Jun 15, 2018

The economics of Netflix

Bottom line: Netflix is currently losing a lot of money (in free cash flow). The stock still soars, because many people believe it's a marathon, and we haven't even crossed the 5km mark yet. That's impossible to know and a question of belief, but it is very interesting to see how Netflix follows a third model between film studios and TV networks.
In Hollywood, 6% of the films account for half the profit (what I always call casino business, basically), and that is sold tickets at the box office. TV is different from that, with better risk distribution, but still depending directly on how many people tune in, and how that slot is sold to advertisers. And then there's Netflix. Revenue is not directly linked to who watches how much of what, but more on attracting and retaining subscribers, so a series or movie that works fantastic in a small niche may be worth more than one that many people "like" to see, but don't love. A very interesting blog post about "Netflix economics":