Nothing Can Challenge Netflix

There can be no doubt that Netflix has completely alternated the way people consume entertainment content all over the world.  While that once may have seemed to be a far-fetched notion, it is anything but today, given the service’s remarkable dominance in the field not merely against other streaming services, but even the major movie studios.

Consider that as of this writing, October, 23, 2024, these are the market caps for relevant companies:

• Netflix: $326.68 billion
• Walt Disney Co.: $175.45 billion
• Warner Bros. Discovery: $18.46 billion
• Paramount: $7.31 billion

So why does that matter?

Because the more markets value value a firm, the more access it has to money, and the more access to money it has, the more movies and shows it can produce or acquire.

Consider that Netflix was behind Roma. The Irishman. Marriage Story. Bird Box. The Ballad of Buster Scruggs. Glass Onion: A Knives Out Mystery. The Power of the Dog.

Which means it acquired the services of directors including Alfonso Cuaron, Martin Scorsese, Noah Baumbach, Susanne Bier, the Coen brothers, Rian Johnson, and Jane Campion.

While we might consider these movies “Oscar-bait”—they all had limited runs of at least seven consecutive days in theaters with paying customers in a major metro area—the are also serious “subscriber bait.” In Q2 2024 Netflix added 5.1-million subscribers, or about one million more than investors had anticipated.

To go back to the competitors, while Disney+ has some 150 million subscribers, Max 95 million and Paramount+ 61 million, Netflix has approximately 247 million.

But what does this mean for the claimed disruption?

Well, according to figures from Luminate, in 2024 Netflix has 155 original series on its platform. Max is second, with 26. Then there’s Paramount+ with 17 and Disney+ with just 7.

Simply, Netflix can afford to make more than the others (105 more than the other three services combined), and as Ted Sarandos, Netflix co-CEO, president and director, said during the Q3 earnings call: “when people watch more, they stick around longer. So that’s retention. They talk more about Netflix, which drives acquisition. And they place a higher value on their Netflix subscription.”

It is almost the virtuous circle so far as Netflix’s business goes. The company, Sarandos said, has “an operating model that allows us to create stories in more than 50 countries and thrill audiences of more than 600 million people all over the world.”

So by having that they are able to create films and series in a way that arguably is more efficient than the traditional studios, something underscored by the previously cited valuations of the companies.

Looking forward, Sarandos said, in 2025 there will be new seasons of Wednesday, Squid Game, and Stranger Things. There will be new shows from Shonda Rhimes and Ryan Murphy. And film-wise, another Knives Out, Guillermo de Toro’s Frankenstein, and even another Happy Gilmore movie.

Still, you could say that Netflix is simply a dominant competitor and that’s that.

But it’s more.

When television began to appear in households in the late 1940s and early 1950s, theater owners thought they were doomed: Why would someone not simply sit in their living room and watch a show?

But the thing is, those early screens measured on the order of seven to 15 inches, so it wasn’t much of a display, so not only were the images small, but the so-called “color revolution” in TV didn’t occur until 1965.

So Hollywood studios were able to keep TV from completely disrupting their business by providing Cinemascope and Technicolor, making movies a spectacle in a way that TV couldn’t achieve.

The Hollywood studios are in a similar position today, with their traditional business—filmmaking—and their comparatively new business—video streaming on-demand—under threat. But this time it is difficult to see what their countermoves will be to Netflix’s tremendous generation of new things to watch.

Remember that these traditional companies are all struggling financially, so when Netflix’s chief financial officer said they are anticipating $43 to $44 billion of revenue in 2025, representing a growth of 11 to 13 percent, competitors must be choking on their cappuccinos.

The situation that the likes of Disney, Warner Bros., and Paramount face isnot unlike that of New York City taxi medallions in the mid-teens, when they were valued at as much as $1-million. . .and found them at $25,000 five years later because of Uber.

Uber wasn’t simply a different version of a cab. It took advantage of the digital infrastructure in most people’s pockets.

Cabs couldn’t simply compete with Uber by claiming their drivers drive faster. While they both seem to be providing the same thing—transportation—it is everything around that transportation, from ordering a ride from a phone to paying for it, again, on the phone, that proved to disrupt the cab industry.

Similarly, Netflix isn’t simply an alternative to legacy or cable TV, but it built out an infrastructure of viewing that has made it a different approach to consuming movies and series. And it continues to build with the aforementioned new shows and movies.

The premium subscription level for Netflix in the U.S. right now is $22.99 per month.

The average movie ticket price in the U.S. right now is $11.75.

While you can certainly make an argument to see things  such as spectacles in outer space or in ancient Rome “on the big screen,” there is also a compelling economic argument about seeing the work of some of the leading directors on one’s own screen within days not weeks or months—at a considerable discount.

Consider this: AMC Entertainment Holdings is the largest movie exhibitor in the U.S. and globally. Its current market cap is $1.52 billion—less than 0.5 percent of Netflix’s market cap.

Yes, this will change the way most people watch.