Tuesday, October 17, 2017

Netflix, AT&T, Comcast: Same Strategy?

Netflix strategy has been clear for some time: “Become HBO faster than HBO becomes us.”

By that, Netflix means becomes a source of original programing, not a retransmission or distribution vehicle for third party content.

Not just incidentally, the Netflix strategy sheds light on what AT&T and Comcast have done, despite criticisms of AT&T for doing so. Netflix occupies what formerly were a few distinct roles in the video entertainment ecosystem: content owner, program network and content distributor.

In the old model, programming networks were one segment of the business, while distributors (broadcast TV, cable TV, telco and satellite TV) were in a distinctly-different part of the ecosystem. The content creation business (studio function) was a third role.

But what Netflix has done is create a new position that simultaneously combines those several former roles.

Its investments in original programing make it a content owner, like a studio. Its distribution function (streaming) makes it a distributor. But its total content assets also make it a programming network.

“Our future largely lies in exclusive original content,” says Reed Hastings, Netflix CEO. “Our investment in Netflix originals is over a quarter of our total P&L content budget in 2017 and will continue to grow.”

Netflix already has $17 billion in content commitments “over the next several years” and a growing library of owned content ($2.5 billion net book value at the end of the quarter).

Netflix expects to spend $7 billion to $8 billion on content in 2018.

“Just as we moved from second-run content to licensed originals and then to Netflix-produced originals, we are progressing even further up the value chain to work directly with talented content creators,” Hastings says.

In other words, Netflix, aside from being a content network and a content distributor, now is moving in the direction of becoming a content owner and developer, like a studio.

By buying Time Warner, AT&T is using the same strategy, moving from one role to several: distribution to content creation; distribution to content network.

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