Get the latest market trends in your inbox

Stay on top of the latest market trends and economic insights with the Axios Markets newsletter. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Catch up on coronavirus stories and special reports, curated by Mike Allen everyday

Catch up on coronavirus stories and special reports, curated by Mike Allen everyday

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Denver news in your inbox

Catch up on the most important stories affecting your hometown with Axios Denver

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Des Moines news in your inbox

Catch up on the most important stories affecting your hometown with Axios Des Moines

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Minneapolis-St. Paul news in your inbox

Catch up on the most important stories affecting your hometown with Axios Minneapolis-St. Paul

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Tampa-St. Petersburg news in your inbox

Catch up on the most important stories affecting your hometown with Axios Tampa-St. Petersburg

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

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.

CliffsNotes:

  • 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

Updated 10 mins ago - Health

U.K. first nation to clear Pfizer coronavirus vaccine for mass rollout

A health care worker during the phase 3 COVID-19 vaccine trial by the Pfizer and BioNTech in Ankara, Turkey, in October. Photo: Dogukan Keskinkilic/Anadolu Agency via Getty Images

The United Kingdom's government announced Wednesday it's approved Pfizer-BioNTech's COVID-19 vaccine, which "will be made available across the U.K. from next week."

Why it matters: The U.K. has beaten the U.S. to become the first Western country to give emergency approval for a vaccine against a virus that's killed nearly 1.5 million people globally.

2 hours ago - World

NYT: Biden won't immediately remove U.S. tariffs on China

President-elect Joe Biden during an event in Wilmington, Delaware, on Tuesday. Photo: Alex Wong/Getty Images

President Trump's 25% tariffs imposed on China under the phase one trade deal will remain in place at the start of the new administration, President-elect Biden said in an interview with the New York Times published early Wednesday.

Details: "I'm not going to make any immediate moves, and the same applies to the tariffs," Biden said. He plans to conduct a full review of the current U.S. policy on China and speak with key allies in Asia and Europe to "develop a coherent strategy," he said.

Trump threatens to veto Defense spending bill over social media shield

Photo: Erin Schaff - Pool/Getty Images

President Trump tweeted Tuesday a threat to veto a must-pass end-of-year $740 billion bill defense-spending authorization bill unless Congress repeals a federal law that protects social media sites from legal liability.

Why it matters: Trump's attempt to get Congress to end the tech industry protections under Section 230 of the Communications Decency Act is the latest escalation in his war on tech giants over what he and some other Republicans perceive as bias against conservatives.