Snapchat, Discord, Meta that would guarantee their customer base to stay long term on the platform. They also couldn't monetize their users' personal data through ads as much as the other chat apps and social networks. And it was only a matter of time before juggernauts with valuable IPs like Disney, Warner, etc. would build their own streaming services to disrupt them. The moment their competitors with the desirable IP would jump in the ring, or their content was no longer addictive, or their customer base would feel economic hardship, or their VC money dried up, their service could be easily disposed of without a hit to quality of life to their users. Also, people could pirate their content basically for free, so there's also that, versus the likes of Disney, Warner, etc had other revenue streams besides just a streaming service.

mschuster91 4y ago
People hoped for and bet on an endgame similar to Spotify, which holds 33% of the market share for music streaming, followed by Apple and Amazon with ~12% each and no major shifts in the last years. Basically, a stagnant market that allows Netflix to pull in absurd amounts of money - and since there is almost no R&D costs on the tech side any more, all money that doesn't need to be paid out as royalties can be used to produce more content or distributed to the shareholders. For a long time, the general idea worked out. The problem was that the studios did manage to get their butts off the ground eventually - especially Disney removing all their stuff from Netflix and creating Disney Plus with a lot of the most popular cinema franchises (Star Wars, MCU, Avatar, all the "classic" Disney and Pixar films) was a real setback - and now combined with the aftereffects of pandemic lockdowns and work-from-home movie distractions going away, Netflix' future does seem a bit bad.
- throwaway9870 4y ago
  Video production and distribution seems to be a very different model than music so I am not sure any comparison with Spotify was ever valid.
- treis 4y ago
  Spotify makes sense because you're swapping out inefficient distribution (record stores & albums) to an efficient one. Netflix doesn't have a similar advantage. Media companies produced shows and Cable companies distributed them just fine before. The advantage they had in technology and being able to buy cheap media has evaporated. Their advantage of being able to burn money is now evaporating with it. They're left with trying to produce better media cheaper which they can't do because they're worse than legacy studios. Or distributing cheaper/better which they can do but there's not a 10+ billion dollar company there. Worse for them Apple & Amazon still seem to be happy burning money for a while. Not a lot of bargains out there buying media.
  - evandijk70 4y ago
    Do you mean cable television? To me, Netflix is the same to cable television as Spotify is to radio, so I'm not sure I see a big benefit of Spotify there.
    - treis 4y ago
      Cable had commercial free channels and on demand content before Netflix came around.
  - yodon 4y ago
    Netflix wasn't a cable competitor- it was a Blockbuster competitor. They started out as the king of the DVD rental market, putting essentially 100% of the competitors in that distribution-only industry out of business. They eventually reached a scale in the streaming category (which they essentially invented from a business standpoint, even though they did not invent the technology) where it made sense for them to produce their own content, both because it was more economically efficient generally and to prevent studios from starving them of content and shutting off their revenues. Their move into producing some fraction of their own content matched that of both cable companies and TV studios before them. Netflix's primary advantage, in both the DVD market and the early streaming market was 100% a radically disruptive distribution advantage. Eventually, in both cases, they became so dominant that they redefined their own industries. It's not that Netflix is a cable company, it's that cable were forced to become Netflix to stay alive and avoid the fate of Blockbuster and Netflix's original competitors.
throwawaylinux 4y ago
Streaming video and making a (really pretty mediocre) browsing interface for it is an absolute commodity. Clearly most value is in the content. What I'm surprised by is how long they were able to extract a large middle-man fee from studios and use that to fund a direct competitor to them. Took some chutzpah.
- deleted 4y ago
  [deleted]
- MereInterest 4y ago
  I think the advantage was in the convenience, not just in being a middle-man. When Netflix was the primary streaming platform, I could do a single search on Netflix. That if I wanted to look for Robin Hood (1973), Star Trek, The Matrix, 24, Glee, Doctor Who, John Wick, or Kill la Kill. Now, in order to find something that I want to watch, I would need to search for it on Disney+ (Robin Hood (1973)), Paramount+ (Star Trek), HBO Max (The Matrix/Doctor Who), Amazon Prime (24), Hulu (Glee), Peacock (John Wick), or Crunchyroll (Kill la Kill). Even if subscribing to all of the platforms were the same price, it would still mean that the convenience would be completely gone. Fun fact: In 2019, the DoJ decided that it would stop enforcing the Paramount decrees, because there's no way studios could lock out independent distributors in today's environment. Clearly, no way whatsoever. [0] https://en.wikipedia.org/wiki/United_States_v._Paramount_Pictures,_Inc.#Termination_of_the_Paramount_decrees https://en.wikipedia.org/wiki/United_States_v._Paramount_Pic...
