Netflix flexes

I find this to be off-base in a number of ways, starting with the premise that Netflix is a two-sided platform like Facebook, Google and Amazon.

Netflix used to be a distributor. It paid content owners to license its back catalog which no longer had any value in primary channels, namely cinemas. It then charged users for access. In contrast, two-sided Facebook's user do not pay anything, but the advertisers pay for access to them. The relationship is roughly the reverse.

Netflix also do not have suppliers that build up the attractiveness of the platform to end users. Netflix paid for back catalogs. Amazon doesn't pay its merchants.

Today, Netflix is both a distributor and a producer. This doesn't make Netflix twice as strong but introduces a number of dilemmas into the organization. In the same way that Disney would look to external distribution channels to maximize the return on its investment in content, Netflix now has the same incentives. Netflix has no suppliers in the sense of Amazon - it pays for all the productions on its platform. It supplies itself.

In fact, they could theoretically make more by having staggered releases where premium channels like cinema receives new titles first. Why? First, because a single ticket to the cinema costs more than a month's subscription to Netflix. Second, because the direct income from Bird Box is $0.

Certainly Bird Box has a positive effect on subscriptions but it can only be inferred. This is an enormous problem. How can you justify spending say $100 on a production which could directly generate $700M at the box office, and then just release it to a limited audience? There are going to be numerous internal battles over this. I bet we'll see Netflix go for wide cinematic release of some titles.

Another issue is capital. Not only does Netflix has to produce content from which there is no direct return. They also have to market it. A $100M production may receive half or the same amount of spend on marketing. They have to build IP that is as relevant as Marvel.

In summary, the challenges Netflix has is contradictory incentives between distribution and production, mastering the art of production and building of IP, and spending on marketing new productions.