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Netflix has been on an epic stock market run the past year, share prices up 81% to nestle comfortably above $1,200 apiece as it reaps the rewards of definitively beating Hollywood’s traditional studios in the Streaming Wars of the past several years.
Give credit to management’s willingness to pivot, after a disastrous Q1 earnings call three years ago, into ad-supported tiers, a password crackdown, videogame and live events/venues initiatives, and investments in local productions in 50 centers around the world. It’s paid off massively for the company and its investors. This week saw Pivotal Research set a Street-high target price of $1,600 for Netflix shares.
Netflix shares have skyrocketed the past 12 months, to north of $1,200 a piece
But where does the streaming giant go from here if it wants to keep driving growth? The ad tier is launched, and growing slowly, but already bringing in higher average revenue per user than Netflix’s traditional ad-free offerings.
The password crackdown’s boost to subscriber growth is likely largely exhausted, though we won’t know going forward, because the company stopped r0utinely reporting subscriber totalss. In that last December call before it stopped such reporting, the company said it added a whopping 13 million subscribers to puff its global total to 301 million, far larger than any competitor.
So where to go to grow now? Analysts have some thoughts, mostly about the vast collection of wildly diverse talent pumping out episodes on YouTube and other social media, receiving a share of ad revenue and otherwise monetizing their productions with merchandise, sponsorships, live events and other strategies.
That approach has paid off massively for Alphabet-owned YouTube. Nielsen’s The Gauge estimates more than 12% of total watch time is devoted to YouTube programming. Roku released stats that were even higher, as much as 18% of view time.
Wells Fargo analysts released a note earlier in the week setting a $1,500 target price for Netflix, but suggesting it find ways to be a bit more like YouTube.
Wells Fargo Sr. Equity Analyst Steven Cahall said Friday in a CNBC interview that YouTube content, which costs YouTube nothing on the front end, is increasingly grabbing view time with young and even middle-aged consumers. And that’s exactly the kind of programming Netflix should be adding to its portfolio.
“Some of this very, very high value, professional short-form seems like a natural in-between where it still has a big impact on consumers but it’s not quite the really short, mobile-native, user-generated content,” Cahall said.
To grab some of that view time back, Netflix should take a page out of its own playbook from about a decade ago, when it cut nine-figure exclusive deals with prominent showrunners in traditional television such as Shonda Rhimes and Ryan Murphy, Cahall said.
The splashy deals put the industry on notice about Netflix’s ambitions to create high-quality premium content that could contend with anything on broadcast or cable.
“The argument here is they can do the same thing,” Cahall said. “They can go find these really large-scale creators who put a lot of content on YouTube, get a lot of views, and make a lot of money, and they can say, ‘Hey, come to Netflix, you have the same size audience. We’ll pay you money, and you don’t have to take a risk on advertising.”
Such deals will “take money,” though nothing like those Rhimes and Murphy deals of a decade ago. More importantly, Cahall said, “it’s not the same risk profile.” The creators bring their own audience, and deep knowledge about how to connect with and nurture that audience, removing most of the risk of partnering with them.
Certainly, there are plenty of big, long-time online creators who are producing good-quality content at remarkable velocity. In recent months, I’ve interviewed or moderated panels with leaders from such long-time venues as Smosh, Dhar Mann Studios, Buzzfeed Studios, and Pocket.Watch.
Dhar Mann CEO Sean Atkins, a long-time cable TV veteran, said he gives a few tours a week of the company’s extensive production studios in Burbank, Calif., just a couple of miles from the studio lots of Warner Bros., Disney and NBCUniversal. There’s an “oh, sh–” moment on the tour for most of the folks, Atkins said, when they see Dhar Mann’s operations are sprawling enough to need the same golf carts to get around the grounds as on the traditional studios.
At last week’s StreamTV Show conference in Denver, I interviewed Trey Kennedy, an Oklahoma-based comedian who started telling six-second jokes on the long-gone social-video site Vine. Kennedy has long since migrated to TikTok and YouTube for his humor, building an audience big enough that he cut a deal with Hulu for a one-hour comedy special released in January. He has a national comedy tour set for the fall.
Also at The StreamTV Show, I interviewed Laura Martin, managing director and sr. internet & media analyst for Needham & Co., before she gave a highly anticipated keynote address on the show’s last day. YouTube executives took part in multiple panels, and even more discussions at the show revolved around how smaller streamers could leverage YouTube’s reach and audiences to make money on their own premium content.
To Martin, the 100-plus exhibitors and dozens of niche networks on display at the conference are largely ignored by Wall Street because they’re not able to compete at a big enough scale with the two companies that matter most, Amazon and YouTube.
Amazon’s links between advertising and directly selling those advertised products to its couple of a hundred million or so Prime Video subscribers make it one powerful path for the future of video. And YouTube has married oceans of user-generated content with television’s highest-value programming, the NFL, which is available through YouTube TV.
“On the content side, they’re sort of blurring the lines, we sort of think that’s where the world is going writ large,” Martin said. Wall Street looks at the smaller players and wonders, “Why aren’t you talking about short-form, omni-device and influencers, plus -premium content. There’s a real disconnect.”
Martin said both Paramount Global and Warner Bros. Discovery are stuck in a “distracted” place. Paramount is trying to negotiated a lawsuit settlement directly with President Donald Trump over alleged “election interference” for editing a Kamala Harris interview last fall on 60 Minutes. The delays in settling that suit are in danger of putting controlling shareholder Shari Redstone’s National Amusements in default before it can complete an $8 billion sale to a group led by David Ellison and Skydance Entertainment.
WBD, meanwhile, announced last week that it would go ahead with a widely expected split of the company, putting its legacy cable channels such as CNN, TNT, TBS, and Discovery in one unit, along with most of WBD’s $34 billion in debt and a share of the spun-off Studios & Streaming unit. That latter group would include the Max (soon to be renamed HBO Max) streaming service and WBD’s production studios for film, TV and games.
Shepherding that split to reality will leave WBD leadership distracted for a year, Martin estimated, then will have to wait another year before doing any deals, because of tax-minimization strategies.
“I think it’s the wrong strategic move,” Martin said. “We’re not going to be talk about either of those companies for the next two or three years.”
That leaves a “competitive set” of serious streaming players of just four: Netflix, Amazon, Alphabet/YouTube, and Disney.
“The question will be if Disney is too small to compete,” Martin said. “Its (market valuation) is $200 billion, Netflix is $500 billion and the rest are more than $2 trillion.”
For Netflix, grabbing more content from YouTube’s stable might just be a way to keep driving growth, and perhaps even slightly slowing the YouTube juggernaut, mostly by being a bit more like what YouTube has become.