  - throwawaylinux 4y ago
    I didn't say being a middle man is worthless, by definition they provide value by making transactions more convenient. Netflix could have continued to focus on this actual advantage it had -- building its partners / clients (studios) to provide streaming services with a convenient single point with the customer and economies of size and scale. If they had charged a small price commensurate with the service being provided to studios, on reasonable terms, and had not attempted to fund a direct competitor to their clients, they quite probably could have continued being a great distribution service. But they didn't, they threw that away trying to fund a studio startup for some strange reason.
lordnacho 4y ago
I guess at some point it looked like all content was just going to be sent to Netflix, like a giant modern Blockbuster. Every movie that was no longer in cinemas, every niche classic from times gone by. It might have been a great business, if the owners of those movies had been happy to just get a small fee from Netflix. Unfortunately that's not how it turned out, for instance Disney decided they could both make their own tech and their own content, esp for such things like Mandalorian which takes a modern long-story format that is suitable for streaming. Basically it turns out content is king, which Netflix also realized as they went and tried to make their own stuff with limited success. What I don't get is why it's so hard to make the content. They've certainly thrown a lot of money at it, how come nothing sticks? By contrast everything Disney makes seems to be high quality.
- dingleberry420 4y ago
  Indeed, and if things had turned out that way I would've happily kept my subscription and paid for such content to watch it legally. Instead they fragmented, and there is no way that I will be figuring out which of the dozen subscriptions I need any time I want to watch something, and I know I am not alone here. Piracy is king once again. It has all the content, and none of the bullshit.
- draw_down 4y ago
  Mmm, I think Netflix made plenty of their own missteps in that department. They’re notorious for shutting down popular shows after a few seasons, for example. I’m sure they had numbers that convinced them that was the smart thing to do, but you do that enough times and people might wonder why it’s ever worth getting into your shows. This kind of thing comes from company culture too. I can’t speak to specifics, but presumably Disney and other studios who have been at the content game a lot longer than Netflix have a better understanding of how to cater to their customers and foster that relationship over time. Another way to put all this is simply that it’s a lot harder to build a content business than a CDN, especially now. So the existing content biz just built CDNs.
  - lordnacho 4y ago
jsnell 4y ago
The theory was one of economies of scale. For exclusive in-house content, you should have a positive feedback loop of "more users" -> "bigger content budget" -> "better or more content" -> "more users". And the theory was that with their headstart they could basically build such a large user base and content pipeline that nobody else could catch up. It was a solid theory, and honestly it still isn't obvious that it's failed. Netflix still has an much larger user base than any of the competing services, despite charging much higher prices. But other than the stellar job they did with international content, they certainly haven't executed on this as well as people imagined. It's quite amazing how badly they have been spending that massive content budget, and how long the mismanagement has been going on. (Their prestige "Hollywood movies at Hollywood budgets straight to streaming" projects are probably the most obvious example. Who the fuck greenlit Gray Man at $200M?)
throwoutway 4y ago
They should have sold their tech as a platform for other streamers to build on, which would have locked in a portion of those profits.
urthor 4y ago
I think the theory was that Hulu and Disney+ simply couldn't execute on streaming. Turns out, when billions are on the line, they could actually.
- foxyv 4y ago
  When Netflix first started, it was an engineering challenge on the order of the Google search engine. High Availability was the newest thing and Big Data was just getting started. Now though, it is so easy you can use similar technology to host your cooking blog in AWS for $0.10/month. It's not terribly surprising that Disney+ was able to execute, probably for a bare fraction of what Netflix had to put in technically speaking.
gary_0 4y ago
Netflix was a brand. A household word for streaming, ingrained in popular culture. "Netflix and chill". They had absolutely no idea how to cultivate and protect that brand, and now they're giving up and selling ad space. It wasn't so long ago they were mocking Blockbuster for being out of touch, and now here we are.
- jstarfish 4y ago
  They could recapture a lot of lost revenue by implementing IP address limiting. Just saying. Also by leaning into the "...and chill" idea by recommending users interested in hookups.
2143 4y ago
> And it was only a matter of time before juggernauts with valuable IPs like Disney, Warner, etc. would build their own streaming services to disrupt them. Where I'm at, Disney is already cruising. Infact, all major production companies seem to have realised a while ago that they all can individually create their own streaming platform.

