More isn’t better

Netflix is crashing today after last night’s news that subscriber adds were not as many as Wall Street had been expecting. Netflix rarely misses this number, but it has happened before. The stock is prone to massive rallies and selloffs, given revolutionary nature of what they’ve built and the inherent uncertainty involved with building an expensive, sprawling distribution network around the world while simultaneously funding all the content that will populate it.

As Michael showed a few months ago, for every monster winner in the stock market, its beneficiaries have had to endure fairly large drawdowns on the way to those eye-popping gains. It’s rare you can get the former without living through the latter because risk and reward are linked (see ‘My friend is beating me‘).

One thing I wanted to mention is that more is not better. Netflix is spending billions and billions of dollars to create new content. The majority of it literally sucks, totally unwatchable or completely boring. This is because you can’t just mass produce art and there is a finite limit of talent in every industry, a finite limit of good ideas. If you make fifty TV shows or you make one hundred TV shows, you’re probably only going to get five good ones in either case, if you’re lucky.

Then there’s the finite amount of attention people have to sit down and actually watch it. This hasn’t been Netflix’s problem as much as it’s been the problem of the traditional broadcast networks, who rely on viewership and ad revenues. Netflix, in contrast, just has to convince you to subscribe for the first time and then keep you from canceling.

Business models that rely on inertia are better than transactional models (tune in tonight! tune in tomorrow morning!) and this is why subscription-based business models are valued more highly on Wall Street (see the software sector (Salesforce, Adobe) vs the hardware sector (Intel, Cisco) for an example, or Costco vs Target for another example). It’s not an accident that Apple exploded higher recently when it became apparent that the services business embedded within the iCloud / App Store ecosystem would smooth out the time between new phone launches.

Back to Netflix. The company is going to need better shows. HBO is going to go on a rampage under its new management over the next year or so. Disney’s streaming service is on its way in 2019 and they recognize the company’s future is on the line. Amazon will eventually get its content to click, and the audience is already there in the form of a hundred million Prime households. Just producing volume may not be good enough.

But can you scale great writing, directing and acting? Can you manufacture brilliant video content at will? I don’t know. Even Marvel stumbles. Even Lucasfilm stumbles. Pixar f***s up occasionally. It’s not that easy, it’s not just a matter of throwing more money at the problem because everyone is now throwing money around.

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. local service commented on Nov 27

    … [Trackback]

    […] Find More to that Topic: thereformedbroker.com/2018/07/17/more-isnt-better/ […]

  2. td bank easyweb commented on Dec 13

    … [Trackback]

    […] Here you can find 67487 additional Info on that Topic: thereformedbroker.com/2018/07/17/more-isnt-better/ […]

  3. cbd patches for pain commented on Dec 22

    … [Trackback]

    […] Information on that Topic: thereformedbroker.com/2018/07/17/more-isnt-better/ […]

  4. tangerine account log-in commented on Jan 21

    … [Trackback]

    […] Find More Information here to that Topic: thereformedbroker.com/2018/07/17/more-isnt-better/ […]

  5. Rocktron Intellifex LTD manuals commented on Jan 21

    … [Trackback]

    […] Read More Info here to that Topic: thereformedbroker.com/2018/07/17/more-isnt-better/ […]

  6. human hair wigs commented on Jan 24

    … [Trackback]

    […] Here you can find 83622 additional Info on that Topic: thereformedbroker.com/2018/07/17/more-isnt-better/ […]