Entertainment has always been a rapidly changing industry. This is how the letter that Netflix sent to its investors at the end of last January begins, when the platform announced that exceeded 260 million subscribers globally. Instead of trying to reinvent the wheel, the technological platform is resorting to a recipe with almost a century of history that, for the moment, has the approval of the market: more live events, with sport as the main reference, new verticals such as video games and the strength of local proposals.
The last week is a clear example of this turn: the company has put its enormous advertising engine into promoting a live tennis match between Rafael Nadal and Carlos Alcaraz organized by the platform in Las Vegas, as well as the broadcast of the american union awards awards of actors last Saturday. The commitment to real-time content leaves behind another of Netflix's old desires: winning the most awards at the Oscars, which will take place this Sunday at the iconic Dolby Theater in Los Angeles. The number of nominations for the firm's productions is proof of the new objectives: of a maximum of 35 nominations in 2021, it now only has 15 possibilities, among which the Spanish one stands out. The Snow Society. The proposals of the American colossus are present in the most coveted categories, such as best film, actor and actress, but without the big names of Martin Scorsese, Robert de Niro or Alfonso Cuarón, who previously led the firm's bets.
“Netflix has become very skilled at diversifying its content and is now taking it one step further,” says Elena Neira, professor and researcher at the Open University of Catalonia. She who points out that the company does not forget its objective of offering “something interesting that adapts” to the consumer at all times. Neira comments that live programming provides a unique and different experience from other forms of entertainment, since it makes the viewer feel part of the event. This has its consequences on the business: these contents, the expert says, favor loyalty and retention much more than video on demand.
The company insists that this is not a radical change in its strategy, but rather a return to its objective of offering entertainment to all its members. Live programming allows the platform to generate and amass large audiences at particular moments, thus capturing the headlines in the press and the conversation on social networks. In addition to this week's examples, the firm has developed other transmissions such as The Netflix Cup, a golf tournament where Formula 1 drivers also participated, and a monologue by American comedian Chris Rock. However, from Los Angeles, where the headquarters of the giant of the streamingthey repeat that they are only beginning to experiment.
Of course, Netflix is not the only company to bet on proposals that until now seemed limited to traditional television. Perhaps the clearest example in Spain is that of Prime Video for Triumph operation. The Amazon universe platform decided to rescue the format after the rejection by RTVE in March 2022, with weekly galas and daily programs that were broadcast entirely through the streaming service. streaming. At a global level, Disney is testing alternatives in the United States to assert the strength of ESPN's television rights. sports network that it has controlled since 1996, in its Disney + and Hulu proposals.
“Everyone is pursuing aggregation,” says Hernán Scapusio, president and co-founder of Agile Content, a technology firm that is behind television services via streaming (OTT) from giants like MásMóvil, Sky and Televisa. “Live programming is a natural terrain to grow in user interest,” he says and provides a piece of information that demonstrates the importance of building user loyalty: while in the United States the average number of subscriptions to video platforms is 4, 5 per family, in Spain this falls to just over half. “Users unsubscribe almost as quickly as they sign up,” says Scapusio.
The approval of the market
The change in model is not coincidental and comes after Netflix became aware of the fury of the markets for the first time. In April 2022, suspicion reached maximum levels: The company plummeted around 40% on the stock market after presenting its worst numbers in a decade. For the first time, the firm announced the loss of subscribers, specifically 200,000, and held those who use its services without being customers directly responsible.
“The previous growth model, focused on adding subscribers, did not contemplate any plan B,” summarizes Neira. After the crisis, the company has opted to increase average revenue per user (ARPU). “Netflix and the rest of the sector are determined not to let the same thing happen to them again, so they are looking for new lines of business, which in this case is associated with new content options,” says this expert, who mentions that this goes beyond live programming and includes everything from advertising to licensing its most popular brands.
The metamorphosis of the model and the opening of new verticals has been quickly applauded by Wall Street. An investment note signed by Goldman Sachs in January of this year praises the commitment to live content “as it will expand the global audience and help generate scale in advertising impressions.” In particular, the US bank applauds the firm's decision for broadcasting WWE content exclusively in various international markets until 2035, an acquisition with a cost that the American press estimates at 5,000 million dollars. “Netflix is expanding into the live events business significantly with the signing of this deal, which may increase its audience and advertising,” also notes Tim Nollen, an analyst at investment giant Macquarie.
The consensus of analysts is very positive: of 60 opinions collected Bloomberg, 65% lean in favor of Netflix, 25% maintain a neutral rating and only 10% advise investors to sell the company's securities. In particular, one of the aspects highlighted by Wall Street is the reduction in costs: spending on new content plunged 25% from 2021. “Netflix could further increase its efficiency by reducing spending on unprofitable projects, directing it instead their place toward those with high impact,” suggests Geetha Ranganahan, a Bloomberg Intelligence specialist.
Martín Piqueras, professor at OBS Business School and expert in digital strategy at Gartner, points out that both companies and the market have understood the value of the sense of community generated by large events that bring together spectators at the same time and place. “Platforms try to build loyalty in everything that is in their ecosystem as a way to sell more and improve customer purchases without risking everything on a specific great movie or series,” highlights Piqueras, while pointing out the great challenge for the future. for the entire sector: “It's time to monetize.”
The first big question is how traditional television, until now the only home of major musical and sporting events, will react to the challenge. “The big chains have decades of experience in counter-programming and promoting their big events,” says Piqueras. However, the market seems not to recognize this strength and is betting on Netflix's triumph in this area. While the platform's shares have gained 93% in the last 12 months, the companies behind the three giants of American television (NBC, ABC and CBS) barely register positive numbers.
The second question is how the survivors of the war streaming They will face the high costs of rights to large live events, especially in sport. “Spending on content continues to be the battlefield and the cost will continue to increase due to competition,” says the research firm Hardman & Co. To mention an example: Telefónica and DAZN acquired the rights to broadcast the Spanish league during five seasons, from 2022-2023, in the local market for a total amount of 4,950 million euros.
However, Netflix keeps an ace up its sleeve to calm the market, since it achieved an operating margin of 21% in 2023, something that distinguishes it from the rest of the competition in the world of entertainment. In fact, the consulting firm Bloomberg Intelligence estimates that the firm will reach 2026 with more than $10.5 billion in free cash flow, almost 10 times more than in 2021. In any case, Ted Sarandos, co-CEO of the company, has already announced last January that, for the moment, it remains cautious before acquiring any high-profile and overly expensive rights, thus avoiding angering the market. Once again, the firm chooses not to reinvent the wheel and balance the clamor of the market with the request of fans looking to have a more fun night.
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