Netflix is history. Maybe not yet… but within the next 10 years you will see the behemoth of streaming content providers bite the dust. This is my latest Walla Walla blog prediction and I stand by it.
"How" you ask, could this possible. Netflix rules the stoop, don't they? Well, for now, or at least until Disney+ joins the streaming market in late 2019. But it won't be just because the mouse has reared his ugly head and snapped his fingers that Netflix will blow away like the dust. In fact, Disney may be the only powerhouse subscription based streaming provider to survive the next ten years. The lot of them might all go the way of the Dodo Bird, and this why.
We have finally come full circle folks. The writing is on the wall. Youtube realizes this, PlutoTV joined the bandwagon, Roku has caught up and any other streaming company that now offers "ad-supported" services to its streaming audience has seen the light! So long as you the viewer can re-acclimatize to watching commercials again (that you CAN'T skip). Ahhhhhh... reminds me of the good old days when the words "binge-watching" referred to getting drunk during Thursday night's NBC Must-See-TV line up.
A perfect example of what I am talking about was observed in May of 2019 when the streaming service Roku added nearly 10,000 new movies and television shows to their servers, many of those being top studio films provided on their "Roku Channel", all for 100% free, as long as you don’t mind a few ads popping up here and there, just like in the good old days. And while I am on the topic, I should also mention that Roku's financial report for the first quarter of 2019 showed that their ad/subscription revenues spiked 79% from the same period in 2018! But we are not here to chat about Roku, per se. So, back to Netflix…
To put it simply, Netflix cannot sustain it's debt level for much longer. It currently posses a fluctuating debt ratio of about $12 Billion. The smart investors will pull out long before things get worse. Smart investors are currently taking advantage of an overvalued stock that posted a 1,030% return between 2013 and 2018. But this cannot be sustained and I feel sorry for the poor suckers left to loose a lot of money in a company that has no real long term value. Disney can subsidize its streaming service with cash flow from its cinema enterprises, its theme parks or its merchandising rights. But what does Netflix have. Nada. Zip. It hasn't even invested in any sort of streaming device that can offer their company revenue from DVR storage (smart move Amazon Prime, Roku, PlayStation and SlingTV). In fact, Amazon just added a new app to it's Amazon Fire TV systems called XUMO. It's a streaming service that includes 160 channels of live and on demand programming, including sports… all for FREE!
Steven Spielberg isn't the only one who doesn't like Netflix. In fact, we all should have perked up our ears when in late 2018 Warren Buffet sold Fox to Disney, but kept the FOXSports channel. This man is the prognosticator of investing prognosticators. He knows that live content is one of the last few guaranteed money making revenue streams in the entertainment industry. To have a foot in that market means to posses a means towards profitability. Even Facebook was smart enough to get into the sports streaming game.
So, when I tell you that Buffet has NEVER EVER invested in Netflix, it should make your ears perk up even higher. That's right, the "Oracle of Omaha" sees no intrinsic value in Netflix whatsoever.
For those of you who know a little about the stock market, Netflix has a triple-digit P/E ratio and posses a negative free cash flow six times what it is worth. It's even rated with a sub-investment grade of Ba3/BB. Good God People! Even with its over 125 million global subscribers, Netflix is a sinking ship that is plugging the holes for the time being, most recently with junk bonds sales. They may claim they will be cash flow positive by 2021, but it is a mathematically impossibility. And when you take into consideration their lackadaisical approach toward password sharing (it has been estimated by Cordcutting.com that Netflix looses $2.3 billion a year in revenue due to the practice) you begin to wonder if Netflix isn't just setting themselves up for a sale where their failing business model will simply become someone else's problem.
I know, I know… you are probably thinking to your self… doesn’t Amazon operate just fine (and has from day one) with billions of dollars of debt on its ledger. Why would they survive while Netflix is left to the corporate elephant graveyard. This is an easy one folks. Simply put, Amazon is too big to fail. Too many companies rely on Amazon to sell their goods. Shutting down Amazon would be like shutting down the world's bazaar. Amazon ain't going nowhere. Netflix on the other hand, is a streaming service that reminds me of MySpace or the rotary phone. It is having its day, but not for much longer. It's single minded approach to business is a death knell. You can not bank on content alone. Nobody can. Not even Disney can do that.
In fact, in the Spring of 2019 Netflix released the most expensive movie ever made, the $700 epic "The Wandering Earth" by Chinese director Frant Gwo. Sadly, nobody noticed, and that includes most of you reading this article. It's on the server, but it was never mentioned in any of their periodic press releases nor did the trailer ever make it to the Netflix Youtube channel. The only thing I can figure is that Natflix expects their algorithm to perform its magic. And you would think that said "algorithm" would have some value to competing companies. But alas, companies would rather break Facebook's algorithmic methods than waste their time on something as simple as an equation which figures that if you like "horror films", there are plenty more where that came from.
Like I said, Netflix has literally nothing. Nothing but content… well that and subscribers, which Disney or AT&T or Apple or Comcast might someday want. I wouldn't be shocked if Netflix is acquired by any of these behemoths. But ten years from now, Netflix will not be the independent powerhouse of streaming services we now know it to be. This is inevitable. Even though its shares have risen by nearly 23,000% since its IPO in 2002, it simply can not sustain this trajectory.
And with numerous free streaming services on the rise, such as Hoopla and Kanopy, Crackle (which is sponsored by Sony), IMDb Freedive, FilmRise, Vudu Channel and Tubi TV, most companies are starting to realize that competing against Disney is a losing proposition. So why not do what Netflix did in the first place, re-invent. Heck, PlutoTV, was recently acquired by Viacom for $340 million. Nice payout PlutoTV. But this also tells us that there is value in the ad-based business model!
Sure, there will be plenty of people still willing to pay for HBO, or ShudderTV or other streaming giants who are savvy enough to specialize in niche content that minister to one or another under served population. These are wisely positioned companies who are playing or will play the game right and who have sustained themselves even in the shadow of a Goliath like Netflix. But Netflix is going to get it between the eyes I tell you. It's coming.
To prove my point even further, here is a staggering statistic for you... nearly 31 million Americans have never EVER paid for a traditional pay-TV service. Meaning, there are 31 million of you out there who don’t mind commercials! According to a recent report from Viamedia, 80% of Americans in the 21-39 age range spend most of their time streaming, while 78% in the 40-49 age range spent most of their viewing time watching "streaming TV", with Americans over 50 spending about 70% of their time watching cable TV (probably because they are the only ones that can afford it). My point, is that streaming isn't going anywhere. It's just Netflix that is saying bye, bye, bye.