Netflix announced on Tuesday that NBC would not extend its licensing agreement for the hit comedy “The Office” beyond January 2021. NFLX stock shed about 3 percent on the day.
Why is this move significant for Netflix? It all comes down to competition, and ultimately, the company’s economics.
Licensing on Its Way Out
When Netflix first appeared, it had virtually the entire streaming-delivery world to itself. Third-party studios licensed content to Netflix, they made money, and let the streaming content giant grow its subscription base.
As the studios themselves developed their own streaming services, Netflix was forced to pivot into original programming. In order to finance that programming, it has borrowed billions of dollars. Now it has an enormous amount of original programming that subscribers are willing to pay for.
However, Netflix continued to license certain broadly based popular content, such as “The Office.” The idea is that the company would only deploy capital on content that would attract many subscribers. In the old days, it would license just about anything in order to attract people residing in “the long tail.”
NBC obviously knows it can earn more money by offering “The Office” via its own platform vs. just licensing it to Netflix. That will continue to be the case with virtually every hit series. After all, why would a studio continue to offer its own programming to a competitor?
Painted Into a Corner
This is but one area where Netflix is slowly going to be boxed in. After Disney announced its own streaming service a while back, it said it would not extend its Netflix licensing agreement which was also an exclusive deal.
As more and more popular content gets yanked away from Netflix, it must increasingly rely on original programming. Right now, and for the foreseeable future, the company’s apparent approach is going to be to borrow as many billions as it can to produce so much content that nobody can compete with it.
Yet as more competition shows up on the market, consumers are going to start limiting themselves on monthly costs. That means limiting which streaming services they choose.
Netflix Must Make Itself Indispensable
Netflix wants to make itself indispensable. They will have a hard time competing with Disney/Fox, which has so much popular content. Consumers may limit themselves to two services, which means choosing between Apple and HBO or Showtime and Netflix or other big services.
Over the long term, Netflix is going to have to make enough money to pay back all the billions it has borrowed. That means higher prices for consumers, making competition all the more difficult.
So while the loss of “The Office” is not an immediately bearish hit to NFLX stock, investors should be aware that this is the next phase of Netflix being boxed in.
This post was last modified on (Eastern Time): 25/06/2019 21:47
Source : CryptoCoinNews