Back in 2013, Netflix’ Ted Sarandos famously said that “The goal is to become HBO faster than HBO can become us.”
No matter what you feel about the strides made at HBOMax over the past few years, it’s pretty clear that Netflix achieved Sarandos’ goal. It has become the world’s leading video subscription service and absolutely owns the same kind of premium content cachet that always separated HBO from everyone else.
Except for the very prescient work done at Hulu, most of the large media companies didn’t try to “become Netflix” until probably five years ago, as they started to lose real viewership to Netflix (and Amazon Prime).
Of course, if these companies were totally transparent, most would admit that what they were really chasing in Netflix was its market cap. Netflix’ stock market valuation grew extraordinarily over that time period, culminating at just a shade under $700 billion.
That market cap number always came up when anyone in the press or at conferences were discussing the big streaming launches of the major television and movie companies (HBOMax, Disney+, Paramount+, Discovery+, etc.).
Those media companies were trading on multiples of profits and cash flow — and all wanted to be traded just like Netflix, at an enormous multiple to revenue and subscribers, with scant attention to profit. Of course, the potential that they each might be bought for a comparable multiple by one of the big tech/video players was a big driver as well.
How quickly times have changed. Today, Netflix has a market capitalisation of $138 billion. The large TV media companies are each losing billions and billions investing in their platforms, massively cannibalising their linear TV offerings and cinematic releases to ensure differentiation and focus for their streamers. Each of their market caps is also just a fraction of where they were a few years before.
Netflix is now quite profitable, with annualised profits in the $6 billion to $8 billion range — and, incredibly, has done that all with only a single revenue stream: viewer subscriptions. With Netflix’s recently launched advertising tier, we can only expect profits to go up if the Hulu model is any guide. Hulu makes more money on those who both pay a lower fee and take ads than those who pay premium subscription fees for an ad-free experience.
The shift of strategy at the big media companies from optimising to be just like Netflix to achieve its stock market multiple to now be more like they used to be — all about cash flow — is having wrenching effects on the entire ecosystems.
The strategies of the large TV media companies of the past few years accelerated audience shifts to streaming, which meant that billions of dollars of distribution fees were lost. Now, there is a question on whether billions of dollars of advertising will be lost. For sure, many, many thousands of jobs have been lost, and that is likely to only accelerate.
I do believe that the best TV media companies will not only survive, but will thrive, as they make these shifts. But it won’t be easy, and it won’t be pretty.
What do you think?
Dave Morgan is the CEO of Simulmedia in New York. Previously, he founded and ran both TACODA and Real Media.This post was first published by MediaPost.com and is republished here with the author’s permission.