mschuster91 4y ago

People hoped for and bet on an endgame similar to Spotify, which holds 33% of the market share for music streaming, followed by Apple and Amazon with ~12% each and no major shifts in the last years. Basically, a stagnant market that allows Netflix to pull in absurd amounts of money - and since there is almost no R&D costs on the tech side any more, all money that doesn't need to be paid out as royalties can be used to produce more content or distributed to the shareholders. For a long time, the general idea worked out. The problem was that the studios did manage to get their butts off the ground eventually - especially Disney removing all their stuff from Netflix and creating Disney Plus with a lot of the most popular cinema franchises (Star Wars, MCU, Avatar, all the "classic" Disney and Pixar films) was a real setback - and now combined with the aftereffects of pandemic lockdowns and work-from-home movie distractions going away, Netflix' future does seem a bit bad.

throwaway9870 4y ago
Video production and distribution seems to be a very different model than music so I am not sure any comparison with Spotify was ever valid.
treis 4y ago
Spotify makes sense because you're swapping out inefficient distribution (record stores & albums) to an efficient one. Netflix doesn't have a similar advantage. Media companies produced shows and Cable companies distributed them just fine before. The advantage they had in technology and being able to buy cheap media has evaporated. Their advantage of being able to burn money is now evaporating with it. They're left with trying to produce better media cheaper which they can't do because they're worse than legacy studios. Or distributing cheaper/better which they can do but there's not a 10+ billion dollar company there. Worse for them Apple & Amazon still seem to be happy burning money for a while. Not a lot of bargains out there buying media.
- evandijk70 4y ago
  Do you mean cable television? To me, Netflix is the same to cable television as Spotify is to radio, so I'm not sure I see a big benefit of Spotify there.
  - treis 4y ago
    Cable had commercial free channels and on demand content before Netflix came around.
- yodon 4y ago
  Netflix wasn't a cable competitor- it was a Blockbuster competitor. They started out as the king of the DVD rental market, putting essentially 100% of the competitors in that distribution-only industry out of business. They eventually reached a scale in the streaming category (which they essentially invented from a business standpoint, even though they did not invent the technology) where it made sense for them to produce their own content, both because it was more economically efficient generally and to prevent studios from starving them of content and shutting off their revenues. Their move into producing some fraction of their own content matched that of both cable companies and TV studios before them. Netflix's primary advantage, in both the DVD market and the early streaming market was 100% a radically disruptive distribution advantage. Eventually, in both cases, they became so dominant that they redefined their own industries. It's not that Netflix is a cable company, it's that cable were forced to become Netflix to stay alive and avoid the fate of Blockbuster and Netflix's original competitors.

throwawaylinux 4y ago

Streaming video and making a (really pretty mediocre) browsing interface for it is an absolute commodity. Clearly most value is in the content. What I'm surprised by is how long they were able to extract a large middle-man fee from studios and use that to fund a direct competitor to them. Took some chutzpah.

deleted 4y ago
[deleted]
MereInterest 4y ago
I think the advantage was in the convenience, not just in being a middle-man. When Netflix was the primary streaming platform, I could do a single search on Netflix. That if I wanted to look for Robin Hood (1973), Star Trek, The Matrix, 24, Glee, Doctor Who, John Wick, or Kill la Kill. Now, in order to find something that I want to watch, I would need to search for it on Disney+ (Robin Hood (1973)), Paramount+ (Star Trek), HBO Max (The Matrix/Doctor Who), Amazon Prime (24), Hulu (Glee), Peacock (John Wick), or Crunchyroll (Kill la Kill). Even if subscribing to all of the platforms were the same price, it would still mean that the convenience would be completely gone. Fun fact: In 2019, the DoJ decided that it would stop enforcing the Paramount decrees, because there's no way studios could lock out independent distributors in today's environment. Clearly, no way whatsoever. [0] https://en.wikipedia.org/wiki/United_States_v._Paramount_Pictures,_Inc.#Termination_of_the_Paramount_decrees https://en.wikipedia.org/wiki/United_States_v._Paramount_Pic...
- throwawaylinux 4y ago
  I didn't say being a middle man is worthless, by definition they provide value by making transactions more convenient. Netflix could have continued to focus on this actual advantage it had -- building its partners / clients (studios) to provide streaming services with a convenient single point with the customer and economies of size and scale. If they had charged a small price commensurate with the service being provided to studios, on reasonable terms, and had not attempted to fund a direct competitor to their clients, they quite probably could have continued being a great distribution service. But they didn't, they threw that away trying to fund a studio startup for some strange reason.

