Netflix Streaming Two New Future Revenue Channels

We have written before about Netflix (NFLX) and how it is much more than just another streaming media company. Its real value lies in its artificial intelligence and ability to target the right content to the right customers.

Netflix is about to target new content to its subscribers with two new additional services.

Netflix is an iconic business because of its nimbleness. Only 15 years ago the company was primarily a mail-order DVD rental business. Customers received fragile plastic discs in the mail that they then inserted into relatively expensive black metal boxes hooked up to the back of their television sets. Looking back, it seems arcane. Yet in the era of Blockbuster Video that business model was considered revolutionary.

Blockbuster and DVDs have all been relegated to the scrap bin of history. It’s mostly because Reed Hastings, Netflix’s founder and chief executive went all-in on digital streaming media. Hastings is a really smart manager, and he is about to start finding new ways to bring in revenue from his large and expanding subscriber base.

The first is live events. Digital is coming to the physical world.

Netflix is near a new deal with the producer of Bridgerton and Grey’s Anatomy that includes live events like costume balls and fan conventions. It could be an important new source of revenue. 

The streamer is pressing its competitive advantage. That’s good for shareholders. 

To be clear, Netflix managers are not reinventing the wheel. Movie business magnates have been building revenue streams around live events since the first traveling roadshows for Charlie Chaplin and Florence Lawrence. Pricey tickets for fan gatherings and events inspired by a popular show or film send revenues straight to the bottom line.

The course change may have something to do with Shanda Rhimes, the creator of Bridgerton, the second most-watched series on Netflix. Rhimes came to the streaming giant in 2018 after a long stint producing hit shows like Grey’s Anatomy and Scandal for broadcasters. Her reported $150 million 5-year pact with Netflix was considered ground-breaking. Her next deal will be significantly larger. 

According to a story at the Hollywood Reporter, the new agreement could range from $300 million to $400 million for 5 years. A significant portion of that payment will come from new revenue streams. A Bridgerton Ball, a lavish film-themed event is planned for November in London.

In addition to feeding profits directly to the bottom line, live events also keep fans engaged as they wait for follow-up seasons for popular shows. 

It’s worth noting that Black Widow, a Disney summer blockbuster film debuted both in theatres and on Disney+ pay-per-view. The Scarlet Johannsen movie earned a staggering $158 million in global ticket sales and an additional $60 million from Disney+ in just its first weekend.

For the first time, Netflix will venture out into the real world to scoop up some of that cash, too.

As well as taking the digital world and moving it into the real world, Netflix is also about to do the same in reverse with gaming.

Netflix now has in excess of 200 million subscribers worldwide. That’s a lot of eyes looking to Netflix to fill spare time. Presently Netflix offers these eyes media content, but it is about to enter the highly lucrative gaming market too.

Gaming is sticky. Done right, it keeps subscribers connected in ways that passively watching content simply can’t match. It also puts the streaming media company in the pole position for the race to the next generation of couch potatoes.

Analysts at NewZoo, a gaming data analytics firm estimate that the global games market will generate $175.8 billion in sales during 2021. Gaming is on track to surpass $200 billion in 2023.

Moreover, millennials are now more likely to choose gaming over watching sports on TV. It’s a culture shift that a smart corporate manager like Hastings was always going to get in front of. 

Hastings joked in 2019 that Fortnite, the wildly popular online multiplayer game, was a bigger threat to Netflix than HBO’s Game of Thrones, then by far the most popular show on TV.

 Expansion into gaming will wisely start on mobile and it will come at no added cost to a Netflix subscription. That’s smart. It feels free and smartphones are where people play games.

In a letter to investors managers, Hastings wrote gaming is merely another new content category, similar to the firm’s expansion into original content, animation and reality TV.

 Netflix has been a great stock through the years. Morningstar lists the 15-year compound growth rate at 40.22%. A $10,000 investment made back in the DVD rental era is worth $1,592,752 today. All investors had to do was trust that Hastings and his managers were building for what came next.

Netflix recently reported earnings and the company missed the $3.16 per share forecast by 17 cents. Paid subscriber growth bested lowered forecasts yet managers were not especially upbeat about new member adds in Q3.

This is an inflection point. Netflix is finding new ways of monetising its subscriber base and Gaming is next. Longer-term oriented members should buy any weakness.