Theater chains may be on life support by the end of the year so there will never be a better time to buy them...in the role of savior. Shifting sentiment, as seen through price action in equity and debt markets, signals that investors are losing patience with Netflix’s extraordinary cash flow burn ($13 billion since 2011). He was a 5-yr member of FASB's Investors Advisory Committee. The streaming company saw its first major loss of US subscribers (over 130,000 cancellations) while the number of international subscriptions barely reached 50% of what was forecast (2.7 million new paid customers). On the upside, the analysis doesn’t take into account the potential of non-Netflix subscribers to see the films in theaters. Its FCF as a percent of revenue has been double digits or higher in each of the past five years, and positive every year since 2011. I have written extensively on the topic of entertainment, with Creating Blockbusters being my latest book, and have been quoted in a variety of publications and news programs including The New York Times, Los Angeles Times, USA Today, ABC News, and Fox Business. This strategy is meant to attract new customers while keeping existing ones loyal to the brand. While Bill Nye is dubbed “the science guy”, the series Bill Nye Saves the World unashamedly departed from the field of scientific facts to openly promote a radical and highly debatable agenda. Today’s entertainment is completely tone-deaf and off-target. Lots of people with no specific ideological leaning do not want to be preached at or told what to think while consuming entertainment. Who is Chris Pratt’s wife Katherine Schwarzenegger? © 2020 Forbes Media LLC. It is massive. While Netflix’s disastrous loss of viewers could be attributed to a $2 price hike, there is clearly more at play here. Romance, mystery and adventure intertwine as a young man falls in love and a severed hand scours Paris for its owner in this mesmerizing animated film. In fact, they’ve always been more skeptical and assigned Netflix’s debt “Junk” ratings since as early as 2015. Opinions expressed by Forbes Contributors are their own. While these reasons can explain some of the subscriber loss, people at Netflix and mass media sources alike appear to be purposely ignoring the elephant in the room: Lots of people do not agree with or relate to the content that is sold on Netflix. For the Netflix business model to work, subscriber revenue growth has to cover the cost of increased expenditures. In 1950s Italy, a farmer's dream of improving workers’ living conditions collapses when he falls for a landowner's daughter. The more Netflix charges subscribers, the more its competitors can charge. As I stated on CNBC’s Closing Bell on January 16, 2019, Netflix needs over 500 million subscribers at $20/month to justify $350/share. But as I stated in two previous articles found here and here, the market cap of theater chains diminished significantly since the COVID-19 crisis began while Netflix market cap has soared. Inability to Monetize Content While Competition Can. Meanwhile, competitors smell blood in the water. As featured in the HBS & MIT Sloan paper, Core Earnings: New Data and Evidence, our superior data drives uniquely comprehensive and independent debt and equity investment ratings, valuation models and research tools. Indeed, nearly every scene promotes some kind of agenda to its young viewers who are made to relate with Sabrina – a high-school girl who becomes a witch (by giving her soul to Satan). In a defensive move, Disney In the last year, that skepticism has grown, as the yield on its issuances has increased 150 basis points. It is ironic that AMC Theaters, with a market cap of only about $535 million as of May 29, 2020, can dictate terms to Netflix that is about 345x larger with a market cap of $185 billion. The best new thrillers on Netflix in 2019; What’s new on Netflix; 6) The Umbrella Academy. The main reason investors are losing confidence is that Netflix’s subscriber growth has not generated enough revenue growth to cover the increase in content spending. Should debt investors grow more weary of Netflix’s massive cash burn, the liquidity they’ve provided could dry up quickly. The leverage investors need to see in Netflix’s business model has not been present in the past and has still not emerged. But how many of these Netflix viewers might have been motivated to view these prominent films on the big screen if available in major theater chains? That would have added about 10.5% to Netflix’s 2019 net income of $1.86 billion. On the downside, Netflix subscribers may simply wait for these films to be available via streaming. Why? Figure 2: Netflix’s Revenue Growth Lags Spending Growth by 50%. Leading media outlets regularly feature our research. But that regulation is already under review because it no longer applies in today’s world where entertainment is on all platforms. EY & Citi On The Importance Of Resilience And Innovation, Impact 50: Investors Seeking Profit — And Pushing For Change. The Appendix details exactly how we stack up. I can also model such an optimistic scenario, as seen below. Noah Baumbach’s critically acclaimed Marriage Story, starring Scarlett Johansson and Adam Driver, had a limited release in theaters starting Nov. 6 and will be available on Netflix beginning Dec. 6. Not surprisingly, they’re produced by some of the top studios in the business, such as Disney. Netflix would have to maintain this growth rate and margin for the next 17 years simply to justify its current stock price of $322/share. Ultimately, to believe in Netflix at this price, you have to believe that the company can drastically increase its prices (or sign up half the world), reduce the growth in its content spending, and continue to grow its subscriber base at double-digit rates for nearly a decade or longer. 2019 could become the biggest year for cannabis stocks. Netflix must raise prices to make money and stop the huge cash losses, which investors cannot afford to subsidize for much longer. Set your face to cringe. Netflix lost over 133,000 US subscribers in the second quarter of 2019. Netflix needs to prove it can monetize its original content before competition (with decades of monetization success) takes more market share. Miley Cyrus in “Black Mirror” as a Mind-Controlled Pop Star: It’s Not Fiction, The Netflix Series “13 Reasons Why” Linked to a Spike in Suicide Rates, The Deeper Meaning of “Black Mirror: Bandersnatch”, The Sick, Twisted Messages in “Chilling Adventures of Sabrina”. Netflix is set to see some huge releases in 2019 as well as the return of some big shows. Jonathan Klein, former president of CNN, co-founder of Tapp Media, and current president of Vilynx stated such a comparison recently on Bloomberg TV. Caution regarding the exposure of children and adolescents to the series is warranted.”eval(ez_write_tag([[580,400],'vigilantcitizen_com-medrectangle-4','ezslot_1',150,'0','0'])); According to the study, 13 Reasons Why was associated with a 28.9% increase in suicide rates amongst young people directly following its release in April 2017.
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