lordnacho 4y ago

I guess at some point it looked like all content was just going to be sent to Netflix, like a giant modern Blockbuster. Every movie that was no longer in cinemas, every niche classic from times gone by. It might have been a great business, if the owners of those movies had been happy to just get a small fee from Netflix. Unfortunately that's not how it turned out, for instance Disney decided they could both make their own tech and their own content, esp for such things like Mandalorian which takes a modern long-story format that is suitable for streaming. Basically it turns out content is king, which Netflix also realized as they went and tried to make their own stuff with limited success. What I don't get is why it's so hard to make the content. They've certainly thrown a lot of money at it, how come nothing sticks? By contrast everything Disney makes seems to be high quality.

dingleberry420 4y ago
Indeed, and if things had turned out that way I would've happily kept my subscription and paid for such content to watch it legally. Instead they fragmented, and there is no way that I will be figuring out which of the dozen subscriptions I need any time I want to watch something, and I know I am not alone here. Piracy is king once again. It has all the content, and none of the bullshit.
draw_down 4y ago
Mmm, I think Netflix made plenty of their own missteps in that department. They’re notorious for shutting down popular shows after a few seasons, for example. I’m sure they had numbers that convinced them that was the smart thing to do, but you do that enough times and people might wonder why it’s ever worth getting into your shows. This kind of thing comes from company culture too. I can’t speak to specifics, but presumably Disney and other studios who have been at the content game a lot longer than Netflix have a better understanding of how to cater to their customers and foster that relationship over time. Another way to put all this is simply that it’s a lot harder to build a content business than a CDN, especially now. So the existing content biz just built CDNs.
- lordnacho 4y ago

jsnell 4y ago

The theory was one of economies of scale. For exclusive in-house content, you should have a positive feedback loop of "more users" -> "bigger content budget" -> "better or more content" -> "more users". And the theory was that with their headstart they could basically build such a large user base and content pipeline that nobody else could catch up. It was a solid theory, and honestly it still isn't obvious that it's failed. Netflix still has an much larger user base than any of the competing services, despite charging much higher prices. But other than the stellar job they did with international content, they certainly haven't executed on this as well as people imagined. It's quite amazing how badly they have been spending that massive content budget, and how long the mismanagement has been going on. (Their prestige "Hollywood movies at Hollywood budgets straight to streaming" projects are probably the most obvious example. Who the fuck greenlit Gray Man at $200M?)

throwoutway 4y ago

They should have sold their tech as a platform for other streamers to build on, which would have locked in a portion of those profits.

urthor 4y ago

I think the theory was that Hulu and Disney+ simply couldn't execute on streaming. Turns out, when billions are on the line, they could actually.

foxyv 4y ago
When Netflix first started, it was an engineering challenge on the order of the Google search engine. High Availability was the newest thing and Big Data was just getting started. Now though, it is so easy you can use similar technology to host your cooking blog in AWS for $0.10/month. It's not terribly surprising that Disney+ was able to execute, probably for a bare fraction of what Netflix had to put in technically speaking.

gary_0 4y ago

Netflix was a brand. A household word for streaming, ingrained in popular culture. "Netflix and chill". They had absolutely no idea how to cultivate and protect that brand, and now they're giving up and selling ad space. It wasn't so long ago they were mocking Blockbuster for being out of touch, and now here we are.

jstarfish 4y ago
They could recapture a lot of lost revenue by implementing IP address limiting. Just saying. Also by leaning into the "...and chill" idea by recommending users interested in hookups.

2143 4y ago

> And it was only a matter of time before juggernauts with valuable IPs like Disney, Warner, etc. would build their own streaming services to disrupt them. Where I'm at, Disney is already cruising. Infact, all major production companies seem to have realised a while ago that they all can individually create their own streaming platform.