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.

TV Channels of the Future - AtticTV Pte Ltd from Johnson Goh

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.