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Here’s What’s Wrong With the Netflix Business Model

Apr 16, 2019  •  Post A Comment

The way Netflix is running its business leaves something to be desired, according to widely followed tech investor Gene Munster.

CNBC reports that soon after Netflix reported its first-quarter earnings, Munster told the cable channel that the streamer had a “good enough quarter,” but added: “It’s not a good business model.”

Munster commented during an appearance on CNBC’s “Fast Money.”

“He pointed to the fact that Netflix expects its 2019 free cash flow deficit to be negative $3.5 billion,” CNBC notes, quoting Munster, the founder of the venture capital firm Loup Ventures, saying: “At $10 a month they would have to add 30 million [subscribers].”

Munster added: “At the current run rate, that probably puts it toward the end of 2020 before they kind of alleviate that cash burn. Now they can do some things in terms of making some of the content costs a little bit more efficient. But I think that in general more competition is not good for that.”

2 Comments

  1. If Netflix keeps raising its subscription prices (like they have recently), they will wind up with less subscribers, not more. Also cancelling high-profile shows on their service–the reason some people stay with Netflix—isn’t going to benefit Netflix future subscriber base, or future revenue from subscriptions.

    Another problem for Netflix, is they don’t advertise what programming is on their service (when you pull up the Netflix web site). People have to login to Netflix, just to see current programming on their service; or sign up for a free-30 day trial of their service–that will just have to be quickly cancelled.

    Netflix could also benefit from airing their shows on other services, but their exclusivity clause (that prevents shows from airing on other services for several years)—prevents Netflix from making profits from other services from airing their original programming. Other services (like CBS All Access) have already expressed interest in continuing “One Day at a Time” (the Netflix revival that was recently canceled), however other services can’t produce new episodes for several years because of the Netflix exclusivity clause.

    Broadcast stations aren’t interested in rerunning Netflix series, when there are only a few dozen episodes.
    They might be interested in continuing making new episodes for the right Netflix series, which would make it a more valuable property for Netflix—when the series could air in syndication on local stations, generating significantly more revenue for Netflix.

  2. Will Disney be sharing their original programming and vault of historical programming with CBS All Access? When AT&T starts its streaming service, will they share Game of Thrones, VEEP, or Sopranos? For this subscriber business, one of the key assets is exclusive content. Those that have the most content and “quality” original content will be the survivors. The TV networks are going to struggle with the demands of the advertisers and local broadcast stations for ratings based on quality content; and also coming up with quality original content that will draw in and satisfy subscribers. There is a limit to how many services people will pay for. That is why cable is shrinking and subscription networks are currently growing. It is more likely that CBS will be auctioning off episodes of Star Trek and the Good Fight to the highest bidder in a few years, because they won’t be able to support a broadcast and subscription service, with the competition on the subscription side.

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