Aug 28, 2018

The business of Netflix

Illustration: Rebecca Zisser/Axios

Matthew Ball, the former head of strategy for Amazon Studios who is considered one of the most authoritative voices on big media business — particularly streaming, just published Part 4 of his Media REDEF series explaining the business of Netflix.

The bottom line: Most view Netflix's massive spending as reckless, but Ball argues it isn't if you consider how it's driving an unprecedented growth that could eventually allow Netflix to surpass Facebook in engagement and Pay-TV in penetration. At that point, they will have the leverage to increase prices, bringing them closer to profitability and making the massive spend worthwhile.


  • Part 1: Netflix spends roughly 50% more on content than is reported, which matters because its cash content spend tends to be substantially larger than the content costs that they recognize in that same year and cash spend is the only effective way to assess how Netflix’s growth expectations are changing.
  • Part 2: Netflix is as much a tech and product company as Facebook or Amazon, even though it invests most of its money on content. It focuses on its video compression algorithms (bandwidth varies by show), its distribution (apps are widely available, even on devices like treadmills), and its A/B tested covert art. Together these help maximize the number of "hours per subscriber per month,” its key performance indicator.
  • Part 3: Netflix doesn't want to be the leader in video, it wants to monopolize the consumption of video; to become TV. Free of structural limitations of linear TV, Netflix’s output is bound only by the company’s ambition, measured by content spend and its ability to attract audience — both of which are unprecedented. This creates a feedback loop for Netflix, helping them cost effectively retain a larger group of customers with a given title than its competitors.
  • Part 4: Netflix has a wide definition of "originals," which includes “Developed Originals,” “Acquired Original," “Co-Licensed Originals," “Licensed Originals," and “Licensed Series." Its liberal use of the term creates a comparative branding problem for its competitors. Netflix uses original programming as a service differentiator, maximizing the total number of originals they release.

Go deeper

New Zealand sets sights on coronavirus elimination after 2 weeks of lockdown

Prime Minister Jacinda Ardern gives a coronavirus media update at the New Zealand Parliament in Wellington. Photo: Mark Mitchell - Pool/Getty Images

AUCKLAND -- New Zealand has flattened the curve of novel coronavirus cases after two weeks of lockdown and the next phase is to "squash it," Professor Shaun Hendy, who heads a body advising the government on COVID-19, told Axios.

Why it matters: The country imposed 14 days ago some of the toughest restrictions in the world in response to the pandemic, despite confirming only 102 cases and no deaths at the time.

Go deeperArrow31 mins ago - Health

Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 2:30 a.m. ET: 1,431,375 — Total deaths: 82,145 — Total recoveries: 301,543Map.
  2. U.S.: Total confirmed cases as of 2:30 a.m. ET: 399,886 — Total deaths: 12,910 — Total recoveries: 22,461Map.
  3. Federal government latest: Acting Navy secretary resigns over handling of virus-infected ship — Trump removes watchdog overseeing rollout of $2 trillion coronavirus bill — Trump said he "didn't see" memos from his trade adviser Peter Navarro warning that the crisis could kill more than half a million Americans.
  4. States latest: California Gov. Gavin Newsom is confident that more than 200 million masks will be delivered to the state "at a monthly basis starting in the next few weeks."
  5. Business latest: America's food heroes in times of the coronavirus crisis. Even when the economy comes back to life, huge questions for airlines will remain.
  6. World updates: China reopens Wuhan after 10-week coronavirus lockdown.
  7. 2020 latest: Polls for Wisconsin's primary elections closed at 9 p.m. ET Tuesday, but results won't be released until April 13. Thousands of residents cast ballots in person.
  8. 1 Olympics thing: About 6,500 athletes who qualified for the Tokyo Games will keep their spots in 2021.
  9. What should I do? Pets, moving and personal healthAnswers about the virus from Axios expertsWhat to know about social distancingQ&A: Minimizing your coronavirus risk.
  10. Other resources: CDC on how to avoid the virus, what to do if you get it.

Subscribe to Mike Allen's Axios AM to follow our coronavirus coverage each morning from your inbox.

Tariff worries hit record high amid coronavirus outbreak

Data: CivicScience, margin of error ±1 percentage points; Chart: Axios Visuals

Concern about President Trump's tariffs on U.S imports grew to record high levels among Americans last month, particularly as more lost their jobs and concern about the novel coronavirus increased.

Driving the news: About seven in 10 people said they were at least somewhat concerned about tariffs in March, according to the latest survey from CivicScience provided first to Axios.