Moneycontrol
Aug 10, 2017 01:56 PM IST | Source: Moneycontrol.com

After its break-up with Disney, Netflix is trying to pick up the pieces and how

Disney's announcement to pull its content from Netflix and launch its own video streaming platform got the investors worried. Find out how Netflix is dealing with the split.

After its break-up with Disney, Netflix is trying to pick up the pieces and how

Moneycontrol News

When Disney left Netflix to launch its own video streaming platform on Tuesday, the on-demand OTT player was having a hard time. Shares of the company fell more than 2 percent on Wednesday. But, analysts are still betting on Netflix and say that it is one of market’s best performing stocks.

The 20-year-old company is not losing heart and is bracing itself to become the content king. Netflix recently acquired comic book publisher Millarworld, the firm’s first acquisition since inception. It is this publisher that is behind ‘Kingsman’, ‘Kick-Ass’ and ‘Old Man Logan’. The founder of the publisher, Mark Millar, came up with the ideas that led to the first Avengers movie, Captain America: Civil War, and Logan (Wolverine).

The after-effects

After the Disney-Netflix break-up a few analysts are of the opinion that this separation may lead to more content owners looking to retain content for their own platforms. As per a CNBC report, there are concerns that Netflix may lose television content from Disney, which owns ABC and Marvel, in the future. According to an analyst, “Disney’s announcement indicates incremental DTC [direct to consumer] streaming competition, particularly for kids audience.”

How is Netflix dealing with the separation?

Netflix is producing original content. Investment banking company Piper Jaffray told its clients Netflix's international subscriber base will nearly double in three years from the current 52 million, reports CNBC.

"Our analysis suggests that Netflix can reach 100 million international subscribers by 2020, with zero or very minimal penetration in lower-income international markets," said analyst Michael Olson.

The analyst presented a number of scenarios where the streaming video company can reach the 100 million subscriber level by 2020. He noted if Netflix can attain only 25 percent share of upper-income segment [above USD 18,600 per year] in international markets, it can reach the 100 million mark with no share of the lower-income demographic.

Olson also told investors to stick with Netflix because it will find a way to use the amount spent on Disney programming (rumored to be around USD 200 million annually) to create more exclusive content.

Netflix added a better-than-expected 5.2 million total subscribers during the second quarter compared with the Wall Street consensus for 3.2 million. It now has 104 million total subscribers.

Netflix’s very first acquisition and its content generation strategy

To move on from just licensing content, Netflix has come up with original content and has produced 50 original shows. Taking this idea further, the company bought Millarworld for USD 50 million- 100 million, according to media reports. What it expects to do with this acquisition is to bank on the publisher’s properties, like Jupiter's Circle, Reborn, and Empress. This new addition will give Netflix more opportunities to hold intellectual property rights and make it less dependent on others for content.

But, will original content weigh heavy on Netflix?

It seems like the content generation strategy is burdening Netflix as in the July earnings call the company announced a debt of about USD 4.8 billion. Despite the debt, the company shows no sign of slowing down on spending for original content and this year it may shell out USD 6 billion for new projects.

Speaking to Los Angeles Times, Netflix Chief Executive Reed Hastings had said, "The irony is the faster that we grow and the faster we grow the owned originals, the more drawn on free cash flow that we'll be." The company is hoping to bring 50 percent of its own content on the platform.
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