Is Netflix the Amazon of Entertainment?

What do Amazon and Netflix have in common besides highly valued, or overvalued, stock prices, depending on your view?

Most people answer that they are both Digital Disrupters kicking the old-fashioned, asleep-at-the-wheel, traditional competitors in the teeth or ass…as the case may be. And there is certainly plenty of Digibabble support for that particular POV.

However, as a huge fan and premium user of both, as a self-proclaimed slayer of Digibabble and as one who has an obligation to clients to do my best to glean usable insight, for their own competitive benefit, from the market – I’d argue that if you are studying them to learn for your own competitive advantage, look out of sight of the Digital Box and the answer will become apparent, as will their true and formidable strength.

To begin, one of the key reasons I have left the Digital Box on the other side of the dune (I’ve just returned from Dubai…David of Arabia…) is that I’d argue that Digital is their biggest competitive weakness. It always amazes me that, given the day, and the Digibabble quotient, Digital is either the biggest competitive advantage that exists or it is the leveler of playing grounds allowing everyone and anyone the ability to access global markets and begin the next Amazon or Netflix…ergo Amazon and Netflix.

I am and always have been of the level-playing-field view. As I have written, on a number of occasions, Amazon will not triumph over Walmart because of Digital prowess – Walmart can catch up there…why it’s critical to note that Amazon is investing like crazy in physical fulfillment infrastructure – including trucks (and, yes, drones for the Digibabblers) – because that is where the victor will be decided, and Jeff is way ahead of the analysts and investors on this…

In my view…once you are online (and, yes, Mobile…knee-jerkers), the battle is not about Big Data (as you will see) – rather the killing fields are offline and the WOMC (Weapons of Mass Competitiveness) are meeting and constantly exceeding consumer/user/customer demand as both Netflix and Amazon do. And to do that you need to deliver stuff…in Amazon’s case it’s physical and in Netflix’s it’s great and varied content of all kinds – and folks, content is metaphysically physical.

Farhad Manjoo of The New York Times wrote a thoughtful and informative analysis titled “Why Media Titans Would Be Wise Not to Overlook Netflix,” where he formulated a challenge and posed the right question:

…here’s a scarier proposition for you and your fellow media executives to ponder while roasting marshmallows by the fire at Davos next week. What if Netflix is the Amazon of the entertainment industry – the embodiment of a slow, expensive, high-risk effort to consume the entirety of your business?

Now, I’m not sure about the marshmallows by the fire at Davos – I will be there next week and report if I find any – but like Amazon, Netflix’s unfettered total lack of fiscal accountability, fueled by Digibabble Analysts who need to rationalize and monetize wild market caps and such, allows them to build and grow in ways their older and newer competitors cannot…but one day it will all stop and both will raise prices, change their service offer and be forced to deliver on real profit and that is when, dear reader, the opportunity for the wise and savvy competitors – the turtles to the hare, if you will – the piggy brother in the brick house – you get the point – to pounce will once again create a disruption…or not.

And the “or not” is not because I am a waffler, but because I think that Amazon and Bezos and Hastings get this, and that is why I have confidence in their businesses – despite the overvaluations – and why their competitors need to get back to basics.

Michael Pachter of Wedbush Securities believes that Netflix is overvalued – in fact his view is that it will ultimately be an OK business with a stock price of about $60 – less than half of today’s valuation – he says:

I’ve covered stocks for more than 15 years, and it’s amazing how bad my idiot competitors are on this. It’s like they drink the Kool-Aid and they’re done.

A nuclear salvo on Digibabble!

The article is a must-read because I really believe it sets up the conflict facing most/all business today – and that is the need to understand what is and isn’t the Digital Edge.

To recap – Netflix used its unrestricted funds to go global at once – awesome move and not sure why some see it as a surprise. Obvious, necessary and what Digital is all about – HELLO…

But more – they are producing binge loads of great content and buying ever more…because like any good retailer, you need great product and deep inventory. And, make no mistake, they are a retailer.

At CES Ted Sarandos, Chief Content Officer of Netflix, announced that they would double production this year and Nat Schindler, an analyst at Bank of America Merrill Lynch, broke it down as follows – 31 TV (that word!) series, 10 feature films, 30 children’s shows, 12 documentaries and 10 stand-up comedy specials…or about 25 days of 24-hour watching for you bingers out there.

Sadly, to my view, in a pander to the Digibabble crowd, Sarandos added the following argument, claiming that “data” allows them to produce shows that would not have existed in traditional TV.

I will leave the analysis to you – but in order to help you evaluate this statement, listen to the progression of statements from Amazon on content development…

There is way more to analyze in order to better understand where this is all really going…from the amount Netflix makes per hour – roughly half of comparable cable – ­to how much they pay for bought licensed shows – so far not premium – to how much they charge you – it’s still a bargain.

Prediction – they will raise their rates and then Amazon streaming will be even more competitive…until they raise theirs too; content owners will charge them more and we will have to pay…they might have to add advertising…hmmmm (see Snapchat).

What else? Build studios? Theme parks? Television Network? If anyone thinks those are wild ideas, I strongly suggest that you study Vice and Disney, where I think the strongest learning can be found as to the future of Netflix.

And speaking of Disney On Vice…Listen:

“Whatever you do, do it well. Do it so well that when people see you do it, they will want to come back and see you do it again, and they will want to bring others and show them how well you do what you do.” Walt Disney

My crystal ball is cloudy – but I will take a bet on Netflix, and by implication Amazon, so long as they stay the course on delivering what we all want….great shows to watch anywhere, anytime, as we want to…

The lesson – my loyal readers know where I’m going – Digital is everything but not everything is Digital – the platform issues are a forgone conclusion…the discussions on screens are old…debating about the viability of TV is pure nonsense. Victory will be ours…as the viewers, and we will bring friends!

It is time to apply that thinking everywhere.

What do you think?

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